CITIZENS UTILITIES COMPANY
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1999
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999 Commission file number 001-11001
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
CITIZENS UTILITIES COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 06-0619596
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3 High Ridge Park
P.O. Box 3801
Stamford, Connecticut 06905
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(Address, zip code of principal executive offices)
Registrant's telephone number, including area code: (203) 614-5600
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Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.25 per share New York Stock Exchange
Guarantee of Convertible Preferred Securities of Citizens Utilities Trust New York Stock Exchange
Citizens Convertible Debentures N/A
Guarantee of Partnership Preferred Securities of Citizens Utilities Capital L.P. N/A
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(Title of each class) (Name of exchange on which registered)
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Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 29, 2000 was $3,895,575,671.
The number of shares outstanding of the registrant's Common Stock as of February
29, 2000 was 262,924,506.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the registrant's 2000 Annual Meeting of Stockholders to
be held on May 18, 2000 is incorporated by reference into Part III of this Form
10-K.
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TABLE OF CONTENTS
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PART I
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Item 1. Description of Business 2
General Development of Business 2
Financial Information about Industry Segments 2
Narrative Description of Business 3
Communications 3
Electric Lightwave 5
Acquisitions and Investments 8
General 8
Financial Information about Foreign and Domestic
Operations and Export Sales 9
Item 2. Description of Property 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to Vote of Security Holders 11
Executive Officers 11
PART II
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Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 25
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 25
PART III Incorporation by Reference to the 2000 Proxy Statement 25
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PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 25
Signatures 29
Index to Consolidated Financial Statements F-1
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PART I
Item 1. Description of Business
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This annual report on Form 10-K contains forward-looking statements that
are subject to risks and uncertainties which could cause actual results to
differ materially from those expressed or implied in the statements. Further
discussion regarding forward-looking statements, including the factors which
may cause actual results to differ from such statements, is located in
Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in this report.
(a) General Development of Business
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The "Company" includes Citizens Utilities Company and its subsidiaries except
where the context or statement indicates otherwise. The Company provides,
through subsidiaries, communications services primarily to rural and suburban
customers throughout the United States, and competitive local exchange carrier
(CLEC) services to retail business customers and to other communications
carriers through its 82% owned subsidiary, Electric Lightwave Inc. (ELI).
The Company was incorporated in Delaware in 1935 to acquire the assets and
business of a predecessor public utility corporation. Since then, the Company
has grown as a result of investment in owned operations and from numerous
acquisitions of additional communications and public utility operations.
During 1998, the Company announced its intent to separate its telecommunications
and public utility operations into two stand-alone publicly traded companies.
This separation was being made in recognition of the different investment
features, performance criteria, capital structures, dividend policies, customer
requirements and regulatory designs of each business, and would allow each
business to pursue its own strategy and compete more effectively in its
respective markets. During 1999, opportunities became available to acquire
telephone access lines that meet the Company's investment criteria while the
private market valuations for public utility operations increased. Accordingly,
the Company abandoned its separation strategy and announced its intention to
acquire telephone access lines and divest its public utility operations by sale.
The Company continues to expand through internal investment in its telephone and
CLEC operations and acquisition of additional communications operations. The
Company's new subsidiary, Citizens Capital Ventures will explore opportunities
to build and support internet based communications solutions to achieve
synergies with the systems and content sides of our business. To enable the
strategy, the Company has assembled a management team skilled in wireline,
wireless, cable and Internet technology and marketing skills.
Between May and December 1999, the Company announced that it had entered into
agreements to purchase approximately 911,000 telephone access lines for $2.8
billion (See Acquisitions and Investments in section (c) below). In October
1999, the Company announced the sale of its water and wastewater treatment
businesses for $835 million and in February 2000 announced the sale of its
electric businesses for $535 million. The proceeds from these sales, along with
the planned sale of the Company's gas businesses, will be used to permanently
fund telephone access line purchases. The Company's financial resources and
operating performance enable it to make the investments and conduct the
operations necessary to serve growing areas and to expand through acquisitions.
(b) Financial Information about Industry Segments
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The Company traditionally measured its segments by service (Communications, ELI,
Gas, Electric, Water and Wastewater). The Gas, Electric, Water and Wastewater
segments have been discontinued and are no longer presented. As the Company
becomes solely a telecommunications provider, the measurement of segments will
evolve to be more representative of the Company's business activities.
Note 16 of the Notes to Consolidated Financial Statements included herein sets
forth financial information about industry segments of the Company for the last
three fiscal years.
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(c) Narrative Description of Business
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COMMUNICATIONS
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Through its subsidiaries, collectively known as Citizens Communications, the
Company provides both regulated and competitive communications services to
residential, business and wholesale customers. Communications services consist
of local network services, network access services, long distance services,
directory advertising, centrex, custom calling and caller ID services, paging,
cellular, Internet access, voice mail and conference calling and cable
television services. The Company provides local network services to the
following approximate number of access lines in the following states:
Local Network
State Access Lines
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New York 330,500
West Virginia 152,200
Arizona 147,900
California 136,500
Tennessee 101,800
Nevada 27,300
Wisconsin 25,700
Utah 22,800
Idaho 21,100
Oregon 14,800
Montana 8,600
New Mexico 6,200
Pennsylvania 1,400
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Total 996,800
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The Company provides network access services and billing and collections
services primarily to AT&T Corporation, MCI WorldCom, Inc. and Sprint
Corporation. The Company is also enhancing its network support systems to offer
local resale capabilities in its local exchange franchise serving areas to
emerging CLECs.
The Company owns a one-third interest and is general managing partner of Mohave
Cellular, a cellular limited partnership, currently operating twelve cell sites
in Arizona. By year-end 2000 the partnership expects to be operating seven
additional sites.
Strategy
The Company's traditional telephone operations and those of ELI will be operated
in close conjunction with each other to become a total communications provider
of voice, data, text and image services to enable our communities to have
24-hour access to the world, with the Company having the ability to satisfy all
of its customer's communications needs. The Company is increasing service
levels, product availability and adding customers through customer growth,
acquisitions and the planned expanded use of ELI's national broadband network
(see ELI discussion). To better serve our expanding customer base, the Company
is migrating to a regional operational structure. This will put management and
operating resources closer to the customer and solidify commitments to
communities served.
Regulatory Environment
Local Exchange Competition
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The Telecommunications Act of 1996 (the 1996 Act), which became law in February
1996, is dramatically changing the telecommunications marketplace, including the
rural areas served by the Company. The Federal Communications Commission (FCC)
and many state regulatory agencies are conducting extensive rule-making
proceedings to implement the Act. New and proposed FCC and state rules have
impacted, and will continue to impact, the Company's operations.
The primary thrust of the 1996 Act was to open local telecommunications markets
to competition while preserving universal telecommunications service. The 1996
Act and subsequent FCC interconnection decisions established the relationships
between Incumbent Local Exchange Carriers (ILECs), such as the Company and
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Competitive Local Exchange Carriers (CLECs), such as the Company's subsidiary
ELI, and the mechanisms for competitive market entry. Though smaller carriers
like Citizens, who serve predominantly rural markets, did receive a qualified
exemption from some of the technical requirements imposed upon all ILECs for
interconnection arrangements, the Company did not receive an exemption from
interconnection or local exchange competition in general. The exemption, which
is known as the rural telephone company exemption, continues until a bona fide
request for interconnection is received from a CLEC, and a state regulatory
commission with jurisdiction determines that discontinuance of the exemption is
warranted. The state commission must determine that discontinuing the exemption
will not adversely impact the availability of universal service in the state nor
impose an undue economic hardship on the Company, and that the requested
interconnection is technically feasible.
Under the 1996 Act and subsequent FCC rules, a CLEC can compete using one or
more of three mechanisms. The first is by construction of its own local exchange
facilities, in which case the ILEC's sole obligation is interconnection for
purposes of traffic interchange. The second allows CLECs to purchase unbundled
network elements (UNEs) at cost from the ILEC and assemble them into local
exchange services and/or supplement the facilities it already owns. The third is
by resale of the ILEC's retail services purchased at wholesale rates from the
ILEC. Since passage of the 1996 Act, Citizens has received over 172 requests for
interconnection. Over 50 individual competitors are operating in the Company's
markets. These competitors are mainly serving internet service providers and a
few large business customers. Some competitors have taken advantage of the
ILEC's requirement to pay the CLEC reciprocal compensation for traffic delivered
to the CLEC. The explosion of the internet has provided CLECs with an immediate
mechanism to build traffic and reciprocal compensation revenues. The Company's
rural markets have limited the impact of reciprocal compensation, but additional
threats are expected as CLECs begin to move into second and third tier markets.
In 1999, the Company paid approximately $160,000 in reciprocal compensation.
However, the Company has signed additional reciprocal compensation agreements
and has several pending that will increase reciprocal compensation in 2000.
While Citizens Communications is a reciprocal compensation payor, ELI is a
reciprocal compensation receiver. The Company expects the impact of reciprocal
compensation in the future to be somewhat mitigated by lower interconnection
rates and the spread of Digital Subscriber Line (DSL) and other network services
that allow customers to obtain a direct link to the internet at a lower cost.
These types of non-switch arrangements are not expected to be subject to
reciprocal compensation.
After being overturned by the United States Court of Appeals for the Eighth
Circuit, the FCC's rules providing guidance to the states on the minimum
required UNEs and the pricing of interconnection services were reinstated by the
United States Supreme Court (the Court) in 1999. The Court's decision also
remanded to the FCC for further consideration the articulation of the minimum
required UNEs. Late in 1999, the FCC issued its order on the remand. That order
designated almost all of the earlier designated UNEs as a minimum requirement
and promulgated several new ones. Of the newly designated UNEs, the one that
could have the greatest impact upon the Company is known as line sharing. Line
sharing requires the Company to make the necessary arrangements to allow
competitive DSL providers to access the data portion of each of the Company's
local dial tone lines. What this means is that competitors could provide DSL
service to Company's customers without having to also provide voice grade
services.
Universal Service Reform
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Under the 1996 Act, the FCC was charged with the task of transforming the
historical implicit subsidy mechanisms into an explicit arrangement, which would
be funded in a nondiscriminatory manner by all telecommunications providers.
Historically, ILEC rates for non-basic services were set high to offset below
cost rates for basic services, predominantly local residential services.
However, regulatory and legislative mandates combined with competitive pressures
dictate that prices for all telecommunications services become more aligned with
their cost. In October 1999, the FCC established a new universal service
mechanism for non-rural carriers. As a rural carrier, the Company is not subject
to the new mechanism, and will continue to receive universal service funds under
the current embedded cost based universal service fund. In 2000, the FCC is
expected to begin reviewing alternatives for a new universal service program for
rural carriers.
Price Cap Reform
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Price cap regulation is a form of rate regulation in which the interstate rates
of affected ILECs are subject to maximums that are periodically adjusted
according to a mechanism contained in the FCC's rules. The mechanism adjusts
rates each year by the inflation rate less a productivity factor known as the
X-factor. The FCC last set the X-factor at 6.5% effective on July 1, 1996 by the
Price Cap Reform Order issued in May 1997. Price cap carriers are allowed to
retain all earnings generated by operating at or below the capped rates. In this
manner, affected ILECs are rewarded for achieving operating efficiencies. The
Company has elected to be subject to price cap regulation.
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In 1999 the Court, in a decision that will take effect on April 1, 2000, vacated
the FCC's May 1997 Price Cap Reform Order. The Court found that the FCC had not
properly supported their calculation of the 6.5% X-factor and then remanded the
calculation of the X-factor to the FCC for further consideration and
articulation. The FCC is currently reviewing this matter and is expected to
issue an order before April 1, 2000 establishing a revised X-factor. The revised
factor should become effective on July 1, 2000. It is possible, but unlikely
that, the new factor will be retroactively applied to July 1, 1996.
Regional Bell Operating Company Long Distance Entry
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Under the 1996 Act the Regional Bell Operating Companies (RBOCs) were precluded
from competing in most long distance markets until they satisfied the state
regulatory authority with jurisdiction and the FCC that their markets had been
sufficiently opened to local exchange competition. In October 1999, the New York
Public Service Commission (NYPSC) determined that Bell Atlantic's markets in the
state were sufficiently open to local exchange competition, and recommended to
the FCC that Bell Atlantic be granted approval to enter all long distance
markets in the state. In December 1999, the FCC concurred and allowed Bell
Atlantic to begin offering all long distance services to its customers in New
York. Since the Company currently offers long distance service in New York, it
is possible that the entry of Bell Atlantic into this market could impact the
Company's operations. The FCC and other states may take similar actions for
other RBOCs and states during 2000.
Competition
As discussed more fully in Regulatory Environment, in each of the Company's
markets, there is the potential for competition from several sources including,
but not limited to, other ILECs for local network services; CLECs for enhanced
data and Internet services; Long distance providers including AT&T Corporation,
MCI WorldCom and Sprint Corporation, as well as, other communications businesses
who provide an array of other communications services including cable television
companies (CATVs), electric utilities, international carriers, satellite
carriers, teleports, microwave carriers, wireless telephone system operators and
private networks built by large end users. Although the potential for
competition exists in many forms, the Company is the dominant ILEC in all of its
service territories, and believes itself to be well positioned to manage
competitive threats.
ELECTRIC LIGHTWAVE
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ELI is a facilities-based integrated communications provider providing a broad
range of communications services to businesses. ELI provides the full range of
products and services, including switched local and long distance voice
services, enhanced data communications services and dedicated point-to-point
services, in the western United States. ELI markets in the western United States
to retail business customers, who are primarily communications-intensive
organizations, and nationally to wholesale customers, who are communications
carriers themselves.
ELI currently provides the full range of its services in seven major cities and
their surrounding areas, including:
Boise, Idaho Phoenix, Arizona
Portland, Oregon Sacramento, California
Salt Lake City, Utah Seattle, Washington
Spokane, Washington
The major cities include an extensive network of approximately 1,871 route miles
of fiber optic cable installed to create a series of Synchronous Optical Network
(SONET) rings, which provide a higher degree of stability and dependability.
Switched service, including local dial tone, is provided from 8 Nortel DMS 500
switches in the primary major cities. ELI also has transmission equipment
colocated with switches of the ILEC at 55 locations.
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ELI has broadband data points of presence in its major cities as well as other
strategic cities across the United States, including:
Atlanta, Georgia Austin, Texas
Chicago, Illinois Cleveland, Ohio
Dallas, Texas Denver, Colorado
Houston, Texas Las Vegas, Nevada
Los Angeles, California New York, New York
Philadelphia, Pennsylvania San Diego, California
San Francisco, California Washington, D.C.
ELI has developed an Internet backbone network with 42 routers providing
Internet connectivity in each of its markets, including presence at all major
network access points and over 125 "peering arrangements" with other Internet
backbone service providers. A peering arrangement is an agreement where Internet
backbone service providers agree to allow each other direct access to Internet
data contained on their networks. In addition, ELI's broadband network consists
of 32 frame relay switches, 23 Asynchronous Transfer Mode (ATM) switches and 77
network-to-network interfaces. National and international coverage is provided
through strategic relationships with other communications providers.
ELI owns or leases broadband long-haul fiber optic network connections between
its major cities in the west and its strategic markets across the nation. By
carrying traffic on ELI's own facilities, ELI is able to maximize the
utilization of its network facilities and minimize network access and certain
interconnection costs. As of December 31, 1999, ELI operated long-haul networks
with a total route mileage of 2,181 miles, including routes between Phoenix and
Las Vegas; Portland and Seattle; Portland and Spokane; Portland and Eugene;
Portland and Boise and Boise and Salt Lake City. During 1998, ELI began
construction of what it believes will be the largest ringed SONET in the western
United States. The approximately 3,200 mile self-healing ring is expected to be
completed in 2000 and will connect Portland, Sacramento, San Francisco, Los
Angeles, Las Vegas, Salt Lake City and Boise and will include Dense Wave
Division Multiplexing (DWDM) equipment. DWDM is a technique for transmitting 16
or more different light-wave frequencies on a single fiber to increase
transmission capacity.
In the development of ELI's long-haul facilities, ELI has formed strategic
relationships with utility companies that enable ELI to (i) utilize existing
rights-of-way and fiber optic facilities, (ii) leverage their construction
expertise and local permitting experience and (iii) minimize capital
requirements in order for ELI to extend its network infrastructure more quickly
and economically. In addition to the long-haul agreements, another agreement
provides for a fiber optic network in the Phoenix, Arizona metropolitan area.
ELI entered into a fiber-swap agreement during 1999 which exchanges unused fiber
on its network for unused fiber on another carrier's network. This exchange will
provide ELI with a fiber route from Salt Lake City to Denver and continuing on
to Dallas. ELI anticipates incorporating the other carrier's fiber into its
network during 2000.
US West Communications, Inc. (US West) accounted for approximately 19% of ELI's
revenue in 1999. The revenue from US West consisted primarily of reciprocal
compensation relating to the transport and termination of traffic between US
West's network and ELI's network and an 18 month take-or-pay agreement.
The following table represents certain operating information relating to ELI:
1999 1998 1997
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Route miles* 4,052 3,091 2,494
Fiber miles* 214,864 181,368 140,812
Buildings connected 824 766 610
Access line equivalents 161,555 74,924 34,328
Switches and routers
installed:
Voice 8 7 5
Frame Relay 32 23 20
Internet 42 24 17
ATM 23 14 8
Customers 2,371 1,644 1,165
* Route miles and fiber miles also include those to which ELI has exclusive use
pursuant to license and lease arrangements.
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Strategy
While ELI expects additional network growth in 2000, especially with the
completion of its long-haul routes, the primary focus in the next year is
targeted at increasing the use of its installed asset base. ELI expects a
substantial portion of its growth to come from increased penetration of existing
on-net buildings, a focus on sales to customers that are connected to the
network and an increase in market share in ELI's seven major cities and
surrounding areas. ELI anticipates a higher volume of sales to other carriers
with the completion of its long-haul routes.
Regulatory Environment
As a common carrier, ELI is subject to federal, state and local regulation. The
FCC exercises jurisdiction over all interstate communications services. State
commissions retain jurisdiction over all intrastate communications services.
Local governments may require ELI to obtain licenses or franchises regulating
the use of public rights-of-way necessary to install and operate its networks.
Telecommunications Act of 1996
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With the passage of the Telecommunications Act of 1996, the increase in customer
demand for enhanced broadband data services and the development of competitive
public data and voice networks, ELI has substantially expanded the breadth of
its product offering and its geographic reach in the last five years. This
includes expanding the number of local fiber networks from two to seven cities
in the west and development of the data and Internet network across the U.S.
(See additional information related to Telecommunications Act of 1996 in
Communications section above).
ELI has various interconnection agreements in the states in which it operates.
These agreements govern reciprocal compensation relating to the transport and
termination of traffic between the ILEC's and ELI's networks. On February 25,
1999, the FCC issued a Declaratory Ruling and Notice of Proposed Rulemaking that
categorized calls terminated to Internet Service Providers (ISPs) as "largely"
interstate in nature, which could have the effect of precluding these calls from
reciprocal compensation charges. However, the ruling stated that ILECs are bound
by the existing interconnection agreements and the state decisions that have
defined them. The FCC gave the states authority to interpret existing
interconnection agreements. Since the FCC order, Oregon, Washington, California
and Arizona have ruled that calls terminated to ISPs should be included in the
calculation to determine reciprocal compensation.
State Regulation
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Most state public utilities commissions require communications providers, such
as ELI, to obtain operating authority prior to initiating intrastate services.
Most states also require the filing of tariffs or price lists and/or
customer-specific contracts. In the states in which ELI currently operates, ELI
is not subject to rate-of-return or price regulation. ELI is subject, however,
to state-specific quality of service, universal service, periodic reporting and
other regulatory requirements, although the extent of such requirements is
generally less than that applicable to ILECs.
Competition
ILEC Competition
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ELI faces significant competition from the ILECs in each of its facilities-based
markets. The ILECs currently dominate the local exchange market and are a de
facto monopoly provider of local switched voice services. Primary ILEC
competitors are US West, PacBell and GTE Corp. (GTE). ILECs have long-standing
relationships with their customers and have financial and technical resources
substantially greater than those available to ELI.
CLEC Competition
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Facility-based operational CLEC competitors in ELI's markets include, among
others: AT&T Local Services, GST Telecommunications, MCI WorldCom, Inc. and
NEXTLINK Communications. In each of the markets in which ELI operates, at least
one other CLEC, and in some cases several other CLECs, offer many of the same
local communications services, generally at similar prices.
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Competition From Others
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Potential and actual new market entrants in the local communications services
business include RBOCs entering new geographic markets, Inter Exchange Carriers
(IXCs), CATVs, electric utilities, international carriers, satellite carriers,
teleports, microwave carriers, wireless telephone system operators and private
networks built by large end users. In addition, the current trend of business
combinations and alliances in the communications industry, including mergers
between RBOCs, may increase competition for ELI. With the passage of the 1996
Act and the entry of RBOCs into the long distance market, IXCs may be motivated
to construct their own local facilities or otherwise acquire the right to use
local facilities and/or resell the local services of ELI's competitors.
Network Services
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Competition for network services is based on price, quality, network
reliability, customer service, service features and responsiveness to the
customer's needs. ELI's fiber optic networks provide both diverse access routing
and redundant electronics, which affords ELI a competitive advantage.
High-Speed Data Service
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Competitors for high-speed data services include major IXCs, other CLECs and
various providers of niche services (e.g., Internet access providers, router
management services and systems integrators). The interconnectivity of ELI's
markets may create additional competitive advantages over other data service
providers that must obtain local access from the ILEC or another CLEC in each
market or that cannot obtain intercity transport rates on terms as favorable as
those available to ELI.
Internet Services
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The market for Internet access and related services in the United States is
extremely competitive, with barriers to entry related to capital costs,
bandwidth capacity and internal provisioning and operations processes.
Competition is expected to intensify as existing services and network providers
and new entrants compete for customers. In addition, new enhanced Internet
services such as managed router service and web hosting are constantly under
development in the market, and additional innovation in this market is expected
by a range of competitors. ELI's current and future competitors include
communications companies, including the RBOCs, IXCs, CLECs and CATVs, and other
Internet access providers.
ACQUISITIONS AND INVESTMENTS
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In January 1999, Centennial Cellular Corp. was merged into a corporation created
by Welsh, Carson, Anderson & Stowe. The Company received approximately
$205,600,000 in cash for all its Common Stock interests and approximately
$17,500,000 related to accrued dividends on the preferred stock.
On May 27, September 21 and December 16, 1999, the Company announced that it had
entered into definitive agreements with GTE to purchase approximately 366,000
(as of December 31, 1999) access lines located in Arizona, California, Illinois,
Minnesota and Nebraska. The aggregate purchase price is expected to be
approximately $1,171,000,000 in cash. The Company expects that these
acquisitions, which are subject to various state and federal regulatory
approvals, will occur on a state-by-state basis and will begin closing in the
third quarter 2000.
On June 16, 1999, the Company announced that it had entered into definitive
agreements with US West providing for the purchase of approximately 545,000 (as
of December 31, 1999) telephone access lines located in Arizona, Colorado,
Idaho, Iowa, Minnesota, Montana, Nebraska, North Dakota and Wyoming for
approximately $1,650,000,000 in cash. The Company expects that these
acquisitions, which are subject to various state and federal regulatory
approvals, will occur on a state-by-state basis and will begin closing in the
third quarter 2000.
In October 1999, Century Communications Corporation (Century) was merged into
Adelphia Communication Corporation (Adelphia). The Company received
approximately $213,000,000 of proceeds, including approximately $39,000,000 in
cash and $174,000,000 in shares of Adelphia Class A Common Stock, for the
Company's interest in Century and for the Company's interest in a cable joint
venture with Century.
GENERAL
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Order backlog is not a significant consideration in the Company's businesses and
the Company has no contracts or subcontracts which may be subject to
renegotiation of profits or termination at the election of the Federal
government. The Company holds franchises from local governmental bodies which
are of varying duration. The Company also holds Certificates granted by various
state commissions which are generally of indefinite duration. The Company has no
special working capital practices, and the Company's research and development
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activities are not material. The Company holds no patents, trademarks, licenses
or concessions that are material.
The Company had approximately 6,700 employees, of which 4,900 were associated
with continuing operations and 1,800 were associated with discontinued
operations, at December 31, 1999.
(d) Financial Information about Foreign and Domestic Operations and Export Sales
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In 1995, the Company made an initial investment in and entered into definitive
agreements with Hungarian Telephone and Cable Corp. (HTCC). The investment in
HTCC had declined in value during 1998 and in the fourth quarter of 1998
management determined that the decline was other than temporary. As a result,
the Company recognized a loss of $31,900,000 in the HTCC investment in Other
income (loss), net in the 1998 statements of income and comprehensive income.
In May 1999, in connection with HTCC's debt restructuring, the Company cancelled
a note obligation from HTCC to the Company and a seven-year consulting services
agreement in exchange for the issuance by HTCC to the Company of 1,300,000
shares of HTCC Common Stock and 30,000 shares of HTCC's 5% convertible preferred
stock. Each share of HTCC convertible preferred stock has a liquidation value of
$70 and is convertible at the option of the Company into 10 shares of HTCC
Common Stock. To the extent the 1,300,000 HTCC common shares and the 300,000
HTCC common shares underlying the HTCC convertible preferred stock do not
achieve an average market closing price of at least $7 per share for the twenty
trading days ending March 31, 2000, HTCC has agreed to issue additional HTCC
convertible preferred shares with a value equal to any such shortfall. As of
March 15, 2000, the stock was trading at $8 13/16 per share.
At December 31, 1999, the Company owns approximately 19% of the HTCC shares
presently outstanding. The Company's investment in HTCC is classified as an
available for sale security and accounted for using the cost method of
accounting. Additionally, the Company has exercised its right to nominate one
member of the Board of Directors of HTCC.
Item 2. Description of Property
-----------------------
The Administrative Office of the Company is located at 3 High Ridge Park,
Stamford, CT 06905 and is leased. The operations support office for Citizens
Communications relocated from a leased facility in Dallas, Texas in November
1999 to a new 250,000 square foot owned facility located in Legacy Park at 5600
Headquarters Drive, Plano, TX 75024. The new facility accommodates approximately
1,100 employees and has the acreage necessary for phased expansion up to 750,000
square feet. Citizens Communications is expanding its Call Center operations to
meet the needs arising from the integration of access lines being purchased from
US West and GTE. New leased call center facilities are currently under
construction in Elk Grove, CA and Gloversville, NY. Also under renovation is an
81,700 square foot facility that was purchased in Kingman, AZ for call center
expansion. The Company is evaluating an additional call center facility in the
Midwest region of the country.
The operations support office for ELI is located at 4400 NE 77th Avenue,
Vancouver, WA 98662 in an approximately 98,000 square foot office building which
is owned. This building is fully utilized, and ELI leases an additional 93,000
square feet of office space in Vancouver. In addition, ELI has leased local
office space in various markets throughout the United States, and also maintains
a warehouse facility in Portland, Oregon. ELI leases network hub and network
equipment installation sites in various locations throughout the areas in which
ELI provides services. The office, warehouse and other facilities leases expire
on various dates through October 2008.
Citizens Communications and ELI own property including: telecommunications
outside plant, central office, fiber-optic and microwave radio facilities. (See
description of business for listing of locations).
-9-
<PAGE>
Item 3. Legal Proceedings
-----------------
In November 1995, the Company's Vermont electric division was permitted an 8.5%
rate increase. Subsequently, the Vermont Public Service Board (VPSB) called into
question the level of rates awarded the Company in connection with its formal
review of allegations made by the Department of Public Service (the DPS), the
consumer advocate in Vermont and a former Citizens employee. The major issues in
this proceeding involved classification of certain costs to property, plant and
equipment accounts and the Company's Demand Side Management program. In
addition, the DPS believed that the Company should have sought and received
regulatory approvals prior to construction of certain facilities in prior years.
On June 16, 1997, the VPSB ordered the Company to reduce its rates for Vermont
electric service by 14.65% retroactive to November 1, 1995 and to refund to
customers, with interest, all amounts collected since that time in excess of the
rates authorized by the VPSB. In addition, the VPSB assessed statutory penalties
totaling $60,000 and placed the Company on regulatory probation for a period of
at least five years. During this probationary period, the Company could lose its
franchise to operate in Vermont if it violates the terms of probation prescribed
by the VPSB. The VPSB prescribed final terms of probation in its final order
issued September 15, 1998. In October 1998, the Company filed an appeal in the
Vermont Supreme Court challenging certain of the penalties imposed by the VPSB.
The appeal has been fully briefed and argued and the Company is awaiting the
Court's decision.
In August 1997, a lawsuit was filed in the United States District Court for the
District of Connecticut (Leventhal vs. Tow, et al.) against the Company and five
of its officers, one of whom is also a director, on behalf of all persons who
purchased or otherwise acquired Series A and Series B shares of Common Stock of
the Company between September 5, 1996 and July 11, 1997, inclusive. On February
9, 1998, the plaintiffs filed an amended complaint. The complaint alleged that
Citizens and the individual defendants, during such period, violated Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 based upon certain public
statements made by the Company, which are alleged to be materially false or
misleading, or are alleged to have failed to disclose information necessary to
make the statements made not false or misleading. The plaintiffs sought to
recover unspecified compensatory damages. The Company and the individual
defendants believed the allegations are unfounded and filed a motion to dismiss
on March 27, 1998 and on March 30, 1999 the Court dismissed the action. On April
29, 1999 the plaintiffs filed a notice of appeal with the Court of Appeals for
the Second Circuit. The parties have entered into a settlement stipulation which
is subject to the District Court's approval.
In March 1998, a lawsuit was filed in the United States District Court for the
District of Connecticut (Ganino vs. Citizens Utilities Company, et al.), against
the Company and three of its officers, one of whom is also a director, on behalf
of all purchasers of the Company's Common Stock between May 6, 1996 and August
7, 1997, inclusive. The complaint alleges that the Company and the individual
defendants, during such period, violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 by making materially false and misleading public
statements concerning the Company's relationship with a purported affiliate,
Hungarian Telephone and Cable Corp. (HTCC), and by failing to disclose material
information necessary to render prior statements not misleading. The plaintiff
seeks to recover unspecified compensatory damages. The Company and the
individual defendants believe that the allegations are unfounded and filed a
motion to dismiss. The plaintiff requested leave to file an amended complaint
and an amended complaint was served on the Company on July 24, 1998. The
Company's motion to dismiss the amended complaint was filed on October 13, 1998
and the Court dismissed the action with prejudice on June 28, 1999. The
Plaintiffs filed a notice of appeal with the Court of Appeals for the Second
Circuit, briefing has been completed and oral argument has been scheduled for
April 10, 2000.
In November 1998, a class action lawsuit was filed in state District Court for
Jefferson Parish, Louisiana, against the Company and three of its subsidiaries:
LGS Natural Gas Company, LGS Intrastate, Inc. and Louisiana General Service
Company. The lawsuit alleges that the Company and the other named defendants
passed through in rates charged to Louisiana customers certain costs that
plaintiffs contend were unlawful. The lawsuit seeks compensatory damages in the
amount of the alleged overcharges and punitive damages equal to three times the
amount of any compensatory damages, as allowed under Louisiana law. In addition,
the Louisiana Public Service Commission has opened an investigation into the
allegations raised in the lawsuit. The Company and its subsidiaries believe that
the allegations made in the lawsuit are unfounded and the Company will
vigorously defend its interests in both the lawsuit and the related Commission
investigation.
In addition, the Company is party to various other legal proceedings arising in
the normal course of business. The outcome of individual matters is not
predictable. However, management believes that the ultimate resolution of all
such matters, including those discussed above, after considering insurance
coverages, will not have a material adverse effect on the Company's financial
position, results of operations, or its cash flows.
-10-
<PAGE>
Item 4. Submission of Matters to Vote of Security Holders
-------------------------------------------------
None in fourth quarter 1999.
Executive Officers
- ------------------
Information as to Executive Officers of the Company as of March 1, 2000 follows:
<TABLE>
<CAPTION>
<S> <C>
Name Age Current Position and Office
---- -- ---------------------------
Leonard Tow 71 Chairman of the Board and Chief Executive Officer
Rudy J. Graf 50 President and Chief Operating Officer
Robert Braden 54 Vice President, Business Development
John H. Casey, III 43 Vice President and Chief Operating Officer, Communications Sector
Robert J. DeSantis 44 Vice President and Chief Financial Officer
Michael G. Harris 53 Vice President, Engineering and New Technology
F. Wayne Lafferty 39 Vice President, Regulatory Affairs
J. Michael Love 48 Vice President and President, Citizens Public Services Sector
L. Russell Mitten 48 Vice President, General Counsel and Assistant Secretary
Livingston E. Ross 51 Vice President and Chief Accounting Officer
Scott N. Schneider 42 Executive Vice President and President, Citizens Capital Ventures
David B. Sharkey 50 Vice President and Chief Operating Officer, Electric Lightwave Sector
Steven D. Ward 33 Vice President, Information Technology
There is no family relationship between any of the officers of the Registrant.
The term of office of each of the foregoing officers of the Registrant will
continue until the next annual meeting of the Board of Directors and until a
successor has been elected and qualified.
LEONARD TOW has been associated with the Registrant since April 1989 as a
Director. In June 1990, he was elected Chairman of the Board and Chief Executive
Officer. He was also Chief Financial Officer from October 1991 through November
1997. He was a Director and Chief Executive Officer of Century Communications
Corp. from its incorporation in 1973 and Chairman of its Board of Directors from
October 1989 until October 1999. He is Director of Hungarian Telephone and Cable
Corp., Chairman of the Board of Electric Lightwave, Inc. and is a Director of
the United States Telephone Association.
RUDY J. GRAF has been associated with the Registrant since September 1999. He is
currently President and Chief Operating Officer of the Registrant. He is also
Director and Chief Executive Officer of Electric Lightwave, Inc. Prior to
joining the Registrant, he was Director, President and Chief Operating
Officer of Centennial Cellular Corp. and Chief Executive Officer of Centennial
DE Puerto Rico from November 1990 to August 1999.
ROBERT BRADEN has been associated with the Registrant since November 1999. He
was elected as Vice President, Business Development in February 2000. Prior to
joining the Registrant, he was Vice President, Business Development at
Century Communications Corp. from January 1999 to October 1999. He was
Senior Vice President, Business Development at Centennial Cellular Corp. from
June 1996 to January 1999 and held other officer positions with Centennial since
November 1993.
JOHN H. CASEY, III has been associated with the Registrant since November 1999.
He is currently Vice President of the Company and Chief Operating Officer of the
Communications Sector. Prior to joining the Registrant, he was Vice President,
Operations from January 1995 to January 1997 and then Senior Vice President,
Administration of Centennial Cellular until November 1999.
ROBERT J. DESANTIS has been associated with the Registrant since January 1986.
He was Vice President and Treasurer since October 1991, and Vice President and
Chief Financial Officer since November 1997. He is currently Chief Financial
Officer, Vice President and Treasurer of Electric Lightwave, Inc.
MICHAEL G. HARRIS has been associated with the Registrant since December 1999.
He is currently Vice President, Engineering and New Technology. Prior to joining
the Registrant, he was Senior Vice President, Engineering of Centennial Cellular
-11-
<PAGE>
from August 1991 to December 1999. He was also Senior Vice President, Engineer-
ing of Century Communications Corp. from June 1991 to October 1999.
F. WAYNE LAFFERTY has been associated with the Registrant since 1994. He was
elected Vice President, Regulatory Affairs in February 2000. Prior to that date,
he served as Vice President of the Communications subsidiaries since January
1998. Since 1995, he has held senior positions overseeing regulatory affairs of
the Communications subsidiaries of the Registrant.
J. MICHAEL LOVE has been associated with the Registrant since May 1990 and from
November 1984 through January 1988. He was Vice President, Corporate Planning
from March 1991 through January 1997. He was appointed Vice President, Public
Services in January 1997. In January 1999, he was also appointed President,
Citizens Public Services Sector.
L. RUSSELL MITTEN has been associated with the Registrant since June 1990. He
was General Counsel until June 1991. He has been Vice President, General Coun-
sel and Assistant Secretary since June 1991.
LIVINGSTON E. ROSS has been associated with the Registrant since August 1977.
He was Vice President and Controller from December 1991 through December 1999.
He is currently Vice President and Chief Accounting Officer.
SCOTT N. SCHNEIDER has been associated with the Registrant since October 1999.
He is currently Executive Vice President and President, Citizens Capital
Ventures, a wholly owned subsidiary of Citizens. He has been a Director of
Electric Lightwave, Inc. since December 1999. Prior to joining the Registrant,
he was Director (from October 1994 to October 1999), Chief Financial Officer
(from December 1996 to October 1999), Senior Vice President and Treasurer (from
June 1991 to October 1999) of Century Communications Corp. He also served as
Director, Chief Financial Officer, Senior Vice President and Treasurer of
Centennial Cellular from August 1991 to October 1999.
DAVID B. SHARKEY has been associated with the Registrant since August 1994 as
President of Electric Lightwave, Inc. He has been President and Chief Operating
Officer of Electric Lightwave, Inc. since October 1997 and is Director of
Electric Lightwave, Inc. Additionally, he has been Vice President and Chief
Operating Officer, Electric Lightwave Sector of the Registrant since February
2000. Prior to joining Electric Lightwave, Inc., he was Vice President and
General Manager of Metromedia Paging, a wireless company headquartered in New
Jersey, from August 1989 through July 1994.
STEVEN D. WARD has been associated with the Registrant since January 2000 and
was elected Vice President, Information Technology in February 2000. Prior to
joining the Registrant, he was Vice President, Information Systems for Century
Communications Corp. from June 1996 to December 1999 and Director, Information
Services from March 1991 to June 1996.
-12-
<PAGE>
PART II
-------
<S> <C>
Item 5.Market for the Registrant's Common Equity and Related Stockholder Matters
-------------------------------------------------------------------------
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol CZN. The following table indicates the high and low prices per share as
taken from the daily quotations published in "The Wall Street Journal" during
the periods indicated. Prior year prices have been adjusted for stock dividends
declared through December 31, 1998, rounded to the nearest 1/16th. (See Note 9
of Notes to Consolidated Financial Statements.)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------------- ----------------- ----------------- ----------------
High Low High Low High Low High Low
---- --- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C>
1999:
- ----
CZN $8 1/2 $7 1/4 $11 1/2 $7 11/16 $12 7/16 $10 7/8 $14 5/16 $10 15/16
1998:
- ----
CZN $10 7/8 $8 7/8 $11 3/16 $9 1/2 $10 $6 7/8 $9 1/16 $7 1/4
</TABLE>
As of February 29, 2000, the approximate number of record security holders of
the Company's Common Stock was 41,020. This information was obtained from the
Company's transfer agent.
DIVIDENDS
The amount and timing of dividends payable on Common Stock are within the sole
discretion of the Company's Board of Directors. The Board of Directors had
undertaken an extensive review of the Company's dividend policy in conjunction
with its strategic plans to become a telecommunications company. Resulting from
this review, the Board concluded that the Company discontinue dividends after
the payment of the December 1998 stock dividend. Quarterly stock dividends
declared and issued on Common Stock were .75% for each quarter of 1998.
RECENT SALES OF UNREGISTERED SECURITIES, USE OF PROCEEDS FROM REGISTERED
SECURITIES
None
-13-
<PAGE>
Item 6. Selected Financial Data ($ in thousands, except for per-share amounts)
----------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues (1) $ 1,087,428 $ 932,858 $ 860,332 $ 786,307 $ 616,747
Income (loss) before discontinued
operations and cumulative effect
of change in accounting
principle $ 117,127 $ 22,866 $ (3,923) $ 150,300 $ 117,501
Basic income (loss) per-share of
Common Stock before discontinued
operations and cumulative
effect of change in accounting
principle (2) $ .45 $ .09 $ (.02) $ .58 $ .47
Net income $ 144,486 $ 57,060 $ 10,100 $ 178,660 $ 159,536
Basic net income per common
share (2) $ .55 $ .22 $ .04 $ .68 $ .64
Stock dividends declared on Common
Stock (3) - 3.03% 5.30% 6.56% 6.35%
As of December 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Total assets $ 5,771,745 $ 5,292,932 $ 4,872,852 $ 4,523,148 $ 3,918,187
Long-term debt $ 2,107,460 $ 1,775,338 $ 1,583,902 $ 1,409,512 $ 1,095,211
Equity(4) $ 2,121,185 $ 1,994,021 $ 1,880,461 $ 1,879,433 $ 1,559,913
(1) Represents revenues from continuing operations.
(2) 1997, 1996 and 1995 are adjusted for subsequent stock dividends.
(3) Compounded annual rate of quarterly stock dividends.
(4) Includes Company Obligated Mandatorily Redeemable Convertible Preferred Securities.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
This annual report on Form 10-K contains forward-looking statements that are
subject to risks and uncertainties which could cause actual results to differ
materially from those expressed or implied in the statements. All
forward-looking statements (including oral representations) are only predictions
or statements of current plans, which are constantly under review by the
Company. All forward-looking statements may differ from actual future results
due to, but not limited to, changes in the economy of the Company's markets, the
nature and pace of technological changes, the number and effectiveness of
competitors in the Company's markets, changes in legal and regulatory policy,
success in overall strategy, the Company's ability to identify future markets
and successfully expand existing ones, the mix of products and services offered
in the Company's target markets, remaining Y2K issues, the effects of
acquisitions and dispositions and the ability to effectively integrate
businesses acquired. Readers should consider these important factors in
evaluating any statement in this Form 10-K or otherwise made by the Company or
on its behalf. The following information should be read in conjunction with the
consolidated financial statements and related notes to the consolidated
financial statements included in this report. The Company has no obligation to
update or revise these forward-looking statements to reflect the occurrence of
future events or circumstances.
(a) Liquidity and Capital Resources
-------------------------------
The Company considers its operating cash flows and its ability to raise debt and
equity capital as the principal indicators of its liquidity. For the twelve
months ended December 31, 1999, the Company used cash flow from operations and
proceeds from net financings and advances from parties desiring utility services
to fund capital expenditures. Funds requisitioned from the Industrial
Development Revenue Bond construction fund trust accounts were used to partially
fund the construction of utility plant.
In October 1999, the Company arranged for a committed $3,000,000,000 revolving
bank credit facility. This credit facility is in addition to credit commitments
under which the Company may borrow up to $400,000,000. There were no amounts
outstanding under these commitments at December 31, 1999. ELI has committed
revolving lines of credit with commercial banks under which it may borrow up to
$400,000,000. The Company has guaranteed all of ELI's obligations under these
revolving lines of credit. As of December 31, 1999, $260,000,000 was outstanding
under ELI's revolving lines of credit.
-14-
<PAGE>
In April 1999, ELI completed an offering of $325,000,000 of five-year senior
unsecured notes. The notes have an interest rate of 6.05% and mature on May 15,
2004. The Company has guaranteed the payment of principal and any premium and
interest on the notes when due.
Net capital expenditures, by sector, have been and are budgeted as follows:
<TABLE>
<CAPTION>
Actual
Budget --------------------------------------
2000 1999 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
($ in thousands)
Communications (1) $ 396,800 $ 227,200 $ 201,400 $ 263,000
ELI (2) 200,000 245,700 200,000 124,500
General 3,000 6,700 25,100 33,300
-------- -------- -------- --------
$ 599,800 $ 479,600 $ 426,500 $ 420,800
Discontinued operations (3) $ 169,900 $ 135,800 $ 95,500 $ 103,700
-------- -------- -------- --------
$ 769,700 $ 615,400 $ 522,000 $ 524,500
======== ======== ======== ========
</TABLE>
(1) Includes approximately $30,500,000 and $7,700,000 in 1999 and
1998, respectively, for the construction of an operations support
office. Includes $176,000,000 in 2000 for the properties to be
acquired from GTE and US West.
(2) Includes approximately $38,000,000 and $60,000,000 in 2000 and
1999, respectively, of non-cash capital lease additions.
(3) The 2000 budget assumes full year ownership of discontinued opera-
tions and includes approximately $41,900,000 for a special water
pipeline project.
The Company anticipates that the funds necessary for its 2000 capital
expenditures will be provided from operations; from advances of Rural Utilities
Service loan contracts; from commercial paper notes payable; from debt, equity
and other financing at appropriate times and from short-term borrowings under
bank credit facilities. Until disposed, the Company's discontinued operations
capital expenditures will also be funded through requisitions of Industrial
Development Revenue Bond construction fund trust accounts and from parties
desiring utility service. Upon disposition, the Company will receive
reimbursement of certain 1999 actual and all 2000 budgeted water and wastewater
and electric sector capital expenditures pursuant to the terms of the respective
sales agreements for these businesses.
Acquisitions
- ------------
On May 27, September 21, and December 16, 1999, the Company announced that it
had entered into definitive agreements to purchase from GTE Corp. (GTE)
approximately 366,000 telephone access lines (as of December 31, 1999) in
Arizona, California, Illinois, Minnesota and Nebraska for approximately
$1,171,000,000 in cash. The Company expects that these acquisitions, which are
subject to various state and federal regulatory approvals, will occur on a
state-by-state basis and will begin closing in the third quarter 2000.
On June 16, 1999, the Company announced that it had entered into definitive
agreements to purchase from US West Communications, Inc. (US West) approximately
545,000 telephone access lines (as of December 31, 1999) in Arizona, Colorado,
Idaho, Iowa, Minnesota, Montana, Nebraska, North Dakota and Wyoming for
approximately $1,650,000,000 in cash. The Company expects that these
acquisitions, which are subject to various state and federal regulatory
approvals, will occur on a state-by-state basis and will begin closing in the
third quarter 2000.
The Company expects to temporarily fund these telephone access line purchases
with cash and investment balances and proceeds from commercial paper issuances,
backed by the committed bank credit facilities. Permanent funding is expected to
be from cash and investment balances and the proceeds from the divestiture of
the Company's public services businesses.
Divestiture
- -----------
On August 24, 1999, the Company's Board of Directors approved a plan of
divestiture for the Company's public services properties, which include gas,
electric and water and wastewater businesses. The proceeds from the sales of the
public services properties will be used to fund the telephone access line
purchases. The Company has accounted for the planned divestiture of the public
services properties as a discontinued operation. Discontinued operations in the
consolidated statements of income and comprehensive income reflect the results
-15-
<PAGE>
of operations of the public services properties including allocated interest
expense for the periods presented. Interest expense was allocated to the
discontinued operations based on the outstanding debt specifically identified
with these businesses.
On October 18, 1999, the Company announced that it had agreed to sell its water
and wastewater operations to American Water Works, Inc. for an aggregate
purchase price of $835,000,000. The transaction is expected to close in 2000
following regulatory approvals.
On February 15, 2000, the Company announced that it had agreed to sell its
electric utility operations. The Arizona and Vermont electric divisions will be
sold to Cap Rock Energy Corp. and the Kauai (Hawaii) Electric Division will be
sold to Kauai Island Electric Co-op for an aggregate purchase price of
$535,000,000. The transactions are expected to close in 2000 following
regulatory approvals.
Sale of Investments
- -------------------
In January 1999, Centennial Cellular Corp. (Centennial) was merged with CCW
Acquisition Corp., a company organized at the direction of Welsh, Carson,
Anderson & Stowe. The Company was a holder of 1,982,294 shares of Centennial
Class B Common Stock. In addition, as a holder of 102,187 shares of Mandatorily
Redeemable Convertible Preferred Stock of Centennial, the Company was required
to convert the preferred stock into approximately 2,972,000 shares of Class B
Common Stock. The Company received approximately $205,600,000 in cash for all of
its Common Stock interests and approximately $17,500,000 related to accrued
dividends on the preferred stock. The Company realized and reported a pre-tax
gain of approximately $69,500,000 in the first quarter 1999 in Investment
income.
On October 1, 1999, Adelphia Communication Corp. (Adelphia) was merged with
Century Communications Corp. (Century). The Company owned 1,807,095 shares of
Century Class A Common Stock. Pursuant to this merger agreement, Century Class A
Common shares were exchanged for $10,832,000 in cash and 1,206,705 shares of
Adelphia Class A Common Stock (for a total market value of $79,600,000 based on
Adelphia's October 1, 1999 closing price of $57.00). The Company realized and
reported a pre-tax gain of approximately $67,600,000 in the fourth quarter of
1999 in Investment income.
A subsidiary of the Company, in a joint venture with a subsidiary of Century,
owned and operated four cable television systems in southern California serving
over 90,000 basic subscribers. In July 1999, the Company entered into a separate
agreement with Adelphia to sell its interest in the joint venture. Pursuant to
this agreement on October 1, 1999, the Company received approximately
$27,700,000 in cash and 1,852,302 shares of Adelphia Class A Common Stock (for a
total market value of $133,300,000 based on Adelphia's October 1, 1999 closing
price of $57.00). The Company realized and reported a pre-tax gain of
approximately $83,900,000 in the fourth quarter of 1999 in Investment income.
Hungarian Telephone and Cable Corp.
- -----------------------------------
In May 1999, in connection with HTCC's debt restructuring, the Company cancelled
a note obligation from HTCC to the Company and a seven-year consulting services
agreement in exchange for the issuance by HTCC to the Company of 1,300,000
shares of HTCC Common Stock and 30,000 shares of HTCC's 5% convertible preferred
stock. Each share of HTCC convertible preferred stock has a liquidation value of
$70 and is convertible at the option of the Company into 10 shares of HTCC
Common Stock. To the extent the 1,300,000 HTCC common shares and the 300,000
HTCC common shares underlying the HTCC convertible preferred stock do not
achieve an average market closing price of at least $7 per share for the twenty
trading days ending March 31, 2000, HTCC has agreed to issue additional HTCC
convertible preferred shares with a value equal to any such shortfall. As of
March 15, 2000, the stock was trading at $8 13/16 per share.
Regulatory Environment
- ----------------------
In December 1999, the Company entered into an agreement (the Agreement) with the
Staff and Consumer Advocate Division of the West Virginia Public Service
Commission (WVPSC) to continue the Company's incentive regulation Plan (IRP)
through 2002. Under the Agreement the Company will reduce access and other
service rates by $3.5 million annually beginning in February 2000. In return the
Company will be free of earnings regulation for three years and have some
pricing flexibility for non-basic services.
Impact of Year 2000
- -------------------
The Y2K issue resulted from computer programs using a two-digit format, as
opposed to four, to indicate the year. Such computer systems were unable to
interpret dates beyond the year 1999, which could have caused system failures or
other computer errors. In late 1997, the Company developed a program to address
the Y2K issue. The program was designed to protect the safety and continuity of
the Company's service delivery and support capabilities, computer systems and
-16-
<PAGE>
other critical functions. The Company's Y2K program addressed problems that
could arise: (1) in Information Technology (IT) areas including information
systems and technologies; (2) in non-IT areas such as communications networks
and switches, utility control and monitoring systems, premises, facilities and
general business equipment; and (3) due to suppliers of products and services
not being Y2K compliant. Each of the Company's sectors had a program office that
managed the progress of the Y2K efforts. The Company had determined priorities
for taking corrective actions on mission critical systems and products so as to
ensure continued delivery of core business activities.
The Company's systems, products and services proved Y2K ready, as there were no
system or customer impacting failures on mission critical systems. The Company's
successful entry into the year 2000 was a culmination of a two-year preparation
program. The Y2K plan called for inventory, assessment, renovation and testing
to ensure that the impact to our business would be minimal and manageable. The
Company will continue to monitor Y2K related exposures both internally and with
its suppliers, customers and other business partners. The Company's Y2K efforts
were essentially complete by the end of the third quarter of 1999. The
completion of the Company's Y2K efforts coupled with its contingency plans
ensured that the established and expected levels of customer service were
maintained without interruption during the millennium transition.
For the twelve months ended December 31, 1999, the Company spent approximately
$23,495,000 on its Y2K efforts of which $16,089,000 related to continuing
operations and $7,406,000 related to discontinued operations. For the twelve
months ended December 31, 1999, continuing operations Y2K efforts include
approximately $15,628,000 on IT efforts and $461,000 on non-IT efforts. For the
twelve months ended December 31, 1999, discontinued operations Y2K efforts
include approximately $2,835,000 on IT efforts and $4,571,000 on non-IT efforts.
The Company expects to spend an additional $1,600,000 in 2000 on its remaining
Y2K efforts.
Certain state regulatory commissions where the Company operates have issued
orders allowing the deferral of Y2K costs for consideration in future rate
proceedings. In accordance with these orders, the Company has deferred
approximately $5,767,000 of the $23,495,000 1999 Y2K expenses, of which
$3,000,000 are related to its continuing operations and $2,767,000 are related
to its discontinued operations.
New Accounting Pronouncements
- -----------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 requires companies to
record derivatives on the balance sheet as assets or liabilities measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. In May 1999, the FASB
issued SFAS 137 "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133," which
deferred the effective date of SFAS 133 by one year. This statement makes SFAS
133 effective for all fiscal quarters of all fiscal years beginning after June
15, 2000. The Company has not fully evaluated the impact of the adoption of SFAS
133.
-17-
<PAGE>
(b) Results of Operations
---------------------
REVENUES
--------
Telecommunications revenues increased $154.6 million, or 17%, in 1999 and $72.5
million, or 8%, in 1998. The increase in 1999 was primarily due to increased
communications network access services revenues and ELI revenues. The increase
in 1998 was primarily due to increased communications network access services
revenues and ELI local telephone services revenues.
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ----------------------- -------
Change from Change from
Amount Prior year Amount Prior year Amount
<S> <C> <C> <C> <C> <C>
------ ---------- ------ ----------- -------
Communications revenues ($ in thousands)
- ------------------------
Network access services $ 503,365 17% $ 432,018 7% $ 403,990
Local network services 287,616 10% 262,239 5% 250,521
Long distance and data services 76,495 (21%) 96,584 6% 90,747
Directory services 33,449 6% 31,691 (1%) 31,982
Other 48,343 8% 44,914 (8%) 48,922
Eliminations (46,031) 42% (32,407) 37% (23,573)
-------- -------- --------
Total $ 903,237 8% $ 835,039 4% $ 802,589
======== ======== ========
</TABLE>
Network access services revenues increased $71.3 million, or 17%, in 1999
primarily due to increased minutes of use, increased special access revenues, a
universal service fund settlement and the acquisition of Rhinelander
Telecommunications, Inc. (RTI) in November 1998. Network access services
revenues increased $28 million, or 7%, in 1998 primarily due to increased
special access revenues resulting from the introduction of the DS3 product,
increased circuit demand due to Internet growth and increased minutes of use,
partially offset by an FCC mandated interstate switched access rate reduction
which became effective July 1, 1997.
Local network services revenues increased $25.4 million, or 10%, in 1999
primarily due to business and residential access line growth, increased customer
calling features and private line sales and the acquisition of RTI. Local
network services revenues increased $11.7 million, or 5%, in 1998 primarily due
to business and residential access line growth and increased custom calling
features and private line sales.
Long distance and data services revenues decreased $20.1 million, or 21%, in
1999 primarily due to the elimination of long distance product offerings to
out-of-territory customers, partially offset by increased long distance minutes
of use by in-territory customers. Long distance and data services revenues
increased $5.8 million, or 6%, in 1998 primarily due to the curtailment of
certain communications sector long distance service operations in adjacent
markets beginning in 1997.
The directory services revenues increased $1.8 million, or 6%, in 1999 primarily
due to the acquisition of RTI and increased advertising revenue.
Other revenues increased $3.4 million, or 8%, in 1999 primarily due to increased
billing and collections revenues, partially offset by the phasing out of certain
surcharges resulting from rate case decisions in California and New York. Other
revenues decreased $4 million, or 8%, in 1998 primarily due to the phasing out
of certain surcharges resulting from rate case decisions in California and New
York.
Eliminations represent network access revenues received by the Company's local
exchange operations from its long distance operations and ELI.
-18-
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ----------------------- -------
Change from Change from
Amount Prior year Amount Prior year Amount
<S> <C> <C> <C> <C> <C>
------ ---------- ------ ----------- -------
ELI revenues ($ in thousands)
- ------------
Network services $ 53,249 46% $ 36,589 9% $ 33,522
Local telephone services 77,591 103% 38,169 261% 10,565
Long distance services 26,698 117% 12,309 51% 8,140
Data services 29,470 113% 13,813 56% 8,857
Eliminations (2,817) (8%) (3,061) (8%) (3,341)
-------- -------- --------
Total $ 184,191 88% $ 97,819 69% $ 57,743
======== ======== ========
</TABLE>
Network services revenues increased $16.7 million, or 46%, in 1999 primarily due
to network expansion and sales of additional circuits to new and existing
customers. Network services revenues increased $3.1 million, or 9%, in 1998
primarily due to sales of additional circuits to new and existing customers,
partially offset by the expiration of a short-term contract with a significant
customer.
Local telephone services revenues increased $39.4 million, or 103%, in 1999
primarily due to increased reciprocal compensation revenues resulting from the
establishment of interconnection agreements in several new states and increased
traffic. In addition, increased sales of the integrated service digital network
(ISDN) product to the ISPs and increased access line equivalents contributed to
the increase. Local telephone services revenues increased $27.6 million, or
261%, in 1998 primarily due to increased reciprocal compensation revenues,
increased access line equivalents and increased sales of the ISDN product.
Long distance services revenues increased $14.4 million, or 117%, in 1999
primarily due to increased revenues resulting from the bundling of sales of long
distance with other products, the addition of new customers and increased
prepaid services revenue. The Company exited the prepaid services market in the
third quarter of 1999, a result of the decision to focus on higher margin
products. Long distance services revenues increased $4.2 million, or 51%, in
1998 primarily due to increased prepaid services minutes processed resulting
from new customers and increased revenues resulting from bundling of sales of
long distance with other products. The increase in retail long-distance revenues
were partially offset by a decrease in wholesale long distance revenues
primarily due to the elimination of a large customer with credit problems.
Data services revenues increased $15.7 million, or 113%, in 1999 primarily due
to increased sales of Internet and frame relay services in new and existing
markets. Data services revenues increased $5 million, or 56%, in 1998 primarily
due to increased sales of Internet and frame relay services in new and existing
markets, and the introduction of new products such as ATM and RSVP.
Eliminations reflect revenues received by ELI from the Company's communications
operations.
-19-
<PAGE>
NETWORK ACCESS EXPENSE
----------------------
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ----------------------- -------
Change from Change from
Amount Prior year Amount Prior year Amount
<S> <C> <C> <C> <C> <C>
------ ---------- ------ ----------- -------
($ in thousands)
Network access $ 160,267 14% $ 140,471 3% $ 136,971
Eliminations (48,848) 38% (35,468) 32% (26,914)
-------- --------- --------
Total $ 111,419 6% $ 105,003 (5%) $ 110,057
======== ========= ========
</TABLE>
Network access expense increased $19.8 million, or 14%, in 1999 primarily due to
expenses related to the ELI national data expansion, partially offset by
decreased communications sector long distance minutes of use from
out-of-territory long distance customers. Network access expense increased $3.5
million, or 3%, in 1998 primarily due to ELI revenue growth, ELI national data
expansion efforts, and significant growth in ELI long distance services,
partially offset by lease terminations as a result of the curtailment of certain
communications sector long distance service operations in 1997.
Eliminations represent network access expense incurred by the Company's long
distance operation for services provided by its local exchange operations and
expense incurred by the Company's communications operations for services
provided by ELI.
DEPRECIATION AND AMORTIZATION EXPENSE
-------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ----------------------- -------
Change from Change from
Amount Prior year Amount Prior year Amount
<S> <C> <C> <C> <C> <C>
------ ---------- ------ ----------- -------
($ in thousands)
Depreciation and amortization $ 262,430 32% $ 198,658 7% $ 186,530
</TABLE>
Depreciation and amortization expense increased $63.8 million, or 32%, in 1999
primarily due to increased property, plant and equipment and the acquisition of
RTI in November 1998. The increase also includes $4.8 million of accelerated
depreciation related to the change in useful life of an operating system in the
communications sector. Depreciation and amortization expense increased $12.1
million, or 7%, in 1998 primarily due to increased property, plant and equipment
balances.
-20-
<PAGE>
OTHER OPERATING EXPENSES
------------------------
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ----------------------- -------
Change from Change from
Amount Prior year Amount Prior year Amount
<S> <C> <C> <C> <C> <C>
------ ---------- ------ ----------- ------
($ in thousands)
Operating expenses $ 569,163 28% $ 444,385 (12%) $ 503,762
Taxes other than income 64,469 15% 55,843 - 55,871
Sales and marketing 71,879 52% 47,325 (14%) 54,893
-------- -------- --------
Total $ 705,511 29% $ 547,553 (11%) $ 614,526
======== ======== ========
</TABLE>
Operating expenses increased $124.8 million, or 28%, in 1999. Of this increase,
$52.3 million was due to the following items: asset impairment charges of $36.1
million related to the discontinuation of the development of certain operational
systems and certain regulatory assets deemed to be no longer recoverable;
restructuring charges allocated to continuing operations of $4.1 million related
to the Company's corporate office; pre-acquisition integration costs of $3.9
million; separation costs allocated to continuing operations of $3.5 million and
costs associated with an executive retirement agreement allocated to continuing
operations of $4.7 million. The remaining $72.5 million increase is primarily
due to Y2K costs, the full year impact of RTI and ELI expenses relating to the
expansion of data services and product exit costs. Operating expenses decreased
$59.4 million, or 12%, in 1998 primarily due to 1997 pre-tax charges to
earnings, partially offset by increased ELI operating costs, Y2K costs and
separation costs allocated to continuing operations.
Taxes other than income increased $8.6 million, or 15%, in 1999 primarily due to
increases in payroll and property taxes.
Sales and marketing expenses increased $24.6 million, or 52%, in 1999 primarily
due to increased personnel and product advertising to support the delivery of
services in existing and new markets including the expansion of ELI data
services and products. Sales and marketing expenses decreased $7.6 million, or
14%, in 1998 primarily due to the curtailment of certain communications sector
long distance service operations in adjacent markets beginning in 1997.
INCOME FROM OPERATIONS
----------------------
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ----------------------- -------
Change from Change from
Amount Prior year Amount Prior year Amount
<S> <C> <C> <C> <C> <C>
------ ----------- ------ ----------- ------
($ in thousands)
Communications $ 103,727 (34%) $ 157,567 6,207% $ (2,580)
ELI (95,659) (26%) (75,923) (58%) (48,201)
-------- -------- --------
Income (loss) from operations $ 8,068 (90%) $ 81,644 261% $ (50,781)
======== ======== ========
</TABLE>
Income from operations decreased $73.6 million, or 90%, in 1999. Of this
decrease, $57.1 million was due to the following items: asset impairment charges
of $36.1 million, restructuring charges allocated to continuing operations of
$4.1 million, pre-acquisition integration costs of $3.9 million, separation
costs allocated to continuing operations of $3.5 million, costs associated with
an executive retirement agreement allocated to continuing operations of $4.7
million and accelerated depreciation of $4.8 million. The remaining decrease is
primarily due to increased ELI losses and $9.1 million of increased Y2K costs.
Income from operations increased $132.4 million, or 261%, in 1998 primarily due
to 1997 pre-tax charges to earnings, partially offset by increased ELI losses,
Y2K costs and separation costs.
-21-
<PAGE>
INVESTMENT AND OTHER INCOME
---------------------------
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ----------------------- --------
Change from Change from
Amount Prior year Amount Prior year Amount
<S> <C> <C> <C> <C> <C>
------ ---------- ------- ----------- --------
($ in thousands)
Non operating gain on sale of
subsidiary stock $ - N/A $ - N/A $ 78,734
Investment income 243,621 660% 32,038 (4%) 33,397
Other income (loss), net (20) 100% (26,746) (434%) 7,999
------- ------- -------
$ 243,601 4,503% $ 5,292 (96%) $ 120,130
======= ======= =======
</TABLE>
The non operating gain on sale of subsidiary stock in 1997 of $78.7 million
represents the pre-tax gain on the ELI initial public offering of 8,000,000
shares of Class A Common Stock at a price of $16 per share on November 24, 1997.
Investment income increased $211.6 million, or 660%, in 1999. Of this increase,
$221 million was due to the $69.5 million gain on the sale of the Company's
investment in Centennial in January 1999, the $67.6 million gain on the sale of
the Company's investment in Century in October 1999 and the $83.9 million gain
on the sale of the Company's investment in the cable joint venture in October
1999. Investment income decreased $1.4 million, or 4%, in 1998 primarily due to
lower average investment balances.
Other income (loss), net increased $26.7 million, or 100%, in 1999 and decreased
$34.7 million, or 434%, in 1998 primarily due to the recognition of a $31.9
million loss resulting from the decline in value of the HTCC investment in 1998.
MINORITY INTEREST
-----------------
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ----------------------- --------
Change from Change from
Amount Prior year Amount Prior year Amount
<S> <C> <C> <C> <C> <C>
------ ---------- ------- ----------- --------
($ in thousands)
Minority interest $ 23,227 66% $ 14,032 2,076% $ 645
</TABLE>
Minority interest is a result of ELI's initial public offering in November 1997
and it represents the minority's share of ELI's loss before income tax.
INTEREST EXPENSE
----------------
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ----------------------- --------
Change from Change from
Amount Prior year Amount Prior year Amount
<S> <C> <C> <C> <C> <C>
------ ---------- ------- ----------- --------
($ in thousands)
Interest expense $ 86,972 28% $ 67,944 3% $ 65,779
</TABLE>
Interest expense increased $19 million, or 28%, in 1999 primarily due to
increased ELI net borrowings, partially offset by decreased short-term debt
balances. Interest expense increased $2.2 million, or 3%, in 1998 primarily due
to increased ELI net borrowings, partially offset by an increase in the debt
component of AFUDC.
-22-
<PAGE>
INCOME TAXES
------------
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ----------------------- -------
Change from Change from
Amount Prior year Amount Prior year Amount
<S> <C> <C> <C> <C> <C>
------ ---------- ------- ----------- -------
($ in thousands)
Income taxes $ 64,587 1,536% $ 3,948 105% $ 1,928
</TABLE>
Income taxes increased $60.6 million, or 1,536%, in 1999 primarily due to
increased taxable income and an increase in the effective tax rate. The
effective tax rate for 1999 reflects the impact of increased pre-tax income
resulting from the sale of investments included in Investment income. Income
taxes increased $2 million, or 105%, in 1998 primarily due to an increase in
pre-tax income.
DISCONTINUED OPERATIONS
-----------------------
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ----------------------- --------
Change from Change from
Amount Prior year Amount Prior year Amount
<S> <C> <C> <C> <C> <C>
------ ---------- ------- ----------- --------
($ in thousands)
Revenues $ 613,216 1% $ 609,514 14% $ 533,287
Operating income $ 82,179 (15%) $ 96,525 45% $ 66,623
Net income $ 27,359 (25%) $ 36,528 160% $ 14,023
</TABLE>
Revenues from discontinued operations increased $3.7 million, or 1%, in 1999
primarily due to increased consumption and customer growth in the electric
sector, partially offset by lower purchased gas and fuel costs passed on to
customers in the gas and electric sectors and a decrease in customer usage due
to warmer weather conditions in the gas sector. Revenues from discontinued
operations increased $76.2 million, or 14%, in 1998 primarily due to the
acquisition in October 1997 of The Gas Company (TGC) and increased consumption
and customer growth in the gas and water/wastewater sectors, partially offset by
a decrease in gas revenues resulting from warmer weather conditions and lower
purchased gas and fuel costs passed on to customers in the gas and electric
sectors.
Operating income from discontinued operations decreased $14.3 million, or 15%,
and net income from discontinued operations decreased $9.2 million, or 25%, in
1999 primarily due to restructuring charges, separation costs, costs associated
with an executive retirement agreement, commission ordered customer refunds in
Arizona and increased Y2K costs, partially offset by an increase in gross
margins and a decrease in income taxes. Operating income from discontinued
operations increased $29.9 million, or 45%, and net income from discontinued
operations increased $22.5 million, or 160%, in 1998 primarily due to the 1997
charges to earnings, partially offset by Y2K and separation costs.
-23-
<PAGE>
NET INCOME AND NET INCOME PER COMMON SHARE
------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ----------------------- --------
Change from Change from
Amount Prior year Amount Prior year Amount
<S> <C> <C> <C> <C> <C>
------ ---------- ------- ----------- --------
($ in thousands)
Net Income $144,486 153% $ 57,060 465% $ 10,100
Net Income Per Common Share $ .55 150% $ .22 450% $ .04
</TABLE>
1999 net income and net income per share were impacted by the following after
tax items: gains on the sales of investments of $136.4 million, or 52(cent) per
share, asset impairment charges of $22.3 million, or 9(cent) per share, an
executive retirement agreement of $4.1 million, or 2(cent) per share,
restructuring charges of $3.6 million, or 1(cent) per share, separation costs of
$3.1 million, or 1(cent) per share, accelerated depreciation of $3 million, or
1(cent) per share, and pre-acquisition integration costs of $2.4 million, or
1(cent) per share. 1999 net income and net income per share were also impacted
by after tax net losses from ELI of $54.1 million, or 21(cent) per share, and
after tax Y2K costs of $12.2 million, or 5(cent) per share.
1998 net income and net income per share were impacted by the following after
tax items: the non-cash write down of the Company's investment in HTCC of $19.7
million, or 7(cent) per share, the cumulative effect of a change in accounting
principle at ELI of $2.3 million, or 1(cent) per share, and separation costs of
$1.3 million, or 1(cent) per share. 1998 net income and net income per share
were also impacted by after tax net losses from ELI of $34.8 million, or
14(cent) per share, and after tax Y2K costs of $5.3 million, or 2(cent) per
share.
1997 net income was impacted by after tax charges to earnings of $135.1 million
of which $105.1 million related to continuing operations and $30 million to
discontinued operations. For continuing operations, the charges resulted from a
re-evaluation of certain business strategies including its out-of-territory long
distance aggressive growth strategy, accounting policy changes at ELI in
anticipation of its initial public offering and curtailment of certain employee
benefit plans. For discontinued operations, the charges resulted from public
utility regulatory commission orders and the curtailment of certain employee
benefit plans.
-24-
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
---------------------------------------------------------------
The Company is exposed to the impact of interest rate and market risks. In the
normal course of business, the Company employs established policies, procedures
and internal processes to manage its exposure to interest rate and market risks.
The Company's objective in managing its interest rate risk is to limit the
impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve these objectives, the Company maintains
fixed rate debt on a majority of its borrowings and refinances debt when
advantageous. In an effort to reduce interest rate risk ELI issued fixed
interest rate $325 million, five-year senior unsecured notes in April 1999 that
are guaranteed by the Company. The net proceeds from the issuance were used to
repay outstanding borrowings under ELI's floating rate bank credit facility. The
Company maintains a portfolio of investments consisting of both equity and debt
financial instruments. The Company's equity portfolio is primarily comprised of
investments in communications companies. The Company's bond portfolio consists
of government, corporate and municipal fixed-income securities. The Company does
not hold or issue derivative or other financial instruments for trading
purposes. The Company purchases monthly gas futures contracts to manage
well-defined commodity price fluctuations, caused by weather and other
unpredictable factors, associated with the Company's commitments to deliver
natural gas to certain industrial customers at fixed prices. This derivative
financial instrument activity relates to the discontinued operations and is not
material to the Company's consolidated financial position, results of operations
or cash flows.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The following documents are filed as part of this Report:
1.Financial Statements, See Index on page F-1.
2.Supplementary Data, Quarterly Financial Data is included in the
Financial Statements (see 1. above).
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None
PART III
--------
The Company intends to file with the Commission a definitive proxy statement for
the 2000 Annual Meeting of Stockholders pursuant to Regulation 14A not later
than 120 days after December 31, 1999. The information called for by this Part
III is incorporated by reference to that proxy statement.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) The exhibits listed below are filed as part of this Report:
Exhibit
No. Description
- ----- -----------
3.200.1 Restated Certificate of Incorporation of Citizens Utilities Company,
with all amendments to May 21, 1998, as restated July 2, 1998.
3.200.2 By-laws of the Company, as amended to-date of Citizens Utilities
Company, with all amendments to May 20, 1999, (incorporated by
reference to Exhibit 3.200.2 to the Registrant's Quarterly Report on
Form 10-Q for the six months ended June 30, 1999, File No. 001-11001).
4.100.1 Indenture of Securities, dated as of August 15, 1991, to Chemical
Bank, as Trustee, (incorporated by reference to Exhibit 4.100.1 to the
Registrant's Quarterly Report on Form 10-Q for the nine months ended
September 30, 1991, File No. 001-11001).
4.100.2 First Supplemental Indenture, dated August 15, 1991, (incorporated by
reference to Exhibit 4.100.2 to the Registrant's Quarterly Report on
Form 10-Q for the nine months ended September 30, 1991, File No.
001-11001).
-25-
<PAGE>
Exhibit
No. Description
- ------ -----------
4.100.3 Letter of Representations, dated August 20, 1991, from Citizens
Utilities Company and Chemical Bank, as Trustee, to Depository Trust
Company (DTC) for deposit of securities with DTC, (incorporated by
reference to Exhibit 4.100.3 to the Registrant's Quarterly Report on
Form 10-Q for the nine months ended September 30, 1991, File No.
001-11001).
4.100.4 Second Supplemental Indenture, dated January 15, 1992, to Chemical
Bank, as Trustee, (incorporated by reference to Exhibit 4.100.4 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1991, File No. 001-11001).
4.100.5 Letter of Representations, dated January 29, 1992, from Citizens
Utilities Company and Chemical Bank, as Trustee, to DTC, for deposit
of securities with DTC, (incorporated by reference to Exhibit 4.100.5
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991, File No. 001-11001).
4.100.6 Third Supplemental Indenture, dated April 15, 1994, to Chemical Bank,
as Trustee, (incorporated by reference to Exhibit 4.100.6 to the
Registrant's Form 8-K Current Report filed July 5, 1994, File No.
001-11001).
4.100.7 Fourth Supplemental Indenture, dated October 1, 1994, to Chemical
Bank, as Trustee, (incorporated by reference to Exhibit 4.100.7 to
Registrant's Form 8-K Current Report filed January 3, 1995, File No.
001-11001).
4.100.8 Fifth Supplemental Indenture, dated as of June 15, 1995, to Chemical
Bank, as Trustee, (incorporated by reference to Exhibit 4.100.8 to
Registrant's Form 8-K Current Report filed March 29, 1996, File No.
001-11001).
4.100.9 Sixth Supplemental Indenture, dated as of October 15, 1995, to
Chemical Bank, as Trustee, (incorporated by reference to Exhibit
4.100.9 to Registrant's Form 8-K Current Report filed March 29, 1996,
File No. 001-11001).
4.100.11 Seventh Supplemental Indenture, dated as of June 1, 1996,
(incorporated by reference to Exhibit 4.100.11 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996, File
No. 001-11001).
4.100.12 Eighth Supplemental Indenture, dated as of December 1, 1996,
(incorporated by reference to Exhibit 4.100.12 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996, File
No. 001-11001).
4.200.1 Indenture dated as of January 15, 1996, between Citizens Utilities
Company and Chemical Bank, as indenture trustee (incorporated by
reference to Exhibit 4.200.1 to the Registrant's Form 8-K Current
Report filed May 28, 1996, File No. 001-11001).
4.200.2 First Supplemental Indenture dated as of January 15, 1996, between
Citizens Utilities Company and Chemical Bank, as indenture trustee,
(incorporated by reference to Exhibit 4.200.2 to the Registrant's Form
8-K Current Report filed May 28, 1996, File No. 001-11001).
4.200.3 5% Convertible Subordinated Debenture due 2036, (contained as Exhibit
A to Exhibit 4.200.2), (incorporated by reference to Exhibit 4.200.2
to the Registrant's Form 8-K Current Report filed May 28, 1996, File
No. 001-11001).
4.200.4 Amended and Restated Declaration of Trust dated as of January 15,
1996, of Citizens Utilities Trust, (incorporated by reference to
Exhibit 4.200.4 to the Registrant's Form 8-K Current Report filed May
28, 1996, File No. 001-11001).
4.200.5 Convertible Preferred Security Certificate, (contained as Exhibit A-1
to Exhibit 4.200.4), (incorporated by reference to Exhibit 4.200.4 to
the Registrant's Form 8-K Current Report filed May 28, 1996, File No.
001-11001).
4.200.6 Amended and Restated Limited Partnership Agreement dated as of January
15, 1996 of Citizens Utilities Capital L.P., (incorporated by
reference to Exhibit 4.200.6 to the Registrant's Form 8-K Current
Report filed May 28, 1996, File No. 001-11001).
4.200.7 Partnership Preferred Security Certificate (contained as Annex A to
Exhibit 4.200.6), (incorporated by reference to Exhibit 4.200.6 to the
Registrant's Form 8-K Current Report filed May 28, 1996, File No.
001-11001).
4.200.8 Convertible Preferred Securities Guarantee Agreement dated as of
January 15, 1996 between Citizens Utilities Company and Chemical Bank,
as guarantee trustee, (incorporated by reference to Exhibit 4.200.8 to
the Registrant's Form 8-K Current Report filed May 28, 1996, File No.
001-11001).
4.200.9 Partnership Preferred Securities Guarantee Agreement dated as of
January 15, 1996 between Citizens Utilities Company and Chemical Bank,
as guarantee trustee, (incorporated by reference to Exhibit 4.200.9 to
the Registrant's Form 8-K Current Report filed May 28, 1996, File No.
001-11001).
4.200.10 Letter of Representations, dated January 18, 1996, from Citizens
Utilities Company and Chemical Bank, as trustee, to DTC, for deposit
of Convertible Preferred Securities with DTC, (incorporated by
reference to Exhibit 4.200.10 to the Registrant's Form 8-K Current
Report filed May 28, 1996, File No. 001-11001).
-26-
<PAGE>
Exhibit
No. Description
- ------ -----------
10.5 Participation Agreement between ELI, Shawmut Bank Connecticut,
National Association, the Certificate Purchasers named therein, the
Lenders named therein, BA Leasing & Capital Corporation and Citizens
Utilities Company dated as of April 28, 1995, and the related
operating documents (incorporated by reference to Exhibit 10.5 of
ELI's Registration Statement on Form S-1 effective on November 21,
1997, File No. 333-35227).
10.6 Deferred Compensation Plans for Directors, dated November 26, 1984 and
December 10, 1984, (incorporated by reference to Exhibit 10.6 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1984, File No. 001-11001).
10.6.2 Non-Employee Directors' Deferred Fee Equity Plan dated as of June 28,
1994, with all amendments to May 5, 1997, (incorporated by reference
to Exhibit A to the Registrant's Proxy Statement dated April 4, 1995
and Exhibit A to the Registrant's Proxy Statement dated March 28,
1997, respectively, File No. 001-11001).
10.16.1 Employment Agreement between Citizens Utilities Company and Leonard
Tow, effective July 11, 1996, (incorporated by reference to Exhibit
10.16.1 to the Registrant's Quarterly Report on Form 10-Q for the nine
months ended September 30, 1996, File No. 001-11001).
10.17 1992 Employee Stock Purchase Plan, (incorporated by reference to
Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992, File No. 001-11001).
10.18 Amendments dated May 21, 1993 and May 5, 1997, to the 1992 Employee
Stock Purchase Plan, (incorporated by reference to the Registrant's
Proxy Statement dated March 31, 1993 and the Registrant's Proxy
Statement dated March 28, 1997, respectively, File No. 001-11001).
10.19 Citizens Executive Deferred Savings Plan dated January 1, 1996.
10.20 Citizens Incentive Plan restated as of March 21, 2000.
10.21 1996 Equity Incentive Plan and amendment dated May 5, 1997 to 1996
Equity Incentive Plan, (incorporated by reference to Exhibit A
to the Registrant's Proxy Statement dated March 29, 1996 and Exhibit
B to Proxy Statement dated March 28, 1997, respectively, File No.
001-11001).
10.22 Competitive Advance and Revolving Credit Facility Agreement between
Citizens Utilities Company and Chase Manhattan Bank dated October 29,
1999.
10.24.1 Indenture from ELI to Citibank, N.A., dated April 15, 1999, with
respect to ELI's 6.05% Senior Unsecured Notes due 2004, (incorporated
by reference to Exhibit 10.24.1 of ELI's Annual Report on Form 10-K
for the year ended December 31, 1999, File No. 0-23393).
10.24.2 First Supplemental Indenture from ELI, Citizens Utilities Company and
Citizens Newco Company to Citibank, N.A. dated April 15, 1999, with
respect to the 6.05% Senior Unsecured Notes due 2004, (incorporated by
reference to Exhibit 10.24.2 of ELI's Annual Report on Form 10-K for
the year ended December 31, 1999, File No. 0-23393).
10.24.3 Form of ELI's 6.05% Senior Unsecured Notes due 2004, (incorporated by
reference to Exhibit 10.24.3 of ELI's Annual Report on Form 10-K for
the year ended December 31, 1999, File No. 0-23393).
10.24.4 Letter of Representations to the Depository Trust Company dated April
28, 1999, with respect to ELI's 6.05% Senior Unsecured Notes due 2004,
(incorporated by reference to Exhibit 10.24.4 of ELI's Annual Report
on Form 10-K for the year ended December 31, 1999, File No. 0-23393).
10.25 Asset Purchase Agreements between Citizens Utilities Company and GTE
Corporation dated May 27 and September 21, 1999.
10.26 Asset Purchase Agreements between Citizens Utilities Company and
US West Communications, Inc. dated June 16, 1999.
10.27 Asset Purchase Agreements between Citizens Utilities Company and
American Water Works dated October 15, 1999.
12 Computation of ratio of earnings to fixed charges (this item is
included herein for the sole purpose of incorporation by reference).
21 Subsidiaries of the Registrant
23 Auditors' Consent
24 Powers of Attorney
27 Financial Data Schedule
Exhibits 10.6, 10.6.2, 10.16.1, 10.17, 10.18, 10.19, 10.20 and 10.21 are
management contracts or compensatory plans or arrangements.
The Company agrees to furnish to the Commission upon request copies of the
Realty and Chattel Mortgage, dated as of March 1, 1965, made by Citizens
Utilities Rural Company, Inc., to the United States of America (the Rural
Utilities Services and Rural Telephone Bank) and the Mortgage Notes which that
mortgage secures; and the several subsequent supplemental Mortgages and Mortgage
Notes; copies of the instruments governing the long-term debt of Louisiana
General Services, Inc.; copies of separate loan agreements and indentures
governing various Industrial Development Revenue Bonds; copies of documents
relating to indebtedness of subsidiaries acquired during 1996, 1997 and 1998,
and copies of the credit agreement between Electric Lightwave, Inc. and
Citibank, N. A. dated November 21, 1997. The Company agrees to furnish to the
Commission upon request copies of schedules and exhibits to items 10.25, 10.26
and 10.27.
-27-
<PAGE>
(b) Reports on Form 8-K:
The Company filed on Form 8-K dated October 18, 1999, under Item 5 "Other
Events" and Item 7 "Exhibits," a press release announcing that it had agreed
to sell its water and wastewater operations to American Water Works, Inc.
The Company filed on Form 8-K dated November 10, 1999, under Item 7
"Exhibits," a press release announcing financial results for third quarter
ended September 30, 1999 and operating data.
The Company filed on Form 8-K dated December 20, 1999, under Item 5 "Other
Events" and Item 7 "Exhibits," a press release announcing a definitive
agreement to purchase 106,850 telephone access lines from GTE Corp.
-28-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CITIZENS UTILITIES COMPANY
--------------------------
(Registrant)
By: /s/ Leonard Tow
-----------------------------
Leonard Tow
Chairman of the Board; Chief Executive Officer;
Member, Executive Committee and Director
March 22, 2000
-29-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 22nd day of March 2000.
<TABLE>
<CAPTION>
<S> <C>
Signature Title
--------- -----
/s/ Robert J. DeSantis Vice President and Chief Financial Officer
- ---------------------------------------
(Robert J. DeSantis)
/s/ Livingston E. Ross Vice President and Chief Accounting Officer
- ---------------------------------------
(Livingston E. Ross)
Norman I. Botwinik* Director
- ---------------------------------------
(Norman I. Botwinik)
Aaron I. Fleischman* Member, Executive Committee and Director
- ---------------------------------------
(Aaron I. Fleischman)
Stanley Harfenist* Member, Executive Committee and Director
- ---------------------------------------
(Stanley Harfenist)
Andrew N. Heine* Director
- ---------------------------------------
(Andrew N. Heine)
John L. Schroeder* Director
- ---------------------------------------
(John L. Schroeder)
Robert D. Siff* Director
- ---------------------------------------
(Robert D. Siff)
Robert A. Stanger* Member, Executive Committee and Director
- ---------------------------------------
(Robert A. Stanger)
Charles H. Symington, Jr.* Director
- ---------------------------------------
(Charles H. Symington, Jr.)
Edwin Tornberg* Director
- ---------------------------------------
(Edwin Tornberg)
Claire L. Tow* Director
- ---------------------------------------
(Claire L. Tow)
*By: /s/ Robert J. DeSantis
--------------------------
(Robert J. DeSantis)
Attorney-in-Fact
</TABLE>
-30-
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Item Page
- ---- ----
Independent Auditors' Report F-2
Consolidated balance sheets as of December 31, 1999, 1998 and 1997 F-3
Consolidated statements of income and comprehensive income for the years ended
December 31, 1999, 1998 and 1997 F-4
Consolidated statements of shareholders' equity for the years ended
December 31, 1999, 1998 and 1997 F-6
Consolidated statements of cash flows for the years ended
December 31, 1999, 1998 and 1997 F-7
Notes to consolidated financial statements F-8
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Citizens Utilities Company:
We have audited the accompanying consolidated balance sheets of Citizens
Utilities Company and subsidiaries as of December 31, 1999, 1998 and 1997, and
the related consolidated statements of income and comprehensive income,
shareholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Citizens Utilities
Company and subsidiaries as of December 31, 1999, 1998 and 1997, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
As discussed in Note 1(m) to the consolidated financial statements, the Company
changed its method of accounting in 1998 to adopt the provisions of the American
Institute of Certified Public Accountants Statement of Position (AICPA SOP) 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" and AICPA SOP 98-5 "Reporting on the Costs of Start-up
Activities."
KPMG LLP
New York, New York
March 14, 2000
F-2
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999, 1998 and 1997
($ in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
--------- --------- ---------
Assets
Current assets:
Cash $ 37,141 $ 31,922 $ 35,163
Accounts receivable:
Customers 213,457 175,074 170,191
Other 56,340 77,009 46,487
Less allowance for doubtful accounts 28,278 18,348 25,254
--------- ---------- ---------
Net accounts receivable 241,519 233,735 191,424
Materials and supplies 12,624 13,706 11,411
Other current assets 17,340 27,199 43,871
--------- ---------- ---------
Total current assets 308,624 306,562 281,869
--------- ---------- ---------
Property, plant and equipment 4,458,654 4,045,752 3,576,434
Less accumulated depreciation 1,569,936 1,340,665 1,181,647
---------- ---------- -----------
Net property, plant and equipment 2,888,718 2,705,087 2,394,787
---------- ---------- -----------
Investments 591,386 464,146 447,695
Regulatory assets 184,942 189,866 194,257
Deferred debits and other assets 141,661 113,223 115,038
Assets of discontinued operations 1,656,414 1,514,048 1,439,206
---------- ---------- -----------
Total assets $ 5,771,745 $ 5,292,932 $ 4,872,852
========== ========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Long-term debt due within one year $ 31,156 $ 7,672 $ 5,089
Short-term debt - 110,000 -
Accounts payable 187,984 175,304 214,713
Income taxes accrued 75,161 53,599 45,064
Other taxes accrued 27,823 22,091 21,243
Interest accrued 30,788 27,459 24,841
Customers' deposits 32,842 30,797 19,401
Other current liabilities 81,258 63,676 74,907
--------- ---------- ---------
Total current liabilities 467,012 490,598 405,258
Deferred income taxes 460,208 442,908 420,708
Customer advances for construction 172,067 187,502 151,307
Deferred credits and other liabilities 87,668 77,967 105,880
Contributions in aid of construction 7,764 7,407 6,604
Regulatory liabilities 27,000 19,120 20,881
Long-term debt 2,107,460 1,775,338 1,583,902
Liabilities of discontinued operations 310,269 268,286 261,225
Minority interest in subsidiary 11,112 29,785 36,626
Company obligated mandatorily redeemable
convertible preferred securities * 201,250 201,250 201,250
Shareholders' equity 1,919,935 1,792,771 1,679,211
---------- ---------- ----------
Total liabilities and shareholders'
equity $ 5,771,745 $ 5,292,932 $ 4,872,852
========== ========== ==========
* Represents securities of a subsidiary trust, the sole assets of which are
securities of a subsidiary partnership, substantially all the assets of which
are convertible debentures of the Company.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
</TABLE>
F-3
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
($ in thousands, except for per-share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Revenues $1,087,428 $ 932,858 $ 860,332
Operating expenses:
Network access 111,419 105,003 110,057
Depreciation and amortization 262,430 198,658 186,530
Other operating expenses 705,511 547,553 614,526
--------- -------- ---------
Total operating expenses 1,079,360 851,214 911,113
--------- -------- ---------
Income (loss) from operations 8,068 81,644 (50,781)
Non operating gain on sale of subsidiary stock - - 78,734
Investment income 243,621 32,038 33,397
Other income (loss), net (20) (26,746) 7,999
Minority interest 23,227 14,032 645
Interest expense 86,972 67,944 65,779
--------- -------- ----------
Income before income taxes, dividends
on convertible preferred securities,
discontinued operations and cumulative
effect of change in accounting principle 187,924 33,024 4,215
Income taxes 64,587 3,948 1,928
--------- -------- ----------
Income before dividends on convertible
preferred securities, discontinued
operations and cumulative effect of change
in accounting principle 123,337 29,076 2,287
Dividends on convertible preferred securities,
net of income tax benefit 6,210 6,210 6,210
--------- -------- ----------
Income (loss) before discontinued operations
and cumulative effect of change in
accounting principle 117,127 22,866 (3,923)
Income from discontinued operations, net of tax 27,359 36,528 14,023
--------- -------- ----------
Income before cumulative effect of change in
accounting principle 144,486 59,394 10,100
Cumulative effect of change in accounting
principle, net of income tax benefit and
related minority interest - 2,334 -
--------- -------- ----------
Net income 144,486 57,060 10,100
Other comprehensive income (loss),
net of tax and reclassification adjustments (41,769) 52,872 10,832
--------- -------- ----------
Total comprehensive income $ 102,717 $ 109,932 $ 20,932
========= ======== ==========
The accompanying Notes are an integral part of these Consolidated Financial Statements.
</TABLE>
F-4
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
($ in thousands, except for per-share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Income (loss) before discontinued operations and 1999 1998 1997*
cumulative effect of change in accounting -------- --------- ---------
principle per common share:
Basic $ .45 $ .09 $ (.02)
Diluted $ .45 $ .09 $ (.02)
Income from discontinued operations per
common share:
Basic $ .10 $ .14 $ .05
Diluted $ .10 $ .14 $ .05
Income before cumulative effect of change in
accounting principle per common share:
Basic $ .55 $ .23 $ .04
Diluted $ .55 $ .23 $ .04
Net income per common share:
Basic $ .55 $ .22 $ .04
Diluted $ .55 $ .22 $ .04
* Adjusted for subsequent stock dividends.
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
</TABLE>
F-5
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
($ in thousands, except for per-share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Accumulated
Common Additional Other Total
Stock Paid-In Retained Comprehensive Shareholders'
($.25) Capital Earnings Income (Loss) Equity
----------- ---------- -------- ----------- -----------
Balance January 1, 1997 $ 59,788 $ 1,381,341 $ 244,066 $ (7,012) $ 1,678,183
Acquisitions 604 2,736 8,318 11,658
Common stock buybacks (1,226) (47,326) (48,552)
Stock plans 188 6,380 6,568
Stock issuances to fund
EPPICS dividends 247 10,175 10,422
Net income 10,100 10,100
Other comprehensive income,
net of tax and reclassi- 10,832 10,832
fication adjustment
Stock dividends in shares
of Common Stock 3,148 127,119 (130,267) -
---------- ---------- --------- ------------ -----------
Balance December 31, 1997 $ 62,749 $ 1,480,425 $ 132,217 $ 3,820 $ 1,679,211
---------- ---------- --------- ------------ -----------
Acquisitions 133 2,150 2,283
Common stock buybacks (453) (14,370) (14,823)
Stock plans 171 5,935 6,106
Stock issuances to fund
EPPICS dividends 273 9,789 10,062
Net income 57,060 57,060
Other comprehensive income,
net of tax and reclassi-
fication adjustment 52,872 52,872
Stock dividends in shares
of Common Stock 1,914 70,259 (72,173) -
----------- ---------- --------- ----------- ------------
Balance December 31, 1998 $ 64,787 $ 1,554,188 $ 117,104 $ 56,692 $ 1,792,771
----------- ---------- --------- ----------- ------------
Common stock buybacks (157) (6,468) (6,625)
Stock plans 638 20,475 21,113
Stock issuances to fund
EPPICS dividends 251 9,708 9,959
Net income 144,486 144,486
Other comprehensive loss,
net of tax benefit and
reclassification adjustment (41,769) (41,769)
----------- ---------- --------- ------------- ------------
Balance December 31, 1999 $ 65,519 $ 1,577,903 $ 261,590 $ 14,923 $ 1,919,935
=========== ========== ========= ============= ============
The accompanying Notes are an integral part of these Consolidated Financial Statements.
</TABLE>
F-6
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
($ in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
---------- --------- ---------
Net cash provided by continuing
operating activities $ 347,509 $ 156,098 $ 139,856
---------- ---------- ----------
Cash flows used for investing
activities:
Securities matured 7,435 2,000 16,205
Securities sold 1,084,190 992,761 578,322
Securities purchased (1,068,450) (952,628) (434,030)
Construction expenditures (484,776) (353,176) (414,656)
Business acquisitions - (89,234) -
Other (2,786) (1,052) 25,686
---------- ----------- ---------
(464,387) (401,329) (228,473)
---------- ----------- ---------
Cash flows from financing activities:
Long-term debt borrowings 341,471 242,647 143,801
Issuance of common stock 21,113 7,101 4,825
Issuance of subsidiary stock - - 118,554
Short-term debt borrowings (110,000) 42,000 -
(repayments)
Common stock buybacks to fund stock (6,625) (14,823) (48,552)
dividends
Long-term debt principal payments (45,286) (4,574) (3,234)
Other (2,552) - (1,380)
---------- ---------- ---------
198,121 272,351 214,014
---------- ---------- ---------
Cash used for discontinued operations (76,024) (30,361) (114,464)
---------- ---------- ---------
Increase (decrease) in cash 5,219 (3,241) 10,933
Cash at January 1, 31,922 35,163 24,230
---------- ----------- ----------
Cash at December 31, $ 37,141 $ 31,922 $ 35,163
========== =========== ==========
The accompanying Notes are an integral part of these Consolidated Financial Statements.
</TABLE>
F-7
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies:
(a) Description of Business:
------------------------
The Company provides both regulated and competitive communications
services to residential, business and wholesale customers through
subsidiaries and Electric Lightwave, Inc. (ELI). ELI is a facilities based
integrated communications provider providing a broad range of
communications services throughout the United States. The Company is not
dependent upon any single geographic area or single customer for its
revenues.
In May 1998, the Company announced its plans to separate its
communications businesses and public services businesses into two
stand-alone publicly traded companies. The Company discontinued its
separation plans when opportunities became available in 1999 to acquire
telecommunications properties. During 1999, the Company announced that it
had entered into various agreements to purchase approximately 911,000
telephone access lines from GTE Corp. (GTE) and US West Communications,
Inc. (US West) for approximately $2,821,000,000 in cash. In August 1999,
the Company's Board of Directors approved a plan of divestiture by sale
for the Company's public services properties, which include gas, electric
and water and wastewater businesses.
On October 18, 1999, the Company announced that it had agreed to sell its
water and wastewater operations to American Water Works, Inc. for an
aggregate purchase price of $835,000,000. The transaction is expected to
close in 2000 following regulatory approvals.
On February 15, 2000, the Company announced that it had agreed to sell its
electric utility operations. The Arizona and Vermont electric divisions
will be sold to Cap Rock Energy Corp. and the Kauai (Hawaii) electric
division will be sold to Kauai Island Electric Co-op for an aggregate
purchase price of $535,000,000. The transactions are expected to close in
2000 following regulatory approvals.
The Company expects to temporarily fund these telephone access line
purchases with cash and investment balances and proceeds from commercial
paper issuances, backed by committed bank credit facilities. Permanent
funding is expected to be from cash and investment balances and the
proceeds from the divestiture of the Company's public services businesses.
(b) Principles of Consolidation and Use of Estimates:
------------------------------------------------
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and include the accounts of
Citizens Utilities Company and its subsidiaries. Certain reclassifications
of balances previously reported have been made to conform to current
presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
(c) Revenues:
---------
The Company records revenues when services are provided. Certain
communications revenues are estimated under cost separation procedures
that base revenues on current operating costs and investments in
facilities to provide such services.
(d) Construction Costs and Maintenance Expense:
-------------------------------------------
Property, plant and equipment are stated at original cost, including
general overhead and an allowance for funds used during construction
(AFUDC) for regulated businesses and capitalized interest for unregulated
businesses. Maintenance and repairs are charged to operating expenses as
incurred.
AFUDC represents the borrowing costs and a return on common equity of
funds used to finance construction of regulated assets. AFUDC is
capitalized as a component of additions to property, plant and equipment
and is credited to income. AFUDC does not represent current cash earnings;
however, under established regulatory rate-making practices, after the
related plant is placed in service, the Company is permitted to include in
the rates charged for regulated services a fair return on and depreciation
of such AFUDC included in plant in service. The amount of AFUDC relating
to equity is included in other income, net ($2,547,000, $2,700,000 and
$4,566,000 for 1999, 1998 and 1997, respectively) and the amount relating
to borrowings is included as a reduction of interest expense ($2,330,000,
$1,726,000 and $1,122,000 for 1999, 1998 and 1997, respectively). The book
value, net of salvage, of routine property, plant and equipment
dispositions is charged against accumulated depreciation for regulated
operations.
F-8
<PAGE>
Capitalized interest for unregulated construction activities credited to
interest expense related to ELI's capital expenditure program amounted to
$8,681,000, $10,444,000 and $4,693,000 for 1999, 1998 and 1997,
respectively.
(e) Depreciation Expense:
--------------------
Depreciation expense, calculated using the straight-line method, is based
upon the estimated service lives of various classifications of property,
plant and equipment and represents approximately 7%, 6% and 6% for 1999,
1998 and 1997, respectively, of the gross depreciable property, plant and
equipment.
(f) Regulatory Assets and Liabilities:
---------------------------------
The Company's regulated operations are subject to the provisions of
Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for
the Effects of Certain Types of Regulation." SFAS 71 requires regulated
entities to record regulatory assets and liabilities as a result of
actions of regulators.
The Company continuously monitor the applicability of SFAS 71 to its
regulated operations. SFAS 71 may, at some future date, be deemed
inapplicable due to changes in the regulatory and competitive environments
and/or a decision by the Company to accelerate deployment of new
technology. If the Company were to discontinue the application of SFAS 71
to one or more of its regulated operations, the Company would be required
to write off its regulatory assets and regulatory liabilities and would be
required to adjust the carrying amount of any other assets, including
property, plant and equipment, that would be deemed not recoverable
related to those operations. The Company believes its regulated operations
continue to meet the criteria for SFAS 71 and that the carrying value of
its regulated property, plant and equipment is recoverable in accordance
with established rate-making practices.
(g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of:
--------------------------------------------------------------------------
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment is
measured by the amount by which the carrying amount of the assets exceed
the fair value. During the fourth quarter of 1999, the Company determined
that certain long-lived assets in the Communications sector were impaired.
As a result, the Company recorded $36,136,000 of pre-tax charges as part
of other operating expenses, including approximately $15,369,000 related
to a decision made by management to discontinue development of certain
operational systems and approximately $20,767,000 related to certain
regulatory assets deemed to be no longer recoverable.
(h) Investments and Short-Term Debt:
-------------------------------
Investments include high credit quality, short- and intermediate-term
fixed-income securities (primarily state and municipal debt obligations)
and equity securities. The Company classifies its investments at purchase
as available-for-sale or held-to-maturity. The Company does not maintain
a trading portfolio.
Securities classified as available-for-sale are carried at estimated fair
market value. These securities are held for an indefinite period of time,
but might be sold in the future as changes in market conditions or
economic factors occur. Net aggregate unrealized gains and losses related
to such securities, net of taxes, are included as a separate component of
shareholders' equity. Held-to-maturity securities represented those which
the Company had the ability and intent to hold to maturity and were
carried at amortized cost, adjusted for amortization of premiums/discounts
and accretion over the period to maturity. Interest, dividends and gains
and losses realized on sales of securities are reported in Investment
income.
The Company evaluates its investments periodically to determine whether
any decline in fair value, below the amortized cost basis, is other than
temporary. If the Company determines that a decline in fair value is other
than temporary, the cost basis of the individual investment is written
down to fair value which becomes the new cost basis. The amount of the
write down is included in earnings as a loss.
Commercial paper notes payable is classified as long-term debt when it is
intended to be refinanced with long-term debt securities. In 1998,
short-term debt represented commercial paper notes payable which were
repaid in January 1999 with the proceeds from the sale of the Company's
investment in Centennial Cellular Corp. (Centennial) (see Note 5).
F-9
<PAGE>
(i) Income Taxes, Deferred Income Taxes and Investment Tax Credits:
--------------------------------------------------------------------
The Company and its subsidiaries are included in a consolidated federal
income tax return. The Company utilizes the asset and liability method of
accounting for income taxes. Under the asset and liability method, de-
ferred income taxes are recorded for the tax effect of temporary
differences between the financial statement and the tax bases of assets
and Liabilities using tax rates expected to be in effect when the tem-
porary differences are expected to turn around. Regulatory assets and
liabilities (see Note 1(f)) include income tax benefits previously flowed
through to customers and from the allowance for funds used during con-
struction, the effects of tax law changes and the tax benefit associated
with unamortized deferred investment tax credits. These regulatory assets
and liabilities represent the probable net increase in revenues that will
be reflected through future ratemaking proceedings. The investment tax
credits relating to regulated operations, as defined by applicable
regulatory authorities, have been deferred and are being amortized to
income over the lives of the related properties.
(j) Employee Stock Plans:
---------------------
The Company has various employee stock-based compensation plans. Awards
under these plans are granted to eligible officers, management employees
and non-management exempt and non-exempt employees. Awards may be made in
the form of incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock or other stock based awards. The
Company recognizes compensation expense in the financial statements only
if the market price of the underlying stock exceeds the exercise price on
the date of grant. The Company provides pro forma net income and pro forma
net income per common share disclosures for employee stock option grants
made in 1995 and future years based on the fair value of the options at
the date of grant (see Note 10). Fair value of options granted is computed
using the Black Scholes option pricing model.
(k) Non Operating Gain on Subsidiary Stock and Minority Interest:
------------------------------------------------------------
On November 24, 1997, ELI completed an initial public offering (IPO)
of 8,000,000 shares of its Class A Common Stock. The Company's policy is
to account for sales of subsidiary stock as income statement transactions
and as a result, in 1997, the Company recorded a pre-tax non operating
gain of approximately $78,700,000 resulting from this transaction and
continues to consolidate ELI. The Company retains approximately 98%
of the voting interest and approximately 82% of the economic ownership in
ELI.
Minority interest represents the minority's share of ELI's loss before
income tax benefit as of December 31, 1999. The Company will be able to
record minority interest income only to the extent of the minority
interest. If ELI becomes profitable, its earnings will be recognized in
full by the Company until losses the Company recognized in excess of its
economic ownership percentage are recovered. After such recovery, the
Company will record minority interest expense on the consolidated
statement of income and comprehensive income and will again record
minority interest on its balance sheet.
(l) Net Income Per Common Share:
---------------------------
Basic net income per common share is computed using the weighted average
number of common shares outstanding during the period being reported on.
Diluted net income per common share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock at the beginning of the period
being reported on. Both Basic and Diluted net income per common share
calculations for 1997 are presented with adjustments for subsequent stock
dividends. There were no stock dividends declared in 1999 (see Note 14).
(m) Changes in Accounting Principles:
--------------------------------
In March 1998, the Accounting Standards Executive Committee of the AICPA
released Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1
requires that certain costs for the development or purchase of
internal-use software be capitalized and amortized over the estimated
useful life of the software and costs for the preliminary project stage
and the post-implementation/operations stage of an internal-use computer
software development project be expensed as incurred. Capitalized software
costs included in construction work in progress reflect costs for
internally developed and purchased software. The impact of the early
adoption of SOP 98-1 was to capitalize approximately $6,100,000 in 1998
that would have been expensed had the Company not early adopted SOP 98-1.
In April 1998, the Accounting Standards Executive Committee of the AICPA
released SOP 98-5, "Reporting on the Costs of Start-Up Activities." SOP
98-5 requires that the unamortized portion of deferred start up costs be
written off and reported as a change in accounting principle. Future costs
of start-up activities should then be expensed as incurred. Certain third
F-10
<PAGE>
party direct costs incurred by ELI in connection with negotiating and
securing initial rights-of-way and developing network design for new
market clusters or locations had been capitalized by ELI in previous years
and were being amortized over five years. The Company elected to early
adopt SOP 98-5 effective January 1, 1998. The net book value of these
deferred amounts was $3,394,000 which has been reported as a cumulative
effect of a change in accounting principle in the statement of income and
comprehensive income for the year ended December 31, 1998, net of an
income tax benefit of $577,000 and the related minority interest of
$483,000.
(2) Property, Plant and Equipment:
-----------------------------
The components of property, plant and equipment at December 31, 1999,
1998 and 1997 are as follows:
1999 1998 1997
--------- ---------- ---------
($ in thousands)
Telephone outside plant $ 2,244,808 $ 2,067,566 $ 1,963,187
Telephone central office equipment 1,272,647 1,076,030 979,870
Information systems and other
administrative assets 619,865 501,870 273,869
Construction work in progress 286,836 372,248 339,305
Other 34,498 28,038 20,203
---------- --------- ---------
$ 4,458,654 $ 4,045,752 $ 3,576,434
========== ========== ===========
(3) Mergers and Acquisitions:
-------------------------
On May 27, September 21, and December 16, 1999, the Company announced that it
had entered into definitive agreements to purchase from GTE approximately
366,000 telephone access lines (as of December 31, 1999) in Arizona,
California, Illinois, Minnesota and Nebraska for approximately $1,171,000,000
in cash. The Company expects that these acquisitions, which are subject to
various state and federal regulatory approvals, will begin closing in the
third quarter 2000.
On June 16, 1999, the Company announced that it had entered into a series of
definitive agreements to purchase from US West approximately 545,000
telephone access lines (as of December 31, 1999) in Arizona, Colorado, Idaho,
Iowa, Minnesota, Montana, Nebraska, North Dakota and Wyoming for
approximately $1,650,000,000 in cash. The Company expects that these
acquisitions, which are subject to various state and federal regulatory
approvals, will occur on a state-by-state basis and will begin closing in the
third quarter 2000.
In November 1998, the Company acquired all of the stock of Rhinelander
Telecommunication, Inc. (RTI) for approximately $84,000,000 in cash. RTI is a
diversified telecommunications company engaged in providing local exchange,
long distance, Internet access, wireless and cable television services to
rural markets in Wisconsin. This transaction was accounted for using the
purchase method of accounting and the results of operations of RTI have been
included in the accompanying financial statements from the date of
acquisition.
In December 1997, the Company acquired Ogden Telephone Company (Ogden) in a
stock for stock transaction. In 1997, the Company issued 2,308,262 shares of
Common Stock to effect the merger. In 1998, 288,554 additional shares of the
Company's Common Stock were issued in connection with this transaction. Ogden
was an independent telephone operating company providing services to
residential and commercial customers in Monroe County, New York. This
transaction was accounted for using the pooling of interests method of
accounting and the results of operations of Ogden have been included in the
accompanying consolidated financial statements since the beginning of the
1997 year.
The following pro forma financial information presents the combined results
of operations of the Company and RTI as if the acquisition had occurred on
January 1 of the year preceding the date of acquisition. The pro forma
financial information does not necessarily reflect the results of operations
that would have occurred had the Company and RTI constituted a single entity
during such periods.
F-11
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997
---------- ----------
($ in thousands, except for per share amounts)
Revenues $ 950,000 $ 878,000
Net income $ 56,000 $ 9,000
Basic net income per common share $ .22 $ .03
Diluted net income per common share $ .22 $ .03
</TABLE>
(4) Discontinued Operations:
-----------------------
On August 24, 1999, the Company's Board of Directors approved a plan of
divestiture by sale of the Company's public services properties, which
include gas, electric and water and wastewater businesses. The proceeds from
the sales of the public services properties will be used to fund the
telephone access line purchases. The Company has accounted for the planned
divestiture of the public services properties as a discontinued operation.
Discontinued operations in the consolidated statements of income and
comprehensive income reflect the results of operations of the public services
properties including allocated interest expense for the periods presented.
Interest expense was allocated to discontinued operations based on debt
issued for these businesses. The debt presented in liabilities of
discontinued operations represents only debt to be transferred pursuant to
the water and wastewater and electric asset sale agreements.
On October 18, 1999, the Company announced that it had agreed to sell its
water and wastewater operations to American Water Works, Inc. for an
aggregate purchase price of $835,000,000. The transaction is expected to
close in 2000 following regulatory approvals.
On February 15, 2000, the Company announced that it had agreed to sell its
electric utility operations. The Arizona and Vermont electric divisions will
be sold to Cap Rock Energy Corp. and the Kauai (Hawaii) electric division
will be sold to Kauai Island Electric Co-op for an aggregate purchase price
of $535,000,000. The transactions are expected to close in 2000 following
regulatory approvals.
Summarized financial information for the discontinued operations is set forth
below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
--------------------------------
($ in thousands)
Current assets $ 109,250 $ 107,478 $ 95,410
Net property, plant and equipment 1,459,958 1,343,536 1,273,006
Other assets 87,206 63,034 70,790
--------- --------- ---------
Total assets $ 1,656,414 $1,514,048 $1,439,206
========= ========= =========
Current liabilities $ 18,040 $ 17,133 $ 12,613
Long-term debt 133,817 124,908 122,630
Other liabilities 158,412 126,245 125,982
-------- -------- ---------
Total liabilities $ 310,269 $ 268,286 $ 261,225
======== ======== =========
Revenues $ 613,216 $ 609,514 $ 533,287
Operating income 82,179 96,525 66,623
Income taxes 14,230 18,389 5,455
Net income $ 27,359 $ 36,528 $ 14,023
</TABLE>
F-12
<PAGE>
(5) Investments:
-------------
The components of investments at December 31, 1999, 1998 and 1997 are as
follows:
1999 1998 1997
-----------------------------
($ in thousands)
State and municipal securities $ 233,021 $ 141,202 $ 212,743
Centennial Preferred Security - 107,679 107,679
Marketable equity securities 243,591 163,661 75,855
Joint Venture with subsidiary of Century - 49,385 49,196
Other fixed income securities 114,774 2,219 2,222
-------- -------- --------
Total $ 591,386 $ 464,146 $ 447,695
======== ======== ========
In January 1999, Centennial was merged with CCW Acquisition Corp., a company
organized at the direction of Welsh, Carson, Anderson & Stowe. The Company
was a holder of 1,982,294 shares of Centennial Class B Common Stock. In
addition, as a holder of 102,187 shares of Mandatorily Redeemable Convertible
Preferred Stock of Centennial, the Company was required to convert the
preferred stock into approximately 2,972,000 shares of Class B Common Stock.
The Company received approximately $205,600,000 in cash for all of its Common
Stock interests and approximately $17,500,000 related to accrued dividends on
the preferred stock. The Company realized and reported a pre-tax gain of
approximately $69,500,000 in the first quarter 1999 in Investment income.
On October 1, 1999, Adelphia Communication Corp. (Adelphia) was merged with
Century Communications Corp. (Century). The Company owned 1,807,095 shares of
Century Class A Common Stock. Pursuant to this merger agreement, Century
Class A Common shares were exchanged for $10,832,000 in cash and 1,206,705
shares of Adelphia Class A Common Stock (for a total market value of
$79,600,000 based on Adelphia's October 1, 1999 closing price of $57.00). The
Company realized and reported a pre-tax gain of approximately $67,600,000 in
the fourth quarter of 1999 in Investment income.
A subsidiary of the Company, in a joint venture with a subsidiary of Century,
owned and operated four cable television systems in southern California
serving over 90,000 basic subscribers. In July 1999, the Company entered into
a separate agreement with Adelphia to sell its interest in the joint venture.
Pursuant to this agreement on October 1, 1999, the Company received
approximately $27,700,000 in cash and 1,852,302 shares of Adelphia Class A
Common Stock (for a total market value of $133,300,000 based on Adelphia's
October 1, 1999 closing price of $57.00). The Company realized and reported a
pre-tax gain of approximately $83,900,000 in the fourth quarter of 1999 in
Investment income. During 1999, the Company reclassified the cost related to
the Company's joint venture with a subsidiary of Century from other assets to
investments. Prior year presentations have been restated to conform to the
current year presentation.
The Chairman and Chief Executive Officer of the Company was also Chairman and
Chief Executive Officer of Century prior to its merger with Adelphia.
Centennial was a subsidiary of Century until it was sold.
The following summarizes the amortized cost, gross unrealized holding gains
and losses and fair market value for investments.
Amortized Unrealized Holding Aggregate Fair
Investment Classification Cost Gains (Losses) Market Value
- ------------------------- ------------ ----- -------- --------------
($ in thousands)
As of December 31, 1999
- -----------------------
Available-For-Sale $ 567,208 $ 37,025 $ (12,847) $ 591,386
As of December 31, 1998
- -----------------------
Held-To-Maturity $ 107,679 $ 15,673 $ - $ 123,352
Available-For-Sale 215,228 100,329 (8,475) 307,082
Joint Venture with Century 49,385 - - 49,385
As of December 31, 1997
- -----------------------
Held-To-Maturity $ 107,679 $ 78,608 $ - $ 186,287
Available-For-Sale 284,630 19,673 (13,483) 290,820
Joint Venture with Century 49,196 - - 49,196
F-13
<PAGE>
The amortized cost of held-to-maturity securities plus the aggregate fair
market value of available-for-sale securities for each year presented above
equals the total of investments presented in the foregoing investments table.
Marketable equity securities for 1999, 1998 and 1997 include the Company's
investment in Hungarian Telephone and Cable Corp. (HTCC). The Chairman and
Chief Executive Officer of the Company is also a member of the Board of
Directors of HTCC.
In 1995, the Company made an initial investment in and entered into
definitive agreements with HTCC. The investment in HTCC had declined in value
during 1998 and in the fourth quarter of 1998 management determined that the
decline was other than temporary. As a result, the Company recognized a loss
of $31,900,000 in the HTCC investment in Other income (loss), net in 1998.
In May 1999, in connection with HTCC's debt restructuring, the Company
cancelled a note obligation from HTCC to the Company and a seven-year
consulting services agreement in exchange for the issuance by HTCC to the
Company of 1,300,000 shares of HTCC Common Stock and 30,000 shares of HTCC's
5% convertible preferred stock. Each share of HTCC convertible preferred
stock has a liquidation value of $70 and is convertible at the option of the
Company into 10 shares of HTCC Common Stock. To the extent the 1,300,000 HTCC
common shares and the 300,000 HTCC common shares underlying the HTCC
convertible preferred stock do not achieve an average market closing price of
at least $7 per share for the twenty trading days ending March 31, 2000, HTCC
has agreed to issue additional HTCC convertible preferred shares with a value
equal to any such shortfall.
At December 31, 1999, the Company owns approximately 19% of the HTCC shares
presently outstanding. The Company's investment in HTCC is classified as an
available for sale security and accounted for using the cost method of
accounting. Additionally, the Company has exercised its right to nominate one
member of the Board of Directors of HTCC.
(6) Fair Value of Financial Instruments:
------------------------------------
The following table summarizes the carrying amounts and estimated fair values
for certain of the Company's financial instruments at December 31, 1999, 1998
and 1997. For the other financial instruments, representing cash, accounts
and notes receivables, short-term debt, accounts payable and other accrued
liabilities, the carrying amounts approximate fair value due to the
relatively short maturities of those instruments.
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- ----------------------- ------------------------
Carrying Carrying Carrying
Amount Fair Value Amount Fair Value Amount Fair Value
-------- ---------- --------- ---------- ------- ----------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investments $ 591,386 $ 591,386 $ 464,146 $ 479,819 $ 447,695 $ 526,303
Long-term debt 2,107,460 2,046,541 1,775,338 1,884,631 1,583,902 1,665,897
EPPICS 201,250 226,909 201,250 171,566 201,250 192,194
</TABLE>
The fair value of the above financial instruments are based on quoted prices
at the reporting date for those financial instruments except for the
investment in the Centennial Preferred Security and the Joint Venture with
Century. The fair value of the Centennial Preferred Security was estimated to
be its accreted value at December 31, 1997 and its conversion value at
December 31, 1998. The fair value of the Joint Venture with Century was
estimated to be its book value (see Note 5).
F-14
<PAGE>
(7) Long-term Debt:
--------------
<TABLE>
<CAPTION>
Weighted average December 31,
interest rate at ---------------------------------------
December 31, 1999 Maturities 1999 1998 1997
----------------- --------- ---------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Debentures 7.34% 2001-2046 $ 1,000,000 $ 1,000,000 $ 1,000,000
Industrial development
revenue bonds 5.39% 2015-2033 353,494 337,922 320,281
Senior unsecured notes 6.25% 2004-2012 361,000 36,000 36,000
ELI bank credit facility 6.63% 2002 260,000 284,000 60,000
Rural Utilities Service
Loan Contracts 5.85% 2001-2027 87,100 91,078 87,053
Other long-term debt 8.86% 2000-2027 45,866 26,338 12,568
Commercial paper notes
payable - - 68,000
---------- ----------- ----------
Total long-term debt $ 2,107,460 $ 1,775,338 $ 1,583,902
========== =========== ==========
</TABLE>
The total principal amounts of industrial development revenue bonds were
$369,935,000 in 1999 and 1998 and $349,935,000 in 1997. Funds from industrial
development revenue bond issuances are held by a trustee until qualifying
construction expenditures are made at which time the funds are released. The
amounts presented in the table above represent funds that have been used for
construction through December 31, 1999, 1998 and 1997, respectively.
On December 31, 1997, certain commercial paper notes payable were classified
as long-term debt because the obligations were refinanced with long-term debt
securities.
The Company has available lines of credit with financial institutions in the
amounts of $3,000,000,000, with associated facility fees of 0.06% per annum
and $200,000,000 with no associated facility fees, which expire on October
27, 2000, and another $200,000,000 with associated facility fees of 0.07625%
per annum which expires on December 16, 2003. The terms of the latter line of
credit provide the Company with extension options. There were no amounts
outstanding under these commitments at December 31, 1999. ELI has committed
lines of credit with commercial banks under which it may borrow up to
$400,000,000 which are guaranteed by the Company and expire November 21,
2002. The ELI credit facility has an associated facility fee of 0.05% per
annum. As of December 31, 1999, $260,000,000 was outstanding under ELI's
lines of credit.
In April 1999, ELI completed an offering of $325,000,000 of five-year senior
unsecured notes. The notes have an interest rate of 6.05% and mature on May
15, 2004. The Company has guaranteed the payment of principal and any premium
and interest on the notes when due.
The Company's installment principal payments, capital leases and maturities
of long-term debt for the next five years are as follows:
2000 2001 2002 2003 2004
------- -------- -------- -------- --------
($ in thousands)
Installment principal
payments $ 5,258 $ 4,839 $ 4,953 $ 5,051 $ 5,107
Capital leases 25,898 22,707 442 477 515
Maturities - 50,000 260,000 - 425,000
------- --------- --------- -------- --------
$ 31,156 $ 77,546 $ 265,395 $ 5,528 $ 430,622
======= ========= ========= ======== ========
Holders of certain industrial development revenue bonds may tender at par
prior to maturity. The next tender date is April 1, 2001 for $14,400,000 of
principal amount of bonds. The Company expects to remarket all such bonds
which are tendered. In the years 1999, 1998 and 1997, interest payments on
short- and long-term debt were $93,017,000, $77,038,000 and $69,566,000,
respectively.
F-15
<PAGE>
(8) Company Obligated Mandatorily Redeemable Convertible Preferred Securities:
--------------------------------------------------------------------------
During the first quarter of 1996, a consolidated wholly-owned subsidiary of
the Company, Citizens Utilities Trust (the Trust), issued, in an underwritten
public offering, 4,025,000 shares of 5% Company Obligated Mandatorily
Redeemable Convertible Preferred Securities due 2036 (Trust Convertible
Preferred Securities or EPPICS), representing preferred undivided interests
in the assets of the Trust, with a liquidation preference of $50 per security
(for a total liquidation amount of $201,250,000). The proceeds from the
issuance of the Trust Convertible Preferred Securities and a Company capital
contribution were used to purchase $207,475,000 aggregate liquidation amount
of 5% Partnership Convertible Preferred Securities due 2036 from another
wholly owned consolidated subsidiary, Citizens Utilities Capital L.P. (the
Partnership). The proceeds from the issuance of the Partnership Convertible
Preferred Securities and a Company capital contribution were used to purchase
from the Company $211,756,050 aggregate principal amount of 5% Convertible
Subordinated Debentures due 2036. The sole assets of the Trust are the
Partnership Convertible Preferred Securities, and the Company's Convertible
Subordinated Debentures are substantially all the assets of the Partnership.
The Company's obligations under the agreements related to the issuances of
such securities, taken together, constitute a full and unconditional
guarantee by the Company of the Trust's obligations relating to the Trust
Convertible Preferred Securities and the Partnership's obligations relating
to the Partnership Convertible Preferred Securities. The $196,722,000 of net
proceeds from the issuances was used to permanently fund a portion of
previous acquisitions of telecommunications properties.
In accordance with the terms of the issuances, the Company paid the 5%
interest on the Convertible Subordinated Debentures in Citizens' Common
Stock. During 1999, 1,004,961 shares of Common Stock were issued to the
Partnership in payment of interest of which 976,464 shares were sold by the
Partnership to satisfy cash dividend payment elections by the holders of the
EPPICS. The sales proceeds and the remaining 28,497 shares of Common Stock
were distributed by the Partnership to the Trust. During 1998, 1,093,274
shares of Common Stock were issued to the Partnership in payment of interest
of which 1,009,231 shares were sold by the Partnership to satisfy cash
dividend payment elections by the holders of the EPPICS. The sales proceeds
and the remaining 84,043 shares of Common Stock were distributed by the
Partnership to the Trust. During 1997, 986,579 shares of Common Stock were
issued to the Partnership in payment of interest of which 952,007 shares were
sold by the Partnership to satisfy cash dividend payment elections by the
holders of the EPPICS. The sales proceeds and the remaining 34,572 shares of
Common Stock were distributed by the Partnership to the Trust. The Trust
distributed the cash and shares as dividends to the holders of the EPPICS in
1999, 1998 and 1997.
(9) Capital Stock:
--------------
The Company is authorized to issue up to 600,000,000 shares of Common Stock.
Quarterly stock dividends had been declared and issued on Common Stock and
shareholders had the option of enrolling in the "Common Stock Dividend Sale
Plan." The plan offered shareholders the opportunity to have their stock
dividends sold by the plan broker and the net cash proceeds of the sale
distributed to them quarterly.
The amount and timing of dividends payable on Common Stock are within the
sole discretion of the Company's Board of Directors. The Board of Directors
had undertaken an extensive review of the Company's dividend policy in
conjunction with its review of strategic options for the Company in 1998.
Resulting from this review, the Board concluded that the Company discontinue
dividends after the payment of the December 1998 stock dividend.
Quarterly and annual stock dividend rates declared and annual stock dividend
cash equivalents (adjusted for all stock dividends declared through December
31, 1998, and rounded to the nearest 1/16th) considered by the Board have
been as follows:
Dividend Rates
--------------------
1998 1997
--------------------
First quarter .75% 1.6 %
Second quarter .75% 1.6 %
Third quarter .75% 1.0 %
Fourth quarter .75% 1.0 %
------- --------
Total 3.0% 5.2 %
======= ========
Compounded Total 3.03% 5.30%
======= ========
Cash Equivalent 28 5/16(cent) 51 1/4(cent)
=========================
F-16
<PAGE>
The Company purchased 631,000 shares at a cost of $6,625,000 in 1999. The
Company purchased 1,811,000 shares at a cost of $14,826,000 in 1998 and
4,904,000 shares at a cost of $48,552,000 in 1997 to pay common stock
dividends.
In December 1999, the Company's Board of Directors authorized the purchase,
from time to time, of up to $100,000,000 worth of shares of the Company's
common stock.
The activity in shares of outstanding common stock during 1999, 1998 and 1997
is summarized as follows:
Number of Shares
----------------
Balance at January 1, 1997 239,148,000
Acquisitions 2,417,000
Common stock dividends 12,591,000
Common stock buybacks (4,904,000)
Common stock issued to fund EPPICS dividends 986,000
Stock plans 756,000
-----------
Balance at December 31, 1997 250,994,000
Acquisitions 532,000
Common stock dividends 7,657,000
Common stock buybacks (1,811,000)
Common stock issued to fund EPPICS dividends 1,093,000
Stock plans 684,000
-----------
Balance at December 31, 1998 259,149,000
Common stock buybacks (631,000)
Common stock issued to fund EPPICS dividends 1,005,000
Stock plans 2,553,000
-----------
Balance at December 31, 1999 262,076,000
===========
The Company has 50,000,000 authorized but unissued shares of preferred stock
($.01 par).
(10) Stock Plans:
-----------
At December 31, 1999, the Company had four stock based compensation plans and
ELI had two stock based plans which are described below. The Company applies
APB Opinion No. 25 and related interpretations in accounting for the employee
stock plans. No compensation cost has been recognized in the financial
statements for options issued pursuant to the Management Equity Incentive
Plan (MEIP), Equity Incentive Plan (EIP), Employee Stock Purchase Plan
(ESPP), ELI Employee Stock Purchase Plan (ELI ESPP) or ELI Equity Incentive
Plan (ELI EIP) as the exercise price for such options was equal to the market
price of the stock at the time of grant. Compensation cost recognized for the
Company's Directors' Deferred Fee Equity Plan was $481,540, $463,798 and
$352,017 in 1999, 1998 and 1997, respectively. Had the Company determined
compensation cost based on the fair value at the grant date for its MEIP,
EIP, ESPP, ELI ESPP and ELI EIP, the Company's pro forma Net income and Net
income per common share would have been as follows:
1999 1998 1997
--------------------------
($ in thousands)
Net Income As reported $144,486 $57,060 $10,100
Pro forma 130,613 46,005 7,717
Net Income per common share As reported:
Basic $.55 $.22 $.04
Diluted .55 .22 .04
Pro forma:
Basic $.50 $.18 $.03
Diluted .50 .18 .03
The full impact of calculating compensation cost for stock options is not
reflected in the pro forma amounts above because pro forma compensation cost
only includes costs associated with the vested portion of options granted
pursuant to the MEIP, EIP, ESPP, ELI ESPP and ELI EIP on or after January 1,
1995.
F-17
<PAGE>
In November 1998, the Compensation Committee of the Company's Board of
Directors approved a stock option exchange program pursuant to which current
employees of the Company (excluding senior executive officers) holding
outstanding options, under the MEIP and EIP plans, with an exercise price in
excess of $10.00 had the right to exchange their options for a lesser number
of new options with an exercise price of $7.75. A calculation was prepared
using the Black Scholes option pricing model to determine the exchange rate
for each eligible grant in order to keep the fair value of options exchanged
equal to the fair value of the options reissued. The exchanged options
maintain the same vesting and expiration terms. This stock option exchange
program had no impact on reported earnings and resulted in an aggregate net
reduction in shares subject to option of 2,202,000 for both MEIP and EIP.
In August 1998, the Compensation Committee of ELI's Board of Directors
approved a stock option exchange program pursuant to which employees of ELI
holding outstanding options with an exercise price in excess of $15.50 had
the right to exchange all or half of their options for a lesser number of new
options with an exercise price of $8.75. A calculation was prepared using the
Black Scholes option pricing model to determine the exchange rate for each
eligible grant in order to keep the fair value of options exchanged equal to
the fair value of the options reissued. The repriced options maintain the
same vesting and expiration terms. This stock option exchange program had no
impact on reported earnings and resulted in a net reduction in shares subject
to option of 546,000.
Both ELI and the Company repriced these employee stock options in an effort
to retain employees at a time when a significant percentage of employee stock
options had exercise prices that were above fair market value. No
compensation costs have been recognized in the financial statements as the
exercise price was equal to the market value of the stock at the date of
repricing.
Management Equity Incentive Plan
--------------------------------
Under the MEIP, awards of the Company's Common Stock may be granted to
eligible officers, management employees and non-management exempt employees
of the Company and its subsidiaries in the form of incentive stock options,
non-qualified stock options, stock appreciation rights (SARs), restricted
stock or other stock-based awards. The MEIP is administered by the
Compensation Committee of the Board of Directors.
The maximum number of shares of common stock which may be issued pursuant to
awards at any time is 5% (13,103,812 as of December 31, 1999) of the
Company's common stock outstanding. No awards will be granted more than 10
years after the effective date (June 22, 1990) of the MEIP. The exercise
price of stock options and SARs shall be equal to or greater than the fair
market value of the underlying common stock on the date of grant. Stock
options are generally not exercisable on the date of grant but vest over a
period of time.
Under the terms of the MEIP, subsequent stock dividends and stock splits have
the effect of increasing the option shares outstanding, which correspondingly
decreases the average exercise price of outstanding options.
The following is a summary of share activity subject to option under the MEIP
adjusted for subsequent stock dividends for 1997. There were no stock
dividends declared in 1999.
Shares Weighted
Subject to Average Option
Option Price Per Share
---------- ---------------
Balance at January 1, 1997 10,800,000 $ 11.02
Options granted 1,641,000 8.53
Options exercised (106,000) 10.81
Options canceled,forfeited or lapsed (631,000) 11.03
---------
Balance at December 31, 1997 11,704,000 10.72
Options granted 1,869,000 7.75
Options exercised (29,000) 10.56
Options canceled,forfeited or lapsed (4,109,000) 11.09
-----------
Balance at December 31, 1998 9,435,000 9.91
Options granted 1,844,000 8.00
Options exercised (602,000) 8.20
Options canceled,forfeited or lapsed (396,000) 8.08
-----------
Balance at December 31, 1999 10,281,000 $ 9.73
===========
F-18
<PAGE>
In 1998, as a result of the stock option exchange program approved by the
Compensation Committee of the Board of Directors, a total of 3,801,000
options were eligible for exchange, of which 3,554,000 options were canceled
in exchange for 1,869,000 new options with an exercise price of $7.75.
The following table summarizes information about shares subject to options
under the MEIP at December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------ ---------------------------
Weighted Average Weighted
Number Range of Weighted Average Remaining Number Average
Outstanding Exercise Price Excercise Price Life in Years Exercisable Exercise Price
----------- -------------- ---------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
14,000 $ 4 - 5 $ 4 5 14,000 $ 4
3,601,000 7 - 8 8 6 1,889,000 8
1,330,000 8 - 10 9 8 866,000 9
2,199,000 10 - 11 11 5 1,960,000 11
2,578,000 11 - 14 12 4 2,343,000 12
559,000 14 - 15 14 4 559,000 14
---------- ----------
10,281,000 $ 4 - 15 $ 10 5 7,631,000 $ 10
========== ==========
</TABLE>
The weighted average fair value of options granted during 1999, 1998 and 1997
were $3.17, $2.27 and $4.23, respectively. For purposes of the pro forma
calculation, the fair value of each option grant is estimated on the date of
grant using the Black Scholes option pricing model with the following
weighted average assumptions used for grants in 1999, 1998 and 1997:
1999 1998 1997
---- ---- ----
Dividend yield - - -
Expected volatility 29% 26% 32%
Risk-free interest rate 5.32% 4.43% 6.13%
Expected life 6 years 4 years 7 years
During 1996, the Company granted 566,694 shares (adjusted for subsequent
stock dividends) of restricted stock awards to key employees in the form of
the Company's Common Stock. None of the restricted stock may be sold,
assigned, pledged or otherwise transferred, voluntarily or involuntarily, by
the employees until the restrictions lapse in January 2001. At December 31,
1999, 559,974 shares of restricted stock were outstanding. Compensation
expense of $1,268,000, $1,288,000 and $1,302,000 for the years ended December
31, 1999, 1998 and 1997, respectively, has been recorded in connection with
these grants.
Equity Incentive Plan
---------------------
In May 1996, the shareholders of the Company approved the EIP. Under the EIP,
awards of the Company's Common Stock may be granted to eligible officers,
management employees and non-management employees of the Company and its
subsidiaries in the form of incentive stock options, non-qualified stock
options, stock appreciation rights (SARs), restricted stock or other
stock-based awards. The EIP is administered by the Compensation Committee of
the Board of Directors.
The maximum number of shares of common stock which may be issued pursuant to
awards at any time is 12,858,000 shares, which has been adjusted for
subsequent stock dividends for 1997. There were no stock dividends declared
in 1999. No awards will be granted more than 10 years after the effective
date (May 23, 1996) of the EIP. The exercise price of stock options and SARs
shall be equal to or greater than the fair market value of the underlying
common stock on the date of grant. Stock options are generally not
exercisable on the date of grant but vest over a period of time.
Under the terms of the EIP, subsequent stock dividends and stock splits have
the effect of increasing the option shares outstanding, which correspondingly
decrease the average exercise price of outstanding options.
F-19
<PAGE>
The following is a summary of share activity subject to option under the EIP
adjusted for subsequent stock dividends for 1997. There were no stock
dividends declared in 1999.
Shares Weighted
Subject to Average Option
Option Price Per Share
---------- ---------------
Balance at January 1, 1997 - $ -
Options granted 2,197,000 8.55
Options canceled, forfeited or lapsed (3,000) 8.53
----------
Balance at December 31, 1997 2,194,000 8.55
Options granted 4,683,000 9.34
Options canceled,forfeited or lapsed (2,745,000) 10.14
----------
Balance at December 31, 1998 4,132,000 8.51
Options granted 3,487,000 8.64
Options exercised (361,000) 8.46
Options canceled, forfeited or lapsed (679,000) 8.40
----------
Balance at December 31, 1999 6,579,000 $ 8.59
==========
As a result of the stock option exchange program approved by the Compensation
Committee of the Board of Directors, a total of 2,453,000 options were
eligible for exchange, of which 2,123,000 options were canceled in exchange
for 1,606,000 new options with an exercise price of $7.75.
The following table summarizes information about shares subject to options
under the EIP at December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------- ------------------------------
Weighted Average
Number Range of Weighted Average Remaining Number Weighted Average
Outstanding Exercise Price Exercise Price Life in Years Exercisable Exercise Price
- ------------ -------------- ---------------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
3,625,000 $ 7 - 8 $ 8 9 635,000 $ 8
1,504,000 8 - 9 9 8 1,026,000 9
133,000 9 - 10 9 8 35,000 9
417,000 10 - 11 10 8 136,000 10
900,000 11 - 13 12 10 - -
- ------------ ---------
6,579,000 $ 7 - 13 $ 9 9 1,832,000 $ 8
============ =========
</TABLE>
The weighted average fair value of options granted during 1999, 1998 and 1997
was $3.46, $3.54 and $4.25, respectively. For purposes of the pro forma
calculation, the fair value of each option grant is estimated on the date of
grant using the Black Scholes option pricing model with the following
weighted average assumptions used for grants in 1999, 1998 and 1997:
1999 1998 1997
----------------------------
Dividend yield - - -
Expected volatility 29% 26% 32%
Risk-free interest rate 5.47% 5.15% 6.14%
Expected life 6 years 6 years 7 years
During 1999, 1998 and 1997, the Company granted restricted stock awards to
key employees in the form of the Company's Common Stock. The number of shares
issued as restricted stock awards during 1999, 1998 and 1997 were 901,200,
464,409 and 23,018, respectively (adjusted for subsequent stock dividends in
1997). None of the restricted stock awards may be sold, assigned, pledged or
otherwise transferred, voluntarily or involuntarily, by the employees until
the restrictions lapse. The restrictions are both time and performance based.
At December 31, 1999, 946,976 shares of restricted stock were outstanding.
Compensation expense of $1,305,652, $808,000 and $27,000 for the years ended
December 31, 1999, 1998 and 1997, respectively, has been recorded in
connection with these grants.
F-20
<PAGE>
Employee Stock Purchase Plan
----------------------------
The Company's ESPP was approved by shareholders on June 12, 1992 and amended
on May 22, 1997. Under the ESPP, eligible employees of the Company and its
subsidiaries have the right to subscribe to purchase shares of Common Stock
at the lesser of 85% of the mean between the high and low market prices on
the first day of the purchase period or on the last day of the purchase
period. An employee may elect to have up to 20% of annual base pay withheld
in equal installments throughout the designated payroll-deduction period for
the purchase of shares. The value of an employee's subscription may not
exceed $25,000 in any one calendar year. An employee may not participate in
the ESPP if such employee owns stock possessing 5% or more of the total
combined voting power or value of the Company's capital stock. As of December
31, 1999, there were 6,407,195 shares of Common Stock reserved for issuance
under the ESPP. These shares may be adjusted for any future stock dividends
or stock splits. The ESPP will terminate when all shares reserved have been
subscribed for and purchased, unless terminated earlier or extended by the
Board of Directors. The ESPP is administered by the Compensation Committee of
the Board of Directors. As of December 31, 1999, the number of employees
enrolled and participating in the ESPP was 2,066 and the total number of
shares purchased under the ESPP was 3,201,887. For purposes of the pro forma
calculation, compensation cost is recognized for the fair value of the
employees' purchase rights, which was estimated using the Black Scholes
option pricing model with the following assumptions for subscription periods
beginning in 1999, 1998 and 1997:
1999 1998 1997
-----------------------------
Dividend yield - - -
Expected volatility 29% 26% 32%
Risk-free interest rate 5.28% 4.91% 5.45%
Expected life 6 months 6 months 6 months
The weighted average fair value of those purchase rights granted in 1999,
1998 and 1997 was $2.52, $2.05 and $2.28, respectively.
ELI Employee Stock Purchase Plan
--------------------------------
The ELI ESPP was approved by shareholders on May 21, 1998. Under the ELI
ESPP, eligible employees of ELI may subscribe to purchase shares of ELI Class
A Common Stock at the lesser of 85% of the average of the high and low market
prices on the first day of the purchase period or on the last day of the
purchase period. An employee may elect to have up to 20% of annual base pay
withheld in equal installments throughout the designated payroll-deduction
period for the purchase of shares. The value of an employee's subscription
may not exceed $25,000 in any one calendar year. An employee may not
participate in the ELI ESPP if such employee owns stock possessing 5% or more
of the total combined voting power or value of all classes of capital stock
of ELI. As of December 31, 1999, there were 1,950,000 shares of ELI Class A
Common Stock reserved for issuance under the ELI ESPP. These shares may be
adjusted for any future stock dividends or stock splits. The ESPP will
terminate when all shares reserved have been subscribed for and purchased,
unless terminated earlier or extended by the Board of Directors. The ELI ESPP
is administered by the Compensation Committee of ELI's Board of Directors. As
of December 31, 1999, the number of employees enrolled and participating in
the ELI ESPP was 691 and the total number of shares purchased under the ELI
ESPP was 328,664. For purposes of the pro forma calculation, compensation
cost is recognized for the fair value of the employees' purchase rights,
which was estimated using the Black Scholes option pricing model with the
following assumptions for subscription periods beginning in 1999 and 1998:
1999 1998
---- ----
Dividend yield - -
Expected volatility 66% 71%
Risk-free interest rate 5.25% 4.92%
Expected life 6 months 6 months
The weighted average fair value of those purchase rights granted in 1999 and
1998 was $4.97 and $3.82, respectively.
F-21
<PAGE>
ELI Equity Incentive Plan
-------------------------
In October 1997, the Board of Directors of ELI approved the ELI EIP. Under
the ELI EIP, awards of ELI's Class A Common Stock may be granted to eligible
directors, officers, management employees, non-management employees and
consultants of ELI in the form of incentive stock options, non-qualified
stock options, SARs, restricted stock or other stock-based awards. The ELI
EIP is administered by the Compensation Committee of the ELI Board of
Directors. The exercise price for such awards shall not be less than 85% or
more than 110% of the average of the high and low stock prices on the date of
grant. The exercise period for such awards is generally 10 years from the
date of grant. ELI has reserved 6,670,600 shares for issuance under the terms
of this plan.
The following is a summary of share activity subject to option under the ELI
EIP.
Shares Weighted
Subject to Average Option
Option Price Per Share
---------- -------------
Balance at January 1, 1997 - $ -
Options granted 2,326,000 16.00
----------
Balance at December 31, 1997 2,326,000 16.00
Options granted 1,654,000 10.77
Options canceled, forfeited and lapsed (1,649,000) 16.21
----------
Balance at December 31, 1998 2,331,000 12.14
Options granted 1,989,000 9.51
Options exercised (116,000) 9.73
Options canceled, forfeited and lapsed (680,000) 10.12
----------
Balance at December 31, 1999 3,524,000 $ 10.96
==========
As a result of the stock option exchange program approved by the ELI
Compensation Committee of the Board of Directors, a total of 2,212,000
options were eligible for exchange, of which 1,426,000 options were canceled
in exchange for 880,000 new options in August 1998.
The following table summarizes information about shares subject to options
under the EIP at December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------- ------------------------------
Weighted-Average
Number Range of Weighted Average Remaining Number Weighted Average
Outstanding Exercise Prices Exercise Price Life in Years Exercisable Excercise Price
- ----------- --------------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
41,000 $ 5 - 8 $ 7 9 12,000 $ 7
2,309,000 8 - 9 9 9 675,000 9
311,000 10 - 15 13 9 58,000 13
863,000 15 - 18 16 8 594,000 16
- ------------ ---------
3,524,000 $ 5 - 18 $ 11 9 1,339,000 $ 12
============ =========
</TABLE>
For purposes of the pro forma calculation, compensation cost is recognized
for the fair value of the employees' purchase rights, which was estimated
using the Black Scholes option pricing model with the following assumptions
for subscription periods beginning in 1999, 1998 and 1997:
1999 1998 1997
-----------------------------
Dividend yield - - -
Expected volatility 66% 71% 13%
Risk-free interest rate 5.34% 5.44% 5.87%
Expected life 6 years 6 years 7 years
The weighted-average fair value of those options granted in 1999, 1998 and
1997 were $6.16, $6.94 and $5.13, respectively.
F-22
<PAGE>
ELI has granted 610,000 restricted stock awards to key employees in the form of
Class A Common Stock since its IPO. These restrictions lapse based on meeting
specific performance targets. At December 31, 1999, 581,000 shares of this stock
were outstanding, of which 259,000 shares are no longer restricted. Compensation
expense was recorded in connection with these grants in the amounts of
$2,559,000, $4,666,000 and $219,000 for the years ended December 31, 1999, 1998
and 1997, respectively.
Directors' Deferred Fee Equity Plan
-----------------------------------
The Company's Non-Employee Directors' Deferred Fee Equity Plan (the Directors'
Plan) was approved by shareholders on May 19, 1995 and subsequently amended. The
Directors' Plan includes an Option Plan, a Stock Plan and a Formula Plan.
Through the Option Plan, an eligible director may elect to receive up to $30,000
per annum of his or her director's fees for a period of up to five years in the
form of options to purchase Company common stock, the number of such options
being equal to such fees divided by 20% of the fair market value of Company
common stock on the effective date of the options and are exercisable at 90% of
the fair market value of Company common stock on the effective date of the
options. Through the Stock Plan, an eligible director may elect to receive all
or a portion of his or her director's fees in the form of Plan Units, the number
of such Plan Units being equal to such fees divided by the fair market value of
Company common stock on certain specified dates. The Formula Plan provides each
Director of the Company options to purchase 5,000 shares of common stock on the
first day of each year beginning in 1997 and continuing through 2002 regardless
of whether the Director is participating in the Option Plan or Stock Plan. In
addition, on September 1, 1996, options to purchase 2,500 shares of common stock
were granted to each Director. The exercise price of the options are 100% of the
fair market value on the date of grant and the options are exercisable six
months after the grant date and remain exercisable for ten years after the grant
date. In the event of termination of Directorship, a Stock Plan participant will
receive the value of such Plan Units in either stock or cash or installments of
cash as selected by the Participant at the time of the related Stock Plan
election. As of any date, the maximum number of shares of common stock which the
Plan may be obligated to deliver pursuant to the Stock Plan and the maximum
number of shares of common stock which shall have been purchased by Participants
pursuant to the Option Plan and which may be issued pursuant to outstanding
options under the Option Plan shall not be more than one percent (1%) of the
total outstanding shares of Common Stock of the Company as of such date, subject
to adjustment in the event of changes in the corporate structure of the Company
affecting capital stock. There were 10 directors participating in the Directors'
Plan in 1999. In 1999, the total Options and Plan Units earned were 153,969 and
15,027, respectively. In 1998, the total Options and Plan Units earned were
185,090 and 16,661, respectively. In 1997, the total Options and Plan Units
earned were 188,838 and 18,817, respectively (adjusted for subsequent stock
dividends). At December 31, 1999, 671,477 options were exercisable at a weighted
average exercise price of $9.66.
On December 31, 1999, the Option Plan and the Stock Plan of the Deferred Fee
Equity Plan expired in accordance with the plan's terms. In replacement of these
plans, the non-employee directors now have the choice to receive 50% or 100% of
their future fees in either stock or stock units. If stock is elected, the stock
will be purchased at the average of the high and low on the first trading date
of the year (Initial Market Value). If the average price is lower on the last
trading day of November (Final Market Value), an adjustment will be made by
payment of additional stock to bring the shares paid up to the number of shares
purchasable at the Final Market Price. If stock units are elected, they will be
purchased at 85% of the Initial Market Value. In the event of a lower Final
Market Value, an adjustment will be made by payment of additional stock to bring
the shares paid up to the number of shares purchasable at the Final Market
Price. Stock units (except in an event of hardship) are held by the Company
until retirement or death.
The Company had also maintained a Non-Employee Directors' Retirement Plan
providing for the payment of specified sums annually to non-employee directors
of the Company, or their designated beneficiaries, starting at their retirement,
death or termination of directorship of each individual director. In 1999, the
Company terminated this Plan. In connection with the termination, the value as
of May 31, 1999, of the vested benefit of each non-employee director was
credited to him/her in the form of stock units. Such benefit will be payable
upon retirement, death or termination of the directorship. Each participant had
until July 15, 1999 to elect whether the value of the stock units awarded would
be payable in common stock of the Company (convertible on a one for one basis)
or in cash. As of December 31, 1999, the liability for such payments was $3.7
million of which $1.6 million will be payable in stock (based on the July 15,
1999 stock price) and $2.1 million will be payable in cash. While the number of
shares of stock payable to those directors electing to be paid in stock was
fixed, the amount of cash payable to those directors electing to be paid in cash
will be based on the number of stock units awarded times the stock price at the
payment date.
F-23
<PAGE>
(11) 1999 Restructuring Charges:
--------------------------
In the fourth quarter of 1999, the Company approved a plan to restructure the
Company's corporate office activities. In connection with this plan, the
Company recorded a pre-tax charge of $5,760,000 in other operating expenses.
The restructuring results in the reduction of 49 corporate employees. As part
of this process, certain job functions are being outsourced and others
eliminated. All affected employees were communicated to in the early part of
November 1999.
As of December 31, 1999, approximately $221,000 of the costs had been paid
and 17 employees were terminated. The remaining accrual of approximately
$5,539,000 is recorded in other current liabilities. These costs are expected
to be paid in 2000 and the remaining employees will be terminated in 2000.
(12) 1997 Charges to Earnings:
------------------------
During the second quarter of 1997, the Company recorded approximately
$197,300,000 of pre-tax charges to earnings of which $153,500,000 related to
continuing operations and $43,800,000 to discontinued operations. For
continuing operations, the charges resulted from a re-evaluation of certain
business strategies including its out-of-territory long distance aggressive
growth strategy, accounting policy changes at ELI in anticipation of its
initial public offering and curtailment of certain employee benefit plans.
For discontinued operations, the charges resulted from public utility
regulatory commission orders and the curtailment of certain employee benefit
plans.
(13) Income Taxes:
-------------
The following is a reconciliation of the provision for income taxes computed
at federal statutory rates to the actual amount:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
-------- --------- --------
($ in thousands)
Consolidated tax provision at federal statutory rate $ 65,773 $ 11,558 $ 1,475
State income tax provisions (benefit), net of
federal income tax 1,266 (495) 1,352
Allowance for funds used during construction (1,072) (1,322) (1,441)
Nontaxable investment income (2,609) (2,932) (4,726)
Amortization of investment tax credits (613) (548) (657)
Flow through depreciation 5,706 4,870 3,946
Tax reserve adjustment 1,455 (4,760) 564
Company owned life insurance 2,599 561 1,290
Minority interest (8,290) (2,433) -
All other, net 372 (551) 125
-------- -------- --------
$ 64,587 $ 3,948 $ 1,928
======== ======== ========
</TABLE>
As of December 31, 1999, 1998 and 1997, accumulated deferred income taxes
amounted to $450,903,000, $432,299,000 and $408,310,000, respectively, and
the unamortized deferred investment tax credits amounted to $9,305,000,
$10,609,000 and $12,398,000, respectively. Income taxes paid during the year
were $885,000, $5,434,000 and $17,765,000 for 1999, 1998 and 1997,
respectively.
F-24
<PAGE>
The components of the net deferred income tax liability at December 31, are
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
($ in thousands)
Deferred income tax liabilities:
- -------------------------------
<S> <C> <C> <C>
Property, plant and equipment basis differences $ 381,278 $ 334,296 $ 338,170
Regulatory assets 69,757 73,724 76,504
Other, net 20,523 47,572 20,101
--------- --------- ----------
471,558 455,592 434,775
--------- --------- ----------
Deferred income tax assets:
- --------------------------
Regulatory liabilities 7,663 8,431 9,236
Deferred investment tax credits 3,687 4,253 4,831
--------- --------- ----------
11,350 12,684 14,067
--------- --------- ----------
Net deferred income tax liability $ 460,208 $ 442,908 $ 420,708
========= ========= ==========
</TABLE>
The provision for federal and state income taxes, as well as the taxes
charged or credited to shareholders' equity, includes amounts both payable
currently and deferred for payment in future periods as indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ----- ----
($ in thousands)
Income taxes charged (credited) to the income statement
for continuing operations:
Current:
<S> <C> <C> <C>
Federal $ 39,735 $ (17,866) $ 11,081
State 1,394 (2,171) (353)
-------- ---------- ----------
Total current 41,129 (20,037) 10,728
-------- ---------- ----------
Deferred:
Federal 23,517 23,124 (10,576)
Investment tax credits (613) (547) (657)
State 554 1,408 2,433
-------- ---------- ----------
Total deferred 23,458 23,985 (8,800)
-------- ---------- ----------
Subtotal 64,587 3,948 1,928
-------- ---------- ----------
Income taxes charged (credited) to the income statement
for discontinued operations:
Current:
Federal 6,170 16,222 2,577
State 937 2,464 391
-------- ---------- ----------
Total current 7,107 18,686 2,968
Deferred:
Federal 6,662 676 2,902
Investment tax credits (1,073) (1,079) (1,083)
State 1,534 106 668
-------- ---------- ----------
Total deferred 7,123 (297) 2,487
-------- ---------- ----------
Subtotal 14,230 18,389 5,455
-------- ---------- ----------
Income tax benefit on dividends on convertible
preferred securities:
Current:
Federal (3,344) (3,344) (3,344)
State (508) (508) (508)
-------- ---------- ----------
Subtotal (3,852) (3,852) (3,852)
-------- ---------- ----------
Income tax benefit on cumulative effect of change
in accounting principle:
Current:
Federal - (478) -
State - - -
-------- ---------- ----------
Subtotal - (478) -
-------- ---------- ----------
Total Income taxes charged to the income
statement (a) 74,965 18,007 3,531
-------- ---------- ----------
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
($ in thousands)
Income taxes charged (credited) to shareholders' equity:
Deferred income taxes (benefits) on unrealized
gains or losses on securities classified as
available-for-sale $(25,906) $ 32,792 $ 6,718
Current benefit arising from stock options exercised (1,262) (35) (164)
-------- -------- ---------
Income taxes charged (credited) to
shareholders' equity (b) (27,168) 32,757 6,554
-------- -------- ---------
Total income taxes: (a) plus (b) $ 47,797 $ 50,764 $ 10,085
======== ======== =========
</TABLE>
The Company's alternative minimum tax credit as of December 31, 1999 is
$92,114,000, which can be carried forward indefinitely to reduce future
regular tax liability. This benefit is included as a debit against accrued
income taxes.
(14) Net Income Per Common Share:
---------------------------
The reconciliation of the net income per common share calculation for the
years ended December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------------- -----------------------
($ in thousands, except for per share amounts)
Per Per Per
Income Shares Share Income Shares Share Income Shares Share
------ ------ ----- ------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income per
common share:
Basic $144,486 260,613 $ .55 $57,060 258,879 $ .22 $10,100 260,226 $ .04
Effect of dilute options - 1,779 - - 742 - - 598 -
Diluted $144,486 262,392 $ .55 $57,060 259,621 $ .22 $10,100 260,824 $ .04
</TABLE>
All share amounts represent weighted average shares outstanding for each
respective period. All per share amounts have been adjusted for subsequent
stock dividends for 1997. There were no stock dividends declared in 1999. The
diluted net income per common share calculation excludes the effect of
potentially dilutive shares when their exercise price exceeds the average
market price over the period. The Company has 4,025,000 shares of potentially
dilutive Mandatorily Redeemable Convertible Preferred Securities which are
convertible into common stock at a 3.76 to 1 ratio at an exercise price of
$13.30 per share and 7,756,406 potentially dilutive stock options at a range
of $10.54 to $14.24 per share. These items were adjusted for subsequent stock
dividends and were not included in the diluted net income per common share
calculation for any of the above periods as their effect was antidilutive.
(15) Comprehensive Income (Loss):
---------------------------
The Company's other comprehensive income (loss) for the years ended December
31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1999
----------------------------
Before-Tax Tax Expense/ Net-of-Tax
Amount (Benefit) Amount
------------ ------------ ------------
($ in thousands)
<S> <C> <C> <C>
Net unrealized gains on securities:
Net unrealized holding gains
arising during period $ 56,746 $ 21,722 $ 35,024
Less: Reclassification adjustment
for net gains realized in net
income 124,421 47,628 76,793
------------ ------------ ------------
Other comprehensive loss $ (67,675) $ (25,906) $ (41,769)
============ ============ ============
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------
Before-Tax Tax Expense/ Net-of-Tax
Amount Benefit Amount
------------ ------------ -----------
($ in thousands)
<S> <C> <C> <C>
Net unrealized gains on securities:
Net unrealized holding gains
arising during period $ 56,497 $ 21,627 $ 34,870
Add: Reclassification adjustment
for net losses realized in net
income 29,167 11,165 18,002
---------- ------------ ------------
Other comprehensive income $ 85,664 $ 32,792 $ 52,872
========== ============ ============
</TABLE>
(16) Segment Information:
-------------------
The Company is segmented into communications and ELI. The communications
segment provides both regulated and competitive communications services to
residential, business and wholesale customers. ELI is a facilities based
integrated communications provider providing a broad range of communications
services throughout the United States.
EBITDA for each segment consists of segment operating income plus
depreciation, all excluding special items. EBITDA is a measure commonly used
to analyze companies on the basis of operating performance. It is not a
measure of financial performance under generally accepted accounting
principles and should not be considered as an alternative to net income as a
measure of performance nor as an alternative to cash flow as a measure of
liquidity and may not be comparable to similarly titled measures of other
companies. Special items for 1999 include the following: gains on the sales
of investments, asset impairment charges, accelerated depreciation related to
the change in useful life of an operating system, costs associated with an
executive retirement agreement, restructuring charges, pre-acquisition
integration costs and separation costs. Special items for 1998 include
separation costs and the HTCC investment write-off. Special items for 1997
include the 1997 charges to earnings.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998 1997
-------------------------------------
($ in thousands)
Communications:
- --------------
<S> <C> <C> <C>
Revenues excluding special items $ 949,268 $ 867,446 $ 840,329*
Inter-segment revenues (46,031) (32,407) (23,573)
Revenues as reported 903,237 835,039 802,589
Depreciation 226,141 181,656 175,363
Operating income (loss) 103,727 157,567 (2,580)
EBITDA 380,465 340,642 315,506
Capital expenditures, net 227,176 201,453 263,011
Total segment assets 2,422,572 2,438,978 2,313,535
* Excludes $14,167,000 of the 1997 charges to earnings.
ELI:
- ---
Revenues $ 187,008 $ 100,880 $ 61,084
Inter-segment revenues (2,817) (3,061) (3,341)
Revenues as reported 184,191 97,819 57,743
Depreciation 36,289 17,002 11,167
Operating loss (95,659) (75,923) (48,201)
EBITDA (57,698) (58,921) (26,269)
Capital expenditures, net 245,695* 200,000 124,549
Total segment assets 775,234 532,309 359,962
</TABLE>
* Includes $60,000,000 in non-cash capital lease additions.
F-27
<PAGE>
The following table is a reconciliation of certain segment items to the total
consolidated amount.
Year Ended December 31,
------------------------------
1999 1998 1997
------------------------------------
($ in thousands)
EBITDA
- ------
Total segment EBITDA $ 322,767 $ 281,721 $ 289,237
Investment and other income 22,513 37,197 41,396
Non operating gain on sale of
subsidiary stock - - 78,734
Special items 168,819 (33,324) (153,488)
Discontinued operations 148,190 158,399 112,310
----------- ---------- -----------
Consolidated EBITDA $ 662,289 $ 443,993 $ 368,189
=========== ========== ===========
Capital expenditures
- --------------------
Total segment capital expenditures $ 472,871 $ 401,453 $ 387,560
General capital expenditures 6,741 25,123 33,334
Discontinued operations capital 135,804 95,456 103,595
expenditures ---------- --------- ----------
Consolidated reported capital
expenditures $ 615,416 $ 522,032 $ 524,489
========== ========= ==========
Assets
- ------
Total segment assets $ 3,197,806 $ 2,971,287 $ 2,673,497
General assets 917,525 807,597 760,149
Discontinued operations assets 1,656,414 1,514,048 1,439,206
---------- --------- ----------
Consolidated reported assets $ 5,771,745 $ 5,292,932 $ 4,872,852
========== ========= ==========
(17) Quarterly Financial Data (unaudited):
------------------------------------
Net Income Per
Common Share
-----------------
Revenues Net Income Basic Dilutive
-------- ---------- ----- --------
1999 ($ in thousands)
----
First quarter $ 264,750 $ 54,625 $.21 $.21
Second quarter 273,946 7,753 .03 .03
Third quarter 271,517 11,908 .05 .05
Fourth quarter 277,215 70,200 .27 .26
Net Income Per
Common Share
-----------------
Revenues Net Income Basic Dilutive
-------- ---------- ------ --------
1998 ($ in thousands)
----
First quarter $ 224,540 $ 26,779 $.10 $.10
Second quarter 224,511 14,462 .06 .06
Third quarter 236,324 14,461 .06 .06
Fourth quarter 247,483 1,358 .01 .01
First quarter 1999 results include an after tax gain of approximately
$42,900,000 on the sale of Centennial Cellular stock (see Note 5). Fourth
quarter 1999 results include an after tax gain of approximately $41,700,000
on the sale of Century stock and an after tax gain of approximately
$51,800,000 on the sale of the Company's interest in a cable joint venture
(see Note 5), offset by after tax asset impairment charges of approximately
$22,300,000 (see Note 1(g)), after tax costs of an executive retirement
agreement of $4,100,000, after tax restructuring charges of approximately
$3,600,000 (see Note 11), after tax impact of accelerated depreciation of
approximately $3,000,000 related to the change in useful life of an operating
system and after tax pre-acquisition integration costs of approximately
$2,400,000 (see Note 3).
F-28
<PAGE>
First quarter 1998 results include an after tax cumulative effect of change
in accounting principle, net of related minority interest of approximately
$2,334,000 (see Note 1(k)). Fourth quarter 1998 results include an after tax
write-off of the HTCC investment of approximately $19,700,000 (see Note 5).
The quarterly net income per common share amounts are rounded to the nearest
cent. Annual net income per common share may vary depending on the effect of
such rounding.
(18) Supplemental Cash Flow Information:
----------------------------------
The following is a schedule of net cash provided by operating activities for
the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
($ in thousands)
<S> <C> <C> <C>
Income (Loss) from continuing operations $ 117,127 $ 20,532 $ (3,923)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 262,430 198,658 186,530
Non cash charges to earnings 36,136 - 122,735
Investment gains (221,088) - -
Non cash HTCC investment write-off - 31,905 -
Cumulative effect of change in accounting
principle - 3,394 -
Gain on sale of subsidiary stock - - (78,734)
Allowance for equity funds used during
construction (2,547) (2,700) (4,566)
Deferred income tax and investment tax credit 30,581 23,687 (6,373)
Change in operating accounts receivable (7,783) (40,770) (41,745)
Change in accounts payable and other 91,088 (112,809) (27,982)
Change in accrued taxes and interest 30,624 17,996 (4,458)
Change in other assets 10,941 16,205 (1,628)
--------- -------- ---------
Net cash provided by continuing operating
activities $ 347,509 $ 156,098 $ 139,856
========= ======== =========
</TABLE>
In conjunction with the acquisitions described in Note 3 the Company assumed
debt of $13,800,000 and $8,400,000 in 1998 and 1997, respectively, at
weighted average interest rates of 5.6% and 6.2%, respectively.
(19) Retirement Plans:
-----------------
Pension Plan
------------
The Company and its subsidiaries have a noncontributory pension plan covering
all employees who have met certain service and age requirements. The benefits
are based on years of service and final average pay or career average pay.
Contributions are made in amounts sufficient to fund the plan's net periodic
pension cost while considering tax deductibility. Plan assets are invested in
a diversified portfolio of equity and fixed-income securities.
The following tables set forth the plan's benefit obligations and fair values
of plan assets as of December 31, 1999 and 1998.
1999 1998
----- -----
Change in benefit obligation ($ in thousands)
----------------------------
Benefit obligation at beginning of year $ 252,914 $ 208,520
Service cost 13,234 10,747
Interest cost 17,200 15,703
Amendments (1,877) (1,487)
Actuarial (gain)/loss (33,039) 27,941
Acquisitions - 8,344
Benefits paid (20,830) (16,854)
--------- --------
Benefit obligation at end of year $ 227,602 $ 252,914
========= ========
F-29
<PAGE>
1999 1998
---- ----
Change in plan assets ($ in thousands)
- ---------------------
Fair value of plan assets at beginning of year $ 232,536 $ 201,834
Actual return on plan assets 21,760 24,749
Acquisitions - 10,875
Employer contribution 5,420 11,932
Benefits paid (20,830) (16,854)
-------- --------
Fair value of plan assets at end of year $ 238,886 $ 232,536
======== ========
(Accrued)/Prepaid benefit cost
- -----------------------------
Funded status $ 11,284 $ (20,378)
Unrecognized net liability 146 189
Unrecognized prior service cost 1,673 3,682
Unrecognized net actuarial (gain)/loss (13,911) 21,807
-------- ---------
(Accrued)/Prepaid benefit cost $ (808) $ 5,300
======== =========
Components of net periodic benefit cost
- ---------------------------------------
Service cost $ 13,234 $ 10,747
Interest cost on projected benefit obligation 17,200 15,703
Return on plan assets (19,081) (17,241)
Net amortization and deferral 175 400
-------- ---------
Net periodic benefit cost $ 11,528 $ 9,609
======== =========
Assumptions used in the computation of pension costs/ year-end benefit
obligations were as follows:
1999 1998
---- ----
Discount rate 7.0%/8.0% 7.5%/7.0%
Expected long-term rate of return on plan assets 8.25%/N/A 8.25%/N/A
Rate of increase in compensation levels 4.0%/4.0% 4.0%/4.0%
In November 1998, the Company acquired Rhinelander Telecommunications, Inc.,
including its pension benefit plans. The acquisition increased the pension
benefit obligation by $3,974,000 and the fair value of plan assets by
$4,884,000 as of December 31, 1998.
In June 1998, the Company acquired The Gas Company (TGC), including its
non-collectively bargained pension benefit plan. The acquisition increased
the pension benefit obligation by $4,370,000 and the fair value of plan
assets by $5,991,000 as of December 31, 1998.
F-30
<PAGE>
Postretirement Benefits Other Than Pensions
-------------------------------------------
The Company provides certain medical, dental and life insurance benefits for
retired employees and their beneficiaries and covered dependents.
The following table sets forth the plan's benefit obligations and the
postretirement benefit liability recognized on the Company's balance sheets
at December 31, 1999 and 1998:
1999 1998
---- ----
Change in benefit obligation ($ in thousands)
- ----------------------------
Benefit obligation at beginning of year $ 51,983 $ 49,110
Service cost 781 980
Interest cost 3,431 3,523
Plan participants' contributions 629 596
Amendments - (4,734)
Actuarial (gain)/loss (8,590) 4,503
Acquisitions - 651
Benefits paid (2,706) (2,646)
-------- --------
Benefit obligation at end of year $ 45,528 $ 51,983
======== ========
Change in plan assets
- ---------------------
Fair value of plan assets at beginning of year $ 18,710 $ 6,661
Actual return on plan assets 1,200 677
Benefits paid (948) -
Employer contribution 1,498 11,372
-------- --------
Fair value of plan assets at end of year $ 20,460 $ 18,710
======== ========
Accrued benefit cost
- ---------------------
Funded status $ (25,068) $(33,273)
Unrecognized transition obligation 359 386
Unrecognized prior service cost - -
Unrecognized (gain) (14,953) (7,562)
------- ----------
Accrued benefit cost $ (39,662) $(40,449)
======= ==========
Components of net periodic postretirement benefit cost
- -------------------------------------------------------
Service cost $ 781 $ 980
Interest cost on projected benefit obligation 3,431 3,523
Return on plan assets (1,544) (549)
Net amortization and deferral (828) (947)
Curtailment gain - (2,003)
------- ----------
Net periodic postretirement benefit cost $ 1,840 $ 1,004
======= ==========
For purposes of measuring year end benefit obligations, the Company used the
same discount rates as were used for the pension plan and a 7% annual rate of
increase in the per-capita cost of covered medical benefits, gradually
decreasing to 5% in the year 2040 and remaining at that level thereafter. The
effect of a 1% increase in the assumed medical cost trend rates for each
future year on the aggregate of the service and interest cost components of
the total postretirement benefit cost would be $378,000 and the effect on the
accumulated postretirement benefit obligation for health benefits would be
$3,845,000. The effect of a 1% decrease in the assumed medical cost trend
rates for each future year on the aggregate of the service and interest cost
components of the total postretirement benefit cost would be $(338,000) and
the effect on the accumulated postretirement benefit obligation for health
benefits would be $(3,486,000).
In August 1999, the Company's Board of Directors approved a plan of
divestiture for the public services properties. As such, any pension and/or
postretirement gain or loss associated with the divestiture of these
properties will be recognized when realized.
F-31
<PAGE>
401(k) Savings Plans
--------------------
The Company sponsors employee savings plans under section 401(k) of the
Internal Revenue Code. The plans cover substantially all full-time employees.
Under the plans, the Company provides matching contributions in Company stock
based on qualified employee contributions. Matching contributions were
$5,850,000, $5,795,000 and $4,883,000 for 1999, 1998 and 1997, respectively.
(20) Commitments and Contingencies:
-----------------------------
The Company has budgeted capital expenditures in 2000 of approximately
$599,800,000 (including $38,000,000 of non-cash capital lease additions) for
continuing operations and $169,900,000 for discontinued operations and
certain commitments have been entered into in connection therewith.
In December 1999, the Company entered into an agreement with Nortel to
outsource elements of DMS central office engineering and commissioning of the
Company's network. The Company's commitment under this three year agreement
is approximately $69,000,000 for 2000, $37,000,000 for 2001 and $35,000,000
for 2002. The 2000 capital cost of this contract is included in the 2000
budgeted capital expenditures.
The Company conducts certain of its operations in leased premises and also
leases certain equipment and other assets pursuant to operating leases.
Future minimum rental commitments for all long-term noncancelable operating
leases for continuing operations are as follows:
Year Amount
------------- -------------
($ in thousands)
2000 $ 26,363
2001 25,610
2002 17,237
2003 12,342
2004 9,219
thereafter 13,972
-----------
Total $ 104,743
===========
Total rental expense included in the Company's results of operations for the
years ended December 31, 1999, 1998 and 1997 was $30,855,000, $27,964,000 and
$19,076,000, respectively. The Company subleases, on a month to month basis,
certain office space in its corporate office to a charitable foundation
formed by its Chairman.
In 1995, ELI entered into a $110 million construction agency agreement and an
operating lease agreement in connection with the construction of certain
communications networks and fiber cable links. ELI served as agent for the
construction of these projects and, upon completion of each project, leased
the facilities for a three year term, with one year renewals available
through April 30, 2002. At December 31, 1999 and 1998, ELI was leasing assets
under this agreement with an original cost of approximately $108,541,000 and
$87,426,000 at December 31, 1997. ELI has the option to purchase the
facilities at the end of the lease terms for the amount of the lessor's
average investment in the facilities. Payments under the lease depend on
current interest rates, and assuming continuation of current interest rates,
payments would approximate $6.1 million annually through April 30, 2002 and,
assuming exercise of the purchase option, a final payment of approximately
$110 million in 2002. In the event ELI chooses not to exercise this option,
ELI is obligated to arrange for the sale of the facilities to an unrelated
party and is required to pay the lessor any difference between the net sales
proceeds and the lessor's investment in the facilities. However, any amount
required to be paid to the lessor is subject generally to a maximum of 80%
(approximately $88 million) of the lessor's investment. The Company has
guaranteed all obligations of ELI under this operating lease.
ELI has entered into various capital and operating leases for fiber optic
cable to interconnect ELI's local networks with long-haul fiber optic routes.
The terms of the various agreements covering these routes range from 20 to 25
years, with varying optional renewal periods. For certain contracts, rental
payments are based on a percentage of ELI's leased traffic, and are
exclusive, subject to certain minimums. For other contracts, certain minimum
payments are required.
ELI has also entered into certain operating and capital leases in order to
develop ELI's local networks, including an operating lease to develop a local
network in Phoenix and a capital lease in San Francisco. The operating lease
in Phoenix provides for rental payments based on a percentage of the
network's operating income for a period of 15 years. The capital lease in San
F-32
<PAGE>
Francisco is a 30-year indefeasible and exclusive right to use agreement for
optical fibers in the San Francisco Bay Area. The Phoenix operating lease
network is currently operational, and the San Francisco capital lease network
is expected to become operational in 2000.
Minimum payments on operating leases are included in the table above. For
payments on capital leases, see Note 7.
The Company is also a party to contracts with several unrelated long distance
carriers. The contracts provide fees based on leased traffic subject to
minimum monthly fees aggregating as follows:
Year Amount
------------- -------------
($ in thousands)
2000 $ 36,840
2001 31,490
2002 6,120
2003 5,960
2004 4,200
thereafter 12,600
-----------
Total $ 97,210
===========
The Vermont Joint Owners (VJO), a consortium of 14 Vermont utilities,
including the Company, have entered into a purchase power agreement with
Hydro-Quebec. The agreement contains "step-up" provisions that state that if
any VJO member defaults on its purchase obligation under the contract to
purchase power from Hydro-Quebec the other VJO participants will assume
responsibility for the defaulting party's share on a pro-rata basis. As of
December 31, 1999 and 1998, the Company's obligation under the agreement is
approximately 10% of the total contract. The two largest participants in the
VJO represent approximately 46% and 37% of the total contract, respectively.
During 1998, these two major participants have each experienced regulatory
disallowances that have resulted in credit rating downgrades and stock price
declines. Both of these participants are in the process of appealing the
regulatory disallowances; however, both companies have stated that an
unfavorable ruling could jeopardize their ability to continue as going
concerns. If either or both of these companies default on their obligations
under the Hydro-Quebec agreement, the remaining members of the VJO, including
the Company, may be required to pay for a substantially larger share of the
VJO's total power purchase obligation for the remainder of the agreement.
Such a result could have a materially adverse effect on the financial results
of the Company. The purchaser of the Company's Vermont Electric Division has
agreed at closing to assume the Company's power purchase obligations under
the Hydro-Quebec agreement, and the Company has agreed to indemnify that
purchaser against losses resulting from the "step-up" provision in that
agreement.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters, after considering insurance coverages, will not
have a material adverse effect on the Company's consolidated financial
position, results of operations or liquidity.
F-33
RESTATED CERTIFICATE OF INCORPORATION
OF
CITIZENS UTILITIES COMPANY
CITIZENS UTILITIES COMPANY, a corporation organized and existing under
the laws of the State of Delaware (the "Company"), hereby certifies as follows:
1. The name of the corporation is
CITIZENS UTILITIES COMPANY
The date of filing its original Certificate of Incorporation with the
Secretary of State was November 12, 1935.
2. The provisions of the Amended and Restated Certificate of
Incorporation of the Company as heretofore amended, are
hereby amended and restated and integrated into the single instrument which is
hereinafter set forth, and which is entitled Amended and Restated Certificate of
Incorporation of Citizens Utilities Company without any further amendments and
without any further discrepancy between the provisions of the Amended and
Restated Certificate of Incorporation as heretofore amended and the provisions
of the said single instrument hereinafter set forth.
3. The amendments and the restatement of the Amended and Restated
Certificate of Incorporation herein certified have been duly adopted by the
stockholders and the Board of Directors, respectively, of the Company in
accordance with the provisions of Section 242 and of Section 245 of the General
Corporation Law of the State of Delaware.
4. The capital of the Company will not be reduced under or by reason
of any amendment in this Amended and Restated Certificate of Incorporation here-
inafter set forth.
5. The text of the Amended and Restated Certificate of Incorporation
shall upon the effective date of this Amended and Restated Certificate of
Incorporation read as follows:
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CITIZENS UTILITIES COMPANY
FIRST: The name of this corporation is CITIZENS UTILITIES COMPANY.
SECOND: Its principal office in the State of Delaware is to be located
at 1013 Centre Road, in the City of Wilmington, County of New Castle, and its
resident agent is The Prentice-Hall Corporation System, Inc.
THIRD: The nature of the business and the objects and purposes to be
transacted, promoted, and carried on are to do any or all of the things herein
mentioned as fully and to the same extent as natural persons might or could do
and in any part of the world, viz.:
(a) To purchase or otherwise acquire, own, operate and dispose of all or
any part of the business and properties of persons, partnerships, associations,
and other corporations engaged in any business, including that of operating
public utilities, and to make payment therefor by the issuance of securities of
this corporation or in any other manner permitted by law, and in connection
therewith to assume any or all of the bonds, mortgages, franchises, leases,
contracts, indebtedness, liabilities, and obligations of such corporations, and
to do any things necessary or expedient in connection therewith or with the
carrying out of any plan of reorganization of predecessor company or any
modification therefor.
(b) To generate, produce, buy, or in any manner acquire, and to sell,
dispose of, and distribute electricity for light, heat, power, and other
purposes and to carry on the business of furnishing, supplying, manufacturing,
and vending light heat, power, gas, water, steam heat, ice, refrigeration, and
any and all businesses incident thereto, and to build, construct, develop,
improve, acquire, hold, own, lease, maintain, and operate plants, facilities,
and works for the manufacture, generation, production, accumulation,
transmission, and distribution of electric energy, gas and steam, for light
power, heat and other purposes, and to acquire, construct, maintain, and operate
systems of water works, gas works, steam heating plants, for the supply of
water, gas, and steam heat, and to exercise rights of condemnation and eminent
domain in connection with the doing of its business objects and purposes as
herein set forth so far as may be permissible by law, to acquire, maintain,
operate, and exercise all the rights of ownership of any telephone, telegraph,
and/or other communication system or systems.
(c) To build, construct, develop, improve, acquire, hold, own, lease,
maintain and operate, by electricity or other power, street railways and
interurban railways for the transportation of passengers, mail, express,
merchandise, or other freight in any part of the world.
(d) To produce, mine, buy, sell, store, market, deal in, and prospect
for coal and minerals of all kinds and the products and by-products thereof.
- 2 -
<PAGE>
(e) To organize, incorporate, reorganize, finance, and to aid and
assist financially or otherwise, companies, corporations, joint stock companies,
syndicates, partnerships, and associations of all kinds, and to underwrite,
subscribe for, and endorse the bonds, stocks, securities, debentures, notes, or
undertakings of any such company, corporation, joint stock company, syndicate
partnership or association, and to make any guarantee in connection therewith or
otherwise for the payment of money or for the performance of any obligation or
undertaking, and to do any and all things necessary or convenient to carry any
of such purposes into effect.
(f) To carry on the business of engineering and contracting in all of
its branches; to appraise, value, design, build, construct, enlarge, develop,
improve, extend, and repair works, plants, systems, lines, stations, buildings,
structures, mines, shafts, tunnels, wells, canals, viaducts, highways,
facilities, apparatus, machinery, equipment, appliances and appurtenances, of
any and every nature and kind whatsoever.
(g) To purchase and acquire securities, assets, and property of every
kind and description at judicial, judiciary, trustee's, pledge's, mortgagee's or
liquidating or public or private sales, either pursuant to a plan of
reorganization or otherwise, and to carry on a general salvage, liquidation, and
realization business; and also to do a general commission and brokerage
business.
(h) To hold in trust, issue on commission, make advances upon or sell,
lease, license, transfer, organize, reorganize, incorporate, or dispose of any
of the undertakings or resulting investments aforesaid, or the stock or
securities thereof; to act as agent or depositary for any of the above or like
purposes or any purpose herein mentioned; and to act as fiscal agent of any
other person, firm or corporation.
(i) To obtain the grant of, purchase, lease, or otherwise acquire any
concessions, rights, options, patents, privileges, lands, rights of way, sites,
properties, undertakings or businesses, or any right, option or contract in
relation thereto, and to perform, carry out, and fulfill the terms and
conditions thereof and to carry the same into effect, and to develop, maintain,
lease, sell, transfer, dispose of, and otherwise deal with the same.
(j) From time to time to apply for, obtain the grant of, purchase or
acquire by assignment, transfer or otherwise, and to exercise, carry out and
enjoy any license, power, authority, franchise, ordinance, order, right or
privilege, which any government or authority, supreme, municipal or local, or
any corporation or other public body shall enact, make, or grant.
(k) To issue shares of the capital, stock, bonds, debentures, debenture
stock, notes, and other obligations of this corporation for cash, for labor
done, for property, real or personal, or leases thereof, or for any combination
of any of the foregoing, or for services rendered or in exchange for the stock
debentures, debenture stock, bonds, securities, or obligations of any person,
firm, association, corporation, or other organization.
- 3 -
<PAGE>
(l) To purchase, acquire, and lease, and to sell, lease, and dispose of
water, water rights, water records, power privileges, and appropriations for
power, light, heat, mining, milling, irrigation, agricultural, domestic or any
other use or purpose.
(m) To acquire by purchase, lease, own, hold, sell, mortgage, and
encumber both improved and unimproved real estate wherever situate; to survey,
subdivide, plat, colonize, and improve the same for the purposes of sale or
otherwise; and to construct and erect thereon factories, works, plants, shops,
stores, mills, hotels, houses, buildings, and other structures, and to own, use,
maintain, manage, and operate the same or any thereof.
(n) To own and control and acquire, by lease, purchase, construction,
or otherwise, steamships, boats, barges, hydroplanes, and vessels of all kinds
or interests therein and to operate the same either on Alaska Waters and on the
Waters of Puget Sound and on all navigable rivers and waters connected therewith
and elsewhere, or both, for the transportation of passengers and freight of all
kinds, with power to purchase, build, construct, repair, lease, sell, convey,
and operate vessels of all kinds, and all machinery, appliances and apparatus
incident, necessary or convenient thereto, or in any way connected therewith;
with power also to do a towing business, and also to purchase, own, lease,
construct, control, and operate and sell docks, wharves, landings floats,
warehouses, dry docks and dock machinery, appliances and apparatus of all kinds;
and with the power also to do a general shipbuilding, stevedore, dockage,
warehouse, and commission business; to conduct a general cold storage and
refrigeration business.
(o) To subscribe for, or cause to be subscribed for, buy, own, hold,
purchase, receive, or acquire, and/or to sell, negotiate, guarantee, assign,
deal in, exchange, transfer, mortgage, pledge and/or otherwise dispose of shares
of the capital stock, scrip, bonds, coupons, mortgages, debentures, debenture
stock, securities, notes, acceptances, drafts, and/or evidences of indebtedness
issued and/or created by any government or by any political subdivision thereof
or by any other corporations, joint stock companies, or associations, whether
public, private, or municipal, or any corporate body, and while the owner
thereof, to possess and to exercise in respect thereof all the rights, powers,
and privileges of ownership, including the right to vote thereon; to guarantee
the payment of dividends on any shares of the capital stock of any of the
corporations, joint stock companies, or associations in which this corporation
has or may at any time have an interest, and to become surety in respect of,
endorse, or otherwise guarantee the payment of the principal of or interest on
any scrip, bonds, coupons, mortgages, debentures, debenture stock, securities,
notes, drafts, bills of exchange , or evidences of indebtedness, issued or
created by any such corporations, joint stock companies, or associations; to
assume and agree to pay all or part of the indebtedness, evidenced by bonds or
otherwise, of any corporation, and to assume and agree to perform any covenants,
conditions, or agreements contained in any mortgage or trust indenture, and to
assume any other obligation, or liability of any corporation; to become surety
for or guarantee the carrying out and performance of any and all contracts,
leases, and obligations of every kind of any corporations, joint stock
companies, or associations, and in particular of any corporation, joint stock
company, or association any of whose shares, scrip, bonds, coupons, mortgages,
debentures, debenture stock, securities, notes, drafts, bills of exchange, or
evidences of indebtedness, are at any time held by or for this corporation, and
to do any acts or things designed to protect, preserve, improve or enhance the
value of any such shares, scrip, bonds, coupons, mortgages, debentures,
debenture stock, securities, notes, drafts, bills of exchange, or evidences of
indebtedness, provided, however, that this Subdivision (o) shall not be
construed to authorize this corporation to engage in the business of banking.
- 4 -
<PAGE>
(p) To manufacture, buy, sell, and generally deal in, goods, wares,
merchandise, property, and commodities of any and every class and description,
and all articles used or useful in connection therewith; to engage in any
business whether manufacturing or otherwise which this corporation may deem
advantageous or useful in connection with any or all of the foregoing, and to
purchase, acquire, manufacture, market, or prepare for market, sell or otherwise
dispose of any article, commodity, or thing which this corporation may use in
connection with its business.
(q) To manage, operate, conduct and supervise the business, properties,
and affairs, in whole or in part, of any companies, corporations, joint stock
companies, syndicates, partnerships, and associations of all kinds whether it
owns any or all of the securities and/or obligations of such companies,
corporations, joint stock companies, syndicates, partnerships, and associations
or not.
(r) To secure, purchase, acquire, apply for, register, own, hold, sell,
or dispose of any and all copyrights, trademarks and other trade rights.
(s) To organize, or cause to be organized, under the laws of the State
of Delaware, or of any other state, territory, or country, or the District of
Columbia, a corporation or corporations for the purpose of accomplishing any or
all of the objects for which this corporation is organized, and to dissolve,
wind up, liquidate, merge or consolidate any such corporation, or corporations,
or to cause the same to be dissolved, wound up, liquidated, merged, or
consolidated.
(t) To purchase, apply for, obtain, or otherwise acquire any and all
letters patent, licenses, patent rights, patented processes, and similar rights
granted by the United States or any other government or country, or any interest
therein, or any inventions which may seem capable of being used for or in
connection with any of the objects or purposes of this corporation, and to use,
exercise, develop, sell, dispose of, lease, grant licenses in respect to, or
other interests in the same, and otherwise turn the same to account, and to
carry on any business, manufacturing or otherwise, which may be deemed to
directly or indirectly aid, effectuate, or develop, the objects or any of them
of this corporation.
(u) To lend money, to borrow money for any of the purposes of this
corporation, and to issue bonds, debentures, debenture stock, notes, and other
obligations, and to secure the same by pledge or mortgage of the whole or any
part of the property, of this corporation, either real or personal, or to issue
bonds, debentures, debenture stock, notes, or other obligations without any such
security.
(v) To enter into, make, perform, and carry out contracts of every kind
for any lawful purpose, without limit as to amount, with any person, firm,
association, or corporation.
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<PAGE>
(w) In connection with its business, to draw, make, accept, endorse,
discount, guarantee, execute, and issue promissory notes, bills of exchange,
drafts, warrants and all kinds of obligations and certificates and negotiable or
transferable instruments.
(x) To purchase, hold, sell, and transfer shares of its own capital
stock, bonds, notes, and other obligations of this corporation from time to time
to such extent and in such manner and upon such terms as its Board of Directors
shall determine; provided that any purchase of any of the shares of the capital
stock of the corporation shall not be made when such purchase would cause any
impairment of the capital of the corporation; and provided further that shares
of its own capital stock belonging to this corporation shall not be voted upon
directly or indirectly.
(y) To have one or more offices, to carry on any or all of its
operations and business and without restriction or limit as to amount, to
purchase, lease, or otherwise acquire, hold, and own, and to mortgage, sell,
convey, lease or otherwise dispose of, real and personal property of every class
and description in any of the states or territories of the United States and in
the District of Columbia, and in any and all foreign countries, subject to the
laws of such state, district, territory, or country.
(z) To do any and all things herein set forth, and in addition such
other acts and things as are necessary or convenient to the attainment of the
purposes of this corporation, or any of them, to the same extent as natural
persons lawfully might or could do in any part of the world.
The foregoing clauses shall be construed both as objects and
powers and it is hereby expressly provided that the foregoing enumeration of
specific power shall not be held to limit or restrict in any manner the powers
of this corporation, and are in furtherance of, and in addition to, and not in
limitation of the general powers conferred by the laws of the State of Delaware.
It is the intention that the purposes, objects and powers
specified in this Article Third and all subdivisions thereof shall, except as
otherwise expressly provided, in nowise be limited or restricted by reference to
or inference from the terms of any other clause or paragraph of this Article,
and that each of the purposes, objects, and powers specified in this Article
Third shall be regarded as independent purposes, objects, and powers.
FOURTH: (a) The total number of shares of stock which this corporation shall
have authority to issue is six hundred and fifty million (650,000,000) shares of
which fifty million (50,000,000) shares shall be shares of Preferred Stock with
a par value of one cent ($.0l) each, amounting in aggregate to five hundred
thousand dollars ($500,000), six hundred million (600,000,000) shares shall be
shares of Common Stock, par value of twenty-five ($.25) each, amounting in the
aggregate to one hundred and fifty million dollars ($150,000,000).
(b) The Preferred Stock may be issued from time to time in one or more
series, and in such amounts as may be determined by the Board of Directors. The
designations, powers, preferences and relative, participating optional,
conversion and other rights, and the qualifications, limitations and
restrictions thereof, of the Preferred Stock of each series, which shall not be
fixed by the Certificate of Incorporation, shall be such as may be fixed or
altered by resolution or resolutions by the Board of Directors (authority so to
do being hereby expressly granted to, and vested in, the Board of Directors) to
the full extent now or hereafter permitted by the laws of Delaware.
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<PAGE>
(c ) Each holder of Common Stock shall at every meeting of the
stockholders be entitled to one vote in person or by written proxy signed by him
for each full share of Common Stock owned by him and shall be entitled to vote
upon all such matters as may come before the stockholders including without
limitation the election of directors, which shall be decided by majority vote of
the Common Stock present or represented by proxy and entitled to vote at the
meeting. The stockholders of this corporation shall have no preemptive right to
subscribe to any issue of shares of stock of this corporation now or hereafter
made.
(d) Each full share of the former Common Stock Series B with the par
value of twenty-five cents ($.25) each ("Common Stock Series B") which shall be
outstanding immediately prior to the time when this Article FOURTH shall become
effective, shall, upon such effectiveness, automatically and without any further
action on the part of the holder thereof, be changed and reclassified into one
full share of Common Stock. Each certificate representing a share or shares of
Common Stock Series B (including those certificates representing a share or
shares of the former Common Stock Series A) shall thereafter represent a like
number of shares of Common Stock of this corporation into which the shares of
Common Stock Series B have been changed and reclassified and shall for all
purposes be deemed evidence of the ownership of a like number of shares of
Common Stock of this corporation into which the shares of Common Stock Series B
have been changed and reclassified. The holders of such certificates shall not
be required immediately to surrender the same in exchange for certificates of
Common Stock, but, as such certificates representing shares of Common Stock
Series B are surrendered for transfer, this corporation shall cause to be issued
certificates representing shares of Common Stock, and, at any time upon
surrender by any holders of certificates representing Common Stock Series B,
this corporation shall cause to be issued thereof certificates for a like number
of shares of Common Stock of this corporation."
FIFTH: The minimum amount of capital with which it will commence business
is One Thousand Dollars ($1,000.00).
SIXTH: The name and place of residence of each of the incorporators are as
follows:
NAME RESIDENCE
---- ---------
L. H. HERMAN Wilmington, Delaware
WALTER LENZ Wilmington, Delaware
W. T. HOBSON Wilmington, Delaware
SEVENTH: This corporation is to have perpetual existence.
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<PAGE>
EIGHTH: The private property of the stockholders shall not be subject to the
payment of corporate debts to any extent whatever.
NINTH: In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized:
To make, alter, and repeal the by-laws subject to the power of the
stockholders to change or repeal such bylaws; provided, however, that prior
to the second Tuesday in March, 1937, no by-laws shall be adopted or amended by
the directors so as to authorize or provide (a) for the holding of any meeting
of stockholders for the election of directors at any place other than
Minneapolis, Minnesota or at any time prior to the holding of the first annual
meeting of stockholders for election of directors on the second Tuesday in
March, 1937; or (b) for the holding of meetings of directors, prior to such
first meeting of stockholders for the election of directors, at any place other
than as provided in the original by-laws;
To set apart out of any of the funds of the corporation available
for dividends a reserve or reserves for any proper purpose and to alter or
abolish any such reserve;
To fix, determine, and vary from time to time the amount to be main-
tained as surplus and the amount or amounts to be set apart for working capital.
All of the powers of this corporation, insofar as the same lawfully
may be vested by this Certificate in the Board of Directors, are hereby con-
ferred upon the Board of Directors of this corporation.
Directors need not be elected by ballot, unless voting by ballot
shall be requested by the holders of ten percent (10%) or more of the shares of
stock represented at the meeting of stockholders at which the directors are to
be elected.
TENTH: This corporation may in its by-laws make any other provisions or
requirements for the management or conduct of the business of this corporation
provided the same be not inconsistent with the provisions of this Certificate or
contrary to the laws of the State of Delaware, and subject to the limitations
upon amendment of by-laws contained in this Certificate of Incorporation.
ELEVENTH: This corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law and all rights conferred on officers,
directors, and stockholders herein are granted subject to this reservation.
TWELFTH: A. director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the directors
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
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<PAGE>
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporation action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
B. No modification or repeal of the provisions of this Article shall
adversely affect any right or protection of any director of the corporation
existing at the date of such modification or repeal or create any liability or
adversely affect any such right or protection for any acts or omissions of such
director occurring prior to such modification or repeal.
IN WITNESS WHEREOF, said CITIZENS UTILITIES COMPANY has caused this
Certificate to be signed by Edward O. Kipperman, its Vice President, and
attested by Charles J. Weiss, its Secretary, on this 2nd day of July, 1998.
CITIZENS UTILITIES COMPANY
By:____________________________
Edward O. Kipperman
Vice President
ATTEST:
By:_________________________
Charles J. Weiss
Secretary
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THE CITIZENS EXECUTIVE DEFERRED SAVINGS PLAN
<PAGE>
INDEX
Section Page No.
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SECTION 1: Purpose 1
SECTION 2: Definitions 1
SECTION 3: Administration 4
SECTION 4: Deferrals 5
SECTION 5: Company Matching Credits 6
SECTION 6: Growth of Accounts 7
SECTION 7: Distribution 8
SECTION 8: Hardship Withdrawals 9
SECTION 9: Discretionary Payment 10
SECTION 10: Change in Control 11
SECTION 11: Beneficiary Designation 12
SECTION 12: General Provisions 12
SECTION 13: Withholding 13
SECTION 14: Amendment, Suspension, or Termination 14
<PAGE>
Section 1. Purpose
1.1 The purpose of The Citizens Executive Deferred Savings Plan (the
"Plan") is to (a) provide incentives and rewards to employees who occupy
certain management and highly compensated positions; (b) assure that the
Company's compensation programs for senior management are in alignment
with the strategic direction of the Company; and (c) assist the Company in
attracting, retaining, and motivating employees of high caliber and
experience.
Section 2. Definitions
2.1 "Account" or "Accounts" shall mean each of a Participant's
Deferral Account, and Company Matching Account or any such Accounts or all
of such Accounts, as the context requires.
2.2 "Account Balance" shall mean (a) the sum of (1) the amounts
credited to a Participant's Deferral Account, (2) the amounts credited to
a Participant's Company Matching Account, and (3) earnings and losses
credited to a Participant's Accounts, minus (b) distributions from a
Participant's Accounts, including without limitation, Hardship Withdrawals
from a Participant's Deferral Account, and forfeitures.
2.3 "Administrative Committee" shall mean the committee appointed by
the Plan Committee to supervise the day to day operation of the Plan.
2.4 "Beneficiary" shall mean the person or persons designated by a
Participant to receive the Participant's Account Balance upon the death of
the Participant or a Participant's deemed beneficiary pursuant to Section
11 hereof.
2.5 "Board" shall mean the Board of Directors of the Company.
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2.6 "Change in Control" shall mean the occurrence of any of the
following:
(a) A "change in control" as such term is used in Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as in effect at the date
hereof (the "Act"); or
(b) If there has occurred a change in control as the term
"control" is defined in Rule 12b-2 promulgated under the Act;
or
(c) When any "person" (as such term is defined in Sections 3(a)(9)
and 13(d)(3) of the Act) becomes a beneficial owner, directly
or indirectly, of securities of the Company representing 20%
or more of the Company's then outstanding securities having
the right to vote on the election of directors; or
(d) If the shareholders of the Company approve a plan of complete
liquidation of the Company; or
(e) A change in the ownership of a substantial portion of the
assets of the Company (within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended).
2.7 "Company" shall mean Citizens Utilities Company, its successors
and such of its subsidiary companies as shall be designated by the Board
to participate in the Plan.
2.8 "Company Matching Account" shall mean the separate account
maintained for a Participant on the books of the Company reflecting all
Company Matching Credits adjusted for earnings and losses thereon.
2
<PAGE>
2.9 "Company Matching Credit" shall have the meaning set forth in
Section 5.1.
2.10 "Compensation" shall mean a Participant's base salary for a
Plan Year without reduction for Deferrals, including before-tax
contributions made by a Participant to the Company's 401(k) Plan and
contributions to any plan maintained by the Company pursuant to Section
125 of the Internal Revenue Code of 1986, as amended (the "Code").
2.11 "Deferral" shall mean the amount credited to a Participant's
Deferral Account for a Plan Year to reflect Compensation otherwise payable
to a Participant during such Plan Year which such Participant has elected
to defer pursuant to Section 5.
2.12 "Deferral Account" shall mean the separate account maintained
for a Participant on the books of the Company to reflect Deferrals
(adjusted for earnings and losses thereon).
2.13 "Disability" shall mean a Participant's inability to engage in
the customary activities required by his employment by reason of any
medically determinable physical or mental impairment as certified by a
physician acceptable to the Plan Committee.
2.14 "Effective Date" shall mean January 1, 1996.
2.15 "Eligible Employee" shall mean any individual employed by the
Company with a base compensation of $100,000 or more who is actively
employed by the Company on December 31 of the year preceding the Plan Year
of Deferral.
2.16 "401(k) Plan" shall mean The CUC 401(k) Employee Benefit Plan.
2.17 "Participant" shall mean an Eligible Employee who elects to
make Deferrals for the Plan Year.
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2.18 "Plan" shall mean The Citizens Executive Deferred Savings Plan.
2.19 "Plan Committee" shall mean the Compensation Committee of the
Board.
2.20 "Plan Year" shall mean the period commencing on the Effective
Date and ending on December 31, 1996 and thereafter, the calendar year.
2.21 "Retirement" shall mean termination of employment after attaining
eligibility for a retirement benefit under the terms of the Citizens Pension
Plan.
2.22 "Termination for Cause" or "Terminated for Cause" shall mean
any of the following:
(a) The Participant shall have willfully failed to perform any of
his material obligations as an employee of the Company and shall
have failed to cure such failure within ten (10) days after
receiving written notice thereof from the Company; or
(b) The Participant shall have committed an act of fraud, theft or
dishonesty which, in the reasonable opinion of the Company, is
likely to result in financial harm to the Company; or
(c) The Participant shall be convicted of (or pleaded nolo
contendere to) any felony or misdemeanor involving moral
turpitude, which misdemeanor might, in the reasonable opinion of
the Company, cause embarrassment to the Company.
Section 3. Administration
3.1 The Plan Committee shall retain overall supervisory authority
and responsibility for the Plan, and shall appoint the Administrative
Committee. The Plan shall be administered by the Administrative Committee.
The Administrative Committee shall have full power and authority to
4
<PAGE>
construe and interpret the Plan, establish and amend administrative
regulations to further the purposes of the Plan, and take any other action
necessary to administer the Plan. The Plan Committee's and the
Administrative Committee's decisions, actions, and interpretations
regarding the Plan shall be final and binding upon all Participants and
Beneficiaries.
3.2 The Administrative Committee shall consist of not less than
three (3) members. The Administrative Committee shall act by vote or
written consent of a majority of its members. Members of the
Administrative Committee who are either eligible to become Participants or
who are Participants may vote on or participate in any matter affecting
the administration of the Plan, provided however, that no member of the
Administrative Committee may vote on or participate in a request for a
Hardship Withdrawal to such member or any other matter concerning the
benefits of such member.
3.3 The Administrative Committee shall: (a) notify employees who are
eligible to become a Participant for a Plan Year; (b) formulate and
recommend to the Plan Committee such changes in the Plan as may facilitate
the administration of the Plan; (c) value Accounts, and maintain Accounts
and records of Deferrals, Company Matching Credits and earnings and losses
thereon, payment of Account Balances, and Beneficiary designations; (d)
prepare communications to Participants and Beneficiaries; (e) prepare
reports and data required by the Company; (f) determine Hardship
Withdrawals; (g) obtain necessary consents and approvals; (h) obtain any
data requested by the Plan Committee; and (i) take any other actions
requested by the Plan Committee or as are otherwise necessary or
appropriate, as determined by the Administrative Committee, for effective
implementation and administration of the Plan.
Section 4. Deferrals
4.1 Each employee who is eligible to become a Participant for a Plan
Year may become a Participant for such Plan Year (or, during the first
year of employment, the portion thereof after electing to participate) by
electing, prior to the commencement of the Plan Year or for the first year
of employment, within 30 days after commencement of employment on such
5
<PAGE>
form as shall be provided to the Participant by the Administrative
Committee, to make Deferrals for such Plan Year. A Participant's Deferral
for a Plan Year shall not exceed 50% of the Participant's Compensation for
such Plan Year; provided however that such 50% limit shall be reduced by
the before-tax contributions, if any, made by the Participant for such
Plan Year to the 401(k) Plan for such year. A Participant's Deferral for a
Plan Year (or a portion thereof) shall not be less than $1,000.
4.2 Each election of Deferral shall be effective only in the Plan
Year to which such election of Deferral applies. Elections to make
Deferrals for a Plan Year and the amount of such Deferrals for such Plan
Year shall be irrevocable.
4.3 A Participant's Deferrals shall be credited to a Participant's
Deferral Account in accordance with procedures determined by the
Administrative Committee.
Section 5. Company Matching Credits
5.1 Effective for each Plan Year, the Company shall accrue a Company
Matching Credit on behalf of each Participant who elects to make Deferrals
for such Plan Year. For purposes of the Plan "Company Matching Credit"
shall mean the amount credited to a Participant's Company Matching Account
for a Plan Year based on a rate determined by the Board of Directors at
its discretion. The Company Matching Credit may be represented by a
hypothetical amount in shares of Citizens Utilities Company Series B stock
or such other property as the Board may determine at its discretion.
Notwithstanding the foregoing provisions of this Section 5.1, the Company
Matching Credit for a Plan Year shall be reduced (but not below zero) by
any Company Matching Contributions (as defined under the 401(k) Plan) made
for the Participant for such Plan Year under the 401(k) Plan in respect of
before-tax contributions.
5.2 Company Matching Credits, if any, for a Plan Year shall be
accrued in each Participant's Company Matching Account on or about the
time that the Company Matching Contribution (as defined under the 401(k)
Plan) for such Plan Year is made to the 401(k) Plan.
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<PAGE>
Upon attaining the age of 55 years, a Participant may elect to transfer
amounts from his/her "Company Matching Account" to any of the investment
categories then available and/or elect to have participating Company
Matching Credits invested in the investment categories elected for their
elective Deferred Account.
5.3 Subject to Section 5.4 below, a Participant shall be vested in
Company Matching Credits and the earnings and losses accrued in his/her
Company Matching Account upon the earliest of the following events: (a)
retirement, or (b) completion of five years of service. A Participant is
always fully vested in salary deferrals and earnings and losses on salary
deferrals.
Notwithstanding the foregoing, (a) in the event of a Change in
Control, a participant shall be deemed to be 100% vested in his/her
Company Matching Account, and (b) a Participant whose employment by the
Company ceases on account of death or Disability shall be 100% vested in
his/her Company Matching Account. For purposes of this Section 5.3, the
term Years of Service shall have the same meaning and shall be calculated
in the same manner as set forth under the 401(k) Plan.
5.4 Notwithstanding anything set forth in Section 5.3 above, in the
event that a Participant's employment with the Company is Terminated for
Cause, then such Participant shall be deemed to have forfeited any and all
non-vested Company Matching Credits and earnings, gains and losses thereon
theretofore accrued in his/her Company Matching Account.
Section 6. Growth of Accounts
6.1 Subject to Section 6.3 below and Section 5.1, a Participant's
Deferral and Company Matching Accounts shall be increased by the amount of
income and gains and reduced by the amount of losses which would be
realized if the amounts credited to each such account were invested in one
or more investment mutual funds made available by the Plan Committee under
the Plan or in shares of Citizens Utilities Company Series B stock, as
elected by the Participant or for the company matching accounts, as
determined by the Board of Directors.
7
<PAGE>
Expenses incurred in connection with any such investment mutual funds
shall be deducted from a Participant's Accounts. Investment elections
shall be made in multiples of five percent (5%) of the amount of the
Participant's Deferral. Any investment election shall be made on a form
prescribed by the Administrative Committee. Notwithstanding anything to
the contrary set forth herein, in no event shall the Company, the Plan
Committee or the Administrative Committee be responsible for and shall not
be held liable for the investment performance of any investment made
available hereunder.
6.2 Subject to Section 6.3, a Participant shall be permitted to
change his/her deemed investment election with regard to existing and
future balances in his/her Deferral Account one (1) time during each
calendar quarter. Any such change in investment election shall be on such
form as prescribed by the Administrative Committee and in accordance with
such rules and procedures prescribed by the Administrative Committee. Upon
attaining the age of 55 years, a participant may elect to transfer amounts
from his Company Matching Account to any of the other investment
categories then available and/or redirect any Company Matching Credits to
any of the investment categories then available.
6.3 Notwithstanding anything to the contrary set forth herein, the
Company shall not be required to invest all or any portion of a
Participant's Deferral Account or Company Matching Account, in any of the
investment funds set forth in Section 6.1, but may invest such Accounts in
any manner it may determine, or not invest such Accounts.
Section 7. Distribution
7.1 Except as set forth in Sections 8, 9 and 10, a Participant shall
irrevocably elect in writing, and file with the Administrative Committee,
at the same time as such Participant makes any election to defer
Compensation, the period of deferral with respect to such election. A
Participant may elect to defer until termination of employment or for a
fixed period not exceeding 10 years, subject to the minimum required
period of deferral, which is two full calendar years following the year of
deferral. Notwithstanding the foregoing, the two-year minimum deferral
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<PAGE>
period shall not apply to payments made as a result of death, Disability,
Retirement, or pre-Retirement termination.
7.2 Except as set forth in Sections 8, 9 and 10, a Participant shall
irrevocably elect in writing, and file with the Administrative Committee,
at the same time as any election to defer, a method of payment of vested
amounts deferred under this Plan from the following methods:
(a) Payment of vested amounts credited to the Participant's
Account in a specified number of annual installments, the
first installment to be paid in January of the year following
the year in which the Participant terminates employment due to
his retirement, disability or death.
(b) Payment of vested amounts credited to the Participant's
Account in a single lump sum in the month and year specified
by the Participant, or if not specified by the Participant in
January of the year next following the year of the
Participant's termination for Retirement, Disability, or
death.
(c) Payment in a lump sum as soon as administratively feasible
upon termination prior to age 55 with less than five (5) years
of service, after the date of termination.
Section 8. Hardship Withdrawals
8.1 The Administrative Committee may, in its sole discretion, permit
a Participant to withdraw all or a portion of the Deferrals credited to
his/her Deferral Account without regard to earnings thereon if such
Participant demonstrates a Hardship (as defined in Section 8.2 below) to
the satisfaction of the Administrative Committee. Hardship Withdrawals
from a Participant's Company Matching Account shall not be permitted. In
determining whether to grant a Participant's request for a Hardship
Withdrawal, the Administrative Committee may consider the resources
currently available to a Participant and any resources that may in the
future become available to the Participant.
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8.2 For purposes of the Plan, the term "Hardship" means a circumstance
resulting from an immediate and heavy financial need of the Participant and
arising from an emergency, and shall mean, (a) extraordinary medical
expenses, (b) the purchase of a primary residence, (c) college education
expenses for a member of the Participant's immediate family, or (d) any
other event beyond the Participant's control, as determined in each such
event, by the Administrative Committee in its discretion.
8.3 A withdrawal on account of Hardship shall only be granted if the
Participant demonstrates to the Administrative Committee's satisfaction,
by submitting written documentation, incorporating such statements and
evidence that the Administrative Committee deems to be relevant, that the
Participant's circumstances satisfy the definition of Hardship set forth
in Section 8.2 and that the Hardship withdrawal is necessary to satisfy
the Participant's financial need.
8.4 Hardship Withdrawals shall be limited to the amount, determined
by the Administrative Committee, in its sole discretion, necessary to
relieve the Participant's Hardship. Hardship Withdrawals shall be paid as
soon as practicable after the Administrative Committee's approval of the
Participant's request. A Participant's Deferral Account shall be reduced
by the amount of any Hardship Withdrawals distributed to the Participant.
8.5 Hardship withdrawals shall be allocated by class year spread
across Vested Account Balances.
Section 9. Discretionary Payment
9.1 Notwithstanding anything to the contrary set forth herein, the
Plan Committee may, in its sole and absolute discretion, direct an
immediate payment to any or all the Participants or their beneficiary(ies)
of all of his/her vested Account Balances in cash, if the Plan Committee
determines that such action is in the best interest of either the Company,
the Participant(s) or their Beneficiary(ies).
10
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9.2 In the event that the Plan Committee shall so direct an immediate
payment, in accordance with Section 9.1, then:
(a) The vested Account Balances to be paid shall be determined by the
Plan Committee so as to reflect fairly and equitably appropriate
earnings since the last preceding valuation and so as to reflect
fairly and equitably such other facts and circumstances as the Plan
Committee deems appropriate;
(b) Compensation which was deferred or was to be deferred with respect
to the Plan Year in which such payment occurs shall be paid when
otherwise payable (such amounts that would otherwise have been
payable prior to the date of such payment or distribution shall be
paid as soon as practicable thereafter);
(c) In the event that vested Account Balances are not paid or made
available to a Participant in accordance with Section 9.1 when
otherwise due, then such Participant may file a claim for such
payment and, if such Participant is successful, then the Company
shall reimburse such Participant for reasonable attorneys' fees
actually paid by such Participant in enforcing such Participant's
rights to such payment; and
(d) In the event that vested Account Balances are not paid or made
available to Participants in accordance with Section 9.1 when
otherwise due, then with respect to such unpaid amounts, interest
will be credited each month on the last day of the month from the
date it was otherwise due until the date it is actually paid at a
rate equal to the prime rate in effect at the PNC Bank, Pittsburgh,
Pennsylvania, on the last business day of each month.
11
<PAGE>
Section 10. Change in Control
10.1 Notwithstanding anything to the contrary set forth herein, (a)
a Participant's Account Balance under the Plan and (b) all Deferrals and
Company Matching Credits which have been accrued but not yet credited to a
Participant's Accounts, shall be paid to each Participant in a lump sum on
the occurrence of a Change in Control or as soon thereafter as
practicable, but in no event later than five (5) days after the occurrence
of the Change in Control, unless, in the opinion of the Plan Committee, it
is not in the best interests of the Company, the Participants and their
Beneficiaries to cause such payment to be made and to invoke the foregoing
provisions of this Section 10.1. In the event of any such distribution,
the amounts of each Participant's Account Balance shall be determined by
the Plan Committee (which, for this purpose, shall be comprised of members
of the Board prior to the Change in Control) so as to reflect fairly and
equitably appropriate interest and dividends since the last preceding
valuation and so as to reflect fairly and equitably such other facts and
circumstances as the Plan Committee deems appropriate.
Section 11. Beneficiary Designation
11.1 Each Participant shall file with the Administrative Committee a
written designation of a Beneficiary on such form as may be prescribed by
the Administrative Committee. A Participant may, from time to time, amend
or revoke the designation of Beneficiary.
11.2 If a Participant fails to designate a Beneficiary or if a
Participant's designation of Beneficiary fails for any reason, then the
Beneficiary or Beneficiaries designated by the Participant, or deemed to
have been designated by the Participant under the 401(k) Plan shall be
deemed to be the Participant's Beneficiary. If a Participant does not
participate in the 401(k) Plan, or if the Participant participates in the
401(k) Plan and has not designated or been deemed to have designated a
Beneficiary thereunder, then the Beneficiary or Beneficiaries of such
Participant under the Company's defined benefit plan (the Retirement Plan)
shall be deemed to be such Participant's Beneficiary. If a Participant
does not participate in the Company's Retirement Plan, or if a Participant
participates in the Retirement Plan and has not designated or been deemed
12
<PAGE>
to have designated a Beneficiary thereunder, then the Beneficiary or
Beneficiaries of such Participant under the Company's Group Life Insurance
Plan shall be deemed to be such Participant's Beneficiary. If a
Participant does not participate in the Company's Group Life Insurance
Plan, or participates in such Plan, but has not designated or been deemed
to have designated a Beneficiary thereunder, and such Participant dies
without designating a Beneficiary, then the Administrative Committee shall
distribute such Participant's Account Balance to the Participant's estate.
If a Beneficiary does not survive the Participant, then the Administrative
Committee shall cause such Participant's Account Balance to be distributed
to the Participant's estate. If the Beneficiary of a deceased Participant
survives the Participant, and dies before such Participant's Account
Balance is distributed, then the Plan Committee shall cause such
Participant's Account Balance to be distributed to the Beneficiary's
estate.
Section 12. General Provisions
12.1 The rights of a Participant to the payment of deferred
compensation as provided in the Plan shall not be assigned, transferred,
pledged, or encumbered or be subject in any manner to alienation or
anticipation. No Participant may borrow against his/her Account Balance.
Accounts shall not be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, charge, garnishment,
execution or levy of any kind, whether voluntary or involuntary, including
but not limited to any liability which is for alimony or other payments
for the support of a spouse or former spouse, or for any other relative of
any Participant. Any such attempted assignment or transfer shall be void.
12.2 The Plan is intended to constitute an unfunded deferred
compensation arrangement for a select group of management and highly
compensated employees. Nothing contained in the Plan, and no action taken
pursuant to the Plan, shall create or be construed to create a trust of
any kind. The Company's obligations hereunder shall be an unfunded and
unsecured promise to pay money in the future for tax purposes and for
purposes of Title I of ERISA. A Participant's right to receive his/her
Account Balance shall be no greater than the right of an unsecured general
creditor of the Company. Account Balances shall be paid from the general
funds of the Company,
13
<PAGE>
and no special or separate fund shall be established and no segregation of
assets shall be made to assure payment of such Account Balances.
12.3 Nothing contained in the Plan shall give any Participant the
right to continue in the employment of the Company, or affect the right of
the Company to discharge a Participant.
12.4 The Plan shall be construed and governed in accordance with the
laws of the State of Connecticut.
Section 13. Withholding
13.1 The Company shall deduct from all amounts paid under this Plan
any taxes required to be withheld by any federal, state, or local
government tax statutes. The Participants and their Beneficiaries,
distributees, and personal representatives will be responsible for the
payment of any and all federal, foreign, state, local, or other income or
other taxes imposed on amounts paid under this Plan.
Section 14. Amendment, Suspension, or Termination
14.1 The Plan Committee reserves the right to amend, suspend, or
terminate the Plan at any time and for any reason; provided, however, that
any amendment, suspension, or termination shall not adversely affect the
rights of the Participants or Beneficiaries to receive Deferrals, vested
Company Matching Credits, and earnings thereon credited to their accounts
prior to such action. In the event the Plan is terminated, Account
Balances shall be distributed to Participants and Beneficiaries, in a lump
sum, as soon as practicable thereafter.
14
<PAGE>
Executed as of the 1st day of January, 1996.
Citizens Utilities Company
By: /s/ James D. Ranton
---------------------
Vice President, Human Resources
Attest: /s/
------------------------
Secretary
15
CITIZENS INCENTIVE PLAN
I. ESTABLISHMENT AND PURPOSE OF PLAN. Citizens Utilities Company hereby restates
its Incentive Deferred Compensation Plan. The restated Plan is effective as of
March 21, 2000 and shall be known as the "Citizens Incentive Plan." The purpose
of the Plan is to provide selected Employees with a reward for, and incentive to
continue, superior performance. This Plan is composed of two components: (i) a
short-term incentive component in which Awards are paid in cash following the
end of each fiscal year; and (ii) an unfunded, non-qualified deferred
compensation component for Top-Hat Participants (as defined in the Plan) in
which payment of Awards may be deferred until any subsequent calendar year but
not beyond termination of employment. Any Awards made prior the effective date
of this restated Plan shall be governed by the terms of the Citizens Utilities
Company Incentive Deferred Compensation Plan, as amended and in effect prior to
its restatement herein (the "Prior Plan"), except as otherwise expressly
provided in this restated Plan.
II. ELIGIBILITY TO PARTICIPATE. All Exempt Employees of the Company and its
Affiliates shall be eligible to participate in the Plan and to receive an Award
if selected by the Compensation Committee of the Board of Directors (the
"Committee"). Receipt by a Participant of an Award with respect to one Plan Year
shall not entitle the Participant to receive an Award with respect to any
subsequent Plan Year of the Company.
III. DETERMINATION OF AWARDS.
(a) Determining the Amount to be Contributed to Plan. As soon as adminis-
tratively feasible, but not later than 120 days, following the close of each
fiscal year of the Company, the Board of Directors shall determine the amount,
if any, to be made available for contribution to the Plan with respect to the
fiscal year just ended and shall inform the Committee of its decision. The
amount contributed to the Plan and paid or allocated to Participants' Accounts
shall be reflected as a liability on the books of the Company as required by
generally accepted accounting principles ("GAAP") or other appropriate account-
ing rules or conventions, but shall not be held in trust or otherwise segregated
from the Company's general assets.
(b) Determining the Amount to be Awarded to Plan Participants. After
being informed by the Board of Directors of the amount to be contributed to the
Plan with respect to the year just ended, the Company will select and the
Committee will review and approve Employees or groups of employees who will be
entitled to Awards. The Committee in its discretion may make Awards for any
Plan Year which, in the aggregate, does not exceed the amount made available by
the Board of Directors for contribution with respect to a fiscal year. Partici-
pants shall be informed of the fact and amount of his or her Award following
committee action.
<PAGE>
IV. MAINTENANCE OF ACCOUNTS; INTEREST CREDITED. All Awards allocated to a
Participant which are to be deferred shall be credited to an Account maintained
under the Plan for each Participant. Amounts credited to this Account shall
include the value of any Awards not paid out under the terms of the Prior Plan,
as well as any Awards made under the terms of this Plan. Each Participant's un-
distributed Account Balance, other than that portion deemed invested in phantom
shares of Company stock under the terms of the Prior Plan or in any other
elective investment that may, from time to time be permitted under terms of this
Plan (the Participant's "uninvested Account Balance"), shall be credited with
interest as of the last day of each Plan Year. The Board of Directors, excluding
any member with an Account Balance under this Plan, shall establish the interest
rate to be credited to such Accounts as soon as administratively feasible
following the close of such Plan Year based upon recommendations of the
Committee. The interest to be credited to each Account shall equal the product
of (a) the average of the month end uninvested Account Balance for each month of
that calendar year and (b) the interest percentage rate established by the Board
of Directors.
V. VESTING; FORFEITURE FOR CAUSE. Each Participant shall be fully vested in his
or her Account Balance and shall be fully vested in each Award subsequently
approved by the Committee. Notwithstanding the foregoing, any Participant may
be removed from the Plan by the Committee at any time "for cause", as determined
by the Committee in its sole discretion, whether or not the Participant has
received any benefits under the Plan, and whether or not the Participant's
employment has been terminated. "Cause" shall include, without limitation,
willful misconduct of the Employee as determined in the sole discretion of
the Committee. Upon removal from the Plan, the Participant shall forfeit any
remaining Account Balance, and neither the Participant nor his or her bene-
ficiaries shall be entitled to receive any payments from the Plan from and after
the date of the removal. The Committee's determination with respect to a
forfeiture shall be set forth in a written notice given to the Participant and
to the Company and shall be final and binding on both; any forfeiture shall take
place immediately upon receipt of such notice by the Company and Participant.
VI. ELECTION WITH RESPECT TO DISTRIBUTION OR DEFERRAL OF AWARDS.
(a) Election to Defer by Top-Hat Participants. An active "Top-Hat"
Participant (as hereinafter defined) may elect, by an irrevocable written
election filed with the Committee prior to September 1 of a Plan Year,
with respect to any Award that may be made in the subsequent calendar for
such Plan Year:
(i) to withdraw any percentage, up to and including 100%, of any
Award which may be made to the Participant in the subsequent
calendar year; or
2
<PAGE>
(ii) to defer distribution of any portion or all of such Award to a
subsequent year (up until termination of service).
Each election shall be made annually and shall be effective only with re-
spect to the Award to be made in the subsequent Plan Year for the Year
in which the election is filed. Notwithstanding deferral by a Participant
of the receipt of an Award, the Company shall withhold FICA taxes and
any other payroll taxes that may be applicable with respect to the year
in which the Award is made.
(b) Top-Hat Participant Defined. A "Top-Hat" Participant includes both (i)
an Officer of the Company (or its Affiliates) or (ii) a Participant whose
annual base salary is expected to be above an amount sufficient for this
separate portion of the Plan to qualify as a non-qualified deferred
compensation plan for select management or highly compensated Employees.
Subject to the issuance of Department of Labor regulations or similar
authoritative guidance, such amount shall be $100,000, as adjusted for
cost-of-living adjustments for periods after 1996.
(c) Effect of Election to Defer Receipt of Award until Termination of
Service. A request by a Participant that receipt of some portion or all of
an Award be deferred until the Participant's termination of employment
with the Company and its Affiliates shall create a non-qualified deferred
compensation plan for Top-Hat Participants which shall be deemed to be a
separate program from the remainder of this Plan.
VII. ELECTION AS TO INVESTMENT OF UNINVESTED ACCOUNT BALANCE.
(a) If the Committee, in its discretion, shall make available either
actual or phantom investment choices, a Top-Hat Participant may elect
before September 1 of the then current Plan Year, to invest a portion or
all of his Account Balance in one or more of the investment options then
offered by the Committee in such percentages as the Committee may offer
from time to time. Participant investment direction over Accounts shall be
subject to such rules and regulations as to the timing and frequency of
investment changes, limitations, allocations of expenses and other aspects
of Plan administration as the Committee may from time to time establish in
writing. No investment is permitted in actual shares of Company common
stock under this Plan.
(b) Any Participant whose Account, under the terms of the Prior Plan, was
credited with phantom shares of Company stock, may elect in a writing
filed with the Committee, to have the value of any such phantom shares
deemed to be sold, and the net cash value of the proceeds of such deemed
sale credited to the Participant's Account. If, under the terms of the
Prior Plan, a Participant was not an Officer at the time he requested to
have a portion of an Award deemed invested in phantom shares of Company
Stock, and did not specify a date for the deemed sale prior to the date
of the Award, then the phantom stock shall be deemed sold and the
proceeds thereof transferred to such Participant's Account on July 3 of
the year following the Participant's appointment as an Officer.
3
<PAGE>
VIII. DISTRIBUTION OF ACCOUNT BALANCES.
(a) Distribution of Incentive Awards.
(i) any award allocated under the terms of this Plan to the Account
of a Participant who is not a Top-Hat Participant, and
(ii) any portion of an Award that a Top-Hat Participant has elected
to have withdrawn pursuant to paragraph (a)(ii) of Article VI,
shall be distributed as soon as administratively feasible, after the
Participant is notified by the Committee of the fact and amount of the
Award for the Plan Year just ended.
(b) Distribution of Deferred Amounts. Any other Award shall be distributed
in accordance with the following provisions:
(i) any Award (or any portion thereof) which has been deferred, in
accordance with the provisions of paragraph (a)(ii) of Article VI,
to a subsequent calendar year shall be paid in full in a single sum,
provided, however, that any portion of such Award representing the
deemed sale of phantom stock shall not be paid to any Officer until
six months and one day following the commencement of the calendar
year;
(ii) any Award (or any portion thereof) which has been deferred
until termination of service shall be paid in full in a single sum
within thirty (30) days of the date on which the Participant
terminates service with the Company and its Affiliates provided,
however, that any portion of such Award representing the deemed sale
of phantom stock shall not be paid to any Officer until six months
and one day following the Officer's termination of service; and
(iii) any portion of a Participant's Account Balance that is
scheduled to be distributed pursuant to the Participant's
irrevocable election of up to a five (5) year payout pursuant to the
terms of the Prior Plan shall be paid in accordance with the terms
of such irrevocable election.
In addition, to the amounts specified in paragraph (b)(ii) above, upon a
Participant's termination by reason of his or her retirement (on or after
his Early or Normal Retirement Date, as defined in the Company's Pension
Plan), death, or Permanent Disability, the Participant (or, if applicable,
hi beneficiary (ies) or legal representative) shall be entitled to 100%
4
<PAGE>
of any Award allocated to the Employee for the Plan Year in which his or
her termination occurs, together with credited interest provided for in
Article IV.
(c) Distribution due to Unforeseeable Emergency. Upon written application
of the Participant to the Committee, the Committee may, in its sole
judgment, pay a portion or all of a Participant's Account Balance to the
Participant sooner than upon his or her termination of service, provided
that (i) the Committee determines that the Participant has an
unforeseeable emergency that is caused by an event beyond the control of
the Participant which would result in severe financial hardship to the
Participant absent the early distribution, and (ii) the Chief Executive
Officer or Chief Operating Officer of the Company approves the distribu-
tion in writing. Any distribution hereunder shall be limited to the amount
necessary to meet the unforeseeable emergency and may be made in a single
sum or in installments (with interest on the unpaid balance being cal-
culated in accordance with Article IV.)
(d) Deferral of Payment of Awards Due to the Imposition of Code Section
162(m). If the Committee determines that the payment of any portion or all
of an Award or the Participant's Account Balance would result in the
Company not being able to take a tax deduction under Section 162(m) of the
Code, it may elect instead to defer payment of such Award or Account
Balance until the next succeeding year (or years) in which the
Participant's compensation either does not exceed the limit set forth in
Code Section 162(m) or is not subject to Code Section 162(m).
IX. DESIGNATION OF BENEFICIARIES; DEATH BENEFITS.
(a) A Participant may designate a beneficiary or beneficiaries to receive
the Participant's remaining Account Balance, if any, in the event of his
or her death, and may from time to time change any such beneficiary
designation. All beneficiary designations and changes therein shall be in
writing and shall be effective only when delivered to the Committee during
the lifetime of the Participant. In the event that no effective
beneficiary designation has been made, any Account Balance of the
Participant remaining undistributed at his or her death shall be paid to
the Participant's spouse, if any, and if none to the Participant's estate.
(b) A Participant's death benefits under this Plan shall be equal to the
sum of the value of the Participant's Account Balance remaining
undistributed at his death, together with the 100% of the value of any
Award allocated to the Employee for the Plan Year in which his or her
death occurs, together with credited interest provided for in Article IV.
X. ADMINISTRATION OF PLAN. The Plan shall be administered by the Compensation
Committee of the Board of Directors (the "Committee") as that Committee may be
constituted from time to time. The Committee shall have the absolute power and
discretion to administer the Plan, including, but not limited to the power to
(a) approve Plan Participants, (b) determine the amount, vesting requirement
5
<PAGE>
and other features and conditions of Awards, (c) interpret the Plan, and (d)
make all other decisions relating to the operation of the Plan. The Committee's
determinations under the Plan shall be final and binding on all persons. No
member of the Committee shall be liable for any action taken, or decision made,
in good faith in connection with the exercise of the Committee's duties under
the Plan.
The Committee shall adopt such rules as it may determine appropriate or
necessary to regulate its affairs and administer the Plan.
XI. AMENDMENT AND TERMINATION. The Plan may be amended or terminated by the
Board of Directors of the Company at any time. If the Plan is terminated, final
payment shall be made of the then existing Account Balances, provided, however,
that if the Committee determines that the payment of any portion or all of an
Account Balance would result in the Company not being able to take a tax
deduction under Section 162(m) of the Code, it may elect to defer payment in
accordance with Article VIII(d). Termination of the Plan shall not accelerate
the payout or transfer of phantom shares of Company stock from the Account
Balance of any Officer. Any amendment or termination shall not divest a
Participant of his or her vested Account Balance.
XII. MISCELLANEOUS.
(a) Rights of Participants as Creditors of the Company. Participants shall
have the rights of unsecured general creditors with respect to amounts
due under the Plan. The Company shall not be required to establish any
trust fund or separate account with respect to any amounts due under
the Plan.
(b) Withholding. The obligation of the Company to make payments under the
Plan shall be subject to applicable federal, state and local tax with-
holding requirements.
(c) Nonassignability. A Participant may not assign, pledge, encumber, or
transfer the right to receive payments provided for under the Plan
other than by will or the laws of descent and distribution.
(d) No Employment Contract. The Plan shall not create an employment
agreement and shall not entitle any Employee who has participated in
the Plan to remain in the employ of the Company or to obtain damages
if employment is terminated.
(e) Governing Law. The Plan shall be governed by the laws of the State of
Connecticut.
(f) Statement of Account Balances. After the end of each Plan Year each
deferring Participant will be furnished a statement of the amount of
his or her Account Balance as of the end of that Year, and of all
credits to, distributions from, and charges to the account during that
Year.
6
<PAGE>
(g) Binding Effect. The terms of the Plan shall be binding upon any suc-
cessor to the Company's business, whether by merger or sale of sub-
stantially all of the assets or otherwise.
(h) Notices. All notices under the Plan shall be in writing and shall be
deemed given when delivered personally or mailed by registered mail,
return receipt requested, to a Participant at the Participant's last
address set forth in the Company's records, or to the Company at the
address of its principal office.
XIII. DEFINITIONS. The following terms (whether used in the singular or plural)
shall have the following meanings indicated when used in the Plan:
(a) "Affiliated Company" or "Affiliate" means any entity controlled by the
Company, controlling the Company or under common control with the
Company.
(b) "Award" means the actual dollar amount of the annual cash incentive
determined by the Committee to be payable to a Participant under the
Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended from time
to time or any successor statute(s) thereto.
(e) "Committee" means the Compensation Committee of the Board, which shall
be the administrator of this Plan.
(f) "Company" means Citizens Utilities Company.
(g) "Employee" means any common law employee of the Company or its
Affiliates.
(h) "Exempt" means any Employee who is exempt from overtime pay require-
ments of state and federal law.
(i) "Officer" means an officer of the Company as defined in Rule 16a-1 of
the Securities Exchange Commission ("SEC").
(j) "Participant" means any Employee who has received an Award under the
Plan.
(k) "Permanent Disability" means any mental or physical incapacity of a
Participant which, in the sole judgement of the Committee, has ren-
dered the Participant incapable of performing the duties of his
regular occupation with the Company and its Affiliates for a period of
at least six months, and which can be expected to result in death or
to last indefinitely.
7
<PAGE>
(l) "Plan" means the Citizens Incentive Plan.
(m) "Plan Year" means each calendar year.
(n) "Prior Plan" means the Citizens Utilities Company Incentive Deferred
Compensation Plan, as amended and in effect prior to its restatement
in this Plan.
Dated: March 21, 2000 CITIZENS UTILITIES COMPANY
8
EXECUTION COPY
================================================================================
$3,000,000,000
COMPETITIVE ADVANCE AND
REVOLVING CREDIT FACILITY AGREEMENT
Dated as of October 29, 1999
Among
CITIZENS UTILITIES COMPANY
as Borrower
and
THE LENDERS NAMED HEREIN
as Lenders
and
THE CHASE MANHATTAN BANK
as Administrative Agent
================================================================================
CHASE SECURITIES INC.
Lead Arranger and Book Manager
CITIBANK, N.A.
and
BANK OF AMERICA, N.A.,
as Co-syndication Agents
FIRST UNION NATIONAL BANK,
as Documentation Agent
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I
DEFINITIONS
Section 1.01. Defined Terms .................................................1
Section 1.02. Terms Generally ..............................................12
ARTICLE II
THE CREDITS
Section 2.01. Commitments ..................................................12
Section 2.02. Loans ........................................................13
Section 2.03. Competitive Bid Procedure ....................................14
Section 2.04. Standby Borrowing Procedure ..................................17
Section 2.05. Conversions...................................................17
Section 2.06. Fees..........................................................18
Section 2.07. Repayment of Loans............................................18
Section 2.08. Interest on Loans ............................................19
Section 2.09. Default Interest .............................................20
Section 2.10. Alternate Rate of Interest....................................20
Section 2.11. Termination and Reduction of Commitments .....................20
Section 2.12. Prepayment....................................................21
Section 2.13. Reserve Requirements; Change in Circumstances.................22
Section 2.14. Change in Legality............................................24
Section 2.15. Indemnity ....................................................24
Section 2.16. Pro Rata Treatment............................................25
Section 2.17. Sharing of Setoffs............................................25
Section 2.18. Payments .....................................................26
Section 2.19. Taxes ........................................................26
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01. Organization; Powers; Governmental Approvals .................28
Section 3.02. Financial Statements .........................................29
Section 3.03. No Material Adverse Change ...................................29
Section 3.04. Title to Properties; Possession Under Leases .................29
Section 3.05. Ownership of Subsidiaries ....................................30
Section 3.06. Litigation; Compliance with Laws..............................30
Section 3.07. Agreements....................................................30
Section 3.08. Federal Reserve Regulations...................................31
Section 3.09. Investment Company Act; Public Utility Holding Company Act ...31
Section 3.10. Use of Proceeds ..............................................31
i
<PAGE>
Section 3.11. Tax Returns...................................................31
Section 3.12. No Material Misstatements.....................................31
Section 3.13. Employee Benefit Plans .......................................31
Section 3.14. Insurance ....................................................32
Section 3.15. Year 2000 Matters.............................................32
ARTICLE IV
CONDITIONS OF LENDING
Section 4.01. Each Borrowing ...............................................32
Section 4.02. Effective Date ...............................................33
ARTICLE V
AFFIRMATIVE COVENANTS
Section 5.01. Existence; Businesses and Properties .........................34
Section 5.02. Financial Statements, Reports, etc ...........................35
Section 5.03. Litigation and Other Notices .................................36
Section 5.04. Maintaining Records ..........................................36
Section 5.05. Use of Proceeds ..............................................37
ARTICLE VI
NEGATIVE COVENANTS
Section 6.01. Liens ........................................................37
Section 6.02. Ownership of the Principal Subsidiaries ......................37
Section 6.03. Asset Sales ..................................................37
Section 6.04. Mergers ......................................................38
Section 6.05. Restrictions on Dividends ....................................38
Section 6.06. Transactions with Affiliates .................................38
Section 6.07. Minimum Consolidated Net Worth ...............................38
ARTICLE VII
EVENTS OF DEFAULT
ARTICLE VIII
THE ADMINISTRATIVE AGENT
ARTICLE IX
MISCELLANEOUS
Section 9.01. Notices ......................................................44
Section 9.02. Survival of Agreement ........................................44
Section 9.03. Binding Effect ...............................................44
Section 9.04. Successors and Assigns .......................................44
Section 9.05. Expenses; Indemnity ..........................................47
ii
<PAGE>
Section 9.06. Right of Setoff...............................................48
Section 9.07. Applicable Law ...............................................48
Section 9.08. Waivers; Amendment ...........................................48
Section 9.09. Interest Rate Limitation .....................................49
Section 9.10. Entire Agreement .............................................49
Section 9.11. Waiver of Jury Trial .........................................49
Section 9.12. Severability .................................................49
Section 9.13. Counterparts .................................................49
Section 9.14. Headings .....................................................49
Section 9.15. Jurisdiction; Consent to Service of Process ..................50
Exhibit A-1 Form of Competitive Bid Request
Exhibit A-2 Form of Notice of Competitive Bid Request
Exhibit A-3 Form of Competitive Bid
Exhibit A-4 Form of Competitive Bid Accept/Reject Letter
Exhibit A-5 Form of Standby Borrowing Request
Exhibit A-6 Form of Conversion Request
Exhibit B Form of Administrative Questionnaire
Exhibit C Form of Assignment and Acceptance
Exhibit D Form of Opinion of Counsel to Borrower
Exhibit E-1 Form of Standby Note
Exhibit E-2 Form of Competitive Note
Schedule 2.01 Lenders' Commitments and Addresses
iii
<PAGE>
COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT, dated as of
October 29, 1999, among CITIZENS UTILITIES COMPANY, a Delaware corporation
(the "Borrower"), the Lenders listed in Schedule 2.01 (the "Lenders") and
THE CHASE MANHATTAN BANK, a New York banking corporation, as
administrative agent for the Lenders (in such capacity, the
"Administrative Agent").
The Borrower has requested the Lenders to extend credit to the Borrower in
order to enable it to borrow on a standby revolving credit basis on and after
the date hereof and at any time and from time to time prior to the Revolving
Period Maturity Date (as hereinafter defined) a principal amount not in excess
of $3,000,000,000 at any time outstanding, all or a portion of which may be
converted to one-year term loans on the Revolving Period Maturity Date. The
Borrower has also requested the Lenders to provide a procedure pursuant to which
the Borrower may invite the Lenders to bid on an uncommitted basis on short-term
borrowings by the Borrower. The proceeds of such borrowings are to be used to
backstop commercial paper issued to finance the Acquisitions (as hereinafter
defined) and for other general corporate purposes, including other acquisitions.
The Lenders are willing to extend such credit to the Borrower on the terms and
subject to the conditions herein set forth.
Accordingly, the Borrower, the Lenders and the Administrative Agent agree
as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Standby Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Acquisitions" shall mean the acquisition by the Borrower of telephone
access lines from GTE Corp. and certain of its affiliates and US West
Communications, Inc. pursuant to (i) nine separate Agreements for Purchase and
Sale of Telephone Exchanges, each dated as of June 16, 1999, between the
Borrower and US West Communications, Inc., (ii) an Asset Purchase Agreement,
dated as of May 27, 1999, between GTE California Incorporated and the Borrower,
(iii) an Asset Purchase Agreement, dated as of May 27, 1999, between GTE West
Coast Incorporated and the Borrower and (iv) an Asset Purchase Agreement, dated
as of May 27, 1999, between Contel of Minnesota, Inc. and the Borrower.
"Administrative Fees" shall have the meaning assigned to such term in
Section 2.06(b).
<PAGE>
2
"Administrative Questionnaire" shall mean an Administrative Questionnaire
in the form of Exhibit B hereto.
"Affiliate" shall mean, when used with respect to a specified Person,
another Person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the Person
specified.
"Alternate Base Rate" shall mean, for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (i) the
Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. If the Administrative Agent shall have
determined (which determination shall be conclusive absent manifest error) that
it is unable to ascertain the Federal Funds Effective Rate for any reason,
including the inability of the Administrative Agent to obtain sufficient
quotations, the Alternate Base Rate shall be determined without regard to clause
(ii) of the first sentence of this definition until the circumstances giving
rise to such inability no longer exist. Any change in the Alternate Base Rate
due to a change in the Prime Rate or the Federal Funds Effective Rate shall be
effective on the effective date of such change in the Prime Rate or the Federal
Funds Effective Rate, respectively.
"Applicable Rate" shall mean 0.000% with respect to any ABR Loan, and
shall mean, with respect to any Eurodollar Standby Loan or Facility Fee, as the
case may be, at all times during which any "Applicable Rating Level" set forth
below is in effect, the rate per annum set forth below under the appropriate
caption next to such Applicable Rating Level:
================================================================================
Applicable
Applicable S&P Rate for Applicable
Rating Rating/Moody's Eurodollar Rate for Utilization
Level Rating Standby Loans Facility Fee Margin
================================================================================
AA-or
higher/Aa3
I or higher 0.200% 0.050% 0.100%
- --------------------------------------------------------------------------------
II A+/A1 0.240% 0.060% 0.100%
- --------------------------------------------------------------------------------
III A/A2 0.240% 0.060% 0.100%
- --------------------------------------------------------------------------------
IV A-/A3 0.330% 0.070% 0.125%
- --------------------------------------------------------------------------------
V BBB+/Baa1 0.400% 0.100% 0.125%
- --------------------------------------------------------------------------------
VI BBB/Baa2 0.625% 0.125% 0.125%
- --------------------------------------------------------------------------------
VII BBB-/Baa3 0.725% 0.150% 0.250%
- --------------------------------------------------------------------------------
lower than
BBB-/lower than
VIII Baa3 0.800% 0.200% 0.250%
- --------------------------------------------------------------------------------
provided, that the Applicable Rate for Eurodollar Standby Loans and ABR Loans
shall be increased by the rate per annum set forth above under the caption
"Utilization Margin" that corresponds to the Applicable Rating Level used to
determine such Applicable Rates at all times following the effectiveness of the
Term Election or at any time during a Utilization Period.
For purposes of the foregoing, the Applicable Rating Level shall be
determined in accordance with the then applicable S&P Rating and the then
applicable Moody's Rating. In the
<PAGE>
3
event that the S&P Rating and the Moody's Rating do not correspond to the same
Applicable Rating Level, then the higher of the two ratings shall determine the
Applicable Rating Level; provided, however, that if there is a difference of two
or more levels between the Applicable Rating Level corresponding to the S&P
Rating and the Applicable Rating Level corresponding to the Moody's Rating, then
the Applicable Rating Level that is one level above the Applicable Rating Level
corresponding to the lower of the S&P Rating and the Moody's Rating shall apply.
In the event that no S&P Rating or no Moody's Rating shall be in effect (other
than by reason of the circumstances referred to in the last sentence of this
definition), then the Applicable Rating Level shall be Applicable Rating Level
VIII. The Applicable Rating Level shall be redetermined on the date of
announcement of a change in the S&P Rating or the Moody's Rating. A change in
the Applicable Rate resulting from a change in the Applicable Rating Level shall
become effective on such date. If the rating system of S&P or Moody's shall
change, or if either such Person shall cease to be in the business of rating
corporate debt obligations, the Borrower and the Lenders shall negotiate in good
faith to amend this definition to reflect such changed rating system or the
unavailability of ratings from such Person and, pending the effectiveness of any
such amendment, the Applicable Rate shall be determined by reference to the
rating most recently in effect prior to such change or cessation.
"Assignment and Acceptance" shall mean an assignment and acceptance
entered into by a Lender and an assignee, and accepted by the Administrative
Agent, in substantially the form of Exhibit C.
"Board" shall mean the Board of Governors of the Federal Reserve System of
the United States.
"Borrowing" shall mean a group of Loans of a single Type made by the
Lenders (or, in the case of a Competitive Borrowing, by the Lender or Lenders
whose Competitive Bids have been accepted pursuant to Section 2.03) or Converted
on a single date and as to which a single Interest Period is in effect. All
Loans of the same Type, having the same Interest Period and made or Converted on
the same day shall be deemed a single Borrowing hereunder until repaid or next
Converted.
"Business Day" shall mean any day (other than a day which is a Saturday,
Sunday or legal holiday in the State of New York) on which banks are open for
business in New York City; provided, however, that, when used in connection with
a Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the London interbank
market.
"Capital Lease Obligations" of any Person shall mean the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP.
<PAGE>
4
A "Change in Control" shall be deemed to have occurred if (a) any Person
or group (within the meaning of Rule 13d-5 of the Securities and Exchange
Commission as in effect on the date hereof) shall own directly or indirectly,
beneficially or of record, shares representing more than 49% of the aggregate
ordinary voting power represented by the issued and outstanding capital stock of
the Borrower; or (b) a majority of the seats (other than vacant seats) on the
board of directors of the Borrower shall at any time have been occupied by
Persons who were neither (i) nominated by the management of the Borrower, nor
(ii) appointed by directors so nominated; or (c) any Person or group shall
otherwise directly or indirectly Control the Borrower.
"Code" shall mean the Internal Revenue Code of 1986, as the same may be
amended from time to time.
"Commitment" shall mean, with respect to each Lender, the commitment of
such Lender hereunder as set forth in Schedule 2.01 hereto, as such Lender's
Commitment may be permanently terminated or reduced from time to time pursuant
to Section 2.11 or Section 2.13(f). Unless earlier terminated pursuant to the
terms of this Agreement, the Commitments shall automatically and permanently
terminate on the Revolving Period Maturity Date.
"Competitive Bid" shall mean an offer by a Lender to make a Competitive
Loan pursuant to Section 2.03.
"Competitive Bid Accept/Reject Letter" shall mean a notification made by
the Borrower pursuant to Section 2.03(d) in the form of Exhibit A-4.
"Competitive Bid Rate" shall mean, as to any Competitive Bid made by a
Lender pursuant to Section 2.03(b), (i) in the case of a Eurodollar Loan, the
Margin, and (ii) in the case of a Fixed Rate Loan, the fixed rate of interest
offered by the Lender making such Competitive Bid.
"Competitive Bid Request" shall mean a request made pursuant to Section
2.03 in the form of Exhibit A-1.
"Competitive Borrowing" shall mean a Borrowing consisting of a Competitive
Loan or concurrent Competitive Loans from the Lender or Lenders whose
Competitive Bids for such Borrowing have been accepted by the Borrower under the
bidding procedure described in Section 2.03.
"Competitive Loan" shall mean a Loan from a Lender to the Borrower
pursuant to the bidding procedure described in Section 2.03. Each Competitive
Loan shall be a Eurodollar Competitive Loan or a Fixed Rate Loan.
"Consolidated Net Worth" shall mean, as at any date of determination, the
consolidated stockholders' equity of the Borrower and its consolidated
Subsidiaries, including mandatorily redeemable convertible preferred securities
and minority equity interests in other persons, as determined on a consolidated
basis in conformity with GAAP consistently applied.
<PAGE>
5
"Consolidated Tangible Assets" of any Person shall mean total assets of
such Person and its consolidated Subsidiaries, determined on a consolidated
basis, less goodwill, patents, trademarks and other assets classified as
intangible assets in accordance with GAAP.
"Control" shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person,
whether through the ownership of voting securities, by contract or otherwise,
and "Controlling" and "Controlled" shall have meanings correlative thereto.
"Conversion", "Convert" or "Converted" shall mean the conversion of any
Standby Loan of one Type into a Standby Loan of another Type, or the selection
of a new, or the renewal of the same, Interest Period for any such Standby Loan,
as the case may be, pursuant to Section 2.05.
"Conversion Request" shall mean a request made pursuant to Section 2.05 in
the form of Exhibit A-6.
"Default" shall mean any event or condition which upon notice, lapse of
time, or both would constitute an Event of Default.
"Dollars" or "$" shall mean lawful money of the United States of America.
"Effective Date" shall mean the date on which the conditions specified in
Section 4.02 are satisfied (or waived in accordance with Section 9.08).
"Environmental Laws" shall mean all national, federal, state, provincial,
municipal or local laws, statutes, ordinances, orders, judgments, decrees,
injunctions, writs, policies and guidelines (having the force of law),
directives, approvals, notices, rules and regulations and other applicable laws
relating to environmental or occupational health and safety matters, including
those relating to the Release or threatened Release of Specified Substances and
to the generation, use, storage or transportation of Specified Substances, each
as in effect as of the date of determination.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
the same may be amended from time to time, and the regulations promulgated and
the rulings issued thereunder.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Borrower or a Subsidiary of the Borrower
would be deemed to be a "single employer" within the meaning of Section
4001(b)(1) of ERISA.
"ERISA Termination Event" shall mean (i) a "Reportable Event" described in
Section 4043 of ERISA (other than a "Reportable Event" not subject to the
provision for 30-day notice to the PBGC under such regulations), or (ii) the
withdrawal of the Borrower or any of its ERISA Affiliates from a Plan during a
plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA, or (iii) the filing of a notice of intent to terminate a
Plan or the treatment of a Plan amendment as a termination under Section 4041 of
ERISA, or (iv) the
<PAGE>
6
institution of proceeding to terminate a Plan by the PBGC or (v) any other event
or condition which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
Loans.
"Eurodollar Competitive Loan" shall mean any Competitive Loan bearing
interest at a rate determined by reference to the LIBO Rate in accordance with
the provisions of Article II.
"Eurodollar Loan" shall mean any Eurodollar Competitive Loan or Eurodollar
Standby Loan.
"Eurodollar Standby Loan" shall mean any Standby Loan bearing interest at
a rate determined by reference to the LIBO Rate in accordance with the
provisions of Article II.
"Event of Default" shall have the meaning assigned to such term in Article
VII.
"Existing Facility" shall mean the Credit Agreement, dated as of December
16, 1993, as amended, among the Borrower, the lenders named therein, Bank of
America, N.A., as co-agent thereunder, and The Chase Manhattan Bank, as agent
for said lenders.
"Facility Fee" shall have the meaning assigned to such term in Section
2.06(a).
"Federal Funds Effective Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the average
of the quotations for the day of such transactions received by the
Administrative Agent from three Federal funds brokers of recognized standing
selected by it.
"Fee Letter" shall mean the letter agreement, dated July 29, 1999, as
amended or supplemented from time to time, among the Borrower, The Chase
Manhattan Bank and Chase Securities Inc. relating to the credit facility
contemplated hereby.
"Fees" shall mean the Facility Fee and the Administrative Fees.
"Financial Officer" of any corporation shall mean the President, Chief
Financial Officer, Chief Executive Officer or Treasurer of such corporation.
"First Mortgage Bond Indentures" shall mean (i) the First Mortgage and
Collateral Trust Indenture, dated as of March 1, 1947, from the Borrower to The
Marine Midland Trust Company of New York, as Trustee, and (ii) the Mortgage and
Deed of Trust Indenture, dated as of June 1, 1962, from the Borrower to
Manufacturers Hanover Trust Company, as Trustee, as the same have been and may
from time to time be amended or supplemented and in effect.
"Fixed Rate Borrowing" shall mean a Borrowing comprised of Fixed Rate
Loans.
<PAGE>
7
"Fixed Rate Loan" shall mean any Competitive Loan bearing interest at a
fixed percentage rate per annum (expressed in the form of a decimal to no more
than four decimal places) specified by the Lender making such Loan in its
Competitive Bid.
"GAAP" shall mean generally accepted accounting principles, applied on a
consistent basis.
"Governmental Approval" shall mean any authorization, consent, order,
approval, license, franchise, lease, ruling, tariff, rate, permit, certificate,
exemption of, or filing or registration with, any Governmental Authority
required in connection with the Borrower's execution, delivery or performance of
this Agreement.
"Governmental Authority" shall mean any Federal, state, local or foreign
court or governmental agency, authority, instrumentality or regulatory body.
"Hostile Acquisition" shall mean any Target Acquisition (as defined below)
involving a tender offer or proxy contest that has not been recommended or
approved by the board of directors (or similar governing body) of the Person
that is the subject of such Target Acquisition prior to the first public
announcement or disclosure relating to such Target Acquisition. As used in this
definition, the term "Target Acquisition" shall mean any transaction, or any
series of related transactions, by which the Borrower and/or any of its
Subsidiaries directly or indirectly (i) acquires any ongoing business or all or
substantially all of the assets of any Person or division thereof, whether
through purchase of assets, merger or otherwise, (ii) acquires (in one
transaction or as the most recent transaction in a series of transactions)
control of at least a majority in ordinary voting power of the securities of a
Person which have ordinary voting power for the election of directors or (iii)
otherwise acquires control of a more that 50% ownership interest in any such
Person.
"Indebtedness" of any Person shall mean, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property or assets purchased by such Person, (e) all obligations of such Person
issued or assumed as the deferred purchase price of property or services, (f)
all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (g) all Capital Lease Obligations
of such Person, (h) all obligations of such Person in respect of interest rate
protection agreements, foreign currency exchange agreements or other interest or
exchange rate hedging arrangements, (i) all obligations of such Person as an
account party in respect of letters of credit and bankers' acceptances and (j)
any obligation, contingent or otherwise, of such Person guaranteeing or having
the economic effect of guaranteeing any Indebtedness of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, and including
any obligation of such Person, directly or indirectly (i) to purchase or pay (or
advance or supply funds for the purchase
<PAGE>
8
or payment of) such Indebtedness or to purchase (or to advance or supply funds
for the purchase of) any security for the payment of such Indebtedness, (ii) to
purchase property, securities or services for the purpose of assuring the owner
of such Indebtedness of the payment of such Indebtedness or (iii) to maintain
working capital, equity capital or other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Indebtedness; provided, however, that the term Indebtedness shall not include
endorsements for collection or deposit, in either case in the ordinary course of
business.
"Interest Payment Date" shall mean, with respect to any Loan, the last day
of the Interest Period applicable thereto and, in the case of a Eurodollar Loan
with an Interest Period of more than three months' duration or a Fixed Rate
Loan, each day that would have been an Interest Payment Date for such Loan had
successive Interest Periods of three months' duration or 90 days duration, as
the case may be, been applicable to such Loan and, in addition, the date of any
Conversion of such Loan to a Loan of a different Type.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing or on the last day of the
immediately preceding Interest Period applicable to such Borrowing, as the case
may be, and ending on the numerically corresponding day (or, if there is no
numerically corresponding day, on the last day) in the calendar month that is 1,
2, 3 or 6 months thereafter (or such longer period as may be agreed to by all of
the Lenders), as the Borrower may elect, (b) as to any ABR Borrowing, the period
commencing on the date of such Borrowing and ending on the date 90 days
thereafter or, if earlier, on the Termination Date or the date of prepayment of
such Borrowing and (c) as to any Fixed Rate Borrowing, the period commencing on
the date of such Borrowing and ending on the date specified in the Competitive
Bids in which the offer to make the Fixed Rate Loans comprising such Borrowing
were extended, which shall not be earlier than the day after the date of such
Borrowing or later than 364 days (or, subject to the Borrower obtaining all
necessary Governmental Approvals, such longer period as may be agreed to by all
of the Lenders) after the date of such Borrowing; provided, however, that if any
Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless, in the case
of Eurodollar Loans only, such next succeeding Business Day would fall in the
next calendar month, in which case such Interest Period shall end on the next
preceding Business Day. Interest shall accrue from and including the first day
of an Interest Period to but excluding the last day of such Interest Period.
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any
Interest Period, an interest rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the rate at which dollar deposits approximately
equal in principal amount to (i) in the case of a Standby Borrowing, the
Administrative Agent's portion of such Eurodollar Borrowing and (ii) in the case
of a Competitive Borrowing, a principal amount that would have been The Chase
Manhattan Bank's portion of such Competitive Borrowing had such Competitive
Borrowing been a Standby Borrowing, and, in the case of each of clause (i) and
clause (ii) above, for a maturity comparable to such Interest Period, are
offered to the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 A.M., London time, two Business Days prior to the commencement of such
Interest Period.
<PAGE>
9
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, encumbrance, charge, or security interest in or on such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease, or title retention agreement relating to such asset
and (c) in the case of securities, any purchase option, call, or similar right
of a third party with respect to such securities.
"Loan" shall mean a Competitive Loan or a Standby Loan, whether made as a
Eurodollar Loan, an ABR Loan, or a Fixed Rate Loan, as permitted hereby.
"Margin" shall mean, as to any Eurodollar Competitive Loan, the margin
(expressed as a percentage rate per annum in the form of a decimal to no more
than four decimal places) to be added to or subtracted from the LIBO Rate in
order to determine the interest rate applicable to such Loan, as specified in
the Competitive Bid relating to such Loan.
"Margin Regulations" shall mean Regulations T, U and X of the Board.
"Material Adverse Effect" shall mean a materially adverse effect on the
business, assets, operations, condition, financial or otherwise, or results of
operations of the Borrower and the Subsidiaries taken as a whole.
"Moody's" shall mean Moody's Investors Service, Inc., or any successor
thereto.
"Moody's Rating" shall mean, on any date of determination, (i) the debt
rating most recently announced by Moody's with respect to the long-term, senior,
unsecured, non-credit enhanced Indebtedness of the Borrower or (ii) if (A) the
Indebtedness of the Borrower under this Agreement shall be credit-enhanced by
any Person other than the Borrower and (B) both Moody's and S&P shall have
assigned a debt rating to such Indebtedness, then such debt rating assigned by
Moody's.
"Net Cash Proceeds" shall mean, with respect to the sale of any Utilities
Assets, the aggregate amount of cash received by the Borrower or any Subsidiary
thereof in connection with such sale after deducting therefrom (i) reasonable
and customary transaction costs that are, at the time of receipt of such cash,
actually paid or reserved for payment (A) to a Person that is not an Affiliate
of the Borrower or (B) to the Borrower or an Affiliate of the Borrower to
reimburse the Borrower or such Affiliate of the Borrower for payments made by
the Borrower or such Affiliate of the Borrower to another Person that is not the
Borrower or an Affiliate of the Borrower in respect of such transaction costs
described above and (ii) the amount of taxes paid or reasonably expected to be
payable in connection with, or as a result of, such transaction.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and
defined in ERISA.
"Person" shall mean any natural person, corporation, business trust, joint
venture, association, company, limited liability company, partnership, or
government, or any agency or political subdivision thereof.
<PAGE>
10
"Plan" shall mean any pension plan (including a multiemployer plan)
subject to the provisions of Title IV of ERISA or Section 412 of the Code which
is maintained for or to which contributions are made for employees of the
Borrower or any ERISA Affiliate.
"Prime Rate" shall mean the rate of interest per annum publicly announced
from time to time by the Administrative Agent as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective on the date such change is publicly announced as effective.
"Principal Subsidiaries" shall mean any Subsidiary of the Borrower, other
than Electric Lightwave, Inc., whose Consolidated Tangible Assets comprise in
excess of 20% of the Consolidated Tangible Assets of the Borrower and its
consolidated Subsidiaries as of the date hereof or at any time hereafter.
"Register" shall have the meaning given such term in Section 9.04(d).
"Regulation D" shall mean Regulation D of the Board as from time to time
in effect and all official rulings and interpretations thereunder or thereof.
"Regulation T" shall mean Regulation T of the Board as from time to time
in effect and all official rulings and interpretations thereunder or thereof.
"Regulation U" shall mean Regulation U of the Board as from time to time
in effect and all official rulings and interpretations thereunder or thereof.
"Regulation X" shall mean Regulation X of the Board as from time to time
in effect and all official rulings and interpretations thereunder or thereof.
"Release" shall mean any spilling, emitting, discharging, depositing,
escaping, leaching, dumping or other releasing, including the movement of any
Specified Substance through the air, soil, surface water, groundwater or
property, and when used as a verb has a like meaning.
"Required Lenders" shall mean, at any time, Lenders having Commitments
representing at least 66-2/3% of the Total Commitment or, for purposes of
acceleration pursuant to clause (ii) of Article VII or if the Total Commitment
has terminated, Lenders holding Loans representing at least 66-2/3% of the
aggregate principal amount of the Loans outstanding.
"Revolving Period Maturity Date" shall mean October 27, 2000.
"S&P" shall mean Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor thereto.
"S&P Rating" shall mean, on any date of determination, (i) the debt rating
most recently announced by S&P with respect to the long-term, senior, unsecured,
non-credit enhanced Indebtedness of the Borrower or (ii) if (A) the Indebtedness
of the Borrower under this
<PAGE>
11
Agreement shall be credit-enhanced by any Person other than the Borrower and (B)
both S&P and Moody's shall have assigned a debt rating to such Indebtedness,
then such debt rating assigned by S&P.
"Specified Substance" shall mean (i) any chemical, material or substance
defined as or included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials", "extremely hazardous waste", "restricted
hazardous waste" or "toxic substances" or words of similar import under any
applicable Environmental Laws; (ii) any (A) oil, natural gas, petroleum or
petroleum derived substance, any drilling fluids, produced waters and other
wastes associated with the exploration, development or production of crude oil,
natural gas or geothermal fluid, any flammable substances or explosives, any
radioactive materials, any hazardous wastes or substances, any toxic wastes or
substances or (B) other materials or pollutants that, in the case of both (A)
and (B), (1) pose a hazard to the property of the Borrower or any of its
Subsidiaries or any part thereof or to persons on or about such property or to
any other property that may be affected by the Release of such materials or
pollutants from such property or any part thereof or to persons on or about such
other property or (2) cause such property or such other property to be in
violation of any Environmental Law; (iii) asbestos, urea formaldehyde foam
insulation, toluene, polychlorinated biphenyls and any electrical equipment
which contains any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of fifty parts per million; and (iv) any sound, vibration,
heat, radiation or other form of energy and any other chemical, material or
substance, exposure to which is prohibited, limited or regulated by any
Governmental Authority.
"Standby Borrowing" shall mean a Borrowing consisting of simultaneous
Standby Loans from each of the Lenders.
"Standby Borrowing Request" shall mean a request made pursuant to Section
2.04 in the form of Exhibit A-5.
"Standby Loans" shall mean the revolving loans made by the Lenders to the
Borrower pursuant to Section 2.04. Each Standby Loan shall be a Eurodollar
Standby Loan or an ABR Loan. All Standby Loans by a Lender of the same Type,
having the same Interest Period and made or Converted on the same day shall be
deemed to be a single Standby Loan by such Lender until repaid or next
Converted.
"Subsidiary" shall mean, with respect to any Person (herein referred to as
the "parent"), any corporation, partnership, association, or other business
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or more
than 50% of the general partnership interests are, at the time any determination
is being made, owned, controlled, or held by the parent, or (b) which is, at the
time any determination is made, otherwise Controlled by the parent or one or
more subsidiaries of the parent or by the parent and one or more subsidiaries of
the parent. Unless otherwise indicated, all references in this Agreement to
"Subsidiaries" shall be construed as references to Subsidiaries of the Borrower.
"Term Election" shall have the meaning assigned to such term in Section
2.07(b).
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12
"Term Maturity Date" shall have the meaning assigned to such term in
Section 2.07(b).
"Termination Date" shall mean the earlier to occur of (i) the Revolving
Period Maturity Date or, if the Borrower makes the election described in Section
2.07(b), the Term Maturity Date and (ii) the date of termination or reduction in
whole of the Commitments pursuant to Section 2.11 or Article VII.
"Total Commitment" shall mean at any time the aggregate amount of the
Lenders' Commitments, as in effect at such time.
"Transferee" shall mean any transferee or assignee of all or any portion
of a Lender's interests, rights and obligations hereunder, including any
participation holder.
"Type", when used in respect of any Loan or Borrowing, shall refer to the
Rate by reference to which interest on such Loan or on the Loans comprising such
Borrowing is determined. For purposes hereof, "Rate" shall include the LIBO
Rate, the Alternate Base Rate and the Fixed Rate.
"Utilities Assets" shall mean any assets of the Borrower or any Subsidiary
thereof (including, without limitation, stock in any such Subsidiary) that are
employed in the generation or production, transmission or distribution (as
applicable) of electricity, natural gas, synthetic gas or water, or that are
used to provide wastewater services.
"Utilization Period" shall mean any day or days during which the Loans
outstanding hereunder are equal to or greater than 33% of the Total Commitment
for such day or days.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". All references
herein to Articles, Sections, Exhibits and Schedules shall be deemed references
to Articles and Sections of, and Exhibits and Schedules to, this Agreement,
unless the context shall otherwise require. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided,
however, that, for purposes of determining compliance with any covenant set
forth in Article VI, such terms shall be construed in accordance with GAAP as in
effect on the date of this Agreement applied on a basis consistent with the
application used in preparing the Borrower's audited financial statements
referred to in Section 3.02.
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions and relying
upon the representations and warranties herein set forth, each Lender agrees,
severally and not jointly,
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13
to make Standby Loans to the Borrower, at any time and from time to time on and
after the Effective Date and until the earlier to occur of the Revolving Period
Maturity Date and the termination of the Commitment of such Lender, in an
aggregate principal amount at any time outstanding not to exceed such Lender's
Commitment minus the amount by which the Competitive Loans outstanding at such
time shall be deemed to have used such Commitment pursuant to Section 2.16,
subject however, to the conditions that (a) at no time shall (i) the sum of (x)
the outstanding aggregate principal amount of all Standby Loans made by all
Lenders plus (y) the outstanding aggregate principal amount of all Competitive
Loans made by all Lenders exceed (ii) the Total Commitment, and (b) at all times
the outstanding aggregate principal amount of all Standby Loans made by each
Lender shall equal the product of (i) the percentage which its Commitment
represents of the Total Commitment times (ii) the outstanding aggregate
principal amount of all Standby Loans made pursuant to Section 2.04. Each
Lender's Commitment is set forth opposite its respective name in Schedule 2.01.
Such Commitments may be terminated or reduced from time to time pursuant to
Section 2.11 and Section 2.13(f).
Within the foregoing limits, the Borrower may borrow, pay, or prepay and
reborrow hereunder, on and after the Effective Date and prior to the Revolving
Period Maturity Date, subject to the terms, conditions and limitations set forth
herein.
SECTION 2.02. Loans. (a) Each Standby Loan shall be made as part of a
Borrowing consisting of Loans made by the Lenders ratably in accordance with
their Commitments; provided, however, that the failure of any Lender to make any
Standby Loan shall not in itself relieve any other Lender of its obligation to
lend hereunder (it being understood, however, that no Lender shall be
responsible for the failure of any other Lender to make any Loan required to be
made by such other Lender). Each Competitive Loan shall be made in accordance
with the procedures set forth in Section 2.03. The Standby Loans or Competitive
Loans comprising any Borrowing shall be in an aggregate principal amount which
is an integral multiple of $1,000,000 and not less than $10,000,000 (or, in the
case of Standby Loans, an aggregate principal amount equal to the remaining
balance of the available Commitments).
(b) Each Competitive Borrowing shall be comprised entirely of Eurodollar
Competitive Loans or Fixed Rate Loans, and each Standby Borrowing shall be
comprised entirely of Eurodollar Standby Loans or ABR Loans, as the Borrower may
request pursuant to Section 2.03 or 2.04, as applicable. Each Lender may at its
option make any Eurodollar Loan by causing any domestic or foreign branch or
Affiliate of such Lender to make such Loan; provided that any exercise of such
option shall not affect the obligation of the Borrower to repay such Loan in
accordance with the terms of this Agreement. Borrowings of more than one Type
may be outstanding at the same time; provided, however, that the Borrower shall
not be entitled to request any Borrowing which, if made, would result in an
aggregate of more than ten separate Standby Loans of any Lender being
outstanding hereunder at any one time. For purposes of the foregoing, Loans
having different Interest Periods, regardless of whether they commence on the
same date, shall be considered separate Loans.
(c) Each Lender shall make each Loan to be made by it hereunder on the
proposed date thereof by wire transfer of immediately available funds to the
Administrative Agent in New York, New York, not later than 1:00 P.M., New York
City time, and the Administrative Agent shall by 3:00 P.M., New York City time,
credit the amounts so received to the general deposit
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14
account of the Borrower with the Administrative Agent or, if a Borrowing shall
not occur on such date because any condition precedent herein specified shall
not have been met, return the amounts so received to the respective Lenders.
Competitive Loans shall be made by the Lender or Lenders whose Competitive Bids
therefor are accepted pursuant to Section 2.03 in the amounts so accepted and
Standby Loans shall be made by the Lenders pro rata in accordance with Section
2.16. Unless the Administrative Agent shall have received notice from a Lender
prior to the date of any Borrowing (or, in the case of an ABR Borrowing, prior
to the time of such ABR Borrowing) that such Lender will not make available to
the Administrative Agent such Lender's portion of such Borrowing, the
Administrative Agent may assume that such Lender has made such portion available
to the Administrative Agent on the date of such Borrowing in accordance with
this paragraph (c) and the Administrative Agent may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent that such Lender shall not have made such portion available
to the Administrative Agent and the Administrative Agent has made available to
the Borrower such portion, such Lender and the Borrower severally agree to repay
to the Administrative Agent forthwith on demand such corresponding amount,
together with interest thereon for each day from the date such amount is made
available to the Borrower until the date such amount is repaid to the
Administrative Agent at (i) in the case of the Borrower, the interest rate
applicable at the time to the Loans comprising such Borrowing and (ii) in the
case of such Lender, the Federal Funds Effective Rate. If such Lender shall
repay to the Administrative Agent such corresponding amount, such amount shall
constitute such Lender's Loan as part of such Borrowing for purposes of this
Agreement.
(d) Notwithstanding any other provision of this Agreement, the Interest
Period requested by the Borrower with respect to any Borrowing shall not (unless
otherwise agreed to by all of the Lenders) end after the earlier to occur of (i)
the Termination Date and (ii) the latest date permitted by any Governmental
Approval then in effect for the Borrower to have outstanding Borrowings.
SECTION 2.03. Competitive Bid Procedure. (a) Subject to the terms and
conditions set forth herein, from time to time during the period from and
including the Effective Date to but excluding the earlier to occur of the
Revolving Period Maturity Date and the termination of the Commitments of all
Lenders, the Borrower may request Competitive Bids and may, but shall not have
any obligation to, accept Competitive Bids and borrow Competitive Loans;
provided, that at no time shall the sum of (x) the outstanding aggregate
principal amount of all Standby Loans made by all Lenders plus (y) the
outstanding aggregate principal amount of all Competitive Loans made by all
Lenders exceed the Total Commitment. In order to request Competitive Bids, the
Borrower shall hand deliver or telecopy to the Administrative Agent a duly
completed Competitive Bid Request in the form of Exhibit A-1 hereto, to be
received by the Administrative Agent (i) in the case of a Eurodollar Competitive
Borrowing, not later than 10:00 A.M., New York City time, four Business Days
before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate
Borrowing, not later than 10:00 A.M., New York City time, one Business Day
before a proposed Competitive Borrowing. No ABR Loan shall be requested in, or
made pursuant to, a Competitive Bid Request. A Competitive Bid Request that does
not conform substantially to the format of Exhibit A-1 may be rejected in the
Administrative Agent's sole discretion, and the Administrative Agent shall
promptly notify the Borrower of such rejection by
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15
telecopier. Such request shall in each case refer to this Agreement and specify
(x) whether the Borrowing then being requested is to be a Eurodollar Borrowing
or a Fixed Rate Borrowing, (y) the date of such Borrowing (which shall be a
Business Day) and the aggregate principal amount thereof which shall be in a
minimum principal amount of $10,000,000 and in an integral multiple of
$1,000,000, and (z) the Interest Period(s) with respect thereto (which may not
end after the Revolving Period Maturity Date unless otherwise agreed to by all
of the Lenders). Promptly after its receipt of a Competitive Bid Request that is
not rejected as aforesaid, the Administrative Agent shall invite by telecopier
(in the form set forth in Exhibit A-2 hereto) the Lenders to bid, on the terms
and conditions of this Agreement, to make Competitive Loans pursuant to the
Competitive Bid Request.
(b) Each Lender may, in its sole discretion, make one or more Competitive
Bids to the Borrower responsive to a Competitive Bid Request. Each Competitive
Bid by a Lender must be received by the Administrative Agent via telecopier, in
the form of Exhibit A-3 hereto, (i) in the case of a Eurodollar Competitive
Borrowing, not later than 9:30 A.M., New York City time, three Business Days
before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate
Borrowing, not later than 9:30 A.M., New York City time, on the day of a
proposed Competitive Borrowing. Multiple bids will be accepted by the
Administrative Agent. Competitive Bids that do not conform substantially to the
format of Exhibit A-3 may be rejected by the Administrative Agent after
conferring with, and upon the instruction of, the Borrower, and the
Administrative Agent shall notify the Lender making such nonconforming bid of
such rejection as soon as practicable. Each Competitive Bid shall refer to this
Agreement and specify (x) the range of principal amounts (each of which shall be
in a minimum principal amount of $5,000,000 and in an integral multiple of
$1,000,000 and, in the case of the larger such amount, may equal the entire
principal amount of the Competitive Borrowing requested by the Borrower) of the
Competitive Loan or Loans that the Lender is willing to make to the Borrower,
(y) the Competitive Bid Rate or Rates at which the Lender is prepared to make
the Competitive Loan or Loans and (z) the Interest Period and the last day
thereof. If any Lender shall elect not to make a Competitive Bid, such Lender
shall so notify the Administrative Agent via telecopier (A) in the case of
Eurodollar Competitive Loans, not later than 9:30 A.M., New York City time,
three Business Days before a proposed Competitive Borrowing, and (B) in the case
of Fixed Rate Loans, not later than 9:30 A.M., New York City time, on the day of
a proposed Competitive Borrowing; provided, however, that the failure by any
Lender to give such notice shall not cause such Lender to be obligated to make
any Competitive Loan as part of such Competitive Borrowing. A Competitive Bid
submitted by a Lender pursuant to this paragraph (b) shall be irrevocable. If
the Administrative Agent shall not have received from any Lender notification of
its election to make a Competitive Bid on or before the times set forth in the
second sentence of this paragraph, such Lender shall be deemed to have elected
not to make a Competitive Bid.
(c) The Administrative Agent shall promptly notify (but in any event no
later than 10:00 A.M., New York City time, on the day any Competitive Bid is
received by the Administrative Agent) the Borrower by telecopier of all the
Competitive Bids made, the Competitive Bid Rate and the principal amount (or
range thereof) of each Competitive Loan in respect of which a Competitive Bid
was made and the identity of the Lender that made each bid. The Administrative
Agent shall send a copy of all Competitive Bids to the Borrower for its records
as soon as practicable after completion of the bidding process set forth in this
Section 2.03.
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16
(d) The Borrower may in its sole and absolute discretion, subject only to
the provisions of this paragraph (d), accept or reject all or any portion
(within the range of principal amounts specified therein) of any Competitive Bid
referred to in paragraph (c) above. The Borrower shall notify the Administrative
Agent by telephone, confirmed by telecopier in the form of a Competitive Bid
Accept/Reject Letter, whether and to what extent it has decided to accept or
reject any of or all the bids referred to in paragraph (c) above, (x) in the
case of a Eurodollar Competitive Borrowing, not later than 11:00 A.M., New York
City time, three Business Days before a proposed Competitive Borrowing and (y)
in the case of a Fixed Rate Borrowing, not later than 11:00 A.M., New York City
time, on the day of a proposed Competitive Borrowing; provided, however, that
(i) the failure by the Borrower to give such notice shall be deemed to be a
rejection of all the bids referred to in paragraph (c) above, (ii) the Borrower
shall not accept a bid made at a particular Competitive Bid Rate if the Borrower
has decided to reject a bid made at a lower Competitive Bid Rate, (iii) the
aggregate amount of the Competitive Bids accepted by the Borrower shall not
exceed the principal amount specified in the Competitive Bid Request, (iv) if
the Borrower shall accept a bid or bids made at the same Competitive Bid Rate
but the amount of such bid or bids shall cause the total amount of bids to be
accepted by the Borrower to exceed the amount specified in the Competitive Bid
Request, then the Borrower shall accept a portion of such bid or bids in an
amount no greater than the amount specified in the Competitive Bid Request less
the amount of all other Competitive Bids at a lower Competitive Bid Rate
accepted with respect to such Competitive Bid Request, which acceptance, in the
case of multiple bids at such Competitive Bid Rate, shall be made pro rata in
accordance with the lowest amount of each such bid at such Competitive Bid Rate,
and (v) except pursuant to clause (iv) above, no bid shall be accepted for a
Competitive Loan unless such Competitive Loan is in a minimum principal amount
of $5,000,000 and an integral multiple of $1,000,000; provided further, however,
that if a Competitive Loan must be in an amount less than $5,000,000 because of
the provisions of clause (iv) above, such Competitive Loan may be for a minimum
of $1,000,000 or any integral multiple thereof, and in calculating the pro rata
allocation of acceptances of portions of multiple bids at a particular
Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded to
integral multiples of $1,000,000 in a manner which shall be in the discretion of
the Borrower. A notice given by the Borrower pursuant to this paragraph (d)
shall be irrevocable.
(e) The Administrative Agent shall promptly notify each bidding Lender
whether or not its Competitive Bid has been accepted (and if so, in what amount
and at what Competitive Bid Rate) by telecopier sent by the Administrative
Agent, and each successful bidder will thereupon become bound, subject to the
other applicable conditions hereof, to make the Competitive Loan in respect of
which its bid has been accepted.
(f) If the Administrative Agent shall elect to submit a Competitive Bid in
its capacity as a Lender, it shall submit such bid directly to the Borrower not
later than 9:15 A.M., New York City time, on the day on which the other Lenders
are required to submit their bids to the Administrative Agent pursuant to
paragraph (b) above.
(g) All notices required by this Section 2.03 shall be given in accordance
with Section 9.01.
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SECTION 2.04. Standby Borrowing Procedure. In order to request a Standby
Borrowing (other than a Conversion), the Borrower shall hand deliver or telecopy
to the Administrative Agent a notice in the form of Exhibit A-5 (a) in the case
of a Eurodollar Standby Borrowing, not later than 11:00 A.M., New York City
time, three Business Days before a proposed Borrowing, and (b) in the case of an
ABR Borrowing, not later than 11:00 A.M., New York City time, on the day of a
proposed Borrowing. No Fixed Rate Loan shall be requested or made pursuant to a
Standby Borrowing Request. Such notice shall be irrevocable (unless otherwise
expressly provided herein) and shall in each case specify (i) whether the
Borrowing then being requested is to be a Eurodollar Standby Borrowing or an ABR
Borrowing; (ii) the date of such Standby Borrowing (which shall be a Business
Day) and the amount thereof; and (iii) if such Borrowing is to be a Eurodollar
Standby Borrowing, the Interest Period with respect thereto. If no election as
to the Type of Standby Borrowing is specified in any such notice, then the
requested Standby Borrowing shall be an ABR Borrowing. If no Interest Period
with respect to any Eurodollar Standby Borrowing is specified in any such
notice, then the Borrower shall be deemed to have selected an Interest Period of
one month's duration. The Administrative Agent shall promptly advise (but in any
event no later than 12:00 noon on such date) the Lenders of any notice given
pursuant to this Section 2.04 and of each Lender's portion of the requested
Borrowing.
SECTION 2.05. Conversions. The Borrower may from time to time Convert any
Standby Loan (or portion thereof) of any Type to one or more Standby Loans of
the same or any other Type by delivering (by hand delivery or telecopier) a
request for such Conversion in the form of Exhibit A-6 to the Administrative
Agent no later than (i) 11:00 A.M., New York City time, on the third Business
Day prior to the date of any proposed Conversion into a Eurodollar Standby Loan
and (ii) 11:00 A.M., New York City time, on the day of any proposed Conversion
into an ABR Loan. The Administrative Agent shall give each Lender prompt notice
of each Conversion Request. Each Conversion Request shall be irrevocable (unless
otherwise expressly provided herein) and binding on the Borrower and shall
specify the requested (A) date of such Conversion, (B) Type of, and Interest
Period, if any, applicable to, the Standby Loans (or portions thereof) proposed
to be Converted, (C) Type of Standby Loans to which such Standby Loans (or
portions thereof) are proposed to be Converted, (D) initial Interest Period, if
any, to be applicable to the Standby Loans resulting from such Conversion and
(E) aggregate amount of Standby Loans (or portions thereof) proposed to be
Converted. No Eurodollar Standby Loans may be Converted on a date other than the
last day of the Interest Period applicable thereto, unless the Borrower
reimburses each Lender pursuant to Section 2.15 for all losses or expenses
incurred by such Lender in connection with such Conversion. If the Borrower
shall fail to give a timely Conversion Request pursuant to this subsection in
respect of any Standby Loans, such Standby Loans shall, on the last day of the
then existing Interest Period therefor, automatically Convert into, or remain
as, as the case may be, ABR Loans, unless such Standby Loans are repaid at the
end of such Interest Period. If the Borrower shall fail, in any Conversion
Request that has been timely given, to select the duration of any Interest
Period for Standby Loans to be Converted into Eurodollar Standby Loans, such
Standby Loans shall, on the last day of the then existing Interest Period
therefor, automatically Convert into Eurodollar Standby Loans with an Interest
Period of one months' duration. If, on the date of any proposed Conversion, the
Borrower shall have failed to fulfill any condition set forth in Section 4.01,
all Standby Loans
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then outstanding shall, on such date, automatically Convert into, or remain as,
as the case may be, ABR Loans.
SECTION 2.06. Fees. (a) The Borrower agrees to pay to each Lender, through
the Administrative Agent, on each March 31, June 30, September 30 and December
31, on the date on which the Commitment of such Lender shall be terminated as
provided herein and on the Termination Date, a facility fee (a "Facility Fee")
at a rate per annum equal to the Applicable Rate from time to time in effect on
(i) the amount of the Commitment of such Lender, whether used or unused, during
the preceding quarter (or shorter period commencing on the date hereof or ending
on the Revolving Period Maturity Date or any other date on which the Commitment
of such Lender shall be terminated) and (ii) in the event that the Commitments
have terminated and/or the Borrower has made the Term Election, the aggregate
amount of the Standby Loans owed by the Borrower to such Lender during the
preceding quarter (or shorter period ending on the later of the Term Maturity
Date and the date on which such Standby Loans are paid in full). All Facility
Fees shall be computed on the basis of the actual number of days elapsed in a
year of 365 or 366 days, as the case may be. The Facility Fee due to each Lender
shall commence to accrue on the date hereof and shall cease to accrue on the
later of the Termination Date and the date of payment in full of the Loans,
accrued interest thereon and all other amounts payable hereunder.
(b) The Borrower agrees to pay the Administrative Agent, for its own
account, the fees (the "Administrative Fees") at the times and in the amounts
agreed upon in the Fee Letter.
(c) All Fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Lenders. Once paid, none of the Fees shall be refundable under any
circumstances.
SECTION 2.07. Repayment of Loans. (a) The outstanding principal balance of
each Loan shall be payable, in the case of each Competitive Loan, on the earlier
to occur of the last day of the Interest Period applicable to such Loan and the
Termination Date, and, in the case of each Standby Loan, on the Termination
Date, unless otherwise agreed to by all of the Lenders. Each Competitive Loan
and each Standby Loan shall bear interest from the date thereof on the
outstanding principal balance thereof as set forth in Section 2.08. Each Lender
shall, and is hereby authorized by the Borrower to record in such Lender's
internal records an appropriate notation evidencing the date and amount of each
Competitive Loan or Standby Loan, as applicable, of such Lender, each payment or
prepayment of principal of any Competitive Loan or Standby Loan, as applicable,
and such other relevant information as such Lender records in its internal
records with respect to loans of a type similar to such Loans; provided,
however, that the failure of any Lender to make such a notation or any error
therein shall not in any manner affect the obligation of the Borrower to repay
the Competitive Loans or Standby Loans, as applicable, made by such Lender in
accordance with the terms hereof.
(b) The Borrower may elect, by providing written notice of such election
to the Administrative Agent (who shall promptly advise the Lenders of such
notice) at least five but no more than 30 days prior to the Revolving Period
Maturity Date, to have all or a portion of the Standby Loans outstanding on the
Revolving Period Maturity Date mature not later than the first
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19
anniversary of the Revolving Period Maturity Date (such election being the "Term
Election"). Such notice shall be irrevocable and binding on the Borrower and
shall specify (i) the date (the "Term Maturity Date") on which the Borrower
desires such Standby Loans to mature (which date shall be no later than the
first anniversary of the Revolving Period Maturity Date) and (ii) the Standby
Loans and the amount thereof that shall mature on the Term Maturity Date. The
Term Election shall be effective on the Revolving Period Maturity Date if and
only if on such date no Default or Event of Default shall have occurred and be
continuing or would occur as a result of the Term Election. Upon the
effectiveness of the Term Election, the Borrower shall no longer have the right
to borrow any unfunded portion of the Commitments or reborrow all or any part of
the Loans that have been repaid or prepaid. The Term Election may be made only
once.
(c) Any Lender may request that any Loans made by it be evidenced by one
or more promissory notes. Promptly upon receipt of such request, the Borrower
shall prepare, execute and deliver to such Lender one or more promissory notes
payable to the order of such Lender (or, if requested by such Lender, to such
Lender and its assignees) substantially in the form of Exhibit E-1 or E-2, as
appropriate. Thereafter, the Loans evidenced by such promissory notes and
interest thereon shall at all times (including after assignment pursuant to
Section 9.04) be represented by one or more promissory notes in such form
payable to the order of the payee named therein.
SECTION 2.08. Interest on Loans. (a) Subject to the provisions of Section
2.09, the Loans comprising each Eurodollar Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 360
days) at a rate per annum equal to (i) in the case of each Eurodollar Standby
Loan, the LIBO Rate for the Interest Period in effect for such Borrowing plus
the Applicable Rate, and (ii) in the case of each Eurodollar Competitive Loan,
the LIBO Rate for the Interest Period in effect for such Borrowing plus the
Margin offered by the Lender making such Loan and accepted by the Borrower
pursuant to Section 2.03. Interest on each Eurodollar Borrowing shall be payable
on each applicable Interest Payment Date. The LIBO Rate for each Interest Period
shall be determined by the Administrative Agent, and such determination shall be
conclusive absent manifest error. The Administrative Agent shall promptly (but
in any event no later than 10:30 A.M., New York City time, two Business Days
prior to the commencement of such Interest Period) (A) advise the Borrower and
each Lender, as appropriate, of such determination and (B) upon the request of
the Borrower, provide the Borrower with the calculations and relevant factors
supporting such determination.
(b) Subject to the provisions of Section 2.09, the Loans comprising each
ABR Borrowing shall bear interest (computed on the basis of the actual number of
days elapsed over a year of 365 days when determined with reference to the Prime
Rate and over a year of 360 days in all other cases) at a rate per annum equal
to the Alternate Base Rate plus the Applicable Rate. Interest on each ABR
Borrowing shall be payable on each applicable Interest Payment Date. The
Alternate Base Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error. The Administrative
Agent shall promptly (but in any event no later than 11:30 A.M., New York City
time, on the day of each ABR Borrowing) (A) advise the Borrower and each Lender
of such determination and (B) upon the request of the Borrower, provide the
Borrower with the calculations and relevant factors supporting such
determination.
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(c) Subject to the provisions of Section 2.09, each Fixed Rate Loan shall
bear interest at a rate per annum (computed on the basis of the actual number of
days elapsed over a year of 360 days) equal to the fixed rate of interest
offered by the Lender making such Loan and accepted by the Borrower pursuant to
Section 2.03. Interest on each Fixed Rate Loan shall be payable on the Interest
Payment Dates applicable to such Loan except as otherwise provided in this
Agreement.
SECTION 2.09. Default Interest. If the Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, whether by scheduled maturity, notice of prepayment,
acceleration, or otherwise, the Borrower shall on demand from time to time from
the Administrative Agent pay interest, to the extent permitted by law, on such
defaulted amount up to (but not including) the date of actual payment (after as
well as before judgment) at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) equal to the Alternate
Base Rate plus 2%.
SECTION 2.10. Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Administrative Agent shall have
determined that dollar deposits in the principal amounts of the Eurodollar Loans
comprising such Borrowing are not generally available in the London interbank
market, or that the rates at which such dollar deposits are being offered will
not adequately and fairly reflect the cost to any Lender of making or
maintaining its Eurodollar Loan during such Interest Period, or that reasonable
means do not exist for ascertaining the LIBO Rate, the Administrative Agent
shall, as soon as practicable thereafter, give written notice of such
determination to the Borrower and the Lenders. In the event of any such
determination, until the Administrative Agent shall have advised the Borrower
and the Lenders that the circumstances giving rise to such notice no longer
exist, (i) any such request by the Borrower for a Eurodollar Competitive
Borrowing pursuant to Section 2.03 shall be of no force and effect and shall be
denied by the Administrative Agent, (ii) any such request by the Borrower for a
Eurodollar Standby Borrowing pursuant to Section 2.04 shall be deemed to be a
request for an ABR Borrowing (unless the Borrower shall have withdrawn its
request for such Eurodollar Standby Borrowing not later than 10:00 A.M., New
York City time, on the day of the proposed Borrowing) and (iii) any request by
the Borrower for a Conversion to Eurodollar Standby Loans pursuant to Section
2.05 shall be deemed to be a request for a Conversion to ABR Loans (unless the
Borrower shall have withdrawn its request for such Conversion not later than
10:00 A.M., New York City time, on the day of the proposed Conversion). Each
determination by the Administrative Agent hereunder shall be conclusive absent
manifest error.
SECTION 2.11. Termination and Reduction of Commitments. (a) Upon at least
three Business Days' prior irrevocable written notice to the Administrative
Agent, the Borrower may at any time in whole permanently terminate, or from time
to time in part permanently reduce, the Total Commitment; provided, however,
that (i) each partial reduction of the Total Commitment shall be in an integral
multiple of $1,000,000 and in a minimum principal amount of $10,000,000 and (ii)
no such termination or reduction shall be made which would reduce the Total
Commitment to an amount less than the aggregate outstanding principal amount of
the Competitive Loans.
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21
(b) The Total Commitment shall be permanently reduced in an amount equal
to the amount of any prepayment required to be made pursuant to Section 2.12(c),
regardless of whether any Loans are outstanding or actually prepaid, such
reduction to be effective on the scheduled date for such prepayment.
(c) Each reduction in the Total Commitment hereunder shall be made ratably
among the Lenders in accordance with their respective Commitments. The Borrower
shall pay to the Administrative Agent for the account of the Lenders, on the
date of each termination or reduction, the Facility Fees on the amount of the
Commitments so terminated or reduced accrued through the date of such
termination or reduction. Subject to Section 2.06(a)(ii), no additional Facility
Fees on the amount of the Commitments so terminated or reduced will accrue.
(d) Unless earlier terminated pursuant to the terms of this Agreement, the
Commitment of each Lender shall automatically and permanently terminate on the
Revolving Period Maturity Date.
(e) Any termination or reduction of the Commitments pursuant to this
Section 2.11 shall be appropriately recorded by the Administrative Agent in the
Register in accordance with Section 9.04(d). In addition, all notices with
respect to any such termination or reduction shall be maintained by the
Administrative Agent with the Register.
SECTION 2.12. Prepayment. (a) The Borrower shall have the right at any
time and from time to time to prepay any Standby Borrowing or Eurodollar
Competitive Borrowing, in whole or in part, upon giving written notice (or
telephone notice promptly confirmed by written notice) to the Administrative
Agent: (i) before 11:00 A.M., New York City time, three Business Days prior to
prepayment, in the case of Eurodollar Loans, and (ii) before 11:00 A.M., New
York City time, on the day of prepayment, in the case of ABR Loans; provided,
however, that each partial prepayment shall be in an amount which is an integral
multiple of $1,000,000 and not less than $5,000,000. The Borrower shall not have
the right to prepay any Fixed Rate Competitive Borrowing.
(b) On the date of any termination or reduction of the Commitments
pursuant to Section 2.11 (other than subsection (b) thereof) or Section 2.13(f),
the Borrower shall pay or prepay so much of the Standby Borrowings as shall be
necessary in order that the aggregate principal amount of the Competitive Loans
and Standby Loans outstanding will not exceed the Total Commitment after giving
effect to such termination or reduction. In the event that the Borrower makes
the Term Election, the Borrower shall pay or prepay on the Revolving Period
Maturity Date so much of the Standby Borrowings as shall be necessary in order
that the aggregate principal amount of the Standby Loans outstanding will not
exceed the amount of the Standby Loans subject to the Term Election.
(c) The Borrower shall, from time to time, prepay Standby Borrowings in an
amount equal to the Net Cash Proceeds received by the Borrower or any Subsidiary
thereof from the sale of any Utilities Assets, such prepayment to be made on the
tenth Business Day following the day on which the Borrower or such Subsidiary
receives such Net Cash Proceeds; provided, that the aggregate amount of such
prepayments made pursuant to this subsection (c) shall not exceed
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22
$2,000,000,000 minus the aggregate amount of reductions in the Total Commitment
made pursuant to Section 2.11(a); provided, further, that any prepayment of a
Eurodollar Loan made pursuant to this subsection (c) shall not be required to be
made until the end of the Interest Period applicable to such Eurodollar Loan.
(d) Each notice of prepayment shall specify the prepayment date and the
principal amount of each Borrowing (or portion thereof) to be prepaid, shall be
irrevocable and shall commit the Borrower to prepay such Borrowing (or portion
thereof) by the amount stated therein on the date stated therein. All
prepayments under this Section 2.12 shall be subject to Section 2.15 but
otherwise without premium or penalty. All prepayments under this Section 2.12
shall be accompanied by accrued interest on the principal amount being prepaid
to the date of payment.
SECTION 2.13. Reserve Requirements; Change in Circumstances. (a) It is
understood that the cost to each Lender of making or maintaining any of the
Eurodollar Loans may fluctuate as a result of the applicability of reserve
requirements imposed by the Board at the ratios provided for in Regulation D on
the date hereof. The Borrower agrees to pay to each of the Lenders from time to
time such amounts as shall be necessary to compensate such Lender for the
portion of the cost of making or maintaining Eurodollar Loans (other than
Eurodollar Competitive Loans) resulting from any such reserve requirements
provided for in Regulation D as in effect on the date hereof, it being
understood that the rates of interest applicable to Eurodollar Loans have been
determined on the assumption that no such reserve requirements exist or will
exist and that such rates do not reflect costs imposed on the Lenders in
connection with such reserve requirements.
(b) Notwithstanding any other provision herein, if after the date of this
Agreement any change in applicable law or regulation (including, without
limitation, Regulation D) or in the interpretation or administration thereof by
any governmental authority charged with the interpretation or administration
thereof (whether or not having the force of law) shall change the basis of
taxation of payments to any Lender of the principal of or interest on any
Eurodollar Loan or Fixed Rate Loan made by such Lender or any Fees or other
amounts payable hereunder (other than changes in respect of taxes imposed on the
overall net income of such Lender and franchise taxes imposed on it by the
jurisdiction in which such Lender has its principal office or by any political
subdivision or taxing authority therein), or shall impose, modify, or deem
applicable any reserve, special deposit, or similar requirement against assets
of, deposits with or for the account of or credit extended by such Lender, or
shall impose on such Lender or the London interbank market any other condition
affecting this Agreement or any Eurodollar Loan or Fixed Rate Loan made by such
Lender, and the result of any of the foregoing shall be to increase the cost to
such Lender of making or maintaining any Eurodollar Loan or Fixed Rate Loan or
to reduce the amount of any sum received or receivable by such Lender hereunder
(whether of principal, interest, or otherwise) by an amount deemed by such
Lender to be material, then the Borrower will pay to such Lender upon demand
such additional amount or amounts as will compensate such Lender for such
additional costs incurred or reduction suffered. Notwithstanding the foregoing,
no Lender shall be entitled to request compensation under this paragraph with
respect to any Competitive Loan if it shall have had actual knowledge of the
change giving rise to such request at the time of submission of the Competitive
Bid pursuant to which such Competitive Loan shall have been made.
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23
(c) If any Lender shall have determined that the adoption after the date
hereof of any law, rule, regulation, or guideline regarding capital adequacy, or
any change in any existing law, rule, regulation, or guideline regarding capital
adequacy or in the interpretation or administration of any of the foregoing by
any governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or any Lender's holding company with any request
or directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank, or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's capital or on the capital
of such Lender's holding company, if any, as a consequence of this Agreement or
the Loans made by such Lender pursuant hereto to a level below that which such
Lender or such Lender's holding company could have achieved but for such
adoption, change, or compliance (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy) by an amount deemed by such Lender to be material, then from
time to time the Borrower shall pay to such Lender such additional amount or
amounts as will compensate such Lender or such Lender's holding company for any
such reduction suffered.
(d) certificate of a Lender setting forth such amount or amounts as shall
be necessary to compensate such Lender as specified in paragraph (a), (b), or
(c) above, as the case may be, and all of the relevant factors and the
calculations supporting such amount or amounts, shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
each Lender the amount shown as due on any such certificate delivered by it
within 10 days after the receipt of the same.
(e) Notwithstanding the provisions of subsections (a), (b) or (c), above,
to the contrary, no Lender shall be entitled to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital to the extent that such compensation relates to any period of
time prior to the date upon which such Lender first notified the Borrower of the
occurrence of the event entitling such Lender to such compensation (unless, and
to the extent, that any such compensation so demanded shall relate to the
retroactive application of any event so notified to the Borrower required by any
governmental authority, central bank or comparable agency).
(f) If any Lender shall have delivered a notice or certificate pursuant to
paragraph (d) above, the Borrower shall have the right, at its own expense, upon
notice to such Lender and the Administrative Agent, to require such Lender to
(i) terminate its Commitment or (ii) transfer and assign without recourse (in
accordance with and subject to the restrictions contained in Section 9.04) all
or a portion of its interest, rights and obligations under this Agreement to
another financial institution which shall assume such obligations; provided that
(A) no such termination or assignment shall conflict with any law, rule, or
regulation or order of any Governmental Authority and (B) the Borrower or the
assignee, as the case may be, shall pay to the affected Lender in immediately
available funds on the date of such termination or assignment the principal of
and interest accrued to the date of payment on the Loans made by it hereunder
and all other amounts accrued for its account or owed to it hereunder (other
than any amounts owed to such Lender pursuant to Section 2.15(c) in connection
with such principal payment).
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24
SECTION 2.14. Change in Legality. (a) Notwithstanding any other provision
herein, if any change in any law or regulation or in the interpretation thereof
by any governmental authority charged with the administration or interpretation
thereof shall make it unlawful for any Lender to make or maintain any Eurodollar
Loan or to give effect to its obligations as contemplated hereby with respect to
any Eurodollar Loan, then, by written notice to the Borrower and to the
Administrative Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be made by
such Lender hereunder, whereupon such Lender shall not submit a
Competitive Bid in response to a request for Eurodollar Competitive Loans
and any request by the Borrower for a Eurodollar Standby Borrowing shall,
as to such Lender only, be deemed a request for an ABR Loan (or for a
Conversion thereto pursuant to Section 2.05) unless such declaration shall
be subsequently withdrawn; and
(ii) require that all outstanding Eurodollar Loans made by it be
Converted to ABR Loans, in which event all such Eurodollar Loans shall be
automatically Converted to ABR Loans as of the effective date of such
notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Lender or the
Converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting from the Conversion of,
such Eurodollar Loans.
(b) For purposes of this Section 2.14, a notice to the Borrower by any
Lender shall be effective as to each Eurodollar Loan, if lawful, on the last day
of the Interest Period currently applicable to such Eurodollar Loan; in all
other cases such notice shall be effective on the date of receipt by the
Borrower.
Section 2.15. Indemnity. The Borrower shall indemnify each Lender against
any loss or expense which such Lender may sustain or incur as a consequence of
(a) any failure by the Borrower to fulfill on the date of any Borrowing
hereunder the applicable conditions set forth in Article IV, (b) any failure by
the Borrower to borrow or to Convert any Loan hereunder after irrevocable notice
of such Borrowing or Conversion has been given pursuant to Section 2.03, 2.04 or
2.05, (c) any payment, prepayment or Conversion of a Eurodollar Loan required by
any other provision of this Agreement or otherwise made or deemed made on a date
other than the last day of the Interest Period applicable thereto, (d) any
default in payment or prepayment of the principal amount of any Loan or any part
thereof or interest accrued thereon, as and when due and payable (at the due
date thereof, whether by scheduled maturity, acceleration, irrevocable notice of
prepayment or otherwise), or (e) the occurrence of any Event of Default,
including, in each such case, any loss or reasonable expense sustained or
incurred or to be sustained or incurred in liquidating or employing deposits
from third parties acquired to effect or maintain such Loan or any part thereof
as a Eurodollar Loan. Such loss or reasonable expense shall include an amount
equal to the excess, if any, as reasonably demonstrated by such Lender, of (i)
its cost of obtaining the funds for the Loan being paid, prepaid, Converted, or
not borrowed (assumed to be the LIBO Rate or, in the case of a Fixed Rate Loan,
the fixed rate of interest
<PAGE>
25
applicable thereto) for the period from the date of such payment, prepayment, or
failure to borrow to the last day of the Interest Period for such Loan (or, in
the case of a failure to borrow, the Interest Period for such Loan which would
have commenced on the date of such failure) over (ii) the amount of interest (as
reasonably demonstrated by such Lender) that would be realized by such Lender in
reemploying the funds so paid, prepaid, or not borrowed for such period or
Interest Period, as the case may be. A certificate of any Lender setting forth
the factors and calculations supporting any amount or amounts which such Lender
is entitled to receive pursuant to this Section shall be delivered to the
Borrower no later than 30 days following the incurrence of any loss or expense
for which such Lender is seeking indemnification under this Section 2.15 and
shall be conclusive absent manifest error.
SECTION 2.16. Pro Rata Treatment. Except as required or otherwise
permitted under Sections 2.13(f) and 2.14, each Standby Borrowing, each payment
or prepayment of principal of any Standby Borrowing, each payment of interest on
the Standby Loans, each payment of the Facility Fees, each reduction of the
Commitments and each Conversion of any Borrowing with a Standby Borrowing of any
Type, shall be allocated pro rata among the Lenders in accordance with their
respective Commitments (or, if such Commitments shall have expired or been
terminated, in accordance with the respective principal amounts of their
outstanding Standby Loans). Each payment of principal of any Competitive
Borrowing shall be allocated pro rata among the Lenders participating in such
Borrowing in accordance with the respective principal amounts of their
outstanding Competitive Loans comprising such Borrowing. Each payment of
interest on any Competitive Borrowing shall be allocated pro rata among the
Lenders participating in such Borrowing in accordance with the respective
amounts of accrued and unpaid interest on their outstanding Competitive Loans
comprising such Borrowing. For purposes of determining the available Commitments
of the Lenders at any time, each outstanding Competitive Borrowing shall be
deemed to have utilized the Commitments of the Lenders (including those Lenders
which shall not have made Loans as part of such Competitive Borrowing) pro rata
in accordance with such respective Commitments. Each Lender agrees that, in
computing such Lender's portion of any Borrowing to be made hereunder, the
Administrative Agent may, in its discretion, round each Lender's percentage of
such Borrowing to the next higher or lower whole dollar amount.
SECTION 2.17. Sharing of Setoffs. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff, or counterclaim
against the Borrower, or pursuant to a secured claim under Section 506 of Title
11 of the United States Code or other security or interest arising from, or in
lieu of, such secured claim, received by such Lender under any applicable
bankruptcy, insolvency, or other similar law or otherwise, or by any other
means, obtain payment (voluntary or involuntary) in respect of any Standby Loan
or Standby Loans as a result of which the unpaid principal portion of the
Standby Loans of such Lender shall be proportionately less than the unpaid
principal portion of the Standby Loans of any other Lender, it shall be deemed
simultaneously to have purchased from such other Lender at face value, and shall
promptly pay to such other Lender the purchase price for, a participation in the
Standby Loans of such other Lender, so that the aggregate unpaid principal
amount of the Standby Loans and participations in the Standby Loans held by each
Lender shall be in the same proportion to the aggregate unpaid principal amount
of all Standby Loans then outstanding as the principal amount of its Standby
Loans prior to such exercise of banker's lien, setoff, or counterclaim or
<PAGE>
26
other event was to the principal amount of all Standby Loans outstanding prior
to such exercise of banker's lien, setoff, or counterclaim or other event;
provided, however, that if any such purchase or purchases or adjustments shall
be made pursuant to this Section 2.17 and the payment giving rise thereto shall
thereafter be recovered, such purchase or purchases or adjustments shall be
rescinded to the extent of such recovery and the purchase price or prices or
adjustment restored without interest. The Borrower expressly consents to the
foregoing arrangements and agrees that, to the maximum extent permitted by law,
any Lender holding a participation in a Standby Loan deemed to have been so
purchased may exercise any and all rights of banker's lien, setoff, or
counterclaim with respect to any and all moneys owing by the Borrower to such
Lender by reason thereof as fully as if such Lender had made a Standby Loan
directly to the Borrower in the amount of such participation.
SECTION 2.18. Payments. (a) The Borrower shall make each payment
(including principal of or interest on any Borrowing or any Fees or other
amounts) hereunder not later than 12:00 noon, New York City time, on the date
when due in dollars to the Administrative Agent at its offices at 270 Park
Avenue, New York, New York 10017, in immediately available funds. All payments
by the Borrower shall be made without deduction for any counterclaim, defense,
recoupment or setoff.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder shall become due, or otherwise
would occur, on a day that is not a Business Day, such payment may be made on
the next succeeding Business Day, and such extension of time shall in such case
be included in the computation of interest or Fees, if applicable.
SECTION 2.19. Taxes. (a) Any and all payments by the Borrower hereunder
shall be made, in accordance with Section 2.18, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges, or withholdings, and all liabilities with respect thereto, excluding
taxes imposed on the Administrative Agent's or any Lender's (or any
Transferee's) net income and franchise taxes imposed on the Administrative Agent
or any Lender (or Transferee) by the United States or any jurisdiction under the
laws of which it is organized or any political subdivision thereof (all such
nonexcluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Lenders (or any Transferee) or the Administrative Agent, (i)
the sum payable shall be increased by the amount necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 2.19) such Lender (or Transferee) or the
Administrative Agent (as the case may be) shall receive an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrower
shall make such deductions and (iii) the Borrower shall pay the full amount
deducted to the relevant taxing authority or other Governmental Authority in
accordance with applicable law. Each Lender represents and warrants that no
Taxes will be incurred on the date hereof in connection with the execution and
delivery of this Agreement.
(b) In addition, the Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges, or similar
levies which arise from any payment made hereunder or from the execution,
delivery, or registration of, or otherwise with
<PAGE>
27
respect to, this Agreement (hereinafter referred to as "Other Taxes"). Each
Lender represents and warrants that no Other Taxes will be incurred on the date
hereof in connection with the execution and delivery of this Agreement.
(c) The Borrower will indemnify each Lender (or Transferee) and the
Administrative Agent for the full amount of Taxes and Other Taxes (including any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.19) paid by such Lender (or Transferee) or the Administrative Agent,
as the case may be, and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted by the relevant taxing
authority or other Governmental Authority. Payment of such indemnification shall
be made within 30 days after the date any Lender (or Transferee) or the
Administrative Agent, as the case may be, makes written demand therefor. If a
Lender (or Transferee) or the Administrative Agent shall become aware that it is
entitled to receive a refund in respect of Taxes of Other Taxes, it shall
promptly notify the Borrower of the availability of such refund and shall,
within 30 days after receipt of a request by the Borrower, apply for such refund
at the Borrower's expense. If any Lender (or Transferee) or the Administrative
Agent receives a refund in respect of any Taxes or Other Taxes for which such
Lender (or Transferee) or the Administrative Agent has received payment from the
Borrower hereunder, it shall promptly notify the Borrower of such refund and
shall, within 30 days after receipt of a request by the Borrower (or promptly
upon receipt, if the Borrower has requested application for such refund pursuant
hereto), repay such refund to the Borrower, net of all out-of-pocket expenses of
such Lender (or Transferee) or the Administrative Agent and only with interest
received, if any, from the relevant taxing authority or Governmental Authority;
provided that the Borrower, upon the request of such Lender (or Transferee) or
the Administrative Agent, agrees to return such refund (plus penalties,
interest, or other charges) to such Lender (or Transferee) or the Administrative
Agent in the event such Lender (or Transferee) or the Administrative Agent is
required to repay such refund.
(d) Within 30 days after the date of any payment of Taxes or Other Taxes
withheld by the Borrower in respect of any payment to any Lender (or Transferee)
or the Administrative Agent, the Borrower will furnish to the Administrative
Agent, at its address referred to in Section 9.01, the original or a certified
copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.19 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder.
(f) Each Lender represents and warrants that either (i) it is organized
under the laws of a jurisdiction within the United States or (ii) it has
delivered to the Borrower and the Administrative Agent duly completed copies of
such form or forms prescribed by the Internal Revenue Service indicating that
such Lender is entitled to receive payments without deduction or withholding of
any United States federal income taxes, as permitted by the Code. Each
Transferee agrees that, on or prior to the date upon which it shall become a
party hereto or obtain a participation herein, and upon the reasonable request
from time to time of the Borrower or the Administrative Agent, it will deliver
to the Borrower and the Administrative Agent either (A) a statement that it is
organized under the laws of a jurisdiction within the United States or (B) duly
<PAGE>
28
completed copies of such form or forms as may from time to time be prescribed by
the United States Internal Revenue Service, indicating that such Transferee is
entitled to receive payments without deduction or withholding of any United
States federal income taxes, as permitted by the Code. Each Lender that has
delivered, and each Transferee that hereafter delivers, to the Borrower and the
Administrative Agent the form or forms referred to in the two preceding
sentences further undertakes to deliver to the Borrower and the Administrative
Agent, so far as it may legally do so, further copies of such form or forms, or
successor applicable form or forms, as the case may be, as and when any previous
form filed by it hereunder shall expire or shall become incomplete or inaccurate
in any respect. Each Lender and Transferee represents and warrants that each
such form supplied by it to the Administrative Agent and the Borrower pursuant
to this subsection (f), and not superseded by another form supplied by it, is or
will be, as the case may be, complete and accurate.
(g) The Borrower shall not be required to pay any additional amounts to
any Lender (or Transferee) in respect of United States withholding tax pursuant
to paragraph (a) above if the obligation to pay such additional amounts would
not have arisen but for a failure by such Lender (or Transferee) to comply with
the provisions of paragraph (f) above, unless such failure results from (i) a
change in applicable law, regulation, or official interpretation thereof, or
(ii) an amendment, modification, or revocation of any applicable tax treaty or a
change in official position regarding the application or interpretation thereof,
in each case after the Effective Date (and, in the case of a Transferee, after
the date of assignment or transfer); provided, however, that the Borrower shall
be required to pay those amounts to any Lender (or Transferee) which it was
required to pay hereunder prior to the failure of such Lender (or Transferee) to
comply with the provisions of paragraph (f).
(h) Any Lender (or Transferee) claiming any additional amounts payable
pursuant to this Section 2.19 shall use reasonable efforts (consistent with
legal and regulatory restrictions) to file any certificate or document requested
by the Borrower or to change the jurisdiction of its applicable lending office
if the making of such a filing or change would avoid the need for or reduce the
amount of any such additional amounts which may thereafter accrue and would not,
in the sole determination of such Lender, be otherwise disadvantageous to such
Lender (or Transferee).
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to each of the Lenders that:
SECTION 3.01. Organization; Powers; Governmental Approvals. (a) The
Borrower and each Principal Subsidiary (i) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, (ii) has all requisite power and authority to own its property and
assets and to carry on its business as now conducted and (iii) is qualified to
do business in every jurisdiction where such qualification is required, except
where the failure so to qualify would not have a material adverse effect on the
condition, financial or
<PAGE>
29
otherwise, results of operations, business, assets, operations, or prospects of
the Borrower and its Subsidiaries taken as a whole. The Borrower's execution,
delivery and performance of this Agreement are within its corporate powers, have
been duly authorized by all necessary action and do not violate or create a
default under law, its constituent documents, or any contractual provision
binding upon it. This Agreement constitutes the legal, valid and binding
obligation of the Borrower enforceable against it in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium and other laws affecting the rights of
creditors generally and general principles of equity).
(b) All Governmental Approvals have been duly obtained, are in full force
and effect without having been amended or modified in any manner that may impair
the ability of the Borrower to perform its obligations under this Agreement, and
are not the subject of any pending or overtly threatened appeal, stay or other
challenge. No Interest Period requested with respect to any Borrowing extends
beyond the latest date permitted for Borrowings by any Governmental Approval
then in effect.
SECTION 3.02. Financial Statements. The Borrower has furnished to the
Lenders, for itself and its Subsidiaries, its most recent filings with the
Securities and Exchange Commission on Forms 10-K and 10-Q. Such Forms 10-K and
10-Q do not contain any untrue statement of a material fact or omit to state a
material fact necessary to make any statement therein, in light of the
circumstances under which it was made, not misleading. Each of the financial
statements in such Forms 10-K and 10-Q has been, and each of the financial
statements to be furnished pursuant to Section 5.02 will be, prepared in
accordance with GAAP applied consistently with prior periods, except as therein
noted, and fairly presents or will fairly present in all material respects the
consolidated financial position of the Borrower and its Subsidiaries as of the
date thereof and the results of the operations of the Borrower and its
Subsidiaries for the period then ended.
SECTION 3.03. No Material Adverse Change. Since the date of the Borrower's
most recent financial statements contained in its Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, furnished to the Lenders pursuant to
Section 3.02, there has been no material adverse change in, and there has
occurred no event or condition which is likely to result in a material adverse
change in, the condition, financial or otherwise, results of operations,
business, assets or operations of the Borrower and the Subsidiaries taken as a
whole.
SECTION 3.04. Title to Properties; Possession Under Leases. (a) To the
best of the Borrower's knowledge, each of the Borrower and the Principal
Subsidiaries has good and marketable title to, or valid leasehold interests in,
or other rights to use or occupy, all its material properties and assets, except
for minor defects in title that do not interfere with its ability to conduct its
business as currently conducted or to utilize such properties and assets for
their intended purposes. All such material properties and assets are free and
clear of Liens, other than Liens expressly permitted by Section 6.01.
(b) Each of the Borrower and the Principal Subsidiaries has complied with
all obligations under all material leases to which it is a party and all such
leases are in full force and effect, except where such failure to comply or
maintain such leases in full force and effect would not have a Material Adverse
Effect. Each of the Borrower and the Subsidiaries enjoys peaceful and
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30
undisturbed possession under all such material leases except where such failure
would not have a Material Adverse Effect.
SECTION 3.05. Ownership of Subsidiaries. The Borrower owns, free and clear
of any Lien (other than Liens expressly permitted by Section 6.01), all of the
issued and outstanding shares of common stock of each of the Principal
Subsidiaries.
SECTION 3.06. Litigation; Compliance with Laws. (a) There is no action,
suit, or proceeding, or any governmental investigation or any arbitration, in
each case pending or, to the knowledge of the Borrower, threatened against the
Borrower or any of the Subsidiaries or any material property of any thereof
before any court or arbitrator or any governmental or administrative body,
agency, or official which (i) challenges the validity of this Agreement or (ii)
except as disclosed in the Borrower's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 or the Borrower's Quarterly Reports on Form 10-Q
for the periods ending March 31, 1999 and June 30, 1999, may have a Material
Adverse Effect.
(b) Neither the Borrower nor any of the Subsidiaries is in violation of
any law, rule, or regulation, or in default with respect to any judgment, writ,
injunction or decree of any Governmental Authority, where such violation or
default could reasonably be anticipated to result in a Material Adverse Effect.
(c) Except as set forth in or contemplated by the financial statements or
other reports referred to in Section 3.02 hereof and which have been delivered
to the Lenders on or prior to the date hereof, (i) the Borrower and each of its
Subsidiaries have complied with all Environmental Laws, except to the extent
that failure to so comply is not reasonably likely to have a Material Adverse
Effect, (ii) neither the Borrower nor any of its Subsidiaries has failed to
obtain, maintain or comply with any permit, license or other approval under any
Environmental Law, except where such failure is not reasonably likely to have a
Material Adverse Effect, (iii) neither the Borrower nor any of its Subsidiaries
7has received notice of any failure to comply with any Environmental Law or
become subject to any liability under any Environmental Law, except where such
failure or liability is not reasonably likely to have a Material Adverse Effect,
(iv) no facilities of the Borrower or any of its Subsidiaries are used to manage
any Specified Substance in violation of any law, except to the extent that such
violations, individually or in the aggregate, are not reasonably likely to have
a Material Adverse Effect, and (v) the Borrower is aware of no events,
conditions or circumstances involving any Release of a Specified Substance that
is reasonably likely to have a Material Adverse Effect.
SECTION 3.07. Agreements. (a) Neither the Borrower nor any of the
Subsidiaries is a party to any agreement or instrument or subject to any
corporate restriction that has resulted, or could reasonably be anticipated to
result, in a Material Adverse Effect.
(b) Neither the Borrower nor any of the Subsidiaries is in default in any
manner under any provision of any indenture or other agreement or instrument
evidencing Indebtedness, or any other material agreement or instrument to which
it is a party or by which it or any of its properties or assets are or may be
bound, where such default could reasonably be anticipated to result in a
Material Adverse Effect.
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31
SECTION 3.08. Federal Reserve Regulations. No part of the proceeds of the
Loans will be used, whether directly or indirectly, and whether immediately,
incidentally, or ultimately, for any purpose which entails a violation of, or
which is inconsistent with, the provisions of the Margin Regulations.
SECTION 3.09. Investment Company Act; Public Utility Holding Company Act.
Neither the Borrower nor any of the Subsidiaries is (a) an "investment company"
as defined in, or subject to regulation under, the Investment Company Act of
1940 or (b) a "holding company" as defined in, or subject to regulation under,
the Public Utility Holding Company Act of 1935.
SECTION 3.10. Use of Proceeds. The Borrower will use the proceeds of the
Loan only for the purposes specified in Section 5.05.
SECTION 3.11. Tax Returns. Each of the Borrower and the Subsidiaries has
filed or caused to be filed all Federal, state and local tax returns required to
have been filed by it and has paid or caused to be paid all taxes shown to be
due and payable on such returns or on any assessments received by it, except
taxes that are being contested in good faith by appropriate proceedings and for
which the Borrower shall have set aside on its books adequate reserves.
SECTION 3.12. No Material Misstatements. No statement, information,
report, financial statement, exhibit or schedule furnished by or on behalf of
the Borrower to the Administrative Agent or any Lender in connection with the
syndication or negotiation of this Agreement or included herein or delivered
pursuant hereto contained, contains, or will contain any material misstatement
of fact or intentionally omitted, omits, or will omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were, are, or will be made, not misleading.
SECTION 3.13. Employee Benefit Plans. (a) Each Plan is in compliance with
ERISA, except for such noncompliance that has not resulted, and could not
reasonably be anticipated to result, in a Material Adverse Effect.
(b) No Plan has an accumulated or waived funding deficiency within the
meaning of Section 412 or Section 418B of the Code, except for any such
deficiency that has not resulted, and could not reasonably be anticipated to
result, in a Material Adverse Effect.
(c) No proceedings have been instituted to terminate any Plan, except for
such proceedings where the termination of a Plan has not resulted, and could not
reasonably be anticipated to result, in a Material Adverse Effect.
(d) Neither the Borrower nor any Subsidiary or ERISA Affiliate has
incurred any liability to or on account of a Plan under ERISA (other than
obligations to make contributions in accordance with such Plan), and no
condition exists which presents a material risk to the Borrower or any
Subsidiary of incurring such a liability, except for such liabilities that have
not resulted, and could not reasonably be anticipated to result, in a Material
Adverse Effect.
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32
SECTION 3.14. Insurance. Each of the Borrower and the Principal
Subsidiaries maintains insurance with financially sound and reputable insurers,
or self-insurance, with respect to its properties and business against loss or
damage of the kind customarily insured against by reputable companies in the
same or similar business and of such types and in such amounts (with such
deductible amounts) as is customary for such companies under similar
circumstances.
SECTION 3.15. Year 2000 Matters. The Borrower has (i) initiated a review
and assessment of all mission critical areas within its and each of its
Subsidiaries' business and operations (including those affected by suppliers and
vendors) that it reasonably believes could be adversely affected by the "Year
2000 Problem" (that is, the risk that computer applications used by the Borrower
or any of its Subsidiaries (or suppliers and vendors) may be unable to recognize
and properly perform date-sensitive functions involving certain dates prior to
and any date after December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem all as set forth in the Borrower's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998 and the
Borrower's Quarterly Reports on Form 10-Q for the periods ending March 31, 1999
and June 30, 1999, and (iii) to date, implemented that plan substantially in
accordance with that timetable. The Borrower has contingency plans that are
dedicated to ensuring that established and expected levels of customer service
are maintained without interruption, while core business functionality is
preserved during the millenium transition. With respect to its suppliers and
vendors, the foregoing representation and warranty is expressly limited to
matters known to the Borrower after making reasonable inquiries of such
suppliers and vendors. The Borrower makes no representation or warranty with
respect to the receipt or accuracy of any response received from any vendor or
supplier.
ARTICLE IV
CONDITIONS OF LENDING
SECTION 4.01. Each Borrowing. The obligation of each Lender to make a Loan
on the occasion of any Borrowing, including any Conversion pursuant to Section
2.05, is subject to the satisfaction of the following conditions:
(a) The Administrative Agent shall have received a notice of such
Borrowing as required by Section 2.03, 2.04 or 2.05, as applicable;
(b) The representations and warranties set forth in Article III hereof
(except, in the case of a Conversion, the representations set forth in Sections
3.03 and 3.06(a)) shall be true and correct in all material respects on and as
of the date of such Borrowing with the same effect as though made on and as of
such date, except to the extent such representations and warranties expressly
relate to an earlier date; and
(c) The Borrower shall be in compliance with all of the terms and
provisions set forth herein on its part to be observed or performed, and at the
time of, and immediately after such Borrowing, no Event of Default or Default
shall have occurred and be continuing.
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33
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date of such Borrowing as to the matters specified in
paragraphs (b) and (c) of this Section 4.01.
SECTION 4.02. Effective Date. The obligations of the Lenders to make Loans
hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 9.08):
(a) The Borrower shall have entered into all definitive contracts with
respect to the Acquisitions, no default or failure in the satisfaction of a
condition shall have occurred and be continuing under such contracts that could
reasonably be expected to threaten or materially delay the consummation of the
Acquisitions, and the Borrower shall not have agreed to any modification of such
contracts without the consent of the Administrative Agent if the effect of such
modification would be to materially increase the aggregate purchase price of the
assets subject of the Acquisitions or materially decrease the aggregate value of
such assets.
(b) The Administrative Agent shall have received a favorable written
opinion of the general counsel of the Borrower, dated the Effective Date and
addressed to the Lenders, to the effect set forth in Exhibit D hereto, and the
Borrower hereby instructs such counsel to deliver such opinion to the
Administrative Agent;
(c) All legal matters incident to this Agreement and the borrowings
hereunder shall be satisfactory to the Administrative Agent and the Lenders;
(d) The Administrative Agent shall have received (i) a copy of the
certificate or articles of incorporation, including all amendments thereto, of
the Borrower, certified as of a recent date by the Secretary of State of the
state of its organization, and a certificate as to the good standing of the
Borrower as of a recent date, from such Secretary of State; (ii) a certificate
of the Secretary or Assistant Secretary of the Borrower dated the Effective Date
and certifying (A) that attached thereto is a true and complete copy of the
by-laws of the Borrower as in effect on the Effective Date and at all times
since a date prior to the date of the resolutions described in clause (B) below,
(B) that attached thereto is a true and complete copy of resolutions duly
adopted by the Board of Directors of the Borrower authorizing the execution,
delivery and performance of this Agreement and the borrowings hereunder, and
that such resolutions have not been modified, rescinded, or amended and are in
full force and effect, (C) that the certificate or articles of incorporation of
the Borrower have not been amended since the date of the last amendment thereto
shown on the certificate of good standing furnished pursuant to clause (i)
above, and (D) as to the incumbency and specimen signature of each officer
executing this Agreement or any other document delivered in connection herewith
on behalf of the Borrower; (iii) a certificate of another officer as to the
incumbency and specimen signature of the Secretary or Assistant Secretary
executing the certificate pursuant to (ii) above; (iv) an irrevocable notice
from the Borrower requesting termination of the "Total Commitment" under the
Existing Facility effective automatically on the Effective Date and (v) such
other documents as the Administrative Agent or the Lenders may reasonably
request;
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34
(e) The Administrative Agent shall have received a certificate, dated the
Effective Date and signed by a Financial Officer of the Borrower, confirming
compliance with the conditions precedent set forth in paragraphs (b) and (c) of
Section 4.01 and paragraph (a) of this Section;
(f) The Administrative Agent shall have received all Fees and other
amounts due and payable on or prior to the Effective Date;
(g) All "Commitments" (as defined in the Existing Facility) under the
Existing Facility shall have been terminated in accordance with the terms
thereof and all "Loans" (as defined in the Existing Facility) outstanding
thereunder shall have been repaid or prepaid together with accrued interest
thereon and all other amounts payable to the "Lenders" (as defined in the
Existing Facility) under the Existing Facility; and
(h) The Administrative Agent shall have received satisfactory evidence
that the commercial paper of the Borrower is rated at least A2 by S&P and P2 by
Moody's.
ARTICLE V
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with the Administrative Agent and each
Lender that, so long as this Agreement shall remain in effect or the principal
of or interest on any Loan (or any portion thereof), or any other expenses or
amounts payable hereunder, shall be unpaid, the Borrower will:
SECTION 5.01. Existence; Businesses and Properties. (a) Preserve and
maintain, cause each of the Principal Subsidiaries to preserve and maintain, and
cause each other Subsidiary to preserve and maintain (where the failure by any
such other Subsidiary to so preserve and maintain would likely result in a
Material Adverse Effect), its corporate existence, rights and franchises,
provided, however, that the corporate existence of any Principal Subsidiary may
be terminated if such termination is not disadvantageous to the Administrative
Agent or any Lender;
(b) continue to own all of the outstanding shares of common stock of each
Principal Subsidiary;
(c) comply, and cause each of the Subsidiaries to comply, in all material
respects, with all applicable laws, rules, regulations and orders, including,
without limitation, all Environmental Laws;
(d) pay, and cause each of the Subsidiaries to pay, before any such
amounts become delinquent, (i) all taxes, assessments and governmental charges
imposed upon it or upon its property, and (ii) all claims (including without
limitation, claims for labor, materials, supplies, or services) which might, if
unpaid, become a Lien upon its property, unless, in each case, the
<PAGE>
35
validity or amount thereof is being disputed in good faith, and the Borrower has
maintained adequate reserves with respect thereto;
(e) keep, and cause each of the Subsidiaries to keep, proper books of
record and account, containing complete and accurate entries of all financial
and business transactions of the Borrower and such Subsidiary;
(f) continue to carry on, and cause each Principal Subsidiary to continue
to carry on, substantially the same type of business as the Borrower or such
Principal Subsidiary conducted as of the date hereof and business reasonably
related thereto, except for changes in such business that result from the sale
of Utilities Assets and the consummation of the Acquisitions; and
(g) maintain or cause to be maintained insurance with financially sound
and reputable insurers, or self-insurance, with respect to its properties and
business and the properties and business of the Subsidiaries against loss or
damage of the kinds customarily insured against by reputable companies in the
same or similar businesses, such insurance to be of such types and in such
amounts (with such deductible amounts) as is customary for such companies under
similar circumstances;
provided, however, that the foregoing shall not limit the right of the Borrower
or any of its Subsidiaries to engage in any transaction not otherwise prohibited
by Section 6.02, 6.03 or 6.04.
SECTION 5.02. Financial Statements, Reports, etc. In the case of the
Borrower, furnish to the Administrative Agent and each Lender:
(a) as soon as available and in any event within 110 days after the end of
each fiscal year, consolidated balance sheets and the related statements of
income and cash flows of the Borrower and its Subsidiaries (the Borrower and its
Subsidiaries being collectively referred to as the "Companies") as of the close
of such fiscal year (which requirement shall be deemed satisfied by the delivery
of the Borrower's Annual Report on Form 10-K (or any successor form) for such
year), all audited by KPMG Peat Marwick or other independent public accountants
of recognized national standing and accompanied by an opinion of such
accountants to the effect that such consolidated financial statements fairly
present in all material respects the financial condition and results of
operations of the Companies on a consolidated basis in accordance with GAAP
consistently applied;
(b) within 65 days after the end of each of the first three fiscal
quarters of each fiscal year, consolidated balance sheets and related statements
of income and cash flows of the Companies as of the close of such fiscal quarter
and the then elapsed portion of the fiscal year (which requirement shall be
deemed satisfied by the delivery of the Borrower's Quarterly Report on Form 10-Q
(or any successor form) for such quarter), each certified by a Financial Officer
as fairly presenting the financial condition and results of operations of the
Companies on a consolidated basis in accordance with GAAP consistently applied,
subject to normal year-end audit adjustments;
<PAGE>
36
(c) promptly upon the mailing or filing thereof, copies of all financial
statements, reports and proxy statements mailed to the Borrower's public
shareholders, and copies of all registration statements (other than those on
Form S-8) and Form 8-K's (to the extent that such Form 8-K's disclose actual or
potential adverse developments with respect to the Borrower or any of its
Subsidiaries that constitute, or could reasonably be anticipated to constitute,
a Material Adverse Effect) filed with the Securities and Exchange Commission (or
any successor thereto) or any national securities exchange;
(d) prompt notice of any reduction in the credit rating given to the
Borrower by S&P or Moody's;
(e) promptly after (i) the occurrence thereof, notice of any ERISA
Termination Event or "prohibited transaction", as such term is defined in
Section 4975 of the Code, with respect to any Plan that results, or could
reasonably be anticipated to result, in a Material Adverse Effect, which notice
shall specify the nature thereof and the Borrower's proposed response thereto,
and (ii) actual knowledge thereof, copies of any notice of PBGC's intention to
terminate or to have a trustee appointed to administer any Plan; and
(f) promptly, from time to time, such other information, regarding its
operations, business affairs and financial condition, or compliance with the
terms of this Agreement, as the Administrative Agent or any Lender may
reasonably request.
Section 5.03. Litigation and Other Notices. Furnish to the Administrative
Agent and each Lender prompt written notice of the following:
(a) any Event of Default or Default, specifying the nature and extent
thereof and the corrective action (if any) proposed to be taken with respect
thereto;
(b) the filing or commencement of, or any threat or notice of intention of
any Person to file or commence, any action, suit or proceeding, whether at law
or in equity or by or before any Governmental Authority, against the Borrower or
any of the Subsidiaries which is reasonably likely to be adversely determined
and which, if adversely determined, could reasonably be anticipated to result in
a Material Adverse Effect;
(c) any development with respect to the Borrower or any Subsidiary that
has resulted in, or could reasonably be anticipated to result in, a Material
Adverse Effect; and
(d) its receipt of any Net Cash Proceeds from the sale of any Utilities
Assets.
SECTION 5.04. Maintaining Records. Maintain all financial records in
accordance with GAAP and, upon reasonable notice, permit any Lender to visit and
inspect the financial records of the Borrower at reasonable times and as often
as requested and to make extracts from and copies of such financial records, and
permit any representatives designated by any Lender to discuss the affairs,
finances and condition of the Borrower with the appropriate officers thereof
and, with the Borrower's consent (which shall not be unreasonably withheld), the
independent accountants therefor; provided, however, that if the Borrower shall
so require, a single
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37
representative shall be appointed by Lenders holding at least 50% of the
aggregate outstanding principal balance of the Loans to exercise the rights
granted under this Section 5.04.
SECTION 5.05. Use of Proceeds. Use the proceeds of the Loans only for the
purposes set forth in the preamble of this Agreement; provided, however, that no
such proceeds shall be used directly or indirectly in connection with any
Hostile Acquisition.
ARTICLE VI
NEGATIVE COVENANTS
The Borrower covenants and agrees with each Lender and the Administrative
Agent that, so long as this Agreement shall remain in effect or the principal of
or interest on any Loan (or any portion thereof), or any other expenses or
amounts payable hereunder, shall be unpaid, it will not:
SECTION 6.01. Liens. Create, incur, assume, or suffer to exist, or permit
any of the Principal Subsidiaries to create, incur, assume, or suffer to exist,
any Lien on any of its property now owned or hereafter acquired to secure any
Indebtedness of the Borrower or any such Principal Subsidiary, other than (a)
Liens incurred or deposits made in the ordinary course of business to secure
surety and appeal bonds, leases, return-of-money bonds and other similar
obligations (exclusive of obligations of the payment of borrowed money); (b)
Liens created under or in connection with the First Mortgage Bond Indentures or
any other indentures governing the issuance of mortgage bonds by the Borrower;
(c) pledges or deposits to secure the utility obligations of the Borrower
incurred in the ordinary course of business; (d) Liens upon or in property now
owned or hereafter acquired to secure Indebtedness incurred solely for the
purpose of financing the acquisition, construction or improvement of any
property, provided that such Indebtedness shall not exceed the fair market value
of the property being acquired, constructed or improved; (e) Liens on the assets
of any Principal Subsidiary to secure the repayment of project financing for
such Principal Subsidiary; (f) Liens on the assets of any Person merged or
consolidated with or into (in accordance with Section 6.04) the Borrower or any
Principal Subsidiary that were in effect at the time of such merger or
consolidation; and (g) Liens securing Indebtedness of the Borrower or of any
Principal Subsidiary to the U.S. Rural Electrification Administration (or any
successor agency) or to the U.S. Rural Telephone Bank (or any successor agency);
provided, however, that the Borrower or any Principal Subsidiary may create,
incur, assume or suffer to exist other Liens (in addition to Liens excepted by
the foregoing clauses (a) through (g)) on its assets so long as the assets
subject to such Liens do not represent in the aggregate more than 30% of the
Borrower's Consolidated Tangible Assets.
SECTION 6.02. Ownership of the Principal Subsidiaries. Sell, assign,
pledge, or otherwise transfer or dispose of any shares of common stock, voting
stock, or stock convertible into voting or common stock of any Principal
Subsidiary except to another Subsidiary.
SECTION 6.03. Asset Sales. Permit any Principal Subsidiary to sell,
assign, or otherwise dispose of assets (whether in one transaction or a series
of transactions), if after giving effect to such transaction, such Principal
Subsidiary will have disposed of, in the aggregate, assets representing more
than 25% of such Principal Subsidiary's aggregate Consolidated
<PAGE>
38
Tangible Assets as of the date upon which such Principal Subsidiary first became
a Principal Subsidiary; provided that (i) any Principal Subsidiary may transfer
assets representing up to 100% of such Principal Subsidiary's Consolidated
Tangible Assets to any other Subsidiary or to the Borrower, and (ii) any
Subsidiary may dispose of its Utilities Assets.
SECTION 6.04. Mergers. Merge or consolidate with, or sell, assign, lease,
or otherwise dispose of (whether in one transaction or a series of transactions)
all or substantially all of its assets (whether now owned or hereafter
acquired), except for Utilities Assets, to any Person, or permit any Principal
Subsidiary to do so, except that any Subsidiary may merge into or, subject to
Section 6.03, transfer assets to the Borrower or any other Subsidiary and the
Borrower may merge with any Person; provided that, immediately thereafter and
after giving effect thereto, no event shall occur or be continuing which
constitutes an Event of Default or a Default and, in the case of any such merger
to which the Borrower is a party, either the Borrower is the surviving
corporation or the surviving entity (if not the Borrower) has a consolidated net
worth (as determined in accordance with GAAP) immediately subsequent to such
merger at least equal to the Consolidated Net Worth of the Borrower immediately
prior to such merger and expressly assumes the obligations of the Borrower
hereunder; provided, however, that, notwithstanding the foregoing, the Borrower
and any of the Principal Subsidiaries may sell assets in the ordinary course of
its business and may sell or otherwise dispose of worn out or obsolete equipment
on a basis consistent with good business practices.
SECTION 6.05. Restrictions on Dividends. Enter into or permit any
Principal Subsidiary to enter into, any contract or agreement (other than with a
governmental regulatory authority having jurisdiction over the Borrower or such
Principal Subsidiary) restricting the ability of such Principal Subsidiary to
pay dividends or make distributions to the Borrower in any manner that would
impair the ability of the Borrower to meet its present and future obligations
hereunder. The Secretary of the Borrower or another officer of the Borrower
satisfactory to the Administrative Agent shall, prior to entry into any contract
or agreement that could restrict the ability of any Principal Subsidiary to pay
dividends or make distributions to the Borrower, deliver to the Lenders a
certificate certifying (a) to the absence of any Event of Default or Default
after giving effect to the entry by such Principal Subsidiary into such contract
or agreement, and (b) that such contract or agreement will not impair the
ability of the Borrower to meet its present and future obligations hereunder.
SECTION 6.06. Transactions with Affiliates. Sell or transfer any property
or assets to, or purchase or acquire any property or assets from, or otherwise
engage in any other transactions with, any of its Affiliates, except that as
long as no Default or Event of Default shall have occurred and be continuing,
the Borrower or any Subsidiary may engage in any of the foregoing transactions
in the ordinary course of business at prices and on terms and conditions not
less favorable to the Borrower or such Subsidiary than could be obtained on an
arm's-length basis from unrelated third parties or as otherwise may be required
by any Federal or state Governmental Authority.
SECTION 6.07. Minimum Consolidated Net Worth. Permit its Consolidated Net
Worth at any time to be less than $1,500,000,000.
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39
ARTICLE VII
EVENTS OF DEFAULT
In case of the happening of any of the following events ("Events of
Default"):
(a) any representation or warranty made or deemed made in or in connection
with this Agreement or the Borrowings hereunder, or any representation,
warranty, statement, or information contained in any written report,
certificate, financial statement, or other instrument furnished in connection
with or pursuant to this Agreement, shall prove to have been false or misleading
in any material respect when so made, deemed made, or furnished;
(b) default shall be made in the payment of any principal of any Loan (or
any portion thereof) when and as the same shall become due and payable, whether
at the due date thereof or at a date fixed or for prepayment thereof or by
acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on any Loan (or
any portion thereof) or any Fee or any other amount (other than an amount
referred to in (b) above) due hereunder, when and as the same shall become due
and payable, and such default shall continue unremedied for a period of five
Business Days;
(d) default shall be made in the due observance or performance of any
covenant, condition, or agreement contained in Section 5.01(f) or Section 5.05
or in Article VI;
(e) default shall be made in the due observance or performance of any
covenant, condition, or agreement contained herein (other than those specified
in (b), (c), or (d) above) or in the Fee Letter and such default shall continue
unremedied for a period of 30 days after the earlier to occur of (i) the
Borrower obtaining knowledge thereof and (ii) the date that written notice
thereof shall have been given to the Borrower by the Administrative Agent or any
Lender;
(f) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i) relief
in respect of the Borrower or any Principal Subsidiary, or of a substantial part
of the property or assets of the Borrower or a Principal Subsidiary, under Title
11 of the United States Code, as now constituted or hereafter amended, or any
other Federal or state bankruptcy, insolvency, receivership, or similar law,
(ii) the appointment of a receiver, trustee, custodian, sequestrator,
conservator, or similar official for the Borrower or any Principal Subsidiary or
for a substantial part of the property or assets of the Borrower or a Principal
Subsidiary, or (iii) the winding-up or liquidation of the Borrower or any
Principal Subsidiary; and such proceeding or petition shall continue undismissed
for 60 days or an order or decree approving or ordering any of the foregoing
shall be entered;
(g) the Borrower or any Principal Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking relief under Title 11 of
the United States Code, as now constituted or hereafter amended, or any other
Federal or state bankruptcy, insolvency, receivership, or similar law, (ii)
consent to the institution of, or fail to contest in a timely and appropriate
manner, any proceeding or the filing of any petition described in (f) above,
(iii) apply
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40
for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator, or similar official for the Borrower or any Principal
Subsidiary or for a substantial part of the property or assets of the Borrower
or any Principal Subsidiary, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v) make a
general assignment for the benefit of creditors, (vi) become unable, admit in
writing its inability, or fail generally to pay its debts as they become due, or
(vii) take any action for the purpose of effecting any of the foregoing;
(h) the Borrower or any Principal Subsidiary, as the case may be, fails to
pay when due, or within any grace period applicable thereto by the terms
thereof, any other Indebtedness of the Borrower or any Principal Subsidiary
aggregating $50,000,000 or more;
(i) the Borrower or any Principal Subsidiary shall fail to observe or
perform any covenant or agreement contained in any single agreement or
instrument relating to any Indebtedness in excess of (i) $75,000,000 in the
aggregate, with respect to any Indebtedness issued on a tax-exempt basis, and
(ii) $50,000,000 in the aggregate, with respect to all other Indebtedness, in
each case within any applicable grace period, or any other event shall occur if
the effect of such failure or other event is to accelerate, or to permit the
holder of such Indebtedness or any other Person to accelerate, the maturity of
such Indebtedness; or any such Indebtedness shall be required to be prepaid
(other than by a regularly scheduled required prepayment or the exercise by the
Borrower or such Principal Subsidiary of its right to make a voluntary
prepayment) in whole or in part prior to its stated maturity;
(j) a judgment or order for the payment of money in excess of $50,000,000
and having a Material Adverse Effect shall be rendered against the Borrower or
any of the Subsidiaries and such judgment or order shall continue unsatisfied
(in the case of a money judgment) and in effect for a period of 30 days during
which execution shall not be effectively stayed or deferred (whether by action
of a court, by agreement, or otherwise);
(k) a Plan shall fail to maintain the minimum funding standard required by
Section 412(a) of the Code for any plan year or a waiver of such standard is
sought or granted under Section 412(d), or a Plan is or shall have been
terminated or the subject of termination proceedings under ERISA, or the
Borrower or an ERISA Affiliate has incurred a liability to or on account of a
Plan under Section 4062, 4063, 4064, 4201 or 4204 of ERISA, and there shall
result from any such event or events a Material Adverse Effect; and
(l) there shall have occurred a Change in Control;
then, and in every such event (other than an event with respect to the Borrower
described in paragraph (f) or (g) above), and at any time thereafter during the
continuance of such event, the Administrative Agent, at the request of the
Required Lenders, shall, by notice to the Borrower, take either or both of the
following actions, at the same or different times: (i) terminate forthwith the
Commitments and (ii) declare the Loans then outstanding to be forthwith due and
payable in whole or in part, whereupon the principal of the Loans so declared to
be due and payable, together with accrued interest thereon and any unpaid
accrued Fees and all other liabilities of the Borrower accrued hereunder, shall
become forthwith due and payable, without presentment,
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41
demand, protest, or any other notice of any kind, all of which are hereby
expressly waived by the Borrower, anything contained herein to the contrary
notwithstanding; and in any event with respect to the Borrower described in
paragraph (f) or (g) above, the Commitments shall automatically terminate and
the principal of the Loans then outstanding, together with accrued interest
thereon and any unpaid accrued Fees and all other liabilities of the Borrower
accrued hereunder, shall automatically become due and payable, without
presentment, demand, protest, or any other notice of any kind, all of which are
hereby expressly waived by the Borrower, anything contained herein to the
contrary notwithstanding.
ARTICLE VIII
THE ADMINISTRATIVE AGENT
In order to expedite the transactions contemplated by this Agreement, The
Chase Manhattan Bank is hereby appointed to act as Administrative Agent on
behalf of the Lenders. Each of the Lenders, and each Transferee by its agreement
to be bound hereby, irrevocably authorizes the Administrative Agent to take such
actions on behalf of such Lender or Transferee and to exercise such powers as
are specifically delegated to the Administrative Agent by the terms and
provisions hereof, together with such actions and powers as are reasonably
incidental thereto. The Administrative Agent is hereby expressly authorized by
the Lenders, without hereby limiting any implied authority, (a) to receive on
behalf of the Lenders all payments of principal of and interest on the Loans and
all other amounts due to the Lenders hereunder, and promptly to distribute to
each Lender its proper share of each payment so received; (b) to promptly give
notice on behalf of each of the Lenders to the Borrower of any Event of Default
specified in this Agreement of which the Administrative Agent has actual
knowledge acquired in connection with its agency hereunder; and (c) to
distribute to each Lender copies of all notices, financial statements and other
materials delivered by the Borrower pursuant to this Agreement as received by
the Administrative Agent.
Neither the Administrative Agent nor any of its directors, officers,
employees, or agents shall be liable as such for any action taken or omitted by
any of them, except for its or his own gross negligence or willful misconduct,
or be responsible for any statement, warranty, or representation herein or the
contents of any document delivered in connection herewith, or be required to
ascertain or to make any inquiry concerning the performance or observance by the
Borrower of any of the terms, conditions, covenants, or agreements contained
herein. The Administrative Agent shall not be responsible to the Lenders or any
Transferee for the due execution, genuineness, validity, enforceability, or
effectiveness of this Agreement or any other instruments or agreements. The
Administrative Agent may deem and treat each Lender party hereto as a "Lender"
hereunder and for all purposes hereof until it shall have received notice, given
as provided herein, of the assignment of all of such Lender's rights and
obligations hereunder. The Administrative Agent shall in all cases be fully
protected in acting, or refraining from acting, in accordance with written
instructions signed by the Required Lenders and, except as otherwise
specifically provided herein, such instructions and any action or inaction
pursuant thereto shall be binding on all the Lenders and each Transferee. The
Administrative Agent shall, in the absence of knowledge to the contrary, be
entitled to rely on any instrument or document believed by it in good faith to
be genuine and correct and to have been signed or sent by the
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42
proper Person or persons. Neither the Administrative Agent nor any of its
directors, officers, employees, or agents shall have any responsibility to the
Borrower on account of the failure of or delay in performance or breach by any
Lender of any of its obligations hereunder or to any Lender on account of the
failure of or delay in performance or breach by any other Lender or the Borrower
of any of their respective obligations hereunder or in connection herewith. The
Administrative Agent may execute any and all duties hereunder by or through
agents or employees and shall be entitled to rely upon the advice of legal
counsel selected by it with respect to all matters arising hereunder and shall
not be liable for any action taken or suffered in good faith by it in accordance
with the advice of such counsel.
The Lenders hereby acknowledge that the Administrative Agent shall be
under no duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement unless it shall be requested in
writing to do so by the Required Lenders.
Subject to the appointment and acceptance of a successor administrative
agent as provided below, the Administrative Agent may resign at any time by
notifying the Lenders and the Borrower. Upon any such resignation, the Borrower
shall have the right to appoint a successor, provided that any successor
selected by the Borrower must be approved by all of the Lenders. If no successor
shall have been so appointed by the Borrower and shall have accepted such
appointment within 20 Business Days after the retiring Administrative Agent
gives notice of its resignation, then the Required Lenders shall have the right
to appoint a successor. If no successor shall have been so appointed by the
Required Lenders and shall have accepted such appointment within 30 Business
Days after the retiring Administrative Agent gives notice of its resignation,
then the retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor administrative agent which shall be a bank with an office in New York,
New York, having a combined capital and surplus of at least $1,000,000,000 or an
Affiliate of any such bank. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor bank, such successor shall succeed
to and become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. After the Administrative
Agent's resignation hereunder, the provisions of this Article and Section 9.05
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Administrative Agent.
With respect to the Loans made by it hereunder, the Administrative Agent
in its individual capacity and not as Administrative Agent shall have the same
rights and powers as any other Lender and may exercise the same as though it
were not the Administrative Agent, and the Administrative Agent and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Borrower or any Subsidiary or other Affiliate thereof
as if it were not the Administrative Agent.
Each Lender agrees (i) to reimburse the Administrative Agent, on demand,
in the amount of its pro rata share (based on its Commitment hereunder or, if
the Commitments shall have terminated, based on its outstanding Standby Loans
hereunder) of any expenses incurred for the benefit of the Lenders by the
Administrative Agent, including reasonable counsel fees and compensation of
agents and employees paid for services rendered on behalf of the Lenders,
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43
which shall not have been reimbursed by the Borrower, and (ii) to indemnify and
hold harmless the Administrative Agent and any of its directors, officers,
employees, or agents, on demand, in the amount of such pro rata share, from and
against any and all liabilities, taxes, obligations, losses, damages, penalties,
actions, judgments, suits, cost, expenses, or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against it
in its capacity as the Administrative Agent or any of them in any way relating
to or arising out of this Agreement or any action taken or omitted by it or any
of them under this Agreement, to the extent the same shall not have been
indemnified by the Borrower; provided that no Lender shall be liable to the
Administrative Agent for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, or disbursements
resulting from the gross negligence or willful misconduct of the Administrative
Agent or any of its directors, officers, employees, or agents.
Each Lender acknowledges that it has, independently and without reliance
upon the Administrative Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Administrative Agent or any
other Lender and based on such documents and information as it shall from time
to time deem appropriate, continue to make its own decisions in taking or not
taking action under or based upon this Agreement, any related agreement or any
document furnished hereunder or thereunder.
None of the Lenders identified on the facing page or signature pages of
this Agreement as a "co-agent" or "documentation agent" shall have any right,
power, obligation, liability, responsibility or duty under this Agreement other
than those applicable to all Lenders as such. Without limiting the foregoing,
none of the Lenders so identified as a "co-agent" or "documentation agent" shall
have or be deemed to have any fiduciary relationship with any Lender. Each
Lender acknowledges that it has not relied, and will not rely, on any of the
Lenders so identified in deciding to enter into this Agreement or in taking or
not taking action hereunder.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications provided for
herein shall be in writing and shall be delivered by the method, if any,
specified in the relevant provisions of this Agreement and otherwise by hand or
overnight courier service, mailed or sent by telecopy, as follows:
(a) if to the Borrower, to it at 3 High Ridge Park, Stamford, Connecticut
06905, Attention of Robert J. DeSantis, Chief Financial Officer, Vice President
and Treasurer (Telecopy No. 203-614-4625);
(b) if to the Administrative Agent, to it at One Chase Manhattan Plaza,
8th Floor, New York, New York 10081, Attention of Janet Belden (Telecopy No.
212-552-5658), with a copy to Paul V. Farrell, The Chase Manhattan Bank, 270
Park Avenue, New York, New York 10017 (Telecopy No. 212-270-4392); and
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44
(c) if to a Lender, to it at its address (or telecopy number) set forth in
Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender
shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy, or on the date five Business Days after dispatch by certified or
registered mail, if mailed, in each case delivered, sent, or mailed (properly
addressed) to such party as provided in this Section 9.01 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 9.01
SECTION 9.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Lenders and shall survive the making by the Lenders of the Loans, regardless of
any investigation made by the Lenders or on their behalf, and shall continue in
full force and effect as long as the principal of or any accrued interest on any
Loan or any Fee or any other amount payable under this Agreement is outstanding
and unpaid or so long as the Commitments have not been terminated.
SECTION 9.03. Binding Effect. This Agreement shall become effective when
it shall have been executed by the Borrower and the Administrative Agent and
when the Administrative Agent shall have received copies hereof which, when
taken together, bear the signatures of each Lender, and thereafter shall be
binding upon and inure to the benefit of the Borrower, the Administrative Agent
and each Lender and their respective successors and assigns, except that the
Borrower shall not have the right to assign its rights hereunder or any interest
herein without the prior consent of all the Lenders.
Section 9.04. Successors and Assigns. (a) Whenever in this Agreement any of the
parties hereto is referred to, such reference shall be deemed to include the
successors and assigns, of such party; and all covenants, promises and
agreements by or on behalf of the Borrower, the Administrative Agent or the
Lenders that are contained in this Agreement shall bind and inure to the benefit
of their respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or a portion of
its interests, rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it; provided,
however, that (i) except in the case of an assignment to a Lender or an
Affiliate of such Lender, or an assignment to a Federal Reserve Bank, the
Borrower and the Administrative Agent must give their prior written consent to
such assignment, which consent shall not be unreasonably withheld, provided,
further, however, that the consent of the Borrower to any such assignment shall
not be required at any time an Event of Default shall have occurred and be
continuing, (ii) each such assignment shall be of a constant, and not a varying,
percentage of all the assigning Lender's rights or obligations under this
Agreement, (iii) the amount of the Commitment or Loans of the assigning Lender
subject to any such assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the Administrative
Agent) shall not be less than $5,000,000 and the amount of the
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45
Commitment or Loans of such Lender remaining after such assignment shall not be
less than $5,000,000 or shall be zero, (iv) the parties to each such assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance, together with a processing and recordation fee of $3,500 and (v) the
assignee, if it shall not be a Lender, shall deliver to the Administrative Agent
an Administrative Questionnaire. Subject to payment in full by the assignee to
the assignor and upon acceptance and recording pursuant to paragraph (e) of this
Section 9.04, from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five Business Days after the
execution thereof, (A) the assignee thereunder shall be a party hereto and, to
the extent of the interest assigned by such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement, and (B) the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto (but shall continue to be entitled
to the benefits of Sections 2.13, 2.15, 2.19 and 9.05, as well as to any Fees
accrued for its account hereunder and not yet paid)). Notwithstanding the
foregoing, any Lender assigning its rights and obligations under this Agreement
may retain any Competitive Loans made by it outstanding at such time, and in
such case shall retain its rights hereunder in respect of any Loans so retained
until such Loans have been repaid in full in accordance with this Agreement.
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Commitment, and the outstanding balances of its Standby Loans and
Competitive Loans (to the extent assigned), in each case without giving effect
to assignments thereof which have not become effective, are as set forth in such
Assignment and Acceptance, (ii) except as set forth in (i) above, such assigning
Lender makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties, or representations made in or in
connection with this Agreement, or the execution, legality, validity,
enforceability, genuineness, sufficiency, or value of this Agreement or any
other instrument or document furnished pursuant hereto or the financial
condition of the Borrower or any Subsidiary or the performance or observance by
the Borrower or any Subsidiary of any of its obligations under this Agreement or
any other instrument or document furnished pursuant hereto; (iii) such assignee
represents and warrants that it is legally authorized to enter into such
Assignment and Acceptance; (iv) such assignee confirms that it has received a
copy of this Agreement, together with copies of the most recent financial
statements delivered pursuant to Section 5.02 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (v) such assignee will
independently and without reliance upon the Administrative Agent, such assigning
Lender, or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (vi) such assignee appoints
and authorizes the Administrative Agent to take such action as administrative
agent on its behalf and to exercise such powers under this Agreement as are
delegated to the Administrative Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; and (vii)
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46
such assignee agrees that it will perform in accordance with their terms all the
obligations which by the terms of this Agreement are required to be performed by
it as a Lender.
(d) The Administrative Agent shall maintain at one of its offices in The
City of New York a copy of each Assignment and Acceptance delivered to it and a
register for the recordation of the names and addresses of the Lenders, and the
Commitment of, and principal amount of the Loans owing to, each Lender pursuant
to the terms hereof from time to time (the "Register"). The Administrative Agent
shall also record in the Register the then scheduled Termination Date and shall
update the Register from time to time upon any change in a Lender's Commitment
and Loans pursuant to the terms of this Agreement. The entries in the Register
shall be conclusive in the absence of manifest error, and the Borrower, the
Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement. The Register shall be available for inspection
by the Borrower and any Lender, at any reasonable time and from time to time
upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, together with an Administrative
Questionnaire completed in respect of the assignee (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in paragraph (b) above and, if required, the written consent of the Borrower and
the Administrative Agent to such assignment, the Administrative Agent shall (i)
accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register, (iii) give prompt notice thereof to the Lenders and
(iv) send a copy of such Assignment and Acceptance to the Borrower.
(f) Each Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
in all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it);
provided, however, that (i) such Lender's obligations under this Agreement shall
remain unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) the participating
banks or other entities shall be entitled to the benefit of the cost protection
provisions contained in Sections 2.13, 2.15 and 2.19 to the same extent as if
they were Lenders and (iv) the Borrower, the Administrative Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement, and
such Lender shall retain the sole right to enforce the obligations of the
Borrower relating to the Loans and to approve any amendment, modification or
waiver of any provision of this Agreement (other than amendments, modifications,
or waivers decreasing any fees payable hereunder or the amount of principal of
or the rate at which interest is payable on the Loans, extending any scheduled
principal payment date or date fixed for the payment of interest on the Loans,
or changing or extending the Commitments).
(g) Any Lender may, in connection with any assignment or proposed
assignment pursuant to this Section 9.04, disclose to the assignee or proposed
assignee any information relating to the Borrower furnished to such Lender by or
on behalf of the Borrower; provided that, prior to any such disclosure of
information designated by the Borrower as confidential, each such
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47
assignee or proposed assignee shall execute an agreement whereby such assignee
shall agree (subject to customary exceptions) to preserve the confidentiality of
such confidential information. It is understood that confidential information
relating to the Borrower would not ordinarily be provided in connection with
assignments of Competitive Loans. No Lender may, in connection with any
participation or proposed participation pursuant to this Section 9.04, disclose
to any participant or proposed participant any confidential information relating
to the Borrower without the prior written consent of the Borrower.
(h) Any Lender may at any time assign all or any portion of its rights
under this Agreement to a Federal Reserve Bank; provided that no such assignment
shall release a Lender from any of its obligations hereunder.
(i) The Borrower shall not assign or delegate any of its rights or duties
hereunder.
SECTION 9.05. Expenses; Indemnity. (a) The Borrower agrees to pay (i) all
reasonable legal fees and disbursements incurred by the Administrative Agent in
connection with the preparation of this Agreement and (ii) all out-of-pocket
expenses (including reasonable fees and disbursements of counsel) incurred by
the Administrative Agent and any Lender in connection with any amendments,
modifications or waivers of the provisions hereof or thereof or incurred by the
Administrative Agent or any Lender in connection with the enforcement or
protection of their rights in connection with this Agreement.
(b) The Borrower agrees to indemnify the Administrative Agent, each Lender
and each of their respective directors, officers, employees, Affiliates and
agents (each such Person being called an "Indemnitee") against, and to hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including reasonable counsel fees and expenses, incurred by or
asserted against any Indemnitee arising out of, (i) the use of the proceeds of
the Loans or (ii) any claim, litigation, investigation, or proceeding relating
to this Agreement, the use of such proceeds or the transactions contemplated
hereby, whether or not any Indemnitee is a party thereto; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities, or related expenses are determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted from the negligence or willful misconduct of such Indemnitee. Each
Lender shall notify the Borrower promptly after it determines that it will make
a claim for indemnification under this Section 9.05(b). The Borrower shall be
entitled to participate in the defense of the litigation, investigation, or
proceeding giving rise to such claim with counsel satisfactory to the Lender, in
the exercise of its reasonable judgment; provided, however, that any such
participation in such defense shall be conducted by the Borrower and at the
Borrower's expense and in a manner considered by such Lender to be satisfactory
and effective to protect against such claim without causing damage to the
conduct of, or affecting such Lender's control of, such Lender's defense. The
Borrower shall inform such Lender of its intention to participate in the defense
of such claim within 15 days after receipt of notice thereof from such Lender.
(c) The provisions of this Section 9.05 shall remain operative and in full
force and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of any
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48
of the Loans, the invalidity or unenforceability of any term or provision of
this Agreement, or any investigation made by or on behalf of the Administrative
Agent or any Lender. All amounts due under this Section 9.05 shall be payable on
written demand therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall have occurred
and be continuing, each Lender is hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower against any of and all the obligations of
the Borrower now or hereafter existing under this Agreement held by such Lender,
irrespective of whether or not such Lender shall have made any demand under this
Agreement and although such obligations may be unmatured. The rights of each
Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.
SECTION 9.07. Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the
Administrative Agent or any Lender in exercising any power or right hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies of the
Administrative Agent and the Lenders hereunder are cumulative and are not
exclusive of any rights or remedies which they would otherwise have. No waiver
of any provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) below, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice or demand
on the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended, or modified except pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders; provided, however, that
no such agreement shall (i) decrease the principal amount of, or extend the
maturity of or any scheduled principal payment date or date for the payment of
any interest on, any Loan, or waive or excuse any such payment or any part
thereof, or decrease the rate of interest on any Loan, without the prior written
consent of each Lender, (ii) change or extend the Commitment or decrease or
extend any scheduled payment date for the Facility Fees of any Lender without
the prior written consent of such Lender, or (iii) amend or modify the
provisions of Section 2.16, the provisions of this Section or the definition of
"Required Lenders", without the prior written consent of each Lender; provided
further that no such agreement shall amend, modify, or otherwise affect the
rights or duties of the Administrative Agent hereunder without the prior written
consent of the Administrative Agent. Each Lender shall be bound by any waiver,
amendment, or modification authorized by this Section, and any consent by any
Lender pursuant to this Section shall bind any Transferee of its rights and
obligations hereunder.
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49
SECTION 9.09. Interest Rate Limitation. Notwithstanding anything herein to
the contrary, if at any time the applicable interest rate, together with all
fees and charges which are treated as interest under applicable law
(collectively, the "Charges"), as provided for herein or in any other document
executed in connection herewith, or otherwise contracted for, charged, received,
taken, or reserved by any Lender, shall exceed the maximum lawful rate (the
"Maximum Rate") which may be contracted for, charged, taken, received, or
reserved by such Lender in accordance with applicable law, the rate of interest
payable to such Lender, together with all Charges payable to such Lender, shall
be limited to the Maximum Rate.
SECTION 9.10. Entire Agreement. This Agreement and the Fee Letter
constitute the entire contract between the parties relative to the subject
matter hereof. Any previous agreement among the parties with respect to the
subject matter hereof is superseded by this Agreement and the Fee Letter.
Nothing in this Agreement or the Fee Letter, expressed or implied, is intended
to confer upon any party other than the parties hereto and thereto any rights,
remedies, obligations, or liabilities under or by reason of this Agreement or
the Fee Letter.
SECTION 9.11. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR THE FEE LETTER. EACH PARTY HERETO
(a) CERTIFIES THAT NO REPRESENTATIVE, AGENT, OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (b) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT AND, IF APPLICABLE, THE FEE LETTER, BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11.
SECTION 9.12. Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal, or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good-faith negotiations to replace the
invalid, illegal, or unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the invalid, illegal, or
unenforceable provisions.
SECTION 9.13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract, and shall become effective as
provided in Section 9.03.
SECTION 9.14. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
<PAGE>
50
SECTION 9.15. Jurisdiction; Consent to Service of Process. (a) The
Borrower hereby irrevocably and unconditionally submits to the nonexclusive
jurisdiction of any New York State court or Federal court of the United States
of America sitting in New York City, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Agreement or the
Fee Letter, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such New
York State or, to the extent permitted by law, in such Federal court. Each of
the parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that any Lender may otherwise have to bring any action or
proceeding relating to this Agreement against the Borrower or its properties in
the courts of any jurisdiction.
(b) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action, or proceeding
arising out of or relating to this Agreement in any New York State court or
Federal court of the United States of America sitting in New York City. Each of
the parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
[Signature pages follow]
<PAGE>
S-1
IN WITNESS WHEREOF, the Borrower, the Administrative Agent and the Lenders
have caused this Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
CITIZENS UTILITIES COMPANY
By: ________________________________________
Robert J. DeSantis
Chief Financial Officer,
Vice President and Treasurer
THE CHASE MANHATTAN BANK,
as Administrative Agent
By: ________________________________________
Name:
Title:
<PAGE>
S-2
Lenders:
THE CHASE MANHATTAN BANK
By: ________________________________________
Name:
Title:
================================================================================
ASSET PURCHASE AGREEMENT
Between
GTE CALIFORNIA INCORPORATED
and
CITIZENS UTILITIES COMPANY
May 27, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS......................................................1
1.1 Terms............................................................1
1.2 Interpretation..................................................10
ARTICLE 2 PURCHASE AND SALE OF ASSETS.....................................10
2.1 Purchase and Sale of Assets.....................................10
2.2 Purchased Property..............................................10
2.3 Excluded Property...............................................11
2.4 Assumption of Liabilities.......................................11
2.5 No Assignment Without Consent...................................14
ARTICLE 3 PURCHASE PRICE..................................................14
3.1 Purchase Price..................................................14
3.2 Closing Date Estimate...........................................15
3.3 Closing Date Statement..........................................15
3.4 Access Line Adjustment Amount...................................16
ARTICLE 4 REQUIRED APPROVALS, CONSENTS AND NOTIFICATIONS..................16
4.1 State Regulatory Approval.......................................16
4.2 Debtholder Consents.............................................17
4.3 Landlord and Other Consents.....................................17
4.4 FCC Consents....................................................17
4.5 HSR Act Review..................................................17
4.6 GTE/Bell Atlantic Merger.......................................18
ARTICLE 5 PRE-CLOSING COVENANTS...........................................18
5.1 Investigation by Buyer..........................................18
5.2 Operation of the Business in the Ordinary Course................18
5.3 Satisfaction of Conditions......................................20
5.4 Approvals.......................................................20
5.5 Audit or Review of Financial Statements.........................20
5.6 Cooperation with Respect to Like-Kind Exchange..................21
5.7 Interconnection Agreements......................................21
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5.8 Leased Vehicles; Capital Leases.................................21
5.9 Delivery of Interim Information.................................21
ARTICLE 6 CONDITIONS PRECEDENT TO THE CLOSING.............................22
6.1 Conditions Precedent to Obligations of Buyer....................22
6.2 Conditions Precedent to Obligations of Seller...................23
ARTICLE 7 THE CLOSING.....................................................23
7.1 The Closing.....................................................23
7.2 Seller's Obligations at Closing.................................24
7.3 Buyer's Obligations at Closing..................................24
ARTICLE 8 REPRESENTATIONS AND WARRANTIES..................................25
8.1 Representations and Warranties of Seller........................25
8.2 Representations and Warranties of Buyer.........................35
ARTICLE 9 CONTINUING BUSINESS RELATIONSHIPS...............................37
9.1 Transition Services Agreement...................................37
9.2 Optional Services Agreement.....................................37
9.3 Directory Publishing............................................37
9.4 GTE Supply Relationship.........................................38
ARTICLE 10 ADDITIONAL COVENANTS OF THE PARTIES.............................38
10.1 Intellectual Property...........................................38
10.2 Effect of Due Diligence and Related Matters.....................40
10.3 Confidentiality.................................................41
10.4 Further Assurances..............................................41
10.5 Prorations......................................................41
10.6 Cost Studies/NECA Matters.......................................42
10.7 Customer Deposits...............................................42
10.8 Access to Books and Records.....................................42
10.9 Purchase Price Allocation.......................................43
10.10 Owned Real Property Transfers...................................43
10.11 Transaction Taxes...............................................44
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10.12 Bulk Sales Laws.................................................45
10.13 Prepaid Non-Regulated Maintenance Agreements....................45
10.14 Vehicle Registration............................................45
10.15 Carrier Access Billing and Accounts Receivable Transition.......45
10.16 End-User Billing and Accounts Receivable Transition.............45
ARTICLE 11 EMPLOYEES AND EMPLOYEE MATTERS..................................46
11.1 Employment of Transferred Employees.............................46
11.2 Transferred Employee Benefit Matters............................48
11.3 Miscellaneous Benefits..........................................60
11.4 Employee Rights.................................................61
11.5 WARN Act Requirements...........................................61
11.6 Indemnification.................................................61
ARTICLE 12 INDEMNIFICATION.................................................62
12.1 Survival of Representations.....................................62
12.2 Indemnification.................................................63
12.3 Limitations on Liability........................................64
12.4 Defense of Claims...............................................65
12.5 No Indemnifiable Claims Resulting From Governmental
Authority Action ...............................................67
ARTICLE 13 TERMINATION.....................................................67
13.1 Termination Rights..............................................67
13.2 Goodfaith Performance...........................................67
13.3 Effect of Termination...........................................67
ARTICLE 14 MISCELLANEOUS...................................................68
14.1 Notices.........................................................68
14.2 Information Releases............................................69
14.3 Expenses........................................................70
14.4 Successors and Assigns..........................................70
14.5 Amendments......................................................70
14.6 Captions........................................................70
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14.7 Entire Agreement................................................70
14.8 Waiver..........................................................70
14.9 Third Parties...................................................71
14.10 Counterparts....................................................71
14.11 Governing Law...................................................71
14.12 Further Assurances..............................................71
14.13 Severability....................................................71
14.14 Representation by Counsel; Interpretation.......................72
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<PAGE>
INDEX OF SCHEDULES
Schedule* Title
1.1-A Assigned Contracts
1.1-B Excluded Contracts
1.1-C Purchased Exchanges
1.1-D License Agreement
2.3(g) Other Excluded Property
4.4 FCC Consents / Waivers
5.2.1 Operation of the Business
5.2.2(c) Material Increase to Transferred Employee Benefits
5.2.2(d) Dispositions
6.1.1 Seller's Closing Certificate
6.2.1 Buyer's Closing Certificate
7.2(a) Bill of Sale and Assignment and Assumption Agreement
7.2(b) Legal Opinion of Seller's Counsel
7.2(g) Affidavit as to Status of Foreign Person
7.3(c) Legal Opinion of Buyer's Counsel
8.1.4 Violation of Law
8.1.7(a) Owned Real Property
8.1.7(b) Bondholders
8.1.8 Real Property Leases
8.1.9 Notices of Violations of Building / Zoning Ordinances
8.1.10 Material Adverse Changes
8.1.11(a-j) Material Contracts
8.1.13 Exceptions to Tax Return Filings
8.1.14 State and Federal Claims/Suits
8.1.15(a) Tariff Proceedings
8.1.15(b) FCC Licenses
8.1.16(a) Employee Matters - Seller Employee Benefit Plans
8.1.16(b) Employee Matters - Seller Material Liabilities under ERISA
8.1.16(c) Employee Matters - Seller ERISA Plans - Compliance
8.1.16(d) Employee Matters - Seller Multiemployer Plans
8.1.16(e) Employee Matters - Seller Union Representation
8.1.17 Telephone Plant
8.1.18 Real Property Interests List
8.1.19 Exceptions to Compliance with Existing Environmental Requirements
8.1.20 Environmental Permits
8.1.21(a-c) Financial Statements
8.1.23 Native American Authorizations
8.1.24 Loss of Major Customer
9.1 Transition Services Agreement
9.2 Optional Services Agreement
9.3.1 Directory Publishing Agreements
9.3.2 Co-Bound Directory Agreements
<PAGE>
11.1.2 Employees and Employee Matters - Employment Agreement Obligation
Exceptions
11.3.1 Employees and Employee Matters - Vacation
* The Schedule numbers refer to the appropriate Section within the Agreement.
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 27th day of May, 1999, by and between Citizens Utilities Company,
a Delaware corporation ("Buyer"), and GTE California Incorporated, a California
corporation ("Seller").
RECITALS
WHEREAS, Seller is in the business of providing regulated local
exchange telephone service in certain areas of the states of California and
Arizona; and
WHEREAS, Seller desires to sell, convey, assign, transfer and
deliver to Buyer, and Buyer desires to purchase and accept from Seller, certain
of its telephone properties and related assets used in the provision of such
service, upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Terms. For purposes of this Agreement and any amendment hereto, the
following terms are defined as set out below or in the Section referenced below:
"Access Line Adjustment Amount" is defined in Section 3.4.
"Accounts Receivable Settlement Statement" is defined in Section
10.16(b).
"Accounts Payable" means accounts payable owed by Seller arising
primarily from the operation of the Business.
"Active Employees" is defined in Section 11.1.
"Affiliate" means, with respect to any Person, any other Person
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person.
"Allocation" is defined in Section 10.9.
"Ancillary Documents" means the Transition Services Agreement, the
Optional Services Agreement, the License Agreement, and the Bill of Sale and
Assignment and Assumption Agreement.
"Assigned Contracts" means Contracts to which Seller or any of its
Affiliates is a party (i) which relate primarily to the operation of the
Business, other than the Excluded
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<PAGE>
Contracts, Real Property Interests, Real Property Leases and Third Party
Intellectual Property Contracts, and (ii) any other contract to which Seller is
a party and is listed on Schedule 1.1-A.
"Assigned Permits" means, to the extent assignable, all permits,
licenses, franchises, approvals and authorizations of Seller or any of its
Affiliates issued or granted by any Governmental Authority that relate primarily
to the operation of the Business, other than the FCC Licenses and the Excluded
Permits.
"Assumed Liabilities" is defined in Section 2.4.1
"Automated Assets" is defined in Section 8.1.22(c).
"Bargained Welfare Plans" is defined in Section 11.2.3(a).
"BIA" is defined in Section 8.1.23.
"Base Purchase Price" is defined in Section 3.1.
"Bill of Sale and Assignment and Assumption Agreement" is defined in
Section 7.2(a).
"Bondholders" means the Persons listed on Schedule 8.1.7(b).
"Business" means the business of providing in the geographic area
comprising the Purchased Exchanges (i) local exchange, exchange access and
intra-LATA toll telecommunications services to end users, (ii) exchange access
telecommunications services to interexchange carriers and other local exchange
carriers, (iii) retail sales of telephone equipment and products, and (iv)
non-tariffed public communications (pay telephones), commercial
telecommunications services facilities leasing and other non-regulated services
and products.
"Buyer Pension" is defined in Section 11.2.1(c)(iii)(b).
"Buyer Pension Plan" and "Buyer Pension Plans" are defined in
Section 11.2.1(b).
"Buyer Savings Plan" and "Buyer Savings Plans" are defined in
Section 11.2.2(b).
"Buyer Welfare Plans" is defined in Section 11.2.3(a).
"Buyer's Actuary" is defined in Section 11.2.1(d)(ii).
"Buyer's Closing Certificate" is defined in Section 6.2.1.
"Calendar-Related" is defined in Section 8.1.22(c).
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
2
<PAGE>
"Closing" is defined in Section 7.1.
"Closing Date" is defined in Section 7.1.
"Closing Date Access Line Count" is defined in Section 3.4.
"Closing Date Amount" is defined in Section 3.2(b)
"Closing Date Statement" is defined in Section 3.3
"Confidentiality Agreement" means the Confidentiality Agreement
dated as of November 20, 1998, among Buyer, Seller and certain Affiliates of
Seller.
"Construction Advances" means advances collected by Seller or any
Affiliate for the future performance of non-regulated construction in the
Purchased Exchanges.
"Contracts" means all contracts, leases, indentures, agreements, and
other legally binding arrangements.
"Customer Advances" means amounts arising from the operation of the
Business that have been billed and collected by Seller as of the Closing Date
but that are unearned because they relate to the provision of service after the
Closing Date.
"Customer Deposits" is defined in Section 10.7.
"Date Data" is defined in Section 8.1.22(c).
"December 1998 Access Line Count" is defined in Section 3.4 and
shall be 45,568.
"Direct Claim" is defined in Section 12.4(b).
"Due Diligence Documents" means those documents contained in the
fifteen (15) volumes of information delivered to Buyer in connection with its
review of the Purchased Property.
"Earned End-User Accounts Receivable" means accounts receivable
arising primarily from the operation of the Business that have been earned by
Seller's provision of service on or before the Closing Date excluding amounts
billed through the carrier access billing system to interexchange carriers.
"Earned End-User Accounts Receivable Amount" means the aggregate
amount of all Earned Unbilled Accounts Receivable as of the Closing Date, less a
discount for anticipated uncollectible Earned End-User Accounts Receivable in an
amount equal to the Uncollectible Factor multiplied by Earned End-User Accounts
Receivable as of the Closing Date.
"Employment Agreements" is defined in Section 8.1.16(a).
3
<PAGE>
"Environmental Requirements" means all federal, state, interstate
and local government or agency Laws relating to pollution or protection of human
health and safety or the environment (including, without limitation, air,
surface water, ground water, land surface and subsurface strata), including,
without limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of Regulated Materials; or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transportation or handling of Regulated Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Plans" is defined in Section 8.1.16(a).
"Estimated Access Line Adjustment Amount" is defined in Section
3.2(a).
"Estimated Non-Regulated Construction Work in Process Amount" is
defined in Section 3.2(a).
"Estimated Regulatory Obligation Amount" is defined in Section
3.2(a).
"Evaluation Material" is defined in the first paragraph of the
Confidentiality Agreement.
"Excluded Contracts" means (i) all billing and collection
agreements, interconnection agreements, national account agreements, billing
media agreements, vehicle leasing agreements, capital leases, Contracts between
Seller and Affiliates of Seller, except to the extent expressly listed on
Schedule 1.1-A, and (ii) such other agreements as are listed on Schedule 1.1-B.
"Excluded Marks" means all trademarks, applications for trademark
registration, service marks, applications for service mark registration, trade
names, domain names and related registrations owned by Seller or an Affiliate of
Seller, or licensed to Seller or an Affiliate of Seller by any Person, and any
derivations of the foregoing.
"Excluded Permits" means the permits, licenses, franchises,
approvals and authorizations of Seller or any Affiliates by Governmental
Authorities that relate to the Excluded Property.
"Excluded Property" is defined in Section 2.3.
"Executive Officer" of an entity means (i) in the case of Seller,
the regional president of the region that includes the Purchased Exchanges, the
general manager of infrastructure provisioning for the Purchased Exchanges and
the general manager of customer operations for the Purchased Exchanges, and (ii)
the case of Buyer, the executive officer(s) in charge of the transactions
contemplated by this Agreement.
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<PAGE>
"Existing Environmental Requirements" means those applicable
provisions of any Environmental Requirements that are both in effect and
required to be met by Seller prior to the Closing Date.
"Expiration Date" is defined in Section 12.1(a).
"FCC" means the Federal Communications Commission.
"FCC Consents" is defined in Section 4.4.
"FCC Licenses" means all licenses, certificates, permits or other
authorizations granted to Seller or any Affiliates by the FCC that are used
primarily in the operation of the Business.
"Financial Statements" is defined in Section 8.1.21.
"Final Order" shall mean action by any governmental or regulatory
authority as to which (i) no request for stay by any Governmental Authority of
the action is pending, no such stay is in effect, and if any deadline for any
such request is designated by statute or regulation, such deadline is passed;
(ii) no petition for rehearing or reconsideration of the action is pending
before any Governmental Authority, and the time for filing any such petition has
passed; (iii) the Governmental Authority does not have the action under
reconsideration or its own motion and the time for such reconsideration has
passed; and (iv) no appeal to a court, or request to stay by a court, of the
Governmental Authority's action is pending or in effect and, if any deadline of
filing any such appeal or request is designated by statute or rule, it has
passed.
"FRP" is defined in Section 11.2.3(f).
"Future Capital Expenditure Obligations" is defined in Section
2.4.1(h).
"Future Regulatory Obligations" is defined in Section 2.4.1(g).
"GAAP" means United States generally accepted accounting principles.
"GATT Grandfathered Participant" is defined in Section
11.2.1(c)(ii)(c).
"Governmental Authority" means any court or any federal, state or
foreign governmental, legislative or regulatory body, agency, department,
authority or instrumentality.
"GTE West Coast Agreement" is defined in Section 6.2.6.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnifiable Losses" is defined in Section 12.3(a).
"Indemnification Payment" is defined in Section 12.3(a).
5
<PAGE>
"Indemnifying Party" is defined in Section 12.3(a).
"Indemnitee" is defined in Section 12.3(a).
"Intellectual Property" means all inventions (whether patentable or
not and whether or not such inventions are described or claimed in any patent or
patent application), designs (useful or ornamental), and works subject to
copyright protection, invention disclosures, specifications, manuals, drawings,
functional or system block diagrams, flow charts, circuit diagrams, design or
user documentation, engineering notebooks, schematics, test programs, documented
procedures, documented processes, documented flows, devices, software (in any
form), or firmware, and all intellectual property rights therein or based
thereon, including patents, patent applications (including continuations,
continuations-in-part, divisions, reissues), reexamined patents and extensions
thereof, copyrights (whether registered or unregistered), and trade secrets.
"Interim Capital Expenditure Obligations" is defined in Section
2.4.1(h).
"IRC" means the Internal Revenue Code of 1986, as amended.
"IRS" means the Internal Revenue Service.
"Law" or "Laws" means any statute, rule, regulation, ordinance,
judgment, order or decree of any Governmental Authority.
"Leased Real Property" means the real property leased to Seller or
its Affiliates under the Real Property Leases.
"License Agreement" means the license agreement attached hereto as
Schedule 1.1-D pursuant to which Seller grants to Buyer certain rights and
licenses under Licensed Intellectual Property.
"Licensed Intellectual Property" means Intellectual Property owned
by Seller or its Affiliates, and Third Party Intellectual Property licensed to
Seller or its Affiliates which Seller or its Affiliates can sublicense to Buyer
without the payment of compensation or other consideration to any Person, and
which Intellectual Property and Third Party Intellectual Property are required
for the use or maintenance (to the extent not provided by the owner or licensor
of the Third Party Intellectual Property) of or are included in or with the
Purchased Property in the operation of the Business as of the Closing; provided
that Licensed Intellectual Property shall at all times be Excluded Property.
"Lien" means any lien, charge, pledge, option, mortgage, security
interest or other encumbrance.
"Material Adverse Effect" means a materially adverse effect on the
Business or the Purchased Property, taken as a whole, other than effects
relating to or arising from (i) the execution of this Agreement, (ii) the United
States economy generally or the states of California or Arizona in particular,
or (iii) events or circumstances that affect the Business in the same manner and
to the same extent as other businesses in the industry generally.
6
<PAGE>
"Material and Supply Inventory" is defined in the FCC's Part 32
Uniform System of Accounts.
"Material Contracts" is defined in Section 8.1.11.
"Material Permits" is defined in Section 8.1.15(b).
"Merger" means the proposed merger involving GTE Corporation and
Bell Atlantic Corporation and their respective Subsidiaries.
"Native American Authorizations" is defined in Section 8.1.23.
"Non-Regulated Construction Work in Process Amount" means the total
amount expended but not yet billed by Seller for non-regulated construction work
not completed prior to the Closing Date, minus any Construction Advances
outstanding as of the Closing Date. The Non-Regulated Construction Work in
Process Amount shall be billable by Buyer to third parties after the Closing
Date under open customer orders or other agreements.
"Non-Union Welfare Plans" is defined in Section 11.2.3(a).
"Optional Services Agreement" is defined in Section 9.2.
"Owned Real Property" means the real property owned in fee by Seller
or its Affiliates and used primarily in the operation of the Business, including
all land, buildings, structures, appurtenances and improvements located thereon.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Assets" is defined in Section 11.2.1(d)(i).
"Periodic Taxes" is defined in Section 10.5.
"Permitted Encumbrances" means (i) liens for current taxes and
assessments not yet delinquent, or the amount or validity of which is being
contested in good faith by appropriate proceedings during which collection or
enforcement against the relevant property is stayed, (ii) standard utility
easements, and covenants, conditions and restrictions of record that do not
individually or in the aggregate materially interfere with the operation of the
present Business on, or materially detract from the value of, the Owned Real
Property affected thereby, (iii) mechanics', carriers', workers', repairers' and
other statutory liens, (iv) existing zoning or similar laws or ordinances that
do not interfere with the operation of the Business, (v) leases otherwise
disclosed herein, and (vi) any other Liens and, in the case of Owned Real
Property, any title defects or exceptions, that do not materially interfere with
the operations of the Purchased Property in a manner consistent with the current
use by Seller or that do not materially detract from the value of, or materially
impair the marketability of, the Purchased Property affected.
"Person" means an individual, corporation, partnership, trust,
association, limited liability company or similar entity or organization.
7
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"Plans" is defined in Section 8.1.16(a).
"Pole Attachment Agreement" is defined in Section 8.1.11(j).
"Proration Periods" is defined in Section 10.5.
"PUC" is defined in Section 4.1.
"PUC Permits" is defined in Section 8.1.15(b).
"Purchase Price" is defined in Section 3.3(c).
"Purchased Exchanges" means the telephone exchanges listed in
Schedule 1.1-C and any cross-border community served from any such exchange.
"Purchased Property" is defined in Section 2.2.
"Real Property Interests" means all easements, rights of way,
licenses or other interests in real property of Seller or its Affiliates that
are used primarily in the operation of the Business, other than Owned Real
Property or Leased Real Property.
"Real Property Leases" means the Leases set forth on Schedule 8.1.8.
"Regulated Material" means (i) any "hazardous substance" as defined
in CERCLA, (ii) any petroleum or petroleum substance, and (iii) any other
pollutant, waste, contaminant, or other substance regulated under Environmental
Requirements.
"Regulatory Approvals" is defined in Section 4.1.
"Regulatory Obligation Amount" is defined in Section 3.1.
"Retained Books and Records" means, collectively, all corporate
records and stock books of Seller and its Affiliates, the general ledger, all
records required by Law to be retained by Seller and all books and records
relating to (i) Tax Returns and Tax records, (ii) Excluded Property, (iii)
attorney work product, and (iv) the Retained Liabilities.
"Retained Future Regulatory Obligations" is defined in Section
2.4.1(g).
"Retained Liabilities" is defined in Section 2.4.2.
"SEC Financial Statements" is defined in Section 5.5.
"Seller Hourly Pension Plan" is defined in Section 11.2.1(a)(ii).
"Seller Pension" is defined in Section 11.2.1(c)(iii)(b).
"Seller Pension Plan" and "Seller Pension Plans" are defined in
Section 11.2.1(a)(ii).
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"Seller Salaried Pension Plan" is defined in Section 11.2.1(a)(i).
"Seller Savings Plans" are defined in Section 11.2.2(a).
"Seller Welfare Plans" is defined in Section 11.2.3(a).
"Seller's Actuary" is defined in Section 11.2.1(d)(ii).
"Seller's Closing Certificate" is defined in Section 6.1.1.
"Switch Software" shall mean software currently used by Seller to
operate telecommunications switching equipment that is part of the Telephone
Plant.
"System Date" is defined in Section 8.1.22(c).
"Tax Returns" means a report, return or other information statement
required to be supplied to or filed with a Governmental Authority with respect
to Taxes.
"Tax(es)" means any foreign, federal, state, county or local income,
sales, use, transfer, excise, franchise, stamp duty, custom duty, real and
personal property, gross receipt, capital stock, business and occupation,
disability, employment, payroll, recording, ad valorem, unemployment
compensation, profits, registration, social security, estimated, add-on,
minimum, or withholding tax relating to the Business or the Purchased Exchanges
and any interest and penalties and additions to such taxes (civil or criminal)
related thereto or to the nonpayment thereof and related notarial fees.
"Telephone Plant" means (i) Owned Real Property, (ii) Real Property
Interests, and (iii) the machinery, equipment, inventory, vehicles and all other
assets and properties used primarily in the operation of the Business, including
all plant, systems, structures, construction work in progress, telephone cable
(whether in service or under construction), microwave facilities (including
frequency spectrum assignment), telephone line facilities, machinery, furniture,
fixtures, tools, implements, conduits, stations, substations, equipment
(including central office equipment, subscriber station equipment and other
equipment in general), instruments and house wiring connections. Without
limiting the generality of the foregoing, Telephone Plant includes the assets
used primarily in the operation of the Business that would be properly included
in the fixed assets referenced in Part 32 of the FCC Rules and Regulations (47
CFR, Part 32), as such accounts are reflected in Schedule 8.1.17.
"Third Party Claim" is defined in Section 12.4(a).
"Third Party Intellectual Property" means Intellectual Property
owned by any Person, other than Seller, without regard as to whether Seller has
any rights therein or the right to assign such rights to Buyer.
"Third Party Intellectual Property Contracts" is defined in Section
10.1.4.
"Total Service Pension" is defined in Section 11.2.1(c)(iii)(B).
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"Transaction Taxes" is defined in Section 10.11.
"Transferred Books and Records" means all of Seller's or its
Affiliates' customer or subscriber lists and records, accounts and billing
records, plans, blueprints, specifications, drawings, surveys, engineering
reports, personnel records of Transferred Employees (where applicable) and all
other documents, computer data and records, in each case relating primarily to
the operation of the Business, except for the Retained Books and Records.
"Transferred Employees" is defined in Section 11.1.
"Transition Services Agreement" is defined in Section 9.1.
"Uncollectible Factor" is defined in Section 10.16(b).
"Year 2000 Compliant" is defined in Section 8.1.22(c).
1.2 Interpretation.
(a) Unless the context otherwise requires, (i) all references
to Sections, Articles or Schedules are to Sections, Articles or Schedules of or
to this Agreement, (ii) each accounting term not otherwise defined in this
Agreement has the meaning assigned to it in accordance with GAAP, (iii) all
references to the "knowledge" of Seller are deemed to refer to the actual
knowledge of the Executive Officers of Seller, (iv) all references to the
"knowledge" of Buyer or "knowledge" obtained by Buyer are deemed to refer to the
actual knowledge of the Executive Officers of Buyer, except as otherwise
provided herein, (v) the term "primarily" means primarily or exclusively, and
(vi) the term "including" means including without limitation.
(b) No provision of this Agreement will be interpreted in
favor of or against either of the parties by reason of the extent to which any
such party or its counsel participated in the drafting thereof or by reason of
the extent to which any such provision is inconsistent with any prior draft of
such provision or of this Agreement.
ARTICLE 2
PURCHASE AND SALE OF ASSETS
2.1 Purchase and Sale of Assets. Upon the terms and subject to the
conditions of this Agreement, Seller hereby agrees to sell, convey, transfer,
assign and deliver to Buyer and Buyer hereby agrees to purchase, acquire and
accept from Seller, in each case effective as of the Closing, all of Seller's
and each of its Affiliates' right, title and interest in and to the Purchased
Property.
2.2 Purchased Property. The term "Purchased Property" means all the
following business, properties, assets and rights of Seller and its Affiliates
on the Closing Date, other than the Excluded Property:
(i) Telephone Plant;
(ii) Earned End-User Accounts Receivable;
(iii) Material and Supply Inventories;
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(iv) Non-Regulated Construction Work in Process;
(v) FCC Licenses and Assigned Permits;
(vi) Assigned Contracts;
(vii) Transferred Books and Records;
(viii) Real Property Leases; and
(ix) all other business, property, assets, work in process
and rights of Seller on the Closing Date not described
above that relate primarily to the Purchased Exchanges.
2.3 Excluded Property. For purposes of this Agreement, "Excluded Property"
means the following:
(a) Cash, cash equivalents and investments;
(b) All rights of Seller and its Affiliates under this
Agreement, the Ancillary Documents and the certificates and other documents
delivered to Seller by Buyer in connection with this Agreement;
(c) All records prepared in connection with the sale of the
Business, including bids received from third parties and analysis relating to
the Business;
(d) All rights related to the Retained Liabilities;
(e) The Retained Books and Records;
(f) Seller's and its Affiliates' interests in any business
other than the Business, including the provision of wireless service (cellular
and PCS), long distance and internet service or internet related services,
air-to-ground communications (air phone service), and any Excluded Permits
related thereto, and all assets of Seller and its Affiliates used in connection
with any such business or related thereto, and all assets used by Seller and its
Affiliates in rendering corporate services to Seller or the Business that are
located outside the geographic area comprising the Purchased Exchanges;
(g) Such other assets (i.e., encryption decoder devices, AWAS
terminals, SODA, etc.), if any, as set forth on Schedule 2.3(g);
(h) The Excluded Contracts;
(i) The Excluded Marks;
(j) All Intellectual Property, including the Licensed
Intellectual Property and Third Party Intellectual Property (except for such
rights to possess and use Third Party Intellectual Property as may be assigned
in accordance with Section 10.1.4); and
(k) All of Seller's and its Affiliates' insurance proceeds
arising in connection with the operation of the Business or the Purchased
Property prior to the Closing.
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2.4 Assumption of Liabilities.
2.4.1 Assumed Liabilities. Upon the terms and subject to the
conditions of this Agreement, Buyer hereby agrees to assume, as of the Closing
Date, and agrees to pay, perform and discharge when due, all liabilities,
responsibilities and obligations, beginning on the day following the Closing
Date, relating to the Purchased Property other than the Retained Liabilities
(subject to any different allocation of liability set forth in clauses (b), (c),
(g) and (h) below) (the "Assumed Liabilities"), including the following:
(a) Ordinary Course. All liabilities, responsibilities and
obligations (including Taxes), arising out of or accruing or resulting from the
use or ownership of the Purchased Property in the ordinary course after the
Closing Date;
(b) Employment Matters. All liabilities, responsibilities and
obligations of Buyer as provided in Article 11 with respect to Transferred
Employees;
(c) Assigned Contracts, Real Property Interests and Real
Property Leases. All liabilities, responsibilities and obligations that arise in
connection with the performance of the Assigned Contracts, Real Property
Interests and the Real Property Leases, other than performance obligations of
Seller that mature prior to the Closing Date;
(d) Joint Construction Projects. All liabilities,
responsibilities and obligations to third parties that relate to arrangements
and commitments between Seller and a third party for the construction of mutual
transmission facilities between various switching points included in the
Purchased Exchanges;
(e) Construction in Progress. All liabilities,
responsibilities and obligations relating to post-Closing engineering and
construction required to complete scheduled construction and other capital
expenditure projects for the Purchased Exchanges;
(f) Customer Deposits and Construction Advances. All
liabilities, responsibilities and obligations relating to Customer Advances,
Customer Deposits and Construction Advances;
(g) Future Regulatory Obligations. All liabilities,
responsibilities and obligations, other than Future Capital Expenditure
Obligations, related to the Purchased Exchanges arising out of any rule,
regulation, law, mandate, decision or order of the FCC or the PUC after the
Closing Date regardless of whether the action taken by such Governmental
Authority is or purports to be based on conduct or actions that occurred at any
time prior to the Closing Date ("Future Regulatory Obligations"); provided that
Buyer shall not be liable for any such Future Regulatory Obligation arising
directly out of any intentional misconduct or material misstatement to the PUC
by Seller that occurred prior to the Closing Date, except for such statements as
may be based on reasonable interpretations of existing PUC regulations and
current industry practice ("Retained Future Regulatory Obligations");
(h) Future Capital Expenditure Obligations. All liabilities,
responsibilities and obligations related to the Purchased Exchanges arising out
of any rule,
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regulation, law, mandate, decision or order of the FCC or the PUC (i) issued at
any time and requiring any capital expenditure after the Closing Date,
regardless of whether the action taken by such Governmental Authority is or
purports to be based on conduct, facts or actions that occurred at any time
prior to the Closing Date ("Future Capital Expenditure Obligations"); and (ii)
issued after the date of this Agreement and requiring any capital expenditure
after the date of this Agreement, regardless of whether the action taken by such
Governmental Authority is or purports to be based on conduct, facts or actions
that occurred at any time prior to the date of this Agreement ("Interim Capital
Expenditure Obligations"); provided that (i) Seller shall retain liability for
Interim Capital Expenditure Obligations incurred prior to Closing to the extent
related to (A) FCC or PUC orders that impose capital expenditure obligations as
a result of Seller's overearnings, (B) Seller's efforts to comply with FCC or
PUC rules, regulations, laws, mandates, decisions or orders existing as of the
date of this Agreement, or (C) capital expenditures already planned by Seller;
and (ii) Seller shall retain liability for all other Interim Capital Expenditure
Obligations to the extent Seller is fully reimbursed by Buyer at Closing for
such obligations. Prior to the Closing Date, Seller shall notify Buyer of all
potential Future or Interim Capital Expenditure Obligations within a reasonable
time after publication of said obligations by a Governmental Authority; and
(i) Litigation and Claims. All liabilities and obligations
arising out of (i) litigation and claims that arise out of an occurrence after
the Closing Date, (ii) litigation and claims in respect of Future Regulatory
Obligations (other than Retained Future Regulatory Obligations) regardless of
when filed, and (iii) claims of a Governmental Authority arising from or related
to a Future Regulatory Obligation (other than Retained Future Regulatory
Obligations).
Notwithstanding anything in this Section 2.4.1 to the contrary, "Assumed
Liabilities" shall not include any liabilities, responsibilities or obligations
expressly included in Retained Liabilities pursuant to Section 2.4.2.
2.4.2 Retained Liabilities. Seller shall retain and shall pay,
perform and discharge when due, the following liabilities, responsibilities and
obligations of Seller (the "Retained Liabilities"):
(a) Subject to Section 10.5, all trade payables and other
accrued payment obligations of Seller as of the Closing Date;
(b) All long-term debt of Seller (including indebtedness to
the Bondholders) and debt of Seller owed to any one or more of its Affiliates;
(c) Subject to Section 10.5, all Taxes relating to the
operation of the Business on or before the Closing Date or the use, ownership or
operation of the Purchased Property on or before the Closing Date;
(d) Except to the extent otherwise provided in Article 11, all
liabilities and obligations arising on or before the Closing Date with respect
to the Transferred Employees, including (i) all liabilities responsibilities and
obligations arising on or before the Closing Date relating to collective
bargaining agreements or other union contracts, and (ii) any such liabilities
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or obligations that arise after the Closing Date to the extent that such
liabilities and obligations relate to facts, circumstances or conditions arising
or occurring on or before the Closing Date, but excluding any Future Regulatory
Obligations with respect to the Transferred Employees;
(e) All liabilities, responsibilities and obligations arising
out of litigation and claims that arise out of an occurrence prior to the
Closing Date other than litigation and claims in respect of Future Regulatory
Obligations (other than Retained Future Regulatory Obligations);
(f) Any Retained Future Regulatory Obligations; and
(g) All liabilities, responsibilities and obligations with
respect to the Excluded Property and the Excluded Contracts.
2.5 No Assignment Without Consent. Notwithstanding anything to the
contrary contained in this Agreement, to the extent that the sale, conveyance,
transfer, assignment or delivery or attempted sale, conveyance, transfer,
assignment or delivery to Buyer of any Purchased Property (including any
Contract) is prohibited by any applicable Law or would require any governmental
or third-party authorizations, approvals, consents or waivers and such
authorizations, approvals, consents or waivers shall not have been obtained
prior to the Closing, this Agreement shall not constitute a sale, conveyance,
transfer, assignment or delivery, or an attempted sale, conveyance, transfer,
assignment or delivery thereof, if any of the foregoing would constitute a
breach of applicable Law or the rights of any third party; provided, however,
that, except to the extent that a condition to Closing set forth in Article 6
relating to the foregoing shall not be satisfied, the Closing shall occur
notwithstanding the foregoing without any adjustment to the Purchase Price on
account of such required authorization. Following the Closing, the parties shall
use their commercially reasonable efforts, and shall cooperate with each other,
to obtain promptly such authorizations, approvals, consents or waivers;
provided, however, that neither Seller nor Buyer nor any of their respective
Affiliates shall be required to pay any consideration therefor, other than
filing, recordation or similar fees payable to any Governmental Authority, which
fees shall be shared equally by Seller and Buyer. Pending or in the absence of
such authorization, approval, consent or waiver, the parties shall cooperate
with each other in any reasonable and lawful arrangements to provide to Buyer
the benefits and liabilities of use of such Purchased Property, including, if
permitted by the terms of any Real Property Lease or applicable Material
Contract, through a sublease or subcontract in accordance with Section 4.3. If
such authorization, approval, consent or waiver for the sale, conveyance,
transfer, assignment or delivery of any such Purchased Property is obtained,
Seller shall promptly convey, transfer, assign and deliver, or cause to be
conveyed, transferred, assigned and delivered, such Purchased Property to Buyer.
ARTICLE 3
PURCHASE PRICE
3.1 Purchase Price. The purchase price for the Purchased Property shall be
the sum of (i) One Hundred Seventy Million Nine Hundred Twenty-One Thousand
dollars ($170,921,000) (the "Base Purchase Price"), (ii) amounts expended by
Seller to comply with Interim Capital Expenditure Obligations (the "Regulatory
Obligation Amount"), and (iii) the
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Non-Regulated Construction Work in Process Amount, minus (iv) any Access Line
Adjustment Amount calculated in accordance with Section 3.4. Payments from Buyer
to Seller for Earned End-User Accounts Receivable and from Seller to Buyer for
Customer Advances and Customer Deposits will occur subsequent to Closing in
accordance with Article 10.
3.2 Closing Date Estimate.
(a) Not less than three (3) business days prior to the Closing
Date, Seller will give to Buyer a notice, setting forth Seller's good faith
estimate as of the Closing Date of (i) the Regulatory Obligation Amount (the
"Estimated Regulatory Obligation Amount"), (ii) the Non-Regulated Construction
Work in Process Amount (the "Estimated Non-Regulated Construction Work in
Process Amount") and (iii) the Access Line Adjustment Amount (the "Estimated
Access Line Adjustment Amount").
(b) On the Closing Date, Buyer shall pay to Seller the sum of
(i) the Base Purchase Price, (ii) the Estimated Regulatory Obligation Amount,
and (iii) the Estimated Non-Regulated Construction Work in Process Amount, minus
(iv) any Estimated Access Line Adjustment Amount (the "Closing Date Amount").
The Closing Date Amount shall be paid by delivery on the Closing Date of
immediately available funds in U.S. dollars by wire transfer to an account that
Seller shall designate to Buyer at least two (2) business days prior to the
Closing Date.
3.3 Closing Date Statement.
(a) Within sixty (60) days after Closing Date, Seller shall
prepare and deliver to Buyer a written statement of the Base Purchase Price,
Regulatory Obligation Amount, Non-Regulated Construction Work in Process Amount
and any Access Line Adjustment Amount ("Closing Date Statement").
(b) Within fifteen (15) days after receipt of the Closing Date
Statement, Buyer shall, in a written notice to Seller, either accept the Closing
Date Statement or describe in reasonable detail any proposed adjustments to the
Closing Date Statement and the reasons therefore. If Seller shall not have
received a notice of proposed adjustments within such fifteen (15) day period,
Buyer will be deemed irrevocably to have accepted such Closing Date Statement.
(c) Upon the acceptance of any Closing Date Statement by
Buyer, the parties shall, based thereupon, calculate the amount equal to the sum
of the Base Purchase Price, Regulatory Obligation Amount and Non-Regulated
Construction Work in Process Amount, minus any Access Line Adjustment Amount
(collectively, the "Purchase Price"). If the Purchase Price as finally
determined above is greater than the Closing Date Amount, Buyer shall promptly,
but no later than three (3) business days after such acceptance, pay to Seller
the amount of such difference. If the Purchase Price as determined above is less
than the Closing Date Amount, Seller shall promptly, but no later than three (3)
business days after such acceptance, pay to Buyer the amount of such difference.
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(d) Seller and Buyer shall negotiate in good faith to resolve
any disputes over any proposed adjustments to the Closing Date Statement,
provided that if any such dispute is not resolved within thirty (30) days
following Seller's receipt of the proposed adjustments, Buyer and Seller jointly
shall select an independent public accounting firm that is nationally recognized
in the United States to resolve such disputes in accordance with the standards
set forth in this Section 3.3, which resolution shall be final and binding. The
fees and expenses of such accounting firm shall be shared by Buyer and Seller in
inverse proportion to the relative amounts of the disputed amount determined to
be for the account of Buyer and Seller, respectively.
(e) If Buyer disputes any portion of the Closing Date
Statement, the parties shall calculate the portion of the Closing Statement that
is not the subject of any dispute or proposed adjustment. If the undisputed
portion of the Closing Statement (A) is greater than the respective estimated
amounts paid on the Closing Date, Buyer shall promptly pay Seller the amount of
such difference, or (B) is less than the respective estimated amounts paid on
the Closing Date, Seller shall promptly pay Buyer the amount of such difference.
Payments with respect to any undisputed portions of these adjustments shall be
made no later than three (3) business days after delivery of notice of the
proposed adjustments. Upon resolution of any dispute over any proposed
adjustments as described above in Section 3.3(d), a party which is determined to
owe the other party an amount shall pay that amount promptly, but no later than
three (3) business days after resolution.
(f) Any amount paid pursuant to this Section 3.3 after the
Closing Date shall bear interest from the Closing Date through but excluding the
date of payment, at a rate of eight percent (8%) per annum. Such interest shall
accrue daily on the basis of a year of three hundred sixty-five (365) days and
the actual number of days for which due and shall be payable together with the
amount payable pursuant to this Section 3.3. All amounts payable pursuant to
this Section 3.3 shall be paid by delivery of immediately available funds in
U.S. dollars by wire transfer to, in the case of amounts payable by Buyer, the
account identified by Seller as described in 3.2 above or to an alternate
account that Seller may designate on the Closing Date Statement and, in the case
of amounts payable by Seller, to such account of Buyer as Buyer shall designate
in writing to Seller.
3.4 Access Line Adjustment Amount. The Purchase Price shall be subject to
reduction in accordance with Section 3.1 if the number of access lines
(including wholesale access lines) billed by Seller during the most recent month
ended prior to the Closing Date (the "Closing Date Access Line Count") has
decreased by more than ten percent (10%) from the number of access lines
(including wholesale access lines) billed by Seller for the month ended December
31, 1998 (the "December 1998 Access Line Count"). Such reduction, if any, shall
equal (a) the December 1998 Access Line Count minus the Closing Date Access Line
Count, multiplied by (b) the Base Purchase Price divided by the December 1998
Access Line Count (collectively, the "Access Line Adjustment Amount").
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ARTICLE 4
REQUIRED APPROVALS, CONSENTS AND NOTIFICATIONS
4.1 State Regulatory Approval. Promptly after the date of this Agreement,
Buyer and Seller shall file the appropriate applications and notices with the
Arizona Corporations Commission and the California Public Utilities Commission
(collectively, the "PUC"), seeking orders permitting the transfer of service in
the Purchased Exchanges to Buyer (collectively, the "Regulatory Approvals").
Buyer will be responsible for establishing the tariff for its post-Closing
operations in the Purchased Exchanges. Each party agrees to use its commercially
reasonable efforts to obtain the Regulatory Approvals and the parties agree to
cooperate fully with each other and with the applicable regulatory agency to
obtain the Regulatory Approvals at the earliest practicable date.
4.2 Debtholder Consents. Seller shall use its commercially reasonable
efforts to obtain from its Bondholders the termination or release, at Closing,
of all security agreements, mortgages and financing statements relating to the
Purchased Property (such termination or release being hereinafter referred to as
the "Debtholder Consents").
4.3 Landlord and Other Consents. Promptly after the date hereof, the
parties shall use their commercially reasonable efforts to mutually seek the
consent of (i) the lessor to any Leased Real Property that requires consent as a
condition to an assignment of the lease (which consents are identified in
Schedule 8.1.8) and (ii) the applicable third party with respect to certain
Material Contracts that require consent as a condition to assignment of such
Material Contract (which consents are identified on Schedule 8.1.11). If a
lessor refuses to consent to such an assignment, and if the applicable lease or
Material Contract permits a sublease or subcontract without the consent of the
lessor or other third party, the parties hereto shall, effective as of the
Closing, enter into a sublease or subcontract upon terms and conditions as
similar and comparable to an assignment of the lease or Material Contract as is
reasonably feasible.
4.4 FCC Consents. Promptly after the date of this Agreement, the parties
shall use their commercially reasonable efforts to obtain (i) the FCC's consent
to the transfer of the FCC Licenses from Seller to Buyer, and (ii) the FCC
waivers set forth on Schedule 4.4 (all such consents or waivers are collectively
referred to as the "FCC Consents").
4.5 HSR Act Review. By June 30, 1999, or such later date as the parties
may mutually agree, the parties will make such filings as may be required by the
HSR Act with respect to the transactions contemplated by this Agreement.
Thereafter, the parties will file as promptly as practicable all reports or
other documents required or requested by the U.S. Federal Trade Commission or
the U.S. Department of Justice pursuant to the HSR Act or otherwise and will
comply promptly with any requests by the Federal Trade Commission or the U.S.
Justice Department for additional information concerning such transactions, so
that the waiting period specified in the HSR Act will expire as soon as
reasonably possible after the execution and delivery of this Agreement. Without
limiting the foregoing, Seller and Buyer agree to use their commercially
reasonable efforts to cooperate and oppose any preliminary injunction sought by
any Governmental Authority preventing the consummation of the transactions
contemplated by
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this Agreement. Buyer agrees to pay all application fees required in connection
with any filings under the HSR Act.
Seller and Buyer shall cause their respective counsel to furnish
each other such necessary information and reasonable assistance as the other may
reasonably request in connection with its preparation of necessary filings or
submissions under the provisions of the HSR Act. Seller and Buyer will cause
their respective counsel to supply to each other copies of all correspondence,
filings or written communications by such party or its Affiliates with any
Governmental Authority or staff members thereof, with respect to the
transactions contemplated by this Agreement and any related or contemplated
transactions, except for documents filed pursuant to Item 4(c) of the
Hart-Scott-Rodino Notification and Report Form or communications regarding the
same documents or information submitted in response to any request for
additional information or documents pursuant to the HSR Act which reveal
Seller's or Buyer's negotiating objectives or strategies or purchase price
expectations.
4.6 GTE/Bell Atlantic Merger. Notwithstanding anything else contained in
this Agreement, but without modification of the rights of Buyer under Sections
6.1, 11.6.2, 12.2(a) or 13.1, Seller shall not be obligated to take any action
that would violate the terms of its agreements regarding the Merger, or that
would interfere with, delay or prevent the consummation of the Merger. In the
event that the Closing does not occur as a direct result of the Merger, and not
through any fault of Buyer, Seller's liability to Buyer under this Agreement
shall be limited to the amount of Buyer's reasonable out-of-pocket expenses
incurred in connection with this Agreement.
ARTICLE 5
PRE-CLOSING COVENANTS
5.1 Investigation by Buyer. Prior to the Closing, upon reasonable notice
from Buyer to Seller given in accordance with this Agreement and subject to
approval by Seller's appointed representative, Seller will afford to the
authorized representatives of Buyer reasonable access during normal business
hours to the Transferred Books and Records, the Owned Real Property the Leased
Real Property and the other Purchased Property so as to afford Buyer the
opportunity to make such review, examination and investigation of the Business
and the Purchased Property as Buyer may reasonably request; provided, however,
that no environmental sampling or other testing shall be performed without
Seller's prior written consent, which consent may be given or withheld in
Seller's sole discretion. Buyer will not contact any employee, customer or
supplier of Seller with respect to this Agreement, the matters involved herein
or the Purchased Property without the prior written consent of Seller. Nothing
herein will obligate Seller to take actions that would unreasonably disrupt the
normal course of the business of Seller or violate the terms of any applicable
Law or any Contract to which Seller or any of its Affiliates is a party or to
which any of its assets is subject. Any information or documentation provided to
Buyer or acquired by Buyer during this investigation shall be deemed "Evaluation
Material" as that term is defined in the Confidentiality Agreement and shall be
subject in all cases to the terms of the Confidentiality Agreement.
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5.2 Operation of the Business in the Ordinary Course.
5.2.1 Preservation of Business. Except as contemplated on Schedule
5.2.1 or as otherwise consented to by Buyer prior to the Closing, from the date
of this Agreement until the Closing Seller shall:
(a) Conduct the Business in the ordinary course consistent
with past practice and shall keep available to the Business its services and the
services of its Affiliates to the same extent generally available on the date
hereof;
(b) Operate the Business in substantially the same manner as
it is presently being conducted, and, with respect to the Business, refrain from
entering into any Contract that would be a Material Contract other than in the
ordinary course of business;
(c) Not institute any proceeding with respect to, or otherwise
change, amend or supplement any of its tariffs or make any other filings with
the PUC except in the ordinary course of business, and except as disclosed on
Schedule 8.1.15(a);
(d) Maintain the Purchased Property in good repair, order and
condition, reasonable wear and use excepted, and maintain the Materials and
Supply Inventory in the ordinary course of business consistent with past
practice;
(e) Maintain insurance with respect to the Purchased Property
consistent with past practice;
(f) Make capital expenditures sufficient to support normal
maintenance and customer growth in the Purchased Exchanges in a manner
consistent with established regulatory performance objectives, which
expenditures in (a) calendar year 1999 shall not be less than $4,145,000, and
(b) calendar year 2000 shall not be less than $345,000 per month; and
(g) Maintain the books and records of the Business
substantially in accordance with prior practice, except as changes are mandated
by Governmental Authorities or required by GAAP.
5.2.2 No Material Changes. Except as contemplated by this Agreement
or as otherwise consented to by Buyer prior to the Closing, from the date of
this Agreement until the Closing, Seller will not:
(a) Make any material change in the general nature of the
Business;
(b) Sell, lease or dispose of, or make any Contract for the
sale, lease or disposition of any Purchased Property, other than in the ordinary
course of business;
(c) Increase the benefit provided under any plans concerning
employee benefits or increase the general rates of compensation of its
Transferred Employees, except (i) as required by Law, (ii) pursuant to any
Contract to which Seller is a party existing on the date hereof and listed on
Schedule 5.2.2(c), (iii) increases in base pay in the ordinary course of
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business of Seller and in amounts consistent with the recent past practices of
Seller, or (iv) as listed or described on Schedule 5.2.2(c);
(d) (i) Materially amend, modify or terminate any Material
Contract or permit any of the foregoing to occur other than in the ordinary
course of business; or (ii) sell, transfer or otherwise dispose of any Purchased
Property other than in the ordinary course of business or as listed or described
on Schedule 5.2.2(d), or encumber any Purchased Property, except for Permitted
Encumbrances; or
(e) Enter into any new written employment agreement, or union
agreement with, or commitment to, the Transferred Employees (including any new
commitment to pay retirement or other benefits or other amendments to Seller's
retirement plans), provided that Seller may enter into new union agreements to
the extent the new union agreements succeed any union agreement that expires
prior to the Closing. Prior to finalizing any such new union agreement, Seller
shall advise Buyer of its material terms and following the execution of any such
agreement, Seller shall deliver a copy to Buyer.
5.3 Satisfaction of Conditions. Without limiting the generality or effect
of any provision of Article 6, the parties will use their commercially
reasonable efforts to satisfy promptly all the conditions required to be
satisfied prior to the Closing.
5.4 Approvals.
(a) Between the date of this Agreement and the Closing Date,
Buyer and Seller will (i) cooperate with one another and take all reasonable
steps to obtain, as promptly as practicable, all consents, approvals,
authorizations, waivers and permits of any Governmental Authorities required of
either party to consummate the transactions contemplated by this Agreement and
(ii) provide such other information and communications to any Governmental
Authority as may be reasonably requested.
(b) To the extent that any consents, approvals, authorization
or waiver of a third party with respect to any (i) Assigned Contract, (ii)
Assigned Permit or (iii) any Pole Attachment Agreement, government grant or
railroad crossing agreement listed on Schedule 8.1.18, is required in connection
with the transactions contemplated by this Agreement, Seller shall use its
commercially reasonable efforts to obtain such authorization, consent, approval
or waiver prior to the Closing Date.
5.5 Audit or Review of Financial Statements. To the extent Buyer requires
an audit or review of financial statements with respect to the Business in order
to comply with the reporting requirements of the Securities and Exchange
Commission under Regulations S-K and S-X, Seller will cooperate with the
independent auditors chosen by Buyer to audit or review the Financial Statements
delivered by Buyer in accordance with Section 8.1.21 and such other financial
statements as may be required by Buyer to comply with Regulations S-K and S-X
(collectively, the "SEC Financial Statements"). Seller's cooperation will
include such access to workpapers and other supporting documents used in the
preparation of the SEC Financial Statements and delivery of one or more
representation letters from Seller to such auditors as may be reasonably
required by such auditors to perform an audit in accordance with generally
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accepted auditing standards or a review in accordance with AICPA standards and
to render an opinion acceptable to the SEC with respect to the audit or review
of the SEC Financial Statements, it being understood that such representation
letters shall acknowledge (i) Seller's extensive use of estimates and
allocations in the preparation of the SEC Financial Statements, and (ii)
Seller's belief that the SEC Financial Statements represent the financial
condition and results of operations of the Business, in accordance with GAAP,
and that such estimates and allocations were made on a reasonable basis and in
accordance with GAAP. However, Buyer acknowledges that because the Business
represents only a portion of Seller, Buyer is not acquiring significant support
elements located outside the Purchased Exchanges, and Buyer will operate under
new tariffs, carrier contracts and other conditions that will significantly
impact the future revenues of the Business, the Financial Statements may not be
representative of the financial performance of the Business during future
periods. Seller will bear the cost of the preparation of its financial
statements, including the SEC Financial Statements. Buyer will bear the cost of
the preparation of any other financial statements that it will be required to
file with the SEC, as well as the cost of the audit or review of the SEC
Financial Statements. Buyer acknowledges that the SEC Financial Statements and
any supporting documentation have been made available as an indication of the
historical financial performance and condition of the Business. Except to the
extent that the SEC Financial Statements reflect intentional misrepresentation
or fraud, Buyer agrees not to make any claim related to the performance of the
Business after the date of the SEC Financial Statements on the basis of a
comparison to the SEC Financial Statements.
5.6 Cooperation with Respect to Like-Kind Exchange. Buyer agrees that
Seller's transfer of the Purchased Property may, at Seller's election, be
accomplished in a manner enabling such transfer to qualify as part of a
like-kind exchange of property covered by Section 1031 of the IRC. If Seller so
elects, Buyer shall cooperate with Seller (but without being required to incur
any out-of-pocket costs in the course thereof) in connection with Seller's
efforts to effect such like-kind exchange, which cooperation shall include,
without limitation, taking such actions as Seller requests in order to enable
Seller to qualify such transfer as part of a like-kind exchange of property
covered by Section 1031 of the IRC (including any actions required to facilitate
the use of a "qualified intermediary" within the meaning of the United States
Treasury Regulations), and Buyer agrees that Seller may assign all or part of
its rights (but no obligations) under this Agreement to a person or entity
acting as a qualified intermediary to qualify the transfer of the Purchased
Property as part of a like-kind exchange of property covered by Section 1031 of
the IRC. Buyer and Seller agree in good faith to use reasonable efforts to
coordinate the transactions contemplated by this Agreement with any other
transactions engaged in by either Buyer or Seller; provided that such efforts
are not required to include an unreasonable delay in the consummation of the
transactions contemplated by this Agreement.
5.7 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information as Buyer may reasonably request in connection with Buyer's
replacement of the interconnection agreements relating to the Purchased
Exchanges, including supplying to Buyer copies of such interconnection
agreements to the extent permissible.
5.8 Leased Vehicles; Capital Leases. Seller or its Affiliates, as
applicable, will pay the remaining balances on any vehicle leases or any capital
leases relating to assets included in
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the Purchased Property and at Closing will deliver to Buyer title to such
vehicles and assets, free and clear of all Liens.
5.9 Delivery of Interim Information. From the date of this Agreement until
the Closing, Seller shall furnish Buyer monthly reports concerning the operating
performance of the Business. Such reports shall contain such data as are
typically reported to GTE management with respect to the Purchased Exchanges,
including access line counts and service measures. Seller shall provide Buyer
reasonable access to Seller's management in order to discuss such data. In the
event of any significant deterioration in operating performance, Seller shall
consult with Buyer concerning its response. All information provided in
accordance with this Section 5.9 shall be subject to the Confidentiality
Agreement and to compliance with applicable antitrust Laws.
ARTICLE 6
CONDITIONS PRECEDENT TO THE CLOSING
6.1 Conditions Precedent to Obligations of Buyer. The obligations of Buyer
to consummate the Closing shall be subject to the satisfaction or waiver by
Buyer, at or prior to the Closing, of each of the following conditions, any one
or more of which may be waived at the option of Buyer:
6.1.1 No Misrepresentation or Breach of Covenants and Warranties.
Seller shall have complied in all material respects with its covenants to be
performed in whole or in part prior to the Closing, and the representations and
warranties of Seller in Section 8.1 shall be true and correct as of the Closing,
except for (i) such representations or warranties that are made expressly as of
an earlier date, which shall have been true and correct as of such date except
as would not have a Material Adverse Effect, and, (ii) to the extent that any
breach of such representations and warranties has not, individually or in the
aggregate, had a Material Adverse Effect; and Seller shall have delivered to
Buyer a certificate ("Seller's Closing Certificate") in the form attached as
Schedule 6.1.1, dated the Closing Date and signed by an Executive Officer of
Seller, certifying each of the foregoing, or specifying those respects in which
such covenants have not been performed or such representations and warranties
are not true and correct.
6.1.2 Documents. Seller shall have delivered to Buyer all documents
required by Section 7.2.
6.1.3 HSR. All required waiting periods under the HSR Act shall have
expired or been terminated.
6.1.4 No Legal Obstruction. Each of the required Debtholder Consents
shall have been obtained, and each of the required Regulatory Approvals and FCC
Consents shall have been obtained, free of any special term, condition,
restriction, imposed liability or other provision that is reasonably likely to
have a Material Adverse Effect, and the FCC and PUC shall not otherwise have
taken any action with respect to the Purchased Property that is reasonably
likely to have a Material Adverse Effect. For purposes of this Section 6.1.4,
any tariff that is substantially similar in all material respects to the
existing tariff with respect to the applicable Purchased Exchange shall be
deemed not to have a Material Adverse Effect. For purposes of this
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Agreement, all such approvals and consents shall be deemed to have been obtained
upon the granting of a Final Order. In addition, there shall not have been
entered a preliminary or permanent injunction, temporary restraining order or
other judicial or administrative order or decree in any competent jurisdiction,
the effect of which prohibits the Closing.
6.1.5 No Material Adverse Effect. There shall not have occurred any
event or condition which individually or in the aggregate has resulted in a
Material Adverse Effect.
6.1.6 Closing of GTE West Coast Transactions. The transactions
contemplated by the Asset Purchase Agreement between GTE West Coast Incorporated
and Citizens Utilities Company of even date herewith (the "GTE West Coast
Agreement") shall be closed simultaneously with the closing of those
transactions contemplated by this Agreement.
6.2 Conditions Precedent to Obligations of Seller. The obligations of
Seller to consummate the Closing shall be subject to the satisfaction or waiver
by Seller, at or prior to the Closing, of each of the following conditions:
6.2.1 No Misrepresentation or Breach of Covenants and Warranties.
Buyer shall have complied in all material respects with its covenants to be
performed in whole or in part prior to the Closing, and the representations and
warranties of Buyer in Section 8.2 shall be true and correct in all material
respects as of the Closing, except (i) for such representations or warranties
made expressly as of and only as of an earlier date, which shall be true and
correct as of such date except as would not have a Material Adverse Effect, and
(ii) to the extent that any breach of such representations and warranties has
not, individually or in the aggregate, had a Material Adverse Effect; and Buyer
shall have delivered to Seller a certificate ("Buyer's Closing Certificate") in
the form attached as Schedule 6.2.1, dated the Closing Date and signed by an
Executive Officer of Buyer, certifying each of the foregoing or specifying those
respects in which such covenants have not been performed or such representations
and warranties are not true and correct.
6.2.2 Documents. Buyer shall have delivered to Seller all documents
required by Section 7.3.
6.2.3 Purchase Price. Buyer shall have delivered to Seller, in the
manner specified in Section 3.1, the Closing Date Amount.
6.2.4 HSR. All required waiting periods under the HSR Act shall have
expired or been terminated.
6.2.5 No Legal Obstruction. Each of the required Debtholder Consents
shall have been obtained, and each of the required Regulatory Approvals and FCC
Consents shall have been obtained free of any special terms, conditions or
restrictions that are materially adverse to Seller based upon good faith
business concerns that are not commercially unreasonable (other than any such
approvals or consents which, if not obtained, would not have a Material Adverse
Effect). For purposes of this Agreement, all such approvals and consents shall
be deemed to have been obtained upon the granting of a Final Order. In addition,
there shall not have been
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entered a preliminary or permanent injunction, temporary restraining order or
other judicial or administrative order or decree in any jurisdiction, the effect
of which prohibits the Closing.
6.2.6 Closing of GTE West Coast Transactions. The transactions
contemplated by the Asset Purchase Agreement between GTE West Coast Incorporated
and Citizens Utilities Company of even date herewith (the "GTE West Coast
Agreement") shall be closed simultaneously with the closing of those
transactions contemplated by this Agreement.
ARTICLE 7
THE CLOSING
7.1 The Closing. Subject to the terms and conditions of this Agreement,
the closing of the purchase and sale of the Purchased Property and the
assumption of the Assumed Liabilities (the "Closing") shall be held at 9 A.M.
local time at the offices of GTE Network Services at 600 Hidden Ridge, Irving,
Texas 75038, on the date agreed upon by the parties, provided such date shall be
(i) the last business day of the month, and (ii) at least five (5) business
days, but not more than ninety (90) days, after the date that all required
Regulatory Approvals, Debtholder Consents and FCC Consents have been obtained,
or at such other time and place as the parties may agree (the "Closing Date").
Such Closing shall be deemed to have occurred as of 11:59 p.m., local time, on
the Closing Date.
7.2 Seller's Obligations at Closing. At the Closing, Seller shall deliver
to Buyer the following documents:
(a) (i) Bill of Sale and Assignment and Assumption Agreement,
(ii) subject to Permitted Encumbrances (except as provided in Section 10.10),
special warranty deeds or their equivalent in respect of the Owned Real Property
and assignments of Real Property Leases to the extent any required consents have
been obtained pursuant to Section 4.3, and (iii) subject to Section 2.5,
assignments of the Assigned Contracts, the Real Property Interests and the
Assigned Permits. For purposes of this Agreement, the term "Bill of Sale and
Assignment and Assumption Agreement" means the form attached hereto as Schedule
7.2(a) executed by Seller;
(b) A legal opinion from William Mundy, general counsel for
GTE Network Services, as counsel for Seller, dated as of the Closing Date and in
the form of Schedule 7.2(b);
(c) Seller's Closing Certificate;
(d) Instruments of assignment or, to the extent set forth in
Section 4.3, subleases for the Leased Real Property;
(e) Mortgage satisfactions, UCC Form 3 Termination Statements
and other instruments necessary to remove, release and terminate all security
interests held by the Bondholders on the Purchased Property;
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(f) All of the documents and papers required of Seller as
conditions to Closing pursuant to Section 6.1, including the Regulatory
Approvals, Debtholder Consents and FCC Consents;
(g) A certificate substantially in the form of Schedule 7.2(g)
certifying that Seller is not a "foreign person" within the meaning of Section
1445(b)(2) of the IRC;
(h) The License Agreement; and
(i) Such other documents and instruments as may be reasonably
necessary to effect the transactions contemplated by this Agreement.
7.3 Buyer's Obligations at Closing. At the Closing, Buyer shall deliver to
Seller the following:
(a) The Closing Date Amount in the manner specified in Section
3.1;
(b) The Bill of Sale, Assignment and Assumption Agreement,
executed by Buyer;
(c) A legal opinion from L. Russell Mitten II, Vice President
and General Counsel of Buyer dated as of the Closing Date and in the form of
Schedule 7.3(c);
(d) Buyer's Closing Certificate;
(e) All other documents and papers required of Buyer as
conditions of Closing pursuant to Section 6.2, including the Regulatory
Approvals; and
(f) Such other documents and instruments as may be reasonably
necessary to effect the transactions contemplated by this Agreement.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
8.1 Representations and Warranties of Seller. Seller represents and
warrants to Buyer as follows:
8.1.1 Authorization and Effect of Agreement. Seller has the
requisite corporate power and authority to execute and deliver this Agreement
and the Ancillary Agreements and to perform its obligations hereunder and
thereunder. The execution and delivery by Seller of this Agreement and the
Ancillary Agreements and the fulfillment of its obligations under this Agreement
and the Ancillary Agreements have been duly authorized by all necessary
corporate action on the part of Seller. This Agreement and the Ancillary
Agreements have been duly executed and delivered by Seller and, assuming the due
execution and delivery of this Agreement and the Ancillary Agreements by Buyer,
constitute valid and binding obligations of Seller enforceable in accordance
with their terms subject to bankruptcy, insolvency, reorganization,
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moratorium and other similar laws affecting the rights of creditors generally
and subject to the exercise of judicial discretion in accordance with principles
of equity.
8.1.2 No Restrictions Against Sale of the Purchased Property. The
execution and delivery of this Agreement and the Ancillary Agreements by Seller
does not, and the fulfillment by Seller of its obligations under this Agreement
and the Ancillary Agreements will not (i) conflict with or violate any provision
of its certificate of incorporation or bylaws, (ii) subject to obtaining the
approvals and or consents referred to in Section 2.5, Article 4 and Schedule
8.1.11(a-f), conflict with, violate or result in the breach of any provision of
any Material Contract, or (iii) result in the creation of any Lien (other than
Permitted Encumbrances) upon any of the Purchased Property under (a) any
Material Contract or (b) any Law applicable to any of the Purchased Property,
except in the case of clauses (ii) or (iii) for any such conflict, violation,
breach or Lien that would not have a Material Adverse Effect.
8.1.3 Consents and Approvals of Governmental Authorities. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Authority is required to be obtained or made by or
with respect to Seller or in connection with the execution and delivery of this
Agreement by Seller or the fulfillment by Seller of its obligations under this
Agreement, except (i) FCC Consents and HSR Act clearance, (ii) the Regulatory
Approvals, and (iii) any consent approval, order or authorization or
registration declaration or filing, which if not obtained or made would not have
a Material Adverse Effect.
8.1.4 No Material Violations. Except as indicated in Schedule 8.1.4
or as would not reasonably be expected to have a Material Adverse Effect, (a)
the execution and delivery of this Agreement and the Ancillary Agreements and
the fulfillment by Seller of its obligations under this Agreement and the
Ancillary Agreements will not violate any applicable Law, and (b) Seller is not
in violation of any Law relating to or affecting the operation, conduct or
ownership of the Business or the Purchased Property.
8.1.5 Corporate Organization. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the state of
California, and is duly qualified to conduct business in California and Arizona.
Seller has full power and authority to own its properties and to carry on the
Business as it is now being conducted and to own, or hold under lease the
Purchased Property. Seller holds valid permits, licenses, franchises, approvals
and authorizations issued or granted by any Governmental Authority and adequate
for the operation of the Business as currently conducted, except to the extent
absence of any such permit, license, franchise, approval or authorization would
not have an Material Adverse Effect.
8.1.6 Brokers. Seller has not paid or become obligated to pay any
fee or commission to any broker, finder, investment banker or other intermediary
in connection with the transactions contemplated by this Agreement in such a
manner as to give rise to a valid claim against Buyer for any broker's or
finder's fees or similar fees or expenses.
8.1.7 Title to Owned Real Property. Seller has good fee simple title
to all of the Owned Real Property, free and clear of any Lien other than
Permitted Encumbrances and Liens of the Bondholders identified on Schedule
8.1.7(b). As of the date hereof, the address and a general description of each
item of Owned Real Property are set forth on Schedule 8.1.7(a).
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Seller represents that the only creditors that have a Lien (other than any
Permitted Encumbrances) on any of the Owned Real Property are the Bondholders
identified on Schedule 8.1.7(b).
8.1.8 Real Property Leases. As of the date hereof, set forth on
Schedule 8.1.8 is a list of the Real Property Leases. Each of the leases for the
Leased Real Property is enforceable in accordance with its terms, subject to
bankruptcy, insolvency and other similar laws affecting the rights of creditors
generally and subject to the exercise of judicial discretion in accordance with
the principles of equity, and except as otherwise disclosed in Schedule 8.1.8,
there is not under any lease any material default or a material breach of
covenant by Seller.
8.1.9 Tangible Assets. All of the tangible Purchased Property is in
substantially good operating condition and repair, normal wear and tear
excepted. Except as set forth on Schedule 8.1.9 or elsewhere in this Agreement,
Seller has good title to each item of tangible Purchased Property (other than
Real Property Interests or office equipment or vehicles subject to leases) with
a fair market value in excess of $5,000, free and clear of any Lien (other than
Permitted Encumbrances). Except as set forth on Schedule 8.1.9, Seller has not
received any written notice within the past twelve (12) months of a violation of
any ordinances, regulations or building, zoning and other similar laws with
respect to such assets that would have a Material Adverse Effect. EXCEPT AS
EXPRESSLY PROVIDED IN THIS SECTION 8.1.9, SELLER MAKES NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, AS TO THE CONDITION OR FITNESS OF THE TANGIBLE
PURCHASED PROPERTY AND HEREBY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR WARRANTY AGAINST INFRINGEMENT.
8.1.10 No Material Adverse Change. Except as disclosed in Schedule
8.1.10, between December 31, 1997 and the date of this Agreement there has not
occurred (i) any event or condition that would have a Material Adverse Effect;
(ii) any increase in compensation payable or to become payable by Seller to any
of its Transferred Employees or agents, other than normal merit or promotional
increases other than payment under the retention pay program announced in
connection with the network business repositioning of Seller and its Affiliates;
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract; or (iv) any material change in any accounting
method, practice or policy of Seller with respect to the Business.
8.1.11 Material Contracts. Except for the agreements set forth on
Schedule 8.1.11 subparts (b) through (j), there is no Assigned Contract (other
than the Assigned Contracts entered into after the date of this Agreement in the
ordinary course of business) that is:
(a) an agreement containing a non-compete agreement or other
covenant that in either case would by its terms limit the freedom of Buyer
following the Closing to compete in any material respect with respect to the
Business with any third party;
(b) an agreement granting a Lien (other than a Permitted
Encumbrance);
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(c) an agreement for the sale of any material Purchased
Property or grant of any preferential rights to purchase any material Purchased
Property;
(d) an agreement for the provision of telephone service at
public pay telephone locations;
(e) an agreement made in the ordinary course of business other
than as set forth above with respect to which the aggregate amount to be
received or paid thereunder with respect to calendar year 1999 is expected to
exceed $100,000 based on the terms of such agreement or on the payments which
have been made under such agreement with respect to calendar year 1998, to the
extent applicable;
(f) an agreement not made in the ordinary course of business
with respect to which the aggregate amount to be received or paid thereunder
with respect to calendar year 1999 is expected to exceed $50,000 based on the
terms of such agreement or on the payments which have been made under such
agreement with respect to calendar year 1998, to the extent applicable;
(g) an agreement with respect to 911 services or E911
services;
(h) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Purchased Exchanges;
(i) an agreement between Seller and a third party for the
third party's co-location of equipment in facilities included in the Purchased
Property pursuant to which Seller is currently providing facilities or a request
to provide facilities is currently pending; or
(j) an agreement with a third party in which the owner of
utility poles has agreed to allow the other party to attach its
telecommunications equipment or facilities to the utility poles (a "Pole
Attachment Agreement").
Except as set forth on Schedule 8.1.11, to the knowledge of Seller,
each Assigned Contract referred to in any of the clauses (a) to (j) above
(collectively the "Material Contracts") is valid, binding and in full force and
effect and is enforceable by Seller or Seller's Affiliate, as applicable, in
accordance with its terms, except for any such failure to be valid, binding, in
full force and effect or enforceable that is not reasonably likely to have a
Material Adverse Effect. Except as set forth on Schedule 8.1.11, to the
knowledge of Seller, Seller and Seller's Affiliates have performed all material
obligations required to be performed by them to date under the Material
Contracts, and they are not (with or without the lapse of time or the giving of
notice, or both) in breach or default thereunder and, to the knowledge of
Seller, no other party to any Material Contract is (with or without the lapse of
time or the giving of notice, or both) in breach or default in any respect
thereunder, in each case except for such noncompliance, breaches and defaults
that, individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect. As of the date hereof, neither Seller nor any Seller's
Affiliate has, except as disclosed on Schedule 8.1.11, received or given any
written notice of the intention of any party to terminate any Material Contract.
Complete and correct copies of all the Material Contracts,
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together with all modifications and amendments thereto to the date of this
Agreement by Closing will, have been made available to Buyer or its
representatives.
8.1.12 Insurance. The Purchased Property of an insurable nature and
of a character usually insured by companies carrying on similar businesses is
insured under insurance policies or self insured in such amounts and against
such losses or casualties as is usual in Seller's industry. On the Closing Date,
the coverage under the insurance policies and programs applicable to the
Purchased Property will be terminated, and Buyer will be responsible for
providing all insurance coverage for the Purchased Property.
8.1.13 Taxes. Except as disclosed on Schedule 8.1.13, (i) all Tax
Returns required to be filed by Seller on or before the Closing Date have or
will have been filed, and all Taxes shown as due and payable on such Tax Returns
have been or will be paid by Seller when required by law; (ii) no deficiencies
or assessments for any Taxes have been asserted in writing or assessed against
Seller that remain unpaid and that individually or in the aggregate are material
to the Business; (iii) Seller has withheld all required federal, state and local
payroll taxes relating to the Business and has remitted or will remit all
amounts required to be remitted to the appropriate taxing authorities; (iv)
there are no tax liens upon any of the Purchased Property except for statutory
liens covering taxes not yet due and payable; (v) Seller is not a "foreign
person" within the meaning of Section 1445(b)(2) of the IRC and shall provide an
appropriate certificate for purposes of Section 1445(b)(2) of the IRC and (vi)
there are no material, current audits or material audits for which written
notice has been received (in either case, specifically with respect to the
Business).
8.1.14 No Material Claims or Suits. Except as disclosed in Schedule
8.1.14 or with respect to Taxes, there are no claims, actions, lawsuits or legal
proceedings pending before any Governmental Authority, or, to the knowledge of
Seller threatened against or affecting the Business or Purchased Property that
in Seller's opinion, if determined adversely to Seller, would reasonably be
expected to have a Material Adverse Effect on the Business or materially
adversely affect ability of Seller to consummate the transactions contemplated
hereby.
8.1.15 Tariffs; FCC Licenses.
(a) The regulatory tariffs applicable to the Business stand in
full force and effect on the date of this Agreement in accordance with all
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor is Seller subject to any restrictions or conditions applicable to
its regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material respect under any such tariff. Except as disclosed on
Schedule 8.1.15(a), there are no applications by Seller or petitions by others
or proceedings pending or threatened before the state regulatory authority
relating to the Business or its operations or the regulatory tariffs, other than
such applications, petitions or proceedings as may be brought in the ordinary
course of business or by end-users. To the knowledge of Seller, there are no
material violations
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by subscribers or others under any such tariff. A true and correct copy of each
tariff applicable to the Business has been delivered or made available to Buyer.
(b) Listed on Schedule 8.1.15(b) are the FCC Licenses and
other material Assigned Permits (the "Material Permits") held by Seller and used
in the operation of the Business. Except as listed on Schedule 8.1.15(b), to
Seller's knowledge, each such FCC License or Material Permit is in full force
and effect on the date of this Agreement in accordance with its terms, and there
is no outstanding notice of cancellation or termination or, to Seller's
knowledge, any threatened cancellation or termination in connection therewith,
nor are any of such FCC Licenses or Material Permits subject to any restrictions
or conditions that limit the operation of the Business (other than restrictions
or conditions generally applicable to licenses or permits of that type). Subject
to the Communications Act of 1934, as amended, and the regulations thereunder,
the FCC Licenses are free from all security interests, liens, claims, or
encumbrances of any nature whatsoever. There are no applications by Seller or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC Licenses that, in Seller's opinion, would reasonably
be expected to have a Material Adverse Effect on the Business, other than such
applications, petitions or proceedings as may be brought in the ordinary course
of business or by end-users.
8.1.16 Employee Matters.
(a) Schedule 8.1.16(a) lists (and identifies the sponsor of)
each "Employee Pension Benefit Plan," as that term is defined in Section 3(2) of
ERISA, each "Employee Welfare Benefit Plan," as that term is defined in Section
3(1) of ERISA (such plans being hereinafter referred to collectively as the
"ERISA Plans"), and each other retirement, pension, profit-sharing, money
purchase, deferred compensation, incentive compensation, bonus, stock option,
stock purchase, severance pay, unemployment benefit, vacation pay, savings,
medical, dental, post-retirement medical, accident, disability, weekly income,
salary continuation, health, life or other insurance, fringe benefit, or other
employee benefit plan, program, agreement, or arrangement maintained or
contributed to by Seller or its Affiliates in respect of or for the benefit of
any Transferred Employee or former employee of Seller, excluding any such plan,
program, agreement, or arrangement maintained or contributed to solely in
respect of or for the benefit of Transferred Employees or former employees
employed or formerly employed by Seller outside of the United States, as of the
date hereof (collectively, together with the ERISA Plans, referred to
hereinafter as the "Plans"). Schedule 8.1.16(a) also includes a list of each
written employment, severance, termination or similar-type agreement between
Seller and its Affiliates and any Transferred Employee (the "Employment
Agreements"). Seller has delivered to Buyer accurate and complete copies of all
Plans and Employment Agreements (or representative samples in the case of form
agreements) and, if applicable, summary plan descriptions with respect to such
Plans and Employment Agreements and summary descriptions of any such Plan or
Employment Agreement that is not otherwise in writing. Except for retention
bonuses paid in connection with the closing of the transactions contemplated by
this Agreement and except as otherwise disclosed on Schedule 8.1.16(a), the
execution and delivery of this Agreement by Seller and the performance of this
Agreement by Seller will not directly result now or at any time in the future in
the payment to any Transferred
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Employee of any severance, termination, or similar-type payments or benefits
being paid to any Transferred Employee.
(b) Except as set forth on Schedule 8.1.16(b):
(i) Neither Seller nor any of its Affiliates, any of the
ERISA Plans, any trust created thereunder, or any trustee or administrator
thereof, has engaged in any transaction as a result of which Seller or any of
its Affiliates could be subject to any material liability pursuant to Section
409 of ERISA or to either a civil penalty assessed pursuant to Section 502(i) of
ERISA or a tax imposed pursuant to Section 4975 of the IRC; and
(ii) Since the effective date of ERISA, no material
liability under Title IV of ERISA has been incurred or is reasonably expected to
be incurred by Seller or any of its Affiliates (other than liability for
premiums due to the PBGC), unless such liability has been, or prior to the
Closing Date will be, satisfied in full.
(c) Except as set forth on Schedule 8.1.16(c), with respect to
the ERISA Plans other than those ERISA Plans identified on Schedule 8.1.16(a) as
"multiemployer plans":
(i) the PBGC has not instituted proceedings to terminate
any Plan that is subject to Title IV of ERISA (the "Retirement Plans");
(ii) none of the ERISA Plans has incurred an
"accumulated funding deficiency" (as defined in Section 302 of ERISA and Section
412 of the IRC), whether or not waived, as of the last day of the most recent
fiscal year of each of the ERISA Plans ended prior to the date of this
Agreement;
(iii) each of the ERISA Plans has been operated and
administered in all material respects in accordance with its provisions and with
all applicable laws;
(iv) each of the ERISA Plans that is intended to be
"qualified" within the meaning of Section 401(a) of the IRC and, to the extent
applicable, Section 401(k) of the IRC, has been determined by the IRS to be so
qualified, and nothing has occurred since the date of the most recent such
determination (other than the effective date of certain amendments to the IRC,
the remedial amendment period for which has not yet expired) that would
adversely affect the qualified status of any of such ERISA Plans;
(v) there are no pending material claims by or on behalf
of any of the ERISA Plans, by any employee or beneficiary covered under any such
ERISA Plan, or otherwise involving any such ERISA Plan (other than routine
claims for benefits and routine expenses);
(vi) each ERISA Plan which is a group health plan has
been operated and administered in compliance with the continuation coverage
provisions of Section 498B of the IRC and Part 6 of Title I of ERISA;
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(vii) all contributions and premiums that would normally
be made or paid with respect to any ERISA Plan or Employment Agreement on behalf
of Transferred Employees as of the Closing Date will have been made by the
Closing Date; and
(viii) as of the Closing Date no Transferred Employee
will be excluded from coverage under any employee welfare benefit plan (as
defined in Section 3(1) of ERISA) maintained or contributed to by Seller.
(d) Except as set forth on Schedule 8.1.16(d), none of the
ERISA Plans is a "multiemployer Plan," as that term is defined in Section 3(37)
of ERISA, and with respect to any such multiemployer plans (as so defined)
listed in Schedule 8.1.16(d), Seller has not made or incurred a "complete
withdrawal" or a "partial withdrawal," as such terms are respectively defined in
Sections 4203 and 4205 of ERISA that would result in the incurrence of a
material liability by Seller. Except as set forth on Schedule 8.1.16(d), neither
Seller nor any Affiliates of Seller has made or incurred a "complete withdrawal"
or a "partial withdrawal" (as such terms are defined in Sections 4203 and 4205,
respectively, of ERISA) that would result in the incurrence of liability by
Seller or its Affiliates, and the performance of this Agreement will not result
in such withdrawal(s) or liability.
(e) Except as set forth on Schedule 8.1.16(e), (i) none of the
Transferred Employees are represented by a labor union or labor organization;
(ii) Seller is not subject to any collective bargaining agreement covering any
Transferred Employee; (iii) there are no current, or to the best knowledge of
Seller, any pending or threatened strikes, slowdowns, picketing, or work
stoppages affecting the Business or with respect to any Transferred Employee
covered by collective bargaining; (iv) there is no pending lockout by Seller of
any employees of the Business, and no such action is contemplated by Seller; (v)
to the best knowledge of Seller, there is no pending or threatened organizing
activity or petition for certification of a collective bargaining representative
involving employees of the Business and there has been none within the twelve
(12) months preceding the date of the Agreement; (vi) to the best knowledge of
Seller, there is no pending or threatened charge, action, complaint, or
proceeding of any nature against Seller relating to the violation of any
applicable state or federal labor or employment law or regulation in connection
with the Business, including any charge or complaint filed by any employee or
labor organization with the National Labor Relations Board, the Equal Employment
Opportunity Commission, or any other administrative governmental agency, nor is
there any other pending or threatened labor or employment dispute against or
affecting Seller in connection with the Business; (viii) with respect to
employees of the Business, Seller has complied in all respects with all laws
relating to employment, equal employment opportunity, nondiscrimination,
collective bargaining, wages, hours of work, employee benefits, occupational
safety and health, immigration, and plant closings; and (ix) Seller shall
provide employees of the Business with any required notices under any federal,
state, or municipal law or regulation concerning the termination of their
employment with Seller. Seller has delivered to Buyer accurate and complete
copies of all collective bargaining agreements affecting any of the Transferred
Employees.
(f) This Agreement shall not result in any Transferred
Employee becoming entitled to separation pay or severance which could be or
become an obligation of Buyer.
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8.1.17 Schedules of Telephone Plant. Schedule 8.1.17 sets forth, as
of December 31, 1998, a materially accurate summary of the book value of the
Telephone Plant as reflected in Seller's continuing property records. Schedule
8.1.17 also sets forth a materially accurate list of the vehicles, trailers and
other mobile tools and mobile equipment that are part of the Purchased Property
as of May 6, 1999.
8.1.18 Schedule of Real Property Interests. To the knowledge of
Seller and as of the date of this Agreement, Schedule 8.1.18 sets forth a true
and accurate list of all its Real Property Interests.
8.1.19 Compliance with Existing Environmental Requirements. Except
as set forth in Schedule 8.1.19 or as would not have a Material Adverse Effect,
to the knowledge of Seller:
(a) Seller's operation of the Business and the Purchased
Property has been and is presently in substantial compliance with Existing
Environmental Requirements;
(b) No environmental remediation is occurring on any parcel of
Owned Real Property or Leased Real Property nor has Seller or any Affiliate
issued a request for proposal or otherwise requested an environmental
remediation contractor to begin plans for such environmental remediation;
(c) No underground storage tanks ("USTs") or aboveground
storage tanks ("ASTs") are located on the Owned Real Property or Leased Real
Property;
(d) None of the Owned Real Property or Leased Real Property is
situated in a state or federal "superfund" site or study area; and
(e) Seller has delivered, or within 60 days after the date of
this Agreement will deliver, to Buyer complete copies of all reports and studies
relating to Seller's liability under or non-compliance with any Existing
Environmental Requirements in connection with Seller's operation of the Business
or use or ownership of the Purchased Property.
8.1.20 Environmental Permits. Except as set forth in Schedule
8.1.20, to the knowledge of Seller, it has obtained or filed for all necessary
environmental permits, authorizations and licenses required to operate the
Business or the Purchased Property, except where failure to obtain or file such
permits, authorizations and licenses would not have a Material Adverse Effect on
the Business.
8.1.21 Financial Statements. Schedules 8.1.21(a), 8.1.21(b) and
8.1.21(c) present the income statements, balance sheets and statements of cash
flows, respectively, for the Business for the years ended December 31, 1997 and
December 31, 1998 (collectively, the "Financial Statements"). The Financial
Statements have been prepared based on the books and records of Seller. Such
books and records have been maintained in accordance with GAAP, and where
required by law, the applicable regulations of the FCC and PUC. However, because
the Business represents only a portion of Seller, the Financial Statements are
based on the extensive use of estimates and allocations. Seller believes these
estimates and allocations have been
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performed on a reasonable basis in accordance with GAAP. However, Buyer
acknowledges that because the Business represents only a portion of Seller,
Buyer is not acquiring significant support elements located outside the
Purchased Exchanges, and the Buyer will operate under new tariffs, carrier
contracts and other conditions that will significantly impact the future
revenues of the Business, the Financial Statements may not be representative of
the financial performance of the Business during future periods.
8.1.22 Year 2000 Compliance.
(a) As of the Closing Date, Seller shall have caused the
modification or remediation of the Automated Assets in accordance with
applicable manufacturer or vendor recommendations such that the Automated Assets
are Year 2000 Compliant; provided that any and all Buyer or third-party supplied
computer software, computer firmware and computer hardware that directly
interfaces with the Automated Assets, co-exists with the Automated Assets, or
indirectly influences the operation of the Automated Assets are also
demonstrated to be Year 2000 Compliant.
(b) Seller shall be deemed to be in satisfaction of the
requirements of subsection (a) of this Section 8.1.22 to the extent that Seller
has (i) performed on or before the Closing Date any modification or remediation
in accordance with applicable manufacturer or vendor recommendations for
achieving Year 2000 compliance or Year 2000 readiness, or (ii) received on or
before the Closing Date reasonable assurances from the applicable manufacturer
or vendor that an Automated Asset, without modification or remediation, is Year
2000 compliant or Year 2000 ready.
(c) When used in this Section 8.1.22, the following term shall
have the respective meanings given below:
"Automated Assets" means the computer software, computer
firmware, computer hardware (whether general or special purpose), documentation,
data, and other similar or related items of the automated, computerized, and/or
software system(s) that are provided by Seller to Buyer as part of the Purchased
Exchanges pursuant to this Agreement.
"Calendar-Related" refers to the date values based on
the Gregorian calendar, as defined in Encyclopedia Britannica, 15th edition,
1982, page 602, and to all uses in any manner of those date values, including
without limitation manipulations, calculations, conversions, comparisons and
presentations.
"Date Data" means any Calendar-Related data in the
inclusive range January 1, 1900 through December 31, 2050, which the Automated
Assets use in any manner.
"System Date" means any Calendar-Related data value in
the inclusive range January 1, 1985 through December 31, 2035 (including the
natural transition between such values) which the Automated Assets shall be able
to use as their current date while operating.
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"Year 2000 Compliant" means:
(i) As of the Closing Date, in connection with
Calendar-Related data and Calendar-Related processing of Date Data or of any
System Date, the Automated Assets will not malfunction, will not cease to
function and will not produce incorrect results; and
(ii) As of the Closing Date, the Automated Assets will
represent dates without ambiguity as to century when providing Calendar-Related
data to and accepting Calendar-Related data from other automated, computerized
and/or software systems and users by way of user interfaces, electronic
interfaces and data storage.
8.1.23 Native American and Federal Consents. Except as set forth on
Schedule 8.1.23 or as would not have a Material Adverse Effect, to the knowledge
of the Seller:
(a) Schedule 8.1.23 sets forth all material easements,
rights-of-way, franchises, licenses, permits, consents, approvals, certificates
and other authorizations of tribal authorities and the United States Bureau of
Indian Affairs (the "BIA") (collectively, the "Native American Authorizations")
held by Seller and relating to any Purchased Property located, or any operations
of the Business conducted, on Native American reservations;
(b) All such Native American Authorizations are in full force
and effect and Seller is not in default thereunder;
(c) There are no material claims, actions, lawsuits or other
proceedings pending or threatened with respect to any of the Purchased Property
located, or any operations of the Business conducted, on Native American
reservations, and no tribal authority has given written notice of any
cancellation, revocation, termination or material amendment or modification of
any Native American Authorization; and
(d) No material consent, approval or waiver from, or filing
with, any tribal authority or the BIA is required to be obtained or made in
connection with the execution and delivery by Seller of this Agreement, or
Seller's fulfillment of its obligations under this Agreement.
8.1.24 Loss of Major Customer. Except as set forth on Schedule
8.1.24, since January 1, 1997, Seller has not suffered the loss of any customer
of the Business for which Seller billed in excess of $50,000 annually during the
years ended December 31, 1997 or 1998.
8.1.25 Records. The continuing property records and other records
related to the Purchased Property maintained by Seller conform in all material
respects with the applicable rules and regulations of the FCC and PUC. Seller
has retained substantially all original cost documentation relating to the
Purchased Property regarding the expenditures made by Seller for the Telephone
Plant within the period required by applicable Law.
8.2 Representations and Warranties of Buyer. Buyer represents and warrants
to Seller as follows:
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8.2.1 Corporate Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the state of Delaware
and is duly qualified to conduct business in California and Arizona and has the
requisite corporate power and authority to own, lease or otherwise hold the
assets owned, leased or held by it.
8.2.2 Authorization and Effect of Agreement. Buyer has the requisite
corporate power and authority to execute and deliver this Agreement and the
Ancillary Agreements, to carry on the Business as presently conducted and to
fulfill all other obligations of Buyer under this Agreement and the Ancillary
Agreements. The execution and delivery by Buyer of this Agreement and the
Ancillary Agreements, and the fulfillment by it of its obligations under this
Agreement and the Ancillary Agreements have been duly authorized by all
necessary corporate action on the part of Buyer. Buyer has the requisite legal
capacity to purchase, own and hold the Purchased Property upon the consummation
of the sale of the Purchased Property. This Agreement and the Ancillary
Agreements have been duly executed and delivered by Buyer and, assuming the due
execution and delivery of this Agreement and the Ancillary Agreements by Seller,
constitute valid and binding obligations of Buyer enforceable in accordance with
their terms subject to bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting the rights of creditors generally and subject to
the exercise of judicial discretion in accordance with principles of equity.
8.2.3 No Restrictions Against Purchase of the Purchased Properties.
The execution and delivery of this Agreement and the Ancillary Agreements by
Buyer do not, and the fulfillment by Buyer of its obligations under this
Agreement and the Ancillary Agreements will not, conflict with, violate or
result in the breach of any provision of the certificate of incorporation or
bylaws of Buyer or, conflict with, violate or result in the breach of any
contract to which Buyer is a party. No material consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority is required to be obtained or made by or with respect to Buyer in
connection with the execution and delivery of this Agreement by Buyer or the
fulfillment by Buyer of its obligations under this Agreement, except the filings
and approvals described in Article 4.
8.2.4 No Violation of Law. The execution and delivery of this
Agreement and the Ancillary Agreements and the fulfillment by Buyer of its
obligations under this Agreement and the Ancillary Agreements will not violate
any Law except to the extent any such violation would not have a material
adverse effect on the ability of Buyer to fulfill its obligations hereunder and
thereunder.
8.2.5 Financial Capacity.
(a) Buyer has sufficient cash or other sources of funds to pay
the Purchase Price in the manner specified in Section 3.1 and all related fees
and expenses.
(b) Buyer has sufficient financial resources to operate the
Business after the Closing Date. Without limiting the generality of the
foregoing, Buyer has sufficient financial resources to satisfy any applicable
requirement relating to financial capacity or capital imposed by any
Governmental Authority in any state in which the Business is conducted. Buyer is
solvent, is able to pay its debts as they become due, and owns property that has
both a fair
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value and a fair saleable value in excess of the amount required to pay its
debts as they become due.
8.2.6 Brokers. Buyer has not paid or become obligated to pay any fee
or commission to any broker, finder, investment banker or other intermediary in
connection with the transactions contemplated by this Agreement in such a manner
as to give rise to a valid claim against Seller for any broker's or finder's
fees or similar fees or expenses.
8.2.7 Consents and Approvals of Governmental Authority. Subject to
Article 4 with respect to Regulatory Approvals and FCC Consents, no consent,
approval or authorization of, or declaration, filing or registration with, any
Governmental Authority or regulatory authority is required in connection with
the execution, delivery and performance of this Agreement by Buyer or the
consummation by Buyer of the transactions contemplated herein, except for
filings with the Federal Trade Commission and Department of Justice pursuant to
the HSR Act, if required.
ARTICLE 9
CONTINUING BUSINESS RELATIONSHIPS
9.1 Transition Services Agreement. The parties agree to cooperate with
each other to ensure that the transition of the ownership of the Purchased
Property proceeds with minimal disruption to the services being provided to
subscribers. The parties agree that it may be necessary for Seller to assist
Buyer in converting Seller's systems and processes with respect to the Purchased
Property to Buyer's systems and processes. Seller and Buyer agree to execute a
separate "Transition Services Agreement" substantially in the form attached
hereto as Schedule 9.1 for the provision of such services.
9.2 Optional Services Agreement. It is understood and agreed that Buyer
may not have for a period of time after Closing Date, certain systems or
processes necessary to provide some basic customer services. Seller will at
Buyer's request and for the fees described in Schedule 9.2 provide any or all of
the services described in a separate "Optional Services Agreement" signed by the
parties substantially in the form attached hereto as Schedule 9.2.
9.3 Directory Publishing.
9.3.1 Assumption of Certain Directory Publishing Agreement Rights
and Obligations. Seller is party to a directories publishing agreement with [GTE
Directories Service Corporation n/k/a GTE Directories Corporation or GTE
Directories Corporation as purchaser of the rights and interests of Associated
Directory Services, Inc. f/k/a Mast Advertising and Publishing, Inc.] herein
"Publisher." This [These] agreement[s] is [are] identified in Schedule 9.3.1
attached hereto ("Publishing Agreement[s]"). Pursuant to this [these]
agreement[s] Publisher has the exclusive right and obligation to sell
advertising, and to publish, print and distribute directories containing
telephone numbers relating to the Purchased Exchanges.
Buyer agrees to execute an agreement effective as of the Closing to
assume and appropriately amend the Publishing Agreement[s] as it[they] relate to
the Purchased Exchanges, including the extension of the Contel Publishing
Agreements expiring prior to the Seller's Master
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Publishing Agreement which expires December 31, 2001, so that such extensions
expire on December 31, 2001. If the directories for any of the Purchased
Exchanges are published by a third party non-Affiliate of Seller, then to the
extent requested by Buyer, Seller agrees to assist Buyer in obtaining such third
party's consents to the continuation of such publishing arrangements; provided
that Seller shall have no obligation to pay compensation or other consideration
in connection with such assistance.
9.3.2 Co-Bound Directories Acknowledgement. Buyer acknowledges that
Publisher may have a pre-existing obligation (which Publisher may choose to
continue) to sell advertising, publish, print and distribute the telephone
numbers of third party local exchange telephone companies in the same directory
as the Purchased Exchanges ("Co-Bound" directory). Co-Bound directory agreements
of which Seller is aware, if any, are identified on Schedule 9.3.2.
9.3.3 Meeting to Discuss Directory Publication. Within ninety (90)
days following the date of this Agreement, Buyer agrees to meet with Seller and
Publisher for the purpose of having an initial discussion about the first
directory publication after the Closing Date. This meeting will be held at
Publisher's address unless otherwise agreed between the parties and Publisher.
All parties shall employ their respective commercially reasonable efforts to
ensure that directory publication is not interrupted following the Closing Date.
9.4 GTE Supply Relationship. Within 90 days of this Agreement, Buyer
agrees to meet with representatives of GTE Supply for purposes of negotiating in
good faith an agreement for GTE Supply to provide ongoing procurement and
materials management functions for the Business on substantially the same terms
as contained in the Buyer's existing agreement with GTE Supply; provided that
Buyer may negotiate in good faith with respect to any volume discounts that may
be available from GTE Supply.
ARTICLE 10
ADDITIONAL COVENANTS OF THE PARTIES
10.1 Intellectual Property.
10.1.1 No License. Buyer and Seller agree and understand that except
as expressly set forth in writing in the License Agreement and Section 10.1.3,
Seller has not granted any rights or licenses, express or implied, of, and
nothing shall constitute or be construed as a license of Seller under any
Intellectual Property now or hereafter owned, obtained or licensable by Seller
or under any Third Party Intellectual Property.
10.1.2 Infringement.
(a) Notwithstanding anything in this Agreement to the
contrary, Seller shall have no obligation to defend, indemnify or hold harmless
Buyer or any of its Affiliates, from any damages, costs or expenses resulting
from any obligation, proceeding or suit based upon any claim that any activity
subsequent to the Closing Date engaged in by Buyer, a customer of Buyer's or
anyone claiming under Buyer, constitutes direct or contributory infringement,
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misuse of, or misappropriation of, or inducement to infringe, any Third Party
Intellectual Property.
(b) Buyer shall defend, indemnify and hold harmless Seller and
its Affiliates from and against any and all Indemnifiable Losses resulting from
any obligation, proceeding or suit based upon any claim alleging or asserting
direct or contributory infringement, or misuse or misappropriation of or
inducement to infringe by Seller or any of its Affiliates of any Third Party
Intellectual Property, to the extent that such claim is based on, or would not
have arisen but for, activity conducted or engaged in subsequent to the Closing
Date by Buyer, a customer of Buyer's, or anyone claiming under Buyer.
10.1.3 Trademark Phaseout.
(a) Buyer acknowledges that Seller or its Affiliates are the
owners of Excluded Marks that qualify as Excluded Property under Section 2.3.
Buyer understands and agrees that the Excluded Marks, or any right to or license
of the Excluded Marks, are not being transferred pursuant to this Agreement.
Buyer acknowledges the exclusive and proprietary rights of Seller and its
Affiliates in the use of the Excluded Marks, and Buyer agrees that it shall not
use the Excluded Marks (or any names, domain names, marks or indicia confusingly
similar to the Excluded Marks) except and to the extent expressly set forth in
this Section 10.1.3 or assert any rights or claims in such Excluded Marks (or in
any names, domain names, marks or when confusingly similar to the Excluded
Marks). After the Closing, all Excluded Marks of Seller and its Affiliates shall
be replaced by Buyer, at Buyer's expense, as soon as possible, but in no event
later than one hundred twenty (120) days after the Closing Date for items with
Excluded Marks affixed to them which Buyer has continued to use in Buyer's
operation of the Business, including buildings, vehicles, heavy equipment, hard
hats, tools, tool boxes, kits (safety and others), signs, public (pay)
telephones, manual covers and notebooks. After the Closing, Buyer will not use,
and will destroy or deliver to Seller, all such items with Excluded Marks
affixed to them that have no valid continuing use in Buyer's operation of the
Business, including items affecting customer or employee relations or items that
do not reflect Buyer's true identity. Specific items to be destroyed or returned
include items with Excluded Marks affixed to them including giveaways; order,
purchase or materials forms; requisitions; invoices; statements; time
sheets/labor reports; bill inserts; stationery; personalized note pads; maps;
organization charts; bulletins/releases; sales/price literature; manuals or
catalogs; report covers/folders; program materials; and materials such as media
contact lists/cards. The one hundred twenty (120) day time period for
replacement of Excluded Marks affixed to telephone directories that were already
published or closed for publication at the Closing Date shall be extended to the
expiration date of such directories.
(b) Buyer recognizes the great value of the goodwill
associated with the Excluded Marks, and acknowledges that the Excluded Marks and
all rights therein and the goodwill pertaining thereto belong exclusively to
Seller and that the Excluded Marks have a secondary meaning in the minds of the
public. Buyer further agrees that any and all permitted use of the Excluded
Marks pursuant to this Agreement shall inure to the sole and exclusive benefit
of Seller.
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(c) Buyer agrees that any permitted use of the Excluded Marks
in the operation of the Business after the Closing shall be provided in
accordance with all applicable federal, state and local laws, and that the same
shall not reflect adversely upon the good name of Seller or its Affiliates, and
that the operation of the Business will be of a high standard and skill.
(d) Buyer acknowledges that its failure to cease use of the
Excluded Marks as provided in this Agreement, or its improper use of the
Excluded Marks, will result in immediate and irreparable harm to Seller and its
Affiliates. Buyer acknowledges and admits that there is no adequate remedy at
law for such failure to terminate use of the Excluded Marks, or for such
improper use of the Excluded Marks. Buyer agrees that in the event of such
failure or improper use, Seller and its Affiliates shall be entitled to
equitable relief by way of temporary restraining order, or preliminary or
permanent injunction, or any other relief available under this Agreement.
(e) Buyer will not contest the ownership or validity of any
rights of Seller or its Affiliates in the Excluded Marks.
10.1.4 Third Party Software. To the extent that the transfer of
Purchased Property by Seller to Buyer under this Agreement results in the
transfer of possession to Buyer of software that at the Closing Date is Third
Party Intellectual Property, which software was located in and rightfully used
by Seller in the geographical area of the Purchased Exchanges prior to the
Closing Date in the normal and ordinary operation of the Business pursuant to
Contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then subject to Section 2.5, effective as of
the Closing and provided that no payments to any Person other than a Switch
Software vendor (which, if any, shall be paid by Seller) are thereby required,
at Closing Seller shall assign to Buyer, and Buyer shall accept all rights and
licenses if any to posses and use such software pursuant to such Third Party
Intellectual Property Contracts. Buyer agrees that the acceptance by Buyer of
such assignment of the Third Party Intellectual Property Contracts includes the
assumption by Buyer of obligations under such Third Party Intellectual Property
Contracts, including all obligations necessary or incidental to the transfer of
such rights and licenses. Buyer understands and agrees that except as provided
above in this Section 10.1.4, or as expressly provided elsewhere in this
Agreement or in another written agreement between Buyer and Seller, no rights or
licenses to use or possess such software or any Third Party Intellectual
Property are transferred to Buyer. Buyer shall properly dispose of, and shall
not use, any software of which Buyer acquires possession in connection with
Purchased Property and (i) which, after the Closing Date, Buyer knows, or
reasonably should know, is not the subject of a Third Party Intellectual
Property Contract that has been rightfully transferred to Buyer or for (ii)
which Buyer does not have a separate license. Seller makes no warranty or
representation that any Third Party Intellectual Property Contract or any right
therein is assignable in whole or in part to Buyer.
10.2 Effect of Due Diligence and Related Matters.
(a) Buyer represents that it is a sophisticated entity that
was advised by knowledgeable counsel and financial advisors and, to the extent
it deemed necessary, other advisors in connection with this Agreement and has
conducted its own independent review and evaluation of the Purchased Property.
Accordingly, Buyer covenants and agrees that (i) except
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for the representations and warranties set forth in this Agreement, Buyer has
not relied and will not rely upon any document or written or oral information
furnished to or discovered by it or its representatives, including any financial
data, (ii) there are no representations or warranties by or on behalf of Seller
or its Affiliates or representatives except for those expressly set forth in
this Agreement, and (iii) to the fullest extent permitted by law, Buyer's rights
and obligations with respect to all of the foregoing matters will be solely as
set forth in this Agreement.
(b) Upon the Closing, Buyer shall be deemed to have waived any
claim with respect to a breach of any representation, warranty, covenant or
obligation of Seller, or any failure of a condition, hereunder of which Buyer
had knowledge; provided that Buyer shall be deemed to have knowledge of the
information made available to Buyer and/or its representatives during its review
of the Purchased Property prior to the date of this Agreement, which information
is contained in the Due Diligence Documents.
(c) After the date of this Agreement and prior to the Closing
Date, Buyer shall promptly notify Seller if Buyer obtains knowledge of any
actual breach of any representation, warranty, covenant or obligation of Seller
or any actual or prospective failure of a condition, hereunder of which Buyer
obtains knowledge. Failure to provide timely notice shall be deemed to
constitute a waiver of any claim with respect to such breach.
10.3 Confidentiality. Whether or not the Closing occurs, the parties
hereto and their respective officers, directors, employees and representatives
will comply with the Confidentiality Agreement, the provisions of which are
expressly incorporated herein in their entirety by this reference.
10.4 Further Assurances. After the Closing, Seller will use its
commercially reasonable efforts to furnish to Buyer such other instruments and
information as Buyer may reasonably request in order to convey to Buyer title to
the Purchased Property, to be delivered from time to time upon Buyer's
reasonable request.
10.5 Prorations. The following liabilities shall be prorated between
Seller and Buyer: (i) utility charges (which shall include water, sewer,
electricity, gas and other utility charges) with respect to the Owned Real
Property, the property subject to the Real Property Leases and customer owned
equipment, (ii) rental charges (which shall include rental charges and other
lease payments under the Real Property Leases), (iii) personal services (these
services are charged for a period which includes the Closing Date; this shall
include contract labor), and (iv) real and personal property taxes, ad valorem
taxes, and franchise fees or taxes (collectively, "Periodic Taxes"). With
respect to measurement periods during which the Closing Date occurs (all such
periods of time being hereinafter called "Proration Periods"), the liabilities
described in clauses (i), (ii) and (iii) of the preceding sentence shall be
apportioned between Seller and Buyer as of the Closing Date, with Buyer bearing
only the expense thereof in the proportion that the number of days remaining in
the applicable Proration Period on and after the Closing Date bears to the total
number of days covered by such Proration Period. Periodic Taxes attributable to
Proration Periods shall be prorated between Buyer and Seller based on the
relative periods the Purchased Property was owned by each respective party
during the fiscal period of the taxing jurisdiction for which such taxes were
imposed by such jurisdiction (as such fiscal period is or may be reflected on
the bill rendered by such taxing jurisdiction). On the Closing Date, Buyer and
Seller
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shall pay or be reimbursed, on this prorated basis, for Periodic Taxes that have
been paid before the Closing Date. On the Closing Date, Buyer and Seller shall
also be reimbursed, on this prorated basis, for Periodic Taxes that are to be
paid on or after the Closing Date. The reimbursement of Periodic Taxes that are
to be paid on or after the Closing Date shall be based on a reasonable estimate
of the amount of such Periodic Taxes to be paid (based on past experience). To
the extent that Buyer or Seller are not reimbursed on the Closing Date for
Periodic Taxes that are paid after the Closing Date, or, in the event the
estimated amount of the preceding sentence proves to have been inaccurate, Buyer
or Seller shall promptly forward an invoice to the other party for its
reimbursable pro rata share, if any. If the other party does not pay the invoice
within thirty (30) calendar days of receipt, the amount of such payment shall
bear interest at the rate of eight percent (8%) per annum. Similarly, all
prepayments made or received by Seller or Buyer with respect to service or
maintenance agreements with third parties or license or other fees payable to or
by third parties and relating to the Business shall be prorated on an
appropriate basis between Seller and Buyer.
10.6 Cost Studies/NECA Matters.
10.6.1 Prior to Closing. Seller agrees that, with respect to all
toll revenues, settlements, pools, separations studies or similar activities,
Seller shall be responsible for (and shall receive the benefit or suffer the
burden of) any adjustments to contributions, or receipt of funds, by Seller
resulting from any such activities that are related to the operation of the
Business or the ownership or operation of the Purchased Property prior to the
Closing Date. Specifically, this paragraph shall apply, but shall not be limited
to, any matters related to the National Exchange Carrier Association ("NECA")
including the Universal Service Fund ("USF"), Long Term Support ("LTS"), and
Telecommunications Relay Services funds.
10.6.2 From and After Closing.
(a) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC Rules
and Regulations as stated in Part 36.601(c) for rural carriers. The USF Funds
due to Buyer shall be determined by multiplying the number of lines sold times a
per-line amount of USF support received by Seller prior to the date of sale of
the Business. The resulting Buyer's annual USF amount shall be prorated in
proportion to the number of months in the year from and after the Closing Date.
Beginning July 1, 1999 or a date thereafter determined by the FCC, non-rural
carriers shall not receive USF pursuant to Part 36, but will receive support in
accordance with guidelines using forward-looking economic cost. Buyer shall make
its own filing in accordance with said FCC Rules and Regulations, Part 36.611
and Part 36.612 for rural carriers and Part 54 for non-rural carriers. Within a
reasonable time after Buyer's written request, Seller shall furnish to Buyer
such necessary information regarding Seller's ownership of the Purchased
Property during the partial calendar year prior to the Closing Date and such
reasonable assistance as required in connection with Buyer's preparation of
necessary filings or submissions.
(b) Notwithstanding the foregoing, Buyer's right to receive a
pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (USAC) based
on end-user retail revenues for the previous year
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generated by assets being sold. The resulting Buyer's annual USF obligation for
assets purchased shall be prorated in proportion to the number of months in the
year from and after the Closing Date.
10.7 Customer Deposits. Within thirty (30) days after Closing, Seller
agrees to transfer to Buyer the customer deposits together with any interest
accrued thereon (collectively "Customer Deposits"), together with all of
Seller's obligations and rights to hold the Customer Deposits of the Business,
up to the Closing Date, and Buyer agrees to hold, disburse and retain such
deposits so delivered to it as if it were Seller.
10.8 Access to Books and Records.
(a) After the Closing, Seller will retain all Retained Books
and Records for a period of three (3) years.
(b) After the Closing, upon reasonable notice and subject to
the Confidentiality Agreement, the parties will give to the representatives,
employees, counsel and accountants of the other, access, during normal business
hours, to books and records relating to the Business and the Purchased Property,
and will permit such persons to examine and copy such records, in each case to
the extent reasonably requested by the other party in connection with tax and
financial reporting matters (including any Tax Returns and related information,
but not attorney work product or similar work product prepared by accountants),
audits, legal proceedings, governmental investigations and other business
purposes (including such financial information and any receipts evidencing
payment of taxes as may be reasonably requested by Seller to substantiate any
claim for tax credits or refunds); provided, however, that nothing herein will
obligate any party to take actions that would unreasonably disrupt the normal
course of its business or violate the terms of any Contract to which it is a
party or to which it or any of its assets is subject. Seller and Buyer will
cooperate with each other in the conduct of any Tax audit or similar proceedings
involving or otherwise relating to the Business (or the income therefrom or
assets thereof) with respect to any Tax and each will execute and deliver such
powers of attorney and other documents as are necessary to carry out the intent
of this Section 10.8(b).
10.9 Purchase Price Allocation. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
IRC. If Buyer and Seller agree to such Allocation prior to Closing, Buyer and
Seller covenant and agree that (i) the values assigned to the assets by the
parties' mutual agreement shall be conclusive and final for all purposes, and
(ii) neither Buyer nor Seller will take any position before any Governmental
Authority or in any judicial proceeding that is in any way inconsistent with
such Allocation. Notwithstanding the foregoing, if Buyer and Seller cannot agree
to an Allocation, Buyer and Seller covenant and agree to file and to cause their
respective Affiliates to file, all Tax Returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the IRC and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable Law.
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10.10 Owned Real Property Transfers. Within sixty (60) days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies in Seller's possession covering the Owned Real Property.
Thereafter, no later than thirty (30) days before the Closing Date, Seller shall
deliver (at Seller's expense) to Buyer title commitments for owners' policies of
title insurance prepared by a title insurance company reasonably acceptable to
Buyer and a certified current survey, with respect to all Owned Real Property
included in the Purchased Property and in which Seller purports to own fee
title. Buyer acknowledges that such title commitments shall be for CLTA owners'
policies of title insurance (or its equivalent) unless Buyer has requested in
writing, prior to the date hereof, that such commitments be issued for other
forms of title insurance (in which event, Buyer shall bear all costs and
premiums for such title insurance to the extent attributable to such coverage
being in excess of CLTA coverage or its equivalent). Such title commitments
shall reflect that upon the consummation of the sale to Buyer contemplated by
this Agreement and the payment of all premiums and charges due for such title
insurance, Buyer will be vested with good, fee simple title to such Owned Real
Property, subject only to the exceptions show thereon, the title company's
standard exceptions and exclusions, and such matters that arise after the date
and time of such title commitment. Except as provided in the following sentence,
in the event that Buyer requires endorsements to such title commitments or the
applicable title insurance policies, such endorsements shall be obtained at
Buyer's sole cost and expense and shall not be a condition to Closing. On the
Closing Date, Seller shall convey the Owned Real Property to be transferred to
Buyer subject only to Permitted Encumbrances, provided that Seller may transfer
such property subject to one or more exceptions that are not Permitted
Encumbrances if Seller commits in writing, in form and substance reasonably
acceptable to Buyer on or before the Closing Date, to cause any such exception
that is not a Permitted Encumbrance to be removed, insured or bonded over to
Buyer's reasonable satisfaction, or if Seller indemnifies Buyer with respect to
such exceptions to Buyer's reasonable satisfaction on or before the Closing
Date. With respect to each parcel of Owned Real Property covered by a title
commitment referenced above, the amount of title insurance provided under the
applicable title insurance policy shall be the fair market value of the
applicable property, which shall be determined by Buyer at its sole cost and
expense using commercially reasonable methods of valuation, provided that all
such valuations shall be consistent with all allocations of the Purchase Price
made hereunder or pursuant to this Agreement, and shall be acceptable to the
title insurance company. The determination of fair market value shall be made in
a timely manner such that the title commitments can be issued in a timely manner
prior to the Closing Date. Seller agrees that prior to Closing it will provide
the title company with such instructions, authorizations, affidavits, and
indemnities as may be reasonably necessary for the title company to issue title
policies to Buyer, dated as of the Closing Date, for all of the Owned Real
Property with so-called non-imputation endorsements. By no later than forty-five
(45) days after the Closing Date, Seller shall deliver to Buyer a final title
insurance policy covering each parcel of the Owned Real Property covered by the
title commitments. Buyer will use its commercially reasonable efforts to work
with the title company between the date hereof and fifty-five (45) days after
Closing Date to resolve any issues with respect to such title commitments.
Seller shall be responsible for the payment of all title insurance premiums
attributable to the CLTA portion of the coverage afforded by each such policy
obtained, and Buyer shall be responsible for the payment of all title insurance
premiums in excess of such amount and for the payment of all endorsement charges
and other fees and costs imposed by the title company.
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10.11 Transaction Taxes. Buyer shall bear and be responsible for paying
any sales, use, transfer, documentary, registration, business and occupation and
other similar taxes (including related penalties (civil or criminal), additions
to tax and interest) imposed by any Governmental Authorities with respect to the
transfer of Purchased Property to Buyer (including the Owned Real Property)
("Transaction Taxes"), regardless of whether the tax authority seeks to collect
the such taxes from Seller or Buyer. Seller shall prepare all tax filings
related to any sales, use, transfer, documentary, registration, business and
occupation and other similar taxes. Seller, fifteen (15) days prior to making
such filings shall provide to the Buyer Seller's work papers for the Buyer's
review and approval. Buyer shall provide to the Seller ten (10) days prior to
the filing date approval of such work papers. Buyer shall also be responsible
for (i) administering the payment of such Transaction Taxes, (ii) defending or
pursuing any proceedings related thereto, and (iii) paying any expenses related
thereto. Seller shall give prompt written notice to Buyer of any proposed
adjustment or assessment of any Transaction Taxes with respect to the
transaction, or of any examination of said transaction in a sales, use, transfer
or similar tax audit. In any proceedings, whether formal or informal, Seller
shall permit Buyer to participate and control the defense of such proceeding,
and shall take all actions and execute all documents required to allow such
participation. Seller shall not negotiate a settlement or compromise of any
Transaction Taxes without the written consent of Buyer, which consent shall not
be unreasonably withheld.
10.12 Bulk Sales Laws. Seller and Buyer waive compliance with applicable
laws under any version of Article 6 of the Uniform Commercial Code adopted by
any state or any similar law relating to the sale of inventory, equipment or
other assets in bulk in connection with the sale of the Purchased Property.
10.13 Prepaid Non-Regulated Maintenance Agreements. Within thirty (30)
days following Closing, Seller shall pay to Buyer an amount equal to the pro
rata portion of all prepaid but unearned revenues from Seller's customers for
all non-regulated maintenance agreements as of the Closing Date.
10.14 Vehicle Registration. Buyer agrees to use its commercially
reasonable efforts to file promptly the appropriate vehicle title applications
and registrations to change the name of the titled owner on each vehicle title
certificate and change the motor vehicle registration (with respect to license
plate information) on each vehicle being transferred to Buyer from Seller
pursuant to this Agreement. Buyer agrees that it shall remove and destroy
Seller's existing license plates from all vehicles received upon the earlier of
receipt of new license plates or sixty (60) days following Closing.
10.15 Carrier Access Billing and Accounts Receivable Transition. Seller
shall render its own final carrier access bills to its interexchange carriers
for minutes, messages and other applicable charges up to the Closing Date.
Seller shall be responsible for collecting and settling any disputes associated
with its final bills to the interexchange carriers.
10.16 End-User Billing and Accounts Receivable Transition. Buyer agrees to
purchase Seller's Earned End-User Accounts Receivable and make payment to Seller
for those accounts in the manner described below:
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(a) Seller shall transfer to Buyer, as soon as reasonably
available after Closing, all open end-user customer account records to Buyer as
of the end of business on the Closing Date. Following the Closing, Buyer shall
be responsible for administering those records including the application of cash
receipts to customer accounts, whether related to services rendered before or
after the Closing. Seller shall promptly forward to Buyer all customer payments
and related remittance documents received by Seller after the Closing for
processing by Buyer.
(b) Within twenty (20) days following the Closing, Seller
shall provide an accounting to Buyer of the Earned End-User Accounts Receivable
Amount and the Customer Advances as well as the most recent twelve (12) month
history of Seller's uncollectible net writeoffs expressed as a percentage of
billings for the Business (the "Uncollectible Factor"). This data and the
resulting calculation of the Earned End-User Accounts Receivable Amount shall be
summarized in an accounts receivable settlement statement (the "Accounts
Receivable Settlement Statement"). Within thirty (30) days following the
Closing, Buyer shall remit to Seller an amount equal to 80% of the Earned
End-User Accounts Receivable Amount less 100% of the Customer Advances. Within
sixty (60) days following the Closing, Buyer shall remit an additional 15% of
the Earned End-User Accounts Receivable Amount and within ninety (90) days will
remit the final 5%.
(c) Not later than ten (10) days prior to the due dates for
the sixty (60) and ninety (90) day payments referred to in Section 10.16(b),
Seller will provide Buyer with an updated Accounts Receivable Settlement
Statement reflecting any adjustments based upon non-sufficient funds checks,
billing adjustments or other facts that relate to pre-closing activity that
became known after the preparation of the original statement.
(d) If at any time during the ninety (90) day period following
the Closing, Buyer or Seller discovers any material discrepancy in the Accounts
Receivable Settlement Statement, both parties agree to use commercially
reasonable efforts to resolve any discrepancy in a timely manner, and also agree
to make payments related to any undisputed amounts as set forth above.
(e) At any time between ninety (90) and two hundred seventy
(270) days following the Closing, Buyer may, at its discretion, prepare an
analysis of actual bad debt write-off experience related to the Earned End-User
Accounts Receivable purchased from Seller. If such analysis reasonably
demonstrates that write-offs have exceeded the estimated amount in the final
Accounts Receivable Settlement Statement (as had been calculated using the
Uncollectible Factor) by more than 10%, Seller will pay to Buyer the full amount
of the difference within thirty (30) days of receipt of Buyer's request for
payment, together with Buyer's write-off analysis, Buyer will provide Seller
sufficient detail in its write-off analysis, and as reasonably necessary, access
to billing and collection records, to allow Seller to validate the accuracy of
Buyer's request. Any disputes regarding the amounts of such request shall be
settled using the procedure described in Section 3.3(d).
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ARTICLE 11
EMPLOYEES AND EMPLOYEE MATTERS
11.1 Employment of Transferred Employees. Subject to the other provisions
of this Section 11.1, all Active Employees of Seller employed in the Business,
and all Active Employees of Seller and its Affiliates whose duties relate
primarily to the Business, on the Closing Date (hereinafter collectively
referred to as "Transferred Employees") shall be employed by (or become the
responsibility of, as applicable) Buyer as of the Closing Date in the same or
comparable positions, and at the same or comparable total compensation
(including base pay and bonus), as were in effect on the Closing Date, except as
otherwise provided in this Agreement. For purposes of the preceding sentence,
the term "Active Employees" shall include all full-time and part-time employees,
employees on military leave, maternity leave, leave under the Family and Medical
Leave Act of 1993, short-term disability, on layoff with recall rights, and
employees on other approved leaves of absence with a legal or contractual right
to reinstatement. For a period of twelve (12) months following the Closing Date,
Buyer shall not actively solicit either directly or indirectly through any
agents, and Buyer shall not permit any of its Affiliates to actively solicit
either directly or indirectly through any agents, any person who retires or
otherwise terminates from any employment at or in association with Seller during
the six-month period beginning three (3) months before the Closing Date, and
Buyer shall neither employ nor permit any of its Affiliates to employ any
individuals who are identified to Buyer by Seller as individuals who terminated
from any employment or association with Seller during such six-month period. On
or before the execution date of this Agreement, Seller shall have delivered to
Buyer a list of the persons who would have been Transferred Employees had the
Closing Date occurred on March 31, 1999, showing the following information for
each such person: (i) the name of each such person; (ii) the name of his or her
current employer; (iii) his or her current base pay, 1998 bonus and projected
1999 bonus; (iv) his or her hire date, any rehire date (if available) and years
of service; (v) his or her then-current position; (vi) whether such employee is
(x) subject to a collective bargaining agreement or represented by a labor
organization, if any, and including the name and date of each such bargaining
agreement or (y) on military leave, maternity leave, leave under the Family and
Medical Leave Act of 1993, short-term disability, on layoff with recall rights
or on other approved leave of absence with a legal or contractual right to
reinstatement; and (vii) for any employee who is not employed exclusively in the
Business, a description of the nature of his or her employment and the
percentage of his or her time actually allocated to the Business in calendar
year 1998. Seller shall update such list at such time or times requested by
Buyer, but not more often than as of the end of each calendar quarter occurring
between the execution date hereof and the Closing Date, commencing with the
quarter ending June 30, 1999, and as of the month ending immediately prior to
the Closing Date, in each case assuming the Closing Date had occurred on such
date, and shall deliver such updated lists to Buyer within ten (10) days after
the end of each such calendar quarter or month-end, as applicable. Any person
who is not on such list as updated as of the end of the month immediately
preceding the Closing Date shall not be a Transferred Employee, and for all
purposes under this Agreement the Transferred Employees shall include only those
persons on such list as updated as of such month-end who continue to be Active
Employees of Seller employed in the Business or Active Employees of Seller and
its Affiliates whose duties relate primarily to the Business, on the Closing
Date.
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11.1.1 Assumption of Collective Bargaining Agreement Obligations. On
and after the Closing Date, Buyer, as successor employer to Seller, shall assume
all of the employer's obligations under, and be bound by the provisions of, each
collective bargaining agreement to the extent of provisions covering Transferred
Employees. Seller shall cooperate with Buyer in Buyer's efforts to contact the
unions representing Transferred Employees.
11.1.2 Assumption of Employment and Other Agreements. On and after
the Closing Date, except as otherwise provided in this Agreement or in Schedule
11.1.2, Buyer, as successor employer to Seller, shall assume all obligations of
each employment agreement or any other agreement by Seller relating to
conditions of employment, employment separation, severance, or employee benefits
in connection with the Transferred Employees, but only to the extent that they
have been disclosed to Buyer on Schedule 8.1.16(a) and copies have been
furnished to Buyer as soon as administratively practicable prior to the
execution of this Agreement. To the extent that Buyer assumes any obligations
under this Article 11, Buyer may reduce or eliminate benefits under any
agreement, plan, policy or program only to the extent required to comply with
applicable law, or to the extent that Seller, its Affiliates, or any successors
or assigns, make amendments or changes to its benefit plans, policies or
programs to eliminate or reduce benefits. Until the fifth anniversary of the
Closing Date, Seller promptly shall deliver to Buyer a copy of each material
amendment or change that Seller makes to its Plans and Employment Agreements to
eliminate or reduce benefits thereunder and shall confirm to Buyer on an annual
basis whether, and the extent to which, it has amended its Plans and Employment
Agreements and provide sufficient detail to enable Buyer to determine whether
Seller has reduced or eliminated benefits thereunder. After the fifth
anniversary of the Closing Date, Buyer may amend such plans, policies, and
programs in any manner it determines, consistent with applicable law and
collective bargaining agreements.
11.1.3 Recognition of Transferred Employee Service. On and after the
Closing Date, and subject to the provisions of any applicable collective
bargaining agreement, and except as otherwise provided in this Article 11, Buyer
shall recognize the service of each Transferred Employee for all
employment-related purposes determined in accordance with the practices and
procedures of Seller in effect on the Closing Date, as if such service had been
rendered to Buyer.
11.1.4 Assumption of Obligation to Pay Bonuses. Transferred
Employees shall not accrue benefits under any employee benefit policies, plans,
arrangements, programs, practices, or agreements of Seller or any of its
Affiliates after the Closing Date. Buyer shall assume the obligation to pay to
Transferred Employees any bonuses that would have been payable to the
Transferred Employees with respect to the calendar year in which the Closing
Date occurs had the Transferred Employees remained employees of Seller or one of
its Affiliates, in accordance with the provisions of the policy, plan,
arrangement, program, practice or agreement under which the bonus would have
been paid.
11.1.5 No Duplicate Benefits. Nothing in this Agreement shall cause
duplicate benefits to be paid or provided to or with respect to a Transferred
Employee under any employee benefit policies, plans, arrangements, programs,
practices, or agreements.
11.1.6 Affiliate Employees. If any employee identified in the list
provided pursuant to Section 11.1 is an employee of an Affiliate of Seller whose
duties relate primarily to
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the Business, he or she shall be considered a Transferred Employee and shall be
treated under this Agreement in a manner that is comparable to the treatment
given to the Transferred Employees who are employed by Seller, except that his
or her service as of the Closing Date shall be determined in accordance with the
practices and procedures of his or her employer, as disclosed to Buyer in
accordance with Section 11.1.2.
11.2 Transferred Employee Benefit Matters.
11.2.1 Defined Benefit Plans.
(a) Seller Pension Plans. As of the date of this Agreement,
Seller participates in the following single-employer defined benefit pension
plans maintained in the United States:
(i) the GTE Service Corporation Plan for Employees'
Pensions (the "Seller Salaried Pension Plan"); and
(ii) the GTE California/GTE Northwest Plans for
Hourly-Paid Employees' Pensions (collectively, the "Seller Hourly Pension
Plan").
The plans identified in this Section 11.2.1(a) shall be referred to
collectively in this Agreement as the "Seller Pension Plans," and each such plan
shall be referred to individually as a "Seller Pension Plan."
(b) Buyer Obligations. Buyer shall take all actions necessary
and appropriate to ensure that, as soon as practicable after the Closing Date,
Buyer maintains or adopts one or more pension plans (hereinafter referred to in
the aggregate as the "Buyer Pension Plans" and individually as the "Buyer
Pension Plan") effective as of the Closing Date and to ensure that each Buyer
Pension Plan satisfies the following requirements as of the Closing Date: (i)
the Buyer Pension Plan is a qualified, single-employer defined benefit plan
under Section 401(a) of the IRC; (ii) any Buyer Pension Plan that was in effect
before the Closing Date shall not have any "accumulated funding deficiency," as
defined in Section 302 of ERISA and Section 412 of the IRC, whether or not
waived, immediately before the Closing Date; (iii) the Buyer Pension Plan is not
the subject of termination proceedings or a notice of termination under Title IV
of ERISA; (iv) the Buyer Pension Plan does not exclude Transferred Employees
from eligibility to participate therein; (v) the Buyer Pension Plan does not
violate the requirements of any applicable collective bargaining agreement; and
(vi) with respect to Transferred Employees who were participants in the Seller
Hourly Pension Plan by virtue of their coverage under a collective bargaining
agreement on the Closing Date, the terms of the Buyer Pension Plan are
substantially identical in all material respects to the terms of the Seller
Hourly Pension Plan. For purposes of this Section 11.2.1, Transferred Employees
who were participants in the Seller Hourly Pension Plan other than by virtue of
their coverage under a collective bargaining agreement on the Closing Date shall
be treated as Transferred Employees who, on the Closing Date, participate in the
Seller Salaried Pension Plan. Within the 30-day period immediately preceding any
transfer of assets and liabilities from a Seller Pension Plan to a Buyer Pension
Plan pursuant to this Section 11.2.1(b), Buyer shall provide Seller with a
written certification, in
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a form acceptable to Seller, that the Buyer Pension Plan satisfies each of the
requirements set forth in this Section 11.2.1(b).
(c) Transfer of Liabilities.
(i) In accordance with the provisions of this Section
11.2.1, Buyer shall cause the Buyer Pension Plans to accept all liabilities for
benefits under the Seller Pension Plans, whether or not vested, that would have
been paid or payable (but for the transfer of assets and liabilities pursuant to
this Section 11.2.1) to or with respect to the Transferred Employees under the
terms of the Seller Pension Plans and that are "Section 411(d)(6) protected
benefits" (as defined by Section 411(d)(6) of the IRC and the regulations
thereunder) that have accrued under the Seller Pension Plan to or with respect
to the Transferred Employees based on accredited service and compensation under
the Seller Pension Plans as of the Closing Date. For a period of not less than
five (5) years after the Closing Date, and unless otherwise required to comply
with applicable law or permitted by Section 11.1.2, Buyer shall not amend the
Buyer Pension Plans, or permit the Buyer Pension Plans to be amended, to
eliminate any benefit, whether or not vested, with respect to which liabilities
are transferred pursuant to the foregoing provisions of this subsection (i), to
the extent any such benefit is a "Section 411(d)(6) protected benefit" (as
defined by Section 411(d)(6) of the IRC and the regulations thereunder). On or
before the Closing Date, Seller or an Affiliate thereof shall take action to
fully vest Transferred Employees in their benefits (if any) under the Seller
Pension Plans.
(ii) (A) For purposes of eligibility and vesting under
the Buyer Pension Plans, each Transferred Employee whose accrued benefit is
transferred from a Seller Pension Plan to a Buyer Pension Plan shall be credited
with service as of the Closing Date as determined under the terms of the Seller
Pension Plan. The benefit under the Buyer Pension Plan for each Transferred
Employee who, on the Closing Date, participates in the Seller Hourly Pension
Plan by virtue of his or her coverage under a collective bargaining agreement,
shall be calculated under terms of the Buyer Pension Plan that are substantially
identical in all material respects to the terms of the Seller Hourly Pension
Plan. The benefit for each Transferred Employee who, on the Closing Date,
participates in the Seller Salaried Pension Plan, shall not be less than the
greater of (x) the sum of the Transferred Employee's "Seller Pension" and "Buyer
Pension," or (y) the Transferred Employee's "Total Service Pension," each as
determined under the rules set forth in subsection (c)(iii) of this Section
11.2.1.
(B) Except as provided in paragraph (E), below,
each Transferred Employee who, as of the Closing Date, participates or formerly
participated in the Seller Salaried Pension Plan and who, under the terms of the
Seller Salaried Pension Plan, has at least 15 years of accredited service and
combined years of age and accredited service of at least 74 as of the Closing
Date shall be eligible, after the Transferred Employee's employment with the
Buyer and its Affiliates is terminated and after the Transferred Employee's
combined years of age and years of accredited service equal or exceed 76, to
receive his or her "Seller Pension" (as determined under the rules set forth in
subsection (c)(iii) of this Section 11.2.1) as an immediate early retirement
pension under the applicable Buyer Pension Plan in accordance with early
retirement provisions that are no less favorable to the Transferred Employee
than the early retirement provisions of the Seller Salaried Pension Plan as of
the Closing Date. For a period of at least five (5) years following the Closing
Date, the Buyer shall cause any agreement, pursuant
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to which the accrued benefit of any Transferred Employee under a Buyer Pension
Plan is transferred to another pension plan, to incorporate a provision in
substance identical to this subsection (ii)( B).
(C) Except as provided in paragraph (E), below,
the benefit under the Buyer Pension Plan of a GATT Grandfathered Participant,
when expressed in the form of a lump sum, shall not be less than the benefit
under the Buyer Pension Plan determined without regard to the changes to Section
417 of the IRC made by the Uruguay Round Agreements Act. The method used to
convert a GATT Grandfathered Participant's accrued benefit into a lump-sum
amount under the Buyer Pension Plan after 1999 shall be not less favorable to a
GATT Grandfathered Participant than the method used for similar purposes by the
Seller Pension Plan. For purposes of this paragraph (c)(ii)(C), "GATT
Grandfathered Participant" shall mean a Transferred Employee (x) with respect to
whom liabilities are transferred pursuant to this subsection (c) and (y) who,
taking service from Buyer into account as service with Seller, would have been
eligible under the Seller Pension Plan, but for the transfer of liabilities
pursuant to this subsection (c), to have his benefit under the Seller Pension
Plan (when expressed in the form of a lump sum) determined without regard to the
changes to Section 417 of the IRC made by the Uruguay Round Agreements Act.
(D) Except as provided in paragraph (E), below,
each Transferred Employee who, as of the Closing Date, participates or formerly
participated in the Seller Hourly Pension Plan shall be eligible, after the
Transferred Employee's employment with Buyer and its Affiliates is terminated,
to receive an early retirement pension under the Buyer Pension Plan in
accordance with early retirement provisions that are no less favorable to the
Transferred Employee than the early retirement provisions of the Seller Hourly
Pension Plan as of the Closing Date.
(E) Notwithstanding paragraphs (B), (C), and (D),
above, if the actuary for the Buyer Pension Plan certifies in writing (with a
copy to Seller) that the Buyer Pension Plan will violate the requirements
imposed by Treasury Regulation section 1.401(a)(4)-4 unless certain benefits
otherwise called for by such paragraphs are not provided by the Buyer Pension
Plan, Buyer shall cause such benefits to be provided under a nonqualified
deferred compensation plan, rather than under the Buyer Pension Plan, at the
same time and in the same form as they otherwise would have been provided under
the Buyer Pension Plan; provided that (1) such benefits shall be provided by the
Buyer Pension Plan to the maximum extent possible without causing the Buyer
Pension Plan to violate Treasury Regulation section 1.401(a)(4)-4; and (2) to
the extent that any benefit payable outside of the Buyer Pension Plan pursuant
to this paragraph (E) is payable to an individual who is not a member of a
"select group of management or highly compensated employees" within the meaning
of Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA, Buyer shall cause a cash
payment or payments to be made to each such individual within 24 months of the
termination of the individual's employment with Buyer, in addition to all other
payments due or otherwise payable to such individual, in an amount that is
reasonably calculated to be actuarially equivalent, on a pre-tax basis, to the
value of such benefit.
(iii) (A) The Buyer Pension Plan benefit of a
Transferred Employee who, on the Closing Date, participates in the Seller Hourly
Pension Plan by virtue of
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his or her coverage under a collective bargaining agreement, shall be calculated
as set forth in paragraph (c)(ii)(A) of this Section 11.2.1.
(B) The Buyer Pension Plan benefit of a
Transferred Employee who, on the Closing Date, participates in the Seller
Salaried Pension Plan, shall be calculated by applying the benefit formula set
forth in paragraph (c)(ii)(A) of this Section 11.2.1, in accordance with the
rules described in the remainder of this paragraph (B). A Transferred Employee's
"Seller Pension" shall be calculated by applying the benefit formula under the
Seller Salaried Pension Plan (as in effect on the Closing Date) to the
Transferred Employee's service and compensation credited under the Seller
Salaried Pension Plan as of the Closing Date. A Transferred Employee's "Buyer
Pension" shall be not less than an amount calculated by applying the benefit
formula under the Buyer Pension Plan to the Transferred Employee's total
accredited service and compensation under the Buyer Pension Plan (including
service and compensation credited under the Seller Salaried Pension Plan as of
the Closing Date as if such service and compensation had been earned under the
Buyer Pension Plan and service and compensation credited under the Buyer Pension
Plan after the Closing Date), multiplied by the ratio of accredited service
earned after the Closing Date to such total accredited service; provided that
for a period of at least five (5) years following the Closing Date, Buyer shall
cause the benefit formula used in determining such "Buyer Pension" to provide
"section 411(d)(6)" benefits at least as valuable as were provided under the
benefit formula applicable to the Transferred Employee under the Seller Salaried
Pension Plan on the Closing Date. A Transferred Employee's "Total Service
Pension" shall be calculated by applying the benefit formula under the Buyer
Pension Plan (before its amendment to reflect the five (5) year inclusion of
Seller's formula) to the Transferred Employee's accredited service (including
service and compensation credited with the Seller under the Seller Salaried
Pension Plan as of the Closing Date as if such service and compensation was
earned under the Buyer Pension Plan and service and compensation credited under
the Buyer Pension Plan on and after the Closing Date). For purposes of computing
a Transferred Employee's "Total Service Pension," compensation received by such
a Transferred Employee from the Seller shall be treated as compensation received
from the Buyer. The Seller Pension, the Buyer Pension, and the Total Service
Pension shall take into account the Transferred Employee's actual age and entire
period of service (including service credited under the Seller Salaried Pension
Plan as of the Closing Date and service credited under the Buyer Pension Plan on
and after the Closing Date) for vesting and benefit eligibility purposes.
(C) Each Transferred Employee who is eligible to
receive a benefit under the Buyer Pension Plan may elect to receive the portion
of said benefit that is equal to the Seller Pension in any form, and with any
early retirement or other actuarial subsidy, that was available under the Seller
Pension Plan on the Closing Date, without regard to whether the Transferred
Employee is eligible to elect or receive, or does elect or receive, the same
form of payment or early retirement or actuarial subsidy for the remainder of
the pension under the Buyer Pension Plan.
(iv) Within sixty (60) days after the Closing Date,
Seller shall deliver to Buyer a list reflecting each Transferred Employee's
service and compensation under
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each of the Seller Pension Plans and each Transferred Employee's accrued benefit
thereunder as of the Closing Date.
(d) Transfer of Assets.
(i) In accordance with the provisions of subsection
(d)(i) of this Section 11.2.1 and subject to the provisions of subsection
(d)(vi) of this Section 11.2.1, Seller shall direct the trustee of the Seller
Pension Plans to transfer to the trustee or funding agent of the Buyer Pension
Plan the amount required to be transferred by Section 414(l) of the IRC and the
regulations thereunder for all Transferred Employees whose accrued benefits are
transferred to a Buyer Pension Plan pursuant to Section (c) of this Section
11.2.1, determined using the following assumptions (the "Pension Assets"):
Interest Rate: Rate used to value annuities under PBGC Regulation
ss. 4044.52(a)(1) for the month in which the Closing Date occurs
Annual Rate of Increase in Salaries: 0%
Annual Rate of Increase in Social Security Taxable Wage Base: 0%
Annual Rate of Increase in Consumer Price Index: 0%
Annual Rate of Increase in Limits on Benefits and Compensation: 0%
Mortality: Rates specified under PBGC Regulation ss. 4044.53(c)
Termination: None
Disability: None
Retirement: Expected retirement age as specified under PBGC
Regulation ss. 4044.55
Lump Sums: None
All other demographic assumptions to match those used by Seller in
the preparation of financial statement disclosures under Statement
of Financial Accounting Standards No. 87 for the 1998 fiscal year.
In no event shall the amount of Pension Assets transferred be less
than the Projected Benefit Obligation associated with all the
liabilities being assumed in the aggregate in Section 11.2.1(c)
using the assumptions specified by Seller in the preparation of its
financial statement disclosures under Statement of Financial
Accounting Standards No. 87 for the 1998 fiscal year.
The Pension Assets shall be transferred in cash. Except in the case of an
arithmetical error in the calculation of the amount of Pension Assets to be
transferred, under no circumstances shall Seller or the Seller Pension Plans be
liable to transfer any additional amount to Buyer or a Buyer
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Pension Plan or any other person in respect of the accrued benefits transferred
to a Buyer Pension Plan pursuant to Section (c) of this Section 11.2.1,
including but not limited to any circumstance under which any person (including
a governmental agency) states a claim to some portion or all of the Pension
Assets.
(ii) Seller shall appoint an actuary ("Seller's
Actuary") to determine the amount to be transferred pursuant to subsection
(d)(i) of this Section 11.2.1 and shall provide such determination to Buyer,
together with a computer file containing all of the data used by Seller's
actuary to calculate Pension Assets, within ninety (90) days after the Closing
Date. Buyer shall appoint an actuary ("Buyer's Actuary") who shall have the
right to audit and review the determination made by Seller's Actuary. If Buyer's
Actuary is unable to agree with Seller's Actuary on the amount of the transfer
within ninety (90) days after Seller informs Buyer of the amount to be
transferred and provides Buyer with the computer file containing all of the data
used by Seller's actuary to calculate Pension Assets, Seller and Buyer shall
jointly select a third actuary, whose determination shall be binding on Seller
and Buyer. Each of Seller and Buyer shall bear the fees, costs and expenses of
their respective actuaries, and the fees, costs, and expenses of the third
actuary shall be borne one-half by Seller and one-half by Buyer.
(iii) Interest on the Pension Assets shall accrue from
the Closing Date to the actual date of transfer at the assumed discount rate
used in accordance with paragraph (i) of this Section (d); provided that any
Pension Assets that are distributed from the Seller Pension Plans before the
date of transfer pursuant to subsection (d)(vi) of this Section 11.2.1 shall be
credited with interest (such interest to be credited to the Buyer Pension Plans)
only from the Closing Date to the date of distribution.
(iv) Under the terms of each Buyer Pension Plan, the
accrued benefit of each Transferred Employee immediately after the transfer of
assets and liabilities pursuant to this Section 11.2.1 shall not be less than
the sum of each Transferred Employee's accrued benefits under the Seller Pension
Plan and the Buyer Pension Plan immediately before the transfer of assets and
liabilities. Neither Seller nor its Affiliates nor the Seller Pension Plans nor
any trustee thereof shall retain any liability for benefits under the Seller
Pension Plans for any Transferred Employee with respect to whom cash has been
transferred to a Buyer Pension Plan pursuant to this Section 11.2.1 or
distributed pursuant to subsection (d)(vi) of this Section 11.2.1.
(v) In connection with the transfer of assets and
liabilities pursuant to this Section 11.2.1, Seller and Buyer shall cooperate
with each other in making all appropriate filings required by the IRC or ERISA
and the regulations thereunder, and the transfer of assets and liabilities
pursuant to this Section 11.2.1 shall not take place until as soon as
practicable after the latest of (i) the expiration of the 30-day period
following the filing of any required notices with the IRS pursuant to Section
6058(b) of the IRC, or (ii) the date Buyer has delivered to Seller (xx) a copy
of the Buyer Pension Plan and a copy of the most recent determination letter
from the IRS to the effect that the Buyer Pension Plan is qualified under
Section 401(a) of the IRC, together with documentation reasonably satisfactory
to Seller of the due adoption of any amendments to the Buyer Pension Plan
required by the IRS as a condition to
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such qualification and a certification from Buyer that no events have occurred
that adversely affect the continued validity of such determination letter (apart
from the enactment of any Federal law for which the remedial amendment period
under Section 401(b) of the IRC has not yet expired), and (yy) information
enabling the enrolled actuary for the Buyer Pension Plan to issue the
certification required by Section 6058(b) of the IRC.
(vi) (A) If, after the Closing Date and before the date
of transfer of assets and liabilities from the Seller Pension Plans pursuant to
this Section 11.2.1, the accrued benefit as of the Closing Date becomes payable
under a Seller Pension Plan to or with respect to a Transferred Employee, Buyer
shall (xx) furnish GTE Service Corporation with a copy of a properly completed
application for such benefits, and (yy) direct GTE Service Corporation to
instruct the trustee of the Seller Pension Plan to make benefit payments in the
form and amount determined by GTE Service Corporation in accordance with the
properly completed application for benefits. Seller shall cause GTE Service
Corporation to comply with any such direction.
(B) Notwithstanding anything herein to the
contrary, the assets and liabilities to be transferred from the trustee of the
Seller Pension Plans to the trustee or funding agent of the Buyer Pension Plan
pursuant to this Section 11.2.1 shall be reduced, as provided in this subsection
(vi), to reflect any benefit payments made pursuant to this subsection (vi)
regardless of the form in which paid and any expenses described in paragraph (B)
of this subsection (vi) that have not otherwise been paid pursuant to this
subsection (vi).
11.2.2 Savings Plans.
(a) As of the date of this Agreement, Seller participates in
the GTE Savings Plan and the GTE Hourly Savings Plan (collectively referred to
as the "Seller Savings Plans"). Except as provided in Section (g) of this
Section 11.2.2, Transferred Employees shall not be entitled to make
contributions to or to benefit from matching or other contributions under the
Seller Savings Plans on and after the Closing Date.
(b) Buyer shall take all action necessary and appropriate to
ensure that, as soon as practicable after the Closing Date, Buyer maintains or
adopts one or more savings plans (hereinafter referred to in the aggregate as
the "Buyer Savings Plans" and individually as the "Buyer Savings Plan")
effective as of the Closing Date and to ensure that each Buyer Savings Plan
satisfies the following requirements as of the Closing Date: (i) the Buyer
Savings Plan is a qualified, single-employer individual account plan under
Section 401(a) of the IRC; (ii) the Buyer Savings Plan does not exclude
Transferred Employees from eligibility to participate therein; (iii) the Buyer
Savings Plan permits Transferred Employees to make before-tax contributions
(under Section 401(k) of the IRC) and provides for matching contributions by the
Buyer; and (iv) the Buyer Savings Plan does not violate the requirements of any
applicable collective bargaining agreement. Within the thirty (30) day period
immediately preceding any transfer of assets and liabilities from a Seller
Savings Plan to a Buyer Savings Plan pursuant to this Section 11.2.2, Buyer
shall provide Seller with a written certification, in a form acceptable to
Seller, that the Buyer Savings Plan satisfies each of the requirements set forth
in this Section (b).
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(c) (i) Seller shall fully vest the Transferred Employees in
their account balances under the Seller Savings Plan as of the Closing Date and
shall direct the trustee of the Seller Savings Plans to transfer to the trustee
or funding agent of the Buyer Savings Plans an amount in cash equal in value to
the account balances of the Transferred Employees covered by the Seller Savings
Plans as of the date of the transfer; provided that to the extent the account
balances to be transferred consist in whole or in part of outstanding loans,
Seller shall direct the trustee of the Seller Savings Plans to transfer to the
trustee or funding agent of the Buyer Savings Plans, in lieu of cash, the
promissory notes and related documents evidencing such loans. Buyer and Seller
shall take such actions as may be required to effect the assignment of such
loans by the trustee of the Seller Savings Plan to the trustee or funding agent
of the Buyer Savings Plan, and Buyer shall cause the trustee or funding agent of
the Buyer Savings Plan to accept the assignment of such loans.
(ii) After the date of the transfer of assets and
liabilities pursuant to this Section 11.2.2, Buyer shall assume all liabilities
for the benefits payable to or with respect to such Transferred Employees under
the Seller Savings Plans, and Seller and the Seller Savings Plans and their
implementing trust shall retain no liability for such benefits.
(d) For purposes of eligibility and vesting under the Buyer
Savings Plans, each Transferred Employee shall be credited with service as of
the Closing Date as determined under the terms of the Seller Savings Plans. As
soon as practicable after the Closing Date, Seller shall cause GTE Service
Corporation to deliver to Buyer a list of the Transferred Employees covered by
the Seller Savings Plans, together with each Transferred Employee's service
under each of the Seller Savings Plans as of the Closing Date.
(e) In connection with the transfer of assets and liabilities
pursuant to this Section 11.2.2, Seller and Buyer shall cooperate with each
other in making all appropriate filings required by the IRC or ERISA and the
regulations thereunder, and the transfer of assets and liabilities pursuant to
this Section 11.2.2 shall not take place until as soon as practicable after the
latest of (i) the expiration of the thirty (30) day period following the filing
of any required notices with the IRS pursuant to Section 6058(b) of the IRC, and
(ii) the date Buyer has delivered to Seller (xx) a copy of the Buyer Savings
Plan and a copy of the most recent determination letter from the IRS to the
effect that the Buyer Savings Plan is qualified under Sections 401(a) and 401(k)
of the IRC, together with documentation reasonably satisfactory to Seller of the
due adoption of any amendments to the Buyer Savings Plan required by the IRS as
a condition to such qualification and a certification from Buyer that no events
have occurred that adversely affect the continued validity of such determination
letter (apart from the enactment of any Federal law for which the remedial
amendment period under Section 401(b) of the IRC has not yet expired).
(f) As of the Closing Date, Seller shall cause GTE Service
Corporation to deliver to Buyer a list of the Transferred Employees who have
outstanding loans under the Seller Savings Plans, together with copies of said
Transferred Employees' notes, disclosure statements, and security agreements
under the Seller Savings Plans. Seller shall also notify Buyer within thirty
(30) days after the Closing Date of any Transferred Employee who initiated a
loan within thirty (30) days before the Closing Date. Subject to obtaining the
consent of the applicable Transferred Employee if required by law, from the
Closing Date until the earliest of (i) the actual
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date of transfer of assets and liabilities pursuant to this Section 11.2.2; (ii)
the full amortization of the Transferred Employee's indebtedness; (iii) the
distribution of the entire balance of the Transferred Employee's accounts; or
(iv) the last date on which Buyer or one of its Affiliates pays remuneration to
the Transferred Employee, Buyer or its Affiliate shall (x) continue the payroll
deductions pursuant to which each such Transferred Employee is discharging
indebtedness to a Seller Savings Plan and (y) remit the deducted funds to
Fidelity Management Trust Company, the trustee of the Seller Savings Plans, as
soon as practicable, but in no event more than thirty (30) days, after the date
of deduction, together with an accounting that identifies the Transferred
Employees with respect to whom the funds were deducted and the amount deducted
for each Transferred Employee. All such remitted funds shall be transferred to
the appropriate Seller Savings Plan and applied to reduce the appropriate
Transferred Employee's outstanding indebtedness. Buyer's obligations under this
Section (f) are limited to payroll deductions of loan repayments by the
Transferred Employees and remittance of those funds, and nothing herein shall be
construed to obligate Buyer to repay to Seller any portion of the outstanding
indebtedness of the Transferred Employees that are not otherwise discharged by
the Transferred Employees themselves.
(g) Seller shall make all required matching contributions with
respect to the Transferred Employees' contributions made to the Seller Savings
Plan by the Transferred Employees in respect of the period ending on or before
the Closing Date in the year containing the Closing Date that would have been
eligible for matching contributions without regard to any continued service
(e.g., last day of the year employment or 1000 hours) requirements. Such
matching contributions shall be made not later than the date on which all other
matching contributions are made to the Seller Savings Plans with respect to
contributions made at the same time as the Transferred Employees' contributions.
For not less than five (5) calendar years following the Closing Date (including
the year in which the Closing occurs), Buyer shall, subject to applicable plan
qualification requirements, provide salaried Transferred Employees with a
matching contribution in the Buyer's Savings Plan equal to $.75 for each $1
contributed by Transferred Employees up to six percent (6%) of compensation (as
defined in Buyer's Savings Plan).
11.2.3 Welfare Plans.
(a) Buyer shall take all action necessary and appropriate to
ensure that, as soon as practicable after the Closing Date, Buyer maintains or
adopts, as of the Closing Date, one or more employee welfare benefit plans,
including medical, health, dental, flexible spending account, accident, life,
short-term disability, and long-term disability and other employee welfare
benefit plans providing preretirement welfare benefits for the benefit of (i)
the non-bargained Transferred Employees (the "Non-union Welfare Plans") and (ii)
the union-represented Transferred Employees in accordance with the provisions of
applicable collective bargaining agreements (the "Bargained Welfare Plans"). The
Non-union Welfare Plans and the Bargained Welfare Plans are hereinafter referred
to collectively as the "Buyer Welfare Plans." The Buyer Welfare Plans shall
provide as of the Closing Date pre-retirement benefits to Transferred Employees
(and their dependents and beneficiaries) that, in the aggregate, are comparable
to the pre-retirement benefits to which they were entitled under the
corresponding employee welfare benefit plans maintained by Seller on the Closing
Date. For purposes of determining eligibility
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to participate in each Buyer Welfare Plan, each Transferred Employee shall be
credited with service, determined under the terms of the corresponding welfare
plans maintained by Seller on the Closing Date (hereinafter referred to
collectively as the "Seller Welfare Plans"). Any restrictions on coverage for
pre-existing conditions or requirements for evidence of insurability under the
Buyer Welfare Plans shall be waived for Transferred Employees, and Transferred
Employees shall receive credit under the Buyer Welfare Plans for co-payments and
payments under a deductible limit made by them and for out-of-pocket maximums
applicable to them during the plan year of the Seller Welfare Plan in accordance
with the corresponding Seller Welfare Plans. As soon as practicable after the
Closing Date, Seller shall deliver to Buyer a list of the Transferred Employees
who had credited service under a Seller Welfare Plan, together with each such
Transferred Employee's service, co-payment amounts, and deductible and
out-of-pocket limits under such plan.
(b) (i) Except as otherwise provided in subsection (b)(ii) or
(b)(iii) of this Section (b) or in an applicable collective bargaining
agreement, Buyer shall provide or cause to be provided retiree medical, health,
and life benefits to each Transferred Employee (or the dependents or
beneficiaries of such Transferred Employee, as the case may be) under the same
terms and conditions as apply to comparable employees of Buyer, and Seller shall
have no obligation to provide retiree medical, health, and life benefits in
respect of any Transferred Employee on or after the Closing Date.
(ii) Subject to Section 11.4, below, following the
retirement from Buyer and its Affiliates or any successor thereof of a
Transferred Employee who is not subject to a collective bargaining agreement as
of the Closing Date, who has combined age and years of accredited service
(within the meaning of the Seller Pension Plan) as of the Closing Date equal to
at least 66, and who as of his or her retirement has combined age and years of
accredited service (within the meaning of the Seller Pension Plan) equal to at
least 76 and at least 15 years of accredited service (within the meaning of the
Seller Pension Plan) (a "Retired Nonunion Transferred Employee"), Seller shall
provide or cause to be provided to each such Retired Nonunion Transferred
Employee (and/or his or her dependents and beneficiaries) retiree medical,
health, and life benefits under terms and conditions that are substantially
identical to the terms and conditions under the corresponding programs offered
by Seller to its similarly situated noncollectively bargained employees retiring
as of the Closing Date; provided that nothing in this subsection (b)(ii) shall
be construed to prevent any Retired Nonunion Transferred Employee (or his or her
dependents or beneficiaries) from voluntarily relinquishing such benefits. For a
period of five (5) years following the retirement of each Retired Nonunion
Transferred Employee from Buyer and its Affiliates or any successor thereof,
Buyer shall reimburse Seller, in accordance with this subsection (b)(ii), for
the cost of the retiree medical, health, and life coverage for which Seller is
responsible and that Seller actually provides pursuant to this subsection
(b)(ii). The five (5) year time period for this reimbursement obligation shall
be determined separately in respect of each Retired Nonunion Transferred
Employee. For each year for which Buyer is required to reimburse Seller under
this subsection (b)(ii), Buyer shall pay Seller annually in arrears, within 30
days after Seller provides a statement therefor to Buyer, (A) $4,000 with
respect to each Retired Nonunion Transferred Employee who has not yet attained
age 65 during the year for which the payment is made and $4,000 with respect to
each spouse who is covered with respect to a Retired Nonunion Transferred
Employee and who has not yet
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attained age 65 during the year for which the payment is made, and (B) $1,800
with respect to each Retired Nonunion Transferred Employee who has attained at
least age 65 during the year for which the payment is made and $1,800 with
respect to each spouse who is covered with respect to a Retired Nonunion
Transferred Employee and who has attained at least age 65 during the year for
which the payment is made. No reimbursement shall be due with respect to any
dependent, other than a spouse, covered with respect to a Retired Nonunion
Transferred Employee. The reimbursement obligation for partial years shall be
prorated based on the portion of the year covered by the obligation. Each
Retired Nonunion Transferred Employee (or his or her dependent or beneficiary,
as the case may be) who is provided benefits by Seller under this subsection
(b)(ii) shall be required to pay to Seller any premium, contribution or other
payment required under, and shall be subject to any copayment or deductible
required under, the terms of Seller's applicable retiree medical, health, or
life benefit plan; to the extent that any amount constituting such a payment is
deducted from any plan, program, or arrangement maintained by Buyer or one of
its Affiliates or is otherwise paid to Buyer or one of its Affiliates by such
person, Buyer shall cause such amount to be paid to Seller as soon as
administratively practicable.
(iii) In addition to any other benefits to be provided
pursuant to this Article XI, following the retirement from Buyer and its
Affiliates or any successor thereof of a Transferred Employee who is subject to
a collective bargaining agreement as of the Closing Date and who as of his or
her retirement has combined age and years of accredited service (within the
meaning of the Seller Pension Plan) equal to at least 76 and at least 15 years
of accredited service (within the meaning of the Seller Pension Plan) (a
"Retired Union Transferred Employee"), Buyer shall provide or cause to be
provided to each such Retired Union Transferred Employee (and/or his or her
dependents and beneficiaries) retiree medical, health, and life benefits, for a
period of at least five (5) years following the Closing Date, under terms and
conditions that are substantially identical to the terms and conditions under
the corresponding programs offered by Seller to its similarly situated
collectively bargained employees retiring as of the Closing Date. As of the date
of this Agreement, Seller maintains one or more voluntary employees' beneficiary
associations (within the meaning of Section 501(c)(9) of the IRC) to fund
retiree medical, health, and life benefits with respect to the Transferred
Employees who are subject to a collective bargaining agreement as of the Closing
Date (the "Seller VEBA"). Within 90 days following the Closing Date, Seller
shall direct the trustee of the Seller VEBA to transfer an amount in cash from
the Seller VEBA to the trustee of one or more voluntary employees' beneficiary
associations (within the meaning of Section 501(c)(9) of the IRC) that Buyer
maintains or shall cause to be maintained to fund retiree medical, health, and
life benefits with respect to the Transferred Employees who are subject to a
collective bargaining agreement as of the Closing Date. The amount to be
transferred pursuant to the preceding sentence shall be equal, based on the
actuarial assumptions set forth in Schedule 11.2.3(b)(iii) (which shall be the
actuarial assumptions used by Seller in developing the level of expense under
Statement of Financial Accounting Standards No. 106 for the 1999 fiscal year),
to the aggregate Accumulated Postretirement Benefit Obligation (as defined in
Statement of Financial Accounting Standards No. 106) as of the Closing Date
attributable to retiree medical, health, and life benefits for Transferred
Employees who are subject to a collective bargaining agreement as of the Closing
Date.
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(iv) Benefits provided pursuant to subsections (b)(ii)
and (b)(iii) of this Section (b) (including for this purpose, the determination
of who is eligible for such benefits) shall take into account service with Buyer
or any of its Affiliates on and after the Closing Date in the same manner as if
such post-Closing Date service was performed with Seller. Buyer shall provide
Seller with such information as shall be reasonably required to implement the
immediately preceding sentence with respect to subsection (b)(ii) of this
Section (b).
(c) Buyer shall refer to GTE Service Corporation and GTE
Service Corporation shall assume responsibility for any valid claim under a
Seller Welfare Plan for disability, medical, or dental benefits made by a
Transferred Employee on or after the Closing Date arising from a disability or
loss incurred on or before the Closing Date. Nothing in this Section 11.2.3
shall require Seller, any Affiliate of Seller, or the Seller Welfare Plans to
make any payment or to provide any benefit not otherwise provided by the terms
of the Seller Welfare Plans.
(d) Seller, Buyer, their respective Affiliates, and the Seller
Welfare Plans and the Buyer Welfare Plans shall assist and cooperate with each
other in the disposition of claims made under the Seller Welfare Plans pursuant
to subsection (c) of this Section 11.2.3, and in providing each other with any
records, documents, or other information within its control or to which it has
access that is reasonably requested by any other as necessary or appropriate to
the disposition, settlement, or defense of such claims.
(e) Except as otherwise provided in Section 11.2.3(b)(iii) or
in Section 11.2.3(f), nothing in this Agreement shall require Seller or its
Affiliates to transfer assets or reserves with respect to the Seller Welfare
Plans to Buyer or the Buyer Welfare Plans.
(f) Seller will make available to Buyer, prior to the Closing
Date, a list of those Transferred Employees that have participated in the health
or dependent care reimbursement accounts of Seller under the GTE Flexible
Reimbursement Plan (the "FRP"), together with the elections made prior to the
Closing Date with respect to such accounts through the Closing Date, any
balances standing to the credit of Transferred Employees, and the corresponding
amounts being transferred to the corresponding Buyer's plan in accordance with
the following sentence. As of the Closing Date, Seller shall cause the portion
of the FRP applicable to Transferred Employees to be segregated into a separate
component and all account balances of the Transferred Employees in the FRP shall
be transferred to a flexible reimbursement plan that Buyer shall cause to be
maintained for the duration of the calendar year in which the Closing Date
occurs.
(g) On and for a period of at least three (3) years after the
Closing Date, Transferred Employees not subject to a collective bargaining
agreement shall be eligible for benefits under a Buyer severance or separation
pay policy or plans that are the same as or comparable to the severance or
separation pay policy benefits that are provided by Seller (or the applicable
Affiliate, if the Transferred Employee is employed by an employer other than the
Seller) or a Seller Pension Plan as of the Closing Date. Buyer shall recognize
the service of each such Transferred Employee with Seller and its Affiliates for
eligibility, vesting, and benefit determinations under the Buyer severance or
separation pay policy or plan. Transferred Employees subject to a collective
bargaining agreement shall be eligible for severance or
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separation pay benefits in accordance with the terms of the applicable
collective bargaining agreement.
11.3 Miscellaneous Benefits.
11.3.1 Vacation.
(a) On or after the Closing Date, Buyer shall allow
Transferred Employees to receive paid time off in the calendar year of the
Closing for any unused vacation time accrued prior to the Closing Date. Seller
and its Affiliates shall have no liability to Transferred Employees for the
vacation payments described in this Section 11.3.1. Seller shall pay Transferred
Employees any banked vacation on or before the Closing Date. Schedule 11.3.1 to
be prepared by Seller and submitted to Buyer on or before the Closing Date shall
list the accrued but unused vacation pay, as of the Closing Date, of each
Transferred Employee for the calendar year in which the Closing Date occurs.
(b) For purposes of determining a Transferred Employee's
eligibility for vacation under Buyer's vacation plan, a Transferred Employee
shall be credited, as of the first day of the first calendar year that begins
after the calendar year in which the Closing Date occurs, with service for the
calendar year in which the Closing Date occurs in an amount equal to the
aggregate of the Transferred Employee's service with both Seller and Buyer
during the calendar year in which the Closing Date occurs.
11.3.2 Transferred Employee Statements. Within sixty (60) days after
the Closing Date, Seller shall prepare and distribute to all Transferred
Employees an accurate and complete statement of their accrued benefits under
Seller's Pension Plans as of the Closing Date and shall provide Buyer with a
true and complete copy of the same. Such statements shall be sufficiently
detailed to readily permit Buyer and the Transferred Employees to determine the
accuracy thereof.
11.4 Employee Rights.
Nothing herein expressed or implied shall confer upon any employee
of Seller or its Affiliates, or Buyer or its Affiliates, or upon any legal
representative of such employee, or upon any collective bargaining agent, any
rights or remedies, including any right to employment or continued employment
for any specified period, of any nature or kind whatsoever under or by reason of
this Agreement.
Nothing in this Agreement shall be deemed to confer upon any person
(nor any beneficiary thereof) any rights under or with respect to any plan,
program, or arrangement described in or contemplated by this Agreement, and each
person (and any beneficiary thereof) shall be entitled to look only to the
express terms of any such plan, program, or arrangement for his or her rights
thereunder.
Nothing in this Agreement shall cause Buyer or its Affiliates, nor
Seller or its Affiliates to have any obligation to provide employment or any
employee benefits to any individual who is not a Transferred Employee or, except
as otherwise provided in Section 11.1.2
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with respect to employment agreements, to continue to employ any Transferred
Employee for any period of time following the Closing Date.
11.5 WARN Act Requirements.
On and after the Closing Date, Buyer shall be responsible with
respect to Transferred Employees and their beneficiaries for compliance with the
Worker Adjustment and Retraining Notification Act of 1988 and any other
applicable law, including any requirement to provide for and discharge any and
all notifications, benefits, and liabilities to Transferred Employees and
government agencies that might be imposed as a result of the consummation of the
transactions contemplated by this Agreement or otherwise.
11.6 Indemnification.
11.6.1 Indemnification of Seller. Notwithstanding anything to the
contrary in Article 12 of this Agreement, Buyer shall indemnify and hold
harmless Seller, its Affiliates, and their respective directors, officers,
employees, agents, and assigns, and each employee benefit plan or arrangement
maintained or contributed to by Seller or an Affiliate thereof (whether or not
such plan or arrangement is an "employee benefit plan" within the meaning of
Section 3(3) of ERISA) and its administrators, fiduciaries, and agents, from and
against any and all claims, demands, actions, administrative or other
proceedings, causes of action, liability, loss, cost, damage, and expense
(including reasonable attorneys' fees) (i) in any way arising out of or incurred
as a result of any action by Buyer, its Affiliates, their respective directors,
officers, employees, or agents, the administrators or fiduciaries of any
employee benefit plan maintained or contributed to by Buyer or an Affiliate
thereof (whether or not such plan or arrangement is an "employee benefit plan"
within the meaning of Section 3(3) of ERISA), or any of their successors, except
as otherwise expressly permitted under this Agreement, to change, reduce
contributions to, terminate, fail to continue, fail to pay benefits under, or
fail to manage or administer properly any employee benefit plan or arrangement
(whether or not such plan or arrangement is an "employee benefit plan" within
the meaning of Section 3(3) of ERISA) on or after the Closing Date, or (ii) in
any way arising out of or incurred as a result of any action that is a breach of
any the covenants, representations, warranties, or obligations of any such
person under this Agreement.
11.6.2 Indemnification of Buyer. Notwithstanding anything to the
contrary in Article 12 of the Agreement, Seller shall indemnify and hold
harmless Buyer, its Affiliates, and their respective directors, officers,
employees, agents, and assigns, and each employee benefit plan or arrangement
maintained or contributed to by Buyer or an Affiliate thereof (whether or not
such plan or arrangement is an "employee benefit plan" within the meaning of
Section 3(3) of ERISA) and its administrators, fiduciaries, and agents, from and
against any and all claims, demands, actions, administrative or other
proceedings, causes of action, liability, loss, cost, damage, and expense
(including reasonable attorneys' fees) (i) in any way arising out of or incurred
as a result of any action by Seller, its Affiliates, their respective directors,
officers, employees, or agents, the administrators or fiduciaries of any
employee benefit plan maintained or contributed to by Seller or an Affiliate
thereof (whether or not such plan or arrangement is an "employee benefit plan"
within the meaning of Section 3(3) of ERISA), or any of their successors, to
fail to pay benefits under, or fail to manage or administer properly any
employee
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benefit plan or arrangement (whether or not such plan or arrangement is an
"employee benefit plan" within the meaning of Section 3(3) of ERISA) before the
Closing Date, or (ii) in any way arising out of or incurred as a result of any
action that is a breach of any the covenants, representations, warranties, or
obligations of any such person under this Agreement.
ARTICLE 12
INDEMNIFICATION
12.1 Survival of Representations. Warranties and Covenants.
(a) The representations and warranties contained in Sections
8.1.6 and 8.2.6 will survive the Closing and remain in full force and effect
indefinitely. Each of the other representations and warranties contained in
Article 8 will terminate, without further action, on the date which is fifteen
(15) months following the Closing Date (the "Expiration Date").
(b) This Article 12 shall survive any termination of this
Agreement and the Ancillary Agreements and the indemnification contained in this
Article 12 shall survive the Closing and shall remain in effect (i)
indefinitely, with respect to any Indemnifiable Claim related to the breach of
any representation or warranty which pursuant to Section 12.1(a) survives
indefinitely, (ii) indefinitely or for the applicable period of performance for
such covenant (provided that in the case of covenants, the Indemnitee shall have
60 days after the end of such performance period to provide notice to the
Indemnifying Party of a claim for indemnification arising during the performance
period), with respect to any Indemnifiable Claim arising under Section
12.2(a)(ii)(B) (post closing covenants), (iii) indefinitely, with respect to any
Indemnifiable Claim arising under Section 12.2(a)(iii) (Retained Liabilities) or
12.2(b)(iii) (Assumed Liabilities), and (iv) until the Expiration Date for any
Indemnifiable Claims that are not specified in any of the preceding clauses.
Unless a claim for indemnification with respect to any alleged breach of any
representation or warranty is asserted by notice given as herein provided that
specifically identifies a particular breach and the underlying facts relating
thereto, which notice is given within the applicable period of survival for such
representation or warranty, such claim may not be pursued and is irrevocably
waived after such time. Without limiting the generality or effect of the
foregoing, no claim for indemnification with respect to any representation or
warranty will be deemed to have been properly made except (i) to the extent it
is based upon a Third Party Claim made or brought prior to the expiration of the
survival period for such representation or warranty, or (ii) to the extent based
on Indemnifiable Losses actually incurred by an Indemnitee prior to the
expiration of the survival period for such representation or warranty.
12.2 Indemnification.
(a) Following the Closing and subject to the other sections of
this Article 12, Seller will indemnify, defend and hold harmless Buyer and its
Affiliates and their respective directors, officers, and agents from and against
all Indemnifiable Losses relating to, resulting from or arising out of (i) any
inaccuracy in any of the representations and warranties made by Seller in
Section 8.1 of this Agreement, (ii) a breach by Seller of any covenant of Seller
contained in this Agreement, which covenant requires performance by Seller (A)
prior to or at the Closing, or (B) after the Closing, and (iii) any of the
Retained Liabilities.
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(b) Following the Closing and subject to the other sections of
this Article 12, Buyer will indemnify, defend and hold harmless Seller and its
Affiliates and their respective directors, officers, and agents from and against
all Indemnifiable Losses relating to, resulting from or arising out of (i) any
inaccuracy in any of the representations or warranties made by Buyer in Section
8.2 of this Agreement, (ii) a breach by Buyer of any covenant of Buyer contained
in this Agreement, which covenant requires performance by Buyer prior to, at or
after the Closing, and (iii) any of the Assumed Liabilities.
(c) Payments made under this Section 12.2 shall be treated by
Buyer and Seller as purchase price adjustments and Buyer and Seller shall file
all Tax Returns consistent with such treatment. Notwithstanding anything to the
contrary contained herein, neither party shall be indemnified or reimbursed for
any Tax consequences arising from the receipt or accrual of an indemnity payment
hereunder including any Tax consequences arising from adjustments to the basis
of any asset resulting from an adjustment to the Purchase Price or any
additional or reduced taxes resulting from any such basis adjustment.
(d) In the event that a claim against an Indemnifying Party
arises under both Section 12.2(a)(i) and Section 12.2(a)(ii), or under both
Section 12.2(b)(i) and Section 12.2(b)(ii), then the Indemnitee's rights to
pursue its claim under Section 12.2(a)(ii) or Section 12.29b)(ii), as
applicable, will exist notwithstanding the provisions of Section 12.3(d).
(e) In the event that a claim against an Indemnifying Party
arises under both Section 12.2(a)(i) and Section 12.2(a)(iii), or under both
Section 12.2(b)(i) and Section 12.2(b)(iii), then the Indemnitee's rights to
pursue the claim under Section 12.2(a)(iii) or Section 12.2(b)(iii), as
applicable, will exist notwithstanding the provisions of Sections 12.3(d).
(f) In the event a claim against an Indemnifying Party arises
under both Section 12.2(a)(ii) and 12.2(a)(iii), or under both Section
12.2(b)(ii) and 12.2(b)(iii), then the Indemnitee's rights to pursue the claim
under Section 12.2(a)(iii) or Section 12.2(b)(iii), as applicable, will exist
notwithstanding the provisions of Section 12.3(d).
12.3 Limitations on Liability.
(a) For purposes of this Agreement, (i) "Indemnification
Payment" means any amount of Indemnifiable Losses required to be paid pursuant
to this Agreement, (ii) "Indemnitee" means any person or entity entitled to
indemnification under this Agreement, (iii) "Indemnifying Party" means any
person or entity required to provide indemnification under this Agreement, and
(iv) "Indemnifiable Losses" means any losses, liabilities, damages, costs and
expenses (including reasonable attorneys' fees and expenses) actually incurred
in connection with any actions, suits, demands, assessments, judgments and
settlements, in any such case (x) reduced by the amount of insurance proceeds
recovered from any person or entity with respect thereto, and (y) excluding any
such losses, liabilities damages, costs and expenses to the extent that the
underlying liability or obligation is the result of any action taken or omitted
to be taken by any Indemnitee.
(b) Notwithstanding anything to the contrary contained in this
Agreement, if the Closing occurs, (i) no claim for indemnification may be
asserted under Section
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12.2(a) with respect to any matter discovered by or known to Buyer on or before
the date of this Agreement, or after the date of this Agreement and on or before
the Closing Date to the extent that Buyer has not provided timely notice to
Seller of the existence of such claim in accordance with Section 10.2, and (ii)
no claim for indemnification may be asserted under Section 12.2(b) with respect
to any matter discovered by or known to Seller on or before the Closing Date.
(c) As between Seller and any Affiliate of Seller, on the one
hand, and Buyer and any Affiliate of Buyer, on the other hand, the remedies,
rights and obligations set forth in this Article 12, Sections 10.1.2, 11.2.2,
11.6, 13.3 and the Ancillary Agreements will be the exclusive remedies, rights
and obligations with respect to the liabilities and obligations referred to in
Section 12.2 and any breach of the representations, warranties or covenants set
forth in this Agreement. Without limiting the foregoing, as a material
inducement to entering into this Agreement, to the fullest extent permitted by
law, each of the parties waives any claim or cause of action that it otherwise
might assert, and any breach of the representations, warranties or covenants set
forth in this Agreement, except for claims or causes of action brought under and
subject to the terms and conditions of this Article 12 and Sections 10.1.2, 11.6
and 13.3 or any Indemnifiable Losses arising out of actual fraud.
(d) Notwithstanding any other provision of this Agreement or
of any applicable Law, no Indemnitee will be entitled to make a claim against an
Indemnifying Party under Sections 11.2.2, 11.6, 12.2(a)(i) or 12.2(b)(i) until:
(i) the aggregate amount of Indemnifiable Losses
incurred by the Indemnitee for any individual occurrence or related series of
occurrences giving rise to such Indemnifiable Losses exceeds $25,000, and
(ii) the aggregate amount of claims that may be asserted
for such Indemnifiable Losses pursuant to Section 12.3(d)(i) exceeds an amount
equal to 2% of the Purchase Price, but only to the extent such amount, if any,
(a) exceeds an amount equal to 2% of the Purchase Price and (b) is less than the
amount set forth in Section 12.3(e).
(e) Notwithstanding any other provision of this Agreement, the
indemnification obligations of Seller under Section 12.2(a) (except with respect
to indemnification for inaccuracies of the representations contained in Sections
8.1.1 through 8.1.6) or the indemnification obligation of Buyer under Section
12.2(b) will not exceed the amount of an amount equal to 6.5% of the Purchase
Price respectively.
(f) No Indemnifying Party shall be liable to or obligated to
indemnify any Indemnitee hereunder for any consequential, special, multiple,
punitive or exemplary damages including, but not limited to, damages arising
from loss or interruption of business, profits, business opportunities or
goodwill, loss of use of facilities, loss of capital, claims of customers, or
any cost or expense related thereto, except to the extent such damages have been
recovered by a third person and are the subject of a Third Party Claim for which
indemnification is available under the express terms of this Section 12.
(g) Seller and Buyer shall cooperate with each other with
respect to resolving any claim or liability with respect to which one party is
obligated to indemnify the
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other party hereunder, including by making commercially reasonable efforts to
mitigate or resolve any such claim or liability.
12.4 Defense of Claims.
(a) If any Indemnitee receives notice of the assertion of any
claim or of the commencement of any action or proceeding by any entity that is
not a party to this Agreement or an Affiliate of such a party (a "Third Party
Claim") against such Indemnitee, with respect to which an Indemnifying Party is
obligated to provide indemnification under this Agreement, the Indemnitee will
give such Indemnifying Party reasonably prompt written notice thereof, but in
any event not later than ten (10) calendar days after receipt of notice of such
Third Party Claim; provided, however, that the failure of the Indemnitee to
notify the Indemnifying Party shall only relieve the Indemnifying Party from its
obligation to indemnify the Indemnitee pursuant to this Article 12 to the extent
that the Indemnifying Party is materially prejudiced by such failure (whether as
a result of the forfeiture of substantive rights or defenses or otherwise). Upon
receipt of notification of a Third Party Claim, the Indemnifying Party shall be
entitled, upon written notice to the Indemnitee, to assume the investigation and
defense thereof with counsel reasonably satisfactory to the Indemnitee. Whether
or not the Indemnifying Party elects to assume the investigation and defense of
any Third Party Claim, the Indemnitee shall have the right to employ separate
counsel and to participate in the investigation and defense thereof; provided,
however, that the Indemnitee shall pay the fees and disbursements of such
separate counsel unless (i) the employment of such separate counsel has been
specifically authorized in writing by the Indemnifying Party, (ii) the
Indemnifying Party has failed to assume the defense of such Third Party Claim
within reasonable time after receipt of notice thereof with counsel reasonably
satisfactory to such Indemnitee, or (iii) the named parties to the proceeding in
which such claim, demand, action or cause of action has been asserted include
both the Indemnifying Party and such Indemnitee and, in the reasonable judgment
of counsel to such Indemnitee, there exists one or more defenses that may be
available to the Indemnitee that are in conflict with those available to the
Indemnifying Party. Notwithstanding the foregoing, the Indemnifying Party shall
not be liable for the fees and disbursements of more than one counsel for all
Indemnified Parties in connection with any one proceeding or any similar or
related proceedings arising from the same general allegations or circumstances.
Without the prior written consent of the Indemnitee, the Indemnifying Party will
not enter into any settlement of any Third Party Claim that would lead to
liability or create any financial or other obligation on the part of the
Indemnitee unless such settlement includes as an unconditional term thereof the
release of the Indemnitee from all liability in respect of such Third Party
Claim. If a settlement offer solely for money damages is made by the applicable
third party claimant, and the Indemnifying Party notifies the Indemnitee in
writing of the Indemnifying Party's willingness to accept the settlement offer
and pay the amount called for by such offer without reservation of any rights or
defenses against the Indemnitee, the Indemnitee may continue to contest such
claim, free of any participation by the Indemnifying Party, and the amount of
any ultimate liability with respect to such Third Party Claim that the
Indemnifying Party has an obligation to pay hereunder shall be limited to the
lesser of (A) the amount of the settlement offer that the Indemnitee declined to
accept plus the Losses of the Indemnitee relating to such Third Party Claim
through the date of its rejection of the settlement offer or (B) the aggregate
Losses of the Indemnitee with respect to such claim.
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(b) Any claim by an Indemnitee on account of an Indemnifiable
Loss that does not result from a Third Party Claim (a "Direct Claim") will be
asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, but in any event not later than thirty (30) calendar days after an
Executive Officer of the Indemnitee becomes actually aware of the incurrence
thereof, and the Indemnifying Party will have a period of thirty (30) calendar
days within which to respond in writing to such Direct Claim. If the
Indemnifying Party does not so respond within such thirty (30) calendar day
period, the Indemnifying Party will be deemed to have rejected such claim, in
which event the Indemnitee will be free to pursue such remedies as may be
available to the Indemnitee on the terms and subject to the provisions of this
Article 12.
(c) If after the making of any Indemnification Payment the
amount of the Indemnifiable Loss to which such payment relates is reduced by
recovery, settlement or otherwise under any insurance coverage, or pursuant to
any claim, recovery, settlement or payment by or against any other entity, the
amount of such reduction (less any costs, expenses, premiums or taxes incurred
in connection therewith) will promptly be repaid by the Indemnitee to the
Indemnifying Party. Upon making any Indemnification Payment, the Indemnifying
Party will, to the extent of such Indemnification Payment, be subrogated to all
rights of the Indemnitee against any third party that is not an Affiliate of the
Indemnitee in respect of the Indemnifiable Loss to which the Indemnification
Payment relates; provided that (i) the Indemnifying Party shall then be in
compliance with its obligations under this Agreement in respect of such
Indemnifiable Loss, and (ii) until the Indemnitee recovers full payment of its
Indemnifiable Loss, all claims of the Indemnifying Party against any such third
party on account of said Indemnification Payment will be subrogated and
subordinated in right of payment to the Indemnitee's rights against such third
party. Without limiting the generality or effect of any other provision of this
Article 12, each such Indemnitee and Indemnifying Party will duly execute upon
request all instruments reasonably necessary to evidence and perfect the
above-described subrogation and subordination rights.
12.5 No Indemnifiable Claims Resulting From Governmental Authority Action.
Buyer has no indemnifiable or otherwise compensable claim that any of Seller's
representations or warranties in Section 8.1 (other than Sections 8.1.4(b),
8.1.15 and 8.1.25) is inaccurate, or that any covenant has been breached, to the
extent that such claim is predicated on any action by the FCC or PUC undertaken
after Closing or any action the FCC or PUC requires Seller to undertake after
Closing. Buyer may only bring such a claim to the extent that its basis is
independent of any such FCC or PUC action.
ARTICLE 13
TERMINATION
13.1 Termination Rights. This Agreement may be terminated at any time
prior to the Closing Date:
(a) at any time by mutual written consent of the parties;
(b) by Buyer if any of the conditions provided in Section 6.1
of this Agreement have not been met within eighteen (18) months after execution
of this Agreement and have not been waived by Buyer;
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(c) by Seller if any of the conditions provided in Section 6.2
of this Agreement have not been met within eighteen (18) months after execution
of this Agreement and have not been waived by Seller;
(d) by Seller if any obligations of Buyer provided in Article
3 become incapable of being fulfilled; or
(e) by either party immediately upon written notice to the
other party if any Governmental Authority issues an order forbidding or
enjoining the consummation of the transaction contemplated hereby and such order
has become final and non-appealable, or if the GTE West Coast Agreement has been
terminated.
13.2 Goodfaith Performance. Neither party shall be entitled to exercise
any right of termination pursuant to subsection 13.1(b), (c) or (d) above if
such party shall not have performed diligently and in good faith the obligations
required to be performed by such party hereunder prior to the date of
termination.
13.3 Effect of Termination.
(a) If this Agreement is terminated as a result of a Material
Adverse Effect or Section 13.1(a), this Agreement shall be of no further force
and effect and there shall be no further liability hereunder (except the
obligations under the Confidentiality Agreement and the liability for breach of
such obligations) on the part of either party or their respective Affiliates,
directors, officers, shareholders, agents or other representatives.
(b) If this Agreement is terminated by Buyer pursuant to
Section 13.1(b), this Agreement shall be of no further force and effect and
there shall be no further obligations or liability hereunder (except the
obligations under the Confidentiality Agreement and the liability for breach of
such obligations) on the part of either party or their respective Affiliates,
directors, officers, shareholders, agents or other representatives; provided,
however, that no such termination shall relieve Seller of liability for any
claims, damages or losses suffered by Buyer as a result of the negligent or
willful failure of Seller to perform any obligations required to be performed by
it hereunder on or prior to the date of termination. Notwithstanding anything
herein to the contrary, in no event shall the any act or omission of Seller in
connection with the Merger be deemed to be a breach of the terms and conditions
of this Agreement for purposes of this Section 13.3(b).
(c) If this Agreement is terminated by Seller pursuant to
Section 13.1(c) or (d), this Agreement shall be of no further force and effect
and there shall be no further obligations or liability hereunder (except the
obligations under the Confidentiality Agreement and the liability for breach of
such obligations) on the part of either party or their respective Affiliates,
directors, officers, shareholders, agents or other representatives; provided,
however, that in the event such termination is the result of the breach by Buyer
of any of its obligations required to be performed by it hereunder on or prior
to the date of termination, and Buyer has failed to cure such non-performance
within a reasonable period after notice from Seller, then Buyer shall pay to
Seller liquidated damages in an amount equal to ten (10) percent of the Purchase
Price. Such liquidated damages amount is designed to compensate Seller for its
lost
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opportunity costs and reliance damages caused by such termination. Buyer shall
promptly pay such amount to Seller in immediately available funds following such
termination.
(d) Upon any termination of the Agreement, each of the parties
shall promptly comply with the obligations of the Confidentiality Agreement
regarding return or destruction of Evaluation Material of the other party.
(e) Notwithstanding anything to the contrary contained herein,
the provisions of this Section 13.3 and of Sections 14.1, 14.2, 14.3, 14.8,
14.11, 14.13 and 14.14, shall survive any termination of this Agreement.
ARTICLE 14
MISCELLANEOUS
14.1 Notices. All notices and other communications required or permitted
hereunder shall be in writing and, unless otherwise provided in this Agreement,
will be deemed to have been given when delivered in person or dispatched by
electronic facsimile transfer (confirmed in writing by certified mail,
concurrently dispatched) or one business day after having been dispatched for
next-day delivery by a nationally recognized overnight courier service to the
appropriate party at the address specified below:
(a) If to Buyer, to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06905
Attention: Donald P. Weinstein
Facsimile No.: (203) 614-4625
With a copy to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06905
Attention: L. Russell Mitten, II, Esq.
Facsimile No.: (203) 614-4625
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention: Jeffry L. Hardin, Esq.
Facsimile No.: (202) 387-3467
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(b) If to Seller, to:
William M. Edwards, III
Vice President - Property Repositioning
600 Hidden Ridge, HQE02J27
Irving, TX 75038
Facsimile No. (972) 719-7062
With a copy to:
Dale R. Chamberlain
Legal Counsel - Property Repositioning
600 Hidden Ridge, HQE02J34
Irving, TX 75038
Facsimile No. (972) 719-7162
or to such other address or addresses as any such party may from
time to time designate for itself by like notice.
14.2 Information Releases. The parties shall consult with each other (and
allow the other party notice, and a reasonable time to comment) in preparing any
employee announcement, press release, public announcement, news media response
or other form of release of information concerning this Agreement or the
transactions contemplated hereby that is intended to provide such information to
the employees generally, news media or the public. Neither party shall issue or
cause the publication of any press release, public announcement or media
response without the prior written consent of the other party; provided,
however, that, after allowing the other party notice and a reasonable time to
comment prior to issuance, nothing herein will prohibit either party from making
an employee announcement, or issuing or causing publication of any press
release, public announcement or media response to the extent that such action is
required by applicable Law or the rules of any national stock exchange
applicable to such party or its Affiliates.
14.3 Expenses. Whether or not the transactions contemplated hereby are
consummated and except as otherwise expressly provided herein, each party will
pay any expenses (including attorneys' fees) incurred by it incidental to this
Agreement and in consummating the transactions provided for herein.
14.4 Successors and Assigns. This Agreement will be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns, but is not assignable or delegable by any party without the
prior written consent of the other party; provided, that (a) Seller may assign
this Agreement to an Affiliate of Seller without the consent of Buyer including,
on and after the closing of the Merger, the ultimate parent entity of the
successor corporation to such merger or any entity controlled thereby; and (b)
Buyer may assign this Agreement, without the prior written consent of Seller, to
any directly or indirectly wholly owned subsidiary of Buyer provided such
subsidiary assumes in writing all the duties and obligations of Buyer hereunder.
No such assignment by Buyer shall in any way operate to enlarge, alter or change
any obligation due to Seller or relieve Buyer of its obligations hereunder
70
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if such subsidiary fails to perform such obligations, with the understanding
that Buyer shall be jointly and severally liable with such subsidiary for any
non-performance of Buyer's obligations hereunder.
14.5 Amendments. This Agreement may be amended or modified only by a
subsequent writing signed by authorized representatives of both parties.
14.6 Captions. The captions set forth in this Agreement are for
convenience only and shall not be considered as part of this Agreement, nor as
in any way limiting or amplifying the terms and provisions hereof.
14.7 Entire Agreement. The term " Agreement" shall mean collectively this
document, the Schedules hereto and any agreements expressly incorporated herein,
including that certain letter agreement between the parties of even date
herewith. This Agreement supersedes and revokes any prior discussions and
representations, other agreements, commitments, arrangements or understandings
of any sort whatsoever, whether oral or written, that may have been made or
entered into by the parties relating to the matters contemplated hereby. This
Agreement, the Confidentiality Agreement and the Ancillary Documents constitute
the entire agreement by and among the parties with respect to the subject matter
hereof, and there are no representations, warranties, agreements, commitments,
arrangements or understandings except as expressly set forth herein.
14.8 Waiver. Except as otherwise expressly provided in this Agreement,
neither the failure nor any delay on the part of any party to exercise any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise or waiver of any such right, power or privilege
preclude any other or further exercise thereof, or the exercise of any other
right, power or privilege available to each party at law or in equity.
14.9 Third Parties. Except as expressly provided herein, nothing contained
in this Agreement is intended to confer upon any Person, other than the parties
hereto and their successors and permitted assigns, any rights or remedies under
or by reason of this Agreement.
14.10 Counterparts. This Agreement may be executed in two or more
counterparts, any or all of which shall constitute one and the same instrument.
14.11 Governing Law. This Agreement and the Ancillary Agreements shall in
all respects be governed by and construed in accordance with the laws of the
State of New York (except that no effect shall be given to any conflicts of law
principles of the State of New York that would require the application of the
laws of any other jurisdiction). The parties irrevocably submit to the exclusive
jurisdiction of any New York State Court or any Federal Court located in the
borough of Manhattan in the City of New York for purposes of any suit, action or
other proceeding arising out of this Agreement, the Ancillary Agreements or any
transaction contemplated hereby or thereby. The parties agree that service of
process, summons or notice or document by U.S. registered mail to such party's
respective address set forth in Section 14.1 shall be effective service of
process for any action, suit or proceeding in New York with respect to any
matters to which it has submitted to jurisdiction as set forth above in the
immediately preceding sentence. The parties hereto irrevocably and
unconditionally waive trial by jury in any
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legal action or proceeding relating to this Agreement or any other agreement
entered into in connection therewith and for any counterclaim with respect
thereto. In the event of any breach of the provisions of this Agreement or any
other agreement entered into in connection therewith, the non-breaching party
shall be entitled to equitable relief, including in the form of injunctions and
orders for specific performance, where the applicable legal standards for such
relief in such courts are met, in addition to all other remedies available to
the non-breaching party with respect thereto at law or in equity.
14.12 Further Assurances. From time to time, as and when requested by one
of the parties, the other party will use its commercially reasonable efforts to
execute and deliver, or cause to be executed and delivered, all such documents
and instruments as may be reasonably necessary or appropriate, in the reasonable
opinion of counsel for Seller and Buyer, to consummate and make effective the
transactions contemplated by this Agreement.
14.13 Severability. If any provision of this Agreement is determined to be
invalid, illegal or unenforceable by any Governmental Authority, the remaining
provisions of this Agreement to the extent permitted by Law shall remain in full
force and effect provided that the essential terms and conditions of this
Agreement for both parties remain valid, binding and enforceable and provided
that the economic and legal substance of the transactions contemplated is not
affected in any manner materially adverse to any party. In the event of any such
determination, the parties agree to negotiate in good faith to modify this
Agreement to fulfill as closely as possible the original intents and purposes
hereof. To the extent permitted by Law, the parties hereby to the same extent
waive any provision of Law that renders any provision hereof prohibited or
unenforceable in any respect.
14.14 Representation by Counsel; Interpretation. Seller and Buyer each
acknowledge that each party to this Agreement has been represented by counsel in
connection with this Agreement and the transactions contemplated by this
Agreement. Accordingly, any rule of Law or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement against the party
that drafted it has no application and is expressly waived. The provisions of
this Agreement shall be interpreted in a reasonable manner to effect the intent
of Buyer and Seller.
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IN WITNESS WHEREOF, the parties, acting through their duly authorized
agents, have caused this Agreement to be duly executed and delivered as of the
date first above written.
GTE CALIFORNIA INCORPORATED CITIZENS UTILITIES COMPANY
By: _____________________________ By: ____________________________
Name: ___________________________ Name: __________________________
Title: __________________________ Title: _________________________
By: _____________________________
Name: ___________________________
Title: __________________________
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================================================================================
ASSET PURCHASE AGREEMENT
Between
GTE MIDWEST INCORPORATED
and
CITIZENS UTILITIES COMPANY
September 21, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS......................................................1
1.1 Terms............................................................1
1.2 Interpretation..................................................10
ARTICLE 2 PURCHASE AND SALE OF ASSETS.....................................10
2.1 Purchase and Sale of Assets.....................................10
2.2 Purchased Property..............................................10
2.3 Excluded Property...............................................10
2.4 Assumption of Liabilities.......................................11
2.4.1 Assumed Liabilities.......................................11
2.4.2 Retained Liabilities......................................13
2.5 No Assignment Without Consent...................................13
ARTICLE 3 PURCHASE PRICE..................................................14
3.1 Purchase Price..................................................14
3.2 Closing Date Estimate...........................................14
3.3 Closing Date Statement..........................................15
ARTICLE 4 REQUIRED APPROVALS, CONSENTS AND NOTIFICATIONS..................16
4.1 State Regulatory Approval.......................................16
4.2 Debtholder Consents.............................................16
4.3 Landlord and Other Consents.....................................16
4.4 FCC Consents....................................................16
4.5 HSR Act Review..................................................16
4.6 GTE/Bell Atlantic Merger........................................17
ARTICLE 5 PRE-CLOSING COVENANTS...........................................17
5.1 Investigation by Buyer..........................................17
5.2 Operation of the Business in the Ordinary Course................18
5.2.1 Preservation of Business..................................18
5.2.2 No Material Changes.......................................18
5.3 Satisfaction of Conditions......................................19
5.4 Approvals.......................................................19
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TABLE OF CONTENTS
(continued)
Page
5.5 Audit or Review of Financial Statements........................19
5.6 Cooperation with Respect to Like-Kind Exchange..................20
5.7 Interconnection Agreements......................................21
5.8 Leased Vehicles; Capital Leases.................................21
5.9 Delivery of Interim Information.................................21
ARTICLE 6 CONDITIONS PRECEDENT TO THE CLOSING.............................21
6.1 Conditions Precedent to Obligations of Buyer....................21
6.1.1 No Misrepresentation or Breach of Covenants
and Warranties ...........................................21
6.1.2 Documents.................................................21
6.1.3 HSR.......................................................21
6.1.4 No Legal Obstruction......................................22
6.1.5 No Material Adverse Effect................................22
6.2 Conditions Precedent to Obligations of Seller...................22
6.2.1 No Misrepresentation or Breach of Covenants
and Warranties ...........................................22
6.2.2 Documents.................................................22
6.2.3 Purchase Price............................................22
6.2.4 HSR.......................................................22
6.2.5 No Legal Obstruction......................................22
ARTICLE 7 THE CLOSING.....................................................23
7.1 The Closing.....................................................23
7.2 Seller's Obligations at Closing.................................23
7.3 Buyer's Obligations at Closing..................................24
ARTICLE 8 REPRESENTATIONS AND WARRANTIES..................................24
8.1 Representations and Warranties of Seller........................24
8.1.1 Authorization and Effect of Agreement.....................24
8.1.2 No Restrictions Against Sale of the Purchased Property....24
8.1.3 Consents and Approvals of Governmental Authorities........25
8.1.4 No Material Violations....................................25
8.1.5 Corporate Organization....................................25
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TABLE OF CONTENTS
(continued)
Page
8.1.6 Brokers...................................................25
8.1.7 Title to Owned Real Property..............................25
8.1.8 Real Property Leases......................................25
8.1.9 Tangible Assets...........................................26
8.1.10 No Material Adverse Change ..............................26
8.1.11 Material Contracts ......................................26
8.1.12 Insurance ...............................................27
8.1.13 Taxes ...................................................28
8.1.14 No Material Claims or Suits .............................28
8.1.15 Tariffs; FCC Licenses ...................................28
8.1.16 Employee Matters ........................................29
8.1.17 Schedules of Telephone Plant ............................31
8.1.18 Schedule of Real Property Interests .....................32
8.1.19 Compliance with Existing Environmental Requirements .....32
8.1.20 Environmental Permits ...................................32
8.1.21 Financial Statements ....................................32
8.1.22 Year 2000 Compliance ....................................33
8.1.23 Native American and Federal Consents ....................34
8.1.24 Loss of Major Customer ..................................34
8.1.25 Records .................................................34
8.2 Representations and Warranties of Buyer.........................34
8.2.1 Corporate Organization....................................34
8.2.2 Authorization and Effect of Agreement.....................35
8.2.3 No Restrictions Against Purchase of the
Purchased Properties .....................................35
8.2.4 No Violation of Law.......................................35
8.2.5 Financial Capacity........................................35
8.2.6 Brokers...................................................35
8.2.7 Consents and Approvals of Governmental Authority..........36
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TABLE OF CONTENTS
(continued)
Page
ARTICLE 9 CONTINUING BUSINESS RELATIONSHIPS...............................36
9.1 Transition Services Agreement...................................36
9.2 Optional Services Agreement.....................................36
9.3 Directory Publishing............................................36
9.3.1 Assumption of Certain Directory Publishing Agreement
Rights and Obligations....................................36
9.3.2 Co-Bound Directories Acknowledgement......................37
9.3.3 Meeting to Discuss Directory Publication..................37
9.4 GTE Supply Relationship.........................................37
ARTICLE 10 ADDITIONAL COVENANTS OF THE PARTIES.............................37
10.1 Intellectual Property...........................................37
10.1.1. No License..............................................37
10.1.2. Infringement............................................37
10.1.3. Trademark Phaseout......................................38
10.1.4 Third Party Software.....................................39
10.2 Effect of Due Diligence and Related Matters.....................39
10.3 Confidentiality.................................................40
10.4 Further Assurances..............................................40
10.5 Prorations......................................................40
10.6 Cost Studies/NECA Matters.......................................41
10.6.1. Prior to Closing .......................................41
10.6.2. From and After Closing .................................41
10.7 Customer Deposits...............................................41
10.8 Access to Books and Records.....................................41
10.9 Purchase Price Allocation.......................................42
10.10 Owned Real Property Transfers...................................42
10.11 Transaction Taxes...............................................43
10.12 Bulk Sales Laws.................................................44
10.13 Prepaid Non-Regulated Maintenance Agreements....................44
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TABLE OF CONTENTS
(continued)
Page
10.14 Vehicle Registration............................................44
10.15 Carrier Access Billing and Accounts Receivable Transition.......44
10.16 End-User Billing and Accounts Receivable Transition.............44
ARTICLE 11 EMPLOYEES AND EMPLOYEE MATTERS..................................45
11.1 Employment of Transferred Employees.............................45
11.1.1 Assumption of Collective Bargaining Agreement
Obligations .............................................46
11.1.2 Assumption of Employment and Other Agreements ...........46
11.1.3 Recognition of Transferred Employee Service .............47
11.1.4 Assumption of Obligation to Pay Bonuses .................47
11.1.5 No Duplicate Benefits ...................................47
11.1.6 Affiliate Employees .....................................47
11.2 Transferred Employee Benefit Matters............................47
11.2.1 Defined Benefit Plans ...................................47
11.2.2 Savings Plans ...........................................54
11.2.3 Welfare Plans ...........................................56
11.3 Miscellaneous Benefits..........................................59
11.3.1 Vacation ................................................59
11.3.2 Transferred Employee Statements .........................59
11.4 Employee Rights.................................................60
11.5 WARN Act Requirements...........................................60
11.6 Indemnification.................................................60
11.6.1 Indemnification of Seller ...............................60
11.6.2 Indemnification of Buyer ................................61
ARTICLE 12 INDEMNIFICATION.................................................61
12.1 Survival of Representations.....................................61
12.2 Indemnification.................................................62
12.3 Limitations on Liability........................................63
12.4 Defense of Claims...............................................64
12.5 No Indemnifiable Claims Resulting From Governmental
Authority Action ...............................................66
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TABLE OF CONTENTS
(continued)
Page
ARTICLE 13 TERMINATION.....................................................66
13.1 Termination Rights..............................................66
13.2 Goodfaith Performance...........................................66
13.3 Effect of Termination...........................................66
ARTICLE 14 MISCELLANEOUS...................................................67
14.1 Notices.........................................................67
14.2 Information Releases............................................68
14.3 Expenses........................................................69
14.4 Successors and Assigns..........................................69
14.5 Amendments......................................................69
14.6 Captions........................................................69
14.7 Entire Agreement................................................69
14.8 Waiver..........................................................69
14.9 Third Parties...................................................69
14.10 Counterparts....................................................70
14.11 Governing Law...................................................70
14.12 Further Assurances..............................................70
14.13 Severability....................................................70
14.14 Representation by Counsel; Interpretation.......................71
<PAGE>
INDEX OF SCHEDULES
Schedule* Title
1.1-A Assigned Contracts
1.1-B Excluded Contracts
1.1-C Purchased Exchanges
1.1-D License Agreement
2.3(g) Other Excluded Property
4.4 FCC Consents / Waivers
5.2.1 Operation of the Business
5.2.2(c) Material Increase to Transferred Employee Benefits
5.2.2(d) Dispositions
6.1.1 Seller's Closing Certificate
6.2.1 Buyer's Closing Certificate
7.2(a) Bill of Sale and Assignment and Assumption Agreement
7.2(b) Legal Opinion of Seller's Counsel
7.2(g) Affidavit as to Status of Foreign Person
7.3(c) Legal Opinion of Buyer's Counsel
8.1.4 Violation of Law
8.1.7(a) Owned Real Property
8.1.7(b) Bondholders
8.1.8 Real Property Leases
8.1.9 Notices of Violations of Building / Zoning Ordinances
8.1.10 Material Adverse Changes
8.1.11(a-j) Material Contracts
8.1.13 Exceptions to Tax Return Filings
8.1.14 State and Federal Claims/Suits
8.1.15(a) Tariff Proceedings
8.1.15(b) FCC Licenses
8.1.16(a) Employee Matters - Seller Employee Benefit Plans
8.1.16(b) Employee Matters - Seller Material Liabilities under ERISA
8.1.16(c) Employee Matters - Seller ERISA Plans - Compliance
8.1.16(d) Employee Matters - Seller Multiemployer Plans
8.1.16(e) Employee Matters - Seller Union Representation
8.1.17 Telephone Plant
8.1.18 Real Property Interests List
8.1.19 Exceptions to Compliance with Existing Environmental Requirements
8.1.20 Environmental Permits
8.1.21(a-c) Financial Statements
8.1.23 Native American Authorizations
8.1.24 Loss of Major Customer
9.1 Transition Services Agreement
9.2 Optional Services Agreement
9.3.1 Directory Publishing Agreements
9.3.2 Co-Bound Directory Agreements
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11.1.2 Employees and Employee Matters - Employment Agreement Obligation
Exceptions
11.3.1 Employees and Employee Matters - Vacation
* The Schedule numbers refer to the appropriate Section within the Agreement.
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 21st day of September, 1999, by and between Citizens Utilities
Company, a Delaware corporation ("Buyer"), and GTE Midwest Incorporated, a
Delaware corporation ("Seller").
RECITALS
WHEREAS, Seller is in the business of providing regulated local
exchange telephone service in certain areas of the state of Nebraska; and
WHEREAS, Seller desires to sell, convey, assign, transfer and
deliver to Buyer, and Buyer desires to purchase and accept from Seller, certain
of its telephone properties and related assets used in the provision of such
service, upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Terms. For purposes of this Agreement and any amendment hereto, the
following terms are defined as set out below or in the Section referenced below:
"Accounts Receivable Settlement Statement" is defined in Section
10.16(b).
"Accounts Payable" means accounts payable owed by Seller arising
primarily from the operation of the Business.
"Active Employees" is defined in Section 11.1.
"Affiliate" means, with respect to any Person, any other Person
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person.
"Allocation" is defined in Section 10.9.
"Ancillary Documents" means the Transition Services Agreement, the
Optional Services Agreement, the License Agreement, and the Bill of Sale and
Assignment and Assumption Agreement.
"Assigned Contracts" means Contracts to which Seller or any of its
Affiliates is a party (i) which relate primarily to the operation of the
Business, other than the Excluded
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Contracts, Real Property Interests, Real Property Leases and Third Party
Intellectual Property Contracts, and (ii) any other contract to which Seller is
a party and is listed on Schedule 1.1-A.
"Assigned Permits" means, to the extent assignable, all permits,
licenses, franchises, approvals and authorizations of Seller or any of its
Affiliates issued or granted by any Governmental Authority that relate primarily
to the operation of the Business, other than the FCC Licenses and the Excluded
Permits.
"Assumed Liabilities" is defined in Section 2.4.1
"Automated Assets" is defined in Section 8.1.22(c).
"Bargained Welfare Plans" is defined in Section 11.2.3(a).
"BIA" is defined in Section 8.1.23.
"Base Purchase Price" is defined in Section 3.1.
"Bill of Sale and Assignment and Assumption Agreement" is defined in
Section 7.2(a).
"Bondholders" means the Persons listed on Schedule 8.1.7(b).
"Business" means the business of providing in the geographic area
comprising the Purchased Exchanges (i) local exchange, exchange access and
intra-LATA toll telecommunications services to end users, (ii) exchange access
telecommunications services to interexchange carriers and other local exchange
carriers, (iii) retail sales of telephone equipment and products, and (iv)
non-tariffed public communications (pay telephones), commercial
telecommunications services facilities leasing and other non-regulated services
and products.
"Buyer Pension" is defined in Section 11.2.1(c)(iii)(B).
"Buyer Pension Plan" and "Buyer Pension Plans" are defined in
Section 11.2.1(b).
"Buyer Savings Plan" and "Buyer Savings Plans" are defined in
Section 11.2.2(b).
"Buyer Welfare Plans" is defined in Section 11.2.3(a).
"Buyer's Actuary" is defined in Section 11.2.1(d)(ii).
"Buyer's Closing Certificate" is defined in Section 6.2.1.
"Calendar-Related" is defined in Section 8.1.22(c).
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
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"Closing" is defined in Section 7.1.
"Closing Date" is defined in Section 7.1.
"Closing Date Amount" is defined in Section 3.2(b)
"Closing Date Statement" is defined in Section 3.3
"Confidentiality Agreement" means the Confidentiality Agreement
dated as of November 20, 1998, among Buyer, Seller and certain Affiliates of
Seller.
"Construction Advances" means advances collected by Seller or any
Affiliate for the future performance of non-regulated construction in the
Purchased Exchanges.
"Contracts" means all contracts, leases, indentures, agreements, and
other legally binding arrangements.
"Customer Advances" means amounts arising from the operation of the
Business that have been billed and collected by Seller as of the Closing Date
but that are unearned because they relate to the provision of service after the
Closing Date.
"Customer Deposits" is defined in Section 10.7.
"Date Data" is defined in Section 8.1.22(c).
"Direct Claim" is defined in Section 12.4(b).
"Due Diligence Documents" means those documents contained in the six
volumes of information delivered to Buyer in connection with its review of the
Purchased Property.
"Earned End-User Accounts Receivable" means accounts receivable
arising primarily from the operation of the Business that have been earned by
Seller's provision of service on or before the Closing Date excluding amounts
billed through the carrier access billing system to interexchange carriers.
"Earned End-User Accounts Receivable Amount" means the aggregate
amount of all Earned Unbilled Accounts Receivable as of the Closing Date, less a
discount for anticipated uncollectible Earned End-User Accounts Receivable in an
amount equal to the Uncollectible Factor multiplied by Earned End-User Accounts
Receivable as of the Closing Date.
"Employment Agreements" is defined in Section 8.1.16(a).
"Environmental Requirements" means all federal, state, interstate
and local government or agency Laws relating to pollution or protection of human
health and safety or the environment (including, without limitation, air,
surface water, ground water, land surface and subsurface strata), including,
without limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of Regulated Materials; or otherwise relating to
the
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manufacture, processing, distribution, use, treatment, storage, disposal,
transportation or handling of Regulated Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Plans" is defined in Section 8.1.16(a).
"Estimated Non-Regulated Construction Work in Process Amount" is
defined in Section 3.2(a).
"Estimated Regulatory Obligation Amount" is defined in Section
3.2(a).
"Evaluation Material" is defined in the first paragraph of the
Confidentiality Agreement.
"Excluded Contracts" means (i) all billing and collection
agreements, interconnection agreements, national account agreements, billing
media agreements, vehicle leasing agreements, capital leases, Contracts between
Seller and Affiliates of Seller, except to the extent expressly listed on
Schedule 1.1-A, and (ii) such other agreements as are listed on Schedule 1.1-B.
"Excluded Marks" means all trademarks, applications for trademark
registration, service marks, applications for service mark registration, trade
names, domain names and related registrations owned by Seller or an Affiliate of
Seller, or licensed to Seller or an Affiliate of Seller by any Person, and any
derivations of the foregoing.
"Excluded Permits" means the permits, licenses, franchises,
approvals and authorizations of Seller or any Affiliates by Governmental
Authorities that relate to the Excluded Property.
"Excluded Property" is defined in Section 2.3.
"Executive Officer" of an entity means (i) in the case of Seller,
the regional president of the region that includes the Purchased Exchanges, the
general manager of infrastructure provisioning for the Purchased Exchanges and
the general manager of customer operations for the Purchased Exchanges, and (ii)
the case of Buyer, the executive officer(s) in charge of the transactions
contemplated by this Agreement.
"Existing Environmental Requirements" means those applicable
provisions of any Environmental Requirements that are both in effect and
required to be met by Seller prior to the Closing Date.
"Expiration Date" is defined in Section 12.1(a).
"FCC" means the Federal Communications Commission.
"FCC Consents" is defined in Section 4.4.
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"FCC Licenses" means all licenses, certificates, permits or other
authorizations granted to Seller or any Affiliates by the FCC that are used
primarily in the operation of the Business.
"Financial Statements" is defined in Section 8.1.21.
"Final Order" shall mean action by any governmental or regulatory
authority as to which (i) no request for stay by any Governmental Authority of
the action is pending, no such stay is in effect, and if any deadline for any
such request is designated by statute or regulation, such deadline is passed;
(ii) no petition for rehearing or reconsideration of the action is pending
before any Governmental Authority, and the time for filing any such petition has
passed; (iii) the Governmental Authority does not have the action under
reconsideration or its own motion and the time for such reconsideration has
passed; and (iv) no appeal to a court, or request to stay by a court, of the
Governmental Authority's action is pending or in effect and, if any deadline of
filing any such appeal or request is designated by statute or rule, it has
passed.
"FRP" is defined in Section 11.2.3(f).
"Future Capital Expenditure Obligations" is defined in Section
2.4.1(h).
"Future Regulatory Obligations" is defined in Section 2.4.1(g).
"GAAP" means United States generally accepted accounting principles.
"GATT Grandfathered Participant" is defined in Section
11.2.1(c)(ii)(C).
"Governmental Authority" means any court or any federal, state or
foreign governmental, legislative or regulatory body, agency, department,
authority or instrumentality.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnifiable Losses" is defined in Section 12.3(a).
"Indemnification Payment" is defined in Section 12.3(a).
"Indemnifying Party" is defined in Section 12.3(a).
"Indemnitee" is defined in Section 12.3(a).
"Intellectual Property" means all inventions (whether patentable or
not and whether or not such inventions are described or claimed in any patent or
patent application), designs (useful or ornamental), and works subject to
copyright protection, invention disclosures, specifications, manuals, drawings,
functional or system block diagrams, flow charts, circuit diagrams, design or
user documentation, engineering notebooks, schematics, test programs, documented
procedures, documented processes, documented flows, devices, software (in any
form), or firmware, and all intellectual property rights therein or based
thereon, including patents, patent applications (including continuations,
continuations-in-part, divisions, reissues),
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reexamined patents and extensions thereof, copyrights (whether registered or
unregistered), and trade secrets.
"Interim Capital Expenditure Obligations" is defined in Section
2.4.1(h).
"IRC" means the Internal Revenue Code of 1986, as amended.
"IRS" means the Internal Revenue Service.
"Law" or "Laws" means any statute, rule, regulation, ordinance,
judgment, order or decree of any Governmental Authority.
"Leased Real Property" means the real property leased to Seller or
its Affiliates under the Real Property Leases.
"License Agreement" means the license agreement attached hereto as
Schedule 1.1-D pursuant to which Seller grants to Buyer certain rights and
licenses under Licensed Intellectual Property.
"Licensed Intellectual Property" means Intellectual Property owned
by Seller or its Affiliates, and Third Party Intellectual Property licensed to
Seller or its Affiliates which Seller or its Affiliates can sublicense to Buyer
without the payment of compensation or other consideration to any Person, and
which Intellectual Property and Third Party Intellectual Property are required
for the use or maintenance (to the extent not provided by the owner or licensor
of the Third Party Intellectual Property) of or are included in or with the
Purchased Property in the operation of the Business as of the Closing; provided
that Licensed Intellectual Property shall at all times be Excluded Property.
"Lien" means any lien, charge, pledge, option, mortgage, security
interest or other encumbrance.
"Material Adverse Effect" means a materially adverse effect on the
Business or the Purchased Property, taken as a whole, other than effects
relating to or arising from (i) the execution of this Agreement, (ii) the United
States economy generally or the state of Nebraska in particular, or (iii) events
or circumstances that affect the Business in the same manner and to the same
extent as other businesses in the industry generally.
"Material and Supply Inventory" is defined in the FCC's Part 32
Uniform System of Accounts.
"Material Contracts" is defined in Section 8.1.11.
"Material Permits" is defined in Section 8.1.15(b).
"Merger" means the proposed merger involving GTE Corporation and
Bell Atlantic Corporation and their respective Subsidiaries.
"Native American Authorizations" is defined in Section 8.1.23(a).
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"Non-Regulated Construction Work in Process Amount" means the total
amount expended but not yet billed by Seller for non-regulated construction work
not completed prior to the Closing Date, minus any Construction Advances
outstanding as of the Closing Date. The Non-Regulated Construction Work in
Process Amount shall be billable by Buyer to third parties after the Closing
Date under open customer orders or other agreements.
"Non-Union Welfare Plans" is defined in Section 11.2.3(a).
"Optional Services Agreement" is defined in Section 9.2.
"Owned Real Property" means the real property owned in fee by Seller
or its Affiliates and used primarily in the operation of the Business, including
all land, buildings, structures, appurtenances and improvements located thereon.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Assets" is defined in Section 11.2.1(d)(i).
"Periodic Taxes" is defined in Section 10.5.
"Permitted Encumbrances" means (i) liens for current taxes and
assessments not yet delinquent, or the amount or validity of which is being
contested in good faith by appropriate proceedings during which collection or
enforcement against the relevant property is stayed, (ii) standard utility
easements, and covenants, conditions and restrictions of record that do not
individually or in the aggregate materially interfere with the operation of the
present Business on, or materially detract from the value of, the Owned Real
Property affected thereby, (iii) mechanics', carriers', workers', repairers' and
other statutory liens, (iv) existing zoning or similar laws or ordinances that
do not interfere with the operation of the Business, (v) leases otherwise
disclosed herein, and (vi) any other Liens and, in the case of Owned Real
Property, any title defects or exceptions, that do not materially interfere with
the operations of the Purchased Property in a manner consistent with the current
use by Seller or that do not materially detract from the value of, or materially
impair the marketability of, the Purchased Property affected.
"Person" means an individual, corporation, partnership, trust,
association, limited liability company or similar entity or organization.
"Plans" is defined in Section 8.1.16(a).
"Pole Attachment Agreement" is defined in Section 8.1.11(j).
"Proration Periods" is defined in Section 10.5.
"PSC" is defined in Section 4.1.
"Purchase Price" is defined in Section 3.3(c).
"Purchased Exchanges" means the telephone exchanges listed in
Schedule 1.1-C and any cross-border community served from any such exchange.
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"Purchased Property" is defined in Section 2.2.
"Real Property Interests" means all easements, rights of way,
licenses or other interests in real property of Seller or its Affiliates that
are used primarily in the operation of the Business, other than Owned Real
Property or Leased Real Property.
"Real Property Leases" means the Leases set forth on Schedule 8.1.8.
"Regulated Material" means (i) any "hazardous substance" as defined
in CERCLA, (ii) any petroleum or petroleum substance, and (iii) any other
pollutant, waste, contaminant, or other substance regulated under Environmental
Requirements.
"Regulatory Approvals" is defined in Section 4.1.
"Regulatory Obligation Amount" is defined in Section 3.1.
"Retained Books and Records" means, collectively, all corporate
records and stock books of Seller and its Affiliates, the general ledger, all
records required by Law to be retained by Seller and all books and records
relating to (i) Tax Returns and Tax records, (ii) Excluded Property, (iii)
attorney work product, and (iv) the Retained Liabilities.
"Retained Future Regulatory Obligations" is defined in Section
2.4.1(g).
"Retained Liabilities" is defined in Section 2.4.2.
"SEC Financial Statements" is defined in Section 5.5.
"Seller Hourly Pension Plan" is defined in Section 11.2.1(a)(ii).
"Seller Pension" is defined in Section 11.2.1(c)(iii)(B).
"Seller Pension Plan" and "Seller Pension Plans" are defined in
Section 11.2.1(a)(ii).
"Seller Salaried Pension Plan" is defined in Section 11.2.1(a)(i).
"Seller Savings Plans" are defined in Section 11.2.2(a).
"Seller Welfare Plans" is defined in Section 11.2.3(a).
"Seller's Actuary" is defined in Section 11.2.1(d)(ii).
"Seller's Closing Certificate" is defined in Section 6.1.1.
"Switch Software" shall mean software currently used by Seller to
operate telecommunications switching equipment that is part of the Telephone
Plant.
"System Date" is defined in Section 8.1.22(c).
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"Tax Returns" means a report, return or other information statement
required to be supplied to or filed with a Governmental Authority with respect
to Taxes.
"Tax(es)" means any foreign, federal, state, county or local income,
sales, use, transfer, excise, franchise, stamp duty, custom duty, real and
personal property, gross receipt, capital stock, business and occupation,
disability, employment, payroll, recording, ad valorem, unemployment
compensation, profits, registration, social security, estimated, add-on,
minimum, or withholding tax relating to the Business or the Purchased Exchanges
and any interest and penalties and additions to such taxes (civil or criminal)
related thereto or to the nonpayment thereof and related notarial fees.
"Telephone Plant" means (i) Owned Real Property, (ii) Real Property
Interests, and (iii) the machinery, equipment, inventory, vehicles and all other
assets and properties used primarily in the operation of the Business, including
all plant, systems, structures, construction work in progress, telephone cable
(whether in service or under construction), microwave facilities (including
frequency spectrum assignment), telephone line facilities, machinery, furniture,
fixtures, tools, implements, conduits, stations, substations, equipment
(including central office equipment, subscriber station equipment and other
equipment in general), instruments and house wiring connections. Without
limiting the generality of the foregoing, Telephone Plant includes the assets
used primarily in the operation of the Business that would be properly included
in the fixed assets referenced in Part 32 of the FCC Rules and Regulations (47
CFR, Part 32), as such accounts are reflected in Schedule 8.1.17.
"Third Party Claim" is defined in Section 12.4(a).
"Third Party Intellectual Property" means Intellectual Property
owned by any Person, other than Seller, without regard as to whether Seller has
any rights therein or the right to assign such rights to Buyer.
"Third Party Intellectual Property Contracts" is defined in Section
10.1.4.
"Total Service Pension" is defined in Section 11.2.1(c)(iii)(B).
"Transaction Taxes" is defined in Section 10.11.
"Transferred Books and Records" means all of Seller's or its
Affiliates' customer or subscriber lists and records, accounts and billing
records, plans, blueprints, specifications, drawings, surveys, engineering
reports, personnel records of Transferred Employees (where applicable) and all
other documents, computer data and records, in each case relating primarily to
the operation of the Business, except for the Retained Books and Records.
"Transferred Employees" is defined in Section 11.1.
"Transition Services Agreement" is defined in Section 9.1.
"Uncollectible Factor" is defined in Section 10.16(b).
"Year 2000 Compliant" is defined in Section 8.1.22(c).
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1.2 Interpretation.
(a) Unless the context otherwise requires, (i) all references
to Sections, Articles or Schedules are to Sections, Articles or Schedules of or
to this Agreement, (ii) each accounting term not otherwise defined in this
Agreement has the meaning assigned to it in accordance with GAAP, (iii) all
references to the "knowledge" of Seller are deemed to refer to the actual
knowledge of the Executive Officers of Seller, (iv) all references to the
"knowledge" of Buyer or "knowledge" obtained by Buyer are deemed to refer to the
actual knowledge of the Executive Officers of Buyer, except as otherwise
provided herein, (v) the term "primarily" means primarily or exclusively, and
(vi) the term "including" means including without limitation.
(b) No provision of this Agreement will be interpreted in
favor of or against either of the parties by reason of the extent to which any
such party or its counsel participated in the drafting thereof or by reason of
the extent to which any such provision is inconsistent with any prior draft of
such provision or of this Agreement.
ARTICLE 2
PURCHASE AND SALE OF ASSETS
2.1 Purchase and Sale of Assets. Upon the terms and subject to the
conditions of this Agreement, Seller hereby agrees to sell, convey, transfer,
assign and deliver to Buyer and Buyer hereby agrees to purchase, acquire and
accept from Seller, in each case effective as of the Closing, all of Seller's
and each of its Affiliates' right, title and interest in and to the Purchased
Property.
2.2 Purchased Property. The term "Purchased Property" means all the
following business, properties, assets and rights of Seller and its Affiliates
on the Closing Date, other than the Excluded Property:
(i) Telephone Plant;
(ii) Earned End-User Accounts Receivable;
(iii) Material and Supply Inventories;
(iv) Non-Regulated Construction Work in Process;
(v) FCC Licenses and Assigned Permits;
(vi) Assigned Contracts;
(vii) Transferred Books and Records;
(viii) Real Property Leases; and
(ix) all other business, property, assets, work in process and
rights of Seller on the Closing Date not described above that
relate primarily to the Purchased Exchanges.
2.3 Excluded Property. For purposes of this Agreement, "Excluded Property"
means the following:
(a) Cash, cash equivalents and investments;
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(b) All rights of Seller and its Affiliates under this
Agreement, the Ancillary Documents and the certificates and other documents
delivered to Seller by Buyer in connection with this Agreement;
(c) All records prepared in connection with the sale of the
Business, including bids received from third parties and analysis relating to
the Business;
(d) All rights related to the Retained Liabilities;
(e) The Retained Books and Records;
(f) Seller's and its Affiliates' interests in any business
other than the Business, including the provision of wireless service (cellular
and PCS), long distance and internet service or internet related services,
air-to-ground communications (air phone service), and any Excluded Permits
related thereto, and all assets of Seller and its Affiliates used in connection
with any such business or related thereto, and all assets used by Seller and its
Affiliates in rendering corporate services to Seller or the Business that are
located outside the geographic area comprising the Purchased Exchanges;
(g) Such other assets (i.e., encryption decoder devices, AWAS
terminals, SODA, etc.), if any, as set forth on Schedule 2.3(g);
(h) The Excluded Contracts;
(i) The Excluded Marks;
(j) All Intellectual Property, including the Licensed
Intellectual Property and Third Party Intellectual Property (except for such
rights to possess and use Third Party Intellectual Property as may be assigned
in accordance with Section 10.1.4); and
(k) All of Seller's and its Affiliates' insurance proceeds
arising in connection with the operation of the Business or the Purchased
Property prior to the Closing.
2.4 Assumption of Liabilities.
2.4.1 Assumed Liabilities. Upon the terms and subject to the
conditions of this Agreement, Buyer hereby agrees to assume, as of the Closing
Date, and agrees to pay, perform and discharge when due, all liabilities,
responsibilities and obligations, beginning on the day following the Closing
Date, relating to the Purchased Property other than the Retained Liabilities
(subject to any different allocation of liability set forth in clauses (b), (c),
(g) and (h) below) (the "Assumed Liabilities"), including the following:
(a) Ordinary Course. All liabilities, responsibilities and
obligations (including Taxes), arising out of or accruing or resulting from the
use or ownership of the Purchased Property in the ordinary course after the
Closing Date;
(b) Employment Matters. All liabilities, responsibilities and
obligations of Buyer as provided in Article 11 with respect to Transferred
Employees;
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(c) Assigned Contracts, Real Property Interests and Real
Property Leases. All liabilities, responsibilities and obligations that arise in
connection with the performance of the Assigned Contracts, Real Property
Interests and the Real Property Leases, other than performance obligations of
Seller that mature prior to the Closing Date;
(d) Joint Construction Projects. All liabilities,
responsibilities and obligations to third parties that relate to arrangements
and commitments between Seller and a third party for the construction of mutual
transmission facilities between various switching points included in the
Purchased Exchanges;
(e) Construction in Progress. All liabilities,
responsibilities and obligations relating to post-Closing engineering and
construction required to complete scheduled construction and other capital
expenditure projects for the Purchased Exchanges;
(f) Customer Deposits and Construction Advances. All
liabilities, responsibilities and obligations relating to Customer Advances,
Customer Deposits and Construction Advances;
(g) Future Regulatory Obligations. All liabilities,
responsibilities and obligations, other than Future Capital Expenditure
Obligations, related to the Purchased Exchanges arising out of any rule,
regulation, law, mandate, decision or order of the FCC or the PSC after the
Closing Date regardless of whether the action taken by such Governmental
Authority is or purports to be based on conduct or actions that occurred at any
time prior to the Closing Date ("Future Regulatory Obligations"); provided that
Buyer shall not be liable for any such Future Regulatory Obligation arising
directly out of any intentional misconduct or material misstatement to the PSC
by Seller that occurred prior to the Closing Date, except for such statements as
may be based on reasonable interpretations of existing PSC regulations and
current industry practice ("Retained Future Regulatory Obligations");
(h) Future Capital Expenditure Obligations. All liabilities,
responsibilities and obligations related to the Purchased Exchanges arising out
of any rule, regulation, law, mandate, decision or order of the FCC or the PSC
(i) issued at any time and requiring any capital expenditure after the Closing
Date, regardless of whether the action taken by such Governmental Authority is
or purports to be based on conduct, facts or actions that occurred at any time
prior to the Closing Date ("Future Capital Expenditure Obligations"); and (ii)
issued after the date of this Agreement and requiring any capital expenditure
after the date of this Agreement, regardless of whether the action taken by such
Governmental Authority is or purports to be based on conduct, facts or actions
that occurred at any time prior to the date of this Agreement ("Interim Capital
Expenditure Obligations"); provided that (i) Seller shall retain liability for
Interim Capital Expenditure Obligations incurred prior to Closing to the extent
related to (A) FCC or PSC orders that impose capital expenditure obligations as
a result of Seller's overearnings, (B) Seller's efforts to comply with FCC or
PSC rules, regulations, laws, mandates, decisions or orders existing as of the
date of this Agreement, or (C) capital expenditures already planned by Seller;
and (ii) Seller shall retain liability for all other Interim Capital Expenditure
Obligations to the extent Seller is fully reimbursed by Buyer at Closing for
such obligations. Prior to the Closing Date, Seller shall notify Buyer of all
potential Future or
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Interim Capital Expenditure Obligations within a reasonable time after
publication of said obligations by a Governmental Authority; and
(i) Litigation and Claims. All liabilities and obligations
arising out of (i) litigation and claims that arise out of an occurrence after
the Closing Date, (ii) litigation and claims in respect of Future Regulatory
Obligations (other than Retained Future Regulatory Obligations) regardless of
when filed, and (iii) claims of a Governmental Authority arising from or related
to a Future Regulatory Obligation (other than Retained Future Regulatory
Obligations).
Notwithstanding anything in this Section 2.4.1 to the contrary, "Assumed
Liabilities" shall not include any liabilities, responsibilities or obligations
expressly included in Retained Liabilities pursuant to Section 2.4.2.
2.4.2 Retained Liabilities. Seller shall retain and shall pay,
perform and discharge when due, the following liabilities, responsibilities and
obligations of Seller (the "Retained Liabilities"):
(a) Subject to Section 10.5, all trade payables and other
accrued payment obligations of Seller as of the Closing Date;
(b) All long-term debt of Seller (including indebtedness to
the Bondholders) and debt of Seller owed to any one or more of its Affiliates;
(c) Subject to Section 10.5, all Taxes relating to the
operation of the Business on or before the Closing Date or the use, ownership or
operation of the Purchased Property on or before the Closing Date;
(d) Except to the extent otherwise provided in Article 11, all
liabilities and obligations arising on or before the Closing Date with respect
to the Transferred Employees, including (i) all liabilities responsibilities and
obligations arising on or before the Closing Date relating to collective
bargaining agreements or other union contracts, and (ii) any such liabilities or
obligations that arise after the Closing Date to the extent that such
liabilities and obligations relate to facts, circumstances or conditions arising
or occurring on or before the Closing Date, but excluding any Future Regulatory
Obligations with respect to the Transferred Employees;
(e) All liabilities, responsibilities and obligations arising
out of litigation and claims that arise out of an occurrence prior to the
Closing Date other than litigation and claims in respect of Future Regulatory
Obligations (other than Retained Future Regulatory Obligations);
(f) Any Retained Future Regulatory Obligations; and
(g) All liabilities, responsibilities and obligations with
respect to the Excluded Property and the Excluded Contracts.
2.5 No Assignment Without Consent. Notwithstanding anything to the
contrary contained in this Agreement, to the extent that the sale, conveyance,
transfer, assignment or
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delivery or attempted sale, conveyance, transfer, assignment or delivery to
Buyer of any Purchased Property (including any Contract) is prohibited by any
applicable Law or would require any governmental or third-party authorizations,
approvals, consents or waivers and such authorizations, approvals, consents or
waivers shall not have been obtained prior to the Closing, this Agreement shall
not constitute a sale, conveyance, transfer, assignment or delivery, or an
attempted sale, conveyance, transfer, assignment or delivery thereof, if any of
the foregoing would constitute a breach of applicable Law or the rights of any
third party; provided, however, that, except to the extent that a condition to
Closing set forth in Article 6 relating to the foregoing shall not be satisfied,
the Closing shall occur notwithstanding the foregoing without any adjustment to
the Purchase Price on account of such required authorization. Following the
Closing, the parties shall use their commercially reasonable efforts, and shall
cooperate with each other, to obtain promptly such authorizations, approvals,
consents or waivers; provided, however, that neither Seller nor Buyer nor any of
their respective Affiliates shall be required to pay any consideration therefor,
other than filing, recordation or similar fees payable to any Governmental
Authority, which fees shall be shared equally by Seller and Buyer. Pending or in
the absence of such authorization, approval, consent or waiver, the parties
shall cooperate with each other in any reasonable and lawful arrangements to
provide to Buyer the benefits and liabilities of use of such Purchased Property,
including, if permitted by the terms of any Real Property Lease or applicable
Material Contract, through a sublease or subcontract in accordance with Section
4.3. If such authorization, approval, consent or waiver for the sale,
conveyance, transfer, assignment or delivery of any such Purchased Property is
obtained, Seller shall promptly convey, transfer, assign and deliver, or cause
to be conveyed, transferred, assigned and delivered, such Purchased Property to
Buyer.
ARTICLE 3
PURCHASE PRICE
3.1 Purchase Price. The purchase price for the Purchased Property shall be
the sum of (i) Two Hundred and Four Million dollars ($204 million) (the "Base
Purchase Price"), (ii) amounts expended by Seller to comply with Interim Capital
Expenditure Obligations (the "Regulatory Obligation Amount"), and (iii) the
Non-Regulated Construction Work in Process Amount. Payments from Buyer to Seller
for Earned End-User Accounts Receivable and from Seller to Buyer for Customer
Advances and Customer Deposits will occur subsequent to Closing in accordance
with Article 10.
3.2 Closing Date Estimate.
(a) Not less than three (3) business days prior to the Closing
Date, Seller will give to Buyer a notice, setting forth Seller's good faith
estimate as of the Closing Date of (i) the Regulatory Obligation Amount (the
"Estimated Regulatory Obligation Amount") and (ii) the Non-Regulated
Construction Work in Process Amount (the "Estimated Non-Regulated Construction
Work in Process Amount").
(b) On the Closing Date, Buyer shall pay to Seller the sum of
(i) the Base Purchase Price, (ii) the Estimated Regulatory Obligation Amount,
and (iii) the Estimated Non-Regulated Construction Work in Process Amount, (the
"Closing Date Amount"). The Closing Date Amount shall be paid by delivery on the
Closing Date of immediately available
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funds in U.S. dollars by wire transfer to an account that Seller shall designate
to Buyer at least two (2) business days prior to the Closing Date.
3.3 Closing Date Statement.
(a) Within sixty (60) days after Closing Date, Seller shall
prepare and deliver to Buyer a written statement of the Base Purchase Price,
Regulatory Obligation Amount and the Non-Regulated Construction Work in Process
Amount ("Closing Date Statement").
(b) Within fifteen (15) days after receipt of the Closing Date
Statement, Buyer shall, in a written notice to Seller, either accept the Closing
Date Statement or describe in reasonable detail any proposed adjustments to the
Closing Date Statement and the reasons therefore. If Seller shall not have
received a notice of proposed adjustments within such fifteen (15) day period,
Buyer will be deemed irrevocably to have accepted such Closing Date Statement.
(c) Upon the acceptance of any Closing Date Statement by
Buyer, the parties shall, based thereupon, calculate the amount equal to the sum
of the Base Purchase Price, Regulatory Obligation Amount and Non-Regulated
Construction Work in Process Amount (collectively, the "Purchase Price"). If the
Purchase Price as finally determined above is greater than the Closing Date
Amount, Buyer shall promptly, but no later than three (3) business days after
such acceptance, pay to Seller the amount of such difference. If the Purchase
Price as determined above is less than the Closing Date Amount, Seller shall
promptly, but no later than three (3) business days after such acceptance, pay
to Buyer the amount of such difference.
(d) Seller and Buyer shall negotiate in good faith to resolve
any disputes over any proposed adjustments to the Closing Date Statement,
provided that if any such dispute is not resolved within thirty (30) days
following Seller's receipt of the proposed adjustments, Buyer and Seller jointly
shall select an independent public accounting firm that is nationally recognized
in the United States to resolve such disputes in accordance with the standards
set forth in this Section 3.3, which resolution shall be final and binding. The
fees and expenses of such accounting firm shall be shared by Buyer and Seller in
inverse proportion to the relative amounts of the disputed amount determined to
be for the account of Buyer and Seller, respectively.
(e) If Buyer disputes any portion of the Closing Date
Statement, the parties shall calculate the portion of the Closing Statement that
is not the subject of any dispute or proposed adjustment. If the undisputed
portion of the Closing Statement (A) is greater than the respective estimated
amounts paid on the Closing Date, Buyer shall promptly pay Seller the amount of
such difference, or (B) is less than the respective estimated amounts paid on
the Closing Date, Seller shall promptly pay Buyer the amount of such difference.
Payments with respect to any undisputed portions of these adjustments shall be
made no later than three (3) business days after delivery of notice of the
proposed adjustments. Upon resolution of any dispute over any proposed
adjustments as described above in Section 3.3(d), a party which is determined to
owe the other party an amount shall pay that amount promptly, but no later than
three (3) business days after resolution.
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(f) Any amount paid pursuant to this Section 3.3 after the
Closing Date shall bear interest from the Closing Date through but excluding the
date of payment, at a rate of eight percent (8%) per annum. Such interest shall
accrue daily on the basis of a year of three hundred sixty-five (365) days and
the actual number of days for which due and shall be payable together with the
amount payable pursuant to this Section 3.3. All amounts payable pursuant to
this Section 3.3 shall be paid by delivery of immediately available funds in
U.S. dollars by wire transfer to, in the case of amounts payable by Buyer, the
account identified by Seller as described in 3.2 above or to an alternate
account that Seller may designate on the Closing Date Statement and, in the case
of amounts payable by Seller, to such account of Buyer as Buyer shall designate
in writing to Seller.
ARTICLE 4
REQUIRED APPROVALS, CONSENTS AND NOTIFICATIONS
4.1 State Regulatory Approval. Promptly after the date of this Agreement,
Buyer and Seller shall file the appropriate applications and notices with the
Nebraska Public Service Commission (collectively, the "PSC"), seeking orders
permitting the transfer of service in the Purchased Exchanges to Buyer
(collectively, the "Regulatory Approvals"). Buyer will be responsible for
establishing the tariff for its post-Closing operations in the Purchased
Exchanges. Each party agrees to use its commercially reasonable efforts to
obtain the Regulatory Approvals and the parties agree to cooperate fully with
each other and with the applicable regulatory agency to obtain the Regulatory
Approvals at the earliest practicable date.
4.2 Debtholder Consents. Seller shall use its commercially reasonable
efforts to obtain from its Bondholders the termination or release, at Closing,
of all security agreements, mortgages and financing statements relating to the
Purchased Property (such termination or release being hereinafter referred to as
the "Debtholder Consents").
4.3 Landlord and Other Consents. Promptly after the date hereof, the
parties shall use their commercially reasonable efforts to mutually seek the
consent of (i) the lessor to any Leased Real Property that requires consent as a
condition to an assignment of the lease (which consents are identified in
Schedule 8.1.8) and (ii) the applicable third party with respect to certain
Material Contracts that require consent as a condition to assignment of such
Material Contract (which consents are identified on Schedule 8.1.11). If a
lessor refuses to consent to such an assignment, and if the applicable lease or
Material Contract permits a sublease or subcontract without the consent of the
lessor or other third party, the parties hereto shall, effective as of the
Closing, enter into a sublease or subcontract upon terms and conditions as
similar and comparable to an assignment of the lease or Material Contract as is
reasonably feasible.
4.4 FCC Consents. Promptly after the date of this Agreement, the parties
shall use their commercially reasonable efforts to obtain (i) the FCC's consent
to the transfer of the FCC Licenses from Seller to Buyer, and (ii) the FCC
waivers set forth on Schedule 4.4 (all such consents or waivers are collectively
referred to as the "FCC Consents").
4.5 HSR Act Review. Within thirty (30) days after the date hereof, or such
later date as the parties may mutually agree, the parties will make such filings
as may be required by the
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HSR Act with respect to the transactions contemplated by this Agreement.
Thereafter, the parties will file as promptly as practicable all reports or
other documents required or requested by the U.S. Federal Trade Commission or
the U.S. Department of Justice pursuant to the HSR Act or otherwise and will
comply promptly with any requests by the Federal Trade Commission or the U.S.
Justice Department for additional information concerning such transactions, so
that the waiting period specified in the HSR Act will expire as soon as
reasonably possible after the execution and delivery of this Agreement. Without
limiting the foregoing, Seller and Buyer agree to use their commercially
reasonable efforts to cooperate and oppose any preliminary injunction sought by
any Governmental Authority preventing the consummation of the transactions
contemplated by this Agreement. Buyer agrees to pay all application fees
required in connection with any filings under the HSR Act.
Seller and Buyer shall cause their respective counsel to furnish
each other such necessary information and reasonable assistance as the other may
reasonably request in connection with its preparation of necessary filings or
submissions under the provisions of the HSR Act. Seller and Buyer will cause
their respective counsel to supply to each other copies of all correspondence,
filings or written communications by such party or its Affiliates with any
Governmental Authority or staff members thereof, with respect to the
transactions contemplated by this Agreement and any related or contemplated
transactions, except for documents filed pursuant to Item 4(c) of the
Hart-Scott-Rodino Notification and Report Form or communications regarding the
same documents or information submitted in response to any request for
additional information or documents pursuant to the HSR Act which reveal
Seller's or Buyer's negotiating objectives or strategies or purchase price
expectations.
4.6 GTE/Bell Atlantic Merger. Notwithstanding anything else contained in
this Agreement, but without modification of the rights of Buyer under Sections
6.1, 11.6.2, 12.2(a) or 13.1, Seller shall not be obligated to take any action
that would violate the terms of its agreements regarding the Merger, or that
would interfere with, delay or prevent the consummation of the Merger. In the
event that the Closing does not occur as a direct result of the Merger, and not
through any fault of Buyer, Seller's liability to Buyer under this Agreement
shall be limited to the amount of Buyer's reasonable out-of-pocket expenses
incurred in connection with this Agreement.
ARTICLE 5
PRE-CLOSING COVENANTS
5.1 Investigation by Buyer. Prior to the Closing, upon reasonable notice
from Buyer to Seller given in accordance with this Agreement and subject to
approval by Seller's appointed representative, Seller will afford to the
authorized representatives of Buyer reasonable access during normal business
hours to the Transferred Books and Records, the Owned Real Property the Leased
Real Property and the other Purchased Property so as to afford Buyer the
opportunity to make such review, examination and investigation of the Business
and the Purchased Property as Buyer may reasonably request; provided, however,
that no environmental sampling or other testing shall be performed without
Seller's prior written consent, which consent may be given or withheld in
Seller's sole discretion. Buyer will not contact any employee, customer or
supplier of Seller with respect to this Agreement, the matters involved herein
or the Purchased Property without the prior written consent of Seller. Nothing
herein will obligate Seller to take actions
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that would unreasonably disrupt the normal course of the business of Seller or
violate the terms of any applicable Law or any Contract to which Seller or any
of its Affiliates is a party or to which any of its assets is subject. Any
information or documentation provided to Buyer or acquired by Buyer during this
investigation shall be deemed "Evaluation Material" as that term is defined in
the Confidentiality Agreement and shall be subject in all cases to the terms of
the Confidentiality Agreement.
5.2 Operation of the Business in the Ordinary Course.
5.2.1 Preservation of Business. Except as contemplated on Schedule
5.2.1 or as otherwise consented to by Buyer prior to the Closing, from the date
of this Agreement until the Closing Seller shall:
(a) Conduct the Business in the ordinary course consistent
with past practice and shall keep available to the Business its services and the
services of its Affiliates to the same extent generally available on the date
hereof;
(b) Operate the Business in substantially the same manner as
it is presently being conducted, and, with respect to the Business, refrain from
entering into any Contract that would be a Material Contract other than in the
ordinary course of business;
(c) Not institute any proceeding with respect to, or otherwise
change, amend or supplement any of its tariffs or make any other filings with
the PSC except in the ordinary course of business, and except as disclosed on
Schedule 8.1.15(a);
(d) Maintain the Purchased Property in good repair, order and
condition, reasonable wear and use excepted, and maintain the Materials and
Supply Inventory in the ordinary course of business consistent with past
practice;
(e) Maintain insurance with respect to the Purchased Property
consistent with past practice;
(f) Make capital expenditures sufficient to support normal
maintenance and customer growth in the Purchased Exchanges in a manner
consistent with established regulatory performance objectives, which
expenditures in (a) calendar year 1999 shall not be less than $4,881,000, and
(b) calendar year 2000 shall not be less than $300,000 per month; and
(g) Maintain the books and records of the Business
substantially in accordance with prior practice, except as changes are mandated
by Governmental Authorities or required by GAAP.
5.2.2 No Material Changes. Except as contemplated by this Agreement
or as otherwise consented to by Buyer prior to the Closing, from the date of
this Agreement until the Closing, Seller will not:
(a) Make any material change in the general nature of the
Business;
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(b) Sell, lease or dispose of, or make any Contract for the
sale, lease or disposition of any Purchased Property, other than in the ordinary
course of business;
(c) Increase the benefit provided under any plans concerning
employee benefits or increase the general rates of compensation of its
Transferred Employees, except (i) as required by Law, (ii) pursuant to any
Contract to which Seller is a party existing on the date hereof and listed on
Schedule 5.2.2(c), (iii) increases in base pay in the ordinary course of
business of Seller and in amounts consistent with the recent past practices of
Seller, or (iv) as listed or described on Schedule 5.2.2(c);
(d) (i) Materially amend, modify or terminate any Material
Contract or permit any of the foregoing to occur other than in the ordinary
course of business; or (ii) sell, transfer or otherwise dispose of any Purchased
Property other than in the ordinary course of business or as listed or described
on Schedule 5.2.2(d), or encumber any Purchased Property, except for Permitted
Encumbrances; or
(e) Enter into any new written employment agreement, or union
agreement with, or commitment to, the Transferred Employees (including any new
commitment to pay retirement or other benefits or other amendments to Seller's
retirement plans), provided that Seller may enter into new union agreements to
the extent the new union agreements succeed any union agreement that expires
prior to the Closing. Prior to finalizing any such new union agreement, Seller
shall advise Buyer of its material terms and following the execution of any such
agreement, Seller shall deliver a copy to Buyer.
5.3 Satisfaction of Conditions. Without limiting the generality or effect
of any provision of Article 6, the parties will use their commercially
reasonable efforts to satisfy promptly all the conditions required to be
satisfied prior to the Closing.
5.4 Approvals.
(a) Between the date of this Agreement and the Closing Date,
Buyer and Seller will (i) cooperate with one another and take all reasonable
steps to obtain, as promptly as practicable, all consents, approvals,
authorizations, waivers and permits of any Governmental Authorities required of
either party to consummate the transactions contemplated by this Agreement and
(ii) provide such other information and communications to any Governmental
Authority as may be reasonably requested.
(b) To the extent that any consents, approvals, authorization
or waiver of a third party with respect to any (i) Assigned Contract, (ii)
Assigned Permit or (iii) any Pole Attachment Agreement, government grant or
railroad crossing agreement listed on Schedule 8.1.18, is required in connection
with the transactions contemplated by this Agreement, Seller shall use its
commercially reasonable efforts to obtain such authorization, consent, approval
or waiver prior to the Closing Date.
5.5 Audit or Review of Financial Statements. To the extent Buyer requires
an additional audit or review of financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission under Regulations
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S-K and S-X, Seller will cooperate with the independent auditors chosen by Buyer
to audit or review the Financial Statements delivered by Buyer in accordance
with Section 8.1.21 and such other financial statements as may be required by
Buyer to comply with Regulations S-K and S-X (collectively, the "SEC Financial
Statements"). Seller's cooperation will include such access to workpapers and
other supporting documents used in the preparation of the SEC Financial
Statements and delivery of one or more representation letters from Seller to
such auditors as may be reasonably required by such auditors to perform an audit
in accordance with generally accepted auditing standards or a review in
accordance with AICPA standards and to render an opinion acceptable to the SEC
with respect to the audit or review of the SEC Financial Statements, it being
understood that such representation letters shall acknowledge (i) Seller's
extensive use of estimates and allocations in the preparation of the SEC
Financial Statements, and (ii) Seller's belief that the SEC Financial Statements
represent the financial condition and results of operations of the Business, in
accordance with GAAP, and that such estimates and allocations were made on a
reasonable basis and in accordance with GAAP. However, Buyer acknowledges that
because the Business represents only a portion of Seller, Buyer is not acquiring
significant support elements located outside the Purchased Exchanges, and Buyer
will operate under new tariffs, carrier contracts and other conditions that will
significantly impact the future revenues of the Business, the Financial
Statements may not be representative of the financial performance of the
Business during future periods. Seller will bear the cost of the preparation of
its financial statements, including the SEC Financial Statements. Buyer will
bear the cost of the preparation of any other financial statements that it will
be required to file with the SEC, as well as the cost of the audit or review of
the SEC Financial Statements. Buyer acknowledges that the SEC Financial
Statements and any supporting documentation have been made available as an
indication of the historical financial performance and condition of the
Business. Except to the extent that the SEC Financial Statements reflect
intentional misrepresentation or fraud, Buyer agrees not to make any claim
related to the performance of the Business after the date of the SEC Financial
Statements on the basis of a comparison to the SEC Financial Statements.
5.6 Cooperation with Respect to Like-Kind Exchange. Buyer agrees that
Seller's transfer of the Purchased Property may, at Seller's election, be
accomplished in a manner enabling such transfer to qualify as part of a
like-kind exchange of property covered by Section 1031 of the IRC. If Seller so
elects, Buyer shall cooperate with Seller (but without being required to incur
any out-of-pocket costs in the course thereof) in connection with Seller's
efforts to effect such like-kind exchange, which cooperation shall include,
without limitation, taking such actions as Seller requests in order to enable
Seller to qualify such transfer as part of a like-kind exchange of property
covered by Section 1031 of the IRC (including any actions required to facilitate
the use of a "qualified intermediary" within the meaning of the United States
Treasury Regulations), and Buyer agrees that Seller may assign all or part of
its rights (but no obligations) under this Agreement to a person or entity
acting as a qualified intermediary to qualify the transfer of the Purchased
Property as part of a like-kind exchange of property covered by Section 1031 of
the IRC. Buyer and Seller agree in good faith to use reasonable efforts to
coordinate the transactions contemplated by this Agreement with any other
transactions engaged in by either Buyer or Seller; provided that such efforts
are not required to include an unreasonable delay in the consummation of the
transactions contemplated by this Agreement.
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5.7 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information as Buyer may reasonably request in connection with Buyer's
replacement of the interconnection agreements relating to the Purchased
Exchanges, including supplying to Buyer copies of such interconnection
agreements to the extent permissible.
5.8 Leased Vehicles; Capital Leases. Seller or its Affiliates, as
applicable, will pay the remaining balances on any vehicle leases or any capital
leases relating to assets included in the Purchased Property and at Closing will
deliver to Buyer title to such vehicles and assets, free and clear of all Liens.
5.9 Delivery of Interim Information. From the date of this Agreement until
the Closing, Seller shall furnish Buyer monthly reports concerning the operating
performance of the Business. Such reports shall contain such data as are
typically reported to GTE management with respect to the Purchased Exchanges,
including access line counts and service measures. Seller shall provide Buyer
reasonable access to Seller's management in order to discuss such data. In the
event of any significant deterioration in operating performance, Seller shall
consult with Buyer concerning its response. All information provided in
accordance with this Section 5.9 shall be subject to the Confidentiality
Agreement and to compliance with applicable antitrust Laws.
ARTICLE 6
CONDITIONS PRECEDENT TO THE CLOSING
6.1 Conditions Precedent to Obligations of Buyer. The obligations of Buyer
to consummate the Closing shall be subject to the satisfaction or waiver by
Buyer, at or prior to the Closing, of each of the following conditions, any one
or more of which may be waived at the option of Buyer:
6.1.1 No Misrepresentation or Breach of Covenants and Warranties.
Seller shall have complied in all material respects with its covenants to be
performed in whole or in part prior to the Closing, and the representations and
warranties of Seller in Section 8.1 shall be true and correct as of the Closing,
except for (i) such representations or warranties that are made expressly as of
an earlier date, which shall have been true and correct as of such date except
as would not have a Material Adverse Effect, and, (ii) to the extent that any
breach of such representations and warranties has not, individually or in the
aggregate, had a Material Adverse Effect; and Seller shall have delivered to
Buyer a certificate ("Seller's Closing Certificate") in the form attached as
Schedule 6.1.1, dated the Closing Date and signed by an Executive Officer of
Seller, certifying each of the foregoing, or specifying those respects in which
such covenants have not been performed or such representations and warranties
are not true and correct.
6.1.2 Documents. Seller shall have delivered to Buyer all documents
required by Section 7.2.
6.1.3 HSR. All required waiting periods under the HSR Act shall have
expired or been terminated.
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6.1.4 No Legal Obstruction. Each of the required Debtholder Consents
shall have been obtained, and each of the required Regulatory Approvals and FCC
Consents shall have been obtained, free of any special term, condition,
restriction, imposed liability or other provision that is reasonably likely to
have a Material Adverse Effect, and the FCC and PSC shall not otherwise have
taken any action with respect to the Purchased Property that is reasonably
likely to have a Material Adverse Effect. For purposes of this Section 6.1.4,
any tariff that is substantially similar in all material respects to the
existing tariff with respect to the applicable Purchased Exchange shall be
deemed not to have a Material Adverse Effect. For purposes of this Agreement,
all such approvals and consents shall be deemed to have been obtained upon the
granting of a Final Order. In addition, there shall not have been entered a
preliminary or permanent injunction, temporary restraining order or other
judicial or administrative order or decree in any competent jurisdiction, the
effect of which prohibits the Closing.
6.1.5 No Material Adverse Effect. There shall not have occurred any
event or condition which individually or in the aggregate has resulted in a
Material Adverse Effect.
6.2 Conditions Precedent to Obligations of Seller. The obligations of
Seller to consummate the Closing shall be subject to the satisfaction or waiver
by Seller, at or prior to the Closing, of each of the following conditions:
6.2.1 No Misrepresentation or Breach of Covenants and Warranties.
Buyer shall have complied in all material respects with its covenants to be
performed in whole or in part prior to the Closing, and the representations and
warranties of Buyer in Section 8.2 shall be true and correct in all material
respects as of the Closing, except (i) for such representations or warranties
made expressly as of and only as of an earlier date, which shall be true and
correct as of such date except as would not have a Material Adverse Effect, and
(ii) to the extent that any breach of such representations and warranties has
not, individually or in the aggregate, had a Material Adverse Effect; and Buyer
shall have delivered to Seller a certificate ("Buyer's Closing Certificate") in
the form attached as Schedule 6.2.1, dated the Closing Date and signed by an
Executive Officer of Buyer, certifying each of the foregoing or specifying those
respects in which such covenants have not been performed or such representations
and warranties are not true and correct.
6.2.2 Documents. Buyer shall have delivered to Seller all documents
required by Section 7.3.
6.2.3 Purchase Price. Buyer shall have delivered to Seller, in the
manner specified in Section 3.1, the Closing Date Amount.
6.2.4 HSR. All required waiting periods under the HSR Act shall have
expired or been terminated.
6.2.5 No Legal Obstruction. Each of the required Debtholder Consents
shall have been obtained, and each of the required Regulatory Approvals and FCC
Consents shall have been obtained free of any special terms, conditions or
restrictions that are materially adverse to Seller based upon good faith
business concerns that are not commercially unreasonable (other than any such
approvals or consents which, if not obtained, would not have a Material Adverse
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Effect). For purposes of this Agreement, all such approvals and consents shall
be deemed to have been obtained upon the granting of a Final Order. In addition,
there shall not have been entered a preliminary or permanent injunction,
temporary restraining order or other judicial or administrative order or decree
in any jurisdiction, the effect of which prohibits the Closing.
ARTICLE 7
THE CLOSING
7.1 The Closing. Subject to the terms and conditions of this Agreement,
the closing of the purchase and sale of the Purchased Property and the
assumption of the Assumed Liabilities (the "Closing") shall be held at 9 A.M.
local time at the offices of GTE Network Services at 600 Hidden Ridge, Irving,
Texas 75038, on the date agreed upon by the parties, provided such date shall be
(i) the last business day of the month, and (ii) at least five (5) business
days, but not more than ninety (90) days, after the date that all required
Regulatory Approvals, Debtholder Consents and FCC Consents have been obtained,
or at such other time and place as the parties may agree (the "Closing Date").
Such Closing shall be deemed to have occurred as of 11:59 p.m., local time, on
the Closing Date.
7.2 Seller's Obligations at Closing. At the Closing, Seller shall deliver
to Buyer the following documents:
(a) (i) Bill of Sale and Assignment and Assumption Agreement,
(ii) subject to Permitted Encumbrances (except as provided in Section 10.10),
special warranty deeds or their equivalent in respect of the Owned Real Property
and assignments of Real Property Leases to the extent any required consents have
been obtained pursuant to Section 4.3, and (iii) subject to Section 2.5,
assignments of the Assigned Contracts, the Real Property Interests and the
Assigned Permits. For purposes of this Agreement, the term "Bill of Sale and
Assignment and Assumption Agreement" means the form attached hereto as Schedule
7.2(a) executed by Seller;
(b) A legal opinion from William Mundy, general counsel for
GTE Network Services, as counsel for Seller, dated as of the Closing Date and in
the form of Schedule 7.2(b);
(c) Seller's Closing Certificate;
(d) Instruments of assignment or, to the extent set forth in
Section 4.3, subleases for the Leased Real Property;
(e) Mortgage satisfactions, UCC Form 3 Termination Statements
and other instruments necessary to remove, release and terminate all security
interests held by the Bondholders on the Purchased Property;
(f) All of the documents and papers required of Seller as
conditions to Closing pursuant to Section 6.1, including the Regulatory
Approvals, Debtholder Consents and FCC Consents;
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(g) A certificate substantially in the form of Schedule 7.2(g)
certifying that Seller is not a "foreign person" within the meaning of Section
1445(b)(2) of the IRC;
(h) The License Agreement; and
(i) Such other documents and instruments as may be reasonably
necessary to effect the transactions contemplated by this Agreement.
7.3 Buyer's Obligations at Closing. At the Closing, Buyer shall deliver to
Seller the following:
(a) The Closing Date Amount in the manner specified in Section
3.2.(b);
(b) The Bill of Sale, Assignment and Assumption Agreement,
executed by Buyer;
(c) A legal opinion from L. Russell Mitten II, Vice President
and General Counsel of Buyer dated as of the Closing Date and in the form of
Schedule 7.3(c);
(d) Buyer's Closing Certificate;
(e) All other documents and papers required of Buyer as
conditions of Closing pursuant to Section 6.2, including the Regulatory
Approvals; and
(f) Such other documents and instruments as may be reasonably
necessary to effect the transactions contemplated by this Agreement.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
8.1 Representations and Warranties of Seller. Seller represents and
warrants to Buyer as follows:
8.1.1 Authorization and Effect of Agreement. Seller has the
requisite corporate power and authority to execute and deliver this Agreement
and the Ancillary Agreements and to perform its obligations hereunder and
thereunder. The execution and delivery by Seller of this Agreement and the
Ancillary Agreements and the fulfillment of its obligations under this Agreement
and the Ancillary Agreements have been duly authorized by all necessary
corporate action on the part of Seller. This Agreement and the Ancillary
Agreements have been duly executed and delivered by Seller and, assuming the due
execution and delivery of this Agreement and the Ancillary Agreements by Buyer,
constitute valid and binding obligations of Seller enforceable in accordance
with their terms subject to bankruptcy, insolvency, reorganization, moratorium
and other similar laws affecting the rights of creditors generally and subject
to the exercise of judicial discretion in accordance with principles of equity.
8.1.2 No Restrictions Against Sale of the Purchased Property. The
execution and delivery of this Agreement and the Ancillary Agreements by Seller
does not, and the
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fulfillment by Seller of its obligations under this Agreement and the Ancillary
Agreements will not (i) conflict with or violate any provision of its
certificate of incorporation or bylaws, (ii) subject to obtaining the approvals
and or consents referred to in Section 2.5, Article 4 and Schedule 8.1.11(a-f),
conflict with, violate or result in the breach of any provision of any Material
Contract, or (iii) result in the creation of any Lien (other than Permitted
Encumbrances) upon any of the Purchased Property under (a) any Material Contract
or (b) any Law applicable to any of the Purchased Property, except in the case
of clauses (ii) or (iii) for any such conflict, violation, breach or Lien that
would not have a Material Adverse Effect.
8.1.3 Consents and Approvals of Governmental Authorities. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Authority is required to be obtained or made by or
with respect to Seller or in connection with the execution and delivery of this
Agreement by Seller or the fulfillment by Seller of its obligations under this
Agreement, except (i) FCC Consents and HSR Act clearance, (ii) the Regulatory
Approvals, and (iii) any consent approval, order or authorization or
registration declaration or filing, which if not obtained or made would not have
a Material Adverse Effect.
8.1.4 No Material Violations. Except as indicated in Schedule 8.1.4
or as would not reasonably be expected to have a Material Adverse Effect, (a)
the execution and delivery of this Agreement and the Ancillary Agreements and
the fulfillment by Seller of its obligations under this Agreement and the
Ancillary Agreements will not violate any applicable Law, and (b) Seller is not
in violation of any Law relating to or affecting the operation, conduct or
ownership of the Business or the Purchased Property.
8.1.5 Corporate Organization. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, and is duly qualified to conduct business in Nebraska. Seller has full
power and authority to own its properties and to carry on the Business as it is
now being conducted and to own, or hold under lease the Purchased Property.
Seller holds valid permits, licenses, franchises, approvals and authorizations
issued or granted by any Governmental Authority and adequate for the operation
of the Business as currently conducted, except to the extent absence of any such
permit, license, franchise, approval or authorization would not have an Material
Adverse Effect.
8.1.6 Brokers. Seller has not paid or become obligated to pay any
fee or commission to any broker, finder, investment banker or other intermediary
in connection with the transactions contemplated by this Agreement in such a
manner as to give rise to a valid claim against Buyer for any broker's or
finder's fees or similar fees or expenses.
8.1.7 Title to Owned Real Property. Seller has good fee simple title
to all of the Owned Real Property, free and clear of any Lien other than
Permitted Encumbrances and Liens of the Bondholders identified on Schedule
8.1.7(b). As of the date hereof, the address and a general description of each
item of Owned Real Property are set forth on Schedule 8.1.7(a). Seller
represents that the only creditors that have a Lien (other than any Permitted
Encumbrances) on any of the Owned Real Property are the Bondholders identified
on Schedule 8.1.7(b).
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8.1.8 Real Property Leases. As of the date hereof, set forth on
Schedule 8.1.8 is a list of the Real Property Leases. Each of the leases for the
Leased Real Property is enforceable in accordance with its terms, subject to
bankruptcy, insolvency and other similar laws affecting the rights of creditors
generally and subject to the exercise of judicial discretion in accordance with
the principles of equity, and except as otherwise disclosed in Schedule 8.1.8,
there is not under any lease any material default or a material breach of
covenant by Seller.
8.1.9 Tangible Assets. All of the tangible Purchased Property is in
substantially good operating condition and repair, normal wear and tear
excepted. Except as set forth on Schedule 8.1.9 or elsewhere in this Agreement,
Seller has good title to each item of tangible Purchased Property (other than
Real Property Interests or office equipment or vehicles subject to leases) with
a fair market value in excess of $5,000, free and clear of any Lien (other than
Permitted Encumbrances). Except as set forth on Schedule 8.1.9, Seller has not
received any written notice within the past twelve (12) months of a violation of
any ordinances, regulations or building, zoning and other similar laws with
respect to such assets that would have a Material Adverse Effect. EXCEPT AS
EXPRESSLY PROVIDED IN THIS SECTION 8.1.9, SELLER MAKES NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, AS TO THE CONDITION OR FITNESS OF THE TANGIBLE
PURCHASED PROPERTY AND HEREBY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR WARRANTY AGAINST INFRINGEMENT.
8.1.10 No Material Adverse Change. Except as disclosed in Schedule
8.1.10, between December 31, 1997 and the date of this Agreement there has not
occurred (i) any event or condition that would have a Material Adverse Effect;
(ii) any increase in compensation payable or to become payable by Seller to any
of its Transferred Employees or agents, other than normal merit or promotional
increases other than payment under the retention pay program announced in
connection with the network business repositioning of Seller and its Affiliates;
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract; or (iv) any material change in any accounting
method, practice or policy of Seller with respect to the Business.
8.1.11 Material Contracts. Except for the agreements set forth on
Schedule 8.1.11 subparts (b) through (j), there is no Assigned Contract (other
than the Assigned Contracts entered into after the date of this Agreement in the
ordinary course of business) that is:
(a) an agreement containing a non-compete agreement or other
covenant that in either case would by its terms limit the freedom of Buyer
following the Closing to compete in any material respect with respect to the
Business with any third party;
(b) an agreement granting a Lien (other than a Permitted
Encumbrance);
(c) an agreement for the sale of any material Purchased
Property or grant of any preferential rights to purchase any material Purchased
Property;
(d) an agreement for the provision of telephone service at
public pay telephone locations;
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(e) an agreement made in the ordinary course of business other
than as set forth above with respect to which the aggregate amount to be
received or paid thereunder with respect to calendar year 1999 is expected to
exceed $100,000 based on the terms of such agreement or on the payments which
have been made under such agreement with respect to calendar year 1998, to the
extent applicable;
(f) an agreement not made in the ordinary course of business
with respect to which the aggregate amount to be received or paid thereunder
with respect to calendar year 1999 is expected to exceed $50,000 based on the
terms of such agreement or on the payments which have been made under such
agreement with respect to calendar year 1998, to the extent applicable;
(g) an agreement with respect to 911 services or E911
services;
(h) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Purchased Exchanges;
(i) an agreement between Seller and a third party for the
third party's co-location of equipment in facilities included in the Purchased
Property pursuant to which Seller is currently providing facilities or a request
to provide facilities is currently pending; or
(j) an agreement with a third party in which the owner of
utility poles has agreed to allow the other party to attach its
telecommunications equipment or facilities to the utility poles (a "Pole
Attachment Agreement").
Except as set forth on Schedule 8.1.11, to the knowledge of Seller,
each Assigned Contract referred to in any of the clauses (a) to (j) above
(collectively the "Material Contracts") is valid, binding and in full force and
effect and is enforceable by Seller or Seller's Affiliate, as applicable, in
accordance with its terms, except for any such failure to be valid, binding, in
full force and effect or enforceable that is not reasonably likely to have a
Material Adverse Effect. Except as set forth on Schedule 8.1.11, to the
knowledge of Seller, Seller and Seller's Affiliates have performed all material
obligations required to be performed by them to date under the Material
Contracts, and they are not (with or without the lapse of time or the giving of
notice, or both) in breach or default thereunder and, to the knowledge of
Seller, no other party to any Material Contract is (with or without the lapse of
time or the giving of notice, or both) in breach or default in any respect
thereunder, in each case except for such noncompliance, breaches and defaults
that, individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect. As of the date hereof, neither Seller nor any Seller's
Affiliate has, except as disclosed on Schedule 8.1.11, received or given any
written notice of the intention of any party to terminate any Material Contract.
Complete and correct copies of all the Material Contracts, together with all
modifications and amendments thereto to the date of this Agreement by Closing
will, have been made available to Buyer or its representatives.
8.1.12 Insurance. The Purchased Property of an insurable nature and
of a character usually insured by companies carrying on similar businesses is
insured under insurance policies or self insured in such amounts and against
such losses or casualties as is usual in
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Seller's industry. On the Closing Date, the coverage under the insurance
policies and programs applicable to the Purchased Property will be terminated,
and Buyer will be responsible for providing all insurance coverage for the
Purchased Property.
8.1.13 Taxes. Except as disclosed on Schedule 8.1.13, (i) all Tax
Returns required to be filed by Seller on or before the Closing Date have or
will have been filed, and all Taxes shown as due and payable on such Tax Returns
have been or will be paid by Seller when required by law; (ii) no deficiencies
or assessments for any Taxes have been asserted in writing or assessed against
Seller that remain unpaid and that individually or in the aggregate are material
to the Business; (iii) Seller has withheld all required federal, state and local
payroll taxes relating to the Business and has remitted or will remit all
amounts required to be remitted to the appropriate taxing authorities; (iv)
there are no tax liens upon any of the Purchased Property except for statutory
liens covering taxes not yet due and payable; (v) Seller is not a "foreign
person" within the meaning of Section 1445(b)(2) of the IRC and shall provide an
appropriate certificate for purposes of Section 1445(b)(2) of the IRC and (vi)
there are no material, current audits or material audits for which written
notice has been received (in either case, specifically with respect to the
Business).
8.1.14 No Material Claims or Suits. Except as disclosed in Schedule
8.1.14 or with respect to Taxes, there are no claims, actions, lawsuits or legal
proceedings pending before any Governmental Authority, or, to the knowledge of
Seller threatened against or affecting the Business or Purchased Property that
in Seller's opinion, if determined adversely to Seller, would reasonably be
expected to have a Material Adverse Effect on the Business or materially
adversely affect ability of Seller to consummate the transactions contemplated
hereby.
8.1.15 Tariffs; FCC Licenses.
(a) The regulatory tariffs applicable to the Business stand in
full force and effect on the date of this Agreement in accordance with all
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor is Seller subject to any restrictions or conditions applicable to
its regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material respect under any such tariff. Except as disclosed on
Schedule 8.1.15(a), there are no applications by Seller or petitions by others
or proceedings pending or threatened before the state regulatory authority
relating to the Business or its operations or the regulatory tariffs, other than
such applications, petitions or proceedings as may be brought in the ordinary
course of business or by end-users. To the knowledge of Seller, there are no
material violations by subscribers or others under any such tariff. A true and
correct copy of each tariff applicable to the Business has been delivered or
made available to Buyer.
(b) Listed on Schedule 8.1.15(b) are the FCC Licenses and
other material Assigned Permits (the "Material Permits") held by Seller and used
in the operation of the Business. Except as listed on Schedule 8.1.15(b), to
Seller's knowledge, each such FCC License or Material Permit is in full force
and effect on the date of this Agreement in accordance
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with its terms, and there is no outstanding notice of cancellation or
termination or, to Seller's knowledge, any threatened cancellation or
termination in connection therewith, nor are any of such FCC Licenses or
Material Permits subject to any restrictions or conditions that limit the
operation of the Business (other than restrictions or conditions generally
applicable to licenses or permits of that type). Subject to the Communications
Act of 1934, as amended, and the regulations thereunder, the FCC Licenses are
free from all security interests, liens, claims, or encumbrances of any nature
whatsoever. There are no applications by Seller or petitions by others or
proceedings pending or threatened before the FCC relating to the Business or the
FCC Licenses that, in Seller's opinion, would reasonably be expected to have a
Material Adverse Effect on the Business, other than such applications, petitions
or proceedings as may be brought in the ordinary course of business or by
end-users.
8.1.16 Employee Matters.
(a) Schedule 8.1.16(a) lists (and identifies the sponsor of)
each "Employee Pension Benefit Plan," as that term is defined in Section 3(2) of
ERISA, each "Employee Welfare Benefit Plan," as that term is defined in Section
3(1) of ERISA (such plans being hereinafter referred to collectively as the
"ERISA Plans"), and each other retirement, pension, profit-sharing, money
purchase, deferred compensation, incentive compensation, bonus, stock option,
stock purchase, severance pay, unemployment benefit, vacation pay, savings,
medical, dental, post-retirement medical, accident, disability, weekly income,
salary continuation, health, life or other insurance, fringe benefit, or other
employee benefit plan, program, agreement, or arrangement maintained or
contributed to by Seller or its Affiliates in respect of or for the benefit of
any Transferred Employee or former employee of Seller, excluding any such plan,
program, agreement, or arrangement maintained or contributed to solely in
respect of or for the benefit of Transferred Employees or former employees
employed or formerly employed by Seller outside of the United States, as of the
date hereof (collectively, together with the ERISA Plans, referred to
hereinafter as the "Plans"). Schedule 8.1.16(a) also includes a list of each
written employment, severance, termination or similar-type agreement between
Seller and its Affiliates and any Transferred Employee (the "Employment
Agreements"). Seller has delivered to Buyer accurate and complete copies of all
Plans and Employment Agreements (or representative samples in the case of form
agreements) and, if applicable, summary plan descriptions with respect to such
Plans and Employment Agreements and summary descriptions of any such Plan or
Employment Agreement that is not otherwise in writing. Except for retention
bonuses paid in connection with the closing of the transactions contemplated by
this Agreement and except as otherwise disclosed on Schedule 8.1.16(a), the
execution and delivery of this Agreement by Seller and the performance of this
Agreement by Seller will not directly result now or at any time in the future in
the payment to any Transferred Employee of any severance, termination, or
similar-type payments or benefits being paid to any Transferred Employee.
(b) Except as set forth on Schedule 8.1.16(b):
(i) Neither Seller nor any of its Affiliates, any of the
ERISA Plans, any trust created thereunder, or any trustee or administrator
thereof, has engaged in any transaction as a result of which Seller or any of
its Affiliates could be subject to any material
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liability pursuant to Section 409 of ERISA or to either a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed pursuant to Section 4975 of
the IRC; and
(ii) Since the effective date of ERISA, no material
liability under Title IV of ERISA has been incurred or is reasonably expected to
be incurred by Seller or any of its Affiliates (other than liability for
premiums due to the PBGC), unless such liability has been, or prior to the
Closing Date will be, satisfied in full.
(c) Except as set forth on Schedule 8.1.16(c), with respect to
the ERISA Plans other than those ERISA Plans identified on Schedule 8.1.16(a) as
"multiemployer plans":
(i) the PBGC has not instituted proceedings to terminate
any Plan that is subject to Title IV of ERISA (the "Retirement Plans");
(ii) none of the ERISA Plans has incurred an
"accumulated funding deficiency" (as defined in Section 302 of ERISA and Section
412 of the IRC), whether or not waived, as of the last day of the most recent
fiscal year of each of the ERISA Plans ended prior to the date of this
Agreement;
(iii) each of the ERISA Plans has been operated and
administered in all material respects in accordance with its provisions and with
all applicable laws;
(iv) each of the ERISA Plans that is intended to be
"qualified" within the meaning of Section 401(a) of the IRC and, to the extent
applicable, Section 401(k) of the IRC, has been determined by the IRS to be so
qualified, and nothing has occurred since the date of the most recent such
determination (other than the effective date of certain amendments to the IRC,
the remedial amendment period for which has not yet expired) that would
adversely affect the qualified status of any of such ERISA Plans;
(v) there are no pending material claims by or on behalf
of any of the ERISA Plans, by any employee or beneficiary covered under any such
ERISA Plan, or otherwise involving any such ERISA Plan (other than routine
claims for benefits and routine expenses);
(vi) each ERISA Plan which is a group health plan has
been operated and administered in compliance with the continuation coverage
provisions of Section 498B of the IRC and Part 6 of Title I of ERISA;
(vii) all contributions and premiums that would normally
be made or paid with respect to any ERISA Plan or Employment Agreement on behalf
of Transferred Employees as of the Closing Date will have been made by the
Closing Date; and
(viii) as of the Closing Date no Transferred Employee
will be excluded from coverage under any employee welfare benefit plan (as
defined in Section 3(1) of ERISA) maintained or contributed to by Seller.
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(d) Except as set forth on Schedule 8.1.16(d), none of the
ERISA Plans is a "multiemployer Plan," as that term is defined in Section 3(37)
of ERISA, and with respect to any such multiemployer plans (as so defined)
listed in Schedule 8.1.16(d), Seller has not made or incurred a "complete
withdrawal" or a "partial withdrawal," as such terms are respectively defined in
Sections 4203 and 4205 of ERISA that would result in the incurrence of a
material liability by Seller. Except as set forth on Schedule 8.1.16(d), neither
Seller nor any Affiliates of Seller has made or incurred a "complete withdrawal"
or a "partial withdrawal" (as such terms are defined in Sections 4203 and 4205,
respectively, of ERISA) that would result in the incurrence of liability by
Seller or its Affiliates, and the performance of this Agreement will not result
in such withdrawal(s) or liability.
(e) Except as set forth on Schedule 8.1.16(e), (i) none of the
Transferred Employees are represented by a labor union or labor organization;
(ii) Seller is not subject to any collective bargaining agreement covering any
Transferred Employee; (iii) there are no current, or to the best knowledge of
Seller, any pending or threatened strikes, slowdowns, picketing, or work
stoppages affecting the Business or with respect to any Transferred Employee
covered by collective bargaining; (iv) there is no pending lockout by Seller of
any employees of the Business, and no such action is contemplated by Seller; (v)
to the best knowledge of Seller, there is no pending or threatened organizing
activity or petition for certification of a collective bargaining representative
involving employees of the Business and there has been none within the twelve
(12) months preceding the date of the Agreement; (vi) to the best knowledge of
Seller, there is no pending or threatened charge, action, complaint, or
proceeding of any nature against Seller relating to the violation of any
applicable state or federal labor or employment law or regulation in connection
with the Business, including any charge or complaint filed by any employee or
labor organization with the National Labor Relations Board, the Equal Employment
Opportunity Commission, or any other administrative governmental agency, nor is
there any other pending or threatened labor or employment dispute against or
affecting Seller in connection with the Business; (viii) with respect to
employees of the Business, Seller has complied in all respects with all laws
relating to employment, equal employment opportunity, nondiscrimination,
collective bargaining, wages, hours of work, employee benefits, occupational
safety and health, immigration, and plant closings; and (ix) Seller shall
provide employees of the Business with any required notices under any federal,
state, or municipal law or regulation concerning the termination of their
employment with Seller. Seller has delivered to Buyer accurate and complete
copies of all collective bargaining agreements affecting any of the Transferred
Employees.
(f) This Agreement shall not result in any Transferred
Employee becoming entitled to separation pay or severance which could be or
become an obligation of Buyer.
8.1.17 Schedules of Telephone Plant. Schedule 8.1.17 sets forth, as
of June 30, 1999, a materially accurate summary of the book value of the
Telephone Plant as reflected in Seller's continuing property records. Schedule
8.1.17 also sets forth a materially accurate list of the vehicles, trailers and
other mobile tools and mobile equipment that are part of the Purchased Property
as of September 3, 1999.
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8.1.18 Schedule of Real Property Interests. To the knowledge of
Seller and as of the date of this Agreement, Schedule 8.1.18 sets forth a true
and accurate list of all its Real Property Interests.
8.1.19 Compliance with Existing Environmental Requirements. Except
as set forth in Schedule 8.1.19 or as would not have a Material Adverse Effect,
to the knowledge of Seller:
(a) Seller's operation of the Business and the Purchased
Property has been and is presently in substantial compliance with Existing
Environmental Requirements;
(b) No environmental remediation is occurring on any parcel of
Owned Real Property or Leased Real Property nor has Seller or any Affiliate
issued a request for proposal or otherwise requested an environmental
remediation contractor to begin plans for such environmental remediation;
(c) No underground storage tanks ("USTs") or aboveground
storage tanks ("ASTs") are located on the Owned Real Property or Leased Real
Property;
(d) None of the Owned Real Property or Leased Real Property is
situated in a state or federal "superfund" site or study area; and
(e) Seller has delivered, or within 60 days after the date of
this Agreement will deliver, to Buyer complete copies of all reports and studies
relating to Seller's liability under or non-compliance with any Existing
Environmental Requirements in connection with Seller's operation of the Business
or use or ownership of the Purchased Property.
8.1.20 Environmental Permits. Except as set forth in Schedule
8.1.20, to the knowledge of Seller, it has obtained or filed for all necessary
environmental permits, authorizations and licenses required to operate the
Business or the Purchased Property, except where failure to obtain or file such
permits, authorizations and licenses would not have a Material Adverse Effect on
the Business.
8.1.21 Financial Statements. Seller has furnished to Buyer its
audited balance sheets as of December 31, 1997 and December 31, 1998 and the
related statements of income and cash flows for the years ended December 31,
1997 and December 31, 1998 (collectively, the "Financial Statements"). The
Financial Statements have been prepared based on the books and records of
Seller. Such books and records have been maintained in accordance with GAAP, and
where required by law, the applicable regulations of the FCC and PSC. However,
because the Business represents only a portion of a larger entity, the Financial
Statements are based on the extensive use of estimates and allocations. Seller
believes these estimates and allocations have been performed on a reasonable
basis in accordance with GAAP. However, Buyer acknowledges that because Buyer is
not acquiring significant support elements located outside the Purchased
Exchanges, and the Buyer will operate under new tariffs, carrier contracts and
other conditions that will significantly impact the future revenues of the
Business, the Financial Statements may not be representative of the financial
performance of the Business during future periods.
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8.1.22 Year 2000 Compliance.
(a) As of the Closing Date, Seller shall have caused the
modification or remediation of the Automated Assets in accordance with
applicable manufacturer or vendor recommendations such that the Automated Assets
are Year 2000 Compliant; provided that any and all Buyer or third-party supplied
computer software, computer firmware and computer hardware that directly
interfaces with the Automated Assets, co-exists with the Automated Assets, or
indirectly influences the operation of the Automated Assets are also
demonstrated to be Year 2000 Compliant.
(b) Seller shall be deemed to be in satisfaction of the
requirements of subsection (a) of this Section 8.1.22 to the extent that Seller
has (i) performed on or before the Closing Date any modification or remediation
in accordance with applicable manufacturer or vendor recommendations for
achieving Year 2000 compliance or Year 2000 readiness, or (ii) received on or
before the Closing Date reasonable assurances from the applicable manufacturer
or vendor that an Automated Asset, without modification or remediation, is Year
2000 compliant or Year 2000 ready.
(c) When used in this Section 8.1.22, the following term shall
have the respective meanings given below:
"Automated Assets" means the computer software, computer
firmware, computer hardware (whether general or special purpose), documentation,
data, and other similar or related items of the automated, computerized, and/or
software system(s) that are provided by Seller to Buyer as part of the Purchased
Exchanges pursuant to this Agreement.
"Calendar-Related" refers to the date values based on
the Gregorian calendar, as defined in Encyclopedia Britannica, 15th edition,
1982, page 602, and to all uses in any manner of those date values, including
without limitation manipulations, calculations, conversions, comparisons and
presentations.
"Date Data" means any Calendar-Related data in the
inclusive range January 1, 1900 through December 31, 2050, which the Automated
Assets use in any manner.
"System Date" means any Calendar-Related data value in
the inclusive range January 1, 1985 through December 31, 2035 (including the
natural transition between such values) which the Automated Assets shall be able
to use as their current date while operating.
"Year 2000 Compliant" means:
(i) As of the Closing Date, in connection with
Calendar-Related data and Calendar-Related processing of Date Data or of any
System Date, the Automated Assets will not malfunction, will not cease to
function and will not produce incorrect results; and
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(ii) As of the Closing Date, the Automated Assets will
represent dates without ambiguity as to century when providing Calendar-Related
data to and accepting Calendar-Related data from other automated, computerized
and/or software systems and users by way of user interfaces, electronic
interfaces and data storage.
8.1.23 Native American and Federal Consents. Except as set forth on
Schedule 8.1.23 or as would not have a Material Adverse Effect, to the knowledge
of the Seller:
(a) Schedule 8.1.23 sets forth all material easements,
rights-of-way, franchises, licenses, permits, consents, approvals, certificates
and other authorizations of tribal authorities and the United States Bureau of
Indian Affairs (the "BIA") (collectively, the "Native American Authorizations")
held by Seller and relating to any Purchased Property located, or any operations
of the Business conducted, on Native American reservations;
(b) All such Native American Authorizations are in full force
and effect and Seller is not in default thereunder;
(c) There are no material claims, actions, lawsuits or other
proceedings pending or threatened with respect to any of the Purchased Property
located, or any operations of the Business conducted, on Native American
reservations, and no tribal authority has given written notice of any
cancellation, revocation, termination or material amendment or modification of
any Native American Authorization; and
(d) No material consent, approval or waiver from, or filing
with, any tribal authority or the BIA is required to be obtained or made in
connection with the execution and delivery by Seller of this Agreement, or
Seller's fulfillment of its obligations under this Agreement.
8.1.24 Loss of Major Customer. Except as set forth on Schedule
8.1.24, since January 1, 1997, Seller has not suffered the loss of any customer
of the Business for which Seller billed in excess of $50,000 annually during the
years ended December 31, 1997 or 1998.
8.1.25 Records. The continuing property records and other records
related to the Purchased Property maintained by Seller conform in all material
respects with the applicable rules and regulations of the FCC and PSC. Seller
has retained substantially all original cost documentation relating to the
Purchased Property regarding the expenditures made by Seller for the Telephone
Plant within the period required by applicable Law.
8.2 Representations and Warranties of Buyer. Buyer represents and warrants
to Seller as follows:
8.2.1 Corporate Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the state of Delaware
and is or will be by Closing Date duly qualified to conduct business in Nebraska
and has the requisite corporate power and authority to own, lease or otherwise
hold the assets owned, leased or held by it.
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8.2.2 Authorization and Effect of Agreement. Buyer has the requisite
corporate power and authority to execute and deliver this Agreement and the
Ancillary Agreements, to carry on the Business as presently conducted and to
fulfill all other obligations of Buyer under this Agreement and the Ancillary
Agreements. The execution and delivery by Buyer of this Agreement and the
Ancillary Agreements, and the fulfillment by it of its obligations under this
Agreement and the Ancillary Agreements have been duly authorized by all
necessary corporate action on the part of Buyer. Buyer has the requisite legal
capacity to purchase, own and hold the Purchased Property upon the consummation
of the sale of the Purchased Property. This Agreement and the Ancillary
Agreements have been duly executed and delivered by Buyer and, assuming the due
execution and delivery of this Agreement and the Ancillary Agreements by Seller,
constitute valid and binding obligations of Buyer enforceable in accordance with
their terms subject to bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting the rights of creditors generally and subject to
the exercise of judicial discretion in accordance with principles of equity.
8.2.3 No Restrictions Against Purchase of the Purchased Properties.
The execution and delivery of this Agreement and the Ancillary Agreements by
Buyer do not, and the fulfillment by Buyer of its obligations under this
Agreement and the Ancillary Agreements will not, conflict with, violate or
result in the breach of any provision of the certificate of incorporation or
bylaws of Buyer or, conflict with, violate or result in the breach of any
contract to which Buyer is a party. No material consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority is required to be obtained or made by or with respect to Buyer in
connection with the execution and delivery of this Agreement by Buyer or the
fulfillment by Buyer of its obligations under this Agreement, except the filings
and approvals described in Article 4.
8.2.4 No Violation of Law. The execution and delivery of this
Agreement and the Ancillary Agreements and the fulfillment by Buyer of its
obligations under this Agreement and the Ancillary Agreements will not violate
any Law except to the extent any such violation would not have a material
adverse effect on the ability of Buyer to fulfill its obligations hereunder and
thereunder.
8.2.5 Financial Capacity.
(a) Buyer has sufficient cash or other sources of funds to pay
the Purchase Price in the manner specified in Section 3.1 and all related fees
and expenses.
(b) Buyer has sufficient financial resources to operate the
Business after the Closing Date. Without limiting the generality of the
foregoing, Buyer has sufficient financial resources to satisfy any applicable
requirement relating to financial capacity or capital imposed by any
Governmental Authority in any state in which the Business is conducted. Buyer is
solvent, is able to pay its debts as they become due, and owns property that has
both a fair value and a fair saleable value in excess of the amount required to
pay its debts as they become due.
8.2.6 Brokers. Buyer has not paid or become obligated to pay any fee
or commission to any broker, finder, investment banker or other intermediary in
connection with
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the transactions contemplated by this Agreement in such a manner as to give rise
to a valid claim against Seller for any broker's or finder's fees or similar
fees or expenses.
8.2.7 Consents and Approvals of Governmental Authority. Subject to
Article 4 with respect to Regulatory Approvals and FCC Consents, no consent,
approval or authorization of, or declaration, filing or registration with, any
Governmental Authority or regulatory authority is required in connection with
the execution, delivery and performance of this Agreement by Buyer or the
consummation by Buyer of the transactions contemplated herein, except for
filings with the Federal Trade Commission and Department of Justice pursuant to
the HSR Act, if required.
ARTICLE 9
CONTINUING BUSINESS RELATIONSHIPS
9.1 Transition Services Agreement. The parties agree to cooperate with
each other to ensure that the transition of the ownership of the Purchased
Property proceeds with minimal disruption to the services being provided to
subscribers. The parties agree that it may be necessary for Seller to assist
Buyer in converting Seller's systems and processes with respect to the Purchased
Property to Buyer's systems and processes. Seller and Buyer agree to execute a
separate "Transition Services Agreement" substantially in the form attached
hereto as Schedule 9.1 for the provision of such services.
9.2 Optional Services Agreement. It is understood and agreed that Buyer
may not have for a period of time after Closing Date, certain systems or
processes necessary to provide some basic customer services. Attached hereto as
Schedule 9.2 are Seller's standard form contracts for provision of several
optional services (the "Optional Services"). Subject to negotiation of an
agreement or agreements as described hereinafter, Seller will at Buyer's request
provide any or all of the Optional Services at the fees indicated in Schedule
9.2. To the extent Buyer requests such services, the parties agree to negotiate
in good faith separate agreements, on commercially reasonable terms similar to
those in Schedule 9.2.
9.3 Directory Publishing.
9.3.1 Assumption of Certain Directory Publishing Agreement Rights
and Obligations. Seller is party to a directories Master Publishing Agreement
("Master Publishing Agreement") with GTE Directories Service Corporation n/k/a
GTE Directories Corporation herein "Publisher." Publisher is also party to a
publishing agreement with US West Dex, Inc. These agreements are identified in
Schedule 9.3.1 attached hereto ("Publishing Agreement"). Pursuant to the Master
Publishing Agreement Publisher has the exclusive right and obligation to sell
advertising, and to publish, print and distribute directories containing
telephone numbers relating to the Purchased Exchanges.
Buyer agrees to execute an agreement effective as of the Closing to
assume and appropriately amend the Master Publishing Agreement as it relates to
the Purchased Exchanges, so that such extension expires on December 31, 2001. If
the directories for any of the Purchased Exchanges are published by a third
party non-Affiliate of Seller, then to the extent requested by Buyer, Seller
agrees to assist Buyer in obtaining such third party's consents to the
continuation
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of such publishing arrangements; provided that Seller shall have no obligation
to pay compensation or other consideration in connection with such assistance.
9.3.2 Co-Bound Directories Acknowledgement. Buyer acknowledges that
Publisher may have a pre-existing obligation (which Publisher may choose to
continue) to sell advertising, publish, print and distribute the telephone
numbers of third party local exchange telephone companies in the same directory
as the Purchased Exchanges ("Co-Bound" directory). Co-Bound directory agreements
of which Seller is aware, if any, are identified on Schedule 9.3.2.
9.3.3 Meeting to Discuss Directory Publication. Within ninety (90)
days following the date of this Agreement, Buyer agrees to meet with Seller and
Publisher for the purpose of having an initial discussion about the first
directory publication after the Closing Date. This meeting will be held at
Publisher's address unless otherwise agreed between the parties and Publisher.
All parties shall employ their respective commercially reasonable efforts to
ensure that directory publication is not interrupted following the Closing Date.
9.4 GTE Supply Relationship. Within 90 days of this Agreement, Buyer
agrees to meet with representatives of GTE Supply for purposes of negotiating in
good faith an agreement for GTE Supply to provide ongoing procurement and
materials management functions for the Business on substantially the same terms
as contained in the Buyer's existing agreement with GTE Supply; provided that
Buyer may negotiate in good faith with respect to any volume discounts that may
be available from GTE Supply.
ARTICLE 10
ADDITIONAL COVENANTS OF THE PARTIES
10.1 Intellectual Property.
10.1.1 No License. Buyer and Seller agree and understand that except
as expressly set forth in writing in the License Agreement and Section 10.1.3,
Seller has not granted any rights or licenses, express or implied, of, and
nothing shall constitute or be construed as a license of Seller under any
Intellectual Property now or hereafter owned, obtained or licensable by Seller
or under any Third Party Intellectual Property.
10.1.2 Infringement.
(a) Notwithstanding anything in this Agreement to the
contrary, Seller shall have no obligation to defend, indemnify or hold harmless
Buyer or any of its Affiliates, from any damages, costs or expenses resulting
from any obligation, proceeding or suit based upon any claim that any activity
subsequent to the Closing Date engaged in by Buyer, a customer of Buyer's or
anyone claiming under Buyer, constitutes direct or contributory infringement,
misuse of, or misappropriation of, or inducement to infringe, any Third Party
Intellectual Property.
(b) Buyer shall defend, indemnify and hold harmless Seller and
its Affiliates from and against any and all Indemnifiable Losses resulting from
any obligation, proceeding or suit based upon any claim alleging or asserting
direct or contributory infringement,
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or misuse or misappropriation of or inducement to infringe by Seller or any of
its Affiliates of any Third Party Intellectual Property, to the extent that such
claim is based on, or would not have arisen but for, activity conducted or
engaged in subsequent to the Closing Date by Buyer, a customer of Buyer's, or
anyone claiming under Buyer.
10.1.3 Trademark Phaseout.
(a) Buyer acknowledges that Seller or its Affiliates are the
owners of Excluded Marks that qualify as Excluded Property under Section 2.3.
Buyer understands and agrees that the Excluded Marks, or any right to or license
of the Excluded Marks, are not being transferred pursuant to this Agreement.
Buyer acknowledges the exclusive and proprietary rights of Seller and its
Affiliates in the use of the Excluded Marks, and Buyer agrees that it shall not
use the Excluded Marks (or any names, domain names, marks or indicia confusingly
similar to the Excluded Marks) except and to the extent expressly set forth in
this Section 10.1.3 or assert any rights or claims in such Excluded Marks (or in
any names, domain names, marks or when confusingly similar to the Excluded
Marks). After the Closing, all Excluded Marks of Seller and its Affiliates shall
be replaced by Buyer, at Buyer's expense, as soon as possible, but in no event
later than one hundred twenty (120) days after the Closing Date for items with
Excluded Marks affixed to them which Buyer has continued to use in Buyer's
operation of the Business, including buildings, vehicles, heavy equipment, hard
hats, tools, tool boxes, kits (safety and others), signs, public (pay)
telephones, manual covers and notebooks. After the Closing, Buyer will not use,
and will destroy or deliver to Seller, all such items with Excluded Marks
affixed to them that have no valid continuing use in Buyer's operation of the
Business, including items affecting customer or employee relations or items that
do not reflect Buyer's true identity. Specific items to be destroyed or returned
include items with Excluded Marks affixed to them including giveaways; order,
purchase or materials forms; requisitions; invoices; statements; time
sheets/labor reports; bill inserts; stationery; personalized note pads; maps;
organization charts; bulletins/releases; sales/price literature; manuals or
catalogs; report covers/folders; program materials; and materials such as media
contact lists/cards. The one hundred twenty (120) day time period for
replacement of Excluded Marks affixed to telephone directories that were already
published or closed for publication at the Closing Date shall be extended to the
expiration date of such directories.
(b) Buyer recognizes the great value of the goodwill
associated with the Excluded Marks, and acknowledges that the Excluded Marks and
all rights therein and the goodwill pertaining thereto belong exclusively to
Seller and that the Excluded Marks have a secondary meaning in the minds of the
public. Buyer further agrees that any and all permitted use of the Excluded
Marks pursuant to this Agreement shall inure to the sole and exclusive benefit
of Seller.
(c) Buyer agrees that any permitted use of the Excluded Marks
in the operation of the Business after the Closing shall be provided in
accordance with all applicable federal, state and local laws, and that the same
shall not reflect adversely upon the good name of Seller or its Affiliates, and
that the operation of the Business will be of a high standard and skill.
(d) Buyer acknowledges that its failure to cease use of the
Excluded Marks as provided in this Agreement, or its improper use of the
Excluded Marks, will result in
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immediate and irreparable harm to Seller and its Affiliates. Buyer acknowledges
and admits that there is no adequate remedy at law for such failure to terminate
use of the Excluded Marks, or for such improper use of the Excluded Marks. Buyer
agrees that in the event of such failure or improper use, Seller and its
Affiliates shall be entitled to equitable relief by way of temporary restraining
order, or preliminary or permanent injunction, or any other relief available
under this Agreement.
(e) Buyer will not contest the ownership or validity of any
rights of Seller or its Affiliates in the Excluded Marks.
10.1.4 Third Party Software. To the extent that the transfer of
Purchased Property by Seller to Buyer under this Agreement results in the
transfer of possession to Buyer of software that at the Closing Date is Third
Party Intellectual Property, which software was located in and rightfully used
by Seller in the geographical area of the Purchased Exchanges prior to the
Closing Date in the normal and ordinary operation of the Business pursuant to
Contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then subject to Section 2.5, effective as of
the Closing and provided that no payments to any Person other than a Switch
Software vendor (which, if any, shall be paid by Seller) are thereby required,
at Closing Seller shall assign to Buyer, and Buyer shall accept all rights and
licenses if any to posses and use such software pursuant to such Third Party
Intellectual Property Contracts. Buyer agrees that the acceptance by Buyer of
such assignment of the Third Party Intellectual Property Contracts includes the
assumption by Buyer of obligations under such Third Party Intellectual Property
Contracts, including all obligations necessary or incidental to the transfer of
such rights and licenses. Buyer understands and agrees that except as provided
above in this Section 10.1.4, or as expressly provided elsewhere in this
Agreement or in another written agreement between Buyer and Seller, no rights or
licenses to use or possess such software or any Third Party Intellectual
Property are transferred to Buyer. Buyer shall properly dispose of, and shall
not use, any software of which Buyer acquires possession in connection with
Purchased Property and (i) which, after the Closing Date, Buyer knows, or
reasonably should know, is not the subject of a Third Party Intellectual
Property Contract that has been rightfully transferred to Buyer or for (ii)
which Buyer does not have a separate license. Seller makes no warranty or
representation that any Third Party Intellectual Property Contract or any right
therein is assignable in whole or in part to Buyer.
10.2 Effect of Due Diligence and Related Matters.
(a) Buyer represents that it is a sophisticated entity that
was advised by knowledgeable counsel and financial advisors and, to the extent
it deemed necessary, other advisors in connection with this Agreement and has
conducted its own independent review and evaluation of the Purchased Property.
Accordingly, Buyer covenants and agrees that (i) except for the representations
and warranties set forth in this Agreement, Buyer has not relied and will not
rely upon any document or written or oral information furnished to or discovered
by it or its representatives, including any financial data, (ii) there are no
representations or warranties by or on behalf of Seller or its Affiliates or
representatives except for those expressly set forth in this Agreement, and
(iii) to the fullest extent permitted by law, Buyer's rights and obligations
with respect to all of the foregoing matters will be solely as set forth in this
Agreement.
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(b) Upon the Closing, Buyer shall be deemed to have waived any
claim with respect to a breach of any representation, warranty, covenant or
obligation of Seller, or any failure of a condition, hereunder of which Buyer
had knowledge; provided that Buyer shall be deemed to have knowledge of the
information made available to Buyer and/or its representatives during its review
of the Purchased Property prior to the date of this Agreement, which information
is contained in the Due Diligence Documents.
(c) After the date of this Agreement and prior to the Closing
Date, Buyer shall promptly notify Seller if Buyer obtains knowledge of any
actual breach of any representation, warranty, covenant or obligation of Seller
or any actual or prospective failure of a condition, hereunder of which Buyer
obtains knowledge. Failure to provide timely notice shall be deemed to
constitute a waiver of any claim with respect to such breach.
10.3 Confidentiality. Whether or not the Closing occurs, the parties
hereto and their respective officers, directors, employees and representatives
will comply with the Confidentiality Agreement, the provisions of which are
expressly incorporated herein in their entirety by this reference.
10.4 Further Assurances. After the Closing, Seller will use its
commercially reasonable efforts to furnish to Buyer such other instruments and
information as Buyer may reasonably request in order to convey to Buyer title to
the Purchased Property, to be delivered from time to time upon Buyer's
reasonable request.
10.5 Prorations. The following liabilities shall be prorated between
Seller and Buyer: (i) utility charges (which shall include water, sewer,
electricity, gas and other utility charges) with respect to the Owned Real
Property, the property subject to the Real Property Leases and customer owned
equipment, (ii) rental charges (which shall include rental charges and other
lease payments under the Real Property Leases), (iii) personal services (these
services are charged for a period which includes the Closing Date; this shall
include contract labor), and (iv) real and personal property taxes, ad valorem
taxes, and franchise fees or taxes (collectively, "Periodic Taxes"). With
respect to measurement periods during which the Closing Date occurs (all such
periods of time being hereinafter called "Proration Periods"), the liabilities
described in clauses (i), (ii) and (iii) of the preceding sentence shall be
apportioned between Seller and Buyer as of the Closing Date, with Buyer bearing
only the expense thereof in the proportion that the number of days remaining in
the applicable Proration Period on and after the Closing Date bears to the total
number of days covered by such Proration Period. Periodic Taxes attributable to
Proration Periods shall be prorated between Buyer and Seller based on the
relative periods the Purchased Property was owned by each respective party
during the fiscal period of the taxing jurisdiction for which such taxes were
imposed by such jurisdiction (as such fiscal period is or may be reflected on
the bill rendered by such taxing jurisdiction). On the Closing Date, Buyer and
Seller shall pay or be reimbursed, on this prorated basis, for Periodic Taxes
that have been paid before the Closing Date. On the Closing Date, Buyer and
Seller shall also be reimbursed, on this prorated basis, for Periodic Taxes that
are to be paid on or after the Closing Date. The reimbursement of Periodic Taxes
that are to be paid on or after the Closing Date shall be based on a reasonable
estimate of the amount of such Periodic Taxes to be paid (based on past
experience). To the extent that Buyer or Seller are not reimbursed on the
Closing Date for Periodic Taxes that are paid after the Closing Date, or, in the
event the estimated amount of the
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preceding sentence proves to have been inaccurate, Buyer or Seller shall
promptly forward an invoice to the other party for its reimbursable pro rata
share, if any. If the other party does not pay the invoice within thirty (30)
calendar days of receipt, the amount of such payment shall bear interest at the
rate of eight percent (8%) per annum. Similarly, all prepayments made or
received by Seller or Buyer with respect to service or maintenance agreements
with third parties or license or other fees payable to or by third parties and
relating to the Business shall be prorated on an appropriate basis between
Seller and Buyer.
10.6 Cost Studies/NECA Matters.
10.6.1 Prior to Closing. Seller agrees that, with respect to all
toll revenues, settlements, pools, separations studies or similar activities,
Seller shall be responsible for (and shall receive the benefit or suffer the
burden of) any adjustments to contributions, or receipt of funds, by Seller
resulting from any such activities that are related to the operation of the
Business or the ownership or operation of the Purchased Property prior to the
Closing Date. Specifically, this paragraph shall apply, but shall not be limited
to, any matters related to the National Exchange Carrier Association ("NECA")
including the Universal Service Fund ("USF"), Long Term Support ("LTS"), and
Telecommunications Relay Services funds.
10.6.2 From and After Closing.
(a) Buyer shall receive any USF funds, from and after the
Closing Date, as determined by USAC from data submitted by Seller prior to
Closing Date pursuant to FCC Rules and Regulations as stated in Part 36.611 and
Part 36.612 for rural carriers and Part 54 for non-rural carriers. After Closing
Date Buyer shall make all submissions and filings for USF funds for all years
for which Seller had not made a submission prior to Closing Date in accordance
with FCC Rules and Regulations. Within a reasonable time after Buyer's written
request, Seller shall furnish to Buyer such necessary information regarding
Seller's ownership of the Purchased Property during any year for which Buyer
shall make a submission, and such reasonable assistance as required in
connection with Buyer's preparation of necessary filings or submissions.
(b) Notwithstanding the foregoing, Buyer's right to receive
all USF revenue is conditioned upon Buyer's payment, from and after the Closing
Date, of all universal service contribution liability assessed by USAC based on
end-user retail revenues for the previous year generated by assets being sold.
10.7 Customer Deposits. Within thirty (30) days after Closing, Seller
agrees to transfer to Buyer the customer deposits together with any interest
accrued thereon (collectively "Customer Deposits"), together with all of
Seller's obligations and rights to hold the Customer Deposits of the Business,
up to the Closing Date, and Buyer agrees to hold, disburse and retain such
deposits so delivered to it as if it were Seller.
10.8 Access to Books and Records.
(a) After the Closing, Seller will retain all Retained Books
and Records for a period of three (3) years.
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(b) After the Closing, upon reasonable notice and subject to
the Confidentiality Agreement, the parties will give to the representatives,
employees, counsel and accountants of the other, access, during normal business
hours, to books and records relating to the Business and the Purchased Property,
and will permit such persons to examine and copy such records, in each case to
the extent reasonably requested by the other party in connection with tax and
financial reporting matters (including any Tax Returns and related information,
but not attorney work product or similar work product prepared by accountants),
audits, legal proceedings, governmental investigations and other business
purposes (including such financial information and any receipts evidencing
payment of taxes as may be reasonably requested by Seller to substantiate any
claim for tax credits or refunds); provided, however, that nothing herein will
obligate any party to take actions that would unreasonably disrupt the normal
course of its business or violate the terms of any Contract to which it is a
party or to which it or any of its assets is subject. Seller and Buyer will
cooperate with each other in the conduct of any Tax audit or similar proceedings
involving or otherwise relating to the Business (or the income therefrom or
assets thereof) with respect to any Tax and each will execute and deliver such
powers of attorney and other documents as are necessary to carry out the intent
of this Section 10.8(b).
10.9 Purchase Price Allocation. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
IRC. If Buyer and Seller agree to such Allocation prior to Closing, Buyer and
Seller covenant and agree that (i) the values assigned to the assets by the
parties' mutual agreement shall be conclusive and final for all purposes, and
(ii) neither Buyer nor Seller will take any position before any Governmental
Authority or in any judicial proceeding that is in any way inconsistent with
such Allocation. Notwithstanding the foregoing, if Buyer and Seller cannot agree
to an Allocation, Buyer and Seller covenant and agree to file and to cause their
respective Affiliates to file, all Tax Returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the IRC and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable Law.
10.10 Owned Real Property Transfers. Within sixty (60) days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies in Seller's possession covering the Owned Real Property.
Thereafter, no later than thirty (30) days before the Closing Date, Seller shall
deliver (at Seller's expense) to Buyer title commitments for owners' policies of
title insurance prepared by a title insurance company reasonably acceptable to
Buyer and a certified current survey, with respect to all Owned Real Property
included in the Purchased Property and in which Seller purports to own fee
title. Buyer acknowledges that such title commitments shall be for CLTA owners'
policies of title insurance (or its equivalent) unless Buyer has requested in
writing, prior to the date hereof, that such commitments be issued for other
forms of title insurance (in which event, Buyer shall bear all costs and
premiums for such title insurance to the extent attributable to such coverage
being in excess of CLTA coverage or its equivalent). Such title commitments
shall reflect that upon the consummation of the sale to Buyer contemplated by
this Agreement and the payment of all premiums and charges due for such title
insurance, Buyer will be vested with good, fee simple title to such Owned Real
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Property, subject only to the exceptions show thereon, the title company's
standard exceptions and exclusions, and such matters that arise after the date
and time of such title commitment. Except as provided in the following sentence,
in the event that Buyer requires endorsements to such title commitments or the
applicable title insurance policies, such endorsements shall be obtained at
Buyer's sole cost and expense and shall not be a condition to Closing. On the
Closing Date, Seller shall convey the Owned Real Property to be transferred to
Buyer subject only to Permitted Encumbrances, provided that Seller may transfer
such property subject to one or more exceptions that are not Permitted
Encumbrances if Seller commits in writing, in form and substance reasonably
acceptable to Buyer, on or before the Closing Date, to cause any such exception
that is not a Permitted Encumbrance to be removed, insured or bonded over to
Buyer's reasonable satisfaction, or if Seller indemnifies Buyer with respect to
such exceptions to Buyer's reasonable satisfaction on or before the Closing
Date. With respect to each parcel of Owned Real Property covered by a title
commitment referenced above, the amount of title insurance provided under the
applicable title insurance policy shall be the fair market value of the
applicable property, which shall be determined by Buyer at its sole cost and
expense using commercially reasonable methods of valuation, provided that all
such valuations shall be consistent with all allocations of the Purchase Price
made hereunder or pursuant to this Agreement, and shall be acceptable to the
title insurance company. The determination of fair market value shall be made in
a timely manner such that the title commitments can be issued in a timely manner
prior to the Closing Date. Seller agrees that prior to Closing it will provide
the title company with such instructions, authorizations, affidavits, and
indemnities as may be reasonably necessary for the title company to issue title
policies to Buyer, dated as of the Closing Date, for all of the Owned Real
Property with so-called non-imputation endorsements. By no later than forty-five
(45) days after the Closing Date, Seller shall deliver to Buyer a final title
insurance policy covering each parcel of the Owned Real Property covered by the
title commitments. Buyer will use its commercially reasonable efforts to work
with the title company between the date hereof and fifty-five (45) days after
Closing Date to resolve any issues with respect to such title commitments.
Seller shall be responsible for the payment of all title insurance premiums
attributable to the CLTA portion of the coverage afforded by each such policy
obtained, and Buyer shall be responsible for the payment of all title insurance
premiums in excess of such amount and for the payment of all endorsement charges
and other fees and costs imposed by the title company.
10.11 Transaction Taxes. Buyer shall bear and be responsible for paying
any sales, use, transfer, documentary, registration, business and occupation and
other similar taxes (including related penalties (civil or criminal), additions
to tax and interest) imposed by any Governmental Authorities with respect to the
transfer of Purchased Property to Buyer (including the Owned Real Property)
("Transaction Taxes"), regardless of whether the tax authority seeks to collect
the such taxes from Seller or Buyer. Seller shall prepare all tax filings
related to any sales, use, transfer, documentary, registration, business and
occupation and other similar taxes. Seller, fifteen (15) days prior to making
such filings shall provide to the Buyer Seller's work papers for the Buyer's
review and approval. Buyer shall provide to the Seller ten (10) days prior to
the filing date approval of such work papers. Buyer shall also be responsible
for (i) administering the payment of such Transaction Taxes, (ii) defending or
pursuing any proceedings related thereto, and (iii) paying any expenses related
thereto. Seller shall give prompt written notice to Buyer of any proposed
adjustment or assessment of any Transaction Taxes with respect
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to the transaction, or of any examination of said transaction in a sales, use,
transfer or similar tax audit. In any proceedings, whether formal or informal,
Seller shall permit Buyer to participate and control the defense of such
proceeding, and shall take all actions and execute all documents required to
allow such participation. Seller shall not negotiate a settlement or compromise
of any Transaction Taxes without the written consent of Buyer, which consent
shall not be unreasonably withheld.
10.12 Bulk Sales Laws. Seller and Buyer waive compliance with applicable
laws under any version of Article 6 of the Uniform Commercial Code adopted by
any state or any similar law relating to the sale of inventory, equipment or
other assets in bulk in connection with the sale of the Purchased Property.
10.13 Prepaid Non-Regulated Maintenance Agreements. Within thirty (30)
days following Closing, Seller shall pay to Buyer an amount equal to the pro
rata portion of all prepaid but unearned revenues from Seller's customers for
all non-regulated maintenance agreements as of the Closing Date.
10.14 Vehicle Registration. Buyer agrees to use its commercially
reasonable efforts to file promptly the appropriate vehicle title applications
and registrations to change the name of the titled owner on each vehicle title
certificate and change the motor vehicle registration (with respect to license
plate information) on each vehicle being transferred to Buyer from Seller
pursuant to this Agreement. Buyer agrees that it shall remove and destroy
Seller's existing license plates from all vehicles received upon the earlier of
receipt of new license plates or sixty (60) days following Closing.
10.15 Carrier Access Billing and Accounts Receivable Transition. Seller
shall render its own final carrier access bills to its interexchange carriers
for minutes, messages and other applicable charges up to the Closing Date.
Seller shall be responsible for collecting and settling any disputes associated
with its final bills to the interexchange carriers.
10.16 End-User Billing and Accounts Receivable Transition. Buyer agrees to
purchase Seller's Earned End-User Accounts Receivable and make payment to Seller
for those accounts in the manner described below:
(a) Seller shall transfer to Buyer, as soon as reasonably
available after Closing, all open end-user customer account records to Buyer as
of the end of business on the Closing Date. Following the Closing, Buyer shall
be responsible for administering those records including the application of cash
receipts to customer accounts, whether related to services rendered before or
after the Closing. Seller shall promptly forward to Buyer all customer payments
and related remittance documents received by Seller after the Closing for
processing by Buyer.
(b) Within twenty (20) days following the Closing, Seller
shall provide an accounting to Buyer of the Earned End-User Accounts Receivable
Amount and the Customer Advances as well as the most recent twelve (12) month
history of Seller's uncollectible net writeoffs expressed as a percentage of
billings for the Business (the "Uncollectible Factor"). This data and the
resulting calculation of the Earned End-User Accounts Receivable Amount
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shall be summarized in an accounts receivable settlement statement (the
"Accounts Receivable Settlement Statement"). Within thirty (30) days following
the Closing, Buyer shall remit to Seller an amount equal to 80% of the Earned
End-User Accounts Receivable Amount less 100% of the Customer Advances. Within
sixty (60) days following the Closing, Buyer shall remit an additional 15% of
the Earned End-User Accounts Receivable Amount and within ninety (90) days will
remit the final 5%.
(c) Not later than ten (10) days prior to the due dates for
the sixty (60) and ninety (90) day payments referred to in Section 10.16(b),
Seller will provide Buyer with an updated Accounts Receivable Settlement
Statement reflecting any adjustments based upon non-sufficient funds checks,
billing adjustments or other facts that relate to pre-closing activity that
became known after the preparation of the original statement.
(d) If at any time during the ninety (90) day period following
the Closing, Buyer or Seller discovers any material discrepancy in the Accounts
Receivable Settlement Statement, both parties agree to use commercially
reasonable efforts to resolve any discrepancy in a timely manner, and also agree
to make payments related to any undisputed amounts as set forth above.
(e) At any time between ninety (90) and two hundred seventy
(270) days following the Closing, Buyer may, at its discretion, prepare an
analysis of actual bad debt write-off experience related to the Earned End-User
Accounts Receivable purchased from Seller. If such analysis reasonably
demonstrates that write-offs have exceeded the estimated amount in the final
Accounts Receivable Settlement Statement (as had been calculated using the
Uncollectible Factor) by more than 10%, Seller will pay to Buyer the full amount
of the difference within thirty (30) days of receipt of Buyer's request for
payment, together with Buyer's write-off analysis, Buyer will provide Seller
sufficient detail in its write-off analysis, and as reasonably necessary, access
to billing and collection records, to allow Seller to validate the accuracy of
Buyer's request. Any disputes regarding the amounts of such request shall be
settled using the procedure described in Section 3.3(d).
ARTICLE 11
EMPLOYEES AND EMPLOYEE MATTERS
11.1 Employment of Transferred Employees. Subject to the other provisions
of this Section 11.1, all Active Employees of Seller employed in the Business,
and all Active Employees of Seller and its Affiliates whose duties relate
primarily to the Business, on the Closing Date (hereinafter collectively
referred to as "Transferred Employees") shall be employed by (or become the
responsibility of, as applicable) Buyer as of the Closing Date in the same or
comparable positions, and at the same or comparable total compensation
(including base pay and bonus), as were in effect on the Closing Date, except as
otherwise provided in this Agreement. For purposes of the preceding sentence,
the term "Active Employees" shall include all full-time and part-time employees,
employees on military leave, maternity leave, leave under the Family and Medical
Leave Act of 1993, short-term disability, on layoff with recall rights, and
employees on other approved leaves of absence with a legal or contractual right
to reinstatement. For a period of twelve (12) months following the Closing Date,
Buyer shall not actively solicit either directly or indirectly through any
agents, and Buyer shall not permit any of its Affiliates to
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actively solicit either directly or indirectly through any agents, any person
who retires or otherwise terminates from any employment at or in association
with Seller during the six-month period beginning three (3) months before the
Closing Date, and Buyer shall neither employ nor permit any of its Affiliates to
employ any individuals who are identified to Buyer by Seller as individuals who
terminated from any employment or association with Seller during such six-month
period. On or before the execution date of this Agreement, Seller shall have
delivered to Buyer a list of the persons who would have been Transferred
Employees had the Closing Date occurred on August 31, 1999, showing the
following information for each such person: (i) the name of each such person;
(ii) the name of his or her current employer; (iii) his or her current base pay,
1998 bonus and projected 1999 bonus; (iv) his or her hire date, any rehire date
(if available) and years of service; (v) his or her then-current position; (vi)
whether such employee is (x) subject to a collective bargaining agreement or
represented by a labor organization, if any, and including the name and date of
each such bargaining agreement or (y) on military leave, maternity leave, leave
under the Family and Medical Leave Act of 1993, short-term disability, on layoff
with recall rights or on other approved leave of absence with a legal or
contractual right to reinstatement; and (vii) for any employee who is not
employed exclusively in the Business, a description of the nature of his or her
employment and the percentage of his or her time actually allocated to the
Business in calendar year 1998. Seller shall update such list at such time or
times requested by Buyer, but not more often than as of the end of each calendar
quarter occurring between the execution date hereof and the Closing Date,
commencing with the quarter ending September 30, 1999, and as of the month
ending immediately prior to the Closing Date, in each case assuming the Closing
Date had occurred on such date, and shall deliver such updated lists to Buyer
within ten (10) days after the end of each such calendar quarter or month-end,
as applicable. Any person who is not on such list as updated as of the end of
the month immediately preceding the Closing Date shall not be a Transferred
Employee, and for all purposes under this Agreement the Transferred Employees
shall include only those persons on such list as updated as of such month-end
who continue to be Active Employees of Seller employed in the Business or Active
Employees of Seller and its Affiliates whose duties relate primarily to the
Business, on the Closing Date.
11.1.1 Assumption of Collective Bargaining Agreement Obligations. On
and after the Closing Date, Buyer, as successor employer to Seller, shall assume
all of the employer's obligations under, and be bound by the provisions of, each
collective bargaining agreement to the extent of provisions covering Transferred
Employees. Seller shall cooperate with Buyer in Buyer's efforts to contact the
unions representing Transferred Employees.
11.1.2 Assumption of Employment and Other Agreements. On and after
the Closing Date, except as otherwise provided in this Agreement or in Schedule
11.1.2, Buyer, as successor employer to Seller, shall assume all obligations of
each employment agreement or any other agreement by Seller relating to
conditions of employment, employment separation, severance, or employee benefits
in connection with the Transferred Employees, but only to the extent that they
have been disclosed to Buyer on Schedule 8.1.16(a) and copies have been
furnished to Buyer as soon as administratively practicable prior to the
execution of this Agreement. To the extent that Buyer assumes any obligations
under this Article 11, Buyer may reduce or eliminate benefits under any
agreement, plan, policy or program only to the extent required to comply with
applicable law, or to the extent that Seller, its Affiliates, or any
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successors or assigns, make amendments or changes to its benefit plans, policies
or programs to eliminate or reduce benefits. Until the fifth anniversary of the
Closing Date, Seller promptly shall deliver to Buyer a copy of each material
amendment or change that Seller makes to its Plans and Employment Agreements to
eliminate or reduce benefits thereunder and shall confirm to Buyer on an annual
basis whether, and the extent to which, it has amended its Plans and Employment
Agreements and provide sufficient detail to enable Buyer to determine whether
Seller has reduced or eliminated benefits thereunder. After the fifth
anniversary of the Closing Date, Buyer may amend such plans, policies, and
programs in any manner it determines, consistent with applicable law and
collective bargaining agreements.
11.1.3 Recognition of Transferred Employee Service. On and after the
Closing Date, and subject to the provisions of any applicable collective
bargaining agreement, and except as otherwise provided in this Article 11, Buyer
shall recognize the service of each Transferred Employee for all
employment-related purposes determined in accordance with the practices and
procedures of Seller in effect on the Closing Date, as if such service had been
rendered to Buyer.
11.1.4 Assumption of Obligation to Pay Bonuses. Transferred
Employees shall not accrue benefits under any employee benefit policies, plans,
arrangements, programs, practices, or agreements of Seller or any of its
Affiliates after the Closing Date. Buyer shall assume the obligation to pay to
Transferred Employees any bonuses that would have been payable to the
Transferred Employees with respect to the calendar year in which the Closing
Date occurs had the Transferred Employees remained employees of Seller or one of
its Affiliates, in accordance with the provisions of the policy, plan,
arrangement, program, practice or agreement under which the bonus would have
been paid.
11.1.5 No Duplicate Benefits. Nothing in this Agreement shall cause
duplicate benefits to be paid or provided to or with respect to a Transferred
Employee under any employee benefit policies, plans, arrangements, programs,
practices, or agreements.
11.1.6 Affiliate Employees. If any employee identified in the list
provided pursuant to Section 11.1 is an employee of an Affiliate of Seller whose
duties relate primarily to the Business, he or she shall be considered a
Transferred Employee and shall be treated under this Agreement in a manner that
is comparable to the treatment given to the Transferred Employees who are
employed by Seller, except that his or her service as of the Closing Date shall
be determined in accordance with the practices and procedures of his or her
employer, as disclosed to Buyer in accordance with Section 11.1.2.
11.2 Transferred Employee Benefit Matters.
11.2.1 Defined Benefit Plans.
(a) Seller Pension Plans. As of the date of this Agreement,
Seller participates in the following single-employer defined benefit pension
plans maintained in the United States:
(i) the GTE Service Corporation Plan for Employees'
Pensions (the "Seller Salaried Pension Plan"); and
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(ii) the GTE Midwest Incorporated Plan for Hourly-Paid
Employees' Pensions (the "Seller Hourly Pension Plan").
The plans identified in this Section 11.2.1(a) shall be referred to
collectively in this Agreement as the "Seller Pension Plans," and each such plan
shall be referred to individually as a "Seller Pension Plan."
(b) Buyer Obligations. Buyer shall take all actions necessary
and appropriate to ensure that, as soon as practicable after the Closing Date,
Buyer maintains or adopts one or more pension plans (hereinafter referred to in
the aggregate as the "Buyer Pension Plans" and individually as the "Buyer
Pension Plan") effective as of the Closing Date and to ensure that each Buyer
Pension Plan satisfies the following requirements as of the Closing Date: (i)
the Buyer Pension Plan is a qualified, single-employer defined benefit plan
under Section 401(a) of the IRC; (ii) any Buyer Pension Plan that was in effect
before the Closing Date shall not have any "accumulated funding deficiency," as
defined in Section 302 of ERISA and Section 412 of the IRC, whether or not
waived, immediately before the Closing Date; (iii) the Buyer Pension Plan is not
the subject of termination proceedings or a notice of termination under Title IV
of ERISA; (iv) the Buyer Pension Plan does not exclude Transferred Employees
from eligibility to participate therein; (v) the Buyer Pension Plan does not
violate the requirements of any applicable collective bargaining agreement; and
(vi) with respect to Transferred Employees who were participants in the Seller
Hourly Pension Plan by virtue of their coverage under a collective bargaining
agreement on the Closing Date, the terms of the Buyer Pension Plan are
substantially identical in all material respects to the terms of the Seller
Hourly Pension Plan. For purposes of this Section 11.2.1, Transferred Employees
who were participants in the Seller Hourly Pension Plan other than by virtue of
their coverage under a collective bargaining agreement on the Closing Date shall
be treated as Transferred Employees who, on the Closing Date, participate in the
Seller Salaried Pension Plan. Within the 30-day period immediately preceding any
transfer of assets and liabilities from a Seller Pension Plan to a Buyer Pension
Plan pursuant to this Section 11.2.1(b), Buyer shall provide Seller with a
written certification, in a form acceptable to Seller, that the Buyer Pension
Plan satisfies each of the requirements set forth in this Section 11.2.1(b).
(c) Transfer of Liabilities.
(i) In accordance with the provisions of this Section
11.2.1, Buyer shall cause the Buyer Pension Plans to accept all liabilities for
benefits under the Seller Pension Plans, whether or not vested, that would have
been paid or payable (but for the transfer of assets and liabilities pursuant to
this Section 11.2.1) to or with respect to the Transferred Employees under the
terms of the Seller Pension Plans and that are "Section 411(d)(6) protected
benefits" (as defined by Section 411(d)(6) of the IRC and the regulations
thereunder) that have accrued under the Seller Pension Plan to or with respect
to the Transferred Employees based on accredited service and compensation under
the Seller Pension Plans as of the Closing Date. For a period of not less than
five (5) years after the Closing Date, and unless otherwise required to comply
with applicable law or permitted by Section 11.1.2, Buyer shall not amend the
Buyer Pension Plans, or permit the Buyer Pension Plans to be amended, to
eliminate any benefit, whether or not vested, with respect to which liabilities
are transferred pursuant to the foregoing provisions of this subsection (i), to
the extent any such benefit is a "Section 411(d)(6) protected
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benefit" (as defined by Section 411(d)(6) of the IRC and the regulations
thereunder). On or before the Closing Date, Seller or an Affiliate thereof shall
take action to fully vest Transferred Employees in their benefits (if any) under
the Seller Pension Plans.
(ii) (A) For purposes of eligibility and vesting under
the Buyer Pension Plans, each Transferred Employee whose accrued benefit is
transferred from a Seller Pension Plan to a Buyer Pension Plan shall be credited
with service as of the Closing Date as determined under the terms of the Seller
Pension Plan. The benefit under the Buyer Pension Plan for each Transferred
Employee who, on the Closing Date, participates in the Seller Hourly Pension
Plan by virtue of his or her coverage under a collective bargaining agreement,
shall be calculated under terms of the Buyer Pension Plan that are substantially
identical in all material respects to the terms of the Seller Hourly Pension
Plan. The benefit for each Transferred Employee who, on the Closing Date,
participates in the Seller Salaried Pension Plan, shall not be less than the
greater of (x) the sum of the Transferred Employee's "Seller Pension" and "Buyer
Pension," or (y) the Transferred Employee's "Total Service Pension," each as
determined under the rules set forth in subsection (c)(iii) of this Section
11.2.1.
(B) Except as provided in paragraph (E), below,
each Transferred Employee who, as of the Closing Date, participates or formerly
participated in the Seller Salaried Pension Plan and who, under the terms of the
Seller Salaried Pension Plan, has at least 15 years of accredited service and
combined years of age and accredited service of at least 74 as of the Closing
Date shall be eligible, after the Transferred Employee's employment with the
Buyer and its Affiliates is terminated and after the Transferred Employee's
combined years of age and years of accredited service equal or exceed 76, to
receive his or her "Seller Pension" (as determined under the rules set forth in
subsection (c)(iii) of this Section 11.2.1) as an immediate early retirement
pension under the applicable Buyer Pension Plan in accordance with early
retirement provisions that are no less favorable to the Transferred Employee
than the early retirement provisions of the Seller Salaried Pension Plan as of
the Closing Date. For a period of at least five (5) years following the Closing
Date, the Buyer shall cause any agreement, pursuant to which the accrued benefit
of any Transferred Employee under a Buyer Pension Plan is transferred to another
pension plan, to incorporate a provision in substance identical to this
subsection (ii)( B).
(C) Except as provided in paragraph (E), below,
the benefit under the Buyer Pension Plan of a GATT Grandfathered Participant,
when expressed in the form of a lump sum, shall not be less than the benefit
under the Buyer Pension Plan determined without regard to the changes to Section
417 of the IRC made by the Uruguay Round Agreements Act. The method used to
convert a GATT Grandfathered Participant's accrued benefit into a lump-sum
amount under the Buyer Pension Plan after 1999 shall be not less favorable to a
GATT Grandfathered Participant than the method used for similar purposes by the
Seller Pension Plan. For purposes of this paragraph (c)(ii)(C), "GATT
Grandfathered Participant" shall mean a Transferred Employee (x) with respect to
whom liabilities are transferred pursuant to this subsection (c) and (y) who,
taking service from Buyer into account as service with Seller, would have been
eligible under the Seller Pension Plan, but for the transfer of liabilities
pursuant to this subsection (c), to have his benefit under the Seller Pension
Plan (when
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expressed in the form of a lump sum) determined without regard to the changes to
Section 417 of the IRC made by the Uruguay Round Agreements Act.
(D) Except as provided in paragraph (E), below,
each Transferred Employee who, as of the Closing Date, participates or formerly
participated in the Seller Hourly Pension Plan shall be eligible, after the
Transferred Employee's employment with Buyer and its Affiliates is terminated,
to receive an early retirement pension under the Buyer Pension Plan in
accordance with early retirement provisions that are no less favorable to the
Transferred Employee than the early retirement provisions of the Seller Hourly
Pension Plan as of the Closing Date.
(E) Notwithstanding paragraphs (B), (C), and (D),
above, if the actuary for the Buyer Pension Plan certifies in writing (with a
copy to Seller) that the Buyer Pension Plan will violate the requirements
imposed by Treasury Regulation section 1.401(a)(4)-4 unless certain benefits
otherwise called for by such paragraphs are not provided by the Buyer Pension
Plan, Buyer shall cause such benefits to be provided under a nonqualified
deferred compensation plan, rather than under the Buyer Pension Plan, at the
same time and in the same form as they otherwise would have been provided under
the Buyer Pension Plan; provided that (1) such benefits shall be provided by the
Buyer Pension Plan to the maximum extent possible without causing the Buyer
Pension Plan to violate Treasury Regulation section 1.401(a)(4)-4; and (2) to
the extent that any benefit payable outside of the Buyer Pension Plan pursuant
to this paragraph (E) is payable to an individual who is not a member of a
"select group of management or highly compensated employees" within the meaning
of Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA, Buyer shall cause a cash
payment or payments to be made to each such individual within 24 months of the
termination of the individual's employment with Buyer, in addition to all other
payments due or otherwise payable to such individual, in an amount that is
reasonably calculated to be actuarially equivalent, on a pre-tax basis, to the
value of such benefit.
(iii) (A) The Buyer Pension Plan benefit of a
Transferred Employee who, on the Closing Date, participates in the Seller Hourly
Pension Plan by virtue of his or her coverage under a collective bargaining
agreement, shall be calculated as set forth in paragraph (c)(ii)(A) of this
Section 11.2.1.
(B) The Buyer Pension Plan benefit of a
Transferred Employee who, on the Closing Date, participates in the Seller
Salaried Pension Plan, shall be calculated by applying the benefit formula set
forth in paragraph (c)(ii)(A) of this Section 11.2.1, in accordance with the
rules described in the remainder of this paragraph (B). A Transferred Employee's
"Seller Pension" shall be calculated by applying the benefit formula under the
Seller Salaried Pension Plan (as in effect on the Closing Date) to the
Transferred Employee's service and compensation credited under the Seller
Salaried Pension Plan as of the Closing Date. A Transferred Employee's "Buyer
Pension" shall be not less than an amount calculated by applying the benefit
formula under the Buyer Pension Plan to the Transferred Employee's total
accredited service and compensation under the Buyer Pension Plan (including
service and compensation credited under the Seller Salaried Pension Plan as of
the Closing Date as if such service and compensation had been earned under the
Buyer Pension Plan and service and compensation credited under the Buyer Pension
Plan after the Closing Date), multiplied by the ratio of
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accredited service earned after the Closing Date to such total accredited
service; provided that for a period of at least five (5) years following the
Closing Date, Buyer shall cause the benefit formula used in determining such
"Buyer Pension" to provide "section 411(d)(6)" benefits at least as valuable as
were provided under the benefit formula applicable to the Transferred Employee
under the Seller Salaried Pension Plan on the Closing Date. A Transferred
Employee's "Total Service Pension" shall be calculated by applying the benefit
formula under the Buyer Pension Plan (before its amendment to reflect the five
(5) year inclusion of Seller's formula) to the Transferred Employee's accredited
service (including service and compensation credited with the Seller under the
Seller Salaried Pension Plan as of the Closing Date as if such service and
compensation was earned under the Buyer Pension Plan and service and
compensation credited under the Buyer Pension Plan on and after the Closing
Date). For purposes of computing a Transferred Employee's "Total Service
Pension," compensation received by such a Transferred Employee from the Seller
shall be treated as compensation received from the Buyer. The Seller Pension,
the Buyer Pension, and the Total Service Pension shall take into account the
Transferred Employee's actual age and entire period of service (including
service credited under the Seller Salaried Pension Plan as of the Closing Date
and service credited under the Buyer Pension Plan on and after the Closing Date)
for vesting and benefit eligibility purposes.
(C) Each Transferred Employee who is eligible to
receive a benefit under the Buyer Pension Plan may elect to receive the portion
of said benefit that is equal to the Seller Pension in any form, and with any
early retirement or other actuarial subsidy, that was available under the Seller
Pension Plan on the Closing Date, without regard to whether the Transferred
Employee is eligible to elect or receive, or does elect or receive, the same
form of payment or early retirement or actuarial subsidy for the remainder of
the pension under the Buyer Pension Plan.
(iv) Within sixty (60) days after the Closing Date,
Seller shall deliver to Buyer a list reflecting each Transferred Employee's
service and compensation under each of the Seller Pension Plans and each
Transferred Employee's accrued benefit thereunder as of the Closing Date.
(d) Transfer of Assets.
(i) In accordance with the provisions of subsection
(d)(i) of this Section 11.2.1 and subject to the provisions of subsection
(d)(vi) of this Section 11.2.1, Seller shall direct the trustee of the Seller
Pension Plans to transfer to the trustee or funding agent of the Buyer Pension
Plan the amount required to be transferred by Section 414(l) of the IRC and the
regulations thereunder for all Transferred Employees whose accrued benefits are
transferred to a Buyer Pension Plan pursuant to Section (c) of this Section
11.2.1, determined using the following assumptions (the "Pension Assets"):
Interest Rate: Rate used to value annuities under PBGC Regulation
ss. 4044.52(a)(1) for the month in which the Closing Date occurs
Annual Rate of Increase in Salaries: 0%
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Annual Rate of Increase in Social Security Taxable Wage Base: 0%
Annual Rate of Increase in Consumer Price Index: 0%
Annual Rate of Increase in Limits on Benefits and Compensation: 0%
Mortality: Rates specified under PBGC Regulationss.4044.53(c)
Termination: None
Disability: None
Retirement: Expected retirement age as specified under PBGC
Regulation ss. 4044.55
Lump Sums: None
All other demographic assumptions to match those used by Seller in
the preparation of financial statement disclosures under Statement
of Financial Accounting Standards No. 87 for the 1998 fiscal year.
In no event shall the amount of Pension Assets transferred be less
than the Projected Benefit Obligation associated with all the
liabilities being assumed in the aggregate in Section 11.2.1(c)
using the assumptions specified by Seller in the preparation of its
financial statement disclosures under Statement of Financial
Accounting Standards No. 87 for the 1998 fiscal year.
The Pension Assets shall be transferred in cash. Except in the case of an
arithmetical error in the calculation of the amount of Pension Assets to be
transferred, under no circumstances shall Seller or the Seller Pension Plans be
liable to transfer any additional amount to Buyer or a Buyer Pension Plan or any
other person in respect of the accrued benefits transferred to a Buyer Pension
Plan pursuant to Section (c) of this Section 11.2.1, including but not limited
to any circumstance under which any person (including a governmental agency)
states a claim to some portion or all of the Pension Assets.
(ii) Seller shall appoint an actuary ("Seller's
Actuary") to determine the amount to be transferred pursuant to subsection
(d)(i) of this Section 11.2.1 and shall provide such determination to Buyer,
together with a computer file containing all of the data used by Seller's
actuary to calculate Pension Assets, within ninety (90) days after the Closing
Date. Buyer shall appoint an actuary ("Buyer's Actuary") who shall have the
right to audit and review the determination made by Seller's Actuary. If Buyer's
Actuary is unable to agree with Seller's Actuary on the amount of the transfer
within ninety (90) days after Seller informs Buyer of the amount to be
transferred and provides Buyer with the computer file containing all of the data
used by Seller's actuary to calculate Pension Assets, Seller and Buyer shall
jointly select a third actuary, whose determination shall be binding on Seller
and Buyer. Each of Seller and Buyer shall bear the fees, costs and expenses of
their respective actuaries, and
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the fees, costs, and expenses of the third actuary shall be borne one-half by
Seller and one-half by Buyer.
(iii) Interest on the Pension Assets shall accrue from
the Closing Date to the actual date of transfer at the assumed discount rate
used in accordance with paragraph (i) of this Section (d); provided that any
Pension Assets that are distributed from the Seller Pension Plans before the
date of transfer pursuant to subsection (d)(vi) of this Section 11.2.1 shall be
credited with interest (such interest to be credited to the Buyer Pension Plans)
only from the Closing Date to the date of distribution.
(iv) Under the terms of each Buyer Pension Plan, the
accrued benefit of each Transferred Employee immediately after the transfer of
assets and liabilities pursuant to this Section 11.2.1 shall not be less than
the sum of each Transferred Employee's accrued benefits under the Seller Pension
Plan and the Buyer Pension Plan immediately before the transfer of assets and
liabilities. Neither Seller nor its Affiliates nor the Seller Pension Plans nor
any trustee thereof shall retain any liability for benefits under the Seller
Pension Plans for any Transferred Employee with respect to whom cash has been
transferred to a Buyer Pension Plan pursuant to this Section 11.2.1 or
distributed pursuant to subsection (d)(vi) of this Section 11.2.1.
(v) In connection with the transfer of assets and
liabilities pursuant to this Section 11.2.1, Seller and Buyer shall cooperate
with each other in making all appropriate filings required by the IRC or ERISA
and the regulations thereunder, and the transfer of assets and liabilities
pursuant to this Section 11.2.1 shall not take place until as soon as
practicable after the latest of (i) the expiration of the 30-day period
following the filing of any required notices with the IRS pursuant to Section
6058(b) of the IRC, or (ii) the date Buyer has delivered to Seller (xx) a copy
of the Buyer Pension Plan and a copy of the most recent determination letter
from the IRS to the effect that the Buyer Pension Plan is qualified under
Section 401(a) of the IRC, together with documentation reasonably satisfactory
to Seller of the due adoption of any amendments to the Buyer Pension Plan
required by the IRS as a condition to such qualification and a certification
from Buyer that no events have occurred that adversely affect the continued
validity of such determination letter (apart from the enactment of any Federal
law for which the remedial amendment period under Section 401(b) of the IRC has
not yet expired), and (yy) information enabling the enrolled actuary for the
Buyer Pension Plan to issue the certification required by Section 6058(b) of the
IRC.
(vi) (A) If, after the Closing Date and before the date
of transfer of assets and liabilities from the Seller Pension Plans pursuant to
this Section 11.2.1, the accrued benefit as of the Closing Date becomes payable
under a Seller Pension Plan to or with respect to a Transferred Employee, Buyer
shall (xx) furnish GTE Service Corporation with a copy of a properly completed
application for such benefits, and (yy) direct GTE Service Corporation to
instruct the trustee of the Seller Pension Plan to make benefit payments in the
form and amount determined by GTE Service Corporation in accordance with the
properly completed application for benefits. Seller shall cause GTE Service
Corporation to comply with any such direction.
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(B) Notwithstanding anything herein to the
contrary, the assets and liabilities to be transferred from the trustee of the
Seller Pension Plans to the trustee or funding agent of the Buyer Pension Plan
pursuant to this Section 11.2.1 shall be reduced, as provided in this subsection
(vi), to reflect any benefit payments made pursuant to this subsection (vi)
regardless of the form in which paid and any expenses described in paragraph (B)
of this subsection (vi) that have not otherwise been paid pursuant to this
subsection (vi).
11.2.2 Savings Plans.
(a) As of the date of this Agreement, Seller participates in
the GTE Savings Plan and the GTE Hourly Savings Plan (collectively referred to
as the "Seller Savings Plans"). Except as provided in Section (g) of this
Section 11.2.2, Transferred Employees shall not be entitled to make
contributions to or to benefit from matching or other contributions under the
Seller Savings Plans on and after the Closing Date.
(b) Buyer shall take all action necessary and appropriate to
ensure that, as soon as practicable after the Closing Date, Buyer maintains or
adopts one or more savings plans (hereinafter referred to in the aggregate as
the "Buyer Savings Plans" and individually as the "Buyer Savings Plan")
effective as of the Closing Date and to ensure that each Buyer Savings Plan
satisfies the following requirements as of the Closing Date: (i) the Buyer
Savings Plan is a qualified, single-employer individual account plan under
Section 401(a) of the IRC; (ii) the Buyer Savings Plan does not exclude
Transferred Employees from eligibility to participate therein; (iii) the Buyer
Savings Plan permits Transferred Employees to make before-tax contributions
(under Section 401(k) of the IRC) and provides for matching contributions by the
Buyer; and (iv) the Buyer Savings Plan does not violate the requirements of any
applicable collective bargaining agreement. Within the thirty (30) day period
immediately preceding any transfer of assets and liabilities from a Seller
Savings Plan to a Buyer Savings Plan pursuant to this Section 11.2.2, Buyer
shall provide Seller with a written certification, in a form acceptable to
Seller, that the Buyer Savings Plan satisfies each of the requirements set forth
in this Section (b).
(c) (i) Seller shall fully vest the Transferred Employees in
their account balances under the Seller Savings Plan as of the Closing Date and
shall direct the trustee of the Seller Savings Plans to transfer to the trustee
or funding agent of the Buyer Savings Plans an amount in cash equal in value to
the account balances of the Transferred Employees covered by the Seller Savings
Plans as of the date of the transfer; provided that to the extent the account
balances to be transferred consist in whole or in part of outstanding loans,
Seller shall direct the trustee of the Seller Savings Plans to transfer to the
trustee or funding agent of the Buyer Savings Plans, in lieu of cash, the
promissory notes and related documents evidencing such loans. Buyer and Seller
shall take such actions as may be required to effect the assignment of such
loans by the trustee of the Seller Savings Plan to the trustee or funding agent
of the Buyer Savings Plan, and Buyer shall cause the trustee or funding agent of
the Buyer Savings Plan to accept the assignment of such loans.
(ii) After the date of the transfer of assets and
liabilities pursuant to this Section 11.2.2, Buyer shall assume all liabilities
for the benefits payable to or with respect to such Transferred Employees under
the Seller Savings Plans, and Seller and the Seller Savings Plans and their
implementing trust shall retain no liability for such benefits.
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(d) For purposes of eligibility and vesting under the Buyer
Savings Plans, each Transferred Employee shall be credited with service as of
the Closing Date as determined under the terms of the Seller Savings Plans. As
soon as practicable after the Closing Date, Seller shall cause GTE Service
Corporation to deliver to Buyer a list of the Transferred Employees covered by
the Seller Savings Plans, together with each Transferred Employee's service
under each of the Seller Savings Plans as of the Closing Date.
(e) In connection with the transfer of assets and liabilities
pursuant to this Section 11.2.2, Seller and Buyer shall cooperate with each
other in making all appropriate filings required by the IRC or ERISA and the
regulations thereunder, and the transfer of assets and liabilities pursuant to
this Section 11.2.2 shall not take place until as soon as practicable after the
latest of (i) the expiration of the thirty (30) day period following the filing
of any required notices with the IRS pursuant to Section 6058(b) of the IRC, and
(ii) the date Buyer has delivered to Seller (xx) a copy of the Buyer Savings
Plan and a copy of the most recent determination letter from the IRS to the
effect that the Buyer Savings Plan is qualified under Sections 401(a) and 401(k)
of the IRC, together with documentation reasonably satisfactory to Seller of the
due adoption of any amendments to the Buyer Savings Plan required by the IRS as
a condition to such qualification and a certification from Buyer that no events
have occurred that adversely affect the continued validity of such determination
letter (apart from the enactment of any Federal law for which the remedial
amendment period under Section 401(b) of the IRC has not yet expired).
(f) As of the Closing Date, Seller shall cause GTE Service
Corporation to deliver to Buyer a list of the Transferred Employees who have
outstanding loans under the Seller Savings Plans, together with copies of said
Transferred Employees' notes, disclosure statements, and security agreements
under the Seller Savings Plans. Seller shall also notify Buyer within thirty
(30) days after the Closing Date of any Transferred Employee who initiated a
loan within thirty (30) days before the Closing Date. Subject to obtaining the
consent of the applicable Transferred Employee if required by law, from the
Closing Date until the earliest of (i) the actual date of transfer of assets and
liabilities pursuant to this Section 11.2.2; (ii) the full amortization of the
Transferred Employee's indebtedness; (iii) the distribution of the entire
balance of the Transferred Employee's accounts; or (iv) the last date on which
Buyer or one of its Affiliates pays remuneration to the Transferred Employee,
Buyer or its Affiliate shall (x) continue the payroll deductions pursuant to
which each such Transferred Employee is discharging indebtedness to a Seller
Savings Plan and (y) remit the deducted funds to Fidelity Management Trust
Company, the trustee of the Seller Savings Plans, as soon as practicable, but in
no event more than thirty (30) days, after the date of deduction, together with
an accounting that identifies the Transferred Employees with respect to whom the
funds were deducted and the amount deducted for each Transferred Employee. All
such remitted funds shall be transferred to the appropriate Seller Savings Plan
and applied to reduce the appropriate Transferred Employee's outstanding
indebtedness. Buyer's obligations under this Section (f) are limited to payroll
deductions of loan repayments by the Transferred Employees and remittance of
those funds, and nothing herein shall be construed to obligate Buyer to repay to
Seller any portion of the outstanding indebtedness of the Transferred Employees
that are not otherwise discharged by the Transferred Employees themselves.
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(g) Seller shall make all required matching contributions with
respect to the Transferred Employees' contributions made to the Seller Savings
Plan by the Transferred Employees in respect of the period ending on or before
the Closing Date in the year containing the Closing Date that would have been
eligible for matching contributions without regard to any continued service
(e.g., last day of the year employment or 1000 hours) requirements. Such
matching contributions shall be made not later than the date on which all other
matching contributions are made to the Seller Savings Plans with respect to
contributions made at the same time as the Transferred Employees' contributions.
For not less than five (5) calendar years following the Closing Date (including
the year in which the Closing occurs), Buyer shall, subject to applicable plan
qualification requirements, provide salaried Transferred Employees with a
matching contribution in the Buyer's Savings Plan equal to $.75 for each $1
contributed by Transferred Employees up to six percent (6%) of compensation (as
defined in Buyer's Savings Plan).
11.2.3 Welfare Plans.
(a) Buyer shall take all action necessary and appropriate to
ensure that, as soon as practicable after the Closing Date, Buyer maintains or
adopts, as of the Closing Date, one or more employee welfare benefit plans,
including medical, health, dental, flexible spending account, accident, life,
short-term disability, and long-term disability and other employee welfare
benefit plans providing preretirement welfare benefits for the benefit of (i)
the non-bargained Transferred Employees (the "Non-union Welfare Plans") and (ii)
the union-represented Transferred Employees in accordance with the provisions of
applicable collective bargaining agreements (the "Bargained Welfare Plans"). The
Non-union Welfare Plans and the Bargained Welfare Plans are hereinafter referred
to collectively as the "Buyer Welfare Plans." The Buyer Welfare Plans shall
provide as of the Closing Date pre-retirement benefits to Transferred Employees
(and their dependents and beneficiaries) that, in the aggregate, are comparable
to the pre-retirement benefits to which they were entitled under the
corresponding employee welfare benefit plans maintained by Seller on the Closing
Date. For purposes of determining eligibility to participate in each Buyer
Welfare Plan, each Transferred Employee shall be credited with service,
determined under the terms of the corresponding welfare plans maintained by
Seller on the Closing Date (hereinafter referred to collectively as the "Seller
Welfare Plans"). Any restrictions on coverage for pre-existing conditions or
requirements for evidence of insurability under the Buyer Welfare Plans shall be
waived for Transferred Employees, and Transferred Employees shall receive credit
under the Buyer Welfare Plans for co-payments and payments under a deductible
limit made by them and for out-of-pocket maximums applicable to them during the
plan year of the Seller Welfare Plan in accordance with the corresponding Seller
Welfare Plans. As soon as practicable after the Closing Date, Seller shall
deliver to Buyer a list of the Transferred Employees who had credited service
under a Seller Welfare Plan, together with each such Transferred Employee's
service, co-payment amounts, and deductible and out-of-pocket limits under such
plan.
(b) (i) Except as otherwise provided in subsection (b)(ii) or
(b)(iii) of this Section (b) or in an applicable collective bargaining
agreement, Buyer shall provide or cause to be provided retiree medical, health,
and life benefits to each Transferred Employee (or the dependents or
beneficiaries of such Transferred Employee, as the case may be) under the
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same terms and conditions as apply to comparable employees of Buyer, and Seller
shall have no obligation to provide retiree medical, health, and life benefits
in respect of any Transferred Employee on or after the Closing Date.
(ii) Subject to Section 11.4, below, following the
retirement from Buyer and its Affiliates or any successor thereof of a
Transferred Employee who is not subject to a collective bargaining agreement as
of the Closing Date, who has combined age and years of accredited service
(within the meaning of the Seller Pension Plan) as of the Closing Date equal to
at least 66, and who as of his or her retirement has combined age and years of
accredited service (within the meaning of the Seller Pension Plan) equal to at
least 76 and at least 15 years of accredited service (within the meaning of the
Seller Pension Plan) (a "Retired Nonunion Transferred Employee"), Seller shall
provide or cause to be provided to each such Retired Nonunion Transferred
Employee (and/or his or her dependents and beneficiaries) retiree medical,
health, and life benefits under terms and conditions that are substantially
identical to the terms and conditions under the corresponding programs offered
by Seller to its similarly situated noncollectively bargained employees retiring
as of the Closing Date; provided that nothing in this subsection (b)(ii) shall
be construed to prevent any Retired Nonunion Transferred Employee (or his or her
dependents or beneficiaries) from voluntarily relinquishing such benefits. For a
period of five (5) years following the retirement of each Retired Nonunion
Transferred Employee from Buyer and its Affiliates or any successor thereof,
Buyer shall reimburse Seller, in accordance with this subsection (b)(ii), for
the cost of the retiree medical, health, and life coverage for which Seller is
responsible and that Seller actually provides pursuant to this subsection
(b)(ii). The five (5) year time period for this reimbursement obligation shall
be determined separately in respect of each Retired Nonunion Transferred
Employee. For each year for which Buyer is required to reimburse Seller under
this subsection (b)(ii), Buyer shall pay Seller annually in arrears, within 30
days after Seller provides a statement therefor to Buyer, (A) $4,000 with
respect to each Retired Nonunion Transferred Employee who has not yet attained
age 65 during the year for which the payment is made and $4,000 with respect to
each spouse who is covered with respect to a Retired Nonunion Transferred
Employee and who has not yet attained age 65 during the year for which the
payment is made, and (B) $1,800 with respect to each Retired Nonunion
Transferred Employee who has attained at least age 65 during the year for which
the payment is made and $1,800 with respect to each spouse who is covered with
respect to a Retired Nonunion Transferred Employee and who has attained at least
age 65 during the year for which the payment is made. No reimbursement shall be
due with respect to any dependent, other than a spouse, covered with respect to
a Retired Nonunion Transferred Employee. The reimbursement obligation for
partial years shall be prorated based on the portion of the year covered by the
obligation. Each Retired Nonunion Transferred Employee (or his or her dependent
or beneficiary, as the case may be) who is provided benefits by Seller under
this subsection (b)(ii) shall be required to pay to Seller any premium,
contribution or other payment required under, and shall be subject to any
copayment or deductible required under, the terms of Seller's applicable retiree
medical, health, or life benefit plan; to the extent that any amount
constituting such a payment is deducted from any plan, program, or arrangement
maintained by Buyer or one of its Affiliates or is otherwise paid to Buyer or
one of its Affiliates by such person, Buyer shall cause such amount to be paid
to Seller as soon as administratively practicable.
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(iii) In addition to any other benefits to be provided
pursuant to this Article XI, following the retirement from Buyer and its
Affiliates or any successor thereof of a Transferred Employee who is subject to
a collective bargaining agreement as of the Closing Date and who as of his or
her retirement has combined age and years of accredited service (within the
meaning of the Seller Pension Plan) equal to at least 76 and at least 15 years
of accredited service (within the meaning of the Seller Pension Plan) (a
"Retired Union Transferred Employee"), Buyer shall provide or cause to be
provided to each such Retired Union Transferred Employee (and/or his or her
dependents and beneficiaries) retiree medical, health, and life benefits, for a
period of at least five (5) years following the Closing Date, under terms and
conditions that are substantially identical to the terms and conditions under
the corresponding programs offered by Seller to its similarly situated
collectively bargained employees retiring as of the Closing Date.
(iv) Benefits provided pursuant to subsections (b)(ii)
and (b)(iii) of this Section (b) (including for this purpose, the determination
of who is eligible for such benefits) shall take into account service with Buyer
or any of its Affiliates on and after the Closing Date in the same manner as if
such post-Closing Date service was performed with Seller. Buyer shall provide
Seller with such information as shall be reasonably required to implement the
immediately preceding sentence with respect to subsection (b)(ii) of this
Section (b).
(c) Buyer shall refer to GTE Service Corporation and GTE
Service Corporation shall assume responsibility for any valid claim under a
Seller Welfare Plan for disability, medical, or dental benefits made by a
Transferred Employee on or after the Closing Date arising from a disability or
loss incurred on or before the Closing Date. Nothing in this Section 11.2.3
shall require Seller, any Affiliate of Seller, or the Seller Welfare Plans to
make any payment or to provide any benefit not otherwise provided by the terms
of the Seller Welfare Plans.
(d) Seller, Buyer, their respective Affiliates, and the Seller
Welfare Plans and the Buyer Welfare Plans shall assist and cooperate with each
other in the disposition of claims made under the Seller Welfare Plans pursuant
to subsection (c) of this Section 11.2.3, and in providing each other with any
records, documents, or other information within its control or to which it has
access that is reasonably requested by any other as necessary or appropriate to
the disposition, settlement, or defense of such claims.
(e) Except as otherwise provided in Section 11.2.3(f), nothing
in this Agreement shall require Seller or its Affiliates to transfer assets or
reserves with respect to the Seller Welfare Plans to Buyer or the Buyer Welfare
Plans.
(f) Seller will make available to Buyer, prior to the Closing
Date, a list of those Transferred Employees that have participated in the health
or dependent care reimbursement accounts of Seller under the GTE Flexible
Reimbursement Plan (the "FRP"), together with the elections made prior to the
Closing Date with respect to such accounts through the Closing Date, any
balances standing to the credit of Transferred Employees, and the corresponding
amounts being transferred to the corresponding Buyer's plan in accordance with
the following sentence. As of the Closing Date, Seller shall cause the portion
of the FRP
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applicable to Transferred Employees to be segregated into a separate component
and all account balances of the Transferred Employees in the FRP shall be
transferred to a flexible reimbursement plan that Buyer shall cause to be
maintained for the duration of the calendar year in which the Closing Date
occurs.
(g) On and for a period of at least three (3) years after the
Closing Date, Transferred Employees not subject to a collective bargaining
agreement shall be eligible for benefits under a Buyer severance or separation
pay policy or plans that are the same as or comparable to the severance or
separation pay policy benefits that are provided by Seller (or the applicable
Affiliate, if the Transferred Employee is employed by an employer other than the
Seller) or a Seller Pension Plan as of the Closing Date. Buyer shall recognize
the service of each such Transferred Employee with Seller and its Affiliates for
eligibility, vesting, and benefit determinations under the Buyer severance or
separation pay policy or plan. Transferred Employees subject to a collective
bargaining agreement shall be eligible for severance or separation pay benefits
in accordance with the terms of the applicable collective bargaining agreement.
11.3 Miscellaneous Benefits.
11.3.1 Vacation.
(a) On or after the Closing Date, Buyer shall allow
Transferred Employees to receive paid time off in the calendar year of the
Closing for any unused vacation time accrued prior to the Closing Date. Seller
and its Affiliates shall have no liability to Transferred Employees for the
vacation payments described in this Section 11.3.1. Seller shall pay Transferred
Employees any banked vacation on or before the Closing Date. Schedule 11.3.1 to
be prepared by Seller and submitted to Buyer on or before the Closing Date shall
list the accrued but unused vacation pay, as of the Closing Date, of each
Transferred Employee for the calendar year in which the Closing Date occurs.
(b) For purposes of determining a Transferred Employee's
eligibility for vacation under Buyer's vacation plan, a Transferred Employee
shall be credited, as of the first day of the first calendar year that begins
after the calendar year in which the Closing Date occurs, with service for the
calendar year in which the Closing Date occurs in an amount equal to the
aggregate of the Transferred Employee's service with both Seller and Buyer
during the calendar year in which the Closing Date occurs.
11.3.2 Transferred Employee Statements. Within sixty (60) days after
the Closing Date, Seller shall prepare and distribute to all Transferred
Employees an accurate and complete statement of their accrued benefits under
Seller's Pension Plans as of the Closing Date and shall provide Buyer with a
true and complete copy of the same. Such statements shall be sufficiently
detailed to readily permit Buyer and the Transferred Employees to determine the
accuracy thereof.
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11.4 Employee Rights.
Nothing herein expressed or implied shall confer upon any employee
of Seller or its Affiliates, or Buyer or its Affiliates, or upon any legal
representative of such employee, or upon any collective bargaining agent, any
rights or remedies, including any right to employment or continued employment
for any specified period, of any nature or kind whatsoever under or by reason of
this Agreement.
Nothing in this Agreement shall be deemed to confer upon any person
(nor any beneficiary thereof) any rights under or with respect to any plan,
program, or arrangement described in or contemplated by this Agreement, and each
person (and any beneficiary thereof) shall be entitled to look only to the
express terms of any such plan, program, or arrangement for his or her rights
thereunder.
Nothing in this Agreement shall cause Buyer or its Affiliates, nor
Seller or its Affiliates to have any obligation to provide employment or any
employee benefits to any individual who is not a Transferred Employee or, except
as otherwise provided in Section 11.1.2 with respect to employment agreements,
to continue to employ any Transferred Employee for any period of time following
the Closing Date.
11.5 WARN Act Requirements.
On and after the Closing Date, Buyer shall be responsible with
respect to Transferred Employees and their beneficiaries for compliance with the
Worker Adjustment and Retraining Notification Act of 1988 and any other
applicable law, including any requirement to provide for and discharge any and
all notifications, benefits, and liabilities to Transferred Employees and
government agencies that might be imposed as a result of the consummation of the
transactions contemplated by this Agreement or otherwise.
11.6 Indemnification.
11.6.1 Indemnification of Seller. Notwithstanding anything to the
contrary in Article 12 of this Agreement, Buyer shall indemnify and hold
harmless Seller, its Affiliates, and their respective directors, officers,
employees, agents, and assigns, and each employee benefit plan or arrangement
maintained or contributed to by Seller or an Affiliate thereof (whether or not
such plan or arrangement is an "employee benefit plan" within the meaning of
Section 3(3) of ERISA) and its administrators, fiduciaries, and agents, from and
against any and all claims, demands, actions, administrative or other
proceedings, causes of action, liability, loss, cost, damage, and expense
(including reasonable attorneys' fees) (i) in any way arising out of or incurred
as a result of any action by Buyer, its Affiliates, their respective directors,
officers, employees, or agents, the administrators or fiduciaries of any
employee benefit plan maintained or contributed to by Buyer or an Affiliate
thereof (whether or not such plan or arrangement is an "employee benefit plan"
within the meaning of Section 3(3) of ERISA), or any of their successors, except
as otherwise expressly permitted under this Agreement, to change, reduce
contributions to, terminate, fail to continue, fail to pay benefits under, or
fail to manage or administer properly any employee benefit plan or arrangement
(whether or not such plan or arrangement is an "employee benefit plan" within
the meaning of Section 3(3) of ERISA) on or
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after the Closing Date, or (ii) in any way arising out of or incurred as a
result of any action that is a breach of any the covenants, representations,
warranties, or obligations of any such person under this Agreement.
11.6.2 Indemnification of Buyer. Notwithstanding anything to the
contrary in Article 12 of the Agreement, Seller shall indemnify and hold
harmless Buyer, its Affiliates, and their respective directors, officers,
employees, agents, and assigns, and each employee benefit plan or arrangement
maintained or contributed to by Buyer or an Affiliate thereof (whether or not
such plan or arrangement is an "employee benefit plan" within the meaning of
Section 3(3) of ERISA) and its administrators, fiduciaries, and agents, from and
against any and all claims, demands, actions, administrative or other
proceedings, causes of action, liability, loss, cost, damage, and expense
(including reasonable attorneys' fees) (i) in any way arising out of or incurred
as a result of any action by Seller, its Affiliates, their respective directors,
officers, employees, or agents, the administrators or fiduciaries of any
employee benefit plan maintained or contributed to by Seller or an Affiliate
thereof (whether or not such plan or arrangement is an "employee benefit plan"
within the meaning of Section 3(3) of ERISA), or any of their successors, to
fail to pay benefits under, or fail to manage or administer properly any
employee benefit plan or arrangement (whether or not such plan or arrangement is
an "employee benefit plan" within the meaning of Section 3(3) of ERISA) before
the Closing Date, or (ii) in any way arising out of or incurred as a result of
any action that is a breach of any the covenants, representations, warranties,
or obligations of any such person under this Agreement.
ARTICLE 12
INDEMNIFICATION
12.1 Survival of Representations. Warranties and Covenants.
(a) The representations and warranties contained in Sections
8.1.6 and 8.2.6 will survive the Closing and remain in full force and effect
indefinitely. Each of the other representations and warranties contained in
Article 8 will terminate, without further action, on the date which is fifteen
(15) months following the Closing Date (the "Expiration Date").
(b) This Article 12 shall survive any termination of this
Agreement and the Ancillary Agreements and the indemnification contained in this
Article 12 shall survive the Closing and shall remain in effect (i)
indefinitely, with respect to any Indemnifiable Claim related to the breach of
any representation or warranty which pursuant to Section 12.1(a) survives
indefinitely, (ii) indefinitely or for the applicable period of performance for
such covenant (provided that in the case of covenants, the Indemnitee shall have
60 days after the end of such performance period to provide notice to the
Indemnifying Party of a claim for indemnification arising during the performance
period), with respect to any Indemnifiable Claim arising under Section
12.2(a)(ii)(B) (post closing covenants), (iii) indefinitely, with respect to any
Indemnifiable Claim arising under Section 12.2(a)(iii) (Retained Liabilities) or
12.2(b)(iii) (Assumed Liabilities), and (iv) until the Expiration Date for any
Indemnifiable Claims that are not specified in any of the preceding clauses.
Unless a claim for indemnification with respect to any alleged breach of any
representation or warranty is asserted by notice given as herein provided that
specifically identifies a particular breach and the underlying facts relating
thereto, which notice is given within the applicable period of survival for such
representation or warranty, such claim may not be pursued and is irrevocably
waived after such time. Without limiting the generality or effect of the
foregoing, no claim for indemnification with respect to any representation or
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warranty will be deemed to have been properly made except (i) to the extent it
is based upon a Third Party Claim made or brought prior to the expiration of the
survival period for such representation or warranty, or (ii) to the extent based
on Indemnifiable Losses actually incurred by an Indemnitee prior to the
expiration of the survival period for such representation or warranty.
12.2 Indemnification.
(a) Following the Closing and subject to the other sections of
this Article 12, Seller will indemnify, defend and hold harmless Buyer and its
Affiliates and their respective directors, officers, and agents from and against
all Indemnifiable Losses relating to, resulting from or arising out of (i) any
inaccuracy in any of the representations and warranties made by Seller in
Section 8.1 of this Agreement, (ii) a breach by Seller of any covenant of Seller
contained in this Agreement, which covenant requires performance by Seller (A)
prior to or at the Closing, or (B) after the Closing, and (iii) any of the
Retained Liabilities.
(b) Following the Closing and subject to the other sections of
this Article 12, Buyer will indemnify, defend and hold harmless Seller and its
Affiliates and their respective directors, officers, and agents from and against
all Indemnifiable Losses relating to, resulting from or arising out of (i) any
inaccuracy in any of the representations or warranties made by Buyer in Section
8.2 of this Agreement, (ii) a breach by Buyer of any covenant of Buyer contained
in this Agreement, which covenant requires performance by Buyer prior to, at or
after the Closing, and (iii) any of the Assumed Liabilities.
(c) Payments made under this Section 12.2 shall be treated by
Buyer and Seller as purchase price adjustments and Buyer and Seller shall file
all Tax Returns consistent with such treatment. Notwithstanding anything to the
contrary contained herein, neither party shall be indemnified or reimbursed for
any Tax consequences arising from the receipt or accrual of an indemnity payment
hereunder including any Tax consequences arising from adjustments to the basis
of any asset resulting from an adjustment to the Purchase Price or any
additional or reduced taxes resulting from any such basis adjustment.
(d) In the event that a claim against an Indemnifying Party
arises under both Section 12.2(a)(i) and Section 12.2(a)(ii), or under both
Section 12.2(b)(i) and Section 12.2(b)(ii), then the Indemnitee's rights to
pursue its claim under Section 12.2(a)(ii) or Section 12.2(b)(ii), as
applicable, will exist notwithstanding the provisions of Section 12.3(d).
(e) In the event that a claim against an Indemnifying Party
arises under both Section 12.2(a)(i) and Section 12.2(a)(iii), or under both
Section 12.2(b)(i) and Section 12.2(b)(iii), then the Indemnitee's rights to
pursue the claim under Section 12.2(a)(iii) or Section 12.2(b)(iii), as
applicable, will exist notwithstanding the provisions of Sections 12.3(d).
(f) In the event a claim against an Indemnifying Party arises
under both Section 12.2(a)(ii) and 12.2(a)(iii), or under both Section
12.2(b)(ii) and 12.2(b)(iii), then
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the Indemnitee's rights to pursue the claim under Section 12.2(a)(iii) or
Section 12.2(b)(iii), as applicable, will exist notwithstanding the provisions
of Section 12.3(d).
12.3 Limitations on Liability.
(a) For purposes of this Agreement, (i) "Indemnification
Payment" means any amount of Indemnifiable Losses required to be paid pursuant
to this Agreement, (ii) "Indemnitee" means any person or entity entitled to
indemnification under this Agreement, (iii) "Indemnifying Party" means any
person or entity required to provide indemnification under this Agreement, and
(iv) "Indemnifiable Losses" means any losses, liabilities, damages, costs and
expenses (including reasonable attorneys' fees and expenses) actually incurred
in connection with any actions, suits, demands, assessments, judgments and
settlements, in any such case (x) reduced by the amount of insurance proceeds
recovered from any person or entity with respect thereto, and (y) excluding any
such losses, liabilities damages, costs and expenses to the extent that the
underlying liability or obligation is the result of any action taken or omitted
to be taken by any Indemnitee.
(b) Notwithstanding anything to the contrary contained in this
Agreement, if the Closing occurs, (i) no claim for indemnification may be
asserted under Section 12.2(a) with respect to any matter discovered by or known
to Buyer on or before the date of this Agreement, or after the date of this
Agreement and on or before the Closing Date to the extent that Buyer has not
provided timely notice to Seller of the existence of such claim in accordance
with Section 10.2, and (ii) no claim for indemnification may be asserted under
Section 12.2(b) with respect to any matter discovered by or known to Seller on
or before the Closing Date.
(c) As between Seller and any Affiliate of Seller, on the one
hand, and Buyer and any Affiliate of Buyer, on the other hand, the remedies,
rights and obligations set forth in this Article 12, Sections 10.1.2, 11.2.2,
11.6, 13.3 and the Ancillary Agreements will be the exclusive remedies, rights
and obligations with respect to the liabilities and obligations referred to in
Section 12.2 and any breach of the representations, warranties or covenants set
forth in this Agreement. Without limiting the foregoing, as a material
inducement to entering into this Agreement, to the fullest extent permitted by
law, each of the parties waives any claim or cause of action that it otherwise
might assert, and any breach of the representations, warranties or covenants set
forth in this Agreement, except for claims or causes of action brought under and
subject to the terms and conditions of this Article 12 and Sections 10.1.2, 11.6
and 13.3 or any Indemnifiable Losses arising out of actual fraud.
(d) Notwithstanding any other provision of this Agreement or
of any applicable Law, no Indemnitee will be entitled to make a claim against an
Indemnifying Party under Sections 11.2.2, 11.6, 12.2(a)(i) or 12.2(b)(i) until:
(i) the aggregate amount of Indemnifiable Losses
incurred by the Indemnitee for any individual occurrence or related series of
occurrences giving rise to such Indemnifiable Losses exceeds $25,000, and
(ii) the aggregate amount of claims that may be asserted
for such Indemnifiable Losses pursuant to Section 12.3(d)(i) exceeds an amount
equal to 2% of the
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Purchase Price, but only to the extent such amount, if any, (a) exceeds an
amount equal to 2% of the Purchase Price and (b) is less than the amount set
forth in Section 12.3(e).
(e) Notwithstanding any other provision of this Agreement, the
indemnification obligations of Seller under Section 12.2(a) (except with respect
to indemnification for inaccuracies of the representations contained in Sections
8.1.1 through 8.1.6) or the indemnification obligation of Buyer under Section
12.2(b) will not exceed the amount of an amount equal to 6.5% of the Purchase
Price respectively.
(f) No Indemnifying Party shall be liable to or obligated to
indemnify any Indemnitee hereunder for any consequential, special, multiple,
punitive or exemplary damages including, but not limited to, damages arising
from loss or interruption of business, profits, business opportunities or
goodwill, loss of use of facilities, loss of capital, claims of customers, or
any cost or expense related thereto, except to the extent such damages have been
recovered by a third person and are the subject of a Third Party Claim for which
indemnification is available under the express terms of this Section 12.
(g) Seller and Buyer shall cooperate with each other with
respect to resolving any claim or liability with respect to which one party is
obligated to indemnify the other party hereunder, including by making
commercially reasonable efforts to mitigate or resolve any such claim or
liability.
12.4 Defense of Claims.
(a) If any Indemnitee receives notice of the assertion of any
claim or of the commencement of any action or proceeding by any entity that is
not a party to this Agreement or an Affiliate of such a party (a "Third Party
Claim") against such Indemnitee, with respect to which an Indemnifying Party is
obligated to provide indemnification under this Agreement, the Indemnitee will
give such Indemnifying Party reasonably prompt written notice thereof, but in
any event not later than ten (10) calendar days after receipt of notice of such
Third Party Claim; provided, however, that the failure of the Indemnitee to
notify the Indemnifying Party shall only relieve the Indemnifying Party from its
obligation to indemnify the Indemnitee pursuant to this Article 12 to the extent
that the Indemnifying Party is materially prejudiced by such failure (whether as
a result of the forfeiture of substantive rights or defenses or otherwise). Upon
receipt of notification of a Third Party Claim, the Indemnifying Party shall be
entitled, upon written notice to the Indemnitee, to assume the investigation and
defense thereof with counsel reasonably satisfactory to the Indemnitee. Whether
or not the Indemnifying Party elects to assume the investigation and defense of
any Third Party Claim, the Indemnitee shall have the right to employ separate
counsel and to participate in the investigation and defense thereof; provided,
however, that the Indemnitee shall pay the fees and disbursements of such
separate counsel unless (i) the employment of such separate counsel has been
specifically authorized in writing by the Indemnifying Party, (ii) the
Indemnifying Party has failed to assume the defense of such Third Party Claim
within reasonable time after receipt of notice thereof with counsel reasonably
satisfactory to such Indemnitee, or (iii) the named parties to the proceeding in
which such claim, demand, action or cause of action has been asserted include
both the Indemnifying Party and such Indemnitee and, in the reasonable judgment
of counsel to such Indemnitee, there exists one or more defenses that may be
available to the Indemnitee that are in conflict with those
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available to the Indemnifying Party. Notwithstanding the foregoing, the
Indemnifying Party shall not be liable for the fees and disbursements of more
than one counsel for all Indemnified Parties in connection with any one
proceeding or any similar or related proceedings arising from the same general
allegations or circumstances. Without the prior written consent of the
Indemnitee, the Indemnifying Party will not enter into any settlement of any
Third Party Claim that would lead to liability or create any financial or other
obligation on the part of the Indemnitee unless such settlement includes as an
unconditional term thereof the release of the Indemnitee from all liability in
respect of such Third Party Claim. If a settlement offer solely for money
damages is made by the applicable third party claimant, and the Indemnifying
Party notifies the Indemnitee in writing of the Indemnifying Party's willingness
to accept the settlement offer and pay the amount called for by such offer
without reservation of any rights or defenses against the Indemnitee, the
Indemnitee may continue to contest such claim, free of any participation by the
Indemnifying Party, and the amount of any ultimate liability with respect to
such Third Party Claim that the Indemnifying Party has an obligation to pay
hereunder shall be limited to the lesser of (A) the amount of the settlement
offer that the Indemnitee declined to accept plus the Losses of the Indemnitee
relating to such Third Party Claim through the date of its rejection of the
settlement offer or (B) the aggregate Losses of the Indemnitee with respect to
such claim.
(b) Any claim by an Indemnitee on account of an Indemnifiable
Loss that does not result from a Third Party Claim (a "Direct Claim") will be
asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, but in any event not later than thirty (30) calendar days after an
Executive Officer of the Indemnitee becomes actually aware of the incurrence
thereof, and the Indemnifying Party will have a period of thirty (30) calendar
days within which to respond in writing to such Direct Claim. If the
Indemnifying Party does not so respond within such thirty (30) calendar day
period, the Indemnifying Party will be deemed to have rejected such claim, in
which event the Indemnitee will be free to pursue such remedies as may be
available to the Indemnitee on the terms and subject to the provisions of this
Article 12.
(c) If after the making of any Indemnification Payment the
amount of the Indemnifiable Loss to which such payment relates is reduced by
recovery, settlement or otherwise under any insurance coverage, or pursuant to
any claim, recovery, settlement or payment by or against any other entity, the
amount of such reduction (less any costs, expenses, premiums or taxes incurred
in connection therewith) will promptly be repaid by the Indemnitee to the
Indemnifying Party. Upon making any Indemnification Payment, the Indemnifying
Party will, to the extent of such Indemnification Payment, be subrogated to all
rights of the Indemnitee against any third party that is not an Affiliate of the
Indemnitee in respect of the Indemnifiable Loss to which the Indemnification
Payment relates; provided that (i) the Indemnifying Party shall then be in
compliance with its obligations under this Agreement in respect of such
Indemnifiable Loss, and (ii) until the Indemnitee recovers full payment of its
Indemnifiable Loss, all claims of the Indemnifying Party against any such third
party on account of said Indemnification Payment will be subrogated and
subordinated in right of payment to the Indemnitee's rights against such third
party. Without limiting the generality or effect of any other provision of this
Article 12, each such Indemnitee and Indemnifying Party will duly execute upon
request all instruments reasonably necessary to evidence and perfect the
above-described subrogation and subordination rights.
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12.5 No Indemnifiable Claims Resulting From Governmental Authority Action.
Buyer has no indemnifiable or otherwise compensable claim that any of Seller's
representations or warranties in Section 8.1 (other than Sections 8.1.4(b),
8.1.15 and 8.1.25) is inaccurate, or that any covenant has been breached, to the
extent that such claim is predicated on any action by the FCC or PSC undertaken
after Closing or any action the FCC or PSC requires Seller to undertake after
Closing. Buyer may only bring such a claim to the extent that its basis is
independent of any such FCC or PSC action.
ARTICLE 13
TERMINATION
13.1 Termination Rights. This Agreement may be terminated at any time
prior to the Closing Date:
(a) at any time by mutual written consent of the parties;
(b) by Buyer if any of the conditions provided in Section 6.1
of this Agreement have not been met within eighteen (18) months after execution
of this Agreement and have not been waived by Buyer;
(c) by Seller if any of the conditions provided in Section 6.2
of this Agreement have not been met within eighteen (18) months after execution
of this Agreement and have not been waived by Seller;
(d) by Seller if any obligations of Buyer provided in Article
3 become incapable of being fulfilled; or
(e) by either party immediately upon written notice to the
other party if any Governmental Authority issues an order forbidding or
enjoining the consummation of the transaction contemplated hereby and such order
has become final and non-appealable.
13.2 Goodfaith Performance. Neither party shall be entitled to exercise
any right of termination pursuant to subsection 13.1(b), (c) or (d) above if
such party shall not have performed diligently and in good faith the obligations
required to be performed by such party hereunder prior to the date of
termination.
13.3 Effect of Termination.
(a) If this Agreement is terminated as a result of a Material
Adverse Effect or Section 13.1(a), this Agreement shall be of no further force
and effect and there shall be no further liability hereunder (except the
obligations under the Confidentiality Agreement and the liability for breach of
such obligations) on the part of either party or their respective Affiliates,
directors, officers, shareholders, agents or other representatives.
(b) If this Agreement is terminated by Buyer pursuant to
Section 13.1(b), this Agreement shall be of no further force and effect and
there shall be no further obligations or liability hereunder (except the
obligations under the Confidentiality Agreement and the liability for breach of
such obligations) on the part of either party or their respective
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Affiliates, directors, officers, shareholders, agents or other representatives;
provided, however, that no such termination shall relieve Seller of liability
for any claims, damages or losses suffered by Buyer as a result of the negligent
or willful failure of Seller to perform any obligations required to be performed
by it hereunder on or prior to the date of termination. Notwithstanding anything
herein to the contrary, in no event shall the any act or omission of Seller in
connection with the Merger be deemed to be a breach of the terms and conditions
of this Agreement for purposes of this Section 13.3(b).
(c) If this Agreement is terminated by Seller pursuant to
Section 13.1(c) or (d), this Agreement shall be of no further force and effect
and there shall be no further obligations or liability hereunder (except the
obligations under the Confidentiality Agreement and the liability for breach of
such obligations) on the part of either party or their respective Affiliates,
directors, officers, shareholders, agents or other representatives; provided,
however, that in the event such termination is the result of the breach by Buyer
of any of its obligations required to be performed by it hereunder on or prior
to the date of termination, and Buyer has failed to cure such non-performance
within a reasonable period after notice from Seller, then Buyer shall pay to
Seller liquidated damages in an amount equal to ten (10) percent of the Purchase
Price. Such liquidated damages amount is designed to compensate Seller for its
lost opportunity costs and reliance damages caused by such termination. Buyer
shall promptly pay such amount to Seller in immediately available funds
following such termination.
(d) Upon any termination of the Agreement, each of the parties
shall promptly comply with the obligations of the Confidentiality Agreement
regarding return or destruction of Evaluation Material of the other party.
(e) Notwithstanding anything to the contrary contained herein,
the provisions of this Section 13.3 and of Sections 14.1, 14.2, 14.3, 14.8,
14.11, 14.13 and 14.14 shall survive any termination of this Agreement.
ARTICLE 14
MISCELLANEOUS
14.1 Notices. All notices and other communications required or permitted
hereunder shall be in writing and, unless otherwise provided in this Agreement,
will be deemed to have been given when delivered in person or dispatched by
electronic facsimile transfer (confirmed in writing by certified mail,
concurrently dispatched) or one business day after having been dispatched for
next-day delivery by a nationally recognized overnight courier service to the
appropriate party at the address specified below:
(a) If to Buyer, to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06905
Attention: Donald P. Weinstein
Facsimile No.: (203) 614-4625
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With a copy to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06905
Attention: L. Russell Mitten, II, Esq.
Facsimile No.: (203) 614-4625
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention: Jeffry L. Hardin, Esq.
Facsimile No.: (202) 387-3467
(b) If to Seller, to:
William M. Edwards, III
Vice President - Property Repositioning
600 Hidden Ridge, HQE02J27
Irving, TX 75038
Facsimile No. (972) 719-7062
With a copy to:
Dale R. Chamberlain
Legal Counsel - Property Repositioning
600 Hidden Ridge, HQE02J34
Irving, TX 75038
Facsimile No. (972) 719-7162
or to such other address or addresses as any such party may from
time to time designate for itself by like notice.
14.2 Information Releases. The parties shall consult with each other (and
allow the other party notice, and a reasonable time to comment) in preparing any
employee announcement, press release, public announcement, news media response
or other form of release of information concerning this Agreement or the
transactions contemplated hereby that is intended to provide such information to
the employees generally, news media or the public. Neither party shall issue or
cause the publication of any press release, public announcement or media
response without the prior written consent of the other party; provided,
however, that, after allowing the other party notice and a reasonable time to
comment prior to issuance, nothing herein will prohibit either party from making
an employee announcement, or issuing or causing publication of any press
release, public announcement or media response to the extent that such action is
required by applicable Law or the rules of any national stock exchange
applicable to such party or its Affiliates.
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14.3 Expenses. Whether or not the transactions contemplated hereby are
consummated and except as otherwise expressly provided herein, each party will
pay any expenses (including attorneys' fees) incurred by it incidental to this
Agreement and in consummating the transactions provided for herein.
14.4 Successors and Assigns. This Agreement will be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns, but is not assignable or delegable by any party without the
prior written consent of the other party; provided, that (a) Seller may assign
this Agreement to an Affiliate of Seller without the consent of Buyer including,
on and after the closing of the Merger, the ultimate parent entity of the
successor corporation to such merger or any entity controlled thereby; and (b)
Buyer may assign this Agreement, without the prior written consent of Seller, to
any directly or indirectly wholly owned subsidiary of Buyer provided such
subsidiary assumes in writing all the duties and obligations of Buyer hereunder.
No such assignment by Buyer shall in any way operate to enlarge, alter or change
any obligation due to Seller or relieve Buyer of its obligations hereunder if
such subsidiary fails to perform such obligations, with the understanding that
Buyer shall be jointly and severally liable with such subsidiary for any
non-performance of Buyer's obligations hereunder.
14.5 Amendments. This Agreement may be amended or modified only by a
subsequent writing signed by authorized representatives of both parties.
14.6 Captions. The captions set forth in this Agreement are for
convenience only and shall not be considered as part of this Agreement, nor as
in any way limiting or amplifying the terms and provisions hereof.
14.7 Entire Agreement. The term "Agreement" shall mean collectively this
document, the Schedules hereto and any agreements expressly incorporated herein.
This Agreement supersedes and revokes any prior discussions and representations,
other agreements, commitments, arrangements or understandings of any sort
whatsoever, whether oral or written, that may have been made or entered into by
the parties relating to the matters contemplated hereby. This Agreement, the
Confidentiality Agreement and the Ancillary Documents constitute the entire
agreement by and among the parties with respect to the subject matter hereof,
and there are no representations, warranties, agreements, commitments,
arrangements or understandings except as expressly set forth herein.
14.8 Waiver. Except as otherwise expressly provided in this Agreement,
neither the failure nor any delay on the part of any party to exercise any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise or waiver of any such right, power or privilege
preclude any other or further exercise thereof, or the exercise of any other
right, power or privilege available to each party at law or in equity.
14.9 Third Parties. Except as expressly provided herein, nothing contained
in this Agreement is intended to confer upon any Person, other than the parties
hereto and their successors and permitted assigns, any rights or remedies under
or by reason of this Agreement.
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14.10 Counterparts. This Agreement may be executed in two or more
counterparts, any or all of which shall constitute one and the same instrument.
14.11 Governing Law. This Agreement and the Ancillary Agreements shall in
all respects be governed by and construed in accordance with the laws of the
State of New York (except that no effect shall be given to any conflicts of law
principles of the State of New York that would require the application of the
laws of any other jurisdiction). The parties irrevocably submit to the exclusive
jurisdiction of any New York State Court or any Federal Court located in the
borough of Manhattan in the City of New York for purposes of any suit, action or
other proceeding arising out of this Agreement, the Ancillary Agreements or any
transaction contemplated hereby or thereby. The parties agree that service of
process, summons or notice or document by U.S. registered mail to such party's
respective address set forth in Section 14.1 shall be effective service of
process for any action, suit or proceeding in New York with respect to any
matters to which it has submitted to jurisdiction as set forth above in the
immediately preceding sentence. The parties hereto irrevocably and
unconditionally waive trial by jury in any legal action or proceeding relating
to this Agreement or any other agreement entered into in connection therewith
and for any counterclaim with respect thereto. In the event of any breach of the
provisions of this Agreement or any other agreement entered into in connection
therewith, the non-breaching party shall be entitled to equitable relief,
including in the form of injunctions and orders for specific performance, where
the applicable legal standards for such relief in such courts are met, in
addition to all other remedies available to the non-breaching party with respect
thereto at law or in equity.
14.12 Further Assurances. From time to time, as and when requested by one
of the parties, the other party will use its commercially reasonable efforts to
execute and deliver, or cause to be executed and delivered, all such documents
and instruments as may be reasonably necessary or appropriate, in the reasonable
opinion of counsel for Seller and Buyer, to consummate and make effective the
transactions contemplated by this Agreement.
14.13 Severability. If any provision of this Agreement is determined to be
invalid, illegal or unenforceable by any Governmental Authority, the remaining
provisions of this Agreement to the extent permitted by Law shall remain in full
force and effect provided that the essential terms and conditions of this
Agreement for both parties remain valid, binding and enforceable and provided
that the economic and legal substance of the transactions contemplated is not
affected in any manner materially adverse to any party. In the event of any such
determination, the parties agree to negotiate in good faith to modify this
Agreement to fulfill as closely as possible the original intents and purposes
hereof. To the extent permitted by Law, the parties hereby to the same extent
waive any provision of Law that renders any provision hereof prohibited or
unenforceable in any respect.
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14.14 Representation by Counsel; Interpretation. Seller and Buyer each
acknowledge that each party to this Agreement has been represented by counsel in
connection with this Agreement and the transactions contemplated by this
Agreement. Accordingly, any rule of Law or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement against the party
that drafted it has no application and is expressly waived. The provisions of
this Agreement shall be interpreted in a reasonable manner to effect the intent
of Buyer and Seller.
IN WITNESS WHEREOF, the parties, acting through their duly authorized
agents, have caused this Agreement to be duly executed and delivered as of the
date first above written.
GTE MIDWEST INCORPORATED CITIZENS UTILITIES COMPANY
By: ______________________________ By: ______________________________
Name: ____________________________ Name: ____________________________
Title: ___________________________ Title: ___________________________
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================================================================================
ASSET PURCHASE AGREEMENT
Between
CONTEL OF MINNESOTA, INC.
and
CITIZENS UTILITIES COMPANY
May 27, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS......................................................1
1.1 Terms............................................................1
1.2 Interpretation..................................................10
ARTICLE 2 PURCHASE AND SALE OF ASSETS.....................................10
2.1 Purchase and Sale of Assets.....................................10
2.2 Purchased Property..............................................10
2.3 Excluded Property...............................................11
2.4 Assumption of Liabilities.......................................12
2.4.1 Assumed Liabilities.......................................12
2.4.2 Retained Liabilities......................................13
2.5 No Assignment Without Consent...................................14
ARTICLE 3 PURCHASE PRICE..................................................14
3.1 Purchase Price..................................................14
3.2 Closing Date Estimate...........................................15
3.3 Closing Date Statement..........................................15
3.4 Access Line Adjustment Amount...................................16
ARTICLE 4 REQUIRED APPROVALS, CONSENTS AND NOTIFICATIONS..................16
4.1 State Regulatory Approval.......................................16
4.2 Debtholder Consents.............................................17
4.3 Landlord and Other Consents.....................................17
4.4 FCC Consents....................................................17
4.5 HSR Act Review..................................................17
4.6 GTE/Bell Atlantic Merger.......................................18
ARTICLE 5 PRE-CLOSING COVENANTS...........................................18
5.1 Investigation by Buyer..........................................18
5.2 Operation of the Business in the Ordinary Course................18
5.2.1 Preservation of Business..................................18
5.2.2 No Material Changes.......................................19
5.3 Satisfaction of Conditions......................................20
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TABLE OF CONTENTS
(continued)
Page
5.4 Approvals.......................................................20
5.5 Audit or Review of Financial Statements.........................20
5.6 Cooperation with Respect to Like-Kind Exchange..................21
5.7 Interconnection Agreements......................................21
5.8 Leased Vehicles; Capital Leases.................................21
5.9 Delivery of Interim Information.................................21
ARTICLE 6 CONDITIONS PRECEDENT TO THE CLOSING.............................22
6.1 Conditions Precedent to Obligations of Buyer....................22
6.1.1 No Misrepresentation or Breach of Covenants
and Warranties ...........................................22
6.1.2 Documents.................................................22
6.1.3 HSR.......................................................22
6.1.4 No Legal Obstruction......................................22
6.1.5 No Material Adverse Effect................................22
6.2 Conditions Precedent to Obligations of Seller...................23
6.2.1 No Misrepresentation or Breach of Covenants
and Warranties ...........................................23
6.2.2 Documents.................................................23
6.2.3 Purchase Price............................................23
6.2.4 HSR.......................................................23
6.2.5 No Legal Obstruction......................................23
ARTICLE 7 THE CLOSING.....................................................23
7.1 The Closing.....................................................23
7.2 Seller's Obligations at Closing.................................24
7.3 Buyer's Obligations at Closing..................................24
ARTICLE 8 REPRESENTATIONS AND WARRANTIES..................................25
8.1 Representations and Warranties of Seller........................25
8.1.1 Authorization and Effect of Agreement.....................25
8.1.2 No Restrictions Against Sale of the Purchased Property....25
8.1.3 Consents and Approvals of Governmental Authorities........25
8.1.4 No Material Violations....................................26
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TABLE OF CONTENTS
(continued)
Page
8.1.5 Corporate Organization....................................26
8.1.6 Brokers...................................................26
8.1.7 Title to Owned Real Property..............................26
8.1.8 Real Property Leases......................................26
8.1.9 Tangible Assets...........................................26
8.1.10 No Material Adverse Change ..............................27
8.1.11 Material Contracts ......................................27
8.1.12 Insurance ...............................................28
8.1.13 Taxes ...................................................28
8.1.14 No Material Claims or Suits .............................29
8.1.15 Tariffs; FCC Licenses ...................................29
8.1.16 Employee Matters ........................................29
8.1.17 Schedules of Telephone Plant ............................32
8.1.18 Schedule of Real Property Interests .....................32
8.1.19 Compliance with Existing Environmental Requirements .....32
8.1.20 Environmental Permits ...................................33
8.1.21 Financial Statements ....................................33
8.1.22 Year 2000 Compliance ....................................33
8.1.23 Native American and Federal Consents ....................34
8.1.24 Loss of Major Customer ..................................35
8.1.25 Records .................................................35
8.2 Representations and Warranties of Buyer.........................35
8.2.1 Corporate Organization....................................35
8.2.2 Authorization and Effect of Agreement.....................35
8.2.3 No Restrictions Against Purchase of the
Purchased Properties .....................................35
8.2.4 No Violation of Law.......................................36
8.2.5 Financial Capacity........................................36
8.2.6 Brokers...................................................36
8.2.7 Consents and Approvals of Governmental Authority..........36
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TABLE OF CONTENTS
(continued)
Page
ARTICLE 9 CONTINUING BUSINESS RELATIONSHIPS...............................36
9.1 Transition Services Agreement...................................36
9.2 Optional Services Agreement.....................................37
9.3 Directory Publishing............................................37
9.3.1 Assumption of Certain Directory Publishing
Agreement Rights and Obligations..........................37
9.3.2 Co-Bound Directories Acknowledgement......................37
9.3.3 Meeting to Discuss Directory Publication..................37
9.4 GTE Supply Relationship.........................................37
ARTICLE 10 ADDITIONAL COVENANTS OF THE PARTIES.............................38
10.1 Intellectual Property...........................................38
10.1.1 No License ..............................................38
10.1.2 Infringement ............................................38
10.1.3 Trademark Phaseout ......................................38
10.1.4 Third Party Software ....................................39
10.2 Effect of Due Diligence and Related Matters.....................40
10.3 Confidentiality.................................................40
10.4 Further Assurances..............................................41
10.5 Prorations......................................................41
10.6 Cost Studies/NECA Matters.......................................41
10.6.1 Prior to Closing ........................................41
10.6.2 From and After Closing ..................................42
10.7 Customer Deposits...............................................42
10.8 Access to Books and Records.....................................42
10.9 Purchase Price Allocation.......................................43
10.10 Owned Real Property Transfers...................................43
10.11 Transaction Taxes...............................................44
10.12 Bulk Sales Laws.................................................44
10.13 Prepaid Non-Regulated Maintenance Agreements....................44
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TABLE OF CONTENTS
(continued)
Page
10.14 Vehicle Registration............................................45
10.15 Carrier Access Billing and Accounts Receivable Transition.......45
10.16 End-User Billing and Accounts Receivable Transition.............45
ARTICLE 11 EMPLOYEES AND EMPLOYEE MATTERS..................................46
11.1 Employment of Transferred Employees.............................46
11.1.1 Assumption of Collective Bargaining
Agreement Obligations ...................................47
11.1.2 Assumption of Employment and Other Agreements ...........47
11.1.3 Recognition of Transferred Employee Service .............47
11.1.4 Assumption of Obligation to Pay Bonuses .................48
11.1.5 No Duplicate Benefits ...................................48
11.1.6 Affiliate Employees .....................................48
11.2 Transferred Employee Benefit Matters............................48
11.2.1 Defined Benefit Plans ...................................48
11.2.2 Savings Plans ...........................................54
11.2.3 Welfare Plans ...........................................57
11.3 Miscellaneous Benefits..........................................60
11.3.1 Vacation ................................................60
11.3.2 Transferred Employee Statements..........................60
11.4 Employee Rights.................................................61
11.5 WARN Act Requirements...........................................61
11.6 Indemnification.................................................61
11.6.1 Indemnification of Seller ...............................61
11.6.2 Indemnification of Buyer ................................62
ARTICLE 12 INDEMNIFICATION.................................................62
12.1 Survival of Representations.....................................62
12.2 Indemnification.................................................63
12.3 Limitations on Liability........................................64
12.4 Defense of Claims...............................................65
12.5 No Indemnifiable Claims Resulting From Governmental
Authority Action ...............................................67
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TABLE OF CONTENTS
(continued)
Page
ARTICLE 13 TERMINATION.....................................................67
13.1 Termination Rights..............................................67
13.2 Goodfaith Performance...........................................67
13.3 Effect of Termination...........................................67
ARTICLE 14 MISCELLANEOUS...................................................68
14.1 Notices.........................................................68
14.2 Information Releases............................................69
14.3 Expenses........................................................70
14.4 Successors and Assigns..........................................70
14.5 Amendments......................................................70
14.6 Captions........................................................70
14.7 Entire Agreement................................................70
14.8 Waiver..........................................................70
14.9 Third Parties...................................................70
14.10 Counterparts....................................................71
14.11 Governing Law...................................................71
14.12 Further Assurances..............................................71
14.13 Severability....................................................71
14.14 Representation by Counsel; Interpretation.......................71
14.15 Covenants of GTE Corporation....................................72
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INDEX OF SCHEDULES
Schedule* Title
1.1-A Assigned Contracts
1.1-B Excluded Contracts
1.1-C Purchased Exchanges
1.1-D License Agreement
2.3(g) Other Excluded Property
4.4 FCC Consents / Waivers
5.2.1 Operation of the Business
5.2.2(c) Material Increase to Transferred Employee Benefits
5.2.2(d) Dispositions
6.1.1 Seller's Closing Certificate
6.2.1 Buyer's Closing Certificate
7.2(a) Bill of Sale and Assignment and Assumption Agreement
7.2(b) Legal Opinion of Seller's Counsel
7.2(g) Affidavit as to Status of Foreign Person
7.3(c) Legal Opinion of Buyer's Counsel
8.1.4 Violation of Law
8.1.7(a) Owned Real Property
8.1.7(b) Bondholders
8.1.8 Real Property Leases
8.1.9 Notices of Violations of Building / Zoning Ordinances
8.1.10 Material Adverse Changes
8.1.11(a-j) Material Contracts
8.1.13 Exceptions to Tax Return Filings
8.1.14 State and Federal Claims/Suits
8.1.15(a) Tariff Proceedings
8.1.15(b) FCC Licenses
8.1.16(a) Employee Matters - Seller Employee Benefit Plans
8.1.16(b) Employee Matters - Seller Material Liabilities under ERISA
8.1.16(c) Employee Matters - Seller ERISA Plans - Compliance
8.1.16(d) Employee Matters - Seller Multiemployer Plans
8.1.16(e) Employee Matters - Seller Union Representation
8.1.17 Telephone Plant
8.1.18 Real Property Interests List
8.1.19 Exceptions to Compliance with Existing Environmental Requirements
8.1.20 Environmental Permits
8.1.21(a-c) Financial Statements
8.1.23 Native American Authorizations
8.1.24 Loss of Major Customer
9.1 Transition Services Agreement
9.2 Optional Services Agreement
9.3.1 Directory Publishing Agreements
9.3.2 Co-Bound Directory Agreements
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11.1.2 Employees and Employee Matters - Employment Agreement Obligation
Exceptions
11.3.1 Employees and Employee Matters - Vacation
* The Schedule numbers refer to the appropriate Section within the
Agreement.
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 27th day of May, 1999, by and between Citizens Utilities Company,
a Delaware corporation ("Buyer"), and Contel of Minnesota, Inc., a Minnesota
corporation ("Seller") and for the limited purpose of Section 14.15 only, GTE
Corporation, a New York corporation ("GTE Corporation").
RECITALS
WHEREAS, Seller is in the business of providing regulated local
exchange telephone service in certain areas of the state of Minnesota; and
WHEREAS, Seller desires to sell, convey, assign, transfer and
deliver to Buyer, and Buyer desires to purchase and accept from Seller, certain
of its telephone properties and related assets used in the provision of such
service, upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Terms. For purposes of this Agreement and any amendment hereto, the
following terms are defined as set out below or in the Section referenced below:
"Access Line Adjustment Amount" is defined in Section 3.4.
"Accounts Receivable Settlement Statement" is defined in Section
10.16(b).
"Accounts Payable" means accounts payable owed by Seller arising
primarily from the operation of the Business.
"Active Employees" is defined in Section 11.1.
"Affiliate" means, with respect to any Person, any other Person
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person.
"Allocation" is defined in Section 10.9.
"Ancillary Documents" means the Transition Services Agreement, the
Optional Services Agreement, the License Agreement, and the Bill of Sale and
Assignment and Assumption Agreement.
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"Assigned Contracts" means Contracts to which Seller or any of its
Affiliates is a party (i) which relate primarily to the operation of the
Business, other than the Excluded Contracts, Real Property Interests, Real
Property Leases and Third Party Intellectual Property Contracts, and (ii) any
other contract to which Seller is a party and is listed on Schedule 1.1-A.
"Assigned Permits" means, to the extent assignable, all permits,
licenses, franchises, approvals and authorizations of Seller or any of its
Affiliates issued or granted by any Governmental Authority that relate primarily
to the operation of the Business, other than the FCC Licenses and the Excluded
Permits.
"Assumed Liabilities" is defined in Section 2.4.1
"Automated Assets" is defined in Section 8.1.22(c).
"Bargained Welfare Plans" is defined in Section 11.2.3(a).
"BIA" is defined in Section 8.1.23.
"Base Purchase Price" is defined in Section 3.1.
"Bill of Sale and Assignment and Assumption Agreement" is defined in
Section 7.2(a).
"Bondholders" means the Persons listed on Schedule 8.1.7(b).
"Business" means the business of providing in the geographic area
comprising the Purchased Exchanges (i) local exchange, exchange access and
intra-LATA toll telecommunications services to end users, (ii) exchange access
telecommunications services to interexchange carriers and other local exchange
carriers, (iii) retail sales of telephone equipment and products, and (iv)
non-tariffed public communications (pay telephones), commercial
telecommunications services facilities leasing and other non-regulated services
and products.
"Buyer Pension" is defined in Section 11.2.1(c)(iii)(b).
"Buyer Pension Plan" and "Buyer Pension Plans" are defined in
Section 11.2.1(b).
"Buyer Savings Plan" and "Buyer Savings Plans" are defined in
Section 11.2.2(b).
"Buyer Welfare Plans" is defined in Section 11.2.3(a).
"Buyer's Actuary" is defined in Section 11.2.1(d)(ii).
"Buyer's Closing Certificate" is defined in Section 6.2.1.
"Calendar-Related" is defined in Section 8.1.22(c).
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"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Closing" is defined in Section 7.1.
"Closing Date" is defined in Section 7.1.
"Closing Date Access Line Count" is defined in Section 3.4.
"Closing Date Amount" is defined in Section 3.2(b)
"Closing Date Statement" is defined in Section 3.3
"Confidentiality Agreement" means the Confidentiality Agreement
dated as of November 20, 1998, among Buyer, Seller and certain Affiliates of
Seller.
"Construction Advances" means advances collected by Seller or any
Affiliate for the future performance of non-regulated construction in the
Purchased Exchanges.
"Contracts" means all contracts, leases, indentures, agreements, and
other legally binding arrangements.
"Customer Advances" means amounts arising from the operation of the
Business that have been billed and collected by Seller as of the Closing Date
but that are unearned because they relate to the provision of service after the
Closing Date.
"Customer Deposits" is defined in Section 10.7.
"Date Data" is defined in Section 8.1.22(c).
"December 1998 Access Line Count" is defined in Section 3.4 and
shall be 127,962.
"Direct Claim" is defined in Section 12.4(b).
"Due Diligence Documents" means those documents contained in the
eleven (11) volumes of information delivered to Buyer in connection with its
review of the Purchased Property.
"Earned End-User Accounts Receivable" means accounts receivable
arising primarily from the operation of the Business that have been earned by
Seller's provision of service on or before the Closing Date excluding amounts
billed through the carrier access billing system to interexchange carriers.
"Earned End-User Accounts Receivable Amount" means the aggregate
amount of all Earned Unbilled Accounts Receivable as of the Closing Date, less a
discount for anticipated uncollectible Earned End-User Accounts Receivable in an
amount equal to the Uncollectible Factor multiplied by Earned End-User Accounts
Receivable as of the Closing Date.
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"Employment Agreements" is defined in Section 8.1.16(a).
"Environmental Requirements" means all federal, state, interstate
and local government or agency Laws relating to pollution or protection of human
health and safety or the environment (including, without limitation, air,
surface water, ground water, land surface and subsurface strata), including,
without limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of Regulated Materials; or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transportation or handling of Regulated Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Plans" is defined in Section 8.1.16(a).
"Estimated Access Line Adjustment Amount" is defined in Section
3.2(a).
"Estimated Non-Regulated Construction Work in Process Amount" is
defined in Section 3.2(a).
"Estimated Regulatory Obligation Amount" is defined in Section
3.2(a).
"Evaluation Material" is defined in the first paragraph of the
Confidentiality Agreement.
"Excluded Contracts" means (i) all billing and collection
agreements, interconnection agreements, national account agreements, billing
media agreements, vehicle leasing agreements, capital leases, Contracts between
Seller and Affiliates of Seller, except to the extent expressly listed on
Schedule 1.1-A, and (ii) such other agreements as are listed on Schedule 1.1-B.
"Excluded Marks" means all trademarks, applications for trademark
registration, service marks, applications for service mark registration, trade
names, domain names and related registrations owned by Seller or an Affiliate of
Seller, or licensed to Seller or an Affiliate of Seller by any Person, and any
derivations of the foregoing.
"Excluded Permits" means the permits, licenses, franchises,
approvals and authorizations of Seller or any Affiliates by Governmental
Authorities that relate to the Excluded Property.
"Excluded Property" is defined in Section 2.3.
"Executive Officer" of an entity means (i) in the case of Seller,
the regional president of the region that includes the Purchased Exchanges, the
general manager of infrastructure provisioning for the Purchased Exchanges and
the general manager of customer operations for the Purchased Exchanges, and (ii)
the case of Buyer, the executive officer(s) in charge of the transactions
contemplated by this Agreement.
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"Existing Environmental Requirements" means those applicable
provisions of any Environmental Requirements that are both in effect and
required to be met by Seller prior to the Closing Date.
"Expiration Date" is defined in Section 12.1(a).
"FCC" means the Federal Communications Commission.
"FCC Consents" is defined in Section 4.4.
"FCC Licenses" means all licenses, certificates, permits or other
authorizations granted to Seller or any Affiliates by the FCC that are used
primarily in the operation of the Business.
"Financial Statements" is defined in Section 8.1.21.
"Final Order" shall mean action by any governmental or regulatory
authority as to which (i) no request for stay by any Governmental Authority of
the action is pending, no such stay is in effect, and if any deadline for any
such request is designated by statute or regulation, such deadline is passed;
(ii) no petition for rehearing or reconsideration of the action is pending
before any Governmental Authority, and the time for filing any such petition has
passed; (iii) the Governmental Authority does not have the action under
reconsideration or its own motion and the time for such reconsideration has
passed; and (iv) no appeal to a court, or request to stay by a court, of the
Governmental Authority's action is pending or in effect and, if any deadline of
filing any such appeal or request is designated by statute or rule, it has
passed.
"FRP" is defined in Section 11.2.3(f).
"Future Capital Expenditure Obligations" is defined in Section
2.4.1(h).
"Future Regulatory Obligations" is defined in Section 2.4.1(g).
"GAAP" means United States generally accepted accounting principles.
"GATT Grandfathered Participant" is defined in Section
11.2.1(c)(ii)(c).
"Governmental Authority" means any court or any federal, state or
foreign governmental, legislative or regulatory body, agency, department,
authority or instrumentality.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnifiable Losses" is defined in Section 12.3(a).
"Indemnification Payment" is defined in Section 12.3(a).
"Indemnifying Party" is defined in Section 12.3(a).
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"Indemnitee" is defined in Section 12.3(a).
"Intellectual Property" means all inventions (whether patentable or
not and whether or not such inventions are described or claimed in any patent or
patent application), designs (useful or ornamental), and works subject to
copyright protection, invention disclosures, specifications, manuals, drawings,
functional or system block diagrams, flow charts, circuit diagrams, design or
user documentation, engineering notebooks, schematics, test programs, documented
procedures, documented processes, documented flows, devices, software (in any
form), or firmware, and all intellectual property rights therein or based
thereon, including patents, patent applications (including continuations,
continuations-in-part, divisions, reissues), reexamined patents and extensions
thereof, copyrights (whether registered or unregistered), and trade secrets.
"Interim Capital Expenditure Obligations" is defined in Section
2.4.1(h).
"IRC" means the Internal Revenue Code of 1986, as amended.
"IRS" means the Internal Revenue Service.
"Law" or "Laws" means any statute, rule, regulation, ordinance,
judgment, order or decree of any Governmental Authority.
"Leased Real Property" means the real property leased to Seller or
its Affiliates under the Real Property Leases.
"License Agreement" means the license agreement attached hereto as
Schedule 1.1-D pursuant to which Seller grants to Buyer certain rights and
licenses under Licensed Intellectual Property.
"Licensed Intellectual Property" means Intellectual Property owned
by Seller or its Affiliates, and Third Party Intellectual Property licensed to
Seller or its Affiliates which Seller or its Affiliates can sublicense to Buyer
without the payment of compensation or other consideration to any Person, and
which Intellectual Property and Third Party Intellectual Property are required
for the use or maintenance (to the extent not provided by the owner or licensor
of the Third Party Intellectual Property) of or are included in or with the
Purchased Property in the operation of the Business as of the Closing; provided
that Licensed Intellectual Property shall at all times be Excluded Property.
"Lien" means any lien, charge, pledge, option, mortgage, security
interest or other encumbrance.
"Material Adverse Effect" means a materially adverse effect on the
Business or the Purchased Property, taken as a whole, other than effects
relating to or arising from (i) the execution of this Agreement, (ii) the United
States economy generally or the state of Minnesota in particular, or (iii)
events or circumstances that affect the Business in the same manner and to the
same extent as other businesses in the industry generally.
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"Material and Supply Inventory" is defined in the FCC's Part 32
Uniform System of Accounts.
"Material Contracts" is defined in Section 8.1.11.
"Material Permits" is defined in Section 8.1.15(b).
"Merger" means the proposed merger involving GTE Corporation and
Bell Atlantic Corporation and their respective Subsidiaries.
"Native American Authorizations" is defined in Section 8.1.23.
"Non-Regulated Construction Work in Process Amount" means the total
amount expended but not yet billed by Seller for non-regulated construction work
not completed prior to the Closing Date, minus any Construction Advances
outstanding as of the Closing Date. The Non-Regulated Construction Work in
Process Amount shall be billable by Buyer to third parties after the Closing
Date under open customer orders or other agreements.
"Non-Union Welfare Plans" is defined in Section 11.2.3(a).
"Optional Services Agreement" is defined in Section 9.2.
"Owned Real Property" means the real property owned in fee by Seller
or its Affiliates and used primarily in the operation of the Business, including
all land, buildings, structures, appurtenances and improvements located thereon.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Assets" is defined in Section 11.2.1(d)(i).
"Periodic Taxes" is defined in Section 10.5.
"Permitted Encumbrances" means (i) liens for current taxes and
assessments not yet delinquent, or the amount or validity of which is being
contested in good faith by appropriate proceedings during which collection or
enforcement against the relevant property is stayed, (ii) standard utility
easements, and covenants, conditions and restrictions of record that do not
individually or in the aggregate materially interfere with the operation of the
present Business on, or materially detract from the value of, the Owned Real
Property affected thereby, (iii) mechanics', carriers', workers', repairers' and
other statutory liens, (iv) existing zoning or similar laws or ordinances that
do not interfere with the operation of the Business, (v) leases otherwise
disclosed herein, and (vi) any other Liens and, in the case of Owned Real
Property, any title defects or exceptions, that do not materially interfere with
the operations of the Purchased Property in a manner consistent with the current
use by Seller or that do not materially detract from the value of, or materially
impair the marketability of, the Purchased Property affected.
"Person" means an individual, corporation, partnership, trust,
association, limited liability company or similar entity or organization.
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"Plans" is defined in Section 8.1.16(a).
"Pole Attachment Agreement" is defined in Section 8.1.11(j).
"Proration Periods" is defined in Section 10.5.
"PSC" is defined in Section 4.1.
"PSC Permits" is defined in Section 8.1.15(b).
"Purchase Price" is defined in Section 3.3(c).
"Purchased Exchanges" means the telephone exchanges listed in
Schedule 1.1-C and any cross-border community served from any such exchange.
"Purchased Property" is defined in Section 2.2.
"Real Property Interests" means all easements, rights of way,
licenses or other interests in real property of Seller or its Affiliates that
are used primarily in the operation of the Business, other than Owned Real
Property or Leased Real Property.
"Real Property Leases" means the Leases set forth on Schedule 8.1.8.
"Regulated Material" means (i) any "hazardous substance" as defined
in CERCLA, (ii) any petroleum or petroleum substance, and (iii) any other
pollutant, waste, contaminant, or other substance regulated under Environmental
Requirements.
"Regulatory Approvals" is defined in Section 4.1.
"Regulatory Obligation Amount" is defined in Section 3.1.
"Retained Books and Records" means, collectively, all corporate
records and stock books of Seller and its Affiliates, the general ledger, all
records required by Law to be retained by Seller and all books and records
relating to (i) Tax Returns and Tax records, (ii) Excluded Property, (iii)
attorney work product, and (iv) the Retained Liabilities.
"Retained Future Regulatory Obligations" is defined in Section
2.4.1(g).
"Retained Liabilities" is defined in Section 2.4.2.
"SEC Financial Statements" is defined in Section 5.5.
"Seller Hourly Pension Plan" is defined in Section 11.2.1(a)(ii).
"Seller Pension" is defined in Section 11.2.1(c)(iii)(b).
"Seller Pension Plan" and "Seller Pension Plans" are defined in
Section 11.2.1(a)(ii).
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"Seller Salaried Pension Plan" is defined in Section 11.2.1(a)(i).
"Seller Savings Plans" are defined in Section 11.2.2(a).
"Seller Welfare Plans" is defined in Section 11.2.3(a).
"Seller's Actuary" is defined in Section 11.2.1(d)(ii).
"Seller's Closing Certificate" is defined in Section 6.1.1.
"Switch Software" shall mean software currently used by Seller to
operate telecommunications switching equipment that is part of the Telephone
Plant.
"System Date" is defined in Section 8.1.22(c).
"Tax Returns" means a report, return or other information statement
required to be supplied to or filed with a Governmental Authority with respect
to Taxes.
"Tax(es)" means any foreign, federal, state, county or local income,
sales, use, transfer, excise, franchise, stamp duty, custom duty, real and
personal property, gross receipt, capital stock, business and occupation,
disability, employment, payroll, recording, ad valorem, unemployment
compensation, profits, registration, social security, estimated, add-on,
minimum, or withholding tax relating to the Business or the Purchased Exchanges
and any interest and penalties and additions to such taxes (civil or criminal)
related thereto or to the nonpayment thereof and related notarial fees.
"Telephone Plant" means (i) Owned Real Property, (ii) Real Property
Interests, and (iii) the machinery, equipment, inventory, vehicles and all other
assets and properties used primarily in the operation of the Business, including
all plant, systems, structures, construction work in progress, telephone cable
(whether in service or under construction), microwave facilities (including
frequency spectrum assignment), telephone line facilities, machinery, furniture,
fixtures, tools, implements, conduits, stations, substations, equipment
(including central office equipment, subscriber station equipment and other
equipment in general), instruments and house wiring connections. Without
limiting the generality of the foregoing, Telephone Plant includes the assets
used primarily in the operation of the Business that would be properly included
in the fixed assets referenced in Part 32 of the FCC Rules and Regulations (47
CFR, Part 32), as such accounts are reflected in Schedule 8.1.17.
"Third Party Claim" is defined in Section 12.4(a).
"Third Party Intellectual Property" means Intellectual Property
owned by any Person, other than Seller, without regard as to whether Seller has
any rights therein or the right to assign such rights to Buyer.
"Third Party Intellectual Property Contracts" is defined in Section
10.1.4.
"Total Service Pension" is defined in Section 11.2.1(c)(iii)(B).
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"Transaction Taxes" is defined in Section 10.11.
"Transferred Books and Records" means all of Seller's or its
Affiliates' customer or subscriber lists and records, accounts and billing
records, plans, blueprints, specifications, drawings, surveys, engineering
reports, personnel records of Transferred Employees (where applicable) and all
other documents, computer data and records, in each case relating primarily to
the operation of the Business, except for the Retained Books and Records.
"Transferred Employees" is defined in Section 11.1.
"Transition Services Agreement" is defined in Section 9.1.
"Uncollectible Factor" is defined in Section 10.16(b).
"Year 2000 Compliant" is defined in Section 8.1.22(c).
1.2 Interpretation.
(a) Unless the context otherwise requires, (i) all references
to Sections, Articles or Schedules are to Sections, Articles or Schedules of or
to this Agreement, (ii) each accounting term not otherwise defined in this
Agreement has the meaning assigned to it in accordance with GAAP, (iii) all
references to the "knowledge" of Seller are deemed to refer to the actual
knowledge of the Executive Officers of Seller, (iv) all references to the
"knowledge" of Buyer or "knowledge" obtained by Buyer are deemed to refer to the
actual knowledge of the Executive Officers of Buyer, except as otherwise
provided herein, (v) the term "primarily" means primarily or exclusively, and
(vi) the term "including" means including without limitation.
(b) No provision of this Agreement will be interpreted in
favor of or against either of the parties by reason of the extent to which any
such party or its counsel participated in the drafting thereof or by reason of
the extent to which any such provision is inconsistent with any prior draft of
such provision or of this Agreement.
ARTICLE 2
PURCHASE AND SALE OF ASSETS
2.1 Purchase and Sale of Assets. Upon the terms and subject to the
conditions of this Agreement, Seller hereby agrees to sell, convey, transfer,
assign and deliver to Buyer and Buyer hereby agrees to purchase, acquire and
accept from Seller, in each case effective as of the Closing, all of Seller's
and each of its Affiliates' right, title and interest in and to the Purchased
Property.
2.2 Purchased Property. The term "Purchased Property" means all the
following business, properties, assets and rights of Seller and its Affiliates
on the Closing Date, other than the Excluded Property:
(i) Telephone Plant;
(ii) Earned End-User Accounts Receivable;
(iii) Material and Supply Inventories;
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(iv) Non-Regulated Construction Work in Process;
(v) FCC Licenses and Assigned Permits;
(vi) Assigned Contracts;
(vii) Transferred Books and Records;
(viii) Real Property Leases; and
(ix) all other business, property, assets, work in process
and rights of Seller on the Closing Date not described
above that relate primarily to the Purchased Exchanges.
2.3 Excluded Property. For purposes of this Agreement, "Excluded Property"
means the following:
(a) Cash, cash equivalents and investments;
(b) All rights of Seller and its Affiliates under this
Agreement, the Ancillary Documents and the certificates and other documents
delivered to Seller by Buyer in connection with this Agreement;
(c) All records prepared in connection with the sale of the
Business, including bids received from third parties and analysis relating to
the Business;
(d) All rights related to the Retained Liabilities;
(e) The Retained Books and Records;
(f) Seller's and its Affiliates' interests in any business
other than the Business, including the provision of wireless service (cellular
and PCS), long distance and internet service or internet related services,
air-to-ground communications (air phone service), and any Excluded Permits
related thereto, and all assets of Seller and its Affiliates used in connection
with any such business or related thereto, and all assets used by Seller and its
Affiliates in rendering corporate services to Seller or the Business that are
located outside the geographic area comprising the Purchased Exchanges;
(g) Such other assets (i.e., encryption decoder devices, AWAS
terminals, SODA, etc.), if any, as set forth on Schedule 2.3(g);
(h) The Excluded Contracts;
(i) The Excluded Marks;
(j) All Intellectual Property, including the Licensed
Intellectual Property and Third Party Intellectual Property (except for such
rights to possess and use Third Party Intellectual Property as may be assigned
in accordance with Section 10.1.4); and
(k) All of Seller's and its Affiliates' insurance proceeds
arising in connection with the operation of the Business or the Purchased
Property prior to the Closing.
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2.4 Assumption of Liabilities.
2.4.1 Assumed Liabilities. Upon the terms and subject to the
conditions of this Agreement, Buyer hereby agrees to assume, as of the Closing
Date, and agrees to pay, perform and discharge when due, all liabilities,
responsibilities and obligations, beginning on the day following the Closing
Date, relating to the Purchased Property other than the Retained Liabilities
(subject to any different allocation of liability set forth in clauses (b), (c),
(g) and (h) below) (the "Assumed Liabilities"), including the following:
(a) Ordinary Course. All liabilities, responsibilities and
obligations (including Taxes), arising out of or accruing or resulting from the
use or ownership of the Purchased Property in the ordinary course after the
Closing Date;
(b) Employment Matters. All liabilities, responsibilities and
obligations of Buyer as provided in Article 11 with respect to Transferred
Employees;
(c) Assigned Contracts, Real Property Interests and Real
Property Leases. All liabilities, responsibilities and obligations that arise in
connection with the performance of the Assigned Contracts, Real Property
Interests and the Real Property Leases, other than performance obligations of
Seller that mature prior to the Closing Date;
(d) Joint Construction Projects. All liabilities,
responsibilities and obligations to third parties that relate to arrangements
and commitments between Seller and a third party for the construction of mutual
transmission facilities between various switching points included in the
Purchased Exchanges;
(e) Construction in Progress. All liabilities,
responsibilities and obligations relating to post-Closing engineering and
construction required to complete scheduled construction and other capital
expenditure projects for the Purchased Exchanges;
(f) Customer Deposits and Construction Advances. All
liabilities, responsibilities and obligations relating to Customer Advances,
Customer Deposits and Construction Advances;
(g) Future Regulatory Obligations. All liabilities,
responsibilities and obligations, other than Future Capital Expenditure
Obligations, related to the Purchased Exchanges arising out of any rule,
regulation, law, mandate, decision or order of the FCC or the PSC after the
Closing Date regardless of whether the action taken by such Governmental
Authority is or purports to be based on conduct or actions that occurred at any
time prior to the Closing Date ("Future Regulatory Obligations"); provided that
Buyer shall not be liable for any such Future Regulatory Obligation arising
directly out of any intentional misconduct or material misstatement to the PSC
by Seller that occurred prior to the Closing Date, except for such statements as
may be based on reasonable interpretations of existing PSC regulations and
current industry practice ("Retained Future Regulatory Obligations");
(h) Future Capital Expenditure Obligations. All liabilities,
responsibilities and obligations related to the Purchased Exchanges arising out
of any rule,
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regulation, law, mandate, decision or order of the FCC or the PSC (i) issued at
any time and requiring any capital expenditure after the Closing Date,
regardless of whether the action taken by such Governmental Authority is or
purports to be based on conduct, facts or actions that occurred at any time
prior to the Closing Date ("Future Capital Expenditure Obligations"); and (ii)
issued after the date of this Agreement and requiring any capital expenditure
after the date of this Agreement, regardless of whether the action taken by such
Governmental Authority is or purports to be based on conduct, facts or actions
that occurred at any time prior to the date of this Agreement ("Interim Capital
Expenditure Obligations"); provided that (i) Seller shall retain liability for
Interim Capital Expenditure Obligations incurred prior to Closing to the extent
related to (A) FCC or PSC orders that impose capital expenditure obligations as
a result of Seller's overearnings, (B) Seller's efforts to comply with FCC or
PSC rules, regulations, laws, mandates, decisions or orders existing as of the
date of this Agreement, or (C) capital expenditures already planned by Seller;
and (ii) Seller shall retain liability for all other Interim Capital Expenditure
Obligations to the extent Seller is fully reimbursed by Buyer at Closing for
such obligations. Prior to the Closing Date, Seller shall notify Buyer of all
potential Future or Interim Capital Expenditure Obligations within a reasonable
time after publication of said obligations by a Governmental Authority; and
(i) Litigation and Claims. All liabilities and obligations
arising out of (i) litigation and claims that arise out of an occurrence after
the Closing Date, (ii) litigation and claims in respect of Future Regulatory
Obligations (other than Retained Future Regulatory Obligations) regardless of
when filed, and (iii) claims of a Governmental Authority arising from or related
to a Future Regulatory Obligation (other than Retained Future Regulatory
Obligations).
Notwithstanding anything in this Section 2.4.1 to the contrary, "Assumed
Liabilities" shall not include any liabilities, responsibilities or obligations
expressly included in Retained Liabilities pursuant to Section 2.4.2.
2.4.2 Retained Liabilities. Seller shall retain and shall pay,
perform and discharge when due, the following liabilities, responsibilities and
obligations of Seller (the "Retained Liabilities"):
(a) Subject to Section 10.5, all trade payables and other
accrued payment obligations of Seller as of the Closing Date;
(b) All long-term debt of Seller (including indebtedness to
the Bondholders) and debt of Seller owed to any one or more of its Affiliates;
(c) Subject to Section 10.5, all Taxes relating to the
operation of the Business on or before the Closing Date or the use, ownership or
operation of the Purchased Property on or before the Closing Date;
(d) Except to the extent otherwise provided in Article 11, all
liabilities and obligations arising on or before the Closing Date with respect
to the Transferred Employees, including (i) all liabilities responsibilities and
obligations arising on or before the Closing Date relating to collective
bargaining agreements or other union contracts, and (ii) any such liabilities
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or obligations that arise after the Closing Date to the extent that such
liabilities and obligations relate to facts, circumstances or conditions arising
or occurring on or before the Closing Date, but excluding any Future Regulatory
Obligations with respect to the Transferred Employees;
(e) All liabilities, responsibilities and obligations arising
out of litigation and claims that arise out of an occurrence prior to the
Closing Date other than litigation and claims in respect of Future Regulatory
Obligations (other than Retained Future Regulatory Obligations);
(f) Any Retained Future Regulatory Obligations; and
(g) All liabilities, responsibilities and obligations with
respect to the Excluded Property and the Excluded Contracts.
2.5 No Assignment Without Consent. Notwithstanding anything to the
contrary contained in this Agreement, to the extent that the sale, conveyance,
transfer, assignment or delivery or attempted sale, conveyance, transfer,
assignment or delivery to Buyer of any Purchased Property (including any
Contract) is prohibited by any applicable Law or would require any governmental
or third-party authorizations, approvals, consents or waivers and such
authorizations, approvals, consents or waivers shall not have been obtained
prior to the Closing, this Agreement shall not constitute a sale, conveyance,
transfer, assignment or delivery, or an attempted sale, conveyance, transfer,
assignment or delivery thereof, if any of the foregoing would constitute a
breach of applicable Law or the rights of any third party; provided, however,
that, except to the extent that a condition to Closing set forth in Article 6
relating to the foregoing shall not be satisfied, the Closing shall occur
notwithstanding the foregoing without any adjustment to the Purchase Price on
account of such required authorization. Following the Closing, the parties shall
use their commercially reasonable efforts, and shall cooperate with each other,
to obtain promptly such authorizations, approvals, consents or waivers;
provided, however, that neither Seller nor Buyer nor any of their respective
Affiliates shall be required to pay any consideration therefor, other than
filing, recordation or similar fees payable to any Governmental Authority, which
fees shall be shared equally by Seller and Buyer. Pending or in the absence of
such authorization, approval, consent or waiver, the parties shall cooperate
with each other in any reasonable and lawful arrangements to provide to Buyer
the benefits and liabilities of use of such Purchased Property, including, if
permitted by the terms of any Real Property Lease or applicable Material
Contract, through a sublease or subcontract in accordance with Section 4.3. If
such authorization, approval, consent or waiver for the sale, conveyance,
transfer, assignment or delivery of any such Purchased Property is obtained,
Seller shall promptly convey, transfer, assign and deliver, or cause to be
conveyed, transferred, assigned and delivered, such Purchased Property to Buyer.
ARTICLE 3
PURCHASE PRICE
3.1 Purchase Price. The purchase price for the Purchased Property shall be
the sum of (i) $Four Hundred Forty Million dollars ($440 million) (the "Base
Purchase Price"), (ii) amounts expended by Seller to comply with Interim Capital
Expenditure Obligations (the "Regulatory Obligation Amount"), and (iii) the
Non-Regulated Construction Work in Process
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Amount, minus (iv) any Access Line Adjustment Amount calculated in accordance
with Section 3.4. Payments from Buyer to Seller for Earned End-User Accounts
Receivable and from Seller to Buyer for Customer Advances and Customer Deposits
will occur subsequent to Closing in accordance with Article 10.
3.2 Closing Date Estimate.
(a) Not less than three (3) business days prior to the Closing
Date, Seller will give to Buyer a notice, setting forth Seller's good faith
estimate as of the Closing Date of (i) the Regulatory Obligation Amount (the
"Estimated Regulatory Obligation Amount"), (ii) the Non-Regulated Construction
Work in Process Amount (the "Estimated Non-Regulated Construction Work in
Process Amount") and (iii) the Access Line Adjustment Amount (the "Estimated
Access Line Adjustment Amount").
(b) On the Closing Date, Buyer shall pay to Seller the sum of
(i) the Base Purchase Price, (ii) the Estimated Regulatory Obligation Amount,
and (iii) the Estimated Non-Regulated Construction Work in Process Amount, minus
(iv) any Estimated Access Line Adjustment Amount (the "Closing Date Amount").
The Closing Date Amount shall be paid by delivery on the Closing Date of
immediately available funds in U.S. dollars by wire transfer to an account that
Seller shall designate to Buyer at least two (2) business days prior to the
Closing Date.
3.3 Closing Date Statement.
(a) Within sixty (60) days after Closing Date, Seller shall
prepare and deliver to Buyer a written statement of the Base Purchase Price,
Regulatory Obligation Amount, Non-Regulated Construction Work in Process Amount
and any Access Line Adjustment Amount ("Closing Date Statement").
(b) Within fifteen (15) days after receipt of the Closing Date
Statement, Buyer shall, in a written notice to Seller, either accept the Closing
Date Statement or describe in reasonable detail any proposed adjustments to the
Closing Date Statement and the reasons therefore. If Seller shall not have
received a notice of proposed adjustments within such fifteen (15) day period,
Buyer will be deemed irrevocably to have accepted such Closing Date Statement.
(c) Upon the acceptance of any Closing Date Statement by
Buyer, the parties shall, based thereupon, calculate the amount equal to the sum
of the Base Purchase Price, Regulatory Obligation Amount and Non-Regulated
Construction Work in Process Amount, minus any Access Line Adjustment Amount
(collectively, the "Purchase Price"). If the Purchase Price as finally
determined above is greater than the Closing Date Amount, Buyer shall promptly,
but no later than three (3) business days after such acceptance, pay to Seller
the amount of such difference. If the Purchase Price as determined above is less
than the Closing Date Amount, Seller shall promptly, but no later than three (3)
business days after such acceptance, pay to Buyer the amount of such difference.
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(d) Seller and Buyer shall negotiate in good faith to resolve
any disputes over any proposed adjustments to the Closing Date Statement,
provided that if any such dispute is not resolved within thirty (30) days
following Seller's receipt of the proposed adjustments, Buyer and Seller jointly
shall select an independent public accounting firm that is nationally recognized
in the United States to resolve such disputes in accordance with the standards
set forth in this Section 3.3, which resolution shall be final and binding. The
fees and expenses of such accounting firm shall be shared by Buyer and Seller in
inverse proportion to the relative amounts of the disputed amount determined to
be for the account of Buyer and Seller, respectively.
(e) If Buyer disputes any portion of the Closing Date
Statement, the parties shall calculate the portion of the Closing Statement that
is not the subject of any dispute or proposed adjustment. If the undisputed
portion of the Closing Statement (A) is greater than the respective estimated
amounts paid on the Closing Date, Buyer shall promptly pay Seller the amount of
such difference, or (B) is less than the respective estimated amounts paid on
the Closing Date, Seller shall promptly pay Buyer the amount of such difference.
Payments with respect to any undisputed portions of these adjustments shall be
made no later than three (3) business days after delivery of notice of the
proposed adjustments. Upon resolution of any dispute over any proposed
adjustments as described above in Section 3.3(d), a party which is determined to
owe the other party an amount shall pay that amount promptly, but no later than
three (3) business days after resolution.
(f) Any amount paid pursuant to this Section 3.3 after the
Closing Date shall bear interest from the Closing Date through but excluding the
date of payment, at a rate of eight percent (8%) per annum. Such interest shall
accrue daily on the basis of a year of three hundred sixty-five (365) days and
the actual number of days for which due and shall be payable together with the
amount payable pursuant to this Section 3.3. All amounts payable pursuant to
this Section 3.3 shall be paid by delivery of immediately available funds in
U.S. dollars by wire transfer to, in the case of amounts payable by Buyer, the
account identified by Seller as described in 3.2 above or to an alternate
account that Seller may designate on the Closing Date Statement and, in the case
of amounts payable by Seller, to such account of Buyer as Buyer shall designate
in writing to Seller.
3.4 Access Line Adjustment Amount. The Purchase Price shall be subject to
reduction in accordance with Section 3.1 if the number of access lines
(including wholesale access lines) billed by Seller during the most recent month
ended prior to the Closing Date (the "Closing Date Access Line Count") has
decreased by more than ten percent (10%) from the number of access lines
(including wholesale access lines) billed by Seller for the month ended December
31, 1998 (the "December 1998 Access Line Count"). Such reduction, if any, shall
equal (a) the December 1998 Access Line Count minus the Closing Date Access Line
Count, multiplied by (b) the Base Purchase Price divided by the December 1998
Access Line Count (collectively, the "Access Line Adjustment Amount").
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ARTICLE 4
REQUIRED APPROVALS, CONSENTS AND NOTIFICATIONS
4.1 State Regulatory Approval. Promptly after the date of this Agreement,
Buyer and Seller shall file the appropriate applications and notices with the
Minnesota Public Service Commission (collectively, the "PSC"), seeking orders
permitting the transfer of service in the Purchased Exchanges to Buyer
(collectively, the "Regulatory Approvals"). Buyer will be responsible for
establishing the tariff for its post-Closing operations in the Purchased
Exchanges. Each party agrees to use its commercially reasonable efforts to
obtain the Regulatory Approvals and the parties agree to cooperate fully with
each other and with the applicable regulatory agency to obtain the Regulatory
Approvals at the earliest practicable date.
4.2 Debtholder Consents. Seller shall use its commercially reasonable
efforts to obtain from its Bondholders the termination or release, at Closing,
of all security agreements, mortgages and financing statements relating to the
Purchased Property (such termination or release being hereinafter referred to as
the "Debtholder Consents").
4.3 Landlord and Other Consents. Promptly after the date hereof, the
parties shall use their commercially reasonable efforts to mutually seek the
consent of (i) the lessor to any Leased Real Property that requires consent as a
condition to an assignment of the lease (which consents are identified in
Schedule 8.1.8) and (ii) the applicable third party with respect to certain
Material Contracts that require consent as a condition to assignment of such
Material Contract (which consents are identified on Schedule 8.1.11). If a
lessor refuses to consent to such an assignment, and if the applicable lease or
Material Contract permits a sublease or subcontract without the consent of the
lessor or other third party, the parties hereto shall, effective as of the
Closing, enter into a sublease or subcontract upon terms and conditions as
similar and comparable to an assignment of the lease or Material Contract as is
reasonably feasible.
4.4 FCC Consents. Promptly after the date of this Agreement, the parties
shall use their commercially reasonable efforts to obtain (i) the FCC's consent
to the transfer of the FCC Licenses from Seller to Buyer, and (ii) the FCC
waivers set forth on Schedule 4.4 (all such consents or waivers are collectively
referred to as the "FCC Consents").
4.5 HSR Act Review. By June 30, 1999, or such later date as the parties
may mutually agree, the parties will make such filings as may be required by the
HSR Act with respect to the transactions contemplated by this Agreement.
Thereafter, the parties will file as promptly as practicable all reports or
other documents required or requested by the U.S. Federal Trade Commission or
the U.S. Department of Justice pursuant to the HSR Act or otherwise and will
comply promptly with any requests by the Federal Trade Commission or the U.S.
Justice Department for additional information concerning such transactions, so
that the waiting period specified in the HSR Act will expire as soon as
reasonably possible after the execution and delivery of this Agreement. Without
limiting the foregoing, Seller and Buyer agree to use their commercially
reasonable efforts to cooperate and oppose any preliminary injunction sought by
any Governmental Authority preventing the consummation of the transactions
contemplated by this Agreement. Buyer agrees to pay all application fees
required in connection with any filings under the HSR Act.
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Seller and Buyer shall cause their respective counsel to furnish
each other such necessary information and reasonable assistance as the other may
reasonably request in connection with its preparation of necessary filings or
submissions under the provisions of the HSR Act. Seller and Buyer will cause
their respective counsel to supply to each other copies of all correspondence,
filings or written communications by such party or its Affiliates with any
Governmental Authority or staff members thereof, with respect to the
transactions contemplated by this Agreement and any related or contemplated
transactions, except for documents filed pursuant to Item 4(c) of the
Hart-Scott-Rodino Notification and Report Form or communications regarding the
same documents or information submitted in response to any request for
additional information or documents pursuant to the HSR Act which reveal
Seller's or Buyer's negotiating objectives or strategies or purchase price
expectations.
4.6 GTE/Bell Atlantic Merger. Notwithstanding anything else contained in
this Agreement, but without modification of the rights of Buyer under Sections
6.1, 11.6.2, 12.2(a) or 13.1, Seller shall not be obligated to take any action
that would violate the terms of its agreements regarding the Merger, or that
would interfere with, delay or prevent the consummation of the Merger. In the
event that the Closing does not occur as a direct result of the Merger, and not
through any fault of Buyer, Seller's liability to Buyer under this Agreement
shall be limited to the amount of Buyer's reasonable out-of-pocket expenses
incurred in connection with this Agreement.
ARTICLE 5
PRE-CLOSING COVENANTS
5.1 Investigation by Buyer. Prior to the Closing, upon reasonable notice
from Buyer to Seller given in accordance with this Agreement and subject to
approval by Seller's appointed representative, Seller will afford to the
authorized representatives of Buyer reasonable access during normal business
hours to the Transferred Books and Records, the Owned Real Property the Leased
Real Property and the other Purchased Property so as to afford Buyer the
opportunity to make such review, examination and investigation of the Business
and the Purchased Property as Buyer may reasonably request; provided, however,
that no environmental sampling or other testing shall be performed without
Seller's prior written consent, which consent may be given or withheld in
Seller's sole discretion. Buyer will not contact any employee, customer or
supplier of Seller with respect to this Agreement, the matters involved herein
or the Purchased Property without the prior written consent of Seller. Nothing
herein will obligate Seller to take actions that would unreasonably disrupt the
normal course of the business of Seller or violate the terms of any applicable
Law or any Contract to which Seller or any of its Affiliates is a party or to
which any of its assets is subject. Any information or documentation provided to
Buyer or acquired by Buyer during this investigation shall be deemed "Evaluation
Material" as that term is defined in the Confidentiality Agreement and shall be
subject in all cases to the terms of the Confidentiality Agreement.
5.2 Operation of the Business in the Ordinary Course.
5.2.1 Preservation of Business. Except as contemplated on Schedule
5.2.1 or as otherwise consented to by Buyer prior to the Closing, from the date
of this Agreement until the Closing Seller shall:
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(a) Conduct the Business in the ordinary course consistent
with past practice and shall keep available to the Business its services and the
services of its Affiliates to the same extent generally available on the date
hereof;
(b) Operate the Business in substantially the same manner as
it is presently being conducted, and, with respect to the Business, refrain from
entering into any Contract that would be a Material Contract other than in the
ordinary course of business;
(c) Not institute any proceeding with respect to, or otherwise
change, amend or supplement any of its tariffs or make any other filings with
the PSC except in the ordinary course of business, and except as disclosed on
Schedule 8.1.15(a);
(d) Maintain the Purchased Property in good repair, order and
condition, reasonable wear and use excepted, and maintain the Materials and
Supply Inventory in the ordinary course of business consistent with past
practice;
(e) Maintain insurance with respect to the Purchased Property
consistent with past practice;
(f) Make capital expenditures sufficient to support normal
maintenance and customer growth in the Purchased Exchanges in a manner
consistent with established regulatory performance objectives, which
expenditures in (a) calendar year 1999 shall not be less than $15,000,000, and
(b) calendar year 2000 shall not be less than $1,250,000 per month; and
(g) Maintain the books and records of the Business
substantially in accordance with prior practice, except as changes are mandated
by Governmental Authorities or required by GAAP.
5.2.2 No Material Changes. Except as contemplated by this Agreement
or as otherwise consented to by Buyer prior to the Closing, from the date of
this Agreement until the Closing, Seller will not:
(a) Make any material change in the general nature of the
Business;
(b) Sell, lease or dispose of, or make any Contract for the
sale, lease or disposition of any Purchased Property, other than in the ordinary
course of business;
(c) Increase the benefit provided under any plans concerning
employee benefits or increase the general rates of compensation of its
Transferred Employees, except (i) as required by Law, (ii) pursuant to any
Contract to which Seller is a party existing on the date hereof and listed on
Schedule 5.2.2(c), (iii) increases in base pay in the ordinary course of
business of Seller and in amounts consistent with the recent past practices of
Seller, or (iv) as listed or described on Schedule 5.2.2(c);
(d) (i) Materially amend, modify or terminate any Material
Contract or permit any of the foregoing to occur other than in the ordinary
course of business; or (ii) sell, transfer or otherwise dispose of any Purchased
Property other than in the ordinary course of
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business or as listed or described on Schedule 5.2.2(d), or encumber any
Purchased Property, except for Permitted Encumbrances; or
(e) Enter into any new written employment agreement, or union
agreement with, or commitment to, the Transferred Employees (including any new
commitment to pay retirement or other benefits or other amendments to Seller's
retirement plans), provided that Seller may enter into new union agreements to
the extent the new union agreements succeed any union agreement that expires
prior to the Closing. Prior to finalizing any such new union agreement, Seller
shall advise Buyer of its material terms and following the execution of any such
agreement, Seller shall deliver a copy to Buyer.
5.3 Satisfaction of Conditions. Without limiting the generality or effect
of any provision of Article 6, the parties will use their commercially
reasonable efforts to satisfy promptly all the conditions required to be
satisfied prior to the Closing.
5.4 Approvals.
(a) Between the date of this Agreement and the Closing Date,
Buyer and Seller will (i) cooperate with one another and take all reasonable
steps to obtain, as promptly as practicable, all consents, approvals,
authorizations, waivers and permits of any Governmental Authorities required of
either party to consummate the transactions contemplated by this Agreement and
(ii) provide such other information and communications to any Governmental
Authority as may be reasonably requested.
(b) To the extent that any consents, approvals, authorization
or waiver of a third party with respect to any (i) Assigned Contract, (ii)
Assigned Permit or (iii) any Pole Attachment Agreement, government grant or
railroad crossing agreement listed on Schedule 8.1.18, is required in connection
with the transactions contemplated by this Agreement, Seller shall use its
commercially reasonable efforts to obtain such authorization, consent, approval
or waiver prior to the Closing Date.
5.5 Audit or Review of Financial Statements. To the extent Buyer requires
an additional audit or review of financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission under Regulations S-K and S-X, Seller will cooperate
with the independent auditors chosen by Buyer to audit or review the Financial
Statements delivered by Buyer in accordance with Section 8.1.21 and such other
financial statements as may be required by Buyer to comply with Regulations S-K
and S-X (collectively, the "SEC Financial Statements"). Seller's cooperation
will include such access to workpapers and other supporting documents used in
the preparation of the SEC Financial Statements and delivery of one or more
representation letters from Seller to such auditors as may be reasonably
required by such auditors to perform an audit in accordance with generally
accepted auditing standards or a review in accordance with AICPA standards and
to render an opinion acceptable to the SEC with respect to the audit or review
of the SEC Financial Statements, it being understood that such representation
letters shall acknowledge (i) Seller's extensive use of estimates and
allocations in the preparation of the SEC Financial Statements, and (ii)
Seller's belief that the SEC Financial Statements represent the financial
condition and results of operations of the Business, in accordance with GAAP,
and that such estimates and
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allocations were made on a reasonable basis and in accordance with GAAP.
However, Buyer acknowledges that because the Business represents only a portion
of Seller, Buyer is not acquiring significant support elements located outside
the Purchased Exchanges, and Buyer will operate under new tariffs, carrier
contracts and other conditions that will significantly impact the future
revenues of the Business, the Financial Statements may not be representative of
the financial performance of the Business during future periods. Seller will
bear the cost of the preparation of its financial statements, including the SEC
Financial Statements. Buyer will bear the cost of the preparation of any other
financial statements that it will be required to file with the SEC, as well as
the cost of the audit or review of the SEC Financial Statements. Buyer
acknowledges that the SEC Financial Statements and any supporting documentation
have been made available as an indication of the historical financial
performance and condition of the Business. Except to the extent that the SEC
Financial Statements reflect intentional misrepresentation or fraud, Buyer
agrees not to make any claim related to the performance of the Business after
the date of the SEC Financial Statements on the basis of a comparison to the SEC
Financial Statements.
5.6 Cooperation with Respect to Like-Kind Exchange. Buyer agrees that
Seller's transfer of the Purchased Property may, at Seller's election, be
accomplished in a manner enabling such transfer to qualify as part of a
like-kind exchange of property covered by Section 1031 of the IRC. If Seller so
elects, Buyer shall cooperate with Seller (but without being required to incur
any out-of-pocket costs in the course thereof) in connection with Seller's
efforts to effect such like-kind exchange, which cooperation shall include,
without limitation, taking such actions as Seller requests in order to enable
Seller to qualify such transfer as part of a like-kind exchange of property
covered by Section 1031 of the IRC (including any actions required to facilitate
the use of a "qualified intermediary" within the meaning of the United States
Treasury Regulations), and Buyer agrees that Seller may assign all or part of
its rights (but no obligations) under this Agreement to a person or entity
acting as a qualified intermediary to qualify the transfer of the Purchased
Property as part of a like-kind exchange of property covered by Section 1031 of
the IRC. Buyer and Seller agree in good faith to use reasonable efforts to
coordinate the transactions contemplated by this Agreement with any other
transactions engaged in by either Buyer or Seller; provided that such efforts
are not required to include an unreasonable delay in the consummation of the
transactions contemplated by this Agreement.
5.7 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information as Buyer may reasonably request in connection with Buyer's
replacement of the interconnection agreements relating to the Purchased
Exchanges, including supplying to Buyer copies of such interconnection
agreements to the extent permissible.
5.8 Leased Vehicles; Capital Leases. Seller or its Affiliates, as
applicable, will pay the remaining balances on any vehicle leases or any capital
leases relating to assets included in the Purchased Property and at Closing will
deliver to Buyer title to such vehicles and assets, free and clear of all Liens.
5.9 Delivery of Interim Information. From the date of this Agreement until
the Closing, Seller shall furnish Buyer monthly reports concerning the operating
performance of the Business. Such reports shall contain such data as are
typically reported to GTE management with respect to the Purchased Exchanges,
including access line counts and service measures.
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Seller shall provide Buyer reasonable access to Seller's management in order to
discuss such data. In the event of any significant deterioration in operating
performance, Seller shall consult with Buyer concerning its response. All
information provided in accordance with this Section 5.9 shall be subject to the
Confidentiality Agreement and to compliance with applicable antitrust Laws.
ARTICLE 6
CONDITIONS PRECEDENT TO THE CLOSING
6.1 Conditions Precedent to Obligations of Buyer. The obligations of Buyer
to consummate the Closing shall be subject to the satisfaction or waiver by
Buyer, at or prior to the Closing, of each of the following conditions, any one
or more of which may be waived at the option of Buyer:
6.1.1 No Misrepresentation or Breach of Covenants and Warranties.
Seller shall have complied in all material respects with its covenants to be
performed in whole or in part prior to the Closing, and the representations and
warranties of Seller in Section 8.1 shall be true and correct as of the Closing,
except for (i) such representations or warranties that are made expressly as of
an earlier date, which shall have been true and correct as of such date except
as would not have a Material Adverse Effect, and, (ii) to the extent that any
breach of such representations and warranties has not, individually or in the
aggregate, had a Material Adverse Effect; and Seller shall have delivered to
Buyer a certificate ("Seller's Closing Certificate") in the form attached as
Schedule 6.1.1, dated the Closing Date and signed by an Executive Officer of
Seller, certifying each of the foregoing, or specifying those respects in which
such covenants have not been performed or such representations and warranties
are not true and correct.
6.1.2 Documents. Seller shall have delivered to Buyer all documents
required by Section 7.2.
6.1.3 HSR. All required waiting periods under the HSR Act shall have
expired or been terminated.
6.1.4 No Legal Obstruction. Each of the required Debtholder Consents
shall have been obtained, and each of the required Regulatory Approvals and FCC
Consents shall have been obtained, free of any special term, condition,
restriction, imposed liability or other provision that is reasonably likely to
have a Material Adverse Effect, and the FCC and PSC shall not otherwise have
taken any action with respect to the Purchased Property that is reasonably
likely to have a Material Adverse Effect. For purposes of this Section 6.1.4,
any tariff that is substantially similar in all material respects to the
existing tariff with respect to the applicable Purchased Exchange shall be
deemed not to have a Material Adverse Effect. For purposes of this Agreement,
all such approvals and consents shall be deemed to have been obtained upon the
granting of a Final Order. In addition, there shall not have been entered a
preliminary or permanent injunction, temporary restraining order or other
judicial or administrative order or decree in any competent jurisdiction, the
effect of which prohibits the Closing.
6.1.5 No Material Adverse Effect. There shall not have occurred any
event or condition which individually or in the aggregate has resulted in a
Material Adverse Effect.
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6.2 Conditions Precedent to Obligations of Seller. The obligations of
Seller to consummate the Closing shall be subject to the satisfaction or waiver
by Seller, at or prior to the Closing, of each of the following conditions:
6.2.1 No Misrepresentation or Breach of Covenants and Warranties.
Buyer shall have complied in all material respects with its covenants to be
performed in whole or in part prior to the Closing, and the representations and
warranties of Buyer in Section 8.2 shall be true and correct in all material
respects as of the Closing, except (i) for such representations or warranties
made expressly as of and only as of an earlier date, which shall be true and
correct as of such date except as would not have a Material Adverse Effect, and
(ii) to the extent that any breach of such representations and warranties has
not, individually or in the aggregate, had a Material Adverse Effect; and Buyer
shall have delivered to Seller a certificate ("Buyer's Closing Certificate") in
the form attached as Schedule 6.2.1, dated the Closing Date and signed by an
Executive Officer of Buyer, certifying each of the foregoing or specifying those
respects in which such covenants have not been performed or such representations
and warranties are not true and correct.
6.2.2 Documents. Buyer shall have delivered to Seller all documents
required by Section 7.3.
6.2.3 Purchase Price. Buyer shall have delivered to Seller, in the
manner specified in Section 3.1, the Closing Date Amount.
6.2.4 HSR. All required waiting periods under the HSR Act shall have
expired or been terminated.
6.2.5 No Legal Obstruction. Each of the required Debtholder Consents
shall have been obtained, and each of the required Regulatory Approvals and FCC
Consents shall have been obtained free of any special terms, conditions or
restrictions that are materially adverse to Seller based upon good faith
business concerns that are not commercially unreasonable (other than any such
approvals or consents which, if not obtained, would not have a Material Adverse
Effect). For purposes of this Agreement, all such approvals and consents shall
be deemed to have been obtained upon the granting of a Final Order. In addition,
there shall not have been entered a preliminary or permanent injunction,
temporary restraining order or other judicial or administrative order or decree
in any jurisdiction, the effect of which prohibits the Closing.
ARTICLE 7
THE CLOSING
7.1 The Closing. Subject to the terms and conditions of this Agreement,
the closing of the purchase and sale of the Purchased Property and the
assumption of the Assumed Liabilities (the "Closing") shall be held at 9 A.M.
local time at the offices of GTE Network Services at 600 Hidden Ridge, Irving,
Texas 75038, on the date agreed upon by the parties, provided such date shall be
(i) the last business day of the month, and (ii) at least five (5) business
days, but not more than ninety (90) days, after the date that all required
Regulatory Approvals, Debtholder Consents and FCC Consents have been obtained,
or at such other time and place as the parties
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may agree (the "Closing Date"). Such Closing shall be deemed to have occurred as
of 11:59 p.m., local time, on the Closing Date.
7.2 Seller's Obligations at Closing. At the Closing, Seller shall deliver
to Buyer the following documents:
(a) (i) Bill of Sale and Assignment and Assumption Agreement,
(ii) subject to Permitted Encumbrances (except as provided in Section 10.10),
special warranty deeds or their equivalent in respect of the Owned Real Property
and assignments of Real Property Leases to the extent any required consents have
been obtained pursuant to Section 4.3, and (iii) subject to Section 2.5,
assignments of the Assigned Contracts, the Real Property Interests and the
Assigned Permits. For purposes of this Agreement, the term "Bill of Sale and
Assignment and Assumption Agreement" means the form attached hereto as Schedule
7.2(a) executed by Seller;
(b) A legal opinion from William Mundy, general counsel for
GTE Network Services, as counsel for Seller, dated as of the Closing Date and in
the form of Schedule 7.2(b);
(c) Seller's Closing Certificate;
(d) Instruments of assignment or, to the extent set forth in
Section 4.3, subleases for the Leased Real Property;
(e) Mortgage satisfactions, UCC Form 3 Termination Statements
and other instruments necessary to remove, release and terminate all security
interests held by the Bondholders on the Purchased Property;
(f) All of the documents and papers required of Seller as
conditions to Closing pursuant to Section 6.1, including the Regulatory
Approvals, Debtholder Consents and FCC Consents;
(g) A certificate substantially in the form of Schedule 7.2(g)
certifying that Seller is not a "foreign person" within the meaning of Section
1445(b)(2) of the IRC;
(h) The License Agreement; and
(i) Such other documents and instruments as may be reasonably
necessary to effect the transactions contemplated by this Agreement.
7.3 Buyer's Obligations at Closing. At the Closing, Buyer shall deliver to
Seller the following:
(a) The Closing Date Amount in the manner specified in Section
3.1;
(b) The Bill of Sale, Assignment and Assumption Agreement,
executed by Buyer;
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(c) A legal opinion from L. Russell Mitten II, Vice President
and General Counsel of Buyer dated as of the Closing Date and in the form of
Schedule 7.3(c);
(d) Buyer's Closing Certificate;
(e) All other documents and papers required of Buyer as
conditions of Closing pursuant to Section 6.2, including the Regulatory
Approvals; and
(f) Such other documents and instruments as may be reasonably
necessary to effect the transactions contemplated by this Agreement.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
8.1 Representations and Warranties of Seller. Seller represents and
warrants to Buyer as follows:
8.1.1 Authorization and Effect of Agreement. Seller has the
requisite corporate power and authority to execute and deliver this Agreement
and the Ancillary Agreements and to perform its obligations hereunder and
thereunder. The execution and delivery by Seller of this Agreement and the
Ancillary Agreements and the fulfillment of its obligations under this Agreement
and the Ancillary Agreements have been duly authorized by all necessary
corporate action on the part of Seller. This Agreement and the Ancillary
Agreements have been duly executed and delivered by Seller and, assuming the due
execution and delivery of this Agreement and the Ancillary Agreements by Buyer,
constitute valid and binding obligations of Seller enforceable in accordance
with their terms subject to bankruptcy, insolvency, reorganization, moratorium
and other similar laws affecting the rights of creditors generally and subject
to the exercise of judicial discretion in accordance with principles of equity.
8.1.2 No Restrictions Against Sale of the Purchased Property. The
execution and delivery of this Agreement and the Ancillary Agreements by Seller
does not, and the fulfillment by Seller of its obligations under this Agreement
and the Ancillary Agreements will not (i) conflict with or violate any provision
of its certificate of incorporation or bylaws, (ii) subject to obtaining the
approvals and or consents referred to in Section 2.5, Article 4 and Schedule
8.1.11(a-f), conflict with, violate or result in the breach of any provision of
any Material Contract, or (iii) result in the creation of any Lien (other than
Permitted Encumbrances) upon any of the Purchased Property under (a) any
Material Contract or (b) any Law applicable to any of the Purchased Property,
except in the case of clauses (ii) or (iii) for any such conflict, violation,
breach or Lien that would not have a Material Adverse Effect.
8.1.3 Consents and Approvals of Governmental Authorities. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Authority is required to be obtained or made by or
with respect to Seller or in connection with the execution and delivery of this
Agreement by Seller or the fulfillment by Seller of its obligations under this
Agreement, except (i) FCC Consents and HSR Act clearance, (ii) the Regulatory
Approvals, and (iii) any consent approval, order or authorization or
registration declaration or filing, which if not obtained or made would not have
a Material Adverse Effect.
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8.1.4 No Material Violations. Except as indicated in Schedule 8.1.4
or as would not reasonably be expected to have a Material Adverse Effect, (a)
the execution and delivery of this Agreement and the Ancillary Agreements and
the fulfillment by Seller of its obligations under this Agreement and the
Ancillary Agreements will not violate any applicable Law, and (b) Seller is not
in violation of any Law relating to or affecting the operation, conduct or
ownership of the Business or the Purchased Property.
8.1.5 Corporate Organization. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Minnesota, and is duly qualified to conduct business in Minnesota. Seller has
full power and authority to own its properties and to carry on the Business as
it is now being conducted and to own, or hold under lease the Purchased
Property. Seller holds valid permits, licenses, franchises, approvals and
authorizations issued or granted by any Governmental Authority and adequate for
the operation of the Business as currently conducted, except to the extent
absence of any such permit, license, franchise, approval or authorization would
not have an Material Adverse Effect.
8.1.6 Brokers. Seller has not paid or become obligated to pay any
fee or commission to any broker, finder, investment banker or other intermediary
in connection with the transactions contemplated by this Agreement in such a
manner as to give rise to a valid claim against Buyer for any broker's or
finder's fees or similar fees or expenses.
8.1.7 Title to Owned Real Property. Seller has good fee simple title
to all of the Owned Real Property, free and clear of any Lien other than
Permitted Encumbrances and Liens of the Bondholders identified on Schedule
8.1.7(b). As of the date hereof, the address and a general description of each
item of Owned Real Property are set forth on Schedule 8.1.7(a). Seller
represents that the only creditors that have a Lien (other than any Permitted
Encumbrances) on any of the Owned Real Property are the Bondholders identified
on Schedule 8.1.7(b).
8.1.8 Real Property Leases. As of the date hereof, set forth on
Schedule 8.1.8 is a list of the Real Property Leases. Each of the leases for the
Leased Real Property is enforceable in accordance with its terms, subject to
bankruptcy, insolvency and other similar laws affecting the rights of creditors
generally and subject to the exercise of judicial discretion in accordance with
the principles of equity, and except as otherwise disclosed in Schedule 8.1.8,
there is not under any lease any material default or a material breach of
covenant by Seller.
8.1.9 Tangible Assets. All of the tangible Purchased Property is in
substantially good operating condition and repair, normal wear and tear
excepted. Except as set forth on Schedule 8.1.9 or elsewhere in this Agreement,
Seller has good title to each item of tangible Purchased Property (other than
Real Property Interests or office equipment or vehicles subject to leases) with
a fair market value in excess of $5,000, free and clear of any Lien (other than
Permitted Encumbrances). Except as set forth on Schedule 8.1.9, Seller has not
received any written notice within the past twelve (12) months of a violation of
any ordinances, regulations or building, zoning and other similar laws with
respect to such assets that would have a Material Adverse Effect. EXCEPT AS
EXPRESSLY PROVIDED IN THIS SECTION 8.1.9, SELLER MAKES NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, AS TO THE CONDITION OR FITNESS OF THE TANGIBLE
PURCHASED PROPERTY AND
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HEREBY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR WARRANTY AGAINST INFRINGEMENT.
8.1.10 No Material Adverse Change. Except as disclosed in Schedule
8.1.10, between December 31, 1997 and the date of this Agreement there has not
occurred (i) any event or condition that would have a Material Adverse Effect;
(ii) any increase in compensation payable or to become payable by Seller to any
of its Transferred Employees or agents, other than normal merit or promotional
increases other than payment under the retention pay program announced in
connection with the network business repositioning of Seller and its Affiliates;
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract; or (iv) any material change in any accounting
method, practice or policy of Seller with respect to the Business.
8.1.11 Material Contracts. Except for the agreements set forth on
Schedule 8.1.11 subparts (b) through (j), there is no Assigned Contract (other
than the Assigned Contracts entered into after the date of this Agreement in the
ordinary course of business) that is:
(a) an agreement containing a non-compete agreement or other
covenant that in either case would by its terms limit the freedom of Buyer
following the Closing to compete in any material respect with respect to the
Business with any third party;
(b) an agreement granting a Lien (other than a Permitted
Encumbrance);
(c) an agreement for the sale of any material Purchased
Property or grant of any preferential rights to purchase any material Purchased
Property;
(d) an agreement for the provision of telephone service at
public pay telephone locations;
(e) an agreement made in the ordinary course of business other
than as set forth above with respect to which the aggregate amount to be
received or paid thereunder with respect to calendar year 1999 is expected to
exceed $100,000 based on the terms of such agreement or on the payments which
have been made under such agreement with respect to calendar year 1998, to the
extent applicable;
(f) an agreement not made in the ordinary course of business
with respect to which the aggregate amount to be received or paid thereunder
with respect to calendar year 1999 is expected to exceed $50,000 based on the
terms of such agreement or on the payments which have been made under such
agreement with respect to calendar year 1998, to the extent applicable;
(g) an agreement with respect to 911 services or E911
services;
(h) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Purchased Exchanges;
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(i) an agreement between Seller and a third party for the
third party's co-location of equipment in facilities included in the Purchased
Property pursuant to which Seller is currently providing facilities or a request
to provide facilities is currently pending; or
(j) an agreement with a third party in which the owner of
utility poles has agreed to allow the other party to attach its
telecommunications equipment or facilities to the utility poles (a "Pole
Attachment Agreement").
Except as set forth on Schedule 8.1.11, to the knowledge of Seller,
each Assigned Contract referred to in any of the clauses (a) to (j) above
(collectively the "Material Contracts") is valid, binding and in full force and
effect and is enforceable by Seller or Seller's Affiliate, as applicable, in
accordance with its terms, except for any such failure to be valid, binding, in
full force and effect or enforceable that is not reasonably likely to have a
Material Adverse Effect. Except as set forth on Schedule 8.1.11, to the
knowledge of Seller, Seller and Seller's Affiliates have performed all material
obligations required to be performed by them to date under the Material
Contracts, and they are not (with or without the lapse of time or the giving of
notice, or both) in breach or default thereunder and, to the knowledge of
Seller, no other party to any Material Contract is (with or without the lapse of
time or the giving of notice, or both) in breach or default in any respect
thereunder, in each case except for such noncompliance, breaches and defaults
that, individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect. As of the date hereof, neither Seller nor any Seller's
Affiliate has, except as disclosed on Schedule 8.1.11, received or given any
written notice of the intention of any party to terminate any Material Contract.
Complete and correct copies of all the Material Contracts, together with all
modifications and amendments thereto to the date of this Agreement by Closing
will, have been made available to Buyer or its representatives.
8.1.12 Insurance. The Purchased Property of an insurable nature and
of a character usually insured by companies carrying on similar businesses is
insured under insurance policies or self insured in such amounts and against
such losses or casualties as is usual in Seller's industry. On the Closing Date,
the coverage under the insurance policies and programs applicable to the
Purchased Property will be terminated, and Buyer will be responsible for
providing all insurance coverage for the Purchased Property.
8.1.13 Taxes. Except as disclosed on Schedule 8.1.13, (i) all Tax
Returns required to be filed by Seller on or before the Closing Date have or
will have been filed, and all Taxes shown as due and payable on such Tax Returns
have been or will be paid by Seller when required by law; (ii) no deficiencies
or assessments for any Taxes have been asserted in writing or assessed against
Seller that remain unpaid and that individually or in the aggregate are material
to the Business; (iii) Seller has withheld all required federal, state and local
payroll taxes relating to the Business and has remitted or will remit all
amounts required to be remitted to the appropriate taxing authorities; (iv)
there are no tax liens upon any of the Purchased Property except for statutory
liens covering taxes not yet due and payable; (v) Seller is not a "foreign
person" within the meaning of Section 1445(b)(2) of the IRC and shall provide an
appropriate certificate for purposes of Section 1445(b)(2) of the IRC and (vi)
there are no material, current audits or material audits for which written
notice has been received (in either case, specifically with respect to the
Business).
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8.1.14 No Material Claims or Suits. Except as disclosed in Schedule
8.1.14 or with respect to Taxes, there are no claims, actions, lawsuits or legal
proceedings pending before any Governmental Authority, or, to the knowledge of
Seller threatened against or affecting the Business or Purchased Property that
in Seller's opinion, if determined adversely to Seller, would reasonably be
expected to have a Material Adverse Effect on the Business or materially
adversely affect ability of Seller to consummate the transactions contemplated
hereby.
8.1.15 Tariffs; FCC Licenses.
(a) The regulatory tariffs applicable to the Business stand in
full force and effect on the date of this Agreement in accordance with all
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor is Seller subject to any restrictions or conditions applicable to
its regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material respect under any such tariff. Except as disclosed on
Schedule 8.1.15(a), there are no applications by Seller or petitions by others
or proceedings pending or threatened before the state regulatory authority
relating to the Business or its operations or the regulatory tariffs, other than
such applications, petitions or proceedings as may be brought in the ordinary
course of business or by end-users. To the knowledge of Seller, there are no
material violations by subscribers or others under any such tariff. A true and
correct copy of each tariff applicable to the Business has been delivered or
made available to Buyer.
(b) Listed on Schedule 8.1.15(b) are the FCC Licenses and
other material Assigned Permits (the "Material Permits") held by Seller and used
in the operation of the Business. Except as listed on Schedule 8.1.15(b), to
Seller's knowledge, each such FCC License or Material Permit is in full force
and effect on the date of this Agreement in accordance with its terms, and there
is no outstanding notice of cancellation or termination or, to Seller's
knowledge, any threatened cancellation or termination in connection therewith,
nor are any of such FCC Licenses or Material Permits subject to any restrictions
or conditions that limit the operation of the Business (other than restrictions
or conditions generally applicable to licenses or permits of that type). Subject
to the Communications Act of 1934, as amended, and the regulations thereunder,
the FCC Licenses are free from all security interests, liens, claims, or
encumbrances of any nature whatsoever. There are no applications by Seller or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC Licenses that, in Seller's opinion, would reasonably
be expected to have a Material Adverse Effect on the Business, other than such
applications, petitions or proceedings as may be brought in the ordinary course
of business or by end-users.
8.1.16 Employee Matters.
(a) Schedule 8.1.16(a) lists (and identifies the sponsor of)
each "Employee Pension Benefit Plan," as that term is defined in Section 3(2) of
ERISA, each "Employee Welfare Benefit Plan," as that term is defined in Section
3(1) of ERISA (such plans being hereinafter referred to collectively as the
"ERISA Plans"), and each other retirement,
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pension, profit-sharing, money purchase, deferred compensation, incentive
compensation, bonus, stock option, stock purchase, severance pay, unemployment
benefit, vacation pay, savings, medical, dental, post-retirement medical,
accident, disability, weekly income, salary continuation, health, life or other
insurance, fringe benefit, or other employee benefit plan, program, agreement,
or arrangement maintained or contributed to by Seller or its Affiliates in
respect of or for the benefit of any Transferred Employee or former employee of
Seller, excluding any such plan, program, agreement, or arrangement maintained
or contributed to solely in respect of or for the benefit of Transferred
Employees or former employees employed or formerly employed by Seller outside of
the United States, as of the date hereof (collectively, together with the ERISA
Plans, referred to hereinafter as the "Plans"). Schedule 8.1.16(a) also includes
a list of each written employment, severance, termination or similar-type
agreement between Seller and its Affiliates and any Transferred Employee (the
"Employment Agreements"). Seller has delivered to Buyer accurate and complete
copies of all Plans and Employment Agreements (or representative samples in the
case of form agreements) and, if applicable, summary plan descriptions with
respect to such Plans and Employment Agreements and summary descriptions of any
such Plan or Employment Agreement that is not otherwise in writing. Except for
retention bonuses paid in connection with the closing of the transactions
contemplated by this Agreement and except as otherwise disclosed on Schedule
8.1.16(a), the execution and delivery of this Agreement by Seller and the
performance of this Agreement by Seller will not directly result now or at any
time in the future in the payment to any Transferred Employee of any severance,
termination, or similar-type payments or benefits being paid to any Transferred
Employee.
(b) Except as set forth on Schedule 8.1.16(b):
(i) Neither Seller nor any of its Affiliates, any of the
ERISA Plans, any trust created thereunder, or any trustee or administrator
thereof, has engaged in any transaction as a result of which Seller or any of
its Affiliates could be subject to any material liability pursuant to Section
409 of ERISA or to either a civil penalty assessed pursuant to Section 502(i) of
ERISA or a tax imposed pursuant to Section 4975 of the IRC; and
(ii) Since the effective date of ERISA, no material
liability under Title IV of ERISA has been incurred or is reasonably expected to
be incurred by Seller or any of its Affiliates (other than liability for
premiums due to the PBGC), unless such liability has been, or prior to the
Closing Date will be, satisfied in full.
(c) Except as set forth on Schedule 8.1.16(c), with respect to
the ERISA Plans other than those ERISA Plans identified on Schedule 8.1.16(a) as
"multiemployer plans":
(i) the PBGC has not instituted proceedings to terminate
any Plan that is subject to Title IV of ERISA (the "Retirement Plans");
(ii) none of the ERISA Plans has incurred an
"accumulated funding deficiency" (as defined in Section 302 of ERISA and Section
412 of the IRC), whether or not waived, as of the last day of the most recent
fiscal year of each of the ERISA Plans ended prior to the date of this
Agreement;
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(iii) each of the ERISA Plans has been operated and
administered in all material respects in accordance with its provisions and with
all applicable laws;
(iv) each of the ERISA Plans that is intended to be
"qualified" within the meaning of Section 401(a) of the IRC and, to the extent
applicable, Section 401(k) of the IRC, has been determined by the IRS to be so
qualified, and nothing has occurred since the date of the most recent such
determination (other than the effective date of certain amendments to the IRC,
the remedial amendment period for which has not yet expired) that would
adversely affect the qualified status of any of such ERISA Plans;
(v) there are no pending material claims by or on behalf
of any of the ERISA Plans, by any employee or beneficiary covered under any such
ERISA Plan, or otherwise involving any such ERISA Plan (other than routine
claims for benefits and routine expenses);
(vi) each ERISA Plan which is a group health plan has
been operated and administered in compliance with the continuation coverage
provisions of Section 498B of the IRC and Part 6 of Title I of ERISA;
(vii) all contributions and premiums that would normally
be made or paid with respect to any ERISA Plan or Employment Agreement on behalf
of Transferred Employees as of the Closing Date will have been made by the
Closing Date; and
(viii) as of the Closing Date no Transferred Employee
will be excluded from coverage under any employee welfare benefit plan (as
defined in Section 3(1) of ERISA) maintained or contributed to by Seller.
(d) Except as set forth on Schedule 8.1.16(d), none of the
ERISA Plans is a "multiemployer Plan," as that term is defined in Section 3(37)
of ERISA, and with respect to any such multiemployer plans (as so defined)
listed in Schedule 8.1.16(d), Seller has not made or incurred a "complete
withdrawal" or a "partial withdrawal," as such terms are respectively defined in
Sections 4203 and 4205 of ERISA that would result in the incurrence of a
material liability by Seller. Except as set forth on Schedule 8.1.16(d), neither
Seller nor any Affiliates of Seller has made or incurred a "complete withdrawal"
or a "partial withdrawal" (as such terms are defined in Sections 4203 and 4205,
respectively, of ERISA) that would result in the incurrence of liability by
Seller or its Affiliates, and the performance of this Agreement will not result
in such withdrawal(s) or liability.
(e) Except as set forth on Schedule 8.1.16(e), (i) none of the
Transferred Employees are represented by a labor union or labor organization;
(ii) Seller is not subject to any collective bargaining agreement covering any
Transferred Employee; (iii) there are no current, or to the best knowledge of
Seller, any pending or threatened strikes, slowdowns, picketing, or work
stoppages affecting the Business or with respect to any Transferred Employee
covered by collective bargaining; (iv) there is no pending lockout by Seller of
any employees of the Business, and no such action is contemplated by Seller; (v)
to the best knowledge of Seller, there is no pending or threatened organizing
activity or petition for certification of a collective
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bargaining representative involving employees of the Business and there has been
none within the twelve (12) months preceding the date of the Agreement; (vi) to
the best knowledge of Seller, there is no pending or threatened charge, action,
complaint, or proceeding of any nature against Seller relating to the violation
of any applicable state or federal labor or employment law or regulation in
connection with the Business, including any charge or complaint filed by any
employee or labor organization with the National Labor Relations Board, the
Equal Employment Opportunity Commission, or any other administrative
governmental agency, nor is there any other pending or threatened labor or
employment dispute against or affecting Seller in connection with the Business;
(viii) with respect to employees of the Business, Seller has complied in all
respects with all laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupational safety and health, immigration, and plant closings; and
(ix) Seller shall provide employees of the Business with any required notices
under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller. Seller has delivered to Buyer
accurate and complete copies of all collective bargaining agreements affecting
any of the Transferred Employees.
(f) This Agreement shall not result in any Transferred
Employee becoming entitled to separation pay or severance which could be or
become an obligation of Buyer.
8.1.17 Schedules of Telephone Plant. Schedule 8.1.17 sets forth, as
of December 31, 1998, a materially accurate summary of the book value of the
Telephone Plant as reflected in Seller's continuing property records. Schedule
8.1.17 also sets forth a materially accurate list of the vehicles, trailers and
other mobile tools and mobile equipment that are part of the Purchased Property
as of May 14, 1999.
8.1.18 Schedule of Real Property Interests. To the knowledge of
Seller and as of the date of this Agreement, Schedule 8.1.18 sets forth a true
and accurate list of all its Real Property Interests.
8.1.19 Compliance with Existing Environmental Requirements. Except
as set forth in Schedule 8.1.19 or as would not have a Material Adverse Effect,
to the knowledge of Seller:
(a) Seller's operation of the Business and the Purchased
Property has been and is presently in substantial compliance with Existing
Environmental Requirements;\
(b) No environmental remediation is occurring on any parcel of
Owned Real Property or Leased Real Property nor has Seller or any Affiliate
issued a request for proposal or otherwise requested an environmental
remediation contractor to begin plans for such environmental remediation;
(c) No underground storage tanks ("USTs") or aboveground
storage tanks ("ASTs") are located on the Owned Real Property or Leased Real
Property;
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(d) None of the Owned Real Property or Leased Real Property is
situated in a state or federal "superfund" site or study area; and
(e) Seller has delivered, or within 60 days after the date of
this Agreement will deliver, to Buyer complete copies of all reports and studies
relating to Seller's liability under or non-compliance with any Existing
Environmental Requirements in connection with Seller's operation of the Business
or use or ownership of the Purchased Property.
8.1.20 Environmental Permits. Except as set forth in Schedule
8.1.20, to the knowledge of Seller, it has obtained or filed for all necessary
environmental permits, authorizations and licenses required to operate the
Business or the Purchased Property, except where failure to obtain or file such
permits, authorizations and licenses would not have a Material Adverse Effect on
the Business.
8.1.21 Financial Statements. Seller has furnished to Buyer its
audited balance sheets as of December 31, 1997 and December 31, 1998 and the
related statements of income and cash flows for the years ended December 31,
1997 and December 31, 1998 (collectively, the "Financial Statements"). The
Financial Statements have been prepared based on the books and records of
Seller. Such books and records have been maintained in accordance with GAAP, and
where required by law, the applicable regulations of the FCC and PSC. However,
because the Business represents only a portion of a larger entity, the Financial
Statements are based on the extensive use of estimates and allocations. Seller
believes these estimates and allocations have been performed on a reasonable
basis in accordance with GAAP. However, Buyer acknowledges that because Buyer is
not acquiring significant support elements located outside the Purchased
Exchanges, and the Buyer will operate under new tariffs, carrier contracts and
other conditions that will significantly impact the future revenues of the
Business, the Financial Statements may not be representative of the financial
performance of the Business during future periods.
8.1.22 Year 2000 Compliance.
(a) As of the Closing Date, Seller shall have caused the
modification or remediation of the Automated Assets in accordance with
applicable manufacturer or vendor recommendations such that the Automated Assets
are Year 2000 Compliant; provided that any and all Buyer or third-party supplied
computer software, computer firmware and computer hardware that directly
interfaces with the Automated Assets, co-exists with the Automated Assets, or
indirectly influences the operation of the Automated Assets are also
demonstrated to be Year 2000 Compliant.
(b) Seller shall be deemed to be in satisfaction of the
requirements of subsection (a) of this Section 8.1.22 to the extent that Seller
has (i) performed on or before the Closing Date any modification or remediation
in accordance with applicable manufacturer or vendor recommendations for
achieving Year 2000 compliance or Year 2000 readiness, or (ii) received on or
before the Closing Date reasonable assurances from the applicable manufacturer
or vendor that an Automated Asset, without modification or remediation, is Year
2000 compliant or Year 2000 ready.
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(c) When used in this Section 8.1.22, the following term shall
have the respective meanings given below:
"Automated Assets" means the computer software, computer
firmware, computer hardware (whether general or special purpose), documentation,
data, and other similar or related items of the automated, computerized, and/or
software system(s) that are provided by Seller to Buyer as part of the Purchased
Exchanges pursuant to this Agreement.
"Calendar-Related" refers to the date values based on
the Gregorian calendar, as defined in Encyclopedia Britannica, 15th edition,
1982, page 602, and to all uses in any manner of those date values, including
without limitation manipulations, calculations, conversions, comparisons and
presentations.
"Date Data" means any Calendar-Related data in the
inclusive range January 1, 1900 through December 31, 2050, which the Automated
Assets use in any manner.
"System Date" means any Calendar-Related data value in
the inclusive range January 1, 1985 through December 31, 2035 (including the
natural transition between such values) which the Automated Assets shall be able
to use as their current date while operating.
"Year 2000 Compliant" means:
(i) As of the Closing Date, in connection with
Calendar-Related data and Calendar-Related processing of Date Data or of any
System Date, the Automated Assets will not malfunction, will not cease to
function and will not produce incorrect results; and
(ii) As of the Closing Date, the Automated Assets will
represent dates without ambiguity as to century when providing Calendar-Related
data to and accepting Calendar-Related data from other automated, computerized
and/or software systems and users by way of user interfaces, electronic
interfaces and data storage.
8.1.23 Native American and Federal Consents. Except as set forth on
Schedule 8.1.23 or as would not have a Material Adverse Effect, to the knowledge
of the Seller:
(a) Schedule 8.1.23 sets forth all material easements,
rights-of-way, franchises, licenses, permits, consents, approvals, certificates
and other authorizations of tribal authorities and the United States Bureau of
Indian Affairs (the "BIA") (collectively, the "Native American Authorizations")
held by Seller and relating to any Purchased Property located, or any operations
of the Business conducted, on Native American reservations;
(b) All such Native American Authorizations are in full force
and effect and Seller is not in default thereunder;
(c) There are no material claims, actions, lawsuits or other
proceedings pending or threatened with respect to any of the Purchased Property
located, or any operations of
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the Business conducted, on Native American reservations, and no tribal authority
has given written notice of any cancellation, revocation, termination or
material amendment or modification of any Native American Authorization; and
(d) No material consent, approval or waiver from, or filing
with, any tribal authority or the BIA is required to be obtained or made in
connection with the execution and delivery by Seller of this Agreement, or
Seller's fulfillment of its obligations under this Agreement.
8.1.24 Loss of Major Customer. Except as set forth on Schedule
8.1.24, since January 1, 1997, Seller has not suffered the loss of any customer
of the Business for which Seller billed in excess of $50,000 annually during the
years ended December 31, 1997 or 1998.
8.1.25 Records. The continuing property records and other records
related to the Purchased Property maintained by Seller conform in all material
respects with the applicable rules and regulations of the FCC and PSC. Seller
has retained substantially all original cost documentation relating to the
Purchased Property regarding the expenditures made by Seller for the Telephone
Plant within the period required by applicable Law.
8.2 Representations and Warranties of Buyer. Buyer represents and warrants
to Seller as follows:
8.2.1 Corporate Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the state of Delaware
and is duly qualified to conduct business in Minnesota and has the requisite
corporate power and authority to own, lease or otherwise hold the assets owned,
leased or held by it.
8.2.2 Authorization and Effect of Agreement. Buyer has the requisite
corporate power and authority to execute and deliver this Agreement and the
Ancillary Agreements, to carry on the Business as presently conducted and to
fulfill all other obligations of Buyer under this Agreement and the Ancillary
Agreements. The execution and delivery by Buyer of this Agreement and the
Ancillary Agreements, and the fulfillment by it of its obligations under this
Agreement and the Ancillary Agreements have been duly authorized by all
necessary corporate action on the part of Buyer. Buyer has the requisite legal
capacity to purchase, own and hold the Purchased Property upon the consummation
of the sale of the Purchased Property. This Agreement and the Ancillary
Agreements have been duly executed and delivered by Buyer and, assuming the due
execution and delivery of this Agreement and the Ancillary Agreements by Seller,
constitute valid and binding obligations of Buyer enforceable in accordance with
their terms subject to bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting the rights of creditors generally and subject to
the exercise of judicial discretion in accordance with principles of equity.
8.2.3 No Restrictions Against Purchase of the Purchased Properties.
The execution and delivery of this Agreement and the Ancillary Agreements by
Buyer do not, and the fulfillment by Buyer of its obligations under this
Agreement and the Ancillary Agreements will not, conflict with, violate or
result in the breach of any provision of the certificate of incorporation or
bylaws of Buyer or, conflict with, violate or result in the breach of any
contract
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to which Buyer is a party. No material consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Authority is
required to be obtained or made by or with respect to Buyer in connection with
the execution and delivery of this Agreement by Buyer or the fulfillment by
Buyer of its obligations under this Agreement, except the filings and approvals
described in Article 4.
8.2.4 No Violation of Law. The execution and delivery of this
Agreement and the Ancillary Agreements and the fulfillment by Buyer of its
obligations under this Agreement and the Ancillary Agreements will not violate
any Law except to the extent any such violation would not have a material
adverse effect on the ability of Buyer to fulfill its obligations hereunder and
thereunder.
8.2.5 Financial Capacity.
(a) Buyer has sufficient cash or other sources of funds to pay
the Purchase Price in the manner specified in Section 3.1 and all related fees
and expenses.
(b) Buyer has sufficient financial resources to operate the
Business after the Closing Date. Without limiting the generality of the
foregoing, Buyer has sufficient financial resources to satisfy any applicable
requirement relating to financial capacity or capital imposed by any
Governmental Authority in any state in which the Business is conducted. Buyer is
solvent, is able to pay its debts as they become due, and owns property that has
both a fair value and a fair saleable value in excess of the amount required to
pay its debts as they become due.
8.2.6 Brokers. Buyer has not paid or become obligated to pay any fee
or commission to any broker, finder, investment banker or other intermediary in
connection with the transactions contemplated by this Agreement in such a manner
as to give rise to a valid claim against Seller for any broker's or finder's
fees or similar fees or expenses.
8.2.7 Consents and Approvals of Governmental Authority. Subject to
Article 4 with respect to Regulatory Approvals and FCC Consents, no consent,
approval or authorization of, or declaration, filing or registration with, any
Governmental Authority or regulatory authority is required in connection with
the execution, delivery and performance of this Agreement by Buyer or the
consummation by Buyer of the transactions contemplated herein, except for
filings with the Federal Trade Commission and Department of Justice pursuant to
the HSR Act, if required.
ARTICLE 9
CONTINUING BUSINESS RELATIONSHIPS
9.1 Transition Services Agreement. The parties agree to cooperate with
each other to ensure that the transition of the ownership of the Purchased
Property proceeds with minimal disruption to the services being provided to
subscribers. The parties agree that it may be necessary for Seller to assist
Buyer in converting Seller's systems and processes with respect to the Purchased
Property to Buyer's systems and processes. Seller and Buyer agree to execute a
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separate "Transition Services Agreement" substantially in the form attached
hereto as Schedule 9.1 for the provision of such services.
9.2 Optional Services Agreement. It is understood and agreed that Buyer
may not have for a period of time after Closing Date, certain systems or
processes necessary to provide some basic customer services. Seller will at
Buyer's request and for the fees described in Schedule 9.2 provide any or all of
the services described in a separate "Optional Services Agreement" signed by the
parties substantially in the form attached hereto as Schedule 9.2.
9.3 Directory Publishing.
9.3.1 Assumption of Certain Directory Publishing Agreement Rights
and Obligations. Seller is party to a directories publishing agreement with [GTE
Directories Service Corporation n/k/a GTE Directories Corporation or GTE
Directories Corporation as purchaser of the rights and interests of Associated
Directory Services, Inc. f/k/a Mast Advertising and Publishing, Inc.] herein
"Publisher." This [These] agreement[s] is [are] identified in Schedule 9.3.1
attached hereto ("Publishing Agreement[s]"). Pursuant to this [these]
agreement[s] Publisher has the exclusive right and obligation to sell
advertising, and to publish, print and distribute directories containing
telephone numbers relating to the Purchased Exchanges.
Buyer agrees to execute an agreement effective as of the Closing to
assume and appropriately amend the Publishing Agreement[s] as it[they] relate to
the Purchased Exchanges, including the extension of the Contel Publishing
Agreements expiring prior to the Seller's Master Publishing Agreement which
expires December 31, 2001, so that such extensions expire on December 31, 2001.
If the directories for any of the Purchased Exchanges are published by a third
party non-Affiliate of Seller, then to the extent requested by Buyer, Seller
agrees to assist Buyer in obtaining such third party's consents to the
continuation of such publishing arrangements; provided that Seller shall have no
obligation to pay compensation or other consideration in connection with such
assistance.
9.3.2 Co-Bound Directories Acknowledgement. Buyer acknowledges that
Publisher may have a pre-existing obligation (which Publisher may choose to
continue) to sell advertising, publish, print and distribute the telephone
numbers of third party local exchange telephone companies in the same directory
as the Purchased Exchanges ("Co-Bound" directory). Co-Bound directory agreements
of which Seller is aware, if any, are identified on Schedule 9.3.2.
9.3.3 Meeting to Discuss Directory Publication. Within ninety (90)
days following the date of this Agreement, Buyer agrees to meet with Seller and
Publisher for the purpose of having an initial discussion about the first
directory publication after the Closing Date. This meeting will be held at
Publisher's address unless otherwise agreed between the parties and Publisher.
All parties shall employ their respective commercially reasonable efforts to
ensure that directory publication is not interrupted following the Closing Date.
9.4 GTE Supply Relationship. Within 90 days of this Agreement, Buyer
agrees to meet with representatives of GTE Supply for purposes of negotiating in
good faith an agreement for GTE Supply to provide ongoing procurement and
materials management functions for the
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Business on substantially the same terms as contained in the Buyer's existing
agreement with GTE Supply; provided that Buyer may negotiate in good faith with
respect to any volume discounts that may be available from GTE Supply.
ARTICLE 10
ADDITIONAL COVENANTS OF THE PARTIES
10.1 Intellectual Property.
10.1.1 No License. Buyer and Seller agree and understand that except
as expressly set forth in writing in the License Agreement and Section 10.1.3,
Seller has not granted any rights or licenses, express or implied, of, and
nothing shall constitute or be construed as a license of Seller under any
Intellectual Property now or hereafter owned, obtained or licensable by Seller
or under any Third Party Intellectual Property.
10.1.2 Infringement.
(a) Notwithstanding anything in this Agreement to the
contrary, Seller shall have no obligation to defend, indemnify or hold harmless
Buyer or any of its Affiliates, from any damages, costs or expenses resulting
from any obligation, proceeding or suit based upon any claim that any activity
subsequent to the Closing Date engaged in by Buyer, a customer of Buyer's or
anyone claiming under Buyer, constitutes direct or contributory infringement,
misuse of, or misappropriation of, or inducement to infringe, any Third Party
Intellectual Property.
(b) Buyer shall defend, indemnify and hold harmless Seller and
its Affiliates from and against any and all Indemnifiable Losses resulting from
any obligation, proceeding or suit based upon any claim alleging or asserting
direct or contributory infringement, or misuse or misappropriation of or
inducement to infringe by Seller or any of its Affiliates of any Third Party
Intellectual Property, to the extent that such claim is based on, or would not
have arisen but for, activity conducted or engaged in subsequent to the Closing
Date by Buyer, a customer of Buyer's, or anyone claiming under Buyer.
10.1.3 Trademark Phaseout.
(a) Buyer acknowledges that Seller or its Affiliates are the
owners of Excluded Marks that qualify as Excluded Property under Section 2.3.
Buyer understands and agrees that the Excluded Marks, or any right to or license
of the Excluded Marks, are not being transferred pursuant to this Agreement.
Buyer acknowledges the exclusive and proprietary rights of Seller and its
Affiliates in the use of the Excluded Marks, and Buyer agrees that it shall not
use the Excluded Marks (or any names, domain names, marks or indicia confusingly
similar to the Excluded Marks) except and to the extent expressly set forth in
this Section 10.1.3 or assert any rights or claims in such Excluded Marks (or in
any names, domain names, marks or when confusingly similar to the Excluded
Marks). After the Closing, all Excluded Marks of Seller and its Affiliates shall
be replaced by Buyer, at Buyer's expense, as soon as possible, but in no event
later than one hundred twenty (120) days after the Closing Date for items with
Excluded Marks affixed to them which Buyer has continued to use in Buyer's
operation of the Business, including
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buildings, vehicles, heavy equipment, hard hats, tools, tool boxes, kits (safety
and others), signs, public (pay) telephones, manual covers and notebooks. After
the Closing, Buyer will not use, and will destroy or deliver to Seller, all such
items with Excluded Marks affixed to them that have no valid continuing use in
Buyer's operation of the Business, including items affecting customer or
employee relations or items that do not reflect Buyer's true identity. Specific
items to be destroyed or returned include items with Excluded Marks affixed to
them including giveaways; order, purchase or materials forms; requisitions;
invoices; statements; time sheets/labor reports; bill inserts; stationery;
personalized note pads; maps; organization charts; bulletins/releases;
sales/price literature; manuals or catalogs; report covers/folders; program
materials; and materials such as media contact lists/cards. The one hundred
twenty (120) day time period for replacement of Excluded Marks affixed to
telephone directories that were already published or closed for publication at
the Closing Date shall be extended to the expiration date of such directories.
(b) Buyer recognizes the great value of the goodwill
associated with the Excluded Marks, and acknowledges that the Excluded Marks and
all rights therein and the goodwill pertaining thereto belong exclusively to
Seller and that the Excluded Marks have a secondary meaning in the minds of the
public. Buyer further agrees that any and all permitted use of the Excluded
Marks pursuant to this Agreement shall inure to the sole and exclusive benefit
of Seller.
(c) Buyer agrees that any permitted use of the Excluded Marks
in the operation of the Business after the Closing shall be provided in
accordance with all applicable federal, state and local laws, and that the same
shall not reflect adversely upon the good name of Seller or its Affiliates, and
that the operation of the Business will be of a high standard and skill.
(d) Buyer acknowledges that its failure to cease use of the
Excluded Marks as provided in this Agreement, or its improper use of the
Excluded Marks, will result in immediate and irreparable harm to Seller and its
Affiliates. Buyer acknowledges and admits that there is no adequate remedy at
law for such failure to terminate use of the Excluded Marks, or for such
improper use of the Excluded Marks. Buyer agrees that in the event of such
failure or improper use, Seller and its Affiliates shall be entitled to
equitable relief by way of temporary restraining order, or preliminary or
permanent injunction, or any other relief available under this Agreement.
(e) Buyer will not contest the ownership or validity of any
rights of Seller or its Affiliates in the Excluded Marks.
10.1.4 Third Party Software. To the extent that the transfer of
Purchased Property by Seller to Buyer under this Agreement results in the
transfer of possession to Buyer of software that at the Closing Date is Third
Party Intellectual Property, which software was located in and rightfully used
by Seller in the geographical area of the Purchased Exchanges prior to the
Closing Date in the normal and ordinary operation of the Business pursuant to
Contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then subject to Section 2.5, effective as of
the Closing and provided that no payments to any Person other than a Switch
Software vendor (which, if any, shall be paid by Seller) are thereby required,
at Closing Seller shall assign to Buyer, and Buyer shall accept all rights and
licenses if any to
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posses and use such software pursuant to such Third Party Intellectual Property
Contracts. Buyer agrees that the acceptance by Buyer of such assignment of the
Third Party Intellectual Property Contracts includes the assumption by Buyer of
obligations under such Third Party Intellectual Property Contracts, including
all obligations necessary or incidental to the transfer of such rights and
licenses. Buyer understands and agrees that except as provided above in this
Section 10.1.4, or as expressly provided elsewhere in this Agreement or in
another written agreement between Buyer and Seller, no rights or licenses to use
or possess such software or any Third Party Intellectual Property are
transferred to Buyer. Buyer shall properly dispose of, and shall not use, any
software of which Buyer acquires possession in connection with Purchased
Property and (i) which, after the Closing Date, Buyer knows, or reasonably
should know, is not the subject of a Third Party Intellectual Property Contract
that has been rightfully transferred to Buyer or for (ii) which Buyer does not
have a separate license. Seller makes no warranty or representation that any
Third Party Intellectual Property Contract or any right therein is assignable in
whole or in part to Buyer.
10.2 Effect of Due Diligence and Related Matters.
(a) Buyer represents that it is a sophisticated entity that
was advised by knowledgeable counsel and financial advisors and, to the extent
it deemed necessary, other advisors in connection with this Agreement and has
conducted its own independent review and evaluation of the Purchased Property.
Accordingly, Buyer covenants and agrees that (i) except for the representations
and warranties set forth in this Agreement, Buyer has not relied and will not
rely upon any document or written or oral information furnished to or discovered
by it or its representatives, including any financial data, (ii) there are no
representations or warranties by or on behalf of Seller or its Affiliates or
representatives except for those expressly set forth in this Agreement, and
(iii) to the fullest extent permitted by law, Buyer's rights and obligations
with respect to all of the foregoing matters will be solely as set forth in this
Agreement.
(b) Upon the Closing, Buyer shall be deemed to have waived any
claim with respect to a breach of any representation, warranty, covenant or
obligation of Seller, or any failure of a condition, hereunder of which Buyer
had knowledge; provided that Buyer shall be deemed to have knowledge of the
information made available to Buyer and/or its representatives during its review
of the Purchased Property prior to the date of this Agreement, which information
is contained in the Due Diligence Documents.
(c) After the date of this Agreement and prior to the Closing
Date, Buyer shall promptly notify Seller if Buyer obtains knowledge of any
actual breach of any representation, warranty, covenant or obligation of Seller
or any actual or prospective failure of a condition, hereunder of which Buyer
obtains knowledge. Failure to provide timely notice shall be deemed to
constitute a waiver of any claim with respect to such breach.
10.3 Confidentiality. Whether or not the Closing occurs, the parties
hereto and their respective officers, directors, employees and representatives
will comply with the Confidentiality Agreement, the provisions of which are
expressly incorporated herein in their entirety by this reference.
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10.4 Further Assurances. After the Closing, Seller will use its
commercially reasonable efforts to furnish to Buyer such other instruments and
information as Buyer may reasonably request in order to convey to Buyer title to
the Purchased Property, to be delivered from time to time upon Buyer's
reasonable request.
10.5 Prorations. The following liabilities shall be prorated between
Seller and Buyer: (i) utility charges (which shall include water, sewer,
electricity, gas and other utility charges) with respect to the Owned Real
Property, the property subject to the Real Property Leases and customer owned
equipment, (ii) rental charges (which shall include rental charges and other
lease payments under the Real Property Leases), (iii) personal services (these
services are charged for a period which includes the Closing Date; this shall
include contract labor), and (iv) real and personal property taxes, ad valorem
taxes, and franchise fees or taxes (collectively, "Periodic Taxes"). With
respect to measurement periods during which the Closing Date occurs (all such
periods of time being hereinafter called "Proration Periods"), the liabilities
described in clauses (i), (ii) and (iii) of the preceding sentence shall be
apportioned between Seller and Buyer as of the Closing Date, with Buyer bearing
only the expense thereof in the proportion that the number of days remaining in
the applicable Proration Period on and after the Closing Date bears to the total
number of days covered by such Proration Period. Periodic Taxes attributable to
Proration Periods shall be prorated between Buyer and Seller based on the
relative periods the Purchased Property was owned by each respective party
during the fiscal period of the taxing jurisdiction for which such taxes were
imposed by such jurisdiction (as such fiscal period is or may be reflected on
the bill rendered by such taxing jurisdiction). On the Closing Date, Buyer and
Seller shall pay or be reimbursed, on this prorated basis, for Periodic Taxes
that have been paid before the Closing Date. On the Closing Date, Buyer and
Seller shall also be reimbursed, on this prorated basis, for Periodic Taxes that
are to be paid on or after the Closing Date. The reimbursement of Periodic Taxes
that are to be paid on or after the Closing Date shall be based on a reasonable
estimate of the amount of such Periodic Taxes to be paid (based on past
experience). To the extent that Buyer or Seller are not reimbursed on the
Closing Date for Periodic Taxes that are paid after the Closing Date, or, in the
event the estimated amount of the preceding sentence proves to have been
inaccurate, Buyer or Seller shall promptly forward an invoice to the other party
for its reimbursable pro rata share, if any. If the other party does not pay the
invoice within thirty (30) calendar days of receipt, the amount of such payment
shall bear interest at the rate of eight percent (8%) per annum. Similarly, all
prepayments made or received by Seller or Buyer with respect to service or
maintenance agreements with third parties or license or other fees payable to or
by third parties and relating to the Business shall be prorated on an
appropriate basis between Seller and Buyer.
10.6 Cost Studies/NECA Matters.
10.6.1 Prior to Closing. Seller agrees that, with respect to all
toll revenues, settlements, pools, separations studies or similar activities,
Seller shall be responsible for (and shall receive the benefit or suffer the
burden of) any adjustments to contributions, or receipt of funds, by Seller
resulting from any such activities that are related to the operation of the
Business or the ownership or operation of the Purchased Property prior to the
Closing Date. Specifically, this paragraph shall apply, but shall not be limited
to, any matters related to the National
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Exchange Carrier Association ("NECA") including the Universal Service Fund
("USF"), Long Term Support ("LTS"), and Telecommunications Relay Services funds.
10.6.2 From and After Closing.
(a) Buyer shall receive all USF funds, from and after the
Closing Date, as determined by USAC from data submitted by Seller prior to
Closing Date pursuant to FCC Rules and Regulations as stated in Part 36.611 and
Part 36.612 for rural carriers and Part 54 for non-rural carriers. After Closing
Date Buyer shall make all submissions and filings for USF funds for all years
for which Seller had not made a submission prior to Closing Date in accordance
with FCC Rules and Regulations. Within a reasonable time after Buyer's written
request, Seller shall furnish to Buyer such necessary information regarding
Seller's ownership of the Purchased Property during any year for which Buyer
shall make a submission, and such reasonable assistance as required in
connection with Buyer's preparation of necessary filings or submissions.
(b) Notwithstanding the foregoing, Buyer's right to receive
all USF revenue is conditioned upon Buyer's payment, from and after the Closing
Date, of all universal service contribution liability assessed by USAC based on
end-user retail revenues for the previous year generated by assets being sold.
10.7 Customer Deposits. Within thirty (30) days after Closing, Seller
agrees to transfer to Buyer the customer deposits together with any interest
accrued thereon (collectively "Customer Deposits"), together with all of
Seller's obligations and rights to hold the Customer Deposits of the Business,
up to the Closing Date, and Buyer agrees to hold, disburse and retain such
deposits so delivered to it as if it were Seller.
10.8 Access to Books and Records.
(a) After the Closing, Seller will retain all Retained Books
and Records for a period of three (3) years.
(b) After the Closing, upon reasonable notice and subject to
the Confidentiality Agreement, the parties will give to the representatives,
employees, counsel and accountants of the other, access, during normal business
hours, to books and records relating to the Business and the Purchased Property,
and will permit such persons to examine and copy such records, in each case to
the extent reasonably requested by the other party in connection with tax and
financial reporting matters (including any Tax Returns and related information,
but not attorney work product or similar work product prepared by accountants),
audits, legal proceedings, governmental investigations and other business
purposes (including such financial information and any receipts evidencing
payment of taxes as may be reasonably requested by Seller to substantiate any
claim for tax credits or refunds); provided, however, that nothing herein will
obligate any party to take actions that would unreasonably disrupt the normal
course of its business or violate the terms of any Contract to which it is a
party or to which it or any of its assets is subject. Seller and Buyer will
cooperate with each other in the conduct of any Tax audit or similar proceedings
involving or otherwise relating to the Business (or the income therefrom
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or assets thereof) with respect to any Tax and each will execute and deliver
such powers of attorney and other documents as are necessary to carry out the
intent of this Section 10.8(b).
10.9 Purchase Price Allocation. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
IRC. If Buyer and Seller agree to such Allocation prior to Closing, Buyer and
Seller covenant and agree that (i) the values assigned to the assets by the
parties' mutual agreement shall be conclusive and final for all purposes, and
(ii) neither Buyer nor Seller will take any position before any Governmental
Authority or in any judicial proceeding that is in any way inconsistent with
such Allocation. Notwithstanding the foregoing, if Buyer and Seller cannot agree
to an Allocation, Buyer and Seller covenant and agree to file and to cause their
respective Affiliates to file, all Tax Returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the IRC and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable Law.
10.10 Owned Real Property Transfers. Within sixty (60) days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies in Seller's possession covering the Owned Real Property.
Thereafter, no later than thirty (30) days before the Closing Date, Seller shall
deliver (at Seller's expense) to Buyer title commitments for owners' policies of
title insurance prepared by a title insurance company reasonably acceptable to
Buyer and a certified current survey, with respect to all Owned Real Property
included in the Purchased Property and in which Seller purports to own fee
title. Buyer acknowledges that such title commitments shall be for CLTA owners'
policies of title insurance (or its equivalent) unless Buyer has requested in
writing, prior to the date hereof, that such commitments be issued for other
forms of title insurance (in which event, Buyer shall bear all costs and
premiums for such title insurance to the extent attributable to such coverage
being in excess of CLTA coverage or its equivalent). Such title commitments
shall reflect that upon the consummation of the sale to Buyer contemplated by
this Agreement and the payment of all premiums and charges due for such title
insurance, Buyer will be vested with good, fee simple title to such Owned Real
Property, subject only to the exceptions show thereon, the title company's
standard exceptions and exclusions, and such matters that arise after the date
and time of such title commitment. Except as provided in the following sentence,
in the event that Buyer requires endorsements to such title commitments or the
applicable title insurance policies, such endorsements shall be obtained at
Buyer's sole cost and expense and shall not be a condition to Closing. On the
Closing Date, Seller shall convey the Owned Real Property to be transferred to
Buyer subject only to Permitted Encumbrances, provided that Seller may transfer
such property subject to one or more exceptions that are not Permitted
Encumbrances if Seller commits in writing, in form and substance reasonably
acceptable to Buyer, on or before the Closing Date, to cause any such exception
that is not a Permitted Encumbrance to be removed, insured or bonded over to
Buyer's reasonable satisfaction, or if Seller indemnifies Buyer with respect to
such exceptions to Buyer's reasonable satisfaction on or before the Closing
Date. With respect to each parcel of Owned Real Property covered by a title
commitment referenced above, the amount of title insurance provided under the
applicable title insurance policy shall be the fair market value of the
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applicable property, which shall be determined by Buyer at its sole cost and
expense using commercially reasonable methods of valuation, provided that all
such valuations shall be consistent with all allocations of the Purchase Price
made hereunder or pursuant to this Agreement, and shall be acceptable to the
title insurance company. The determination of fair market value shall be made in
a timely manner such that the title commitments can be issued in a timely manner
prior to the Closing Date. Seller agrees that prior to Closing it will provide
the title company with such instructions, authorizations, affidavits, and
indemnities as may be reasonably necessary for the title company to issue title
policies to Buyer, dated as of the Closing Date, for all of the Owned Real
Property with so-called non-imputation endorsements. By no later than forty-five
(45) days after the Closing Date, Seller shall deliver to Buyer a final title
insurance policy covering each parcel of the Owned Real Property covered by the
title commitments. Buyer will use its commercially reasonable efforts to work
with the title company between the date hereof and fifty-five (45) days after
Closing Date to resolve any issues with respect to such title commitments.
Seller shall be responsible for the payment of all title insurance premiums
attributable to the CLTA portion of the coverage afforded by each such policy
obtained, and Buyer shall be responsible for the payment of all title insurance
premiums in excess of such amount and for the payment of all endorsement charges
and other fees and costs imposed by the title company.
10.11 Transaction Taxes. Buyer shall bear and be responsible for paying
any sales, use, transfer, documentary, registration, business and occupation and
other similar taxes (including related penalties (civil or criminal), additions
to tax and interest) imposed by any Governmental Authorities with respect to the
transfer of Purchased Property to Buyer (including the Owned Real Property)
("Transaction Taxes"), regardless of whether the tax authority seeks to collect
the such taxes from Seller or Buyer. Seller shall prepare all tax filings
related to any sales, use, transfer, documentary, registration, business and
occupation and other similar taxes. Seller, fifteen (15) days prior to making
such filings shall provide to the Buyer Seller's work papers for the Buyer's
review and approval. Buyer shall provide to the Seller ten (10) days prior to
the filing date approval of such work papers. Buyer shall also be responsible
for (i) administering the payment of such Transaction Taxes, (ii) defending or
pursuing any proceedings related thereto, and (iii) paying any expenses related
thereto. Seller shall give prompt written notice to Buyer of any proposed
adjustment or assessment of any Transaction Taxes with respect to the
transaction, or of any examination of said transaction in a sales, use, transfer
or similar tax audit. In any proceedings, whether formal or informal, Seller
shall permit Buyer to participate and control the defense of such proceeding,
and shall take all actions and execute all documents required to allow such
participation. Seller shall not negotiate a settlement or compromise of any
Transaction Taxes without the written consent of Buyer, which consent shall not
be unreasonably withheld.
10.12 Bulk Sales Laws. Seller and Buyer waive compliance with applicable
laws under any version of Article 6 of the Uniform Commercial Code adopted by
any state or any similar law relating to the sale of inventory, equipment or
other assets in bulk in connection with the sale of the Purchased Property.
10.13 Prepaid Non-Regulated Maintenance Agreements. Within thirty (30)
days following Closing, Seller shall pay to Buyer an amount equal to the pro
rata portion of all
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prepaid but unearned revenues from Seller's customers for all non-regulated
maintenance agreements as of the Closing Date.
10.14 Vehicle Registration. Buyer agrees to use its commercially
reasonable efforts to file promptly the appropriate vehicle title applications
and registrations to change the name of the titled owner on each vehicle title
certificate and change the motor vehicle registration (with respect to license
plate information) on each vehicle being transferred to Buyer from Seller
pursuant to this Agreement. Buyer agrees that it shall remove and destroy
Seller's existing license plates from all vehicles received upon the earlier of
receipt of new license plates or sixty (60) days following Closing.
10.15 Carrier Access Billing and Accounts Receivable Transition. Seller
shall render its own final carrier access bills to its interexchange carriers
for minutes, messages and other applicable charges up to the Closing Date.
Seller shall be responsible for collecting and settling any disputes associated
with its final bills to the interexchange carriers.
10.16 End-User Billing and Accounts Receivable Transition. Buyer agrees to
purchase Seller's Earned End-User Accounts Receivable and make payment to Seller
for those accounts in the manner described below:
(a) Seller shall transfer to Buyer, as soon as reasonably
available after Closing, all open end-user customer account records to Buyer as
of the end of business on the Closing Date. Following the Closing, Buyer shall
be responsible for administering those records including the application of cash
receipts to customer accounts, whether related to services rendered before or
after the Closing. Seller shall promptly forward to Buyer all customer payments
and related remittance documents received by Seller after the Closing for
processing by Buyer.
(b) Within twenty (20) days following the Closing, Seller
shall provide an accounting to Buyer of the Earned End-User Accounts Receivable
Amount and the Customer Advances as well as the most recent twelve (12) month
history of Seller's uncollectible net writeoffs expressed as a percentage of
billings for the Business (the "Uncollectible Factor"). This data and the
resulting calculation of the Earned End-User Accounts Receivable Amount shall be
summarized in an accounts receivable settlement statement (the "Accounts
Receivable Settlement Statement"). Within thirty (30) days following the
Closing, Buyer shall remit to Seller an amount equal to 80% of the Earned
End-User Accounts Receivable Amount less 100% of the Customer Advances. Within
sixty (60) days following the Closing, Buyer shall remit an additional 15% of
the Earned End-User Accounts Receivable Amount and within ninety (90) days will
remit the final 5%.
(c) Not later than ten (10) days prior to the due dates for
the sixty (60) and ninety (90) day payments referred to in Section 10.16(b),
Seller will provide Buyer with an updated Accounts Receivable Settlement
Statement reflecting any adjustments based upon non-sufficient funds checks,
billing adjustments or other facts that relate to pre-closing activity that
became known after the preparation of the original statement.
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(d) If at any time during the ninety (90) day period following
the Closing, Buyer or Seller discovers any material discrepancy in the Accounts
Receivable Settlement Statement, both parties agree to use commercially
reasonable efforts to resolve any discrepancy in a timely manner, and also agree
to make payments related to any undisputed amounts as set forth above.
(e) At any time between ninety (90) and two hundred seventy
(270) days following the Closing, Buyer may, at its discretion, prepare an
analysis of actual bad debt write-off experience related to the Earned End-User
Accounts Receivable purchased from Seller. If such analysis reasonably
demonstrates that write-offs have exceeded the estimated amount in the final
Accounts Receivable Settlement Statement (as had been calculated using the
Uncollectible Factor) by more than 10%, Seller will pay to Buyer the full amount
of the difference within thirty (30) days of receipt of Buyer's request for
payment, together with Buyer's write-off analysis, Buyer will provide Seller
sufficient detail in its write-off analysis, and as reasonably necessary, access
to billing and collection records, to allow Seller to validate the accuracy of
Buyer's request. Any disputes regarding the amounts of such request shall be
settled using the procedure described in Section 3.3(d).
ARTICLE 11
EMPLOYEES AND EMPLOYEE MATTERS
11.1 Employment of Transferred Employees. Subject to the other provisions
of this Section 11.1, all Active Employees of Seller employed in the Business,
and all Active Employees of Seller and its Affiliates whose duties relate
primarily to the Business, on the Closing Date (hereinafter collectively
referred to as "Transferred Employees") shall be employed by (or become the
responsibility of, as applicable) Buyer as of the Closing Date in the same or
comparable positions, and at the same or comparable total compensation
(including base pay and bonus), as were in effect on the Closing Date, except as
otherwise provided in this Agreement. For purposes of the preceding sentence,
the term "Active Employees" shall include all full-time and part-time employees,
employees on military leave, maternity leave, leave under the Family and Medical
Leave Act of 1993, short-term disability, on layoff with recall rights, and
employees on other approved leaves of absence with a legal or contractual right
to reinstatement. For a period of twelve (12) months following the Closing Date,
Buyer shall not actively solicit either directly or indirectly through any
agents, and Buyer shall not permit any of its Affiliates to actively solicit
either directly or indirectly through any agents, any person who retires or
otherwise terminates from any employment at or in association with Seller during
the six-month period beginning three (3) months before the Closing Date, and
Buyer shall neither employ nor permit any of its Affiliates to employ any
individuals who are identified to Buyer by Seller as individuals who terminated
from any employment or association with Seller during such six-month period. On
or before the execution date of this Agreement, Seller shall have delivered to
Buyer a list of the persons who would have been Transferred Employees had the
Closing Date occurred on March 31, 1999, showing the following information for
each such person: (i) the name of each such person; (ii) the name of his or her
current employer; (iii) his or her current base pay, 1998 bonus and projected
1999 bonus; (iv) his or her hire date, any rehire date (if available) and years
of service; (v) his or her then-current position; (vi) whether such employee is
(x) subject to a collective bargaining agreement or represented by a labor
organization, if any,
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and including the name and date of each such bargaining agreement or (y) on
military leave, maternity leave, leave under the Family and Medical Leave Act of
1993, short-term disability, on layoff with recall rights or on other approved
leave of absence with a legal or contractual right to reinstatement; and (vii)
for any employee who is not employed exclusively in the Business, a description
of the nature of his or her employment and the percentage of his or her time
actually allocated to the Business in calendar year 1998. Seller shall update
such list at such time or times requested by Buyer, but not more often than as
of the end of each calendar quarter occurring between the execution date hereof
and the Closing Date, commencing with the quarter ending June 30, 1999, and as
of the month ending immediately prior to the Closing Date, in each case assuming
the Closing Date had occurred on such date, and shall deliver such updated lists
to Buyer within ten (10) days after the end of each such calendar quarter or
month-end, as applicable. Any person who is not on such list as updated as of
the end of the month immediately preceding the Closing Date shall not be a
Transferred Employee, and for all purposes under this Agreement the Transferred
Employees shall include only those persons on such list as updated as of such
month-end who continue to be Active Employees of Seller employed in the Business
or Active Employees of Seller and its Affiliates whose duties relate primarily
to the Business, on the Closing Date.
11.1.1 Assumption of Collective Bargaining Agreement Obligations. On
and after the Closing Date, Buyer, as successor employer to Seller, shall assume
all of the employer's obligations under, and be bound by the provisions of, each
collective bargaining agreement to the extent of provisions covering Transferred
Employees. Seller shall cooperate with Buyer in Buyer's efforts to contact the
unions representing Transferred Employees.
11.1.2 Assumption of Employment and Other Agreements. On and after
the Closing Date, except as otherwise provided in this Agreement or in Schedule
11.1.2, Buyer, as successor employer to Seller, shall assume all obligations of
each employment agreement or any other agreement by Seller relating to
conditions of employment, employment separation, severance, or employee benefits
in connection with the Transferred Employees, but only to the extent that they
have been disclosed to Buyer on Schedule 8.1.16(a) and copies have been
furnished to Buyer as soon as administratively practicable prior to the
execution of this Agreement. To the extent that Buyer assumes any obligations
under this Article 11, Buyer may reduce or eliminate benefits under any
agreement, plan, policy or program only to the extent required to comply with
applicable law, or to the extent that Seller, its Affiliates, or any successors
or assigns, make amendments or changes to its benefit plans, policies or
programs to eliminate or reduce benefits. Until the fifth anniversary of the
Closing Date, Seller promptly shall deliver to Buyer a copy of each material
amendment or change that Seller makes to its Plans and Employment Agreements to
eliminate or reduce benefits thereunder and shall confirm to Buyer on an annual
basis whether, and the extent to which, it has amended its Plans and Employment
Agreements and provide sufficient detail to enable Buyer to determine whether
Seller has reduced or eliminated benefits thereunder. After the fifth
anniversary of the Closing Date, Buyer may amend such plans, policies, and
programs in any manner it determines, consistent with applicable law and
collective bargaining agreements.
11.1.3 Recognition of Transferred Employee Service. On and after the
Closing Date, and subject to the provisions of any applicable collective
bargaining agreement, and except
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as otherwise provided in this Article 11, Buyer shall recognize the service of
each Transferred Employee for all employment-related purposes determined in
accordance with the practices and procedures of Seller in effect on the Closing
Date, as if such service had been rendered to Buyer.
11.1.4 Assumption of Obligation to Pay Bonuses. Transferred
Employees shall not accrue benefits under any employee benefit policies, plans,
arrangements, programs, practices, or agreements of Seller or any of its
Affiliates after the Closing Date. Buyer shall assume the obligation to pay to
Transferred Employees any bonuses that would have been payable to the
Transferred Employees with respect to the calendar year in which the Closing
Date occurs had the Transferred Employees remained employees of Seller or one of
its Affiliates, in accordance with the provisions of the policy, plan,
arrangement, program, practice or agreement under which the bonus would have
been paid.
11.1.5 No Duplicate Benefits. Nothing in this Agreement shall cause
duplicate benefits to be paid or provided to or with respect to a Transferred
Employee under any employee benefit policies, plans, arrangements, programs,
practices, or agreements.
11.1.6 Affiliate Employees. If any employee identified in the list
provided pursuant to Section 11.1 is an employee of an Affiliate of Seller whose
duties relate primarily to the Business, he or she shall be considered a
Transferred Employee and shall be treated under this Agreement in a manner that
is comparable to the treatment given to the Transferred Employees who are
employed by Seller, except that his or her service as of the Closing Date shall
be determined in accordance with the practices and procedures of his or her
employer, as disclosed to Buyer in accordance with Section 11.1.2.
11.2 Transferred Employee Benefit Matters.
11.2.1 Defined Benefit Plans.
(a) Seller Pension Plans. As of the date of this Agreement,
Seller participates in the following single-employer defined benefit pension
plans maintained in the United States:
(i) the GTE Service Corporation Plan for Employees'
Pensions (the "Seller Salaried Pension Plan"); and
(ii) the GTE Midwest Incorporated Plan for Hourly-Paid
Employees' Pensions (the "Seller Hourly Pension Plan").
The plans identified in this Section 11.2.1(a) shall be referred to
collectively in this Agreement as the "Seller Pension Plans," and each such plan
shall be referred to individually as a "Seller Pension Plan."
(b) Buyer Obligations. Buyer shall take all actions necessary
and appropriate to ensure that, as soon as practicable after the Closing Date,
Buyer maintains or adopts one or more pension plans (hereinafter referred to in
the aggregate as the "Buyer Pension Plans" and individually as the "Buyer
Pension Plan") effective as of the Closing Date and to
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ensure that each Buyer Pension Plan satisfies the following requirements as of
the Closing Date: (i) the Buyer Pension Plan is a qualified, single-employer
defined benefit plan under Section 401(a) of the IRC; (ii) any Buyer Pension
Plan that was in effect before the Closing Date shall not have any "accumulated
funding deficiency," as defined in Section 302 of ERISA and Section 412 of the
IRC, whether or not waived, immediately before the Closing Date; (iii) the Buyer
Pension Plan is not the subject of termination proceedings or a notice of
termination under Title IV of ERISA; (iv) the Buyer Pension Plan does not
exclude Transferred Employees from eligibility to participate therein; (v) the
Buyer Pension Plan does not violate the requirements of any applicable
collective bargaining agreement; and (vi) with respect to Transferred Employees
who were participants in the Seller Hourly Pension Plan by virtue of their
coverage under a collective bargaining agreement on the Closing Date, the terms
of the Buyer Pension Plan are substantially identical in all material respects
to the terms of the Seller Hourly Pension Plan. For purposes of this Section
11.2.1, Transferred Employees who were participants in the Seller Hourly Pension
Plan other than by virtue of their coverage under a collective bargaining
agreement on the Closing Date shall be treated as Transferred Employees who, on
the Closing Date, participate in the Seller Salaried Pension Plan. Within the
30-day period immediately preceding any transfer of assets and liabilities from
a Seller Pension Plan to a Buyer Pension Plan pursuant to this Section
11.2.1(b), Buyer shall provide Seller with a written certification, in a form
acceptable to Seller, that the Buyer Pension Plan satisfies each of the
requirements set forth in this Section 11.2.1(b).
(c) Transfer of Liabilities.
(i) In accordance with the provisions of this Section
11.2.1, Buyer shall cause the Buyer Pension Plans to accept all liabilities for
benefits under the Seller Pension Plans, whether or not vested, that would have
been paid or payable (but for the transfer of assets and liabilities pursuant to
this Section 11.2.1) to or with respect to the Transferred Employees under the
terms of the Seller Pension Plans and that are "Section 411(d)(6) protected
benefits" (as defined by Section 411(d)(6) of the IRC and the regulations
thereunder) that have accrued under the Seller Pension Plan to or with respect
to the Transferred Employees based on accredited service and compensation under
the Seller Pension Plans as of the Closing Date. For a period of not less than
five (5) years after the Closing Date, and unless otherwise required to comply
with applicable law or permitted by Section 11.1.2, Buyer shall not amend the
Buyer Pension Plans, or permit the Buyer Pension Plans to be amended, to
eliminate any benefit, whether or not vested, with respect to which liabilities
are transferred pursuant to the foregoing provisions of this subsection (i), to
the extent any such benefit is a "Section 411(d)(6) protected benefit" (as
defined by Section 411(d)(6) of the IRC and the regulations thereunder). On or
before the Closing Date, Seller or an Affiliate thereof shall take action to
fully vest Transferred Employees in their benefits (if any) under the Seller
Pension Plans.
(ii) (A) For purposes of eligibility and vesting under
the Buyer Pension Plans, each Transferred Employee whose accrued benefit is
transferred from a Seller Pension Plan to a Buyer Pension Plan shall be credited
with service as of the Closing Date as determined under the terms of the Seller
Pension Plan. The benefit under the Buyer Pension Plan for each Transferred
Employee who, on the Closing Date, participates in the Seller Hourly Pension
Plan by virtue of his or her coverage under a collective bargaining agreement,
shall be
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calculated under terms of the Buyer Pension Plan that are substantially
identical in all material respects to the terms of the Seller Hourly Pension
Plan. The benefit for each Transferred Employee who, on the Closing Date,
participates in the Seller Salaried Pension Plan, shall not be less than the
greater of (x) the sum of the Transferred Employee's "Seller Pension" and "Buyer
Pension," or (y) the Transferred Employee's "Total Service Pension," each as
determined under the rules set forth in subsection (c)(iii) of this Section
11.2.1.
(B) Except as provided in paragraph (E), below,
each Transferred Employee who, as of the Closing Date, participates or formerly
participated in the Seller Salaried Pension Plan and who, under the terms of the
Seller Salaried Pension Plan, has at least 15 years of accredited service and
combined years of age and accredited service of at least 74 as of the Closing
Date shall be eligible, after the Transferred Employee's employment with the
Buyer and its Affiliates is terminated and after the Transferred Employee's
combined years of age and years of accredited service equal or exceed 76, to
receive his or her "Seller Pension" (as determined under the rules set forth in
subsection (c)(iii) of this Section 11.2.1) as an immediate early retirement
pension under the applicable Buyer Pension Plan in accordance with early
retirement provisions that are no less favorable to the Transferred Employee
than the early retirement provisions of the Seller Salaried Pension Plan as of
the Closing Date. For a period of at least five (5) years following the Closing
Date, the Buyer shall cause any agreement, pursuant to which the accrued benefit
of any Transferred Employee under a Buyer Pension Plan is transferred to another
pension plan, to incorporate a provision in substance identical to this
subsection (ii)( B).
(C) Except as provided in paragraph (E), below,
the benefit under the Buyer Pension Plan of a GATT Grandfathered Participant,
when expressed in the form of a lump sum, shall not be less than the benefit
under the Buyer Pension Plan determined without regard to the changes to Section
417 of the IRC made by the Uruguay Round Agreements Act. The method used to
convert a GATT Grandfathered Participant's accrued benefit into a lump-sum
amount under the Buyer Pension Plan after 1999 shall be not less favorable to a
GATT Grandfathered Participant than the method used for similar purposes by the
Seller Pension Plan. For purposes of this paragraph (c)(ii)(C), "GATT
Grandfathered Participant" shall mean a Transferred Employee (x) with respect to
whom liabilities are transferred pursuant to this subsection (c) and (y) who,
taking service from Buyer into account as service with Seller, would have been
eligible under the Seller Pension Plan, but for the transfer of liabilities
pursuant to this subsection (c), to have his benefit under the Seller Pension
Plan (when expressed in the form of a lump sum) determined without regard to the
changes to Section 417 of the IRC made by the Uruguay Round Agreements Act.
(D) Except as provided in paragraph (E), below,
each Transferred Employee who, as of the Closing Date, participates or formerly
participated in the Seller Hourly Pension Plan shall be eligible, after the
Transferred Employee's employment with Buyer and its Affiliates is terminated,
to receive an early retirement pension under the Buyer Pension Plan in
accordance with early retirement provisions that are no less favorable to the
Transferred Employee than the early retirement provisions of the Seller Hourly
Pension Plan as of the Closing Date.
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(E) Notwithstanding paragraphs (B), (C), and (D),
above, if the actuary for the Buyer Pension Plan certifies in writing (with a
copy to Seller) that the Buyer Pension Plan will violate the requirements
imposed by Treasury Regulation section 1.401(a)(4)-4 unless certain benefits
otherwise called for by such paragraphs are not provided by the Buyer Pension
Plan, Buyer shall cause such benefits to be provided under a nonqualified
deferred compensation plan, rather than under the Buyer Pension Plan, at the
same time and in the same form as they otherwise would have been provided under
the Buyer Pension Plan; provided that (1) such benefits shall be provided by the
Buyer Pension Plan to the maximum extent possible without causing the Buyer
Pension Plan to violate Treasury Regulation section 1.401(a)(4)-4; and (2) to
the extent that any benefit payable outside of the Buyer Pension Plan pursuant
to this paragraph (E) is payable to an individual who is not a member of a
"select group of management or highly compensated employees" within the meaning
of Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA, Buyer shall cause a cash
payment or payments to be made to each such individual within 24 months of the
termination of the individual's employment with Buyer, in addition to all other
payments due or otherwise payable to such individual, in an amount that is
reasonably calculated to be actuarially equivalent, on a pre-tax basis, to the
value of such benefit.
(iii) (A) The Buyer Pension Plan benefit of a
Transferred Employee who, on the Closing Date, participates in the Seller Hourly
Pension Plan by virtue of his or her coverage under a collective bargaining
agreement, shall be calculated as set forth in paragraph (c)(ii)(A) of this
Section 11.2.1.
(B) The Buyer Pension Plan benefit of a
Transferred Employee who, on the Closing Date, participates in the Seller
Salaried Pension Plan, shall be calculated by applying the benefit formula set
forth in paragraph (c)(ii)(A) of this Section 11.2.1, in accordance with the
rules described in the remainder of this paragraph (B). A Transferred Employee's
"Seller Pension" shall be calculated by applying the benefit formula under the
Seller Salaried Pension Plan (as in effect on the Closing Date) to the
Transferred Employee's service and compensation credited under the Seller
Salaried Pension Plan as of the Closing Date. A Transferred Employee's "Buyer
Pension" shall be not less than an amount calculated by applying the benefit
formula under the Buyer Pension Plan to the Transferred Employee's total
accredited service and compensation under the Buyer Pension Plan (including
service and compensation credited under the Seller Salaried Pension Plan as of
the Closing Date as if such service and compensation had been earned under the
Buyer Pension Plan and service and compensation credited under the Buyer Pension
Plan after the Closing Date), multiplied by the ratio of accredited service
earned after the Closing Date to such total accredited service; provided that
for a period of at least five (5) years following the Closing Date, Buyer shall
cause the benefit formula used in determining such "Buyer Pension" to provide
"section 411(d)(6)" benefits at least as valuable as were provided under the
benefit formula applicable to the Transferred Employee under the Seller Salaried
Pension Plan on the Closing Date. A Transferred Employee's "Total Service
Pension" shall be calculated by applying the benefit formula under the Buyer
Pension Plan (before its amendment to reflect the five (5) year inclusion of
Seller's formula) to the Transferred Employee's accredited service (including
service and compensation credited with the Seller under the Seller Salaried
Pension Plan as of the Closing Date as if such service and
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compensation was earned under the Buyer Pension Plan and service and
compensation credited under the Buyer Pension Plan on and after the Closing
Date). For purposes of computing a Transferred Employee's "Total Service
Pension," compensation received by such a Transferred Employee from the Seller
shall be treated as compensation received from the Buyer. The Seller Pension,
the Buyer Pension, and the Total Service Pension shall take into account the
Transferred Employee's actual age and entire period of service (including
service credited under the Seller Salaried Pension Plan as of the Closing Date
and service credited under the Buyer Pension Plan on and after the Closing Date)
for vesting and benefit eligibility purposes.
(C) Each Transferred Employee who is eligible to
receive a benefit under the Buyer Pension Plan may elect to receive the portion
of said benefit that is equal to the Seller Pension in any form, and with any
early retirement or other actuarial subsidy, that was available under the Seller
Pension Plan on the Closing Date, without regard to whether the Transferred
Employee is eligible to elect or receive, or does elect or receive, the same
form of payment or early retirement or actuarial subsidy for the remainder of
the pension under the Buyer Pension Plan.
(iv) Within sixty (60) days after the Closing Date,
Seller shall deliver to Buyer a list reflecting each Transferred Employee's
service and compensation under each of the Seller Pension Plans and each
Transferred Employee's accrued benefit thereunder as of the Closing Date.
(d) Transfer of Assets.
(i) In accordance with the provisions of subsection
(d)(i) of this Section 11.2.1 and subject to the provisions of subsection
(d)(vi) of this Section 11.2.1, Seller shall direct the trustee of the Seller
Pension Plans to transfer to the trustee or funding agent of the Buyer Pension
Plan the amount required to be transferred by Section 414(l) of the IRC and the
regulations thereunder for all Transferred Employees whose accrued benefits are
transferred to a Buyer Pension Plan pursuant to Section (c) of this Section
11.2.1, determined using the following assumptions (the "Pension Assets"):
Interest Rate: Rate used to value annuities under PBGC Regulation
ss. 4044.52(a)(1) for the month in which the Closing Date occurs
Annual Rate of Increase in Salaries: 0%
Annual Rate of Increase in Social Security Taxable Wage Base: 0%
Annual Rate of Increase in Consumer Price Index: 0%
Annual Rate of Increase in Limits on Benefits and Compensation: 0%
Mortality: Rates specified under PBGC Regulationss.4044.53(c)
Termination: None
Disability: None
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Retirement: Expected retirement age as specified under PBGC
Regulation ss. 4044.55
Lump Sums: None
All other demographic assumptions to match those used by Seller in
the preparation of financial statement disclosures under Statement
of Financial Accounting Standards No. 87 for the 1998 fiscal year.
In no event shall the amount of Pension Assets transferred be less
than the Projected Benefit Obligation associated with all the
liabilities being assumed in the aggregate in Section 11.2.1(c)
using the assumptions specified by Seller in the preparation of its
financial statement disclosures under Statement of Financial
Accounting Standards No. 87 for the 1998 fiscal year.
The Pension Assets shall be transferred in cash. Except in the case of an
arithmetical error in the calculation of the amount of Pension Assets to be
transferred, under no circumstances shall Seller or the Seller Pension Plans be
liable to transfer any additional amount to Buyer or a Buyer Pension Plan or any
other person in respect of the accrued benefits transferred to a Buyer Pension
Plan pursuant to Section (c) of this Section 11.2.1, including but not limited
to any circumstance under which any person (including a governmental agency)
states a claim to some portion or all of the Pension Assets.
(ii) Seller shall appoint an actuary ("Seller's
Actuary") to determine the amount to be transferred pursuant to subsection
(d)(i) of this Section 11.2.1 and shall provide such determination to Buyer,
together with a computer file containing all of the data used by Seller's
actuary to calculate Pension Assets, within ninety (90) days after the Closing
Date. Buyer shall appoint an actuary ("Buyer's Actuary") who shall have the
right to audit and review the determination made by Seller's Actuary. If Buyer's
Actuary is unable to agree with Seller's Actuary on the amount of the transfer
within ninety (90) days after Seller informs Buyer of the amount to be
transferred and provides Buyer with the computer file containing all of the data
used by Seller's actuary to calculate Pension Assets, Seller and Buyer shall
jointly select a third actuary, whose determination shall be binding on Seller
and Buyer. Each of Seller and Buyer shall bear the fees, costs and expenses of
their respective actuaries, and the fees, costs, and expenses of the third
actuary shall be borne one-half by Seller and one-half by Buyer.
(iii) Interest on the Pension Assets shall accrue from
the Closing Date to the actual date of transfer at the assumed discount rate
used in accordance with paragraph (i) of this Section (d); provided that any
Pension Assets that are distributed from the Seller Pension Plans before the
date of transfer pursuant to subsection (d)(vi) of this Section 11.2.1 shall be
credited with interest (such interest to be credited to the Buyer Pension Plans)
only from the Closing Date to the date of distribution.
(iv) Under the terms of each Buyer Pension Plan, the
accrued benefit of each Transferred Employee immediately after the transfer of
assets and liabilities pursuant to this Section 11.2.1 shall not be less than
the sum of each Transferred Employee's
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accrued benefits under the Seller Pension Plan and the Buyer Pension Plan
immediately before the transfer of assets and liabilities. Neither Seller nor
its Affiliates nor the Seller Pension Plans nor any trustee thereof shall retain
any liability for benefits under the Seller Pension Plans for any Transferred
Employee with respect to whom cash has been transferred to a Buyer Pension Plan
pursuant to this Section 11.2.1 or distributed pursuant to subsection (d)(vi) of
this Section 11.2.1.
(v) In connection with the transfer of assets and
liabilities pursuant to this Section 11.2.1, Seller and Buyer shall cooperate
with each other in making all appropriate filings required by the IRC or ERISA
and the regulations thereunder, and the transfer of assets and liabilities
pursuant to this Section 11.2.1 shall not take place until as soon as
practicable after the latest of (i) the expiration of the 30-day period
following the filing of any required notices with the IRS pursuant to Section
6058(b) of the IRC, or (ii) the date Buyer has delivered to Seller (xx) a copy
of the Buyer Pension Plan and a copy of the most recent determination letter
from the IRS to the effect that the Buyer Pension Plan is qualified under
Section 401(a) of the IRC, together with documentation reasonably satisfactory
to Seller of the due adoption of any amendments to the Buyer Pension Plan
required by the IRS as a condition to such qualification and a certification
from Buyer that no events have occurred that adversely affect the continued
validity of such determination letter (apart from the enactment of any Federal
law for which the remedial amendment period under Section 401(b) of the IRC has
not yet expired), and (yy) information enabling the enrolled actuary for the
Buyer Pension Plan to issue the certification required by Section 6058(b) of the
IRC.
(vi) (A) If, after the Closing Date and before the date
of transfer of assets and liabilities from the Seller Pension Plans pursuant to
this Section 11.2.1, the accrued benefit as of the Closing Date becomes payable
under a Seller Pension Plan to or with respect to a Transferred Employee, Buyer
shall (xx) furnish GTE Service Corporation with a copy of a properly completed
application for such benefits, and (yy) direct GTE Service Corporation to
instruct the trustee of the Seller Pension Plan to make benefit payments in the
form and amount determined by GTE Service Corporation in accordance with the
properly completed application for benefits. Seller shall cause GTE Service
Corporation to comply with any such direction.
(B) Notwithstanding anything herein to the
contrary, the assets and liabilities to be transferred from the trustee of the
Seller Pension Plans to the trustee or funding agent of the Buyer Pension Plan
pursuant to this Section 11.2.1 shall be reduced, as provided in this subsection
(vi), to reflect any benefit payments made pursuant to this subsection (vi)
regardless of the form in which paid and any expenses described in paragraph (B)
of this subsection (vi) that have not otherwise been paid pursuant to this
subsection (vi).
11.2.2 Savings Plans.
(a) As of the date of this Agreement, Seller participates in
the GTE Savings Plan and the GTE Hourly Savings Plan (collectively referred to
as the "Seller Savings Plans"). Except as provided in Section (g) of this
Section 11.2.2, Transferred Employees shall not be entitled to make
contributions to or to benefit from matching or other contributions under the
Seller Savings Plans on and after the Closing Date.
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(b) Buyer shall take all action necessary and appropriate to
ensure that, as soon as practicable after the Closing Date, Buyer maintains or
adopts one or more savings plans (hereinafter referred to in the aggregate as
the "Buyer Savings Plans" and individually as the "Buyer Savings Plan")
effective as of the Closing Date and to ensure that each Buyer Savings Plan
satisfies the following requirements as of the Closing Date: (i) the Buyer
Savings Plan is a qualified, single-employer individual account plan under
Section 401(a) of the IRC; (ii) the Buyer Savings Plan does not exclude
Transferred Employees from eligibility to participate therein; (iii) the Buyer
Savings Plan permits Transferred Employees to make before-tax contributions
(under Section 401(k) of the IRC) and provides for matching contributions by the
Buyer; and (iv) the Buyer Savings Plan does not violate the requirements of any
applicable collective bargaining agreement. Within the thirty (30) day period
immediately preceding any transfer of assets and liabilities from a Seller
Savings Plan to a Buyer Savings Plan pursuant to this Section 11.2.2, Buyer
shall provide Seller with a written certification, in a form acceptable to
Seller, that the Buyer Savings Plan satisfies each of the requirements set forth
in this Section (b).
(c) (i) Seller shall fully vest the Transferred Employees in
their account balances under the Seller Savings Plan as of the Closing Date and
shall direct the trustee of the Seller Savings Plans to transfer to the trustee
or funding agent of the Buyer Savings Plans an amount in cash equal in value to
the account balances of the Transferred Employees covered by the Seller Savings
Plans as of the date of the transfer; provided that to the extent the account
balances to be transferred consist in whole or in part of outstanding loans,
Seller shall direct the trustee of the Seller Savings Plans to transfer to the
trustee or funding agent of the Buyer Savings Plans, in lieu of cash, the
promissory notes and related documents evidencing such loans. Buyer and Seller
shall take such actions as may be required to effect the assignment of such
loans by the trustee of the Seller Savings Plan to the trustee or funding agent
of the Buyer Savings Plan, and Buyer shall cause the trustee or funding agent of
the Buyer Savings Plan to accept the assignment of such loans.
(ii) After the date of the transfer of assets and
liabilities pursuant to this Section 11.2.2, Buyer shall assume all liabilities
for the benefits payable to or with respect to such Transferred Employees under
the Seller Savings Plans, and Seller and the Seller Savings Plans and their
implementing trust shall retain no liability for such benefits.
(d) For purposes of eligibility and vesting under the Buyer
Savings Plans, each Transferred Employee shall be credited with service as of
the Closing Date as determined under the terms of the Seller Savings Plans. As
soon as practicable after the Closing Date, Seller shall cause GTE Service
Corporation to deliver to Buyer a list of the Transferred Employees covered by
the Seller Savings Plans, together with each Transferred Employee's service
under each of the Seller Savings Plans as of the Closing Date.
(e) In connection with the transfer of assets and liabilities
pursuant to this Section 11.2.2, Seller and Buyer shall cooperate with each
other in making all appropriate filings required by the IRC or ERISA and the
regulations thereunder, and the transfer of assets and liabilities pursuant to
this Section 11.2.2 shall not take place until as soon as practicable after the
latest of (i) the expiration of the thirty (30) day period following the filing
of any required notices with the IRS pursuant to Section 6058(b) of the IRC, and
(ii) the date Buyer has delivered to Seller (xx) a copy of the Buyer Savings
Plan and a copy of the most recent
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determination letter from the IRS to the effect that the Buyer Savings Plan is
qualified under Sections 401(a) and 401(k) of the IRC, together with
documentation reasonably satisfactory to Seller of the due adoption of any
amendments to the Buyer Savings Plan required by the IRS as a condition to such
qualification and a certification from Buyer that no events have occurred that
adversely affect the continued validity of such determination letter (apart from
the enactment of any Federal law for which the remedial amendment period under
Section 401(b) of the IRC has not yet expired).
(f) As of the Closing Date, Seller shall cause GTE Service
Corporation to deliver to Buyer a list of the Transferred Employees who have
outstanding loans under the Seller Savings Plans, together with copies of said
Transferred Employees' notes, disclosure statements, and security agreements
under the Seller Savings Plans. Seller shall also notify Buyer within thirty
(30) days after the Closing Date of any Transferred Employee who initiated a
loan within thirty (30) days before the Closing Date. Subject to obtaining the
consent of the applicable Transferred Employee if required by law, from the
Closing Date until the earliest of (i) the actual date of transfer of assets and
liabilities pursuant to this Section 11.2.2; (ii) the full amortization of the
Transferred Employee's indebtedness; (iii) the distribution of the entire
balance of the Transferred Employee's accounts; or (iv) the last date on which
Buyer or one of its Affiliates pays remuneration to the Transferred Employee,
Buyer or its Affiliate shall (x) continue the payroll deductions pursuant to
which each such Transferred Employee is discharging indebtedness to a Seller
Savings Plan and (y) remit the deducted funds to Fidelity Management Trust
Company, the trustee of the Seller Savings Plans, as soon as practicable, but in
no event more than thirty (30) days, after the date of deduction, together with
an accounting that identifies the Transferred Employees with respect to whom the
funds were deducted and the amount deducted for each Transferred Employee. All
such remitted funds shall be transferred to the appropriate Seller Savings Plan
and applied to reduce the appropriate Transferred Employee's outstanding
indebtedness. Buyer's obligations under this Section (f) are limited to payroll
deductions of loan repayments by the Transferred Employees and remittance of
those funds, and nothing herein shall be construed to obligate Buyer to repay to
Seller any portion of the outstanding indebtedness of the Transferred Employees
that are not otherwise discharged by the Transferred Employees themselves.
(g) Seller shall make all required matching contributions with
respect to the Transferred Employees' contributions made to the Seller Savings
Plan by the Transferred Employees in respect of the period ending on or before
the Closing Date in the year containing the Closing Date that would have been
eligible for matching contributions without regard to any continued service
(e.g., last day of the year employment or 1000 hours) requirements. Such
matching contributions shall be made not later than the date on which all other
matching contributions are made to the Seller Savings Plans with respect to
contributions made at the same time as the Transferred Employees' contributions.
For not less than five (5) calendar years following the Closing Date (including
the year in which the Closing occurs), Buyer shall, subject to applicable plan
qualification requirements, provide salaried Transferred Employees with a
matching contribution in the Buyer's Savings Plan equal to $.75 for each $1
contributed by Transferred Employees up to six percent (6%) of compensation (as
defined in Buyer's Savings Plan).
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11.2.3 Welfare Plans.
(a) Buyer shall take all action necessary and appropriate to
ensure that, as soon as practicable after the Closing Date, Buyer maintains or
adopts, as of the Closing Date, one or more employee welfare benefit plans,
including medical, health, dental, flexible spending account, accident, life,
short-term disability, and long-term disability and other employee welfare
benefit plans providing preretirement welfare benefits for the benefit of (i)
the non-bargained Transferred Employees (the "Non-union Welfare Plans") and (ii)
the union-represented Transferred Employees in accordance with the provisions of
applicable collective bargaining agreements (the "Bargained Welfare Plans"). The
Non-union Welfare Plans and the Bargained Welfare Plans are hereinafter referred
to collectively as the "Buyer Welfare Plans." The Buyer Welfare Plans shall
provide as of the Closing Date pre-retirement benefits to Transferred Employees
(and their dependents and beneficiaries) that, in the aggregate, are comparable
to the pre-retirement benefits to which they were entitled under the
corresponding employee welfare benefit plans maintained by Seller on the Closing
Date. For purposes of determining eligibility to participate in each Buyer
Welfare Plan, each Transferred Employee shall be credited with service,
determined under the terms of the corresponding welfare plans maintained by
Seller on the Closing Date (hereinafter referred to collectively as the "Seller
Welfare Plans"). Any restrictions on coverage for pre-existing conditions or
requirements for evidence of insurability under the Buyer Welfare Plans shall be
waived for Transferred Employees, and Transferred Employees shall receive credit
under the Buyer Welfare Plans for co-payments and payments under a deductible
limit made by them and for out-of-pocket maximums applicable to them during the
plan year of the Seller Welfare Plan in accordance with the corresponding Seller
Welfare Plans. As soon as practicable after the Closing Date, Seller shall
deliver to Buyer a list of the Transferred Employees who had credited service
under a Seller Welfare Plan, together with each such Transferred Employee's
service, co-payment amounts, and deductible and out-of-pocket limits under such
plan.
(b) (i) Except as otherwise provided in subsection (b)(ii) or
(b)(iii) of this Section (b) or in an applicable collective bargaining
agreement, Buyer shall provide or cause to be provided retiree medical, health,
and life benefits to each Transferred Employee (or the dependents or
beneficiaries of such Transferred Employee, as the case may be) under the same
terms and conditions as apply to comparable employees of Buyer, and Seller shall
have no obligation to provide retiree medical, health, and life benefits in
respect of any Transferred Employee on or after the Closing Date.
(ii) Subject to Section 11.4, below, following the
retirement from Buyer and its Affiliates or any successor thereof of a
Transferred Employee who is not subject to a collective bargaining agreement as
of the Closing Date, who has combined age and years of accredited service
(within the meaning of the Seller Pension Plan) as of the Closing Date equal to
at least 66, and who as of his or her retirement has combined age and years of
accredited service (within the meaning of the Seller Pension Plan) equal to at
least 76 and at least 15 years of accredited service (within the meaning of the
Seller Pension Plan) (a "Retired Nonunion Transferred Employee"), Seller shall
provide or cause to be provided to each such Retired Nonunion Transferred
Employee (and/or his or her dependents and beneficiaries) retiree medical,
health, and life benefits under terms and conditions that are substantially
identical to the terms
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and conditions under the corresponding programs offered by Seller to its
similarly situated noncollectively bargained employees retiring as of the
Closing Date; provided that nothing in this subsection (b)(ii) shall be
construed to prevent any Retired Nonunion Transferred Employee (or his or her
dependents or beneficiaries) from voluntarily relinquishing such benefits. For a
period of five (5) years following the retirement of each Retired Nonunion
Transferred Employee from Buyer and its Affiliates or any successor thereof,
Buyer shall reimburse Seller, in accordance with this subsection (b)(ii), for
the cost of the retiree medical, health, and life coverage for which Seller is
responsible and that Seller actually provides pursuant to this subsection
(b)(ii). The five (5) year time period for this reimbursement obligation shall
be determined separately in respect of each Retired Nonunion Transferred
Employee. For each year for which Buyer is required to reimburse Seller under
this subsection (b)(ii), Buyer shall pay Seller annually in arrears, within 30
days after Seller provides a statement therefor to Buyer, (A) $4,000 with
respect to each Retired Nonunion Transferred Employee who has not yet attained
age 65 during the year for which the payment is made and $4,000 with respect to
each spouse who is covered with respect to a Retired Nonunion Transferred
Employee and who has not yet attained age 65 during the year for which the
payment is made, and (B) $1,800 with respect to each Retired Nonunion
Transferred Employee who has attained at least age 65 during the year for which
the payment is made and $1,800 with respect to each spouse who is covered with
respect to a Retired Nonunion Transferred Employee and who has attained at least
age 65 during the year for which the payment is made. No reimbursement shall be
due with respect to any dependent, other than a spouse, covered with respect to
a Retired Nonunion Transferred Employee. The reimbursement obligation for
partial years shall be prorated based on the portion of the year covered by the
obligation. Each Retired Nonunion Transferred Employee (or his or her dependent
or beneficiary, as the case may be) who is provided benefits by Seller under
this subsection (b)(ii) shall be required to pay to Seller any premium,
contribution or other payment required under, and shall be subject to any
copayment or deductible required under, the terms of Seller's applicable retiree
medical, health, or life benefit plan; to the extent that any amount
constituting such a payment is deducted from any plan, program, or arrangement
maintained by Buyer or one of its Affiliates or is otherwise paid to Buyer or
one of its Affiliates by such person, Buyer shall cause such amount to be paid
to Seller as soon as administratively practicable.
(iii) In addition to any other benefits to be provided
pursuant to this Article XI, following the retirement from Buyer and its
Affiliates or any successor thereof of a Transferred Employee who is subject to
a collective bargaining agreement as of the Closing Date and who as of his or
her retirement has combined age and years of accredited service (within the
meaning of the Seller Pension Plan) equal to at least 76 and at least 15 years
of accredited service (within the meaning of the Seller Pension Plan) (a
"Retired Union Transferred Employee"), Buyer shall provide or cause to be
provided to each such Retired Union Transferred Employee (and/or his or her
dependents and beneficiaries) retiree medical, health, and life benefits, for a
period of at least five (5) years following the Closing Date, under terms and
conditions that are substantially identical to the terms and conditions under
the corresponding programs offered by Seller to its similarly situated
collectively bargained employees retiring as of the Closing Date. As of the date
of this Agreement, Seller maintains one or more voluntary employees' beneficiary
associations (within the meaning of Section 501(c)(9) of the IRC) to fund
retiree medical, health, and life benefits with respect to the Transferred
Employees who are subject to a collective bargaining agreement as of the Closing
Date (the "Seller VEBA"). Within
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90 days following the Closing Date, Seller shall direct the trustee of the
Seller VEBA to transfer an amount in cash from the Seller VEBA to the trustee of
one or more voluntary employees' beneficiary associations (within the meaning of
Section 501(c)(9) of the IRC) that Buyer maintains or shall cause to be
maintained to fund retiree medical, health, and life benefits with respect to
the Transferred Employees who are subject to a collective bargaining agreement
as of the Closing Date. The amount to be transferred pursuant to the preceding
sentence shall be equal, based on the actuarial assumptions set forth in
Schedule 11.2.3(b)(iii), to the aggregate Accumulated Postretirement Benefit
Obligation (as defined in Statement of Financial Accounting Standards No. 106)
as of the Closing Date (which shall be the actuarial assumptions used by seller
in developing the level of expense under Statement of Financial Accounting
Standards No. 106 for the 1999 fiscal year) attributable to retiree medical,
health, and life benefits for Transferred Employees who are subject to a
collective bargaining agreement as of the Closing Date.
(iv) Benefits provided pursuant to subsections (b)(ii)
and (b)(iii) of this Section (b) (including for this purpose, the determination
of who is eligible for such benefits) shall take into account service with Buyer
or any of its Affiliates on and after the Closing Date in the same manner as if
such post-Closing Date service was performed with Seller. Buyer shall provide
Seller with such information as shall be reasonably required to implement the
immediately preceding sentence with respect to subsection (b)(ii) of this
Section (b).
(c) Buyer shall refer to GTE Service Corporation and GTE
Service Corporation shall assume responsibility for any valid claim under a
Seller Welfare Plan for disability, medical, or dental benefits made by a
Transferred Employee on or after the Closing Date arising from a disability or
loss incurred on or before the Closing Date. Nothing in this Section 11.2.3
shall require Seller, any Affiliate of Seller, or the Seller Welfare Plans to
make any payment or to provide any benefit not otherwise provided by the terms
of the Seller Welfare Plans.
(d) Seller, Buyer, their respective Affiliates, and the Seller
Welfare Plans and the Buyer Welfare Plans shall assist and cooperate with each
other in the disposition of claims made under the Seller Welfare Plans pursuant
to subsection (c) of this Section 11.2.3, and in providing each other with any
records, documents, or other information within its control or to which it has
access that is reasonably requested by any other as necessary or appropriate to
the disposition, settlement, or defense of such claims.
(e) Except as otherwise provided in Section 11.2.3(b)(iii) or
in Section 11.2.3(f), nothing in this Agreement shall require Seller or its
Affiliates to transfer assets or reserves with respect to the Seller Welfare
Plans to Buyer or the Buyer Welfare Plans.
(f) Seller will make available to Buyer, prior to the Closing
Date, a list of those Transferred Employees that have participated in the health
or dependent care reimbursement accounts of Seller under the GTE Flexible
Reimbursement Plan (the "FRP"), together with the elections made prior to the
Closing Date with respect to such accounts through the Closing Date, any
balances standing to the credit of Transferred Employees, and the corresponding
amounts being transferred to the corresponding Buyer's plan in accordance with
the following sentence. As of the Closing Date, Seller shall cause the portion
of the FRP
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applicable to Transferred Employees to be segregated into a separate component
and all account balances of the Transferred Employees in the FRP shall be
transferred to a flexible reimbursement plan that Buyer shall cause to be
maintained for the duration of the calendar year in which the Closing Date
occurs.
(g) On and for a period of at least three (3) years after the
Closing Date, Transferred Employees not subject to a collective bargaining
agreement shall be eligible for benefits under a Buyer severance or separation
pay policy or plans that are the same as or comparable to the severance or
separation pay policy benefits that are provided by Seller (or the applicable
Affiliate, if the Transferred Employee is employed by an employer other than the
Seller) or a Seller Pension Plan as of the Closing Date. Buyer shall recognize
the service of each such Transferred Employee with Seller and its Affiliates for
eligibility, vesting, and benefit determinations under the Buyer severance or
separation pay policy or plan. Transferred Employees subject to a collective
bargaining agreement shall be eligible for severance or separation pay benefits
in accordance with the terms of the applicable collective bargaining agreement.
11.3 Miscellaneous Benefits.
11.3.1 Vacation.
(a) On or after the Closing Date, Buyer shall allow
Transferred Employees to receive paid time off in the calendar year of the
Closing for any unused vacation time accrued prior to the Closing Date. Seller
and its Affiliates shall have no liability to Transferred Employees for the
vacation payments described in this Section 11.3.1. Seller shall pay Transferred
Employees any banked vacation on or before the Closing Date. Schedule 11.3.1 to
be prepared by Seller and submitted to Buyer on or before the Closing Date shall
list the accrued but unused vacation pay, as of the Closing Date, of each
Transferred Employee for the calendar year in which the Closing Date occurs.
(b) For purposes of determining a Transferred Employee's
eligibility for vacation under Buyer's vacation plan, a Transferred Employee
shall be credited, as of the first day of the first calendar year that begins
after the calendar year in which the Closing Date occurs, with service for the
calendar year in which the Closing Date occurs in an amount equal to the
aggregate of the Transferred Employee's service with both Seller and Buyer
during the calendar year in which the Closing Date occurs.
11.3.2 Transferred Employee Statements. Within sixty (60) days after
the Closing Date, Seller shall prepare and distribute to all Transferred
Employees an accurate and complete statement of their accrued benefits under
Seller's Pension Plans as of the Closing Date and shall provide Buyer with a
true and complete copy of the same. Such statements shall be sufficiently
detailed to readily permit Buyer and the Transferred Employees to determine the
accuracy thereof.
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11.4 Employee Rights.
Nothing herein expressed or implied shall confer upon any employee
of Seller or its Affiliates, or Buyer or its Affiliates, or upon any legal
representative of such employee, or upon any collective bargaining agent, any
rights or remedies, including any right to employment or continued employment
for any specified period, of any nature or kind whatsoever under or by reason of
this Agreement.
Nothing in this Agreement shall be deemed to confer upon any person
(nor any beneficiary thereof) any rights under or with respect to any plan,
program, or arrangement described in or contemplated by this Agreement, and each
person (and any beneficiary thereof) shall be entitled to look only to the
express terms of any such plan, program, or arrangement for his or her rights
thereunder.
Nothing in this Agreement shall cause Buyer or its Affiliates, nor
Seller or its Affiliates to have any obligation to provide employment or any
employee benefits to any individual who is not a Transferred Employee or, except
as otherwise provided in Section 11.1.2 with respect to employment agreements,
to continue to employ any Transferred Employee for any period of time following
the Closing Date.
11.5 WARN Act Requirements.
On and after the Closing Date, Buyer shall be responsible with
respect to Transferred Employees and their beneficiaries for compliance with the
Worker Adjustment and Retraining Notification Act of 1988 and any other
applicable law, including any requirement to provide for and discharge any and
all notifications, benefits, and liabilities to Transferred Employees and
government agencies that might be imposed as a result of the consummation of the
transactions contemplated by this Agreement or otherwise.
11.6 Indemnification.
11.6.1 Indemnification of Seller. Notwithstanding anything to the
contrary in Article 12 of this Agreement, Buyer shall indemnify and hold
harmless Seller, its Affiliates, and their respective directors, officers,
employees, agents, and assigns, and each employee benefit plan or arrangement
maintained or contributed to by Seller or an Affiliate thereof (whether or not
such plan or arrangement is an "employee benefit plan" within the meaning of
Section 3(3) of ERISA) and its administrators, fiduciaries, and agents, from and
against any and all claims, demands, actions, administrative or other
proceedings, causes of action, liability, loss, cost, damage, and expense
(including reasonable attorneys' fees) (i) in any way arising out of or incurred
as a result of any action by Buyer, its Affiliates, their respective directors,
officers, employees, or agents, the administrators or fiduciaries of any
employee benefit plan maintained or contributed to by Buyer or an Affiliate
thereof (whether or not such plan or arrangement is an "employee benefit plan"
within the meaning of Section 3(3) of ERISA), or any of their successors, except
as otherwise expressly permitted under this Agreement, to change, reduce
contributions to, terminate, fail to continue, fail to pay benefits under, or
fail to manage or administer properly any employee benefit plan or arrangement
(whether or not such plan or arrangement is an "employee benefit plan" within
the meaning of Section 3(3) of ERISA) on or
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after the Closing Date, or (ii) in any way arising out of or incurred as a
result of any action that is a breach of any the covenants, representations,
warranties, or obligations of any such person under this Agreement.
11.6.2 Indemnification of Buyer. Notwithstanding anything to the
contrary in Article 12 of the Agreement, Seller shall indemnify and hold
harmless Buyer, its Affiliates, and their respective directors, officers,
employees, agents, and assigns, and each employee benefit plan or arrangement
maintained or contributed to by Buyer or an Affiliate thereof (whether or not
such plan or arrangement is an "employee benefit plan" within the meaning of
Section 3(3) of ERISA) and its administrators, fiduciaries, and agents, from and
against any and all claims, demands, actions, administrative or other
proceedings, causes of action, liability, loss, cost, damage, and expense
(including reasonable attorneys' fees) (i) in any way arising out of or incurred
as a result of any action by Seller, its Affiliates, their respective directors,
officers, employees, or agents, the administrators or fiduciaries of any
employee benefit plan maintained or contributed to by Seller or an Affiliate
thereof (whether or not such plan or arrangement is an "employee benefit plan"
within the meaning of Section 3(3) of ERISA), or any of their successors, to
fail to pay benefits under, or fail to manage or administer properly any
employee benefit plan or arrangement (whether or not such plan or arrangement is
an "employee benefit plan" within the meaning of Section 3(3) of ERISA) before
the Closing Date, or (ii) in any way arising out of or incurred as a result of
any action that is a breach of any the covenants, representations, warranties,
or obligations of any such person under this Agreement.
ARTICLE 12
INDEMNIFICATION
12.1 Survival of Representations. Warranties and Covenants.
(a) The representations and warranties contained in Sections
8.1.6 and 8.2.6 will survive the Closing and remain in full force and effect
indefinitely. Each of the other representations and warranties contained in
Article 8 will terminate, without further action, on the date which is fifteen
(15) months following the Closing Date (the "Expiration Date").
(b) This Article 12 shall survive any termination of this
Agreement and the Ancillary Agreements and the indemnification contained in this
Article 12 shall survive the Closing and shall remain in effect (i)
indefinitely, with respect to any Indemnifiable Claim related to the breach of
any representation or warranty which pursuant to Section 12.1(a) survives
indefinitely, (ii) indefinitely or for the applicable period of performance for
such covenant (provided that in the case of covenants, the Indemnitee shall have
60 days after the end of such performance period to provide notice to the
Indemnifying Party of a claim for indemnification arising during the performance
period), with respect to any Indemnifiable Claim arising under Section
12.2(a)(ii)(B) (post closing covenants), (iii) indefinitely, with respect to any
Indemnifiable Claim arising under Section 12.2(a)(iii) (Retained Liabilities) or
12.2(b)(iii) (Assumed Liabilities), and (iv) until the Expiration Date for any
Indemnifiable Claims that are not specified in any of the preceding clauses.
Unless a claim for indemnification with respect to any alleged breach of any
representation or warranty is asserted by notice given as herein provided that
specifically identifies a particular breach and the underlying facts relating
thereto, which notice is given within the applicable period of survival for such
representation or
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warranty, such claim may not be pursued and is irrevocably waived after such
time. Without limiting the generality or effect of the foregoing, no claim for
indemnification with respect to any representation or warranty will be deemed to
have been properly made except (i) to the extent it is based upon a Third Party
Claim made or brought prior to the expiration of the survival period for such
representation or warranty, or (ii) to the extent based on Indemnifiable Losses
actually incurred by an Indemnitee prior to the expiration of the survival
period for such representation or warranty.
12.2 Indemnification.
(a) Following the Closing and subject to the other sections of
this Article 12, Seller will indemnify, defend and hold harmless Buyer and its
Affiliates and their respective directors, officers, and agents from and against
all Indemnifiable Losses relating to, resulting from or arising out of (i) any
inaccuracy in any of the representations and warranties made by Seller in
Section 8.1 of this Agreement, (ii) a breach by Seller of any covenant of Seller
contained in this Agreement, which covenant requires performance by Seller (A)
prior to or at the Closing, or (B) after the Closing, and (iii) any of the
Retained Liabilities.
(b) Following the Closing and subject to the other sections of
this Article 12, Buyer will indemnify, defend and hold harmless Seller and its
Affiliates and their respective directors, officers, and agents from and against
all Indemnifiable Losses relating to, resulting from or arising out of (i) any
inaccuracy in any of the representations or warranties made by Buyer in Section
8.2 of this Agreement, (ii) a breach by Buyer of any covenant of Buyer contained
in this Agreement, which covenant requires performance by Buyer prior to, at or
after the Closing, and (iii) any of the Assumed Liabilities.
(c) Payments made under this Section 12.2 shall be treated by
Buyer and Seller as purchase price adjustments and Buyer and Seller shall file
all Tax Returns consistent with such treatment. Notwithstanding anything to the
contrary contained herein, neither party shall be indemnified or reimbursed for
any Tax consequences arising from the receipt or accrual of an indemnity payment
hereunder including any Tax consequences arising from adjustments to the basis
of any asset resulting from an adjustment to the Purchase Price or any
additional or reduced taxes resulting from any such basis adjustment.
(d) In the event that a claim against an Indemnifying Party
arises under both Section 12.2(a)(i) and Section 12.2(a)(ii), or under both
Section 12.2(b)(i) and Section 12.2(b)(ii), then the Indemnitee's rights to
pursue its claim under Section 12.2(a)(ii) or Section 12.29b)(ii), as
applicable, will exist notwithstanding the provisions of Section 12.3(d).
(e) In the event that a claim against an Indemnifying Party
arises under both Section 12.2(a)(i) and Section 12.2(a)(iii), or under both
Section 12.2(b)(i) and Section 12.2(b)(iii), then the Indemnitee's rights to
pursue the claim under Section 12.2(a)(iii) or Section 12.2(b)(iii), as
applicable, will exist notwithstanding the provisions of Sections 12.3(d).
(f) In the event a claim against an Indemnifying Party arisses
under both Section 12.2(a)(ii) and 12.2(a)(iii), or under both Section
12.2(b)(ii) and 12.2(b)(iii), then
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the Indemnitee's rights to pursue the claim under Section 12.2(a)(iii) or
Section 12.2(b)(iii), as applicable, will exist notwithstanding the provisions
of Section 12.3(d).
12.3 Limitations on Liability.
(a) For purposes of this Agreement, (i) "Indemnification
Payment" means any amount of Indemnifiable Losses required to be paid pursuant
to this Agreement, (ii) "Indemnitee" means any person or entity entitled to
indemnification under this Agreement, (iii) "Indemnifying Party" means any
person or entity required to provide indemnification under this Agreement, and
(iv) "Indemnifiable Losses" means any losses, liabilities, damages, costs and
expenses (including reasonable attorneys' fees and expenses) actually incurred
in connection with any actions, suits, demands, assessments, judgments and
settlements, in any such case (x) reduced by the amount of insurance proceeds
recovered from any person or entity with respect thereto, and (y) excluding any
such losses, liabilities damages, costs and expenses to the extent that the
underlying liability or obligation is the result of any action taken or omitted
to be taken by any Indemnitee.
(b) Notwithstanding anything to the contrary contained in this
Agreement, if the Closing occurs, (i) no claim for indemnification may be
asserted under Section 12.2(a) with respect to any matter discovered by or known
to Buyer on or before the date of this Agreement, or after the date of this
Agreement and on or before the Closing Date to the extent that Buyer has not
provided timely notice to Seller of the existence of such claim in accordance
with Section 10.2, and (ii) no claim for indemnification may be asserted under
Section 12.2(b) with respect to any matter discovered by or known to Seller on
or before the Closing Date.
(c) As between Seller and any Affiliate of Seller, on the one
hand, and Buyer and any Affiliate of Buyer, on the other hand, the remedies,
rights and obligations set forth in this Article 12, Sections 10.1.2, 11.2.2,
11.6, 13.3 and the Ancillary Agreements will be the exclusive remedies, rights
and obligations with respect to the liabilities and obligations referred to in
Section 12.2 and any breach of the representations, warranties or covenants set
forth in this Agreement. Without limiting the foregoing, as a material
inducement to entering into this Agreement, to the fullest extent permitted by
law, each of the parties waives any claim or cause of action that it otherwise
might assert, and any breach of the representations, warranties or covenants set
forth in this Agreement, except for claims or causes of action brought under and
subject to the terms and conditions of this Article 12 and Sections 10.1.2, 11.6
and 13.3 or any Indemnifiable Losses arising out of actual fraud.
(d) Notwithstanding any other provision of this Agreement or
of any applicable Law, no Indemnitee will be entitled to make a claim against an
Indemnifying Party under Sections 11.2.2, 11.6, 12.2(a)(i) or 12.2(b)(i) until:
(i) the aggregate amount of Indemnifiable Losses
incurred by the Indemnitee for any individual occurrence or related series of
occurrences giving rise to such Indemnifiable Losses exceeds $25,000, and
(ii) the aggregate amount of claims that may be asserted
for such Indemnifiable Losses pursuant to Section 12.3(d)(i) exceeds an amount
equal to 2% of the
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Purchase Price, but only to the extent such amount, if any, (a) exceeds an
amount equal to 2% of the Purchase Price and (b) is less than the amount set
forth in Section 12.3(e).
(e) Notwithstanding any other provision of this
Agreement, the indemnification obligations of Seller under Section 12.2(a)
(except with respect to indemnification for inaccuracies of the representations
contained in Sections 8.1.1 through 8.1.6) or the indemnification obligation of
Buyer under Section 12.2(b) will not exceed the amount of an amount equal to
6.5% of the Purchase Price respectively.
(f) No Indemnifying Party shall be liable to or
obligated to indemnify any Indemnitee hereunder for any consequential, special,
multiple, punitive or exemplary damages including, but not limited to, damages
arising from loss or interruption of business, profits, business opportunities
or goodwill, loss of use of facilities, loss of capital, claims of customers, or
any cost or expense related thereto, except to the extent such damages have been
recovered by a third person and are the subject of a Third Party Claim for which
indemnification is available under the express terms of this Section 12.
(g) Seller and Buyer shall cooperate with each other
with respect to resolving any claim or liability with respect to which one party
is obligated to indemnify the other party hereunder, including by making
commercially reasonable efforts to mitigate or resolve any such claim or
liability.
12.4 Defense of Claims.
(a) If any Indemnitee receives notice of the assertion
of any claim or of the commencement of any action or proceeding by any entity
that is not a party to this Agreement or an Affiliate of such a party (a "Third
Party Claim") against such Indemnitee, with respect to which an Indemnifying
Party is obligated to provide indemnification under this Agreement, the
Indemnitee will give such Indemnifying Party reasonably prompt written notice
thereof, but in any event not later than ten (10) calendar days after receipt of
notice of such Third Party Claim; provided, however, that the failure of the
Indemnitee to notify the Indemnifying Party shall only relieve the Indemnifying
Party from its obligation to indemnify the Indemnitee pursuant to this Article
12 to the extent that the Indemnifying Party is materially prejudiced by such
failure (whether as a result of the forfeiture of substantive rights or defenses
or otherwise). Upon receipt of notification of a Third Party Claim, the
Indemnifying Party shall be entitled, upon written notice to the Indemnitee, to
assume the investigation and defense thereof with counsel reasonably
satisfactory to the Indemnitee. Whether or not the Indemnifying Party elects to
assume the investigation and defense of any Third Party Claim, the Indemnitee
shall have the right to employ separate counsel and to participate in the
investigation and defense thereof; provided, however, that the Indemnitee shall
pay the fees and disbursements of such separate counsel unless (i) the
employment of such separate counsel has been specifically authorized in writing
by the Indemnifying Party, (ii) the Indemnifying Party has failed to assume the
defense of such Third Party Claim within reasonable time after receipt of notice
thereof with counsel reasonably satisfactory to such Indemnitee, or (iii) the
named parties to the proceeding in which such claim, demand, action or cause of
action has been asserted include both the Indemnifying Party and such Indemnitee
and, in the reasonable judgment of counsel to such Indemnitee, there exists one
or more defenses that may be available to the Indemnitee that are in conflict
with those
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available to the Indemnifying Party. Notwithstanding the foregoing, the
Indemnifying Party shall not be liable for the fees and disbursements of more
than one counsel for all Indemnified Parties in connection with any one
proceeding or any similar or related proceedings arising from the same general
allegations or circumstances. Without the prior written consent of the
Indemnitee, the Indemnifying Party will not enter into any settlement of any
Third Party Claim that would lead to liability or create any financial or other
obligation on the part of the Indemnitee unless such settlement includes as an
unconditional term thereof the release of the Indemnitee from all liability in
respect of such Third Party Claim. If a settlement offer solely for money
damages is made by the applicable third party claimant, and the Indemnifying
Party notifies the Indemnitee in writing of the Indemnifying Party's willingness
to accept the settlement offer and pay the amount called for by such offer
without reservation of any rights or defenses against the Indemnitee, the
Indemnitee may continue to contest such claim, free of any participation by the
Indemnifying Party, and the amount of any ultimate liability with respect to
such Third Party Claim that the Indemnifying Party has an obligation to pay
hereunder shall be limited to the lesser of (A) the amount of the settlement
offer that the Indemnitee declined to accept plus the Losses of the Indemnitee
relating to such Third Party Claim through the date of its rejection of the
settlement offer or (B) the aggregate Losses of the Indemnitee with respect to
such claim.
(b) Any claim by an Indemnitee on account of an
Indemnifiable Loss that does not result from a Third Party Claim (a "Direct
Claim") will be asserted by giving the Indemnifying Party reasonably prompt
written notice thereof, but in any event not later than thirty (30) calendar
days after an Executive Officer of the Indemnitee becomes actually aware of the
incurrence thereof, and the Indemnifying Party will have a period of thirty (30)
calendar days within which to respond in writing to such Direct Claim. If the
Indemnifying Party does not so respond within such thirty (30) calendar day
period, the Indemnifying Party will be deemed to have rejected such claim, in
which event the Indemnitee will be free to pursue such remedies as may be
available to the Indemnitee on the terms and subject to the provisions of this
Article 12.
(c) If after the making of any Indemnification Payment
the amount of the Indemnifiable Loss to which such payment relates is reduced by
recovery, settlement or otherwise under any insurance coverage, or pursuant to
any claim, recovery, settlement or payment by or against any other entity, the
amount of such reduction (less any costs, expenses, premiums or taxes incurred
in connection therewith) will promptly be repaid by the Indemnitee to the
Indemnifying Party. Upon making any Indemnification Payment, the Indemnifying
Party will, to the extent of such Indemnification Payment, be subrogated to all
rights of the Indemnitee against any third party that is not an Affiliate of the
Indemnitee in respect of the Indemnifiable Loss to which the Indemnification
Payment relates; provided that (i) the Indemnifying Party shall then be in
compliance with its obligations under this Agreement in respect of such
Indemnifiable Loss, and (ii) until the Indemnitee recovers full payment of its
Indemnifiable Loss, all claims of the Indemnifying Party against any such third
party on account of said Indemnification Payment will be subrogated and
subordinated in right of payment to the Indemnitee's rights against such third
party. Without limiting the generality or effect of any other provision of this
Article 12, each such Indemnitee and Indemnifying Party will duly execute upon
request all instruments reasonably necessary to evidence and perfect the
above-described subrogation and subordination rights.
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12.5 No Indemnifiable Claims Resulting From Governmental Authority Action.
Buyer has no indemnifiable or otherwise compensable claim that any of Seller's
representations or warranties in Section 8.1 (other than Sections 8.1.4(b),
8.1.15 and 8.1.25) is inaccurate, or that any covenant has been breached, to the
extent that such claim is predicated on any action by the FCC or PSC undertaken
after Closing or any action the FCC or PSC requires Seller to undertake after
Closing. Buyer may only bring such a claim to the extent that its basis is
independent of any such FCC or PSC action.
ARTICLE 13
TERMINATION
13.1 Termination Rights. This Agreement may be terminated at any time
prior to the Closing Date:
(a) at any time by mutual written consent of the parties;
(b) by Buyer if any of the conditions provided in Section 6.1
of this Agreement have not been met within eighteen (18) months after execution
of this Agreement and have not been waived by Buyer;
(c) by Seller if any of the conditions provided in Section 6.2
of this Agreement have not been met within eighteen (18) months after execution
of this Agreement and have not been waived by Seller;
(d) by Seller if any obligations of Buyer provided in Article
3 become incapable of being fulfilled; or
(e) by either party immediately upon written notice to the
other party if any Governmental Authority issues an order forbidding or
enjoining the consummation of the transaction contemplated hereby and such order
has become final and non-appealable.
13.2 Goodfaith Performance. Neither party shall be entitled to exercise
any right of termination pursuant to subsection 13.1(b), (c) or (d) above if
such party shall not have performed diligently and in good faith the obligations
required to be performed by such party hereunder prior to the date of
termination.
13.3 Effect of Termination.
(a) If this Agreement is terminated as a result of a Material
Adverse Effect or Section 13.1(a), this Agreement shall be of no further force
and effect and there shall be no further liability hereunder (except the
obligations under the Confidentiality Agreement and the liability for breach of
such obligations) on the part of either party or their respective Affiliates,
directors, officers, shareholders, agents or other representatives.
(b) If this Agreement is terminated by Buyer pursuant to
Section 13.1(b), this Agreement shall be of no further force and effect and
there shall be no further obligations or liability hereunder (except the
obligations under the Confidentiality Agreement and the liability for breach of
such obligations) on the part of either party or their respective
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Affiliates, directors, officers, shareholders, agents or other representatives;
provided, however, that no such termination shall relieve Seller of liability
for any claims, damages or losses suffered by Buyer as a result of the negligent
or willful failure of Seller to perform any obligations required to be performed
by it hereunder on or prior to the date of termination. Notwithstanding anything
herein to the contrary, in no event shall the any act or omission of Seller in
connection with the Merger be deemed to be a breach of the terms and conditions
of this Agreement for purposes of this Section 13.3(b).
(c) If this Agreement is terminated by Seller pursuant to
Section 13.1(c) or (d), this Agreement shall be of no further force and effect
and there shall be no further obligations or liability hereunder (except the
obligations under the Confidentiality Agreement and the liability for breach of
such obligations) on the part of either party or their respective Affiliates,
directors, officers, shareholders, agents or other representatives; provided,
however, that in the event such termination is the result of the breach by Buyer
of any of its obligations required to be performed by it hereunder on or prior
to the date of termination, and Buyer has failed to cure such non-performance
within a reasonable period after notice from Seller, then Buyer shall pay to
Seller liquidated damages in an amount equal to ten (10) percent of the Purchase
Price. Such liquidated damages amount is designed to compensate Seller for its
lost opportunity costs and reliance damages caused by such termination. Buyer
shall promptly pay such amount to Seller in immediately available funds
following such termination.
(d) Upon any termination of the Agreement, each of the parties
shall promptly comply with the obligations of the Confidentiality Agreement
regarding return or destruction of Evaluation Material of the other party.
(e) Notwithstanding anything to the contrary contained herein,
the provisions of this Section 13.3 and of Sections 14.1, 14.2, 14.3, 14.8,
14.11, 14.13 and 14.14, shall survive any termination of this Agreement.
ARTICLE 14
MISCELLANEOUS
14.1 Notices. All notices and other communications required or permitted
hereunder shall be in writing and, unless otherwise provided in this Agreement,
will be deemed to have been given when delivered in person or dispatched by
electronic facsimile transfer (confirmed in writing by certified mail,
concurrently dispatched) or one business day after having been dispatched for
next-day delivery by a nationally recognized overnight courier service to the
appropriate party at the address specified below:
(a) If to Buyer, to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06905
Attention: Donald P. Weinstein
Facsimile No.: (203) 614-4625
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With a copy to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06905
Attention: L. Russell Mitten, II, Esq.
Facsimile No.: (203) 614-4625
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention: Jeffry L. Hardin, Esq.
Facsimile No.: (202) 387-3467
(b) If to Seller, to:
William M. Edwards, III
Vice President - Property Repositioning
600 Hidden Ridge, HQE02J27
Irving, TX 75038
Facsimile No. (972) 719-7062
With a copy to:
Dale R. Chamberlain
Legal Counsel - Property Repositioning
600 Hidden Ridge, HQE02J34
Irving, TX 75038
Facsimile No. (972) 719-7162
or to such other address or addresses as any such party may from
time to time designate for itself by like notice.
14.2 Information Releases. The parties shall consult with each other (and
allow the other party notice, and a reasonable time to comment) in preparing any
employee announcement, press release, public announcement, news media response
or other form of release of information concerning this Agreement or the
transactions contemplated hereby that is intended to provide such information to
the employees generally, news media or the public. Neither party shall issue or
cause the publication of any press release, public announcement or media
response without the prior written consent of the other party; provided,
however, that, after allowing the other party notice and a reasonable time to
comment prior to issuance, nothing herein will prohibit either party from making
an employee announcement, or issuing or causing publication of any press
release, public announcement or media response to the extent that such action is
required by applicable Law or the rules of any national stock exchange
applicable to such party or its Affiliates.
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14.3 Expenses. Whether or not the transactions contemplated hereby are
consummated and except as otherwise expressly provided herein, each party will
pay any expenses (including attorneys' fees) incurred by it incidental to this
Agreement and in consummating the transactions provided for herein.
14.4 Successors and Assigns. This Agreement will be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns, but is not assignable or delegable by any party without the
prior written consent of the other party; provided, that (a) Seller may assign
this Agreement to an Affiliate of Seller without the consent of Buyer including,
on and after the closing of the Merger, the ultimate parent entity of the
successor corporation to such merger or any entity controlled thereby; and (b)
Buyer may assign this Agreement, without the prior written consent of Seller, to
any directly or indirectly wholly owned subsidiary of Buyer provided such
subsidiary assumes in writing all the duties and obligations of Buyer hereunder.
No such assignment by Buyer shall in any way operate to enlarge, alter or change
any obligation due to Seller or relieve Buyer of its obligations hereunder if
such subsidiary fails to perform such obligations, with the understanding that
Buyer shall be jointly and severally liable with such subsidiary for any
non-performance of Buyer's obligations hereunder.
14.5 Amendments. This Agreement may be amended or modified only by a
subsequent writing signed by authorized representatives of both parties.
14.6 Captions. The captions set forth in this Agreement are for
convenience only and shall not be considered as part of this Agreement, nor as
in any way limiting or amplifying the terms and provisions hereof.
14.7 Entire Agreement. The term " Agreement" shall mean collectively this
document, the Schedules hereto and any agreements expressly incorporated herein.
This Agreement supersedes and revokes any prior discussions and representations,
other agreements, commitments, arrangements or understandings of any sort
whatsoever, whether oral or written, that may have been made or entered into by
the parties relating to the matters contemplated hereby. This Agreement, the
Confidentiality Agreement and the Ancillary Documents constitute the entire
agreement by and among the parties with respect to the subject matter hereof,
and there are no representations, warranties, agreements, commitments,
arrangements or understandings except as expressly set forth herein.
14.8 Waiver. Except as otherwise expressly provided in this Agreement,
neither the failure nor any delay on the part of any party to exercise any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise or waiver of any such right, power or privilege
preclude any other or further exercise thereof, or the exercise of any other
right, power or privilege available to each party at law or in equity.
14.9 Third Parties. Except as expressly provided herein, nothing contained
in this Agreement is intended to confer upon any Person, other than the parties
hereto and their successors and permitted assigns, any rights or remedies under
or by reason of this Agreement.
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14.10 Counterparts. This Agreement may be executed in two or more
counterparts, any or all of which shall constitute one and the same instrument.
14.11 Governing Law. This Agreement and the Ancillary Agreements shall in
all respects be governed by and construed in accordance with the laws of the
State of New York (except that no effect shall be given to any conflicts of law
principles of the State of New York that would require the application of the
laws of any other jurisdiction). The parties irrevocably submit to the exclusive
jurisdiction of any New York State Court or any Federal Court located in the
borough of Manhattan in the City of New York for purposes of any suit, action or
other proceeding arising out of this Agreement, the Ancillary Agreements or any
transaction contemplated hereby or thereby. The parties agree that service of
process, summons or notice or document by U.S. registered mail to such party's
respective address set forth in Section 14.1 shall be effective service of
process for any action, suit or proceeding in New York with respect to any
matters to which it has submitted to jurisdiction as set forth above in the
immediately preceding sentence. The parties hereto irrevocably and
unconditionally waive trial by jury in any legal action or proceeding relating
to this Agreement or any other agreement entered into in connection therewith
and for any counterclaim with respect thereto. In the event of any breach of the
provisions of this Agreement or any other agreement entered into in connection
therewith, the non-breaching party shall be entitled to equitable relief,
including in the form of injunctions and orders for specific performance, where
the applicable legal standards for such relief in such courts are met, in
addition to all other remedies available to the non-breaching party with respect
thereto at law or in equity.
14.12 Further Assurances. From time to time, as and when requested by one
of the parties, the other party will use its commercially reasonable efforts to
execute and deliver, or cause to be executed and delivered, all such documents
and instruments as may be reasonably necessary or appropriate, in the reasonable
opinion of counsel for Seller and Buyer, to consummate and make effective the
transactions contemplated by this Agreement.
14.13 Severability. If any provision of this Agreement is determined to be
invalid, illegal or unenforceable by any Governmental Authority, the remaining
provisions of this Agreement to the extent permitted by Law shall remain in full
force and effect provided that the essential terms and conditions of this
Agreement for both parties remain valid, binding and enforceable and provided
that the economic and legal substance of the transactions contemplated is not
affected in any manner materially adverse to any party. In the event of any such
determination, the parties agree to negotiate in good faith to modify this
Agreement to fulfill as closely as possible the original intents and purposes
hereof. To the extent permitted by Law, the parties hereby to the same extent
waive any provision of Law that renders any provision hereof prohibited or
unenforceable in any respect.
14.14 Representation by Counsel; Interpretation. Seller and Buyer each
acknowledge that each party to this Agreement has been represented by counsel in
connection with this Agreement and the transactions contemplated by this
Agreement. Accordingly, any rule of Law or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement against the party
that drafted it has no application and is expressly waived. The provisions of
this Agreement shall be interpreted in a reasonable manner to effect the intent
of Buyer and Seller.
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14.15 Covenants of GTE Corporation. GTE Corporation agrees to cause Seller
to perform each of Seller's agreements and covenants contained in this
Agreement. GTE Corporation further agrees that to the extent Seller shall sell
or otherwise dispose of all or substantially all of its assets, GTE Corporation
shall be liable to the same extent as Seller (but only to that extent) for any
non-performance of Seller's agreements and covenants contained in this
Agreement.
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IN WITNESS WHEREOF, the parties, acting through their duly authorized
agents, have caused this Agreement to be duly executed and delivered as of the
date first above written.
CONTEL OF MINNESOTA, INC. CITIZENS UTILITIES COMPANY
By:___________________________ By: _____________________________
Name:_________________________ Name: ___________________________
Title:________________________ Title: __________________________
By:___________________________ For the limited purpose of Section
14.15 only:
Name:_________________________
Title:________________________ GTE CORPORATION
By: _____________________________
Name: ___________________________
Title: __________________________
<PAGE>
================================================================================
ASSET PURCHASE AGREEMENT
Between
GTE WEST COAST INCORPORATED
and
CITIZENS UTILITIES COMPANY
May 27, 1999
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TABLE OF CONTENTS
Page
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ARTICLE 1 DEFINITIONS......................................................1
1.1 Terms............................................................1
1.2 Interpretation..................................................10
ARTICLE 2 PURCHASE AND SALE OF ASSETS...................................10
2.1 Purchase and Sale of Assets.....................................10
2.2 Purchased Property..............................................10
2.3 Excluded Property...............................................11
2.4 Assumption of Liabilities.......................................12
2.5 No Assignment Without Consent...................................14
ARTICLE 3 PURCHASE PRICE................................................14
3.1 Purchase Price..................................................14
3.2 Closing Date Estimate...........................................15
3.3 Closing Date Statement..........................................15
3.4 Access Line Adjustment Amount...................................16
ARTICLE 4 REQUIRED APPROVALS, CONSENTS AND NOTIFICATIONS................16
4.1 State Regulatory Approval.......................................16
4.2 Debtholder Consents.............................................17
4.3 Landlord and Other Consents.....................................17
4.4 FCC Consents....................................................17
4.5 HSR Act Review..................................................17
4.6 GTE/Bell Atlantic Merger.......................................18
ARTICLE 5 PRE-CLOSING COVENANTS.........................................18
5.1 Investigation by Buyer..........................................18
5.2 Operation of the Business in the Ordinary Course................18
5.3 Satisfaction of Conditions......................................20
5.4 Approvals.......................................................20
5.5 Audit or Review of Financial Statements........................20
5.6 Cooperation with Respect to Like-Kind Exchange..................21
5.7 Interconnection Agreements......................................21
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5.8 Leased Vehicles; Capital Leases.................................21
5.9 Delivery of Interim Information.................................21
ARTICLE 6 CONDITIONS PRECEDENT TO THE CLOSING...........................22
6.1 Conditions Precedent to Obligations of Buyer....................22
6.2 Conditions Precedent to Obligations of Seller...................23
ARTICLE 7 THE CLOSING...................................................24
7.1 The Closing.....................................................24
7.2 Seller's Obligations at Closing.................................24
7.3 Buyer's Obligations at Closing..................................25
ARTICLE 8 REPRESENTATIONS AND WARRANTIES................................25
8.1 Representations and Warranties of Seller........................25
8.2 Representations and Warranties of Buyer.........................35
ARTICLE 9 CONTINUING BUSINESS RELATIONSHIPS.............................37
9.1 Transition Services Agreement...................................37
9.2 Optional Services Agreement.....................................37
9.3 Directory Publishing............................................37
9.4 GTE Supply Relationship.........................................38
ARTICLE 10 ADDITIONAL COVENANTS OF THE PARTIES...........................38
10.1 Intellectual Property...........................................38
10.2 Effect of Due Diligence and Related Matters.....................40
10.3 Confidentiality.................................................41
10.4 Further Assurances..............................................41
10.5 Prorations......................................................41
10.6 Cost Studies/NECA Matters.......................................42
10.7 Customer Deposits...............................................42
10.8 Access to Books and Records.....................................42
10.9 Purchase Price Allocation.......................................43
10.10 Owned Real Property Transfers...................................43
10.11 Transaction Taxes...............................................44
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10.12 Bulk Sales Laws.................................................45
10.13 Prepaid Non-Regulated Maintenance Agreements....................45
10.14 Vehicle Registration............................................45
10.15 Carrier Access Billing and Accounts Receivable Transition.......45
10.16 End-User Billing and Accounts Receivable Transition.............45
ARTICLE 11 EMPLOYEES AND EMPLOYEE MATTERS................................46
11.1 Employment of Transferred Employees.............................46
11.2 Transferred Employee Benefit Matters............................48
11.3 Miscellaneous Benefits..........................................60
11.4 Employee Rights.................................................61
11.5 WARN Act Requirements...........................................61
11.6 Indemnification.................................................61
ARTICLE 12 INDEMNIFICATION...............................................62
12.1 Survival of Representations.....................................62
12.2 Indemnification.................................................63
12.3 Limitations on Liability........................................64
12.4 Defense of Claims...............................................65
12.5 No Indemnifiable Claims Resulting From Governmental Authority
Action..........................................................67
ARTICLE 13 TERMINATION...................................................67
13.1 Termination Rights..............................................67
13.2 Goodfaith Performance...........................................67
13.3 Effect of Termination...........................................67
ARTICLE 14 MISCELLANEOUS.................................................68
14.1 Notices.........................................................68
14.2 Information Releases............................................69
14.3 Expenses........................................................70
14.4 Successors and Assigns..........................................70
14.5 Amendments......................................................70
14.6 Captions........................................................70
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14.7 Entire Agreement................................................70
14.8 Waiver..........................................................70
14.9 Third Parties...................................................71
14.10 Counterparts....................................................71
14.11 Governing Law...................................................71
14.12 Further Assurances..............................................71
14.13 Severability....................................................71
14.14 Representation by Counsel; Interpretation.......................72
14.15 Covenants of GTE Northwest......................................72
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INDEX OF SCHEDULES
Schedule* Title
1.1-A Assigned Contracts
1.1-B Excluded Contracts
1.1-C Purchased Exchanges
1.1-D License Agreement
2.3(g) Other Excluded Property
4.4 FCC Consents / Waivers
5.2.1 Operation of the Business
5.2.2(c) Material Increase to Transferred Employee Benefits
5.2.2(d) Dispositions
6.1.1 Seller's Closing Certificate
6.2.1 Buyer's Closing Certificate
7.2(a) Bill of Sale and Assignment and Assumption Agreement
7.2(b) Legal Opinion of Seller's Counsel
7.2(g) Affidavit as to Status of Foreign Person
7.3(c) Legal Opinion of Buyer's Counsel
8.1.4 Violation of Law
8.1.7(a) Owned Real Property
8.1.7(b) Bondholders
8.1.8 Real Property Leases
8.1.9 Notices of Violations of Building / Zoning Ordinances
8.1.10 Material Adverse Changes
8.1.11(a-j) Material Contracts
8.1.13 Exceptions to Tax Return Filings
8.1.14 State and Federal Claims/Suits
8.1.15(a) Tariff Proceedings
8.1.15(b) FCC Licenses
8.1.16(a) Employee Matters - Seller Employee Benefit Plans
8.1.16(b) Employee Matters - Seller Material Liabilities under ERISA
8.1.16(c) Employee Matters - Seller ERISA Plans - Compliance
8.1.16(d) Employee Matters - Seller Multiemployer Plans
8.1.16(e) Employee Matters - Seller Union Representation
8.1.17 Telephone Plant
8.1.18 Real Property Interests List
8.1.19 Exceptions to Compliance with Existing Environmental Requirements
8.1.20 Environmental Permits
8.1.21(a-c) Financial Statements
8.1.23 Native American Authorizations
8.1.24 Loss of Major Customer
9.1 Transition Services Agreement
9.2 Optional Services Agreement
9.3.1 Directory Publishing Agreements
9.3.2 Co-Bound Directory Agreements
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11.1.2 Employees and Employee Matters - Employment Agreement Obligation
Exceptions
11.3.1 Employees and Employee Matters - Vacation
* The Schedule numbers refer to the appropriate Section within the Agreement.
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 27th day of May, 1999, by and between Citizens Utilities Company,
a Delaware corporation ("Buyer"), and GTE West Coast Incorporated, a California
corporation ("Seller") and for the limited purpose of Section 14.15 only, GTE
Northwest Incorporated, a Washington corporation ("GTE Northwest").
RECITALS
WHEREAS, Seller is in the business of providing regulated local
exchange telephone service in certain areas of the state of California; and
WHEREAS, Seller desires to sell, convey, assign, transfer and
deliver to Buyer, and Buyer desires to purchase and accept from Seller, certain
of its telephone properties and related assets used in the provision of such
service, upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Terms. For purposes of this Agreement and any amendment hereto, the
following terms are defined as set out below or in the Section referenced below:
"Access Line Adjustment Amount" is defined in Section 3.4.
"Accounts Receivable Settlement Statement" is defined in Section
10.16(b).
"Accounts Payable" means accounts payable owed by Seller arising
primarily from the operation of the Business.
"Active Employees" is defined in Section 11.1.
"Affiliate" means, with respect to any Person, any other Person
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person.
"Allocation" is defined in Section 10.9.
"Ancillary Documents" means the Transition Services Agreement, the
Optional Services Agreement, the License Agreement, and the Bill of Sale and
Assignment and Assumption Agreement.
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"Assigned Contracts" means Contracts to which Seller or any of its
Affiliates is a party (i) which relate primarily to the operation of the
Business, other than the Excluded Contracts, Real Property Interests, Real
Property Leases and Third Party Intellectual Property Contracts, and (ii) any
other contract to which Seller is a party and is listed on Schedule 1.1-A.
"Assigned Permits" means, to the extent assignable, all permits,
licenses, franchises, approvals and authorizations of Seller or any of its
Affiliates issued or granted by any Governmental Authority that relate primarily
to the operation of the Business, other than the FCC Licenses and the Excluded
Permits.
"Assumed Liabilities" is defined in Section 2.4.1
"Automated Assets" is defined in Section 8.1.22(c).
"Bargained Welfare Plans" is defined in Section 11.2.3(a).
"BIA" is defined in Section 8.1.23.
"Base Purchase Price" is defined in Section 3.1.
"Bill of Sale and Assignment and Assumption Agreement" is defined in
Section 7.2(a).
"Bondholders" means the Persons listed on Schedule 8.1.7(b).
"Business" means the business of providing in the geographic area
comprising the Purchased Exchanges (i) local exchange, exchange access and
intra-LATA toll telecommunications services to end users, (ii) exchange access
telecommunications services to interexchange carriers and other local exchange
carriers, (iii) retail sales of telephone equipment and products, and (iv)
non-tariffed public communications (pay telephones), commercial
telecommunications services facilities leasing and other non-regulated services
and products.
"Buyer Pension" is defined in Section 11.2.1(c)(iii)(b).
"Buyer Pension Plan" and "Buyer Pension Plans" are defined in
Section 11.2.1(b).
"Buyer Savings Plan" and "Buyer Savings Plans" are defined in
Section 11.2.2(b).
"Buyer Welfare Plans" is defined in Section 11.2.3(a).
"Buyer's Actuary" is defined in Section 11.2.1(d)(ii).
"Buyer's Closing Certificate" is defined in Section 6.2.1.
"Calendar-Related" is defined in Section 8.1.22(c).
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"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Closing" is defined in Section 7.1.
"Closing Date" is defined in Section 7.1.
"Closing Date Access Line Count" is defined in Section 3.4.
"Closing Date Amount" is defined in Section 3.2(b)
"Closing Date Statement" is defined in Section 3.3
"Confidentiality Agreement" means the Confidentiality Agreement
dated as of November 20, 1998, among Buyer, Seller and certain Affiliates of
Seller.
"Construction Advances" means advances collected by Seller or any
Affiliate for the future performance of non-regulated construction in the
Purchased Exchanges.
"Contracts" means all contracts, leases, indentures, agreements, and
other legally binding arrangements.
"Customer Advances" means amounts arising from the operation of the
Business that have been billed and collected by Seller as of the Closing Date
but that are unearned because they relate to the provision of service after the
Closing Date.
"Customer Deposits" is defined in Section 10.7.
"Date Data" is defined in Section 8.1.22(c).
"December 1998 Access Line Count" is defined in Section 3.4 and
shall be 13,309.
"Direct Claim" is defined in Section 12.4(b).
"Due Diligence Documents" means those documents contained in the ten
(10) volumes of information delivered to Buyer in connection with its review of
the Purchased Property.
"Earned End-User Accounts Receivable" means accounts receivable
arising primarily from the operation of the Business that have been earned by
Seller's provision of service on or before the Closing Date excluding amounts
billed through the carrier access billing system to interexchange carriers.
"Earned End-User Accounts Receivable Amount" means the aggregate
amount of all Earned Unbilled Accounts Receivable as of the Closing Date, less a
discount for anticipated uncollectible Earned End-User Accounts Receivable in an
amount equal to the Uncollectible Factor multiplied by Earned End-User Accounts
Receivable as of the Closing Date.
"Employment Agreements" is defined in Section 8.1.16(a).
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"Environmental Requirements" means all federal, state, interstate
and local government or agency Laws relating to pollution or protection of human
health and safety or the environment (including, without limitation, air,
surface water, ground water, land surface and subsurface strata), including,
without limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of Regulated Materials; or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transportation or handling of Regulated Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Plans" is defined in Section 8.1.16(a).
"Estimated Access Line Adjustment Amount" is defined in Section
3.2(a).
"Estimated Non-Regulated Construction Work in Process Amount" is
defined in Section 3.2(a).
"Estimated Regulatory Obligation Amount" is defined in Section
3.2(a).
"Evaluation Material" is defined in the first paragraph of the
Confidentiality Agreement.
"Excluded Contracts" means (i) all billing and collection
agreements, interconnection agreements, national account agreements, billing
media agreements, vehicle leasing agreements, capital leases, Contracts between
Seller and Affiliates of Seller, except to the extent expressly listed on
Schedule 1.1-A, and (ii) such other agreements as are listed on Schedule 1.1-B.
"Excluded Marks" means all trademarks, applications for trademark
registration, service marks, applications for service mark registration, trade
names, domain names and related registrations owned by Seller or an Affiliate of
Seller, or licensed to Seller or an Affiliate of Seller by any Person, and any
derivations of the foregoing.
"Excluded Permits" means the permits, licenses, franchises,
approvals and authorizations of Seller or any Affiliates by Governmental
Authorities that relate to the Excluded Property.
"Excluded Property" is defined in Section 2.3.
"Executive Officer" of an entity means (i) in the case of Seller,
the regional president of the region that includes the Purchased Exchanges, the
general manager of infrastructure provisioning for the Purchased Exchanges and
the general manager of customer operations for the Purchased Exchanges, and (ii)
the case of Buyer, the executive officer(s) in charge of the transactions
contemplated by this Agreement.
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"Existing Environmental Requirements" means those applicable
provisions of any Environmental Requirements that are both in effect and
required to be met by Seller prior to the Closing Date.
"Expiration Date" is defined in Section 12.1(a).
"FCC" means the Federal Communications Commission.
"FCC Consents" is defined in Section 4.4.
"FCC Licenses" means all licenses, certificates, permits or other
authorizations granted to Seller or any Affiliates by the FCC that are used
primarily in the operation of the Business.
"Financial Statements" is defined in Section 8.1.21.
"Final Order" shall mean action by any governmental or regulatory
authority as to which (i) no request for stay by any Governmental Authority of
the action is pending, no such stay is in effect, and if any deadline for any
such request is designated by statute or regulation, such deadline is passed;
(ii) no petition for rehearing or reconsideration of the action is pending
before any Governmental Authority, and the time for filing any such petition has
passed; (iii) the Governmental Authority does not have the action under
reconsideration or its own motion and the time for such reconsideration has
passed; and (iv) no appeal to a court, or request to stay by a court, of the
Governmental Authority's action is pending or in effect and, if any deadline of
filing any such appeal or request is designated by statute or rule, it has
passed.
"FRP" is defined in Section 11.2.3(f).
"Future Capital Expenditure Obligations" is defined in Section
2.4.1(h).
"Future Regulatory Obligations" is defined in Section 2.4.1(g).
"GAAP" means United States generally accepted accounting principles.
"GATT Grandfathered Participant" is defined in Section
11.2.1(c)(ii)(c).
"GTE California Agreement" is defined in Section 6.2.6.
"Governmental Authority" means any court or any federal, state or
foreign governmental, legislative or regulatory body, agency, department,
authority or instrumentality.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnifiable Losses" is defined in Section 12.3(a).
"Indemnification Payment" is defined in Section 12.3(a).
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"Indemnifying Party" is defined in Section 12.3(a).
"Indemnitee" is defined in Section 12.3(a).
"Intellectual Property" means all inventions (whether patentable or
not and whether or not such inventions are described or claimed in any patent or
patent application), designs (useful or ornamental), and works subject to
copyright protection, invention disclosures, specifications, manuals, drawings,
functional or system block diagrams, flow charts, circuit diagrams, design or
user documentation, engineering notebooks, schematics, test programs, documented
procedures, documented processes, documented flows, devices, software (in any
form), or firmware, and all intellectual property rights therein or based
thereon, including patents, patent applications (including continuations,
continuations-in-part, divisions, reissues), reexamined patents and extensions
thereof, copyrights (whether registered or unregistered), and trade secrets.
"Interim Capital Expenditure Obligations" is defined in Section
2.4.1(h).
"IRC" means the Internal Revenue Code of 1986, as amended.
"IRS" means the Internal Revenue Service.
"Law" or "Laws" means any statute, rule, regulation, ordinance,
judgment, order or decree of any Governmental Authority.
"Leased Real Property" means the real property leased to Seller or
its Affiliates under the Real Property Leases.
"License Agreement" means the license agreement attached hereto as
Schedule 1.1-D pursuant to which Seller grants to Buyer certain rights and
licenses under Licensed Intellectual Property.
"Licensed Intellectual Property" means Intellectual Property owned
by Seller or its Affiliates, and Third Party Intellectual Property licensed to
Seller or its Affiliates which Seller or its Affiliates can sublicense to Buyer
without the payment of compensation or other consideration to any Person, and
which Intellectual Property and Third Party Intellectual Property are required
for the use or maintenance (to the extent not provided by the owner or licensor
of the Third Party Intellectual Property) of or are included in or with the
Purchased Property in the operation of the Business as of the Closing; provided
that Licensed Intellectual Property shall at all times be Excluded Property.
"Lien" means any lien, charge, pledge, option, mortgage, security
interest or other encumbrance.
"Material Adverse Effect" means a materially adverse effect on the
Business or the Purchased Property, taken as a whole, other than effects
relating to or arising from (i) the execution of this Agreement, (ii) the United
States economy generally or the state of California in particular, or (iii)
events or circumstances that affect the Business in the same manner and to the
same extent as other businesses in the industry generally.
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"Material and Supply Inventory" is defined in the FCC's Part 32
Uniform System of Accounts.
"Material Contracts" is defined in Section 8.1.11.
"Material Permits" is defined in Section 8.1.15(b).
"Merger" means the proposed merger involving GTE Corporation and
Bell Atlantic Corporation and their respective Subsidiaries.
"Native American Authorizations" is defined in Section 8.1.23.
"Non-Regulated Construction Work in Process Amount" means the total
amount expended but not yet billed by Seller for non-regulated construction work
not completed prior to the Closing Date, minus any Construction Advances
outstanding as of the Closing Date. The Non-Regulated Construction Work in
Process Amount shall be billable by Buyer to third parties after the Closing
Date under open customer orders or other agreements.
"Non-Union Welfare Plans" is defined in Section 11.2.3(a).
"Optional Services Agreement" is defined in Section 9.2.
"Owned Real Property" means the real property owned in fee by Seller
or its Affiliates and used primarily in the operation of the Business, including
all land, buildings, structures, appurtenances and improvements located thereon.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Assets" is defined in Section 11.2.1(d)(i).
"Periodic Taxes" is defined in Section 10.5.
"Permitted Encumbrances" means (i) liens for current taxes and
assessments not yet delinquent, or the amount or validity of which is being
contested in good faith by appropriate proceedings during which collection or
enforcement against the relevant property is stayed, (ii) standard utility
easements, and covenants, conditions and restrictions of record that do not
individually or in the aggregate materially interfere with the operation of the
present Business on, or materially detract from the value of, the Owned Real
Property affected thereby, (iii) mechanics', carriers', workers', repairers' and
other statutory liens, (iv) existing zoning or similar laws or ordinances that
do not interfere with the operation of the Business, (v) leases otherwise
disclosed herein, and (vi) any other Liens and, in the case of Owned Real
Property, any title defects or exceptions, that do not materially interfere with
the operations of the Purchased Property in a manner consistent with the current
use by Seller or that do not materially detract from the value of, or materially
impair the marketability of, the Purchased Property affected.
"Person" means an individual, corporation, partnership, trust,
association, limited liability company or similar entity or organization.
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"Plans" is defined in Section 8.1.16(a).
"Pole Attachment Agreement" is defined in Section 8.1.11(j).
"Proration Periods" is defined in Section 10.5.
"PUC" is defined in Section 4.1.
"PUC Permits" is defined in Section 8.1.15(b).
"Purchase Price" is defined in Section 3.3(c).
"Purchased Exchanges" means the telephone exchanges listed in
Schedule 1.1-C and any cross-border community served from any such exchange.
"Purchased Property" is defined in Section 2.2.
"Real Property Interests" means all easements, rights of way,
licenses or other interests in real property of Seller or its Affiliates that
are used primarily in the operation of the Business, other than Owned Real
Property or Leased Real Property.
"Real Property Leases" means the Leases set forth on Schedule 8.1.8.
"Regulated Material" means (i) any "hazardous substance" as defined
in CERCLA, (ii) any petroleum or petroleum substance, and (iii) any other
pollutant, waste, contaminant, or other substance regulated under Environmental
Requirements.
"Regulatory Approvals" is defined in Section 4.1.
"Regulatory Obligation Amount" is defined in Section 3.1.
"Retained Books and Records" means, collectively, all corporate
records and stock books of Seller and its Affiliates, the general ledger, all
records required by Law to be retained by Seller and all books and records
relating to (i) Tax Returns and Tax records, (ii) Excluded Property, (iii)
attorney work product, and (iv) the Retained Liabilities.
"Retained Future Regulatory Obligations" is defined in Section
2.4.1(g).
"Retained Liabilities" is defined in Section 2.4.2.
"SEC Financial Statements" is defined in Section 5.5.
"Seller Hourly Pension Plan" is defined in Section 11.2.1(a)(ii).
"Seller Pension" is defined in Section 11.2.1(c)(iii)(b).
"Seller Pension Plan" and "Seller Pension Plans" are defined in
Section 11.2.1(a)(ii).
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"Seller Salaried Pension Plan" is defined in Section 11.2.1(a)(i).
"Seller Savings Plans" are defined in Section 11.2.2(a).
"Seller Welfare Plans" is defined in Section 11.2.3(a).
"Seller's Actuary" is defined in Section 11.2.1(d)(ii).
"Seller's Closing Certificate" is defined in Section 6.1.1.
"Switch Software" shall mean software currently used by Seller to
operate telecommunications switching equipment that is part of the Telephone
Plant.
"System Date" is defined in Section 8.1.22(c).
"Tax Returns" means a report, return or other information statement
required to be supplied to or filed with a Governmental Authority with respect
to Taxes.
"Tax(es)" means any foreign, federal, state, county or local income,
sales, use, transfer, excise, franchise, stamp duty, custom duty, real and
personal property, gross receipt, capital stock, business and occupation,
disability, employment, payroll, recording, ad valorem, unemployment
compensation, profits, registration, social security, estimated, add-on,
minimum, or withholding tax relating to the Business or the Purchased Exchanges
and any interest and penalties and additions to such taxes (civil or criminal)
related thereto or to the nonpayment thereof and related notarial fees.
"Telephone Plant" means (i) Owned Real Property, (ii) Real Property
Interests, and (iii) the machinery, equipment, inventory, vehicles and all other
assets and properties used primarily in the operation of the Business, including
all plant, systems, structures, construction work in progress, telephone cable
(whether in service or under construction), microwave facilities (including
frequency spectrum assignment), telephone line facilities, machinery, furniture,
fixtures, tools, implements, conduits, stations, substations, equipment
(including central office equipment, subscriber station equipment and other
equipment in general), instruments and house wiring connections. Without
limiting the generality of the foregoing, Telephone Plant includes the assets
used primarily in the operation of the Business that would be properly included
in the fixed assets referenced in Part 32 of the FCC Rules and Regulations (47
CFR, Part 32), as such accounts are reflected in Schedule 8.1.17.
"Third Party Claim" is defined in Section 12.4(a).
"Third Party Intellectual Property" means Intellectual Property
owned by any Person, other than Seller, without regard as to whether Seller has
any rights therein or the right to assign such rights to Buyer.
"Third Party Intellectual Property Contracts" is defined in Section
10.1.4.
"Total Service Pension" is defined in Section 11.2.1(c)(iii)(B).
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"Transaction Taxes" is defined in Section 10.11.
"Transferred Books and Records" means all of Seller's or its
Affiliates' customer or subscriber lists and records, accounts and billing
records, plans, blueprints, specifications, drawings, surveys, engineering
reports, personnel records of Transferred Employees (where applicable) and all
other documents, computer data and records, in each case relating primarily to
the operation of the Business, except for the Retained Books and Records.
"Transferred Employees" is defined in Section 11.1.
"Transition Services Agreement" is defined in Section 9.1.
"Uncollectible Factor" is defined in Section 10.16(b).
"Year 2000 Compliant" is defined in Section 8.1.22(c).
1.2 Interpretation.
(a) Unless the context otherwise requires, (i) all references
to Sections, Articles or Schedules are to Sections, Articles or Schedules of or
to this Agreement, (ii) each accounting term not otherwise defined in this
Agreement has the meaning assigned to it in accordance with GAAP, (iii) all
references to the "knowledge" of Seller are deemed to refer to the actual
knowledge of the Executive Officers of Seller, (iv) all references to the
"knowledge" of Buyer or "knowledge" obtained by Buyer are deemed to refer to the
actual knowledge of the Executive Officers of Buyer, except as otherwise
provided herein, (v) the term "primarily" means primarily or exclusively, and
(vi) the term "including" means including without limitation.
(b) No provision of this Agreement will be interpreted in
favor of or against either of the parties by reason of the extent to which any
such party or its counsel participated in the drafting thereof or by reason of
the extent to which any such provision is inconsistent with any prior draft of
such provision or of this Agreement.
ARTICLE 2
PURCHASE AND SALE OF ASSETS
2.1 Purchase and Sale of Assets. Upon the terms and subject to the
conditions of this Agreement, Seller hereby agrees to sell, convey, transfer,
assign and deliver to Buyer and Buyer hereby agrees to purchase, acquire and
accept from Seller, in each case effective as of the Closing, all of Seller's
and each of its Affiliates' right, title and interest in and to the Purchased
Property.
2.2 Purchased Property. The term "Purchased Property" means all the
following business, properties, assets and rights of Seller and its Affiliates
on the Closing Date, other than the Excluded Property:
(i) Telephone Plant;
(ii) Earned End-User Accounts Receivable;
(iii) Material and Supply Inventories;
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(iv) Non-Regulated Construction Work in Progress;
(v) FCC Licenses and Assigned Permits;
(vi) Assigned Contracts;
(vii) Transferred Books and Records;
(viii) Real Property Leases; and
(ix) all other business, property, assets, work in process
and rights of Seller on the Closing Date not described
above that relate primarily to the Purchased Exchanges.
2.3 Excluded Property. For purposes of this Agreement, "Excluded Property"
means the following:
(a) Cash, cash equivalents and investments;
(b) All rights of Seller and its Affiliates under this
Agreement, the Ancillary Documents and the certificates and other documents
delivered to Seller by Buyer in connection with this Agreement;
(c) All records prepared in connection with the sale of the
Business, including bids received from third parties and analysis relating to
the Business;
(d) All rights related to the Retained Liabilities;
(e) The Retained Books and Records;
(f) Seller's and its Affiliates' interests in any business
other than the Business, including the provision of wireless service (cellular
and PCS), long distance and internet service or internet related services,
air-to-ground communications (air phone service), and any Excluded Permits
related thereto, and all assets of Seller and its Affiliates used in connection
with any such business or related thereto, and all assets used by Seller and its
Affiliates in rendering corporate services to Seller or the Business that are
located outside the geographic area comprising the Purchased Exchanges;
(g) Such other assets (i.e., encryption decoder devices, AWAS
terminals, SODA, etc.), if any, as set forth on Schedule 2.3(g);
(h) The Excluded Contracts;
(i) The Excluded Marks;
(j) All Intellectual Property, including the Licensed
Intellectual Property and Third Party Intellectual Property (except for such
rights to possess and use Third Party Intellectual Property as may be assigned
in accordance with Section 10.1.4); and
(k) All of Seller's and its Affiliates' insurance proceeds
arising in connection with the operation of the Business or the Purchased
Property prior to the Closing.
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2.4 Assumption of Liabilities.
2.4.1 Assumed Liabilities. Upon the terms and subject to the
conditions of this Agreement, Buyer hereby agrees to assume, as of the Closing
Date, and agrees to pay, perform and discharge when due, all liabilities,
responsibilities and obligations, beginning on the day following the Closing
Date, relating to the Purchased Property other than the Retained Liabilities
(subject to any different allocation of liability set forth in clauses (b), (c),
(g) and (h) below) (the "Assumed Liabilities"), including the following:
(a) Ordinary Course. All liabilities, responsibilities and
obligations (including Taxes), arising out of or accruing or resulting from the
use or ownership of the Purchased Property in the ordinary course after the
Closing Date;
(b) Employment Matters. All liabilities, responsibilities and
obligations of Buyer as provided in Article 11 with respect to Transferred
Employees;
(c) Assigned Contracts, Real Property Interests and Real
Property Leases. All liabilities, responsibilities and obligations that arise in
connection with the performance of the Assigned Contracts, Real Property
Interests and the Real Property Leases, other than performance obligations of
Seller that mature prior to the Closing Date;
(d) Joint Construction Projects. All liabilities,
responsibilities and obligations to third parties that relate to arrangements
and commitments between Seller and a third party for the construction of mutual
transmission facilities between various switching points included in the
Purchased Exchanges;
(e) Construction in Progress. All liabilities,
responsibilities and obligations relating to post-Closing engineering and
construction required to complete scheduled construction and other capital
expenditure projects for the Purchased Exchanges;
(f) Customer Deposits and Construction Advances. All
liabilities, responsibilities and obligations relating to Customer Advances,
Customer Deposits and Construction Advances;
(g) Future Regulatory Obligations. All liabilities,
responsibilities and obligations, other than Future Capital Expenditure
Obligations, related to the Purchased Exchanges arising out of any rule,
regulation, law, mandate, decision or order of the FCC or the PUC after the
Closing Date regardless of whether the action taken by such Governmental
Authority is or purports to be based on conduct or actions that occurred at any
time prior to the Closing Date ("Future Regulatory Obligations"); provided that
Buyer shall not be liable for any such Future Regulatory Obligation arising
directly out of any intentional misconduct or material misstatement to the PUC
by Seller that occurred prior to the Closing Date, except for such statements as
may be based on reasonable interpretations of existing PUC regulations and
current industry practice ("Retained Future Regulatory Obligations");
(h) Future Capital Expenditure Obligations. All liabilities,
responsibilities and obligations related to the Purchased Exchanges arising out
of any rule,
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regulation, law, mandate, decision or order of the FCC or the PUC (i) issued at
any time and requiring any capital expenditure after the Closing Date,
regardless of whether the action taken by such Governmental Authority is or
purports to be based on conduct, facts or actions that occurred at any time
prior to the Closing Date ("Future Capital Expenditure Obligations"); and (ii)
issued after the date of this Agreement and requiring any capital expenditure
after the date of this Agreement, regardless of whether the action taken by such
Governmental Authority is or purports to be based on conduct, facts or actions
that occurred at any time prior to the date of this Agreement ("Interim Capital
Expenditure Obligations"); provided that (i) Seller shall retain liability for
Interim Capital Expenditure Obligations incurred prior to Closing to the extent
related to (A) FCC or PUC orders that impose capital expenditure obligations as
a result of Seller's overearnings, (B) Seller's efforts to comply with FCC or
PUC rules, regulations, laws, mandates, decisions or orders existing as of the
date of this Agreement, or (C) capital expenditures already planned by Seller;
and (ii) Seller shall retain liability for all other Interim Capital Expenditure
Obligations to the extent Seller is fully reimbursed by Buyer at Closing for
such obligations. Prior to the Closing Date, Seller shall notify Buyer of all
potential Future or Interim Capital Expenditure Obligations within a reasonable
time after publication of said obligations by a Governmental Authority; and
(i) Litigation and Claims. All liabilities and obligations
arising out of (i) litigation and claims that arise out of an occurrence after
the Closing Date, (ii) litigation and claims in respect of Future Regulatory
Obligations (other than Retained Future Regulatory Obligations) regardless of
when filed, and (iii) claims of a Governmental Authority arising from or related
to a Future Regulatory Obligation (other than Retained Future Regulatory
Obligations).
Notwithstanding anything in this Section 2.4.1 to the contrary, "Assumed
Liabilities" shall not include any liabilities, responsibilities or obligations
expressly included in Retained Liabilities pursuant to Section 2.4.2.
2.4.2 Retained Liabilities. Seller shall retain and shall pay,
perform and discharge when due, the following liabilities, responsibilities and
obligations of Seller (the "Retained Liabilities"):
(a) Subject to Section 10.5, all trade payables and other accrued
payment obligations of Seller as of the Closing Date;
(b) All long-term debt of Seller (including indebtedness to the
Bondholders) and debt of Seller owed to any one or more of its Affiliates;
(c) Subject to Section 10.5, all Taxes relating to the operation of
the Business on or before the Closing Date or the use, ownership or operation of
the Purchased Property on or before the Closing Date;
(d) Except to the extent otherwise provided in Article 11, all
liabilities and obligations arising on or before the Closing Date with respect
to the Transferred Employees, including (i) all liabilities responsibilities and
obligations arising on or before the Closing Date relating to collective
bargaining agreements or other union contracts, and (ii) any such liabilities
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or obligations that arise after the Closing Date to the extent that such
liabilities and obligations relate to facts, circumstances or conditions arising
or occurring on or before the Closing Date, but excluding any Future Regulatory
Obligations with respect to the Transferred Employees;
(e) All liabilities, responsibilities and obligations arising out of
litigation and claims that arise out of an occurrence prior to the Closing Date
other than litigation and claims in respect of Future Regulatory Obligations
(other than Retained Future Regulatory Obligations);
(f) Any Retained Future Regulatory Obligations; and
(g) All liabilities, responsibilities and obligations with respect to
the Excluded Property and the Excluded Contracts.
2.5 No Assignment Without Consent. Notwithstanding anything to the
contrary contained in this Agreement, to the extent that the sale, conveyance,
transfer, assignment or delivery or attempted sale, conveyance, transfer,
assignment or delivery to Buyer of any Purchased Property (including any
Contract) is prohibited by any applicable Law or would require any governmental
or third-party authorizations, approvals, consents or waivers and such
authorizations, approvals, consents or waivers shall not have been obtained
prior to the Closing, this Agreement shall not constitute a sale, conveyance,
transfer, assignment or delivery, or an attempted sale, conveyance, transfer,
assignment or delivery thereof, if any of the foregoing would constitute a
breach of applicable Law or the rights of any third party; provided, however,
that, except to the extent that a condition to Closing set forth in Article 6
relating to the foregoing shall not be satisfied, the Closing shall occur
notwithstanding the foregoing without any adjustment to the Purchase Price on
account of such required authorization. Following the Closing, the parties shall
use their commercially reasonable efforts, and shall cooperate with each other,
to obtain promptly such authorizations, approvals, consents or waivers;
provided, however, that neither Seller nor Buyer nor any of their respective
Affiliates shall be required to pay any consideration therefor, other than
filing, recordation or similar fees payable to any Governmental Authority, which
fees shall be shared equally by Seller and Buyer. Pending or in the absence of
such authorization, approval, consent or waiver, the parties shall cooperate
with each other in any reasonable and lawful arrangements to provide to Buyer
the benefits and liabilities of use of such Purchased Property, including, if
permitted by the terms of any Real Property Lease or applicable Material
Contract, through a sublease or subcontract in accordance with Section 4.3. If
such authorization, approval, consent or waiver for the sale, conveyance,
transfer, assignment or delivery of any such Purchased Property is obtained,
Seller shall promptly convey, transfer, assign and deliver, or cause to be
conveyed, transferred, assigned and delivered, such Purchased Property to Buyer.
ARTICLE 3
PURCHASE PRICE
3.1 Purchase Price. The purchase price for the Purchased Property shall be
the sum of (i) Fifty-Two Million Five Hundred Seventy-One Thousand dollars
($52,571,000) (the "Base Purchase Price"), (ii) amounts expended by Seller to
comply with Interim Capital Expenditure Obligations (the "Regulatory Obligation
Amount"), and (iii) the Non-Regulated Construction
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Work in Process Amount, minus (iv) any Access Line Adjustment Amount calculated
in accordance with Section 3.4. Payments from Buyer to Seller for Earned
End-User Accounts Receivable and from Seller to Buyer for Customer Advances and
Customer Deposits will occur subsequent to Closing in accordance with Article
10.
3.2 Closing Date Estimate.
(a) Not less than three (3) business days prior to the Closing
Date, Seller will give to Buyer a notice, setting forth Seller's good faith
estimate as of the Closing Date of (i) the Regulatory Obligation Amount (the
"Estimated Regulatory Obligation Amount"), (ii) the Non-Regulated Construction
Work in Process Amount (the "Estimated Non-Regulated Construction Work in
Process Amount") and (iii) the Access Line Adjustment Amount (the "Estimated
Access Line Adjustment Amount").
(b) On the Closing Date, Buyer shall pay to Seller the sum of
(i) the Base Purchase Price, (ii) the Estimated Regulatory Obligation Amount,
and (iii) the Estimated Non-Regulated Construction Work in Process Amount, minus
(iv) any Estimated Access Line Adjustment Amount (the "Closing Date Amount").
The Closing Date Amount shall be paid by delivery on the Closing Date of
immediately available funds in U.S. dollars by wire transfer to an account that
Seller shall designate to Buyer at least two (2) business days prior to the
Closing Date.
3.3 Closing Date Statement.
(a) Within sixty (60) days after Closing Date, Seller shall
prepare and deliver to Buyer a written statement of the Base Purchase Price,
Regulatory Obligation Amount, Non-Regulated Construction Work in Process Amount
and any Access Line Adjustment Amount ("Closing Date Statement").
(b) Within fifteen (15) days after receipt of the Closing Date
Statement, Buyer shall, in a written notice to Seller, either accept the Closing
Date Statement or describe in reasonable detail any proposed adjustments to the
Closing Date Statement and the reasons therefore. If Seller shall not have
received a notice of proposed adjustments within such fifteen (15) day period,
Buyer will be deemed irrevocably to have accepted such Closing Date Statement.
(c) Upon the acceptance of any Closing Date Statement by
Buyer, the parties shall, based thereupon, calculate the amount equal to the sum
of the Base Purchase Price, Regulatory Obligation Amount and Non-Regulated
Construction Work in Process Amount, minus any Access Line Adjustment Amount
(collectively, the "Purchase Price"). If the Purchase Price as finally
determined above is greater than the Closing Date Amount, Buyer shall promptly,
but no later than three (3) business days after such acceptance, pay to Seller
the amount of such difference. If the Purchase Price as determined above is less
than the Closing Date Amount, Seller shall promptly, but no later than three (3)
business days after such acceptance, pay to Buyer the amount of such difference.
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(d) Seller and Buyer shall negotiate in good faith to resolve
any disputes over any proposed adjustments to the Closing Date Statement,
provided that if any such dispute is not resolved within thirty (30) days
following Seller's receipt of the proposed adjustments, Buyer and Seller jointly
shall select an independent public accounting firm that is nationally recognized
in the United States to resolve such disputes in accordance with the standards
set forth in this Section 3.3, which resolution shall be final and binding. The
fees and expenses of such accounting firm shall be shared by Buyer and Seller in
inverse proportion to the relative amounts of the disputed amount determined to
be for the account of Buyer and Seller, respectively.
(e) If Buyer disputes any portion of the Closing Date
Statement, the parties shall calculate the portion of the Closing Statement that
is not the subject of any dispute or proposed adjustment. If the undisputed
portion of the Closing Statement (A) is greater than the respective estimated
amounts paid on the Closing Date, Buyer shall promptly pay Seller the amount of
such difference, or (B) is less than the respective estimated amounts paid on
the Closing Date, Seller shall promptly pay Buyer the amount of such difference.
Payments with respect to any undisputed portions of these adjustments shall be
made no later than three (3) business days after delivery of notice of the
proposed adjustments. Upon resolution of any dispute over any proposed
adjustments as described above in Section 3.3(d), a party which is determined to
owe the other party an amount shall pay that amount promptly, but no later than
three (3) business days after resolution.
(f) Any amount paid pursuant to this Section 3.3 after the
Closing Date shall bear interest from the Closing Date through but excluding the
date of payment, at a rate of eight percent (8%) per annum. Such interest shall
accrue daily on the basis of a year of three hundred sixty-five (365) days and
the actual number of days for which due and shall be payable together with the
amount payable pursuant to this Section 3.3. All amounts payable pursuant to
this Section 3.3 shall be paid by delivery of immediately available funds in
U.S. dollars by wire transfer to, in the case of amounts payable by Buyer, the
account identified by Seller as described in 3.2 above or to an alternate
account that Seller may designate on the Closing Date Statement and, in the case
of amounts payable by Seller, to such account of Buyer as Buyer shall designate
in writing to Seller.
3.4 Access Line Adjustment Amount. The Purchase Price shall be subject to
reduction in accordance with Section 3.1 if the number of access lines
(including wholesale access lines) billed by Seller during the most recent month
ended prior to the Closing Date (the "Closing Date Access Line Count") has
decreased by more than ten percent (10%) from the number of access lines
(including wholesale access lines) billed by Seller for the month ended December
31, 1998 (the "December 1998 Access Line Count"). Such reduction, if any, shall
equal (a) the December 1998 Access Line Count minus the Closing Date Access Line
Count, multiplied by (b) the Base Purchase Price divided by the December 1998
Access Line Count (collectively, the "Access Line Adjustment Amount").
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ARTICLE 4
REQUIRED APPROVALS, CONSENTS AND NOTIFICATIONS
4.1 State Regulatory Approval. Promptly after the date of this Agreement,
Buyer and Seller shall file the appropriate applications and notices with the
California Public Utilities Commission (the "PUC"), seeking orders permitting
the transfer of service in the Purchased Exchanges to Buyer (collectively, the
"Regulatory Approvals"). Buyer will be responsible for establishing the tariff
for its post-Closing operations in the Purchased Exchanges. Each party agrees to
use its commercially reasonable efforts to obtain the Regulatory Approvals and
the parties agree to cooperate fully with each other and with the applicable
regulatory agency to obtain the Regulatory Approvals at the earliest practicable
date.
4.2 Debtholder Consents. Seller shall use its commercially reasonable
efforts to obtain from its Bondholders the termination or release, at Closing,
of all security agreements, mortgages and financing statements relating to the
Purchased Property (such termination or release being hereinafter referred to as
the "Debtholder Consents").
4.3 Landlord and Other Consents. Promptly after the date hereof, the
parties shall use their commercially reasonable efforts to mutually seek the
consent of (i) the lessor to any Leased Real Property that requires consent as a
condition to an assignment of the lease (which consents are identified in
Schedule 8.1.8) and (ii) the applicable third party with respect to certain
Material Contracts that require consent as a condition to assignment of such
Material Contract (which consents are identified on Schedule 8.1.11). If a
lessor refuses to consent to such an assignment, and if the applicable lease or
Material Contract permits a sublease or subcontract without the consent of the
lessor or other third party, the parties hereto shall, effective as of the
Closing, enter into a sublease or subcontract upon terms and conditions as
similar and comparable to an assignment of the lease or Material Contract as is
reasonably feasible.
4.4 FCC Consents. Promptly after the date of this Agreement, the parties
shall use their commercially reasonable efforts to obtain (i) the FCC's consent
to the transfer of the FCC Licenses from Seller to Buyer, and (ii) the FCC
waivers set forth on Schedule 4.4 (all such consents or waivers are collectively
referred to as the "FCC Consents").
4.5 HSR Act Review. By June 30, 1999, or such later date as the parties
may mutually agree, the parties will make such filings as may be required by the
HSR Act with respect to the transactions contemplated by this Agreement.
Thereafter, the parties will file as promptly as practicable all reports or
other documents required or requested by the U.S. Federal Trade Commission or
the U.S. Department of Justice pursuant to the HSR Act or otherwise and will
comply promptly with any requests by the Federal Trade Commission or the U.S.
Justice Department for additional information concerning such transactions, so
that the waiting period specified in the HSR Act will expire as soon as
reasonably possible after the execution and delivery of this Agreement. Without
limiting the foregoing, Seller and Buyer agree to use their commercially
reasonable efforts to cooperate and oppose any preliminary injunction sought by
any Governmental Authority preventing the consummation of the transactions
contemplated by this Agreement. Buyer agrees to pay all application fees
required in connection with any filings under the HSR Act.
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Seller and Buyer shall cause their respective counsel to furnish
each other such necessary information and reasonable assistance as the other may
reasonably request in connection with its preparation of necessary filings or
submissions under the provisions of the HSR Act. Seller and Buyer will cause
their respective counsel to supply to each other copies of all correspondence,
filings or written communications by such party or its Affiliates with any
Governmental Authority or staff members thereof, with respect to the
transactions contemplated by this Agreement and any related or contemplated
transactions, except for documents filed pursuant to Item 4(c) of the
Hart-Scott-Rodino Notification and Report Form or communications regarding the
same documents or information submitted in response to any request for
additional information or documents pursuant to the HSR Act which reveal
Seller's or Buyer's negotiating objectives or strategies or purchase price
expectations.
4.6 GTE/Bell Atlantic Merger. Notwithstanding anything else contained in
this Agreement, but without modification of the rights of Buyer under Sections
6.1, 11.6.2, 12.2(a) or 13.1, Seller shall not be obligated to take any action
that would violate the terms of its agreements regarding the Merger, or that
would interfere with, delay or prevent the consummation of the Merger. In the
event that the Closing does not occur as a direct result of the Merger, and not
through any fault of Buyer, Seller's liability to Buyer under this Agreement
shall be limited to the amount of Buyer's reasonable out-of-pocket expenses
incurred in connection with this Agreement.
ARTICLE 5
PRE-CLOSING COVENANTS
5.1 Investigation by Buyer. Prior to the Closing, upon reasonable notice
from Buyer to Seller given in accordance with this Agreement and subject to
approval by Seller's appointed representative, Seller will afford to the
authorized representatives of Buyer reasonable access during normal business
hours to the Transferred Books and Records, the Owned Real Property the Leased
Real Property and the other Purchased Property so as to afford Buyer the
opportunity to make such review, examination and investigation of the Business
and the Purchased Property as Buyer may reasonably request; provided, however,
that no environmental sampling or other testing shall be performed without
Seller's prior written consent, which consent may be given or withheld in
Seller's sole discretion. Buyer will not contact any employee, customer or
supplier of Seller with respect to this Agreement, the matters involved herein
or the Purchased Property without the prior written consent of Seller. Nothing
herein will obligate Seller to take actions that would unreasonably disrupt the
normal course of the business of Seller or violate the terms of any applicable
Law or any Contract to which Seller or any of its Affiliates is a party or to
which any of its assets is subject. Any information or documentation provided to
Buyer or acquired by Buyer during this investigation shall be deemed "Evaluation
Material" as that term is defined in the Confidentiality Agreement and shall be
subject in all cases to the terms of the Confidentiality Agreement.
5.2 Operation of the Business in the Ordinary Course.
5.2.1 Preservation of Business. Except as contemplated on Schedule
5.2.1 or as otherwise consented to by Buyer prior to the Closing, from the date
of this Agreement until the Closing Seller shall:
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(a) Conduct the Business in the ordinary course consistent
with past practice and shall keep available to the Business its services and the
services of its Affiliates to the same extent generally available on the date
hereof;
(b) Operate the Business in substantially the same manner as
it is presently being conducted, and, with respect to the Business, refrain from
entering into any Contract that would be a Material Contract other than in the
ordinary course of business;
(c) Not institute any proceeding with respect to, or otherwise
change, amend or supplement any of its tariffs or make any other filings with
the PUC except in the ordinary course of business, and except as disclosed on
Schedule 8.1.15(a);
(d) Maintain the Purchased Property in good repair, order and
condition, reasonable wear and use excepted, and maintain the Materials and
Supply Inventory in the ordinary course of business consistent with past
practice;
(e) Maintain insurance with respect to the Purchased Property
consistent with past practice;
(f) Make capital expenditures sufficient to support normal
maintenance and customer growth in the Purchased Exchanges in a manner
consistent with established regulatory performance objectives, which
expenditures in (a) calendar year 1999 shall not be less than $627,000, and (b)
calendar year 2000 shall not be less than $52,000 per month; and
(g) Maintain the books and records of the Business
substantially in accordance with prior practice, except as changes are mandated
by Governmental Authorities or required by GAAP.
5.2.2 No Material Changes. Except as contemplated by this Agreement
or as otherwise consented to by Buyer prior to the Closing, from the date of
this Agreement until the Closing, Seller will not:
(a) Make any material change in the general nature of the
Business;
(b) Sell, lease or dispose of, or make any Contract for the
sale, lease or disposition of any Purchased Property, other than in the ordinary
course of business;
(c) Increase the benefit provided under any plans concerning
employee benefits or increase the general rates of compensation of its
Transferred Employees, except (i) as required by Law, (ii) pursuant to any
Contract to which Seller is a party existing on the date hereof and listed on
Schedule 5.2.2(c), (iii) increases in base pay in the ordinary course of
business of Seller and in amounts consistent with the recent past practices of
Seller, or (iv) as listed or described on Schedule 5.2.2(c);
(d) (i) Materially amend, modify or terminate any Material
Contract or permit any of the foregoing to occur other than in the ordinary
course of business; or (ii) sell, transfer or otherwise dispose of any Purchased
Property other than in the ordinary course of
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business or as listed or described on Schedule 5.2.2(d), or encumber any
Purchased Property, except for Permitted Encumbrances; or
(e) Enter into any new written employment agreement, or union
agreement with, or commitment to, the Transferred Employees (including any new
commitment to pay retirement or other benefits or other amendments to Seller's
retirement plans), provided that Seller may enter into new union agreements to
the extent the new union agreements succeed any union agreement that expires
prior to the Closing. Prior to finalizing any such new union agreement, Seller
shall advise Buyer of its material terms and following the execution of any such
agreement, Seller shall deliver a copy to Buyer.
5.3 Satisfaction of Conditions. Without limiting the generality or effect
of any provision of Article 6, the parties will use their commercially
reasonable efforts to satisfy promptly all the conditions required to be
satisfied prior to the Closing.
5.4 Approvals.
(a) Between the date of this Agreement and the Closing Date,
Buyer and Seller will (i) cooperate with one another and take all reasonable
steps to obtain, as promptly as practicable, all consents, approvals,
authorizations, waivers and permits of any Governmental Authorities required of
either party to consummate the transactions contemplated by this Agreement and
(ii) provide such other information and communications to any Governmental
Authority as may be reasonably requested.
(b) To the extent that any consents, approvals, authorization
or waiver of a third party with respect to any (i) Assigned Contract, (ii)
Assigned Permit or (iii) any Pole Attachment Agreement, government grant or
railroad crossing agreement listed on Schedule 8.1.18, is required in connection
with the transactions contemplated by this Agreement, Seller shall use its
commercially reasonable efforts to obtain such authorization, consent, approval
or waiver prior to the Closing Date.
5.5 Audit or Review of Financial Statements. To the extent Buyer requires
an audit or review of financial statements with respect to the Business in order
to comply with the reporting requirements of the Securities and Exchange
Commission under Regulations S-K and S-X, Seller will cooperate with the
independent auditors chosen by Buyer to audit or review the Financial Statements
delivered by Buyer in accordance with Section 8.1.21 and such other financial
statements as may be required by Buyer to comply with Regulations S-K and S-X
(collectively, the "SEC Financial Statements"). Seller's cooperation will
include such access to workpapers and other supporting documents used in the
preparation of the SEC Financial Statements and delivery of one or more
representation letters from Seller to such auditors as may be reasonably
required by such auditors to perform an audit in accordance with generally
accepted auditing standards or a review in accordance with AICPA standards and
to render an opinion acceptable to the SEC with respect to the audit or review
of the SEC Financial Statements, it being understood that such representation
letters shall acknowledge (i) Seller's extensive use of estimates and
allocations in the preparation of the SEC Financial Statements, and (ii)
Seller's belief that the SEC Financial Statements represent the financial
condition and results of operations of the Business, in accordance with GAAP,
and that such estimates and
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allocations were made on a reasonable basis and in accordance with GAAP.
However, Buyer acknowledges that because the Business represents only a portion
of Seller, Buyer is not acquiring significant support elements located outside
the Purchased Exchanges, and Buyer will operate under new tariffs, carrier
contracts and other conditions that will significantly impact the future
revenues of the Business, the Financial Statements may not be representative of
the financial performance of the Business during future periods. Seller will
bear the cost of the preparation of its financial statements, including the SEC
Financial Statements. Buyer will bear the cost of the preparation of any other
financial statements that it will be required to file with the SEC, as well as
the cost of the audit or review of the SEC Financial Statements. Buyer
acknowledges that the SEC Financial Statements and any supporting documentation
have been made available as an indication of the historical financial
performance and condition of the Business. Except to the extent that the SEC
Financial Statements reflect intentional misrepresentation or fraud, Buyer
agrees not to make any claim related to the performance of the Business after
the date of the SEC Financial Statements on the basis of a comparison to the SEC
Financial Statements.
5.6 Cooperation with Respect to Like-Kind Exchange. Buyer agrees that
Seller's transfer of the Purchased Property may, at Seller's election, be
accomplished in a manner enabling such transfer to qualify as part of a
like-kind exchange of property covered by Section 1031 of the IRC. If Seller so
elects, Buyer shall cooperate with Seller (but without being required to incur
any out-of-pocket costs in the course thereof) in connection with Seller's
efforts to effect such like-kind exchange, which cooperation shall include,
without limitation, taking such actions as Seller requests in order to enable
Seller to qualify such transfer as part of a like-kind exchange of property
covered by Section 1031 of the IRC (including any actions required to facilitate
the use of a "qualified intermediary" within the meaning of the United States
Treasury Regulations), and Buyer agrees that Seller may assign all or part of
its rights (but no obligations) under this Agreement to a person or entity
acting as a qualified intermediary to qualify the transfer of the Purchased
Property as part of a like-kind exchange of property covered by Section 1031 of
the IRC. Buyer and Seller agree in good faith to use reasonable efforts to
coordinate the transactions contemplated by this Agreement with any other
transactions engaged in by either Buyer or Seller; provided that such efforts
are not required to include an unreasonable delay in the consummation of the
transactions contemplated by this Agreement.
5.7 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information as Buyer may reasonably request in connection with Buyer's
replacement of the interconnection agreements relating to the Purchased
Exchanges, including supplying to Buyer copies of such interconnection
agreements to the extent permissible.
5.8 Leased Vehicles; Capital Leases. Seller or its Affiliates, as
applicable, will pay the remaining balances on any vehicle leases or any capital
leases relating to assets included in the Purchased Property and at Closing will
deliver to Buyer title to such vehicles and assets, free and clear of all Liens.
5.9 Delivery of Interim Information. From the date of this Agreement until
the Closing, Seller shall furnish Buyer monthly reports concerning the operating
performance of the Business. Such reports shall contain such data as are
typically reported to GTE management with respect to the Purchased Exchanges,
including access line counts and service measures.
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Seller shall provide Buyer reasonable access to Seller's management in order to
discuss such data. In the event of any significant deterioration in operating
performance, Seller shall consult with Buyer concerning its response. All
information provided in accordance with this Section 5.9 shall be subject to the
Confidentiality Agreement and to compliance with applicable antitrust Laws.
ARTICLE 6
CONDITIONS PRECEDENT TO THE CLOSING
6.1 Conditions Precedent to Obligations of Buyer. The obligations of Buyer
to consummate the Closing shall be subject to the satisfaction or waiver by
Buyer, at or prior to the Closing, of each of the following conditions, any one
or more of which may be waived at the option of Buyer:
6.1.1 No Misrepresentation or Breach of Covenants and Warranties.
Seller shall have complied in all material respects with its covenants to be
performed in whole or in part prior to the Closing, and the representations and
warranties of Seller in Section 8.1 shall be true and correct as of the Closing,
except for (i) such representations or warranties that are made expressly as of
an earlier date, which shall have been true and correct as of such date except
as would not have a Material Adverse Effect, and, (ii) to the extent that any
breach of such representations and warranties has not, individually or in the
aggregate, had a Material Adverse Effect; and Seller shall have delivered to
Buyer a certificate ("Seller's Closing Certificate") in the form attached as
Schedule 6.1.1, dated the Closing Date and signed by an Executive Officer of
Seller, certifying each of the foregoing, or specifying those respects in which
such covenants have not been performed or such representations and warranties
are not true and correct.
6.1.2 Documents. Seller shall have delivered to Buyer all documents
required by Section 7.2.
6.1.3 HSR. All required waiting periods under the HSR Act shall have
expired or been terminated.
6.1.4 No Legal Obstruction. Each of the required Debtholder Consents
shall have been obtained, and each of the required Regulatory Approvals and FCC
Consents shall have been obtained, free of any special term, condition,
restriction, imposed liability or other provision that is reasonably likely to
have a Material Adverse Effect, and the FCC and PUC shall not otherwise have
taken any action with respect to the Purchased Property that is reasonably
likely to have a Material Adverse Effect. For purposes of this Section 6.1.4,
any tariff that is substantially similar in all material respects to the
existing tariff with respect to the applicable Purchased Exchange shall be
deemed not to have a Material Adverse Effect. For purposes of this Agreement,
all such approvals and consents shall be deemed to have been obtained upon the
granting of a Final Order. In addition, there shall not have been entered a
preliminary or permanent injunction, temporary restraining order or other
judicial or administrative order or decree in any competent jurisdiction, the
effect of which prohibits the Closing.
6.1.5 No Material Adverse Effect. There shall not have occurred any
event or condition which individually or in the aggregate has resulted in a
Material Adverse Effect.
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6.1.6 Closing of GTE California Transactions. The transactions
contemplated the Asset Purchase Agreement between GTE California Incorporated
and Citizens Utilities Company of even date herewith (the "GTE California
Agreement") shall be closed simultaneously with the closing of those
transactions contemplated by this Agreement.
6.2 Conditions Precedent to Obligations of Seller. The obligations of
Seller to consummate the Closing shall be subject to the satisfaction or waiver
by Seller, at or prior to the Closing, of each of the following conditions:
6.2.1 No Misrepresentation or Breach of Covenants and Warranties.
Buyer shall have complied in all material respects with its covenants to be
performed in whole or in part prior to the Closing, and the representations and
warranties of Buyer in Section 8.2 shall be true and correct in all material
respects as of the Closing, except (i) for such representations or warranties
made expressly as of and only as of an earlier date, which shall be true and
correct as of such date except as would not have a Material Adverse Effect, and
(ii) to the extent that any breach of such representations and warranties has
not, individually or in the aggregate, had a Material Adverse Effect; and Buyer
shall have delivered to Seller a certificate ("Buyer's Closing Certificate") in
the form attached as Schedule 6.2.1, dated the Closing Date and signed by an
Executive Officer of Buyer, certifying each of the foregoing or specifying those
respects in which such covenants have not been performed or such representations
and warranties are not true and correct.
6.2.2 Documents. Buyer shall have delivered to Seller all documents
required by Section 7.3.
6.2.3 Purchase Price. Buyer shall have delivered to Seller, in the
manner specified in Section 3.1, the Closing Date Amount.
6.2.4 HSR. All required waiting periods under the HSR Act shall have
expired or been terminated.
6.2.5 No Legal Obstruction. Each of the required Debtholder Consents
shall have been obtained, and each of the required Regulatory Approvals and FCC
Consents shall have been obtained free of any special terms, conditions or
restrictions that are materially adverse to Seller based upon good faith
business concerns that are not commercially unreasonable (other than any such
approvals or consents which, if not obtained, would not have a Material Adverse
Effect). For purposes of this Agreement, all such approvals and consents shall
be deemed to have been obtained upon the granting of a Final Order. In addition,
there shall not have been entered a preliminary or permanent injunction,
temporary restraining order or other judicial or administrative order or decree
in any jurisdiction, the effect of which prohibits the Closing.
6.2.6 Closing of GTE California Transactions. The transactions
contemplated the Asset Purchase Agreement between GTE California Incorporated
and Citizens Utilities Company of even date herewith (the "GTE California
Agreement") shall be closed simultaneously with the closing of those
transactions contemplated by this Agreement.
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ARTICLE 7
THE CLOSING
7.1 The Closing. Subject to the terms and conditions of this Agreement,
the closing of the purchase and sale of the Purchased Property and the
assumption of the Assumed Liabilities (the "Closing") shall be held at 9 A.M.
local time at the offices of GTE Network Services at 600 Hidden Ridge, Irving,
Texas 75038, on the date agreed upon by the parties, provided such date shall be
(i) the last business day of the month, and (ii) at least five (5) business
days, but not more than ninety (90) days, after the date that all required
Regulatory Approvals, Debtholder Consents and FCC Consents have been obtained,
or at such other time and place as the parties may agree (the "Closing Date").
Such Closing shall be deemed to have occurred as of 11:59 p.m., local time, on
the Closing Date.
7.2 Seller's Obligations at Closing. At the Closing, Seller shall deliver
to Buyer the following documents:
(a) (i) Bill of Sale and Assignment and Assumption Agreement,
(ii) subject to Permitted Encumbrances (except as provided in Section 10.10),
special warranty deeds or their equivalent in respect of the Owned Real Property
and assignments of Real Property Leases to the extent any required consents have
been obtained pursuant to Section 4.3, and (iii) subject to Section 2.5,
assignments of the Assigned Contracts, the Real Property Interests and the
Assigned Permits. For purposes of this Agreement, the term "Bill of Sale and
Assignment and Assumption Agreement" means the form attached hereto as Schedule
7.2(a) executed by Seller;
(b) A legal opinion from William Mundy, general counsel for
GTE Network Services, as counsel for Seller, dated as of the Closing Date and in
the form of Schedule 7.2(b);
(c) Seller's Closing Certificate;
(d) Instruments of assignment or, to the extent set forth in
Section 4.3, subleases for the Leased Real Property;
(e) Mortgage satisfactions, UCC Form 3 Termination Statements
and other instruments necessary to remove, release and terminate all security
interests held by the Bondholders on the Purchased Property;
(f) All of the documents and papers required of Seller as
conditions to Closing pursuant to Section 6.1, including the Regulatory
Approvals, Debtholder Consents and FCC Consents;
(g) A certificate substantially in the form of Schedule 7.2(g)
certifying that Seller is not a "foreign person" within the meaning of Section
1445(b)(2) of the IRC;
(h) The License Agreement; and
(i) Such other documents and instruments as may be reasonably
necessary to effect the transactions contemplated by this Agreement.
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7.3 Buyer's Obligations at Closing. At the Closing, Buyer shall deliver to
Seller the following:
(a) The Closing Date Amount in the manner specified in Section
3.1;
(b) The Bill of Sale, Assignment and Assumption Agreement,
executed by Buyer;
(c) A legal opinion from L. Russell Mitten II, Vice President
and General Counsel of Buyer dated as of the Closing Date and in the form of
Schedule 7.3(c);
(d) Buyer's Closing Certificate;
(e) All other documents and papers required of Buyer as
conditions of Closing pursuant to Section 6.2, including the Regulatory
Approvals; and
(f) Such other documents and instruments as may be reasonably
necessary to effect the transactions contemplated by this Agreement.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
8.1 Representations and Warranties of Seller. Seller represents and
warrants to Buyer as follows:
8.1.1 Authorization and Effect of Agreement. Seller has the
requisite corporate power and authority to execute and deliver this Agreement
and the Ancillary Agreements and to perform its obligations hereunder and
thereunder. The execution and delivery by Seller of this Agreement and the
Ancillary Agreements and the fulfillment of its obligations under this Agreement
and the Ancillary Agreements have been duly authorized by all necessary
corporate action on the part of Seller. This Agreement and the Ancillary
Agreements have been duly executed and delivered by Seller and, assuming the due
execution and delivery of this Agreement and the Ancillary Agreements by Buyer,
constitute valid and binding obligations of Seller enforceable in accordance
with their terms subject to bankruptcy, insolvency, reorganization, moratorium
and other similar laws affecting the rights of creditors generally and subject
to the exercise of judicial discretion in accordance with principles of equity.
8.1.2 No Restrictions Against Sale of the Purchased Property. The
execution and delivery of this Agreement and the Ancillary Agreements by Seller
does not, and the fulfillment by Seller of its obligations under this Agreement
and the Ancillary Agreements will not (i) conflict with or violate any provision
of its certificate of incorporation or bylaws, (ii) subject to obtaining the
approvals and or consents referred to in Section 2.5, Article 4 and Schedule
8.1.11(a-f), conflict with, violate or result in the breach of any provision of
any Material Contract, or (iii) result in the creation of any Lien (other than
Permitted Encumbrances) upon any of the Purchased Property under (a) any
Material Contract or (b) any Law applicable
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to any of the Purchased Property, except in the case of clauses (ii) or (iii)
for any such conflict, violation, breach or Lien that would not have a Material
Adverse Effect.
8.1.3 Consents and Approvals of Governmental Authorities. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Authority is required to be obtained or made by or
with respect to Seller or in connection with the execution and delivery of this
Agreement by Seller or the fulfillment by Seller of its obligations under this
Agreement, except (i) FCC Consents and HSR Act clearance, (ii) the Regulatory
Approvals, and (iii) any consent approval, order or authorization or
registration declaration or filing, which if not obtained or made would not have
a Material Adverse Effect.
8.1.4 No Material Violations. Except as indicated in Schedule 8.1.4
or as would not reasonably be expected to have a Material Adverse Effect, (a)
the execution and delivery of this Agreement and the Ancillary Agreements and
the fulfillment by Seller of its obligations under this Agreement and the
Ancillary Agreements will not violate any applicable Law, and (b) Seller is not
in violation of any Law relating to or affecting the operation, conduct or
ownership of the Business or the Purchased Property.
8.1.5 Corporate Organization. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the state of
California, and is duly qualified to conduct business in California. Seller has
full power and authority to own its properties and to carry on the Business as
it is now being conducted and to own, or hold under lease the Purchased
Property. Seller holds valid permits, licenses, franchises, approvals and
authorizations issued or granted by any Governmental Authority and adequate for
the operation of the Business as currently conducted, except to the extent
absence of any such permit, license, franchise, approval or authorization would
not have an Material Adverse Effect.
8.1.6 Brokers. Seller has not paid or become obligated to pay any
fee or commission to any broker, finder, investment banker or other intermediary
in connection with the transactions contemplated by this Agreement in such a
manner as to give rise to a valid claim against Buyer for any broker's or
finder's fees or similar fees or expenses.
8.1.7 Title to Owned Real Property. Seller has good fee simple title
to all of the Owned Real Property, free and clear of any Lien other than
Permitted Encumbrances and Liens of the Bondholders identified on Schedule
8.1.7(b). As of the date hereof, the address and a general description of each
item of Owned Real Property are set forth on Schedule 8.1.7(a). Seller
represents that the only creditors that have a Lien (other than any Permitted
Encumbrances) on any of the Owned Real Property are the Bondholders identified
on Schedule 8.1.7(b).
8.1.8 Real Property Leases. As of the date hereof, set forth on
Schedule 8.1.8 is a list of the Real Property Leases. Each of the leases for the
Leased Real Property is enforceable in accordance with its terms, subject to
bankruptcy, insolvency and other similar laws affecting the rights of creditors
generally and subject to the exercise of judicial discretion in accordance with
the principles of equity, and except as otherwise disclosed in Schedule 8.1.8,
there is not under any lease any material default or a material breach of
covenant by Seller.
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8.1.9 Tangible Assets. All of the tangible Purchased Property is in
substantially good operating condition and repair, normal wear and tear
excepted. Except as set forth on Schedule 8.1.9 or elsewhere in this Agreement,
Seller has good title to each item of tangible Purchased Property (other than
Real Property Interests or office equipment or vehicles subject to leases) with
a fair market value in excess of $5,000, free and clear of any Lien (other than
Permitted Encumbrances). Except as set forth on Schedule 8.1.9, Seller has not
received any written notice within the past twelve (12) months of a violation of
any ordinances, regulations or building, zoning and other similar laws with
respect to such assets that would have a Material Adverse Effect. EXCEPT AS
EXPRESSLY PROVIDED IN THIS SECTION 8.1.9, SELLER MAKES NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, AS TO THE CONDITION OR FITNESS OF THE TANGIBLE
PURCHASED PROPERTY AND HEREBY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR WARRANTY AGAINST INFRINGEMENT.
8.1.10 No Material Adverse Change. Except as disclosed in Schedule
8.1.10, between December 31, 1997 and the date of this Agreement there has not
occurred (i) any event or condition that would have a Material Adverse Effect;
(ii) any increase in compensation payable or to become payable by Seller to any
of its Transferred Employees or agents, other than normal merit or promotional
increases other than payment under the retention pay program announced in
connection with the network business repositioning of Seller and its Affiliates;
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract; or (iv) any material change in any accounting
method, practice or policy of Seller with respect to the Business.
8.1.11 Material Contracts. Except for the agreements set forth on
Schedule 8.1.11 subparts (b) through (j), there is no Assigned Contract (other
than the Assigned Contracts entered into after the date of this Agreement in the
ordinary course of business) that is:
(a) an agreement containing a non-compete agreement or other
covenant that in either case would by its terms limit the freedom of Buyer
following the Closing to compete in any material respect with respect to the
Business with any third party;
(b) an agreement granting a Lien (other than a Permitted
Encumbrance);
(c) an agreement for the sale of any material Purchased
Property or grant of any preferential rights to purchase any material Purchased
Property;
(d) an agreement for the provision of telephone service at
public pay telephone locations;
(e) an agreement made in the ordinary course of business other
than as set forth above with respect to which the aggregate amount to be
received or paid thereunder with respect to calendar year 1999 is expected to
exceed $100,000 based on the terms of such agreement or on the payments which
have been made under such agreement with respect to calendar year 1998, to the
extent applicable;
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(f) an agreement not made in the ordinary course of business
with respect to which the aggregate amount to be received or paid thereunder
with respect to calendar year 1999 is expected to exceed $50,000 based on the
terms of such agreement or on the payments which have been made under such
agreement with respect to calendar year 1998, to the extent applicable;
(g) an agreement with respect to 911 services or E911
services;
(h) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Purchased Exchanges;
(i) an agreement between Seller and a third party for the
third party's co-location of equipment in facilities included in the Purchased
Property pursuant to which Seller is currently providing facilities or a request
to provide facilities is currently pending; or
(j) an agreement with a third party in which the owner of
utility poles has agreed to allow the other party to attach its
telecommunications equipment or facilities to the utility poles (a "Pole
Attachment Agreement").
Except as set forth on Schedule 8.1.11, to the knowledge of Seller,
each Assigned Contract referred to in any of the clauses (a) to (j) above
(collectively the "Material Contracts") is valid, binding and in full force and
effect and is enforceable by Seller or Seller's Affiliate, as applicable, in
accordance with its terms, except for any such failure to be valid, binding, in
full force and effect or enforceable that is not reasonably likely to have a
Material Adverse Effect. Except as set forth on Schedule 8.1.11, to the
knowledge of Seller, Seller and Seller's Affiliates have performed all material
obligations required to be performed by them to date under the Material
Contracts, and they are not (with or without the lapse of time or the giving of
notice, or both) in breach or default thereunder and, to the knowledge of
Seller, no other party to any Material Contract is (with or without the lapse of
time or the giving of notice, or both) in breach or default in any respect
thereunder, in each case except for such noncompliance, breaches and defaults
that, individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect. As of the date hereof, neither Seller nor any Seller's
Affiliate has, except as disclosed on Schedule 8.1.11, received or given any
written notice of the intention of any party to terminate any Material Contract.
Complete and correct copies of all the Material Contracts, together with all
modifications and amendments thereto to the date of this Agreement by Closing
will, have been made available to Buyer or its representatives.
8.1.12 Insurance. The Purchased Property of an insurable nature and
of a character usually insured by companies carrying on similar businesses is
insured under insurance policies or self insured in such amounts and against
such losses or casualties as is usual in Seller's industry. On the Closing Date,
the coverage under the insurance policies and programs applicable to the
Purchased Property will be terminated, and Buyer will be responsible for
providing all insurance coverage for the Purchased Property.
8.1.13 Taxes. Except as disclosed on Schedule 8.1.13, (i) all Tax
Returns required to be filed by Seller on or before the Closing Date have or
will have been filed, and all
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Taxes shown as due and payable on such Tax Returns have been or will be paid by
Seller when required by law; (ii) no deficiencies or assessments for any Taxes
have been asserted in writing or assessed against Seller that remain unpaid and
that individually or in the aggregate are material to the Business; (iii) Seller
has withheld all required federal, state and local payroll taxes relating to the
Business and has remitted or will remit all amounts required to be remitted to
the appropriate taxing authorities; (iv) there are no tax liens upon any of the
Purchased Property except for statutory liens covering taxes not yet due and
payable; (v) Seller is not a "foreign person" within the meaning of Section
1445(b)(2) of the IRC and shall provide an appropriate certificate for purposes
of Section 1445(b)(2) of the IRC and (vi) there are no material, current audits
or material audits for which written notice has been received (in either case,
specifically with respect to the Business).
8.1.14 No Material Claims or Suits. Except as disclosed in Schedule
8.1.14 or with respect to Taxes, there are no claims, actions, lawsuits or legal
proceedings pending before any Governmental Authority, or, to the knowledge of
Seller threatened against or affecting the Business or Purchased Property that
in Seller's opinion, if determined adversely to Seller, would reasonably be
expected to have a Material Adverse Effect on the Business or materially
adversely affect ability of Seller to consummate the transactions contemplated
hereby.
8.1.15 Tariffs; FCC Licenses.
(a) The regulatory tariffs applicable to the Business stand in
full force and effect on the date of this Agreement in accordance with all
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor is Seller subject to any restrictions or conditions applicable to
its regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material respect under any such tariff. Except as disclosed on
Schedule 8.1.15(a), there are no applications by Seller or petitions by others
or proceedings pending or threatened before the state regulatory authority
relating to the Business or its operations or the regulatory tariffs, other than
such applications, petitions or proceedings as may be brought in the ordinary
course of business or by end-users. To the knowledge of Seller, there are no
material violations by subscribers or others under any such tariff. A true and
correct copy of each tariff applicable to the Business has been delivered or
made available to Buyer.
(b) Listed on Schedule 8.1.15(b) are the FCC Licenses and
other material Assigned Permits (the "Material Permits") held by Seller and used
in the operation of the Business. Except as listed on Schedule 8.1.15(b), to
Seller's knowledge, each such FCC License or Material Permit is in full force
and effect on the date of this Agreement in accordance with its terms, and there
is no outstanding notice of cancellation or termination or, to Seller's
knowledge, any threatened cancellation or termination in connection therewith,
nor are any of such FCC Licenses or Material Permits subject to any restrictions
or conditions that limit the operation of the Business (other than restrictions
or conditions generally applicable to licenses or permits of that type). Subject
to the Communications Act of 1934, as amended, and the regulations thereunder,
the FCC Licenses are free from all security interests, liens, claims, or
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encumbrances of any nature whatsoever. There are no applications by Seller or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC Licenses that, in Seller's opinion, would reasonably
be expected to have a Material Adverse Effect on the Business, other than such
applications, petitions or proceedings as may be brought in the ordinary course
of business or by end-users.
8.1.16 Employee Matters.
(a) Schedule 8.1.16(a) lists (and identifies the sponsor of)
each "Employee Pension Benefit Plan," as that term is defined in Section 3(2) of
ERISA, each "Employee Welfare Benefit Plan," as that term is defined in Section
3(1) of ERISA (such plans being hereinafter referred to collectively as the
"ERISA Plans"), and each other retirement, pension, profit-sharing, money
purchase, deferred compensation, incentive compensation, bonus, stock option,
stock purchase, severance pay, unemployment benefit, vacation pay, savings,
medical, dental, post-retirement medical, accident, disability, weekly income,
salary continuation, health, life or other insurance, fringe benefit, or other
employee benefit plan, program, agreement, or arrangement maintained or
contributed to by Seller or its Affiliates in respect of or for the benefit of
any Transferred Employee or former employee of Seller, excluding any such plan,
program, agreement, or arrangement maintained or contributed to solely in
respect of or for the benefit of Transferred Employees or former employees
employed or formerly employed by Seller outside of the United States, as of the
date hereof (collectively, together with the ERISA Plans, referred to
hereinafter as the "Plans"). Schedule 8.1.16(a) also includes a list of each
written employment, severance, termination or similar-type agreement between
Seller and its Affiliates and any Transferred Employee (the "Employment
Agreements"). Seller has delivered to Buyer accurate and complete copies of all
Plans and Employment Agreements (or representative samples in the case of form
agreements) and, if applicable, summary plan descriptions with respect to such
Plans and Employment Agreements and summary descriptions of any such Plan or
Employment Agreement that is not otherwise in writing. Except for retention
bonuses paid in connection with the closing of the transactions contemplated by
this Agreement and except as otherwise disclosed on Schedule 8.1.16(a), the
execution and delivery of this Agreement by Seller and the performance of this
Agreement by Seller will not directly result now or at any time in the future in
the payment to any Transferred Employee of any severance, termination, or
similar-type payments or benefits being paid to any Transferred Employee.
(b) Except as set forth on Schedule 8.1.16(b):
(i) Neither Seller nor any of its Affiliates, any of the
ERISA Plans, any trust created thereunder, or any trustee or administrator
thereof, has engaged in any transaction as a result of which Seller or any of
its Affiliates could be subject to any material liability pursuant to Section
409 of ERISA or to either a civil penalty assessed pursuant to Section 502(i) of
ERISA or a tax imposed pursuant to Section 4975 of the IRC; and
(ii) Since the effective date of ERISA, no material
liability under Title IV of ERISA has been incurred or is reasonably expected to
be incurred by Seller or any of its Affiliates (other than liability for
premiums due to the PBGC), unless such liability has been, or prior to the
Closing Date will be, satisfied in full.
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(c) Except as set forth on Schedule 8.1.16(c), with respect to
the ERISA Plans other than those ERISA Plans identified on Schedule 8.1.16(a) as
"multiemployer plans":
(i) the PBGC has not instituted proceedings to terminate
any Plan that is subject to Title IV of ERISA (the "Retirement Plans");
(ii) none of the ERISA Plans has incurred an
"accumulated funding deficiency" (as defined in Section 302 of ERISA and Section
412 of the IRC), whether or not waived, as of the last day of the most recent
fiscal year of each of the ERISA Plans ended prior to the date of this
Agreement;
(iii) each of the ERISA Plans has been operated and
administered in all material respects in accordance with its provisions and with
all applicable laws;
(iv) each of the ERISA Plans that is intended to be
"qualified" within the meaning of Section 401(a) of the IRC and, to the extent
applicable, Section 401(k) of the IRC, has been determined by the IRS to be so
qualified, and nothing has occurred since the date of the most recent such
determination (other than the effective date of certain amendments to the IRC,
the remedial amendment period for which has not yet expired) that would
adversely affect the qualified status of any of such ERISA Plans;
(v) there are no pending material claims by or on behalf
of any of the ERISA Plans, by any employee or beneficiary covered under any such
ERISA Plan, or otherwise involving any such ERISA Plan (other than routine
claims for benefits and routine expenses);
(vi) each ERISA Plan which is a group health plan has
been operated and administered in compliance with the continuation coverage
provisions of Section 498B of the IRC and Part 6 of Title I of ERISA;
(vii) all contributions and premiums that would normally
be made or paid with respect to any ERISA Plan or Employment Agreement on behalf
of Transferred Employees as of the Closing Date will have been made by the
Closing Date; and
(viii) as of the Closing Date no Transferred Employee
will be excluded from coverage under any employee welfare benefit plan (as
defined in Section 3(1) of ERISA) maintained or contributed to by Seller.
(d) Except as set forth on Schedule 8.1.16(d), none of the
ERISA Plans is a "multiemployer Plan," as that term is defined in Section 3(37)
of ERISA, and with respect to any such multiemployer plans (as so defined)
listed in Schedule 8.1.16(d), Seller has not made or incurred a "complete
withdrawal" or a "partial withdrawal," as such terms are respectively defined in
Sections 4203 and 4205 of ERISA that would result in the incurrence of a
material liability by Seller. Except as set forth on Schedule 8.1.16(d), neither
Seller nor any Affiliates of Seller has made or incurred a "complete withdrawal"
or a "partial withdrawal" (as
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such terms are defined in Sections 4203 and 4205, respectively, of ERISA) that
would result in the incurrence of liability by Seller or its Affiliates, and the
performance of this Agreement will not result in such withdrawal(s) or
liability.
(e) Except as set forth on Schedule 8.1.16(e), (i) none of the
Transferred Employees are represented by a labor union or labor organization;
(ii) Seller is not subject to any collective bargaining agreement covering any
Transferred Employee; (iii) there are no current, or to the best knowledge of
Seller, any pending or threatened strikes, slowdowns, picketing, or work
stoppages affecting the Business or with respect to any Transferred Employee
covered by collective bargaining; (iv) there is no pending lockout by Seller of
any employees of the Business, and no such action is contemplated by Seller; (v)
to the best knowledge of Seller, there is no pending or threatened organizing
activity or petition for certification of a collective bargaining representative
involving employees of the Business and there has been none within the twelve
(12) months preceding the date of the Agreement; (vi) to the best knowledge of
Seller, there is no pending or threatened charge, action, complaint, or
proceeding of any nature against Seller relating to the violation of any
applicable state or federal labor or employment law or regulation in connection
with the Business, including any charge or complaint filed by any employee or
labor organization with the National Labor Relations Board, the Equal Employment
Opportunity Commission, or any other administrative governmental agency, nor is
there any other pending or threatened labor or employment dispute against or
affecting Seller in connection with the Business; (viii) with respect to
employees of the Business, Seller has complied in all respects with all laws
relating to employment, equal employment opportunity, nondiscrimination,
collective bargaining, wages, hours of work, employee benefits, occupational
safety and health, immigration, and plant closings; and (ix) Seller shall
provide employees of the Business with any required notices under any federal,
state, or municipal law or regulation concerning the termination of their
employment with Seller. Seller has delivered to Buyer accurate and complete
copies of all collective bargaining agreements affecting any of the Transferred
Employees.
(f) This Agreement shall not result in any Transferred
Employee becoming entitled to separation pay or severance which could be or
become an obligation of Buyer.
8.1.17 Schedules of Telephone Plant. Schedule 8.1.17 sets forth, as
of December 31, 1998, a materially accurate summary of the book value of the
Telephone Plant as reflected in Seller's continuing property records. Schedule
8.1.17 also sets forth a materially accurate list of the vehicles, trailers and
other mobile tools and mobile equipment that are part of the Purchased Property
as of May 7, 1999.
8.1.18 Schedule of Real Property Interests. To the knowledge of
Seller and as of the date of this Agreement, Schedule 8.1.18 sets forth a true
and accurate list of all its Real Property Interests.
8.1.19 Compliance with Existing Environmental Requirements. Except
as set forth in Schedule 8.1.19 or as would not have a Material Adverse Effect,
to the knowledge of Seller:
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(a) Seller's operation of the Business and the Purchased
Property has been and is presently in substantial compliance with Existing
Environmental Requirements;
(b) No environmental remediation is occurring on any parcel of
Owned Real Property or Leased Real Property nor has Seller or any Affiliate
issued a request for proposal or otherwise requested an environmental
remediation contractor to begin plans for such environmental remediation;
(c) No underground storage tanks ("USTs") or aboveground
storage tanks ("ASTs") are located on the Owned Real Property or Leased Real
Property;
(d) None of the Owned Real Property or Leased Real Property is
situated in a state or federal "superfund" site or study area; and
(e) Seller has delivered, or within 60 days after the date of
this Agreement will deliver, to Buyer complete copies of all reports and studies
relating to Seller's liability under or non-compliance with any Existing
Environmental Requirements in connection with Seller's operation of the Business
or use or ownership of the Purchased Property.
8.1.20 Environmental Permits. Except as set forth in Schedule
8.1.20, to the knowledge of Seller, it has obtained or filed for all necessary
environmental permits, authorizations and licenses required to operate the
Business or the Purchased Property, except where failure to obtain or file such
permits, authorizations and licenses would not have a Material Adverse Effect on
the Business.
8.1.21 Financial Statements. Schedules 8.1.21(a), 8.1.21(b) and
8.1.21(c) present the income statements, balance sheets and statements of cash
flows, respectively, for the Business for the years ended December 31, 1997 and
December 31, 1998 (collectively, the "Financial Statements"). The Financial
Statements have been prepared based on the books and records of Seller. Such
books and records have been maintained in accordance with GAAP, and where
required by law, the applicable regulations of the FCC and PUC. However, because
the Business represents only a portion of a larger entity, the Financial
Statements are based on the extensive use of estimates and allocations. Seller
believes these estimates and allocations have been performed on a reasonable
basis in accordance with GAAP. However, Buyer acknowledges that because Buyer is
not acquiring significant support elements located outside the Purchased
Exchanges, and the Buyer will operate under new tariffs, carrier contracts and
other conditions that will significantly impact the future revenues of the
Business, the Financial Statements may not be representative of the financial
performance of the Business during future periods.
8.1.22 Year 2000 Compliance.
(a) As of the Closing Date, Seller shall have caused the
modification or remediation of the Automated Assets in accordance with
applicable manufacturer or vendor recommendations such that the Automated Assets
are Year 2000 Compliant; provided that any and all Buyer or third-party supplied
computer software, computer firmware and computer hardware that directly
interfaces with the Automated Assets, co-exists with the Automated
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Assets, or indirectly influences the operation of the Automated Assets are also
demonstrated to be Year 2000 Compliant.
(b) Seller shall be deemed to be in satisfaction of the
requirements of subsection (a) of this Section 8.1.22 to the extent that Seller
has (i) performed on or before the Closing Date any modification or remediation
in accordance with applicable manufacturer or vendor recommendations for
achieving Year 2000 compliance or Year 2000 readiness, or (ii) received on or
before the Closing Date reasonable assurances from the applicable manufacturer
or vendor that an Automated Asset, without modification or remediation, is Year
2000 compliant or Year 2000 ready.
(c) When used in this Section 8.1.22, the following term shall
have the respective meanings given below:
"Automated Assets" means the computer software, computer
firmware, computer hardware (whether general or special purpose), documentation,
data, and other similar or related items of the automated, computerized, and/or
software system(s) that are provided by Seller to Buyer as part of the Purchased
Exchanges pursuant to this Agreement.
"Calendar-Related" refers to the date values based on
the Gregorian calendar, as defined in Encyclopedia Britannica, 15th edition,
1982, page 602, and to all uses in any manner of those date values, including
without limitation manipulations, calculations, conversions, comparisons and
presentations.
"Date Data" means any Calendar-Related data in the
inclusive range January 1, 1900 through December 31, 2050, which the Automated
Assets use in any manner.
"System Date" means any Calendar-Related data value in
the inclusive range January 1, 1985 through December 31, 2035 (including the
natural transition between such values) which the Automated Assets shall be able
to use as their current date while operating.
"Year 2000 Compliant" means:
(i) As of the Closing Date, in connection with
Calendar-Related data and Calendar-Related processing of Date Data or of any
System Date, the Automated Assets will not malfunction, will not cease to
function and will not produce incorrect results; and
(ii) As of the Closing Date, the Automated Assets will
represent dates without ambiguity as to century when providing Calendar-Related
data to and accepting Calendar-Related data from other automated, computerized
and/or software systems and users by way of user interfaces, electronic
interfaces and data storage.
8.1.23 Native American and Federal Consents. Except as set forth on
Schedule 8.1.23 or as would not have a Material Adverse Effect, to the knowledge
of the Seller:
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(a) Schedule 8.1.23 sets forth all material easements,
rights-of-way, franchises, licenses, permits, consents, approvals, certificates
and other authorizations of tribal authorities and the United States Bureau of
Indian Affairs (the "BIA") (collectively, the "Native American Authorizations")
held by Seller and relating to any Purchased Property located, or any operations
of the Business conducted, on Native American reservations;
(b) All such Native American Authorizations are in full force
and effect and Seller is not in default thereunder;
(c) There are no material claims, actions, lawsuits or other
proceedings pending or threatened with respect to any of the Purchased Property
located, or any operations of the Business conducted, on Native American
reservations, and no tribal authority has given written notice of any
cancellation, revocation, termination or material amendment or modification of
any Native American Authorization; and
(d) No material consent, approval or waiver from, or filing
with, any tribal authority or the BIA is required to be obtained or made in
connection with the execution and delivery by Seller of this Agreement, or
Seller's fulfillment of its obligations under this Agreement.
8.1.24 Loss of Major Customer. Except as set forth on Schedule
8.1.24, since January 1, 1997, Seller has not suffered the loss of any customer
of the Business for which Seller billed in excess of $50,000 annually during the
years ended December 31, 1997 or 1998.
8.1.25 Records. The continuing property records and other records
related to the Purchased Property maintained by Seller conform in all material
respects with the applicable rules and regulations of the FCC and PUC. Seller
has retained substantially all original cost documentation relating to the
Purchased Property regarding the expenditures made by Seller for the Telephone
Plant within the period required by applicable Law.
8.2 Representations and Warranties of Buyer. Buyer represents and warrants
to Seller as follows:
8.2.1 Corporate Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the state of Delaware
and is duly qualified to conduct business in California and has the requisite
corporate power and authority to own, lease or otherwise hold the assets owned,
leased or held by it.
8.2.2 Authorization and Effect of Agreement. Buyer has the requisite
corporate power and authority to execute and deliver this Agreement and the
Ancillary Agreements, to carry on the Business as presently conducted and to
fulfill all other obligations of Buyer under this Agreement and the Ancillary
Agreements. The execution and delivery by Buyer of this Agreement and the
Ancillary Agreements, and the fulfillment by it of its obligations under this
Agreement and the Ancillary Agreements have been duly authorized by all
necessary corporate action on the part of Buyer. Buyer has the requisite legal
capacity to purchase, own and hold the Purchased Property upon the consummation
of the sale of the Purchased Property. This Agreement and the Ancillary
Agreements have been duly executed and delivered by Buyer and,
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assuming the due execution and delivery of this Agreement and the Ancillary
Agreements by Seller, constitute valid and binding obligations of Buyer
enforceable in accordance with their terms subject to bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the rights of
creditors generally and subject to the exercise of judicial discretion in
accordance with principles of equity.
8.2.3 No Restrictions Against Purchase of the Purchased Properties.
The execution and delivery of this Agreement and the Ancillary Agreements by
Buyer do not, and the fulfillment by Buyer of its obligations under this
Agreement and the Ancillary Agreements will not, conflict with, violate or
result in the breach of any provision of the certificate of incorporation or
bylaws of Buyer or, conflict with, violate or result in the breach of any
contract to which Buyer is a party. No material consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority is required to be obtained or made by or with respect to Buyer in
connection with the execution and delivery of this Agreement by Buyer or the
fulfillment by Buyer of its obligations under this Agreement, except the filings
and approvals described in Article 4.
8.2.4 No Violation of Law. The execution and delivery of this
Agreement and the Ancillary Agreements and the fulfillment by Buyer of its
obligations under this Agreement and the Ancillary Agreements will not violate
any Law except to the extent any such violation would not have a material
adverse effect on the ability of Buyer to fulfill its obligations hereunder and
thereunder.
8.2.5 Financial Capacity.
(a) Buyer has sufficient cash or other sources of funds to pay
the Purchase Price in the manner specified in Section 3.1 and all related fees
and expenses.
(b) Buyer has sufficient financial resources to operate the
Business after the Closing Date. Without limiting the generality of the
foregoing, Buyer has sufficient financial resources to satisfy any applicable
requirement relating to financial capacity or capital imposed by any
Governmental Authority in any state in which the Business is conducted. Buyer is
solvent, is able to pay its debts as they become due, and owns property that has
both a fair value and a fair saleable value in excess of the amount required to
pay its debts as they become due.
8.2.6 Brokers. Buyer has not paid or become obligated to pay any fee
or commission to any broker, finder, investment banker or other intermediary in
connection with the transactions contemplated by this Agreement in such a manner
as to give rise to a valid claim against Seller for any broker's or finder's
fees or similar fees or expenses.
8.2.7 Consents and Approvals of Governmental Authority. Subject to
Article 4 with respect to Regulatory Approvals and FCC Consents, no consent,
approval or authorization of, or declaration, filing or registration with, any
Governmental Authority or regulatory authority is required in connection with
the execution, delivery and performance of this Agreement by Buyer or the
consummation by Buyer of the transactions contemplated herein, except for
filings
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with the Federal Trade Commission and Department of Justice pursuant to the HSR
Act, if required.
ARTICLE 9
CONTINUING BUSINESS RELATIONSHIPS
9.1 Transition Services Agreement. The parties agree to cooperate with
each other to ensure that the transition of the ownership of the Purchased
Property proceeds with minimal disruption to the services being provided to
subscribers. The parties agree that it may be necessary for Seller to assist
Buyer in converting Seller's systems and processes with respect to the Purchased
Property to Buyer's systems and processes. Seller and Buyer agree to execute a
separate "Transition Services Agreement" substantially in the form attached
hereto as Schedule 9.1 for the provision of such services.
9.2 Optional Services Agreement. It is understood and agreed that Buyer
may not have for a period of time after Closing Date, certain systems or
processes necessary to provide some basic customer services. Seller will at
Buyer's request and for the fees described in Schedule 9.2 provide any or all of
the services described in a separate "Optional Services Agreement" signed by the
parties substantially in the form attached hereto as Schedule 9.2.
9.3 Directory Publishing.
9.3.1 Assumption of Certain Directory Publishing Agreement Rights
and Obligations. Seller is party to a directories publishing agreement with [GTE
Directories Service Corporation n/k/a GTE Directories Corporation or GTE
Directories Corporation as purchaser of the rights and interests of Associated
Directory Services, Inc. f/k/a Mast Advertising and Publishing, Inc.] herein
"Publisher." This [These] agreement[s] is [are] identified in Schedule 9.3.1
attached hereto ("Publishing Agreement[s]"). Pursuant to this [these]
agreement[s] Publisher has the exclusive right and obligation to sell
advertising, and to publish, print and distribute directories containing
telephone numbers relating to the Purchased Exchanges.
Buyer agrees to execute an agreement effective as of the Closing to
assume and appropriately amend the Publishing Agreement[s] as it[they] relate to
the Purchased Exchanges, including the extension of the Contel Publishing
Agreements expiring prior to the Seller's Master Publishing Agreement which
expires December 31, 2001, so that such extensions expire on December 31, 2001.
If the directories for any of the Purchased Exchanges are published by a third
party non-Affiliate of Seller, then to the extent requested by Buyer, Seller
agrees to assist Buyer in obtaining such third party's consents to the
continuation of such publishing arrangements; provided that Seller shall have no
obligation to pay compensation or other consideration in connection with such
assistance.
9.3.2 Co-Bound Directories Acknowledgement. Buyer acknowledges that
Publisher may have a pre-existing obligation (which Publisher may choose to
continue) to sell advertising, publish, print and distribute the telephone
numbers of third party local exchange telephone companies in the same directory
as the Purchased Exchanges ("Co-Bound" directory). Co-Bound directory agreements
of which Seller is aware, if any, are identified on Schedule 9.3.2.
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9.3.3 Meeting to Discuss Directory Publication. Within ninety (90)
days following the date of this Agreement, Buyer agrees to meet with Seller and
Publisher for the purpose of having an initial discussion about the first
directory publication after the Closing Date. This meeting will be held at
Publisher's address unless otherwise agreed between the parties and Publisher.
All parties shall employ their respective commercially reasonable efforts to
ensure that directory publication is not interrupted following the Closing Date.
9.4 GTE Supply Relationship. Within 90 days of this Agreement, Buyer
agrees to meet with representatives of GTE Supply for purposes of negotiating in
good faith an agreement for GTE Supply to provide ongoing procurement and
materials management functions for the Business on substantially the same terms
as contained in the Buyer's existing agreement with GTE Supply; provided that
Buyer may negotiate in good faith with respect to any volume discounts that may
be available from GTE Supply.
ARTICLE 10
ADDITIONAL COVENANTS OF THE PARTIES
10.1 Intellectual Property.
10.1.1 No License. Buyer and Seller agree and understand that except
as expressly set forth in writing in the License Agreement and Section 10.1.3,
Seller has not granted any rights or licenses, express or implied, of, and
nothing shall constitute or be construed as a license of Seller under any
Intellectual Property now or hereafter owned, obtained or licensable by Seller
or under any Third Party Intellectual Property.
10.1.2 Infringement.
(a) Notwithstanding anything in this Agreement to the
contrary, Seller shall have no obligation to defend, indemnify or hold harmless
Buyer or any of its Affiliates, from any damages, costs or expenses resulting
from any obligation, proceeding or suit based upon any claim that any activity
subsequent to the Closing Date engaged in by Buyer, a customer of Buyer's or
anyone claiming under Buyer, constitutes direct or contributory infringement,
misuse of, or misappropriation of, or inducement to infringe, any Third Party
Intellectual Property.
(b) Buyer shall defend, indemnify and hold harmless Seller and
its Affiliates from and against any and all Indemnifiable Losses resulting from
any obligation, proceeding or suit based upon any claim alleging or asserting
direct or contributory infringement, or misuse or misappropriation of or
inducement to infringe by Seller or any of its Affiliates of any Third Party
Intellectual Property, to the extent that such claim is based on, or would not
have arisen but for, activity conducted or engaged in subsequent to the Closing
Date by Buyer, a customer of Buyer's, or anyone claiming under Buyer.
10.1.3 Trademark Phaseout.
(a) Buyer acknowledges that Seller or its Affiliates are the
owners of Excluded Marks that qualify as Excluded Property under Section 2.3.
Buyer understands and
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agrees that the Excluded Marks, or any right to or license of the Excluded
Marks, are not being transferred pursuant to this Agreement. Buyer acknowledges
the exclusive and proprietary rights of Seller and its Affiliates in the use of
the Excluded Marks, and Buyer agrees that it shall not use the Excluded Marks
(or any names, domain names, marks or indicia confusingly similar to the
Excluded Marks) except and to the extent expressly set forth in this Section
10.1.3 or assert any rights or claims in such Excluded Marks (or in any names,
domain names, marks or when confusingly similar to the Excluded Marks). After
the Closing, all Excluded Marks of Seller and its Affiliates shall be replaced
by Buyer, at Buyer's expense, as soon as possible, but in no event later than
one hundred twenty (120) days after the Closing Date for items with Excluded
Marks affixed to them which Buyer has continued to use in Buyer's operation of
the Business, including buildings, vehicles, heavy equipment, hard hats, tools,
tool boxes, kits (safety and others), signs, public (pay) telephones, manual
covers and notebooks. After the Closing, Buyer will not use, and will destroy or
deliver to Seller, all such items with Excluded Marks affixed to them that have
no valid continuing use in Buyer's operation of the Business, including items
affecting customer or employee relations or items that do not reflect Buyer's
true identity. Specific items to be destroyed or returned include items with
Excluded Marks affixed to them including giveaways; order, purchase or materials
forms; requisitions; invoices; statements; time sheets/labor reports; bill
inserts; stationery; personalized note pads; maps; organization charts;
bulletins/releases; sales/price literature; manuals or catalogs; report
covers/folders; program materials; and materials such as media contact
lists/cards. The one hundred twenty (120) day time period for replacement of
Excluded Marks affixed to telephone directories that were already published or
closed for publication at the Closing Date shall be extended to the expiration
date of such directories.
(b) Buyer recognizes the great value of the goodwill
associated with the Excluded Marks, and acknowledges that the Excluded Marks and
all rights therein and the goodwill pertaining thereto belong exclusively to
Seller and that the Excluded Marks have a secondary meaning in the minds of the
public. Buyer further agrees that any and all permitted use of the Excluded
Marks pursuant to this Agreement shall inure to the sole and exclusive benefit
of Seller.
(c) Buyer agrees that any permitted use of the Excluded Marks
in the operation of the Business after the Closing shall be provided in
accordance with all applicable federal, state and local laws, and that the same
shall not reflect adversely upon the good name of Seller or its Affiliates, and
that the operation of the Business will be of a high standard and skill.
(d) Buyer acknowledges that its failure to cease use of the
Excluded Marks as provided in this Agreement, or its improper use of the
Excluded Marks, will result in immediate and irreparable harm to Seller and its
Affiliates. Buyer acknowledges and admits that there is no adequate remedy at
law for such failure to terminate use of the Excluded Marks, or for such
improper use of the Excluded Marks. Buyer agrees that in the event of such
failure or improper use, Seller and its Affiliates shall be entitled to
equitable relief by way of temporary restraining order, or preliminary or
permanent injunction, or any other relief available under this Agreement.
(e) Buyer will not contest the ownership or validity of any
rights of Seller or its Affiliates in the Excluded Marks.
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10.1.4 Third Party Software. To the extent that the transfer of
Purchased Property by Seller to Buyer under this Agreement results in the
transfer of possession to Buyer of software that at the Closing Date is Third
Party Intellectual Property, which software was located in and rightfully used
by Seller in the geographical area of the Purchased Exchanges prior to the
Closing Date in the normal and ordinary operation of the Business pursuant to
Contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then subject to Section 2.5, effective as of
the Closing and provided that no payments to any Person other than a Switch
Software vendor (which, if any, shall be paid by Seller) are thereby required,
at Closing Seller shall assign to Buyer, and Buyer shall accept all rights and
licenses if any to posses and use such software pursuant to such Third Party
Intellectual Property Contracts. Buyer agrees that the acceptance by Buyer of
such assignment of the Third Party Intellectual Property Contracts includes the
assumption by Buyer of obligations under such Third Party Intellectual Property
Contracts, including all obligations necessary or incidental to the transfer of
such rights and licenses. Buyer understands and agrees that except as provided
above in this Section 10.1.4, or as expressly provided elsewhere in this
Agreement or in another written agreement between Buyer and Seller, no rights or
licenses to use or possess such software or any Third Party Intellectual
Property are transferred to Buyer. Buyer shall properly dispose of, and shall
not use, any software of which Buyer acquires possession in connection with
Purchased Property and (i) which, after the Closing Date, Buyer knows, or
reasonably should know, is not the subject of a Third Party Intellectual
Property Contract that has been rightfully transferred to Buyer or for (ii)
which Buyer does not have a separate license. Seller makes no warranty or
representation that any Third Party Intellectual Property Contract or any right
therein is assignable in whole or in part to Buyer.
10.2 Effect of Due Diligence and Related Matters.
(a) Buyer represents that it is a sophisticated entity that
was advised by knowledgeable counsel and financial advisors and, to the extent
it deemed necessary, other advisors in connection with this Agreement and has
conducted its own independent review and evaluation of the Purchased Property.
Accordingly, Buyer covenants and agrees that (i) except for the representations
and warranties set forth in this Agreement, Buyer has not relied and will not
rely upon any document or written or oral information furnished to or discovered
by it or its representatives, including any financial data, (ii) there are no
representations or warranties by or on behalf of Seller or its Affiliates or
representatives except for those expressly set forth in this Agreement, and
(iii) to the fullest extent permitted by law, Buyer's rights and obligations
with respect to all of the foregoing matters will be solely as set forth in this
Agreement.
(b) Upon the Closing, Buyer shall be deemed to have waived any
claim with respect to a breach of any representation, warranty, covenant or
obligation of Seller, or any failure of a condition, hereunder of which Buyer
had knowledge; provided that Buyer shall be deemed to have knowledge of the
information made available to Buyer and/or its representatives during its review
of the Purchased Property prior to the date of this Agreement, which information
is contained in the Due Diligence Documents.
(c) After the date of this Agreement and prior to the Closing
Date, Buyer shall promptly notify Seller if Buyer obtains knowledge of any
actual breach of any representation, warranty, covenant or obligation of Seller
or any actual or prospective failure of a
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condition, hereunder of which Buyer obtains knowledge. Failure to provide timely
notice shall be deemed to constitute a waiver of any claim with respect to such
breach.
10.3 Confidentiality. Whether or not the Closing occurs, the parties
hereto and their respective officers, directors, employees and representatives
will comply with the Confidentiality Agreement, the provisions of which are
expressly incorporated herein in their entirety by this reference.
10.4 Further Assurances. After the Closing, Seller will use its
commercially reasonable efforts to furnish to Buyer such other instruments and
information as Buyer may reasonably request in order to convey to Buyer title to
the Purchased Property, to be delivered from time to time upon Buyer's
reasonable request.
10.5 Prorations. The following liabilities shall be prorated between
Seller and Buyer: (i) utility charges (which shall include water, sewer,
electricity, gas and other utility charges) with respect to the Owned Real
Property, the property subject to the Real Property Leases and customer owned
equipment, (ii) rental charges (which shall include rental charges and other
lease payments under the Real Property Leases), (iii) personal services (these
services are charged for a period which includes the Closing Date; this shall
include contract labor), and (iv) real and personal property taxes, ad valorem
taxes, and franchise fees or taxes (collectively, "Periodic Taxes"). With
respect to measurement periods during which the Closing Date occurs (all such
periods of time being hereinafter called "Proration Periods"), the liabilities
described in clauses (i), (ii) and (iii) of the preceding sentence shall be
apportioned between Seller and Buyer as of the Closing Date, with Buyer bearing
only the expense thereof in the proportion that the number of days remaining in
the applicable Proration Period on and after the Closing Date bears to the total
number of days covered by such Proration Period. Periodic Taxes attributable to
Proration Periods shall be prorated between Buyer and Seller based on the
relative periods the Purchased Property was owned by each respective party
during the fiscal period of the taxing jurisdiction for which such taxes were
imposed by such jurisdiction (as such fiscal period is or may be reflected on
the bill rendered by such taxing jurisdiction). On the Closing Date, Buyer and
Seller shall pay or be reimbursed, on this prorated basis, for Periodic Taxes
that have been paid before the Closing Date. On the Closing Date, Buyer and
Seller shall also be reimbursed, on this prorated basis, for Periodic Taxes that
are to be paid on or after the Closing Date. The reimbursement of Periodic Taxes
that are to be paid on or after the Closing Date shall be based on a reasonable
estimate of the amount of such Periodic Taxes to be paid (based on past
experience). To the extent that Buyer or Seller are not reimbursed on the
Closing Date for Periodic Taxes that are paid after the Closing Date, or, in the
event the estimated amount of the preceding sentence proves to have been
inaccurate, Buyer or Seller shall promptly forward an invoice to the other party
for its reimbursable pro rata share, if any. If the other party does not pay the
invoice within thirty (30) calendar days of receipt, the amount of such payment
shall bear interest at the rate of eight percent (8%) per annum. Similarly, all
prepayments made or received by Seller or Buyer with respect to service or
maintenance agreements with third parties or license or other fees payable to or
by third parties and relating to the Business shall be prorated on an
appropriate basis between Seller and Buyer.
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10.6 Cost Studies/NECA Matters.
10.6.1 Prior to Closing. Seller agrees that, with respect to all
toll revenues, settlements, pools, separations studies or similar activities,
Seller shall be responsible for (and shall receive the benefit or suffer the
burden of) any adjustments to contributions, or receipt of funds, by Seller
resulting from any such activities that are related to the operation of the
Business or the ownership or operation of the Purchased Property prior to the
Closing Date. Specifically, this paragraph shall apply, but shall not be limited
to, any matters related to the National Exchange Carrier Association ("NECA")
including the Universal Service Fund ("USF"), Long Term Support ("LTS"), and
Telecommunications Relay Services funds.
10.6.2 From and After Closing.
(a) Buyer shall receive all USF funds, from and after the
Closing Date, as determined by USAC from data submitted by Seller prior to
Closing Date pursuant to FCC Rules and Regulations as stated in Part 36.611 and
Part 36.612 for rural carriers and Part 54 for non-rural carriers. After Closing
Date Buyer shall make all submissions and filings for USF funds for all years
for which Seller had not made a submission prior to Closing Date in accordance
with FCC Rules and Regulations. Within a reasonable time after Buyer's written
request, Seller shall furnish to Buyer such necessary information regarding
Seller's ownership of the Purchased Property during any year for which Buyer
shall make a submission, and such reasonable assistance as required in
connection with Buyer's preparation of necessary filings or submissions.
(b) Notwithstanding the foregoing, Buyer's right to receive
all USF revenue is conditioned upon Buyer's payment, from and after the Closing
Date, of all universal service contribution liability assessed by USAC based on
end-user retail revenues for the previous year generated by assets being sold.
10.7 Customer Deposits. Within thirty (30) days after Closing, Seller
agrees to transfer to Buyer the customer deposits together with any interest
accrued thereon (collectively "Customer Deposits"), together with all of
Seller's obligations and rights to hold the Customer Deposits of the Business,
up to the Closing Date, and Buyer agrees to hold, disburse and retain such
deposits so delivered to it as if it were Seller.
10.8 Access to Books and Records.
(a) After the Closing, Seller will retain all Retained Books
and Records for a period of three (3) years.
(b) After the Closing, upon reasonable notice and subject to
the Confidentiality Agreement, the parties will give to the representatives,
employees, counsel and accountants of the other, access, during normal business
hours, to books and records relating to the Business and the Purchased Property,
and will permit such persons to examine and copy such records, in each case to
the extent reasonably requested by the other party in connection with tax and
financial reporting matters (including any Tax Returns and related information,
but not attorney work product or similar work product prepared by accountants),
audits, legal
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proceedings, governmental investigations and other business purposes (including
such financial information and any receipts evidencing payment of taxes as may
be reasonably requested by Seller to substantiate any claim for tax credits or
refunds); provided, however, that nothing herein will obligate any party to take
actions that would unreasonably disrupt the normal course of its business or
violate the terms of any Contract to which it is a party or to which it or any
of its assets is subject. Seller and Buyer will cooperate with each other in the
conduct of any Tax audit or similar proceedings involving or otherwise relating
to the Business (or the income therefrom or assets thereof) with respect to any
Tax and each will execute and deliver such powers of attorney and other
documents as are necessary to carry out the intent of this Section 10.8(b).
10.9 Purchase Price Allocation. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
IRC. If Buyer and Seller agree to such Allocation prior to Closing, Buyer and
Seller covenant and agree that (i) the values assigned to the assets by the
parties' mutual agreement shall be conclusive and final for all purposes, and
(ii) neither Buyer nor Seller will take any position before any Governmental
Authority or in any judicial proceeding that is in any way inconsistent with
such Allocation. Notwithstanding the foregoing, if Buyer and Seller cannot agree
to an Allocation, Buyer and Seller covenant and agree to file and to cause their
respective Affiliates to file, all Tax Returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the IRC and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable Law.
10.10 Owned Real Property Transfers. Within sixty (60) days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies in Seller's possession covering the Owned Real Property.
Thereafter, no later than thirty (30) days before the Closing Date, Seller shall
deliver (at Seller's expense) to Buyer title commitments for owners' policies of
title insurance prepared by a title insurance company reasonably acceptable to
Buyer and a certified current survey, with respect to all Owned Real Property
included in the Purchased Property and in which Seller purports to own fee
title. Buyer acknowledges that such title commitments shall be for CLTA owners'
policies of title insurance (or its equivalent) unless Buyer has requested in
writing, prior to the date hereof, that such commitments be issued for other
forms of title insurance (in which event, Buyer shall bear all costs and
premiums for such title insurance to the extent attributable to such coverage
being in excess of CLTA coverage or its equivalent). Such title commitments
shall reflect that upon the consummation of the sale to Buyer contemplated by
this Agreement and the payment of all premiums and charges due for such title
insurance, Buyer will be vested with good, fee simple title to such Owned Real
Property, subject only to the exceptions show thereon, the title company's
standard exceptions and exclusions, and such matters that arise after the date
and time of such title commitment. Except as provided in the following sentence,
in the event that Buyer requires endorsements to such title commitments or the
applicable title insurance policies, such endorsements shall be obtained at
Buyer's sole cost and expense and shall not be a condition to Closing. On the
Closing Date, Seller shall convey the Owned Real Property to be transferred to
Buyer subject only to Permitted Encumbrances, provided that Seller may transfer
such property subject to one
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or more exceptions that are not Permitted Encumbrances if Seller commits in
writing, in form and substance reasonably acceptable to Buyer, on or before the
Closing Date, to cause any such exception that is not a Permitted Encumbrance to
be removed, insured or bonded over to Buyer's reasonable satisfaction, or if
Seller indemnifies Buyer with respect to such exceptions to Buyer's reasonable
satisfaction on or before the Closing Date. With respect to each parcel of Owned
Real Property covered by a title commitment referenced above, the amount of
title insurance provided under the applicable title insurance policy shall be
the fair market value of the applicable property, which shall be determined by
Buyer at its sole cost and expense using commercially reasonable methods of
valuation, provided that all such valuations shall be consistent with all
allocations of the Purchase Price made hereunder or pursuant to this Agreement,
and shall be acceptable to the title insurance company. The determination of
fair market value shall be made in a timely manner such that the title
commitments can be issued in a timely manner prior to the Closing Date. Seller
agrees that prior to Closing it will provide the title company with such
instructions, authorizations, affidavits, and indemnities as may be reasonably
necessary for the title company to issue title policies to Buyer, dated as of
the Closing Date, for all of the Owned Real Property with so-called
non-imputation endorsements. By no later than forty-five (45) days after the
Closing Date, Seller shall deliver to Buyer a final title insurance policy
covering each parcel of the Owned Real Property covered by the title
commitments. Buyer will use its commercially reasonable efforts to work with the
title company between the date hereof and fifty-five (45) days after Closing
Date to resolve any issues with respect to such title commitments. Seller shall
be responsible for the payment of all title insurance premiums attributable to
the CLTA portion of the coverage afforded by each such policy obtained, and
Buyer shall be responsible for the payment of all title insurance premiums in
excess of such amount and for the payment of all endorsement charges and other
fees and costs imposed by the title company.
10.11 Transaction Taxes. Buyer shall bear and be responsible for paying
any sales, use, transfer, documentary, registration, business and occupation and
other similar taxes (including related penalties (civil or criminal), additions
to tax and interest) imposed by any Governmental Authorities with respect to the
transfer of Purchased Property to Buyer (including the Owned Real Property)
("Transaction Taxes"), regardless of whether the tax authority seeks to collect
the such taxes from Seller or Buyer. Seller shall prepare all tax filings
related to any sales, use, transfer, documentary, registration, business and
occupation and other similar taxes. Seller, fifteen (15) days prior to making
such filings shall provide to the Buyer Seller's work papers for the Buyer's
review and approval. Buyer shall provide to the Seller ten (10) days prior to
the filing date approval of such work papers. Buyer shall also be responsible
for (i) administering the payment of such Transaction Taxes, (ii) defending or
pursuing any proceedings related thereto, and (iii) paying any expenses related
thereto. Seller shall give prompt written notice to Buyer of any proposed
adjustment or assessment of any Transaction Taxes with respect to the
transaction, or of any examination of said transaction in a sales, use, transfer
or similar tax audit. In any proceedings, whether formal or informal, Seller
shall permit Buyer to participate and control the defense of such proceeding,
and shall take all actions and execute all documents required to allow such
participation. Seller shall not negotiate a settlement or compromise of any
Transaction Taxes without the written consent of Buyer, which consent shall not
be unreasonably withheld.
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10.12 Bulk Sales Laws. Seller and Buyer waive compliance with applicable
laws under any version of Article 6 of the Uniform Commercial Code adopted by
any state or any similar law relating to the sale of inventory, equipment or
other assets in bulk in connection with the sale of the Purchased Property.
10.13 Prepaid Non-Regulated Maintenance Agreements. Within thirty (30)
days following Closing, Seller shall pay to Buyer an amount equal to the pro
rata portion of all prepaid but unearned revenues from Seller's customers for
all non-regulated maintenance agreements as of the Closing Date.
10.14 Vehicle Registration. Buyer agrees to use its commercially
reasonable efforts to file promptly the appropriate vehicle title applications
and registrations to change the name of the titled owner on each vehicle title
certificate and change the motor vehicle registration (with respect to license
plate information) on each vehicle being transferred to Buyer from Seller
pursuant to this Agreement. Buyer agrees that it shall remove and destroy
Seller's existing license plates from all vehicles received upon the earlier of
receipt of new license plates or sixty (60) days following Closing.
10.15 Carrier Access Billing and Accounts Receivable Transition. Seller
shall render its own final carrier access bills to its interexchange carriers
for minutes, messages and other applicable charges up to the Closing Date.
Seller shall be responsible for collecting and settling any disputes associated
with its final bills to the interexchange carriers.
10.16 End-User Billing and Accounts Receivable Transition. Buyer agrees to
purchase Seller's Earned End-User Accounts Receivable and make payment to Seller
for those accounts in the manner described below:
(a) Seller shall transfer to Buyer, as soon as reasonably
available after Closing, all open end-user customer account records to Buyer as
of the end of business on the Closing Date. Following the Closing, Buyer shall
be responsible for administering those records including the application of cash
receipts to customer accounts, whether related to services rendered before or
after the Closing. Seller shall promptly forward to Buyer all customer payments
and related remittance documents received by Seller after the Closing for
processing by Buyer.
(b) Within twenty (20) days following the Closing, Seller
shall provide an accounting to Buyer of the Earned End-User Accounts Receivable
Amount and the Customer Advances as well as the most recent twelve (12) month
history of Seller's uncollectible net writeoffs expressed as a percentage of
billings for the Business (the "Uncollectible Factor"). This data and the
resulting calculation of the Earned End-User Accounts Receivable Amount shall be
summarized in an accounts receivable settlement statement (the "Accounts
Receivable Settlement Statement"). Within thirty (30) days following the
Closing, Buyer shall remit to Seller an amount equal to 80% of the Earned
End-User Accounts Receivable Amount less 100% of the Customer Advances. Within
sixty (60) days following the Closing, Buyer shall remit an additional 15% of
the Earned End-User Accounts Receivable Amount and within ninety (90) days will
remit the final 5%.
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(c) Not later than ten (10) days prior to the due dates for
the sixty (60) and ninety (90) day payments referred to in Section 10.16(b),
Seller will provide Buyer with an updated Accounts Receivable Settlement
Statement reflecting any adjustments based upon non-sufficient funds checks,
billing adjustments or other facts that relate to pre-closing activity that
became known after the preparation of the original statement.
(d) If at any time during the ninety (90) day period following
the Closing, Buyer or Seller discovers any material discrepancy in the Accounts
Receivable Settlement Statement, both parties agree to use commercially
reasonable efforts to resolve any discrepancy in a timely manner, and also agree
to make payments related to any undisputed amounts as set forth above.
(e) At any time between ninety (90) and two hundred seventy
(270) days following the Closing, Buyer may, at its discretion, prepare an
analysis of actual bad debt write-off experience related to the Earned End-User
Accounts Receivable purchased from Seller. If such analysis reasonably
demonstrates that write-offs have exceeded the estimated amount in the final
Accounts Receivable Settlement Statement (as had been calculated using the
Uncollectible Factor) by more than 10%, Seller will pay to Buyer the full amount
of the difference within thirty (30) days of receipt of Buyer's request for
payment, together with Buyer's write-off analysis, Buyer will provide Seller
sufficient detail in its write-off analysis, and as reasonably necessary, access
to billing and collection records, to allow Seller to validate the accuracy of
Buyer's request. Any disputes regarding the amounts of such request shall be
settled using the procedure described in Section 3.3(d).
ARTICLE 11
EMPLOYEES AND EMPLOYEE MATTERS
11.1 Employment of Transferred Employees. Subject to the other provisions
of this Section 11.1, all Active Employees of Seller employed in the Business,
and all Active Employees of Seller and its Affiliates whose duties relate
primarily to the Business, on the Closing Date (hereinafter collectively
referred to as "Transferred Employees") shall be employed by (or become the
responsibility of, as applicable) Buyer as of the Closing Date in the same or
comparable positions, and at the same or comparable total compensation
(including base pay and bonus), as were in effect on the Closing Date, except as
otherwise provided in this Agreement. For purposes of the preceding sentence,
the term "Active Employees" shall include all full-time and part-time employees,
employees on military leave, maternity leave, leave under the Family and Medical
Leave Act of 1993, short-term disability, on layoff with recall rights, and
employees on other approved leaves of absence with a legal or contractual right
to reinstatement. For a period of twelve (12) months following the Closing Date,
Buyer shall not actively solicit either directly or indirectly through any
agents, and Buyer shall not permit any of its Affiliates to actively solicit
either directly or indirectly through any agents, any person who retires or
otherwise terminates from any employment at or in association with Seller during
the six-month period beginning three (3) months before the Closing Date, and
Buyer shall neither employ nor permit any of its Affiliates to employ any
individuals who are identified to Buyer by Seller as individuals who terminated
from any employment or association with Seller during such six-month period. On
or before the execution date of this Agreement, Seller shall have delivered to
Buyer a list of the persons who would have been Transferred Employees had the
Closing Date
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occurred on March 31, 1999, showing the following information for each such
person: (i) the name of each such person; (ii) the name of his or her current
employer; (iii) his or her current base pay, 1998 bonus and projected 1999
bonus; (iv) his or her hire date, any rehire date (if available) and years of
service; (v) his or her then-current position; (vi) whether such employee is (x)
subject to a collective bargaining agreement or represented by a labor
organization, if any, and including the name and date of each such bargaining
agreement or (y) on military leave, maternity leave, leave under the Family and
Medical Leave Act of 1993, short-term disability, on layoff with recall rights
or on other approved leave of absence with a legal or contractual right to
reinstatement; and (vii) for any employee who is not employed exclusively in the
Business, a description of the nature of his or her employment and the
percentage of his or her time actually allocated to the Business in calendar
year 1998. Seller shall update such list at such time or times requested by
Buyer, but not more often than as of the end of each calendar quarter occurring
between the execution date hereof and the Closing Date, commencing with the
quarter ending June 30, 1999, and as of the month ending immediately prior to
the Closing Date, in each case assuming the Closing Date had occurred on such
date, and shall deliver such updated lists to Buyer within ten (10) days after
the end of each such calendar quarter or month-end, as applicable. Any person
who is not on such list as updated as of the end of the month immediately
preceding the Closing Date shall not be a Transferred Employee, and for all
purposes under this Agreement the Transferred Employees shall include only those
persons on such list as updated as of such month-end who continue to be Active
Employees of Seller employed in the Business or Active Employees of Seller and
its Affiliates whose duties relate primarily to the Business, on the Closing
Date.
11.1.1 Assumption of Collective Bargaining Agreement Obligations. On
and after the Closing Date, Buyer, as successor employer to Seller, shall assume
all of the employer's obligations under, and be bound by the provisions of, each
collective bargaining agreement to the extent of provisions covering Transferred
Employees. Seller shall cooperate with Buyer in Buyer's efforts to contact the
unions representing Transferred Employees.
11.1.2 Assumption of Employment and Other Agreements. On and after
the Closing Date, except as otherwise provided in this Agreement or in Schedule
11.1.2, Buyer, as successor employer to Seller, shall assume all obligations of
each employment agreement or any other agreement by Seller relating to
conditions of employment, employment separation, severance, or employee benefits
in connection with the Transferred Employees, but only to the extent that they
have been disclosed to Buyer on Schedule 8.1.16(a) and copies have been
furnished to Buyer as soon as administratively practicable prior to the
execution of this Agreement. To the extent that Buyer assumes any obligations
under this Article 11, Buyer may reduce or eliminate benefits under any
agreement, plan, policy or program only to the extent required to comply with
applicable law, or to the extent that Seller, its Affiliates, or any successors
or assigns, make amendments or changes to its benefit plans, policies or
programs to eliminate or reduce benefits. Until the fifth anniversary of the
Closing Date, Seller promptly shall deliver to Buyer a copy of each material
amendment or change that Seller makes to its Plans and Employment Agreements to
eliminate or reduce benefits thereunder and shall confirm to Buyer on an annual
basis whether, and the extent to which, it has amended its Plans and Employment
Agreements and provide sufficient detail to enable Buyer to determine whether
Seller has reduced or eliminated benefits thereunder. After the fifth
anniversary of the Closing
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Date, Buyer may amend such plans, policies, and programs in any manner it
determines, consistent with applicable law and collective bargaining agreements.
11.1.3 Recognition of Transferred Employee Service. On and after the
Closing Date, and subject to the provisions of any applicable collective
bargaining agreement, and except as otherwise provided in this Article 11, Buyer
shall recognize the service of each Transferred Employee for all
employment-related purposes determined in accordance with the practices and
procedures of Seller in effect on the Closing Date, as if such service had been
rendered to Buyer.
11.1.4 Assumption of Obligation to Pay Bonuses. Transferred
Employees shall not accrue benefits under any employee benefit policies, plans,
arrangements, programs, practices, or agreements of Seller or any of its
Affiliates after the Closing Date. Buyer shall assume the obligation to pay to
Transferred Employees any bonuses that would have been payable to the
Transferred Employees with respect to the calendar year in which the Closing
Date occurs had the Transferred Employees remained employees of Seller or one of
its Affiliates, in accordance with the provisions of the policy, plan,
arrangement, program, practice or agreement under which the bonus would have
been paid.
11.1.5 No Duplicate Benefits. Nothing in this Agreement shall cause
duplicate benefits to be paid or provided to or with respect to a Transferred
Employee under any employee benefit policies, plans, arrangements, programs,
practices, or agreements.
11.1.6 Affiliate Employees. If any employee identified in the list
provided pursuant to Section 11.1 is an employee of an Affiliate of Seller whose
duties relate primarily to the Business, he or she shall be considered a
Transferred Employee and shall be treated under this Agreement in a manner that
is comparable to the treatment given to the Transferred Employees who are
employed by Seller, except that his or her service as of the Closing Date shall
be determined in accordance with the practices and procedures of his or her
employer, as disclosed to Buyer in accordance with Section 11.1.2.
11.2 Transferred Employee Benefit Matters.
11.2.1 Defined Benefit Plans.
(a) Seller Pension Plans. As of the date of this Agreement,
Seller participates in the following single-employer defined benefit pension
plans maintained in the United States:
(i) the GTE Service Corporation Plan for Employees'
Pensions (the "Seller Salaried Pension Plan"); and
(ii) the GTE Northwest/GTE California Plan for
Hourly-Paid Employees' Pensions (collectively, the "Seller Hourly Pension
Plan").
The plans identified in this Section 11.2.1(a) shall be referred to
collectively in this Agreement as the "Seller Pension Plans," and each such plan
shall be referred to individually as a "Seller Pension Plan."
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(b) Buyer Obligations. Buyer shall take all actions necessary
and appropriate to ensure that, as soon as practicable after the Closing Date,
Buyer maintains or adopts one or more pension plans (hereinafter referred to in
the aggregate as the "Buyer Pension Plans" and individually as the "Buyer
Pension Plan") effective as of the Closing Date and to ensure that each Buyer
Pension Plan satisfies the following requirements as of the Closing Date: (i)
the Buyer Pension Plan is a qualified, single-employer defined benefit plan
under Section 401(a) of the IRC; (ii) any Buyer Pension Plan that was in effect
before the Closing Date shall not have any "accumulated funding deficiency," as
defined in Section 302 of ERISA and Section 412 of the IRC, whether or not
waived, immediately before the Closing Date; (iii) the Buyer Pension Plan is not
the subject of termination proceedings or a notice of termination under Title IV
of ERISA; (iv) the Buyer Pension Plan does not exclude Transferred Employees
from eligibility to participate therein; (v) the Buyer Pension Plan does not
violate the requirements of any applicable collective bargaining agreement; and
(vi) with respect to Transferred Employees who were participants in the Seller
Hourly Pension Plan by virtue of their coverage under a collective bargaining
agreement on the Closing Date, the terms of the Buyer Pension Plan are
substantially identical in all material respects to the terms of the Seller
Hourly Pension Plan. For purposes of this Section 11.2.1, Transferred Employees
who were participants in the Seller Hourly Pension Plan other than by virtue of
their coverage under a collective bargaining agreement on the Closing Date shall
be treated as Transferred Employees who, on the Closing Date, participate in the
Seller Salaried Pension Plan. Within the 30-day period immediately preceding any
transfer of assets and liabilities from a Seller Pension Plan to a Buyer Pension
Plan pursuant to this Section 11.2.1(b), Buyer shall provide Seller with a
written certification, in a form acceptable to Seller, that the Buyer Pension
Plan satisfies each of the requirements set forth in this Section 11.2.1(b).
(c) Transfer of Liabilities.
(i) In accordance with the provisions of this Section
11.2.1, Buyer shall cause the Buyer Pension Plans to accept all liabilities for
benefits under the Seller Pension Plans, whether or not vested, that would have
been paid or payable (but for the transfer of assets and liabilities pursuant to
this Section 11.2.1) to or with respect to the Transferred Employees under the
terms of the Seller Pension Plans and that are "Section 411(d)(6) protected
benefits" (as defined by Section 411(d)(6) of the IRC and the regulations
thereunder) that have accrued under the Seller Pension Plan to or with respect
to the Transferred Employees based on accredited service and compensation under
the Seller Pension Plans as of the Closing Date. For a period of not less than
five (5) years after the Closing Date, and unless otherwise required to comply
with applicable law or permitted by Section 11.1.2, Buyer shall not amend the
Buyer Pension Plans, or permit the Buyer Pension Plans to be amended, to
eliminate any benefit, whether or not vested, with respect to which liabilities
are transferred pursuant to the foregoing provisions of this subsection (i), to
the extent any such benefit is a "Section 411(d)(6) protected benefit" (as
defined by Section 411(d)(6) of the IRC and the regulations thereunder). On or
before the Closing Date, Seller or an Affiliate thereof shall take action to
fully vest Transferred Employees in their benefits (if any) under the Seller
Pension Plans.
(ii) (A) For purposes of eligibility and vesting under
the Buyer Pension Plans, each Transferred Employee whose accrued benefit is
transferred from a
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Seller Pension Plan to a Buyer Pension Plan shall be credited
with service as of the Closing Date as determined under the terms of the Seller
Pension Plan. The benefit under the Buyer Pension Plan for each Transferred
Employee who, on the Closing Date, participates in the Seller Hourly Pension
Plan by virtue of his or her coverage under a collective bargaining agreement,
shall be calculated under terms of the Buyer Pension Plan that are substantially
identical in all material respects to the terms of the Seller Hourly Pension
Plan. The benefit for each Transferred Employee who, on the Closing Date,
participates in the Seller Salaried Pension Plan, shall not be less than the
greater of (x) the sum of the Transferred Employee's "Seller Pension" and "Buyer
Pension," or (y) the Transferred Employee's "Total Service Pension," each as
determined under the rules set forth in subsection (c)(iii) of this Section
11.2.1.
(B) Except as provided in paragraph (E), below, each
Transferred Employee who, as of the Closing Date, participates or formerly
participated in the Seller Salaried Pension Plan and who, under the terms of the
Seller Salaried Pension Plan, has at least 15 years of accredited service and
combined years of age and accredited service of at least 74 as of the Closing
Date shall be eligible, after the Transferred Employee's employment with the
Buyer and its Affiliates is terminated and after the Transferred Employee's
combined years of age and years of accredited service equal or exceed 76, to
receive his or her "Seller Pension" (as determined under the rules set forth in
subsection (c)(iii) of this Section 11.2.1) as an immediate early retirement
pension under the applicable Buyer Pension Plan in accordance with early
retirement provisions that are no less favorable to the Transferred Employee
than the early retirement provisions of the Seller Salaried Pension Plan as of
the Closing Date. For a period of at least five (5) years following the Closing
Date, the Buyer shall cause any agreement, pursuant to which the accrued benefit
of any Transferred Employee under a Buyer Pension Plan is transferred to another
pension plan, to incorporate a provision in substance identical to this
subsection (ii)(B).
(C) Except as provided in paragraph (E), below, the
benefit under the Buyer Pension Plan of a GATT Grandfathered Participant, when
expressed in the form of a lump sum, shall not be less than the benefit under
the Buyer Pension Plan determined without regard to the changes to Section 417
of the IRC made by the Uruguay Round Agreements Act. The method used to convert
a GATT Grandfathered Participant's accrued benefit into a lump-sum amount under
the Buyer Pension Plan after 1999 shall be not less favorable to a GATT
Grandfathered Participant than the method used for similar purposes by the
Seller Pension Plan. For purposes of this paragraph (c)(ii)(C), "GATT
Grandfathered Participant" shall mean a Transferred Employee (x) with respect to
whom liabilities are transferred pursuant to this subsection (c) and (y) who,
taking service from Buyer into account as service with Seller, would have been
eligible under the Seller Pension Plan, but for the transfer of liabilities
pursuant to this subsection (c), to have his benefit under the Seller Pension
Plan (when expressed in the form of a lump sum) determined without regard to the
changes to Section 417 of the IRC made by the Uruguay Round Agreements Act.
(D) Except as provided in paragraph (E), below, each
Transferred Employee who, as of the Closing Date, participates or formerly
participated in the Seller Hourly Pension Plan shall be eligible, after the
Transferred Employee's employment with Buyer and its Affiliates is terminated,
to receive an early retirement pension under the Buyer
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Pension Plan in accordance with early retirement provisions that are no less
favorable to the Transferred Employee than the early retirement provisions of
the Seller Hourly Pension Plan as of the Closing Date.
(E) Notwithstanding paragraphs (B), (C), and (D), above,
if the actuary for the Buyer Pension Plan certifies in writing (with a copy to
Seller) that the Buyer Pension Plan will violate the requirements imposed by
Treasury Regulation section 1.401(a)(4)-4 unless certain benefits otherwise
called for by such paragraphs are not provided by the Buyer Pension Plan, Buyer
shall cause such benefits to be provided under a nonqualified deferred
compensation plan, rather than under the Buyer Pension Plan, at the same time
and in the same form as they otherwise would have been provided under the Buyer
Pension Plan; provided that (1) such benefits shall be provided by the Buyer
Pension Plan to the maximum extent possible without causing the Buyer Pension
Plan to violate Treasury Regulation section 1.401(a)(4)-4; and (2) to the extent
that any benefit payable outside of the Buyer Pension Plan pursuant to this
paragraph (E) is payable to an individual who is not a member of a "select group
of management or highly compensated employees" within the meaning of Sections
201(2), 301(a)(3), and 401(a)(1) of ERISA, Buyer shall cause a cash payment or
payments to be made to each such individual within 24 months of the termination
of the individual's employment with Buyer, in addition to all other payments due
or otherwise payable to such individual, in an amount that is reasonably
calculated to be actuarially equivalent, on a pre-tax basis, to the value of
such benefit.
(iii) (A) The Buyer Pension Plan benefit of a Transferred Employee
who, on the Closing Date, participates in the Seller Hourly Pension Plan by
virtue of his or her coverage under a collective bargaining agreement, shall be
calculated as set forth in paragraph (c)(ii)(A) of this Section 11.2.1.
(B) The Buyer Pension Plan benefit of a Transferred
Employee who, on the Closing Date, participates in the Seller Salaried Pension
Plan, shall be calculated by applying the benefit formula set forth in paragraph
(c)(ii)(A) of this Section 11.2.1, in accordance with the rules described in the
remainder of this paragraph (B). A Transferred Employee's "Seller Pension" shall
be calculated by applying the benefit formula under the Seller Salaried Pension
Plan (as in effect on the Closing Date) to the Transferred Employee's service
and compensation credited under the Seller Salaried Pension Plan as of the
Closing Date. A Transferred Employee's "Buyer Pension" shall be not less than an
amount calculated by applying the benefit formula under the Buyer Pension Plan
to the Transferred Employee's total accredited service and compensation under
the Buyer Pension Plan (including service and compensation credited under the
Seller Salaried Pension Plan as of the Closing Date as if such service and
compensation had been earned under the Buyer Pension Plan and service and
compensation credited under the Buyer Pension Plan after the Closing Date),
multiplied by the ratio of accredited service earned after the Closing Date to
such total accredited service; provided that for a period of at least five (5)
years following the Closing Date, Buyer shall cause the benefit formula used in
determining such "Buyer Pension" to provide "section 411(d)(6)" benefits at
least as valuable as were provided under the benefit formula applicable to the
Transferred Employee under the Seller Salaried Pension Plan on the Closing Date.
A Transferred Employee's "Total Service Pension" shall be calculated by applying
the benefit formula under
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the Buyer Pension Plan (before its amendment to reflect the five (5) year
inclusion of Seller's formula) to the Transferred Employee's accredited service
(including service and compensation credited with the Seller under the Seller
Salaried Pension Plan as of the Closing Date as if such service and compensation
was earned under the Buyer Pension Plan and service and compensation credited
under the Buyer Pension Plan on and after the Closing Date). For purposes of
computing a Transferred Employee's "Total Service Pension," compensation
received by such a Transferred Employee from the Seller shall be treated as
compensation received from the Buyer. The Seller Pension, the Buyer Pension, and
the Total Service Pension shall take into account the Transferred Employee's
actual age and entire period of service (including service credited under the
Seller Salaried Pension Plan as of the Closing Date and service credited under
the Buyer Pension Plan on and after the Closing Date) for vesting and benefit
eligibility purposes.
(C) Each Transferred Employee who is eligible to receive
a benefit under the Buyer Pension Plan may elect to receive the portion of said
benefit that is equal to the Seller Pension in any form, and with any early
retirement or other actuarial subsidy, that was available under the Seller
Pension Plan on the Closing Date, without regard to whether the Transferred
Employee is eligible to elect or receive, or does elect or receive, the same
form of payment or early retirement or actuarial subsidy for the remainder of
the pension under the Buyer Pension Plan.
(iv) Within sixty (60) days after the Closing Date,
Seller shall deliver to Buyer a list reflecting each Transferred Employee's
service and compensation under each of the Seller Pension Plans and each
Transferred Employee's accrued benefit thereunder as of the Closing Date.
(d) Transfer of Assets.
(i) In accordance with the provisions of subsection (d)
(i) of this Section 11.2.1 and subject to the provisions of subsection (d)(vi)
of this Section 11.2.1, Seller shall direct the trustee of the Seller Pension
Plans to transfer to the trustee or funding agent of the Buyer Pension Plan the
amount required to be transferred by Section 414(l) of the IRC and the
regulations thereunder for all Transferred Employees whose accrued benefits are
transferred to a Buyer Pension Plan pursuant to Section (c) of this Section
11.2.1, determined using the following assumptions (the "Pension Assets"):
Interest Rate: Rate used to value annuities under PBGC Regulation
ss. 4044.52(a)(1) for the month in which the Closing Date occurs
Annual Rate of Increase in Salaries: 0%
Annual Rate of Increase in Social Security Taxable Wage Base: 0%
Annual Rate of Increase in Consumer Price Index: 0%
Annual Rate of Increase in Limits on Benefits and Compensation: 0%
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Mortality: Rates specified under PBGC Regulation ss. 4044.53(c)
Termination: None
Disability: None
Retirement: Expected retirement age as specified under PBGC
Regulation ss. 4044.55
Lump Sums: None
All other demographic assumptions to match those used by Seller in
the preparation of financial statement disclosures under Statement
of Financial Accounting Standards No. 87 for the 1998 fiscal year.
In no event shall the amount of Pension Assets transferred be less
than the Projected Benefit Obligation associated with all the
liabilities being assumed in the aggregate in Section 11.2.1(c)
using the assumptions specified by Seller in the preparation of its
financial statement disclosures under Statement of Financial
Accounting Standards No. 87 for the 1998 fiscal year.
The Pension Assets shall be transferred in cash. Except in the case of an
arithmetical error in the calculation of the amount of Pension Assets to be
transferred, under no circumstances shall Seller or the Seller Pension Plans be
liable to transfer any additional amount to Buyer or a Buyer Pension Plan or any
other person in respect of the accrued benefits transferred to a Buyer Pension
Plan pursuant to Section (c) of this Section 11.2.1, including but not limited
to any circumstance under which any person (including a governmental agency)
states a claim to some portion or all of the Pension Assets.
(ii) Seller shall appoint an actuary ("Seller's
Actuary") to determine the amount to be transferred pursuant to subsection
(d)(i) of this Section 11.2.1 and shall provide such determination to Buyer,
together with a computer file containing all of the data used by Seller's
actuary to calculate Pension Assets, within ninety (90) days after the Closing
Date. Buyer shall appoint an actuary ("Buyer's Actuary") who shall have the
right to audit and review the determination made by Seller's Actuary. If Buyer's
Actuary is unable to agree with Seller's Actuary on the amount of the transfer
within ninety (90) days after Seller informs Buyer of the amount to be
transferred and provides Buyer with the computer file containing all of the data
used by Seller's actuary to calculate Pension Assets, Seller and Buyer shall
jointly select a third actuary, whose determination shall be binding on Seller
and Buyer. Each of Seller and Buyer shall bear the fees, costs and expenses of
their respective actuaries, and the fees, costs, and expenses of the third
actuary shall be borne one-half by Seller and one-half by Buyer.
(iii) Interest on the Pension Assets shall accrue from
the Closing Date to the actual date of transfer at the assumed discount rate
used in accordance with paragraph (i) of this Section (d); provided that any
Pension Assets that are distributed from the Seller Pension Plans before the
date of transfer pursuant to subsection (d)(vi) of this Section 11.2.1
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shall be credited with interest (such interest to be credited to the Buyer
Pension Plans) only from the Closing Date to the date of distribution.
(iv) Under the terms of each Buyer Pension Plan, the
accrued benefit of each Transferred Employee immediately after the transfer of
assets and liabilities pursuant to this Section 11.2.1 shall not be less than
the sum of each Transferred Employee's accrued benefits under the Seller Pension
Plan and the Buyer Pension Plan immediately before the transfer of assets and
liabilities. Neither Seller nor its Affiliates nor the Seller Pension Plans nor
any trustee thereof shall retain any liability for benefits under the Seller
Pension Plans for any Transferred Employee with respect to whom cash has been
transferred to a Buyer Pension Plan pursuant to this Section 11.2.1 or
distributed pursuant to subsection (d)(vi) of this Section 11.2.1.
(v) In connection with the transfer of assets and
liabilities pursuant to this Section 11.2.1, Seller and Buyer shall cooperate
with each other in making all appropriate filings required by the IRC or ERISA
and the regulations thereunder, and the transfer of assets and liabilities
pursuant to this Section 11.2.1 shall not take place until as soon as
practicable after the latest of (i) the expiration of the 30-day period
following the filing of any required notices with the IRS pursuant to Section
6058(b) of the IRC, or (ii) the date Buyer has delivered to Seller (xx) a copy
of the Buyer Pension Plan and a copy of the most recent determination letter
from the IRS to the effect that the Buyer Pension Plan is qualified under
Section 401(a) of the IRC, together with documentation reasonably satisfactory
to Seller of the due adoption of any amendments to the Buyer Pension Plan
required by the IRS as a condition to such qualification and a certification
from Buyer that no events have occurred that adversely affect the continued
validity of such determination letter (apart from the enactment of any Federal
law for which the remedial amendment period under Section 401(b) of the IRC has
not yet expired), and (yy) information enabling the enrolled actuary for the
Buyer Pension Plan to issue the certification required by Section 6058(b) of the
IRC.
(vi) (A) If, after the Closing Date and before the date
of transfer of assets and liabilities from the Seller Pension Plans pursuant to
this Section 11.2.1, the accrued benefit as of the Closing Date becomes payable
under a Seller Pension Plan to or with respect to a Transferred Employee, Buyer
shall (xx) furnish GTE Service Corporation with a copy of a properly completed
application for such benefits, and (yy) direct GTE Service Corporation to
instruct the trustee of the Seller Pension Plan to make benefit payments in the
form and amount determined by GTE Service Corporation in accordance with the
properly completed application for benefits. Seller shall cause GTE Service
Corporation to comply with any such direction.
(B) Notwithstanding anything herein to the contrary,
the assets and liabilities to be transferred from the trustee of the Seller
Pension Plans to the trustee or funding agent of the Buyer Pension Plan pursuant
to this Section 11.2.1 shall be reduced, as provided in this subsection (vi), to
reflect any benefit payments made pursuant to this subsection (vi) regardless of
the form in which paid and any expenses described in paragraph (B) of this
subsection (vi) that have not otherwise been paid pursuant to this subsection
(vi).
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11.2.2 Savings Plans.
(a) As of the date of this Agreement, Seller participates in
the GTE Savings Plan and the GTE Hourly Savings Plan (collectively referred to
as the "Seller Savings Plans"). Except as provided in Section (g) of this
Section 11.2.2, Transferred Employees shall not be entitled to make
contributions to or to benefit from matching or other contributions under the
Seller Savings Plans on and after the Closing Date.
(b) Buyer shall take all action necessary and appropriate to
ensure that, as soon as practicable after the Closing Date, Buyer maintains or
adopts one or more savings plans (hereinafter referred to in the aggregate as
the "Buyer Savings Plans" and individually as the "Buyer Savings Plan")
effective as of the Closing Date and to ensure that each Buyer Savings Plan
satisfies the following requirements as of the Closing Date: (i) the Buyer
Savings Plan is a qualified, single-employer individual account plan under
Section 401(a) of the IRC; (ii) the Buyer Savings Plan does not exclude
Transferred Employees from eligibility to participate therein; (iii) the Buyer
Savings Plan permits Transferred Employees to make before-tax contributions
(under Section 401(k) of the IRC) and provides for matching contributions by the
Buyer; and (iv) the Buyer Savings Plan does not violate the requirements of any
applicable collective bargaining agreement. Within the thirty (30) day period
immediately preceding any transfer of assets and liabilities from a Seller
Savings Plan to a Buyer Savings Plan pursuant to this Section 11.2.2, Buyer
shall provide Seller with a written certification, in a form acceptable to
Seller, that the Buyer Savings Plan satisfies each of the requirements set forth
in this Section (b).
(c) (i) Seller shall fully vest the Transferred Employees in
their account balances under the Seller Savings Plan as of the Closing Date and
shall direct the trustee of the Seller Savings Plans to transfer to the trustee
or funding agent of the Buyer Savings Plans an amount in cash equal in value to
the account balances of the Transferred Employees covered by the Seller Savings
Plans as of the date of the transfer; provided that to the extent the account
balances to be transferred consist in whole or in part of outstanding loans,
Seller shall direct the trustee of the Seller Savings Plans to transfer to the
trustee or funding agent of the Buyer Savings Plans, in lieu of cash, the
promissory notes and related documents evidencing such loans. Buyer and Seller
shall take such actions as may be required to effect the assignment of such
loans by the trustee of the Seller Savings Plan to the trustee or funding agent
of the Buyer Savings Plan, and Buyer shall cause the trustee or funding agent of
the Buyer Savings Plan to accept the assignment of such loans.
(ii) After the date of the transfer of assets and
liabilities pursuant to this Section 11.2.2, Buyer shall assume all liabilities
for the benefits payable to or with respect to such Transferred Employees under
the Seller Savings Plans, and Seller and the Seller Savings Plans and their
implementing trust shall retain no liability for such benefits.
(d) For purposes of eligibility and vesting under the Buyer
Savings Plans, each Transferred Employee shall be credited with service as of
the Closing Date as determined under the terms of the Seller Savings Plans. As
soon as practicable after the Closing Date, Seller shall cause GTE Service
Corporation to deliver to Buyer a list of the Transferred Employees covered by
the Seller Savings Plans, together with each Transferred Employee's service
under each of the Seller Savings Plans as of the Closing Date.
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(e) In connection with the transfer of assets and liabilities
pursuant to this Section 11.2.2, Seller and Buyer shall cooperate with each
other in making all appropriate filings required by the IRC or ERISA and the
regulations thereunder, and the transfer of assets and liabilities pursuant to
this Section 11.2.2 shall not take place until as soon as practicable after the
latest of (i) the expiration of the thirty (30) day period following the filing
of any required notices with the IRS pursuant to Section 6058(b) of the IRC, and
(ii) the date Buyer has delivered to Seller (xx) a copy of the Buyer Savings
Plan and a copy of the most recent determination letter from the IRS to the
effect that the Buyer Savings Plan is qualified under Sections 401(a) and 401(k)
of the IRC, together with documentation reasonably satisfactory to Seller of the
due adoption of any amendments to the Buyer Savings Plan required by the IRS as
a condition to such qualification and a certification from Buyer that no events
have occurred that adversely affect the continued validity of such determination
letter (apart from the enactment of any Federal law for which the remedial
amendment period under Section 401(b) of the IRC has not yet expired).
(f) As of the Closing Date, Seller shall cause GTE Service
Corporation to deliver to Buyer a list of the Transferred Employees who have
outstanding loans under the Seller Savings Plans, together with copies of said
Transferred Employees' notes, disclosure statements, and security agreements
under the Seller Savings Plans. Seller shall also notify Buyer within thirty
(30) days after the Closing Date of any Transferred Employee who initiated a
loan within thirty (30) days before the Closing Date. Subject to obtaining the
consent of the applicable Transferred Employee if required by law, from the
Closing Date until the earliest of (i) the actual date of transfer of assets and
liabilities pursuant to this Section 11.2.2; (ii) the full amortization of the
Transferred Employee's indebtedness; (iii) the distribution of the entire
balance of the Transferred Employee's accounts; or (iv) the last date on which
Buyer or one of its Affiliates pays remuneration to the Transferred Employee,
Buyer or its Affiliate shall (x) continue the payroll deductions pursuant to
which each such Transferred Employee is discharging indebtedness to a Seller
Savings Plan and (y) remit the deducted funds to Fidelity Management Trust
Company, the trustee of the Seller Savings Plans, as soon as practicable, but in
no event more than thirty (30) days, after the date of deduction, together with
an accounting that identifies the Transferred Employees with respect to whom the
funds were deducted and the amount deducted for each Transferred Employee. All
such remitted funds shall be transferred to the appropriate Seller Savings Plan
and applied to reduce the appropriate Transferred Employee's outstanding
indebtedness. Buyer's obligations under this Section (f) are limited to payroll
deductions of loan repayments by the Transferred Employees and remittance of
those funds, and nothing herein shall be construed to obligate Buyer to repay to
Seller any portion of the outstanding indebtedness of the Transferred Employees
that are not otherwise discharged by the Transferred Employees themselves.
(g) Seller shall make all required matching contributions with
respect to the Transferred Employees' contributions made to the Seller Savings
Plan by the Transferred Employees in respect of the period ending on or before
the Closing Date in the year containing the Closing Date that would have been
eligible for matching contributions without regard to any continued service
(e.g., last day of the year employment or 1000 hours) requirements. Such
matching contributions shall be made not later than the date on which all other
matching contributions are made to the Seller Savings Plans with respect to
contributions made at the same
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time as the Transferred Employees' contributions. For not less than five (5)
calendar years following the Closing Date (including the year in which the
Closing occurs), Buyer shall, subject to applicable plan qualification
requirements, provide salaried Transferred Employees with a matching
contribution in the Buyer's Savings Plan equal to $.75 for each $1 contributed
by Transferred Employees up to six percent (6%) of compensation (as defined in
Buyer's Savings Plan).
11.2.3 Welfare Plans.
(a) Buyer shall take all action necessary and appropriate to
ensure that, as soon as practicable after the Closing Date, Buyer maintains or
adopts, as of the Closing Date, one or more employee welfare benefit plans,
including medical, health, dental, flexible spending account, accident, life,
short-term disability, and long-term disability and other employee welfare
benefit plans providing preretirement welfare benefits for the benefit of (i)
the non-bargained Transferred Employees (the "Non-union Welfare Plans") and (ii)
the union-represented Transferred Employees in accordance with the provisions of
applicable collective bargaining agreements (the "Bargained Welfare Plans"). The
Non-union Welfare Plans and the Bargained Welfare Plans are hereinafter referred
to collectively as the "Buyer Welfare Plans." The Buyer Welfare Plans shall
provide as of the Closing Date pre-retirement benefits to Transferred Employees
(and their dependents and beneficiaries) that, in the aggregate, are comparable
to the pre-retirement benefits to which they were entitled under the
corresponding employee welfare benefit plans maintained by Seller on the Closing
Date. For purposes of determining eligibility to participate in each Buyer
Welfare Plan, each Transferred Employee shall be credited with service,
determined under the terms of the corresponding welfare plans maintained by
Seller on the Closing Date (hereinafter referred to collectively as the "Seller
Welfare Plans"). Any restrictions on coverage for pre-existing conditions or
requirements for evidence of insurability under the Buyer Welfare Plans shall be
waived for Transferred Employees, and Transferred Employees shall receive credit
under the Buyer Welfare Plans for co-payments and payments under a deductible
limit made by them and for out-of-pocket maximums applicable to them during the
plan year of the Seller Welfare Plan in accordance with the corresponding Seller
Welfare Plans. As soon as practicable after the Closing Date, Seller shall
deliver to Buyer a list of the Transferred Employees who had credited service
under a Seller Welfare Plan, together with each such Transferred Employee's
service, co-payment amounts, and deductible and out-of-pocket limits under such
plan.
(b) (i) Except as otherwise provided in subsection (b)(ii)
or (b)(iii) of this Section (b) or in an applicable collective bargaining
agreement, Buyer shall provide or cause to be provided retiree medical, health,
and life benefits to each Transferred Employee (or the dependents or
beneficiaries of such Transferred Employee, as the case may be) under the same
terms and conditions as apply to comparable employees of Buyer, and Seller shall
have no obligation to provide retiree medical, health, and life benefits in
respect of any Transferred Employee on or after the Closing Date.
(ii) Subject to Section 11.4, below, following the
retirement from Buyer and its Affiliates or any successor thereof of a
Transferred Employee who is not subject to a collective bargaining agreement as
of the Closing Date, who has combined age and years of accredited service
(within the meaning of the Seller Pension Plan) as of the Closing Date
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equal to at least 66, and who as of his or her retirement has combined age and
years of accredited service (within the meaning of the Seller Pension Plan)
equal to at least 76 and at least 15 years of accredited service (within the
meaning of the Seller Pension Plan) (a "Retired Nonunion Transferred Employee"),
Seller shall provide or cause to be provided to each such Retired Nonunion
Transferred Employee (and/or his or her dependents and beneficiaries) retiree
medical, health, and life benefits under terms and conditions that are
substantially identical to the terms and conditions under the corresponding
programs offered by Seller to its similarly situated noncollectively bargained
employees retiring as of the Closing Date; provided that nothing in this
subsection (b)(ii) shall be construed to prevent any Retired Nonunion
Transferred Employee (or his or her dependents or beneficiaries) from
voluntarily relinquishing such benefits. For a period of five (5) years
following the retirement of each Retired Nonunion Transferred Employee from
Buyer and its Affiliates or any successor thereof, Buyer shall reimburse Seller,
in accordance with this subsection (b)(ii), for the cost of the retiree medical,
health, and life coverage for which Seller is responsible and that Seller
actually provides pursuant to this subsection (b)(ii). The five (5) year time
period for this reimbursement obligation shall be determined separately in
respect of each Retired Nonunion Transferred Employee. For each year for which
Buyer is required to reimburse Seller under this subsection (b)(ii), Buyer shall
pay Seller annually in arrears, within 30 days after Seller provides a statement
therefor to Buyer, (A) $4,000 with respect to each Retired Nonunion Transferred
Employee who has not yet attained age 65 during the year for which the payment
is made and $4,000 with respect to each spouse who is covered with respect to a
Retired Nonunion Transferred Employee and who has not yet attained age 65 during
the year for which the payment is made, and (B) $1,800 with respect to each
Retired Nonunion Transferred Employee who has attained at least age 65 during
the year for which the payment is made and $1,800 with respect to each spouse
who is covered with respect to a Retired Nonunion Transferred Employee and who
has attained at least age 65 during the year for which the payment is made. No
reimbursement shall be due with respect to any dependent, other than a spouse,
covered with respect to a Retired Nonunion Transferred Employee. The
reimbursement obligation for partial years shall be prorated based on the
portion of the year covered by the obligation. Each Retired Nonunion Transferred
Employee (or his or her dependent or beneficiary, as the case may be) who is
provided benefits by Seller under this subsection (b)(ii) shall be required to
pay to Seller any premium, contribution or other payment required under, and
shall be subject to any copayment or deductible required under, the terms of
Seller's applicable retiree medical, health, or life benefit plan; to the extent
that any amount constituting such a payment is deducted from any plan, program,
or arrangement maintained by Buyer or one of its Affiliates or is otherwise paid
to Buyer or one of its Affiliates by such person, Buyer shall cause such amount
to be paid to Seller as soon as administratively practicable.
(iii) In addition to any other benefits to be provided
pursuant to this Article XI, following the retirement from Buyer and its
Affiliates or any successor thereof of a Transferred Employee who is subject to
a collective bargaining agreement as of the Closing Date and who as of his or
her retirement has combined age and years of accredited service (within the
meaning of the Seller Pension Plan) equal to at least 76 and at least 15 years
of accredited service (within the meaning of the Seller Pension Plan) (a
"Retired Union Transferred Employee"), Buyer shall provide or cause to be
provided to each such Retired Union Transferred Employee (and/or his or her
dependents and beneficiaries) retiree medical, health, and life benefits, for a
period of at least five (5) years following the Closing Date, under terms and
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conditions that are substantially identical to the terms and conditions under
the corresponding programs offered by Seller to its similarly situated
collectively bargained employees retiring as of the Closing Date. As of the date
of this Agreement, Seller maintains one or more voluntary employees' beneficiary
associations (within the meaning of Section 501(c)(9) of the IRC) to fund
retiree medical, health, and life benefits with respect to the Transferred
Employees who are subject to a collective bargaining agreement as of the Closing
Date (the "Seller VEBA"). Within 90 days following the Closing Date, Seller
shall direct the trustee of the Seller VEBA to transfer an amount in cash from
the Seller VEBA to the trustee of one or more voluntary employees' beneficiary
associations (within the meaning of Section 501(c)(9) of the IRC) that Buyer
maintains or shall cause to be maintained to fund retiree medical, health, and
life benefits with respect to the Transferred Employees who are subject to a
collective bargaining agreement as of the Closing Date. The amount to be
transferred pursuant to the preceding sentence shall be equal, based on the
actuarial assumptions set forth in Schedule 11.2.3(b)(iii), to the aggregate
Accumulated Postretirement Benefit Obligation (as defined in Statement of
Financial Accounting Standards No. 106) as of the Closing Date (which shall be
the actuarial assumptions used by seller in developing the level of expense
under Statement of Financial Accounting Standards No. 106 for the 1999 fiscal
year) attributable to retiree medical, health, and life benefits for Transferred
Employees who are subject to a collective bargaining agreement as of the Closing
Date.
(iv) Benefits provided pursuant to subsections (b)(ii)
and (b)(iii) of this Section (b) (including for this purpose, the determination
of who is eligible for such benefits) shall take into account service with Buyer
or any of its Affiliates on and after the Closing Date in the same manner as if
such post-Closing Date service was performed with Seller. Buyer shall provide
Seller with such information as shall be reasonably required to implement the
immediately preceding sentence with respect to subsection (b)(ii) of this
Section (b).
(c) Buyer shall refer to GTE Service Corporation and GTE
Service Corporation shall assume responsibility for any valid claim under a
Seller Welfare Plan for disability, medical, or dental benefits made by a
Transferred Employee on or after the Closing Date arising from a disability or
loss incurred on or before the Closing Date. Nothing in this Section 11.2.3
shall require Seller, any Affiliate of Seller, or the Seller Welfare Plans to
make any payment or to provide any benefit not otherwise provided by the terms
of the Seller Welfare Plans.
(d) Seller, Buyer, their respective Affiliates, and the Seller
Welfare Plans and the Buyer Welfare Plans shall assist and cooperate with each
other in the disposition of claims made under the Seller Welfare Plans pursuant
to subsection (c) of this Section 11.2.3, and in providing each other with any
records, documents, or other information within its control or to which it has
access that is reasonably requested by any other as necessary or appropriate to
the disposition, settlement, or defense of such claims.
(e) Except as otherwise provided in Section 11.2.3(b)(iii) or
in Section 11.2.3(f), nothing in this Agreement shall require Seller or its
Affiliates to transfer assets or reserves with respect to the Seller Welfare
Plans to Buyer or the Buyer Welfare Plans.
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(f) Seller will make available to Buyer, prior to the Closing
Date, a list of those Transferred Employees that have participated in the health
or dependent care reimbursement accounts of Seller under the GTE Flexible
Reimbursement Plan (the "FRP"), together with the elections made prior to the
Closing Date with respect to such accounts through the Closing Date, any
balances standing to the credit of Transferred Employees, and the corresponding
amounts being transferred to the corresponding Buyer's plan in accordance with
the following sentence. As of the Closing Date, Seller shall cause the portion
of the FRP applicable to Transferred Employees to be segregated into a separate
component and all account balances of the Transferred Employees in the FRP shall
be transferred to a flexible reimbursement plan that Buyer shall cause to be
maintained for the duration of the calendar year in which the Closing Date
occurs.
(g) On and for a period of at least three (3) years after the
Closing Date, Transferred Employees not subject to a collective bargaining
agreement shall be eligible for benefits under a Buyer severance or separation
pay policy or plans that are the same as or comparable to the severance or
separation pay policy benefits that are provided by Seller (or the applicable
Affiliate, if the Transferred Employee is employed by an employer other than the
Seller) or a Seller Pension Plan as of the Closing Date. Buyer shall recognize
the service of each such Transferred Employee with Seller and its Affiliates for
eligibility, vesting, and benefit determinations under the Buyer severance or
separation pay policy or plan. Transferred Employees subject to a collective
bargaining agreement shall be eligible for severance or separation pay benefits
in accordance with the terms of the applicable collective bargaining agreement.
11.3 Miscellaneous Benefits.
11.3.1 Vacation.
(a) On or after the Closing Date, Buyer shall allow
Transferred Employees to receive paid time off in the calendar year of the
Closing for any unused vacation time accrued prior to the Closing Date. Seller
and its Affiliates shall have no liability to Transferred Employees for the
vacation payments described in this Section 11.3.1. Seller shall pay Transferred
Employees any banked vacation on or before the Closing Date. Schedule 11.3.1 to
be prepared by Seller and submitted to Buyer on or before the Closing Date shall
list the accrued but unused vacation pay, as of the Closing Date, of each
Transferred Employee for the calendar year in which the Closing Date occurs.
(b) For purposes of determining a Transferred Employee's
eligibility for vacation under Buyer's vacation plan, a Transferred Employee
shall be credited, as of the first day of the first calendar year that begins
after the calendar year in which the Closing Date occurs, with service for the
calendar year in which the Closing Date occurs in an amount equal to the
aggregate of the Transferred Employee's service with both Seller and Buyer
during the calendar year in which the Closing Date occurs.
11.3.2 Transferred Employee Statements. Within sixty (60) days after
the Closing Date, Seller shall prepare and distribute to all Transferred
Employees an accurate and complete statement of their accrued benefits under
Seller's Pension Plans as of the Closing Date and shall
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provide Buyer with a true and complete copy of the same. Such statements shall
be sufficiently detailed to readily permit Buyer and the Transferred Employees
to determine the accuracy thereof.
11.4 Employee Rights.
Nothing herein expressed or implied shall confer upon any employee
of Seller or its Affiliates, or Buyer or its Affiliates, or upon any legal
representative of such employee, or upon any collective bargaining agent, any
rights or remedies, including any right to employment or continued employment
for any specified period, of any nature or kind whatsoever under or by reason of
this Agreement.
Nothing in this Agreement shall be deemed to confer upon any person
(nor any beneficiary thereof) any rights under or with respect to any plan,
program, or arrangement described in or contemplated by this Agreement, and each
person (and any beneficiary thereof) shall be entitled to look only to the
express terms of any such plan, program, or arrangement for his or her rights
thereunder.
Nothing in this Agreement shall cause Buyer or its Affiliates, nor
Seller or its Affiliates to have any obligation to provide employment or any
employee benefits to any individual who is not a Transferred Employee or, except
as otherwise provided in Section 11.1.2 with respect to employment agreements,
to continue to employ any Transferred Employee for any period of time following
the Closing Date.
11.5 WARN Act Requirements.
On and after the Closing Date, Buyer shall be responsible with
respect to Transferred Employees and their beneficiaries for compliance with the
Worker Adjustment and Retraining Notification Act of 1988 and any other
applicable law, including any requirement to provide for and discharge any and
all notifications, benefits, and liabilities to Transferred Employees and
government agencies that might be imposed as a result of the consummation of the
transactions contemplated by this Agreement or otherwise.
11.6 Indemnification.
11.6.1 Indemnification of Seller. Notwithstanding anything to the
contrary in Article 12 of this Agreement, Buyer shall indemnify and hold
harmless Seller, its Affiliates, and their respective directors, officers,
employees, agents, and assigns, and each employee benefit plan or arrangement
maintained or contributed to by Seller or an Affiliate thereof (whether or not
such plan or arrangement is an "employee benefit plan" within the meaning of
Section 3(3) of ERISA) and its administrators, fiduciaries, and agents, from and
against any and all claims, demands, actions, administrative or other
proceedings, causes of action, liability, loss, cost, damage, and expense
(including reasonable attorneys' fees) (i) in any way arising out of or incurred
as a result of any action by Buyer, its Affiliates, their respective directors,
officers, employees, or agents, the administrators or fiduciaries of any
employee benefit plan maintained or contributed to by Buyer or an Affiliate
thereof (whether or not such plan or arrangement is an "employee benefit plan"
within the meaning of Section 3(3) of ERISA), or any of their
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successors, except as otherwise expressly permitted under this Agreement, to
change, reduce contributions to, terminate, fail to continue, fail to pay
benefits under, or fail to manage or administer properly any employee benefit
plan or arrangement (whether or not such plan or arrangement is an "employee
benefit plan" within the meaning of Section 3(3) of ERISA) on or after the
Closing Date, or (ii) in any way arising out of or incurred as a result of any
action that is a breach of any the covenants, representations, warranties, or
obligations of any such person under this Agreement.
11.6.2 Indemnification of Buyer. Notwithstanding anything to the
contrary in Article 12 of the Agreement, Seller shall indemnify and hold
harmless Buyer, its Affiliates, and their respective directors, officers,
employees, agents, and assigns, and each employee benefit plan or arrangement
maintained or contributed to by Buyer or an Affiliate thereof (whether or not
such plan or arrangement is an "employee benefit plan" within the meaning of
Section 3(3) of ERISA) and its administrators, fiduciaries, and agents, from and
against any and all claims, demands, actions, administrative or other
proceedings, causes of action, liability, loss, cost, damage, and expense
(including reasonable attorneys' fees) (i) in any way arising out of or incurred
as a result of any action by Seller, its Affiliates, their respective directors,
officers, employees, or agents, the administrators or fiduciaries of any
employee benefit plan maintained or contributed to by Seller or an Affiliate
thereof (whether or not such plan or arrangement is an "employee benefit plan"
within the meaning of Section 3(3) of ERISA), or any of their successors, to
fail to pay benefits under, or fail to manage or administer properly any
employee benefit plan or arrangement (whether or not such plan or arrangement is
an "employee benefit plan" within the meaning of Section 3(3) of ERISA) before
the Closing Date, or (ii) in any way arising out of or incurred as a result of
any action that is a breach of any the covenants, representations, warranties,
or obligations of any such person under this Agreement.
ARTICLE 12
INDEMNIFICATION
12.1 Survival of Representations. Warranties and Covenants.
(a) The representations and warranties contained in Sections
8.1.6 and 8.2.6 will survive the Closing and remain in full force and effect
indefinitely. Each of the other representations and warranties contained in
Article 8 will terminate, without further action, on the date which is fifteen
(15) months following the Closing Date (the "Expiration Date").
(b) This Article 12 shall survive any termination of this
Agreement and the Ancillary Agreements and the indemnification contained in this
Article 12 shall survive the Closing and shall remain in effect (i)
indefinitely, with respect to any Indemnifiable Claim related to the breach of
any representation or warranty which pursuant to Section 12.1(a) survives
indefinitely, (ii) indefinitely or for the applicable period of performance for
such covenant (provided that in the case of covenants, the Indemnitee shall have
60 days after the end of such performance period to provide notice to the
Indemnifying Party of a claim for indemnification arising during the performance
period), with respect to any Indemnifiable Claim arising under Section
12.2(a)(ii)(B) (post closing covenants), (iii) indefinitely, with respect to any
Indemnifiable Claim arising under Section 12.2(a)(iii) (Retained Liabilities) or
12.2(b)(iii) (Assumed Liabilities), and (iv) until the Expiration Date for any
Indemnifiable Claims that are
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not specified in any of the preceding clauses. Unless a claim for
indemnification with respect to any alleged breach of any representation or
warranty is asserted by notice given as herein provided that specifically
identifies a particular breach and the underlying facts relating thereto, which
notice is given within the applicable period of survival for such representation
or warranty, such claim may not be pursued and is irrevocably waived after such
time. Without limiting the generality or effect of the foregoing, no claim for
indemnification with respect to any representation or warranty will be deemed to
have been properly made except (i) to the extent it is based upon a Third Party
Claim made or brought prior to the expiration of the survival period for such
representation or warranty, or (ii) to the extent based on Indemnifiable Losses
actually incurred by an Indemnitee prior to the expiration of the survival
period for such representation or warranty.
12.2 Indemnification.
(a) Following the Closing and subject to the other sections of
this Article 12, Seller will indemnify, defend and hold harmless Buyer and its
Affiliates and their respective directors, officers, and agents from and against
all Indemnifiable Losses relating to, resulting from or arising out of (i) any
inaccuracy in any of the representations and warranties made by Seller in
Section 8.1 of this Agreement, (ii) a breach by Seller of any covenant of Seller
contained in this Agreement, which covenant requires performance by Seller (A)
prior to or at the Closing, or (B) after the Closing, and (iii) any of the
Retained Liabilities.
(b) Following the Closing and subject to the other sections of
this Article 12, Buyer will indemnify, defend and hold harmless Seller and its
Affiliates and their respective directors, officers, and agents from and against
all Indemnifiable Losses relating to, resulting from or arising out of (i) any
inaccuracy in any of the representations or warranties made by Buyer in Section
8.2 of this Agreement, (ii) a breach by Buyer of any covenant of Buyer contained
in this Agreement, which covenant requires performance by Buyer prior to, at or
after the Closing, and (iii) any of the Assumed Liabilities.
(c) Payments made under this Section 12.2 shall be treated by
Buyer and Seller as purchase price adjustments and Buyer and Seller shall file
all Tax Returns consistent with such treatment. Notwithstanding anything to the
contrary contained herein, neither party shall be indemnified or reimbursed for
any Tax consequences arising from the receipt or accrual of an indemnity payment
hereunder including any Tax consequences arising from adjustments to the basis
of any asset resulting from an adjustment to the Purchase Price or any
additional or reduced taxes resulting from any such basis adjustment.
(d) In the event that a claim against an Indemnifying Party
arises under both Section 12.2(a)(i) and Section 12.2(a)(ii), or under both
Section 12.2(b)(i) and Section 12.2(b)(ii), then the Indemnitee's rights to
pursue its claim under Section 12.2(a)(ii) or Section 12.29b)(ii), as
applicable, will exist notwithstanding the provisions of Section 12.3(d).
(e) In the event that a claim against an Indemnifying Party
arises under both Section 12.2(a)(i) and Section 12.2(a)(iii), or under both
Section 12.2(b)(i) and Section 12.2(b)(iii), then the Indemnitee's rights to
pursue the claim under Section 12.2(a)(iii) or Section 12.2(b)(iii), as
applicable, will exist notwithstanding the provisions of Sections 12.3(d).
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(f) In the event a claim against an Indemnifying Party arises
under both Section 12.2(a)(ii) and 12.2(a)(iii), or under both Section
12.2(b)(ii) and 12.2(b)(iii), then the Indemnitee's rights to pursue the claim
under Section 12.2(a)(iii) or Section 12.2(b)(iii), as applicable, will exist
notwithstanding the provisions of Section 12.3(d).
12.3 Limitations on Liability.
(a) For purposes of this Agreement, (i) "Indemnification
Payment" means any amount of Indemnifiable Losses required to be paid pursuant
to this Agreement, (ii) "Indemnitee" means any person or entity entitled to
indemnification under this Agreement, (iii) "Indemnifying Party" means any
person or entity required to provide indemnification under this Agreement, and
(iv) "Indemnifiable Losses" means any losses, liabilities, damages, costs and
expenses (including reasonable attorneys' fees and expenses) actually incurred
in connection with any actions, suits, demands, assessments, judgments and
settlements, in any such case (x) reduced by the amount of insurance proceeds
recovered from any person or entity with respect thereto, and (y) excluding any
such losses, liabilities damages, costs and expenses to the extent that the
underlying liability or obligation is the result of any action taken or omitted
to be taken by any Indemnitee.
(b) Notwithstanding anything to the contrary contained in this
Agreement, if the Closing occurs, (i) no claim for indemnification may be
asserted under Section 12.2(a) with respect to any matter discovered by or known
to Buyer on or before the date of this Agreement, or after the date of this
Agreement and on or before the Closing Date to the extent that Buyer has not
provided timely notice to Seller of the existence of such claim in accordance
with Section 10.2, and (ii) no claim for indemnification may be asserted under
Section 12.2(b) with respect to any matter discovered by or known to Seller on
or before the Closing Date.
(c) As between Seller and any Affiliate of Seller, on the one
hand, and Buyer and any Affiliate of Buyer, on the other hand, the remedies,
rights and obligations set forth in this Article 12, Sections 10.1.2, 11.2.2,
11.6, 13.3 and the Ancillary Agreements will be the exclusive remedies, rights
and obligations with respect to the liabilities and obligations referred to in
Section 12.2 and any breach of the representations, warranties or covenants set
forth in this Agreement. Without limiting the foregoing, as a material
inducement to entering into this Agreement, to the fullest extent permitted by
law, each of the parties waives any claim or cause of action that it otherwise
might assert, and any breach of the representations, warranties or covenants set
forth in this Agreement, except for claims or causes of action brought under and
subject to the terms and conditions of this Article 12 and Sections 10.1.2, 11.6
and 13.3 or any Indemnifiable Losses arising out of actual fraud.
(d) Notwithstanding any other provision of this Agreement or
of any applicable Law, no Indemnitee will be entitled to make a claim against an
Indemnifying Party under Sections 11.2.2, 11.6, 12.2(a)(i) or 12.2(b)(i) until:
(i) the aggregate amount of Indemnifiable Losses
incurred by the Indemnitee for any individual occurrence or related series of
occurrences giving rise to such Indemnifiable Losses exceeds $25,000, and
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(ii) the aggregate amount of claims that may be asserted
for such Indemnifiable Losses pursuant to Section 12.3(d)(i) exceeds an amount
equal to 2% of the Purchase Price, but only to the extent such amount, if any,
(a) exceeds an amount equal to 2% of the Purchase Price and (b) is less than the
amount set forth in Section 12.3(e).
(e) Notwithstanding any other provision of this Agreement, the
indemnification obligations of Seller under Section 12.2(a) (except with respect
to indemnification for inaccuracies of the representations contained in Sections
8.1.1 through 8.1.6) or the indemnification obligation of Buyer under Section
12.2(b) will not exceed the amount of an amount equal to 6.5% of the Purchase
Price respectively.
(f) No Indemnifying Party shall be liable to or obligated to
indemnify any Indemnitee hereunder for any consequential, special, multiple,
punitive or exemplary damages including, but not limited to, damages arising
from loss or interruption of business, profits, business opportunities or
goodwill, loss of use of facilities, loss of capital, claims of customers, or
any cost or expense related thereto, except to the extent such damages have been
recovered by a third person and are the subject of a Third Party Claim for which
indemnification is available under the express terms of this Section 12.
(g) Seller and Buyer shall cooperate with each other with
respect to resolving any claim or liability with respect to which one party is
obligated to indemnify the other party hereunder, including by making
commercially reasonable efforts to mitigate or resolve any such claim or
liability.
12.4 Defense of Claims.
(a) If any Indemnitee receives notice of the assertion of any
claim or of the commencement of any action or proceeding by any entity that is
not a party to this Agreement or an Affiliate of such a party (a "Third Party
Claim") against such Indemnitee, with respect to which an Indemnifying Party is
obligated to provide indemnification under this Agreement, the Indemnitee will
give such Indemnifying Party reasonably prompt written notice thereof, but in
any event not later than ten (10) calendar days after receipt of notice of such
Third Party Claim; provided, however, that the failure of the Indemnitee to
notify the Indemnifying Party shall only relieve the Indemnifying Party from its
obligation to indemnify the Indemnitee pursuant to this Article 12 to the extent
that the Indemnifying Party is materially prejudiced by such failure (whether as
a result of the forfeiture of substantive rights or defenses or otherwise). Upon
receipt of notification of a Third Party Claim, the Indemnifying Party shall be
entitled, upon written notice to the Indemnitee, to assume the investigation and
defense thereof with counsel reasonably satisfactory to the Indemnitee. Whether
or not the Indemnifying Party elects to assume the investigation and defense of
any Third Party Claim, the Indemnitee shall have the right to employ separate
counsel and to participate in the investigation and defense thereof; provided,
however, that the Indemnitee shall pay the fees and disbursements of such
separate counsel unless (i) the employment of such separate counsel has been
specifically authorized in writing by the Indemnifying Party, (ii) the
Indemnifying Party has failed to assume the defense of such Third Party Claim
within reasonable time after receipt of notice thereof with counsel reasonably
satisfactory to such Indemnitee, or (iii) the named parties to the proceeding in
which such claim, demand, action or cause of action has been asserted include
both the Indemnifying Party and such Indemnitee and, in the reasonable judgment
of counsel to such Indemnitee, there exists one or more defenses that may be
available to the Indemnitee that are in conflict with those available to the
Indemnifying Party. Notwithstanding the foregoing, the Indemnifying Party shall
not be liable for the fees and disbursements of more than one counsel for all
Indemnified Parties in connection with any one proceeding or any similar or
related proceedings arising from the same general allegations or circumstances.
Without the prior written consent of the Indemnitee, the Indemnifying Party will
not enter into any settlement of any Third Party Claim that would lead to
liability or create any financial or other obligation on the part of the
Indemnitee unless such settlement includes as an unconditional term thereof the
release of the Indemnitee from all liability in respect of such Third Party
Claim. If a settlement offer solely for money damages is made by the applicable
third party claimant, and the Indemnifying
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Party notifies the Indemnitee in writing of the Indemnifying Party's willingness
to accept the settlement offer and pay the amount called for by such offer
without reservation of any rights or defenses against the Indemnitee, the
Indemnitee may continue to contest such claim, free of any participation by the
Indemnifying Party, and the amount of any ultimate liability with respect to
such Third Party Claim that the Indemnifying Party has an obligation to pay
hereunder shall be limited to the lesser of (A) the amount of the settlement
offer that the Indemnitee declined to accept plus the Losses of the Indemnitee
relating to such Third Party Claim through the date of its rejection of the
settlement offer or (B) the aggregate Losses of the Indemnitee with respect to
such claim.
(b) Any claim by an Indemnitee on account of an Indemnifiable
Loss that does not result from a Third Party Claim (a "Direct Claim") will be
asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, but in any event not later than thirty (30) calendar days after an
Executive Officer of the Indemnitee becomes actually aware of the incurrence
thereof, and the Indemnifying Party will have a period of thirty (30) calendar
days within which to respond in writing to such Direct Claim. If the
Indemnifying Party does not so respond within such thirty (30) calendar day
period, the Indemnifying Party will be deemed to have rejected such claim, in
which event the Indemnitee will be free to pursue such remedies as may be
available to the Indemnitee on the terms and subject to the provisions of this
Article 12.
(c) If after the making of any Indemnification Payment the
amount of the Indemnifiable Loss to which such payment relates is reduced by
recovery, settlement or otherwise under any insurance coverage, or pursuant to
any claim, recovery, settlement or payment by or against any other entity, the
amount of such reduction (less any costs, expenses, premiums or taxes incurred
in connection therewith) will promptly be repaid by the Indemnitee to the
Indemnifying Party. Upon making any Indemnification Payment, the Indemnifying
Party will, to the extent of such Indemnification Payment, be subrogated to all
rights of the Indemnitee against any third party that is not an Affiliate of the
Indemnitee in respect of the Indemnifiable Loss to which the Indemnification
Payment relates; provided that (i) the Indemnifying Party shall then be in
compliance with its obligations under this Agreement in respect of such
Indemnifiable Loss, and (ii) until the Indemnitee recovers full payment of its
Indemnifiable Loss, all claims of the Indemnifying Party against any such third
party on account of said Indemnification Payment will be subrogated and
subordinated in right of payment to the Indemnitee's rights against such third
party. Without limiting the generality or effect of any other provision of this
Article 12, each such Indemnitee and Indemnifying Party will duly execute upon
request all instruments
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reasonably necessary to evidence and perfect the above-described subrogation and
subordination rights.
12.5 No Indemnifiable Claims Resulting From Governmental Authority Action.
Buyer has no indemnifiable or otherwise compensable claim that any of Seller's
representations or warranties in Section 8.1 (other than Sections 8.1.4(b),
8.1.15 and 8.1.25) is inaccurate, or that any covenant has been breached, to the
extent that such claim is predicated on any action by the FCC or PUC undertaken
after Closing or any action the FCC or PUC requires Seller to undertake after
Closing. Buyer may only bring such a claim to the extent that its basis is
independent of any such FCC or PUC action.
ARTICLE 13
TERMINATION
13.1 Termination Rights. This Agreement may be terminated at any time
prior to the Closing Date:
(a) at any time by mutual written consent of the parties;
(b) by Buyer if any of the conditions provided in Section 6.1
of this Agreement have not been met within eighteen (18) months after execution
of this Agreement and have not been waived by Buyer;
(c) by Seller if any of the conditions provided in Section 6.2
of this Agreement have not been met within eighteen (18) months after execution
of this Agreement and have not been waived by Seller;
(d) by Seller if any obligations of Buyer provided in Article
3 become incapable of being fulfilled; or
(e) by either party immediately upon written notice to the
other party if any Governmental Authority issues an order forbidding or
enjoining the consummation of the transaction contemplated hereby and such order
has become final and non-appealable, or if the GTE California Agreement has been
terminated.
13.2 Goodfaith Performance. Neither party shall be entitled to exercise
any right of termination pursuant to subsection 13.1(b), (c) or (d) above if
such party shall not have performed diligently and in good faith the obligations
required to be performed by such party hereunder prior to the date of
termination.
13.3 Effect of Termination.
(a) If this Agreement is terminated as a result of a Material
Adverse Effect or Section 13.1(a), this Agreement shall be of no further force
and effect and there shall be no further liability hereunder (except the
obligations under the Confidentiality Agreement and the liability for breach of
such obligations) on the part of either party or their respective Affiliates,
directors, officers, shareholders, agents or other representatives.
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(b) If this Agreement is terminated by Buyer pursuant to Section
13.1(b), this Agreement shall be of no further force and effect and there shall
be no further obligations or liability hereunder (except the obligations under
the Confidentiality Agreement and the liability for breach of such obligations)
on the part of either party or their respective Affiliates, directors, officers,
shareholders, agents or other representatives; provided, however, that no such
termination shall relieve Seller of liability for any claims, damages or losses
suffered by Buyer as a result of the negligent or willful failure of Seller to
perform any obligations required to be performed by it hereunder on or prior to
the date of termination. Notwithstanding anything herein to the contrary, in no
event shall the any act or omission of Seller in connection with the Merger be
deemed to be a breach of the terms and conditions of this Agreement for purposes
of this Section 13.3(b).
(c) If this Agreement is terminated by Seller pursuant to Section
13.1(c) or (d), this Agreement shall be of no further force and effect and there
shall be no further obligations or liability hereunder (except the obligations
under the Confidentiality Agreement and the liability for breach of such
obligations) on the part of either party or their respective Affiliates,
directors, officers, shareholders, agents or other representatives; provided,
however, that in the event such termination is the result of the breach by Buyer
of any of its obligations required to be performed by it hereunder on or prior
to the date of termination, and Buyer has failed to cure such non-performance
within a reasonable period after notice from Seller, then Buyer shall pay to
Seller liquidated damages in an amount equal to ten (10) percent of the Purchase
Price. Such liquidated damages amount is designed to compensate Seller for its
lost opportunity costs and reliance damages caused by such termination. Buyer
shall promptly pay such amount to Seller in immediately available funds
following such termination.
(d) Upon any termination of the Agreement, each of the parties shall
promptly comply with the obligations of the Confidentiality Agreement regarding
return or destruction of Evaluation Material of the other party.
(e) Notwithstanding anything to the contrary contained herein, the
provisions of this Section 13.3 and of Sections 14.1, 14.2, 14.3, 14.8, 14.11,
14.13 and 14.14, shall survive any termination of this Agreement.
ARTICLE 14
MISCELLANEOUS
14.1 Notices. All notices and other communications required or permitted
hereunder shall be in writing and, unless otherwise provided in this Agreement,
will be deemed to have been given when delivered in person or dispatched by
electronic facsimile transfer (confirmed in writing by certified mail,
concurrently dispatched) or one business day after having been dispatched for
next-day delivery by a nationally recognized overnight courier service to the
appropriate party at the address specified below:
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(a) If to Buyer, to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06905
Attention: Donald P. Weinstein
Facsimile No.: (203) 614-4625
With a copy to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06905
Attention: L. Russell Mitten, II, Esq.
Facsimile No.: (203) 614-4625
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention: Jeffry L. Hardin, Esq.
Facsimile No.: (202) 387-3467
(b) If to Seller, to:
William M. Edwards, III
Vice President - Property Repositioning
600 Hidden Ridge, HQE02J27
Irving, TX 75038
Facsimile No. (972) 719-7062
With a copy to:
Dale R. Chamberlain
Legal Counsel - Property Repositioning
600 Hidden Ridge, HQE02J34
Irving, TX 75038
Facsimile No. (972) 719-7162
or to such other address or addresses as any such party may from
time to time designate for itself by like notice.
14.2 Information Releases. The parties shall consult with each other
(and allow the other party notice, and a reasonable time to comment) in
preparing any employee announcement, press release, public announcement, news
media response or other form of release of information concerning this Agreement
or the transactions contemplated hereby that is intended to provide such
information to the employees generally, news media or the public. Neither party
shall issue
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or cause the publication of any press release, public announcement or media
response without the prior written consent of the other party; provided,
however, that, after allowing the other party notice and a reasonable time to
comment prior to issuance, nothing herein will prohibit either party from making
an employee announcement, or issuing or causing publication of any press
release, public announcement or media response to the extent that such action is
required by applicable Law or the rules of any national stock exchange
applicable to such party or its Affiliates.
14.3 Expenses. Whether or not the transactions contemplated hereby are
consummated and except as otherwise expressly provided herein, each party will
pay any expenses (including attorneys' fees) incurred by it incidental to this
Agreement and in consummating the transactions provided for herein.
14.4 Successors and Assigns. This Agreement will be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns, but is not assignable or delegable by any party without the
prior written consent of the other party; provided, that (a) Seller may assign
this Agreement to an Affiliate of Seller without the consent of Buyer including,
on and after the closing of the Merger, the ultimate parent entity of the
successor corporation to such merger or any entity controlled thereby; and (b)
Buyer may assign this Agreement, without the prior written consent of Seller, to
any directly or indirectly wholly owned subsidiary of Buyer provided such
subsidiary assumes in writing all the duties and obligations of Buyer hereunder.
No such assignment by Buyer shall in any way operate to enlarge, alter or change
any obligation due to Seller or relieve Buyer of its obligations hereunder if
such subsidiary fails to perform such obligations, with the understanding that
Buyer shall be jointly and severally liable with such subsidiary for any
non-performance of Buyer's obligations hereunder.
14.5 Amendments. This Agreement may be amended or modified only by a
subsequent writing signed by authorized representatives of both parties.
14.6 Captions. The captions set forth in this Agreement are for
convenience only and shall not be considered as part of this Agreement, nor as
in any way limiting or amplifying the terms and provisions hereof.
14.7 Entire Agreement. The term " Agreement" shall mean collectively this
document, the Schedules hereto and any agreements expressly incorporated herein.
This Agreement supersedes and revokes any prior discussions and representations,
other agreements, commitments, arrangements or understandings of any sort
whatsoever, whether oral or written, that may have been made or entered into by
the parties relating to the matters contemplated hereby. This Agreement, the
Confidentiality Agreement and the Ancillary Documents constitute the entire
agreement by and among the parties with respect to the subject matter hereof,
and there are no representations, warranties, agreements, commitments,
arrangements or understandings except as expressly set forth herein.
14.8 Waiver. Except as otherwise expressly provided in this Agreement,
neither the failure nor any delay on the part of any party to exercise any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise or waiver of any such
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right, power or privilege preclude any other or further exercise thereof, or the
exercise of any other right, power or privilege available to each party at law
or in equity.
14.9 Third Parties. Except as expressly provided herein, nothing contained
in this Agreement is intended to confer upon any Person, other than the parties
hereto and their successors and permitted assigns, any rights or remedies under
or by reason of this Agreement.
14.10 Counterparts. This Agreement may be executed in two or more
counterparts, any or all of which shall constitute one and the same instrument.
14.11 Governing Law. This Agreement and the Ancillary Agreements shall in
all respects be governed by and construed in accordance with the laws of the
State of New York (except that no effect shall be given to any conflicts of law
principles of the State of New York that would require the application of the
laws of any other jurisdiction). The parties irrevocably submit to the exclusive
jurisdiction of any New York State Court or any Federal Court located in the
borough of Manhattan in the City of New York for purposes of any suit, action or
other proceeding arising out of this Agreement, the Ancillary Agreements or any
transaction contemplated hereby or thereby. The parties agree that service of
process, summons or notice or document by U.S. registered mail to such party's
respective address set forth in Section 14.1 shall be effective service of
process for any action, suit or proceeding in New York with respect to any
matters to which it has submitted to jurisdiction as set forth above in the
immediately preceding sentence. The parties hereto irrevocably and
unconditionally waive trial by jury in any legal action or proceeding relating
to this Agreement or any other agreement entered into in connection therewith
and for any counterclaim with respect thereto. In the event of any breach of the
provisions of this Agreement or any other agreement entered into in connection
therewith, the non-breaching party shall be entitled to equitable relief,
including in the form of injunctions and orders for specific performance, where
the applicable legal standards for such relief in such courts are met, in
addition to all other remedies available to the non-breaching party with respect
thereto at law or in equity.
14.12 Further Assurances. From time to time, as and when requested by one
of the parties, the other party will use its commercially reasonable efforts to
execute and deliver, or cause to be executed and delivered, all such documents
and instruments as may be reasonably necessary or appropriate, in the reasonable
opinion of counsel for Seller and Buyer, to consummate and make effective the
transactions contemplated by this Agreement.
14.13 Severability. If any provision of this Agreement is determined to be
invalid, illegal or unenforceable by any Governmental Authority, the remaining
provisions of this Agreement to the extent permitted by Law shall remain in full
force and effect provided that the essential terms and conditions of this
Agreement for both parties remain valid, binding and enforceable and provided
that the economic and legal substance of the transactions contemplated is not
affected in any manner materially adverse to any party. In the event of any such
determination, the parties agree to negotiate in good faith to modify this
Agreement to fulfill as closely as possible the original intents and purposes
hereof. To the extent permitted by Law, the parties hereby to the same extent
waive any provision of Law that renders any provision hereof prohibited or
unenforceable in any respect.
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14.14 Representation by Counsel; Interpretation. Seller and Buyer each
acknowledge that each party to this Agreement has been represented by counsel in
connection with this Agreement and the transactions contemplated by this
Agreement. Accordingly, any rule of Law or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement against the party
that drafted it has no application and is expressly waived. The provisions of
this Agreement shall be interpreted in a reasonable manner to effect the intent
of Buyer and Seller.
14.15 Covenants of GTE Northwest. GTE Northwest agrees to cause Seller to
perform each of Seller's agreements and covenants contained in this Agreement.
GTE Northwest further agrees that to the extent Seller shall sell or otherwise
dispose of all or substantially all of its assets, GTE Northwest shall be liable
to the same extent as Seller (but only to that extent) for any non-performance
of Seller's agreements and covenants contained in this Agreement.
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IN WITNESS WHEREOF, the parties, acting through their duly authorized
agents, have caused this Agreement to be duly executed and delivered as of the
date first above written.
GTE WEST COAST INCORPORATED CITIZENS UTILITIES COMPANY
By: By:
------------------------- -------------------------------
Name: Name:
----------------------- -----------------------------
Title: Title:
---------------------- ----------------------------
By: For the limited purpose of Section
------------------------- 14.15 only:
Name: GTE NORTHWEST INCORPORATED
-----------------------
Title: By:
---------------------- -------------------------------
Name:
-----------------------------
Title:
----------------------------
73
EXECUTION COPY - ARIZONA
AGREEMENT
For
PURCHASE AND SALE
of
TELEPHONE EXCHANGES
Dated as of June 16, 1999
Between
CITIZENS UTILITIES COMPANY
And
U S WEST COMMUNICATIONS, INC.
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF TELEPHONE EXCHANGES
This Agreement for Purchase and Sale of Telephone Exchanges is made and
entered into as of June 16, 1999 by and between U S WEST Communications, Inc., a
Colorado corporation ("Seller"), and Citizens Utilities Company, a Delaware
corporation ("Buyer").
A. Seller possesses certain rights to provide and operate wireline
telecommunication services pursuant to operating authorities issued by the
public utilities commissions or similar authorities of various states, and owns
certain assets used to provide such services in the telephone exchanges listed
on Exhibit A hereto and in any cross-border communities served by such exchanges
(the "Exchanges").
B. Buyer desires to acquire Seller's right to provide and operate wireline
telecommunication services and related non-tariffed or non-regulated wireline
services and products in the Exchanges (the "Business") and to purchase the
Transferred Assets (as defined below), and Seller wishes to sell, assign and
transfer such right and assets to Buyer.
C. Each defined term used herein shall have the meaning set forth in this
Agreement where such term is first used or, if no definition is so set forth,
shall have the meaning set forth in Article 10 below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF EXCHANGES
1.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions hereinafter set forth, at the Closing described in Article 2,
Seller agrees to sell, convey, transfer, assign and deliver all of the
Transferred Assets to Buyer, and Buyer agrees to purchase and receive the
Transferred Assets from Seller. Except as specifically set forth in Section 1.2
hereof, Seller shall transfer the Transferred Assets to Buyer on the Closing
Date free and clear of all Encumbrances, and Buyer shall not, by virtue of its
purchase of the Transferred Assets, assume or become responsible for any debts,
liabilities or obligations of Seller.
1.2 Assumption of Obligations. Buyer covenants and agrees that, on the
Closing Date, it shall execute and deliver to Seller an Assumption Agreement in
substantially the form of Exhibit
<PAGE>
B hereto (the "Assumption Agreement") pursuant to which it will assume and agree
to perform and discharge the following liabilities and obligations of Seller to
the extent related to the Exchanges (collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations of Seller arising under the
Operating Contracts, except that Buyer shall not assume any liabilities or
obligations for any breach or default by, or payment obligations of,
Seller under such Operating Contracts occurring or arising or accruing on
or prior to the Closing Date;
(ii) All liabilities and obligations of Seller related to
unperformed service obligations, right-of-way relocation obligations and
construction in progress as of the Closing Date;
(iii) All liabilities and obligations imposed on Seller by State
Regulatory Authorities in connection with the operation of the Exchanges,
including without limitation obligations to provide 911 emergency services
and to make any investment in the Exchanges required by any Governmental
Authority, except that Buyer shall not assume any liabilities or
obligations, other than held order or other service obligations, imposed
on Seller by State Regulatory Authorities that arise out of Seller's
breach of any decision by the State Regulatory Authorities, or any
intentional misconduct or material misrepresentation by Seller;
(iv) All federal, state, county, municipal, foreign or other taxing
jurisdiction sales, use, transfer, gross receipts, consumer levy,
privilege or similar taxes, duties, excises or governmental charges,
including any penalties and interest thereon, arising out of the sale of
the Transferred Assets by Seller to Buyer hereunder, excluding any income
tax liability of Seller (collectively, "Transfer Taxes"); and
(v) All liabilities and obligations arising under Environmental Laws
with respect to the real property included in the Transferred Assets.
1.3 Retained Liabilities. Seller shall retain and shall pay, perform and
discharge when due, the following liabilities, responsibilities and obligations
of Seller with respect to the Business (collectively, the "Retained
Liabilities"):
(i) Subject to Section 1.5, all trade payables and other payment
obligations of Seller as of the Closing Date;
(ii) All long-term debt of Seller and debt of Seller owed to any one
or more of its Affiliates;
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(iii) Subject to Section 1.5, all taxes and assessments relating to
the operation of the Business (other than Transfer Taxes) on or before the
Closing Date for the use, ownership or operation of the Transferred Assets
on or before the Closing Date;
(iv) All liabilities and obligations arising on or before the
Closing Date with respect to Seller's employees that may be hired by Buyer
(the "Hired Employees"), including (a) all liabilities, responsibilities
and obligations arising on or before the Closing Date relating to
collective bargaining agreements or other union contracts, and (b) any
such liabilities or obligations that arise after the Closing Date to the
extent that such liabilities and obligations relate to facts,
circumstances or conditions arising or occurring on or before the Closing
Date with respect to the Hired Employees;
(v) All liabilities, responsibilities and obligations arising out of
or related to any actions, lawsuits or legal proceedings based on facts,
circumstances or conditions arising, existing or occurring on or before
the effective time of Closing, regardless of whether known or unknown,
asserted or unasserted, as of the Closing, including any liability under
any claim (whether made on or before the Closing Date) relating to the
period ending on or before the effective time of Closing which, but for
the consummation of the transactions contemplated hereby, would have been
covered under any insurance policy of Seller, and all liability associated
with workers' compensation claims incurred but not reported as of the
effective time of Closing and workers' compensation claims reported as of
the Closing Date but not then due or payable, but expressly excluding any
such liability, responsibility or obligation for litigation or claims of
any Governmental Authority relating to liabilities and obligations arising
under Environmental Laws with respect to the Fee Realty included in the
Transferred Assets, unless such liabilities, responsibilities and
obligations result from the actions or omissions of Buyer constituting
breaches of this Agreement;
(vi) All liabilities and obligations for prior period adjustments of
revenues from the Business, for any refunds or bill credits to ratepayers
for overbillings or overearnings occurring or relating to the period prior
to the effective time of Closing, and for all toll revenues, settlements,
pools, separations studies or similar activities relating to the Exchanges
for which Seller is responsible, provided that such liabilities and
obligations are asserted within four years of the Closing Date;
(vii) All liabilities, responsibilities and obligations arising out
of or occurring or resulting from the use or ownership of the Transferred
Assets on or before the Closing Date; and
(viii) All liabilities, responsibilities and obligations with
respect to the Excluded Assets.
1.4 Letters of Credit and Purchase Price.
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1.4.1 Letters of Credit. Within 15 business days of the date hereof,
Buyer shall deliver to Seller one or more irrevocable letters of credit issued
by financial institutions reasonably acceptable to Seller (the "Letters of
Credit") providing for drawings in an aggregate principal amount equal to
$5,839,310 (the "LC Amount"). The Letters of Credit shall be returned to Buyer
upon the Closing of the Transactions or upon termination of this Agreement for
any reason other than the following: (i) Seller's termination of this Agreement
pursuant to Section 6.2.4 or 6.2.5, or (ii) Seller's termination of this
Agreement pursuant to Section 6.2.1 because the condition precedent set forth in
Section 3.2.1 becomes incapable of satisfaction through no fault of Seller after
Buyer has had a reasonable opportunity to cause such condition precedent to be
satisfied. In addition, if Seller terminates this Agreement pursuant to Section
6.2.4 as a result of Buyer's breach of Section 4.1.4 for any reason, Buyer and
Seller have mutually agreed that in addition to Seller's right to draw down the
full amount of the Letters of Credit, Buyer shall be liable to Seller for an
additional amount equal to the LC Amount. If Buyer fails to deliver the Letters
of Credit within 15 business days of the date hereof, and Seller thereafter
terminates this Agreement pursuant to Section 6.2.4 as a result thereof, Buyer
shall be liable to Seller for the LC Amount. In the event that Seller terminates
this Agreement for any of the foregoing reasons, in view of the difficulty of
determining the amount of damages which may result to Seller from such failure
to consummate the Transactions, Buyer and Seller have mutually agreed that the
proceeds of the Letters of Credit and any other monies payable to Seller in
accordance with the foregoing provisions shall be retained by Seller as
liquidated damages, and not as a penalty, and this Agreement shall thereafter
become null and void except for those provisions which by their terms survive
termination of this Agreement. The parties have agreed that the proceeds of the
Letters of Credit and such other monies payable to Seller in accordance with the
foregoing provisions in such event shall be Seller's exclusive remedy.
1.4.2 Purchase Price. Subject to Section 1.4.4, Buyer shall pay to
Seller as consideration for the transfer of Seller's rights with respect to the
Business and the sale of the Transferred Assets an aggregate purchase price (the
"Purchase Price") consisting of $145,982,761 plus (a) the estimated amount of
Exchange Investments, if any, calculated pursuant to Section 1.4.3(a) (the
"Estimated Exchange Investments") less (b) the Revenue Adjustment, if any
calculated pursuant to Section 1.4.3(b). The Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds to such bank
account(s) as Seller shall designate within a reasonable time prior to Closing
and the Letters of Credit shall be returned to Buyer upon payment of the
Purchase Price.
1.4.3 Closing Date Purchase Price Adjustments.
(a) Estimated Exchange Investments. Seller shall prepare and deliver
to Buyer, no less than five business days prior to the Closing, an estimate of
the net book value on the Closing Date associated with any investment by Seller
in the Exchanges (the "Exchange Investment") prior to Closing required by any
Governmental Authority pursuant to an order issued between the date hereof and
the Closing Date, other than with respect to investments contemplated by
Schedule 5.2.3(iii) or with respect to Seller's efforts to comply with any
Governmental Authority's orders issued prior to the date hereof.
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(b) Revenue Adjustment. The Purchase Price shall be decreased if the
product of four times the aggregate revenues from the Business, as reported on
the monthly profit and loss statements for the Business for the three full
consecutive calendar months most recently completed prior to the Closing Date,
less any portion of such revenues attributable to the Excluded Assets (the
"Adjusted Annualized Closing Revenues"), are less than $30,992,400. Any decrease
in the Purchase Price in accordance with this Section 1.4.3(b) shall be equal to
the difference between the Adjusted Annualized Closing Revenues and $30,992,400
multiplied by 400% (the "Revenue Adjustment"); provided, that the Purchase Price
shall not be decreased pursuant to this Section 1.4.3(b) to the extent that the
Maximum Adjustment Amount shall have been reached.
1.4.4 Post-Closing Purchase Price Adjustment.
(a) Actual Exchange Investments. Within 120 days following the
Closing Date, Buyer shall prepare and deliver to Seller a written statement (the
"Exchange Investment Statement") of the calculation of the actual amount of
Exchange Investment. Subject to the dispute resolution mechanism set forth in
Section 1.4.4(c), to the extent that the actual amount of Exchange Investment as
shown on the Exchange Investment Statement differs from the Estimated Exchange
Investment, the difference shall be paid within 35 days of delivery of the
Exchange Investment Statement (i) by Buyer to Seller in the case of an excess,
or (ii) by Seller to Buyer in the case of a deficit.
(b) Reinitialization Adjustment. If, on the Closing Date, the
Reinitialization has not been effected, the Purchase Price shall be adjusted in
accordance with the following:
(i) If the Reinitialization occurs after the Closing Date but
on or prior to the two year anniversary of the Closing Date, Buyer shall
prepare and deliver to Seller, as soon as practicable after the
Reinitialization, a written statement (the "Reinitialization Statement")
of the calculation of the actual number of interstate switched access
minutes of use (the "Interstate Use Minutes") for the Exchanges per month
for the period commencing on the Closing Date and ending on the last day
of the month in which the Reinitialization occurred. Subject to the
dispute resolution mechanism set forth in Section 1.4.4(c), Seller shall
pay Buyer within 60 days of delivery of the Reinitialization Statement an
amount equal to $0.023 multiplied by the Interstate Use Minutes for the
period commencing on the day after the Closing Date and ending on the date
of the Reinitialization (pro rated, if necessary, for the first and final
month). Seller's failure to make such payment by the 60th day following
delivery of the Reinitialization Statement shall be deemed to be an
initiation of the dispute resolution mechanism set forth in Section
1.4.4(c).
(ii) If the Reinitialization has not occurred by the two year
anniversary of the Closing Date, Buyer shall so notify Seller and Seller
shall pay Buyer within 60 days after receipt of such notice an amount
equal to $14,127,364, plus simple interest at a rate of 8% per annum for
the period commencing on the Closing Date through but excluding the date
of payment.
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(c) Dispute Resolution Mechanism.
(i) Within 30 days after receipt of the Exchange Investment
Statement or 60 days after receipt of the Reinitialization Statement
(each, a "Post-Closing Statement"), as the case may be, Seller may, in a
written notice to Buyer, describe in reasonable detail any proposed
adjustments to the relevant Post-Closing Statement in question and the
reasons therefor. If Buyer shall not have received a notice of proposed
adjustments within such 30 or 60 day period, as the case may be, Seller
will be deemed irrevocably to have accepted such Post-Closing Statement.
(ii) If Seller disputes any portion of the Post-Closing
Statement, the parties shall calculate the portion of the undisputed
amount, if any, and such amount shall be paid by the appropriate party
within five business days of the determination of the undisputed amount.
Buyer and Seller shall negotiate in good faith to resolve any dispute. If
any dispute cannot be resolved within 30 days following Buyer's receipt of
the proposed adjustment, Deloitte & Touche or another independent public
accounting firm that is nationally recognized in the United States jointly
selected by Buyer and Seller shall be engaged to resolve such disputes in
accordance with the standards set forth in this Section, which resolution
shall be final and binding. The fees and expenses of such accounting firm
shall be shared by Buyer and Seller in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of Buyer
and Seller, respectively. Upon delivery of such public accounting firms's
resolution of such dispute to the parties, the party required to make a
payment pursuant to such resolution shall promptly, but no later than five
business days after such delivery, pay to the other party the amount
determined by such public accounting firm to be owed to such party.
(d) Any amount paid pursuant to Section 1.4.4(a) shall bear interest
from the Closing Date through but excluding the date of payment, at a rate of 8%
per annum. Any amount owing pursuant to Section 1.4.4(b)(i) that is not paid
within 60 days of delivery of the Reinitialization Statement shall bear interest
from the 61st day following delivery of the Reinitialization Statement through
but excluding the date of payment, at a rate of 8% per annum. Such interest
shall accrue daily on the basis of a year of 365 days and the actual number of
days for which due and shall be payable together with the relevant amount
payable pursuant to this Section 1.4.4. All amounts payable pursuant to this
Section 1.4.4 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer, in the case of amounts payable by Buyer, to such
account of Seller as Seller may designate and, in the case of amounts payable by
Seller, to such account of Buyer as Buyer may designate.
(e) The Purchase Price shall be deemed to be adjusted by any amounts
paid pursuant to this Section 1.4.4.
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1.5 Prorations. All real and personal property and similar taxes and
assessments with respect to the Transferred Assets, all rents, utilities and
other periodic charges and expenses arising from the normal operations of the
Business shall be prorated as of 11:59 p.m. local time on the Closing Date. Such
prorations shall be agreed upon by the parties as of the Closing Date and
reflected as an adjustment to the Purchase Price. Following the Closing Date,
each party shall thereafter be responsible for the payment of all such amounts
for which it is responsible, as determined by such prorations, as they become
due. For purposes of the foregoing proration, the parties agree that, with
respect to states in which Seller is assessed for real or personal property
taxes on a centralized basis or where a tax is imposed in lieu of property tax,
Seller shall be responsible for payment of property or other taxes assessed by
such state for the entire taxable year in which the Closing occurs and a pro
rata portion of such property taxes will be allocated to Buyer as of the Closing
Date and paid to Seller on the Closing Date. All prorations pursuant to this
Section 1.5 will be final and binding on both parties. Unless otherwise mutually
agreed no later than 30 days prior to the Closing Date, the specific date and
time for the change of telecommunications service to occur with respect to the
Exchanges shall be at 11:59 p.m., local time, on the Closing Date.
1.6 Allocation of the Purchase Price. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Buyer and Seller
agree to such Allocation prior to Closing, Buyer and Seller covenant and agree
that (i) the values assigned to the assets by the parties' mutual agreement
shall be conclusive and final for all purposes, and (ii) neither Buyer nor
Seller will take any position before any Governmental Authority or in any
judicial proceeding that is in any way inconsistent with such allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an
Allocation, Buyer and Seller covenant and agree to file, and to cause their
respective Affiliates to file, all tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable law.
1.7 Transfer Taxes. Buyer shall be responsible for all Transfer Taxes
imposed by any local, state or federal governmental authorities in connection
with the sale, transfer or assignment of the Transferred Assets or otherwise on
account of the Transactions, regardless of whether Buyer or Seller is assessed
therefor. Seller shall be responsible for filing the applicable returns and
shall file them in a timely manner. No less than 20 days prior to the due date
of any such returns, Seller shall provide Buyer with the proposed amount of
Transfer Taxes to be reported and remitted. No less than 10 days prior to the
due date of any such returns, Buyer shall either approve the proposed amount or
advise Seller of an adjusted amount of Transfer Taxes to be reported and
remitted. Seller shall report and remit Transfer Taxes in amounts as approved or
adjusted by Buyer. In the event Buyer fails to approve Seller's proposed amount
of Transfer Taxes and fails to advise Seller of an adjusted amount of Transfer
Taxes within 10 days prior to the due date of such return, Seller shall
interpret such inaction on the part of Buyer as direction by Buyer to make no
report of and no
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remittance of Transfer Taxes. Buyer shall remit to Seller on the day prior to
the due date of such return, by wire transfer of immediately available funds,
the agreed upon amount of Transfer Taxes to be remitted to the taxing
authorities. In the event Seller does not receive the agreed upon amount of
Transfer Taxes to be remitted to the taxing authorities from Buyer on or before
the day prior to the due date of the return, Seller shall interpret such failure
of Buyer to provide funds as direction by Buyer to make no report of and no
remittance of Transfer Taxes. Buyer warrants that any adjustments by Buyer to
Seller's proposed amount of Transfer Taxes or any direction by Buyer to make no
report of and no remittance of Transfer Taxes will be based on substantial state
and/or local authority that Transfer Taxes are not due and owing. Buyer shall
indemnify and hold harmless Seller from and against any and all such Transfer
Taxes and any penalties, interest or expenses (including attorneys' fees)
incurred by Seller with respect thereto unless such interest and penalties
result from the actions or omissions of Seller that are unrelated to any
breaches by Buyer of its obligations hereunder.
ARTICLE 2
CLOSING
2.1 Closing. The consummation of the purchase and sale of the Transferred
Assets (the "Closing") shall take place at Seller's offices in Denver, Colorado,
at 10:00 a.m., local time, on the last calendar day of the month in which all
the conditions precedent to Closing set forth in Article 3 have been satisfied
or waived, or on such other date as the parties mutually agree, but in no event
shall the Closing occur later than September 30, 2001 unless the parties shall
mutually agree to extend the date of the Closing. The date that the Closing
actually occurs is referred to as the "Closing Date." If the Closing is
postponed, all references to the Closing Date in this Agreement shall refer to
the postponed date of Closing.
2.2 Deliveries by Seller to Buyer. At or prior to the Closing, Seller will
deliver to Buyer:
2.2.1 Certified copies of all Seller's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Seller;
2.2.2 a duly executed Bill of Sale, in substantially the form of
Exhibit C hereto, and duly executed assignments and other instruments of
transfer sufficient to convey to Buyer title to all the personal property
included in the Transferred Assets;
2.2.3 A duly executed closing certificate of Seller contemplated by
Sections 3.1.1 and 3.1.2;
2.2.4 Releases, satisfactions or terminations of all mortgages,
financing statements or other Encumbrances on any of the Transferred Assets or,
in the alternative, an indemnity of Seller with respect to such Encumbrances in
form and substance reasonably acceptable to Buyer;
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2.2.5 Special warranty deeds covering the Fee Realty and assignments
in customary local form covering the other realty and Interests included in the
Transferred Assets, including all rights-of-way which are by their terms
assignable;
2.2.6 An affidavit in a form complying with Section 1445 of the
Code; and
2.2.7 Such other documents and items as are reasonably necessary or
appropriate to effect the consummation of the Transactions or which may be
customary under local law, including vehicle transfer documentation.
2.3 Deliveries by Buyer to Seller. At or prior to the Closing, Buyer will
deliver to Seller:
2.3.1 The Purchase Price as required by Section 1.4, together with
any proration payment required to be paid on the Closing Date pursuant to
Section 1.5;
2.3.2 Certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Buyer;
2.3.3 A duly executed closing certificate of Buyer contemplated by
Sections 3.2.1 and 3.2.2; and
2.3.4 The Assumption Agreement and such other certificates and
documents as are reasonably necessary or appropriate to effect the consummation
of the Transactions or which may be customary under local law.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. Within 30
days after the date of this Agreement, the parties shall negotiate in good faith
and enter into a Transition Agreement similar in scope to the agreement attached
as Exhibit D hereto. Within 90 days after the date of this Agreement, the
parties shall commence to negotiate in good faith the definitive terms of the
services agreements for the services that Buyer requests Seller to provide upon
Closing and described on Exhibit E hereto. At or prior to the Closing, Buyer and
Seller shall execute and deliver such services agreements. The parties
acknowledge and agree that the agreements contemplated by this Section 2.4 are
an integral part of, and will be entered into as part and parcel to, and in
conjunction with, the other transactions and agreements contemplated by this
Agreement.
2.5 Further Assurances. Except as otherwise provided herein or in the
transition agreements, all instruments of conveyance, assignment or transfer
referred to herein, all sums of money, and all records and data to be delivered
as specified in this Agreement shall be delivered at or prior to the Closing.
The parties agree following the Closing to execute and deliver such further
instruments of conveyance, assignment and assumption as may be reasonably
necessary to give effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities. In addition, in the event of an
inadvertent transfer of Excluded Assets, Buyer shall upon request by Seller
execute and deliver such instruments of conveyance, assignment and transfer as
may be
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reasonably necessary to reconvey such Excluded Assets to Seller and shall
promptly return such Excluded Assets to Seller.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
3.1.1 Representations and Warranties. All representations and
warranties of Seller made in this Agreement shall be true and correct on and as
of the Closing Date as though made at such time, other than inaccuracies in such
representations and warranties that in the aggregate do not have a material
adverse effect on the Business or changes approved by Buyer in writing, and
Seller shall have delivered to Buyer a certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.2 Covenants. Seller shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Seller shall have delivered to Buyer a Certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.3 Governmental Approvals. The State Regulatory Approvals and the
FCC Approval (collectively, "Governmental Approvals") shall have been obtained
and shall be in full force and effect and shall not contain any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date. All such approvals and consents shall be deemed to have been obtained
after the grant thereof has become a Final Order.
3.1.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.1.5 Hart-Scott-Rodino Act. All filings required to be made under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
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3.1.6 Certificates and Other Documents. Seller shall have executed
and delivered the certificates and other documents required by Sections 2.2 and
2.4.
3.1.7 Absence of Material Adverse Change. Since December 31, 1998,
there shall have occurred no casualty or other event or change, not subsequently
cured by Seller, that has resulted in a material adverse effect on the Business,
unless such event has resulted in an amendment to this Agreement as contemplated
by Section 6.1.2.
3.1.8 Material Third Party Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the required
third party consents listed on Schedule 3.1.8 have been obtained and remain in
full force and effect on the Closing Date.
3.1.9 Delivery of Financial Information. Seller shall have delivered
the Required Financial Statements and representation letters, in each case as
and when required by Section 5.2.7.
3.1.10 Environmental Inspections. If it is determined pursuant to
Section 5.3.7 that remediation of potential material liabilities under
Environmental Laws is required, then (i) Seller shall have completed the
remediation to Buyer's reasonable satisfaction, (ii) if Seller elects to exclude
a parcel of Fee Realty, and Buyer so elects, Seller and Buyer shall have entered
into a long-term, low-cost lease, in form and substance reasonably satisfactory
to Buyer, for Buyer's use of such parcel after Closing, or (iii) if Seller
elects to exclude the parcel or the Exchange to which such parcel relates, and
if such parcel alone has been excluded and Buyer has not elected to lease such
parcel, Seller and Buyer shall have agreed in good faith to a reduction in the
Purchase Price. In no event shall Seller be responsible for any other
environmental remediation.
3.1.11 Title Matters. If the aggregate estimated costs and expenses
reasonably necessary to remedy all Encumbrances pursuant to Section 5.3.9
exceeds $10,000 (the "Title Threshold"), Seller shall have removed the Excessive
Encumbrances. "Excessive Encumbrances" means one or more Encumbrances selected
by Seller, the removal of which will bring the aggregate estimated costs and
expenses reasonably necessary to remedy the remaining Encumbrances below the
Title Threshold. Seller shall have removed the Excessive Encumbrances by either
(i) causing the title company to agree to delete such Excessive Encumbrances as
an exception in the Title Commitment or, with the prior written consent of
Buyer, shall have insured over such Excessive Encumbrances by endorsement, or
(ii) if acceptable to Buyer and Seller in each of its reasonable discretion, the
parties shall have entered into a written agreement containing Seller's
commitment to remedy such Excessive Encumbrances on terms reasonably
satisfactory to Buyer. In no event shall Seller have any obligation to cure or
remove any Encumbrance that is not an Excessive Encumbrance.
3.1.12 Billing Conversion. The Steering Committee established
pursuant to the Transition Services Agreement shall have concluded at least
thirty days prior to Closing that the billing system conversion will be
completed by Closing.
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3.2 Conditions to Seller's Obligations. The obligation of Seller to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Seller:
3.2.1 Representations and Warranties. All representations and
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes approved by Seller in writing, and Buyer shall have delivered
to Seller a certificate of Buyer to that effect, dated as of the Closing Date,
signed by an authorized officer of Buyer.
3.2.2 Covenants. Buyer shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Buyer shall have delivered to Seller a Certificate of Buyer to that effect,
dated as of the Closing Date, signed by an authorized officer of Buyer.
3.2.3 Governmental Approvals. All Governmental Approvals shall have
been obtained and shall be in full force and effect. All such approvals and
consents shall be deemed to have been obtained after the grant thereof has
become a Final Order. The terms and conditions of the Governmental Approvals
shall be acceptable in all material respects to Seller in its reasonable
discretion.
3.2.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.2.5 H-S-R Act. All filings required to be made under the H-S-R Act
shall have been made, and the waiting period thereunder shall have expired or
early termination thereof shall have been granted.
3.2.6 Certificates and Other Documents. Buyer shall have delivered
the certificates and other documents required under Sections 2.3 and 2.4.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Buyer's Representations and Warranties. Buyer represents and warrants
to Seller that:
4.1.1 Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Buyer has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.1.2 Corporate Authority. This Agreement has been, and when
executed by Buyer each of the other Transaction Documents will be, duly and
validly executed and delivered by Buyer. This Agreement constitutes, and when
executed by Buyer each of the other Transaction Documents will constitute, the
valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
4.1.3 Governmental Authorizations. Except as contemplated by this
Agreement or as set forth in Schedule 4.1.3, neither Buyer's execution and
delivery of the Transaction Documents nor Buyer's consummation of the
Transactions require authorization or approval of, or filing with, any
Governmental Authority.
4.1.4 Funds. On the Closing Date, Buyer shall have sufficient funds
available to pay the Purchase Price, any proration payment required to be paid
on the Closing Date pursuant to Section 1.4, the amount of any Transfer Taxes to
be paid by Seller as provided in Section 1.6 and to consummate the Transactions.
4.1.5 Litigation. There are no actions, suits, proceedings, claims,
arbitrations or investigations, either at law or in equity, of any kind now
pending (or to the best of Buyer's knowledge threatened) involving Buyer or any
of its properties or assets that (i) question the validity of any of the
Transaction Documents or the Transactions; or (ii) seek to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under the Transaction Documents.
4.1.6 Investigation. Buyer, through its accountants, attorneys,
agents, employees, and others, has made or will have made prior to the Closing
such investigations of the Exchanges and Transferred Assets and of the factual,
legal and other condition and location of the Exchanges and Transferred Assets
that it deems necessary or advisable with respect to the Transactions. Buyer
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has not received from the Seller, or from anyone acting or claiming to act on
behalf of the Seller, any accounting, tax, legal or other similar advice with
respect to the Transactions, and Buyer is relying solely on advice of its own
accounting, tax, legal, and other advisors for such advice. Buyer has based its
decision to acquire the Transferred Assets solely on the results of such
investigations and the representations, warranties and covenants of Seller set
forth herein, and not based on any other information (including without
limitation information contained in Seller's descriptive memorandum) provided to
Buyer by Seller, its Affiliates, employees, agents, representatives or advisors.
4.2 Seller's Representations and Warranties. BUYER UNDERSTANDS THAT,
EXCEPT AS SET FORTH IN THIS SECTION 4.2, SELLER MAKES NO REPRESENTATIONS,
WARRANTIES OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR
TYPE WHATSOEVER WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, AND WARRANTIES AS TO THE APPURTENANCES, FACILITIES AND
IMPROVEMENTS THEREON, OR THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR
ADAPTABILITY THEREOF. Seller represents and warrants to Buyer that:
4.2.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Seller has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.2.2 Authorization, Execution and Delivery. This Agreement has
been, and when executed by Seller each of the other Transaction Documents will
be, duly and validly executed and delivered by Seller. This Agreement
constitutes, and when executed by Seller each of the other Transaction Documents
will constitute, the valid, legal and binding agreement of Seller enforceable
against Seller in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights generally
and by principles of equity.
4.2.3 Transferred Assets. Except with respect to Fee Realty, the
Transferred Assets are, and at the time of Closing will be, owned by Seller and
conveyed, transferred and assigned to Buyer free and clear of all Encumbrances.
The Transferred Assets (i) are in a normal state of repair (except for ordinary
wear and tear), (ii) are sufficient, both in number and condition, to comply
with applicable requirements of State Regulatory Authorities and the
manufacturer's specifications, except for non-compliances that in the aggregate
are not reasonably likely to have a material adverse effect on the Business
following the Closing Date, and (iii) will include all assets of every type,
nature and description that relate to, arise from, are used or held by Seller
primarily in the operation of the Business as presently operated by Seller
(including vehicles and related vehicle stock, portable
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office equipment, test equipment, generators, materials, supplies, tools,
maintenance radio equipment and antennas normally located within the Exchanges
or primarily used in connection with the Business), except for the Excluded
Assets. Assuming the receipt of all required third-party consents, the
instruments and documents to be executed and/or delivered by Seller to Buyer
pursuant to Section 2.2 hereof at or following the Closing Date shall be
adequate and sufficient to vest in Buyer all of Seller's right, title and
interest in or to the Transferred Assets. To Seller's Knowledge, Seller enjoys
peaceful, undisturbed possession under all leases included in the Material
Contracts and rights-of-way and easements with respect thereto and with respect
to the Fee Realty. Notwithstanding the foregoing to the contrary, with respect
to all Fee Realty included in the Transferred Assets, Seller makes no
representations or warranties as to the ownership or Encumbrances thereon, it
being the express agreement of the parties that such matters shall be the
subject of the arrangements set forth in Sections 3.1.11 and 5.3.9.
4.2.4 Governmental Authorization. Except as contemplated by this
Agreement and except for such of the following the absence of which would not
have a material adverse effect on the Business, no authorization or approval of,
or filing with, any Governmental Authority will be required in connection with
Seller's execution and delivery of the Transaction Documents or Seller's
consummation of the Transactions.
4.2.5 Litigation. As of the date hereof there are no actions, suits,
proceedings, claims, arbitrations or investigations, either at law or in equity,
of any kind now pending (or to the best of Seller's Knowledge threatened)
against Seller (i) in which an adverse determination would have a material
adverse effect on the Business; (ii) that question the validity of any of the
Transaction Documents or the Transactions; or (iii) that seek to delay, prohibit
or restrict in any manner any actions taken or contemplated to be taken by
Seller under the Transaction Documents.
4.2.6 Tax Matters. All taxes and assessments, including interest and
penalties thereon, of any kind whatsoever accrued with respect to the Business
through the Closing Date (other than Transfer Taxes and taxes subject to
proration at Closing pursuant to Section 1.4) have been or will be paid in full
by Seller. There are no liens for federal, state or local taxes upon the
Transferred Assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by Seller
in appropriate proceedings, the ultimate liability for which shall remain the
obligation of Seller, and Seller shall indemnify Buyer against all such
liabilities. Seller has timely filed, or will cause to be timely filed, all
federal, state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Business for all periods up to and including the Closing Date.
4.2.7 No Breach. The execution and delivery by Seller of the
Transaction Documents and the consummation by Seller of the Transactions will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of Seller; (ii) violate any
applicable law, statute, ordinance, rule, regulation, code, license,
certificate, franchise, permit, writ, ruling award, executive order, directive,
requirement, injunction (whether
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temporary, preliminary or permanent), judgment, decree or other order
(collectively "Applicable Laws") issued, enacted, entered or deemed applicable
by any Governmental Authorities having jurisdiction over Seller or any of the
Transferred Assets; (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give another
party any rights of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of the Operating Contracts; or (iv) result in
the creation or imposition of any Encumbrance on any of the Transferred Assets,
excluding from the foregoing clauses those violations, breaches or defaults
which individually or in the aggregate would not reasonably be expected to have
a material adverse effect upon the operation of the Business by Buyer after the
Closing.
4.2.8 Compliance with Laws. Except as set forth on Schedule
4.2.18(a), the Business has been operated and the Exchanges are in compliance
with all requirements of the Authorities and all Applicable Laws, except where
Seller's non-compliance would not have a material adverse effect on the
Business. Seller has not received any notice of (and to Seller's Knowledge there
is no reason to anticipate) any material violation of any Applicable Laws.
Notwithstanding the foregoing, except as specifically provided in Section 5.3.7,
Seller hereby disclaims all warranties, whether express or implied, with regard
to the presence of Hazardous Materials in the Transferred Assets or compliance
of the Business with Environmental Laws. Buyer understands and agrees that,
other than as specifically provided in Section 5.3.7, any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Transferred Assets following the Closing Date, including the costs of any
remediation or cleanup associated with the Transferred Assets, or environmental
claim or liability associated with the Transferred Assets, irrespective of when
contamination occurred, is assumed by Buyer on the Closing Date.
4.2.9 Operating Contracts. Schedule 4.2.9(a) sets forth all of the
Operating Contracts of the type described below (the "Material Contracts") that
Seller, after using commercially reasonable efforts, has been able to gather for
Buyer's review. No Operating Contract described in (i) below will be entered
into after the date of this Agreement and no Operating Contract described in
(ii) - (ix) will be entered into after the date of this Agreement other than in
the ordinary course of business:
(i) an agreement containing a non-compete agreement or other
non-compete covenant that in either case would by its terms limit the freedom of
Buyer following the Closing to compete in any respect with respect to the
Business with any third party;
(ii) an agreement granting an Encumbrance on Property other than Fee
Realty;
(iii) an agreement for the sale of any material Transferred Assets
or grant of any preferential rights to purchase any material Transferred Assets;
(iv) a land development agreement or other similar construction
agreement;
(v) a lease of real property;
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(vi) an agreement with respect to 911 services or E911 services;
(vii) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Exchanges;
(viii) an agreement that relates to arrangements and commitments
between Seller and a third party for the third party's location of equipment in
facilities included in the Transferred Assets except to the extent set forth in
a separate interconnection agreement; or
(ix) an agreement other than as set forth above with respect to
which the aggregate amount to be received or paid thereunder attributable to the
Exchanges with respect to calendar year 1999 or any subsequent calendar year is
expected to exceed $50,000 based on the terms of such agreement or on the
payments which have been made under such agreement with respect to calendar year
1998, to the extent applicable.
\ Schedule 4.2.9(b) identifies (i) each interconnection agreement between
Seller and a third party or an Affiliate of Seller that is applicable to the
Exchanges, (ii) each agreement that relates to arrangements and commitments
between Seller and an Affiliate of Seller for such Affiliate's co-location of
equipment in facilities included in the Transferred Assets that Seller, using
commercially reasonable efforts, has been able to identify, and (iii) each
Exchange where a third party has physically co-located equipment or, to Seller's
Knowledge, where a third party has made a written request to co-locate equipment
located in the Exchanges.
All of the Operating Contracts were made in the ordinary course of
business and are in all material respects valid, binding and currently in full
force and effect. Seller is not in default in any material respect under any of
the Operating Contracts, and to Seller's Knowledge no event has occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default or give rise to a right of termination or cancellation under any of the
Operating Contracts, cause the acceleration of an obligation of Seller, or
result in the creation of any Encumbrance upon any of the Transferred Assets. To
Seller's Knowledge, no other party is in default under any of the Operating
Contracts, nor has any event occurred which, through the passage of time or the
giving, of notice, or both, would constitute a default or give rise to a right
of termination or cancellation under any of the Operating Contracts, or cause
the acceleration of any obligation owed to Seller. Complete and correct copies
of all the Material Contracts in Seller's possession, together with all
modifications and amendments thereto to date of this Agreement in Seller's
possession, have been made available to Buyer or its representatives. Schedule
4.2.9(a) also specifically identifies each lease that requires the consent,
approval or waiver of the other party thereto for the assignment thereof.
4.2.10 Realty. (i) To Seller's Knowledge, the legal descriptions to
be delivered by Seller to the title insurance company shall be complete and
accurate in all material respects; (ii) as of the date hereof, there are no
deferred property taxes or assessments payable by Seller with respect to the Fee
Realty which may or will become due and payable as a result of the consummation
of the
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Transactions, other than Transfer Taxes; (iii) there are no condemnation
proceedings pending or to Seller's knowledge threatened with respect to all or
any part of any parcel of Fee Realty; and (iv) Seller is not a foreign person
within the meaning of Section 1445 of the Code.
4.2.11 Reports. Seller has filed all reports relating to the
Business required by all Applicable Laws to be filed, and it has duly paid or
accrued on its books of account all applicable duties and charges due or
assessed against it pursuant to such reports.
4.2.12 Year 2000 Matters.
(a) Year 2000 Compliance. Seller warrants and represents that to the
best of its knowledge and belief following an effort of commercially reasonable
diligence by Seller, all of its business assets, including but not limited to
information technology and non-information technology systems and facilities and
those of its external suppliers utilized by Seller in the Business and included
in the Transferred Assets ("Business Assets"), are or will be "Year 2000
Compliant" (defined below) on or before the Closing Date. For purposes of this
Agreement, the following definitions apply:
(i) "Date Data" means any data, formula, algorithm, process,
input or output which includes, calculates or represents a date, a reference to
a date or a representation of a date;
(ii) "Year 2000 Compliant" means:
1. the functions, calculations, and other computing
processes of the Business Assets (collectively, "Processes") perform in a
consistent manner regardless of the date in time on which the Processes
are actually performed and regardless of the Date Data inputs to the
Business Assets, whether before, on, during or after January 1, 2000 and
whether or not the Date Data is affected by leap year;
2. the Business Assets accept, calculate, compare, sort,
extract, sequence, and otherwise process all Date Data, and returns and
displays all Date Data, in a consistent manner regardless of the dates
used in such Date Data, whether before, on, during or after January 1,
2000.
3. the Business Assets will function without
interruptions caused by the date in time on which the Processes are
actually performed or by the Date Data inputs to the Business Assets,
whether before, on, during or after January 1, 2000;
4. the Business Assets store and display all Date Data
in ways that are unambiguous as to the determination of the century;
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5. no Date Data will cause one or more Business Assets
to perform an abnormally ending routine or function within the Processes
or generate incorrect values or invalid results; and
6. each of the Business Assets will properly exchange
Date Data with all other Business Assets that it may interact or
inter-operate with.
(b) Year 2000 Testing. Seller warrants that the Business Assets have
been tested by Seller and/or Seller's suppliers of Business Assets to determine
whether each of the Business Assets is Year 2000 Compliant. Seller's suppliers
of Business Assets have represented to Seller that the Business Assets provided
by them are Year 2000 Compliant and/or have been tested by those suppliers to
determine whether such Business Assets are Year 2000 Compliant. Seller will
notify Buyer immediately of the results of any test or any claim or other
information that indicates any Business Asset is not Year 2000 Compliant.
(c) Year 2000 Remedies. In the event that Buyer encounters a
Business Asset that is not Year 2000 Compliant, within a commercially reasonable
period after receipt from Buyer of written notice thereof, Seller shall at its
expense cause the identified non-compliant Business Asset to be repaired or
replaced.
4.2.13 Correct Records. The financial records, ledgers, account
books and other accounting records of Seller relating to the Business are
current, correct and complete and, if required by applicable law, conform with
the rules and regulations of the FCC and the State Regulatory Authorities,
except for instances that in the aggregate are not reasonably likely to have a
material adverse effect on the Business following the Closing Date and except
for the Continuing Property Records for the Exchanges, which are dealt with
specifically elsewhere in this Agreement. Seller has retained substantially all
original cost documentation relating to the regulated Business regarding the
expenditures made by Seller within the period required by Applicable Law that
relate to the Property, and such original cost documents are correct and
complete in all respects, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
4.2.14 Tribal and Federal Consents.
(a) To Seller's Knowledge, all easements, rights-of-way, franchises,
licenses, permits, consents, approvals, certificates and other authorizations of
tribal authorities and the United States Bureau of Indian Affairs (the
"BIA")(collectively, "Tribal Authorizations") held by Seller and relating to any
Purchased Property located, or any operations of the Business conducts, on
Native American reservations are in full force and effect, Seller is not in
material default thereunder, and there are no other Tribal Authorizations
required to be obtained by Seller from, or filings required to be made by Seller
with, any tribal authority or the BIA with respect to any such Purchased
Property or any such operations of the Business, except for instances that in
the aggregate are not reasonably likely to have a material adverse effect on the
Business following the Closing Date.
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(b) Except as set forth on Schedule 4.2.14(b), to Seller's Knowledge
no consent, approval or waiver from, or filing with, any tribal authority or the
BIA is required to be obtained or made in connection with the execution and
delivery by Seller of this Agreement, or Seller's fulfillment of its obligations
under this Agreement, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(c) If during the period between the date of this Agreement and the
Closing Date the representation and warranty set forth in this Section 4.2.14
proves to be untrue with respect to one or more parcels of Realty and Buyer and
Seller in good faith have been unable to remedy the circumstances that causes
such representation and warranty to be untrue with respect to such parcel, at
the election of either Buyer or Seller such parcel shall be excluded from the
Transferred Assets, and Buyer and Seller shall in good faith reduce the Purchase
Price accordingly.
4.2.15 Financial Statements.
Within 15 business days of the date hereof, Seller shall deliver to Buyer
a copy of financial statements relating to the Business, consisting of a balance
sheet and income statement and statements of cash flow and changes in equity for
the Business as of and for the respective periods ended December 31, 1996,
December 31, 1997, and December 31, 1998, together with the auditor's report
thereon (the "Financial Statements"). The Financial Statements were prepared
based upon the books and records of Seller, fairly present in all material
respects the financial condition of the business as of the appropriate periods
and the results of operations for the year then ended, in each case in
conformity with GAAP.
4.2.16 Loss of Major Customer. Except as set forth on Schedule
4.2.16, since June 1, 1997, Seller has not suffered the loss of any customer of
the Business that had billings in any year in excess of $25,000.
4.2.17 CPRs; Vehicles. Seller has provided Buyer with its Continuing
Property Records ("CPRs") for the Exchanges. Schedule 4.2.17 contains a true and
complete list and description (including vehicle identification numbers) as of
June 1, 1999 of the vehicles that are included in the Transferred Assets.
4.2.18 Tariffs and Authorities.
(a) The regulatory tariffs applicable to the Business stand in full
force and effect on the date of this Agreement in accordance with all terms, and
there is no outstanding notice of cancellation or termination or, to Seller's
Knowledge, any threatened cancellation or termination in connection therewith,
nor is Seller subject to any restrictions or conditions applicable to its
regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material
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respect under any such tariff. Schedule 4.2.18(a) sets forth all applications by
Seller or complaints or petitions by others or proceedings pending or, to
Seller's Knowledge, threatened before the state regulatory authority relating to
the Business or its operations or the regulatory tariffs that Seller, after
using commercially reasonable efforts, has been able to identify. To Seller's
Knowledge, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Business
has been delivered or made available to Buyer.
(b) Listed on Schedule 4.2.18(b) are the material Authorities held
by Seller and used in the operation of the Business. Each of such Authorities is
in full force and effect of the date of this Agreement in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor are any of such Authorities subject to any restrictions or
conditions that limit the operation of the Business (other than restrictions or
conditions generally applicable to licenses or permits of that type). Subject to
the Communications Act of 1934, as amended, and the regulations thereunder, the
FCC licenses included in the Authorities are free from all security interests,
liens, claims or encumbrances of any nature whatsoever. Except as disclosed on
Schedule 4.2.18(c), there are no applications by Seller or complaints or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC licenses that would reasonably be expected to have a
material adverse impact on the Business.
4.2.19 Environmental Matters.
(a) Schedule 4.2.19(a) accurately describes each incident known to
Seller and arising since December 31, 1996, involving violation of or
noncompliance with Environmental Laws in connection with Seller's operation of
the Business or the use or ownership of the Transferred Assets with respect to
which the fines exceed $100,000. Except as will be set forth on Schedule
4.2.19(d), no environmental remediation is occurring on any parcel of Fee Realty
or leased real property included in the Transferred Assets nor has Seller or any
Affiliate of Seller issued a request for proposal or otherwise asked an
environmental remediation contractor to begin plans for environmental
remediation.
(b) Schedule 4.2.19(b) sets forth a true and accurate list of all
underground storage tanks ("USTs") and aboveground storage tanks ("ASTs")
located on the Fee Realty and the leased real property included in the
Transferred Assets that are in use.
(c) Except as set forth in Schedule 4.2.19(c) and, to the extent
such information is unavailable on the date of execution of this Agreement, as
set forth and supplemented on Schedule 4.2.19(d), none of the Fee Realty or
leased real property is (i) situated in a federal "Superfund" site or, to
Seller's Knowledge, in any federal "Superfund" study area, or (ii) to Seller's
Knowledge, situated in a site or study area that is covered by the Environmental
Quality Act, Ariz. Rev. Stat., Tit. 49, Ch 281-287, as amended.
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(d) Within 30 days from the date of this Agreement, Seller will
prepare and deliver to Buyer Schedule 4.2.19(d), which schedule will list (i)
all environmental remediation occurring on any parcel of Fee Realty or leased
real property included in the Transferred Assets, (ii) any requests for
proposals for remediation, (iii) any requests by Seller or any Affiliate of
Seller to begin plans for environmental remediation, (iv) all USTs and ASTs
located on the Fee Realty and the leased real property included in the
Transferred Assets that, to Seller's Knowledge, have been abandoned in place,
and (v) each incident known to Seller and arising since December 31, 1996,
involving violation of or noncompliance with Environmental Laws in connection
with Seller's operation of the Business or the use or ownership of the
Transferred Assets with respect to which the fines exceed $10,000. In addition,
within such period, Seller shall deliver to Buyer complete copies of letters of
non-compliance with respect to each incident listed in subsection (v) above,
copies of AST and UST closure letters contained in the files and records of
Seller, copies of all No Further Action letters contained in the files and
records of Seller, and a description of the status of any existing fuel tank
remediation.
4.2.20 Employee Benefits.
(a) Schedule 4.2.20(a) lists each Employee Benefit Plan and
Other Plan maintained or contributed to by Seller or its affiliates for the
benefit of any employee employed by, or associated with, the Business
(hereinafter, an "employee of the Business"). Seller has provided Buyer with
full and complete copies (including all amendments) of all of such Employee
Benefit Plans and Other Plans.
(b) To Seller's Knowledge, each such Pension Plan, Welfare
Plan and Other Plan maintained by Seller has been operated in accordance with
its terms and in accordance with applicable law, to the extent that the failure
to do so would have material adverse effect on the Business or its assets.
(c) Except as otherwise set forth on Schedule 4.2.20(c), no
Employee Benefit Plan or Other Plan provides benefits for persons who are not
active employees of Seller.
(d) Except as set forth on Schedule 4.2.20(g), there are no
actions, suits or claims pending or threatened (other than routine claims for
benefits) relating to any Employee Benefit Plan or Other Plan identified in
Schedule 4.2.20(a) except for actions, suits or claims that are not in the
aggregate reasonably likely to have a material adverse effect on the Business
following the Closing Date.
(e) Seller does not maintain any Employee Benefit Plan or
Other Plan under which it would be obligated to pay benefits because of the
consummation of the transaction contemplated by this Agreement, which could
become an obligation of the Buyer.
(f) Seller has used its best efforts to maintain each trust
forming a part of any Pension Plan identified in Schedule 4.2.20(a) which is not
exempt from Part 2, 3 and 4 of Title I of
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ERISA to meet all requirements for qualification under Sections 401 and 501 of
the Internal Revenue Code, and all applicable related rules and final
regulations.
(g) Schedule 4.2.20(g) sets forth all the exceptions to the
following statements that Seller, after using commercially reasonable efforts,
has been able to identify: (i) Seller is not subject to any collective
bargaining agreement covering any employees of the Business; (ii) there are no
current, or to Seller' Knowledge, any pending or threatened strikes, slowdowns,
picketing, work stoppages or lock-outs affecting the Business; (iii) to Seller's
knowledge, there is no pending or threatened organized activity or petition for
certification of a collective bargaining representative involving employees of
the Business; (iv) to Seller's Knowledge, there is no pending or threatened
charge, action, complaint, or proceeding of any nature against Seller relating
to the violation of any applicable state and federal labor or employment law or
regulation in connection with the Business, nor is there any other pending or
threatened labor or employment dispute against or affecting Seller in connection
with the Business ,except for items that in the aggregate are not reasonably
likely to have a material adverse effect on the Business following the Closing
Date; and (v) with respect to employees of the Business, Seller has complied in
all respects with the laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupation safety and health, immigration, and plant closings ,except
for items that in the aggregate are not reasonably likely to have a material
adverse effect on the Business following the Closing Date. Seller has delivered
to Buyer accurate and complete copies of all collective bargaining agreements
affecting any of the employees in the Exchanges.
"Employee Benefit Plan" means any Pension Plan and Welfare Plan within the
meaning of Section 3(3) of ERISA.
"Other Plan" means any employment, noncompetition, management, agency or
consulting arrangement, bonus, profit sharing, deferred compensation, incentive,
stock option, stock ownership or stock purchase plan, severance or unemployment
arrangement, vacation pay, fringe benefit or other similar plan, policy or
arrangement, whether or not in written form, which does not constitute an
Employee Benefit Plan and which is not listed on Schedule 4.2.20(a).
"Pension Plan" means any employee pension plan within the meaning of
Section 3(2) of ERISA.
"Welfare Plan" means any employee welfare benefit plan within the meaning
of the Section 3(1) of ERISA.
4.2.21 Accuracy of Information Furnished.
(a) To Seller's Knowledge:
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(i) Seller made a good faith effort, given the voluminous
nature of the material available with respect to the Transferred Assets, the
necessity to present in many cases representative documents or descriptions of
documents, and Seller's need to maintain certain competitive information
confidential, to include in the due diligence notebooks contained in the Data
Room located in Seller's offices in Denver, Colorado all documents or
appropriate descriptions of all documents that, in Seller's reasonable opinion,
a reasonable prospective acquiror of the Transferred Assets would deem to be
material in its decision; and
(ii) Seller did not intentionally and consciously decide to
(1) exclude from the due diligence notebooks (2) withhold from Buyer in response
to Buyer's requests for additional information or (3) not make available for
review by Buyer or its agents at Seller's offices in Denver, Colorado any
document relating to the operation of the Business as currently conducted which,
in Seller's reasonable opinion, a reasonable prospective acquiror of the
Transferred Assets would deem to be material in its decision to acquire the
Transferred Assets.
4.2.22 No Material Adverse Change. Since December 31, 1998 there has not
occurred (i) any event or condition that would have a material adverse effect on
the Business, (ii) any increase in compensation payable or to become payable by
Seller to any of its Hired Employees or agents, other than normal merit or
promotional increases and pursuant to any collective bargaining agreements,
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract, except any amendment or termination in the
ordinary course of business or (iv) any change in any accounting method,
practice or policy of Seller with respect to the Business.
ARTICLE 5
COVENANTS
5.1 Covenants of Buyer. Buyer hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.1.1 Continued Efforts. Buyer will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Buyer; (ii) cause to be performed all of
the actions required of Buyer at or prior to the Closing; and (iii) take such
steps and do all such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect as
if the same had been made as of the Closing Date. Without limiting the
foregoing, Buyer agrees if requested by Seller to apply for or otherwise seek
any required third-party consents on a joint basis.
5.1.2 Cooperation. Buyer agrees to cooperate with Seller with
respect to (i) Seller's assignment to Buyer and Buyer's assumption of the
Transferred Assets hereunder, and (ii) Seller's structuring of the Transactions
to comply with the requirements of a like-kind exchange under Section 1031 of
the Code (a "1031 Transaction") at no additional expense to Buyer, such
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cooperation to include, without limitation, purchase of the Transferred Assets
from a "qualified intermediary" (as defined in Section 1031) of Seller's choice
and execution of such documents in connection with the Transactions as Seller
may reasonably request. If Seller elects to pursue the Transactions as a 1031
Transaction, then (i) notwithstanding anything in this Agreement to the
contrary, Seller shall fully indemnify, defend and hold Buyer harmless from and
against any and all liabilities resulting therefrom, including, but not limited
to, any tax impacts on Buyer or the Transferred Assets, and (ii) Seller shall
remain directly and primarily bound by all other conditions, representations,
warranties and covenants contained herein and remedies related thereto.
5.1.3 Employee Matters.
(a) Buyer agrees that, during the period between the date hereof and
the Closing Date and for a period of 18 months thereafter, without the prior
written consent of Seller, Buyer will not actively solicit for employment any
employee of Seller other than those persons identified by Seller to Buyer in
writing as provided in this Section 5.1.3 or who respond to a general
solicitation of employment made by Buyer.
(b) As soon as practicable following the date hereof and as
permitted by applicable law and collective bargaining agreements, Seller shall
provide to Buyer a list of all employees whose services are primarily related to
the Exchange (the employees on such list being referred to as "Prospective
Hires"). Buyer shall have the right to audit such list to determine that it
contains an accurate and complete listing of all Prospective Hires, and Seller
shall cooperate in providing Buyer with such information as Buyer may reasonably
request to assist in such audit. Within 90 days following the date of this
Agreement, and consistent with applicable law and any collective bargaining
agreement, Seller shall provide Buyer with a definitive list of Prospective
Hires, such list to contain the name, job classification, position, title, date
of hire, current salary or wage, bargaining unit, primary exchange(s), work
location, telephone number and last known address of each Prospective Hire.
(c) Buyer may, but shall have no obligation to, employ or offer
employment to any Prospective Hire. Seller shall cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview the Prospective
Hires to make hiring decisions. At least 60 days before the scheduled Closing
Date, Buyer shall provide to Seller in writing a list of the Prospective Hires
that Buyer intends to offer employment. At least 45 days before the scheduled
Closing Date, Buyer shall notify those Prospective Hires whom Buyer intends to
hire on the Closing Date; the form and manner of such notification shall be
reasonably satisfactory to and approved in advance by Seller. Buyer shall be
permitted to conduct appropriate pre-hire investigations of such named
Prospective Hires and make any offer of employment for such Prospective Hires
conditional upon receiving results of such investigations as are satisfactory to
Buyer.
(d) As of the Closing Date, Seller shall separate from its payroll
the employment of all of the Prospective Hires to whom Buyer has made offers of
employment other than any such Prospective Hire who has been offered employment
by Buyer and who is on leave status, including
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employees receiving Workers' Compensation Benefits, as of the Closing Date
(each, an "Employee on Leave Status"). Buyer shall employ any Employee on Leave
Status (i) who is on approved leave under the Family and Medical Leave Act on
the Closing Date only when such Employee on Leave Status returns to work from
such approved leave under the Family and Medical Leave Act or (b) who is
receiving Workers' Compensation Benefits on the Closing Date only when such
Employee on Leave Status is released to return to work but only if such release
occurs within sixteen weeks after the date of initial eligibility for Workers'
Compensation Benefits, in each case subject to Buyer's right to conduct
appropriate pre-hire investigations of such Employee on Leave Status and to
Buyer's receipt of results of such investigations that are satisfactory to
Buyer.
(e) Seller shall be responsible for and shall cause to be discharged
and satisfied in full all amounts owed to any Prospective Hire who is employed
by Seller as of the Closing Date, including salaries, commissions, bonuses,
deferred compensation, severance, insurance, vacation, and other compensation or
benefits to which they are entitled for periods prior to the Closing (and for
Employee on Leave Status, until their employment by Buyer, as set forth in
Section 5.1.3(d) hereof), including all amounts (if any) payable on account of
the termination of such Prospective Hires.
(f) Seller will be responsible for maintenance and distribution of
benefits accrued under any Employee Benefit Plan maintained by Seller pursuant
to such plan and any legal requirements. Buyer will not assume any obligation or
liability for any such accrued benefits under any employee benefit plans
maintained by Seller.
(g) Nothing in this Section 5.1.3 or elsewhere in this Agreement
shall be deemed to make any Prospective Hire a third party beneficiary of this
Agreement.
(h) Seller acknowledges and agrees that Buyer has not agreed to be
bound, and will not be bound, by any provision of any collective bargaining
agreement or similar contract with any labor organization to which Seller or any
of its Affiliates is or may become bound.
(i) Seller shall provide employees of the Business with any required
notices under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller.
5.1.4 Directory Publishing Rights. Buyer will enter into good faith
negotiations with U S WEST Dex, Inc. ("Dex"), an Affiliate of Seller (or its
successor so long as such successor remains an Affiliate of Seller), concerning
an agreement whereby either (i) Dex will publish all subscriber listings
corresponding to the Exchanges on behalf of Buyer in satisfaction of Buyer's
regulatory obligations to publish such listings, or (ii) Buyer will license such
listings to Dex in accordance with Buyer's regulatory obligations to provide
such listings in the event that Buyer elects to publish or arrange with a third
party to publish such listings.
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5.1.5 911 Emergency Services. Buyer will obtain or contract for the
appropriate 911 emergency data bases in order to commence providing 911
emergency services in connection with the operation of the Business as of the
Closing Date.
5.2 Covenants of Seller. Seller hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.2.1 Access to Information and Facilities. Seller will afford Buyer
and its representatives, at Buyer's sole expense, reasonable access during
normal business hours to all Transferred Assets, facilities, properties, books,
accounts, records, contracts and documents of or relating to the Business in
Seller's possession or control. Seller shall exercise commercially reasonable
efforts to furnish or cause to be furnished to Buyer and its representatives all
data and information in Seller's possession concerning the Exchanges as shall
reasonably be requested by Buyer. Seller shall exercise commercially reasonable
efforts to gather additional Material Contracts for Buyer's review.
Seller acknowledges and agrees that Buyer's ongoing review, examination
and investigation of the Business and the Transferred Assets, facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business contemplated in the immediately preceding sentence is necessary to
facilitate the assimilation of the Business into Buyer's operations, the
transfer of the ownership and use of the Transferred Assets from Seller to Buyer
and other reasonable business purposes, and may include the following
activities:
(i) review of the Operating Contracts and Authorities, the
performance of which after Closing is an Assumed Liability (e.g., land
development agreements, 911 and E911 service agreements and customer
prepaid maintenance agreements) in order, among other things, to identify
those that require third party consent to assign to Buyer, those that
expire prior to or soon after the Closing and those that may require
special documentation to transfer to Buyer;
(ii) investigation of the third party arrangements included among
the Excluded Assets that Buyer will need to replicate or replace,
including interconnection agreements and national account agreements that
affect any Exchange.
(iii) examination of various assets included in the Property in
order, among other things, to determine what changes Buyer may need to
make to such assets after the Closing Date;
(iv) investigation of miscellaneous underwriting data, including an
insurance claims history of Seller relating to the operation of the
Business and the ownership or use of the Transferred Assets, the current
surety bonds and certificates of insurance relating to the Transferred
Assets, and Seller's policies and practices relating to pertinent
environmental, health, safety and property protection issues, in order for
Buyer to arrange appropriate
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insurance coverage by Closing with respect to Buyer's operation of the
Business and ownership and use of the Transferred Assets after the Closing
Date;
(v) investigation of the location and organization of the Records,
including the original cost documents and outside plant maps relating to
the Property, in order for the parties to arrange for appropriate delivery
(including via electronic transfer) or retention by Seller upon the
Closing;
(vi) review of the appropriate financial and accounting records of
Seller relating to the operation of the Business in order, among other
things, for Buyer to analyze the current balances and writeoff history of
the materials and supplies inventory included in the Transferred Assets,
the aging and write-off history of Accounts Receivable, and the manner in
which the Seller historically has allocated costs to the Purchased
Exchanges;
(vii) review of the ongoing State Regulatory Authorities and FCC
reporting obligations of Seller and Buyer relating to the Exchanges,
including responsibility for filing "form M" financial information, FCC
Report No. 43-04, Armis Joint Cost Report, and FCC Report No. 43-8, Armis
Operating Data Report, for the Exchanges for the year in which the Closing
Date occurs;
(viii) investigation of the construction and plant upgrade
activities of Seller between the date of execution of this Agreement and
the Closing Date, including a review of the construction work in progress,
in order, among other things, to enable Buyer to make appropriate
arrangements for the continuation of such activities after the Closing
Date; and
(ix) investigation of other regulatory issues, including with
respect to regulatory mandates and matters relating to the National
Exchange Carrier Association (including the Universal Service Fund, Local
Switching Support, and Telecommunications Relay Services funds) and
corresponding funds established by the State Regulatory Authorities.
The parties agree to cooperate and to negotiate in good faith regarding
resolution, on commercially reasonable terms and conditions, of issues and
concerns raised by either party in connection with such activities. Each party's
cooperation will include making appropriate subject matter experts and other
knowledgeable personnel available to meet with the appropriate representatives
of the other party and facilitating Buyer's contacts with the appropriate
Governmental Authorities (including the State Regulatory Authorities).
5.2.2 Continued Efforts. Seller will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Seller; (ii) cause to be performed all
of the actions required of Seller at or prior to the Closing; and (iii) take
such steps and do such acts as may be necessary to make all of its warranties
and representations true and correct as of the Closing Date with the same effect
as if the same had been made as of the Closing Date.
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5.2.3 Maintenance of Business. Seller shall carry on the Business in
the usual and ordinary course and substantially in the same manner as heretofore
conducted. Accordingly, Seller shall (i) maintain its books and records in the
normal and usual manner, (ii) keep the Transferred Assets in a normal state of
repair (except for ordinary wear and tear) and operating efficiency to permit
the conduct of the Business as it is currently being conducted; (iii) use its
commercially reasonable efforts to undertake or complete capital projects as
budgeted on Schedule 5.2.3(iii) and any capital projects required by Applicable
Laws or any Governmental Authority to be undertaken by the Closing Date (it
being understood and agreed that Seller shall have no obligation for any capital
spending other than in connection with such capital projects and as required to
comply with the provisions of this Section 5.2.3 and provided that Seller shall
be entitled to the Purchase Price adjustment (to the extent applicable) pursuant
to Section 1.4.3(a)); (iv) not increase the benefit provided under any plans
concerning employee benefits or increase the general rates of compensation of
its employees in the Exchanges, except (a) as required by Applicable Law, (b)
pursuant to any contracts existing on the date hereof and listed on Schedule
5.2.3(iv) to which Seller is a party, (c) increases in base pay or bonuses in
the ordinary course of business of Seller and in amounts consistent with the
recent past practices of Seller, or (d) as listed or described on Schedule
5.2.3(iv); and (v) not amend, modify or terminate any contract identified on
Schedule 4.2.9 or permit any of the foregoing to occur other than in the
ordinary course of business.
5.2.4 Consent to Assignment. Seller will transfer to Buyer all
Operating Contracts and permits that are by their terms assignable. Seller shall
also request assignment to Buyer of those Operating Contracts and permits that
are not by their terms assignable. To the extent that the assignment of any
Operating Contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Operating
Contract or permit if an attempted assignment would constitute a breach thereof.
Seller shall use commercially reasonable efforts (excluding the payment of
money) to obtain the consent of any other party to the assignment of such
Operating Contracts or permits to Buyer. If any such consent is not obtained, to
the extent permitted by Applicable Law, this Agreement shall constitute an
equitable assignment by Seller to Buyer of all of Seller's right, title, and
interest in and to such Operating Contracts and permits, and Buyer shall be
deemed Seller's agent for the sole purposes of completing, fulfilling and
discharging all of Seller's rights and obligations arising after the Closing
Date under such assigned Operating Contracts and permits.
5.2.5 Payment and Performance of Obligations. Seller will timely pay
and discharge all invoices, bills and other monetary obligations (other than
obligations which are contested by Seller in good faith) and shall not knowingly
perform or fail to perform any act which will cause a material breach of any of
the Operating Contracts.
5.2.6 Restrictions on Sale of Transferred Assets. Seller shall not
sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose
of any of the Transferred Assets except in the ordinary course of the Business.
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5.2.7 Audit or Review of Financial Statements. To the extent Buyer
reasonably requires audited or reviewed financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, Seller
will cooperate with the independent auditors chosen by Buyer in connection with
their audit of any annual financial statements that Buyer reasonably requires to
comply with Regulations S-X and S-K, and their review of any interim quarterly
financial statements that Buyer reasonably requires to comply with Regulations
S-X and S-K. If Closing has not occurred prior to March 31, 2000, then as soon
as practicable but in any event by May 15, 2000. Seller will provide for audit a
balance sheet as of December 31, 1999, and an income statement and statement of
cash flows and changes in equity for the year ending December 31, 1999. The
financial statements to be audited or reviewed pursuant to this Section 5.2.7,
are hereinafter referred to as the "Required Financial Statements." Seller's
cooperation will include (i) such access to Seller's employees who were
responsible for preparing the Required Financial Statements and to workpapers
and other supporting documents used in the preparation of the Required Financial
Statements as may be reasonably required by such auditors to perform an audit in
accordance with generally accepted auditing standards, (ii) delivery of any
Required Financial Statements within 45 days after Buyer's request for the same
(except as otherwise provided in the second sentence of this Section 5.2.7) and
in the form required by Regulations S-X and S-K, and (iii) delivery of one or
more representation letters from Seller to such auditors that are requested by
Buyer to allow such auditors to complete the audit (or review of any interim
quarterly financials), and to issue an opinion acceptable to the SEC with
respect to the audit or review of those Required Financial Statements. Seller
will bear the cost of preparation of the Required Financial Statements. Buyer
and Seller will share equally the cost of the audit or review.
5.2.8 [Intentionally Deleted]
5.2.9 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information and reasonable assistance as Buyer may reasonably request
in connection with Buyer's replacement of the interconnection agreements
relating to the Exchanges, including supplying to Buyer copies of such
interconnection agreements to the extent permissible and, to the extent
requested by Buyer and in compliance with applicable law, contacting the other
party to such interconnection agreements to notify such party that its
interconnection agreement will not apply to the Buyer and the Exchanges after
Closing. Buyer acknowledges its obligation to negotiate interconnection
agreements with third parties that have ongoing interconnection activities
related to the Exchanges with the expectation that interconnection agreements
between Buyer and such third partes will be entered into effective as of the
Closing Date. If such agreements are not entered into or, if required, approved
by appropriate Governmental Authorities, Buyer will offer to provide
interconnection to such third parties according to the terms of the Seller's
interconnection agreements with such third parties until the Buyer's new
agreements with such third parties are entered into or, if required, approved by
appropriate Governmental Authorities.
5.2.10 State Regulatory Authority/FCC Filings. Seller shall make all
necessary filings with the State Regulatory Authorities, the FCC or any other
Governmental Authority between
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the date of this Agreement and the Closing Date. Seller shall notify Buyer of
any significant proposed changes in the rates, charges, standards of service or
accounting of the Exchanges from those in effect on the date of this Agreement
prior to making any filing with the State Regulatory Authorities, FCC or any
other Governmental Authority (or any amendment thereto), or effecting with any
Governmental Authority any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto. Between the
date of this Agreement and the Closing Date, Seller shall use commercially
reasonable efforts to notify Buyer before Seller files any application,
petition, motion, brief, testimony, settlement agreement or other pleading in
any proceeding before the State Regulatory Authorities, FCC or any other
Governmental Authority or appeals related thereto with respect to which Buyer or
an Affiliate of Buyer has or reasonably could be expected to take a contrary
position that reasonably could be expected to have any adverse effect on the
revenue, earnings, or business of Buyer. Seller will give or cause to be given
to Buyer, as promptly as reasonably practicable, copies of all correspondence
(including notices, complaints, and pleadings) with any Governmental Authority
relating to any such proceeding or other rate regulatory matter that is sent or
received by Seller after the date of this Agreement.
5.2.11 Missing Plant.
(a) If, between the period commencing on execution date of the
Agreement and ending six months after the effective time of Closing, Buyer
notifies Seller in writing regarding items of Property (other than items that
have been fully depreciated on the books and records of Seller, items that are
no longer used in or necessary to the Business, and items covered by Section
5.2.11(b)) that are included in the CPRs relating to the Exchanges but that
Buyer, using commercially reasonable efforts, cannot locate in the Exchanges or
that have been sold, transferred or removed from the Exchanges by Seller or an
Affiliate of Seller, then Seller, at its option, either (i) shall pay to Buyer
(or reduce the Purchase Price by) an amount equal to the net book value of such
items as reflected on the books and records of Seller or (ii) deliver to Buyer
such items or replacement items that have reasonably comparable (or superior)
value, vintage and functionality; provided, however, that Seller shall have no
obligation under this Section 5.2.11(a) until the aggregate net book value of
all such items, together with the aggregate net book value of all such similar
items identified in Section 5.2.11 of each of the Multi-State Exchange Purchase
Agreements, exceeds $400,000, at which time Seller shall become obligated under
this Section 5.2.11(a) with respect to all items so identified by Buyer in all
notices delivered to Seller on or before the date that is six months after the
effective time of Closing; and provided, further that Seller shall have no
obligation under this Section 5.2.11(a) to the extent that the Maximum
Adjustment Amount shall have been reached.
(b) At Closing, Seller shall cause the Transferred Assets to include
all vehicles listed on Schedule 4.2.17 except to the extent any such vehicle has
been replaced with items of reasonably comparable (or superior) value, vintage
and functionality, in which event Seller shall cause such replacement items to
be included in the Transferred Assets.
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5.2.12 Third Party Software Licenses. To the extent that the
transfer of Transferred Assets by Seller to Buyer under this Agreement results
in the transfer of third party software that was rightfully used by Seller prior
to the Closing Date in the normal course operation of the Business pursuant to
contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then effective as of the Closing and provided
that no payments to any person are thereby required (except with respect to
payments relating to the transfer of switch software, which will be shared
equally by Buyer and Seller), at Closing Seller shall assign to Buyer, to the
extent permitted by the Third Party Intellectual Property Contracts, and Buyer
shall accept all rights and licenses if any to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses.
5.3 Mutual Covenants.
5.3.1 Confidentiality. Each party to this Agreement agrees to hold
in strict confidence all Confidential Information received from the other party,
whether received before or after entering into this Agreement, and to use such
information solely for the purposes of this Agreement. Each party agrees to make
no more copies of such Confidential Information than is reasonably necessary for
such purposes. Each party agrees that it will not make disclosure of any such
Confidential Information received from the other party to anyone except as
specifically permitted by this Agreement and as required by law. Each party may
disclose Confidential Information to its employees and agents to whom disclosure
is necessary for the purposes set forth above, provided that disclosing party
shall notify each such employee and agent that disclosure is made in confidence
and instruct such employees and agents that such Confidential Information shall
be kept in confidence by such employee and agent in accordance with this
Agreement. If the Transactions are not consummated for any reason, each party
agrees to return to the other party all such Confidential Information, including
all copies thereof, immediately on request. The obligations arising under this
section shall survive any termination or abandonment of this Agreement. This
Agreement will be filed on a confidential basis with the State Regulatory
Authorities. The provisions of the existing Confidentiality Agreement between
Buyer and Seller dated January 15, 1999 are incorporated herein by reference.
5.3.2 Public Announcements. No public announcement with respect to
this Agreement or the transactions contemplated hereby shall be made before the
Closing without the mutual prior approval of both Seller and Buyer, which
approval shall not be unreasonably withheld; provided, however, that each party
shall be permitted to make such disclosure to its lenders or to any Governmental
Authority, including but not limited to the Securities and Exchange Commission
or similar state securities authorities, necessary to comply with any applicable
laws and to obtain all required Governmental Approvals necessary to consummate
the Transactions, or to any stock exchange upon which such party has a class of
securities listed. Notwithstanding the foregoing, the disclosing party shall
give the non-disclosing party reasonable advance notice of any permitted
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disclosure to third parties under this Section 5.3.2 and shall provide the
non-disclosing party with a reasonable opportunity to review and comment on such
disclosure.
5.3.3 Cooperation. Each party covenants to use all commercially
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all things, that are necessary, proper or advisable under applicable
laws and regulations, expeditiously and practicably to consummate and make
effective the Transactions, including but not limited to (i) using its
commercially reasonable efforts to resolve any disagreements between Buyer and
Seller with respect to any applications for governmental or regulatory approval
prior to application for such approval, (ii) facilitating the regulatory
approval process by agreeing that Buyer will adopt and maintain intrastate
tariffs similar in all material respects to Seller's intrastate tariffs in
effect for the Exchanges on the Closing Date for a period of at least six months
following the Closing Date, provided that such tariffs of Seller are
substantially similar to the tariffs of Seller in effect on the date of this
Agreement except that Buyer's tariffs will reflect rate changes by Seller (x)
made prior to Closing as required by an order of a State Regulatory Authority
that has been issued prior to the date of this Agreement or (y) made prior to
Closing to the extent such changes are substantially revenue neutral to the
Exchanges, (iii) obtaining all necessary actions, waivers, consents and
approvals from third parties or Governmental Authorities, and (iv) effecting all
necessary filings with Governmental Authorities, and to consummate the
agreements referred to in Section 2.4.
5.3.4 State Regulatory Filings. Seller and Buyer agree to promptly
file after execution of this Agreement any required applications and to take
such reasonable actions as may be necessary or helpful (including, but not
limited to, making available witnesses, information, documents, and data
requested by the State Regulatory Authorities) to apply for and receive approval
by the State Regulatory Authorities for the transfer of the Transferred Assets
and Authorities to Buyer. To the maximum extent practicable, all communications
with the State Regulatory Authorities shall be made jointly by Buyer and Seller.
In connection with making such required applications to the State Regulatory
Authorities, Buyer agrees to cooperate with Seller in appropriate public
relations activities, including participation in "town hall" meetings with
citizens, contacts with civic and business leaders, legislators and government
officials, and other activities designed to establish Buyer's presence in and
commitment to the communities in which the Exchanges are located. In the event
any state legislature proposes to enact legislation after the date of this
Agreement which would have an adverse impact on the consummation of the
Transactions or would impose a material liability on either Seller or Buyer in
connection with the transfer of the Transferred Assets, Seller and Buyer agree
to use commercially reasonable efforts to oppose such legislation at their own
expense.
5.3.5 FCC Filings. The parties agree to promptly file after
execution of this Agreement such applications and to take such reasonable
actions as may be necessary or helpful to apply for and receive approval by the
FCC for the transfer of the Transferred Assets and the Authorities to Buyer and
the change in the provider of telecommunications services in the Exchanges to
Buyer. Buyer shall file an application for study area waivers and the
reinitialization of the PCI with respect to at least one of the transactions
contemplated by the Multi-State Exchange Purchase
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Agreements with the FCC within 120 days of the date hereof. Further, Buyer shall
use its best efforts to obtain the FCC's approval of (i) study area waivers for
the Exchanges and (ii) the Reinitialization.
5.3.6 H-S-R Filing. The parties agree to make all required filings
under the H-S-R Act no later that 90 days prior to the anticipated date of
Closing and to request early termination of all applicable waiting periods
thereunder, and thereafter to promptly respond to all requests for additional
information from the Federal Trade Commission or the United States Department of
Justice thereunder.
5.3.7 Environmental Inspections. Within 30 days following the
execution of this Agreement, Seller and Buyer shall select Environmental
Strategies Corporation (or another qualified environmental consultant reasonably
satisfactory to Buyer and Seller) to conduct a Transaction Screen with respect
to each parcel of Fee Realty included in the Transferred Assets (except for any
parcel designated by Buyer not to receive a Transaction Screen), which review
shall be conducted in accordance with ASTM standards and shall be completed
within 90 days following the execution of this Agreement. Upon completion of
such Transaction Screen, such consultant shall deliver to Buyer and Seller a
written report with respect thereto. Each party shall notify the other party in
writing (the "Remediation Notice") within 10 days of learning of any potential
material liabilities under any Environmental Laws with respect to a parcel of
Fee Realty included in the Transferred Assets, but in no event later than the
10th day following receipt of the related Transaction Screen. Thereafter, Buyer
shall determine whether to conduct additional environmental due diligence,
including a Phase I Environmental Report, which shall be completed within 60
days of delivery of the Remediation Notice. If the estimated costs of
remediation of such potential liabilities on such parcel (the "Remediation
Costs") will exceed $400,000, Seller shall either effect such remediation or may
instead elect to exclude either such parcel of Fee Realty or the Exchange to
which such parcel of Fee Realty relates from the Transferred Assets, and Buyer
and Seller shall in good faith reduce the Purchase Price accordingly. If,
pursuant to the preceding sentence, Seller elects to exclude the parcel of Fee
Realty, then, at Buyer's request, Seller shall grant to Buyer a long-term lease
at an annual rental rate of $1.00 and otherwise in form and substance reasonably
satisfactory to Buyer, for the use of such parcel (and Seller shall have no
obligation to effect any remediation with respect to such parcel); provided that
if Buyer is required to pay a higher rental rate for such leased parcel pursuant
to or in connection with the granting of any Governmental Approval, the Purchase
Price shall be decreased by the net present value of the aggregate lease
payments, discounted at a rate of 8% per annum. If the environmental consultant
conducting Buyer's additional environmental due diligence ("Buyer's Consultant")
estimates that the Remediation Costs will exceed $400,000, Seller may elect to
conduct its own additional environmental due diligence during the 60 day period
following completion of Buyer's additional environmental due diligence, and if
the environmental consultant conducting Seller's additional environmental due
diligence ("Seller's Consultant") estimates that the Remediation Costs will be
less than $400,000, Seller shall not be required to so remediate or exclude such
parcel of Fee Realty or such Exchange unless Buyer elects to pursue an
arbitration conducted as contemplated by Article 8 and the arbitrator estimates
that the Remediation Costs will exceed $400,000.
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The costs of the Transaction Screens required by this Section shall be
borne equally by Buyer and Seller, and the costs of any additional environmental
due diligence (the scope of which shall be reasonably acceptable to Seller)
shall be borne by the party conducting such additional due diligence. Buyer
shall indemnify Seller for any liabilities or losses incurred by Seller as a
result of any additional environmental due diligence conducted by Buyer.
5.3.8. Cost Studies/NECA Matters.
(a) Prior to Closing. Seller agrees that, with respect to all
revenues, settlements, pools, separations studies or similar activities, Seller
shall be responsible for (and shall receive the benefit or suffer the burden of)
any adjustments to contributions, or receipt of funds, by Seller resulting from
any such activities that are related to the operation of the Business or the
ownership or operation of the Transferred Assets prior to the Closing Date.
Specifically, this paragraph shall apply, but shall not be limited to, any
maters related to the National Exchange Carrier Association ("NECA") including
the Universal Service Fund ("USF"), Local Switching Support ("LSS") and
Telecommunications Relay Services funds.
(b) From and After Closing.
(i) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC rules
and regulations. The USF Funds due to Buyer shall be determined by multiplying
the number of Access Lines served by the Exchanges on the Closing Date times a
per-line amount of USF support received by Seller for the study area containing
the Exchanges prior to the Closing Date. The resulting Buyer's annual USF amount
shall be prorated in proportion to the number of months in the year from and
after the Closing Date. Beginning July 1, 1999 or a date thereafter determined
by the FCC, non-rural carriers shall not receive USF pursuant to Part 36 and
Part 54, but will receive support in accordance with guidelines using
forward-looking economic cost. Except as contemplated by clause (i) below, after
the Closing Date, Buyer shall make its own filing in accordance with applicable
FCC rules and regulations. Within a reasonable time after Buyer's written
request and in any event at least 30 days prior to the NECA filing date, Seller
shall furnish to Buyer such necessary information regarding Seller's ownership
of the Transferred Assets during the partial calendar year prior to the Closing
Date and the prior calendar year and such reasonable assistance, at Buyer's
expense, as required in connection with Buyer's preparation of necessary filings
or submissions.
(ii) If Closing occurs within 30 days before the NECA filing
date for the USF to be received in the subsequent calendar year, then Seller
will include the Exchanges in its NECA filing for the subsequent calendar year.
Buyer shall receive, in the subsequent calendar year, a pro rata share of USF
Funds received by Seller, under Seller's methodology of computing USF, pursuant
to applicable FCC rules and regulations; provided that in no event shall such
sharing continue for more than 18 months after the Closing Date. The USF Funds
due to Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date
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times the per-line amount of USF support received by Seller for the study area
containing the Exchanges in the full calendar year subsequent to the Closing
Date.
(iii) Notwithstanding the foregoing, Buyer's right to receive
a pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (the "USAC")
based on end-user retail revenues for the previous year generated by the
Transferred Assets. The resulting Buyer's annual USF obligation for the
Transferred Assets shall be prorated in proportion to the number of months in
the year from and after the Closing Date.
(c) State USF. If Seller is entitled to receive any State USF
Funds as of the Closing Date that include State USF Funds relating to the
Exchanges, then Buyer shall receive a pro rata share of such State USF Funds
received by Seller, under Seller's methodology of computing such State USF
Funds, pursuant to the applicable State USF rules and regulations. The State USF
Funds due Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date time the per-line amount of USF
support received by Seller for the appropriate period. The resulting Buyer's
annual State USF amount shall be prorated in proportion to the number of months
in the year from and after the Closing Date. Such sharing of Seller's State USF
Funds shall discontinue upon commencement of the first period for which Buyer is
permitted to make its own State USF filings, and in no event shall such sharing
continue for more than 18 months after the Closing Date. Seller shall cooperate
with Buyer and provide such reasonable assistance, at Buyer's expense, as may be
required in connection with Buyer's preparation of necessary State USF filings
or submissions.
5.3.9 Owned Real Property Transfers. Within 60 days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies covering Fee Realty. No later than 150 days following the
date hereof, Seller shall deliver a preliminary title binder (on a standard
form) to Buyer issued by a title insurance company reasonably acceptable to
Buyer and a certified current survey (collectively, the "Title Commitment") with
respect to all Fee Realty included in the Transferred Assets. Buyer shall,
within 45 days following receipt of the Title Commitment for a parcel, deliver
to Seller, in writing, any objections to any matters affecting any of the Fee
Realty. In the event that Buyer fails to notify Seller as set forth above, such
objections shall be deemed waived. If the Title Commitment indicates the
existence of an Excessive Encumbrance, Seller shall, at its expense, cause such
Excessive Encumbrance to be removed on or before the Closing Date or, with the
prior written consent of Buyer, cause the title company to insure over each such
Excessive Encumbrance. Seller shall provide the title company with such
instructions, authorizations and affidavits at no cost to Seller as may be
reasonably necessary for the title company to issue title policies, based on the
most recent assessed value, to Buyer, dated as of the Closing Date, for all of
the Fee Realty with so-called non-imputation endorsements. Buyer and Seller
shall share equally the costs of the Title Commitments and the title policies.
By no later than 45 days after the Closing Date, Seller shall deliver to Buyer a
final title insurance policy covering the Fee Realty included in the Title
Commitment.
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5.3.10 IntraLATA Tolls. Buyer and Seller will use their best efforts
to negotiate appropriate agreements and arrangements in order to satisfy the
requirements of Section 7.1.9 at Closing.
ARTICLE 6
TERMINATION
6.1 Termination By Buyer.
6.1.1 If any condition precedent to Buyer's obligation to effect the
Closing set forth in Section 3.1 shall become incapable of satisfaction through
no fault of Buyer and such condition is not waived by Buyer, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement by written
notice to Seller.
6.1.2 If any Governmental Approval contains any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date, but only after Buyer has entered into good faith negotiations with Seller
to amend this Agreement in light of such terms or conditions and no such
amendment could be agreed upon, Buyer shall not be obligated to effect the
Closing and may terminate this Agreement by written notice to Seller; provided,
however, that Buyer shall not be entitled to terminate this Agreement based on
(x) Buyer's failure to obtain increases in intrastate tariff rates above those
then in effect, or (y) Buyer's being deemed a "successor" to Seller for any
regulatory purposes.
6.1.3 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Seller, and such misrepresentation
or breach has not been cured within 30 days of Seller's receipt of Buyer's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Buyer, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Seller.
6.2 Termination By Seller.
6.2.1 If any condition precedent to Seller's obligation to effect
the Closing set forth in Section 3.2 shall become incapable of satisfaction
through no fault of Seller and such condition is not waived by Seller, Seller
shall not be obligated to effect the Closing and may terminate this Agreement by
written notice to Buyer.
6.2.2 If any Governmental Approval contains terms or conditions
unacceptable to Seller, in Seller's reasonable discretion, but only after Seller
has entered into good faith negotiations with Buyer to amend this Agreement in
light of such terms or conditions and no such amendment
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could be agreed upon, Seller shall not be obligated to effect the Closing and
may terminate this Agreement by written notice to Buyer.
6.2.3 If Buyer does not deliver the Letters of Credit within 15
business days of the date hereof or the Letters of Credit, in whole or in part,
have been withdrawn or are no longer irrevocable.
6.2.4 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Buyer, and such misrepresentation
or breach has not been cured within 30 days of Buyer's receipt of Seller's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Seller, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Buyer.
6.2.5 If Buyer does not make the FCC filing described in the second
to last sentence of Section 5.3.5 within 120 days of the date hereof.
6.3 Termination By Buyer or Seller. If (i) a final, non-appealable order
is issued by any Governmental Authority to restrain, enjoin or prohibit the
consummation of the Transactions, (ii) the Closing shall not have occurred on or
before September 30, 2001 through no fault of the terminating party, then either
party may terminate this Agreement by written notice to the other.
6.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 6.1, 6.2 or 6.3, this Agreement shall thereafter
become void, except as set forth in Section 1.4.1 and for the provisions of
Sections 5.3.1 and 5.3.2 and Article 9, and there shall be no further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing herein
shall relieve any party from liability for any breach of this Agreement, and
(ii) the obligations of the parties hereto set forth in Section 11.6 shall not
be affected by a termination of this Agreement.
ARTICLE 7
POST CLOSING MATTERS
7.1 Post Closing. In order to effectuate an orderly transition in the
provision of telecommunications services to customers in the Exchanges, Buyer
and Seller agree to utilize the measures set forth below:
7.1.1 Notice to Customers. Seller shall provide written
notification, which notification shall be reasonably acceptable to Buyer, in its
final bill to each customer affected by this Agreement, that Seller is no longer
the customer's telecommunications provider and advising the
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customer of the name, address and telephone number of Buyer. Seller and Buyer
shall agree upon appropriate service cut-off dates with respect to the
Exchanges.
7.1.2 Customer Deposits. The disposition of customer deposits and
advance payments for future services made to Seller by residential and business
customers in the Exchanges shall be delegated to a transition team. The intent
of the parties to be carried out by the transition team is that, to the extent
practicable and subject to the rules and orders of the State Regulatory
Authorities, Seller shall retain all deposits for delinquent customers and the
remaining deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges shall be transferred to
Buyer. Notwithstanding the foregoing, all deposits and advance payments for
future services held by Seller under land development contracts or other similar
construction arrangements as of the Closing Date shall be credited to Buyer at
Closing.
7.1.3 Customer Records. To the extent not previously provided to
Buyer, Seller shall use commercially reasonable efforts to make available, upon
reasonable request from Buyer, all readily available billing and service records
for goods sold or services provided to customers of the Exchanges prior to
Closing for so long as such records are required to be maintained by applicable
law.
7.1.4 Operator Services and Directory Assistance. Buyer acknowledges
and agrees that, following the Closing, Buyer shall provide all subscriber list
information gathered in its capacity as a provider of local exchange service on
a timely and unbundled basis, under nondiscriminatory and reasonable rates,
terms and conditions, to any person requesting such information for any lawful
purpose in any format, including but not limited to Seller and its Affiliates.
Buyer's listing information will be treated the same as Seller's end user
listings for purposes of additional listings and dissemination of listings to
directory publishers, directory assistance providers, or other third parties.
Seller will incorporate listings information in all existing and future
directory assistance applications developed by Seller. Buyer authorizes Seller
to sell and otherwise make listings available to directory publishers, directory
assistance providers, and other third parties. Listings shall not be provided or
sold in such a manner as to segregate end users by carrier. Seller will not
charge for updating and maintaining the listings database.
7.1.5 Directory Publishing and 911 Emergency Services. Buyer shall
continue to comply with the covenants set forth in Sections 5.1.4 and 5.1.5
following the Closing Date, as appropriate, to the extent necessary to
accomplish the intent of such covenants.
7.1.6 911 Emergency Services. In the event that Seller becomes
obligated after the Closing Date to provide 911 emergency services with respect
to any portion of the Business, Buyer shall provide Seller (at no cost to
Seller) complete access to and use of the 911 Assets related to such 911
emergency services and shall enter into such agreements as Seller reasonably
requests in order to facilitate the provision by Seller of such 911 emergency
services and to provide for compensation to Seller at prevailing rates.
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7.1.7 Tariffs. Buyer agrees that for the six month period following
the Closing Date it will adopt and maintain intrastate tariffs similar in all
material respects to Seller's intrastate tariffs in effect for the Exchanges on
the Closing Date, provided that such tariffs of Seller are substantially similar
to Seller's tariffs in effect on the date of execution of this Agreement, except
that Buyer's tariffs will reflect rate changes by Seller (x) made prior to
Closing as required by an order of a State Regulatory Authority that has been
issued prior to the date of this Agreement or (y) made prior to Closing to the
extent such changes are substantially revenue neutral to the Exchanges.
7.1.8 Access to Books and Records.
(a) After the Closing, Seller will retain all books and records
related to the Excluded Assets for so long as required by applicable law.
(b) Subject to the terms of Section 7.1.3, after the Closing, upon
reasonable notice, the parties will give to the representatives, employees,
counsel and accountants of the other, access during normal business hours, to
books and records relating to the Business and the Transferred Assets, and will
permit such persons to examine and copy such records (including any tax returns
and related information, but not attorney or accountants work product), audits,
legal proceedings, governmental investigations and other business purposes
(including such financial information and any receipts evidencing payment of
taxes as may be reasonably requested by Seller to substantiate any claim for tax
credits or refunds); provided, however, that nothing herein will obligate any
party to take actions that would unreasonably disrupt the normal course of its
business or violate the terms of any contract to which it is a party or to which
it or any of its assets is subject. Seller and Buyer will cooperate with each
other in the conduct of any tax audit or similar proceedings involving or
otherwise relating to the Business (or the income therefrom or assets thereof)
with respect to any tax and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
Section 7.1.8.
7.1.9 IntraLATA Toll. Buyer will (i) assume the retail toll carrier
role and obligations for any end users in the Exchanges that are picked or
defaulted to Seller for IntraLATA toll services or (ii) enter into agreements
with other inter-exchange carriers to assume this role or to resell the toll
services of an inter-exchange carrier to fulfill these obligations. Buyer will
execute intraLATA toll access agreements with Seller establishing the process
for the purchase of toll access from Seller by Buyer at the rates contained in
Seller's access tariffs. Seller agrees that it will need to establish its own
agreements with other telecommunications carriers for the purchase of toll
access that may be routed over joint Seller/Buyer transport or tandem switch
facilities (transit traffic). Buyer will cooperate with Seller and other
carriers to measure and share data required to facilitate billing for such
traffic. Buyer and Seller will establish a process by which Buyer will bill
Seller for terminating IntraLATA toll access based on actual termination of
Seller toll services to the Exchanges. Buyer and Seller will enter into a
billing and collection agreement for the billing and collection of casual toll
at a rate not to exceed $0.12 per message. Buyer and Seller shall establish meet
point percentages for jointly provided toll access and file such meet points as
required with Governmental Authorities.
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7.1.10 Extended Area Service. Buyer and Seller will enter into
extended area service agreements as necessary.
7.1.11 Transiting Toll Facilities. Concurrently with the Closing,
Buyer shall grant to Seller the irrevocable right to use or Buyer shall lease to
Seller, in either case for a term of 99 years, the portion of the transiting
toll facilities, network facilities and associated electronic equipment included
in the Property and relating to the Exchanges listed on Schedule 7.1.11 that is
required by Seller for the conduct of any business conducted by Seller other
than the Business. The consideration for such grant or lease shall be $1.00 and
other consideration including the mutual covenants and agreements set forth in
this Agreement. Within 90 days after the execution of this Agreement, Buyer and
Seller shall apportion and assign the total capacity of such facilities and
equipment for each Exchange listed on Schedule 7.1.11. The parties shall review
such apportionment on an annual basis and make such changes to assignments as
may be required. If any transiting toll facilities, network facilities and
related electronic equipment that are Excluded Assets are located in any
rights-of-way that are used in connection with the operation of the Business,
then concurrently with the Closing, Buyer shall, to the extent possible, assign
to Seller the right to use such right-of-way jointly with Buyer and appropriate
joint use agreements in recordable form and otherwise reasonably acceptable to
the parties shall be entered into at the Closing.
7.1.12 Reinitialization Period. If the Reinitialization has not been
approved at the time of the Closing, Buyer shall use its best efforts to obtain
the Reinitialization.
ARTICLE 8
ARBITRATION
8.1 Arbitrability. All claims, except and only to the extent such claims
are those over which the State Regulatory Authorities have primary jurisdiction,
by either party against the other arising out of or related in any manner to
this Agreement or any of the Transferred Assets or the Transactions shall be
resolved by arbitration as prescribed herein; provided, however, that either
party shall be entitled to seek temporary or permanent injunction against any
actual or threatened breach of Section 5.3.1 by the other party in any court of
competent jurisdiction without the necessity for showing any actual damages. The
Federal Arbitration Act and not state law will govern the arbitrability of all
claims. Failure of either party to assert or pursue a mandatory claim or defense
that must be asserted in litigation to avoid the loss of the right to assert
such claim or defense shall not preclude that party from asserting any such
claim or defense in arbitration proceedings hereunder.
8.2 Rules. A single arbitrator engaged in the practice of law, who is
knowledgeable about the telecommunications industry and telecommunications law,
shall conduct the arbitration under the then-current commercial arbitration
rules of the American Arbitration Association
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("AAA"), unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Denver, Colorado.
8.3 Discovery; Damages; Expenses. Buyer and Seller shall allow and
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall have authority to award only actual damages and shall not have
the authority to award consequential, compensatory, punitive or exemplary
damages or any other form of relief. Each party shall bear its own costs and
attorneys' fees. The arbitrator's decision and award shall be final and binding,
and judgment upon the award rendered by the arbitrator may be entered in any
court having personal jurisdiction. The non-prevailing party to the arbitration
shall pay all of the fees and expenses of the arbitrator and the AAA, provided,
however, that if the arbitrator deems Buyer and Seller to be equally prevailing
or non-prevailing on the matters at issue, then the parties shall each pay
one-half of the fees and expenses of the arbitrator and the AAA.
8.4 Judicial or Administrative Action. If any party files a judicial or
administrative action asserting claims properly subject to arbitration as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification by Seller. From and after Closing, Seller
shall indemnify and hold harmless Buyer from and against any and all claims,
losses, liabilities, damages, penalties, costs and expenses, including
reasonable counsel fees and costs and expenses ("Losses") arising out of or
resulting from:
(a) any representations and warranties made by Seller in the
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed upon or prior to the Closing;
(c) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed after the Closing; and
(d) all liabilities and obligations arising out of or relating to
the operation of the Exchanges prior to the Closing, including without
limitation the Retained Liabilities.
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Section 9.2 Indemnification by Buyer. From and after Closing, Buyer
shall indemnify and hold harmless Seller from and against any and all Losses
arising out of or resulting from:
(a) any representations and warranties made by Buyer in this
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Buyer in the performance of its
covenants, agreements or obligations under this Agreement;
(c) all liabilities and obligations arising out of or relating to
the operation of the Exchanges after the Closing, including without limitation
the Assumed Liabilities;
(d) without limitation of the foregoing, violation of Environmental
Laws, to the extent such liability is an Assumed Liability or arises out of or
relates to the operation of the Exchanges after the Closing; and
(e) liability of Seller arising after Closing with respect to
Buyer's failure to enter into or perform interconnection agreements in or
directly related to the Exchanges.
Section 9.3 Indemnified Third Party Claim.
(a) If any person (including State Regulatory Authorities) not a
party to this Agreement ("Person") shall make any demand or claim or file or
threaten to file or continue any action, suit or proceeding of any kind ("Third
Party Claim") with respect to which Buyer or Seller is entitled to
indemnification pursuant to Sections 9.1 or 9.2, respectively, then within ten
days after notice (the "Notice") by the party entitled to such indemnification
(the "Indemnitee") to the other (the "Indemnitor") of such litigation, the
Indemnitor shall have the option, at its sole cost and expense, to retain
counsel for the Indemnitee (which counsel shall be reasonably satisfactory to
the Indemnitee) to defend any such litigation. Thereafter, the Indemnitee shall
be permitted to participate in such defense at its own expense, provided that,
if the named parties to any such litigation (including any impleaded parties)
include both the Indemnitor and the Indemnitee or, if the Indemnitor proposes
that the same counsel represent both the Indemnitee and the Indemnitor and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interest between them, then the Indemnitee shall
have the right to retain its own counsel at the cost and expense of the
Indemnitor, unless the Indemnitor shall acknowledge in writing its indemnity
obligation, in which event the retention by Indemnitee of its own counsel shall
be at its cost and expense. If the Indemnitor shall fail to respond within ten
days after receipt of the Notice, the Indemnitee may retain counsel and conduct
the defense of such litigation as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnitor.
(b) The Indemnitee shall provide reasonable assistance to the
Indemnitor and provide such access to its books, records and personnel as the
Indemnitor reasonably requests in connection with the investigation or defense
of the indemnified Losses. The Indemnitor shall
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promptly upon receipt of reasonable supporting documentation reimburse the
Indemnitee for out-of-pocket costs and expenses incurred by the later in
providing the requested assistance.
(c) With regard to litigation with any Person for which Buyer or
Seller is entitled to indemnification under Sections 9.1 or 9.2, such
indemnification shall be paid by the Indemnitor upon: (i) the entry of any
judgment, writ, order, injunction, award or decree of any court, the FCC or any
State Regulatory Authorities ("Judgment") against the Indemnitee and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
Judgment or final appellate Judgment against the Indemnitee; or (iii) a
settlement with the consent of the Indemnitor, which consent shall not be
unreasonably withheld, provided that no such consent need be obtained if the
Indemnitor fails to respond to the Notice as provided in Section 9.3(a).
Section 9.4 Determination of Indemnification Amounts and Related Matters.
(a) Neither Buyer nor Seller will be entitled to make a claim
against the other under Section 9.1(a) or (b) or 9.2(a) or (b) until (i) the
aggregate amount of Losses incurred by the Indemnitee for any individual
occurrence (or related series of occurrences) exceeds $50,000 and (ii) in the
case of Losses under Section 9.1(a) (except for Losses due to a breach of the
representations of Seller contained in Section 4.2.15) or 9.1(b) the aggregate
amount of claims that may be asserted for such Losses, together with all other
claims for Losses asserted under Section 9.1(a) or 9.1(b) under each of the
Multi-State Exchange Purchase Agreements, exceed an amount equal to 1% of the
aggregate of the Purchase Prices (as defined in each Multi-State Exchange
Purchase Agreement) for the transactions contemplated by the Multi-State
Exchange Purchase Agreements, to the extent actually paid to Seller, but only to
the extent such amount exceeds such aggregate of the Purchase Prices.
(b) Notwithstanding any other provision of this Agreement, (i)
Seller shall not be required to make any payments pursuant to Section 9.1(a),
(b) or (c) to the extent that the Maximum Adjustment Amount shall have been
reached, and (ii) Buyer shall not be required to make any payments pursuant to
Article 9 in excess of an amount equal to 3% of the Purchase Price.
(c) Subject to Section 9.3, all amounts payable by the Indemnitor to
the Indemnitee in respect of any Losses under Sections 9.1 and 9.2 shall be
payable by the Indemnitor as incurred by the Indemnitee and will include
interest at the rate of 8% per annum from the date that the related Losses were
incurred through but not including the date the payment is made.
Section 9.5 Time and Manner of Certain Claims. Except as otherwise
provided herein, the representations and warranties of Buyer and Seller, and the
covenants to be performed by them on or prior to the Closing Date, in this
Agreement shall survive Closing for a period of one year, except that the
representations of Seller contained in Section 4.2.15 shall survive Closing for
a period of 15 months and the representations and warranties contained in the
first sentence of Section 4.2.3 shall survive Closing indefinitely (the
"Survival Period"). Neither Seller nor Buyer shall have any liability under
Sections 9.1 or 9.2, respectively, unless a claim for Losses for which
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indemnification is sought thereunder is asserted by the party seeking
indemnification by written notice to the party from whom indemnification is
sought within the Survival Period.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Defined Terms. For purposes of this Agreement, certain terms used in
this Agreement and not otherwise defined herein shall have the meanings
designated below:
"Access Line" means a telephone line operating on the public switched
telephone network that runs from a central office to a customer's premises.
"Accounts Receivable" means all end user accounts receivable with respect
to goods sold and/or services provided by Seller on or prior to the Closing
Date.
"Affiliate" of a specified entity means any legal entity directly or
indirectly controlling, controlled by, or under the common control with the
specified entity. The term "control" (including "controlling", "controlled by"
and "under common control with") of an entity means the possession, directly or
indirectly, of the power to (i) vote 50% of more of the voting securities or
other voting interests of such person, or (ii) direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting shares, by contract or otherwise.
"Aggregate Adjustment Amount" means the aggregate amount that Seller has
paid or spent, or committed to pay or spend, pursuant to (i) purchase price
decreases pursuant to section 1.4.3(b) of each of the Multi-State Exchange
Purchase Agreements, (ii) payments or purchases pursuant to section 5.2.11(a) of
each of the Multi-State Exchange Purchase Agreements, and (iii) payments with
respect to indemnification claims under Section 9.1(a), (b) or (c) of each of
the Multi-State Exchange Purchase Agreements.
"Agreement" means this Agreement for Purchase and Sale of Telephone
Exchanges, together with all Schedules and Exhibits thereto, as any of the
foregoing may be amended, modified or supplemented in writing from time to time.
"Authorities" means (i) the construction permits, licenses or
authorizations granted by the FCC to Seller and used to develop and operate the
Systems; and (ii) the licenses or certificates of convenience and necessity
granted by the State Regulatory Authorities to operate the Systems.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
45
<PAGE>
"Confidential Information" means any and all technical, business or
financial information, in whatever form or medium, furnished or disclosed by or
on behalf of one party to the other or its representatives, irrespective of the
form of communication, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data and personnel statistics, and shall also include notes,
analyses, compilations, studies, interpretations or other documents prepared by
it or its representatives that contain, reflect or are based upon, in whole or
in part, other Confidential Information. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all security interests, liens, charges or
similar restrictions, except for (i) liens for taxes not yet due and payable or
that are being contested in good faith, (ii) liens of workers, carriers or
materialmen or similar liens arising by operation of law in the ordinary course
of the Business in respect of obligations that are not yet due and payable or
that are being contested in good faith, (iii) governmental conditions and
restrictions under the Authorities, (iv) with respect to Realty, recorded
easements, restrictions, reservations, rights-of-way, covenants, conditions and
similar encumbrances of record and matters that would be shown by an accurate
survey or inspection of such property, and other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
such Realty to which such defect or irregularity in title relates, and (v) with
respect to the Transferred Assets other than Realty, other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
the Transferred Assets to which such defect or irregularity in title relates.
"Environmental Laws" means all federal, state and local laws, statutes,
rules, regulations and ordinances (including common law), and all court or
administrative decisions, orders, policies or guidelines, now or hereafter in
effect relating to the environment, public health (including fire or building
safety), occupational safety, industrial hygiene, or the generation, disposal,
manufacture, release, storage, transportation or presence of Hazardous
Materials, including without limitation the National Environmental Policy Act
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act of 1975, the Toxic Substances Control Act, the
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean
Water Act, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act, and the regulations promulgated under any such acts or any permits
issued thereunder.
"Excessive Encumbrance" has the meaning set forth in Section 3.1.11.
"Excluded Assets" means (a) all cash, cash-equivalents, Accounts
Receivable and carrier access bills to interexchange carriers for minutes,
messages and other applicable charges through the
46
<PAGE>
Closing Date; (b) any insurance policy, bond, letter of credit or other similar
item, and any cash surrender value in regard thereto; (c) all books and records
that Seller is required by law to retain or that relate primarily to internal
corporate matters; (d) all claims, rights and interests in and to any refunds of
Federal, state or local franchise, income or other taxes or fees of any nature
whatsoever for periods prior to the Closing Date; (e) any pension, profit
sharing or employee benefit plans; (f) any assets, interests or property of
Seller used in the operation of any business conducted by Seller other than the
Business, those including shared data processing, billing and collections
systems and related software; (g) the name U S WEST and all similar names and
related marks and logos used or owned by Seller or its Affiliates and any other
names, marks and logos not specifically identified as being included in the
Transferred Assets; (h) all portable office equipment, test equipment and
generators other than included in the Transferred Assets; (i) all motor vehicles
used in the operation of any business conducted by Seller other than the
Business and associated motor vehicle general stock; (j) all materials, supplies
and tools other than those included in the Transferred Assets; (k) all FCC
licenses for air-to-ground, cellular or paging services held by Seller or any
Affiliate of Seller other than those FCC radio licenses necessary to operate the
Business; (l) all maintenance radio equipment and antennas other than those
included in the Transferred Assets; (m) all assets relating to Yellow Pages or
classified directory advertising activities of Seller or any Affiliate of
Seller, (n) all transiting toll facilities, network facilities and associated
electronic equipment used in their entirety by Seller solely in the operations
of any business conducted by Seller other than the Business and containing no
capacity for use in the conduct of the Business and related rights-of-way; and
(o) all rights of Seller or any Affiliate of Seller under the Transaction
Agreements.
"Final Order" means action by any governmental or regulatory authority as
to which (i) no request for stay by any Governmental Authority, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action has been
granted by a governmental or regulatory authority; (iii) the governmental or
regulatory authority does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal by a
third party to a court, or a request to stay by a court, of any material
provision of the Governmental Authority's action, as applicable, is pending or
in effect and, if any deadline for filing any such appeal or request is
designated by statute or rule, it has passed.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities
and the grant of any study area waiver request submitted by Buyer related
thereto, but excluding the Reinitialization.
"Fee Realty" means all real property owned by Seller in fee simple and
located inside the boundaries of the Exchanges, including without limitation
tower sites or antenna sites.
47
<PAGE>
"Governmental Authority" means any United States, state, or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, bureau, agency, court or instrumentality thereof.
"Hazardous Material" means (a) all chemicals, materials and substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words or similar import under any Environmental Law, and (b) any
other chemicals, materials or substances, including without limitation any
polychlorinated biphenyl, petroleum or any chemical fraction thereof, asbestos,
formaldehyde, flammables, explosives, and PCBs which could presently or at any
time in the future cause a detriment to or impair the value or beneficial use of
any of the Transferred Assets, or constitute or cause a health, safety or
environmental hazard to the any of the Transferred Assets or to any person or
require remediation at the behest of any state or local governmental agency
under any Environmental Law.
"Interests" means all rights, privileges, benefits and interests under all
contracts, agreements, consents, licenses, permits or certificates (except those
included as Authorities and Realty), including agreements, permits, leases and
arrangements with respect to intangible or personal property or interests
therein; equipment leases; agreements with suppliers, customers and subscribers;
business licenses; prepaid expenses; and any sales agent or sales affiliate
agreements, in each case, used or owned primarily in connection with the
Business.
"Maximum Adjustment Amount" means an Aggregate Adjustment Amount equal to
the product of (i) the aggregate number of access lines in the telephone
exchanges purchased pursuant to the Multi-State Exchange Purchase Agreements on
the closing date of each purchase thereunder multiplied by (ii) $50.00, it being
understood and agreed by the parties that (x) the Maximum Adjustment Amount
shall be preliminarily calculated at the Closing assuming that any Multi-State
Exchange Purchase Agreement that has not closed or been terminated on or before
the Closing Date shall, for purposes of such preliminary calculation, be deemed
to have closed on the Closing Date, and (y) on the date of closing or
termination of the last of Multi-State Exchange Purchase Agreement to have been
closed or terminated, the Maximum Adjustment Amount shall be finally calculated
and any resulting payments required to be made by Seller or refunds required to
be made by Buyer shall be taken into account in determining the amount of funds
to be paid by Seller at such Closing or to be paid by Seller or refunded by
Buyer upon such termination, as the case may be.
"Multi-State Exchange Purchase Agreements" means the Agreements for
Purchase and Sale, including this Agreement, entered into between Buyer, or any
Affiliate of Buyer, and Seller with respect to the purchase of Seller's rights
to provide and operate wireline telecommunications and related non-tariffed or
non-regulated wireline services and related assets in the following states:
Arizona, Colorado, Nebraska, North Dakota, Minnesota, Iowa, Idaho, Montana and
Wyoming.
"911 Assets" means all circuits, facilities and customer information used
by Seller in providing 911 emergency services in connection with the operation
of the Business.
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<PAGE>
"Operating Contracts" means all contracts, agreements and instruments (and
all amendments and modifications thereto) entered into by Seller in the ordinary
course of the Business prior to the date hereof, including without limitation
all real property leases, documentation related to the Interests and
interconnection agreements to the extent that Buyer is required to perform such
obligations by applicable law or as a condition to obtaining any Governmental
Approvals, and all such contracts, agreements and instruments entered into by
Seller in the ordinary course of the Business between the date of this Agreement
and the Closing Date.
"Property" means all of Seller's physical facilities and other tangible
assets used primarily in the Business that are in Seller's plant in service
accounts in accordance with Part 32 of the FCC Uniform System of Accounts,
including all transiting toll facilities, network facilities and associated
electronic equipment located within the boundaries of an Exchange and not
included as Excluded Assets, which facilities and equipment shall be subject to
the arrangements set forth in Section 7.1.11.
"Reinitialization" means the implementation of the interstate access rates
pursuant to the reinitialization of the Price Cap Index ("PCI") applicable to
the approved new study area to reflect the underlying cost structure associated
with the Exchanges.
"Realty" means the Fee Realty together with all rights, privileges and
appurtenances owned by Seller inside the boundaries of the Exchanges that are a
burden upon, a benefit of, or otherwise related to the Fee Realty, including
without limitation all structures, buildings, easements, servitudes, licenses,
leasehold improvements, building improvements, fixtures, rights-of-way and other
similar interests owned by Seller and used in the Business.
"Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all open end-user customer account records, all service records kept in
the ordinary course of the Business which identify and describe the customers
being served by Seller in the Exchanges, the service that is being provided to
such customers, and those records which identify and describe the physical
property (including but not limited to cables, wires and central office
equipment) included in the Transferred Assets.
"Seller's Knowledge" means the actual knowledge of Paul Lit after due
inquiry and any senior manager specifically charged with operational
responsibility for the Exchanges concerning information about which Seller is
making a representation in this Agreement.
"State Regulatory Approvals" means the issuance of the required consents
or approvals of the State Regulatory Authorities with respect to the assignment
of the Authorities to Buyer and the designation of Buyer as an eligible
telecommunications carrier for the Exchange.
"State Regulatory Authorities" means the public utility commissions or
similar state governmental authorities in the states in which the Exchanges are
located and, where applicable, municipal authorities that have granted operating
authorities with respect to the Exchanges.
49
<PAGE>
"Systems" means, as the context requires, Seller's service delivery
components in the Exchanges, including without limitation all equipment,
facilities, assets, properties, licenses, permits, certificates of public
convenience and necessity and other rights and authorities and related technical
knowledge and information, used in the conduct of the Business within the
particular Exchange.
"Transactions" means the purchase and sale of the Transferred Assets as
contemplated by the Agreement and all other transactions contemplated by the
Transaction Documents.
"Transaction Documents" means this Agreement and each document to be
executed in connection with the Closing of the Transactions. When used with
respect to Seller or Buyer, "Transaction Documents" means this Agreement and
such documents as are required to be executed by such party with respect to the
Closing of the Transactions.
"Transferred Assets" means all of Seller's right, title and interest in
and to the Authorities, the Interests, the 911 Assets, the Property, the Realty,
the Records and all goodwill associated with the Business as existing on the
Closing Date, but excluding the Excluded Assets.
ARTICLE 11
GENERAL
11.1 Notices. All notices hereunder will be in writing and served by
certified mail, return receipt requested, courier or facsimile. Notice shall be
deemed to have been duly given on (i) the earlier of the date received or the
fifth business day following the date mailed by the notifying party using first
class mail, postage prepaid or (ii) if delivered by courier service or
facsimile, upon actual receipt as evidenced by the appropriate confirmation
sheet. Notices shall be sent as follows:
If to Seller: U S WEST Communications, Inc.
1801 California Street, Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic
Transactions Group
Facsimile: (303) 308-0835
with a copy (which shall not constitute notice) to:
Brownstein Hyatt & Farber, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch
Facsimile: (303) 223-1111
50
<PAGE>
If to Buyer: Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: Donald P. Weinstein
Facsimile: (203) 614-4625
with a copy (which shall not constitute notice) to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: L. Russell Mitten, II., Esq.
Facsimile: (203) 614-4651
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Sixth Floor
Washington, DC 20036
Attention: Jeffry L. Hardin
Facsimile: (202) 387-3467
11.2 Waivers. No failure of a party to enforce a provision of this
Agreement will be construed as a general or a specific waiver of that provision,
or of a party's right to enforce that provision, or of a party's right to
enforce any other provision of this Agreement. No waiver of any breach of any
covenant or other provision herein contained shall be deemed to be a waiver of
any preceding or succeeding breach, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act shall
be deemed to be an extension of the time for performance of any other obligation
or act.
11.3 Commissions. Each party represents and warrants that no broker or
other person is entitled to any commission or finder's fee in connection with
the consummation of the Transactions based on arrangements made by such party
for which the other party could have any liability.
11.4 Payment of Expenses. Except as otherwise provided herein, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in consummating and carrying
out the Transactions, whether or not the Transactions are consummated.
Notwithstanding the foregoing, all transfer fees payable in connection with the
assignment of permits or rights-of-way shall be borne by Buyer.
51
<PAGE>
11.5 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and, when each of the parties hereto has
executed and delivered a counterpart to the other party, this Agreement shall be
binding and effective even though no single counterpart has been executed by
both of the parties.
11.7 Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.8 Assignment. The rights and obligations of the parties to this
Agreement or any interest in this Agreement shall not be assigned, transferred,
hypothecated, pledged or otherwise disposed of without the prior written consent
of the nonassigning party, which consent may be withheld in such party's sole
discretion; provided, however, that (i) Buyer may, without the prior consent of
Seller but without relieving Buyer of its obligations hereunder, assign its
rights under this Agreement to any Affiliate or lender, and (ii) Seller may
assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the Transactions as a 1031
Transaction.
11.9 Additional Instruments and Assistance. Each party hereto shall from
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its counsel
may reasonably request in order to complete and perfect the Transactions.
11.10 Seller's Control Over Authorized Facilities. No provision of this
Agreement shall be construed to abrogate Seller's control of and responsibility
for the operation of the authorized facilities of the Business prior to the
actual transfer of control of those facilities hereunder to the Buyer as
approved by the FCC and the State Regulatory Authorities.
11.11 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado.
11.12 Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable when applied to any person or
circumstance, the remaining provisions of this Agreement and the enforcement of
such provision to other persons or circumstances shall not be affected thereby,
and each provision of this Agreement shall be enforced to the fullest extent
allowed by law.
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<PAGE>
11.13 Amendments. This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by its
agent duly authorized in writing or as otherwise expressly permitted herein.
11.14 No Construction Against the Drafting Party. Each party hereto
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.15 Integration. This Agreement, including all schedules and exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, warranties or representations between the parties with respect
to such subject matter except as set forth or noted herein. Except as provided
in Section 5.1.4 hereof, this Agreement is not made for the benefit of any
person, firm, corporation or association other than the parties hereto. Except
as provided in Section 5.1.5 hereof, the parties do not intend to confer any
benefit hereunder on any person, firm or corporation other than the parties
hereto.
* * * * *
53
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
CITIZENS UTILITIES COMPANY
By:
------------------------------------
Leonard Tow
Chairman and Chief Executive Officer
SELLER:
U S WEST COMMUNICATIONS, INC.
By:
------------------------------------
Solomon D. Trujillo
President and Chief Executive Officer
<PAGE>
EXECUTION COPY - COLORADO
AGREEMENT
For
PURCHASE AND SALE
of
TELEPHONE EXCHANGES
Dated as of June 16, 1999
Between
CITIZENS UTILITIES COMPANY
And
U S WEST COMMUNICATIONS, INC.
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF TELEPHONE EXCHANGES
This Agreement for Purchase and Sale of Telephone Exchanges is made and
entered into as of June 16, 1999 by and between U S WEST Communications, Inc., a
Colorado corporation ("Seller"), and Citizens Utilities Company, a Delaware
corporation ("Buyer").
A. Seller possesses certain rights to provide and operate wireline
telecommunication services pursuant to operating authorities issued by the
public utilities commissions or similar authorities of various states, and owns
certain assets used to provide such services in the telephone exchanges listed
on Exhibit A hereto and in any cross-border communities served by such exchanges
(the "Exchanges").
B. Buyer desires to acquire Seller's right to provide and operate wireline
telecommunication services and related non-tariffed or non-regulated wireline
services and products in the Exchanges (the "Business") and to purchase the
Transferred Assets (as defined below), and Seller wishes to sell, assign and
transfer such right and assets to Buyer.
C. Each defined term used herein shall have the meaning set forth in this
Agreement where such term is first used or, if no definition is so set forth,
shall have the meaning set forth in Article 10 below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF EXCHANGES
1.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions hereinafter set forth, at the Closing described in Article 2,
Seller agrees to sell, convey, transfer, assign and deliver all of the
Transferred Assets to Buyer, and Buyer agrees to purchase and receive the
Transferred Assets from Seller. Except as specifically set forth in Section 1.2
hereof, Seller shall transfer the Transferred Assets to Buyer on the Closing
Date free and clear of all Encumbrances, and Buyer shall not, by virtue of its
purchase of the Transferred Assets, assume or become responsible for any debts,
liabilities or obligations of Seller.
1.2 Assumption of Obligations. Buyer covenants and agrees that, on the
Closing Date, it shall execute and deliver to Seller an Assumption Agreement in
substantially the form of Exhibit
<PAGE>
B hereto (the "Assumption Agreement") pursuant to which it will assume and agree
to perform and discharge the following liabilities and obligations of Seller to
the extent related to the Exchanges (collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations of Seller arising under
the Operating Contracts, except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Operating Contracts occurring or arising
or accruing on or prior to the Closing Date;
(ii) All liabilities and obligations of Seller related to
unperformed service obligations, right-of-way relocation obligations and
construction in progress as of the Closing Date;
(iii) All liabilities and obligations imposed on Seller by
State Regulatory Authorities in connection with the operation of the
Exchanges, including without limitation obligations to provide 911
emergency services and to make any investment in the Exchanges required by
any Governmental Authority, except that Buyer shall not assume any
liabilities or obligations, other than held order or other service
obligations, imposed on Seller by State Regulatory Authorities that arise
out of Seller's breach of any decision by the State Regulatory
Authorities, or any intentional misconduct or material misrepresentation
by Seller;
(iv) All federal, state, county, municipal, foreign or other
taxing jurisdiction sales, use, transfer, gross receipts, consumer levy,
privilege or similar taxes, duties, excises or governmental charges,
including any penalties and interest thereon, arising out of the sale of
the Transferred Assets by Seller to Buyer hereunder, excluding any income
tax liability of Seller (collectively, "Transfer Taxes"); and
(v) All liabilities and obligations arising under
Environmental Laws with respect to the real property included in the
Transferred Assets.
1.3 Retained Liabilities. Seller shall retain and shall pay, perform and
discharge when due, the following liabilities, responsibilities and obligations
of Seller with respect to the Business (collectively, the "Retained
Liabilities"):
(i) Subject to Section 1.5, all trade payables and other
payment obligations of Seller as of the Closing Date;
(ii) All long-term debt of Seller and debt of Seller owed to
any one or more of its Affiliates;
2
<PAGE>
(iii) Subject to Section 1.5, all taxes and assessments
relating to the operation of the Business (other than Transfer Taxes) on
or before the Closing Date for the use, ownership or operation of the
Transferred Assets on or before the Closing Date;
(iv) All liabilities and obligations arising on or before the
Closing Date with respect to Seller's employees that may be hired by Buyer
(the "Hired Employees"), including (a) all liabilities, responsibilities
and obligations arising on or before the Closing Date relating to
collective bargaining agreements or other union contracts, and (b) any
such liabilities or obligations that arise after the Closing Date to the
extent that such liabilities and obligations relate to facts,
circumstances or conditions arising or occurring on or before the Closing
Date with respect to the Hired Employees;
(v) All liabilities, responsibilities and obligations arising
out of or related to any actions, lawsuits or legal proceedings based on
facts, circumstances or conditions arising, existing or occurring on or
before the effective time of Closing, regardless of whether known or
unknown, asserted or unasserted, as of the Closing, including any
liability under any claim (whether made on or before the Closing Date)
relating to the period ending on or before the effective time of Closing
which, but for the consummation of the transactions contemplated hereby,
would have been covered under any insurance policy of Seller, and all
liability associated with workers' compensation claims incurred but not
reported as of the effective time of Closing and workers' compensation
claims reported as of the Closing Date but not then due or payable, but
expressly excluding any such liability, responsibility or obligation for
litigation or claims of any Governmental Authority relating to liabilities
and obligations arising under Environmental Laws with respect to the Fee
Realty included in the Transferred Assets, unless such liabilities,
responsibilities and obligations result from the actions or omissions of
Buyer constituting breaches of this Agreement;
(vi) All liabilities and obligations for prior period
adjustments of revenues from the Business, for any refunds or bill credits
to ratepayers for overbillings or overearnings occurring or relating to
the period prior to the effective time of Closing, and for all toll
revenues, settlements, pools, separations studies or similar activities
relating to the Exchanges for which Seller is responsible, provided that
such liabilities and obligations are asserted within four years of the
Closing Date;
(vii) All liabilities, responsibilities and obligations
arising out of or occurring or resulting from the use or ownership of the
Transferred Assets on or before the Closing Date; and
(viii) All liabilities, responsibilities and obligations with
respect to the Excluded Assets.
1.4 Letters of Credit and Purchase Price.
3
<PAGE>
1.4.1 Letters of Credit. Within 15 business days of the date hereof,
Buyer shall deliver to Seller one or more irrevocable letters of credit issued
by financial institutions reasonably acceptable to Seller (the "Letters of
Credit") providing for drawings in an aggregate principal amount equal to
$5,839,310 (the "LC Amount"). The Letters of Credit shall be returned to Buyer
upon the Closing of the Transactions or upon termination of this Agreement for
any reason other than the following: (i) Seller's termination of this Agreement
pursuant to Section 6.2.4 or 6.2.5, or (ii) Seller's termination of this
Agreement pursuant to Section 6.2.1 because the condition precedent set forth in
Section 3.2.1 becomes incapable of satisfaction through no fault of Seller after
Buyer has had a reasonable opportunity to cause such condition precedent to be
satisfied. In addition, if Seller terminates this Agreement pursuant to Section
6.2.4 as a result of Buyer's breach of Section 4.1.4 for any reason, Buyer and
Seller have mutually agreed that in addition to Seller's right to draw down the
full amount of the Letters of Credit, Buyer shall be liable to Seller for an
additional amount equal to the LC Amount. If Buyer fails to deliver the Letters
of Credit within 15 business days of the date hereof, and Seller thereafter
terminates this Agreement pursuant to Section 6.2.4 as a result thereof, Buyer
shall be liable to Seller for the LC Amount. In the event that Seller terminates
this Agreement for any of the foregoing reasons, in view of the difficulty of
determining the amount of damages which may result to Seller from such failure
to consummate the Transactions, Buyer and Seller have mutually agreed that the
proceeds of the Letters of Credit and any other monies payable to Seller in
accordance with the foregoing provisions shall be retained by Seller as
liquidated damages, and not as a penalty, and this Agreement shall thereafter
become null and void except for those provisions which by their terms survive
termination of this Agreement. The parties have agreed that the proceeds of the
Letters of Credit and such other monies payable to Seller in accordance with the
foregoing provisions in such event shall be Seller's exclusive remedy.
1.4.2 Purchase Price. Subject to Section 1.4.4, Buyer shall pay to
Seller as consideration for the transfer of Seller's rights with respect to the
Business and the sale of the Transferred Assets an aggregate purchase price (the
"Purchase Price") consisting of $145,982,761 plus (a) the estimated amount of
Exchange Investments, if any, calculated pursuant to Section 1.4.3(a) (the
"Estimated Exchange Investments") less (b) the Revenue Adjustment, if any
calculated pursuant to Section 1.4.3(b). The Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds to such bank
account(s) as Seller shall designate within a reasonable time prior to Closing
and the Letters of Credit shall be returned to Buyer upon payment of the
Purchase Price.
1.4.3 Closing Date Purchase Price Adjustments.
(a) Estimated Exchange Investments. Seller shall prepare and deliver
to Buyer, no less than five business days prior to the Closing, an estimate of
the net book value on the Closing Date associated with any investment by Seller
in the Exchanges (the "Exchange Investment") prior to Closing required by any
Governmental Authority pursuant to an order issued between the date hereof and
the Closing Date, other than with respect to investments contemplated by
Schedule 5.2.3(iii) or with respect to Seller's efforts to comply with any
Governmental Authority's orders issued prior to the date hereof.
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(b) Revenue Adjustment. The Purchase Price shall be decreased if the
product of four times the aggregate revenues from the Business, as reported on
the monthly profit and loss statements for the Business for the three full
consecutive calendar months most recently completed prior to the Closing Date,
less any portion of such revenues attributable to the Excluded Assets (the
"Adjusted Annualized Closing Revenues"), are less than $30,992,400. Any decrease
in the Purchase Price in accordance with this Section 1.4.3(b) shall be equal to
the difference between the Adjusted Annualized Closing Revenues and $30,992,400
multiplied by 400% (the "Revenue Adjustment"); provided, that the Purchase Price
shall not be decreased pursuant to this Section 1.4.3(b) to the extent that the
Maximum Adjustment Amount shall have been reached.
1.4.4 Post-Closing Purchase Price Adjustment.
(a) Actual Exchange Investments. Within 120 days following the
Closing Date, Buyer shall prepare and deliver to Seller a written statement (the
"Exchange Investment Statement") of the calculation of the actual amount of
Exchange Investment. Subject to the dispute resolution mechanism set forth in
Section 1.4.4(c), to the extent that the actual amount of Exchange Investment as
shown on the Exchange Investment Statement differs from the Estimated Exchange
Investment, the difference shall be paid within 35 days of delivery of the
Exchange Investment Statement (i) by Buyer to Seller in the case of an excess,
or (ii) by Seller to Buyer in the case of a deficit.
(b) Reinitialization Adjustment. If, on the Closing Date, the
Reinitialization has not been effected, the Purchase Price shall be adjusted in
accordance with the following:
(i) If the Reinitialization occurs after the Closing Date but
on or prior to the two year anniversary of the Closing Date, Buyer shall
prepare and deliver to Seller, as soon as practicable after the
Reinitialization, a written statement (the "Reinitialization Statement")
of the calculation of the actual number of interstate switched access
minutes of use (the "Interstate Use Minutes") for the Exchanges per month
for the period commencing on the Closing Date and ending on the last day
of the month in which the Reinitialization occurred. Subject to the
dispute resolution mechanism set forth in Section 1.4.4(c), Seller shall
pay Buyer within 60 days of delivery of the Reinitialization Statement an
amount equal to $0.023 multiplied by the Interstate Use Minutes for the
period commencing on the day after the Closing Date and ending on the date
of the Reinitialization (pro rated, if necessary, for the first and final
month). Seller's failure to make such payment by the 60th day following
delivery of the Reinitialization Statement shall be deemed to be an
initiation of the dispute resolution mechanism set forth in Section
1.4.4(c).
(ii) If the Reinitialization has not occurred by the two year
anniversary of the Closing Date, Buyer shall so notify Seller and Seller
shall pay Buyer within 60 days after receipt of such notice an amount
equal to $14,127,364, plus simple interest at a rate of 8% per annum for
the period commencing on the Closing Date through but excluding the date
of payment.
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(c) Dispute Resolution Mechanism.
(i) Within 30 days after receipt of the Exchange Investment
Statement or 60 days after receipt of the Reinitialization Statement
(each, a "Post-Closing Statement"), as the case may be, Seller may, in a
written notice to Buyer, describe in reasonable detail any proposed
adjustments to the relevant Post-Closing Statement in question and the
reasons therefor. If Buyer shall not have received a notice of proposed
adjustments within such 30 or 60 day period, as the case may be, Seller
will be deemed irrevocably to have accepted such Post-Closing Statement.
(ii) If Seller disputes any portion of the Post-Closing
Statement, the parties shall calculate the portion of the undisputed
amount, if any, and such amount shall be paid by the appropriate party
within five business days of the determination of the undisputed amount.
Buyer and Seller shall negotiate in good faith to resolve any dispute. If
any dispute cannot be resolved within 30 days following Buyer's receipt of
the proposed adjustment, Deloitte & Touche or another independent public
accounting firm that is nationally recognized in the United States jointly
selected by Buyer and Seller shall be engaged to resolve such disputes in
accordance with the standards set forth in this Section, which resolution
shall be final and binding. The fees and expenses of such accounting firm
shall be shared by Buyer and Seller in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of Buyer
and Seller, respectively. Upon delivery of such public accounting firms's
resolution of such dispute to the parties, the party required to make a
payment pursuant to such resolution shall promptly, but no later than five
business days after such delivery, pay to the other party the amount
determined by such public accounting firm to be owed to such party.
(d) Any amount paid pursuant to Section 1.4.4(a) shall bear interest
from the Closing Date through but excluding the date of payment, at a rate of 8%
per annum. Any amount owing pursuant to Section 1.4.4(b)(i) that is not paid
within 60 days of delivery of the Reinitialization Statement shall bear interest
from the 61st day following delivery of the Reinitialization Statement through
but excluding the date of payment, at a rate of 8% per annum. Such interest
shall accrue daily on the basis of a year of 365 days and the actual number of
days for which due and shall be payable together with the relevant amount
payable pursuant to this Section 1.4.4. All amounts payable pursuant to this
Section 1.4.4 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer, in the case of amounts payable by Buyer, to such
account of Seller as Seller may designate and, in the case of amounts payable by
Seller, to such account of Buyer as Buyer may designate.
(e) The Purchase Price shall be deemed to be adjusted by any amounts
paid pursuant to this Section 1.4.4.
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1.5 Prorations. All real and personal property and similar taxes and
assessments with respect to the Transferred Assets, all rents, utilities and
other periodic charges and expenses arising from the normal operations of the
Business shall be prorated as of 11:59 p.m. local time on the Closing Date. Such
prorations shall be agreed upon by the parties as of the Closing Date and
reflected as an adjustment to the Purchase Price. Following the Closing Date,
each party shall thereafter be responsible for the payment of all such amounts
for which it is responsible, as determined by such prorations, as they become
due. For purposes of the foregoing proration, the parties agree that, with
respect to states in which Seller is assessed for real or personal property
taxes on a centralized basis or where a tax is imposed in lieu of property tax,
Seller shall be responsible for payment of property or other taxes assessed by
such state for the entire taxable year in which the Closing occurs and a pro
rata portion of such property taxes will be allocated to Buyer as of the Closing
Date and paid to Seller on the Closing Date. All prorations pursuant to this
Section 1.5 will be final and binding on both parties. Unless otherwise mutually
agreed no later than 30 days prior to the Closing Date, the specific date and
time for the change of telecommunications service to occur with respect to the
Exchanges shall be at 11:59 p.m., local time, on the Closing Date.
1.6 Allocation of the Purchase Price. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Buyer and Seller
agree to such Allocation prior to Closing, Buyer and Seller covenant and agree
that (i) the values assigned to the assets by the parties' mutual agreement
shall be conclusive and final for all purposes, and (ii) neither Buyer nor
Seller will take any position before any Governmental Authority or in any
judicial proceeding that is in any way inconsistent with such allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an
Allocation, Buyer and Seller covenant and agree to file, and to cause their
respective Affiliates to file, all tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable law.
1.7 Transfer Taxes. Buyer shall be responsible for all Transfer Taxes
imposed by any local, state or federal governmental authorities in connection
with the sale, transfer or assignment of the Transferred Assets or otherwise on
account of the Transactions, regardless of whether Buyer or Seller is assessed
therefor. Seller shall be responsible for filing the applicable returns and
shall file them in a timely manner. No less than 20 days prior to the due date
of any such returns, Seller shall provide Buyer with the proposed amount of
Transfer Taxes to be reported and remitted. No less than 10 days prior to the
due date of any such returns, Buyer shall either approve the proposed amount or
advise Seller of an adjusted amount of Transfer Taxes to be reported and
remitted. Seller shall report and remit Transfer Taxes in amounts as approved or
adjusted by Buyer. In the event Buyer fails to approve Seller's proposed amount
of Transfer Taxes and fails to advise Seller of an adjusted amount of Transfer
Taxes within 10 days prior to the due date of such return, Seller shall
interpret such inaction on the part of Buyer as direction by Buyer to make no
report of and no
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remittance of Transfer Taxes. Buyer shall remit to Seller on the day prior to
the due date of such return, by wire transfer of immediately available funds,
the agreed upon amount of Transfer Taxes to be remitted to the taxing
authorities. In the event Seller does not receive the agreed upon amount of
Transfer Taxes to be remitted to the taxing authorities from Buyer on or before
the day prior to the due date of the return, Seller shall interpret such failure
of Buyer to provide funds as direction by Buyer to make no report of and no
remittance of Transfer Taxes. Buyer warrants that any adjustments by Buyer to
Seller's proposed amount of Transfer Taxes or any direction by Buyer to make no
report of and no remittance of Transfer Taxes will be based on substantial state
and/or local authority that Transfer Taxes are not due and owing. Buyer shall
indemnify and hold harmless Seller from and against any and all such Transfer
Taxes and any penalties, interest or expenses (including attorneys' fees)
incurred by Seller with respect thereto unless such interest and penalties
result from the actions or omissions of Seller that are unrelated to any
breaches by Buyer of its obligations hereunder.
ARTICLE 2
CLOSING
2.1 Closing. The consummation of the purchase and sale of the Transferred
Assets (the "Closing") shall take place at Seller's offices in Denver, Colorado,
at 10:00 a.m., local time, on the last calendar day of the month in which all
the conditions precedent to Closing set forth in Article 3 have been satisfied
or waived, or on such other date as the parties mutually agree, but in no event
shall the Closing occur later than September 30, 2001 unless the parties shall
mutually agree to extend the date of the Closing. The date that the Closing
actually occurs is referred to as the "Closing Date." If the Closing is
postponed, all references to the Closing Date in this Agreement shall refer to
the postponed date of Closing.
2.2 Deliveries by Seller to Buyer. At or prior to the Closing, Seller will
deliver to Buyer:
2.2.1 Certified copies of all Seller's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Seller;
2.2.2 a duly executed Bill of Sale, in substantially the form of
Exhibit C hereto, and duly executed assignments and other instruments of
transfer sufficient to convey to Buyer title to all the personal property
included in the Transferred Assets;
2.2.3 A duly executed closing certificate of Seller contemplated by
Sections 3.1.1 and 3.1.2;
2.2.4 Releases, satisfactions or terminations of all mortgages,
financing statements or other Encumbrances on any of the Transferred Assets or,
in the alternative, an indemnity of Seller with respect to such Encumbrances in
form and substance reasonably acceptable to Buyer;
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2.2.5 Special warranty deeds covering the Fee Realty and assignments
in customary local form covering the other realty and Interests included in the
Transferred Assets, including all rights-of-way which are by their terms
assignable;
2.2.6 An affidavit in a form complying with Section 1445 of the
Code; and
2.2.7 Such other documents and items as are reasonably necessary or
appropriate to effect the consummation of the Transactions or which may be
customary under local law, including vehicle transfer documentation.
2.3 Deliveries by Buyer to Seller. At or prior to the Closing, Buyer
will deliver to Seller:
2.3.1 The Purchase Price as required by Section 1.4, together with
any proration payment required to be paid on the Closing Date pursuant to
Section 1.5;
2.3.2 Certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Buyer;
2.3.3 A duly executed closing certificate of Buyer contemplated by
Sections 3.2.1 and 3.2.2; and
2.3.4 The Assumption Agreement and such other certificates and
documents as are reasonably necessary or appropriate to effect the consummation
of the Transactions or which may be customary under local law.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. Within 30
days after the date of this Agreement, the parties shall negotiate in good faith
and enter into a Transition Agreement similar in scope to the agreement attached
as Exhibit D hereto. Within 90 days after the date of this Agreement, the
parties shall commence to negotiate in good faith the definitive terms of the
services agreements for the services that Buyer requests Seller to provide upon
Closing and described on Exhibit E hereto. At or prior to the Closing, Buyer and
Seller shall execute and deliver such services agreements. The parties
acknowledge and agree that the agreements contemplated by this Section 2.4 are
an integral part of, and will be entered into as part and parcel to, and in
conjunction with, the other transactions and agreements contemplated by this
Agreement.
2.5 Further Assurances. Except as otherwise provided herein or in the
transition agreements, all instruments of conveyance, assignment or transfer
referred to herein, all sums of money, and all records and data to be delivered
as specified in this Agreement shall be delivered at or prior to the Closing.
The parties agree following the Closing to execute and deliver such further
instruments of conveyance, assignment and assumption as may be reasonably
necessary to give effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities. In addition, in the event of an
inadvertent transfer of Excluded Assets, Buyer shall upon request by Seller
execute and deliver such instruments of conveyance, assignment and transfer as
may be
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reasonably necessary to reconvey such Excluded Assets to Seller and shall
promptly return such Excluded Assets to Seller.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
3.1.1 Representations and Warranties. All representations and
warranties of Seller made in this Agreement shall be true and correct on and as
of the Closing Date as though made at such time, other than inaccuracies in such
representations and warranties that in the aggregate do not have a material
adverse effect on the Business or changes approved by Buyer in writing, and
Seller shall have delivered to Buyer a certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.2 Covenants. Seller shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Seller shall have delivered to Buyer a Certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.3 Governmental Approvals. The State Regulatory Approvals and the
FCC Approval (collectively, "Governmental Approvals") shall have been obtained
and shall be in full force and effect and shall not contain any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date. All such approvals and consents shall be deemed to have been obtained
after the grant thereof has become a Final Order.
3.1.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.1.5 Hart-Scott-Rodino Act. All filings required to be made under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
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3.1.6 Certificates and Other Documents. Seller shall have executed
and delivered the certificates and other documents required by Sections 2.2 and
2.4.
3.1.7 Absence of Material Adverse Change. Since December 31, 1998,
there shall have occurred no casualty or other event or change, not subsequently
cured by Seller, that has resulted in a material adverse effect on the Business,
unless such event has resulted in an amendment to this Agreement as contemplated
by Section 6.1.2.
3.1.8 Material Third Party Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the required
third party consents listed on Schedule 3.1.8 have been obtained and remain in
full force and effect on the Closing Date.
3.1.9 Delivery of Financial Information. Seller shall have delivered
the Required Financial Statements and representation letters, in each case as
and when required by Section 5.2.7.
3.1.10 Environmental Inspections. If it is determined pursuant to
Section 5.3.7 that remediation of potential material liabilities under
Environmental Laws is required, then (i) Seller shall have completed the
remediation to Buyer's reasonable satisfaction, (ii) if Seller elects to exclude
a parcel of Fee Realty, and Buyer so elects, Seller and Buyer shall have entered
into a long-term, low-cost lease, in form and substance reasonably satisfactory
to Buyer, for Buyer's use of such parcel after Closing, or (iii) if Seller
elects to exclude the parcel or the Exchange to which such parcel relates, and
if such parcel alone has been excluded and Buyer has not elected to lease such
parcel, Seller and Buyer shall have agreed in good faith to a reduction in the
Purchase Price. In no event shall Seller be responsible for any other
environmental remediation.
3.1.11 Title Matters. If the aggregate estimated costs and expenses
reasonably necessary to remedy all Encumbrances pursuant to Section 5.3.9
exceeds $10,000 (the "Title Threshold"), Seller shall have removed the Excessive
Encumbrances. "Excessive Encumbrances" means one or more Encumbrances selected
by Seller, the removal of which will bring the aggregate estimated costs and
expenses reasonably necessary to remedy the remaining Encumbrances below the
Title Threshold. Seller shall have removed the Excessive Encumbrances by either
(i) causing the title company to agree to delete such Excessive Encumbrances as
an exception in the Title Commitment or, with the prior written consent of
Buyer, shall have insured over such Excessive Encumbrances by endorsement, or
(ii) if acceptable to Buyer and Seller in each of its reasonable discretion, the
parties shall have entered into a written agreement containing Seller's
commitment to remedy such Excessive Encumbrances on terms reasonably
satisfactory to Buyer. In no event shall Seller have any obligation to cure or
remove any Encumbrance that is not an Excessive Encumbrance.
3.1.12 Billing Conversion. The Steering Committee established
pursuant to the Transition Services Agreement shall have concluded at least
thirty days prior to Closing that the billing system conversion will be
completed by Closing.
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3.2 Conditions to Seller's Obligations. The obligation of Seller to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Seller:
3.2.1 Representations and Warranties. All representations and
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes approved by Seller in writing, and Buyer shall have delivered
to Seller a certificate of Buyer to that effect, dated as of the Closing Date,
signed by an authorized officer of Buyer.
3.2.2 Covenants. Buyer shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Buyer shall have delivered to Seller a Certificate of Buyer to that effect,
dated as of the Closing Date, signed by an authorized officer of Buyer.
3.2.3 Governmental Approvals. All Governmental Approvals shall have
been obtained and shall be in full force and effect. All such approvals and
consents shall be deemed to have been obtained after the grant thereof has
become a Final Order. The terms and conditions of the Governmental Approvals
shall be acceptable in all material respects to Seller in its reasonable
discretion.
3.2.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.2.5 H-S-R Act. All filings required to be made under the H-S-R Act
shall have been made, and the waiting period thereunder shall have expired or
early termination thereof shall have been granted.
3.2.6 Certificates and Other Documents. Buyer shall have delivered
the certificates and other documents required under Sections 2.3 and 2.4.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Buyer's Representations and Warranties. Buyer represents and warrants
to Seller that:
4.1.1 Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Buyer has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.1.2 Corporate Authority. This Agreement has been, and when
executed by Buyer each of the other Transaction Documents will be, duly and
validly executed and delivered by Buyer. This Agreement constitutes, and when
executed by Buyer each of the other Transaction Documents will constitute, the
valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
4.1.3 Governmental Authorizations. Except as contemplated by this
Agreement or as set forth in Schedule 4.1.3, neither Buyer's execution and
delivery of the Transaction Documents nor Buyer's consummation of the
Transactions require authorization or approval of, or filing with, any
Governmental Authority.
4.1.4 Funds. On the Closing Date, Buyer shall have sufficient funds
available to pay the Purchase Price, any proration payment required to be paid
on the Closing Date pursuant to Section 1.4, the amount of any Transfer Taxes to
be paid by Seller as provided in Section 1.6 and to consummate the Transactions.
4.1.5 Litigation. There are no actions, suits, proceedings, claims,
arbitrations or investigations, either at law or in equity, of any kind now
pending (or to the best of Buyer's knowledge threatened) involving Buyer or any
of its properties or assets that (i) question the validity of any of the
Transaction Documents or the Transactions; or (ii) seek to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under the Transaction Documents.
4.1.6 Investigation. Buyer, through its accountants, attorneys,
agents, employees, and others, has made or will have made prior to the Closing
such investigations of the Exchanges and Transferred Assets and of the factual,
legal and other condition and location of the Exchanges and Transferred Assets
that it deems necessary or advisable with respect to the Transactions. Buyer
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has not received from the Seller, or from anyone acting or claiming to act on
behalf of the Seller, any accounting, tax, legal or other similar advice with
respect to the Transactions, and Buyer is relying solely on advice of its own
accounting, tax, legal, and other advisors for such advice. Buyer has based its
decision to acquire the Transferred Assets solely on the results of such
investigations and the representations, warranties and covenants of Seller set
forth herein, and not based on any other information (including without
limitation information contained in Seller's descriptive memorandum) provided to
Buyer by Seller, its Affiliates, employees, agents, representatives or advisors.
4.2 Seller's Representations and Warranties. BUYER UNDERSTANDS THAT,
EXCEPT AS SET FORTH IN THIS SECTION 4.2, SELLER MAKES NO REPRESENTATIONS,
WARRANTIES OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR
TYPE WHATSOEVER WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, AND WARRANTIES AS TO THE APPURTENANCES, FACILITIES AND
IMPROVEMENTS THEREON, OR THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR
ADAPTABILITY THEREOF. Seller represents and warrants to Buyer that:
4.2.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Seller has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.2.2 Authorization, Execution and Delivery. This Agreement has
been, and when executed by Seller each of the other Transaction Documents will
be, duly and validly executed and delivered by Seller. This Agreement
constitutes, and when executed by Seller each of the other Transaction Documents
will constitute, the valid, legal and binding agreement of Seller enforceable
against Seller in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights generally
and by principles of equity.
4.2.3 Transferred Assets. Except with respect to Fee Realty, the
Transferred Assets are, and at the time of Closing will be, owned by Seller and
conveyed, transferred and assigned to Buyer free and clear of all Encumbrances.
The Transferred Assets (i) are in a normal state of repair (except for ordinary
wear and tear), (ii) are sufficient, both in number and condition, to comply
with applicable requirements of State Regulatory Authorities and the
manufacturer's specifications, except for non-compliances that in the aggregate
are not reasonably likely to have a material adverse effect on the Business
following the Closing Date, and (iii) will include all assets of every type,
nature and description that relate to, arise from, are used or held by Seller
primarily in the operation of the Business as presently operated by Seller
(including vehicles and related vehicle stock, portable
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office equipment, test equipment, generators, materials, supplies, tools,
maintenance radio equipment and antennas normally located within the Exchanges
or primarily used in connection with the Business), except for the Excluded
Assets. Assuming the receipt of all required third-party consents, the
instruments and documents to be executed and/or delivered by Seller to Buyer
pursuant to Section 2.2 hereof at or following the Closing Date shall be
adequate and sufficient to vest in Buyer all of Seller's right, title and
interest in or to the Transferred Assets. To Seller's Knowledge, Seller enjoys
peaceful, undisturbed possession under all leases included in the Material
Contracts and rights-of-way and easements with respect thereto and with respect
to the Fee Realty. Notwithstanding the foregoing to the contrary, with respect
to all Fee Realty included in the Transferred Assets, Seller makes no
representations or warranties as to the ownership or Encumbrances thereon, it
being the express agreement of the parties that such matters shall be the
subject of the arrangements set forth in Sections 3.1.11 and 5.3.9.
4.2.4 Governmental Authorization. Except as contemplated by this
Agreement and except for such of the following the absence of which would not
have a material adverse effect on the Business, no authorization or approval of,
or filing with, any Governmental Authority will be required in connection with
Seller's execution and delivery of the Transaction Documents or Seller's
consummation of the Transactions.
4.2.5 Litigation. As of the date hereof there are no actions, suits,
proceedings, claims, arbitrations or investigations, either at law or in equity,
of any kind now pending (or to the best of Seller's Knowledge threatened)
against Seller (i) in which an adverse determination would have a material
adverse effect on the Business; (ii) that question the validity of any of the
Transaction Documents or the Transactions; or (iii) that seek to delay, prohibit
or restrict in any manner any actions taken or contemplated to be taken by
Seller under the Transaction Documents.
4.2.6 Tax Matters. All taxes and assessments, including interest and
penalties thereon, of any kind whatsoever accrued with respect to the Business
through the Closing Date (other than Transfer Taxes and taxes subject to
proration at Closing pursuant to Section 1.4) have been or will be paid in full
by Seller. There are no liens for federal, state or local taxes upon the
Transferred Assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by Seller
in appropriate proceedings, the ultimate liability for which shall remain the
obligation of Seller, and Seller shall indemnify Buyer against all such
liabilities. Seller has timely filed, or will cause to be timely filed, all
federal, state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Business for all periods up to and including the Closing Date.
4.2.7 No Breach. The execution and delivery by Seller of the
Transaction Documents and the consummation by Seller of the Transactions will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of Seller; (ii) violate any
applicable law, statute, ordinance, rule, regulation, code, license,
certificate, franchise, permit, writ, ruling award, executive order, directive,
requirement, injunction (whether
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temporary, preliminary or permanent), judgment, decree or other order
(collectively "Applicable Laws") issued, enacted, entered or deemed applicable
by any Governmental Authorities having jurisdiction over Seller or any of the
Transferred Assets; (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give another
party any rights of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of the Operating Contracts; or (iv) result in
the creation or imposition of any Encumbrance on any of the Transferred Assets,
excluding from the foregoing clauses those violations, breaches or defaults
which individually or in the aggregate would not reasonably be expected to have
a material adverse effect upon the operation of the Business by Buyer after the
Closing.
4.2.8 Compliance with Laws. Except as set forth on Schedule
4.2.18(a), the Business has been operated and the Exchanges are in compliance
with all requirements of the Authorities and all Applicable Laws, except where
Seller's non-compliance would not have a material adverse effect on the
Business. Seller has not received any notice of (and to Seller's Knowledge there
is no reason to anticipate) any material violation of any Applicable Laws.
Notwithstanding the foregoing, except as specifically provided in Section 5.3.7,
Seller hereby disclaims all warranties, whether express or implied, with regard
to the presence of Hazardous Materials in the Transferred Assets or compliance
of the Business with Environmental Laws. Buyer understands and agrees that,
other than as specifically provided in Section 5.3.7, any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Transferred Assets following the Closing Date, including the costs of any
remediation or cleanup associated with the Transferred Assets, or environmental
claim or liability associated with the Transferred Assets, irrespective of when
contamination occurred, is assumed by Buyer on the Closing Date.
4.2.9 Operating Contracts. Schedule 4.2.9(a) sets forth all of the
Operating Contracts of the type described below (the "Material Contracts") that
Seller, after using commercially reasonable efforts, has been able to gather for
Buyer's review. No Operating Contract described in (i) below will be entered
into after the date of this Agreement and no Operating Contract described in
(ii) - (ix) will be entered into after the date of this Agreement other than in
the ordinary course of business:
(i) an agreement containing a non-compete agreement or other
non-compete covenant that in either case would by its terms limit the freedom of
Buyer following the Closing to compete in any respect with respect to the
Business with any third party;
(ii) an agreement granting an Encumbrance on Property other than Fee
Realty;
(iii) an agreement for the sale of any material Transferred Assets
or grant of any preferential rights to purchase any material Transferred Assets;
(iv) a land development agreement or other similar construction
agreement;
(v) a lease of real property;
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(vi) an agreement with respect to 911 services or E911 services;
(vii) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Exchanges;
(viii) an agreement that relates to arrangements and commitments
between Seller and a third party for the third party's location of equipment in
facilities included in the Transferred Assets except to the extent set forth in
a separate interconnection agreement; or
(ix) an agreement other than as set forth above with respect to
which the aggregate amount to be received or paid thereunder attributable to the
Exchanges with respect to calendar year 1999 or any subsequent calendar year is
expected to exceed $50,000 based on the terms of such agreement or on the
payments which have been made under such agreement with respect to calendar year
1998, to the extent applicable.
Schedule 4.2.9(b) identifies (i) each interconnection agreement between
Seller and a third party or an Affiliate of Seller that is applicable to the
Exchanges, (ii) each agreement that relates to arrangements and commitments
between Seller and an Affiliate of Seller for such Affiliate's co-location of
equipment in facilities included in the Transferred Assets that Seller, using
commercially reasonable efforts, has been able to identify, and (iii) each
Exchange where a third party has physically co-located equipment or, to Seller's
Knowledge, where a third party has made a written request to co-locate equipment
located in the Exchanges.
All of the Operating Contracts were made in the ordinary course of
business and are in all material respects valid, binding and currently in full
force and effect. Seller is not in default in any material respect under any of
the Operating Contracts, and to Seller's Knowledge no event has occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default or give rise to a right of termination or cancellation under any of the
Operating Contracts, cause the acceleration of an obligation of Seller, or
result in the creation of any Encumbrance upon any of the Transferred Assets. To
Seller's Knowledge, no other party is in default under any of the Operating
Contracts, nor has any event occurred which, through the passage of time or the
giving, of notice, or both, would constitute a default or give rise to a right
of termination or cancellation under any of the Operating Contracts, or cause
the acceleration of any obligation owed to Seller. Complete and correct copies
of all the Material Contracts in Seller's possession, together with all
modifications and amendments thereto to date of this Agreement in Seller's
possession, have been made available to Buyer or its representatives. Schedule
4.2.9(a) also specifically identifies each lease that requires the consent,
approval or waiver of the other party thereto for the assignment thereof.
4.2.10 Realty. (i) To Seller's Knowledge, the legal descriptions to
be delivered by Seller to the title insurance company shall be complete and
accurate in all material respects; (ii) as of the date hereof, there are no
deferred property taxes or assessments payable by Seller with respect to the Fee
Realty which may or will become due and payable as a result of the consummation
of the
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Transactions, other than Transfer Taxes; (iii) there are no condemnation
proceedings pending or to Seller's knowledge threatened with respect to all or
any part of any parcel of Fee Realty; and (iv) Seller is not a foreign person
within the meaning of Section 1445 of the Code.
4.2.11 Reports. Seller has filed all reports relating to the
Business required by all Applicable Laws to be filed, and it has duly paid or
accrued on its books of account all applicable duties and charges due or
assessed against it pursuant to such reports.
4.2.12 Year 2000 Matters.
(a) Year 2000 Compliance. Seller warrants and represents that to the
best of its knowledge and belief following an effort of commercially reasonable
diligence by Seller, all of its business assets, including but not limited to
information technology and non-information technology systems and facilities and
those of its external suppliers utilized by Seller in the Business and included
in the Transferred Assets ("Business Assets"), are or will be "Year 2000
Compliant" (defined below) on or before the Closing Date. For purposes of this
Agreement, the following definitions apply:
(i) "Date Data" means any data, formula, algorithm, process,
input or output which includes, calculates or represents a date, a reference to
a date or a representation of a date;
(ii) "Year 2000 Compliant" means:
1. the functions, calculations, and other computing
processes of the Business Assets (collectively, "Processes") perform in a
consistent manner regardless of the date in time on which the Processes
are actually performed and regardless of the Date Data inputs to the
Business Assets, whether before, on, during or after January 1, 2000 and
whether or not the Date Data is affected by leap year;
2. the Business Assets accept, calculate, compare, sort,
extract, sequence, and otherwise process all Date Data, and returns and
displays all Date Data, in a consistent manner regardless of the dates
used in such Date Data, whether before, on, during or after January 1,
2000.
3. the Business Assets will function without
interruptions caused by the date in time on which the Processes are
actually performed or by the Date Data inputs to the Business Assets,
whether before, on, during or after January 1, 2000;
4. the Business Assets store and display all Date Data
in ways that are unambiguous as to the determination of the century;
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5. no Date Data will cause one or more Business Assets
to perform an abnormally ending routine or function within the Processes
or generate incorrect values or invalid results; and
6. each of the Business Assets will properly exchange
Date Data with all other Business Assets that it may interact or
inter-operate with.
(b) Year 2000 Testing. Seller warrants that the Business Assets have
been tested by Seller and/or Seller's suppliers of Business Assets to determine
whether each of the Business Assets is Year 2000 Compliant. Seller's suppliers
of Business Assets have represented to Seller that the Business Assets provided
by them are Year 2000 Compliant and/or have been tested by those suppliers to
determine whether such Business Assets are Year 2000 Compliant. Seller will
notify Buyer immediately of the results of any test or any claim or other
information that indicates any Business Asset is not Year 2000 Compliant.
(c) Year 2000 Remedies. In the event that Buyer encounters a
Business Asset that is not Year 2000 Compliant, within a commercially reasonable
period after receipt from Buyer of written notice thereof, Seller shall at its
expense cause the identified non-compliant Business Asset to be repaired or
replaced.
4.2.13 Correct Records. The financial records, ledgers, account
books and other accounting records of Seller relating to the Business are
current, correct and complete and, if required by applicable law, conform with
the rules and regulations of the FCC and the State Regulatory Authorities,
except for instances that in the aggregate are not reasonably likely to have a
material adverse effect on the Business following the Closing Date and except
for the Continuing Property Records for the Exchanges, which are dealt with
specifically elsewhere in this Agreement. Seller has retained substantially all
original cost documentation relating to the regulated Business regarding the
expenditures made by Seller within the period required by Applicable Law that
relate to the Property, and such original cost documents are correct and
complete in all respects, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
4.2.14 Tribal and Federal Consents.
(a) To Seller's Knowledge, all easements, rights-of-way, franchises,
licenses, permits, consents, approvals, certificates and other authorizations of
tribal authorities and the United States Bureau of Indian Affairs (the
"BIA")(collectively, "Tribal Authorizations") held by Seller and relating to any
Purchased Property located, or any operations of the Business conducts, on
Native American reservations are in full force and effect, Seller is not in
material default thereunder, and there are no other Tribal Authorizations
required to be obtained by Seller from, or filings required to be made by Seller
with, any tribal authority or the BIA with respect to any such Purchased
Property or any such operations of the Business, except for instances that in
the aggregate are not reasonably likely to have a material adverse effect on the
Business following the Closing Date.
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(b) Except as set forth on Schedule 4.2.14(b), to Seller's Knowledge
no consent, approval or waiver from, or filing with, any tribal authority or the
BIA is required to be obtained or made in connection with the execution and
delivery by Seller of this Agreement, or Seller's fulfillment of its obligations
under this Agreement, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(c) If during the period between the date of this Agreement and the
Closing Date the representation and warranty set forth in this Section 4.2.14
proves to be untrue with respect to one or more parcels of Realty and Buyer and
Seller in good faith have been unable to remedy the circumstances that causes
such representation and warranty to be untrue with respect to such parcel, at
the election of either Buyer or Seller such parcel shall be excluded from the
Transferred Assets, and Buyer and Seller shall in good faith reduce the Purchase
Price accordingly.
4.2.15 Financial Statements.
Within 15 business days of the date hereof, Seller shall deliver to Buyer
a copy of financial statements relating to the Business, consisting of a balance
sheet and income statement and statements of cash flow and changes in equity for
the Business as of and for the respective periods ended December 31, 1996,
December 31, 1997, and December 31, 1998, together with the auditor's report
thereon (the "Financial Statements"). The Financial Statements were prepared
based upon the books and records of Seller, fairly present in all material
respects the financial condition of the business as of the appropriate periods
and the results of operations for the year then ended, in each case in
conformity with GAAP.
4.2.16 Loss of Major Customer. Except as set forth on Schedule
4.2.16, since June 1, 1997, Seller has not suffered the loss of any customer of
the Business that had billings in any year in excess of $25,000.
4.2.17 CPRs; Vehicles. Seller has provided Buyer with its Continuing
Property Records ("CPRs") for the Exchanges. Schedule 4.2.17 contains a true and
complete list and description (including vehicle identification numbers) as of
June 1, 1999 of the vehicles that are included in the Transferred Assets.
4.2.18 Tariffs and Authorities.
(a) The regulatory tariffs applicable to the Business stand in full
force and effect on the date of this Agreement in accordance with all terms, and
there is no outstanding notice of cancellation or termination or, to Seller's
Knowledge, any threatened cancellation or termination in connection therewith,
nor is Seller subject to any restrictions or conditions applicable to its
regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material
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respect under any such tariff. Schedule 4.2.18(a) sets forth all applications by
Seller or complaints or petitions by others or proceedings pending or, to
Seller's Knowledge, threatened before the state regulatory authority relating to
the Business or its operations or the regulatory tariffs that Seller, after
using commercially reasonable efforts, has been able to identify. To Seller's
Knowledge, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Business
has been delivered or made available to Buyer.
(b) Listed on Schedule 4.2.18(b) are the material Authorities held
by Seller and used in the operation of the Business. Each of such Authorities is
in full force and effect of the date of this Agreement in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor are any of such Authorities subject to any restrictions or
conditions that limit the operation of the Business (other than restrictions or
conditions generally applicable to licenses or permits of that type). Subject to
the Communications Act of 1934, as amended, and the regulations thereunder, the
FCC licenses included in the Authorities are free from all security interests,
liens, claims or encumbrances of any nature whatsoever. Except as disclosed on
Schedule 4.2.18(c), there are no applications by Seller or complaints or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC licenses that would reasonably be expected to have a
material adverse impact on the Business.
4.2.19 Environmental Matters.
(a) Schedule 4.2.19(a) accurately describes each incident known to
Seller and arising since December 31, 1996, involving violation of or
noncompliance with Environmental Laws in connection with Seller's operation of
the Business or the use or ownership of the Transferred Assets with respect to
which the fines exceed $100,000. Except as will be set forth on Schedule
4.2.19(d), no environmental remediation is occurring on any parcel of Fee Realty
or leased real property included in the Transferred Assets nor has Seller or any
Affiliate of Seller issued a request for proposal or otherwise asked an
environmental remediation contractor to begin plans for environmental
remediation.
(b) Schedule 4.2.19(b) sets forth a true and accurate list of all
underground storage tanks ("USTs") and aboveground storage tanks ("ASTs")
located on the Fee Realty and the leased real property included in the
Transferred Assets that are in use.
(c) Except as set forth in Schedule 4.2.19(c) and, to the extent
such information is unavailable on the date of execution of this Agreement, as
set forth and supplemented on Schedule 4.2.19(d), none of the Fee Realty or
leased real property is (i) situated in a federal "Superfund" site or, to
Seller's Knowledge, in any federal "Superfund" study area, or (ii) to Seller's
Knowledge, situated in a site or study area that is covered by the Hazardous
Waste Sites Act, C.R.S. Sections 25-16-101 et seq., as amended, the Water
Quality Control Act, C.R.S. Sections 25-8-101 et seq., or the Hazardous Waste
Management Act, C.R.S. Sections 25-12-101 et seq.
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(d) Within 30 days from the date of this Agreement, Seller will
prepare and deliver to Buyer Schedule 4.2.19(d), which schedule will list (i)
all environmental remediation occurring on any parcel of Fee Realty or leased
real property included in the Transferred Assets, (ii) any requests for
proposals for remediation, (iii) any requests by Seller or any Affiliate of
Seller to begin plans for environmental remediation, (iv) all USTs and ASTs
located on the Fee Realty and the leased real property included in the
Transferred Assets that, to Seller's Knowledge, have been abandoned in place,
and (v) each incident known to Seller and arising since December 31, 1996,
involving violation of or noncompliance with Environmental Laws in connection
with Seller's operation of the Business or the use or ownership of the
Transferred Assets with respect to which the fines exceed $10,000. In addition,
within such period, Seller shall deliver to Buyer complete copies of letters of
non-compliance with respect to each incident listed in subsection (v) above,
copies of AST and UST closure letters contained in the files and records of
Seller, copies of all No Further Action letters contained in the files and
records of Seller, and a description of the status of any existing fuel tank
remediation.
4.2.20 Employee Benefits.
(a) Schedule 4.2.20(a) lists each Employee Benefit Plan and Other
Plan maintained or contributed to by Seller or its affiliates for the benefit of
any employee employed by, or associated with, the Business (hereinafter, an
"employee of the Business"). Seller has provided Buyer with full and complete
copies (including all amendments) of all of such Employee Benefit Plans and
Other Plans.
(b) To Seller's Knowledge, each such Pension Plan, Welfare Plan and
Other Plan maintained by Seller has been operated in accordance with its terms
and in accordance with applicable law, to the extent that the failure to do so
would have material adverse effect on the Business or its assets.
(c) Except as otherwise set forth on Schedule 4.2.20(c), no Employee
Benefit Plan or Other Plan provides benefits for persons who are not active
employees of Seller.
(d) Except as set forth on Schedule 4.2.20(g), there are no actions,
suits or claims pending or threatened (other than routine claims for benefits)
relating to any Employee Benefit Plan or Other Plan identified in Schedule
4.2.20(a) except for actions, suits or claims that are not in the aggregate
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(e) Seller does not maintain any Employee Benefit Plan or Other Plan
under which it would be obligated to pay benefits because of the consummation of
the transaction contemplated by this Agreement, which could become an obligation
of the Buyer.
(f) Seller has used its best efforts to maintain each trust forming
a part of any Pension Plan identified in Schedule 4.2.20(a) which is not exempt
from Part 2, 3 and 4 of Title I of
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ERISA to meet all requirements for qualification under Sections 401 and 501 of
the Internal Revenue Code, and all applicable related rules and final
regulations.
(g) Schedule 4.2.20(g) sets forth all the exceptions to the
following statements that Seller, after using commercially reasonable efforts,
has been able to identify: (i) Seller is not subject to any collective
bargaining agreement covering any employees of the Business; (ii) there are no
current, or to Seller' Knowledge, any pending or threatened strikes, slowdowns,
picketing, work stoppages or lock-outs affecting the Business; (iii) to Seller's
knowledge, there is no pending or threatened organized activity or petition for
certification of a collective bargaining representative involving employees of
the Business; (iv) to Seller's Knowledge, there is no pending or threatened
charge, action, complaint, or proceeding of any nature against Seller relating
to the violation of any applicable state and federal labor or employment law or
regulation in connection with the Business, nor is there any other pending or
threatened labor or employment dispute against or affecting Seller in connection
with the Business ,except for items that in the aggregate are not reasonably
likely to have a material adverse effect on the Business following the Closing
Date; and (v) with respect to employees of the Business, Seller has complied in
all respects with the laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupation safety and health, immigration, and plant closings ,except
for items that in the aggregate are not reasonably likely to have a material
adverse effect on the Business following the Closing Date. Seller has delivered
to Buyer accurate and complete copies of all collective bargaining agreements
affecting any of the employees in the Exchanges.
"Employee Benefit Plan" means any Pension Plan and Welfare Plan within the
meaning of Section 3(3) of ERISA.
"Other Plan" means any employment, noncompetition, management, agency or
consulting arrangement, bonus, profit sharing, deferred compensation, incentive,
stock option, stock ownership or stock purchase plan, severance or unemployment
arrangement, vacation pay, fringe benefit or other similar plan, policy or
arrangement, whether or not in written form, which does not constitute an
Employee Benefit Plan and which is not listed on Schedule 4.2.20(a).
"Pension Plan" means any employee pension plan within the meaning of
Section 3(2) of ERISA.
"Welfare Plan" means any employee welfare benefit plan within the meaning
of the Section 3(1) of ERISA.
4.2.21 Accuracy of Information Furnished.
(a) To Seller's Knowledge:
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(i) Seller made a good faith effort, given the voluminous
nature of the material available with respect to the Transferred Assets, the
necessity to present in many cases representative documents or descriptions of
documents, and Seller's need to maintain certain competitive information
confidential, to include in the due diligence notebooks contained in the Data
Room located in Seller's offices in Denver, Colorado all documents or
appropriate descriptions of all documents that, in Seller's reasonable opinion,
a reasonable prospective acquiror of the Transferred Assets would deem to be
material in its decision; and
(ii) Seller did not intentionally and consciously decide to
(1) exclude from the due diligence notebooks (2) withhold from Buyer in response
to Buyer's requests for additional information or (3) not make available for
review by Buyer or its agents at Seller's offices in Denver, Colorado any
document relating to the operation of the Business as currently conducted which,
in Seller's reasonable opinion, a reasonable prospective acquiror of the
Transferred Assets would deem to be material in its decision to acquire the
Transferred Assets.
4.2.22 No Material Adverse Change. Since December 31, 1998 there has not
occurred (i) any event or condition that would have a material adverse effect on
the Business, (ii) any increase in compensation payable or to become payable by
Seller to any of its Hired Employees or agents, other than normal merit or
promotional increases and pursuant to any collective bargaining agreements,
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract, except any amendment or termination in the
ordinary course of business or (iv) any change in any accounting method,
practice or policy of Seller with respect to the Business.
ARTICLE 5
COVENANTS
5.1 Covenants of Buyer. Buyer hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.1.1 Continued Efforts. Buyer will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Buyer; (ii) cause to be performed all of
the actions required of Buyer at or prior to the Closing; and (iii) take such
steps and do all such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect as
if the same had been made as of the Closing Date. Without limiting the
foregoing, Buyer agrees if requested by Seller to apply for or otherwise seek
any required third-party consents on a joint basis.
5.1.2 Cooperation. Buyer agrees to cooperate with Seller with
respect to (i) Seller's assignment to Buyer and Buyer's assumption of the
Transferred Assets hereunder, and (ii) Seller's structuring of the Transactions
to comply with the requirements of a like-kind exchange under Section 1031 of
the Code (a "1031 Transaction") at no additional expense to Buyer, such
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cooperation to include, without limitation, purchase of the Transferred Assets
from a "qualified intermediary" (as defined in Section 1031) of Seller's choice
and execution of such documents in connection with the Transactions as Seller
may reasonably request. If Seller elects to pursue the Transactions as a 1031
Transaction, then (i) notwithstanding anything in this Agreement to the
contrary, Seller shall fully indemnify, defend and hold Buyer harmless from and
against any and all liabilities resulting therefrom, including, but not limited
to, any tax impacts on Buyer or the Transferred Assets, and (ii) Seller shall
remain directly and primarily bound by all other conditions, representations,
warranties and covenants contained herein and remedies related thereto.
5.1.3 Employee Matters.
(a) Buyer agrees that, during the period between the date hereof and
the Closing Date and for a period of 18 months thereafter, without the prior
written consent of Seller, Buyer will not actively solicit for employment any
employee of Seller other than those persons identified by Seller to Buyer in
writing as provided in this Section 5.1.3 or who respond to a general
solicitation of employment made by Buyer.
(b) As soon as practicable following the date hereof and as
permitted by applicable law and collective bargaining agreements, Seller shall
provide to Buyer a list of all employees whose services are primarily related to
the Exchange (the employees on such list being referred to as "Prospective
Hires"). Buyer shall have the right to audit such list to determine that it
contains an accurate and complete listing of all Prospective Hires, and Seller
shall cooperate in providing Buyer with such information as Buyer may reasonably
request to assist in such audit. Within 90 days following the date of this
Agreement, and consistent with applicable law and any collective bargaining
agreement, Seller shall provide Buyer with a definitive list of Prospective
Hires, such list to contain the name, job classification, position, title, date
of hire, current salary or wage, bargaining unit, primary exchange(s), work
location, telephone number and last known address of each Prospective Hire.
(c) Buyer may, but shall have no obligation to, employ or offer
employment to any Prospective Hire. Seller shall cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview the Prospective
Hires to make hiring decisions. At least 60 days before the scheduled Closing
Date, Buyer shall provide to Seller in writing a list of the Prospective Hires
that Buyer intends to offer employment. At least 45 days before the scheduled
Closing Date, Buyer shall notify those Prospective Hires whom Buyer intends to
hire on the Closing Date; the form and manner of such notification shall be
reasonably satisfactory to and approved in advance by Seller. Buyer shall be
permitted to conduct appropriate pre-hire investigations of such named
Prospective Hires and make any offer of employment for such Prospective Hires
conditional upon receiving results of such investigations as are satisfactory to
Buyer.
(d) As of the Closing Date, Seller shall separate from its payroll
the employment of all of the Prospective Hires to whom Buyer has made offers of
employment other than any such Prospective Hire who has been offered employment
by Buyer and who is on leave status, including
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employees receiving Workers' Compensation Benefits, as of the Closing Date
(each, an "Employee on Leave Status"). Buyer shall employ any Employee on Leave
Status (i) who is on approved leave under the Family and Medical Leave Act on
the Closing Date only when such Employee on Leave Status returns to work from
such approved leave under the Family and Medical Leave Act or (b) who is
receiving Workers' Compensation Benefits on the Closing Date only when such
Employee on Leave Status is released to return to work but only if such release
occurs within sixteen weeks after the date of initial eligibility for Workers'
Compensation Benefits, in each case subject to Buyer's right to conduct
appropriate pre-hire investigations of such Employee on Leave Status and to
Buyer's receipt of results of such investigations that are satisfactory to
Buyer.
(e) Seller shall be responsible for and shall cause to be discharged
and satisfied in full all amounts owed to any Prospective Hire who is employed
by Seller as of the Closing Date, including salaries, commissions, bonuses,
deferred compensation, severance, insurance, vacation, and other compensation or
benefits to which they are entitled for periods prior to the Closing (and for
Employee on Leave Status, until their employment by Buyer, as set forth in
Section 5.1.3(d) hereof), including all amounts (if any) payable on account of
the termination of such Prospective Hires.
(f) Seller will be responsible for maintenance and distribution of
benefits accrued under any Employee Benefit Plan maintained by Seller pursuant
to such plan and any legal requirements. Buyer will not assume any obligation or
liability for any such accrued benefits under any employee benefit plans
maintained by Seller.
(g) Nothing in this Section 5.1.3 or elsewhere in this Agreement
shall be deemed to make any Prospective Hire a third party beneficiary of this
Agreement.
(h) Seller acknowledges and agrees that Buyer has not agreed to be
bound, and will not be bound, by any provision of any collective bargaining
agreement or similar contract with any labor organization to which Seller or any
of its Affiliates is or may become bound.
(i) Seller shall provide employees of the Business with any required
notices under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller.
5.1.4 Directory Publishing Rights. Buyer will enter into good faith
negotiations with U S WEST Dex, Inc. ("Dex"), an Affiliate of Seller (or its
successor so long as such successor remains an Affiliate of Seller), concerning
an agreement whereby either (i) Dex will publish all subscriber listings
corresponding to the Exchanges on behalf of Buyer in satisfaction of Buyer's
regulatory obligations to publish such listings, or (ii) Buyer will license such
listings to Dex in accordance with Buyer's regulatory obligations to provide
such listings in the event that Buyer elects to publish or arrange with a third
party to publish such listings.
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5.1.5 911 Emergency Services. Buyer will obtain or contract for the
appropriate 911 emergency data bases in order to commence providing 911
emergency services in connection with the operation of the Business as of the
Closing Date.
5.2 Covenants of Seller. Seller hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.2.1 Access to Information and Facilities. Seller will afford Buyer
and its representatives, at Buyer's sole expense, reasonable access during
normal business hours to all Transferred Assets, facilities, properties, books,
accounts, records, contracts and documents of or relating to the Business in
Seller's possession or control. Seller shall exercise commercially reasonable
efforts to furnish or cause to be furnished to Buyer and its representatives all
data and information in Seller's possession concerning the Exchanges as shall
reasonably be requested by Buyer. Seller shall exercise commercially reasonable
efforts to gather additional Material Contracts for Buyer's review.
Seller acknowledges and agrees that Buyer's ongoing review, examination
and investigation of the Business and the Transferred Assets, facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business contemplated in the immediately preceding sentence is necessary to
facilitate the assimilation of the Business into Buyer's operations, the
transfer of the ownership and use of the Transferred Assets from Seller to Buyer
and other reasonable business purposes, and may include the following
activities:
(i) review of the Operating Contracts and Authorities, the
performance of which after Closing is an Assumed Liability (e.g., land
development agreements, 911 and E911 service agreements and customer
prepaid maintenance agreements) in order, among other things, to identify
those that require third party consent to assign to Buyer, those that
expire prior to or soon after the Closing and those that may require
special documentation to transfer to Buyer;
(ii) investigation of the third party arrangements included among
the Excluded Assets that Buyer will need to replicate or replace,
including interconnection agreements and national account agreements that
affect any Exchange.
(iii) examination of various assets included in the Property in
order, among other things, to determine what changes Buyer may need to
make to such assets after the Closing Date;
(iv) investigation of miscellaneous underwriting data, including an
insurance claims history of Seller relating to the operation of the
Business and the ownership or use of the Transferred Assets, the current
surety bonds and certificates of insurance relating to the Transferred
Assets, and Seller's policies and practices relating to pertinent
environmental, health, safety and property protection issues, in order for
Buyer to arrange appropriate
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insurance coverage by Closing with respect to Buyer's operation of the
Business and ownership and use of the Transferred Assets after the Closing
Date;
(v) investigation of the location and organization of the Records,
including the original cost documents and outside plant maps relating to
the Property, in order for the parties to arrange for appropriate delivery
(including via electronic transfer) or retention by Seller upon the
Closing;
(vi) review of the appropriate financial and accounting records of
Seller relating to the operation of the Business in order, among other
things, for Buyer to analyze the current balances and writeoff history of
the materials and supplies inventory included in the Transferred Assets,
the aging and write-off history of Accounts Receivable, and the manner in
which the Seller historically has allocated costs to the Purchased
Exchanges;
(vii) review of the ongoing State Regulatory Authorities and FCC
reporting obligations of Seller and Buyer relating to the Exchanges,
including responsibility for filing "form M" financial information, FCC
Report No. 43-04, Armis Joint Cost Report, and FCC Report No. 43-8, Armis
Operating Data Report, for the Exchanges for the year in which the Closing
Date occurs;
(viii) investigation of the construction and plant upgrade
activities of Seller between the date of execution of this Agreement and
the Closing Date, including a review of the construction work in progress,
in order, among other things, to enable Buyer to make appropriate
arrangements for the continuation of such activities after the Closing
Date; and
(ix) investigation of other regulatory issues, including with
respect to regulatory mandates and matters relating to the National
Exchange Carrier Association (including the Universal Service Fund, Local
Switching Support, and Telecommunications Relay Services funds) and
corresponding funds established by the State Regulatory Authorities.
The parties agree to cooperate and to negotiate in good faith regarding
resolution, on commercially reasonable terms and conditions, of issues and
concerns raised by either party in connection with such activities. Each party's
cooperation will include making appropriate subject matter experts and other
knowledgeable personnel available to meet with the appropriate representatives
of the other party and facilitating Buyer's contacts with the appropriate
Governmental Authorities (including the State Regulatory Authorities).
5.2.2 Continued Efforts. Seller will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Seller; (ii) cause to be performed all
of the actions required of Seller at or prior to the Closing; and (iii) take
such steps and do such acts as may be necessary to make all of its warranties
and representations true and correct as of the Closing Date with the same effect
as if the same had been made as of the Closing Date.
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5.2.3 Maintenance of Business. Seller shall carry on the Business in
the usual and ordinary course and substantially in the same manner as heretofore
conducted. Accordingly, Seller shall (i) maintain its books and records in the
normal and usual manner, (ii) keep the Transferred Assets in a normal state of
repair (except for ordinary wear and tear) and operating efficiency to permit
the conduct of the Business as it is currently being conducted; (iii) use its
commercially reasonable efforts to undertake or complete capital projects as
budgeted on Schedule 5.2.3(iii) and any capital projects required by Applicable
Laws or any Governmental Authority to be undertaken by the Closing Date (it
being understood and agreed that Seller shall have no obligation for any capital
spending other than in connection with such capital projects and as required to
comply with the provisions of this Section 5.2.3 and provided that Seller shall
be entitled to the Purchase Price adjustment (to the extent applicable) pursuant
to Section 1.4.3(a)); (iv) not increase the benefit provided under any plans
concerning employee benefits or increase the general rates of compensation of
its employees in the Exchanges, except (a) as required by Applicable Law, (b)
pursuant to any contracts existing on the date hereof and listed on Schedule
5.2.3(iv) to which Seller is a party, (c) increases in base pay or bonuses in
the ordinary course of business of Seller and in amounts consistent with the
recent past practices of Seller, or (d) as listed or described on Schedule
5.2.3(iv); and (v) not amend, modify or terminate any contract identified on
Schedule 4.2.9 or permit any of the foregoing to occur other than in the
ordinary course of business.
5.2.4 Consent to Assignment. Seller will transfer to Buyer all
Operating Contracts and permits that are by their terms assignable. Seller shall
also request assignment to Buyer of those Operating Contracts and permits that
are not by their terms assignable. To the extent that the assignment of any
Operating Contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Operating
Contract or permit if an attempted assignment would constitute a breach thereof.
Seller shall use commercially reasonable efforts (excluding the payment of
money) to obtain the consent of any other party to the assignment of such
Operating Contracts or permits to Buyer. If any such consent is not obtained, to
the extent permitted by Applicable Law, this Agreement shall constitute an
equitable assignment by Seller to Buyer of all of Seller's right, title, and
interest in and to such Operating Contracts and permits, and Buyer shall be
deemed Seller's agent for the sole purposes of completing, fulfilling and
discharging all of Seller's rights and obligations arising after the Closing
Date under such assigned Operating Contracts and permits.
5.2.5 Payment and Performance of Obligations. Seller will timely pay
and discharge all invoices, bills and other monetary obligations (other than
obligations which are contested by Seller in good faith) and shall not knowingly
perform or fail to perform any act which will cause a material breach of any of
the Operating Contracts.
5.2.6 Restrictions on Sale of Transferred Assets. Seller shall not
sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose
of any of the Transferred Assets except in the ordinary course of the Business.
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5.2.7 Audit or Review of Financial Statements. To the extent Buyer
reasonably requires audited or reviewed financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, Seller
will cooperate with the independent auditors chosen by Buyer in connection with
their audit of any annual financial statements that Buyer reasonably requires to
comply with Regulations S-X and S-K, and their review of any interim quarterly
financial statements that Buyer reasonably requires to comply with Regulations
S-X and S-K. If Closing has not occurred prior to March 31, 2000, then as soon
as practicable but in any event by May 15, 2000. Seller will provide for audit a
balance sheet as of December 31, 1999, and an income statement and statement of
cash flows and changes in equity for the year ending December 31, 1999. The
financial statements to be audited or reviewed pursuant to this Section 5.2.7,
are hereinafter referred to as the "Required Financial Statements." Seller's
cooperation will include (i) such access to Seller's employees who were
responsible for preparing the Required Financial Statements and to workpapers
and other supporting documents used in the preparation of the Required Financial
Statements as may be reasonably required by such auditors to perform an audit in
accordance with generally accepted auditing standards, (ii) delivery of any
Required Financial Statements within 45 days after Buyer's request for the same
(except as otherwise provided in the second sentence of this Section 5.2.7) and
in the form required by Regulations S-X and S-K, and (iii) delivery of one or
more representation letters from Seller to such auditors that are requested by
Buyer to allow such auditors to complete the audit (or review of any interim
quarterly financials), and to issue an opinion acceptable to the SEC with
respect to the audit or review of those Required Financial Statements. Seller
will bear the cost of preparation of the Required Financial Statements. Buyer
and Seller will share equally the cost of the audit or review.
5.2.8 [Intentionally Deleted]
5.2.9 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information and reasonable assistance as Buyer may reasonably request
in connection with Buyer's replacement of the interconnection agreements
relating to the Exchanges, including supplying to Buyer copies of such
interconnection agreements to the extent permissible and, to the extent
requested by Buyer and in compliance with applicable law, contacting the other
party to such interconnection agreements to notify such party that its
interconnection agreement will not apply to the Buyer and the Exchanges after
Closing. Buyer acknowledges its obligation to negotiate interconnection
agreements with third parties that have ongoing interconnection activities
related to the Exchanges with the expectation that interconnection agreements
between Buyer and such third partes will be entered into effective as of the
Closing Date. If such agreements are not entered into or, if required, approved
by appropriate Governmental Authorities, Buyer will offer to provide
interconnection to such third parties according to the terms of the Seller's
interconnection agreements with such third parties until the Buyer's new
agreements with such third parties are entered into or, if required, approved by
appropriate Governmental Authorities.
5.2.10 State Regulatory Authority/FCC Filings. Seller shall make all
necessary filings with the State Regulatory Authorities, the FCC or any other
Governmental Authority between
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the date of this Agreement and the Closing Date. Seller shall notify Buyer of
any significant proposed changes in the rates, charges, standards of service or
accounting of the Exchanges from those in effect on the date of this Agreement
prior to making any filing with the State Regulatory Authorities, FCC or any
other Governmental Authority (or any amendment thereto), or effecting with any
Governmental Authority any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto. Between the
date of this Agreement and the Closing Date, Seller shall use commercially
reasonable efforts to notify Buyer before Seller files any application,
petition, motion, brief, testimony, settlement agreement or other pleading in
any proceeding before the State Regulatory Authorities, FCC or any other
Governmental Authority or appeals related thereto with respect to which Buyer or
an Affiliate of Buyer has or reasonably could be expected to take a contrary
position that reasonably could be expected to have any adverse effect on the
revenue, earnings, or business of Buyer. Seller will give or cause to be given
to Buyer, as promptly as reasonably practicable, copies of all correspondence
(including notices, complaints, and pleadings) with any Governmental Authority
relating to any such proceeding or other rate regulatory matter that is sent or
received by Seller after the date of this Agreement.
5.2.11 Missing Plant.
(a) If, between the period commencing on execution date of the
Agreement and ending six months after the effective time of Closing, Buyer
notifies Seller in writing regarding items of Property (other than items that
have been fully depreciated on the books and records of Seller, items that are
no longer used in or necessary to the Business, and items covered by Section
5.2.11(b)) that are included in the CPRs relating to the Exchanges but that
Buyer, using commercially reasonable efforts, cannot locate in the Exchanges or
that have been sold, transferred or removed from the Exchanges by Seller or an
Affiliate of Seller, then Seller, at its option, either (i) shall pay to Buyer
(or reduce the Purchase Price by) an amount equal to the net book value of such
items as reflected on the books and records of Seller or (ii) deliver to Buyer
such items or replacement items that have reasonably comparable (or superior)
value, vintage and functionality; provided, however, that Seller shall have no
obligation under this Section 5.2.11(a) until the aggregate net book value of
all such items, together with the aggregate net book value of all such similar
items identified in Section 5.2.11 of each of the Multi-State Exchange Purchase
Agreements, exceeds $400,000, at which time Seller shall become obligated under
this Section 5.2.11(a) with respect to all items so identified by Buyer in all
notices delivered to Seller on or before the date that is six months after the
effective time of Closing; and provided, further that Seller shall have no
obligation under this Section 5.2.11(a) to the extent that the Maximum
Adjustment Amount shall have been reached.
(b) At Closing, Seller shall cause the Transferred Assets to include
all vehicles listed on Schedule 4.2.17 except to the extent any such vehicle has
been replaced with items of reasonably comparable (or superior) value, vintage
and functionality, in which event Seller shall cause such replacement items to
be included in the Transferred Assets.
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5.2.12 Third Party Software Licenses. To the extent that the
transfer of Transferred Assets by Seller to Buyer under this Agreement results
in the transfer of third party software that was rightfully used by Seller prior
to the Closing Date in the normal course operation of the Business pursuant to
contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then effective as of the Closing and provided
that no payments to any person are thereby required (except with respect to
payments relating to the transfer of switch software, which will be shared
equally by Buyer and Seller), at Closing Seller shall assign to Buyer, to the
extent permitted by the Third Party Intellectual Property Contracts, and Buyer
shall accept all rights and licenses if any to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses.
5.3 Mutual Covenants.
5.3.1 Confidentiality. Each party to this Agreement agrees to hold
in strict confidence all Confidential Information received from the other party,
whether received before or after entering into this Agreement, and to use such
information solely for the purposes of this Agreement. Each party agrees to make
no more copies of such Confidential Information than is reasonably necessary for
such purposes. Each party agrees that it will not make disclosure of any such
Confidential Information received from the other party to anyone except as
specifically permitted by this Agreement and as required by law. Each party may
disclose Confidential Information to its employees and agents to whom disclosure
is necessary for the purposes set forth above, provided that disclosing party
shall notify each such employee and agent that disclosure is made in confidence
and instruct such employees and agents that such Confidential Information shall
be kept in confidence by such employee and agent in accordance with this
Agreement. If the Transactions are not consummated for any reason, each party
agrees to return to the other party all such Confidential Information, including
all copies thereof, immediately on request. The obligations arising under this
section shall survive any termination or abandonment of this Agreement. This
Agreement will be filed on a confidential basis with the State Regulatory
Authorities. The provisions of the existing Confidentiality Agreement between
Buyer and Seller dated January 15, 1999 are incorporated herein by reference.
5.3.2 Public Announcements. No public announcement with respect to
this Agreement or the transactions contemplated hereby shall be made before the
Closing without the mutual prior approval of both Seller and Buyer, which
approval shall not be unreasonably withheld; provided, however, that each party
shall be permitted to make such disclosure to its lenders or to any Governmental
Authority, including but not limited to the Securities and Exchange Commission
or similar state securities authorities, necessary to comply with any applicable
laws and to obtain all required Governmental Approvals necessary to consummate
the Transactions, or to any stock exchange upon which such party has a class of
securities listed. Notwithstanding the foregoing, the disclosing party shall
give the non-disclosing party reasonable advance notice of any permitted
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disclosure to third parties under this Section 5.3.2 and shall provide the
non-disclosing party with a reasonable opportunity to review and comment on such
disclosure.
5.3.3 Cooperation. Each party covenants to use all commercially
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all things, that are necessary, proper or advisable under applicable
laws and regulations, expeditiously and practicably to consummate and make
effective the Transactions, including but not limited to (i) using its
commercially reasonable efforts to resolve any disagreements between Buyer and
Seller with respect to any applications for governmental or regulatory approval
prior to application for such approval, (ii) facilitating the regulatory
approval process by agreeing that Buyer will adopt and maintain intrastate
tariffs similar in all material respects to Seller's intrastate tariffs in
effect for the Exchanges on the Closing Date for a period of at least six months
following the Closing Date, provided that such tariffs of Seller are
substantially similar to the tariffs of Seller in effect on the date of this
Agreement except that Buyer's tariffs will reflect rate changes by Seller (x)
made prior to Closing as required by an order of a State Regulatory Authority
that has been issued prior to the date of this Agreement or (y) made prior to
Closing to the extent such changes are substantially revenue neutral to the
Exchanges, (iii) obtaining all necessary actions, waivers, consents and
approvals from third parties or Governmental Authorities, and (iv) effecting all
necessary filings with Governmental Authorities, and to consummate the
agreements referred to in Section 2.4.
5.3.4 State Regulatory Filings. Seller and Buyer agree to promptly
file after execution of this Agreement any required applications and to take
such reasonable actions as may be necessary or helpful (including, but not
limited to, making available witnesses, information, documents, and data
requested by the State Regulatory Authorities) to apply for and receive approval
by the State Regulatory Authorities for the transfer of the Transferred Assets
and Authorities to Buyer. To the maximum extent practicable, all communications
with the State Regulatory Authorities shall be made jointly by Buyer and Seller.
In connection with making such required applications to the State Regulatory
Authorities, Buyer agrees to cooperate with Seller in appropriate public
relations activities, including participation in "town hall" meetings with
citizens, contacts with civic and business leaders, legislators and government
officials, and other activities designed to establish Buyer's presence in and
commitment to the communities in which the Exchanges are located. In the event
any state legislature proposes to enact legislation after the date of this
Agreement which would have an adverse impact on the consummation of the
Transactions or would impose a material liability on either Seller or Buyer in
connection with the transfer of the Transferred Assets, Seller and Buyer agree
to use commercially reasonable efforts to oppose such legislation at their own
expense.
5.3.5 FCC Filings. The parties agree to promptly file after
execution of this Agreement such applications and to take such reasonable
actions as may be necessary or helpful to apply for and receive approval by the
FCC for the transfer of the Transferred Assets and the Authorities to Buyer and
the change in the provider of telecommunications services in the Exchanges to
Buyer. Buyer shall file an application for study area waivers and the
reinitialization of the PCI with respect to at least one of the transactions
contemplated by the Multi-State Exchange Purchase
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Agreements with the FCC within 120 days of the date hereof. Further, Buyer shall
use its best efforts to obtain the FCC's approval of (i) study area waivers for
the Exchanges and (ii) the Reinitialization.
5.3.6 H-S-R Filing. The parties agree to make all required filings
under the H-S-R Act no later that 90 days prior to the anticipated date of
Closing and to request early termination of all applicable waiting periods
thereunder, and thereafter to promptly respond to all requests for additional
information from the Federal Trade Commission or the United States Department of
Justice thereunder.
5.3.7 Environmental Inspections. Within 30 days following the
execution of this Agreement, Seller and Buyer shall select Environmental
Strategies Corporation (or another qualified environmental consultant reasonably
satisfactory to Buyer and Seller) to conduct a Transaction Screen with respect
to each parcel of Fee Realty included in the Transferred Assets (except for any
parcel designated by Buyer not to receive a Transaction Screen), which review
shall be conducted in accordance with ASTM standards and shall be completed
within 90 days following the execution of this Agreement. Upon completion of
such Transaction Screen, such consultant shall deliver to Buyer and Seller a
written report with respect thereto. Each party shall notify the other party in
writing (the "Remediation Notice") within 10 days of learning of any potential
material liabilities under any Environmental Laws with respect to a parcel of
Fee Realty included in the Transferred Assets, but in no event later than the
10th day following receipt of the related Transaction Screen. Thereafter, Buyer
shall determine whether to conduct additional environmental due diligence,
including a Phase I Environmental Report, which shall be completed within 60
days of delivery of the Remediation Notice. If the estimated costs of
remediation of such potential liabilities on such parcel (the "Remediation
Costs") will exceed $400,000, Seller shall either effect such remediation or may
instead elect to exclude either such parcel of Fee Realty or the Exchange to
which such parcel of Fee Realty relates from the Transferred Assets, and Buyer
and Seller shall in good faith reduce the Purchase Price accordingly. If,
pursuant to the preceding sentence, Seller elects to exclude the parcel of Fee
Realty, then, at Buyer's request, Seller shall grant to Buyer a long-term lease
at an annual rental rate of $1.00 and otherwise in form and substance reasonably
satisfactory to Buyer, for the use of such parcel (and Seller shall have no
obligation to effect any remediation with respect to such parcel); provided that
if Buyer is required to pay a higher rental rate for such leased parcel pursuant
to or in connection with the granting of any Governmental Approval, the Purchase
Price shall be decreased by the net present value of the aggregate lease
payments, discounted at a rate of 8% per annum. If the environmental consultant
conducting Buyer's additional environmental due diligence ("Buyer's Consultant")
estimates that the Remediation Costs will exceed $400,000, Seller may elect to
conduct its own additional environmental due diligence during the 60 day period
following completion of Buyer's additional environmental due diligence, and if
the environmental consultant conducting Seller's additional environmental due
diligence ("Seller's Consultant") estimates that the Remediation Costs will be
less than $400,000, Seller shall not be required to so remediate or exclude such
parcel of Fee Realty or such Exchange unless Buyer elects to pursue an
arbitration conducted as contemplated by Article 8 and the arbitrator estimates
that the Remediation Costs will exceed $400,000.
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The costs of the Transaction Screens required by this Section shall be
borne equally by Buyer and Seller, and the costs of any additional environmental
due diligence (the scope of which shall be reasonably acceptable to Seller)
shall be borne by the party conducting such additional due diligence. Buyer
shall indemnify Seller for any liabilities or losses incurred by Seller as a
result of any additional environmental due diligence conducted by Buyer.
5.3.8. Cost Studies/NECA Matters.
(a) Prior to Closing. Seller agrees that, with respect to all
revenues, settlements, pools, separations studies or similar activities, Seller
shall be responsible for (and shall receive the benefit or suffer the burden of)
any adjustments to contributions, or receipt of funds, by Seller resulting from
any such activities that are related to the operation of the Business or the
ownership or operation of the Transferred Assets prior to the Closing Date.
Specifically, this paragraph shall apply, but shall not be limited to, any
maters related to the National Exchange Carrier Association ("NECA") including
the Universal Service Fund ("USF"), Local Switching Support ("LSS") and
Telecommunications Relay Services funds.
(b) From and After Closing.
(i) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC rules
and regulations. The USF Funds due to Buyer shall be determined by multiplying
the number of Access Lines served by the Exchanges on the Closing Date times a
per-line amount of USF support received by Seller for the study area containing
the Exchanges prior to the Closing Date. The resulting Buyer's annual USF amount
shall be prorated in proportion to the number of months in the year from and
after the Closing Date. Beginning July 1, 1999 or a date thereafter determined
by the FCC, non-rural carriers shall not receive USF pursuant to Part 36 and
Part 54, but will receive support in accordance with guidelines using
forward-looking economic cost. Except as contemplated by clause (i) below, after
the Closing Date, Buyer shall make its own filing in accordance with applicable
FCC rules and regulations. Within a reasonable time after Buyer's written
request and in any event at least 30 days prior to the NECA filing date, Seller
shall furnish to Buyer such necessary information regarding Seller's ownership
of the Transferred Assets during the partial calendar year prior to the Closing
Date and the prior calendar year and such reasonable assistance, at Buyer's
expense, as required in connection with Buyer's preparation of necessary filings
or submissions.
(ii) If Closing occurs within 30 days before the NECA filing
date for the USF to be received in the subsequent calendar year, then Seller
will include the Exchanges in its NECA filing for the subsequent calendar year.
Buyer shall receive, in the subsequent calendar year, a pro rata share of USF
Funds received by Seller, under Seller's methodology of computing USF, pursuant
to applicable FCC rules and regulations; provided that in no event shall such
sharing continue for more than 18 months after the Closing Date. The USF Funds
due to Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date
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times the per-line amount of USF support received by Seller for the study area
containing the Exchanges in the full calendar year subsequent to the Closing
Date.
(iii) Notwithstanding the foregoing, Buyer's right to receive
a pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (the "USAC")
based on end-user retail revenues for the previous year generated by the
Transferred Assets. The resulting Buyer's annual USF obligation for the
Transferred Assets shall be prorated in proportion to the number of months in
the year from and after the Closing Date.
(c) State USF. If Seller is entitled to receive any State USF
Funds as of the Closing Date that include State USF Funds relating to the
Exchanges, then Buyer shall receive a pro rata share of such State USF Funds
received by Seller, under Seller's methodology of computing such State USF
Funds, pursuant to the applicable State USF rules and regulations. The State USF
Funds due Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date time the per-line amount of USF
support received by Seller for the appropriate period. The resulting Buyer's
annual State USF amount shall be prorated in proportion to the number of months
in the year from and after the Closing Date. Such sharing of Seller's State USF
Funds shall discontinue upon commencement of the first period for which Buyer is
permitted to make its own State USF filings, and in no event shall such sharing
continue for more than 18 months after the Closing Date. Seller shall cooperate
with Buyer and provide such reasonable assistance, at Buyer's expense, as may be
required in connection with Buyer's preparation of necessary State USF filings
or submissions.
5.3.9 Owned Real Property Transfers. Within 60 days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies covering Fee Realty. No later than 150 days following the
date hereof, Seller shall deliver a preliminary title binder (on a standard
form) to Buyer issued by a title insurance company reasonably acceptable to
Buyer and a certified current survey (collectively, the "Title Commitment") with
respect to all Fee Realty included in the Transferred Assets. Buyer shall,
within 45 days following receipt of the Title Commitment for a parcel, deliver
to Seller, in writing, any objections to any matters affecting any of the Fee
Realty. In the event that Buyer fails to notify Seller as set forth above, such
objections shall be deemed waived. If the Title Commitment indicates the
existence of an Excessive Encumbrance, Seller shall, at its expense, cause such
Excessive Encumbrance to be removed on or before the Closing Date or, with the
prior written consent of Buyer, cause the title company to insure over each such
Excessive Encumbrance. Seller shall provide the title company with such
instructions, authorizations and affidavits at no cost to Seller as may be
reasonably necessary for the title company to issue title policies, based on the
most recent assessed value, to Buyer, dated as of the Closing Date, for all of
the Fee Realty with so-called non-imputation endorsements. Buyer and Seller
shall share equally the costs of the Title Commitments and the title policies.
By no later than 45 days after the Closing Date, Seller shall deliver to Buyer a
final title insurance policy covering the Fee Realty included in the Title
Commitment.
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5.3.10 IntraLATA Tolls. Buyer and Seller will use their best efforts
to negotiate appropriate agreements and arrangements in order to satisfy the
requirements of Section 7.1.9 at Closing.
ARTICLE 6
TERMINATION
6.1 Termination By Buyer.
6.1.1 If any condition precedent to Buyer's obligation to effect the
Closing set forth in Section 3.1 shall become incapable of satisfaction through
no fault of Buyer and such condition is not waived by Buyer, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement by written
notice to Seller.
6.1.2 If any Governmental Approval contains any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date, but only after Buyer has entered into good faith negotiations with Seller
to amend this Agreement in light of such terms or conditions and no such
amendment could be agreed upon, Buyer shall not be obligated to effect the
Closing and may terminate this Agreement by written notice to Seller; provided,
however, that Buyer shall not be entitled to terminate this Agreement based on
(x) Buyer's failure to obtain increases in intrastate tariff rates above those
then in effect, or (y) Buyer's being deemed a "successor" to Seller for any
regulatory purposes.
6.1.3 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Seller, and such misrepresentation
or breach has not been cured within 30 days of Seller's receipt of Buyer's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Buyer, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Seller.
6.2 Termination By Seller.
6.2.1 If any condition precedent to Seller's obligation to effect
the Closing set forth in Section 3.2 shall become incapable of satisfaction
through no fault of Seller and such condition is not waived by Seller, Seller
shall not be obligated to effect the Closing and may terminate this Agreement by
written notice to Buyer.
6.2.2 If any Governmental Approval contains terms or conditions
unacceptable to Seller, in Seller's reasonable discretion, but only after Seller
has entered into good faith negotiations with Buyer to amend this Agreement in
light of such terms or conditions and no such amendment
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could be agreed upon, Seller shall not be obligated to effect the Closing and
may terminate this Agreement by written notice to Buyer.
6.2.3 If Buyer does not deliver the Letters of Credit within 15
business days of the date hereof or the Letters of Credit, in whole or in part,
have been withdrawn or are no longer irrevocable.
6.2.4 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Buyer, and such misrepresentation
or breach has not been cured within 30 days of Buyer's receipt of Seller's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Seller, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Buyer.
6.2.5 If Buyer does not make the FCC filing described in the second
to last sentence of Section 5.3.5 within 120 days of the date hereof.
6.3 Termination By Buyer or Seller. If (i) a final, non-appealable order
is issued by any Governmental Authority to restrain, enjoin or prohibit the
consummation of the Transactions, (ii) the Closing shall not have occurred on or
before September 30, 2001 through no fault of the terminating party, then either
party may terminate this Agreement by written notice to the other.
6.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 6.1, 6.2 or 6.3, this Agreement shall thereafter
become void, except as set forth in Section 1.4.1 and for the provisions of
Sections 5.3.1 and 5.3.2 and Article 9, and there shall be no further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing herein
shall relieve any party from liability for any breach of this Agreement, and
(ii) the obligations of the parties hereto set forth in Section 11.6 shall not
be affected by a termination of this Agreement.
ARTICLE 7
POST CLOSING MATTERS
7.1 Post Closing. In order to effectuate an orderly transition in the
provision of telecommunications services to customers in the Exchanges, Buyer
and Seller agree to utilize the measures set forth below:
7.1.1 Notice to Customers. Seller shall provide written
notification, which notification shall be reasonably acceptable to Buyer, in its
final bill to each customer affected by this Agreement, that Seller is no longer
the customer's telecommunications provider and advising the
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customer of the name, address and telephone number of Buyer. Seller and Buyer
shall agree upon appropriate service cut-off dates with respect to the
Exchanges.
7.1.2 Customer Deposits. The disposition of customer deposits and
advance payments for future services made to Seller by residential and business
customers in the Exchanges shall be delegated to a transition team. The intent
of the parties to be carried out by the transition team is that, to the extent
practicable and subject to the rules and orders of the State Regulatory
Authorities, Seller shall retain all deposits for delinquent customers and the
remaining deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges shall be transferred to
Buyer. Notwithstanding the foregoing, all deposits and advance payments for
future services held by Seller under land development contracts or other similar
construction arrangements as of the Closing Date shall be credited to Buyer at
Closing.
7.1.3 Customer Records. To the extent not previously provided to
Buyer, Seller shall use commercially reasonable efforts to make available, upon
reasonable request from Buyer, all readily available billing and service records
for goods sold or services provided to customers of the Exchanges prior to
Closing for so long as such records are required to be maintained by applicable
law.
7.1.4 Operator Services and Directory Assistance. Buyer acknowledges
and agrees that, following the Closing, Buyer shall provide all subscriber list
information gathered in its capacity as a provider of local exchange service on
a timely and unbundled basis, under nondiscriminatory and reasonable rates,
terms and conditions, to any person requesting such information for any lawful
purpose in any format, including but not limited to Seller and its Affiliates.
Buyer's listing information will be treated the same as Seller's end user
listings for purposes of additional listings and dissemination of listings to
directory publishers, directory assistance providers, or other third parties.
Seller will incorporate listings information in all existing and future
directory assistance applications developed by Seller. Buyer authorizes Seller
to sell and otherwise make listings available to directory publishers, directory
assistance providers, and other third parties. Listings shall not be provided or
sold in such a manner as to segregate end users by carrier. Seller will not
charge for updating and maintaining the listings database.
7.1.5 Directory Publishing and 911 Emergency Services. Buyer shall
continue to comply with the covenants set forth in Sections 5.1.4 and 5.1.5
following the Closing Date, as appropriate, to the extent necessary to
accomplish the intent of such covenants.
7.1.6 911 Emergency Services. In the event that Seller becomes
obligated after the Closing Date to provide 911 emergency services with respect
to any portion of the Business, Buyer shall provide Seller (at no cost to
Seller) complete access to and use of the 911 Assets related to such 911
emergency services and shall enter into such agreements as Seller reasonably
requests in order to facilitate the provision by Seller of such 911 emergency
services and to provide for compensation to Seller at prevailing rates.
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7.1.7 Tariffs. Buyer agrees that for the six month period following
the Closing Date it will adopt and maintain intrastate tariffs similar in all
material respects to Seller's intrastate tariffs in effect for the Exchanges on
the Closing Date, provided that such tariffs of Seller are substantially similar
to Seller's tariffs in effect on the date of execution of this Agreement, except
that Buyer's tariffs will reflect rate changes by Seller (x) made prior to
Closing as required by an order of a State Regulatory Authority that has been
issued prior to the date of this Agreement or (y) made prior to Closing to the
extent such changes are substantially revenue neutral to the Exchanges.
7.1.8 Access to Books and Records.
(a) After the Closing, Seller will retain all books and records
related to the Excluded Assets for so long as required by applicable law.
(b) Subject to the terms of Section 7.1.3, after the Closing, upon
reasonable notice, the parties will give to the representatives, employees,
counsel and accountants of the other, access during normal business hours, to
books and records relating to the Business and the Transferred Assets, and will
permit such persons to examine and copy such records (including any tax returns
and related information, but not attorney or accountants work product), audits,
legal proceedings, governmental investigations and other business purposes
(including such financial information and any receipts evidencing payment of
taxes as may be reasonably requested by Seller to substantiate any claim for tax
credits or refunds); provided, however, that nothing herein will obligate any
party to take actions that would unreasonably disrupt the normal course of its
business or violate the terms of any contract to which it is a party or to which
it or any of its assets is subject. Seller and Buyer will cooperate with each
other in the conduct of any tax audit or similar proceedings involving or
otherwise relating to the Business (or the income therefrom or assets thereof)
with respect to any tax and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
Section 7.1.8.
7.1.9 IntraLATA Toll. Buyer will (i) assume the retail toll carrier
role and obligations for any end users in the Exchanges that are picked or
defaulted to Seller for IntraLATA toll services or (ii) enter into agreements
with other inter-exchange carriers to assume this role or to resell the toll
services of an inter-exchange carrier to fulfill these obligations. Buyer will
execute intraLATA toll access agreements with Seller establishing the process
for the purchase of toll access from Seller by Buyer at the rates contained in
Seller's access tariffs. Seller agrees that it will need to establish its own
agreements with other telecommunications carriers for the purchase of toll
access that may be routed over joint Seller/Buyer transport or tandem switch
facilities (transit traffic). Buyer will cooperate with Seller and other
carriers to measure and share data required to facilitate billing for such
traffic. Buyer and Seller will establish a process by which Buyer will bill
Seller for terminating IntraLATA toll access based on actual termination of
Seller toll services to the Exchanges. Buyer and Seller will enter into a
billing and collection agreement for the billing and collection of casual toll
at a rate not to exceed $0.12 per message. Buyer and Seller shall establish meet
point percentages for jointly provided toll access and file such meet points as
required with Governmental Authorities.
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7.1.10 Extended Area Service. Buyer and Seller will enter into
extended area service agreements as necessary.
7.1.11 Transiting Toll Facilities. Concurrently with the Closing,
Buyer shall grant to Seller the irrevocable right to use or Buyer shall lease to
Seller, in either case for a term of 99 years, the portion of the transiting
toll facilities, network facilities and associated electronic equipment included
in the Property and relating to the Exchanges listed on Schedule 7.1.11 that is
required by Seller for the conduct of any business conducted by Seller other
than the Business. The consideration for such grant or lease shall be $1.00 and
other consideration including the mutual covenants and agreements set forth in
this Agreement. Within 90 days after the execution of this Agreement, Buyer and
Seller shall apportion and assign the total capacity of such facilities and
equipment for each Exchange listed on Schedule 7.1.11. The parties shall review
such apportionment on an annual basis and make such changes to assignments as
may be required. If any transiting toll facilities, network facilities and
related electronic equipment that are Excluded Assets are located in any
rights-of-way that are used in connection with the operation of the Business,
then concurrently with the Closing, Buyer shall, to the extent possible, assign
to Seller the right to use such right-of-way jointly with Buyer and appropriate
joint use agreements in recordable form and otherwise reasonably acceptable to
the parties shall be entered into at the Closing.
7.1.12 Reinitialization Period. If the Reinitialization has not been
approved at the time of the Closing, Buyer shall use its best efforts to obtain
the Reinitialization.
ARTICLE 8
ARBITRATION
8.1 Arbitrability. All claims, except and only to the extent such claims
are those over which the State Regulatory Authorities have primary jurisdiction,
by either party against the other arising out of or related in any manner to
this Agreement or any of the Transferred Assets or the Transactions shall be
resolved by arbitration as prescribed herein; provided, however, that either
party shall be entitled to seek temporary or permanent injunction against any
actual or threatened breach of Section 5.3.1 by the other party in any court of
competent jurisdiction without the necessity for showing any actual damages. The
Federal Arbitration Act and not state law will govern the arbitrability of all
claims. Failure of either party to assert or pursue a mandatory claim or defense
that must be asserted in litigation to avoid the loss of the right to assert
such claim or defense shall not preclude that party from asserting any such
claim or defense in arbitration proceedings hereunder.
8.2 Rules. A single arbitrator engaged in the practice of law, who is
knowledgeable about the telecommunications industry and telecommunications law,
shall conduct the arbitration under the then-current commercial arbitration
rules of the American Arbitration Association
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("AAA"), unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Denver, Colorado.
8.3 Discovery; Damages; Expenses. Buyer and Seller shall allow and
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall have authority to award only actual damages and shall not have
the authority to award consequential, compensatory, punitive or exemplary
damages or any other form of relief. Each party shall bear its own costs and
attorneys' fees. The arbitrator's decision and award shall be final and binding,
and judgment upon the award rendered by the arbitrator may be entered in any
court having personal jurisdiction. The non-prevailing party to the arbitration
shall pay all of the fees and expenses of the arbitrator and the AAA, provided,
however, that if the arbitrator deems Buyer and Seller to be equally prevailing
or non-prevailing on the matters at issue, then the parties shall each pay
one-half of the fees and expenses of the arbitrator and the AAA.
8.4 Judicial or Administrative Action. If any party files a judicial or
administrative action asserting claims properly subject to arbitration as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 9
\ INDEMNIFICATION
Section 9.1 Indemnification by Seller. From and after Closing, Seller
shall indemnify and hold harmless Buyer from and against any and all claims,
losses, liabilities, damages, penalties, costs and expenses, including
reasonable counsel fees and costs and expenses ("Losses") arising out of or
resulting from:
(a) any representations and warranties made by Seller in the
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed upon or prior to the Closing;
(c) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed after the Closing; and
(d) all liabilities and obligations arising out of or relating to
the operation of the Exchanges prior to the Closing, including without
limitation the Retained Liabilities.
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Section 9.2 Indemnification by Buyer. From and after Closing, Buyer shall
indemnify and hold harmless Seller from and against any and all Losses arising
out of or resulting from:
(a) any representations and warranties made by Buyer in this
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Buyer in the performance of its
covenants, agreements or obligations under this Agreement;
(c) all liabilities and obligations arising out of or relating to
the operation of the Exchanges after the Closing, including without limitation
the Assumed Liabilities;
(d) without limitation of the foregoing, violation of Environmental
Laws, to the extent such liability is an Assumed Liability or arises out of or
relates to the operation of the Exchanges after the Closing; and
(e) liability of Seller arising after Closing with respect to
Buyer's failure to enter into or perform interconnection agreements in or
directly related to the Exchanges.
Section 9.3 Indemnified Third Party Claim.
(a) If any person (including State Regulatory Authorities) not a
party to this Agreement ("Person") shall make any demand or claim or file or
threaten to file or continue any action, suit or proceeding of any kind ("Third
Party Claim") with respect to which Buyer or Seller is entitled to
indemnification pursuant to Sections 9.1 or 9.2, respectively, then within ten
days after notice (the "Notice") by the party entitled to such indemnification
(the "Indemnitee") to the other (the "Indemnitor") of such litigation, the
Indemnitor shall have the option, at its sole cost and expense, to retain
counsel for the Indemnitee (which counsel shall be reasonably satisfactory to
the Indemnitee) to defend any such litigation. Thereafter, the Indemnitee shall
be permitted to participate in such defense at its own expense, provided that,
if the named parties to any such litigation (including any impleaded parties)
include both the Indemnitor and the Indemnitee or, if the Indemnitor proposes
that the same counsel represent both the Indemnitee and the Indemnitor and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interest between them, then the Indemnitee shall
have the right to retain its own counsel at the cost and expense of the
Indemnitor, unless the Indemnitor shall acknowledge in writing its indemnity
obligation, in which event the retention by Indemnitee of its own counsel shall
be at its cost and expense. If the Indemnitor shall fail to respond within ten
days after receipt of the Notice, the Indemnitee may retain counsel and conduct
the defense of such litigation as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnitor.
(b) The Indemnitee shall provide reasonable assistance to the
Indemnitor and provide such access to its books, records and personnel as the
Indemnitor reasonably requests in connection with the investigation or defense
of the indemnified Losses. The Indemnitor shall
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promptly upon receipt of reasonable supporting documentation reimburse the
Indemnitee for out-of-pocket costs and expenses incurred by the later in
providing the requested assistance.
(c) With regard to litigation with any Person for which Buyer or
Seller is entitled to indemnification under Sections 9.1 or 9.2, such
indemnification shall be paid by the Indemnitor upon: (i) the entry of any
judgment, writ, order, injunction, award or decree of any court, the FCC or any
State Regulatory Authorities ("Judgment") against the Indemnitee and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
Judgment or final appellate Judgment against the Indemnitee; or (iii) a
settlement with the consent of the Indemnitor, which consent shall not be
unreasonably withheld, provided that no such consent need be obtained if the
Indemnitor fails to respond to the Notice as provided in Section 9.3(a).
Section 9.4 Determination of Indemnification Amounts and Related Matters.
(a) Neither Buyer nor Seller will be entitled to make a claim
against the other under Section 9.1(a) or (b) or 9.2(a) or (b) until (i) the
aggregate amount of Losses incurred by the Indemnitee for any individual
occurrence (or related series of occurrences) exceeds $50,000 and (ii) in the
case of Losses under Section 9.1(a) (except for Losses due to a breach of the
representations of Seller contained in Section 4.2.15) or 9.1(b) the aggregate
amount of claims that may be asserted for such Losses, together with all other
claims for Losses asserted under Section 9.1(a) or 9.1(b) under each of the
Multi-State Exchange Purchase Agreements, exceed an amount equal to 1% of the
aggregate of the Purchase Prices (as defined in each Multi-State Exchange
Purchase Agreement) for the transactions contemplated by the Multi-State
Exchange Purchase Agreements, to the extent actually paid to Seller, but only to
the extent such amount exceeds such aggregate of the Purchase Prices.
(b) Notwithstanding any other provision of this Agreement, (i)
Seller shall not be required to make any payments pursuant to Section 9.1(a),
(b) or (c) to the extent that the Maximum Adjustment Amount shall have been
reached, and (ii) Buyer shall not be required to make any payments pursuant to
Article 9 in excess of an amount equal to 3% of the Purchase Price.
(c) Subject to Section 9.3, all amounts payable by the Indemnitor to
the Indemnitee in respect of any Losses under Sections 9.1 and 9.2 shall be
payable by the Indemnitor as incurred by the Indemnitee and will include
interest at the rate of 8% per annum from the date that the related Losses were
incurred through but not including the date the payment is made.
Section 9.5 Time and Manner of Certain Claims. Except as otherwise
provided herein, the representations and warranties of Buyer and Seller, and the
covenants to be performed by them on or prior to the Closing Date, in this
Agreement shall survive Closing for a period of one year, except that the
representations of Seller contained in Section 4.2.15 shall survive Closing for
a period of 15 months and the representations and warranties contained in the
first sentence of Section 4.2.3 shall survive Closing indefinitely (the
"Survival Period"). Neither Seller nor Buyer shall have any liability under
Sections 9.1 or 9.2, respectively, unless a claim for Losses for which
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indemnification is sought thereunder is asserted by the party seeking
indemnification by written notice to the party from whom indemnification is
sought within the Survival Period.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Defined Terms. For purposes of this Agreement, certain terms used in
this Agreement and not otherwise defined herein shall have the meanings
designated below:
"Access Line" means a telephone line operating on the public switched
telephone network that runs from a central office to a customer's premises.
"Accounts Receivable" means all end user accounts receivable with respect
to goods sold and/or services provided by Seller on or prior to the Closing
Date.
"Affiliate" of a specified entity means any legal entity directly or
indirectly controlling, controlled by, or under the common control with the
specified entity. The term "control" (including "controlling", "controlled by"
and "under common control with") of an entity means the possession, directly or
indirectly, of the power to (i) vote 50% of more of the voting securities or
other voting interests of such person, or (ii) direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting shares, by contract or otherwise.
"Aggregate Adjustment Amount" means the aggregate amount that Seller has
paid or spent, or committed to pay or spend, pursuant to (i) purchase price
decreases pursuant to section 1.4.3(b) of each of the Multi-State Exchange
Purchase Agreements, (ii) payments or purchases pursuant to section 5.2.11(a) of
each of the Multi-State Exchange Purchase Agreements, and (iii) payments with
respect to indemnification claims under Section 9.1(a), (b) or (c) of each of
the Multi-State Exchange Purchase Agreements.
"Agreement" means this Agreement for Purchase and Sale of Telephone Exchanges,
together with all Schedules and Exhibits thereto, as any of the foregoing may be
amended, modified or supplemented in writing from time to time.
"Authorities" means (i) the construction permits, licenses or
authorizations granted by the FCC to Seller and used to develop and operate the
Systems; and (ii) the licenses or certificates of convenience and necessity
granted by the State Regulatory Authorities to operate the Systems.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
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"Confidential Information" means any and all technical, business or
financial information, in whatever form or medium, furnished or disclosed by or
on behalf of one party to the other or its representatives, irrespective of the
form of communication, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data and personnel statistics, and shall also include notes,
analyses, compilations, studies, interpretations or other documents prepared by
it or its representatives that contain, reflect or are based upon, in whole or
in part, other Confidential Information. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all security interests, liens, charges or
similar restrictions, except for (i) liens for taxes not yet due and payable or
that are being contested in good faith, (ii) liens of workers, carriers or
materialmen or similar liens arising by operation of law in the ordinary course
of the Business in respect of obligations that are not yet due and payable or
that are being contested in good faith, (iii) governmental conditions and
restrictions under the Authorities, (iv) with respect to Realty, recorded
easements, restrictions, reservations, rights-of-way, covenants, conditions and
similar encumbrances of record and matters that would be shown by an accurate
survey or inspection of such property, and other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
such Realty to which such defect or irregularity in title relates, and (v) with
respect to the Transferred Assets other than Realty, other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
the Transferred Assets to which such defect or irregularity in title relates.
"Environmental Laws" means all federal, state and local laws, statutes,
rules, regulations and ordinances (including common law), and all court or
administrative decisions, orders, policies or guidelines, now or hereafter in
effect relating to the environment, public health (including fire or building
safety), occupational safety, industrial hygiene, or the generation, disposal,
manufacture, release, storage, transportation or presence of Hazardous
Materials, including without limitation the National Environmental Policy Act
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act of 1975, the Toxic Substances Control Act, the
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean
Water Act, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act, and the regulations promulgated under any such acts or any permits
issued thereunder.
"Excessive Encumbrance" has the meaning set forth in Section 3.1.11.
"Excluded Assets" means (a) all cash, cash-equivalents, Accounts
Receivable and carrier access bills to interexchange carriers for minutes,
messages and other applicable charges through the
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Closing Date; (b) any insurance policy, bond, letter of credit or other similar
item, and any cash surrender value in regard thereto; (c) all books and records
that Seller is required by law to retain or that relate primarily to internal
corporate matters; (d) all claims, rights and interests in and to any refunds of
Federal, state or local franchise, income or other taxes or fees of any nature
whatsoever for periods prior to the Closing Date; (e) any pension, profit
sharing or employee benefit plans; (f) any assets, interests or property of
Seller used in the operation of any business conducted by Seller other than the
Business, those including shared data processing, billing and collections
systems and related software; (g) the name U S WEST and all similar names and
related marks and logos used or owned by Seller or its Affiliates and any other
names, marks and logos not specifically identified as being included in the
Transferred Assets; (h) all portable office equipment, test equipment and
generators other than included in the Transferred Assets; (i) all motor vehicles
used in the operation of any business conducted by Seller other than the
Business and associated motor vehicle general stock; (j) all materials, supplies
and tools other than those included in the Transferred Assets; (k) all FCC
licenses for air-to-ground, cellular or paging services held by Seller or any
Affiliate of Seller other than those FCC radio licenses necessary to operate the
Business; (l) all maintenance radio equipment and antennas other than those
included in the Transferred Assets; (m) all assets relating to Yellow Pages or
classified directory advertising activities of Seller or any Affiliate of
Seller, (n) all transiting toll facilities, network facilities and associated
electronic equipment used in their entirety by Seller solely in the operations
of any business conducted by Seller other than the Business and containing no
capacity for use in the conduct of the Business and related rights-of-way; and
(o) all rights of Seller or any Affiliate of Seller under the Transaction
Agreements.
"Final Order" means action by any governmental or regulatory authority as
to which (i) no request for stay by any Governmental Authority, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action has been
granted by a governmental or regulatory authority; (iii) the governmental or
regulatory authority does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal by a
third party to a court, or a request to stay by a court, of any material
provision of the Governmental Authority's action, as applicable, is pending or
in effect and, if any deadline for filing any such appeal or request is
designated by statute or rule, it has passed.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities
and the grant of any study area waiver request submitted by Buyer related
thereto, but excluding the Reinitialization.
"Fee Realty" means all real property owned by Seller in fee simple and
located inside the boundaries of the Exchanges, including without limitation
tower sites or antenna sites.
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<PAGE>
"Governmental Authority" means any United States, state, or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, bureau, agency, court or instrumentality thereof.
"Hazardous Material" means (a) all chemicals, materials and substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words or similar import under any Environmental Law, and (b) any
other chemicals, materials or substances, including without limitation any
polychlorinated biphenyl, petroleum or any chemical fraction thereof, asbestos,
formaldehyde, flammables, explosives, and PCBs which could presently or at any
time in the future cause a detriment to or impair the value or beneficial use of
any of the Transferred Assets, or constitute or cause a health, safety or
environmental hazard to the any of the Transferred Assets or to any person or
require remediation at the behest of any state or local governmental agency
under any Environmental Law.
"Interests" means all rights, privileges, benefits and interests under all
contracts, agreements, consents, licenses, permits or certificates (except those
included as Authorities and Realty), including agreements, permits, leases and
arrangements with respect to intangible or personal property or interests
therein; equipment leases; agreements with suppliers, customers and subscribers;
business licenses; prepaid expenses; and any sales agent or sales affiliate
agreements, in each case, used or owned primarily in connection with the
Business.
"Maximum Adjustment Amount" means an Aggregate Adjustment Amount equal to
the product of (i) the aggregate number of access lines in the telephone
exchanges purchased pursuant to the Multi-State Exchange Purchase Agreements on
the closing date of each purchase thereunder multiplied by (ii) $50.00, it being
understood and agreed by the parties that (x) the Maximum Adjustment Amount
shall be preliminarily calculated at the Closing assuming that any Multi-State
Exchange Purchase Agreement that has not closed or been terminated on or before
the Closing Date shall, for purposes of such preliminary calculation, be deemed
to have closed on the Closing Date, and (y) on the date of closing or
termination of the last of Multi-State Exchange Purchase Agreement to have been
closed or terminated, the Maximum Adjustment Amount shall be finally calculated
and any resulting payments required to be made by Seller or refunds required to
be made by Buyer shall be taken into account in determining the amount of funds
to be paid by Seller at such Closing or to be paid by Seller or refunded by
Buyer upon such termination, as the case may be.
"Multi-State Exchange Purchase Agreements" means the Agreements for
Purchase and Sale, including this Agreement, entered into between Buyer, or any
Affiliate of Buyer, and Seller with respect to the purchase of Seller's rights
to provide and operate wireline telecommunications and related non-tariffed or
non-regulated wireline services and related assets in the following states:
Arizona, Colorado, Nebraska, North Dakota, Minnesota, Iowa, Idaho, Montana and
Wyoming.
"911 Assets" means all circuits, facilities and customer information used
by Seller in providing 911 emergency services in connection with the operation
of the Business.
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<PAGE>
"Operating Contracts" means all contracts, agreements and instruments (and
all amendments and modifications thereto) entered into by Seller in the ordinary
course of the Business prior to the date hereof, including without limitation
all real property leases, documentation related to the Interests and
interconnection agreements to the extent that Buyer is required to perform such
obligations by applicable law or as a condition to obtaining any Governmental
Approvals, and all such contracts, agreements and instruments entered into by
Seller in the ordinary course of the Business between the date of this Agreement
and the Closing Date.
"Property" means all of Seller's physical facilities and other tangible
assets used primarily in the Business that are in Seller's plant in service
accounts in accordance with Part 32 of the FCC Uniform System of Accounts,
including all transiting toll facilities, network facilities and associated
electronic equipment located within the boundaries of an Exchange and not
included as Excluded Assets, which facilities and equipment shall be subject to
the arrangements set forth in Section 7.1.11.
"Reinitialization" means the implementation of the interstate access rates
pursuant to the reinitialization of the Price Cap Index ("PCI") applicable to
the approved new study area to reflect the underlying cost structure associated
with the Exchanges.
"Realty" means the Fee Realty together with all rights, privileges and
appurtenances owned by Seller inside the boundaries of the Exchanges that are a
burden upon, a benefit of, or otherwise related to the Fee Realty, including
without limitation all structures, buildings, easements, servitudes, licenses,
leasehold improvements, building improvements, fixtures, rights-of-way and other
similar interests owned by Seller and used in the Business.
"Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all open end-user customer account records, all service records kept in
the ordinary course of the Business which identify and describe the customers
being served by Seller in the Exchanges, the service that is being provided to
such customers, and those records which identify and describe the physical
property (including but not limited to cables, wires and central office
equipment) included in the Transferred Assets.
"Seller's Knowledge" means the actual knowledge of Paul Lit after due
inquiry and any senior manager specifically charged with operational
responsibility for the Exchanges concerning information about which Seller is
making a representation in this Agreement.
"State Regulatory Approvals" means the issuance of the required consents
or approvals of the State Regulatory Authorities with respect to the assignment
of the Authorities to Buyer and the designation of Buyer as an eligible
telecommunications carrier for the Exchange.
"State Regulatory Authorities" means the public utility commissions or
similar state governmental authorities in the states in which the Exchanges are
located and, where applicable, municipal authorities that have granted operating
authorities with respect to the Exchanges.
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<PAGE>
"Systems" means, as the context requires, Seller's service delivery
components in the Exchanges, including without limitation all equipment,
facilities, assets, properties, licenses, permits, certificates of public
convenience and necessity and other rights and authorities and related technical
knowledge and information, used in the conduct of the Business within the
particular Exchange.
"Transactions" means the purchase and sale of the Transferred Assets as
contemplated by the Agreement and all other transactions contemplated by the
Transaction Documents.
"Transaction Documents" means this Agreement and each document to be
executed in connection with the Closing of the Transactions. When used with
respect to Seller or Buyer, "Transaction Documents" means this Agreement and
such documents as are required to be executed by such party with respect to the
Closing of the Transactions.
"Transferred Assets" means all of Seller's right, title and interest in
and to the Authorities, the Interests, the 911 Assets, the Property, the Realty,
the Records and all goodwill associated with the Business as existing on the
Closing Date, but excluding the Excluded Assets.
ARTICLE 11
GENERAL
11.1 Notices. All notices hereunder will be in writing and served by
certified mail, return receipt requested, courier or facsimile. Notice shall be
deemed to have been duly given on (i) the earlier of the date received or the
fifth business day following the date mailed by the notifying party using first
class mail, postage prepaid or (ii) if delivered by courier service or
facsimile, upon actual receipt as evidenced by the appropriate confirmation
sheet. Notices shall be sent as follows:
If to Seller: U S WEST Communications, Inc.
1801 California Street, Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic
Transactions Group
Facsimile: (303) 308-0835
with a copy (which shall not constitute notice) to:
Brownstein Hyatt & Farber, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch
Facsimile: (303) 223-1111
50
<PAGE>
If to Buyer: Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: Donald P. Weinstein
Facsimile: (203) 614-4625
with a copy (which shall not constitute notice) to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: L. Russell Mitten, II., Esq.
Facsimile: (203) 614-4651
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Sixth Floor
Washington, DC 20036
Attention: Jeffry L. Hardin
Facsimile: (202) 387-3467
11.2 Waivers. No failure of a party to enforce a provision of this
Agreement will be construed as a general or a specific waiver of that provision,
or of a party's right to enforce that provision, or of a party's right to
enforce any other provision of this Agreement. No waiver of any breach of any
covenant or other provision herein contained shall be deemed to be a waiver of
any preceding or succeeding breach, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act shall
be deemed to be an extension of the time for performance of any other obligation
or act.
11.3 Commissions. Each party represents and warrants that no broker or
other person is entitled to any commission or finder's fee in connection with
the consummation of the Transactions based on arrangements made by such party
for which the other party could have any liability.
11.4 Payment of Expenses. Except as otherwise provided herein, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in consummating and carrying
out the Transactions, whether or not the Transactions are consummated.
Notwithstanding the foregoing, all transfer fees payable in connection with the
assignment of permits or rights-of-way shall be borne by Buyer.
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<PAGE>
11.5 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and, when each of the parties hereto has
executed and delivered a counterpart to the other party, this Agreement shall be
binding and effective even though no single counterpart has been executed by
both of the parties.
11.7 Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.8 Assignment. The rights and obligations of the parties to this
Agreement or any interest in this Agreement shall not be assigned, transferred,
hypothecated, pledged or otherwise disposed of without the prior written consent
of the nonassigning party, which consent may be withheld in such party's sole
discretion; provided, however, that (i) Buyer may, without the prior consent of
Seller but without relieving Buyer of its obligations hereunder, assign its
rights under this Agreement to any Affiliate or lender, and (ii) Seller may
assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the Transactions as a 1031
Transaction.
11.9 Additional Instruments and Assistance. Each party hereto shall from
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its counsel
may reasonably request in order to complete and perfect the Transactions.
11.10 Seller's Control Over Authorized Facilities. No provision of this
Agreement shall be construed to abrogate Seller's control of and responsibility
for the operation of the authorized facilities of the Business prior to the
actual transfer of control of those facilities hereunder to the Buyer as
approved by the FCC and the State Regulatory Authorities.
11.11 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado.
11.12 Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable when applied to any person or
circumstance, the remaining provisions of this Agreement and the enforcement of
such provision to other persons or circumstances shall not be affected thereby,
and each provision of this Agreement shall be enforced to the fullest extent
allowed by law.
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<PAGE>
11.13 Amendments. This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by its
agent duly authorized in writing or as otherwise expressly permitted herein.
11.14 No Construction Against the Drafting Party. Each party hereto
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.15 Integration. This Agreement, including all schedules and exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, warranties or representations between the parties with respect
to such subject matter except as set forth or noted herein. Except as provided
in Section 5.1.4 hereof, this Agreement is not made for the benefit of any
person, firm, corporation or association other than the parties hereto. Except
as provided in Section 5.1.5 hereof, the parties do not intend to confer any
benefit hereunder on any person, firm or corporation other than the parties
hereto.
* * * * *
53
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
CITIZENS UTILITIES COMPANY
By:_______________________________________
Leonard Tow
Chairman and Chief Executive Officer
SELLER:
U S WEST COMMUNICATIONS, INC.
By:_______________________________________
Solomon D. Trujillo
President and Chief Executive Officer
<PAGE>
EXECUTION COPY - IDAHO
AGREEMENT
For
PURCHASE AND SALE
of
TELEPHONE EXCHANGES
Dated as of June 16, 1999
Between
CITIZENS UTILITIES COMPANY
And
U S WEST COMMUNICATIONS, INC.
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF TELEPHONE EXCHANGES
This Agreement for Purchase and Sale of Telephone Exchanges is made and
entered into as of June 16, 1999 by and between U S WEST Communications, Inc., a
Colorado corporation ("Seller"), and Citizens Utilities Company, a Delaware
corporation ("Buyer").
A. Seller possesses certain rights to provide and operate wireline
telecommunication services pursuant to operating authorities issued by the
public utilities commissions or similar authorities of various states, and owns
certain assets used to provide such services in the telephone exchanges listed
on Exhibit A hereto and in any cross-border communities served by such exchanges
(the "Exchanges").
B. Buyer desires to acquire Seller's right to provide and operate wireline
telecommunication services and related non-tariffed or non-regulated wireline
services and products in the Exchanges (the "Business") and to purchase the
Transferred Assets (as defined below), and Seller wishes to sell, assign and
transfer such right and assets to Buyer.
C. Each defined term used herein shall have the meaning set forth in this
Agreement where such term is first used or, if no definition is so set forth,
shall have the meaning set forth in Article 10 below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF EXCHANGES
1.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions hereinafter set forth, at the Closing described in Article 2,
Seller agrees to sell, convey, transfer, assign and deliver all of the
Transferred Assets to Buyer, and Buyer agrees to purchase and receive the
Transferred Assets from Seller. Except as specifically set forth in Section 1.2
hereof, Seller shall transfer the Transferred Assets to Buyer on the Closing
Date free and clear of all Encumbrances, and Buyer shall not, by virtue of its
purchase of the Transferred Assets, assume or become responsible for any debts,
liabilities or obligations of Seller.
1.2 Assumption of Obligations. Buyer covenants and agrees that, on the
Closing Date, it shall execute and deliver to Seller an Assumption Agreement in
substantially the form of Exhibit
<PAGE>
B hereto (the "Assumption Agreement") pursuant to which it will assume and agree
to perform and discharge the following liabilities and obligations of Seller to
the extent related to the Exchanges (collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations of Seller arising under
the Operating Contracts, except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Operating Contracts occurring or arising
or accruing on or prior to the Closing Date;
(ii) All liabilities and obligations of Seller related to
unperformed service obligations, right-of-way relocation obligations and
construction in progress as of the Closing Date;
(iii) All liabilities and obligations imposed on Seller by
State Regulatory Authorities in connection with the operation of the
Exchanges, including without limitation obligations to provide 911
emergency services and to make any investment in the Exchanges required by
any Governmental Authority, except that Buyer shall not assume any
liabilities or obligations, other than held order or other service
obligations, imposed on Seller by State Regulatory Authorities that arise
out of Seller's breach of any decision by the State Regulatory
Authorities, or any intentional misconduct or material misrepresentation
by Seller;
(iv) All federal, state, county, municipal, foreign or other
taxing jurisdiction sales, use, transfer, gross receipts, consumer levy,
privilege or similar taxes, duties, excises or governmental charges,
including any penalties and interest thereon, arising out of the sale of
the Transferred Assets by Seller to Buyer hereunder, excluding any income
tax liability of Seller (collectively, "Transfer Taxes"); and
(v) All liabilities and obligations arising under
Environmental Laws with respect to the real property included in the
Transferred Assets.
1.3 Retained Liabilities. Seller shall retain and shall pay, perform and
discharge when due, the following liabilities, responsibilities and obligations
of Seller with respect to the Business (collectively, the "Retained
Liabilities"):
(i) Subject to Section 1.5, all trade payables and other
payment obligations of Seller as of the Closing Date;
(ii) All long-term debt of Seller and debt of Seller owed to
any one or more of its Affiliates;
2
<PAGE>
(iii) Subject to Section 1.5, all taxes and assessments
relating to the operation of the Business (other than Transfer Taxes) on
or before the Closing Date for the use, ownership or operation of the
Transferred Assets on or before the Closing Date;
(iv) All liabilities and obligations arising on or before the
Closing Date with respect to Seller's employees that may be hired by Buyer
(the "Hired Employees"), including (a) all liabilities, responsibilities
and obligations arising on or before the Closing Date relating to
collective bargaining agreements or other union contracts, and (b) any
such liabilities or obligations that arise after the Closing Date to the
extent that such liabilities and obligations relate to facts,
circumstances or conditions arising or occurring on or before the Closing
Date with respect to the Hired Employees;
(v) All liabilities, responsibilities and obligations arising
out of or related to any actions, lawsuits or legal proceedings based on
facts, circumstances or conditions arising, existing or occurring on or
before the effective time of Closing, regardless of whether known or
unknown, asserted or unasserted, as of the Closing, including any
liability under any claim (whether made on or before the Closing Date)
relating to the period ending on or before the effective time of Closing
which, but for the consummation of the transactions contemplated hereby,
would have been covered under any insurance policy of Seller, and all
liability associated with workers' compensation claims incurred but not
reported as of the effective time of Closing and workers' compensation
claims reported as of the Closing Date but not then due or payable, but
expressly excluding any such liability, responsibility or obligation for
litigation or claims of any Governmental Authority relating to liabilities
and obligations arising under Environmental Laws with respect to the Fee
Realty included in the Transferred Assets, unless such liabilities,
responsibilities and obligations result from the actions or omissions of
Buyer constituting breaches of this Agreement;
(vi) All liabilities and obligations for prior period
adjustments of revenues from the Business, for any refunds or bill credits
to ratepayers for overbillings or overearnings occurring or relating to
the period prior to the effective time of Closing, and for all toll
revenues, settlements, pools, separations studies or similar activities
relating to the Exchanges for which Seller is responsible, provided that
such liabilities and obligations are asserted within four years of the
Closing Date;
(vii) All liabilities, responsibilities and obligations
arising out of or occurring or resulting from the use or ownership of the
Transferred Assets on or before the Closing Date; and
(viii) All liabilities, responsibilities and obligations with
respect to the Excluded Assets.
1.4 Letters of Credit and Purchase Price.
3
<PAGE>
1.4.1 Letters of Credit. Within 15 business days of the date hereof,
Buyer shall deliver to Seller one or more irrevocable letters of credit issued
by financial institutions reasonably acceptable to Seller (the "Letters of
Credit") providing for drawings in an aggregate principal amount equal to
$4,916,706 (the "LC Amount"). The Letters of Credit shall be returned to Buyer
upon the Closing of the Transactions or upon termination of this Agreement for
any reason other than the following: (i) Seller's termination of this Agreement
pursuant to Section 6.2.4 or 6.2.5, or (ii) Seller's termination of this
Agreement pursuant to Section 6.2.1 because the condition precedent set forth in
Section 3.2.1 becomes incapable of satisfaction through no fault of Seller after
Buyer has had a reasonable opportunity to cause such condition precedent to be
satisfied. In addition, if Seller terminates this Agreement pursuant to Section
6.2.4 as a result of Buyer's breach of Section 4.1.4 for any reason, Buyer and
Seller have mutually agreed that in addition to Seller's right to draw down the
full amount of the Letters of Credit, Buyer shall be liable to Seller for an
additional amount equal to the LC Amount. If Buyer fails to deliver the Letters
of Credit within 15 business days of the date hereof, and Seller thereafter
terminates this Agreement pursuant to Section 6.2.4 as a result thereof, Buyer
shall be liable to Seller for the LC Amount. In the event that Seller terminates
this Agreement for any of the foregoing reasons, in view of the difficulty of
determining the amount of damages which may result to Seller from such failure
to consummate the Transactions, Buyer and Seller have mutually agreed that the
proceeds of the Letters of Credit and any other monies payable to Seller in
accordance with the foregoing provisions shall be retained by Seller as
liquidated damages, and not as a penalty, and this Agreement shall thereafter
become null and void except for those provisions which by their terms survive
termination of this Agreement. The parties have agreed that the proceeds of the
Letters of Credit and such other monies payable to Seller in accordance with the
foregoing provisions in such event shall be Seller's exclusive remedy.
1.4.2 Purchase Price. Subject to Section 1.4.4, Buyer shall pay to
Seller as consideration for the transfer of Seller's rights with respect to the
Business and the sale of the Transferred Assets an aggregate purchase price (the
"Purchase Price") consisting of $122,917,650 plus (a) the estimated amount of
Exchange Investments, if any, calculated pursuant to Section 1.4.3(a) (the
"Estimated Exchange Investments") less (b) the Revenue Adjustment, if any
calculated pursuant to Section 1.4.3(b). The Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds to such bank
account(s) as Seller shall designate within a reasonable time prior to Closing
and the Letters of Credit shall be returned to Buyer upon payment of the
Purchase Price.
1.4.3 Closing Date Purchase Price Adjustments.
(a) Estimated Exchange Investments. Seller shall prepare and deliver
to Buyer, no less than five business days prior to the Closing, an estimate of
the net book value on the Closing Date associated with any investment by Seller
in the Exchanges (the "Exchange Investment") prior to Closing required by any
Governmental Authority pursuant to an order issued between the date hereof and
the Closing Date, other than with respect to investments contemplated by
Schedule 5.2.3(iii) or with respect to Seller's efforts to comply with any
Governmental Authority's orders issued prior to the date hereof.
4
<PAGE>
(b) Revenue Adjustment. The Purchase Price shall be decreased if the
product of four times the aggregate revenues from the Business, as reported on
the monthly profit and loss statements for the Business for the three full
consecutive calendar months most recently completed prior to the Closing Date,
less any portion of such revenues attributable to the Excluded Assets (the
"Adjusted Annualized Closing Revenues"), are less than $17,837,100. Any decrease
in the Purchase Price in accordance with this Section 1.4.3(b) shall be equal to
the difference between the Adjusted Annualized Closing Revenues and $17,837,100
multiplied by 400% (the "Revenue Adjustment"); provided, that the Purchase Price
shall not be decreased pursuant to this Section 1.4.3(b) to the extent that the
Maximum Adjustment Amount shall have been reached.
1.4.4 Post-Closing Purchase Price Adjustment.
(a) Actual Exchange Investments. Within 120 days following the
Closing Date, Buyer shall prepare and deliver to Seller a written statement (the
"Exchange Investment Statement") of the calculation of the actual amount of
Exchange Investment. Subject to the dispute resolution mechanism set forth in
Section 1.4.4(c), to the extent that the actual amount of Exchange Investment as
shown on the Exchange Investment Statement differs from the Estimated Exchange
Investment, the difference shall be paid within 35 days of delivery of the
Exchange Investment Statement (i) by Buyer to Seller in the case of an excess,
or (ii) by Seller to Buyer in the case of a deficit.
(b) Reinitialization Adjustment. If, on the Closing Date, the
Reinitialization has not been effected, the Purchase Price shall be adjusted in
accordance with the following:
(i) If the Reinitialization occurs after the Closing Date but
on or prior to the two year anniversary of the Closing Date, Buyer shall
prepare and deliver to Seller, as soon as practicable after the
Reinitialization, a written statement (the "Reinitialization Statement")
of the calculation of the actual number of interstate switched access
minutes of use (the "Interstate Use Minutes") for the Exchanges per month
for the period commencing on the Closing Date and ending on the last day
of the month in which the Reinitialization occurred. Subject to the
dispute resolution mechanism set forth in Section 1.4.4(c), Seller shall
pay Buyer within 60 days of delivery of the Reinitialization Statement an
amount equal to $0.023 multiplied by the Interstate Use Minutes for the
period commencing on the day after the Closing Date and ending on the date
of the Reinitialization (pro rated, if necessary, for the first and final
month). Seller's failure to make such payment by the 60th day following
delivery of the Reinitialization Statement shall be deemed to be an
initiation of the dispute resolution mechanism set forth in Section
1.4.4(c).
(ii) If the Reinitialization has not occurred by the two year
anniversary of the Closing Date, Buyer shall so notify Seller and Seller
shall pay Buyer within 60 days after receipt of such notice an amount
equal to $11,895,256, plus simple interest at a rate of 8% per annum for
the period commencing on the Closing Date through but excluding the date
of payment.
5
<PAGE>
(c) Dispute Resolution Mechanism.
(i) Within 30 days after receipt of the Exchange Investment
Statement or 60 days after receipt of the Reinitialization Statement
(each, a "Post-Closing Statement"), as the case may be, Seller may, in a
written notice to Buyer, describe in reasonable detail any proposed
adjustments to the relevant Post-Closing Statement in question and the
reasons therefor. If Buyer shall not have received a notice of proposed
adjustments within such 30 or 60 day period, as the case may be, Seller
will be deemed irrevocably to have accepted such Post-Closing Statement.
(ii) If Seller disputes any portion of the Post-Closing
Statement, the parties shall calculate the portion of the undisputed
amount, if any, and such amount shall be paid by the appropriate party
within five business days of the determination of the undisputed amount.
Buyer and Seller shall negotiate in good faith to resolve any dispute. If
any dispute cannot be resolved within 30 days following Buyer's receipt of
the proposed adjustment, Deloitte & Touche or another independent public
accounting firm that is nationally recognized in the United States jointly
selected by Buyer and Seller shall be engaged to resolve such disputes in
accordance with the standards set forth in this Section, which resolution
shall be final and binding. The fees and expenses of such accounting firm
shall be shared by Buyer and Seller in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of Buyer
and Seller, respectively. Upon delivery of such public accounting firms's
resolution of such dispute to the parties, the party required to make a
payment pursuant to such resolution shall promptly, but no later than five
business days after such delivery, pay to the other party the amount
determined by such public accounting firm to be owed to such party.
(d) Any amount paid pursuant to Section 1.4.4(a) shall bear interest
from the Closing Date through but excluding the date of payment, at a rate of 8%
per annum. Any amount owing pursuant to Section 1.4.4(b)(i) that is not paid
within 60 days of delivery of the Reinitialization Statement shall bear interest
from the 61st day following delivery of the Reinitialization Statement through
but excluding the date of payment, at a rate of 8% per annum. Such interest
shall accrue daily on the basis of a year of 365 days and the actual number of
days for which due and shall be payable together with the relevant amount
payable pursuant to this Section 1.4.4. All amounts payable pursuant to this
Section 1.4.4 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer, in the case of amounts payable by Buyer, to such
account of Seller as Seller may designate and, in the case of amounts payable by
Seller, to such account of Buyer as Buyer may designate.
(e) The Purchase Price shall be deemed to be adjusted by any amounts
paid pursuant to this Section 1.4.4.
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1.5 Prorations. All real and personal property and similar taxes and
assessments with respect to the Transferred Assets, all rents, utilities and
other periodic charges and expenses arising from the normal operations of the
Business shall be prorated as of 11:59 p.m. local time on the Closing Date. Such
prorations shall be agreed upon by the parties as of the Closing Date and
reflected as an adjustment to the Purchase Price. Following the Closing Date,
each party shall thereafter be responsible for the payment of all such amounts
for which it is responsible, as determined by such prorations, as they become
due. For purposes of the foregoing proration, the parties agree that, with
respect to states in which Seller is assessed for real or personal property
taxes on a centralized basis or where a tax is imposed in lieu of property tax,
Seller shall be responsible for payment of property or other taxes assessed by
such state for the entire taxable year in which the Closing occurs and a pro
rata portion of such property taxes will be allocated to Buyer as of the Closing
Date and paid to Seller on the Closing Date. All prorations pursuant to this
Section 1.5 will be final and binding on both parties. Unless otherwise mutually
agreed no later than 30 days prior to the Closing Date, the specific date and
time for the change of telecommunications service to occur with respect to the
Exchanges shall be at 11:59 p.m., local time, on the Closing Date.
1.6 Allocation of the Purchase Price. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Buyer and Seller
agree to such Allocation prior to Closing, Buyer and Seller covenant and agree
that (i) the values assigned to the assets by the parties' mutual agreement
shall be conclusive and final for all purposes, and (ii) neither Buyer nor
Seller will take any position before any Governmental Authority or in any
judicial proceeding that is in any way inconsistent with such allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an
Allocation, Buyer and Seller covenant and agree to file, and to cause their
respective Affiliates to file, all tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable law.
1.7 Transfer Taxes. Buyer shall be responsible for all Transfer Taxes
imposed by any local, state or federal governmental authorities in connection
with the sale, transfer or assignment of the Transferred Assets or otherwise on
account of the Transactions, regardless of whether Buyer or Seller is assessed
therefor. Seller shall be responsible for filing the applicable returns and
shall file them in a timely manner. No less than 20 days prior to the due date
of any such returns, Seller shall provide Buyer with the proposed amount of
Transfer Taxes to be reported and remitted. No less than 10 days prior to the
due date of any such returns, Buyer shall either approve the proposed amount or
advise Seller of an adjusted amount of Transfer Taxes to be reported and
remitted. Seller shall report and remit Transfer Taxes in amounts as approved or
adjusted by Buyer. In the event Buyer fails to approve Seller's proposed amount
of Transfer Taxes and fails to advise Seller of an adjusted amount of Transfer
Taxes within 10 days prior to the due date of such return, Seller shall
interpret such inaction on the part of Buyer as direction by Buyer to make no
report of and no
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remittance of Transfer Taxes. Buyer shall remit to Seller on the day prior to
the due date of such return, by wire transfer of immediately available funds,
the agreed upon amount of Transfer Taxes to be remitted to the taxing
authorities. In the event Seller does not receive the agreed upon amount of
Transfer Taxes to be remitted to the taxing authorities from Buyer on or before
the day prior to the due date of the return, Seller shall interpret such failure
of Buyer to provide funds as direction by Buyer to make no report of and no
remittance of Transfer Taxes. Buyer warrants that any adjustments by Buyer to
Seller's proposed amount of Transfer Taxes or any direction by Buyer to make no
report of and no remittance of Transfer Taxes will be based on substantial state
and/or local authority that Transfer Taxes are not due and owing. Buyer shall
indemnify and hold harmless Seller from and against any and all such Transfer
Taxes and any penalties, interest or expenses (including attorneys' fees)
incurred by Seller with respect thereto unless such interest and penalties
result from the actions or omissions of Seller that are unrelated to any
breaches by Buyer of its obligations hereunder.
ARTICLE 2
CLOSING
2.1 Closing. The consummation of the purchase and sale of the Transferred
Assets (the "Closing") shall take place at Seller's offices in Denver, Colorado,
at 10:00 a.m., local time, on the last calendar day of the month in which all
the conditions precedent to Closing set forth in Article 3 have been satisfied
or waived, or on such other date as the parties mutually agree, but in no event
shall the Closing occur later than September 30, 2001 unless the parties shall
mutually agree to extend the date of the Closing. The date that the Closing
actually occurs is referred to as the "Closing Date." If the Closing is
postponed, all references to the Closing Date in this Agreement shall refer to
the postponed date of Closing.
2.2 Deliveries by Seller to Buyer. At or prior to the Closing, Seller will
deliver to Buyer:
2.2.1 Certified copies of all Seller's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Seller;
2.2.2 a duly executed Bill of Sale, in substantially the form of
Exhibit C hereto, and duly executed assignments and other instruments of
transfer sufficient to convey to Buyer title to all the personal property
included in the Transferred Assets;
2.2.3 A duly executed closing certificate of Seller contemplated by
Sections 3.1.1 and 3.1.2;
2.2.4 Releases, satisfactions or terminations of all mortgages,
financing statements or other Encumbrances on any of the Transferred Assets or,
in the alternative, an indemnity of Seller with respect to such Encumbrances in
form and substance reasonably acceptable to Buyer;
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2.2.5 Special warranty deeds covering the Fee Realty and assignments
in customary local form covering the other realty and Interests included in the
Transferred Assets, including all rights-of-way which are by their terms
assignable;
2.2.6 An affidavit in a form complying with Section 1445 of the
Code; and
2.2.7 Such other documents and items as are reasonably necessary or
appropriate to effect the consummation of the Transactions or which may be
customary under local law, including vehicle transfer documentation.
2.3 Deliveries by Buyer to Seller. At or prior to the Closing, Buyer will
deliver to Seller:
2.3.1 The Purchase Price as required by Section 1.4, together with
any proration payment required to be paid on the Closing Date pursuant to
Section 1.5;
2.3.2 Certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Buyer;
2.3.3 A duly executed closing certificate of Buyer contemplated by
Sections 3.2.1 and 3.2.2; and
2.3.4 The Assumption Agreement and such other certificates and
documents as are reasonably necessary or appropriate to effect the consummation
of the Transactions or which may be customary under local law.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. Within 30
days after the date of this Agreement, the parties shall negotiate in good faith
and enter into a Transition Agreement similar in scope to the agreement attached
as Exhibit D hereto. Within 90 days after the date of this Agreement, the
parties shall commence to negotiate in good faith the definitive terms of the
services agreements for the services that Buyer requests Seller to provide upon
Closing and described on Exhibit E hereto. At or prior to the Closing, Buyer and
Seller shall execute and deliver such services agreements. The parties
acknowledge and agree that the agreements contemplated by this Section 2.4 are
an integral part of, and will be entered into as part and parcel to, and in
conjunction with, the other transactions and agreements contemplated by this
Agreement.
2.5 Further Assurances. Except as otherwise provided herein or in the
transition agreements, all instruments of conveyance, assignment or transfer
referred to herein, all sums of money, and all records and data to be delivered
as specified in this Agreement shall be delivered at or prior to the Closing.
The parties agree following the Closing to execute and deliver such further
instruments of conveyance, assignment and assumption as may be reasonably
necessary to give effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities. In addition, in the event of an
inadvertent transfer of Excluded Assets, Buyer shall upon request by Seller
execute and deliver such instruments of conveyance, assignment and transfer as
may be
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reasonably necessary to reconvey such Excluded Assets to Seller and shall
promptly return such Excluded Assets to Seller.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
3.1.1 Representations and Warranties. All representations and
warranties of Seller made in this Agreement shall be true and correct on and as
of the Closing Date as though made at such time, other than inaccuracies in such
representations and warranties that in the aggregate do not have a material
adverse effect on the Business or changes approved by Buyer in writing, and
Seller shall have delivered to Buyer a certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.2 Covenants. Seller shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Seller shall have delivered to Buyer a Certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.3 Governmental Approvals. The State Regulatory Approvals and the
FCC Approval (collectively, "Governmental Approvals") shall have been obtained
and shall be in full force and effect and shall not contain any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date. All such approvals and consents shall be deemed to have been obtained
after the grant thereof has become a Final Order.
3.1.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.1.5 Hart-Scott-Rodino Act. All filings required to be made under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
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3.1.6 Certificates and Other Documents. Seller shall have executed
and delivered the certificates and other documents required by Sections 2.2 and
2.4.
3.1.7 Absence of Material Adverse Change. Since December 31, 1998,
there shall have occurred no casualty or other event or change, not subsequently
cured by Seller, that has resulted in a material adverse effect on the Business,
unless such event has resulted in an amendment to this Agreement as contemplated
by Section 6.1.2.
3.1.8 Material Third Party Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the required
third party consents listed on Schedule 3.1.8 have been obtained and remain in
full force and effect on the Closing Date.
3.1.9 Delivery of Financial Information. Seller shall have delivered
the Required Financial Statements and representation letters, in each case as
and when required by Section 5.2.7.
3.1.10 Environmental Inspections. If it is determined pursuant to
Section 5.3.7 that remediation of potential material liabilities under
Environmental Laws is required, then (i) Seller shall have completed the
remediation to Buyer's reasonable satisfaction, (ii) if Seller elects to exclude
a parcel of Fee Realty, and Buyer so elects, Seller and Buyer shall have entered
into a long-term, low-cost lease, in form and substance reasonably satisfactory
to Buyer, for Buyer's use of such parcel after Closing, or (iii) if Seller
elects to exclude the parcel or the Exchange to which such parcel relates, and
if such parcel alone has been excluded and Buyer has not elected to lease such
parcel, Seller and Buyer shall have agreed in good faith to a reduction in the
Purchase Price. In no event shall Seller be responsible for any other
environmental remediation.
3.1.11 Title Matters. If the aggregate estimated costs and expenses
reasonably necessary to remedy all Encumbrances pursuant to Section 5.3.9
exceeds $10,000 (the "Title Threshold"), Seller shall have removed the Excessive
Encumbrances. "Excessive Encumbrances" means one or more Encumbrances selected
by Seller, the removal of which will bring the aggregate estimated costs and
expenses reasonably necessary to remedy the remaining Encumbrances below the
Title Threshold. Seller shall have removed the Excessive Encumbrances by either
(i) causing the title company to agree to delete such Excessive Encumbrances as
an exception in the Title Commitment or, with the prior written consent of
Buyer, shall have insured over such Excessive Encumbrances by endorsement, or
(ii) if acceptable to Buyer and Seller in each of its reasonable discretion, the
parties shall have entered into a written agreement containing Seller's
commitment to remedy such Excessive Encumbrances on terms reasonably
satisfactory to Buyer. In no event shall Seller have any obligation to cure or
remove any Encumbrance that is not an Excessive Encumbrance.
3.1.12 Billing Conversion. The Steering Committee established
pursuant to the Transition Services Agreement shall have concluded at least
thirty days prior to Closing that the billing system conversion will be
completed by Closing.
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3.2 Conditions to Seller's Obligations. The obligation of Seller to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Seller:
3.2.1 Representations and Warranties. All representations and
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes approved by Seller in writing, and Buyer shall have delivered
to Seller a certificate of Buyer to that effect, dated as of the Closing Date,
signed by an authorized officer of Buyer.
3.2.2 Covenants. Buyer shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Buyer shall have delivered to Seller a Certificate of Buyer to that effect,
dated as of the Closing Date, signed by an authorized officer of Buyer.
3.2.3 Governmental Approvals. All Governmental Approvals shall have
been obtained and shall be in full force and effect. All such approvals and
consents shall be deemed to have been obtained after the grant thereof has
become a Final Order. The terms and conditions of the Governmental Approvals
shall be acceptable in all material respects to Seller in its reasonable
discretion.
3.2.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.2.5 H-S-R Act. All filings required to be made under the H-S-R Act
shall have been made, and the waiting period thereunder shall have expired or
early termination thereof shall have been granted.
3.2.6 Certificates and Other Documents. Buyer shall have delivered
the certificates and other documents required under Sections 2.3 and 2.4.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Buyer's Representations and Warranties. Buyer represents and warrants
to Seller that:
4.1.1 Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Buyer has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.1.2 Corporate Authority. This Agreement has been, and when
executed by Buyer each of the other Transaction Documents will be, duly and
validly executed and delivered by Buyer. This Agreement constitutes, and when
executed by Buyer each of the other Transaction Documents will constitute, the
valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
4.1.3 Governmental Authorizations. Except as contemplated by this
Agreement or as set forth in Schedule 4.1.3, neither Buyer's execution and
delivery of the Transaction Documents nor Buyer's consummation of the
Transactions require authorization or approval of, or filing with, any
Governmental Authority.
4.1.4 Funds. On the Closing Date, Buyer shall have sufficient funds
available to pay the Purchase Price, any proration payment required to be paid
on the Closing Date pursuant to Section 1.4, the amount of any Transfer Taxes to
be paid by Seller as provided in Section 1.6 and to consummate the Transactions.
4.1.5 Litigation. There are no actions, suits, proceedings, claims,
arbitrations or investigations, either at law or in equity, of any kind now
pending (or to the best of Buyer's knowledge threatened) involving Buyer or any
of its properties or assets that (i) question the validity of any of the
Transaction Documents or the Transactions; or (ii) seek to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under the Transaction Documents.
4.1.6 Investigation. Buyer, through its accountants, attorneys, agents,
employees, and others, has made or will have made prior to the Closing such
investigations of the Exchanges and Transferred Assets and of the factual, legal
and other condition and location of the Exchanges and Transferred Assets that it
deems necessary or advisable with respect to the Transactions. Buyer
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has not received from the Seller, or from anyone acting or claiming to act on
behalf of the Seller, any accounting, tax, legal or other similar advice with
respect to the Transactions, and Buyer is relying solely on advice of its own
accounting, tax, legal, and other advisors for such advice. Buyer has based its
decision to acquire the Transferred Assets solely on the results of such
investigations and the representations, warranties and covenants of Seller set
forth herein, and not based on any other information (including without
limitation information contained in Seller's descriptive memorandum) provided to
Buyer by Seller, its Affiliates, employees, agents, representatives or advisors.
4.2 Seller's Representations and Warranties. BUYER UNDERSTANDS THAT,
EXCEPT AS SET FORTH IN THIS SECTION 4.2, SELLER MAKES NO REPRESENTATIONS,
WARRANTIES OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR
TYPE WHATSOEVER WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, AND WARRANTIES AS TO THE APPURTENANCES, FACILITIES AND
IMPROVEMENTS THEREON, OR THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR
ADAPTABILITY THEREOF. Seller represents and warrants to Buyer that:
4.2.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Seller has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.2.2 Authorization, Execution and Delivery. This Agreement has
been, and when executed by Seller each of the other Transaction Documents will
be, duly and validly executed and delivered by Seller. This Agreement
constitutes, and when executed by Seller each of the other Transaction Documents
will constitute, the valid, legal and binding agreement of Seller enforceable
against Seller in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights generally
and by principles of equity.
4.2.3 Transferred Assets. Except with respect to Fee Realty, the
Transferred Assets are, and at the time of Closing will be, owned by Seller and
conveyed, transferred and assigned to Buyer free and clear of all Encumbrances.
The Transferred Assets (i) are in a normal state of repair (except for ordinary
wear and tear), (ii) are sufficient, both in number and condition, to comply
with applicable requirements of State Regulatory Authorities and the
manufacturer's specifications, except for non-compliances that in the aggregate
are not reasonably likely to have a material adverse effect on the Business
following the Closing Date, and (iii) will include all assets of every type,
nature and description that relate to, arise from, are used or held by Seller
primarily in the operation of the Business as presently operated by Seller
(including vehicles and related vehicle stock, portable
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office equipment, test equipment, generators, materials, supplies, tools,
maintenance radio equipment and antennas normally located within the Exchanges
or primarily used in connection with the Business), except for the Excluded
Assets. Assuming the receipt of all required third-party consents, the
instruments and documents to be executed and/or delivered by Seller to Buyer
pursuant to Section 2.2 hereof at or following the Closing Date shall be
adequate and sufficient to vest in Buyer all of Seller's right, title and
interest in or to the Transferred Assets. To Seller's Knowledge, Seller enjoys
peaceful, undisturbed possession under all leases included in the Material
Contracts and rights-of-way and easements with respect thereto and with respect
to the Fee Realty. Notwithstanding the foregoing to the contrary, with respect
to all Fee Realty included in the Transferred Assets, Seller makes no
representations or warranties as to the ownership or Encumbrances thereon, it
being the express agreement of the parties that such matters shall be the
subject of the arrangements set forth in Sections 3.1.11 and 5.3.9.
4.2.4 Governmental Authorization. Except as contemplated by this
Agreement and except for such of the following the absence of which would not
have a material adverse effect on the Business, no authorization or approval of,
or filing with, any Governmental Authority will be required in connection with
Seller's execution and delivery of the Transaction Documents or Seller's
consummation of the Transactions.
4.2.5 Litigation. As of the date hereof there are no actions, suits,
proceedings, claims, arbitrations or investigations, either at law or in equity,
of any kind now pending (or to the best of Seller's Knowledge threatened)
against Seller (i) in which an adverse determination would have a material
adverse effect on the Business; (ii) that question the validity of any of the
Transaction Documents or the Transactions; or (iii) that seek to delay, prohibit
or restrict in any manner any actions taken or contemplated to be taken by
Seller under the Transaction Documents.
4.2.6 Tax Matters. All taxes and assessments, including interest and
penalties thereon, of any kind whatsoever accrued with respect to the Business
through the Closing Date (other than Transfer Taxes and taxes subject to
proration at Closing pursuant to Section 1.4) have been or will be paid in full
by Seller. There are no liens for federal, state or local taxes upon the
Transferred Assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by Seller
in appropriate proceedings, the ultimate liability for which shall remain the
obligation of Seller, and Seller shall indemnify Buyer against all such
liabilities. Seller has timely filed, or will cause to be timely filed, all
federal, state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Business for all periods up to and including the Closing Date.
4.2.7 No Breach. The execution and delivery by Seller of the
Transaction Documents and the consummation by Seller of the Transactions will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of Seller; (ii) violate any
applicable law, statute, ordinance, rule, regulation, code, license,
certificate, franchise, permit, writ, ruling award, executive order, directive,
requirement, injunction (whether
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temporary, preliminary or permanent), judgment, decree or other order
(collectively "Applicable Laws") issued, enacted, entered or deemed applicable
by any Governmental Authorities having jurisdiction over Seller or any of the
Transferred Assets; (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give another
party any rights of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of the Operating Contracts; or (iv) result in
the creation or imposition of any Encumbrance on any of the Transferred Assets,
excluding from the foregoing clauses those violations, breaches or defaults
which individually or in the aggregate would not reasonably be expected to have
a material adverse effect upon the operation of the Business by Buyer after the
Closing.
4.2.8 Compliance with Laws. Except as set forth on Schedule
4.2.18(a), the Business has been operated and the Exchanges are in compliance
with all requirements of the Authorities and all Applicable Laws, except where
Seller's non-compliance would not have a material adverse effect on the
Business. Seller has not received any notice of (and to Seller's Knowledge there
is no reason to anticipate) any material violation of any Applicable Laws.
Notwithstanding the foregoing, except as specifically provided in Section 5.3.7,
Seller hereby disclaims all warranties, whether express or implied, with regard
to the presence of Hazardous Materials in the Transferred Assets or compliance
of the Business with Environmental Laws. Buyer understands and agrees that,
other than as specifically provided in Section 5.3.7, any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Transferred Assets following the Closing Date, including the costs of any
remediation or cleanup associated with the Transferred Assets, or environmental
claim or liability associated with the Transferred Assets, irrespective of when
contamination occurred, is assumed by Buyer on the Closing Date.
4.2.9 Operating Contracts. Schedule 4.2.9(a) sets forth all of the
Operating Contracts of the type described below (the "Material Contracts") that
Seller, after using commercially reasonable efforts, has been able to gather for
Buyer's review. No Operating Contract described in (i) below will be entered
into after the date of this Agreement and no Operating Contract described in
(ii) - (ix) will be entered into after the date of this Agreement other than in
the ordinary course of business:
(i) an agreement containing a non-compete agreement or other
non-compete covenant that in either case would by its terms limit the freedom of
Buyer following the Closing to compete in any respect with respect to the
Business with any third party;
(ii) an agreement granting an Encumbrance on Property other than Fee
Realty;
(iii) an agreement for the sale of any material Transferred Assets
or grant of any preferential rights to purchase any material Transferred Assets;
(iv) a land development agreement or other similar construction
agreement;
(v) a lease of real property;
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(vi) an agreement with respect to 911 services or E911 services;
(vii) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Exchanges;
(viii) an agreement that relates to arrangements and commitments
between Seller and a third party for the third party's location of equipment in
facilities included in the Transferred Assets except to the extent set forth in
a separate interconnection agreement; or
(ix) an agreement other than as set forth above with respect to
which the aggregate amount to be received or paid thereunder attributable to the
Exchanges with respect to calendar year 1999 or any subsequent calendar year is
expected to exceed $50,000 based on the terms of such agreement or on the
payments which have been made under such agreement with respect to calendar year
1998, to the extent applicable.
Schedule 4.2.9(b) identifies (i) each interconnection agreement between
Seller and a third party or an Affiliate of Seller that is applicable to the
Exchanges, (ii) each agreement that relates to arrangements and commitments
between Seller and an Affiliate of Seller for such Affiliate's co-location of
equipment in facilities included in the Transferred Assets that Seller, using
commercially reasonable efforts, has been able to identify, and (iii) each
Exchange where a third party has physically co-located equipment or, to Seller's
Knowledge, where a third party has made a written request to co-locate equipment
located in the Exchanges.
All of the Operating Contracts were made in the ordinary course of
business and are in all material respects valid, binding and currently in full
force and effect. Seller is not in default in any material respect under any of
the Operating Contracts, and to Seller's Knowledge no event has occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default or give rise to a right of termination or cancellation under any of the
Operating Contracts, cause the acceleration of an obligation of Seller, or
result in the creation of any Encumbrance upon any of the Transferred Assets. To
Seller's Knowledge, no other party is in default under any of the Operating
Contracts, nor has any event occurred which, through the passage of time or the
giving, of notice, or both, would constitute a default or give rise to a right
of termination or cancellation under any of the Operating Contracts, or cause
the acceleration of any obligation owed to Seller. Complete and correct copies
of all the Material Contracts in Seller's possession, together with all
modifications and amendments thereto to date of this Agreement in Seller's
possession, have been made available to Buyer or its representatives. Schedule
4.2.9(a) also specifically identifies each lease that requires the consent,
approval or waiver of the other party thereto for the assignment thereof.
4.2.10 Realty. (i) To Seller's Knowledge, the legal descriptions to
be delivered by Seller to the title insurance company shall be complete and
accurate in all material respects; (ii) as of the date hereof, there are no
deferred property taxes or assessments payable by Seller with respect to the Fee
Realty which may or will become due and payable as a result of the consummation
of the
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Transactions, other than Transfer Taxes; (iii) there are no condemnation
proceedings pending or to Seller's knowledge threatened with respect to all or
any part of any parcel of Fee Realty; and (iv) Seller is not a foreign person
within the meaning of Section 1445 of the Code.
4.2.11 Reports. Seller has filed all reports relating to the
Business required by all Applicable Laws to be filed, and it has duly paid or
accrued on its books of account all applicable duties and charges due or
assessed against it pursuant to such reports.
4.2.12 Year 2000 Matters.
(a) Year 2000 Compliance. Seller warrants and represents that to the
best of its knowledge and belief following an effort of commercially reasonable
diligence by Seller, all of its business assets, including but not limited to
information technology and non-information technology systems and facilities and
those of its external suppliers utilized by Seller in the Business and included
in the Transferred Assets ("Business Assets"), are or will be "Year 2000
Compliant" (defined below) on or before the Closing Date. For purposes of this
Agreement, the following definitions apply:
(i) "Date Data" means any data, formula, algorithm, process,
input or output which includes, calculates or represents a date, a reference to
a date or a representation of a date;
(ii) "Year 2000 Compliant" means:
1. the functions, calculations, and other computing
processes of the Business Assets (collectively, "Processes") perform in a
consistent manner regardless of the date in time on which the Processes
are actually performed and regardless of the Date Data inputs to the
Business Assets, whether before, on, during or after January 1, 2000 and
whether or not the Date Data is affected by leap year;
2. the Business Assets accept, calculate, compare, sort,
extract, sequence, and otherwise process all Date Data, and returns and
displays all Date Data, in a consistent manner regardless of the dates
used in such Date Data, whether before, on, during or after January 1,
2000.
3. the Business Assets will function without
interruptions caused by the date in time on which the Processes are
actually performed or by the Date Data inputs to the Business Assets,
whether before, on, during or after January 1, 2000;
4. the Business Assets store and display all Date Data
in ways that are unambiguous as to the determination of the century;
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5. no Date Data will cause one or more Business Assets
to perform an abnormally ending routine or function within the Processes
or generate incorrect values or invalid results; and
6. each of the Business Assets will properly exchange
Date Data with all other Business Assets that it may interact or
inter-operate with.
(b) Year 2000 Testing. Seller warrants that the Business Assets have
been tested by Seller and/or Seller's suppliers of Business Assets to determine
whether each of the Business Assets is Year 2000 Compliant. Seller's suppliers
of Business Assets have represented to Seller that the Business Assets provided
by them are Year 2000 Compliant and/or have been tested by those suppliers to
determine whether such Business Assets are Year 2000 Compliant. Seller will
notify Buyer immediately of the results of any test or any claim or other
information that indicates any Business Asset is not Year 2000 Compliant.
(c) Year 2000 Remedies. In the event that Buyer encounters a
Business Asset that is not Year 2000 Compliant, within a commercially reasonable
period after receipt from Buyer of written notice thereof, Seller shall at its
expense cause the identified non-compliant Business Asset to be repaired or
replaced.
4.2.13 Correct Records. The financial records, ledgers, account
books and other accounting records of Seller relating to the Business are
current, correct and complete and, if required by applicable law, conform with
the rules and regulations of the FCC and the State Regulatory Authorities,
except for instances that in the aggregate are not reasonably likely to have a
material adverse effect on the Business following the Closing Date and except
for the Continuing Property Records for the Exchanges, which are dealt with
specifically elsewhere in this Agreement. Seller has retained substantially all
original cost documentation relating to the regulated Business regarding the
expenditures made by Seller within the period required by Applicable Law that
relate to the Property, and such original cost documents are correct and
complete in all respects, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
4.2.14 Tribal and Federal Consents.
(a) To Seller's Knowledge, all easements, rights-of-way, franchises,
licenses, permits, consents, approvals, certificates and other authorizations of
tribal authorities and the United States Bureau of Indian Affairs (the
"BIA")(collectively, "Tribal Authorizations") held by Seller and relating to any
Purchased Property located, or any operations of the Business conducts, on
Native American reservations are in full force and effect, Seller is not in
material default thereunder, and there are no other Tribal Authorizations
required to be obtained by Seller from, or filings required to be made by Seller
with, any tribal authority or the BIA with respect to any such Purchased
Property or any such operations of the Business, except for instances that in
the aggregate are not reasonably likely to have a material adverse effect on the
Business following the Closing Date.
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(b) Except as set forth on Schedule 4.2.14(b), to Seller's Knowledge
no consent, approval or waiver from, or filing with, any tribal authority or the
BIA is required to be obtained or made in connection with the execution and
delivery by Seller of this Agreement, or Seller's fulfillment of its obligations
under this Agreement, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(c) If during the period between the date of this Agreement and the
Closing Date the representation and warranty set forth in this Section 4.2.14
proves to be untrue with respect to one or more parcels of Realty and Buyer and
Seller in good faith have been unable to remedy the circumstances that causes
such representation and warranty to be untrue with respect to such parcel, at
the election of either Buyer or Seller such parcel shall be excluded from the
Transferred Assets, and Buyer and Seller shall in good faith reduce the Purchase
Price accordingly.
4.2.15 Financial Statements.
Within 15 business days of the date hereof, Seller shall deliver to Buyer
a copy of financial statements relating to the Business, consisting of a balance
sheet and income statement and statements of cash flow and changes in equity for
the Business as of and for the respective periods ended December 31, 1996,
December 31, 1997, and December 31, 1998, together with the auditor's report
thereon (the "Financial Statements"). The Financial Statements were prepared
based upon the books and records of Seller, fairly present in all material
respects the financial condition of the business as of the appropriate periods
and the results of operations for the year then ended, in each case in
conformity with GAAP.
4.2.16 Loss of Major Customer. Except as set forth on Schedule
4.2.16, since June 1, 1997, Seller has not suffered the loss of any customer of
the Business that had billings in any year in excess of $25,000.
4.2.17 CPRs; Vehicles. Seller has provided Buyer with its Continuing
Property Records ("CPRs") for the Exchanges. Schedule 4.2.17 contains a true and
complete list and description (including vehicle identification numbers) as of
June 1, 1999 of the vehicles that are included in the Transferred Assets.
4.2.18 Tariffs and Authorities.
(a) The regulatory tariffs applicable to the Business stand in full
force and effect on the date of this Agreement in accordance with all terms, and
there is no outstanding notice of cancellation or termination or, to Seller's
Knowledge, any threatened cancellation or termination in connection therewith,
nor is Seller subject to any restrictions or conditions applicable to its
regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material
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respect under any such tariff. Schedule 4.2.18(a) sets forth all applications by
Seller or complaints or petitions by others or proceedings pending or, to
Seller's Knowledge, threatened before the state regulatory authority relating to
the Business or its operations or the regulatory tariffs that Seller, after
using commercially reasonable efforts, has been able to identify. To Seller's
Knowledge, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Business
has been delivered or made available to Buyer.
(b) Listed on Schedule 4.2.18(b) are the material Authorities held
by Seller and used in the operation of the Business. Each of such Authorities is
in full force and effect of the date of this Agreement in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor are any of such Authorities subject to any restrictions or
conditions that limit the operation of the Business (other than restrictions or
conditions generally applicable to licenses or permits of that type). Subject to
the Communications Act of 1934, as amended, and the regulations thereunder, the
FCC licenses included in the Authorities are free from all security interests,
liens, claims or encumbrances of any nature whatsoever. Except as disclosed on
Schedule 4.2.18(c), there are no applications by Seller or complaints or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC licenses that would reasonably be expected to have a
material adverse impact on the Business.
4.2.19 Environmental Matters.
(a) Schedule 4.2.19(a) accurately describes each incident known to
Seller and arising since December 31, 1996, involving violation of or
noncompliance with Environmental Laws in connection with Seller's operation of
the Business or the use or ownership of the Transferred Assets with respect to
which the fines exceed $100,000. Except as will be set forth on Schedule
4.2.19(d), no environmental remediation is occurring on any parcel of Fee Realty
or leased real property included in the Transferred Assets nor has Seller or any
Affiliate of Seller issued a request for proposal or otherwise asked an
environmental remediation contractor to begin plans for environmental
remediation.
(b) Schedule 4.2.19(b) sets forth a true and accurate list of all
underground storage tanks ("USTs") and aboveground storage tanks ("ASTs")
located on the Fee Realty and the leased real property included in the
Transferred Assets that are in use.
(c) Except as set forth in Schedule 4.2.19(c) and, to the extent
such information is unavailable on the date of execution of this Agreement, as
set forth and supplemented on Schedule 4.2.19(d), none of the Fee Realty or
leased real property is situated in a federal "Superfund" site or, to Seller's
Knowledge, in any federal "Superfund" study area.
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(d) Within 30 days from the date of this Agreement, Seller will
prepare and deliver to Buyer Schedule 4.2.19(d), which schedule will list (i)
all environmental remediation occurring on any parcel of Fee Realty or leased
real property included in the Transferred Assets, (ii) any requests for
proposals for remediation, (iii) any requests by Seller or any Affiliate of
Seller to begin plans for environmental remediation, (iv) all USTs and ASTs
located on the Fee Realty and the leased real property included in the
Transferred Assets that, to Seller's Knowledge, have been abandoned in place,
and (v) each incident known to Seller and arising since December 31, 1996,
involving violation of or noncompliance with Environmental Laws in connection
with Seller's operation of the Business or the use or ownership of the
Transferred Assets with respect to which the fines exceed $10,000. In addition,
within such period, Seller shall deliver to Buyer complete copies of letters of
non-compliance with respect to each incident listed in subsection (v) above,
copies of AST and UST closure letters contained in the files and records of
Seller, copies of all No Further Action letters contained in the files and
records of Seller, and a description of the status of any existing fuel tank
remediation.
4.2.20 Employee Benefits.
(a) Schedule 4.2.20(a) lists each Employee Benefit Plan and Other
Plan maintained or contributed to by Seller or its affiliates for the benefit of
any employee employed by, or associated with, the Business (hereinafter, an
"employee of the Business"). Seller has provided Buyer with full and complete
copies (including all amendments) of all of such Employee Benefit Plans and
Other Plans.
(b) To Seller's Knowledge, each such Pension Plan, Welfare Plan and
Other Plan maintained by Seller has been operated in accordance with its terms
and in accordance with applicable law, to the extent that the failure to do so
would have material adverse effect on the Business or its assets.
(c) Except as otherwise set forth on Schedule 4.2.20(c), no Employee
Benefit Plan or Other Plan provides benefits for persons who are not active
employees of Seller.
(d) Except as set forth on Schedule 4.2.20(g), there are no actions,
suits or claims pending or threatened (other than routine claims for benefits)
relating to any Employee Benefit Plan or Other Plan identified in Schedule
4.2.20(a) except for actions, suits or claims that are not in the aggregate
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(e) Seller does not maintain any Employee Benefit Plan or Other Plan
under which it would be obligated to pay benefits because of the consummation of
the transaction contemplated by this Agreement, which could become an obligation
of the Buyer.
(f) Seller has used its best efforts to maintain each trust forming
a part of any Pension Plan identified in Schedule 4.2.20(a) which is not exempt
from Part 2, 3 and 4 of Title I of
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ERISA to meet all requirements for qualification under Sections 401 and 501 of
the Internal Revenue Code, and all applicable related rules and final
regulations.
(g) Schedule 4.2.20(g) sets forth all the exceptions to the
following statements that Seller, after using commercially reasonable efforts,
has been able to identify: (i) Seller is not subject to any collective
bargaining agreement covering any employees of the Business; (ii) there are no
current, or to Seller' Knowledge, any pending or threatened strikes, slowdowns,
picketing, work stoppages or lock-outs affecting the Business; (iii) to Seller's
knowledge, there is no pending or threatened organized activity or petition for
certification of a collective bargaining representative involving employees of
the Business; (iv) to Seller's Knowledge, there is no pending or threatened
charge, action, complaint, or proceeding of any nature against Seller relating
to the violation of any applicable state and federal labor or employment law or
regulation in connection with the Business, nor is there any other pending or
threatened labor or employment dispute against or affecting Seller in connection
with the Business ,except for items that in the aggregate are not reasonably
likely to have a material adverse effect on the Business following the Closing
Date; and (v) with respect to employees of the Business, Seller has complied in
all respects with the laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupation safety and health, immigration, and plant closings ,except
for items that in the aggregate are not reasonably likely to have a material
adverse effect on the Business following the Closing Date. Seller has delivered
to Buyer accurate and complete copies of all collective bargaining agreements
affecting any of the employees in the Exchanges.
"Employee Benefit Plan" means any Pension Plan and Welfare Plan within the
meaning of Section 3(3) of ERISA.
"Other Plan" means any employment, noncompetition, management, agency or
consulting arrangement, bonus, profit sharing, deferred compensation, incentive,
stock option, stock ownership or stock purchase plan, severance or unemployment
arrangement, vacation pay, fringe benefit or other similar plan, policy or
arrangement, whether or not in written form, which does not constitute an
Employee Benefit Plan and which is not listed on Schedule 4.2.20(a).
"Pension Plan" means any employee pension plan within the meaning of
Section 3(2) of ERISA.
"Welfare Plan" means any employee welfare benefit plan within the meaning
of the Section 3(1) of ERISA.
4.2.21 Accuracy of Information Furnished.
(a) To Seller's Knowledge:
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(i) Seller made a good faith effort, given the voluminous
nature of the material available with respect to the Transferred Assets, the
necessity to present in many cases representative documents or descriptions of
documents, and Seller's need to maintain certain competitive information
confidential, to include in the due diligence notebooks contained in the Data
Room located in Seller's offices in Denver, Colorado all documents or
appropriate descriptions of all documents that, in Seller's reasonable opinion,
a reasonable prospective acquiror of the Transferred Assets would deem to be
material in its decision; and
(ii) Seller did not intentionally and consciously decide to
(1) exclude from the due diligence notebooks (2) withhold from Buyer in response
to Buyer's requests for additional information or (3) not make available for
review by Buyer or its agents at Seller's offices in Denver, Colorado any
document relating to the operation of the Business as currently conducted which,
in Seller's reasonable opinion, a reasonable prospective acquiror of the
Transferred Assets would deem to be material in its decision to acquire the
Transferred Assets.
4.2.22 No Material Adverse Change. Since December 31, 1998 there has not
occurred (i) any event or condition that would have a material adverse effect on
the Business, (ii) any increase in compensation payable or to become payable by
Seller to any of its Hired Employees or agents, other than normal merit or
promotional increases and pursuant to any collective bargaining agreements,
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract, except any amendment or termination in the
ordinary course of business or (iv) any change in any accounting method,
practice or policy of Seller with respect to the Business.
ARTICLE 5
COVENANTS
5.1 Covenants of Buyer. Buyer hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.1.1 Continued Efforts. Buyer will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Buyer; (ii) cause to be performed all of
the actions required of Buyer at or prior to the Closing; and (iii) take such
steps and do all such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect as
if the same had been made as of the Closing Date. Without limiting the
foregoing, Buyer agrees if requested by Seller to apply for or otherwise seek
any required third-party consents on a joint basis.
5.1.2 Cooperation. Buyer agrees to cooperate with Seller with
respect to (i) Seller's assignment to Buyer and Buyer's assumption of the
Transferred Assets hereunder, and (ii) Seller's structuring of the Transactions
to comply with the requirements of a like-kind exchange under Section 1031 of
the Code (a "1031 Transaction") at no additional expense to Buyer, such
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cooperation to include, without limitation, purchase of the Transferred Assets
from a "qualified intermediary" (as defined in Section 1031) of Seller's choice
and execution of such documents in connection with the Transactions as Seller
may reasonably request. If Seller elects to pursue the Transactions as a 1031
Transaction, then (i) notwithstanding anything in this Agreement to the
contrary, Seller shall fully indemnify, defend and hold Buyer harmless from and
against any and all liabilities resulting therefrom, including, but not limited
to, any tax impacts on Buyer or the Transferred Assets, and (ii) Seller shall
remain directly and primarily bound by all other conditions, representations,
warranties and covenants contained herein and remedies related thereto.
5.1.3 Employee Matters.
(a) Buyer agrees that, during the period between the date hereof and
the Closing Date and for a period of 18 months thereafter, without the prior
written consent of Seller, Buyer will not actively solicit for employment any
employee of Seller other than those persons identified by Seller to Buyer in
writing as provided in this Section 5.1.3 or who respond to a general
solicitation of employment made by Buyer.
(b) As soon as practicable following the date hereof and as
permitted by applicable law and collective bargaining agreements, Seller shall
provide to Buyer a list of all employees whose services are primarily related to
the Exchange (the employees on such list being referred to as "Prospective
Hires"). Buyer shall have the right to audit such list to determine that it
contains an accurate and complete listing of all Prospective Hires, and Seller
shall cooperate in providing Buyer with such information as Buyer may reasonably
request to assist in such audit. Within 90 days following the date of this
Agreement, and consistent with applicable law and any collective bargaining
agreement, Seller shall provide Buyer with a definitive list of Prospective
Hires, such list to contain the name, job classification, position, title, date
of hire, current salary or wage, bargaining unit, primary exchange(s), work
location, telephone number and last known address of each Prospective Hire.
(c) Buyer may, but shall have no obligation to, employ or offer
employment to any Prospective Hire. Seller shall cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview the Prospective
Hires to make hiring decisions. At least 60 days before the scheduled Closing
Date, Buyer shall provide to Seller in writing a list of the Prospective Hires
that Buyer intends to offer employment. At least 45 days before the scheduled
Closing Date, Buyer shall notify those Prospective Hires whom Buyer intends to
hire on the Closing Date; the form and manner of such notification shall be
reasonably satisfactory to and approved in advance by Seller. Buyer shall be
permitted to conduct appropriate pre-hire investigations of such named
Prospective Hires and make any offer of employment for such Prospective Hires
conditional upon receiving results of such investigations as are satisfactory to
Buyer.
(d) As of the Closing Date, Seller shall separate from its payroll
the employment of all of the Prospective Hires to whom Buyer has made offers of
employment other than any such Prospective Hire who has been offered employment
by Buyer and who is on leave status, including
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employees receiving Workers' Compensation Benefits, as of the Closing Date
(each, an "Employee on Leave Status"). Buyer shall employ any Employee on Leave
Status (i) who is on approved leave under the Family and Medical Leave Act on
the Closing Date only when such Employee on Leave Status returns to work from
such approved leave under the Family and Medical Leave Act or (b) who is
receiving Workers' Compensation Benefits on the Closing Date only when such
Employee on Leave Status is released to return to work but only if such release
occurs within sixteen weeks after the date of initial eligibility for Workers'
Compensation Benefits, in each case subject to Buyer's right to conduct
appropriate pre-hire investigations of such Employee on Leave Status and to
Buyer's receipt of results of such investigations that are satisfactory to
Buyer.
(e) Seller shall be responsible for and shall cause to be discharged
and satisfied in full all amounts owed to any Prospective Hire who is employed
by Seller as of the Closing Date, including salaries, commissions, bonuses,
deferred compensation, severance, insurance, vacation, and other compensation or
benefits to which they are entitled for periods prior to the Closing (and for
Employee on Leave Status, until their employment by Buyer, as set forth in
Section 5.1.3(d) hereof), including all amounts (if any) payable on account of
the termination of such Prospective Hires.
(f) Seller will be responsible for maintenance and distribution of
benefits accrued under any Employee Benefit Plan maintained by Seller pursuant
to such plan and any legal requirements. Buyer will not assume any obligation or
liability for any such accrued benefits under any employee benefit plans
maintained by Seller.
(g) Nothing in this Section 5.1.3 or elsewhere in this Agreement
shall be deemed to make any Prospective Hire a third party beneficiary of this
Agreement.
(h) Seller acknowledges and agrees that Buyer has not agreed to be
bound, and will not be bound, by any provision of any collective bargaining
agreement or similar contract with any labor organization to which Seller or any
of its Affiliates is or may become bound.
(i) Seller shall provide employees of the Business with any required
notices under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller.
5.1.4 Directory Publishing Rights. Buyer will enter into good faith
negotiations with U S WEST Dex, Inc. ("Dex"), an Affiliate of Seller (or its
successor so long as such successor remains an Affiliate of Seller), concerning
an agreement whereby either (i) Dex will publish all subscriber listings
corresponding to the Exchanges on behalf of Buyer in satisfaction of Buyer's
regulatory obligations to publish such listings, or (ii) Buyer will license such
listings to Dex in accordance with Buyer's regulatory obligations to provide
such listings in the event that Buyer elects to publish or arrange with a third
party to publish such listings.
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5.1.5 911 Emergency Services. Buyer will obtain or contract for the
appropriate 911 emergency data bases in order to commence providing 911
emergency services in connection with the operation of the Business as of the
Closing Date.
5.2 Covenants of Seller. Seller hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.2.1 Access to Information and Facilities. Seller will afford Buyer
and its representatives, at Buyer's sole expense, reasonable access during
normal business hours to all Transferred Assets, facilities, properties, books,
accounts, records, contracts and documents of or relating to the Business in
Seller's possession or control. Seller shall exercise commercially reasonable
efforts to furnish or cause to be furnished to Buyer and its representatives all
data and information in Seller's possession concerning the Exchanges as shall
reasonably be requested by Buyer. Seller shall exercise commercially reasonable
efforts to gather additional Material Contracts for Buyer's review.
Seller acknowledges and agrees that Buyer's ongoing review, examination
and investigation of the Business and the Transferred Assets, facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business contemplated in the immediately preceding sentence is necessary to
facilitate the assimilation of the Business into Buyer's operations, the
transfer of the ownership and use of the Transferred Assets from Seller to Buyer
and other reasonable business purposes, and may include the following
activities:
(i) review of the Operating Contracts and Authorities, the
performance of which after Closing is an Assumed Liability (e.g., land
development agreements, 911 and E911 service agreements and customer
prepaid maintenance agreements) in order, among other things, to identify
those that require third party consent to assign to Buyer, those that
expire prior to or soon after the Closing and those that may require
special documentation to transfer to Buyer;
(ii) investigation of the third party arrangements included among
the Excluded Assets that Buyer will need to replicate or replace,
including interconnection agreements and national account agreements that
affect any Exchange.
(iii) examination of various assets included in the Property in
order, among other things, to determine what changes Buyer may need to
make to such assets after the Closing Date;
(iv) investigation of miscellaneous underwriting data, including an
insurance claims history of Seller relating to the operation of the
Business and the ownership or use of the Transferred Assets, the current
surety bonds and certificates of insurance relating to the Transferred
Assets, and Seller's policies and practices relating to pertinent
environmental, health, safety and property protection issues, in order for
Buyer to arrange appropriate
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insurance coverage by Closing with respect to Buyer's operation of the
Business and ownership and use of the Transferred Assets after the Closing
Date;
(v) investigation of the location and organization of the Records,
including the original cost documents and outside plant maps relating to
the Property, in order for the parties to arrange for appropriate delivery
(including via electronic transfer) or retention by Seller upon the
Closing;
(vi) review of the appropriate financial and accounting records of
Seller relating to the operation of the Business in order, among other
things, for Buyer to analyze the current balances and writeoff history of
the materials and supplies inventory included in the Transferred Assets,
the aging and write-off history of Accounts Receivable, and the manner in
which the Seller historically has allocated costs to the Purchased
Exchanges;
(vii) review of the ongoing State Regulatory Authorities and FCC
reporting obligations of Seller and Buyer relating to the Exchanges,
including responsibility for filing "form M" financial information, FCC
Report No. 43-04, Armis Joint Cost Report, and FCC Report No. 43-8, Armis
Operating Data Report, for the Exchanges for the year in which the Closing
Date occurs;
(viii) investigation of the construction and plant upgrade
activities of Seller between the date of execution of this Agreement and
the Closing Date, including a review of the construction work in progress,
in order, among other things, to enable Buyer to make appropriate
arrangements for the continuation of such activities after the Closing
Date; and
(ix) investigation of other regulatory issues, including with
respect to regulatory mandates and matters relating to the National
Exchange Carrier Association (including the Universal Service Fund, Local
Switching Support, and Telecommunications Relay Services funds) and
corresponding funds established by the State Regulatory Authorities.
The parties agree to cooperate and to negotiate in good faith regarding
resolution, on commercially reasonable terms and conditions, of issues and
concerns raised by either party in connection with such activities. Each party's
cooperation will include making appropriate subject matter experts and other
knowledgeable personnel available to meet with the appropriate representatives
of the other party and facilitating Buyer's contacts with the appropriate
Governmental Authorities (including the State Regulatory Authorities).
5.2.2 Continued Efforts. Seller will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Seller; (ii) cause to be performed all
of the actions required of Seller at or prior to the Closing; and (iii) take
such steps and do such acts as may be necessary to make all of its warranties
and representations true and correct as of the Closing Date with the same effect
as if the same had been made as of the Closing Date.
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5.2.3 Maintenance of Business. Seller shall carry on the Business in
the usual and ordinary course and substantially in the same manner as heretofore
conducted. Accordingly, Seller shall (i) maintain its books and records in the
normal and usual manner, (ii) keep the Transferred Assets in a normal state of
repair (except for ordinary wear and tear) and operating efficiency to permit
the conduct of the Business as it is currently being conducted; (iii) use its
commercially reasonable efforts to undertake or complete capital projects as
budgeted on Schedule 5.2.3(iii) and any capital projects required by Applicable
Laws or any Governmental Authority to be undertaken by the Closing Date (it
being understood and agreed that Seller shall have no obligation for any capital
spending other than in connection with such capital projects and as required to
comply with the provisions of this Section 5.2.3 and provided that Seller shall
be entitled to the Purchase Price adjustment (to the extent applicable) pursuant
to Section 1.4.3(a)); (iv) not increase the benefit provided under any plans
concerning employee benefits or increase the general rates of compensation of
its employees in the Exchanges, except (a) as required by Applicable Law, (b)
pursuant to any contracts existing on the date hereof and listed on Schedule
5.2.3(iv) to which Seller is a party, (c) increases in base pay or bonuses in
the ordinary course of business of Seller and in amounts consistent with the
recent past practices of Seller, or (d) as listed or described on Schedule
5.2.3(iv); and (v) not amend, modify or terminate any contract identified on
Schedule 4.2.9 or permit any of the foregoing to occur other than in the
ordinary course of business.
5.2.4 Consent to Assignment. Seller will transfer to Buyer all
Operating Contracts and permits that are by their terms assignable. Seller shall
also request assignment to Buyer of those Operating Contracts and permits that
are not by their terms assignable. To the extent that the assignment of any
Operating Contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Operating
Contract or permit if an attempted assignment would constitute a breach thereof.
Seller shall use commercially reasonable efforts (excluding the payment of
money) to obtain the consent of any other party to the assignment of such
Operating Contracts or permits to Buyer. If any such consent is not obtained, to
the extent permitted by Applicable Law, this Agreement shall constitute an
equitable assignment by Seller to Buyer of all of Seller's right, title, and
interest in and to such Operating Contracts and permits, and Buyer shall be
deemed Seller's agent for the sole purposes of completing, fulfilling and
discharging all of Seller's rights and obligations arising after the Closing
Date under such assigned Operating Contracts and permits.
5.2.5 Payment and Performance of Obligations. Seller will timely pay
and discharge all invoices, bills and other monetary obligations (other than
obligations which are contested by Seller in good faith) and shall not knowingly
perform or fail to perform any act which will cause a material breach of any of
the Operating Contracts.
5.2.6 Restrictions on Sale of Transferred Assets. Seller shall not
sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose
of any of the Transferred Assets except in the ordinary course of the Business.
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5.2.7 Audit or Review of Financial Statements. To the extent Buyer
reasonably requires audited or reviewed financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, Seller
will cooperate with the independent auditors chosen by Buyer in connection with
their audit of any annual financial statements that Buyer reasonably requires to
comply with Regulations S-X and S-K, and their review of any interim quarterly
financial statements that Buyer reasonably requires to comply with Regulations
S-X and S-K. If Closing has not occurred prior to March 31, 2000, then as soon
as practicable but in any event by May 15, 2000. Seller will provide for audit a
balance sheet as of December 31, 1999, and an income statement and statement of
cash flows and changes in equity for the year ending December 31, 1999. The
financial statements to be audited or reviewed pursuant to this Section 5.2.7,
are hereinafter referred to as the "Required Financial Statements." Seller's
cooperation will include (i) such access to Seller's employees who were
responsible for preparing the Required Financial Statements and to workpapers
and other supporting documents used in the preparation of the Required Financial
Statements as may be reasonably required by such auditors to perform an audit in
accordance with generally accepted auditing standards, (ii) delivery of any
Required Financial Statements within 45 days after Buyer's request for the same
(except as otherwise provided in the second sentence of this Section 5.2.7) and
in the form required by Regulations S-X and S-K, and (iii) delivery of one or
more representation letters from Seller to such auditors that are requested by
Buyer to allow such auditors to complete the audit (or review of any interim
quarterly financials), and to issue an opinion acceptable to the SEC with
respect to the audit or review of those Required Financial Statements. Seller
will bear the cost of preparation of the Required Financial Statements. Buyer
and Seller will share equally the cost of the audit or review.
5.2.8 [Intentionally Deleted]
5.2.9 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information and reasonable assistance as Buyer may reasonably request
in connection with Buyer's replacement of the interconnection agreements
relating to the Exchanges, including supplying to Buyer copies of such
interconnection agreements to the extent permissible and, to the extent
requested by Buyer and in compliance with applicable law, contacting the other
party to such interconnection agreements to notify such party that its
interconnection agreement will not apply to the Buyer and the Exchanges after
Closing. Buyer acknowledges its obligation to negotiate interconnection
agreements with third parties that have ongoing interconnection activities
related to the Exchanges with the expectation that interconnection agreements
between Buyer and such third partes will be entered into effective as of the
Closing Date. If such agreements are not entered into or, if required, approved
by appropriate Governmental Authorities, Buyer will offer to provide
interconnection to such third parties according to the terms of the Seller's
interconnection agreements with such third parties until the Buyer's new
agreements with such third parties are entered into or, if required, approved by
appropriate Governmental Authorities.
5.2.10 State Regulatory Authority/FCC Filings. Seller shall make all
necessary filings with the State Regulatory Authorities, the FCC or any other
Governmental Authority between
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the date of this Agreement and the Closing Date. Seller shall notify Buyer of
any significant proposed changes in the rates, charges, standards of service or
accounting of the Exchanges from those in effect on the date of this Agreement
prior to making any filing with the State Regulatory Authorities, FCC or any
other Governmental Authority (or any amendment thereto), or effecting with any
Governmental Authority any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto. Between the
date of this Agreement and the Closing Date, Seller shall use commercially
reasonable efforts to notify Buyer before Seller files any application,
petition, motion, brief, testimony, settlement agreement or other pleading in
any proceeding before the State Regulatory Authorities, FCC or any other
Governmental Authority or appeals related thereto with respect to which Buyer or
an Affiliate of Buyer has or reasonably could be expected to take a contrary
position that reasonably could be expected to have any adverse effect on the
revenue, earnings, or business of Buyer. Seller will give or cause to be given
to Buyer, as promptly as reasonably practicable, copies of all correspondence
(including notices, complaints, and pleadings) with any Governmental Authority
relating to any such proceeding or other rate regulatory matter that is sent or
received by Seller after the date of this Agreement.
5.2.11 Missing Plant.
(a) If, between the period commencing on execution date of the
Agreement and ending six months after the effective time of Closing, Buyer
notifies Seller in writing regarding items of Property (other than items that
have been fully depreciated on the books and records of Seller, items that are
no longer used in or necessary to the Business, and items covered by Section
5.2.11(b)) that are included in the CPRs relating to the Exchanges but that
Buyer, using commercially reasonable efforts, cannot locate in the Exchanges or
that have been sold, transferred or removed from the Exchanges by Seller or an
Affiliate of Seller, then Seller, at its option, either (i) shall pay to Buyer
(or reduce the Purchase Price by) an amount equal to the net book value of such
items as reflected on the books and records of Seller or (ii) deliver to Buyer
such items or replacement items that have reasonably comparable (or superior)
value, vintage and functionality; provided, however, that Seller shall have no
obligation under this Section 5.2.11(a) until the aggregate net book value of
all such items, together with the aggregate net book value of all such similar
items identified in Section 5.2.11 of each of the Multi-State Exchange Purchase
Agreements, exceeds $400,000, at which time Seller shall become obligated under
this Section 5.2.11(a) with respect to all items so identified by Buyer in all
notices delivered to Seller on or before the date that is six months after the
effective time of Closing; and provided, further that Seller shall have no
obligation under this Section 5.2.11(a) to the extent that the Maximum
Adjustment Amount shall have been reached.
(b) At Closing, Seller shall cause the Transferred Assets to include
all vehicles listed on Schedule 4.2.17 except to the extent any such vehicle has
been replaced with items of reasonably comparable (or superior) value, vintage
and functionality, in which event Seller shall cause such replacement items to
be included in the Transferred Assets.
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5.2.12 Third Party Software Licenses. To the extent that the transfer of
Transferred Assets by Seller to Buyer under this Agreement results in the
transfer of third party software that was rightfully used by Seller prior to the
Closing Date in the normal course operation of the Business pursuant to
contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then effective as of the Closing and provided
that no payments to any person are thereby required (except with respect to
payments relating to the transfer of switch software, which will be shared
equally by Buyer and Seller), at Closing Seller shall assign to Buyer, to the
extent permitted by the Third Party Intellectual Property Contracts, and Buyer
shall accept all rights and licenses if any to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses.
5.3 Mutual Covenants.
5.3.1 Confidentiality. Each party to this Agreement agrees to hold
in strict confidence all Confidential Information received from the other party,
whether received before or after entering into this Agreement, and to use such
information solely for the purposes of this Agreement. Each party agrees to make
no more copies of such Confidential Information than is reasonably necessary for
such purposes. Each party agrees that it will not make disclosure of any such
Confidential Information received from the other party to anyone except as
specifically permitted by this Agreement and as required by law. Each party may
disclose Confidential Information to its employees and agents to whom disclosure
is necessary for the purposes set forth above, provided that disclosing party
shall notify each such employee and agent that disclosure is made in confidence
and instruct such employees and agents that such Confidential Information shall
be kept in confidence by such employee and agent in accordance with this
Agreement. If the Transactions are not consummated for any reason, each party
agrees to return to the other party all such Confidential Information, including
all copies thereof, immediately on request. The obligations arising under this
section shall survive any termination or abandonment of this Agreement. This
Agreement will be filed on a confidential basis with the State Regulatory
Authorities. The provisions of the existing Confidentiality Agreement between
Buyer and Seller dated January 15, 1999 are incorporated herein by reference.
5.3.2 Public Announcements. No public announcement with respect to this
Agreement or the transactions contemplated hereby shall be made before the
Closing without the mutual prior approval of both Seller and Buyer, which
approval shall not be unreasonably withheld; provided, however, that each party
shall be permitted to make such disclosure to its lenders or to any Governmental
Authority, including but not limited to the Securities and Exchange Commission
or similar state securities authorities, necessary to comply with any applicable
laws and to obtain all required Governmental Approvals necessary to consummate
the Transactions, or to any stock exchange upon which such party has a class of
securities listed. Notwithstanding the foregoing, the disclosing party shall
give the non-disclosing party reasonable advance notice of any permitted
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disclosure to third parties under this Section 5.3.2 and shall provide the
non-disclosing party with a reasonable opportunity to review and comment on such
disclosure.
5.3.3 Cooperation. Each party covenants to use all commercially
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all things, that are necessary, proper or advisable under applicable
laws and regulations, expeditiously and practicably to consummate and make
effective the Transactions, including but not limited to (i) using its
commercially reasonable efforts to resolve any disagreements between Buyer and
Seller with respect to any applications for governmental or regulatory approval
prior to application for such approval, (ii) facilitating the regulatory
approval process by agreeing that Buyer will adopt and maintain intrastate
tariffs similar in all material respects to Seller's intrastate tariffs in
effect for the Exchanges on the Closing Date for a period of at least six months
following the Closing Date, provided that such tariffs of Seller are
substantially similar to the tariffs of Seller in effect on the date of this
Agreement except that Buyer's tariffs will reflect rate changes by Seller (x)
made prior to Closing as required by an order of a State Regulatory Authority
that has been issued prior to the date of this Agreement or (y) made prior to
Closing to the extent such changes are substantially revenue neutral to the
Exchanges, (iii) obtaining all necessary actions, waivers, consents and
approvals from third parties or Governmental Authorities, and (iv) effecting all
necessary filings with Governmental Authorities, and to consummate the
agreements referred to in Section 2.4.
5.3.4 State Regulatory Filings. Seller and Buyer agree to promptly
file after execution of this Agreement any required applications and to take
such reasonable actions as may be necessary or helpful (including, but not
limited to, making available witnesses, information, documents, and data
requested by the State Regulatory Authorities) to apply for and receive approval
by the State Regulatory Authorities for the transfer of the Transferred Assets
and Authorities to Buyer. To the maximum extent practicable, all communications
with the State Regulatory Authorities shall be made jointly by Buyer and Seller.
In connection with making such required applications to the State Regulatory
Authorities, Buyer agrees to cooperate with Seller in appropriate public
relations activities, including participation in "town hall" meetings with
citizens, contacts with civic and business leaders, legislators and government
officials, and other activities designed to establish Buyer's presence in and
commitment to the communities in which the Exchanges are located. In the event
any state legislature proposes to enact legislation after the date of this
Agreement which would have an adverse impact on the consummation of the
Transactions or would impose a material liability on either Seller or Buyer in
connection with the transfer of the Transferred Assets, Seller and Buyer agree
to use commercially reasonable efforts to oppose such legislation at their own
expense.
5.3.5 FCC Filings. The parties agree to promptly file after
execution of this Agreement such applications and to take such reasonable
actions as may be necessary or helpful to apply for and receive approval by the
FCC for the transfer of the Transferred Assets and the Authorities to Buyer and
the change in the provider of telecommunications services in the Exchanges to
Buyer. Buyer shall file an application for study area waivers and the
reinitialization of the PCI with respect to at least one of the transactions
contemplated by the Multi-State Exchange Purchase
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Agreements with the FCC within 120 days of the date hereof. Further, Buyer shall
use its best efforts to obtain the FCC's approval of (i) study area waivers for
the Exchanges and (ii) the Reinitialization.
5.3.6 H-S-R Filing. The parties agree to make all required filings
under the H-S-R Act no later that 90 days prior to the anticipated date of
Closing and to request early termination of all applicable waiting periods
thereunder, and thereafter to promptly respond to all requests for additional
information from the Federal Trade Commission or the United States Department of
Justice thereunder.
5.3.7 Environmental Inspections. Within 30 days following the
execution of this Agreement, Seller and Buyer shall select Environmental
Strategies Corporation (or another qualified environmental consultant reasonably
satisfactory to Buyer and Seller) to conduct a Transaction Screen with respect
to each parcel of Fee Realty included in the Transferred Assets (except for any
parcel designated by Buyer not to receive a Transaction Screen), which review
shall be conducted in accordance with ASTM standards and shall be completed
within 90 days following the execution of this Agreement. Upon completion of
such Transaction Screen, such consultant shall deliver to Buyer and Seller a
written report with respect thereto. Each party shall notify the other party in
writing (the "Remediation Notice") within 10 days of learning of any potential
material liabilities under any Environmental Laws with respect to a parcel of
Fee Realty included in the Transferred Assets, but in no event later than the
10th day following receipt of the related Transaction Screen. Thereafter, Buyer
shall determine whether to conduct additional environmental due diligence,
including a Phase I Environmental Report, which shall be completed within 60
days of delivery of the Remediation Notice. If the estimated costs of
remediation of such potential liabilities on such parcel (the "Remediation
Costs") will exceed $400,000, Seller shall either effect such remediation or may
instead elect to exclude either such parcel of Fee Realty or the Exchange to
which such parcel of Fee Realty relates from the Transferred Assets, and Buyer
and Seller shall in good faith reduce the Purchase Price accordingly. If,
pursuant to the preceding sentence, Seller elects to exclude the parcel of Fee
Realty, then, at Buyer's request, Seller shall grant to Buyer a long-term lease
at an annual rental rate of $1.00 and otherwise in form and substance reasonably
satisfactory to Buyer, for the use of such parcel (and Seller shall have no
obligation to effect any remediation with respect to such parcel); provided that
if Buyer is required to pay a higher rental rate for such leased parcel pursuant
to or in connection with the granting of any Governmental Approval, the Purchase
Price shall be decreased by the net present value of the aggregate lease
payments, discounted at a rate of 8% per annum. If the environmental consultant
conducting Buyer's additional environmental due diligence ("Buyer's Consultant")
estimates that the Remediation Costs will exceed $400,000, Seller may elect to
conduct its own additional environmental due diligence during the 60 day period
following completion of Buyer's additional environmental due diligence, and if
the environmental consultant conducting Seller's additional environmental due
diligence ("Seller's Consultant") estimates that the Remediation Costs will be
less than $400,000, Seller shall not be required to so remediate or exclude such
parcel of Fee Realty or such Exchange unless Buyer elects to pursue an
arbitration conducted as contemplated by Article 8 and the arbitrator estimates
that the Remediation Costs will exceed $400,000.
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The costs of the Transaction Screens required by this Section shall be
borne equally by Buyer and Seller, and the costs of any additional environmental
due diligence (the scope of which shall be reasonably acceptable to Seller)
shall be borne by the party conducting such additional due diligence. Buyer
shall indemnify Seller for any liabilities or losses incurred by Seller as a
result of any additional environmental due diligence conducted by Buyer.
5.3.8. Cost Studies/NECA Matters.
(a) Prior to Closing. Seller agrees that, with respect to all
revenues, settlements, pools, separations studies or similar activities, Seller
shall be responsible for (and shall receive the benefit or suffer the burden of)
any adjustments to contributions, or receipt of funds, by Seller resulting from
any such activities that are related to the operation of the Business or the
ownership or operation of the Transferred Assets prior to the Closing Date.
Specifically, this paragraph shall apply, but shall not be limited to, any
maters related to the National Exchange Carrier Association ("NECA") including
the Universal Service Fund ("USF"), Local Switching Support ("LSS") and
Telecommunications Relay Services funds.
(b) From and After Closing.
(i) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC rules
and regulations. The USF Funds due to Buyer shall be determined by multiplying
the number of Access Lines served by the Exchanges on the Closing Date times a
per-line amount of USF support received by Seller for the study area containing
the Exchanges prior to the Closing Date. The resulting Buyer's annual USF amount
shall be prorated in proportion to the number of months in the year from and
after the Closing Date. Beginning July 1, 1999 or a date thereafter determined
by the FCC, non-rural carriers shall not receive USF pursuant to Part 36 and
Part 54, but will receive support in accordance with guidelines using
forward-looking economic cost. Except as contemplated by clause (i) below, after
the Closing Date, Buyer shall make its own filing in accordance with applicable
FCC rules and regulations. Within a reasonable time after Buyer's written
request and in any event at least 30 days prior to the NECA filing date, Seller
shall furnish to Buyer such necessary information regarding Seller's ownership
of the Transferred Assets during the partial calendar year prior to the Closing
Date and the prior calendar year and such reasonable assistance, at Buyer's
expense, as required in connection with Buyer's preparation of necessary filings
or submissions.
(ii) If Closing occurs within 30 days before the NECA filing
date for the USF to be received in the subsequent calendar year, then Seller
will include the Exchanges in its NECA filing for the subsequent calendar year.
Buyer shall receive, in the subsequent calendar year, a pro rata share of USF
Funds received by Seller, under Seller's methodology of computing USF, pursuant
to applicable FCC rules and regulations; provided that in no event shall such
sharing continue for more than 18 months after the Closing Date. The USF Funds
due to Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date
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times the per-line amount of USF support received by Seller for the study area
containing the Exchanges in the full calendar year subsequent to the Closing
Date.
(iii) Notwithstanding the foregoing, Buyer's right to receive
a pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (the "USAC")
based on end-user retail revenues for the previous year generated by the
Transferred Assets. The resulting Buyer's annual USF obligation for the
Transferred Assets shall be prorated in proportion to the number of months in
the year from and after the Closing Date.
(c) State USF. If Seller is entitled to receive any State USF
Funds as of the Closing Date that include State USF Funds relating to the
Exchanges, then Buyer shall receive a pro rata share of such State USF Funds
received by Seller, under Seller's methodology of computing such State USF
Funds, pursuant to the applicable State USF rules and regulations. The State USF
Funds due Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date time the per-line amount of USF
support received by Seller for the appropriate period. The resulting Buyer's
annual State USF amount shall be prorated in proportion to the number of months
in the year from and after the Closing Date. Such sharing of Seller's State USF
Funds shall discontinue upon commencement of the first period for which Buyer is
permitted to make its own State USF filings, and in no event shall such sharing
continue for more than 18 months after the Closing Date. Seller shall cooperate
with Buyer and provide such reasonable assistance, at Buyer's expense, as may be
required in connection with Buyer's preparation of necessary State USF filings
or submissions.
5.3.9 Owned Real Property Transfers. Within 60 days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies covering Fee Realty. No later than 150 days following the
date hereof, Seller shall deliver a preliminary title binder (on a standard
form) to Buyer issued by a title insurance company reasonably acceptable to
Buyer and a certified current survey (collectively, the "Title Commitment") with
respect to all Fee Realty included in the Transferred Assets. Buyer shall,
within 45 days following receipt of the Title Commitment for a parcel, deliver
to Seller, in writing, any objections to any matters affecting any of the Fee
Realty. In the event that Buyer fails to notify Seller as set forth above, such
objections shall be deemed waived. If the Title Commitment indicates the
existence of an Excessive Encumbrance, Seller shall, at its expense, cause such
Excessive Encumbrance to be removed on or before the Closing Date or, with the
prior written consent of Buyer, cause the title company to insure over each such
Excessive Encumbrance. Seller shall provide the title company with such
instructions, authorizations and affidavits at no cost to Seller as may be
reasonably necessary for the title company to issue title policies, based on the
most recent assessed value, to Buyer, dated as of the Closing Date, for all of
the Fee Realty with so-called non-imputation endorsements. Buyer and Seller
shall share equally the costs of the Title Commitments and the title policies.
By no later than 45 days after the Closing Date, Seller shall deliver to Buyer a
final title insurance policy covering the Fee Realty included in the Title
Commitment.
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5.3.10 IntraLATA Tolls. Buyer and Seller will use their best efforts
to negotiate appropriate agreements and arrangements in order to satisfy the
requirements of Section 7.1.9 at Closing.
ARTICLE 6
TERMINATION
6.1 Termination By Buyer.
6.1.1 If any condition precedent to Buyer's obligation to effect the
Closing set forth in Section 3.1 shall become incapable of satisfaction through
no fault of Buyer and such condition is not waived by Buyer, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement by written
notice to Seller.
6.1.2 If any Governmental Approval contains any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date, but only after Buyer has entered into good faith negotiations with Seller
to amend this Agreement in light of such terms or conditions and no such
amendment could be agreed upon, Buyer shall not be obligated to effect the
Closing and may terminate this Agreement by written notice to Seller; provided,
however, that Buyer shall not be entitled to terminate this Agreement based on
(x) Buyer's failure to obtain increases in intrastate tariff rates above those
then in effect, or (y) Buyer's being deemed a "successor" to Seller for any
regulatory purposes.
6.1.3 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Seller, and such misrepresentation
or breach has not been cured within 30 days of Seller's receipt of Buyer's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Buyer, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Seller.
6.2 Termination By Seller.
6.2.1 If any condition precedent to Seller's obligation to effect
the Closing set forth in Section 3.2 shall become incapable of satisfaction
through no fault of Seller and such condition is not waived by Seller, Seller
shall not be obligated to effect the Closing and may terminate this Agreement by
written notice to Buyer.
6.2.2 If any Governmental Approval contains terms or conditions
unacceptable to Seller, in Seller's reasonable discretion, but only after Seller
has entered into good faith negotiations with Buyer to amend this Agreement in
light of such terms or conditions and no such amendment
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could be agreed upon, Seller shall not be obligated to effect the Closing and
may terminate this Agreement by written notice to Buyer.
6.2.3 If Buyer does not deliver the Letters of Credit within 15
business days of the date hereof or the Letters of Credit, in whole or in part,
have been withdrawn or are no longer irrevocable.
6.2.4 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Buyer, and such misrepresentation
or breach has not been cured within 30 days of Buyer's receipt of Seller's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Seller, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Buyer.
6.2.5 If Buyer does not make the FCC filing described in the second
to last sentence of Section 5.3.5 within 120 days of the date hereof.
6.3 Termination By Buyer or Seller. If (i) a final, non-appealable order
is issued by any Governmental Authority to restrain, enjoin or prohibit the
consummation of the Transactions, (ii) the Closing shall not have occurred on or
before September 30, 2001 through no fault of the terminating party, then either
party may terminate this Agreement by written notice to the other.
6.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 6.1, 6.2 or 6.3, this Agreement shall thereafter
become void, except as set forth in Section 1.4.1 and for the provisions of
Sections 5.3.1 and 5.3.2 and Article 9, and there shall be no further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing herein
shall relieve any party from liability for any breach of this Agreement, and
(ii) the obligations of the parties hereto set forth in Section 11.6 shall not
be affected by a termination of this Agreement.
ARTICLE 7
POST CLOSING MATTERS
7.1 Post Closing. In order to effectuate an orderly transition in the
provision of telecommunications services to customers in the Exchanges, Buyer
and Seller agree to utilize the measures set forth below:
7.1.1 Notice to Customers. Seller shall provide written
notification, which notification shall be reasonably acceptable to Buyer, in its
final bill to each customer affected by this Agreement, that Seller is no longer
the customer's telecommunications provider and advising the
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customer of the name, address and telephone number of Buyer. Seller and Buyer
shall agree upon appropriate service cut-off dates with respect to the
Exchanges.
7.1.2 Customer Deposits. The disposition of customer deposits and
advance payments for future services made to Seller by residential and business
customers in the Exchanges shall be delegated to a transition team. The intent
of the parties to be carried out by the transition team is that, to the extent
practicable and subject to the rules and orders of the State Regulatory
Authorities, Seller shall retain all deposits for delinquent customers and the
remaining deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges shall be transferred to
Buyer. Notwithstanding the foregoing, all deposits and advance payments for
future services held by Seller under land development contracts or other similar
construction arrangements as of the Closing Date shall be credited to Buyer at
Closing.
7.1.3 Customer Records. To the extent not previously provided to
Buyer, Seller shall use commercially reasonable efforts to make available, upon
reasonable request from Buyer, all readily available billing and service records
for goods sold or services provided to customers of the Exchanges prior to
Closing for so long as such records are required to be maintained by applicable
law.
7.1.4 Operator Services and Directory Assistance. Buyer acknowledges
and agrees that, following the Closing, Buyer shall provide all subscriber list
information gathered in its capacity as a provider of local exchange service on
a timely and unbundled basis, under nondiscriminatory and reasonable rates,
terms and conditions, to any person requesting such information for any lawful
purpose in any format, including but not limited to Seller and its Affiliates.
Buyer's listing information will be treated the same as Seller's end user
listings for purposes of additional listings and dissemination of listings to
directory publishers, directory assistance providers, or other third parties.
Seller will incorporate listings information in all existing and future
directory assistance applications developed by Seller. Buyer authorizes Seller
to sell and otherwise make listings available to directory publishers, directory
assistance providers, and other third parties. Listings shall not be provided or
sold in such a manner as to segregate end users by carrier. Seller will not
charge for updating and maintaining the listings database.
7.1.5 Directory Publishing and 911 Emergency Services. Buyer shall
continue to comply with the covenants set forth in Sections 5.1.4 and 5.1.5
following the Closing Date, as appropriate, to the extent necessary to
accomplish the intent of such covenants.
7.1.6 911 Emergency Services. In the event that Seller becomes
obligated after the Closing Date to provide 911 emergency services with respect
to any portion of the Business, Buyer shall provide Seller (at no cost to
Seller) complete access to and use of the 911 Assets related to such 911
emergency services and shall enter into such agreements as Seller reasonably
requests in order to facilitate the provision by Seller of such 911 emergency
services and to provide for compensation to Seller at prevailing rates.
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7.1.7 Tariffs. Buyer agrees that for the six month period following
the Closing Date it will adopt and maintain intrastate tariffs similar in all
material respects to Seller's intrastate tariffs in effect for the Exchanges on
the Closing Date, provided that such tariffs of Seller are substantially similar
to Seller's tariffs in effect on the date of execution of this Agreement, except
that Buyer's tariffs will reflect rate changes by Seller (x) made prior to
Closing as required by an order of a State Regulatory Authority that has been
issued prior to the date of this Agreement or (y) made prior to Closing to the
extent such changes are substantially revenue neutral to the Exchanges.
7.1.8 Access to Books and Records.
(a) After the Closing, Seller will retain all books and records
related to the Excluded Assets for so long as required by applicable law.
(b) Subject to the terms of Section 7.1.3, after the Closing, upon
reasonable notice, the parties will give to the representatives, employees,
counsel and accountants of the other, access during normal business hours, to
books and records relating to the Business and the Transferred Assets, and will
permit such persons to examine and copy such records (including any tax returns
and related information, but not attorney or accountants work product), audits,
legal proceedings, governmental investigations and other business purposes
(including such financial information and any receipts evidencing payment of
taxes as may be reasonably requested by Seller to substantiate any claim for tax
credits or refunds); provided, however, that nothing herein will obligate any
party to take actions that would unreasonably disrupt the normal course of its
business or violate the terms of any contract to which it is a party or to which
it or any of its assets is subject. Seller and Buyer will cooperate with each
other in the conduct of any tax audit or similar proceedings involving or
otherwise relating to the Business (or the income therefrom or assets thereof)
with respect to any tax and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
Section 7.1.8.
7.1.9 IntraLATA Toll. Buyer will (i) assume the retail toll carrier
role and obligations for any end users in the Exchanges that are picked or
defaulted to Seller for IntraLATA toll services or (ii) enter into agreements
with other inter-exchange carriers to assume this role or to resell the toll
services of an inter-exchange carrier to fulfill these obligations. Buyer will
execute intraLATA toll access agreements with Seller establishing the process
for the purchase of toll access from Seller by Buyer at the rates contained in
Seller's access tariffs. Seller agrees that it will need to establish its own
agreements with other telecommunications carriers for the purchase of toll
access that may be routed over joint Seller/Buyer transport or tandem switch
facilities (transit traffic). Buyer will cooperate with Seller and other
carriers to measure and share data required to facilitate billing for such
traffic. Buyer and Seller will establish a process by which Buyer will bill
Seller for terminating IntraLATA toll access based on actual termination of
Seller toll services to the Exchanges. Buyer and Seller will enter into a
billing and collection agreement for the billing and collection of casual toll
at a rate not to exceed $0.12 per message. Buyer and Seller shall establish meet
point percentages for jointly provided toll access and file such meet points as
required with Governmental Authorities.
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7.1.10 Extended Area Service. Buyer and Seller will enter into
extended area service agreements as necessary.
7.1.11 Transiting Toll Facilities. Concurrently with the Closing,
Buyer shall grant to Seller the irrevocable right to use or Buyer shall lease to
Seller, in either case for a term of 99 years, the portion of the transiting
toll facilities, network facilities and associated electronic equipment included
in the Property and relating to the Exchanges listed on Schedule 7.1.11 that is
required by Seller for the conduct of any business conducted by Seller other
than the Business. The consideration for such grant or lease shall be $1.00 and
other consideration including the mutual covenants and agreements set forth in
this Agreement. Within 90 days after the execution of this Agreement, Buyer and
Seller shall apportion and assign the total capacity of such facilities and
equipment for each Exchange listed on Schedule 7.1.11. The parties shall review
such apportionment on an annual basis and make such changes to assignments as
may be required. If any transiting toll facilities, network facilities and
related electronic equipment that are Excluded Assets are located in any
rights-of-way that are used in connection with the operation of the Business,
then concurrently with the Closing, Buyer shall, to the extent possible, assign
to Seller the right to use such right-of-way jointly with Buyer and appropriate
joint use agreements in recordable form and otherwise reasonably acceptable to
the parties shall be entered into at the Closing.
7.1.12 Reinitialization Period. If the Reinitialization has not been
approved at the time of the Closing, Buyer shall use its best efforts to obtain
the Reinitialization.
ARTICLE 8
ARBITRATION
8.1 Arbitrability. All claims, except and only to the extent such claims
are those over which the State Regulatory Authorities have primary jurisdiction,
by either party against the other arising out of or related in any manner to
this Agreement or any of the Transferred Assets or the Transactions shall be
resolved by arbitration as prescribed herein; provided, however, that either
party shall be entitled to seek temporary or permanent injunction against any
actual or threatened breach of Section 5.3.1 by the other party in any court of
competent jurisdiction without the necessity for showing any actual damages. The
Federal Arbitration Act and not state law will govern the arbitrability of all
claims. Failure of either party to assert or pursue a mandatory claim or defense
that must be asserted in litigation to avoid the loss of the right to assert
such claim or defense shall not preclude that party from asserting any such
claim or defense in arbitration proceedings hereunder.
8.2 Rules. A single arbitrator engaged in the practice of law, who is
knowledgeable about the telecommunications industry and telecommunications law,
shall conduct the arbitration under the then-current commercial arbitration
rules of the American Arbitration Association
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("AAA"), unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Denver, Colorado.
8.3 Discovery; Damages; Expenses. Buyer and Seller shall allow and
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall have authority to award only actual damages and shall not have
the authority to award consequential, compensatory, punitive or exemplary
damages or any other form of relief. Each party shall bear its own costs and
attorneys' fees. The arbitrator's decision and award shall be final and binding,
and judgment upon the award rendered by the arbitrator may be entered in any
court having personal jurisdiction. The non-prevailing party to the arbitration
shall pay all of the fees and expenses of the arbitrator and the AAA, provided,
however, that if the arbitrator deems Buyer and Seller to be equally prevailing
or non-prevailing on the matters at issue, then the parties shall each pay
one-half of the fees and expenses of the arbitrator and the AAA.
8.4 Judicial or Administrative Action. If any party files a judicial or
administrative action asserting claims properly subject to arbitration as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification by Seller. From and after Closing, Seller
shall indemnify and hold harmless Buyer from and against any and all claims,
losses, liabilities, damages, penalties, costs and expenses, including
reasonable counsel fees and costs and expenses ("Losses") arising out of or
resulting from:
(a) any representations and warranties made by Seller in the
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed upon or prior to the Closing;
(c) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed after the Closing; and
(d) all liabilities and obligations arising out of or relating to
the operation of the Exchanges prior to the Closing, including without
limitation the Retained Liabilities.
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Section 9.2 Indemnification by Buyer. From and after Closing, Buyer shall
indemnify and hold harmless Seller from and against any and all Losses arising
out of or resulting from:
(a) any representations and warranties made by Buyer in this
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Buyer in the performance of its
covenants, agreements or obligations under this Agreement;
(c) all liabilities and obligations arising out of or relating to
the operation of the Exchanges after the Closing, including without limitation
the Assumed Liabilities;
(d) without limitation of the foregoing, violation of Environmental
Laws, to the extent such liability is an Assumed Liability or arises out of or
relates to the operation of the Exchanges after the Closing; and
(e) liability of Seller arising after Closing with respect to
Buyer's failure to enter into or perform interconnection agreements in or
directly related to the Exchanges.
Section 9.3 Indemnified Third Party Claim.
(a) If any person (including State Regulatory Authorities) not a
party to this Agreement ("Person") shall make any demand or claim or file or
threaten to file or continue any action, suit or proceeding of any kind ("Third
Party Claim") with respect to which Buyer or Seller is entitled to
indemnification pursuant to Sections 9.1 or 9.2, respectively, then within ten
days after notice (the "Notice") by the party entitled to such indemnification
(the "Indemnitee") to the other (the "Indemnitor") of such litigation, the
Indemnitor shall have the option, at its sole cost and expense, to retain
counsel for the Indemnitee (which counsel shall be reasonably satisfactory to
the Indemnitee) to defend any such litigation. Thereafter, the Indemnitee shall
be permitted to participate in such defense at its own expense, provided that,
if the named parties to any such litigation (including any impleaded parties)
include both the Indemnitor and the Indemnitee or, if the Indemnitor proposes
that the same counsel represent both the Indemnitee and the Indemnitor and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interest between them, then the Indemnitee shall
have the right to retain its own counsel at the cost and expense of the
Indemnitor, unless the Indemnitor shall acknowledge in writing its indemnity
obligation, in which event the retention by Indemnitee of its own counsel shall
be at its cost and expense. If the Indemnitor shall fail to respond within ten
days after receipt of the Notice, the Indemnitee may retain counsel and conduct
the defense of such litigation as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnitor.
(b) The Indemnitee shall provide reasonable assistance to the
Indemnitor and provide such access to its books, records and personnel as the
Indemnitor reasonably requests in connection with the investigation or defense
of the indemnified Losses. The Indemnitor shall
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promptly upon receipt of reasonable supporting documentation reimburse the
Indemnitee for out-of-pocket costs and expenses incurred by the later in
providing the requested assistance.
(c) With regard to litigation with any Person for which Buyer or
Seller is entitled to indemnification under Sections 9.1 or 9.2, such
indemnification shall be paid by the Indemnitor upon: (i) the entry of any
judgment, writ, order, injunction, award or decree of any court, the FCC or any
State Regulatory Authorities ("Judgment") against the Indemnitee and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
Judgment or final appellate Judgment against the Indemnitee; or (iii) a
settlement with the consent of the Indemnitor, which consent shall not be
unreasonably withheld, provided that no such consent need be obtained if the
Indemnitor fails to respond to the Notice as provided in Section 9.3(a).
Section 9.4 Determination of Indemnification Amounts and Related Matters.
(a) Neither Buyer nor Seller will be entitled to make a claim
against the other under Section 9.1(a) or (b) or 9.2(a) or (b) until (i) the
aggregate amount of Losses incurred by the Indemnitee for any individual
occurrence (or related series of occurrences) exceeds $50,000 and (ii) in the
case of Losses under Section 9.1(a) (except for Losses due to a breach of the
representations of Seller contained in Section 4.2.15) or 9.1(b) the aggregate
amount of claims that may be asserted for such Losses, together with all other
claims for Losses asserted under Section 9.1(a) or 9.1(b) under each of the
Multi-State Exchange Purchase Agreements, exceed an amount equal to 1% of the
aggregate of the Purchase Prices (as defined in each Multi-State Exchange
Purchase Agreement) for the transactions contemplated by the Multi-State
Exchange Purchase Agreements, to the extent actually paid to Seller, but only to
the extent such amount exceeds such aggregate of the Purchase Prices.
(b) Notwithstanding any other provision of this Agreement, (i)
Seller shall not be required to make any payments pursuant to Section 9.1(a),
(b) or (c) to the extent that the Maximum Adjustment Amount shall have been
reached, and (ii) Buyer shall not be required to make any payments pursuant to
Article 9 in excess of an amount equal to 3% of the Purchase Price.
(c) Subject to Section 9.3, all amounts payable by the Indemnitor to
the Indemnitee in respect of any Losses under Sections 9.1 and 9.2 shall be
payable by the Indemnitor as incurred by the Indemnitee and will include
interest at the rate of 8% per annum from the date that the related Losses were
incurred through but not including the date the payment is made.
Section 9.5 Time and Manner of Certain Claims. Except as otherwise
provided herein, the representations and warranties of Buyer and Seller, and the
covenants to be performed by them on or prior to the Closing Date, in this
Agreement shall survive Closing for a period of one year, except that the
representations of Seller contained in Section 4.2.15 shall survive Closing for
a period of 15 months and the representations and warranties contained in the
first sentence of Section 4.2.3 shall survive Closing indefinitely (the
"Survival Period"). Neither Seller nor Buyer shall have any liability under
Sections 9.1 or 9.2, respectively, unless a claim for Losses for which
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indemnification is sought thereunder is asserted by the party seeking
indemnification by written notice to the party from whom indemnification is
sought within the Survival Period.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Defined Terms. For purposes of this Agreement, certain terms used in
this Agreement and not otherwise defined herein shall have the meanings
designated below:
"Access Line" means a telephone line operating on the public switched
telephone network that runs from a central office to a customer's premises.
"Accounts Receivable" means all end user accounts receivable with respect
to goods sold and/or services provided by Seller on or prior to the Closing
Date.
"Affiliate" of a specified entity means any legal entity directly or
indirectly controlling, controlled by, or under the common control with the
specified entity. The term "control" (including "controlling", "controlled by"
and "under common control with") of an entity means the possession, directly or
indirectly, of the power to (i) vote 50% of more of the voting securities or
other voting interests of such person, or (ii) direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting shares, by contract or otherwise.
"Aggregate Adjustment Amount" means the aggregate amount that Seller has
paid or spent, or committed to pay or spend, pursuant to (i) purchase price
decreases pursuant to section 1.4.3(b) of each of the Multi-State Exchange
Purchase Agreements, (ii) payments or purchases pursuant to section 5.2.11(a) of
each of the Multi-State Exchange Purchase Agreements, and (iii) payments with
respect to indemnification claims under Section 9.1(a), (b) or (c) of each of
the Multi-State Exchange Purchase Agreements.
"Agreement" means this Agreement for Purchase and Sale of Telephone
Exchanges, together with all Schedules and Exhibits thereto, as any of the
foregoing may be amended, modified or supplemented in writing from time to time.
"Authorities" means (i) the construction permits, licenses or
authorizations granted by the FCC to Seller and used to develop and operate the
Systems; and (ii) the licenses or certificates of convenience and necessity
granted by the State Regulatory Authorities to operate the Systems.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
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"Confidential Information" means any and all technical, business or
financial information, in whatever form or medium, furnished or disclosed by or
on behalf of one party to the other or its representatives, irrespective of the
form of communication, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data and personnel statistics, and shall also include notes,
analyses, compilations, studies, interpretations or other documents prepared by
it or its representatives that contain, reflect or are based upon, in whole or
in part, other Confidential Information. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all security interests, liens, charges or
similar restrictions, except for (i) liens for taxes not yet due and payable or
that are being contested in good faith, (ii) liens of workers, carriers or
materialmen or similar liens arising by operation of law in the ordinary course
of the Business in respect of obligations that are not yet due and payable or
that are being contested in good faith, (iii) governmental conditions and
restrictions under the Authorities, (iv) with respect to Realty, recorded
easements, restrictions, reservations, rights-of-way, covenants, conditions and
similar encumbrances of record and matters that would be shown by an accurate
survey or inspection of such property, and other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
such Realty to which such defect or irregularity in title relates, and (v) with
respect to the Transferred Assets other than Realty, other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
the Transferred Assets to which such defect or irregularity in title relates.
"Environmental Laws" means all federal, state and local laws, statutes,
rules, regulations and ordinances (including common law), and all court or
administrative decisions, orders, policies or guidelines, now or hereafter in
effect relating to the environment, public health (including fire or building
safety), occupational safety, industrial hygiene, or the generation, disposal,
manufacture, release, storage, transportation or presence of Hazardous
Materials, including without limitation the National Environmental Policy Act
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act of 1975, the Toxic Substances Control Act, the
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean
Water Act, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act, and the regulations promulgated under any such acts or any permits
issued thereunder.
"Excessive Encumbrance" has the meaning set forth in Section 3.1.11.
"Excluded Assets" means (a) all cash, cash-equivalents, Accounts
Receivable and carrier access bills to interexchange carriers for minutes,
messages and other applicable charges through the
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Closing Date; (b) any insurance policy, bond, letter of credit or other similar
item, and any cash surrender value in regard thereto; (c) all books and records
that Seller is required by law to retain or that relate primarily to internal
corporate matters; (d) all claims, rights and interests in and to any refunds of
Federal, state or local franchise, income or other taxes or fees of any nature
whatsoever for periods prior to the Closing Date; (e) any pension, profit
sharing or employee benefit plans; (f) any assets, interests or property of
Seller used in the operation of any business conducted by Seller other than the
Business, those including shared data processing, billing and collections
systems and related software; (g) the name U S WEST and all similar names and
related marks and logos used or owned by Seller or its Affiliates and any other
names, marks and logos not specifically identified as being included in the
Transferred Assets; (h) all portable office equipment, test equipment and
generators other than included in the Transferred Assets; (i) all motor vehicles
used in the operation of any business conducted by Seller other than the
Business and associated motor vehicle general stock; (j) all materials, supplies
and tools other than those included in the Transferred Assets; (k) all FCC
licenses for air-to-ground, cellular or paging services held by Seller or any
Affiliate of Seller other than those FCC radio licenses necessary to operate the
Business; (l) all maintenance radio equipment and antennas other than those
included in the Transferred Assets; (m) all assets relating to Yellow Pages or
classified directory advertising activities of Seller or any Affiliate of
Seller, (n) all transiting toll facilities, network facilities and associated
electronic equipment used in their entirety by Seller solely in the operations
of any business conducted by Seller other than the Business and containing no
capacity for use in the conduct of the Business and related rights-of-way; and
(o) all rights of Seller or any Affiliate of Seller under the Transaction
Agreements.
"Final Order" means action by any governmental or regulatory authority as
to which (i) no request for stay by any Governmental Authority, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action has been
granted by a governmental or regulatory authority; (iii) the governmental or
regulatory authority does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal by a
third party to a court, or a request to stay by a court, of any material
provision of the Governmental Authority's action, as applicable, is pending or
in effect and, if any deadline for filing any such appeal or request is
designated by statute or rule, it has passed.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities
and the grant of any study area waiver request submitted by Buyer related
thereto, but excluding the Reinitialization.
"Fee Realty" means all real property owned by Seller in fee simple and
located inside the boundaries of the Exchanges, including without limitation
tower sites or antenna sites.
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"Governmental Authority" means any United States, state, or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, bureau, agency, court or instrumentality thereof.
"Hazardous Material" means (a) all chemicals, materials and substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words or similar import under any Environmental Law, and (b) any
other chemicals, materials or substances, including without limitation any
polychlorinated biphenyl, petroleum or any chemical fraction thereof, asbestos,
formaldehyde, flammables, explosives, and PCBs which could presently or at any
time in the future cause a detriment to or impair the value or beneficial use of
any of the Transferred Assets, or constitute or cause a health, safety or
environmental hazard to the any of the Transferred Assets or to any person or
require remediation at the behest of any state or local governmental agency
under any Environmental Law.
"Interests" means all rights, privileges, benefits and interests under all
contracts, agreements, consents, licenses, permits or certificates (except those
included as Authorities and Realty), including agreements, permits, leases and
arrangements with respect to intangible or personal property or interests
therein; equipment leases; agreements with suppliers, customers and subscribers;
business licenses; prepaid expenses; and any sales agent or sales affiliate
agreements, in each case, used or owned primarily in connection with the
Business.
"Maximum Adjustment Amount" means an Aggregate Adjustment Amount equal to
the product of (i) the aggregate number of access lines in the telephone
exchanges purchased pursuant to the Multi-State Exchange Purchase Agreements on
the closing date of each purchase thereunder multiplied by (ii) $50.00, it being
understood and agreed by the parties that (x) the Maximum Adjustment Amount
shall be preliminarily calculated at the Closing assuming that any Multi-State
Exchange Purchase Agreement that has not closed or been terminated on or before
the Closing Date shall, for purposes of such preliminary calculation, be deemed
to have closed on the Closing Date, and (y) on the date of closing or
termination of the last of Multi-State Exchange Purchase Agreement to have been
closed or terminated, the Maximum Adjustment Amount shall be finally calculated
and any resulting payments required to be made by Seller or refunds required to
be made by Buyer shall be taken into account in determining the amount of funds
to be paid by Seller at such Closing or to be paid by Seller or refunded by
Buyer upon such termination, as the case may be.
"Multi-State Exchange Purchase Agreements" means the Agreements for
Purchase and Sale, including this Agreement, entered into between Buyer, or any
Affiliate of Buyer, and Seller with respect to the purchase of Seller's rights
to provide and operate wireline telecommunications and related non-tariffed or
non-regulated wireline services and related assets in the following states:
Arizona, Colorado, Nebraska, North Dakota, Minnesota, Iowa, Idaho, Montana and
Wyoming.
"911 Assets" means all circuits, facilities and customer information used
by Seller in providing 911 emergency services in connection with the operation
of the Business.
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"Operating Contracts" means all contracts, agreements and instruments (and
all amendments and modifications thereto) entered into by Seller in the ordinary
course of the Business prior to the date hereof, including without limitation
all real property leases, documentation related to the Interests and
interconnection agreements to the extent that Buyer is required to perform such
obligations by applicable law or as a condition to obtaining any Governmental
Approvals, and all such contracts, agreements and instruments entered into by
Seller in the ordinary course of the Business between the date of this Agreement
and the Closing Date.
"Property" means all of Seller's physical facilities and other tangible
assets used primarily in the Business that are in Seller's plant in service
accounts in accordance with Part 32 of the FCC Uniform System of Accounts,
including all transiting toll facilities, network facilities and associated
electronic equipment located within the boundaries of an Exchange and not
included as Excluded Assets, which facilities and equipment shall be subject to
the arrangements set forth in Section 7.1.11.
"Reinitialization" means the implementation of the interstate access rates
pursuant to the reinitialization of the Price Cap Index ("PCI") applicable to
the approved new study area to reflect the underlying cost structure associated
with the Exchanges.
"Realty" means the Fee Realty together with all rights, privileges and
appurtenances owned by Seller inside the boundaries of the Exchanges that are a
burden upon, a benefit of, or otherwise related to the Fee Realty, including
without limitation all structures, buildings, easements, servitudes, licenses,
leasehold improvements, building improvements, fixtures, rights-of-way and other
similar interests owned by Seller and used in the Business.
"Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all open end-user customer account records, all service records kept in
the ordinary course of the Business which identify and describe the customers
being served by Seller in the Exchanges, the service that is being provided to
such customers, and those records which identify and describe the physical
property (including but not limited to cables, wires and central office
equipment) included in the Transferred Assets.
"Seller's Knowledge" means the actual knowledge of Paul Lit after due
inquiry and any senior manager specifically charged with operational
responsibility for the Exchanges concerning information about which Seller is
making a representation in this Agreement.
"State Regulatory Approvals" means the issuance of the required consents
or approvals of the State Regulatory Authorities with respect to the assignment
of the Authorities to Buyer and the designation of Buyer as an eligible
telecommunications carrier for the Exchange.
"State Regulatory Authorities" means the public utility commissions or
similar state governmental authorities in the states in which the Exchanges are
located and, where applicable, municipal authorities that have granted operating
authorities with respect to the Exchanges.
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<PAGE>
"Systems" means, as the context requires, Seller's service delivery
components in the Exchanges, including without limitation all equipment,
facilities, assets, properties, licenses, permits, certificates of public
convenience and necessity and other rights and authorities and related technical
knowledge and information, used in the conduct of the Business within the
particular Exchange.
"Transactions" means the purchase and sale of the Transferred Assets as
contemplated by the Agreement and all other transactions contemplated by the
Transaction Documents.
"Transaction Documents" means this Agreement and each document to be
executed in connection with the Closing of the Transactions. When used with
respect to Seller or Buyer, "Transaction Documents" means this Agreement and
such documents as are required to be executed by such party with respect to the
Closing of the Transactions.
"Transferred Assets" means all of Seller's right, title and interest in
and to the Authorities, the Interests, the 911 Assets, the Property, the Realty,
the Records and all goodwill associated with the Business as existing on the
Closing Date, but excluding the Excluded Assets.
ARTICLE 11
GENERAL
11.1 Notices. All notices hereunder will be in writing and served by
certified mail, return receipt requested, courier or facsimile. Notice shall be
deemed to have been duly given on (i) the earlier of the date received or the
fifth business day following the date mailed by the notifying party using first
class mail, postage prepaid or (ii) if delivered by courier service or
facsimile, upon actual receipt as evidenced by the appropriate confirmation
sheet. Notices shall be sent as follows:
If to Seller: U S WEST Communications, Inc.
1801 California Street, Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic
Transactions Group
Facsimile: (303) 308-0835
with a copy (which shall not constitute notice) to:
Brownstein Hyatt & Farber, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch
Facsimile: (303) 223-1111
50
<PAGE>
If to Buyer: Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: Donald P. Weinstein
Facsimile: (203) 614-4625
with a copy (which shall not constitute notice) to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: L. Russell Mitten, II., Esq.
Facsimile: (203) 614-4651
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Sixth Floor
Washington, DC 20036
Attention: Jeffry L. Hardin
Facsimile: (202) 387-3467
11.2 Waivers. No failure of a party to enforce a provision of this
Agreement will be construed as a general or a specific waiver of that provision,
or of a party's right to enforce that provision, or of a party's right to
enforce any other provision of this Agreement. No waiver of any breach of any
covenant or other provision herein contained shall be deemed to be a waiver of
any preceding or succeeding breach, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act shall
be deemed to be an extension of the time for performance of any other obligation
or act.
11.3 Commissions. Each party represents and warrants that no broker or
other person is entitled to any commission or finder's fee in connection with
the consummation of the Transactions based on arrangements made by such party
for which the other party could have any liability.
11.4 Payment of Expenses. Except as otherwise provided herein, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in consummating and carrying
out the Transactions, whether or not the Transactions are consummated.
Notwithstanding the foregoing, all transfer fees payable in connection with the
assignment of permits or rights-of-way shall be borne by Buyer.
51
<PAGE>
11.5 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and, when each of the parties hereto has
executed and delivered a counterpart to the other party, this Agreement shall be
binding and effective even though no single counterpart has been executed by
both of the parties.
11.7 Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.8 Assignment. The rights and obligations of the parties to this
Agreement or any interest in this Agreement shall not be assigned, transferred,
hypothecated, pledged or otherwise disposed of without the prior written consent
of the nonassigning party, which consent may be withheld in such party's sole
discretion; provided, however, that (i) Buyer may, without the prior consent of
Seller but without relieving Buyer of its obligations hereunder, assign its
rights under this Agreement to any Affiliate or lender, and (ii) Seller may
assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the Transactions as a 1031
Transaction.
11.9 Additional Instruments and Assistance. Each party hereto shall from
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its counsel
may reasonably request in order to complete and perfect the Transactions.
11.10 Seller's Control Over Authorized Facilities. No provision of this
Agreement shall be construed to abrogate Seller's control of and responsibility
for the operation of the authorized facilities of the Business prior to the
actual transfer of control of those facilities hereunder to the Buyer as
approved by the FCC and the State Regulatory Authorities.
11.11 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado.
11.12 Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable when applied to any person or
circumstance, the remaining provisions of this Agreement and the enforcement of
such provision to other persons or circumstances shall not be affected thereby,
and each provision of this Agreement shall be enforced to the fullest extent
allowed by law.
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<PAGE>
11.13 Amendments. This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by its
agent duly authorized in writing or as otherwise expressly permitted herein.
11.14 No Construction Against the Drafting Party. Each party hereto
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.15 Integration. This Agreement, including all schedules and exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, warranties or representations between the parties with respect
to such subject matter except as set forth or noted herein. Except as provided
in Section 5.1.4 hereof, this Agreement is not made for the benefit of any
person, firm, corporation or association other than the parties hereto. Except
as provided in Section 5.1.5 hereof, the parties do not intend to confer any
benefit hereunder on any person, firm or corporation other than the parties
hereto.
* * * * *
53
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
CITIZENS UTILITIES COMPANY
By:_______________________________________
Leonard Tow
Chairman and Chief Executive Officer
SELLER:
U S WEST COMMUNICATIONS, INC.
By:_______________________________________
Solomon D. Trujillo
President and Chief Executive Officer
<PAGE>
EXECUTION COPY - IOWA
AGREEMENT
For
PURCHASE AND SALE
of
TELEPHONE EXCHANGES
Dated as of June 16, 1999
Between
CITIZENS UTILITIES COMPANY
And
U S WEST COMMUNICATIONS, INC.
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF TELEPHONE EXCHANGES
This Agreement for Purchase and Sale of Telephone Exchanges is made and
entered into as of June 16, 1999 by and between U S WEST Communications, Inc., a
Colorado corporation ("Seller"), and Citizens Utilities Company, a Delaware
corporation ("Buyer").
A. Seller possesses certain rights to provide and operate wireline
telecommunication services pursuant to operating authorities issued by the
public utilities commissions or similar authorities of various states, and owns
certain assets used to provide such services in the telephone exchanges listed
on Exhibit A hereto and in any cross-border communities served by such exchanges
(the "Exchanges").
B. Buyer desires to acquire Seller's right to provide and operate wireline
telecommunication services and related non-tariffed or non-regulated wireline
services and products in the Exchanges (the "Business") and to purchase the
Transferred Assets (as defined below), and Seller wishes to sell, assign and
transfer such right and assets to Buyer.
C. Each defined term used herein shall have the meaning set forth in this
Agreement where such term is first used or, if no definition is so set forth,
shall have the meaning set forth in Article 10 below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF EXCHANGES
1.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions hereinafter set forth, at the Closing described in Article 2,
Seller agrees to sell, convey, transfer, assign and deliver all of the
Transferred Assets to Buyer, and Buyer agrees to purchase and receive the
Transferred Assets from Seller. Except as specifically set forth in Section 1.2
hereof, Seller shall transfer the Transferred Assets to Buyer on the Closing
Date free and clear of all Encumbrances, and Buyer shall not, by virtue of its
purchase of the Transferred Assets, assume or become responsible for any debts,
liabilities or obligations of Seller.
1.2 Assumption of Obligations. Buyer covenants and agrees that, on the
Closing Date, it shall execute and deliver to Seller an Assumption Agreement in
substantially the form of Exhibit
<PAGE>
B hereto (the "Assumption Agreement") pursuant to which it will assume and agree
to perform and discharge the following liabilities and obligations of Seller to
the extent related to the Exchanges (collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations of Seller arising under
the Operating Contracts, except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Operating Contracts occurring or arising
or accruing on or prior to the Closing Date;
(ii) All liabilities and obligations of Seller related to
unperformed service obligations, right-of-way relocation obligations and
construction in progress as of the Closing Date;
(iii) All liabilities and obligations imposed on Seller by
State Regulatory Authorities in connection with the operation of the
Exchanges, including without limitation obligations to provide 911
emergency services and to make any investment in the Exchanges required by
any Governmental Authority, except that Buyer shall not assume any
liabilities or obligations, other than held order or other service
obligations, imposed on Seller by State Regulatory Authorities that arise
out of Seller's breach of any decision by the State Regulatory
Authorities, or any intentional misconduct or material misrepresentation
by Seller;
(iv) All federal, state, county, municipal, foreign or other
taxing jurisdiction sales, use, transfer, gross receipts, consumer levy,
privilege or similar taxes, duties, excises or governmental charges,
including any penalties and interest thereon, arising out of the sale of
the Transferred Assets by Seller to Buyer hereunder, excluding any income
tax liability of Seller (collectively, "Transfer Taxes"); and
(v) All liabilities and obligations arising under
Environmental Laws with respect to the real property included in the
Transferred Assets.
1.3 Retained Liabilities. Seller shall retain and shall pay, perform and
discharge when due, the following liabilities, responsibilities and obligations
of Seller with respect to the Business (collectively, the "Retained
Liabilities"):
(i) Subject to Section 1.5, all trade payables and other
payment obligations of Seller as of the Closing Date;
(ii) All long-term debt of Seller and debt of Seller owed to
any one or more of its Affiliates;
2
<PAGE>
(iii) Subject to Section 1.5, all taxes and assessments
relating to the operation of the Business (other than Transfer Taxes) on
or before the Closing Date for the use, ownership or operation of the
Transferred Assets on or before the Closing Date;
(iv) All liabilities and obligations arising on or before the
Closing Date with respect to Seller's employees that may be hired by Buyer
(the "Hired Employees"), including (a) all liabilities, responsibilities
and obligations arising on or before the Closing Date relating to
collective bargaining agreements or other union contracts, and (b) any
such liabilities or obligations that arise after the Closing Date to the
extent that such liabilities and obligations relate to facts,
circumstances or conditions arising or occurring on or before the Closing
Date with respect to the Hired Employees;
(v) All liabilities, responsibilities and obligations arising
out of or related to any actions, lawsuits or legal proceedings based on
facts, circumstances or conditions arising, existing or occurring on or
before the effective time of Closing, regardless of whether known or
unknown, asserted or unasserted, as of the Closing, including any
liability under any claim (whether made on or before the Closing Date)
relating to the period ending on or before the effective time of Closing
which, but for the consummation of the transactions contemplated hereby,
would have been covered under any insurance policy of Seller, and all
liability associated with workers' compensation claims incurred but not
reported as of the effective time of Closing and workers' compensation
claims reported as of the Closing Date but not then due or payable, but
expressly excluding any such liability, responsibility or obligation for
litigation or claims of any Governmental Authority relating to liabilities
and obligations arising under Environmental Laws with respect to the Fee
Realty included in the Transferred Assets, unless such liabilities,
responsibilities and obligations result from the actions or omissions of
Buyer constituting breaches of this Agreement;
(vi) All liabilities and obligations for prior period
adjustments of revenues from the Business, for any refunds or bill credits
to ratepayers for overbillings or overearnings occurring or relating to
the period prior to the effective time of Closing, and for all toll
revenues, settlements, pools, separations studies or similar activities
relating to the Exchanges for which Seller is responsible, provided that
such liabilities and obligations are asserted within four years of the
Closing Date;
(vii) All liabilities, responsibilities and obligations
arising out of or occurring or resulting from the use or ownership of the
Transferred Assets on or before the Closing Date; and
(viii) All liabilities, responsibilities and obligations with
respect to the Excluded Assets.
1.4 Letters of Credit and Purchase Price.
3
<PAGE>
1.4.1 Letters of Credit. Within 15 business days of the date hereof,
Buyer shall deliver to Seller one or more irrevocable letters of credit issued
by financial institutions reasonably acceptable to Seller (the "Letters of
Credit") providing for drawings in an aggregate principal amount equal to
$5,348,887 (the "LC Amount"). The Letters of Credit shall be returned to Buyer
upon the Closing of the Transactions or upon termination of this Agreement for
any reason other than the following: (i) Seller's termination of this Agreement
pursuant to Section 6.2.4 or 6.2.5, or (ii) Seller's termination of this
Agreement pursuant to Section 6.2.1 because the condition precedent set forth in
Section 3.2.1 becomes incapable of satisfaction through no fault of Seller after
Buyer has had a reasonable opportunity to cause such condition precedent to be
satisfied. In addition, if Seller terminates this Agreement pursuant to Section
6.2.4 as a result of Buyer's breach of Section 4.1.4 for any reason, Buyer and
Seller have mutually agreed that in addition to Seller's right to draw down the
full amount of the Letters of Credit, Buyer shall be liable to Seller for an
additional amount equal to the LC Amount. If Buyer fails to deliver the Letters
of Credit within 15 business days of the date hereof, and Seller thereafter
terminates this Agreement pursuant to Section 6.2.4 as a result thereof, Buyer
shall be liable to Seller for the LC Amount. In the event that Seller terminates
this Agreement for any of the foregoing reasons, in view of the difficulty of
determining the amount of damages which may result to Seller from such failure
to consummate the Transactions, Buyer and Seller have mutually agreed that the
proceeds of the Letters of Credit and any other monies payable to Seller in
accordance with the foregoing provisions shall be retained by Seller as
liquidated damages, and not as a penalty, and this Agreement shall thereafter
become null and void except for those provisions which by their terms survive
termination of this Agreement. The parties have agreed that the proceeds of the
Letters of Credit and such other monies payable to Seller in accordance with the
foregoing provisions in such event shall be Seller's exclusive remedy.
1.4.2 Purchase Price. Subject to Section 1.4.4, Buyer shall pay to
Seller as consideration for the transfer of Seller's rights with respect to the
Business and the sale of the Transferred Assets an aggregate purchase price (the
"Purchase Price") consisting of $133,722,180 plus (a) the estimated amount of
Exchange Investments, if any, calculated pursuant to Section 1.4.3(a) (the
"Estimated Exchange Investments") less (b) the Revenue Adjustment, if any
calculated pursuant to Section 1.4.3(b). The Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds to such bank
account(s) as Seller shall designate within a reasonable time prior to Closing
and the Letters of Credit shall be returned to Buyer upon payment of the
Purchase Price.
1.4.3 Closing Date Purchase Price Adjustments.
(a) Estimated Exchange Investments. Seller shall prepare and deliver
to Buyer, no less than five business days prior to the Closing, an estimate of
the net book value on the Closing Date associated with any investment by Seller
in the Exchanges (the "Exchange Investment") prior to Closing required by any
Governmental Authority pursuant to an order issued between the date hereof and
the Closing Date, other than with respect to investments contemplated by
Schedule 5.2.3(iii) or with respect to Seller's efforts to comply with any
Governmental Authority's orders issued prior to the date hereof.
4
<PAGE>
(b) Revenue Adjustment. The Purchase Price shall be decreased if the
product of four times the aggregate revenues from the Business, as reported on
the monthly profit and loss statements for the Business for the three full
consecutive calendar months most recently completed prior to the Closing Date,
less any portion of such revenues attributable to the Excluded Assets (the
"Adjusted Annualized Closing Revenues"), are less than $25,762,500. Any decrease
in the Purchase Price in accordance with this Section 1.4.3(b) shall be equal to
the difference between the Adjusted Annualized Closing Revenues and $25,762,500
multiplied by 400% (the "Revenue Adjustment"); provided, that the Purchase Price
shall not be decreased pursuant to this Section 1.4.3(b) to the extent that the
Maximum Adjustment Amount shall have been reached.
1.4.4 Post-Closing Purchase Price Adjustment.
(a) Actual Exchange Investments. Within 120 days following the
Closing Date, Buyer shall prepare and deliver to Seller a written statement (the
"Exchange Investment Statement") of the calculation of the actual amount of
Exchange Investment. Subject to the dispute resolution mechanism set forth in
Section 1.4.4(c), to the extent that the actual amount of Exchange Investment as
shown on the Exchange Investment Statement differs from the Estimated Exchange
Investment, the difference shall be paid within 35 days of delivery of the
Exchange Investment Statement (i) by Buyer to Seller in the case of an excess,
or (ii) by Seller to Buyer in the case of a deficit.
(b) Reinitialization Adjustment. If, on the Closing Date, the
Reinitialization has not been effected, the Purchase Price shall be adjusted in
accordance with the following:
(i) If the Reinitialization occurs after the Closing Date but
on or prior to the two year anniversary of the Closing Date, Buyer shall
prepare and deliver to Seller, as soon as practicable after the
Reinitialization, a written statement (the "Reinitialization Statement")
of the calculation of the actual number of interstate switched access
minutes of use (the "Interstate Use Minutes") for the Exchanges per month
for the period commencing on the Closing Date and ending on the last day
of the month in which the Reinitialization occurred. Subject to the
dispute resolution mechanism set forth in Section 1.4.4(c), Seller shall
pay Buyer within 60 days of delivery of the Reinitialization Statement an
amount equal to $0.023 multiplied by the Interstate Use Minutes for the
period commencing on the day after the Closing Date and ending on the date
of the Reinitialization (pro rated, if necessary, for the first and final
month). Seller's failure to make such payment by the 60th day following
delivery of the Reinitialization Statement shall be deemed to be an
initiation of the dispute resolution mechanism set forth in Section
1.4.4(c).
(ii) If the Reinitialization has not occurred by the two year
anniversary of the Closing Date, Buyer shall so notify Seller and Seller
shall pay Buyer within 60 days after receipt of such notice an amount
equal to $12,940,856, plus simple interest at a rate of 8% per annum for
the period commencing on the Closing Date through but excluding the date
of payment.
5
<PAGE>
(c) Dispute Resolution Mechanism.
(i) Within 30 days after receipt of the Exchange Investment
Statement or 60 days after receipt of the Reinitialization Statement
(each, a "Post-Closing Statement"), as the case may be, Seller may, in a
written notice to Buyer, describe in reasonable detail any proposed
adjustments to the relevant Post-Closing Statement in question and the
reasons therefor. If Buyer shall not have received a notice of proposed
adjustments within such 30 or 60 day period, as the case may be, Seller
will be deemed irrevocably to have accepted such Post-Closing Statement.
(ii) If Seller disputes any portion of the Post-Closing
Statement, the parties shall calculate the portion of the undisputed
amount, if any, and such amount shall be paid by the appropriate party
within five business days of the determination of the undisputed amount.
Buyer and Seller shall negotiate in good faith to resolve any dispute. If
any dispute cannot be resolved within 30 days following Buyer's receipt of
the proposed adjustment, Deloitte & Touche or another independent public
accounting firm that is nationally recognized in the United States jointly
selected by Buyer and Seller shall be engaged to resolve such disputes in
accordance with the standards set forth in this Section, which resolution
shall be final and binding. The fees and expenses of such accounting firm
shall be shared by Buyer and Seller in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of Buyer
and Seller, respectively. Upon delivery of such public accounting firms's
resolution of such dispute to the parties, the party required to make a
payment pursuant to such resolution shall promptly, but no later than five
business days after such delivery, pay to the other party the amount
determined by such public accounting firm to be owed to such party.
(d) Any amount paid pursuant to Section 1.4.4(a) shall bear interest
from the Closing Date through but excluding the date of payment, at a rate of 8%
per annum. Any amount owing pursuant to Section 1.4.4(b)(i) that is not paid
within 60 days of delivery of the Reinitialization Statement shall bear interest
from the 61st day following delivery of the Reinitialization Statement through
but excluding the date of payment, at a rate of 8% per annum. Such interest
shall accrue daily on the basis of a year of 365 days and the actual number of
days for which due and shall be payable together with the relevant amount
payable pursuant to this Section 1.4.4. All amounts payable pursuant to this
Section 1.4.4 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer, in the case of amounts payable by Buyer, to such
account of Seller as Seller may designate and, in the case of amounts payable by
Seller, to such account of Buyer as Buyer may designate.
(e) The Purchase Price shall be deemed to be adjusted by any amounts
paid pursuant to this Section 1.4.4.
6
<PAGE>
1.5 Prorations. All real and personal property and similar taxes and
assessments with respect to the Transferred Assets, all rents, utilities and
other periodic charges and expenses arising from the normal operations of the
Business shall be prorated as of 11:59 p.m. local time on the Closing Date. Such
prorations shall be agreed upon by the parties as of the Closing Date and
reflected as an adjustment to the Purchase Price. Following the Closing Date,
each party shall thereafter be responsible for the payment of all such amounts
for which it is responsible, as determined by such prorations, as they become
due. For purposes of the foregoing proration, the parties agree that, with
respect to states in which Seller is assessed for real or personal property
taxes on a centralized basis or where a tax is imposed in lieu of property tax,
Seller shall be responsible for payment of property or other taxes assessed by
such state for the entire taxable year in which the Closing occurs and a pro
rata portion of such property taxes will be allocated to Buyer as of the Closing
Date and paid to Seller on the Closing Date. All prorations pursuant to this
Section 1.5 will be final and binding on both parties. Unless otherwise mutually
agreed no later than 30 days prior to the Closing Date, the specific date and
time for the change of telecommunications service to occur with respect to the
Exchanges shall be at 11:59 p.m., local time, on the Closing Date.
1.6 Allocation of the Purchase Price. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Buyer and Seller
agree to such Allocation prior to Closing, Buyer and Seller covenant and agree
that (i) the values assigned to the assets by the parties' mutual agreement
shall be conclusive and final for all purposes, and (ii) neither Buyer nor
Seller will take any position before any Governmental Authority or in any
judicial proceeding that is in any way inconsistent with such allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an
Allocation, Buyer and Seller covenant and agree to file, and to cause their
respective Affiliates to file, all tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable law.
1.7 Transfer Taxes. Buyer shall be responsible for all Transfer Taxes
imposed by any local, state or federal governmental authorities in connection
with the sale, transfer or assignment of the Transferred Assets or otherwise on
account of the Transactions, regardless of whether Buyer or Seller is assessed
therefor. Seller shall be responsible for filing the applicable returns and
shall file them in a timely manner. No less than 20 days prior to the due date
of any such returns, Seller shall provide Buyer with the proposed amount of
Transfer Taxes to be reported and remitted. No less than 10 days prior to the
due date of any such returns, Buyer shall either approve the proposed amount or
advise Seller of an adjusted amount of Transfer Taxes to be reported and
remitted. Seller shall report and remit Transfer Taxes in amounts as approved or
adjusted by Buyer. In the event Buyer fails to approve Seller's proposed amount
of Transfer Taxes and fails to advise Seller of an adjusted amount of Transfer
Taxes within 10 days prior to the due date of such return, Seller shall
interpret such inaction on the part of Buyer as direction by Buyer to make no
report of and no
7
<PAGE>
remittance of Transfer Taxes. Buyer shall remit to Seller on the day prior to
the due date of such return, by wire transfer of immediately available funds,
the agreed upon amount of Transfer Taxes to be remitted to the taxing
authorities. In the event Seller does not receive the agreed upon amount of
Transfer Taxes to be remitted to the taxing authorities from Buyer on or before
the day prior to the due date of the return, Seller shall interpret such failure
of Buyer to provide funds as direction by Buyer to make no report of and no
remittance of Transfer Taxes. Buyer warrants that any adjustments by Buyer to
Seller's proposed amount of Transfer Taxes or any direction by Buyer to make no
report of and no remittance of Transfer Taxes will be based on substantial state
and/or local authority that Transfer Taxes are not due and owing. Buyer shall
indemnify and hold harmless Seller from and against any and all such Transfer
Taxes and any penalties, interest or expenses (including attorneys' fees)
incurred by Seller with respect thereto unless such interest and penalties
result from the actions or omissions of Seller that are unrelated to any
breaches by Buyer of its obligations hereunder.
ARTICLE 2
CLOSING
2.1 Closing. The consummation of the purchase and sale of the Transferred
Assets (the "Closing") shall take place at Seller's offices in Denver, Colorado,
at 10:00 a.m., local time, on the last calendar day of the month in which all
the conditions precedent to Closing set forth in Article 3 have been satisfied
or waived, or on such other date as the parties mutually agree, but in no event
shall the Closing occur later than September 30, 2001 unless the parties shall
mutually agree to extend the date of the Closing. The date that the Closing
actually occurs is referred to as the "Closing Date." If the Closing is
postponed, all references to the Closing Date in this Agreement shall refer to
the postponed date of Closing.
2.2 Deliveries by Seller to Buyer. At or prior to the Closing, Seller will
deliver to Buyer:
2.2.1 Certified copies of all Seller's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Seller;
2.2.2 a duly executed Bill of Sale, in substantially the form of
Exhibit C hereto, and duly executed assignments and other instruments of
transfer sufficient to convey to Buyer title to all the personal property
included in the Transferred Assets;
2.2.3 A duly executed closing certificate of Seller contemplated by
Sections 3.1.1 and 3.1.2;
2.2.4 Releases, satisfactions or terminations of all mortgages,
financing statements or other Encumbrances on any of the Transferred Assets or,
in the alternative, an indemnity of Seller with respect to such Encumbrances in
form and substance reasonably acceptable to Buyer;
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2.2.5 Special warranty deeds covering the Fee Realty and assignments
in customary local form covering the other realty and Interests included in the
Transferred Assets, including all rights-of-way which are by their terms
assignable;
2.2.6 An affidavit in a form complying with Section 1445 of the
Code; and
2.2.7 Such other documents and items as are reasonably necessary or
appropriate to effect the consummation of the Transactions or which may be
customary under local law, including vehicle transfer documentation.
2.3 Deliveries by Buyer to Seller. At or prior to the Closing, Buyer will
deliver to Seller:
2.3.1 The Purchase Price as required by Section 1.4, together with
any proration payment required to be paid on the Closing Date pursuant to
Section 1.5;
2.3.2 Certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Buyer;
2.3.3 A duly executed closing certificate of Buyer contemplated by
Sections 3.2.1 and 3.2.2; and
2.3.4 The Assumption Agreement and such other certificates and
documents as are reasonably necessary or appropriate to effect the consummation
of the Transactions or which may be customary under local law.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. Within 30
days after the date of this Agreement, the parties shall negotiate in good faith
and enter into a Transition Agreement similar in scope to the agreement attached
as Exhibit D hereto. Within 90 days after the date of this Agreement, the
parties shall commence to negotiate in good faith the definitive terms of the
services agreements for the services that Buyer requests Seller to provide upon
Closing and described on Exhibit E hereto. At or prior to the Closing, Buyer and
Seller shall execute and deliver such services agreements. The parties
acknowledge and agree that the agreements contemplated by this Section 2.4 are
an integral part of, and will be entered into as part and parcel to, and in
conjunction with, the other transactions and agreements contemplated by this
Agreement.
2.5 Further Assurances. Except as otherwise provided herein or in the
transition agreements, all instruments of conveyance, assignment or transfer
referred to herein, all sums of money, and all records and data to be delivered
as specified in this Agreement shall be delivered at or prior to the Closing.
The parties agree following the Closing to execute and deliver such further
instruments of conveyance, assignment and assumption as may be reasonably
necessary to give effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities. In addition, in the event of an
inadvertent transfer of Excluded Assets, Buyer shall upon request by Seller
execute and deliver such instruments of conveyance, assignment and transfer as
may be
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reasonably necessary to reconvey such Excluded Assets to Seller and shall
promptly return such Excluded Assets to Seller.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
3.1.1 Representations and Warranties. All representations and
warranties of Seller made in this Agreement shall be true and correct on and as
of the Closing Date as though made at such time, other than inaccuracies in such
representations and warranties that in the aggregate do not have a material
adverse effect on the Business or changes approved by Buyer in writing, and
Seller shall have delivered to Buyer a certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.2 Covenants. Seller shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Seller shall have delivered to Buyer a Certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.3 Governmental Approvals. The State Regulatory Approvals and the
FCC Approval (collectively, "Governmental Approvals") shall have been obtained
and shall be in full force and effect and shall not contain any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date. All such approvals and consents shall be deemed to have been obtained
after the grant thereof has become a Final Order.
3.1.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.1.5 Hart-Scott-Rodino Act. All filings required to be made under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
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3.1.6 Certificates and Other Documents. Seller shall have executed
and delivered the certificates and other documents required by Sections 2.2 and
2.4.
3.1.7 Absence of Material Adverse Change. Since December 31, 1998,
there shall have occurred no casualty or other event or change, not subsequently
cured by Seller, that has resulted in a material adverse effect on the Business,
unless such event has resulted in an amendment to this Agreement as contemplated
by Section 6.1.2.
3.1.8 Material Third Party Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the required
third party consents listed on Schedule 3.1.8 have been obtained and remain in
full force and effect on the Closing Date.
3.1.9 Delivery of Financial Information. Seller shall have delivered
the Required Financial Statements and representation letters, in each case as
and when required by Section 5.2.7.
3.1.10 Environmental Inspections. If it is determined pursuant to
Section 5.3.7 that remediation of potential material liabilities under
Environmental Laws is required, then (i) Seller shall have completed the
remediation to Buyer's reasonable satisfaction, (ii) if Seller elects to exclude
a parcel of Fee Realty, and Buyer so elects, Seller and Buyer shall have entered
into a long-term, low-cost lease, in form and substance reasonably satisfactory
to Buyer, for Buyer's use of such parcel after Closing, or (iii) if Seller
elects to exclude the parcel or the Exchange to which such parcel relates, and
if such parcel alone has been excluded and Buyer has not elected to lease such
parcel, Seller and Buyer shall have agreed in good faith to a reduction in the
Purchase Price. In no event shall Seller be responsible for any other
environmental remediation.
3.1.11 Title Matters. If the aggregate estimated costs and expenses
reasonably necessary to remedy all Encumbrances pursuant to Section 5.3.9
exceeds $10,000 (the "Title Threshold"), Seller shall have removed the Excessive
Encumbrances. "Excessive Encumbrances" means one or more Encumbrances selected
by Seller, the removal of which will bring the aggregate estimated costs and
expenses reasonably necessary to remedy the remaining Encumbrances below the
Title Threshold. Seller shall have removed the Excessive Encumbrances by either
(i) causing the title company to agree to delete such Excessive Encumbrances as
an exception in the Title Commitment or, with the prior written consent of
Buyer, shall have insured over such Excessive Encumbrances by endorsement, or
(ii) if acceptable to Buyer and Seller in each of its reasonable discretion, the
parties shall have entered into a written agreement containing Seller's
commitment to remedy such Excessive Encumbrances on terms reasonably
satisfactory to Buyer. In no event shall Seller have any obligation to cure or
remove any Encumbrance that is not an Excessive Encumbrance.
3.1.12 Billing Conversion. The Steering Committee established
pursuant to the Transition Services Agreement shall have concluded at least
thirty days prior to Closing that the billing system conversion will be
completed by Closing.
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3.2 Conditions to Seller's Obligations. The obligation of Seller to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Seller:
3.2.1 Representations and Warranties. All representations and
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes approved by Seller in writing, and Buyer shall have delivered
to Seller a certificate of Buyer to that effect, dated as of the Closing Date,
signed by an authorized officer of Buyer.
3.2.2 Covenants. Buyer shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Buyer shall have delivered to Seller a Certificate of Buyer to that effect,
dated as of the Closing Date, signed by an authorized officer of Buyer.
3.2.3 Governmental Approvals. All Governmental Approvals shall have
been obtained and shall be in full force and effect. All such approvals and
consents shall be deemed to have been obtained after the grant thereof has
become a Final Order. The terms and conditions of the Governmental Approvals
shall be acceptable in all material respects to Seller in its reasonable
discretion.
3.2.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.2.5 H-S-R Act. All filings required to be made under the H-S-R Act
shall have been made, and the waiting period thereunder shall have expired or
early termination thereof shall have been granted.
3.2.6 Certificates and Other Documents. Buyer shall have delivered
the certificates and other documents required under Sections 2.3 and 2.4.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Buyer's Representations and Warranties. Buyer represents and warrants
to Seller that:
4.1.1 Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Buyer has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.1.2 Corporate Authority. This Agreement has been, and when
executed by Buyer each of the other Transaction Documents will be, duly and
validly executed and delivered by Buyer. This Agreement constitutes, and when
executed by Buyer each of the other Transaction Documents will constitute, the
valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
4.1.3 Governmental Authorizations. Except as contemplated by this
Agreement or as set forth in Schedule 4.1.3, neither Buyer's execution and
delivery of the Transaction Documents nor Buyer's consummation of the
Transactions require authorization or approval of, or filing with, any
Governmental Authority.
4.1.4 Funds. On the Closing Date, Buyer shall have sufficient funds
available to pay the Purchase Price, any proration payment required to be paid
on the Closing Date pursuant to Section 1.4, the amount of any Transfer Taxes to
be paid by Seller as provided in Section 1.6 and to consummate the Transactions.
4.1.5 Litigation. There are no actions, suits, proceedings, claims,
arbitrations or investigations, either at law or in equity, of any kind now
pending (or to the best of Buyer's knowledge threatened) involving Buyer or any
of its properties or assets that (i) question the validity of any of the
Transaction Documents or the Transactions; or (ii) seek to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under the Transaction Documents.
4.1.6 Investigation. Buyer, through its accountants, attorneys,
agents, employees, and others, has made or will have made prior to the Closing
such investigations of the Exchanges and Transferred Assets and of the factual,
legal and other condition and location of the Exchanges and Transferred Assets
that it deems necessary or advisable with respect to the Transactions. Buyer
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has not received from the Seller, or from anyone acting or claiming to act on
behalf of the Seller, any accounting, tax, legal or other similar advice with
respect to the Transactions, and Buyer is relying solely on advice of its own
accounting, tax, legal, and other advisors for such advice. Buyer has based its
decision to acquire the Transferred Assets solely on the results of such
investigations and the representations, warranties and covenants of Seller set
forth herein, and not based on any other information (including without
limitation information contained in Seller's descriptive memorandum) provided to
Buyer by Seller, its Affiliates, employees, agents, representatives or advisors.
4.2 Seller's Representations and Warranties. BUYER UNDERSTANDS THAT,
EXCEPT AS SET FORTH IN THIS SECTION 4.2, SELLER MAKES NO REPRESENTATIONS,
WARRANTIES OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR
TYPE WHATSOEVER WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, AND WARRANTIES AS TO THE APPURTENANCES, FACILITIES AND
IMPROVEMENTS THEREON, OR THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR
ADAPTABILITY THEREOF. Seller represents and warrants to Buyer that:
4.2.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Seller has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.2.2 Authorization, Execution and Delivery. This Agreement has
been, and when executed by Seller each of the other Transaction Documents will
be, duly and validly executed and delivered by Seller. This Agreement
constitutes, and when executed by Seller each of the other Transaction Documents
will constitute, the valid, legal and binding agreement of Seller enforceable
against Seller in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights generally
and by principles of equity.
4.2.3 Transferred Assets. Except with respect to Fee Realty, the
Transferred Assets are, and at the time of Closing will be, owned by Seller and
conveyed, transferred and assigned to Buyer free and clear of all Encumbrances.
The Transferred Assets (i) are in a normal state of repair (except for ordinary
wear and tear), (ii) are sufficient, both in number and condition, to comply
with applicable requirements of State Regulatory Authorities and the
manufacturer's specifications, except for non-compliances that in the aggregate
are not reasonably likely to have a material adverse effect on the Business
following the Closing Date, and (iii) will include all assets of every type,
nature and description that relate to, arise from, are used or held by Seller
primarily in the operation of the Business as presently operated by Seller
(including vehicles and related vehicle stock, portable
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office equipment, test equipment, generators, materials, supplies, tools,
maintenance radio equipment and antennas normally located within the Exchanges
or primarily used in connection with the Business), except for the Excluded
Assets. Assuming the receipt of all required third-party consents, the
instruments and documents to be executed and/or delivered by Seller to Buyer
pursuant to Section 2.2 hereof at or following the Closing Date shall be
adequate and sufficient to vest in Buyer all of Seller's right, title and
interest in or to the Transferred Assets. To Seller's Knowledge, Seller enjoys
peaceful, undisturbed possession under all leases included in the Material
Contracts and rights-of-way and easements with respect thereto and with respect
to the Fee Realty. Notwithstanding the foregoing to the contrary, with respect
to all Fee Realty included in the Transferred Assets, Seller makes no
representations or warranties as to the ownership or Encumbrances thereon, it
being the express agreement of the parties that such matters shall be the
subject of the arrangements set forth in Sections 3.1.11 and 5.3.9.
4.2.4 Governmental Authorization. Except as contemplated by this
Agreement and except for such of the following the absence of which would not
have a material adverse effect on the Business, no authorization or approval of,
or filing with, any Governmental Authority will be required in connection with
Seller's execution and delivery of the Transaction Documents or Seller's
consummation of the Transactions.
4.2.5 Litigation. As of the date hereof there are no actions, suits,
proceedings, claims, arbitrations or investigations, either at law or in equity,
of any kind now pending (or to the best of Seller's Knowledge threatened)
against Seller (i) in which an adverse determination would have a material
adverse effect on the Business; (ii) that question the validity of any of the
Transaction Documents or the Transactions; or (iii) that seek to delay, prohibit
or restrict in any manner any actions taken or contemplated to be taken by
Seller under the Transaction Documents.
4.2.6 Tax Matters. All taxes and assessments, including interest and
penalties thereon, of any kind whatsoever accrued with respect to the Business
through the Closing Date (other than Transfer Taxes and taxes subject to
proration at Closing pursuant to Section 1.4) have been or will be paid in full
by Seller. There are no liens for federal, state or local taxes upon the
Transferred Assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by Seller
in appropriate proceedings, the ultimate liability for which shall remain the
obligation of Seller, and Seller shall indemnify Buyer against all such
liabilities. Seller has timely filed, or will cause to be timely filed, all
federal, state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Business for all periods up to and including the Closing Date.
4.2.7 No Breach. The execution and delivery by Seller of the
Transaction Documents and the consummation by Seller of the Transactions will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of Seller; (ii) violate any
applicable law, statute, ordinance, rule, regulation, code, license,
certificate, franchise, permit, writ, ruling award, executive order, directive,
requirement, injunction (whether
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temporary, preliminary or permanent), judgment, decree or other order
(collectively "Applicable Laws") issued, enacted, entered or deemed applicable
by any Governmental Authorities having jurisdiction over Seller or any of the
Transferred Assets; (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give another
party any rights of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of the Operating Contracts; or (iv) result in
the creation or imposition of any Encumbrance on any of the Transferred Assets,
excluding from the foregoing clauses those violations, breaches or defaults
which individually or in the aggregate would not reasonably be expected to have
a material adverse effect upon the operation of the Business by Buyer after the
Closing.
4.2.8 Compliance with Laws. Except as set forth on Schedule
4.2.18(a), the Business has been operated and the Exchanges are in compliance
with all requirements of the Authorities and all Applicable Laws, except where
Seller's non-compliance would not have a material adverse effect on the
Business. Seller has not received any notice of (and to Seller's Knowledge there
is no reason to anticipate) any material violation of any Applicable Laws.
Notwithstanding the foregoing, except as specifically provided in Section 5.3.7,
Seller hereby disclaims all warranties, whether express or implied, with regard
to the presence of Hazardous Materials in the Transferred Assets or compliance
of the Business with Environmental Laws. Buyer understands and agrees that,
other than as specifically provided in Section 5.3.7, any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Transferred Assets following the Closing Date, including the costs of any
remediation or cleanup associated with the Transferred Assets, or environmental
claim or liability associated with the Transferred Assets, irrespective of when
contamination occurred, is assumed by Buyer on the Closing Date.
4.2.9 Operating Contracts. Schedule 4.2.9(a) sets forth all of the
Operating Contracts of the type described below (the "Material Contracts") that
Seller, after using commercially reasonable efforts, has been able to gather for
Buyer's review. No Operating Contract described in (i) below will be entered
into after the date of this Agreement and no Operating Contract described in
(ii) - (ix) will be entered into after the date of this Agreement other than in
the ordinary course of business:
(i) an agreement containing a non-compete agreement or other
non-compete covenant that in either case would by its terms limit the freedom of
Buyer following the Closing to compete in any respect with respect to the
Business with any third party;
(ii) an agreement granting an Encumbrance on Property other than Fee
Realty;
(iii) an agreement for the sale of any material Transferred Assets
or grant of any preferential rights to purchase any material Transferred Assets;
(iv) a land development agreement or other similar construction
agreement;
(v) a lease of real property;
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(vi) an agreement with respect to 911 services or E911 services;
(vii) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Exchanges;
(viii) an agreement that relates to arrangements and commitments
between Seller and a third party for the third party's location of equipment in
facilities included in the Transferred Assets except to the extent set forth in
a separate interconnection agreement; or
(ix) an agreement other than as set forth above with respect to
which the aggregate amount to be received or paid thereunder attributable to the
Exchanges with respect to calendar year 1999 or any subsequent calendar year is
expected to exceed $50,000 based on the terms of such agreement or on the
payments which have been made under such agreement with respect to calendar year
1998, to the extent applicable.
Schedule 4.2.9(b) identifies (i) each interconnection agreement between
Seller and a third party or an Affiliate of Seller that is applicable to the
Exchanges, (ii) each agreement that relates to arrangements and commitments
between Seller and an Affiliate of Seller for such Affiliate's co-location of
equipment in facilities included in the Transferred Assets that Seller, using
commercially reasonable efforts, has been able to identify, and (iii) each
Exchange where a third party has physically co-located equipment or, to Seller's
Knowledge, where a third party has made a written request to co-locate equipment
located in the Exchanges.
All of the Operating Contracts were made in the ordinary course of
business and are in all material respects valid, binding and currently in full
force and effect. Seller is not in default in any material respect under any of
the Operating Contracts, and to Seller's Knowledge no event has occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default or give rise to a right of termination or cancellation under any of the
Operating Contracts, cause the acceleration of an obligation of Seller, or
result in the creation of any Encumbrance upon any of the Transferred Assets. To
Seller's Knowledge, no other party is in default under any of the Operating
Contracts, nor has any event occurred which, through the passage of time or the
giving, of notice, or both, would constitute a default or give rise to a right
of termination or cancellation under any of the Operating Contracts, or cause
the acceleration of any obligation owed to Seller. Complete and correct copies
of all the Material Contracts in Seller's possession, together with all
modifications and amendments thereto to date of this Agreement in Seller's
possession, have been made available to Buyer or its representatives. Schedule
4.2.9(a) also specifically identifies each lease that requires the consent,
approval or waiver of the other party thereto for the assignment thereof.
4.2.10 Realty. (i) To Seller's Knowledge, the legal descriptions to
be delivered by Seller to the title insurance company shall be complete and
accurate in all material respects; (ii) as of the date hereof, there are no
deferred property taxes or assessments payable by Seller with respect to the Fee
Realty which may or will become due and payable as a result of the consummation
of the
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Transactions, other than Transfer Taxes; (iii) there are no condemnation
proceedings pending or to Seller's knowledge threatened with respect to all or
any part of any parcel of Fee Realty; and (iv) Seller is not a foreign person
within the meaning of Section 1445 of the Code.
4.2.11 Reports. Seller has filed all reports relating to the
Business required by all Applicable Laws to be filed, and it has duly paid or
accrued on its books of account all applicable duties and charges due or
assessed against it pursuant to such reports.
4.2.12 Year 2000 Matters.
(a) Year 2000 Compliance. Seller warrants and represents that to the
best of its knowledge and belief following an effort of commercially reasonable
diligence by Seller, all of its business assets, including but not limited to
information technology and non-information technology systems and facilities and
those of its external suppliers utilized by Seller in the Business and included
in the Transferred Assets ("Business Assets"), are or will be "Year 2000
Compliant" (defined below) on or before the Closing Date. For purposes of this
Agreement, the following definitions apply:
(i) "Date Data" means any data, formula, algorithm, process,
input or output which includes, calculates or represents a date, a reference to
a date or a representation of a date;
(ii) "Year 2000 Compliant" means:
1. the functions, calculations, and other computing
processes of the Business Assets (collectively, "Processes") perform in a
consistent manner regardless of the date in time on which the Processes
are actually performed and regardless of the Date Data inputs to the
Business Assets, whether before, on, during or after January 1, 2000 and
whether or not the Date Data is affected by leap year;
2. the Business Assets accept, calculate, compare, sort,
extract, sequence, and otherwise process all Date Data, and returns and
displays all Date Data, in a consistent manner regardless of the dates
used in such Date Data, whether before, on, during or after January 1,
2000.
3. the Business Assets will function without
interruptions caused by the date in time on which the Processes are
actually performed or by the Date Data inputs to the Business Assets,
whether before, on, during or after January 1, 2000;
4. the Business Assets store and display all Date Data
in ways that are unambiguous as to the determination of the century;
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5. no Date Data will cause one or more Business Assets
to perform an abnormally ending routine or function within the Processes
or generate incorrect values or invalid results; and
6. each of the Business Assets will properly exchange
Date Data with all other Business Assets that it may interact or
inter-operate with.
(b) Year 2000 Testing. Seller warrants that the Business Assets have
been tested by Seller and/or Seller's suppliers of Business Assets to determine
whether each of the Business Assets is Year 2000 Compliant. Seller's suppliers
of Business Assets have represented to Seller that the Business Assets provided
by them are Year 2000 Compliant and/or have been tested by those suppliers to
determine whether such Business Assets are Year 2000 Compliant. Seller will
notify Buyer immediately of the results of any test or any claim or other
information that indicates any Business Asset is not Year 2000 Compliant.
(c) Year 2000 Remedies. In the event that Buyer encounters a
Business Asset that is not Year 2000 Compliant, within a commercially reasonable
period after receipt from Buyer of written notice thereof, Seller shall at its
expense cause the identified non-compliant Business Asset to be repaired or
replaced.
4.2.13 Correct Records. The financial records, ledgers, account
books and other accounting records of Seller relating to the Business are
current, correct and complete and, if required by applicable law, conform with
the rules and regulations of the FCC and the State Regulatory Authorities,
except for instances that in the aggregate are not reasonably likely to have a
material adverse effect on the Business following the Closing Date and except
for the Continuing Property Records for the Exchanges, which are dealt with
specifically elsewhere in this Agreement. Seller has retained substantially all
original cost documentation relating to the regulated Business regarding the
expenditures made by Seller within the period required by Applicable Law that
relate to the Property, and such original cost documents are correct and
complete in all respects, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
4.2.14 Tribal and Federal Consents.
(a) To Seller's Knowledge, all easements, rights-of-way, franchises,
licenses, permits, consents, approvals, certificates and other authorizations of
tribal authorities and the United States Bureau of Indian Affairs (the
"BIA")(collectively, "Tribal Authorizations") held by Seller and relating to any
Purchased Property located, or any operations of the Business conducts, on
Native American reservations are in full force and effect, Seller is not in
material default thereunder, and there are no other Tribal Authorizations
required to be obtained by Seller from, or filings required to be made by Seller
with, any tribal authority or the BIA with respect to any such Purchased
Property or any such operations of the Business, except for instances that in
the aggregate are not reasonably likely to have a material adverse effect on the
Business following the Closing Date.
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(b) Except as set forth on Schedule 4.2.14(b), to Seller's Knowledge
no consent, approval or waiver from, or filing with, any tribal authority or the
BIA is required to be obtained or made in connection with the execution and
delivery by Seller of this Agreement, or Seller's fulfillment of its obligations
under this Agreement, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(c) If during the period between the date of this Agreement and the
Closing Date the representation and warranty set forth in this Section 4.2.14
proves to be untrue with respect to one or more parcels of Realty and Buyer and
Seller in good faith have been unable to remedy the circumstances that causes
such representation and warranty to be untrue with respect to such parcel, at
the election of either Buyer or Seller such parcel shall be excluded from the
Transferred Assets, and Buyer and Seller shall in good faith reduce the Purchase
Price accordingly.
4.2.15 Financial Statements.
Within 15 business days of the date hereof, Seller shall deliver to Buyer
a copy of financial statements relating to the Business, consisting of a balance
sheet and income statement and statements of cash flow and changes in equity for
the Business as of and for the respective periods ended December 31, 1996,
December 31, 1997, and December 31, 1998, together with the auditor's report
thereon (the "Financial Statements"). The Financial Statements were prepared
based upon the books and records of Seller, fairly present in all material
respects the financial condition of the business as of the appropriate periods
and the results of operations for the year then ended, in each case in
conformity with GAAP.
4.2.16 Loss of Major Customer. Except as set forth on Schedule
4.2.16, since June 1, 1997, Seller has not suffered the loss of any customer of
the Business that had billings in any year in excess of $25,000.
4.2.17 CPRs; Vehicles. Seller has provided Buyer with its Continuing
Property Records ("CPRs") for the Exchanges. Schedule 4.2.17 contains a true and
complete list and description (including vehicle identification numbers) as of
June 1, 1999 of the vehicles that are included in the Transferred Assets.
4.2.18 Tariffs and Authorities.
(a) The regulatory tariffs applicable to the Business stand in full
force and effect on the date of this Agreement in accordance with all terms, and
there is no outstanding notice of cancellation or termination or, to Seller's
Knowledge, any threatened cancellation or termination in connection therewith,
nor is Seller subject to any restrictions or conditions applicable to its
regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material
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respect under any such tariff. Schedule 4.2.18(a) sets forth all applications by
Seller or complaints or petitions by others or proceedings pending or, to
Seller's Knowledge, threatened before the state regulatory authority relating to
the Business or its operations or the regulatory tariffs that Seller, after
using commercially reasonable efforts, has been able to identify. To Seller's
Knowledge, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Business
has been delivered or made available to Buyer.
(b) Listed on Schedule 4.2.18(b) are the material Authorities held
by Seller and used in the operation of the Business. Each of such Authorities is
in full force and effect of the date of this Agreement in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor are any of such Authorities subject to any restrictions or
conditions that limit the operation of the Business (other than restrictions or
conditions generally applicable to licenses or permits of that type). Subject to
the Communications Act of 1934, as amended, and the regulations thereunder, the
FCC licenses included in the Authorities are free from all security interests,
liens, claims or encumbrances of any nature whatsoever. Except as disclosed on
Schedule 4.2.18(c), there are no applications by Seller or complaints or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC licenses that would reasonably be expected to have a
material adverse impact on the Business.
4.2.19 Environmental Matters.
(a) Schedule 4.2.19(a) accurately describes each incident known to
Seller and arising since December 31, 1996, involving violation of or
noncompliance with Environmental Laws in connection with Seller's operation of
the Business or the use or ownership of the Transferred Assets with respect to
which the fines exceed $100,000. Except as will be set forth on Schedule
4.2.19(d), no environmental remediation is occurring on any parcel of Fee Realty
or leased real property included in the Transferred Assets nor has Seller or any
Affiliate of Seller issued a request for proposal or otherwise asked an
environmental remediation contractor to begin plans for environmental
remediation.
(b) Schedule 4.2.19(b) sets forth a true and accurate list of all
underground storage tanks ("USTs") and aboveground storage tanks ("ASTs")
located on the Fee Realty and the leased real property included in the
Transferred Assets that are in use.
(c) Except as set forth in Schedule 4.2.19(c) and, to the extent
such information is unavailable on the date of execution of this Agreement, as
set forth and supplemented on Schedule 4.2.19(d), none of the Fee Realty or
leased real property is (i) situated in a federal "Superfund" site or, to
Seller's Knowledge, in any federal "Superfund" study area, or (ii) to Seller's
Knowledge, situated in a site or study area that is covered by the Environmental
Quality Control Act, Iowa Code Ch. 381-397 and 455B 423-431, as amended, or the
Groundwater Protection Act, Iowa Code Ch. 455E, as amended.
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(d) Within 30 days from the date of this Agreement, Seller will
prepare and deliver to Buyer Schedule 4.2.19(d), which schedule will list (i)
all environmental remediation occurring on any parcel of Fee Realty or leased
real property included in the Transferred Assets, (ii) any requests for
proposals for remediation, (iii) any requests by Seller or any Affiliate of
Seller to begin plans for environmental remediation, (iv) all USTs and ASTs
located on the Fee Realty and the leased real property included in the
Transferred Assets that, to Seller's Knowledge, have been abandoned in place,
and (v) each incident known to Seller and arising since December 31, 1996,
involving violation of or noncompliance with Environmental Laws in connection
with Seller's operation of the Business or the use or ownership of the
Transferred Assets with respect to which the fines exceed $10,000. In addition,
within such period, Seller shall deliver to Buyer complete copies of letters of
non-compliance with respect to each incident listed in subsection (v) above,
copies of AST and UST closure letters contained in the files and records of
Seller, copies of all No Further Action letters contained in the files and
records of Seller, and a description of the status of any existing fuel tank
remediation.
4.2.20 Employee Benefits.
(a) Schedule 4.2.20(a) lists each Employee Benefit Plan and Other
Plan maintained or contributed to by Seller or its affiliates for the benefit of
any employee employed by, or associated with, the Business (hereinafter, an
"employee of the Business"). Seller has provided Buyer with full and complete
copies (including all amendments) of all of such Employee Benefit Plans and
Other Plans.
(b) To Seller's Knowledge, each such Pension Plan, Welfare Plan and
Other Plan maintained by Seller has been operated in accordance with its terms
and in accordance with applicable law, to the extent that the failure to do so
would have material adverse effect on the Business or its assets.
(c) Except as otherwise set forth on Schedule 4.2.20(c), no Employee
Benefit Plan or Other Plan provides benefits for persons who are not active
employees of Seller.
(d) Except as set forth on Schedule 4.2.20(g), there are no actions,
suits or claims pending or threatened (other than routine claims for benefits)
relating to any Employee Benefit Plan or Other Plan identified in Schedule
4.2.20(a) except for actions, suits or claims that are not in the aggregate
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(e) Seller does not maintain any Employee Benefit Plan or Other Plan
under which it would be obligated to pay benefits because of the consummation of
the transaction contemplated by this Agreement, which could become an obligation
of the Buyer.
(f) Seller has used its best efforts to maintain each trust forming
a part of any Pension Plan identified in Schedule 4.2.20(a) which is not exempt
from Part 2, 3 and 4 of Title I of
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ERISA to meet all requirements for qualification under Sections 401 and 501 of
the Internal Revenue Code, and all applicable related rules and final
regulations.
(g) Schedule 4.2.20(g) sets forth all the exceptions to the
following statements that Seller, after using commercially reasonable efforts,
has been able to identify: (i) Seller is not subject to any collective
bargaining agreement covering any employees of the Business; (ii) there are no
current, or to Seller' Knowledge, any pending or threatened strikes, slowdowns,
picketing, work stoppages or lock-outs affecting the Business; (iii) to Seller's
knowledge, there is no pending or threatened organized activity or petition for
certification of a collective bargaining representative involving employees of
the Business; (iv) to Seller's Knowledge, there is no pending or threatened
charge, action, complaint, or proceeding of any nature against Seller relating
to the violation of any applicable state and federal labor or employment law or
regulation in connection with the Business, nor is there any other pending or
threatened labor or employment dispute against or affecting Seller in connection
with the Business ,except for items that in the aggregate are not reasonably
likely to have a material adverse effect on the Business following the Closing
Date; and (v) with respect to employees of the Business, Seller has complied in
all respects with the laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupation safety and health, immigration, and plant closings ,except
for items that in the aggregate are not reasonably likely to have a material
adverse effect on the Business following the Closing Date. Seller has delivered
to Buyer accurate and complete copies of all collective bargaining agreements
affecting any of the employees in the Exchanges.
"Employee Benefit Plan" means any Pension Plan and Welfare Plan within the
meaning of Section 3(3) of ERISA.
"Other Plan" means any employment, noncompetition, management, agency or
consulting arrangement, bonus, profit sharing, deferred compensation, incentive,
stock option, stock ownership or stock purchase plan, severance or unemployment
arrangement, vacation pay, fringe benefit or other similar plan, policy or
arrangement, whether or not in written form, which does not constitute an
Employee Benefit Plan and which is not listed on Schedule 4.2.20(a).
"Pension Plan" means any employee pension plan within the meaning of
Section 3(2) of ERISA.
"Welfare Plan" means any employee welfare benefit plan within the meaning
of the Section 3(1) of ERISA.
4.2.21 Accuracy of Information Furnished.
(a) To Seller's Knowledge:
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(i) Seller made a good faith effort, given the voluminous
nature of the material available with respect to the Transferred Assets, the
necessity to present in many cases representative documents or descriptions of
documents, and Seller's need to maintain certain competitive information
confidential, to include in the due diligence notebooks contained in the Data
Room located in Seller's offices in Denver, Colorado all documents or
appropriate descriptions of all documents that, in Seller's reasonable opinion,
a reasonable prospective acquiror of the Transferred Assets would deem to be
material in its decision; and
(ii) Seller did not intentionally and consciously decide to
(1) exclude from the due diligence notebooks (2) withhold from Buyer in response
to Buyer's requests for additional information or (3) not make available for
review by Buyer or its agents at Seller's offices in Denver, Colorado any
document relating to the operation of the Business as currently conducted which,
in Seller's reasonable opinion, a reasonable prospective acquiror of the
Transferred Assets would deem to be material in its decision to acquire the
Transferred Assets.
4.2.22 No Material Adverse Change. Since December 31, 1998 there has not
occurred (i) any event or condition that would have a material adverse effect on
the Business, (ii) any increase in compensation payable or to become payable by
Seller to any of its Hired Employees or agents, other than normal merit or
promotional increases and pursuant to any collective bargaining agreements,
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract, except any amendment or termination in the
ordinary course of business or (iv) any change in any accounting method,
practice or policy of Seller with respect to the Business.
ARTICLE 5
COVENANTS
5.1 Covenants of Buyer. Buyer hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.1.1 Continued Efforts. Buyer will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Buyer; (ii) cause to be performed all of
the actions required of Buyer at or prior to the Closing; and (iii) take such
steps and do all such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect as
if the same had been made as of the Closing Date. Without limiting the
foregoing, Buyer agrees if requested by Seller to apply for or otherwise seek
any required third-party consents on a joint basis.
5.1.2 Cooperation. Buyer agrees to cooperate with Seller with
respect to (i) Seller's assignment to Buyer and Buyer's assumption of the
Transferred Assets hereunder, and (ii) Seller's structuring of the Transactions
to comply with the requirements of a like-kind exchange under Section 1031 of
the Code (a "1031 Transaction") at no additional expense to Buyer, such
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cooperation to include, without limitation, purchase of the Transferred Assets
from a "qualified intermediary" (as defined in Section 1031) of Seller's choice
and execution of such documents in connection with the Transactions as Seller
may reasonably request. If Seller elects to pursue the Transactions as a 1031
Transaction, then (i) notwithstanding anything in this Agreement to the
contrary, Seller shall fully indemnify, defend and hold Buyer harmless from and
against any and all liabilities resulting therefrom, including, but not limited
to, any tax impacts on Buyer or the Transferred Assets, and (ii) Seller shall
remain directly and primarily bound by all other conditions, representations,
warranties and covenants contained herein and remedies related thereto.
5.1.3 Employee Matters.
(a) Buyer agrees that, during the period between the date hereof and
the Closing Date and for a period of 18 months thereafter, without the prior
written consent of Seller, Buyer will not actively solicit for employment any
employee of Seller other than those persons identified by Seller to Buyer in
writing as provided in this Section 5.1.3 or who respond to a general
solicitation of employment made by Buyer.
(b) As soon as practicable following the date hereof and as
permitted by applicable law and collective bargaining agreements, Seller shall
provide to Buyer a list of all employees whose services are primarily related to
the Exchange (the employees on such list being referred to as "Prospective
Hires"). Buyer shall have the right to audit such list to determine that it
contains an accurate and complete listing of all Prospective Hires, and Seller
shall cooperate in providing Buyer with such information as Buyer may reasonably
request to assist in such audit. Within 90 days following the date of this
Agreement, and consistent with applicable law and any collective bargaining
agreement, Seller shall provide Buyer with a definitive list of Prospective
Hires, such list to contain the name, job classification, position, title, date
of hire, current salary or wage, bargaining unit, primary exchange(s), work
location, telephone number and last known address of each Prospective Hire.
(c) Buyer may, but shall have no obligation to, employ or offer
employment to any Prospective Hire. Seller shall cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview the Prospective
Hires to make hiring decisions. At least 60 days before the scheduled Closing
Date, Buyer shall provide to Seller in writing a list of the Prospective Hires
that Buyer intends to offer employment. At least 45 days before the scheduled
Closing Date, Buyer shall notify those Prospective Hires whom Buyer intends to
hire on the Closing Date; the form and manner of such notification shall be
reasonably satisfactory to and approved in advance by Seller. Buyer shall be
permitted to conduct appropriate pre-hire investigations of such named
Prospective Hires and make any offer of employment for such Prospective Hires
conditional upon receiving results of such investigations as are satisfactory to
Buyer.
(d) As of the Closing Date, Seller shall separate from its payroll
the employment of all of the Prospective Hires to whom Buyer has made offers of
employment other than any such Prospective Hire who has been offered employment
by Buyer and who is on leave status, including
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employees receiving Workers' Compensation Benefits, as of the Closing Date
(each, an "Employee on Leave Status"). Buyer shall employ any Employee on Leave
Status (i) who is on approved leave under the Family and Medical Leave Act on
the Closing Date only when such Employee on Leave Status returns to work from
such approved leave under the Family and Medical Leave Act or (b) who is
receiving Workers' Compensation Benefits on the Closing Date only when such
Employee on Leave Status is released to return to work but only if such release
occurs within sixteen weeks after the date of initial eligibility for Workers'
Compensation Benefits, in each case subject to Buyer's right to conduct
appropriate pre-hire investigations of such Employee on Leave Status and to
Buyer's receipt of results of such investigations that are satisfactory to
Buyer.
(e) Seller shall be responsible for and shall cause to be discharged
and satisfied in full all amounts owed to any Prospective Hire who is employed
by Seller as of the Closing Date, including salaries, commissions, bonuses,
deferred compensation, severance, insurance, vacation, and other compensation or
benefits to which they are entitled for periods prior to the Closing (and for
Employee on Leave Status, until their employment by Buyer, as set forth in
Section 5.1.3(d) hereof), including all amounts (if any) payable on account of
the termination of such Prospective Hires.
(f) Seller will be responsible for maintenance and distribution of
benefits accrued under any Employee Benefit Plan maintained by Seller pursuant
to such plan and any legal requirements. Buyer will not assume any obligation or
liability for any such accrued benefits under any employee benefit plans
maintained by Seller.
(g) Nothing in this Section 5.1.3 or elsewhere in this Agreement
shall be deemed to make any Prospective Hire a third party beneficiary of this
Agreement.
(h) Seller acknowledges and agrees that Buyer has not agreed to be
bound, and will not be bound, by any provision of any collective bargaining
agreement or similar contract with any labor organization to which Seller or any
of its Affiliates is or may become bound.
(i) Seller shall provide employees of the Business with any required
notices under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller.
5.1.4 Directory Publishing Rights. Buyer will enter into good faith
negotiations with U S WEST Dex, Inc. ("Dex"), an Affiliate of Seller (or its
successor so long as such successor remains an Affiliate of Seller), concerning
an agreement whereby either (i) Dex will publish all subscriber listings
corresponding to the Exchanges on behalf of Buyer in satisfaction of Buyer's
regulatory obligations to publish such listings, or (ii) Buyer will license such
listings to Dex in accordance with Buyer's regulatory obligations to provide
such listings in the event that Buyer elects to publish or arrange with a third
party to publish such listings.
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5.1.5 911 Emergency Services. Buyer will obtain or contract for the
appropriate 911 emergency data bases in order to commence providing 911
emergency services in connection with the operation of the Business as of the
Closing Date.
5.2 Covenants of Seller. Seller hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.2.1 Access to Information and Facilities. Seller will afford Buyer
and its representatives, at Buyer's sole expense, reasonable access during
normal business hours to all Transferred Assets, facilities, properties, books,
accounts, records, contracts and documents of or relating to the Business in
Seller's possession or control. Seller shall exercise commercially reasonable
efforts to furnish or cause to be furnished to Buyer and its representatives all
data and information in Seller's possession concerning the Exchanges as shall
reasonably be requested by Buyer. Seller shall exercise commercially reasonable
efforts to gather additional Material Contracts for Buyer's review.
Seller acknowledges and agrees that Buyer's ongoing review, examination
and investigation of the Business and the Transferred Assets, facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business contemplated in the immediately preceding sentence is necessary to
facilitate the assimilation of the Business into Buyer's operations, the
transfer of the ownership and use of the Transferred Assets from Seller to Buyer
and other reasonable business purposes, and may include the following
activities:
(i) review of the Operating Contracts and Authorities, the
performance of which after Closing is an Assumed Liability (e.g., land
development agreements, 911 and E911 service agreements and customer
prepaid maintenance agreements) in order, among other things, to identify
those that require third party consent to assign to Buyer, those that
expire prior to or soon after the Closing and those that may require
special documentation to transfer to Buyer;
(ii) investigation of the third party arrangements included among
the Excluded Assets that Buyer will need to replicate or replace,
including interconnection agreements and national account agreements that
affect any Exchange.
(iii) examination of various assets included in the Property in
order, among other things, to determine what changes Buyer may need to
make to such assets after the Closing Date;
(iv) investigation of miscellaneous underwriting data, including an
insurance claims history of Seller relating to the operation of the
Business and the ownership or use of the Transferred Assets, the current
surety bonds and certificates of insurance relating to the Transferred
Assets, and Seller's policies and practices relating to pertinent
environmental, health, safety and property protection issues, in order for
Buyer to arrange appropriate
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insurance coverage by Closing with respect to Buyer's operation of the
Business and ownership and use of the Transferred Assets after the Closing
Date;
(v) investigation of the location and organization of the Records,
including the original cost documents and outside plant maps relating to
the Property, in order for the parties to arrange for appropriate delivery
(including via electronic transfer) or retention by Seller upon the
Closing;
(vi) review of the appropriate financial and accounting records of
Seller relating to the operation of the Business in order, among other
things, for Buyer to analyze the current balances and writeoff history of
the materials and supplies inventory included in the Transferred Assets,
the aging and write-off history of Accounts Receivable, and the manner in
which the Seller historically has allocated costs to the Purchased
Exchanges;
(vii) review of the ongoing State Regulatory Authorities and FCC
reporting obligations of Seller and Buyer relating to the Exchanges,
including responsibility for filing "form M" financial information, FCC
Report No. 43-04, Armis Joint Cost Report, and FCC Report No. 43-8, Armis
Operating Data Report, for the Exchanges for the year in which the Closing
Date occurs;
(viii) investigation of the construction and plant upgrade
activities of Seller between the date of execution of this Agreement and
the Closing Date, including a review of the construction work in progress,
in order, among other things, to enable Buyer to make appropriate
arrangements for the continuation of such activities after the Closing
Date; and
(ix) investigation of other regulatory issues, including with
respect to regulatory mandates and matters relating to the National
Exchange Carrier Association (including the Universal Service Fund, Local
Switching Support, and Telecommunications Relay Services funds) and
corresponding funds established by the State Regulatory Authorities.
The parties agree to cooperate and to negotiate in good faith regarding
resolution, on commercially reasonable terms and conditions, of issues and
concerns raised by either party in connection with such activities. Each party's
cooperation will include making appropriate subject matter experts and other
knowledgeable personnel available to meet with the appropriate representatives
of the other party and facilitating Buyer's contacts with the appropriate
Governmental Authorities (including the State Regulatory Authorities).
5.2.2 Continued Efforts. Seller will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Seller; (ii) cause to be performed all
of the actions required of Seller at or prior to the Closing; and (iii) take
such steps and do such acts as may be necessary to make all of its warranties
and representations true and correct as of the Closing Date with the same effect
as if the same had been made as of the Closing Date.
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5.2.3 Maintenance of Business. Seller shall carry on the Business in
the usual and ordinary course and substantially in the same manner as heretofore
conducted. Accordingly, Seller shall (i) maintain its books and records in the
normal and usual manner, (ii) keep the Transferred Assets in a normal state of
repair (except for ordinary wear and tear) and operating efficiency to permit
the conduct of the Business as it is currently being conducted; (iii) use its
commercially reasonable efforts to undertake or complete capital projects as
budgeted on Schedule 5.2.3(iii) and any capital projects required by Applicable
Laws or any Governmental Authority to be undertaken by the Closing Date (it
being understood and agreed that Seller shall have no obligation for any capital
spending other than in connection with such capital projects and as required to
comply with the provisions of this Section 5.2.3 and provided that Seller shall
be entitled to the Purchase Price adjustment (to the extent applicable) pursuant
to Section 1.4.3(a)); (iv) not increase the benefit provided under any plans
concerning employee benefits or increase the general rates of compensation of
its employees in the Exchanges, except (a) as required by Applicable Law, (b)
pursuant to any contracts existing on the date hereof and listed on Schedule
5.2.3(iv) to which Seller is a party, (c) increases in base pay or bonuses in
the ordinary course of business of Seller and in amounts consistent with the
recent past practices of Seller, or (d) as listed or described on Schedule
5.2.3(iv); and (v) not amend, modify or terminate any contract identified on
Schedule 4.2.9 or permit any of the foregoing to occur other than in the
ordinary course of business.
5.2.4 Consent to Assignment. Seller will transfer to Buyer all
Operating Contracts and permits that are by their terms assignable. Seller shall
also request assignment to Buyer of those Operating Contracts and permits that
are not by their terms assignable. To the extent that the assignment of any
Operating Contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Operating
Contract or permit if an attempted assignment would constitute a breach thereof.
Seller shall use commercially reasonable efforts (excluding the payment of
money) to obtain the consent of any other party to the assignment of such
Operating Contracts or permits to Buyer. If any such consent is not obtained, to
the extent permitted by Applicable Law, this Agreement shall constitute an
equitable assignment by Seller to Buyer of all of Seller's right, title, and
interest in and to such Operating Contracts and permits, and Buyer shall be
deemed Seller's agent for the sole purposes of completing, fulfilling and
discharging all of Seller's rights and obligations arising after the Closing
Date under such assigned Operating Contracts and permits.
5.2.5 Payment and Performance of Obligations. Seller will timely pay
and discharge all invoices, bills and other monetary obligations (other than
obligations which are contested by Seller in good faith) and shall not knowingly
perform or fail to perform any act which will cause a material breach of any of
the Operating Contracts.
5.2.6 Restrictions on Sale of Transferred Assets. Seller shall not
sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose
of any of the Transferred Assets except in the ordinary course of the Business.
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5.2.7 Audit or Review of Financial Statements. To the extent Buyer
reasonably requires audited or reviewed financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, Seller
will cooperate with the independent auditors chosen by Buyer in connection with
their audit of any annual financial statements that Buyer reasonably requires to
comply with Regulations S-X and S-K, and their review of any interim quarterly
financial statements that Buyer reasonably requires to comply with Regulations
S-X and S-K. If Closing has not occurred prior to March 31, 2000, then as soon
as practicable but in any event by May 15, 2000. Seller will provide for audit a
balance sheet as of December 31, 1999, and an income statement and statement of
cash flows and changes in equity for the year ending December 31, 1999. The
financial statements to be audited or reviewed pursuant to this Section 5.2.7,
are hereinafter referred to as the "Required Financial Statements." Seller's
cooperation will include (i) such access to Seller's employees who were
responsible for preparing the Required Financial Statements and to workpapers
and other supporting documents used in the preparation of the Required Financial
Statements as may be reasonably required by such auditors to perform an audit in
accordance with generally accepted auditing standards, (ii) delivery of any
Required Financial Statements within 45 days after Buyer's request for the same
(except as otherwise provided in the second sentence of this Section 5.2.7) and
in the form required by Regulations S-X and S-K, and (iii) delivery of one or
more representation letters from Seller to such auditors that are requested by
Buyer to allow such auditors to complete the audit (or review of any interim
quarterly financials), and to issue an opinion acceptable to the SEC with
respect to the audit or review of those Required Financial Statements. Seller
will bear the cost of preparation of the Required Financial Statements. Buyer
and Seller will share equally the cost of the audit or review.
5.2.8 [Intentionally Deleted]
5.2.9 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information and reasonable assistance as Buyer may reasonably request
in connection with Buyer's replacement of the interconnection agreements
relating to the Exchanges, including supplying to Buyer copies of such
interconnection agreements to the extent permissible and, to the extent
requested by Buyer and in compliance with applicable law, contacting the other
party to such interconnection agreements to notify such party that its
interconnection agreement will not apply to the Buyer and the Exchanges after
Closing. Buyer acknowledges its obligation to negotiate interconnection
agreements with third parties that have ongoing interconnection activities
related to the Exchanges with the expectation that interconnection agreements
between Buyer and such third partes will be entered into effective as of the
Closing Date. If such agreements are not entered into or, if required, approved
by appropriate Governmental Authorities, Buyer will offer to provide
interconnection to such third parties according to the terms of the Seller's
interconnection agreements with such third parties until the Buyer's new
agreements with such third parties are entered into or, if required, approved by
appropriate Governmental Authorities.
5.2.10 State Regulatory Authority/FCC Filings. Seller shall make all
necessary filings with the State Regulatory Authorities, the FCC or any other
Governmental Authority between
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the date of this Agreement and the Closing Date. Seller shall notify Buyer of
any significant proposed changes in the rates, charges, standards of service or
accounting of the Exchanges from those in effect on the date of this Agreement
prior to making any filing with the State Regulatory Authorities, FCC or any
other Governmental Authority (or any amendment thereto), or effecting with any
Governmental Authority any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto. Between the
date of this Agreement and the Closing Date, Seller shall use commercially
reasonable efforts to notify Buyer before Seller files any application,
petition, motion, brief, testimony, settlement agreement or other pleading in
any proceeding before the State Regulatory Authorities, FCC or any other
Governmental Authority or appeals related thereto with respect to which Buyer or
an Affiliate of Buyer has or reasonably could be expected to take a contrary
position that reasonably could be expected to have any adverse effect on the
revenue, earnings, or business of Buyer. Seller will give or cause to be given
to Buyer, as promptly as reasonably practicable, copies of all correspondence
(including notices, complaints, and pleadings) with any Governmental Authority
relating to any such proceeding or other rate regulatory matter that is sent or
received by Seller after the date of this Agreement.
5.2.11 Missing Plant.
(a) If, between the period commencing on execution date of the
Agreement and ending six months after the effective time of Closing, Buyer
notifies Seller in writing regarding items of Property (other than items that
have been fully depreciated on the books and records of Seller, items that are
no longer used in or necessary to the Business, and items covered by Section
5.2.11(b)) that are included in the CPRs relating to the Exchanges but that
Buyer, using commercially reasonable efforts, cannot locate in the Exchanges or
that have been sold, transferred or removed from the Exchanges by Seller or an
Affiliate of Seller, then Seller, at its option, either (i) shall pay to Buyer
(or reduce the Purchase Price by) an amount equal to the net book value of such
items as reflected on the books and records of Seller or (ii) deliver to Buyer
such items or replacement items that have reasonably comparable (or superior)
value, vintage and functionality; provided, however, that Seller shall have no
obligation under this Section 5.2.11(a) until the aggregate net book value of
all such items, together with the aggregate net book value of all such similar
items identified in Section 5.2.11 of each of the Multi-State Exchange Purchase
Agreements, exceeds $400,000, at which time Seller shall become obligated under
this Section 5.2.11(a) with respect to all items so identified by Buyer in all
notices delivered to Seller on or before the date that is six months after the
effective time of Closing; and provided, further that Seller shall have no
obligation under this Section 5.2.11(a) to the extent that the Maximum
Adjustment Amount shall have been reached.
(b) At Closing, Seller shall cause the Transferred Assets to include
all vehicles listed on Schedule 4.2.17 except to the extent any such vehicle has
been replaced with items of reasonably comparable (or superior) value, vintage
and functionality, in which event Seller shall cause such replacement items to
be included in the Transferred Assets.
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5.2.12 Third Party Software Licenses. To the extent that the transfer of
Transferred Assets by Seller to Buyer under this Agreement results in the
transfer of third party software that was rightfully used by Seller prior to the
Closing Date in the normal course operation of the Business pursuant to
contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then effective as of the Closing and provided
that no payments to any person are thereby required (except with respect to
payments relating to the transfer of switch software, which will be shared
equally by Buyer and Seller), at Closing Seller shall assign to Buyer, to the
extent permitted by the Third Party Intellectual Property Contracts, and Buyer
shall accept all rights and licenses if any to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses.
5.3 Mutual Covenants.
5.3.1 Confidentiality. Each party to this Agreement agrees to hold
in strict confidence all Confidential Information received from the other party,
whether received before or after entering into this Agreement, and to use such
information solely for the purposes of this Agreement. Each party agrees to make
no more copies of such Confidential Information than is reasonably necessary for
such purposes. Each party agrees that it will not make disclosure of any such
Confidential Information received from the other party to anyone except as
specifically permitted by this Agreement and as required by law. Each party may
disclose Confidential Information to its employees and agents to whom disclosure
is necessary for the purposes set forth above, provided that disclosing party
shall notify each such employee and agent that disclosure is made in confidence
and instruct such employees and agents that such Confidential Information shall
be kept in confidence by such employee and agent in accordance with this
Agreement. If the Transactions are not consummated for any reason, each party
agrees to return to the other party all such Confidential Information, including
all copies thereof, immediately on request. The obligations arising under this
section shall survive any termination or abandonment of this Agreement. This
Agreement will be filed on a confidential basis with the State Regulatory
Authorities. The provisions of the existing Confidentiality Agreement between
Buyer and Seller dated January 15, 1999 are incorporated herein by reference.
5.3.2 Public Announcements. No public announcement with respect to
this Agreement or the transactions contemplated hereby shall be made before the
Closing without the mutual prior approval of both Seller and Buyer, which
approval shall not be unreasonably withheld; provided, however, that each party
shall be permitted to make such disclosure to its lenders or to any Governmental
Authority, including but not limited to the Securities and Exchange Commission
or similar state securities authorities, necessary to comply with any applicable
laws and to obtain all required Governmental Approvals necessary to consummate
the Transactions, or to any stock exchange upon which such party has a class of
securities listed. Notwithstanding the foregoing, the disclosing party shall
give the non-disclosing party reasonable advance notice of any permitted
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disclosure to third parties under this Section 5.3.2 and shall provide the
non-disclosing party with a reasonable opportunity to review and comment on such
disclosure.
5.3.3 Cooperation. Each party covenants to use all commercially
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all things, that are necessary, proper or advisable under applicable
laws and regulations, expeditiously and practicably to consummate and make
effective the Transactions, including but not limited to (i) using its
commercially reasonable efforts to resolve any disagreements between Buyer and
Seller with respect to any applications for governmental or regulatory approval
prior to application for such approval, (ii) facilitating the regulatory
approval process by agreeing that Buyer will adopt and maintain intrastate
tariffs similar in all material respects to Seller's intrastate tariffs in
effect for the Exchanges on the Closing Date for a period of at least six months
following the Closing Date, provided that such tariffs of Seller are
substantially similar to the tariffs of Seller in effect on the date of this
Agreement except that Buyer's tariffs will reflect rate changes by Seller (x)
made prior to Closing as required by an order of a State Regulatory Authority
that has been issued prior to the date of this Agreement or (y) made prior to
Closing to the extent such changes are substantially revenue neutral to the
Exchanges, (iii) obtaining all necessary actions, waivers, consents and
approvals from third parties or Governmental Authorities, and (iv) effecting all
necessary filings with Governmental Authorities, and to consummate the
agreements referred to in Section 2.4.
5.3.4 State Regulatory Filings. Seller and Buyer agree to promptly
file after execution of this Agreement any required applications and to take
such reasonable actions as may be necessary or helpful (including, but not
limited to, making available witnesses, information, documents, and data
requested by the State Regulatory Authorities) to apply for and receive approval
by the State Regulatory Authorities for the transfer of the Transferred Assets
and Authorities to Buyer. To the maximum extent practicable, all communications
with the State Regulatory Authorities shall be made jointly by Buyer and Seller.
In connection with making such required applications to the State Regulatory
Authorities, Buyer agrees to cooperate with Seller in appropriate public
relations activities, including participation in "town hall" meetings with
citizens, contacts with civic and business leaders, legislators and government
officials, and other activities designed to establish Buyer's presence in and
commitment to the communities in which the Exchanges are located. In the event
any state legislature proposes to enact legislation after the date of this
Agreement which would have an adverse impact on the consummation of the
Transactions or would impose a material liability on either Seller or Buyer in
connection with the transfer of the Transferred Assets, Seller and Buyer agree
to use commercially reasonable efforts to oppose such legislation at their own
expense.
5.3.5 FCC Filings. The parties agree to promptly file after
execution of this Agreement such applications and to take such reasonable
actions as may be necessary or helpful to apply for and receive approval by the
FCC for the transfer of the Transferred Assets and the Authorities to Buyer and
the change in the provider of telecommunications services in the Exchanges to
Buyer. Buyer shall file an application for study area waivers and the
reinitialization of the PCI with respect to at least one of the transactions
contemplated by the Multi-State Exchange Purchase
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Agreements with the FCC within 120 days of the date hereof. Further, Buyer shall
use its best efforts to obtain the FCC's approval of (i) study area waivers for
the Exchanges and (ii) the Reinitialization.
5.3.6 H-S-R Filing. The parties agree to make all required filings
under the H-S-R Act no later that 90 days prior to the anticipated date of
Closing and to request early termination of all applicable waiting periods
thereunder, and thereafter to promptly respond to all requests for additional
information from the Federal Trade Commission or the United States Department of
Justice thereunder.
5.3.7 Environmental Inspections. Within 30 days following the
execution of this Agreement, Seller and Buyer shall select Environmental
Strategies Corporation (or another qualified environmental consultant reasonably
satisfactory to Buyer and Seller) to conduct a Transaction Screen with respect
to each parcel of Fee Realty included in the Transferred Assets (except for any
parcel designated by Buyer not to receive a Transaction Screen), which review
shall be conducted in accordance with ASTM standards and shall be completed
within 90 days following the execution of this Agreement. Upon completion of
such Transaction Screen, such consultant shall deliver to Buyer and Seller a
written report with respect thereto. Each party shall notify the other party in
writing (the "Remediation Notice") within 10 days of learning of any potential
material liabilities under any Environmental Laws with respect to a parcel of
Fee Realty included in the Transferred Assets, but in no event later than the
10th day following receipt of the related Transaction Screen. Thereafter, Buyer
shall determine whether to conduct additional environmental due diligence,
including a Phase I Environmental Report, which shall be completed within 60
days of delivery of the Remediation Notice. If the estimated costs of
remediation of such potential liabilities on such parcel (the "Remediation
Costs") will exceed $400,000, Seller shall either effect such remediation or may
instead elect to exclude either such parcel of Fee Realty or the Exchange to
which such parcel of Fee Realty relates from the Transferred Assets, and Buyer
and Seller shall in good faith reduce the Purchase Price accordingly. If,
pursuant to the preceding sentence, Seller elects to exclude the parcel of Fee
Realty, then, at Buyer's request, Seller shall grant to Buyer a long-term lease
at an annual rental rate of $1.00 and otherwise in form and substance reasonably
satisfactory to Buyer, for the use of such parcel (and Seller shall have no
obligation to effect any remediation with respect to such parcel); provided that
if Buyer is required to pay a higher rental rate for such leased parcel pursuant
to or in connection with the granting of any Governmental Approval, the Purchase
Price shall be decreased by the net present value of the aggregate lease
payments, discounted at a rate of 8% per annum. If the environmental consultant
conducting Buyer's additional environmental due diligence ("Buyer's Consultant")
estimates that the Remediation Costs will exceed $400,000, Seller may elect to
conduct its own additional environmental due diligence during the 60 day period
following completion of Buyer's additional environmental due diligence, and if
the environmental consultant conducting Seller's additional environmental due
diligence ("Seller's Consultant") estimates that the Remediation Costs will be
less than $400,000, Seller shall not be required to so remediate or exclude such
parcel of Fee Realty or such Exchange unless Buyer elects to pursue an
arbitration conducted as contemplated by Article 8 and the arbitrator estimates
that the Remediation Costs will exceed $400,000.
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The costs of the Transaction Screens required by this Section shall be
borne equally by Buyer and Seller, and the costs of any additional environmental
due diligence (the scope of which shall be reasonably acceptable to Seller)
shall be borne by the party conducting such additional due diligence. Buyer
shall indemnify Seller for any liabilities or losses incurred by Seller as a
result of any additional environmental due diligence conducted by Buyer.
5.3.8. Cost Studies/NECA Matters.
(a) Prior to Closing. Seller agrees that, with respect to all
revenues, settlements, pools, separations studies or similar activities, Seller
shall be responsible for (and shall receive the benefit or suffer the burden of)
any adjustments to contributions, or receipt of funds, by Seller resulting from
any such activities that are related to the operation of the Business or the
ownership or operation of the Transferred Assets prior to the Closing Date.
Specifically, this paragraph shall apply, but shall not be limited to, any
maters related to the National Exchange Carrier Association ("NECA") including
the Universal Service Fund ("USF"), Local Switching Support ("LSS") and
Telecommunications Relay Services funds.
(b) From and After Closing.
(i) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC rules
and regulations. The USF Funds due to Buyer shall be determined by multiplying
the number of Access Lines served by the Exchanges on the Closing Date times a
per-line amount of USF support received by Seller for the study area containing
the Exchanges prior to the Closing Date. The resulting Buyer's annual USF amount
shall be prorated in proportion to the number of months in the year from and
after the Closing Date. Beginning July 1, 1999 or a date thereafter determined
by the FCC, non-rural carriers shall not receive USF pursuant to Part 36 and
Part 54, but will receive support in accordance with guidelines using
forward-looking economic cost. Except as contemplated by clause (i) below, after
the Closing Date, Buyer shall make its own filing in accordance with applicable
FCC rules and regulations. Within a reasonable time after Buyer's written
request and in any event at least 30 days prior to the NECA filing date, Seller
shall furnish to Buyer such necessary information regarding Seller's ownership
of the Transferred Assets during the partial calendar year prior to the Closing
Date and the prior calendar year and such reasonable assistance, at Buyer's
expense, as required in connection with Buyer's preparation of necessary filings
or submissions.
(ii) If Closing occurs within 30 days before the NECA filing
date for the USF to be received in the subsequent calendar year, then Seller
will include the Exchanges in its NECA filing for the subsequent calendar year.
Buyer shall receive, in the subsequent calendar year, a pro rata share of USF
Funds received by Seller, under Seller's methodology of computing USF, pursuant
to applicable FCC rules and regulations; provided that in no event shall such
sharing continue for more than 18 months after the Closing Date. The USF Funds
due to Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date
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times the per-line amount of USF support received by Seller for the study area
containing the Exchanges in the full calendar year subsequent to the Closing
Date.
(iii) Notwithstanding the foregoing, Buyer's right to receive
a pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (the "USAC")
based on end-user retail revenues for the previous year generated by the
Transferred Assets. The resulting Buyer's annual USF obligation for the
Transferred Assets shall be prorated in proportion to the number of months in
the year from and after the Closing Date.
(c) State USF. If Seller is entitled to receive any State USF
Funds as of the Closing Date that include State USF Funds relating to the
Exchanges, then Buyer shall receive a pro rata share of such State USF Funds
received by Seller, under Seller's methodology of computing such State USF
Funds, pursuant to the applicable State USF rules and regulations. The State USF
Funds due Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date time the per-line amount of USF
support received by Seller for the appropriate period. The resulting Buyer's
annual State USF amount shall be prorated in proportion to the number of months
in the year from and after the Closing Date. Such sharing of Seller's State USF
Funds shall discontinue upon commencement of the first period for which Buyer is
permitted to make its own State USF filings, and in no event shall such sharing
continue for more than 18 months after the Closing Date. Seller shall cooperate
with Buyer and provide such reasonable assistance, at Buyer's expense, as may be
required in connection with Buyer's preparation of necessary State USF filings
or submissions.
5.3.9 Owned Real Property Transfers. Within 60 days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies covering Fee Realty. No later than 150 days following the
date hereof, Seller shall deliver a preliminary title binder (on a standard
form) to Buyer issued by a title insurance company reasonably acceptable to
Buyer and a certified current survey (collectively, the "Title Commitment") with
respect to all Fee Realty included in the Transferred Assets. Buyer shall,
within 45 days following receipt of the Title Commitment for a parcel, deliver
to Seller, in writing, any objections to any matters affecting any of the Fee
Realty. In the event that Buyer fails to notify Seller as set forth above, such
objections shall be deemed waived. If the Title Commitment indicates the
existence of an Excessive Encumbrance, Seller shall, at its expense, cause such
Excessive Encumbrance to be removed on or before the Closing Date or, with the
prior written consent of Buyer, cause the title company to insure over each such
Excessive Encumbrance. Seller shall provide the title company with such
instructions, authorizations and affidavits at no cost to Seller as may be
reasonably necessary for the title company to issue title policies, based on the
most recent assessed value, to Buyer, dated as of the Closing Date, for all of
the Fee Realty with so-called non-imputation endorsements. Buyer and Seller
shall share equally the costs of the Title Commitments and the title policies.
By no later than 45 days after the Closing Date, Seller shall deliver to Buyer a
final title insurance policy covering the Fee Realty included in the Title
Commitment.
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5.3.10 IntraLATA Tolls. Buyer and Seller will use their best efforts
to negotiate appropriate agreements and arrangements in order to satisfy the
requirements of Section 7.1.9 at Closing.
ARTICLE 6
TERMINATION
6.1 Termination By Buyer.
6.1.1 If any condition precedent to Buyer's obligation to effect the
Closing set forth in Section 3.1 shall become incapable of satisfaction through
no fault of Buyer and such condition is not waived by Buyer, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement by written
notice to Seller.
6.1.2 If any Governmental Approval contains any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date, but only after Buyer has entered into good faith negotiations with Seller
to amend this Agreement in light of such terms or conditions and no such
amendment could be agreed upon, Buyer shall not be obligated to effect the
Closing and may terminate this Agreement by written notice to Seller; provided,
however, that Buyer shall not be entitled to terminate this Agreement based on
(x) Buyer's failure to obtain increases in intrastate tariff rates above those
then in effect, or (y) Buyer's being deemed a "successor" to Seller for any
regulatory purposes.
6.1.3 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Seller, and such misrepresentation
or breach has not been cured within 30 days of Seller's receipt of Buyer's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Buyer, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Seller.
6.2 Termination By Seller.
6.2.1 If any condition precedent to Seller's obligation to effect
the Closing set forth in Section 3.2 shall become incapable of satisfaction
through no fault of Seller and such condition is not waived by Seller, Seller
shall not be obligated to effect the Closing and may terminate this Agreement by
written notice to Buyer.
6.2.2 If any Governmental Approval contains terms or conditions
unacceptable to Seller, in Seller's reasonable discretion, but only after Seller
has entered into good faith negotiations with Buyer to amend this Agreement in
light of such terms or conditions and no such amendment
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could be agreed upon, Seller shall not be obligated to effect the Closing and
may terminate this Agreement by written notice to Buyer.
6.2.3 If Buyer does not deliver the Letters of Credit within 15
business days of the date hereof or the Letters of Credit, in whole or in part,
have been withdrawn or are no longer irrevocable.
6.2.4 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Buyer, and such misrepresentation
or breach has not been cured within 30 days of Buyer's receipt of Seller's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Seller, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Buyer.
6.2.5 If Buyer does not make the FCC filing described in the second
to last sentence of Section 5.3.5 within 120 days of the date hereof.
6.3 Termination By Buyer or Seller. If (i) a final, non-appealable order
is issued by any Governmental Authority to restrain, enjoin or prohibit the
consummation of the Transactions, (ii) the Closing shall not have occurred on or
before September 30, 2001 through no fault of the terminating party, then either
party may terminate this Agreement by written notice to the other.
6.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 6.1, 6.2 or 6.3, this Agreement shall thereafter
become void, except as set forth in Section 1.4.1 and for the provisions of
Sections 5.3.1 and 5.3.2 and Article 9, and there shall be no further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing herein
shall relieve any party from liability for any breach of this Agreement, and
(ii) the obligations of the parties hereto set forth in Section 11.6 shall not
be affected by a termination of this Agreement.
ARTICLE 7
POST CLOSING MATTERS
7.1 Post Closing. In order to effectuate an orderly transition in the
provision of telecommunications services to customers in the Exchanges, Buyer
and Seller agree to utilize the measures set forth below:
7.1.1 Notice to Customers. Seller shall provide written
notification, which notification shall be reasonably acceptable to Buyer, in its
final bill to each customer affected by this Agreement, that Seller is no longer
the customer's telecommunications provider and advising the
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customer of the name, address and telephone number of Buyer. Seller and Buyer
shall agree upon appropriate service cut-off dates with respect to the
Exchanges.
7.1.2 Customer Deposits. The disposition of customer deposits and
advance payments for future services made to Seller by residential and business
customers in the Exchanges shall be delegated to a transition team. The intent
of the parties to be carried out by the transition team is that, to the extent
practicable and subject to the rules and orders of the State Regulatory
Authorities, Seller shall retain all deposits for delinquent customers and the
remaining deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges shall be transferred to
Buyer. Notwithstanding the foregoing, all deposits and advance payments for
future services held by Seller under land development contracts or other similar
construction arrangements as of the Closing Date shall be credited to Buyer at
Closing.
7.1.3 Customer Records. To the extent not previously provided to
Buyer, Seller shall use commercially reasonable efforts to make available, upon
reasonable request from Buyer, all readily available billing and service records
for goods sold or services provided to customers of the Exchanges prior to
Closing for so long as such records are required to be maintained by applicable
law.
7.1.4 Operator Services and Directory Assistance. Buyer acknowledges
and agrees that, following the Closing, Buyer shall provide all subscriber list
information gathered in its capacity as a provider of local exchange service on
a timely and unbundled basis, under nondiscriminatory and reasonable rates,
terms and conditions, to any person requesting such information for any lawful
purpose in any format, including but not limited to Seller and its Affiliates.
Buyer's listing information will be treated the same as Seller's end user
listings for purposes of additional listings and dissemination of listings to
directory publishers, directory assistance providers, or other third parties.
Seller will incorporate listings information in all existing and future
directory assistance applications developed by Seller. Buyer authorizes Seller
to sell and otherwise make listings available to directory publishers, directory
assistance providers, and other third parties. Listings shall not be provided or
sold in such a manner as to segregate end users by carrier. Seller will not
charge for updating and maintaining the listings database.
7.1.5 Directory Publishing and 911 Emergency Services. Buyer shall
continue to comply with the covenants set forth in Sections 5.1.4 and 5.1.5
following the Closing Date, as appropriate, to the extent necessary to
accomplish the intent of such covenants.
7.1.6 911 Emergency Services. In the event that Seller becomes
obligated after the Closing Date to provide 911 emergency services with respect
to any portion of the Business, Buyer shall provide Seller (at no cost to
Seller) complete access to and use of the 911 Assets related to such 911
emergency services and shall enter into such agreements as Seller reasonably
requests in order to facilitate the provision by Seller of such 911 emergency
services and to provide for compensation to Seller at prevailing rates.
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7.1.7 Tariffs. Buyer agrees that for the six month period following
the Closing Date it will adopt and maintain intrastate tariffs similar in all
material respects to Seller's intrastate tariffs in effect for the Exchanges on
the Closing Date, provided that such tariffs of Seller are substantially similar
to Seller's tariffs in effect on the date of execution of this Agreement, except
that Buyer's tariffs will reflect rate changes by Seller (x) made prior to
Closing as required by an order of a State Regulatory Authority that has been
issued prior to the date of this Agreement or (y) made prior to Closing to the
extent such changes are substantially revenue neutral to the Exchanges.
7.1.8 Access to Books and Records.
(a) After the Closing, Seller will retain all books and records
related to the Excluded Assets for so long as required by applicable law.
(b) Subject to the terms of Section 7.1.3, after the Closing, upon
reasonable notice, the parties will give to the representatives, employees,
counsel and accountants of the other, access during normal business hours, to
books and records relating to the Business and the Transferred Assets, and will
permit such persons to examine and copy such records (including any tax returns
and related information, but not attorney or accountants work product), audits,
legal proceedings, governmental investigations and other business purposes
(including such financial information and any receipts evidencing payment of
taxes as may be reasonably requested by Seller to substantiate any claim for tax
credits or refunds); provided, however, that nothing herein will obligate any
party to take actions that would unreasonably disrupt the normal course of its
business or violate the terms of any contract to which it is a party or to which
it or any of its assets is subject. Seller and Buyer will cooperate with each
other in the conduct of any tax audit or similar proceedings involving or
otherwise relating to the Business (or the income therefrom or assets thereof)
with respect to any tax and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
Section 7.1.8.
7.1.9 IntraLATA Toll. Buyer will (i) assume the retail toll carrier
role and obligations for any end users in the Exchanges that are picked or
defaulted to Seller for IntraLATA toll services or (ii) enter into agreements
with other inter-exchange carriers to assume this role or to resell the toll
services of an inter-exchange carrier to fulfill these obligations. Buyer will
execute intraLATA toll access agreements with Seller establishing the process
for the purchase of toll access from Seller by Buyer at the rates contained in
Seller's access tariffs. Seller agrees that it will need to establish its own
agreements with other telecommunications carriers for the purchase of toll
access that may be routed over joint Seller/Buyer transport or tandem switch
facilities (transit traffic). Buyer will cooperate with Seller and other
carriers to measure and share data required to facilitate billing for such
traffic. Buyer and Seller will establish a process by which Buyer will bill
Seller for terminating IntraLATA toll access based on actual termination of
Seller toll services to the Exchanges. Buyer and Seller will enter into a
billing and collection agreement for the billing and collection of casual toll
at a rate not to exceed $0.12 per message. Buyer and Seller shall establish meet
point percentages for jointly provided toll access and file such meet points as
required with Governmental Authorities.
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7.1.10 Extended Area Service. Buyer and Seller will enter into
extended area service agreements as necessary.
7.1.11 Transiting Toll Facilities. Concurrently with the Closing,
Buyer shall grant to Seller the irrevocable right to use or Buyer shall lease to
Seller, in either case for a term of 99 years, the portion of the transiting
toll facilities, network facilities and associated electronic equipment included
in the Property and relating to the Exchanges listed on Schedule 7.1.11 that is
required by Seller for the conduct of any business conducted by Seller other
than the Business. The consideration for such grant or lease shall be $1.00 and
other consideration including the mutual covenants and agreements set forth in
this Agreement. Within 90 days after the execution of this Agreement, Buyer and
Seller shall apportion and assign the total capacity of such facilities and
equipment for each Exchange listed on Schedule 7.1.11. The parties shall review
such apportionment on an annual basis and make such changes to assignments as
may be required. If any transiting toll facilities, network facilities and
related electronic equipment that are Excluded Assets are located in any
rights-of-way that are used in connection with the operation of the Business,
then concurrently with the Closing, Buyer shall, to the extent possible, assign
to Seller the right to use such right-of-way jointly with Buyer and appropriate
joint use agreements in recordable form and otherwise reasonably acceptable to
the parties shall be entered into at the Closing.
7.1.12 Reinitialization Period. If the Reinitialization has not been
approved at the time of the Closing, Buyer shall use its best efforts to obtain
the Reinitialization.
ARTICLE 8
ARBITRATION
8.1 Arbitrability. All claims, except and only to the extent such claims
are those over which the State Regulatory Authorities have primary jurisdiction,
by either party against the other arising out of or related in any manner to
this Agreement or any of the Transferred Assets or the Transactions shall be
resolved by arbitration as prescribed herein; provided, however, that either
party shall be entitled to seek temporary or permanent injunction against any
actual or threatened breach of Section 5.3.1 by the other party in any court of
competent jurisdiction without the necessity for showing any actual damages. The
Federal Arbitration Act and not state law will govern the arbitrability of all
claims. Failure of either party to assert or pursue a mandatory claim or defense
that must be asserted in litigation to avoid the loss of the right to assert
such claim or defense shall not preclude that party from asserting any such
claim or defense in arbitration proceedings hereunder.
8.2 Rules. A single arbitrator engaged in the practice of law, who is
knowledgeable about the telecommunications industry and telecommunications law,
shall conduct the arbitration under the then-current commercial arbitration
rules of the American Arbitration Association
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("AAA"), unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Denver, Colorado.
8.3 Discovery; Damages; Expenses. Buyer and Seller shall allow and
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall have authority to award only actual damages and shall not have
the authority to award consequential, compensatory, punitive or exemplary
damages or any other form of relief. Each party shall bear its own costs and
attorneys' fees. The arbitrator's decision and award shall be final and binding,
and judgment upon the award rendered by the arbitrator may be entered in any
court having personal jurisdiction. The non-prevailing party to the arbitration
shall pay all of the fees and expenses of the arbitrator and the AAA, provided,
however, that if the arbitrator deems Buyer and Seller to be equally prevailing
or non-prevailing on the matters at issue, then the parties shall each pay
one-half of the fees and expenses of the arbitrator and the AAA.
8.4 Judicial or Administrative Action. If any party files a judicial or
administrative action asserting claims properly subject to arbitration as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification by Seller. From and after Closing, Seller
shall indemnify and hold harmless Buyer from and against any and all claims,
losses, liabilities, damages, penalties, costs and expenses, including
reasonable counsel fees and costs and expenses ("Losses") arising out of or
resulting from:
(a) any representations and warranties made by Seller in the
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed upon or prior to the Closing;
(c) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed after the Closing; and
(d) all liabilities and obligations arising out of or relating to
the operation of the Exchanges prior to the Closing, including without
limitation the Retained Liabilities.
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Section 9.2 Indemnification by Buyer. From and after Closing, Buyer shall
indemnify and hold harmless Seller from and against any and all Losses arising
out of or resulting from:
(a) any representations and warranties made by Buyer in this
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Buyer in the performance of its
covenants, agreements or obligations under this Agreement;
(c) all liabilities and obligations arising out of or relating to
the operation of the Exchanges after the Closing, including without limitation
the Assumed Liabilities;
(d) without limitation of the foregoing, violation of Environmental
Laws, to the extent such liability is an Assumed Liability or arises out of or
relates to the operation of the Exchanges after the Closing; and
(e) liability of Seller arising after Closing with respect to
Buyer's failure to enter into or perform interconnection agreements in or
directly related to the Exchanges.
Section 9.3 Indemnified Third Party Claim.
(a) If any person (including State Regulatory Authorities) not a
party to this Agreement ("Person") shall make any demand or claim or file or
threaten to file or continue any action, suit or proceeding of any kind ("Third
Party Claim") with respect to which Buyer or Seller is entitled to
indemnification pursuant to Sections 9.1 or 9.2, respectively, then within ten
days after notice (the "Notice") by the party entitled to such indemnification
(the "Indemnitee") to the other (the "Indemnitor") of such litigation, the
Indemnitor shall have the option, at its sole cost and expense, to retain
counsel for the Indemnitee (which counsel shall be reasonably satisfactory to
the Indemnitee) to defend any such litigation. Thereafter, the Indemnitee shall
be permitted to participate in such defense at its own expense, provided that,
if the named parties to any such litigation (including any impleaded parties)
include both the Indemnitor and the Indemnitee or, if the Indemnitor proposes
that the same counsel represent both the Indemnitee and the Indemnitor and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interest between them, then the Indemnitee shall
have the right to retain its own counsel at the cost and expense of the
Indemnitor, unless the Indemnitor shall acknowledge in writing its indemnity
obligation, in which event the retention by Indemnitee of its own counsel shall
be at its cost and expense. If the Indemnitor shall fail to respond within ten
days after receipt of the Notice, the Indemnitee may retain counsel and conduct
the defense of such litigation as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnitor.
(b) The Indemnitee shall provide reasonable assistance to the
Indemnitor and provide such access to its books, records and personnel as the
Indemnitor reasonably requests in connection with the investigation or defense
of the indemnified Losses. The Indemnitor shall
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promptly upon receipt of reasonable supporting documentation reimburse the
Indemnitee for out-of-pocket costs and expenses incurred by the later in
providing the requested assistance.
(c) With regard to litigation with any Person for which Buyer or
Seller is entitled to indemnification under Sections 9.1 or 9.2, such
indemnification shall be paid by the Indemnitor upon: (i) the entry of any
judgment, writ, order, injunction, award or decree of any court, the FCC or any
State Regulatory Authorities ("Judgment") against the Indemnitee and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
Judgment or final appellate Judgment against the Indemnitee; or (iii) a
settlement with the consent of the Indemnitor, which consent shall not be
unreasonably withheld, provided that no such consent need be obtained if the
Indemnitor fails to respond to the Notice as provided in Section 9.3(a).
Section 9.4 Determination of Indemnification Amounts and Related Matters.
(a) Neither Buyer nor Seller will be entitled to make a claim
against the other under Section 9.1(a) or (b) or 9.2(a) or (b) until (i) the
aggregate amount of Losses incurred by the Indemnitee for any individual
occurrence (or related series of occurrences) exceeds $50,000 and (ii) in the
case of Losses under Section 9.1(a) (except for Losses due to a breach of the
representations of Seller contained in Section 4.2.15) or 9.1(b) the aggregate
amount of claims that may be asserted for such Losses, together with all other
claims for Losses asserted under Section 9.1(a) or 9.1(b) under each of the
Multi-State Exchange Purchase Agreements, exceed an amount equal to 1% of the
aggregate of the Purchase Prices (as defined in each Multi-State Exchange
Purchase Agreement) for the transactions contemplated by the Multi-State
Exchange Purchase Agreements, to the extent actually paid to Seller, but only to
the extent such amount exceeds such aggregate of the Purchase Prices.
(b) Notwithstanding any other provision of this Agreement, (i)
Seller shall not be required to make any payments pursuant to Section 9.1(a),
(b) or (c) to the extent that the Maximum Adjustment Amount shall have been
reached, and (ii) Buyer shall not be required to make any payments pursuant to
Article 9 in excess of an amount equal to 3% of the Purchase Price.
(c) Subject to Section 9.3, all amounts payable by the Indemnitor to
the Indemnitee in respect of any Losses under Sections 9.1 and 9.2 shall be
payable by the Indemnitor as incurred by the Indemnitee and will include
interest at the rate of 8% per annum from the date that the related Losses were
incurred through but not including the date the payment is made.
Section 9.5 Time and Manner of Certain Claims. Except as otherwise
provided herein, the representations and warranties of Buyer and Seller, and the
covenants to be performed by them on or prior to the Closing Date, in this
Agreement shall survive Closing for a period of one year, except that the
representations of Seller contained in Section 4.2.15 shall survive Closing for
a period of 15 months and the representations and warranties contained in the
first sentence of Section 4.2.3 shall survive Closing indefinitely (the
"Survival Period"). Neither Seller nor Buyer shall have any liability under
Sections 9.1 or 9.2, respectively, unless a claim for Losses for which
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indemnification is sought thereunder is asserted by the party seeking
indemnification by written notice to the party from whom indemnification is
sought within the Survival Period.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Defined Terms. For purposes of this Agreement, certain terms used in
this Agreement and not otherwise defined herein shall have the meanings
designated below:
"Access Line" means a telephone line operating on the public switched
telephone network that runs from a central office to a customer's premises.
"Accounts Receivable" means all end user accounts receivable with respect
to goods sold and/or services provided by Seller on or prior to the Closing
Date.
"Affiliate" of a specified entity means any legal entity directly or
indirectly controlling, controlled by, or under the common control with the
specified entity. The term "control" (including "controlling", "controlled by"
and "under common control with") of an entity means the possession, directly or
indirectly, of the power to (i) vote 50% of more of the voting securities or
other voting interests of such person, or (ii) direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting shares, by contract or otherwise.
"Aggregate Adjustment Amount" means the aggregate amount that Seller has
paid or spent, or committed to pay or spend, pursuant to (i) purchase price
decreases pursuant to section 1.4.3(b) of each of the Multi-State Exchange
Purchase Agreements, (ii) payments or purchases pursuant to section 5.2.11(a) of
each of the Multi-State Exchange Purchase Agreements, and (iii) payments with
respect to indemnification claims under Section 9.1(a), (b) or (c) of each of
the Multi-State Exchange Purchase Agreements.
"Agreement" means this Agreement for Purchase and Sale of Telephone
Exchanges, together with all Schedules and Exhibits thereto, as any of the
foregoing may be amended, modified or supplemented in writing from time to time.
"Authorities" means (i) the construction permits, licenses or
authorizations granted by the FCC to Seller and used to develop and operate the
Systems; and (ii) the licenses or certificates of convenience and necessity
granted by the State Regulatory Authorities to operate the Systems.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
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"Confidential Information" means any and all technical, business or
financial information, in whatever form or medium, furnished or disclosed by or
on behalf of one party to the other or its representatives, irrespective of the
form of communication, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data and personnel statistics, and shall also include notes,
analyses, compilations, studies, interpretations or other documents prepared by
it or its representatives that contain, reflect or are based upon, in whole or
in part, other Confidential Information. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all security interests, liens, charges or
similar restrictions, except for (i) liens for taxes not yet due and payable or
that are being contested in good faith, (ii) liens of workers, carriers or
materialmen or similar liens arising by operation of law in the ordinary course
of the Business in respect of obligations that are not yet due and payable or
that are being contested in good faith, (iii) governmental conditions and
restrictions under the Authorities, (iv) with respect to Realty, recorded
easements, restrictions, reservations, rights-of-way, covenants, conditions and
similar encumbrances of record and matters that would be shown by an accurate
survey or inspection of such property, and other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
such Realty to which such defect or irregularity in title relates, and (v) with
respect to the Transferred Assets other than Realty, other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
the Transferred Assets to which such defect or irregularity in title relates.
"Environmental Laws" means all federal, state and local laws, statutes,
rules, regulations and ordinances (including common law), and all court or
administrative decisions, orders, policies or guidelines, now or hereafter in
effect relating to the environment, public health (including fire or building
safety), occupational safety, industrial hygiene, or the generation, disposal,
manufacture, release, storage, transportation or presence of Hazardous
Materials, including without limitation the National Environmental Policy Act
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act of 1975, the Toxic Substances Control Act, the
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean
Water Act, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act, and the regulations promulgated under any such acts or any permits
issued thereunder.
"Excessive Encumbrance" has the meaning set forth in Section 3.1.11.
"Excluded Assets" means (a) all cash, cash-equivalents, Accounts
Receivable and carrier access bills to interexchange carriers for minutes,
messages and other applicable charges through the
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Closing Date; (b) any insurance policy, bond, letter of credit or other similar
item, and any cash surrender value in regard thereto; (c) all books and records
that Seller is required by law to retain or that relate primarily to internal
corporate matters; (d) all claims, rights and interests in and to any refunds of
Federal, state or local franchise, income or other taxes or fees of any nature
whatsoever for periods prior to the Closing Date; (e) any pension, profit
sharing or employee benefit plans; (f) any assets, interests or property of
Seller used in the operation of any business conducted by Seller other than the
Business, those including shared data processing, billing and collections
systems and related software; (g) the name U S WEST and all similar names and
related marks and logos used or owned by Seller or its Affiliates and any other
names, marks and logos not specifically identified as being included in the
Transferred Assets; (h) all portable office equipment, test equipment and
generators other than included in the Transferred Assets; (i) all motor vehicles
used in the operation of any business conducted by Seller other than the
Business and associated motor vehicle general stock; (j) all materials, supplies
and tools other than those included in the Transferred Assets; (k) all FCC
licenses for air-to-ground, cellular or paging services held by Seller or any
Affiliate of Seller other than those FCC radio licenses necessary to operate the
Business; (l) all maintenance radio equipment and antennas other than those
included in the Transferred Assets; (m) all assets relating to Yellow Pages or
classified directory advertising activities of Seller or any Affiliate of
Seller, (n) all transiting toll facilities, network facilities and associated
electronic equipment used in their entirety by Seller solely in the operations
of any business conducted by Seller other than the Business and containing no
capacity for use in the conduct of the Business and related rights-of-way; and
(o) all rights of Seller or any Affiliate of Seller under the Transaction
Agreements.
"Final Order" means action by any governmental or regulatory authority as
to which (i) no request for stay by any Governmental Authority, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action has been
granted by a governmental or regulatory authority; (iii) the governmental or
regulatory authority does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal by a
third party to a court, or a request to stay by a court, of any material
provision of the Governmental Authority's action, as applicable, is pending or
in effect and, if any deadline for filing any such appeal or request is
designated by statute or rule, it has passed.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities
and the grant of any study area waiver request submitted by Buyer related
thereto, but excluding the Reinitialization.
"Fee Realty" means all real property owned by Seller in fee simple and
located inside the boundaries of the Exchanges, including without limitation
tower sites or antenna sites.
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"Governmental Authority" means any United States, state, or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, bureau, agency, court or instrumentality thereof.
"Hazardous Material" means (a) all chemicals, materials and substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words or similar import under any Environmental Law, and (b) any
other chemicals, materials or substances, including without limitation any
polychlorinated biphenyl, petroleum or any chemical fraction thereof, asbestos,
formaldehyde, flammables, explosives, and PCBs which could presently or at any
time in the future cause a detriment to or impair the value or beneficial use of
any of the Transferred Assets, or constitute or cause a health, safety or
environmental hazard to the any of the Transferred Assets or to any person or
require remediation at the behest of any state or local governmental agency
under any Environmental Law.
"Interests" means all rights, privileges, benefits and interests under all
contracts, agreements, consents, licenses, permits or certificates (except those
included as Authorities and Realty), including agreements, permits, leases and
arrangements with respect to intangible or personal property or interests
therein; equipment leases; agreements with suppliers, customers and subscribers;
business licenses; prepaid expenses; and any sales agent or sales affiliate
agreements, in each case, used or owned primarily in connection with the
Business.
"Maximum Adjustment Amount" means an Aggregate Adjustment Amount equal to
the product of (i) the aggregate number of access lines in the telephone
exchanges purchased pursuant to the Multi-State Exchange Purchase Agreements on
the closing date of each purchase thereunder multiplied by (ii) $50.00, it being
understood and agreed by the parties that (x) the Maximum Adjustment Amount
shall be preliminarily calculated at the Closing assuming that any Multi-State
Exchange Purchase Agreement that has not closed or been terminated on or before
the Closing Date shall, for purposes of such preliminary calculation, be deemed
to have closed on the Closing Date, and (y) on the date of closing or
termination of the last of Multi-State Exchange Purchase Agreement to have been
closed or terminated, the Maximum Adjustment Amount shall be finally calculated
and any resulting payments required to be made by Seller or refunds required to
be made by Buyer shall be taken into account in determining the amount of funds
to be paid by Seller at such Closing or to be paid by Seller or refunded by
Buyer upon such termination, as the case may be.
"Multi-State Exchange Purchase Agreements" means the Agreements for
Purchase and Sale, including this Agreement, entered into between Buyer, or any
Affiliate of Buyer, and Seller with respect to the purchase of Seller's rights
to provide and operate wireline telecommunications and related non-tariffed or
non-regulated wireline services and related assets in the following states:
Arizona, Colorado, Nebraska, North Dakota, Minnesota, Iowa, Idaho, Montana and
Wyoming.
"911 Assets" means all circuits, facilities and customer information used
by Seller in providing 911 emergency services in connection with the operation
of the Business.
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"Operating Contracts" means all contracts, agreements and instruments (and
all amendments and modifications thereto) entered into by Seller in the ordinary
course of the Business prior to the date hereof, including without limitation
all real property leases, documentation related to the Interests and
interconnection agreements to the extent that Buyer is required to perform such
obligations by applicable law or as a condition to obtaining any Governmental
Approvals, and all such contracts, agreements and instruments entered into by
Seller in the ordinary course of the Business between the date of this Agreement
and the Closing Date.
"Property" means all of Seller's physical facilities and other tangible
assets used primarily in the Business that are in Seller's plant in service
accounts in accordance with Part 32 of the FCC Uniform System of Accounts,
including all transiting toll facilities, network facilities and associated
electronic equipment located within the boundaries of an Exchange and not
included as Excluded Assets, which facilities and equipment shall be subject to
the arrangements set forth in Section 7.1.11.
"Reinitialization" means the implementation of the interstate access rates
pursuant to the reinitialization of the Price Cap Index ("PCI") applicable to
the approved new study area to reflect the underlying cost structure associated
with the Exchanges.
"Realty" means the Fee Realty together with all rights, privileges and
appurtenances owned by Seller inside the boundaries of the Exchanges that are a
burden upon, a benefit of, or otherwise related to the Fee Realty, including
without limitation all structures, buildings, easements, servitudes, licenses,
leasehold improvements, building improvements, fixtures, rights-of-way and other
similar interests owned by Seller and used in the Business.
"Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all open end-user customer account records, all service records kept in
the ordinary course of the Business which identify and describe the customers
being served by Seller in the Exchanges, the service that is being provided to
such customers, and those records which identify and describe the physical
property (including but not limited to cables, wires and central office
equipment) included in the Transferred Assets.
"Seller's Knowledge" means the actual knowledge of Paul Lit after due
inquiry and any senior manager specifically charged with operational
responsibility for the Exchanges concerning information about which Seller is
making a representation in this Agreement.
"State Regulatory Approvals" means the issuance of the required consents
or approvals of the State Regulatory Authorities with respect to the assignment
of the Authorities to Buyer and the designation of Buyer as an eligible
telecommunications carrier for the Exchange.
"State Regulatory Authorities" means the public utility commissions or
similar state governmental authorities in the states in which the Exchanges are
located and, where applicable, municipal authorities that have granted operating
authorities with respect to the Exchanges.
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"Systems" means, as the context requires, Seller's service delivery
components in the Exchanges, including without limitation all equipment,
facilities, assets, properties, licenses, permits, certificates of public
convenience and necessity and other rights and authorities and related technical
knowledge and information, used in the conduct of the Business within the
particular Exchange.
"Transactions" means the purchase and sale of the Transferred Assets as
contemplated by the Agreement and all other transactions contemplated by the
Transaction Documents.
"Transaction Documents" means this Agreement and each document to be
executed in connection with the Closing of the Transactions. When used with
respect to Seller or Buyer, "Transaction Documents" means this Agreement and
such documents as are required to be executed by such party with respect to the
Closing of the Transactions.
"Transferred Assets" means all of Seller's right, title and interest in
and to the Authorities, the Interests, the 911 Assets, the Property, the Realty,
the Records and all goodwill associated with the Business as existing on the
Closing Date, but excluding the Excluded Assets.
ARTICLE 11
GENERAL
11.1 Notices. All notices hereunder will be in writing and served by
certified mail, return receipt requested, courier or facsimile. Notice shall be
deemed to have been duly given on (i) the earlier of the date received or the
fifth business day following the date mailed by the notifying party using first
class mail, postage prepaid or (ii) if delivered by courier service or
facsimile, upon actual receipt as evidenced by the appropriate confirmation
sheet. Notices shall be sent as follows:
If to Seller: U S WEST Communications, Inc.
1801 California Street, Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic
Transactions Group
Facsimile: (303) 308-0835
with a copy (which shall not constitute notice) to:
Brownstein Hyatt & Farber, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch
Facsimile: (303) 223-1111
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If to Buyer: Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: Donald P. Weinstein
Facsimile: (203) 614-4625
with a copy (which shall not constitute notice) to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: L. Russell Mitten, II., Esq.
Facsimile: (203) 614-4651
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Sixth Floor
Washington, DC 20036
Attention: Jeffry L. Hardin
Facsimile: (202) 387-3467
11.2 Waivers. No failure of a party to enforce a provision of this
Agreement will be construed as a general or a specific waiver of that provision,
or of a party's right to enforce that provision, or of a party's right to
enforce any other provision of this Agreement. No waiver of any breach of any
covenant or other provision herein contained shall be deemed to be a waiver of
any preceding or succeeding breach, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act shall
be deemed to be an extension of the time for performance of any other obligation
or act.
11.3 Commissions. Each party represents and warrants that no broker or
other person is entitled to any commission or finder's fee in connection with
the consummation of the Transactions based on arrangements made by such party
for which the other party could have any liability.
11.4 Payment of Expenses. Except as otherwise provided herein, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in consummating and carrying
out the Transactions, whether or not the Transactions are consummated.
Notwithstanding the foregoing, all transfer fees payable in connection with the
assignment of permits or rights-of-way shall be borne by Buyer.
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11.5 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and, when each of the parties hereto has
executed and delivered a counterpart to the other party, this Agreement shall be
binding and effective even though no single counterpart has been executed by
both of the parties.
11.7 Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.8 Assignment. The rights and obligations of the parties to this
Agreement or any interest in this Agreement shall not be assigned, transferred,
hypothecated, pledged or otherwise disposed of without the prior written consent
of the nonassigning party, which consent may be withheld in such party's sole
discretion; provided, however, that (i) Buyer may, without the prior consent of
Seller but without relieving Buyer of its obligations hereunder, assign its
rights under this Agreement to any Affiliate or lender, and (ii) Seller may
assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the Transactions as a 1031
Transaction.
11.9 Additional Instruments and Assistance. Each party hereto shall from
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its counsel
may reasonably request in order to complete and perfect the Transactions.
11.10 Seller's Control Over Authorized Facilities. No provision of this
Agreement shall be construed to abrogate Seller's control of and responsibility
for the operation of the authorized facilities of the Business prior to the
actual transfer of control of those facilities hereunder to the Buyer as
approved by the FCC and the State Regulatory Authorities.
11.11 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado.
11.12 Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable when applied to any person or
circumstance, the remaining provisions of this Agreement and the enforcement of
such provision to other persons or circumstances shall not be affected thereby,
and each provision of this Agreement shall be enforced to the fullest extent
allowed by law.
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11.13 Amendments. This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by its
agent duly authorized in writing or as otherwise expressly permitted herein.
11.14 No Construction Against the Drafting Party. Each party hereto
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.15 Integration. This Agreement, including all schedules and exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, warranties or representations between the parties with respect
to such subject matter except as set forth or noted herein. Except as provided
in Section 5.1.4 hereof, this Agreement is not made for the benefit of any
person, firm, corporation or association other than the parties hereto. Except
as provided in Section 5.1.5 hereof, the parties do not intend to confer any
benefit hereunder on any person, firm or corporation other than the parties
hereto.
* * * * *
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IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
CITIZENS UTILITIES COMPANY
By:_______________________________________
Leonard Tow
Chairman and Chief Executive Officer
SELLER:
U S WEST COMMUNICATIONS, INC.
By:_______________________________________
Solomon D. Trujillo
President and Chief Executive Officer
<PAGE>
EXECUTION COPY - MINNESOTA
AGREEMENT
For
PURCHASE AND SALE
of
TELEPHONE EXCHANGES
Dated as of June 16, 1999
Between
CITIZENS UTILITIES COMPANY
And
U S WEST COMMUNICATIONS, INC.
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF TELEPHONE EXCHANGES
This Agreement for Purchase and Sale of Telephone Exchanges is made and
entered into as of June 16, 1999 by and between U S WEST Communications, Inc., a
Colorado corporation ("Seller"), and Citizens Utilities Company, a Delaware
corporation ("Buyer").
A. Seller possesses certain rights to provide and operate wireline
telecommunication services pursuant to operating authorities issued by the
public utilities commissions or similar authorities of various states, and owns
certain assets used to provide such services in the telephone exchanges listed
on Exhibit A hereto and in any cross-border communities served by such exchanges
(the "Exchanges").
B. Buyer desires to acquire Seller's right to provide and operate wireline
telecommunication services and related non-tariffed or non-regulated wireline
services and products in the Exchanges (the "Business") and to purchase the
Transferred Assets (as defined below), and Seller wishes to sell, assign and
transfer such right and assets to Buyer.
C. Each defined term used herein shall have the meaning set forth in this
Agreement where such term is first used or, if no definition is so set forth,
shall have the meaning set forth in Article 10 below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF EXCHANGES
1.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions hereinafter set forth, at the Closing described in Article 2,
Seller agrees to sell, convey, transfer, assign and deliver all of the
Transferred Assets to Buyer, and Buyer agrees to purchase and receive the
Transferred Assets from Seller. Except as specifically set forth in Section 1.2
hereof, Seller shall transfer the Transferred Assets to Buyer on the Closing
Date free and clear of all Encumbrances, and Buyer shall not, by virtue of its
purchase of the Transferred Assets, assume or become responsible for any debts,
liabilities or obligations of Seller.
1.2 Assumption of Obligations. Buyer covenants and agrees that, on the
Closing Date, it shall execute and deliver to Seller an Assumption Agreement in
substantially the form of Exhibit
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B hereto (the "Assumption Agreement") pursuant to which it will assume and agree
to perform and discharge the following liabilities and obligations of Seller to
the extent related to the Exchanges (collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations of Seller arising under
the Operating Contracts, except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Operating Contracts occurring or arising
or accruing on or prior to the Closing Date;
(ii) All liabilities and obligations of Seller related to
unperformed service obligations, right-of-way relocation obligations and
construction in progress as of the Closing Date;
(iii) All liabilities and obligations imposed on Seller by
State Regulatory Authorities in connection with the operation of the
Exchanges, including without limitation obligations to provide 911
emergency services and to make any investment in the Exchanges required by
any Governmental Authority, except that Buyer shall not assume any
liabilities or obligations, other than held order or other service
obligations, imposed on Seller by State Regulatory Authorities that arise
out of Seller's breach of any decision by the State Regulatory
Authorities, or any intentional misconduct or material misrepresentation
by Seller;
(iv) All federal, state, county, municipal, foreign or other
taxing jurisdiction sales, use, transfer, gross receipts, consumer levy,
privilege or similar taxes, duties, excises or governmental charges,
including any penalties and interest thereon, arising out of the sale of
the Transferred Assets by Seller to Buyer hereunder, excluding any income
tax liability of Seller (collectively, "Transfer Taxes"); and
(v) All liabilities and obligations arising under
Environmental Laws with respect to the real property included in the
Transferred Assets.
1.3 Retained Liabilities. Seller shall retain and shall pay, perform and
discharge when due, the following liabilities, responsibilities and obligations
of Seller with respect to the Business (collectively, the "Retained
Liabilities"):
(i) Subject to Section 1.5, all trade payables and other
payment obligations of Seller as of the Closing Date;
(ii) All long-term debt of Seller and debt of Seller owed to
any one or more of its Affiliates;
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(iii) Subject to Section 1.5, all taxes and assessments
relating to the operation of the Business (other than Transfer Taxes) on
or before the Closing Date for the use, ownership or operation of the
Transferred Assets on or before the Closing Date;
(iv) All liabilities and obligations arising on or before the
Closing Date with respect to Seller's employees that may be hired by Buyer
(the "Hired Employees"), including (a) all liabilities, responsibilities
and obligations arising on or before the Closing Date relating to
collective bargaining agreements or other union contracts, and (b) any
such liabilities or obligations that arise after the Closing Date to the
extent that such liabilities and obligations relate to facts,
circumstances or conditions arising or occurring on or before the Closing
Date with respect to the Hired Employees;
(v) All liabilities, responsibilities and obligations arising
out of or related to any actions, lawsuits or legal proceedings based on
facts, circumstances or conditions arising, existing or occurring on or
before the effective time of Closing, regardless of whether known or
unknown, asserted or unasserted, as of the Closing, including any
liability under any claim (whether made on or before the Closing Date)
relating to the period ending on or before the effective time of Closing
which, but for the consummation of the transactions contemplated hereby,
would have been covered under any insurance policy of Seller, and all
liability associated with workers' compensation claims incurred but not
reported as of the effective time of Closing and workers' compensation
claims reported as of the Closing Date but not then due or payable, but
expressly excluding any such liability, responsibility or obligation for
litigation or claims of any Governmental Authority relating to liabilities
and obligations arising under Environmental Laws with respect to the Fee
Realty included in the Transferred Assets, unless such liabilities,
responsibilities and obligations result from the actions or omissions of
Buyer constituting breaches of this Agreement;
(vi) All liabilities and obligations for prior period
adjustments of revenues from the Business, for any refunds or bill credits
to ratepayers for overbillings or overearnings occurring or relating to
the period prior to the effective time of Closing, and for all toll
revenues, settlements, pools, separations studies or similar activities
relating to the Exchanges for which Seller is responsible, provided that
such liabilities and obligations are asserted within four years of the
Closing Date;
(vii) All liabilities, responsibilities and obligations
arising out of or occurring or resulting from the use or ownership of the
Transferred Assets on or before the Closing Date; and
(viii) All liabilities, responsibilities and obligations with
respect to the Excluded Assets.
1.4 Letters of Credit and Purchase Price.
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1.4.1 Letters of Credit. Within 15 business days of the date hereof,
Buyer shall deliver to Seller one or more irrevocable letters of credit issued
by financial institutions reasonably acceptable to Seller (the "Letters of
Credit") providing for drawings in an aggregate principal amount equal to
$5,348,887 (the "LC Amount"). The Letters of Credit shall be returned to Buyer
upon the Closing of the Transactions or upon termination of this Agreement for
any reason other than the following: (i) Seller's termination of this Agreement
pursuant to Section 6.2.4 or 6.2.5, or (ii) Seller's termination of this
Agreement pursuant to Section 6.2.1 because the condition precedent set forth in
Section 3.2.1 becomes incapable of satisfaction through no fault of Seller after
Buyer has had a reasonable opportunity to cause such condition precedent to be
satisfied. In addition, if Seller terminates this Agreement pursuant to Section
6.2.4 as a result of Buyer's breach of Section 4.1.4 for any reason, Buyer and
Seller have mutually agreed that in addition to Seller's right to draw down the
full amount of the Letters of Credit, Buyer shall be liable to Seller for an
additional amount equal to the LC Amount. If Buyer fails to deliver the Letters
of Credit within 15 business days of the date hereof, and Seller thereafter
terminates this Agreement pursuant to Section 6.2.4 as a result thereof, Buyer
shall be liable to Seller for the LC Amount. In the event that Seller terminates
this Agreement for any of the foregoing reasons, in view of the difficulty of
determining the amount of damages which may result to Seller from such failure
to consummate the Transactions, Buyer and Seller have mutually agreed that the
proceeds of the Letters of Credit and any other monies payable to Seller in
accordance with the foregoing provisions shall be retained by Seller as
liquidated damages, and not as a penalty, and this Agreement shall thereafter
become null and void except for those provisions which by their terms survive
termination of this Agreement. The parties have agreed that the proceeds of the
Letters of Credit and such other monies payable to Seller in accordance with the
foregoing provisions in such event shall be Seller's exclusive remedy.
1.4.2 Purchase Price. Subject to Section 1.4.4, Buyer shall pay to
Seller as consideration for the transfer of Seller's rights with respect to the
Business and the sale of the Transferred Assets an aggregate purchase price (the
"Purchase Price") consisting of $133,722,180 plus (a) the estimated amount of
Exchange Investments, if any, calculated pursuant to Section 1.4.3(a) (the
"Estimated Exchange Investments") less (b) the Revenue Adjustment, if any
calculated pursuant to Section 1.4.3(b). The Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds to such bank
account(s) as Seller shall designate within a reasonable time prior to Closing
and the Letters of Credit shall be returned to Buyer upon payment of the
Purchase Price.
1.4.3 Closing Date Purchase Price Adjustments.
(a) Estimated Exchange Investments. Seller shall prepare and deliver
to Buyer, no less than five business days prior to the Closing, an estimate of
the net book value on the Closing Date associated with any investment by Seller
in the Exchanges (the "Exchange Investment") prior to Closing required by any
Governmental Authority pursuant to an order issued between the date hereof and
the Closing Date, other than with respect to investments contemplated by
Schedule 5.2.3(iii) or with respect to Seller's efforts to comply with any
Governmental Authority's orders issued prior to the date hereof.
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(b) Revenue Adjustment. The Purchase Price shall be decreased if the
product of four times the aggregate revenues from the Business, as reported on
the monthly profit and loss statements for the Business for the three full
consecutive calendar months most recently completed prior to the Closing Date,
less any portion of such revenues attributable to the Excluded Assets (the
"Adjusted Annualized Closing Revenues"), are less than $25,762,500. Any decrease
in the Purchase Price in accordance with this Section 1.4.3(b) shall be equal to
the difference between the Adjusted Annualized Closing Revenues and $25,762,500
multiplied by 400% (the "Revenue Adjustment"); provided, that the Purchase Price
shall not be decreased pursuant to this Section 1.4.3(b) to the extent that the
Maximum Adjustment Amount shall have been reached.
1.4.4 Post-Closing Purchase Price Adjustment.
(a) Actual Exchange Investments. Within 120 days following the
Closing Date, Buyer shall prepare and deliver to Seller a written statement (the
"Exchange Investment Statement") of the calculation of the actual amount of
Exchange Investment. Subject to the dispute resolution mechanism set forth in
Section 1.4.4(c), to the extent that the actual amount of Exchange Investment as
shown on the Exchange Investment Statement differs from the Estimated Exchange
Investment, the difference shall be paid within 35 days of delivery of the
Exchange Investment Statement (i) by Buyer to Seller in the case of an excess,
or (ii) by Seller to Buyer in the case of a deficit.
(b) Reinitialization Adjustment. If, on the Closing Date, the
Reinitialization has not been effected, the Purchase Price shall be adjusted in
accordance with the following:
(i) If the Reinitialization occurs after the Closing Date but
on or prior to the two year anniversary of the Closing Date, Buyer shall
prepare and deliver to Seller, as soon as practicable after the
Reinitialization, a written statement (the "Reinitialization Statement")
of the calculation of the actual number of interstate switched access
minutes of use (the "Interstate Use Minutes") for the Exchanges per month
for the period commencing on the Closing Date and ending on the last day
of the month in which the Reinitialization occurred. Subject to the
dispute resolution mechanism set forth in Section 1.4.4(c), Seller shall
pay Buyer within 60 days of delivery of the Reinitialization Statement an
amount equal to $0.023 multiplied by the Interstate Use Minutes for the
period commencing on the day after the Closing Date and ending on the date
of the Reinitialization (pro rated, if necessary, for the first and final
month). Seller's failure to make such payment by the 60th day following
delivery of the Reinitialization Statement shall be deemed to be an
initiation of the dispute resolution mechanism set forth in Section
1.4.4(c).
(ii) If the Reinitialization has not occurred by the two year
anniversary of the Closing Date, Buyer shall so notify Seller and Seller
shall pay Buyer within 60 days after receipt of such notice an amount
equal to $12,940,856, plus simple interest at a rate of 8% per annum for
the period commencing on the Closing Date through but excluding the date
of payment.
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(c) Dispute Resolution Mechanism.
(i) Within 30 days after receipt of the Exchange Investment
Statement or 60 days after receipt of the Reinitialization Statement
(each, a "Post-Closing Statement"), as the case may be, Seller may, in a
written notice to Buyer, describe in reasonable detail any proposed
adjustments to the relevant Post-Closing Statement in question and the
reasons therefor. If Buyer shall not have received a notice of proposed
adjustments within such 30 or 60 day period, as the case may be, Seller
will be deemed irrevocably to have accepted such Post-Closing Statement.
(ii) If Seller disputes any portion of the Post-Closing
Statement, the parties shall calculate the portion of the undisputed
amount, if any, and such amount shall be paid by the appropriate party
within five business days of the determination of the undisputed amount.
Buyer and Seller shall negotiate in good faith to resolve any dispute. If
any dispute cannot be resolved within 30 days following Buyer's receipt of
the proposed adjustment, Deloitte & Touche or another independent public
accounting firm that is nationally recognized in the United States jointly
selected by Buyer and Seller shall be engaged to resolve such disputes in
accordance with the standards set forth in this Section, which resolution
shall be final and binding. The fees and expenses of such accounting firm
shall be shared by Buyer and Seller in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of Buyer
and Seller, respectively. Upon delivery of such public accounting firms's
resolution of such dispute to the parties, the party required to make a
payment pursuant to such resolution shall promptly, but no later than five
business days after such delivery, pay to the other party the amount
determined by such public accounting firm to be owed to such party.
(d) Any amount paid pursuant to Section 1.4.4(a) shall bear interest
from the Closing Date through but excluding the date of payment, at a rate of 8%
per annum. Any amount owing pursuant to Section 1.4.4(b)(i) that is not paid
within 60 days of delivery of the Reinitialization Statement shall bear interest
from the 61st day following delivery of the Reinitialization Statement through
but excluding the date of payment, at a rate of 8% per annum. Such interest
shall accrue daily on the basis of a year of 365 days and the actual number of
days for which due and shall be payable together with the relevant amount
payable pursuant to this Section 1.4.4. All amounts payable pursuant to this
Section 1.4.4 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer, in the case of amounts payable by Buyer, to such
account of Seller as Seller may designate and, in the case of amounts payable by
Seller, to such account of Buyer as Buyer may designate.
(e) The Purchase Price shall be deemed to be adjusted by any amounts
paid pursuant to this Section 1.4.4.
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1.5 Prorations. All real and personal property and similar taxes and
assessments with respect to the Transferred Assets, all rents, utilities and
other periodic charges and expenses arising from the normal operations of the
Business shall be prorated as of 11:59 p.m. local time on the Closing Date. Such
prorations shall be agreed upon by the parties as of the Closing Date and
reflected as an adjustment to the Purchase Price. Following the Closing Date,
each party shall thereafter be responsible for the payment of all such amounts
for which it is responsible, as determined by such prorations, as they become
due. For purposes of the foregoing proration, the parties agree that, with
respect to states in which Seller is assessed for real or personal property
taxes on a centralized basis or where a tax is imposed in lieu of property tax,
Seller shall be responsible for payment of property or other taxes assessed by
such state for the entire taxable year in which the Closing occurs and a pro
rata portion of such property taxes will be allocated to Buyer as of the Closing
Date and paid to Seller on the Closing Date. All prorations pursuant to this
Section 1.5 will be final and binding on both parties. Unless otherwise mutually
agreed no later than 30 days prior to the Closing Date, the specific date and
time for the change of telecommunications service to occur with respect to the
Exchanges shall be at 11:59 p.m., local time, on the Closing Date.
1.6 Allocation of the Purchase Price. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Buyer and Seller
agree to such Allocation prior to Closing, Buyer and Seller covenant and agree
that (i) the values assigned to the assets by the parties' mutual agreement
shall be conclusive and final for all purposes, and (ii) neither Buyer nor
Seller will take any position before any Governmental Authority or in any
judicial proceeding that is in any way inconsistent with such allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an
Allocation, Buyer and Seller covenant and agree to file, and to cause their
respective Affiliates to file, all tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable law.
1.7 Transfer Taxes. Buyer shall be responsible for all Transfer Taxes
imposed by any local, state or federal governmental authorities in connection
with the sale, transfer or assignment of the Transferred Assets or otherwise on
account of the Transactions, regardless of whether Buyer or Seller is assessed
therefor. Seller shall be responsible for filing the applicable returns and
shall file them in a timely manner. No less than 20 days prior to the due date
of any such returns, Seller shall provide Buyer with the proposed amount of
Transfer Taxes to be reported and remitted. No less than 10 days prior to the
due date of any such returns, Buyer shall either approve the proposed amount or
advise Seller of an adjusted amount of Transfer Taxes to be reported and
remitted. Seller shall report and remit Transfer Taxes in amounts as approved or
adjusted by Buyer. In the event Buyer fails to approve Seller's proposed amount
of Transfer Taxes and fails to advise Seller of an adjusted amount of Transfer
Taxes within 10 days prior to the due date of such return, Seller shall
interpret such inaction on the part of Buyer as direction by Buyer to make no
report of and no
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remittance of Transfer Taxes. Buyer shall remit to Seller on the day prior to
the due date of such return, by wire transfer of immediately available funds,
the agreed upon amount of Transfer Taxes to be remitted to the taxing
authorities. In the event Seller does not receive the agreed upon amount of
Transfer Taxes to be remitted to the taxing authorities from Buyer on or before
the day prior to the due date of the return, Seller shall interpret such failure
of Buyer to provide funds as direction by Buyer to make no report of and no
remittance of Transfer Taxes. Buyer warrants that any adjustments by Buyer to
Seller's proposed amount of Transfer Taxes or any direction by Buyer to make no
report of and no remittance of Transfer Taxes will be based on substantial state
and/or local authority that Transfer Taxes are not due and owing. Buyer shall
indemnify and hold harmless Seller from and against any and all such Transfer
Taxes and any penalties, interest or expenses (including attorneys' fees)
incurred by Seller with respect thereto unless such interest and penalties
result from the actions or omissions of Seller that are unrelated to any
breaches by Buyer of its obligations hereunder.
ARTICLE 2
CLOSING
2.1 Closing. The consummation of the purchase and sale of the Transferred
Assets (the "Closing") shall take place at Seller's offices in Denver, Colorado,
at 10:00 a.m., local time, on the last calendar day of the month in which all
the conditions precedent to Closing set forth in Article 3 have been satisfied
or waived, or on such other date as the parties mutually agree, but in no event
shall the Closing occur later than September 30, 2001 unless the parties shall
mutually agree to extend the date of the Closing. The date that the Closing
actually occurs is referred to as the "Closing Date." If the Closing is
postponed, all references to the Closing Date in this Agreement shall refer to
the postponed date of Closing.
2.2 Deliveries by Seller to Buyer. At or prior to the Closing, Seller will
deliver to Buyer:
2.2.1 Certified copies of all Seller's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Seller;
2.2.2 a duly executed Bill of Sale, in substantially the form of
Exhibit C hereto, and duly executed assignments and other instruments of
transfer sufficient to convey to Buyer title to all the personal property
included in the Transferred Assets;
2.2.3 A duly executed closing certificate of Seller contemplated by
Sections 3.1.1 and 3.1.2;
2.2.4 Releases, satisfactions or terminations of all mortgages,
financing statements or other Encumbrances on any of the Transferred Assets or,
in the alternative, an indemnity of Seller with respect to such Encumbrances in
form and substance reasonably acceptable to Buyer;
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2.2.5 Special warranty deeds covering the Fee Realty and assignments
in customary local form covering the other realty and Interests included in the
Transferred Assets, including all rights-of-way which are by their terms
assignable;
2.2.6 An affidavit in a form complying with Section 1445 of the
Code; and
2.2.7 Such other documents and items as are reasonably necessary or
appropriate to effect the consummation of the Transactions or which may be
customary under local law, including vehicle transfer documentation.
2.3 Deliveries by Buyer to Seller. At or prior to the Closing, Buyer will
deliver to Seller:
2.3.1 The Purchase Price as required by Section 1.4, together with
any proration payment required to be paid on the Closing Date pursuant to
Section 1.5;
2.3.2 Certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Buyer;
2.3.3 A duly executed closing certificate of Buyer contemplated by
Sections 3.2.1 and 3.2.2; and
2.3.4 The Assumption Agreement and such other certificates and
documents as are reasonably necessary or appropriate to effect the consummation
of the Transactions or which may be customary under local law.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. Within 30
days after the date of this Agreement, the parties shall negotiate in good faith
and enter into a Transition Agreement similar in scope to the agreement attached
as Exhibit D hereto. Within 90 days after the date of this Agreement, the
parties shall commence to negotiate in good faith the definitive terms of the
services agreements for the services that Buyer requests Seller to provide upon
Closing and described on Exhibit E hereto. At or prior to the Closing, Buyer and
Seller shall execute and deliver such services agreements. The parties
acknowledge and agree that the agreements contemplated by this Section 2.4 are
an integral part of, and will be entered into as part and parcel to, and in
conjunction with, the other transactions and agreements contemplated by this
Agreement.
2.5 Further Assurances. Except as otherwise provided herein or in the
transition agreements, all instruments of conveyance, assignment or transfer
referred to herein, all sums of money, and all records and data to be delivered
as specified in this Agreement shall be delivered at or prior to the Closing.
The parties agree following the Closing to execute and deliver such further
instruments of conveyance, assignment and assumption as may be reasonably
necessary to give effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities. In addition, in the event of an
inadvertent transfer of Excluded Assets, Buyer shall upon request by Seller
execute and deliver such instruments of conveyance, assignment and transfer as
may be
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reasonably necessary to reconvey such Excluded Assets to Seller and shall
promptly return such Excluded Assets to Seller.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
3.1.1 Representations and Warranties. All representations and
warranties of Seller made in this Agreement shall be true and correct on and as
of the Closing Date as though made at such time, other than inaccuracies in such
representations and warranties that in the aggregate do not have a material
adverse effect on the Business or changes approved by Buyer in writing, and
Seller shall have delivered to Buyer a certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.2 Covenants. Seller shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Seller shall have delivered to Buyer a Certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.3 Governmental Approvals. The State Regulatory Approvals and the
FCC Approval (collectively, "Governmental Approvals") shall have been obtained
and shall be in full force and effect and shall not contain any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date. All such approvals and consents shall be deemed to have been obtained
after the grant thereof has become a Final Order.
3.1.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.1.5 Hart-Scott-Rodino Act. All filings required to be made under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
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3.1.6 Certificates and Other Documents. Seller shall have executed
and delivered the certificates and other documents required by Sections 2.2 and
2.4.
3.1.7 Absence of Material Adverse Change. Since December 31, 1998,
there shall have occurred no casualty or other event or change, not subsequently
cured by Seller, that has resulted in a material adverse effect on the Business,
unless such event has resulted in an amendment to this Agreement as contemplated
by Section 6.1.2.
3.1.8 Material Third Party Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the required
third party consents listed on Schedule 3.1.8 have been obtained and remain in
full force and effect on the Closing Date.
3.1.9 Delivery of Financial Information. Seller shall have delivered
the Required Financial Statements and representation letters, in each case as
and when required by Section 5.2.7.
3.1.10 Environmental Inspections. If it is determined pursuant to
Section 5.3.7 that remediation of potential material liabilities under
Environmental Laws is required, then (i) Seller shall have completed the
remediation to Buyer's reasonable satisfaction, (ii) if Seller elects to exclude
a parcel of Fee Realty, and Buyer so elects, Seller and Buyer shall have entered
into a long-term, low-cost lease, in form and substance reasonably satisfactory
to Buyer, for Buyer's use of such parcel after Closing, or (iii) if Seller
elects to exclude the parcel or the Exchange to which such parcel relates, and
if such parcel alone has been excluded and Buyer has not elected to lease such
parcel, Seller and Buyer shall have agreed in good faith to a reduction in the
Purchase Price. In no event shall Seller be responsible for any other
environmental remediation.
3.1.11 Title Matters. If the aggregate estimated costs and expenses
reasonably necessary to remedy all Encumbrances pursuant to Section 5.3.9
exceeds $10,000 (the "Title Threshold"), Seller shall have removed the Excessive
Encumbrances. "Excessive Encumbrances" means one or more Encumbrances selected
by Seller, the removal of which will bring the aggregate estimated costs and
expenses reasonably necessary to remedy the remaining Encumbrances below the
Title Threshold. Seller shall have removed the Excessive Encumbrances by either
(i) causing the title company to agree to delete such Excessive Encumbrances as
an exception in the Title Commitment or, with the prior written consent of
Buyer, shall have insured over such Excessive Encumbrances by endorsement, or
(ii) if acceptable to Buyer and Seller in each of its reasonable discretion, the
parties shall have entered into a written agreement containing Seller's
commitment to remedy such Excessive Encumbrances on terms reasonably
satisfactory to Buyer. In no event shall Seller have any obligation to cure or
remove any Encumbrance that is not an Excessive Encumbrance.
3.1.12 Billing Conversion. The Steering Committee established
pursuant to the Transition Services Agreement shall have concluded at least
thirty days prior to Closing that the billing system conversion will be
completed by Closing.
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3.2 Conditions to Seller's Obligations. The obligation of Seller to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Seller:
3.2.1 Representations and Warranties. All representations and
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes approved by Seller in writing, and Buyer shall have delivered
to Seller a certificate of Buyer to that effect, dated as of the Closing Date,
signed by an authorized officer of Buyer.
3.2.2 Covenants. Buyer shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Buyer shall have delivered to Seller a Certificate of Buyer to that effect,
dated as of the Closing Date, signed by an authorized officer of Buyer.
3.2.3 Governmental Approvals. All Governmental Approvals shall have
been obtained and shall be in full force and effect. All such approvals and
consents shall be deemed to have been obtained after the grant thereof has
become a Final Order. The terms and conditions of the Governmental Approvals
shall be acceptable in all material respects to Seller in its reasonable
discretion.
3.2.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.2.5 H-S-R Act. All filings required to be made under the H-S-R Act
shall have been made, and the waiting period thereunder shall have expired or
early termination thereof shall have been granted.
3.2.6 Certificates and Other Documents. Buyer shall have delivered
the certificates and other documents required under Sections 2.3 and 2.4.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Buyer's Representations and Warranties. Buyer represents and warrants
to Seller that:
4.1.1 Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Buyer has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.1.2 Corporate Authority. This Agreement has been, and when
executed by Buyer each of the other Transaction Documents will be, duly and
validly executed and delivered by Buyer. This Agreement constitutes, and when
executed by Buyer each of the other Transaction Documents will constitute, the
valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
4.1.3 Governmental Authorizations. Except as contemplated by this
Agreement or as set forth in Schedule 4.1.3, neither Buyer's execution and
delivery of the Transaction Documents nor Buyer's consummation of the
Transactions require authorization or approval of, or filing with, any
Governmental Authority.
4.1.4 Funds. On the Closing Date, Buyer shall have sufficient funds
available to pay the Purchase Price, any proration payment required to be paid
on the Closing Date pursuant to Section 1.4, the amount of any Transfer Taxes to
be paid by Seller as provided in Section 1.6 and to consummate the Transactions.
4.1.5 Litigation. There are no actions, suits, proceedings, claims,
arbitrations or investigations, either at law or in equity, of any kind now
pending (or to the best of Buyer's knowledge threatened) involving Buyer or any
of its properties or assets that (i) question the validity of any of the
Transaction Documents or the Transactions; or (ii) seek to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under the Transaction Documents.
4.1.6 Investigation. Buyer, through its accountants, attorneys,
agents, employees, and others, has made or will have made prior to the Closing
such investigations of the Exchanges and Transferred Assets and of the factual,
legal and other condition and location of the Exchanges and Transferred Assets
that it deems necessary or advisable with respect to the Transactions. Buyer
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has not received from the Seller, or from anyone acting or claiming to act on
behalf of the Seller, any accounting, tax, legal or other similar advice with
respect to the Transactions, and Buyer is relying solely on advice of its own
accounting, tax, legal, and other advisors for such advice. Buyer has based its
decision to acquire the Transferred Assets solely on the results of such
investigations and the representations, warranties and covenants of Seller set
forth herein, and not based on any other information (including without
limitation information contained in Seller's descriptive memorandum) provided to
Buyer by Seller, its Affiliates, employees, agents, representatives or advisors.
4.2 Seller's Representations and Warranties. BUYER UNDERSTANDS THAT,
EXCEPT AS SET FORTH IN THIS SECTION 4.2, SELLER MAKES NO REPRESENTATIONS,
WARRANTIES OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR
TYPE WHATSOEVER WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, AND WARRANTIES AS TO THE APPURTENANCES, FACILITIES AND
IMPROVEMENTS THEREON, OR THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR
ADAPTABILITY THEREOF. Seller represents and warrants to Buyer that:
4.2.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Seller has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.2.2 Authorization, Execution and Delivery. This Agreement has
been, and when executed by Seller each of the other Transaction Documents will
be, duly and validly executed and delivered by Seller. This Agreement
constitutes, and when executed by Seller each of the other Transaction Documents
will constitute, the valid, legal and binding agreement of Seller enforceable
against Seller in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights generally
and by principles of equity.
4.2.3 Transferred Assets. Except with respect to Fee Realty, the
Transferred Assets are, and at the time of Closing will be, owned by Seller and
conveyed, transferred and assigned to Buyer free and clear of all Encumbrances.
The Transferred Assets (i) are in a normal state of repair (except for ordinary
wear and tear), (ii) are sufficient, both in number and condition, to comply
with applicable requirements of State Regulatory Authorities and the
manufacturer's specifications, except for non-compliances that in the aggregate
are not reasonably likely to have a material adverse effect on the Business
following the Closing Date, and (iii) will include all assets of every type,
nature and description that relate to, arise from, are used or held by Seller
primarily in the operation of the Business as presently operated by Seller
(including vehicles and related vehicle stock, portable
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office equipment, test equipment, generators, materials, supplies, tools,
maintenance radio equipment and antennas normally located within the Exchanges
or primarily used in connection with the Business), except for the Excluded
Assets. Assuming the receipt of all required third-party consents, the
instruments and documents to be executed and/or delivered by Seller to Buyer
pursuant to Section 2.2 hereof at or following the Closing Date shall be
adequate and sufficient to vest in Buyer all of Seller's right, title and
interest in or to the Transferred Assets. To Seller's Knowledge, Seller enjoys
peaceful, undisturbed possession under all leases included in the Material
Contracts and rights-of-way and easements with respect thereto and with respect
to the Fee Realty. Notwithstanding the foregoing to the contrary, with respect
to all Fee Realty included in the Transferred Assets, Seller makes no
representations or warranties as to the ownership or Encumbrances thereon, it
being the express agreement of the parties that such matters shall be the
subject of the arrangements set forth in Sections 3.1.11 and 5.3.9.
4.2.4 Governmental Authorization. Except as contemplated by this
Agreement and except for such of the following the absence of which would not
have a material adverse effect on the Business, no authorization or approval of,
or filing with, any Governmental Authority will be required in connection with
Seller's execution and delivery of the Transaction Documents or Seller's
consummation of the Transactions.
4.2.5 Litigation. As of the date hereof there are no actions, suits,
proceedings, claims, arbitrations or investigations, either at law or in equity,
of any kind now pending (or to the best of Seller's Knowledge threatened)
against Seller (i) in which an adverse determination would have a material
adverse effect on the Business; (ii) that question the validity of any of the
Transaction Documents or the Transactions; or (iii) that seek to delay, prohibit
or restrict in any manner any actions taken or contemplated to be taken by
Seller under the Transaction Documents.
4.2.6 Tax Matters. All taxes and assessments, including interest and
penalties thereon, of any kind whatsoever accrued with respect to the Business
through the Closing Date (other than Transfer Taxes and taxes subject to
proration at Closing pursuant to Section 1.4) have been or will be paid in full
by Seller. There are no liens for federal, state or local taxes upon the
Transferred Assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by Seller
in appropriate proceedings, the ultimate liability for which shall remain the
obligation of Seller, and Seller shall indemnify Buyer against all such
liabilities. Seller has timely filed, or will cause to be timely filed, all
federal, state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Business for all periods up to and including the Closing Date.
4.2.7 No Breach. The execution and delivery by Seller of the
Transaction Documents and the consummation by Seller of the Transactions will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of Seller; (ii) violate any
applicable law, statute, ordinance, rule, regulation, code, license,
certificate, franchise, permit, writ, ruling award, executive order, directive,
requirement, injunction (whether
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temporary, preliminary or permanent), judgment, decree or other order
(collectively "Applicable Laws") issued, enacted, entered or deemed applicable
by any Governmental Authorities having jurisdiction over Seller or any of the
Transferred Assets; (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give another
party any rights of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of the Operating Contracts; or (iv) result in
the creation or imposition of any Encumbrance on any of the Transferred Assets,
excluding from the foregoing clauses those violations, breaches or defaults
which individually or in the aggregate would not reasonably be expected to have
a material adverse effect upon the operation of the Business by Buyer after the
Closing.
4.2.8 Compliance with Laws. Except as set forth on Schedule
4.2.18(a), the Business has been operated and the Exchanges are in compliance
with all requirements of the Authorities and all Applicable Laws, except where
Seller's non-compliance would not have a material adverse effect on the
Business. Seller has not received any notice of (and to Seller's Knowledge there
is no reason to anticipate) any material violation of any Applicable Laws.
Notwithstanding the foregoing, except as specifically provided in Section 5.3.7,
Seller hereby disclaims all warranties, whether express or implied, with regard
to the presence of Hazardous Materials in the Transferred Assets or compliance
of the Business with Environmental Laws. Buyer understands and agrees that,
other than as specifically provided in Section 5.3.7, any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Transferred Assets following the Closing Date, including the costs of any
remediation or cleanup associated with the Transferred Assets, or environmental
claim or liability associated with the Transferred Assets, irrespective of when
contamination occurred, is assumed by Buyer on the Closing Date.
4.2.9 Operating Contracts. Schedule 4.2.9(a) sets forth all of the
Operating Contracts of the type described below (the "Material Contracts") that
Seller, after using commercially reasonable efforts, has been able to gather for
Buyer's review. No Operating Contract described in (i) below will be entered
into after the date of this Agreement and no Operating Contract described in
(ii) - (ix) will be entered into after the date of this Agreement other than in
the ordinary course of business:
(i) an agreement containing a non-compete agreement or other
non-compete covenant that in either case would by its terms limit the freedom of
Buyer following the Closing to compete in any respect with respect to the
Business with any third party;
(ii) an agreement granting an Encumbrance on Property other than Fee
Realty;
(iii) an agreement for the sale of any material Transferred Assets
or grant of any preferential rights to purchase any material Transferred Assets;
(iv) a land development agreement or other similar construction
agreement;
(v) a lease of real property;
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(vi) an agreement with respect to 911 services or E911 services;
(vii) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Exchanges;
(viii) an agreement that relates to arrangements and commitments
between Seller and a third party for the third party's location of equipment in
facilities included in the Transferred Assets except to the extent set forth in
a separate interconnection agreement; or
(ix) an agreement other than as set forth above with respect to
which the aggregate amount to be received or paid thereunder attributable to the
Exchanges with respect to calendar year 1999 or any subsequent calendar year is
expected to exceed $50,000 based on the terms of such agreement or on the
payments which have been made under such agreement with respect to calendar year
1998, to the extent applicable.
Schedule 4.2.9(b) identifies (i) each interconnection agreement between
Seller and a third party or an Affiliate of Seller that is applicable to the
Exchanges, (ii) each agreement that relates to arrangements and commitments
between Seller and an Affiliate of Seller for such Affiliate's co-location of
equipment in facilities included in the Transferred Assets that Seller, using
commercially reasonable efforts, has been able to identify, and (iii) each
Exchange where a third party has physically co-located equipment or, to Seller's
Knowledge, where a third party has made a written request to co-locate equipment
located in the Exchanges.
All of the Operating Contracts were made in the ordinary course of
business and are in all material respects valid, binding and currently in full
force and effect. Seller is not in default in any material respect under any of
the Operating Contracts, and to Seller's Knowledge no event has occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default or give rise to a right of termination or cancellation under any of the
Operating Contracts, cause the acceleration of an obligation of Seller, or
result in the creation of any Encumbrance upon any of the Transferred Assets. To
Seller's Knowledge, no other party is in default under any of the Operating
Contracts, nor has any event occurred which, through the passage of time or the
giving, of notice, or both, would constitute a default or give rise to a right
of termination or cancellation under any of the Operating Contracts, or cause
the acceleration of any obligation owed to Seller. Complete and correct copies
of all the Material Contracts in Seller's possession, together with all
modifications and amendments thereto to date of this Agreement in Seller's
possession, have been made available to Buyer or its representatives. Schedule
4.2.9(a) also specifically identifies each lease that requires the consent,
approval or waiver of the other party thereto for the assignment thereof.
4.2.10 Realty. (i) To Seller's Knowledge, the legal descriptions to
be delivered by Seller to the title insurance company shall be complete and
accurate in all material respects; (ii) as of the date hereof, there are no
deferred property taxes or assessments payable by Seller with respect to the Fee
Realty which may or will become due and payable as a result of the consummation
of the
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Transactions, other than Transfer Taxes; (iii) there are no condemnation
proceedings pending or to Seller's knowledge threatened with respect to all or
any part of any parcel of Fee Realty; and (iv) Seller is not a foreign person
within the meaning of Section 1445 of the Code.
4.2.11 Reports. Seller has filed all reports relating to the
Business required by all Applicable Laws to be filed, and it has duly paid or
accrued on its books of account all applicable duties and charges due or
assessed against it pursuant to such reports.
4.2.12 Year 2000 Matters.
(a) Year 2000 Compliance. Seller warrants and represents that to the
best of its knowledge and belief following an effort of commercially reasonable
diligence by Seller, all of its business assets, including but not limited to
information technology and non-information technology systems and facilities and
those of its external suppliers utilized by Seller in the Business and included
in the Transferred Assets ("Business Assets"), are or will be "Year 2000
Compliant" (defined below) on or before the Closing Date. For purposes of this
Agreement, the following definitions apply:
(i) "Date Data" means any data, formula, algorithm, process,
input or output which includes, calculates or represents a date, a reference to
a date or a representation of a date;
(ii) "Year 2000 Compliant" means:
1. the functions, calculations, and other computing
processes of the Business Assets (collectively, "Processes") perform in a
consistent manner regardless of the date in time on which the Processes
are actually performed and regardless of the Date Data inputs to the
Business Assets, whether before, on, during or after January 1, 2000 and
whether or not the Date Data is affected by leap year;
2. the Business Assets accept, calculate, compare, sort,
extract, sequence, and otherwise process all Date Data, and returns and
displays all Date Data, in a consistent manner regardless of the dates
used in such Date Data, whether before, on, during or after January 1,
2000.
3. the Business Assets will function without
interruptions caused by the date in time on which the Processes are
actually performed or by the Date Data inputs to the Business Assets,
whether before, on, during or after January 1, 2000;
4. the Business Assets store and display all Date Data
in ways that are unambiguous as to the determination of the century;
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5. no Date Data will cause one or more Business Assets
to perform an abnormally ending routine or function within the Processes
or generate incorrect values or invalid results; and
6. each of the Business Assets will properly exchange
Date Data with all other Business Assets that it may interact or
inter-operate with.
(b) Year 2000 Testing. Seller warrants that the Business Assets have
been tested by Seller and/or Seller's suppliers of Business Assets to determine
whether each of the Business Assets is Year 2000 Compliant. Seller's suppliers
of Business Assets have represented to Seller that the Business Assets provided
by them are Year 2000 Compliant and/or have been tested by those suppliers to
determine whether such Business Assets are Year 2000 Compliant. Seller will
notify Buyer immediately of the results of any test or any claim or other
information that indicates any Business Asset is not Year 2000 Compliant.
(c) Year 2000 Remedies. In the event that Buyer encounters a
Business Asset that is not Year 2000 Compliant, within a commercially reasonable
period after receipt from Buyer of written notice thereof, Seller shall at its
expense cause the identified non-compliant Business Asset to be repaired or
replaced.
4.2.13 Correct Records. The financial records, ledgers, account
books and other accounting records of Seller relating to the Business are
current, correct and complete and, if required by applicable law, conform with
the rules and regulations of the FCC and the State Regulatory Authorities,
except for instances that in the aggregate are not reasonably likely to have a
material adverse effect on the Business following the Closing Date and except
for the Continuing Property Records for the Exchanges, which are dealt with
specifically elsewhere in this Agreement. Seller has retained substantially all
original cost documentation relating to the regulated Business regarding the
expenditures made by Seller within the period required by Applicable Law that
relate to the Property, and such original cost documents are correct and
complete in all respects, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
4.2.14 Tribal and Federal Consents.
(a) To Seller's Knowledge, all easements, rights-of-way, franchises,
licenses, permits, consents, approvals, certificates and other authorizations of
tribal authorities and the United States Bureau of Indian Affairs (the
"BIA")(collectively, "Tribal Authorizations") held by Seller and relating to any
Purchased Property located, or any operations of the Business conducts, on
Native American reservations are in full force and effect, Seller is not in
material default thereunder, and there are no other Tribal Authorizations
required to be obtained by Seller from, or filings required to be made by Seller
with, any tribal authority or the BIA with respect to any such Purchased
Property or any such operations of the Business, except for instances that in
the aggregate are not reasonably likely to have a material adverse effect on the
Business following the Closing Date.
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(b) Except as set forth on Schedule 4.2.14(b), to Seller's Knowledge
no consent, approval or waiver from, or filing with, any tribal authority or the
BIA is required to be obtained or made in connection with the execution and
delivery by Seller of this Agreement, or Seller's fulfillment of its obligations
under this Agreement, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(c) If during the period between the date of this Agreement and the
Closing Date the representation and warranty set forth in this Section 4.2.14
proves to be untrue with respect to one or more parcels of Realty and Buyer and
Seller in good faith have been unable to remedy the circumstances that causes
such representation and warranty to be untrue with respect to such parcel, at
the election of either Buyer or Seller such parcel shall be excluded from the
Transferred Assets, and Buyer and Seller shall in good faith reduce the Purchase
Price accordingly.
4.2.15 Financial Statements.
Within 15 business days of the date hereof, Seller shall deliver to Buyer
a copy of financial statements relating to the Business, consisting of a balance
sheet and income statement and statements of cash flow and changes in equity for
the Business as of and for the respective periods ended December 31, 1996,
December 31, 1997, and December 31, 1998, together with the auditor's report
thereon (the "Financial Statements"). The Financial Statements were prepared
based upon the books and records of Seller, fairly present in all material
respects the financial condition of the business as of the appropriate periods
and the results of operations for the year then ended, in each case in
conformity with GAAP.
4.2.16 Loss of Major Customer. Except as set forth on Schedule
4.2.16, since June 1, 1997, Seller has not suffered the loss of any customer of
the Business that had billings in any year in excess of $25,000.
4.2.17 CPRs; Vehicles. Seller has provided Buyer with its Continuing
Property Records ("CPRs") for the Exchanges. Schedule 4.2.17 contains a true and
complete list and description (including vehicle identification numbers) as of
June 1, 1999 of the vehicles that are included in the Transferred Assets.
4.2.18 Tariffs and Authorities.
(a) The regulatory tariffs applicable to the Business stand in full
force and effect on the date of this Agreement in accordance with all terms, and
there is no outstanding notice of cancellation or termination or, to Seller's
Knowledge, any threatened cancellation or termination in connection therewith,
nor is Seller subject to any restrictions or conditions applicable to its
regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material
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respect under any such tariff. Schedule 4.2.18(a) sets forth all applications by
Seller or complaints or petitions by others or proceedings pending or, to
Seller's Knowledge, threatened before the state regulatory authority relating to
the Business or its operations or the regulatory tariffs that Seller, after
using commercially reasonable efforts, has been able to identify. To Seller's
Knowledge, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Business
has been delivered or made available to Buyer.
(b) Listed on Schedule 4.2.18(b) are the material Authorities held
by Seller and used in the operation of the Business. Each of such Authorities is
in full force and effect of the date of this Agreement in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor are any of such Authorities subject to any restrictions or
conditions that limit the operation of the Business (other than restrictions or
conditions generally applicable to licenses or permits of that type). Subject to
the Communications Act of 1934, as amended, and the regulations thereunder, the
FCC licenses included in the Authorities are free from all security interests,
liens, claims or encumbrances of any nature whatsoever. Except as disclosed on
Schedule 4.2.18(c), there are no applications by Seller or complaints or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC licenses that would reasonably be expected to have a
material adverse impact on the Business.
4.2.19 Environmental Matters.
(a) Schedule 4.2.19(a) accurately describes each incident known to
Seller and arising since December 31, 1996, involving violation of or
noncompliance with Environmental Laws in connection with Seller's operation of
the Business or the use or ownership of the Transferred Assets with respect to
which the fines exceed $100,000. Except as will be set forth on Schedule
4.2.19(d), no environmental remediation is occurring on any parcel of Fee Realty
or leased real property included in the Transferred Assets nor has Seller or any
Affiliate of Seller issued a request for proposal or otherwise asked an
environmental remediation contractor to begin plans for environmental
remediation.
(b) Schedule 4.2.19(b) sets forth a true and accurate list of all
underground storage tanks ("USTs") and aboveground storage tanks ("ASTs")
located on the Fee Realty and the leased real property included in the
Transferred Assets that are in use.
(c) Except as set forth in Schedule 4.2.19(c) and, to the extent
such information is unavailable on the date of execution of this Agreement, as
set forth and supplemented on Schedule 4.2.19(d), none of the Fee Realty or
leased real property is (i) situated in a federal "Superfund" site or, to
Seller's Knowledge, in any federal "Superfund" study area, or (ii) to Seller's
Knowledge, situated in a site or study area that is covered by the Environmental
Quality Control Act, Iowa Code Ch. 381-397 and 455B 423-431, as amended, or the
Groundwater Protection Act, Iowa Code Ch. 455E, as amended.
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(d) Within 30 days from the date of this Agreement, Seller will
prepare and deliver to Buyer Schedule 4.2.19(d), which schedule will list (i)
all environmental remediation occurring on any parcel of Fee Realty or leased
real property included in the Transferred Assets, (ii) any requests for
proposals for remediation, (iii) any requests by Seller or any Affiliate of
Seller to begin plans for environmental remediation, (iv) all USTs and ASTs
located on the Fee Realty and the leased real property included in the
Transferred Assets that, to Seller's Knowledge, have been abandoned in place,
and (v) each incident known to Seller and arising since December 31, 1996,
involving violation of or noncompliance with Environmental Laws in connection
with Seller's operation of the Business or the use or ownership of the
Transferred Assets with respect to which the fines exceed $10,000. In addition,
within such period, Seller shall deliver to Buyer complete copies of letters of
non-compliance with respect to each incident listed in subsection (v) above,
copies of AST and UST closure letters contained in the files and records of
Seller, copies of all No Further Action letters contained in the files and
records of Seller, and a description of the status of any existing fuel tank
remediation.
4.2.20 Employee Benefits.
(a) Schedule 4.2.20(a) lists each Employee Benefit Plan and Other
Plan maintained or contributed to by Seller or its affiliates for the benefit of
any employee employed by, or associated with, the Business (hereinafter, an
"employee of the Business"). Seller has provided Buyer with full and complete
copies (including all amendments) of all of such Employee Benefit Plans and
Other Plans.
(b) To Seller's Knowledge, each such Pension Plan, Welfare Plan and
Other Plan maintained by Seller has been operated in accordance with its terms
and in accordance with applicable law, to the extent that the failure to do so
would have material adverse effect on the Business or its assets.
(c) Except as otherwise set forth on Schedule 4.2.20(c), no Employee
Benefit Plan or Other Plan provides benefits for persons who are not active
employees of Seller.
(d) Except as set forth on Schedule 4.2.20(g), there are no actions,
suits or claims pending or threatened (other than routine claims for benefits)
relating to any Employee Benefit Plan or Other Plan identified in Schedule
4.2.20(a) except for actions, suits or claims that are not in the aggregate
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(e) Seller does not maintain any Employee Benefit Plan or Other Plan
under which it would be obligated to pay benefits because of the consummation of
the transaction contemplated by this Agreement, which could become an obligation
of the Buyer.
(f) Seller has used its best efforts to maintain each trust forming
a part of any Pension Plan identified in Schedule 4.2.20(a) which is not exempt
from Part 2, 3 and 4 of Title I of
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ERISA to meet all requirements for qualification under Sections 401 and 501 of
the Internal Revenue Code, and all applicable related rules and final
regulations.
(g) Schedule 4.2.20(g) sets forth all the exceptions to the
following statements that Seller, after using commercially reasonable efforts,
has been able to identify: (i) Seller is not subject to any collective
bargaining agreement covering any employees of the Business; (ii) there are no
current, or to Seller' Knowledge, any pending or threatened strikes, slowdowns,
picketing, work stoppages or lock-outs affecting the Business; (iii) to Seller's
knowledge, there is no pending or threatened organized activity or petition for
certification of a collective bargaining representative involving employees of
the Business; (iv) to Seller's Knowledge, there is no pending or threatened
charge, action, complaint, or proceeding of any nature against Seller relating
to the violation of any applicable state and federal labor or employment law or
regulation in connection with the Business, nor is there any other pending or
threatened labor or employment dispute against or affecting Seller in connection
with the Business ,except for items that in the aggregate are not reasonably
likely to have a material adverse effect on the Business following the Closing
Date; and (v) with respect to employees of the Business, Seller has complied in
all respects with the laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupation safety and health, immigration, and plant closings ,except
for items that in the aggregate are not reasonably likely to have a material
adverse effect on the Business following the Closing Date. Seller has delivered
to Buyer accurate and complete copies of all collective bargaining agreements
affecting any of the employees in the Exchanges.
"Employee Benefit Plan" means any Pension Plan and Welfare Plan within the
meaning of Section 3(3) of ERISA.
"Other Plan" means any employment, noncompetition, management, agency or
consulting arrangement, bonus, profit sharing, deferred compensation, incentive,
stock option, stock ownership or stock purchase plan, severance or unemployment
arrangement, vacation pay, fringe benefit or other similar plan, policy or
arrangement, whether or not in written form, which does not constitute an
Employee Benefit Plan and which is not listed on Schedule 4.2.20(a).
"Pension Plan" means any employee pension plan within the meaning of
Section 3(2) of ERISA.
"Welfare Plan" means any employee welfare benefit plan within the meaning
of the Section 3(1) of ERISA.
4.2.21 Accuracy of Information Furnished.
(a) To Seller's Knowledge:
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(i) Seller made a good faith effort, given the voluminous
nature of the material available with respect to the Transferred Assets, the
necessity to present in many cases representative documents or descriptions of
documents, and Seller's need to maintain certain competitive information
confidential, to include in the due diligence notebooks contained in the Data
Room located in Seller's offices in Denver, Colorado all documents or
appropriate descriptions of all documents that, in Seller's reasonable opinion,
a reasonable prospective acquiror of the Transferred Assets would deem to be
material in its decision; and
(ii) Seller did not intentionally and consciously decide to
(1) exclude from the due diligence notebooks (2) withhold from Buyer in response
to Buyer's requests for additional information or (3) not make available for
review by Buyer or its agents at Seller's offices in Denver, Colorado any
document relating to the operation of the Business as currently conducted which,
in Seller's reasonable opinion, a reasonable prospective acquiror of the
Transferred Assets would deem to be material in its decision to acquire the
Transferred Assets.
4.2.22 No Material Adverse Change. Since December 31, 1998 there has not
occurred (i) any event or condition that would have a material adverse effect on
the Business, (ii) any increase in compensation payable or to become payable by
Seller to any of its Hired Employees or agents, other than normal merit or
promotional increases and pursuant to any collective bargaining agreements,
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract, except any amendment or termination in the
ordinary course of business or (iv) any change in any accounting method,
practice or policy of Seller with respect to the Business.
ARTICLE 5
COVENANTS
5.1 Covenants of Buyer. Buyer hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.1.1 Continued Efforts. Buyer will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Buyer; (ii) cause to be performed all of
the actions required of Buyer at or prior to the Closing; and (iii) take such
steps and do all such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect as
if the same had been made as of the Closing Date. Without limiting the
foregoing, Buyer agrees if requested by Seller to apply for or otherwise seek
any required third-party consents on a joint basis.
5.1.2 Cooperation. Buyer agrees to cooperate with Seller with
respect to (i) Seller's assignment to Buyer and Buyer's assumption of the
Transferred Assets hereunder, and (ii) Seller's structuring of the Transactions
to comply with the requirements of a like-kind exchange under Section 1031 of
the Code (a "1031 Transaction") at no additional expense to Buyer, such
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cooperation to include, without limitation, purchase of the Transferred Assets
from a "qualified intermediary" (as defined in Section 1031) of Seller's choice
and execution of such documents in connection with the Transactions as Seller
may reasonably request. If Seller elects to pursue the Transactions as a 1031
Transaction, then (i) notwithstanding anything in this Agreement to the
contrary, Seller shall fully indemnify, defend and hold Buyer harmless from and
against any and all liabilities resulting therefrom, including, but not limited
to, any tax impacts on Buyer or the Transferred Assets, and (ii) Seller shall
remain directly and primarily bound by all other conditions, representations,
warranties and covenants contained herein and remedies related thereto.
5.1.3 Employee Matters.
(a) Buyer agrees that, during the period between the date hereof and
the Closing Date and for a period of 18 months thereafter, without the prior
written consent of Seller, Buyer will not actively solicit for employment any
employee of Seller other than those persons identified by Seller to Buyer in
writing as provided in this Section 5.1.3 or who respond to a general
solicitation of employment made by Buyer.
(b) As soon as practicable following the date hereof and as
permitted by applicable law and collective bargaining agreements, Seller shall
provide to Buyer a list of all employees whose services are primarily related to
the Exchange (the employees on such list being referred to as "Prospective
Hires"). Buyer shall have the right to audit such list to determine that it
contains an accurate and complete listing of all Prospective Hires, and Seller
shall cooperate in providing Buyer with such information as Buyer may reasonably
request to assist in such audit. Within 90 days following the date of this
Agreement, and consistent with applicable law and any collective bargaining
agreement, Seller shall provide Buyer with a definitive list of Prospective
Hires, such list to contain the name, job classification, position, title, date
of hire, current salary or wage, bargaining unit, primary exchange(s), work
location, telephone number and last known address of each Prospective Hire.
(c) Buyer may, but shall have no obligation to, employ or offer
employment to any Prospective Hire. Seller shall cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview the Prospective
Hires to make hiring decisions. At least 60 days before the scheduled Closing
Date, Buyer shall provide to Seller in writing a list of the Prospective Hires
that Buyer intends to offer employment. At least 45 days before the scheduled
Closing Date, Buyer shall notify those Prospective Hires whom Buyer intends to
hire on the Closing Date; the form and manner of such notification shall be
reasonably satisfactory to and approved in advance by Seller. Buyer shall be
permitted to conduct appropriate pre-hire investigations of such named
Prospective Hires and make any offer of employment for such Prospective Hires
conditional upon receiving results of such investigations as are satisfactory to
Buyer.
(d) As of the Closing Date, Seller shall separate from its payroll
the employment of all of the Prospective Hires to whom Buyer has made offers of
employment other than any such Prospective Hire who has been offered employment
by Buyer and who is on leave status, including
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employees receiving Workers' Compensation Benefits, as of the Closing Date
(each, an "Employee on Leave Status"). Buyer shall employ any Employee on Leave
Status (i) who is on approved leave under the Family and Medical Leave Act on
the Closing Date only when such Employee on Leave Status returns to work from
such approved leave under the Family and Medical Leave Act or (b) who is
receiving Workers' Compensation Benefits on the Closing Date only when such
Employee on Leave Status is released to return to work but only if such release
occurs within sixteen weeks after the date of initial eligibility for Workers'
Compensation Benefits, in each case subject to Buyer's right to conduct
appropriate pre-hire investigations of such Employee on Leave Status and to
Buyer's receipt of results of such investigations that are satisfactory to
Buyer.
(e) Seller shall be responsible for and shall cause to be discharged
and satisfied in full all amounts owed to any Prospective Hire who is employed
by Seller as of the Closing Date, including salaries, commissions, bonuses,
deferred compensation, severance, insurance, vacation, and other compensation or
benefits to which they are entitled for periods prior to the Closing (and for
Employee on Leave Status, until their employment by Buyer, as set forth in
Section 5.1.3(d) hereof), including all amounts (if any) payable on account of
the termination of such Prospective Hires.
(f) Seller will be responsible for maintenance and distribution of
benefits accrued under any Employee Benefit Plan maintained by Seller pursuant
to such plan and any legal requirements. Buyer will not assume any obligation or
liability for any such accrued benefits under any employee benefit plans
maintained by Seller.
(g) Nothing in this Section 5.1.3 or elsewhere in this Agreement
shall be deemed to make any Prospective Hire a third party beneficiary of this
Agreement.
(h) Seller acknowledges and agrees that Buyer has not agreed to be
bound, and will not be bound, by any provision of any collective bargaining
agreement or similar contract with any labor organization to which Seller or any
of its Affiliates is or may become bound.
(i) Seller shall provide employees of the Business with any required
notices under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller.
5.1.4 Directory Publishing Rights. Buyer will enter into good faith
negotiations with U S WEST Dex, Inc. ("Dex"), an Affiliate of Seller (or its
successor so long as such successor remains an Affiliate of Seller), concerning
an agreement whereby either (i) Dex will publish all subscriber listings
corresponding to the Exchanges on behalf of Buyer in satisfaction of Buyer's
regulatory obligations to publish such listings, or (ii) Buyer will license such
listings to Dex in accordance with Buyer's regulatory obligations to provide
such listings in the event that Buyer elects to publish or arrange with a third
party to publish such listings.
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5.1.5 911 Emergency Services. Buyer will obtain or contract for the
appropriate 911 emergency data bases in order to commence providing 911
emergency services in connection with the operation of the Business as of the
Closing Date.
5.2 Covenants of Seller. Seller hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.2.1 Access to Information and Facilities. Seller will afford Buyer
and its representatives, at Buyer's sole expense, reasonable access during
normal business hours to all Transferred Assets, facilities, properties, books,
accounts, records, contracts and documents of or relating to the Business in
Seller's possession or control. Seller shall exercise commercially reasonable
efforts to furnish or cause to be furnished to Buyer and its representatives all
data and information in Seller's possession concerning the Exchanges as shall
reasonably be requested by Buyer. Seller shall exercise commercially reasonable
efforts to gather additional Material Contracts for Buyer's review.
Seller acknowledges and agrees that Buyer's ongoing review, examination
and investigation of the Business and the Transferred Assets, facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business contemplated in the immediately preceding sentence is necessary to
facilitate the assimilation of the Business into Buyer's operations, the
transfer of the ownership and use of the Transferred Assets from Seller to Buyer
and other reasonable business purposes, and may include the following
activities:
(i) review of the Operating Contracts and Authorities, the
performance of which after Closing is an Assumed Liability (e.g., land
development agreements, 911 and E911 service agreements and customer
prepaid maintenance agreements) in order, among other things, to identify
those that require third party consent to assign to Buyer, those that
expire prior to or soon after the Closing and those that may require
special documentation to transfer to Buyer;
(ii) investigation of the third party arrangements included among
the Excluded Assets that Buyer will need to replicate or replace,
including interconnection agreements and national account agreements that
affect any Exchange.
(iii) examination of various assets included in the Property in
order, among other things, to determine what changes Buyer may need to
make to such assets after the Closing Date;
(iv) investigation of miscellaneous underwriting data, including an
insurance claims history of Seller relating to the operation of the
Business and the ownership or use of the Transferred Assets, the current
surety bonds and certificates of insurance relating to the Transferred
Assets, and Seller's policies and practices relating to pertinent
environmental, health, safety and property protection issues, in order for
Buyer to arrange appropriate
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insurance coverage by Closing with respect to Buyer's operation of the
Business and ownership and use of the Transferred Assets after the Closing
Date;
(v) investigation of the location and organization of the Records,
including the original cost documents and outside plant maps relating to
the Property, in order for the parties to arrange for appropriate delivery
(including via electronic transfer) or retention by Seller upon the
Closing;
(vi) review of the appropriate financial and accounting records of
Seller relating to the operation of the Business in order, among other
things, for Buyer to analyze the current balances and writeoff history of
the materials and supplies inventory included in the Transferred Assets,
the aging and write-off history of Accounts Receivable, and the manner in
which the Seller historically has allocated costs to the Purchased
Exchanges;
(vii) review of the ongoing State Regulatory Authorities and FCC
reporting obligations of Seller and Buyer relating to the Exchanges,
including responsibility for filing "form M" financial information, FCC
Report No. 43-04, Armis Joint Cost Report, and FCC Report No. 43-8, Armis
Operating Data Report, for the Exchanges for the year in which the Closing
Date occurs;
(viii) investigation of the construction and plant upgrade
activities of Seller between the date of execution of this Agreement and
the Closing Date, including a review of the construction work in progress,
in order, among other things, to enable Buyer to make appropriate
arrangements for the continuation of such activities after the Closing
Date; and
(ix) investigation of other regulatory issues, including with
respect to regulatory mandates and matters relating to the National
Exchange Carrier Association (including the Universal Service Fund, Local
Switching Support, and Telecommunications Relay Services funds) and
corresponding funds established by the State Regulatory Authorities.
The parties agree to cooperate and to negotiate in good faith regarding
resolution, on commercially reasonable terms and conditions, of issues and
concerns raised by either party in connection with such activities. Each party's
cooperation will include making appropriate subject matter experts and other
knowledgeable personnel available to meet with the appropriate representatives
of the other party and facilitating Buyer's contacts with the appropriate
Governmental Authorities (including the State Regulatory Authorities).
5.2.2 Continued Efforts. Seller will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Seller; (ii) cause to be performed all
of the actions required of Seller at or prior to the Closing; and (iii) take
such steps and do such acts as may be necessary to make all of its warranties
and representations true and correct as of the Closing Date with the same effect
as if the same had been made as of the Closing Date.
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5.2.3 Maintenance of Business. Seller shall carry on the Business in
the usual and ordinary course and substantially in the same manner as heretofore
conducted. Accordingly, Seller shall (i) maintain its books and records in the
normal and usual manner, (ii) keep the Transferred Assets in a normal state of
repair (except for ordinary wear and tear) and operating efficiency to permit
the conduct of the Business as it is currently being conducted; (iii) use its
commercially reasonable efforts to undertake or complete capital projects as
budgeted on Schedule 5.2.3(iii) and any capital projects required by Applicable
Laws or any Governmental Authority to be undertaken by the Closing Date (it
being understood and agreed that Seller shall have no obligation for any capital
spending other than in connection with such capital projects and as required to
comply with the provisions of this Section 5.2.3 and provided that Seller shall
be entitled to the Purchase Price adjustment (to the extent applicable) pursuant
to Section 1.4.3(a)); (iv) not increase the benefit provided under any plans
concerning employee benefits or increase the general rates of compensation of
its employees in the Exchanges, except (a) as required by Applicable Law, (b)
pursuant to any contracts existing on the date hereof and listed on Schedule
5.2.3(iv) to which Seller is a party, (c) increases in base pay or bonuses in
the ordinary course of business of Seller and in amounts consistent with the
recent past practices of Seller, or (d) as listed or described on Schedule
5.2.3(iv); and (v) not amend, modify or terminate any contract identified on
Schedule 4.2.9 or permit any of the foregoing to occur other than in the
ordinary course of business.
5.2.4 Consent to Assignment. Seller will transfer to Buyer all
Operating Contracts and permits that are by their terms assignable. Seller shall
also request assignment to Buyer of those Operating Contracts and permits that
are not by their terms assignable. To the extent that the assignment of any
Operating Contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Operating
Contract or permit if an attempted assignment would constitute a breach thereof.
Seller shall use commercially reasonable efforts (excluding the payment of
money) to obtain the consent of any other party to the assignment of such
Operating Contracts or permits to Buyer. If any such consent is not obtained, to
the extent permitted by Applicable Law, this Agreement shall constitute an
equitable assignment by Seller to Buyer of all of Seller's right, title, and
interest in and to such Operating Contracts and permits, and Buyer shall be
deemed Seller's agent for the sole purposes of completing, fulfilling and
discharging all of Seller's rights and obligations arising after the Closing
Date under such assigned Operating Contracts and permits.
5.2.5 Payment and Performance of Obligations. Seller will timely pay
and discharge all invoices, bills and other monetary obligations (other than
obligations which are contested by Seller in good faith) and shall not knowingly
perform or fail to perform any act which will cause a material breach of any of
the Operating Contracts.
5.2.6 Restrictions on Sale of Transferred Assets. Seller shall not
sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose
of any of the Transferred Assets except in the ordinary course of the Business.
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5.2.7 Audit or Review of Financial Statements. To the extent Buyer
reasonably requires audited or reviewed financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, Seller
will cooperate with the independent auditors chosen by Buyer in connection with
their audit of any annual financial statements that Buyer reasonably requires to
comply with Regulations S-X and S-K, and their review of any interim quarterly
financial statements that Buyer reasonably requires to comply with Regulations
S-X and S-K. If Closing has not occurred prior to March 31, 2000, then as soon
as practicable but in any event by May 15, 2000. Seller will provide for audit a
balance sheet as of December 31, 1999, and an income statement and statement of
cash flows and changes in equity for the year ending December 31, 1999. The
financial statements to be audited or reviewed pursuant to this Section 5.2.7,
are hereinafter referred to as the "Required Financial Statements." Seller's
cooperation will include (i) such access to Seller's employees who were
responsible for preparing the Required Financial Statements and to workpapers
and other supporting documents used in the preparation of the Required Financial
Statements as may be reasonably required by such auditors to perform an audit in
accordance with generally accepted auditing standards, (ii) delivery of any
Required Financial Statements within 45 days after Buyer's request for the same
(except as otherwise provided in the second sentence of this Section 5.2.7) and
in the form required by Regulations S-X and S-K, and (iii) delivery of one or
more representation letters from Seller to such auditors that are requested by
Buyer to allow such auditors to complete the audit (or review of any interim
quarterly financials), and to issue an opinion acceptable to the SEC with
respect to the audit or review of those Required Financial Statements. Seller
will bear the cost of preparation of the Required Financial Statements. Buyer
and Seller will share equally the cost of the audit or review.
5.2.8 [Intentionally Deleted]
5.2.9 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information and reasonable assistance as Buyer may reasonably request
in connection with Buyer's replacement of the interconnection agreements
relating to the Exchanges, including supplying to Buyer copies of such
interconnection agreements to the extent permissible and, to the extent
requested by Buyer and in compliance with applicable law, contacting the other
party to such interconnection agreements to notify such party that its
interconnection agreement will not apply to the Buyer and the Exchanges after
Closing. Buyer acknowledges its obligation to negotiate interconnection
agreements with third parties that have ongoing interconnection activities
related to the Exchanges with the expectation that interconnection agreements
between Buyer and such third partes will be entered into effective as of the
Closing Date. If such agreements are not entered into or, if required, approved
by appropriate Governmental Authorities, Buyer will offer to provide
interconnection to such third parties according to the terms of the Seller's
interconnection agreements with such third parties until the Buyer's new
agreements with such third parties are entered into or, if required, approved by
appropriate Governmental Authorities.
5.2.10 State Regulatory Authority/FCC Filings. Seller shall make all
necessary filings with the State Regulatory Authorities, the FCC or any other
Governmental Authority between
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the date of this Agreement and the Closing Date. Seller shall notify Buyer of
any significant proposed changes in the rates, charges, standards of service or
accounting of the Exchanges from those in effect on the date of this Agreement
prior to making any filing with the State Regulatory Authorities, FCC or any
other Governmental Authority (or any amendment thereto), or effecting with any
Governmental Authority any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto. Between the
date of this Agreement and the Closing Date, Seller shall use commercially
reasonable efforts to notify Buyer before Seller files any application,
petition, motion, brief, testimony, settlement agreement or other pleading in
any proceeding before the State Regulatory Authorities, FCC or any other
Governmental Authority or appeals related thereto with respect to which Buyer or
an Affiliate of Buyer has or reasonably could be expected to take a contrary
position that reasonably could be expected to have any adverse effect on the
revenue, earnings, or business of Buyer. Seller will give or cause to be given
to Buyer, as promptly as reasonably practicable, copies of all correspondence
(including notices, complaints, and pleadings) with any Governmental Authority
relating to any such proceeding or other rate regulatory matter that is sent or
received by Seller after the date of this Agreement.
5.2.11 Missing Plant.
(a) If, between the period commencing on execution date of the
Agreement and ending six months after the effective time of Closing, Buyer
notifies Seller in writing regarding items of Property (other than items that
have been fully depreciated on the books and records of Seller, items that are
no longer used in or necessary to the Business, and items covered by Section
5.2.11(b)) that are included in the CPRs relating to the Exchanges but that
Buyer, using commercially reasonable efforts, cannot locate in the Exchanges or
that have been sold, transferred or removed from the Exchanges by Seller or an
Affiliate of Seller, then Seller, at its option, either (i) shall pay to Buyer
(or reduce the Purchase Price by) an amount equal to the net book value of such
items as reflected on the books and records of Seller or (ii) deliver to Buyer
such items or replacement items that have reasonably comparable (or superior)
value, vintage and functionality; provided, however, that Seller shall have no
obligation under this Section 5.2.11(a) until the aggregate net book value of
all such items, together with the aggregate net book value of all such similar
items identified in Section 5.2.11 of each of the Multi-State Exchange Purchase
Agreements, exceeds $400,000, at which time Seller shall become obligated under
this Section 5.2.11(a) with respect to all items so identified by Buyer in all
notices delivered to Seller on or before the date that is six months after the
effective time of Closing; and provided, further that Seller shall have no
obligation under this Section 5.2.11(a) to the extent that the Maximum
Adjustment Amount shall have been reached.
(b) At Closing, Seller shall cause the Transferred Assets to include
all vehicles listed on Schedule 4.2.17 except to the extent any such vehicle has
been replaced with items of reasonably comparable (or superior) value, vintage
and functionality, in which event Seller shall cause such replacement items to
be included in the Transferred Assets.
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5.2.12 Third Party Software Licenses. To the extent that the transfer of
Transferred Assets by Seller to Buyer under this Agreement results in the
transfer of third party software that was rightfully used by Seller prior to the
Closing Date in the normal course operation of the Business pursuant to
contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then effective as of the Closing and provided
that no payments to any person are thereby required (except with respect to
payments relating to the transfer of switch software, which will be shared
equally by Buyer and Seller), at Closing Seller shall assign to Buyer, to the
extent permitted by the Third Party Intellectual Property Contracts, and Buyer
shall accept all rights and licenses if any to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses.
5.3 Mutual Covenants.
5.3.1 Confidentiality. Each party to this Agreement agrees to hold
in strict confidence all Confidential Information received from the other party,
whether received before or after entering into this Agreement, and to use such
information solely for the purposes of this Agreement. Each party agrees to make
no more copies of such Confidential Information than is reasonably necessary for
such purposes. Each party agrees that it will not make disclosure of any such
Confidential Information received from the other party to anyone except as
specifically permitted by this Agreement and as required by law. Each party may
disclose Confidential Information to its employees and agents to whom disclosure
is necessary for the purposes set forth above, provided that disclosing party
shall notify each such employee and agent that disclosure is made in confidence
and instruct such employees and agents that such Confidential Information shall
be kept in confidence by such employee and agent in accordance with this
Agreement. If the Transactions are not consummated for any reason, each party
agrees to return to the other party all such Confidential Information, including
all copies thereof, immediately on request. The obligations arising under this
section shall survive any termination or abandonment of this Agreement. This
Agreement will be filed on a confidential basis with the State Regulatory
Authorities. The provisions of the existing Confidentiality Agreement between
Buyer and Seller dated January 15, 1999 are incorporated herein by reference.
5.3.2 Public Announcements. No public announcement with respect to
this Agreement or the transactions contemplated hereby shall be made before the
Closing without the mutual prior approval of both Seller and Buyer, which
approval shall not be unreasonably withheld; provided, however, that each party
shall be permitted to make such disclosure to its lenders or to any Governmental
Authority, including but not limited to the Securities and Exchange Commission
or similar state securities authorities, necessary to comply with any applicable
laws and to obtain all required Governmental Approvals necessary to consummate
the Transactions, or to any stock exchange upon which such party has a class of
securities listed. Notwithstanding the foregoing, the disclosing party shall
give the non-disclosing party reasonable advance notice of any permitted
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disclosure to third parties under this Section 5.3.2 and shall provide the
non-disclosing party with a reasonable opportunity to review and comment on such
disclosure.
5.3.3 Cooperation. Each party covenants to use all commercially
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all things, that are necessary, proper or advisable under applicable
laws and regulations, expeditiously and practicably to consummate and make
effective the Transactions, including but not limited to (i) using its
commercially reasonable efforts to resolve any disagreements between Buyer and
Seller with respect to any applications for governmental or regulatory approval
prior to application for such approval, (ii) facilitating the regulatory
approval process by agreeing that Buyer will adopt and maintain intrastate
tariffs similar in all material respects to Seller's intrastate tariffs in
effect for the Exchanges on the Closing Date for a period of at least six months
following the Closing Date, provided that such tariffs of Seller are
substantially similar to the tariffs of Seller in effect on the date of this
Agreement except that Buyer's tariffs will reflect rate changes by Seller (x)
made prior to Closing as required by an order of a State Regulatory Authority
that has been issued prior to the date of this Agreement or (y) made prior to
Closing to the extent such changes are substantially revenue neutral to the
Exchanges, (iii) obtaining all necessary actions, waivers, consents and
approvals from third parties or Governmental Authorities, and (iv) effecting all
necessary filings with Governmental Authorities, and to consummate the
agreements referred to in Section 2.4.
5.3.4 State Regulatory Filings. Seller and Buyer agree to promptly
file after execution of this Agreement any required applications and to take
such reasonable actions as may be necessary or helpful (including, but not
limited to, making available witnesses, information, documents, and data
requested by the State Regulatory Authorities) to apply for and receive approval
by the State Regulatory Authorities for the transfer of the Transferred Assets
and Authorities to Buyer. To the maximum extent practicable, all communications
with the State Regulatory Authorities shall be made jointly by Buyer and Seller.
In connection with making such required applications to the State Regulatory
Authorities, Buyer agrees to cooperate with Seller in appropriate public
relations activities, including participation in "town hall" meetings with
citizens, contacts with civic and business leaders, legislators and government
officials, and other activities designed to establish Buyer's presence in and
commitment to the communities in which the Exchanges are located. In the event
any state legislature proposes to enact legislation after the date of this
Agreement which would have an adverse impact on the consummation of the
Transactions or would impose a material liability on either Seller or Buyer in
connection with the transfer of the Transferred Assets, Seller and Buyer agree
to use commercially reasonable efforts to oppose such legislation at their own
expense.
5.3.5 FCC Filings. The parties agree to promptly file after
execution of this Agreement such applications and to take such reasonable
actions as may be necessary or helpful to apply for and receive approval by the
FCC for the transfer of the Transferred Assets and the Authorities to Buyer and
the change in the provider of telecommunications services in the Exchanges to
Buyer. Buyer shall file an application for study area waivers and the
reinitialization of the PCI with respect to at least one of the transactions
contemplated by the Multi-State Exchange Purchase
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Agreements with the FCC within 120 days of the date hereof. Further, Buyer shall
use its best efforts to obtain the FCC's approval of (i) study area waivers for
the Exchanges and (ii) the Reinitialization.
5.3.6 H-S-R Filing. The parties agree to make all required filings
under the H-S-R Act no later that 90 days prior to the anticipated date of
Closing and to request early termination of all applicable waiting periods
thereunder, and thereafter to promptly respond to all requests for additional
information from the Federal Trade Commission or the United States Department of
Justice thereunder.
5.3.7 Environmental Inspections. Within 30 days following the
execution of this Agreement, Seller and Buyer shall select Environmental
Strategies Corporation (or another qualified environmental consultant reasonably
satisfactory to Buyer and Seller) to conduct a Transaction Screen with respect
to each parcel of Fee Realty included in the Transferred Assets (except for any
parcel designated by Buyer not to receive a Transaction Screen), which review
shall be conducted in accordance with ASTM standards and shall be completed
within 90 days following the execution of this Agreement. Upon completion of
such Transaction Screen, such consultant shall deliver to Buyer and Seller a
written report with respect thereto. Each party shall notify the other party in
writing (the "Remediation Notice") within 10 days of learning of any potential
material liabilities under any Environmental Laws with respect to a parcel of
Fee Realty included in the Transferred Assets, but in no event later than the
10th day following receipt of the related Transaction Screen. Thereafter, Buyer
shall determine whether to conduct additional environmental due diligence,
including a Phase I Environmental Report, which shall be completed within 60
days of delivery of the Remediation Notice. If the estimated costs of
remediation of such potential liabilities on such parcel (the "Remediation
Costs") will exceed $400,000, Seller shall either effect such remediation or may
instead elect to exclude either such parcel of Fee Realty or the Exchange to
which such parcel of Fee Realty relates from the Transferred Assets, and Buyer
and Seller shall in good faith reduce the Purchase Price accordingly. If,
pursuant to the preceding sentence, Seller elects to exclude the parcel of Fee
Realty, then, at Buyer's request, Seller shall grant to Buyer a long-term lease
at an annual rental rate of $1.00 and otherwise in form and substance reasonably
satisfactory to Buyer, for the use of such parcel (and Seller shall have no
obligation to effect any remediation with respect to such parcel); provided that
if Buyer is required to pay a higher rental rate for such leased parcel pursuant
to or in connection with the granting of any Governmental Approval, the Purchase
Price shall be decreased by the net present value of the aggregate lease
payments, discounted at a rate of 8% per annum. If the environmental consultant
conducting Buyer's additional environmental due diligence ("Buyer's Consultant")
estimates that the Remediation Costs will exceed $400,000, Seller may elect to
conduct its own additional environmental due diligence during the 60 day period
following completion of Buyer's additional environmental due diligence, and if
the environmental consultant conducting Seller's additional environmental due
diligence ("Seller's Consultant") estimates that the Remediation Costs will be
less than $400,000, Seller shall not be required to so remediate or exclude such
parcel of Fee Realty or such Exchange unless Buyer elects to pursue an
arbitration conducted as contemplated by Article 8 and the arbitrator estimates
that the Remediation Costs will exceed $400,000.
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The costs of the Transaction Screens required by this Section shall be
borne equally by Buyer and Seller, and the costs of any additional environmental
due diligence (the scope of which shall be reasonably acceptable to Seller)
shall be borne by the party conducting such additional due diligence. Buyer
shall indemnify Seller for any liabilities or losses incurred by Seller as a
result of any additional environmental due diligence conducted by Buyer.
5.3.8. Cost Studies/NECA Matters.
(a) Prior to Closing. Seller agrees that, with respect to all
revenues, settlements, pools, separations studies or similar activities, Seller
shall be responsible for (and shall receive the benefit or suffer the burden of)
any adjustments to contributions, or receipt of funds, by Seller resulting from
any such activities that are related to the operation of the Business or the
ownership or operation of the Transferred Assets prior to the Closing Date.
Specifically, this paragraph shall apply, but shall not be limited to, any
maters related to the National Exchange Carrier Association ("NECA") including
the Universal Service Fund ("USF"), Local Switching Support ("LSS") and
Telecommunications Relay Services funds.
(b) From and After Closing.
(i) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC rules
and regulations. The USF Funds due to Buyer shall be determined by multiplying
the number of Access Lines served by the Exchanges on the Closing Date times a
per-line amount of USF support received by Seller for the study area containing
the Exchanges prior to the Closing Date. The resulting Buyer's annual USF amount
shall be prorated in proportion to the number of months in the year from and
after the Closing Date. Beginning July 1, 1999 or a date thereafter determined
by the FCC, non-rural carriers shall not receive USF pursuant to Part 36 and
Part 54, but will receive support in accordance with guidelines using
forward-looking economic cost. Except as contemplated by clause (i) below, after
the Closing Date, Buyer shall make its own filing in accordance with applicable
FCC rules and regulations. Within a reasonable time after Buyer's written
request and in any event at least 30 days prior to the NECA filing date, Seller
shall furnish to Buyer such necessary information regarding Seller's ownership
of the Transferred Assets during the partial calendar year prior to the Closing
Date and the prior calendar year and such reasonable assistance, at Buyer's
expense, as required in connection with Buyer's preparation of necessary filings
or submissions.
(ii) If Closing occurs within 30 days before the NECA filing
date for the USF to be received in the subsequent calendar year, then Seller
will include the Exchanges in its NECA filing for the subsequent calendar year.
Buyer shall receive, in the subsequent calendar year, a pro rata share of USF
Funds received by Seller, under Seller's methodology of computing USF, pursuant
to applicable FCC rules and regulations; provided that in no event shall such
sharing continue for more than 18 months after the Closing Date. The USF Funds
due to Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date
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times the per-line amount of USF support received by Seller for the study area
containing the Exchanges in the full calendar year subsequent to the Closing
Date.
(iii) Notwithstanding the foregoing, Buyer's right to receive
a pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (the "USAC")
based on end-user retail revenues for the previous year generated by the
Transferred Assets. The resulting Buyer's annual USF obligation for the
Transferred Assets shall be prorated in proportion to the number of months in
the year from and after the Closing Date.
(c) State USF. If Seller is entitled to receive any State USF
Funds as of the Closing Date that include State USF Funds relating to the
Exchanges, then Buyer shall receive a pro rata share of such State USF Funds
received by Seller, under Seller's methodology of computing such State USF
Funds, pursuant to the applicable State USF rules and regulations. The State USF
Funds due Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date time the per-line amount of USF
support received by Seller for the appropriate period. The resulting Buyer's
annual State USF amount shall be prorated in proportion to the number of months
in the year from and after the Closing Date. Such sharing of Seller's State USF
Funds shall discontinue upon commencement of the first period for which Buyer is
permitted to make its own State USF filings, and in no event shall such sharing
continue for more than 18 months after the Closing Date. Seller shall cooperate
with Buyer and provide such reasonable assistance, at Buyer's expense, as may be
required in connection with Buyer's preparation of necessary State USF filings
or submissions.
5.3.9 Owned Real Property Transfers. Within 60 days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies covering Fee Realty. No later than 150 days following the
date hereof, Seller shall deliver a preliminary title binder (on a standard
form) to Buyer issued by a title insurance company reasonably acceptable to
Buyer and a certified current survey (collectively, the "Title Commitment") with
respect to all Fee Realty included in the Transferred Assets. Buyer shall,
within 45 days following receipt of the Title Commitment for a parcel, deliver
to Seller, in writing, any objections to any matters affecting any of the Fee
Realty. In the event that Buyer fails to notify Seller as set forth above, such
objections shall be deemed waived. If the Title Commitment indicates the
existence of an Excessive Encumbrance, Seller shall, at its expense, cause such
Excessive Encumbrance to be removed on or before the Closing Date or, with the
prior written consent of Buyer, cause the title company to insure over each such
Excessive Encumbrance. Seller shall provide the title company with such
instructions, authorizations and affidavits at no cost to Seller as may be
reasonably necessary for the title company to issue title policies, based on the
most recent assessed value, to Buyer, dated as of the Closing Date, for all of
the Fee Realty with so-called non-imputation endorsements. Buyer and Seller
shall share equally the costs of the Title Commitments and the title policies.
By no later than 45 days after the Closing Date, Seller shall deliver to Buyer a
final title insurance policy covering the Fee Realty included in the Title
Commitment.
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5.3.10 IntraLATA Tolls. Buyer and Seller will use their best efforts
to negotiate appropriate agreements and arrangements in order to satisfy the
requirements of Section 7.1.9 at Closing.
ARTICLE 6
TERMINATION
6.1 Termination By Buyer.
6.1.1 If any condition precedent to Buyer's obligation to effect the
Closing set forth in Section 3.1 shall become incapable of satisfaction through
no fault of Buyer and such condition is not waived by Buyer, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement by written
notice to Seller.
6.1.2 If any Governmental Approval contains any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date, but only after Buyer has entered into good faith negotiations with Seller
to amend this Agreement in light of such terms or conditions and no such
amendment could be agreed upon, Buyer shall not be obligated to effect the
Closing and may terminate this Agreement by written notice to Seller; provided,
however, that Buyer shall not be entitled to terminate this Agreement based on
(x) Buyer's failure to obtain increases in intrastate tariff rates above those
then in effect, or (y) Buyer's being deemed a "successor" to Seller for any
regulatory purposes.
6.1.3 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Seller, and such misrepresentation
or breach has not been cured within 30 days of Seller's receipt of Buyer's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Buyer, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Seller.
6.2 Termination By Seller.
6.2.1 If any condition precedent to Seller's obligation to effect
the Closing set forth in Section 3.2 shall become incapable of satisfaction
through no fault of Seller and such condition is not waived by Seller, Seller
shall not be obligated to effect the Closing and may terminate this Agreement by
written notice to Buyer.
6.2.2 If any Governmental Approval contains terms or conditions
unacceptable to Seller, in Seller's reasonable discretion, but only after Seller
has entered into good faith negotiations with Buyer to amend this Agreement in
light of such terms or conditions and no such amendment
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could be agreed upon, Seller shall not be obligated to effect the Closing and
may terminate this Agreement by written notice to Buyer.
6.2.3 If Buyer does not deliver the Letters of Credit within 15
business days of the date hereof or the Letters of Credit, in whole or in part,
have been withdrawn or are no longer irrevocable.
6.2.4 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Buyer, and such misrepresentation
or breach has not been cured within 30 days of Buyer's receipt of Seller's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Seller, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Buyer.
6.2.5 If Buyer does not make the FCC filing described in the second
to last sentence of Section 5.3.5 within 120 days of the date hereof.
6.3 Termination By Buyer or Seller. If (i) a final, non-appealable order
is issued by any Governmental Authority to restrain, enjoin or prohibit the
consummation of the Transactions, (ii) the Closing shall not have occurred on or
before September 30, 2001 through no fault of the terminating party, then either
party may terminate this Agreement by written notice to the other.
6.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 6.1, 6.2 or 6.3, this Agreement shall thereafter
become void, except as set forth in Section 1.4.1 and for the provisions of
Sections 5.3.1 and 5.3.2 and Article 9, and there shall be no further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing herein
shall relieve any party from liability for any breach of this Agreement, and
(ii) the obligations of the parties hereto set forth in Section 11.6 shall not
be affected by a termination of this Agreement.
ARTICLE 7
POST CLOSING MATTERS
7.1 Post Closing. In order to effectuate an orderly transition in the
provision of telecommunications services to customers in the Exchanges, Buyer
and Seller agree to utilize the measures set forth below:
7.1.1 Notice to Customers. Seller shall provide written
notification, which notification shall be reasonably acceptable to Buyer, in its
final bill to each customer affected by this Agreement, that Seller is no longer
the customer's telecommunications provider and advising the
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customer of the name, address and telephone number of Buyer. Seller and Buyer
shall agree upon appropriate service cut-off dates with respect to the
Exchanges.
7.1.2 Customer Deposits. The disposition of customer deposits and
advance payments for future services made to Seller by residential and business
customers in the Exchanges shall be delegated to a transition team. The intent
of the parties to be carried out by the transition team is that, to the extent
practicable and subject to the rules and orders of the State Regulatory
Authorities, Seller shall retain all deposits for delinquent customers and the
remaining deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges shall be transferred to
Buyer. Notwithstanding the foregoing, all deposits and advance payments for
future services held by Seller under land development contracts or other similar
construction arrangements as of the Closing Date shall be credited to Buyer at
Closing.
7.1.3 Customer Records. To the extent not previously provided to
Buyer, Seller shall use commercially reasonable efforts to make available, upon
reasonable request from Buyer, all readily available billing and service records
for goods sold or services provided to customers of the Exchanges prior to
Closing for so long as such records are required to be maintained by applicable
law.
7.1.4 Operator Services and Directory Assistance. Buyer acknowledges
and agrees that, following the Closing, Buyer shall provide all subscriber list
information gathered in its capacity as a provider of local exchange service on
a timely and unbundled basis, under nondiscriminatory and reasonable rates,
terms and conditions, to any person requesting such information for any lawful
purpose in any format, including but not limited to Seller and its Affiliates.
Buyer's listing information will be treated the same as Seller's end user
listings for purposes of additional listings and dissemination of listings to
directory publishers, directory assistance providers, or other third parties.
Seller will incorporate listings information in all existing and future
directory assistance applications developed by Seller. Buyer authorizes Seller
to sell and otherwise make listings available to directory publishers, directory
assistance providers, and other third parties. Listings shall not be provided or
sold in such a manner as to segregate end users by carrier. Seller will not
charge for updating and maintaining the listings database.
7.1.5 Directory Publishing and 911 Emergency Services. Buyer shall
continue to comply with the covenants set forth in Sections 5.1.4 and 5.1.5
following the Closing Date, as appropriate, to the extent necessary to
accomplish the intent of such covenants.
7.1.6 911 Emergency Services. In the event that Seller becomes
obligated after the Closing Date to provide 911 emergency services with respect
to any portion of the Business, Buyer shall provide Seller (at no cost to
Seller) complete access to and use of the 911 Assets related to such 911
emergency services and shall enter into such agreements as Seller reasonably
requests in order to facilitate the provision by Seller of such 911 emergency
services and to provide for compensation to Seller at prevailing rates.
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7.1.7 Tariffs. Buyer agrees that for the six month period following
the Closing Date it will adopt and maintain intrastate tariffs similar in all
material respects to Seller's intrastate tariffs in effect for the Exchanges on
the Closing Date, provided that such tariffs of Seller are substantially similar
to Seller's tariffs in effect on the date of execution of this Agreement, except
that Buyer's tariffs will reflect rate changes by Seller (x) made prior to
Closing as required by an order of a State Regulatory Authority that has been
issued prior to the date of this Agreement or (y) made prior to Closing to the
extent such changes are substantially revenue neutral to the Exchanges.
7.1.8 Access to Books and Records.
(a) After the Closing, Seller will retain all books and records
related to the Excluded Assets for so long as required by applicable law.
(b) Subject to the terms of Section 7.1.3, after the Closing, upon
reasonable notice, the parties will give to the representatives, employees,
counsel and accountants of the other, access during normal business hours, to
books and records relating to the Business and the Transferred Assets, and will
permit such persons to examine and copy such records (including any tax returns
and related information, but not attorney or accountants work product), audits,
legal proceedings, governmental investigations and other business purposes
(including such financial information and any receipts evidencing payment of
taxes as may be reasonably requested by Seller to substantiate any claim for tax
credits or refunds); provided, however, that nothing herein will obligate any
party to take actions that would unreasonably disrupt the normal course of its
business or violate the terms of any contract to which it is a party or to which
it or any of its assets is subject. Seller and Buyer will cooperate with each
other in the conduct of any tax audit or similar proceedings involving or
otherwise relating to the Business (or the income therefrom or assets thereof)
with respect to any tax and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
Section 7.1.8.
7.1.9 IntraLATA Toll. Buyer will (i) assume the retail toll carrier
role and obligations for any end users in the Exchanges that are picked or
defaulted to Seller for IntraLATA toll services or (ii) enter into agreements
with other inter-exchange carriers to assume this role or to resell the toll
services of an inter-exchange carrier to fulfill these obligations. Buyer will
execute intraLATA toll access agreements with Seller establishing the process
for the purchase of toll access from Seller by Buyer at the rates contained in
Seller's access tariffs. Seller agrees that it will need to establish its own
agreements with other telecommunications carriers for the purchase of toll
access that may be routed over joint Seller/Buyer transport or tandem switch
facilities (transit traffic). Buyer will cooperate with Seller and other
carriers to measure and share data required to facilitate billing for such
traffic. Buyer and Seller will establish a process by which Buyer will bill
Seller for terminating IntraLATA toll access based on actual termination of
Seller toll services to the Exchanges. Buyer and Seller will enter into a
billing and collection agreement for the billing and collection of casual toll
at a rate not to exceed $0.12 per message. Buyer and Seller shall establish meet
point percentages for jointly provided toll access and file such meet points as
required with Governmental Authorities.
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7.1.10 Extended Area Service. Buyer and Seller will enter into
extended area service agreements as necessary.
7.1.11 Transiting Toll Facilities. Concurrently with the Closing,
Buyer shall grant to Seller the irrevocable right to use or Buyer shall lease to
Seller, in either case for a term of 99 years, the portion of the transiting
toll facilities, network facilities and associated electronic equipment included
in the Property and relating to the Exchanges listed on Schedule 7.1.11 that is
required by Seller for the conduct of any business conducted by Seller other
than the Business. The consideration for such grant or lease shall be $1.00 and
other consideration including the mutual covenants and agreements set forth in
this Agreement. Within 90 days after the execution of this Agreement, Buyer and
Seller shall apportion and assign the total capacity of such facilities and
equipment for each Exchange listed on Schedule 7.1.11. The parties shall review
such apportionment on an annual basis and make such changes to assignments as
may be required. If any transiting toll facilities, network facilities and
related electronic equipment that are Excluded Assets are located in any
rights-of-way that are used in connection with the operation of the Business,
then concurrently with the Closing, Buyer shall, to the extent possible, assign
to Seller the right to use such right-of-way jointly with Buyer and appropriate
joint use agreements in recordable form and otherwise reasonably acceptable to
the parties shall be entered into at the Closing.
7.1.12 Reinitialization Period. If the Reinitialization has not been
approved at the time of the Closing, Buyer shall use its best efforts to obtain
the Reinitialization.
ARTICLE 8
ARBITRATION
8.1 Arbitrability. All claims, except and only to the extent such claims
are those over which the State Regulatory Authorities have primary jurisdiction,
by either party against the other arising out of or related in any manner to
this Agreement or any of the Transferred Assets or the Transactions shall be
resolved by arbitration as prescribed herein; provided, however, that either
party shall be entitled to seek temporary or permanent injunction against any
actual or threatened breach of Section 5.3.1 by the other party in any court of
competent jurisdiction without the necessity for showing any actual damages. The
Federal Arbitration Act and not state law will govern the arbitrability of all
claims. Failure of either party to assert or pursue a mandatory claim or defense
that must be asserted in litigation to avoid the loss of the right to assert
such claim or defense shall not preclude that party from asserting any such
claim or defense in arbitration proceedings hereunder.
8.2 Rules. A single arbitrator engaged in the practice of law, who is
knowledgeable about the telecommunications industry and telecommunications law,
shall conduct the arbitration under the then-current commercial arbitration
rules of the American Arbitration Association
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("AAA"), unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Denver, Colorado.
8.3 Discovery; Damages; Expenses. Buyer and Seller shall allow and
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall have authority to award only actual damages and shall not have
the authority to award consequential, compensatory, punitive or exemplary
damages or any other form of relief. Each party shall bear its own costs and
attorneys' fees. The arbitrator's decision and award shall be final and binding,
and judgment upon the award rendered by the arbitrator may be entered in any
court having personal jurisdiction. The non-prevailing party to the arbitration
shall pay all of the fees and expenses of the arbitrator and the AAA, provided,
however, that if the arbitrator deems Buyer and Seller to be equally prevailing
or non-prevailing on the matters at issue, then the parties shall each pay
one-half of the fees and expenses of the arbitrator and the AAA.
8.4 Judicial or Administrative Action. If any party files a judicial or
administrative action asserting claims properly subject to arbitration as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification by Seller. From and after Closing, Seller
shall indemnify and hold harmless Buyer from and against any and all claims,
losses, liabilities, damages, penalties, costs and expenses, including
reasonable counsel fees and costs and expenses ("Losses") arising out of or
resulting from:
(a) any representations and warranties made by Seller in the
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed upon or prior to the Closing;
(c) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed after the Closing; and
(d) all liabilities and obligations arising out of or relating to
the operation of the Exchanges prior to the Closing, including without
limitation the Retained Liabilities.
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Section 9.2 Indemnification by Buyer. From and after Closing, Buyer shall
indemnify and hold harmless Seller from and against any and all Losses arising
out of or resulting from:
(a) any representations and warranties made by Buyer in this
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Buyer in the performance of its
covenants, agreements or obligations under this Agreement;
(c) all liabilities and obligations arising out of or relating to
the operation of the Exchanges after the Closing, including without limitation
the Assumed Liabilities;
(d) without limitation of the foregoing, violation of Environmental
Laws, to the extent such liability is an Assumed Liability or arises out of or
relates to the operation of the Exchanges after the Closing; and
(e) liability of Seller arising after Closing with respect to
Buyer's failure to enter into or perform interconnection agreements in or
directly related to the Exchanges.
Section 9.3 Indemnified Third Party Claim.
(a) If any person (including State Regulatory Authorities) not a
party to this Agreement ("Person") shall make any demand or claim or file or
threaten to file or continue any action, suit or proceeding of any kind ("Third
Party Claim") with respect to which Buyer or Seller is entitled to
indemnification pursuant to Sections 9.1 or 9.2, respectively, then within ten
days after notice (the "Notice") by the party entitled to such indemnification
(the "Indemnitee") to the other (the "Indemnitor") of such litigation, the
Indemnitor shall have the option, at its sole cost and expense, to retain
counsel for the Indemnitee (which counsel shall be reasonably satisfactory to
the Indemnitee) to defend any such litigation. Thereafter, the Indemnitee shall
be permitted to participate in such defense at its own expense, provided that,
if the named parties to any such litigation (including any impleaded parties)
include both the Indemnitor and the Indemnitee or, if the Indemnitor proposes
that the same counsel represent both the Indemnitee and the Indemnitor and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interest between them, then the Indemnitee shall
have the right to retain its own counsel at the cost and expense of the
Indemnitor, unless the Indemnitor shall acknowledge in writing its indemnity
obligation, in which event the retention by Indemnitee of its own counsel shall
be at its cost and expense. If the Indemnitor shall fail to respond within ten
days after receipt of the Notice, the Indemnitee may retain counsel and conduct
the defense of such litigation as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnitor.
(b) The Indemnitee shall provide reasonable assistance to the
Indemnitor and provide such access to its books, records and personnel as the
Indemnitor reasonably requests in connection with the investigation or defense
of the indemnified Losses. The Indemnitor shall
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promptly upon receipt of reasonable supporting documentation reimburse the
Indemnitee for out-of-pocket costs and expenses incurred by the later in
providing the requested assistance.
(c) With regard to litigation with any Person for which Buyer or
Seller is entitled to indemnification under Sections 9.1 or 9.2, such
indemnification shall be paid by the Indemnitor upon: (i) the entry of any
judgment, writ, order, injunction, award or decree of any court, the FCC or any
State Regulatory Authorities ("Judgment") against the Indemnitee and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
Judgment or final appellate Judgment against the Indemnitee; or (iii) a
settlement with the consent of the Indemnitor, which consent shall not be
unreasonably withheld, provided that no such consent need be obtained if the
Indemnitor fails to respond to the Notice as provided in Section 9.3(a).
Section 9.4 Determination of Indemnification Amounts and Related Matters.
(a) Neither Buyer nor Seller will be entitled to make a claim
against the other under Section 9.1(a) or (b) or 9.2(a) or (b) until (i) the
aggregate amount of Losses incurred by the Indemnitee for any individual
occurrence (or related series of occurrences) exceeds $50,000 and (ii) in the
case of Losses under Section 9.1(a) (except for Losses due to a breach of the
representations of Seller contained in Section 4.2.15) or 9.1(b) the aggregate
amount of claims that may be asserted for such Losses, together with all other
claims for Losses asserted under Section 9.1(a) or 9.1(b) under each of the
Multi-State Exchange Purchase Agreements, exceed an amount equal to 1% of the
aggregate of the Purchase Prices (as defined in each Multi-State Exchange
Purchase Agreement) for the transactions contemplated by the Multi-State
Exchange Purchase Agreements, to the extent actually paid to Seller, but only to
the extent such amount exceeds such aggregate of the Purchase Prices.
(b) Notwithstanding any other provision of this Agreement, (i)
Seller shall not be required to make any payments pursuant to Section 9.1(a),
(b) or (c) to the extent that the Maximum Adjustment Amount shall have been
reached, and (ii) Buyer shall not be required to make any payments pursuant to
Article 9 in excess of an amount equal to 3% of the Purchase Price.
(c) Subject to Section 9.3, all amounts payable by the Indemnitor to
the Indemnitee in respect of any Losses under Sections 9.1 and 9.2 shall be
payable by the Indemnitor as incurred by the Indemnitee and will include
interest at the rate of 8% per annum from the date that the related Losses were
incurred through but not including the date the payment is made.
Section 9.5 Time and Manner of Certain Claims. Except as otherwise
provided herein, the representations and warranties of Buyer and Seller, and the
covenants to be performed by them on or prior to the Closing Date, in this
Agreement shall survive Closing for a period of one year, except that the
representations of Seller contained in Section 4.2.15 shall survive Closing for
a period of 15 months and the representations and warranties contained in the
first sentence of Section 4.2.3 shall survive Closing indefinitely (the
"Survival Period"). Neither Seller nor Buyer shall have any liability under
Sections 9.1 or 9.2, respectively, unless a claim for Losses for which
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indemnification is sought thereunder is asserted by the party seeking
indemnification by written notice to the party from whom indemnification is
sought within the Survival Period.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Defined Terms. For purposes of this Agreement, certain terms used in
this Agreement and not otherwise defined herein shall have the meanings
designated below:
"Access Line" means a telephone line operating on the public switched
telephone network that runs from a central office to a customer's premises.
"Accounts Receivable" means all end user accounts receivable with respect
to goods sold and/or services provided by Seller on or prior to the Closing
Date.
"Affiliate" of a specified entity means any legal entity directly or
indirectly controlling, controlled by, or under the common control with the
specified entity. The term "control" (including "controlling", "controlled by"
and "under common control with") of an entity means the possession, directly or
indirectly, of the power to (i) vote 50% of more of the voting securities or
other voting interests of such person, or (ii) direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting shares, by contract or otherwise.
"Aggregate Adjustment Amount" means the aggregate amount that Seller has
paid or spent, or committed to pay or spend, pursuant to (i) purchase price
decreases pursuant to section 1.4.3(b) of each of the Multi-State Exchange
Purchase Agreements, (ii) payments or purchases pursuant to section 5.2.11(a) of
each of the Multi-State Exchange Purchase Agreements, and (iii) payments with
respect to indemnification claims under Section 9.1(a), (b) or (c) of each of
the Multi-State Exchange Purchase Agreements.
"Agreement" means this Agreement for Purchase and Sale of Telephone
Exchanges, together with all Schedules and Exhibits thereto, as any of the
foregoing may be amended, modified or supplemented in writing from time to time.
"Authorities" means (i) the construction permits, licenses or
authorizations granted by the FCC to Seller and used to develop and operate the
Systems; and (ii) the licenses or certificates of convenience and necessity
granted by the State Regulatory Authorities to operate the Systems.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
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"Confidential Information" means any and all technical, business or
financial information, in whatever form or medium, furnished or disclosed by or
on behalf of one party to the other or its representatives, irrespective of the
form of communication, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data and personnel statistics, and shall also include notes,
analyses, compilations, studies, interpretations or other documents prepared by
it or its representatives that contain, reflect or are based upon, in whole or
in part, other Confidential Information. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all security interests, liens, charges or
similar restrictions, except for (i) liens for taxes not yet due and payable or
that are being contested in good faith, (ii) liens of workers, carriers or
materialmen or similar liens arising by operation of law in the ordinary course
of the Business in respect of obligations that are not yet due and payable or
that are being contested in good faith, (iii) governmental conditions and
restrictions under the Authorities, (iv) with respect to Realty, recorded
easements, restrictions, reservations, rights-of-way, covenants, conditions and
similar encumbrances of record and matters that would be shown by an accurate
survey or inspection of such property, and other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
such Realty to which such defect or irregularity in title relates, and (v) with
respect to the Transferred Assets other than Realty, other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
the Transferred Assets to which such defect or irregularity in title relates.
"Environmental Laws" means all federal, state and local laws, statutes,
rules, regulations and ordinances (including common law), and all court or
administrative decisions, orders, policies or guidelines, now or hereafter in
effect relating to the environment, public health (including fire or building
safety), occupational safety, industrial hygiene, or the generation, disposal,
manufacture, release, storage, transportation or presence of Hazardous
Materials, including without limitation the National Environmental Policy Act
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act of 1975, the Toxic Substances Control Act, the
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean
Water Act, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act, and the regulations promulgated under any such acts or any permits
issued thereunder.
"Excessive Encumbrance" has the meaning set forth in Section 3.1.11.
"Excluded Assets" means (a) all cash, cash-equivalents, Accounts
Receivable and carrier access bills to interexchange carriers for minutes,
messages and other applicable charges through the
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Closing Date; (b) any insurance policy, bond, letter of credit or other similar
item, and any cash surrender value in regard thereto; (c) all books and records
that Seller is required by law to retain or that relate primarily to internal
corporate matters; (d) all claims, rights and interests in and to any refunds of
Federal, state or local franchise, income or other taxes or fees of any nature
whatsoever for periods prior to the Closing Date; (e) any pension, profit
sharing or employee benefit plans; (f) any assets, interests or property of
Seller used in the operation of any business conducted by Seller other than the
Business, those including shared data processing, billing and collections
systems and related software; (g) the name U S WEST and all similar names and
related marks and logos used or owned by Seller or its Affiliates and any other
names, marks and logos not specifically identified as being included in the
Transferred Assets; (h) all portable office equipment, test equipment and
generators other than included in the Transferred Assets; (i) all motor vehicles
used in the operation of any business conducted by Seller other than the
Business and associated motor vehicle general stock; (j) all materials, supplies
and tools other than those included in the Transferred Assets; (k) all FCC
licenses for air-to-ground, cellular or paging services held by Seller or any
Affiliate of Seller other than those FCC radio licenses necessary to operate the
Business; (l) all maintenance radio equipment and antennas other than those
included in the Transferred Assets; (m) all assets relating to Yellow Pages or
classified directory advertising activities of Seller or any Affiliate of
Seller, (n) all transiting toll facilities, network facilities and associated
electronic equipment used in their entirety by Seller solely in the operations
of any business conducted by Seller other than the Business and containing no
capacity for use in the conduct of the Business and related rights-of-way; and
(o) all rights of Seller or any Affiliate of Seller under the Transaction
Agreements.
"Final Order" means action by any governmental or regulatory authority as
to which (i) no request for stay by any Governmental Authority, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action has been
granted by a governmental or regulatory authority; (iii) the governmental or
regulatory authority does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal by a
third party to a court, or a request to stay by a court, of any material
provision of the Governmental Authority's action, as applicable, is pending or
in effect and, if any deadline for filing any such appeal or request is
designated by statute or rule, it has passed.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities
and the grant of any study area waiver request submitted by Buyer related
thereto, but excluding the Reinitialization.
"Fee Realty" means all real property owned by Seller in fee simple and
located inside the boundaries of the Exchanges, including without limitation
tower sites or antenna sites.
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"Governmental Authority" means any United States, state, or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, bureau, agency, court or instrumentality thereof.
"Hazardous Material" means (a) all chemicals, materials and substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words or similar import under any Environmental Law, and (b) any
other chemicals, materials or substances, including without limitation any
polychlorinated biphenyl, petroleum or any chemical fraction thereof, asbestos,
formaldehyde, flammables, explosives, and PCBs which could presently or at any
time in the future cause a detriment to or impair the value or beneficial use of
any of the Transferred Assets, or constitute or cause a health, safety or
environmental hazard to the any of the Transferred Assets or to any person or
require remediation at the behest of any state or local governmental agency
under any Environmental Law.
"Interests" means all rights, privileges, benefits and interests under all
contracts, agreements, consents, licenses, permits or certificates (except those
included as Authorities and Realty), including agreements, permits, leases and
arrangements with respect to intangible or personal property or interests
therein; equipment leases; agreements with suppliers, customers and subscribers;
business licenses; prepaid expenses; and any sales agent or sales affiliate
agreements, in each case, used or owned primarily in connection with the
Business.
"Maximum Adjustment Amount" means an Aggregate Adjustment Amount equal to
the product of (i) the aggregate number of access lines in the telephone
exchanges purchased pursuant to the Multi-State Exchange Purchase Agreements on
the closing date of each purchase thereunder multiplied by (ii) $50.00, it being
understood and agreed by the parties that (x) the Maximum Adjustment Amount
shall be preliminarily calculated at the Closing assuming that any Multi-State
Exchange Purchase Agreement that has not closed or been terminated on or before
the Closing Date shall, for purposes of such preliminary calculation, be deemed
to have closed on the Closing Date, and (y) on the date of closing or
termination of the last of Multi-State Exchange Purchase Agreement to have been
closed or terminated, the Maximum Adjustment Amount shall be finally calculated
and any resulting payments required to be made by Seller or refunds required to
be made by Buyer shall be taken into account in determining the amount of funds
to be paid by Seller at such Closing or to be paid by Seller or refunded by
Buyer upon such termination, as the case may be.
"Multi-State Exchange Purchase Agreements" means the Agreements for
Purchase and Sale, including this Agreement, entered into between Buyer, or any
Affiliate of Buyer, and Seller with respect to the purchase of Seller's rights
to provide and operate wireline telecommunications and related non-tariffed or
non-regulated wireline services and related assets in the following states:
Arizona, Colorado, Nebraska, North Dakota, Minnesota, Iowa, Idaho, Montana and
Wyoming.
"911 Assets" means all circuits, facilities and customer information used
by Seller in providing 911 emergency services in connection with the operation
of the Business.
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"Operating Contracts" means all contracts, agreements and instruments (and
all amendments and modifications thereto) entered into by Seller in the ordinary
course of the Business prior to the date hereof, including without limitation
all real property leases, documentation related to the Interests and
interconnection agreements to the extent that Buyer is required to perform such
obligations by applicable law or as a condition to obtaining any Governmental
Approvals, and all such contracts, agreements and instruments entered into by
Seller in the ordinary course of the Business between the date of this Agreement
and the Closing Date.
"Property" means all of Seller's physical facilities and other tangible
assets used primarily in the Business that are in Seller's plant in service
accounts in accordance with Part 32 of the FCC Uniform System of Accounts,
including all transiting toll facilities, network facilities and associated
electronic equipment located within the boundaries of an Exchange and not
included as Excluded Assets, which facilities and equipment shall be subject to
the arrangements set forth in Section 7.1.11.
"Reinitialization" means the implementation of the interstate access rates
pursuant to the reinitialization of the Price Cap Index ("PCI") applicable to
the approved new study area to reflect the underlying cost structure associated
with the Exchanges.
"Realty" means the Fee Realty together with all rights, privileges and
appurtenances owned by Seller inside the boundaries of the Exchanges that are a
burden upon, a benefit of, or otherwise related to the Fee Realty, including
without limitation all structures, buildings, easements, servitudes, licenses,
leasehold improvements, building improvements, fixtures, rights-of-way and other
similar interests owned by Seller and used in the Business.
"Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all open end-user customer account records, all service records kept in
the ordinary course of the Business which identify and describe the customers
being served by Seller in the Exchanges, the service that is being provided to
such customers, and those records which identify and describe the physical
property (including but not limited to cables, wires and central office
equipment) included in the Transferred Assets.
"Seller's Knowledge" means the actual knowledge of Paul Lit after due
inquiry and any senior manager specifically charged with operational
responsibility for the Exchanges concerning information about which Seller is
making a representation in this Agreement.
"State Regulatory Approvals" means the issuance of the required consents
or approvals of the State Regulatory Authorities with respect to the assignment
of the Authorities to Buyer and the designation of Buyer as an eligible
telecommunications carrier for the Exchange.
"State Regulatory Authorities" means the public utility commissions or
similar state governmental authorities in the states in which the Exchanges are
located and, where applicable, municipal authorities that have granted operating
authorities with respect to the Exchanges.
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"Systems" means, as the context requires, Seller's service delivery
components in the Exchanges, including without limitation all equipment,
facilities, assets, properties, licenses, permits, certificates of public
convenience and necessity and other rights and authorities and related technical
knowledge and information, used in the conduct of the Business within the
particular Exchange.
"Transactions" means the purchase and sale of the Transferred Assets as
contemplated by the Agreement and all other transactions contemplated by the
Transaction Documents.
"Transaction Documents" means this Agreement and each document to be
executed in connection with the Closing of the Transactions. When used with
respect to Seller or Buyer, "Transaction Documents" means this Agreement and
such documents as are required to be executed by such party with respect to the
Closing of the Transactions.
"Transferred Assets" means all of Seller's right, title and interest in
and to the Authorities, the Interests, the 911 Assets, the Property, the Realty,
the Records and all goodwill associated with the Business as existing on the
Closing Date, but excluding the Excluded Assets.
ARTICLE 11
GENERAL
11.1 Notices. All notices hereunder will be in writing and served by
certified mail, return receipt requested, courier or facsimile. Notice shall be
deemed to have been duly given on (i) the earlier of the date received or the
fifth business day following the date mailed by the notifying party using first
class mail, postage prepaid or (ii) if delivered by courier service or
facsimile, upon actual receipt as evidenced by the appropriate confirmation
sheet. Notices shall be sent as follows:
If to Seller: U S WEST Communications, Inc.
1801 California Street, Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic
Transactions Group
Facsimile: (303) 308-0835
with a copy (which shall not constitute notice) to:
Brownstein Hyatt & Farber, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch
Facsimile: (303) 223-1111
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If to Buyer: Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: Donald P. Weinstein
Facsimile: (203) 614-4625
with a copy (which shall not constitute notice) to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: L. Russell Mitten, II., Esq.
Facsimile: (203) 614-4651
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Sixth Floor
Washington, DC 20036
Attention: Jeffry L. Hardin
Facsimile: (202) 387-3467
11.2 Waivers. No failure of a party to enforce a provision of this
Agreement will be construed as a general or a specific waiver of that provision,
or of a party's right to enforce that provision, or of a party's right to
enforce any other provision of this Agreement. No waiver of any breach of any
covenant or other provision herein contained shall be deemed to be a waiver of
any preceding or succeeding breach, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act shall
be deemed to be an extension of the time for performance of any other obligation
or act.
11.3 Commissions. Each party represents and warrants that no broker or
other person is entitled to any commission or finder's fee in connection with
the consummation of the Transactions based on arrangements made by such party
for which the other party could have any liability.
11.4 Payment of Expenses. Except as otherwise provided herein, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in consummating and carrying
out the Transactions, whether or not the Transactions are consummated.
Notwithstanding the foregoing, all transfer fees payable in connection with the
assignment of permits or rights-of-way shall be borne by Buyer.
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11.5 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and, when each of the parties hereto has
executed and delivered a counterpart to the other party, this Agreement shall be
binding and effective even though no single counterpart has been executed by
both of the parties.
11.7 Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.8 Assignment. The rights and obligations of the parties to this
Agreement or any interest in this Agreement shall not be assigned, transferred,
hypothecated, pledged or otherwise disposed of without the prior written consent
of the nonassigning party, which consent may be withheld in such party's sole
discretion; provided, however, that (i) Buyer may, without the prior consent of
Seller but without relieving Buyer of its obligations hereunder, assign its
rights under this Agreement to any Affiliate or lender, and (ii) Seller may
assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the Transactions as a 1031
Transaction.
11.9 Additional Instruments and Assistance. Each party hereto shall from
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its counsel
may reasonably request in order to complete and perfect the Transactions.
11.10 Seller's Control Over Authorized Facilities. No provision of this
Agreement shall be construed to abrogate Seller's control of and responsibility
for the operation of the authorized facilities of the Business prior to the
actual transfer of control of those facilities hereunder to the Buyer as
approved by the FCC and the State Regulatory Authorities.
11.11 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado.
11.12 Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable when applied to any person or
circumstance, the remaining provisions of this Agreement and the enforcement of
such provision to other persons or circumstances shall not be affected thereby,
and each provision of this Agreement shall be enforced to the fullest extent
allowed by law.
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11.13 Amendments. This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by its
agent duly authorized in writing or as otherwise expressly permitted herein.
11.14 No Construction Against the Drafting Party. Each party hereto
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.15 Integration. This Agreement, including all schedules and exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, warranties or representations between the parties with respect
to such subject matter except as set forth or noted herein. Except as provided
in Section 5.1.4 hereof, this Agreement is not made for the benefit of any
person, firm, corporation or association other than the parties hereto. Except
as provided in Section 5.1.5 hereof, the parties do not intend to confer any
benefit hereunder on any person, firm or corporation other than the parties
hereto.
* * * * *
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IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
CITIZENS UTILITIES COMPANY
By:________________________________________
Leonard Tow
Chairman and Chief Executive Officer
SELLER:
U S WEST COMMUNICATIONS, INC.
By:________________________________________
Solomon D. Trujillo
President and Chief Executive Officer
<PAGE>
EXECUTION COPY - MONTANA
AGREEMENT
For
PURCHASE AND SALE
of
TELEPHONE EXCHANGES
Dated as of June 16, 1999
Between
CITIZENS UTILITIES COMPANY
And
U S WEST COMMUNICATIONS, INC.
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF TELEPHONE EXCHANGES
This Agreement for Purchase and Sale of Telephone Exchanges is made and
entered into as of June 16, 1999 by and between U S WEST Communications, Inc., a
Colorado corporation ("Seller"), and Citizens Utilities Company, a Delaware
corporation ("Buyer").
A. Seller possesses certain rights to provide and operate wireline
telecommunication services pursuant to operating authorities issued by the
public utilities commissions or similar authorities of various states, and owns
certain assets used to provide such services in the telephone exchanges listed
on Exhibit A hereto and in any cross-border communities served by such exchanges
(the "Exchanges").
B. Buyer desires to acquire Seller's right to provide and operate wireline
telecommunication services and related non-tariffed or non-regulated wireline
services and products in the Exchanges (the "Business") and to purchase the
Transferred Assets (as defined below), and Seller wishes to sell, assign and
transfer such right and assets to Buyer.
C. Each defined term used herein shall have the meaning set forth in this
Agreement where such term is first used or, if no definition is so set forth,
shall have the meaning set forth in Article 10 below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF EXCHANGES
1.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions hereinafter set forth, at the Closing described in Article 2,
Seller agrees to sell, convey, transfer, assign and deliver all of the
Transferred Assets to Buyer, and Buyer agrees to purchase and receive the
Transferred Assets from Seller. Except as specifically set forth in Section 1.2
hereof, Seller shall transfer the Transferred Assets to Buyer on the Closing
Date free and clear of all Encumbrances, and Buyer shall not, by virtue of its
purchase of the Transferred Assets, assume or become responsible for any debts,
liabilities or obligations of Seller.
1.2 Assumption of Obligations. Buyer covenants and agrees that, on the
Closing Date, it shall execute and deliver to Seller an Assumption Agreement in
substantially the form of Exhibit
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B hereto (the "Assumption Agreement") pursuant to which it will assume and agree
to perform and discharge the following liabilities and obligations of Seller to
the extent related to the Exchanges (collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations of Seller arising under
the Operating Contracts, except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Operating Contracts occurring or arising
or accruing on or prior to the Closing Date;
(ii) All liabilities and obligations of Seller related to
unperformed service obligations, right-of-way relocation obligations and
construction in progress as of the Closing Date;
(iii) All liabilities and obligations imposed on Seller by
State Regulatory Authorities in connection with the operation of the
Exchanges, including without limitation obligations to provide 911
emergency services and to make any investment in the Exchanges required by
any Governmental Authority, except that Buyer shall not assume any
liabilities or obligations, other than held order or other service
obligations, imposed on Seller by State Regulatory Authorities that arise
out of Seller's breach of any decision by the State Regulatory
Authorities, or any intentional misconduct or material misrepresentation
by Seller;
(iv) All federal, state, county, municipal, foreign or other
taxing jurisdiction sales, use, transfer, gross receipts, consumer levy,
privilege or similar taxes, duties, excises or governmental charges,
including any penalties and interest thereon, arising out of the sale of
the Transferred Assets by Seller to Buyer hereunder, excluding any income
tax liability of Seller (collectively, "Transfer Taxes"); and
(v) All liabilities and obligations arising under
Environmental Laws with respect to the real property included in the
Transferred Assets.
1.3 Retained Liabilities. Seller shall retain and shall pay, perform and
discharge when due, the following liabilities, responsibilities and obligations
of Seller with respect to the Business (collectively, the "Retained
Liabilities"):
(i) Subject to Section 1.5, all trade payables and other
payment obligations of Seller as of the Closing Date;
(ii) All long-term debt of Seller and debt of Seller owed to
any one or more of its Affiliates;
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(iii) Subject to Section 1.5, all taxes and assessments
relating to the operation of the Business (other than Transfer Taxes) on
or before the Closing Date for the use, ownership or operation of the
Transferred Assets on or before the Closing Date;
(iv) All liabilities and obligations arising on or before the
Closing Date with respect to Seller's employees that may be hired by Buyer
(the "Hired Employees"), including (a) all liabilities, responsibilities
and obligations arising on or before the Closing Date relating to
collective bargaining agreements or other union contracts, and (b) any
such liabilities or obligations that arise after the Closing Date to the
extent that such liabilities and obligations relate to facts,
circumstances or conditions arising or occurring on or before the Closing
Date with respect to the Hired Employees;
(v) All liabilities, responsibilities and obligations arising
out of or related to any actions, lawsuits or legal proceedings based on
facts, circumstances or conditions arising, existing or occurring on or
before the effective time of Closing, regardless of whether known or
unknown, asserted or unasserted, as of the Closing, including any
liability under any claim (whether made on or before the Closing Date)
relating to the period ending on or before the effective time of Closing
which, but for the consummation of the transactions contemplated hereby,
would have been covered under any insurance policy of Seller, and all
liability associated with workers' compensation claims incurred but not
reported as of the effective time of Closing and workers' compensation
claims reported as of the Closing Date but not then due or payable, but
expressly excluding any such liability, responsibility or obligation for
litigation or claims of any Governmental Authority relating to liabilities
and obligations arising under Environmental Laws with respect to the Fee
Realty included in the Transferred Assets, unless such liabilities,
responsibilities and obligations result from the actions or omissions of
Buyer constituting breaches of this Agreement;
(vi) All liabilities and obligations for prior period
adjustments of revenues from the Business, for any refunds or bill credits
to ratepayers for overbillings or overearnings occurring or relating to
the period prior to the effective time of Closing, and for all toll
revenues, settlements, pools, separations studies or similar activities
relating to the Exchanges for which Seller is responsible, provided that
such liabilities and obligations are asserted within four years of the
Closing Date;
(vii) All liabilities, responsibilities and obligations
arising out of or occurring or resulting from the use or ownership of the
Transferred Assets on or before the Closing Date; and
(viii) All liabilities, responsibilities and obligations with
respect to the Excluded Assets.
1.4 Letters of Credit and Purchase Price.
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1.4.1 Letters of Credit. Within 15 business days of the date hereof,
Buyer shall deliver to Seller one or more irrevocable letters of credit issued
by financial institutions reasonably acceptable to Seller (the "Letters of
Credit") providing for drawings in an aggregate principal amount equal to
$1,127,732 (the "LC Amount"). The Letters of Credit shall be returned to Buyer
upon the Closing of the Transactions or upon termination of this Agreement for
any reason other than the following: (i) Seller's termination of this Agreement
pursuant to Section 6.2.4 or 6.2.5, or (ii) Seller's termination of this
Agreement pursuant to Section 6.2.1 because the condition precedent set forth in
Section 3.2.1 becomes incapable of satisfaction through no fault of Seller after
Buyer has had a reasonable opportunity to cause such condition precedent to be
satisfied. In addition, if Seller terminates this Agreement pursuant to Section
6.2.4 as a result of Buyer's breach of Section 4.1.4 for any reason, Buyer and
Seller have mutually agreed that in addition to Seller's right to draw down the
full amount of the Letters of Credit, Buyer shall be liable to Seller for an
additional amount equal to the LC Amount. If Buyer fails to deliver the Letters
of Credit within 15 business days of the date hereof, and Seller thereafter
terminates this Agreement pursuant to Section 6.2.4 as a result thereof, Buyer
shall be liable to Seller for the LC Amount. In the event that Seller terminates
this Agreement for any of the foregoing reasons, in view of the difficulty of
determining the amount of damages which may result to Seller from such failure
to consummate the Transactions, Buyer and Seller have mutually agreed that the
proceeds of the Letters of Credit and any other monies payable to Seller in
accordance with the foregoing provisions shall be retained by Seller as
liquidated damages, and not as a penalty, and this Agreement shall thereafter
become null and void except for those provisions which by their terms survive
termination of this Agreement. The parties have agreed that the proceeds of the
Letters of Credit and such other monies payable to Seller in accordance with the
foregoing provisions in such event shall be Seller's exclusive remedy.
1.4.2 Purchase Price. Subject to Section 1.4.4, Buyer shall pay to
Seller as consideration for the transfer of Seller's rights with respect to the
Business and the sale of the Transferred Assets an aggregate purchase price (the
"Purchase Price") consisting of $28,193,295 plus (a) the estimated amount of
Exchange Investments, if any, calculated pursuant to Section 1.4.3(a) (the
"Estimated Exchange Investments") less (b) the Revenue Adjustment, if any
calculated pursuant to Section 1.4.3(b). The Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds to such bank
account(s) as Seller shall designate within a reasonable time prior to Closing
and the Letters of Credit shall be returned to Buyer upon payment of the
Purchase Price.
1.4.3 Closing Date Purchase Price Adjustments.
(a) Estimated Exchange Investments. Seller shall prepare and deliver
to Buyer, no less than five business days prior to the Closing, an estimate of
the net book value on the Closing Date associated with any investment by Seller
in the Exchanges (the "Exchange Investment") prior to Closing required by any
Governmental Authority pursuant to an order issued between the date hereof and
the Closing Date, other than with respect to investments contemplated by
Schedule 5.2.3(iii) or with respect to Seller's efforts to comply with any
Governmental Authority's orders issued prior to the date hereof.
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(b) Revenue Adjustment. The Purchase Price shall be decreased if the
product of four times the aggregate revenues from the Business, as reported on
the monthly profit and loss statements for the Business for the three full
consecutive calendar months most recently completed prior to the Closing Date,
less any portion of such revenues attributable to the Excluded Assets (the
"Adjusted Annualized Closing Revenues"), are less than $8,054,100. Any decrease
in the Purchase Price in accordance with this Section 1.4.3(b) shall be equal to
the difference between the Adjusted Annualized Closing Revenues and $8,054,100
multiplied by 400% (the "Revenue Adjustment"); provided, that the Purchase Price
shall not be decreased pursuant to this Section 1.4.3(b) to the extent that the
Maximum Adjustment Amount shall have been reached.
1.4.4 Post-Closing Purchase Price Adjustment.
(a) Actual Exchange Investments. Within 120 days following the
Closing Date, Buyer shall prepare and deliver to Seller a written statement (the
"Exchange Investment Statement") of the calculation of the actual amount of
Exchange Investment. Subject to the dispute resolution mechanism set forth in
Section 1.4.4(c), to the extent that the actual amount of Exchange Investment as
shown on the Exchange Investment Statement differs from the Estimated Exchange
Investment, the difference shall be paid within 35 days of delivery of the
Exchange Investment Statement (i) by Buyer to Seller in the case of an excess,
or (ii) by Seller to Buyer in the case of a deficit.
(b) Reinitialization Adjustment. If, on the Closing Date, the
Reinitialization has not been effected, the Purchase Price shall be adjusted in
accordance with the following:
(i) If the Reinitialization occurs after the Closing Date but
on or prior to the two year anniversary of the Closing Date, Buyer shall
prepare and deliver to Seller, as soon as practicable after the
Reinitialization, a written statement (the "Reinitialization Statement")
of the calculation of the actual number of interstate switched access
minutes of use (the "Interstate Use Minutes") for the Exchanges per month
for the period commencing on the Closing Date and ending on the last day
of the month in which the Reinitialization occurred. Subject to the
dispute resolution mechanism set forth in Section 1.4.4(c), Seller shall
pay Buyer within 60 days of delivery of the Reinitialization Statement an
amount equal to $0.023 multiplied by the Interstate Use Minutes for the
period commencing on the day after the Closing Date and ending on the date
of the Reinitialization (pro rated, if necessary, for the first and final
month). Seller's failure to make such payment by the 60th day following
delivery of the Reinitialization Statement shall be deemed to be an
initiation of the dispute resolution mechanism set forth in Section
1.4.4(c).
(ii) If the Reinitialization has not occurred by the two year
anniversary of the Closing Date, Buyer shall so notify Seller and Seller
shall pay Buyer within 60 days after receipt of such notice an amount
equal to $2,728,383, plus simple interest at a rate of 8% per annum for
the period commencing on the Closing Date through but excluding the date
of payment.
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(c) Dispute Resolution Mechanism.
(i) Within 30 days after receipt of the Exchange Investment
Statement or 60 days after receipt of the Reinitialization Statement
(each, a "Post-Closing Statement"), as the case may be, Seller may, in a
written notice to Buyer, describe in reasonable detail any proposed
adjustments to the relevant Post-Closing Statement in question and the
reasons therefor. If Buyer shall not have received a notice of proposed
adjustments within such 30 or 60 day period, as the case may be, Seller
will be deemed irrevocably to have accepted such Post-Closing Statement.
(ii) If Seller disputes any portion of the Post-Closing
Statement, the parties shall calculate the portion of the undisputed
amount, if any, and such amount shall be paid by the appropriate party
within five business days of the determination of the undisputed amount.
Buyer and Seller shall negotiate in good faith to resolve any dispute. If
any dispute cannot be resolved within 30 days following Buyer's receipt of
the proposed adjustment, Deloitte & Touche or another independent public
accounting firm that is nationally recognized in the United States jointly
selected by Buyer and Seller shall be engaged to resolve such disputes in
accordance with the standards set forth in this Section, which resolution
shall be final and binding. The fees and expenses of such accounting firm
shall be shared by Buyer and Seller in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of Buyer
and Seller, respectively. Upon delivery of such public accounting firms's
resolution of such dispute to the parties, the party required to make a
payment pursuant to such resolution shall promptly, but no later than five
business days after such delivery, pay to the other party the amount
determined by such public accounting firm to be owed to such party.
(d) Any amount paid pursuant to Section 1.4.4(a) shall bear interest
from the Closing Date through but excluding the date of payment, at a rate of 8%
per annum. Any amount owing pursuant to Section 1.4.4(b)(i) that is not paid
within 60 days of delivery of the Reinitialization Statement shall bear interest
from the 61st day following delivery of the Reinitialization Statement through
but excluding the date of payment, at a rate of 8% per annum. Such interest
shall accrue daily on the basis of a year of 365 days and the actual number of
days for which due and shall be payable together with the relevant amount
payable pursuant to this Section 1.4.4. All amounts payable pursuant to this
Section 1.4.4 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer, in the case of amounts payable by Buyer, to such
account of Seller as Seller may designate and, in the case of amounts payable by
Seller, to such account of Buyer as Buyer may designate.
(e) The Purchase Price shall be deemed to be adjusted by any amounts
paid pursuant to this Section 1.4.4.
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1.5 Prorations. All real and personal property and similar taxes and
assessments with respect to the Transferred Assets, all rents, utilities and
other periodic charges and expenses arising from the normal operations of the
Business shall be prorated as of 11:59 p.m. local time on the Closing Date. Such
prorations shall be agreed upon by the parties as of the Closing Date and
reflected as an adjustment to the Purchase Price. Following the Closing Date,
each party shall thereafter be responsible for the payment of all such amounts
for which it is responsible, as determined by such prorations, as they become
due. For purposes of the foregoing proration, the parties agree that, with
respect to states in which Seller is assessed for real or personal property
taxes on a centralized basis or where a tax is imposed in lieu of property tax,
Seller shall be responsible for payment of property or other taxes assessed by
such state for the entire taxable year in which the Closing occurs and a pro
rata portion of such property taxes will be allocated to Buyer as of the Closing
Date and paid to Seller on the Closing Date. All prorations pursuant to this
Section 1.5 will be final and binding on both parties. Unless otherwise mutually
agreed no later than 30 days prior to the Closing Date, the specific date and
time for the change of telecommunications service to occur with respect to the
Exchanges shall be at 11:59 p.m., local time, on the Closing Date.
1.6 Allocation of the Purchase Price. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Buyer and Seller
agree to such Allocation prior to Closing, Buyer and Seller covenant and agree
that (i) the values assigned to the assets by the parties' mutual agreement
shall be conclusive and final for all purposes, and (ii) neither Buyer nor
Seller will take any position before any Governmental Authority or in any
judicial proceeding that is in any way inconsistent with such allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an
Allocation, Buyer and Seller covenant and agree to file, and to cause their
respective Affiliates to file, all tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable law.
1.7 Transfer Taxes. Buyer shall be responsible for all Transfer Taxes
imposed by any local, state or federal governmental authorities in connection
with the sale, transfer or assignment of the Transferred Assets or otherwise on
account of the Transactions, regardless of whether Buyer or Seller is assessed
therefor. Seller shall be responsible for filing the applicable returns and
shall file them in a timely manner. No less than 20 days prior to the due date
of any such returns, Seller shall provide Buyer with the proposed amount of
Transfer Taxes to be reported and remitted. No less than 10 days prior to the
due date of any such returns, Buyer shall either approve the proposed amount or
advise Seller of an adjusted amount of Transfer Taxes to be reported and
remitted. Seller shall report and remit Transfer Taxes in amounts as approved or
adjusted by Buyer. In the event Buyer fails to approve Seller's proposed amount
of Transfer Taxes and fails to advise Seller of an adjusted amount of Transfer
Taxes within 10 days prior to the due date of such return, Seller shall
interpret such inaction on the part of Buyer as direction by Buyer to make no
report of and no
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remittance of Transfer Taxes. Buyer shall remit to Seller on the day prior to
the due date of such return, by wire transfer of immediately available funds,
the agreed upon amount of Transfer Taxes to be remitted to the taxing
authorities. In the event Seller does not receive the agreed upon amount of
Transfer Taxes to be remitted to the taxing authorities from Buyer on or before
the day prior to the due date of the return, Seller shall interpret such failure
of Buyer to provide funds as direction by Buyer to make no report of and no
remittance of Transfer Taxes. Buyer warrants that any adjustments by Buyer to
Seller's proposed amount of Transfer Taxes or any direction by Buyer to make no
report of and no remittance of Transfer Taxes will be based on substantial state
and/or local authority that Transfer Taxes are not due and owing. Buyer shall
indemnify and hold harmless Seller from and against any and all such Transfer
Taxes and any penalties, interest or expenses (including attorneys' fees)
incurred by Seller with respect thereto unless such interest and penalties
result from the actions or omissions of Seller that are unrelated to any
breaches by Buyer of its obligations hereunder.
ARTICLE 2
CLOSING
2.1 Closing. The consummation of the purchase and sale of the Transferred
Assets (the "Closing") shall take place at Seller's offices in Denver, Colorado,
at 10:00 a.m., local time, on the last calendar day of the month in which all
the conditions precedent to Closing set forth in Article 3 have been satisfied
or waived, or on such other date as the parties mutually agree, but in no event
shall the Closing occur later than September 30, 2001 unless the parties shall
mutually agree to extend the date of the Closing. The date that the Closing
actually occurs is referred to as the "Closing Date." If the Closing is
postponed, all references to the Closing Date in this Agreement shall refer to
the postponed date of Closing.
2.2 Deliveries by Seller to Buyer. At or prior to the Closing, Seller will
deliver to Buyer:
2.2.1 Certified copies of all Seller's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Seller;
2.2.2 a duly executed Bill of Sale, in substantially the form of
Exhibit C hereto, and duly executed assignments and other instruments of
transfer sufficient to convey to Buyer title to all the personal property
included in the Transferred Assets;
2.2.3 A duly executed closing certificate of Seller contemplated by
Sections 3.1.1 and 3.1.2;
2.2.4 Releases, satisfactions or terminations of all mortgages,
financing statements or other Encumbrances on any of the Transferred Assets or,
in the alternative, an indemnity of Seller with respect to such Encumbrances in
form and substance reasonably acceptable to Buyer;
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2.2.5 Special warranty deeds covering the Fee Realty and assignments
in customary local form covering the other realty and Interests included in the
Transferred Assets, including all rights-of-way which are by their terms
assignable;
2.2.6 An affidavit in a form complying with Section 1445 of the
Code; and
2.2.7 Such other documents and items as are reasonably necessary or
appropriate to effect the consummation of the Transactions or which may be
customary under local law, including vehicle transfer documentation.
2.3 Deliveries by Buyer to Seller. At or prior to the Closing, Buyer will
deliver to Seller:
2.3.1 The Purchase Price as required by Section 1.4, together with
any proration payment required to be paid on the Closing Date pursuant to
Section 1.5;
2.3.2 Certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Buyer;
2.3.3 A duly executed closing certificate of Buyer contemplated by
Sections 3.2.1 and 3.2.2; and
2.3.4 The Assumption Agreement and such other certificates and
documents as are reasonably necessary or appropriate to effect the consummation
of the Transactions or which may be customary under local law.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. Within 30
days after the date of this Agreement, the parties shall negotiate in good faith
and enter into a Transition Agreement similar in scope to the agreement attached
as Exhibit D hereto. Within 90 days after the date of this Agreement, the
parties shall commence to negotiate in good faith the definitive terms of the
services agreements for the services that Buyer requests Seller to provide upon
Closing and described on Exhibit E hereto. At or prior to the Closing, Buyer and
Seller shall execute and deliver such services agreements. The parties
acknowledge and agree that the agreements contemplated by this Section 2.4 are
an integral part of, and will be entered into as part and parcel to, and in
conjunction with, the other transactions and agreements contemplated by this
Agreement.
2.5 Further Assurances. Except as otherwise provided herein or in the
transition agreements, all instruments of conveyance, assignment or transfer
referred to herein, all sums of money, and all records and data to be delivered
as specified in this Agreement shall be delivered at or prior to the Closing.
The parties agree following the Closing to execute and deliver such further
instruments of conveyance, assignment and assumption as may be reasonably
necessary to give effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities. In addition, in the event of an
inadvertent transfer of Excluded Assets, Buyer shall upon request by Seller
execute and deliver such instruments of conveyance, assignment and transfer as
may be
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reasonably necessary to reconvey such Excluded Assets to Seller and shall
promptly return such Excluded Assets to Seller.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
3.1.1 Representations and Warranties. All representations and
warranties of Seller made in this Agreement shall be true and correct on and as
of the Closing Date as though made at such time, other than inaccuracies in such
representations and warranties that in the aggregate do not have a material
adverse effect on the Business or changes approved by Buyer in writing, and
Seller shall have delivered to Buyer a certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.2 Covenants. Seller shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Seller shall have delivered to Buyer a Certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.3 Governmental Approvals. The State Regulatory Approvals and the
FCC Approval (collectively, "Governmental Approvals") shall have been obtained
and shall be in full force and effect and shall not contain any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date. All such approvals and consents shall be deemed to have been obtained
after the grant thereof has become a Final Order.
3.1.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.1.5 Hart-Scott-Rodino Act. All filings required to be made under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
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3.1.6 Certificates and Other Documents. Seller shall have executed
and delivered the certificates and other documents required by Sections 2.2 and
2.4.
3.1.7 Absence of Material Adverse Change. Since December 31, 1998,
there shall have occurred no casualty or other event or change, not subsequently
cured by Seller, that has resulted in a material adverse effect on the Business,
unless such event has resulted in an amendment to this Agreement as contemplated
by Section 6.1.2.
3.1.8 Material Third Party Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the required
third party consents listed on Schedule 3.1.8 have been obtained and remain in
full force and effect on the Closing Date.
3.1.9 Delivery of Financial Information. Seller shall have delivered
the Required Financial Statements and representation letters, in each case as
and when required by Section 5.2.7.
3.1.10 Environmental Inspections. If it is determined pursuant to
Section 5.3.7 that remediation of potential material liabilities under
Environmental Laws is required, then (i) Seller shall have completed the
remediation to Buyer's reasonable satisfaction, (ii) if Seller elects to exclude
a parcel of Fee Realty, and Buyer so elects, Seller and Buyer shall have entered
into a long-term, low-cost lease, in form and substance reasonably satisfactory
to Buyer, for Buyer's use of such parcel after Closing, or (iii) if Seller
elects to exclude the parcel or the Exchange to which such parcel relates, and
if such parcel alone has been excluded and Buyer has not elected to lease such
parcel, Seller and Buyer shall have agreed in good faith to a reduction in the
Purchase Price. In no event shall Seller be responsible for any other
environmental remediation.
3.1.11 Title Matters. If the aggregate estimated costs and expenses
reasonably necessary to remedy all Encumbrances pursuant to Section 5.3.9
exceeds $10,000 (the "Title Threshold"), Seller shall have removed the Excessive
Encumbrances. "Excessive Encumbrances" means one or more Encumbrances selected
by Seller, the removal of which will bring the aggregate estimated costs and
expenses reasonably necessary to remedy the remaining Encumbrances below the
Title Threshold. Seller shall have removed the Excessive Encumbrances by either
(i) causing the title company to agree to delete such Excessive Encumbrances as
an exception in the Title Commitment or, with the prior written consent of
Buyer, shall have insured over such Excessive Encumbrances by endorsement, or
(ii) if acceptable to Buyer and Seller in each of its reasonable discretion, the
parties shall have entered into a written agreement containing Seller's
commitment to remedy such Excessive Encumbrances on terms reasonably
satisfactory to Buyer. In no event shall Seller have any obligation to cure or
remove any Encumbrance that is not an Excessive Encumbrance.
3.1.12 Billing Conversion. The Steering Committee established
pursuant to the Transition Services Agreement shall have concluded at least
thirty days prior to Closing that the billing system conversion will be
completed by Closing.
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3.2 Conditions to Seller's Obligations. The obligation of Seller to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Seller:
3.2.1 Representations and Warranties. All representations and
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes approved by Seller in writing, and Buyer shall have delivered
to Seller a certificate of Buyer to that effect, dated as of the Closing Date,
signed by an authorized officer of Buyer.
3.2.2 Covenants. Buyer shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Buyer shall have delivered to Seller a Certificate of Buyer to that effect,
dated as of the Closing Date, signed by an authorized officer of Buyer.
3.2.3 Governmental Approvals. All Governmental Approvals shall have
been obtained and shall be in full force and effect. All such approvals and
consents shall be deemed to have been obtained after the grant thereof has
become a Final Order. The terms and conditions of the Governmental Approvals
shall be acceptable in all material respects to Seller in its reasonable
discretion.
3.2.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.2.5 H-S-R Act. All filings required to be made under the H-S-R Act
shall have been made, and the waiting period thereunder shall have expired or
early termination thereof shall have been granted.
3.2.6 Certificates and Other Documents. Buyer shall have delivered
the certificates and other documents required under Sections 2.3 and 2.4.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Buyer's Representations and Warranties. Buyer represents and warrants
to Seller that:
4.1.1 Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Buyer has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.1.2 Corporate Authority. This Agreement has been, and when
executed by Buyer each of the other Transaction Documents will be, duly and
validly executed and delivered by Buyer. This Agreement constitutes, and when
executed by Buyer each of the other Transaction Documents will constitute, the
valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
4.1.3 Governmental Authorizations. Except as contemplated by this
Agreement or as set forth in Schedule 4.1.3, neither Buyer's execution and
delivery of the Transaction Documents nor Buyer's consummation of the
Transactions require authorization or approval of, or filing with, any
Governmental Authority.
4.1.4 Funds. On the Closing Date, Buyer shall have sufficient funds
available to pay the Purchase Price, any proration payment required to be paid
on the Closing Date pursuant to Section 1.4, the amount of any Transfer Taxes to
be paid by Seller as provided in Section 1.6 and to consummate the Transactions.
4.1.5 Litigation. There are no actions, suits, proceedings, claims,
arbitrations or investigations, either at law or in equity, of any kind now
pending (or to the best of Buyer's knowledge threatened) involving Buyer or any
of its properties or assets that (i) question the validity of any of the
Transaction Documents or the Transactions; or (ii) seek to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under the Transaction Documents.
4.1.6 Investigation. Buyer, through its accountants, attorneys,
agents, employees, and others, has made or will have made prior to the Closing
such investigations of the Exchanges and Transferred Assets and of the factual,
legal and other condition and location of the Exchanges and Transferred Assets
that it deems necessary or advisable with respect to the Transactions. Buyer
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has not received from the Seller, or from anyone acting or claiming to act on
behalf of the Seller, any accounting, tax, legal or other similar advice with
respect to the Transactions, and Buyer is relying solely on advice of its own
accounting, tax, legal, and other advisors for such advice. Buyer has based its
decision to acquire the Transferred Assets solely on the results of such
investigations and the representations, warranties and covenants of Seller set
forth herein, and not based on any other information (including without
limitation information contained in Seller's descriptive memorandum) provided to
Buyer by Seller, its Affiliates, employees, agents, representatives or advisors.
4.2 Seller's Representations and Warranties. BUYER UNDERSTANDS THAT,
EXCEPT AS SET FORTH IN THIS SECTION 4.2, SELLER MAKES NO REPRESENTATIONS,
WARRANTIES OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR
TYPE WHATSOEVER WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, AND WARRANTIES AS TO THE APPURTENANCES, FACILITIES AND
IMPROVEMENTS THEREON, OR THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR
ADAPTABILITY THEREOF. Seller represents and warrants to Buyer that:
4.2.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Seller has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.2.2 Authorization, Execution and Delivery. This Agreement has
been, and when executed by Seller each of the other Transaction Documents will
be, duly and validly executed and delivered by Seller. This Agreement
constitutes, and when executed by Seller each of the other Transaction Documents
will constitute, the valid, legal and binding agreement of Seller enforceable
against Seller in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights generally
and by principles of equity.
4.2.3 Transferred Assets. Except with respect to Fee Realty, the
Transferred Assets are, and at the time of Closing will be, owned by Seller and
conveyed, transferred and assigned to Buyer free and clear of all Encumbrances.
The Transferred Assets (i) are in a normal state of repair (except for ordinary
wear and tear), (ii) are sufficient, both in number and condition, to comply
with applicable requirements of State Regulatory Authorities and the
manufacturer's specifications, except for non-compliances that in the aggregate
are not reasonably likely to have a material adverse effect on the Business
following the Closing Date, and (iii) will include all assets of every type,
nature and description that relate to, arise from, are used or held by Seller
primarily in the operation of the Business as presently operated by Seller
(including vehicles and related vehicle stock, portable
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office equipment, test equipment, generators, materials, supplies, tools,
maintenance radio equipment and antennas normally located within the Exchanges
or primarily used in connection with the Business), except for the Excluded
Assets. Assuming the receipt of all required third-party consents, the
instruments and documents to be executed and/or delivered by Seller to Buyer
pursuant to Section 2.2 hereof at or following the Closing Date shall be
adequate and sufficient to vest in Buyer all of Seller's right, title and
interest in or to the Transferred Assets. To Seller's Knowledge, Seller enjoys
peaceful, undisturbed possession under all leases included in the Material
Contracts and rights-of-way and easements with respect thereto and with respect
to the Fee Realty. Notwithstanding the foregoing to the contrary, with respect
to all Fee Realty included in the Transferred Assets, Seller makes no
representations or warranties as to the ownership or Encumbrances thereon, it
being the express agreement of the parties that such matters shall be the
subject of the arrangements set forth in Sections 3.1.11 and 5.3.9.
4.2.4 Governmental Authorization. Except as contemplated by this
Agreement and except for such of the following the absence of which would not
have a material adverse effect on the Business, no authorization or approval of,
or filing with, any Governmental Authority will be required in connection with
Seller's execution and delivery of the Transaction Documents or Seller's
consummation of the Transactions.
4.2.5 Litigation. As of the date hereof there are no actions, suits,
proceedings, claims, arbitrations or investigations, either at law or in equity,
of any kind now pending (or to the best of Seller's Knowledge threatened)
against Seller (i) in which an adverse determination would have a material
adverse effect on the Business; (ii) that question the validity of any of the
Transaction Documents or the Transactions; or (iii) that seek to delay, prohibit
or restrict in any manner any actions taken or contemplated to be taken by
Seller under the Transaction Documents.
4.2.6 Tax Matters. All taxes and assessments, including interest and
penalties thereon, of any kind whatsoever accrued with respect to the Business
through the Closing Date (other than Transfer Taxes and taxes subject to
proration at Closing pursuant to Section 1.4) have been or will be paid in full
by Seller. There are no liens for federal, state or local taxes upon the
Transferred Assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by Seller
in appropriate proceedings, the ultimate liability for which shall remain the
obligation of Seller, and Seller shall indemnify Buyer against all such
liabilities. Seller has timely filed, or will cause to be timely filed, all
federal, state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Business for all periods up to and including the Closing Date.
4.2.7 No Breach. The execution and delivery by Seller of the
Transaction Documents and the consummation by Seller of the Transactions will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of Seller; (ii) violate any
applicable law, statute, ordinance, rule, regulation, code, license,
certificate, franchise, permit, writ, ruling award, executive order, directive,
requirement, injunction (whether
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temporary, preliminary or permanent), judgment, decree or other order
(collectively "Applicable Laws") issued, enacted, entered or deemed applicable
by any Governmental Authorities having jurisdiction over Seller or any of the
Transferred Assets; (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give another
party any rights of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of the Operating Contracts; or (iv) result in
the creation or imposition of any Encumbrance on any of the Transferred Assets,
excluding from the foregoing clauses those violations, breaches or defaults
which individually or in the aggregate would not reasonably be expected to have
a material adverse effect upon the operation of the Business by Buyer after the
Closing.
4.2.8 Compliance with Laws. Except as set forth on Schedule
4.2.18(a), the Business has been operated and the Exchanges are in compliance
with all requirements of the Authorities and all Applicable Laws, except where
Seller's non-compliance would not have a material adverse effect on the
Business. Seller has not received any notice of (and to Seller's Knowledge there
is no reason to anticipate) any material violation of any Applicable Laws.
Notwithstanding the foregoing, except as specifically provided in Section 5.3.7,
Seller hereby disclaims all warranties, whether express or implied, with regard
to the presence of Hazardous Materials in the Transferred Assets or compliance
of the Business with Environmental Laws. Buyer understands and agrees that,
other than as specifically provided in Section 5.3.7, any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Transferred Assets following the Closing Date, including the costs of any
remediation or cleanup associated with the Transferred Assets, or environmental
claim or liability associated with the Transferred Assets, irrespective of when
contamination occurred, is assumed by Buyer on the Closing Date.
4.2.9 Operating Contracts. Schedule 4.2.9(a) sets forth all of the
Operating Contracts of the type described below (the "Material Contracts") that
Seller, after using commercially reasonable efforts, has been able to gather for
Buyer's review. No Operating Contract described in (i) below will be entered
into after the date of this Agreement and no Operating Contract described in
(ii) - (ix) will be entered into after the date of this Agreement other than in
the ordinary course of business:
(i) an agreement containing a non-compete agreement or other
non-compete covenant that in either case would by its terms limit the freedom of
Buyer following the Closing to compete in any respect with respect to the
Business with any third party;
(ii) an agreement granting an Encumbrance on Property other than Fee
Realty;
(iii) an agreement for the sale of any material Transferred Assets
or grant of any preferential rights to purchase any material Transferred Assets;
(iv) a land development agreement or other similar construction
agreement;
(v) a lease of real property;
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(vi) an agreement with respect to 911 services or E911 services;
(vii) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Exchanges;
(viii) an agreement that relates to arrangements and commitments
between Seller and a third party for the third party's location of equipment in
facilities included in the Transferred Assets except to the extent set forth in
a separate interconnection agreement; or
(ix) an agreement other than as set forth above with respect to
which the aggregate amount to be received or paid thereunder attributable to the
Exchanges with respect to calendar year 1999 or any subsequent calendar year is
expected to exceed $50,000 based on the terms of such agreement or on the
payments which have been made under such agreement with respect to calendar year
1998, to the extent applicable.
Schedule 4.2.9(b) identifies (i) each interconnection agreement between
Seller and a third party or an Affiliate of Seller that is applicable to the
Exchanges, (ii) each agreement that relates to arrangements and commitments
between Seller and an Affiliate of Seller for such Affiliate's co-location of
equipment in facilities included in the Transferred Assets that Seller, using
commercially reasonable efforts, has been able to identify, and (iii) each
Exchange where a third party has physically co-located equipment or, to Seller's
Knowledge, where a third party has made a written request to co-locate equipment
located in the Exchanges.
All of the Operating Contracts were made in the ordinary course of
business and are in all material respects valid, binding and currently in full
force and effect. Seller is not in default in any material respect under any of
the Operating Contracts, and to Seller's Knowledge no event has occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default or give rise to a right of termination or cancellation under any of the
Operating Contracts, cause the acceleration of an obligation of Seller, or
result in the creation of any Encumbrance upon any of the Transferred Assets. To
Seller's Knowledge, no other party is in default under any of the Operating
Contracts, nor has any event occurred which, through the passage of time or the
giving, of notice, or both, would constitute a default or give rise to a right
of termination or cancellation under any of the Operating Contracts, or cause
the acceleration of any obligation owed to Seller. Complete and correct copies
of all the Material Contracts in Seller's possession, together with all
modifications and amendments thereto to date of this Agreement in Seller's
possession, have been made available to Buyer or its representatives. Schedule
4.2.9(a) also specifically identifies each lease that requires the consent,
approval or waiver of the other party thereto for the assignment thereof.
4.2.10 Realty. (i) To Seller's Knowledge, the legal descriptions to
be delivered by Seller to the title insurance company shall be complete and
accurate in all material respects; (ii) as of the date hereof, there are no
deferred property taxes or assessments payable by Seller with respect to the Fee
Realty which may or will become due and payable as a result of the consummation
of the
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Transactions, other than Transfer Taxes; (iii) there are no condemnation
proceedings pending or to Seller's knowledge threatened with respect to all or
any part of any parcel of Fee Realty; and (iv) Seller is not a foreign person
within the meaning of Section 1445 of the Code.
4.2.11 Reports. Seller has filed all reports relating to the
Business required by all Applicable Laws to be filed, and it has duly paid or
accrued on its books of account all applicable duties and charges due or
assessed against it pursuant to such reports.
4.2.12 Year 2000 Matters.
(a) Year 2000 Compliance. Seller warrants and represents that to the
best of its knowledge and belief following an effort of commercially reasonable
diligence by Seller, all of its business assets, including but not limited to
information technology and non-information technology systems and facilities and
those of its external suppliers utilized by Seller in the Business and included
in the Transferred Assets ("Business Assets"), are or will be "Year 2000
Compliant" (defined below) on or before the Closing Date. For purposes of this
Agreement, the following definitions apply:
(i) "Date Data" means any data, formula, algorithm, process,
input or output which includes, calculates or represents a date, a reference to
a date or a representation of a date;
(ii) "Year 2000 Compliant" means:\
1. the functions, calculations, and other computing
processes of the Business Assets (collectively, "Processes") perform in a
consistent manner regardless of the date in time on which the Processes
are actually performed and regardless of the Date Data inputs to the
Business Assets, whether before, on, during or after January 1, 2000 and
whether or not the Date Data is affected by leap year;
2. the Business Assets accept, calculate, compare, sort,
extract, sequence, and otherwise process all Date Data, and returns and
displays all Date Data, in a consistent manner regardless of the dates
used in such Date Data, whether before, on, during or after January 1,
2000.
3. the Business Assets will function without
interruptions caused by the date in time on which the Processes are
actually performed or by the Date Data inputs to the Business Assets,
whether before, on, during or after January 1, 2000;
4. the Business Assets store and display all Date Data
in ways that are unambiguous as to the determination of the century;
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5. no Date Data will cause one or more Business Assets
to perform an abnormally ending routine or function within the Processes
or generate incorrect values or invalid results; and
6. each of the Business Assets will properly exchange
Date Data with all other Business Assets that it may interact or
inter-operate with.
(b) Year 2000 Testing. Seller warrants that the Business Assets have
been tested by Seller and/or Seller's suppliers of Business Assets to determine
whether each of the Business Assets is Year 2000 Compliant. Seller's suppliers
of Business Assets have represented to Seller that the Business Assets provided
by them are Year 2000 Compliant and/or have been tested by those suppliers to
determine whether such Business Assets are Year 2000 Compliant. Seller will
notify Buyer immediately of the results of any test or any claim or other
information that indicates any Business Asset is not Year 2000 Compliant.
(c) Year 2000 Remedies. In the event that Buyer encounters a
Business Asset that is not Year 2000 Compliant, within a commercially reasonable
period after receipt from Buyer of written notice thereof, Seller shall at its
expense cause the identified non-compliant Business Asset to be repaired or
replaced.
4.2.13 Correct Records. The financial records, ledgers, account
books and other accounting records of Seller relating to the Business are
current, correct and complete and, if required by applicable law, conform with
the rules and regulations of the FCC and the State Regulatory Authorities,
except for instances that in the aggregate are not reasonably likely to have a
material adverse effect on the Business following the Closing Date and except
for the Continuing Property Records for the Exchanges, which are dealt with
specifically elsewhere in this Agreement. Seller has retained substantially all
original cost documentation relating to the regulated Business regarding the
expenditures made by Seller within the period required by Applicable Law that
relate to the Property, and such original cost documents are correct and
complete in all respects, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
4.2.14 Tribal and Federal Consents.
(a) To Seller's Knowledge, all easements, rights-of-way, franchises,
licenses, permits, consents, approvals, certificates and other authorizations of
tribal authorities and the United States Bureau of Indian Affairs (the
"BIA")(collectively, "Tribal Authorizations") held by Seller and relating to any
Purchased Property located, or any operations of the Business conducts, on
Native American reservations are in full force and effect, Seller is not in
material default thereunder, and there are no other Tribal Authorizations
required to be obtained by Seller from, or filings required to be made by Seller
with, any tribal authority or the BIA with respect to any such Purchased
Property or any such operations of the Business, except for instances that in
the aggregate are not reasonably likely to have a material adverse effect on the
Business following the Closing Date.
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(b) Except as set forth on Schedule 4.2.14(b), to Seller's Knowledge
no consent, approval or waiver from, or filing with, any tribal authority or the
BIA is required to be obtained or made in connection with the execution and
delivery by Seller of this Agreement, or Seller's fulfillment of its obligations
under this Agreement, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(c) If during the period between the date of this Agreement and the
Closing Date the representation and warranty set forth in this Section 4.2.14
proves to be untrue with respect to one or more parcels of Realty and Buyer and
Seller in good faith have been unable to remedy the circumstances that causes
such representation and warranty to be untrue with respect to such parcel, at
the election of either Buyer or Seller such parcel shall be excluded from the
Transferred Assets, and Buyer and Seller shall in good faith reduce the Purchase
Price accordingly.
4.2.15 Financial Statements.
Within 15 business days of the date hereof, Seller shall deliver to Buyer
a copy of financial statements relating to the Business, consisting of a balance
sheet and income statement and statements of cash flow and changes in equity for
the Business as of and for the respective periods ended December 31, 1996,
December 31, 1997, and December 31, 1998, together with the auditor's report
thereon (the "Financial Statements"). The Financial Statements were prepared
based upon the books and records of Seller, fairly present in all material
respects the financial condition of the business as of the appropriate periods
and the results of operations for the year then ended, in each case in
conformity with GAAP.
4.2.16 Loss of Major Customer. Except as set forth on Schedule
4.2.16, since June 1, 1997, Seller has not suffered the loss of any customer of
the Business that had billings in any year in excess of $25,000.
4.2.17 CPRs; Vehicles. Seller has provided Buyer with its Continuing
Property Records ("CPRs") for the Exchanges. Schedule 4.2.17 contains a true and
complete list and description (including vehicle identification numbers) as of
June 1, 1999 of the vehicles that are included in the Transferred Assets.
4.2.18 Tariffs and Authorities.
(a) The regulatory tariffs applicable to the Business stand in full
force and effect on the date of this Agreement in accordance with all terms, and
there is no outstanding notice of cancellation or termination or, to Seller's
Knowledge, any threatened cancellation or termination in connection therewith,
nor is Seller subject to any restrictions or conditions applicable to its
regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material
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respect under any such tariff. Schedule 4.2.18(a) sets forth all applications by
Seller or complaints or petitions by others or proceedings pending or, to
Seller's Knowledge, threatened before the state regulatory authority relating to
the Business or its operations or the regulatory tariffs that Seller, after
using commercially reasonable efforts, has been able to identify. To Seller's
Knowledge, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Business
has been delivered or made available to Buyer.
(b) Listed on Schedule 4.2.18(b) are the material Authorities held
by Seller and used in the operation of the Business. Each of such Authorities is
in full force and effect of the date of this Agreement in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor are any of such Authorities subject to any restrictions or
conditions that limit the operation of the Business (other than restrictions or
conditions generally applicable to licenses or permits of that type). Subject to
the Communications Act of 1934, as amended, and the regulations thereunder, the
FCC licenses included in the Authorities are free from all security interests,
liens, claims or encumbrances of any nature whatsoever. Except as disclosed on
Schedule 4.2.18(c), there are no applications by Seller or complaints or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC licenses that would reasonably be expected to have a
material adverse impact on the Business.
4.2.19 Environmental Matters.
(a) Schedule 4.2.19(a) accurately describes each incident known to
Seller and arising since December 31, 1996, involving violation of or
noncompliance with Environmental Laws in connection with Seller's operation of
the Business or the use or ownership of the Transferred Assets with respect to
which the fines exceed $100,000. Except as will be set forth on Schedule
4.2.19(d), no environmental remediation is occurring on any parcel of Fee Realty
or leased real property included in the Transferred Assets nor has Seller or any
Affiliate of Seller issued a request for proposal or otherwise asked an
environmental remediation contractor to begin plans for environmental
remediation.
(b) Schedule 4.2.19(b) sets forth a true and accurate list of all
underground storage tanks ("USTs") and aboveground storage tanks ("ASTs")
located on the Fee Realty and the leased real property included in the
Transferred Assets that are in use.
(c) Except as set forth in Schedule 4.2.19(c) and, to the extent
such information is unavailable on the date of execution of this Agreement, as
set forth and supplemented on Schedule 4.2.19(d), none of the Fee Realty or
leased real property is (i) situated in a federal "Superfund" site or, to
Seller's Knowledge, in any federal "Superfund" study area, or (ii) to Seller's
Knowledge, situated in a site or study area that is covered by the Comprehensive
Environmental Cleanup and Responsibility Act, Mont. Code Ann. Sections 75-10-701
through -738, as amended.
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(d) Within 30 days from the date of this Agreement, Seller will
prepare and deliver to Buyer Schedule 4.2.19(d), which schedule will list (i)
all environmental remediation occurring on any parcel of Fee Realty or leased
real property included in the Transferred Assets, (ii) any requests for
proposals for remediation, (iii) any requests by Seller or any Affiliate of
Seller to begin plans for environmental remediation, (iv) all USTs and ASTs
located on the Fee Realty and the leased real property included in the
Transferred Assets that, to Seller's Knowledge, have been abandoned in place,
and (v) each incident known to Seller and arising since December 31, 1996,
involving violation of or noncompliance with Environmental Laws in connection
with Seller's operation of the Business or the use or ownership of the
Transferred Assets with respect to which the fines exceed $10,000. In addition,
within such period, Seller shall deliver to Buyer complete copies of letters of
non-compliance with respect to each incident listed in subsection (v) above,
copies of AST and UST closure letters contained in the files and records of
Seller, copies of all No Further Action letters contained in the files and
records of Seller, and a description of the status of any existing fuel tank
remediation.
4.2.20 Employee Benefits.
(a) Schedule 4.2.20(a) lists each Employee Benefit Plan and Other
Plan maintained or contributed to by Seller or its affiliates for the benefit of
any employee employed by, or associated with, the Business (hereinafter, an
"employee of the Business"). Seller has provided Buyer with full and complete
copies (including all amendments) of all of such Employee Benefit Plans and
Other Plans.
(b) To Seller's Knowledge, each such Pension Plan, Welfare Plan and
Other Plan maintained by Seller has been operated in accordance with its terms
and in accordance with applicable law, to the extent that the failure to do so
would have material adverse effect on the Business or its assets.
(c) Except as otherwise set forth on Schedule 4.2.20(c), no Employee
Benefit Plan or Other Plan provides benefits for persons who are not active
employees of Seller.
(d) Except as set forth on Schedule 4.2.20(g), there are no actions,
suits or claims pending or threatened (other than routine claims for benefits)
relating to any Employee Benefit Plan or Other Plan identified in Schedule
4.2.20(a) except for actions, suits or claims that are not in the aggregate
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(e) Seller does not maintain any Employee Benefit Plan or Other Plan
under which it would be obligated to pay benefits because of the consummation of
the transaction contemplated by this Agreement, which could become an obligation
of the Buyer.
(f) Seller has used its best efforts to maintain each trust forming
a part of any Pension Plan identified in Schedule 4.2.20(a) which is not exempt
from Part 2, 3 and 4 of Title I of
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ERISA to meet all requirements for qualification under Sections 401 and 501 of
the Internal Revenue Code, and all applicable related rules and final
regulations.
(g) Schedule 4.2.20(g) sets forth all the exceptions to the
following statements that Seller, after using commercially reasonable efforts,
has been able to identify: (i) Seller is not subject to any collective
bargaining agreement covering any employees of the Business; (ii) there are no
current, or to Seller' Knowledge, any pending or threatened strikes, slowdowns,
picketing, work stoppages or lock-outs affecting the Business; (iii) to Seller's
knowledge, there is no pending or threatened organized activity or petition for
certification of a collective bargaining representative involving employees of
the Business; (iv) to Seller's Knowledge, there is no pending or threatened
charge, action, complaint, or proceeding of any nature against Seller relating
to the violation of any applicable state and federal labor or employment law or
regulation in connection with the Business, nor is there any other pending or
threatened labor or employment dispute against or affecting Seller in connection
with the Business ,except for items that in the aggregate are not reasonably
likely to have a material adverse effect on the Business following the Closing
Date; and (v) with respect to employees of the Business, Seller has complied in
all respects with the laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupation safety and health, immigration, and plant closings ,except
for items that in the aggregate are not reasonably likely to have a material
adverse effect on the Business following the Closing Date. Seller has delivered
to Buyer accurate and complete copies of all collective bargaining agreements
affecting any of the employees in the Exchanges.
"Employee Benefit Plan" means any Pension Plan and Welfare Plan within the
meaning of Section 3(3) of ERISA.
"Other Plan" means any employment, noncompetition, management, agency or
consulting arrangement, bonus, profit sharing, deferred compensation, incentive,
stock option, stock ownership or stock purchase plan, severance or unemployment
arrangement, vacation pay, fringe benefit or other similar plan, policy or
arrangement, whether or not in written form, which does not constitute an
Employee Benefit Plan and which is not listed on Schedule 4.2.20(a).
"Pension Plan" means any employee pension plan within the meaning of
Section 3(2) of ERISA.
"Welfare Plan" means any employee welfare benefit plan within the meaning
of the Section 3(1) of ERISA.
4.2.21 Accuracy of Information Furnished.
(a) To Seller's Knowledge:
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(i) Seller made a good faith effort, given the voluminous
nature of the material available with respect to the Transferred Assets, the
necessity to present in many cases representative documents or descriptions of
documents, and Seller's need to maintain certain competitive information
confidential, to include in the due diligence notebooks contained in the Data
Room located in Seller's offices in Denver, Colorado all documents or
appropriate descriptions of all documents that, in Seller's reasonable opinion,
a reasonable prospective acquiror of the Transferred Assets would deem to be
material in its decision; and
(ii) Seller did not intentionally and consciously decide to
(1) exclude from the due diligence notebooks (2) withhold from Buyer in response
to Buyer's requests for additional information or (3) not make available for
review by Buyer or its agents at Seller's offices in Denver, Colorado any
document relating to the operation of the Business as currently conducted which,
in Seller's reasonable opinion, a reasonable prospective acquiror of the
Transferred Assets would deem to be material in its decision to acquire the
Transferred Assets.
4.2.22 No Material Adverse Change. Since December 31, 1998 there has not
occurred (i) any event or condition that would have a material adverse effect on
the Business, (ii) any increase in compensation payable or to become payable by
Seller to any of its Hired Employees or agents, other than normal merit or
promotional increases and pursuant to any collective bargaining agreements,
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract, except any amendment or termination in the
ordinary course of business or (iv) any change in any accounting method,
practice or policy of Seller with respect to the Business.
ARTICLE 5
COVENANTS
5.1 Covenants of Buyer. Buyer hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.1.1 Continued Efforts. Buyer will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Buyer; (ii) cause to be performed all of
the actions required of Buyer at or prior to the Closing; and (iii) take such
steps and do all such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect as
if the same had been made as of the Closing Date. Without limiting the
foregoing, Buyer agrees if requested by Seller to apply for or otherwise seek
any required third-party consents on a joint basis.
5.1.2 Cooperation. Buyer agrees to cooperate with Seller with
respect to (i) Seller's assignment to Buyer and Buyer's assumption of the
Transferred Assets hereunder, and (ii) Seller's structuring of the Transactions
to comply with the requirements of a like-kind exchange under Section 1031 of
the Code (a "1031 Transaction") at no additional expense to Buyer, such
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cooperation to include, without limitation, purchase of the Transferred Assets
from a "qualified intermediary" (as defined in Section 1031) of Seller's choice
and execution of such documents in connection with the Transactions as Seller
may reasonably request. If Seller elects to pursue the Transactions as a 1031
Transaction, then (i) notwithstanding anything in this Agreement to the
contrary, Seller shall fully indemnify, defend and hold Buyer harmless from and
against any and all liabilities resulting therefrom, including, but not limited
to, any tax impacts on Buyer or the Transferred Assets, and (ii) Seller shall
remain directly and primarily bound by all other conditions, representations,
warranties and covenants contained herein and remedies related thereto.
5.1.3 Employee Matters.
(a) Buyer agrees that, during the period between the date hereof and
the Closing Date and for a period of 18 months thereafter, without the prior
written consent of Seller, Buyer will not actively solicit for employment any
employee of Seller other than those persons identified by Seller to Buyer in
writing as provided in this Section 5.1.3 or who respond to a general
solicitation of employment made by Buyer.
(b) As soon as practicable following the date hereof and as
permitted by applicable law and collective bargaining agreements, Seller shall
provide to Buyer a list of all employees whose services are primarily related to
the Exchange (the employees on such list being referred to as "Prospective
Hires"). Buyer shall have the right to audit such list to determine that it
contains an accurate and complete listing of all Prospective Hires, and Seller
shall cooperate in providing Buyer with such information as Buyer may reasonably
request to assist in such audit. Within 90 days following the date of this
Agreement, and consistent with applicable law and any collective bargaining
agreement, Seller shall provide Buyer with a definitive list of Prospective
Hires, such list to contain the name, job classification, position, title, date
of hire, current salary or wage, bargaining unit, primary exchange(s), work
location, telephone number and last known address of each Prospective Hire.
(c) Buyer may, but shall have no obligation to, employ or offer
employment to any Prospective Hire. Seller shall cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview the Prospective
Hires to make hiring decisions. At least 60 days before the scheduled Closing
Date, Buyer shall provide to Seller in writing a list of the Prospective Hires
that Buyer intends to offer employment. At least 45 days before the scheduled
Closing Date, Buyer shall notify those Prospective Hires whom Buyer intends to
hire on the Closing Date; the form and manner of such notification shall be
reasonably satisfactory to and approved in advance by Seller. Buyer shall be
permitted to conduct appropriate pre-hire investigations of such named
Prospective Hires and make any offer of employment for such Prospective Hires
conditional upon receiving results of such investigations as are satisfactory to
Buyer.
(d) As of the Closing Date, Seller shall separate from its payroll
the employment of all of the Prospective Hires to whom Buyer has made offers of
employment other than any such Prospective Hire who has been offered employment
by Buyer and who is on leave status, including
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employees receiving Workers' Compensation Benefits, as of the Closing Date
(each, an "Employee on Leave Status"). Buyer shall employ any Employee on Leave
Status (i) who is on approved leave under the Family and Medical Leave Act on
the Closing Date only when such Employee on Leave Status returns to work from
such approved leave under the Family and Medical Leave Act or (b) who is
receiving Workers' Compensation Benefits on the Closing Date only when such
Employee on Leave Status is released to return to work but only if such release
occurs within sixteen weeks after the date of initial eligibility for Workers'
Compensation Benefits, in each case subject to Buyer's right to conduct
appropriate pre-hire investigations of such Employee on Leave Status and to
Buyer's receipt of results of such investigations that are satisfactory to
Buyer.
(e) Seller shall be responsible for and shall cause to be discharged
and satisfied in full all amounts owed to any Prospective Hire who is employed
by Seller as of the Closing Date, including salaries, commissions, bonuses,
deferred compensation, severance, insurance, vacation, and other compensation or
benefits to which they are entitled for periods prior to the Closing (and for
Employee on Leave Status, until their employment by Buyer, as set forth in
Section 5.1.3(d) hereof), including all amounts (if any) payable on account of
the termination of such Prospective Hires.
(f) Seller will be responsible for maintenance and distribution of
benefits accrued under any Employee Benefit Plan maintained by Seller pursuant
to such plan and any legal requirements. Buyer will not assume any obligation or
liability for any such accrued benefits under any employee benefit plans
maintained by Seller.
(g) Nothing in this Section 5.1.3 or elsewhere in this Agreement
shall be deemed to make any Prospective Hire a third party beneficiary of this
Agreement.
(h) Seller acknowledges and agrees that Buyer has not agreed to be
bound, and will not be bound, by any provision of any collective bargaining
agreement or similar contract with any labor organization to which Seller or any
of its Affiliates is or may become bound.
(i) Seller shall provide employees of the Business with any required
notices under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller.
5.1.4 Directory Publishing Rights. Buyer will enter into good faith
negotiations with U S WEST Dex, Inc. ("Dex"), an Affiliate of Seller (or its
successor so long as such successor remains an Affiliate of Seller), concerning
an agreement whereby either (i) Dex will publish all subscriber listings
corresponding to the Exchanges on behalf of Buyer in satisfaction of Buyer's
regulatory obligations to publish such listings, or (ii) Buyer will license such
listings to Dex in accordance with Buyer's regulatory obligations to provide
such listings in the event that Buyer elects to publish or arrange with a third
party to publish such listings.
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5.1.5 911 Emergency Services. Buyer will obtain or contract for the
appropriate 911 emergency data bases in order to commence providing 911
emergency services in connection with the operation of the Business as of the
Closing Date.
5.2 Covenants of Seller. Seller hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.2.1 Access to Information and Facilities. Seller will afford Buyer
and its representatives, at Buyer's sole expense, reasonable access during
normal business hours to all Transferred Assets, facilities, properties, books,
accounts, records, contracts and documents of or relating to the Business in
Seller's possession or control. Seller shall exercise commercially reasonable
efforts to furnish or cause to be furnished to Buyer and its representatives all
data and information in Seller's possession concerning the Exchanges as shall
reasonably be requested by Buyer. Seller shall exercise commercially reasonable
efforts to gather additional Material Contracts for Buyer's review.
Seller acknowledges and agrees that Buyer's ongoing review, examination
and investigation of the Business and the Transferred Assets, facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business contemplated in the immediately preceding sentence is necessary to
facilitate the assimilation of the Business into Buyer's operations, the
transfer of the ownership and use of the Transferred Assets from Seller to Buyer
and other reasonable business purposes, and may include the following
activities:
(i) review of the Operating Contracts and Authorities, the
performance of which after Closing is an Assumed Liability (e.g., land
development agreements, 911 and E911 service agreements and customer
prepaid maintenance agreements) in order, among other things, to identify
those that require third party consent to assign to Buyer, those that
expire prior to or soon after the Closing and those that may require
special documentation to transfer to Buyer;
(ii) investigation of the third party arrangements included among
the Excluded Assets that Buyer will need to replicate or replace,
including interconnection agreements and national account agreements that
affect any Exchange.
(iii) examination of various assets included in the Property in
order, among other things, to determine what changes Buyer may need to
make to such assets after the Closing Date;
(iv) investigation of miscellaneous underwriting data, including an
insurance claims history of Seller relating to the operation of the
Business and the ownership or use of the Transferred Assets, the current
surety bonds and certificates of insurance relating to the Transferred
Assets, and Seller's policies and practices relating to pertinent
environmental, health, safety and property protection issues, in order for
Buyer to arrange appropriate
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insurance coverage by Closing with respect to Buyer's operation of the
Business and ownership and use of the Transferred Assets after the Closing
Date;
(v) investigation of the location and organization of the Records,
including the original cost documents and outside plant maps relating to
the Property, in order for the parties to arrange for appropriate delivery
(including via electronic transfer) or retention by Seller upon the
Closing;
(vi) review of the appropriate financial and accounting records of
Seller relating to the operation of the Business in order, among other
things, for Buyer to analyze the current balances and writeoff history of
the materials and supplies inventory included in the Transferred Assets,
the aging and write-off history of Accounts Receivable, and the manner in
which the Seller historically has allocated costs to the Purchased
Exchanges;
(vii) review of the ongoing State Regulatory Authorities and FCC
reporting obligations of Seller and Buyer relating to the Exchanges,
including responsibility for filing "form M" financial information, FCC
Report No. 43-04, Armis Joint Cost Report, and FCC Report No. 43-8, Armis
Operating Data Report, for the Exchanges for the year in which the Closing
Date occurs;
(viii) investigation of the construction and plant upgrade
activities of Seller between the date of execution of this Agreement and
the Closing Date, including a review of the construction work in progress,
in order, among other things, to enable Buyer to make appropriate
arrangements for the continuation of such activities after the Closing
Date; and
(ix) investigation of other regulatory issues, including with
respect to regulatory mandates and matters relating to the National
Exchange Carrier Association (including the Universal Service Fund, Local
Switching Support, and Telecommunications Relay Services funds) and
corresponding funds established by the State Regulatory Authorities.
The parties agree to cooperate and to negotiate in good faith regarding
resolution, on commercially reasonable terms and conditions, of issues and
concerns raised by either party in connection with such activities. Each party's
cooperation will include making appropriate subject matter experts and other
knowledgeable personnel available to meet with the appropriate representatives
of the other party and facilitating Buyer's contacts with the appropriate
Governmental Authorities (including the State Regulatory Authorities).
5.2.2 Continued Efforts. Seller will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Seller; (ii) cause to be performed all
of the actions required of Seller at or prior to the Closing; and (iii) take
such steps and do such acts as may be necessary to make all of its warranties
and representations true and correct as of the Closing Date with the same effect
as if the same had been made as of the Closing Date.
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5.2.3 Maintenance of Business. Seller shall carry on the Business in
the usual and ordinary course and substantially in the same manner as heretofore
conducted. Accordingly, Seller shall (i) maintain its books and records in the
normal and usual manner, (ii) keep the Transferred Assets in a normal state of
repair (except for ordinary wear and tear) and operating efficiency to permit
the conduct of the Business as it is currently being conducted; (iii) use its
commercially reasonable efforts to undertake or complete capital projects as
budgeted on Schedule 5.2.3(iii) and any capital projects required by Applicable
Laws or any Governmental Authority to be undertaken by the Closing Date (it
being understood and agreed that Seller shall have no obligation for any capital
spending other than in connection with such capital projects and as required to
comply with the provisions of this Section 5.2.3 and provided that Seller shall
be entitled to the Purchase Price adjustment (to the extent applicable) pursuant
to Section 1.4.3(a)); (iv) not increase the benefit provided under any plans
concerning employee benefits or increase the general rates of compensation of
its employees in the Exchanges, except (a) as required by Applicable Law, (b)
pursuant to any contracts existing on the date hereof and listed on Schedule
5.2.3(iv) to which Seller is a party, (c) increases in base pay or bonuses in
the ordinary course of business of Seller and in amounts consistent with the
recent past practices of Seller, or (d) as listed or described on Schedule
5.2.3(iv); and (v) not amend, modify or terminate any contract identified on
Schedule 4.2.9 or permit any of the foregoing to occur other than in the
ordinary course of business.
5.2.4 Consent to Assignment. Seller will transfer to Buyer all
Operating Contracts and permits that are by their terms assignable. Seller shall
also request assignment to Buyer of those Operating Contracts and permits that
are not by their terms assignable. To the extent that the assignment of any
Operating Contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Operating
Contract or permit if an attempted assignment would constitute a breach thereof.
Seller shall use commercially reasonable efforts (excluding the payment of
money) to obtain the consent of any other party to the assignment of such
Operating Contracts or permits to Buyer. If any such consent is not obtained, to
the extent permitted by Applicable Law, this Agreement shall constitute an
equitable assignment by Seller to Buyer of all of Seller's right, title, and
interest in and to such Operating Contracts and permits, and Buyer shall be
deemed Seller's agent for the sole purposes of completing, fulfilling and
discharging all of Seller's rights and obligations arising after the Closing
Date under such assigned Operating Contracts and permits.
5.2.5 Payment and Performance of Obligations. Seller will timely pay
and discharge all invoices, bills and other monetary obligations (other than
obligations which are contested by Seller in good faith) and shall not knowingly
perform or fail to perform any act which will cause a material breach of any of
the Operating Contracts.
5.2.6 Restrictions on Sale of Transferred Assets. Seller shall not
sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose
of any of the Transferred Assets except in the ordinary course of the Business.
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5.2.7 Audit or Review of Financial Statements. To the extent Buyer
reasonably requires audited or reviewed financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, Seller
will cooperate with the independent auditors chosen by Buyer in connection with
their audit of any annual financial statements that Buyer reasonably requires to
comply with Regulations S-X and S-K, and their review of any interim quarterly
financial statements that Buyer reasonably requires to comply with Regulations
S-X and S-K. If Closing has not occurred prior to March 31, 2000, then as soon
as practicable but in any event by May 15, 2000. Seller will provide for audit a
balance sheet as of December 31, 1999, and an income statement and statement of
cash flows and changes in equity for the year ending December 31, 1999. The
financial statements to be audited or reviewed pursuant to this Section 5.2.7,
are hereinafter referred to as the "Required Financial Statements." Seller's
cooperation will include (i) such access to Seller's employees who were
responsible for preparing the Required Financial Statements and to workpapers
and other supporting documents used in the preparation of the Required Financial
Statements as may be reasonably required by such auditors to perform an audit in
accordance with generally accepted auditing standards, (ii) delivery of any
Required Financial Statements within 45 days after Buyer's request for the same
(except as otherwise provided in the second sentence of this Section 5.2.7) and
in the form required by Regulations S-X and S-K, and (iii) delivery of one or
more representation letters from Seller to such auditors that are requested by
Buyer to allow such auditors to complete the audit (or review of any interim
quarterly financials), and to issue an opinion acceptable to the SEC with
respect to the audit or review of those Required Financial Statements. Seller
will bear the cost of preparation of the Required Financial Statements. Buyer
and Seller will share equally the cost of the audit or review.
5.2.8 [Intentionally Deleted]
5.2.9 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information and reasonable assistance as Buyer may reasonably request
in connection with Buyer's replacement of the interconnection agreements
relating to the Exchanges, including supplying to Buyer copies of such
interconnection agreements to the extent permissible and, to the extent
requested by Buyer and in compliance with applicable law, contacting the other
party to such interconnection agreements to notify such party that its
interconnection agreement will not apply to the Buyer and the Exchanges after
Closing. Buyer acknowledges its obligation to negotiate interconnection
agreements with third parties that have ongoing interconnection activities
related to the Exchanges with the expectation that interconnection agreements
between Buyer and such third partes will be entered into effective as of the
Closing Date. If such agreements are not entered into or, if required, approved
by appropriate Governmental Authorities, Buyer will offer to provide
interconnection to such third parties according to the terms of the Seller's
interconnection agreements with such third parties until the Buyer's new
agreements with such third parties are entered into or, if required, approved by
appropriate Governmental Authorities.
5.2.10 State Regulatory Authority/FCC Filings. Seller shall make all
necessary filings with the State Regulatory Authorities, the FCC or any other
Governmental Authority between
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the date of this Agreement and the Closing Date. Seller shall notify Buyer of
any significant proposed changes in the rates, charges, standards of service or
accounting of the Exchanges from those in effect on the date of this Agreement
prior to making any filing with the State Regulatory Authorities, FCC or any
other Governmental Authority (or any amendment thereto), or effecting with any
Governmental Authority any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto. Between the
date of this Agreement and the Closing Date, Seller shall use commercially
reasonable efforts to notify Buyer before Seller files any application,
petition, motion, brief, testimony, settlement agreement or other pleading in
any proceeding before the State Regulatory Authorities, FCC or any other
Governmental Authority or appeals related thereto with respect to which Buyer or
an Affiliate of Buyer has or reasonably could be expected to take a contrary
position that reasonably could be expected to have any adverse effect on the
revenue, earnings, or business of Buyer. Seller will give or cause to be given
to Buyer, as promptly as reasonably practicable, copies of all correspondence
(including notices, complaints, and pleadings) with any Governmental Authority
relating to any such proceeding or other rate regulatory matter that is sent or
received by Seller after the date of this Agreement.
5.2.11 Missing Plant.
(a) If, between the period commencing on execution date of the
Agreement and ending six months after the effective time of Closing, Buyer
notifies Seller in writing regarding items of Property (other than items that
have been fully depreciated on the books and records of Seller, items that are
no longer used in or necessary to the Business, and items covered by Section
5.2.11(b)) that are included in the CPRs relating to the Exchanges but that
Buyer, using commercially reasonable efforts, cannot locate in the Exchanges or
that have been sold, transferred or removed from the Exchanges by Seller or an
Affiliate of Seller, then Seller, at its option, either (i) shall pay to Buyer
(or reduce the Purchase Price by) an amount equal to the net book value of such
items as reflected on the books and records of Seller or (ii) deliver to Buyer
such items or replacement items that have reasonably comparable (or superior)
value, vintage and functionality; provided, however, that Seller shall have no
obligation under this Section 5.2.11(a) until the aggregate net book value of
all such items, together with the aggregate net book value of all such similar
items identified in Section 5.2.11 of each of the Multi-State Exchange Purchase
Agreements, exceeds $400,000, at which time Seller shall become obligated under
this Section 5.2.11(a) with respect to all items so identified by Buyer in all
notices delivered to Seller on or before the date that is six months after the
effective time of Closing; and provided, further that Seller shall have no
obligation under this Section 5.2.11(a) to the extent that the Maximum
Adjustment Amount shall have been reached.
(b) At Closing, Seller shall cause the Transferred Assets to include
all vehicles listed on Schedule 4.2.17 except to the extent any such vehicle has
been replaced with items of reasonably comparable (or superior) value, vintage
and functionality, in which event Seller shall cause such replacement items to
be included in the Transferred Assets.
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5.2.12 Third Party Software Licenses. To the extent that the transfer of
Transferred Assets by Seller to Buyer under this Agreement results in the
transfer of third party software that was rightfully used by Seller prior to the
Closing Date in the normal course operation of the Business pursuant to
contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then effective as of the Closing and provided
that no payments to any person are thereby required (except with respect to
payments relating to the transfer of switch software, which will be shared
equally by Buyer and Seller), at Closing Seller shall assign to Buyer, to the
extent permitted by the Third Party Intellectual Property Contracts, and Buyer
shall accept all rights and licenses if any to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses.
5.3 Mutual Covenants.
5.3.1 Confidentiality. Each party to this Agreement agrees to hold
in strict confidence all Confidential Information received from the other party,
whether received before or after entering into this Agreement, and to use such
information solely for the purposes of this Agreement. Each party agrees to make
no more copies of such Confidential Information than is reasonably necessary for
such purposes. Each party agrees that it will not make disclosure of any such
Confidential Information received from the other party to anyone except as
specifically permitted by this Agreement and as required by law. Each party may
disclose Confidential Information to its employees and agents to whom disclosure
is necessary for the purposes set forth above, provided that disclosing party
shall notify each such employee and agent that disclosure is made in confidence
and instruct such employees and agents that such Confidential Information shall
be kept in confidence by such employee and agent in accordance with this
Agreement. If the Transactions are not consummated for any reason, each party
agrees to return to the other party all such Confidential Information, including
all copies thereof, immediately on request. The obligations arising under this
section shall survive any termination or abandonment of this Agreement. This
Agreement will be filed on a confidential basis with the State Regulatory
Authorities. The provisions of the existing Confidentiality Agreement between
Buyer and Seller dated January 15, 1999 are incorporated herein by reference.
5.3.2 Public Announcements. No public announcement with respect to
this Agreement or the transactions contemplated hereby shall be made before the
Closing without the mutual prior approval of both Seller and Buyer, which
approval shall not be unreasonably withheld; provided, however, that each party
shall be permitted to make such disclosure to its lenders or to any Governmental
Authority, including but not limited to the Securities and Exchange Commission
or similar state securities authorities, necessary to comply with any applicable
laws and to obtain all required Governmental Approvals necessary to consummate
the Transactions, or to any stock exchange upon which such party has a class of
securities listed. Notwithstanding the foregoing, the disclosing party shall
give the non-disclosing party reasonable advance notice of any permitted
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disclosure to third parties under this Section 5.3.2 and shall provide the
non-disclosing party with a reasonable opportunity to review and comment on such
disclosure.
5.3.3 Cooperation. Each party covenants to use all commercially
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all things, that are necessary, proper or advisable under applicable
laws and regulations, expeditiously and practicably to consummate and make
effective the Transactions, including but not limited to (i) using its
commercially reasonable efforts to resolve any disagreements between Buyer and
Seller with respect to any applications for governmental or regulatory approval
prior to application for such approval, (ii) facilitating the regulatory
approval process by agreeing that Buyer will adopt and maintain intrastate
tariffs similar in all material respects to Seller's intrastate tariffs in
effect for the Exchanges on the Closing Date for a period of at least six months
following the Closing Date, provided that such tariffs of Seller are
substantially similar to the tariffs of Seller in effect on the date of this
Agreement except that Buyer's tariffs will reflect rate changes by Seller (x)
made prior to Closing as required by an order of a State Regulatory Authority
that has been issued prior to the date of this Agreement or (y) made prior to
Closing to the extent such changes are substantially revenue neutral to the
Exchanges, (iii) obtaining all necessary actions, waivers, consents and
approvals from third parties or Governmental Authorities, and (iv) effecting all
necessary filings with Governmental Authorities, and to consummate the
agreements referred to in Section 2.4.
5.3.4 State Regulatory Filings. Seller and Buyer agree to promptly
file after execution of this Agreement any required applications and to take
such reasonable actions as may be necessary or helpful (including, but not
limited to, making available witnesses, information, documents, and data
requested by the State Regulatory Authorities) to apply for and receive approval
by the State Regulatory Authorities for the transfer of the Transferred Assets
and Authorities to Buyer. To the maximum extent practicable, all communications
with the State Regulatory Authorities shall be made jointly by Buyer and Seller.
In connection with making such required applications to the State Regulatory
Authorities, Buyer agrees to cooperate with Seller in appropriate public
relations activities, including participation in "town hall" meetings with
citizens, contacts with civic and business leaders, legislators and government
officials, and other activities designed to establish Buyer's presence in and
commitment to the communities in which the Exchanges are located. In the event
any state legislature proposes to enact legislation after the date of this
Agreement which would have an adverse impact on the consummation of the
Transactions or would impose a material liability on either Seller or Buyer in
connection with the transfer of the Transferred Assets, Seller and Buyer agree
to use commercially reasonable efforts to oppose such legislation at their own
expense.
5.3.5 FCC Filings. The parties agree to promptly file after
execution of this Agreement such applications and to take such reasonable
actions as may be necessary or helpful to apply for and receive approval by the
FCC for the transfer of the Transferred Assets and the Authorities to Buyer and
the change in the provider of telecommunications services in the Exchanges to
Buyer. Buyer shall file an application for study area waivers and the
reinitialization of the PCI with respect to at least one of the transactions
contemplated by the Multi-State Exchange Purchase
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Agreements with the FCC within 120 days of the date hereof. Further, Buyer shall
use its best efforts to obtain the FCC's approval of (i) study area waivers for
the Exchanges and (ii) the Reinitialization.
5.3.6 H-S-R Filing. The parties agree to make all required filings
under the H-S-R Act no later that 90 days prior to the anticipated date of
Closing and to request early termination of all applicable waiting periods
thereunder, and thereafter to promptly respond to all requests for additional
information from the Federal Trade Commission or the United States Department of
Justice thereunder.
5.3.7 Environmental Inspections. Within 30 days following the
execution of this Agreement, Seller and Buyer shall select Environmental
Strategies Corporation (or another qualified environmental consultant reasonably
satisfactory to Buyer and Seller) to conduct a Transaction Screen with respect
to each parcel of Fee Realty included in the Transferred Assets (except for any
parcel designated by Buyer not to receive a Transaction Screen), which review
shall be conducted in accordance with ASTM standards and shall be completed
within 90 days following the execution of this Agreement. Upon completion of
such Transaction Screen, such consultant shall deliver to Buyer and Seller a
written report with respect thereto. Each party shall notify the other party in
writing (the "Remediation Notice") within 10 days of learning of any potential
material liabilities under any Environmental Laws with respect to a parcel of
Fee Realty included in the Transferred Assets, but in no event later than the
10th day following receipt of the related Transaction Screen. Thereafter, Buyer
shall determine whether to conduct additional environmental due diligence,
including a Phase I Environmental Report, which shall be completed within 60
days of delivery of the Remediation Notice. If the estimated costs of
remediation of such potential liabilities on such parcel (the "Remediation
Costs") will exceed $400,000, Seller shall either effect such remediation or may
instead elect to exclude either such parcel of Fee Realty or the Exchange to
which such parcel of Fee Realty relates from the Transferred Assets, and Buyer
and Seller shall in good faith reduce the Purchase Price accordingly. If,
pursuant to the preceding sentence, Seller elects to exclude the parcel of Fee
Realty, then, at Buyer's request, Seller shall grant to Buyer a long-term lease
at an annual rental rate of $1.00 and otherwise in form and substance reasonably
satisfactory to Buyer, for the use of such parcel (and Seller shall have no
obligation to effect any remediation with respect to such parcel); provided that
if Buyer is required to pay a higher rental rate for such leased parcel pursuant
to or in connection with the granting of any Governmental Approval, the Purchase
Price shall be decreased by the net present value of the aggregate lease
payments, discounted at a rate of 8% per annum. If the environmental consultant
conducting Buyer's additional environmental due diligence ("Buyer's Consultant")
estimates that the Remediation Costs will exceed $400,000, Seller may elect to
conduct its own additional environmental due diligence during the 60 day period
following completion of Buyer's additional environmental due diligence, and if
the environmental consultant conducting Seller's additional environmental due
diligence ("Seller's Consultant") estimates that the Remediation Costs will be
less than $400,000, Seller shall not be required to so remediate or exclude such
parcel of Fee Realty or such Exchange unless Buyer elects to pursue an
arbitration conducted as contemplated by Article 8 and the arbitrator estimates
that the Remediation Costs will exceed $400,000.
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The costs of the Transaction Screens required by this Section shall be
borne equally by Buyer and Seller, and the costs of any additional environmental
due diligence (the scope of which shall be reasonably acceptable to Seller)
shall be borne by the party conducting such additional due diligence. Buyer
shall indemnify Seller for any liabilities or losses incurred by Seller as a
result of any additional environmental due diligence conducted by Buyer.
5.3.8. Cost Studies/NECA Matters.
(a) Prior to Closing. Seller agrees that, with respect to all
revenues, settlements, pools, separations studies or similar activities, Seller
shall be responsible for (and shall receive the benefit or suffer the burden of)
any adjustments to contributions, or receipt of funds, by Seller resulting from
any such activities that are related to the operation of the Business or the
ownership or operation of the Transferred Assets prior to the Closing Date.
Specifically, this paragraph shall apply, but shall not be limited to, any
maters related to the National Exchange Carrier Association ("NECA") including
the Universal Service Fund ("USF"), Local Switching Support ("LSS") and
Telecommunications Relay Services funds.
(b) From and After Closing.
(i) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC rules
and regulations. The USF Funds due to Buyer shall be determined by multiplying
the number of Access Lines served by the Exchanges on the Closing Date times a
per-line amount of USF support received by Seller for the study area containing
the Exchanges prior to the Closing Date. The resulting Buyer's annual USF amount
shall be prorated in proportion to the number of months in the year from and
after the Closing Date. Beginning July 1, 1999 or a date thereafter determined
by the FCC, non-rural carriers shall not receive USF pursuant to Part 36 and
Part 54, but will receive support in accordance with guidelines using
forward-looking economic cost. Except as contemplated by clause (i) below, after
the Closing Date, Buyer shall make its own filing in accordance with applicable
FCC rules and regulations. Within a reasonable time after Buyer's written
request and in any event at least 30 days prior to the NECA filing date, Seller
shall furnish to Buyer such necessary information regarding Seller's ownership
of the Transferred Assets during the partial calendar year prior to the Closing
Date and the prior calendar year and such reasonable assistance, at Buyer's
expense, as required in connection with Buyer's preparation of necessary filings
or submissions.
(ii) If Closing occurs within 30 days before the NECA filing
date for the USF to be received in the subsequent calendar year, then Seller
will include the Exchanges in its NECA filing for the subsequent calendar year.
Buyer shall receive, in the subsequent calendar year, a pro rata share of USF
Funds received by Seller, under Seller's methodology of computing USF, pursuant
to applicable FCC rules and regulations; provided that in no event shall such
sharing continue for more than 18 months after the Closing Date. The USF Funds
due to Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date
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times the per-line amount of USF support received by Seller for the study area
containing the Exchanges in the full calendar year subsequent to the Closing
Date.
(iii) Notwithstanding the foregoing, Buyer's right to receive
a pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (the "USAC")
based on end-user retail revenues for the previous year generated by the
Transferred Assets. The resulting Buyer's annual USF obligation for the
Transferred Assets shall be prorated in proportion to the number of months in
the year from and after the Closing Date.
(c) State USF. If Seller is entitled to receive any State USF
Funds as of the Closing Date that include State USF Funds relating to the
Exchanges, then Buyer shall receive a pro rata share of such State USF Funds
received by Seller, under Seller's methodology of computing such State USF
Funds, pursuant to the applicable State USF rules and regulations. The State USF
Funds due Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date time the per-line amount of USF
support received by Seller for the appropriate period. The resulting Buyer's
annual State USF amount shall be prorated in proportion to the number of months
in the year from and after the Closing Date. Such sharing of Seller's State USF
Funds shall discontinue upon commencement of the first period for which Buyer is
permitted to make its own State USF filings, and in no event shall such sharing
continue for more than 18 months after the Closing Date. Seller shall cooperate
with Buyer and provide such reasonable assistance, at Buyer's expense, as may be
required in connection with Buyer's preparation of necessary State USF filings
or submissions.
5.3.9 Owned Real Property Transfers. Within 60 days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies covering Fee Realty. No later than 150 days following the
date hereof, Seller shall deliver a preliminary title binder (on a standard
form) to Buyer issued by a title insurance company reasonably acceptable to
Buyer and a certified current survey (collectively, the "Title Commitment") with
respect to all Fee Realty included in the Transferred Assets. Buyer shall,
within 45 days following receipt of the Title Commitment for a parcel, deliver
to Seller, in writing, any objections to any matters affecting any of the Fee
Realty. In the event that Buyer fails to notify Seller as set forth above, such
objections shall be deemed waived. If the Title Commitment indicates the
existence of an Excessive Encumbrance, Seller shall, at its expense, cause such
Excessive Encumbrance to be removed on or before the Closing Date or, with the
prior written consent of Buyer, cause the title company to insure over each such
Excessive Encumbrance. Seller shall provide the title company with such
instructions, authorizations and affidavits at no cost to Seller as may be
reasonably necessary for the title company to issue title policies, based on the
most recent assessed value, to Buyer, dated as of the Closing Date, for all of
the Fee Realty with so-called non-imputation endorsements. Buyer and Seller
shall share equally the costs of the Title Commitments and the title policies.
By no later than 45 days after the Closing Date, Seller shall deliver to Buyer a
final title insurance policy covering the Fee Realty included in the Title
Commitment.
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5.3.10 IntraLATA Tolls. Buyer and Seller will use their best efforts
to negotiate appropriate agreements and arrangements in order to satisfy the
requirements of Section 7.1.9 at Closing.
ARTICLE 6
TERMINATION
6.1 Termination By Buyer.
6.1.1 If any condition precedent to Buyer's obligation to effect the
Closing set forth in Section 3.1 shall become incapable of satisfaction through
no fault of Buyer and such condition is not waived by Buyer, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement by written
notice to Seller.
6.1.2 If any Governmental Approval contains any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date, but only after Buyer has entered into good faith negotiations with Seller
to amend this Agreement in light of such terms or conditions and no such
amendment could be agreed upon, Buyer shall not be obligated to effect the
Closing and may terminate this Agreement by written notice to Seller; provided,
however, that Buyer shall not be entitled to terminate this Agreement based on
(x) Buyer's failure to obtain increases in intrastate tariff rates above those
then in effect, or (y) Buyer's being deemed a "successor" to Seller for any
regulatory purposes.
6.1.3 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Seller, and such misrepresentation
or breach has not been cured within 30 days of Seller's receipt of Buyer's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Buyer, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Seller.
6.2 Termination By Seller.
6.2.1 If any condition precedent to Seller's obligation to effect
the Closing set forth in Section 3.2 shall become incapable of satisfaction
through no fault of Seller and such condition is not waived by Seller, Seller
shall not be obligated to effect the Closing and may terminate this Agreement by
written notice to Buyer.
6.2.2 If any Governmental Approval contains terms or conditions
unacceptable to Seller, in Seller's reasonable discretion, but only after Seller
has entered into good faith negotiations with Buyer to amend this Agreement in
light of such terms or conditions and no such amendment
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could be agreed upon, Seller shall not be obligated to effect the Closing and
may terminate this Agreement by written notice to Buyer.
6.2.3 If Buyer does not deliver the Letters of Credit within 15
business days of the date hereof or the Letters of Credit, in whole or in part,
have been withdrawn or are no longer irrevocable.
6.2.4 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Buyer, and such misrepresentation
or breach has not been cured within 30 days of Buyer's receipt of Seller's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Seller, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Buyer.
6.2.5 If Buyer does not make the FCC filing described in the second
to last sentence of Section 5.3.5 within 120 days of the date hereof.
6.3 Termination By Buyer or Seller. If (i) a final, non-appealable order
is issued by any Governmental Authority to restrain, enjoin or prohibit the
consummation of the Transactions, (ii) the Closing shall not have occurred on or
before September 30, 2001 through no fault of the terminating party, then either
party may terminate this Agreement by written notice to the other.
6.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 6.1, 6.2 or 6.3, this Agreement shall thereafter
become void, except as set forth in Section 1.4.1 and for the provisions of
Sections 5.3.1 and 5.3.2 and Article 9, and there shall be no further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing herein
shall relieve any party from liability for any breach of this Agreement, and
(ii) the obligations of the parties hereto set forth in Section 11.6 shall not
be affected by a termination of this Agreement.
ARTICLE 7
POST CLOSING MATTERS
7.1 Post Closing. In order to effectuate an orderly transition in the
provision of telecommunications services to customers in the Exchanges, Buyer
and Seller agree to utilize the measures set forth below:
7.1.1 Notice to Customers. Seller shall provide written
notification, which notification shall be reasonably acceptable to Buyer, in its
final bill to each customer affected by this Agreement, that Seller is no longer
the customer's telecommunications provider and advising the
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customer of the name, address and telephone number of Buyer. Seller and Buyer
shall agree upon appropriate service cut-off dates with respect to the
Exchanges.
7.1.2 Customer Deposits. The disposition of customer deposits and
advance payments for future services made to Seller by residential and business
customers in the Exchanges shall be delegated to a transition team. The intent
of the parties to be carried out by the transition team is that, to the extent
practicable and subject to the rules and orders of the State Regulatory
Authorities, Seller shall retain all deposits for delinquent customers and the
remaining deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges shall be transferred to
Buyer. Notwithstanding the foregoing, all deposits and advance payments for
future services held by Seller under land development contracts or other similar
construction arrangements as of the Closing Date shall be credited to Buyer at
Closing.
7.1.3 Customer Records. To the extent not previously provided to
Buyer, Seller shall use commercially reasonable efforts to make available, upon
reasonable request from Buyer, all readily available billing and service records
for goods sold or services provided to customers of the Exchanges prior to
Closing for so long as such records are required to be maintained by applicable
law.
7.1.4 Operator Services and Directory Assistance. Buyer acknowledges
and agrees that, following the Closing, Buyer shall provide all subscriber list
information gathered in its capacity as a provider of local exchange service on
a timely and unbundled basis, under nondiscriminatory and reasonable rates,
terms and conditions, to any person requesting such information for any lawful
purpose in any format, including but not limited to Seller and its Affiliates.
Buyer's listing information will be treated the same as Seller's end user
listings for purposes of additional listings and dissemination of listings to
directory publishers, directory assistance providers, or other third parties.
Seller will incorporate listings information in all existing and future
directory assistance applications developed by Seller. Buyer authorizes Seller
to sell and otherwise make listings available to directory publishers, directory
assistance providers, and other third parties. Listings shall not be provided or
sold in such a manner as to segregate end users by carrier. Seller will not
charge for updating and maintaining the listings database.
7.1.5 Directory Publishing and 911 Emergency Services. Buyer shall
continue to comply with the covenants set forth in Sections 5.1.4 and 5.1.5
following the Closing Date, as appropriate, to the extent necessary to
accomplish the intent of such covenants.
7.1.6 911 Emergency Services. In the event that Seller becomes
obligated after the Closing Date to provide 911 emergency services with respect
to any portion of the Business, Buyer shall provide Seller (at no cost to
Seller) complete access to and use of the 911 Assets related to such 911
emergency services and shall enter into such agreements as Seller reasonably
requests in order to facilitate the provision by Seller of such 911 emergency
services and to provide for compensation to Seller at prevailing rates.
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7.1.7 Tariffs. Buyer agrees that for the six month period following
the Closing Date it will adopt and maintain intrastate tariffs similar in all
material respects to Seller's intrastate tariffs in effect for the Exchanges on
the Closing Date, provided that such tariffs of Seller are substantially similar
to Seller's tariffs in effect on the date of execution of this Agreement, except
that Buyer's tariffs will reflect rate changes by Seller (x) made prior to
Closing as required by an order of a State Regulatory Authority that has been
issued prior to the date of this Agreement or (y) made prior to Closing to the
extent such changes are substantially revenue neutral to the Exchanges.
7.1.8 Access to Books and Records.
(a) After the Closing, Seller will retain all books and records
related to the Excluded Assets for so long as required by applicable law.
(b) Subject to the terms of Section 7.1.3, after the Closing, upon
reasonable notice, the parties will give to the representatives, employees,
counsel and accountants of the other, access during normal business hours, to
books and records relating to the Business and the Transferred Assets, and will
permit such persons to examine and copy such records (including any tax returns
and related information, but not attorney or accountants work product), audits,
legal proceedings, governmental investigations and other business purposes
(including such financial information and any receipts evidencing payment of
taxes as may be reasonably requested by Seller to substantiate any claim for tax
credits or refunds); provided, however, that nothing herein will obligate any
party to take actions that would unreasonably disrupt the normal course of its
business or violate the terms of any contract to which it is a party or to which
it or any of its assets is subject. Seller and Buyer will cooperate with each
other in the conduct of any tax audit or similar proceedings involving or
otherwise relating to the Business (or the income therefrom or assets thereof)
with respect to any tax and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
Section 7.1.8.
7.1.9 IntraLATA Toll. Buyer will (i) assume the retail toll carrier
role and obligations for any end users in the Exchanges that are picked or
defaulted to Seller for IntraLATA toll services or (ii) enter into agreements
with other inter-exchange carriers to assume this role or to resell the toll
services of an inter-exchange carrier to fulfill these obligations. Buyer will
execute intraLATA toll access agreements with Seller establishing the process
for the purchase of toll access from Seller by Buyer at the rates contained in
Seller's access tariffs. Seller agrees that it will need to establish its own
agreements with other telecommunications carriers for the purchase of toll
access that may be routed over joint Seller/Buyer transport or tandem switch
facilities (transit traffic). Buyer will cooperate with Seller and other
carriers to measure and share data required to facilitate billing for such
traffic. Buyer and Seller will establish a process by which Buyer will bill
Seller for terminating IntraLATA toll access based on actual termination of
Seller toll services to the Exchanges. Buyer and Seller will enter into a
billing and collection agreement for the billing and collection of casual toll
at a rate not to exceed $0.12 per message. Buyer and Seller shall establish meet
point percentages for jointly provided toll access and file such meet points as
required with Governmental Authorities.
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7.1.10 Extended Area Service. Buyer and Seller will enter into
extended area service agreements as necessary.
7.1.11 Transiting Toll Facilities. Concurrently with the Closing,
Buyer shall grant to Seller the irrevocable right to use or Buyer shall lease to
Seller, in either case for a term of 99 years, the portion of the transiting
toll facilities, network facilities and associated electronic equipment included
in the Property and relating to the Exchanges listed on Schedule 7.1.11 that is
required by Seller for the conduct of any business conducted by Seller other
than the Business. The consideration for such grant or lease shall be $1.00 and
other consideration including the mutual covenants and agreements set forth in
this Agreement. Within 90 days after the execution of this Agreement, Buyer and
Seller shall apportion and assign the total capacity of such facilities and
equipment for each Exchange listed on Schedule 7.1.11. The parties shall review
such apportionment on an annual basis and make such changes to assignments as
may be required. If any transiting toll facilities, network facilities and
related electronic equipment that are Excluded Assets are located in any
rights-of-way that are used in connection with the operation of the Business,
then concurrently with the Closing, Buyer shall, to the extent possible, assign
to Seller the right to use such right-of-way jointly with Buyer and appropriate
joint use agreements in recordable form and otherwise reasonably acceptable to
the parties shall be entered into at the Closing.
7.1.12 Reinitialization Period. If the Reinitialization has not been
approved at the time of the Closing, Buyer shall use its best efforts to obtain
the Reinitialization.
ARTICLE 8
ARBITRATION
8.1 Arbitrability. All claims, except and only to the extent such claims
are those over which the State Regulatory Authorities have primary jurisdiction,
by either party against the other arising out of or related in any manner to
this Agreement or any of the Transferred Assets or the Transactions shall be
resolved by arbitration as prescribed herein; provided, however, that either
party shall be entitled to seek temporary or permanent injunction against any
actual or threatened breach of Section 5.3.1 by the other party in any court of
competent jurisdiction without the necessity for showing any actual damages. The
Federal Arbitration Act and not state law will govern the arbitrability of all
claims. Failure of either party to assert or pursue a mandatory claim or defense
that must be asserted in litigation to avoid the loss of the right to assert
such claim or defense shall not preclude that party from asserting any such
claim or defense in arbitration proceedings hereunder.
8.2 Rules. A single arbitrator engaged in the practice of law, who is
knowledgeable about the telecommunications industry and telecommunications law,
shall conduct the arbitration under the then-current commercial arbitration
rules of the American Arbitration Association
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("AAA"), unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Denver, Colorado.
8.3 Discovery; Damages; Expenses. Buyer and Seller shall allow and
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall have authority to award only actual damages and shall not have
the authority to award consequential, compensatory, punitive or exemplary
damages or any other form of relief. Each party shall bear its own costs and
attorneys' fees. The arbitrator's decision and award shall be final and binding,
and judgment upon the award rendered by the arbitrator may be entered in any
court having personal jurisdiction. The non-prevailing party to the arbitration
shall pay all of the fees and expenses of the arbitrator and the AAA, provided,
however, that if the arbitrator deems Buyer and Seller to be equally prevailing
or non-prevailing on the matters at issue, then the parties shall each pay
one-half of the fees and expenses of the arbitrator and the AAA.
8.4 Judicial or Administrative Action. If any party files a judicial or
administrative action asserting claims properly subject to arbitration as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification by Seller. From and after Closing, Seller
shall indemnify and hold harmless Buyer from and against any and all claims,
losses, liabilities, damages, penalties, costs and expenses, including
reasonable counsel fees and costs and expenses ("Losses") arising out of or
resulting from:
(a) any representations and warranties made by Seller in the
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed upon or prior to the Closing;
(c) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed after the Closing; and
(d) all liabilities and obligations arising out of or relating to
the operation of the Exchanges prior to the Closing, including without
limitation the Retained Liabilities.
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Section 9.2 Indemnification by Buyer. From and after Closing, Buyer shall
indemnify and hold harmless Seller from and against any and all Losses arising
out of or resulting from:
(a) any representations and warranties made by Buyer in this
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Buyer in the performance of its
covenants, agreements or obligations under this Agreement;
(c) all liabilities and obligations arising out of or relating to
the operation of the Exchanges after the Closing, including without limitation
the Assumed Liabilities;
(d) without limitation of the foregoing, violation of Environmental
Laws, to the extent such liability is an Assumed Liability or arises out of or
relates to the operation of the Exchanges after the Closing; and
(e) liability of Seller arising after Closing with respect to
Buyer's failure to enter into or perform interconnection agreements in or
directly related to the Exchanges.
Section 9.3 Indemnified Third Party Claim.
(a) If any person (including State Regulatory Authorities) not a
party to this Agreement ("Person") shall make any demand or claim or file or
threaten to file or continue any action, suit or proceeding of any kind ("Third
Party Claim") with respect to which Buyer or Seller is entitled to
indemnification pursuant to Sections 9.1 or 9.2, respectively, then within ten
days after notice (the "Notice") by the party entitled to such indemnification
(the "Indemnitee") to the other (the "Indemnitor") of such litigation, the
Indemnitor shall have the option, at its sole cost and expense, to retain
counsel for the Indemnitee (which counsel shall be reasonably satisfactory to
the Indemnitee) to defend any such litigation. Thereafter, the Indemnitee shall
be permitted to participate in such defense at its own expense, provided that,
if the named parties to any such litigation (including any impleaded parties)
include both the Indemnitor and the Indemnitee or, if the Indemnitor proposes
that the same counsel represent both the Indemnitee and the Indemnitor and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interest between them, then the Indemnitee shall
have the right to retain its own counsel at the cost and expense of the
Indemnitor, unless the Indemnitor shall acknowledge in writing its indemnity
obligation, in which event the retention by Indemnitee of its own counsel shall
be at its cost and expense. If the Indemnitor shall fail to respond within ten
days after receipt of the Notice, the Indemnitee may retain counsel and conduct
the defense of such litigation as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnitor.
(b) The Indemnitee shall provide reasonable assistance to the
Indemnitor and provide such access to its books, records and personnel as the
Indemnitor reasonably requests in connection with the investigation or defense
of the indemnified Losses. The Indemnitor shall
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promptly upon receipt of reasonable supporting documentation reimburse the
Indemnitee for out-of-pocket costs and expenses incurred by the later in
providing the requested assistance.
(c) With regard to litigation with any Person for which Buyer or
Seller is entitled to indemnification under Sections 9.1 or 9.2, such
indemnification shall be paid by the Indemnitor upon: (i) the entry of any
judgment, writ, order, injunction, award or decree of any court, the FCC or any
State Regulatory Authorities ("Judgment") against the Indemnitee and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
Judgment or final appellate Judgment against the Indemnitee; or (iii) a
settlement with the consent of the Indemnitor, which consent shall not be
unreasonably withheld, provided that no such consent need be obtained if the
Indemnitor fails to respond to the Notice as provided in Section 9.3(a).
Section 9.4 Determination of Indemnification Amounts and Related Matters.
(a) Neither Buyer nor Seller will be entitled to make a claim
against the other under Section 9.1(a) or (b) or 9.2(a) or (b) until (i) the
aggregate amount of Losses incurred by the Indemnitee for any individual
occurrence (or related series of occurrences) exceeds $50,000 and (ii) in the
case of Losses under Section 9.1(a) (except for Losses due to a breach of the
representations of Seller contained in Section 4.2.15) or 9.1(b) the aggregate
amount of claims that may be asserted for such Losses, together with all other
claims for Losses asserted under Section 9.1(a) or 9.1(b) under each of the
Multi-State Exchange Purchase Agreements, exceed an amount equal to 1% of the
aggregate of the Purchase Prices (as defined in each Multi-State Exchange
Purchase Agreement) for the transactions contemplated by the Multi-State
Exchange Purchase Agreements, to the extent actually paid to Seller, but only to
the extent such amount exceeds such aggregate of the Purchase Prices.
(b) Notwithstanding any other provision of this Agreement, (i)
Seller shall not be required to make any payments pursuant to Section 9.1(a),
(b) or (c) to the extent that the Maximum Adjustment Amount shall have been
reached, and (ii) Buyer shall not be required to make any payments pursuant to
Article 9 in excess of an amount equal to 3% of the Purchase Price.
(c) Subject to Section 9.3, all amounts payable by the Indemnitor to
the Indemnitee in respect of any Losses under Sections 9.1 and 9.2 shall be
payable by the Indemnitor as incurred by the Indemnitee and will include
interest at the rate of 8% per annum from the date that the related Losses were
incurred through but not including the date the payment is made.
Section 9.5 Time and Manner of Certain Claims. Except as otherwise
provided herein, the representations and warranties of Buyer and Seller, and the
covenants to be performed by them on or prior to the Closing Date, in this
Agreement shall survive Closing for a period of one year, except that the
representations of Seller contained in Section 4.2.15 shall survive Closing for
a period of 15 months and the representations and warranties contained in the
first sentence of Section 4.2.3 shall survive Closing indefinitely (the
"Survival Period"). Neither Seller nor Buyer shall have any liability under
Sections 9.1 or 9.2, respectively, unless a claim for Losses for which
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indemnification is sought thereunder is asserted by the party seeking
indemnification by written notice to the party from whom indemnification is
sought within the Survival Period.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Defined Terms. For purposes of this Agreement, certain terms used in
this Agreement and not otherwise defined herein shall have the meanings
designated below:
"Access Line" means a telephone line operating on the public switched
telephone network that runs from a central office to a customer's premises.
"Accounts Receivable" means all end user accounts receivable with respect
to goods sold and/or services provided by Seller on or prior to the Closing
Date.
"Affiliate" of a specified entity means any legal entity directly or
indirectly controlling, controlled by, or under the common control with the
specified entity. The term "control" (including "controlling", "controlled by"
and "under common control with") of an entity means the possession, directly or
indirectly, of the power to (i) vote 50% of more of the voting securities or
other voting interests of such person, or (ii) direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting shares, by contract or otherwise.
"Aggregate Adjustment Amount" means the aggregate amount that Seller has
paid or spent, or committed to pay or spend, pursuant to (i) purchase price
decreases pursuant to section 1.4.3(b) of each of the Multi-State Exchange
Purchase Agreements, (ii) payments or purchases pursuant to section 5.2.11(a) of
each of the Multi-State Exchange Purchase Agreements, and (iii) payments with
respect to indemnification claims under Section 9.1(a), (b) or (c) of each of
the Multi-State Exchange Purchase Agreements.
"Agreement" means this Agreement for Purchase and Sale of Telephone
Exchanges, together with all Schedules and Exhibits thereto, as any of the
foregoing may be amended, modified or supplemented in writing from time to time.
"Authorities" means (i) the construction permits, licenses or
authorizations granted by the FCC to Seller and used to develop and operate the
Systems; and (ii) the licenses or certificates of convenience and necessity
granted by the State Regulatory Authorities to operate the Systems.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
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<PAGE>
"Confidential Information" means any and all technical, business or
financial information, in whatever form or medium, furnished or disclosed by or
on behalf of one party to the other or its representatives, irrespective of the
form of communication, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data and personnel statistics, and shall also include notes,
analyses, compilations, studies, interpretations or other documents prepared by
it or its representatives that contain, reflect or are based upon, in whole or
in part, other Confidential Information. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all security interests, liens, charges or
similar restrictions, except for (i) liens for taxes not yet due and payable or
that are being contested in good faith, (ii) liens of workers, carriers or
materialmen or similar liens arising by operation of law in the ordinary course
of the Business in respect of obligations that are not yet due and payable or
that are being contested in good faith, (iii) governmental conditions and
restrictions under the Authorities, (iv) with respect to Realty, recorded
easements, restrictions, reservations, rights-of-way, covenants, conditions and
similar encumbrances of record and matters that would be shown by an accurate
survey or inspection of such property, and other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
such Realty to which such defect or irregularity in title relates, and (v) with
respect to the Transferred Assets other than Realty, other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
the Transferred Assets to which such defect or irregularity in title relates.
"Environmental Laws" means all federal, state and local laws, statutes,
rules, regulations and ordinances (including common law), and all court or
administrative decisions, orders, policies or guidelines, now or hereafter in
effect relating to the environment, public health (including fire or building
safety), occupational safety, industrial hygiene, or the generation, disposal,
manufacture, release, storage, transportation or presence of Hazardous
Materials, including without limitation the National Environmental Policy Act
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act of 1975, the Toxic Substances Control Act, the
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean
Water Act, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act, and the regulations promulgated under any such acts or any permits
issued thereunder.
"Excessive Encumbrance" has the meaning set forth in Section 3.1.11.
"Excluded Assets" means (a) all cash, cash-equivalents, Accounts
Receivable and carrier access bills to interexchange carriers for minutes,
messages and other applicable charges through the
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Closing Date; (b) any insurance policy, bond, letter of credit or other similar
item, and any cash surrender value in regard thereto; (c) all books and records
that Seller is required by law to retain or that relate primarily to internal
corporate matters; (d) all claims, rights and interests in and to any refunds of
Federal, state or local franchise, income or other taxes or fees of any nature
whatsoever for periods prior to the Closing Date; (e) any pension, profit
sharing or employee benefit plans; (f) any assets, interests or property of
Seller used in the operation of any business conducted by Seller other than the
Business, those including shared data processing, billing and collections
systems and related software; (g) the name U S WEST and all similar names and
related marks and logos used or owned by Seller or its Affiliates and any other
names, marks and logos not specifically identified as being included in the
Transferred Assets; (h) all portable office equipment, test equipment and
generators other than included in the Transferred Assets; (i) all motor vehicles
used in the operation of any business conducted by Seller other than the
Business and associated motor vehicle general stock; (j) all materials, supplies
and tools other than those included in the Transferred Assets; (k) all FCC
licenses for air-to-ground, cellular or paging services held by Seller or any
Affiliate of Seller other than those FCC radio licenses necessary to operate the
Business; (l) all maintenance radio equipment and antennas other than those
included in the Transferred Assets; (m) all assets relating to Yellow Pages or
classified directory advertising activities of Seller or any Affiliate of
Seller, (n) all transiting toll facilities, network facilities and associated
electronic equipment used in their entirety by Seller solely in the operations
of any business conducted by Seller other than the Business and containing no
capacity for use in the conduct of the Business and related rights-of-way; and
(o) all rights of Seller or any Affiliate of Seller under the Transaction
Agreements.
"Final Order" means action by any governmental or regulatory authority as
to which (i) no request for stay by any Governmental Authority, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action has been
granted by a governmental or regulatory authority; (iii) the governmental or
regulatory authority does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal by a
third party to a court, or a request to stay by a court, of any material
provision of the Governmental Authority's action, as applicable, is pending or
in effect and, if any deadline for filing any such appeal or request is
designated by statute or rule, it has passed.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities
and the grant of any study area waiver request submitted by Buyer related
thereto, but excluding the Reinitialization.
"Fee Realty" means all real property owned by Seller in fee simple and
located inside the boundaries of the Exchanges, including without limitation
tower sites or antenna sites.
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<PAGE>
"Governmental Authority" means any United States, state, or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, bureau, agency, court or instrumentality thereof.
"Hazardous Material" means (a) all chemicals, materials and substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words or similar import under any Environmental Law, and (b) any
other chemicals, materials or substances, including without limitation any
polychlorinated biphenyl, petroleum or any chemical fraction thereof, asbestos,
formaldehyde, flammables, explosives, and PCBs which could presently or at any
time in the future cause a detriment to or impair the value or beneficial use of
any of the Transferred Assets, or constitute or cause a health, safety or
environmental hazard to the any of the Transferred Assets or to any person or
require remediation at the behest of any state or local governmental agency
under any Environmental Law.
"Interests" means all rights, privileges, benefits and interests under all
contracts, agreements, consents, licenses, permits or certificates (except those
included as Authorities and Realty), including agreements, permits, leases and
arrangements with respect to intangible or personal property or interests
therein; equipment leases; agreements with suppliers, customers and subscribers;
business licenses; prepaid expenses; and any sales agent or sales affiliate
agreements, in each case, used or owned primarily in connection with the
Business.
"Maximum Adjustment Amount" means an Aggregate Adjustment Amount equal to
the product of (i) the aggregate number of access lines in the telephone
exchanges purchased pursuant to the Multi-State Exchange Purchase Agreements on
the closing date of each purchase thereunder multiplied by (ii) $50.00, it being
understood and agreed by the parties that (x) the Maximum Adjustment Amount
shall be preliminarily calculated at the Closing assuming that any Multi-State
Exchange Purchase Agreement that has not closed or been terminated on or before
the Closing Date shall, for purposes of such preliminary calculation, be deemed
to have closed on the Closing Date, and (y) on the date of closing or
termination of the last of Multi-State Exchange Purchase Agreement to have been
closed or terminated, the Maximum Adjustment Amount shall be finally calculated
and any resulting payments required to be made by Seller or refunds required to
be made by Buyer shall be taken into account in determining the amount of funds
to be paid by Seller at such Closing or to be paid by Seller or refunded by
Buyer upon such termination, as the case may be.
"Multi-State Exchange Purchase Agreements" means the Agreements for
Purchase and Sale, including this Agreement, entered into between Buyer, or any
Affiliate of Buyer, and Seller with respect to the purchase of Seller's rights
to provide and operate wireline telecommunications and related non-tariffed or
non-regulated wireline services and related assets in the following states:
Arizona, Colorado, Nebraska, North Dakota, Minnesota, Iowa, Idaho, Montana and
Wyoming.
"911 Assets" means all circuits, facilities and customer information used
by Seller in providing 911 emergency services in connection with the operation
of the Business.
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"Operating Contracts" means all contracts, agreements and instruments (and
all amendments and modifications thereto) entered into by Seller in the ordinary
course of the Business prior to the date hereof, including without limitation
all real property leases, documentation related to the Interests and
interconnection agreements to the extent that Buyer is required to perform such
obligations by applicable law or as a condition to obtaining any Governmental
Approvals, and all such contracts, agreements and instruments entered into by
Seller in the ordinary course of the Business between the date of this Agreement
and the Closing Date.
"Property" means all of Seller's physical facilities and other tangible
assets used primarily in the Business that are in Seller's plant in service
accounts in accordance with Part 32 of the FCC Uniform System of Accounts,
including all transiting toll facilities, network facilities and associated
electronic equipment located within the boundaries of an Exchange and not
included as Excluded Assets, which facilities and equipment shall be subject to
the arrangements set forth in Section 7.1.11.
"Reinitialization" means the implementation of the interstate access rates
pursuant to the reinitialization of the Price Cap Index ("PCI") applicable to
the approved new study area to reflect the underlying cost structure associated
with the Exchanges.
"Realty" means the Fee Realty together with all rights, privileges and
appurtenances owned by Seller inside the boundaries of the Exchanges that are a
burden upon, a benefit of, or otherwise related to the Fee Realty, including
without limitation all structures, buildings, easements, servitudes, licenses,
leasehold improvements, building improvements, fixtures, rights-of-way and other
similar interests owned by Seller and used in the Business.
"Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all open end-user customer account records, all service records kept in
the ordinary course of the Business which identify and describe the customers
being served by Seller in the Exchanges, the service that is being provided to
such customers, and those records which identify and describe the physical
property (including but not limited to cables, wires and central office
equipment) included in the Transferred Assets.
"Seller's Knowledge" means the actual knowledge of Paul Lit after due
inquiry and any senior manager specifically charged with operational
responsibility for the Exchanges concerning information about which Seller is
making a representation in this Agreement.
"State Regulatory Approvals" means the issuance of the required consents
or approvals of the State Regulatory Authorities with respect to the assignment
of the Authorities to Buyer and the designation of Buyer as an eligible
telecommunications carrier for the Exchange.
"State Regulatory Authorities" means the public utility commissions or
similar state governmental authorities in the states in which the Exchanges are
located and, where applicable, municipal authorities that have granted operating
authorities with respect to the Exchanges.
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"Systems" means, as the context requires, Seller's service delivery
components in the Exchanges, including without limitation all equipment,
facilities, assets, properties, licenses, permits, certificates of public
convenience and necessity and other rights and authorities and related technical
knowledge and information, used in the conduct of the Business within the
particular Exchange.
"Transactions" means the purchase and sale of the Transferred Assets as
contemplated by the Agreement and all other transactions contemplated by the
Transaction Documents.
"Transaction Documents" means this Agreement and each document to be
executed in connection with the Closing of the Transactions. When used with
respect to Seller or Buyer, "Transaction Documents" means this Agreement and
such documents as are required to be executed by such party with respect to the
Closing of the Transactions.
"Transferred Assets" means all of Seller's right, title and interest in
and to the Authorities, the Interests, the 911 Assets, the Property, the Realty,
the Records and all goodwill associated with the Business as existing on the
Closing Date, but excluding the Excluded Assets.
ARTICLE 11
GENERAL
11.1 Notices. All notices hereunder will be in writing and served by
certified mail, return receipt requested, courier or facsimile. Notice shall be
deemed to have been duly given on (i) the earlier of the date received or the
fifth business day following the date mailed by the notifying party using first
class mail, postage prepaid or (ii) if delivered by courier service or
facsimile, upon actual receipt as evidenced by the appropriate confirmation
sheet. Notices shall be sent as follows:
If to Seller: U S WEST Communications, Inc.
1801 California Street, Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic
Transactions Group
Facsimile: (303) 308-0835
with a copy (which shall not constitute notice) to:
Brownstein Hyatt & Farber, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch
Facsimile: (303) 223-1111
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If to Buyer: Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: Donald P. Weinstein
Facsimile: (203) 614-4625
with a copy (which shall not constitute notice) to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: L. Russell Mitten, II., Esq.
Facsimile: (203) 614-4651
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Sixth Floor
Washington, DC 20036
Attention: Jeffry L. Hardin
Facsimile: (202) 387-3467
11.2 Waivers. No failure of a party to enforce a provision of this
Agreement will be construed as a general or a specific waiver of that provision,
or of a party's right to enforce that provision, or of a party's right to
enforce any other provision of this Agreement. No waiver of any breach of any
covenant or other provision herein contained shall be deemed to be a waiver of
any preceding or succeeding breach, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act shall
be deemed to be an extension of the time for performance of any other obligation
or act.
11.3 Commissions. Each party represents and warrants that no broker or
other person is entitled to any commission or finder's fee in connection with
the consummation of the Transactions based on arrangements made by such party
for which the other party could have any liability.
11.4 Payment of Expenses. Except as otherwise provided herein, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in consummating and carrying
out the Transactions, whether or not the Transactions are consummated.
Notwithstanding the foregoing, all transfer fees payable in connection with the
assignment of permits or rights-of-way shall be borne by Buyer.
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11.5 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and, when each of the parties hereto has
executed and delivered a counterpart to the other party, this Agreement shall be
binding and effective even though no single counterpart has been executed by
both of the parties.
11.7 Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.8 Assignment. The rights and obligations of the parties to this
Agreement or any interest in this Agreement shall not be assigned, transferred,
hypothecated, pledged or otherwise disposed of without the prior written consent
of the nonassigning party, which consent may be withheld in such party's sole
discretion; provided, however, that (i) Buyer may, without the prior consent of
Seller but without relieving Buyer of its obligations hereunder, assign its
rights under this Agreement to any Affiliate or lender, and (ii) Seller may
assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the Transactions as a 1031
Transaction.
11.9 Additional Instruments and Assistance. Each party hereto shall from
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its counsel
may reasonably request in order to complete and perfect the Transactions.
11.10 Seller's Control Over Authorized Facilities. No provision of this
Agreement shall be construed to abrogate Seller's control of and responsibility
for the operation of the authorized facilities of the Business prior to the
actual transfer of control of those facilities hereunder to the Buyer as
approved by the FCC and the State Regulatory Authorities.
11.11 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado.
11.12 Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable when applied to any person or
circumstance, the remaining provisions of this Agreement and the enforcement of
such provision to other persons or circumstances shall not be affected thereby,
and each provision of this Agreement shall be enforced to the fullest extent
allowed by law.
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11.13 Amendments. This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by its
agent duly authorized in writing or as otherwise expressly permitted herein.
11.14 No Construction Against the Drafting Party. Each party hereto
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.15 Integration. This Agreement, including all schedules and exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, warranties or representations between the parties with respect
to such subject matter except as set forth or noted herein. Except as provided
in Section 5.1.4 hereof, this Agreement is not made for the benefit of any
person, firm, corporation or association other than the parties hereto. Except
as provided in Section 5.1.5 hereof, the parties do not intend to confer any
benefit hereunder on any person, firm or corporation other than the parties
hereto.
* * * * *
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IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
CITIZENS UTILITIES COMPANY
By: ________________________________________
Leonard Tow
Chairman and Chief Executive Officer
SELLER:
U S WEST COMMUNICATIONS, INC.
By: ________________________________________
Solomon D. Trujillo
President and Chief Executive Officer
<PAGE>
EXECUTION COPY - NEBRASKA
AGREEMENT
For
PURCHASE AND SALE
of
TELEPHONE EXCHANGES
Dated as of June 16, 1999
Between
CITIZENS UTILITIES COMPANY
And
U S WEST COMMUNICATIONS, INC.
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF TELEPHONE EXCHANGES
This Agreement for Purchase and Sale of Telephone Exchanges is made and
entered into as of June 16, 1999 by and between U S WEST Communications, Inc., a
Colorado corporation ("Seller"), and Citizens Utilities Company, a Delaware
corporation ("Buyer").
A. Seller possesses certain rights to provide and operate wireline
telecommunication services pursuant to operating authorities issued by the
public utilities commissions or similar authorities of various states, and owns
certain assets used to provide such services in the telephone exchanges listed
on Exhibit A hereto and in any cross-border communities served by such exchanges
(the "Exchanges").
B. Buyer desires to acquire Seller's right to provide and operate wireline
telecommunication services and related non-tariffed or non-regulated wireline
services and products in the Exchanges (the "Business") and to purchase the
Transferred Assets (as defined below), and Seller wishes to sell, assign and
transfer such right and assets to Buyer.
C. Each defined term used herein shall have the meaning set forth in this
Agreement where such term is first used or, if no definition is so set forth,
shall have the meaning set forth in Article 10 below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF EXCHANGES
1.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions hereinafter set forth, at the Closing described in Article 2,
Seller agrees to sell, convey, transfer, assign and deliver all of the
Transferred Assets to Buyer, and Buyer agrees to purchase and receive the
Transferred Assets from Seller. Except as specifically set forth in Section 1.2
hereof, Seller shall transfer the Transferred Assets to Buyer on the Closing
Date free and clear of all Encumbrances, and Buyer shall not, by virtue of its
purchase of the Transferred Assets, assume or become responsible for any debts,
liabilities or obligations of Seller.
1.2 Assumption of Obligations. Buyer covenants and agrees that, on the
Closing Date, it shall execute and deliver to Seller an Assumption Agreement in
substantially the form of Exhibit
<PAGE>
B hereto (the "Assumption Agreement") pursuant to which it will assume and agree
to perform and discharge the following liabilities and obligations of Seller to
the extent related to the Exchanges (collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations of Seller arising under the
Operating Contracts, except that Buyer shall not assume any liabilities or
obligations for any breach or default by, or payment obligations of,
Seller under such Operating Contracts occurring or arising or accruing on
or prior to the Closing Date;
(ii) All liabilities and obligations of Seller related to
unperformed service obligations, right-of-way relocation obligations and
construction in progress as of the Closing Date;
(iii) All liabilities and obligations imposed on Seller by State
Regulatory Authorities in connection with the operation of the Exchanges,
including without limitation obligations to provide 911 emergency services
and to make any investment in the Exchanges required by any Governmental
Authority, except that Buyer shall not assume any liabilities or
obligations, other than held order or other service obligations, imposed
on Seller by State Regulatory Authorities that arise out of Seller's
breach of any decision by the State Regulatory Authorities, or any
intentional misconduct or material misrepresentation by Seller;
(iv) All federal, state, county, municipal, foreign or other taxing
jurisdiction sales, use, transfer, gross receipts, consumer levy,
privilege or similar taxes, duties, excises or governmental charges,
including any penalties and interest thereon, arising out of the sale of
the Transferred Assets by Seller to Buyer hereunder, excluding any income
tax liability of Seller (collectively, "Transfer Taxes"); and
(v) All liabilities and obligations arising under Environmental Laws
with respect to the real property included in the Transferred Assets.
1.3 Retained Liabilities. Seller shall retain and shall pay, perform and
discharge when due, the following liabilities, responsibilities and obligations
of Seller with respect to the Business (collectively, the "Retained
Liabilities"):
(i) Subject to Section 1.5, all trade payables and other payment
obligations of Seller as of the Closing Date;
(ii) All long-term debt of Seller and debt of Seller owed to any one
or more of its Affiliates;
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<PAGE>
(iii) Subject to Section 1.5, all taxes and assessments relating to
the operation of the Business (other than Transfer Taxes) on or before the
Closing Date for the use, ownership or operation of the Transferred Assets
on or before the Closing Date;
(iv) All liabilities and obligations arising on or before the
Closing Date with respect to Seller's employees that may be hired by Buyer
(the "Hired Employees"), including (a) all liabilities, responsibilities
and obligations arising on or before the Closing Date relating to
collective bargaining agreements or other union contracts, and (b) any
such liabilities or obligations that arise after the Closing Date to the
extent that such liabilities and obligations relate to facts,
circumstances or conditions arising or occurring on or before the Closing
Date with respect to the Hired Employees;
(v) All liabilities, responsibilities and obligations arising out of
or related to any actions, lawsuits or legal proceedings based on facts,
circumstances or conditions arising, existing or occurring on or before
the effective time of Closing, regardless of whether known or unknown,
asserted or unasserted, as of the Closing, including any liability under
any claim (whether made on or before the Closing Date) relating to the
period ending on or before the effective time of Closing which, but for
the consummation of the transactions contemplated hereby, would have been
covered under any insurance policy of Seller, and all liability associated
with workers' compensation claims incurred but not reported as of the
effective time of Closing and workers' compensation claims reported as of
the Closing Date but not then due or payable, but expressly excluding any
such liability, responsibility or obligation for litigation or claims of
any Governmental Authority relating to liabilities and obligations arising
under Environmental Laws with respect to the Fee Realty included in the
Transferred Assets, unless such liabilities, responsibilities and
obligations result from the actions or omissions of Buyer constituting
breaches of this Agreement;
(vi) All liabilities and obligations for prior period adjustments of
revenues from the Business, for any refunds or bill credits to ratepayers
for overbillings or overearnings occurring or relating to the period prior
to the effective time of Closing, and for all toll revenues, settlements,
pools, separations studies or similar activities relating to the Exchanges
for which Seller is responsible, provided that such liabilities and
obligations are asserted within four years of the Closing Date;
(vii) All liabilities, responsibilities and obligations arising out
of or occurring or resulting from the use or ownership of the Transferred
Assets on or before the Closing Date; and
(viii) All liabilities, responsibilities and obligations with
respect to the Excluded Assets.
1.4 Letters of Credit and Purchase Price.
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1.4.1 Letters of Credit. Within 15 business days of the date hereof,
Buyer shall deliver to Seller one or more irrevocable letters of credit issued
by financial institutions reasonably acceptable to Seller (the "Letters of
Credit") providing for drawings in an aggregate principal amount equal to
$782,400 (the "LC Amount"). The Letters of Credit shall be returned to Buyer
upon the Closing of the Transactions or upon termination of this Agreement for
any reason other than the following: (i) Seller's termination of this Agreement
pursuant to Section 6.2.4 or 6.2.5, or (ii) Seller's termination of this
Agreement pursuant to Section 6.2.1 because the condition precedent set forth in
Section 3.2.1 becomes incapable of satisfaction through no fault of Seller after
Buyer has had a reasonable opportunity to cause such condition precedent to be
satisfied. In addition, if Seller terminates this Agreement pursuant to Section
6.2.4 as a result of Buyer's breach of Section 4.1.4 for any reason, Buyer and
Seller have mutually agreed that in addition to Seller's right to draw down the
full amount of the Letters of Credit, Buyer shall be liable to Seller for an
additional amount equal to the LC Amount. If Buyer fails to deliver the Letters
of Credit within 15 business days of the date hereof, and Seller thereafter
terminates this Agreement pursuant to Section 6.2.4 as a result thereof, Buyer
shall be liable to Seller for the LC Amount. In the event that Seller terminates
this Agreement for any of the foregoing reasons, in view of the difficulty of
determining the amount of damages which may result to Seller from such failure
to consummate the Transactions, Buyer and Seller have mutually agreed that the
proceeds of the Letters of Credit and any other monies payable to Seller in
accordance with the foregoing provisions shall be retained by Seller as
liquidated damages, and not as a penalty, and this Agreement shall thereafter
become null and void except for those provisions which by their terms survive
termination of this Agreement. The parties have agreed that the proceeds of the
Letters of Credit and such other monies payable to Seller in accordance with the
foregoing provisions in such event shall be Seller's exclusive remedy.
1.4.2 Purchase Price. Subject to Section 1.4.4, Buyer shall pay to
Seller as consideration for the transfer of Seller's rights with respect to the
Business and the sale of the Transferred Assets an aggregate purchase price (the
"Purchase Price") consisting of $19,560,000 plus (a) the estimated amount of
Exchange Investments, if any, calculated pursuant to Section 1.4.3(a) (the
"Estimated Exchange Investments") less (b) the Revenue Adjustment, if any
calculated pursuant to Section 1.4.3(b). The Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds to such bank
account(s) as Seller shall designate within a reasonable time prior to Closing
and the Letters of Credit shall be returned to Buyer upon payment of the
Purchase Price.
1.4.3 Closing Date Purchase Price Adjustments.
(a) Estimated Exchange Investments. Seller shall prepare and deliver
to Buyer, no less than five business days prior to the Closing, an estimate of
the net book value on the Closing Date associated with any investment by Seller
in the Exchanges (the "Exchange Investment") prior to Closing required by any
Governmental Authority pursuant to an order issued between the date hereof and
the Closing Date, other than with respect to investments contemplated by
Schedule 5.2.3(iii) or with respect to Seller's efforts to comply with any
Governmental Authority's orders issued prior to the date hereof.
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(b) Revenue Adjustment. The Purchase Price shall be decreased if the
product of four times the aggregate revenues from the Business, as reported on
the monthly profit and loss statements for the Business for the three full
consecutive calendar months most recently completed prior to the Closing Date,
less any portion of such revenues attributable to the Excluded Assets (the
"Adjusted Annualized Closing Revenues"), are less than $8,013,600. Any decrease
in the Purchase Price in accordance with this Section 1.4.3(b) shall be equal to
the difference between the Adjusted Annualized Closing Revenues and $8,013,600
multiplied by 400% (the "Revenue Adjustment"); provided, that the Purchase Price
shall not be decreased pursuant to this Section 1.4.3(b) to the extent that the
Maximum Adjustment Amount shall have been reached.
1.4.4 Post-Closing Purchase Price Adjustment.
(a) Actual Exchange Investments. Within 120 days following the
Closing Date, Buyer shall prepare and deliver to Seller a written statement (the
"Exchange Investment Statement") of the calculation of the actual amount of
Exchange Investment. Subject to the dispute resolution mechanism set forth in
Section 1.4.4(c), to the extent that the actual amount of Exchange Investment as
shown on the Exchange Investment Statement differs from the Estimated Exchange
Investment, the difference shall be paid within 35 days of delivery of the
Exchange Investment Statement (i) by Buyer to Seller in the case of an excess,
or (ii) by Seller to Buyer in the case of a deficit.
(b) Reinitialization Adjustment. If, on the Closing Date, the
Reinitialization has not been effected, the Purchase Price shall be adjusted in
accordance with the following:
(i) If the Reinitialization occurs after the Closing Date but on or
prior to the two year anniversary of the Closing Date, Buyer shall prepare
and deliver to Seller, as soon as practicable after the Reinitialization,
a written statement (the "Reinitialization Statement") of the calculation
of the actual number of interstate switched access minutes of use (the
"Interstate Use Minutes") for the Exchanges per month for the period
commencing on the Closing Date and ending on the last day of the month in
which the Reinitialization occurred. Subject to the dispute resolution
mechanism set forth in Section 1.4.4(c), Seller shall pay Buyer within 60
days of delivery of the Reinitialization Statement an amount equal to
$0.023 multiplied by the Interstate Use Minutes for the period commencing
on the day after the Closing Date and ending on the date of the
Reinitialization (pro rated, if necessary, for the first and final month).
Seller's failure to make such payment by the 60th day following delivery
of the Reinitialization Statement shall be deemed to be an initiation of
the dispute resolution mechanism set forth in Section 1.4.4(c).
(ii) If the Reinitialization has not occurred by the two year
anniversary of the Closing Date, Buyer shall so notify Seller and Seller
shall pay Buyer within 60 days after receipt of such notice an amount
equal to $1,892,903, plus simple interest at a rate of 8% per annum for
the period commencing on the Closing Date through but excluding the date
of payment.
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(c) Dispute Resolution Mechanism.
(i) Within 30 days after receipt of the Exchange Investment
Statement or 60 days after receipt of the Reinitialization Statement
(each, a "Post-Closing Statement"), as the case may be, Seller may, in a
written notice to Buyer, describe in reasonable detail any proposed
adjustments to the relevant Post-Closing Statement in question and the
reasons therefor. If Buyer shall not have received a notice of proposed
adjustments within such 30 or 60 day period, as the case may be, Seller
will be deemed irrevocably to have accepted such Post-Closing Statement.
(ii) If Seller disputes any portion of the Post-Closing Statement,
the parties shall calculate the portion of the undisputed amount, if any,
and such amount shall be paid by the appropriate party within five
business days of the determination of the undisputed amount. Buyer and
Seller shall negotiate in good faith to resolve any dispute. If any
dispute cannot be resolved within 30 days following Buyer's receipt of the
proposed adjustment, Deloitte & Touche or another independent public
accounting firm that is nationally recognized in the United States jointly
selected by Buyer and Seller shall be engaged to resolve such disputes in
accordance with the standards set forth in this Section, which resolution
shall be final and binding. The fees and expenses of such accounting firm
shall be shared by Buyer and Seller in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of Buyer
and Seller, respectively. Upon delivery of such public accounting firms's
resolution of such dispute to the parties, the party required to make a
payment pursuant to such resolution shall promptly, but no later than five
business days after such delivery, pay to the other party the amount
determined by such public accounting firm to be owed to such party.
(d) Any amount paid pursuant to Section 1.4.4(a) shall bear interest
from the Closing Date through but excluding the date of payment, at a rate of 8%
per annum. Any amount owing pursuant to Section 1.4.4(b)(i) that is not paid
within 60 days of delivery of the Reinitialization Statement shall bear interest
from the 61st day following delivery of the Reinitialization Statement through
but excluding the date of payment, at a rate of 8% per annum. Such interest
shall accrue daily on the basis of a year of 365 days and the actual number of
days for which due and shall be payable together with the relevant amount
payable pursuant to this Section 1.4.4. All amounts payable pursuant to this
Section 1.4.4 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer, in the case of amounts payable by Buyer, to such
account of Seller as Seller may designate and, in the case of amounts payable by
Seller, to such account of Buyer as Buyer may designate.
(e) The Purchase Price shall be deemed to be adjusted by any amounts
paid pursuant to this Section 1.4.4.
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1.5 Prorations. All real and personal property and similar taxes and
assessments with respect to the Transferred Assets, all rents, utilities and
other periodic charges and expenses arising from the normal operations of the
Business shall be prorated as of 11:59 p.m. local time on the Closing Date. Such
prorations shall be agreed upon by the parties as of the Closing Date and
reflected as an adjustment to the Purchase Price. Following the Closing Date,
each party shall thereafter be responsible for the payment of all such amounts
for which it is responsible, as determined by such prorations, as they become
due. For purposes of the foregoing proration, the parties agree that, with
respect to states in which Seller is assessed for real or personal property
taxes on a centralized basis or where a tax is imposed in lieu of property tax,
Seller shall be responsible for payment of property or other taxes assessed by
such state for the entire taxable year in which the Closing occurs and a pro
rata portion of such property taxes will be allocated to Buyer as of the Closing
Date and paid to Seller on the Closing Date. All prorations pursuant to this
Section 1.5 will be final and binding on both parties. Unless otherwise mutually
agreed no later than 30 days prior to the Closing Date, the specific date and
time for the change of telecommunications service to occur with respect to the
Exchanges shall be at 11:59 p.m., local time, on the Closing Date.
1.6 Allocation of the Purchase Price. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Buyer and Seller
agree to such Allocation prior to Closing, Buyer and Seller covenant and agree
that (i) the values assigned to the assets by the parties' mutual agreement
shall be conclusive and final for all purposes, and (ii) neither Buyer nor
Seller will take any position before any Governmental Authority or in any
judicial proceeding that is in any way inconsistent with such allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an
Allocation, Buyer and Seller covenant and agree to file, and to cause their
respective Affiliates to file, all tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable law.
1.7 Transfer Taxes. Buyer shall be responsible for all Transfer Taxes
imposed by any local, state or federal governmental authorities in connection
with the sale, transfer or assignment of the Transferred Assets or otherwise on
account of the Transactions, regardless of whether Buyer or Seller is assessed
therefor. Seller shall be responsible for filing the applicable returns and
shall file them in a timely manner. No less than 20 days prior to the due date
of any such returns, Seller shall provide Buyer with the proposed amount of
Transfer Taxes to be reported and remitted. No less than 10 days prior to the
due date of any such returns, Buyer shall either approve the proposed amount or
advise Seller of an adjusted amount of Transfer Taxes to be reported and
remitted. Seller shall report and remit Transfer Taxes in amounts as approved or
adjusted by Buyer. In the event Buyer fails to approve Seller's proposed amount
of Transfer Taxes and fails to advise Seller of an adjusted amount of Transfer
Taxes within 10 days prior to the due date of such return, Seller shall
interpret such inaction on the part of Buyer as direction by Buyer to make no
report of and no remittance of Transfer Taxes. Buyer shall remit to Seller on
the day prior to the due date of such return, by wire transfer of immediately
available funds, the agreed upon amount of Transfer Taxes to be remitted to the
taxing authorities. In the event Seller does not receive the agreed upon amount
of Transfer Taxes to be remitted to the taxing authorities from Buyer on or
before the day prior to the due date of the return, Seller shall interpret such
failure of Buyer to provide funds as direction by Buyer to make no report of and
no
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remittance of Transfer Taxes. Buyer warrants that any adjustments by Buyer to
Seller's proposed amount of Transfer Taxes or any direction by Buyer to make no
report of and no remittance of Transfer Taxes will be based on substantial state
and/or local authority that Transfer Taxes are not due and owing. Buyer shall
indemnify and hold harmless Seller from and against any and all such Transfer
Taxes and any penalties, interest or expenses (including attorneys' fees)
incurred by Seller with respect thereto unless such interest and penalties
result from the actions or omissions of Seller that are unrelated to any
breaches by Buyer of its obligations hereunder.
ARTICLE 2
CLOSING
2.1 Closing. The consummation of the purchase and sale of the Transferred
Assets (the "Closing") shall take place at Seller's offices in Denver, Colorado,
at 10:00 a.m., local time, on the last calendar day of the month in which all
the conditions precedent to Closing set forth in Article 3 have been satisfied
or waived, or on such other date as the parties mutually agree, but in no event
shall the Closing occur later than September 30, 2001 unless the parties shall
mutually agree to extend the date of the Closing. The date that the Closing
actually occurs is referred to as the "Closing Date." If the Closing is
postponed, all references to the Closing Date in this Agreement shall refer to
the postponed date of Closing.
2.2 Deliveries by Seller to Buyer. At or prior to the Closing, Seller will
deliver to Buyer:
2.2.1 Certified copies of all Seller's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Seller;
2.2.2 a duly executed Bill of Sale, in substantially the form of
Exhibit C hereto, and duly executed assignments and other instruments of
transfer sufficient to convey to Buyer title to all the personal property
included in the Transferred Assets;
2.2.3 A duly executed closing certificate of Seller contemplated by
Sections 3.1.1 and 3.1.2;
2.2.4 Releases, satisfactions or terminations of all mortgages,
financing statements or other Encumbrances on any of the Transferred Assets or,
in the alternative, an indemnity of Seller with respect to such Encumbrances in
form and substance reasonably acceptable to Buyer;
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2.2.5 Special warranty deeds covering the Fee Realty and assignments
in customary local form covering the other realty and Interests included in the
Transferred Assets, including all rights-of-way which are by their terms
assignable;
2.2.6 An affidavit in a form complying with Section 1445 of the
Code; and
2.2.7 Such other documents and items as are reasonably necessary or
appropriate to effect the consummation of the Transactions or which may be
customary under local law, including vehicle transfer documentation.
2.3 Deliveries by Buyer to Seller. At or prior to the Closing, Buyer will
deliver to Seller:
2.3.1 The Purchase Price as required by Section 1.4, together with
any proration payment required to be paid on the Closing Date pursuant to
Section 1.5;
2.3.2 Certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Buyer;
2.3.3 A duly executed closing certificate of Buyer contemplated by
Sections 3.2.1 and 3.2.2; and
2.3.4 The Assumption Agreement and such other certificates and
documents as are reasonably necessary or appropriate to effect the consummation
of the Transactions or which may be customary under local law.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. Within 30
days after the date of this Agreement, the parties shall negotiate in good faith
and enter into a Transition Agreement similar in scope to the agreement attached
as Exhibit D hereto. Within 90 days after the date of this Agreement, the
parties shall commence to negotiate in good faith the definitive terms of the
services agreements for the services that Buyer requests Seller to provide upon
Closing and described on Exhibit E hereto. At or prior to the Closing, Buyer and
Seller shall execute and deliver such services agreements. The parties
acknowledge and agree that the agreements contemplated by this Section 2.4 are
an integral part of, and will be entered into as part and parcel to, and in
conjunction with, the other transactions and agreements contemplated by this
Agreement.
2.5 Further Assurances. Except as otherwise provided herein or in the
transition agreements, all instruments of conveyance, assignment or transfer
referred to herein, all sums of money, and all records and data to be delivered
as specified in this Agreement shall be delivered at or prior to the Closing.
The parties agree following the Closing to execute and deliver such further
instruments of conveyance, assignment and assumption as may be reasonably
necessary to give effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities. In addition, in the event of an
inadvertent transfer of Excluded Assets, Buyer shall upon request by Seller
execute and deliver such instruments of conveyance, assignment and transfer as
may be
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reasonably necessary to reconvey such Excluded Assets to Seller and shall
promptly return such Excluded Assets to Seller.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
3.1.1 Representations and Warranties. All representations and
warranties of Seller made in this Agreement shall be true and correct on and as
of the Closing Date as though made at such time, other than inaccuracies in such
representations and warranties that in the aggregate do not have a material
adverse effect on the Business or changes approved by Buyer in writing, and
Seller shall have delivered to Buyer a certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.2 Covenants. Seller shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Seller shall have delivered to Buyer a Certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.3 Governmental Approvals. The State Regulatory Approvals and the
FCC Approval (collectively, "Governmental Approvals") shall have been obtained
and shall be in full force and effect and shall not contain any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date. All such approvals and consents shall be deemed to have been obtained
after the grant thereof has become a Final Order.
3.1.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.1.5 Hart-Scott-Rodino Act. All filings required to be made under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
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3.1.6 Certificates and Other Documents. Seller shall have executed
and delivered the certificates and other documents required by Sections 2.2 and
2.4.
3.1.7 Absence of Material Adverse Change. Since December 31, 1998,
there shall have occurred no casualty or other event or change, not subsequently
cured by Seller, that has resulted in a material adverse effect on the Business,
unless such event has resulted in an amendment to this Agreement as contemplated
by Section 6.1.2.
3.1.8 Material Third Party Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the required
third party consents listed on Schedule 3.1.8 have been obtained and remain in
full force and effect on the Closing Date.
3.1.9 Delivery of Financial Information. Seller shall have delivered
the Required Financial Statements and representation letters, in each case as
and when required by Section 5.2.7.
3.1.10 Environmental Inspections. If it is determined pursuant to
Section 5.3.7 that remediation of potential material liabilities under
Environmental Laws is required, then (i) Seller shall have completed the
remediation to Buyer's reasonable satisfaction, (ii) if Seller elects to exclude
a parcel of Fee Realty, and Buyer so elects, Seller and Buyer shall have entered
into a long-term, low-cost lease, in form and substance reasonably satisfactory
to Buyer, for Buyer's use of such parcel after Closing, or (iii) if Seller
elects to exclude the parcel or the Exchange to which such parcel relates, and
if such parcel alone has been excluded and Buyer has not elected to lease such
parcel, Seller and Buyer shall have agreed in good faith to a reduction in the
Purchase Price. In no event shall Seller be responsible for any other
environmental remediation.
3.1.11 Title Matters. If the aggregate estimated costs and expenses
reasonably necessary to remedy all Encumbrances pursuant to Section 5.3.9
exceeds $10,000 (the "Title Threshold"), Seller shall have removed the Excessive
Encumbrances. "Excessive Encumbrances" means one or more Encumbrances selected
by Seller, the removal of which will bring the aggregate estimated costs and
expenses reasonably necessary to remedy the remaining Encumbrances below the
Title Threshold. Seller shall have removed the Excessive Encumbrances by either
(i) causing the title company to agree to delete such Excessive Encumbrances as
an exception in the Title Commitment or, with the prior written consent of
Buyer, shall have insured over such Excessive Encumbrances by endorsement, or
(ii) if acceptable to Buyer and Seller in each of its reasonable discretion, the
parties shall have entered into a written agreement containing Seller's
commitment to remedy such Excessive Encumbrances on terms reasonably
satisfactory to Buyer. In no event shall Seller have any obligation to cure or
remove any Encumbrance that is not an Excessive Encumbrance.
3.1.12 Billing Conversion. The Steering Committee established
pursuant to the Transition Services Agreement shall have concluded at least
thirty days prior to Closing that the billing system conversion will be
completed by Closing.
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3.2 Conditions to Seller's Obligations. The obligation of Seller to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Seller:
3.2.1 Representations and Warranties. All representations and
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes approved by Seller in writing, and Buyer shall have delivered
to Seller a certificate of Buyer to that effect, dated as of the Closing Date,
signed by an authorized officer of Buyer.
3.2.2 Covenants. Buyer shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Buyer shall have delivered to Seller a Certificate of Buyer to that effect,
dated as of the Closing Date, signed by an authorized officer of Buyer.
3.2.3 Governmental Approvals. All Governmental Approvals shall have
been obtained and shall be in full force and effect. All such approvals and
consents shall be deemed to have been obtained after the grant thereof has
become a Final Order. The terms and conditions of the Governmental Approvals
shall be acceptable in all material respects to Seller in its reasonable
discretion.
3.2.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.2.5 H-S-R Act. All filings required to be made under the H-S-R Act
shall have been made, and the waiting period thereunder shall have expired or
early termination thereof shall have been granted.
3.2.6 Certificates and Other Documents. Buyer shall have delivered
the certificates and other documents required under Sections 2.3 and 2.4.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Buyer's Representations and Warranties. Buyer represents and warrants
to Seller that:
4.1.1 Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Buyer has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.1.2 Corporate Authority. This Agreement has been, and when
executed by Buyer each of the other Transaction Documents will be, duly and
validly executed and delivered by Buyer. This Agreement constitutes, and when
executed by Buyer each of the other Transaction Documents will constitute, the
valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
4.1.3 Governmental Authorizations. Except as contemplated by this
Agreement or as set forth in Schedule 4.1.3, neither Buyer's execution and
delivery of the Transaction Documents nor Buyer's consummation of the
Transactions require authorization or approval of, or filing with, any
Governmental Authority.
4.1.4 Funds. On the Closing Date, Buyer shall have sufficient funds
available to pay the Purchase Price, any proration payment required to be paid
on the Closing Date pursuant to Section 1.4, the amount of any Transfer Taxes to
be paid by Seller as provided in Section 1.6 and to consummate the Transactions.
4.1.5 Litigation. There are no actions, suits, proceedings, claims,
arbitrations or investigations, either at law or in equity, of any kind now
pending (or to the best of Buyer's knowledge threatened) involving Buyer or any
of its properties or assets that (i) question the validity of any of the
Transaction Documents or the Transactions; or (ii) seek to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under the Transaction Documents.
4.1.6 Investigation. Buyer, through its accountants, attorneys,
agents, employees, and others, has made or will have made prior to the Closing
such investigations of the Exchanges and Transferred Assets and of the factual,
legal and other condition and location of the Exchanges and Transferred Assets
that it deems necessary or advisable with respect to the Transactions. Buyer
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has not received from the Seller, or from anyone acting or claiming to act on
behalf of the Seller, any accounting, tax, legal or other similar advice with
respect to the Transactions, and Buyer is relying solely on advice of its own
accounting, tax, legal, and other advisors for such advice. Buyer has based its
decision to acquire the Transferred Assets solely on the results of such
investigations and the representations, warranties and covenants of Seller set
forth herein, and not based on any other information (including without
limitation information contained in Seller's descriptive memorandum) provided to
Buyer by Seller, its Affiliates, employees, agents, representatives or advisors.
4.2 Seller's Representations and Warranties. BUYER UNDERSTANDS THAT,
EXCEPT AS SET FORTH IN THIS SECTION 4.2, SELLER MAKES NO REPRESENTATIONS,
WARRANTIES OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR
TYPE WHATSOEVER WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, AND WARRANTIES AS TO THE APPURTENANCES, FACILITIES AND
IMPROVEMENTS THEREON, OR THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR
ADAPTABILITY THEREOF. Seller represents and warrants to Buyer that:
4.2.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Seller has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.2.2 Authorization, Execution and Delivery. This Agreement has
been, and when executed by Seller each of the other Transaction Documents will
be, duly and validly executed and delivered by Seller. This Agreement
constitutes, and when executed by Seller each of the other Transaction Documents
will constitute, the valid, legal and binding agreement of Seller enforceable
against Seller in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights generally
and by principles of equity.
4.2.3 Transferred Assets. Except with respect to Fee Realty, the
Transferred Assets are, and at the time of Closing will be, owned by Seller and
conveyed, transferred and assigned to Buyer free and clear of all Encumbrances.
The Transferred Assets (i) are in a normal state of repair (except for ordinary
wear and tear), (ii) are sufficient, both in number and condition, to comply
with applicable requirements of State Regulatory Authorities and the
manufacturer's specifications, except for non-compliances that in the aggregate
are not reasonably likely to have a material adverse effect on the Business
following the Closing Date, and (iii) will include all assets of every type,
nature and description that relate to, arise from, are used or held by Seller
primarily in the operation of the Business as presently operated by Seller
(including vehicles and related vehicle stock, portable
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office equipment, test equipment, generators, materials, supplies, tools,
maintenance radio equipment and antennas normally located within the Exchanges
or primarily used in connection with the Business), except for the Excluded
Assets. Assuming the receipt of all required third-party consents, the
instruments and documents to be executed and/or delivered by Seller to Buyer
pursuant to Section 2.2 hereof at or following the Closing Date shall be
adequate and sufficient to vest in Buyer all of Seller's right, title and
interest in or to the Transferred Assets. To Seller's Knowledge, Seller enjoys
peaceful, undisturbed possession under all leases included in the Material
Contracts and rights-of-way and easements with respect thereto and with respect
to the Fee Realty. Notwithstanding the foregoing to the contrary, with respect
to all Fee Realty included in the Transferred Assets, Seller makes no
representations or warranties as to the ownership or Encumbrances thereon, it
being the express agreement of the parties that such matters shall be the
subject of the arrangements set forth in Sections 3.1.11 and 5.3.9.
4.2.4 Governmental Authorization. Except as contemplated by this
Agreement and except for such of the following the absence of which would not
have a material adverse effect on the Business, no authorization or approval of,
or filing with, any Governmental Authority will be required in connection with
Seller's execution and delivery of the Transaction Documents or Seller's
consummation of the Transactions.
4.2.5 Litigation. As of the date hereof there are no actions, suits,
proceedings, claims, arbitrations or investigations, either at law or in equity,
of any kind now pending (or to the best of Seller's Knowledge threatened)
against Seller (i) in which an adverse determination would have a material
adverse effect on the Business; (ii) that question the validity of any of the
Transaction Documents or the Transactions; or (iii) that seek to delay, prohibit
or restrict in any manner any actions taken or contemplated to be taken by
Seller under the Transaction Documents.
4.2.6 Tax Matters. All taxes and assessments, including interest and
penalties thereon, of any kind whatsoever accrued with respect to the Business
through the Closing Date (other than Transfer Taxes and taxes subject to
proration at Closing pursuant to Section 1.4) have been or will be paid in full
by Seller. There are no liens for federal, state or local taxes upon the
Transferred Assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by Seller
in appropriate proceedings, the ultimate liability for which shall remain the
obligation of Seller, and Seller shall indemnify Buyer against all such
liabilities. Seller has timely filed, or will cause to be timely filed, all
federal, state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Business for all periods up to and including the Closing Date.
4.2.7 No Breach. The execution and delivery by Seller of the
Transaction Documents and the consummation by Seller of the Transactions will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of Seller; (ii) violate any
applicable law, statute, ordinance, rule, regulation, code, license,
certificate, franchise, permit, writ, ruling award, executive order, directive,
requirement, injunction (whether
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temporary, preliminary or permanent), judgment, decree or other order
(collectively "Applicable Laws") issued, enacted, entered or deemed applicable
by any Governmental Authorities having jurisdiction over Seller or any of the
Transferred Assets; (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give another
party any rights of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of the Operating Contracts; or (iv) result in
the creation or imposition of any Encumbrance on any of the Transferred Assets,
excluding from the foregoing clauses those violations, breaches or defaults
which individually or in the aggregate would not reasonably be expected to have
a material adverse effect upon the operation of the Business by Buyer after the
Closing.
4.2.8 Compliance with Laws. Except as set forth on Schedule
4.2.18(a), the Business has been operated and the Exchanges are in compliance
with all requirements of the Authorities and all Applicable Laws, except where
Seller's non-compliance would not have a material adverse effect on the
Business. Seller has not received any notice of (and to Seller's Knowledge there
is no reason to anticipate) any material violation of any Applicable Laws.
Notwithstanding the foregoing, except as specifically provided in Section 5.3.7,
Seller hereby disclaims all warranties, whether express or implied, with regard
to the presence of Hazardous Materials in the Transferred Assets or compliance
of the Business with Environmental Laws. Buyer understands and agrees that,
other than as specifically provided in Section 5.3.7, any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Transferred Assets following the Closing Date, including the costs of any
remediation or cleanup associated with the Transferred Assets, or environmental
claim or liability associated with the Transferred Assets, irrespective of when
contamination occurred, is assumed by Buyer on the Closing Date.
4.2.9 Operating Contracts. Schedule 4.2.9(a) sets forth all of the
Operating Contracts of the type described below (the "Material Contracts") that
Seller, after using commercially reasonable efforts, has been able to gather for
Buyer's review. No Operating Contract described in (i) below will be entered
into after the date of this Agreement and no Operating Contract described in
(ii) - (ix) will be entered into after the date of this Agreement other than in
the ordinary course of business:
(i) an agreement containing a non-compete agreement or other
non-compete covenant that in either case would by its terms limit the freedom of
Buyer following the Closing to compete in any respect with respect to the
Business with any third party;
(ii) an agreement granting an Encumbrance on Property other than Fee
Realty;
(iii) an agreement for the sale of any material Transferred Assets
or grant of any preferential rights to purchase any material Transferred Assets;
(iv) a land development agreement or other similar construction
agreement;
(v) a lease of real property;
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(vi) an agreement with respect to 911 services or E911 services;
(vii) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Exchanges;
(viii) an agreement that relates to arrangements and commitments
between Seller and a third party for the third party's location of equipment in
facilities included in the Transferred Assets except to the extent set forth in
a separate interconnection agreement; or
(ix) an agreement other than as set forth above with respect to
which the aggregate amount to be received or paid thereunder attributable to the
Exchanges with respect to calendar year 1999 or any subsequent calendar year is
expected to exceed $50,000 based on the terms of such agreement or on the
payments which have been made under such agreement with respect to calendar year
1998, to the extent applicable.
Schedule 4.2.9(b) identifies (i) each interconnection agreement between
Seller and a third party or an Affiliate of Seller that is applicable to the
Exchanges, (ii) each agreement that relates to arrangements and commitments
between Seller and an Affiliate of Seller for such Affiliate's co-location of
equipment in facilities included in the Transferred Assets that Seller, using
commercially reasonable efforts, has been able to identify, and (iii) each
Exchange where a third party has physically co-located equipment or, to Seller's
Knowledge, where a third party has made a written request to co-locate equipment
located in the Exchanges.
All of the Operating Contracts were made in the ordinary course of
business and are in all material respects valid, binding and currently in full
force and effect. Seller is not in default in any material respect under any of
the Operating Contracts, and to Seller's Knowledge no event has occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default or give rise to a right of termination or cancellation under any of the
Operating Contracts, cause the acceleration of an obligation of Seller, or
result in the creation of any Encumbrance upon any of the Transferred Assets. To
Seller's Knowledge, no other party is in default under any of the Operating
Contracts, nor has any event occurred which, through the passage of time or the
giving, of notice, or both, would constitute a default or give rise to a right
of termination or cancellation under any of the Operating Contracts, or cause
the acceleration of any obligation owed to Seller. Complete and correct copies
of all the Material Contracts in Seller's possession, together with all
modifications and amendments thereto to date of this Agreement in Seller's
possession, have been made available to Buyer or its representatives. Schedule
4.2.9(a) also specifically identifies each lease that requires the consent,
approval or waiver of the other party thereto for the assignment thereof.
4.2.10 Realty. (i) To Seller's Knowledge, the legal descriptions to
be delivered by Seller to the title insurance company shall be complete and
accurate in all material respects; (ii) as of the date hereof, there are no
deferred property taxes or assessments payable by Seller with respect to the Fee
Realty which may or will become due and payable as a result of the consummation
of the
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Transactions, other than Transfer Taxes; (iii) there are no condemnation
proceedings pending or to Seller's knowledge threatened with respect to all or
any part of any parcel of Fee Realty; and (iv) Seller is not a foreign person
within the meaning of Section 1445 of the Code.
4.2.11 Reports. Seller has filed all reports relating to the
Business required by all Applicable Laws to be filed, and it has duly paid or
accrued on its books of account all applicable duties and charges due or
assessed against it pursuant to such reports.
4.2.12 Year 2000 Matters.
(a) Year 2000 Compliance. Seller warrants and represents that to the
best of its knowledge and belief following an effort of commercially reasonable
diligence by Seller, all of its business assets, including but not limited to
information technology and non-information technology systems and facilities and
those of its external suppliers utilized by Seller in the Business and included
in the Transferred Assets ("Business Assets"), are or will be "Year 2000
Compliant" (defined below) on or before the Closing Date. For purposes of this
Agreement, the following definitions apply:
(i) "Date Data" means any data, formula, algorithm, process,
input or output which includes, calculates or represents a date, a reference to
a date or a representation of a date;
(ii) "Year 2000 Compliant" means:
1. the functions, calculations, and other computing processes of the
Business Assets (collectively, "Processes") perform in a consistent manner
regardless of the date in time on which the Processes are actually
performed and regardless of the Date Data inputs to the Business Assets,
whether before, on, during or after January 1, 2000 and whether or not the
Date Data is affected by leap year;
2. the Business Assets accept, calculate, compare, sort, extract,
sequence, and otherwise process all Date Data, and returns and displays
all Date Data, in a consistent manner regardless of the dates used in such
Date Data, whether before, on, during or after January 1, 2000.
3. the Business Assets will function without interruptions caused by
the date in time on which the Processes are actually performed or by the
Date Data inputs to the Business Assets, whether before, on, during or
after January 1, 2000;
4. the Business Assets store and display all Date Data in ways that
are unambiguous as to the determination of the century;
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5. no Date Data will cause one or more Business Assets to perform an
abnormally ending routine or function within the Processes or generate
incorrect values or invalid results; and
6. each of the Business Assets will properly exchange Date Data with
all other Business Assets that it may interact or inter-operate with.
(b) Year 2000 Testing. Seller warrants that the Business Assets have
been tested by Seller and/or Seller's suppliers of Business Assets to determine
whether each of the Business Assets is Year 2000 Compliant. Seller's suppliers
of Business Assets have represented to Seller that the Business Assets provided
by them are Year 2000 Compliant and/or have been tested by those suppliers to
determine whether such Business Assets are Year 2000 Compliant. Seller will
notify Buyer immediately of the results of any test or any claim or other
information that indicates any Business Asset is not Year 2000 Compliant.
(c) Year 2000 Remedies. In the event that Buyer encounters a
Business Asset that is not Year 2000 Compliant, within a commercially reasonable
period after receipt from Buyer of written notice thereof, Seller shall at its
expense cause the identified non-compliant Business Asset to be repaired or
replaced.
4.2.13 Correct Records. The financial records, ledgers, account
books and other accounting records of Seller relating to the Business are
current, correct and complete and, if required by applicable law, conform with
the rules and regulations of the FCC and the State Regulatory Authorities,
except for instances that in the aggregate are not reasonably likely to have a
material adverse effect on the Business following the Closing Date and except
for the Continuing Property Records for the Exchanges, which are dealt with
specifically elsewhere in this Agreement. Seller has retained substantially all
original cost documentation relating to the regulated Business regarding the
expenditures made by Seller within the period required by Applicable Law that
relate to the Property, and such original cost documents are correct and
complete in all respects, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
4.2.14 Tribal and Federal Consents.
(a) To Seller's Knowledge, all easements, rights-of-way, franchises,
licenses, permits, consents, approvals, certificates and other authorizations of
tribal authorities and the United States Bureau of Indian Affairs (the
"BIA")(collectively, "Tribal Authorizations") held by Seller and relating to any
Purchased Property located, or any operations of the Business conducts, on
Native American reservations are in full force and effect, Seller is not in
material default thereunder, and there are no other Tribal Authorizations
required to be obtained by Seller from, or filings required to be made by Seller
with, any tribal authority or the BIA with respect to any such Purchased
Property or any such operations of the Business, except for instances that in
the aggregate are not reasonably likely to have a material adverse effect on the
Business following the Closing Date.
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(b) Except as set forth on Schedule 4.2.14(b), to Seller's Knowledge
no consent, approval or waiver from, or filing with, any tribal authority or the
BIA is required to be obtained or made in connection with the execution and
delivery by Seller of this Agreement, or Seller's fulfillment of its obligations
under this Agreement, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(c) If during the period between the date of this Agreement and the
Closing Date the representation and warranty set forth in this Section 4.2.14
proves to be untrue with respect to one or more parcels of Realty and Buyer and
Seller in good faith have been unable to remedy the circumstances that causes
such representation and warranty to be untrue with respect to such parcel, at
the election of either Buyer or Seller such parcel shall be excluded from the
Transferred Assets, and Buyer and Seller shall in good faith reduce the Purchase
Price accordingly.
4.2.15 Financial Statements.
Within 15 business days of the date hereof, Seller shall deliver to Buyer
a copy of financial statements relating to the Business, consisting of a balance
sheet and income statement and statements of cash flow and changes in equity for
the Business as of and for the respective periods ended December 31, 1996,
December 31, 1997, and December 31, 1998, together with the auditor's report
thereon (the "Financial Statements"). The Financial Statements were prepared
based upon the books and records of Seller, fairly present in all material
respects the financial condition of the business as of the appropriate periods
and the results of operations for the year then ended, in each case in
conformity with GAAP.
4.2.16 Loss of Major Customer. Except as set forth on Schedule
4.2.16, since June 1, 1997, Seller has not suffered the loss of any customer of
the Business that had billings in any year in excess of $25,000.
4.2.17 CPRs; Vehicles. Seller has provided Buyer with its Continuing
Property Records ("CPRs") for the Exchanges. Schedule 4.2.17 contains a true and
complete list and description (including vehicle identification numbers) as of
June 1, 1999 of the vehicles that are included in the Transferred Assets.
4.2.18 Tariffs and Authorities.
(a) The regulatory tariffs applicable to the Business stand in full
force and effect on the date of this Agreement in accordance with all terms, and
there is no outstanding notice of cancellation or termination or, to Seller's
Knowledge, any threatened cancellation or termination in connection therewith,
nor is Seller subject to any restrictions or conditions applicable to its
regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material
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respect under any such tariff. Schedule 4.2.18(a) sets forth all applications by
Seller or complaints or petitions by others or proceedings pending or, to
Seller's Knowledge, threatened before the state regulatory authority relating to
the Business or its operations or the regulatory tariffs that Seller, after
using commercially reasonable efforts, has been able to identify. To Seller's
Knowledge, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Business
has been delivered or made available to Buyer.
(b) Listed on Schedule 4.2.18(b) are the material Authorities held
by Seller and used in the operation of the Business. Each of such Authorities is
in full force and effect of the date of this Agreement in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor are any of such Authorities subject to any restrictions or
conditions that limit the operation of the Business (other than restrictions or
conditions generally applicable to licenses or permits of that type). Subject to
the Communications Act of 1934, as amended, and the regulations thereunder, the
FCC licenses included in the Authorities are free from all security interests,
liens, claims or encumbrances of any nature whatsoever. Except as disclosed on
Schedule 4.2.18(c), there are no applications by Seller or complaints or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC licenses that would reasonably be expected to have a
material adverse impact on the Business.
4.2.19 Environmental Matters.
(a) Schedule 4.2.19(a) accurately describes each incident known to
Seller and arising since December 31, 1996, involving violation of or
noncompliance with Environmental Laws in connection with Seller's operation of
the Business or the use or ownership of the Transferred Assets with respect to
which the fines exceed $100,000. Except as will be set forth on Schedule
4.2.19(d), no environmental remediation is occurring on any parcel of Fee Realty
or leased real property included in the Transferred Assets nor has Seller or any
Affiliate of Seller issued a request for proposal or otherwise asked an
environmental remediation contractor to begin plans for environmental
remediation.
(b) Schedule 4.2.19(b) sets forth a true and accurate list of all
underground storage tanks ("USTs") and aboveground storage tanks ("ASTs")
located on the Fee Realty and the leased real property included in the
Transferred Assets that are in use.
(c) Except as set forth in Schedule 4.2.19(c) and, to the extent
such information is unavailable on the date of execution of this Agreement, as
set forth and supplemented on Schedule 4.2.19(d), none of the Fee Realty or
leased real property is (i) situated in a federal "Superfund" site or, to
Seller's Knowledge, in any federal "Superfund" study area, or (ii) to Seller's
Knowledge, situated in a site or study area that is covered by Volume 8, Title
118, Title 119, Title 122 or Title 128 of the Nebraska Administrative Rules and
Regulations, as amended.
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(d) Within 30 days from the date of this Agreement, Seller will
prepare and deliver to Buyer Schedule 4.2.19(d), which schedule will list (i)
all environmental remediation occurring on any parcel of Fee Realty or leased
real property included in the Transferred Assets, (ii) any requests for
proposals for remediation, (iii) any requests by Seller or any Affiliate of
Seller to begin plans for environmental remediation, (iv) all USTs and ASTs
located on the Fee Realty and the leased real property included in the
Transferred Assets that, to Seller's Knowledge, have been abandoned in place,
and (v) each incident known to Seller and arising since December 31, 1996,
involving violation of or noncompliance with Environmental Laws in connection
with Seller's operation of the Business or the use or ownership of the
Transferred Assets with respect to which the fines exceed $10,000. In addition,
within such period, Seller shall deliver to Buyer complete copies of letters of
non-compliance with respect to each incident listed in subsection (v) above,
copies of AST and UST closure letters contained in the files and records of
Seller, copies of all No Further Action letters contained in the files and
records of Seller, and a description of the status of any existing fuel tank
remediation.
4.2.20 Employee Benefits.
(a) Schedule 4.2.20(a) lists each Employee Benefit Plan and Other
Plan maintained or contributed to by Seller or its affiliates for the benefit of
any employee employed by, or associated with, the Business (hereinafter, an
"employee of the Business"). Seller has provided Buyer with full and complete
copies (including all amendments) of all of such Employee Benefit Plans and
Other Plans.
(b) To Seller's Knowledge, each such Pension Plan, Welfare Plan and
Other Plan maintained by Seller has been operated in accordance with its terms
and in accordance with applicable law, to the extent that the failure to do so
would have material adverse effect on the Business or its assets.
(c) Except as otherwise set forth on Schedule 4.2.20(c), no Employee
Benefit Plan or Other Plan provides benefits for persons who are not active
employees of Seller.
(d) Except as set forth on Schedule 4.2.20(g), there are no actions,
suits or claims pending or threatened (other than routine claims for benefits)
relating to any Employee Benefit Plan or Other Plan identified in Schedule
4.2.20(a) except for actions, suits or claims that are not in the aggregate
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(e) Seller does not maintain any Employee Benefit Plan or Other Plan
under which it would be obligated to pay benefits because of the consummation of
the transaction contemplated by this Agreement, which could become an obligation
of the Buyer.
(f) Seller has used its best efforts to maintain each trust forming
a part of any Pension Plan identified in Schedule 4.2.20(a) which is not exempt
from Part 2, 3 and 4 of Title I of
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ERISA to meet all requirements for qualification under Sections 401 and 501 of
the Internal Revenue Code, and all applicable related rules and final
regulations.
(g) Schedule 4.2.20(g) sets forth all the exceptions to the
following statements that Seller, after using commercially reasonable efforts,
has been able to identify: (i) Seller is not subject to any collective
bargaining agreement covering any employees of the Business; (ii) there are no
current, or to Seller' Knowledge, any pending or threatened strikes, slowdowns,
picketing, work stoppages or lock-outs affecting the Business; (iii) to Seller's
knowledge, there is no pending or threatened organized activity or petition for
certification of a collective bargaining representative involving employees of
the Business; (iv) to Seller's Knowledge, there is no pending or threatened
charge, action, complaint, or proceeding of any nature against Seller relating
to the violation of any applicable state and federal labor or employment law or
regulation in connection with the Business, nor is there any other pending or
threatened labor or employment dispute against or affecting Seller in connection
with the Business ,except for items that in the aggregate are not reasonably
likely to have a material adverse effect on the Business following the Closing
Date; and (v) with respect to employees of the Business, Seller has complied in
all respects with the laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupation safety and health, immigration, and plant closings ,except
for items that in the aggregate are not reasonably likely to have a material
adverse effect on the Business following the Closing Date. Seller has delivered
to Buyer accurate and complete copies of all collective bargaining agreements
affecting any of the employees in the Exchanges.
"Employee Benefit Plan" means any Pension Plan and Welfare Plan within the
meaning of Section 3(3) of ERISA.
"Other Plan" means any employment, noncompetition, management, agency or
consulting arrangement, bonus, profit sharing, deferred compensation, incentive,
stock option, stock ownership or stock purchase plan, severance or unemployment
arrangement, vacation pay, fringe benefit or other similar plan, policy or
arrangement, whether or not in written form, which does not constitute an
Employee Benefit Plan and which is not listed on Schedule 4.2.20(a).
"Pension Plan" means any employee pension plan within the meaning of
Section 3(2) of ERISA.
"Welfare Plan" means any employee welfare benefit plan within the meaning
of the Section 3(1) of ERISA.
4.2.21 Accuracy of Information Furnished.
(a) To Seller's Knowledge:
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(i) Seller made a good faith effort, given the voluminous
nature of the material available with respect to the Transferred Assets, the
necessity to present in many cases representative documents or descriptions of
documents, and Seller's need to maintain certain competitive information
confidential, to include in the due diligence notebooks contained in the Data
Room located in Seller's offices in Denver, Colorado all documents or
appropriate descriptions of all documents that, in Seller's reasonable opinion,
a reasonable prospective acquiror of the Transferred Assets would deem to be
material in its decision; and
(ii) Seller did not intentionally and consciously decide to
(1) exclude from the due diligence notebooks (2) withhold from Buyer in response
to Buyer's requests for additional information or (3) not make available for
review by Buyer or its agents at Seller's offices in Denver, Colorado any
document relating to the operation of the Business as currently conducted which,
in Seller's reasonable opinion, a reasonable prospective acquiror of the
Transferred Assets would deem to be material in its decision to acquire the
Transferred Assets.
4.2.22 No Material Adverse Change. Since December 31, 1998 there has not
occurred (i) any event or condition that would have a material adverse effect on
the Business, (ii) any increase in compensation payable or to become payable by
Seller to any of its Hired Employees or agents, other than normal merit or
promotional increases and pursuant to any collective bargaining agreements,
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract, except any amendment or termination in the
ordinary course of business or (iv) any change in any accounting method,
practice or policy of Seller with respect to the Business.
ARTICLE 5
COVENANTS
5.1 Covenants of Buyer. Buyer hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.1.1 Continued Efforts. Buyer will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Buyer; (ii) cause to be performed all of
the actions required of Buyer at or prior to the Closing; and (iii) take such
steps and do all such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect as
if the same had been made as of the Closing Date. Without limiting the
foregoing, Buyer agrees if requested by Seller to apply for or otherwise seek
any required third-party consents on a joint basis.
5.1.2 Cooperation. Buyer agrees to cooperate with Seller with
respect to (i) Seller's assignment to Buyer and Buyer's assumption of the
Transferred Assets hereunder, and (ii) Seller's structuring of the Transactions
to comply with the requirements of a like-kind exchange under Section 1031 of
the Code (a "1031 Transaction") at no additional expense to Buyer, such
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cooperation to include, without limitation, purchase of the Transferred Assets
from a "qualified intermediary" (as defined in Section 1031) of Seller's choice
and execution of such documents in connection with the Transactions as Seller
may reasonably request. If Seller elects to pursue the Transactions as a 1031
Transaction, then (i) notwithstanding anything in this Agreement to the
contrary, Seller shall fully indemnify, defend and hold Buyer harmless from and
against any and all liabilities resulting therefrom, including, but not limited
to, any tax impacts on Buyer or the Transferred Assets, and (ii) Seller shall
remain directly and primarily bound by all other conditions, representations,
warranties and covenants contained herein and remedies related thereto.
5.1.3 Employee Matters.
(a) Buyer agrees that, during the period between the date hereof and
the Closing Date and for a period of 18 months thereafter, without the prior
written consent of Seller, Buyer will not actively solicit for employment any
employee of Seller other than those persons identified by Seller to Buyer in
writing as provided in this Section 5.1.3 or who respond to a general
solicitation of employment made by Buyer.
(b) As soon as practicable following the date hereof and as
permitted by applicable law and collective bargaining agreements, Seller shall
provide to Buyer a list of all employees whose services are primarily related to
the Exchange (the employees on such list being referred to as "Prospective
Hires"). Buyer shall have the right to audit such list to determine that it
contains an accurate and complete listing of all Prospective Hires, and Seller
shall cooperate in providing Buyer with such information as Buyer may reasonably
request to assist in such audit. Within 90 days following the date of this
Agreement, and consistent with applicable law and any collective bargaining
agreement, Seller shall provide Buyer with a definitive list of Prospective
Hires, such list to contain the name, job classification, position, title, date
of hire, current salary or wage, bargaining unit, primary exchange(s), work
location, telephone number and last known address of each Prospective Hire.
(c) Buyer may, but shall have no obligation to, employ or offer
employment to any Prospective Hire. Seller shall cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview the Prospective
Hires to make hiring decisions. At least 60 days before the scheduled Closing
Date, Buyer shall provide to Seller in writing a list of the Prospective Hires
that Buyer intends to offer employment. At least 45 days before the scheduled
Closing Date, Buyer shall notify those Prospective Hires whom Buyer intends to
hire on the Closing Date; the form and manner of such notification shall be
reasonably satisfactory to and approved in advance by Seller. Buyer shall be
permitted to conduct appropriate pre-hire investigations of such named
Prospective Hires and make any offer of employment for such Prospective Hires
conditional upon receiving results of such investigations as are satisfactory to
Buyer.
(d) As of the Closing Date, Seller shall separate from its payroll
the employment of all of the Prospective Hires to whom Buyer has made offers of
employment other than any such Prospective Hire who has been offered employment
by Buyer and who is on leave status, including
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employees receiving Workers' Compensation Benefits, as of the Closing Date
(each, an "Employee on Leave Status"). Buyer shall employ any Employee on Leave
Status (i) who is on approved leave under the Family and Medical Leave Act on
the Closing Date only when such Employee on Leave Status returns to work from
such approved leave under the Family and Medical Leave Act or (b) who is
receiving Workers' Compensation Benefits on the Closing Date only when such
Employee on Leave Status is released to return to work but only if such release
occurs within sixteen weeks after the date of initial eligibility for Workers'
Compensation Benefits, in each case subject to Buyer's right to conduct
appropriate pre-hire investigations of such Employee on Leave Status and to
Buyer's receipt of results of such investigations that are satisfactory to
Buyer.
(e) Seller shall be responsible for and shall cause to be discharged
and satisfied in full all amounts owed to any Prospective Hire who is employed
by Seller as of the Closing Date, including salaries, commissions, bonuses,
deferred compensation, severance, insurance, vacation, and other compensation or
benefits to which they are entitled for periods prior to the Closing (and for
Employee on Leave Status, until their employment by Buyer, as set forth in
Section 5.1.3(d) hereof), including all amounts (if any) payable on account of
the termination of such Prospective Hires.
(f) Seller will be responsible for maintenance and distribution of
benefits accrued under any Employee Benefit Plan maintained by Seller pursuant
to such plan and any legal requirements. Buyer will not assume any obligation or
liability for any such accrued benefits under any employee benefit plans
maintained by Seller.
(g) Nothing in this Section 5.1.3 or elsewhere in this Agreement
shall be deemed to make any Prospective Hire a third party beneficiary of this
Agreement.
(h) Seller acknowledges and agrees that Buyer has not agreed to be
bound, and will not be bound, by any provision of any collective bargaining
agreement or similar contract with any labor organization to which Seller or any
of its Affiliates is or may become bound.
(i) Seller shall provide employees of the Business with any required
notices under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller.
5.1.4 Directory Publishing Rights. Buyer will enter into good faith
negotiations with U S WEST Dex, Inc. ("Dex"), an Affiliate of Seller (or its
successor so long as such successor remains an Affiliate of Seller), concerning
an agreement whereby either (i) Dex will publish all subscriber listings
corresponding to the Exchanges on behalf of Buyer in satisfaction of Buyer's
regulatory obligations to publish such listings, or (ii) Buyer will license such
listings to Dex in accordance with Buyer's regulatory obligations to provide
such listings in the event that Buyer elects to publish or arrange with a third
party to publish such listings.
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5.1.5 911 Emergency Services. Buyer will obtain or contract for the
appropriate 911 emergency data bases in order to commence providing 911
emergency services in connection with the operation of the Business as of the
Closing Date.
5.2 Covenants of Seller. Seller hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.2.1 Access to Information and Facilities. Seller will afford Buyer
and its representatives, at Buyer's sole expense, reasonable access during
normal business hours to all Transferred Assets, facilities, properties, books,
accounts, records, contracts and documents of or relating to the Business in
Seller's possession or control. Seller shall exercise commercially reasonable
efforts to furnish or cause to be furnished to Buyer and its representatives all
data and information in Seller's possession concerning the Exchanges as shall
reasonably be requested by Buyer. Seller shall exercise commercially reasonable
efforts to gather additional Material Contracts for Buyer's review.
Seller acknowledges and agrees that Buyer's ongoing review, examination
and investigation of the Business and the Transferred Assets, facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business contemplated in the immediately preceding sentence is necessary to
facilitate the assimilation of the Business into Buyer's operations, the
transfer of the ownership and use of the Transferred Assets from Seller to Buyer
and other reasonable business purposes, and may include the following
activities:
(i) review of the Operating Contracts and Authorities, the
performance of which after Closing is an Assumed Liability (e.g., land
development agreements, 911 and E911 service agreements and customer
prepaid maintenance agreements) in order, among other things, to identify
those that require third party consent to assign to Buyer, those that
expire prior to or soon after the Closing and those that may require
special documentation to transfer to Buyer;
(ii) investigation of the third party arrangements included among
the Excluded Assets that Buyer will need to replicate or replace,
including interconnection agreements and national account agreements that
affect any Exchange.
(iii) examination of various assets included in the Property in
order, among other things, to determine what changes Buyer may need to
make to such assets after the Closing Date;
(iv) investigation of miscellaneous underwriting data, including an
insurance claims history of Seller relating to the operation of the
Business and the ownership or use of the Transferred Assets, the current
surety bonds and certificates of insurance relating to the Transferred
Assets, and Seller's policies and practices relating to pertinent
environmental, health, safety and property protection issues, in order for
Buyer to arrange appropriate
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insurance coverage by Closing with respect to Buyer's operation of the
Business and ownership and use of the Transferred Assets after the Closing
Date;
(v) investigation of the location and organization of the Records,
including the original cost documents and outside plant maps relating to
the Property, in order for the parties to arrange for appropriate delivery
(including via electronic transfer) or retention by Seller upon the
Closing;
(vi) review of the appropriate financial and accounting records of
Seller relating to the operation of the Business in order, among other
things, for Buyer to analyze the current balances and writeoff history of
the materials and supplies inventory included in the Transferred Assets,
the aging and write-off history of Accounts Receivable, and the manner in
which the Seller historically has allocated costs to the Purchased
Exchanges;
(vii) review of the ongoing State Regulatory Authorities and FCC
reporting obligations of Seller and Buyer relating to the Exchanges,
including responsibility for filing "form M" financial information, FCC
Report No. 43-04, Armis Joint Cost Report, and FCC Report No. 43-8, Armis
Operating Data Report, for the Exchanges for the year in which the Closing
Date occurs;
(viii) investigation of the construction and plant upgrade
activities of Seller between the date of execution of this Agreement and
the Closing Date, including a review of the construction work in progress,
in order, among other things, to enable Buyer to make appropriate
arrangements for the continuation of such activities after the Closing
Date; and
(ix) investigation of other regulatory issues, including with
respect to regulatory mandates and matters relating to the National
Exchange Carrier Association (including the Universal Service Fund, Local
Switching Support, and Telecommunications Relay Services funds) and
corresponding funds established by the State Regulatory Authorities.
The parties agree to cooperate and to negotiate in good faith regarding
resolution, on commercially reasonable terms and conditions, of issues and
concerns raised by either party in connection with such activities. Each party's
cooperation will include making appropriate subject matter experts and other
knowledgeable personnel available to meet with the appropriate representatives
of the other party and facilitating Buyer's contacts with the appropriate
Governmental Authorities (including the State Regulatory Authorities).
5.2.2 Continued Efforts. Seller will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Seller; (ii) cause to be performed all
of the actions required of Seller at or prior to the Closing; and (iii) take
such steps and do such acts as may be necessary to make all of its warranties
and representations true and correct as of the Closing Date with the same effect
as if the same had been made as of the Closing Date.
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5.2.3 Maintenance of Business. Seller shall carry on the Business in
the usual and ordinary course and substantially in the same manner as heretofore
conducted. Accordingly, Seller shall (i) maintain its books and records in the
normal and usual manner, (ii) keep the Transferred Assets in a normal state of
repair (except for ordinary wear and tear) and operating efficiency to permit
the conduct of the Business as it is currently being conducted; (iii) use its
commercially reasonable efforts to undertake or complete capital projects as
budgeted on Schedule 5.2.3(iii) and any capital projects required by Applicable
Laws or any Governmental Authority to be undertaken by the Closing Date (it
being understood and agreed that Seller shall have no obligation for any capital
spending other than in connection with such capital projects and as required to
comply with the provisions of this Section 5.2.3 and provided that Seller shall
be entitled to the Purchase Price adjustment (to the extent applicable) pursuant
to Section 1.4.3(a)); (iv) not increase the benefit provided under any plans
concerning employee benefits or increase the general rates of compensation of
its employees in the Exchanges, except (a) as required by Applicable Law, (b)
pursuant to any contracts existing on the date hereof and listed on Schedule
5.2.3(iv) to which Seller is a party, (c) increases in base pay or bonuses in
the ordinary course of business of Seller and in amounts consistent with the
recent past practices of Seller, or (d) as listed or described on Schedule
5.2.3(iv); and (v) not amend, modify or terminate any contract identified on
Schedule 4.2.9 or permit any of the foregoing to occur other than in the
ordinary course of business.
5.2.4 Consent to Assignment. Seller will transfer to Buyer all
Operating Contracts and permits that are by their terms assignable. Seller shall
also request assignment to Buyer of those Operating Contracts and permits that
are not by their terms assignable. To the extent that the assignment of any
Operating Contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Operating
Contract or permit if an attempted assignment would constitute a breach thereof.
Seller shall use commercially reasonable efforts (excluding the payment of
money) to obtain the consent of any other party to the assignment of such
Operating Contracts or permits to Buyer. If any such consent is not obtained, to
the extent permitted by Applicable Law, this Agreement shall constitute an
equitable assignment by Seller to Buyer of all of Seller's right, title, and
interest in and to such Operating Contracts and permits, and Buyer shall be
deemed Seller's agent for the sole purposes of completing, fulfilling and
discharging all of Seller's rights and obligations arising after the Closing
Date under such assigned Operating Contracts and permits.
5.2.5 Payment and Performance of Obligations. Seller will timely pay
and discharge all invoices, bills and other monetary obligations (other than
obligations which are contested by Seller in good faith) and shall not knowingly
perform or fail to perform any act which will cause a material breach of any of
the Operating Contracts.
5.2.6 Restrictions on Sale of Transferred Assets. Seller shall not
sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose
of any of the Transferred Assets except in the ordinary course of the Business.
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5.2.7 Audit or Review of Financial Statements. To the extent Buyer
reasonably requires audited or reviewed financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, Seller
will cooperate with the independent auditors chosen by Buyer in connection with
their audit of any annual financial statements that Buyer reasonably requires to
comply with Regulations S-X and S-K, and their review of any interim quarterly
financial statements that Buyer reasonably requires to comply with Regulations
S-X and S-K. If Closing has not occurred prior to March 31, 2000, then as soon
as practicable but in any event by May 15, 2000. Seller will provide for audit a
balance sheet as of December 31, 1999, and an income statement and statement of
cash flows and changes in equity for the year ending December 31, 1999. The
financial statements to be audited or reviewed pursuant to this Section 5.2.7,
are hereinafter referred to as the "Required Financial Statements." Seller's
cooperation will include (i) such access to Seller's employees who were
responsible for preparing the Required Financial Statements and to workpapers
and other supporting documents used in the preparation of the Required Financial
Statements as may be reasonably required by such auditors to perform an audit in
accordance with generally accepted auditing standards, (ii) delivery of any
Required Financial Statements within 45 days after Buyer's request for the same
(except as otherwise provided in the second sentence of this Section 5.2.7) and
in the form required by Regulations S-X and S-K, and (iii) delivery of one or
more representation letters from Seller to such auditors that are requested by
Buyer to allow such auditors to complete the audit (or review of any interim
quarterly financials), and to issue an opinion acceptable to the SEC with
respect to the audit or review of those Required Financial Statements. Seller
will bear the cost of preparation of the Required Financial Statements. Buyer
and Seller will share equally the cost of the audit or review.
5.2.8 [Intentionally Deleted]
5.2.9 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information and reasonable assistance as Buyer may reasonably request
in connection with Buyer's replacement of the interconnection agreements
relating to the Exchanges, including supplying to Buyer copies of such
interconnection agreements to the extent permissible and, to the extent
requested by Buyer and in compliance with applicable law, contacting the other
party to such interconnection agreements to notify such party that its
interconnection agreement will not apply to the Buyer and the Exchanges after
Closing. Buyer acknowledges its obligation to negotiate interconnection
agreements with third parties that have ongoing interconnection activities
related to the Exchanges with the expectation that interconnection agreements
between Buyer and such third partes will be entered into effective as of the
Closing Date. If such agreements are not entered into or, if required, approved
by appropriate Governmental Authorities, Buyer will offer to provide
interconnection to such third parties according to the terms of the Seller's
interconnection agreements with such third parties until the Buyer's new
agreements with such third parties are entered into or, if required, approved by
appropriate Governmental Authorities.
5.2.10 State Regulatory Authority/FCC Filings. Seller shall make all
necessary filings with the State Regulatory Authorities, the FCC or any other
Governmental Authority between
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the date of this Agreement and the Closing Date. Seller shall notify Buyer of
any significant proposed changes in the rates, charges, standards of service or
accounting of the Exchanges from those in effect on the date of this Agreement
prior to making any filing with the State Regulatory Authorities, FCC or any
other Governmental Authority (or any amendment thereto), or effecting with any
Governmental Authority any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto. Between the
date of this Agreement and the Closing Date, Seller shall use commercially
reasonable efforts to notify Buyer before Seller files any application,
petition, motion, brief, testimony, settlement agreement or other pleading in
any proceeding before the State Regulatory Authorities, FCC or any other
Governmental Authority or appeals related thereto with respect to which Buyer or
an Affiliate of Buyer has or reasonably could be expected to take a contrary
position that reasonably could be expected to have any adverse effect on the
revenue, earnings, or business of Buyer. Seller will give or cause to be given
to Buyer, as promptly as reasonably practicable, copies of all correspondence
(including notices, complaints, and pleadings) with any Governmental Authority
relating to any such proceeding or other rate regulatory matter that is sent or
received by Seller after the date of this Agreement.
5.2.11 Missing Plant.
(a) If, between the period commencing on execution date of the
Agreement and ending six months after the effective time of Closing, Buyer
notifies Seller in writing regarding items of Property (other than items that
have been fully depreciated on the books and records of Seller, items that are
no longer used in or necessary to the Business, and items covered by Section
5.2.11(b)) that are included in the CPRs relating to the Exchanges but that
Buyer, using commercially reasonable efforts, cannot locate in the Exchanges or
that have been sold, transferred or removed from the Exchanges by Seller or an
Affiliate of Seller, then Seller, at its option, either (i) shall pay to Buyer
(or reduce the Purchase Price by) an amount equal to the net book value of such
items as reflected on the books and records of Seller or (ii) deliver to Buyer
such items or replacement items that have reasonably comparable (or superior)
value, vintage and functionality; provided, however, that Seller shall have no
obligation under this Section 5.2.11(a) until the aggregate net book value of
all such items, together with the aggregate net book value of all such similar
items identified in Section 5.2.11 of each of the Multi-State Exchange Purchase
Agreements, exceeds $400,000, at which time Seller shall become obligated under
this Section 5.2.11(a) with respect to all items so identified by Buyer in all
notices delivered to Seller on or before the date that is six months after the
effective time of Closing; and provided, further that Seller shall have no
obligation under this Section 5.2.11(a) to the extent that the Maximum
Adjustment Amount shall have been reached.
(b) At Closing, Seller shall cause the Transferred Assets to include
all vehicles listed on Schedule 4.2.17 except to the extent any such vehicle has
been replaced with items of reasonably comparable (or superior) value, vintage
and functionality, in which event Seller shall cause such replacement items to
be included in the Transferred Assets.
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5.2.12 Third Party Software Licenses. To the extent that the transfer of
Transferred Assets by Seller to Buyer under this Agreement results in the
transfer of third party software that was rightfully used by Seller prior to the
Closing Date in the normal course operation of the Business pursuant to
contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then effective as of the Closing and provided
that no payments to any person are thereby required (except with respect to
payments relating to the transfer of switch software, which will be shared
equally by Buyer and Seller), at Closing Seller shall assign to Buyer, to the
extent permitted by the Third Party Intellectual Property Contracts, and Buyer
shall accept all rights and licenses if any to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses.
5.3 Mutual Covenants.
5.3.1 Confidentiality. Each party to this Agreement agrees to hold
in strict confidence all Confidential Information received from the other party,
whether received before or after entering into this Agreement, and to use such
information solely for the purposes of this Agreement. Each party agrees to make
no more copies of such Confidential Information than is reasonably necessary for
such purposes. Each party agrees that it will not make disclosure of any such
Confidential Information received from the other party to anyone except as
specifically permitted by this Agreement and as required by law. Each party may
disclose Confidential Information to its employees and agents to whom disclosure
is necessary for the purposes set forth above, provided that disclosing party
shall notify each such employee and agent that disclosure is made in confidence
and instruct such employees and agents that such Confidential Information shall
be kept in confidence by such employee and agent in accordance with this
Agreement. If the Transactions are not consummated for any reason, each party
agrees to return to the other party all such Confidential Information, including
all copies thereof, immediately on request. The obligations arising under this
section shall survive any termination or abandonment of this Agreement. This
Agreement will be filed on a confidential basis with the State Regulatory
Authorities. The provisions of the existing Confidentiality Agreement between
Buyer and Seller dated January 15, 1999 are incorporated herein by reference.
5.3.2 Public Announcements. No public announcement with respect to
this Agreement or the transactions contemplated hereby shall be made before the
Closing without the mutual prior approval of both Seller and Buyer, which
approval shall not be unreasonably withheld; provided, however, that each party
shall be permitted to make such disclosure to its lenders or to any Governmental
Authority, including but not limited to the Securities and Exchange Commission
or similar state securities authorities, necessary to comply with any applicable
laws and to obtain all required Governmental Approvals necessary to consummate
the Transactions, or to any stock exchange upon which such party has a class of
securities listed. Notwithstanding the foregoing, the disclosing party shall
give the non-disclosing party reasonable advance notice of any permitted
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disclosure to third parties under this Section 5.3.2 and shall provide the
non-disclosing party with a reasonable opportunity to review and comment on such
disclosure.
5.3.3 Cooperation. Each party covenants to use all commercially
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all things, that are necessary, proper or advisable under applicable
laws and regulations, expeditiously and practicably to consummate and make
effective the Transactions, including but not limited to (i) using its
commercially reasonable efforts to resolve any disagreements between Buyer and
Seller with respect to any applications for governmental or regulatory approval
prior to application for such approval, (ii) facilitating the regulatory
approval process by agreeing that Buyer will adopt and maintain intrastate
tariffs similar in all material respects to Seller's intrastate tariffs in
effect for the Exchanges on the Closing Date for a period of at least six months
following the Closing Date, provided that such tariffs of Seller are
substantially similar to the tariffs of Seller in effect on the date of this
Agreement except that Buyer's tariffs will reflect rate changes by Seller (x)
made prior to Closing as required by an order of a State Regulatory Authority
that has been issued prior to the date of this Agreement or (y) made prior to
Closing to the extent such changes are substantially revenue neutral to the
Exchanges, (iii) obtaining all necessary actions, waivers, consents and
approvals from third parties or Governmental Authorities, and (iv) effecting all
necessary filings with Governmental Authorities, and to consummate the
agreements referred to in Section 2.4.
5.3.4 State Regulatory Filings. Seller and Buyer agree to promptly
file after execution of this Agreement any required applications and to take
such reasonable actions as may be necessary or helpful (including, but not
limited to, making available witnesses, information, documents, and data
requested by the State Regulatory Authorities) to apply for and receive approval
by the State Regulatory Authorities for the transfer of the Transferred Assets
and Authorities to Buyer. To the maximum extent practicable, all communications
with the State Regulatory Authorities shall be made jointly by Buyer and Seller.
In connection with making such required applications to the State Regulatory
Authorities, Buyer agrees to cooperate with Seller in appropriate public
relations activities, including participation in "town hall" meetings with
citizens, contacts with civic and business leaders, legislators and government
officials, and other activities designed to establish Buyer's presence in and
commitment to the communities in which the Exchanges are located. In the event
any state legislature proposes to enact legislation after the date of this
Agreement which would have an adverse impact on the consummation of the
Transactions or would impose a material liability on either Seller or Buyer in
connection with the transfer of the Transferred Assets, Seller and Buyer agree
to use commercially reasonable efforts to oppose such legislation at their own
expense.
5.3.5 FCC Filings. The parties agree to promptly file after
execution of this Agreement such applications and to take such reasonable
actions as may be necessary or helpful to apply for and receive approval by the
FCC for the transfer of the Transferred Assets and the Authorities to Buyer and
the change in the provider of telecommunications services in the Exchanges to
Buyer. Buyer shall file an application for study area waivers and the
reinitialization of the PCI with respect to at least one of the transactions
contemplated by the Multi-State Exchange Purchase
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Agreements with the FCC within 120 days of the date hereof. Further, Buyer shall
use its best efforts to obtain the FCC's approval of (i) study area waivers for
the Exchanges and (ii) the Reinitialization.
5.3.6 H-S-R Filing. The parties agree to make all required filings
under the H-S-R Act no later that 90 days prior to the anticipated date of
Closing and to request early termination of all applicable waiting periods
thereunder, and thereafter to promptly respond to all requests for additional
information from the Federal Trade Commission or the United States Department of
Justice thereunder.
5.3.7 Environmental Inspections. Within 30 days following the
execution of this Agreement, Seller and Buyer shall select Environmental
Strategies Corporation (or another qualified environmental consultant reasonably
satisfactory to Buyer and Seller) to conduct a Transaction Screen with respect
to each parcel of Fee Realty included in the Transferred Assets (except for any
parcel designated by Buyer not to receive a Transaction Screen), which review
shall be conducted in accordance with ASTM standards and shall be completed
within 90 days following the execution of this Agreement. Upon completion of
such Transaction Screen, such consultant shall deliver to Buyer and Seller a
written report with respect thereto. Each party shall notify the other party in
writing (the "Remediation Notice") within 10 days of learning of any potential
material liabilities under any Environmental Laws with respect to a parcel of
Fee Realty included in the Transferred Assets, but in no event later than the
10th day following receipt of the related Transaction Screen. Thereafter, Buyer
shall determine whether to conduct additional environmental due diligence,
including a Phase I Environmental Report, which shall be completed within 60
days of delivery of the Remediation Notice. If the estimated costs of
remediation of such potential liabilities on such parcel (the "Remediation
Costs") will exceed $400,000, Seller shall either effect such remediation or may
instead elect to exclude either such parcel of Fee Realty or the Exchange to
which such parcel of Fee Realty relates from the Transferred Assets, and Buyer
and Seller shall in good faith reduce the Purchase Price accordingly. If,
pursuant to the preceding sentence, Seller elects to exclude the parcel of Fee
Realty, then, at Buyer's request, Seller shall grant to Buyer a long-term lease
at an annual rental rate of $1.00 and otherwise in form and substance reasonably
satisfactory to Buyer, for the use of such parcel (and Seller shall have no
obligation to effect any remediation with respect to such parcel); provided that
if Buyer is required to pay a higher rental rate for such leased parcel pursuant
to or in connection with the granting of any Governmental Approval, the Purchase
Price shall be decreased by the net present value of the aggregate lease
payments, discounted at a rate of 8% per annum. If the environmental consultant
conducting Buyer's additional environmental due diligence ("Buyer's Consultant")
estimates that the Remediation Costs will exceed $400,000, Seller may elect to
conduct its own additional environmental due diligence during the 60 day period
following completion of Buyer's additional environmental due diligence, and if
the environmental consultant conducting Seller's additional environmental due
diligence ("Seller's Consultant") estimates that the Remediation Costs will be
less than $400,000, Seller shall not be required to so remediate or exclude such
parcel of Fee Realty or such Exchange unless Buyer elects to pursue an
arbitration conducted as contemplated by Article 8 and the arbitrator estimates
that the Remediation Costs will exceed $400,000.
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The costs of the Transaction Screens required by this Section shall be
borne equally by Buyer and Seller, and the costs of any additional environmental
due diligence (the scope of which shall be reasonably acceptable to Seller)
shall be borne by the party conducting such additional due diligence. Buyer
shall indemnify Seller for any liabilities or losses incurred by Seller as a
result of any additional environmental due diligence conducted by Buyer.
5.3.8. Cost Studies/NECA Matters.
(a) Prior to Closing. Seller agrees that, with respect to all
revenues, settlements, pools, separations studies or similar activities, Seller
shall be responsible for (and shall receive the benefit or suffer the burden of)
any adjustments to contributions, or receipt of funds, by Seller resulting from
any such activities that are related to the operation of the Business or the
ownership or operation of the Transferred Assets prior to the Closing Date.
Specifically, this paragraph shall apply, but shall not be limited to, any
maters related to the National Exchange Carrier Association ("NECA") including
the Universal Service Fund ("USF"), Local Switching Support ("LSS") and
Telecommunications Relay Services funds.
(b) From and After Closing.
(i) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC rules
and regulations. The USF Funds due to Buyer shall be determined by multiplying
the number of Access Lines served by the Exchanges on the Closing Date times a
per-line amount of USF support received by Seller for the study area containing
the Exchanges prior to the Closing Date. The resulting Buyer's annual USF amount
shall be prorated in proportion to the number of months in the year from and
after the Closing Date. Beginning July 1, 1999 or a date thereafter determined
by the FCC, non-rural carriers shall not receive USF pursuant to Part 36 and
Part 54, but will receive support in accordance with guidelines using
forward-looking economic cost. Except as contemplated by clause (i) below, after
the Closing Date, Buyer shall make its own filing in accordance with applicable
FCC rules and regulations. Within a reasonable time after Buyer's written
request and in any event at least 30 days prior to the NECA filing date, Seller
shall furnish to Buyer such necessary information regarding Seller's ownership
of the Transferred Assets during the partial calendar year prior to the Closing
Date and the prior calendar year and such reasonable assistance, at Buyer's
expense, as required in connection with Buyer's preparation of necessary filings
or submissions.
(ii) If Closing occurs within 30 days before the NECA filing
date for the USF to be received in the subsequent calendar year, then Seller
will include the Exchanges in its NECA filing for the subsequent calendar year.
Buyer shall receive, in the subsequent calendar year, a pro rata share of USF
Funds received by Seller, under Seller's methodology of computing USF, pursuant
to applicable FCC rules and regulations; provided that in no event shall such
sharing continue for more than 18 months after the Closing Date. The USF Funds
due to Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date
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times the per-line amount of USF support received by Seller for the study area
containing the Exchanges in the full calendar year subsequent to the Closing
Date.
(iii) Notwithstanding the foregoing, Buyer's right to receive
a pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (the "USAC")
based on end-user retail revenues for the previous year generated by the
Transferred Assets. The resulting Buyer's annual USF obligation for the
Transferred Assets shall be prorated in proportion to the number of months in
the year from and after the Closing Date.
(c) State USF. If Seller is entitled to receive any State USF
Funds as of the Closing Date that include State USF Funds relating to the
Exchanges, then Buyer shall receive a pro rata share of such State USF Funds
received by Seller, under Seller's methodology of computing such State USF
Funds, pursuant to the applicable State USF rules and regulations. The State USF
Funds due Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date time the per-line amount of USF
support received by Seller for the appropriate period. The resulting Buyer's
annual State USF amount shall be prorated in proportion to the number of months
in the year from and after the Closing Date. Such sharing of Seller's State USF
Funds shall discontinue upon commencement of the first period for which Buyer is
permitted to make its own State USF filings, and in no event shall such sharing
continue for more than 18 months after the Closing Date. Seller shall cooperate
with Buyer and provide such reasonable assistance, at Buyer's expense, as may be
required in connection with Buyer's preparation of necessary State USF filings
or submissions.
5.3.9 Owned Real Property Transfers. Within 60 days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies covering Fee Realty. No later than 150 days following the
date hereof, Seller shall deliver a preliminary title binder (on a standard
form) to Buyer issued by a title insurance company reasonably acceptable to
Buyer and a certified current survey (collectively, the "Title Commitment") with
respect to all Fee Realty included in the Transferred Assets. Buyer shall,
within 45 days following receipt of the Title Commitment for a parcel, deliver
to Seller, in writing, any objections to any matters affecting any of the Fee
Realty. In the event that Buyer fails to notify Seller as set forth above, such
objections shall be deemed waived. If the Title Commitment indicates the
existence of an Excessive Encumbrance, Seller shall, at its expense, cause such
Excessive Encumbrance to be removed on or before the Closing Date or, with the
prior written consent of Buyer, cause the title company to insure over each such
Excessive Encumbrance. Seller shall provide the title company with such
instructions, authorizations and affidavits at no cost to Seller as may be
reasonably necessary for the title company to issue title policies, based on the
most recent assessed value, to Buyer, dated as of the Closing Date, for all of
the Fee Realty with so-called non-imputation endorsements. Buyer and Seller
shall share equally the costs of the Title Commitments and the title policies.
By no later than 45 days after the Closing Date, Seller shall deliver to Buyer a
final title insurance policy covering the Fee Realty included in the Title
Commitment.
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5.3.10 IntraLATA Tolls. Buyer and Seller will use their best efforts
to negotiate appropriate agreements and arrangements in order to satisfy the
requirements of Section 7.1.9 at Closing.
ARTICLE 6
TERMINATION
6.1 Termination By Buyer.
6.1.1 If any condition precedent to Buyer's obligation to effect the
Closing set forth in Section 3.1 shall become incapable of satisfaction through
no fault of Buyer and such condition is not waived by Buyer, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement by written
notice to Seller.
6.1.2 If any Governmental Approval contains any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date, but only after Buyer has entered into good faith negotiations with Seller
to amend this Agreement in light of such terms or conditions and no such
amendment could be agreed upon, Buyer shall not be obligated to effect the
Closing and may terminate this Agreement by written notice to Seller; provided,
however, that Buyer shall not be entitled to terminate this Agreement based on
(x) Buyer's failure to obtain increases in intrastate tariff rates above those
then in effect, or (y) Buyer's being deemed a "successor" to Seller for any
regulatory purposes.
6.1.3 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Seller, and such misrepresentation
or breach has not been cured within 30 days of Seller's receipt of Buyer's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Buyer, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Seller.
6.2 Termination By Seller.
6.2.1 If any condition precedent to Seller's obligation to effect
the Closing set forth in Section 3.2 shall become incapable of satisfaction
through no fault of Seller and such condition is not waived by Seller, Seller
shall not be obligated to effect the Closing and may terminate this Agreement by
written notice to Buyer.
6.2.2 If any Governmental Approval contains terms or conditions
unacceptable to Seller, in Seller's reasonable discretion, but only after Seller
has entered into good faith negotiations with Buyer to amend this Agreement in
light of such terms or conditions and no such amendment
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could be agreed upon, Seller shall not be obligated to effect the Closing and
may terminate this Agreement by written notice to Buyer.
6.2.3 If Buyer does not deliver the Letters of Credit within 15
business days of the date hereof or the Letters of Credit, in whole or in part,
have been withdrawn or are no longer irrevocable.
6.2.4 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Buyer, and such misrepresentation
or breach has not been cured within 30 days of Buyer's receipt of Seller's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Seller, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Buyer.
6.2.5 If Buyer does not make the FCC filing described in the second
to last sentence of Section 5.3.5 within 120 days of the date hereof.
6.3 Termination By Buyer or Seller. If (i) a final, non-appealable order
is issued by any Governmental Authority to restrain, enjoin or prohibit the
consummation of the Transactions, (ii) the Closing shall not have occurred on or
before September 30, 2001 through no fault of the terminating party, then either
party may terminate this Agreement by written notice to the other.
6.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 6.1, 6.2 or 6.3, this Agreement shall thereafter
become void, except as set forth in Section 1.4.1 and for the provisions of
Sections 5.3.1 and 5.3.2 and Article 9, and there shall be no further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing herein
shall relieve any party from liability for any breach of this Agreement, and
(ii) the obligations of the parties hereto set forth in Section 11.6 shall not
be affected by a termination of this Agreement.
ARTICLE 7
POST CLOSING MATTERS
7.1 Post Closing. In order to effectuate an orderly transition in the
provision of telecommunications services to customers in the Exchanges, Buyer
and Seller agree to utilize the measures set forth below:
7.1.1 Notice to Customers. Seller shall provide written
notification, which notification shall be reasonably acceptable to Buyer, in its
final bill to each customer affected by this Agreement, that Seller is no longer
the customer's telecommunications provider and advising the
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customer of the name, address and telephone number of Buyer. Seller and Buyer
shall agree upon appropriate service cut-off dates with respect to the
Exchanges.
7.1.2 Customer Deposits. The disposition of customer deposits and
advance payments for future services made to Seller by residential and business
customers in the Exchanges shall be delegated to a transition team. The intent
of the parties to be carried out by the transition team is that, to the extent
practicable and subject to the rules and orders of the State Regulatory
Authorities, Seller shall retain all deposits for delinquent customers and the
remaining deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges shall be transferred to
Buyer. Notwithstanding the foregoing, all deposits and advance payments for
future services held by Seller under land development contracts or other similar
construction arrangements as of the Closing Date shall be credited to Buyer at
Closing.
7.1.3 Customer Records. To the extent not previously provided to
Buyer, Seller shall use commercially reasonable efforts to make available, upon
reasonable request from Buyer, all readily available billing and service records
for goods sold or services provided to customers of the Exchanges prior to
Closing for so long as such records are required to be maintained by applicable
law.
7.1.4 Operator Services and Directory Assistance. Buyer acknowledges
and agrees that, following the Closing, Buyer shall provide all subscriber list
information gathered in its capacity as a provider of local exchange service on
a timely and unbundled basis, under nondiscriminatory and reasonable rates,
terms and conditions, to any person requesting such information for any lawful
purpose in any format, including but not limited to Seller and its Affiliates.
Buyer's listing information will be treated the same as Seller's end user
listings for purposes of additional listings and dissemination of listings to
directory publishers, directory assistance providers, or other third parties.
Seller will incorporate listings information in all existing and future
directory assistance applications developed by Seller. Buyer authorizes Seller
to sell and otherwise make listings available to directory publishers, directory
assistance providers, and other third parties. Listings shall not be provided or
sold in such a manner as to segregate end users by carrier. Seller will not
charge for updating and maintaining the listings database.
7.1.5 Directory Publishing and 911 Emergency Services. Buyer shall
continue to comply with the covenants set forth in Sections 5.1.4 and 5.1.5
following the Closing Date, as appropriate, to the extent necessary to
accomplish the intent of such covenants.
7.1.6 911 Emergency Services. In the event that Seller becomes
obligated after the Closing Date to provide 911 emergency services with respect
to any portion of the Business, Buyer shall provide Seller (at no cost to
Seller) complete access to and use of the 911 Assets related to such 911
emergency services and shall enter into such agreements as Seller reasonably
requests in order to facilitate the provision by Seller of such 911 emergency
services and to provide for compensation to Seller at prevailing rates.
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7.1.7 Tariffs. Buyer agrees that for the six month period following
the Closing Date it will adopt and maintain intrastate tariffs similar in all
material respects to Seller's intrastate tariffs in effect for the Exchanges on
the Closing Date, provided that such tariffs of Seller are substantially similar
to Seller's tariffs in effect on the date of execution of this Agreement, except
that Buyer's tariffs will reflect rate changes by Seller (x) made prior to
Closing as required by an order of a State Regulatory Authority that has been
issued prior to the date of this Agreement or (y) made prior to Closing to the
extent such changes are substantially revenue neutral to the Exchanges.
7.1.8 Access to Books and Records.
(a) After the Closing, Seller will retain all books and records
related to the Excluded Assets for so long as required by applicable law.
(b) Subject to the terms of Section 7.1.3, after the Closing, upon
reasonable notice, the parties will give to the representatives, employees,
counsel and accountants of the other, access during normal business hours, to
books and records relating to the Business and the Transferred Assets, and will
permit such persons to examine and copy such records (including any tax returns
and related information, but not attorney or accountants work product), audits,
legal proceedings, governmental investigations and other business purposes
(including such financial information and any receipts evidencing payment of
taxes as may be reasonably requested by Seller to substantiate any claim for tax
credits or refunds); provided, however, that nothing herein will obligate any
party to take actions that would unreasonably disrupt the normal course of its
business or violate the terms of any contract to which it is a party or to which
it or any of its assets is subject. Seller and Buyer will cooperate with each
other in the conduct of any tax audit or similar proceedings involving or
otherwise relating to the Business (or the income therefrom or assets thereof)
with respect to any tax and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
Section 7.1.8.
7.1.9 IntraLATA Toll. Buyer will (i) assume the retail toll carrier
role and obligations for any end users in the Exchanges that are picked or
defaulted to Seller for IntraLATA toll services or (ii) enter into agreements
with other inter-exchange carriers to assume this role or to resell the toll
services of an inter-exchange carrier to fulfill these obligations. Buyer will
execute intraLATA toll access agreements with Seller establishing the process
for the purchase of toll access from Seller by Buyer at the rates contained in
Seller's access tariffs. Seller agrees that it will need to establish its own
agreements with other telecommunications carriers for the purchase of toll
access that may be routed over joint Seller/Buyer transport or tandem switch
facilities (transit traffic). Buyer will cooperate with Seller and other
carriers to measure and share data required to facilitate billing for such
traffic. Buyer and Seller will establish a process by which Buyer will bill
Seller for terminating IntraLATA toll access based on actual termination of
Seller toll services to the Exchanges. Buyer and Seller will enter into a
billing and collection agreement for the billing and collection of casual toll
at a rate not to exceed $0.12 per message. Buyer and Seller shall establish meet
point percentages for jointly provided toll access and file such meet points as
required with Governmental Authorities.
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7.1.10 Extended Area Service. Buyer and Seller will enter into
extended area service agreements as necessary.
7.1.11 Transiting Toll Facilities. Concurrently with the Closing,
Buyer shall grant to Seller the irrevocable right to use or Buyer shall lease to
Seller, in either case for a term of 99 years, the portion of the transiting
toll facilities, network facilities and associated electronic equipment included
in the Property and relating to the Exchanges listed on Schedule 7.1.11 that is
required by Seller for the conduct of any business conducted by Seller other
than the Business. The consideration for such grant or lease shall be $1.00 and
other consideration including the mutual covenants and agreements set forth in
this Agreement. Within 90 days after the execution of this Agreement, Buyer and
Seller shall apportion and assign the total capacity of such facilities and
equipment for each Exchange listed on Schedule 7.1.11. The parties shall review
such apportionment on an annual basis and make such changes to assignments as
may be required. If any transiting toll facilities, network facilities and
related electronic equipment that are Excluded Assets are located in any
rights-of-way that are used in connection with the operation of the Business,
then concurrently with the Closing, Buyer shall, to the extent possible, assign
to Seller the right to use such right-of-way jointly with Buyer and appropriate
joint use agreements in recordable form and otherwise reasonably acceptable to
the parties shall be entered into at the Closing.
7.1.12 Reinitialization Period. If the Reinitialization has not been
approved at the time of the Closing, Buyer shall use its best efforts to obtain
the Reinitialization.
ARTICLE 8
ARBITRATION
8.1 Arbitrability. All claims, except and only to the extent such claims
are those over which the State Regulatory Authorities have primary jurisdiction,
by either party against the other arising out of or related in any manner to
this Agreement or any of the Transferred Assets or the Transactions shall be
resolved by arbitration as prescribed herein; provided, however, that either
party shall be entitled to seek temporary or permanent injunction against any
actual or threatened breach of Section 5.3.1 by the other party in any court of
competent jurisdiction without the necessity for showing any actual damages. The
Federal Arbitration Act and not state law will govern the arbitrability of all
claims. Failure of either party to assert or pursue a mandatory claim or defense
that must be asserted in litigation to avoid the loss of the right to assert
such claim or defense shall not preclude that party from asserting any such
claim or defense in arbitration proceedings hereunder.
8.2 Rules. A single arbitrator engaged in the practice of law, who is
knowledgeable about the telecommunications industry and telecommunications law,
shall conduct the arbitration under the then-current commercial arbitration
rules of the American Arbitration Association
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("AAA"), unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Denver, Colorado.
8.3 Discovery; Damages; Expenses. Buyer and Seller shall allow and
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall have authority to award only actual damages and shall not have
the authority to award consequential, compensatory, punitive or exemplary
damages or any other form of relief. Each party shall bear its own costs and
attorneys' fees. The arbitrator's decision and award shall be final and binding,
and judgment upon the award rendered by the arbitrator may be entered in any
court having personal jurisdiction. The non-prevailing party to the arbitration
shall pay all of the fees and expenses of the arbitrator and the AAA, provided,
however, that if the arbitrator deems Buyer and Seller to be equally prevailing
or non-prevailing on the matters at issue, then the parties shall each pay
one-half of the fees and expenses of the arbitrator and the AAA.
8.4 Judicial or Administrative Action. If any party files a judicial or
administrative action asserting claims properly subject to arbitration as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification by Seller. From and after Closing, Seller
shall indemnify and hold harmless Buyer from and against any and all claims,
losses, liabilities, damages, penalties, costs and expenses, including
reasonable counsel fees and costs and expenses ("Losses") arising out of or
resulting from:
(a) any representations and warranties made by Seller in the
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed upon or prior to the Closing;
(c) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed after the Closing; and
(d) all liabilities and obligations arising out of or relating to
the operation of the Exchanges prior to the Closing, including without
limitation the Retained Liabilities.
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Section 9.2 Indemnification by Buyer. From and after Closing, Buyer shall
indemnify and hold harmless Seller from and against any and all Losses arising
out of or resulting from:
(a) any representations and warranties made by Buyer in this
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Buyer in the performance of its
covenants, agreements or obligations under this Agreement;
(c) all liabilities and obligations arising out of or relating to
the operation of the Exchanges after the Closing, including without limitation
the Assumed Liabilities;
(d) without limitation of the foregoing, violation of Environmental
Laws, to the extent such liability is an Assumed Liability or arises out of or
relates to the operation of the Exchanges after the Closing; and
(e) liability of Seller arising after Closing with respect to
Buyer's failure to enter into or perform interconnection agreements in or
directly related to the Exchanges.
Section 9.3 Indemnified Third Party Claim.
(a) If any person (including State Regulatory Authorities) not a
party to this Agreement ("Person") shall make any demand or claim or file or
threaten to file or continue any action, suit or proceeding of any kind ("Third
Party Claim") with respect to which Buyer or Seller is entitled to
indemnification pursuant to Sections 9.1 or 9.2, respectively, then within ten
days after notice (the "Notice") by the party entitled to such indemnification
(the "Indemnitee") to the other (the "Indemnitor") of such litigation, the
Indemnitor shall have the option, at its sole cost and expense, to retain
counsel for the Indemnitee (which counsel shall be reasonably satisfactory to
the Indemnitee) to defend any such litigation. Thereafter, the Indemnitee shall
be permitted to participate in such defense at its own expense, provided that,
if the named parties to any such litigation (including any impleaded parties)
include both the Indemnitor and the Indemnitee or, if the Indemnitor proposes
that the same counsel represent both the Indemnitee and the Indemnitor and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interest between them, then the Indemnitee shall
have the right to retain its own counsel at the cost and expense of the
Indemnitor, unless the Indemnitor shall acknowledge in writing its indemnity
obligation, in which event the retention by Indemnitee of its own counsel shall
be at its cost and expense. If the Indemnitor shall fail to respond within ten
days after receipt of the Notice, the Indemnitee may retain counsel and conduct
the defense of such litigation as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnitor.
(b) The Indemnitee shall provide reasonable assistance to the
Indemnitor and provide such access to its books, records and personnel as the
Indemnitor reasonably requests in connection with the investigation or defense
of the indemnified Losses. The Indemnitor shall
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promptly upon receipt of reasonable supporting documentation reimburse the
Indemnitee for out-of-pocket costs and expenses incurred by the later in
providing the requested assistance.
(c) With regard to litigation with any Person for which Buyer or
Seller is entitled to indemnification under Sections 9.1 or 9.2, such
indemnification shall be paid by the Indemnitor upon: (i) the entry of any
judgment, writ, order, injunction, award or decree of any court, the FCC or any
State Regulatory Authorities ("Judgment") against the Indemnitee and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
Judgment or final appellate Judgment against the Indemnitee; or (iii) a
settlement with the consent of the Indemnitor, which consent shall not be
unreasonably withheld, provided that no such consent need be obtained if the
Indemnitor fails to respond to the Notice as provided in Section 9.3(a).
Section 9.4 Determination of Indemnification Amounts and Related Matters.
(a) Neither Buyer nor Seller will be entitled to make a claim
against the other under Section 9.1(a) or (b) or 9.2(a) or (b) until (i) the
aggregate amount of Losses incurred by the Indemnitee for any individual
occurrence (or related series of occurrences) exceeds $50,000 and (ii) in the
case of Losses under Section 9.1(a) (except for Losses due to a breach of the
representations of Seller contained in Section 4.2.15) or 9.1(b) the aggregate
amount of claims that may be asserted for such Losses, together with all other
claims for Losses asserted under Section 9.1(a) or 9.1(b) under each of the
Multi-State Exchange Purchase Agreements, exceed an amount equal to 1% of the
aggregate of the Purchase Prices (as defined in each Multi-State Exchange
Purchase Agreement) for the transactions contemplated by the Multi-State
Exchange Purchase Agreements, to the extent actually paid to Seller, but only to
the extent such amount exceeds such aggregate of the Purchase Prices.
(b) Notwithstanding any other provision of this Agreement, (i)
Seller shall not be required to make any payments pursuant to Section 9.1(a),
(b) or (c) to the extent that the Maximum Adjustment Amount shall have been
reached, and (ii) Buyer shall not be required to make any payments pursuant to
Article 9 in excess of an amount equal to 3% of the Purchase Price.
(c) Subject to Section 9.3, all amounts payable by the Indemnitor to
the Indemnitee in respect of any Losses under Sections 9.1 and 9.2 shall be
payable by the Indemnitor as incurred by the Indemnitee and will include
interest at the rate of 8% per annum from the date that the related Losses were
incurred through but not including the date the payment is made.
Section 9.5 Time and Manner of Certain Claims. Except as otherwise
provided herein, the representations and warranties of Buyer and Seller, and the
covenants to be performed by them on or prior to the Closing Date, in this
Agreement shall survive Closing for a period of one year, except that the
representations of Seller contained in Section 4.2.15 shall survive Closing for
a period of 15 months and the representations and warranties contained in the
first sentence of Section 4.2.3 shall survive Closing indefinitely (the
"Survival Period"). Neither Seller nor Buyer shall have any liability under
Sections 9.1 or 9.2, respectively, unless a claim for Losses for which
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indemnification is sought thereunder is asserted by the party seeking
indemnification by written notice to the party from whom indemnification is
sought within the Survival Period.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Defined Terms. For purposes of this Agreement, certain terms used in
this Agreement and not otherwise defined herein shall have the meanings
designated below:\
"Access Line" means a telephone line operating on the public switched
telephone network that runs from a central office to a customer's premises.
"Accounts Receivable" means all end user accounts receivable with respect
to goods sold and/or services provided by Seller on or prior to the Closing
Date.
"Affiliate" of a specified entity means any legal entity directly or
indirectly controlling, controlled by, or under the common control with the
specified entity. The term "control" (including "controlling", "controlled by"
and "under common control with") of an entity means the possession, directly or
indirectly, of the power to (i) vote 50% of more of the voting securities or
other voting interests of such person, or (ii) direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting shares, by contract or otherwise.
"Aggregate Adjustment Amount" means the aggregate amount that Seller has
paid or spent, or committed to pay or spend, pursuant to (i) purchase price
decreases pursuant to section 1.4.3(b) of each of the Multi-State Exchange
Purchase Agreements, (ii) payments or purchases pursuant to section 5.2.11(a) of
each of the Multi-State Exchange Purchase Agreements, and (iii) payments with
respect to indemnification claims under Section 9.1(a), (b) or (c) of each of
the Multi-State Exchange Purchase Agreements.
"Agreement" means this Agreement for Purchase and Sale of Telephone
Exchanges, together with all Schedules and Exhibits thereto, as any of the
foregoing may be amended, modified or supplemented in writing from time to time.
"Authorities" means (i) the construction permits, licenses or
authorizations granted by the FCC to Seller and used to develop and operate the
Systems; and (ii) the licenses or certificates of convenience and necessity
granted by the State Regulatory Authorities to operate the Systems.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
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"Confidential Information" means any and all technical, business or
financial information, in whatever form or medium, furnished or disclosed by or
on behalf of one party to the other or its representatives, irrespective of the
form of communication, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data and personnel statistics, and shall also include notes,
analyses, compilations, studies, interpretations or other documents prepared by
it or its representatives that contain, reflect or are based upon, in whole or
in part, other Confidential Information. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all security interests, liens, charges or
similar restrictions, except for (i) liens for taxes not yet due and payable or
that are being contested in good faith, (ii) liens of workers, carriers or
materialmen or similar liens arising by operation of law in the ordinary course
of the Business in respect of obligations that are not yet due and payable or
that are being contested in good faith, (iii) governmental conditions and
restrictions under the Authorities, (iv) with respect to Realty, recorded
easements, restrictions, reservations, rights-of-way, covenants, conditions and
similar encumbrances of record and matters that would be shown by an accurate
survey or inspection of such property, and other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
such Realty to which such defect or irregularity in title relates, and (v) with
respect to the Transferred Assets other than Realty, other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
the Transferred Assets to which such defect or irregularity in title relates.
"Environmental Laws" means all federal, state and local laws, statutes,
rules, regulations and ordinances (including common law), and all court or
administrative decisions, orders, policies or guidelines, now or hereafter in
effect relating to the environment, public health (including fire or building
safety), occupational safety, industrial hygiene, or the generation, disposal,
manufacture, release, storage, transportation or presence of Hazardous
Materials, including without limitation the National Environmental Policy Act
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act of 1975, the Toxic Substances Control Act, the
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean
Water Act, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act, and the regulations promulgated under any such acts or any permits
issued thereunder.
"Excessive Encumbrance" has the meaning set forth in Section 3.1.11.
"Excluded Assets" means (a) all cash, cash-equivalents, Accounts
Receivable and carrier access bills to interexchange carriers for minutes,
messages and other applicable charges through the
46
<PAGE>
Closing Date; (b) any insurance policy, bond, letter of credit or other similar
item, and any cash surrender value in regard thereto; (c) all books and records
that Seller is required by law to retain or that relate primarily to internal
corporate matters; (d) all claims, rights and interests in and to any refunds of
Federal, state or local franchise, income or other taxes or fees of any nature
whatsoever for periods prior to the Closing Date; (e) any pension, profit
sharing or employee benefit plans; (f) any assets, interests or property of
Seller used in the operation of any business conducted by Seller other than the
Business, those including shared data processing, billing and collections
systems and related software; (g) the name U S WEST and all similar names and
related marks and logos used or owned by Seller or its Affiliates and any other
names, marks and logos not specifically identified as being included in the
Transferred Assets; (h) all portable office equipment, test equipment and
generators other than included in the Transferred Assets; (i) all motor vehicles
used in the operation of any business conducted by Seller other than the
Business and associated motor vehicle general stock; (j) all materials, supplies
and tools other than those included in the Transferred Assets; (k) all FCC
licenses for air-to-ground, cellular or paging services held by Seller or any
Affiliate of Seller other than those FCC radio licenses necessary to operate the
Business; (l) all maintenance radio equipment and antennas other than those
included in the Transferred Assets; (m) all assets relating to Yellow Pages or
classified directory advertising activities of Seller or any Affiliate of
Seller, (n) all transiting toll facilities, network facilities and associated
electronic equipment used in their entirety by Seller solely in the operations
of any business conducted by Seller other than the Business and containing no
capacity for use in the conduct of the Business and related rights-of-way; and
(o) all rights of Seller or any Affiliate of Seller under the Transaction
Agreements.
"Final Order" means action by any governmental or regulatory authority as
to which (i) no request for stay by any Governmental Authority, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action has been
granted by a governmental or regulatory authority; (iii) the governmental or
regulatory authority does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal by a
third party to a court, or a request to stay by a court, of any material
provision of the Governmental Authority's action, as applicable, is pending or
in effect and, if any deadline for filing any such appeal or request is
designated by statute or rule, it has passed.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities
and the grant of any study area waiver request submitted by Buyer related
thereto, but excluding the Reinitialization.
"Fee Realty" means all real property owned by Seller in fee simple and
located inside the boundaries of the Exchanges, including without limitation
tower sites or antenna sites.
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<PAGE>
"Governmental Authority" means any United States, state, or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, bureau, agency, court or instrumentality thereof.
"Hazardous Material" means (a) all chemicals, materials and substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words or similar import under any Environmental Law, and (b) any
other chemicals, materials or substances, including without limitation any
polychlorinated biphenyl, petroleum or any chemical fraction thereof, asbestos,
formaldehyde, flammables, explosives, and PCBs which could presently or at any
time in the future cause a detriment to or impair the value or beneficial use of
any of the Transferred Assets, or constitute or cause a health, safety or
environmental hazard to the any of the Transferred Assets or to any person or
require remediation at the behest of any state or local governmental agency
under any Environmental Law.
"Interests" means all rights, privileges, benefits and interests under all
contracts, agreements, consents, licenses, permits or certificates (except those
included as Authorities and Realty), including agreements, permits, leases and
arrangements with respect to intangible or personal property or interests
therein; equipment leases; agreements with suppliers, customers and subscribers;
business licenses; prepaid expenses; and any sales agent or sales affiliate
agreements, in each case, used or owned primarily in connection with the
Business.
"Maximum Adjustment Amount" means an Aggregate Adjustment Amount equal to
the product of (i) the aggregate number of access lines in the telephone
exchanges purchased pursuant to the Multi-State Exchange Purchase Agreements on
the closing date of each purchase thereunder multiplied by (ii) $50.00, it being
understood and agreed by the parties that (x) the Maximum Adjustment Amount
shall be preliminarily calculated at the Closing assuming that any Multi-State
Exchange Purchase Agreement that has not closed or been terminated on or before
the Closing Date shall, for purposes of such preliminary calculation, be deemed
to have closed on the Closing Date, and (y) on the date of closing or
termination of the last of Multi-State Exchange Purchase Agreement to have been
closed or terminated, the Maximum Adjustment Amount shall be finally calculated
and any resulting payments required to be made by Seller or refunds required to
be made by Buyer shall be taken into account in determining the amount of funds
to be paid by Seller at such Closing or to be paid by Seller or refunded by
Buyer upon such termination, as the case may be.
"Multi-State Exchange Purchase Agreements" means the Agreements for
Purchase and Sale, including this Agreement, entered into between Buyer, or any
Affiliate of Buyer, and Seller with respect to the purchase of Seller's rights
to provide and operate wireline telecommunications and related non-tariffed or
non-regulated wireline services and related assets in the following states:
Arizona, Colorado, Nebraska, North Dakota, Minnesota, Iowa, Idaho, Montana and
Wyoming.
"911 Assets" means all circuits, facilities and customer information used
by Seller in providing 911 emergency services in connection with the operation
of the Business.
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<PAGE>
"Operating Contracts" means all contracts, agreements and instruments (and
all amendments and modifications thereto) entered into by Seller in the ordinary
course of the Business prior to the date hereof, including without limitation
all real property leases, documentation related to the Interests and
interconnection agreements to the extent that Buyer is required to perform such
obligations by applicable law or as a condition to obtaining any Governmental
Approvals, and all such contracts, agreements and instruments entered into by
Seller in the ordinary course of the Business between the date of this Agreement
and the Closing Date.
"Property" means all of Seller's physical facilities and other tangible
assets used primarily in the Business that are in Seller's plant in service
accounts in accordance with Part 32 of the FCC Uniform System of Accounts,
including all transiting toll facilities, network facilities and associated
electronic equipment located within the boundaries of an Exchange and not
included as Excluded Assets, which facilities and equipment shall be subject to
the arrangements set forth in Section 7.1.11.
"Reinitialization" means the implementation of the interstate access rates
pursuant to the reinitialization of the Price Cap Index ("PCI") applicable to
the approved new study area to reflect the underlying cost structure associated
with the Exchanges.
"Realty" means the Fee Realty together with all rights, privileges and
appurtenances owned by Seller inside the boundaries of the Exchanges that are a
burden upon, a benefit of, or otherwise related to the Fee Realty, including
without limitation all structures, buildings, easements, servitudes, licenses,
leasehold improvements, building improvements, fixtures, rights-of-way and other
similar interests owned by Seller and used in the Business.
"Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all open end-user customer account records, all service records kept in
the ordinary course of the Business which identify and describe the customers
being served by Seller in the Exchanges, the service that is being provided to
such customers, and those records which identify and describe the physical
property (including but not limited to cables, wires and central office
equipment) included in the Transferred Assets.
"Seller's Knowledge" means the actual knowledge of Paul Lit after due
inquiry and any senior manager specifically charged with operational
responsibility for the Exchanges concerning information about which Seller is
making a representation in this Agreement.
"State Regulatory Approvals" means the issuance of the required consents
or approvals of the State Regulatory Authorities with respect to the assignment
of the Authorities to Buyer and the designation of Buyer as an eligible
telecommunications carrier for the Exchange.
"State Regulatory Authorities" means the public utility commissions or
similar state governmental authorities in the states in which the Exchanges are
located and, where applicable, municipal authorities that have granted operating
authorities with respect to the Exchanges.
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<PAGE>
"Systems" means, as the context requires, Seller's service delivery
components in the Exchanges, including without limitation all equipment,
facilities, assets, properties, licenses, permits, certificates of public
convenience and necessity and other rights and authorities and related technical
knowledge and information, used in the conduct of the Business within the
particular Exchange.
"Transactions" means the purchase and sale of the Transferred Assets as
contemplated by the Agreement and all other transactions contemplated by the
Transaction Documents.
"Transaction Documents" means this Agreement and each document to be
executed in connection with the Closing of the Transactions. When used with
respect to Seller or Buyer, "Transaction Documents" means this Agreement and
such documents as are required to be executed by such party with respect to the
Closing of the Transactions.
"Transferred Assets" means all of Seller's right, title and interest in
and to the Authorities, the Interests, the 911 Assets, the Property, the Realty,
the Records and all goodwill associated with the Business as existing on the
Closing Date, but excluding the Excluded Assets.
ARTICLE 11
GENERAL
11.1 Notices. All notices hereunder will be in writing and served by
certified mail, return receipt requested, courier or facsimile. Notice shall be
deemed to have been duly given on (i) the earlier of the date received or the
fifth business day following the date mailed by the notifying party using first
class mail, postage prepaid or (ii) if delivered by courier service or
facsimile, upon actual receipt as evidenced by the appropriate confirmation
sheet. Notices shall be sent as follows:
If to Seller: U S WEST Communications, Inc.
1801 California Street, Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic
Transactions Group
Facsimile: (303) 308-0835
with a copy (which shall not constitute notice) to:
Brownstein Hyatt & Farber, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch
Facsimile: (303) 223-1111
50
<PAGE>
If to Buyer: Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: Donald P. Weinstein
Facsimile: (203) 614-4625
with a copy (which shall not constitute notice) to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: L. Russell Mitten, II., Esq.
Facsimile: (203) 614-4651
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Sixth Floor
Washington, DC 20036
Attention: Jeffry L. Hardin
Facsimile: (202) 387-3467
11.2 Waivers. No failure of a party to enforce a provision of this
Agreement will be construed as a general or a specific waiver of that provision,
or of a party's right to enforce that provision, or of a party's right to
enforce any other provision of this Agreement. No waiver of any breach of any
covenant or other provision herein contained shall be deemed to be a waiver of
any preceding or succeeding breach, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act shall
be deemed to be an extension of the time for performance of any other obligation
or act.
11.3 Commissions. Each party represents and warrants that no broker or
other person is entitled to any commission or finder's fee in connection with
the consummation of the Transactions based on arrangements made by such party
for which the other party could have any liability.
11.4 Payment of Expenses. Except as otherwise provided herein, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in consummating and carrying
out the Transactions, whether or not the Transactions are consummated.
Notwithstanding the foregoing, all transfer fees payable in connection with the
assignment of permits or rights-of-way shall be borne by Buyer.
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<PAGE>
11.5 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and, when each of the parties hereto has
executed and delivered a counterpart to the other party, this Agreement shall be
binding and effective even though no single counterpart has been executed by
both of the parties.
11.7 Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.8 Assignment. The rights and obligations of the parties to this
Agreement or any interest in this Agreement shall not be assigned, transferred,
hypothecated, pledged or otherwise disposed of without the prior written consent
of the nonassigning party, which consent may be withheld in such party's sole
discretion; provided, however, that (i) Buyer may, without the prior consent of
Seller but without relieving Buyer of its obligations hereunder, assign its
rights under this Agreement to any Affiliate or lender, and (ii) Seller may
assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the Transactions as a 1031
Transaction.
11.9 Additional Instruments and Assistance. Each party hereto shall from
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its counsel
may reasonably request in order to complete and perfect the Transactions.
11.10 Seller's Control Over Authorized Facilities. No provision of this
Agreement shall be construed to abrogate Seller's control of and responsibility
for the operation of the authorized facilities of the Business prior to the
actual transfer of control of those facilities hereunder to the Buyer as
approved by the FCC and the State Regulatory Authorities.
11.11 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado.
11.12 Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable when applied to any person or
circumstance, the remaining provisions of this Agreement and the enforcement of
such provision to other persons or circumstances shall not be affected thereby,
and each provision of this Agreement shall be enforced to the fullest extent
allowed by law.
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11.13 Amendments. This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by its
agent duly authorized in writing or as otherwise expressly permitted herein.
11.14 No Construction Against the Drafting Party. Each party hereto
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.15 Integration. This Agreement, including all schedules and exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, warranties or representations between the parties with respect
to such subject matter except as set forth or noted herein. Except as provided
in Section 5.1.4 hereof, this Agreement is not made for the benefit of any
person, firm, corporation or association other than the parties hereto. Except
as provided in Section 5.1.5 hereof, the parties do not intend to confer any
benefit hereunder on any person, firm or corporation other than the parties
hereto.
* * * * *
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IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
CITIZENS UTILITIES COMPANY
By:_____________________________________
Leonard Tow
Chairman and Chief Executive Officer
SELLER:
U S WEST COMMUNICATIONS, INC.
By:_____________________________________
Solomon D. Trujillo
President and Chief Executive Officer
<PAGE>
EXECUTION COPY - NORTH DAKOTA
AGREEMENT
For
PURCHASE AND SALE
of
TELEPHONE EXCHANGES
Dated as of June 16, 1999
Between
CITIZENS UTILITIES COMPANY
And
U S WEST COMMUNICATIONS, INC.
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF TELEPHONE EXCHANGES
This Agreement for Purchase and Sale of Telephone Exchanges is made and
entered into as of June 16, 1999 by and between U S WEST Communications, Inc., a
Colorado corporation ("Seller"), and Citizens Utilities Company, a Delaware
corporation ("Buyer").
A. Seller possesses certain rights to provide and operate wireline
telecommunication services pursuant to operating authorities issued by the
public utilities commissions or similar authorities of various states, and owns
certain assets used to provide such services in the telephone exchanges listed
on Exhibit A hereto and in any cross-border communities served by such exchanges
(the "Exchanges").
B. Buyer desires to acquire Seller's right to provide and operate wireline
telecommunication services and related non-tariffed or non-regulated wireline
services and products in the Exchanges (the "Business") and to purchase the
Transferred Assets (as defined below), and Seller wishes to sell, assign and
transfer such right and assets to Buyer.
C. Each defined term used herein shall have the meaning set forth in this
Agreement where such term is first used or, if no definition is so set forth,
shall have the meaning set forth in Article 10 below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF EXCHANGES
1.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions hereinafter set forth, at the Closing described in Article 2,
Seller agrees to sell, convey, transfer, assign and deliver all of the
Transferred Assets to Buyer, and Buyer agrees to purchase and receive the
Transferred Assets from Seller. Except as specifically set forth in Section 1.2
hereof, Seller shall transfer the Transferred Assets to Buyer on the Closing
Date free and clear of all Encumbrances, and Buyer shall not, by virtue of its
purchase of the Transferred Assets, assume or become responsible for any debts,
liabilities or obligations of Seller.
1.2 Assumption of Obligations. Buyer covenants and agrees that, on the
Closing Date, it shall execute and deliver to Seller an Assumption Agreement in
substantially the form of Exhibit
<PAGE>
B hereto (the "Assumption Agreement") pursuant to which it will assume and agree
to perform and discharge the following liabilities and obligations of Seller to
the extent related to the Exchanges (collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations of Seller arising under
the Operating Contracts, except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Operating Contracts occurring or arising
or accruing on or prior to the Closing Date;
(ii) All liabilities and obligations of Seller related to
unperformed service obligations, right-of-way relocation obligations and
construction in progress as of the Closing Date;
(iii) All liabilities and obligations imposed on Seller by
State Regulatory Authorities in connection with the operation of the
Exchanges, including without limitation obligations to provide 911
emergency services and to make any investment in the Exchanges required by
any Governmental Authority, except that Buyer shall not assume any
liabilities or obligations, other than held order or other service
obligations, imposed on Seller by State Regulatory Authorities that arise
out of Seller's breach of any decision by the State Regulatory
Authorities, or any intentional misconduct or material misrepresentation
by Seller;
(iv) All federal, state, county, municipal, foreign or other
taxing jurisdiction sales, use, transfer, gross receipts, consumer levy,
privilege or similar taxes, duties, excises or governmental charges,
including any penalties and interest thereon, arising out of the sale of
the Transferred Assets by Seller to Buyer hereunder, excluding any income
tax liability of Seller (collectively, "Transfer Taxes"); and
(v) All liabilities and obligations arising under
Environmental Laws with respect to the real property included in the
Transferred Assets.
1.3 Retained Liabilities. Seller shall retain and shall pay, perform and
discharge when due, the following liabilities, responsibilities and obligations
of Seller with respect to the Business (collectively, the "Retained
Liabilities"):
(i) Subject to Section 1.5, all trade payables and other
payment obligations of Seller as of the Closing Date;
(ii) All long-term debt of Seller and debt of Seller owed to
any one or more of its Affiliates;
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<PAGE>
(iii) Subject to Section 1.5, all taxes and assessments
relating to the operation of the Business (other than Transfer Taxes) on
or before the Closing Date for the use, ownership or operation of the
Transferred Assets on or before the Closing Date;
(iv) All liabilities and obligations arising on or before the
Closing Date with respect to Seller's employees that may be hired by Buyer
(the "Hired Employees"), including (a) all liabilities, responsibilities
and obligations arising on or before the Closing Date relating to
collective bargaining agreements or other union contracts, and (b) any
such liabilities or obligations that arise after the Closing Date to the
extent that such liabilities and obligations relate to facts,
circumstances or conditions arising or occurring on or before the Closing
Date with respect to the Hired Employees;
(v) All liabilities, responsibilities and obligations arising
out of or related to any actions, lawsuits or legal proceedings based on
facts, circumstances or conditions arising, existing or occurring on or
before the effective time of Closing, regardless of whether known or
unknown, asserted or unasserted, as of the Closing, including any
liability under any claim (whether made on or before the Closing Date)
relating to the period ending on or before the effective time of Closing
which, but for the consummation of the transactions contemplated hereby,
would have been covered under any insurance policy of Seller, and all
liability associated with workers' compensation claims incurred but not
reported as of the effective time of Closing and workers' compensation
claims reported as of the Closing Date but not then due or payable, but
expressly excluding any such liability, responsibility or obligation for
litigation or claims of any Governmental Authority relating to liabilities
and obligations arising under Environmental Laws with respect to the Fee
Realty included in the Transferred Assets, unless such liabilities,
responsibilities and obligations result from the actions or omissions of
Buyer constituting breaches of this Agreement;
(vi) All liabilities and obligations for prior period
adjustments of revenues from the Business, for any refunds or bill credits
to ratepayers for overbillings or overearnings occurring or relating to
the period prior to the effective time of Closing, and for all toll
revenues, settlements, pools, separations studies or similar activities
relating to the Exchanges for which Seller is responsible, provided that
such liabilities and obligations are asserted within four years of the
Closing Date;
(vii) All liabilities, responsibilities and obligations
arising out of or occurring or resulting from the use or ownership of the
Transferred Assets on or before the Closing Date; and
(viii) All liabilities, responsibilities and obligations
with respect to the Excluded Assets.
1.4 Letters of Credit and Purchase Price.
3
<PAGE>
1.4.1 Letters of Credit. Within 15 business days of the date hereof,
Buyer shall deliver to Seller one or more irrevocable letters of credit issued
by financial institutions reasonably acceptable to Seller (the "Letters of
Credit") providing for drawings in an aggregate principal amount equal to
$1,589,568 (the "LC Amount"). The Letters of Credit shall be returned to Buyer
upon the Closing of the Transactions or upon termination of this Agreement for
any reason other than the following: (i) Seller's termination of this Agreement
pursuant to Section 6.2.4 or 6.2.5, or (ii) Seller's termination of this
Agreement pursuant to Section 6.2.1 because the condition precedent set forth in
Section 3.2.1 becomes incapable of satisfaction through no fault of Seller after
Buyer has had a reasonable opportunity to cause such condition precedent to be
satisfied. In addition, if Seller terminates this Agreement pursuant to Section
6.2.4 as a result of Buyer's breach of Section 4.1.4 for any reason, Buyer and
Seller have mutually agreed that in addition to Seller's right to draw down the
full amount of the Letters of Credit, Buyer shall be liable to Seller for an
additional amount equal to the LC Amount. If Buyer fails to deliver the Letters
of Credit within 15 business days of the date hereof, and Seller thereafter
terminates this Agreement pursuant to Section 6.2.4 as a result thereof, Buyer
shall be liable to Seller for the LC Amount. In the event that Seller terminates
this Agreement for any of the foregoing reasons, in view of the difficulty of
determining the amount of damages which may result to Seller from such failure
to consummate the Transactions, Buyer and Seller have mutually agreed that the
proceeds of the Letters of Credit and any other monies payable to Seller in
accordance with the foregoing provisions shall be retained by Seller as
liquidated damages, and not as a penalty, and this Agreement shall thereafter
become null and void except for those provisions which by their terms survive
termination of this Agreement. The parties have agreed that the proceeds of the
Letters of Credit and such other monies payable to Seller in accordance with the
foregoing provisions in such event shall be Seller's exclusive remedy.
1.4.2 Purchase Price. Subject to Section 1.4.4, Buyer shall pay to
Seller as consideration for the transfer of Seller's rights with respect to the
Business and the sale of the Transferred Assets an aggregate purchase price (the
"Purchase Price") consisting of $39,739,200 plus (a) the estimated amount of
Exchange Investments, if any, calculated pursuant to Section 1.4.3(a) (the
"Estimated Exchange Investments") less (b) the Revenue Adjustment, if any
calculated pursuant to Section 1.4.3(b). The Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds to such bank
account(s) as Seller shall designate within a reasonable time prior to Closing
and the Letters of Credit shall be returned to Buyer upon payment of the
Purchase Price.
1.4.3 Closing Date Purchase Price Adjustments.
(a) Estimated Exchange Investments. Seller shall prepare and deliver
to Buyer, no less than five business days prior to the Closing, an estimate of
the net book value on the Closing Date associated with any investment by Seller
in the Exchanges (the "Exchange Investment") prior to Closing required by any
Governmental Authority pursuant to an order issued between the date hereof and
the Closing Date, other than with respect to investments contemplated by
Schedule 5.2.3(iii) or with respect to Seller's efforts to comply with any
Governmental Authority's orders issued prior to the date hereof.
4
<PAGE>
(b) Revenue Adjustment. The Purchase Price shall be decreased if the
product of four times the aggregate revenues from the Business, as reported on
the monthly profit and loss statements for the Business for the three full
consecutive calendar months most recently completed prior to the Closing Date,
less any portion of such revenues attributable to the Excluded Assets (the
"Adjusted Annualized Closing Revenues"), are less than $11,191,500. Any decrease
in the Purchase Price in accordance with this Section 1.4.3(b) shall be equal to
the difference between the Adjusted Annualized Closing Revenues and $11,191,500
multiplied by 400% (the "Revenue Adjustment"); provided, that the Purchase Price
shall not be decreased pursuant to this Section 1.4.3(b) to the extent that the
Maximum Adjustment Amount shall have been reached.
1.4.4 Post-Closing Purchase Price Adjustment.
(a) Actual Exchange Investments. Within 120 days following the
Closing Date, Buyer shall prepare and deliver to Seller a written statement (the
"Exchange Investment Statement") of the calculation of the actual amount of
Exchange Investment. Subject to the dispute resolution mechanism set forth in
Section 1.4.4(c), to the extent that the actual amount of Exchange Investment as
shown on the Exchange Investment Statement differs from the Estimated Exchange
Investment, the difference shall be paid within 35 days of delivery of the
Exchange Investment Statement (i) by Buyer to Seller in the case of an excess,
or (ii) by Seller to Buyer in the case of a deficit.
(b) Reinitialization Adjustment. If, on the Closing Date, the
Reinitialization has not been effected, the Purchase Price shall be adjusted in
accordance with the following:
(i) If the Reinitialization occurs after the Closing Date but
on or prior to the two year anniversary of the Closing Date, Buyer shall
prepare and deliver to Seller, as soon as practicable after the
Reinitialization, a written statement (the "Reinitialization Statement")
of the calculation of the actual number of interstate switched access
minutes of use (the "Interstate Use Minutes") for the Exchanges per month
for the period commencing on the Closing Date and ending on the last day
of the month in which the Reinitialization occurred. Subject to the
dispute resolution mechanism set forth in Section 1.4.4(c), Seller shall
pay Buyer within 60 days of delivery of the Reinitialization Statement an
amount equal to $0.023 multiplied by the Interstate Use Minutes for the
period commencing on the day after the Closing Date and ending on the date
of the Reinitialization (pro rated, if necessary, for the first and final
month). Seller's failure to make such payment by the 60th day following
delivery of the Reinitialization Statement shall be deemed to be an
initiation of the dispute resolution mechanism set forth in Section
1.4.4(c).
(ii) If the Reinitialization has not occurred by the two year
anniversary of the Closing Date, Buyer shall so notify Seller and Seller
shall pay Buyer within 60 days after receipt of such notice an amount
equal to $3,845,729, plus simple interest at a rate of 8% per annum for
the period commencing on the Closing Date through but excluding the date
of payment.
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(c) Dispute Resolution Mechanism.
(i) Within 30 days after receipt of the Exchange Investment
Statement or 60 days after receipt of the Reinitialization Statement
(each, a "Post-Closing Statement"), as the case may be, Seller may, in a
written notice to Buyer, describe in reasonable detail any proposed
adjustments to the relevant Post-Closing Statement in question and the
reasons therefor. If Buyer shall not have received a notice of proposed
adjustments within such 30 or 60 day period, as the case may be, Seller
will be deemed irrevocably to have accepted such Post-Closing Statement.
(ii) If Seller disputes any portion of the Post-Closing
Statement, the parties shall calculate the portion of the undisputed
amount, if any, and such amount shall be paid by the appropriate party
within five business days of the determination of the undisputed amount.
Buyer and Seller shall negotiate in good faith to resolve any dispute. If
any dispute cannot be resolved within 30 days following Buyer's receipt of
the proposed adjustment, Deloitte & Touche or another independent public
accounting firm that is nationally recognized in the United States jointly
selected by Buyer and Seller shall be engaged to resolve such disputes in
accordance with the standards set forth in this Section, which resolution
shall be final and binding. The fees and expenses of such accounting firm
shall be shared by Buyer and Seller in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of Buyer
and Seller, respectively. Upon delivery of such public accounting firms's
resolution of such dispute to the parties, the party required to make a
payment pursuant to such resolution shall promptly, but no later than five
business days after such delivery, pay to the other party the amount
determined by such public accounting firm to be owed to such party.
(d) Any amount paid pursuant to Section 1.4.4(a) shall bear interest
from the Closing Date through but excluding the date of payment, at a rate of 8%
per annum. Any amount owing pursuant to Section 1.4.4(b)(i) that is not paid
within 60 days of delivery of the Reinitialization Statement shall bear interest
from the 61st day following delivery of the Reinitialization Statement through
but excluding the date of payment, at a rate of 8% per annum. Such interest
shall accrue daily on the basis of a year of 365 days and the actual number of
days for which due and shall be payable together with the relevant amount
payable pursuant to this Section 1.4.4. All amounts payable pursuant to this
Section 1.4.4 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer, in the case of amounts payable by Buyer, to such
account of Seller as Seller may designate and, in the case of amounts payable by
Seller, to such account of Buyer as Buyer may designate.
(e) The Purchase Price shall be deemed to be adjusted by any amounts
paid pursuant to this Section 1.4.4.
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1.5 Prorations. All real and personal property and similar taxes and
assessments with respect to the Transferred Assets, all rents, utilities and
other periodic charges and expenses arising from the normal operations of the
Business shall be prorated as of 11:59 p.m. local time on the Closing Date. Such
prorations shall be agreed upon by the parties as of the Closing Date and
reflected as an adjustment to the Purchase Price. Following the Closing Date,
each party shall thereafter be responsible for the payment of all such amounts
for which it is responsible, as determined by such prorations, as they become
due. For purposes of the foregoing proration, the parties agree that, with
respect to states in which Seller is assessed for real or personal property
taxes on a centralized basis or where a tax is imposed in lieu of property tax,
Seller shall be responsible for payment of property or other taxes assessed by
such state for the entire taxable year in which the Closing occurs and a pro
rata portion of such property taxes will be allocated to Buyer as of the Closing
Date and paid to Seller on the Closing Date. All prorations pursuant to this
Section 1.5 will be final and binding on both parties. Unless otherwise mutually
agreed no later than 30 days prior to the Closing Date, the specific date and
time for the change of telecommunications service to occur with respect to the
Exchanges shall be at 11:59 p.m., local time, on the Closing Date.
1.6 Allocation of the Purchase Price. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Buyer and Seller
agree to such Allocation prior to Closing, Buyer and Seller covenant and agree
that (i) the values assigned to the assets by the parties' mutual agreement
shall be conclusive and final for all purposes, and (ii) neither Buyer nor
Seller will take any position before any Governmental Authority or in any
judicial proceeding that is in any way inconsistent with such allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an
Allocation, Buyer and Seller covenant and agree to file, and to cause their
respective Affiliates to file, all tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable law.
1.7 Transfer Taxes. Buyer shall be responsible for all Transfer Taxes
imposed by any local, state or federal governmental authorities in connection
with the sale, transfer or assignment of the Transferred Assets or otherwise on
account of the Transactions, regardless of whether Buyer or Seller is assessed
therefor. Seller shall be responsible for filing the applicable returns and
shall file them in a timely manner. No less than 20 days prior to the due date
of any such returns, Seller shall provide Buyer with the proposed amount of
Transfer Taxes to be reported and remitted. No less than 10 days prior to the
due date of any such returns, Buyer shall either approve the proposed amount or
advise Seller of an adjusted amount of Transfer Taxes to be reported and
remitted. Seller shall report and remit Transfer Taxes in amounts as approved or
adjusted by Buyer. In the event Buyer fails to approve Seller's proposed amount
of Transfer Taxes and fails to advise Seller of an adjusted amount of Transfer
Taxes within 10 days prior to the due date of such return, Seller shall
interpret such inaction on the part of Buyer as direction by Buyer to make no
report of and no remittance of Transfer Taxes. Buyer shall remit to Seller on
the day prior to the due date of such return, by wire transfer of immediately
available funds, the agreed upon amount of Transfer Taxes to be remitted to the
taxing authorities. In the event Seller does not receive the agreed upon amount
of Transfer Taxes to be remitted to the taxing authorities from Buyer on or
before the day prior to the due date of the return, Seller shall interpret such
failure of Buyer to provide funds as direction by Buyer to make no report of and
no remittance of Transfer Taxes. Buyer warrants that any adjustments by Buyer to
Seller's proposed amount of Transfer Taxes or any direction by Buyer to make no
report of and no
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remittance of Transfer Taxes will be based on substantial state and/or local
authority that Transfer Taxes are not due and owing. Buyer shall indemnify and
hold harmless Seller from and against any and all such Transfer Taxes and any
penalties, interest or expenses (including attorneys' fees) incurred by Seller
with respect thereto unless such interest and penalties result from the actions
or omissions of Seller that are unrelated to any breaches by Buyer of its
obligations hereunder.
ARTICLE 2
CLOSING
2.1 Closing. The consummation of the purchase and sale of the Transferred
Assets (the "Closing") shall take place at Seller's offices in Denver, Colorado,
at 10:00 a.m., local time, on the last calendar day of the month in which all
the conditions precedent to Closing set forth in Article 3 have been satisfied
or waived, or on such other date as the parties mutually agree, but in no event
shall the Closing occur later than September 30, 2001 unless the parties shall
mutually agree to extend the date of the Closing. The date that the Closing
actually occurs is referred to as the "Closing Date." If the Closing is
postponed, all references to the Closing Date in this Agreement shall refer to
the postponed date of Closing.
2.2 Deliveries by Seller to Buyer. At or prior to the Closing, Seller will
deliver to Buyer:
2.2.1 Certified copies of all Seller's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Seller;
2.2.2 a duly executed Bill of Sale, in substantially the form of
Exhibit C hereto, and duly executed assignments and other instruments of
transfer sufficient to convey to Buyer title to all the personal property
included in the Transferred Assets;
2.2.3 A duly executed closing certificate of Seller contemplated by
Sections 3.1.1 and 3.1.2;
2.2.4 Releases, satisfactions or terminations of all mortgages,
financing statements or other Encumbrances on any of the Transferred Assets or,
in the alternative, an indemnity of Seller with respect to such Encumbrances in
form and substance reasonably acceptable to Buyer;
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2.2.5 Special warranty deeds covering the Fee Realty and assignments
in customary local form covering the other realty and Interests included in the
Transferred Assets, including all rights-of-way which are by their terms
assignable;
2.2.6 An affidavit in a form complying with Section 1445 of the
Code; and
2.2.7 Such other documents and items as are reasonably necessary or
appropriate to effect the consummation of the Transactions or which may be
customary under local law, including vehicle transfer documentation.
2.3 Deliveries by Buyer to Seller. At or prior to the Closing, Buyer will
deliver to Seller:
2.3.1 The Purchase Price as required by Section 1.4, together with
any proration payment required to be paid on the Closing Date pursuant to
Section 1.5;
2.3.2 Certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Buyer;
2.3.3 A duly executed closing certificate of Buyer contemplated by
Sections 3.2.1 and 3.2.2; and
2.3.4 The Assumption Agreement and such other certificates and
documents as are reasonably necessary or appropriate to effect the consummation
of the Transactions or which may be customary under local law.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. Within 30
days after the date of this Agreement, the parties shall negotiate in good faith
and enter into a Transition Agreement similar in scope to the agreement attached
as Exhibit D hereto. Within 90 days after the date of this Agreement, the
parties shall commence to negotiate in good faith the definitive terms of the
services agreements for the services that Buyer requests Seller to provide upon
Closing and described on Exhibit E hereto. At or prior to the Closing, Buyer and
Seller shall execute and deliver such services agreements. The parties
acknowledge and agree that the agreements contemplated by this Section 2.4 are
an integral part of, and will be entered into as part and parcel to, and in
conjunction with, the other transactions and agreements contemplated by this
Agreement.
2.5 Further Assurances. Except as otherwise provided herein or in the
transition agreements, all instruments of conveyance, assignment or transfer
referred to herein, all sums of money, and all records and data to be delivered
as specified in this Agreement shall be delivered at or prior to the Closing.
The parties agree following the Closing to execute and deliver such further
instruments of conveyance, assignment and assumption as may be reasonably
necessary to give effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities. In addition, in the event of an
inadvertent transfer of Excluded Assets, Buyer shall upon request by Seller
execute and deliver such instruments of conveyance, assignment and transfer as
may be
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reasonably necessary to reconvey such Excluded Assets to Seller and shall
promptly return such Excluded Assets to Seller.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
3.1.1 Representations and Warranties. All representations and
warranties of Seller made in this Agreement shall be true and correct on and as
of the Closing Date as though made at such time, other than inaccuracies in such
representations and warranties that in the aggregate do not have a material
adverse effect on the Business or changes approved by Buyer in writing, and
Seller shall have delivered to Buyer a certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.2 Covenants. Seller shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Seller shall have delivered to Buyer a Certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.3 Governmental Approvals. The State Regulatory Approvals and the
FCC Approval (collectively, "Governmental Approvals") shall have been obtained
and shall be in full force and effect and shall not contain any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date. All such approvals and consents shall be deemed to have been obtained
after the grant thereof has become a Final Order.
3.1.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.1.5 Hart-Scott-Rodino Act. All filings required to be made under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
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3.1.6 Certificates and Other Documents. Seller shall have executed
and delivered the certificates and other documents required by Sections 2.2 and
2.4.
3.1.7 Absence of Material Adverse Change. Since December 31, 1998,
there shall have occurred no casualty or other event or change, not subsequently
cured by Seller, that has resulted in a material adverse effect on the Business,
unless such event has resulted in an amendment to this Agreement as contemplated
by Section 6.1.2.
3.1.8 Material Third Party Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the required
third party consents listed on Schedule 3.1.8 have been obtained and remain in
full force and effect on the Closing Date.
3.1.9 Delivery of Financial Information. Seller shall have delivered
the Required Financial Statements and representation letters, in each case as
and when required by Section 5.2.7.
3.1.10 Environmental Inspections. If it is determined pursuant to
Section 5.3.7 that remediation of potential material liabilities under
Environmental Laws is required, then (i) Seller shall have completed the
remediation to Buyer's reasonable satisfaction, (ii) if Seller elects to exclude
a parcel of Fee Realty, and Buyer so elects, Seller and Buyer shall have entered
into a long-term, low-cost lease, in form and substance reasonably satisfactory
to Buyer, for Buyer's use of such parcel after Closing, or (iii) if Seller
elects to exclude the parcel or the Exchange to which such parcel relates, and
if such parcel alone has been excluded and Buyer has not elected to lease such
parcel, Seller and Buyer shall have agreed in good faith to a reduction in the
Purchase Price. In no event shall Seller be responsible for any other
environmental remediation.
3.1.11 Title Matters. If the aggregate estimated costs and expenses
reasonably necessary to remedy all Encumbrances pursuant to Section 5.3.9
exceeds $10,000 (the "Title Threshold"), Seller shall have removed the Excessive
Encumbrances. "Excessive Encumbrances" means one or more Encumbrances selected
by Seller, the removal of which will bring the aggregate estimated costs and
expenses reasonably necessary to remedy the remaining Encumbrances below the
Title Threshold. Seller shall have removed the Excessive Encumbrances by either
(i) causing the title company to agree to delete such Excessive Encumbrances as
an exception in the Title Commitment or, with the prior written consent of
Buyer, shall have insured over such Excessive Encumbrances by endorsement, or
(ii) if acceptable to Buyer and Seller in each of its reasonable discretion, the
parties shall have entered into a written agreement containing Seller's
commitment to remedy such Excessive Encumbrances on terms reasonably
satisfactory to Buyer. In no event shall Seller have any obligation to cure or
remove any Encumbrance that is not an Excessive Encumbrance.
3.1.12 Billing Conversion. The Steering Committee established
pursuant to the Transition Services Agreement shall have concluded at least
thirty days prior to Closing that the billing system conversion will be
completed by Closing.
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3.2 Conditions to Seller's Obligations. The obligation of Seller to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Seller:
3.2.1 Representations and Warranties. All representations and
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes approved by Seller in writing, and Buyer shall have delivered
to Seller a certificate of Buyer to that effect, dated as of the Closing Date,
signed by an authorized officer of Buyer.
3.2.2 Covenants. Buyer shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Buyer shall have delivered to Seller a Certificate of Buyer to that effect,
dated as of the Closing Date, signed by an authorized officer of Buyer.
3.2.3 Governmental Approvals. All Governmental Approvals shall have
been obtained and shall be in full force and effect. All such approvals and
consents shall be deemed to have been obtained after the grant thereof has
become a Final Order. The terms and conditions of the Governmental Approvals
shall be acceptable in all material respects to Seller in its reasonable
discretion.
3.2.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.2.5 H-S-R Act. All filings required to be made under the H-S-R Act
shall have been made, and the waiting period thereunder shall have expired or
early termination thereof shall have been granted.
3.2.6 Certificates and Other Documents. Buyer shall have delivered
the certificates and other documents required under Sections 2.3 and 2.4.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Buyer's Representations and Warranties. Buyer represents and warrants
to Seller that:
4.1.1 Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Buyer has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.1.2 Corporate Authority. This Agreement has been, and when
executed by Buyer each of the other Transaction Documents will be, duly and
validly executed and delivered by Buyer. This Agreement constitutes, and when
executed by Buyer each of the other Transaction Documents will constitute, the
valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
4.1.3 Governmental Authorizations. Except as contemplated by this
Agreement or as set forth in Schedule 4.1.3, neither Buyer's execution and
delivery of the Transaction Documents nor Buyer's consummation of the
Transactions require authorization or approval of, or filing with, any
Governmental Authority.
4.1.4 Funds. On the Closing Date, Buyer shall have sufficient funds
available to pay the Purchase Price, any proration payment required to be paid
on the Closing Date pursuant to Section 1.4, the amount of any Transfer Taxes to
be paid by Seller as provided in Section 1.6 and to consummate the Transactions.
4.1.5 Litigation. There are no actions, suits, proceedings, claims,
arbitrations or investigations, either at law or in equity, of any kind now
pending (or to the best of Buyer's knowledge threatened) involving Buyer or any
of its properties or assets that (i) question the validity of any of the
Transaction Documents or the Transactions; or (ii) seek to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under the Transaction Documents.
4.1.6 Investigation. Buyer, through its accountants, attorneys,
agents, employees, and others, has made or will have made prior to the Closing
such investigations of the Exchanges and Transferred Assets and of the factual,
legal and other condition and location of the Exchanges and Transferred Assets
that it deems necessary or advisable with respect to the Transactions. Buyer
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has not received from the Seller, or from anyone acting or claiming to act on
behalf of the Seller, any accounting, tax, legal or other similar advice with
respect to the Transactions, and Buyer is relying solely on advice of its own
accounting, tax, legal, and other advisors for such advice. Buyer has based its
decision to acquire the Transferred Assets solely on the results of such
investigations and the representations, warranties and covenants of Seller set
forth herein, and not based on any other information (including without
limitation information contained in Seller's descriptive memorandum) provided to
Buyer by Seller, its Affiliates, employees, agents, representatives or advisors.
4.2 Seller's Representations and Warranties. BUYER UNDERSTANDS THAT,
EXCEPT AS SET FORTH IN THIS SECTION 4.2, SELLER MAKES NO REPRESENTATIONS,
WARRANTIES OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR
TYPE WHATSOEVER WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, AND WARRANTIES AS TO THE APPURTENANCES, FACILITIES AND
IMPROVEMENTS THEREON, OR THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR
ADAPTABILITY THEREOF. Seller represents and warrants to Buyer that:
4.2.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Seller has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.2.2 Authorization, Execution and Delivery. This Agreement has
been, and when executed by Seller each of the other Transaction Documents will
be, duly and validly executed and delivered by Seller. This Agreement
constitutes, and when executed by Seller each of the other Transaction Documents
will constitute, the valid, legal and binding agreement of Seller enforceable
against Seller in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights generally
and by principles of equity.
4.2.3 Transferred Assets. Except with respect to Fee Realty, the
Transferred Assets are, and at the time of Closing will be, owned by Seller and
conveyed, transferred and assigned to Buyer free and clear of all Encumbrances.
The Transferred Assets (i) are in a normal state of repair (except for ordinary
wear and tear), (ii) are sufficient, both in number and condition, to comply
with applicable requirements of State Regulatory Authorities and the
manufacturer's specifications, except for non-compliances that in the aggregate
are not reasonably likely to have a material adverse effect on the Business
following the Closing Date, and (iii) will include all assets of every type,
nature and description that relate to, arise from, are used or held by Seller
primarily in the operation of the Business as presently operated by Seller
(including vehicles and related vehicle stock, portable
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office equipment, test equipment, generators, materials, supplies, tools,
maintenance radio equipment and antennas normally located within the Exchanges
or primarily used in connection with the Business), except for the Excluded
Assets. Assuming the receipt of all required third-party consents, the
instruments and documents to be executed and/or delivered by Seller to Buyer
pursuant to Section 2.2 hereof at or following the Closing Date shall be
adequate and sufficient to vest in Buyer all of Seller's right, title and
interest in or to the Transferred Assets. To Seller's Knowledge, Seller enjoys
peaceful, undisturbed possession under all leases included in the Material
Contracts and rights-of-way and easements with respect thereto and with respect
to the Fee Realty. Notwithstanding the foregoing to the contrary, with respect
to all Fee Realty included in the Transferred Assets, Seller makes no
representations or warranties as to the ownership or Encumbrances thereon, it
being the express agreement of the parties that such matters shall be the
subject of the arrangements set forth in Sections 3.1.11 and 5.3.9.
4.2.4 Governmental Authorization. Except as contemplated by this
Agreement and except for such of the following the absence of which would not
have a material adverse effect on the Business, no authorization or approval of,
or filing with, any Governmental Authority will be required in connection with
Seller's execution and delivery of the Transaction Documents or Seller's
consummation of the Transactions.
4.2.5 Litigation. As of the date hereof there are no actions, suits,
proceedings, claims, arbitrations or investigations, either at law or in equity,
of any kind now pending (or to the best of Seller's Knowledge threatened)
against Seller (i) in which an adverse determination would have a material
adverse effect on the Business; (ii) that question the validity of any of the
Transaction Documents or the Transactions; or (iii) that seek to delay, prohibit
or restrict in any manner any actions taken or contemplated to be taken by
Seller under the Transaction Documents.
4.2.6 Tax Matters. All taxes and assessments, including interest and
penalties thereon, of any kind whatsoever accrued with respect to the Business
through the Closing Date (other than Transfer Taxes and taxes subject to
proration at Closing pursuant to Section 1.4) have been or will be paid in full
by Seller. There are no liens for federal, state or local taxes upon the
Transferred Assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by Seller
in appropriate proceedings, the ultimate liability for which shall remain the
obligation of Seller, and Seller shall indemnify Buyer against all such
liabilities. Seller has timely filed, or will cause to be timely filed, all
federal, state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Business for all periods up to and including the Closing Date.
4.2.7 No Breach. The execution and delivery by Seller of the
Transaction Documents and the consummation by Seller of the Transactions will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of Seller; (ii) violate any
applicable law, statute, ordinance, rule, regulation, code, license,
certificate, franchise, permit, writ, ruling award, executive order, directive,
requirement, injunction (whether
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temporary, preliminary or permanent), judgment, decree or other order
(collectively "Applicable Laws") issued, enacted, entered or deemed applicable
by any Governmental Authorities having jurisdiction over Seller or any of the
Transferred Assets; (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give another
party any rights of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of the Operating Contracts; or (iv) result in
the creation or imposition of any Encumbrance on any of the Transferred Assets,
excluding from the foregoing clauses those violations, breaches or defaults
which individually or in the aggregate would not reasonably be expected to have
a material adverse effect upon the operation of the Business by Buyer after the
Closing.
4.2.8 Compliance with Laws. Except as set forth on Schedule
4.2.18(a), the Business has been operated and the Exchanges are in compliance
with all requirements of the Authorities and all Applicable Laws, except where
Seller's non-compliance would not have a material adverse effect on the
Business. Seller has not received any notice of (and to Seller's Knowledge there
is no reason to anticipate) any material violation of any Applicable Laws.
Notwithstanding the foregoing, except as specifically provided in Section 5.3.7,
Seller hereby disclaims all warranties, whether express or implied, with regard
to the presence of Hazardous Materials in the Transferred Assets or compliance
of the Business with Environmental Laws. Buyer understands and agrees that,
other than as specifically provided in Section 5.3.7, any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Transferred Assets following the Closing Date, including the costs of any
remediation or cleanup associated with the Transferred Assets, or environmental
claim or liability associated with the Transferred Assets, irrespective of when
contamination occurred, is assumed by Buyer on the Closing Date.
4.2.9 Operating Contracts. Schedule 4.2.9(a) sets forth all of the
Operating Contracts of the type described below (the "Material Contracts") that
Seller, after using commercially reasonable efforts, has been able to gather for
Buyer's review. No Operating Contract described in (i) below will be entered
into after the date of this Agreement and no Operating Contract described in
(ii) - (ix) will be entered into after the date of this Agreement other than in
the ordinary course of business:
(i) an agreement containing a non-compete agreement or other
non-compete covenant that in either case would by its terms limit the freedom of
Buyer following the Closing to compete in any respect with respect to the
Business with any third party;
(ii) an agreement granting an Encumbrance on Property other than Fee
Realty;
(iii) an agreement for the sale of any material Transferred Assets
or grant of any preferential rights to purchase any material Transferred Assets;
(iv) a land development agreement or other similar construction
agreement;
(v) a lease of real property;
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(vi) an agreement with respect to 911 services or E911 services;
(vii) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Exchanges;
(viii) an agreement that relates to arrangements and commitments
between Seller and a third party for the third party's location of equipment in
facilities included in the Transferred Assets except to the extent set forth in
a separate interconnection agreement; or
(ix) an agreement other than as set forth above with respect to
which the aggregate amount to be received or paid thereunder attributable to the
Exchanges with respect to calendar year 1999 or any subsequent calendar year is
expected to exceed $50,000 based on the terms of such agreement or on the
payments which have been made under such agreement with respect to calendar year
1998, to the extent applicable.
Schedule 4.2.9(b) identifies (i) each interconnection agreement between
Seller and a third party or an Affiliate of Seller that is applicable to the
Exchanges, (ii) each agreement that relates to arrangements and commitments
between Seller and an Affiliate of Seller for such Affiliate's co-location of
equipment in facilities included in the Transferred Assets that Seller, using
commercially reasonable efforts, has been able to identify, and (iii) each
Exchange where a third party has physically co-located equipment or, to Seller's
Knowledge, where a third party has made a written request to co-locate equipment
located in the Exchanges.
All of the Operating Contracts were made in the ordinary course of
business and are in all material respects valid, binding and currently in full
force and effect. Seller is not in default in any material respect under any of
the Operating Contracts, and to Seller's Knowledge no event has occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default or give rise to a right of termination or cancellation under any of the
Operating Contracts, cause the acceleration of an obligation of Seller, or
result in the creation of any Encumbrance upon any of the Transferred Assets. To
Seller's Knowledge, no other party is in default under any of the Operating
Contracts, nor has any event occurred which, through the passage of time or the
giving, of notice, or both, would constitute a default or give rise to a right
of termination or cancellation under any of the Operating Contracts, or cause
the acceleration of any obligation owed to Seller. Complete and correct copies
of all the Material Contracts in Seller's possession, together with all
modifications and amendments thereto to date of this Agreement in Seller's
possession, have been made available to Buyer or its representatives. Schedule
4.2.9(a) also specifically identifies each lease that requires the consent,
approval or waiver of the other party thereto for the assignment thereof.
4.2.10 Realty. (i) To Seller's Knowledge, the legal descriptions to
be delivered by Seller to the title insurance company shall be complete and
accurate in all material respects; (ii) as of the date hereof, there are no
deferred property taxes or assessments payable by Seller with respect to the Fee
Realty which may or will become due and payable as a result of the consummation
of the
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Transactions, other than Transfer Taxes; (iii) there are no condemnation
proceedings pending or to Seller's knowledge threatened with respect to all or
any part of any parcel of Fee Realty; and (iv) Seller is not a foreign person
within the meaning of Section 1445 of the Code.
4.2.11 Reports. Seller has filed all reports relating to the
Business required by all Applicable Laws to be filed, and it has duly paid or
accrued on its books of account all applicable duties and charges due or
assessed against it pursuant to such reports.
4.2.12 Year 2000 Matters.
(a) Year 2000 Compliance. Seller warrants and represents that to the
best of its knowledge and belief following an effort of commercially reasonable
diligence by Seller, all of its business assets, including but not limited to
information technology and non-information technology systems and facilities and
those of its external suppliers utilized by Seller in the Business and included
in the Transferred Assets ("Business Assets"), are or will be "Year 2000
Compliant" (defined below) on or before the Closing Date. For purposes of this
Agreement, the following definitions apply:
(i) "Date Data" means any data, formula, algorithm, process,
input or output which includes, calculates or represents a date, a reference to
a date or a representation of a date;
(ii) "Year 2000 Compliant" means:
1. the functions, calculations, and other computing
processes of the Business Assets (collectively, "Processes") perform in a
consistent manner regardless of the date in time on which the Processes
are actually performed and regardless of the Date Data inputs to the
Business Assets, whether before, on, during or after January 1, 2000 and
whether or not the Date Data is affected by leap year;
2. the Business Assets accept, calculate, compare, sort,
extract, sequence, and otherwise process all Date Data, and returns and
displays all Date Data, in a consistent manner regardless of the dates
used in such Date Data, whether before, on, during or after January 1,
2000.
3. the Business Assets will function without
interruptions caused by the date in time on which the Processes are
actually performed or by the Date Data inputs to the Business Assets,
whether before, on, during or after January 1, 2000;
4. the Business Assets store and display all Date
Data in ways that are unambiguous as to the determination of the century;
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5. no Date Data will cause one or more Business
Assets to perform an abnormally ending routine or function within the
Processes or generate incorrect values or invalid results; and
6. each of the Business Assets will properly
exchange Date Data with all other Business Assets that it may interact or
inter-operate with.
(b) Year 2000 Testing. Seller warrants that the Business Assets have
been tested by Seller and/or Seller's suppliers of Business Assets to determine
whether each of the Business Assets is Year 2000 Compliant. Seller's suppliers
of Business Assets have represented to Seller that the Business Assets provided
by them are Year 2000 Compliant and/or have been tested by those suppliers to
determine whether such Business Assets are Year 2000 Compliant. Seller will
notify Buyer immediately of the results of any test or any claim or other
information that indicates any Business Asset is not Year 2000 Compliant.
(c) Year 2000 Remedies. In the event that Buyer encounters a
Business Asset that is not Year 2000 Compliant, within a commercially reasonable
period after receipt from Buyer of written notice thereof, Seller shall at its
expense cause the identified non-compliant Business Asset to be repaired or
replaced.
4.2.13 Correct Records. The financial records, ledgers, account
books and other accounting records of Seller relating to the Business are
current, correct and complete and, if required by applicable law, conform with
the rules and regulations of the FCC and the State Regulatory Authorities,
except for instances that in the aggregate are not reasonably likely to have a
material adverse effect on the Business following the Closing Date and except
for the Continuing Property Records for the Exchanges, which are dealt with
specifically elsewhere in this Agreement. Seller has retained substantially all
original cost documentation relating to the regulated Business regarding the
expenditures made by Seller within the period required by Applicable Law that
relate to the Property, and such original cost documents are correct and
complete in all respects, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
4.2.14 Tribal and Federal Consents.
(a) To Seller's Knowledge, all easements, rights-of-way, franchises,
licenses, permits, consents, approvals, certificates and other authorizations of
tribal authorities and the United States Bureau of Indian Affairs (the
"BIA")(collectively, "Tribal Authorizations") held by Seller and relating to any
Purchased Property located, or any operations of the Business conducts, on
Native American reservations are in full force and effect, Seller is not in
material default thereunder, and there are no other Tribal Authorizations
required to be obtained by Seller from, or filings required to be made by Seller
with, any tribal authority or the BIA with respect to any such Purchased
Property or any such operations of the Business, except for instances that in
the aggregate are not reasonably likely to have a material adverse effect on the
Business following the Closing Date.
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(b) Except as set forth on Schedule 4.2.14(b), to Seller's Knowledge
no consent, approval or waiver from, or filing with, any tribal authority or the
BIA is required to be obtained or made in connection with the execution and
delivery by Seller of this Agreement, or Seller's fulfillment of its obligations
under this Agreement, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(c) If during the period between the date of this Agreement and the
Closing Date the representation and warranty set forth in this Section 4.2.14
proves to be untrue with respect to one or more parcels of Realty and Buyer and
Seller in good faith have been unable to remedy the circumstances that causes
such representation and warranty to be untrue with respect to such parcel, at
the election of either Buyer or Seller such parcel shall be excluded from the
Transferred Assets, and Buyer and Seller shall in good faith reduce the Purchase
Price accordingly.
4.2.15 Financial Statements.
Within 15 business days of the date hereof, Seller shall deliver to Buyer
a copy of financial statements relating to the Business, consisting of a balance
sheet and income statement and statements of cash flow and changes in equity for
the Business as of and for the respective periods ended December 31, 1996,
December 31, 1997, and December 31, 1998, together with the auditor's report
thereon (the "Financial Statements"). The Financial Statements were prepared
based upon the books and records of Seller, fairly present in all material
respects the financial condition of the business as of the appropriate periods
and the results of operations for the year then ended, in each case in
conformity with GAAP.
4.2.16 Loss of Major Customer. Except as set forth on Schedule
4.2.16, since June 1, 1997, Seller has not suffered the loss of any customer of
the Business that had billings in any year in excess of $25,000.
4.2.17 CPRs; Vehicles. Seller has provided Buyer with its Continuing
Property Records ("CPRs") for the Exchanges. Schedule 4.2.17 contains a true and
complete list and description (including vehicle identification numbers) as of
June 1, 1999 of the vehicles that are included in the Transferred Assets.
4.2.18 Tariffs and Authorities.
(a) The regulatory tariffs applicable to the Business stand in full
force and effect on the date of this Agreement in accordance with all terms, and
there is no outstanding notice of cancellation or termination or, to Seller's
Knowledge, any threatened cancellation or termination in connection therewith,
nor is Seller subject to any restrictions or conditions applicable to its
regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material
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respect under any such tariff. Schedule 4.2.18(a) sets forth all applications by
Seller or complaints or petitions by others or proceedings pending or, to
Seller's Knowledge, threatened before the state regulatory authority relating to
the Business or its operations or the regulatory tariffs that Seller, after
using commercially reasonable efforts, has been able to identify. To Seller's
Knowledge, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Business
has been delivered or made available to Buyer.
(b) Listed on Schedule 4.2.18(b) are the material Authorities held
by Seller and used in the operation of the Business. Each of such Authorities is
in full force and effect of the date of this Agreement in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor are any of such Authorities subject to any restrictions or
conditions that limit the operation of the Business (other than restrictions or
conditions generally applicable to licenses or permits of that type). Subject to
the Communications Act of 1934, as amended, and the regulations thereunder, the
FCC licenses included in the Authorities are free from all security interests,
liens, claims or encumbrances of any nature whatsoever. Except as disclosed on
Schedule 4.2.18(c), there are no applications by Seller or complaints or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC licenses that would reasonably be expected to have a
material adverse impact on the Business.
4.2.19 Environmental Matters.
(a) Schedule 4.2.19(a) accurately describes each incident known to
Seller and arising since December 31, 1996, involving violation of or
noncompliance with Environmental Laws in connection with Seller's operation of
the Business or the use or ownership of the Transferred Assets with respect to
which the fines exceed $100,000. Except as will be set forth on Schedule
4.2.19(d), no environmental remediation is occurring on any parcel of Fee Realty
or leased real property included in the Transferred Assets nor has Seller or any
Affiliate of Seller issued a request for proposal or otherwise asked an
environmental remediation contractor to begin plans for environmental
remediation.
(b) Schedule 4.2.19(b) sets forth a true and accurate list of all
underground storage tanks ("USTs") and aboveground storage tanks ("ASTs")
located on the Fee Realty and the leased real property included in the
Transferred Assets that are in use.
(c) Except as set forth in Schedule 4.2.19(c) and, to the extent
such information is unavailable on the date of execution of this Agreement, as
set forth and supplemented on Schedule 4.2.19(d), none of the Fee Realty or
leased real property is situated in a federal "Superfund" site or, to Seller's
Knowledge, in any federal "Superfund" study area.
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(d) Within 30 days from the date of this Agreement, Seller will
prepare and deliver to Buyer Schedule 4.2.19(d), which schedule will list (i)
all environmental remediation occurring on any parcel of Fee Realty or leased
real property included in the Transferred Assets, (ii) any requests for
proposals for remediation, (iii) any requests by Seller or any Affiliate of
Seller to begin plans for environmental remediation, (iv) all USTs and ASTs
located on the Fee Realty and the leased real property included in the
Transferred Assets that, to Seller's Knowledge, have been abandoned in place,
and (v) each incident known to Seller and arising since December 31, 1996,
involving violation of or noncompliance with Environmental Laws in connection
with Seller's operation of the Business or the use or ownership of the
Transferred Assets with respect to which the fines exceed $10,000. In addition,
within such period, Seller shall deliver to Buyer complete copies of letters of
non-compliance with respect to each incident listed in subsection (v) above,
copies of AST and UST closure letters contained in the files and records of
Seller, copies of all No Further Action letters contained in the files and
records of Seller, and a description of the status of any existing fuel tank
remediation.
4.2.20 Employee Benefits.
(a) Schedule 4.2.20(a) lists each Employee Benefit Plan and Other
Plan maintained or contributed to by Seller or its affiliates for the benefit of
any employee employed by, or associated with, the Business (hereinafter, an
"employee of the Business"). Seller has provided Buyer with full and complete
copies (including all amendments) of all of such Employee Benefit Plans and
Other Plans.
(b) To Seller's Knowledge, each such Pension Plan, Welfare Plan and
Other Plan maintained by Seller has been operated in accordance with its terms
and in accordance with applicable law, to the extent that the failure to do so
would have material adverse effect on the Business or its assets.
(c) Except as otherwise set forth on Schedule 4.2.20(c), no Employee
Benefit Plan or Other Plan provides benefits for persons who are not active
employees of Seller.
(d) Except as set forth on Schedule 4.2.20(g), there are no actions,
suits or claims pending or threatened (other than routine claims for benefits)
relating to any Employee Benefit Plan or Other Plan identified in Schedule
4.2.20(a) except for actions, suits or claims that are not in the aggregate
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(e) Seller does not maintain any Employee Benefit Plan or Other Plan
under which it would be obligated to pay benefits because of the consummation of
the transaction contemplated by this Agreement, which could become an obligation
of the Buyer.
(f) Seller has used its best efforts to maintain each trust forming
a part of any Pension Plan identified in Schedule 4.2.20(a) which is not exempt
from Part 2, 3 and 4 of Title I of
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ERISA to meet all requirements for qualification under Sections 401 and 501 of
the Internal Revenue Code, and all applicable related rules and final
regulations.
(g) Schedule 4.2.20(g) sets forth all the exceptions to the
following statements that Seller, after using commercially reasonable efforts,
has been able to identify: (i) Seller is not subject to any collective
bargaining agreement covering any employees of the Business; (ii) there are no
current, or to Seller' Knowledge, any pending or threatened strikes, slowdowns,
picketing, work stoppages or lock-outs affecting the Business; (iii) to Seller's
knowledge, there is no pending or threatened organized activity or petition for
certification of a collective bargaining representative involving employees of
the Business; (iv) to Seller's Knowledge, there is no pending or threatened
charge, action, complaint, or proceeding of any nature against Seller relating
to the violation of any applicable state and federal labor or employment law or
regulation in connection with the Business, nor is there any other pending or
threatened labor or employment dispute against or affecting Seller in connection
with the Business ,except for items that in the aggregate are not reasonably
likely to have a material adverse effect on the Business following the Closing
Date; and (v) with respect to employees of the Business, Seller has complied in
all respects with the laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupation safety and health, immigration, and plant closings ,except
for items that in the aggregate are not reasonably likely to have a material
adverse effect on the Business following the Closing Date. Seller has delivered
to Buyer accurate and complete copies of all collective bargaining agreements
affecting any of the employees in the Exchanges.
"Employee Benefit Plan" means any Pension Plan and Welfare Plan within the
meaning of Section 3(3) of ERISA.
"Other Plan" means any employment, noncompetition, management, agency or
consulting arrangement, bonus, profit sharing, deferred compensation, incentive,
stock option, stock ownership or stock purchase plan, severance or unemployment
arrangement, vacation pay, fringe benefit or other similar plan, policy or
arrangement, whether or not in written form, which does not constitute an
Employee Benefit Plan and which is not listed on Schedule 4.2.20(a).
"Pension Plan" means any employee pension plan within the meaning of
Section 3(2) of ERISA.
"Welfare Plan" means any employee welfare benefit plan within the meaning
of the Section 3(1) of ERISA.
4.2.21 Accuracy of Information Furnished.
(a) To Seller's Knowledge:
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(i) Seller made a good faith effort, given the voluminous
nature of the material available with respect to the Transferred Assets, the
necessity to present in many cases representative documents or descriptions of
documents, and Seller's need to maintain certain competitive information
confidential, to include in the due diligence notebooks contained in the Data
Room located in Seller's offices in Denver, Colorado all documents or
appropriate descriptions of all documents that, in Seller's reasonable opinion,
a reasonable prospective acquiror of the Transferred Assets would deem to be
material in its decision; and
(ii) Seller did not intentionally and consciously decide to
(1) exclude from the due diligence notebooks (2) withhold from Buyer in response
to Buyer's requests for additional information or (3) not make available for
review by Buyer or its agents at Seller's offices in Denver, Colorado any
document relating to the operation of the Business as currently conducted which,
in Seller's reasonable opinion, a reasonable prospective acquiror of the
Transferred Assets would deem to be material in its decision to acquire the
Transferred Assets.
4.2.22 No Material Adverse Change. Since December 31, 1998 there has not
occurred (i) any event or condition that would have a material adverse effect on
the Business, (ii) any increase in compensation payable or to become payable by
Seller to any of its Hired Employees or agents, other than normal merit or
promotional increases and pursuant to any collective bargaining agreements,
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract, except any amendment or termination in the
ordinary course of business or (iv) any change in any accounting method,
practice or policy of Seller with respect to the Business.
ARTICLE 5
COVENANTS
5.1 Covenants of Buyer. Buyer hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.1.1 Continued Efforts. Buyer will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Buyer; (ii) cause to be performed all of
the actions required of Buyer at or prior to the Closing; and (iii) take such
steps and do all such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect as
if the same had been made as of the Closing Date. Without limiting the
foregoing, Buyer agrees if requested by Seller to apply for or otherwise seek
any required third-party consents on a joint basis.
5.1.2 Cooperation. Buyer agrees to cooperate with Seller with
respect to (i) Seller's assignment to Buyer and Buyer's assumption of the
Transferred Assets hereunder, and (ii) Seller's structuring of the Transactions
to comply with the requirements of a like-kind exchange under Section 1031 of
the Code (a "1031 Transaction") at no additional expense to Buyer, such
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cooperation to include, without limitation, purchase of the Transferred Assets
from a "qualified intermediary" (as defined in Section 1031) of Seller's choice
and execution of such documents in connection with the Transactions as Seller
may reasonably request. If Seller elects to pursue the Transactions as a 1031
Transaction, then (i) notwithstanding anything in this Agreement to the
contrary, Seller shall fully indemnify, defend and hold Buyer harmless from and
against any and all liabilities resulting therefrom, including, but not limited
to, any tax impacts on Buyer or the Transferred Assets, and (ii) Seller shall
remain directly and primarily bound by all other conditions, representations,
warranties and covenants contained herein and remedies related thereto.
5.1.3 Employee Matters.
(a) Buyer agrees that, during the period between the date hereof and
the Closing Date and for a period of 18 months thereafter, without the prior
written consent of Seller, Buyer will not actively solicit for employment any
employee of Seller other than those persons identified by Seller to Buyer in
writing as provided in this Section 5.1.3 or who respond to a general
solicitation of employment made by Buyer.
(b) As soon as practicable following the date hereof and as
permitted by applicable law and collective bargaining agreements, Seller shall
provide to Buyer a list of all employees whose services are primarily related to
the Exchange (the employees on such list being referred to as "Prospective
Hires"). Buyer shall have the right to audit such list to determine that it
contains an accurate and complete listing of all Prospective Hires, and Seller
shall cooperate in providing Buyer with such information as Buyer may reasonably
request to assist in such audit. Within 90 days following the date of this
Agreement, and consistent with applicable law and any collective bargaining
agreement, Seller shall provide Buyer with a definitive list of Prospective
Hires, such list to contain the name, job classification, position, title, date
of hire, current salary or wage, bargaining unit, primary exchange(s), work
location, telephone number and last known address of each Prospective Hire.
(c) Buyer may, but shall have no obligation to, employ or offer
employment to any Prospective Hire. Seller shall cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview the Prospective
Hires to make hiring decisions. At least 60 days before the scheduled Closing
Date, Buyer shall provide to Seller in writing a list of the Prospective Hires
that Buyer intends to offer employment. At least 45 days before the scheduled
Closing Date, Buyer shall notify those Prospective Hires whom Buyer intends to
hire on the Closing Date; the form and manner of such notification shall be
reasonably satisfactory to and approved in advance by Seller. Buyer shall be
permitted to conduct appropriate pre-hire investigations of such named
Prospective Hires and make any offer of employment for such Prospective Hires
conditional upon receiving results of such investigations as are satisfactory to
Buyer.
(d) As of the Closing Date, Seller shall separate from its payroll
the employment of all of the Prospective Hires to whom Buyer has made offers of
employment other than any such Prospective Hire who has been offered employment
by Buyer and who is on leave status, including
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employees receiving Workers' Compensation Benefits, as of the Closing Date
(each, an "Employee on Leave Status"). Buyer shall employ any Employee on Leave
Status (i) who is on approved leave under the Family and Medical Leave Act on
the Closing Date only when such Employee on Leave Status returns to work from
such approved leave under the Family and Medical Leave Act or (b) who is
receiving Workers' Compensation Benefits on the Closing Date only when such
Employee on Leave Status is released to return to work but only if such release
occurs within sixteen weeks after the date of initial eligibility for Workers'
Compensation Benefits, in each case subject to Buyer's right to conduct
appropriate pre-hire investigations of such Employee on Leave Status and to
Buyer's receipt of results of such investigations that are satisfactory to
Buyer.
(e) Seller shall be responsible for and shall cause to be discharged
and satisfied in full all amounts owed to any Prospective Hire who is employed
by Seller as of the Closing Date, including salaries, commissions, bonuses,
deferred compensation, severance, insurance, vacation, and other compensation or
benefits to which they are entitled for periods prior to the Closing (and for
Employee on Leave Status, until their employment by Buyer, as set forth in
Section 5.1.3(d) hereof), including all amounts (if any) payable on account of
the termination of such Prospective Hires.
(f) Seller will be responsible for maintenance and distribution of
benefits accrued under any Employee Benefit Plan maintained by Seller pursuant
to such plan and any legal requirements. Buyer will not assume any obligation or
liability for any such accrued benefits under any employee benefit plans
maintained by Seller.
(g) Nothing in this Section 5.1.3 or elsewhere in this Agreement
shall be deemed to make any Prospective Hire a third party beneficiary of this
Agreement.
(h) Seller acknowledges and agrees that Buyer has not agreed to be
bound, and will not be bound, by any provision of any collective bargaining
agreement or similar contract with any labor organization to which Seller or any
of its Affiliates is or may become bound.
(i) Seller shall provide employees of the Business with any required
notices under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller.
5.1.4 Directory Publishing Rights. Buyer will enter into good faith
negotiations with U S WEST Dex, Inc. ("Dex"), an Affiliate of Seller (or its
successor so long as such successor remains an Affiliate of Seller), concerning
an agreement whereby either (i) Dex will publish all subscriber listings
corresponding to the Exchanges on behalf of Buyer in satisfaction of Buyer's
regulatory obligations to publish such listings, or (ii) Buyer will license such
listings to Dex in accordance with Buyer's regulatory obligations to provide
such listings in the event that Buyer elects to publish or arrange with a third
party to publish such listings.
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5.1.5 911 Emergency Services. Buyer will obtain or contract for the
appropriate 911 emergency data bases in order to commence providing 911
emergency services in connection with the operation of the Business as of the
Closing Date.
5.2 Covenants of Seller. Seller hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.2.1 Access to Information and Facilities. Seller will afford Buyer
and its representatives, at Buyer's sole expense, reasonable access during
normal business hours to all Transferred Assets, facilities, properties, books,
accounts, records, contracts and documents of or relating to the Business in
Seller's possession or control. Seller shall exercise commercially reasonable
efforts to furnish or cause to be furnished to Buyer and its representatives all
data and information in Seller's possession concerning the Exchanges as shall
reasonably be requested by Buyer. Seller shall exercise commercially reasonable
efforts to gather additional Material Contracts for Buyer's review.
Seller acknowledges and agrees that Buyer's ongoing review, examination
and investigation of the Business and the Transferred Assets, facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business contemplated in the immediately preceding sentence is necessary to
facilitate the assimilation of the Business into Buyer's operations, the
transfer of the ownership and use of the Transferred Assets from Seller to Buyer
and other reasonable business purposes, and may include the following
activities:
(i) review of the Operating Contracts and Authorities, the
performance of which after Closing is an Assumed Liability (e.g., land
development agreements, 911 and E911 service agreements and customer
prepaid maintenance agreements) in order, among other things, to identify
those that require third party consent to assign to Buyer, those that
expire prior to or soon after the Closing and those that may require
special documentation to transfer to Buyer;
(ii) investigation of the third party arrangements included among
the Excluded Assets that Buyer will need to replicate or replace,
including interconnection agreements and national account agreements that
affect any Exchange.
(iii) examination of various assets included in the Property in
order, among other things, to determine what changes Buyer may need to
make to such assets after the Closing Date;
(iv) investigation of miscellaneous underwriting data, including an
insurance claims history of Seller relating to the operation of the
Business and the ownership or use of the Transferred Assets, the current
surety bonds and certificates of insurance relating to the Transferred
Assets, and Seller's policies and practices relating to pertinent
environmental, health, safety and property protection issues, in order for
Buyer to arrange appropriate
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insurance coverage by Closing with respect to Buyer's operation of the
Business and ownership and use of the Transferred Assets after the Closing
Date;
(v) investigation of the location and organization of the Records,
including the original cost documents and outside plant maps relating to
the Property, in order for the parties to arrange for appropriate delivery
(including via electronic transfer) or retention by Seller upon the
Closing;
(vi) review of the appropriate financial and accounting records of
Seller relating to the operation of the Business in order, among other
things, for Buyer to analyze the current balances and writeoff history of
the materials and supplies inventory included in the Transferred Assets,
the aging and write-off history of Accounts Receivable, and the manner in
which the Seller historically has allocated costs to the Purchased
Exchanges;
(vii) review of the ongoing State Regulatory Authorities and FCC
reporting obligations of Seller and Buyer relating to the Exchanges,
including responsibility for filing "form M" financial information, FCC
Report No. 43-04, Armis Joint Cost Report, and FCC Report No. 43-8, Armis
Operating Data Report, for the Exchanges for the year in which the Closing
Date occurs;
(viii) investigation of the construction and plant upgrade
activities of Seller between the date of execution of this Agreement and
the Closing Date, including a review of the construction work in progress,
in order, among other things, to enable Buyer to make appropriate
arrangements for the continuation of such activities after the Closing
Date; and
(ix) investigation of other regulatory issues, including with
respect to regulatory mandates and matters relating to the National
Exchange Carrier Association (including the Universal Service Fund, Local
Switching Support, and Telecommunications Relay Services funds) and
corresponding funds established by the State Regulatory Authorities.
The parties agree to cooperate and to negotiate in good faith regarding
resolution, on commercially reasonable terms and conditions, of issues and
concerns raised by either party in connection with such activities. Each party's
cooperation will include making appropriate subject matter experts and other
knowledgeable personnel available to meet with the appropriate representatives
of the other party and facilitating Buyer's contacts with the appropriate
Governmental Authorities (including the State Regulatory Authorities).
5.2.2 Continued Efforts. Seller will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Seller; (ii) cause to be performed all
of the actions required of Seller at or prior to the Closing; and (iii) take
such steps and do such acts as may be necessary to make all of its warranties
and representations true and correct as of the Closing Date with the same effect
as if the same had been made as of the Closing Date.
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5.2.3 Maintenance of Business. Seller shall carry on the Business in
the usual and ordinary course and substantially in the same manner as heretofore
conducted. Accordingly, Seller shall (i) maintain its books and records in the
normal and usual manner, (ii) keep the Transferred Assets in a normal state of
repair (except for ordinary wear and tear) and operating efficiency to permit
the conduct of the Business as it is currently being conducted; (iii) use its
commercially reasonable efforts to undertake or complete capital projects as
budgeted on Schedule 5.2.3(iii) and any capital projects required by Applicable
Laws or any Governmental Authority to be undertaken by the Closing Date (it
being understood and agreed that Seller shall have no obligation for any capital
spending other than in connection with such capital projects and as required to
comply with the provisions of this Section 5.2.3 and provided that Seller shall
be entitled to the Purchase Price adjustment (to the extent applicable) pursuant
to Section 1.4.3(a)); (iv) not increase the benefit provided under any plans
concerning employee benefits or increase the general rates of compensation of
its employees in the Exchanges, except (a) as required by Applicable Law, (b)
pursuant to any contracts existing on the date hereof and listed on Schedule
5.2.3(iv) to which Seller is a party, (c) increases in base pay or bonuses in
the ordinary course of business of Seller and in amounts consistent with the
recent past practices of Seller, or (d) as listed or described on Schedule
5.2.3(iv); and (v) not amend, modify or terminate any contract identified on
Schedule 4.2.9 or permit any of the foregoing to occur other than in the
ordinary course of business.
5.2.4 Consent to Assignment. Seller will transfer to Buyer all
Operating Contracts and permits that are by their terms assignable. Seller shall
also request assignment to Buyer of those Operating Contracts and permits that
are not by their terms assignable. To the extent that the assignment of any
Operating Contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Operating
Contract or permit if an attempted assignment would constitute a breach thereof.
Seller shall use commercially reasonable efforts (excluding the payment of
money) to obtain the consent of any other party to the assignment of such
Operating Contracts or permits to Buyer. If any such consent is not obtained, to
the extent permitted by Applicable Law, this Agreement shall constitute an
equitable assignment by Seller to Buyer of all of Seller's right, title, and
interest in and to such Operating Contracts and permits, and Buyer shall be
deemed Seller's agent for the sole purposes of completing, fulfilling and
discharging all of Seller's rights and obligations arising after the Closing
Date under such assigned Operating Contracts and permits.
5.2.5 Payment and Performance of Obligations. Seller will timely pay
and discharge all invoices, bills and other monetary obligations (other than
obligations which are contested by Seller in good faith) and shall not knowingly
perform or fail to perform any act which will cause a material breach of any of
the Operating Contracts.
5.2.6 Restrictions on Sale of Transferred Assets. Seller shall not
sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose
of any of the Transferred Assets except in the ordinary course of the Business.
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5.2.7 Audit or Review of Financial Statements. To the extent Buyer
reasonably requires audited or reviewed financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, Seller
will cooperate with the independent auditors chosen by Buyer in connection with
their audit of any annual financial statements that Buyer reasonably requires to
comply with Regulations S-X and S-K, and their review of any interim quarterly
financial statements that Buyer reasonably requires to comply with Regulations
S-X and S-K. If Closing has not occurred prior to March 31, 2000, then as soon
as practicable but in any event by May 15, 2000. Seller will provide for audit a
balance sheet as of December 31, 1999, and an income statement and statement of
cash flows and changes in equity for the year ending December 31, 1999. The
financial statements to be audited or reviewed pursuant to this Section 5.2.7,
are hereinafter referred to as the "Required Financial Statements." Seller's
cooperation will include (i) such access to Seller's employees who were
responsible for preparing the Required Financial Statements and to workpapers
and other supporting documents used in the preparation of the Required Financial
Statements as may be reasonably required by such auditors to perform an audit in
accordance with generally accepted auditing standards, (ii) delivery of any
Required Financial Statements within 45 days after Buyer's request for the same
(except as otherwise provided in the second sentence of this Section 5.2.7) and
in the form required by Regulations S-X and S-K, and (iii) delivery of one or
more representation letters from Seller to such auditors that are requested by
Buyer to allow such auditors to complete the audit (or review of any interim
quarterly financials), and to issue an opinion acceptable to the SEC with
respect to the audit or review of those Required Financial Statements. Seller
will bear the cost of preparation of the Required Financial Statements. Buyer
and Seller will share equally the cost of the audit or review.
5.2.8 [Intentionally Deleted]
5.2.9 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information and reasonable assistance as Buyer may reasonably request
in connection with Buyer's replacement of the interconnection agreements
relating to the Exchanges, including supplying to Buyer copies of such
interconnection agreements to the extent permissible and, to the extent
requested by Buyer and in compliance with applicable law, contacting the other
party to such interconnection agreements to notify such party that its
interconnection agreement will not apply to the Buyer and the Exchanges after
Closing. Buyer acknowledges its obligation to negotiate interconnection
agreements with third parties that have ongoing interconnection activities
related to the Exchanges with the expectation that interconnection agreements
between Buyer and such third partes will be entered into effective as of the
Closing Date. If such agreements are not entered into or, if required, approved
by appropriate Governmental Authorities, Buyer will offer to provide
interconnection to such third parties according to the terms of the Seller's
interconnection agreements with such third parties until the Buyer's new
agreements with such third parties are entered into or, if required, approved by
appropriate Governmental Authorities.
5.2.10 State Regulatory Authority/FCC Filings. Seller shall make all
necessary filings with the State Regulatory Authorities, the FCC or any other
Governmental Authority between
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the date of this Agreement and the Closing Date. Seller shall notify Buyer of
any significant proposed changes in the rates, charges, standards of service or
accounting of the Exchanges from those in effect on the date of this Agreement
prior to making any filing with the State Regulatory Authorities, FCC or any
other Governmental Authority (or any amendment thereto), or effecting with any
Governmental Authority any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto. Between the
date of this Agreement and the Closing Date, Seller shall use commercially
reasonable efforts to notify Buyer before Seller files any application,
petition, motion, brief, testimony, settlement agreement or other pleading in
any proceeding before the State Regulatory Authorities, FCC or any other
Governmental Authority or appeals related thereto with respect to which Buyer or
an Affiliate of Buyer has or reasonably could be expected to take a contrary
position that reasonably could be expected to have any adverse effect on the
revenue, earnings, or business of Buyer. Seller will give or cause to be given
to Buyer, as promptly as reasonably practicable, copies of all correspondence
(including notices, complaints, and pleadings) with any Governmental Authority
relating to any such proceeding or other rate regulatory matter that is sent or
received by Seller after the date of this Agreement.
5.2.11 Missing Plant.
(a) If, between the period commencing on execution date of the
Agreement and ending six months after the effective time of Closing, Buyer
notifies Seller in writing regarding items of Property (other than items that
have been fully depreciated on the books and records of Seller, items that are
no longer used in or necessary to the Business, and items covered by Section
5.2.11(b)) that are included in the CPRs relating to the Exchanges but that
Buyer, using commercially reasonable efforts, cannot locate in the Exchanges or
that have been sold, transferred or removed from the Exchanges by Seller or an
Affiliate of Seller, then Seller, at its option, either (i) shall pay to Buyer
(or reduce the Purchase Price by) an amount equal to the net book value of such
items as reflected on the books and records of Seller or (ii) deliver to Buyer
such items or replacement items that have reasonably comparable (or superior)
value, vintage and functionality; provided, however, that Seller shall have no
obligation under this Section 5.2.11(a) until the aggregate net book value of
all such items, together with the aggregate net book value of all such similar
items identified in Section 5.2.11 of each of the Multi-State Exchange Purchase
Agreements, exceeds $400,000, at which time Seller shall become obligated under
this Section 5.2.11(a) with respect to all items so identified by Buyer in all
notices delivered to Seller on or before the date that is six months after the
effective time of Closing; and provided, further that Seller shall have no
obligation under this Section 5.2.11(a) to the extent that the Maximum
Adjustment Amount shall have been reached.
(b) At Closing, Seller shall cause the Transferred Assets to include
all vehicles listed on Schedule 4.2.17 except to the extent any such vehicle has
been replaced with items of reasonably comparable (or superior) value, vintage
and functionality, in which event Seller shall cause such replacement items to
be included in the Transferred Assets.
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5.2.12 Third Party Software Licenses. To the extent that the transfer of
Transferred Assets by Seller to Buyer under this Agreement results in the
transfer of third party software that was rightfully used by Seller prior to the
Closing Date in the normal course operation of the Business pursuant to
contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then effective as of the Closing and provided
that no payments to any person are thereby required (except with respect to
payments relating to the transfer of switch software, which will be shared
equally by Buyer and Seller), at Closing Seller shall assign to Buyer, to the
extent permitted by the Third Party Intellectual Property Contracts, and Buyer
shall accept all rights and licenses if any to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses.
5.3 Mutual Covenants.
5.3.1 Confidentiality. Each party to this Agreement agrees to hold
in strict confidence all Confidential Information received from the other party,
whether received before or after entering into this Agreement, and to use such
information solely for the purposes of this Agreement. Each party agrees to make
no more copies of such Confidential Information than is reasonably necessary for
such purposes. Each party agrees that it will not make disclosure of any such
Confidential Information received from the other party to anyone except as
specifically permitted by this Agreement and as required by law. Each party may
disclose Confidential Information to its employees and agents to whom disclosure
is necessary for the purposes set forth above, provided that disclosing party
shall notify each such employee and agent that disclosure is made in confidence
and instruct such employees and agents that such Confidential Information shall
be kept in confidence by such employee and agent in accordance with this
Agreement. If the Transactions are not consummated for any reason, each party
agrees to return to the other party all such Confidential Information, including
all copies thereof, immediately on request. The obligations arising under this
section shall survive any termination or abandonment of this Agreement. This
Agreement will be filed on a confidential basis with the State Regulatory
Authorities. The provisions of the existing Confidentiality Agreement between
Buyer and Seller dated January 15, 1999 are incorporated herein by reference.
5.3.2 Public Announcements. No public announcement with respect to
this Agreement or the transactions contemplated hereby shall be made before the
Closing without the mutual prior approval of both Seller and Buyer, which
approval shall not be unreasonably withheld; provided, however, that each party
shall be permitted to make such disclosure to its lenders or to any Governmental
Authority, including but not limited to the Securities and Exchange Commission
or similar state securities authorities, necessary to comply with any applicable
laws and to obtain all required Governmental Approvals necessary to consummate
the Transactions, or to any stock exchange upon which such party has a class of
securities listed. Notwithstanding the foregoing, the disclosing party shall
give the non-disclosing party reasonable advance notice of any permitted
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disclosure to third parties under this Section 5.3.2 and shall provide the
non-disclosing party with a reasonable opportunity to review and comment on such
disclosure.
5.3.3 Cooperation. Each party covenants to use all commercially
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all things, that are necessary, proper or advisable under applicable
laws and regulations, expeditiously and practicably to consummate and make
effective the Transactions, including but not limited to (i) using its
commercially reasonable efforts to resolve any disagreements between Buyer and
Seller with respect to any applications for governmental or regulatory approval
prior to application for such approval, (ii) facilitating the regulatory
approval process by agreeing that Buyer will adopt and maintain intrastate
tariffs similar in all material respects to Seller's intrastate tariffs in
effect for the Exchanges on the Closing Date for a period of at least six months
following the Closing Date, provided that such tariffs of Seller are
substantially similar to the tariffs of Seller in effect on the date of this
Agreement except that Buyer's tariffs will reflect rate changes by Seller (x)
made prior to Closing as required by an order of a State Regulatory Authority
that has been issued prior to the date of this Agreement or (y) made prior to
Closing to the extent such changes are substantially revenue neutral to the
Exchanges, (iii) obtaining all necessary actions, waivers, consents and
approvals from third parties or Governmental Authorities, and (iv) effecting all
necessary filings with Governmental Authorities, and to consummate the
agreements referred to in Section 2.4.
5.3.4 State Regulatory Filings. Seller and Buyer agree to promptly
file after execution of this Agreement any required applications and to take
such reasonable actions as may be necessary or helpful (including, but not
limited to, making available witnesses, information, documents, and data
requested by the State Regulatory Authorities) to apply for and receive approval
by the State Regulatory Authorities for the transfer of the Transferred Assets
and Authorities to Buyer. To the maximum extent practicable, all communications
with the State Regulatory Authorities shall be made jointly by Buyer and Seller.
In connection with making such required applications to the State Regulatory
Authorities, Buyer agrees to cooperate with Seller in appropriate public
relations activities, including participation in "town hall" meetings with
citizens, contacts with civic and business leaders, legislators and government
officials, and other activities designed to establish Buyer's presence in and
commitment to the communities in which the Exchanges are located. In the event
any state legislature proposes to enact legislation after the date of this
Agreement which would have an adverse impact on the consummation of the
Transactions or would impose a material liability on either Seller or Buyer in
connection with the transfer of the Transferred Assets, Seller and Buyer agree
to use commercially reasonable efforts to oppose such legislation at their own
expense.
5.3.5 FCC Filings. The parties agree to promptly file after
execution of this Agreement such applications and to take such reasonable
actions as may be necessary or helpful to apply for and receive approval by the
FCC for the transfer of the Transferred Assets and the Authorities to Buyer and
the change in the provider of telecommunications services in the Exchanges to
Buyer. Buyer shall file an application for study area waivers and the
reinitialization of the PCI with respect to at least one of the transactions
contemplated by the Multi-State Exchange Purchase
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Agreements with the FCC within 120 days of the date hereof. Further, Buyer shall
use its best efforts to obtain the FCC's approval of (i) study area waivers for
the Exchanges and (ii) the Reinitialization.
5.3.6 H-S-R Filing. The parties agree to make all required filings
under the H-S-R Act no later that 90 days prior to the anticipated date of
Closing and to request early termination of all applicable waiting periods
thereunder, and thereafter to promptly respond to all requests for additional
information from the Federal Trade Commission or the United States Department of
Justice thereunder.
5.3.7 Environmental Inspections. Within 30 days following the
execution of this Agreement, Seller and Buyer shall select Environmental
Strategies Corporation (or another qualified environmental consultant reasonably
satisfactory to Buyer and Seller) to conduct a Transaction Screen with respect
to each parcel of Fee Realty included in the Transferred Assets (except for any
parcel designated by Buyer not to receive a Transaction Screen), which review
shall be conducted in accordance with ASTM standards and shall be completed
within 90 days following the execution of this Agreement. Upon completion of
such Transaction Screen, such consultant shall deliver to Buyer and Seller a
written report with respect thereto. Each party shall notify the other party in
writing (the "Remediation Notice") within 10 days of learning of any potential
material liabilities under any Environmental Laws with respect to a parcel of
Fee Realty included in the Transferred Assets, but in no event later than the
10th day following receipt of the related Transaction Screen. Thereafter, Buyer
shall determine whether to conduct additional environmental due diligence,
including a Phase I Environmental Report, which shall be completed within 60
days of delivery of the Remediation Notice. If the estimated costs of
remediation of such potential liabilities on such parcel (the "Remediation
Costs") will exceed $400,000, Seller shall either effect such remediation or may
instead elect to exclude either such parcel of Fee Realty or the Exchange to
which such parcel of Fee Realty relates from the Transferred Assets, and Buyer
and Seller shall in good faith reduce the Purchase Price accordingly. If,
pursuant to the preceding sentence, Seller elects to exclude the parcel of Fee
Realty, then, at Buyer's request, Seller shall grant to Buyer a long-term lease
at an annual rental rate of $1.00 and otherwise in form and substance reasonably
satisfactory to Buyer, for the use of such parcel (and Seller shall have no
obligation to effect any remediation with respect to such parcel); provided that
if Buyer is required to pay a higher rental rate for such leased parcel pursuant
to or in connection with the granting of any Governmental Approval, the Purchase
Price shall be decreased by the net present value of the aggregate lease
payments, discounted at a rate of 8% per annum. If the environmental consultant
conducting Buyer's additional environmental due diligence ("Buyer's Consultant")
estimates that the Remediation Costs will exceed $400,000, Seller may elect to
conduct its own additional environmental due diligence during the 60 day period
following completion of Buyer's additional environmental due diligence, and if
the environmental consultant conducting Seller's additional environmental due
diligence ("Seller's Consultant") estimates that the Remediation Costs will be
less than $400,000, Seller shall not be required to so remediate or exclude such
parcel of Fee Realty or such Exchange unless Buyer elects to pursue an
arbitration conducted as contemplated by Article 8 and the arbitrator estimates
that the Remediation Costs will exceed $400,000.
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The costs of the Transaction Screens required by this Section shall be
borne equally by Buyer and Seller, and the costs of any additional environmental
due diligence (the scope of which shall be reasonably acceptable to Seller)
shall be borne by the party conducting such additional due diligence. Buyer
shall indemnify Seller for any liabilities or losses incurred by Seller as a
result of any additional environmental due diligence conducted by Buyer.
5.3.8. Cost Studies/NECA Matters.
(a) Prior to Closing. Seller agrees that, with respect to all
revenues, settlements, pools, separations studies or similar activities, Seller
shall be responsible for (and shall receive the benefit or suffer the burden of)
any adjustments to contributions, or receipt of funds, by Seller resulting from
any such activities that are related to the operation of the Business or the
ownership or operation of the Transferred Assets prior to the Closing Date.
Specifically, this paragraph shall apply, but shall not be limited to, any
maters related to the National Exchange Carrier Association ("NECA") including
the Universal Service Fund ("USF"), Local Switching Support ("LSS") and
Telecommunications Relay Services funds.
(b) From and After Closing.
(i) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC rules
and regulations. The USF Funds due to Buyer shall be determined by multiplying
the number of Access Lines served by the Exchanges on the Closing Date times a
per-line amount of USF support received by Seller for the study area containing
the Exchanges prior to the Closing Date. The resulting Buyer's annual USF amount
shall be prorated in proportion to the number of months in the year from and
after the Closing Date. Beginning July 1, 1999 or a date thereafter determined
by the FCC, non-rural carriers shall not receive USF pursuant to Part 36 and
Part 54, but will receive support in accordance with guidelines using
forward-looking economic cost. Except as contemplated by clause (i) below, after
the Closing Date, Buyer shall make its own filing in accordance with applicable
FCC rules and regulations. Within a reasonable time after Buyer's written
request and in any event at least 30 days prior to the NECA filing date, Seller
shall furnish to Buyer such necessary information regarding Seller's ownership
of the Transferred Assets during the partial calendar year prior to the Closing
Date and the prior calendar year and such reasonable assistance, at Buyer's
expense, as required in connection with Buyer's preparation of necessary filings
or submissions.
(ii) If Closing occurs within 30 days before the NECA filing
date for the USF to be received in the subsequent calendar year, then Seller
will include the Exchanges in its NECA filing for the subsequent calendar year.
Buyer shall receive, in the subsequent calendar year, a pro rata share of USF
Funds received by Seller, under Seller's methodology of computing USF, pursuant
to applicable FCC rules and regulations; provided that in no event shall such
sharing continue for more than 18 months after the Closing Date. The USF Funds
due to Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date
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times the per-line amount of USF support received by Seller for the study area
containing the Exchanges in the full calendar year subsequent to the Closing
Date.
(iii) Notwithstanding the foregoing, Buyer's right to receive
a pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (the "USAC")
based on end-user retail revenues for the previous year generated by the
Transferred Assets. The resulting Buyer's annual USF obligation for the
Transferred Assets shall be prorated in proportion to the number of months in
the year from and after the Closing Date.
(c) State USF. If Seller is entitled to receive any State USF
Funds as of the Closing Date that include State USF Funds relating to the
Exchanges, then Buyer shall receive a pro rata share of such State USF Funds
received by Seller, under Seller's methodology of computing such State USF
Funds, pursuant to the applicable State USF rules and regulations. The State USF
Funds due Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date time the per-line amount of USF
support received by Seller for the appropriate period. The resulting Buyer's
annual State USF amount shall be prorated in proportion to the number of months
in the year from and after the Closing Date. Such sharing of Seller's State USF
Funds shall discontinue upon commencement of the first period for which Buyer is
permitted to make its own State USF filings, and in no event shall such sharing
continue for more than 18 months after the Closing Date. Seller shall cooperate
with Buyer and provide such reasonable assistance, at Buyer's expense, as may be
required in connection with Buyer's preparation of necessary State USF filings
or submissions.
5.3.9 Owned Real Property Transfers. Within 60 days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies covering Fee Realty. No later than 150 days following the
date hereof, Seller shall deliver a preliminary title binder (on a standard
form) to Buyer issued by a title insurance company reasonably acceptable to
Buyer and a certified current survey (collectively, the "Title Commitment") with
respect to all Fee Realty included in the Transferred Assets. Buyer shall,
within 45 days following receipt of the Title Commitment for a parcel, deliver
to Seller, in writing, any objections to any matters affecting any of the Fee
Realty. In the event that Buyer fails to notify Seller as set forth above, such
objections shall be deemed waived. If the Title Commitment indicates the
existence of an Excessive Encumbrance, Seller shall, at its expense, cause such
Excessive Encumbrance to be removed on or before the Closing Date or, with the
prior written consent of Buyer, cause the title company to insure over each such
Excessive Encumbrance. Seller shall provide the title company with such
instructions, authorizations and affidavits at no cost to Seller as may be
reasonably necessary for the title company to issue title policies, based on the
most recent assessed value, to Buyer, dated as of the Closing Date, for all of
the Fee Realty with so-called non-imputation endorsements. Buyer and Seller
shall share equally the costs of the Title Commitments and the title policies.
By no later than 45 days after the Closing Date, Seller shall deliver to Buyer a
final title insurance policy covering the Fee Realty included in the Title
Commitment.
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5.3.10 IntraLATA Tolls. Buyer and Seller will use their best efforts
to negotiate appropriate agreements and arrangements in order to satisfy the
requirements of Section 7.1.9 at Closing.
ARTICLE 6
TERMINATION
6.1 Termination By Buyer.
6.1.1 If any condition precedent to Buyer's obligation to effect the
Closing set forth in Section 3.1 shall become incapable of satisfaction through
no fault of Buyer and such condition is not waived by Buyer, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement by written
notice to Seller.
6.1.2 If any Governmental Approval contains any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date, but only after Buyer has entered into good faith negotiations with Seller
to amend this Agreement in light of such terms or conditions and no such
amendment could be agreed upon, Buyer shall not be obligated to effect the
Closing and may terminate this Agreement by written notice to Seller; provided,
however, that Buyer shall not be entitled to terminate this Agreement based on
(x) Buyer's failure to obtain increases in intrastate tariff rates above those
then in effect, or (y) Buyer's being deemed a "successor" to Seller for any
regulatory purposes.
6.1.3 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Seller, and such misrepresentation
or breach has not been cured within 30 days of Seller's receipt of Buyer's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Buyer, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Seller.
6.2 Termination By Seller.
6.2.1 If any condition precedent to Seller's obligation to effect
the Closing set forth in Section 3.2 shall become incapable of satisfaction
through no fault of Seller and such condition is not waived by Seller, Seller
shall not be obligated to effect the Closing and may terminate this Agreement by
written notice to Buyer.
6.2.2 If any Governmental Approval contains terms or conditions
unacceptable to Seller, in Seller's reasonable discretion, but only after Seller
has entered into good faith negotiations with Buyer to amend this Agreement in
light of such terms or conditions and no such amendment
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could be agreed upon, Seller shall not be obligated to effect the Closing and
may terminate this Agreement by written notice to Buyer.
6.2.3 If Buyer does not deliver the Letters of Credit within 15
business days of the date hereof or the Letters of Credit, in whole or in part,
have been withdrawn or are no longer irrevocable.
6.2.4 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Buyer, and such misrepresentation
or breach has not been cured within 30 days of Buyer's receipt of Seller's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Seller, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Buyer.
6.2.5 If Buyer does not make the FCC filing described in the second
to last sentence of Section 5.3.5 within 120 days of the date hereof.
6.3 Termination By Buyer or Seller. If (i) a final, non-appealable order
is issued by any Governmental Authority to restrain, enjoin or prohibit the
consummation of the Transactions, (ii) the Closing shall not have occurred on or
before September 30, 2001 through no fault of the terminating party, then either
party may terminate this Agreement by written notice to the other.
6.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 6.1, 6.2 or 6.3, this Agreement shall thereafter
become void, except as set forth in Section 1.4.1 and for the provisions of
Sections 5.3.1 and 5.3.2 and Article 9, and there shall be no further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing herein
shall relieve any party from liability for any breach of this Agreement, and
(ii) the obligations of the parties hereto set forth in Section 11.6 shall not
be affected by a termination of this Agreement.
ARTICLE 7
POST CLOSING MATTERS
7.1 Post Closing. In order to effectuate an orderly transition in the
provision of telecommunications services to customers in the Exchanges, Buyer
and Seller agree to utilize the measures set forth below:
7.1.1 Notice to Customers. Seller shall provide written
notification, which notification shall be reasonably acceptable to Buyer, in its
final bill to each customer affected by this Agreement, that Seller is no longer
the customer's telecommunications provider and advising the
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customer of the name, address and telephone number of Buyer. Seller and Buyer
shall agree upon appropriate service cut-off dates with respect to the
Exchanges.
7.1.2 Customer Deposits. The disposition of customer deposits and
advance payments for future services made to Seller by residential and business
customers in the Exchanges shall be delegated to a transition team. The intent
of the parties to be carried out by the transition team is that, to the extent
practicable and subject to the rules and orders of the State Regulatory
Authorities, Seller shall retain all deposits for delinquent customers and the
remaining deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges shall be transferred to
Buyer. Notwithstanding the foregoing, all deposits and advance payments for
future services held by Seller under land development contracts or other similar
construction arrangements as of the Closing Date shall be credited to Buyer at
Closing.
7.1.3 Customer Records. To the extent not previously provided to
Buyer, Seller shall use commercially reasonable efforts to make available, upon
reasonable request from Buyer, all readily available billing and service records
for goods sold or services provided to customers of the Exchanges prior to
Closing for so long as such records are required to be maintained by applicable
law.
7.1.4 Operator Services and Directory Assistance. Buyer acknowledges
and agrees that, following the Closing, Buyer shall provide all subscriber list
information gathered in its capacity as a provider of local exchange service on
a timely and unbundled basis, under nondiscriminatory and reasonable rates,
terms and conditions, to any person requesting such information for any lawful
purpose in any format, including but not limited to Seller and its Affiliates.
Buyer's listing information will be treated the same as Seller's end user
listings for purposes of additional listings and dissemination of listings to
directory publishers, directory assistance providers, or other third parties.
Seller will incorporate listings information in all existing and future
directory assistance applications developed by Seller. Buyer authorizes Seller
to sell and otherwise make listings available to directory publishers, directory
assistance providers, and other third parties. Listings shall not be provided or
sold in such a manner as to segregate end users by carrier. Seller will not
charge for updating and maintaining the listings database.
7.1.5 Directory Publishing and 911 Emergency Services. Buyer shall
continue to comply with the covenants set forth in Sections 5.1.4 and 5.1.5
following the Closing Date, as appropriate, to the extent necessary to
accomplish the intent of such covenants.
7.1.6 911 Emergency Services. In the event that Seller becomes
obligated after the Closing Date to provide 911 emergency services with respect
to any portion of the Business, Buyer shall provide Seller (at no cost to
Seller) complete access to and use of the 911 Assets related to such 911
emergency services and shall enter into such agreements as Seller reasonably
requests in order to facilitate the provision by Seller of such 911 emergency
services and to provide for compensation to Seller at prevailing rates.
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7.1.7 Tariffs. Buyer agrees that for the six month period following
the Closing Date it will adopt and maintain intrastate tariffs similar in all
material respects to Seller's intrastate tariffs in effect for the Exchanges on
the Closing Date, provided that such tariffs of Seller are substantially similar
to Seller's tariffs in effect on the date of execution of this Agreement, except
that Buyer's tariffs will reflect rate changes by Seller (x) made prior to
Closing as required by an order of a State Regulatory Authority that has been
issued prior to the date of this Agreement or (y) made prior to Closing to the
extent such changes are substantially revenue neutral to the Exchanges.
7.1.8 Access to Books and Records.
(a) After the Closing, Seller will retain all books and records
related to the Excluded Assets for so long as required by applicable law.
(b) Subject to the terms of Section 7.1.3, after the Closing, upon
reasonable notice, the parties will give to the representatives, employees,
counsel and accountants of the other, access during normal business hours, to
books and records relating to the Business and the Transferred Assets, and will
permit such persons to examine and copy such records (including any tax returns
and related information, but not attorney or accountants work product), audits,
legal proceedings, governmental investigations and other business purposes
(including such financial information and any receipts evidencing payment of
taxes as may be reasonably requested by Seller to substantiate any claim for tax
credits or refunds); provided, however, that nothing herein will obligate any
party to take actions that would unreasonably disrupt the normal course of its
business or violate the terms of any contract to which it is a party or to which
it or any of its assets is subject. Seller and Buyer will cooperate with each
other in the conduct of any tax audit or similar proceedings involving or
otherwise relating to the Business (or the income therefrom or assets thereof)
with respect to any tax and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
Section 7.1.8.
7.1.9 IntraLATA Toll. Buyer will (i) assume the retail toll carrier
role and obligations for any end users in the Exchanges that are picked or
defaulted to Seller for IntraLATA toll services or (ii) enter into agreements
with other inter-exchange carriers to assume this role or to resell the toll
services of an inter-exchange carrier to fulfill these obligations. Buyer will
execute intraLATA toll access agreements with Seller establishing the process
for the purchase of toll access from Seller by Buyer at the rates contained in
Seller's access tariffs. Seller agrees that it will need to establish its own
agreements with other telecommunications carriers for the purchase of toll
access that may be routed over joint Seller/Buyer transport or tandem switch
facilities (transit traffic). Buyer will cooperate with Seller and other
carriers to measure and share data required to facilitate billing for such
traffic. Buyer and Seller will establish a process by which Buyer will bill
Seller for terminating IntraLATA toll access based on actual termination of
Seller toll services to the Exchanges. Buyer and Seller will enter into a
billing and collection agreement for the billing and collection of casual toll
at a rate not to exceed $0.12 per message. Buyer and Seller shall establish meet
point percentages for jointly provided toll access and file such meet points as
required with Governmental Authorities.
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7.1.10 Extended Area Service. Buyer and Seller will enter into
extended area service agreements as necessary.
7.1.11 Transiting Toll Facilities. Concurrently with the Closing,
Buyer shall grant to Seller the irrevocable right to use or Buyer shall lease to
Seller, in either case for a term of 99 years, the portion of the transiting
toll facilities, network facilities and associated electronic equipment included
in the Property and relating to the Exchanges listed on Schedule 7.1.11 that is
required by Seller for the conduct of any business conducted by Seller other
than the Business. The consideration for such grant or lease shall be $1.00 and
other consideration including the mutual covenants and agreements set forth in
this Agreement. Within 90 days after the execution of this Agreement, Buyer and
Seller shall apportion and assign the total capacity of such facilities and
equipment for each Exchange listed on Schedule 7.1.11. The parties shall review
such apportionment on an annual basis and make such changes to assignments as
may be required. If any transiting toll facilities, network facilities and
related electronic equipment that are Excluded Assets are located in any
rights-of-way that are used in connection with the operation of the Business,
then concurrently with the Closing, Buyer shall, to the extent possible, assign
to Seller the right to use such right-of-way jointly with Buyer and appropriate
joint use agreements in recordable form and otherwise reasonably acceptable to
the parties shall be entered into at the Closing.
7.1.12 Reinitialization Period. If the Reinitialization has not been
approved at the time of the Closing, Buyer shall use its best efforts to obtain
the Reinitialization.
ARTICLE 8
ARBITRATION
8.1 Arbitrability. All claims, except and only to the extent such claims
are those over which the State Regulatory Authorities have primary jurisdiction,
by either party against the other arising out of or related in any manner to
this Agreement or any of the Transferred Assets or the Transactions shall be
resolved by arbitration as prescribed herein; provided, however, that either
party shall be entitled to seek temporary or permanent injunction against any
actual or threatened breach of Section 5.3.1 by the other party in any court of
competent jurisdiction without the necessity for showing any actual damages. The
Federal Arbitration Act and not state law will govern the arbitrability of all
claims. Failure of either party to assert or pursue a mandatory claim or defense
that must be asserted in litigation to avoid the loss of the right to assert
such claim or defense shall not preclude that party from asserting any such
claim or defense in arbitration proceedings hereunder.
8.2 Rules. A single arbitrator engaged in the practice of law, who is
knowledgeable about the telecommunications industry and telecommunications law,
shall conduct the arbitration under the then-current commercial arbitration
rules of the American Arbitration Association
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("AAA"), unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Denver, Colorado.
8.3 Discovery; Damages; Expenses. Buyer and Seller shall allow and
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall have authority to award only actual damages and shall not have
the authority to award consequential, compensatory, punitive or exemplary
damages or any other form of relief. Each party shall bear its own costs and
attorneys' fees. The arbitrator's decision and award shall be final and binding,
and judgment upon the award rendered by the arbitrator may be entered in any
court having personal jurisdiction. The non-prevailing party to the arbitration
shall pay all of the fees and expenses of the arbitrator and the AAA, provided,
however, that if the arbitrator deems Buyer and Seller to be equally prevailing
or non-prevailing on the matters at issue, then the parties shall each pay
one-half of the fees and expenses of the arbitrator and the AAA.
8.4 Judicial or Administrative Action. If any party files a judicial or
administrative action asserting claims properly subject to arbitration as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification by Seller. From and after Closing, Seller
shall indemnify and hold harmless Buyer from and against any and all claims,
losses, liabilities, damages, penalties, costs and expenses, including
reasonable counsel fees and costs and expenses ("Losses") arising out of or
resulting from:
(a) any representations and warranties made by Seller in the
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed upon or prior to the Closing;
(c) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed after the Closing; and
(d) all liabilities and obligations arising out of or relating to
the operation of the Exchanges prior to the Closing, including without
limitation the Retained Liabilities.
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Section 9.2 Indemnification by Buyer. From and after Closing, Buyer shall
indemnify and hold harmless Seller from and against any and all Losses arising
out of or resulting from:
(a) any representations and warranties made by Buyer in this
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Buyer in the performance of its
covenants, agreements or obligations under this Agreement;
(c) all liabilities and obligations arising out of or relating to
the operation of the Exchanges after the Closing, including without limitation
the Assumed Liabilities;
(d) without limitation of the foregoing, violation of Environmental
Laws, to the extent such liability is an Assumed Liability or arises out of or
relates to the operation of the Exchanges after the Closing; and
(e) liability of Seller arising after Closing with respect to
Buyer's failure to enter into or perform interconnection agreements in or
directly related to the Exchanges.
Section 9.3 Indemnified Third Party Claim.
(a) If any person (including State Regulatory Authorities) not a
party to this Agreement ("Person") shall make any demand or claim or file or
threaten to file or continue any action, suit or proceeding of any kind ("Third
Party Claim") with respect to which Buyer or Seller is entitled to
indemnification pursuant to Sections 9.1 or 9.2, respectively, then within ten
days after notice (the "Notice") by the party entitled to such indemnification
(the "Indemnitee") to the other (the "Indemnitor") of such litigation, the
Indemnitor shall have the option, at its sole cost and expense, to retain
counsel for the Indemnitee (which counsel shall be reasonably satisfactory to
the Indemnitee) to defend any such litigation. Thereafter, the Indemnitee shall
be permitted to participate in such defense at its own expense, provided that,
if the named parties to any such litigation (including any impleaded parties)
include both the Indemnitor and the Indemnitee or, if the Indemnitor proposes
that the same counsel represent both the Indemnitee and the Indemnitor and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interest between them, then the Indemnitee shall
have the right to retain its own counsel at the cost and expense of the
Indemnitor, unless the Indemnitor shall acknowledge in writing its indemnity
obligation, in which event the retention by Indemnitee of its own counsel shall
be at its cost and expense. If the Indemnitor shall fail to respond within ten
days after receipt of the Notice, the Indemnitee may retain counsel and conduct
the defense of such litigation as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnitor.
(b) The Indemnitee shall provide reasonable assistance to the
Indemnitor and provide such access to its books, records and personnel as the
Indemnitor reasonably requests in connection with the investigation or defense
of the indemnified Losses. The Indemnitor shall
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promptly upon receipt of reasonable supporting documentation reimburse the
Indemnitee for out-of-pocket costs and expenses incurred by the later in
providing the requested assistance.
(c) With regard to litigation with any Person for which Buyer or
Seller is entitled to indemnification under Sections 9.1 or 9.2, such
indemnification shall be paid by the Indemnitor upon: (i) the entry of any
judgment, writ, order, injunction, award or decree of any court, the FCC or any
State Regulatory Authorities ("Judgment") against the Indemnitee and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
Judgment or final appellate Judgment against the Indemnitee; or (iii) a
settlement with the consent of the Indemnitor, which consent shall not be
unreasonably withheld, provided that no such consent need be obtained if the
Indemnitor fails to respond to the Notice as provided in Section 9.3(a).
Section 9.4 Determination of Indemnification Amounts and Related Matters.
(a) Neither Buyer nor Seller will be entitled to make a claim
against the other under Section 9.1(a) or (b) or 9.2(a) or (b) until (i) the
aggregate amount of Losses incurred by the Indemnitee for any individual
occurrence (or related series of occurrences) exceeds $50,000 and (ii) in the
case of Losses under Section 9.1(a) (except for Losses due to a breach of the
representations of Seller contained in Section 4.2.15) or 9.1(b) the aggregate
amount of claims that may be asserted for such Losses, together with all other
claims for Losses asserted under Section 9.1(a) or 9.1(b) under each of the
Multi-State Exchange Purchase Agreements, exceed an amount equal to 1% of the
aggregate of the Purchase Prices (as defined in each Multi-State Exchange
Purchase Agreement) for the transactions contemplated by the Multi-State
Exchange Purchase Agreements, to the extent actually paid to Seller, but only to
the extent such amount exceeds such aggregate of the Purchase Prices.
(b) Notwithstanding any other provision of this Agreement, (i)
Seller shall not be required to make any payments pursuant to Section 9.1(a),
(b) or (c) to the extent that the Maximum Adjustment Amount shall have been
reached, and (ii) Buyer shall not be required to make any payments pursuant to
Article 9 in excess of an amount equal to 3% of the Purchase Price.
(c) Subject to Section 9.3, all amounts payable by the Indemnitor to
the Indemnitee in respect of any Losses under Sections 9.1 and 9.2 shall be
payable by the Indemnitor as incurred by the Indemnitee and will include
interest at the rate of 8% per annum from the date that the related Losses were
incurred through but not including the date the payment is made.
Section 9.5 Time and Manner of Certain Claims. Except as otherwise
provided herein, the representations and warranties of Buyer and Seller, and the
covenants to be performed by them on or prior to the Closing Date, in this
Agreement shall survive Closing for a period of one year, except that the
representations of Seller contained in Section 4.2.15 shall survive Closing for
a period of 15 months and the representations and warranties contained in the
first sentence of Section 4.2.3 shall survive Closing indefinitely (the
"Survival Period"). Neither Seller nor Buyer shall have any liability under
Sections 9.1 or 9.2, respectively, unless a claim for Losses for which
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indemnification is sought thereunder is asserted by the party seeking
indemnification by written notice to the party from whom indemnification is
sought within the Survival Period.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Defined Terms. For purposes of this Agreement, certain terms used in
this Agreement and not otherwise defined herein shall have the meanings
designated below:
"Access Line" means a telephone line operating on the public switched
telephone network that runs from a central office to a customer's premises.
"Accounts Receivable" means all end user accounts receivable with respect
to goods sold and/or services provided by Seller on or prior to the Closing
Date.
"Affiliate" of a specified entity means any legal entity directly or
indirectly controlling, controlled by, or under the common control with the
specified entity. The term "control" (including "controlling", "controlled by"
and "under common control with") of an entity means the possession, directly or
indirectly, of the power to (i) vote 50% of more of the voting securities or
other voting interests of such person, or (ii) direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting shares, by contract or otherwise.
"Aggregate Adjustment Amount" means the aggregate amount that Seller has
paid or spent, or committed to pay or spend, pursuant to (i) purchase price
decreases pursuant to section 1.4.3(b) of each of the Multi-State Exchange
Purchase Agreements, (ii) payments or purchases pursuant to section 5.2.11(a) of
each of the Multi-State Exchange Purchase Agreements, and (iii) payments with
respect to indemnification claims under Section 9.1(a), (b) or (c) of each of
the Multi-State Exchange Purchase Agreements.
"Agreement" means this Agreement for Purchase and Sale of Telephone
Exchanges, together with all Schedules and Exhibits thereto, as any of the
foregoing may be amended, modified or supplemented in writing from time to time.
"Authorities" means (i) the construction permits, licenses or
authorizations granted by the FCC to Seller and used to develop and operate the
Systems; and (ii) the licenses or certificates of convenience and necessity
granted by the State Regulatory Authorities to operate the Systems.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
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"Confidential Information" means any and all technical, business or
financial information, in whatever form or medium, furnished or disclosed by or
on behalf of one party to the other or its representatives, irrespective of the
form of communication, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data and personnel statistics, and shall also include notes,
analyses, compilations, studies, interpretations or other documents prepared by
it or its representatives that contain, reflect or are based upon, in whole or
in part, other Confidential Information. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all security interests, liens, charges or
similar restrictions, except for (i) liens for taxes not yet due and payable or
that are being contested in good faith, (ii) liens of workers, carriers or
materialmen or similar liens arising by operation of law in the ordinary course
of the Business in respect of obligations that are not yet due and payable or
that are being contested in good faith, (iii) governmental conditions and
restrictions under the Authorities, (iv) with respect to Realty, recorded
easements, restrictions, reservations, rights-of-way, covenants, conditions and
similar encumbrances of record and matters that would be shown by an accurate
survey or inspection of such property, and other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
such Realty to which such defect or irregularity in title relates, and (v) with
respect to the Transferred Assets other than Realty, other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
the Transferred Assets to which such defect or irregularity in title relates.
"Environmental Laws" means all federal, state and local laws, statutes,
rules, regulations and ordinances (including common law), and all court or
administrative decisions, orders, policies or guidelines, now or hereafter in
effect relating to the environment, public health (including fire or building
safety), occupational safety, industrial hygiene, or the generation, disposal,
manufacture, release, storage, transportation or presence of Hazardous
Materials, including without limitation the National Environmental Policy Act
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act of 1975, the Toxic Substances Control Act, the
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean
Water Act, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act, and the regulations promulgated under any such acts or any permits
issued thereunder.
"Excessive Encumbrance" has the meaning set forth in Section 3.1.11.
"Excluded Assets" means (a) all cash, cash-equivalents, Accounts
Receivable and carrier access bills to interexchange carriers for minutes,
messages and other applicable charges through the
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Closing Date; (b) any insurance policy, bond, letter of credit or other similar
item, and any cash surrender value in regard thereto; (c) all books and records
that Seller is required by law to retain or that relate primarily to internal
corporate matters; (d) all claims, rights and interests in and to any refunds of
Federal, state or local franchise, income or other taxes or fees of any nature
whatsoever for periods prior to the Closing Date; (e) any pension, profit
sharing or employee benefit plans; (f) any assets, interests or property of
Seller used in the operation of any business conducted by Seller other than the
Business, those including shared data processing, billing and collections
systems and related software; (g) the name U S WEST and all similar names and
related marks and logos used or owned by Seller or its Affiliates and any other
names, marks and logos not specifically identified as being included in the
Transferred Assets; (h) all portable office equipment, test equipment and
generators other than included in the Transferred Assets; (i) all motor vehicles
used in the operation of any business conducted by Seller other than the
Business and associated motor vehicle general stock; (j) all materials, supplies
and tools other than those included in the Transferred Assets; (k) all FCC
licenses for air-to-ground, cellular or paging services held by Seller or any
Affiliate of Seller other than those FCC radio licenses necessary to operate the
Business; (l) all maintenance radio equipment and antennas other than those
included in the Transferred Assets; (m) all assets relating to Yellow Pages or
classified directory advertising activities of Seller or any Affiliate of
Seller, (n) all transiting toll facilities, network facilities and associated
electronic equipment used in their entirety by Seller solely in the operations
of any business conducted by Seller other than the Business and containing no
capacity for use in the conduct of the Business and related rights-of-way; and
(o) all rights of Seller or any Affiliate of Seller under the Transaction
Agreements.
"Final Order" means action by any governmental or regulatory authority as
to which (i) no request for stay by any Governmental Authority, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action has been
granted by a governmental or regulatory authority; (iii) the governmental or
regulatory authority does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal by a
third party to a court, or a request to stay by a court, of any material
provision of the Governmental Authority's action, as applicable, is pending or
in effect and, if any deadline for filing any such appeal or request is
designated by statute or rule, it has passed.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities
and the grant of any study area waiver request submitted by Buyer related
thereto, but excluding the Reinitialization.
"Fee Realty" means all real property owned by Seller in fee simple and
located inside the boundaries of the Exchanges, including without limitation
tower sites or antenna sites.
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"Governmental Authority" means any United States, state, or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, bureau, agency, court or instrumentality thereof.
"Hazardous Material" means (a) all chemicals, materials and substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words or similar import under any Environmental Law, and (b) any
other chemicals, materials or substances, including without limitation any
polychlorinated biphenyl, petroleum or any chemical fraction thereof, asbestos,
formaldehyde, flammables, explosives, and PCBs which could presently or at any
time in the future cause a detriment to or impair the value or beneficial use of
any of the Transferred Assets, or constitute or cause a health, safety or
environmental hazard to the any of the Transferred Assets or to any person or
require remediation at the behest of any state or local governmental agency
under any Environmental Law.
"Interests" means all rights, privileges, benefits and interests under all
contracts, agreements, consents, licenses, permits or certificates (except those
included as Authorities and Realty), including agreements, permits, leases and
arrangements with respect to intangible or personal property or interests
therein; equipment leases; agreements with suppliers, customers and subscribers;
business licenses; prepaid expenses; and any sales agent or sales affiliate
agreements, in each case, used or owned primarily in connection with the
Business.
"Maximum Adjustment Amount" means an Aggregate Adjustment Amount equal to
the product of (i) the aggregate number of access lines in the telephone
exchanges purchased pursuant to the Multi-State Exchange Purchase Agreements on
the closing date of each purchase thereunder multiplied by (ii) $50.00, it being
understood and agreed by the parties that (x) the Maximum Adjustment Amount
shall be preliminarily calculated at the Closing assuming that any Multi-State
Exchange Purchase Agreement that has not closed or been terminated on or before
the Closing Date shall, for purposes of such preliminary calculation, be deemed
to have closed on the Closing Date, and (y) on the date of closing or
termination of the last of Multi-State Exchange Purchase Agreement to have been
closed or terminated, the Maximum Adjustment Amount shall be finally calculated
and any resulting payments required to be made by Seller or refunds required to
be made by Buyer shall be taken into account in determining the amount of funds
to be paid by Seller at such Closing or to be paid by Seller or refunded by
Buyer upon such termination, as the case may be.
"Multi-State Exchange Purchase Agreements" means the Agreements for
Purchase and Sale, including this Agreement, entered into between Buyer, or any
Affiliate of Buyer, and Seller with respect to the purchase of Seller's rights
to provide and operate wireline telecommunications and related non-tariffed or
non-regulated wireline services and related assets in the following states:
Arizona, Colorado, Nebraska, North Dakota, Minnesota, Iowa, Idaho, Montana and
Wyoming.
"911 Assets" means all circuits, facilities and customer information used
by Seller in providing 911 emergency services in connection with the operation
of the Business.
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<PAGE>
"Operating Contracts" means all contracts, agreements and instruments (and
all amendments and modifications thereto) entered into by Seller in the ordinary
course of the Business prior to the date hereof, including without limitation
all real property leases, documentation related to the Interests and
interconnection agreements to the extent that Buyer is required to perform such
obligations by applicable law or as a condition to obtaining any Governmental
Approvals, and all such contracts, agreements and instruments entered into by
Seller in the ordinary course of the Business between the date of this Agreement
and the Closing Date.
"Property" means all of Seller's physical facilities and other tangible
assets used primarily in the Business that are in Seller's plant in service
accounts in accordance with Part 32 of the FCC Uniform System of Accounts,
including all transiting toll facilities, network facilities and associated
electronic equipment located within the boundaries of an Exchange and not
included as Excluded Assets, which facilities and equipment shall be subject to
the arrangements set forth in Section 7.1.11.
"Reinitialization" means the implementation of the interstate access rates
pursuant to the reinitialization of the Price Cap Index ("PCI") applicable to
the approved new study area to reflect the underlying cost structure associated
with the Exchanges.
"Realty" means the Fee Realty together with all rights, privileges and
appurtenances owned by Seller inside the boundaries of the Exchanges that are a
burden upon, a benefit of, or otherwise related to the Fee Realty, including
without limitation all structures, buildings, easements, servitudes, licenses,
leasehold improvements, building improvements, fixtures, rights-of-way and other
similar interests owned by Seller and used in the Business.
"Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all open end-user customer account records, all service records kept in
the ordinary course of the Business which identify and describe the customers
being served by Seller in the Exchanges, the service that is being provided to
such customers, and those records which identify and describe the physical
property (including but not limited to cables, wires and central office
equipment) included in the Transferred Assets.
"Seller's Knowledge" means the actual knowledge of Paul Lit after due
inquiry and any senior manager specifically charged with operational
responsibility for the Exchanges concerning information about which Seller is
making a representation in this Agreement.
"State Regulatory Approvals" means the issuance of the required consents
or approvals of the State Regulatory Authorities with respect to the assignment
of the Authorities to Buyer and the designation of Buyer as an eligible
telecommunications carrier for the Exchange.
"State Regulatory Authorities" means the public utility commissions or
similar state governmental authorities in the states in which the Exchanges are
located and, where applicable, municipal authorities that have granted operating
authorities with respect to the Exchanges.
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<PAGE>
"Systems" means, as the context requires, Seller's service delivery
components in the Exchanges, including without limitation all equipment,
facilities, assets, properties, licenses, permits, certificates of public
convenience and necessity and other rights and authorities and related technical
knowledge and information, used in the conduct of the Business within the
particular Exchange.
"Transactions" means the purchase and sale of the Transferred Assets as
contemplated by the Agreement and all other transactions contemplated by the
Transaction Documents.
"Transaction Documents" means this Agreement and each document to be
executed in connection with the Closing of the Transactions. When used with
respect to Seller or Buyer, "Transaction Documents" means this Agreement and
such documents as are required to be executed by such party with respect to the
Closing of the Transactions.
"Transferred Assets" means all of Seller's right, title and interest in
and to the Authorities, the Interests, the 911 Assets, the Property, the Realty,
the Records and all goodwill associated with the Business as existing on the
Closing Date, but excluding the Excluded Assets.
ARTICLE 11
GENERAL
11.1 Notices. All notices hereunder will be in writing and served by
certified mail, return receipt requested, courier or facsimile. Notice shall be
deemed to have been duly given on (i) the earlier of the date received or the
fifth business day following the date mailed by the notifying party using first
class mail, postage prepaid or (ii) if delivered by courier service or
facsimile, upon actual receipt as evidenced by the appropriate confirmation
sheet. Notices shall be sent as follows:
If to Seller: U S WEST Communications, Inc.
1801 California Street, Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic
Transactions Group
Facsimile: (303) 308-0835
with a copy (which shall not constitute notice) to:
Brownstein Hyatt & Farber, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch
Facsimile: (303) 223-1111
50
<PAGE>
If to Buyer: Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: Donald P. Weinstein
Facsimile: (203) 614-4625
with a copy (which shall not constitute notice) to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: L. Russell Mitten, II., Esq.
Facsimile: (203) 614-4651
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Sixth Floor
Washington, DC 20036
Attention: Jeffry L. Hardin
Facsimile: (202) 387-3467
11.2 Waivers. No failure of a party to enforce a provision of this
Agreement will be construed as a general or a specific waiver of that provision,
or of a party's right to enforce that provision, or of a party's right to
enforce any other provision of this Agreement. No waiver of any breach of any
covenant or other provision herein contained shall be deemed to be a waiver of
any preceding or succeeding breach, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act shall
be deemed to be an extension of the time for performance of any other obligation
or act.
11.3 Commissions. Each party represents and warrants that no broker or
other person is entitled to any commission or finder's fee in connection with
the consummation of the Transactions based on arrangements made by such party
for which the other party could have any liability.
11.4 Payment of Expenses. Except as otherwise provided herein, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in consummating and carrying
out the Transactions, whether or not the Transactions are consummated.
Notwithstanding the foregoing, all transfer fees payable in connection with the
assignment of permits or rights-of-way shall be borne by Buyer.
51
<PAGE>
11.5 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and, when each of the parties hereto has
executed and delivered a counterpart to the other party, this Agreement shall be
binding and effective even though no single counterpart has been executed by
both of the parties.
11.7 Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.8 Assignment. The rights and obligations of the parties to this
Agreement or any interest in this Agreement shall not be assigned, transferred,
hypothecated, pledged or otherwise disposed of without the prior written consent
of the nonassigning party, which consent may be withheld in such party's sole
discretion; provided, however, that (i) Buyer may, without the prior consent of
Seller but without relieving Buyer of its obligations hereunder, assign its
rights under this Agreement to any Affiliate or lender, and (ii) Seller may
assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the Transactions as a 1031
Transaction.
11.9 Additional Instruments and Assistance. Each party hereto shall from
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its counsel
may reasonably request in order to complete and perfect the Transactions.
11.10 Seller's Control Over Authorized Facilities. No provision of this
Agreement shall be construed to abrogate Seller's control of and responsibility
for the operation of the authorized facilities of the Business prior to the
actual transfer of control of those facilities hereunder to the Buyer as
approved by the FCC and the State Regulatory Authorities.
11.11 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado.
11.12 Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable when applied to any person or
circumstance, the remaining provisions of this Agreement and the enforcement of
such provision to other persons or circumstances shall not be affected thereby,
and each provision of this Agreement shall be enforced to the fullest extent
allowed by law.
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<PAGE>
11.13 Amendments. This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by its
agent duly authorized in writing or as otherwise expressly permitted herein.
11.14 No Construction Against the Drafting Party. Each party hereto
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.15 Integration. This Agreement, including all schedules and exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, warranties or representations between the parties with respect
to such subject matter except as set forth or noted herein. Except as provided
in Section 5.1.4 hereof, this Agreement is not made for the benefit of any
person, firm, corporation or association other than the parties hereto. Except
as provided in Section 5.1.5 hereof, the parties do not intend to confer any
benefit hereunder on any person, firm or corporation other than the parties
hereto.
* * * * *
53
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
CITIZENS UTILITIES COMPANY
By:
----------------------------------
Leonard Tow
Chairman and Chief Executive Officer
SELLER:
U S WEST COMMUNICATIONS, INC.
By:
----------------------------------
Solomon D. Trujillo
President and Chief Executive Officer
<PAGE>
EXECUTION COPY -- WYOMING
AGREEMENT
For
PURCHASE AND SALE
of
TELEPHONE EXCHANGES
Dated as of June 16, 1999
Between
CITIZENS UTILITIES COMPANY
And
U S WEST COMMUNICATIONS, INC.
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF TELEPHONE EXCHANGES
This Agreement for Purchase and Sale of Telephone Exchanges is made and
entered into as of June 16, 1999 by and between U S WEST Communications, Inc., a
Colorado corporation ("Seller"), and Citizens Utilities Company, a Delaware
corporation ("Buyer").
A. Seller possesses certain rights to provide and operate wireline
telecommunication services pursuant to operating authorities issued by the
public utilities commissions or similar authorities of various states, and owns
certain assets used to provide such services in the telephone exchanges listed
on Exhibit A hereto and in any cross-border communities served by such exchanges
(the "Exchanges").
B. Buyer desires to acquire Seller's right to provide and operate wireline
telecommunication services and related non-tariffed or non-regulated wireline
services and products in the Exchanges (the "Business") and to purchase the
Transferred Assets (as defined below), and Seller wishes to sell, assign and
transfer such right and assets to Buyer.
C. Each defined term used herein shall have the meaning set forth in this
Agreement where such term is first used or, if no definition is so set forth,
shall have the meaning set forth in Article 10 below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF EXCHANGES
1.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions hereinafter set forth, at the Closing described in Article 2,
Seller agrees to sell, convey, transfer, assign and deliver all of the
Transferred Assets to Buyer, and Buyer agrees to purchase and receive the
Transferred Assets from Seller. Except as specifically set forth in Section 1.2
hereof, Seller shall transfer the Transferred Assets to Buyer on the Closing
Date free and clear of all Encumbrances, and Buyer shall not, by virtue of its
purchase of the Transferred Assets, assume or become responsible for any debts,
liabilities or obligations of Seller.
1.2 Assumption of Obligations. Buyer covenants and agrees that, on the
Closing Date, it shall execute and deliver to Seller an Assumption Agreement in
substantially the form of Exhibit
<PAGE>
B hereto (the "Assumption Agreement") pursuant to which it will assume and agree
to perform and discharge the following liabilities and obligations of Seller to
the extent related to the Exchanges (collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations of Seller arising under
the Operating Contracts, except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Operating Contracts occurring or arising
or accruing on or prior to the Closing Date;
(ii) All liabilities and obligations of Seller related to
unperformed service obligations, right-of-way relocation obligations and
construction in progress as of the Closing Date;
(iii) All liabilities and obligations imposed on Seller by
State Regulatory Authorities in connection with the operation of the
Exchanges, including without limitation obligations to provide 911
emergency services and to make any investment in the Exchanges required by
any Governmental Authority, except that Buyer shall not assume any
liabilities or obligations, other than held order or other service
obligations, imposed on Seller by State Regulatory Authorities that arise
out of Seller's breach of any decision by the State Regulatory
Authorities, or any intentional misconduct or material misrepresentation
by Seller;
(iv) All federal, state, county, municipal, foreign or other
taxing jurisdiction sales, use, transfer, gross receipts, consumer levy,
privilege or similar taxes, duties, excises or governmental charges,
including any penalties and interest thereon, arising out of the sale of
the Transferred Assets by Seller to Buyer hereunder, excluding any income
tax liability of Seller (collectively, "Transfer Taxes"); and
(v) All liabilities and obligations arising under
Environmental Laws with respect to the real property included in the
Transferred Assets.
1.3 Retained Liabilities. Seller shall retain and shall pay, perform and
discharge when due, the following liabilities, responsibilities and obligations
of Seller with respect to the Business (collectively, the "Retained
Liabilities"):
(i) Subject to Section 1.5, all trade payables and other
payment obligations of Seller as of the Closing Date;
(ii) All long-term debt of Seller and debt of Seller owed to
any one or more of its Affiliates;
2
<PAGE>
(iii) Subject to Section 1.5, all taxes and assessments
relating to the operation of the Business (other than Transfer Taxes) on or
before the Closing Date for the use, ownership or operation of the Transferred
Assets on or before the Closing Date;
(iv) All liabilities and obligations arising on or before the
Closing Date with respect to Seller's employees that may be hired by Buyer
(the "Hired Employees"), including (a) all liabilities, responsibilities
and obligations arising on or before the Closing Date relating to
collective bargaining agreements or other union contracts, and (b) any
such liabilities or obligations that arise after the Closing Date to the
extent that such liabilities and obligations relate to facts,
circumstances or conditions arising or occurring on or before the Closing
Date with respect to the Hired Employees;
(v) All liabilities, responsibilities and obligations arising
out of or related to any actions, lawsuits or legal proceedings based on
facts, circumstances or conditions arising, existing or occurring on or
before the effective time of Closing, regardless of whether known or
unknown, asserted or unasserted, as of the Closing, including any
liability under any claim (whether made on or before the Closing Date)
relating to the period ending on or before the effective time of Closing
which, but for the consummation of the transactions contemplated hereby,
would have been covered under any insurance policy of Seller, and all
liability associated with workers' compensation claims incurred but not
reported as of the effective time of Closing and workers' compensation
claims reported as of the Closing Date but not then due or payable, but
expressly excluding any such liability, responsibility or obligation for
litigation or claims of any Governmental Authority relating to liabilities
and obligations arising under Environmental Laws with respect to the Fee
Realty included in the Transferred Assets, unless such liabilities,
responsibilities and obligations result from the actions or omissions of
Buyer constituting breaches of this Agreement;
(vi) All liabilities and obligations for prior period
adjustments of revenues from the Business, for any refunds or bill credits
to ratepayers for overbillings or overearnings occurring or relating to
the period prior to the effective time of Closing, and for all toll
revenues, settlements, pools, separations studies or similar activities
relating to the Exchanges for which Seller is responsible, provided that
such liabilities and obligations are asserted within four years of the
Closing Date;
(vii) All liabilities, responsibilities and obligations
arising out of or occurring or resulting from the use or ownership of the
Transferred Assets on or before the Closing Date; and
(viii) All liabilities, responsibilities and obligations
with respect to the Excluded Assets.
1.4 Letters of Credit and Purchase Price.
3
<PAGE>
1.4.1 Letters of Credit. Within 15 business days of the date hereof,
Buyer shall deliver to Seller one or more irrevocable letters of credit issued
by financial institutions reasonably acceptable to Seller (the "Letters of
Credit") providing for drawings in an aggregate principal amount equal to
$713,900 (the "LC Amount"). The Letters of Credit shall be returned to Buyer
upon the Closing of the Transactions or upon termination of this Agreement for
any reason other than the following: (i) Seller's termination of this Agreement
pursuant to Section 6.2.4 or 6.2.5, or (ii) Seller's termination of this
Agreement pursuant to Section 6.2.1 because the condition precedent set forth in
Section 3.2.1 becomes incapable of satisfaction through no fault of Seller after
Buyer has had a reasonable opportunity to cause such condition precedent to be
satisfied. In addition, if Seller terminates this Agreement pursuant to Section
6.2.4 as a result of Buyer's breach of Section 4.1.4 for any reason, Buyer and
Seller have mutually agreed that in addition to Seller's right to draw down the
full amount of the Letters of Credit, Buyer shall be liable to Seller for an
additional amount equal to the LC Amount. If Buyer fails to deliver the Letters
of Credit within 15 business days of the date hereof, and Seller thereafter
terminates this Agreement pursuant to Section 6.2.4 as a result thereof, Buyer
shall be liable to Seller for the LC Amount. In the event that Seller terminates
this Agreement for any of the foregoing reasons, in view of the difficulty of
determining the amount of damages which may result to Seller from such failure
to consummate the Transactions, Buyer and Seller have mutually agreed that the
proceeds of the Letters of Credit and any other monies payable to Seller in
accordance with the foregoing provisions shall be retained by Seller as
liquidated damages, and not as a penalty, and this Agreement shall thereafter
become null and void except for those provisions which by their terms survive
termination of this Agreement. The parties have agreed that the proceeds of the
Letters of Credit and such other monies payable to Seller in accordance with the
foregoing provisions in such event shall be Seller's exclusive remedy.
1.4.2 Purchase Price. Subject to Section 1.4.4, Buyer shall pay to
Seller as consideration for the transfer of Seller's rights with respect to the
Business and the sale of the Transferred Assets an aggregate purchase price (the
"Purchase Price") consisting of $17,847,494 plus (a) the estimated amount of
Exchange Investments, if any, calculated pursuant to Section 1.4.3(a) (the
"Estimated Exchange Investments") less (b) the Revenue Adjustment, if any
calculated pursuant to Section 1.4.3(b). The Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds to such bank
account(s) as Seller shall designate within a reasonable time prior to Closing
and the Letters of Credit shall be returned to Buyer upon payment of the
Purchase Price.
1.4.3 Closing Date Purchase Price Adjustments.
(a) Estimated Exchange Investments. Seller shall prepare and deliver
to Buyer, no less than five business days prior to the Closing, an estimate of
the net book value on the Closing Date associated with any investment by Seller
in the Exchanges (the "Exchange Investment") prior to Closing required by any
Governmental Authority pursuant to an order issued between the date hereof and
the Closing Date, other than with respect to investments contemplated by
Schedule 5.2.3(iii) or with respect to Seller's efforts to comply with any
Governmental Authority's orders issued prior to the date hereof.
4
<PAGE>
(b) Revenue Adjustment. The Purchase Price shall be decreased if the
product of four times the aggregate revenues from the Business, as reported on
the monthly profit and loss statements for the Business for the three full
consecutive calendar months most recently completed prior to the Closing Date,
less any portion of such revenues attributable to the Excluded Assets (the
"Adjusted Annualized Closing Revenues"), are less than $3,878,100. Any decrease
in the Purchase Price in accordance with this Section 1.4.3(b) shall be equal to
the difference between the Adjusted Annualized Closing Revenues and $3,878,100
multiplied by 400% (the "Revenue Adjustment"); provided, that the Purchase Price
shall not be decreased pursuant to this Section 1.4.3(b) to the extent that the
Maximum Adjustment Amount shall have been reached.
1.4.4 Post-Closing Purchase Price Adjustment.
(a) Actual Exchange Investments. Within 120 days following the
Closing Date, Buyer shall prepare and deliver to Seller a written statement (the
"Exchange Investment Statement") of the calculation of the actual amount of
Exchange Investment. Subject to the dispute resolution mechanism set forth in
Section 1.4.4(c), to the extent that the actual amount of Exchange Investment as
shown on the Exchange Investment Statement differs from the Estimated Exchange
Investment, the difference shall be paid within 35 days of delivery of the
Exchange Investment Statement (i) by Buyer to Seller in the case of an excess,
or (ii) by Seller to Buyer in the case of a deficit.
(b) Reinitialization Adjustment. If, on the Closing Date, the
Reinitialization has not been effected, the Purchase Price shall be adjusted in
accordance with the following:
(i) If the Reinitialization occurs after the Closing Date but
on or prior to the two year anniversary of the Closing Date, Buyer shall
prepare and deliver to Seller, as soon as practicable after the
Reinitialization, a written statement (the "Reinitialization Statement")
of the calculation of the actual number of interstate switched access
minutes of use (the "Interstate Use Minutes") for the Exchanges per month
for the period commencing on the Closing Date and ending on the last day
of the month in which the Reinitialization occurred. Subject to the
dispute resolution mechanism set forth in Section 1.4.4(c), Seller shall
pay Buyer within 60 days of delivery of the Reinitialization Statement an
amount equal to $0.023 multiplied by the Interstate Use Minutes for the
period commencing on the day after the Closing Date and ending on the date
of the Reinitialization (pro rated, if necessary, for the first and final
month). Seller's failure to make such payment by the 60th day following
delivery of the Reinitialization Statement shall be deemed to be an
initiation of the dispute resolution mechanism set forth in Section
1.4.4(c).
(ii) If the Reinitialization has not occurred by the two year
anniversary of the Closing Date, Buyer shall so notify Seller and Seller
shall pay Buyer within 60 days after receipt of such notice an amount
equal to $1,727,177, plus simple interest at a rate of 8% per annum for
the period commencing on the Closing Date through but excluding the date
of payment.
5
<PAGE>
(c) Dispute Resolution Mechanism.
(i) Within 30 days after receipt of the Exchange Investment
Statement or 60 days after receipt of the Reinitialization Statement
(each, a "Post-Closing Statement"), as the case may be, Seller may, in a
written notice to Buyer, describe in reasonable detail any proposed
adjustments to the relevant Post-Closing Statement in question and the
reasons therefor. If Buyer shall not have received a notice of proposed
adjustments within such 30 or 60 day period, as the case may be, Seller
will be deemed irrevocably to have accepted such Post-Closing Statement.
(ii) If Seller disputes any portion of the Post-Closing
Statement, the parties shall calculate the portion of the undisputed
amount, if any, and such amount shall be paid by the appropriate party
within five business days of the determination of the undisputed amount.
Buyer and Seller shall negotiate in good faith to resolve any dispute. If
any dispute cannot be resolved within 30 days following Buyer's receipt of
the proposed adjustment, Deloitte & Touche or another independent public
accounting firm that is nationally recognized in the United States jointly
selected by Buyer and Seller shall be engaged to resolve such disputes in
accordance with the standards set forth in this Section, which resolution
shall be final and binding. The fees and expenses of such accounting firm
shall be shared by Buyer and Seller in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of Buyer
and Seller, respectively. Upon delivery of such public accounting firms's
resolution of such dispute to the parties, the party required to make a
payment pursuant to such resolution shall promptly, but no later than five
business days after such delivery, pay to the other party the amount
determined by such public accounting firm to be owed to such party.
(d) Any amount paid pursuant to Section 1.4.4(a) shall bear interest
from the Closing Date through but excluding the date of payment, at a rate of 8%
per annum. Any amount owing pursuant to Section 1.4.4(b)(i) that is not paid
within 60 days of delivery of the Reinitialization Statement shall bear interest
from the 61st day following delivery of the Reinitialization Statement through
but excluding the date of payment, at a rate of 8% per annum. Such interest
shall accrue daily on the basis of a year of 365 days and the actual number of
days for which due and shall be payable together with the relevant amount
payable pursuant to this Section 1.4.4. All amounts payable pursuant to this
Section 1.4.4 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer, in the case of amounts payable by Buyer, to such
account of Seller as Seller may designate and, in the case of amounts payable by
Seller, to such account of Buyer as Buyer may designate.
(e) The Purchase Price shall be deemed to be adjusted by any amounts
paid pursuant to this Section 1.4.4.
6
<PAGE>
1.5 Prorations. All real and personal property and similar taxes and
assessments with respect to the Transferred Assets, all rents, utilities and
other periodic charges and expenses arising from the normal operations of the
Business shall be prorated as of 11:59 p.m. local time on the Closing Date. Such
prorations shall be agreed upon by the parties as of the Closing Date and
reflected as an adjustment to the Purchase Price. Following the Closing Date,
each party shall thereafter be responsible for the payment of all such amounts
for which it is responsible, as determined by such prorations, as they become
due. For purposes of the foregoing proration, the parties agree that, with
respect to states in which Seller is assessed for real or personal property
taxes on a centralized basis or where a tax is imposed in lieu of property tax,
Seller shall be responsible for payment of property or other taxes assessed by
such state for the entire taxable year in which the Closing occurs and a pro
rata portion of such property taxes will be allocated to Buyer as of the Closing
Date and paid to Seller on the Closing Date. All prorations pursuant to this
Section 1.5 will be final and binding on both parties. Unless otherwise mutually
agreed no later than 30 days prior to the Closing Date, the specific date and
time for the change of telecommunications service to occur with respect to the
Exchanges shall be at 11:59 p.m., local time, on the Closing Date.
1.6 Allocation of the Purchase Price. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Buyer and Seller
agree to such Allocation prior to Closing, Buyer and Seller covenant and agree
that (i) the values assigned to the assets by the parties' mutual agreement
shall be conclusive and final for all purposes, and (ii) neither Buyer nor
Seller will take any position before any Governmental Authority or in any
judicial proceeding that is in any way inconsistent with such allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an
Allocation, Buyer and Seller covenant and agree to file, and to cause their
respective Affiliates to file, all tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable law.
1.7 Transfer Taxes. Buyer shall be responsible for all Transfer Taxes
imposed by any local, state or federal governmental authorities in connection
with the sale, transfer or assignment of the Transferred Assets or otherwise on
account of the Transactions, regardless of whether Buyer or Seller is assessed
therefor. Seller shall be responsible for filing the applicable returns and
shall file them in a timely manner. No less than 20 days prior to the due date
of any such returns, Seller shall provide Buyer with the proposed amount of
Transfer Taxes to be reported and remitted. No less than 10 days prior to the
due date of any such returns, Buyer shall either approve the proposed amount or
advise Seller of an adjusted amount of Transfer Taxes to be reported and
remitted. Seller shall report and remit Transfer Taxes in amounts as approved or
adjusted by Buyer. In the event Buyer fails to approve Seller's proposed amount
of Transfer Taxes and fails to advise Seller of an adjusted amount of Transfer
Taxes within 10 days prior to the due date of such return, Seller shall
interpret such inaction on the part of Buyer as direction by Buyer to make no
report of and no
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remittance of Transfer Taxes. Buyer shall remit to Seller on the day prior to
the due date of such return, by wire transfer of immediately available funds,
the agreed upon amount of Transfer Taxes to be remitted to the taxing
authorities. In the event Seller does not receive the agreed upon amount of
Transfer Taxes to be remitted to the taxing authorities from Buyer on or before
the day prior to the due date of the return, Seller shall interpret such failure
of Buyer to provide funds as direction by Buyer to make no report of and no
remittance of Transfer Taxes. Buyer warrants that any adjustments by Buyer to
Seller's proposed amount of Transfer Taxes or any direction by Buyer to make no
report of and no remittance of Transfer Taxes will be based on substantial state
and/or local authority that Transfer Taxes are not due and owing. Buyer shall
indemnify and hold harmless Seller from and against any and all such Transfer
Taxes and any penalties, interest or expenses (including attorneys' fees)
incurred by Seller with respect thereto unless such interest and penalties
result from the actions or omissions of Seller that are unrelated to any
breaches by Buyer of its obligations hereunder.
ARTICLE 2
CLOSING
2.1 Closing. The consummation of the purchase and sale of the Transferred
Assets (the "Closing") shall take place at Seller's offices in Denver, Colorado,
at 10:00 a.m., local time, on the last calendar day of the month in which all
the conditions precedent to Closing set forth in Article 3 have been satisfied
or waived, or on such other date as the parties mutually agree, but in no event
shall the Closing occur later than September 30, 2001 unless the parties shall
mutually agree to extend the date of the Closing. The date that the Closing
actually occurs is referred to as the "Closing Date." If the Closing is
postponed, all references to the Closing Date in this Agreement shall refer to
the postponed date of Closing.
2.2 Deliveries by Seller to Buyer. At or prior to the Closing, Seller will
deliver to Buyer:
2.2.1 Certified copies of all Seller's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Seller;
2.2.2 a duly executed Bill of Sale, in substantially the form of
Exhibit C hereto, and duly executed assignments and other instruments of
transfer sufficient to convey to Buyer title to all the personal property
included in the Transferred Assets;
2.2.3 A duly executed closing certificate of Seller contemplated by
Sections 3.1.1 and 3.1.2;
2.2.4 Releases, satisfactions or terminations of all mortgages,
financing statements or other Encumbrances on any of the Transferred Assets or,
in the alternative, an indemnity of Seller with respect to such Encumbrances in
form and substance reasonably acceptable to Buyer;
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2.2.5 Special warranty deeds covering the Fee Realty and assignments
in customary local form covering the other realty and Interests included in the
Transferred Assets, including all rights-of-way which are by their terms
assignable;
2.2.6 An affidavit in a form complying with Section 1445 of the
Code; and
2.2.7 Such other documents and items as are reasonably necessary or
appropriate to effect the consummation of the Transactions or which may be
customary under local law, including vehicle transfer documentation.
2.3 Deliveries by Buyer to Seller. At or prior to the Closing, Buyer will
deliver to Seller:
2.3.1 The Purchase Price as required by Section 1.4, together with
any proration payment required to be paid on the Closing Date pursuant to
Section 1.5;
2.3.2 Certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Buyer;
2.3.3 A duly executed closing certificate of Buyer contemplated by
Sections 3.2.1 and 3.2.2; and
2.3.4 The Assumption Agreement and such other certificates and
documents as are reasonably necessary or appropriate to effect the consummation
of the Transactions or which may be customary under local law.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. Within 30
days after the date of this Agreement, the parties shall negotiate in good faith
and enter into a Transition Agreement similar in scope to the agreement attached
as Exhibit D hereto. Within 90 days after the date of this Agreement, the
parties shall commence to negotiate in good faith the definitive terms of the
services agreements for the services that Buyer requests Seller to provide upon
Closing and described on Exhibit E hereto. At or prior to the Closing, Buyer and
Seller shall execute and deliver such services agreements. The parties
acknowledge and agree that the agreements contemplated by this Section 2.4 are
an integral part of, and will be entered into as part and parcel to, and in
conjunction with, the other transactions and agreements contemplated by this
Agreement.
2.5 Further Assurances. Except as otherwise provided herein or in the
transition agreements, all instruments of conveyance, assignment or transfer
referred to herein, all sums of money, and all records and data to be delivered
as specified in this Agreement shall be delivered at or prior to the Closing.
The parties agree following the Closing to execute and deliver such further
instruments of conveyance, assignment and assumption as may be reasonably
necessary to give effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities. In addition, in the event of an
inadvertent transfer of Excluded Assets, Buyer shall upon request by Seller
execute and deliver such instruments of conveyance, assignment and transfer as
may be
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reasonably necessary to reconvey such Excluded Assets to Seller and shall
promptly return such Excluded Assets to Seller.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
3.1.1 Representations and Warranties. All representations and
warranties of Seller made in this Agreement shall be true and correct on and as
of the Closing Date as though made at such time, other than inaccuracies in such
representations and warranties that in the aggregate do not have a material
adverse effect on the Business or changes approved by Buyer in writing, and
Seller shall have delivered to Buyer a certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.2 Covenants. Seller shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Seller shall have delivered to Buyer a Certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.3 Governmental Approvals. The State Regulatory Approvals and the
FCC Approval (collectively, "Governmental Approvals") shall have been obtained
and shall be in full force and effect and shall not contain any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date. All such approvals and consents shall be deemed to have been obtained
after the grant thereof has become a Final Order.
3.1.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.1.5 Hart-Scott-Rodino Act. All filings required to be made under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
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3.1.6 Certificates and Other Documents. Seller shall have executed
and delivered the certificates and other documents required by Sections 2.2 and
2.4.
3.1.7 Absence of Material Adverse Change. Since December 31, 1998,
there shall have occurred no casualty or other event or change, not subsequently
cured by Seller, that has resulted in a material adverse effect on the Business,
unless such event has resulted in an amendment to this Agreement as contemplated
by Section 6.1.2.
3.1.8 Material Third Party Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the required
third party consents listed on Schedule 3.1.8 have been obtained and remain in
full force and effect on the Closing Date.
3.1.9 Delivery of Financial Information. Seller shall have delivered
the Required Financial Statements and representation letters, in each case as
and when required by Section 5.2.7.
3.1.10 Environmental Inspections. If it is determined pursuant to
Section 5.3.7 that remediation of potential material liabilities under
Environmental Laws is required, then (i) Seller shall have completed the
remediation to Buyer's reasonable satisfaction, (ii) if Seller elects to exclude
a parcel of Fee Realty, and Buyer so elects, Seller and Buyer shall have entered
into a long-term, low-cost lease, in form and substance reasonably satisfactory
to Buyer, for Buyer's use of such parcel after Closing, or (iii) if Seller
elects to exclude the parcel or the Exchange to which such parcel relates, and
if such parcel alone has been excluded and Buyer has not elected to lease such
parcel, Seller and Buyer shall have agreed in good faith to a reduction in the
Purchase Price. In no event shall Seller be responsible for any other
environmental remediation.
3.1.11 Title Matters. If the aggregate estimated costs and expenses
reasonably necessary to remedy all Encumbrances pursuant to Section 5.3.9
exceeds $10,000 (the "Title Threshold"), Seller shall have removed the Excessive
Encumbrances. "Excessive Encumbrances" means one or more Encumbrances selected
by Seller, the removal of which will bring the aggregate estimated costs and
expenses reasonably necessary to remedy the remaining Encumbrances below the
Title Threshold. Seller shall have removed the Excessive Encumbrances by either
(i) causing the title company to agree to delete such Excessive Encumbrances as
an exception in the Title Commitment or, with the prior written consent of
Buyer, shall have insured over such Excessive Encumbrances by endorsement, or
(ii) if acceptable to Buyer and Seller in each of its reasonable discretion, the
parties shall have entered into a written agreement containing Seller's
commitment to remedy such Excessive Encumbrances on terms reasonably
satisfactory to Buyer. In no event shall Seller have any obligation to cure or
remove any Encumbrance that is not an Excessive Encumbrance.
3.1.12 Billing Conversion. The Steering Committee established
pursuant to the Transition Services Agreement shall have concluded at least
thirty days prior to Closing that the billing system conversion will be
completed by Closing.
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3.2 Conditions to Seller's Obligations. The obligation of Seller to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Seller:
3.2.1 Representations and Warranties. All representations and
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes approved by Seller in writing, and Buyer shall have delivered
to Seller a certificate of Buyer to that effect, dated as of the Closing Date,
signed by an authorized officer of Buyer.
3.2.2 Covenants. Buyer shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Buyer shall have delivered to Seller a Certificate of Buyer to that effect,
dated as of the Closing Date, signed by an authorized officer of Buyer.
3.2.3 Governmental Approvals. All Governmental Approvals shall have
been obtained and shall be in full force and effect. All such approvals and
consents shall be deemed to have been obtained after the grant thereof has
become a Final Order. The terms and conditions of the Governmental Approvals
shall be acceptable in all material respects to Seller in its reasonable
discretion.
3.2.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.2.5 H-S-R Act. All filings required to be made under the H-S-R Act
shall have been made, and the waiting period thereunder shall have expired or
early termination thereof shall have been granted.
3.2.6 Certificates and Other Documents. Buyer shall have delivered
the certificates and other documents required under Sections 2.3 and 2.4.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Buyer's Representations and Warranties. Buyer represents and warrants
to Seller that:
4.1.1 Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Buyer has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.1.2 Corporate Authority. This Agreement has been, and when
executed by Buyer each of the other Transaction Documents will be, duly and
validly executed and delivered by Buyer. This Agreement constitutes, and when
executed by Buyer each of the other Transaction Documents will constitute, the
valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
4.1.3 Governmental Authorizations. Except as contemplated by this
Agreement or as set forth in Schedule 4.1.3, neither Buyer's execution and
delivery of the Transaction Documents nor Buyer's consummation of the
Transactions require authorization or approval of, or filing with, any
Governmental Authority.
4.1.4 Funds. On the Closing Date, Buyer shall have sufficient funds
available to pay the Purchase Price, any proration payment required to be paid
on the Closing Date pursuant to Section 1.4, the amount of any Transfer Taxes to
be paid by Seller as provided in Section 1.6 and to consummate the Transactions.
4.1.5 Litigation. There are no actions, suits, proceedings, claims,
arbitrations or investigations, either at law or in equity, of any kind now
pending (or to the best of Buyer's knowledge threatened) involving Buyer or any
of its properties or assets that (i) question the validity of any of the
Transaction Documents or the Transactions; or (ii) seek to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under the Transaction Documents.
4.1.6 Investigation. Buyer, through its accountants, attorneys,
agents, employees, and others, has made or will have made prior to the Closing
such investigations of the Exchanges and Transferred Assets and of the factual,
legal and other condition and location of the Exchanges and Transferred Assets
that it deems necessary or advisable with respect to the Transactions. Buyer
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has not received from the Seller, or from anyone acting or claiming to act on
behalf of the Seller, any accounting, tax, legal or other similar advice with
respect to the Transactions, and Buyer is relying solely on advice of its own
accounting, tax, legal, and other advisors for such advice. Buyer has based its
decision to acquire the Transferred Assets solely on the results of such
investigations and the representations, warranties and covenants of Seller set
forth herein, and not based on any other information (including without
limitation information contained in Seller's descriptive memorandum) provided to
Buyer by Seller, its Affiliates, employees, agents, representatives or advisors.
4.2 Seller's Representations and Warranties. BUYER UNDERSTANDS THAT,
EXCEPT AS SET FORTH IN THIS SECTION 4.2, SELLER MAKES NO REPRESENTATIONS,
WARRANTIES OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR
TYPE WHATSOEVER WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, AND WARRANTIES AS TO THE APPURTENANCES, FACILITIES AND
IMPROVEMENTS THEREON, OR THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR
ADAPTABILITY THEREOF. Seller represents and warrants to Buyer that:
4.2.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Seller has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.2.2 Authorization, Execution and Delivery. This Agreement has
been, and when executed by Seller each of the other Transaction Documents will
be, duly and validly executed and delivered by Seller. This Agreement
constitutes, and when executed by Seller each of the other Transaction Documents
will constitute, the valid, legal and binding agreement of Seller enforceable
against Seller in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights generally
and by principles of equity.
4.2.3 Transferred Assets. Except with respect to Fee Realty, the
Transferred Assets are, and at the time of Closing will be, owned by Seller and
conveyed, transferred and assigned to Buyer free and clear of all Encumbrances.
The Transferred Assets (i) are in a normal state of repair (except for ordinary
wear and tear), (ii) are sufficient, both in number and condition, to comply
with applicable requirements of State Regulatory Authorities and the
manufacturer's specifications, except for non-compliances that in the aggregate
are not reasonably likely to have a material adverse effect on the Business
following the Closing Date, and (iii) will include all assets of every type,
nature and description that relate to, arise from, are used or held by Seller
primarily in the operation of the Business as presently operated by Seller
(including vehicles and related vehicle stock, portable
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office equipment, test equipment, generators, materials, supplies, tools,
maintenance radio equipment and antennas normally located within the Exchanges
or primarily used in connection with the Business), except for the Excluded
Assets. Assuming the receipt of all required third-party consents, the
instruments and documents to be executed and/or delivered by Seller to Buyer
pursuant to Section 2.2 hereof at or following the Closing Date shall be
adequate and sufficient to vest in Buyer all of Seller's right, title and
interest in or to the Transferred Assets. To Seller's Knowledge, Seller enjoys
peaceful, undisturbed possession under all leases included in the Material
Contracts and rights-of-way and easements with respect thereto and with respect
to the Fee Realty. Notwithstanding the foregoing to the contrary, with respect
to all Fee Realty included in the Transferred Assets, Seller makes no
representations or warranties as to the ownership or Encumbrances thereon, it
being the express agreement of the parties that such matters shall be the
subject of the arrangements set forth in Sections 3.1.11 and 5.3.9.
4.2.4 Governmental Authorization. Except as contemplated by this
Agreement and except for such of the following the absence of which would not
have a material adverse effect on the Business, no authorization or approval of,
or filing with, any Governmental Authority will be required in connection with
Seller's execution and delivery of the Transaction Documents or Seller's
consummation of the Transactions.
4.2.5 Litigation. As of the date hereof there are no actions, suits,
proceedings, claims, arbitrations or investigations, either at law or in equity,
of any kind now pending (or to the best of Seller's Knowledge threatened)
against Seller (i) in which an adverse determination would have a material
adverse effect on the Business; (ii) that question the validity of any of the
Transaction Documents or the Transactions; or (iii) that seek to delay, prohibit
or restrict in any manner any actions taken or contemplated to be taken by
Seller under the Transaction Documents.
4.2.6 Tax Matters. All taxes and assessments, including interest and
penalties thereon, of any kind whatsoever accrued with respect to the Business
through the Closing Date (other than Transfer Taxes and taxes subject to
proration at Closing pursuant to Section 1.4) have been or will be paid in full
by Seller. There are no liens for federal, state or local taxes upon the
Transferred Assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by Seller
in appropriate proceedings, the ultimate liability for which shall remain the
obligation of Seller, and Seller shall indemnify Buyer against all such
liabilities. Seller has timely filed, or will cause to be timely filed, all
federal, state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Business for all periods up to and including the Closing Date.
4.2.7 No Breach. The execution and delivery by Seller of the
Transaction Documents and the consummation by Seller of the Transactions will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of Seller; (ii) violate any
applicable law, statute, ordinance, rule, regulation, code, license,
certificate, franchise, permit, writ, ruling award, executive order, directive,
requirement, injunction (whether
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temporary, preliminary or permanent), judgment, decree or other order
(collectively "Applicable Laws") issued, enacted, entered or deemed applicable
by any Governmental Authorities having jurisdiction over Seller or any of the
Transferred Assets; (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give another
party any rights of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of the Operating Contracts; or (iv) result in
the creation or imposition of any Encumbrance on any of the Transferred Assets,
excluding from the foregoing clauses those violations, breaches or defaults
which individually or in the aggregate would not reasonably be expected to have
a material adverse effect upon the operation of the Business by Buyer after the
Closing.
4.2.8 Compliance with Laws. Except as set forth on Schedule
4.2.18(a), the Business has been operated and the Exchanges are in compliance
with all requirements of the Authorities and all Applicable Laws, except where
Seller's non-compliance would not have a material adverse effect on the
Business. Seller has not received any notice of (and to Seller's Knowledge there
is no reason to anticipate) any material violation of any Applicable Laws.
Notwithstanding the foregoing, except as specifically provided in Section 5.3.7,
Seller hereby disclaims all warranties, whether express or implied, with regard
to the presence of Hazardous Materials in the Transferred Assets or compliance
of the Business with Environmental Laws. Buyer understands and agrees that,
other than as specifically provided in Section 5.3.7, any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Transferred Assets following the Closing Date, including the costs of any
remediation or cleanup associated with the Transferred Assets, or environmental
claim or liability associated with the Transferred Assets, irrespective of when
contamination occurred, is assumed by Buyer on the Closing Date.
4.2.9 Operating Contracts. Schedule 4.2.9(a) sets forth all of the
Operating Contracts of the type described below (the "Material Contracts") that
Seller, after using commercially reasonable efforts, has been able to gather for
Buyer's review. No Operating Contract described in (i) below will be entered
into after the date of this Agreement and no Operating Contract described in
(ii) - (ix) will be entered into after the date of this Agreement other than in
the ordinary course of business:
(i) an agreement containing a non-compete agreement or other
non-compete covenant that in either case would by its terms limit the freedom of
Buyer following the Closing to compete in any respect with respect to the
Business with any third party;
(ii) an agreement granting an Encumbrance on Property other than Fee
Realty;
(iii) an agreement for the sale of any material Transferred Assets
or grant of any preferential rights to purchase any material Transferred Assets;
(iv) a land development agreement or other similar construction
agreement;
(v) a lease of real property;
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(vi) an agreement with respect to 911 services or E911 services;
(vii) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Exchanges;
(viii) an agreement that relates to arrangements and commitments
between Seller and a third party for the third party's location of equipment in
facilities included in the Transferred Assets except to the extent set forth in
a separate interconnection agreement; or
(ix) an agreement other than as set forth above with respect to
which the aggregate amount to be received or paid thereunder attributable to the
Exchanges with respect to calendar year 1999 or any subsequent calendar year is
expected to exceed $50,000 based on the terms of such agreement or on the
payments which have been made under such agreement with respect to calendar year
1998, to the extent applicable.
Schedule 4.2.9(b) identifies (i) each interconnection agreement between
Seller and a third party or an Affiliate of Seller that is applicable to the
Exchanges, (ii) each agreement that relates to arrangements and commitments
between Seller and an Affiliate of Seller for such Affiliate's co-location of
equipment in facilities included in the Transferred Assets that Seller, using
commercially reasonable efforts, has been able to identify, and (iii) each
Exchange where a third party has physically co-located equipment or, to Seller's
Knowledge, where a third party has made a written request to co-locate equipment
located in the Exchanges.
All of the Operating Contracts were made in the ordinary course of
business and are in all material respects valid, binding and currently in full
force and effect. Seller is not in default in any material respect under any of
the Operating Contracts, and to Seller's Knowledge no event has occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default or give rise to a right of termination or cancellation under any of the
Operating Contracts, cause the acceleration of an obligation of Seller, or
result in the creation of any Encumbrance upon any of the Transferred Assets. To
Seller's Knowledge, no other party is in default under any of the Operating
Contracts, nor has any event occurred which, through the passage of time or the
giving, of notice, or both, would constitute a default or give rise to a right
of termination or cancellation under any of the Operating Contracts, or cause
the acceleration of any obligation owed to Seller. Complete and correct copies
of all the Material Contracts in Seller's possession, together with all
modifications and amendments thereto to date of this Agreement in Seller's
possession, have been made available to Buyer or its representatives. Schedule
4.2.9(a) also specifically identifies each lease that requires the consent,
approval or waiver of the other party thereto for the assignment thereof.
4.2.10 Realty. (i) To Seller's Knowledge, the legal descriptions to
be delivered by Seller to the title insurance company shall be complete and
accurate in all material respects; (ii) as of the date hereof, there are no
deferred property taxes or assessments payable by Seller with respect to the Fee
Realty which may or will become due and payable as a result of the consummation
of the
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Transactions, other than Transfer Taxes; (iii) there are no condemnation
proceedings pending or to Seller's knowledge threatened with respect to all or
any part of any parcel of Fee Realty; and (iv) Seller is not a foreign person
within the meaning of Section 1445 of the Code.
4.2.11 Reports. Seller has filed all reports relating to the
Business required by all Applicable Laws to be filed, and it has duly paid or
accrued on its books of account all applicable duties and charges due or
assessed against it pursuant to such reports.
4.2.12 Year 2000 Matters.
(a) Year 2000 Compliance. Seller warrants and represents that to the
best of its knowledge and belief following an effort of commercially reasonable
diligence by Seller, all of its business assets, including but not limited to
information technology and non-information technology systems and facilities and
those of its external suppliers utilized by Seller in the Business and included
in the Transferred Assets ("Business Assets"), are or will be "Year 2000
Compliant" (defined below) on or before the Closing Date. For purposes of this
Agreement, the following definitions apply:
(i) "Date Data" means any data, formula, algorithm, process,
input or output which includes, calculates or represents a date, a reference to
a date or a representation of a date;
(ii) "Year 2000 Compliant" means:
1. the functions, calculations, and other computing
processes of the Business Assets (collectively, "Processes") perform in a
consistent manner regardless of the date in time on which the Processes
are actually performed and regardless of the Date Data inputs to the
Business Assets, whether before, on, during or after January 1, 2000 and
whether or not the Date Data is affected by leap year;
2. the Business Assets accept, calculate, compare, sort,
extract, sequence, and otherwise process all Date Data, and returns and
displays all Date Data, in a consistent manner regardless of the dates
used in such Date Data, whether before, on, during or after January 1,
2000.
3. the Business Assets will function without
interruptions caused by the date in time on which the Processes are
actually performed or by the Date Data inputs to the Business Assets,
whether before, on, during or after January 1, 2000;
4. the Business Assets store and display all Date Data
in ways that are unambiguous as to the determination of the century;
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5. no Date Data will cause one or more Business
Assets to perform an abnormally ending routine or function within the
Processes or generate incorrect values or invalid results; and
6. each of the Business Assets will properly exchange
Date Data with all other Business Assets that it may interact or
inter-operate with.
(b) Year 2000 Testing. Seller warrants that the Business Assets have
been tested by Seller and/or Seller's suppliers of Business Assets to determine
whether each of the Business Assets is Year 2000 Compliant. Seller's suppliers
of Business Assets have represented to Seller that the Business Assets provided
by them are Year 2000 Compliant and/or have been tested by those suppliers to
determine whether such Business Assets are Year 2000 Compliant. Seller will
notify Buyer immediately of the results of any test or any claim or other
information that indicates any Business Asset is not Year 2000 Compliant.
(c) Year 2000 Remedies. In the event that Buyer encounters a
Business Asset that is not Year 2000 Compliant, within a commercially reasonable
period after receipt from Buyer of written notice thereof, Seller shall at its
expense cause the identified non-compliant Business Asset to be repaired or
replaced.
4.2.13 Correct Records. The financial records, ledgers, account
books and other accounting records of Seller relating to the Business are
current, correct and complete and, if required by applicable law, conform with
the rules and regulations of the FCC and the State Regulatory Authorities,
except for instances that in the aggregate are not reasonably likely to have a
material adverse effect on the Business following the Closing Date and except
for the Continuing Property Records for the Exchanges, which are dealt with
specifically elsewhere in this Agreement. Seller has retained substantially all
original cost documentation relating to the regulated Business regarding the
expenditures made by Seller within the period required by Applicable Law that
relate to the Property, and such original cost documents are correct and
complete in all respects, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
4.2.14 Tribal and Federal Consents.
(a) To Seller's Knowledge, all easements, rights-of-way, franchises,
licenses, permits, consents, approvals, certificates and other authorizations of
tribal authorities and the United States Bureau of Indian Affairs (the
"BIA")(collectively, "Tribal Authorizations") held by Seller and relating to any
Purchased Property located, or any operations of the Business conducts, on
Native American reservations are in full force and effect, Seller is not in
material default thereunder, and there are no other Tribal Authorizations
required to be obtained by Seller from, or filings required to be made by Seller
with, any tribal authority or the BIA with respect to any such Purchased
Property or any such operations of the Business, except for instances that in
the aggregate are not reasonably likely to have a material adverse effect on the
Business following the Closing Date.
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(b) Except as set forth on Schedule 4.2.14(b), to Seller's Knowledge
no consent, approval or waiver from, or filing with, any tribal authority or the
BIA is required to be obtained or made in connection with the execution and
delivery by Seller of this Agreement, or Seller's fulfillment of its obligations
under this Agreement, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(c) If during the period between the date of this Agreement and the
Closing Date the representation and warranty set forth in this Section 4.2.14
proves to be untrue with respect to one or more parcels of Realty and Buyer and
Seller in good faith have been unable to remedy the circumstances that causes
such representation and warranty to be untrue with respect to such parcel, at
the election of either Buyer or Seller such parcel shall be excluded from the
Transferred Assets, and Buyer and Seller shall in good faith reduce the Purchase
Price accordingly.
4.2.15 Financial Statements.
Within 15 business days of the date hereof, Seller shall deliver to Buyer
a copy of financial statements relating to the Business, consisting of a balance
sheet and income statement and statements of cash flow and changes in equity for
the Business as of and for the respective periods ended December 31, 1996,
December 31, 1997, and December 31, 1998, together with the auditor's report
thereon (the "Financial Statements"). The Financial Statements were prepared
based upon the books and records of Seller, fairly present in all material
respects the financial condition of the business as of the appropriate periods
and the results of operations for the year then ended, in each case in
conformity with GAAP.
4.2.16 Loss of Major Customer. Except as set forth on Schedule
4.2.16, since June 1, 1997, Seller has not suffered the loss of any customer of
the Business that had billings in any year in excess of $25,000.
4.2.17 CPRs; Vehicles. Seller has provided Buyer with its Continuing
Property Records ("CPRs") for the Exchanges. Schedule 4.2.17 contains a true and
complete list and description (including vehicle identification numbers) as of
June 1, 1999 of the vehicles that are included in the Transferred Assets.
4.2.18 Tariffs and Authorities.
(a) The regulatory tariffs applicable to the Business stand in full
force and effect on the date of this Agreement in accordance with all terms, and
there is no outstanding notice of cancellation or termination or, to Seller's
Knowledge, any threatened cancellation or termination in connection therewith,
nor is Seller subject to any restrictions or conditions applicable to its
regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material
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respect under any such tariff. Schedule 4.2.18(a) sets forth all applications by
Seller or complaints or petitions by others or proceedings pending or, to
Seller's Knowledge, threatened before the state regulatory authority relating to
the Business or its operations or the regulatory tariffs that Seller, after
using commercially reasonable efforts, has been able to identify. To Seller's
Knowledge, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Business
has been delivered or made available to Buyer.
(b) Listed on Schedule 4.2.18(b) are the material Authorities held
by Seller and used in the operation of the Business. Each of such Authorities is
in full force and effect of the date of this Agreement in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor are any of such Authorities subject to any restrictions or
conditions that limit the operation of the Business (other than restrictions or
conditions generally applicable to licenses or permits of that type). Subject to
the Communications Act of 1934, as amended, and the regulations thereunder, the
FCC licenses included in the Authorities are free from all security interests,
liens, claims or encumbrances of any nature whatsoever. Except as disclosed on
Schedule 4.2.18(c), there are no applications by Seller or complaints or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC licenses that would reasonably be expected to have a
material adverse impact on the Business.
4.2.19 Environmental Matters.
(a) Schedule 4.2.19(a) accurately describes each incident known to
Seller and arising since December 31, 1996, involving violation of or
noncompliance with Environmental Laws in connection with Seller's operation of
the Business or the use or ownership of the Transferred Assets with respect to
which the fines exceed $100,000. Except as will be set forth on Schedule
4.2.19(d), no environmental remediation is occurring on any parcel of Fee Realty
or leased real property included in the Transferred Assets nor has Seller or any
Affiliate of Seller issued a request for proposal or otherwise asked an
environmental remediation contractor to begin plans for environmental
remediation.
(b) Schedule 4.2.19(b) sets forth a true and accurate list of all
underground storage tanks ("USTs") and aboveground storage tanks ("ASTs")
located on the Fee Realty and the leased real property included in the
Transferred Assets that are in use.
(c) Except as set forth in Schedule 4.2.19(c) and, to the extent
such information is unavailable on the date of execution of this Agreement, as
set forth and supplemented on Schedule 4.2.19(d), none of the Fee Realty or
leased real property is situated in a federal "Superfund" site or, to Seller's
Knowledge, in any federal "Superfund" study area.
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(d) Within 30 days from the date of this Agreement, Seller will
prepare and deliver to Buyer Schedule 4.2.19(d), which schedule will list (i)
all environmental remediation occurring on any parcel of Fee Realty or leased
real property included in the Transferred Assets, (ii) any requests for
proposals for remediation, (iii) any requests by Seller or any Affiliate of
Seller to begin plans for environmental remediation, (iv) all USTs and ASTs
located on the Fee Realty and the leased real property included in the
Transferred Assets that, to Seller's Knowledge, have been abandoned in place,
and (v) each incident known to Seller and arising since December 31, 1996,
involving violation of or noncompliance with Environmental Laws in connection
with Seller's operation of the Business or the use or ownership of the
Transferred Assets with respect to which the fines exceed $10,000. In addition,
within such period, Seller shall deliver to Buyer complete copies of letters of
non-compliance with respect to each incident listed in subsection (v) above,
copies of AST and UST closure letters contained in the files and records of
Seller, copies of all No Further Action letters contained in the files and
records of Seller, and a description of the status of any existing fuel tank
remediation.
4.2.20 Employee Benefits.
(a) Schedule 4.2.20(a) lists each Employee Benefit Plan and Other
Plan maintained or contributed to by Seller or its affiliates for the benefit of
any employee employed by, or associated with, the Business (hereinafter, an
"employee of the Business"). Seller has provided Buyer with full and complete
copies (including all amendments) of all of such Employee Benefit Plans and
Other Plans.
(b) To Seller's Knowledge, each such Pension Plan, Welfare Plan and
Other Plan maintained by Seller has been operated in accordance with its terms
and in accordance with applicable law, to the extent that the failure to do so
would have material adverse effect on the Business or its assets.
(c) Except as otherwise set forth on Schedule 4.2.20(c), no Employee
Benefit Plan or Other Plan provides benefits for persons who are not active
employees of Seller.
(d) Except as set forth on Schedule 4.2.20(g), there are no actions,
suits or claims pending or threatened (other than routine claims for benefits)
relating to any Employee Benefit Plan or Other Plan identified in Schedule
4.2.20(a) except for actions, suits or claims that are not in the aggregate
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(e) Seller does not maintain any Employee Benefit Plan or Other Plan
under which it would be obligated to pay benefits because of the consummation of
the transaction contemplated by this Agreement, which could become an obligation
of the Buyer.
(f) Seller has used its best efforts to maintain each trust forming
a part of any Pension Plan identified in Schedule 4.2.20(a) which is not exempt
from Part 2, 3 and 4 of Title I of
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ERISA to meet all requirements for qualification under Sections 401 and 501 of
the Internal Revenue Code, and all applicable related rules and final
regulations.
(g) Schedule 4.2.20(g) sets forth all the exceptions to the
following statements that Seller, after using commercially reasonable efforts,
has been able to identify: (i) Seller is not subject to any collective
bargaining agreement covering any employees of the Business; (ii) there are no
current, or to Seller' Knowledge, any pending or threatened strikes, slowdowns,
picketing, work stoppages or lock-outs affecting the Business; (iii) to Seller's
knowledge, there is no pending or threatened organized activity or petition for
certification of a collective bargaining representative involving employees of
the Business; (iv) to Seller's Knowledge, there is no pending or threatened
charge, action, complaint, or proceeding of any nature against Seller relating
to the violation of any applicable state and federal labor or employment law or
regulation in connection with the Business, nor is there any other pending or
threatened labor or employment dispute against or affecting Seller in connection
with the Business ,except for items that in the aggregate are not reasonably
likely to have a material adverse effect on the Business following the Closing
Date; and (v) with respect to employees of the Business, Seller has complied in
all respects with the laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupation safety and health, immigration, and plant closings ,except
for items that in the aggregate are not reasonably likely to have a material
adverse effect on the Business following the Closing Date. Seller has delivered
to Buyer accurate and complete copies of all collective bargaining agreements
affecting any of the employees in the Exchanges.
"Employee Benefit Plan" means any Pension Plan and Welfare Plan within the
meaning of Section 3(3) of ERISA.
"Other Plan" means any employment, noncompetition, management, agency or
consulting arrangement, bonus, profit sharing, deferred compensation, incentive,
stock option, stock ownership or stock purchase plan, severance or unemployment
arrangement, vacation pay, fringe benefit or other similar plan, policy or
arrangement, whether or not in written form, which does not constitute an
Employee Benefit Plan and which is not listed on Schedule 4.2.20(a).
"Pension Plan" means any employee pension plan within the meaning of
Section 3(2) of ERISA.
"Welfare Plan" means any employee welfare benefit plan within the meaning
of the Section 3(1) of ERISA.
4.2.21 Accuracy of Information Furnished.
(a) To Seller's Knowledge:
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(i) Seller made a good faith effort, given the voluminous
nature of the material available with respect to the Transferred Assets, the
necessity to present in many cases representative documents or descriptions of
documents, and Seller's need to maintain certain competitive information
confidential, to include in the due diligence notebooks contained in the Data
Room located in Seller's offices in Denver, Colorado all documents or
appropriate descriptions of all documents that, in Seller's reasonable opinion,
a reasonable prospective acquiror of the Transferred Assets would deem to be
material in its decision; and
(ii) Seller did not intentionally and consciously decide to
(1) exclude from the due diligence notebooks (2) withhold from Buyer in response
to Buyer's requests for additional information or (3) not make available for
review by Buyer or its agents at Seller's offices in Denver, Colorado any
document relating to the operation of the Business as currently conducted which,
in Seller's reasonable opinion, a reasonable prospective acquiror of the
Transferred Assets would deem to be material in its decision to acquire the
Transferred Assets.
4.2.22 No Material Adverse Change. Since December 31, 1998 there has not
occurred (i) any event or condition that would have a material adverse effect on
the Business, (ii) any increase in compensation payable or to become payable by
Seller to any of its Hired Employees or agents, other than normal merit or
promotional increases and pursuant to any collective bargaining agreements,
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract, except any amendment or termination in the
ordinary course of business or (iv) any change in any accounting method,
practice or policy of Seller with respect to the Business.
ARTICLE 5
COVENANTS
5.1 Covenants of Buyer. Buyer hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.1.1 Continued Efforts. Buyer will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Buyer; (ii) cause to be performed all of
the actions required of Buyer at or prior to the Closing; and (iii) take such
steps and do all such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect as
if the same had been made as of the Closing Date. Without limiting the
foregoing, Buyer agrees if requested by Seller to apply for or otherwise seek
any required third-party consents on a joint basis.
5.1.2 Cooperation. Buyer agrees to cooperate with Seller with
respect to (i) Seller's assignment to Buyer and Buyer's assumption of the
Transferred Assets hereunder, and (ii) Seller's structuring of the Transactions
to comply with the requirements of a like-kind exchange under Section 1031 of
the Code (a "1031 Transaction") at no additional expense to Buyer, such
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cooperation to include, without limitation, purchase of the Transferred Assets
from a "qualified intermediary" (as defined in Section 1031) of Seller's choice
and execution of such documents in connection with the Transactions as Seller
may reasonably request. If Seller elects to pursue the Transactions as a 1031
Transaction, then (i) notwithstanding anything in this Agreement to the
contrary, Seller shall fully indemnify, defend and hold Buyer harmless from and
against any and all liabilities resulting therefrom, including, but not limited
to, any tax impacts on Buyer or the Transferred Assets, and (ii) Seller shall
remain directly and primarily bound by all other conditions, representations,
warranties and covenants contained herein and remedies related thereto.
5.1.3 Employee Matters.
(a) Buyer agrees that, during the period between the date hereof and
the Closing Date and for a period of 18 months thereafter, without the prior
written consent of Seller, Buyer will not actively solicit for employment any
employee of Seller other than those persons identified by Seller to Buyer in
writing as provided in this Section 5.1.3 or who respond to a general
solicitation of employment made by Buyer.
(b) As soon as practicable following the date hereof and as
permitted by applicable law and collective bargaining agreements, Seller shall
provide to Buyer a list of all employees whose services are primarily related to
the Exchange (the employees on such list being referred to as "Prospective
Hires"). Buyer shall have the right to audit such list to determine that it
contains an accurate and complete listing of all Prospective Hires, and Seller
shall cooperate in providing Buyer with such information as Buyer may reasonably
request to assist in such audit. Within 90 days following the date of this
Agreement, and consistent with applicable law and any collective bargaining
agreement, Seller shall provide Buyer with a definitive list of Prospective
Hires, such list to contain the name, job classification, position, title, date
of hire, current salary or wage, bargaining unit, primary exchange(s), work
location, telephone number and last known address of each Prospective Hire.
(c) Buyer may, but shall have no obligation to, employ or offer
employment to any Prospective Hire. Seller shall cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview the Prospective
Hires to make hiring decisions. At least 60 days before the scheduled Closing
Date, Buyer shall provide to Seller in writing a list of the Prospective Hires
that Buyer intends to offer employment. At least 45 days before the scheduled
Closing Date, Buyer shall notify those Prospective Hires whom Buyer intends to
hire on the Closing Date; the form and manner of such notification shall be
reasonably satisfactory to and approved in advance by Seller. Buyer shall be
permitted to conduct appropriate pre-hire investigations of such named
Prospective Hires and make any offer of employment for such Prospective Hires
conditional upon receiving results of such investigations as are satisfactory to
Buyer.
(d) As of the Closing Date, Seller shall separate from its payroll
the employment of all of the Prospective Hires to whom Buyer has made offers of
employment other than any such Prospective Hire who has been offered employment
by Buyer and who is on leave status, including
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employees receiving Workers' Compensation Benefits, as of the Closing Date
(each, an "Employee on Leave Status"). Buyer shall employ any Employee on Leave
Status (i) who is on approved leave under the Family and Medical Leave Act on
the Closing Date only when such Employee on Leave Status returns to work from
such approved leave under the Family and Medical Leave Act or (b) who is
receiving Workers' Compensation Benefits on the Closing Date only when such
Employee on Leave Status is released to return to work but only if such release
occurs within sixteen weeks after the date of initial eligibility for Workers'
Compensation Benefits, in each case subject to Buyer's right to conduct
appropriate pre-hire investigations of such Employee on Leave Status and to
Buyer's receipt of results of such investigations that are satisfactory to
Buyer.
(e) Seller shall be responsible for and shall cause to be discharged
and satisfied in full all amounts owed to any Prospective Hire who is employed
by Seller as of the Closing Date, including salaries, commissions, bonuses,
deferred compensation, severance, insurance, vacation, and other compensation or
benefits to which they are entitled for periods prior to the Closing (and for
Employee on Leave Status, until their employment by Buyer, as set forth in
Section 5.1.3(d) hereof), including all amounts (if any) payable on account of
the termination of such Prospective Hires.
(f) Seller will be responsible for maintenance and distribution of
benefits accrued under any Employee Benefit Plan maintained by Seller pursuant
to such plan and any legal requirements. Buyer will not assume any obligation or
liability for any such accrued benefits under any employee benefit plans
maintained by Seller.
(g) Nothing in this Section 5.1.3 or elsewhere in this Agreement
shall be deemed to make any Prospective Hire a third party beneficiary of this
Agreement.
(h) Seller acknowledges and agrees that Buyer has not agreed to be
bound, and will not be bound, by any provision of any collective bargaining
agreement or similar contract with any labor organization to which Seller or any
of its Affiliates is or may become bound.
(i) Seller shall provide employees of the Business with any required
notices under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller.
5.1.4 Directory Publishing Rights. Buyer will enter into good faith
negotiations with U S WEST Dex, Inc. ("Dex"), an Affiliate of Seller (or its
successor so long as such successor remains an Affiliate of Seller), concerning
an agreement whereby either (i) Dex will publish all subscriber listings
corresponding to the Exchanges on behalf of Buyer in satisfaction of Buyer's
regulatory obligations to publish such listings, or (ii) Buyer will license such
listings to Dex in accordance with Buyer's regulatory obligations to provide
such listings in the event that Buyer elects to publish or arrange with a third
party to publish such listings.
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5.1.5 911 Emergency Services. Buyer will obtain or contract for the
appropriate 911 emergency data bases in order to commence providing 911
emergency services in connection with the operation of the Business as of the
Closing Date.
5.2 Covenants of Seller. Seller hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.2.1 Access to Information and Facilities. Seller will afford Buyer
and its representatives, at Buyer's sole expense, reasonable access during
normal business hours to all Transferred Assets, facilities, properties, books,
accounts, records, contracts and documents of or relating to the Business in
Seller's possession or control. Seller shall exercise commercially reasonable
efforts to furnish or cause to be furnished to Buyer and its representatives all
data and information in Seller's possession concerning the Exchanges as shall
reasonably be requested by Buyer. Seller shall exercise commercially reasonable
efforts to gather additional Material Contracts for Buyer's review.
Seller acknowledges and agrees that Buyer's ongoing review, examination
and investigation of the Business and the Transferred Assets, facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business contemplated in the immediately preceding sentence is necessary to
facilitate the assimilation of the Business into Buyer's operations, the
transfer of the ownership and use of the Transferred Assets from Seller to Buyer
and other reasonable business purposes, and may include the following
activities:
(i) review of the Operating Contracts and Authorities, the
performance of which after Closing is an Assumed Liability (e.g., land
development agreements, 911 and E911 service agreements and customer
prepaid maintenance agreements) in order, among other things, to identify
those that require third party consent to assign to Buyer, those that
expire prior to or soon after the Closing and those that may require
special documentation to transfer to Buyer;
(ii) investigation of the third party arrangements included among
the Excluded Assets that Buyer will need to replicate or replace,
including interconnection agreements and national account agreements that
affect any Exchange.
(iii) examination of various assets included in the Property in
order, among other things, to determine what changes Buyer may need to
make to such assets after the Closing Date;
(iv) investigation of miscellaneous underwriting data, including an
insurance claims history of Seller relating to the operation of the
Business and the ownership or use of the Transferred Assets, the current
surety bonds and certificates of insurance relating to the Transferred
Assets, and Seller's policies and practices relating to pertinent
environmental, health, safety and property protection issues, in order for
Buyer to arrange appropriate
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insurance coverage by Closing with respect to Buyer's operation of the
Business and ownership and use of the Transferred Assets after the Closing
Date;
(v) investigation of the location and organization of the Records,
including the original cost documents and outside plant maps relating to
the Property, in order for the parties to arrange for appropriate delivery
(including via electronic transfer) or retention by Seller upon the
Closing;
(vi) review of the appropriate financial and accounting records of
Seller relating to the operation of the Business in order, among other
things, for Buyer to analyze the current balances and writeoff history of
the materials and supplies inventory included in the Transferred Assets,
the aging and write-off history of Accounts Receivable, and the manner in
which the Seller historically has allocated costs to the Purchased
Exchanges;
(vii) review of the ongoing State Regulatory Authorities and FCC
reporting obligations of Seller and Buyer relating to the Exchanges,
including responsibility for filing "form M" financial information, FCC
Report No. 43-04, Armis Joint Cost Report, and FCC Report No. 43-8, Armis
Operating Data Report, for the Exchanges for the year in which the Closing
Date occurs;
(viii) investigation of the construction and plant upgrade
activities of Seller between the date of execution of this Agreement and
the Closing Date, including a review of the construction work in progress,
in order, among other things, to enable Buyer to make appropriate
arrangements for the continuation of such activities after the Closing
Date; and
(ix) investigation of other regulatory issues, including with
respect to regulatory mandates and matters relating to the National
Exchange Carrier Association (including the Universal Service Fund, Local
Switching Support, and Telecommunications Relay Services funds) and
corresponding funds established by the State Regulatory Authorities.
The parties agree to cooperate and to negotiate in good faith regarding
resolution, on commercially reasonable terms and conditions, of issues and
concerns raised by either party in connection with such activities. Each party's
cooperation will include making appropriate subject matter experts and other
knowledgeable personnel available to meet with the appropriate representatives
of the other party and facilitating Buyer's contacts with the appropriate
Governmental Authorities (including the State Regulatory Authorities).
5.2.2 Continued Efforts. Seller will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Seller; (ii) cause to be performed all
of the actions required of Seller at or prior to the Closing; and (iii) take
such steps and do such acts as may be necessary to make all of its warranties
and representations true and correct as of the Closing Date with the same effect
as if the same had been made as of the Closing Date.
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5.2.3 Maintenance of Business. Seller shall carry on the Business in
the usual and ordinary course and substantially in the same manner as heretofore
conducted. Accordingly, Seller shall (i) maintain its books and records in the
normal and usual manner, (ii) keep the Transferred Assets in a normal state of
repair (except for ordinary wear and tear) and operating efficiency to permit
the conduct of the Business as it is currently being conducted; (iii) use its
commercially reasonable efforts to undertake or complete capital projects as
budgeted on Schedule 5.2.3(iii) and any capital projects required by Applicable
Laws or any Governmental Authority to be undertaken by the Closing Date (it
being understood and agreed that Seller shall have no obligation for any capital
spending other than in connection with such capital projects and as required to
comply with the provisions of this Section 5.2.3 and provided that Seller shall
be entitled to the Purchase Price adjustment (to the extent applicable) pursuant
to Section 1.4.3(a)); (iv) not increase the benefit provided under any plans
concerning employee benefits or increase the general rates of compensation of
its employees in the Exchanges, except (a) as required by Applicable Law, (b)
pursuant to any contracts existing on the date hereof and listed on Schedule
5.2.3(iv) to which Seller is a party, (c) increases in base pay or bonuses in
the ordinary course of business of Seller and in amounts consistent with the
recent past practices of Seller, or (d) as listed or described on Schedule
5.2.3(iv); and (v) not amend, modify or terminate any contract identified on
Schedule 4.2.9 or permit any of the foregoing to occur other than in the
ordinary course of business.
5.2.4 Consent to Assignment. Seller will transfer to Buyer all
Operating Contracts and permits that are by their terms assignable. Seller shall
also request assignment to Buyer of those Operating Contracts and permits that
are not by their terms assignable. To the extent that the assignment of any
Operating Contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Operating
Contract or permit if an attempted assignment would constitute a breach thereof.
Seller shall use commercially reasonable efforts (excluding the payment of
money) to obtain the consent of any other party to the assignment of such
Operating Contracts or permits to Buyer. If any such consent is not obtained, to
the extent permitted by Applicable Law, this Agreement shall constitute an
equitable assignment by Seller to Buyer of all of Seller's right, title, and
interest in and to such Operating Contracts and permits, and Buyer shall be
deemed Seller's agent for the sole purposes of completing, fulfilling and
discharging all of Seller's rights and obligations arising after the Closing
Date under such assigned Operating Contracts and permits.
5.2.5 Payment and Performance of Obligations. Seller will timely pay
and discharge all invoices, bills and other monetary obligations (other than
obligations which are contested by Seller in good faith) and shall not knowingly
perform or fail to perform any act which will cause a material breach of any of
the Operating Contracts.
5.2.6 Restrictions on Sale of Transferred Assets. Seller shall not
sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose
of any of the Transferred Assets except in the ordinary course of the Business.
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5.2.7 Audit or Review of Financial Statements. To the extent Buyer
reasonably requires audited or reviewed financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, Seller
will cooperate with the independent auditors chosen by Buyer in connection with
their audit of any annual financial statements that Buyer reasonably requires to
comply with Regulations S-X and S-K, and their review of any interim quarterly
financial statements that Buyer reasonably requires to comply with Regulations
S-X and S-K. If Closing has not occurred prior to March 31, 2000, then as soon
as practicable but in any event by May 15, 2000. Seller will provide for audit a
balance sheet as of December 31, 1999, and an income statement and statement of
cash flows and changes in equity for the year ending December 31, 1999. The
financial statements to be audited or reviewed pursuant to this Section 5.2.7,
are hereinafter referred to as the "Required Financial Statements." Seller's
cooperation will include (i) such access to Seller's employees who were
responsible for preparing the Required Financial Statements and to workpapers
and other supporting documents used in the preparation of the Required Financial
Statements as may be reasonably required by such auditors to perform an audit in
accordance with generally accepted auditing standards, (ii) delivery of any
Required Financial Statements within 45 days after Buyer's request for the same
(except as otherwise provided in the second sentence of this Section 5.2.7) and
in the form required by Regulations S-X and S-K, and (iii) delivery of one or
more representation letters from Seller to such auditors that are requested by
Buyer to allow such auditors to complete the audit (or review of any interim
quarterly financials), and to issue an opinion acceptable to the SEC with
respect to the audit or review of those Required Financial Statements. Seller
will bear the cost of preparation of the Required Financial Statements. Buyer
and Seller will share equally the cost of the audit or review.
5.2.8 [Intentionally Deleted]
5.2.9 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information and reasonable assistance as Buyer may reasonably request
in connection with Buyer's replacement of the interconnection agreements
relating to the Exchanges, including supplying to Buyer copies of such
interconnection agreements to the extent permissible and, to the extent
requested by Buyer and in compliance with applicable law, contacting the other
party to such interconnection agreements to notify such party that its
interconnection agreement will not apply to the Buyer and the Exchanges after
Closing. Buyer acknowledges its obligation to negotiate interconnection
agreements with third parties that have ongoing interconnection activities
related to the Exchanges with the expectation that interconnection agreements
between Buyer and such third partes will be entered into effective as of the
Closing Date. If such agreements are not entered into or, if required, approved
by appropriate Governmental Authorities, Buyer will offer to provide
interconnection to such third parties according to the terms of the Seller's
interconnection agreements with such third parties until the Buyer's new
agreements with such third parties are entered into or, if required, approved by
appropriate Governmental Authorities.
5.2.10 State Regulatory Authority/FCC Filings. Seller shall make all
necessary filings with the State Regulatory Authorities, the FCC or any other
Governmental Authority between
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the date of this Agreement and the Closing Date. Seller shall notify Buyer of
any significant proposed changes in the rates, charges, standards of service or
accounting of the Exchanges from those in effect on the date of this Agreement
prior to making any filing with the State Regulatory Authorities, FCC or any
other Governmental Authority (or any amendment thereto), or effecting with any
Governmental Authority any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto. Between the
date of this Agreement and the Closing Date, Seller shall use commercially
reasonable efforts to notify Buyer before Seller files any application,
petition, motion, brief, testimony, settlement agreement or other pleading in
any proceeding before the State Regulatory Authorities, FCC or any other
Governmental Authority or appeals related thereto with respect to which Buyer or
an Affiliate of Buyer has or reasonably could be expected to take a contrary
position that reasonably could be expected to have any adverse effect on the
revenue, earnings, or business of Buyer. Seller will give or cause to be given
to Buyer, as promptly as reasonably practicable, copies of all correspondence
(including notices, complaints, and pleadings) with any Governmental Authority
relating to any such proceeding or other rate regulatory matter that is sent or
received by Seller after the date of this Agreement.
5.2.11 Missing Plant.
(a) If, between the period commencing on execution date of the
Agreement and ending six months after the effective time of Closing, Buyer
notifies Seller in writing regarding items of Property (other than items that
have been fully depreciated on the books and records of Seller, items that are
no longer used in or necessary to the Business, and items covered by Section
5.2.11(b)) that are included in the CPRs relating to the Exchanges but that
Buyer, using commercially reasonable efforts, cannot locate in the Exchanges or
that have been sold, transferred or removed from the Exchanges by Seller or an
Affiliate of Seller, then Seller, at its option, either (i) shall pay to Buyer
(or reduce the Purchase Price by) an amount equal to the net book value of such
items as reflected on the books and records of Seller or (ii) deliver to Buyer
such items or replacement items that have reasonably comparable (or superior)
value, vintage and functionality; provided, however, that Seller shall have no
obligation under this Section 5.2.11(a) until the aggregate net book value of
all such items, together with the aggregate net book value of all such similar
items identified in Section 5.2.11 of each of the Multi-State Exchange Purchase
Agreements, exceeds $400,000, at which time Seller shall become obligated under
this Section 5.2.11(a) with respect to all items so identified by Buyer in all
notices delivered to Seller on or before the date that is six months after the
effective time of Closing; and provided, further that Seller shall have no
obligation under this Section 5.2.11(a) to the extent that the Maximum
Adjustment Amount shall have been reached.
(b) At Closing, Seller shall cause the Transferred Assets to include
all vehicles listed on Schedule 4.2.17 except to the extent any such vehicle has
been replaced with items of reasonably comparable (or superior) value, vintage
and functionality, in which event Seller shall cause such replacement items to
be included in the Transferred Assets.
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5.2.12 Third Party Software Licenses. To the extent that the transfer of
Transferred Assets by Seller to Buyer under this Agreement results in the
transfer of third party software that was rightfully used by Seller prior to the
Closing Date in the normal course operation of the Business pursuant to
contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then effective as of the Closing and provided
that no payments to any person are thereby required (except with respect to
payments relating to the transfer of switch software, which will be shared
equally by Buyer and Seller), at Closing Seller shall assign to Buyer, to the
extent permitted by the Third Party Intellectual Property Contracts, and Buyer
shall accept all rights and licenses if any to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses.
5.3 Mutual Covenants.
5.3.1 Confidentiality. Each party to this Agreement agrees to hold
in strict confidence all Confidential Information received from the other party,
whether received before or after entering into this Agreement, and to use such
information solely for the purposes of this Agreement. Each party agrees to make
no more copies of such Confidential Information than is reasonably necessary for
such purposes. Each party agrees that it will not make disclosure of any such
Confidential Information received from the other party to anyone except as
specifically permitted by this Agreement and as required by law. Each party may
disclose Confidential Information to its employees and agents to whom disclosure
is necessary for the purposes set forth above, provided that disclosing party
shall notify each such employee and agent that disclosure is made in confidence
and instruct such employees and agents that such Confidential Information shall
be kept in confidence by such employee and agent in accordance with this
Agreement. If the Transactions are not consummated for any reason, each party
agrees to return to the other party all such Confidential Information, including
all copies thereof, immediately on request. The obligations arising under this
section shall survive any termination or abandonment of this Agreement. This
Agreement will be filed on a confidential basis with the State Regulatory
Authorities. The provisions of the existing Confidentiality Agreement between
Buyer and Seller dated January 15, 1999 are incorporated herein by reference.
5.3.2 Public Announcements. No public announcement with respect to
this Agreement or the transactions contemplated hereby shall be made before the
Closing without the mutual prior approval of both Seller and Buyer, which
approval shall not be unreasonably withheld; provided, however, that each party
shall be permitted to make such disclosure to its lenders or to any Governmental
Authority, including but not limited to the Securities and Exchange Commission
or similar state securities authorities, necessary to comply with any applicable
laws and to obtain all required Governmental Approvals necessary to consummate
the Transactions, or to any stock exchange upon which such party has a class of
securities listed. Notwithstanding the foregoing, the disclosing party shall
give the non-disclosing party reasonable advance notice of any permitted
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disclosure to third parties under this Section 5.3.2 and shall provide the
non-disclosing party with a reasonable opportunity to review and comment on such
disclosure.
5.3.3 Cooperation. Each party covenants to use all commercially
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all things, that are necessary, proper or advisable under applicable
laws and regulations, expeditiously and practicably to consummate and make
effective the Transactions, including but not limited to (i) using its
commercially reasonable efforts to resolve any disagreements between Buyer and
Seller with respect to any applications for governmental or regulatory approval
prior to application for such approval, (ii) facilitating the regulatory
approval process by agreeing that Buyer will adopt and maintain intrastate
tariffs similar in all material respects to Seller's intrastate tariffs in
effect for the Exchanges on the Closing Date for a period of at least six months
following the Closing Date, provided that such tariffs of Seller are
substantially similar to the tariffs of Seller in effect on the date of this
Agreement except that Buyer's tariffs will reflect rate changes by Seller (x)
made prior to Closing as required by an order of a State Regulatory Authority
that has been issued prior to the date of this Agreement or (y) made prior to
Closing to the extent such changes are substantially revenue neutral to the
Exchanges, (iii) obtaining all necessary actions, waivers, consents and
approvals from third parties or Governmental Authorities, and (iv) effecting all
necessary filings with Governmental Authorities, and to consummate the
agreements referred to in Section 2.4.
5.3.4 State Regulatory Filings. Seller and Buyer agree to promptly
file after execution of this Agreement any required applications and to take
such reasonable actions as may be necessary or helpful (including, but not
limited to, making available witnesses, information, documents, and data
requested by the State Regulatory Authorities) to apply for and receive approval
by the State Regulatory Authorities for the transfer of the Transferred Assets
and Authorities to Buyer. To the maximum extent practicable, all communications
with the State Regulatory Authorities shall be made jointly by Buyer and Seller.
In connection with making such required applications to the State Regulatory
Authorities, Buyer agrees to cooperate with Seller in appropriate public
relations activities, including participation in "town hall" meetings with
citizens, contacts with civic and business leaders, legislators and government
officials, and other activities designed to establish Buyer's presence in and
commitment to the communities in which the Exchanges are located. In the event
any state legislature proposes to enact legislation after the date of this
Agreement which would have an adverse impact on the consummation of the
Transactions or would impose a material liability on either Seller or Buyer in
connection with the transfer of the Transferred Assets, Seller and Buyer agree
to use commercially reasonable efforts to oppose such legislation at their own
expense.
5.3.5 FCC Filings. The parties agree to promptly file after
execution of this Agreement such applications and to take such reasonable
actions as may be necessary or helpful to apply for and receive approval by the
FCC for the transfer of the Transferred Assets and the Authorities to Buyer and
the change in the provider of telecommunications services in the Exchanges to
Buyer. Buyer shall file an application for study area waivers and the
reinitialization of the PCI with respect to at least one of the transactions
contemplated by the Multi-State Exchange Purchase
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Agreements with the FCC within 120 days of the date hereof. Further, Buyer shall
use its best efforts to obtain the FCC's approval of (i) study area waivers for
the Exchanges and (ii) the Reinitialization.
5.3.6 H-S-R Filing. The parties agree to make all required filings
under the H-S-R Act no later that 90 days prior to the anticipated date of
Closing and to request early termination of all applicable waiting periods
thereunder, and thereafter to promptly respond to all requests for additional
information from the Federal Trade Commission or the United States Department of
Justice thereunder.
5.3.7 Environmental Inspections. Within 30 days following the
execution of this Agreement, Seller and Buyer shall select Environmental
Strategies Corporation (or another qualified environmental consultant reasonably
satisfactory to Buyer and Seller) to conduct a Transaction Screen with respect
to each parcel of Fee Realty included in the Transferred Assets (except for any
parcel designated by Buyer not to receive a Transaction Screen), which review
shall be conducted in accordance with ASTM standards and shall be completed
within 90 days following the execution of this Agreement. Upon completion of
such Transaction Screen, such consultant shall deliver to Buyer and Seller a
written report with respect thereto. Each party shall notify the other party in
writing (the "Remediation Notice") within 10 days of learning of any potential
material liabilities under any Environmental Laws with respect to a parcel of
Fee Realty included in the Transferred Assets, but in no event later than the
10th day following receipt of the related Transaction Screen. Thereafter, Buyer
shall determine whether to conduct additional environmental due diligence,
including a Phase I Environmental Report, which shall be completed within 60
days of delivery of the Remediation Notice. If the estimated costs of
remediation of such potential liabilities on such parcel (the "Remediation
Costs") will exceed $400,000, Seller shall either effect such remediation or may
instead elect to exclude either such parcel of Fee Realty or the Exchange to
which such parcel of Fee Realty relates from the Transferred Assets, and Buyer
and Seller shall in good faith reduce the Purchase Price accordingly. If,
pursuant to the preceding sentence, Seller elects to exclude the parcel of Fee
Realty, then, at Buyer's request, Seller shall grant to Buyer a long-term lease
at an annual rental rate of $1.00 and otherwise in form and substance reasonably
satisfactory to Buyer, for the use of such parcel (and Seller shall have no
obligation to effect any remediation with respect to such parcel); provided that
if Buyer is required to pay a higher rental rate for such leased parcel pursuant
to or in connection with the granting of any Governmental Approval, the Purchase
Price shall be decreased by the net present value of the aggregate lease
payments, discounted at a rate of 8% per annum. If the environmental consultant
conducting Buyer's additional environmental due diligence ("Buyer's Consultant")
estimates that the Remediation Costs will exceed $400,000, Seller may elect to
conduct its own additional environmental due diligence during the 60 day period
following completion of Buyer's additional environmental due diligence, and if
the environmental consultant conducting Seller's additional environmental due
diligence ("Seller's Consultant") estimates that the Remediation Costs will be
less than $400,000, Seller shall not be required to so remediate or exclude such
parcel of Fee Realty or such Exchange unless Buyer elects to pursue an
arbitration conducted as contemplated by Article 8 and the arbitrator estimates
that the Remediation Costs will exceed $400,000.
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The costs of the Transaction Screens required by this Section shall be
borne equally by Buyer and Seller, and the costs of any additional environmental
due diligence (the scope of which shall be reasonably acceptable to Seller)
shall be borne by the party conducting such additional due diligence. Buyer
shall indemnify Seller for any liabilities or losses incurred by Seller as a
result of any additional environmental due diligence conducted by Buyer.
5.3.8. Cost Studies/NECA Matters.
(a) Prior to Closing. Seller agrees that, with respect to all
revenues, settlements, pools, separations studies or similar activities, Seller
shall be responsible for (and shall receive the benefit or suffer the burden of)
any adjustments to contributions, or receipt of funds, by Seller resulting from
any such activities that are related to the operation of the Business or the
ownership or operation of the Transferred Assets prior to the Closing Date.
Specifically, this paragraph shall apply, but shall not be limited to, any
maters related to the National Exchange Carrier Association ("NECA") including
the Universal Service Fund ("USF"), Local Switching Support ("LSS") and
Telecommunications Relay Services funds.
(b) From and After Closing.
(i) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC rules
and regulations. The USF Funds due to Buyer shall be determined by multiplying
the number of Access Lines served by the Exchanges on the Closing Date times a
per-line amount of USF support received by Seller for the study area containing
the Exchanges prior to the Closing Date. The resulting Buyer's annual USF amount
shall be prorated in proportion to the number of months in the year from and
after the Closing Date. Beginning July 1, 1999 or a date thereafter determined
by the FCC, non-rural carriers shall not receive USF pursuant to Part 36 and
Part 54, but will receive support in accordance with guidelines using
forward-looking economic cost. Except as contemplated by clause (i) below, after
the Closing Date, Buyer shall make its own filing in accordance with applicable
FCC rules and regulations. Within a reasonable time after Buyer's written
request and in any event at least 30 days prior to the NECA filing date, Seller
shall furnish to Buyer such necessary information regarding Seller's ownership
of the Transferred Assets during the partial calendar year prior to the Closing
Date and the prior calendar year and such reasonable assistance, at Buyer's
expense, as required in connection with Buyer's preparation of necessary filings
or submissions.
(ii) If Closing occurs within 30 days before the NECA filing
date for the USF to be received in the subsequent calendar year, then Seller
will include the Exchanges in its NECA filing for the subsequent calendar year.
Buyer shall receive, in the subsequent calendar year, a pro rata share of USF
Funds received by Seller, under Seller's methodology of computing USF, pursuant
to applicable FCC rules and regulations; provided that in no event shall such
sharing continue for more than 18 months after the Closing Date. The USF Funds
due to Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date
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times the per-line amount of USF support received by Seller for the study area
containing the Exchanges in the full calendar year subsequent to the Closing
Date.
(iii) Notwithstanding the foregoing, Buyer's right to receive
a pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (the "USAC")
based on end-user retail revenues for the previous year generated by the
Transferred Assets. The resulting Buyer's annual USF obligation for the
Transferred Assets shall be prorated in proportion to the number of months in
the year from and after the Closing Date.
(c) State USF. If Seller is entitled to receive any State USF
Funds as of the Closing Date that include State USF Funds relating to the
Exchanges, then Buyer shall receive a pro rata share of such State USF Funds
received by Seller, under Seller's methodology of computing such State USF
Funds, pursuant to the applicable State USF rules and regulations. The State USF
Funds due Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date time the per-line amount of USF
support received by Seller for the appropriate period. The resulting Buyer's
annual State USF amount shall be prorated in proportion to the number of months
in the year from and after the Closing Date. Such sharing of Seller's State USF
Funds shall discontinue upon commencement of the first period for which Buyer is
permitted to make its own State USF filings, and in no event shall such sharing
continue for more than 18 months after the Closing Date. Seller shall cooperate
with Buyer and provide such reasonable assistance, at Buyer's expense, as may be
required in connection with Buyer's preparation of necessary State USF filings
or submissions.
5.3.9 Owned Real Property Transfers. Within 60 days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies covering Fee Realty. No later than 150 days following the
date hereof, Seller shall deliver a preliminary title binder (on a standard
form) to Buyer issued by a title insurance company reasonably acceptable to
Buyer and a certified current survey (collectively, the "Title Commitment") with
respect to all Fee Realty included in the Transferred Assets. Buyer shall,
within 45 days following receipt of the Title Commitment for a parcel, deliver
to Seller, in writing, any objections to any matters affecting any of the Fee
Realty. In the event that Buyer fails to notify Seller as set forth above, such
objections shall be deemed waived. If the Title Commitment indicates the
existence of an Excessive Encumbrance, Seller shall, at its expense, cause such
Excessive Encumbrance to be removed on or before the Closing Date or, with the
prior written consent of Buyer, cause the title company to insure over each such
Excessive Encumbrance. Seller shall provide the title company with such
instructions, authorizations and affidavits at no cost to Seller as may be
reasonably necessary for the title company to issue title policies, based on the
most recent assessed value, to Buyer, dated as of the Closing Date, for all of
the Fee Realty with so-called non-imputation endorsements. Buyer and Seller
shall share equally the costs of the Title Commitments and the title policies.
By no later than 45 days after the Closing Date, Seller shall deliver to Buyer a
final title insurance policy covering the Fee Realty included in the Title
Commitment.
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5.3.10 IntraLATA Tolls. Buyer and Seller will use their best efforts
to negotiate appropriate agreements and arrangements in order to satisfy the
requirements of Section 7.1.9 at Closing.
ARTICLE 6
TERMINATION
6.1 Termination By Buyer.
6.1.1 If any condition precedent to Buyer's obligation to effect the
Closing set forth in Section 3.1 shall become incapable of satisfaction through
no fault of Buyer and such condition is not waived by Buyer, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement by written
notice to Seller.
6.1.2 If any Governmental Approval contains any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date, but only after Buyer has entered into good faith negotiations with Seller
to amend this Agreement in light of such terms or conditions and no such
amendment could be agreed upon, Buyer shall not be obligated to effect the
Closing and may terminate this Agreement by written notice to Seller; provided,
however, that Buyer shall not be entitled to terminate this Agreement based on
(x) Buyer's failure to obtain increases in intrastate tariff rates above those
then in effect, or (y) Buyer's being deemed a "successor" to Seller for any
regulatory purposes.
6.1.3 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Seller, and such misrepresentation
or breach has not been cured within 30 days of Seller's receipt of Buyer's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Buyer, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Seller.
6.2 Termination By Seller.
6.2.1 If any condition precedent to Seller's obligation to effect
the Closing set forth in Section 3.2 shall become incapable of satisfaction
through no fault of Seller and such condition is not waived by Seller, Seller
shall not be obligated to effect the Closing and may terminate this Agreement by
written notice to Buyer.
6.2.2 If any Governmental Approval contains terms or conditions
unacceptable to Seller, in Seller's reasonable discretion, but only after Seller
has entered into good faith negotiations with Buyer to amend this Agreement in
light of such terms or conditions and no such amendment
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could be agreed upon, Seller shall not be obligated to effect the Closing and
may terminate this Agreement by written notice to Buyer.
6.2.3 If Buyer does not deliver the Letters of Credit within 15
business days of the date hereof or the Letters of Credit, in whole or in part,
have been withdrawn or are no longer irrevocable.
6.2.4 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Buyer, and such misrepresentation
or breach has not been cured within 30 days of Buyer's receipt of Seller's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Seller, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Buyer.
6.2.5 If Buyer does not make the FCC filing described in the second
to last sentence of Section 5.3.5 within 120 days of the date hereof.
6.3 Termination By Buyer or Seller. If (i) a final, non-appealable order
is issued by any Governmental Authority to restrain, enjoin or prohibit the
consummation of the Transactions, (ii) the Closing shall not have occurred on or
before September 30, 2001 through no fault of the terminating party, then either
party may terminate this Agreement by written notice to the other.
6.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 6.1, 6.2 or 6.3, this Agreement shall thereafter
become void, except as set forth in Section 1.4.1 and for the provisions of
Sections 5.3.1 and 5.3.2 and Article 9, and there shall be no further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing herein
shall relieve any party from liability for any breach of this Agreement, and
(ii) the obligations of the parties hereto set forth in Section 11.6 shall not
be affected by a termination of this Agreement.
ARTICLE 7
POST CLOSING MATTERS
7.1 Post Closing. In order to effectuate an orderly transition in the
provision of telecommunications services to customers in the Exchanges, Buyer
and Seller agree to utilize the measures set forth below:
7.1.1 Notice to Customers. Seller shall provide written
notification, which notification shall be reasonably acceptable to Buyer, in its
final bill to each customer affected by this Agreement, that Seller is no longer
the customer's telecommunications provider and advising the
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customer of the name, address and telephone number of Buyer. Seller and Buyer
shall agree upon appropriate service cut-off dates with respect to the
Exchanges.
7.1.2 Customer Deposits. The disposition of customer deposits and
advance payments for future services made to Seller by residential and business
customers in the Exchanges shall be delegated to a transition team. The intent
of the parties to be carried out by the transition team is that, to the extent
practicable and subject to the rules and orders of the State Regulatory
Authorities, Seller shall retain all deposits for delinquent customers and the
remaining deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges shall be transferred to
Buyer. Notwithstanding the foregoing, all deposits and advance payments for
future services held by Seller under land development contracts or other similar
construction arrangements as of the Closing Date shall be credited to Buyer at
Closing.
7.1.3 Customer Records. To the extent not previously provided to
Buyer, Seller shall use commercially reasonable efforts to make available, upon
reasonable request from Buyer, all readily available billing and service records
for goods sold or services provided to customers of the Exchanges prior to
Closing for so long as such records are required to be maintained by applicable
law.
7.1.4 Operator Services and Directory Assistance. Buyer acknowledges
and agrees that, following the Closing, Buyer shall provide all subscriber list
information gathered in its capacity as a provider of local exchange service on
a timely and unbundled basis, under nondiscriminatory and reasonable rates,
terms and conditions, to any person requesting such information for any lawful
purpose in any format, including but not limited to Seller and its Affiliates.
Buyer's listing information will be treated the same as Seller's end user
listings for purposes of additional listings and dissemination of listings to
directory publishers, directory assistance providers, or other third parties.
Seller will incorporate listings information in all existing and future
directory assistance applications developed by Seller. Buyer authorizes Seller
to sell and otherwise make listings available to directory publishers, directory
assistance providers, and other third parties. Listings shall not be provided or
sold in such a manner as to segregate end users by carrier. Seller will not
charge for updating and maintaining the listings database.
7.1.5 Directory Publishing and 911 Emergency Services. Buyer shall
continue to comply with the covenants set forth in Sections 5.1.4 and 5.1.5
following the Closing Date, as appropriate, to the extent necessary to
accomplish the intent of such covenants.
7.1.6 911 Emergency Services. In the event that Seller becomes
obligated after the Closing Date to provide 911 emergency services with respect
to any portion of the Business, Buyer shall provide Seller (at no cost to
Seller) complete access to and use of the 911 Assets related to such 911
emergency services and shall enter into such agreements as Seller reasonably
requests in order to facilitate the provision by Seller of such 911 emergency
services and to provide for compensation to Seller at prevailing rates.
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7.1.7 Tariffs. Buyer agrees that for the six month period following
the Closing Date it will adopt and maintain intrastate tariffs similar in all
material respects to Seller's intrastate tariffs in effect for the Exchanges on
the Closing Date, provided that such tariffs of Seller are substantially similar
to Seller's tariffs in effect on the date of execution of this Agreement, except
that Buyer's tariffs will reflect rate changes by Seller (x) made prior to
Closing as required by an order of a State Regulatory Authority that has been
issued prior to the date of this Agreement or (y) made prior to Closing to the
extent such changes are substantially revenue neutral to the Exchanges.
7.1.8 Access to Books and Records.
(a) After the Closing, Seller will retain all books and records
related to the Excluded Assets for so long as required by applicable law.
(b) Subject to the terms of Section 7.1.3, after the Closing, upon
reasonable notice, the parties will give to the representatives, employees,
counsel and accountants of the other, access during normal business hours, to
books and records relating to the Business and the Transferred Assets, and will
permit such persons to examine and copy such records (including any tax returns
and related information, but not attorney or accountants work product), audits,
legal proceedings, governmental investigations and other business purposes
(including such financial information and any receipts evidencing payment of
taxes as may be reasonably requested by Seller to substantiate any claim for tax
credits or refunds); provided, however, that nothing herein will obligate any
party to take actions that would unreasonably disrupt the normal course of its
business or violate the terms of any contract to which it is a party or to which
it or any of its assets is subject. Seller and Buyer will cooperate with each
other in the conduct of any tax audit or similar proceedings involving or
otherwise relating to the Business (or the income therefrom or assets thereof)
with respect to any tax and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
Section 7.1.8.
7.1.9 IntraLATA Toll. Buyer will (i) assume the retail toll carrier
role and obligations for any end users in the Exchanges that are picked or
defaulted to Seller for IntraLATA toll services or (ii) enter into agreements
with other inter-exchange carriers to assume this role or to resell the toll
services of an inter-exchange carrier to fulfill these obligations. Buyer will
execute intraLATA toll access agreements with Seller establishing the process
for the purchase of toll access from Seller by Buyer at the rates contained in
Seller's access tariffs. Seller agrees that it will need to establish its own
agreements with other telecommunications carriers for the purchase of toll
access that may be routed over joint Seller/Buyer transport or tandem switch
facilities (transit traffic). Buyer will cooperate with Seller and other
carriers to measure and share data required to facilitate billing for such
traffic. Buyer and Seller will establish a process by which Buyer will bill
Seller for terminating IntraLATA toll access based on actual termination of
Seller toll services to the Exchanges. Buyer and Seller will enter into a
billing and collection agreement for the billing and collection of casual toll
at a rate not to exceed $0.12 per message. Buyer and Seller shall establish meet
point percentages for jointly provided toll access and file such meet points as
required with Governmental Authorities.
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7.1.10 Extended Area Service. Buyer and Seller will enter into
extended area service agreements as necessary.
7.1.11 Transiting Toll Facilities. Concurrently with the Closing,
Buyer shall grant to Seller the irrevocable right to use or Buyer shall lease to
Seller, in either case for a term of 99 years, the portion of the transiting
toll facilities, network facilities and associated electronic equipment included
in the Property and relating to the Exchanges listed on Schedule 7.1.11 that is
required by Seller for the conduct of any business conducted by Seller other
than the Business. The consideration for such grant or lease shall be $1.00 and
other consideration including the mutual covenants and agreements set forth in
this Agreement. Within 90 days after the execution of this Agreement, Buyer and
Seller shall apportion and assign the total capacity of such facilities and
equipment for each Exchange listed on Schedule 7.1.11. The parties shall review
such apportionment on an annual basis and make such changes to assignments as
may be required. If any transiting toll facilities, network facilities and
related electronic equipment that are Excluded Assets are located in any
rights-of-way that are used in connection with the operation of the Business,
then concurrently with the Closing, Buyer shall, to the extent possible, assign
to Seller the right to use such right-of-way jointly with Buyer and appropriate
joint use agreements in recordable form and otherwise reasonably acceptable to
the parties shall be entered into at the Closing.
7.1.12 Reinitialization Period. If the Reinitialization has not been
approved at the time of the Closing, Buyer shall use its best efforts to obtain
the Reinitialization.
ARTICLE 8
ARBITRATION
8.1 Arbitrability. All claims, except and only to the extent such claims
are those over which the State Regulatory Authorities have primary jurisdiction,
by either party against the other arising out of or related in any manner to
this Agreement or any of the Transferred Assets or the Transactions shall be
resolved by arbitration as prescribed herein; provided, however, that either
party shall be entitled to seek temporary or permanent injunction against any
actual or threatened breach of Section 5.3.1 by the other party in any court of
competent jurisdiction without the necessity for showing any actual damages. The
Federal Arbitration Act and not state law will govern the arbitrability of all
claims. Failure of either party to assert or pursue a mandatory claim or defense
that must be asserted in litigation to avoid the loss of the right to assert
such claim or defense shall not preclude that party from asserting any such
claim or defense in arbitration proceedings hereunder.
8.2 Rules. A single arbitrator engaged in the practice of law, who is
knowledgeable about the telecommunications industry and telecommunications law,
shall conduct the arbitration under the then-current commercial arbitration
rules of the American Arbitration Association
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("AAA"), unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Denver, Colorado.
8.3 Discovery; Damages; Expenses. Buyer and Seller shall allow and
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall have authority to award only actual damages and shall not have
the authority to award consequential, compensatory, punitive or exemplary
damages or any other form of relief. Each party shall bear its own costs and
attorneys' fees. The arbitrator's decision and award shall be final and binding,
and judgment upon the award rendered by the arbitrator may be entered in any
court having personal jurisdiction. The non-prevailing party to the arbitration
shall pay all of the fees and expenses of the arbitrator and the AAA, provided,
however, that if the arbitrator deems Buyer and Seller to be equally prevailing
or non-prevailing on the matters at issue, then the parties shall each pay
one-half of the fees and expenses of the arbitrator and the AAA.
8.4 Judicial or Administrative Action. If any party files a judicial or
administrative action asserting claims properly subject to arbitration as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification by Seller. From and after Closing, Seller
shall indemnify and hold harmless Buyer from and against any and all claims,
losses, liabilities, damages, penalties, costs and expenses, including
reasonable counsel fees and costs and expenses ("Losses") arising out of or
resulting from:
(a) any representations and warranties made by Seller in the
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed upon or prior to the Closing;
(c) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed after the Closing; and
(d) all liabilities and obligations arising out of or relating to
the operation of the Exchanges prior to the Closing, including without
limitation the Retained Liabilities.
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Section 9.2 Indemnification by Buyer. From and after Closing, Buyer shall
indemnify and hold harmless Seller from and against any and all Losses arising
out of or resulting from:
(a) any representations and warranties made by Buyer in this
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Buyer in the performance of its
covenants, agreements or obligations under this Agreement;
(c) all liabilities and obligations arising out of or relating to
the operation of the Exchanges after the Closing, including without limitation
the Assumed Liabilities;
(d) without limitation of the foregoing, violation of Environmental
Laws, to the extent such liability is an Assumed Liability or arises out of or
relates to the operation of the Exchanges after the Closing; and
(e) liability of Seller arising after Closing with respect to
Buyer's failure to enter into or perform interconnection agreements in or
directly related to the Exchanges.
Section 9.3 Indemnified Third Party Claim.
(a) If any person (including State Regulatory Authorities) not a
party to this Agreement ("Person") shall make any demand or claim or file or
threaten to file or continue any action, suit or proceeding of any kind ("Third
Party Claim") with respect to which Buyer or Seller is entitled to
indemnification pursuant to Sections 9.1 or 9.2, respectively, then within ten
days after notice (the "Notice") by the party entitled to such indemnification
(the "Indemnitee") to the other (the "Indemnitor") of such litigation, the
Indemnitor shall have the option, at its sole cost and expense, to retain
counsel for the Indemnitee (which counsel shall be reasonably satisfactory to
the Indemnitee) to defend any such litigation. Thereafter, the Indemnitee shall
be permitted to participate in such defense at its own expense, provided that,
if the named parties to any such litigation (including any impleaded parties)
include both the Indemnitor and the Indemnitee or, if the Indemnitor proposes
that the same counsel represent both the Indemnitee and the Indemnitor and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interest between them, then the Indemnitee shall
have the right to retain its own counsel at the cost and expense of the
Indemnitor, unless the Indemnitor shall acknowledge in writing its indemnity
obligation, in which event the retention by Indemnitee of its own counsel shall
be at its cost and expense. If the Indemnitor shall fail to respond within ten
days after receipt of the Notice, the Indemnitee may retain counsel and conduct
the defense of such litigation as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnitor.
(b) The Indemnitee shall provide reasonable assistance to the
Indemnitor and provide such access to its books, records and personnel as the
Indemnitor reasonably requests in connection with the investigation or defense
of the indemnified Losses. The Indemnitor shall
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promptly upon receipt of reasonable supporting documentation reimburse the
Indemnitee for out-of-pocket costs and expenses incurred by the later in
providing the requested assistance.
(c) With regard to litigation with any Person for which Buyer or
Seller is entitled to indemnification under Sections 9.1 or 9.2, such
indemnification shall be paid by the Indemnitor upon: (i) the entry of any
judgment, writ, order, injunction, award or decree of any court, the FCC or any
State Regulatory Authorities ("Judgment") against the Indemnitee and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
Judgment or final appellate Judgment against the Indemnitee; or (iii) a
settlement with the consent of the Indemnitor, which consent shall not be
unreasonably withheld, provided that no such consent need be obtained if the
Indemnitor fails to respond to the Notice as provided in Section 9.3(a).
Section 9.4 Determination of Indemnification Amounts and Related Matters.
(a) Neither Buyer nor Seller will be entitled to make a claim
against the other under Section 9.1(a) or (b) or 9.2(a) or (b) until (i) the
aggregate amount of Losses incurred by the Indemnitee for any individual
occurrence (or related series of occurrences) exceeds $50,000 and (ii) in the
case of Losses under Section 9.1(a) (except for Losses due to a breach of the
representations of Seller contained in Section 4.2.15) or 9.1(b) the aggregate
amount of claims that may be asserted for such Losses, together with all other
claims for Losses asserted under Section 9.1(a) or 9.1(b) under each of the
Multi-State Exchange Purchase Agreements, exceed an amount equal to 1% of the
aggregate of the Purchase Prices (as defined in each Multi-State Exchange
Purchase Agreement) for the transactions contemplated by the Multi-State
Exchange Purchase Agreements, to the extent actually paid to Seller, but only to
the extent such amount exceeds such aggregate of the Purchase Prices.
(b) Notwithstanding any other provision of this Agreement, (i)
Seller shall not be required to make any payments pursuant to Section 9.1(a),
(b) or (c) to the extent that the Maximum Adjustment Amount shall have been
reached, and (ii) Buyer shall not be required to make any payments pursuant to
Article 9 in excess of an amount equal to 3% of the Purchase Price.
(c) Subject to Section 9.3, all amounts payable by the Indemnitor to
the Indemnitee in respect of any Losses under Sections 9.1 and 9.2 shall be
payable by the Indemnitor as incurred by the Indemnitee and will include
interest at the rate of 8% per annum from the date that the related Losses were
incurred through but not including the date the payment is made.
Section 9.5 Time and Manner of Certain Claims. Except as otherwise
provided herein, the representations and warranties of Buyer and Seller, and the
covenants to be performed by them on or prior to the Closing Date, in this
Agreement shall survive Closing for a period of one year, except that the
representations of Seller contained in Section 4.2.15 shall survive Closing for
a period of 15 months and the representations and warranties contained in the
first sentence of Section 4.2.3 shall survive Closing indefinitely (the
"Survival Period"). Neither Seller nor Buyer shall have any liability under
Sections 9.1 or 9.2, respectively, unless a claim for Losses for which
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indemnification is sought thereunder is asserted by the party seeking
indemnification by written notice to the party from whom indemnification is
sought within the Survival Period.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Defined Terms. For purposes of this Agreement, certain terms used in
this Agreement and not otherwise defined herein shall have the meanings
designated below:
"Access Line" means a telephone line operating on the public switched
telephone network that runs from a central office to a customer's premises.
"Accounts Receivable" means all end user accounts receivable with respect
to goods sold and/or services provided by Seller on or prior to the Closing
Date.
"Affiliate" of a specified entity means any legal entity directly or
indirectly controlling, controlled by, or under the common control with the
specified entity. The term "control" (including "controlling", "controlled by"
and "under common control with") of an entity means the possession, directly or
indirectly, of the power to (i) vote 50% of more of the voting securities or
other voting interests of such person, or (ii) direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting shares, by contract or otherwise.
"Aggregate Adjustment Amount" means the aggregate amount that Seller has
paid or spent, or committed to pay or spend, pursuant to (i) purchase price
decreases pursuant to section 1.4.3(b) of each of the Multi-State Exchange
Purchase Agreements, (ii) payments or purchases pursuant to section 5.2.11(a) of
each of the Multi-State Exchange Purchase Agreements, and (iii) payments with
respect to indemnification claims under Section 9.1(a), (b) or (c) of each of
the Multi-State Exchange Purchase Agreements.
"Agreement" means this Agreement for Purchase and Sale of Telephone
Exchanges, together with all Schedules and Exhibits thereto, as any of the
foregoing may be amended, modified or supplemented in writing from time to time.
"Authorities" means (i) the construction permits, licenses or
authorizations granted by the FCC to Seller and used to develop and operate the
Systems; and (ii) the licenses or certificates of convenience and necessity
granted by the State Regulatory Authorities to operate the Systems.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
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"Confidential Information" means any and all technical, business or
financial information, in whatever form or medium, furnished or disclosed by or
on behalf of one party to the other or its representatives, irrespective of the
form of communication, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data and personnel statistics, and shall also include notes,
analyses, compilations, studies, interpretations or other documents prepared by
it or its representatives that contain, reflect or are based upon, in whole or
in part, other Confidential Information. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all security interests, liens, charges or
similar restrictions, except for (i) liens for taxes not yet due and payable or
that are being contested in good faith, (ii) liens of workers, carriers or
materialmen or similar liens arising by operation of law in the ordinary course
of the Business in respect of obligations that are not yet due and payable or
that are being contested in good faith, (iii) governmental conditions and
restrictions under the Authorities, (iv) with respect to Realty, recorded
easements, restrictions, reservations, rights-of-way, covenants, conditions and
similar encumbrances of record and matters that would be shown by an accurate
survey or inspection of such property, and other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
such Realty to which such defect or irregularity in title relates, and (v) with
respect to the Transferred Assets other than Realty, other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
the Transferred Assets to which such defect or irregularity in title relates.
"Environmental Laws" means all federal, state and local laws, statutes,
rules, regulations and ordinances (including common law), and all court or
administrative decisions, orders, policies or guidelines, now or hereafter in
effect relating to the environment, public health (including fire or building
safety), occupational safety, industrial hygiene, or the generation, disposal,
manufacture, release, storage, transportation or presence of Hazardous
Materials, including without limitation the National Environmental Policy Act
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act of 1975, the Toxic Substances Control Act, the
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean
Water Act, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act, and the regulations promulgated under any such acts or any permits
issued thereunder.
"Excessive Encumbrance" has the meaning set forth in Section 3.1.11.
"Excluded Assets" means (a) all cash, cash-equivalents, Accounts
Receivable and carrier access bills to interexchange carriers for minutes,
messages and other applicable charges through the
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Closing Date; (b) any insurance policy, bond, letter of credit or other similar
item, and any cash surrender value in regard thereto; (c) all books and records
that Seller is required by law to retain or that relate primarily to internal
corporate matters; (d) all claims, rights and interests in and to any refunds of
Federal, state or local franchise, income or other taxes or fees of any nature
whatsoever for periods prior to the Closing Date; (e) any pension, profit
sharing or employee benefit plans; (f) any assets, interests or property of
Seller used in the operation of any business conducted by Seller other than the
Business, those including shared data processing, billing and collections
systems and related software; (g) the name U S WEST and all similar names and
related marks and logos used or owned by Seller or its Affiliates and any other
names, marks and logos not specifically identified as being included in the
Transferred Assets; (h) all portable office equipment, test equipment and
generators other than included in the Transferred Assets; (i) all motor vehicles
used in the operation of any business conducted by Seller other than the
Business and associated motor vehicle general stock; (j) all materials, supplies
and tools other than those included in the Transferred Assets; (k) all FCC
licenses for air-to-ground, cellular or paging services held by Seller or any
Affiliate of Seller other than those FCC radio licenses necessary to operate the
Business; (l) all maintenance radio equipment and antennas other than those
included in the Transferred Assets; (m) all assets relating to Yellow Pages or
classified directory advertising activities of Seller or any Affiliate of
Seller, (n) all transiting toll facilities, network facilities and associated
electronic equipment used in their entirety by Seller solely in the operations
of any business conducted by Seller other than the Business and containing no
capacity for use in the conduct of the Business and related rights-of-way; and
(o) all rights of Seller or any Affiliate of Seller under the Transaction
Agreements.
"Final Order" means action by any governmental or regulatory authority as
to which (i) no request for stay by any Governmental Authority, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action has been
granted by a governmental or regulatory authority; (iii) the governmental or
regulatory authority does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal by a
third party to a court, or a request to stay by a court, of any material
provision of the Governmental Authority's action, as applicable, is pending or
in effect and, if any deadline for filing any such appeal or request is
designated by statute or rule, it has passed.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities
and the grant of any study area waiver request submitted by Buyer related
thereto, but excluding the Reinitialization.
"Fee Realty" means all real property owned by Seller in fee simple and
located inside the boundaries of the Exchanges, including without limitation
tower sites or antenna sites.
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"Governmental Authority" means any United States, state, or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, bureau, agency, court or instrumentality thereof.
"Hazardous Material" means (a) all chemicals, materials and substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words or similar import under any Environmental Law, and (b) any
other chemicals, materials or substances, including without limitation any
polychlorinated biphenyl, petroleum or any chemical fraction thereof, asbestos,
formaldehyde, flammables, explosives, and PCBs which could presently or at any
time in the future cause a detriment to or impair the value or beneficial use of
any of the Transferred Assets, or constitute or cause a health, safety or
environmental hazard to the any of the Transferred Assets or to any person or
require remediation at the behest of any state or local governmental agency
under any Environmental Law.
"Interests" means all rights, privileges, benefits and interests under all
contracts, agreements, consents, licenses, permits or certificates (except those
included as Authorities and Realty), including agreements, permits, leases and
arrangements with respect to intangible or personal property or interests
therein; equipment leases; agreements with suppliers, customers and subscribers;
business licenses; prepaid expenses; and any sales agent or sales affiliate
agreements, in each case, used or owned primarily in connection with the
Business.
"Maximum Adjustment Amount" means an Aggregate Adjustment Amount equal to
the product of (i) the aggregate number of access lines in the telephone
exchanges purchased pursuant to the Multi-State Exchange Purchase Agreements on
the closing date of each purchase thereunder multiplied by (ii) $50.00, it being
understood and agreed by the parties that (x) the Maximum Adjustment Amount
shall be preliminarily calculated at the Closing assuming that any Multi-State
Exchange Purchase Agreement that has not closed or been terminated on or before
the Closing Date shall, for purposes of such preliminary calculation, be deemed
to have closed on the Closing Date, and (y) on the date of closing or
termination of the last of Multi-State Exchange Purchase Agreement to have been
closed or terminated, the Maximum Adjustment Amount shall be finally calculated
and any resulting payments required to be made by Seller or refunds required to
be made by Buyer shall be taken into account in determining the amount of funds
to be paid by Seller at such Closing or to be paid by Seller or refunded by
Buyer upon such termination, as the case may be.
"Multi-State Exchange Purchase Agreements" means the Agreements for
Purchase and Sale, including this Agreement, entered into between Buyer, or any
Affiliate of Buyer, and Seller with respect to the purchase of Seller's rights
to provide and operate wireline telecommunications and related non-tariffed or
non-regulated wireline services and related assets in the following states:
Arizona, Colorado, Nebraska, North Dakota, Minnesota, Iowa, Idaho, Montana and
Wyoming.
"911 Assets" means all circuits, facilities and customer information used
by Seller in providing 911 emergency services in connection with the operation
of the Business.
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"Operating Contracts" means all contracts, agreements and instruments (and
all amendments and modifications thereto) entered into by Seller in the ordinary
course of the Business prior to the date hereof, including without limitation
all real property leases, documentation related to the Interests and
interconnection agreements to the extent that Buyer is required to perform such
obligations by applicable law or as a condition to obtaining any Governmental
Approvals, and all such contracts, agreements and instruments entered into by
Seller in the ordinary course of the Business between the date of this Agreement
and the Closing Date.
"Property" means all of Seller's physical facilities and other tangible
assets used primarily in the Business that are in Seller's plant in service
accounts in accordance with Part 32 of the FCC Uniform System of Accounts,
including all transiting toll facilities, network facilities and associated
electronic equipment located within the boundaries of an Exchange and not
included as Excluded Assets, which facilities and equipment shall be subject to
the arrangements set forth in Section 7.1.11.
"Reinitialization" means the implementation of the interstate access rates
pursuant to the reinitialization of the Price Cap Index ("PCI") applicable to
the approved new study area to reflect the underlying cost structure associated
with the Exchanges.
"Realty" means the Fee Realty together with all rights, privileges and
appurtenances owned by Seller inside the boundaries of the Exchanges that are a
burden upon, a benefit of, or otherwise related to the Fee Realty, including
without limitation all structures, buildings, easements, servitudes, licenses,
leasehold improvements, building improvements, fixtures, rights-of-way and other
similar interests owned by Seller and used in the Business.
"Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all open end-user customer account records, all service records kept in
the ordinary course of the Business which identify and describe the customers
being served by Seller in the Exchanges, the service that is being provided to
such customers, and those records which identify and describe the physical
property (including but not limited to cables, wires and central office
equipment) included in the Transferred Assets.
"Seller's Knowledge" means the actual knowledge of Paul Lit after due
inquiry and any senior manager specifically charged with operational
responsibility for the Exchanges concerning information about which Seller is
making a representation in this Agreement.
"State Regulatory Approvals" means the issuance of the required consents
or approvals of the State Regulatory Authorities with respect to the assignment
of the Authorities to Buyer and the designation of Buyer as an eligible
telecommunications carrier for the Exchange.
"State Regulatory Authorities" means the public utility commissions or
similar state governmental authorities in the states in which the Exchanges are
located and, where applicable, municipal authorities that have granted operating
authorities with respect to the Exchanges.
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"Systems" means, as the context requires, Seller's service delivery
components in the Exchanges, including without limitation all equipment,
facilities, assets, properties, licenses, permits, certificates of public
convenience and necessity and other rights and authorities and related technical
knowledge and information, used in the conduct of the Business within the
particular Exchange.
"Transactions" means the purchase and sale of the Transferred Assets as
contemplated by the Agreement and all other transactions contemplated by the
Transaction Documents.
"Transaction Documents" means this Agreement and each document to be
executed in connection with the Closing of the Transactions. When used with
respect to Seller or Buyer, "Transaction Documents" means this Agreement and
such documents as are required to be executed by such party with respect to the
Closing of the Transactions.
"Transferred Assets" means all of Seller's right, title and interest in
and to the Authorities, the Interests, the 911 Assets, the Property, the Realty,
the Records and all goodwill associated with the Business as existing on the
Closing Date, but excluding the Excluded Assets.
ARTICLE 11
GENERAL
11.1 Notices. All notices hereunder will be in writing and served by
certified mail, return receipt requested, courier or facsimile. Notice shall be
deemed to have been duly given on (i) the earlier of the date received or the
fifth business day following the date mailed by the notifying party using first
class mail, postage prepaid or (ii) if delivered by courier service or
facsimile, upon actual receipt as evidenced by the appropriate confirmation
sheet. Notices shall be sent as follows:
If to Seller: U S WEST Communications, Inc.
1801 California Street, Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic
Transactions Group
Facsimile: (303) 308-0835
with a copy (which shall not constitute notice) to:
Brownstein Hyatt & Farber, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch
Facsimile: (303) 223-1111
50
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If to Buyer: Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: Donald P. Weinstein
Facsimile: (203) 614-4625
with a copy (which shall not constitute notice) to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: L. Russell Mitten, II., Esq.
Facsimile: (203) 614-4651
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Sixth Floor
Washington, DC 20036
Attention: Jeffry L. Hardin
Facsimile: (202) 387-3467
11.2 Waivers. No failure of a party to enforce a provision of this
Agreement will be construed as a general or a specific waiver of that provision,
or of a party's right to enforce that provision, or of a party's right to
enforce any other provision of this Agreement. No waiver of any breach of any
covenant or other provision herein contained shall be deemed to be a waiver of
any preceding or succeeding breach, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act shall
be deemed to be an extension of the time for performance of any other obligation
or act.
11.3 Commissions. Each party represents and warrants that no broker or
other person is entitled to any commission or finder's fee in connection with
the consummation of the Transactions based on arrangements made by such party
for which the other party could have any liability.
11.4 Payment of Expenses. Except as otherwise provided herein, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in consummating and carrying
out the Transactions, whether or not the Transactions are consummated.
Notwithstanding the foregoing, all transfer fees payable in connection with the
assignment of permits or rights-of-way shall be borne by Buyer.
51
<PAGE>
11.5 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and, when each of the parties hereto has
executed and delivered a counterpart to the other party, this Agreement shall be
binding and effective even though no single counterpart has been executed by
both of the parties.
11.7 Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.8 Assignment. The rights and obligations of the parties to this
Agreement or any interest in this Agreement shall not be assigned, transferred,
hypothecated, pledged or otherwise disposed of without the prior written consent
of the nonassigning party, which consent may be withheld in such party's sole
discretion; provided, however, that (i) Buyer may, without the prior consent of
Seller but without relieving Buyer of its obligations hereunder, assign its
rights under this Agreement to any Affiliate or lender, and (ii) Seller may
assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the Transactions as a 1031
Transaction.
11.9 Additional Instruments and Assistance. Each party hereto shall from
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its counsel
may reasonably request in order to complete and perfect the Transactions.
11.10 Seller's Control Over Authorized Facilities. No provision of this
Agreement shall be construed to abrogate Seller's control of and responsibility
for the operation of the authorized facilities of the Business prior to the
actual transfer of control of those facilities hereunder to the Buyer as
approved by the FCC and the State Regulatory Authorities.
11.11 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado.
11.12 Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable when applied to any person or
circumstance, the remaining provisions of this Agreement and the enforcement of
such provision to other persons or circumstances shall not be affected thereby,
and each provision of this Agreement shall be enforced to the fullest extent
allowed by law.
52
<PAGE>
11.13 Amendments. This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by its
agent duly authorized in writing or as otherwise expressly permitted herein.
11.14 No Construction Against the Drafting Party. Each party hereto
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.15 Integration. This Agreement, including all schedules and exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, warranties or representations between the parties with respect
to such subject matter except as set forth or noted herein. Except as provided
in Section 5.1.4 hereof, this Agreement is not made for the benefit of any
person, firm, corporation or association other than the parties hereto. Except
as provided in Section 5.1.5 hereof, the parties do not intend to confer any
benefit hereunder on any person, firm or corporation other than the parties
hereto.
* * * * *
53
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IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
CITIZENS UTILITIES COMPANY
By:
--------------------------------
Leonard Tow
Chairman and Chief Executive Officer
SELLER:
U S WEST COMMUNICATIONS, INC.
By:
---------------------------------
Solomon D. Trujillo
President and Chief Executive Officer
Arizona
EXECUTION COPY
ASSET PURCHASE AGREEMENT
among
CITIZENS UTILITIES COMPANY
AND
CERTAIN OF ITS AFFILIATES
AND
AMERICAN WATER WORKS COMPANY, INC. AND
ARIZONA-AMERICAN WATER COMPANY
Dated as of
October 15, 1999
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TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS ................................................... 1
1.1 Certain Definitions ........................................... 1
ARTICLE 2 THE TRANSACTION ............................................... 10
2.1 Sale and Purchase of Assets ................................... 10
2.2 Excluded Assets ............................................... 10
2.3 Assumption of Certain Liabilities ............................. 11
2.4 Consent of Third Parties ...................................... 14
2.5 Closing ....................................................... 14
2.6 Purchase Price ................................................ 15
2.6.1 Purchase Price .......................................... 15
2.6.2 Payment of Initial Cash Payment ......................... 15
2.6.3 Estimated Closing Statement ............................. 15
2.6.4 Post-Closing Adjustment to Purchase Price ............... 16
2.6.5 Adjustment for Certain Liabilities ...................... 17
2.7 Deliveries and Proceedings at Closing ......................... 18
2.7.1 Deliveries to Buyer ..................................... 18
2.7.2 Deliveries By Buyer to the Seller Parties ............... 19
2.8 Allocation of Consideration ................................... 19
2.9 Prorations .................................................... 19
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER ..................... 20
3.1 Qualification; No Interest in Other Entities .................. 20
3.2 Authorization and Enforceability .............................. 20
3.3 No Violation of Laws or Agreements ............................ 21
3.4 Financial Statements .......................................... 21
3.5 No Changes .................................................... 22
3.6 Contracts ..................................................... 22
3.7 Permits and Compliance With Laws Generally .................... 23
3.8 Environmental Matters ......................................... 23
3.9 Consents ...................................................... 26
3.10 Title ......................................................... 26
3.11 Real Estate ................................................... 26
3.12 Taxes ......................................................... 27
3.13 Patents and Intellectual Property Rights ...................... 27
3.14 Accounts Receivable ........................................... 27
3.15 Labor Relations ............................................... 27
3.16 Employee Benefit Plans ........................................ 28
3.17 Absence of Undisclosed Liabilities ............................ 29
3.18 No Pending Litigation or Proceedings .......................... 30
3.19 Supply of Utilities ........................................... 30
3.20 Insurance ..................................................... 30
3.21 Relationship with Customers ................................... 30
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3.22 WARN Act ...................................................... 30
3.23 Condition of Assets ........................................... 31
3.24 Brokerage ..................................................... 31
3.25 All Assets .................................................... 31
3.26 Year 2000 Matters ............................................. 31
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER ............ 32
4.1 Organization and Good Standing ................................ 32
4.2 Authorization and Enforceability .............................. 32
4.3 No Violation of Laws or Agreements ............................ 32
4.4 Consents ...................................................... 33
4.5 Financing ..................................................... 33
4.6 Brokerage ..................................................... 33
4.7 Insurance ..................................................... 33
ARTICLE 5 ADDITIONAL COVENANTS .......................................... 34
5.1 Conduct of Business ........................................... 34
5.2 Negotiations .................................................. 35
5.3 Disclosure Schedules .......................................... 35
5.4 Mutual Covenants .............................................. 36
5.5 Filings and Authorizations .................................... 36
5.6 Public Announcement ........................................... 37
5.7 Further Assurances ............................................ 37
5.8 Cooperation ................................................... 38
5.9 Employees; Employee Benefits .................................. 39
5.10 Employee Pension Plan ......................................... 41
5.11 Employee Savings Plan ......................................... 41
5.12 Welfare Benefits .............................................. 42
5.13 Taxes ......................................................... 43
5.14 Intentionally Omitted ......................................... 43
5.15 Citizens' Guarantees and Surety Instruments ................... 44
5.16 Assumption of Seller Debt ..................................... 44
5.17 Schedule of Permits ........................................... 47
5.18 Title Information ............................................. 47
5.19 Transaction with Related Parties .......................... 47
5.20 Approval by Citizens .......................................... 47
5.21 Supplemental Information ...................................... 47
5.22 Non-Competition ............................................... 48
5.23 Intentionally Omitted ......................................... 48
5.24 IDRB Obligations .............................................. 48
5.25 Cooperation with Respect to Like-Kind Exchange ................ 49
5.26 Transition Plan ............................................... 49
5.27 Procedures regarding Refunds of Advances ...................... 50
5.28 Title Insurance ............................................... 50
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ARTICLE 6 CONDITIONS PRECEDENT; TERMINATION ............................. 50
6.1 Conditions Precedent to Obligations of Buyer and Parent ....... 50
6.1.1 Performance of Agreements; Representations and Warranties 50
6.1.2 Opinion of Counsel ...................................... 51
6.1.3 HSR Act ................................................. 51
6.1.4 Required PUC and Other Consents ......................... 51
6.1.5 Injunction; Litigation .................................. 52
6.1.6 Documents ............................................... 52
6.1.7 Related Closings ........................................ 52
6.2 Conditions Precedent to Obligations of Seller Parties ......... 52
6.2.1 Performance of Agreements; Representations and Warranties 52
6.2.2 Opinion of Counsel ...................................... 53
6.2.3 HSR Act ................................................. 53
6.2.4 Required PUC and Other Consents ......................... 53
6.2.5 Injunction; Litigation .................................. 53
6.2.6 Documents ............................................... 53
6.2.7 Related Closings ........................................ 54
6.3 Termination ................................................... 54
ARTICLE 7 CERTAIN ADDITIONAL COVENANTS .................................. 54
7.1 Certain Taxes and Expenses .................................... 54
7.2 Maintenance of Books and Records .............................. 55
7.3 Survival ...................................................... 55
7.4 Indemnification ............................................... 58
7.4.1 General Indemnification Obligations ..................... 58
7.4.2 General Indemnification Procedures ...................... 59
7.4.3 Indemnification for Negligence .......................... 62
7.5 UCC Matters ................................................... 62
7.6 Financial Statements .......................................... 62
7.7 Collection of Receivables ..................................... 63
ARTICLE 8 MISCELLANEOUS ................................................. 63
8.1 Construction .................................................. 63
8.2 Notices ....................................................... 63
8.3 Successors and Assigns ........................................ 65
8.4 Exhibits and Schedules ........................................ 65
8.5 Governing Law ................................................. 65
8.6 Dispute Resolution ............................................ 66
8.7 Severability .................................................. 67
8.8 No Third Party Beneficiaries .................................. 67
8.9 Entire Agreement .............................................. 67
8.10 Amendment and Waiver .......................................... 67
8.11 Counterparts .................................................. 68
8.12 Headings ...................................................... 68
8.13 Definitions ................................................... 68
8.14 No Implied Representation ..................................... 68
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8.15 Construction of Certain Provisions ............................ 68
8.16 Bulk Sales .................................................... 69
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List of Schedules
Schedule 1.1.1(a) ..................................................Real Estate
Schedule 1.1.10 ...........................................Assumed Indebtedness
Schedule 1.1.52 .................................................IDRB Documents
Schedule 2.2.12 ................................................Excluded Assets
Schedule 3.3 ................................No Violation of Laws or Agreements
Schedule 3.4 ..............................................Financial Statements
Schedule 3.5 ........................................................No Changes
Schedule 3.6 .........................................................Contracts
Schedule 3.7 ........................Permits and Compliance with Laws Generally
Schedule 3.8 .................................Environmental Matters - Generally
Schedule 3.8.10 ................................Compliance with Water Standards
Schedule 3.8.11 ...............................................Deed Restriction
Schedule 3.9 ..........................................Seller Parties' Consents
Schedule 3.10 ............................................................Title
Schedule 3.11 ..........................................Real Estate Proceedings
Schedule 3.12 ............................................................Taxes
Schedule 3.15 ..................................................Labor Relations
Schedule 3.16.1 .........................................Employee Benefit Plans
Schedule 3.16.4 ............................Employee Benefit Plans - Compliance
Schedule 3.16.9 ................Employee Benefit Plans - Extraordinary Benefits
Schedule 3.17 ...............................Absence of Undisclosed Liabilities
Schedule 3.18 .............................No Pending Litigation or Proceedings
Schedule 3.19 ..............................................Supply of Utilities
Schedule 3.20 ...............................................Seller's Insurance
Schedule 3.22 .........................................................WARN Act
Schedule 3.23 ..............................................Condition of Assets
Schedule 3.25 .......................................................All Assets
Schedule 3.27 ................................................Product Liability
Schedule 4.7 .................................................Buyer's Insurance
Schedule 5.1 ...............................................Conduct of Business
Schedule 5.9.1 .......................................................Employees
Schedule 5.9.2 ................................Collective Bargaining Agreements
Schedule 5.12 .................................................Former Employees
Schedule 5.15 .............................................Citizens' Guarantees
Schedule 5.16 ..............................................Schedule of Permits
Schedule 6.1.7 .....................................Related Purchase Agreements
<PAGE>
Arizona
TABLE OF EXHIBITS
Exhibit A - Form of Assumption Agreement
Exhibit B - Form of Assignment and Bill of Sale
Exhibit C - Form of Maricopa IDA Agreement
Exhibit D - Form of Retained IDRB Obligations Agreement
Exhibit E - Form of Seller's Opinion of Counsel
Exhibit F - Form of Buyer's Opinion of Counsel
<PAGE>
Arizona
ASSET PURCHASE AGREEMENT
THIS IS AN ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of October
15, 1999, by and among Citizens Utilities Company, a Delaware corporation
("Citizens"), and each of the wholly-owned subsidiaries of Citizens named on the
signature page hereof (collectively with Citizens, "Seller" or the "Seller
Parties"), and American Water Works Company, Inc., a Delaware corporation
("Parent"), and Arizona-American Water Company, an Arizona corporation
("Buyer").
Background
1. Citizens, directly and indirectly through the other Seller Parties, is
a public utility engaged, among other things, in the business of storing,
supplying, distributing and selling water to the public, wholesale water
transmission, wastewater treatment, and related services and activities in the
State of Arizona (the "Business").
2. Parent is a holding company which desires to cause the Buyer to
purchase substantially all of the assets, properties and rights of the Seller
Parties relating to the Business, and Seller desires to sell, and to cause the
sale of, such assets, properties and rights, on the terms and subject to the
conditions set forth in this Agreement.
Terms
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the respective meanings ascribed to them in this Section:
1.1.1 "Acquired Assets" means, subject to Section 2.2, all of
each Seller Party's right, title, and interest in, under and to all of the
assets, properties and rights exclusively used in the Business (including those
owned or held directly by Citizens and exclusively used in the Business as
engaged in by Citizens through the Agua Fria Water and Mohave Water divisions of
Citizens) as a going concern of every kind, nature and description existing on
the Closing Date, wherever such assets, properties and rights are located and
whether such assets, properties and rights are real, personal or mixed, tangible
or intangible, and whether or not any of such assets, properties and rights have
any value for accounting purposes or are carried or reflected on or specifically
referred to in Seller's books or financial statements, including all of the
assets, properties and rights exclusively relating to the Business enumerated
below:
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Arizona
(a) all real property described in Schedule 1.1.1(a),
together with all fixtures, fittings, buildings, structures and other
improvements erected thereon, and easements, rights of way, water lines, rights
of use, licenses, railroad crossing agreements, hereditaments, tenements,
privileges and other appurtenances thereto or otherwise exclusively related to
the Business (such as appurtenant rights in and to public streets) (the "Real
Estate");
(b) to the extent not included in clause (a) above, all
water tanks, reservoirs, water works, plant and systems, purification and
filtration systems, pumping stations, pumps, wells, mains, water pipes,
hydrants, equipment, machinery, vehicles, tools, dies, spare parts, materials,
water supplies, fixtures and improvements, construction in progress, jigs,
molds, patterns, gauges and production fixtures and other tangible personal
property, in transit or otherwise, used exclusively in the Business (the
"Equipment and Other Tangible Personal Property");
(c) notwithstanding the provisions of Section 2.2 but
subject to Section 2.4, all of Seller's water appropriation and flowage rights
to the extent not transferred to Buyer upon assignment of the Contracts and
Permits to Buyer;
(d) all notes receivable, accounts receivable, accrued
utility revenues, materials and supplies (at average cost net of reserve for
obsolescence) and prepayments attributable in each case exclusively to the
Business;
(e) all unamortized debt expense related to the Assumed
Indebtedness, deferred CAP water costs and capital costs, and other deferred
charges (excluding deferred taxes collectable) attributable exclusively to the
Business of which recovery in future rates is probable;
(f) Intellectual Property and goodwill, licenses and
sublicenses granted and obtained with respect thereto;
(g) subject to Section 2.4 hereof, (i) contracts,
commitments, agreements and instruments relating to the sale of any assets,
services, properties, materials or products, including all customer contracts,
operating contracts and distribution contracts relating exclusively to the
conduct of the Business; (ii) orders, contracts, supply agreements and other
agreements relating exclusively to the purchase of any assets, services,
properties, materials, or products for the Business; (iii) all leases of Real
Estate exclusively related to the Business; (iv) all other contracts, agreements
and instruments related exclusively to the Business (other than contracts,
agreements and instruments included in the definition of Real Estate or
Permits); and (v) any such contracts, agreements and other instruments referred
to in clauses (i) - (iv) inclusive, entered into between the date hereof and the
Closing Date which are consistent with the terms of this Agreement and are
entered into in the ordinary course of business consistent with past practice,
and including in the case of clauses (i) - (iv) all such contracts, agreements
and instruments more specifically listed or described in Schedule 3.6 (but
specifically excluding any contract, agreement and instrument listed or
described on Schedule 2.2.12) (the "Contracts");
2
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Arizona
(h) subject to Section 2.4 hereof, franchises,
approvals, permits, authorizations, licenses, orders, registrations,
certificates, variances, and other similar permits or rights obtained from any
Authority relating exclusively to the conduct of the Business and all pending
applications therefor (the "Permits");
(i) books, records, ledgers, files, documents (including
originally executed copies of written Contracts, to the extent available, and
copies to the extent not available), correspondence, Tax returns relating
exclusively to the Business, memoranda, forms, lists, plats, architectural
plans, drawings, and specifications, new product development materials, creative
materials, advertising and promotional materials, studies, reports, sales and
purchase correspondence, books of account and records relating to the
Transferred Employees (to the extent such transfer is not prohibited by law),
photographs, records of plant operations and materials used, quality control
records and procedures, equipment maintenance records, manuals and warranty
information, research and development files, data and laboratory books,
inspection processes, in each case, whether in hard copy or magnetic format, in
each instance, to the extent exclusively relating to the Business, the Acquired
Assets or the Transferred Employees;
(j) all rights or choses in action arising out of
occurrences before or after the Closing Date and exclusively related to any of
the Acquired Assets, including third party warranties and guarantees and all
related claims, credits, rights of recovery and set-off and other similar
contractual rights, as to third parties held by or in favor of Seller; provided,
however, that (notwithstanding the foregoing provisions of this Section
1.1.1(j)), to the extent that Seller pays or discharges a liability related to
the Business or any of the Acquired Assets and related to such right or chose in
action (whether by reason of indemnification under this Agreement or otherwise),
Buyer will reassign or reconvey to Seller such right or chose in action to the
extent that such right or chose in action relates to a recovery of amounts paid
to Buyer; and
(k) all rights to insurance and condemnation proceeds
(i) to the extent relating to the damage, destruction, taking or other
impairment of the Acquired Assets which damage, destruction, taking or other
impairment occurs on or prior to the Closing but only to the extent that the
proceeds exceed the amount of the write-down of the net book value of such
Acquired Assets on the books and records of Seller as a result of such damage,
destruction, taking or other impairment, (ii) to the extent they relate to
amounts paid by Buyer for Damages to the extent Buyer does not receive payment
pursuant to Section 7.4.1(a), but only to the extent Buyer is entitled to
indemnification by Seller pursuant to Sections 7.3 and 7.4, and (iii) as
provided in Section 4 of the agreement attached as Exhibit D hereto.
1.1.2. "Adjusted Net Assets" has the meaning set forth in
Section 2.6.4(a) hereof.
1.1.3. "Affected Participant" has the meaning set forth as
Section 5.11.1 hereof.
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Arizona
1.1.4. "Affiliate" of any Person means any Person, directly or
indirectly controlling, controlled by or under common control with such Person.
1.1.5. "Agreement" has the meaning set forth in the
introduction hereof.
1.1.6. "American Pension Plan" has the meaning set forth in
Section 5.10.1 hereof.
1.1.7. "American Savings Plan" has the meaning set forth in
Section 5.11.1 hereof.
1.1.8 "Antitrust Division" has the meaning set forth in
Section 5.5 hereof
1.1.9 "Assumed Benefit Liabilities" has the meaning set forth
in Section 3.16.6 hereof.
1.1.10 "Assumed Indebtedness" means the liabilities and
obligations from and after the Closing Date (except as set forth below) with
respect to the IDRB Financings and IDRB Documents set forth on Schedule 1.1.10.
For purposes of clarity, except as set forth in the next sentence below,
"Assumed Indebtedness" shall not include any liability or obligation to the
extent accrued prior to the Closing Date or to the extent arising out of or
relating to an event, circumstance or occurrence prior to the Closing Date.
"Assumed Indebtedness" shall include the outstanding principal amount and the
accrued but unpaid interest owed by Seller on the debt obligations set forth in
the first sentence of this definition.
1.1.11 "Assumed Liabilities" has the meaning set forth in
Section 2.3 hereof.
1.1.12 "Assumption Agreement" has the meaning set forth in
Section 2.3.2 hereof.
1.1.13 "Authority" means any federal, state, local or foreign
governmental or regulatory entity (or any department, agency, authority or
political subdivision thereof).
1.1.14 "Base Cash Purchase Price" has the meaning set forth in
Section 2.6.1 hereof.
1.1.15 "Beneficiary" means the Person(s) designated by an
Employee, by operation of law or otherwise, as entitled to compensation,
benefits, insurance coverage, payments or any other goods or services under a
Benefit Plan.
1.1.16 "Benefit Plans" has the meaning set forth in Section
3.16.1 hereof.
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1.1.17 "Bonds" means any of the bonds issued pursuant to the
Indentures of Trust, the proceeds from the issuance of which were advanced to
Seller pursuant to any of the IDRB Documents.
1.1.18 "Business" has the meaning set forth in the Background
section hereof.
1.1.19 Business Day" means any day other than a Saturday,
Sunday, or a day on which banking institutions in the Commonwealth of
Pennsylvania are authorized or obligated by law or executive order to close.
1.1.20 "Buyer" has the meaning set forth in the introduction
hereof.
1.1.21 "Buyer's IDRB Obligations" means the obligations of
Parent and Buyer set forth in Section 5.24 (a) and in the instruments to be
executed and delivered by Parent and Buyer on or prior to the Closing Date in
accordance with Section 5.24 (a).
1.1.22 "Buyer's Accountants" means PricewaterhouseCoopers LLP
or any firm of independent public accountants hereafter designated by Buyer for
purposes of this Agreement.
1.1.23 Intentionally omitted
1.1.24 "Ceiling" has the meaning set forth in Section 7.4.2(e)
hereof.
1.1.25 "CERCLA" has the meaning set forth in Section 3.8.2
hereof.
1.1.26 "CERCLIS" has the meaning set forth in Section 3.8.7
hereof.
1.1.27 "Citizens" has the meaning set forth in the
introduction hereof.
1.1.28 "Closing" has the meaning set forth in Section 2.5
hereof.
1.1.29 "Closing Date" has the meaning set forth in Section 2.5
hereof.
1.1.30 "Closing Statement of Net Assets" has the meaning set
forth in Section 2.6.4(a) hereof.
1.1.31 "Code" means the Internal Revenue Code of 1986, as
amended.
1.1.32 Intentionally Omitted.
1.1.33 "Competing Transaction" has the meaning set forth in
Section 5.2.
1.1.34 "Contracts" has the meaning set forth in Section
1.1.1(g) hereof.
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1.1.35 "Control" with respect to any Person means the
ownership, directly or indirectly, of at least a majority of the voting power of
each class of capital stock of such Person entitled to vote in the election of
directors of such Person generally.
1.1.36 "Damages" has the meaning set forth in Section 7.4.1
hereof.
1.1.37 "Disclosure Schedules" means the Schedules referenced
in Articles 3, 4 and 5 of this Agreement, as amended or supplemented pursuant to
Section 5.3.
1.1.38 "Dispute" has the meaning set forth in Section 8.6.
1.1.39 "Employees" has the meaning set forth in Section 5.9.1
hereof.
1.1.40 "Environmental Laws" has the meaning set forth in
Section 3.8 hereof.
1.1.41 "Equipment and Other Tangible Personal Property" has
the meaning set forth in Section 1.1.1(b) hereof.
1.1.42 "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
1.1.43 "ERISA Affiliate" means (a) any corporation included
with any of the Seller Parties in a controlled group of corporations within the
meaning of Section 414(b) of the Code; (b) any trade or business (whether or not
incorporated) which is under common control with any of the Seller Parties
within the meaning of Section 414 of the Code; any member of an affiliated
service group of which any of the Seller Parties is a member within the meaning
of Section 414(m) of the Code; or (d) any other person or entity treated as an
affiliate of any of the Seller Parties under Section 414(o) of the Code.
1.1.44 "Excluded Assets" has the meaning set forth in Section
2.2 hereof.
1.1.45 "Financial Statements" has the meaning set forth in
Section 3.4 hereof.
1.1.46 "FIRPTA Affidavit" has the meaning set forth in Section
2.7.1 hereof.
1.1.47 "Former Employees" means all salaried and hourly
employees once employed by Seller or any of its Affiliates, but who are no
longer so employed on the Closing Date.
1.1.48 "FTC" has the meaning set forth in Section 5.5 hereof.
1.1.49 "GAAP" has the meaning set forth in Section 3.4 hereof.
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1.1.50 "Hazardous Substance" has the meaning set forth in
Section 3.8 hereof.
1.1.51 "HSR Act" has the meaning set forth in Section 3.9
hereof.
1.1.52 "IDRB Documents" shall mean the Loan Agreements, the
Tax Regulatory Agreements, the Project Tax Certificates, and the other Contracts
related thereto to which Citizens is a party and which are listed on Schedule
1.1.52.
1.1.53 "IDRB Financings" shall mean the indebtedness arising
under the Loan Agreements included among the IDRB Documents.
1.1.54 "Indemnified Party" has the meaning set forth in
Section 7.4.2(a) hereof.
1.1.55 "Indemnifying Party" has the meaning set forth in
Section 7.4.2(a) hereof.
1.1.56 "Intellectual Property" means the trademarks, patents,
trade names and copyrights and applications therefor, inventions, trade secrets,
and confidential business information (including know-how, formulas, water
filtration, purification and pumping processes and techniques, technical data,
designs, drawings, customer and supplier lists, and business and marketing plans
and proposals), all computer software (including data and related documentation
and object and source codes), whether in magnetic format or hard copy, and
tangible embodiments thereof (in whatever form or medium) of Seller, in each
case, utilized exclusively in the Business.
1.1.57 "Interim Statement of Net Assets" means the Citizens
Water Resources Statement of Net Assets - Arizona, June 30, 1999, which is
attached hereto as Schedule 3.4.
1.1.58 "Interim Statement of Net Assets Date" means June 30,
1999.
1.1.59 "IRS" has the meaning set forth in Section 3.16.2
hereof.
1.1.60 "Lien" means any lien, charge, claim, pledge, security
interest, conditional sale agreement or other title retention agreement, lease,
mortgage, security agreement, right of first refusal, option, restriction,
tenancy, license, right of way, easement or other encumbrance (including the
filing of, or agreement to give, any financing statement under the Uniform
Commercial Code or statute or law of any jurisdiction).
1.1.61 "Material Adverse Effect" means a change or effect (or
series of related changes or effects) which has or is reasonably likely to have
a material adverse change in or effect upon the business, assets, condition
(financial or otherwise), or results of operations of the Business or the
Acquired Assets, taken as a whole and taken together with the businesses and
assets
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being acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements. For purpose of this Agreement, an occurrence or condition shall not
constitute a Material Adverse Effect (a) if it arises from general business,
economic or financial market conditions, from conditions generally effecting the
industries in which Seller competes, or from the transactions contemplated by
this Agreement, or (b) solely with respect to matters arising prior to Closing,
to the extent that either (i) Seller realizes the benefit of insurance
maintained by Citizens on or prior to the Closing Date and Buyer receives the
cash proceeds of such insurance to the extent required by Section 1.1.1(k), or
(ii) Seller arranges for Buyer to recover payments in respect of such occurrence
or condition from any other source (whether in a lump sum or stream of
payments), it being understood and agreed that a Material Adverse Effect may
have occurred irrespective of such insurance recovery if the occurrence or
condition giving rise to such recovery also causes a non-monetary material
adverse change in or effect upon the Business or the Acquired Assets, taken as a
whole and taken together with the businesses and assets being acquired by Buyer
or Affiliates of Buyer pursuant to the Related Purchase Agreements.
1.1.62 "Mortgage Indenture" means Indenture of Mortgage and
Deed of Trust between BNY Western Trust Company (successor in interest to Wells
Fargo Bank, N.A.) and First Interstate Bank of California (as successor trustee
to Marine Midland, N.A., formerly the Marine Midland Trust Company of New York).
1.1.63 "OSHA" has the meaning set forth in Section 3.7.1
hereof.
1.1.64 "PCBs" has the meaning set forth in Section 3.8.6
hereof.
1.1.65 "Permits" has the meaning set forth in Section 1.1.1(h)
hereof.
1.1.66 "Permitted Exceptions" has the meaning set forth in
Section 3.10 hereof; provided, however, that from and after the Closing,
Permitted Exceptions shall not include any Lien arising under or resulting from
the Mortgage Indenture.
1.1.67 "Person" means an individual, a corporation, a
partnership, an association, an Authority, a trustor other entity or
organization.
1.1.68 "Pre-Existing Conditions" has the meaning set forth in
Section 2.3.1(d).
1.1.69 "Prime Rate" means the rate per annum announced from
time to time during the reference period by Citibank N.A. as its United States
prime, reference or base rate for commercial loans.
1.1.70 "PUC" has the meaning set forth in Section 5.5 hereof.
1.1.71 "Purchase Price" has the meaning set forth in Section
2.6.1 hereof.
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1.1.72 "Real Estate" has the meaning set forth in Section
1.1.1(a) hereof.
1.1.73 "Recovery" has the meaning set forth in Section
7.4.2(l) hereof.
1.1.74 "Related Purchase Agreements" as the meaning set forth
in Section 6.1.7 hereof.
1.1.75 "Release" or "Released" has the meaning set forth in
Section 3.8 hereof.
1.1.76 "Remedial Action" has the meaning set forth in Section
3.8 hereof.
1.1.77 "Retained IDRB Indebtedness" means the indebtedness of
the Seller owing to the issuers of the Bonds and arising under the Loan
Agreements included among the IDRB Documents but only to the extent not included
in the Assumed Indebtedness.
1.1.78 "Retained Liabilities" has the meaning set forth in
Section 2.3 hereof.
1.1.79 "Review Period" has the meaning set forth in Section
2.6.4(b) hereof.
1.1.80 "SEC" means the U.S. Securities and Exchange
Commission.
1.1.81 "Securities Filings" has the meaning set forth in
Section 5.8.2 hereof.
1.1.82 "Seller" and "Seller Parties" have the respective
meaning set forth in the introduction hereof.
1.1.83 "Seller's Accountants" means KPMG LLP or any other firm
of independent public accountants hereafter designated by Seller for purposes of
this Agreement.
1.1.84 "Seller's Adjusted Amount" has the meaning set forth in
Section 2.6.4(a) hereof.
1.1.85 "Seller's Pension Plan" has the meaning set forth in
Section 5.10.1 hereof.
1.1.86 "Seller's 401(k) Plan" has the meaning set forth in
Section 5.11.1 hereof.
1.1.87 "Specified Liabilities" has the meaning set forth in
Section 7.4.2(f) hereof.
1.1.88 "Taxes" means any federal, state, local and foreign
income, payroll, withholding, excise, sales, use, personal property, use and
occupancy, business and occupation, mercantile, real estate, gross receipts,
license, employment, severance, stamp, premium, windfall
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profits, social security (or similar unemployment), disability, transfer,
registration, value added, alternative, or add-on minimum, estimated, or capital
stock and franchise and other tax of any kind whatsoever, including any
interest, penalty or addition thereto, whether disputed or not.
1.1.89 "Third Accounting Firm" has the meaning set forth in
Section 2.6.4(b) hereof.
1.1.90 "Threshold Amount" has the meaning set forth in Section
7.4.2(e) hereof.
1.1.91 "Third Party Claim" has the meaning set forth in
Section 7.4(b)(i) hereof.
1.1.92 "Transferred Accounts" has the meaning set forth in
Section 5.11.2 hereof.
1.1.93 "Transaction Documents" has the meaning set forth in
Section 3.2 hereof.
1.1.94 "Transferred Employees" has the meaning set forth in
Section 5.9.2 hereof.
1.1.95 "Union Employees" has the meaning set forth in Section
5.9.1 hereof.
1.1.96 "VEBAs" has the meaning set forth in Section 5.12
hereof.
1.1.97 "WARN Act" means the Worker Adjustment and Retraining
Notification Act, as codified at 29 U.S.C. section 2102- 2109, as amended.
ARTICLE 2
THE TRANSACTION
2.1 Sale and Purchase of Assets. Subject to the terms and conditions
of this Agreement, at the Closing referred to in Section 2.5 below, Citizens
shall, and shall cause the other Seller Parties to, sell, assign, transfer,
deliver and convey to Buyer, and Parent shall cause Buyer to purchase, the
Acquired Assets for the Purchase Price specified in Section 2.6.
2.2 Excluded Assets. The following assets of Seller shall be
excluded from the Acquired Assets (the "Excluded Assets"):
2.2.1. assets of the Seller used in both the Business and in
Citizens' gas, electric or communications businesses, the material items of
which are described on Schedule 2.2.12;
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2.2.2. cash and cash equivalents in transit, in hand or in
bank accounts.
2.2.3. except as otherwise set forth herein, assets
attributable or related to any Benefit Plan;
2.2.4. the stock record and minute books of Seller;
2.2.5.Acquired Assets disposed of by Seller after the date of
this Agreement to the extent such dispositions are not prohibited by this
Agreement;
2.2.6. except to the extent set forth in Sections 2.9, rights
to refunds of Taxes payable with respect to the Business, assets, properties or
operations of any of the Seller Parties or any member of any affiliated group of
which any of them is a member, and which are treated as Retained Liabilities
under Section 2.3.3(b) below.
2.2.7. customer and other deposits held in Seller's accounts;
2.2.8. accounts owing by and among Seller and its Affiliates;
2.2.9. notes receivable and other receivables (other than note
and accounts receivable attributable exclusively to the Business);
2.2.10. all deferred tax assets or collectibles;
2.2.11. duplicate copies of all books and records transferred
to Buyer; and
2.2.12. those certain items listed on Schedule 2.2.12.
2.3 Assumption of Certain Liabilities.
2.3.1.Buyer shall not assume any liabilities of Citizens or
Seller or any of their Affiliates, except that Buyer shall assume the following
specific liabilities and obligations:
(a) the obligations and liabilities set forth in
Sections 5.9, 5.10, 5.11 and 5.12 hereof;
(b) except as set forth in Section 2.3.3(b), all
liabilities and obligations of Seller in respect of the Contracts and Permits
assigned or transferred to Buyer pursuant to this Agreement in accordance with
the respective terms thereof, except that Buyer shall not assume any liabilities
or obligations for any breach or default by, or payment obligations of, Seller
under such Contracts and Permits occurring or arising or accruing on or prior to
the Closing Date;
(c) the Assumed Indebtedness and the Buyer's IDRB
Obligations;
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(d) any liability, obligation or responsibility of
Seller for conditions at the Real Estate, whether based on statutory or common
law, now or hereafter in effect, known or unknown, contingent or actual,
relating to or arising from pollution, contamination or protection of the
environment, human health or safety or natural resources or relating to or
arising from the presence or Release or threat of Release of Hazardous
Substances into the environment at the Real Estate or into or from any building,
structure, pipeline or other facility at the Real Estate, or from violation of
any law relating to the foregoing, including without limitation, any CERCLA or
similar liability under any federal or state law or regulation, except to the
extent Buyer has given written notice of a claim for indemnification pursuant to
Sections 7.3 and 7.4 hereof prior to the expiration of the claims period set
forth in Section 7.3.2(a) or (b) (and if Buyer has given written notice prior to
the expiration of such claims period, to the extent that such claim is not
entitled to indemnification under Sections 7.3 and 7.4) (the foregoing, the
"Pre-Existing Conditions");
(e) all liabilities and obligations of Seller related to
unperformed service obligations, easement and right-of-way relocation
obligations, and construction work in progress, and all engineering and
construction required to complete scheduled construction and other capital
projects for the Business, in each case relating to the Business and outstanding
on or arising after the Closing Date except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment obligations
of, Seller under such Contracts and Permits occurring or arising or accruing on
or prior to the Closing Date;
(f) liability for accrued but unused vacation pay for
the Transferred Employees to the extent provided in Section 5.9.2;
(g) any liability, obligation or responsibility relating
to customer deposits held by Seller on the Closing Date and relating to the
Business; and
(h) all liabilities and obligations imposed on Buyer by
any PUC in connection with the operation of the Business or the ownership of the
Acquired Assets, including with respect to any liability of the types that
appear as "Accrued Liabilities" and "Non-Current Liabilities" on the financial
statements of Seller.
2.3.2.Any liabilities or obligations which are assumed by
Buyer pursuant to Section 2.3.1 above are hereinafter referred to as the
"Assumed Liabilities. " At the Closing, Parent shall cause Buyer to execute and
deliver to Seller an assumption agreement, in substantially the form of the
Assumption Agreement attached hereto as Exhibit A (the "Assumption Agreement"),
pursuant to which Buyer shall assume the Assumed Liabilities. Each of Parent and
Buyer hereby irrevocably and unconditionally waives and releases the Seller
Parties from all Assumed Liabilities and all liabilities or obligations
exclusively relating to the Business or the Acquired Assets to the extent
arising from events or occurrences after the Closing or to the extent otherwise
relating to the period after the Closing, including any liabilities created or
which arise by statute or common law, including CERCLA (it being understood that
this shall not constitute a waiver and release of any
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claims arising out of the contractual relationships and indemnification
arrangements between Buyer and Seller).
2.3.3. Buyer shall not assume any liabilities, commitments or
obligations (contingent or absolute and whether or not determinable as of the
Closing) of any of the Seller Parties or any of their Affiliates except for the
Assumed Liabilities as specifically and expressly provided for above, whether
such liabilities or obligations relate to payment, performance or otherwise, and
all liabilities, commitments or obligations not expressly transferred to Buyer
hereunder as Assumed Liabilities are being retained by the Seller Parties, (the
"Retained Liabilities"). Each of the Seller Parties hereby irrevocably and
unconditionally waives and releases Buyer from all Retained Liabilities
including any liabilities created or which arise by statute or common law,
including CERCLA (it being understood that this shall not constitute a waiver
and release of any claims arising out of the contractual relationships and
indemnification arrangements between Buyer and Seller).
Without limitation to the foregoing, all of the following shall be
considered Retained Liabilities and not Assumed Liabilities (except as specified
below) for the purposes of this Agreement:
(a) any product liability, toxic tort or similar claim
for injury to person or property, regardless of when made or asserted, to the
extent that it arises out of or is based upon any express or implied
representation, warranty, agreement or guarantee made by any of the Seller
Parties or any of their Affiliates prior to Closing, or alleged to have been
made by any of such Persons, or to the extent that it is imposed or asserted to
be imposed by operation of law, in connection with any service performed or
product distributed or sold by or on behalf of any of the Seller Parties or any
of their Affiliates prior to Closing, including any claim referred to above in
this Section 2.3.3(a) relating to water quality standards, any claim relating to
any product delivered in connection with the performance of services provided by
Seller and any claim seeking recovery for consequential damages, lost revenue or
income;
(b) all refund obligations relating to the advances
existing on the Closing Date for construction of facilities relating to the
Business;
(c) except to the extent set forth in Section 2.9, any
federal, state, foreign or local income or other Tax payable with respect to the
business, assets, properties or operations of any of the Seller Parties or any
member of any affiliated group of which any of them is a member.
(d) any liability or obligation associated with or in
connection with any common plant assets of Seller (other than the liabilities
and obligations exclusively related to any common plant assets included among
the Acquired Assets);
(e) except as provided in Section 2.3.1 above, any
liability or obligation with respect to compensation or employee benefits of any
nature owed to any employees, agents or independent contractors of any of the
Seller Parties or any of their Affiliates, whether or
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not employed by Buyer after the Closing, that arises out of or relates to events
or conditions to the extent occurring before the Closing Date;
(f) except to the extent set forth in Section 2.3.1(d),
any liability, obligation or responsibility of any of the Seller Parties, or any
of their Affiliates or predecessors, whether based on statutory or common law,
but only as any such law is interpreted, amended and in effect on the Closing
Date, known or unknown, contingent or actual, relating to or arising from
pollution, contamination or protection of the environment, human health or
safety or natural resources or relating to or arising from the presence or
Release or threat of Release of Hazardous Substances into the environment or
into or from any building, structure, pipeline or other facility or relating to
or arising from the generation, use, storage, treatment, disposal, transport or
other handling of Hazardous Substances or sale or product containing Hazardous
Substances from violation of any law relating to the foregoing (but only as such
law is interpreted, amended and in effect on the Closing Date) including without
limitation, any (A) CERCLA or similar liability under any federal or state law
or regulation as interpreted, amended and in effect on the Closing Date or (B)
any such liability associated with businesses or assets of the Seller Parties
other than the Business or the Acquired Assets;
(g) liabilities and obligations relating to the Business
to the extent arising prior to Closing (unless otherwise constituting Assumed
Liabilities) arising by operation of law under any common law or statutory
doctrine (including successor liability or de facto merger);
(h) any obligation or liability arising under any
contract, commitment, instrument or agreement (1) except for Buyer's IDRB
Obligations and subject to the penultimate sentence of Section 2.4, that is not
transferred to Buyer as part of the Acquired Assets, or (2) that relates to any
breach or default (or to the extent that it relates to an event which would,
with the passing of time or the giving of notice, or both, constitute a default)
under any Contract, instrument or agreement or to any services to be provided by
Seller under any such Contract, instrument or agreement to the extent that such
services were performed or were required to have been performed on or prior to
the Closing Date;
(i) any liability or obligation in respect of the
Excluded Assets;
(j) any liability or obligation of any of the Seller
Parties or any of their Affiliates existing as a result of any act, failure to
act or other state of facts or occurrence which constitutes a breach or
violation of any of Seller's representations, warranties, covenants or
agreements contained in this Agreement, except to the extent set forth in
Section 7.4; or
(k) except for the Assumed Liabilities as specifically
and expressly set forth herein, any liability to the extent arising out of or
relating to the ownership or operation of the Acquired Assets or the Business
prior to the Closing Date (including any predecessor operations), any claims,
obligations or litigation to the extent arising out of or relating to events or
conditions occurring before the Closing Date, and any liability associated with
any business other than the Business.
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2.4 Consent of Third Parties. On the Closing Date, Citizens shall
cause Seller to assign to Buyer, and Parent shall cause Buyer to assume, the
Contracts and the Permits which are to be transferred to Buyer as provided in
this Agreement by means of the Assumption Agreement. To the extent that the
assignment of all or any portion of any Contract or Permit shall require the
consent (or result in a breach or violation thereof) of the other party thereto
or any other third party, and such consent shall not be obtained prior to
Closing, this Agreement shall not constitute an agreement to assign any such
Contract or Permit included in the Acquired Assets. In order, however, to
provide Buyer the full realization and value of every Contract of the character
described in the immediately preceding sentence, Seller agrees that on and after
the Closing, it will, at the request and under the direction of Buyer, in the
name of Seller or otherwise as Buyer shall specify, take all reasonable actions
(including without limitation the appointment of Buyer as attorney-in-fact for
Seller to proceed at Buyer's sole cost and expense) and do or cause to be done
all such things as shall in the reasonable opinion of Buyer be necessary (a) to
assure that the rights of Seller or its Affiliates under such Contracts shall be
preserved for the benefit of Buyer and (b) to facilitate receipt of the
consideration to be received by Seller or its Affiliates in and under every such
Contract. To the extent that Buyer does receive the benefits of any such
Contract pursuant to the preceding sentence, such Contract shall be a Contract
"assigned or transferred to Buyer pursuant to this Agreement" within the meaning
of Section 2.3.1(b) hereof. Nothing in this Section 2.4 shall in any way
diminish the obligations of Seller to obtain consents and approvals under this
Agreement.
2.5 Closing. Subject to the terms and conditions of this Agreement,
the closing of the sale and purchase of the Acquired Assets (the "Closing")
shall take place at 10 a.m., East Coast time, on a date mutually satisfactory to
Buyer and Seller which is no later than the fifth Business Day after
satisfaction (or waiver) of the conditions to Closing set forth in Sections 6.1
and 6.2 hereof (other than those conditions which require the delivery of any
documents or the taking of other action, at the Closing) at the offices of
Fleischman and Walsh, LLP, 1400 Sixteenth Street, N.W., Washington, D.C. 20036,
or on such other date and at such other time or place as may be mutually agreed
upon by the parties hereto (the "Closing Date"). Upon payment of the Initial
Cash Payment by Buyer and confirmed receipt thereof by Seller or the Escrow
Agent pursuant to Section 2.6.2 below, Seller shall operate the Business at the
direction of and under the control of Buyer. Notwithstanding the foregoing, the
Closing shall be deemed to be effective as of 11:59 p.m. on the Closing Date for
all purposes.
2.6 Purchase Price.
2.6.1. Purchase Price. Subject to the terms and conditions of
this Agreement, the aggregate purchase price be paid by Buyer for the purchase
of the Acquired Assets (the "Purchase Price") shall be: (i) $231,310,000 in cash
(the "Base Cash Purchase Price," the Base Cash Purchase Price as adjusted in
accordance with Section 2.6.3 and Section 2.6.5 is referred to as the "Initial
Cash Payment"), subject to adjustment pursuant to the provisions of this
Agreement (including Section 2.6.3, Section 2.6.4, Section 2.6.5 and Section 2.9
of this Agreement) and (ii) the assumption by Buyer of the Assumed Liabilities.
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2.6.2. Payment of Initial Cash Payment. Subject to the terms
and conditions of this Agreement, the Initial Cash Payment shall be paid by
Buyer on the Closing Date by federal other wire transfer of immediately
available funds to the account designated by Seller in writing at least two (2)
Business Days prior to the Closing Date. If the Closing Date is not a business
day on which financial institutions are open and operating, then on or before
the last business day on which financial institutions are open and operating
before the Closing Date, Buyer shall deliver the Initial Cash Payment to Buyer's
lead bank (the "Escrow Agent") in immediately available funds in U.S. dollars.
Upon receipt, the Escrow Agent shall invest the Initial Cash Payment in an
interest-bearing account mutually agreed upon by Seller and Buyer. At Closing,
Parent shall sign and deliver to Citizens a statement which confirms that the
Closing has occurred and which instructs the Escrow Agent to transfer to
Citizens the funds representing the Initial Cash Payment, plus an amount
representing the interest earned after the Closing Date until the date the funds
are transferred, to an account that Citizens shall designate at least two (2)
business days prior to the date the funds are required to be transferred
hereunder. The Escrow Agent shall refund the balance to Buyer. The fees and
expenses of Escrow Agent shall be paid by Buyer.
2.6.3. Estimated Closing Statement. At least five (5) business
days prior to the Closing Date, Citizens shall deliver to Parent and Buyer a
statement of net assets (the "Estimated Statement of Net Assets") reflecting its
good faith calculation of the Acquired Assets of the Business as of the last day
of the latest calendar month for which financial statements of Seller are
available (the "Estimated Adjusted Net Assets"). The Estimated Statement of Net
Assets shall be prepared in the same manner and utilizing the same accounting
principles, policies and methods used in the preparation of the Interim
Statement of Net Assets (excluding for this purpose any change required by GAAP
or any Authority since June 30, 1999). The Base Cash Purchase Price shall be
increased or decreased on a dollar for dollar basis by the amount, if any, by
which the Estimated Adjusted Net Assets is greater than or less than
$160,180,848 (such increase or decrease, as the case may be, is referred to
herein as the "Estimated Net Asset Adjustment").
2.6.4 Post-Closing Adjustment to Purchase Price.
(a) Within 90 days after the Closing, Citizens shall
prepare and deliver to Parent and Buyer a Statement of Net Assets (the "Closing
Statement of Net Assets") which reflects the Acquired Assets as of 11:59 p.m. on
the Closing Date, based on actual financial performance and calculated in the
same manner, utilizing the same accounting principles, policies and methods
utilized in preparing the Interim Statement of Net Assets (excluding for this
purpose any change required by GAAP or any Authority since June 30, 1999),
together with (A) an audit report of Seller's Accountants stating that the
Closing Statement of Net Assets has been prepared utilizing the same accounting
principles, policies and methods used in the preparation of the Interim
Statement of Net Assets and (B) a calculation of Citizens' determination of the
amount of increase or decrease in the amount of the Acquired Assets of the
Business from the Interim Statement of Net Assets Date to the Closing Date which
is derived from the Closing Statement of Net Assets ("Seller's Adjustment
Amount"). The Closing Statement of Net Assets shall not give effect to any
purchase accounting treatment arising from Buyer's purchase of the Acquired
Assets. Buyer shall pay the fees and expenses of Seller's Accountants incurred
in connection with this Section 2.6.4.
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Buyer agrees to cooperate, and agrees to cause Buyer's Accountants to cooperate,
with Citizens and Seller's Accountants in connection with the preparation of the
Closing Statement of Net Assets, and related information, and shall provide to
Citizens and Seller's Accountants such books, records and information as may be
reasonably requested from time to time, including the work papers of Buyer's
Accountants. Citizens will give Buyer and its representatives access during the
normal business hours of Citizens to the personnel, books and records of
Citizens and the work papers of Seller's Accountants to assist Buyer in the
review of the Closing Statement of Net Assets and related matters. Buyer agrees
that, following the Closing through the date on which the Closing Statement of
Net Assets is delivered, it will not take any actions with respect to any
accounting books, records, policies or procedures on which the Closing Statement
of Net Assets is to be based that would make it impossible or impracticable to
calculate the Acquired Assets in the manner and utilizing the methods required
hereby. Without limiting the generality of the foregoing, no changes shall be
made in any reserve or other account existing as of the date of the Interim
Statement of Net Assets except in the ordinary course or as a result of events
occurring after the date of the Interim Statement of Net Assets and, in such
event, only in a manner consistent with past practices of Seller.
(b) Parent or Buyer may dispute any amounts reflected on
the Closing Statement of Net Assets, in the Seller's Adjustment Amount or in the
Statement of Certain Assumed Liabilities, provided, however, that Buyer shall
notify Citizens in writing of each disputed amount, and specify the amount
thereof in dispute and the basis of such dispute, within 30 days of the Buyer's
receipt of the Closing Statement of Net Assets and the Seller's Adjustment
Amount (such 30 day period hereinafter referred to as the "Review Period"). In
the event of a dispute with respect to the Closing Statement of Net Assets, the
Seller's Adjustment Amount or the Statement of Certain Assumed Liabilities,
Buyer and Seller shall attempt to reconcile their differences and any resolution
by them as to any disputed amounts shall be final, binding and conclusive on the
parties. If Buyer and Seller are unable to reach a resolution of such
differences within 30 days of receipt of Buyer's written notice of dispute to
Seller, Buyer and Seller shall submit the amounts remaining in dispute (together
with any amounts remaining in dispute pursuant to Section 2.6.4(b) of each of
the Related Purchase Agreements) for resolution to an independent accountant
firm of national reputation mutually appointed by Seller and Buyer (such
independent accounting firm being herein referred to as the "Third Accounting
Firm"), which shall be requested to determine and report to the parties, within
30 days after such submission, upon such remaining disputed amounts, and such
report shall be final, binding and conclusive on the parties hereto with respect
to the amounts disputed. The fees and disbursements of the Third Accounting Firm
shall be allocated between Buyer and the Seller Parties so that the Seller
Parties' share of such fees and disbursements shall be in the same proportion
that the aggregate amount of such remaining disputed amounts so submitted by
Buyer to the Third Accounting Firm that is unsuccessfully disputed by Buyer (as
finally determined by the Third Accounting Firm) bears to the total amount of
such remaining disputed amounts so submitted by Buyer to the Third Accounting
Firm. Buyer shall pay the fees and expenses of Buyer's Accountants incurred in
connection with this Section 2.6.4(b). Seller's Adjustment Amount, if there are
no disputes with respect thereto, or Seller's Adjustment Amount as adjusted
after the resolution of all disputes with respect thereto in accordance
herewith, shall be referred to as the "Final Net Asset Adjustment."
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(c) If the Base Cash Purchase Price plus (or minus, if
negative) the Final Net Asset Adjustment exceeds the Initial Cash Payment, then
within five (5) business days after final determination thereof Buyer shall pay
Seller the amount of such excess together with interest thereon for the period
commencing on the Closing Date through the date of payment calculated at the
Prime Rate in cash by federal or other wire transfer of immediately available
funds, or certified or bank cashier's check. If the Initial Cash Payment exceeds
the sum of the Base Cash Purchase Price plus (or minus, if negative) the Final
Net Asset Adjustment, then within five (5) business days after final
determination thereof Seller shall pay Buyer the amount of such excess together
with interest thereon for the period commencing on the Closing Date through the
date of payment calculated at the Prime Rate in cash by federal or other wire
transfer of immediately available funds, or certified or bank cashier's check.
2.6.5. Adjustment for Certain Liabilities. Concurrent with the
delivery of the Estimated Statement of Net Assets, Citizens also shall deliver
to Parent and Buyer a statement reflecting (i) the customer and other deposits
held by Seller on the Closing Date and relating to the Business, (ii) the total
amount of the Assumed Indebtedness that will be outstanding immediately after
the Closing Date, (iii) the items specified in Section 2.9 to the extent set
forth therein, and (iv) without duplications of any amount included in clause
(i) above and except as provided in Section 5.15, any payments received by
Seller under the Contracts and Permits for obligations not performed as of the
Closing Date (the "Statement of Certain Assumed Liabilities"). The Statement of
Certain Assumed Liabilities shall reflect Citizens' good faith calculation of
such liabilities as of the Closing Date. The Base Cash Purchase Price shall be
decreased by the net amount set forth in the Statement of Certain Assumed
Liabilities. Concurrent with the delivery of the Closing Statement of Net
Assets, Citizens also shall deliver to Parent a statement showing any
adjustments to the Statement of Certain Assumed Liabilities and the Base Cash
Purchase Price shall be further adjusted to give effect to any such adjustments
to the Statement of Certain Assumed Liabilities.
2.7 Deliveries and Proceedings at Closing. Subject to the terms and
conditions of this Agreement, at the Closing:
2.7.1. Deliveries to Buyer. Citizens shall, and shall cause
Seller to deliver to Buyer:
(a) bills of sale and instruments of assignment to the
Acquired Assets, duly executed by Seller, substantially in the form of Exhibit B
hereto and;
(b) the consents to transfer, of all transferable or
assignable Contracts, Intellectual Property, Permits (including Environmental
Permits), to the extent specifically required hereunder;
(c) title certificates to any motor vehicles included in
the Acquired Assets, duly executed by Seller (together with any other transfer
forms necessary to transfer title to such vehicles);
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(d) special warranty deeds of conveyance with respect to
the parcels of Real Estate owned in fee simple by Seller (or, with respect to
any such parcel which was acquired by Seller (or its predecessor in interest, in
cases involving mergers) by deed without covenant or warranty of title, a quit
claim deed without covenant or warranty of title) to Buyer, duly executed and
acknowledged by Seller and in recordable form;
(e) the Foreign Investment in Real Property Tax Act
Certification and Affidavit for each parcel of Real Estate, duly executed by the
Seller Parties (the "FIRPTA Affidavit");
(f) the certificates, opinions and other documents
required to be delivered by the Seller Parties pursuant to Section 6.1 hereof
and certified resolutions evidencing the authority of the Seller Parties as set
forth in Section 3.2 hereof;
(g) all agreements and other documents required by this
Agreement;
(h) a receipt for the payment of the Initial Cash
Payment duly executed by Citizens;
(i) all such other instruments of conveyance as shall,
in the reasonable opinion of Buyer and its counsel, be necessary to transfer to
Buyer the Acquired Assets in accordance with this Agreement and where necessary
or desirable, in recordable form; and
(j) if requested by Buyer at least sixty (60) days
before Closing, a lease of that portion of Citizens' Bullhead City, Arizona
office building used exclusively by Seller in connection with the Business, on
commercially reasonable terms reasonably acceptable to Buyer and Seller.
2.7.2. Deliveries By Buyer to the Seller Parties. Parent
shall, and shall cause Buyer to deliver to the Seller Parties:
(a) wire transfer of immediately available funds in an
amount equal to the Initial Cash Payment;
(b) the Assumption Agreement, duly executed by Buyer;
(c) the certificates, opinions and other documents
required to be delivered by Buyer pursuant to Section 6.2 hereof;
(d) all of the instruments contemplated by Section
5.24(a) to the extent not previously executed and delivered by Parent; and
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(e) all such other instruments of assumption as shall,
in the reasonable opinion of Seller and its counsel, be necessary for Parent and
Buyer to assume the Assumed Liabilities in accordance with this Agreement.
2.8 Allocation of Consideration. Buyer and Seller shall use their
good faith efforts to agree upon the allocation (the "Allocation") of the
Purchase Price, the Assumed Liabilities and other relevant items (including, for
example, adjustments to the Purchase Price) to the individual assets or classes
of assets within the meaning of Section 1060 of the Code. If Buyer and Seller
agree to such Allocation on or before ninety (90) days after the Closing Date,
Buyer and Seller covenant and agree that (i) the values assigned to the assets
by the parties' mutual agreement shall be conclusive and final for all purposes,
and (ii) neither Buyer nor Seller will take any position before any Authority or
in any proceeding that is in any way inconsistent with such Allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an Allocation
on or before ninety (90) days after the Closing Date, Buyer and Seller covenant
and agree to file and to cause their respective Affiliates to file, all Tax
returns and schedules thereto (including, for example, amended returns, claims
for refund, and those returns and forms required under Section 1060 of the Code
and any Treasury regulations promulgated thereunder) consistent with each of
Buyer and Seller's good faith Allocations, unless otherwise required because of
a change in any legal requirement.
2.9 Prorations. The parties hereto agree that the following expenses
shall be calculated and pro rated as of the Closing Date, with Seller
responsible for such expenses and to receive the benefit for the same for the
period through and including the Closing Date, and Buyer to be responsible for
and to receive the benefit of the same after the Closing Date:
2.9.1. personal and real property taxes (on the basis on which
the same were assessed and paid) and sales, occupation and use taxes, in each
case, to the extent relating to the Business and except as otherwise provided in
Section 7.1;
2.9.2. electric, fuel, gas, telephone, sewer and utility
charges, in each case, to the extent relating to the Business;
2.9.3. rentals and other charges under Contracts to be assumed
by Buyer pursuant to Section 2.3 (except to the extent provided in Section
2.3.3(h)); and
2.9.4. charges under maintenance and service contracts and
other Contracts (except to the extent provided in Section 2.3.3(h)), and fees
under Permits to be transferred to Buyer as part of the Acquired Assets;
2.9.5. water, sewer and other similar types of taxes, and
installments on special benefit assessments; and
2.9.6. payroll expenses, payroll taxes, reimbursable employee
business expenses and the financial cost of the accrued vacation of each
Transferred Employee.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Each of the Seller Parties jointly and severally represent and warrant to
Parent and Buyer as follows:
3.1 Qualification; No Interest in Other Entities.
3.1.1 Each of the Seller Parties is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and has all requisite corporate power and authority to own, lease
and operate the Acquired Assets and the Business as presently being conducted.
Each of the Seller Parties is qualified to do business and is in good standing
as a foreign corporation in all jurisdictions wherein the nature of the business
conducted by it or such Seller Party's ownership or use of assets and properties
make such qualification necessary, except such failures to be qualified or to be
in good standing, if any, which when taken together with all such other failures
of the Seller Parties do not have a Material Adverse Effect.
3.1.2. No shares of any corporation or any ownership or other
investment interest, either of record, beneficially or equitably, in any Person
are included in the Acquired Assets.
3.2 Authorization and Enforceability. Each of the Seller Parties has
full corporate power and authority to execute, deliver and perform this
Agreement and all other agreements and instruments to be executed by them in
connection herewith (such other agreements and instruments being hereinafter
referred to collectively as the "Transaction Documents"). The execution,
delivery and performance by each of the Seller Parties of this Agreement and the
Transaction Documents to which such Seller Party is a party have been duly
authorized by all necessary corporate action on the part of each of them. This
Agreement has been duly executed and delivered by each of the Seller Parties,
and as of the Closing Date the other Transaction Documents will be duly executed
and delivered by the Seller Parties. This Agreement is a legal, valid and
binding obligation of each Seller Party, enforceable against them in accordance
with its terms except as such enforceability may be limited by applicable laws
relating to bankruptcy, insolvency, fraudulent conveyance, reorganization or
affecting creditors' rights generally and except to the extent that injunctive
or other equitable relief is within the discretion of a court. As of the Closing
Date, each of the other Transaction Documents to which each of the Seller
Parties is a party will be duly executed and delivered by each of the Seller
Parties and will constitute the legal, valid and binding obligations of each of
the Seller Parties, enforceable against them in accordance with its respective
terms, except as such enforceability may be limited by applicable laws relating
to bankruptcy, insolvency, fraudulent conveyance, reorganization or affecting
creditors' rights generally and except to the extent that injunctive or other
equitable relief is within the discretion of a court.
3.3 No Violation of Laws or Agreements. The execution, delivery, and
performance of this Agreement and the Transaction Documents by each of the
Seller Parties do not,
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and the consummation of the transactions contemplated by this Agreement and the
Transaction Documents by the Seller Parties, will not: (a) contravene any
provision of the Restated Articles of Incorporation or Bylaws of Citizens or the
Articles of Incorporation or Bylaws of the other Seller Parties; or (b) except
as set forth on Schedule 3.3, violate, conflict with, result in a breach of, or
constitute a default (or an event which would, with the passage of time or the
giving of notice or both, constitute a default) under, or result in or permit
the termination, modification, acceleration, or cancellation of, or result in
the creation or imposition of any Lien of any nature whatsoever upon any of the
Acquired Assets or give to others any interests or rights therein under (i) any
indenture, mortgage, loan or credit agreement, license, instrument, lease,
contract, plan, permit or other agreement or commitment, oral or written, to
which any of the Seller Parties is a party, or by which the Business or any of
the Acquired Assets may be bound or affected, except for such violations,
conflicts, breaches, terminations, modifications, accelerations, cancellations,
Liens, interests or rights which, individually and in the aggregate, do not have
a Material Adverse Effect or will be cured, waived or terminated prior to the
Closing Date, or (ii) any judgment, injunction, writ, award, decree,
restriction, ruling, or order of any court, arbitrator or Authority or any
applicable constitution, law, ordinance, rule or regulation, to which any of the
Seller Parties is subject, other than those violations or conflicts which
individually and in the aggregate would not have a Material Adverse Effect.
3.4 Financial Statements. Citizens has previously delivered to Buyer
the statement of income of the Business (the "Income Statement") and the Interim
Statement of Net Assets contained in Schedule 3.4 (collectively, the "Financial
Statements"). The Income Statement (a) fairly presents in all material respects
the results of operations of the Business in accordance with generally accepted
accounting principles ("GAAP") consistently applied except for the omission of
full footnotes to the Income Statement and (b) has in all material respects been
derived from the books and records of Seller and reflects the separation of the
operation associated with the Business from other operations of Citizens. The
Interim Statement of Net Assets (a) has in all material respects been derived
from the books and records of Seller and reflects the separation of the
operations associated with the Business from other operations of Citizens; (b)
fairly presents in all material respects the Acquired Assets as of the Interim
Statement of Net Assets Date; and (c) has in all material respects been prepared
in accordance with GAAP consistently applied except for the omission of full
footnotes to such Interim Statement of Net Assets. The financial statements
included in the Annual Report to each PUC for the year ended December 31, 1998,
were prepared in all material respects in accordance with the rules and
regulations of such PUC.
3.5 No Changes. Since the Interim Statement of Net Assets Date to
the date hereof, except as disclosed in Schedule 3.5, the Seller Parties have
conducted the Business as presently operated only in the ordinary course of
business consistent with past practice. Since the Interim Statement of Net
Assets Date, except as disclosed in Schedule 3.5, there has not been:
3.5.1 any Material Adverse Effect;
3.5.2 prior to the date of this Agreement, any change in the
salaries or other compensation payable or to become payable to, or any advance
(excluding advances for ordinary business expenses) or loan to, any Transferred
Employee, or material change or material addition
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to, or material modification of, other benefits (including any bonus,
profit-sharing, pension or other plan in which any of the Transferred Employees
participate) to which any of the Transferred Employees may be entitled, or any
payments to any pension, retirement, profit-sharing, bonus or similar plan other
than in any such case (i) in the ordinary course consistent with past practice,
(ii) as required by law, or (iii) as required by any collective bargaining
agreement, if any;
3.5.3 any alteration in any material respect of the customary
practices with respect to the collection of accounts receivable of the Business
or the provision of discounts, rebates or allowances;
3.5.4 any disposition of or failure to keep in effect any
rights in, to or for the use of any Permit of the Business which individually or
in the aggregate would have a Material Adverse Effect;
3.5.5 any damage, destruction or loss affecting the Business
which individually or in the aggregate would have a Material Adverse Effect
whether or not covered by insurance;
3.5.6 prior to the date of this Agreement, any change by
Seller in its method of accounting or keeping its books of account or accounting
practices with respect to the Business except as required by GAAP and is set
forth on Schedule 3.5; or
3.5.7 prior to the date of this Agreement, any sale, transfer
or other disposition of any material assets, properties or rights of the
Business, except in the ordinary course of business consistent with past
practice.
3.6 Contracts. As of the date of this Agreement, Schedule 3.6
contains a list of all Contracts (other than (i) with respect to which the
Business' total annual liability or expense is less than (a) $250,000 per such
Contract and (b) $6,123,000 per all such Contracts (when taken together with
similar contracts omitted from Schedule 3.6 of the Related Purchase Agreements),
and (ii) Contracts that may be terminated by Seller, without penalty, on notice
of 90 days or less) except line extension agreements and similar agreements and
construction and design contracts. Seller has furnished to Buyer a correct and
complete copy of each written agreement listed in Schedule 3.6. Except as
disclosed on Schedule 3.6, with respect to each Contract, neither Seller nor, to
the Seller Parties' knowledge, any other party thereto, is in breach or default,
and to the Seller Parties' knowledge, no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the Contract, except in each case where
such breaches, terminations, modifications, accelerations or defaults,
individually or in the aggregate, do not have a Material Adverse Effect. Except
as set forth in Schedule 3.6, there are no disputes pending or to the best of
the Seller Parties' knowledge, threatened, under or in respect of any of the
Contracts, other than those that individually and in the aggregate do not have a
Material Adverse Effect.
3.7 Permits and Compliance With Laws Generally.
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3.7.1 Except as disclosed on Schedule 3.7, Seller possesses
and is in compliance with all Permits required to operate the Business as
presently operated and to own, lease or otherwise hold the Acquired Assets under
all applicable laws, rules, regulations, ordinances and codes, including
Environmental Laws (as defined below), except to the extent that any failure to
possess, or to comply with, any Permit, laws, rules, regulations or orders would
not, individually or in the aggregate, have a Material Adverse Effect. Except as
disclosed in Schedule 3.7, the Business is conducted by Seller in compliance
with all applicable laws (including the Occupational Safety and Health Act and
the rules and regulations thereunder ("OSHA"), zoning, building and similar laws
and Environmental Laws), rules, regulations, ordinances, codes, judgments and
orders, except for such failures to comply which do not individually or in the
aggregate have a Material Adverse Effect. Except as disclosed on Schedule 3.7,
all Permits of Seller relating to the operation of the Business are in full
force and effect, other than those the failure of which to be in full force and
effect would not individually or in the aggregate have a Material Adverse
Effect. There are no proceedings pending or, to the Seller Parties' knowledge,
threatened that seek the revocation, cancellation, suspension or any adverse
modification of any such Permits presently possessed by Seller other than those
revocations, cancellations, suspensions or modifications which do not
individually or in the aggregate have a Material Adverse Effect.
3.7.2 Except as set forth on Schedule 3.7, no outstanding
notice, citation, summons or order has been issued, no outstanding complaint has
been filed, no outstanding penalty has been assessed and no investigation or
review is pending or, to the knowledge of the Seller Parties, threatened, by any
Authority or other Person with respect to any alleged (i) violation by Seller or
any Affiliate of Seller relating to the Business of any law, ordinance, rule,
regulation, code or order of any Authority; or (ii) failure by Seller or any
Affiliate to have any Permit required in connection with the conduct of the
Business or otherwise applicable to the Business (including the Acquired
Assets), except, in each case, where such violations or failures, individually
or in the aggregate, would not have a Material Adverse Effect.
3.8 Environmental Matters. Except as set forth on Schedule 3.8
hereto, and with such exceptions as are not reasonably likely, individually or
in the aggregate, to have a Material Adverse Effect:
3.8.1 Seller has not disposed of or arranged for the disposal
of or Released any Hazardous Substances, other than in conformity with
Environmental Laws, at any Real Estate, or, in connection with the Business or
Acquired Assets, at any other facility, location, or other site.
3.8.2 Seller has not received any written notice or request
for information with respect to, and to the best of the Seller Parties'
knowledge, Seller has not been designated a potentially liable party for
Remedial Action, in connection with any Real Estate, or, as of the date hereof,
with respect to the Business or Acquired Assets, at any other facility,
location, or other site under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") or comparable state statutes.
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3.8.3 To the best of the Seller Parties' knowledge, except for
such use or storage of Hazardous Substances as is incidental to the conduct of
the Business, which use and storage is or has been in compliance with
Environmental Laws, and which use and storage has not caused any condition that
requires Remedial Action, no Real Estate has been used for the storage,
treatment, generation, processing, production or disposal of any Hazardous
Substances or as a landfill or other waste disposal site in violation of any
Environmental Law.
3.8.4 To the best of the Seller Parties' knowledge,
underground storage tanks are not, and have not in the past been, located on or
under any Real Estate.
3.8.5 There are no pending or unresolved claims against Seller
or the Business for investigatory costs, cleanup, removal, remedial or response
costs, or natural resource damages arising out of any Releases or threat of
Release of any Hazardous Substances at any Real Estate or, as of the date
hereof, with respect to the Business or the Acquired Assets or at any other
facility, location, or other site.
3.8.6 To the best of the Seller Parties' knowledge, no
polychlorinated biphenyls ("PCBs") or asbestos-containing materials are located
at or in any Real Estate in violation of Environmental Laws or which require
Remedial Action.
3.8.7 To the best of the Seller Parties' knowledge, no
Hazardous Substance managed or generated by or on behalf of Seller at the Real
Estate or in connection with the Business or Acquired Assets has come to be
located at any site that is listed or formally proposed for listing under
CERCLA, the Comprehensive Environmental Response, Compensation and Liability
Information System ("CERCLIS"), or any similar state list or that is the subject
of federal, state, or local enforcement actions or investigations.
3.8.8 The Seller Parties know of no facts or circumstances
related to environmental matters (i) in connection with the operation of the
Business or (ii) concerning the Real Estate, that are reasonably likely to
result in any material reduction in the quality or quantity of water available
for supply to the Seller Parties' customers.
3.8.9 The Seller Parties will within thirty (30) days of the
date hereof provide Buyer with copies of all written environmental audits or
investigations of which they are aware (after due inquiry) prepared for the Real
Estate or operations of the Business.
3.8.10 Except as set forth in Schedule 3.8.10 or Citizens'
Annual Report on Form 10-K for the year ended December 31, 1998:
(a) The Seller Parties (including for purposes of
Section 3.8.10(a) and (b), Affiliates and predecessors of the Seller Parties)
are and have been for the past three years in full compliance with all federal
and state primary drinking water standards;
(b) The Seller Parties are and have been for the past
three years in full compliance with all federal and state secondary drinking
water standards; and
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(c) As to all outstanding violations of state or federal
drinking water standards, as of the date hereof, the Seller Parties have
completed or are in the process of completion in accordance with all applicable
deadlines, all actions required by Environmental Law or Authorities to correct
or otherwise respond to such violations.
3.8.11 Except as set forth in Schedule 3.8.11, none of the
Seller Parties will be required to place any notice or restriction relating to
the presence of Hazardous Substances in the deed to any Real Estate, or in any
written instrument accompanying this Agreement, and no Real Estate has such a
notice or restriction in its deed or any other written instrument relating to
the purchase, lease or rental of such property.
For the purposes of these Sections 3.7 and 3.8: (A) "Remedial Action" means all
actions to (x) clean up, remove, treat or in any other way respond to any
presence, Release or threat of Release of Hazardous Substances; (y) prevent the
Release or threat of Release, or minimize the further Release of any Hazardous
Substances so it does not endanger or threaten to endanger public or employee
health or welfare or the environment; or (z) perform studies, investigations or
monitoring necessary or required to investigate the foregoing; (B)
"Environmental Laws" means any common law or federal, state or local law,
statutes, rule, regulation, ordinance, code, judgment or order relating to the
protection of the environment or human health and safety and includes, but is
not limited to, CERCLA (42 U.S.C. section 9601, et seq.), the Clean Water Act
(33 U.S.C. section 1251 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. section 6901 et seq.), the Toxic Substances Control Act (15 U.S.C.
section 2601 et seq.), the Safe Drinking Water Act (42 U.S.C. section 300f et
seq.) and the Oil Pollution Act of 1990 (33 U.S.C. section 2701 et seq.), each
as has been or may be interpreted or amended as of the Closing Date and the
regulations promulgated pursuant thereto and in effect as of the Closing Date;
(C) "Released" means released, spilled, leaked, discharged, disposed of, pumped,
poured, emitted, emptied, injected, leached, dumped or allowed to escape; and
(D) "Hazardous Substances" means hazardous or toxic or polluting substance or
waste or contaminant under or pursuant to any Environmental Law, including
petroleum products, PCBs and radioactive materials.
3.9 Consents. No consent, approval or authorization of, or
registration or filing with, any Person (governmental or private) is required in
connection with the execution, delivery and performance by the Selling Parties
of this Agreement, the Transaction Documents, or the consummation of the
transactions contemplated hereby or thereby by the Seller Parties, including
without limitation in connection with the assignment of the Contracts and
Permits contemplated hereby, except (i) as required by the Hart-Scott Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), (ii) as specified on
Schedule 3.9, (iii) as required by the IDRB Documents, and (iv) for such other
consents, approvals, authorizations, registrations or filings the failure of
which to obtain or make would not individually or in the aggregate have a
Material Adverse Effect or which are obtained by the Closing Date.
3.10 Title. Seller has good and valid title to all of the Acquired
Assets constituting personal property, good and marketable title in fee simple
to all of the owned Acquired Assets
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constituting Real Estate and good and valid leasehold title to all of the leased
Acquired Assets constituting Real Estate, in each case, free and clear of Liens
subject only to the Permitted Exceptions. "Permitted Exceptions" as used herein
shall mean (a) the Liens set forth in Schedule 3.10 hereto, (b) Liens securing
Taxes, assessments, governmental charges or levies, or the claims of
materialmen, mechanics, carriers and like persons, all of which are not yet due
and payable or which are being contested in good faith or (c) such other Liens
which, individually or in the aggregate, do not have a Material Adverse Effect
(it being understood that to the extent a Permitted Exception relates to or
arises from a Retained Liability, Seller shall still be liable for such Retained
Liability to the extent set forth herein).
3.11 Real Estate.
3.11.1 As of the date hereof, Seller has not received any
written or oral notice for assessments for public improvements against the Real
Estate which remains unpaid, and to the best knowledge of the Seller Parties, no
such assessment has been proposed. Except as set forth on Schedule 3.11, as of
the date hereof, there is no pending condemnation, expropriation, eminent domain
or similar proceeding affecting all or any portion of any of the Real Estate and
to the best knowledge of the Seller Parties no such proceeding is threatened.
3.11.2 Except as disclosed on Schedule 3.6, as of the date
hereof, Seller is not a lessee under any Contract relating to the use or
occupancy of the Real Estate involving annual payments in excess of $100,000.
3.11.3 Each parcel of the Real Estate has physical and, to
Seller's knowledge, legal vehicular and pedestrian access to and from public
roadways as may be reasonably necessary to the operation of the Business except
where the failure to have such access does not have a Material Adverse Effect.
To Seller's knowledge, no fact or condition exists which would result in the
termination of (a) the current access from each parcel of the Real Estate, and
(b) continued use, operation, maintenance, repair and replacement of all
existing and currently committed water lines used by Seller in connection with
the Business, except where such termination would not have a Material Adverse
Effect.
3.12 Taxes. The Seller Parties have (a) timely filed all material
returns and reports for Taxes, including information returns, that are required
to have been filed in connection with, relating to, or arising out of, the
Business, (b) paid all Taxes that are shown to have come due pursuant to such
returns or reports and (c) paid all other material Taxes not required to be
reported on returns in connection with, relating to, or arising out of, or
imposed on the property of the Business for which a notice of assessment or
demand for payment has been received or which have otherwise become due. To the
best of the Seller Parties' knowledge, all such returns or reports have been
prepared in accordance with all applicable laws and requirements in all material
respects. Except to the extent disclosed on Schedule 3.12, none of the assets of
the Business or constituting any of the Acquired Assets (a) is property that is
required to be treated as owned by another Person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code, (b) is
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"tax-exempt use property" within the meaning of Section 168(h) of the Code or
(c) directly or indirectly secures any debt the interest on which is tax-exempt
under Section 103(a) of the Code.
3.13 Patents and Intellectual Property Rights. To the best of the
Seller Parties' knowledge, the operations of Seller do not make any unauthorized
use of any Intellectual Property except for any such unauthorized uses which do
not have a Material Adverse Effect. Assuming the consents listed as item XII on
Schedule 3.9 are obtained, Buyer will not lose any of Seller's rights to, or be
required to pay increased royalties for, any Intellectual Property included in
the Acquired Assets as a result of the Closing and the consummation of the
transactions contemplated by this Agreement, except for any such rights or such
increased royalties the loss or payment of which would, individually or in the
aggregate, not have a Material Adverse Effect.
3.14 Accounts Receivable. The accounts receivable of Seller arising
from the Business as set forth on the Interim Statement of Net Assets or arising
since the date thereof have arisen out of bona fide sales and deliveries of
goods, performance of services and other business transactions in the ordinary
course of business consistent with past practice; the allowance for collection
losses on the Interim Statement of Net Assets has been determined in accordance
with GAAP consistent with past practice.
3.15 Labor Relations. As of the date hereof, except as set forth in
Schedule 3.15, to best of the knowledge of the Seller Parties, there has been no
union organizing efforts with respect to the Business conducted within the last
three (3) years and there are none now being conducted with respect to the
Business. Except as set forth in Schedule 3.15, Seller has not at any time
during the three (3) years prior to the date of this Agreement had, nor, to the
best of the Seller Parties' knowledge, is there now threatened, a strike, work
stoppage or work slow down with respect to or affecting the Business which had
or could reasonably be expected to have a Material Adverse Effect. As of the
date hereof, except as set forth in Schedule 3.15, (i) no Employee is
represented by any union or other labor organization and (ii) there is no unfair
labor practice charge pending or, to the best knowledge of the Seller Parties,
threatened against Seller relating to any of the Employees as related to the
Business which could reasonably be expected to have a Material Adverse Effect.
3.16 Employee Benefit Plans.
3.16.1 Schedule 3.16.1 contains a true and complete list of
each "employee benefit plan," as defined in Section 3(3) of ERISA (including any
"multiemployer plan" as defined in Section 3(37) of ERISA), bonus, incentive,
deferred compensation, excess benefit, employment contract, stock purchase,
stock ownership, stock option, supplemental unemployment, vacation, sabbatical,
sick-day, severance or other material employee benefit plan, program or
arrangement (other than those required to be maintained by law), whether written
or unwritten, qualified or nonqualified, funded or unfunded, foreign or
domestic, (i) maintained by, or contributed to by Citizens or any of its
Affiliates, in respect of any Employee or Former Employee, or (ii) with respect
to which Citizens or any of its Affiliates has any liability in respect of any
Employee or Former Employee (the"Benefit Plans"). Except as disclosed on
Schedule 3.16.1, neither Citizens nor any
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of its Affiliates maintains any bonus, pension or welfare benefit plan, program
or arrangement, including any deferred compensation arrangement, for directors,
consultants or independent contractors of the Business.
3.16.2 A true and complete copy of each Benefit Plan and
related trust agreements and (to the extent applicable) a copy of each Benefit
Plan's current summary plan description and in the case of an unwritten Benefit
Plan, a written description thereof, has been furnished to Buyer. In addition,
to the extent applicable, Buyer has been provided a copy of the most recent
Internal Revenue Service ("IRS") determination letter issued to each Benefit
Plan and a copy of the most recent IRS Form 5500 together with all schedules and
accountants' statement filed, and actuarial reports prepared, on behalf of each
Benefit Plan.
3.16.3 Each Benefit Plan which is intended to be qualified
under Section 401(a) of the Code (as designated on Schedule 3.16.1) is so
qualified, and will remain so qualified upon the timely making of certain
amendments required by law during the applicable remedial amendment period, and
any trust forming a part of such a Benefit Plan is tax exempt under Section
501(a) of the Code. Each such Benefit Plan has been amended, as and when
necessary, to comply with the Tax Reform Act of 1986 and upon timely filing of
an Application for Determination with the Internal Revenue Service, will be
eligible to make further such amendments under the"remedial amendment period."
3.16.4 Except as disclosed in Schedule 3.16.4, each Benefit
Plan has been operated and administered in all material respects in accordance
with its terms and all applicable laws, including ERISA and the Code.
3.16.5 None of the Acquired Assets is subject to a Lien or Tax
under the Code or ERISA.
3.16.6 Neither Citizens nor any ERISA Affiliate and, to the
knowledge of the Seller Parties, no other Person, has taken any action or failed
to take any action with respect to any Benefit Plan that may subject Buyer or
any Benefit Plan under which liabilities may be assumed by Buyer under Sections
5.10, 5.11 or 5.12 ("Assumed Benefit Liabilities") to any material liability or
Tax under the Code or ERISA.
3.16.7 Neither Citizens nor any ERISA Affiliate has incurred
or expects to incur any withdrawal liability with respect to any Benefit Plan
which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of
ERISA, including any contingent liability under Section 4204 of ERISA or
withdrawal liability arising from the actions of Citizens or any ERISA Affiliate
contemplated by this Agreement. All contributions that Citizens or any ERISA
Affiliate have been obliged to make to any Benefit Plan, including any
multiemployer plan, have been duly and timely made.
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3.16.8 There are no pending or, to the knowledge of the Seller
Parties, threatened claims (other than routine claims for benefits),
assessments, complaints, proceedings or investigations of any kind in any court
or governmental agency with respect to any Benefit Plan which could reasonably
be expected to give rise to a material liability to Buyer.
3.16.9 Except as disclosed on Schedule 3.16.9, no Benefit Plan
provides benefits, including without limitation, death or medical benefits,
beyond termination of service or retirement other than (i) coverage mandated by
law, or (ii) death or retirement benefits under a Benefit Plan qualified under
Section 401(a) of the Code. Seller's Retiree Medical Plan contains provisions
permitting Seller to modify or terminate retiree medical benefits at any time,
without prior notice to any covered individual. Except with respect to retirees,
"grandfathered" employees and collectively bargained employees, Seller knows of
no reason why its ability to effect those provisions would be limited.
3.16.10 With respect to each Benefit Plan that is a "group
health plan" within the meaning of Section 607 of ERISA and that is subject to
Section 4980B of the Code, Citizens and each ERISA Affiliate have complied in
all material respects with the continuation coverage requirements of the Code
and ERISA.
3.17 Absence of Undisclosed Liabilities. Except as disclosed in
Schedule 3.17, Seller has no liabilities with respect to the Business which
would constitute Assumed Liabilities, either direct or indirect, matured or
unmatured or absolute, contingent or otherwise, except:
3.17.1 the Assumed Indebtedness and those other liabilities
which would decrease the Base Cash Purchase Price pursuant to Section 2.6.5 to
the extent assumed by Buyer at Closing;
3.17.2 liabilities arising in the ordinary course of business
under any Contract or Permit or with respect to any agreement or instrument
included within the definition of Real Estate; and
3.17.3 those liabilities incurred, consistent with past
business practice, in or as a result of the normal and ordinary course of
business and reflected in the books and records related to the Business;
3.17.4 the obligations and liabilities set forth in Sections
5.9, 5.10, 5.11 and 5.12 hereof; and
3.17.5 those other liabilities, which individually and in the
aggregate, would not have a Material Adverse Effect.
3.18 No Pending Litigation or Proceedings. Except as disclosed in
Schedule 3.18, there are no actions, suits, investigations or proceedings
pending against or, to the best of the Seller
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Parties' knowledge, threatened, against or affecting, Seller, the Business or
any of the Acquired Assets before any court or arbitrator or Authority which
individually or in the aggregate, would have a Material Adverse Effect. Except
as disclosed in Schedule 3.18, there are currently no outstanding judgments,
decrees or orders of any court or Authority against any of the Seller Parties,
which relate to or arise out of the conduct of the Business or the ownership,
condition or operation of the Business or the Acquired Assets (other than any
PUC order relating to rates, tariffs and similar matters arising in the ordinary
course of business) which individually or in the aggregate would have a Material
Adverse Effect.
3.19 Supply of Utilities. Except as set forth on Schedule 3.19, the
Real Estate has adequate arrangements for supplies of electricity, gas, oil,
coal and/or sewer for all operations at the 1998 or current operating levels,
whichever is greater. Except as set forth on Schedule 3.19, there are no actions
or proceedings pending or, to the best of the Seller Parties' knowledge,
threatened, that would adversely affect the supply of electricity, gas, coal or
sewer to the Real Estate except for those which individually and in the
aggregate would not have a Material Adverse Effect.
3.20 Insurance. Schedule 3.20 lists the Seller Parties' policies and
contracts in effect as of the date hereof for insurance covering the Acquired
Assets or Assumed Liabilities and the operation of the facilities constituting
the Business owned or held by Seller, together with the risks insured against,
coverage limits and deductible amounts.
3.21 Relationship with Customers. As of the date hereof, Seller does
not have any current customer which accounted for more than 5% of the net sales
of the Business (taken together with the businesses being acquired by Buyer or
Affiliates of Buyer pursuant to the Related Purchase Agreements) for the
immediately preceding 12-month period.
3.22 WARN Act. Except as contemplated by Section 5.9 hereby or as
set forth in Schedule 3.22 hereto, within six months prior to the date hereof,
(i) Seller has not effectuated (a) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of the Business; or (b) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment or one or
more facilities or operating units within any site of employment or facility of
the Business; (ii) Seller has not been affected by any transaction or engaged in
layoffs or employment terminations with respect to the Business sufficient in
number to trigger application of any similar state or local law; and (iii) none
of Seller's employees who are employed in connection with the Business has
suffered an "employment loss" (as defined in the WARN Act).
3.23 Condition of Assets. Except as set forth on Schedule 3.23, the
buildings, machinery, equipment, tools, furniture, improvements and other fixed
tangible assets of the Business included in the Acquired Assets, taken as a
whole and taken together with the similar assets included among the assets being
acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements, are in good operating condition and repair, reasonable wear and tear
excepted.
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3.24 Brokerage. None of the Seller Parties or their Affiliates have
made any agreement or taken any other action which might cause any Person to
become entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to Buyer or
its Affiliates.
3.25 All Assets. Except as set forth on Schedule 3.25 and for the
Excluded Assets, the Acquired Assets include all assets, rights, properties and
contracts the use of which is necessary to the continued conduct of the Business
by Buyer substantially in the manner as it was conducted prior to the Closing
Date, including the service of all utility customers in substantially the same
manner and at substantially the same service levels as provided by Seller on the
date hereof.
3.26 Year 2000 Matters. Citizens has (1) initiated a review and
assessment of all mission critical areas within the Business and related
operations (including those affected by suppliers and vendors) that it
reasonably believes could be adversely affected by the "Year 2000 Problem" (that
is, the risk that computer applications used by any Seller Party (or suppliers
and vendors) may be unable to recognize and properly perform date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem
all as set forth in Citizens' Annual report on Form 10-K for the fiscal year
ended December 31, 1998 and Citizens' Quarterly reports on Form 10-Q for the
periods ending March 31, 1999 and June 30, 1999, and (iii) to date, implemented
that plan substantially in accordance with that timetable. Seller has
contingency plans that are dedicated to ensuring that established and expected
levels of customer service are maintained without interruption, while core
business functionality is preserved during the millennium transition. With
respect to its suppliers and vendors, the foregoing representation and warranty
is expressly limited to matters known to Seller after making reasonable
inquiries of such suppliers and vendors. Seller makes no representation or
warranty with respect to the receipt or accuracy of any response received from
any vendor or supplier.
3.27 Product Liability. Except as disclosed in Schedule 3.27 and
except for those liabilities which individually or in the aggregate would not
have a Material Adverse Effect, there are no (a) liabilities of the Seller
Parties or their Affiliates, fixed or contingent, asserted or, to the knowledge
of the Seller Parties, unasserted, with respect to any product liability or
similar claim that relates to any product or service sold by Seller or the
Business to others or (b) liabilities of the Seller Parties or their Affiliates,
fixed or contingent, asserted or, to the knowledge of the Seller Parties
unasserted, with respect to any claim for the breach of any express or implied
product warranty or a similar claim with respect to any product or service sold
by Seller or the Business to others.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
Parent and Buyer jointly and severally represent and warrant to Seller as
follows:
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4.1 Organization and Good Standing.
4.1.1 Parent is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
4.1.2 Buyer is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation and has all
requisite corporate power and authority to own, lease and operate the Acquired
Assets and the Business. Buyer is qualified to do business and is in good
standing in all jurisdictions wherein the nature of the business conducted by it
Buyer's ownership or use of assets and properties make such qualification
necessary, except such failures to be qualified or to be in good standing, if
any, which when taken together with all such failures of Buyer do not have a
material adverse effect on its ability to perform its obligations under this
Agreement and the Transaction Documents.
4.2 Authorization and Enforceability. Each of Buyer and Parent has
full corporate power and authority to execute, deliver and perform this
Agreement and the other Transaction Documents to which either of them is a
party. The execution, delivery and performance by Buyer and Parent of this
Agreement and the Transaction Documents to which Buyer and/or Parent is a party
have been duly authorized by all necessary corporate action on the part of each
of them. This Agreement has been duly executed and delivered by Buyer and
Parent, and as of the Closing Date the other Transaction Documents will be duly
executed and delivered by Buyer and Parent. This Agreement is a legal, valid and
binding obligation of Buyer and Parent, enforceable against them in accordance
with its terms, except as such enforceability may be limited by applicable laws
relating to bankruptcy, insolvency, fraudulent conveyance, reorganization or
affecting creditors' rights generally and except to the extent that injunctive
or other equitable relief is within the discretion of a court. As of the Closing
Date, each of the other Transaction Documents to which Buyer and Parent is a
party will be duly executed and delivered by Buyer and Parent and will
constitute the legal, valid and binding obligations of Buyer and Parent,
enforceable against them in accordance with its respective terms, except as such
enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief is
within the discretion of a court.
4.3 No Violation of Laws or Agreements. The execution, delivery and
performance of this Agreement and the Transaction Documents by Buyer and/or
Parent do not, and the consummation of the transactions contemplated hereby and
thereby will not, (a) contravene any provision of the Articles of Incorporation
or Bylaws of Buyer or the Certificate of Incorporation or Bylaws of Parent; or
(b) violate, conflict with, result in a breach of, or constitute a default (or
an event which would with the passage of time or the giving of notice, or both,
constitute a default) under, or result in or permit the termination,
modification, acceleration, or cancellation of (i) any indenture, mortgage, loan
or credit agreement, license, instrument, lease, contract, plan, permit,
authorization, proof of dedication or other agreement or commitment, oral or
written, to which Parent or Buyer is a party, or by which any of their assets or
properties may be bound or affected,
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except for such violations, conflicts, breaches, terminations, modifications,
accelerations, cancellations, interests or rights which, individually or in the
aggregate do not have a material adverse effect on their respective ability to
perform their obligations under this Agreement and the Transaction Documents, or
(ii) any judgment, injunction, writ, award, decree, restriction, ruling, or
order of any court, arbitrator or Authority or any applicable constitution, law,
ordinance, rule or regulation to which Buyer or Parent is subject other than
those violations and conflicts which individually or in the aggregate do not
have a material adverse effect on their respective ability to perform their
obligations under this Agreement and the Transaction Documents.
4.4 Consents. No consent, approval or authorization of, or
registration or filing with, any Person (governmental or private) is required in
connection with the execution, delivery and performance by Buyer and Parent of
this Agreement, the other Transaction Documents, or the consummation of the
transactions contemplated hereby or thereby by Buyer or Parent except (i) as
required by the HSR Act, (ii) as specified on Schedule 3.9 and (iii) for such
consents, approvals, authorizations, registrations or filings, the failure to
obtain or make would not individually or in the aggregate have a material
adverse effect on their respective ability to perform their obligations under
this Agreement and the Transaction Documents.
4.5 Financing. Buyer and Parent have, and at the Closing Date, will
have sufficient resources to pay the Purchase Price, and Parent, Buyer or the
other Affiliates of Parent that are buyers of the assets and businesses being
acquired pursuant to the Related Purchase Agreements have, and at the Closing
Date, will have sufficient resources to pay the purchase prices set forth in the
Related Purchase Agreements.
4.6 Brokerage. None of Parent, Buyer or their Affiliates have made
any agreement or taken any other action which might cause any Person to become
entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to the
Seller Parties.
4.7 Insurance. Schedule 4.7 lists the policies and contracts in
effect as of the date hereof for casualty and property insurance covering
Buyer's assets and properties and the operation of Buyer's business, together
with the risks insured against, coverage limits and deductible amounts.
ARTICLE 5
ADDITIONAL COVENANTS
5.1 Conduct of Business. Except (i) as otherwise specifically
permitted by this Agreement, (ii) as set forth in Schedule 5.1 hereto or (iii)
with the prior written consent of Buyer, from and after the date of this
Agreement and up to and including the Closing Date, each of the Seller Parties
agree that:
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5.1.1 Seller shall conduct the Business as presently operated
and only in the ordinary course of business consistent with past practice.
5.1.2 They shall promptly inform Buyer in writing of any
specific event or circumstance of which they are aware, or of which they receive
notice, that has or is likely to have, individually or in the aggregate, taken
together with the other events or circumstances, a Material Adverse Effect on
the Acquired Assets or the Assumed Liabilities.
5.1.3 Seller shall not:
(a) change or modify in any material respect existing
credit and collection policies, procedures and practices with respect to
accounts receivable;
(b) enter into any contract or commitment, waive any
right or enter into any other transaction (except in the ordinary course of
business) which would have a Material Adverse Effect;
(c) except in the event of service interruption,
emergency or casualty loss, commit to acquire subsequent to the Closing Date on
behalf of the Business any capital asset or group of capital assets costing in
excess of $1,000,000 that is not included in the capital budget of Seller for
fiscal year 2000 and which, if so acquired, would be included in the Acquired
Assets; commencing December 1, 1999, accept or receive customer advances for
construction in excess of $9,000,000 (when combined with customer advances
relating to the businesses being acquired by Buyer or Affiliates of Buyer
pursuant to the Related Purchase Agreements) per each of the next four
consecutive three-month periods unless pursuant to an existing tariff, Contract
or Permit of Seller; or sell or lease or agree to sell or lease or otherwise
dispose of any assets included in the Acquired Assets except in the ordinary
course of the conduct of the Business, consistent with past practice;
(d) except in the ordinary course of business,
consistent with past practice or as required under any of Seller's debt
instruments or indentures, mortgage, pledge or subject to any Lien (other than
Permitted Liens) any of the Acquired Assets;
(e) change any compensation or benefits or grant any
material new compensation or benefits payable to or in respect of any
Transferred Employee except (i) as required by law, and (ii) in the ordinary
course, consistent with past practice; provided, however, no individual Employee
shall in any event receive a compensation increase in excess of seven percent
(7%);
(f) other than in the ordinary course of business
consistent with past practice, sell or otherwise transfer any assets necessary,
or otherwise material to the conduct of, the Business which would constitute
Acquired Assets;
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(g) change the Seller's method of accounting or keeping
its books of account or accounting practices with respect to the Business,
except as required by GAAP or any Authority;
(h) intentionally and wilfully take or omit to take any
action which if taken or omitted prior to the date hereof would constitute or
result in a breach of any representations or warranties set forth in Sections
3.1, 3.2, 3.3, 3.4, 3.7, 3.8, 3.10, 3.14, 3.16 and 3.25 hereof (it being
understood that the failure to cure a breach shall not, by itself, be an
intentional and wilful omission to take action); or
(i) prepay, redeem, retire, refund or otherwise
extinguish any of the Assumed Indebtedness.
5.2 Negotiations. Neither Citizens nor any Person controlled by
Citizens or under common control with Citizens (each such person being a
"Section 5.2 Affiliate"), nor any officer, director, employee, representative or
agent of Citizens or any of their Section 5.2 Affiliates, shall, directly or
indirectly, solicit or initiate or participate in any way in discussions or
negotiations with, or provide any information or assistance to, or enter into an
agreement with any Person or group of Persons (other than Parent, Buyer or any
Person controlled by Parent or Buyer or under common control with Parent, Buyer
or any Persons providing financing to the parties hereto in connection with
facilitating the consummation of the transactions contemplated by this
Agreement) concerning any acquisition, merger, consolidation, liquidation,
dissolution, disposition or other transaction (or series of such transactions)
that would result in the transfer to any such Person or group of Persons of ten
percent (10%) of the Acquired Assets (as measured by net book value of such
assets on the date of each such transaction) or the acquisition, merger,
consolidation, liquidation, dissolution, disposition or other transaction (or
series of such transactions) involving the Seller Parties, if such acquisition,
merger, consolidation, liquidation, dissolution, disposition or other
transaction (or series of such transactions) would be inconsistent, in any
respect, with the obligations of the Seller Parties hereunder (any of the
foregoing transactions, a "Competing Transaction").
5.3 Disclosure Schedules. As promptly as practicable, the Seller
Parties will provide Buyer with a supplement or amendment to the Disclosure
Schedules with respect to any matter, condition or occurrence which is required
to be set forth or described in the Disclosure Schedules. For the avoidance of
doubt, a matter, condition or occurrence shall only be "required" to be set
forth or described in the Disclosure Schedules if the failure to be so disclosed
would result in a breach of the applicable representation or warranty (qualified
by Material Adverse Effect where applicable) on the date hereof or on the
Closing Date. In addition, Seller shall have the right at any time and from time
to time prior to the Closing to supplement or amend the Disclosure Schedules.
Seller may provide Disclosure Schedules with respect to any representation or
warranty of this Agreement whether or not a specific schedule is referred to
therein. In the event that any supplement or amendment of such Disclosure
Schedules shall be provided later than five (5) business days prior to the
Closing Date, the Buyer shall have the right to delay the Closing for a period
of five (5) business days in order for Buyer to review such supplement or
amendment. No such supplement
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or amendment shall be deemed to cure any breach of or alter any representation
or warranty made in this Agreement so as to permit the Closing to occur unless
Buyer specifically agrees thereto in writing. The Seller Parties shall promptly
inform Buyer, and Buyer will promptly inform the Seller Parties of any fact or
event which comes to their attention, the existence of which constitutes or
likely will constitute a breach in any material respects of any representation
or warranty in this Agreement. In addition, Parent will, within five (5) days of
receipt thereof, forward to Seller (i) any title report Buyer receives from a
title company with respect to the Real Estate and (ii) any written communication
regarding a specific Lien or title defect affecting a specifically identified
parcel of the Real Estate sent to the President, Treasurer or General Counsel of
Parent or the President or Corporate Counsel of any other Buyer Party, and sent
by a party other than the Seller Parties, their legal counsel, financial
advisors or representatives.
5.4 Mutual Covenants. The parties mutually covenant from the date of
this Agreement to the Closing Date (and subject to the other terms of this
Agreement, including Section 5.8 hereof):
5.4.1 to cooperate with each other in determining whether
filings are required to be made or consents required to be obtained in any
jurisdiction in connection with the consummation of the transactions
contemplated by this Agreement and in making or causing to be made any such
filings promptly and in seeking to obtain timely any such consents;
5.4.2 to use all reasonable efforts to obtain promptly the
satisfaction (but not waiver) of the conditions to the Closing of the
transactions contemplated herein (each party hereto shall furnish to the other
and to the other's counsel all such information as may be reasonably required in
order to effectuate the foregoing action); and
5.4.3 to advise the other parties promptly if such party
determines that any condition precedent to its obligations hereunder will not be
satisfied in a timely manner.
5.5 Filings and Authorizations. The parties hereto will as promptly
as practicable, make or cause to be made all such filings and submissions under
laws, rules and regulations applicable to it or its Affiliates as may be
required to consummate the terms of this Agreement, including all notifications
and information to be filed or supplied pursuant to the HSR Act and with the
applicable public utility commission (each, a "PUC"). Any such filings and
supplemental information will be in substantial compliance with the requirements
of the applicable law, rule or regulation. Each of Parent and Buyer, on the one
hand, and the Seller Parties, on the other, shall furnish to the other such
necessary information and reasonable assistance as the other may request in
connection with its preparation of any filing or submission to the PUC or which
is necessary under the HSR Act. The Seller Parties, on the one hand and Buyer
and Parent, on the other, shall keep each other apprised of the status of any
communications with, and inquiries or requests for additional information from,
any Authority, including the PUC, the United States Federal Trade Commission
("FTC") and the Antitrust Division of the United States Department of Justice
(the "Antitrust Division"), and shall comply promptly with any such inquiry or
request. Each
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of Citizens, Seller, Parent and Buyer will use its reasonable efforts to obtain
any clearance required under the HSR Act and from the PUC for the purchase and
sale of the Acquired Assets in accordance with the terms and conditions hereof.
Notwithstanding the foregoing, nothing contained in this Agreement will require
or obligate any party or their respective Affiliates: (i) to initiate, pursue or
defend any litigation (or threatened litigation) to which any Authority
(including the PUC, the Antitrust Division and the FTC) is a party; (ii) to
agree or otherwise become subject to any material limitations on (A) the right
of Buyer or its Affiliates effectively to control or operate the Business or the
right of Seller or its Affiliates effectively to control or operate Citizens'
other businesses, (B) the right of Buyer or its Affiliates to acquire or hold
the Business or the right of Seller or its Affiliates to hold the Excluded
Assets or Citizens' other businesses, or (C) the right of Buyer to exercise full
rights of ownership of the Business or all or any material portion of the
Acquired Assets or the right of Citizens to exercise full rights of ownership of
Citizens' other businesses or all or any material portion of the Excluded
Assets; or (iii) to agree or otherwise be required to sell or otherwise dispose
of, hold separate (through the establishment of a trust or otherwise), or divest
itself of all or any portion of the business, assets or operations of Citizens,
Seller, Parent, Buyer, any Affiliate of Buyer or the Business. The parties agree
that no representation, warranty or covenant of Buyer, Parent, or Citizens
contained in this Agreement shall be breached or deemed breached as a result of
the failure by Parent and Buyer on the one hand or the Seller Parties, on the
other, to take any of the actions specified in the preceding sentence.
5.6 Public Announcement. No party hereto shall make or issue, or
cause to be made or issued, any public announcement or written statement
concerning this Agreement or the transactions contemplated hereby without the
prior written consent of the other party (which will not be unreasonably
withheld or delayed), unless counsel to such party advises that such
announcement or statement is required by law (in which case the parties shall
make reasonable efforts to consult with each other prior to such required
announcement).
5.7 Further Assurances. Each of Citizens, Parent, Buyer and Seller,
from time to time after the Closing, at Buyer's or Seller's request, will
execute, acknowledge and deliver to the applicable person such other instruments
of conveyance and transfer and will take such other actions and execute such
other documents, certifications, and further assurances as Buyer or Seller, as
the case may be, may reasonably require in order to transfer, in accordance with
the terms and conditions of this Agreement, more effectively in Buyer or to put
Buyer more fully in possession of any of the Acquired Assets or better to enable
Buyer to complete, perform and discharge any of the Assumed Liabilities. Each
party shall cooperate and deliver such instruments and take such action as may
be reasonably requested by the other party in order to carry out the provisions
and purposes of this Agreement and the transactions contemplated hereby.
5.8 Cooperation.
5.8.1 Parent, Buyer, Citizens and Seller shall cooperate and
shall cause their respective Affiliates, officers, employees, agents and
representatives to cooperate to ensure the
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orderly transition of the Business from Seller to Buyer and to minimize the
disruption to the Business resulting from the transactions contemplated hereby.
5.8.2 Without limiting the foregoing, neither Parent and
Buyer, nor Citizens and Seller (nor any of their respective Affiliates) shall
make any filings pursuant to federal or state securities laws ("Securities
Filings") or make any consent solicitations to holders of Assumed Indebtedness
which include any information about Seller, Buyer (or their respective
Affiliates) or the transactions contemplated hereby without consulting with the
other party and providing the other party a reasonable opportunity to review and
comment on such information, it being understood and agreed that any party may
so disclose such information in its reasonable judgment to the extent such
party's counsel advises it that such disclosure is advisable under applicable
law. Each of Parent, Buyer, Citizens and Seller shall, and shall cause their
respective Affiliates to, comply with all applicable federal and state
securities laws in connection with this Agreement and the transactions
contemplated hereby (including any solicitation of consents of holders of
Assumed Indebtedness), and all information supplied by any party for inclusion
in any Securities Filing or consent solicitation, including, without limitation,
any proxy or information statement, or any registration statement on Form S-4
shall be true and correct in all material respect and shall not contain any
untrue statement of a material fact or omit to state any material fact which is
required to be stated therein or which is necessary to make the statements
contained therein not misleading in light of the circumstances in which they
were made.
5.8.3 During the first 90 days after the Closing Date (180
days for Trademarks on tanks), Buyer shall have the right to use all of the
logos, trademarks and trade identification of Seller as are located at the Real
Estate or on the Acquired Assets (collectively, the "Trademarks"). Buyer's use
of the Trademarks shall be in accordance with such reasonable quality control
standards as may be promulgated by Seller and provided to Buyer. If Seller shall
notify Buyer in writing of Buyer's material failure to comply with such
reasonable quality control standards and Buyer continues to not comply with such
reasonable quality control standards for more than 20 days after receipt of such
notice, Seller shall have the right to terminate Buyer's right under this
Section 5.8.3 to use the Trademarks.
5.8.4 Seller shall give Buyer and its representatives
(including Buyer's Accountants, consultants, counsel and employees), upon
reasonable notice and during normal business hours, full access to the
properties, contracts, employees, books, records and affairs of Seller to the
extent relating to the Business and the Acquired Assets, and shall cause its
officers, employees, agents and representatives to furnish to Buyer all
documents, records and information (and copies thereof), to the extent relating
to the Business and the Acquired Assets, as Buyer may reasonably request. Except
to the extent disclosed in the Disclosure Schedules in accordance with Sections
5.3 and 8.4, no investigation or receipt of information by Buyer pursuant to, or
in connection with, this Agreement, shall diminish or obviate any of the
representations, warranties, covenants or agreements of the Seller Parties under
this Agreement or the conditions to the obligations of Parent or Buyer under
this
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Agreement. All information provided to Buyer under this Agreement shall be held
subject to the terms and conditions of the Confidentiality Agreement dated
August 2, 1999 between Citizens and Parent.
5.9 Employees; Employee Benefits.
5.9.1 Schedule 5.9.1 lists divisions and the number of all
salaried and hourly employees actively employed (as of the date of this
Agreement) in each division by Seller or any of its Affiliates whose primary
responsibilities relate to the Business. Schedule 5.9.1 lists job
classifications and number of employees in each job classifications of those
employees whose terms and conditions of employment are subject to a collective
bargaining agreement ("Union Employees"). All individuals referred to on
Schedule 5.9.1 are herein referred to as the "Employees." No later than March 1,
2000, Buyer and Seller shall determine the number of Employees to whom Buyer
will offer employment, which number shall be at least equal to 250 (when
combined with offers made by Buyer or Affiliates of Buyer to employees of
Affiliates of Seller in connection with the Related Purchase Agreements) (the
"Base Number"), and such additional number of Employees, if any, whom Buyer also
wishes to employ. Upon determination of such Employees, Seller will supplement
Schedule 5.9.1 with the name, job title, unused vacation, current base salary or
hourly wage, date of hire and assigned location of each Transferred Employee (as
that term is defined below). At the Closing, Seller shall provide an updated
Schedule 5.9.1 which shall disclose all the information required under the
preceding sentence as of the most recent practicable date prior to Closing.
5.9.2 Effective as of the Closing, Buyer shall offer
employment to at least the Base Number of those employees included on Schedule
5.9.1. All Employees to whom Buyer offers employment and who accept such
employment are herein referred to as the "Transferred Employees." In the event
any Employees do not accept Buyer's offer of employment, Buyer shall offer
employment to such additional employees (the identity of whom shall be
determined by Buyer and Seller) as are necessary to bring the total number of
Transferred Employees to the Base Number. Subject to the provisions of this
Section 5.9 and Section 5.12, Buyer shall provide each Transferred Employee with
base compensation at least equal to that provided by Seller on the Closing Date,
and employee benefits which are substantially comparable to those provided by
Buyer to its other similarly situated employees. Buyer agrees (i) to credit the
service of each Transferred Employee with Seller and its Affiliates before the
Closing, for all purposes under all employee benefit plans and arrangements
maintained by Buyer (and/or any of its Affiliates) for the benefit of any
Transferred Employee (including without limitation for purposes of attainment of
retirement dates and payment of optional forms of benefits), other than for
purposes of benefit accrual under any "defined benefit plan", within the meaning
of Section 3(35) of ERISA, (ii) to provide accrued vacation to Transferred
Employees in the year in which the Closing occurs, equal to the excess, if any,
of the accrued vacation to which the Transferred Employee would otherwise be
entitled under Seller's vacation plan during that year over the amount of
accrued vacation the Transferred Employee
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had taken during that year, and, thereafter, to provide vacation to Transferred
Employees on the same basis as provided to similarly situated employees of
Buyer, with service credit as provided in (i) hereof, (iii) to provide severance
benefits to Transferred Employees terminated by Buyer that are substantially
comparable to those benefits provided by Buyer to similarly situated employees,
and (iv) to comply with all applicable legal requirements with respect to Union
Employees (including without limitation any applicable duty to bargain with
those employees' bargaining representative). Buyer shall be responsible for
providing to each Transferred Employee vacation in an amount equal to the
Transferred Employee's vacation entitlement for the year of Closing reduced by
the number of vacation days such Transferred Employee has taken on or before
Closing. Nothing in this Section 5.9 shall limit Buyer's authority to terminate
the employment of any Transferred Employee at any time and for whatever reason.
Until the second anniversary of the Closing Date, neither Seller nor any of its
Affiliates shall directly or indirectly solicit or offer employment to any
Transferred Employee then employed by Buyer or its Affiliates.
5.9.3 Except as specifically provided in Sections 5.9 and
5.12, Seller shall be solely responsible for any liability, claim or expense
(including reasonable attorneys' fees) related to compensation or employee
benefits incurred by Buyer as the result of any claims against Buyer or its
Affiliates that are made by any Employees or Former Employees (or the
Beneficiary of any Employee or Former Employee) who are not made offers to
become employees of Buyer or its Affiliates including, without limitation,
claims asserted against Buyer as a result of their termination by Seller or its
Affiliates.
5.9.4 Seller shall be solely responsible for any liability,
claim or expense with respect to compensation or employee benefits of any nature
(including, but not limited to, workers compensation claims or the benefits
provided under the Benefit Plans, whether paid before or after the Closing) owed
to any Transferred Employee or the Beneficiary of any Transferred Employee or
any Water Sector Retiree or the Beneficiary of any Water Sector Retiree that
arises out of or relates to (i) the employment relationship between Seller or
any of its Affiliates and such Transferred Employee or Beneficiary or (ii) any
benefit claim or expense (including medical expenses) incurred before Closing
under any Benefit Plan. For purposes of this Agreement, a medical expense shall
be deemed to be incurred when the services giving rise to a claim are rendered,
regardless of when billed or paid. Without limiting the foregoing, Seller shall
be responsible for the payment of any employee benefits that become due to any
Transferred Employees as a result of their termination by Seller.
5.9.5 Except as otherwise specifically provided in Section
5.9, 5.11 or 5.12, Buyer shall be solely responsible for any liability, claim or
expense with respect to compensation or employee benefits of any nature
(including, but not limited to, workers compensation, claims or the benefits
provided under any employee benefit plan or arrangement of Buyer incurred after
Closing) owed to any Transferred Employee or Beneficiary of any Transferred
Employee or any Water Sector Retiree or Beneficiary of any Water Sector Retiree
that arises out of or relates to (i) the employment relationship between Buyer
or any of its Affiliates and any Transferred Employee or (ii) any benefit claim
or expense (including medical expense) incurred after Closing under any
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employee benefit plan sponsored or contributed to by Buyer or an ERISA Affiliate
after Closing. Notwithstanding the foregoing, Buyer shall not be responsible for
the payment of any employee benefits that become due to any Transferred
Employees under any Benefit Plan (other than the Assumed Benefit Liabilities).
5.9.6 Buyer agrees to reimburse Seller for its proportionate
share (as defined below) of any amount in excess of $1,000,000 paid by Seller as
severance under Citizens' severance plan as in effect on the date hereof to any
Employees (when such amount paid by Seller is aggregated with amounts paid by
Citizens to other employees as referenced in Section 5.9.6 of the Related
Purchase Agreements) provided (i) Buyer does not hire such Employees in
accordance with the provisions of Sections 5.9, 5.11 and 5.12 and (ii) Seller
provides notice to those Employees on or before the Closing Date to the effect
that their employment will be terminated on or shortly after the Closing Date.
Buyer will pay such reimbursement to Citizens within 5 days after receipt of a
list of the Employees showing which are entitled to severance pay, the amounts
of that severance pay and certifying that those amounts have been paid. The
Buyer's "proportionate share" means the amount obtained by multiplying the
amount in excess of $1,000,000 by a fraction, the numerator of which is the
amount of severance paid by Seller to Employees under Section 5.9.6 of this
Agreement and the denominator of which is the sum of (i) the amount paid by
Seller to Employees under Section 5.9.6 of this Agreement and (ii) the aggregate
amount paid by Citizens under Section 5.9.6 of each of the Related Purchase
Agreements.
5.9.7 Until the second anniversary of the Closing Date, Buyer
shall not directly or indirectly solicit or offer employment to any active
employee of Seller, other than the Transferred Employees.
5.10 Employee Pension Plan.
5.10.1 At least fifteen days prior to the Closing Date, Seller
shall take any and all actions necessary to cease benefit accruals and fully
vest all Transferred Employees in their accrued benefits under the Citizens
Pension Plan ("Seller's Pension Plan" or "Citizens Pension Plan"). Seller shall
retain liability and related assets for benefits accrued through the Closing
Date by Transferred Employees under Seller's Pension Plan.
5.10.2 As of the Closing Date, Transferred Employees shall be
covered under the American Pension Plan, and shall be given credit for service
with Seller and its Affiliates for eligibility, vesting, attainment of
retirement dates, subsidized benefits, and entitlement to optional forms of
payment, but not for accrual of benefits.
5.11 Employee Savings Plan.
5.11.1 Effective upon the date of the transfer described in
Section 5.11.2, subject to the terms and conditions of this Agreement, Parent
shall cause the Savings Plan for Employees of American Water Works Company, Inc.
(the "American Savings Plan") to assume the
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liability of the Seller's 401(k) Plan for the account balances of those
Transferred Employees participating in the Seller's 401(k) Plan on the Closing
Date (the "Affected Participants") that are transferred to the American Savings
Plan. As of the Closing Date, Affected Participants shall be 100% vested in
their account balances under the Seller's 401(k) Plan. Transferred Employees
shall be given credit under the American Savings Plan for service with Seller
and its Affiliates for eligibility, vesting, attainment of retirement dates,
contribution levels and optional forms of benefit payment, to the same extent
that credit for such service has been given by Seller and its Affiliates.
5.11.2 Buyer shall deliver to Seller as soon as practicable,
but in no event later than ninety (90) days after Closing (i) a certified copy
of the American Savings Plan and any amendment necessary to effectuate the
transfer of assets and the assumption of account balances in accordance with
this Section 5.11, (ii) a certified copy of the trust agreement for the American
Savings Plan; (iii) the most recent favorable determination letter from the IRS
with respect to the American Savings Plan; and (iv) an opinion from Buyer's
legal counsel acceptable to Seller that the American Savings Plan, as so
amended, complies or will comply on a timely basis with the applicable
provisions of the Code relating to the qualification of, and the transfer of
assets and assumption of benefit liabilities by, the American Savings Plan.
Seller shall deliver to Buyer as soon as practicable, but in no event later than
ninety (90) days after Closing, an opinion from Seller's legal counsel
acceptable to Buyer that the Seller's 401(k) Plan complies or will comply on a
timely basis with the applicable provisions of the Code relating to the
qualification of the Seller's 401(k) Plan, and the transfer of assets to, and
assumptions of benefit limitations by, the American Savings Plan. As soon as
practicable, but in any event within 120 days after Closing, Seller shall cause
the trustee of the Seller's 401(k) Plan to transfer in cash and promissory notes
representing outstanding loans to Affected Participants to the trustee of the
American Savings Plan an amount equal to the sum of the account balances of the
Transferred Employees (the "Transferred Accounts") calculated as of the most
recent valuation date under the Seller's 401(k) Plan (which shall, in any event,
be within thirty (30) days of the transfer). Both the Seller Parties and Buyer
will file any IRS Form 5310A that is required with respect to the transfer
contemplated by this Section 5.11 date at least 30 days prior to the transfer.
Upon the transfer described in this Section 5.11, Buyer and the American Savings
Plan shall be responsible for all benefits attributable to the Transferred
Accounts to which Transferred Employees were entitled under the Seller's 401(k)
Plan as of such date, and Seller and the Seller's 401(k) Plan shall cease to
have any liability, contingent or otherwise, for such benefits.
5.12 Welfare Benefits.
5.12.1 Within sixty (60) days after the Closing, Seller agrees
to transfer to trusts established by Buyer under Section 501(c)(9) of the Code
("Buyer's VEBAs") the amount held under any trust established by Seller under
Section 501(c)(9) of the Code ("Seller's VEBAs") to fund post-retirement health
care and life insurance benefits attributable to the Business, including Former
Employees identified on Schedule 5.12 (the "Water Sector Retirees") and any
"grandfathered" Transferred Employees as set forth on Schedule 5.12. Buyer
agrees to provide post-retirement health care and life insurance benefits to the
Water Sector Retirees and, as applicable, Transferred Employees who become
eligible for such benefits after Closing and further agrees that Buyer's
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VEBAs will apply an amount at least equal to the sum of the assets (and earnings
thereon calculated at the rate of return generated by Buyer's VEBAs) transferred
from Seller's VEBAs to provide post-retirement health care and life insurance
benefits for such employees. Upon Closing, Buyer shall be responsible for all
obligations of the Seller Parties to provide post-retirement health care and
life insurance benefits "incurred" (within the meaning of Section 5.9.4) after
the Closing and the Seller Parties shall cease to have any liability, contingent
or otherwise, for such benefits. In consideration of such transfer, Buyer agrees
not to terminate or materially modify those post-retirement health and life
benefit provisions applicable to such grandfathered Transferred Employees and
Water Sector Retirees as such provisions are in effect immediately prior to the
Closing Date.
5.12.2 Buyer shall take all action necessary and appropriate
to ensure that, as of the Closing Date, Buyer provides medical, health, dental,
flexible spending account, accident, life, short-term disability, long-term
disability and other employee welfare benefits (including retiree medical
benefits) to Transferred Employees that, in the case of Non-Union Transferred
Employees and Union Transferred Employees are substantially similar to those
benefits provided by Buyer under its corresponding welfare benefit plans (the
"Buyer's Welfare Plans"). For purposes of determining eligibility to
participate, and entitlement to benefits, in each Buyer Welfare Plan, each
Transferred Employee shall be credited with service, determined under the terms
of the corresponding welfare plans maintained by Seller on the Closing Date
(hereinafter referred to collectively as the "Seller Welfare Plans"). Any
restrictions on coverage for pre-existing conditions, waiting periods, and
requirements for evidence of insurability under the Buyer Welfare Plans shall be
waived in Buyer's Welfare Plans for Transferred Employees and retirees of the
Water Sector and their respective Beneficiaries, and Transferred Employees and
retirees of the Water Sector and their respective Beneficiaries shall receive
credit under the Buyer Welfare Plans for co-payments, payments under a
deductible limit made by them, and for out-of-pocket maximums applicable to them
during the plan year of the Seller Welfare Plan in which the Closing Date
occurs. As soon as practicable after the Closing Date, Seller shall deliver to
Buyer a list of the Transferred Employees and retirees of the Water Sector and
their respective Beneficiaries who had credited service under a Seller Welfare
Plan, together with each such individual's service, copayment, deductible and
out-of-pocket payment amounts under such plan.
5.12.3 Seller shall transfer to Buyer's flexible benefits plan
any balances standing to the credit of Transferred Employees under Seller's
flexible benefits plan as of the Closing Date. Seller shall provide to Buyer
prior to the Closing Date a list of those Transferred Employees that have
participated in the health or dependent care reimbursement accounts of Seller,
together with their elections made prior to the Closing Date with respect to
such Account, and balances standing to their credit as of the Closing Date.
5.13 Taxes. The Seller Parties, on the one hand, and Parent and
Buyer, on the other, shall (a) each provide the other with such assistance as
may reasonably be requested by either of them in connection with the preparation
of any Tax return, any audit or other examination by any taxing authority or any
judicial or administrative proceeding with respect to Taxes; (b) each retain and
provide the other with any records or other information which may be relevant to
such return,
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audit, examination or proceeding, and (c) each provide the other with any final
determination of any such audit or examination, proceeding or determination that
affects any amount required to be shown on any Tax return of the other for any
period (which shall be maintained confidentially). Without limiting the
generality of the foregoing, Parent and Buyer, on the one hand, and the Seller
Parties, on the other, shall retain, until the applicable statutes of
limitations (including all extensions) have expired, copies of all Tax returns,
supporting workpapers, and other books and records or information which may be
relevant to such returns for all Tax periods or portions thereof ending before
or including the Closing Date, and shall not destroy or dispose of such records
or information without first providing the other party with a reasonable
opportunity to review and copy the same.
5.14 Intentionally Omitted.
5.15 Citizens' Guarantees and Surety Instruments. Each of Parent and
Buyer shall use its reasonable efforts to assist Citizens in obtaining full and
complete releases on the guarantees, letters of credit, bonds and other surety
instruments listed on Schedule 5.15. In addition, until such time as Citizens'
guarantee to the City of Tolleson, Arizona (as listed as item 1 on Schedule
5.15) is released, Buyer shall deposit into a BancOne, Arizona trust account, on
the first business day of each calendar month commencing after the Closing Date,
cash in the amount of $43,430.00. Citizens will open such account at its expense
prior to Closing and, on the Closing Date, Sun City Sewer Company will deposit
into such account cash equal to the total accrued amount recorded on the books
of Sun City Sewer Company as of the Closing Date that is associated with the
City of Tolleson Municipal Finance Corporation Refunding Series 1998 Bonds.
Buyer shall maintain such account after Closing and be responsible for all fees
and expenses of BancOne, Arizona, relating to such account arising after
Closing. For purposes of this Section 5.15 and Section 5.16, reasonable efforts:
(a) shall include Parent's or Buyer's assumption of the Assumed Indebtedness,
the Contracts and the Permits on the terms set forth in this Agreement; (b)
shall include an obligation on the part of Parent or Buyer to provide a
guarantee, letter of credit, bond or other required surety instrument at Closing
to the extent required by any Contract or Permit and in general to provide an
equivalent surety instrument to be substituted for any surety instrument
provided by Citizens to any beneficiary in connection with the Business; and (c)
shall include the obligation of Buyer and/or Parent to provide a debt obligation
(including obtaining a minimum credit rating necessary to prevent any change to
the tax-exempt status of any of the Assumed Indebtedness and providing credit
enhancements such as bond insurance) to the issuer of any Bonds relating to the
Assumed Indebtedness satisfactory to such issuer in replacement of and in
substitution for Citizens' obligations to such issuer under the Assumed
Indebtedness, all to enable Parent or Buyer to assume the Assumed Indebtedness.
5.16 Assumption of Seller Debt.
5.16.1 Each of Buyer and Parent shall use its reasonable
efforts (as defined in Section 5.15) to assist Seller in obtaining all consents
and opinions and taking such other actions as may be required to enable Buyer or
Parent, as the case may be, to assume at the Closing all of Seller's liabilities
and obligations under the Assumed Indebtedness to the extent provided in Section
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2.3. If, after using such reasonable efforts, the parties reasonably conclude
that all such required consents and opinions will not be obtained by the date
that the conditions to Closing set forth in the first sentences of Sections
6.1.4 and 6.2.4 are expected to be satisfied, then Citizens, Parent and Buyer
will use their reasonable efforts and take such other actions as may be required
to enable Citizens to assign at the Closing all of Seller's liabilities and
obligations under the Assumed Indebtedness to the extent provided in Section
2.3, including complying with the provisions of Section 5.24 to the extent
applicable to such assignment of the Assumed Indebtedness.
5.16.2 Representations Re: Assumed Indebtedness.
(a) The Seller Parties represent that each of the Bonds
which make up the Assumed Indebtedness is a bond issue which was used to finance
sewage facilities within the meaning of Section 103(b)(4)(E) of the Internal
Revenue Code of 1954 as amended ("1954 Code") or Section 142(a)(5) of the Code,
as the case may be, or facilities for the furnishing of water within the meaning
of Section 103(b)(4)(G) of the 1954 Code or Section 142(a)(4) and Section 142(e)
of the Code, as the case may be, and that the interest of such Bonds was as of
their date of issue, excludable from the gross income of the holders of such
Bonds for federal or state (other than Illinois) income tax purposes pursuant to
such sections of the IRC or the Code. In the case of the facilities for the
furnishing of water (a) the water is or will be made available to members of the
general public (including electric utility, industrial, agricultural, or
commercial users) and (b) either the facility is operated by a governmental unit
or the rates for the furnishing or sale of the water have been established or
approved by a State or political subdivision thereof, by an agency or
instrumentality of the United States, or by a public service or public utility
commission or other similar body of any State or political subdivision thereof.
(b) The Seller Parties represent that they have complied
with all of their duties and obligations under the IDRB Documents, including
their obligations relating to the use of the proceeds of the bonds and the
ownership, operation, use and maintenance of the Assets financed with the
proceeds of the Bonds. Citizens and the other Seller Parties represent that the
representations and warranties of "Company" in the IDRB Documents remain true
and correct, and that they have not taken nor permitted to be taken any action
which would have the effect of subjecting the interest on any of such Bonds to
federal or state (other than Illinois) income taxation, except as otherwise
contemplated or permitted by the IDRB Documents.
(c) The Seller Parties represent that as of Closing all
the proceeds of the Bonds will have been spent in accordance with the IDRB
Documents, the construction of the projects to be financed with the Bonds will
have been completed, that there are no reserve funds associated with the Trust
Indentures for such Bonds, and that all of the proceeds of such Bonds were
invested in tax-exempt obligations of state and local governments (except to the
extent used to acquire or construct the facilities financed by such Bonds) and,
that therefore, the Seller Parties do not have any arbitrage profits subject to
the rebate requirements of Section 148 of the Code.
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(d) The Seller Parties represent that there is and has
been no audit or other examination by any taxing authority relating to the
Bonds.
(e) The Seller Parties further represent the following
with respect to the Bonds:
(1) The Assets financed by the Bonds are sewage facilities or
facilities for the furnishing of water, which means that (a)
the water is or will be made available to members of the
general public (including electric utility, industrial,
agricultural, or commercial users) and (b) either the facility
is operated by a governmental unit or the rates for the
furnishing or sale of the water have been established or
approved by a State or political subdivision thereof, by an
agency or instrumentality of the United States, or by a public
service or public utility commission or other similar body of
any State or political subdivision thereof;
(2) They have not caused or permitted to be caused any reissuance
of the Bonds under Section 1001 of the Code, without first
obtaining a "no adverse effect" opinion of bond counsel;
(3) They have not caused an extension of the maturity of such
Bonds without first obtaining a "no adverse effect" opinion of
bond counsel;
(4) They have not taken or caused to be taken any action that
would cause the Bonds to be arbitrage bonds under Section 148
of the Code, including, but not limited to, the failure to
rebate arbitrage profits, if any, as required by Section
148(f) of the Code;
(5) They have not taken any action that would cause the Bonds not
to be registered in accordance with Section 149(a) of the
Code; and
(6) They have not permitted the Bonds to become directly or
indirectly "federally guaranteed" under Section 149 of the
Code.
5.16.3 Covenants of Parent and Buyer. Parent and Buyer
covenant and agree, so long as any Assumed IDRB Indebtedness is outstanding, to
cause the Assets that were acquired, constructed, improved or equipped with the
proceeds of such Assumed IDRB Indebtedness to be used as sewage facilities
within the meaning of Section 103(b)(4)(E) of the 1954 Code or Section 142(a)(5)
of the Code, as the case may be, and facilities for the furnishing of water
within the meaning of Section 103(b)(4)(G) of the 1954 Code or 142(a)(4) and
Section 142(e) of the Code, as the case may be, which means in the case of the
facilities for the furnishing of water that (a) the
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water is or will be made available to members of the general public (including
electric utility, industrial, agricultural, or commercial users) and (b) either
the facility is operated by a governmental unit or the rates for the furnishing
or sale of the water have been established or approved by a State or political
subdivision thereof, by an agency or instrumentality of the United States, or by
a public service or public utility commission or other similar body of any State
or political subdivision thereof. Each of Parent and Buyer further covenants and
agrees, so long as any Assumed IDRB Indebtedness is outstanding, the following:
(a) It will not cause or permit to be caused any
reissuance under Section 1001 of the Code without first obtaining a "no adverse
effect" opinion of bond counsel;
(b) It will not cause an extension of the maturity of
the Bonds without first obtaining a "no adverse effect" opinion of bond counsel;
(c) It will not take or cause to be taken any action
that would cause the Bonds to be arbitrage bonds under Section 148 of the Code,
including, but not limited to, the failure to rebate arbitrage profits, if any,
as required by Section 148(f) of the Code;
(d) It will not take any action that would cause the
Bonds not to be registered in accordance with Section 149(a) of the Code;
(e) It will not permit the Bonds to become directly or
indirectly "federally guaranteed" under Section 149 of the Code; and
(f) It will comply with each representation, warranty,
covenant or other agreement or obligation set out by the IDRB Documents as in
effect on the date of execution of this Agreement.
5.17 Schedule of Permits. No later than March 13, 2000, Citizens
shall deliver to Buyer a schedule, to be identified as Schedule 5.17, which sets
forth all material Permits required for the use of the Acquired Assets and the
operation of the Business by Buyer substantially in the manner as it was
conducted prior to the date hereof. For purposes of this Section 5.17, material
Permits shall include those required for the service of all utility customers at
substantially the same service levels as provided by Seller on the date of this
Agreement. All Permits listed on Schedule 5.17 that are required to be listed on
Schedule 3.3 or Schedule 3.9 shall be so designated. Seller has made or will
make prior to the Closing Date timely applications for renewals of all such
Permits listed on Schedule 5.17, which under applicable law must be filed prior
to the Closing Date to maintain the Permits listed on Schedule 5.17 in full
force and effect.
5.18 Title Information. No later than March 13, 2000, Seller shall
use its reasonable efforts to deliver to Buyer true, correct and complete copies
of all existing title policies, surveys, leases, deeds, instruments and
agreements relating to title to the Real Estate in Seller's possession.
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5.19 Transaction with Related Parties. Effective as of the Closing
Date, except as otherwise provided in Sections 5.9 through 5.12, 5.15, 5.24,
5.26, 5.27 and 2.7.1(j) of this Agreement, Seller shall have terminated and
canceled all contracts, commitments and agreements (including employment
relationships) relating to the Acquired Assets or the Business, between Seller,
any Affiliate of Seller (including Citizens), any officer or director of any
Seller Party, or any Affiliate of the foregoing. Seller shall be solely liable
for any contractual or other claims, express or implied arising out of the
termination and cancellation of any of the foregoing raised by any party
thereto.
5.20 Approval by Citizens. Citizens shall, as the sole owner of
common stock of each other Seller Party, vote all of such shares of common stock
to approve this Agreement and the transactions contemplated hereby.
5.21 Supplemental Information.
5.21.1 Citizens shall provide Buyer, within fifteen (15) days
after the execution or the date of receipt thereof, a copy of (a) each Contract
(other than with respect to which the Business' total annual liability or
expense is less than $100,000 per such Contract) entered into by Seller after
the date hereof and prior to the Closing Date; (b) a copy of any written notice
for assessments for public improvements against the Real Estate received after
the date hereof and prior to the Closing Date; (c) a copy of the filing of any
condemnation, expropriation, eminent domain or similar proceeding affecting all
or any portion of any of the Real Estate received after the date hereof but
prior to the Closing Date; and (d) a copy of any Contract where Seller is a
lessee relating to the use or occupancy of the Real Estate and where such
Contract involves annual payments in excess of $100,000 entered into by Seller
after the date hereof and prior to the Closing Date.
5.21.2 Within fifteen (15) days after the receipt of notice of
violation, Citizens shall notify Buyer of any violations of state or federal
drinking water standards which, if such violations existed on the date hereof,
would be required to be disclosed pursuant to Section 3.8.10 hereof, and shall
promptly notify Buyer of the actions proposed to be taken by Seller to correct
or otherwise respond to such violations.
5.22 Non-Competition. The Seller Parties agree that for a period of
fifteen (15) years after the Closing Date no Seller Party nor any Affiliate of a
Seller Party shall directly or indirectly own, manage, operate, control or
participate in the ownership, management, operation or control of or be
otherwise connected in any substantial manner with any entity (other than Buyer
and its successors and assigns) engaged in the business of storing, supplying
and distributing water in the States in which Buyer acquires any Acquired
Assets, whether or not such business is subject to regulation by a PUC (it being
understood that the individual directors of Seller and Citizens are not
Affiliates of a Seller Party).
5.23 Intentionally Omitted.
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5.24 IDRB Obligations.
(a) Buyer's IDRB Obligations. Each party acknowledges that (x)
Citizens is and after the Closing Date shall continue to be and shall remain the
primary obligor with respect to the Retained IDRB Indebtedness outstanding
immediately after the Closing Date to the same extent as though no sale of the
Acquired Assets had been made and that Parent and Buyer shall have no payment
obligations with respect to such Retained IDRB Indebtedness, (y) the IDRB
Documents require Citizens not to take or permit to be taken any action which
would have the effect, directly or indirectly, of subjecting the interest on any
of the Bonds to federal or state (other than Illinois) income taxation, and (z)
the IDRB Documents governing certain of the Bonds issued by The Industrial
Development Authority of the County of Maricopa, Arizona (the "Maricopa IDA"),
require Buyer to agree in writing with the Maricopa IDA with respect to certain
matters relating to the operation, ownership, maintenance and use of the Assets
that were acquired, constructed, improved or equipped with the proceeds of such
Bonds. Accordingly, Parent and Buyer covenant and agree (i) to deliver to the
Maricopa IDA on or prior to the Closing Date an agreement substantially in the
form attached hereto as Exhibit C, duly executed by Buyer, (ii) at Closing to
execute and deliver to Citizens an agreement substantially in the form attached
hereto as Exhibit D, with respect to each issuer of Bonds relating to Retained
IDRB Documents that will be outstanding after the Closing Date, (iii) so long as
any such Bonds are outstanding, to cause the Acquired Assets that were acquired,
constructed, improved or equipped with the proceeds of such Bonds to be used as
facilities for the furnishing of water (that is, (a) the water is or will be
made available to members of the general public (including electric utility,
industrial, agricultural, or commercial users) and (b) either the facility is
operated by a governmental unit or the rates for the furnishing or sale of the
water have been established or approved by a State or political subdivision
thereof, by an agency or instrumentality of the United States, or by a public
service or public utility commission or other similar body of any State or
political subdivision thereof) or sewage facilities within the meaning of
Section 103(b)(4)(E) of the 1954 Code, or Section 142(a)(5) of the Code as the
case may be.
(b) IDRB Construction Funds. Citizens hereby represents that
there will be no construction funds or unspent bond proceeds available after the
Closing Date that are held by the trustees of the Bonds relating to the Retained
IDRB Indebtedness.
(c) Consents and Opinions. The parties shall use their
respective best commercially reasonable efforts to obtain all consents and legal
opinions as may be required under the Retained IDRB Documents to enable Seller
to retain all Retained IDRB Indebtedness and to sell the Acquired Assets to
Buyer.
5.25 Cooperation with Respect to Like-Kind Exchange. Buyer agrees
that Seller may, at Seller's written election delivered to Buyer no later than
five (5) days prior to the Closing Date, direct that all or a portion of the
Initial Cash Payment be delivered to a "qualified intermediary" as defined in
Treasury Regulation ss.1.1031(k) - (g)(4) as to enable Seller's relinquishment
of the Acquired Assets to qualify as part of a like-kind exchange of property
covered
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by Section 1031 of the Code. If Seller so elects, Buyer shall reasonably
cooperate with Seller (but without being required to incur any out-of-pocket
costs in the course thereof) in connection with Seller's efforts to effect such
like-kind exchange, which cooperation shall include, without limitation, taking
such actions as Seller reasonably requests in order to enable Seller to qualify
such transfer as part of a like-kind exchange of property covered by Section
1031 of the Code (including any actions reasonably required to facilitate the
use of a "qualified intermediary"), and Buyer agrees that Seller may assign all
or part of its rights (but no obligations) under this Agreement to a person or
entity acting as a qualified intermediary to qualify the transfer of the Assets
as part of a like-kind exchange of property covered by Section 1031 of the Code.
Buyer and Seller agree in good faith to use reasonable efforts to coordinate the
transactions contemplated by this Agreement with any other transactions engaged
in by either Buyer or Seller; provided that such efforts shall, in no event,
result in any delay in the consummation of the transactions contemplated by this
Agreement. Seller shall indemnify and hold Buyer harmless from any cost, expense
or liability arising from its cooperating under this Section 5.25.
5.26 Transition Plan. Within 30 days after the execution date of
this Agreement, the parties jointly shall establish a transitional services
team, which shall include expertise from various functional specialties
associated with or involved in providing billing, payroll and other support
services provided to Seller by any automated or manual process using facilities
or employees that are not included among the Acquired Assets or Transferred
Employees. Such team will be responsible for preparing, and timely implementing,
a transition plan which will identify and describe substantially all of the
various transition activities that the parties will cause to occur before and
after Closing and any other transfer of control matters that any party
reasonably believes should be addressed in such transition plan. The transition
plan will set forth reasonable arrangements providing Buyer, at Buyer's sole
expense, with appropriate access to Seller's relevant computer systems to allow
for a full conversion of the relevant data and functionality to Buyer's systems
on the Closing Date. Buyer and Seller shall use their commercially reasonable
efforts to cause their representatives on such transition team to cooperate in
good faith and take all reasonable steps necessary to develop a mutually
acceptable transition plan no later than 60 days prior to the Closing Date.
5.27 Procedures regarding Refunds of Advances. Within 30 days after
the execution date of this Agreement, the parties jointly shall establish a
working group of appropriate subject matter experts to determine the appropriate
obligations of Parent and Buyer regarding notification and the provision of
other accurate and timely data to Citizens to enable Citizens timely and
accurately to satisfy the refund obligations described in Section 2.3.3(b). Such
working group will be responsible for preparing a comprehensive agreement no
later than March 13, 2000, which agreement shall be executed by the parties at
Closing. Among other arrangements, the parties would require that the customers
and developers owed refunds provide joint notices to Buyer and Citizens.
5.28 Title Insurance. Prior to Closing, Seller shall cooperate with
Buyer and use commercially reasonable efforts to assist Buyer if Buyer desires
to obtain ALTA title insurance commitments (collectively, the "Title
Commitments," and each a "Title Commitment"), in final
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form, from one or more title insurance companies (collectively, the "Title
Company"), committing the Title Company (subject only to the satisfaction of any
industry standard requirements contained in the Title Commitment) to issuing
ALTA (or its local equivalent) form of title insurance policies insuring good,
valid, indefeasible fee simple title to the Real Estate in Buyer, in all cases,
at Buyer's sole expense and in the respective amounts that Buyer requests prior
to Closing, subject to no Liens or other exceptions to title other than
Permitted Exceptions (collectively the "Title Policies"). On or prior to the
Closing Date, Seller shall execute and deliver, or cause to be executed and
delivered, to the Title Company, at no cost to Seller, any customary affidavits,
standard gap indemnities and similar documents reasonably requested by the Title
Company in connection with the issuance of the Title Commitments or the Title
Policies; provided that such efforts and Buyers' request for Title Policies or
Title Commitments shall, in no event, result in any delay in the consummation of
the transactions contemplated by this Agreement.
ARTICLE 6
CONDITIONS PRECEDENT; TERMINATION
6.1 Conditions Precedent to Obligations of Buyer and Parent. The
obligations of Buyer and Parent to cause the purchase of the Acquired Assets and
the assumption of the Assumed Liabilities and to consummate the other
transactions contemplated hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions (any one or more of which
may be waived in writing in whole or in part by Buyer and Parent in their sole
discretion):
6.1.1 Performance of Agreements; Representations and
Warranties. Seller shall have performed or complied in all material respects
with all agreements and covenants required by this Agreement to be performed or
complied with by them at or prior to the Closing; and the representations and
warranties set forth in this Agreement made by Seller shall be true and correct
on and as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date,
except for representations and warranties that speak as of a specific date or
time other than the Closing Date (which need only be true and correct as of such
date or time), other than, in all such cases (except Section 3.25), such
failures to be true and/or correct as would not in the aggregate reasonably be
expected to have a Material Adverse Effect; provided, however, that if any such
representation or warranty is already qualified in any respect by materiality or
as to material adverse effect, for purposes of determining whether this
condition has been satisfied, such materiality or material adverse effect
qualification will be in all respects ignored and such representation or
warranty shall be true and correct in all respects without regard to such
qualification (but subject to the overall exception as to material adverse
effect set forth immediately prior to this proviso); and provided further, that
the representation and warranty set forth in Section 3.5.1 shall be deemed to be
true and correct on and as of the Closing Date if any Material Adverse Effect
that may have arisen or occurred between the execution date of this Agreement
and the Closing Date shall have been cured or remedied such that such Material
Adverse Effect is not continuing as of the Closing Date. Buyer shall have been
furnished with a
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certificate of the Chief Financial Officer or other Vice President of Citizens
dated the Closing Date, certifying to the foregoing.
6.1.2 Opinion of Counsel. Buyer shall have received from L.
Russell Mitten II, Vice President and General Counsel of Seller, an opinion
dated the Closing Date, in form and substance satisfactory to Buyer, to the
effect set forth in Exhibit E hereto.
6.1.3 HSR Act. The applicable waiting period under the HSR Act
with respect to the transactions contemplated hereby shall have expired or been
terminated.
6.1.4 Required PUC and Other Consents. The PUC shall have
issued an order approving the transactions contemplated hereby, and such order
shall not contain any restrictions or conditions (other than those in effect on
the date hereof or requiring that the regulatory treatment with respect to the
Business in existence as of the date of this Agreement applicable to Seller be
continued following the transactions contemplated hereby) which would have a
Material Adverse Effect or a material adverse effect on any other regulated
business of Buyer in the state in which the PUC has jurisdiction, and such order
shall be final and unappealable; Seller shall have obtained all statutory,
regulatory and other consents and approvals which are required in order to
consummate the transactions contemplated hereby and to permit Buyer to conduct
the Business in the manner contemplated by Section 3.25 hereof other than those
the failure of which to obtain would not have a Material Adverse Effect. Seller
shall have also obtained (i) all consents and legal opinions required to enable
Parent or Buyer to assume (or for Citizens to assign to Parent or Buyer) the
Assumed Indebtedness (without any change in the tax-exempt status of such
Assumed Indebtedness and without any event of taxability relating to the matters
set forth in Sections 7.4.1(a)(D) and 7.4.1(b)(F)) and all other consents and
legal opinions required to enable Seller to sell the Acquired Assets to Buyer at
the Closing (without any change in the tax-exempt status of such Assumed
Indebtedness and without any event of taxability relating to the matters set
forth in Sections 7.4.1(a)(D) and 7.4.1(b)(F)), free and clear of all Liens
other than Permitted Exceptions (and specifically free and clear of any Lien
arising under or pursuant to the Mortgage Indenture) and (ii) all consents
required under Contracts and Permits relating to Seller's water appropriation
and flowage rights to the extent reasonably sufficient to enable Buyer to
service the customers of the Business and to service future commitments under
such Contracts.
6.1.5 Injunction; Litigation. (i) No statute, rule, regulation
or order of any court or Authority shall be in effect which restrains or
prohibits the transactions contemplated by this Agreement or which would limit
or materially adversely affect Buyer's ownership of all or any material portion
of the Acquired Assets, nor (ii) shall there be pending or threatened any
litigation, suit, action or proceeding by any party which would reasonably be
expected to materially limit or materially adversely affect Buyer's ownership of
the Acquired Assets.
6.1.6 Documents. Seller and Citizens shall have delivered all
of the certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Section 2.7 hereof and shall
have made arrangements reasonably satisfactory
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to Buyer to deliver to Buyer as promptly as practicable after the Closing such
records (including customer and employee records) necessary to own and operate
the Business.
6.1.7 Related Closings. Buyer shall be reasonably satisfied
that the consummation of each of the asset purchase and sale transactions
contemplated by those certain purchase agreements described on Schedule 6.1.7
(the "Related Purchase Agreements") will occur concurrently with the Closing.
6.2 Conditions Precedent to Obligations of Seller Parties. The
obligations of the Seller Parties to cause the sale of the Acquired Assets and
to consummate the other transactions contemplated hereby are subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions (any one or more of which may be waived in writing in whole or in
part by the Seller Parties in their sole discretion):
6.2.1 Performance of Agreements; Representations and
Warranties. Parent and Buyer shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by them at or prior to the Closing; and the
representations and warranties set forth in this Agreement made by Buyer and
Parent shall be true and correct on and as of the Closing Date, with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date, except for representations and warranties that speak
as of a specific date or time other than the Closing Date (which need only be
true and correct as of such date or time), other than, in all such cases (except
Section 4.2), such failures to be true and/or correct as would not in the
aggregate reasonably be expected to have a material adverse effect on the
respective ability of Buyer and Parent to perform their obligations under this
Agreement and the Transaction Documents, provided, however, that if any such
representation or warranty is already qualified in any respect by materiality or
as to material adverse effect, for purposes of determining whether this
condition has been satisfied, such materiality or material adverse effect
qualification will be in all respects ignored and such representation or
warranty shall be true and correct in all respects without regard to such
qualification (but subject to the overall exception as to material adverse
effect set forth immediately prior to this proviso). Seller shall have been
furnished with a certificate of the President or Vice President of Parent and
Buyer, dated the Closing Date, certifying to the foregoing.
6.2.2 Opinion of Counsel. Seller shall have received from
Dechert Price & Rhoads, counsel to Parent and Buyer, an opinion dated the
Closing Date, in form and substance satisfactory to Seller, to the effect set
forth in Exhibit F hereto.
6.2.3 HSR Act. The applicable waiting period under the HSR Act
with respect to the transactions contemplated hereby shall have expired or been
terminated.
6.2.4 Required PUC and Other Consents. The PUC shall have
issued an order approving the transactions contemplated hereby and such order
shall not contain any restrictions or conditions which would have a material
adverse effect on Seller's business activities in the State in which the PUC has
jurisdiction or any significant adverse effect on Citizens'
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acquisition and divestiture activities in that State (including divestiture of
the Acquired Assets), and such order shall be final and unappealable; Seller
shall have obtained all statutory and regulatory consents and approvals which
are required in order to consummate the transactions contemplated hereby, other
than those the failure of which to obtain would not have a material adverse
effect on the Seller after the Closing. Seller shall have obtained (i) all
consents and legal opinions required to enable Parent or Buyer to assume (or
Citizens to assign to Parent or Buyer) the Assumed Indebtedness without any
change in the tax-exempt status thereof and without any event of taxability
relating to the matters set forth in Sections 7.4.1(a)(D) and 7.4.1(b)(F), (ii)
all consents and legal opinions required under the Retained IDRB Documents to
enable Seller to retain the Retained IDRB Indebtedness until maturity and to
sell the Acquired Assets to Buyer at the Closing (in each case without any
change in the tax-exempt status of the Assumed Indebtedness or the Retained IDRB
Indebtedness and without any event of taxability relating to the matters set
forth in Sections 7.4.1(a)(D) and 7.4.1(b)(F)), free and clear of all Liens
other than Permitted Exceptions (and specifically free and clear of any Lien
arising under or pursuant to the Mortgage Indenture), and (iii) all other
consents required or advisable in order for Seller to transfer Acquired Assets
without incurring material liability under any Contract, Permit or Real Estate
instrument.
6.2.5 Injunction; Litigation. (i) No statute, rule, regulation
or order of any court or Authority shall be in effect which restrains or
prohibits the transactions contemplated by this Agreement or which would limit
or materially adversely affect Seller's ownership of all or any material portion
of its properties, nor (ii) shall there be pending or threatened any litigation,
suit, action or proceeding by any party which could reasonably be expected to
materially limit or materially adversely affect Seller's ownership of any of its
properties.
6.2.6 Documents. Parent and Buyer shall have delivered all the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Sections 2.7, 5.24 and 5.27,
and shall have taken such actions as Seller may have requested pursuant to
Section 5.25 hereof.
6.2.7 Related Closings. Seller shall be reasonably satisfied
that the consummation of each of the Related Purchase Agreements will occur
concurrently with Closing.
6.3 Termination. This Agreement may be terminated at anytime prior
to the Closing Date:
6.3.1 by mutual written consent of the Seller Parties, Buyer
and Parent;
6.3.2 by any of the Seller Parties, Parent or Buyer if: (i)
any governmental or regulatory body the consent of which is a condition to the
obligations of the Seller Parties, Parent and Buyer to consummate the
transactions contemplated hereby shall have determined not to grant its consent
and all appeals of such determination shall have been taken and have been
unsuccessful; (ii) any court of competent jurisdiction shall have issued an
order, judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting the transactions
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contemplated hereby and such order, judgment or decree shall have become final
and nonappealable; or (iii) the Closing shall not have occurred on or before
March 31, 2001; provided, however, that the right to terminate this Agreement
under this Section 6.3.2(iii) will not be available to any party that is in
material breach of its representations, warranties, covenants or agreements
contained herein; and provided, further, that if Closing has not occurred by
such date because the conditions precedent to Closing set forth in the first
sentence of Section 6.1.4 and the first sentence of Section 6.2.4 have not been
fulfilled, then such date shall be automatically extended to September 30, 2001;
or
6.3.3 If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Section 6.3, this
Agreement shall become void and of no further force and effect, except for the
provisions of Section 5.6 relating to publicity, Sections 3.24 and 4.6 relating
to brokerage and Section 7.1 relating to expenses. Nothing in this Section 6.3
shall be deemed to release either party from any liability for any willful
breach by such party of the terms and provisions of this Agreement.
ARTICLE 7
CERTAIN ADDITIONAL COVENANTS
7.1 Certain Taxes and Expenses. Citizens shall be solely responsible
for all state and local sales, use, transfer, real property transfer and other
similar taxes, fees and charges that are calculated based on the value of the
Acquired Assets being transferred arising from and with respect to the sale and
purchase of the Acquired Assets and Buyer shall be solely responsible for all
transfer, registration, documentary stamp, recording and other similar fees and
charges arising from and with respect to the transfer and recording of title
documentation relating to the Acquired Assets. Parent shall be responsible for
all costs and expenses relating to the assumption by or assignment to Parent or
Buyer of the Assumed Indebtedness. Except as otherwise provided in this
Agreement, each of the parties hereto shall each bear its respective accounting,
legal and other expenses incurred in connection with the transactions
contemplated by this Agreement.
7.2 Maintenance of Books and Records. The Seller Parties, on the one
hand, and Buyer and Parent, on the other hand, shall cooperate fully with each
other after the Closing so that (subject to any limitations that are reasonably
required to preserve any applicable attorney-client privilege) each party has
access to the business records, contracts and other information existing at the
Closing Date and relating in any manner to the Acquired Assets or the Assumed
Liabilities or the conduct of the Business (whether in the possession of the
Seller Parties or Buyer or Parent). No files, books or records existing at the
Closing Date and relating in any manner to the Acquired Assets or the conduct of
the Business shall be destroyed by any party for a period of six years after the
Closing Date without giving the other party at least 30 days prior written
notice, during which time such other party shall have the right (subject to the
provisions hereof) to examine and to remove any such files, books and records
prior to their destruction. The access to files, books and records contemplated
by this Section 7.2 shall be during normal business hours and upon not less than
two (2) business days prior written request, shall be subject to such reasonable
limitations as the party having custody or control thereof may impose to
preserve the confidentiality of information
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contained therein, and shall not extend to material subject to a claim of
privilege unless expressly waived by the party entitled to claim the same.
7.3 Survival.
7.3.1 Subject to this Section 7.3, Section 7.4.2(g) and
Section 7.4.2(j), all representations, warranties, covenants and agreements
contained in this Agreement or the Transaction Documents shall survive (and not
be affected in any respect by) the Closing, any investigation conducted by any
party hereto and any information which any party may receive. Notwithstanding
the foregoing:
(a) the covenants contained in Sections 5.1, 5.3, 5.4,
5.5, 5.8.2 through 5.8.4 and 5.21 and the related indemnity obligations
contained in Section 7.4 shall terminate on, and no action or claim with respect
thereto may be brought after, the third anniversary of the Closing Date;
(b) the covenants contained in Section 5.2 and the
related indemnity obligations contained in Section 7.4 shall terminate on, and
no action or claim with respect thereto may be brought after, the Closing Date;
(c) the representations and warranties contained in
Sections 3.12 and 3.16 and the related indemnity obligations contained in
Section 7.4 shall terminate on, and no action or claim with respect thereto may
be brought following the expiration of the applicable statute of limitations (or
extensions or waivers thereof);
(d) the representations and warranties contained in
Section 3.2 and the related indemnity obligations contained in Section 7.4 shall
survive for an unlimited period of time;
(e) the representations and warranties contained in
Section 3.10 and the related indemnity obligations contained in Section 7.4
shall terminate on, and no action or claim with respect thereto may be brought
after, the third anniversary of the Closing Date;
(f) the representations and warranties contained in
Section 3.7 and 3.17 and the related indemnity obligations contained in Section
7.4 shall terminate on, and no action or claim with respect thereto may be
brought after, the third anniversary of the Closing Date;
(g) the representations and warranties contained in
Sections 3.3, 3.5, 3.6, 3.8, 3.9 and 3.25 and the related indemnity obligations
contained in Section 7.4 shall terminate on, and no action or claim with respect
thereto may be brought after, the third anniversary of the Closing Date;
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(h) the representations and warranties contained in
Section 3.11 and the related indemnity obligations contained in Section 7.4
shall terminate on, and no action or claim with respect thereto may be brought
after, the third anniversary of the Closing Date;
(i) the representations and warranties contained in
Section 4.2 and the related indemnity obligations contained in Section 7.4 shall
survive for an unlimited period of time;
(j) the representations and warranties contained in
Sections 4.3 and 4.4 and the related indemnity obligations contained in Section
7.4 shall terminate on, and no action or claim with respect thereto may be
brought after, the third anniversary of the Closing Date;
(k) the representations and warranties contained in
Section 4.5 and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be brought after,
the Closing Date; and
(l) all other representations and warranties contained
in this Agreement and the related indemnity obligations contained in Section 7.4
shall terminate on and no further action or claim with respect thereto may be
brought after, the second anniversary of the Closing Date;
(m) such representations and warranties specified in the
foregoing clauses (c) through (k), and the covenants contained in Section 5.1,
5.2, 5.3, 5.4, 5.5, 5.8.2 through 5.8.4 and 5.21 and the liability of any party
with respect thereto, shall not terminate with respect to any claim, whether or
not fixed as to liability or liquidated as to amount, with respect to which such
party has been given written notice setting forth the facts upon which the claim
for indemnification is based and, if possible, a reasonable estimate of the
amount of the claims prior to the relevant anniversary of the Closing Date or
the 30th day after the expiration of the applicable statute of limitations (or
extensions or waivers thereof), as the case may be. If any claim for
indemnification is asserted or could be asserted with respect to a breach or
asserted breach of Section 3.17 (Undisclosed Liabilities) and the Buyer or
Parent is also entitled to indemnification in respect of that claim for breach
or asserted breach of any other representation or warranty in this Agreement for
which there is a shorter survival period, such shorter period will apply to such
claim except to the extent that such claim is a product liability, toxic tort or
similar claim (as described in Section 2.3.3(a)) brought by a private party
litigant.
7.3.2 No claim for indemnity under Section 7.4 shall be
brought or made by Buyer or Parent pursuant to Sections 7.4.1(a)(B) or
7.4.1(a)(C):
(a) after the tenth anniversary of the Closing Date (the
seventh anniversary of the Closing Date in the event of a Change of Control of
Citizens), for any action or claim with respect to the Pre-Existing Conditions;
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(b) after the tenth anniversary of the Closing Date (the
seventh anniversary of the Closing Date in the event of a Change of Control of
Citizens), with respect to the presence of Hazardous Substances at any locations
other than the Real Estate; and
(c) after the third anniversary of the Closing Date, for
any action or claim with respect to any other Retained Liability;
Provided, however, that the foregoing time limitations shall not apply to
any such claims which have been the subject of a written notice from Parent
and/or Buyer to the Seller Parties prior to such period setting forth the facts
upon which the claim for indemnification is based and, if possible, a reasonable
estimate of the amount of the claims; and, provided, further, that the foregoing
time limitations shall also not apply to any such claims: (u) with respect to
Taxes; (v) with respect to any liability of the types that appear as "Trade
Payables" or "Other Current and Accrued Liabilities" (other than liabilities
arising after the Closing Date and relating to the Contracts listed as items
I.G.3(a), (b) and (c) on Schedule 3.6 (relating to the Tolleson contractual
arrangements) and the Contract listed as item I.G.4 (the Glendale contract) on
the financial statements of Seller; (w) not exclusively related to the Acquired
Assets or not exclusively related to the Business; and (x) with respect to any
of the matters discussed in Section 3.16 hereof.
For purposes of Sections 7.3.2(a) and (b), a "Change of Control of
Citizens" shall be deemed to have occurred if: (i) any "person" (as such term is
used in Section 13(d) and 14(d) of the Exchange Act of 1934, as amended (the
"Exchange Act"), other than an underwriter engaged in a firm commitment
underwriting on behalf of Citizens, is or becomes the beneficial owner (as such
term is used in Rule 13D-3 and 13D-5 under the Exchange Act, except that for
purposes of this clause (i) a person shall be deemed to have beneficial
ownership of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total outstanding shares of common stock of
the Company; (ii) all or substantially all of Citizens' and its Subsidiaries'
assets are sold, leased, exchanged or otherwise transferred to any person or
group of persons acting in concert; (iii) Citizens is merged or consolidated
with any other person, whether or not Citizens is the surviving corporation in
such merger or consolidation; or (iv) Citizens is liquidated or dissolved or
adopts a plan of liquidation.
7.4 Indemnification. Seller, Parent and Buyer agree as follows:
7.4.1 General Indemnification Obligations.
(a) Seller shall indemnify Buyer and its directors,
officers and other Affiliates (including Parent) and hold Buyer and such other
parties harmless from and against any and all Damages arising out of or
resulting from (A) any breach of any representation, warranty, covenant or
agreement made by the Seller Parties in this Agreement or in any document or
certificate required to be furnished to Buyer by any of the Seller Parties
pursuant to this Agreement (including the Transaction Documents); (B) subject to
Section 7.3.2, any Excluded Assets or Retained Liabilities; (C) subject to
Section 7.3.2, the ownership, operation or use of any of the businesses or
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assets of the Seller Parties or their Affiliates (other than the Business and
the Acquired Assets) whether before, on or after the Closing Date; and (D) an
event of taxability, as such term is customarily used in municipal securities
transactions, relating to the Retained IDRB Indebtedness and arising from the
sale of the Acquired Assets pursuant to this Agreement.
(b) Buyer and Parent shall indemnify Seller, and their
directors, officers and other Affiliates (including Citizens) and hold Seller
and such other parties harmless from and against any and all Damages arising out
of or resulting from (A) any breach of any representation, warranty, covenant or
agreement made by Parent or Buyer in this Agreement or in any document or
certificate required to be furnished to Seller by Parent or Buyer pursuant to
this Agreement (including the Transaction Documents), including the Buyer's IDRB
Obligations; (B) any Assumed Liabilities after the Closing Date, including the
Assumed Indebtedness; (C) the ownership, operation or use of the Business or the
Acquired Assets after the Closing Date (except to the extent resulting from
Retained Liabilities or to the extent resulting from breaches by the Seller
Parties of representations, warranties, covenants or agreements hereunder or in
the other Transaction Documents); (D) any claim by a Transferred Employee or a
Former Employee referred to on Schedule 5.12 or the Beneficiary of any such
employee or former employee for post-retirement health care or life insurance
benefits "incurred" (within the meaning of Section 5.9.4) after the Closing; (E)
any violation by Parent or Buyer, or any assignee, lessee or successor of Parent
or Buyer, of the covenants and agreements as provided by Section 5.16.3 hereof
and Section 5 of Exhibit D hereto; and (F) an event of taxability, as such term
is customarily used in municipal securities transactions, relating to the
Assumed Indebtedness and arising from the sale of the Acquired Assets pursuant
to this Agreement and/or the assignment or assumption of the Assumed
Indebtedness.
(c) For purposes of this Agreement, "Damages" shall mean
any and all losses, liabilities, obligations, damages (including any
governmental penalty or punitive damages assessed or asserted against the party
seeking indemnification and including costs of investigation, clean-up and
remediation), deficiencies, interest, costs and expenses and any claims,
actions, demands, causes of action, judgments, costs and reasonable expenses
(including reasonable attorneys' fees and all other reasonable expenses incurred
in investigating, preparing or defending any litigation or proceeding, commenced
or threatened, incident to the successful enforcement of this Agreement). For
purposes of this Section 7.4, the determination of whether any breach of any
representation, covenant or agreement has occurred, and the calculation of the
amount of Damages incurred by the Indemnified Party arising out of or resulting
from any breach of a representation, covenant or agreement by any party hereto,
the references to a "Material Adverse Effect" or materiality (or other
correlative terms) shall be disregarded, provided that no such breach shall be
found to have occurred due to facts or circumstances arising from an occurrence
or condition described in Section 1.1.61(a). Notwithstanding the foregoing,
Damages shall not include the loss of profits of the party seeking
indemnification, or punitive damages unless the party seeking indemnification
has had punitive damages assessed or asserted against it.
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(d) Notwithstanding any language contained in any
Transaction Document (including deeds to Real Estate and instruments delivered
by Seller to the Title Company), representations and warranties as to Real
Estate set forth in Section 3.10 and 3.11 will not be merged into any
Transaction Document and the indemnification obligations of Seller, and the
limitations on such obligations, set forth in this Agreement, shall control. No
provision set forth in any Transaction Document shall be deemed to enlarge,
alter or amend the terms or provisions of this Agreement.
7.4.2 General Indemnification Procedures.
(a) A party seeking indemnification pursuant to this
Section 7.4 (an "Indemnified Party") shall give prompt written notice to the
party from whom such indemnification is sought (the "Indemnifying Party") of the
assertion of any claim, the incurrence of any Damages, or the commencement of
any action, suit or proceeding, of which it has knowledge and in respect of
which indemnity may be sought hereunder, and will give the Indemnifying Party
such information with respect thereto as the Indemnifying Party may reasonably
request, but failure to give such required notice shall relieve the Indemnifying
Party of any liability hereunder only to the extent that the Indemnifying Party
has suffered actual prejudice thereby. The Indemnifying Party shall have the
right, exercisable by written notice to the Indemnified Party after receipt of
notice from the Indemnified Party of the commencement of or assertion of any
claim or action, suit or proceeding by a third party in respect of which
indemnity may be sought hereunder (a "Third Party Claim"), to assume the defense
of such Third Party Claim which involves (and continues to involve) solely
monetary damages; provided, that (A) the Indemnifying Party expressly agrees in
such notice that, as between the Indemnifying Party and the Indemnified Party,
solely the Indemnifying Party shall be obligated to satisfy and discharge the
Third Party Claim, (B) such Third Party Claim does not include a request or
demand for injunctive or other equitable relief by an Authority and (C) the
Indemnifying Party makes reasonably adequate provision to assure the Indemnified
Party of the ability of the Indemnifying Party to satisfy the full amount of any
adverse monetary judgment that is reasonably likely to result. The Indemnifying
Party shall be deemed to have satisfied the condition set forth in clause (C) of
the proceeding sentence if it is a regulated utility.
(b) Neither the Indemnified Party nor the Indemnifying
Party shall settle any Third Party Claim without the prior written consent of
the other, which consent shall not be unreasonably withheld or delayed.
(c) The Indemnifying Party or the Indemnified Party, as
the case may be, shall have the right to participate in (but not control), at
its own expense, the defense of any Third Party Claim which the other party is
defending as provided in this Agreement.
(d) Amounts paid in respect of indemnification
obligations of the parties shall be treated as an adjustment to the Purchase
Price.
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(e) Subject to Section 7.4.2(f) and Section 7.4.2(i),
neither Parent nor Buyer (and the other Persons for which they can claim
indemnity hereunder) shall be entitled to indemnification for Damages incurred
unless the aggregate amount of Damages incurred by Parent or Buyer (or the other
Persons for which they can claim indemnification), together with all other
claims for Damages under Section 7.4.2(e) of each of the Related Purchase
Agreements, exceeds $6,123,000 in the aggregate (the "Threshold Amount"), in
which case Seller shall then be liable for Damages in excess of the Threshold
Amount. Subject to Section 7.4.2(f) and Section 7.4.2(i), the cumulative
aggregate indemnity obligation of Citizens and its Affiliates under Section 7.4
of this Agreement and the Related Purchase Agreements shall not exceed
$60,000,000 (the "Ceiling").
(f) Notwithstanding the foregoing, the parties
acknowledge that Parent or Buyer (and the other Persons for which they can claim
indemnity hereunder) shall be entitled to indemnification for Damages in respect
of intentional and wilful breaches of covenants or agreements in this Agreement
or any of the Retained Liabilities other than the Specified Liabilities
irrespective of the Threshold Amount or the Ceiling (it being understood that
the failure to cure a breach shall not, by itself, be an intentional and wilful
breach). As used herein, the "Specified Liabilities" shall mean the Retained
Liabilities arising from claims made after the Closing Date which (i) do not
relate to matters within the scope of clauses (u), (v), (w) and (x) of Section
7.3.2; (ii) were not known to the Seller Parties on or prior to Closing; and
(iii) relate exclusively to the Acquired Assets or the Business prior to the
Closing Date. Notwithstanding anything to the contrary in this Section 7.4,
Parent or Buyer (or the other Persons for which they can claim indemnification)
shall be entitled to indemnification for Damages in respect of a breach of
Section 3.2, 3.12 or 3.16 irrespective of the Threshold Amount or the Ceiling.
(g) The rights and remedies of Seller, Parent and Buyer
under this Section 7.4 are exclusive and in lieu of any and all other rights and
remedies which Seller, Parent and Buyer may have under this Agreement or
otherwise for monetary relief with respect to (x) the inaccuracy of any
representation, warranty, certification or other statement made (or deemed made)
by Seller, Parent or Buyer in or pursuant to this Agreement or any of the
Transaction Documents or (y) any breach or failure to perform any covenant or
agreements set forth in this Agreement or any of the Transaction Documents.
(h) Except to the extent provided in Section 7.4.2(j)
below, no right to indemnification under this Section 7.4 shall be limited by
reason of any investigation or audit conducted before or after the Closing of
any party hereto including, without limitation, the knowledge of such party of
any breach of any representation, warranty, agreement or covenant by the other
party at any time, or the decision by such party to complete the Closing.
(i) No party shall have any liability to another party
under this Section 7.4 for Damages (and no cost or expense relating to such
Damages shall be included in determining the extent of Damages incurred by such
party for purposes of Section 7.4.2(e)) to the extent that:
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(A) the Indemnified Party recovers insurance
proceeds covering the Damages or otherwise recovers payments in respect of such
Damages from any other source (whether in a lump sum or stream of payments); or
(B) the Indemnified Party's Tax liability is
actually reduced as a result of a tax benefit to which the Indemnified Party
becomes entitled in respect of the Damages.
(j) Seller shall have no liability or obligation under
this Section 7.4 for any Damages resulting from the inaccuracy or breach of any
representation or warranty if such inaccuracy or breach is disclosed by Seller
pursuant to and in accordance with Sections 5.3 and 8.4 hereof;
(k) Buyer agrees to use its commercially reasonable
efforts to give timely and effective written notice to the appropriate insurance
carrier(s) of any occurrence or circumstances which, in the judgment of Buyer
consistent with its customary risk management practices, appear likely to give
rise to a claim against Buyer that is likely to involve one or more insurance
policies of Buyer. Any such notice shall be given in good faith by Buyer without
regard to the possibility of indemnification payments by Seller under this
Section 7.4, and shall be processed by Buyer in good faith and in a manner
consistent with its risk management practices involving claims for which no
third party contractual indemnification is available. Buyer agrees that (i) if
it is entitled to receive payment from Seller for Damages arising under or
pursuant to a breach of the representation and warranty set forth in Section
3.10, and (ii) if Buyer has obtained title insurance which may cover the claim
or matter giving rise to such Damages, then (iii) such title insurance shall be
primary coverage and Buyer will make a claim under the title insurance if such
claim can be made in good faith before enforcing its right to receive payment
from Seller. Buyer shall be under no obligation to obtain title insurance or
prosecute such claim (other than the initial filing of such claim).
(l) If at any time subsequent to the receipt by an
Indemnified Party of an indemnity payment hereunder, such Indemnified Party (or
any Affiliate thereof) receives any recovery, settlement or other similar
payment with respect to the Damages for which it received such indemnity payment
(including insurance proceeds and other payments pursuant to Section 7.4.2(i)(A)
and a tax benefit pursuant to Section 7.4.2(i)(B)) (the "Recovery"), such
Indemnified Party shall promptly pay to the Indemnifying Party an amount equal
to the amount of such Recovery, less any expense incurred by such Indemnified
Party (or its Affiliates) in connection with such Recovery, but in no event
shall any such payment exceed the amount of such indemnity payment;
(m) In the event of any indemnification claim under this
Section 7.4 involving the claim of any third party, the Indemnified Party shall
cooperate fully (and shall cause its Affiliates to cooperate fully) with the
Indemnifying Party in the defense of any such claim under this Section 7.4.
Without limiting the generality of the foregoing, the Indemnified Party shall
furnish the Indemnifying Party with such documentary or other evidence as is
then in its or any of its Affiliates' possession as may reasonably be requested
by the Indemnifying Party for the purpose
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of defending against any such claim. Whether or not the Indemnifying Party
chooses to defend or prosecute any claim involving a third party, all the
parties hereto shall cooperate in the defense or prosecution thereof and shall
furnish such records, information and testimony, and attend such conferences,
discovery proceedings, hearings, trials and appeals, as may be reasonably
requested in connection therewith.
7.4.3 Indemnification for Negligence. WITHOUT LIMITING OR
ENLARGING THE SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS
AGREEMENT, AN INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER
IN ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM
GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE,
CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY, VIOLATION OF ANY LAW OR
OTHER LEGAL FAULT OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS
PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
7.5 UCC Matters. From and after the Closing Date, Seller will
promptly refer all inquiries with respect to ownership of the Acquired Assets or
the Business to Buyer. In addition, Seller will execute such documents and
financing statements as Buyer may reasonably request from time to time to
evidence transfer of the Acquired Assets to Buyer in accordance with this
Agreement, including any necessary assignment of financing statements.
7.6 Financial Statements. In connection with the preparation and
filing of any registration statement or periodic report of Buyer or its
Affiliates pursuant to Rule 3-05, Article 11 of Regulation S-X or other rule or
regulation promulgated under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, Seller, at Buyer's expense, shall
provide Buyer (a) by April 30, 2000 or within 120 days after Buyer's written
request therefor if made after January 1, 2000, with the following audited
financial statements: (i) a statement of net assets of the Business as of the
end of the last fiscal year prior to Closing; and (ii) a statement of income of
the Business and a statement of cash flows or its equivalent of the Business for
the last fiscal year prior to Closing (in each case combined with the businesses
being acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements), including opinions thereon of Seller's Accountants, and (b) within
90 days after Buyer's written request made therefor (provided such request is
made after the end of the fiscal quarter described below), the following
unaudited statements: (i) a statement of net assets of the Business as of the
end of the last fiscal quarter prior to Closing (but only if such quarter is
subsequent to the last fiscal year prior to Closing); and (ii) a statement of
income of the Business and a statement of cash flows or its equivalent of the
Business, for the period from the end of the last fiscal year through the end of
the last fiscal quarter prior to Closing (in each case combined with the
businesses being acquired by Buyer or Affiliates of Buyer pursuant to the
Related Purchase Agreements).
7.7 Collection of Receivables. Seller agrees that it shall promptly
(and in any event no later than five (5) Business Days following receipt)
deliver all such payments with respect
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to accounts receivable from customers of the Business received on and after the
Closing Date (including but not limited to negotiable instruments tendered in
payment of accounts receivable assigned to Buyer hereunder which shall be duly
endorsed by Seller to the order of Buyer) to Buyer. Seller shall cooperate with
Buyer in coordinating the transfer of collection agents and customers of the
Business who pay their bills through the Automated Clearinghouse (ACH) process
to Buyer.
ARTICLE 8
MISCELLANEOUS
8.1 Construction. Parent, Buyer and the Seller Parties have
participated jointly in the negotiation and drafting of this Agreement and the
Transaction Documents. In the event any ambiguity or question of intent or
interpretation arises, this Agreement and the Transaction Documents shall be
construed as if drafted jointly by Parent, Buyer and the Seller Parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The word "including" in this Agreement shall mean
including without limitation. Words in the singular shall be held to include the
plural and vice versa and words of one gender shall be held to include the other
genders as the context requires. The terms "hereof," "herein," and "herewith"
and words of similar import shall, unless otherwise stated, be construed to
refer to this Agreement as a whole (including all of the Schedules and Exhibits
hereto) and not to any particular provision of this Agreement, and Article,
Section, paragraph, Exhibit and Schedule references are to the Articles,
Sections, paragraphs, Exhibits and Schedules to this Agreement unless otherwise
specified. The word "or" shall not be exclusive. Provisions of this Agreement
shall apply, when appropriate, to successive events and transactions. Section
references refer to this Agreement unless otherwise specified.
8.2 Notices. Any notice, request, demand, waiver, consent, approval
or other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to the
party personally or sent to the party by telecopy, by registered or certified
mail (return receipt requested) with postage and registration or certification
fees thereon prepaid, or by any nationally recognized overnight courier
addressed to the party at its address set forth below:
If to Parent:
American Water Works Company
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, New Jersey 08043
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Fax: (609) 346-8299
Attention: General Counsel
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to Buyer:
Arizona-American Water Company
7500 East McDonald Drive
Suite 200-A
Scottsdale, AZ 85250
Fax: (480) 483-8314
Attention: Corporation Counsel
With a copy to Parent and a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to Seller:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: Robert J. DeSantis
Telecopier: (203) 614-4625
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with copies to:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: L. Russell Mitten, II
Telecopier: (203) 614-4651
and
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: J. Michael Love
Telecopier: (203) 614-5201
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention: Jeffry L. Hardin
Telecopier: (202) 387-3467
8.3 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided, however, that no party
may assign, delegate or otherwise transfer any of its rights or obligations
under this Agreement without the consent of the other party hereto; provided
that Seller may assign its rights or delegate its duties under this Agreement to
a qualified intermediary chosen by Seller to structure the transactions
contemplated hereby as a like-kind exchange of property covered by Section 1031
of the Code.
8.4 Exhibits and Schedules. All Exhibits and Disclosure Schedules
annexed hereto or referred to herein are hereby incorporated in and made a part
of this Agreement as if set forth in full herein. Disclosure of any fact or item
in any Schedule referenced by a particular paragraph or Section in this
Agreement shall, should the existence of the fact or item or its contents be
clearly related to any other paragraph or section, be deemed to be disclosed
with respect to that other paragraph or section.
8.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
the conflicts of laws principles thereof.
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8.6 Dispute Resolution. Except as otherwise provided herein, any
dispute, controversy or claim between the parties relating to, arising out of or
in connection with this Agreement (or any subsequent agreements or amendments
thereto), including as to its existence, enforceability, validity,
interpretation, performance or breach or as to indemnification or damages,
including claims in tort, whether arising before or after the termination of
this Agreement (any such dispute, controversy or claim being herein referred to
as a "Dispute") shall be settled without litigation and only by use of the
following alternative dispute resolution procedure:
(a) At the written request of a party, each party shall
appoint a knowledgeable, responsible representative to meet and negotiate in
good faith to resolve any Dispute. The discussions shall be left to the
discretion of the representatives. Upon agreement, the representatives may
utilize other alternative dispute resolution procedures such as mediation to
assist in the negotiations. Discussions and correspondence among the parties'
representatives for purposes of these negotiations shall be treated as
confidential information developed for the purposes of settlement, exempt from
discovery and production, and without the concurrence of both parties shall not
be admissible in the arbitration described below, or in any lawsuit. Documents
identified in or provided with such communications, which are not prepared for
purposes of the negotiations, are not so exempted and may, if otherwise
admissible, be admitted in the arbitration.
(b) If negotiations between the representatives of the parties
do not resolve the Dispute within 60 days of the initial written request, the
Dispute shall be submitted to binding arbitration by a single arbitrator
pursuant to the Commercial Arbitration Rules, as then amended and in effect, of
the American Arbitration Association (the "Rules"); provided, however, that at
the election of either party, the arbitration shall take place before three (3)
arbitrators, one arbitrator being selected by Parent, one arbitrator being
selected by Citizen, and the third arbitrator, knowledgeable in the general
subject matter of the dispute, controversy or claim, being selected by the other
two arbitrators. Either party may demand such arbitration in accordance with the
procedures set out in the Rules. The parties hereto shall use reasonable efforts
to coordinate any arbitration commenced under this Agreement with any
arbitration on the same or similar issues commenced under any of the Related
Purchase Agreements so that the resolution of the arbitration under this
Agreement and the similar issues under the Related Purchase Agreements can be
resolved as expeditiously and efficiently as reasonably practicable. Reasonable
efforts shall include use of a common arbitrator or panel of arbitrators where
practicable. The arbitration shall take place in Newark, New Jersey. The
arbitration hearing shall be commenced within 60 days of such party's demand for
arbitration. The arbitrator(s) shall have the power to and will instruct each
party to produce evidence through discovery (i) that is reasonably requested by
the other party to the arbitration in order to prepare and substantiate its case
and (ii) the production of which will not materially delay the expeditious
resolution of the dispute being arbitrated; each party hereto agrees to be bound
by any such discovery order. The arbitrator(s) shall control the scheduling (so
as to process the matter expeditiously) and any discovery. The parties may
submit written briefs. At the arbitration hearing, each party may make written
and oral presentations to the arbitrator(s), present testimony and written
evidence and examine witnesses. No party shall be eligible to receive, and the
arbitrator(s) shall not have the authority to award, exemplary or punitive
damages. The
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arbitrator(s) shall rule on the Dispute by issuing a written opinion within 30
days after the close of hearings. The arbitrators' majority decision shall be
binding and final. Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction.
(c) Each party will bear its own costs and expenses in
submitting and presenting its position with respect to any Dispute to the
arbitrator(s); provided, however, that if the arbitrator(s) determines that the
position taken in the Dispute by the non-prevailing party taken as a whole is
unreasonable, the arbitrator(s) may order the non-prevailing party to bear such
fees and expenses, and reimburse the prevailing party for all or such portion of
its reasonable costs and expenses in submitting and presenting its position, as
the arbitrator(s) shall reasonably determine to be fair under the circumstances.
Each party to the arbitration shall pay one-half of the fees and expenses of the
arbitrator(s) and the American Arbitration Association.
(d) Notwithstanding any other provision of this Agreement, (i)
either party may commence an action to compel compliance with this Section 8.6
and (ii) if any party, as party of a Dispute, seeks injunctive relief or any
other equitable remedy, including specific enforcement, then such party shall be
permitted to seek such injunctive or equitable relief in any federal or state
court or competent jurisdiction before, during or after the pendency of a
mediation or arbitration proceed under this Section 8.6.
8.7 Severability. The parties agree that (a) the provisions of this
Agreement shall be severable in the event that any provision hereof is held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable,
(b) such invalid, void or otherwise unenforceable provision shall be
automatically replaced by another provision which is as similar as possible in
terms to such invalid, void or otherwise unenforceable provision but which is
valid and enforceable and (c) the remaining provisions shall remain enforceable
to the fullest extent permitted by law.
8.8 No Third Party Beneficiaries. Nothing herein expressed or
implied is intended or should be construed to confer upon or give to any Person
other than the parties hereto and their successors and permitted assigns any
rights or remedies under or by reason of this Agreement.
8.9 Entire Agreement. This Agreement, the Schedules and Exhibits
hereto and the other Transaction Documents, and the Confidentiality Agreement
dated August 2, 1999, between Citizens and Parent, (i) together constitute the
entire understanding of the parties (and their affiliates) with respect to the
subject matter hereof, and any related matter, (ii) supercede all prior
agreements or understandings, written or oral, entered into by any of the
parties that concern the subject matter hereof and (iii) are not intended to
confer upon any Person other than the parties hereto any benefit, right or
remedy.
8.10 Amendment and Waiver. The parties may, by mutual agreement,
amend this Agreement in any respect, and any party, as to such party, may (i)
extend the time for the
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performance of any of the obligations of the other party; (ii) waive any
inaccuracies in representations and warranties by the other party; (iii) waive
compliance by the other party with any of the covenants or agreements contained
herein and performance of any obligations by the other party; and (iv) waive the
fulfillment of any condition that is precedent to the performance by such party
of any of its obligations under this Agreement. To be effective, any such
amendment or waiver must be in writing and be signed by the party providing such
waiver or extension, as the case may be. The waiver by any party hereto of any
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach, whether or not similar.
8.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
8.12 Headings. The headings preceding the text of the sections and
subsections hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
8.13 Definitions. For purposes of this Agreement, references to the
knowledge of the Seller Parties (including a reference to "the best of the
knowledge of the Seller Parties" and similar references) shall mean the actual
knowledge possessed by any of the following officers or employees of Citizens:
Chief Financial Officer, Vice President and Treasurer; President, Citizens
Public Services; Vice President, Corporate Human Resources; Secretary; Vice
President, Water; and the general manager of the Business.
8.14 No Implied Representation. NOTWITHSTANDING ANYTHING CONTAINED
IN THIS AGREEMENT, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO THAT NEITHER
OF THE SELLER PARTIES ARE MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER,
EXPRESS OR IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS AGREEMENT, ANY SCHEDULE
HERETO, THE TRANSACTION DOCUMENTS, OR ANY DOCUMENT, EXHIBIT, CERTIFICATE,
INSTRUMENT OR STATEMENT TO BE DELIVERED HEREUNDER OR THEREUNDER INCLUDING, BUT
NOT LIMITED TO, ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION,
MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO ANY OF
THE ACQUIRED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IT IS
UNDERSTOOD AND AGREED THAT ANY COST ESTIMATES, PROJECTIONS OR OTHER PREDICTIONS
CONTAINED OR REFERRED TO IN THE SCHEDULES AND ANY COST ESTIMATES, PROJECTIONS OR
PREDICTIONS OR ANY OTHER INFORMATION CONTAINED OR REFERRED TO IN OTHER MATERIALS
THAT HAVE BEEN OR SHALL HEREINAFTER BE PROVIDED TO PARENT, BUYER OR ANY OF THEIR
AFFILIATES, AGENTS OR REPRESENTATIVES ARE NOT AND SHALL NOT BE DEEMED TO BE
REPRESENTATIONS OR WARRANTIES OF ANY OF THE SELLER PARTIES.
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8.15 Construction of Certain Provisions. It is understood and agreed
that neither the specification of any dollar amount in the representations and
warranties contained in this Agreement nor the inclusion of any specific item in
the Schedules or Exhibits is intended to imply that such amounts or higher or
lower amounts, or the items so included or other items, are or are not material,
and none of the parties shall use the fact of the setting of such amounts or the
fact of any inclusion of any such item in the Schedules or Exhibits in any
dispute or controversy between the parties as to whether any obligation, item or
matter is or is not material for purposes hereof.
8.16 Bulk Sales. Buyer agrees that it shall not make any filings
under any tax bulk sales provisions with respect to the transactions
contemplated by this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first written above.
CITIZENS UTILITIES COMPANY
By:_____________________________________
Robert J. DeSantis, Chief Financial
Officer, Vice President and Treasurer
CITIZENS BUSINESS SERVICES COMPANY
CITIZENS CONSUMER SERVICES, INC.
CITIZENS RESOURCES COMPANY
CITIZENS WATER RESOURCES COMPANY OF
ARIZONA
CITIZENS WATER SERVICES COMPANY OF
ARIZONA
HAVASU WATER COMPANY, INC.
SUN CITY SEWER COMPANY
SUN CITY WATER COMPANY
SUN CITY WEST UTILITIES COMPANY
TUBAC VALLEY WATER COMPANY, INC.
CITIZENS PUBLIC WORKS SERVICE COMPANY OF
ARIZONA
By:_____________________________________
Robert J. DeSantis, Vice President
AMERICAN WATER WORKS COMPANY, INC.
By:_____________________________________
Joseph F. Hartnett, Jr., Treasurer
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ARIZONA-AMERICAN WATER COMPANY
By:_____________________________________
Theodore Jones, Jr., President
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California
EXECUTION COPY
ASSET PURCHASE AGREEMENT
among
CITIZENS UTILITIES COMPANY
AND
CERTAIN OF ITS AFFILIATES
AND
AMERICAN WATER WORKS COMPANY, INC. AND
CALIFORNIA-AMERICAN WATER COMPANY
Dated as of
October 15, 1999
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TABLE OF CONTENTS Page
ARTICLE 1 DEFINITIONS......................................................1
1.1 Certain Definitions..............................................1
ARTICLE 2 THE TRANSACTION.................................................10
2.1 Sale and Purchase of Assets.....................................10
2.2 Excluded Assets.................................................10
2.3 Assumption of Certain Liabilities...............................11
2.4 Consent of Third Parties........................................14
2.5 Closing.........................................................14
2.6 Purchase Price..................................................15
2.6.1 Purchase Price............................................15
2.6.2 Payment of Initial Cash Payment...........................15
2.6.3 Estimated Closing Statement...............................15
2.6.4 Post-Closing Adjustment to Purchase Price.................16
2.6.5 Adjustment for Certain Liabilities........................17
2.6.6 Additional Adjustment to the Purchase Price...............18
2.7 Deliveries and Proceedings at Closing...........................18
2.7.1 Deliveries to Buyer.......................................18
2.7.2 Deliveries By Buyer to the Seller Parties.................19
2.8 Allocation of Consideration.....................................19
2.9 Prorations......................................................19
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER.......................20
3.1 Qualification; No Interest in Other Entities....................20
3.2 Authorization and Enforceability................................20
3.3 No Violation of Laws or Agreements..............................21
3.4 Financial Statements............................................21
3.5 No Changes......................................................22
3.6 Contracts.......................................................23
3.7 Permits and Compliance With Laws Generally......................23
3.8 Environmental Matters...........................................24
3.9 Consents........................................................26
3.10 Title...........................................................26
3.11 Real Estate.....................................................26
3.12 Taxes...........................................................27
3.13 Patents and Intellectual Property Rights........................27
3.14 Accounts Receivable.............................................27
3.15 Labor Relations.................................................27
3.16 Employee Benefit Plans..........................................28
3.17 Absence of Undisclosed Liabilities..............................29
3.18 No Pending Litigation or Proceedings............................30
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3.19 Supply of Utilities.............................................30
3.20 Insurance.......................................................30
3.21 Relationship with Customers.....................................30
3.22 WARN Act........................................................31
3.23 Condition of Assets.............................................31
3.24 Brokerage.......................................................31
3.25 All Assets......................................................31
3.26 Year 2000 Matters...............................................31
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER..............32
4.1 Organization and Good Standing..................................32
4.2 Authorization and Enforceability................................32
4.3 No Violation of Laws or Agreements..............................33
4.4 Consents........................................................33
4.5 Financing.......................................................33
4.6 Brokerage.......................................................34
4.7 Insurance.......................................................34
ARTICLE 5 ADDITIONAL COVENANTS............................................34
5.1 Conduct of Business.............................................34
5.2 Negotiations....................................................35
5.3 Disclosure Schedules............................................36
5.4 Mutual Covenants................................................36
5.5 Filings and Authorizations......................................37
5.6 Public Announcement.............................................37
5.7 Further Assurances..............................................38
5.8 Cooperation.....................................................38
5.9 Employees; Employee Benefits....................................39
5.10 Employee Pension Plan...........................................42
5.11 Employee Savings Plan...........................................42
5.12 Welfare Benefits................................................43
5.13 Taxes...........................................................44
5.14 Intentionally Omitted...........................................45
5.15 Citizens' Guarantees and Surety Instruments.....................45
5.16 Assumption of Seller Debt.......................................45
5.17 Schedule of Permits.............................................45
5.18 Title Information...............................................45
5.19 Transaction with Related Parties................................45
5.20 Approval by Citizens............................................46
5.21 Supplemental Information........................................46
5.22 Non-Competition.................................................46
5.23 Intentionally Omitted...........................................46
5.24 Intentionally Omitted...........................................46
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5.25 Cooperation with Respect to Like-Kind Exchange..................46
5.26 Transition Plan.................................................47
5.27 Procedures regarding Refunds of Advances........................47
5.28 Title Insurance.................................................47
ARTICLE 6 CONDITIONS PRECEDENT; TERMINATION...............................48
6.1 Conditions Precedent to Obligations of Buyer and Parent.........48
6.1.1 Performance of Agreements; Representations and Warranties.48
6.1.2 Opinion of Counsel........................................49
6.1.3 HSR Act...................................................49
6.1.4 Required PUC and Other Consents...........................49
6.1.5 Injunction; Litigation....................................49
6.1.6 Documents.................................................49
6.1.7 Related Closings..........................................49
6.2 Conditions Precedent to Obligations of Seller Parties...........50
6.2.1 Performance of Agreements; Representations and Warranties.50
6.2.2 Opinion of Counsel........................................50
6.2.3 HSR Act...................................................50
6.2.4 Required PUC and Other Consents...........................50
6.2.5 Injunction; Litigation....................................51
6.2.6 Documents.................................................51
6.2.7 Related Closings..........................................51
6.3 Termination.....................................................51
ARTICLE 7 CERTAIN ADDITIONAL COVENANTS....................................52
7.1 Certain Taxes and Expenses......................................52
7.2 Maintenance of Books and Records................................52
7.3 Survival........................................................52
7.4 Indemnification.................................................55
7.4.1 General Indemnification Obligations.......................55
7.4.2 General Indemnification Procedures........................56
7.4.3 Indemnification for Negligence............................59
7.5 UCC Matters.....................................................59
7.6 Financial Statements............................................59
7.7 Collection of Receivables.......................................60
ARTICLE 8 MISCELLANEOUS...................................................60
8.1 Construction....................................................60
8.2 Notices.........................................................61
8.3 Successors and Assigns..........................................62
8.4 Exhibits and Schedules..........................................62
8.5 Governing Law...................................................63
8.6 Dispute Resolution..............................................63
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8.7 Severability....................................................64
8.8 No Third Party Beneficiaries....................................64
8.9 Entire Agreement................................................64
8.10 Amendment and Waiver............................................65
8.11 Counterparts....................................................65
8.12 Headings........................................................65
8.13 Definitions.....................................................65
8.14 No Implied Representation.......................................65
8.15 Construction of Certain Provisions..............................66
8.16 Bulk Sales......................................................66
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List of Schedules
Schedule 1.1.1(a) ................................................. Real Estate
Schedule 1.1.10 .......................................... Assumed Indebtedness
Schedule 2.2.12 ............................................... Excluded Assets
Schedule 2.6 ................................................... Purchase Price
Schedule 3.3 ............................... No Violation of Laws or Agreements
Schedule 3.4 ............................................. Financial Statements
Schedule 3.5 ....................................................... No Changes
Schedule 3.6 ........................................................ Contracts
Schedule 3.7 ....................... Permits and Compliance with Laws Generally
Schedule 3.8 ................................ Environmental Matters - Generally
Schedule 3.8.10 ............................... Compliance with Water Standards
Schedule 3.8.11 .............................................. Deed Restriction
Schedule 3.9 ......................................... Seller Parties' Consents
Schedule 3.10 ........................................................... Title
Schedule 3.11 ......................................... Real Estate Proceedings
Schedule 3.12 ........................................................... Taxes
Schedule 3.15 ................................................. Labor Relations
Schedule 3.16.1 ........................................ Employee Benefit Plans
Schedule 3.16.4 ........................... Employee Benefit Plans - Compliance
Schedule 3.16.9 ............... Employee Benefit Plans - Extraordinary Benefits
Schedule 3.17 .............................. Absence of Undisclosed Liabilities
Schedule 3.18 ............................ No Pending Litigation or Proceedings
Schedule 3.19 ............................................. Supply of Utilities
Schedule 3.20 .............................................. Seller's Insurance
Schedule 3.22 ........................................................ WARN Act
Schedule 3.23 ............................................. Condition of Assets
Schedule 3.25 ...................................................... All Assets
Schedule 3.27 ............................................... Product Liability
Schedule 4.7 ................................................ Buyer's Insurance
Schedule 5.1 .............................................. Conduct of Business
Schedule 5.9.1 ...................................................... Employees
Schedule 5.9.2 ............................... Collective Bargaining Agreements
Schedule 5.12 ................................................ Former Employees
Schedule 5.15 ............................................ Citizens' Guarantees
Schedule 5.16 ............................................. Schedule of Permits
Schedule 6.1.7 .................................... Related Purchase Agreements
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TABLE OF EXHIBITS
Exhibit A - Form of Assumption Agreement
Exhibit B - Form of Assignment and Bill of Sale
Exhibit C - Intentionally Omitted
Exhibit D - Intentionally Omitted
Exhibit E - Form of Seller's Opinion of Counsel
Exhibit F - Form of Buyer's Opinion of Counsel
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ASSET PURCHASE AGREEMENT
THIS IS AN ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of October
15, 1999, by and among Citizens Utilities Company, a Delaware corporation
("Citizens"), and each of the wholly-owned subsidiaries of Citizens named on the
signature page hereof (collectively with Citizens, "Seller" or the "Seller
Parties"), and American Water Works Company, Inc., a Delaware corporation
("Parent"), and California-American Water Company, a California corporation
("Buyer").
Background
1. Citizens Utilities Company of California is a public utility engaged,
among other things, in the business of storing, supplying, distributing and
selling water to the public, wholesale water transmission, and related services
and activities in the State of California (the "Business").
2. Parent is a holding company which desires to cause the Buyer to
purchase substantially all of the assets, properties and rights of the Seller
Parties relating to the Business, and Seller desires to sell, and to cause the
sale of, such assets, properties and rights, on the terms and subject to the
conditions set forth in this Agreement.
Terms
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the respective meanings ascribed to them in this Section:
1.1.1 "Acquired Assets" means, subject to Section 2.2, all of
each Seller Party's right, title, and interest in, under and to all of the
assets, properties and rights exclusively used in the Business as a going
concern of every kind, nature and description existing on the Closing Date,
wherever such assets, properties and rights are located and whether such assets,
properties and rights are real, personal or mixed, tangible or intangible, and
whether or not any of such assets, properties and rights have any value for
accounting purposes or are carried or reflected on or specifically referred to
in Seller's books or financial statements, including all of the assets,
properties and rights exclusively relating to the Business enumerated below:
(a) all real property described in Schedule 1.1.1(a),
together with all fixtures, fittings, buildings, structures and other
improvements erected thereon, and easements,
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California
rights of way, water lines, rights of use, licenses, railroad crossing
agreements, hereditaments, tenements, privileges and other appurtenances thereto
or otherwise exclusively related to the Business (such as appurtenant rights in
and to public streets) (the "Real Estate");
(b) to the extent not included in clause (a) above, all
water tanks, reservoirs, water works, plant and systems, purification and
filtration systems, pumping stations, pumps, wells, mains, water pipes,
hydrants, equipment, machinery, vehicles, tools, dies, spare parts, materials,
water supplies, fixtures and improvements, construction in progress, jigs,
molds, patterns, gauges and production fixtures and other tangible personal
property, in transit or otherwise, used exclusively in the Business (the
"Equipment and Other Tangible Personal Property");
(c) notwithstanding the provisions of Section 2.2 but
subject to Section 2.4, all of Seller's water appropriation and flowage rights
to the extent not transferred to Buyer upon assignment of the Contracts and
Permits to Buyer;
(d) all notes receivable, accounts receivable, accrued
utility revenues, materials and supplies (at average cost net of reserve for
obsolescence) and prepayments attributable in each case exclusively to the
Business;
(e) all unamortized debt expense related to the Assumed
Indebtedness, deferred capital costs, and other deferred charges (excluding
deferred taxes collectable) attributable exclusively to the Business of which
recovery in future rates is probable;
(f) Intellectual Property and goodwill, licenses and
sublicenses granted and obtained with respect thereto;
(g) subject to Section 2.4 hereof, (i) contracts,
commitments, agreements and instruments relating to the sale of any assets,
services, properties, materials or products, including all customer contracts,
operating contracts and distribution contracts relating exclusively to the
conduct of the Business; (ii) orders, contracts, supply agreements and other
agreements relating exclusively to the purchase of any assets, services,
properties, materials, or products for the Business; (iii) all leases of Real
Estate exclusively related to the Business; (iv) all other contracts, agreements
and instruments related exclusively to the Business (other than contracts,
agreements and instruments included in the definition of Real Estate or
Permits); and (v) any such contracts, agreements and other instruments referred
to in clauses (i) - (iv) inclusive, entered into between the date hereof and the
Closing Date which are consistent with the terms of this Agreement and are
entered into in the ordinary course of business consistent with past practice,
and including in the case of clauses (i) - (iv) all such contracts, agreements
and instruments more specifically listed or described in Schedule 3.6 (and
specifically including one Collective Bargaining Agreement to the extent
provided in Section 5.9.2, but specifically excluding any contract, agreement
and instrument listed or described on Schedule 2.2.12) (the "Contracts");
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(h) subject to Section 2.4 hereof, franchises,
approvals, permits, authorizations, licenses, orders, registrations,
certificates, variances, and other similar permits or rights obtained from any
Authority relating exclusively to the conduct of the Business and all pending
applications therefor (the "Permits");
(i) books, records, ledgers, files, documents (including
originally executed copies of written Contracts, to the extent available, and
copies to the extent not available), correspondence, Tax returns relating
exclusively to the Business, memoranda, forms, lists, plats, architectural
plans, drawings, and specifications, new product development materials, creative
materials, advertising and promotional materials, studies, reports, sales and
purchase correspondence, books of account and records relating to the
Transferred Employees (to the extent such transfer is not prohibited by law),
photographs, records of plant operations and materials used, quality control
records and procedures, equipment maintenance records, manuals and warranty
information, research and development files, data and laboratory books,
inspection processes, in each case, whether in hard copy or magnetic format, in
each instance, to the extent exclusively relating to the Business, the Acquired
Assets or the Transferred Employees;
(j) all rights or choses in action arising out of
occurrences before or after the Closing Date and exclusively related to any of
the Acquired Assets, including third party warranties and guarantees and all
related claims, credits, rights of recovery and set-off and other similar
contractual rights, as to third parties held by or in favor of Seller; provided,
however, that (notwithstanding the foregoing provisions of this Section
1.1.1(j)), to the extent that Seller pays or discharges a liability related to
the Business or any of the Acquired Assets and related to such right or chose in
action (whether by reason of indemnification under this Agreement or otherwise),
Buyer will reassign or reconvey to Seller such right or chose in action to the
extent that such right or chose in action relates to a recovery of amounts paid
to Buyer; and
(k) all rights to insurance and condemnation proceeds
(i) to the extent relating to the damage, destruction, taking or other
impairment of the Acquired Assets which damage, destruction, taking or other
impairment occurs on or prior to the Closing but only to the extent that the
proceeds exceed the amount of the write-down of the net book value of such
Acquired Assets on the books and records of Seller as a result of such damage,
destruction, taking or other impairment and (ii) to the extent they relate to
amounts paid by Buyer for Damages to the extent Buyer does not receive payment
pursuant to Section 7.4.1(a), but only to the extent Buyer is entitled to
indemnification by Seller pursuant to Sections 7.3 and 7.4.
1.1.2 "Adjusted Net Assets" has the meaning set forth in
Section 2.6.4(a) hereof.
1.1.3 "Affected Participant" has the meaning set forth as
Section 5.11.1 hereof.
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1.1.4 "Affiliate" of any Person means any Person, directly or
indirectly controlling, controlled by or under common control with such Person.
1.1.5 "Agreement" has the meaning set forth in the
introduction hereof.
1.1.6 "American Pension Plan" has the meaning set forth in
Section 5.10.1 hereof.
1.1.7 "American Savings Plan" has the meaning set forth in
Section 5.11.1 hereof.
1.1.8 "Antitrust Division" has the meaning set forth in
Section 5.5 hereof
1.1.9 "Assumed Benefit Liabilities" has the meaning set forth
in Section 3.16.6 hereof.
1.1.10 "Assumed Indebtedness" means the liabilities and
obligations from and after the Closing Date (except as set forth below) with
respect to the loan document listed as item I.L.1 of Schedule 3.6 with respect
to the indebtedness of Citizens Utilities Company of California owed to the
State of California Department of Water Resources (the "California Water Debt"),
to the extent assumed by Buyer. For purposes of clarity, except as set forth in
the next sentence below, "Assumed Indebtedness" shall not include any liability
or obligation to the extent accrued prior to the Closing Date or to the extent
arising out of or relating to an event, circumstance or occurrence prior to the
Closing Date. "Assumed Indebtedness" shall include the outstanding principal
amount and the accrued but unpaid interest owed by Seller on the debt
obligations set forth in the first sentence of this definition, if such debt
obligations are assumed by Buyer.
1.1.11 "Assumed Liabilities" has the meaning set forth in
Section 2.3 hereof.
1.1.12 "Assumption Agreement" has the meaning set forth in
Section 2.3.2 hereof.
1.1.13 "Authority" means any federal, state, local or foreign
governmental or regulatory entity (or any department, agency, authority or
political subdivision thereof).
1.1.14 "Base Cash Purchase Price" has the meaning set forth in
Section 2.6.1 hereof.
1.1.15 "Beneficiary" means the Person(s) designated by an
Employee, by operation of law or otherwise, as entitled to compensation,
benefits, insurance coverage, payments or any other goods or services under a
Benefit Plan.
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1.1.16 "Benefit Plans" has the meaning set forth in Section
3.16.1 hereof.
1.1.17 Intentionally Omitted.
1.1.18 "Business" has the meaning set forth in the Background
section hereof.
1.1.19 Business Day" means any day other than a Saturday,
Sunday, or a day on which banking institutions in the Commonwealth of
Pennsylvania are authorized or obligated by law or executive order to close.
1.1.20 "Buyer" has the meaning set forth in the introduction
hereof.
1.1.21 Intentionally Omitted.
1.1.22 "Buyer's Accountants" means PricewaterhouseCoopers LLP
or any firm of independent public accountants hereafter designated by Buyer for
purposes of this Agreement.
1.1.23 Intentionally Omitted
1.1.24 "Ceiling" has the meaning set forth in Section 7.4.2(e)
hereof.
1.1.25 "CERCLA" has the meaning set forth in Section 3.8.2
hereof.
1.1.26 "CERCLIS" has the meaning set forth in Section 3.8.7
hereof.
1.1.27 "Citizens" has the meaning set forth in the
introduction hereof.
1.1.28 "Closing" has the meaning set forth in Section 2.5
hereof.
1.1.29 "Closing Date" has the meaning set forth in Section 2.5
hereof.
1.1.30 "Closing Statement of Net Assets" has the meaning set
forth in Section 2.6.4(a) hereof.
1.1.31 "Code" means the Internal Revenue Code of 1986, as
amended.
1.1.32 "Collective Bargaining Agreement" means the agreement
identified as such on Schedule 3.6 hereto.
1.1.33 "Competing Transaction" has the meaning set forth in
Section 5.2.
1.1.34 "Contracts" has the meaning set forth in Section
1.1.1(g) hereof.
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1.1.35 "Control" with respect to any Person means the
ownership, directly or indirectly, of at least a majority of the voting power of
each class of capital stock of such Person entitled to vote in the election of
directors of such Person generally.
1.1.36 "Damages" has the meaning set forth in Section 7.4.1
hereof.
1.1.37 "Disclosure Schedules" means the Schedules referenced
in Articles 3, 4 and 5 of this Agreement, as amended or supplemented pursuant to
Section 5.3.
1.1.38 "Dispute" has the meaning set forth in Section 8.6.
1.1.39 "Employees" has the meaning set forth in Section 5.9.1
hereof.
1.1.40 "Environmental Laws" has the meaning set forth in
Section 3.8 hereof.
1.1.41 "Equipment and Other Tangible Personal Property" has
the meaning set forth in Section 1.1.1(b) hereof.
1.1.42 "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
1.1.43 "ERISA Affiliate" means (a) any corporation included
with any of the Seller Parties in a controlled group of corporations within the
meaning of Section 414(b) of the Code; (b) any trade or business (whether or not
incorporated) which is under common control with any of the Seller Parties
within the meaning of Section 414 of the Code; any member of an affiliated
service group of which any of the Seller Parties is a member within the meaning
of Section 414(m) of the Code; or (d) any other person or entity treated as an
affiliate of any of the Seller Parties under Section 414(o) of the Code.
1.1.44 "Excluded Assets" has the meaning set forth in Section
2.2 hereof.
1.1.45 "Financial Statements" has the meaning set forth in
Section 3.4 hereof.
1.1.46 "FIRPTA Affidavit" has the meaning set forth in Section
2.7.1 hereof.
1.1.47 "Former Employees" means all salaried and hourly
employees once employed by Seller or any of its Affiliates, but who are no
longer so employed on the Closing Date.
1.1.48 "FTC" has the meaning set forth in Section 5.5 hereof.
1.1.49 "GAAP" has the meaning set forth in Section 3.4 hereof.
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1.1.50 "Hazardous Substance" has the meaning set forth in
Section 3.8 hereof.
1.1.51 "HSR Act" has the meaning set forth in Section 3.9
hereof.
1.1.52 Intentionally Omitted.
1.1.53 Intentionally Omitted.
1.1.54 "Indemnified Party" has the meaning set forth in
Section 7.4.2(a) hereof.
1.1.55 "Indemnifying Party" has the meaning set forth in
Section 7.4.2(a) hereof.
1.1.56 "Intellectual Property" means the trademarks, patents,
trade names and copyrights and applications therefor, inventions, trade secrets,
and confidential business information (including know-how, formulas, water
filtration, purification and pumping processes and techniques, technical data,
designs, drawings, customer and supplier lists, and business and marketing plans
and proposals), all computer software (including data and related documentation
and object and source codes), whether in magnetic format or hard copy, and
tangible embodiments thereof (in whatever form or medium) of Seller, in each
case, utilized exclusively in the Business.
1.1.57 "Interim Statement of Net Assets" means the Citizens
Water Resources Statement of Net Assets - California, June 30, 1999, which is
attached hereto as Schedule 3.4.
1.1.58 "Interim Statement of Net Assets Date" means June 30,
1999.
1.1.59 "IRS" has the meaning set forth in Section 3.16.2
hereof.
1.1.60 "Lien" means any lien, charge, claim, pledge, security
interest, conditional sale agreement or other title retention agreement, lease,
mortgage, security agreement, right of first refusal, option, restriction,
tenancy, license, right of way, easement or other encumbrance (including the
filing of, or agreement to give, any financing statement under the Uniform
Commercial Code or statute or law of any jurisdiction).
1.1.61 "Material Adverse Effect" means a change or effect (or
series of related changes or effects) which has or is reasonably likely to have
a material adverse change in or effect upon the business, assets, condition
(financial or otherwise), or results of operations of the Business or the
Acquired Assets, taken as a whole and taken together with the businesses and
assets being acquired by Buyer or Affiliates of Buyer pursuant to the Related
Purchase Agreements. For purpose of this Agreement, an occurrence or condition
shall not constitute a Material Adverse Effect
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(a) if it arises from general business, economic or financial market conditions,
from conditions generally effecting the industries in which Seller competes, or
from the transactions contemplated by this Agreement, or (b) to the extent that
it consists of strikes, work stoppages, walk-outs, slow-downs or other business
interruption at the facilities in California that are part of the Acquired
Assets, or (c) solely with respect to matters arising prior to Closing, to the
extent that either (i) Seller realizes the benefit of insurance maintained by
Citizens on or prior to the Closing Date and Buyer receives the cash proceeds of
such insurance to the extent required by Section 1.1.1(k), or (ii) Seller
arranges for Buyer to recover payments in respect of such occurrence or
condition from any other source (whether in a lump sum or stream of payments),
it being understood and agreed that a Material Adverse Effect may have occurred
irrespective of such insurance recovery if the occurrence or condition giving
rise to such recovery also causes a non-monetary material adverse change in or
effect upon the Business or the Acquired Assets, taken as a whole and taken
together with the businesses and assets being acquired by Buyer or Affiliates of
Buyer pursuant to the Related Purchase Agreements.
1.1.62 "Mortgage Indenture" means Indenture of Mortgage and
Deed of Trust between BNY Western Trust Company (successor in interest to Wells
Fargo Bank, N.A.) and First Interstate Bank of California (as successor trustee
to Marine Midland, N.A., formerly the Marine Midland Trust Company of New York).
1.1.63 "OSHA" has the meaning set forth in Section 3.7.1
hereof.
1.1.64 "PCBs" has the meaning set forth in Section 3.8.6
hereof.
1.1.65 "Permits" has the meaning set forth in Section 1.1.1(h)
hereof.
1.1.66 "Permitted Exceptions" has the meaning set forth in
Section 3.10 hereof; provided, however, that from and after the Closing,
Permitted Exceptions shall not include any Lien arising under or resulting from
the Mortgage Indenture.
1.1.67 "Person" means an individual, a corporation, a
partnership, an association, an Authority, a trustor other entity or
organization.
1.1.68 "Pre-Existing Conditions" has the meaning set forth in
Section 2.3.1(d).
1.1.69 "Prime Rate" means the rate per annum announced from
time to time during the reference period by Citibank N.A. as its United States
prime, reference or base rate for commercial loans.
1.1.70 "PUC" has the meaning set forth in Section 5.5 hereof.
1.1.71 "Purchase Price" has the meaning set forth in Section
2.6.1 hereof.
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1.1.72 "Real Estate" has the meaning set forth in Section
1.1.1(a) hereof.
1.1.73 "Recovery" has the meaning set forth in Section
7.4.2(l) hereof.
1.1.74 "Related Purchase Agreements" as the meaning set forth
in Section 6.1.7 hereof.
1.1.75 "Release" or "Released" has the meaning set forth in
Section 3.8 hereof.
1.1.76 "Remedial Action" has the meaning set forth in Section
3.8 hereof.
1.1.77 Intentionally Omitted.
1.1.78 "Retained Liabilities" has the meaning set forth in
Section 2.3 hereof.
1.1.79 "Review Period" has the meaning set forth in Section
2.6.4(b) hereof.
1.1.80 "SEC" means the U.S. Securities and Exchange
Commission.
1.1.81 "Securities Filings" has the meaning set forth in
Section 5.8.2 hereof.
1.1.82 "Seller" and "Seller Parties" have the respective
meaning set forth in the introduction hereof.
1.1.83 "Seller's Accountants" means KPMG LLP or any other firm
of independent public accountants hereafter designated by Seller for purposes of
this Agreement.
1.1.84 "Seller's Adjusted Amount" has the meaning set forth in
Section 2.6.4(a) hereof.
1.1.85 "Seller's Pension Plan" has the meaning set forth in
Section 5.10.1 hereof.
1.1.86 "Seller's 401(k) Plan" has the meaning set forth in
Section 5.11.1 hereof.
1.1.87 "Specified Liabilities" has the meaning set forth in
Section 7.4.2(f) hereof.
1.1.88 "Taxes" means any federal, state, local and foreign
income, payroll, withholding, excise, sales, use, personal property, use and
occupancy, business and occupation, mercantile, real estate, gross receipts,
license, employment, severance, stamp, premium, windfall profits, social
security (or similar unemployment), disability, transfer, registration, value
added,
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alternative, or add-on minimum, estimated, or capital stock and franchise
and other tax of any kind whatsoever, including any interest, penalty or
addition thereto, whether disputed or not.
1.1.89 "Third Accounting Firm" has the meaning set forth in
Section 2.6.4(b) hereof.
1.1.91 "Threshold Amount" has the meaning set forth in Section
7.4.2(e) hereof.
1.1.92 "Third Party Claim" has the meaning set forth in
Section 7.4(b)(i) hereof.
1.1.93 "Transferred Accounts" has the meaning set forth in
Section 5.11.2 hereof.
1.1.94 "Transaction Documents" has the meaning set forth in
Section 3.2 hereof.
1.1.95 "Transferred Employees" has the meaning set forth in
Section 5.9.2 hereof.
1.1.96 "Union Employees" has the meaning set forth in Section
5.9.1 hereof.
1.1.97 "VEBAs" has the meaning set forth in Section 5.12
hereof.
1.1.98 "WARN Act" means the Worker Adjustment and Retraining
Notification Act, as codified at 29 U.S.C. section 2102- 2109, as amended.
ARTICLE 2
THE TRANSACTION
2.1 Sale and Purchase of Assets. Subject to the terms and conditions
of this Agreement, at the Closing referred to in Section 2.5 below, Citizens
shall, and shall cause the other Seller Parties to, sell, assign, transfer,
deliver and convey to Buyer, and Parent shall cause Buyer to purchase, the
Acquired Assets for the Purchase Price specified in Section 2.6.
2.2 Excluded Assets. The following assets of Seller shall be
excluded from the Acquired Assets (the "Excluded Assets"):
2.2.1 assets of the Seller used in both the Business and in
Citizens' gas, electric or communications businesses, the material items of
which are described on Schedule 2.2.12;
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2.2.2 cash and cash equivalents in transit, in hand or in bank
accounts.
2.2.3 except as otherwise set forth herein, assets
attributable or related to any Benefit Plan;
2.2.4 the stock record and minute books of Seller;
2.2.5 Acquired Assets disposed of by Seller after the date of
this Agreement to the extent such dispositions are not prohibited by this
Agreement;
2.2.6 except to the extent set forth in Sections 2.9, rights
to refunds of Taxes payable with respect to the Business, assets, properties or
operations of any of the Seller Parties or any member of any affiliated group of
which any of them is a member, and which are treated as Retained Liabilities
under Section 2.3.3(b) below.
2.2.7 customer and other deposits held in Seller's accounts;
2.2.8 accounts owing by and among Seller and its Affiliates;
2.2.9 notes receivable and other receivables (other than note
and accounts receivable attributable exclusively to the Business);
2.2.10 all deferred tax assets or collectibles;
2.2.11 duplicate copies of all books and records transferred
to Buyer; and
2.2.12 those certain items listed on Schedule 2.2.12.
2.3 Assumption of Certain Liabilities.
2.3.1 Buyer shall not assume any liabilities of Citizens or
Seller or any of their Affiliates, except that Buyer shall assume the following
specific liabilities and obligations:
(a) the obligations and liabilities set forth in
Sections 5.9, 5.10, 5.11 and 5.12 hereof;
(b) except as set forth in Section 2.3.3(b), all
liabilities and obligations of Seller in respect of the Contracts and Permits
assigned or transferred to Buyer pursuant to this Agreement in accordance with
the respective terms thereof, except that Buyer shall not assume any liabilities
or obligations for any breach or default by, or payment obligations of, Seller
under such Contracts and Permits occurring or arising or accruing on or prior to
the Closing Date;
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(c) the Assumed Indebtedness;
(d) any liability, obligation or responsibility of
Seller for conditions at the Real Estate, whether based on statutory or common
law, now or hereafter in effect, known or unknown, contingent or actual,
relating to or arising from pollution, contamination or protection of the
environment, human health or safety or natural resources or relating to or
arising from the presence or Release or threat of Release of Hazardous
Substances into the environment at the Real Estate or into or from any building,
structure, pipeline or other facility at the Real Estate, or from violation of
any law relating to the foregoing, including without limitation, any CERCLA or
similar liability under any federal or state law or regulation, except to the
extent Buyer has given written notice of a claim for indemnification pursuant to
Sections 7.3 and 7.4 hereof prior to the expiration of the claims period set
forth in Section 7.3.2(a) or (b) (and if Buyer has given written notice prior to
the expiration of such claims period, to the extent that such claim is not
entitled to indemnification under Sections 7.3 and 7.4) (the foregoing, the
"Pre-Existing Conditions");
(e) all liabilities and obligations of Seller related to
unperformed service obligations, easement and right-of-way relocation
obligations, and construction work in progress, and all engineering and
construction required to complete scheduled construction and other capital
projects for the Business, in each case relating to the Business and outstanding
on or arising after the Closing Date except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment obligations
of, Seller under such Contracts and Permits occurring or arising or accruing on
or prior to the Closing Date;
(f) liability for accrued but unused vacation pay for
the Transferred Employees to the extent provided in Section 5.9.2;
(g) any liability, obligation or responsibility relating
to customer deposits held by Seller on the Closing Date and relating to the
Business; and
(h) all liabilities and obligations imposed on Buyer by
any PUC in connection with the operation of the Business or the ownership of the
Acquired Assets, including with respect to any liability of the types that
appear as "Accrued Liabilities" and "Non-Current Liabilities" on the financial
statements of Seller.
2.3.2 Any liabilities or obligations which are assumed
by Buyer pursuant to Section 2.3.1 above are hereinafter referred to as the
"Assumed Liabilities." At the Closing, Parent shall cause Buyer to execute and
deliver to Seller an assumption agreement, in substantially the form of the
Assumption Agreement attached hereto as Exhibit A (the "Assumption Agreement"),
pursuant to which Buyer shall assume the Assumed Liabilities. Each of Parent and
Buyer hereby irrevocably and unconditionally waives and releases the Seller
Parties from all Assumed Liabilities and all liabilities or obligations
exclusively relating to the Business or the Acquired Assets to the extent
arising from events or occurrences after the Closing or to the extent otherwise
relating to the period after the Closing, including any liabilities created or
which arise by statute or common law,
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including CERCLA (it being understood that this shall not constitute a waiver
and release of any claims arising out of the contractual relationships and
indemnification arrangements between Buyer and Seller).
2.3.3 Buyer shall not assume any liabilities, commitments or
obligations (contingent or absolute and whether or not determinable as of the
Closing) of any of the Seller Parties or any of their Affiliates except for the
Assumed Liabilities as specifically and expressly provided for above, whether
such liabilities or obligations relate to payment, performance or otherwise, and
all liabilities, commitments or obligations not expressly transferred to Buyer
hereunder as Assumed Liabilities are being retained by the Seller Parties, (the
"Retained Liabilities"). Each of the Seller Parties hereby irrevocably and
unconditionally waives and releases Buyer from all Retained Liabilities
including any liabilities created or which arise by statute or common law,
including CERCLA (it being understood that this shall not constitute a waiver
and release of any claims arising out of the contractual relationships and
indemnification arrangements between Buyer and Seller).
Without limitation to the foregoing, all of the following shall be
considered Retained Liabilities and not Assumed Liabilities (except as specified
below) for the purposes of this Agreement:
(a) any product liability, toxic tort or similar claim
for injury to person or property, regardless of when made or asserted, to the
extent that it arises out of or is based upon any express or implied
representation, warranty, agreement or guarantee made by any of the Seller
Parties or any of their Affiliates prior to Closing, or alleged to have been
made by any of such Persons, or to the extent that it is imposed or asserted to
be imposed by operation of law, in connection with any service performed or
product distributed or sold by or on behalf of any of the Seller Parties or any
of their Affiliates prior to Closing, including any claim referred to above in
this Section 2.3.3(a) relating to water quality standards, any claim relating to
any product delivered in connection with the performance of services provided by
Seller and any claim seeking recovery for consequential damages, lost revenue or
income;
(b) all refund obligations relating to the advances
existing on the Closing Date for construction of facilities relating to the
Business;
(c) except to the extent set forth in Section 2.9, any
federal, state, foreign or local income or other Tax payable with respect to the
business, assets, properties or operations of any of the Seller Parties or any
member of any affiliated group of which any of them is a member.
(d) any liability or obligation associated with or in
connection with any common plant assets of Seller (other than the liabilities
and obligations exclusively related to any common plant assets included among
the Acquired Assets);
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(e) except as provided in Section 2.3.1 above, any
liability or obligation with respect to compensation or employee benefits of any
nature owed to any employees, agents or independent contractors of any of the
Seller Parties or any of their Affiliates, whether or not employed by Buyer
after the Closing, that arises out of or relates to events or conditions to the
extent occurring before the Closing Date;
(f) except to the extent set forth in Section 2.3.1(d),
any liability, obligation or responsibility of any of the Seller Parties, or any
of their Affiliates or predecessors, whether based on statutory or common law,
but only as any such law is interpreted, amended and in effect on the Closing
Date, known or unknown, contingent or actual, relating to or arising from
pollution, contamination or protection of the environment, human health or
safety or natural resources or relating to or arising from the presence or
Release or threat of Release of Hazardous Substances into the environment or
into or from any building, structure, pipeline or other facility or relating to
or arising from the generation, use, storage, treatment, disposal, transport or
other handling of Hazardous Substances or sale or product containing Hazardous
Substances from violation of any law relating to the foregoing (but only as such
law is interpreted, amended and in effect on the Closing Date) including without
limitation, any (A) CERCLA or similar liability under any federal or state law
or regulation as interpreted, amended and in effect on the Closing Date or (B)
any such liability associated with businesses or assets of the Seller Parties
other than the Business or the Acquired Assets;
(g) liabilities and obligations relating to the Business
to the extent arising prior to Closing (unless otherwise constituting Assumed
Liabilities) arising by operation of law under any common law or statutory
doctrine (including successor liability or de facto merger);
(h) any obligation or liability arising under any
contract, commitment, instrument or agreement (1) subject to the penultimate
sentence of Section 2.4, that is not transferred to Buyer as part of the
Acquired Assets, or (2) that relates to any breach or default (or to the extent
that it relates to an event which would, with the passing of time or the giving
of notice, or both, constitute a default) under any Contract, instrument or
agreement or to any services to be provided by Seller under any such Contract,
instrument or agreement to the extent that such services were performed or were
required to have been performed on or prior to the Closing Date;
(i) any liability or obligation in respect of the
Excluded Assets;
(j) any liability or obligation of any of the Seller
Parties or any of their Affiliates existing as a result of any act, failure to
act or other state of facts or occurrence which constitutes a breach or
violation of any of Seller's representations, warranties, covenants or
agreements contained in this Agreement, except to the extent set forth in
Section 7.4; or
(k) except for the Assumed Liabilities as specifically
and expressly set forth herein, any liability to the extent arising out of or
relating to the ownership or operation of the Acquired Assets or the Business
prior to the Closing Date (including any predecessor
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operations), any claims, obligations or litigation to the extent arising out of
or relating to events or conditions occurring before the Closing Date, and any
liability associated with any business other than the Business.
2.4 Consent of Third Parties. On the Closing Date, Citizens shall
cause Seller to assign to Buyer, and Parent shall cause Buyer to assume, the
Contracts and the Permits which are to be transferred to Buyer as provided in
this Agreement by means of the Assumption Agreement. To the extent that the
assignment of all or any portion of any Contract or Permit shall require the
consent (or result in a breach or violation thereof) of the other party thereto
or any other third party, and such consent shall not be obtained prior to
Closing, this Agreement shall not constitute an agreement to assign any such
Contract or Permit included in the Acquired Assets. In order, however, to
provide Buyer the full realization and value of every Contract of the character
described in the immediately preceding sentence, Seller agrees that on and after
the Closing, it will, at the request and under the direction of Buyer, in the
name of Seller or otherwise as Buyer shall specify, take all reasonable actions
(including without limitation the appointment of Buyer as attorney-in-fact for
Seller to proceed at Buyer's sole cost and expense) and do or cause to be done
all such things as shall in the reasonable opinion of Buyer be necessary (a) to
assure that the rights of Seller or its Affiliates under such Contracts shall be
preserved for the benefit of Buyer and (b) to facilitate receipt of the
consideration to be received by Seller or its Affiliates in and under every such
Contract. To the extent that Buyer does receive the benefits of any such
Contract pursuant to the preceding sentence, such Contract shall be a Contract
"assigned or transferred to Buyer pursuant to this Agreement" within the meaning
of Section 2.3.1(b) hereof. Nothing in this Section 2.4 shall in any way
diminish the obligations of Seller to obtain consents and approvals under this
Agreement.
2.5 Closing. Subject to the terms and conditions of this Agreement,
the closing of the sale and purchase of the Acquired Assets (the "Closing")
shall take place at 10 a.m., East Coast time, on a date mutually satisfactory to
Buyer and Seller which is no later than the fifth Business Day after
satisfaction (or waiver) of the conditions to Closing set forth in Sections 6.1
and 6.2 hereof (other than those conditions which require the delivery of any
documents or the taking of other action, at the Closing) at the offices of
Fleischman and Walsh, LLP, 1400 Sixteenth Street, N.W., Washington, D.C. 20036,
or on such other date and at such other time or place as may be mutually agreed
upon by the parties hereto (the "Closing Date"). Upon payment of the Initial
Cash Payment by Buyer and confirmed receipt thereof by Seller or the Escrow
Agent pursuant to Section 2.6.2 below, Seller shall operate the Business at the
direction of and under the control of Buyer. Notwithstanding the foregoing, the
Closing shall be deemed to be effective as of 11:59 p.m. on the Closing Date for
all purposes.
2.6 Purchase Price.
2.6.1 Purchase Price. Subject to the terms and conditions of
this Agreement, the aggregate purchase price be paid by Buyer for the purchase
of the Acquired Assets (the "Purchase Price") shall be: (i) $161,330,000 in cash
(the "Base Cash Purchase Price," the Base Cash Purchase Price as adjusted in
accordance with Section 2.6.3, Section 2.6.5 and Section 2.6.6
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is referred to as the "Initial Cash Payment"), subject to adjustment pursuant to
the provisions of this Agreement (including Section 2.6.3, Section 2.6.4,
Section 2.6.5, Section 2.6.6 and Section 2.9 of this Agreement) and (ii) the
assumption by Buyer of the Assumed Liabilities.
2.6.2 Payment of Initial Cash Payment. Subject to the terms
and conditions of this Agreement, the Initial Cash Payment shall be paid by
Buyer on the Closing Date by federal other wire transfer of immediately
available funds to the account designated by Seller in writing at least two (2)
Business Days prior to the Closing Date. If the Closing Date is not a business
day on which financial institutions are open and operating, then on or before
the last business day on which financial institutions are open and operating
before the Closing Date, Buyer shall deliver the Initial Cash Payment to Buyer's
lead bank (the "Escrow Agent") in immediately available funds in U.S. dollars.
Upon receipt, the Escrow Agent shall invest the Initial Cash Payment in an
interest-bearing account mutually agreed upon by Seller and Buyer. At Closing,
Parent shall sign and deliver to Citizens a statement which confirms that the
Closing has occurred and which instructs the Escrow Agent to transfer to
Citizens the funds representing the Initial Cash Payment, plus an amount
representing the interest earned after the Closing Date until the date the funds
are transferred, to an account that Citizens shall designate at least two (2)
business days prior to the date the funds are required to be transferred
hereunder. The Escrow Agent shall refund the balance to Buyer. The fees and
expenses of Escrow Agent shall be paid by Buyer.
2.6.3 Estimated Closing Statement. At least five (5) business
days prior to the Closing Date, Citizens shall deliver to Parent and Buyer a
statement of net assets (the "Estimated Statement of Net Assets") reflecting its
good faith calculation of the Acquired Assets of the Business as of the last day
of the latest calendar month for which financial statements of Seller are
available (the "Estimated Adjusted Net Assets"). The Estimated Statement of Net
Assets shall be prepared in the same manner and utilizing the same accounting
principles, policies and methods used in the preparation of the Interim
Statement of Net Assets (excluding for this purpose any change required by GAAP
or any Authority since June 30, 1999). The Base Cash Purchase Price shall be
increased or decreased on a dollar for dollar basis by the amount, if any, by
which the Estimated Adjusted Net Assets is greater than or less than $93,819,658
(such increase or decrease, as the case may be, is referred to herein as the
"Estimated Net Asset Adjustment").
2.6.4 Post-Closing Adjustment to Purchase Price.
(a) Within 90 days after the Closing, Citizens shall
prepare and deliver to Parent and Buyer a Statement of Net Assets (the "Closing
Statement of Net Assets") which reflects the Acquired Assets, as of 11:59 p.m.
on the Closing Date, based on actual financial performance and calculated in the
same manner, utilizing the same accounting principles, policies and methods
utilized in preparing the Interim Statement of Net Assets (excluding for this
purpose any change required by GAAP or any Authority since June 30, 1999),
together with (A) an audit report of Seller's Accountants stating that the
Closing Statement of Net Assets has been prepared utilizing the same accounting
principles, policies and methods used in the preparation of the Interim
Statement of Net Assets and (B) a calculation of Citizens' determination of the
amount of increase
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or decrease in the amount of the Acquired Assets of the Business from the
Interim Statement of Net Assets Date to the Closing Date which is derived from
the Closing Statement of Net Assets ("Seller's Adjustment Amount"). The Closing
Statement of Net Assets shall not give effect to any purchase accounting
treatment arising from Buyer's purchase of the Acquired Assets. Buyer shall pay
the fees and expenses of Seller's Accountants incurred in connection with this
Section 2.6.4. Buyer agrees to cooperate, and agrees to cause Buyer's
Accountants to cooperate, with Citizens and Seller's Accountants in connection
with the preparation of the Closing Statement of Net Assets, and related
information, and shall provide to Citizens and Seller's Accountants such books,
records and information as may be reasonably requested from time to time,
including the work papers of Buyer's Accountants. Citizens will give Buyer and
its representatives access during the normal business hours of Citizens to the
personnel, books and records of Citizens and the work papers of Seller's
Accountants to assist Buyer in the review of the Closing Statement of Net Assets
and related matters. Buyer agrees that, following the Closing through the date
on which the Closing Statement of Net Assets is delivered, it will not take any
actions with respect to any accounting books, records, policies or procedures on
which the Closing Statement of Net Assets is to be based that would make it
impossible or impracticable to calculate the Acquired Assets in the manner and
utilizing the methods required hereby. Without limiting the generality of the
foregoing, no changes shall be made in any reserve or other account existing as
of the date of the Interim Statement of Net Assets except in the ordinary course
or as a result of events occurring after the date of the Interim Statement of
Net Assets and, in such event, only in a manner consistent with past practices
of Seller.
(b) Parent or Buyer may dispute any amounts reflected on
the Closing Statement of Net Assets, in the Seller's Adjustment Amount or in the
Statement of Certain Assumed Liabilities, provided, however, that Buyer shall
notify Citizens in writing of each disputed amount, and specify the amount
thereof in dispute and the basis of such dispute, within 30 days of the Buyer's
receipt of the Closing Statement of Net Assets and the Seller's Adjustment
Amount (such 30 day period hereinafter referred to as the "Review Period"). In
the event of a dispute with respect to the Closing Statement of Net Assets, the
Seller's Adjustment Amount or the Statement of Certain Assumed Liabilities,
Buyer and Seller shall attempt to reconcile their differences and any resolution
by them as to any disputed amounts shall be final, binding and conclusive on the
parties. If Buyer and Seller are unable to reach a resolution of such
differences within 30 days of receipt of Buyer's written notice of dispute to
Seller, Buyer and Seller shall submit the amounts remaining in dispute (together
with any amounts remaining in dispute pursuant to Section 2.6.4(b) of each of
the Related Purchase Agreements) for resolution to an independent accountant
firm of national reputation mutually appointed by Seller and Buyer (such
independent accounting firm being herein referred to as the "Third Accounting
Firm"), which shall be requested to determine and report to the parties, within
30 days after such submission, upon such remaining disputed amounts, and such
report shall be final, binding and conclusive on the parties hereto with respect
to the amounts disputed. The fees and disbursements of the Third Accounting Firm
shall be allocated between Buyer and the Seller Parties so that the Seller
Parties' share of such fees and disbursements shall be in the same proportion
that the aggregate amount of such remaining disputed amounts so submitted by
Buyer to the Third Accounting Firm that is unsuccessfully disputed by the Buyer
(as finally determined by the Third Accounting Firm) bears to the total amount
of such remaining disputed
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amounts so submitted by the Buyer to the Third Accounting Firm. Buyer shall pay
the fees and expenses of Buyer's Accountants incurred in connection with this
Section 2.6.4(b). Seller's Adjustment Amount, if there are no disputes with
respect thereto, or Seller's Adjustment Amount as adjusted after the resolution
of all disputes with respect thereto in accordance herewith, shall be referred
to as the "Final Net Asset Adjustment."
(c) If the Base Cash Purchase Price plus (or minus, if
negative) the Final Net Asset Adjustment exceeds the Initial Cash Payment, then
within five (5) business days after final determination thereof Buyer shall pay
Seller the amount of such excess together with interest thereon for the period
commencing on the Closing Date through the date of payment calculated at the
Prime Rate in cash by federal or other wire transfer of immediately available
funds, or certified or bank cashier's check. If the Initial Cash Payment exceeds
the sum of the Base Cash Purchase Price plus (or minus, if negative) the Final
Net Asset Adjustment, then within five (5) business days after final
determination thereof Seller shall pay Buyer the amount of such excess together
with interest thereon for the period commencing on the Closing Date through the
date of payment calculated at the Prime Rate in cash by federal or other wire
transfer of immediately available funds, or certified or bank cashier's check.
2.6.5 Adjustment for Certain Liabilities. Concurrent with the
delivery of the Estimated Statement of Net Assets, Citizens also shall deliver
to Parent and Buyer a statement reflecting (i) the customer and other deposits
held by Seller on the Closing Date and relating to the Business, (ii) the total
amount of the Assumed Indebtedness that will be outstanding immediately after
the Closing Date, (iii) the items specified in Section 2.9 to the extent set
forth therein, and (iv) without duplications of any amount included in clause
(i) above any payments received by Seller under the Contracts and Permits for
obligations not performed as of the Closing Date (the "Statement of Certain
Assumed Liabilities"). The Statement of Certain Assumed Liabilities shall
reflect Citizens' good faith calculation of such liabilities as of the Closing
Date. The Base Cash Purchase Price shall be decreased by the net amount set
forth in the Statement of Certain Assumed Liabilities. Concurrent with the
delivery of the Closing Statement of Net Assets, Citizens also shall deliver to
Parent a statement showing any adjustments to the Statement of Certain Assumed
Liabilities and the Base Cash Purchase Price shall be further adjusted to give
effect to any such adjustments to the Statement of Certain Assumed Liabilities.
2.6.6 Additional Adjustment to the Purchase Price. The Base
Cash Purchase Price shall be decreased by an amount equal to the proceeds of
Seller's sale of the property described in Item 2 of Schedule 5.1 (net of
expenses) less the sum of (i) the federal and state income taxes payable by
Seller in respect of those proceeds and (ii) the book value of such property, as
of June 30, 1999, on Seller's books.
2.7 Deliveries and Proceedings at Closing. Subject to the terms and
conditions of this Agreement, at the Closing:
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2.7.1 Deliveries to Buyer. Citizens shall, and shall cause
Seller to deliver to Buyer:
(a) bills of sale and instruments of assignment to the
Acquired Assets, duly executed by Seller, substantially in the form of Exhibit B
hereto and;
(b) the consents to transfer, of all transferable or
assignable Contracts, Intellectual Property, Permits (including Environmental
Permits), to the extent specifically required hereunder;
(c) title certificates to any motor vehicles included in
the Acquired Assets, duly executed by Seller (together with any other transfer
forms necessary to transfer title to such vehicles);
(d) special warranty deeds of conveyance with respect to
the parcels of Real Estate owned in fee simple by Seller (or, with respect to
any such parcel which was acquired by Seller (or its predecessor in interest, in
cases involving mergers) by deed without covenant or warranty of title, a quit
claim deed without covenant or warranty of title) to Buyer, duly executed and
acknowledged by Seller and in recordable form;
(e) the Foreign Investment in Real Property Tax Act
Certification and Affidavit for each parcel of Real Estate, duly executed by the
Seller Parties (the "FIRPTA Affidavit");
(f) the certificates, opinions and other documents
required to be delivered by the Seller Parties pursuant to Section 6.1 hereof
and certified resolutions evidencing the authority of the Seller Parties as set
forth in Section 3.2 hereof;
(g) all agreements and other documents required by this
Agreement;
(h) a receipt for the payment of the Initial Cash
Payment duly executed by Citizens; and
(i) all such other instruments of conveyance as shall,
in the reasonable opinion of Buyer and its counsel, be necessary to transfer to
Buyer the Acquired Assets in accordance with this Agreement and where necessary
or desirable, in recordable form.
2.7.2 Deliveries By Buyer to the Seller Parties. Parent shall,
and shall cause Buyer to deliver to the Seller Parties:
(a) wire transfer of immediately available funds in an
amount equal to the Initial Cash Payment;
(b) the Assumption Agreement, duly executed by Buyer;
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(c) the certificates, opinions and other documents
required to be delivered by Buyer pursuant to Section 6.2 hereof;
(d) all of the instruments contemplated by Section
5.24(a) to the extent not previously executed and delivered by Parent; and
(e) all such other instruments of assumption as shall,
in the reasonable opinion of Seller and its counsel, be necessary for Parent and
Buyer to assume the Assumed Liabilities in accordance with this Agreement.
2.8 Allocation of Consideration. Buyer and Seller shall use their
good faith efforts to agree upon the allocation (the "Allocation") of the
Purchase Price, the Assumed Liabilities and other relevant items (including, for
example, adjustments to the Purchase Price) to the individual assets or classes
of assets within the meaning of Section 1060 of the Code. If Buyer and Seller
agree to such Allocation on or before ninety (90) days after the Closing Date,
Buyer and Seller covenant and agree that (i) the values assigned to the assets
by the parties' mutual agreement shall be conclusive and final for all purposes,
and (ii) neither Buyer nor Seller will take any position before any Authority or
in any proceeding that is in any way inconsistent with such Allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an Allocation
on or before ninety (90) days after the Closing Date, Buyer and Seller covenant
and agree to file and to cause their respective Affiliates to file, all Tax
returns and schedules thereto (including, for example, amended returns, claims
for refund, and those returns and forms required under Section 1060 of the Code
and any Treasury regulations promulgated thereunder) consistent with each of
Buyer and Seller's good faith Allocations, unless otherwise required because of
a change in any legal requirement.
2.9 Prorations. The parties hereto agree that the following expenses
shall be calculated and pro rated as of the Closing Date, with Seller
responsible for such expenses and to receive the benefit for the same for the
period through and including the Closing Date, and Buyer to be responsible for
and to receive the benefit of the same after the Closing Date:
2.9.1 personal and real property taxes (on the basis on which
the same were assessed and paid) and sales, occupation and use taxes, in each
case, to the extent relating to the Business and except as otherwise provided in
Section 7.1;
2.9.2 electric, fuel, gas, telephone, sewer and utility
charges, in each case, to the extent relating to the Business;
2.9.3 rentals and other charges under Contracts to be assumed
by Buyer pursuant to Section 2.3 (except to the extent provided in Section
2.3.3(h)); and
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2.9.4 charges under maintenance and service contracts and
other Contracts (except to the extent provided in Section 2.3.3(h)), and fees
under Permits to be transferred to Buyer as part of the Acquired Assets;
2.9.5 water, sewer and other similar types of taxes, and
installments on special benefit assessments; and
2.9.6 payroll expenses, payroll taxes, reimbursable employee
business expenses and the financial cost of the accrued vacation of each
Transferred Employee.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Each of the Seller Parties jointly and severally represent and warrant to
Parent and Buyer as follows:
3.1 Qualification; No Interest in Other Entities.
3.1.1 Each of the Seller Parties is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and has all requisite corporate power and authority to own, lease
and operate the Acquired Assets and the Business as presently being conducted.
Each of the Seller Parties is qualified to do business and is in good standing
as a foreign corporation in all jurisdictions wherein the nature of the business
conducted by it or such Seller Party's ownership or use of assets and properties
make such qualification necessary, except such failures to be qualified or to be
in good standing, if any, which when taken together with all such other failures
of the Seller Parties do not have a Material Adverse Effect.
3.1.2 No shares of any corporation or any ownership or other
investment interest, either of record, beneficially or equitably, in any Person
are included in the Acquired Assets.
3.2 Authorization and Enforceability. Each of the Seller Parties has
full corporate power and authority to execute, deliver and perform this
Agreement and all other agreements and instruments to be executed by them in
connection herewith (such other agreements and instruments being hereinafter
referred to collectively as the "Transaction Documents"). The execution,
delivery and performance by each of the Seller Parties of this Agreement and the
Transaction Documents to which such Seller Party is a party have been duly
authorized by all necessary corporate action on the part of each of them. This
Agreement has been duly executed and delivered by each of the Seller Parties,
and as of the Closing Date the other Transaction Documents will be duly executed
and delivered by the Seller Parties. This Agreement is a legal, valid and
binding obligation of each Seller Party, enforceable against them in accordance
with its terms except as such enforceability may be limited by applicable laws
relating to bankruptcy, insolvency, fraudulent conveyance, reorganization or
affecting creditors' rights generally and except to the extent that injunctive
or other equitable relief
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is within the discretion of a court. As of the Closing Date, each of the other
Transaction Documents to which each of the Seller Parties is a party will be
duly executed and delivered by each of the Seller Parties and will constitute
the legal, valid and binding obligations of each of the Seller Parties,
enforceable against them in accordance with its respective terms, except as such
enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief is
within the discretion of a court.
3.3 No Violation of Laws or Agreements. The execution, delivery, and
performance of this Agreement and the Transaction Documents by each of the
Seller Parties do not, and the consummation of the transactions contemplated by
this Agreement and the Transaction Documents by the Seller Parties, will not:
(a) contravene any provision of the Restated Articles of Incorporation or Bylaws
of Citizens or the Articles of Incorporation or Bylaws of the other Seller
Parties; or (b) except as set forth on Schedule 3.3, violate, conflict with,
result in a breach of, or constitute a default (or an event which would, with
the passage of time or the giving of notice or both, constitute a default)
under, or result in or permit the termination, modification, acceleration, or
cancellation of, or result in the creation or imposition of any Lien of any
nature whatsoever upon any of the Acquired Assets or give to others any
interests or rights therein under (i) any indenture, mortgage, loan or credit
agreement, license, instrument, lease, contract, plan, permit or other agreement
or commitment, oral or written, to which any of the Seller Parties is a party,
or by which the Business or any of the Acquired Assets may be bound or affected,
except for such violations, conflicts, breaches, terminations, modifications,
accelerations, cancellations, Liens, interests or rights which, individually and
in the aggregate, do not have a Material Adverse Effect or will be cured, waived
or terminated prior to the Closing Date, or (ii) any judgment, injunction, writ,
award, decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or regulation, to
which any of the Seller Parties is subject, other than those violations or
conflicts which individually and in the aggregate would not have a Material
Adverse Effect.
3.4 Financial Statements. Citizens has previously delivered to Buyer
the statement of income of the Business (the "Income Statement") and the Interim
Statement of Net Assets contained in Schedule 3.4 (collectively, the "Financial
Statements"). The Income Statement (a) fairly presents in all material respects
the results of operations of the Business in accordance with generally accepted
accounting principles ("GAAP") consistently applied except for the omission of
full footnotes to the Income Statement and (b) has in all material respects been
derived from the books and records of Seller and reflects the separation of the
operation associated with the Business from other operations of Citizens. The
Interim Statement of Net Assets (a) has in all material respects been derived
from the books and records of Seller and reflects the separation of the
operations associated with the Business from other operations of Citizens; (b)
fairly presents in all material respects the Acquired Assets as of the Interim
Statement of Net Assets Date; and (c) has in all material respects been prepared
in accordance with GAAP consistently applied except for the omission of full
footnotes to such Interim Statement of Net Assets. The financial statements
included in the Annual Report to each PUC for the year ended December 31, 1998,
were prepared in all material respects in accordance with the rules and
regulations of such PUC.
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3.5 No Changes. Since the Interim Statement of Net Assets Date to
the date hereof, except as disclosed in Schedule 3.5, the Seller Parties have
conducted the Business as presently operated only in the ordinary course of
business consistent with past practice. Since the Interim Statement of Net
Assets Date, except as disclosed in Schedule 3.5, there has not been:
3.5.1 any Material Adverse Effect;
3.5.2 prior to the date of this Agreement, any change in the
salaries or other compensation payable or to become payable to, or any advance
(excluding advances for ordinary business expenses) or loan to, any Transferred
Employee, or material change or material addition to, or material modification
of, other benefits (including any bonus, profit-sharing, pension or other plan
in which any of the Transferred Employees participate) to which any of the
Transferred Employees may be entitled, or any payments to any pension,
retirement, profit-sharing, bonus or similar plan other than in any such case
(i) in the ordinary course consistent with past practice, (ii) as required by
law, or (iii) as required by the Collective Bargaining Agreement;
3.5.3 any alteration in any material respect of the customary
practices with respect to the collection of accounts receivable of the Business
or the provision of discounts, rebates or allowances;
3.5.4 any disposition of or failure to keep in effect any
rights in, to or for the use of any Permit of the Business which individually or
in the aggregate would have a Material Adverse Effect;
3.5.5 any damage, destruction or loss affecting the Business
which individually or in the aggregate would have a Material Adverse Effect
whether or not covered by insurance;
3.5.6 prior to the date of this Agreement, any change by
Seller in its method of accounting or keeping its books of account or accounting
practices with respect to the Business except as required by GAAP and is set
forth on Schedule 3.5; or
3.5.7 prior to the date of this Agreement, any sale, transfer
or other disposition of any material assets, properties or rights of the
Business, except in the ordinary course of business consistent with past
practice.
3.6 Contracts. As of the date of this Agreement, Schedule 3.6
contains a list of all Contracts (other than (i) with respect to which the
Business' total annual liability or expense is less than (a) $250,000 per such
Contract and (b) $6,123,000 per all such Contracts (when taken together with
similar contracts omitted from Schedule 3.6 of the Related Purchase Agreements),
and (ii) Contracts that may be terminated by Seller, without penalty, on notice
of 90 days or less) except line extension agreements and similar agreements and
construction and design contracts. Seller has
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furnished to Buyer a correct and complete copy of each written agreement listed
in Schedule 3.6. Except as disclosed on Schedule 3.6, with respect to each
Contract, neither Seller nor, to the Seller Parties' knowledge, any other party
thereto, is in breach or default, and to the Seller Parties' knowledge, no event
has occurred which with notice or lapse of time would constitute a breach or
default, or permit termination, modification, or acceleration, under the
Contract, except in each case where such breaches, terminations, modifications,
accelerations or defaults, individually or in the aggregate, do not have a
Material Adverse Effect. Except as set forth in Schedule 3.6, there are no
disputes pending or to the best of the Seller Parties' knowledge, threatened,
under or in respect of any of the Contracts, other than those that individually
and in the aggregate do not have a Material Adverse Effect.
3.7 Permits and Compliance With Laws Generally.
3.7.1 Except as disclosed on Schedule 3.7, Seller possesses
and is in compliance with all Permits required to operate the Business as
presently operated and to own, lease or otherwise hold the Acquired Assets under
all applicable laws, rules, regulations, ordinances and codes, including
Environmental Laws (as defined below), except to the extent that any failure to
possess, or to comply with, any Permit, laws, rules, regulations or orders would
not, individually or in the aggregate, have a Material Adverse Effect. Except as
disclosed in Schedule 3.7, the Business is conducted by Seller in compliance
with all applicable laws (including the Occupational Safety and Health Act and
the rules and regulations thereunder ("OSHA"), zoning, building and similar laws
and Environmental Laws), rules, regulations, ordinances, codes, judgments and
orders, except for such failures to comply which do not individually or in the
aggregate have a Material Adverse Effect. Except as disclosed on Schedule 3.7,
all Permits of Seller relating to the operation of the Business are in full
force and effect, other than those the failure of which to be in full force and
effect would not individually or in the aggregate have a Material Adverse
Effect. There are no proceedings pending or, to the Seller Parties' knowledge,
threatened that seek the revocation, cancellation, suspension or any adverse
modification of any such Permits presently possessed by Seller other than those
revocations, cancellations, suspensions or modifications which do not
individually or in the aggregate have a Material Adverse Effect.
3.7.2 Except as set forth on Schedule 3.7, no outstanding
notice, citation, summons or order has been issued, no outstanding complaint has
been filed, no outstanding penalty has been assessed and no investigation or
review is pending or, to the knowledge of the Seller Parties, threatened, by any
Authority or other Person with respect to any alleged (i) violation by Seller or
any Affiliate of Seller relating to the Business of any law, ordinance, rule,
regulation, code or order of any Authority; or (ii) failure by Seller or any
Affiliate to have any Permit required in connection with the conduct of the
Business or otherwise applicable to the Business (including the Acquired
Assets), except, in each case, where such violations or failures, individually
or in the aggregate, would not have a Material Adverse Effect.
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3.8 Environmental Matters. Except as set forth on Schedule 3.8
hereto, and with such exceptions as are not reasonably likely, individually or
in the aggregate, to have a Material Adverse Effect:
3.8.1 Seller has not disposed of or arranged for the disposal
of or Released any Hazardous Substances, other than in conformity with
Environmental Laws, at any Real Estate, or, in connection with the Business or
Acquired Assets, at any other facility, location, or other site.
3.8.2 Seller has not received any written notice or request
for information with respect to, and to the best of the Seller Parties'
knowledge, Seller has not been designated a potentially liable party for
Remedial Action, in connection with any Real Estate, or, as of the date hereof,
with respect to the Business or Acquired Assets, at any other facility,
location, or other site under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") or comparable state statutes.
3.8.3 To the best of the Seller Parties' knowledge, except for
such use or storage of Hazardous Substances as is incidental to the conduct of
the Business, which use and storage is or has been in compliance with
Environmental Laws, and which use and storage has not caused any condition that
requires Remedial Action, no Real Estate has been used for the storage,
treatment, generation, processing, production or disposal of any Hazardous
Substances or as a landfill or other waste disposal site in violation of any
Environmental Law.
3.8.4 To the best of the Seller Parties' knowledge,
underground storage tanks are not, and have not in the past been, located on or
under any Real Estate.
3.8.5 There are no pending or unresolved claims against Seller
or the Business for investigatory costs, cleanup, removal, remedial or response
costs, or natural resource damages arising out of any Releases or threat of
Release of any Hazardous Substances at any Real Estate or, as of the date
hereof, with respect to the Business or the Acquired Assets or at any other
facility, location, or other site.
3.8.6 To the best of the Seller Parties' knowledge, no
polychlorinated biphenyls ("PCBs") or asbestos-containing materials are located
at or in any Real Estate in violation of Environmental Laws or which require
Remedial Action.
3.8.7 To the best of the Seller Parties' knowledge, no
Hazardous Substance managed or generated by or on behalf of Seller at the Real
Estate or in connection with the Business or Acquired Assets has come to be
located at any site that is listed or formally proposed for listing under
CERCLA, the Comprehensive Environmental Response, Compensation and Liability
Information System ("CERCLIS"), or any similar state list or that is the subject
of federal, state, or local enforcement actions or investigations.
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3.8.8 The Seller Parties know of no facts or circumstances
related to environmental matters (i) in connection with the operation of the
Business or (ii) concerning the Real Estate, that are reasonably likely to
result in any material reduction in the quality or quantity of water available
for supply to the Seller Parties' customers.
3.8.9 The Seller Parties will within thirty (30) days of the
date hereof provide Buyer with copies of all written environmental audits or
investigations of which they are aware (after due inquiry) prepared for the Real
Estate or operations of the Business.
3.8.10 Except as set forth in Schedule 3.8.10 or Citizens'
Annual Report on Form 10-K for the year ended December 31, 1998:
(a) The Seller Parties (including for purposes of
Section 3.8.10(a) and (b), Affiliates and predecessors of the Seller Parties)
are and have been for the past three years in full compliance with all federal
and state primary drinking water standards;
(b) The Seller Parties are and have been for the past
three years in full compliance with all federal and state secondary drinking
water standards; and
(c) As to all outstanding violations of state or federal
drinking water standards, as of the date hereof, the Seller Parties have
completed or are in the process of completion in accordance with all applicable
deadlines, all actions required by Environmental Law or Authorities to correct
or otherwise respond to such violations.
3.8.11 Except as set forth in Schedule 3.8.11, none of the Seller
Parties will be required to place any notice or restriction relating to the
presence of Hazardous Substances in the deed to any Real Estate, or in any
written instrument accompanying this Agreement, and no Real Estate has such a
notice or restriction in its deed or any other written instrument relating to
the purchase, lease or rental of such property.
For the purposes of these Sections 3.7 and 3.8: (A) "Remedial Action" means all
actions to (x) clean up, remove, treat or in any other way respond to any
presence, Release or threat of Release of Hazardous Substances; (y) prevent the
Release or threat of Release, or minimize the further Release of any Hazardous
Substances so it does not endanger or threaten to endanger public or employee
health or welfare or the environment; or (z) perform studies, investigations or
monitoring necessary or required to investigate the foregoing; (B)
"Environmental Laws" means any common law or federal, state or local law,
statutes, rule, regulation, ordinance, code, judgment or order relating to the
protection of the environment or human health and safety and includes, but is
not limited to, CERCLA (42 U.S.C. section 9601, et seq.), the Clean Water Act
(33 U.S.C. section 1251 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. section 6901 et seq.), the Toxic Substances Control Act (15 U.S.C.
section 2601 et seq.), the Safe Drinking Water Act (42 U.S.C. section 300f et
seq.) and the Oil Pollution Act of 1990 (33 U.S.C. section 2701 et seq.), each
as has been or may be interpreted or amended as of the Closing Date and the
regulations promulgated pursuant thereto
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and in effect as of the Closing Date; (C) "Released" means released, spilled,
leaked, discharged, disposed of, pumped, poured, emitted, emptied, injected,
leached, dumped or allowed to escape; and (D) "Hazardous Substances" means
hazardous or toxic or polluting substance or waste or contaminant under or
pursuant to any Environmental Law, including petroleum products, PCBs and
radioactive materials.
3.9 Consents. No consent, approval or authorization of, or
registration or filing with, any Person (governmental or private) is required in
connection with the execution, delivery and performance by the Selling Parties
of this Agreement, the Transaction Documents, or the consummation of the
transactions contemplated hereby or thereby by the Seller Parties, including
without limitation in connection with the assignment of the Contracts and
Permits contemplated hereby, except (i) as required by the Hart-Scott Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), (ii) as specified on
Schedule 3.9, (iii) as required to assume the California Water Debt, and (iv)
for such other consents, approvals, authorizations, registrations or filings the
failure of which to obtain or make would not individually or in the aggregate
have a Material Adverse Effect or which are obtained by the Closing Date.
3.10 Title. Seller has good and valid title to all of the Acquired
Assets constituting personal property, good and marketable title in fee simple
to all of the owned Acquired Assets constituting Real Estate and good and valid
leasehold title to all of the leased Acquired Assets constituting Real Estate,
in each case, free and clear of Liens subject only to the Permitted Exceptions.
"Permitted Exceptions" as used herein shall mean (a) the Liens set forth in
Schedule 3.10 hereto, (b) Liens securing Taxes, assessments, governmental
charges or levies, or the claims of materialmen, mechanics, carriers and like
persons, all of which are not yet due and payable or which are being contested
in good faith or (c) such other Liens which, individually or in the aggregate,
do not have a Material Adverse Effect (it being understood that to the extent a
Permitted Exception relates to or arises from a Retained Liability, Seller shall
still be liable for such Retained Liability to the extent set forth herein).
3.11 Real Estate.
3.11.1 As of the date hereof, Seller has not received any
written or oral notice for assessments for public improvements against the Real
Estate which remains unpaid, and to the best knowledge of the Seller Parties, no
such assessment has been proposed. Except as set forth on Schedule 3.11, as of
the date hereof, there is no pending condemnation, expropriation, eminent domain
or similar proceeding affecting all or any portion of any of the Real Estate and
to the best knowledge of the Seller Parties no such proceeding is threatened.
3.11.2 Except as disclosed on Schedule 3.6, as of the date
hereof, Seller is not a lessee under any Contract relating to the use or
occupancy of the Real Estate involving annual payments in excess of $100,000.
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3.11.3 Each parcel of the Real Estate has physical and, to
Seller's knowledge, legal vehicular and pedestrian access to and from public
roadways as may be reasonably necessary to the operation of the Business except
where the failure to have such access does not have a Material Adverse Effect.
To Seller's knowledge, no fact or condition exists which would result in the
termination of (a) the current access from each parcel of the Real Estate, and
(b) continued use, operation, maintenance, repair and replacement of all
existing and currently committed water lines used by Seller in connection with
the Business, except where such termination would not have a Material Adverse
Effect.
3.12 Taxes. The Seller Parties have (a) timely filed all material
returns and reports for Taxes, including information returns, that are required
to have been filed in connection with, relating to, or arising out of, the
Business, (b) paid all Taxes that are shown to have come due pursuant to such
returns or reports and (c) paid all other material Taxes not required to be
reported on returns in connection with, relating to, or arising out of, or
imposed on the property of the Business for which a notice of assessment or
demand for payment has been received or which have otherwise become due. To the
best of the Seller Parties' knowledge, all such returns or reports have been
prepared in accordance with all applicable laws and requirements in all material
respects. Except to the extent disclosed on Schedule 3.12, none of the assets of
the Business or constituting any of the Acquired Assets (a) is property that is
required to be treated as owned by another Person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code, (b) is "tax-exempt
use property" within the meaning of Section 168(h) of the Code or (c) directly
or indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code.
3.13 Patents and Intellectual Property Rights. To the best of the
Seller Parties' knowledge, the operations of Seller do not make any unauthorized
use of any Intellectual Property except for any such unauthorized uses which do
not have a Material Adverse Effect. Assuming the consents listed as item XII on
Schedule 3.9 are obtained, Buyer will not lose any of Seller's rights to, or be
required to pay increased royalties for, any Intellectual Property included in
the Acquired Assets as a result of the Closing and the consummation of the
transactions contemplated by this Agreement, except for any such rights or such
increased royalties the loss or payment of which would, individually or in the
aggregate, not have a Material Adverse Effect.
3.14 Accounts Receivable. The accounts receivable of Seller arising
from the Business as set forth on the Interim Statement of Net Assets or arising
since the date thereof have arisen out of bona fide sales and deliveries of
goods, performance of services and other business transactions in the ordinary
course of business consistent with past practice; the allowance for collection
losses on the Interim Statement of Net Assets has been determined in accordance
with GAAP consistent with past practice.
3.15 Labor Relations. As of the date hereof, except as set forth in
Schedule 3.15, to best of the knowledge of the Seller Parties, there has been no
union organizing efforts with respect to the Business conducted
within the last
three (3) years and there are none now being conducted
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with respect to the Business. Except as set forth in Schedule 3.15, Seller has
not at any time during the three (3) years prior to the date of this Agreement
had, nor, to the best of the Seller Parties' knowledge, is there now threatened,
a strike, work stoppage or work slow down with respect to or affecting the
Business which had or could reasonably be expected to have a Material Adverse
Effect. As of the date hereof, except as set forth in Schedule 3.15, (i) no
Employee is represented by any union or other labor organization and (ii) there
is no unfair labor practice charge pending or, to the best knowledge of the
Seller Parties, threatened against Seller relating to any of the Employees as
related to the Business which could reasonably be expected to have a Material
Adverse Effect.
3.16 Employee Benefit Plans.
3.16.1 Schedule 3.16.1 contains a true and complete list of
each "employee benefit plan," as defined in Section 3(3) of ERISA (including any
"multiemployer plan" as defined in Section 3(37) of ERISA), bonus, incentive,
deferred compensation, excess benefit, employment contract, stock purchase,
stock ownership, stock option, supplemental unemployment, vacation, sabbatical,
sick-day, severance or other material employee benefit plan, program or
arrangement (other than those required to be maintained by law), whether written
or unwritten, qualified or nonqualified, funded or unfunded, foreign or
domestic, (i) maintained by, or contributed to by Citizens or any of its
Affiliates, in respect of any Employee or Former Employee, or (ii) with respect
to which Citizens or any of its Affiliates has any liability in respect of any
Employee or Former Employee (the"Benefit Plans"). Except as disclosed on
Schedule 3.16.1, neither Citizens nor any of its Affiliates maintains any bonus,
pension or welfare benefit plan, program or arrangement, including any deferred
compensation arrangement, for directors, consultants or independent contractors
of the Business.
3.16.2 A true and complete copy of each Benefit Plan and
related trust agreements and (to the extent applicable) a copy of each Benefit
Plan's current summary plan description and in the case of an unwritten Benefit
Plan, a written description thereof, has been furnished to Buyer. In addition,
to the extent applicable, Buyer has been provided a copy of the most recent
Internal Revenue Service ("IRS") determination letter issued to each Benefit
Plan and a copy of the most recent IRS Form 5500 together with all schedules and
accountants' statement filed, and actuarial reports prepared, on behalf of each
Benefit Plan.
3.16.3 Each Benefit Plan which is intended to be qualified
under Section 401(a) of the Code (as designated on Schedule 3.16.1) is so
qualified, and will remain so qualified upon the timely making of certain
amendments required by law during the applicable remedial amendment period, and
any trust forming a part of such a Benefit Plan is tax exempt under Section
501(a) of the Code. Each such Benefit Plan has been amended, as and when
necessary, to comply with the Tax Reform Act of 1986 and upon timely filing of
an Application for Determination with the Internal Revenue Service, will be
eligible to make further such amendments under the"remedial amendment period."
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3.16.4 Except as disclosed in Schedule 3.16.4, each Benefit
Plan has been operated and administered in all material respects in accordance
with its terms and all applicable laws, including ERISA and the Code.
3.16.5 None of the Acquired Assets is subject to a Lien or Tax
under the Code or ERISA.
3.16.6 Neither Citizens nor any ERISA Affiliate and, to the
knowledge of the Seller Parties, no other Person, has taken any action or failed
to take any action with respect to any Benefit Plan that may subject Buyer or
any Benefit Plan under which liabilities may be assumed by Buyer under Sections
5.10, 5.11 or 5.12 ("Assumed Benefit Liabilities") to any material liability or
Tax under the Code or ERISA.
3.16.7 Neither Citizens nor any ERISA Affiliate has incurred
or expects to incur any withdrawal liability with respect to any Benefit Plan
which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of
ERISA, including any contingent liability under Section 4204 of ERISA or
withdrawal liability arising from the actions of Citizens or any ERISA Affiliate
contemplated by this Agreement. All contributions that Citizens or any ERISA
Affiliate have been obliged to make to any Benefit Plan, including any
multiemployer plan, have been duly and timely made.
3.16.8 There are no pending or, to the knowledge of the Seller
Parties, threatened claims (other than routine claims for benefits),
assessments, complaints, proceedings or investigations of any kind in any court
or governmental agency with respect to any Benefit Plan which could reasonably
be expected to give rise to a material liability to Buyer.
3.16.9 Except as disclosed on Schedule 3.16.9, no Benefit Plan
provides benefits, including without limitation, death or medical benefits,
beyond termination of service or retirement other than (i) coverage mandated by
law, or (ii) death or retirement benefits under a Benefit Plan qualified under
Section 401(a) of the Code. Seller's Retiree Medical Plan contains provisions
permitting Seller to modify or terminate retiree medical benefits at any time,
without prior notice to any covered individual. Except with respect to retirees,
"grandfathered" employees and collectively bargained employees, Seller knows of
no reason why its ability to effect those provisions would be limited.
3.16.10 With respect to each Benefit Plan that is a "group
health plan" within the meaning of Section 607 of ERISA and that is subject to
Section 4980B of the Code, Citizens and each ERISA Affiliate have complied in
all material respects with the continuation coverage requirements of the Code
and ERISA.
3.17 Absence of Undisclosed Liabilities. Except as disclosed in
Schedule 3.17, Seller has no liabilities with respect to the Business which
would constitute Assumed Liabilities, either direct or indirect, matured or
unmatured or absolute, contingent or otherwise, except:
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3.17.1 the Assumed Indebtedness and those other liabilities
which would decrease the Base Cash Purchase Price pursuant to Section 2.6.5 to
the extent assumed by Buyer at Closing;
3.17.2 liabilities arising in the ordinary course of business
under any Contract or Permit or with respect to any agreement or instrument
included within the definition of Real Estate; and
3.17.3 those liabilities incurred, consistent with past
business practice, in or as a result of the normal and ordinary course of
business and reflected in the books and records related to the Business;
3.17.4 the obligations and liabilities set forth in Sections
5.9, 5.10, 5.11 and 5.12 hereof; and
3.17.5 those other liabilities, which individually and in the
aggregate, would not have a Material Adverse Effect.
3.18 No Pending Litigation or Proceedings. Except as disclosed in
Schedule 3.18, there are no actions, suits, investigations or proceedings
pending against or, to the best of the Seller Parties' knowledge, threatened,
against or affecting, Seller, the Business or any of the Acquired Assets before
any court or arbitrator or Authority which individually or in the aggregate,
would have a Material Adverse Effect. Except as disclosed in Schedule 3.18,
there are currently no outstanding judgments, decrees or orders of any court or
Authority against any of the Seller Parties, which relate to or arise out of the
conduct of the Business or the ownership, condition or operation of the Business
or the Acquired Assets (other than any PUC order relating to rates, tariffs and
similar matters arising in the ordinary course of business) which individually
or in the aggregate would have a Material Adverse Effect.
3.19 Supply of Utilities. Except as set forth on Schedule 3.19, the
Real Estate has adequate arrangements for supplies of electricity, gas, oil,
coal and/or sewer for all operations at the 1998 or current operating levels,
whichever is greater. Except as set forth on Schedule 3.19, there are no actions
or proceedings pending or, to the best of the Seller Parties' knowledge,
threatened, that would adversely affect the supply of electricity, gas, coal or
sewer to the Real Estate except for those which individually and in the
aggregate would not have a Material Adverse Effect.
3.20 Insurance. Schedule 3.20 lists the Seller Parties' policies and
contracts in effect as of the date hereof for insurance covering the Acquired
Assets or Assumed Liabilities and the operation of the facilities constituting
the Business owned or held by Seller, together with the risks insured against,
coverage limits and deductible amounts.
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3.21 Relationship with Customers. As of the date hereof, Seller does
not have any current customer which accounted for more than 5% of the net sales
of the Business (taken together with the businesses being acquired by Buyer or
Affiliates of Buyer pursuant to the Related Purchase Agreements) for the
immediately preceding 12-month period.
3.22 WARN Act. Except as contemplated by Section 5.9 hereby or as
set forth in Schedule 3.22 hereto, within six months prior to the date hereof,
(i) Seller has not effectuated (a) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of the Business; or (b) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment or one or
more facilities or operating units within any site of employment or facility of
the Business; (ii) Seller has not been affected by any transaction or engaged in
layoffs or employment terminations with respect to the Business sufficient in
number to trigger application of any similar state or local law; and (iii) none
of Seller's employees who are employed in connection with the Business has
suffered an "employment loss" (as defined in the WARN Act) .
3.23 Condition of Assets. Except as set forth on Schedule 3.23, the
buildings, machinery, equipment, tools, furniture, improvements and other fixed
tangible assets of the Business included in the Acquired Assets, taken as a
whole and taken together with the similar assets included among the assets being
acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements, are in good operating condition and repair, reasonable wear and tear
excepted.
3.24 Brokerage. None of the Seller Parties or their Affiliates have
made any agreement or taken any other action which might cause any Person to
become entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to Buyer or
its Affiliates.
3.25 All Assets. Except as set forth on Schedule 3.25 and for the
Excluded Assets, the Acquired Assets include all assets, rights, properties and
contracts the use of which is necessary to the continued conduct of the Business
by Buyer substantially in the manner as it was conducted prior to the Closing
Date, including the service of all utility customers in substantially the same
manner and at substantially the same service levels as provided by Seller on the
date hereof.
3.26 Year 2000 Matters. Citizens has (1) initiated a review and
assessment of all mission critical areas within the Business and related
operations (including those affected by suppliers and vendors) that it
reasonably believes could be adversely affected by the "Year 2000 Problem" (that
is, the risk that computer applications used by any Seller Party (or suppliers
and vendors) may be unable to recognize and properly perform date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem
all as set forth in Citizens' Annual report on Form 10-K for the fiscal year
ended December 31, 1998 and Citizens' Quarterly reports on Form 10-Q for the
periods ending March 31, 1999 and June 30, 1999, and (iii) to date, implemented
that plan substantially in
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accordance with that timetable. Seller has contingency plans that are dedicated
to ensuring that established and expected levels of customer service are
maintained without interruption, while core business functionality is preserved
during the millennium transition. With respect to its suppliers and vendors, the
foregoing representation and warranty is expressly limited to matters known to
Seller after making reasonable inquiries of such suppliers and vendors. Seller
makes no representation or warranty with respect to the receipt or accuracy of
any response received from any vendor or supplier.
3.27 Product Liability. Except as disclosed in Schedule 3.27 and
except for those liabilities which individually or in the aggregate would not
have a Material Adverse Effect, there are no (a) liabilities of the Seller
Parties or their Affiliates, fixed or contingent, asserted or, to the knowledge
of the Seller Parties, unasserted, with respect to any product liability or
similar claim that relates to any product or service sold by Seller or the
Business to others or (b) liabilities of the Seller Parties or their Affiliates,
fixed or contingent, asserted or, to the knowledge of the Seller Parties
unasserted, with respect to any claim for the breach of any express or implied
product warranty or a similar claim with respect to any product or service sold
by Seller or the Business to others.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
Parent and Buyer jointly and severally represent and warrant to Seller as
follows:
4.1 Organization and Good Standing.
4.1.1 Parent is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
4.1.2 Buyer is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation and has all
requisite corporate power and authority to own, lease and operate the Acquired
Assets and the Business. Buyer is qualified to do business and is in good
standing in all jurisdictions wherein the nature of the business conducted by it
or Buyer's ownership or use of assets and properties make such qualification
necessary, except such failures to be qualified or to be in good standing, if
any, which when taken together with all such failures of Buyer do not have a
material adverse effect on its ability to perform its obligations under this
Agreement and the Transaction Documents.
4.2 Authorization and Enforceability. Each of Buyer and Parent has
full corporate power and authority to execute, deliver and perform this
Agreement and the other Transaction Documents to which either of them is a
party. The execution, delivery and performance by Buyer and Parent of this
Agreement and the Transaction Documents to which Buyer and/or Parent is a party
have been duly authorized by all necessary corporate action on the part of each
of
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them. This Agreement has been duly executed and delivered by Buyer and Parent,
and as of the Closing Date the other Transaction Documents will be duly executed
and delivered by Buyer and Parent. This Agreement is a legal, valid and binding
obligation of Buyer and Parent, enforceable against them in accordance with its
terms, except as such enforceability may be limited by applicable laws relating
to bankruptcy, insolvency, fraudulent conveyance, reorganization or affecting
creditors' rights generally and except to the extent that injunctive or other
equitable relief is within the discretion of a court. As of the Closing Date,
each of the other Transaction Documents to which Buyer and Parent is a party
will be duly executed and delivered by Buyer and Parent and will constitute the
legal, valid and binding obligations of Buyer and Parent, enforceable against
them in accordance with its respective terms, except as such enforceability may
be limited by applicable laws relating to bankruptcy, insolvency, fraudulent
conveyance, reorganization or affecting creditors' rights generally and except
to the extent that injunctive or other equitable relief is within the discretion
of a court.
4.3 No Violation of Laws or Agreements. The execution, delivery and
performance of this Agreement and the Transaction Documents by Buyer and/or
Parent do not, and the consummation of the transactions contemplated hereby and
thereby will not, (a) contravene any provision of the Articles of Incorporation
or Bylaws of Buyer or the Certificate of Incorporation or Bylaws of Parent; or
(b) violate, conflict with, result in a breach of, or constitute a default (or
an event which would with the passage of time or the giving of notice, or both,
constitute a default) under, or result in or permit the termination,
modification, acceleration, or cancellation of (i) any indenture, mortgage, loan
or credit agreement, license, instrument, lease, contract, plan, permit,
authorization, proof of dedication or other agreement or commitment, oral or
written, to which Parent or Buyer is a party, or by which any of their assets or
properties may be bound or affected, except for such violations, conflicts,
breaches, terminations, modifications, accelerations, cancellations, interests
or rights which, individually or in the aggregate do not have a material adverse
effect on their respective ability to perform their obligations under this
Agreement and the Transaction Documents, or (ii) any judgment, injunction, writ,
award, decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or regulation to
which Buyer or Parent is subject other than those violations and conflicts which
individually or in the aggregate do not have a material adverse effect on their
respective ability to perform their obligations under this Agreement and the
Transaction Documents.
4.4 Consents. No consent, approval or authorization of, or
registration or filing with, any Person (governmental or private) is required in
connection with the execution, delivery and performance by Buyer and Parent of
this Agreement, the other Transaction Documents, or the consummation of the
transactions contemplated hereby or thereby by Buyer or Parent except (i) as
required by the HSR Act, (ii) as specified on Schedule 3.9 and (iii) for such
consents, approvals, authorizations, registrations or filings, the failure to
obtain or make would not individually or in the aggregate have a material
adverse effect on their respective ability to perform their obligations under
this Agreement and the Transaction Documents.
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4.5 Financing. Buyer and Parent have, and at the Closing Date, will
have sufficient resources to pay the Purchase Price, and Parent, Buyer or the
other Affiliates of Parent that are buyers of the assets and businesses being
acquired pursuant to the Related Purchase Agreements have, and at the Closing
Date, will have sufficient resources to pay the purchase prices set forth in the
Related Purchase Agreements.
4.6 Brokerage. None of Parent, Buyer or their Affiliates have made
any agreement or taken any other action which might cause any Person to become
entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to the
Seller Parties.
4.7 Insurance. Schedule 4.7 lists the policies and contracts in
effect as of the date hereof for casualty and property insurance covering
Buyer's assets and properties and the operation of Buyer's business, together
with the risks insured against, coverage limits and deductible amounts.
ARTICLE 5
ADDITIONAL COVENANTS
5.1 Conduct of Business. Except (i) as otherwise specifically
permitted by this Agreement, (ii) as set forth in Schedule 5.1 hereto or (iii)
with the prior written consent of Buyer, from and after the date of this
Agreement and up to and including the Closing Date, each of the Seller Parties
agree that:
5.1.1 Seller shall conduct the Business as presently operated
and only in the ordinary course of business consistent with past practice.
5.1.2 They shall promptly inform Buyer in writing of any
specific event or circumstance of which they are aware, or of which they receive
notice, that has or is likely to have, individually or in the aggregate, taken
together with the other events or circumstances, a Material Adverse Effect on
the Acquired Assets or the Assumed Liabilities.
5.1.3 Seller shall not:
(a) change or modify in any material respect existing
credit and collection policies, procedures and practices with respect to
accounts receivable;
(b) enter into any contract or commitment, waive any
right or enter into any other transaction (except in the ordinary course of
business) which would have a Material Adverse Effect;
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(c) except in the event of service interruption,
emergency or casualty loss, commit to acquire subsequent to the Closing Date on
behalf of the Business any capital asset or group of capital assets costing in
excess of $1,000,000 that is not included in the capital budget of Seller for
fiscal year 2000 and which, if so acquired, would be included in the Acquired
Assets; commencing December 1, 1999, accept or receive customer advances for
construction in excess of $9,000,000 (when combined with customer advances
relating to the businesses being acquired by Buyer or Affiliates of Buyer
pursuant to the Related Purchase Agreements) per each of the next four
consecutive three-month periods unless pursuant to an existing tariff, Contract
or Permit of Seller; or sell or lease or agree to sell or lease or otherwise
dispose of any assets included in the Acquired Assets except in the ordinary
course of the conduct of the Business, consistent with past practice;
(d) except in the ordinary course of business,
consistent with past practice or as required under any of Seller's debt
instruments or indentures, mortgage, pledge or subject to any Lien (other than
Permitted Liens) any of the Acquired Assets;
(e) change any compensation or benefits or grant any
material new compensation or benefits payable to or in respect of any
Transferred Employee except (i) as required by law, (ii) in the ordinary course,
consistent with past practice and (iii) as required by the Collective Bargaining
Agreement in existence on the date hereof; provided, however, no individual
Employee shall in any event receive a compensation increase in excess of seven
percent (7%) except as required by the Collective Bargaining Agreement in
existence on the date hereof;
(f) other than in the ordinary course of business
consistent with past practice, sell or otherwise transfer any assets necessary,
or otherwise material to the conduct of, the Business which would constitute
Acquired Assets;
(g) change the Seller's method of accounting or keeping
its books of account or accounting practices with respect to the Business,
except as required by GAAP or any Authority;
(h) intentionally and wilfully take or omit to take any
action which if taken or omitted prior to the date hereof would constitute or
result in a breach of any representations or warranties set forth in Sections
3.1, 3.2, 3.3, 3.4, 3.7, 3.8, 3.10, 3.14, 3.16 and 3.25 hereof (it being
understood that the failure to cure a breach shall not, by itself, be an
intentional and wilful omission to take action); or
(i) prepay, redeem, retire, refund or otherwise
extinguish any of the Assumed Indebtedness.
5.2 Negotiations. Neither Citizens nor any Person controlled by
Citizens or under common control with Citizens (each such person being a
"Section 5.2 Affiliate"), nor any
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officer, director, employee, representative or agent of Citizens or any of their
Section 5.2 Affiliates, shall, directly or indirectly, solicit or initiate or
participate in any way in discussions or negotiations with, or provide any
information or assistance to, or enter into an agreement with any Person or
group of Persons (other than Parent, Buyer or any Person controlled by Parent or
Buyer or under common control with Parent, Buyer or any Persons providing
financing to the parties hereto in connection with facilitating the consummation
of the transactions contemplated by this Agreement) concerning any acquisition,
merger, consolidation, liquidation, dissolution, disposition or other
transaction (or series of such transactions) that would result in the transfer
to any such Person or group of Persons of ten percent (10%) of the Acquired
Assets (as measured by net book value of such assets on the date of each such
transaction) or the acquisition, merger, consolidation, liquidation,
dissolution, disposition or other transaction (or series of such transactions)
involving the Seller Parties, if such acquisition, merger, consolidation,
liquidation, dissolution, disposition or other transaction (or series of such
transactions) would be inconsistent, in any respect, with the obligations of the
Seller Parties hereunder (any of the foregoing transactions, a "Competing
Transaction").
5.3 Disclosure Schedules. As promptly as practicable, the Seller
Parties will provide Buyer with a supplement or amendment to the Disclosure
Schedules with respect to any matter, condition or occurrence which is required
to be set forth or described in the Disclosure Schedules. For the avoidance of
doubt, a matter, condition or occurrence shall only be "required" to be set
forth or described in the Disclosure Schedules if the failure to be so disclosed
would result in a breach of the applicable representation or warranty (qualified
by Material Adverse Effect where applicable) on the date hereof or on the
Closing Date. In addition, Seller shall have the right at any time and from time
to time prior to the Closing to supplement or amend the Disclosure Schedules.
Seller may provide Disclosure Schedules with respect to any representation or
warranty of this Agreement whether or not a specific schedule is referred to
therein. In the event that any supplement or amendment of such Disclosure
Schedules shall be provided later than five (5) business days prior to the
Closing Date, the Buyer shall have the right to delay the Closing for a period
of five (5) business days in order for Buyer to review such supplement or
amendment. No such supplement or amendment shall be deemed to cure any breach of
or alter any representation or warranty made in this Agreement so as to permit
the Closing to occur unless Buyer specifically agrees thereto in writing. The
Seller Parties shall promptly inform Buyer, and Buyer will promptly inform the
Seller Parties of any fact or event which comes to their attention, the
existence of which constitutes or likely will constitute a breach in any
material respects of any representation or warranty in this Agreement. In
addition, Parent will, within five (5) days of receipt thereof, forward to
Seller (i) any title report Buyer receives from a title company with respect to
the Real Estate and (ii) any written communication regarding a specific Lien or
title defect affecting a specifically identified parcel of the Real Estate sent
to the President, Treasurer or General Counsel of Parent or the President or
Corporate Counsel of any other Buyer Party, and sent by a party other than the
Seller Parties, their legal counsel, financial advisors or representatives.
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5.4 Mutual Covenants. The parties mutually covenant from the date of
this Agreement to the Closing Date (and subject to the other terms of this
Agreement, including Section 5.8 hereof):
5.4.1 to cooperate with each other in determining whether
filings are required to be made or consents required to be obtained in any
jurisdiction in connection with the consummation of the transactions
contemplated by this Agreement and in making or causing to be made any such
filings promptly and in seeking to obtain timely any such consents;
5.4.2 to use all reasonable efforts to obtain promptly the
satisfaction (but not waiver) of the conditions to the Closing of the
transactions contemplated herein (each party hereto shall furnish to the other
and to the other's counsel all such information as may be reasonably required in
order to effectuate the foregoing action); and
5.4.3 to advise the other parties promptly if such party
determines that any condition precedent to its obligations hereunder will not be
satisfied in a timely manner.
5.5 Filings and Authorizations. The parties hereto will as promptly
as practicable, make or cause to be made all such filings and submissions under
laws, rules and regulations applicable to it or its Affiliates as may be
required to consummate the terms of this Agreement, including all notifications
and information to be filed or supplied pursuant to the HSR Act and with the
applicable public utility commission (each, a "PUC"). Any such filings and
supplemental information will be in substantial compliance with the requirements
of the applicable law, rule or regulation. Each of Parent and Buyer, on the one
hand, and the Seller Parties, on the other, shall furnish to the other such
necessary information and reasonable assistance as the other may request in
connection with its preparation of any filing or submission to the PUC or which
is necessary under the HSR Act. The Seller Parties, on the one hand and Buyer
and Parent, on the other, shall keep each other apprised of the status of any
communications with, and inquiries or requests for additional information from,
any Authority, including the PUC, the United States Federal Trade Commission
("FTC") and the Antitrust Division of the United States Department of Justice
(the "Antitrust Division"), and shall comply promptly with any such inquiry or
request. Each of Citizens, Seller, Parent and Buyer will use its reasonable
efforts to obtain any clearance required under the HSR Act and from the PUC for
the purchase and sale of the Acquired Assets in accordance with the terms and
conditions hereof. Notwithstanding the foregoing, nothing contained in this
Agreement will require or obligate any party or their respective Affiliates: (i)
to initiate, pursue or defend any litigation (or threatened litigation) to which
any Authority (including the PUC, the Antitrust Division and the FTC) is a
party; (ii) to agree or otherwise become subject to any material limitations on
(A) the right of Buyer or its Affiliates effectively to control or operate the
Business or the right of Seller or its Affiliates effectively to control or
operate Citizens' other businesses, (B) the right of Buyer or its Affiliates to
acquire or hold the Business or the right of Seller or its Affiliates to hold
the Excluded Assets or Citizens' other businesses, or (C) the right of Buyer to
exercise full rights of ownership of the Business or all or any material portion
of the Acquired Assets
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or the right of Citizens to exercise full rights of ownership of Citizens' other
businesses or all or any material portion of the Excluded Assets; or (iii) to
agree or otherwise be required to sell or otherwise dispose of, hold separate
(through the establishment of a trust or otherwise), or divest itself of all or
any portion of the business, assets or operations of Citizens, Seller, Parent,
Buyer, any Affiliate of Buyer or the Business. The parties agree that no
representation, warranty or covenant of Buyer, Parent, or Citizens contained in
this Agreement shall be breached or deemed breached as a result of the failure
by Parent and Buyer on the one hand or the Seller Parties, on the other, to take
any of the actions specified in the preceding sentence.
5.6 Public Announcement. No party hereto shall make or issue, or
cause to be made or issued, any public announcement or written statement
concerning this Agreement or the transactions contemplated hereby without the
prior written consent of the other party (which will not be unreasonably
withheld or delayed), unless counsel to such party advises that such
announcement or statement is required by law (in which case the parties shall
make reasonable efforts to consult with each other prior to such required
announcement).
5.7 Further Assurances. Each of Citizens, Parent, Buyer and Seller,
from time to time after the Closing, at Buyer's or Seller's request, will
execute, acknowledge and deliver to the applicable person such other instruments
of conveyance and transfer and will take such other actions and execute such
other documents, certifications, and further assurances as Buyer or Seller, as
the case may be, may reasonably require in order to transfer, in accordance with
the terms and conditions of this Agreement, more effectively in Buyer or to put
Buyer more fully in possession of any of the Acquired Assets or better to enable
Buyer to complete, perform and discharge any of the Assumed Liabilities. Each
party shall cooperate and deliver such instruments and take such action as may
be reasonably requested by the other party in order to carry out the provisions
and purposes of this Agreement and the transactions contemplated hereby.
5.8 Cooperation.
5.8.1 Parent, Buyer, Citizens and Seller shall cooperate and
shall cause their respective Affiliates, officers, employees, agents and
representatives to cooperate to ensure the orderly transition of the Business
from Seller to Buyer and to minimize the disruption to the Business resulting
from the transactions contemplated hereby.
5.8.2 Without limiting the foregoing, neither Parent and
Buyer, nor Citizens and Seller (nor any of their respective Affiliates) shall
make any filings pursuant to federal or state securities laws ("Securities
Filings") or make any consent solicitations to holders of Assumed Indebtedness
which include any information about Seller, Buyer (or their respective
Affiliates) or the transactions contemplated hereby without consulting with the
other party and providing the other party a reasonable opportunity to review and
comment on such information, it being understood and agreed that any party may
so disclose such information in its reasonable judgment to the extent such
party's counsel advises it that such disclosure is advisable under applicable
law. Each of Parent,
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Buyer, Citizens and Seller shall, and shall cause their respective Affiliates
to, comply with all applicable federal and state securities laws in connection
with this Agreement and the transactions contemplated hereby (including any
solicitation of consents of holders of Assumed Indebtedness), and all
information supplied by any party for inclusion in any Securities Filing or
consent solicitation, including, without limitation, any proxy or information
statement, or any registration statement on Form S-4 shall be true and correct
in all material respect and shall not contain any untrue statement of a material
fact or omit to state any material fact which is required to be stated therein
or which is necessary to make the statements contained therein not misleading in
light of the circumstances in which they were made.
5.8.3 During the first 90 days after the Closing Date (180
days for Trademarks on tanks), Buyer shall have the right to use all of the
logos, trademarks and trade identification of Seller as are located at the Real
Estate or on the Acquired Assets (collectively, the "Trademarks"). Buyer's use
of the Trademarks shall be in accordance with such reasonable quality control
standards as may be promulgated by Seller and provided to Buyer. If Seller shall
notify Buyer in writing of Buyer's material failure to comply with such
reasonable quality control standards and Buyer continues to not comply with such
reasonable quality control standards for more than 20 days after receipt of such
notice, Seller shall have the right to terminate Buyer's right under this
Section 5.8.3 to use the Trademarks.
5.8.4 Seller shall give Buyer and its representatives
(including Buyer's Accountants, consultants, counsel and employees), upon
reasonable notice and during normal business hours, full access to the
properties, contracts, employees, books, records and affairs of Seller to the
extent relating to the Business and the Acquired Assets, and shall cause its
officers, employees, agents and representatives to furnish to Buyer all
documents, records and information (and copies thereof), to the extent relating
to the Business and the Acquired Assets, as Buyer may reasonably request. Except
to the extent disclosed in the Disclosure Schedules in accordance with Sections
5.3 and 8.4, no investigation or receipt of information by Buyer pursuant to, or
in connection with, this Agreement, shall diminish or obviate any of the
representations, warranties, covenants or agreements of the Seller Parties under
this Agreement or the conditions to the obligations of Parent or Buyer under
this Agreement. All information provided to Buyer under this Agreement shall be
held subject to the terms and conditions of the Confidentiality Agreement dated
August 2, 1999 between Citizens and Parent.
5.9 Employees; Employee Benefits.
5.9.1 Schedule 5.9.1 lists divisions and the number of all
salaried and hourly employees actively employed (as of the date of this
Agreement) in each division by Seller or any of its Affiliates whose primary
responsibilities relate to the Business. Schedule 5.9.1 lists job
classifications and number of employees in each job classification of those
employees whose terms and conditions of employment are subject to the Collective
Bargaining Agreement ("Union Employees"). All individuals referred to on
Schedule 5.9.1 are herein referred to as the
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"Employees." No later than March 1, 2000, Buyer and Seller shall determine the
number of Employees to whom Buyer will offer employment, which number shall be
at least equal to 250 (when combined with offers made by Buyer or Affiliates of
Buyer to employees of Affiliates of Seller in connection with the Related
Purchase Agreements) (the "Base Number"), and such additional number of
Employees, if any, whom Buyer also wishes to employ. Upon determination of such
Employees, Seller will supplement Schedule 5.9.1 with the name, job title,
unused vacation, current base salary or hourly wage, date of hire and assigned
location of each Transferred Employee (as that term is defined below). At the
Closing, Seller shall provide an updated Schedule 5.9.1 which shall disclose all
the information required under the preceding sentence as of the most recent
practicable date prior to Closing.
5.9.2 Effective as of the Closing, Buyer shall offer
employment to at least the Base Number of those employees included on Schedule
5.9.1. All Employees to whom Buyer offers employment and who accept such
employment are herein referred to as the "Transferred Employees." In the event
any Employees do not accept Buyer's offer of employment, Buyer shall offer
employment to such additional employees (the identity of whom shall be
determined by Buyer and Seller) as are necessary to bring the total number of
Transferred Employees to the Base Number. Subject to the provisions of this
Section 5.9 and Section 5.12, Buyer shall provide each Transferred Employee with
base compensation at least equal to that provided by Seller on the Closing Date,
and employee benefits which are substantially comparable to those provided by
Buyer to its other similarly situated employees. Except as otherwise provided
under the terms of any assumed collective bargaining agreement and under terms
of Section 5.12, Buyer shall provide each Union Transferred Employee with
compensation at least equal to that provided by Seller immediately prior to the
Closing Date and with the benefits provided to Buyer's similarly situated
collectively bargained employees. On and after the Closing Date, Buyer shall
assume Seller's obligations under, and be bound by the provisions of, the
collective bargaining agreement between Citizens Utilities Company of
California, Sacramento District, and International Union of Operating Engineers
Stationary Local No. 39, AFL-CIO (the "California Union"), dated March 4, 1997
(the "California Agreement"), to the extent of provisions covering Transferred
Employees, as in effect on the date of this Agreement. With respect to any
amendment, extension, or renegotiation of the California Agreement, the contract
as so amended, extended or renegotiated will be assumed if, but only if, (i) in
connection with such amendment, extension or renegotiation, the California Union
agrees to substitute for Seller's employee pension plan (to the extent required
to be provided under the California Agreement) Parents' employee pension plan,
and (ii) the other terms and conditions of the collective bargaining agreement
pertaining to the Transferred Employees on the Closing Date are substantially
identical to the terms and conditions of the Collective Bargaining Agreement as
in effect on the date of this Agreement. Each collective bargaining agreement
pertaining to Transferred Employees shall be identified on a Schedule 5.9.2 to
be prepared by Seller and submitted to Buyer on or before the Closing Date.
Seller shall cooperate with Buyer in Buyer's efforts to contact the unions
representing Transferred Employees. Buyer agrees (i) to credit the service of
each Transferred Employee with Seller and its Affiliates before the Closing, for
all purposes under all employee benefit plans and arrangements maintained by
Buyer (and/or any of its Affiliates) for the
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benefit of any Transferred Employee (including without limitation for purposes
of attainment of retirement dates and payment of optional forms of benefits),
other than for purposes of benefit accrual under any "defined benefit plan",
within the meaning of Section 3(35) of ERISA, (ii) to provide accrued vacation
to Transferred Employees in the year in which the Closing occurs, equal to the
excess, if any, of the accrued vacation to which the Transferred Employee would
otherwise be entitled under Seller's vacation plan during that year over the
amount of accrued vacation the Transferred Employee had taken during that year,
and, thereafter, to provide vacation to Transferred Employees on the same basis
as provided to similarly situated employees of Buyer, with service credit as
provided in (i) hereof, (iii) to provide severance benefits to Transferred
Employees terminated by Buyer that are substantially comparable to those
benefits provided by Buyer to similarly situated employees, and (iv) to comply
with all applicable legal requirements with respect to Union Employees
(including without limitation any applicable duty to bargain with those
employees' bargaining representative). Buyer shall be responsible for providing
to each Transferred Employee vacation in an amount equal to the Transferred
Employee's vacation entitlement for the year of Closing reduced by the number of
vacation days such Transferred Employee has taken on or before Closing. Nothing
in this Section 5.9 shall limit Buyer's authority to terminate the employment of
any Transferred Employee at any time and for whatever reason. Until the second
anniversary of the Closing Date, neither Seller nor any of its Affiliates shall
directly or indirectly solicit or offer employment to any Transferred Employee
then employed by Buyer or its Affiliates.
5.9.3 Except as specifically provided in Sections 5.9 and
5.12, Seller shall be solely responsible for any liability, claim or expense
(including reasonable attorneys' fees) related to compensation or employee
benefits incurred by Buyer as the result of any claims against Buyer or its
Affiliates that are made by any Employees or Former Employees (or the
Beneficiary of any Employee or Former Employee) who are not made offers to
become employees of Buyer or its Affiliates including, without limitation,
claims asserted against Buyer as a result of their termination by Seller or its
Affiliates.
5.9.4 Seller shall be solely responsible for any liability,
claim or expense with respect to compensation or employee benefits of any nature
(including, but not limited to, workers compensation claims or the benefits
provided under the Benefit Plans, whether paid before or after the Closing) owed
to any Transferred Employee or the Beneficiary of any Transferred Employee or
any Water Sector Retiree or the Beneficiary of any Water Sector Retiree that
arises out of or relates to (i) the employment relationship between Seller or
any of its Affiliates and such Transferred Employee or Beneficiary or (ii) any
benefit claim or expense (including medical expenses) incurred before Closing
under any Benefit Plan. For purposes of this Agreement, a medical expense shall
be deemed to be incurred when the services giving rise to a claim are rendered,
regardless of when billed or paid. Without limiting the foregoing, Seller shall
be responsible for the payment of any employee benefits that become due to any
Transferred Employees as a result of their termination by Seller.
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5.9.5 Except as otherwise specifically provided in Section
5.9, 5.11 or 5.12, Buyer shall be solely responsible for any liability, claim or
expense with respect to compensation or employee benefits of any nature
(including, but not limited to, workers compensation, claims or the benefits
provided under any employee benefit plan or arrangement of Buyer incurred after
Closing) owed to any Transferred Employee or Beneficiary of any Transferred
Employee or any Water Sector Retiree or Beneficiary of any Water Sector Retiree
that arises out of or relates to (i) the employment relationship between Buyer
or any of its Affiliates and any Transferred Employee or (ii) any benefit claim
or expense (including medical expense) incurred after Closing under any employee
benefit plan sponsored or contributed to by Buyer or an ERISA Affiliate after
Closing. Notwithstanding the foregoing, Buyer shall not be responsible for the
payment of any employee benefits that become due to any Transferred Employees
under any Benefit Plan (other than the Assumed Benefit Liabilities).
5.9.6 Buyer agrees to reimburse Seller for its proportionate
share (as defined below) of any amount in excess of $1,000,000 paid by Seller as
severance under Citizens' severance plan as in effect on the date hereof to any
Employees (when such amount paid by Seller is aggregated with amounts paid by
Citizens to other employees as referenced in Section 5.9.6 of the Related
Purchase Agreements) provided (i) Buyer does not hire such Employees in
accordance with the provisions of Sections 5.9, 5.11 and 5.12 and (ii) Seller
provides notice to those Employees on or before the Closing Date to the effect
that their employment will be terminated on or shortly after the Closing Date.
Buyer will pay such reimbursement to Citizens within 5 days after receipt of a
list of the Employees showing which are entitled to severance pay, the amounts
of that severance pay and certifying that those amounts have been paid. The
Buyer's "proportionate share" means the amount obtained by multiplying the
amount in excess of $1,000,000 by a fraction, the numerator of which is the
amount of severance paid by Seller to Employees under Section 5.9.6 of this
Agreement and the denominator of which is the sum of (i) the amount paid by
Seller to Employees under Section 5.9.6 of this Agreement and (ii) the aggregate
amount paid by Citizens under Section 5.9.6 of each of the Related Purchase
Agreements.
5.9.7 Until the second anniversary of the Closing Date, Buyer
shall not directly or indirectly solicit or offer employment to any active
employee of Seller, other than the Transferred Employees.
5.10 Employee Pension Plan.
5.10.1 At least fifteen days prior to the Closing Date, Seller
shall take any and all actions necessary to cease benefit accruals and fully
vest all Transferred Employees in their accrued benefits under the Citizens
Pension Plan ("Seller's Pension Plan" or "Citizens Pension Plan"). Seller shall
retain liability and related assets for benefits accrued through the Closing
Date by Transferred Employees under Seller's Pension Plan.
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5.10.2 As of the Closing Date except as may be required under
the California Agreement, Transferred Employees shall be covered under the
American Pension Plan, and shall be given credit for service with Seller and its
Affiliates for eligibility, vesting, attainment of retirement dates, subsidized
benefits, and entitlement to optional forms of payment, but not for accrual of
benefits.
5.11 Employee Savings Plan.
5.11.1 Effective upon the date of the transfer described in
Section 5.11.2, subject to the terms and conditions of this Agreement, Parent
shall cause the Savings Plan for Employees of American Water Works Company, Inc.
(the "American Savings Plan") to assume the liability of the Seller's 401(k)
Plan for the account balances of those Transferred Employees participating in
the Seller's 401(k) Plan on the Closing Date (the "Affected Participants") that
are transferred to the American Savings Plan. As of the Closing Date, Affected
Participants shall be 100% vested in their account balances under the Seller's
401(k) Plan. Transferred Employees shall be given credit under the American
Savings Plan for service with Seller and its Affiliates for eligibility,
vesting, attainment of retirement dates, contribution levels and optional forms
of benefit payment, to the same extent that credit for such service has been
given by Seller and its Affiliates.
5.11.2 Buyer shall deliver to Seller as soon as practicable,
but in no event later than ninety (90) days after Closing (i) a certified copy
of the American Savings Plan and any amendment necessary to effectuate the
transfer of assets and the assumption of account balances in accordance with
this Section 5.11, (ii) a certified copy of the trust agreement for the American
Savings Plan; (iii) the most recent favorable determination letter from the IRS
with respect to the American Savings Plan; and (iv) an opinion from Buyer's
legal counsel acceptable to Seller that the American Savings Plan, as so
amended, complies or will comply on a timely basis with the applicable
provisions of the Code relating to the qualification of, and the transfer of
assets and assumption of benefit liabilities by, the American Savings Plan.
Seller shall deliver to Buyer as soon as practicable, but in no event later than
ninety (90) days after Closing, an opinion from Seller's legal counsel
acceptable to Buyer that the Seller's 401(k) Plan complies or will comply on a
timely basis with the applicable provisions of the Code relating to the
qualification of the Seller's 401(k) Plan, and the transfer of assets to, and
assumptions of benefit limitations by, the American Savings Plan. As soon as
practicable, but in any event within 120 days after Closing, Seller shall cause
the trustee of the Seller's 401(k) Plan to transfer in cash and promissory notes
representing outstanding loans to Affected Participants to the trustee of the
American Savings Plan an amount equal to the sum of the account balances of the
Transferred Employees (the "Transferred Accounts") calculated as of the most
recent valuation date under the Seller's 401(k) Plan (which shall, in any event,
be within thirty (30) days of the transfer). Both the Seller Parties and Buyer
will file any IRS Form 5310A that is required with respect to the transfer
contemplated by this Section 5.11 date at least 30 days prior to the transfer.
Upon the transfer described in this Section 5.11, Buyer and the American Savings
Plan shall be responsible for all benefits attributable to the Transferred
Accounts to which
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Transferred Employees were entitled under the Seller's 401(k) Plan as of such
date, and Seller and the Seller's 401(k) Plan shall cease to have any liability,
contingent or otherwise, for such benefits.
5.12 Welfare Benefits.
5.12.1 Within sixty (60) days after the Closing, Seller agrees
to transfer to trusts established by Buyer under Section 501(c)(9) of the Code
("Buyer's VEBAs") the amount held under any trust established by Seller under
Section 501(c)(9) of the Code ("Seller's VEBAs") to fund post-retirement health
care and life insurance benefits attributable to the Business, including Former
Employees identified on Schedule 5.12 (the "Water Sector Retirees") and any
"grandfathered" Transferred Employees as set forth on Schedule 5.12. Buyer
agrees to provide post-retirement health care and life insurance benefits to the
Water Sector Retirees and, as applicable, Transferred Employees who become
eligible for such benefits after Closing and further agrees that Buyer's VEBAs
will apply an amount at least equal to the sum of the assets (and earnings
thereon calculated at the rate of return generated by Buyer's VEBAs) transferred
from Seller's VEBAs to provide post-retirement health care and life insurance
benefits for such employees. Upon Closing, Buyer shall be responsible for all
obligations of the Seller Parties to provide post-retirement health care and
life insurance benefits "incurred" (within the meaning of Section 5.9.4) after
the Closing and the Seller Parties shall cease to have any liability, contingent
or otherwise, for such benefits. In consideration of such transfer, Buyer agrees
not to terminate or materially modify those post-retirement health and life
benefit provisions applicable to such grandfathered Transferred Employees and
Water Sector Retirees as such provisions are in effect immediately prior to the
Closing Date.
5.12.2 Buyer shall take all action necessary and appropriate
to ensure that, as of the Closing Date, Buyer provides medical, health, dental,
flexible spending account, accident, life, short-term disability, long-term
disability and other employee welfare benefits (including retiree medical
benefits) to Transferred Employees that, in the case of Non-Union Transferred
Employees and Union Transferred Employees are substantially similar to those
benefits provided by Buyer under its corresponding welfare benefit plans (the
"Buyer's Welfare Plans"). For purposes of determining eligibility to
participate, and entitlement to benefits, in each Buyer Welfare Plan, each
Transferred Employee shall be credited with service, determined under the terms
of the corresponding welfare plans maintained by Seller on the Closing Date
(hereinafter referred to collectively as the "Seller Welfare Plans"). Any
restrictions on coverage for pre-existing conditions, waiting periods, and
requirements for evidence of insurability under the Buyer Welfare Plans shall be
waived in Buyer's Welfare Plans for Transferred Employees and retirees of the
Water Sector and their respective Beneficiaries, and Transferred Employees and
retirees of the Water Sector and their respective Beneficiaries shall receive
credit under the Buyer Welfare Plans for co-payments, payments under a
deductible limit made by them, and for out-of-pocket maximums applicable to them
during the plan year of the Seller Welfare Plan in which the Closing Date
occurs. As soon as practicable after the Closing Date, Seller shall deliver to
Buyer a list of the Transferred Employees and retirees of the Water Sector and
their respective Beneficiaries who had credited service under
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a Seller Welfare Plan, together with each such individual's service, copayment,
deductible and out-of-pocket payment amounts under such plan.
5.12.3 Seller shall transfer to Buyer's flexible benefits plan
any balances standing to the credit of Transferred Employees under Seller's
flexible benefits plan as of the Closing Date. Seller shall provide to Buyer
prior to the Closing Date a list of those Transferred Employees that have
participated in the health or dependent care reimbursement accounts of Seller,
together with their elections made prior to the Closing Date with respect to
such Account, and balances standing to their credit as of the Closing Date.
5.13 Taxes. The Seller Parties, on the one hand, and Parent and
Buyer, on the other, shall (a) each provide the other with such assistance as
may reasonably be requested by either of them in connection with the preparation
of any Tax return, any audit or other examination by any taxing authority or any
judicial or administrative proceeding with respect to Taxes; (b) each retain and
provide the other with any records or other information which may be relevant to
such return, audit, examination or proceeding, and (c) each provide the other
with any final determination of any such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax return of
the other for any period (which shall be maintained confidentially). Without
limiting the generality of the foregoing, Parent and Buyer, on the one hand, and
the Seller Parties, on the other, shall retain, until the applicable statutes of
limitations (including all extensions) have expired, copies of all Tax returns,
supporting workpapers, and other books and records or information which may be
relevant to such returns for all Tax periods or portions thereof ending before
or including the Closing Date, and shall not destroy or dispose of such records
or information without first providing the other party with a reasonable
opportunity to review and copy the same.
5.14 Intentionally Omitted.
5.15 Citizens' Guarantees and Surety Instruments. Each of Parent and
Buyer shall use its reasonable efforts to assist Citizens in obtaining full and
complete releases on the guarantees, letters of credit, bonds and other surety
instruments listed on Schedule 5.15. For purposes of this Section 5.15 and
Section 5.16, reasonable efforts: (a) shall include Parent's or Buyer's
assumption of the Assumed Indebtedness, the Contracts and the Permits on the
terms set forth in this Agreement; (b) shall include an obligation on the part
of Parent or Buyer to provide a guarantee, letter of credit, bond or other
required surety instrument at Closing to the extent required by any Contract or
Permit and in general to provide an equivalent surety instrument to be
substituted for any surety instrument provided by Citizens to any beneficiary in
connection with the Business; and (c) shall include the obligation of Buyer to
provide a debt obligation relating to the California Water Debt satisfactory to
the lender in replacement of and in substitution for the obligations of Citizens
Utilities Company of California to such lender under the California Water Debt,
all to enable Buyer to assume the California Water Debt.
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5.16 Assumption of Seller Debt. Each of Buyer and Parent shall use
its reasonable efforts (as defined in Section 5.15) to assist Seller in
obtaining all consents and opinions and taking such other actions as may be
required to enable Buyer or Parent, as the case may be, to assume at the Closing
all of Seller's liabilities and obligations under the Assumed Indebtedness to
the extent provided in Section 2.3.
5.17 Schedule of Permits. No later than March 13, 2000, Citizens
shall deliver to Buyer a schedule, to be identified as Schedule 5.17, which sets
forth all material Permits required for the use of the Acquired Assets and the
operation of the Business by Buyer substantially in the manner as it was
conducted prior to the date hereof. For purposes of this Section 5.17, material
Permits shall include those required for the service of all utility customers at
substantially the same service levels as provided by Seller on the date of this
Agreement. All Permits listed on Schedule 5.17 that are required to be listed on
Schedule 3.3 or Schedule 3.9 shall be so designated. Seller has made or will
make prior to the Closing Date timely applications for renewals of all such
Permits listed on Schedule 5.17, which under applicable law must be filed prior
to the Closing Date to maintain the Permits listed on Schedule 5.17 in full
force and effect.
5.18 Title Information. No later than March 13, 2000, Seller shall
use its reasonable efforts to deliver to Buyer true, correct and complete copies
of all existing title policies, surveys, leases, deeds, instruments and
agreements relating to title to the Real Estate in Seller's possession.
5.19 Transaction with Related Parties. Effective as of the Closing
Date, except as otherwise provided in Sections 5.9 through 5.12, 5.15, 5.26,
5.27 and 2.7.1(j) of this Agreement, Seller shall have terminated and canceled
all contracts, commitments and agreements (including employment relationships)
relating to the Acquired Assets or the Business, between Seller, any Affiliate
of Seller (including Citizens), any officer or director of any Seller Party, or
any Affiliate of the foregoing. Seller shall be solely liable for any
contractual or other claims, express or implied arising out of the termination
and cancellation of any of the foregoing raised by any party thereto.
5.20 Approval by Citizens. Citizens shall, as the sole owner of
common stock of each other Seller Party, vote all of such shares of common stock
to approve this Agreement and the transactions contemplated hereby.
5.21 Supplemental Information.
5.21.1 Citizens shall provide Buyer, within fifteen (15) days
after the execution or the date of receipt thereof, a copy of (a) each Contract
(other than with respect to which the Business' total annual liability or
expense is less than $100,000 per such Contract) entered into by Seller after
the date hereof and prior to the Closing Date; (b) a copy of any written notice
for assessments for public improvements against the Real Estate received after
the date hereof and prior to the Closing Date; (c) a copy of the filing of any
condemnation, expropriation, eminent domain
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or similar proceeding affecting all or any portion of any of the Real Estate
received after the date hereof but prior to the Closing Date; and (d) a copy of
any Contract where Seller is a lessee relating to the use or occupancy of the
Real Estate and where such Contract involves annual payments in excess of
$100,000 entered into by Seller after the date hereof and prior to the Closing
Date.
5.21.2 Within fifteen (15) days after the receipt of notice of
violation, Citizens shall notify Buyer of any violations of state or federal
drinking water standards which, if such violations existed on the date hereof,
would be required to be disclosed pursuant to Section 3.8.10 hereof, and shall
promptly notify Buyer of the actions proposed to be taken by Seller to correct
or otherwise respond to such violations.
5.22 Non-Competition. The Seller Parties agree that for a period of
fifteen (15) years after the Closing Date no Seller Party nor any Affiliate of a
Seller Party shall directly or indirectly own, manage, operate, control or
participate in the ownership, management, operation or control of or be
otherwise connected in any substantial manner with any entity (other than Buyer
and its successors and assigns) engaged in the business of storing, supplying
and distributing water in the States in which Buyer acquires any Acquired
Assets, whether or not such business is subject to regulation by a PUC (it being
understood that the individual directors of Seller and Citizens are not
Affiliates of a Seller Party).
5.23 Intentionally Omitted.
5.24 Intentionally Omitted.
5.25 Cooperation with Respect to Like-Kind Exchange. Buyer agrees
that Seller may, at Seller's written election delivered to Buyer no later than
five (5) days prior to the Closing Date, direct that all or a portion of the
Initial Cash Payment be delivered to a "qualified intermediary" as defined in
Treasury Regulation ss.1.1031(k) - (g)(4) as to enable Seller's relinquishment
of the Acquired Assets to qualify as part of a like-kind exchange of property
covered by Section 1031 of the Code. If Seller so elects, Buyer shall reasonably
cooperate with Seller (but without being required to incur any out-of-pocket
costs in the course thereof) in connection with Seller's efforts to effect such
like-kind exchange, which cooperation shall include, without limitation, taking
such actions as Seller reasonably requests in order to enable Seller to qualify
such transfer as part of a like-kind exchange of property covered by Section
1031 of the Code (including any actions reasonably required to facilitate the
use of a "qualified intermediary"), and Buyer agrees that Seller may assign all
or part of its rights (but no obligations) under this Agreement to a person or
entity acting as a qualified intermediary to qualify the transfer of the Assets
as part of a like-kind exchange of property covered by Section 1031 of the Code.
Buyer and Seller agree in good faith to use reasonable efforts to coordinate the
transactions contemplated by this Agreement with any other transactions engaged
in by either Buyer or Seller; provided that such efforts shall, in no event,
result in any delay in the consummation of the transactions contemplated by this
Agreement. Seller shall
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indemnify and hold Buyer harmless from any cost, expense or liability arising
from its cooperating under this Section 5.25.
5.26 Transition Plan. Within 30 days after the execution date of
this Agreement, the parties jointly shall establish a transitional services
team, which shall include expertise from various functional specialties
associated with or involved in providing billing, payroll and other support
services provided to Seller by any automated or manual process using facilities
or employees that are not included among the Acquired Assets or Transferred
Employees. Such team will be responsible for preparing, and timely implementing,
a transition plan which will identify and describe substantially all of the
various transition activities that the parties will cause to occur before and
after Closing and any other transfer of control matters that any party
reasonably believes should be addressed in such transition plan. The transition
plan will set forth reasonable arrangements providing Buyer, at Buyer's sole
expense, with appropriate access to Seller's relevant computer systems to allow
for a full conversion of the relevant data and functionality to Buyer's systems
on the Closing Date. Buyer and Seller shall use their commercially reasonable
efforts to cause their representatives on such transition team to cooperate in
good faith and take all reasonable steps necessary to develop a mutually
acceptable transition plan no later than 60 days prior to the Closing Date.
5.27 Procedures regarding Refunds of Advances. Within 30 days after
the execution date of this Agreement, the parties jointly shall establish a
working group of appropriate subject matter experts to determine the appropriate
obligations of Parent and Buyer regarding notification and the provision of
other accurate and timely data to Citizens to enable Citizens timely and
accurately to satisfy the refund obligations described in Section 2.3.3(b). Such
working group will be responsible for preparing a comprehensive agreement no
later than March 13, 2000, which agreement shall be executed by the parties at
Closing. Among other arrangements, the parties would require that the customers
and developers owed refunds provide joint notices to Buyer and Citizens.
5.28 Title Insurance. Prior to Closing, Seller shall cooperate with
Buyer and use commercially reasonable efforts to assist Buyer if Buyer desires
to obtain ALTA title insurance commitments (collectively, the "Title
Commitments," and each a "Title Commitment"), in final form, from one or more
title insurance companies (collectively, the "Title Company"), committing the
Title Company (subject only to the satisfaction of any industry standard
requirements contained in the Title Commitment) to issuing ALTA (or its local
equivalent) form of title insurance policies insuring good, valid, indefeasible
fee simple title to the Real Estate in Buyer, in all cases, at Buyer's sole
expense and in the respective amounts that Buyer requests prior to Closing,
subject to no Liens or other exceptions to title other than Permitted Exceptions
(collectively the "Title Policies"). On or prior to the Closing Date, Seller
shall execute and deliver, or cause to be executed and delivered, to the Title
Company, at no cost to Seller, any customary affidavits, standard gap
indemnities and similar documents reasonably requested by the Title Company in
connection with the issuance of the Title Commitments or the Title Policies;
provided that such efforts and Buyers' request for Title
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Policies or Title Commitments shall, in no event, result in any delay in the
consummation of the transactions contemplated by this Agreement.
ARTICLE 6
CONDITIONS PRECEDENT; TERMINATION
6.1 Conditions Precedent to Obligations of Buyer and Parent. The
obligations of Buyer and Parent to cause the purchase of the Acquired Assets and
the assumption of the Assumed Liabilities and to consummate the other
transactions contemplated hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions (any one or more of which
may be waived in writing in whole or in part by Buyer and Parent in their sole
discretion):
6.1.1 Performance of Agreements; Representations and
Warranties. Seller shall have performed or complied in all material respects
with all agreements and covenants required by this Agreement to be performed or
complied with by them at or prior to the Closing; and the representations and
warranties set forth in this Agreement made by Seller shall be true and correct
on and as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date,
except for representations and warranties that speak as of a specific date or
time other than the Closing Date (which need only be true and correct as of such
date or time), other than, in all such cases (except Section 3.25), such
failures to be true and/or correct as would not in the aggregate reasonably be
expected to have a Material Adverse Effect; provided, however, that if any such
representation or warranty is already qualified in any respect by materiality or
as to material adverse effect, for purposes of determining whether this
condition has been satisfied, such materiality or material adverse effect
qualification will be in all respects ignored and such representation or
warranty shall be true and correct in all respects without regard to such
qualification (but subject to the overall exception as to material adverse
effect set forth immediately prior to this proviso); and provided further, that
the representation and warranty set forth in Section 3.5.1 shall be deemed to be
true and correct on and as of the Closing Date if any Material Adverse Effect
that may have arisen or occurred between the execution date of this Agreement
and the Closing Date shall have been cured or remedied such that such Material
Adverse Effect is not continuing as of the Closing Date. Buyer shall have been
furnished with a certificate of the Chief Financial Officer or other Vice
President of Citizens dated the Closing Date, certifying to the foregoing.
6.1.2 Opinion of Counsel. Buyer shall have received from L.
Russell Mitten II, Vice President and General Counsel of Seller, an opinion
dated the Closing Date, in form and substance satisfactory to Buyer, to the
effect set forth in Exhibit E hereto.
6.1.3 HSR Act. The applicable waiting period under the HSR Act
with respect to the transactions contemplated hereby shall have expired or been
terminated.
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6.1.4 Required PUC and Other Consents. The PUC shall have
issued an order approving the transactions contemplated hereby, and such order
shall not contain any restrictions or conditions (other than those in effect on
the date hereof or requiring that the regulatory treatment with respect to the
Business in existence as of the date of this Agreement applicable to Seller be
continued following the transactions contemplated hereby) which would have a
Material Adverse Effect or a material adverse effect on any other regulated
business of Buyer in the state in which the PUC has jurisdiction, and such order
shall be final and unappealable; Seller shall have obtained all statutory,
regulatory and other consents and approvals which are required in order to
consummate the transactions contemplated hereby and to permit Buyer to conduct
the Business in the manner contemplated by Section 3.25 hereof other than those
the failure of which to obtain would not have a Material Adverse Effect and
other than with respect to the assumption of the California Water Debt. Seller
shall have also obtained (i) all consents and legal opinions required to enable
Seller to sell the Acquired Assets to Buyer at the Closing, free and clear of
all Liens other than Permitted Exceptions (and specifically free and clear of
any Lien arising under or pursuant to the Mortgage Indenture) and (ii) all
consents required under Contracts and Permits relating to Seller's water
appropriation and flowage rights to the extent reasonably sufficient to enable
Buyer to service the customers of the Business and to service future commitments
under such Contracts.
6.1.5 Injunction; Litigation. (i) No statute, rule, regulation
or order of any court or Authority shall be in effect which restrains or
prohibits the transactions contemplated by this Agreement or which would limit
or materially adversely affect Buyer's ownership of all or any material portion
of the Acquired Assets, nor (ii) shall there be pending or threatened any
litigation, suit, action or proceeding by any party which would reasonably be
expected to materially limit or materially adversely affect Buyer's ownership of
the Acquired Assets.
6.1.6 Documents. Seller and Citizens shall have delivered all
of the certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Section 2.7 hereof and shall
have made arrangements reasonably satisfactory to Buyer to deliver to Buyer as
promptly as practicable after the Closing such records (including customer and
employee records) necessary to own and operate the Business.
6.1.7 Related Closings. Buyer shall be reasonably satisfied
that the consummation of each of the asset purchase and sale transactions
contemplated by those certain purchase agreements described on Schedule 6.1.7
(the "Related Purchase Agreements") will occur concurrently with the Closing.
6.2 Conditions Precedent to Obligations of Seller Parties. The
obligations of the Seller Parties to cause the sale of the Acquired Assets and
to consummate the other transactions contemplated hereby are subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions (any one or more of which may be waived in writing in whole or in
part by the Seller Parties in their sole discretion):
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6.2.1 Performance of Agreements; Representations and
Warranties. Parent and Buyer shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by them at or prior to the Closing; and the
representations and warranties set forth in this Agreement made by Buyer and
Parent shall be true and correct on and as of the Closing Date, with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date, except for representations and warranties that speak
as of a specific date or time other than the Closing Date (which need only be
true and correct as of such date or time), other than, in all such cases (except
Section 4.2), such failures to be true and/or correct as would not in the
aggregate reasonably be expected to have a material adverse effect on the
respective ability of Buyer and Parent to perform their obligations under this
Agreement and the Transaction Documents, provided, however, that if any such
representation or warranty is already qualified in any respect by materiality or
as to material adverse effect, for purposes of determining whether this
condition has been satisfied, such materiality or material adverse effect
qualification will be in all respects ignored and such representation or
warranty shall be true and correct in all respects without regard to such
qualification (but subject to the overall exception as to material adverse
effect set forth immediately prior to this proviso). Seller shall have been
furnished with a certificate of the President or Vice President of Parent and
Buyer, dated the Closing Date, certifying to the foregoing.
6.2.2 Opinion of Counsel. Seller shall have received from
Dechert Price & Rhoads, counsel to Parent and Buyer, an opinion dated the
Closing Date, in form and substance satisfactory to Seller, to the effect set
forth in Exhibit F hereto.
6.2.3 HSR Act. The applicable waiting period under the HSR Act
with respect to the transactions contemplated hereby shall have expired or been
terminated.
6.2.4 Required PUC and Other Consents. The PUC shall have
issued an order approving the transactions contemplated hereby and such order
shall not contain any restrictions or conditions which would have a material
adverse effect on Seller's business activities in the State in which the PUC has
jurisdiction or any significant adverse effect on Citizens' acquisition and
divestiture activities in that State (including divestiture of the Acquired
Assets), and such order shall be final and unappealable; Seller shall have
obtained all statutory and regulatory consents and approvals which are required
in order to consummate the transactions contemplated hereby, other than those
the failure of which to obtain would not have a material adverse effect on the
Seller after the Closing. Seller shall have obtained (i) all consents and legal
opinions required to enable Seller to sell the Acquired Assets to Buyer at the
Closing, free and clear of all Liens other than Permitted Exceptions (and
specifically free and clear of any Lien arising under or pursuant to the
Mortgage Indenture), and (ii) all other consents required or advisable in order
for Seller to transfer Acquired Assets without incurring material liability
under any Contract, Permit or Real Estate instrument.
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6.2.5 Injunction; Litigation. (i) No statute, rule, regulation
or order of any court or Authority shall be in effect which restrains or
prohibits the transactions contemplated by this Agreement or which would limit
or materially adversely affect Seller's ownership of all or any material portion
of its properties, nor (ii) shall there be pending or threatened any litigation,
suit, action or proceeding by any party which could reasonably be expected to
materially limit or materially adversely affect Seller's ownership of any of its
properties.
6.2.6 Documents. Parent and Buyer shall have delivered all the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Sections 2.7 and 5.27, and
shall have taken such actions as Seller may have requested pursuant to Section
5.25 hereof.
6.2.7 Related Closings. Seller shall be reasonably satisfied
that the consummation of each of the Related Purchase Agreements will occur
concurrently with Closing.
6.3 Termination. This Agreement may be terminated at anytime prior
to the Closing Date:
6.3.1 by mutual written consent of the Seller Parties, Buyer
and Parent;
6.3.2 by any of the Seller Parties, Parent or Buyer if: (i)
any governmental or regulatory body the consent of which is a condition to the
obligations of the Seller Parties, Parent and Buyer to consummate the
transactions contemplated hereby shall have determined not to grant its consent
and all appeals of such determination shall have been taken and have been
unsuccessful; (ii) any court of competent jurisdiction shall have issued an
order, judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and such order, judgment or decree shall have become final and
nonappealable; or (iii) the Closing shall not have occurred on or before March
31, 2001; provided, however, that the right to terminate this Agreement under
this Section 6.3.2(iii) will not be available to any party that is in material
breach of its representations, warranties, covenants or agreements contained
herein; and provided, further, that if Closing has not occurred by such date
because the conditions precedent to Closing set forth in the first sentence of
Section 6.1.4 and the first sentence of Section 6.2.4 have not been fulfilled,
then such date shall be automatically extended to September 30, 2001; or
6.3.3 If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Section 6.3, this
Agreement shall become void and of no further force and effect, except for the
provisions of Section 5.6 relating to publicity, Sections 3.24 and 4.6 relating
to brokerage and Section 7.1 relating to expenses. Nothing in this Section 6.3
shall be deemed to release either party from any liability for any willful
breach by such party of the terms and provisions of this Agreement.
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ARTICLE 7
CERTAIN ADDITIONAL COVENANTS
7.1 Certain Taxes and Expenses. Citizens shall be solely responsible
for all state and local sales, use, transfer, real property transfer and other
similar taxes, fees and charges that are calculated based on the value of the
Acquired Assets being transferred arising from and with respect to the sale and
purchase of the Acquired Assets and Buyer shall be solely responsible for all
transfer, registration, documentary stamp, recording and other similar fees and
charges arising from and with respect to the transfer and recording of title
documentation relating to the Acquired Assets. Parent shall be responsible for
all costs and expenses relating to the assumption by or assignment to Parent or
Buyer of the Assumed Indebtedness. Except as otherwise provided in this
Agreement, each of the parties hereto shall each bear its respective accounting,
legal and other expenses incurred in connection with the transactions
contemplated by this Agreement.
7.2 Maintenance of Books and Records. The Seller Parties, on the one
hand, and Buyer and Parent, on the other hand, shall cooperate fully with each
other after the Closing so that (subject to any limitations that are reasonably
required to preserve any applicable attorney-client privilege) each party has
access to the business records, contracts and other information existing at the
Closing Date and relating in any manner to the Acquired Assets or the Assumed
Liabilities or the conduct of the Business (whether in the possession of the
Seller Parties or Buyer or Parent). No files, books or records existing at the
Closing Date and relating in any manner to the Acquired Assets or the conduct of
the Business shall be destroyed by any party for a period of six years after the
Closing Date without giving the other party at least 30 days prior written
notice, during which time such other party shall have the right (subject to the
provisions hereof) to examine and to remove any such files, books and records
prior to their destruction. The access to files, books and records contemplated
by this Section 7.2 shall be during normal business hours and upon not less than
two (2) business days prior written request, shall be subject to such reasonable
limitations as the party having custody or control thereof may impose to
preserve the confidentiality of information contained therein, and shall not
extend to material subject to a claim of privilege unless expressly waived by
the party entitled to claim the same.
7.3 Survival.
7.3.1 Subject to this Section 7.3, Section 7.4.2(g) and
Section 7.4.2(j), all representations, warranties, covenants and agreements
contained in this Agreement or the Transaction Documents shall survive (and not
be affected in any respect by) the Closing, any investigation conducted by any
party hereto and any information which any party may receive. Notwithstanding
the foregoing:
(a) the covenants contained in Sections 5.1, 5.3, 5.4,
5.5, 5.8.2 through 5.8.4 and 5.21 and the related indemnity obligations
contained in Section 7.4 shall terminate
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on, and no action or claim with respect thereto may be brought after, the third
anniversary of the Closing Date;
(b) the covenants contained in Section 5.2 and the
related indemnity obligations contained in Section 7.4 shall terminate on, and
no action or claim with respect thereto may be brought after, the Closing Date;
(c) the representations and warranties contained in
Sections 3.12 and 3.16 and the related indemnity obligations contained in
Section 7.4 shall terminate on, and no action or claim with respect thereto may
be brought following the expiration of the applicable statute of limitations (or
extensions or waivers thereof);
(d) the representations and warranties contained in
Section 3.2 and the related indemnity obligations contained in Section 7.4 shall
survive for an unlimited period of time;
(e) the representations and warranties contained in
Section 3.10 and the related indemnity obligations contained in Section 7.4
shall terminate on, and no action or claim with respect thereto may be brought
after, the third anniversary of the Closing Date;
(f) the representations and warranties contained in
Section 3.7 and 3.17 and the related indemnity obligations contained in Section
7.4 shall terminate on, and no action or claim with respect thereto may be
brought after, the third anniversary of the Closing Date;
(g) the representations and warranties contained in
Sections 3.3, 3.5, 3.6, 3.8, 3.9 and 3.25 and the related indemnity obligations
contained in Section 7.4 shall terminate on, and no action or claim with respect
thereto may be brought after, the third anniversary of the Closing Date;
(h) the representations and warranties contained in
Section 3.11 and the related indemnity obligations contained in Section 7.4
shall terminate on, and no action or claim with respect thereto may be brought
after, the third anniversary of the Closing Date;
(i) the representations and warranties contained in
Section 4.2 and the related indemnity obligations contained in Section 7.4 shall
survive for an unlimited period of time;
(j) the representations and warranties contained in
Sections 4.3 and 4.4 and the related indemnity obligations contained in Section
7.4 shall terminate on, and no action or claim with respect thereto may be
brought after, the third anniversary of the Closing Date;
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(k) the representations and warranties contained in
Section 4.5 and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be brought after,
the Closing Date; and
(l) all other representations and warranties contained
in this Agreement and the related indemnity obligations contained in Section 7.4
shall terminate on and no further action or claim with respect thereto may be
brought after, the second anniversary of the Closing Date;
(m) such representations and warranties specified in the
foregoing clauses (c) through (k), and the covenants contained in Section 5.1,
5.2, 5.3, 5.4, 5.5, 5.8.2 through 5.8.4 and 5.21 and the liability of any party
with respect thereto, shall not terminate with respect to any claim, whether or
not fixed as to liability or liquidated as to amount, with respect to which such
party has been given written notice setting forth the facts upon which the claim
for indemnification is based and, if possible, a reasonable estimate of the
amount of the claims prior to the relevant anniversary of the Closing Date or
the 30th day after the expiration of the applicable statute of limitations (or
extensions or waivers thereof), as the case may be. If any claim for
indemnification is asserted or could be asserted with respect to a breach or
asserted breach of Section 3.17 (Undisclosed Liabilities) and the Buyer or
Parent is also entitled to indemnification in respect of that claim for breach
or asserted breach of any other representation or warranty in this Agreement for
which there is a shorter survival period, such shorter period will apply to such
claim except to the extent that such claim is a product liability, toxic tort or
similar claim (as described in Section 2.3.3(a)) brought by a private party
litigant.
7.3.2 No claim for indemnity under Section 7.4 shall be
brought or made by Buyer or Parent pursuant to Sections 7.4.1(a)(B) or
7.4.1(a)(C):
(a) after the tenth anniversary of the Closing Date (the
seventh anniversary of the Closing Date in the event of a Change of Control of
Citizens), for any action or claim with respect to the Pre-Existing Conditions;
(b) after the tenth anniversary of the Closing Date (the
seventh anniversary of the Closing Date in the event of a Change of Control of
Citizens), with respect to the presence of Hazardous Substances at any locations
other than the Real Estate; and
(c) after the third anniversary of the Closing Date, for
any action or claim with respect to any other Retained Liability;
Provided, however, that the foregoing time limitations shall not apply to
any such claims which have been the subject of a written notice from Parent
and/or Buyer to the Seller Parties prior to such period setting forth the facts
upon which the claim for indemnification is based and, if possible, a reasonable
estimate of the amount of the claims; and, provided, further, that the foregoing
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time limitations shall also not apply to any such claims: (u) with respect to
Taxes; (v) with respect to any liability of the types that appear as "Trade
Payables" or "Other Current and Accrued Liabilities" (other than liabilities
arising after the Closing Date and relating to the California Water Debt) on the
financial statements of Seller; (w) not exclusively related to the Acquired
Assets or not exclusively related to the Business; and (x) with respect to any
of the matters discussed in Section 3.16 hereof.
For purposes of Sections 7.3.2(a) and (b), a "Change of Control of
Citizens" shall be deemed to have occurred if: (i) any "person" (as such term is
used in Section 13(d) and 14(d) of the Exchange Act of 1934, as amended (the
"Exchange Act"), other than an underwriter engaged in a firm commitment
underwriting on behalf of Citizens, is or becomes the beneficial owner (as such
term is used in Rule 13D-3 and 13D-5 under the Exchange Act, except that for
purposes of this clause (i) a person shall be deemed to have beneficial
ownership of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total outstanding shares of common stock of
the Company; (ii) all or substantially all of Citizens' and its Subsidiaries'
assets are sold, leased, exchanged or otherwise transferred to any person or
group of persons acting in concert; (iii) Citizens is merged or consolidated
with any other person, whether or not Citizens is the surviving corporation in
such merger or consolidation; or (iv) Citizens is liquidated or dissolved or
adopts a plan of liquidation.
7.4 Indemnification. Seller, Parent and Buyer agree as follows:
7.4.1 General Indemnification Obligations.
(a) Seller shall indemnify Buyer and its directors,
officers and other Affiliates (including Parent) and hold Buyer and such other
parties harmless from and against any and all Damages arising out of or
resulting from (A) any breach of any representation, warranty, covenant or
agreement made by the Seller Parties in this Agreement or in any document or
certificate required to be furnished to Buyer by any of the Seller Parties
pursuant to this Agreement (including the Transaction Documents); (B) subject to
Section 7.3.2, any Excluded Assets or Retained Liabilities; and (C) subject to
Section 7.3.2, the ownership, operation or use of any of the businesses or
assets of the Seller Parties or their Affiliates (other than the Business and
the Acquired Assets) whether before, on or after the Closing Date.
(b) Buyer and Parent shall indemnify Seller, and their
directors, officers and other Affiliates (including Citizens) and hold Seller
and such other parties harmless from and against any and all Damages arising out
of or resulting from (A) any breach of any representation, warranty, covenant or
agreement made by Parent or Buyer in this Agreement or in any document or
certificate required to be furnished to Seller by Parent or Buyer pursuant to
this Agreement (including the Transaction Documents); (B) any Assumed
Liabilities after the Closing Date, including the Assumed Indebtedness; (C) the
ownership, operation or use of the Business or
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the Acquired Assets after the Closing Date (except to the extent resulting from
Retained Liabilities or to the extent resulting from breaches by the Seller
Parties of representations, warranties, covenants or agreements hereunder or in
the other Transaction Documents); and (D) any claim by a Transferred Employee or
a Former Employee referred to on Schedule 5.12 or the Beneficiary of any such
employee or former employee for post-retirement health care or life insurance
benefits "incurred" (within the meaning of Section 5.9.4) after the Closing.
(c) For purposes of this Agreement, "Damages" shall mean
any and all losses, liabilities, obligations, damages (including any
governmental penalty or punitive damages assessed or asserted against the party
seeking indemnification and including costs of investigation, clean-up and
remediation), deficiencies, interest, costs and expenses and any claims,
actions, demands, causes of action, judgments, costs and reasonable expenses
(including reasonable attorneys' fees and all other reasonable expenses incurred
in investigating, preparing or defending any litigation or proceeding, commenced
or threatened, incident to the successful enforcement of this Agreement). For
purposes of this Section 7.4, the determination of whether any breach of any
representation, covenant or agreement has occurred, and the calculation of the
amount of Damages incurred by the Indemnified Party arising out of or resulting
from any breach of a representation, covenant or agreement by any party hereto,
the references to a "Material Adverse Effect" or materiality (or other
correlative terms) shall be disregarded, provided that no such breach shall be
found to have occurred due to facts or circumstances arising from an occurrence
or condition described in Section 1.1.61(a). Notwithstanding the foregoing,
Damages shall not include the loss of profits of the party seeking
indemnification, or punitive damages unless the party seeking indemnification
has had punitive damages assessed or asserted against it.
(d) Notwithstanding any language contained in any
Transaction Document (including deeds to Real Estate and instruments delivered
by Seller to the Title Company), representations and warranties as to Real
Estate set forth in Section 3.10 and 3.11 will not be merged into any
Transaction Document and the indemnification obligations of Seller, and the
limitations on such obligations, set forth in this Agreement, shall control. No
provision set forth in any Transaction Document shall be deemed to enlarge,
alter or amend the terms or provisions of this Agreement.
7.4.2 General Indemnification Procedures.
(a) A party seeking indemnification pursuant to this
Section 7.4 (an "Indemnified Party") shall give prompt written notice to the
party from whom such indemnification is sought (the "Indemnifying Party") of the
assertion of any claim, the incurrence of any Damages, or the commencement of
any action, suit or proceeding, of which it has knowledge and in respect of
which indemnity may be sought hereunder, and will give the Indemnifying Party
such information with respect thereto as the Indemnifying Party may reasonably
request, but failure to give such required notice shall relieve the Indemnifying
Party of any liability hereunder only to the extent that the Indemnifying Party
has suffered actual prejudice thereby. The Indemnifying Party
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shall have the right, exercisable by written notice to the Indemnified Party
after receipt of notice from the Indemnified Party of the commencement of or
assertion of any claim or action, suit or proceeding by a third party in respect
of which indemnity may be sought hereunder (a "Third Party Claim"), to assume
the defense of such Third Party Claim which involves (and continues to involve)
solely monetary damages; provided, that (A) the Indemnifying Party expressly
agrees in such notice that, as between the Indemnifying Party and the
Indemnified Party, solely the Indemnifying Party shall be obligated to satisfy
and discharge the Third Party Claim, (B) such Third Party Claim does not include
a request or demand for injunctive or other equitable relief by an Authority and
(C) the Indemnifying Party makes reasonably adequate provision to assure the
Indemnified Party of the ability of the Indemnifying Party to satisfy the full
amount of any adverse monetary judgment that is reasonably likely to result. The
Indemnifying Party shall be deemed to have satisfied the condition set forth in
clause (C) of the proceeding sentence if it is a regulated utility.
(b) Neither the Indemnified Party nor the Indemnifying
Party shall settle any Third Party Claim without the prior written consent of
the other, which consent shall not be unreasonably withheld or delayed.
(c) The Indemnifying Party or the Indemnified Party, as
the case may be, shall have the right to participate in (but not control), at
its own expense, the defense of any Third Party Claim which the other party is
defending as provided in this Agreement.
(d) Amounts paid in respect of indemnification
obligations of the parties shall be treated as an adjustment to the Purchase
Price.
(e) Subject to Section 7.4.2(f) and Section 7.4.2(i),
neither Parent nor Buyer (and the other Persons for which they can claim
indemnity hereunder) shall be entitled to indemnification for Damages incurred
unless the aggregate amount of Damages incurred by Parent or Buyer (or the other
Persons for which they can claim indemnification), together with all other
claims for Damages under Section 7.4.2(e) of each of the Related Purchase
Agreements, exceeds $6,123,000 in the aggregate (the "Threshold Amount"), in
which case Seller shall then be liable for Damages in excess of the Threshold
Amount. Subject to Section 7.4.2(f) and Section 7.4.2(i), the cumulative
aggregate indemnity obligation of Citizens and its Affiliates under Section 7.4
of this Agreement and the Related Purchase Agreements shall not exceed
$60,000,000 (the "Ceiling").
(f) Notwithstanding the foregoing, the parties
acknowledge that Parent or Buyer (and the other Persons for which they can claim
indemnity hereunder) shall be entitled to indemnification for Damages in respect
of intentional and wilful breaches of covenants or agreements in this Agreement
or any of the Retained Liabilities other than the Specified Liabilities
irrespective of the Threshold Amount or the Ceiling (it being understood that
the failure to cure a breach shall not, by itself, be an intentional and wilful
breach). As used herein, the "Specified Liabilities" shall mean the Retained
Liabilities arising from claims made after the Closing
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Date which (i) do not relate to matters within the scope of clauses (u), (v),
(w) and (x) of Section 7.3.2; (ii) were not known to the Seller Parties on or
prior to Closing; and (iii) relate exclusively to the Acquired Assets or the
Business prior to the Closing Date. Notwithstanding anything to the contrary in
this Section 7.4, Parent or Buyer (or the other Persons for which they can claim
indemnification) shall be entitled to indemnification for Damages in respect of
a breach of Section 3.2, 3.12 or 3.16 irrespective of the Threshold Amount or
the Ceiling.
(g) The rights and remedies of Seller, Parent and Buyer
under this Section 7.4 are exclusive and in lieu of any and all other rights and
remedies which Seller, Parent and Buyer may have under this Agreement or
otherwise for monetary relief with respect to (x) the inaccuracy of any
representation, warranty, certification or other statement made (or deemed made)
by Seller, Parent or Buyer in or pursuant to this Agreement or any of the
Transaction Documents or (y) any breach or failure to perform any covenant or
agreements set forth in this Agreement or any of the Transaction Documents.
(h) Except to the extent provided in Section 7.4.2(j)
below, no right to indemnification under this Section 7.4 shall be limited by
reason of any investigation or audit conducted before or after the Closing of
any party hereto including, without limitation, the knowledge of such party of
any breach of any representation, warranty, agreement or covenant by the other
party at any time, or the decision by such party to complete the Closing.
(i) No party shall have any liability to another party
under this Section 7.4 for Damages (and no cost or expense relating to such
Damages shall be included in determining the extent of Damages incurred by such
party for purposes of Section 7.4.2(e)) to the extent that:
(A) the Indemnified Party recovers insurance
proceeds covering the Damages or otherwise recovers payments in respect of such
Damages from any other source (whether in a lump sum or stream of payments); or
(B) the Indemnified Party's Tax liability is
actually reduced as a result of a tax benefit to which the Indemnified Party
becomes entitled in respect of the Damages.
(j) Seller shall have no liability or obligation under
this Section 7.4 for any Damages resulting from the inaccuracy or breach of any
representation or warranty if such inaccuracy or breach is disclosed by Seller
pursuant to and in accordance with Sections 5.3 and 8.4 hereof;
(k) Buyer agrees to use its commercially reasonable
efforts to give timely and effective written notice to the appropriate insurance
carrier(s) of any occurrence or circumstances which, in the judgment of Buyer
consistent with its customary risk management
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practices, appear likely to give rise to a claim against Buyer that is likely to
involve one or more insurance policies of Buyer. Any such notice shall be given
in good faith by Buyer without regard to the possibility of indemnification
payments by Seller under this Section 7.4, and shall be processed by Buyer in
good faith and in a manner consistent with its risk management practices
involving claims for which no third party contractual indemnification is
available. Buyer agrees that (i) if it is entitled to receive payment from
Seller for Damages arising under or pursuant to a breach of the representation
and warranty set forth in Section 3.10, and (ii) if Buyer has obtained title
insurance which may cover the claim or matter giving rise to such Damages, then
(iii) such title insurance shall be primary coverage and Buyer will make a claim
under the title insurance if such claim can be made in good faith before
enforcing its right to receive payment from Seller. Buyer shall be under no
obligation to obtain title insurance or prosecute such claim (other than the
initial filing of such claim).
(l) If at any time subsequent to the receipt by an
Indemnified Party of an indemnity payment hereunder, such Indemnified Party (or
any Affiliate thereof) receives any recovery, settlement or other similar
payment with respect to the Damages for which it received such indemnity payment
(including insurance proceeds and other payments pursuant to Section 7.4.2(i)(A)
and a tax benefit pursuant to Section 7.4.2(i)(B)) (the "Recovery"), such
Indemnified Party shall promptly pay to the Indemnifying Party an amount equal
to the amount of such Recovery, less any expense incurred by such Indemnified
Party (or its Affiliates) in connection with such Recovery, but in no event
shall any such payment exceed the amount of such indemnity payment;
(m) In the event of any indemnification claim under this
Section 7.4 involving the claim of any third party, the Indemnified Party shall
cooperate fully (and shall cause its Affiliates to cooperate fully) with the
Indemnifying Party in the defense of any such claim under this Section 7.4.
Without limiting the generality of the foregoing, the Indemnified Party shall
furnish the Indemnifying Party with such documentary or other evidence as is
then in its or any of its Affiliates' possession as may reasonably be requested
by the Indemnifying Party for the purpose of defending against any such claim.
Whether or not the Indemnifying Party chooses to defend or prosecute any claim
involving a third party, all the parties hereto shall cooperate in the defense
or prosecution thereof and shall furnish such records, information and
testimony, and attend such conferences, discovery proceedings, hearings, trials
and appeals, as may be reasonably requested in connection therewith.
7.4.3 Indemnification for Negligence. WITHOUT LIMITING OR
ENLARGING THE SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS
AGREEMENT, AN INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER
IN ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM
GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE,
CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY, VIOLATION OF ANY LAW OR
OTHER LEGAL FAULT OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS
PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
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7.5 UCC Matters. From and after the Closing Date, Seller will
promptly refer all inquiries with respect to ownership of the Acquired Assets or
the Business to Buyer. In addition, Seller will execute such documents and
financing statements as Buyer may reasonably request from time to time to
evidence transfer of the Acquired Assets to Buyer in accordance with this
Agreement, including any necessary assignment of financing statements.
7.6 Financial Statements. In connection with the preparation and
filing of any registration statement or periodic report of Buyer or its
Affiliates pursuant to Rule 3-05, Article 11 of Regulation S-X or other rule or
regulation promulgated under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, Seller, at Buyer's expense, shall
provide Buyer (a) by April 30, 2000 or within 120 days after Buyer's written
request therefor if made after January 1, 2000, with the following audited
financial statements: (i) a statement of net assets of the Business as of the
end of the last fiscal year prior to Closing; and (ii) a statement of income of
the Business and a statement of cash flows or its equivalent of the Business for
the last fiscal year prior to Closing (in each case combined with the businesses
being acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements), including opinions thereon of Seller's Accountants, and (b) within
90 days after Buyer's written request made therefor (provided such request is
made after the end of the fiscal quarter described below), the following
unaudited statements: (i) a statement of net assets of the Business as of the
end of the last fiscal quarter prior to Closing (but only if such quarter is
subsequent to the last fiscal year prior to Closing); and (ii) a statement of
income of the Business and a statement of cash flows or its equivalent of the
Business, for the period from the end of the last fiscal year through the end of
the last fiscal quarter prior to Closing (in each case combined with the
businesses being acquired by Buyer or Affiliates of Buyer pursuant to the
Related Purchase Agreements).
7.7 Collection of Receivables. Seller agrees that it shall promptly
(and in any event no later than five (5) Business Days following receipt)
deliver all such payments with respect to accounts receivable from customers of
the Business received on and after the Closing Date (including but not limited
to negotiable instruments tendered in payment of accounts receivable assigned to
Buyer hereunder which shall be duly endorsed by Seller to the order of Buyer) to
Buyer. Seller shall cooperate with Buyer in coordinating the transfer of
collection agents and customers of the Business who pay their bills through the
Automated Clearinghouse (ACH) process to Buyer.
ARTICLE 8
MISCELLANEOUS
8.1 Construction. Parent, Buyer and the Seller Parties have
participated jointly in the negotiation and drafting of this Agreement and the
Transaction Documents. In the event any ambiguity or question of intent or
interpretation arises, this Agreement and the Transaction Documents shall be
construed as if drafted jointly by Parent, Buyer and the Seller Parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the
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authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local or foreign statute or law shall be deemed also to refer to
all rules and regulations promulgated thereunder, unless the context requires
otherwise. The word "including" in this Agreement shall mean including without
limitation. Words in the singular shall be held to include the plural and vice
versa and words of one gender shall be held to include the other genders as the
context requires. The terms "hereof," "herein," and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all of the Schedules and Exhibits hereto) and
not to any particular provision of this Agreement, and Article, Section,
paragraph, Exhibit and Schedule references are to the Articles, Sections,
paragraphs, Exhibits and Schedules to this Agreement unless otherwise specified.
The word "or" shall not be exclusive. Provisions of this Agreement shall apply,
when appropriate, to successive events and transactions. Section references
refer to this Agreement unless otherwise specified.
8.2 Notices. Any notice, request, demand, waiver, consent, approval
or other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to the
party personally or sent to the party by telecopy, by registered or certified
mail (return receipt requested) with postage and registration or certification
fees thereon prepaid, or by any nationally recognized overnight courier
addressed to the party at its address set forth below:
If to Parent:
American Water Works Company
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, New Jersey 08043
Fax: (609) 346-8229
Attention: General Counsel
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
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If to Buyer:
California-American Water Company
880 Kuhn Drive
Chula Vista, CA 91914
Fax: (619) 656-2406
Attention: Corporate Counsel
with a copy to Parent and a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to Seller:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: Robert J. DeSantis
Telecopier: (203) 614-4625
with copies to:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: L. Russell Mitten, II
Telecopier: (203) 614-4651
and
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: J. Michael Love
Telecopier: (203) 614-5201
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and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention: Jeffry L. Hardin
Telecopier: (202) 387-3467
8.3 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided, however, that no party
may assign, delegate or otherwise transfer any of its rights or obligations
under this Agreement without the consent of the other party hereto; provided
that Seller may assign its rights or delegate its duties under this Agreement to
a qualified intermediary chosen by Seller to structure the transactions
contemplated hereby as a like-kind exchange of property covered by Section 1031
of the Code.
8.4 Exhibits and Schedules. All Exhibits and Disclosure Schedules
annexed hereto or referred to herein are hereby incorporated in and made a part
of this Agreement as if set forth in full herein. Disclosure of any fact or item
in any Schedule referenced by a particular paragraph or Section in this
Agreement shall, should the existence of the fact or item or its contents be
clearly related to any other paragraph or section, be deemed to be disclosed
with respect to that other paragraph or section.
8.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
the conflicts of laws principles thereof.
8.6 Dispute Resolution. Except as otherwise provided herein, any
dispute, controversy or claim between the parties relating to, arising out of or
in connection with this Agreement (or any subsequent agreements or amendments
thereto), including as to its existence, enforceability, validity,
interpretation, performance or breach or as to indemnification or damages,
including claims in tort, whether arising before or after the termination of
this Agreement (any such dispute, controversy or claim being herein referred to
as a "Dispute") shall be settled without litigation and only by use of the
following alternative dispute resolution procedure:
(a) At the written request of a party, each party shall
appoint a knowledgeable, responsible representative to meet and negotiate in
good faith to resolve any Dispute. The discussions shall be left to the
discretion of the representatives. Upon agreement, the representatives may
utilize other alternative dispute resolution procedures such as mediation to
assist in the negotiations. Discussions and correspondence among the parties'
representatives for purposes of these negotiations shall be treated as
confidential information developed for the purposes of settlement, exempt from
discovery and production, and without the concurrence of both parties shall
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not be admissible in the arbitration described below, or in any lawsuit.
Documents identified in or provided with such communications, which are not
prepared for purposes of the negotiations, are not so exempted and may, if
otherwise admissible, be admitted in the arbitration.
(b) If negotiations between the representatives of the
parties do not resolve the Dispute within 60 days of the initial written
request, the Dispute shall be submitted to binding arbitration by a single
arbitrator pursuant to the Commercial Arbitration Rules, as then amended and in
effect, of the American Arbitration Association (the "Rules"); provided,
however, that at the election of either party, the arbitration shall take place
before three (3) arbitrators, one arbitrator being selected by Parent, one
arbitrator being selected by Citizen, and the third arbitrator, knowledgeable in
the general subject matter of the dispute, controversy or claim, being selected
by the other two arbitrators. Either party may demand such arbitration in
accordance with the procedures set out in the Rules. The parties hereto shall
use reasonable efforts to coordinate any arbitration commenced under this
Agreement with any arbitration on the same or similar issues commenced under any
of the Related Purchase Agreements so that the resolution under this Agreement
and the similar issues under the Related Purchase Agreements can be resolved as
expeditiously and efficiently as reasonably practicable. Reasonable efforts
shall include use of a common arbitrator or panel of arbitrators where
practicable. The arbitration shall take place in Newark, New Jersey. The
arbitration hearing shall be commenced within 60 days of such party's demand for
arbitration. The arbitrator(s) shall have the power to and will instruct each
party to produce evidence through discovery (i) that is reasonably requested by
the other party to the arbitration in order to prepare and substantiate its case
and (ii) the production of which will not materially delay the expeditious
resolution of the dispute being arbitrated; each party hereto agrees to be bound
by any such discovery order. The arbitrator(s) shall control the scheduling (so
as to process the matter expeditiously) and any discovery. The parties may
submit written briefs. At the arbitration hearing, each party may make written
and oral presentations to the arbitrator(s), present testimony and written
evidence and examine witnesses. No party shall be eligible to receive, and the
arbitrator(s) shall not have the authority to award, exemplary or punitive
damages. The arbitrator(s) shall rule on the Dispute by issuing a written
opinion within 30 days after the close of hearings. The arbitrators' majority
decision shall be binding and final. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction.
(c) Each party will bear its own costs and expenses in
submitting and presenting its position with respect to any Dispute to the
arbitrator(s); provided, however, that if the arbitrator(s) determines that the
position taken in the Dispute by the non-prevailing party taken as a whole is
unreasonable, the arbitrator(s) may order the non-prevailing party to bear such
fees and expenses, and reimburse the prevailing party for all or such portion of
its reasonable costs and expenses in submitting and presenting its position, as
the arbitrator(s) shall reasonably determine to be fair under the circumstances.
Each party to the arbitration shall pay one-half of the fees and expenses of the
arbitrator(s) and the American Arbitration Association.
(d) Notwithstanding any other provision of this
Agreement, (i) either party may commence an action to compel compliance with
this Section 8.6 and (ii) if any party, as
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party of a Dispute, seeks injunctive relief or any other equitable remedy,
including specific enforcement, then such party shall be permitted to seek such
injunctive or equitable relief in any federal or state court or competent
jurisdiction before, during or after the pendency of a mediation or arbitration
proceed under this Section 8.6.
8.7 Severability. The parties agree that (a) the provisions of this
Agreement shall be severable in the event that any provision hereof is held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable,
(b) such invalid, void or otherwise unenforceable provision shall be
automatically replaced by another provision which is as similar as possible in
terms to such invalid, void or otherwise unenforceable provision but which is
valid and enforceable and (c) the remaining provisions shall remain enforceable
to the fullest extent permitted by law.
8.8 No Third Party Beneficiaries. Nothing herein expressed or
implied is intended or should be construed to confer upon or give to any Person
other than the parties hereto and their successors and permitted assigns any
rights or remedies under or by reason of this Agreement.
8.9 Entire Agreement. This Agreement, the Schedules and Exhibits
hereto and the other Transaction Documents, and the Confidentiality Agreement
dated August 2, 1999, between Citizens and Parent, (i) together constitute the
entire understanding of the parties (and their affiliates) with respect to the
subject matter hereof, and any related matter, (ii) supercede all prior
agreements or understandings, written or oral, entered into by any of the
parties that concern the subject matter hereof and (iii) are not intended to
confer upon any Person other than the parties hereto any benefit, right or
remedy.
8.10 Amendment and Waiver. The parties may, by mutual agreement,
amend this Agreement in any respect, and any party, as to such party, may (i)
extend the time for the performance of any of the obligations of the other
party; (ii) waive any inaccuracies in representations and warranties by the
other party; (iii) waive compliance by the other party with any of the covenants
or agreements contained herein and performance of any obligations by the other
party; and (iv) waive the fulfillment of any condition that is precedent to the
performance by such party of any of its obligations under this Agreement. To be
effective, any such amendment or waiver must be in writing and be signed by the
party providing such waiver or extension, as the case may be. The waiver by any
party hereto of any breach of any provision of this Agreement shall not operate
or be construed as a waiver of any subsequent breach, whether or not similar.
8.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.\
8.12 Headings. The headings preceding the text of the sections and
subsections hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
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8.13 Definitions. For purposes of this Agreement, references to the
knowledge of the Seller Parties (including a reference to "the best of the
knowledge of the Seller Parties" and similar references) shall mean the actual
knowledge possessed by any of the following officers or employees of Citizens:
Chief Financial Officer, Vice President and Treasurer; President, Citizens
Public Services; Vice President, Corporate Human Resources; Secretary; Vice
President, Water; and the general manager of the Business.
8.14 No Implied Representation. NOTWITHSTANDING ANYTHING CONTAINED
IN THIS AGREEMENT, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO THAT NEITHER
OF THE SELLER PARTIES ARE MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER,
EXPRESS OR IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS AGREEMENT, ANY SCHEDULE
HERETO, THE TRANSACTION DOCUMENTS, OR ANY DOCUMENT, EXHIBIT, CERTIFICATE,
INSTRUMENT OR STATEMENT TO BE DELIVERED HEREUNDER OR THEREUNDER INCLUDING, BUT
NOT LIMITED TO, ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION,
MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO ANY OF
THE ACQUIRED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IT IS
UNDERSTOOD AND AGREED THAT ANY COST ESTIMATES, PROJECTIONS OR OTHER PREDICTIONS
CONTAINED OR REFERRED TO IN THE SCHEDULES AND ANY COST ESTIMATES, PROJECTIONS OR
PREDICTIONS OR ANY OTHER INFORMATION CONTAINED OR REFERRED TO IN OTHER MATERIALS
THAT HAVE BEEN OR SHALL HEREINAFTER BE PROVIDED TO PARENT, BUYER OR ANY OF THEIR
AFFILIATES, AGENTS OR REPRESENTATIVES ARE NOT AND SHALL NOT BE DEEMED TO BE
REPRESENTATIONS OR WARRANTIES OF ANY OF THE SELLER PARTIES.
8.15 Construction of Certain Provisions. It is understood and agreed
that neither the specification of any dollar amount in the representations and
warranties contained in this Agreement nor the inclusion of any specific item in
the Schedules or Exhibits is intended to imply that such amounts or higher or
lower amounts, or the items so included or other items, are or are not material,
and none of the parties shall use the fact of the setting of such amounts or the
fact of any inclusion of any such item in the Schedules or Exhibits in any
dispute or controversy between the parties as to whether any obligation, item or
matter is or is not material for purposes hereof.
8.16 Bulk Sales. Buyer agrees that it shall not make any filings
under any tax bulk sales provisions with respect to the transactions
contemplated by this Agreement.
[Signatures appear on following page]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first written above.
CITIZENS UTILITIES COMPANY
By:___________________________________________________________
Robert J. DeSantis, Chief Financial Officer, Vice President
and Treasurer
CITIZENS BUSINESS SERVICES COMPANY
CITIZENS RESOURCES COMPANY
CITIZENS UTILITIES COMPANY OF CALIFORNIA
By:___________________________________________________________
Robert J. DeSantis, Vice President
AMERICAN WATER WORKS COMPANY, INC.
By:___________________________________________________________
Joseph F. Hartnett, Jr., Treasurer
CALIFORNIA-AMERICAN WATER COMPANY
By:___________________________________________________________
Theodore Jones, Jr., President
<PAGE>
Illinois
EXECUTION COPY
ASSET AND STOCK PURCHASE AGREEMENT
among
CITIZENS UTILITIES COMPANY
AND
CERTAIN OF ITS AFFILIATES
AND
AMERICAN WATER WORKS COMPANY, INC. AND
ILLINOIS-AMERICAN WATER COMPANY
Dated as of
October 15, 1999
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Illinois
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS......................................................1
1.1 Certain Definitions..............................................1
ARTICLE 2 THE TRANSACTION.................................................10
2.1 Sale and Purchase...............................................10
2.2 Excluded Assets.................................................11
2.3 Assumption of Certain Liabilities...............................12
2.4 Consent of Third Parties........................................15
2.5 Closing.........................................................16
2.6 Purchase Price..................................................16
2.6.1 Purchase Price............................................16
2.6.2 Payment of Initial Cash Payment...........................16
2.6.3 Estimated Closing Statement...............................17
2.6.4 Post-Closing Adjustment to Purchase Price.................17
2.6.5 Adjustment for Certain Liabilities........................19
2.6.6 Additional Adjustment to the Purchase Price...............19
2.7 Deliveries and Proceedings at Closing...........................19
2.7.1 Deliveries to each of Parent and IAWC....................19
2.7.2 Deliveries By Parent and IAWC to the Seller Parties......20
2.8 Tax Allocation of Consideration.................................21
2.9 Prorations......................................................21
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER.......................22
3.1 Qualification; No Interest in Other Entities....................22
3.2 Authorization and Enforceability................................22
3.3 No Violation of Laws or Agreements..............................23
3.4 Financial Statements............................................23
3.5 No Changes......................................................23
3.6 Contracts.......................................................24
3.7 Permits and Compliance With Laws Generally......................25
3.8 Environmental Matters...........................................25
3.9 Consents........................................................27
3.10 Title...........................................................28
3.11 Real Estate.....................................................28
3.12 Taxes...........................................................28
3.13 Patents and Intellectual Property Rights........................29
3.14 Accounts Receivable.............................................29
3.15 Labor Relations.................................................29
3.16 Employee Benefit Plans..........................................29
3.17 Absence of Undisclosed Liabilities..............................31
3.18 No Pending Litigation or Proceedings............................31
3.19 Supply of Utilities.............................................32
3.20 Insurance.......................................................32
3.21 Relationship with Customers.....................................32
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Illinois
3.22 WARN Act........................................................32
3.23 Condition of Assets.............................................32
3.24 Brokerage.......................................................32
3.25 All Assets......................................................33
3.26 Year 2000 Matters...............................................33
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND IAWC...............34
4.1 Organization and Good Standing..................................34
4.2 Authorization and Enforceability................................34
4.3 No Violation of Laws or Agreements..............................34
4.4 Consents........................................................35
4.5 Financing.......................................................35
4.6 Brokerage.......................................................35
4.7 Insurance.......................................................35
ARTICLE 5 ADDITIONAL COVENANTS............................................36
5.1 Conduct of Business.............................................36
5.2 Negotiations....................................................37
5.3 Disclosure Schedules............................................38
5.4 Mutual Covenants................................................38
5.5 Filings and Authorizations......................................39
5.6 Public Announcement.............................................39
5.7 Further Assurances..............................................40
5.8 Cooperation.....................................................40
5.9 Employees; Employee Benefits....................................41
5.10 Employee Pension Plan...........................................44
5.11 Employee Savings Plan...........................................44
5.12 Welfare Benefits................................................45
5.13 Taxes...........................................................46
5.14 Intentionally Omitted...........................................46
5.15 Citizens' Guarantees and Surety Instruments.....................46
5.16 Assumption of Seller Debt.......................................47
5.17 Schedule of Permits.............................................49
5.18 Title Information...............................................49
5.19 Transaction with Related Parties................................49
5.20 Approval by Citizens............................................50
5.21 Supplemental Information........................................50
5.22 Non-Competition.................................................50
5.23 Intentionally Omitted...........................................50
5.24 IDRB Obligations................................................51
5.25 Cooperation with Respect to Like-Kind Exchange..................51
5.26 Transition Plan.................................................52
5.27 Procedures regarding Refunds of Advances........................52
5.28 Title Insurance.................................................52
ARTICLE 6 CONDITIONS PRECEDENT; TERMINATION...............................53
6.1 Conditions Precedent to Obligations of IAWC and Parent..........53
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Illinois
6.1.1 Performance of Agreements; Representations and Warranties.53
6.1.2 Opinion of Counsel........................................53
6.1.3 HSR Act...................................................53
6.1.4 Required PUC and Other Consents...........................53
6.1.5 Injunction; Litigation....................................54
6.1.6 Documents.................................................54
6.1.7 Related Closings..........................................54
6.2 Conditions Precedent to Obligations of Seller Parties...........54
6.2.1 Performance of Agreements; Representations and Warranties.55
6.2.2 Opinion of Counsel........................................55
6.2.3 HSR Act...................................................55
6.2.4 Required PUC and Other Consents...........................55
6.2.5 Injunction; Litigation....................................56
6.2.6 Documents.................................................56
6.2.7 Related Closings..........................................56
6.3 Termination.....................................................56
ARTICLE 7 CERTAIN ADDITIONAL COVENANTS....................................57
7.1 Certain Taxes and Expenses......................................57
7.2 Maintenance of Books and Records................................57
7.3 Survival........................................................57
7.4 Indemnification.................................................60
7.4.1 General Indemnification Obligations.......................60
7.4.2 General Indemnification Procedures........................61
7.4.3 Indemnification for Negligence............................64
7.5 UCC Matters.....................................................64
7.6 Financial Statements............................................64
7.7 Collection of Receivables.......................................65
ARTICLE 8 MISCELLANEOUS...................................................65
8.1 Construction....................................................65
8.2 Notices.........................................................65
8.3 Successors and Assigns..........................................67
8.4 Exhibits and Schedules..........................................68
8.5 Governing Law...................................................68
8.6 Dispute Resolution..............................................68
8.7 Severability....................................................69
8.8 No Third Party Beneficiaries....................................69
8.9 Entire Agreement................................................69
8.10 Amendment and Waiver............................................70
8.11 Counterparts....................................................70
8.12 Headings........................................................70
8.13 Definitions.....................................................70
8.14 No Implied Representation.......................................70
8.15 Construction of Certain Provisions..............................71
8.16 Bulk Sales......................................................71
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List of Schedules
Schedule 1.1.1(a) ..................................................Real Estate
Schedule 1.1.10 ...........................................Assumed Indebtedness
Schedule 1.1.51 .................................................IDRB Documents
Schedule 2.2.12 ................................................Excluded Assets
Schedule 2.6 ....................................................Purchase Price
Schedule 3.3 ................................No Violation of Laws or Agreements
Schedule 3.4 ..............................................Financial Statements
Schedule 3.5 ........................................................No Changes
Schedule 3.6 .........................................................Contracts
Schedule 3.7 ........................Permits and Compliance with Laws Generally
Schedule 3.8 .................................Environmental Matters - Generally
Schedule 3.8.10 ................................Compliance with Water Standards
Schedule 3.8.11 ...............................................Deed Restriction
Schedule 3.9 ..........................................Seller Parties' Consents
Schedule 3.10 ............................................................Title
Schedule 3.11 ..........................................Real Estate Proceedings
Schedule 3.12 ............................................................Taxes
Schedule 3.15 ..................................................Labor Relations
Schedule 3.16.1 .........................................Employee Benefit Plans
Schedule 3.16.4 ............................Employee Benefit Plans - Compliance
Schedule 3.16.9 ................Employee Benefit Plans - Extraordinary Benefits
Schedule 3.17 ...............................Absence of Undisclosed Liabilities
Schedule 3.18 .............................No Pending Litigation or Proceedings
Schedule 3.19 ..............................................Supply of Utilities
Schedule 3.20 ...............................................Seller's Insurance
Schedule 3.22 .........................................................WARN Act
Schedule 3.23 ..............................................Condition of Assets
Schedule 3.25 .......................................................All Assets
Schedule 3.27 ................................................Product Liability
Schedule 4.7 ..................................................IAWC's Insurance
Schedule 5.1 ...............................................Conduct of Business
Schedule 5.9.1 .......................................................Employees
Schedule 5.9.2 ................................Collective Bargaining Agreements
Schedule 5.12 .................................................Former Employees
Schedule 5.15 .............................................Citizens' Guarantees
Schedule 5.16 ..............................................Schedule of Permits
Schedule 6.1.7 .....................................Related Purchase Agreements
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Illinois
TABLE OF EXHIBITS
Exhibit A - Form of Assumption Agreement
Exhibit B - Form of Assignment and Bill of Sale
Exhibit C - Intentionally Omitted
Exhibit D - Form of Retained IDRB Obligations Agreement
Exhibit E - Form of Seller's Opinion of Counsel
Exhibit F - Form of Parent's and IAWC's Opinion of Counsel
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ASSET AND STOCK PURCHASE AGREEMENT
THIS IS AN ASSET AND STOCK PURCHASE AGREEMENT (the "Agreement"), dated as
of October 15, 1999, by and among Citizens Utilities Company, a Delaware
corporation ("Citizens"), Citizens Resources Company, a Delaware corporation
("Citizens Resources"), Citizens Utilities Company of Illinois, an Illinois
corporation ("CUCI"), Citizens Business Services Company, an Illinois
corporation ("CBSC"), and Citizens Lake Water Company, an Illinois corporation
("CLWC" and, together with Citizens, Citizens Resources, CUCI and CBSC, "Seller"
or the "Seller Parties"), and American Water Works Company, Inc., a Delaware
corporation ("Parent"), and Illinois-American Water Company, an Illinois
corporation ("IAWC").
Background
1. The Seller Parties are engaged, among other things, in the business of
storing, supplying, distributing and selling water to the public, wholesale
water transmission, wastewater treatment, and related services and activities in
the State of Illinois (the "Business").
2. CUCI is engaged, among other things, in that part of the Business that
consists of storing, supplying, distributing and selling water to the public,
wastewater treatment, and related services and activities, all in the State of
Illinois.
3. Citizens owns all of the issued and outstanding shares of capital stock
of CLWC (the "CLWC Stock"). CLWC is engaged in that part of the Business that
consists of wholesale water transmission.
4. CBSC and Citizens Resources own certain assets, properties and rights
that relate to the Business, in whole or in part.
5. Parent is a holding company that desires to purchase the CLWC Stock,
substantially all of the assets, properties and rights of Citizens Resources
relating to the Business, and those assets of CBSC that relate in part to the
Business and in part to businesses being acquired under the Related Purchase
Agreements (as that term is defined below).
6. Parent also desires to cause IAWC to purchase (and IAWC desires to
Purchase) substantially all of the assets, properties and rights of CUCI and
those assets, properties and rights of CBSC that primarily relate to the
Business.
7. Citizens desires to sell the CLWC Stock and to cause the sale of such
assets, properties and rights referred to above, on the terms and subject to the
conditions set forth in this Agreement.
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Terms
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the respective meanings ascribed to them in this Section:
1.1.1 "Acquired Assets" means, subject to Section 2.2, all of
each Seller Party's right, title, and interest in, under and to all of the
assets, properties and rights exclusively used in, or, in the case of Citizens
Resources and CBSC, primarily related to, the Business as a going concern of
every kind, nature and description existing on the Closing Date, wherever such
assets, properties and rights are located and whether such assets, properties
and rights are real, personal or mixed, tangible or intangible, and whether or
not any of such assets, properties and rights have any value for accounting
purposes or are carried or reflected on or specifically referred to in Seller's
books or financial statements, including all of the assets, properties and
rights exclusively relating to the Business enumerated below:
(a) all real property described in Schedule 1.1.1(a),
together with all fixtures, fittings, buildings, structures and other
improvements erected thereon, and easements, rights of way, water lines, rights
of use, licenses, railroad crossing agreements, hereditaments, tenements,
privileges and other appurtenances thereto or otherwise exclusively related to
the Business (such as appurtenant rights in and to public streets) (the "Real
Estate");
(b) to the extent not included in clause (a) above, all
water tanks, reservoirs, water works, plant and systems, purification and
filtration systems, pumping stations, pumps, wells, mains, water pipes,
hydrants, equipment, machinery, vehicles, tools, dies, spare parts, materials,
water supplies, fixtures and improvements, construction in progress, jigs,
molds, patterns, gauges and production fixtures and other tangible personal
property, in transit or otherwise, used exclusively in the Business (the
"Equipment and Other Tangible Personal Property");
(c) notwithstanding the provisions of Section 2.2 but
subject to Section 2.4, all water appropriation and flowage rights of Seller
other than CLWC (it being intended that any such rights of CLWC will remain with
CLWC whose stock is being acquired by Parent) to the extent not transferred to
IAWC upon assignment of the Contracts and Permits to IAWC;
(d) all notes receivable, accounts receivable, accrued
utility revenues, materials and supplies (at average cost net of reserve for
obsolescence) and prepayments attributable in each case exclusively to the
Business;
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Illinois
(e) all unamortized debt expense related to the Assumed
Indebtedness, deferred capital costs, and other deferred charges (excluding
deferred taxes collectable) attributable exclusively to the Business of which
recovery in future rates is probable;
(f) Intellectual Property and goodwill, licenses and
sublicenses granted and obtained with respect thereto;
(g) subject to Section 2.4 hereof, (i) contracts,
commitments, agreements and instruments relating to the sale of any assets,
services, properties, materials or products, including all customer contracts,
operating contracts and distribution contracts relating exclusively to the
conduct of the Business; (ii) orders, contracts, supply agreements and other
agreements relating exclusively to the purchase of any assets, services,
properties, materials, or products for the Business; (iii) all leases of Real
Estate exclusively related to the Business; (iv) all other contracts, agreements
and instruments related exclusively to the Business (other than contracts,
agreements and instruments included in the definition of Real Estate or
Permits); and (v) any such contracts, agreements and other instruments referred
to in clauses (i) - (iv) inclusive, entered into between the date hereof and the
Closing Date which are consistent with the terms of this Agreement and are
entered into in the ordinary course of business consistent with past practice,
and including in the case of clauses (i) - (iv) all such contracts, agreements
and instruments more specifically listed or described in Schedule 3.6 (but
specifically excluding any contract, agreement and instrument listed or
described on Schedule 2.2.12) (the "Contracts");
(h) subject to Section 2.4 hereof, franchises,
approvals, permits, authorizations, licenses, orders, registrations,
certificates, variances, and other similar permits or rights obtained from any
Authority relating exclusively to the conduct of the Business and all pending
applications therefor (the "Permits");
(i) books, records, ledgers, files, documents (including
originally executed copies of written Contracts, to the extent available, and
copies to the extent not available), correspondence, Tax returns relating
exclusively to the Business, memoranda, forms, lists, plats, architectural
plans, drawings, and specifications, new product development materials, creative
materials, advertising and promotional materials, studies, reports, sales and
purchase correspondence, books of account and records relating to the
Transferred Employees (to the extent such transfer is not prohibited by law),
photographs, records of plant operations and materials used, quality control
records and procedures, equipment maintenance records, manuals and warranty
information, research and development files, data and laboratory books,
inspection processes, in each case, whether in hard copy or magnetic format, in
each instance, to the extent exclusively relating to the Business, the Acquired
Assets or the Transferred Employees;
(j) all rights or choses in action arising out of
occurrences before or after the Closing Date and exclusively related to any of
the Acquired Assets, including third party warranties and guarantees and all
related claims, credits, rights of recovery and set-off and other similar
contractual rights, as to third parties held by or in favor of Seller; provided,
however, that (notwithstanding the foregoing provisions of this Section
1.1.1(j)), to the extent that Seller pays or discharges a liability related to
the Business or any of the Acquired Assets and related to such right
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or chose in action (whether by reason of indemnification under this Agreement or
otherwise), IAWC or Parent, as the case may be, will reassign or reconvey to
Seller such right or chose in action to the extent that such right or chose in
action relates to a recovery of amounts paid to IAWC or Parent, as the case may
be;
(k) all rights to insurance and condemnation proceeds
(i) to the extent relating to the damage, destruction, taking or other
impairment of the Acquired Assets which damage, destruction, taking or other
impairment occurs on or prior to the Closing but only to the extent that the
proceeds exceed the amount of the write-down of the net book value of such
Acquired Assets on the books and records of Seller as a result of such damage,
destruction, taking or other impairment, (ii) to the extent they relate to
amounts paid by IAWC or Parent, as the case may be, for Damages to the extent
IAWC or Parent, as the case may be, does not receive payment pursuant to Section
7.4.1(a), but only to the extent IAWC or Parent, as the case may be, is entitled
to indemnification by Seller pursuant to Sections 7.3 and 7.4, and (iii) as
provided in Section 4 of the agreement attached as Exhibit D hereto; and
(12) without limiting the foregoing, but for the
avoidance of doubt, in any case, all of the assets reflected on the Interim
Statement of Net Assets attached as Schedule 3.4.
For purposes of this Agreement, "Citizens Assets" shall mean the CLWC
Stock; "CUCI Assets" shall mean those Acquired Assets owned or held by CUCI;
"Citizens Resources Assets"shall mean those Acquired Assets owned or held by
Citizens Resources; "CBSC Assets" shall mean those Acquired Assets owned or held
by CBSC; and "CLWC Assets" shall mean those Acquired Assets owned or held by
CLWC. For the avoidance of doubt, the "Acquired Assets" include the Citizens
Assets, CUCI Assets, CLWC Assets, Citizens Resources Assets and the CBSC Assets.
1.1.2 "Adjusted Net Assets" has the meaning set forth in
Section 2.6.4(a) hereof.
1.1.3 "Affected Participant" has the meaning set forth as
Section 5.11.1 hereof.
1.1.4 "Affiliate" of any Person means any Person, directly or
indirectly controlling, controlled by or under common control with such Person.
1.1.5 "Agreement" has the meaning set forth in the
introduction hereof.
1.1.6 "American Pension Plan" has the meaning set forth in
Section 5.10.1 hereof.
1.1.7 "American Savings Plan" has the meaning set forth in
Section 5.11.1 hereof.
1.1.8 "Antitrust Division" has the meaning set forth in
Section 5.5 hereof.
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1.1.9 "Assumed Benefit Liabilities" has the meaning set forth
in Section 3.16.6 hereof.
1.1.10 "Assumed Indebtedness" means the liabilities and
obligations from and after the Closing Date (except as set forth below) with
respect to the IDRB Financings and IDRB Documents set forth on Schedule 1.1.10.
For purposes of clarity, except as set forth in the next sentence below,
"Assumed Indebtedness" shall not include any liability or obligation to the
extent accrued prior to the Closing Date or to the extent arising out of or
relating to an event, circumstance or occurrence prior to the Closing Date.
"Assumed Indebtedness" shall include the outstanding principal amount and the
accrued but unpaid interest owed by Seller on the debt obligations set forth in
the first sentence of this definition.
1.1.11 "Assumed Liabilities" has the meaning set forth in
Section 2.3 hereof.
1.1.12 "Assumption Agreement" has the meaning set forth in
Section 2.3.2 hereof.
1.1.13 "Authority" means any federal, state, local or foreign
governmental or regulatory entity (or any department, agency, authority or
political subdivision thereof).
1.1.14 "Base Cash Purchase Price" has the meaning set forth in
Section 2.6.1 hereof.
1.1.15 "Beneficiary" means the Person(s) designated by an
Employee, by operation of law or otherwise, as entitled to compensation,
benefits, insurance coverage, payments or any other goods or services under a
Benefit Plan.
1.1.16 "Benefit Plans" has the meaning set forth in Section
3.16.1 hereof.
1.1.17 "Bonds" means any of the bonds issued pursuant to the
Indentures of Trust, the proceeds from the issuance of which were advanced to
Seller pursuant to any of the IDRB Documents.
1.1.18 "Business" has the meaning set forth in the Background
section hereof.
1.1.19 "Business Day" means any day other than a Saturday,
Sunday, or a day on which banking institutions in the Commonwealth of
Pennsylvania are authorized or obligated by law or executive order to close.
1.1.20 "Ceiling" has the meaning set forth in Section 7.4.2(e)
hereof.
1.1.21 "CERCLA" has the meaning set forth in Section 3.8.2
hereof.
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1.1.22 "CERCLIS" has the meaning set forth in Section 3.8.7
hereof.
1.1.23 "Citizens" has the meaning set forth in the
introduction hereof.
1.1.24 "Closing" has the meaning set forth in Section 2.5
hereof.
1.1.25 "Closing Date" has the meaning set forth in Section 2.5
hereof.
1.1.26 "Closing Statement of Net Assets" has the meaning set
forth in Section 2.6.4(a) hereof.
1.1.27 "Code" means the Internal Revenue Code of 1986, as
amended.
1.1.28 "Collective Bargaining Agreement" means the agreement
identified as such on Schedule 3.6 hereto.
1.1.29 "Competing Transaction" has the meaning set forth in
Section 5.2.
1.1.30 "Contracts" has the meaning set forth in Section
1.1.1(g) hereof.
1.1.31 "Control" with respect to any Person means the
ownership, directly or indirectly, of at least a majority of the voting power of
each class of capital stock of such Person entitled to vote in the election of
directors of such Person generally.
1.1.32 "Damages" has the meaning set forth in Section 7.4.1
hereof.
1.1.33 "Disclosure Schedules" means the Schedules referenced
in Articles 3, 4 and 5 of this Agreement, as amended or supplemented pursuant to
Section 5.3.
1.1.34 "Dispute" has the meaning set forth in Section 8.6.
1.1.35 "Employees" has the meaning set forth in Section 5.9.1
hereof.
1.1.36 "Environmental Laws" has the meaning set forth in
Section 3.8 hereof.
1.1.37 "Equipment and Other Tangible Personal Property" has
the meaning set forth in Section 1.1.1(b) hereof.
1.1.38 "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
1.1.39 "ERISA Affiliate" means (a) any corporation included
with any of the Seller Parties in a controlled group of corporations within the
meaning of Section 414(b) of the Code; (b) any trade or business (whether or not
incorporated) which is under common control with any of the Seller Parties
within the meaning of Section 414 of the Code; any member of an affiliated
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service group of which any of the Seller Parties is a member within the meaning
of Section 414(m) of the Code; or (d) any other person or entity treated as an
affiliate of any of the Seller Parties under Section 414(o) of the Code.
1.1.40 "Excluded Assets" has the meaning set forth in Section
2.2 hereof.
1.1.41 "Financial Statements" has the meaning set forth in
Section 3.4 hereof.
1.1.42 "FIRPTA Affidavit" has the meaning set forth in Section
2.7.1 hereof.
1.1.43 "Former Employees" means all salaried and hourly
employees once employed by Seller or any of its Affiliates, but who are no
longer so employed on the Closing Date.
1.1.44 "FTC" has the meaning set forth in Section 5.5 hereof.
1.1.45 "GAAP" has the meaning set forth in Section 3.4 hereof.
1.1.46 "Hazardous Substance" has the meaning set forth in
Section 3.8 hereof.
1.1.47 "HSR Act" has the meaning set forth in Section 3.9
hereof.
1.1.48 "IAWC" has the meaning set forth in the introduction
hereof.
1.1.49 "IAWC's IDRB Obligations" means the obligations of
Parent and IAWC set forth in Section 5.24 (a) and in the instruments to be
executed and delivered by Parent and IAWC on or prior to the Closing Date in
accordance with Section 5.24 (a).
1.1.50 "IAWC's Accountants" means PricewaterhouseCoopers LLP
or any firm of independent public accountants hereafter designated by IAWC for
purposes of this Agreement.
1.1.51 "IDRB Documents" shall mean the Loan Agreements, the
Tax Regulatory Agreements, the Project Tax Certificates, and the other Contracts
related thereto to which Citizens is a party and which are listed on Schedule
1.1.51.
1.1.52 "IDRB Financings" shall mean the indebtedness arising
under the Loan Agreements included among the IDRB Documents.
1.1.53 "Indemnified Party" has the meaning set forth in
Section 7.4.2(a) hereof.
1.1.54 "Indemnifying Party" has the meaning set forth in
Section 7.4.2(a) hereof.
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1.1.55 "Intellectual Property" means the trademarks, patents,
trade names and copyrights and applications therefor, inventions, trade secrets,
and confidential business information (including know-how, formulas, water
filtration, purification and pumping processes and techniques, technical data,
designs, drawings, customer and supplier lists, and business and marketing plans
and proposals), all computer software (including data and related documentation
and object and source codes), whether in magnetic format or hard copy, and
tangible embodiments thereof (in whatever form or medium) of Seller, in each
case, utilized exclusively in the Business.
1.1.56 "Interim Statement of Net Assets" means the Citizens
Water Resources Statement of Net Assets-Illinois, which is attached hereto as
Schedule 3.4.
1.1.57 "Interim Statement of Net Assets Date" means June 30,
1999.
1.1.58 "IRS" has the meaning set forth in Section 3.16.2
hereof.
1.1.59 "Lien" means any lien, charge, claim, pledge, security
interest, conditional sale agreement or other title retention agreement, lease,
mortgage, security agreement, right of first refusal, option, restriction,
tenancy, license, right of way, easement or other encumbrance (including the
filing of, or agreement to give, any financing statement under the Uniform
Commercial Code or statute or law of any jurisdiction).
1.1.60 "Material Adverse Effect" means a change or effect (or
series of related changes or effects) which has or is reasonably likely to have
a material adverse change in or effect upon the business, assets, condition
(financial or otherwise), or results of operations of the Business or the
Acquired Assets, taken as a whole and taken together with the businesses and
assets being acquired by Parent or Affiliates of Parent pursuant to the Related
Purchase Agreements. For purpose of this Agreement, an occurrence or condition
shall not constitute a Material Adverse Effect (a) if it arises from general
business, economic or financial market conditions, from conditions generally
effecting the industries in which Seller competes, or from the transactions
contemplated by this Agreement, or (b) to the extent that it consists of
strikes, work stoppages, walk-outs, slow-downs or other business interruption at
the facilities in Illinois that are part of the Acquired Assets, or (c) solely
with respect to matters arising prior to Closing, to the extent that either (i)
Seller realizes the benefit of insurance maintained by Citizens on or prior to
the Closing Date and IAWC or Parent, as the case may be, receives the cash
proceeds of such insurance to the extent required by Section 1.1.1(k), or (ii)
Seller arranges for IAWC or Parent , as the case may be, to recover payments in
respect of such occurrence or condition from any other source (whether in a lump
sum or stream of payments), it being understood and agreed that a Material
Adverse Effect may have occurred irrespective of such insurance recovery if the
occurrence or condition giving rise to such recovery also causes a non-monetary
material adverse change in or effect upon the Business or the Acquired Assets,
taken as a whole and taken together with the businesses and assets being
acquired by Parent or Affiliates of Parent pursuant to the Related Purchase
Agreements.
1.1.61 "Mortgage Indenture" means Indenture of Mortgage and
Deed of Trust between BNY Western Trust Company (successor in interest to Wells
Fargo Bank, N.A.) and
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First Interstate Bank of California (as successor trustee to Marine Midland,
N.A., formerly the Marine Midland Trust Company of New York).
1.1.62 "OSHA" has the meaning set forth in Section 3.7.1
hereof.
1.1.63 "PCBs" has the meaning set forth in Section 3.8.6
hereof.
1.1.64 "Permits" has the meaning set forth in Section 1.1.1(h)
hereof.
1.1.65 "Permitted Exceptions" has the meaning set forth in
Section 3.10 hereof; provided, however, that from and after the Closing,
Permitted Exceptions shall not include any Lien arising under or resulting from
the Mortgage Indenture.
1.1.66 "Person" means an individual, a corporation, a
partnership, an association, an Authority, a trustor other entity or
organization.
1.1.67 "Pre-Existing Conditions" has the meaning set forth in
Section 2.3.1(d).
1.1.68 "Prime Rate" means the rate per annum announced from
time to time during the reference period by Citibank N.A. as its United States
prime, reference or base rate for commercial loans.
1.1.69 "PUC" has the meaning set forth in Section 5.5 hereof.
1.1.70 "Purchase Price" has the meaning set forth in Section
2.6.1 hereof.
1.1.71 "Real Estate" has the meaning set forth in Section
1.1.1(a) hereof.
1.1.72 "Recovery" has the meaning set forth in Section
7.4.2(l) hereof.
1.1.73 "Related Purchase Agreements" as the meaning set forth
in Section 6.1.7 hereof.
1.1.74 "Release" or "Released" has the meaning set forth in
Section 3.8 hereof.
1.1.75 "Remedial Action" has the meaning set forth in Section
3.8 hereof.
1.1.76 "Retained IDRB Indebtedness" means the indebtedness of
the Seller owing to the issuers of the Bonds and arising under the Loan
Agreements included among the IDRB Documents but only to the extent not included
in the Assumed Indebtedness.
1.1.77 "Retained Liabilities" has the meaning set forth in
Section 2.3 hereof.
1.1.78 "Review Period" has the meaning set forth in Section
2.6.4(b) hereof.
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1.1.79 "SEC" means the U.S. Securities and Exchange
Commission.
1.1.80 "Securities Filings" has the meaning set forth in
Section 5.8.2 hereof.
1.1.81 "Seller" and "Seller Parties" have the respective
meaning set forth in the introduction hereof.
1.1.82 "Seller's Accountants" means KPMG LLP or any other firm
of independent public accountants hereafter designated by Seller for purposes of
this Agreement.
1.1.83 "Seller's Adjusted Amount" has the meaning set forth in
Section 2.6.4(a) hereof.
1.1.84 "Seller's Pension Plan" has the meaning set forth in
Section 5.10.1 hereof.
1.1.85 "Seller's 401(k) Plan" has the meaning set forth in
Section 5.11.1 hereof.
1.1.86 "Specified Liabilities" has the meaning set forth in
Section 7.4.2(f) hereof.
1.1.87 "Taxes" means any federal, state, local and foreign
income, payroll, withholding, excise, sales, use, personal property, use and
occupancy, business and occupation, mercantile, real estate, gross receipts,
license, employment, severance, stamp, premium, windfall profits, social
security (or similar unemployment), disability, transfer, registration, value
added, alternative, or add-on minimum, estimated, or capital stock and franchise
and other tax of any kind whatsoever, including any interest, penalty or
addition thereto, whether disputed or not.
1.1.88 "Third Accounting Firm" has the meaning set forth in
Section 2.6.4(b) hereof.
1.1.89 "Threshold Amount" has the meaning set forth in Section
7.4.2(e) hereof.
1.1.90 "Third Party Claim" has the meaning set forth in
Section 7.4(b)(i) hereof.
1.1.91 "Transferred Accounts" has the meaning set forth in
Section 5.11.2 hereof.
1.1.92 "Transaction Documents" has the meaning set forth in
Section 3.2 hereof.
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1.1.93 "Transferred Employees" has the meaning set forth in
Section 5.9.2 hereof.
1.1.94 "Union Employees" has the meaning set forth in Section
5.9.1 hereof.
1.1.95 "VEBAs" has the meaning set forth in Section 5.12
hereof.
1.1.96 "WARN Act" means the Worker Adjustment and Retraining
Notification Act, as codified at 29 U.S.C. section 2102- 2109, as amended.
ARTICLE 2
THE TRANSACTION
2.1 Sale and Purchase.
2.1.1 Subject to the terms and conditions of this Agreement,
at the Closing referred to in Section 2.5 below:
(i) Citizens shall cause CUCI to, and CUCI shall, sell, assign,
transfer, deliver and convey the CUCI Assets to IAWC, and
Parent shall cause IAWC to, and IAWC shall, purchase the CUCI
Assets;
(ii) Citizens shall cause CBSC to, and CBSC shall, sell, assign,
transfer, deliver and convey to IAWC, and Parent shall cause
IAWC to, and IAWC shall, purchase the CBSC Assets primarily
related to the Business (for the avoidance of doubt, such CBSC
Assets primarily related to the Business described in this
subsection (ii) shall not include any CBSC Assets described in
subsection (iii) of this Section 2.1.1);
(iii) Citizens shall cause CBSC to, and CBSC shall, sell, transfer,
deliver and convey to Parent, and Parent shall purchase, the
CBSC Assets that relate in part to the Business and in part to
businesses being acquired under the Related Purchase
Agreements;
(iv) Citizens shall cause Citizens Resources to, and Citizens
Resources shall, sell assign, transfer deliver and convey the
Citizens Resources Assets to Parent, and Parent shall purchase
the Citizens Resources Assets; and
(v) Citizens shall sell, assign transfer, deliver and convey the
Citizens Assets to Parent, and Parent shall purchase the
Citizens Assets (for the avoidance of doubt, "Citizens Assets"
is defined in Section 1.1.1 as the CLWC Stock).
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2.2 Excluded Assets. The following assets of Seller shall be
excluded from the Acquired Assets (the "Excluded Assets"):
2.2.1 assets of the Seller used in both the Business and in
Citizens' gas, electric or communications businesses, the material items of
which are described on Schedule 2.2.12;
2.2.2 cash and cash equivalents in transit, in hand or in bank
accounts.
2.2.3 except as otherwise set forth herein, assets
attributable or related to any Benefit Plan;
2.2.4 the stock record and minute books of Seller (other than
the stock record and minute books of CLWC);
2.2.5 Acquired Assets disposed of by Seller after the date of
this Agreement to the extent such dispositions are not prohibited by this
Agreement;
2.2.6 except to the extent set forth in Section 2.9, rights to
refunds of Taxes payable with respect to the Business, assets, properties or
operations of any of the Seller Parties or any member of any affiliated group of
which any of them is a member, and which are treated as Retained Liabilities
under Section 2.3.3(b) below.
2.2.7 customer and other deposits held in Seller's accounts;
2.2.8 accounts owing by and among Seller and its Affiliates;
2.2.9 notes receivable and other receivables (other than note
and accounts receivable attributable exclusively to the Business);
2.2.10 all deferred tax assets or collectibles;
2.2.11 duplicate copies of all books and records transferred
to IAWC or Parent, as the case may be; and
2.2.12 those certain items listed on Schedule 2.2.12.
2.3 Assumption of Certain Liabilities.
2.3.1 Neither Parent nor IAWC shall assume any liabilities of
Citizens, CUCI, Citizens Resources, CBSC, CLWC or any of their Affiliates,
except that IAWC or Parent, as the case may be, shall assume the following
specific liabilities and obligations from their respective Seller Parties:
(a) the obligations and liabilities set forth in
Sections 5.9, 5.10, 5.11 and 5.12 hereof;
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(b) except as set forth in Section 2.3.3(b), all
liabilities and obligations of Seller in respect of the Contracts and Permits
assigned or transferred to IAWC or Parent, as the case may be, pursuant to this
Agreement in accordance with the respective terms thereof, except that neither
Parent nor IAWC shall assume any liabilities or obligations for any breach or
default by, or payment obligations of, Seller under such Contracts and Permits
occurring or arising or accruing on or prior to the Closing Date;
(c) the Assumed Indebtedness and the IAWC's IDRB
Obligations;
(d) any liability, obligation or responsibility of
Seller for conditions at the Real Estate, whether based on statutory or common
law, now or hereafter in effect, known or unknown, contingent or actual,
relating to or arising from pollution, contamination or protection of the
environment, human health or safety or natural resources or relating to or
arising from the presence or Release or threat of Release of Hazardous
Substances into the environment at the Real Estate or into or from any building,
structure, pipeline or other facility at the Real Estate, or from violation of
any law relating to the foregoing, including without limitation, any CERCLA or
similar liability under any federal or state law or regulation, except to the
extent Parent or IAWC has given written notice of a claim for indemnification
pursuant to Sections 7.3 and 7.4 hereof prior to the expiration of the claims
period set forth in Section 7.3.2(a) or (b) (and if Parent or IAWC has given
written notice prior to the expiration of such claims period, to the extent that
such claim is not entitled to indemnification under Sections 7.3 and 7.4) (the
foregoing, the "Pre-Existing Conditions");
(e) all liabilities and obligations of Seller related to
unperformed service obligations, easement and right-of-way relocation
obligations, and construction work in progress, and all engineering and
construction required to complete scheduled construction and other capital
projects for the Business, in each case relating to the Business and outstanding
on or arising after the Closing Date except that neither Parent nor IAWC shall
assume any liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Contracts and Permits occurring or arising or
accruing on or prior to the Closing Date;
(f) liability for accrued but unused vacation pay for
the Transferred Employees to the extent provided in Section 5.9.2;
(g) any liability, obligation or responsibility relating
to customer deposits held by Seller on the Closing Date and relating to the
Business; and
(h) all liabilities and obligations imposed on Parent or
IAWC by any PUC in connection with the operation of the Business or the
ownership of the Acquired Assets, including with respect to any liability of the
types that appear as "Accrued Liabilities" and "Non-Current Liabilities" on the
financial statements of Seller.
2.3.2 Any liabilities or obligations which are assumed by
Parent or IAWC pursuant to Section 2.3.1 above are hereinafter referred to as
the "Assumed Liabilities." At the
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Closing, each of Parent and IAWC shall (and Parent shall cause IAWC to) execute
and deliver to Seller an assumption agreement, in substantially the form of the
Assumption Agreement attached hereto as Exhibit A (the "Assumption Agreement"),
pursuant to which Parent and IAWC shall assume their respective Assumed
Liabilities. Each of Parent and IAWC hereby irrevocably and unconditionally
waives and releases the Seller Parties from all Assumed Liabilities and all
liabilities or obligations exclusively relating to the Business or, the Acquired
Assets to the extent arising from events or occurrences after the Closing or to
the extent otherwise relating to the period after the Closing, including any
liabilities created or which arise by statute or common law, including CERCLA
(it being understood that this shall not constitute a waiver and release of any
claims arising out of the contractual relationships and indemnification
arrangements between Parent and IAWC on the one hand, and the Seller Parties on
the other hand).
2.3.3 Neither Parent nor IAWC shall assume any liabilities,
commitments or obligations (contingent or absolute and whether or not
determinable as of the Closing) of any of the Seller Parties or any of their
Affiliates except for the Assumed Liabilities as specifically and expressly
provided for above, whether such liabilities or obligations relate to payment,
performance or otherwise, and all liabilities, commitments or obligations not
expressly transferred to Parent or IAWC hereunder as Assumed Liabilities are
being retained by the Seller Parties, (the "Retained Liabilities"). Each of the
Seller Parties hereby irrevocably and unconditionally waives and releases Parent
and IAWC from all Retained Liabilities including any liabilities created or
which arise by statute or common law, including CERCLA (it being understood that
this shall not constitute a waiver and release of any claims arising out of the
contractual relationships and indemnification arrangements between Parent and
IAWC on the one hand, and the Seller Parties on the other hand).
Without limitation to the foregoing, all of the following shall be
considered Retained Liabilities and not Assumed Liabilities (except as specified
below) for the purposes of this Agreement:
(a) any product liability, toxic tort or similar claim
for injury to person or property, regardless of when made or asserted, to the
extent that it arises out of or is based upon any express or implied
representation, warranty, agreement or guarantee made by any of the Seller
Parties or any of their Affiliates prior to Closing, or alleged to have been
made by any of such Persons, or to the extent that it is imposed or asserted to
be imposed by operation of law, in connection with any service performed or
product distributed or sold by or on behalf of any of the Seller Parties or any
of their Affiliates prior to Closing, including any claim referred to above in
this Section 2.3.3(a) relating to water quality standards, any claim relating to
any product delivered in connection with the performance of services provided by
Seller and any claim seeking recovery for consequential damages, lost revenue or
income;
(b) all refund obligations relating to the advances
existing on the Closing Date for construction of facilities relating to the
Business;
(c) except to the extent set forth in Section 2.9, any
federal, state, foreign or local income or other Tax payable with respect to the
business, assets, properties or operations of any of the Seller Parties or any
member of any affiliated group of which any of them is a member.
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(d) any liability or obligation associated with or in
connection with any common plant assets of Seller (other than the liabilities
and obligations exclusively related to any common plant assets included among
the Acquired Assets);
(e) except as provided in Section 2.3.1 above, any
liability or obligation with respect to compensation or employee benefits of any
nature owed to any employees, agents or independent contractors of any of the
Seller Parties or any of their Affiliates, whether or not employed by Parent or
IAWC after the Closing, that arises out of or relates to events or conditions to
the extent occurring before the Closing Date;
(f) except to the extent set forth in Section 2.3.1(d),
any liability, obligation or responsibility of any of the Seller Parties, or any
of their Affiliates or predecessors, whether based on statutory or common law,
but only as any such law is interpreted, amended and in effect on the Closing
Date, known or unknown, contingent or actual, relating to or arising from
pollution, contamination or protection of the environment, human health or
safety or natural resources or relating to or arising from the presence or
Release or threat of Release of Hazardous Substances into the environment or
into or from any building, structure, pipeline or other facility or relating to
or arising from the generation, use, storage, treatment, disposal, transport or
other handling of Hazardous Substances or sale or product containing Hazardous
Substances from violation of any law relating to the foregoing (but only as such
law is interpreted, amended and in effect on the Closing Date) including without
limitation (A) any CERCLA or similar liability under any federal or state law or
regulation as interpreted, amended and in effect on the Closing Date or (B) any
such liability associated with businesses or assets of the Seller Parties other
than the Business or the Acquired Assets;
(g) liabilities and obligations relating to the Business
to the extent arising prior to Closing (unless otherwise constituting Assumed
Liabilities) arising by operation of law under any common law or statutory
doctrine (including successor liability or de facto merger);
(h) any obligation or liability arising under any
contract, commitment, instrument or agreement (1) except for IAWC's IDRB
Obligations (subject to the penultimate sentence of Section 2.4) that are not
transferred to Parent or IAWC as part of the Acquired Assets, or (2) that
relates to any breach or default (or to the extent that it relates to an event
which would, with the passing of time or the giving of notice, or both,
constitute a default) under any Contract, instrument or agreement or to any
services to be provided by Seller under any such Contract, instrument or
agreement to the extent that such services were performed or were required to
have been performed on or prior to the Closing Date;
(i) any liability or obligation in respect of the
Excluded Assets;
(j) any liability or obligation of any of the Seller
Parties or any of their Affiliates existing as a result of any act, failure to
act or other state of facts or occurrence which constitutes a breach or
violation of any of Seller's representations, warranties, covenants or
agreements contained in this Agreement, except to the extent set forth in
Section 7.4;
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(k) except for the Assumed Liabilities as specifically
and expressly set forth herein, any liability to the extent arising out of or
relating to the ownership or operation of the Acquired Assets or the Business
prior to the Closing Date (including any predecessor operations), any claims,
obligations or litigation to the extent arising out of or relating to events or
conditions occurring before the Closing Date, and any liability associated with
any business other than the Business; or
(l) for the avoidance of doubt, even though Parent is
acquiring the CLWC Stock and is not directly acquiring the assets of CLWC, all
liabilities of CLWC other than those referred to in the last sentence of Section
3.28 shall be considered Retained Liabilities subject to the indemnification
provisions of clause (B) of Section 7.4.1(a).
2.4 Consent of Third Parties. On the Closing Date, Citizens and each
of the other Seller Parties shall, and Citizens shall cause each of the other
Seller Parties to, assign or transfer to Parent or IAWC, and Parent and IAWC
shall assume (and Parent shall cause IAWC to assume) the Contracts and the
Permits which are to be transferred to Parent and IAWC respectively as provided
in this Agreement by means of the Assumption Agreement. To the extent that the
assignment of all or any portion of any Contract or Permit shall require the
consent (or result in a breach or violation thereof) of the other party thereto
or any other third party, and such consent shall not be obtained prior to
Closing, this Agreement shall not constitute an agreement to assign any such
Contract or Permit included in the Acquired Assets. In order, however, to
provide IAWC or Parent, as the case may be, the full realization and value of
every Contract of the character described in the immediately preceding sentence,
Seller agrees that on and after the Closing, it will, at the request and under
the direction of Parent or IAWC, in the name of Seller or otherwise as Parent or
IAWC shall specify, take all reasonable actions (including without limitation
the appointment of IAWC or Parent, as the case may be, as attorney-in-fact for
Seller to proceed at Parent's or IAWC's sole cost and expense) and do or cause
to be done all such things as shall in the reasonable opinion of IAWC or Parent,
as the case may be, be necessary (a) to assure that the rights of Seller or its
Affiliates under such Contracts shall be preserved for the benefit of IAWC or
Parent, as the case may be, and (b) to facilitate receipt of the consideration
to be received by Seller or its Affiliates in and under every such Contract. To
the extent that IAWC or Parent, as the case may be, does receive the benefits of
any such Contract pursuant to the preceding sentence, such Contract shall be a
Contract "assigned or transferred to IAWC or Parent, as the case may be,
pursuant to this Agreement" within the meaning of Section 2.3.1(b) hereof.
Nothing in this Section 2.4 shall in any way diminish the obligations of Seller
to obtain consents and approvals under this Agreement.
2.5 Closing. Subject to the terms and conditions of this Agreement,
the closing of the sale and purchase described in Section 2.1 hereof (the
"Closing") shall take place at 10 a.m., East Coast time, on a date mutually
satisfactory to Parent, IAWC and Seller Parties which is no later than the fifth
Business Day after satisfaction (or waiver) of the conditions to Closing set
forth in Sections 6.1 and 6.2 hereof (other than those conditions which require
the delivery of any documents or the taking of other action, at the Closing) at
the offices of Fleischman and Walsh, LLP, 1400 Sixteenth Street, N.W.,
Washington, D.C. 20036, or on such other date and at such other time or place as
may be mutually agreed upon by the parties hereto (the "Closing Date"). Upon
payment
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of the Initial Cash Payment by IAWC and Parent and confirmed receipt thereof by
Seller or the Escrow Agent pursuant to Section 2.6.2 below, Seller shall operate
the Business at the direction of and under the control of Parent or IAWC as to
the respective Acquired Assets acquired by each. Notwithstanding the foregoing,
the Closing shall be deemed to be effective as of 11:59 p.m. on the Closing Date
for all purposes.
2.6 Purchase Price.
2.6.1 Purchase Price. Subject to the terms and conditions of
this Agreement, the aggregate purchase price to be paid by Parent and IAWC for
the purchase of their respective Acquired Assets (including the CLWC Stock) (the
"Purchase Price") shall be: (i) $253,160,000 in cash representing the sum of the
amounts owing by Parent and IAWC, respectively, set forth on Schedule 2.6 (the
"Base Cash Purchase Price," the Base Cash Purchase Price as adjusted in
accordance with Section 2.6.3, Section 2.6.5 and Section 2.6.6 is referred to as
the "Initial Cash Payment"), subject to adjustment pursuant to the provisions of
this Agreement (including Section 2.6.3, Section 2.6.4, Section 2.6.5, Section
2.6.6 and Section 2.9 of this Agreement) and (ii) the assumption by IAWC or
Parent, as the case may be, of the Assumed Liabilities.
2.6.2 Payment of Initial Cash Payment. Subject to the terms
and conditions of this Agreement, the Initial Cash Payment shall be paid by
Parent and IAWC for the respective Acquired Assets being acquired by each on the
Closing Date by federal or other wire transfer of immediately available funds to
the account designated by Seller in writing at least two (2) Business Days prior
to the Closing Date. If the Closing Date is not a business day on which
financial institutions are open and operating, then on or before the last
business day on which financial institutions are open and operating before the
Closing Date, Parent and IAWC shall deliver the Initial Cash Payment to Parent's
lead bank (the "Escrow Agent") in immediately available funds in U.S. dollars.
The Escrow Agent shall keep amounts deposited by Parent and IAWC in separate
accounts. Upon receipt, the Escrow Agent shall invest the Initial Cash Payment
in an interest-bearing account mutually agreed upon by Seller, Parent and IAWC.
At Closing, Parent and IAWC shall sign and deliver to Citizens a statement which
confirms that the Closing has occurred and which instructs the Escrow Agent to
transfer to Citizens the funds representing the Initial Cash Payment, plus an
amount representing the interest earned after the Closing Date until the date
the funds are transferred, to an account that Citizens shall designate at least
two (2) business days prior to the date the funds are required to be transferred
hereunder. The Escrow Agent shall refund the balance to IAWC and Parent from
their respective accounts. The fees and expenses of Escrow Agent shall be paid
by Parent and IAWC in proportion to the amount deposited by each.
2.6.3 Estimated Closing Statement. At least five (5) business
days prior to the Closing Date, Citizens shall deliver to Parent and IAWC a
statement of net assets (the "Estimated Statement of Net Assets") reflecting its
good faith calculation of the Acquired Assets of the Business as of the last day
of the latest calendar month for which financial statements of Seller are
available (the "Estimated Adjusted Net Assets"). The Estimated Statement of Net
Assets shall be prepared in the same manner and utilizing the same accounting
principles, policies and methods used in the preparation of the Interim
Statement of Net Assets (excluding for this purpose any change required by GAAP
or any Authority since June 30, 1999). The Base Cash Purchase Price shall be
increased
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or decreased on a dollar for dollar basis by the amount, if any, by which the
Estimated Adjusted Net Assets is greater than or less than $163,999,975 (such
increases or decreases, as the case may be, are collectively referred to herein
as the "Estimated Net Asset Adjustment"). For the avoidance of doubt, the
increase or decrease in the Base Cash Purchase Price described in this Section
2.6.3 shall be applied to the amounts owing by Parent and IAWC as referenced on
Schedule 2.6 as such increase or decrease relates to the Acquired Assets being
acquired by each of Parent and IAWC, respectively.
2.6.4 Post-Closing Adjustment to Purchase Price.
(a) Within 90 days after the Closing, Citizens shall
prepare and deliver to Parent and IAWC a Statement of Net Assets (the "Closing
Statement of Net Assets") which reflect the Acquired Assets, as of 11:59 p.m. on
the Closing Date, based on actual financial performance and calculated in the
same manner, utilizing the same accounting principles, policies and methods
utilized in preparing the Interim Statement of Net Assets (excluding for this
purpose any change required by GAAP or any Authority since June 30, 1999),
together with (A) an audit report of Seller's Accountants stating that the
Closing Statement of Net Assets have been prepared utilizing the same accounting
principles, policies and methods used in the preparation of the Interim
Statement of Net Assets and (B) a calculation of Citizens' determination of the
amount of increase or decrease in the amount of the Acquired Assets of the
Business from the Interim Statement of Net Assets Date to the Closing Date which
is derived from the Closing Statement of Net Assets ("Seller's Adjustment
Amount"). The Closing Statement of Net Assets shall not give effect to any
purchase accounting treatment arising from Parent's and IAWC's purchase of their
respective Acquired Assets. IAWC and Parent shall pay the fees and expenses of
Seller's Accountants incurred in connection with this Section 2.6.4, each
bearing the same proportion of such fees and expenses as its respective portion
of the Purchase Price bears to the total Purchase Price. Parent and IAWC agree
to cooperate, and agree to cause IAWC's Accountants to cooperate, with Citizens
and Seller's Accountants in connection with the preparation of the Closing
Statement of Net Assets, and related information, and shall provide to Citizens
and Seller's Accountants such books, records and information as may be
reasonably requested from time to time, including the work papers of IAWC's
Accountants. Citizens will give Parent and IAWC and their representatives access
during the normal business hours of Citizens to the personnel, books and records
of Citizens and the work papers of Seller's Accountants to assist Parent and
IAWC in the review of the Closing Statement of Net Assets and related matters.
Parent and IAWC agree that, following the Closing through the date on which the
Closing Statement of Net Assets are delivered, they will not take any actions
with respect to any accounting books, records, policies or procedures on which
the Closing Statement of Net Assets are to be based that would make it
impossible or impracticable to calculate the Acquired Assets in the manner and
utilizing the methods required hereby. Without limiting the generality of the
foregoing, no changes shall be made in any reserve or other account existing as
of the date of the Interim Statement of Net Assets except in the ordinary course
or as a result of events occurring after the date of the Interim Statement of
Net Assets and, in such event, only in a manner consistent with past practices
of Seller.
(b) Parent and IAWC may dispute any amounts reflected on
the Closing Statement of Net Assets, in the Seller's Adjustment Amount or in the
Statement of Certain Assumed Liabilities, provided, however, that Parent or IAWC
shall notify Citizens in writing of each
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disputed amount, and specify the amount thereof in dispute and the basis of such
dispute, within 30 days of the Parent's or IAWC's receipt of the Closing
Statement of Net Assets and the Seller's Adjustment Amount (such 30 day period
hereinafter referred to as the "Review Period"). In the event of a dispute with
respect to the Closing Statement of Net Assets, the Seller's Adjustment Amount
or the Statement of Certain Assumed Liabilities, Parent, IAWC and Seller shall
attempt to reconcile their differences and any resolution by them as to any
disputed amounts shall be final, binding and conclusive on the parties. If
Parent, IAWC and Seller are unable to reach a resolution of such differences
within 30 days of receipt of Parent's or IAWC's written notice of dispute to
Seller, then Parent, IAWC and Seller shall submit the amounts remaining in
dispute (together with any amounts remaining in dispute pursuant to Section
2.6.4(b) of each of the Related Purchase Agreements) for resolution to an
independent accountant firm of national reputation mutually appointed by Seller,
Parent, and IAWC (such independent accounting firm being herein referred to as
the "Third Accounting Firm"), which shall be requested to determine and report
to the parties, within 30 days after such submission, upon such remaining
disputed amounts, and such report shall be final, binding and conclusive on the
parties hereto with respect to the amounts disputed. The fees and disbursements
of the Third Accounting Firm shall be allocated between Parent and IAWC on the
one hand and Seller Parties on the other hand so that the Seller Parties' share
of such fees and disbursements shall be in the same proportion that the
aggregate amount of such remaining disputed amounts so submitted by Parent and
IAWC to the Third Accounting Firm that is unsuccessfully disputed by Parent and
IAWC (as finally determined by the Third Accounting Firm) bears to the total
amount of such remaining disputed amounts so submitted by Parent and IAWC to the
Third Accounting Firm. Parent and IAWC shall pay the fees and expenses of IAWC's
Accountants incurred in connection with this Section 2.6.4(b). Seller's
Adjustment Amount, if there are no disputes with respect thereto, or Seller's
Adjustment Amount as adjusted after the resolution of all disputes with respect
thereto in accordance herewith, shall be referred to as the "Final Net Asset
Adjustment."
(c) If the Base Cash Purchase Price plus (or minus, if
negative) the Final Net Asset Adjustment exceeds the Initial Cash Payment, then
within five (5) business days after final determination thereof Parent and IAWC
shall pay Seller the amount of such excess together with interest thereon for
the period commencing on the Closing Date through the date of payment calculated
at the Prime Rate in cash by federal or other wire transfer of immediately
available funds, or certified or bank cashier's check. If the Initial Cash
Payment exceeds the sum of the Base Cash Purchase Price plus (or minus, if
negative) the Final Net Asset Adjustment, then within five (5) business days
after final determination thereof Seller shall pay Parent and IAWC the amount of
such excess together with interest thereon for the period commencing on the
Closing Date through the date of payment calculated at the Prime Rate in cash by
federal or other wire transfer of immediately available funds, or certified or
bank cashier's check. The amount paid by or to Parent and/or IAWC under this
Section 2.6.5(c) shall be based on the appropriate adjustments to the prices of
the Acquired Assets being acquired by each of Parent and IAWC, respectively.
2.6.5 Adjustment for Certain Liabilities. Concurrent with the
delivery of the Estimated Statement of Net Assets, Citizens also shall deliver
to Parent and IAWC a statement reflecting (i) the customer and other deposits
held by Seller on the Closing Date and relating to the Business, (ii) the total
amount of the Assumed Indebtedness that will be outstanding immediately
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after the Closing Date, (iii) the items specified in Section 2.9 to the extent
set forth therein, and (iv) without duplications of any amount included in
clause (i) above any payments received by Seller under the Contracts and Permits
for obligations not performed as of the Closing Date (the "Statement of Certain
Assumed Liabilities"). The Statement of Certain Assumed Liabilities shall
reflect Citizens' good faith calculation of such liabilities as of the Closing
Date. The Base Cash Purchase Price shall be decreased by the net amount set
forth in the Statement of Certain Assumed Liabilities. Concurrent with the
delivery of the Closing Statement of Net Assets, Citizens also shall deliver to
Parent and IAWC a statement showing any adjustments to the Statement of Certain
Assumed Liabilities and the Base Cash Purchase Price shall be further adjusted
to give effect to any such adjustments to the Statement of Certain Assumed
Liabilities.
2.6.6 Additional Adjustment to the Purchase Price. The aggregate
amount of the Base Cash Purchase Price (and the portion thereof to be paid by
IAWC in accordance with Section 2.6) shall be decreased by an amount equal to
the proceeds of Seller's sale of the property described in Item 7 of Schedule
3.5 (net of expenses) (which property, for the avoidance of doubt, was property
previously used by IAWC in connection with the Business) less the sum of (i) the
federal and state income taxes payable by Seller in respect of those proceeds
and (ii) the book value of such property, as of June 30, 1999, on Seller's
books.
2.7 Deliveries and Proceedings at Closing. Subject to the terms and
conditions of this Agreement, at the Closing:
2.7.1 Deliveries to each of Parent and IAWC. Citizens shall,
and shall cause Seller to, deliver to each of Parent and IAWC with respect to
the Acquired Assets acquired by each:
(a) bills of sale and instruments of assignment to the
Acquired Assets, duly executed by Citizens, CUCI, CBSC and Citizens Resources,
as the case may be, substantially in the form of Exhibit B hereto and;
(b) the consents to transfer, of all transferable or
assignable Contracts, Intellectual Property, Permits (including Environmental
Permits), to the extent specifically required hereunder;
(c) title certificates to any motor vehicles included in
the Acquired Assets, duly executed by Citizens, CUCI, CBSC and Citizens
Resources, as the case may be (together with any other transfer forms necessary
to transfer title to such vehicles);
(d) special warranty deeds of conveyance with respect to
the parcels of Real Estate owned in fee simple by Citizens, CUCI and Citizens
Resources, as the case may be (or, with respect to any such parcel which was
acquired by Citizens, CUCI and Citizens Resources (or its predecessor in
interest, in cases involving mergers) by deed without covenant or warranty of
title, a quit claim deed without covenant or warranty of title) to Parent or
IAWC, as the case may be, duly executed and acknowledged by Citizens, CUCI and
Citizens Resources as appropriate, and in recordable form;
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(e) the Foreign Investment in Real Property Tax Act
Certification and Affidavit for each parcel of Real Estate, duly executed by
Citizens, CUCI and Citizens Resources, as appropriate (the "FIRPTA Affidavit");
(f) the certificates, opinions and other documents
required to be delivered by the Seller Parties pursuant to Section 6.1 hereof
and certified resolutions evidencing the authority of the Seller Parties as set
forth in Section 3.2 hereof;
(g) all agreements and other documents required by this
Agreement;
(h) a receipt for the payment of the Initial Cash
Payment duly executed by Citizens;
(i) the CLWC Stock by delivering the certificate
representing the CLWC Stock, endorsed or accompanied by a stock power (in form
reasonably satisfactory to counsel to Parent), in favor of Parent;
(j) duly executed letters of resignation, effective as
of the Closing Date, of all the officers and directors of CLWC; and
(k) all such other instruments of conveyance as shall,
in the reasonable opinion of Parent, IAWC and their counsel, be necessary to
transfer to Parent and IAWC, as the case may be, the Acquired Assets being
acquired by each in accordance with this Agreement and where necessary or
desirable, in recordable form.
2.7.2 Deliveries By Parent and IAWC to the Seller Parties.
Each of Parent and IAWC shall, and Parent shall cause IAWC to, deliver to the
Seller Parties:
(a) wire transfer of immediately available funds in an
amount equal to the Initial Cash Payment payable by each;
(b) Assumption Agreements, duly executed by IAWC and
Parent, with respect to the liabilities being assumed by each;
(c) the certificates, opinions and other documents
required to be delivered by Parent and/or IAWC pursuant to Section 6.2 hereof;
(d) all of the instruments contemplated by Section
5.24(a) to the extent not previously executed and delivered by Parent; and
(e) all such other instruments of assumption as shall,
in the reasonable opinion of Seller and its counsel, be necessary for Parent and
IAWC to assume the Assumed Liabilities in accordance with this Agreement.
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2.8 Tax Allocation of Consideration. Parent, IAWC and Seller shall
use their good faith efforts to agree upon the allocation (the "Allocation") of
the Purchase Price, the Assumed Liabilities and other relevant items (including,
for example, adjustments to the Purchase Price but excluding amounts
attributable to the CLWC Stock) to the individual assets or classes of assets
other than the CLWC Stock within the meaning of Section 1060 of the Code. If
Parent, IAWC and Seller agree to such Allocation on or before ninety (90) days
after the Closing Date, Parent, IAWC and Seller covenant and agree that (i) the
values assigned to the assets by the parties' mutual agreement shall be
conclusive and final for all purposes, and (ii) none of Parent, IAWC or Seller
will take any position before any Authority or in any proceeding that is in any
way inconsistent with such Allocation. Notwithstanding the foregoing, if Parent,
IAWC and Seller cannot agree to an Allocation on or before ninety (90) days
after the Closing Date, Parent, IAWC and Seller covenant and agree to file and
to cause their respective Affiliates to file, all Tax returns and schedules
thereto (including, for example, amended returns, claims for refund, and those
returns and forms required under Section 1060 of the Code and any Treasury
regulations promulgated thereunder) consistent with each of Parent, IAWC and
Seller's good faith Allocations, unless otherwise required because of a change
in any legal requirement.
2.9 Prorations. The parties hereto agree that the following expenses
shall be calculated and pro rated as of the Closing Date, with Seller
responsible for such expenses and to receive the benefit for the same for the
period through and including the Closing Date, and Parent and IAWC to be
responsible for and to receive the benefit of the same after the Closing Date
with respect to the Acquired Assets being acquired by each:
2.9.1 personal and real property taxes (on the basis on which
the same were assessed and paid) and sales, occupation and use taxes, in each
case, to the extent relating to the Business and except as otherwise provided in
Section 7.1;
2.9.2 electric, fuel, gas, telephone, sewer and utility
charges, in each case, to the extent relating to the Business;
2.9.3 rentals and other charges under Contracts to be assumed
by Parent or IAWC, as the case may be, pursuant to Section 2.3 (except to the
extent provided in Section 2.3.3(h)); and
2.9.4 charges under maintenance and service contracts and
other Contracts (except to the extent provided in Section 2.3.3(h)), and fees
under Permits to be transferred to Parent or IAWC, as the case may be, as part
of the Acquired Assets;
2.9.5 water, sewer and other similar types of taxes, and
installments on special benefit assessments; and
2.9.6 payroll expenses, payroll taxes, reimbursable employee
business expenses and the financial cost of the accrued vacation of each
Transferred Employee.
2.10 Intercompany Accounts. Notwithstanding any other provision of
this
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Agreement, any amounts due to CLWC from any of its Affiliates as of the Closing
Date (collectively, "Affiliate Receivables") shall be netted against any amounts
due from CLWC to any of its Affiliates as of the Closing Date (collectively,
"Affiliate Payables"). Seller shall arrange for the elimination of any net
excess of Affiliate Receivables due to CLWC, or any net excess of Affiliate
Payables due from CLWC, so that the balances of the Affiliate Receivables and
Affiliate Payables of CLWC as of the Closing Date shall be zero.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Each of the Seller Parties jointly and severally represent and warrant to
Parent and IAWC as follows:
3.1 Qualification; No Interest in Other Entities.
3.1.1 Each of the Seller Parties is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and has all requisite corporate power and authority to own, lease
and operate the Acquired Assets and the Business as presently being conducted.
Each of the Seller Parties is qualified to do business and is in good standing
as a foreign corporation in all jurisdictions wherein the nature of the business
conducted by it or such Seller Party's ownership or use of assets and properties
make such qualification necessary, except such failures to be qualified or to be
in good standing, if any, which when taken together with all such other failures
of the Seller Parties do not have a Material Adverse Effect.
3.1.2 Except for the CLWC Stock, no shares of any corporation
or any ownership or other investment interest, either of record, beneficially or
equitably, in any Person are included in the Acquired Assets.
3.2 Authorization and Enforceability. Each of the Seller Parties has
full corporate power and authority to execute, deliver and perform this
Agreement and all other agreements and instruments to be executed by them in
connection herewith (such other agreements and instruments being hereinafter
referred to collectively as the "Transaction Documents"). The execution,
delivery and performance by each of the Seller Parties of this Agreement and the
Transaction Documents to which such Seller Party is a party have been duly
authorized by all necessary corporate action on the part of each of them. This
Agreement has been duly executed and delivered by each of the Seller Parties,
and as of the Closing Date the other Transaction Documents will be duly executed
and delivered by the Seller Parties. This Agreement is a legal, valid and
binding obligation of each Seller Party, enforceable against them in accordance
with its terms except as such enforceability may be limited by applicable laws
relating to bankruptcy, insolvency, fraudulent conveyance, reorganization or
affecting creditors' rights generally and except to the extent that injunctive
or other equitable relief is within the discretion of a court. As of the Closing
Date, each of the other Transaction Documents to which each of the Seller
Parties is a party will be duly executed and delivered by each of the Seller
Parties and will constitute the legal, valid and binding obligations of each of
the Seller Parties, enforceable against them in accordance with its respective
terms, except as such enforceability may
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be limited by applicable laws relating to bankruptcy, insolvency, fraudulent
conveyance, reorganization or affecting creditors' rights generally and except
to the extent that injunctive or other equitable relief is within the discretion
of a court.
3.3 No Violation of Laws or Agreements. The execution, delivery, and
performance of this Agreement and the Transaction Documents by each of the
Seller Parties do not, and the consummation of the transactions contemplated by
this Agreement and the Transaction Documents by the Seller Parties, will not:
(a) contravene any provision of the Restated Articles of Incorporation or Bylaws
of Citizens or the Articles of Incorporation or Bylaws of the other Seller
Parties; or (b) except as set forth on Schedule 3.3, violate, conflict with,
result in a breach of, or constitute a default (or an event which would, with
the passage of time or the giving of notice or both, constitute a default)
under, or result in or permit the termination, modification, acceleration, or
cancellation of, or result in the creation or imposition of any Lien of any
nature whatsoever upon any of the Acquired Assets or the CLWC Stock or give to
others any interests or rights therein under (i) any indenture, mortgage, loan
or credit agreement, license, instrument, lease, contract, plan, permit or other
agreement or commitment, oral or written, to which any of the Seller Parties is
a party, or by which the Business or any of the Acquired Assets may be bound or
affected, except for such violations, conflicts, breaches, terminations,
modifications, accelerations, cancellations, Liens, interests or rights which,
individually and in the aggregate, do not have a Material Adverse Effect or will
be cured, waived or terminated prior to the Closing Date, or (ii) any judgment,
injunction, writ, award, decree, restriction, ruling, or order of any court,
arbitrator or Authority or any applicable constitution, law, ordinance, rule or
regulation, to which any of the Seller Parties is subject, other than those
violations or conflicts which individually and in the aggregate would not have a
Material Adverse Effect.
3.4 Financial Statements. Citizens has previously delivered to
Parent and IAWC the statement of income of the Business (the "Income Statement")
and the Interim Statement of Net Assets contained in Schedule 3.4 (collectively,
the "Financial Statements"). The Income Statement (a) fairly presents in all
material respects the results of operations of the Business in accordance with
generally accepted accounting principles ("GAAP") consistently applied except
for the omission of full footnotes to the Income Statement and (b) has in all
material respects been derived from the books and records of Seller and reflects
the separation of the operation associated with the Business from other
operations of Citizens. The Interim Statement of Net Assets (a) has in all
material respects been derived from the books and records of Seller and reflects
the separation of the operations associated with the Business from other
operations of Citizens; (b) fairly presents in all material respects the
Acquired Assets as of the Interim Statement of Net Assets Date; and (c) has in
all material respects been prepared in accordance with GAAP consistently applied
except for the omission of full footnotes to such Interim Statement of Net
Assets. The financial statements included in the Annual Report to each PUC for
the year ended December 31, 1998 were prepared in all material respects in
accordance with the rules and regulations of such PUC.
3.5 No Changes. Since the Interim Statement of Net Assets Date to
the date hereof, except as disclosed in Schedule 3.5, the Seller Parties have
conducted the Business as presently operated only in the ordinary course of
business consistent with past practice. Since the
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Interim Statement of Net Assets Date, except as disclosed in Schedule 3.5, there
has not been:
3.5.1 any Material Adverse Effect;
3.5.2 prior to the date of this Agreement, any change in the
salaries or other compensation payable or to become payable to, or any advance
(excluding advances for ordinary business expenses) or loan to, any Transferred
Employee, or material change or material addition to, or material modification
of, other benefits (including any bonus, profit-sharing, pension or other plan
in which any of the Transferred Employees participate) to which any of the
Transferred Employees may be entitled, or any payments to any pension,
retirement, profit-sharing, bonus or similar plan other than in any such case
(i) in the ordinary course consistent with past practice, (ii) as required by
law, or (iii) as required by the Collective Bargaining Agreement;
3.5.3 any alteration in any material respect of the customary
practices with respect to the collection of accounts receivable of the Business
or the provision of discounts, rebates or allowances;
3.5.4 any disposition of or failure to keep in effect any
rights in, to or for the use of any Permit of the Business which individually or
in the aggregate would have a Material Adverse Effect;
3.5.5 any damage, destruction or loss affecting the Business
which individually or in the aggregate would have a Material Adverse Effect
whether or not covered by insurance;
3.5.6 prior to the date of this Agreement, any change by
Seller in its method of accounting or keeping its books of account or accounting
practices with respect to the Business except as required by GAAP and as set
forth on Schedule 3.5; or
3.5.7 prior to the date of this Agreement, any sale, transfer
or other disposition of any material assets, properties or rights of the
Business, except in the ordinary course of business consistent with past
practice.
3.6 Contracts. As of the date of this Agreement, Schedule 3.6
contains a list of all Contracts (other than (i) with respect to which the
Business' total annual liability or expense is less than (a) $250,000 per such
Contract and (b) $6,123,000 per all such Contracts (when taken together with
similar contracts omitted from Schedule 3.6 of the Related Purchase Agreements),
and (ii) Contracts that may be terminated by Seller, without penalty, on notice
of 90 days or less) except line extension agreements and similar agreements and
construction and design contracts. Seller has furnished to Parent or IAWC a
correct and complete copy of each written agreement listed in Schedule 3.6.
Except as disclosed on Schedule 3.6, with respect to each Contract, neither
Seller nor, to the Seller Parties' knowledge, any other party thereto, is in
breach or default, and to the Seller Parties' knowledge, no event has occurred
which with notice or lapse of time would constitute a breach or default, or
permit termination, modification, or acceleration, under the Contract, except in
each case where such breaches, terminations, modifications, accelerations or
defaults, individually or in the aggregate, do not have a Material Adverse
Effect. Except as set forth in Schedule 3.6, there
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are no disputes pending or to the best of the Seller Parties' knowledge,
threatened, under or in respect of any of the Contracts, other than those that
individually and in the aggregate do not have a Material Adverse Effect.
3.7 Permits and Compliance With Laws Generally.
3.7.1 Except as disclosed on Schedule 3.7, Seller possesses
and is in compliance with all Permits required to operate the Business as
presently operated and to own, lease or otherwise hold the Acquired Assets under
all applicable laws, rules, regulations, ordinances and codes, including
Environmental Laws (as defined below), except to the extent that any failure to
possess, or to comply with, any Permit, laws, rules, regulations or orders would
not, individually or in the aggregate, have a Material Adverse Effect. Except as
disclosed in Schedule 3.7, the Business is conducted by Seller in compliance
with all applicable laws (including the Occupational Safety and Health Act and
the rules and regulations thereunder ("OSHA"), zoning, building and similar laws
and Environmental Laws), rules, regulations, ordinances, codes, judgments and
orders, except for such failures to comply which do not individually or in the
aggregate have a Material Adverse Effect. Except as disclosed on Schedule 3.7,
all Permits of Seller relating to the operation of the Business are in full
force and effect, other than those the failure of which to be in full force and
effect would not individually or in the aggregate have a Material Adverse
Effect. There are no proceedings pending or, to the Seller Parties' knowledge,
threatened that seek the revocation, cancellation, suspension or any adverse
modification of any such Permits presently possessed by Seller other than those
revocations, cancellations, suspensions or modifications which do not
individually or in the aggregate have a Material Adverse Effect.
3.7.2 Except as set forth on Schedule 3.7, no outstanding
notice, citation, summons or order has been issued, no outstanding complaint has
been filed, no outstanding penalty has been assessed and no investigation or
review is pending or, to the knowledge of the Seller Parties, threatened, by any
Authority or other Person with respect to any alleged (i) violation by Seller or
any Affiliate of Seller relating to the Business of any law, ordinance, rule,
regulation, code or order of any Authority; or (ii) failure by Seller or any
Affiliate to have any Permit required in connection with the conduct of the
Business or otherwise applicable to the Business (including the Acquired
Assets), except, in each case, where such violations or failures, individually
or in the aggregate, would not have a Material Adverse Effect.
3.8 Environmental Matters. Except as set forth on Schedule 3.8
hereto, and with such exceptions as are not reasonably likely, individually or
in the aggregate, to have a Material Adverse Effect:
3.8.1 Seller has not disposed of or arranged for the disposal
of or Released any Hazardous Substances, other than in conformity with
Environmental Laws, at any Real Estate, or, in connection with the Business or
Acquired Assets, at any other facility, location, or other site.
3.8.2 Seller has not received any written notice or request
for information with respect to, and to the best of the Seller Parties'
knowledge, Seller has not been designated a potentially liable party for
Remedial Action, in connection with any Real Estate, or, as of the date
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hereof, with respect to the Business or Acquired Assets, at any other facility,
location, or other site under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") or comparable state statutes.
3.8.3 To the best of the Seller Parties' knowledge, except for
such use or storage of Hazardous Substances as is incidental to the conduct of
the Business, which use and storage is or has been in compliance with
Environmental Laws, and which use and storage has not caused any condition that
requires Remedial Action, no Real Estate has been used for the storage,
treatment, generation, processing, production or disposal of any Hazardous
Substances or as a landfill or other waste disposal site in violation of any
Environmental Law.
3.8.4 To the best of the Seller Parties' knowledge,
underground storage tanks are not, and have not in the past been, located on or
under any Real Estate.
3.8.5 There are no pending or unresolved claims against Seller
or the Business for investigatory costs, cleanup, removal, remedial or response
costs, or natural resource damages arising out of any Releases or threat of
Release of any Hazardous Substances at any Real Estate or, as of the date
hereof, with respect to the Business or the Acquired Assets or at any other
facility, location, or other site.
3.8.6 To the best of the Seller Parties' knowledge, no
polychlorinated biphenyls ("PCBs") or asbestos-containing materials are located
at or in any Real Estate in violation of Environmental Laws or which require
Remedial Action.
\ 3.8.7 To the best of the Seller Parties' knowledge, no
Hazardous Substance managed or generated by or on behalf of Seller at the Real
Estate or in connection with the Business or Acquired Assets has come to be
located at any site that is listed or formally proposed for listing under
CERCLA, the Comprehensive Environmental Response, Compensation and Liability
Information System ("CERCLIS"), or any similar state list or that is the subject
of federal, state, or local enforcement actions or investigations.
3.8.8 The Seller Parties know of no facts or circumstances
related to environmental matters (i) in connection with the operation of the
Business or (ii) concerning the Real Estate, that are reasonably likely to
result in any material reduction in the quality or quantity of water available
for supply to the Seller Parties' customers.
3.8.9 The Seller Parties will within thirty (30) days of the
date hereof provide Parent or IAWC with copies of all written environmental
audits or investigations of which they are aware (after due inquiry) prepared
for the Real Estate or operations of the Business.
3.8.10 Except as set forth in Schedule 3.8.10 or Citizens'
Annual Report on Form 10-K for the year ended December 31, 1998:
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(a) The Seller Parties (including for purposes of
Section 3.8.10(a) and (b), Affiliates and predecessors of the Seller Parties)
are and have been for the past three years in full compliance with all federal
and state primary drinking water standards;
(b) The Seller Parties are and have been for the past
three years in full compliance with all federal and state secondary drinking
water standards; and
(c) As to all outstanding violations of state or federal
drinking water standards, as of the date hereof, the Seller Parties have
completed or are in the process of completion in accordance with all applicable
deadlines, all actions required by Environmental Law or Authorities to correct
or otherwise respond to such violations.
3.8.11 Except as set forth in Schedule 3.8.11, none of the
Seller Parties will be required to place any notice or restriction relating to
the presence of Hazardous Substances in the deed to any Real Estate, or in any
written instrument accompanying this Agreement, and no Real Estate has such a
notice or restriction in its deed or any other written instrument relating to
the purchase, lease or rental of such property.
For the purposes of these Sections 3.7 and 3.8: (A) "Remedial Action" means all
actions to (x) clean up, remove, treat or in any other way respond to any
presence, Release or threat of Release of Hazardous Substances; (y) prevent the
Release or threat of Release, or minimize the further Release of any Hazardous
Substances so it does not endanger or threaten to endanger public or employee
health or welfare or the environment; or (z) perform studies, investigations or
monitoring necessary or required to investigate the foregoing; (B)
"Environmental Laws" means any common law or federal, state or local law,
statutes, rule, regulation, ordinance, code, judgment or order relating to the
protection of the environment or human health and safety and includes, but is
not limited to, CERCLA (42 U.S.C. section 9601, et seq.), the Clean Water Act
(33 U.S.C. section 1251 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. section 6901 et seq.), the Toxic Substances Control Act (15 U.S.C.
section 2601 et seq.), the Safe Drinking Water Act (42 U.S.C. section 300f et
seq.) and the Oil Pollution Act of 1990 (33 U.S.C. section 2701 et seq.), each
as has been or may be interpreted or amended as of the Closing Date and the
regulations promulgated pursuant thereto and in effect as of the Closing Date;
(C) "Released" means released, spilled, leaked, discharged, disposed of, pumped,
poured, emitted, emptied, injected, leached, dumped or allowed to escape; and
(D) "Hazardous Substances" means hazardous or toxic or polluting substance or
waste or contaminant under or pursuant to any Environmental Law, including
petroleum products, PCBs and radioactive materials.
3.9 Consents. No consent, approval or authorization of, or
registration or filing with, any Person (governmental or private) is required in
connection with the execution, delivery and performance by the Selling Parties
of this Agreement, the Transaction Documents, or the consummation of the
transactions contemplated hereby or thereby by the Seller Parties, including
without limitation in connection with the assignment or transfer of the
Contracts and Permits contemplated hereby, except (i) as required by the
Hart-Scott Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), (ii) as
specified on Schedule 3.9, (iii) as required by the IDRB Documents, and (iv) for
such other consents, approvals, authorizations, registrations or filings the
failure of
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which to obtain or make would not individually or in the aggregate have a
Material Adverse Effect or which are obtained by the Closing Date.
3.10 Title. Seller has good and valid title to all of the Acquired
Assets constituting personal property, good and marketable title in fee simple
to all of the owned Acquired Assets constituting Real Estate and good and valid
leasehold title to all of the leased Acquired Assets constituting Real Estate,
in each case, free and clear of Liens subject only to the Permitted Exceptions.
"Permitted Exceptions" as used herein shall mean (a) the Liens set forth in
Schedule 3.10 hereto, (b) Liens securing Taxes, assessments, governmental
charges or levies, or the claims of materialmen, mechanics, carriers and like
persons, all of which are not yet due and payable or which are being contested
in good faith or (c) such other Liens which, individually or in the aggregate,
do not have a Material Adverse Effect (it being understood that to the extent a
Permitted Exception relates to or arises from a Retained Liability, Seller shall
still be liable for such Retained Liability to the extent set forth herein).
3.11 Real Estate.
3.11.1 As of the date hereof, Seller has not received any
written or oral notice for assessments for public improvements against the Real
Estate which remains unpaid, and to the best knowledge of the Seller Parties, no
such assessment has been proposed. Except as set forth on Schedule 3.11, as of
the date hereof, there is no pending condemnation, expropriation, eminent domain
or similar proceeding affecting all or any portion of any of the Real Estate and
to the best knowledge of the Seller Parties no such proceeding is threatened.
3.11.2 Except as disclosed on Schedule 3.6, as of the date
hereof, Seller is not a lessee under any Contract relating to the use or
occupancy of the Real Estate involving annual payments in excess of $100,000.
3.11.3 Each parcel of the Real Estate has physical and, to
Seller's knowledge, legal vehicular and pedestrian access to and from public
roadways as may be reasonably necessary to the operation of the Business except
where the failure to have such access does not have a Material Adverse Effect.
To Seller's knowledge, no fact or condition exists which would result in the
termination of (a) the current access from each parcel of the Real Estate, and
(b) continued use, operation, maintenance, repair and replacement of all
existing and currently committed water lines used by Seller in connection with
the Business, except where such termination would not have a Material Adverse
Effect.
3.12 Taxes. The Seller Parties have (a) timely filed all material
returns and reports for Taxes, including information returns, that are required
to have been filed in connection with, relating to, or arising out of, the
Business, (b) paid all Taxes that are shown to have come due pursuant to such
returns or reports and (c) paid all other material Taxes not required to be
reported on returns in connection with, relating to, or arising out of, or
imposed on the property of the Business for which a notice of assessment or
demand for payment has been received or which have otherwise become due. To the
best of the Seller Parties' knowledge, all such returns or reports have
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been prepared in accordance with all applicable laws and requirements in all
material respects. Except to the extent disclosed on Schedule 3.12, none of the
assets of the Business or constituting any of the Acquired Assets (a) is
property that is required to be treated as owned by another Person pursuant to
the "safe harbor lease" provisions of former Section 168(f)(8) of the Code, (b)
is "tax-exempt use property" within the meaning of Section 168(h) of the Code or
(c) directly or indirectly secures any debt the interest on which is tax-exempt
under Section 103(a) of the Code.
3.13 Patents and Intellectual Property Rights. To the best of the
Seller Parties' knowledge, the operations of Seller do not make any unauthorized
use of any Intellectual Property except for any such unauthorized uses which do
not have a Material Adverse Effect. Assuming the consents listed as item XII on
Schedule 3.9 are obtained, neither Parent nor IAWC will lose any of Seller's
rights to, or be required to pay increased royalties for, any Intellectual
Property included in the Acquired Assets being acquired by it as a result of the
Closing and the consummation of the transactions contemplated by this Agreement,
except for any such rights or such increased royalties the loss or payment of
which would, individually or in the aggregate, not have a Material Adverse
Effect.
3.14 Accounts Receivable. The accounts receivable of Seller arising
from the Business as set forth on the Interim Statement of Net Assets or arising
since the date thereof have arisen out of bona fide sales and deliveries of
goods, performance of services and other business transactions in the ordinary
course of business consistent with past practice; the allowance for collection
losses on the Interim Statement of Net Assets has been determined in accordance
with GAAP consistent with past practice.
3.15 Labor Relations. As of the date hereof, except as set forth in
Schedule 3.15, to best of the knowledge of the Seller Parties, there has been no
union organizing efforts with respect to the Business conducted within the last
three (3) years and there are none now being conducted with respect to the
Business. Except as set forth in Schedule 3.15, Seller has not at any time
during the three (3) years prior to the date of this Agreement had, nor, to the
best of the Seller Parties' knowledge, is there now threatened, a strike, work
stoppage or work slow down with respect to or affecting the Business which had
or could reasonably be expected to have a Material Adverse Effect. As of the
date hereof, except as set forth in Schedule 3.15, (i) no Employee is
represented by any union or other labor organization and (ii) there is no unfair
labor practice charge pending or, to the best knowledge of the Seller Parties,
threatened against Seller relating to any of the Employees as related to the
Business which could reasonably be expected to have a Material Adverse Effect.
3.16 Employee Benefit Plans.
3.16.1 Schedule 3.16.1 contains a true and complete list of
each "employee benefit plan," as defined in Section 3(3) of ERISA (including any
"multiemployer plan" as defined in Section 3(37) of ERISA), bonus, incentive,
deferred compensation, excess benefit, employment
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contract, stock purchase, stock ownership, stock option, supplemental
unemployment, vacation, sabbatical, sick-day, severance or other material
employee benefit plan, program or arrangement (other than those required to be
maintained by law), whether written or unwritten, qualified or nonqualified,
funded or unfunded, foreign or domestic, (i) maintained by, or contributed to by
Citizens or any of its Affiliates, in respect of any Employee or Former
Employee, or (ii) with respect to which Citizens or any of its Affiliates has
any liability in respect of any Employee or Former Employee (the"Benefit
Plans"). Except as disclosed on Schedule 3.16.1, neither Citizens nor any of its
Affiliates maintains any bonus, pension or welfare benefit plan, program or
arrangement, including any deferred compensation arrangement, for directors,
consultants or independent contractors of the Business.
3.16.2 A true and complete copy of each Benefit Plan and
related trust agreements and (to the extent applicable) a copy of each Benefit
Plan's current summary plan description and in the case of an unwritten Benefit
Plan, a written description thereof, has been furnished to Parent or IAWC. In
addition, to the extent applicable, Parent or IAWC has been provided a copy of
the most recent Internal Revenue Service ("IRS") determination letter issued to
each Benefit Plan and a copy of the most recent IRS Form 5500 together with all
schedules and accountants' statement filed, and actuarial reports prepared, on
behalf of each Benefit Plan.
3.16.3 Each Benefit Plan which is intended to be qualified
under Section 401(a) of the Code (as designated on Schedule 3.16.1) is so
qualified, and will remain so qualified upon the timely making of certain
amendments required by law during the applicable remedial amendment period, and
any trust forming a part of such a Benefit Plan is tax exempt under Section
501(a) of the Code. Each such Benefit Plan has been amended, as and when
necessary, to comply with the Tax Reform Act of 1986 and upon timely filing of
an Application for Determination with the Internal Revenue Service, will be
eligible to make further such amendments under the"remedial amendment period."
3.16.4 Except as disclosed in Schedule 3.16.4, each Benefit
Plan has been operated and administered in all material respects in accordance
with its terms and all applicable laws, including ERISA and the Code.
3.16.5 None of the Acquired Assets is subject to a Lien or Tax
under the Code or ERISA.
3.16.6 Neither Citizens nor any ERISA Affiliate and, to the
knowledge of the Seller Parties, no other Person, has taken any action or failed
to take any action with respect to any Benefit Plan that may subject Parent or
IAWC or any Benefit Plan under which liabilities may be assumed by Parent or
IAWC under Sections 5.10, 5.11 or 5.12 ("Assumed Benefit Liabilities") to any
material liability or Tax under the Code or ERISA.
3.16.7 Neither Citizens nor any ERISA Affiliate has incurred
or expects to incur any withdrawal liability with respect to any Benefit Plan
which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of
ERISA, including any contingent liability under Section 4204 of ERISA or
withdrawal liability arising from the actions of Citizens or any ERISA Affiliate
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contemplated by this Agreement. All contributions that Citizens or any ERISA
Affiliate have been obliged to make to any Benefit Plan, including any
multiemployer plan, have been duly and timely made.
3.16.8 There are no pending or, to the knowledge of the Seller
Parties, threatened claims (other than routine claims for benefits),
assessments, complaints, proceedings or investigations of any kind in any court
or governmental agency with respect to any Benefit Plan which could reasonably
be expected to give rise to a material liability to IAWC.
3.16.9 Except as disclosed on Schedule 3.16.9, no Benefit Plan
provides benefits, including without limitation, death or medical benefits,
beyond termination of service or retirement other than (i) coverage mandated by
law, or (ii) death or retirement benefits under a Benefit Plan qualified under
Section 401(a) of the Code. Seller's Retiree Medical Plan contains provisions
permitting Seller to modify or terminate retiree medical benefits at any time,
without prior notice to any covered individual. Except with respect to retirees,
"grandfathered" employees and collectively bargained employees, Seller knows of
no reason why its ability to effect those provisions would be limited.
3.16.10 With respect to each Benefit Plan that is a "group
health plan" within the meaning of Section 607 of ERISA and that is subject to
Section 4980B of the Code, Citizens and each ERISA Affiliate have complied in
all material respects with the continuation coverage requirements of the Code
and ERISA.
3.17 Absence of Undisclosed Liabilities. Except as disclosed in
Schedule 3.17, Seller has no liabilities with respect to the Business which
would constitute Assumed Liabilities, either direct or indirect, matured or
unmatured or absolute, contingent or otherwise, except:
3.17.1 the Assumed Indebtedness and those other liabilities
which would decrease the Base Cash Purchase Price pursuant to Section 2.6.5 to
the extent assumed by Parent or IAWC at Closing;
3.17.2 liabilities arising in the ordinary course of business
under any Contract or Permit or with respect to any agreement or instrument
included within the definition of Real Estate; and
3.17.3 those liabilities incurred, consistent with past
business practice, in or as a result of the normal and ordinary course of
business and reflected in the books and records related to the Business;
3.17.4 the obligations and liabilities set forth in Sections
5.9, 5.10, 5.11 and 5.12 hereof; and
3.17.5 those other liabilities, which individually and in the
aggregate, would not have a Material Adverse Effect.
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3.18 No Pending Litigation or Proceedings. Except as disclosed in
Schedule 3.18, there are no actions, suits, investigations or proceedings
pending against or, to the best of the Seller Parties' knowledge, threatened,
against or affecting, Seller, the Business or any of the Acquired Assets before
any court or arbitrator or Authority which individually or in the aggregate,
would have a Material Adverse Effect. Except as disclosed in Schedule 3.18,
there are currently no outstanding judgments, decrees or orders of any court or
Authority against any of the Seller Parties, which relate to or arise out of the
conduct of the Business or the ownership, condition or operation of the Business
or the Acquired Assets (other than any PUC order relating to rates, tariffs and
similar matters arising in the ordinary course of business) which individually
or in the aggregate would have a Material Adverse Effect.
3.19 Supply of Utilities. Except as set forth on Schedule 3.19, the
Real Estate has adequate arrangements for supplies of electricity, gas, oil,
coal and/or sewer for all operations at the 1998 or current operating levels,
whichever is greater. Except as set forth on Schedule 3.19, there are no actions
or proceedings pending or, to the best of the Seller Parties' knowledge,
threatened, that would adversely affect the supply of electricity, gas, coal or
sewer to the Real Estate except for those which individually and in the
aggregate would not have a Material Adverse Effect.
3.20 Insurance. Schedule 3.20 lists the Seller Parties' policies and
contracts in effect as of the date hereof for insurance covering the Acquired
Assets or Assumed Liabilities and the operation of the facilities constituting
the Business owned or held by Seller, together with the risks insured against,
coverage limits and deductible amounts.
3.21 Relationship with Customers. As of the date hereof, CUCI does
not have any current customer which accounted for more than 5% of the net sales
of the Business (taken together with the businesses being acquired by Parent or
IAWC or Affiliates of Parent pursuant to the Related Purchase Agreements) for
the immediately preceding 12-month period.
3.22 WARN Act. Except as contemplated by Section 5.9 hereby or as
set forth in Schedule 3.22 hereto, within six months prior to the date hereof,
(i) Seller has not effectuated (a) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of the Business; or (b) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment or one or
more facilities or operating units within any site of employment or facility of
the Business; (ii) Seller has not been affected by any transaction or engaged in
layoffs or employment terminations with respect to the Business sufficient in
number to trigger application of any similar state or local law; and (iii) none
of Seller's employees who are employed in connection with the Business has
suffered an "employment loss" (as defined in the WARN Act).
3.23 Condition of Assets. Except as set forth on Schedule 3.23, the
buildings, machinery, equipment, tools, furniture, improvements and other fixed
tangible assets of the Business included in the Acquired Assets, taken as a
whole and taken together with the similar assets included among the assets being
acquired by Parent or IAWC or Affiliates of Parent pursuant to the Related
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Purchase Agreements, are in good operating condition and repair, reasonable wear
and tear excepted.
3.24 Brokerage. None of the Seller Parties or their Affiliates have
made any agreement or taken any other action which might cause any Person to
become entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to IAWC or
its Affiliates.
3.25 All Assets. Except as set forth on Schedule 3.25 and for the
Excluded Assets, the Acquired Assets include all assets, rights, properties and
contracts the use of which is necessary to the continued conduct of the Business
by Parent or IAWC, as the case may be, substantially in the manner as it was
conducted prior to the Closing Date, including the service of all utility
customers in substantially the same manner and at substantially the same service
levels as provided by Seller on the date hereof.
3.26 Year 2000 Matters. Citizens has (1) initiated a review and
assessment of all mission critical areas within the Business and related
operations (including those affected by suppliers and vendors) that it
reasonably believes could be adversely affected by the "Year 2000 Problem" (that
is, the risk that computer applications used by any Seller Party (or suppliers
and vendors) may be unable to recognize and properly perform date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem
all as set forth in Citizens' Annual report on Form 10-K for the fiscal year
ended December 31, 1998 and Citizens' Quarterly reports on Form 10-Q for the
periods ending March 31, 1999 and June 30, 1999, and (iii) to date, implemented
that plan substantially in accordance with that timetable. Seller has
contingency plans that are dedicated to ensuring that established and expected
levels of customer service are maintained without interruption, while core
business functionality is preserved during the millennium transition. With
respect to its suppliers and vendors, the foregoing representation and warranty
is expressly limited to matters known to Seller after making reasonable
inquiries of such suppliers and vendors. Seller makes no representation or
warranty with respect to the receipt or accuracy of any response received from
any vendor or supplier.
3.27 Product Liability. Except as disclosed in Schedule 3.27 and
except for those liabilities which individually or in the aggregate would not
have a Material Adverse Effect, there are no (a) liabilities of the Seller
Parties or their Affiliates, fixed or contingent, asserted or, to the knowledge
of the Seller Parties, unasserted, with respect to any product liability or
similar claim that relates to any product or service sold by Seller or the
Business to others or (b) liabilities of the Seller Parties or their Affiliates,
fixed or contingent, asserted or, to the knowledge of the Seller Parties
unasserted, with respect to any claim for the breach of any express or implied
product warranty or a similar claim with respect to any product or service sold
by Seller or the Business to others.
3.28 Capitalization of CLWC; Title to CLWC Stock. There are 100
shares of CLWC common stock authorized and 100 shares of CLWC common stock
issued and outstanding. The CLWC Stock comprises all of the shares of capital
stock of CLWC that are issued and outstanding. All shares of CLWC Stock are duly
authorized, validly issued and outstanding, fully
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paid and nonassessable. All CLWC Stock is owned by Citizens. By delivery of
payment for the CLWC Stock and by delivery of the certificate representing the
CLWC Stock as provided for in this Agreement, Parent shall acquire good title to
the CLWC Stock, free and clear of all Liens. There are no outstanding
subscriptions, options, warrants, conversion rights, convertible securities,
preemptive rights, preferential rights, or other rights (contractual or
otherwise) or agreements of any kind for the purchase or acquisition from (or
the purchase, sale or issuance by) Citizens or CLWC of any shares of CLWC Stock
or other equity or ownership interests in CLWC, and no outstanding authorization
therefor has been given. CLWC has no liabilities other than those that, if
outstanding as of the Closing Date, would have been included among the Assumed
Liabilities under the terms of Section 2.3 had Parent purchased the assets of
CLWC rather than its stock.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND IAWC
Parent and IAWC jointly and severally represent and warrant to Seller as
follows:
4.1 Organization and Good Standing.
4.1.1 Parent is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
4.1.2 IAWC is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation and each of
Parent and IAWC has all requisite corporate power and authority to own, lease
and operate the Acquired Assets and the Business being acquired by it hereunder.
Each of Parent and IAWC is qualified to do business and is in good standing in
all jurisdictions wherein the nature of the business conducted by it or its
ownership or use of assets and properties make such qualification necessary,
except such failures to be qualified or to be in good standing, if any, which
when taken together with all such failures of such Parent and IAWC do not have a
material adverse effect on its ability to perform each of their obligations
under this Agreement and the Transaction Documents.
4.2 Authorization and Enforceability. Each of IAWC and Parent has
full corporate power and authority to execute, deliver and perform this
Agreement and the other Transaction Documents to which either of them is a
party. The execution, delivery and performance by IAWC and Parent of this
Agreement and the Transaction Documents to which IAWC and/or Parent is a party
have been duly authorized by all necessary corporate action on the part of each
of them. This Agreement has been duly executed and delivered by IAWC and Parent,
and as of the Closing Date the other Transaction Documents will be duly executed
and delivered by IAWC and Parent. This Agreement is a legal, valid and binding
obligation of IAWC and Parent, enforceable against them in accordance with its
terms, except as such enforceability may be limited by applicable laws relating
to bankruptcy, insolvency, fraudulent conveyance, reorganization or affecting
creditors' rights generally and except to the extent that injunctive or other
equitable relief is within the
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discretion of a court. As of the Closing Date, each of the other Transaction
Documents to which IAWC and Parent is a party will be duly executed and
delivered by IAWC and Parent and will constitute the legal, valid and binding
obligations of IAWC and Parent, enforceable against them in accordance with its
respective terms, except as such enforceability may be limited by applicable
laws relating to bankruptcy, insolvency, fraudulent conveyance, reorganization
or affecting creditors' rights generally and except to the extent that
injunctive or other equitable relief is within the discretion of a court.
4.3 No Violation of Laws or Agreements. The execution, delivery and
performance of this Agreement and the Transaction Documents by IAWC and/or
Parent do not, and the consummation of the transactions contemplated hereby and
thereby will not, (a) contravene any provision of the Articles of Incorporation
or Bylaws of IAWC or the Certificate of Incorporation or Bylaws of Parent; or
(b) violate, conflict with, result in a breach of, or constitute a default (or
an event which would with the passage of time or the giving of notice, or both,
constitute a default) under, or result in or permit the termination,
modification, acceleration, or cancellation of (i) any indenture, mortgage, loan
or credit agreement, license, instrument, lease, contract, plan, permit,
authorization, proof of dedication or other agreement or commitment, oral or
written, to which Parent or IAWC is a party, or by which any of their assets or
properties may be bound or affected, except for such violations, conflicts,
breaches, terminations, modifications, accelerations, cancellations, interests
or rights which, individually or in the aggregate do not have a material adverse
effect on their respective ability to perform their obligations under this
Agreement and the Transaction Documents, or (ii) any judgment, injunction, writ,
award, decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or regulation to
which IAWC or Parent is subject other than those violations and conflicts which
individually or in the aggregate do not have a material adverse effect on their
respective ability to perform their obligations under this Agreement and the
Transaction Documents.
4.4 Consents. No consent, approval or authorization of, or
registration or filing with, any Person (governmental or private) is required in
connection with the execution, delivery and performance by IAWC and Parent of
this Agreement, the other Transaction Documents, or the consummation of the
transactions contemplated hereby or thereby by IAWC or Parent except (i) as
required by the HSR Act, (ii) as specified on Schedule 3.9 and (iii) for such
consents, approvals, authorizations, registrations or filings, the failure to
obtain or make would not individually or in the aggregate have a material
adverse effect on their respective ability to perform their obligations under
this Agreement and the Transaction Documents.
4.5 Financing. IAWC and Parent have, and at the Closing Date, will
have sufficient resources to pay the Purchase Price, and Parent, IAWC or the
other Affiliates of Parent that are buyers of the assets and businesses being
acquired pursuant to the Related Purchase Agreements have, and at the Closing
Date, will have sufficient resources to pay the purchase prices set forth in the
Related Purchase Agreements.
4.6 Brokerage. None of Parent, IAWC or their Affiliates have made
any agreement or taken any other action which might cause any Person to become
entitled to a broker's
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or finder's fee or commission as a result of the transactions contemplated
hereunder which could result in liability to the Seller Parties.
4.7 Insurance. Schedule 4.7 lists the policies and contracts in
effect as of the date hereof for casualty and property insurance covering IAWC's
assets and properties and the operation of IAWC's business, together with the
risks insured against, coverage limits and deductible amounts.
4.8 Purchase for Investment. Parent acknowledges that the CLWC Stock
has not been registered under the Securities Act of 1933, as amended (the
"Act"), or qualified or registered under any state securities law and that no
public market now exists for the CLWC Stock and a public market may never exist
therefore. Parent has no Contract with any Person to sell, transfer or pledge to
such Person, or to any other Person, the CLWC Stock, and Parent has no present
plans or intentions to enter into any such Contract. Parent is acquiring the
CLWC Stock for its own account, for investment only, without a view to
distribution, as that phrase has meaning under the Act, and rules and
regulations of the SEC. Parent understands that the effect of the foregoing
representation and warranty is that the CLWC Stock must be held by it
indefinitely unless subsequently registered under the Act or unless an exemption
from registration is available at the time of any proposed sale or other
transfer thereof. Parent agrees to indemnify and hold harmless Seller against
all liabilities, costs and expenses, including reasonable attorneys' fees, and
other Damages incurred by Seller as a result of any sale, transfer or other
disposition by Parent of all or any part of the CLWC Stock in violation of the
Act or applicable state securities laws.
ARTICLE 5
ADDITIONAL COVENANTS
5.1 Conduct of Business. Except (i) as otherwise specifically
permitted by this Agreement, (ii) as set forth in Schedule 5.1 hereto or (iii)
with the prior written consent of Parent and IAWC, from and after the date of
this Agreement and up to and including the Closing Date, each of the Seller
Parties agree that:
5.1.1 Seller shall conduct the Business as presently operated
and only in the ordinary course of business consistent with past practice.
5.1.2 They shall promptly inform Parent and IAWC in writing of
any specific event or circumstance of which they are aware, or of which they
receive notice, that has or is likely to have, individually or in the aggregate,
taken together with the other events or circumstances, a Material Adverse Effect
on the Acquired Assets or the Assumed Liabilities.
5.1.3 Seller shall not:
(a) change or modify in any material respect existing
credit and collection policies, procedures and practices with respect to
accounts receivable;
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(b) enter into any contract or commitment, waive any
right or enter into any other transaction (except in the ordinary course of
business) which would have a Material Adverse Effect;
(c) except in the event of service interruption,
emergency or casualty loss, commit to acquire subsequent to the Closing Date on
behalf of the Business any capital asset or group of capital assets costing in
excess of $1,000,000 that is not included in the capital budget of Seller for
fiscal year 2000 and which, if so acquired, would be included in the Acquired
Assets; commencing December 1, 1999, accept or receive customer advances for
construction in excess of $9,000,000 when combined with customer advances
relating to the businesses being acquired by IAWC or Affiliates of IAWC pursuant
to the Related Purchase Agreements per each of the next four consecutive
three-month periods unless pursuant to an existing tariff, Contract or Permit of
Seller; or sell or lease or agree to sell or lease or otherwise dispose of any
assets included in the Acquired Assets except in the ordinary course of the
conduct of the Business, consistent with past practice;
(d) except in the ordinary course of business,
consistent with past practice or as required under any of Seller's debt
instruments or indentures, mortgage, pledge or subject to any Lien (other than
Permitted Liens) any of the Acquired Assets (including the CLWC Stock);
(e) change any compensation or benefits or grant any
material new compensation or benefits payable to or in respect of any
Transferred Employee except (i) as required by law, (ii) in the ordinary course,
consistent with past practice and (iii) as required by the Collective Bargaining
Agreement in existence on the date hereof; provided, however, no individual
Employee shall in any event receive a compensation increase in excess of seven
percent (7%) except as required by the Collective Bargaining Agreement in
existence on the date hereof;
(f) other than in the ordinary course of business
consistent with past practice, sell or otherwise transfer any assets necessary,
or otherwise material to the conduct of, the Business which would constitute
Acquired Assets;
(g) change the Seller's method of accounting or keeping
its books of account or accounting practices with respect to the Business,
except as required by GAAP or any Authority;
(h) intentionally and wilfully take or omit to take any
action which if taken or omitted prior to the date hereof would constitute or
result in a breach of any representations or warranties set forth in Sections
3.1, 3.2, 3.3, 3.4, 3.7, 3.8, 3.10, 3.14, 3.16 and 3.25 hereof (it being
understood that the failure to cure a breach shall not, by itself, be an
intentional and wilful omission to take action);
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(i) prepay, redeem, retire, refund or otherwise
extinguish any of the Assumed Indebtedness; or
(j) permit CLWC to amend its articles of incorporation
or bylaws, to issue any shares of its capital stock or to enter into any
Contract calling for the issuance of any such shares, to merge or consolidate
with any other Person or to acquire any stock, securities, or business assets of
any other Person.
5.2 Negotiations. Neither Citizens nor any Person controlled by
Citizens or under common control with Citizens (each such person being a
"Section 5.2 Affiliate"), nor any officer, director, employee, representative or
agent of Citizens or any of their Section 5.2 Affiliates, shall, directly or
indirectly, solicit or initiate or participate in any way in discussions or
negotiations with, or provide any information or assistance to, or enter into an
agreement with any Person or group of Persons (other than Parent, IAWC or any
Person controlled by Parent or IAWC or under common control with Parent, IAWC or
any Persons providing financing to the parties hereto in connection with
facilitating the consummation of the transactions contemplated by this
Agreement) concerning any acquisition, merger, consolidation, liquidation,
dissolution, disposition or other transaction (or series of such transactions)
that would result in the transfer to any such Person or group of Persons of ten
percent (10%) of the Acquired Assets (as measured by net book value of such
assets on the date of each such transaction) or the acquisition, merger,
consolidation, liquidation, dissolution, disposition or other transaction (or
series of such transactions) involving the Seller Parties, if such acquisition,
merger, consolidation, liquidation, dissolution, disposition or other
transaction (or series of such transactions) would be inconsistent, in any
respect, with the obligations of the Seller Parties hereunder (any of the
foregoing transactions, a "Competing Transaction").
5.3 Disclosure Schedules. As promptly as practicable, the Seller
Parties will provide Parent and IAWC with a supplement or amendment to the
Disclosure Schedules with respect to any matter, condition or occurrence which
is required to be set forth or described in the Disclosure Schedules. For the
avoidance of doubt, a matter, condition or occurrence shall only be "required"
to be set forth or described in the Disclosure Schedules if the failure to be so
disclosed would result in a breach of the applicable representation or warranty
(qualified by Material Adverse Effect where applicable) on the date hereof or on
the Closing Date. In addition, Seller shall have the right at any time and from
time to time prior to the Closing to supplement or amend the Disclosure
Schedules. Seller may provide Disclosure Schedules with respect to any
representation or warranty of this Agreement whether or not a specific schedule
is referred to therein. In the event that any supplement or amendment of such
Disclosure Schedules shall be provided later than five (5) business days prior
to the Closing Date, Parent or IAWC shall have the right to delay the Closing
for a period of five (5) business days in order for Parent and IAWC to review
such supplement or amendment. No such supplement or amendment shall be deemed to
cure any breach of or alter any representation or warranty made in this
Agreement so as to permit the Closing to occur unless Parent and IAWC
specifically agree thereto in writing. The Seller Parties shall promptly inform
Parent and IAWC, and Parent and IAWC will promptly inform the Seller Parties of
any fact or event which comes to their attention, the existence of which
constitutes or likely will constitute a breach in any material respects of any
representation or warranty in this Agreement. In addition, Parent will, within
five (5) days
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of receipt thereof, forward to Seller (i) any title report Parent or IAWC
receives from a title company with respect to the Real Estate and (ii) any
written communication regarding a specific Lien or title defect affecting a
specifically identified parcel of the Real Estate sent to the President,
Treasurer or General Counsel of Parent or the President or Corporate Counsel of
IAWC, and sent by a party other than the Seller Parties, their legal counsel,
financial advisors or representatives.
5.4 Mutual Covenants. The parties mutually covenant from the date of
this Agreement to the Closing Date (and subject to the other terms of this
Agreement, including Section 5.8 hereof):
5.4.1 to cooperate with each other in determining whether
filings are required to be made or consents required to be obtained in any
jurisdiction in connection with the consummation of the transactions
contemplated by this Agreement and in making or causing to be made any such
filings promptly and in seeking to obtain timely any such consents;
5.4.2 to use all reasonable efforts to obtain promptly the
satisfaction (but not waiver) of the conditions to the Closing of the
transactions contemplated herein (each party hereto shall furnish to the other
and to the other's counsel all such information as may be reasonably required in
order to effectuate the foregoing action); and
5.4.3 to advise the other parties promptly if such party
determines that any condition precedent to its obligations hereunder will not be
satisfied in a timely manner.
5.5 Filings and Authorizations. The parties hereto will as promptly
as practicable, make or cause to be made all such filings and submissions under
laws, rules and regulations applicable to it or its Affiliates as may be
required to consummate the terms of this Agreement, including all notifications
and information to be filed or supplied pursuant to the HSR Act and with the
applicable public utility commission (each, a "PUC"). Any such filings and
supplemental information will be in substantial compliance with the requirements
of the applicable law, rule or regulation. Each of Parent and IAWC, on the one
hand, and the Seller Parties, on the other, shall furnish to the other such
necessary information and reasonable assistance as the other may request in
connection with its preparation of any filing or submission to the PUC or which
is necessary under the HSR Act. The Seller Parties, on the one hand and IAWC and
Parent, on the other, shall keep each other apprised of the status of any
communications with, and inquiries or requests for additional information from,
any Authority, including the PUC, the United States Federal Trade Commission
("FTC") and the Antitrust Division of the United States Department of Justice
(the "Antitrust Division"), and shall comply promptly with any such inquiry or
request. Each of Citizens, Seller, Parent and IAWC will use its reasonable
efforts to obtain any clearance required under the HSR Act and from the PUC for
the purchase and sale of the Acquired Assets (including the CLWC Stock) in
accordance with the terms and conditions hereof. Notwithstanding the foregoing,
nothing contained in this Agreement will require or obligate any party or their
respective Affiliates: (i) to initiate, pursue or defend any litigation (or
threatened litigation) to which any Authority (including the PUC, the Antitrust
Division and the FTC) is a party; (ii) to agree or otherwise become subject to
any material limitations on (A) the right of Parent and IAWC effectively to
control or operate the Business being acquired by each or the right of Seller or
its
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Affiliates effectively to control or operate Citizens' other businesses, (B) the
right of Parent and IAWC or its Affiliates to acquire or hold the Business being
acquired by each or the right of Seller or its Affiliates to hold the Excluded
Assets or Citizens' other businesses, or (C) the right of Parent and IAWC to
exercise full rights of ownership of the Business or all or any material portion
of the Acquired Assets being acquired by each or the right of Citizens to
exercise full rights of ownership of Citizens' other businesses or all or any
material portion of the Excluded Assets; or (iii) to agree or otherwise be
required to sell or otherwise dispose of, hold separate (through the
establishment of a trust or otherwise), or divest itself of all or any portion
of the business, assets or operations of Citizens, Seller, Parent, IAWC, any
Affiliate of Parent or the Business. The parties agree that no representation,
warranty or covenant of IAWC, Parent, or Citizens contained in this Agreement
shall be breached or deemed breached as a result of the failure by Parent and
IAWC on the one hand or the Seller Parties, on the other, to take any of the
actions specified in the preceding sentence.
5.6 Public Announcement. No party hereto shall make or issue, or
cause to be made or issued, any public announcement or written statement
concerning this Agreement or the transactions contemplated hereby without the
prior written consent of the other party (which will not be unreasonably
withheld or delayed), unless counsel to such party advises that such
announcement or statement is required by law (in which case the parties shall
make reasonable efforts to consult with each other prior to such required
announcement).
5.7 Further Assurances. Each of Citizens, Parent, IAWC and Seller,
from time to time after the Closing, at Parent's, IAWC's or Seller's request,
will execute, acknowledge and deliver to the applicable person such other
instruments of conveyance and transfer and will take such other actions and
execute such other documents, certifications, and further assurances as Parent,
IAWC or Seller, as the case may be, may reasonably require in order to transfer,
in accordance with the terms and conditions of this Agreement, more effectively
in Parent or IAWC or to put Parent or IAWC more fully in possession of any of
the Acquired Assets being acquired by each or better to enable Parent or IAWC to
complete, perform and discharge any of the Assumed Liabilities being assumed by
each. Each party shall cooperate and deliver such instruments and take such
action as may be reasonably requested by the other party in order to carry out
the provisions and purposes of this Agreement and the transactions contemplated
hereby.
5.8 Cooperation.
5.8.1 Parent, IAWC, Citizens and Seller shall cooperate and
shall cause their respective Affiliates, officers, employees, agents and
representatives to cooperate to ensure the orderly transition of the Business
from Seller to Parent and IAWC to the extent being acquired by each and to
minimize the disruption to the Business resulting from the transactions
contemplated hereby.
5.8.2 Without limiting the foregoing, neither Parent and IAWC, nor
Citizens and Seller (nor any of their respective Affiliates) shall make any
filings pursuant to federal or state securities laws ("Securities Filings") or
make any consent solicitations to holders of Assumed Indebtedness which include
any information about Seller, IAWC (or their respective
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Affiliates) or the transactions contemplated hereby without consulting with the
other party and providing the other party a reasonable opportunity to review and
comment on such information, it being understood and agreed that any party may
so disclose such information in its reasonable judgment to the extent such
party's counsel advises it that such disclosure is advisable under applicable
law. Each of Parent, IAWC, Citizens and Seller shall, and shall cause their
respective Affiliates to, comply with all applicable federal and state
securities laws in connection with this Agreement and the transactions
contemplated hereby (including any solicitation of consents of holders of
Assumed Indebtedness), and all information supplied by any party for inclusion
in any Securities Filing or consent solicitation, including, without limitation,
any proxy or information statement, or any registration statement on Form S-4
shall be true and correct in all material respect and shall not contain any
untrue statement of a material fact or omit to state any material fact which is
required to be stated therein or which is necessary to make the statements
contained therein not misleading in light of the circumstances in which they
were made.
5.8.3 During the first 90 days after the Closing Date (180
days for Trademarks on tanks), Parent and IAWC shall have the right to use all
of the logos, trademarks and trade identification of Seller as are located at
the Real Estate or on the Acquired Assets (collectively, the "Trademarks").
Parent's and IAWC's use of the Trademarks shall be in accordance with such
reasonable quality control standards as may be promulgated by Seller and
provided to Parent and IAWC. If Seller shall notify Parent and IAWC in writing
of Parent's or IAWC's (as the case may be) material failure to comply with such
reasonable quality control standards and Parent or IAWC continues to not comply
with such reasonable quality control standards for more than 20 days after
receipt of such notice, Seller shall have the right to terminate Parent's and
IAWC's right under this Section 5.8.3 to use the Trademarks.
5.8.4 Seller shall give Parent and IAWC and its
representatives (including IAWC's Accountants, consultants, counsel and
employees), upon reasonable notice and during normal business hours, full access
to the properties, contracts, employees, books, records and affairs of Seller to
the extent relating to the Business and the Acquired Assets, and shall cause its
officers, employees, agents and representatives to furnish to Parent and IAWC
all documents, records and information (and copies thereof), to the extent
relating to the Business and the Acquired Assets, as Parent and IAWC may
reasonably request. Except to the extent disclosed in the Disclosure Schedules
in accordance with Sections 5.3 and 8.4, no investigation or receipt of
information by Parent or IAWC pursuant to, or in connection with, this
Agreement, shall diminish or obviate any of the representations, warranties,
covenants or agreements of the Seller Parties under this Agreement or the
conditions to the obligations of Parent or IAWC under this Agreement. All
information provided to Parent or IAWC under this Agreement shall be held
subject to the terms and conditions of the Confidentiality Agreement dated
August 2, 1999 between Citizens and Parent.
5.9 Employees; Employee Benefits.
5.9.1 Schedule 5.9.1 lists divisions and the number of all
salaried and hourly employees actively employed (as of the date of this
Agreement) in each division by Seller or any of its Affiliates whose primary
responsibilities relate to the Business. Schedule 5.9.1 lists job
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classifications and number of employees in each job classification of those
employees whose terms and conditions of employment are subject to the Collective
Bargaining Agreement ("Union Employees"). All individuals referred to on
Schedule 5.9.1 are herein referred to as the "Employees." For the avoidance of
doubt, it is understood that no employees of CBSC or Citizens Resources are
included in Schedule 5.9.1. No later than March 1, 2000, IAWC and Seller shall
determine the number of Employees to whom IAWC will offer employment, which
number shall be at least equal to 250 (when combined with offers made by IAWC or
Affiliates of IAWC to employees of Affiliates of Seller in connection with the
Related Purchase Agreements) (the "Base Number"), and such additional number of
Employees, if any, whom IAWC also wishes to employ. Upon determination of such
Employees, Seller will supplement Schedule 5.9.1 with the name, job title,
unused vacation, current base salary or hourly wage, date of hire and assigned
location of each Transferred Employee (as that term is defined below). At the
Closing, Seller shall provide an updated Schedule 5.9.1 which shall disclose all
the information required under the preceding sentence as of the most recent
practicable date prior to Closing.
5.9.2 Effective as of the Closing, IAWC shall offer employment
to at least the Base Number of those employees included on Schedule 5.9.1. All
Employees to whom IAWC offers employment and who accept such employment are
herein referred to as the "Transferred Employees." In the event any Employees do
not accept IAWC's offer of employment, IAWC shall offer employment to such
additional employees (the identity of whom shall be determined by IAWC and
Seller) as are necessary to bring the total number of Transferred Employees to
the Base Number. Subject to the provisions of this Section 5.9 and Section 5.12,
IAWC shall provide each Non-Union Transferred Employee with base compensation at
least equal to that provided by Seller on the Closing Date, and employee
benefits which are substantially comparable to those provided by IAWC to its
other similarly situated employees. Except as otherwise provided under the terms
of Section 5.12, IAWC shall provide each Union Transferred Employee with
compensation at least equal to that provided by Seller immediately prior to the
Closing Date and with the benefits provided to IAWC's similarly situated
collectively bargained employees. Each collective bargaining agreement
pertaining to Transferred Employees shall be identified on a Schedule 5.9.2 to
be prepared by Seller and submitted to IAWC on or before the Closing Date.
Seller shall cooperate with IAWC in IAWC's efforts to contact the unions
representing Transferred Employees. IAWC agrees (i) to credit the service of
each Transferred Employee with Seller and its Affiliates before the Closing, for
all purposes under all employee benefit plans and arrangements maintained by
IAWC (and/or any of its Affiliates) for the benefit of any Transferred Employee
(including without limitation for purposes of attainment of retirement dates and
payment of optional forms of benefits), other than for purposes of benefit
accrual under any "defined benefit plan", within the meaning of Section 3(35) of
ERISA, (ii) to provide accrued vacation to Transferred Employees in the year in
which the Closing occurs, equal to the excess, if any, of the accrued vacation
to which the Transferred Employee would otherwise be entitled under Seller's
vacation plan during that year over the amount of accrued vacation the
Transferred Employee had taken during that year, and, thereafter, to provide
vacation to Transferred Employees on the same basis as provided to similarly
situated employees of IAWC, with service credit as provided in (i) hereof, (iii)
to provide severance benefits to Transferred Employees terminated by IAWC that
are substantially comparable to those benefits provided by IAWC to similarly
situated employees, and (iv) to comply with all applicable legal requirements
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with respect to the Union Employees (including without limitation any applicable
duty to bargain with those employees' bargaining representative). IAWC shall be
responsible for providing to each Transferred Employee vacation in an amount
equal to the Transferred Employee's vacation entitlement for the year of Closing
reduced by the number of vacation days such Transferred Employee has taken on or
before Closing. Nothing in this Section 5.9 shall limit IAWC's authority to
terminate the employment of any Transferred Employee at any time and for
whatever reason. Until the second anniversary of the Closing Date, neither
Seller nor any of its Affiliates shall directly or indirectly solicit or offer
employment to any Transferred Employee then employed by IAWC or its Affiliates.
5.9.3 Except as specifically provided in Sections 5.9 and
5.12, Seller shall be solely responsible for any liability, claim or expense
(including reasonable attorneys' fees) related to compensation or employee
benefits incurred by IAWC as the result of any claims against IAWC or its
Affiliates that are made by any Employees or Former Employees (or the
Beneficiary of any Employee or Former Employee) who are not made offers to
become employees of IAWC or its Affiliates including, without limitation, claims
asserted against IAWC as a result of their termination by Seller or its
Affiliates.
5.9.4 Seller shall be solely responsible for any liability,
claim or expense with respect to compensation or employee benefits of any nature
(including, but not limited to, workers compensation claims or the benefits
provided under the Benefit Plans, whether paid before or after the Closing) owed
to any Transferred Employee or the Beneficiary of any Transferred Employee or
any Water Sector Retiree or the Beneficiary of any Water Sector Retiree that
arises out of or relates to (i) the employment relationship between Seller or
any of its Affiliates and such Transferred Employee or Beneficiary or (ii) any
benefit claim or expense (including medical expenses) incurred before Closing
under any Benefit Plan. For purposes of this Agreement, a medical expense shall
be deemed to be incurred when the services giving rise to a claim are rendered,
regardless of when billed or paid. Without limiting the foregoing, Seller shall
be responsible for the payment of any employee benefits that become due to any
Transferred Employees as a result of their termination by Seller.
5.9.5 Except as otherwise specifically provided in Section
5.9, 5.11 or 5.12, IAWC shall be solely responsible for any liability, claim or
expense with respect to compensation or employee benefits of any nature
(including, but not limited to, workers compensation, claims or the benefits
provided under any employee benefit plan or arrangement of IAWC incurred after
Closing) owed to any Transferred Employee or Beneficiary of any Transferred
Employee or any Water Sector Retiree or Beneficiary of any Water Sector Retiree
that arises out of or relates to (i) the employment relationship between IAWC or
any of its Affiliates and any Transferred Employee or (ii) any benefit claim or
expense (including medical expense) incurred after Closing under any employee
benefit plan sponsored or contributed to by IAWC or an ERISA Affiliate after
Closing. Notwithstanding the foregoing, IAWC shall not be responsible for the
payment of any employee benefits that become due to any Transferred Employees
under any Benefit Plan (other than the Assumed Benefit Liabilities).
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5.9.6 IAWC agrees to reimburse Seller for its proportionate
share (as defined below) of any amount in excess of $1,000,000 paid by Seller as
severance under Citizens' severance plan as in effect on the date hereof to any
Employees (when such amount paid by Seller is aggregated with amounts paid by
Citizens to other employees as referenced in Section 5.9.6 of the Related
Purchase Agreements) provided (i) IAWC does not hire such Employees in
accordance with the provisions of Sections 5.9, 5.11 and 5.12 and (ii) Seller
provides notice to those Employees on or before the Closing Date to the effect
that their employment will be terminated on or shortly after the Closing Date.
IAWC will pay such reimbursement to Citizens within 5 days after receipt of a
list of the Employees showing which are entitled to severance pay, the amounts
of that severance pay and certifying that those amounts have been paid. The
IAWC's "proportionate share" means the amount obtained by multiplying the amount
in excess of $1,000,000 by a fraction, the numerator of which is the amount of
severance paid by Seller to Employees under Section 5.9.6 of this Agreement and
the denominator of which is the sum of (i) the amount paid by Seller to
Employees under Section 5.9.6 of this Agreement and (ii) the aggregate amount
paid by Citizens under Section 5.9.6 of each of the Related Purchase Agreements.
5.9.7 Until the second anniversary of the Closing Date, IAWC
shall not directly or indirectly solicit or offer employment to any active
employee of Seller, other than the Transferred Employees.
5.10 Employee Pension Plan.
5.10.1 At least fifteen days prior to the Closing Date, Seller
shall take any and all actions necessary to cease benefit accruals and fully
vest all Transferred Employees in their accrued benefits under the Citizens
Pension Plan ("Seller's Pension Plan" or "Citizens Pension Plan"). Seller shall
retain liability and related assets for benefits accrued through the Closing
Date by Transferred Employees under Seller's Pension Plan.
5.10.2 As of the Closing Date, Transferred Employees shall be
covered under the American Pension Plan, and shall be given credit for service
with Seller and its Affiliates for eligibility, vesting, attainment of
retirement dates, subsidized benefits, and entitlement to optional forms of
payment, but not for accrual of benefits.
5.11 Employee Savings Plan.
5.11.1 Effective upon the date of the transfer described in
Section 5.11.2, subject to the terms and conditions of this Agreement, Parent
shall cause the Savings Plan for Employees of American Water Works Company, Inc.
(the "American Savings Plan") to assume the liability of the Seller's 401(k)
Plan for the account balances of those Transferred Employees participating in
the Seller's 401(k) Plan on the Closing Date (the "Affected Participants") that
are transferred to the American Savings Plan. As of the Closing Date, Affected
Participants shall be 100% vested in their account balances under the Seller's
401(k) Plan. Transferred Employees shall be given credit under the American
Savings Plan for service with Seller and its Affiliates for
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eligibility, vesting, attainment of retirement dates, contribution levels and
optional forms of benefit payment, to the same extent that credit for such
service has been given by Seller and its Affiliates.
5.11.2 Parent shall deliver to Seller as soon as practicable,
but in no event later than ninety (90) days after Closing (i) a certified copy
of the American Savings Plan and any amendment necessary to effectuate the
transfer of assets and the assumption of account balances in accordance with
this Section 5.11, (ii) a certified copy of the trust agreement for the American
Savings Plan; (iii) the most recent favorable determination letter from the IRS
with respect to the American Savings Plan; and (iv) an opinion from Parent's
legal counsel acceptable to Seller that the American Savings Plan, as so
amended, complies or will comply on a timely basis with the applicable
provisions of the Code relating to the qualification of, and the transfer of
assets and assumption of benefit liabilities by, the American Savings Plan.
Seller shall deliver to Parent as soon as practicable, but in no event later
than ninety (90) days after Closing, an opinion from Seller's legal counsel
acceptable to Parent that the Seller's 401(k) Plan complies or will comply on a
timely basis with the applicable provisions of the Code relating to the
qualification of the Seller's 401(k) Plan, and the transfer of assets to, and
assumptions of benefit limitations by, the American Savings Plan. As soon as
practicable, but in any event within 120 days after Closing, Seller shall cause
the trustee of the Seller's 401(k) Plan to transfer in cash and promissory notes
representing outstanding loans to Affected Participants to the trustee of the
American Savings Plan an amount equal to the sum of the account balances of the
Transferred Employees (the "Transferred Accounts") calculated as of the most
recent valuation date under the Seller's 401(k) Plan (which shall, in any event,
be within thirty (30) days of the transfer). Both the Seller Parties and Parent
will file any IRS Form 5310A that is required with respect to the transfer
contemplated by this Section 5.11 date at least 30 days prior to the transfer.
Upon the transfer described in this Section 5.11, Parent and the American
Savings Plan shall be responsible for all benefits attributable to the
Transferred Accounts to which Transferred Employees were entitled under the
Seller's 401(k) Plan as of such date, and Seller and the Seller's 401(k) Plan
shall cease to have any liability, contingent or otherwise, for such benefits.
5.12 Welfare Benefits.
5.12.1 Within sixty (60) days after the Closing, Seller agrees
to transfer to trusts established by Parent under Section 501(c)(9) of the Code
("Parent's VEBAs") the amount held under any trust established by Seller under
Section 501(c)(9) of the Code ("Seller's VEBAs") to fund post-retirement health
care and life insurance benefits attributable to the Business, including Former
Employees identified on Schedule 5.12 (the "Water Sector Retirees") and any
"grandfathered" Transferred Employees as set forth on Schedule 5.12. For the
avoidance of doubt, it is understood that no employees of CBSC or Citizens
Resources are included in Schedule 5.12. Parent agrees to provide
post-retirement health care and life insurance benefits to the Water Sector
Retirees and, as applicable, Transferred Employees who become eligible for such
benefits after Closing and further agrees that Parent's VEBAs will apply an
amount at least equal to the sum of the assets (and earnings thereon calculated
at the rate of return generated by Parent's VEBAs) transferred from Seller's
VEBAs to provide post-retirement health care and life insurance benefits for
such employees. Upon Closing, Parent shall be responsible for all obligations of
the Seller Parties to provide post-retirement health care and life insurance
benefits "incurred" (within the meaning of Section 5.9.4) after the
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Closing and the Seller Parties shall cease to have any liability, contingent or
otherwise, for such benefits. In consideration of such transfer, Parent agrees
not to terminate or materially modify those post-retirement health and life
benefit provisions applicable to such grandfathered Transferred Employees and
Water Sector Retirees as such provisions are in effect immediately prior to the
Closing Date.
5.12.2 Parent shall take all action necessary and appropriate
to ensure that, as of the Closing Date, Parent provides medical, health, dental,
flexible spending account, accident, life, short-term disability, long-term
disability and other employee welfare benefits (including retiree medical
benefits) to Transferred Employees that, in the case of Non-Union Transferred
Employees and Union Transferred Employees are substantially similar to those
benefits provided by Parent under its corresponding welfare benefit plans (the
"Parent's Welfare Plans"). For purposes of determining eligibility to
participate, and entitlement to benefits, in each Parent Welfare Plan, each
Transferred Employee shall be credited with service, determined under the terms
of the corresponding welfare plans maintained by Seller on the Closing Date
(hereinafter referred to collectively as the "Seller Welfare Plans"). Any
restrictions on coverage for pre-existing conditions, waiting periods, and
requirements for evidence of insurability under the Parent Welfare Plans shall
be waived in Parent's Welfare Plans for Transferred Employees and retirees of
the Water Sector and their respective Beneficiaries, and Transferred Employees
and retirees of the Water Sector and their respective Beneficiaries shall
receive credit under the Parent Welfare Plans for co-payments, payments under a
deductible limit made by them, and for out-of-pocket maximums applicable to them
during the plan year of the Seller Welfare Plan in which the Closing Date
occurs. As soon as practicable after the Closing Date, Seller shall deliver to
Parent a list of the Transferred Employees and retirees of the Water Sector and
their respective Beneficiaries who had credited service under a Seller Welfare
Plan, together with each such individual's service, copayment, deductible and
out-of-pocket payment amounts under such plan.
5.12.3 Seller shall transfer to Parent's flexible benefits
plan any balances standing to the credit of Transferred Employees under Seller's
flexible benefits plan as of the Closing Date. Seller shall provide to Parent
prior to the Closing Date a list of those Transferred Employees that have
participated in the health or dependent care reimbursement accounts of Seller,
together with their elections made prior to the Closing Date with respect to
such Account, and balances standing to their credit as of the Closing Date.
5.13 Taxes. The Seller Parties, on the one hand, and Parent and
IAWC, on the other, shall (a) each provide the other with such assistance as may
reasonably be requested by either of them in connection with the preparation of
any Tax return, any audit or other examination by any taxing authority or any
judicial or administrative proceeding with respect to Taxes; (b) each retain and
provide the other with any records or other information which may be relevant to
such return, audit, examination or proceeding, and (c) each provide the other
with any final determination of any such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax return of
the other for any period (which shall be maintained confidentially). Without
limiting the generality of the foregoing, Parent and IAWC, on the one hand, and
the Seller Parties, on the other, shall retain, until the applicable statutes of
limitations (including all extensions) have
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expired, copies of all Tax returns, supporting workpapers, and other books and
records or information which may be relevant to such returns for all Tax periods
or portions thereof ending before or including the Closing Date, and shall not
destroy or dispose of such records or information without first providing the
other party with a reasonable opportunity to review and copy the same.
5.14 Intentionally Omitted.
5.15 Citizens' Guarantees and Surety Instruments. Each of Parent and
IAWC shall use its reasonable efforts to assist Citizens in obtaining full and
complete releases on the guarantees, letters of credit, bonds and other surety
instruments listed on Schedule 5.15. For purposes of this Section 5.15 and
Section 5.16, reasonable efforts: (a) shall include Parent's or IAWC's
assumption of the Assumed Indebtedness, the Contracts and the Permits on the
terms set forth in this Agreement; (b) shall include an obligation on the part
of Parent or IAWC to provide a guarantee, letter of credit, bond or other
required surety instrument at Closing to the extent required by any Contract or
Permit and in general to provide an equivalent surety instrument to be
substituted for any surety instrument provided by Citizens to any beneficiary in
connection with the Business; and (c) shall include the obligation of IAWC
and/or Parent to provide a debt obligation (including obtaining a minimum credit
rating necessary to prevent any change to the tax-exempt status of any of the
Assumed Indebtedness and providing credit enhancements such as bond insurance)
to the issuer of any Bonds relating to the Assumed Indebtedness satisfactory to
such issuer in replacement of and in substitution for Citizens' obligations to
such issuer under the Assumed Indebtedness, all to enable Parent or IAWC to
assume the Assumed Indebtedness.
5.16 Assumption of Seller Debt.
5.16.1 Each of IAWC and Parent shall use its reasonable
efforts (as defined in Section 5.15) to assist Seller in obtaining all consents
and opinions and taking such other actions as may be required to enable IAWC or
Parent, as the case may be, to assume at the Closing all of Seller's liabilities
and obligations under the Assumed Indebtedness to the extent provided in Section
2.3. If, after using such reasonable efforts, the parties reasonably conclude
that all such required consents and opinions will not be obtained by the date
that the conditions to Closing set forth in the first sentences of Sections
6.1.4 and 6.2.4 are expected to be satisfied, then Citizens, Parent and IAWC
will use their reasonable efforts and take such other actions as may be required
to enable Citizens to assign at the Closing all of Seller's liabilities and
obligations under the Assumed Indebtedness to the extent provided in Section
2.3, including complying with the provisions of Section 5.24 to the extent
applicable to such assignment of the Assumed Indebtedness.
5.16.2 Representations Re: Assumed Indebtedness.
(a) The Seller Parties represent that each of the Bonds
which make up the Assumed Indebtedness is a bond issue which was used to finance
sewage facilities within the meaning of Section 103(b)(4)(E) of the Internal
Revenue Code of 1954 as amended ("1954 Code") or Section 142(a)(5) of the Code,
as the case may be, or facilities for the furnishing of water within the meaning
of Section 103(b)(4)(G) of the 1954 Code or Section 142(a)(4) and
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Section 142(e) of the Code, as the case may be, and that the interest of such
Bonds was as of their date of issue, excludable from the gross income of the
holders of such Bonds for federal or state (other than Illinois) income tax
purposes pursuant to such sections of the IRC or the Code. In the case of the
facilities for the furnishing of water (a) the water is or will be made
available to members of the general public (including electric utility,
industrial, agricultural, or commercial users) and (b) either the facility is
operated by a governmental unit or the rates for the furnishing or sale of the
water have been established or approved by a State or political subdivision
thereof, by an agency or instrumentality of the United States, or by a public
service or public utility commission or other similar body of any State or
political subdivision thereof.
(b) The Seller Parties represent that they have complied
with all of their duties and obligations under the IDRB Documents, including
their obligations relating to the use of the proceeds of the bonds and the
ownership, operation, use and maintenance of the Assets financed with the
proceeds of the Bonds. Citizens and the other Seller Parties represent that the
representations and warranties of "Company" in the IDRB Documents remain true
and correct, and that they have not taken nor permitted to be taken any action
which would have the effect of subjecting the interest on any of such Bonds to
federal or state (other than Illinois) income taxation, except as otherwise
contemplated or permitted by the IDRB Documents.
(c) The Seller Parties represent that as of Closing all
the proceeds of the Bonds will have been spent in accordance with the IDRB
Documents, the construction of the projects to be financed with the Bonds will
have been completed, that there are no reserve funds associated with the Trust
Indentures for such Bonds, and that all of the proceeds of such Bonds were
invested in tax-exempt obligations of state and local governments (except to the
extent used to acquire or construct the facilities financed by such Bonds) and,
that therefore, the Seller Parties do not have any arbitrage profits subject to
the rebate requirements of Section 148 of the Code.
(d) The Seller Parties represent that there is and has
been no audit or other examination by any taxing authority relating to the
Bonds.
(e) The Seller Parties further represent the following
with respect to the Bonds:
(1) The Assets financed by the Bonds are sewage facilities or
facilities for the furnishing of water, which means that (a)
the water is or will be made available to members of the
general public (including electric utility, industrial,
agricultural, or commercial users) and (b) either the facility
is operated by a governmental unit or the rates for the
furnishing or sale of the water have been established or
approved by a State or political subdivision thereof, by an
agency or instrumentality of the United States, or by a public
service or public utility commission or other similar body of
any State or political subdivision thereof;
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(2) They have not caused or permitted to be caused any reissuance
of the Bonds under Section 1001 of the Code, without first
obtaining a "no adverse effect" opinion of bond counsel;
(3) They have not caused an extension of the maturity of such
Bonds without first obtaining a "no adverse effect" opinion of
bond counsel;
(4) They have not taken or caused to be taken any action that
would cause the Bonds to be arbitrage bonds under Section 148
of the Code, including, but not limited to, the failure to
rebate arbitrage profits, if any, as required by Section
148(f) of the Code;
(5) They have not taken any action that would cause the Bonds not
to be registered in accordance with Section 149(a) of the
Code; and
(6) They have not permitted the Bonds to become directly or
indirectly "federally guaranteed" under Section 149 of the
Code.
5.16.3 Covenants of Parent and IAWC. Each of Parent and IAWC
covenants and agrees, so long as any Assumed IDRB Indebtedness is outstanding,
to cause the Assets that were acquired, constructed, improved or equipped with
the proceeds of such Assumed IDRB Indebtedness to be used as sewage facilities
within the meaning of Section 103(b)(4)(E) of the 1954 Code or Section 142(a)(5)
of the Code, as the case may be, and facilities for the furnishing of water
within the meaning of Section 103(b)(4)(G) of the 1954 Code or 142(a)(4) and
Section 142(e) of the Code, as the case may be, which means in the case of the
facilities for the furnishing of water that (a) the water is or will be made
available to members of the general public (including electric utility,
industrial, agricultural, or commercial users) and (b) either the facility is
operated by a governmental unit or the rates for the furnishing or sale of the
water have been established or approved by a State or political subdivision
thereof, by an agency or instrumentality of the United States, or by a public
service or public utility commission or other similar body of any State or
political subdivision thereof. Each of Parent and IAWC further covenants and
agrees, so long as any Assumed IDRB Indebtedness is outstanding, the following:
(a) It will not cause or permit to be caused any
reissuance under Section 1001 of the Code without first obtaining a "no adverse
effect" opinion of bond counsel;
(b) It will not cause an extension of the maturity of
the Bonds without first obtaining a "no adverse effect" opinion of bond counsel;
(c) It will not take or cause to be taken any action
that would cause the Bonds to be arbitrage bonds under Section 148 of the Code,
including, but not limited to, the failure to rebate arbitrage profits, if any,
as required by Section 148(f) of the Code;
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(d) It will not take any action that would cause the
Bonds not to be registered in accordance with Section 149(a) of the Code;
(e) It will not permit the Bonds to become directly or
indirectly "federally guaranteed" under Section 149 of the Code; and
(f) It will comply with each representation, warranty,
covenant or other agreement or obligation set out by the IDRB Documents as in
effect on the date of execution of this Agreement.
5.17 Schedule of Permits. No later than March 13, 2000, Seller shall
deliver to Parent and IAWC a schedule, to be identified as Schedule 5.17, which
sets forth all material Permits required for the use of the Acquired Assets
being acquired by each and the operation of the Business by Parent and IAWC
substantially in the manner as it was conducted prior to the date hereof. For
purposes of this Section 5.17, material Permits shall include those required for
the service of all utility customers at substantially the same service levels as
provided by Seller on the date of this Agreement. All Permits listed on Schedule
5.17 that are required to be listed on Schedule 3.3 or Schedule 3.9 shall be so
designated. Seller has made or will make prior to the Closing Date timely
applications for renewals of all such Permits listed on Schedule 5.17, which
under applicable law must be filed prior to the Closing Date to maintain the
Permits listed on Schedule 5.17 in full force and effect.
5.18 Title Information. No later than March 13, 2000, Seller shall
use its reasonable efforts to deliver to Parent or IAWC true, correct and
complete copies of all existing title policies, surveys, leases, deeds,
instruments and agreements in Seller's possession relating to title to the Real
Estate that will be acquired by each.
5.19 Transaction with Related Parties. Effective as of the Closing
Date, except as otherwise provided in Sections 5.9 through 5.12, 5.15, 5.24,
5.26, 5.27 and 2.7.1(j) of this Agreement, Seller shall have terminated and
canceled all contracts, commitments and agreements (including employment
relationships) relating to the Acquired Assets or the Business, between Seller,
any Affiliate of Seller (including Citizens), any officer or director of any
Seller Party, or any Affiliate of the foregoing. Seller shall be solely liable
for any contractual or other claims, express or implied arising out of the
termination and cancellation of any of the foregoing raised by any party
thereto.
5.20 Approval by Citizens. Citizens shall, as the sole owner of
common stock of each other Seller Party, vote all of such shares of common stock
to approve this Agreement and the transactions contemplated hereby.
5.21 Supplemental Information.
5.21.1 Citizens shall provide IAWC, within fifteen (15) days
after the execution or the date of receipt thereof, a copy of (a) each Contract
(other than with respect to which the Business' total annual liability or
expense is less than $100,000 per such Contract) entered into by Seller after
the date hereof and prior to the Closing Date; (b) a copy of any written notice
for
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assessments for public improvements against the Real Estate received after the
date hereof and prior to the Closing Date; (c) a copy of the filing of any
condemnation, expropriation, eminent domain or similar proceeding affecting all
or any portion of any of the Real Estate received after the date hereof but
prior to the Closing Date; and (d) a copy of any Contract where Seller is a
lessee relating to the use or occupancy of the Real Estate and where such
Contract involves annual payments in excess of $100,000 entered into by Seller
after the date hereof and prior to the Closing Date. Citizens will also provide
the copies referred to in clauses (b), (c) and (d) of this Section 5.2.1.1 to
Parent if the copies relate to Real Estate being purchased by Parent.
5.21.2 Within fifteen (15) days after the receipt of notice of
violation, Citizens shall notify Parent and IAWC of any violations of state or
federal drinking water standards which, if such violations existed on the date
hereof, would be required to be disclosed pursuant to Section 3.8.10 hereof, and
shall promptly notify Parent and IAWC of the actions proposed to be taken by
Seller to correct or otherwise respond to such violations.
5.22 Non-Competition. The Seller Parties agree that for a period of
fifteen (15) years after the Closing Date no Seller Party nor any Affiliate of a
Seller Party shall directly or indirectly own, manage, operate, control or
participate in the ownership, management, operation or control of or be
otherwise connected in any substantial manner with any entity (other than IAWC
and its successors and assigns) engaged in the business of storing, supplying
and distributing water in the States in which IAWC acquires any Acquired Assets,
whether or not such business is subject to regulation by a PUC (it being
understood that the individual directors of Seller and Citizens are not
Affiliates of a Seller Party).
5.23 Intentionally Omitted.
5.24 IDRB Obligations.
(a) IAWC's IDRB Obligations. Each party acknowledges that (x)
Citizens is and after the Closing Date shall continue to be and shall remain the
primary obligor with respect to the Retained IDRB Indebtedness outstanding
immediately after the Closing Date to the same extent as though no sale of the
Acquired Assets had been made and that Parent and IAWC shall have no payment
obligations with respect to such Retained IDRB Indebtedness and (y) the IDRB
Documents require Citizens not to take or permit to be taken any action which
would have the effect, directly or indirectly, of subjecting the interest on any
of the Bonds to federal or state (other than Illinois) income taxation.
Accordingly, Parent and IAWC covenant and agree (i) at Closing to execute and
deliver to Citizens an agreement substantially in the form attached hereto as
Exhibit D, with respect to each issuer of Bonds relating to Retained IDRB
Documents that will be outstanding after the Closing Date, and (ii) so long as
any such Bonds are outstanding, to cause the Acquired Assets that were acquired,
constructed, improved or equipped with the proceeds of such Bonds to be used as
facilities for the furnishing of water (that is, (a) the water is or will be
made available to members of the general public (including electric utility,
industrial, agricultural, or commercial users) and (b) either the facility is
operated by a governmental unit or the rates for the
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furnishing or sale of the water have been established or approved by a State or
political subdivision thereof, by an agency or instrumentality of the United
States, or by a public service or public utility commission or other similar
body of any State or political subdivision thereof) or sewage facilities within
the meaning of Section 103(b)(4)(E) of the 1954 Code, or Section 142(a)(5) of
the Code as the case may be.
(b) IDRB Construction Funds. Citizens hereby represents that
there will be no construction funds or unspent bond proceeds available after the
Closing Date that are held by the trustees of the Bonds relating to the Retained
IDRB Indebtedness.
(c) Consents and Opinions. The parties shall use their
respective best commercially reasonable efforts to obtain all consents and legal
opinions as may be required under the Retained IDRB Documents to enable Seller
to retain all Retained IDRB Indebtedness and to sell the Acquired Assets to IAWC
or Parent.
5.25 Cooperation with Respect to Like-Kind Exchange. Parent and IAWC
agree that Seller may, at Seller's written election delivered to Parent and IAWC
no later than five (5) days prior to the Closing Date, direct that all or a
portion of the Initial Cash Payment be delivered to a "qualified intermediary"
as defined in Treasury Regulation ss.1.1031(k) - (g)(4) as to enable Seller's
relinquishment of the Acquired Assets to qualify as part of a like-kind exchange
of property covered by Section 1031 of the Code. If Seller so elects, Parent and
IAWC shall reasonably cooperate with Seller (but without being required to incur
any out-of-pocket costs in the course thereof) in connection with Seller's
efforts to effect such like-kind exchange, which cooperation shall include,
without limitation, taking such actions as Seller reasonably requests in order
to enable Seller to qualify such transfer as part of a like-kind exchange of
property covered by Section 1031 of the Code (including any actions reasonably
required to facilitate the use of a "qualified intermediary"), and Parent and
IAWC agree that Seller may assign all or part of its rights (but no obligations)
under this Agreement to a person or entity acting as a qualified intermediary to
qualify the transfer of the Assets as part of a like-kind exchange of property
covered by Section 1031 of the Code. Parent, IAWC and Seller agree in good faith
to use reasonable efforts to coordinate the transactions contemplated by this
Agreement with any other transactions engaged in by either Parent, IAWC or
Seller; provided that such efforts shall, in no event, result in any delay in
the consummation of the transactions contemplated by this Agreement. Seller
shall indemnify and hold Parent and IAWC harmless from any cost, expense or
liability arising from its cooperating under this Section 5.25.
5.26 Transition Plan. Within 30 days after the execution date of
this Agreement, the parties jointly shall establish a transitional services
team, which shall include expertise from various functional specialties
associated with or involved in providing billing, payroll and other support
services provided to Seller by any automated or manual process using facilities
or employees that are not included among the Acquired Assets or Transferred
Employees. Such team will be responsible for preparing, and timely implementing,
a transition plan which will identify and describe substantially all of the
various transition activities that the parties will cause to occur before and
after Closing and any other transfer of control matters that any party
reasonably believes should be addressed in such transition plan. The transition
plan will set forth reasonable arrangements
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providing IAWC, at IAWC's sole expense, with appropriate access to Seller's
relevant computer systems to allow for a full conversion of the relevant data
and functionality to IAWC's systems on the Closing Date. Parent, IAWC and Seller
shall use their commercially reasonable efforts to cause their representatives
on such transition team to cooperate in good faith and take all reasonable steps
necessary to develop a mutually acceptable transition plan no later than 60 days
prior to the Closing Date.
5.27 Procedures regarding Refunds of Advances. Within 30 days after
the execution date of this Agreement, the parties jointly shall establish a
working group of appropriate subject matter experts to determine the appropriate
obligations of Parent and IAWC regarding notification and the provision of other
accurate and timely data to Citizens to enable Citizens timely and accurately to
satisfy the refund obligations described in Section 2.3.3(b). Such working group
will be responsible for preparing a comprehensive agreement no later than March
13, 2000, which agreement shall be executed by the parties at Closing. Among
other arrangements, the parties would require that the customers and developers
owed refunds provide joint notices to IAWC and Citizens.
5.28 Title Insurance. Prior to Closing, Seller shall cooperate with
Parent and IAWC and use commercially reasonable efforts to assist each of Parent
and IAWC if either of them desires to obtain ALTA title insurance commitments
(collectively, the "Title Commitments," and each a "Title Commitment"), in final
form, from one or more title insurance companies (collectively, the "Title
Company"), committing the Title Company (subject only to the satisfaction of any
industry standard requirements contained in the Title Commitment) to issuing
ALTA (or its local equivalent) form of title insurance policies insuring good,
valid, indefeasible fee simple title to the Real Estate in IAWC or Parent, as
the case may be, in all cases, at IAWC's and Parent's sole expense and in the
respective amounts that IAWC or Parent, as the case may be, requests prior to
Closing, subject to no Liens or other exceptions to title other than Permitted
Exceptions (collectively the "Title Policies"). On or prior to the Closing Date,
Seller shall execute and deliver, or cause to be executed and delivered, to the
Title Company, at no cost to Seller, any customary affidavits, standard gap
indemnities and similar documents reasonably requested by the Title Company in
connection with the issuance of the Title Commitments or the Title Policies;
provided that such efforts and IAWC's and Parent's request for Title Policies or
Title Commitments shall, in no event, result in any delay in the consummation of
the transactions contemplated by this Agreement.
ARTICLE 6
CONDITIONS PRECEDENT; TERMINATION
6.1 Conditions Precedent to Obligations of IAWC and Parent. The
obligations of IAWC and Parent to consummate the transactions contemplated
hereby are subject to the satisfaction, on or prior to the Closing Date, of each
of the following conditions (any one or more of which may be waived in writing
in whole or in part by IAWC and Parent in their sole discretion):
6.1.1 Performance of Agreements; Representations and
Warranties. Seller shall have performed or complied in all material respects
with all agreements and covenants required
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by this Agreement to be performed or complied with by them at or prior to the
Closing; and the representations and warranties set forth in this Agreement made
by Seller shall be true and correct on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date, except for representations and warranties that speak
as of a specific date or time other than the Closing Date (which need only be
true and correct as of such date or time), other than, in all such cases (except
Section 3.25), such failures to be true and/or correct as would not in the
aggregate reasonably be expected to have a Material Adverse Effect; provided,
however, that if any such representation or warranty is already qualified in any
respect by materiality or as to material adverse effect, for purposes of
determining whether this condition has been satisfied, such materiality or
material adverse effect qualification will be in all respects ignored and such
representation or warranty shall be true and correct in all respects without
regard to such qualification (but subject to the overall exception as to
material adverse effect set forth immediately prior to this proviso); and
provided further, that the representation and warranty set forth in Section
3.5.1 shall be deemed to be true and correct on and as of the Closing Date if
any Material Adverse Effect that may have arisen or occurred between the
execution date of this Agreement and the Closing Date shall have been cured or
remedied such that such Material Adverse Effect is not continuing as of the
Closing Date. IAWC and Parent shall have been furnished with a certificate of
the Chief Financial Officer or other Vice President of Citizens dated the
Closing Date, certifying to the foregoing.
6.1.2 Opinion of Counsel. IAWC and Parent shall have received
from L. Russell Mitten II, Vice President and General Counsel of Seller, an
opinion dated the Closing Date, in form and substance satisfactory to IAWC and
Parent, to the effect set forth in Exhibit E hereto.
6.1.3 HSR Act. The applicable waiting period under the HSR Act
with respect to the transactions contemplated hereby shall have expired or been
terminated.
6.1.4 Required PUC and Other Consents. The PUC shall have
issued an order approving the transactions contemplated hereby, and such order
shall not contain any restrictions or conditions (other than those in effect on
the date hereof or requiring that the regulatory treatment with respect to the
Business in existence as of the date of this Agreement applicable to Seller be
continued following the transactions contemplated hereby) which would have a
Material Adverse Effect or a material adverse effect on any other regulated
business of Parent or IAWC in the state in which the PUC has jurisdiction, and
such order shall be final and unappealable; Seller shall have obtained all
statutory, regulatory and other consents and approvals which are required in
order to consummate the transactions contemplated hereby and to permit IAWC and
Parent to conduct the Business being acquired by each in the manner contemplated
by Section 3.25 hereof other than those the failure of which to obtain would not
have a Material Adverse Effect. Seller shall have also obtained (i) all consents
and legal opinions required to enable Parent or IAWC to assume (or for Citizens
to assign to Parent or IAWC) the Assumed Indebtedness (without any change in the
tax-exempt status of such Assumed Indebtedness and without any event of
taxability relating to the matters set forth in Sections 7.4.1(a)(D) and
7.4.1(b)(F)) and all other consents and legal opinions required to enable Seller
to sell to Parent and IAWC the Acquired Assets being acquired by each at the
Closing (without any change in the tax-exempt status of such Assumed
Indebtedness and without
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any event of taxability relating to the matters set forth in Sections
7.4.1(a)(D) and 7.4.1(b)(F)), free and clear of all Liens other than Permitted
Exceptions (and specifically free and clear of any Lien arising under or
pursuant to the Mortgage Indenture) and (ii) all consents required under
Contracts and Permits relating to Seller's water appropriation and flowage
rights to the extent reasonably sufficient to enable IAWC to service the
customers of the Business and to service future commitments under such
Contracts.
6.1.5 Injunction; Litigation. (i) No statute, rule, regulation
or order of any court or Authority shall be in effect which restrains or
prohibits the transactions contemplated by this Agreement or which would limit
or materially adversely affect IAWC's and Parent's respective ownership of all
or any material portion of the Acquired Assets, nor (ii) shall there be pending
or threatened any litigation, suit, action or proceeding by any party which
would reasonably be expected to materially limit or materially adversely affect
IAWC's and Parent's respective ownership of the Acquired Assets.
6.1.6 Documents. Seller and Citizens shall have delivered all
of the certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Section 2.7 hereof and shall
have made arrangements reasonably satisfactory to Parent and IAWC to deliver to
Parent and IAWC as promptly as practicable after the Closing such records
(including customer and employee records) necessary to own and operate the
respective portion of the Business being acquired by each.
6.1.7 Related Closings. Parent and IAWC shall be reasonably
satisfied that the consummation of each of the asset purchase and sale
transactions contemplated by those certain purchase agreements described on
Schedule 6.1.7 (the "Related Purchase Agreements") will occur concurrently with
the Closing.
6.2 Conditions Precedent to Obligations of Seller Parties. The
obligations of the Seller Parties to cause the consummation of the transactions
contemplated hereby are subject to the satisfaction, on or prior to the Closing
Date, of each of the following conditions (any one or more of which may be
waived in writing in whole or in part by the Seller Parties in their sole
discretion):
6.2.1 Performance of Agreements; Representations and
Warranties. Parent and IAWC shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by them at or prior to the Closing; and the
representations and warranties set forth in this Agreement made by IAWC and
Parent shall be true and correct on and as of the Closing Date, with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date, except for representations and warranties that speak
as of a specific date or time other than the Closing Date (which need only be
true and correct as of such date or time), other than, in all such cases (except
Section 4.2), such failures to be true and/or correct as would not in the
aggregate reasonably be expected to have a material adverse effect on the
respective ability of IAWC and Parent to perform their obligations under this
Agreement and the Transaction Documents, provided, however, that if any such
representation or warranty is already qualified in any respect by materiality or
as to material adverse effect, for purposes of determining whether this
condition has been satisfied, such materiality or material
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adverse effect qualification will be in all respects ignored and such
representation or warranty shall be true and correct in all respects without
regard to such qualification (but subject to the overall exception as to
material adverse effect set forth immediately prior to this proviso). Seller
shall have been furnished with a certificate of the President or Vice President
of Parent and IAWC, dated the Closing Date, certifying to the foregoing.
6.2.2 Opinion of Counsel. Seller shall have received from
Dechert Price & Rhoads, counsel to IAWC and Parent, an opinion dated the Closing
Date, in form and substance satisfactory to Seller, to the effect set forth in
Exhibit F hereto.
6.2.3 HSR Act. The applicable waiting period under the HSR Act
with respect to the transactions contemplated hereby shall have expired or been
terminated.
6.2.4 Required PUC and Other Consents. The PUC shall have
issued an order approving the transactions contemplated hereby and such order
shall not contain any restrictions or conditions which would have a material
adverse effect on Seller's business activities in the State in which the PUC has
jurisdiction or any significant adverse effect on Citizens' acquisition and
divestiture activities in that State (including divestiture of the Acquired
Assets), and such order shall be final and unappealable; Seller shall have
obtained all statutory and regulatory consents and approvals which are required
in order to consummate the transactions contemplated hereby, other than those
the failure of which to obtain would not have a material adverse effect on the
Seller after the Closing. Seller shall have obtained (i) all consents and legal
opinions required to enable Parent or IAWC to assume (or Citizens to assign to
Parent or IAWC) the Assumed Indebtedness without any change in the tax-exempt
status thereof and without any event of taxability relating to the matters set
forth in Sections 7.4.1(a)(D) and 7.4.1(b)(F), (ii) all consents and legal
opinions required under the Retained IDRB Documents to enable Seller to retain
the Retained IDRB Indebtedness until maturity and to sell to Parent and IAWC the
Acquired Assets being acquired by each at the Closing (in each case without any
change in the tax-exempt status of the Assumed Indebtedness or the Retained IDRB
Indebtedness and without any event of taxability relating to the matters set
forth in Sections 7.4.1(a)(D) and 7.4.1(b)(F)), free and clear of all Liens
other than Permitted Exceptions (and specifically free and clear of any Lien
arising under or pursuant to the Mortgage Indenture), and (iii) all other
consents required or advisable in order for Seller to transfer Acquired Assets
without incurring material liability under any Contract, Permit or Real Estate
instrument.
6.2.5 Injunction; Litigation. (i) No statute, rule, regulation
or order of any court or Authority shall be in effect which restrains or
prohibits the transactions contemplated by this Agreement or which would limit
or materially adversely affect Seller's ownership of all or any material portion
of its properties, nor (ii) shall there be pending or threatened any litigation,
suit, action or proceeding by any party which could reasonably be expected to
materially limit or materially adversely affect Seller's ownership of any of its
properties.
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6.2.6 Documents. Parent and IAWC shall have delivered all the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Sections 2.7, 5.24 and 5.27,
and shall have taken such actions as Seller may have requested pursuant to
Section 5.25 hereof.
6.2.7 Related Closings. Seller shall be reasonably satisfied
that the consummation of each of the Related Purchase Agreements will occur
concurrently with Closing.
6.3 Termination. This Agreement may be terminated at anytime prior
to the Closing Date:
6.3.1 by mutual written consent of the Seller Parties, IAWC
and Parent;
6.3.2 by any of the Seller Parties, Parent or IAWC if: (i) any
governmental or regulatory body the consent of which is a condition to the
obligations of the Seller Parties, Parent and IAWC to consummate the
transactions contemplated hereby shall have determined not to grant its consent
and all appeals of such determination shall have been taken and have been
unsuccessful; (ii) any court of competent jurisdiction shall have issued an
order, judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and such order, judgment or decree shall have become final and
nonappealable; or (iii) the Closing shall not have occurred on or before March
31, 2001; provided, however, that the right to terminate this Agreement under
this Section 6.3.2(iii) will not be available to any party that is in material
breach of its representations, warranties, covenants or agreements contained
herein; and provided, further, that if Closing has not occurred by such date
because the conditions precedent to Closing set forth in the first sentence of
Section 6.1.4 and the first sentence of Section 6.2.4 have not been fulfilled,
then such date shall be automatically extended to September 30, 2001; or
6.3.3 If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Section 6.3, this
Agreement shall become void and of no further force and effect, except for the
provisions of Section 5.6 relating to publicity, Sections 3.24 and 4.6 relating
to brokerage and Section 7.1 relating to expenses. Nothing in this Section 6.3
shall be deemed to release either party from any liability for any willful
breach by such party of the terms and provisions of this Agreement.
ARTICLE 7
CERTAIN ADDITIONAL COVENANTS
7.1 Certain Taxes and Expenses. Citizens shall be solely responsible
for all state and local sales, use, transfer, real property transfer and other
similar taxes, fees and charges that are calculated based on the value of the
Acquired Assets being transferred arising from and with respect to the sale and
purchase of the Acquired Assets and each of Parent and IAWC shall be solely
responsible for all transfer, registration, documentary stamp, recording and
other similar fees and
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charges arising from and with respect to the transfer and recording of title
documentation relating to the Acquired Assets being acquired by each. Parent
shall be responsible for all costs and expenses relating to the assumption by or
assignment to Parent or IAWC of the Assumed Indebtedness. Except as otherwise
provided in this Agreement, each of the parties hereto shall each bear its
respective accounting, legal and other expenses incurred in connection with the
transactions contemplated by this Agreement.
7.2 Maintenance of Books and Records. The Seller Parties, on the one
hand, and IAWC and Parent, on the other hand, shall cooperate fully with each
other after the Closing so that (subject to any limitations that are reasonably
required to preserve any applicable attorney-client privilege) each party has
access to the business records, contracts and other information existing at the
Closing Date and relating in any manner to the Acquired Assets or the Assumed
Liabilities or the conduct of the Business (whether in the possession of the
Seller Parties or IAWC or Parent). No files, books or records existing at the
Closing Date and relating in any manner to the Acquired Assets or the conduct of
the Business shall be destroyed by any party for a period of six years after the
Closing Date without giving the other party at least 30 days prior written
notice, during which time such other party shall have the right (subject to the
provisions hereof) to examine and to remove any such files, books and records
prior to their destruction. The access to files, books and records contemplated
by this Section 7.2 shall be during normal business hours and upon not less than
two (2) business days prior written request, shall be subject to such reasonable
limitations as the party having custody or control thereof may impose to
preserve the confidentiality of information contained therein, and shall not
extend to material subject to a claim of privilege unless expressly waived by
the party entitled to claim the same.
7.3 Survival.
7.3.1 Subject to this Section 7.3, Section 7.4.2(g) and
Section 7.4.2(j), all representations, warranties, covenants and agreements
contained in this Agreement or the Transaction Documents shall survive (and not
be affected in any respect by) the Closing, any investigation conducted by any
party hereto and any information which any party may receive. Notwithstanding
the foregoing:
(a) the covenants contained in Sections 5.1, 5.3, 5.4,
5.5, 5.8.2 through 5.8.4 and 5.21 and the related indemnity obligations
contained in Section 7.4 shall terminate on, and no action or claim with respect
thereto may be brought after, the third anniversary of the Closing Date;
(b) the covenants contained in Section 5.2 and the
related indemnity obligations contained in Section 7.4 shall terminate on, and
no action or claim with respect thereto may be brought after, the Closing Date;
(c) the representations and warranties contained in
Sections 3.12 and 3.16 and the related indemnity obligations contained in
Section 7.4 shall terminate on, and no
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action or claim with respect thereto may be brought following the expiration of
the applicable statute of limitations (or extensions or waivers thereof);
(d) the representations and warranties contained in
Section 3.2 and the related indemnity obligations contained in Section 7.4 shall
survive for an unlimited period of time;
(e) the representations and warranties contained in
Section 3.10 and the related indemnity obligations contained in Section 7.4
shall terminate on, and no action or claim with respect thereto may be brought
after, the third anniversary of the Closing Date;
(f) the representations and warranties contained in
Section 3.7 and 3.17 and the related indemnity obligations contained in Section
7.4 shall terminate on, and no action or claim with respect thereto may be
brought after, the third anniversary of the Closing Date;
(g) the representations and warranties contained in
Sections 3.3, 3.5, 3.6, 3.8, 3.9 and 3.25 and the related indemnity obligations
contained in Section 7.4 shall terminate on, and no action or claim with respect
thereto may be brought after, the third anniversary of the Closing Date;
(h) the representations and warranties contained in
Section 3.11 and the related indemnity obligations contained in Section 7.4
shall terminate on, and no action or claim with respect thereto may be brought
after, the third anniversary of the Closing Date;
(i) the representations and warranties contained in
Section 4.2 and the related indemnity obligations contained in Section 7.4 shall
survive for an unlimited period of time;
(j) the representations and warranties contained in
Sections 4.3 and 4.4 and the related indemnity obligations contained in Section
7.4 shall terminate on, and no action or claim with respect thereto may be
brought after, the third anniversary of the Closing Date;
(k) the representations and warranties contained in
Section 4.5 and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be brought after,
the Closing Date; and
(l) all other representations and warranties contained
in this Agreement and the related indemnity obligations contained in Section 7.4
shall terminate on and no further action or claim with respect thereto may be
brought after, the second anniversary of the Closing Date;
(m) such representations and warranties specified in the
foregoing clauses (c) through (k), and the covenants contained in Section 5.1,
5.2, 5.3, 5.4, 5.5, 5.8.2 through 5.8.4 and 5.21 and the liability of any party
with respect thereto, shall not terminate with respect to any claim, whether or
not fixed as to liability or liquidated as to amount, with respect to which such
party has been given written notice setting forth the facts upon which the claim
for indemnification
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is based and, if possible, a reasonable estimate of the amount of the claims
prior to the relevant anniversary of the Closing Date or the 30th day after the
expiration of the applicable statute of limitations (or extensions or waivers
thereof), as the case may be. If any claim for indemnification is asserted or
could be asserted with respect to a breach or asserted breach of Section 3.17
(Undisclosed Liabilities) and the IAWC or Parent is also entitled to
indemnification in respect of that claim for breach or asserted breach of any
other representation or warranty in this Agreement for which there is a shorter
survival period, such shorter period will apply to such claim except to the
extent that such claim is a product liability, toxic tort or similar claim (as
described in Section 2.3.3(a)) brought by a private party litigant.
7.3.2 No claim for indemnity under Section 7.4 shall be
brought or made by IAWC or Parent pursuant to Sections 7.4.1(a)(B) or
7.4.1(a)(C):
(a) after the tenth anniversary of the Closing Date (the
seventh anniversary of the Closing Date in the event of a Change of Control of
Citizens), for any action or claim with respect to the Pre-Existing Conditions;
(b) after the tenth anniversary of the Closing Date (the
seventh anniversary of the Closing Date in the event of a Change of Control of
Citizens), with respect to the presence of Hazardous Substances at any locations
other than the Real Estate; and
(c) after the third anniversary of the Closing Date, for
any action or claim with respect to any other Retained Liability;
Provided, however, that the foregoing time limitations shall not apply to
any such claims which have been the subject of a written notice from Parent
and/or IAWC to the Seller Parties prior to such period setting forth the facts
upon which the claim for indemnification is based and, if possible, a reasonable
estimate of the amount of the claims; and, provided, further, that the foregoing
time limitations shall also not apply to any such claims: (u) with respect to
Taxes; (v) with respect to any liability of the types that appear as "Trade
Payables" or "Other Current and Accrued Liabilities" on the financial statements
of Seller; (w) not exclusively related to the Acquired Assets or not exclusively
related to the Business; and (x) with respect to any of the matters discussed in
Section 3.16 hereof.
For purposes of Sections 7.3.2(a) and (b), a "Change of Control of
Citizens" shall be deemed to have occurred if: (i) any "person" (as such term is
used in Section 13(d) and 14(d) of the Exchange Act of 1934, as amended (the
"Exchange Act"), other than an underwriter engaged in a firm commitment
underwriting on behalf of Citizens, is or becomes the beneficial owner (as such
term is used in Rule 13D-3 and 13D-5 under the Exchange Act, except that for
purposes of this clause (i) a person shall be deemed to have beneficial
ownership of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total outstanding shares of common stock of
the Company; (ii) all or substantially all of Citizens' and its Subsidiaries'
assets are sold, leased, exchanged or otherwise transferred to any person or
group of persons acting in concert; (iii) Citizens
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is merged or consolidated with any other person, whether or not Citizens is the
surviving corporation in such merger or consolidation; or (iv) Citizens is
liquidated or dissolved or adopts a plan of liquidation.
7.4 Indemnification. Seller, Parent and IAWC agree as follows:
7.4.1 General Indemnification Obligations.
(a) Seller shall indemnify Parent and IAWC and their
directors, officers and other Affiliates and hold Parent and IAWC and such other
parties harmless from and against any and all Damages arising out of or
resulting from (A) any breach of any representation, warranty, covenant or
agreement made by the Seller Parties in this Agreement or in any document or
certificate required to be furnished to Parent or IAWC by any of the Seller
Parties pursuant to this Agreement (including the Transaction Documents); (B)
subject to Section 7.3.2, any Excluded Assets or Retained Liabilities; (C)
subject to Section 7.3.2, the ownership, operation or use of any of the
businesses or assets of the Seller Parties or their Affiliates (other than the
Business, the Acquired Assets or the CLWC Stock) whether before, on or after the
Closing Date; and (D) an event of taxability, as such term is customarily used
in municipal securities transactions, relating to the Retained IDRB Indebtedness
and arising from the sale of the Acquired Assets pursuant to this Agreement.
(b) IAWC and Parent shall indemnify Seller, and their
directors, officers and other Affiliates (including Citizens) and hold Seller
and such other parties harmless from and against any and all Damages arising out
of or resulting from (A) any breach of any representation, warranty, covenant or
agreement made by Parent or IAWC in this Agreement or in any document or
certificate required to be furnished to Seller by Parent or IAWC pursuant to
this Agreement (including the Transaction Documents), including the IAWC's IDRB
Obligations; (B) any Assumed Liabilities after the Closing Date, including the
Assumed Indebtedness; (C) the ownership, operation or use of the Business, the
Acquired Assets or the CLWC Stock after the Closing Date (except to the extent
resulting from Retained Liabilities or to the extent resulting from breaches by
the Seller Parties of representations, warranties, covenants or agreements
hereunder or in the other Transaction Documents); (D) any claim by a Transferred
Employee or a Former Employee referred to on Schedule 5.12 or the Beneficiary of
any such employee or former employee for post-retirement health care or life
insurance benefits "incurred" (within the meaning of Section 5.9.4) after the
Closing; (E) any violation by Parent or IAWC, or any assignee, lessee or
successor of Parent or IAWC, of the covenants and agreements as provided by
Section 5.16.3 hereof and Section 5 of Exhibit D hereto; and (F) an event of
taxability, as such term is customarily used in municipal securities
transactions, relating to the Assumed Indebtedness and arising from the sale of
the Acquired Assets pursuant to this Agreement and/or the assignment or
assumption of the Assumed Indebtedness.
(c) For purposes of this Agreement, "Damages" shall mean
any and all losses, liabilities, obligations, damages (including any
governmental penalty or punitive damages assessed or asserted against the party
seeking indemnification and including costs of
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investigation, clean-up and remediation), deficiencies, interest, costs and
expenses and any claims, actions, demands, causes of action, judgments, costs
and reasonable expenses (including reasonable attorneys' fees and all other
reasonable expenses incurred in investigating, preparing or defending any
litigation or proceeding, commenced or threatened, incident to the successful
enforcement of this Agreement). For purposes of this Section 7.4, the
determination of whether any breach of any representation, covenant or agreement
has occurred, and the calculation of the amount of Damages incurred by the
Indemnified Party arising out of or resulting from any breach of a
representation, covenant or agreement by any party hereto, the references to a
"Material Adverse Effect" or materiality (or other correlative terms) shall be
disregarded, provided that no such breach shall be found to have occurred due to
facts or circumstances arising from an occurrence or condition described in
Section 1.1.60(a). Notwithstanding the foregoing, Damages shall not include the
loss of profits of the party seeking indemnification, or punitive damages unless
the party seeking indemnification has had punitive damages assessed or asserted
against it.
(d) Notwithstanding any language contained in any
Transaction Document (including deeds to Real Estate and instruments delivered
by Seller to the Title Company), representations and warranties as to Real
Estate set forth in Section 3.10 and 3.11 will not be merged into any
Transaction Document and the indemnification obligations of Seller, and the
limitations on such obligations, set forth in this Agreement, shall control. No
provision set forth in any Transaction Document shall be deemed to enlarge,
alter or amend the terms or provisions of this Agreement.
7.4.2 General Indemnification Procedures.
(a) A party seeking indemnification pursuant to this
Section 7.4 (an "Indemnified Party") shall give prompt written notice to the
party from whom such indemnification is sought (the "Indemnifying Party") of the
assertion of any claim, the incurrence of any Damages, or the commencement of
any action, suit or proceeding, of which it has knowledge and in respect of
which indemnity may be sought hereunder, and will give the Indemnifying Party
such information with respect thereto as the Indemnifying Party may reasonably
request, but failure to give such required notice shall relieve the Indemnifying
Party of any liability hereunder only to the extent that the Indemnifying Party
has suffered actual prejudice thereby. The Indemnifying Party shall have the
right, exercisable by written notice to the Indemnified Party after receipt of
notice from the Indemnified Party of the commencement of or assertion of any
claim or action, suit or proceeding by a third party in respect of which
indemnity may be sought hereunder (a "Third Party Claim"), to assume the defense
of such Third Party Claim which involves (and continues to involve) solely
monetary damages; provided, that (A) the Indemnifying Party expressly agrees in
such notice that, as between the Indemnifying Party and the Indemnified Party,
solely the Indemnifying Party shall be obligated to satisfy and discharge the
Third Party Claim, (B) such Third Party Claim does not include a request or
demand for injunctive or other equitable relief by an Authority and (C) the
Indemnifying Party makes reasonably adequate provision to assure the Indemnified
Party of the ability of the Indemnifying Party to satisfy the full amount of any
adverse monetary judgment that is reasonably likely to result. The Indemnifying
Party shall be deemed to have satisfied the condition set forth in clause (C) of
the proceeding sentence if it is a regulated utility.
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(b) Neither the Indemnified Party nor the Indemnifying
Party shall settle any Third Party Claim without the prior written consent of
the other, which consent shall not be unreasonably withheld or delayed.
(c) The Indemnifying Party or the Indemnified Party, as
the case may be, shall have the right to participate in (but not control), at
its own expense, the defense of any Third Party Claim which the other party is
defending as provided in this Agreement.
(d) Amounts paid in respect of indemnification
obligations of the parties shall be treated as an adjustment to the Purchase
Price.
(e) Subject to Section 7.4.2(f) and Section 7.4.2(i),
neither Parent nor IAWC (and the other Persons for which they can claim
indemnity hereunder) shall be entitled to indemnification for Damages incurred
unless the aggregate amount of Damages incurred by Parent and IAWC (or the other
Persons for which they can claim indemnification), together with all other
claims for Damages under Section 7.4.2(e) of each of the Related Purchase
Agreements, exceeds $6,123,000 in the aggregate (the "Threshold Amount"), in
which case Seller shall then be liable for Damages in excess of the Threshold
Amount. Subject to Section 7.4.2(f) and Section 7.4.2(i), the cumulative
aggregate indemnity obligation of Citizens and its Affiliates under Section 7.4
of this Agreement and the Related Purchase Agreements shall not exceed
$60,000,000 (the "Ceiling").
(f) Notwithstanding the foregoing, the parties
acknowledge that Parent and IAWC (and the other Persons for which they can claim
indemnity hereunder) shall be entitled to indemnification for Damages in respect
of intentional and wilful breaches of covenants or agreements in this Agreement
or any of the Retained Liabilities other than the Specified Liabilities
irrespective of the Threshold Amount or the Ceiling (it being understood that
the failure to cure a breach shall not, by itself, be an intentional and wilful
breach). As used herein, the "Specified Liabilities" shall mean the Retained
Liabilities arising from claims made after the Closing Date which (i) do not
relate to matters within the scope of clauses (u), (v), (w) and (x) of Section
7.3.2; (ii) were not known to the Seller Parties on or prior to Closing; and
(iii) relate exclusively to the Acquired Assets or the Business prior to the
Closing Date. Notwithstanding anything to the contrary in this Section 7.4,
Parent and IAWC (or the other Persons for which they can claim indemnification)
shall be entitled to indemnification for Damages in respect of a breach of
Section 3.2, 3.12 or 3.16 irrespective of the Threshold Amount or the Ceiling.
(g) The rights and remedies of Seller, Parent and IAWC
under this Section 7.4 are exclusive and in lieu of any and all other rights and
remedies which Seller, Parent and IAWC may have under this Agreement or
otherwise for monetary relief with respect to (x) the inaccuracy of any
representation, warranty, certification or other statement made (or deemed made)
by Seller, Parent or IAWC in or pursuant to this Agreement or any of the
Transaction Documents or (y) any breach or failure to perform any covenant or
agreements set forth in this Agreement or any of the Transaction Documents.
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(h) Except to the extent provided in Section 7.4.2(j)
below, no right to indemnification under this Section 7.4 shall be limited by
reason of any investigation or audit conducted before or after the Closing of
any party hereto including, without limitation, the knowledge of such party of
any breach of any representation, warranty, agreement or covenant by the other
party at any time, or the decision by such party to complete the Closing.
(i) No party shall have any liability to another party
under this Section 7.4 for Damages (and no cost or expense relating to such
Damages shall be included in determining the extent of Damages incurred by such
party for purposes of Section 7.4.2(e)) to the extent that:
(A) the Indemnified Party recovers insurance
proceeds covering the Damages or otherwise recovers payments in respect of such
Damages from any other source (whether in a lump sum or stream of payments); or
(B) the Indemnified Party's Tax liability is
actually reduced as a result of a tax benefit to which the Indemnified Party
becomes entitled in respect of the Damages.
(j) Seller shall have no liability or obligation under
this Section 7.4 for any Damages resulting from the inaccuracy or breach of any
representation or warranty if such inaccuracy or breach is disclosed by Seller
pursuant to and in accordance with Sections 5.3 and 8.4 hereof;
(k) Parent and IAWC agree to use commercially reasonable
efforts to give timely and effective written notice to the appropriate insurance
carrier(s) of any occurrence or circumstances which, in the judgment of Parent
or IAWC consistent with its customary risk management practices, appear likely
to give rise to a claim against Parent or IAWC that is likely to involve one or
more insurance policies of Parent or IAWC. Any such notice shall be given in
good faith by Parent or IAWC, as the case may be, without regard to the
possibility of indemnification payments by Seller under this Section 7.4, and
shall be processed by Parent or IAWC, as the case may be, in good faith and in a
manner consistent with its risk management practices involving claims for which
no third party contractual indemnification is available. Each of Parent and IAWC
agree that (i) if it is entitled to receive payment from Seller for Damages
arising under or pursuant to a breach of the representation and warranty set
forth in Section 3.10, and (ii) if Parent or IAWC has obtained title insurance
which may cover the claim or matter giving rise to such Damages, then (iii) such
title insurance shall be primary coverage and Parent or IAWC, as the case may
be, will make a claim under the title insurance if such claim can be made in
good faith before enforcing its right to receive payment from Seller. Neither
Parent nor IAWC shall be under any obligation to obtain title insurance or
prosecute such claim (other than the initial filing of such claim).
(l) If at any time subsequent to the receipt by an
Indemnified Party of an indemnity payment hereunder, such Indemnified Party (or
any Affiliate thereof) receives
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any recovery, settlement or other similar payment with respect to the Damages
for which it received such indemnity payment (including insurance proceeds and
other payments pursuant to Section 7.4.2(i)(A) and a tax benefit pursuant to
Section 7.4.2(i)(B)) (the "Recovery"), such Indemnified Party shall promptly pay
to the Indemnifying Party an amount equal to the amount of such Recovery, less
any expense incurred by such Indemnified Party (or its Affiliates) in connection
with such Recovery, but in no event shall any such payment exceed the amount of
such indemnity payment;
(m) In the event of any indemnification claim
under this Section 7.4 involving the claim of any third party, the Indemnified
Party shall cooperate fully (and shall cause its Affiliates to cooperate fully)
with the Indemnifying Party in the defense of any such claim under this Section
7.4. Without limiting the generality of the foregoing, the Indemnified Party
shall furnish the Indemnifying Party with such documentary or other evidence as
is then in its or any of its Affiliates' possession as may reasonably be
requested by the Indemnifying Party for the purpose of defending against any
such claim. Whether or not the Indemnifying Party chooses to defend or prosecute
any claim involving a third party, all the parties hereto shall cooperate in the
defense or prosecution thereof and shall furnish such records, information and
testimony, and attend such conferences, discovery proceedings, hearings, trials
and appeals, as may be reasonably requested in connection therewith.
7.4.3 Indemnification for Negligence. WITHOUT LIMITING OR
ENLARGING THE SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS
AGREEMENT, AN INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER
IN ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM
GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE,
CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY, VIOLATION OF ANY LAW OR
OTHER LEGAL FAULT OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS
PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
7.5 UCC Matters. From and after the Closing Date, Seller will
promptly refer to Parent or IAWC all inquiries with respect to ownership of the
Acquired Assets and the Business being acquired by each, and will refer to
Parent all inquiries with respect to the ownership of the CLWC Stock. In
addition, Seller will execute such documents and financing statements as Parent
or IAWC may reasonably request from time to time to evidence transfer of the
Acquired Assets to Parent or IAWC in accordance with this Agreement, including
any necessary assignment of financing statements.
7.6 Financial Statements. In connection with the preparation and
filing of any registration statement or periodic report of Parent or its
Affiliates pursuant to Rule 3-05, Article 11 of Regulation S-X or other rule or
regulation promulgated under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, Seller, at Parent's expense, shall
provide Parent (a) by April 30, 2000 or within 120 days after Parent's written
request therefor if made after January 1, 2000, with the following audited
financial statements: (i) a statement of net assets of the Business as of the
end of the last fiscal year prior to Closing; and (ii) a statement of
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income of the Business and a statement of cash flows or its equivalent of the
Business for the last fiscal year prior to Closing (in each case combined with
the businesses being acquired by Parent, IAWC and Affiliates of Parent pursuant
to the Related Purchase Agreements), including opinions thereon of Seller's
Accountants, and (b) within 90 days after Parent's written request made therefor
(provided such request is made after the end of the fiscal quarter described
below), the following unaudited statements: (i) a statement of net assets of the
Business as of the end of the last fiscal quarter prior to Closing (but only if
such quarter is subsequent to the last fiscal year prior to Closing); and (ii) a
statement of income of the Business and a statement of cash flows or its
equivalent of the Business, for the period from the end of the last fiscal year
through the end of the last fiscal quarter prior to Closing (in each case
combined with the businesses being acquired by Parent, IAWC and Affiliates of
Parent pursuant to the Related Purchase Agreements).
7.7 Collection of Receivables. Seller agrees that it shall promptly
(and in any event no later than five (5) Business Days following receipt)
deliver all such payments with respect to accounts receivable from customers of
the Business received on and after the Closing Date (including but not limited
to negotiable instruments tendered in payment of accounts receivable assigned to
IAWC hereunder which shall be duly endorsed by Seller to the order of IAWC) to
IAWC. Seller shall cooperate with IAWC in coordinating the transfer of
collection agents and customers of the Business who pay their bills through the
Automated Clearinghouse (ACH) process to IAWC.
ARTICLE 8
MISCELLANEOUS
8.1 Construction. Parent, IAWC and the Seller Parties have
participated jointly in the negotiation and drafting of this Agreement and the
Transaction Documents. In the event any ambiguity or question of intent or
interpretation arises, this Agreement and the Transaction Documents shall be
construed as if drafted jointly by Parent, IAWC and the Seller Parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The word "including" in this Agreement shall mean
including without limitation. Words in the singular shall be held to include the
plural and vice versa and words of one gender shall be held to include the other
genders as the context requires. The terms "hereof," "herein," and "herewith"
and words of similar import shall, unless otherwise stated, be construed to
refer to this Agreement as a whole (including all of the Schedules and Exhibits
hereto) and not to any particular provision of this Agreement, and Article,
Section, paragraph, Exhibit and Schedule references are to the Articles,
Sections, paragraphs, Exhibits and Schedules to this Agreement unless otherwise
specified. The word "or" shall not be exclusive. Provisions of this Agreement
shall apply, when appropriate, to successive events and transactions. Section
references refer to this Agreement unless otherwise specified.
8.2 Notices. Any notice, request, demand, waiver, consent, approval
or other communication which is required or permitted to be given to any party
hereunder shall be in writing
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and shall be deemed given only if delivered to the party personally or sent to
the party by telecopy, by registered or certified mail (return receipt
requested) with postage and registration or certification fees thereon prepaid,
or by any nationally recognized overnight courier addressed to the party at its
address set forth below:
If to Parent:
American Water Works Company
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, New Jersey 08043
Fax: (609) 346-8299
Attention: General Counsel
with a copy to:
Illinois-American Water Company
300 N. Water Works Drive
P.O. Box 24040
Belleville, IL 62223-9040
Fax: (618) 236-1186
Attention: Corporate Counsel
and:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to IAWC:
Illinois-American Water Company
300 N. Water Works Drive
P. O. Box 24040
Belleville, IL 62223-1186
Fax: (618) 236-1186
Attention: Corporate Counsel
with a copy to Parent and a copy to:
Dechert Price & Rhoads
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4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to Seller:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: Robert J. DeSantis
Telecopier: (203) 614-4625
with copies to:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: L. Russell Mitten, II
Telecopier: (203) 614-4651
and
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: J. Michael Love
Telecopier: (203) 614-5201
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention: Jeffry L. Hardin
Telecopier: (202) 387-3467
8.3 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided, however, that no party
may assign, delegate or otherwise transfer any of its rights or obligations
under this Agreement without the consent of the other parties hereto; provided,
that (a) Parent may assign this Agreement, without the prior written consent of
Seller, to any direct or indirect subsidiary of Parent provided such subsidiary
assumes in writing all the duties and
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obligations of Parent hereunder and, if such assignment requires the approval of
the PUC, such assignment was described in the initial filing made by the parties
pursuant to Section 5.5 (provided that no such assignment by Parent shall in any
way operate to enlarge, alter or change any obligation due to Seller or relieve
Parent of its obligations hereunder if such subsidiary fails to perform such
obligations, with the understanding that Parent shall be jointly and severally
liable with such subsidiary for any non-performance of Parent's obligations
hereunder); and (b) Seller may assign its rights or delegate its duties under
this Agreement to a qualified intermediary chosen by Seller to structure the
transactions contemplated hereby as a like-kind exchange of property covered by
Section 1031 of the Code.
8.4 Exhibits and Schedules. All Exhibits and Disclosure Schedules
annexed hereto or referred to herein are hereby incorporated in and made a part
of this Agreement as if set forth in full herein. Disclosure of any fact or item
in any Schedule referenced by a particular paragraph or Section in this
Agreement shall, should the existence of the fact or item or its contents be
clearly related to any other paragraph or section, be deemed to be disclosed
with respect to that other paragraph or section.
8.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
the conflicts of laws principles thereof.
8.6 Dispute Resolution. Except as otherwise provided herein, any
dispute, controversy or claim between the parties relating to, arising out of or
in connection with this Agreement (or any subsequent agreements or amendments
thereto), including as to its existence, enforceability, validity,
interpretation, performance or breach or as to indemnification or damages,
including claims in tort, whether arising before or after the termination of
this Agreement (any such dispute, controversy or claim being herein referred to
as a "Dispute") shall be settled without litigation and only by use of the
following alternative dispute resolution procedure:
(a) At the written request of a party, each party shall
appoint a knowledgeable, responsible representative to meet and negotiate in
good faith to resolve any Dispute. The discussions shall be left to the
discretion of the representatives. Upon agreement, the representatives may
utilize other alternative dispute resolution procedures such as mediation to
assist in the negotiations. Discussions and correspondence among the parties'
representatives for purposes of these negotiations shall be treated as
confidential information developed for the purposes of settlement, exempt from
discovery and production, and without the concurrence of both parties shall not
be admissible in the arbitration described below, or in any lawsuit. Documents
identified in or provided with such communications, which are not prepared for
purposes of the negotiations, are not so exempted and may, if otherwise
admissible, be admitted in the arbitration.
(b) If negotiations between the representatives of the parties
do not resolve the Dispute within 60 days of the initial written request, the
Dispute shall be submitted to binding arbitration by a single arbitrator
pursuant to the Commercial Arbitration Rules, as then amended and in effect, of
the American Arbitration Association (the "Rules"); provided, however,
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that at the election of either party, the arbitration shall take place before
three (3) arbitrators, one arbitrator being selected by Parent and IAWC, one
arbitrator being selected by Citizens, and the third arbitrator, knowledgeable
in the general subject matter of the dispute, controversy or claim, being
selected by the other two arbitrators. Either party may demand such arbitration
in accordance with the procedures set out in the Rules. The arbitration shall
take place in Newark, New Jersey. The arbitration hearing shall be commenced
within 60 days of such party's demand for arbitration. The arbitrator(s) shall
have the power to and will instruct each party to produce evidence through
discovery (i) that is reasonably requested by the other party to the arbitration
in order to prepare and substantiate its case and (ii) the production of which
will not materially delay the expeditious resolution of the dispute being
arbitrated; each party hereto agrees to be bound by any such discovery order.
The arbitrator(s) shall control the scheduling (so as to process the matter
expeditiously) and any discovery. The parties may submit written briefs. At the
arbitration hearing, each party may make written and oral presentations to the
arbitrator(s), present testimony and written evidence and examine witnesses. No
party shall be eligible to receive, and the arbitrator(s) shall not have the
authority to award, exemplary or punitive damages. The arbitrator(s) shall rule
on the Dispute by issuing a written opinion within 30 days after the close of
hearings. The arbitrators' majority decision shall be binding and final.
Judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction.
(c) Each party will bear its own costs and expenses in
submitting and presenting its position with respect to any Dispute to the
arbitrator(s); provided, however, that if the arbitrator(s) determines that the
position taken in the Dispute by the non-prevailing party taken as a whole is
unreasonable, the arbitrator(s) may order the non-prevailing party to bear such
fees and expenses, and reimburse the prevailing party for all or such portion of
its reasonable costs and expenses in submitting and presenting its position, as
the arbitrator(s) shall reasonably determine to be fair under the circumstances.
Each party to the arbitration shall pay one-half of the fees and expenses of the
arbitrator(s) and the American Arbitration Association.
(d) Notwithstanding any other provision of this Agreement, (i)
either party may commence an action to compel compliance with this Section 8.6
and (ii) if any party, as party of a Dispute, seeks injunctive relief or any
other equitable remedy, including specific enforcement, then such party shall be
permitted to seek such injunctive or equitable relief in any federal or state
court or competent jurisdiction before, during or after the pendency of a
mediation or arbitration proceed under this Section 8.6.
8.7 Severability. The parties agree that (a) the provisions of this
Agreement shall be severable in the event that any provision hereof is held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable,
(b) such invalid, void or otherwise unenforceable provision shall be
automatically replaced by another provision which is as similar as possible in
terms to such invalid, void or otherwise unenforceable provision but which is
valid and enforceable and (c) the remaining provisions shall remain enforceable
to the fullest extent permitted by law.
8.8 No Third Party Beneficiaries. Nothing herein expressed or
implied is intended or should be construed to confer upon or give to any Person
other than the parties hereto
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and their successors and permitted assigns any rights or remedies under or by
reason of this Agreement.
8.9 Entire Agreement. This Agreement, the Schedules and Exhibits
hereto and the other Transaction Documents, and the Confidentiality Agreement
dated August 2, 1999, between Citizens and Parent, (i) together constitute the
entire understanding of the parties (and their affiliates) with respect to the
subject matter hereof, and any related matter, (ii) supercede all prior
agreements or understandings, written or oral, entered into by any of the
parties that concern the subject matter hereof and (iii) are not intended to
confer upon any Person other than the parties hereto any benefit, right or
remedy.
8.10 Amendment and Waiver. The parties may, by mutual agreement,
amend this Agreement in any respect, and any party, as to such party, may (i)
extend the time for the performance of any of the obligations of the other
party; (ii) waive any inaccuracies in representations and warranties by the
other party; (iii) waive compliance by the other party with any of the covenants
or agreements contained herein and performance of any obligations by the other
party; and (iv) waive the fulfillment of any condition that is precedent to the
performance by such party of any of its obligations under this Agreement. To be
effective, any such amendment or waiver must be in writing and be signed by the
party providing such waiver or extension, as the case may be. The waiver by any
party hereto of any breach of any provision of this Agreement shall not operate
or be construed as a waiver of any subsequent breach, whether or not similar.
8.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
8.12 Headings. The headings preceding the text of the sections and
subsections hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
8.13 Definitions. For purposes of this Agreement, references to the
knowledge of the Seller Parties (including a reference to "the best of the
knowledge of the Seller Parties" and similar references) shall mean the actual
knowledge possessed by any of the following officers or employees of Citizens:
Chief Financial Officer, Vice President and Treasurer; President, Citizens
Public Services; Vice President, Corporate Human Resources; Secretary; Vice
President, Water; and the general manager of the Business.
8.14 No Implied Representation. NOTWITHSTANDING ANYTHING CONTAINED
IN THIS AGREEMENT, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO THAT NEITHER
OF THE SELLER PARTIES ARE MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER,
EXPRESS OR IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS AGREEMENT, ANY SCHEDULE
HERETO, THE TRANSACTION DOCUMENTS, OR ANY DOCUMENT, EXHIBIT, CERTIFICATE,
INSTRUMENT OR STATEMENT TO BE DELIVERED HEREUNDER OR THEREUNDER INCLUDING, BUT
NOT LIMITED TO, ANY IMPLIED WARRANTY OR REPRESENTATION
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AS TO CONDITION, MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR
PURPOSE AS TO ANY OF THE ACQUIRED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, IT IS UNDERSTOOD AND AGREED THAT ANY COST ESTIMATES, PROJECTIONS OR
OTHER PREDICTIONS CONTAINED OR REFERRED TO IN THE SCHEDULES AND ANY COST
ESTIMATES, PROJECTIONS OR PREDICTIONS OR ANY OTHER INFORMATION CONTAINED OR
REFERRED TO IN OTHER MATERIALS THAT HAVE BEEN OR SHALL HEREINAFTER BE PROVIDED
TO PARENT, IAWC OR ANY OF THEIR AFFILIATES, AGENTS OR REPRESENTATIVES ARE NOT
AND SHALL NOT BE DEEMED TO BE REPRESENTATIONS OR WARRANTIES OF ANY OF THE SELLER
PARTIES.
8.15 Construction of Certain Provisions. It is understood and agreed
that neither the specification of any dollar amount in the representations and
warranties contained in this Agreement nor the inclusion of any specific item in
the Schedules or Exhibits is intended to imply that such amounts or higher or
lower amounts, or the items so included or other items, are or are not material,
and none of the parties shall use the fact of the setting of such amounts or the
fact of any inclusion of any such item in the Schedules or Exhibits in any
dispute or controversy between the parties as to whether any obligation, item or
matter is or is not material for purposes hereof.
8.16 Bulk Sales. Each of Parent and IAWC agrees that it shall not
make any filings under any tax bulk sales provisions with respect to the
transactions contemplated by this Agreement.
[Signatures appear on following page.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first written above.
CITIZENS UTILITIES COMPANY
By:_____________________________________
Robert J. DeSantis, Chief Financial
Officer, Vice President
and Treasurer
CITIZENS BUSINESS SERVICES COMPANY
CITIZENS LAKE WATER COMPANY
CITIZENS RESOURCES COMPANY
CITIZENS UTILITIES COMPANY OF ILLINOIS
By:_____________________________________
Robert J. DeSantis, Vice President
AMERICAN WATER WORKS COMPANY, INC.
By:_____________________________________
Joseph F. Hartnett, Jr., Treasurer
ILLINOIS-AMERICAN WATER COMPANY
By:_____________________________________
Terry L. Gloriod, President
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EXECUTION COPY
ASSET PURCHASE AGREEMENT
among
CITIZENS UTILITIES COMPANY
AND
FLOWING WELLS, INC.
AND
AMERICAN WATER WORKS COMPANY, INC. AND
INDIANA-AMERICAN WATER COMPANY
Dated as of
October 15, 1999
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TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS......................................................1
1.1 Certain Definitions..............................................1
ARTICLE 2 THE TRANSACTION..................................................9
2.1 Sale and Purchase of Assets......................................9
2.2 Excluded Assets..................................................9
2.3 Assumption of Certain Liabilities...............................10
2.4 Consent of Third Parties........................................13
2.5 Closing.........................................................14
2.6 Purchase Price..................................................14
2.6.1 Purchase Price............................................14
2.6.2 Payment of Initial Cash Payment...........................14
2.6.3 Estimated Closing Statement...............................15
2.6.4 Post-Closing Adjustment to Purchase Price.................15
2.6.5 Adjustment for Certain Liabilities........................17
2.7 Deliveries and Proceedings at Closing...........................17
2.7.1 Deliveries to Buyer.......................................17
2.7.2 Deliveries By Buyer to the Seller Parties.................18
2.8 Allocation of Consideration.....................................18
2.9 Prorations......................................................18
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER.......................19
3.1 Qualification; No Interest in Other Entities....................19
3.2 Authorization and Enforceability................................19
3.3 No Violation of Laws or Agreements..............................20
3.4 Financial Statements............................................20
3.5 No Changes......................................................21
3.6 Contracts.......................................................21
3.7 Permits and Compliance With Laws Generally......................22
3.8 Environmental Matters...........................................22
3.9 Consents........................................................24
3.10 Title...........................................................25
3.11 Real Estate.....................................................25
3.12 Taxes...........................................................25
3.13 Patents and Intellectual Property Rights........................26
3.14 Accounts Receivable.............................................26
3.15 Labor Relations.................................................26
3.16 Employee Benefit Plans..........................................26
3.17 Absence of Undisclosed Liabilities..............................28
3.18 No Pending Litigation or Proceedings............................28
3.19 Supply of Utilities.............................................29
3.20 Insurance.......................................................29
3.21 Relationship with Customers.....................................29
3.22 WARN Act........................................................29
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3.23 Condition of Assets.............................................29
3.24 Brokerage.......................................................29
3.25 All Assets......................................................29
3.26 Year 2000 Matters...............................................30
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER..............30
4.1 Organization and Good Standing..................................30
4.2 Authorization and Enforceability................................31
4.3 No Violation of Laws or Agreements..............................31
4.4 Consents........................................................32
4.5 Financing.......................................................32
4.6 Brokerage.......................................................32
4.7 Insurance.......................................................32
ARTICLE 5 ADDITIONAL COVENANTS............................................32
5.1 Conduct of Business.............................................32
5.2 Negotiations....................................................34
5.3 Disclosure Schedules............................................34
5.4 Mutual Covenants................................................35
5.5 Filings and Authorizations......................................35
5.6 Public Announcement.............................................36
5.7 Further Assurances..............................................36
5.8 Cooperation.....................................................36
5.9 Employees; Employee Benefits....................................37
5.10 Employee Pension Plan...........................................39
5.12 Welfare Benefits................................................41
5.13 Taxes...........................................................42
5.14 Intentionally Omitted...........................................42
5.15 Citizens' Guarantees and Surety Instruments.....................42
5.16 Intentionally Omitted. .........................................42
5.17 Schedule of Permits.............................................42
5.18 Title Information...............................................42
5.19 Transaction with Related Parties................................43
5.20 Approval by Citizens............................................43
5.21 Supplemental Information........................................43
5.22 Non-Competition.................................................43
5.23 Intentionally Omitted...........................................43
5.24 Intentionally Omitted...........................................44
5.25 Cooperation with Respect to Like-Kind Exchange..................44
5.26 Transition Plan.................................................44
5.27 Procedures regarding Refunds of Advances........................44
5.28 Title Insurance.................................................45
ARTICLE 6 CONDITIONS PRECEDENT; TERMINATION...............................45
6.1 Conditions Precedent to Obligations of Buyer and Parent.........45
6.1.1 Performance of Agreements; Representations and Warranties.45
6.1.2 Opinion of Counsel........................................46
6.1.3 HSR Act...................................................46
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6.1.4 Required PUC and Other Consents...........................46
6.1.5 Injunction; Litigation....................................46
6.1.6 Documents.................................................46
6.1.7 Related Closings..........................................47
6.2 Conditions Precedent to Obligations of Seller Parties...........47
6.2.1 Performance of Agreements; Representations and Warranties.47
6.2.2 Opinion of Counsel........................................47
6.2.3 HSR Act...................................................47
6.2.4 Required PUC and Other Consents...........................47
6.2.5 Injunction; Litigation....................................48
6.2.6 Documents.................................................48
6.2.7 Related Closings..........................................48
6.3 Termination.....................................................48
ARTICLE 7 CERTAIN ADDITIONAL COVENANTS....................................49
7.1 Certain Taxes and Expenses......................................49
7.2 Maintenance of Books and Records................................49
7.3 Survival........................................................49
7.4 Indemnification.................................................52
7.4.1 General Indemnification Obligations.......................52
7.4.2 General Indemnification Procedures........................53
7.4.3 Indemnification for Negligence............................56
7.5 UCC Matters.....................................................56
7.6 Financial Statements............................................56
7.7 Collection of Receivables.......................................57
ARTICLE 8 MISCELLANEOUS...................................................57
8.1 Construction....................................................57
8.2 Notices.........................................................57
8.3 Successors and Assigns..........................................59
8.4 Exhibits and Schedules..........................................59
8.5 Governing Law...................................................60
8.6 Dispute Resolution..............................................60
8.7 Severability....................................................61
8.8 No Third Party Beneficiaries....................................61
8.9 Entire Agreement................................................61
8.10 Amendment and Waiver............................................61
8.11 Counterparts....................................................62
8.12 Headings........................................................62
8.13 Definitions.....................................................62
8.14 No Implied Representation.......................................62
8.15 Construction of Certain Provisions..............................62
8.16 Bulk Sales......................................................63
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List of Schedules
Schedule 1.1.1(a) ................................................. Real Estate
Schedule 2.2.12 ................................................Excluded Assets
Schedule 3.3 ................................No Violation of Laws or Agreements
Schedule 3.4 ..............................................Financial Statements
Schedule 3.5 ........................................................No Changes
Schedule 3.6 .........................................................Contracts
Schedule 3.7 ........................Permits and Compliance with Laws Generally
Schedule 3.8 .................................Environmental Matters - Generally
Schedule 3.8.10 ................................Compliance with Water Standards
Schedule 3.8.11 ...............................................Deed Restriction
Schedule 3.9 ..........................................Seller Parties' Consents
Schedule 3.10 ............................................................Title
Schedule 3.11 ..........................................Real Estate Proceedings
Schedule 3.12 ............................................................Taxes
Schedule 3.15 ..................................................Labor Relations
Schedule 3.16.1 .........................................Employee Benefit Plans
Schedule 3.16.4 ............................Employee Benefit Plans - Compliance
Schedule 3.16.9 ................Employee Benefit Plans - Extraordinary Benefits
Schedule 3.17 ...............................Absence of Undisclosed Liabilities
Schedule 3.18 .............................No Pending Litigation or Proceedings
Schedule 3.19 ..............................................Supply of Utilities
Schedule 3.20 ...............................................Seller's Insurance
Schedule 3.22 .........................................................WARN Act
Schedule 3.23 ..............................................Condition of Assets
Schedule 3.25 .......................................................All Assets
Schedule 3.27 ................................................Product Liability
Schedule 4.7 .................................................Buyer's Insurance
Schedule 5.1 ...............................................Conduct of Business
Schedule 5.9.1 .......................................................Employees
Schedule 5.9.2 ................................Collective Bargaining Agreements
Schedule 5.12 .................................................Former Employees
Schedule 5.15 ............................................ Citizens' Guarantees
Schedule 5.16 ..............................................Schedule of Permits
Schedule 6.1.7 .....................................Related Purchase Agreements
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TABLE OF EXHIBITS
Exhibit A - Form of Assumption Agreement
Exhibit B - Form of Assignment and Bill of Sale
Exhibit C - Intentionally Omitted.
Exhibit D - Intentionally Omitted.
Exhibit E - Form of Seller's Opinion of Counsel
Exhibit F - Form of Buyer's Opinion of Counsel
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ASSET PURCHASE AGREEMENT
THIS IS AN ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of October
15, 1999, by and among Citizens Utilities Company, a Delaware corporation
("Citizens"), and Flowing Wells, Inc., an Indiana corporation and a wholly-owned
subsidiaries of Citizens (collectively with Citizens, "Seller" or the "Seller
Parties"), and American Water Works Company, Inc., a Delaware corporation
("Parent"), and Indiana-American Water Company, Inc., an Indiana corporation
("Buyer").
Background
1. Flowing Wells, Inc., is a public utility engaged in the business of
storing, supplying, distributing and selling water to the public and related
services and activities in the State of Indiana, (the "Business").
2. Parent is a holding company which desires to cause the Buyer to
purchase substantially all of the assets, properties and rights of the Seller
Parties relating to the Business, and Seller desires to sell, and to cause the
sale of, such assets, properties and rights, on the terms and subject to the
conditions set forth in this Agreement.
Terms
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the respective meanings ascribed to them in this Section:
1.1.1 "Acquired Assets" means, subject to Section 2.2, all of
each Seller Party's right, title, and interest in, under and to all of the
assets, properties and rights exclusively used in the Business as a going
concern of every kind, nature and description existing on the Closing Date,
wherever such assets, properties and rights are located and whether such assets,
properties and rights are real, personal or mixed, tangible or intangible, and
whether or not any of such assets, properties and rights have any value for
accounting purposes or are carried or reflected on or specifically referred to
in Seller's books or financial statements, including all of the assets,
properties and rights exclusively relating to the Business enumerated below:
(a) all real property described in Schedule 1.1.1(a),
together with all fixtures, fittings, buildings, structures and other
improvements erected thereon, and easements, rights of way, water lines, rights
of use, licenses, railroad crossing agreements, hereditaments, tenements,
privileges and other appurtenances thereto or otherwise exclusively related to
the Business (such as appurtenant rights in and to public streets) (the "Real
Estate");
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(b) to the extent not included in clause (a) above, all
water tanks, reservoirs, water works, plant and systems, purification and
filtration systems, pumping stations, pumps, wells, mains, water pipes,
hydrants, equipment, machinery, vehicles, tools, dies, spare parts, materials,
water supplies, fixtures and improvements, construction in progress, jigs,
molds, patterns, gauges and production fixtures and other tangible personal
property, in transit or otherwise, used exclusively in the Business (the
"Equipment and Other Tangible Personal Property");
(c) notwithstanding the provisions of Section 2.2 but
subject to Section 2.4, all of Seller's water appropriation and flowage rights
to the extent not transferred to Buyer upon assignment of the Contracts and
Permits to Buyer;
(d) all notes receivable, accounts receivable, accrued
utility revenues, materials and supplies (at average cost net of reserve for
obsolescence) and prepayments attributable in each case exclusively to the
Business;
(e) all deferred capital costs and other deferred
charges (excluding deferred taxes collectable) attributable exclusively to the
Business of which recovery in future rates is probable;
(f) Intellectual Property and goodwill, licenses and
sublicenses granted and obtained with respect thereto;
(g) subject to Section 2.4 hereof, (i) contracts,
commitments, agreements and instruments relating to the sale of any assets,
services, properties, materials or products, including all customer contracts,
operating contracts and distribution contracts relating exclusively to the
conduct of the Business; (ii) orders, contracts, supply agreements and other
agreements relating exclusively to the purchase of any assets, services,
properties, materials, or products for the Business; (iii) all leases of Real
Estate exclusively related to the Business; (iv) all other contracts, agreements
and instruments related exclusively to the Business (other than contracts,
agreements and instruments included in the definition of Real Estate or
Permits); and (v) any such contracts, agreements and other instruments referred
to in clauses (i) - (iv) inclusive, entered into between the date hereof and the
Closing Date which are consistent with the terms of this Agreement and are
entered into in the ordinary course of business consistent with past practice,
and including in the case of clauses (i) - (iv) all such contracts, agreements
and instruments more specifically listed or described in Schedule 3.6 (but
specifically excluding any contract, agreement and instrument listed or
described on Schedule 2.2.12) (the "Contracts");
(h) subject to Section 2.4 hereof, franchises,
approvals, permits, authorizations, licenses, orders, registrations,
certificates, variances, and other similar permits or rights obtained from any
Authority relating exclusively to the conduct of the Business and all pending
applications therefor (the "Permits");
(i) books, records, ledgers, files, documents (including
originally executed copies of written Contracts, to the extent available, and
copies to the extent not available), correspondence, Tax returns relating
exclusively to the Business, memoranda, forms, lists, plats, architectural
plans, drawings, and specifications, new product development materials, creative
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materials, advertising and promotional materials, studies, reports, sales and
purchase correspondence, books of account and records relating to the
Transferred Employees (to the extent such transfer is not prohibited by law),
photographs, records of plant operations and materials used, quality control
records and procedures, equipment maintenance records, manuals and warranty
information, research and development files, data and laboratory books,
inspection processes, in each case, whether in hard copy or magnetic format, in
each instance, to the extent exclusively relating to the Business, the Acquired
Assets or the Transferred Employees;
(j) all rights or choses in action arising out of
occurrences before or after the Closing Date and exclusively related to any of
the Acquired Assets, including third party warranties and guarantees and all
related claims, credits, rights of recovery and set-off and other similar
contractual rights, as to third parties held by or in favor of Seller; provided,
however, that (notwithstanding the foregoing provisions of this Section
1.1.1(j)), to the extent that Seller pays or discharges a liability related to
the Business or any of the Acquired Assets and related to such right or chose in
action (whether by reason of indemnification under this Agreement or otherwise),
Buyer will reassign or reconvey to Seller such right or chose in action to the
extent that such right or chose in action relates to a recovery of amounts paid
to Buyer; and
(k) all rights to insurance and condemnation proceeds
(i) to the extent relating to the damage, destruction, taking or other
impairment of the Acquired Assets which damage, destruction, taking or other
impairment occurs on or prior to the Closing but only to the extent that the
proceeds exceed the amount of the write-down of the net book value of such
Acquired Assets on the books and records of Seller as a result of such damage,
destruction, taking or other impairment and (ii) to the extent they relate to
amounts paid by Buyer for Damages to the extent Buyer does not receive payment
pursuant to Section 7.4.1(a), but only to the extent Buyer is entitled to
indemnification by Seller pursuant to Sections 7.3 and 7.4.
1.1.2 "Adjusted Net Assets" has the meaning set forth in
Section 2.6.4(a) hereof.
1.1.3 "Affected Participant" has the meaning set forth as
Section 5.11.1 hereof.
1.1.4 "Affiliate" of any Person means any Person, directly or
indirectly controlling, controlled by or under common control with such Person.
1.1.5 "Agreement" has the meaning set forth in the
introduction hereof.
1.1.6 "American Pension Plan" has the meaning set forth in
Section 5.10.1 hereof.
1.1.7 "American Savings Plan" has the meaning set forth in
Section 5.11.1 hereof.
1.1.8 "Antitrust Division" has the meaning set forth in
Section 5.5 hereof
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1.1.9 "Assumed Benefit Liabilities" has the meaning set forth
in Section 3.16.6 hereof.
1.1.10 Intentionally Omitted.
1.1.11 "Assumed Liabilities" has the meaning set forth in
Section 2.3 hereof.
1.1.12 "Assumption Agreement" has the meaning set forth in
Section 2.3.2 hereof.
1.1.13 "Authority" means any federal, state, local or foreign
governmental or regulatory entity (or any department, agency, authority or
political subdivision thereof).
1.1.14 "Base Cash Purchase Price" has the meaning set forth in
Section 2.6.1 hereof.
1.1.15 "Beneficiary" means the Person(s) designated by an
Employee, by operation of law or otherwise, as entitled to compensation,
benefits, insurance coverage, payments or any other goods or services under a
Benefit Plan.
1.1.16 "Benefit Plans" has the meaning set forth in Section
3.16.1 hereof.
1.1.17 Intentionally Omitted.
1.1.18 "Business" has the meaning set forth in the Background
section hereof.
1.1.19 "Business Day" means any day other than a Saturday,
Sunday, or a day on which banking institutions in the Commonwealth of
Pennsylvania are authorized or obligated by law or executive order to close.
1.1.20 "Buyer" has the meaning set forth in the introduction
hereof.
1.1.21 Intentionally Omitted.
1.1.22 "Buyer's Accountants" means PricewaterhouseCoopers LLP
or any firm of independent public accountants hereafter designated by Buyer for
purposes of this Agreement.
1.1.23 Intentionally Omitted.
1.1.24 "Ceiling" has the meaning set forth in Section 7.4.2(e)
hereof.
1.1.25 "CERCLA" has the meaning set forth in Section 3.8.2
hereof.
1.1.26 "CERCLIS" has the meaning set forth in Section 3.8.7
hereof.
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1.1.27 "Citizens" has the meaning set forth in the
introduction hereof.
1.1.28 "Closing" has the meaning set forth in Section 2.5
hereof.
1.1.29 "Closing Date" has the meaning set forth in Section 2.5
hereof.
1.1.30 "Closing Statement of Net Assets" has the meaning set
forth in Section 2.6.4(a) hereof.
1.1.31 "Code" means the Internal Revenue Code of 1986, as
amended.
1.1.32 Intentionally Omitted.
1.1.33 "Competing Transaction" has the meaning set forth in
Section 5.2.
1.1.34 "Contracts" has the meaning set forth in Section
1.1.1(g) hereof.
1.1.35 "Control" with respect to any Person means the
ownership, directly or indirectly, of at least a majority of the voting power of
each class of capital stock of such Person entitled to vote in the election of
directors of such Person generally.
1.1.36 "Damages" has the meaning set forth in Section 7.4.1
hereof.
1.1.37 "Disclosure Schedules" means the Schedules referenced
in Articles 3, 4 and 5 of this Agreement, as amended or supplemented pursuant to
Section 5.3.
1.1.38 "Dispute" has the meaning set forth in Section 8.6.
1.1.39 "Employees" has the meaning set forth in Section 5.9.1
hereof.
1.1.40 "Environmental Laws" has the meaning set forth in
Section 3.8 hereof.
1.1.41 "Equipment and Other Tangible Personal Property" has
the meaning set forth in Section 1.1.1(b) hereof.
1.1.42 "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
1.1.43 "ERISA Affiliate" means (a) any corporation included
with any of the Seller Parties in a controlled group of corporations within the
meaning of Section 414(b) of the Code; (b) any trade or business (whether or not
incorporated) which is under common control with any of the Seller Parties
within the meaning of Section 414 of the Code; any member of an affiliated
service group of which any of the Seller Parties is a member within the meaning
of Section 414(m) of the Code; or (d) any other person or entity treated as an
affiliate of any of the Seller Parties under Section 414(o) of the Code.
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1.1.44 "Excluded Assets" has the meaning set forth in Section
2.2 hereof.
1.1.45 "Financial Statements" has the meaning set forth in
Section 3.4 hereof.
1.1.46 "FIRPTA Affidavit" has the meaning set forth in Section
2.7.1 hereof.
1.1.47 "Former Employees" means all salaried and hourly
employees once employed by Seller or any of its Affiliates, but who are no
longer so employed on the Closing Date.
1.1.48 "FTC" has the meaning set forth in Section 5.5 hereof.
1.1.49 "GAAP" has the meaning set forth in Section 3.4 hereof.
1.1.50 "Hazardous Substance" has the meaning set forth in
Section 3.8 hereof.
1.1.51 "HSR Act" has the meaning set forth in Section 3.9
hereof.
1.1.52 Intentionally Omitted.
1.1.53 Intentionally Omitted.
1.1.54 "Indemnified Party" has the meaning set forth in
Section 7.4.2(a) hereof.
1.1.55 "Indemnifying Party" has the meaning set forth in
Section 7.4.2(a) hereof.
1.1.56 "Intellectual Property" means the trademarks, patents,
trade names and copyrights and applications therefor, inventions, trade secrets,
and confidential business information (including know-how, formulas, water
filtration, purification and pumping processes and techniques, technical data,
designs, drawings, customer and supplier lists, and business and marketing plans
and proposals), all computer software (including data and related documentation
and object and source codes), whether in magnetic format or hard copy, and
tangible embodiments thereof (in whatever form or medium) of Seller, in each
case, utilized exclusively in the Business.
1.1.57 "Interim Statement of Net Assets" means the Citizens
Water Resources Statement of Net Assets - Indiana, June 30, 1999, which is
attached hereto as Schedule 3.4.
1.1.58 "Interim Statement of Net Assets Date" means June 30,
1999.
1.1.59 "IRS" has the meaning set forth in Section 3.16.2
hereof.
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1.1.60 "Lien" means any lien, charge, claim, pledge, security
interest, conditional sale agreement or other title retention agreement, lease,
mortgage, security agreement, right of first refusal, option, restriction,
tenancy, license, right of way, easement or other encumbrance (including the
filing of, or agreement to give, any financing statement under the Uniform
Commercial Code or statute or law of any jurisdiction).
1.1.61 "Material Adverse Effect" means a change or effect (or
series of related changes or effects) which has or is reasonably likely to have
a material adverse change in or effect upon the business, assets, condition
(financial or otherwise), or results of operations of the Business or the
Acquired Assets, taken as a whole and taken together with the businesses and
assets being acquired by Buyer or Affiliates of Buyer pursuant to the Related
Purchase Agreements. For purpose of this Agreement, an occurrence or condition
shall not constitute a Material Adverse Effect (a) if it arises from general
business, economic or financial market conditions, from conditions generally
effecting the industries in which Seller competes, or from the transactions
contemplated by this Agreement, or (b) solely with respect to matters arising
prior to Closing, to the extent that either (i) Seller realizes the benefit of
insurance maintained by Citizens on or prior to the Closing Date and Buyer
receives the cash proceeds of such insurance to the extent required by Section
1.1.1(k), or (ii) Seller arranges for Buyer to recover payments in respect of
such occurrence or condition from any other source (whether in a lump sum or
stream of payments), it being understood and agreed that a Material Adverse
Effect may have occurred irrespective of such insurance recovery if the
occurrence or condition giving rise to such recovery also causes a non-monetary
material adverse change in or effect upon the Business or the Acquired Assets,
taken as a whole and taken together with the businesses and assets being
acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements.
1.1.62 "Mortgage Indenture" means Indenture of Mortgage and
Deed of Trust between BNY Western Trust Company (successor in interest to Wells
Fargo Bank, N.A.) and First Interstate Bank of California (as successor trustee
to Marine Midland, N.A., formerly the Marine Midland Trust Company of New York).
1.1.63 "OSHA" has the meaning set forth in Section 3.7.1
hereof.
1.1.64 "PCBs" has the meaning set forth in Section 3.8.6
hereof.
1.1.65 "Permits" has the meaning set forth in Section 1.1.1(h)
hereof.
1.1.66 "Permitted Exceptions" has the meaning set forth in
Section 3.10 hereof; provided, however, that from and after the Closing,
Permitted Exceptions shall not include any Lien arising under or resulting from
the Mortgage Indenture.
1.1.67 "Person" means an individual, a corporation, a
partnership, an association, an Authority, a trustor other entity or
organization.
1.1.68 "Pre-Existing Conditions" has the meaning set forth in
Section 2.3.1(d).
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1.1.69 "Prime Rate" means the rate per annum announced from
time to time during the reference period by Citibank N.A. as its United States
prime, reference or base rate for commercial loans.
1.1.70 "PUC" has the meaning set forth in Section 5.5 hereof.
1.1.71 "Purchase Price" has the meaning set forth in Section
2.6.1 hereof.
1.1.72 "Real Estate" has the meaning set forth in Section
1.1.1(a) hereof.
1.1.73 "Recovery" has the meaning set forth in Section
7.4.2(l) hereof.
1.1.74 "Related Purchase Agreements" as the meaning set forth
in Section 6.1.7 hereof.
1.1.75 "Release" or "Released" has the meaning set forth in
Section 3.8 hereof.
1.1.76 "Remedial Action" has the meaning set forth in Section
3.8 hereof.
1.1.77 Intentionally Omitted.
1.1.78 "Retained Liabilities" has the meaning set forth in
Section 2.3 hereof.
1.1.79 "Review Period" has the meaning set forth in Section
2.6.4(b) hereof.
1.1.80 "SEC" means the U.S. Securities and Exchange
Commission.
1.1.81 "Securities Filings" has the meaning set forth in
Section 5.8.2 hereof.
1.1.82 "Seller" and "Seller Parties" have the respective
meaning set forth in the introduction hereof.
1.1.83 "Seller's Accountants" means KPMG LLP or any other firm
of independent public accountants hereafter designated by Seller for purposes of
this Agreement.
1.1.84 "Seller's Adjusted Amount" has the meaning set forth in
Section 2.6.4(a) hereof.
1.1.85 "Seller's Pension Plan" has the meaning set forth in
Section 5.10.1 hereof.
1.1.86 "Seller's 401(k) Plan" has the meaning set forth in
Section 5.11.1 hereof.
1.1.87 "Specified Liabilities" has the meaning set forth in
Section 7.4.2(f) hereof.
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1.1.88 "Taxes" means any federal, state, local and foreign
income, payroll, withholding, excise, sales, use, personal property, use and
occupancy, business and occupation, mercantile, real estate, gross receipts,
license, employment, severance, stamp, premium, windfall profits, social
security (or similar unemployment), disability, transfer, registration, value
added, alternative, or add-on minimum, estimated, or capital stock and franchise
and other tax of any kind whatsoever, including any interest, penalty or
addition thereto, whether disputed or not.
1.1.89 "Third Accounting Firm" has the meaning set forth in
Section 2.6.4(b) hereof.
1.1.90 "Threshold Amount" has the meaning set forth in Section
7.4.2(e) hereof.
1.1.91 "Third Party Claim" has the meaning set forth in
Section 7.4(b)(i) hereof.
1.1.92 "Transferred Accounts" has the meaning set forth in
Section 5.11.2 hereof.
1.1.93 "Transaction Documents" has the meaning set forth in
Section 3.2 hereof.
1.1.94 "Transferred Employees" has the meaning set forth in
Section 5.9.2 hereof.
1.1.95 "Union Employees" has the meaning set forth in Section
5.9.1 hereof.
1.1.96 "VEBAs" has the meaning set forth in Section 5.12
hereof.
1.1.97 "WARN Act" means the Worker Adjustment and Retraining
Notification Act, as codified at 29 U.S.C. section 2102- 2109, as amended.
ARTICLE 2
THE TRANSACTION
2.1 Sale and Purchase of Assets. Subject to the terms and conditions
of this Agreement, at the Closing referred to in Section 2.5 below, Citizens
shall, and shall cause the other Seller Parties to, sell, assign, transfer,
deliver and convey to Buyer, and Parent shall cause Buyer to purchase, the
Acquired Assets for the Purchase Price specified in Section 2.6.
2.2 Excluded Assets. The following assets of Seller shall be
excluded from the Acquired Assets (the "Excluded Assets"):
2.2.1 assets of the Seller used in both the Business and in
Citizens' gas, electric or communications businesses, the material items of
which are described on Schedule 2.2.12;
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2.2.2 cash and cash equivalents in transit, in hand or in bank
accounts;
2.2.3 except as otherwise set forth herein, assets
attributable or related to any Benefit Plan;
2.2.4 the stock record and minute books of Seller;
2.2.5 Acquired Assets disposed of by Seller after the date of
this Agreement to the extent such dispositions are not prohibited by this
Agreement;
2.2.6 except to the extent set forth in Sections 2.9, rights
to refunds of Taxes payable with respect to the Business, assets, properties or
operations of any of the Seller Parties or any member of any affiliated group of
which any of them is a member, and which are treated as Retained Liabilities
under Section 2.3.3(b) below.
2.2.7 customer and other deposits held in Seller's accounts;
2.2.8 accounts owing by and among Seller and its Affiliates;
2.2.9 notes receivable and other receivables (other than note
and accounts receivable attributable exclusively to the Business);
2.2.10 all deferred tax assets or collectibles;
2.2.11 duplicate copies of all books and records transferred
to Buyer; and
2.2.12 those certain items listed on Schedule 2.2.12.
2.3 Assumption of Certain Liabilities.
2.3.1 Buyer shall not assume any liabilities of Citizens or
Seller or any of their Affiliates, except that Buyer shall assume the following
specific liabilities and obligations:
(a) the obligations and liabilities set forth in
Sections 5.9, 5.10, 5.11 and 5.12 hereof;
(b) except as set forth in Section 2.3.3(b), all
liabilities and obligations of Seller in respect of the Contracts and Permits
assigned or transferred to Buyer pursuant to this Agreement in accordance with
the respective terms thereof, except that Buyer shall not assume any liabilities
or obligations for any breach or default by, or payment obligations of, Seller
under such Contracts and Permits occurring or arising or accruing on or prior to
the Closing Date;
(c) intentionally omitted;
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(d) any liability, obligation or responsibility of
Seller for conditions at the Real Estate, whether based on statutory or common
law, now or hereafter in effect, known or unknown, contingent or actual,
relating to or arising from pollution, contamination or protection of the
environment, human health or safety or natural resources or relating to or
arising from the presence or Release or threat of Release of Hazardous
Substances into the environment at the Real Estate or into or from any building,
structure, pipeline or other facility at the Real Estate, or from violation of
any law relating to the foregoing, including without limitation, any CERCLA or
similar liability under any federal or state law or regulation, except to the
extent Buyer has given written notice of a claim for indemnification pursuant to
Sections 7.3 and 7.4 hereof prior to the expiration of the claims period set
forth in Section 7.3.2(a) or (b) (and if Buyer has given written notice prior to
the expiration of such claims period, to the extent that such claim is not
entitled to indemnification under Sections 7.3 and 7.4) (the foregoing, the
"Pre-Existing Conditions");
(e) all liabilities and obligations of Seller related to
unperformed service obligations, easement and right-of-way relocation
obligations, and construction work in progress, and all engineering and
construction required to complete scheduled construction and other capital
projects for the Business, in each case relating to the Business and outstanding
on or arising after the Closing Date except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment obligations
of, Seller under such Contracts and Permits occurring or arising or accruing on
or prior to the Closing Date;
(f) liability for accrued but unused vacation pay for
the Transferred Employees to the extent provided in Section 5.9.2;
(g) any liability, obligation or responsibility relating
to customer deposits held by Seller on the Closing Date and relating to the
Business; and
(h) all liabilities and obligations imposed on Buyer by
any PUC in connection with the operation of the Business or the ownership of the
Acquired Assets, including with respect to any liability of the types that
appear as "Accrued Liabilities" and "Non-Current Liabilities" on the financial
statements of Seller.
2.3.2 Any liabilities or obligations which are assumed by
Buyer pursuant to Section 2.3.1 above are hereinafter referred to as the
"Assumed Liabilities." At the Closing, Parent shall cause Buyer to execute and
deliver to Seller an assumption agreement, in substantially the form of the
Assumption Agreement attached hereto as Exhibit A (the "Assumption Agreement"),
pursuant to which Buyer shall assume the Assumed Liabilities. Each of Parent and
Buyer hereby irrevocably and unconditionally waives and releases the Seller
Parties from all Assumed Liabilities and all liabilities or obligations
exclusively relating to the Business or the Acquired Assets to the extent
arising from events or occurrences after the Closing or to the extent otherwise
relating to the period after the Closing, including any liabilities created or
which arise by statute or common law, including CERCLA (it being understood that
this shall not constitute a waiver and release of any claims arising out of the
contractual relationships and indemnification arrangements between Buyer and
Seller).
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2.3.3 Buyer shall not assume any liabilities, commitments or
obligations (contingent or absolute and whether or not determinable as of the
Closing) of any of the Seller Parties or any of their Affiliates except for the
Assumed Liabilities as specifically and expressly provided for above, whether
such liabilities or obligations relate to payment, performance or otherwise, and
all liabilities, commitments or obligations not expressly transferred to Buyer
hereunder as Assumed Liabilities are being retained by the Seller Parties, (the
"Retained Liabilities"). Each of the Seller Parties hereby irrevocably and
unconditionally waives and releases Buyer from all Retained Liabilities
including any liabilities created or which arise by statute or common law,
including CERCLA (it being understood that this shall not constitute a waiver
and release of any claims arising out of the contractual relationships and
indemnification arrangements between Buyer and Seller).
Without limitation to the foregoing, all of the following shall be
considered Retained Liabilities and not Assumed Liabilities (except as specified
below) for the purposes of this Agreement:
(a) any product liability, toxic tort or similar claim
for injury to person or property, regardless of when made or asserted, to the
extent that it arises out of or is based upon any express or implied
representation, warranty, agreement or guarantee made by any of the Seller
Parties or any of their Affiliates prior to Closing, or alleged to have been
made by any of such Persons, or to the extent that it is imposed or asserted to
be imposed by operation of law, in connection with any service performed or
product distributed or sold by or on behalf of any of the Seller Parties or any
of their Affiliates prior to Closing, including any claim referred to above in
this Section 2.3.3(a) relating to water quality standards, any claim relating to
any product delivered in connection with the performance of services provided by
Seller and any claim seeking recovery for consequential damages, lost revenue or
income;
(b) all refund obligations relating to the advances
existing on the Closing Date for construction of facilities relating to the
Business;
(c) except to the extent set forth in Section 2.9, any
federal, state, foreign or local income or other Tax payable with respect to the
business, assets, properties or operations of any of the Seller Parties or any
member of any affiliated group of which any of them is a member;
(d) any liability or obligation associated with or in
connection with any common plant assets of Seller (other than the liabilities
and obligations exclusively related to any common plant assets included among
the Acquired Assets);
(e) except as provided in Section 2.3.1 above, any
liability or obligation with respect to compensation or employee benefits of any
nature owed to any employees, agents or independent contractors of any of the
Seller Parties or any of their Affiliates, whether or not employed by Buyer
after the Closing, that arises out of or relates to events or conditions to the
extent occurring before the Closing Date;
(f) except to the extent set forth in Section 2.3.1(d),
any liability, obligation or responsibility of any of the Seller Parties, or any
of their Affiliates or predecessors;
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whether based on statutory or common law, but only as any such law is
interpreted, amended and in effect on the Closing Date, known or unknown,
contingent or actual, relating to or arising from pollution, contamination or
protection of the environment, human health or safety or natural resources or
relating to or arising from the presence or Release or threat of Release of
Hazardous Substances into the environment or into or from any building,
structure, pipeline or other facility or relating to or arising from the
generation, use, storage, treatment, disposal, transport or other handling of
Hazardous Substances or sale or product containing Hazardous Substances from
violation of any law relating to the foregoing (but only as such law is
interpreted, amended and in effect on the Closing Date) including without
limitation, any (A) CERCLA or similar liability under any federal or state law
or regulation as interpreted, amended and in effect on the Closing Date or (B)
any such liability associated with businesses or assets of the Seller Parties
other than the Business or the Acquired Assets;
(g) liabilities and obligations relating to the Business
to the extent arising prior to Closing (unless otherwise constituting Assumed
Liabilities) arising by operation of law under any common law or statutory
doctrine (including successor liability or de facto merger);
(h) any obligation or liability arising under any
contract, commitment, instrument or agreement (1) subject to the penultimate
sentence of Section 2.4, that is not transferred to Buyer as part of the
Acquired Assets, or (2) that relates to any breach or default (or to the extent
that it relates to an event which would, with the passing of time or the giving
of notice, or both, constitute a default) under any Contract, instrument or
agreement or to any services to be provided by Seller under any such Contract,
instrument or agreement to the extent that such services were performed or were
required to have been performed on or prior to the Closing Date;
(i) any liability or obligation in respect of the
Excluded Assets;
(j) any liability or obligation of any of the Seller
Parties or any of their Affiliates existing as a result of any act, failure to
act or other state of facts or occurrence which constitutes a breach or
violation of any of Seller's representations, warranties, covenants or
agreements contained in this Agreement, except to the extent set forth in
Section 7.4; or
(k) except for the Assumed Liabilities as specifically
and expressly set forth herein, any liability to the extent arising out of or
relating to the ownership or operation of the Acquired Assets or the Business
prior to the Closing Date (including any predecessor operations), any claims,
obligations or litigation to the extent arising out of or relating to events or
conditions occurring before the Closing Date, and any liability associated with
any business other than the Business.
2.4 Consent of Third Parties. On the Closing Date, Citizens shall
cause Seller to assign to Buyer, and Parent shall cause Buyer to assume, the
Contracts and the Permits which are to be transferred to Buyer as provided in
this Agreement by means of the Assumption Agreement. To the extent that the
assignment of all or any portion of any Contract or Permit shall require the
consent (or result in a breach or violation thereof) of the other party thereto
or any other third party, and such consent shall not be obtained prior to
Closing, this Agreement shall not constitute an agreement to assign any such
Contract or Permit included in the Acquired Assets. In order, however,
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to provide Buyer the full realization and value of every Contract of the
character described in the immediately preceding sentence, Seller agrees that on
and after the Closing, it will, at the request and under the direction of Buyer,
in the name of Seller or otherwise as Buyer shall specify, take all reasonable
actions (including without limitation the appointment of Buyer as
attorney-in-fact for Seller to proceed at Buyer's sole cost and expense) and do
or cause to be done all such things as shall in the reasonable opinion of Buyer
be necessary (a) to assure that the rights of Seller or its Affiliates under
such Contracts shall be preserved for the benefit of Buyer and (b) to facilitate
receipt of the consideration to be received by Seller or its Affiliates in and
under every such Contract. To the extent that Buyer does receive the benefits of
any such Contract pursuant to the preceding sentence, such Contract shall be a
Contract "assigned or transferred to Buyer pursuant to this Agreement" within
the meaning of Section 2.3.1(b) hereof. Nothing in this Section 2.4 shall in any
way diminish the obligations of Seller to obtain consents and approvals under
this Agreement.
2.5 Closing. Subject to the terms and conditions of this Agreement,
the closing of the sale and purchase of the Acquired Assets (the "Closing")
shall take place at 10 a.m., East Coast time, on a date mutually satisfactory to
Buyer and Seller which is no later than the fifth Business Day after
satisfaction (or waiver) of the conditions to Closing set forth in Sections 6.1
and 6.2 hereof (other than those conditions which require the delivery of any
documents or the taking of other action, at the Closing) at the offices of
Fleischman and Walsh, LLP, 1400 Sixteenth Street, N.W., Washington, D.C. 20036,
or on such other date and at such other time or place as may be mutually agreed
upon by the parties hereto (the "Closing Date"). Upon payment of the Initial
Cash Payment by Buyer and confirmed receipt thereof by Seller or the Escrow
Agent pursuant to Section 2.6.2 below, Seller shall operate the Business at the
direction of and under the control of Buyer. Notwithstanding the foregoing, the
Closing shall be deemed to be effective as of 11:59 p.m. on the Closing Date for
all purposes.
2.6 Purchase Price.
2.6.1 Purchase Price. Subject to the terms and conditions of
this Agreement, the aggregate purchase price be paid by Buyer for the purchase
of the Acquired Assets (the "Purchase Price") shall be: (i) $1,780,000 in cash
(the "Base Cash Purchase Price," the Base Cash Purchase Price as adjusted in
accordance with Section 2.6.3 and Section 2.6.5 is referred to as the "Initial
Cash Payment"), subject to adjustment pursuant to the provisions of this
Agreement (including Section 2.6.3, Section 2.6.4, Section 2.6.5 and Section 2.9
of this Agreement) and (ii) the assumption by Buyer of the Assumed Liabilities.
2.6.2 Payment of Initial Cash Payment. Subject to the terms
and conditions of this Agreement, the Initial Cash Payment shall be paid by
Buyer on the Closing Date by federal other wire transfer of immediately
available funds to the account designated by Seller in writing at least two (2)
Business Days prior to the Closing Date. If the Closing Date is not a business
day on which financial institutions are open and operating, then on or before
the last business day on which financial institutions are open and operating
before the Closing Date, Buyer shall deliver the Initial Cash Payment to Buyer's
lead bank (the "Escrow Agent") in immediately available funds in U.S. dollars.
Upon receipt, the Escrow Agent shall invest the Initial Cash Payment in an
interest-bearing account mutually agreed upon by Seller and Buyer. At Closing,
Parent shall sign and deliver to Citizens a statement which confirms that the
Closing has occurred and which instructs the Escrow
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Agent to transfer to Citizens the funds representing the Initial Cash Payment,
plus an amount representing the interest earned after the Closing Date until the
date the funds are transferred, to an account that Citizens shall designate at
least two (2) business days prior to the date the funds are required to be
transferred hereunder. The Escrow Agent shall refund the balance to Buyer. The
fees and expenses of Escrow Agent shall be paid by Buyer.
2.6.3 Estimated Closing Statement. At least five (5) business
days prior to the Closing Date, Citizens shall deliver to Parent and Buyer a
statement of net assets (the "Estimated Statement of Net Assets") reflecting its
good faith calculation of the Acquired Assets of the Business as of the last day
of the latest calendar month for which financial statements of Seller are
available (the "Estimated Adjusted Net Assets"). The Estimated Statement of Net
Assets shall be prepared in the same manner and utilizing the same accounting
principles, policies and methods used in the preparation of the Interim
Statement of Net Assets (excluding for this purpose any change required by GAAP
or any Authority since June 30, 1999). The Base Cash Purchase Price shall be
increased or decreased on a dollar for dollar basis by the amount, if any, by
which the Estimated Adjusted Net Assets is greater than or less than $886,056
(such increase or decrease, as the case may be, is referred to herein as the
"Estimated Net Asset Adjustment").
2.6.4 Post-Closing Adjustment to Purchase Price.
(a) Within 90 days after the Closing, Citizens shall
prepare and deliver to Parent and Buyer a Statement of Net Assets (the "Closing
Statement of Net Assets") which reflects the Acquired Assets, as of 11:59 p.m.
on the Closing Date, based on actual financial performance and calculated in the
same manner, utilizing the same accounting principles, policies and methods
utilized in preparing the Interim Statement of Net Assets (excluding for this
purpose any change required by GAAP or any Authority since June 30, 1999),
together with (A) an audit report of Seller's Accountants stating that the
Closing Statement of Net Assets has been prepared utilizing the same accounting
principles, policies and methods used in the preparation of the Interim
Statement of Net Assets and (B) a calculation of Citizens' determination of the
amount of increase or decrease in the amount of the Acquired Assets of the
Business from the Interim Statement of Net Assets Date to the Closing Date which
is derived from the Closing Statement of Net Assets ("Seller's Adjustment
Amount"). The Closing Statement of Net Assets shall not give effect to any
purchase accounting treatment arising from Buyer's purchase of the Acquired
Assets. Buyer shall pay the fees and expenses of Seller's Accountants incurred
in connection with this Section 2.6.4. Buyer agrees to cooperate, and agrees to
cause Buyer's Accountants to cooperate, with Citizens and Seller's Accountants
in connection with the preparation of the Closing Statement of Net Assets, and
related information, and shall provide to Citizens and Seller's Accountants such
books, records and information as may be reasonably requested from time to time,
including the work papers of Buyer's Accountants. Citizens will give Buyer and
its representatives access during the normal business hours of Citizens to the
personnel, books and records of Citizens and the work papers of Seller's
Accountants to assist Buyer in the review of the Closing Statement of Net Assets
and related matters. Buyer agrees that, following the Closing through the date
on which the Closing Statement of Net Assets is delivered, it will not take any
actions with respect to any accounting books, records, policies or procedures on
which the Closing Statement of Net Assets is to be based that would make it
impossible or impracticable to calculate the Acquired Assets in the manner and
utilizing the methods required hereby. Without limiting the generality of the
foregoing, no changes shall be made
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in any reserve or other account existing as of the date of the Interim Statement
of Net Assets except in the ordinary course or as a result of events occurring
after the date of the Interim Statement of Net Assets and, in such event, only
in a manner consistent with past practices of Seller.
(b) Parent or Buyer may dispute any amounts reflected on the Closing
Statement of Net Assets, in the Seller's Adjustment Amount or in the Statement
of Certain Assumed Liabilities, provided, however, that Buyer shall notify
Citizens in writing of each disputed amount, and specify the amount thereof in
dispute and the basis of such dispute, within 30 days of the Buyer's receipt of
the Closing Statement of Net Assets and the Seller's Adjustment Amount (such 30
day period hereinafter referred to as the "Review Period"). In the event of a
dispute with respect to the Closing Statement of Net Assets, the Seller's
Adjustment Amount or the Statement of Certain Assumed Liabilities, Buyer and
Seller shall attempt to reconcile their differences and any resolution by them
as to any disputed amounts shall be final, binding and conclusive on the
parties. If Buyer and Seller are unable to reach a resolution of such
differences within 30 days of receipt of Buyer's written notice of dispute to
Seller, Buyer and Seller shall submit the amounts remaining in dispute (together
with any amounts remaining in dispute pursuant to Section 2.6.4(b) of each of
the Related Purchase Agreements) for resolution to an independent accountant
firm of national reputation mutually appointed by Seller and Buyer (such
independent accounting firm being herein referred to as the "Third Accounting
Firm"), which shall be requested to determine and report to the parties, within
30 days after such submission, upon such remaining disputed amounts, and such
report shall be final, binding and conclusive on the parties hereto with respect
to the amounts disputed. The fees and disbursements of the Third Accounting Firm
shall be allocated between Buyer and the Seller Parties so that the Seller
Parties' share of such fees and disbursements shall be in the same proportion
that the aggregate amount of such remaining disputed amounts so submitted by
Buyer to the Third Accounting Firm that is unsuccessfully disputed by the Buyer
(as finally determined by the Third Accounting Firm) bears to the total amount
of such remaining disputed amounts so submitted by the Buyer to the Third
Accounting Firm. Buyer shall pay the fees and expenses of Buyer's Accountants
incurred in connection with this Section 2.6.4(b). Seller's Adjustment Amount,
if there are no disputes with respect thereto, or Seller's Adjustment Amount as
adjusted after the resolution of all disputes with respect thereto in accordance
herewith, shall be referred to as the "Final Net Asset Adjustment."
(c) If the Base Cash Purchase Price plus (or minus, if negative) the Final
Net Asset Adjustment exceeds the Initial Cash Payment, then within five (5)
business days after final determination thereof Buyer shall pay Seller the
amount of such excess together with interest thereon for the period commencing
on the Closing Date through the date of payment calculated at the Prime Rate in
cash by federal or other wire transfer of immediately available funds, or
certified or bank cashier's check. If the Initial Cash Payment exceeds the sum
of the Base Cash Purchase Price plus (or minus, if negative) the Final Net Asset
Adjustment, then within five (5) business days after final determination thereof
Seller shall pay Buyer the amount of such excess together with interest thereon
for the period commencing on the Closing Date through the date of payment
calculated at the Prime Rate in cash by federal or other wire transfer of
immediately available funds, or certified or bank cashier's check.
2.6.5 Adjustment for Certain Liabilities. Concurrent with the
delivery of the Estimated Statement of Net Assets, Citizens also shall deliver
to Parent and Buyer a statement reflecting (i) the customer and other deposits
held by Seller on the Closing Date and relating to the
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Business, (ii) the items specified in Section 2.9 to the extent set forth
therein, and (iii) without duplications of any amount included in clause (i)
above, any payments received by Seller under the Contracts and Permits for
obligations not performed as of the Closing Date (the "Statement of Certain
Assumed Liabilities"). The Statement of Certain Assumed Liabilities shall
reflect Citizens' good faith calculation of such liabilities as of the Closing
Date. The Base Cash Purchase Price shall be decreased by the net amount set
forth in the Statement of Certain Assumed Liabilities. Concurrent with the
delivery of the Closing Statement of Net Assets, Citizens also shall deliver to
Parent a statement showing any adjustments to the Statement of Certain Assumed
Liabilities and the Base Cash Purchase Price shall be further adjusted to give
effect to any such adjustments to the Statement of Certain Assumed Liabilities.
2.7 Deliveries and Proceedings at Closing. Subject to the terms and
conditions of this Agreement, at the Closing:
2.7.1 Deliveries to Buyer. Citizens shall, and shall cause
Seller to deliver to Buyer:
(a) bills of sale and instruments of assignment to the
Acquired Assets, duly executed by Seller, substantially in the form of Exhibit B
hereto and;
(b) the consents to transfer, of all transferable or
assignable Contracts, Intellectual Property, Permits (including Environmental
Permits), to the extent specifically required hereunder;
(c) title certificates to any motor vehicles included in
the Acquired Assets, duly executed by Seller (together with any other transfer
forms necessary to transfer title to such vehicles);
(d) special warranty deeds of conveyance with respect to
the parcels of Real Estate owned in fee simple by Seller (or, with respect to
any such parcel which was acquired by Seller (or its predecessor in interest, in
cases involving mergers) by deed without covenant or warranty of title, a quit
claim deed without covenant or warranty of title) to Buyer, duly executed and
acknowledged by Seller and in recordable form;
(e) the Foreign Investment in Real Property Tax Act
Certification and Affidavit for each parcel of Real Estate, duly executed by the
Seller Parties (the "FIRPTA Affidavit");
(f) the certificates, opinions and other documents
required to be delivered by the Seller Parties pursuant to Section 6.1 hereof
and certified resolutions evidencing the authority of the Seller Parties as set
forth in Section 3.2 hereof;
(g) all agreements and other documents required by this
Agreement;
(h) a receipt for the payment of the Initial Cash
Payment duly executed by Citizens; and
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(i) all such other instruments of conveyance as shall,
in the reasonable opinion of Buyer and its counsel, be necessary to transfer to
Buyer the Acquired Assets in accordance with this Agreement and where necessary
or desirable, in recordable form.
2.7.2 Deliveries By Buyer to the Seller Parties. Parent shall,
and shall cause Buyer to deliver to the Seller Parties:
(a) wire transfer of immediately available funds in an
amount equal to the Initial Cash Payment;
(b) the Assumption Agreement, duly executed by Buyer;
(c) the certificates, opinions and other documents
required to be delivered by Buyer pursuant to Section 6.2 hereof;
(d) all of the instruments contemplated by Section
5.24(a) to the extent not previously executed and delivered by Parent; and
(e) all such other instruments of assumption as shall,
in the reasonable opinion of Seller and its counsel, be necessary for Parent and
Buyer to assume the Assumed Liabilities in accordance with this Agreement.
2.8 Allocation of Consideration. Buyer and Seller shall use their
good faith efforts to agree upon the allocation (the "Allocation") of the
Purchase Price, the Assumed Liabilities and other relevant items (including, for
example, adjustments to the Purchase Price) to the individual assets or classes
of assets within the meaning of Section 1060 of the Code. If Buyer and Seller
agree to such Allocation on or before ninety (90) days after the Closing Date,
Buyer and Seller covenant and agree that (i) the values assigned to the assets
by the parties' mutual agreement shall be conclusive and final for all purposes,
and (ii) neither Buyer nor Seller will take any position before any Authority or
in any proceeding that is in any way inconsistent with such Allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an Allocation
on or before ninety (90) days after the Closing Date, Buyer and Seller covenant
and agree to file and to cause their respective Affiliates to file, all Tax
returns and schedules thereto (including, for example, amended returns, claims
for refund, and those returns and forms required under Section 1060 of the Code
and any Treasury regulations promulgated thereunder) consistent with each of
Buyer and Seller's good faith Allocations, unless otherwise required because of
a change in any legal requirement.
2.9 Prorations. The parties hereto agree that the following expenses
shall be calculated and pro rated as of the Closing Date, with Seller
responsible for such expenses and to receive the benefit for the same for the
period through and including the Closing Date, and Buyer to be responsible for
and to receive the benefit of the same after the Closing Date:
2.9.1 personal and real property taxes (on the basis on which
the same were assessed and paid) and sales, occupation and use taxes, in each
case, to the extent relating to the Business and except as otherwise provided in
Section 7.1;
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2.9.2 electric, fuel, gas, telephone, sewer and utility
charges, in each case, to the extent relating to the Business;
2.9.3 rentals and other charges under Contracts to be assumed
by Buyer pursuant to Section 2.3 (except to the extent provided in Section
2.3.3(h)); and
2.9.4 charges under maintenance and service contracts and
other Contracts (except to the extent provided in Section 2.3.3(h)), and fees
under Permits to be transferred to Buyer as part of the Acquired Assets;
2.9.5 water, sewer and other similar types of taxes, and
installments on special benefit assessments; and
2.9.6 payroll expenses, payroll taxes, reimbursable employee
business expenses and the financial cost of the accrued vacation of each
Transferred Employee.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Each of the Seller Parties jointly and severally represent and warrant to
Parent and Buyer as follows:
3.1 Qualification; No Interest in Other Entities.
3.1.1 Each of the Seller Parties is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and has all requisite corporate power and authority to own, lease
and operate the Acquired Assets and the Business as presently being conducted.
Each of the Seller Parties is qualified to do business and is in good standing
as a foreign corporation in all jurisdictions wherein the nature of the business
conducted by it or such Seller Party's ownership or use of assets and properties
make such qualification necessary, except such failures to be qualified or to be
in good standing, if any, which when taken together with all such other failures
of the Seller Parties do not have a Material Adverse Effect.
3.1.2 No shares of any corporation or any ownership or other
investment interest, either of record, beneficially or equitably, in any Person
are included in the Acquired Assets.
3.2 Authorization and Enforceability. Each of the Seller Parties has
full corporate power and authority to execute, deliver and perform this
Agreement and all other agreements and instruments to be executed by them in
connection herewith (such other agreements and instruments being hereinafter
referred to collectively as the "Transaction Documents"). The execution,
delivery and performance by each of the Seller Parties of this Agreement and the
Transaction Documents to which such Seller Party is a party have been duly
authorized by all necessary corporate action on the part of each of them. This
Agreement has been duly executed and delivered by each of the Seller
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Parties, and as of the Closing Date the other Transaction Documents will be duly
executed and delivered by the Seller Parties. This Agreement is a legal, valid
and binding obligation of each Seller Party, enforceable against them in
accordance with its terms except as such enforceability may be limited by
applicable laws relating to bankruptcy, insolvency, fraudulent conveyance,
reorganization or affecting creditors' rights generally and except to the extent
that injunctive or other equitable relief is within the discretion of a court.
As of the Closing Date, each of the other Transaction Documents to which each of
the Seller Parties is a party will be duly executed and delivered by each of the
Seller Parties and will constitute the legal, valid and binding obligations of
each of the Seller Parties, enforceable against them in accordance with its
respective terms, except as such enforceability may be limited by applicable
laws relating to bankruptcy, insolvency, fraudulent conveyance, reorganization
or affecting creditors' rights generally and except to the extent that
injunctive or other equitable relief is within the discretion of a court.
3.3 No Violation of Laws or Agreements. The execution, delivery, and
performance of this Agreement and the Transaction Documents by each of the
Seller Parties do not, and the consummation of the transactions contemplated by
this Agreement and the Transaction Documents by the Seller Parties, will not:
(a) contravene any provision of the Restated Articles of Incorporation or Bylaws
of Citizens or the Articles of Incorporation or Bylaws of the other Seller
Party; or (b) except as set forth on Schedule 3.3, violate, conflict with,
result in a breach of, or constitute a default (or an event which would, with
the passage of time or the giving of notice or both, constitute a default)
under, or result in or permit the termination, modification, acceleration, or
cancellation of, or result in the creation or imposition of any Lien of any
nature whatsoever upon any of the Acquired Assets or give to others any
interests or rights therein under (i) any indenture, mortgage, loan or credit
agreement, license, instrument, lease, contract, plan, permit or other agreement
or commitment, oral or written, to which any of the Seller Parties is a party,
or by which the Business or any of the Acquired Assets may be bound or affected,
except for such violations, conflicts, breaches, terminations, modifications,
accelerations, cancellations, Liens, interests or rights which, individually and
in the aggregate, do not have a Material Adverse Effect or will be cured, waived
or terminated prior to the Closing Date, or (ii) any judgment, injunction, writ,
award, decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or regulation, to
which any of the Seller Parties is subject, other than those violations or
conflicts which individually and in the aggregate would not have a Material
Adverse Effect.
3.4 Financial Statements. Citizens has previously delivered to Buyer
the statement of income of the Business (the "Income Statement") and the Interim
Statement of Net Assets contained in Schedule 3.4 (collectively, the "Financial
Statements"). The Income Statement (a) fairly presents in all material respects
the results of operations of the Business in accordance with generally accepted
accounting principles ("GAAP") consistently applied except for the omission of
full footnotes to the Income Statement and (b) has in all material respects been
derived from the books and records of Seller and reflects the separation of the
operation associated with the Business from other operations of Citizens. The
Interim Statement of Net Assets (a) has in all material respects been derived
from the books and records of Seller and reflects the separation of the
operations associated with the Business from other operations of Citizens; (b)
fairly presents in all material respects the Acquired Assets as of the Interim
Statement of Net Assets Date; and (c) has in all material respects been prepared
in accordance with GAAP consistently applied except for the omission of full
footnotes to such Interim Statement of Net Assets. The financial statements
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included in the Annual Report to each PUC for the year ended December 31, 1998,
were prepared in all material respects in accordance with the rules and
regulations of such PUC.
3.5 No Changes. Since the Interim Statement of Net Assets Date to
the date hereof, except as disclosed in Schedule 3.5, the Seller Parties have
conducted the Business as presently operated only in the ordinary course of
business consistent with past practice. Since the Interim Statement of Net
Assets Date, except as disclosed in Schedule 3.5, there has not been:
3.5.1 any Material Adverse Effect;
3.5.2 prior to the date of this Agreement, any change in the
salaries or other compensation payable or to become payable to, or any advance
(excluding advances for ordinary business expenses) or loan to, any Transferred
Employee, or material change or material addition to, or material modification
of, other benefits (including any bonus, profit-sharing, pension or other plan
in which any of the Transferred Employees participate) to which any of the
Transferred Employees may be entitled, or any payments to any pension,
retirement, profit-sharing, bonus or similar plan other than in any such case
(i) in the ordinary course consistent with past practice, (ii) as required by
law, or (iii) as required by any collective bargaining agreement, if any;
3.5.3 any alteration in any material respect of the customary
practices with respect to the collection of accounts receivable of the Business
or the provision of discounts, rebates or allowances;
3.5.4 any disposition of or failure to keep in effect any
rights in, to or for the use of any Permit of the Business which individually or
in the aggregate would have a Material Adverse Effect;
3.5.5 any damage, destruction or loss affecting the Business
which individually or in the aggregate would have a Material Adverse Effect
whether or not covered by insurance;
3.5.6 prior to the date of this Agreement, any change by
Seller in its method of accounting or keeping its books of account or accounting
practices with respect to the Business except as required by GAAP and is set
forth on Schedule 3.5; or
3.5.7 prior to the date of this Agreement, any sale, transfer
or other disposition of any material assets, properties or rights of the
Business, except in the ordinary course of business consistent with past
practice.
3.6 Contracts. As of the date of this Agreement, Schedule 3.6
contains a list of all Contracts (other than (i) with respect to which the
Business' total annual liability or expense is less than (a) $250,000 per such
Contract and (b) $6,123,000 per all such Contracts (when taken together with
similar contracts omitted from Schedule 3.6 of the Related Purchase Agreements),
and (ii) Contracts that may be terminated by Seller, without penalty, on notice
of 90 days or less) except line extension agreements and similar agreements and
construction and design contracts. Seller has furnished to Buyer a correct and
complete copy of each written agreement listed in Schedule 3.6.
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Except as disclosed on Schedule 3.6, with respect to each Contract, neither
Seller nor, to the Seller Parties' knowledge, any other party thereto, is in
breach or default, and to the Seller Parties' knowledge, no event has occurred
which with notice or lapse of time would constitute a breach or default, or
permit termination, modification, or acceleration, under the Contract, except in
each case where such breaches, terminations, modifications, accelerations or
defaults, individually or in the aggregate, do not have a Material Adverse
Effect. Except as set forth in Schedule 3.6, there are no disputes pending or to
the best of the Seller Parties' knowledge, threatened, under or in respect of
any of the Contracts, other than those that individually and in the aggregate do
not have a Material Adverse Effect.
3.7 Permits and Compliance With Laws Generally.
3.7.1 Except as disclosed on Schedule 3.7, Seller possesses
and is in compliance with all Permits required to operate the Business as
presently operated and to own, lease or otherwise hold the Acquired Assets under
all applicable laws, rules, regulations, ordinances and codes, including
Environmental Laws (as defined below), except to the extent that any failure to
possess, or to comply with, any Permit, laws, rules, regulations or orders would
not, individually or in the aggregate, have a Material Adverse Effect. Except as
disclosed in Schedule 3.7, the Business is conducted by Seller in compliance
with all applicable laws (including the Occupational Safety and Health Act and
the rules and regulations thereunder ("OSHA"), zoning, building and similar laws
and Environmental Laws), rules, regulations, ordinances, codes, judgments and
orders, except for such failures to comply which do not individually or in the
aggregate have a Material Adverse Effect. Except as disclosed on Schedule 3.7,
all Permits of Seller relating to the operation of the Business are in full
force and effect, other than those the failure of which to be in full force and
effect would not individually or in the aggregate have a Material Adverse
Effect. There are no proceedings pending or, to the Seller Parties' knowledge,
threatened that seek the revocation, cancellation, suspension or any adverse
modification of any such Permits presently possessed by Seller other than those
revocations, cancellations, suspensions or modifications which do not
individually or in the aggregate have a Material Adverse Effect.
3.7.2 Except as set forth on Schedule 3.7, no outstanding
notice, citation, summons or order has been issued, no outstanding complaint has
been filed, no outstanding penalty has been assessed and no investigation or
review is pending or, to the knowledge of the Seller Parties, threatened, by any
Authority or other Person with respect to any alleged (i) violation by Seller or
any Affiliate of Seller relating to the Business of any law, ordinance, rule,
regulation, code or order of any Authority; or (ii) failure by Seller or any
Affiliate to have any Permit required in connection with the conduct of the
Business or otherwise applicable to the Business (including the Acquired
Assets), except, in each case, where such violations or failures, individually
or in the aggregate, would not have a Material Adverse Effect.
3.8 Environmental Matters. Except as set forth on Schedule 3.8
hereto, and with such exceptions as are not reasonably likely, individually or
in the aggregate, to have a Material Adverse Effect:
3.8.1 Seller has not disposed of or arranged for the disposal
of or Released any Hazardous Substances, other than in conformity with
Environmental Laws, at any Real Estate,
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or, in connection with the Business or Acquired Assets, at any other facility,
location, or other site.
3.8.2 Seller has not received any written notice or request
for information with respect to, and to the best of the Seller Parties'
knowledge, Seller has not been designated a potentially liable party for
Remedial Action, in connection with any Real Estate, or, as of the date hereof,
with respect to the Business or Acquired Assets, at any other facility,
location, or other site under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") or comparable state statutes.
3.8.3 To the best of the Seller Parties' knowledge, except for
such use or storage of Hazardous Substances as is incidental to the conduct of
the Business, which use and storage is or has been in compliance with
Environmental Laws, and which use and storage has not caused any condition that
requires Remedial Action, no Real Estate has been used for the storage,
treatment, generation, processing, production or disposal of any Hazardous
Substances or as a landfill or other waste disposal site in violation of any
Environmental Law.
3.8.4 To the best of the Seller Parties' knowledge,
underground storage tanks are not, and have not in the past been, located on or
under any Real Estate.
3.8.5 There are no pending or unresolved claims against Seller
or the Business for investigatory costs, cleanup, removal, remedial or response
costs, or natural resource damages arising out of any Releases or threat of
Release of any Hazardous Substances at any Real Estate or, as of the date
hereof, with respect to the Business or the Acquired Assets or at any other
facility, location, or other site.
3.8.6 To the best of the Seller Parties' knowledge, no
polychlorinated biphenyls ("PCBs") or asbestos-containing materials are located
at or in any Real Estate in violation of Environmental Laws or which require
Remedial Action.
3.8.7 To the best of the Seller Parties' knowledge, no
Hazardous Substance managed or generated by or on behalf of Seller at the Real
Estate or in connection with the Business or Acquired Assets has come to be
located at any site that is listed or formally proposed for listing under
CERCLA, the Comprehensive Environmental Response, Compensation and Liability
Information System ("CERCLIS"), or any similar state list or that is the subject
of federal, state, or local enforcement actions or investigations.
3.8.8 The Seller Parties know of no facts or circumstances
related to environmental matters (i) in connection with the operation of the
Business or (ii) concerning the Real Estate, that are reasonably likely to
result in any material reduction in the quality or quantity of water available
for supply to the Seller Parties' customers.
3.8.9 The Seller Parties will within thirty (30) days of the
date hereof provide Buyer with copies of all written environmental audits or
investigations of which they are aware (after due inquiry) prepared for the Real
Estate or operations of the Business.
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3.8.10 Except as set forth in Schedule 3.8.10 or Citizens'
Annual Report on Form 10-K for the year ended December 31, 1998:
(a) The Seller Parties (including for purposes of
Section 3.8.10(a) and (b), Affiliates and predecessors of the Seller Parties)
are and have been for the past three years in full compliance with all federal
and state primary drinking water standards;
(b) The Seller Parties are and have been for the past
three years in full compliance with all federal and state secondary drinking
water standards; and
(c) As to all outstanding violations of state or federal
drinking water standards, as of the date hereof, the Seller Parties have
completed or are in the process of completion in accordance with all applicable
deadlines, all actions required by Environmental Law or Authorities to correct
or otherwise respond to such violations.
3.8.11 Except as set forth in Schedule 3.8.11, none of the
Seller Parties will be required to place any notice or restriction relating to
the presence of Hazardous Substances in the deed to any Real Estate, or in any
written instrument accompanying this Agreement, and no Real Estate has such a
notice or restriction in its deed or any other written instrument relating to
the purchase, lease or rental of such property.
For the purposes of these Sections 3.7 and 3.8: (A) "Remedial Action" means all
actions to (x) clean up, remove, treat or in any other way respond to any
presence, Release or threat of Release of Hazardous Substances; (y) prevent the
Release or threat of Release, or minimize the further Release of any Hazardous
Substances so it does not endanger or threaten to endanger public or employee
health or welfare or the environment; or (z) perform studies, investigations or
monitoring necessary or required to investigate the foregoing; (B)
"Environmental Laws" means any common law or federal, state or local law,
statutes, rule, regulation, ordinance, code, judgment or order relating to the
protection of the environment or human health and safety and includes, but is
not limited to, CERCLA (42 U.S.C. section 9601, et seq.), the Clean Water Act
(33 U.S.C. section 1251 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. section 6901 et seq.), the Toxic Substances Control Act (15 U.S.C.
section 2601 et seq.), the Safe Drinking Water Act (42 U.S.C. section 300f et
seq.) and the Oil Pollution Act of 1990 (33 U.S.C. section 2701 et seq.), each
as has been or may be interpreted or amended as of the Closing Date and the
regulations promulgated pursuant thereto and in effect as of the Closing Date;
(C) "Released" means released, spilled, leaked, discharged, disposed of, pumped,
poured, emitted, emptied, injected, leached, dumped or allowed to escape; and
(D) "Hazardous Substances" means hazardous or toxic or polluting substance or
waste or contaminant under or pursuant to any Environmental Law, including
petroleum products, PCBs and radioactive materials.
3.9 Consents. No consent, approval or authorization of, or
registration or filing with, any Person (governmental or private) is required in
connection with the execution, delivery and performance by the Selling Parties
of this Agreement, the Transaction Documents, or the consummation of the
transactions contemplated hereby or thereby by the Seller Parties, including
without limitation in connection with the assignment of the Contracts and
Permits contemplated hereby, except (i) as required by the Hart-Scott Rodino
Antitrust Improvements Act of 1976 (the
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"HSR Act"), (ii) as specified on Schedule 3.9, and (iii) for such other
consents, approvals, authorizations, registrations or filings the failure of
which to obtain or make would not individually or in the aggregate have a
Material Adverse Effect or which are obtained by the Closing Date.
3.10 Title. Seller has good and valid title to all of the Acquired
Assets constituting personal property, good and marketable title in fee simple
to all of the owned Acquired Assets constituting Real Estate and good and valid
leasehold title to all of the leased Acquired Assets constituting Real Estate,
in each case, free and clear of Liens subject only to the Permitted Exceptions.
"Permitted Exceptions" as used herein shall mean (a) the Liens set forth in
Schedule 3.10 hereto, (b) Liens securing Taxes, assessments, governmental
charges or levies, or the claims of materialmen, mechanics, carriers and like
persons, all of which are not yet due and payable or which are being contested
in good faith or (c) such other Liens which, individually or in the aggregate,
do not have a Material Adverse Effect (it being understood that to the extent a
Permitted Exception relates to or arises from a Retained Liability, Seller shall
still be liable for such Retained Liability to the extent set forth herein).
3.11 Real Estate.
3.11.1 As of the date hereof, Seller has not received any
written or oral notice for assessments for public improvements against the Real
Estate which remains unpaid, and to the best knowledge of the Seller Parties, no
such assessment has been proposed. Except as set forth on Schedule 3.11, as of
the date hereof, there is no pending condemnation, expropriation, eminent domain
or similar proceeding affecting all or any portion of any of the Real Estate and
to the best knowledge of the Seller Parties no such proceeding is threatened.
3.11.2 Except as disclosed on Schedule 3.6, as of the date
hereof, Seller is not a lessee under any Contract relating to the use or
occupancy of the Real Estate involving annual payments in excess of $100,000.
3.11.3 Each parcel of the Real Estate has physical and, to
Seller's knowledge, legal vehicular and pedestrian access to and from public
roadways as may be reasonably necessary to the operation of the Business except
where the failure to have such access does not have a Material Adverse Effect.
To Seller's knowledge, no fact or condition exists which would result in the
termination of (a) the current access from each parcel of the Real Estate, and
(b) continued use, operation, maintenance, repair and replacement of all
existing and currently committed water lines used by Seller in connection with
the Business, except where such termination would not have a Material Adverse
Effect.
3.12 Taxes. The Seller Parties have (a) timely filed all material
returns and reports for Taxes, including information returns, that are required
to have been filed in connection with, relating to, or arising out of, the
Business, (b) paid all Taxes that are shown to have come due pursuant to such
returns or reports and (c) paid all other material Taxes not required to be
reported on returns in connection with, relating to, or arising out of, or
imposed on the property of the Business for which a notice of assessment or
demand for payment has been received or which have otherwise become due. To the
best of the Seller Parties' knowledge, all such returns or reports have been
prepared in accordance with all applicable laws and requirements in all material
respects.
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Except to the extent disclosed on Schedule 3.12, none of the assets of the
Business or constituting any of the Acquired Assets (a) is property that is
required to be treated as owned by another Person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code, (b) is "tax-exempt
use property" within the meaning of Section 168(h) of the Code or (c) directly
or indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code.
3.13 Patents and Intellectual Property Rights. To the best of the
Seller Parties' knowledge, the operations of Seller do not make any unauthorized
use of any Intellectual Property except for any such unauthorized uses which do
not have a Material Adverse Effect. Assuming the consents listed as item XII on
Schedule 3.9 are obtained, Buyer will not lose any of Seller's rights to, or be
required to pay increased royalties for, any Intellectual Property included in
the Acquired Assets as a result of the Closing and the consummation of the
transactions contemplated by this Agreement, except for any such rights or such
increased royalties the loss or payment of which would, individually or in the
aggregate, not have a Material Adverse Effect.
3.14 Accounts Receivable. The accounts receivable of Seller arising
from the Business as set forth on the Interim Statement of Net Assets or arising
since the date thereof have arisen out of bona fide sales and deliveries of
goods, performance of services and other business transactions in the ordinary
course of business consistent with past practice; the allowance for collection
losses on the Interim Statement of Net Assets has been determined in accordance
with GAAP consistent with past practice.
3.15 Labor Relations. As of the date hereof, except as set forth in
Schedule 3.15, to best of the knowledge of the Seller Parties, there has been no
union organizing efforts with respect to the Business conducted within the last
three (3) years and there are none now being conducted with respect to the
Business. Except as set forth in Schedule 3.15, Seller has not at any time
during the three (3) years prior to the date of this Agreement had, nor, to the
best of the Seller Parties' knowledge, is there now threatened, a strike, work
stoppage or work slow down with respect to or affecting the Business which had
or could reasonably be expected to have a Material Adverse Effect. As of the
date hereof, except as set forth in Schedule 3.15, (i) no Employee is
represented by any union or other labor organization and (ii) there is no unfair
labor practice charge pending or, to the best knowledge of the Seller Parties,
threatened against Seller relating to any of the Employees as related to the
Business which could reasonably be expected to have a Material Adverse Effect.
3.16 Employee Benefit Plans.
3.16.1 Schedule 3.16.1 contains a true and complete list of
each "employee benefit plan," as defined in Section 3(3) of ERISA (including any
"multiemployer plan" as defined in Section 3(37) of ERISA), bonus, incentive,
deferred compensation, excess benefit, employment contract, stock purchase,
stock ownership, stock option, supplemental unemployment, vacation, sabbatical,
sick-day, severance or other material employee benefit plan, program or
arrangement (other than those required to be maintained by law), whether written
or unwritten, qualified or nonqualified, funded or unfunded, foreign or
domestic, (i) maintained by, or contributed to by Citizens or any of its
Affiliates, in respect of any Employee or Former Employee, or (ii) with respect
to which Citizens or any of its Affiliates has any liability in respect of any
Employee or Former Employee (the"Benefit Plans"). Except as disclosed on
Schedule 3.16.1, neither Citizens nor any
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of its Affiliates maintains any bonus, pension or welfare benefit plan, program
or arrangement, including any deferred compensation arrangement, for directors,
consultants or independent contractors of the Business.
3.16.2 A true and complete copy of each Benefit Plan and
related trust agreements and (to the extent applicable) a copy of each Benefit
Plan's current summary plan description and in the case of an unwritten Benefit
Plan, a written description thereof, has been furnished to Buyer. In addition,
to the extent applicable, Buyer has been provided a copy of the most recent
Internal Revenue Service ("IRS") determination letter issued to each Benefit
Plan and a copy of the most recent IRS Form 5500 together with all schedules and
accountants' statement filed, and actuarial reports prepared, on behalf of each
Benefit Plan.
3.16.3 Each Benefit Plan which is intended to be qualified
under Section 401(a) of the Code (as designated on Schedule 3.16.1) is so
qualified, and will remain so qualified upon the timely making of certain
amendments required by law during the applicable remedial amendment period, and
any trust forming a part of such a Benefit Plan is tax exempt under Section
501(a) of the Code. Each such Benefit Plan has been amended, as and when
necessary, to comply with the Tax Reform Act of 1986 and upon timely filing of
an Application for Determination with the Internal Revenue Service, will be
eligible to make further such amendments under the"remedial amendment period."
3.16.4 Except as disclosed in Schedule 3.16.4, each Benefit
Plan has been operated and administered in all material respects in accordance
with its terms and all applicable laws, including ERISA and the Code.
3.16.5 None of the Acquired Assets is subject to a Lien or Tax
under the Code or ERISA.
3.16.6 Neither Citizens nor any ERISA Affiliate and, to the
knowledge of the Seller Parties, no other Person, has taken any action or failed
to take any action with respect to any Benefit Plan that may subject Buyer or
any Benefit Plan under which liabilities may be assumed by Buyer under Sections
5.10, 5.11 or 5.12 ("Assumed Benefit Liabilities") to any material liability or
Tax under the Code or ERISA.
3.16.7 Neither Citizens nor any ERISA Affiliate has incurred
or expects to incur any withdrawal liability with respect to any Benefit Plan
which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of
ERISA, including any contingent liability under Section 4204 of ERISA or
withdrawal liability arising from the actions of Citizens or any ERISA Affiliate
contemplated by this Agreement. All contributions that Citizens or any ERISA
Affiliate have been obliged to make to any Benefit Plan, including any
multiemployer plan, have been duly and timely made.
3.16.8 There are no pending or, to the knowledge of the Seller
Parties, threatened claims (other than routine claims for benefits),
assessments, complaints, proceedings or investigations of any kind in any court
or governmental agency with respect to any Benefit Plan which could reasonably
be expected to give rise to a material liability to Buyer.
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3.16.9 Except as disclosed on Schedule 3.16.9, no Benefit Plan
provides benefits, including without limitation, death or medical benefits,
beyond termination of service or retirement other than (i) coverage mandated by
law, or (ii) death or retirement benefits under a Benefit Plan qualified under
Section 401(a) of the Code. Seller's Retiree Medical Plan contains provisions
permitting Seller to modify or terminate retiree medical benefits at any time,
without prior notice to any covered individual. Except with respect to retirees,
"grandfathered" employees and collectively bargained employees, Seller knows of
no reason why its ability to effect those provisions would be limited.
3.16.10 With respect to each Benefit Plan that is a "group
health plan" within the meaning of Section 607 of ERISA and that is subject to
Section 4980B of the Code, Citizens and each ERISA Affiliate have complied in
all material respects with the continuation coverage requirements of the Code
and ERISA.
3.17 Absence of Undisclosed Liabilities. Except as disclosed in
Schedule 3.17, Seller has no liabilities with respect to the Business which
would constitute Assumed Liabilities, either direct or indirect, matured or
unmatured or absolute, contingent or otherwise, except:
3.17.1 the liabilities which would decrease the Base Cash
Purchase Price pursuant to Section 2.6.5 to the extent assumed by Buyer at
Closing;
3.17.2 liabilities arising in the ordinary course of business
under any Contract or Permit or with respect to any agreement or instrument
included within the definition of Real Estate; and
3.17.3 those liabilities incurred, consistent with past
business practice, in or as a result of the normal and ordinary course of
business and reflected in the books and records related to the Business;
3.17.4 the obligations and liabilities set forth in Sections
5.9, 5.10, 5.11 and 5.12 hereof; and
3.17.5 those other liabilities, which individually and in the
aggregate, would not have a Material Adverse Effect.
3.18 No Pending Litigation or Proceedings. Except as disclosed in
Schedule 3.18, there are no actions, suits, investigations or proceedings
pending against or, to the best of the Seller Parties' knowledge, threatened,
against or affecting, Seller, the Business or any of the Acquired Assets before
any court or arbitrator or Authority which individually or in the aggregate,
would have a Material Adverse Effect. Except as disclosed in Schedule 3.18,
there are currently no outstanding judgments, decrees or orders of any court or
Authority against any of the Seller Parties, which relate to or arise out of the
conduct of the Business or the ownership, condition or operation of the Business
or the Acquired Assets (other than any PUC order relating to rates, tariffs and
similar matters arising in the ordinary course of business) which individually
or in the aggregate would have a Material Adverse Effect.
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3.19 Supply of Utilities. Except as set forth on Schedule 3.19, the
Real Estate has adequate arrangements for supplies of electricity, gas, oil,
coal and/or sewer for all operations at the 1998 or current operating levels,
whichever is greater. Except as set forth on Schedule 3.19, there are no actions
or proceedings pending or, to the best of the Seller Parties' knowledge,
threatened, that would adversely affect the supply of electricity, gas, coal or
sewer to the Real Estate except for those which individually and in the
aggregate would not have a Material Adverse Effect.
3.20 Insurance. Schedule 3.20 lists the Seller Parties' policies and
contracts in effect as of the date hereof for insurance covering the Acquired
Assets or Assumed Liabilities and the operation of the facilities constituting
the Business owned or held by Seller, together with the risks insured against,
coverage limits and deductible amounts.
3.21 Relationship with Customers. As of the date hereof, Seller does
not have any current customer which accounted for more than 5% of the net sales
of the Business (taken together with the businesses being acquired by Buyer or
Affiliates of Buyer pursuant to the Related Purchase Agreements) for the
immediately preceding 12-month period.
3.22 WARN Act. Except as contemplated by Section 5.9 hereby or as
set forth in Schedule 3.22 hereto, within six months prior to the date hereof,
(i) Seller has not effectuated (a) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of the Business; or (b) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment or one or
more facilities or operating units within any site of employment or facility of
the Business; (ii) Seller has not been affected by any transaction or engaged in
layoffs or employment terminations with respect to the Business sufficient in
number to trigger application of any similar state or local law; and (iii) none
of Seller's employees who are employed in connection with the Business has
suffered an "employment loss" (as defined in the WARN Act) .
3.23 Condition of Assets. Except as set forth on Schedule 3.23, the
buildings, machinery, equipment, tools, furniture, improvements and other fixed
tangible assets of the Business included in the Acquired Assets, taken as a
whole and taken together with the similar assets included among the assets being
acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements, are in good operating condition and repair, reasonable wear and tear
excepted.
3.24 Brokerage. None of the Seller Parties or their Affiliates have
made any agreement or taken any other action which might cause any Person to
become entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to Buyer or
its Affiliates.
3.25 All Assets. Except as set forth on Schedule 3.25 and for the
Excluded Assets, the Acquired Assets include all assets, rights, properties and
contracts the use of which is necessary to the continued conduct of the Business
by Buyer substantially in the manner as it was conducted prior to the Closing
Date, including the service of all utility customers in substantially the same
manner and at substantially the same service levels as provided by Seller on the
date hereof.
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3.26 Year 2000 Matters. Citizens has (1) initiated a review and
assessment of all mission critical areas within the Business and related
operations (including those affected by suppliers and vendors) that it
reasonably believes could be adversely affected by the "Year 2000 Problem" (that
is, the risk that computer applications used by any Seller Party (or suppliers
and vendors) may be unable to recognize and properly perform date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem
all as set forth in Citizens' Annual report on Form 10-K for the fiscal year
ended December 31, 1998 and Citizens' Quarterly reports on Form 10-Q for the
periods ending March 31, 1999 and June 30, 1999, and (iii) to date, implemented
that plan substantially in accordance with that timetable. Seller has
contingency plans that are dedicated to ensuring that established and expected
levels of customer service are maintained without interruption, while core
business functionality is preserved during the millennium transition. With
respect to its suppliers and vendors, the foregoing representation and warranty
is expressly limited to matters known to Seller after making reasonable
inquiries of such suppliers and vendors. Seller makes no representation or
warranty with respect to the receipt or accuracy of any response received from
any vendor or supplier.
3.27 Product Liability. Except as disclosed in Schedule 3.27 and
except for those liabilities which individually or in the aggregate would not
have a Material Adverse Effect, there are no (a) liabilities of the Seller
Parties or their Affiliates, fixed or contingent, asserted or, to the knowledge
of the Seller Parties, unasserted, with respect to any product liability or
similar claim that relates to any product or service sold by Seller or the
Business to others or (b) liabilities of the Seller Parties or their Affiliates,
fixed or contingent, asserted or, to the knowledge of the Seller Parties
unasserted, with respect to any claim for the breach of any express or implied
product warranty or a similar claim with respect to any product or service sold
by Seller or the Business to others.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
Parent and Buyer jointly and severally represent and warrant to Seller as
follows:
4.1 Organization and Good Standing.
4.1.1 Parent is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
4.1.2 Buyer is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation and has all
requisite corporate power and authority to own, lease and operate the Acquired
Assets and the Business. Buyer is qualified to do business and is in good
standing in all jurisdictions wherein the nature of the business conducted by it
or Buyer's ownership or use of assets and properties make such qualification
necessary, except such failures to be qualified or to be in good standing, if
any, which when taken together with all such failures of Buyer do not have a
material adverse effect on its ability to perform its obligations under this
Agreement and the Transaction Documents.
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4.2 Authorization and Enforceability. Each of Buyer and Parent has
full corporate power and authority to execute, deliver and perform this
Agreement and the other Transaction Documents to which either of them is a
party. The execution, delivery and performance by Buyer and Parent of this
Agreement and the Transaction Documents to which Buyer and/or Parent is a party
have been duly authorized by all necessary corporate action on the part of each
of them. This Agreement has been duly executed and delivered by Buyer and
Parent, and as of the Closing Date the other Transaction Documents will be duly
executed and delivered by Buyer and Parent. This Agreement is a legal, valid and
binding obligation of Buyer and Parent, enforceable against them in accordance
with its terms, except as such enforceability may be limited by applicable laws
relating to bankruptcy, insolvency, fraudulent conveyance, reorganization or
affecting creditors' rights generally and except to the extent that injunctive
or other equitable relief is within the discretion of a court. As of the Closing
Date, each of the other Transaction Documents to which Buyer and Parent is a
party will be duly executed and delivered by Buyer and Parent and will
constitute the legal, valid and binding obligations of Buyer and Parent,
enforceable against them in accordance with its respective terms, except as such
enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief is
within the discretion of a court.
4.3 No Violation of Laws or Agreements. The execution, delivery and
performance of this Agreement and the Transaction Documents by Buyer and/or
Parent do not, and the consummation of the transactions contemplated hereby and
thereby will not, (a) contravene any provision of the Articles of Incorporation
or Bylaws of Buyer or the Certificate of Incorporation or Bylaws of Parent; or
(b) violate, conflict with, result in a breach of, or constitute a default (or
an event which would with the passage of time or the giving of notice, or both,
constitute a default) under, or result in or permit the termination,
modification, acceleration, or cancellation of (i) any indenture, mortgage, loan
or credit agreement, license, instrument, lease, contract, plan, permit,
authorization, proof of dedication or other agreement or commitment, oral or
written, to which Parent or Buyer is a party, or by which any of their assets or
properties may be bound or affected, except for such violations, conflicts,
breaches, terminations, modifications, accelerations, cancellations, interests
or rights which, individually or in the aggregate do not have a material adverse
effect on their respective ability to perform their obligations under this
Agreement and the Transaction Documents, or (ii) any judgment, injunction, writ,
award, decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or regulation to
which Buyer or Parent is subject other than those violations and conflicts which
individually or in the aggregate do not have a material adverse effect on their
respective ability to perform their obligations under this Agreement and the
Transaction Documents.
4.4 Consents. No consent, approval or authorization of, or
registration or filing with, any Person (governmental or private) is required in
connection with the execution, delivery and performance by Buyer and Parent of
this Agreement, the other Transaction Documents, or the consummation of the
transactions contemplated hereby or thereby by Buyer or Parent except (i) as
required by the HSR Act, (ii) as specified on Schedule 3.9 and (iii) for such
consents, approvals, authorizations, registrations or filings, the failure to
obtain or make would not individually or in the aggregate have a material
adverse effect on their respective ability to perform their obligations under
this Agreement and the Transaction Documents.
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4.5 Financing. Buyer and Parent have, and at the Closing Date, will
have sufficient resources to pay the Purchase Price, and Parent, Buyer or the
other Affiliates of Parent that are buyers of the assets and businesses being
acquired pursuant to the Related Purchase Agreements have, and at the Closing
Date, will have sufficient resources to pay the purchase prices set forth in the
Related Purchase Agreements.
4.6 Brokerage. None of Parent, Buyer or their Affiliates have made
any agreement or taken any other action which might cause any Person to become
entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to the
Seller Parties.
4.7 Insurance. Schedule 4.7 lists the policies and contracts in
effect as of the date hereof for casualty and property insurance covering
Buyer's assets and properties and the operation of Buyer's business, together
with the risks insured against, coverage limits and deductible amounts.
ARTICLE 5
ADDITIONAL COVENANTS
5.1 Conduct of Business. Except (i) as otherwise specifically
permitted by this Agreement, (ii) as set forth in Schedule 5.1 hereto or (iii)
with the prior written consent of Buyer, from and after the date of this
Agreement and up to and including the Closing Date, each of the Seller Parties
agree that:
5.1.1 Seller shall conduct the Business as presently operated
and only in the ordinary course of business consistent with past practice.
5.1.2 They shall promptly inform Buyer in writing of any
specific event or circumstance of which they are aware, or of which they receive
notice, that has or is likely to have, individually or in the aggregate, taken
together with the other events or circumstances, a Material Adverse Effect on
the Acquired Assets or the Assumed Liabilities.
5.1.3 Seller shall not:
(a) change or modify in any material respect existing
credit and collection policies, procedures and practices with respect to
accounts receivable;
(b) enter into any contract or commitment, waive any
right or enter into any other transaction (except in the ordinary course of
business) which would have a Material Adverse Effect;
(c) except in the event of service interruption,
emergency or casualty loss, commit to acquire subsequent to the Closing Date on
behalf of the Business any capital asset or group of capital assets costing in
excess of $1,000,000 that is not included in the capital budget of Seller for
fiscal year 2000 and which, if so acquired, would be included in the Acquired
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Assets; commencing December 1, 1999, accept or receive customer advances for
construction in excess of $9,000,000 (when combined with customer advances
relating to the businesses being acquired by Buyer or Affiliates of Buyer
pursuant to the Related Purchase Agreements) per each of the next four
consecutive three-month periods unless pursuant to an existing tariff, Contract
or Permit of Seller; or sell or lease or agree to sell or lease or otherwise
dispose of any assets included in the Acquired Assets except in the ordinary
course of the conduct of the Business, consistent with past practice;
(d) except in the ordinary course of business,
consistent with past practice or as required under any of Seller's debt
instruments or indentures, mortgage, pledge or subject to any Lien (other than
Permitted Liens) any of the Acquired Assets;
(e) change any compensation or benefits or grant any
material new compensation or benefits payable to or in respect of any
Transferred Employee except (i) as required by law, and (ii) in the ordinary
course, consistent with past practice; provided, however, no individual Employee
shall in any event receive a compensation increase in excess of seven percent
(7%);
(f) other than in the ordinary course of business
consistent with past practice, sell or otherwise transfer any assets necessary,
or otherwise material to the conduct of, the Business which would constitute
Acquired Assets;
(g) change the Seller's method of accounting or keeping
its books of account or accounting practices with respect to the Business,
except as required by GAAP or any Authority;
(h) intentionally and wilfully take or omit to take any
action which if taken or omitted prior to the date hereof would constitute or
result in a breach of any representations or warranties set forth in Sections
3.1, 3.2, 3.3, 3.4, 3.7, 3.8, 3.10, 3.14, 3.16 and 3.25 hereof (it being
understood that the failure to cure a breach shall not, by itself, be an
intentional and wilful omission to take action); or
(i) prepay, redeem, retire, refund or otherwise
extinguish any of the Assumed Indebtedness.
5.2 Negotiations. Neither Citizens nor any Person controlled by
Citizens or under common control with Citizens (each such person being a
"Section 5.2 Affiliate"), nor any officer, director, employee, representative or
agent of Citizens or any of their Section 5.2 Affiliates, shall, directly or
indirectly, solicit or initiate or participate in any way in discussions or
negotiations with, or provide any information or assistance to, or enter into an
agreement with any Person or group of Persons (other than Parent, Buyer or any
Person controlled by Parent or Buyer or under common control with Parent, Buyer
or any Persons providing financing to the parties hereto in connection with
facilitating the consummation of the transactions contemplated by this
Agreement) concerning any acquisition, merger, consolidation, liquidation,
dissolution, disposition or other transaction (or series of such transactions)
that would result in the transfer to any such Person or
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group of Persons of ten percent (10%) of the Acquired Assets (as measured by net
book value of such assets on the date of each such transaction) or the
acquisition, merger, consolidation, liquidation, dissolution, disposition or
other transaction (or series of such transactions) involving the Seller Parties,
if such acquisition, merger, consolidation, liquidation, dissolution,
disposition or other transaction (or series of such transactions) would be
inconsistent, in any respect, with the obligations of the Seller Parties
hereunder (any of the foregoing transactions, a "Competing Transaction").
5.3 Disclosure Schedules. As promptly as practicable, the Seller
Parties will provide Buyer with a supplement or amendment to the Disclosure
Schedules with respect to any matter, condition or occurrence which is required
to be set forth or described in the Disclosure Schedules. For the avoidance of
doubt, a matter, condition or occurrence shall only be "required" to be set
forth or described in the Disclosure Schedules if the failure to be so disclosed
would result in a breach of the applicable representation or warranty (qualified
by Material Adverse Effect where applicable) on the date hereof or on the
Closing Date. In addition, Seller shall have the right at any time and from time
to time prior to the Closing to supplement or amend the Disclosure Schedules.
Seller may provide Disclosure Schedules with respect to any representation or
warranty of this Agreement whether or not a specific schedule is referred to
therein. In the event that any supplement or amendment of such Disclosure
Schedules shall be provided later than five (5) business days prior to the
Closing Date, the Buyer shall have the right to delay the Closing for a period
of five (5) business days in order for Buyer to review such supplement or
amendment. No such supplement or amendment shall be deemed to cure any breach of
or alter any representation or warranty made in this Agreement so as to permit
the Closing to occur unless Buyer specifically agrees thereto in writing. The
Seller Parties shall promptly inform Buyer, and Buyer will promptly inform the
Seller Parties of any fact or event which comes to their attention, the
existence of which constitutes or likely will constitute a breach in any
material respects of any representation or warranty in this Agreement. In
addition, Parent will, within five (5) days of receipt thereof, forward to
Seller (i) any title report Buyer receives from a title company with respect to
the Real Estate and (ii) any written communication regarding a specific Lien or
title defect affecting a specifically identified parcel of the Real Estate sent
to the President, Treasurer or General Counsel of Parent or the President or
Corporate Counsel of any other Buyer Party, and sent by a party other than the
Seller Parties, their legal counsel, financial advisors or representatives.
5.4 Mutual Covenants. The parties mutually covenant from the date of
this Agreement to the Closing Date (and subject to the other terms of this
Agreement, including Section 5.8 hereof):
5.4.1 to cooperate with each other in determining whether
filings are required to be made or consents required to be obtained in any
jurisdiction in connection with the consummation of the transactions
contemplated by this Agreement and in making or causing to be made any such
filings promptly and in seeking to obtain timely any such consents;
5.4.2 to use all reasonable efforts to obtain promptly the
satisfaction (but not waiver) of the conditions to the Closing of the
transactions contemplated herein (each party hereto shall furnish to the other
and to the other's counsel all such information as may be reasonably required in
order to effectuate the foregoing action); and
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5.4.3 to advise the other parties promptly if such party
determines that any condition precedent to its obligations hereunder will not be
satisfied in a timely manner.
5.5 Filings and Authorizations. The parties hereto will as promptly
as practicable, make or cause to be made all such filings and submissions under
laws, rules and regulations applicable to it or its Affiliates as may be
required to consummate the terms of this Agreement, including all notifications
and information to be filed or supplied pursuant to the HSR Act and with the
applicable public utility commission (each, a "PUC"). Any such filings and
supplemental information will be in substantial compliance with the requirements
of the applicable law, rule or regulation. Each of Parent and Buyer, on the one
hand, and the Seller Parties, on the other, shall furnish to the other such
necessary information and reasonable assistance as the other may request in
connection with its preparation of any filing or submission to the PUC or which
is necessary under the HSR Act. The Seller Parties, on the one hand and Buyer
and Parent, on the other, shall keep each other apprised of the status of any
communications with, and inquiries or requests for additional information from,
any Authority, including the PUC, the United States Federal Trade Commission
("FTC") and the Antitrust Division of the United States Department of Justice
(the "Antitrust Division"), and shall comply promptly with any such inquiry or
request. Each of Citizens, Seller, Parent and Buyer will use its reasonable
efforts to obtain any clearance required under the HSR Act and from the PUC for
the purchase and sale of the Acquired Assets in accordance with the terms and
conditions hereof. Notwithstanding the foregoing, nothing contained in this
Agreement will require or obligate any party or their respective Affiliates: (i)
to initiate, pursue or defend any litigation (or threatened litigation) to which
any Authority (including the PUC, the Antitrust Division and the FTC) is a
party; (ii) to agree or otherwise become subject to any material limitations on
(A) the right of Buyer or its Affiliates effectively to control or operate the
Business or the right of Seller or its Affiliates effectively to control or
operate Citizens' other businesses, (B) the right of Buyer or its Affiliates to
acquire or hold the Business or the right of Seller or its Affiliates to hold
the Excluded Assets or Citizens' other businesses, or (C) the right of Buyer to
exercise full rights of ownership of the Business or all or any material portion
of the Acquired Assets or the right of Citizens to exercise full rights of
ownership of Citizens' other businesses or all or any material portion of the
Excluded Assets; or (iii) to agree or otherwise be required to sell or otherwise
dispose of, hold separate (through the establishment of a trust or otherwise),
or divest itself of all or any portion of the business, assets or operations of
Citizens, Seller, Parent, Buyer, any Affiliate of Buyer or the Business. The
parties agree that no representation, warranty or covenant of Buyer, Parent, or
Citizens contained in this Agreement shall be breached or deemed breached as a
result of the failure by Parent and Buyer on the one hand or the Seller Parties,
on the other, to take any of the actions specified in the preceding sentence.
5.6 Public Announcement. No party hereto shall make or issue, or
cause to be made or issued, any public announcement or written statement
concerning this Agreement or the transactions contemplated hereby without the
prior written consent of the other party (which will not be unreasonably
withheld or delayed), unless counsel to such party advises that such
announcement or statement is required by law (in which case the parties shall
make reasonable efforts to consult with each other prior to such required
announcement).
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5.7 Further Assurances. Each of Citizens, Parent, Buyer and Seller,
from time to time after the Closing, at Buyer's or Seller's request, will
execute, acknowledge and deliver to the applicable person such other instruments
of conveyance and transfer and will take such other actions and execute such
other documents, certifications, and further assurances as Buyer or Seller, as
the case may be, may reasonably require in order to transfer, in accordance with
the terms and conditions of this Agreement, more effectively in Buyer or to put
Buyer more fully in possession of any of the Acquired Assets or better to enable
Buyer to complete, perform and discharge any of the Assumed Liabilities. Each
party shall cooperate and deliver such instruments and take such action as may
be reasonably requested by the other party in order to carry out the provisions
and purposes of this Agreement and the transactions contemplated hereby.
5.8 Cooperation.
5.8.1 Parent, Buyer, Citizens and Seller shall cooperate and
shall cause their respective Affiliates, officers, employees, agents and
representatives to cooperate to ensure the orderly transition of the Business
from Seller to Buyer and to minimize the disruption to the Business resulting
from the transactions contemplated hereby.
5.8.2 Without limiting the foregoing, neither Parent and
Buyer, nor Citizens and Seller (nor any of their respective Affiliates) shall
make any filings pursuant to federal or state securities laws ("Securities
Filings") or make any consent solicitations to holders of Assumed Indebtedness
which include any information about Seller, Buyer (or their respective
Affiliates) or the transactions contemplated hereby without consulting with the
other party and providing the other party a reasonable opportunity to review and
comment on such information, it being understood and agreed that any party may
so disclose such information in its reasonable judgment to the extent such
party's counsel advises it that such disclosure is advisable under applicable
law. Each of Parent, Buyer, Citizens and Seller shall, and shall cause their
respective Affiliates to, comply with all applicable federal and state
securities laws in connection with this Agreement and the transactions
contemplated hereby (including any solicitation of consents of holders of
Assumed Indebtedness), and all information supplied by any party for inclusion
in any Securities Filing or consent solicitation, including, without limitation,
any proxy or information statement, or any registration statement on Form S-4
shall be true and correct in all material respect and shall not contain any
untrue statement of a material fact or omit to state any material fact which is
required to be stated therein or which is necessary to make the statements
contained therein not misleading in light of the circumstances in which they
were made.
5.8.3 During the first 90 days after the Closing Date (180
days for Trademarks on tanks), Buyer shall have the right to use all of the
logos, trademarks and trade identification of Seller as are located at the Real
Estate or on the Acquired Assets (collectively, the "Trademarks"). Buyer's use
of the Trademarks shall be in accordance with such reasonable quality control
standards as may be promulgated by Seller and provided to Buyer. If Seller shall
notify Buyer in writing of Buyer's material failure to comply with such
reasonable quality control standards and Buyer continues to not comply with such
reasonable quality control standards for more than 20 days after receipt of such
notice, Seller shall have the right to terminate Buyer's right under this
Section 5.8.3 to use the Trademarks.
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5.8.4 Seller shall give Buyer and its representatives
(including Buyer's Accountants, consultants, counsel and employees), upon
reasonable notice and during normal business hours, full access to the
properties, contracts, employees, books, records and affairs of Seller to the
extent relating to the Business and the Acquired Assets, and shall cause its
officers, employees, agents and representatives to furnish to Buyer all
documents, records and information (and copies thereof), to the extent relating
to the Business and the Acquired Assets, as Buyer may reasonably request. Except
to the extent disclosed in the Disclosure Schedules in accordance with Sections
5.3 and 8.4, no investigation or receipt of information by Buyer pursuant to, or
in connection with, this Agreement, shall diminish or obviate any of the
representations, warranties, covenants or agreements of the Seller Parties under
this Agreement or the conditions to the obligations of Parent or Buyer under
this Agreement. All information provided to Buyer under this Agreement shall be
held subject to the terms and conditions of the Confidentiality Agreement dated
August 2, 1999 between Citizens and Parent.
5.9 Employees; Employee Benefits.
5.9.1 Schedule 5.9.1 lists divisions and the number of all
salaried and hourly employees actively employed (as of the date of this
Agreement) in each division by Seller or any of its Affiliates whose primary
responsibilities relate to the Business. None of the employees listed on
Schedule 5.9.1 is subject to a collective bargaining agreement. All individuals
referred to on Schedule 5.9.1 are herein referred to as the "Employees." No
later than March 1, 2000, Buyer and Seller shall determine the number of
Employees to whom Buyer will offer employment, which number shall be at least
equal to 250 (when combined with offers made by Buyer or Affiliates of Buyer to
employees of Affiliates of Seller in connection with the Related Purchase
Agreements) (the "Base Number"), and such additional number of Employees, if
any, whom Buyer also wishes to employ. Upon determination of such Employees,
Seller will supplement Schedule 5.9.1 with the name, job title, unused vacation,
current base salary or hourly wage, date of hire and assigned location of each
Transferred Employee (as that term is defined below). At the Closing, Seller
shall provide an updated Schedule 5.9.1 which shall disclose all the information
required under the preceding sentence as of the most recent practicable date
prior to Closing.
5.9.2 Effective as of the Closing, Buyer shall offer
employment to at least the Base Number of those employees included on Schedule
5.9.1. All Employees to whom Buyer offers employment and who accept such
employment are herein referred to as the "Transferred Employees." In the event
any Employees do not accept Buyer's offer of employment, Buyer shall offer
employment to such additional employees (the identity of whom shall be
determined by Buyer and Seller) as are necessary to bring the total number of
Transferred Employees to the Base Number. Subject to the provisions of this
Section 5.9 and Section 5.12, Buyer shall provide each Transferred Employee with
base compensation at least equal to that provided by Seller on the Closing Date,
and employee benefits which are substantially comparable to those provided by
Buyer to its other similarly situated employees. Buyer agrees (i) to credit the
service of each Transferred Employee with Seller and its Affiliates before the
Closing, for all purposes under all employee benefit plans and arrangements
maintained by Buyer (and/or any of its Affiliates) for the benefit of any
Transferred Employee (including without limitation for purposes of attainment of
retirement dates and payment of optional forms of benefits), other than for
purposes of benefit accrual under any
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"defined benefit plan", within the meaning of Section 3(35) of ERISA, (ii) to
provide accrued vacation to Transferred Employees in the year in which the
Closing occurs, equal to the excess, if any, of the accrued vacation to which
the Transferred Employee would otherwise be entitled under Seller's vacation
plan during that year over the amount of accrued vacation the Transferred
Employee had taken during that year, and, thereafter, to provide vacation to
Transferred Employees on the same basis as provided to similarly situated
employees of Buyer, with service credit as provided in (i) hereof, and (iii) to
provide severance benefits to Transferred Employees terminated by Buyer that are
substantially comparable to those benefits provided by Buyer. Buyer shall be
responsible for providing to each Transferred Employee vacation in an amount
equal to the Transferred Employee's vacation entitlement for the year of Closing
reduced by the number of vacation days such Transferred Employee has taken on or
before Closing. Nothing in this Section 5.9 shall limit Buyer's authority to
terminate the employment of any Transferred Employee at any time and for
whatever reason. Until the second anniversary of the Closing Date, neither
Seller nor any of its Affiliates shall directly or indirectly solicit or offer
employment to any Transferred Employee then employed by Buyer or its Affiliates.
5.9.3 Except as specifically provided in Sections 5.9 and
5.12, Seller shall be solely responsible for any liability, claim or expense
(including reasonable attorneys' fees) related to compensation or employee
benefits incurred by Buyer as the result of any claims against Buyer or its
Affiliates that are made by any Employees or Former Employees (or the
Beneficiary of any Employee or Former Employee) who are not made offers to
become employees of Buyer or its Affiliates including, without limitation,
claims asserted against Buyer as a result of their termination by Seller or its
Affiliates.
5.9.4 Seller shall be solely responsible for any liability,
claim or expense with respect to compensation or employee benefits of any nature
(including, but not limited to, workers compensation claims or the benefits
provided under the Benefit Plans, whether paid before or after the Closing) owed
to any Transferred Employee or the Beneficiary of any Transferred Employee or
any Water Sector Retiree or the Beneficiary of any Water Sector Retiree that
arises out of or relates to (i) the employment relationship between Seller or
any of its Affiliates and such Transferred Employee or Beneficiary or (ii) any
benefit claim or expense (including medical expenses) incurred before Closing
under any Benefit Plan. For purposes of this Agreement, a medical expense shall
be deemed to be incurred when the services giving rise to a claim are rendered,
regardless of when billed or paid. Without limiting the foregoing, Seller shall
be responsible for the payment of any employee benefits that become due to any
Transferred Employees as a result of their termination by Seller.
5.9.5 Except as otherwise specifically provided in Section
5.9, 5.11 or 5.12, Buyer shall be solely responsible for any liability, claim or
expense with respect to compensation or employee benefits of any nature
(including, but not limited to, workers compensation, claims or the benefits
provided under any employee benefit plan or arrangement of Buyer incurred after
Closing) owed to any Transferred Employee or Beneficiary of any Transferred
Employee or any Water Sector Retiree or Beneficiary of any Water Sector Retiree
that arises out of or relates to (i) the employment relationship between Buyer
or any of its Affiliates and any Transferred Employee or (ii) any benefit claim
or expense (including medical expense) incurred after Closing under any
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employee benefit plan sponsored or contributed to by Buyer or an ERISA Affiliate
after Closing. Notwithstanding the foregoing, Buyer shall not be responsible for
the payment of any employee benefits that become due to any Transferred
Employees under any Benefit Plan (other than the Assumed Benefit Liabilities).
5.9.6 Buyer agrees to reimburse Seller for its proportionate
share (as defined below) of any amount in excess of $1,000,000 paid by Seller as
severance under Citizens' severance plan as in effect on the date hereof to any
Employees (when such amount paid by Seller is aggregated with amounts paid by
Citizens to other employees as referenced in Section 5.9.6 of the Related
Purchase Agreements) provided (i) Buyer does not hire such Employees in
accordance with the provisions of Sections 5.9, 5.11 and 5.12 and (ii) Seller
provides notice to those Employees on or before the Closing Date to the effect
that their employment will be terminated on or shortly after the Closing Date.
Buyer will pay such reimbursement to Citizens within 5 days after receipt of a
list of the Employees showing which are entitled to severance pay, the amounts
of that severance pay and certifying that those amounts have been paid. The
Buyer's "proportionate share" means the amount obtained by multiplying the
amount in excess of $1,000,000 by a fraction, the numerator of which is the
amount of severance paid by Seller to Employees under Section 5.9.6 of this
Agreement and the denominator of which is the sum of (i) the amount paid by
Seller to Employees under Section 5.9.6 of this Agreement and (ii) the aggregate
amount paid by Citizens under Section 5.9.6 of each of the Related Purchase
Agreements.
5.9.7 Until the second anniversary of the Closing Date, Buyer
shall not directly or indirectly solicit or offer employment to any active
employee of Seller, other than the Transferred Employees.
5.10 Employee Pension Plan.
5.10.1 At least fifteen days prior to the Closing Date, Seller
shall take any and all actions necessary to cease benefit accruals and fully
vest all Transferred Employees in their accrued benefits under the Citizens
Pension Plan ("Seller's Pension Plan" or "Citizens Pension Plan"). Seller shall
retain liability and related assets for benefits accrued through the Closing
Date by Transferred Employees under Seller's Pension Plan.
5.10.2 As of the Closing Date, Transferred Employees shall be
covered under the American Pension Plan, and shall be given credit for service
with Seller and its Affiliates for eligibility, vesting, attainment of
retirement dates, subsidized benefits, and entitlement to optional forms of
payment, but not for accrual of benefits.
5.11 Employee Savings Plan.
5.11.1 Effective upon the date of the transfer described in
Section 5.11.2, subject to the terms and conditions of this Agreement, Parent
shall cause the Savings Plan for Employees of American Water Works Company, Inc.
(the "American Savings Plan") to assume the liability of the Seller's 401(k)
Plan for the account balances of those Transferred Employees participating in
the Seller's 401(k) Plan on the Closing Date (the "Affected Participants") that
are
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transferred to the American Savings Plan. As of the Closing Date, Affected
Participants shall be 100% vested in their account balances under the Seller's
401(k) Plan. Transferred Employees shall be given credit under the American
Savings Plan for service with Seller and its Affiliates for eligibility,
vesting, attainment of retirement dates, contribution levels and optional forms
of benefit payment, to the same extent that credit for such service has been
given by Seller and its Affiliates.
5.11.2 Buyer shall deliver to Seller as soon as practicable,
but in no event later than ninety (90) days after Closing (i) a certified copy
of the American Savings Plan and any amendment necessary to effectuate the
transfer of assets and the assumption of account balances in accordance with
this Section 5.11, (ii) a certified copy of the trust agreement for the American
Savings Plan; (iii) the most recent favorable determination letter from the IRS
with respect to the American Savings Plan; and (iv) an opinion from Buyer's
legal counsel acceptable to Seller that the American Savings Plan, as so
amended, complies or will comply on a timely basis with the applicable
provisions of the Code relating to the qualification of, and the transfer of
assets and assumption of benefit liabilities by, the American Savings Plan.
Seller shall deliver to Buyer as soon as practicable, but in no event later than
ninety (90) days after Closing, an opinion from Seller's legal counsel
acceptable to Buyer that the Seller's 401(k) Plan complies or will comply on a
timely basis with the applicable provisions of the Code relating to the
qualification of the Seller's 401(k) Plan, and the transfer of assets to, and
assumptions of benefit limitations by, the American Savings Plan. As soon as
practicable, but in any event within 120 days after Closing, Seller shall cause
the trustee of the Seller's 401(k) Plan to transfer in cash and promissory notes
representing outstanding loans to Affected Participants to the trustee of the
American Savings Plan an amount equal to the sum of the account balances of the
Transferred Employees (the "Transferred Accounts") calculated as of the most
recent valuation date under the Seller's 401(k) Plan (which shall, in any event,
be within thirty (30) days of the transfer). Both the Seller Parties and Buyer
will file any IRS Form 5310A that is required with respect to the transfer
contemplated by this Section 5.11 date at least 30 days prior to the transfer.
Upon the transfer described in this Section 5.11, Buyer and the American Savings
Plan shall be responsible for all benefits attributable to the Transferred
Accounts to which Transferred Employees were entitled under the Seller's 401(k)
Plan as of such date, and Seller and the Seller's 401(k) Plan shall cease to
have any liability, contingent or otherwise, for such benefits.
5.12 Welfare Benefits.
5.12.1 Within sixty (60) days after the Closing, Seller agrees
to transfer to trusts established by Buyer under Section 501(c)(9) of the Code
("Buyer's VEBAs") the amount held under any trust established by Seller under
Section 501(c)(9) of the Code ("Seller's VEBAs") to fund post-retirement health
care and life insurance benefits attributable to the Business, including Former
Employees identified on Schedule 5.12 (the "Water Sector Retirees") and any
"grandfathered" Transferred Employees as set forth on Schedule 5.12. Buyer
agrees to provide post-retirement health care and life insurance benefits to the
Water Sector Retirees and, as applicable, Transferred Employees who become
eligible for such benefits after Closing and further agrees that Buyer's VEBAs
will apply an amount at least equal to the sum of the assets (and earnings
thereon calculated at the rate of return generated by Buyer's VEBAs) transferred
from Seller's VEBAs to provide post-retirement health care and life insurance
benefits for such employees. Upon Closing, Buyer shall be responsible for all
obligations of the Seller Parties to provide post-retirement health care and
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life insurance benefits "incurred" (within the meaning of Section 5.9.4) after
the Closing and the Seller Parties shall cease to have any liability, contingent
or otherwise, for such benefits. In consideration of such transfer, Buyer agrees
not to terminate or materially modify those post-retirement health and life
benefit provisions applicable to such grandfathered Transferred Employees and
Water Sector Retirees as such provisions are in effect immediately prior to the
Closing Date.
5.12.2 Buyer shall take all action necessary and appropriate
to ensure that, as of the Closing Date, Buyer provides medical, health, dental,
flexible spending account, accident, life, short-term disability, long-term
disability and other employee welfare benefits (including retiree medical
benefits) to Transferred Employees that, in the case of Non-Union Transferred
Employees and Union Transferred Employees are substantially similar to those
benefits provided by Buyer under its corresponding welfare benefit plans (the
"Buyer's Welfare Plans"). For purposes of determining eligibility to
participate, and entitlement to benefits, in each Buyer Welfare Plan, each
Transferred Employee shall be credited with service, determined under the terms
of the corresponding welfare plans maintained by Seller on the Closing Date
(hereinafter referred to collectively as the "Seller Welfare Plans"). Any
restrictions on coverage for pre-existing conditions, waiting periods, and
requirements for evidence of insurability under the Buyer Welfare Plans shall be
waived in Buyer's Welfare Plans for Transferred Employees and retirees of the
Water Sector and their respective Beneficiaries, and Transferred Employees and
retirees of the Water Sector and their respective Beneficiaries shall receive
credit under the Buyer Welfare Plans for co-payments, payments under a
deductible limit made by them, and for out-of-pocket maximums applicable to them
during the plan year of the Seller Welfare Plan in which the Closing Date
occurs. As soon as practicable after the Closing Date, Seller shall deliver to
Buyer a list of the Transferred Employees and retirees of the Water Sector and
their respective Beneficiaries who had credited service under a Seller Welfare
Plan, together with each such individual's service, copayment, deductible and
out-of-pocket payment amounts under such plan.
5.12.3 Seller shall transfer to Buyer's flexible benefits plan
any balances standing to the credit of Transferred Employees under Seller's
flexible benefits plan as of the Closing Date. Seller shall provide to Buyer
prior to the Closing Date a list of those Transferred Employees that have
participated in the health or dependent care reimbursement accounts of Seller,
together with their elections made prior to the Closing Date with respect to
such Account, and balances standing to their credit as of the Closing Date.
5.13 Taxes. The Seller Parties, on the one hand, and Parent and
Buyer, on the other, shall (a) each provide the other with such assistance as
may reasonably be requested by either of them in connection with the preparation
of any Tax return, any audit or other examination by any taxing authority or any
judicial or administrative proceeding with respect to Taxes; (b) each retain and
provide the other with any records or other information which may be relevant to
such return, audit, examination or proceeding, and (c) each provide the other
with any final determination of any such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax return of
the other for any period (which shall be maintained confidentially). Without
limiting the generality of the foregoing, Parent and Buyer, on the one hand, and
the Seller Parties, on the other, shall retain, until the applicable statutes of
limitations (including all extensions) have expired, copies of all Tax returns,
supporting workpapers, and other books and records or
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information which may be relevant to such returns for all Tax periods or
portions thereof ending before or including the Closing Date, and shall not
destroy or dispose of such records or information without first providing the
other party with a reasonable opportunity to review and copy the same.
5.14 Intentionally Omitted.
5.15 Citizens' Guarantees and Surety Instruments. Each of Parent and
Buyer shall use its reasonable efforts to assist Citizens in obtaining full and
complete releases on the guarantees, letters of credit, bonds and other surety
instruments listed on Schedule 5.15. For purposes of this Section 5.15 and
Section 5.16, reasonable efforts: (a) shall include Parent's or Buyer's
assumption of the Contracts and the Permits on the terms set forth in this
Agreement; and (b) shall include an obligation on the part of Parent or Buyer to
provide a guarantee, letter of credit, bond or other required surety instrument
at Closing to the extent required by any Contract or Permit and in general to
provide an equivalent surety instrument to be substituted for any surety
instrument provided by Citizens to any beneficiary in connection with the
Business.
5.16 Intentionally Omitted.
5.17 Schedule of Permits. No later than March 13, 2000, Citizens
shall deliver to Buyer a schedule, to be identified as Schedule 5.17, which sets
forth all material Permits required for the use of the Acquired Assets and the
operation of the Business by Buyer substantially in the manner as it was
conducted prior to the date hereof. For purposes of this Section 5.17, material
Permits shall include those required for the service of all utility customers at
substantially the same service levels as provided by Seller on the date of this
Agreement. All Permits listed on Schedule 5.17 that are required to be listed on
Schedule 3.3 or Schedule 3.9 shall be so designated. Seller has made or will
make prior to the Closing Date timely applications for renewals of all such
Permits listed on Schedule 5.17, which under applicable law must be filed prior
to the Closing Date to maintain the Permits listed on Schedule 5.17 in full
force and effect.
5.18 Title Information. No later than March 13, 2000, Seller shall
use its reasonable efforts to deliver to Buyer true, correct and complete copies
of all existing title policies, surveys, leases, deeds, instruments and
agreements relating to title to the Real Estate in Seller's possession.
5.19 Transaction with Related Parties. Effective as of the Closing
Date, except as otherwise provided in Sections 5.9 through 5.12, 5.15, 5.26,
5.27 and 2.7.1(j) of this Agreement, Seller shall have terminated and canceled
all contracts, commitments and agreements (including employment relationships)
relating to the Acquired Assets or the Business, between Seller, any Affiliate
of Seller (including Citizens), any officer or director of any Seller Party, or
any Affiliate of the foregoing. Seller shall be solely liable for any
contractual or other claims, express or implied arising out of the termination
and cancellation of any of the foregoing raised by any party thereto.
5.20 Approval by Citizens. Citizens shall, as the sole owner of
common stock of each other Seller Party, vote all of such shares of common stock
to approve this Agreement and the transactions contemplated hereby.
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5.21 Supplemental Information.
5.21.1 Citizens shall provide Buyer, within fifteen (15) days
after the execution or the date of receipt thereof, a copy of (a) each Contract
(other than with respect to which the Business' total annual liability or
expense is less than $100,000 per such Contract) entered into by Seller after
the date hereof and prior to the Closing Date; (b) a copy of any written notice
for assessments for public improvements against the Real Estate received after
the date hereof and prior to the Closing Date; (c) a copy of the filing of any
condemnation, expropriation, eminent domain or similar proceeding affecting all
or any portion of any of the Real Estate received after the date hereof but
prior to the Closing Date; and (d) a copy of any Contract where Seller is a
lessee relating to the use or occupancy of the Real Estate and where such
Contract involves annual payments in excess of $100,000 entered into by Seller
after the date hereof and prior to the Closing Date.
5.21.2 Within fifteen (15) days after the receipt of notice of
violation, Citizens shall notify Buyer of any violations of state or federal
drinking water standards which, if such violations existed on the date hereof,
would be required to be disclosed pursuant to Section 3.8.10 hereof, and shall
promptly notify Buyer of the actions proposed to be taken by Seller to correct
or otherwise respond to such violations.
5.22 Non-Competition. The Seller Parties agree that for a period of
fifteen (15) years after the Closing Date no Seller Party nor any Affiliate of a
Seller Party shall directly or indirectly own, manage, operate, control or
participate in the ownership, management, operation or control of or be
otherwise connected in any substantial manner with any entity (other than Buyer
and its successors and assigns) engaged in the business of storing, supplying
and distributing water in the States in which Buyer acquires any Acquired
Assets, whether or not such business is subject to regulation by a PUC (it being
understood that the individual directors of Seller and Citizens are not
Affiliates of a Seller Party).
5.23 Intentionally Omitted.
5.24 Intentionally Omitted.
5.25 Cooperation with Respect to Like-Kind Exchange. Buyer agrees
that Seller may, at Seller's written election delivered to Buyer no later than
five (5) days prior to the Closing Date, direct that all or a portion of the
Initial Cash Payment be delivered to a "qualified intermediary" as defined in
Treasury Regulation ss.1.1031(k) - (g)(4) as to enable Seller's relinquishment
of the Acquired Assets to qualify as part of a like-kind exchange of property
covered by Section 1031 of the Code. If Seller so elects, Buyer shall reasonably
cooperate with Seller (but without being required to incur any out-of-pocket
costs in the course thereof) in connection with Seller's efforts to effect such
like-kind exchange, which cooperation shall include, without limitation, taking
such actions as Seller reasonably requests in order to enable Seller to qualify
such transfer as part of a like-kind exchange of property covered by Section
1031 of the Code (including any actions reasonably required to facilitate the
use of a "qualified intermediary"), and Buyer agrees that Seller may assign all
or part of its rights (but no obligations) under this Agreement to a person
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or entity acting as a qualified intermediary to qualify the transfer
of the Assets as part of a like-kind exchange of property covered by Section
1031 of the Code. Buyer and Seller agree in good faith to use reasonable efforts
to coordinate the transactions contemplated by this Agreement with any other
transactions engaged in by either Buyer or Seller; provided that such efforts
shall, in no event, result in any delay in the consummation of the transactions
contemplated by this Agreement. Seller shall indemnify and hold Buyer harmless
from any cost, expense or liability arising from its cooperating under this
Section 5.25.
5.26 Transition Plan. Within 30 days after the execution date of
this Agreement, the parties jointly shall establish a transitional services
team, which shall include expertise from various functional specialties
associated with or involved in providing billing, payroll and other support
services provided to Seller by any automated or manual process using facilities
or employees that are not included among the Acquired Assets or Transferred
Employees. Such team will be responsible for preparing, and timely implementing,
a transition plan which will identify and describe substantially all of the
various transition activities that the parties will cause to occur before and
after Closing and any other transfer of control matters that any party
reasonably believes should be addressed in such transition plan. The transition
plan will set forth reasonable arrangements providing Buyer, at Buyer's sole
expense, with appropriate access to Seller's relevant computer systems to allow
for a full conversion of the relevant data and functionality to Buyer's systems
on the Closing Date. Buyer and Seller shall use their commercially reasonable
efforts to cause their representatives on such transition team to cooperate in
good faith and take all reasonable steps necessary to develop a mutually
acceptable transition plan no later than 60 days prior to the Closing Date.
5.27 Procedures regarding Refunds of Advances. Within 30 days after
the execution date of this Agreement, the parties jointly shall establish a
working group of appropriate subject matter experts to determine the appropriate
obligations of Parent and Buyer regarding notification and the provision of
other accurate and timely data to Citizens to enable Citizens timely and
accurately to satisfy the refund obligations described in Section 2.3.3(b). Such
working group will be responsible for preparing a comprehensive agreement no
later than March 13, 2000, which agreement shall be executed by the parties at
Closing. Among other arrangements, the parties would require that the customers
and developers owed refunds provide joint notices to Buyer and Citizens.
5.28 Title Insurance. Prior to Closing, Seller shall cooperate with
Buyer and use commercially reasonable efforts to assist Buyer if Buyer desires
to obtain ALTA title insurance commitments (collectively, the "Title
Commitments," and each a "Title Commitment"), in final form, from one or more
title insurance companies (collectively, the "Title Company"), committing the
Title Company (subject only to the satisfaction of any industry standard
requirements contained in the Title Commitment) to issuing ALTA (or its local
equivalent) form of title insurance policies insuring good, valid, indefeasible
fee simple title to the Real Estate in Buyer, in all cases, at Buyer's sole
expense and in the respective amounts that Buyer requests prior to Closing,
subject to no Liens or other exceptions to title other than Permitted Exceptions
(collectively the "Title Policies"). On or prior to the Closing Date, Seller
shall execute and deliver, or cause to be executed and delivered, to the Title
Company, at no cost to Seller, any customary affidavits, standard gap
indemnities and similar documents reasonably requested by the Title Company in
connection with the issuance of
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the Title Commitments or the Title Policies; provided that such efforts and
Buyers' request for Title Policies or Title Commitments shall, in no event,
result in any delay in the consummation of the transactions contemplated by this
Agreement.
ARTICLE 6
CONDITIONS PRECEDENT; TERMINATION
6.1 Conditions Precedent to Obligations of Buyer and Parent. The
obligations of Buyer and Parent to cause the purchase of the Acquired Assets and
the assumption of the Assumed Liabilities and to consummate the other
transactions contemplated hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions (any one or more of which
may be waived in writing in whole or in part by Buyer and Parent in their sole
discretion):
6.1.1 Performance of Agreements; Representations and
Warranties. Seller shall have performed or complied in all material respects
with all agreements and covenants required by this Agreement to be performed or
complied with by them at or prior to the Closing; and the representations and
warranties set forth in this Agreement made by Seller shall be true and correct
on and as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date,
except for representations and warranties that speak as of a specific date or
time other than the Closing Date (which need only be true and correct as of such
date or time), other than, in all such cases (except Section 3.25), such
failures to be true and/or correct as would not in the aggregate reasonably be
expected to have a Material Adverse Effect; provided, however, that if any such
representation or warranty is already qualified in any respect by materiality or
as to material adverse effect, for purposes of determining whether this
condition has been satisfied, such materiality or material adverse effect
qualification will be in all respects ignored and such representation or
warranty shall be true and correct in all respects without regard to such
qualification (but subject to the overall exception as to material adverse
effect set forth immediately prior to this proviso); and provided further, that
the representation and warranty set forth in Section 3.5.1 shall be deemed to be
true and correct on and as of the Closing Date if any Material Adverse Effect
that may have arisen or occurred between the execution date of this Agreement
and the Closing Date shall have been cured or remedied such that such Material
Adverse Effect is not continuing as of the Closing Date. Buyer shall have been
furnished with a certificate of the Chief Financial Officer or other Vice
President of Citizens dated the Closing Date, certifying to the foregoing.
6.1.2 Opinion of Counsel. Buyer shall have received from L.
Russell Mitten II, Vice President and General Counsel of Seller, an opinion
dated the Closing Date, in form and substance satisfactory to Buyer, to the
effect set forth in Exhibit E hereto.
6.1.3 HSR Act. The applicable waiting period under the HSR Act
with respect to the transactions contemplated hereby shall have expired or been
terminated.
6.1.4 Required PUC and Other Consents. The PUC shall have
issued an order approving the transactions contemplated hereby, and such order
shall not contain any
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restrictions or conditions (other than those in effect on the date hereof or
requiring that the regulatory treatment with respect to the Business in
existence as of the date of this Agreement applicable to Seller be continued
following the transactions contemplated hereby) which would have a Material
Adverse Effect or a material adverse effect on any other regulated business of
Buyer in the state in which the PUC has jurisdiction, and such order shall be
final and unappealable; Seller shall have obtained all statutory, regulatory and
other consents and approvals which are required in order to consummate the
transactions contemplated hereby and to permit Buyer to conduct the Business in
the manner contemplated by Section 3.25 hereof other than those the failure of
which to obtain would not have a Material Adverse Effect. Seller shall have also
obtained (i) all consents and legal opinions required to enable Seller to sell
the Acquired Assets to Buyer at the Closing, free and clear of all Liens other
than Permitted Exceptions (and specifically free and clear of any Lien arising
under or pursuant to the Mortgage Indenture) and (ii) all consents required
under Contracts and Permits relating to Seller's water appropriation and flowage
rights to the extent reasonably sufficient to enable Buyer to service the
customers of the Business and to service future commitments under such
Contracts.
6.1.5 Injunction; Litigation. (i) No statute, rule, regulation
or order of any court or Authority shall be in effect which restrains or
prohibits the transactions contemplated by this Agreement or which would limit
or materially adversely affect Buyer's ownership of all or any material portion
of the Acquired Assets, nor (ii) shall there be pending or threatened any
litigation, suit, action or proceeding by any party which would reasonably be
expected to materially limit or materially adversely affect Buyer's ownership of
the Acquired Assets.
6.1.6 Documents. Seller and Citizens shall have delivered all
of the certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Section 2.7 hereof and shall
have made arrangements reasonably satisfactory to Buyer to deliver to Buyer as
promptly as practicable after the Closing such records (including customer and
employee records) necessary to own and operate the Business.
6.1.7 Related Closings. Buyer shall be reasonably satisfied
that the consummation of each of the asset purchase and sale transactions
contemplated by those certain purchase agreements described on Schedule 6.1.7
(the "Related Purchase Agreements") will occur concurrently with the Closing.
6.2 Conditions Precedent to Obligations of Seller Parties. The
obligations of the Seller Parties to cause the sale of the Acquired Assets and
to consummate the other transactions contemplated hereby are subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions (any one or more of which may be waived in writing in whole or in
part by the Seller Parties in their sole discretion):
6.2.1 Performance of Agreements; Representations and
Warranties. Parent and Buyer shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by them at or prior to the Closing; and the
representations and warranties set forth in this Agreement made by Buyer and
Parent shall be true and correct on and as of the Closing Date, with the same
force and effect as
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though such representations and warranties had been made on and as of the
Closing Date, except for representations and warranties that speak as of a
specific date or time other than the Closing Date (which need only be true and
correct as of such date or time), other than, in all such cases (except Section
4.2), such failures to be true and/or correct as would not in the aggregate
reasonably be expected to have a material adverse effect on the respective
ability of Buyer and Parent to perform their obligations under this Agreement
and the Transaction Documents, provided, however, that if any such
representation or warranty is already qualified in any respect by materiality or
as to material adverse effect, for purposes of determining whether this
condition has been satisfied, such materiality or material adverse effect
qualification will be in all respects ignored and such representation or
warranty shall be true and correct in all respects without regard to such
qualification (but subject to the overall exception as to material adverse
effect set forth immediately prior to this proviso). Seller shall have been
furnished with a certificate of the President or Vice President of Parent and
Buyer, dated the Closing Date, certifying to the foregoing.
6.2.2 Opinion of Counsel. Seller shall have received from
Dechert Price & Rhoads, counsel to Parent and Buyer, an opinion dated the
Closing Date, in form and substance satisfactory to Seller, to the effect set
forth in Exhibit F hereto.
6.2.3 HSR Act. The applicable waiting period under the HSR Act
with respect to the transactions contemplated hereby shall have expired or been
terminated.
6.2.4 Required PUC and Other Consents. The PUC shall have
issued an order approving the transactions contemplated hereby and such order
shall not contain any restrictions or conditions which would have a material
adverse effect on Seller's business activities in the State in which the PUC has
jurisdiction or any significant adverse effect on Citizens' acquisition and
divestiture activities in that State (including divestiture of the Acquired
Assets), and such order shall be final and unappealable; Seller shall have
obtained all statutory and regulatory consents and approvals which are required
in order to consummate the transactions contemplated hereby, other than those
the failure of which to obtain would not have a material adverse effect on the
Seller after the Closing. Seller shall have obtained (i) all consents and legal
opinions required to enable Seller to sell the Acquired Assets to Buyer at the
Closing, free and clear of all Liens other than Permitted Exceptions (and
specifically free and clear of any Lien arising under or pursuant to the
Mortgage Indenture), and (ii) all other consents required or advisable in order
for Seller to transfer Acquired Assets without incurring material liability
under any Contract, Permit or Real Estate instrument.
6.2.5 Injunction; Litigation. (i) No statute, rule, regulation
or order of any court or Authority shall be in effect which restrains or
prohibits the transactions contemplated by this Agreement or which would limit
or materially adversely affect Seller's ownership of all or any material portion
of its properties, nor (ii) shall there be pending or threatened any litigation,
suit, action or proceeding by any party which could reasonably be expected to
materially limit or materially adversely affect Seller's ownership of any of its
properties.
6.2.6 Documents. Parent and Buyer shall have delivered all the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including
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pursuant to Sections 2.7 and 5.27, and shall have taken such actions as Seller
may have requested pursuant to Section 5.25 hereof.
6.2.7 Related Closings. Seller shall be reasonably satisfied
that the consummation of each of the Related Purchase Agreements will occur
concurrently with Closing.
6.3 Termination. This Agreement may be terminated at anytime prior
to the Closing Date:
6.3.1 by mutual written consent of the Seller Parties, Buyer
and Parent;
6.3.2 by any of the Seller Parties, Parent or Buyer if: (i)
any governmental or regulatory body the consent of which is a condition to the
obligations of the Seller Parties, Parent and Buyer to consummate the
transactions contemplated hereby shall have determined not to grant its consent
and all appeals of such determination shall have been taken and have been
unsuccessful; (ii) any court of competent jurisdiction shall have issued an
order, judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and such order, judgment or decree shall have become final and
nonappealable; or (iii) the Closing shall not have occurred on or before March
31, 2001; provided, however, that the right to terminate this Agreement under
this Section 6.3.2(iii) will not be available to any party that is in material
breach of its representations, warranties, covenants or agreements contained
herein; and provided, further, that if Closing has not occurred by such date
because the conditions precedent to Closing set forth in the first sentence of
Section 6.1.4 and the first sentence of Section 6.2.4 have not been fulfilled,
then such date shall be automatically extended to September 30, 2001; or
6.3.3 If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Section 6.3, this
Agreement shall become void and of no further force and effect, except for the
provisions of Section 5.6 relating to publicity, Sections 3.24 and 4.6 relating
to brokerage and Section 7.1 relating to expenses. Nothing in this Section 6.3
shall be deemed to release either party from any liability for any willful
breach by such party of the terms and provisions of this Agreement.
ARTICLE 7
CERTAIN ADDITIONAL COVENANTS
7.1 Certain Taxes and Expenses. Citizens shall be solely responsible
for all state and local sales, use, transfer, real property transfer and other
similar taxes, fees and charges that are calculated based on the value of the
Acquired Assets being transferred arising from and with respect to the sale and
purchase of the Acquired Assets and Buyer shall be solely responsible for all
transfer, registration, documentary stamp, recording and other similar fees and
charges arising from and with respect to the transfer and recording of title
documentation relating to the Acquired Assets. Parent shall be responsible for
all costs and expenses relating to the assumption by or assignment to Parent or
Buyer of the Assumed Indebtedness. Except as otherwise provided in this
Agreement, each of
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the parties hereto shall each bear its respective accounting, legal and other
expenses incurred in connection with the transactions contemplated by this
Agreement.
7.2 Maintenance of Books and Records. The Seller Parties, on the one
hand, and Buyer and Parent, on the other hand, shall cooperate fully with each
other after the Closing so that (subject to any limitations that are reasonably
required to preserve any applicable attorney-client privilege) each party has
access to the business records, contracts and other information existing at the
Closing Date and relating in any manner to the Acquired Assets or the Assumed
Liabilities or the conduct of the Business (whether in the possession of the
Seller Parties or Buyer or Parent). No files, books or records existing at the
Closing Date and relating in any manner to the Acquired Assets or the conduct of
the Business shall be destroyed by any party for a period of six years after the
Closing Date without giving the other party at least 30 days prior written
notice, during which time such other party shall have the right (subject to the
provisions hereof) to examine and to remove any such files, books and records
prior to their destruction. The access to files, books and records contemplated
by this Section 7.2 shall be during normal business hours and upon not less than
two (2) business days prior written request, shall be subject to such reasonable
limitations as the party having custody or control thereof may impose to
preserve the confidentiality of information contained therein, and shall not
extend to material subject to a claim of privilege unless expressly waived by
the party entitled to claim the same.
7.3 Survival.
7.3.1 Subject to this Section 7.3, Section 7.4.2(g) and
Section 7.4.2(j), all representations, warranties, covenants and agreements
contained in this Agreement or the Transaction Documents shall survive (and not
be affected in any respect by) the Closing, any investigation conducted by any
party hereto and any information which any party may receive. Notwithstanding
the foregoing:
(a) the covenants contained in Sections 5.1, 5.3, 5.4,
5.5, 5.8.2 through 5.8.4 and 5.21 and the related indemnity obligations
contained in Section 7.4 shall terminate on, and no action or claim with respect
thereto may be brought after, the third anniversary of the Closing Date;
(b) the covenants contained in Section 5.2 and the
related indemnity obligations contained in Section 7.4 shall terminate on, and
no action or claim with respect thereto may be brought after, the Closing Date;
(c) the representations and warranties contained in
Sections 3.12 and 3.16 and the related indemnity obligations contained in
Section 7.4 shall terminate on, and no action or claim with respect thereto may
be brought following the expiration of the applicable statute of limitations (or
extensions or waivers thereof);
(d) the representations and warranties contained in
Section 3.2 and the related indemnity obligations contained in Section 7.4 shall
survive for an unlimited period of time;
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(e) the representations and warranties contained in
Section 3.10 and the related indemnity obligations contained in Section 7.4
shall terminate on, and no action or claim with respect thereto may be brought
after, the third anniversary of the Closing Date;
(f) the representations and warranties contained in
Section 3.7 and 3.17 and the related indemnity obligations contained in Section
7.4 shall terminate on, and no action or claim with respect thereto may be
brought after, the third anniversary of the Closing Date;
(g) the representations and warranties contained in
Sections 3.3, 3.5, 3.6, 3.8, 3.9 and 3.25 and the related indemnity obligations
contained in Section 7.4 shall terminate on, and no action or claim with respect
thereto may be brought after, the third anniversary of the Closing Date;
(h) the representations and warranties contained in
Section 3.11 and the related indemnity obligations contained in Section 7.4
shall terminate on, and no action or claim with respect thereto may be brought
after, the third anniversary of the Closing Date;
(i) the representations and warranties contained in
Section 4.2 and the related indemnity obligations contained in Section 7.4 shall
survive for an unlimited period of time;
(j) the representations and warranties contained in
Sections 4.3 and 4.4 and the related indemnity obligations contained in Section
7.4 shall terminate on, and no action or claim with respect thereto may be
brought after, the third anniversary of the Closing Date;
(k) the representations and warranties contained in
Section 4.5 and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be brought after,
the Closing Date; and
(l) all other representations and warranties contained
in this Agreement and the related indemnity obligations contained in Section 7.4
shall terminate on and no further action or claim with respect thereto may be
brought after, the second anniversary of the Closing Date;
(m) such representations and warranties specified in the
foregoing clauses (c) through (k), and the covenants contained in Section 5.1,
5.2, 5.3, 5.4, 5.5, 5.8.2 through 5.8.4 and 5.21 and the liability of any party
with respect thereto, shall not terminate with respect to any claim, whether or
not fixed as to liability or liquidated as to amount, with respect to which such
party has been given written notice setting forth the facts upon which the claim
for indemnification is based and, if possible, a reasonable estimate of the
amount of the claims prior to the relevant anniversary of the Closing Date or
the 30th day after the expiration of the applicable statute of limitations (or
extensions or waivers thereof), as the case may be. If any claim for
indemnification is asserted or could be asserted with respect to a breach or
asserted breach of Section 3.17 (Undisclosed Liabilities) and the Buyer or
Parent is also entitled to indemnification in respect of that claim for breach
or asserted breach of any other representation or warranty in this Agreement for
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which there is a shorter survival period, such shorter period will apply to such
claim except to the extent that such claim is a product liability, toxic tort or
similar claim (as described in Section 2.3.3(a)) brought by a private party
litigant.
7.3.2 No claim for indemnity under Section 7.4 shall be
brought or made by Buyer or Parent pursuant to Sections 7.4.1(a)(B) or
7.4.1(a)(C):
(a) after the tenth anniversary of the Closing Date (the
seventh anniversary of the Closing Date in the event of a Change of Control of
Citizens), for any action or claim with respect to the Pre-Existing Conditions;
(b) after the tenth anniversary of the Closing Date (the
seventh anniversary of the Closing Date in the event of a Change of Control of
Citizens), with respect to the presence of Hazardous Substances at any locations
other than the Real Estate; and
(c) after the third anniversary of the Closing Date, for
any action or claim with respect to any other Retained Liability;
Provided, however, that the foregoing time limitations shall not apply to
any such claims which have been the subject of a written notice from Parent
and/or Buyer to the Seller Parties prior to such period setting forth the facts
upon which the claim for indemnification is based and, if possible, a reasonable
estimate of the amount of the claims; and, provided, further, that the foregoing
time limitations shall also not apply to any such claims: (u) with respect to
Taxes; (v) with respect to any liability of the types that appear as "Trade
Payables" or "Other Current and Accrued Liabilities" on the financial statements
of Seller; (w) not exclusively related to the Acquired Assets or not exclusively
related to the Business; and (x) with respect to any of the matters discussed in
Section 3.16 hereof.
For purposes of Sections 7.3.2(a) and (b), a "Change of Control of
Citizens" shall be deemed to have occurred if: (i) any "person" (as such term is
used in Section 13(d) and 14(d) of the Exchange Act of 1934, as amended (the
"Exchange Act"), other than an underwriter engaged in a firm commitment
underwriting on behalf of Citizens, is or becomes the beneficial owner (as such
term is used in Rule 13D-3 and 13D-5 under the Exchange Act, except that for
purposes of this clause (i) a person shall be deemed to have beneficial
ownership of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total outstanding shares of common stock of
the Company; (ii) all or substantially all of Citizens' and its Subsidiaries'
assets are sold, leased, exchanged or otherwise transferred to any person or
group of persons acting in concert; (iii) Citizens is merged or consolidated
with any other person, whether or not Citizens is the surviving corporation in
such merger or consolidation; or (iv) Citizens is liquidated or dissolved or
adopts a plan of liquidation.
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7.4 Indemnification. Seller, Parent and Buyer agree as follows:
7.4.1 General Indemnification Obligations.
(a) Seller shall indemnify Buyer and its directors,
officers and other Affiliates (including Parent) and hold Buyer and such other
parties harmless from and against any and all Damages arising out of or
resulting from (A) any breach of any representation, warranty, covenant or
agreement made by the Seller Parties in this Agreement or in any document or
certificate required to be furnished to Buyer by any of the Seller Parties
pursuant to this Agreement (including the Transaction Documents); (B) subject to
Section 7.3.2, any Excluded Assets or Retained Liabilities; and (C) subject to
Section 7.3.2, the ownership, operation or use of any of the businesses or
assets of the Seller Parties or their Affiliates (other than the Business and
the Acquired Assets) whether before, on or after the Closing Date.
(b) Buyer and Parent shall indemnify Seller, and their
directors, officers and other Affiliates (including Citizens) and hold Seller
and such other parties harmless from and against any and all Damages arising out
of or resulting from (A) any breach of any representation, warranty, covenant or
agreement made by Parent or Buyer in this Agreement or in any document or
certificate required to be furnished to Seller by Parent or Buyer pursuant to
this Agreement (including the Transaction Documents), (B) any Assumed
Liabilities after the Closing Date, (C) the ownership, operation or use of the
Business or the Acquired Assets after the Closing Date (except to the extent
resulting from Retained Liabilities or to the extent resulting from breaches by
the Seller Parties of representations, warranties, covenants or agreements
hereunder or in the other Transaction Documents); and (D) any claim by a
Transferred Employee or a Former Employee referred to on Schedule 5.12 or the
Beneficiary of any such employee or former employee for post-retirement health
care or life insurance benefits "incurred" (within the meaning of Section 5.9.4)
after the Closing.
(c) For purposes of this Agreement, "Damages" shall mean
any and all losses, liabilities, obligations, damages (including any
governmental penalty or punitive damages assessed or asserted against the party
seeking indemnification and including costs of investigation, clean-up and
remediation), deficiencies, interest, costs and expenses and any claims,
actions, demands, causes of action, judgments, costs and reasonable expenses
(including reasonable attorneys' fees and all other reasonable expenses incurred
in investigating, preparing or defending any litigation or proceeding, commenced
or threatened, incident to the successful enforcement of this Agreement). For
purposes of this Section 7.4, the determination of whether any breach of any
representation, covenant or agreement has occurred, and the calculation of the
amount of Damages incurred by the Indemnified Party arising out of or resulting
from any breach of a representation, covenant or agreement by any party hereto,
the references to a "Material Adverse Effect" or materiality (or other
correlative terms) shall be disregarded, provided that no such breach shall be
found to have occurred due to facts or circumstances arising from an occurrence
or condition described in Section 1.1.61(a). Notwithstanding the foregoing,
Damages shall not include the loss of profits of the party seeking
indemnification, or punitive damages unless the party seeking indemnification
has had punitive damages assessed or asserted against it.
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(d) Notwithstanding any language contained in any
Transaction Document (including deeds to Real Estate and instruments delivered
by Seller to the Title Company), representations and warranties as to Real
Estate set forth in Section 3.10 and 3.11 will not be merged into any
Transaction Document and the indemnification obligations of Seller, and the
limitations on such obligations, set forth in this Agreement, shall control. No
provision set forth in any Transaction Document shall be deemed to enlarge,
alter or amend the terms or provisions of this Agreement.
7.4.2 General Indemnification Procedures.
(a) A party seeking indemnification pursuant to this
Section 7.4 (an "Indemnified Party") shall give prompt written notice to the
party from whom such indemnification is sought (the "Indemnifying Party") of the
assertion of any claim, the incurrence of any Damages, or the commencement of
any action, suit or proceeding, of which it has knowledge and in respect of
which indemnity may be sought hereunder, and will give the Indemnifying Party
such information with respect thereto as the Indemnifying Party may reasonably
request, but failure to give such required notice shall relieve the Indemnifying
Party of any liability hereunder only to the extent that the Indemnifying Party
has suffered actual prejudice thereby. The Indemnifying Party shall have the
right, exercisable by written notice to the Indemnified Party after receipt of
notice from the Indemnified Party of the commencement of or assertion of any
claim or action, suit or proceeding by a third party in respect of which
indemnity may be sought hereunder (a "Third Party Claim"), to assume the defense
of such Third Party Claim which involves (and continues to involve) solely
monetary damages; provided, that (A) the Indemnifying Party expressly agrees in
such notice that, as between the Indemnifying Party and the Indemnified Party,
solely the Indemnifying Party shall be obligated to satisfy and discharge the
Third Party Claim, (B) such Third Party Claim does not include a request or
demand for injunctive or other equitable relief by an Authority and (C) the
Indemnifying Party makes reasonably adequate provision to assure the Indemnified
Party of the ability of the Indemnifying Party to satisfy the full amount of any
adverse monetary judgment that is reasonably likely to result. The Indemnifying
Party shall be deemed to have satisfied the condition set forth in clause (C) of
the proceeding sentence if it is a regulated utility.
(b) Neither the Indemnified Party nor the Indemnifying
Party shall settle any Third Party Claim without the prior written consent of
the other, which consent shall not be unreasonably withheld or delayed.
(c) The Indemnifying Party or the Indemnified Party, as
the case may be, shall have the right to participate in (but not control), at
its own expense, the defense of any Third Party Claim which the other party is
defending as provided in this Agreement.
(d) Amounts paid in respect of indemnification
obligations of the parties shall be treated as an adjustment to the Purchase
Price.
(e) Subject to Section 7.4.2(f) and Section 7.4.2(i),
neither Parent nor Buyer (and the other Persons for which they can claim
indemnity hereunder) shall be entitled to indemnification for Damages incurred
unless the aggregate amount of Damages incurred by
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Parent or Buyer (or the other Persons for which they can claim indemnification),
together with all other claims for Damages under Section 7.4.2(e) of each of the
Related Purchase Agreements, exceeds $6,123,000 in the aggregate (the "Threshold
Amount"), in which case Seller shall then be liable for Damages in excess of the
Threshold Amount. Subject to Section 7.4.2(f) and Section 7.4.2(i), the
cumulative aggregate indemnity obligation of Citizens and its Affiliates under
Section 7.4 of this Agreement and the Related Purchase Agreements shall not
exceed $60,000,000 (the "Ceiling").
(f) Notwithstanding the foregoing, the parties
acknowledge that Parent or Buyer (and the other Persons for which they can claim
indemnity hereunder) shall be entitled to indemnification for Damages in respect
of intentional and wilful breaches of covenants or agreements in this Agreement
or any of the Retained Liabilities other than the Specified Liabilities
irrespective of the Threshold Amount or the Ceiling (it being understood that
the failure to cure a breach shall not, by itself, be an intentional and wilful
breach). As used herein, the "Specified Liabilities" shall mean the Retained
Liabilities arising from claims made after the Closing Date which (i) do not
relate to matters within the scope of clauses (u), (v), (w) and (x) of Section
7.3.2; (ii) were not known to the Seller Parties on or prior to Closing; and
(iii) relate exclusively to the Acquired Assets or the Business prior to the
Closing Date. Notwithstanding anything to the contrary in this Section 7.4,
Parent or Buyer (or the other Persons for which they can claim indemnification)
shall be entitled to indemnification for Damages in respect of a breach of
Section 3.2, 3.12 or 3.16 irrespective of the Threshold Amount or the Ceiling.
(g) The rights and remedies of Seller, Parent and Buyer
under this Section 7.4 are exclusive and in lieu of any and all other rights and
remedies which Seller, Parent and Buyer may have under this Agreement or
otherwise for monetary relief with respect to (x) the inaccuracy of any
representation, warranty, certification or other statement made (or deemed made)
by Seller, Parent or Buyer in or pursuant to this Agreement or any of the
Transaction Documents or (y) any breach or failure to perform any covenant or
agreements set forth in this Agreement or any of the Transaction Documents.
(h) Except to the extent provided in Section 7.4.2(j)
below, no right to indemnification under this Section 7.4 shall be limited by
reason of any investigation or audit conducted before or after the Closing of
any party hereto including, without limitation, the knowledge of such party of
any breach of any representation, warranty, agreement or covenant by the other
party at any time, or the decision by such party to complete the Closing.
(i) No party shall have any liability to another party
under this Section 7.4 for Damages (and no cost or expense relating to such
Damages shall be included in determining the extent of Damages incurred by such
party for purposes of Section 7.4.2(e)) to the extent that:
(A) the Indemnified Party recovers insurance
proceeds covering the Damages or otherwise recovers payments in respect of such
Damages from any other source (whether in a lump sum or stream of payments); or
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(B) the Indemnified Party's Tax liability is
actually reduced as a result of a tax benefit to which the Indemnified Party
becomes entitled in respect of the Damages.
(j) Seller shall have no liability or obligation under
this Section 7.4 for any Damages resulting from the inaccuracy or breach of any
representation or warranty if such inaccuracy or breach is disclosed by Seller
pursuant to and in accordance with Sections 5.3 and 8.4 hereof;
(k) Buyer agrees to use its commercially reasonable
efforts to give timely and effective written notice to the appropriate insurance
carrier(s) of any occurrence or circumstances which, in the judgment of Buyer
consistent with its customary risk management practices, appear likely to give
rise to a claim against Buyer that is likely to involve one or more insurance
policies of Buyer. Any such notice shall be given in good faith by Buyer without
regard to the possibility of indemnification payments by Seller under this
Section 7.4, and shall be processed by Buyer in good faith and in a manner
consistent with its risk management practices involving claims for which no
third party contractual indemnification is available. Buyer agrees that (i) if
it is entitled to receive payment from Seller for Damages arising under or
pursuant to a breach of the representation and warranty set forth in Section
3.10, and (ii) if Buyer has obtained title insurance which may cover the claim
or matter giving rise to such Damages, then (iii) such title insurance shall be
primary coverage and Buyer will make a claim under the title insurance if such
claim can be made in good faith before enforcing its right to receive payment
from Seller. Buyer shall be under no obligation to obtain title insurance or
prosecute such claim (other than the initial filing of such claim);
(l) If at any time subsequent to the receipt by an
Indemnified Party of an indemnity payment hereunder, such Indemnified Party (or
any Affiliate thereof) receives any recovery, settlement or other similar
payment with respect to the Damages for which it received such indemnity payment
(including insurance proceeds and other payments pursuant to Section 7.4.2(i)(A)
and a tax benefit pursuant to Section 7.4.2(i)(B)) (the "Recovery"), such
Indemnified Party shall promptly pay to the Indemnifying Party an amount equal
to the amount of such Recovery, less any expense incurred by such Indemnified
Party (or its Affiliates) in connection with such Recovery, but in no event
shall any such payment exceed the amount of such indemnity payment;
(m) In the event of any indemnification claim under this
Section 7.4 involving the claim of any third party, the Indemnified Party shall
cooperate fully (and shall cause its Affiliates to cooperate fully) with the
Indemnifying Party in the defense of any such claim under this Section 7.4.
Without limiting the generality of the foregoing, the Indemnified Party shall
furnish the Indemnifying Party with such documentary or other evidence as is
then in its or any of its Affiliates' possession as may reasonably be requested
by the Indemnifying Party for the purpose of defending against any such claim.
Whether or not the Indemnifying Party chooses to defend or prosecute any claim
involving a third party, all the parties hereto shall cooperate in the defense
or prosecution thereof and shall furnish such records, information and
testimony, and attend such conferences, discovery proceedings, hearings, trials
and appeals, as may be reasonably requested in connection therewith.
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7.4.3 Indemnification for Negligence. WITHOUT LIMITING OR
ENLARGING THE SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS
AGREEMENT, AN INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER
IN ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM
GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE,
CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY, VIOLATION OF ANY LAW OR
OTHER LEGAL FAULT OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS
PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
7.5 UCC Matters. From and after the Closing Date, Seller will
promptly refer all inquiries with respect to ownership of the Acquired Assets or
the Business to Buyer. In addition, Seller will execute such documents and
financing statements as Buyer may reasonably request from time to time to
evidence transfer of the Acquired Assets to Buyer in accordance with this
Agreement, including any necessary assignment of financing statements.
7.6 Financial Statements. In connection with the preparation and
filing of any registration statement or periodic report of Buyer or its
Affiliates pursuant to Rule 3-05, Article 11 of Regulation S-X or other rule or
regulation promulgated under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, Seller, at Buyer's expense, shall
provide Buyer (a) by April 30, 2000 or within 120 days after Buyer's written
request therefor if made after January 1, 2000, with the following audited
financial statements: (i) a statement of net assets of the Business as of the
end of the last fiscal year prior to Closing; and (ii) a statement of income of
the Business and a statement of cash flows or its equivalent of the Business for
the last fiscal year prior to Closing (in each case combined with the businesses
being acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements), including opinions thereon of Seller's Accountants, and (b) within
90 days after Buyer's written request made therefor (provided such request is
made after the end of the fiscal quarter described below), the following
unaudited statements: (i) a statement of net assets of the Business as of the
end of the last fiscal quarter prior to Closing (but only if such quarter is
subsequent to the last fiscal year prior to Closing); and (ii) a statement of
income of the Business and a statement of cash flows or its equivalent of the
Business, for the period from the end of the last fiscal year through the end of
the last fiscal quarter prior to Closing (in each case combined with the
businesses being acquired by Buyer or Affiliates of Buyer pursuant to the
Related Purchase Agreements).
7.7 Collection of Receivables. Seller agrees that it shall promptly
(and in any event no later than five (5) Business Days following receipt)
deliver all such payments with respect to accounts receivable from customers of
the Business received on and after the Closing Date (including but not limited
to negotiable instruments tendered in payment of accounts receivable assigned to
Buyer hereunder which shall be duly endorsed by Seller to the order of Buyer) to
Buyer. Seller shall cooperate with Buyer in coordinating the transfer of
collection agents and customers of the Business who pay their bills through the
Automated Clearinghouse (ACH) process to Buyer.
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ARTICLE 8
MISCELLANEOUS
8.1 Construction. Parent, Buyer and the Seller Parties have
participated jointly in the negotiation and drafting of this Agreement and the
Transaction Documents. In the event any ambiguity or question of intent or
interpretation arises, this Agreement and the Transaction Documents shall be
construed as if drafted jointly by Parent, Buyer and the Seller Parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The word "including" in this Agreement shall mean
including without limitation. Words in the singular shall be held to include the
plural and vice versa and words of one gender shall be held to include the other
genders as the context requires. The terms "hereof," "herein," and "herewith"
and words of similar import shall, unless otherwise stated, be construed to
refer to this Agreement as a whole (including all of the Schedules and Exhibits
hereto) and not to any particular provision of this Agreement, and Article,
Section, paragraph, Exhibit and Schedule references are to the Articles,
Sections, paragraphs, Exhibits and Schedules to this Agreement unless otherwise
specified. The word "or" shall not be exclusive. Provisions of this Agreement
shall apply, when appropriate, to successive events and transactions. Section
references refer to this Agreement unless otherwise specified.
8.2 Notices. Any notice, request, demand, waiver, consent, approval
or other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to the
party personally or sent to the party by telecopy, by registered or certified
mail (return receipt requested) with postage and registration or certification
fees thereon prepaid, or by any nationally recognized overnight courier
addressed to the party at its address set forth below:
If to Parent:
American Water Works Company
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, New Jersey 08043
Fax: (609) 346-8299
Attention: General Counsel
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with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to Buyer:
Indiana-American Water Company, Inc.
491 Camby Court
P. O. Box 570
Greenwood, IN 46142-0570
Fax: (740) 383-0983
Attention: Corporate Counsel
with a copy to Parent and a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to Seller:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: Robert J. DeSantis
Telecopier: (203) 614-4625
with copies to:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: L. Russell Mitten, II
Telecopier: (203) 614-4651
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and
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: J. Michael Love
Telecopier: (203) 614-5201
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention: Jeffry L. Hardin
Telecopier: (202) 387-3467
8.3 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided, however, that no party
may assign, delegate or otherwise transfer any of its rights or obligations
under this Agreement without the consent of the other party hereto; provided
that Seller may assign its rights or delegate its duties under this Agreement to
a qualified intermediary chosen by Seller to structure the transactions
contemplated hereby as a like-kind exchange of property covered by Section 1031
of the Code.
8.4 Exhibits and Schedules. All Exhibits and Disclosure Schedules
annexed hereto or referred to herein are hereby incorporated in and made a part
of this Agreement as if set forth in full herein. Disclosure of any fact or item
in any Schedule referenced by a particular paragraph or Section in this
Agreement shall, should the existence of the fact or item or its contents be
clearly related to any other paragraph or section, be deemed to be disclosed
with respect to that other paragraph or section.
8.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
the conflicts of laws principles thereof.
8.6 Dispute Resolution. Except as otherwise provided herein, any
dispute, controversy or claim between the parties relating to, arising out of or
in connection with this Agreement (or any subsequent agreements or amendments
thereto), including as to its existence, enforceability, validity,
interpretation, performance or breach or as to indemnification or damages,
including claims in tort, whether arising before or after the termination of
this Agreement (any such dispute, controversy or claim being herein referred to
as a "Dispute") shall be settled without litigation and only by use of the
following alternative dispute resolution procedure:
(a) At the written request of a party, each party shall
appoint a knowledgeable, responsible representative to meet and negotiate in
good faith to resolve any
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Dispute. The discussions shall be left to the discretion of the representatives.
Upon agreement, the representatives may utilize other alternative dispute
resolution procedures such as mediation to assist in the negotiations.
Discussions and correspondence among the parties' representatives for purposes
of these negotiations shall be treated as confidential information developed for
the purposes of settlement, exempt from discovery and production, and without
the concurrence of both parties shall not be admissible in the arbitration
described below, or in any lawsuit. Documents identified in or provided with
such communications, which are not prepared for purposes of the negotiations,
are not so exempted and may, if otherwise admissible, be admitted in the
arbitration.
(b) If negotiations between the representatives of the parties
do not resolve the Dispute within 60 days of the initial written request, the
Dispute shall be submitted to binding arbitration by a single arbitrator
pursuant to the Commercial Arbitration Rules, as then amended and in effect, of
the American Arbitration Association (the "Rules"); provided, however, that at
the election of either party, the arbitration shall take place before three (3)
arbitrators, one arbitrator being selected by Parent, one arbitrator being
selected by Citizen, and the third arbitrator, knowledgeable in the general
subject matter of the dispute, controversy or claim, being selected by the other
two arbitrators. Either party may demand such arbitration in accordance with the
procedures set out in the Rules. The parties hereto shall use reasonable efforts
to coordinate any arbitration commenced under any of the Related Purchase
Agreements so that the resolution of the arbitration under this Agreement and
the similar issues under the Related Purchase Agreements can be resolved as
expeditiously and efficiently as reasonably practicable. Reasonable efforts
shall include use of a common arbitrator or panel of arbitrators where
practicable. The arbitration shall take place in Newark, New Jersey. The
arbitration hearing shall be commenced within 60 days of such party's demand for
arbitration. The arbitrator(s) shall have the power to and will instruct each
party to produce evidence through discovery (i) that is reasonably requested by
the other party to the arbitration in order to prepare and substantiate its case
and (ii) the production of which will not materially delay the expeditious
resolution of the dispute being arbitrated; each party hereto agrees to be bound
by any such discovery order. The arbitrator(s) shall control the scheduling (so
as to process the matter expeditiously) and any discovery. The parties may
submit written briefs. At the arbitration hearing, each party may make written
and oral presentations to the arbitrator(s), present testimony and written
evidence and examine witnesses. No party shall be eligible to receive, and the
arbitrator(s) shall not have the authority to award, exemplary or punitive
damages. The arbitrator(s) shall rule on the Dispute by issuing a written
opinion within 30 days after the close of hearings. The arbitrators' majority
decision shall be binding and final. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction.
(c) Each party will bear its own costs and expenses in
submitting and presenting its position with respect to any Dispute to the
arbitrator(s); provided, however, that if the arbitrator(s) determines that the
position taken in the Dispute by the non-prevailing party taken as a whole is
unreasonable, the arbitrator(s) may order the non-prevailing party to bear such
fees and expenses, and reimburse the prevailing party for all or such portion of
its reasonable costs and expenses in submitting and presenting its position, as
the arbitrator(s) shall reasonably determine to be fair under the circumstances.
Each party to the arbitration shall pay one-half of the fees and expenses of the
arbitrator(s) and the American Arbitration Association.
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(d) Notwithstanding any other provision of this Agreement, (i)
either party may commence an action to compel compliance with this Section 8.6
and (ii) if any party, as party of a Dispute, seeks injunctive relief or any
other equitable remedy, including specific enforcement, then such party shall be
permitted to seek such injunctive or equitable relief in any federal or state
court or competent jurisdiction before, during or after the pendency of a
mediation or arbitration proceed under this Section 8.6.
8.7 Severability. The parties agree that (a) the provisions of this
Agreement shall be severable in the event that any provision hereof is held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable,
(b) such invalid, void or otherwise unenforceable provision shall be
automatically replaced by another provision which is as similar as possible in
terms to such invalid, void or otherwise unenforceable provision but which is
valid and enforceable and (c) the remaining provisions shall remain enforceable
to the fullest extent permitted by law.
8.8 No Third Party Beneficiaries. Nothing herein expressed or
implied is intended or should be construed to confer upon or give to any Person
other than the parties hereto and their successors and permitted assigns any
rights or remedies under or by reason of this Agreement.
8.9 Entire Agreement. This Agreement, the Schedules and Exhibits
hereto and the other Transaction Documents, and the Confidentiality Agreement
dated August 2, 1999, between Citizens and Parent, (i) together constitute the
entire understanding of the parties (and their affiliates) with respect to the
subject matter hereof, and any related matter, (ii) supercede all prior
agreements or understandings, written or oral, entered into by any of the
parties that concern the subject matter hereof and (iii) are not intended to
confer upon any Person other than the parties hereto any benefit, right or
remedy.
8.10 Amendment and Waiver. The parties may, by mutual agreement,
amend this Agreement in any respect, and any party, as to such party, may (i)
extend the time for the performance of any of the obligations of the other
party; (ii) waive any inaccuracies in representations and warranties by the
other party; (iii) waive compliance by the other party with any of the covenants
or agreements contained herein and performance of any obligations by the other
party; and (iv) waive the fulfillment of any condition that is precedent to the
performance by such party of any of its obligations under this Agreement. To be
effective, any such amendment or waiver must be in writing and be signed by the
party providing such waiver or extension, as the case may be. The waiver by any
party hereto of any breach of any provision of this Agreement shall not operate
or be construed as a waiver of any subsequent breach, whether or not similar.
8.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
8.12 Headings. The headings preceding the text of the sections and
subsections hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
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8.13 Definitions. For purposes of this Agreement, references to the
knowledge of the Seller Parties (including a reference to "the best of the
knowledge of the Seller Parties" and similar references) shall mean the actual
knowledge possessed by any of the following officers or employees of Citizens:
Chief Financial Officer, Vice President and Treasurer; President, Citizens
Public Services; Vice President, Corporate Human Resources; Secretary; Vice
President, Water; and the general manager of the Business.
8.14 No Implied Representation. NOTWITHSTANDING ANYTHING CONTAINED
IN THIS AGREEMENT, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO THAT NEITHER
OF THE SELLER PARTIES ARE MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER,
EXPRESS OR IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS AGREEMENT, ANY SCHEDULE
HERETO, THE TRANSACTION DOCUMENTS, OR ANY DOCUMENT, EXHIBIT, CERTIFICATE,
INSTRUMENT OR STATEMENT TO BE DELIVERED HEREUNDER OR THEREUNDER INCLUDING, BUT
NOT LIMITED TO, ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION,
MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO ANY OF
THE ACQUIRED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IT IS
UNDERSTOOD AND AGREED THAT ANY COST ESTIMATES, PROJECTIONS OR OTHER PREDICTIONS
CONTAINED OR REFERRED TO IN THE SCHEDULES AND ANY COST ESTIMATES, PROJECTIONS OR
PREDICTIONS OR ANY OTHER INFORMATION CONTAINED OR REFERRED TO IN OTHER MATERIALS
THAT HAVE BEEN OR SHALL HEREINAFTER BE PROVIDED TO PARENT, BUYER OR ANY OF THEIR
AFFILIATES, AGENTS OR REPRESENTATIVES ARE NOT AND SHALL NOT BE DEEMED TO BE
REPRESENTATIONS OR WARRANTIES OF ANY OF THE SELLER PARTIES.
8.15 Construction of Certain Provisions. It is understood and agreed
that neither the specification of any dollar amount in the representations and
warranties contained in this Agreement nor the inclusion of any specific item in
the Schedules or Exhibits is intended to imply that such amounts or higher or
lower amounts, or the items so included or other items, are or are not material,
and none of the parties shall use the fact of the setting of such amounts or the
fact of any inclusion of any such item in the Schedules or Exhibits in any
dispute or controversy between the parties as to whether any obligation, item or
matter is or is not material for purposes hereof.
8.16 Bulk Sales. Buyer agrees that it shall not make any filings
under any tax bulk sales provisions with respect to the transactions
contemplated by this Agreement.
[Signatures appear on following page.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first written above.
CITIZENS UTILITIES COMPANY
By:___________________________________________________________
Robert J. DeSantis, Chief Financial Officer, Vice President
and Treasurer
FLOWING WELLS, INC.
By:___________________________________________________________
Robert J. DeSantis, Vice President
AMERICAN WATER WORKS COMPANY, INC.
By:___________________________________________________________
Joseph F. Hartnett, Jr., Treasurer
INDIANA-AMERICAN WATER COMPANY, INC.
By:___________________________________________________________
John E. Eckart, President
<PAGE>
Ohio
EXECUTION COPY
ASSET PURCHASE AGREEMENT
among
CITIZENS UTILITIES COMPANY
AND
CERTAIN OF ITS AFFILIATES
AND
AMERICAN WATER WORKS COMPANY, INC. AND
OHIO-AMERICAN WATER COMPANY
Dated as of
October 15, 1999
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Ohio
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS......................................................1
1.1 Certain Definitions..............................................1
ARTICLE 2 THE TRANSACTION.................................................10
2.1 Sale and Purchase of Assets.....................................10
2.2 Excluded Assets.................................................10
2.3 Assumption of Certain Liabilities...............................11
2.4 Consent of Third Parties........................................14
2.5 Closing.........................................................15
2.6 Purchase Price..................................................15
2.6.1 Purchase Price............................................15
2.6.2 Payment of Initial Cash Payment...........................15
2.6.3 Estimated Closing Statement...............................16
2.6.4 Post-Closing Adjustment to Purchase Price.................16
2.6.5 Adjustment for Certain Liabilities........................18
2.6.6 Additional Adjustment to the Purchase Price...............18
2.7 Deliveries and Proceedings at Closing...........................18
2.7.1 Deliveries to Buyer.......................................18
2.7.2 Deliveries By Buyer to the Seller Parties.................19
2.8 Allocation of Consideration.....................................19
2.9 Prorations......................................................20
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER.......................20
3.1 Qualification; No Interest in Other Entities....................21
3.2 Authorization and Enforceability................................21
3.3 No Violation of Laws or Agreements..............................21
3.4 Financial Statements............................................22
3.5 No Changes......................................................22
3.6 Contracts.......................................................23
3.7 Permits and Compliance With Laws Generally......................23
3.8 Environmental Matters...........................................24
3.9 Consents........................................................26
3.10 Title...........................................................26
3.11 Real Estate.....................................................27
3.12 Taxes...........................................................27
3.13 Patents and Intellectual Property Rights........................28
3.14 Accounts Receivable.............................................28
3.15 Labor Relations.................................................28
3.16 Employee Benefit Plans..........................................28
3.17 Absence of Undisclosed Liabilities..............................30
3.18 No Pending Litigation or Proceedings............................30
3.19 Supply of Utilities.............................................31
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3.20 Insurance.......................................................31
3.21 Relationship with Customers.....................................31
3.22 WARN Act........................................................31
3.23 Condition of Assets.............................................31
3.24 Brokerage.......................................................32
3.25 All Assets......................................................32
3.26 Year 2000 Matters...............................................32
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER..............32
4.1 Organization and Good Standing..................................33
4.2 Authorization and Enforceability................................33
4.3 No Violation of Laws or Agreements..............................33
4.4 Consents........................................................34
4.5 Financing.......................................................34
4.6 Brokerage.......................................................34
4.7 Insurance.......................................................34
ARTICLE 5 ADDITIONAL COVENANTS............................................34
5.1 Conduct of Business.............................................34
5.2 Negotiations....................................................37
5.3 Disclosure Schedules............................................37
5.4 Mutual Covenants................................................38
5.5 Filings and Authorizations......................................38
5.6 Public Announcement.............................................39
5.7 Further Assurances..............................................39
5.8 Cooperation.....................................................39
5.9 Employees; Employee Benefits....................................40
5.10 Employee Pension Plan...........................................43
5.11 Employee Savings Plan...........................................44
5.12 Welfare Benefits................................................45
5.13 Taxes...........................................................46
5.14 Intentionally Omitted...........................................46
5.15 Citizens' Guarantees and Surety Instruments.....................46
5.16 Intentionally Omitted...........................................46
5.17 Schedule of Permits.............................................46
5.18 Title Information...............................................47
5.19 Transaction with Related Parties................................47
5.20 Approval by Citizens............................................47
5.21 Supplemental Information........................................47
5.22 Non-Competition.................................................47
5.23 Intentionally Omitted...........................................48
5.24 IDRB Obligations................................................48
5.25 Cooperation with Respect to Like-Kind Exchange..................48
5.26 Transition Plan.................................................49
5.27 Procedures regarding Refunds of Advances........................49
5.28 Title Insurance.................................................50
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ARTICLE 6 CONDITIONS PRECEDENT; TERMINATION...............................50
6.1 Conditions Precedent to Obligations of Buyer and Parent.........50
6.1.1 Performance of Agreements; Representations and Warranties.50
6.1.2 Opinion of Counsel........................................51
6.1.3 HSR Act...................................................51
6.1.4 Required PUC and Other Consents...........................51
6.1.5 Injunction; Litigation....................................51
6.1.6 Documents.................................................51
6.1.7 Related Closings..........................................52
6.2 Conditions Precedent to Obligations of Seller Parties...........52
6.2.1 Performance of Agreements; Representations and Warranties.52
6.2.2 Opinion of Counsel........................................52
6.2.3 HSR Act...................................................52
6.2.4 Required PUC and Other Consents...........................52
6.2.5 Injunction; Litigation....................................53
6.2.6 Documents.................................................53
6.2.7 Related Closings..........................................53
6.3 Termination.....................................................53
ARTICLE 7 CERTAIN ADDITIONAL COVENANTS....................................54
7.1 Certain Taxes and Expenses......................................54
7.2 Maintenance of Books and Records................................54
7.3 Survival........................................................54
7.4 Indemnification.................................................57
7.4.1 General Indemnification Obligations.......................57
7.4.2 General Indemnification Procedures........................58
7.4.3 Indemnification for Negligence............................61
7.5 UCC Matters.....................................................62
7.6 Financial Statements............................................62
7.7 Collection of Receivables.......................................62
ARTICLE 8 MISCELLANEOUS...................................................62
8.1 Construction....................................................62
8.2 Notices.........................................................63
8.3 Successors and Assigns..........................................65
8.4 Exhibits and Schedules..........................................65
8.5 Governing Law...................................................65
8.6 Dispute Resolution..............................................65
8.7 Severability....................................................67
8.8 No Third Party Beneficiaries....................................67
8.9 Entire Agreement................................................67
8.10 Amendment and Waiver............................................67
8.11 Counterparts....................................................67
8.12 Headings........................................................67
8.13 Definitions.....................................................68
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8.14 No Implied Representation.......................................68
8.15 Construction of Certain Provisions..............................68
8.16 Bulk Sales......................................................68
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v
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vi
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vii
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List of Schedules
Schedule 1.1.1(a) ............................................... ...Real Estate
Schedule 1.1.52 ..................................................IDRB Documents
Schedule 2.2.12 .................................................Excluded Assets
Schedule 3.3 ................................ No Violation of Laws or Agreements
Schedule 3.4 ...............................................Financial Statements
Schedule 3.5 .........................................................No Changes
Schedule 3.6 ..........................................................Contracts
Schedule 3.7 .........................Permits and Compliance with Laws Generally
Schedule 3.8 ..................................Environmental Matters - Generally
Schedule 3.8.10 .................................Compliance with Water Standards
Schedule 3.8.11 ................................................Deed Restriction
Schedule 3.9 ...........................................Seller Parties' Consents
Schedule 3.10 .............................................................Title
Schedule 3.11 ...........................................Real Estate Proceedings
Schedule 3.12 .............................................................Taxes
Schedule 3.15 ...................................................Labor Relations
Schedule 3.16.1 ..........................................Employee Benefit Plans
Schedule 3.16.4 .............................Employee Benefit Plans - Compliance
Schedule 3.16.9 .................Employee Benefit Plans - Extraordinary Benefits
Schedule 3.17 ................................Absence of Undisclosed Liabilities
Schedule 3.18 ..............................No Pending Litigation or Proceedings
Schedule 3.19 ...............................................Supply of Utilities
Schedule 3.20 ................................................Seller's Insurance
Schedule 3.22 ..........................................................WARN Act
Schedule 3.23 ...............................................Condition of Assets
Schedule 3.25 ........................................................All Assets
Schedule 3.27 .................................................Product Liability
Schedule 4.7 ..................................................Buyer's Insurance
Schedule 5.1 ................................................Conduct of Business
Schedule 5.9.1 ........................................................Employees
Schedule 5.9.2 .................................Collective Bargaining Agreements
Schedule 5.12 ..................................................Former Employees
Schedule 5.15 ..............................................Citizens' Guarantees
Schedule 5.16 ...............................................Schedule of Permits
Schedule 6.1.7 ......................................Related Purchase Agreements
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TABLE OF EXHIBITS
Exhibit A - Form of Assumption Agreement
Exhibit B - Form of Assignment and Bill of Sale
Exhibit C - Intentionally Omitted
Exhibit D - Form of Retained IDRB Obligations Agreement
Exhibit E - Form of Seller's Opinion of Counsel
Exhibit F - Form of Buyer's Opinion of Counsel
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ASSET PURCHASE AGREEMENT
THIS IS AN ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of October
15, 1999, by and among Citizens Utilities Company, a Delaware corporation
("Citizens"), and each of the wholly-owned subsidiaries of Citizens named on the
signature page hereof (collectively with Citizens, "Seller" or the "Seller
Parties"), and American Water Works Company, Inc., a Delaware corporation
("Parent"), and Ohio-American Water Company, an Ohio corporation ("Buyer").
Background
1. Citizens Utilities Company of Ohio is a public utility engaged, among
other things, in the business of storing, supplying, distributing and selling
water to the public, wastewater treatment, and related services and activities
in the State of Ohio (the "Business").
2. Parent is a holding company which desires to cause the Buyer to
purchase substantially all of the assets, properties and rights of the Seller
Parties relating to the Business, and Seller desires to sell, and to cause the
sale of, such assets, properties and rights, on the terms and subject to the
conditions set forth in this Agreement.
Terms
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the respective meanings ascribed to them in this Section:
1.1.1 "Acquired Assets" means, subject to Section 2.2, all of
each Seller Party's right, title, and interest in, under and to all of the
assets, properties and rights exclusively used in the Business as a going
concern of every kind, nature and description existing on the Closing Date,
wherever such assets, properties and rights are located and whether such assets,
properties and rights are real, personal or mixed, tangible or intangible, and
whether or not any of such assets, properties and rights have any value for
accounting purposes or are carried or reflected on or specifically referred to
in Seller's books or financial statements, including all of the assets,
properties and rights exclusively relating to the Business enumerated below:
1
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(a) all real property described in Schedule 1.1.1(a),
together with all fixtures, fittings, buildings, structures and other
improvements erected thereon, and easements, rights of way, water lines, rights
of use, licenses, railroad crossing agreements, hereditaments, tenements,
privileges and other appurtenances thereto or otherwise exclusively related to
the Business (such as appurtenant rights in and to public streets) (the "Real
Estate");
(b) to the extent not included in clause (a) above, all
water tanks, reservoirs, water works, plant and systems, purification and
filtration systems, pumping stations, pumps, wells, mains, water pipes,
hydrants, equipment, machinery, vehicles, tools, dies, spare parts, materials,
water supplies, fixtures and improvements, construction in progress, jigs,
molds, patterns, gauges and production fixtures and other tangible personal
property, in transit or otherwise, used exclusively in the Business (the
"Equipment and Other Tangible Personal Property");
(c) notwithstanding the provisions of Section 2.2 but
subject to Section 2.4, all of Seller's water appropriation and flowage rights
to the extent not transferred to Buyer upon assignment of the Contracts and
Permits to Buyer;
(d) all notes receivable, accounts receivable, accrued
utility revenues, materials and supplies (at average cost net of reserve for
obsolescence) and prepayments attributable in each case exclusively to the
Business;
(e) all deferred capital costs and other deferred
charges (excluding deferred taxes collectable) attributable exclusively to the
Business of which recovery in future rates is probable;
(f) Intellectual Property and goodwill, licenses and
sublicenses granted and obtained with respect thereto;
(g) subject to Section 2.4 hereof, (i) contracts,
commitments, agreements and instruments relating to the sale of any assets,
services, properties, materials or products, including all customer contracts,
operating contracts and distribution contracts relating exclusively to the
conduct of the Business; (ii) orders, contracts, supply agreements and other
agreements relating exclusively to the purchase of any assets, services,
properties, materials, or products for the Business; (iii) all leases of Real
Estate exclusively related to the Business; (iv) all other contracts, agreements
and instruments related exclusively to the Business (other than contracts,
agreements and instruments included in the definition of Real Estate or
Permits); and (v) any such contracts, agreements and other instruments referred
to in clauses (i) - (iv) inclusive, entered into between the date hereof and the
Closing Date which are consistent with the terms of this Agreement and are
entered into in the ordinary course of business consistent with past practice,
and including in the case of clauses (i) - (iv) all such contracts, agreements
and instruments more specifically listed or described in Schedule 3.6 (and
specifically including one Collective Bargaining Agreement to the extent
provided in Section 5.9.2, but specifically excluding any contract, agreement
and instrument listed or described on Schedule 2.2.12) (the "Contracts");
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(h) subject to Section 2.4 hereof, franchises,
approvals, permits, authorizations, licenses, orders, registrations,
certificates, variances, and other similar permits or rights obtained from any
Authority relating exclusively to the conduct of the Business and all pending
applications therefor (the "Permits");
(i) books, records, ledgers, files, documents (including
originally executed copies of written Contracts, to the extent available, and
copies to the extent not available), correspondence, Tax returns relating
exclusively to the Business, memoranda, forms, lists, plats, architectural
plans, drawings, and specifications, new product development materials, creative
materials, advertising and promotional materials, studies, reports, sales and
purchase correspondence, books of account and records relating to the
Transferred Employees (to the extent such transfer is not prohibited by law),
photographs, records of plant operations and materials used, quality control
records and procedures, equipment maintenance records, manuals and warranty
information, research and development files, data and laboratory books,
inspection processes, in each case, whether in hard copy or magnetic format, in
each instance, to the extent exclusively relating to the Business, the Acquired
Assets or the Transferred Employees;
(j) all rights or choses in action arising out of
occurrences before or after the Closing Date and exclusively related to any of
the Acquired Assets, including third party warranties and guarantees and all
related claims, credits, rights of recovery and set-off and other similar
contractual rights, as to third parties held by or in favor of Seller; provided,
however, that (notwithstanding the foregoing provisions of this Section
1.1.1(j)), to the extent that Seller pays or discharges a liability related to
the Business or any of the Acquired Assets and related to such right or chose in
action (whether by reason of indemnification under this Agreement or otherwise),
Buyer will reassign or reconvey to Seller such right or chose in action to the
extent that such right or chose in action relates to a recovery of amounts paid
to Buyer; and
(k) all rights to insurance and condemnation proceeds
(i) to the extent relating to the damage, destruction, taking or other
impairment of the Acquired Assets which damage, destruction, taking or other
impairment occurs on or prior to the Closing but only to the extent that the
proceeds exceed the amount of the write-down of the net book value of such
Acquired Assets on the books and records of Seller as a result of such damage,
destruction, taking or other impairment; (ii) to the extent they relate to
amounts paid by Buyer for Damages to the extent Buyer does not receive payment
pursuant to Section 7.4.1(a), but only to the extent Buyer is entitled to
indemnification by Seller pursuant to Sections 7.3 and 7.4, and (iii) as
provided in Section 4 of the agreement attached as Exhibit D hereto.
1.1.2."Adjusted Net Assets" has the meaning set forth in
Section 2.6.4(a) hereof.
1.1.3."Affected Participant" has the meaning set forth as
Section 5.11.1 hereof.
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1.1.4."Affiliate" of any Person means any Person, directly or
indirectly controlling, controlled by or under common control with such Person.
1.1.5."Agreement" has the meaning set forth in the
introduction hereof.
1.1.6."American Pension Plan" has the meaning set forth in
Section 5.10.1 hereof.
1.1.7."American Savings Plan" has the meaning set forth in
Section 5.11.1 hereof.
1.1.8 "Antitrust Division" has the meaning set forth in
Section 5.5 hereof
1.1.9 "Assumed Benefit Liabilities" has the meaning set forth
in Section 3.16.6 hereof.
1.1.10 Intentionally Omitted.
1.1.11 "Assumed Liabilities" has the meaning set forth in
Section 2.3 hereof.
1.1.12 "Assumption Agreement" has the meaning set forth in
Section 2.3.2 hereof.
1.1.13 "Authority" means any federal, state, local or foreign
governmental or regulatory entity (or any department, agency, authority or
political subdivision thereof).
1.1.14 "Base Cash Purchase Price" has the meaning set forth in
Section 2.6.1 hereof.
1.1.15 "Beneficiary" means the Person(s) designated by an
Employee, by operation of law or otherwise, as entitled to compensation,
benefits, insurance coverage, payments or any other goods or services under a
Benefit Plan.
1.1.16 "Benefit Plans" has the meaning set forth in Section
3.16.1 hereof.
1.1.17 "Bonds" means any of the bonds issued pursuant to the
Indentures of Trust, the proceeds from the issuance of which were advanced to
Seller pursuant to any of the IDRB Documents.
1.1.18 "Business" has the meaning set forth in the Background
section hereof.
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1.1.19 Business Day" means any day other than a Saturday,
Sunday, or a day on which banking institutions in the Commonwealth of
Pennsylvania are authorized or obligated by law or executive order to close.
1.1.20 "Buyer" has the meaning set forth in the introduction
hereof.
1.1.21 "Buyer's IDRB Obligations" means the obligations of
Parent and Buyer set forth in Section 5.24 (a) and in the instruments to be
executed and delivered by Parent and Buyer on or prior to the Closing Date in
accordance with Section 5.24 (a).
1.1.22 "Buyer's Accountants" means PricewaterhouseCoopers LLP
or any firm of independent public accountants hereafter designated by Buyer for
purposes of this Agreement.
1.1.23 Intentionally Omitted.
1.1.24 "Ceiling" has the meaning set forth in Section 7.4.2(e)
hereof.
1.1.25 "CERCLA" has the meaning set forth in Section 3.8.2
hereof.
1.1.26 "CERCLIS" has the meaning set forth in Section 3.8.7
hereof.
1.1.27 "Citizens" has the meaning set forth in the
introduction hereof.
1.1.28 "Closing" has the meaning set forth in Section 2.5
hereof.
1.1.29 "Closing Date" has the meaning set forth in Section 2.5
hereof.
1.1.30 "Closing Statement of Net Assets" has the meaning set
forth in Section 2.6.4(a) hereof.
1.1.31 "Code" means the Internal Revenue Code of 1986, as
amended.
1.1.32 "Collective Bargaining Agreement" means the agreement
identified as such on Schedule 3.6 hereto.
1.1.33 "Competing Transaction" has the meaning set forth in
Section 5.2.
1.1.34 "Contracts" has the meaning set forth in Section
1.1.1(g) hereof.
1.1.35 "Control" with respect to any Person means the
ownership, directly or indirectly, of at least a majority of the voting power of
each class of capital stock of such Person entitled to vote in the election of
directors of such Person generally.
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1.1.36 "Damages" has the meaning set forth in Section 7.4.1
hereof.
1.1.37 "Disclosure Schedules" means the Schedules referenced
in Articles 3, 4 and 5 of this Agreement, as amended or supplemented pursuant to
Section 5.3.
1.1.38 "Dispute" has the meaning set forth in Section 8.6.
1.1.39 "Employees" has the meaning set forth in Section 5.9.1
hereof.
1.1.40 "Environmental Laws" has the meaning set forth in
Section 3.8 hereof.
1.1.41 "Equipment and Other Tangible Personal Property" has
the meaning set forth in Section 1.1.1(b) hereof.
1.1.42 "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
1.1.43 "ERISA Affiliate" means (a) any corporation included
with any of the Seller Parties in a controlled group of corporations within the
meaning of Section 414(b) of the Code; (b) any trade or business (whether or not
incorporated) which is under common control with any of the Seller Parties
within the meaning of Section 414 of the Code; any member of an affiliated
service group of which any of the Seller Parties is a member within the meaning
of Section 414(m) of the Code; or (d) any other person or entity treated as an
affiliate of any of the Seller Parties under Section 414(o) of the Code.
1.1.44 "Excluded Assets" has the meaning set forth in Section
2.2 hereof.
1.1.45 "Financial Statements" has the meaning set forth in
Section 3.4 hereof.
1.1.46 "FIRPTA Affidavit" has the meaning set forth in Section
2.7.1 hereof.
1.1.47 "Former Employees" means all salaried and hourly
employees once employed by Seller or any of its Affiliates, but who are no
longer so employed on the Closing Date.
1.1.48 "FTC" has the meaning set forth in Section 5.5 hereof.
1.1.49 "GAAP" has the meaning set forth in Section 3.4 hereof.
1.1.50 "Hazardous Substance" has the meaning set forth in
Section 3.8 hereof.
1.1.51 "HSR Act" has the meaning set forth in Section 3.9
hereof.
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1.1.52 "IDRB Documents" shall mean the Loan Agreements, the
Tax Regulatory Agreements, the Project Tax Certificates, and the other Contracts
related thereto to which Citizens is a party and which are listed on Schedule
1.1.52.
1.1.53 "IDRB Financings" shall mean the indebtedness arising
under the Loan Agreements included among the IDRB Documents.
1.1.54 "Indemnified Party" has the meaning set forth in
Section 7.4.2(a) hereof.
1.1.55 "Indemnifying Party" has the meaning set forth in
Section 7.4.2(a) hereof.
1.1.56 "Intellectual Property" means the trademarks, patents,
trade names and copyrights and applications therefor, inventions, trade secrets,
and confidential business information (including know-how, formulas, water
filtration, purification and pumping processes and techniques, technical data,
designs, drawings, customer and supplier lists, and business and marketing plans
and proposals), all computer software (including data and related documentation
and object and source codes), whether in magnetic format or hard copy, and
tangible embodiments thereof (in whatever form or medium) of Seller, in each
case, utilized exclusively in the Business.
1.1.57 "Interim Statement of Net Assets" means the Citizens
Water Resources Statement of Net Assets - Ohio, June 30, 1999, which is attached
hereto as Schedule 3.4.
1.1.58 "Interim Statement of Net Assets Date" means June 30,
1999.
1.1.59 "IRS" has the meaning set forth in Section 3.16.2
hereof.
1.1.60 "Lien" means any lien, charge, claim, pledge, security
interest, conditional sale agreement or other title retention agreement, lease,
mortgage, security agreement, right of first refusal, option, restriction,
tenancy, license, right of way, easement or other encumbrance (including the
filing of, or agreement to give, any financing statement under the Uniform
Commercial Code or statute or law of any jurisdiction).
1.1.61 "Material Adverse Effect" means a change or effect (or
series of related changes or effects) which has or is reasonably likely to have
a material adverse change in or effect upon the business, assets, condition
(financial or otherwise), or results of operations of the Business or the
Acquired Assets, taken as a whole and taken together with the businesses and
assets being acquired by Buyer or Affiliates of Buyer pursuant to the Related
Purchase Agreements. For purpose of this Agreement, an occurrence or condition
shall not constitute a Material Adverse Effect (a) if it arises from general
business, economic or financial market conditions, from conditions generally
effecting the industries in which Seller competes, or from the transactions
contemplated
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by this Agreement, or (b) solely with respect to matters arising prior to
Closing, to the extent that either (i) Seller realizes the benefit of insurance
maintained by Citizens on or prior to the Closing Date and Buyer receives the
cash proceeds of such insurance to the extent required by Section 1.1.1(k), or
(ii) Seller arranges for Buyer to recover payments in respect of such occurrence
or condition from any other source (whether in a lump sum or stream of
payments), it being understood and agreed that a Material Adverse Effect may
have occurred irrespective of such insurance recovery if the occurrence or
condition giving rise to such recovery also causes a non-monetary material
adverse change in or effect upon the Business or the Acquired Assets, taken as a
whole and taken together with the businesses and assets being acquired by Buyer
or Affiliates of Buyer pursuant to the Related Purchase Agreements.
1.1.62 "Mortgage Indenture" means Indenture of Mortgage and
Deed of Trust between BNY Western Trust Company (successor in interest to Wells
Fargo Bank, N.A.) and First Interstate Bank of California (as successor trustee
to Marine Midland, N.A., formerly the Marine Midland Trust Company of New York).
1.1.63 "OSHA" has the meaning set forth in Section 3.7.1
hereof.
1.1.64 "PCBs" has the meaning set forth in Section 3.8.6
hereof.
1.1.65 "Permits" has the meaning set forth in Section 1.1.1(h)
hereof.
1.1.66 "Permitted Exceptions" has the meaning set forth in
Section 3.10 hereof; provided, however, that from and after the Closing,
Permitted Exceptions shall not include any Lien arising under or resulting from
the Mortgage Indenture.
1.1.67 "Person" means an individual, a corporation, a
partnership, an association, an Authority, a trustor other entity or
organization.
1.1.68 "Pre-Existing Conditions" has the meaning set forth in
Section 2.3.1(d).
1.1.69 "Prime Rate" means the rate per annum announced from
time to time during the reference period by Citibank N.A. as its United States
prime, reference or base rate for commercial loans.
1.1.70 "PUC" has the meaning set forth in Section 5.5 hereof.
1.1.71 "Purchase Price" has the meaning set forth in Section
2.6.1 hereof.
1.1.72 "Real Estate" has the meaning set forth in Section
1.1.1(a) hereof.
1.1.73 "Recovery" has the meaning set forth in Section
7.4.2(l) hereof.
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1.1.74 "Related Purchase Agreements" as the meaning set forth
in Section 6.1.7 hereof.
1.1.75 "Release" or "Released" has the meaning set forth in
Section 3.8 hereof.
1.1.76 "Remedial Action" has the meaning set forth in Section
3.8 hereof.
1.1.77 "Retained IDRB Indebtedness" means the indebtedness of
the Seller owing to the issuers of the Bonds and arising under the Loan
Agreements included among the IDRB Documents but only to the extent not included
in the Assumed Indebtedness.
1.1.78 "Retained Liabilities" has the meaning set forth in
Section 2.3 hereof.
1.1.79 "Review Period" has the meaning set forth in Section
2.6.4(b) hereof.
1.1.80 "SEC" means the U.S. Securities and Exchange
Commission.
1.1.81 "Securities Filings" has the meaning set forth in
Section 5.8.2 hereof.
1.1.82 "Seller" and "Seller Parties" have the respective
meaning set forth in the introduction hereof.
1.1.83 "Seller's Accountants" means KPMG LLP or any other firm
of independent public accountants hereafter designated by Seller for purposes of
this Agreement.
1.1.84 "Seller's Adjusted Amount" has the meaning set forth in
Section 2.6.4(a) hereof.
1.1.85 "Seller's Pension Plan" has the meaning set forth in
Section 5.10.1 hereof.
1.1.86 "Seller's 401(k) Plan" has the meaning set forth in
Section 5.11.1 hereof.
1.1.87 "Specified Liabilities" has the meaning set forth in
Section 7.4.2(f) hereof.
1.1.88 "Taxes" means any federal, state, local and foreign
income, payroll, withholding, excise, sales, use, personal property, use and
occupancy, business and occupation, mercantile, real estate, gross receipts,
license, employment, severance, stamp, premium, windfall profits, social
security (or similar unemployment), disability, transfer, registration, value
added, alternative, or add-on minimum, estimated, or capital stock and franchise
and other tax of any kind whatsoever, including any interest, penalty or
addition thereto, whether disputed or not.
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1.1.89 "Third Accounting Firm" has the meaning set forth in
Section 2.6.4(b) hereof.
1.1.90 "Threshold Amount" has the meaning set forth in Section
7.4.2(e) hereof.
1.1.91 "Third Party Claim" has the meaning set forth in
Section 7.4(b)(i) hereof.
1.1.92 "Transferred Accounts" has the meaning set forth in
Section 5.11.2 hereof.
1.1.93 "Transaction Documents" has the meaning set forth in
Section 3.2 hereof.
1.1.94 "Transferred Employees" has the meaning set forth in
Section 5.9.2 hereof.
1.1.95 "Union Employees" has the meaning set forth in Section
5.9.1 hereof.
1.1.96 "VEBAs" has the meaning set forth in Section 5.12
hereof.
1.1.97 "WARN Act" means the Worker Adjustment and Retraining
Notification Act, as codified at 29 U.S.C. section 2102- 2109, as amended.
ARTICLE 2
THE TRANSACTION
2.1 Sale and Purchase of Assets. Subject to the terms and conditions
of this Agreement, at the Closing referred to in Section 2.5 below, Citizens
shall, and shall cause the other Seller Parties to, sell, assign, transfer,
deliver and convey to Buyer, and Parent shall cause Buyer to purchase, the
Acquired Assets for the Purchase Price specified in Section 2.6.
2.2 Excluded Assets. The following assets of Seller shall be
excluded from the Acquired Assets (the "Excluded Assets"):
2.2.1 assets of the Seller used in both the Business and in
Citizens' gas, electric or communications businesses, the material items of
which are described on Schedule 2.2.12;
2.2.2 cash and cash equivalents in transit, in hand or in bank
accounts.
2.2.3 except as otherwise set forth herein, assets
attributable or related to any Benefit Plan;
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2.2.4 the stock record and minute books of Seller;
2.2.5 Acquired Assets disposed of by Seller after the date of
this Agreement to the extent such dispositions are not prohibited by this
Agreement;
2.2.6 except to the extent set forth in Sections 2.9, rights
to refunds of Taxes payable with respect to the Business, assets, properties or
operations of any of the Seller Parties or any member of any affiliated group of
which any of them is a member, and which are treated as Retained Liabilities
under Section 2.3.3(b) below.
2.2.7 customer and other deposits held in Seller's accounts;
2.2.8 accounts owing by and among Seller and its Affiliates;
2.2.9 notes receivable and other receivables (other than note
and accounts receivable attributable exclusively to the Business);
2.2.10 all deferred tax assets or collectibles;
2.2.11 duplicate copies of all books and records transferred
to Buyer; and
2.2.12 those certain items listed on Schedule 2.2.12.
2.3 Assumption of Certain Liabilities
2.3.1 Buyer shall not assume any liabilities of Citizens or
Seller or any of their Affiliates, except that Buyer shall assume the following
specific liabilities and obligations:
(a) the obligations and liabilities set forth in
Sections 5.9, 5.10, 5.11 and 5.12 hereof;
(b) except as set forth in Section 2.3.3(b), all
liabilities and obligations of Seller in respect of the Contracts and Permits
assigned or transferred to Buyer pursuant to this Agreement in accordance with
the respective terms thereof, except that Buyer shall not assume any liabilities
or obligations for any breach or default by, or payment obligations of, Seller
under such Contracts and Permits occurring or arising or accruing on or prior to
the Closing Date;
(c) the Buyer's IDRB Obligations;
(d) any liability, obligation or responsibility of
Seller for conditions at the Real Estate, whether based on statutory or common
law, now or hereafter in effect, known or unknown, contingent or actual,
relating to or arising from pollution, contamination or protection of the
environment, human health or safety or natural resources or relating to or
arising
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from the presence or Release or threat of Release of Hazardous Substances into
the environment at the Real Estate or into or from any building, structure,
pipeline or other facility at the Real Estate, or from violation of any law
relating to the foregoing, including without limitation, any CERCLA or similar
liability under any federal or state law or regulation, except to the extent
Buyer has given written notice of a claim for indemnification pursuant to
Sections 7.3 and 7.4 hereof prior to the expiration of the claims period set
forth in Section 7.3.2(a) or (b) (and if Buyer has given written notice prior to
the expiration of such claims period, to the extent that such claim is not
entitled to indemnification under Sections 7.3 and 7.4) (the foregoing, the
"Pre-Existing Conditions");
(e) all liabilities and obligations of Seller related to
unperformed service obligations, easement and right-of-way relocation
obligations, and construction work in progress, and all engineering and
construction required to complete scheduled construction and other capital
projects for the Business, in each case relating to the Business and outstanding
on or arising after the Closing Date except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment obligations
of, Seller under such Contracts and Permits occurring or arising or accruing on
or prior to the Closing Date;
(f) liability for accrued but unused vacation pay for
the Transferred Employees to the extent provided in Section 5.9.2;
(g) any liability, obligation or responsibility relating
to customer deposits held by Seller on the Closing Date and relating to the
Business; and
(h) all liabilities and obligations imposed on Buyer by
any PUC in connection with the operation of the Business or the ownership of the
Acquired Assets, including with respect to any liability of the types that
appear as "Accrued Liabilities" and "Non-Current Liabilities" on the financial
statements of Seller.
2.3.2 Any liabilities or obligations which are assumed by
Buyer pursuant to Section 2.3.1 above are hereinafter referred to as the
"Assumed Liabilities." At the Closing, Parent shall cause Buyer to execute and
deliver to Seller an assumption agreement, in substantially the form of the
Assumption Agreement attached hereto as Exhibit A (the "Assumption Agreement"),
pursuant to which Buyer shall assume the Assumed Liabilities. Each of Parent and
Buyer hereby irrevocably and unconditionally waives and releases the Seller
Parties from all Assumed Liabilities and all liabilities or obligations
exclusively relating to the Business or the Acquired Assets to the extent
arising from events or occurrences after the Closing or to the extent otherwise
relating to the period after the Closing, including any liabilities created or
which arise by statute or common law, including CERCLA (it being understood that
this shall not constitute a waiver and release of any claims arising out of the
contractual relationships and indemnification arrangements between Buyer and
Seller).
2.3.3 Buyer shall not assume any liabilities, commitments or
obligations (contingent or absolute and whether or not determinable as of the
Closing) of any of the Seller Parties or any of their Affiliates except for the
Assumed Liabilities as specifically and expressly
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provided for above, whether such liabilities or obligations relate to payment,
performance or otherwise, and all liabilities, commitments or obligations not
expressly transferred to Buyer hereunder as Assumed Liabilities are being
retained by the Seller Parties, (the "Retained Liabilities"). Each of the Seller
Parties hereby irrevocably and unconditionally waives and releases Buyer from
all Retained Liabilities including any liabilities created or which arise by
statute or common law, including CERCLA (it being understood that this shall not
constitute a waiver and release of any claims arising out of the contractual
relationships and indemnification arrangements between Buyer and Seller).
Without limitation to the foregoing, all of the following shall be
considered Retained Liabilities and not Assumed Liabilities (except as specified
below) for the purposes of this Agreement:
(a) any product liability, toxic tort or similar claim
for injury to person or property, regardless of when made or asserted, to the
extent that it arises out of or is based upon any express or implied
representation, warranty, agreement or guarantee made by any of the Seller
Parties or any of their Affiliates prior to Closing, or alleged to have been
made by any of such Persons, or to the extent that it is imposed or asserted to
be imposed by operation of law, in connection with any service performed or
product distributed or sold by or on behalf of any of the Seller Parties or any
of their Affiliates prior to Closing, including any claim referred to above in
this Section 2.3.3(a) relating to water quality standards, any claim relating to
any product delivered in connection with the performance of services provided by
Seller and any claim seeking recovery for consequential damages, lost revenue or
income;
(b) all refund obligations relating to the advances
existing on the Closing Date for construction of facilities relating to the
Business;
(c) except to the extent set forth in Section 2.9, any
federal, state, foreign or local income or other Tax payable with respect to the
business, assets, properties or operations of any of the Seller Parties or any
member of any affiliated group of which any of them is a member.
(d) any liability or obligation associated with or in
connection with any common plant assets of Seller (other than the liabilities
and obligations exclusively related to any common plant assets included among
the Acquired Assets);
(e) except as provided in Section 2.3.1 above, any
liability or obligation with respect to compensation or employee benefits of any
nature owed to any employees, agents or independent contractors of any of the
Seller Parties or any of their Affiliates, whether or not employed by Buyer
after the Closing, that arises out of or relates to events or conditions to the
extent occurring before the Closing Date;
(f) except to the extent set forth in Section 2.3.1(d),
any liability, obligation or responsibility of any of the Seller Parties, or any
of their Affiliates or predecessors, whether based on statutory or common law,
but only as any such law is interpreted, amended and
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in effect on the Closing Date, known or unknown, contingent or actual, relating
to or arising from pollution, contamination or protection of the environment,
human health or safety or natural resources or relating to or arising from the
presence or Release or threat of Release of Hazardous Substances into the
environment or into or from any building, structure, pipeline or other facility
or relating to or arising from the generation, use, storage, treatment,
disposal, transport or other handling of Hazardous Substances or sale or product
containing Hazardous Substances from violation of any law relating to the
foregoing (but only as such law is interpreted, amended and in effect on the
Closing Date) including without limitation, any (A) CERCLA or similar liability
under any federal or state law or regulation as interpreted, amended and in
effect on the Closing Date or (B) any such liability associated with businesses
or assets of the Seller Parties other than the Business or the Acquired Assets;
(g) liabilities and obligations relating to the Business
to the extent arising prior to Closing (unless otherwise constituting Assumed
Liabilities) arising by operation of law under any common law or statutory
doctrine (including successor liability or de facto merger);
(h) any obligation or liability arising under any
contract, commitment, instrument or agreement (1) except for Buyer's IDRB
Obligations and subject to the penultimate sentence of Section 2.4, that is not
transferred to Buyer as part of the Acquired Assets, or (2) that relates to any
breach or default (or to the extent that it relates to an event which would,
with the passing of time or the giving of notice, or both, constitute a default)
under any Contract, instrument or agreement or to any services to be provided by
Seller under any such Contract, instrument or agreement to the extent that such
services were performed or were required to have been performed on or prior to
the Closing Date;
(i) any liability or obligation in respect of the
Excluded Assets;
(j) any liability or obligation of any of the Seller
Parties or any of their Affiliates existing as a result of any act, failure to
act or other state of facts or occurrence which constitutes a breach or
violation of any of Seller's representations, warranties, covenants or
agreements contained in this Agreement, except to the extent set forth in
Section 7.4; or
(k) except for the Assumed Liabilities as specifically
and expressly set forth herein, any liability to the extent arising out of or
relating to the ownership or operation of the Acquired Assets or the Business
prior to the Closing Date (including any predecessor operations), any claims,
obligations or litigation to the extent arising out of or relating to events or
conditions occurring before the Closing Date, and any liability associated with
any business other than the Business.
2.4 Consent of Third Parties. On the Closing Date, Citizens shall
cause Seller to assign to Buyer, and Parent shall cause Buyer to assume, the
Contracts and the Permits which are to be transferred to Buyer as provided in
this Agreement by means of the Assumption Agreement. To the extent that the
assignment of all or any portion of any Contract or Permit shall require the
consent (or result in a breach or violation thereof) of the other party thereto
or any other third party,
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and such consent shall not be obtained prior to Closing, this Agreement shall
not constitute an agreement to assign any such Contract or Permit included in
the Acquired Assets. In order, however, to provide Buyer the full realization
and value of every Contract of the character described in the immediately
preceding sentence, Seller agrees that on and after the Closing, it will, at the
request and under the direction of Buyer, in the name of Seller or otherwise as
Buyer shall specify, take all reasonable actions (including without limitation
the appointment of Buyer as attorney-in-fact for Seller to proceed at Buyer's
sole cost and expense) and do or cause to be done all such things as shall in
the reasonable opinion of Buyer be necessary (a) to assure that the rights of
Seller or its Affiliates under such Contracts shall be preserved for the benefit
of Buyer and (b) to facilitate receipt of the consideration to be received by
Seller or its Affiliates in and under every such Contract. To the extent that
Buyer does receive the benefits of any such Contract pursuant to the preceding
sentence, such Contract shall be a Contract "assigned or transferred to Buyer
pursuant to this Agreement" within the meaning of Section 2.3.1(b) hereof.
Nothing in this Section 2.4 shall in any way diminish the obligations of Seller
to obtain consents and approvals under this Agreement.
2.5 Closing. Subject to the terms and conditions of this Agreement,
the closing of the sale and purchase of the Acquired Assets (the "Closing")
shall take place at 10 a.m., East Coast time, on a date mutually satisfactory to
Buyer and Seller which is no later than the fifth Business Day after
satisfaction (or waiver) of the conditions to Closing set forth in Sections 6.1
and 6.2 hereof (other than those conditions which require the delivery of any
documents or the taking of other action, at the Closing) at the offices of
Fleischman and Walsh, LLP, 1400 Sixteenth Street, N.W., Washington, D.C. 20036,
or on such other date and at such other time or place as may be mutually agreed
upon by the parties hereto (the "Closing Date"). Upon payment of the Initial
Cash Payment by Buyer and confirmed receipt thereof by Seller or the Escrow
Agent pursuant to Section 2.6.2 below, Seller shall operate the Business at the
direction of and under the control of Buyer. Notwithstanding the foregoing, the
Closing shall be deemed to be effective as of 11:59 p.m. on the Closing Date for
all purposes.
2.6 Purchase Price
2.6.1 Purchase Price. Subject to the terms and conditions of
this Agreement, the aggregate purchase price be paid by Buyer for the purchase
of the Acquired Assets (the "Purchase Price") shall be: (i) $35,140,000 in cash
(the "Base Cash Purchase Price," the Base Cash Purchase Price as adjusted in
accordance with Section 2.6.3, Section 2.6.5 and Section 2.6.6 is referred to as
the "Initial Cash Payment"), subject to adjustment pursuant to the provisions of
this Agreement (including Section 2.6.3, Section 2.6.4, Section 2.6.5, Section
2.6.6 and Section 2.9 of this Agreement) and (ii) the assumption by Buyer of the
Assumed Liabilities.
2.6.2 Payment of Initial Cash Payment. Subject to the terms
and conditions of this Agreement, the Initial Cash Payment shall be paid by
Buyer on the Closing Date by federal other wire transfer of immediately
available funds to the account designated by Seller in writing at least two (2)
Business Days prior to the Closing Date. If the Closing Date is not a business
day on which financial institutions are open and operating, then on or before
the last business day on which financial institutions are open and operating
before the Closing Date, Buyer shall deliver the Initial
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Cash Payment to Buyer's lead bank (the "Escrow Agent") in immediately available
funds in U.S. dollars. Upon receipt, the Escrow Agent shall invest the Initial
Cash Payment in an interest-bearing account mutually agreed upon by Seller and
Buyer. At Closing, Parent shall sign and deliver to Citizens a statement which
confirms that the Closing has occurred and which instructs the Escrow Agent to
transfer to Citizens the funds representing the Initial Cash Payment, plus an
amount representing the interest earned after the Closing Date until the date
the funds are transferred, to an account that Citizens shall designate at least
two (2) business days prior to the date the funds are required to be transferred
hereunder. The Escrow Agent shall refund the balance to Buyer. The fees and
expenses of Escrow Agent shall be paid by Buyer.
2.6.3 Estimated Closing Statement. At least five (5) business
days prior to the Closing Date, Citizens shall deliver to Parent and Buyer a
statement of net assets (the "Estimated Statement of Net Assets") reflecting its
good faith calculation of the Acquired Assets of the Business as of the last day
of the latest calendar month for which financial statements of Seller are
available (the "Estimated Adjusted Net Assets"). The Estimated Statement of Net
Assets shall be prepared in the same manner and utilizing the same accounting
principles, policies and methods used in the preparation of the Interim
Statement of Net Assets (excluding for this purpose any change required by GAAP
or any Authority since June 30, 1999). The Base Cash Purchase Price shall be
increased or decreased on a dollar for dollar basis by the amount, if any, by
which the Estimated Adjusted Net Assets is greater than or less than $19,807,252
(such increase or decrease, as the case may be, is referred to herein as the
"Estimated Net Asset Adjustment").
2.6.4 Post-Closing Adjustment to Purchase Price.
(a) Within 90 days after the Closing, Citizens shall
prepare and deliver to Parent and Buyer a Statement of Net Assets (the "Closing
Statement of Net Assets") which reflects the Acquired Assets, as of 11:59 p.m.
on the Closing Date, based on actual financial performance and calculated in the
same manner, utilizing the same accounting principles, policies and methods
utilized in preparing the Interim Statement of Net Assets (excluding for this
purpose any change required by GAAP or any Authority since June 30, 1999),
together with (A) an audit report of Seller's Accountants stating that the
Closing Statement of Net Assets has been prepared utilizing the same accounting
principles, policies and methods used in the preparation of the Interim
Statement of Net Assets and (B) a calculation of Citizens' determination of the
amount of increase or decrease in the amount of the Acquired Assets of the
Business from the Interim Statement of Net Assets Date to the Closing Date which
is derived from the Closing Statement of Net Assets ("Seller's Adjustment
Amount"). The Closing Statement of Net Assets shall not give effect to any
purchase accounting treatment arising from Buyer's purchase of the Acquired
Assets. Buyer shall pay the fees and expenses of Seller's Accountants incurred
in connection with this Section 2.6.4. Buyer agrees to cooperate, and agrees to
cause Buyer's Accountants to cooperate, with Citizens and Seller's Accountants
in connection with the preparation of the Closing Statement of Net Assets, and
related information, and shall provide to Citizens and Seller's Accountants such
books, records and information as may be reasonably requested from time to time,
including the work papers of Buyer's Accountants. Citizens will give Buyer and
its representatives access during the normal business hours of Citizens to the
personnel, books and records of Citizens and the work papers of Seller's
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Accountants to assist Buyer in the review of the Closing Statement of Net Assets
and related matters. Buyer agrees that, following the Closing through the date
on which the Closing Statement of Net Assets is delivered, it will not take any
actions with respect to any accounting books, records, policies or procedures on
which the Closing Statement of Net Assets is to be based that would make it
impossible or impracticable to calculate the Acquired Assets in the manner and
utilizing the methods required hereby. Without limiting the generality of the
foregoing, no changes shall be made in any reserve or other account existing as
of the date of the Interim Statement of Net Assets except in the ordinary course
or as a result of events occurring after the date of the Interim Statement of
Net Assets and, in such event, only in a manner consistent with past practices
of Seller.
(b) Parent or Buyer may dispute any amounts reflected on
the Closing Statement of Net Assets, in the Seller's Adjustment Amount or in the
Statement of Certain Assumed Liabilities, provided, however, that Buyer shall
notify Citizens in writing of each disputed amount, and specify the amount
thereof in dispute and the basis of such dispute, within 30 days of the Buyer's
receipt of the Closing Statement of Net Assets and the Seller's Adjustment
Amount (such 30 day period hereinafter referred to as the "Review Period"). In
the event of a dispute with respect to the Closing Statement of Net Assets, the
Seller's Adjustment Amount or the Statement of Certain Assumed Liabilities,
Buyer and Seller shall attempt to reconcile their differences and any resolution
by them as to any disputed amounts shall be final, binding and conclusive on the
parties. If Buyer and Seller are unable to reach a resolution of such
differences within 30 days of receipt of Buyer's written notice of dispute to
Seller, Buyer and Seller shall submit the amounts remaining in dispute (together
with any amounts remaining in dispute pursuant to Section 2.6.4(b) of each of
the Related Purchase Agreements) for resolution to an independent accountant
firm of national reputation mutually appointed by Seller and Buyer (such
independent accounting firm being herein referred to as the "Third Accounting
Firm"), which shall be requested to determine and report to the parties, within
30 days after such submission, upon such remaining disputed amounts, and such
report shall be final, binding and conclusive on the parties hereto with respect
to the amounts disputed. The fees and disbursements of the Third Accounting Firm
shall be allocated between Buyer and the Seller Parties so that the Seller
Parties' share of such fees and disbursements shall be in the same proportion
that the aggregate amount of such remaining disputed amounts so submitted by
Buyer to the Third Accounting Firm that is unsuccessfully disputed by the Buyer
(as finally determined by the Third Accounting Firm) bears to the total amount
of such remaining disputed amounts so submitted by the Buyer to the Third
Accounting Firm. Buyer shall pay the fees and expenses of Buyer's Accountants
incurred in connection with this Section 2.6.4(b). Seller's Adjustment Amount,
if there are no disputes with respect thereto, or Seller's Adjustment Amount as
adjusted after the resolution of all disputes with respect thereto in accordance
herewith, shall be referred to as the "Final Net Asset Adjustment."
(c) If the Base Cash Purchase Price plus (or minus, if
negative) the Final Net Asset Adjustment exceeds the Initial Cash Payment, then
within five (5) business days after final determination thereof Buyer shall pay
Seller the amount of such excess together with interest thereon for the period
commencing on the Closing Date through the date of payment calculated at the
Prime Rate in cash by federal or other wire transfer of immediately available
funds, or certified or bank cashier's check. If the Initial Cash Payment exceeds
the sum of the Base Cash
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Purchase Price plus (or minus, if negative) the Final Net Asset Adjustment, then
within five (5) business days after final determination thereof Seller shall pay
Buyer the amount of such excess together with interest thereon for the period
commencing on the Closing Date through the date of payment calculated at the
Prime Rate in cash by federal or other wire transfer of immediately available
funds, or certified or bank cashier's check.
2.6.5 Adjustment for Certain Liabilities. Concurrent with the
delivery of the Estimated Statement of Net Assets, Citizens also shall deliver
to Parent and Buyer a statement reflecting (i) the customer and other deposits
held by Seller on the Closing Date and relating to the Business, (ii) the items
specified in Section 2.9 to the extent set forth therein, and (iii) without
duplications of any amount included in clause (i), above any payments received
by Seller under the Contracts and Permits for obligations not performed as of
the Closing Date (the "Statement of Certain Assumed Liabilities"). The Statement
of Certain Assumed Liabilities shall reflect Citizens' good faith calculation of
such liabilities as of the Closing Date. The Base Cash Purchase Price shall be
decreased by the net amount set forth in the Statement of Certain Assumed
Liabilities. Concurrent with the delivery of the Closing Statement of Net
Assets, Citizens also shall deliver to Parent a statement showing any
adjustments to the Statement of Certain Assumed Liabilities and the Base Cash
Purchase Price shall be further adjusted to give effect to any such adjustments
to the Statement of Certain Assumed Liabilities.
2.6.6 Additional Adjustment to the Purchase Price. The Base
Cash Purchase Price shall be decreased by an amount equal to the proceeds of
Seller's sale of the property described in Item 7 of Schedule 3.5 (net of
expenses) less the sum of (i) the federal and state income taxes payable by
Seller in respect of those proceeds and (ii) the book value of such property, as
of June 30, 1999, on Seller's books.
2.7 Deliveries and Proceedings at Closing. Subject to the terms and
conditions of this Agreement, at the Closing:
2.7.1 Deliveries to Buyer. Citizens shall, and shall cause
Seller to deliver to Buyer:
(a) bills of sale and instruments of assignment to the
Acquired Assets, duly executed by Seller, substantially in the form of Exhibit B
hereto and;
(b) the consents to transfer, of all transferable or
assignable Contracts, Intellectual Property, Permits (including Environmental
Permits), to the extent specifically required hereunder;
(c) title certificates to any motor vehicles included in
the Acquired Assets, duly executed by Seller (together with any other transfer
forms necessary to transfer title to such vehicles);
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(d) special warranty deeds of conveyance with respect to
the parcels of Real Estate owned in fee simple by Seller (or, with respect to
any such parcel which was acquired by Seller (or its predecessor in interest, in
cases involving mergers) by deed without covenant or warranty of title, a quit
claim deed without covenant or warranty of title) to Buyer, duly executed and
acknowledged by Seller and in recordable form;
(e) the Foreign Investment in Real Property Tax Act
Certification and Affidavit for each parcel of Real Estate, duly executed by the
Seller Parties (the "FIRPTA Affidavit");
(f) the certificates, opinions and other documents
required to be delivered by the Seller Parties pursuant to Section 6.1 hereof
and certified resolutions evidencing the authority of the Seller Parties as set
forth in Section 3.2 hereof;
(g) all agreements and other documents required by this
Agreement;
(h) a receipt for the payment of the Initial Cash
Payment duly executed by Citizens; and
(i) all such other instruments of conveyance as shall,
in the reasonable opinion of Buyer and its counsel, be necessary to transfer to
Buyer the Acquired Assets in accordance with this Agreement and where necessary
or desirable, in recordable form.
2.7.2 Deliveries By Buyer to the Seller Parties. Parent shall,
and shall cause Buyer to deliver to the Seller Parties:
(a) wire transfer of immediately available funds in an
amount equal to the Initial Cash Payment;
(b) the Assumption Agreement, duly executed by Buyer;
(c) the certificates, opinions and other documents
required to be delivered by Buyer pursuant to Section 6.2 hereof;
(d) all of the instruments contemplated by Section
5.24(a) to the extent not previously executed and delivered by Parent; and
(e) all such other instruments of assumption as shall,
in the reasonable opinion of Seller and its counsel, be necessary for Parent and
Buyer to assume the Assumed Liabilities in accordance with this Agreement.
2.8 Allocation of Consideration. Buyer and Seller shall use their
good faith efforts to agree upon the allocation (the "Allocation") of the
Purchase Price, the Assumed Liabilities and other relevant items (including, for
example, adjustments to the Purchase Price) to the individual
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assets or classes of assets within the meaning of Section 1060 of the Code. If
Buyer and Seller agree to such Allocation on or before ninety (90) days after
the Closing Date, Buyer and Seller covenant and agree that (i) the values
assigned to the assets by the parties' mutual agreement shall be conclusive and
final for all purposes, and (ii) neither Buyer nor Seller will take any position
before any Authority or in any proceeding that is in any way inconsistent with
such Allocation. Notwithstanding the foregoing, if Buyer and Seller cannot agree
to an Allocation on or before ninety (90) days after the Closing Date, Buyer and
Seller covenant and agree to file and to cause their respective Affiliates to
file, all Tax returns and schedules thereto (including, for example, amended
returns, claims for refund, and those returns and forms required under Section
1060 of the Code and any Treasury regulations promulgated thereunder) consistent
with each of Buyer and Seller's good faith Allocations, unless otherwise
required because of a change in any legal requirement.
2.9 Prorations. The parties hereto agree that the following expenses
shall be calculated and pro rated as of the Closing Date, with Seller
responsible for such expenses and to receive the benefit for the same for the
period through and including the Closing Date, and Buyer to be responsible for
and to receive the benefit of the same after the Closing Date:
2.9.1 personal and real property taxes (on the basis on which
the same were assessed and paid) and sales, occupation and use taxes, in each
case, to the extent relating to the Business and except as otherwise provided in
Section 7.1;
2.9.2 electric, fuel, gas, telephone, sewer and utility
charges, in each case, to the extent relating to the Business;
2.9.3 rentals and other charges under Contracts to be assumed
by Buyer pursuant to Section 2.3 (except to the extent provided in Section
2.3.3(h)); and
2.9.4 charges under maintenance and service contracts and
other Contracts (except to the extent provided in Section 2.3.3(h)), and fees
under Permits to be transferred to Buyer as part of the Acquired Assets;
2.9.5 water, sewer and other similar types of taxes, and
installments on special benefit assessments; and
2.9.6 payroll expenses, payroll taxes, reimbursable employee
business expenses and the financial cost of the accrued vacation of each
Transferred Employee.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Each of the Seller Parties jointly and severally represent and warrant to
Parent and Buyer as follows:
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3.1 Qualification; No Interest in Other Entities
3.1.1 Each of the Seller Parties is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and has all requisite corporate power and authority to own, lease
and operate the Acquired Assets and the Business as presently being conducted.
Each of the Seller Parties is qualified to do business and is in good standing
as a foreign corporation in all jurisdictions wherein the nature of the business
conducted by it or such Seller Party's ownership or use of assets and properties
make such qualification necessary, except such failures to be qualified or to be
in good standing, if any, which when taken together with all such other failures
of the Seller Parties do not have a Material Adverse Effect.
3.1.2 No shares of any corporation or any ownership or other
investment interest, either of record, beneficially or equitably, in any Person
are included in the Acquired Assets.
3.2 Authorization and Enforceability. Each of the Seller Parties has
full corporate power and authority to execute, deliver and perform this
Agreement and all other agreements and instruments to be executed by them in
connection herewith (such other agreements and instruments being hereinafter
referred to collectively as the "Transaction Documents"). The execution,
delivery and performance by each of the Seller Parties of this Agreement and the
Transaction Documents to which such Seller Party is a party have been duly
authorized by all necessary corporate action on the part of each of them. This
Agreement has been duly executed and delivered by each of the Seller Parties,
and as of the Closing Date the other Transaction Documents will be duly executed
and delivered by the Seller Parties. This Agreement is a legal, valid and
binding obligation of each Seller Party, enforceable against them in accordance
with its terms except as such enforceability may be limited by applicable laws
relating to bankruptcy, insolvency, fraudulent conveyance, reorganization or
affecting creditors' rights generally and except to the extent that injunctive
or other equitable relief is within the discretion of a court. As of the Closing
Date, each of the other Transaction Documents to which each of the Seller
Parties is a party will be duly executed and delivered by each of the Seller
Parties and will constitute the legal, valid and binding obligations of each of
the Seller Parties, enforceable against them in accordance with its respective
terms, except as such enforceability may be limited by applicable laws relating
to bankruptcy, insolvency, fraudulent conveyance, reorganization or affecting
creditors' rights generally and except to the extent that injunctive or other
equitable relief is within the discretion of a court.
3.3 No Violation of Laws or Agreements. The execution, delivery, and
performance of this Agreement and the Transaction Documents by each of the
Seller Parties do not, and the consummation of the transactions contemplated by
this Agreement and the Transaction Documents by the Seller Parties, will not:
(a) contravene any provision of the Restated Articles of Incorporation or Bylaws
of Citizens or the Articles of Incorporation or Bylaws of the other Seller
Parties; or (b) except as set forth on Schedule 3.3, violate, conflict with,
result in a breach of, or constitute a default (or an event which would, with
the passage of time or the giving of notice or both, constitute a default)
under, or result in or permit the termination, modification, acceleration, or
cancellation of, or result in the creation or imposition of any Lien of any
nature whatsoever upon any of the Acquired Assets or give to others any
interests or rights therein under (i) any indenture,
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mortgage, loan or credit agreement, license, instrument, lease, contract, plan,
permit or other agreement or commitment, oral or written, to which any of the
Seller Parties is a party, or by which the Business or any of the Acquired
Assets may be bound or affected, except for such violations, conflicts,
breaches, terminations, modifications, accelerations, cancellations, Liens,
interests or rights which, individually and in the aggregate, do not have a
Material Adverse Effect or will be cured, waived or terminated prior to the
Closing Date, or (ii) any judgment, injunction, writ, award, decree,
restriction, ruling, or order of any court, arbitrator or Authority or any
applicable constitution, law, ordinance, rule or regulation, to which any of the
Seller Parties is subject, other than those violations or conflicts which
individually and in the aggregate would not have a Material Adverse Effect.
3.4 Financial Statements. Citizens has previously delivered to Buyer
the statement of income of the Business (the "Income Statement") and the Interim
Statement of Net Assets contained in Schedule 3.4 (collectively, the "Financial
Statements"). The Income Statement (a) fairly presents in all material respects
the results of operations of the Business in accordance with generally accepted
accounting principles ("GAAP") consistently applied except for the omission of
full footnotes to the Income Statement and (b) has in all material respects been
derived from the books and records of Seller and reflects the separation of the
operation associated with the Business from other operations of Citizens. The
Interim Statement of Net Assets (a) has in all material respects been derived
from the books and records of Seller and reflects the separation of the
operations associated with the Business from other operations of Citizens; (b)
fairly presents in all material respects the Acquired Assets as of the Interim
Statement of Net Assets Date; and (c) has in all material respects been prepared
in accordance with GAAP consistently applied except for the omission of full
footnotes to such Interim Statement of Net Assets. The financial statements
included in the Annual Report to each PUC for the year ended December 31, 1998,
were prepared in all material respects in accordance with the rules and
regulations of such PUC.
3.5 No Changes. Since the Interim Statement of Net Assets Date to
the date hereof, except as disclosed in Schedule 3.5, the Seller Parties have
conducted the Business as presently operated only in the ordinary course of
business consistent with past practice. Since the Interim Statement of Net
Assets Date, except as disclosed in Schedule 3.5, there has not been:
3.5.1 any Material Adverse Effect;
3.5.2 prior to the date of this Agreement, any change in the
salaries or other compensation payable or to become payable to, or any advance
(excluding advances for ordinary business expenses) or loan to, any Transferred
Employee, or material change or material addition to, or material modification
of, other benefits (including any bonus, profit-sharing, pension or other plan
in which any of the Transferred Employees participate) to which any of the
Transferred Employees may be entitled, or any payments to any pension,
retirement, profit-sharing, bonus or similar plan other than in any such case
(i) in the ordinary course consistent with past practice, (ii) as required by
law, or (iii) as required by the Collective Bargaining Agreement;
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3.5.3 any alteration in any material respect of the customary
practices with respect to the collection of accounts receivable of the Business
or the provision of discounts, rebates or allowances;
3.5.4 any disposition of or failure to keep in effect any
rights in, to or for the use of any Permit of the Business which individually or
in the aggregate would have a Material Adverse Effect;
3.5.5 any damage, destruction or loss affecting the Business
which individually or in the aggregate would have a Material Adverse Effect
whether or not covered by insurance;
3.5.6 prior to the date of this Agreement, any change by
Seller in its method of accounting or keeping its books of account or accounting
practices with respect to the Business except as required by GAAP and is set
forth on Schedule 3.5; or
3.5.7 prior to the date of this Agreement, any sale, transfer
or other disposition of any material assets, properties or rights of the
Business, except in the ordinary course of business consistent with past
practice.
3.6 Contracts. As of the date of this Agreement, Schedule 3.6
contains a list of all Contracts (other than (i) with respect to which the
Business' total annual liability or expense is less than (a) $250,000 per such
Contract and (b) $6,123,000 per all such Contracts (when taken together with
similar contracts omitted from Schedule 3.6 of the Related Purchase Agreements),
and (ii) Contracts that may be terminated by Seller, without penalty, on notice
of 90 days or less) except line extension agreements and similar agreements and
construction and design contracts. Seller has furnished to Buyer a correct and
complete copy of each written agreement listed in Schedule 3.6. Except as
disclosed on Schedule 3.6, with respect to each Contract, neither Seller nor, to
the Seller Parties' knowledge, any other party thereto, is in breach or default,
and to the Seller Parties' knowledge, no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the Contract, except in each case where
such breaches, terminations, modifications, accelerations or defaults,
individually or in the aggregate, do not have a Material Adverse Effect. Except
as set forth in Schedule 3.6, there are no disputes pending or to the best of
the Seller Parties' knowledge, threatened, under or in respect of any of the
Contracts, other than those that individually and in the aggregate do not have a
Material Adverse Effect.
3.7 Permits and Compliance With Laws Generally.
3.7.1 Except as disclosed on Schedule 3.7, Seller possesses
and is in compliance with all Permits required to operate the Business as
presently operated and to own, lease or otherwise hold the Acquired Assets under
all applicable laws, rules, regulations, ordinances and codes, including
Environmental Laws (as defined below), except to the extent that any failure to
possess, or to comply with, any Permit, laws, rules, regulations or orders would
not, individually or
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in the aggregate, have a Material Adverse Effect. Except as disclosed in
Schedule 3.7, the Business is conducted by Seller in compliance with all
applicable laws (including the Occupational Safety and Health Act and the rules
and regulations thereunder ("OSHA"), zoning, building and similar laws and
Environmental Laws), rules, regulations, ordinances, codes, judgments and
orders, except for such failures to comply which do not individually or in the
aggregate have a Material Adverse Effect. Except as disclosed on Schedule 3.7,
all Permits of Seller relating to the operation of the Business are in full
force and effect, other than those the failure of which to be in full force and
effect would not individually or in the aggregate have a Material Adverse
Effect. There are no proceedings pending or, to the Seller Parties' knowledge,
threatened that seek the revocation, cancellation, suspension or any adverse
modification of any such Permits presently possessed by Seller other than those
revocations, cancellations, suspensions or modifications which do not
individually or in the aggregate have a Material Adverse Effect.
3.7.2 Except as set forth on Schedule 3.7, no outstanding
notice, citation, summons or order has been issued, no outstanding complaint has
been filed, no outstanding penalty has been assessed and no investigation or
review is pending or, to the knowledge of the Seller Parties, threatened, by any
Authority or other Person with respect to any alleged (i) violation by Seller or
any Affiliate of Seller relating to the Business of any law, ordinance, rule,
regulation, code or order of any Authority; or (ii) failure by Seller or any
Affiliate to have any Permit required in connection with the conduct of the
Business or otherwise applicable to the Business (including the Acquired
Assets), except, in each case, where such violations or failures, individually
or in the aggregate, would not have a Material Adverse Effect.
3.8 Environmental Matters. Except as set forth on Schedule 3.8
hereto, and with such exceptions as are not reasonably likely, individually or
in the aggregate, to have a Material Adverse Effect:
3.8.1 Seller has not disposed of or arranged for the disposal
of or Released any Hazardous Substances, other than in conformity with
Environmental Laws, at any Real Estate, or, in connection with the Business or
Acquired Assets, at any other facility, location, or other site.
3.8.2 Seller has not received any written notice or request
for information with respect to, and to the best of the Seller Parties'
knowledge, Seller has not been designated a potentially liable party for
Remedial Action, in connection with any Real Estate, or, as of the date hereof,
with respect to the Business or Acquired Assets, at any other facility,
location, or other site under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") or comparable state statutes.
3.8.3 To the best of the Seller Parties' knowledge, except for
such use or storage of Hazardous Substances as is incidental to the conduct of
the Business, which use and storage is or has been in compliance with
Environmental Laws, and which use and storage has not caused any condition that
requires Remedial Action, no Real Estate has been used for the storage,
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treatment, generation, processing, production or disposal of any Hazardous
Substances or as a landfill or other waste disposal site in violation of any
Environmental Law.
3.8.4 To the best of the Seller Parties' knowledge,
underground storage tanks are not, and have not in the past been, located on or
under any Real Estate.
3.8.5 There are no pending or unresolved claims against Seller
or the Business for investigatory costs, cleanup, removal, remedial or response
costs, or natural resource damages arising out of any Releases or threat of
Release of any Hazardous Substances at any Real Estate or, as of the date
hereof, with respect to the Business or the Acquired Assets or at any other
facility, location, or other site.
3.8.6 To the best of the Seller Parties' knowledge, no
polychlorinated biphenyls ("PCBs") or asbestos-containing materials are located
at or in any Real Estate in violation of Environmental Laws or which require
Remedial Action.
3.8.7 To the best of the Seller Parties' knowledge, no
Hazardous Substance managed or generated by or on behalf of Seller at the Real
Estate or in connection with the Business or Acquired Assets has come to be
located at any site that is listed or formally proposed for listing under
CERCLA, the Comprehensive Environmental Response, Compensation and Liability
Information System ("CERCLIS"), or any similar state list or that is the subject
of federal, state, or local enforcement actions or investigations.
3.8.8 The Seller Parties know of no facts or circumstances
related to environmental matters (i) in connection with the operation of the
Business or (ii) concerning the Real Estate, that are reasonably likely to
result in any material reduction in the quality or quantity of water available
for supply to the Seller Parties' customers.
3.8.9 The Seller Parties will within thirty (30) days of the
date hereof provide Buyer with copies of all written environmental audits or
investigations of which they are aware (after due inquiry) prepared for the Real
Estate or operations of the Business.
3.8.10 Except as set forth in Schedule 3.8.10 or Citizens'
Annual Report on Form 10-K for the year ended December 31, 1998:
(a) The Seller Parties (including for purposes of
Section 3.8.10(a) and (b), Affiliates and predecessors of the Seller Parties)
are and have been for the past three years in full compliance with all federal
and state primary drinking water standards;
(b) The Seller Parties are and have been for the past
three years in full compliance with all federal and state secondary drinking
water standards; and
(c) As to all outstanding violations of state or federal
drinking water standards, as of the date hereof, the Seller Parties have
completed or are in the process of
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completion in accordance with all applicable deadlines, all actions required by
Environmental Law or Authorities to correct or otherwise respond to such
violations.
3.8.11 Except as set forth in Schedule 3.8.11, none of the
Seller Parties will be required to place any notice or restriction relating to
the presence of Hazardous Substances in the deed to any Real Estate, or in any
written instrument accompanying this Agreement, and no Real Estate has such a
notice or restriction in its deed or any other written instrument relating to
the purchase, lease or rental of such property.
For the purposes of these Sections 3.7 and 3.8: (A) "Remedial Action" means all
actions to (x) clean up, remove, treat or in any other way respond to any
presence, Release or threat of Release of Hazardous Substances; (y) prevent the
Release or threat of Release, or minimize the further Release of any Hazardous
Substances so it does not endanger or threaten to endanger public or employee
health or welfare or the environment; or (z) perform studies, investigations or
monitoring necessary or required to investigate the foregoing; (B)
"Environmental Laws" means any common law or federal, state or local law,
statutes, rule, regulation, ordinance, code, judgment or order relating to the
protection of the environment or human health and safety and includes, but is
not limited to, CERCLA (42 U.S.C. section 9601, et seq.), the Clean Water Act
(33 U.S.C. section 1251 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. section 6901 et seq.), the Toxic Substances Control Act (15 U.S.C.
section 2601 et seq.), the Safe Drinking Water Act (42 U.S.C. section 300f et
seq.) and the Oil Pollution Act of 1990 (33 U.S.C. section 2701 et seq.), each
as has been or may be interpreted or amended as of the Closing Date and the
regulations promulgated pursuant thereto and in effect as of the Closing Date;
(C) "Released" means released, spilled, leaked, discharged, disposed of, pumped,
poured, emitted, emptied, injected, leached, dumped or allowed to escape; and
(D) "Hazardous Substances" means hazardous or toxic or polluting substance or
waste or contaminant under or pursuant to any Environmental Law, including
petroleum products, PCBs and radioactive materials.
3.9 Consents. No consent, approval or authorization of, or
registration or filing with, any Person (governmental or private) is required in
connection with the execution, delivery and performance by the Selling Parties
of this Agreement, the Transaction Documents, or the consummation of the
transactions contemplated hereby or thereby by the Seller Parties, including
without limitation in connection with the assignment of the Contracts and
Permits contemplated hereby, except (i) as required by the Hart-Scott Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), (ii) as specified on
Schedule 3.9, (iii) as required by the IDRB Documents, and (iv) for such other
consents, approvals, authorizations, registrations or filings the failure of
which to obtain or make would not individually or in the aggregate have a
Material Adverse Effect or which are obtained by the Closing Date.
3.10 Title. Seller has good and valid title to all of the Acquired
Assets constituting personal property, good and marketable title in fee simple
to all of the owned Acquired Assets constituting Real Estate and good and valid
leasehold title to all of the leased Acquired Assets constituting Real Estate,
in each case, free and clear of Liens subject only to the Permitted Exceptions.
"Permitted Exceptions" as used herein shall mean (a) the Liens set forth in
Schedule
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3.10 hereto, (b) Liens securing Taxes, assessments, governmental charges or
levies, or the claims of materialmen, mechanics, carriers and like persons, all
of which are not yet due and payable or which are being contested in good faith
or (c) such other Liens which, individually or in the aggregate, do not have a
Material Adverse Effect (it being understood that to the extent a Permitted
Exception relates to or arises from a Retained Liability, Seller shall still be
liable for such Retained Liability to the extent set forth herein).
3.11 Real Estate.
3.11.1 As of the date hereof, Seller has not received any written or
oral notice for assessments for public improvements against the Real Estate
which remains unpaid, and to the best knowledge of the Seller Parties, no such
assessment has been proposed. Except as set forth on Schedule 3.11, as of the
date hereof, there is no pending condemnation, expropriation, eminent domain or
similar proceeding affecting all or any portion of any of the Real Estate and to
the best knowledge of the Seller Parties no such proceeding is threatened.
3.11.2 Except as disclosed on Schedule 3.6, as of the date
hereof, Seller is not a lessee under any Contract relating to the use or
occupancy of the Real Estate involving annual payments in excess of $100,000.
3.11.3 Each parcel of the Real Estate has physical and, to
Seller's knowledge, legal vehicular and pedestrian access to and from public
roadways as may be reasonably necessary to the operation of the Business except
where the failure to have such access does not have a Material Adverse Effect.
To Seller's knowledge, no fact or condition exists which would result in the
termination of (a) the current access from each parcel of the Real Estate, and
(b) continued use, operation, maintenance, repair and replacement of all
existing and currently committed water lines used by Seller in connection with
the Business, except where such termination would not have a Material Adverse
Effect.
3.12 Taxes. The Seller Parties have (a) timely filed all material
returns and reports for Taxes, including information returns, that are required
to have been filed in connection with, relating to, or arising out of, the
Business, (b) paid all Taxes that are shown to have come due pursuant to such
returns or reports and (c) paid all other material Taxes not required to be
reported on returns in connection with, relating to, or arising out of, or
imposed on the property of the Business for which a notice of assessment or
demand for payment has been received or which have otherwise become due. To the
best of the Seller Parties' knowledge, all such returns or reports have been
prepared in accordance with all applicable laws and requirements in all material
respects. Except to the extent disclosed on Schedule 3.12, none of the assets of
the Business or constituting any of the Acquired Assets (a) is property that is
required to be treated as owned by another Person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code, (b) is "tax-exempt
use property" within the meaning of Section 168(h) of the Code or (c) directly
or indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code.
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3.13 Patents and Intellectual Property Rights. To the best of the
Seller Parties' knowledge, the operations of Seller do not make any unauthorized
use of any Intellectual Property except for any such unauthorized uses which do
not have a Material Adverse Effect. Assuming the consents listed as item XII on
Schedule 3.9 are obtained, Buyer will not lose any of Seller's rights to, or be
required to pay increased royalties for, any Intellectual Property included in
the Acquired Assets as a result of the Closing and the consummation of the
transactions contemplated by this Agreement, except for any such rights or such
increased royalties the loss or payment of which would, individually or in the
aggregate, not have a Material Adverse Effect.
3.14 Accounts Receivable. The accounts receivable of Seller arising
from the Business as set forth on the Interim Statement of Net Assets or arising
since the date thereof have arisen out of bona fide sales and deliveries of
goods, performance of services and other business transactions in the ordinary
course of business consistent with past practice; the allowance for collection
losses on the Interim Statement of Net Assets has been determined in accordance
with GAAP consistent with past practice.
3.15 Labor Relations. As of the date hereof, except as set forth in
Schedule 3.15, to best of the knowledge of the Seller Parties, there has been no
union organizing efforts with respect to the Business conducted within the last
three (3) years and there are none now being conducted with respect to the
Business. Except as set forth in Schedule 3.15, Seller has not at any time
during the three (3) years prior to the date of this Agreement had, nor, to the
best of the Seller Parties' knowledge, is there now threatened, a strike, work
stoppage or work slow down with respect to or affecting the Business which had
or could reasonably be expected to have a Material Adverse Effect. As of the
date hereof, except as set forth in Schedule 3.15, (i) no Employee is
represented by any union or other labor organization and (ii) there is no unfair
labor practice charge pending or, to the best knowledge of the Seller Parties,
threatened against Seller relating to any of the Employees as related to the
Business which could reasonably be expected to have a Material Adverse Effect.
3.16 Employee Benefit Plans.
3.16.1 Schedule 3.16.1 contains a true and complete list of
each "employee benefit plan," as defined in Section 3(3) of ERISA (including any
"multiemployer plan" as defined in Section 3(37) of ERISA), bonus, incentive,
deferred compensation, excess benefit, employment contract, stock purchase,
stock ownership, stock option, supplemental unemployment, vacation, sabbatical,
sick-day, severance or other material employee benefit plan, program or
arrangement (other than those required to be maintained by law), whether written
or unwritten, qualified or nonqualified, funded or unfunded, foreign or
domestic, (i) maintained by, or contributed to by Citizens or any of its
Affiliates, in respect of any Employee or Former Employee, or (ii) with respect
to which Citizens or any of its Affiliates has any liability in respect of any
Employee or Former Employee (the"Benefit Plans"). Except as disclosed on
Schedule 3.16.1, neither Citizens nor any of its Affiliates maintains any bonus,
pension or welfare benefit plan, program or arrangement, including any deferred
compensation arrangement, for directors, consultants or independent contractors
of the Business.
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3.16.2 A true and complete copy of each Benefit Plan and
related trust agreements and (to the extent applicable) a copy of each Benefit
Plan's current summary plan description and in the case of an unwritten Benefit
Plan, a written description thereof, has been furnished to Buyer. In addition,
to the extent applicable, Buyer has been provided a copy of the most recent
Internal Revenue Service ("IRS") determination letter issued to each Benefit
Plan and a copy of the most recent IRS Form 5500 together with all schedules and
accountants' statement filed, and actuarial reports prepared, on behalf of each
Benefit Plan.
3.16.3 Each Benefit Plan which is intended to be qualified
under Section 401(a) of the Code (as designated on Schedule 3.16.1) is so
qualified, and will remain so qualified upon the timely making of certain
amendments required by law during the applicable remedial amendment period, and
any trust forming a part of such a Benefit Plan is tax exempt under Section
501(a) of the Code. Each such Benefit Plan has been amended, as and when
necessary, to comply with the Tax Reform Act of 1986 and upon timely filing of
an Application for Determination with the Internal Revenue Service, will be
eligible to make further such amendments under the"remedial amendment period."
3.16.4 Except as disclosed in Schedule 3.16.4, each Benefit
Plan has been operated and administered in all material respects in accordance
with its terms and all applicable laws, including ERISA and the Code.
3.16.5 None of the Acquired Assets is subject to a Lien or Tax
under the Code or ERISA.
3.16.6 Neither Citizens nor any ERISA Affiliate and, to the
knowledge of the Seller Parties, no other Person, has taken any action or failed
to take any action with respect to any Benefit Plan that may subject Buyer or
any Benefit Plan under which liabilities may be assumed by Buyer under Sections
5.10, 5.11 or 5.12 ("Assumed Benefit Liabilities") to any material liability or
Tax under the Code or ERISA.
3.16.7 Neither Citizens nor any ERISA Affiliate has incurred
or expects to incur any withdrawal liability with respect to any Benefit Plan
which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of
ERISA, including any contingent liability under Section 4204 of ERISA or
withdrawal liability arising from the actions of Citizens or any ERISA Affiliate
contemplated by this Agreement. All contributions that Citizens or any ERISA
Affiliate have been obliged to make to any Benefit Plan, including any
multiemployer plan, have been duly and timely made.
3.16.8 There are no pending or, to the knowledge of the Seller
Parties, threatened claims (other than routine claims for benefits),
assessments, complaints, proceedings or investigations of any kind in any court
or governmental agency with respect to any Benefit Plan which could reasonably
be expected to give rise to a material liability to Buyer.
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3.16.9 Except as disclosed on Schedule 3.16.9, no Benefit Plan
provides benefits, including without limitation, death or medical benefits,
beyond termination of service or retirement other than (i) coverage mandated by
law, or (ii) death or retirement benefits under a Benefit Plan qualified under
Section 401(a) of the Code. Seller's Retiree Medical Plan contains provisions
permitting Seller to modify or terminate retiree medical benefits at any time,
without prior notice to any covered individual. Except with respect to retirees,
"grandfathered" employees and collectively bargained employees, Seller knows of
no reason why its ability to effect those provisions would be limited.
3.16.10 With respect to each Benefit Plan that is a "group
health plan" within the meaning of Section 607 of ERISA and that is subject to
Section 4980B of the Code, Citizens and each ERISA Affiliate have complied in
all material respects with the continuation coverage requirements of the Code
and ERISA.
3.17 Absence of Undisclosed Liabilities. Except as disclosed in
Schedule 3.17, Seller has no liabilities with respect to the Business which
would constitute Assumed Liabilities, either direct or indirect, matured or
unmatured or absolute, contingent or otherwise, except:
3.17.1 the liabilities which would decrease the Base Cash
Purchase Price pursuant to Section 2.6.5 to the extent assumed by Buyer at
Closing;
3.17.2 liabilities arising in the ordinary course of business
under any Contract or Permit or with respect to any agreement or instrument
included within the definition of Real Estate; and
3.17.3 those liabilities incurred, consistent with past
business practice, in or as a result of the normal and ordinary course of
business and reflected in the books and records related to the Business;
3.17.4 the obligations and liabilities set forth in Sections
5.9, 5.10, 5.11 and 5.12 hereof; and
3.17.5 those other liabilities, which individually and in the
aggregate, would not have a Material Adverse Effect.
3.18 No Pending Litigation or Proceedings. Except as disclosed in
Schedule 3.18, there are no actions, suits, investigations or proceedings
pending against or, to the best of the Seller Parties' knowledge, threatened,
against or affecting, Seller, the Business or any of the Acquired Assets before
any court or arbitrator or Authority which individually or in the aggregate,
would have a Material Adverse Effect. Except as disclosed in Schedule 3.18,
there are currently no outstanding judgments, decrees or orders of any court or
Authority against any of the Seller Parties, which relate to or arise out of the
conduct of the Business or the ownership, condition or operation of the Business
or the Acquired Assets (other than any PUC order relating to rates, tariffs and
similar
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matters arising in the ordinary course of business) which individually or in the
aggregate would have a Material Adverse Effect.
3.19 Supply of Utilities. Except as set forth on Schedule 3.19, the
Real Estate has adequate arrangements for supplies of electricity, gas, oil,
coal and/or sewer for all operations at the 1998 or current operating levels,
whichever is greater. Except as set forth on Schedule 3.19, there are no actions
or proceedings pending or, to the best of the Seller Parties' knowledge,
threatened, that would adversely affect the supply of electricity, gas, coal or
sewer to the Real Estate except for those which individually and in the
aggregate would not have a Material Adverse Effect.
3.20 Insurance. Schedule 3.20 lists the Seller Parties' policies and
contracts in effect as of the date hereof for insurance covering the Acquired
Assets or Assumed Liabilities and the operation of the facilities constituting
the Business owned or held by Seller, together with the risks insured against,
coverage limits and deductible amounts.
3.21 Relationship with Customers. As of the date hereof, Seller does
not have any current customer which accounted for more than 5% of the net sales
of the Business (taken together with the businesses being acquired by Buyer or
Affiliates of Buyer pursuant to the Related Purchase Agreements) for the
immediately preceding 12-month period.
3.22 WARN Act. Except as contemplated by Section 5.9 hereby or as
set forth in Schedule 3.22 hereto, within six months prior to the date hereof,
(i) Seller has not effectuated (a) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of the Business; or (b) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment or one or
more facilities or operating units within any site of employment or facility of
the Business; (ii) Seller has not been affected by any transaction or engaged in
layoffs or employment terminations with respect to the Business sufficient in
number to trigger application of any similar state or local law; and (iii) none
of Seller's employees who are employed in connection with the Business has
suffered an "employment loss" (as defined in the WARN Act) .
3.23 Condition of Assets. Except as set forth on Schedule 3.23, the
buildings, machinery, equipment, tools, furniture, improvements and other fixed
tangible assets of the Business included in the Acquired Assets, taken as a
whole and taken together with the similar assets included among the assets being
acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements, are in good operating condition and repair, reasonable wear and tear
excepted.
3.24 Brokerage. None of the Seller Parties or their Affiliates have
made any agreement or taken any other action which might cause any Person to
become entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to Buyer or
its Affiliates.
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3.25 All Assets. Except as set forth on Schedule 3.25 and for the
Excluded Assets, the Acquired Assets include all assets, rights, properties and
contracts the use of which is necessary to the continued conduct of the Business
by Buyer substantially in the manner as it was conducted prior to the Closing
Date, including the service of all utility customers in substantially the same
manner and at substantially the same service levels as provided by Seller on the
date hereof.
3.26 Year 2000 Matters. Citizens has (1) initiated a review and
assessment of all mission critical areas within the Business and related
operations (including those affected by suppliers and vendors) that it
reasonably believes could be adversely affected by the "Year 2000 Problem" (that
is, the risk that computer applications used by any Seller Party (or suppliers
and vendors) may be unable to recognize and properly perform date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem
all as set forth in Citizens' Annual report on Form 10-K for the fiscal year
ended December 31, 1998 and Citizens' Quarterly reports on Form 10-Q for the
periods ending March 31, 1999 and June 30, 1999, and (iii) to date, implemented
that plan substantially in accordance with that timetable. Seller has
contingency plans that are dedicated to ensuring that established and expected
levels of customer service are maintained without interruption, while core
business functionality is preserved during the millennium transition. With
respect to its suppliers and vendors, the foregoing representation and warranty
is expressly limited to matters known to Seller after making reasonable
inquiries of such suppliers and vendors. Seller makes no representation or
warranty with respect to the receipt or accuracy of any response received from
any vendor or supplier.
3.27 Product Liability. Except as disclosed in Schedule 3.27 and
except for those liabilities which individually or in the aggregate would not
have a Material Adverse Effect, there are no (a) liabilities of the Seller
Parties or their Affiliates, fixed or contingent, asserted or, to the knowledge
of the Seller Parties, unasserted, with respect to any product liability or
similar claim that relates to any product or service sold by Seller or the
Business to others or (b) liabilities of the Seller Parties or their Affiliates,
fixed or contingent, asserted or, to the knowledge of the Seller Parties
unasserted, with respect to any claim for the breach of any express or implied
product warranty or a similar claim with respect to any product or service sold
by Seller or the Business to others.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
Parent and Buyer jointly and severally represent and warrant to Seller as
follows:
4.1 Organization and Good Standing.
4.1.1 Parent is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
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4.1.2 Buyer is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation and has all
requisite corporate power and authority to own, lease and operate the Acquired
Assets and the Business. Buyer is qualified to do business and is in good
standing in all jurisdictions wherein the nature of the business conducted by it
or Buyer's ownership or use of assets and properties make such qualification
necessary, except such failures to be qualified or to be in good standing, if
any, which when taken together with all such failures of Buyer do not have a
material adverse effect on its ability to perform its obligations under this
Agreement and the Transaction Documents.
4.2 Authorization and Enforceability. Each of Buyer and Parent has
full corporate power and authority to execute, deliver and perform this
Agreement and the other Transaction Documents to which either of them is a
party. The execution, delivery and performance by Buyer and Parent of this
Agreement and the Transaction Documents to which Buyer and/or Parent is a party
have been duly authorized by all necessary corporate action on the part of each
of them. This Agreement has been duly executed and delivered by Buyer and
Parent, and as of the Closing Date the other Transaction Documents will be duly
executed and delivered by Buyer and Parent. This Agreement is a legal, valid and
binding obligation of Buyer and Parent, enforceable against them in accordance
with its terms, except as such enforceability may be limited by applicable laws
relating to bankruptcy, insolvency, fraudulent conveyance, reorganization or
affecting creditors' rights generally and except to the extent that injunctive
or other equitable relief is within the discretion of a court. As of the Closing
Date, each of the other Transaction Documents to which Buyer and Parent is a
party will be duly executed and delivered by Buyer and Parent and will
constitute the legal, valid and binding obligations of Buyer and Parent,
enforceable against them in accordance with its respective terms, except as such
enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief is
within the discretion of a court.
4.3 No Violation of Laws or Agreements. The execution, delivery and
performance of this Agreement and the Transaction Documents by Buyer and/or
Parent do not, and the consummation of the transactions contemplated hereby and
thereby will not, (a) contravene any provision of the Articles of Incorporation
or Bylaws of Buyer or the Certificate of Incorporation or Bylaws of Parent; or
(b) violate, conflict with, result in a breach of, or constitute a default (or
an event which would with the passage of time or the giving of notice, or both,
constitute a default) under, or result in or permit the termination,
modification, acceleration, or cancellation of (i) any indenture, mortgage, loan
or credit agreement, license, instrument, lease, contract, plan, permit,
authorization, proof of dedication or other agreement or commitment, oral or
written, to which Parent or Buyer is a party, or by which any of their assets or
properties may be bound or affected, except for such violations, conflicts,
breaches, terminations, modifications, accelerations, cancellations, interests
or rights which, individually or in the aggregate do not have a material adverse
effect on their respective ability to perform their obligations under this
Agreement and the Transaction Documents, or (ii) any judgment, injunction, writ,
award, decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or regulation to
which Buyer or Parent is subject other than those violations and conflicts which
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individually or in the aggregate do not have a material adverse effect on their
respective ability to perform their obligations under this Agreement and the
Transaction Documents.
4.4 Consents. No consent, approval or authorization of, or
registration or filing with, any Person (governmental or private) is required in
connection with the execution, delivery and performance by Buyer and Parent of
this Agreement, the other Transaction Documents, or the consummation of the
transactions contemplated hereby or thereby by Buyer or Parent except (i) as
required by the HSR Act, (ii) as specified on Schedule 3.9 and (iii) for such
consents, approvals, authorizations, registrations or filings, the failure to
obtain or make would not individually or in the aggregate have a material
adverse effect on their respective ability to perform their obligations under
this Agreement and the Transaction Documents.
4.5 Financing. Buyer and Parent have, and at the Closing Date, will
have sufficient resources to pay the Purchase Price, and Parent, Buyer or the
other Affiliates of Parent that are buyers of the assets and businesses being
acquired pursuant to the Related Purchase Agreements have, and at the Closing
Date, will have sufficient resources to pay the purchase prices set forth in the
Related Purchase Agreements.
4.6 Brokerage. None of Parent, Buyer or their Affiliates have made
any agreement or taken any other action which might cause any Person to become
entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to the
Seller Parties.
4.7 Insurance. Schedule 4.7 lists the policies and contracts in
effect as of the date hereof for casualty and property insurance covering
Buyer's assets and properties and the operation of Buyer's business, together
with the risks insured against, coverage limits and deductible amounts.
ARTICLE 5
ADDITIONAL COVENANT
5.1 Conduct of Business. Except (i) as otherwise specifically
permitted by this Agreement, (ii) as set forth in Schedule 5.1 hereto or (iii)
with the prior written consent of Buyer, from and after the date of this
Agreement and up to and including the Closing Date, each of the Seller Parties
agree that:
5.1.1 Seller shall conduct the Business as presently operated
and only in the ordinary course of business consistent with past practice.
5.1.2 They shall promptly inform Buyer in writing of any
specific event or circumstance of which they are aware, or of which they receive
notice, that has or is likely to have, individually or in the aggregate, taken
together with the other events or circumstances, a Material Adverse Effect on
the Acquired Assets or the Assumed Liabilities.
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5.1.3 Seller shall not:
(a) change or modify in any material respect existing
credit and collection policies, procedures and practices with respect to
accounts receivable;
(b) enter into any contract or commitment, waive any
right or enter into any other transaction (except in the ordinary course of
business) which would have a Material Adverse Effect;
(c) except in the event of service interruption,
emergency or casualty loss, commit to acquire subsequent to the Closing Date on
behalf of the Business any capital asset or group of capital assets costing in
excess of $1,000,000 that is not included in the capital budget of Seller for
fiscal year 2000 and which, if so acquired, would be included in the Acquired
Assets; commencing December 1, 1999, accept or receive customer advances for
construction in excess of $9,000,000 (when combined with customer advances
relating to the businesses being acquired by Buyer or Affiliates of Buyer
pursuant to the Related Purchase Agreements) per each of the next four
consecutive three-month periods unless pursuant to an existing tariff, Contract
or Permit of Seller; or sell or lease or agree to sell or lease or otherwise
dispose of any assets included in the Acquired Assets except in the ordinary
course of the conduct of the Business, consistent with past practice;
(d) except in the ordinary course of business,
consistent with past practice or as required under any of Seller's debt
instruments or indentures, mortgage, pledge or subject to any Lien (other than
Permitted Liens) any of the Acquired Assets;
(e) change any compensation or benefits or grant any
material new compensation or benefits payable to or in respect of any
Transferred Employee except (i) as required by law, (ii) in the ordinary course,
consistent with past practice and (iii) as required by the Collective Bargaining
Agreement in existence on the date hereof; provided, however, no individual
Employee shall in any event receive a compensation increase in excess of seven
percent (7%) except as required by the Collective Bargaining Agreement in
existence on the date hereof;
(f) other than in the ordinary course of business
consistent with past practice, sell or otherwise transfer any assets necessary,
or otherwise material to the conduct of, the Business which would constitute
Acquired Assets;
(g) change the Seller's method of accounting or keeping
its books of account or accounting practices with respect to the Business,
except as required by GAAP or any Authority;
(h) intentionally and wilfully take or omit to take any
action which if taken or omitted prior to the date hereof would constitute or
result in a breach of any representations or warranties set forth in Sections
3.1, 3.2, 3.3, 3.4, 3.7, 3.8, 3.10, 3.14, 3.16 and
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3.25 hereof (it being understood that the failure to cure a breach shall not, by
itself, be an intentional and wilful omission to take action); or
(i) prepay, redeem, retire, refund or otherwise
extinguish any of the Assumed Indebtedness.
5.2 Negotiations. Neither Citizens nor any Person controlled by
Citizens or under common control with Citizens (each such person being a
"Section 5.2 Affiliate"), nor any officer, director, employee, representative or
agent of Citizens or any of their Section 5.2 Affiliates, shall, directly or
indirectly, solicit or initiate or participate in any way in discussions or
negotiations with, or provide any information or assistance to, or enter into an
agreement with any Person or group of Persons (other than Parent, Buyer or any
Person controlled by Parent or Buyer or under common control with Parent, Buyer
or any Persons providing financing to the parties hereto in connection with
facilitating the consummation of the transactions contemplated by this
Agreement) concerning any acquisition, merger, consolidation, liquidation,
dissolution, disposition or other transaction (or series of such transactions)
that would result in the transfer to any such Person or group of Persons of ten
percent (10%) of the Acquired Assets (as measured by net book value of such
assets on the date of each such transaction) or the acquisition, merger,
consolidation, liquidation, dissolution, disposition or other transaction (or
series of such transactions) involving the Seller Parties, if such acquisition,
merger, consolidation, liquidation, dissolution, disposition or other
transaction (or series of such transactions) would be inconsistent, in any
respect, with the obligations of the Seller Parties hereunder (any of the
foregoing transactions, a "Competing Transaction").
5.3 Disclosure Schedules. As promptly as practicable, the Seller
Parties will provide Buyer with a supplement or amendment to the Disclosure
Schedules with respect to any matter, condition or occurrence which is required
to be set forth or described in the Disclosure Schedules. For the avoidance of
doubt, a matter, condition or occurrence shall only be "required" to be set
forth or described in the Disclosure Schedules if the failure to be so disclosed
would result in a breach of the applicable representation or warranty (qualified
by Material Adverse Effect where applicable) on the date hereof or on the
Closing Date. In addition, Seller shall have the right at any time and from time
to time prior to the Closing to supplement or amend the Disclosure Schedules.
Seller may provide Disclosure Schedules with respect to any representation or
warranty of this Agreement whether or not a specific schedule is referred to
therein. In the event that any supplement or amendment of such Disclosure
Schedules shall be provided later than five (5) business days prior to the
Closing Date, the Buyer shall have the right to delay the Closing for a period
of five (5) business days in order for Buyer to review such supplement or
amendment. No such supplement or amendment shall be deemed to cure any breach of
or alter any representation or warranty made in this Agreement so as to permit
the Closing to occur unless Buyer specifically agrees thereto in writing. The
Seller Parties shall promptly inform Buyer, and Buyer will promptly inform the
Seller Parties of any fact or event which comes to their attention, the
existence of which constitutes or likely will constitute a breach in any
material respects of any representation or warranty in this Agreement. In
addition, Parent will, within five (5) days of receipt thereof, forward to
Seller (i) any title report Buyer receives from a title company with respect to
the Real Estate and (ii) any written
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communication regarding a specific Lien or title defect affecting a specifically
identified parcel of the Real Estate sent to the President, Treasurer or General
Counsel of Parent or the President or Corporate Counsel of any other Buyer
Party, and sent by a party other than the Seller Parties, their legal counsel,
financial advisors or representatives.
5.4 Mutual Covenants. The parties mutually covenant from the date of
this Agreement to the Closing Date (and subject to the other terms of this
Agreement, including Section 5.8 hereof):
5.4.1 to cooperate with each other in determining whether
filings are required to be made or consents required to be obtained in any
jurisdiction in connection with the consummation of the transactions
contemplated by this Agreement and in making or causing to be made any such
filings promptly and in seeking to obtain timely any such consents;
5.4.2 to use all reasonable efforts to obtain promptly the
satisfaction (but not waiver) of the conditions to the Closing of the
transactions contemplated herein (each party hereto shall furnish to the other
and to the other's counsel all such information as may be reasonably required in
order to effectuate the foregoing action); and
5.4.3 to advise the other parties promptly if such party
determines that any condition precedent to its obligations hereunder will not be
satisfied in a timely manner.
5.5 Filings and Authorizations. The parties hereto will as promptly
as practicable, make or cause to be made all such filings and submissions under
laws, rules and regulations applicable to it or its Affiliates as may be
required to consummate the terms of this Agreement, including all notifications
and information to be filed or supplied pursuant to the HSR Act and with the
applicable public utility commission (each, a "PUC"). Any such filings and
supplemental information will be in substantial compliance with the requirements
of the applicable law, rule or regulation. Each of Parent and Buyer, on the one
hand, and the Seller Parties, on the other, shall furnish to the other such
necessary information and reasonable assistance as the other may request in
connection with its preparation of any filing or submission to the PUC or which
is necessary under the HSR Act. The Seller Parties, on the one hand and Buyer
and Parent, on the other, shall keep each other apprised of the status of any
communications with, and inquiries or requests for additional information from,
any Authority, including the PUC, the United States Federal Trade Commission
("FTC") and the Antitrust Division of the United States Department of Justice
(the "Antitrust Division"), and shall comply promptly with any such inquiry or
request. Each of Citizens, Seller, Parent and Buyer will use its reasonable
efforts to obtain any clearance required under the HSR Act and from the PUC for
the purchase and sale of the Acquired Assets in accordance with the terms and
conditions hereof. Notwithstanding the foregoing, nothing contained in this
Agreement will require or obligate any party or their respective Affiliates: (i)
to initiate, pursue or defend any litigation (or threatened litigation) to which
any Authority (including the PUC, the Antitrust Division and the FTC) is a
party; (ii) to agree or otherwise become subject to any material limitations on
(A) the right of Buyer or its Affiliates effectively to control or operate the
Business
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or the right of Seller or its Affiliates effectively to control or operate
Citizens' other businesses, (B) the right of Buyer or its Affiliates to acquire
or hold the Business or the right of Seller or its Affiliates to hold the
Excluded Assets or Citizens' other businesses, or (C) the right of Buyer to
exercise full rights of ownership of the Business or all or any material portion
of the Acquired Assets or the right of Citizens to exercise full rights of
ownership of Citizens' other businesses or all or any material portion of the
Excluded Assets; or (iii) to agree or otherwise be required to sell or otherwise
dispose of, hold separate (through the establishment of a trust or otherwise),
or divest itself of all or any portion of the business, assets or operations of
Citizens, Seller, Parent, Buyer, any Affiliate of Buyer or the Business. The
parties agree that no representation, warranty or covenant of Buyer, Parent, or
Citizens contained in this Agreement shall be breached or deemed breached as a
result of the failure by Parent and Buyer on the one hand or the Seller Parties,
on the other, to take any of the actions specified in the preceding sentence.
5.6 Public Announcement. No party hereto shall make or issue, or
cause to be made or issued, any public announcement or written statement
concerning this Agreement or the transactions contemplated hereby without the
prior written consent of the other party (which will not be unreasonably
withheld or delayed), unless counsel to such party advises that such
announcement or statement is required by law (in which case the parties shall
make reasonable efforts to consult with each other prior to such required
announcement).
5.7 Further Assurances. Each of Citizens, Parent, Buyer and Seller,
from time to time after the Closing, at Buyer's or Seller's request, will
execute, acknowledge and deliver to the applicable person such other instruments
of conveyance and transfer and will take such other actions and execute such
other documents, certifications, and further assurances as Buyer or Seller, as
the case may be, may reasonably require in order to transfer, in accordance with
the terms and conditions of this Agreement, more effectively in Buyer or to put
Buyer more fully in possession of any of the Acquired Assets or better to enable
Buyer to complete, perform and discharge any of the Assumed Liabilities. Each
party shall cooperate and deliver such instruments and take such action as may
be reasonably requested by the other party in order to carry out the provisions
and purposes of this Agreement and the transactions contemplated hereby.
5.8 Cooperation.
5.8.1 Parent, Buyer, Citizens and Seller shall cooperate and
shall cause their respective Affiliates, officers, employees, agents and
representatives to cooperate to ensure the orderly transition of the Business
from Seller to Buyer and to minimize the disruption to the Business resulting
from the transactions contemplated hereby.
5.8.2 Without limiting the foregoing, neither Parent and
Buyer, nor Citizens and Seller (nor any of their respective Affiliates) shall
make any filings pursuant to federal or state securities laws ("Securities
Filings") or make any consent solicitations to holders of Assumed Indebtedness
which include any information about Seller, Buyer (or their respective
Affiliates) or the transactions contemplated hereby without consulting with the
other
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party and providing the other party a reasonable opportunity to review and
comment on such information, it being understood and agreed that any party may
so disclose such information in its reasonable judgment to the extent such
party's counsel advises it that such disclosure is advisable under applicable
law. Each of Parent, Buyer, Citizens and Seller shall, and shall cause their
respective Affiliates to, comply with all applicable federal and state
securities laws in connection with this Agreement and the transactions
contemplated hereby (including any solicitation of consents of holders of
Assumed Indebtedness), and all information supplied by any party for inclusion
in any Securities Filing or consent solicitation, including, without limitation,
any proxy or information statement, or any registration statement on Form S-4
shall be true and correct in all material respect and shall not contain any
untrue statement of a material fact or omit to state any material fact which is
required to be stated therein or which is necessary to make the statements
contained therein not misleading in light of the circumstances in which they
were made.
5.8.3 During the first 90 days after the Closing Date (180
days for Trademarks on tanks), Buyer shall have the right to use all of the
logos, trademarks and trade identification of Seller as are located at the Real
Estate or on the Acquired Assets (collectively, the "Trademarks"). Buyer's use
of the Trademarks shall be in accordance with such reasonable quality control
standards as may be promulgated by Seller and provided to Buyer. If Seller shall
notify Buyer in writing of Buyer's material failure to comply with such
reasonable quality control standards and Buyer continues to not comply with such
reasonable quality control standards for more than 20 days after receipt of such
notice, Seller shall have the right to terminate Buyer's right under this
Section 5.8.3 to use the Trademarks.
5.8.4 Seller shall give Buyer and its representatives
(including Buyer's Accountants, consultants, counsel and employees), upon
reasonable notice and during normal business hours, full access to the
properties, contracts, employees, books, records and affairs of Seller to the
extent relating to the Business and the Acquired Assets, and shall cause its
officers, employees, agents and representatives to furnish to Buyer all
documents, records and information (and copies thereof), to the extent relating
to the Business and the Acquired Assets, as Buyer may reasonably request. Except
to the extent disclosed in the Disclosure Schedules in accordance with Sections
5.3 and 8.4, no investigation or receipt of information by Buyer pursuant to, or
in connection with, this Agreement, shall diminish or obviate any of the
representations, warranties, covenants or agreements of the Seller Parties under
this Agreement or the conditions to the obligations of Parent or Buyer under
this Agreement. All information provided to Buyer under this Agreement shall be
held subject to the terms and conditions of the Confidentiality Agreement dated
August 2, 1999 between Citizens and Parent.
5.9 Employees; Employee Benefits.
5.9.1 Schedule 5.9.1 lists divisions and the number of all
salaried and hourly employees actively employed (as of the date of this
Agreement) in each division by Seller or any of its Affiliates whose primary
responsibilities relate to the Business. Schedule 5.9.1 lists job
classifications and number of employees in each job classification of those
employees whose terms
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and conditions of employment are subject to the Collective Bargaining Agreement
("Union Employees"). All individuals referred to on Schedule 5.9.1 are herein
referred to as the "Employees." No later than March 1, 2000, Buyer and Seller
shall determine the number of Employees to whom Buyer will offer employment,
which number shall be at least equal to 250 (when combined with offers made by
Buyer or Affiliates of Buyer to employees of Affiliates of Seller in connection
with the Related Purchase Agreements) (the "Base Number"), and such additional
number of Employees, if any, whom Buyer also wishes to employ. Upon
determination of such Employees, Seller will supplement Schedule 5.9.1 with the
name, job title, unused vacation, current base salary or hourly wage, date of
hire and assigned location of each Transferred Employee (as that term is defined
below). At the Closing, Seller shall provide an updated Schedule 5.9.1 which
shall disclose all the information required under the preceding sentence as of
the most recent practicable date prior to Closing.
5.9.2 Effective as of the Closing, Buyer shall offer
employment to at least the Base Number of those employees included on Schedule
5.9.1. All Employees to whom Buyer offers employment and who accept such
employment are herein referred to as the "Transferred Employees." In the event
any Employees do not accept Buyer's offer of employment, Buyer shall offer
employment to such additional employees (the identity of whom shall be
determined by Buyer and Seller) as are necessary to bring the total number of
Transferred Employees to the Base Number. Subject to the provisions of this
Section 5.9 and Section 5.12, Buyer shall provide each Transferred Employee with
base compensation at least equal to that provided by Seller on the Closing Date,
and employee benefits which are substantially comparable to those provided by
Buyer to its other similarly situated employees. Except as otherwise provided
under the terms of any assumed collective bargaining agreement and under terms
of Section 5.12, Buyer shall provide each Union Transferred Employee with
compensation at least equal to that provided by Seller immediately prior to the
Closing Date and with the benefits provided to Buyer's similarly situated
collectively bargained employees. On and after the Closing Date, Buyer shall
assume Seller's obligations under, and be bound by the provisions of, the
collective bargaining agreement between Citizens Utilities Company of Ohio and
the International Union of Operating Engineers, Local Union 18S (the "Ohio
Union"), dated March 12, 1997 (the "Ohio Agreement"), to the extent of
provisions covering Transferred Employees, as in effect on the date of this
Agreement. With respect to any amendment, extension, or renegotiation of the
Ohio Agreement, the contract as so amended, extended or renegotiated will be
assumed if, but only if, (i) in connection with such amendment, extension or
renegotiation, the Ohio Union agrees to substitute for Seller's employee pension
plan (to the extent required to be provided under the Ohio Agreement) Parent's
employee pension plan, and (ii) the other terms and conditions of those
collective bargaining agreements pertaining to the Transferred Employees on the
Closing Date are substantially identical to the terms and conditions of such
Collective Bargaining Agreement as in effect on the date of this Agreement. Each
collective bargaining agreement pertaining to Transferred Employees shall be
identified on a Schedule 5.9.2 to be prepared by Seller and submitted to Buyer
on or before the Closing Date. Seller shall cooperate with Buyer in Buyer's
efforts to contact the unions representing Transferred Employees. Buyer agrees
(i) to credit the service of each Transferred Employee with Seller and its
Affiliates before the Closing, for all purposes under all employee benefit plans
and arrangements maintained
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by Buyer (and/or any of its Affiliates) for the benefit of any Transferred
Employee (including without limitation for purposes of attainment of retirement
dates and payment of optional forms of benefits), other than for purposes of
benefit accrual under any "defined benefit plan", within the meaning of Section
3(35) of ERISA, (ii) to provide accrued vacation to Transferred Employees in the
year in which the Closing occurs, equal to the excess, if any, of the accrued
vacation to which the Transferred Employee would otherwise be entitled under
Seller's vacation plan during that year over the amount of accrued vacation the
Transferred Employee had taken during that year, and, thereafter, to provide
vacation to Transferred Employees on the same basis as provided to similarly
situated employees of Buyer, with service credit as provided in (i) hereof,
(iii) to provide severance benefits to Transferred Employees terminated by Buyer
that are substantially comparable to those benefits provided by Buyer to
similarly situated employees, and (iv) to comply with all applicable legal
requirements with respect to Union Employees (including without limitation any
applicable duty to bargain with those employees' bargaining representative).
Buyer shall be responsible for providing to each Transferred Employee vacation
in an amount equal to the Transferred Employee's vacation entitlement for the
year of Closing reduced by the number of vacation days such Transferred Employee
has taken on or before Closing. Nothing in this Section 5.9 shall limit Buyer's
authority to terminate the employment of any Transferred Employee at any time
and for whatever reason. Until the second anniversary of the Closing Date,
neither Seller nor any of its Affiliates shall directly or indirectly solicit or
offer employment to any Transferred Employee then employed by Buyer or its
Affiliates.
5.9.3 Except as specifically provided in Sections 5.9 and
5.12, Seller shall be solely responsible for any liability, claim or expense
(including reasonable attorneys' fees) related to compensation or employee
benefits incurred by Buyer as the result of any claims against Buyer or its
Affiliates that are made by any Employees or Former Employees (or the
Beneficiary of any Employee or Former Employee) who are not made offers to
become employees of Buyer or its Affiliates including, without limitation,
claims asserted against Buyer as a result of their termination by Seller or its
Affiliates.
5.9.4 Seller shall be solely responsible for any liability,
claim or expense with respect to compensation or employee benefits of any nature
(including, but not limited to, workers compensation claims or the benefits
provided under the Benefit Plans, whether paid before or after the Closing) owed
to any Transferred Employee or the Beneficiary of any Transferred Employee or
any Water Sector Retiree or the Beneficiary of any Water Sector Retiree that
arises out of or relates to (i) the employment relationship between Seller or
any of its Affiliates and such Transferred Employee or Beneficiary or (ii) any
benefit claim or expense (including medical expenses) incurred before Closing
under any Benefit Plan. For purposes of this Agreement, a medical expense shall
be deemed to be incurred when the services giving rise to a claim are rendered,
regardless of when billed or paid. Without limiting the foregoing, Seller shall
be responsible for the payment of any employee benefits that become due to any
Transferred Employees as a result of their termination by Seller.
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5.9.5 Except as otherwise specifically provided in Section
5.9, 5.11 or 5.12, Buyer shall be solely responsible for any liability, claim or
expense with respect to compensation or employee benefits of any nature
(including, but not limited to, workers compensation, claims or the benefits
provided under any employee benefit plan or arrangement of Buyer incurred after
Closing) owed to any Transferred Employee or Beneficiary of any Transferred
Employee or any Water Sector Retiree or Beneficiary of any Water Sector Retiree
that arises out of or relates to (i) the employment relationship between Buyer
or any of its Affiliates and any Transferred Employee or (ii) any benefit claim
or expense (including medical expense) incurred after Closing under any employee
benefit plan sponsored or contributed to by Buyer or an ERISA Affiliate after
Closing. Notwithstanding the foregoing, Buyer shall not be responsible for the
payment of any employee benefits that become due to any Transferred Employees
under any Benefit Plan (other than the Assumed Benefit Liabilities).
5.9.6 Buyer agrees to reimburse Seller for its proportionate
share (as defined below) of any amount in excess of $1,000,000 paid by Seller as
severance under Citizens' severance plan as in effect on the date hereof to any
Employees (when such amount paid by Seller is aggregated with amounts paid by
Citizens to other employees as referenced in Section 5.9.6 of the Related
Purchase Agreements) provided (i) Buyer does not hire such Employees in
accordance with the provisions of Sections 5.9, 5.11 and 5.12 and (ii) Seller
provides notice to those Employees on or before the Closing Date to the effect
that their employment will be terminated on or shortly after the Closing Date.
Buyer will pay such reimbursement to Citizens within 5 days after receipt of a
list of the Employees showing which are entitled to severance pay, the amounts
of that severance pay and certifying that those amounts have been paid. The
Buyer's "proportionate share" means the amount obtained by multiplying the
amount in excess of $1,000,000 by a fraction, the numerator of which is the
amount of severance paid by Seller to Employees under Section 5.9.6 of this
Agreement and the denominator of which is the sum of (i) the amount paid by
Seller to Employees under Section 5.9.6 of this Agreement and (ii) the aggregate
amount paid by Citizens under Section 5.9.6 of each of the Related Purchase
Agreements.
5.9.7 Until the second anniversary of the Closing Date, Buyer
shall not directly or indirectly solicit or offer employment to any active
employee of Seller, other than the Transferred Employees.
5.10 Employee Pension Plan.
5.10.1 At least fifteen days prior to the Closing Date, Seller
shall take any and all actions necessary to cease benefit accruals and fully
vest all Transferred Employees in their accrued benefits under the Citizens
Pension Plan ("Seller's Pension Plan" or "Citizens Pension Plan"). Seller shall
retain liability and related assets for benefits accrued through the Closing
Date by Transferred Employees under Seller's Pension Plan.
5.10.2 As of the Closing Date except as may be required under
the Ohio Agreement, Transferred Employees shall be covered under the American
Pension Plan, and shall be
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given credit for service with Seller and its Affiliates for eligibility,
vesting, attainment of retirement dates, subsidized benefits, and entitlement to
optional forms of payment, but not for accrual of benefits.
5.11 Employee Savings Plan.
5.11.1 Effective upon the date of the transfer described in Section
5.11.2, subject to the terms and conditions of this Agreement, Parent shall
cause the Savings Plan for Employees of American Water Works Company, Inc. (the
"American Savings Plan") to assume the liability of the Seller's 401(k) Plan for
the account balances of those Transferred Employees participating in the
Seller's 401(k) Plan on the Closing Date (the "Affected Participants") that are
transferred to the American Savings Plan. As of the Closing Date, Affected
Participants shall be 100% vested in their account balances under the Seller's
401(k) Plan. Transferred Employees shall be given credit under the American
Savings Plan for service with Seller and its Affiliates for eligibility,
vesting, attainment of retirement dates, contribution levels and optional forms
of benefit payment, to the same extent that credit for such service has been
given by Seller and its Affiliates.
5.11.2 Buyer shall deliver to Seller as soon as practicable,
but in no event later than ninety (90) days after Closing (i) a certified copy
of the American Savings Plan and any amendment necessary to effectuate the
transfer of assets and the assumption of account balances in accordance with
this Section 5.11, (ii) a certified copy of the trust agreement for the American
Savings Plan; (iii) the most recent favorable determination letter from the IRS
with respect to the American Savings Plan; and (iv) an opinion from Buyer's
legal counsel acceptable to Seller that the American Savings Plan, as so
amended, complies or will comply on a timely basis with the applicable
provisions of the Code relating to the qualification of, and the transfer of
assets and assumption of benefit liabilities by, the American Savings Plan.
Seller shall deliver to Buyer as soon as practicable, but in no event later than
ninety (90) days after Closing, an opinion from Seller's legal counsel
acceptable to Buyer that the Seller's 401(k) Plan complies or will comply on a
timely basis with the applicable provisions of the Code relating to the
qualification of the Seller's 401(k) Plan, and the transfer of assets to, and
assumptions of benefit limitations by, the American Savings Plan. As soon as
practicable, but in any event within 120 days after Closing, Seller shall cause
the trustee of the Seller's 401(k) Plan to transfer in cash and promissory notes
representing outstanding loans to Affected Participants to the trustee of the
American Savings Plan an amount equal to the sum of the account balances of the
Transferred Employees (the "Transferred Accounts") calculated as of the most
recent valuation date under the Seller's 401(k) Plan (which shall, in any event,
be within thirty (30) days of the transfer). Both the Seller Parties and Buyer
will file any IRS Form 5310A that is required with respect to the transfer
contemplated by this Section 5.11 date at least 30 days prior to the transfer.
Upon the transfer described in this Section 5.11, Buyer and the American Savings
Plan shall be responsible for all benefits attributable to the Transferred
Accounts to which Transferred Employees were entitled under the Seller's 401(k)
Plan as of such date, and Seller and the Seller's 401(k) Plan shall cease to
have any liability, contingent or otherwise, for such benefits.
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5.12 Welfare Benefits.
5.12.1 Within sixty (60) days after the Closing, Seller agrees
to transfer to trusts established by Buyer under Section 501(c)(9) of the Code
("Buyer's VEBAs") the amount held under any trust established by Seller under
Section 501(c)(9) of the Code ("Seller's VEBAs") to fund post-retirement health
care and life insurance benefits attributable to the Business, including Former
Employees identified on Schedule 5.12 (the "Water Sector Retirees") and any
"grandfathered" Transferred Employees as set forth on Schedule 5.12. Buyer
agrees to provide post-retirement health care and life insurance benefits to the
Water Sector Retirees and, as applicable, Transferred Employees who become
eligible for such benefits after Closing and further agrees that Buyer's VEBAs
will apply an amount at least equal to the sum of the assets (and earnings
thereon calculated at the rate of return generated by Buyer's VEBAs) transferred
from Seller's VEBAs to provide post-retirement health care and life insurance
benefits for such employees. Upon Closing, Buyer shall be responsible for all
obligations of the Seller Parties to provide post-retirement health care and
life insurance benefits "incurred" (within the meaning of Section 5.9.4) after
the Closing and the Seller Parties shall cease to have any liability, contingent
or otherwise, for such benefits. In consideration of such transfer, Buyer agrees
not to terminate or materially modify those post-retirement health and life
benefit provisions applicable to such grandfathered Transferred Employees and
Water Sector Retirees as such provisions are in effect immediately prior to the
Closing Date.
5.12.2 Buyer shall take all action necessary and appropriate
to ensure that, as of the Closing Date, Buyer provides medical, health, dental,
flexible spending account, accident, life, short-term disability, long-term
disability and other employee welfare benefits (including retiree medical
benefits) to Transferred Employees that, in the case of Non-Union Transferred
Employees and Union Transferred Employees are substantially similar to those
benefits provided by Buyer under its corresponding welfare benefit plans (the
"Buyer's Welfare Plans"). For purposes of determining eligibility to
participate, and entitlement to benefits, in each Buyer Welfare Plan, each
Transferred Employee shall be credited with service, determined under the terms
of the corresponding welfare plans maintained by Seller on the Closing Date
(hereinafter referred to collectively as the "Seller Welfare Plans"). Any
restrictions on coverage for pre-existing conditions, waiting periods, and
requirements for evidence of insurability under the Buyer Welfare Plans shall be
waived in Buyer's Welfare Plans for Transferred Employees and retirees of the
Water Sector and their respective Beneficiaries, and Transferred Employees and
retirees of the Water Sector and their respective Beneficiaries shall receive
credit under the Buyer Welfare Plans for co-payments, payments under a
deductible limit made by them, and for out-of-pocket maximums applicable to them
during the plan year of the Seller Welfare Plan in which the Closing Date
occurs. As soon as practicable after the Closing Date, Seller shall deliver to
Buyer a list of the Transferred Employees and retirees of the Water Sector and
their respective Beneficiaries who had credited service under a Seller Welfare
Plan, together with each such individual's service, copayment, deductible and
out-of-pocket payment amounts under such plan.
5.12.3 Seller shall transfer to Buyer's flexible benefits plan
any balances standing to the credit of Transferred Employees under Seller's
flexible benefits plan as of the
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Closing Date. Seller shall provide to Buyer prior to the Closing Date a list of
those Transferred Employees that have participated in the health or dependent
care reimbursement accounts of Seller, together with their elections made prior
to the Closing Date with respect to such Account, and balances standing to their
credit as of the Closing Date.
5.13 Taxes. The Seller Parties, on the one hand, and Parent and
Buyer, on the other, shall (a) each provide the other with such assistance as
may reasonably be requested by either of them in connection with the preparation
of any Tax return, any audit or other examination by any taxing authority or any
judicial or administrative proceeding with respect to Taxes; (b) each retain and
provide the other with any records or other information which may be relevant to
such return, audit, examination or proceeding, and (c) each provide the other
with any final determination of any such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax return of
the other for any period (which shall be maintained confidentially). Without
limiting the generality of the foregoing, Parent and Buyer, on the one hand, and
the Seller Parties, on the other, shall retain, until the applicable statutes of
limitations (including all extensions) have expired, copies of all Tax returns,
supporting workpapers, and other books and records or information which may be
relevant to such returns for all Tax periods or portions thereof ending before
or including the Closing Date, and shall not destroy or dispose of such records
or information without first providing the other party with a reasonable
opportunity to review and copy the same.
5.14 Intentionally Omitted.
5.15 Citizens' Guarantees and Surety Instruments. Each of Parent and
Buyer shall use its reasonable efforts to assist Citizens in obtaining full and
complete releases on the guarantees, letters of credit, bonds and other surety
instruments listed on Schedule 5.15. For purposes of this Section 5.15 and
Section 5.16, reasonable efforts: (a) shall include Parent's or Buyer's
assumption of the Contracts and the Permits on the terms set forth in this
Agreement; and (b) shall include an obligation on the part of Parent or Buyer to
provide a guarantee, letter of credit, bond or other required surety instrument
at Closing to the extent required by any Contract or Permit and in general to
provide an equivalent surety instrument to be substituted for any surety
instrument provided by Citizens to any beneficiary in connection with the
Business.
5.16 Intentionally Omitted.
5.17 Schedule of Permits. No later than March 13, 2000, Citizens
shall deliver to Buyer a schedule, to be identified as Schedule 5.17, which sets
forth all material Permits required for the use of the Acquired Assets and the
operation of the Business by Buyer substantially in the manner as it was
conducted prior to the date hereof. For purposes of this Section 5.17, material
Permits shall include those required for the service of all utility customers at
substantially the same service levels as provided by Seller on the date of this
Agreement. All Permits listed on Schedule 5.17 that are required to be listed on
Schedule 3.3 or Schedule 3.9 shall be so designated. Seller has made or will
make prior to the Closing Date timely applications for renewals of all such
Permits
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listed on Schedule 5.17, which under applicable law must be filed prior to the
Closing Date to maintain the Permits listed on Schedule 5.17 in full force and
effect.
5.18 Title Information. No later than March 13, 2000, Seller shall
use its reasonable efforts to deliver to Buyer true, correct and complete copies
of all existing title policies, surveys, leases, deeds, instruments and
agreements relating to title to the Real Estate in Seller's possession.
5.19 Transaction with Related Parties. Effective as of the Closing
Date, except as otherwise provided in Sections 5.9 through 5.12, 5.15, 5.24,
5.26, 5.27 and 2.7.1(j) of this Agreement, Seller shall have terminated and
canceled all contracts, commitments and agreements (including employment
relationships) relating to the Acquired Assets or the Business, between Seller,
any Affiliate of Seller (including Citizens), any officer or director of any
Seller Party, or any Affiliate of the foregoing. Seller shall be solely liable
for any contractual or other claims, express or implied arising out of the
termination and cancellation of any of the foregoing raised by any party
thereto.
5.20 Approval by Citizens. Citizens shall, as the sole owner of
common stock of each other Seller Party, vote all of such shares of common stock
to approve this Agreement and the transactions contemplated hereby.
5.21 Supplemental Information
5.21.1 Citizens shall provide Buyer, within fifteen (15) days
after the execution or the date of receipt thereof, a copy of (a) each Contract
(other than with respect to which the Business' total annual liability or
expense is less than $100,000 per such Contract) entered into by Seller after
the date hereof and prior to the Closing Date; (b) a copy of any written notice
for assessments for public improvements against the Real Estate received after
the date hereof and prior to the Closing Date; (c) a copy of the filing of any
condemnation, expropriation, eminent domain or similar proceeding affecting all
or any portion of any of the Real Estate received after the date hereof but
prior to the Closing Date; and (d) a copy of any Contract where Seller is a
lessee relating to the use or occupancy of the Real Estate and where such
Contract involves annual payments in excess of $100,000 entered into by Seller
after the date hereof and prior to the Closing Date.
5.21.2 Within fifteen (15) days after the receipt of notice of
violation, Citizens shall notify Buyer of any violations of state or federal
drinking water standards which, if such violations existed on the date hereof,
would be required to be disclosed pursuant to Section 3.8.10 hereof, and shall
promptly notify Buyer of the actions proposed to be taken by Seller to correct
or otherwise respond to such violations.
5.22 Non-Competition. The Seller Parties agree that for a period of
fifteen (15) years after the Closing Date no Seller Party nor any Affiliate of a
Seller Party shall directly or indirectly own, manage, operate, control or
participate in the ownership, management, operation or control of or be
otherwise connected in any substantial manner with any entity (other than Buyer
and
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its successors and assigns) engaged in the business of storing, supplying and
distributing water in the States in which Buyer acquires any Acquired Assets,
whether or not such business is subject to regulation by a PUC (it being
understood that the individual directors of Seller and Citizens are not
Affiliates of a Seller Party).
5.23 Intentionally Omitted.
5.24 IDRB Obligations.
(a) Buyer's IDRB Obligations. Each party acknowledges that (x)
Citizens is and after the Closing Date shall continue to be and shall remain the
primary obligor with respect to the Retained IDRB Indebtedness outstanding
immediately after the Closing Date to the same extent as though no sale of the
Acquired Assets had been made and that Parent and Buyer shall have no payment
obligations with respect to such Retained IDRB Indebtedness, and (y) the IDRB
Documents require Citizens not to take or permit to be taken any action which
would have the effect, directly or indirectly, of subjecting the interest on any
of the Bonds to federal or state (other than Illinois) income taxation.
Accordingly, Parent and Buyer covenant and agree at Closing to execute and
deliver to Citizens an agreement substantially in the form attached hereto as
Exhibit D, with respect to each issuer of Bonds relating to Retained IDRB
Documents that will be outstanding after the Closing Date, and (ii) so long as
any such Bonds are outstanding, to cause the Acquired Assets that were acquired,
constructed, improved or equipped with the proceeds of such Bonds to be used as
facilities for the furnishing of water (that is, (a) the water is or will be
made available to members of the general public (including electric utility,
industrial, agricultural, or commercial users) and (b) either the facility is
operated by a governmental unit or the rates for the furnishing or sale of the
water have been established or approved by a State or political subdivision
thereof, by an agency or instrumentality of the United States, or by a public
service or public utility commission or other similar body of any State or
political subdivision thereof) or sewage facilities within the meaning of
Section 103(b)(4)(E) of the 1954 Code, or Section 142(a)(5) of the Code as the
case may be.
(b) IDRB Construction Funds. Citizens hereby represents that
there will be no construction funds or unspent bond proceeds available after the
Closing Date that are held by the trustees of the Bonds relating to the Retained
IDRB Indebtedness.
(c) Consents and Opinions. The parties shall use their
respective best commercially reasonable efforts to obtain all consents and legal
opinions as may be required under the Retained IDRB Documents to enable Seller
to retain all Retained IDRB Indebtedness and to sell the Acquired Assets to
Buyer.
5.25 Cooperation with Respect to Like-Kind Exchange. Buyer agrees
that Seller may, at Seller's written election delivered to Buyer no later than
five (5) days prior to the Closing Date, direct that all or a portion of the
Initial Cash Payment be delivered to a "qualified intermediary" as defined in
Treasury Regulation ss.1.1031(k) - (g)(4) as to enable Seller's
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relinquishment of the Acquired Assets to qualify as part of a like-kind exchange
of property covered by Section 1031 of the Code. If Seller so elects, Buyer
shall reasonably cooperate with Seller (but without being required to incur any
out-of-pocket costs in the course thereof) in connection with Seller's efforts
to effect such like-kind exchange, which cooperation shall include, without
limitation, taking such actions as Seller reasonably requests in order to enable
Seller to qualify such transfer as part of a like-kind exchange of property
covered by Section 1031 of the Code (including any actions reasonably required
to facilitate the use of a "qualified intermediary"), and Buyer agrees that
Seller may assign all or part of its rights (but no obligations) under this
Agreement to a person or entity acting as a qualified intermediary to qualify
the transfer of the Assets as part of a like-kind exchange of property covered
by Section 1031 of the Code. Buyer and Seller agree in good faith to use
reasonable efforts to coordinate the transactions contemplated by this Agreement
with any other transactions engaged in by either Buyer or Seller; provided that
such efforts shall, in no event, result in any delay in the consummation of the
transactions contemplated by this Agreement. Seller shall indemnify and hold
Buyer harmless from any cost, expense or liability arising from its cooperating
under this Section 5.25.
5.26 Transition Plan. Within 30 days after the execution date of
this Agreement, the parties jointly shall establish a transitional services
team, which shall include expertise from various functional specialties
associated with or involved in providing billing, payroll and other support
services provided to Seller by any automated or manual process using facilities
or employees that are not included among the Acquired Assets or Transferred
Employees. Such team will be responsible for preparing, and timely implementing,
a transition plan which will identify and describe substantially all of the
various transition activities that the parties will cause to occur before and
after Closing and any other transfer of control matters that any party
reasonably believes should be addressed in such transition plan. The transition
plan will set forth reasonable arrangements providing Buyer, at Buyer's sole
expense, with appropriate access to Seller's relevant computer systems to allow
for a full conversion of the relevant data and functionality to Buyer's systems
on the Closing Date. Buyer and Seller shall use their commercially reasonable
efforts to cause their representatives on such transition team to cooperate in
good faith and take all reasonable steps necessary to develop a mutually
acceptable transition plan no later than 60 days prior to the Closing Date.
5.27 Procedures regarding Refunds of Advances. Within 30 days after
the execution date of this Agreement, the parties jointly shall establish a
working group of appropriate subject matter experts to determine the appropriate
obligations of Parent and Buyer regarding notification and the provision of
other accurate and timely data to Citizens to enable Citizens timely and
accurately to satisfy the refund obligations described in Section 2.3.3(b). Such
working group will be responsible for preparing a comprehensive agreement no
later than March 13, 2000, which agreement shall be executed by the parties at
Closing. Among other arrangements, the parties would require that the customers
and developers owed refunds provide joint notices to Buyer and Citizens.
5.28 Title Insurance. Prior to Closing, Seller shall cooperate with
Buyer and use commercially reasonable efforts to assist Buyer if Buyer desires
to obtain ALTA title insurance
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commitments (collectively, the "Title Commitments," and each a "Title
Commitment"), in final form, from one or more title insurance companies
(collectively, the "Title Company"), committing the Title Company (subject only
to the satisfaction of any industry standard requirements contained in the Title
Commitment) to issuing ALTA (or its local equivalent) form of title insurance
policies insuring good, valid, indefeasible fee simple title to the Real Estate
in Buyer, in all cases, at Buyer's sole expense and in the respective amounts
that Buyer requests prior to Closing, subject to no Liens or other exceptions to
title other than Permitted Exceptions (collectively the "Title Policies"). On or
prior to the Closing Date, Seller shall execute and deliver, or cause to be
executed and delivered, to the Title Company, at no cost to Seller, any
customary affidavits, standard gap indemnities and similar documents reasonably
requested by the Title Company in connection with the issuance of the Title
Commitments or the Title Policies; provided that such efforts and Buyers'
request for Title Policies or Title Commitments shall, in no event, result in
any delay in the consummation of the transactions contemplated by this
Agreement.
ARTICLE 6
CONDITIONS PRECEDENT; TERMINATION
6.1 Conditions Precedent to Obligations of Buyer and Parent. The
obligations of Buyer and Parent to cause the purchase of the Acquired Assets and
the assumption of the Assumed Liabilities and to consummate the other
transactions contemplated hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions (any one or more of which
may be waived in writing in whole or in part by Buyer and Parent in their sole
discretion):
6.1.1 Performance of Agreements; Representations and
Warranties. Seller shall have performed or complied in all material respects
with all agreements and covenants required by this Agreement to be performed or
complied with by them at or prior to the Closing; and the representations and
warranties set forth in this Agreement made by Seller shall be true and correct
on and as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date,
except for representations and warranties that speak as of a specific date or
time other than the Closing Date (which need only be true and correct as of such
date or time), other than, in all such cases (except Section 3.25), such
failures to be true and/or correct as would not in the aggregate reasonably be
expected to have a Material Adverse Effect; provided, however, that if any such
representation or warranty is already qualified in any respect by materiality or
as to material adverse effect, for purposes of determining whether this
condition has been satisfied, such materiality or material adverse effect
qualification will be in all respects ignored and such representation or
warranty shall be true and correct in all respects without regard to such
qualification (but subject to the overall exception as to material adverse
effect set forth immediately prior to this proviso); and provided further, that
the representation and warranty set forth in Section 3.5.1 shall be deemed to be
true and correct on and as of the Closing Date if any Material Adverse Effect
that may have arisen or occurred between the execution date of this Agreement
and the Closing Date shall have been cured or remedied such that such Material
Adverse Effect is not continuing as of the Closing Date. Buyer shall have been
furnished with a
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certificate of the Chief Financial Officer or other Vice President of Citizens
dated the Closing Date, certifying to the foregoing.
6.1.2 Opinion of Counsel. Buyer shall have received from L.
Russell Mitten II, Vice President and General Counsel of Seller, an opinion
dated the Closing Date, in form and substance satisfactory to Buyer, to the
effect set forth in Exhibit E hereto.
6.1.3 HSR Act. The applicable waiting period under the HSR Act
with respect to the transactions contemplated hereby shall have expired or been
terminated.
6.1.4 Required PUC and Other Consents. The PUC shall have
issued an order approving the transactions contemplated hereby, and such order
shall not contain any restrictions or conditions (other than those in effect on
the date hereof or requiring that the regulatory treatment with respect to the
Business in existence as of the date of this Agreement applicable to Seller be
continued following the transactions contemplated hereby) which would have a
Material Adverse Effect or a material adverse effect on any other regulated
business of Buyer in the state in which the PUC has jurisdiction, and such order
shall be final and unappealable; Seller shall have obtained all statutory,
regulatory and other consents and approvals which are required in order to
consummate the transactions contemplated hereby and to permit Buyer to conduct
the Business in the manner contemplated by Section 3.25 hereof other than those
the failure of which to obtain would not have a Material Adverse Effect. Seller
shall have also obtained (i) all consents and legal opinions required to enable
Seller to sell the Acquired Assets to Buyer at the Closing, free and clear of
all Liens other than Permitted Exceptions (and specifically free and clear of
any Lien arising under or pursuant to the Mortgage Indenture) and (ii) all
consents required under Contracts and Permits relating to Seller's water
appropriation and flowage rights to the extent reasonably sufficient to enable
Buyer to service the customers of the Business and to service future commitments
under such Contracts.
6.1.5 Injunction; Litigation. (i) No statute, rule, regulation
or order of any court or Authority shall be in effect which restrains or
prohibits the transactions contemplated by this Agreement or which would limit
or materially adversely affect Buyer's ownership of all or any material portion
of the Acquired Assets, nor (ii) shall there be pending or threatened any
litigation, suit, action or proceeding by any party which would reasonably be
expected to materially limit or materially adversely affect Buyer's ownership of
the Acquired Assets.
6.1.6 Documents. Seller and Citizens shall have delivered all
of the certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Section 2.7 hereof and shall
have made arrangements reasonably satisfactory to Buyer to deliver to Buyer as
promptly as practicable after the Closing such records (including customer and
employee records) necessary to own and operate the Business.
6.1.7 Related Closings. Buyer shall be reasonably satisfied
that the consummation of each of the asset purchase and sale transactions
contemplated by those certain
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purchase agreements described on Schedule 6.1.7 (the "Related Purchase
Agreements") will occur concurrently with the Closing.
6.2 Conditions Precedent to Obligations of Seller Parties. The
obligations of the Seller Parties to cause the sale of the Acquired Assets and
to consummate the other transactions contemplated hereby are subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions (any one or more of which may be waived in writing in whole or in
part by the Seller Parties in their sole discretion):
6.2.1 Performance of Agreements; Representations and
Warranties. Parent and Buyer shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by them at or prior to the Closing; and the
representations and warranties set forth in this Agreement made by Buyer and
Parent shall be true and correct on and as of the Closing Date, with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date, except for representations and warranties that speak
as of a specific date or time other than the Closing Date (which need only be
true and correct as of such date or time), other than, in all such cases (except
Section 4.2), such failures to be true and/or correct as would not in the
aggregate reasonably be expected to have a material adverse effect on the
respective ability of Buyer and Parent to perform their obligations under this
Agreement and the Transaction Documents, provided, however, that if any such
representation or warranty is already qualified in any respect by materiality or
as to material adverse effect, for purposes of determining whether this
condition has been satisfied, such materiality or material adverse effect
qualification will be in all respects ignored and such representation or
warranty shall be true and correct in all respects without regard to such
qualification (but subject to the overall exception as to material adverse
effect set forth immediately prior to this proviso). Seller shall have been
furnished with a certificate of the President or Vice President of Parent and
Buyer, dated the Closing Date, certifying to the foregoing.
6.2.2 Opinion of Counsel. Seller shall have received from
Dechert Price & Rhoads, counsel to Parent and Buyer, an opinion dated the
Closing Date, in form and substance satisfactory to Seller, to the effect set
forth in Exhibit F hereto.
6.2.3 HSR Act. The applicable waiting period under the HSR Act
with respect to the transactions contemplated hereby shall have expired or been
terminated.
6.2.4 Required PUC and Other Consents. The PUC shall have
issued an order approving the transactions contemplated hereby and such order
shall not contain any restrictions or conditions which would have a material
adverse effect on Seller's business activities in the State in which the PUC has
jurisdiction or any significant adverse effect on Citizens' acquisition and
divestiture activities in that State (including divestiture of the Acquired
Assets), and such order shall be final and unappealable; Seller shall have
obtained all statutory and regulatory consents and approvals which are required
in order to consummate the transactions contemplated hereby, other than those
the failure of which to obtain would not have a material adverse effect on
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the Seller after the Closing. Seller shall have obtained (i) all consents and
legal opinions required under the Retained IDRB Documents to enable Seller to
retain the Retained IDRB Indebtedness until maturity and to sell the Acquired
Assets to Buyer at the Closing (in each case without any change in the
tax-exempt status of the Retained IDRB Indebtedness and without any event of
taxability relating to the matters set forth in Section 7.4.1(a)(D)), free and
clear of all Liens other than Permitted Exceptions (and specifically free and
clear of any Lien arising under or pursuant to the Mortgage Indenture), and
(iii) all other consents required or advisable in order for Seller to transfer
Acquired Assets without incurring material liability under any Contract, Permit
or Real Estate instrument.
6.2.5 Injunction; Litigation. (i) No statute, rule, regulation
or order of any court or Authority shall be in effect which restrains or
prohibits the transactions contemplated by this Agreement or which would limit
or materially adversely affect Seller's ownership of all or any material portion
of its properties, nor (ii) shall there be pending or threatened any litigation,
suit, action or proceeding by any party which could reasonably be expected to
materially limit or materially adversely affect Seller's ownership of any of its
properties.
6.2.6 Documents. Parent and Buyer shall have delivered all the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Sections 2.7, 5.24 and 5.27,
and shall have taken such actions as Seller may have requested pursuant to
Section 5.25 hereof.
6.2.7 Related Closings. Seller shall be reasonably satisfied
that the consummation of each of the Related Purchase Agreements will occur
concurrently with Closing.
6.3 Termination. This Agreement may be terminated at anytime prior
to the Closing Date:
6.3.1 by mutual written consent of the Seller Parties, Buyer
and Parent;
6.3.2 by any of the Seller Parties, Parent or Buyer if: (i)
any governmental or regulatory body the consent of which is a condition to the
obligations of the Seller Parties, Parent and Buyer to consummate the
transactions contemplated hereby shall have determined not to grant its consent
and all appeals of such determination shall have been taken and have been
unsuccessful; (ii) any court of competent jurisdiction shall have issued an
order, judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and such order, judgment or decree shall have become final and
nonappealable; or (iii) the Closing shall not have occurred on or before March
31, 2001; provided, however, that the right to terminate this Agreement under
this Section 6.3.2(iii) will not be available to any party that is in material
breach of its representations, warranties, covenants or agreements contained
herein; and provided, further, that if Closing has not occurred by such date
because the conditions precedent to Closing set forth in the first sentence of
Section 6.1.4 and the first sentence of Section 6.2.4 have not been fulfilled,
then such date shall be automatically extended to September 30, 2001; or
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6.3.3 If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Section 6.3, this
Agreement shall become void and of no further force and effect, except for the
provisions of Section 5.6 relating to publicity, Sections 3.24 and 4.6 relating
to brokerage and Section 7.1 relating to expenses. Nothing in this Section 6.3
shall be deemed to release either party from any liability for any willful
breach by such party of the terms and provisions of this Agreement.
ARTICLE 7
CERTAIN ADDITIONAL COVENANTS
7.1 Certain Taxes and Expenses. Citizens shall be solely responsible
for all state and local sales, use, transfer, real property transfer and other
similar taxes, fees and charges that are calculated based on the value of the
Acquired Assets being transferred arising from and with respect to the sale and
purchase of the Acquired Assets and Buyer shall be solely responsible for all
transfer, registration, documentary stamp, recording and other similar fees and
charges arising from and with respect to the transfer and recording of title
documentation relating to the Acquired Assets. Parent shall be responsible for
all costs and expenses relating to the assumption by or assignment to Parent or
Buyer of the Assumed Indebtedness. Except as otherwise provided in this
Agreement, each of the parties hereto shall each bear its respective accounting,
legal and other expenses incurred in connection with the transactions
contemplated by this Agreement.
7.2 Maintenance of Books and Records. The Seller Parties, on the one
hand, and Buyer and Parent, on the other hand, shall cooperate fully with each
other after the Closing so that (subject to any limitations that are reasonably
required to preserve any applicable attorney-client privilege) each party has
access to the business records, contracts and other information existing at the
Closing Date and relating in any manner to the Acquired Assets or the Assumed
Liabilities or the conduct of the Business (whether in the possession of the
Seller Parties or Buyer or Parent). No files, books or records existing at the
Closing Date and relating in any manner to the Acquired Assets or the conduct of
the Business shall be destroyed by any party for a period of six years after the
Closing Date without giving the other party at least 30 days prior written
notice, during which time such other party shall have the right (subject to the
provisions hereof) to examine and to remove any such files, books and records
prior to their destruction. The access to files, books and records contemplated
by this Section 7.2 shall be during normal business hours and upon not less than
two (2) business days prior written request, shall be subject to such reasonable
limitations as the party having custody or control thereof may impose to
preserve the confidentiality of information contained therein, and shall not
extend to material subject to a claim of privilege unless expressly waived by
the party entitled to claim the same.
7.3 Survival
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7.3.1 Subject to this Section 7.3, Section 7.4.2(g) and
Section 7.4.2(j), all representations, warranties, covenants and agreements
contained in this Agreement or the Transaction Documents shall survive (and not
be affected in any respect by) the Closing, any investigation conducted by any
party hereto and any information which any party may receive. Notwithstanding
the foregoing:
(a) the covenants contained in Sections 5.1, 5.3, 5.4,
5.5, 5.8.2 through 5.8.4 and 5.21 and the related indemnity obligations
contained in Section 7.4 shall terminate on, and no action or claim with respect
thereto may be brought after, the third anniversary of the Closing Date;
(b) the covenants contained in Section 5.2 and the
related indemnity obligations contained in Section 7.4 shall terminate on, and
no action or claim with respect thereto may be brought after, the Closing Date;
(c) the representations and warranties contained in
Sections 3.12 and 3.16 and the related indemnity obligations contained in
Section 7.4 shall terminate on, and no action or claim with respect thereto may
be brought following the expiration of the applicable statute of limitations (or
extensions or waivers thereof);
(d) the representations and warranties contained in
Section 3.2 and the related indemnity obligations contained in Section 7.4 shall
survive for an unlimited period of time;
(e) the representations and warranties contained in
Section 3.10 and the related indemnity obligations contained in Section 7.4
shall terminate on, and no action or claim with respect thereto may be brought
after, the third anniversary of the Closing Date;
(f) the representations and warranties contained in
Section 3.7 and 3.17 and the related indemnity obligations contained in Section
7.4 shall terminate on, and no action or claim with respect thereto may be
brought after, the third anniversary of the Closing Date;
(g) the representations and warranties contained in
Sections 3.3, 3.5, 3.6, 3.8, 3.9 and 3.25 and the related indemnity obligations
contained in Section 7.4 shall terminate on, and no action or claim with respect
thereto may be brought after, the third anniversary of the Closing Date;
(h) the representations and warranties contained in
Section 3.11 and the related indemnity obligations contained in Section 7.4
shall terminate on, and no action or claim with respect thereto may be brought
after, the third anniversary of the Closing Date;
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(i) the representations and warranties contained in
Section 4.2 and the related indemnity obligations contained in Section 7.4 shall
survive for an unlimited period of time;
(j) the representations and warranties contained in
Sections 4.3 and 4.4 and the related indemnity obligations contained in Section
7.4 shall terminate on, and no action or claim with respect thereto may be
brought after, the third anniversary of the Closing Date;
(k) the representations and warranties contained in
Section 4.5 and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be brought after,
the Closing Date; and
(l) all other representations and warranties contained
in this Agreement and the related indemnity obligations contained in Section 7.4
shall terminate on and no further action or claim with respect thereto may be
brought after, the second anniversary of the Closing Date;
(m) such representations and warranties specified in the
foregoing clauses (c) through (k), and the covenants contained in Section 5.1,
5.2, 5.3, 5.4, 5.5, 5.8.2 through 5.8.4 and 5.21 and the liability of any party
with respect thereto, shall not terminate with respect to any claim, whether or
not fixed as to liability or liquidated as to amount, with respect to which such
party has been given written notice setting forth the facts upon which the claim
for indemnification is based and, if possible, a reasonable estimate of the
amount of the claims prior to the relevant anniversary of the Closing Date or
the 30th day after the expiration of the applicable statute of limitations (or
extensions or waivers thereof), as the case may be. If any claim for
indemnification is asserted or could be asserted with respect to a breach or
asserted breach of Section 3.17 (Undisclosed Liabilities) and the Buyer or
Parent is also entitled to indemnification in respect of that claim for breach
or asserted breach of any other representation or warranty in this Agreement for
which there is a shorter survival period, such shorter period will apply to such
claim except to the extent that such claim is a product liability, toxic tort or
similar claim (as described in Section 2.3.3(a)) brought by a private party
litigant.
7.3.2 No claim for indemnity under Section 7.4 shall be
brought or made by Buyer or Parent pursuant to Sections 7.4.1(a)(B) or
7.4.1(a)(C):
(a) after the tenth anniversary of the Closing Date (the
seventh anniversary of the Closing Date in the event of a Change of Control of
Citizens), for any action or claim with respect to the Pre-Existing Conditions;
(b) after the tenth anniversary of the Closing Date (the
seventh anniversary of the Closing Date in the event of a Change of Control of
Citizens), with respect to the presence of Hazardous Substances at any locations
other than the Real Estate; and
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(c) after the third anniversary of the Closing Date, for
any action or claim with respect to any other Retained Liability;
Provided, however, that the foregoing time limitations shall not apply to
any such claims which have been the subject of a written notice from Parent
and/or Buyer to the Seller Parties prior to such period setting forth the facts
upon which the claim for indemnification is based and, if possible, a reasonable
estimate of the amount of the claims; and, provided, further, that the foregoing
time limitations shall also not apply to any such claims: (u) with respect to
Taxes; (v) with respect to any liability of the types that appear as "Trade
Payables" or "Other Current and Accrued Liabilities" on the financial statements
of Seller; (w) not exclusively related to the Acquired Assets or not exclusively
related to the Business; and (x) with respect to any of the matters discussed in
Section 3.16 hereof.
For purposes of Sections 7.3.2(a) and (b), a "Change of Control of
Citizens" shall be deemed to have occurred if: (i) any "person" (as such term is
used in Section 13(d) and 14(d) of the Exchange Act of 1934, as amended (the
"Exchange Act"), other than an underwriter engaged in a firm commitment
underwriting on behalf of Citizens, is or becomes the beneficial owner (as such
term is used in Rule 13D-3 and 13D-5 under the Exchange Act, except that for
purposes of this clause (i) a person shall be deemed to have beneficial
ownership of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total outstanding shares of common stock of
the Company; (ii) all or substantially all of Citizens' and its Subsidiaries'
assets are sold, leased, exchanged or otherwise transferred to any person or
group of persons acting in concert; (iii) Citizens is merged or consolidated
with any other person, whether or not Citizens is the surviving corporation in
such merger or consolidation; or (iv) Citizens is liquidated or dissolved or
adopts a plan of liquidation.
7.4 Indemnification. Seller, Parent and Buyer agree as follows:
7.4.1 General Indemnification Obligations.
(a) Seller shall indemnify Buyer and its directors,
officers and other Affiliates (including Parent) and hold Buyer and such other
parties harmless from and against any and all Damages arising out of or
resulting from (A) any breach of any representation, warranty, covenant or
agreement made by the Seller Parties in this Agreement or in any document or
certificate required to be furnished to Buyer by any of the Seller Parties
pursuant to this Agreement (including the Transaction Documents); (B) subject to
Section 7.3.2, any Excluded Assets or Retained Liabilities; (C) subject to
Section 7.3.2, the ownership, operation or use of any of the businesses or
assets of the Seller Parties or their Affiliates (other than the Business and
the Acquired Assets) whether before, on or after the Closing Date; and (D) an
event of taxability, as such term is customarily used in municipal securities
transactions, relating to the Retained IDRB Indebtedness and arising from the
sale of the Acquired Assets pursuant to this Agreement.
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(b) Buyer and Parent shall indemnify Seller, and their
directors, officers and other Affiliates (including Citizens) and hold Seller
and such other parties harmless from and against any and all Damages arising out
of or resulting from (A) any breach of any representation, warranty, covenant or
agreement made by Parent or Buyer in this Agreement or in any document or
certificate required to be furnished to Seller by Parent or Buyer pursuant to
this Agreement (including the Transaction Documents), including the Buyer's IDRB
Obligations; (B) any Assumed Liabilities after the Closing Date; (C) the
ownership, operation or use of the Business or the Acquired Assets after the
Closing Date (except to the extent resulting from Retained Liabilities or to the
extent resulting from breaches by the Seller Parties of representations,
warranties, covenants or agreements hereunder or in the other Transaction
Documents); (D) any claim by a Transferred Employee or a Former Employee
referred to on Schedule 5.12 or the Beneficiary of any such employee or former
employee for post-retirement health care or life insurance benefits "incurred"
(within the meaning of Section 5.9.4) after the Closing; and (E) any violation
by Parent or Buyer, or any assignee, lessee or successor of Parent or Buyer, of
the covenants and agreements as provided by Section 5 of Exhibit D hereto.
(c) For purposes of this Agreement, "Damages" shall mean
any and all losses, liabilities, obligations, damages (including any
governmental penalty or punitive damages assessed or asserted against the party
seeking indemnification and including costs of investigation, clean-up and
remediation), deficiencies, interest, costs and expenses and any claims,
actions, demands, causes of action, judgments, costs and reasonable expenses
(including reasonable attorneys' fees and all other reasonable expenses incurred
in investigating, preparing or defending any litigation or proceeding, commenced
or threatened, incident to the successful enforcement of this Agreement). For
purposes of this Section 7.4, the determination of whether any breach of any
representation, covenant or agreement has occurred, and the calculation of the
amount of Damages incurred by the Indemnified Party arising out of or resulting
from any breach of a representation, covenant or agreement by any party hereto,
the references to a "Material Adverse Effect" or materiality (or other
correlative terms) shall be disregarded, provided that no such breach shall be
found to have occurred due to facts or circumstances arising from an occurrence
or condition described in Section 1.1.61(a). Notwithstanding the foregoing,
Damages shall not include the loss of profits of the party seeking
indemnification, or punitive damages unless the party seeking indemnification
has had punitive damages assessed or asserted against it.
(d) Notwithstanding any language contained in any
Transaction Document (including deeds to Real Estate and instruments delivered
by Seller to the Title Company), representations and warranties as to Real
Estate set forth in Section 3.10 and 3.11 will not be merged into any
Transaction Document and the indemnification obligations of Seller, and the
limitations on such obligations, set forth in this Agreement, shall control. No
provision set forth in any Transaction Document shall be deemed to enlarge,
alter or amend the terms or provisions of this Agreement.
7.4.2 General Indemnification Procedures.
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(a) A party seeking indemnification pursuant to this
Section 7.4 (an "Indemnified Party") shall give prompt written notice to the
party from whom such indemnification is sought (the "Indemnifying Party") of the
assertion of any claim, the incurrence of any Damages, or the commencement of
any action, suit or proceeding, of which it has knowledge and in respect of
which indemnity may be sought hereunder, and will give the Indemnifying Party
such information with respect thereto as the Indemnifying Party may reasonably
request, but failure to give such required notice shall relieve the Indemnifying
Party of any liability hereunder only to the extent that the Indemnifying Party
has suffered actual prejudice thereby. The Indemnifying Party shall have the
right, exercisable by written notice to the Indemnified Party after receipt of
notice from the Indemnified Party of the commencement of or assertion of any
claim or action, suit or proceeding by a third party in respect of which
indemnity may be sought hereunder (a "Third Party Claim"), to assume the defense
of such Third Party Claim which involves (and continues to involve) solely
monetary damages; provided, that (A) the Indemnifying Party expressly agrees in
such notice that, as between the Indemnifying Party and the Indemnified Party,
solely the Indemnifying Party shall be obligated to satisfy and discharge the
Third Party Claim, (B) such Third Party Claim does not include a request or
demand for injunctive or other equitable relief by an Authority and (C) the
Indemnifying Party makes reasonably adequate provision to assure the Indemnified
Party of the ability of the Indemnifying Party to satisfy the full amount of any
adverse monetary judgment that is reasonably likely to result. The Indemnifying
Party shall be deemed to have satisfied the condition set forth in clause (C) of
the proceeding sentence if it is a regulated utility.
(b) Neither the Indemnified Party nor the Indemnifying
Party shall settle any Third Party Claim without the prior written consent of
the other, which consent shall not be unreasonably withheld or delayed.
(c) The Indemnifying Party or the Indemnified Party, as
the case may be, shall have the right to participate in (but not control), at
its own expense, the defense of any Third Party Claim which the other party is
defending as provided in this Agreement.
(d) Amounts paid in respect of indemnification
obligations of the parties shall be treated as an adjustment to the Purchase
Price.
(e) Subject to Section 7.4.2(f) and Section 7.4.2(i),
neither Parent nor Buyer (and the other Persons for which they can claim
indemnity hereunder) shall be entitled to indemnification for Damages incurred
unless the aggregate amount of Damages incurred by Parent or Buyer (or the other
Persons for which they can claim indemnification), together with all other
claims for Damages under Section 7.4.2(e) of each of the Related Purchase
Agreements, exceeds $6,123,000 in the aggregate (the "Threshold Amount"), in
which case Seller shall then be liable for Damages in excess of the Threshold
Amount. Subject to Section 7.4.2(f) and Section 7.4.2(i), the cumulative
aggregate indemnity obligation of Citizens and its Affiliates under Section 7.4
of this Agreement and the Related Purchase Agreements shall not exceed
$60,000,000 (the "Ceiling").
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(f) Notwithstanding the foregoing, the parties
acknowledge that Parent or Buyer (and the other Persons for which they can claim
indemnity hereunder) shall be entitled to indemnification for Damages in respect
of intentional and wilful breaches of covenants or agreements in this Agreement
or any of the Retained Liabilities other than the Specified Liabilities
irrespective of the Threshold Amount or the Ceiling (it being understood that
the failure to cure a breach shall not, by itself, be an intentional and wilful
breach). As used herein, the "Specified Liabilities" shall mean the Retained
Liabilities arising from claims made after the Closing Date which (i) do not
relate to matters within the scope of clauses (u), (v), (w) and (x) of Section
7.3.2; (ii) were not known to the Seller Parties on or prior to Closing; and
(iii) relate exclusively to the Acquired Assets or the Business prior to the
Closing Date. Notwithstanding anything to the contrary in this Section 7.4,
Parent or Buyer (or the other Persons for which they can claim indemnification)
shall be entitled to indemnification for Damages in respect of a breach of
Section 3.2, 3.12 or 3.16 irrespective of the Threshold Amount or the Ceiling.
(g) The rights and remedies of Seller, Parent and Buyer
under this Section 7.4 are exclusive and in lieu of any and all other rights and
remedies which Seller, Parent and Buyer may have under this Agreement or
otherwise for monetary relief with respect to (x) the inaccuracy of any
representation, warranty, certification or other statement made (or deemed made)
by Seller, Parent or Buyer in or pursuant to this Agreement or any of the
Transaction Documents or (y) any breach or failure to perform any covenant or
agreements set forth in this Agreement or any of the Transaction Documents.
(h) Except to the extent provided in Section 7.4.2(j)
below, no right to indemnification under this Section 7.4 shall be limited by
reason of any investigation or audit conducted before or after the Closing of
any party hereto including, without limitation, the knowledge of such party of
any breach of any representation, warranty, agreement or covenant by the other
party at any time, or the decision by such party to complete the Closing.
(i) No party shall have any liability to another party
under this Section 7.4 for Damages (and no cost or expense relating to such
Damages shall be included in determining the extent of Damages incurred by such
party for purposes of Section 7.4.2(e)) to the extent that:
(A) the Indemnified Party recovers insurance
proceeds covering the Damages or otherwise recovers payments in respect of such
Damages from any other source (whether in a lump sum or stream of payments); or
(B) the Indemnified Party's Tax liability is
actually reduced as a result of a tax benefit to which the Indemnified Party
becomes entitled in respect of the Damages.
(j) Seller shall have no liability or obligation under
this Section 7.4 for any Damages resulting from the inaccuracy or breach of any
representation or warranty if
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such inaccuracy or breach is disclosed by Seller pursuant to and in accordance
with Sections 5.3 and 8.4 hereof;
(k) Buyer agrees to use its commercially reasonable
efforts to give timely and effective written notice to the appropriate insurance
carrier(s) of any occurrence or circumstances which, in the judgment of Buyer
consistent with its customary risk management practices, appear likely to give
rise to a claim against Buyer that is likely to involve one or more insurance
policies of Buyer. Any such notice shall be given in good faith by Buyer without
regard to the possibility of indemnification payments by Seller under this
Section 7.4, and shall be processed by Buyer in good faith and in a manner
consistent with its risk management practices involving claims for which no
third party contractual indemnification is available. Buyer agrees that (i) if
it is entitled to receive payment from Seller for Damages arising under or
pursuant to a breach of the representation and warranty set forth in Section
3.10, and (ii) if Buyer has obtained title insurance which may cover the claim
or matter giving rise to such Damages, then (iii) such title insurance shall be
primary coverage and Buyer will make a claim under the title insurance if such
claim can be made in good faith before enforcing its right to receive payment
from Seller. Buyer shall be under no obligation to obtain title insurance or
prosecute such claim (other than the initial filing of such claim).
(l) If at any time subsequent to the receipt by an
Indemnified Party of an indemnity payment hereunder, such Indemnified Party (or
any Affiliate thereof) receives any recovery, settlement or other similar
payment with respect to the Damages for which it received such indemnity payment
(including insurance proceeds and other payments pursuant to Section 7.4.2(i)(A)
and a tax benefit pursuant to Section 7.4.2(i)(B)) (the "Recovery"), such
Indemnified Party shall promptly pay to the Indemnifying Party an amount equal
to the amount of such Recovery, less any expense incurred by such Indemnified
Party (or its Affiliates) in connection with such Recovery, but in no event
shall any such payment exceed the amount of such indemnity payment;
(m) In the event of any indemnification claim under this
Section 7.4 involving the claim of any third party, the Indemnified Party shall
cooperate fully (and shall cause its Affiliates to cooperate fully) with the
Indemnifying Party in the defense of any such claim under this Section 7.4.
Without limiting the generality of the foregoing, the Indemnified Party shall
furnish the Indemnifying Party with such documentary or other evidence as is
then in its or any of its Affiliates' possession as may reasonably be requested
by the Indemnifying Party for the purpose of defending against any such claim.
Whether or not the Indemnifying Party chooses to defend or prosecute any claim
involving a third party, all the parties hereto shall cooperate in the defense
or prosecution thereof and shall furnish such records, information and
testimony, and attend such conferences, discovery proceedings, hearings, trials
and appeals, as may be reasonably requested in connection therewith.
7.4.3 Indemnification for Negligence. WITHOUT LIMITING OR
ENLARGING THE SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS
AGREEMENT, AN INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER
IN ACCORDANCE WITH THE TERMS HEREOF,
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REGARDLESS OF WHETHER THE LOSS OR CLAIM GIVING RISE TO SUCH INDEMNIFICATION
OBLIGATION IS THE RESULT OF THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE,
STRICT LIABILITY, VIOLATION OF ANY LAW OR OTHER LEGAL FAULT OF OR BY SUCH
INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS PARAGRAPH CONSTITUTES A
CONSPICUOUS LEGEND.
7.5 UCC Matters. From and after the Closing Date, Seller will
promptly refer all inquiries with respect to ownership of the Acquired Assets or
the Business to Buyer. In addition, Seller will execute such documents and
financing statements as Buyer may reasonably request from time to time to
evidence transfer of the Acquired Assets to Buyer in accordance with this
Agreement, including any necessary assignment of financing statements.
7.6 Financial Statements. In connection with the preparation and
filing of any registration statement or periodic report of Buyer or its
Affiliates pursuant to Rule 3-05, Article 11 of Regulation S-X or other rule or
regulation promulgated under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, Seller, at Buyer's expense, shall
provide Buyer (a) by April 30, 2000 or within 120 days after Buyer's written
request therefor if made after January 1, 2000, with the following audited
financial statements: (i) a statement of net assets of the Business as of the
end of the last fiscal year prior to Closing; and (ii) a statement of income of
the Business and a statement of cash flows or its equivalent of the Business for
the last fiscal year prior to Closing (in each case combined with the businesses
being acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements), including opinions thereon of Seller's Accountants, and (b) within
90 days after Buyer's written request made therefor (provided such request is
made after the end of the fiscal quarter described below), the following
unaudited statements: (i) a statement of net assets of the Business as of the
end of the last fiscal quarter prior to Closing (but only if such quarter is
subsequent to the last fiscal year prior to Closing); and (ii) a statement of
income of the Business and a statement of cash flows or its equivalent of the
Business, for the period from the end of the last fiscal year through the end of
the last fiscal quarter prior to Closing (in each case combined with the
businesses being acquired by Buyer or Affiliates of Buyer pursuant to the
Related Purchase Agreements).
7.7 Collection of Receivables. Seller agrees that it shall promptly
(and in any event no later than five (5) Business Days following receipt)
deliver all such payments with respect to accounts receivable from customers of
the Business received on and after the Closing Date (including but not limited
to negotiable instruments tendered in payment of accounts receivable assigned to
Buyer hereunder which shall be duly endorsed by Seller to the order of Buyer) to
Buyer. Seller shall cooperate with Buyer in coordinating the transfer of
collection agents and customers of the Business who pay their bills through the
Automated Clearinghouse (ACH) process to Buyer.
ARTICLE 8
MISCELLANEOUS
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8.1 Construction. Parent, Buyer and the Seller Parties have
participated jointly in the negotiation and drafting of this Agreement and the
Transaction Documents. In the event any ambiguity or question of intent or
interpretation arises, this Agreement and the Transaction Documents shall be
construed as if drafted jointly by Parent, Buyer and the Seller Parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The word "including" in this Agreement shall mean
including without limitation. Words in the singular shall be held to include the
plural and vice versa and words of one gender shall be held to include the other
genders as the context requires. The terms "hereof," "herein," and "herewith"
and words of similar import shall, unless otherwise stated, be construed to
refer to this Agreement as a whole (including all of the Schedules and Exhibits
hereto) and not to any particular provision of this Agreement, and Article,
Section, paragraph, Exhibit and Schedule references are to the Articles,
Sections, paragraphs, Exhibits and Schedules to this Agreement unless otherwise
specified. The word "or" shall not be exclusive. Provisions of this Agreement
shall apply, when appropriate, to successive events and transactions. Section
references refer to this Agreement unless otherwise specified.
8.2 Notices. Any notice, request, demand, waiver, consent, approval
or other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to the
party personally or sent to the party by telecopy, by registered or certified
mail (return receipt requested) with postage and registration or certification
fees thereon prepaid, or by any nationally recognized overnight courier
addressed to the party at its address set forth below:
If to Parent:
American Water Works Company
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, New Jersey 08043
Fax: (609) 346-8299
Attention: General Counsel
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
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If to Buyer:
Ohio-American Water Company
880 Kuhn Drive
Chula Vista, CA 91914
Fax: (619) 656-2406
Attention: Corporate Counsel
with a copy to Parent and a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to Seller:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: Robert J. DeSantis
Telecopier: (203) 614-4625
with copies to:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: L. Russell Mitten, II
Telecopier: (203) 614-4651
and
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: J. Michael Love
Telecopier: (203) 614-5201
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and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention: Jeffry L. Hardin
Telecopier: (202) 387-3467
8.3 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided, however, that no party
may assign, delegate or otherwise transfer any of its rights or obligations
under this Agreement without the consent of the other party hereto; provided
that Seller may assign its rights or delegate its duties under this Agreement to
a qualified intermediary chosen by Seller to structure the transactions
contemplated hereby as a like-kind exchange of property covered by Section 1031
of the Code.
8.4 Exhibits and Schedules. All Exhibits and Disclosure Schedules
annexed hereto or referred to herein are hereby incorporated in and made a part
of this Agreement as if set forth in full herein. Disclosure of any fact or item
in any Schedule referenced by a particular paragraph or Section in this
Agreement shall, should the existence of the fact or item or its contents be
clearly related to any other paragraph or section, be deemed to be disclosed
with respect to that other paragraph or section.
8.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
the conflicts of laws principles thereof.
8.6 Dispute Resolution. Except as otherwise provided herein, any
dispute, controversy or claim between the parties relating to, arising out of or
in connection with this Agreement (or any subsequent agreements or amendments
thereto), including as to its existence, enforceability, validity,
interpretation, performance or breach or as to indemnification or damages,
including claims in tort, whether arising before or after the termination of
this Agreement (any such dispute, controversy or claim being herein referred to
as a "Dispute") shall be settled without litigation and only by use of the
following alternative dispute resolution procedure:
(a) At the written request of a party, each party shall
appoint a knowledgeable, responsible representative to meet and negotiate in
good faith to resolve any Dispute. The discussions shall be left to the
discretion of the representatives. Upon agreement, the representatives may
utilize other alternative dispute resolution procedures such as mediation to
assist in the negotiations. Discussions and correspondence among the parties'
representatives for purposes of these negotiations shall be treated as
confidential information developed for the purposes
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of settlement, exempt from discovery and production, and without the concurrence
of both parties shall not be admissible in the arbitration described below, or
in any lawsuit. Documents identified in or provided with such communications,
which are not prepared for purposes of the negotiations, are not so exempted and
may, if otherwise admissible, be admitted in the arbitration.
(b) If negotiations between the representatives of the parties
do not resolve the Dispute within 60 days of the initial written request, the
Dispute shall be submitted to binding arbitration by a single arbitrator
pursuant to the Commercial Arbitration Rules, as then amended and in effect, of
the American Arbitration Association (the "Rules"); provided, however, that at
the election of either party, the arbitration shall take place before three (3)
arbitrators, one arbitrator being selected by Parent, one arbitrator being
selected by Citizen, and the third arbitrator, knowledgeable in the general
subject matter of the dispute, controversy or claim, being selected by the other
two arbitrators. Either party may demand such arbitration in accordance with the
procedures set out in the Rules. The parties hereto shall use reasonable efforts
to coordinate any arbitration commenced under this Agreement with any
arbitration on the same or similar issues commenced under any of the Related
Purchase Agreements so that the resolution of the arbitration under this
Agreement and the similar issues under the Related Purchase Agreements can be
resolved as expeditiously and efficiently as reasonable practicable. Reasonable
efforts shall include use of a common arbitrator or panel of arbitrators where
practicable. The arbitration shall take place in Newark, New Jersey. The
arbitration hearing shall be commenced within 60 days of such party's demand for
arbitration. The arbitrator(s) shall have the power to and will instruct each
party to produce evidence through discovery (i) that is reasonably requested by
the other party to the arbitration in order to prepare and substantiate its case
and (ii) the production of which will not materially delay the expeditious
resolution of the dispute being arbitrated; each party hereto agrees to be bound
by any such discovery order. The arbitrator(s) shall control the scheduling (so
as to process the matter expeditiously) and any discovery. The parties may
submit written briefs. At the arbitration hearing, each party may make written
and oral presentations to the arbitrator(s), present testimony and written
evidence and examine witnesses. No party shall be eligible to receive, and the
arbitrator(s) shall not have the authority to award, exemplary or punitive
damages. The arbitrator(s) shall rule on the Dispute by issuing a written
opinion within 30 days after the close of hearings. The arbitrators' majority
decision shall be binding and final. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction.
(c) Each party will bear its own costs and expenses in
submitting and presenting its position with respect to any Dispute to the
arbitrator(s); provided, however, that if the arbitrator(s) determines that the
position taken in the Dispute by the non-prevailing party taken as a whole is
unreasonable, the arbitrator(s) may order the non-prevailing party to bear such
fees and expenses, and reimburse the prevailing party for all or such portion of
its reasonable costs and expenses in submitting and presenting its position, as
the arbitrator(s) shall reasonably determine to be fair under the circumstances.
Each party to the arbitration shall pay one-half of the fees and expenses of the
arbitrator(s) and the American Arbitration Association.
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(d) Notwithstanding any other provision of this Agreement, (i)
either party may commence an action to compel compliance with this Section 8.6
and (ii) if any party, as party of a Dispute, seeks injunctive relief or any
other equitable remedy, including specific enforcement, then such party shall be
permitted to seek such injunctive or equitable relief in any federal or state
court or competent jurisdiction before, during or after the pendency of a
mediation or arbitration proceed under this Section 8.6.
8.7 Severability. The parties agree that (a) the provisions of this
Agreement shall be severable in the event that any provision hereof is held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable,
(b) such invalid, void or otherwise unenforceable provision shall be
automatically replaced by another provision which is as similar as possible in
terms to such invalid, void or otherwise unenforceable provision but which is
valid and enforceable and (c) the remaining provisions shall remain enforceable
to the fullest extent permitted by law.
8.8 No Third Party Beneficiaries. Nothing herein expressed or
implied is intended or should be construed to confer upon or give to any Person
other than the parties hereto and their successors and permitted assigns any
rights or remedies under or by reason of this Agreement.
8.9 Entire Agreement. This Agreement, the Schedules and Exhibits
hereto and the other Transaction Documents, and the Confidentiality Agreement
dated August 2, 1999, between Citizens and Parent, (i) together constitute the
entire understanding of the parties (and their affiliates) with respect to the
subject matter hereof, and any related matter, (ii) supercede all prior
agreements or understandings, written or oral, entered into by any of the
parties that concern the subject matter hereof and (iii) are not intended to
confer upon any Person other than the parties hereto any benefit, right or
remedy.
8.10 Amendment and Waiver. The parties may, by mutual agreement,
amend this Agreement in any respect, and any party, as to such party, may (i)
extend the time for the performance of any of the obligations of the other
party; (ii) waive any inaccuracies in representations and warranties by the
other party; (iii) waive compliance by the other party with any of the covenants
or agreements contained herein and performance of any obligations by the other
party; and (iv) waive the fulfillment of any condition that is precedent to the
performance by such party of any of its obligations under this Agreement. To be
effective, any such amendment or waiver must be in writing and be signed by the
party providing such waiver or extension, as the case may be. The waiver by any
party hereto of any breach of any provision of this Agreement shall not operate
or be construed as a waiver of any subsequent breach, whether or not similar.
8.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
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8.12 Headings. The headings preceding the text of the sections and
subsections hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
8.13 Definitions. For purposes of this Agreement, references to the
knowledge of the Seller Parties (including a reference to "the best of the
knowledge of the Seller Parties" and similar references) shall mean the actual
knowledge possessed by any of the following officers or employees of Citizens:
Chief Financial Officer, Vice President and Treasurer; President, Citizens
Public Services; Vice President, Corporate Human Resources; Secretary; Vice
President, Water; and the general manager of the Business.
8.14 No Implied Representation. NOTWITHSTANDING ANYTHING CONTAINED
IN THIS AGREEMENT, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO THAT NEITHER
OF THE SELLER PARTIES ARE MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER,
EXPRESS OR IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS AGREEMENT, ANY SCHEDULE
HERETO, THE TRANSACTION DOCUMENTS, OR ANY DOCUMENT, EXHIBIT, CERTIFICATE,
INSTRUMENT OR STATEMENT TO BE DELIVERED HEREUNDER OR THEREUNDER INCLUDING, BUT
NOT LIMITED TO, ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION,
MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO ANY OF
THE ACQUIRED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IT IS
UNDERSTOOD AND AGREED THAT ANY COST ESTIMATES, PROJECTIONS OR OTHER PREDICTIONS
CONTAINED OR REFERRED TO IN THE SCHEDULES AND ANY COST ESTIMATES, PROJECTIONS OR
PREDICTIONS OR ANY OTHER INFORMATION CONTAINED OR REFERRED TO IN OTHER MATERIALS
THAT HAVE BEEN OR SHALL HEREINAFTER BE PROVIDED TO PARENT, BUYER OR ANY OF THEIR
AFFILIATES, AGENTS OR REPRESENTATIVES ARE NOT AND SHALL NOT BE DEEMED TO BE
REPRESENTATIONS OR WARRANTIES OF ANY OF THE SELLER PARTIES.
8.15 Construction of Certain Provisions. It is understood and agreed
that neither the specification of any dollar amount in the representations and
warranties contained in this Agreement nor the inclusion of any specific item in
the Schedules or Exhibits is intended to imply that such amounts or higher or
lower amounts, or the items so included or other items, are or are not material,
and none of the parties shall use the fact of the setting of such amounts or the
fact of any inclusion of any such item in the Schedules or Exhibits in any
dispute or controversy between the parties as to whether any obligation, item or
matter is or is not material for purposes hereof.
8.16 Bulk Sales. Buyer agrees that it shall not make any filings
under any tax bulk sales provisions with respect to the transactions
contemplated by this Agreement.
[Signatures appear on following page.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first written above.
CITIZENS UTILITIES COMPANY
By:___________________________________________________________
Robert J. DeSantis, Chief Financial Officer, Vice President
and Treasurer
CITIZENS BUSINESS SERVICES COMPANY
CITIZENS RESOURCES COMPANY
CITIZENS UTILITIES COMPANY OF OHIO
By:___________________________________________________________
Robert J. DeSantis, Vice President
AMERICAN WATER WORKS COMPANY, INC.
By:___________________________________________________________
Joseph F. Hartnett, Jr., Treasurer
OHIO-AMERICAN WATER COMPANY
By:___________________________________________________________
Ramon G. Lee, President
<PAGE>
Pennsylvania
EXECUTION COPY
ASSET PURCHASE AGREEMENT
among
CITIZENS UTILITIES COMPANY
AND
CERTAIN OF ITS AFFILIATES
AND
AMERICAN WATER WORKS COMPANY, INC. AND
PENNSYLVANIA-AMERICAN WATER COMPANY
Dated as of
October 15, 1999
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TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS......................................................1
1.1 Certain Definitions..............................................1
ARTICLE 2 THE TRANSACTION.................................................10
2.1 Sale and Purchase of Assets.....................................10
2.2 Excluded Assets.................................................10
2.3 Assumption of Certain Liabilities...............................11
2.4 Consent of Third Parties........................................14
2.5 Closing.........................................................15
2.6 Purchase Price..................................................15
2.6.1 Purchase Price............................................15
2.6.2 Payment of Initial Cash Payment...........................15
2.6.3 Estimated Closing Statement...............................16
2.6.4 Post-Closing Adjustment to Purchase Price.................16
2.6.5 Adjustment for Certain Liabilities........................18
2.6.6 Additional Adjustment to the Purchase Price...............18
2.7 Deliveries and Proceedings at Closing...........................18
2.7.1 Deliveries to Buyer.......................................18
2.7.2 Deliveries By Buyer to the Seller Parties.................19
2.8 Allocation of Consideration.....................................20
2.9 Prorations......................................................20
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER.......................20
3.1 Qualification; No Interest in Other Entities....................21
3.2 Authorization and Enforceability................................21
3.3 No Violation of Laws or Agreements..............................21
3.4 Financial Statements............................................22
3.5 No Changes......................................................22
3.6 Contracts.......................................................23
3.7 Permits and Compliance With Laws Generally......................23
3.8 Environmental Matters...........................................24
3.9 Consents........................................................26
3.10 Title...........................................................26
3.11 Real Estate.....................................................27
3.12 Taxes...........................................................27
3.13 Patents and Intellectual Property Rights........................28
3.14 Accounts Receivable.............................................28
3.15 Labor Relations.................................................28
3.16 Employee Benefit Plans..........................................28
3.17 Absence of Undisclosed Liabilities..............................30
3.18 No Pending Litigation or Proceedings............................31
3.19 Supply of Utilities.............................................31
3.20 Insurance.......................................................31
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3.21 Relationship with Customers.....................................31
3.22 WARN Act........................................................31
3.23 Condition of Assets.............................................32
3.24 Brokerage.......................................................32
3.25 All Assets......................................................32
3.26 Year 2000 Matters...............................................32
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER..............33
4.1 Organization and Good Standing..................................33
4.2 Authorization and Enforceability................................33
4.3 No Violation of Laws or Agreements..............................33
4.4 Consents........................................................34
4.5 Financing.......................................................34
4.6 Brokerage.......................................................34
4.7 Insurance.......................................................34
ARTICLE 5 ADDITIONAL COVENANTS............................................35
5.1 Conduct of Business.............................................35
5.2 Negotiations....................................................36
5.3 Disclosure Schedules............................................36
5.4 Mutual Covenants................................................37
5.5 Filings and Authorizations......................................37
5.6 Public Announcement.............................................38
5.7 Further Assurances..............................................38
5.8 Cooperation.....................................................39
5.9 Employees; Employee Benefits....................................40
5.10 Employee Pension Plan...........................................42
5.11 Employee Savings Plan...........................................43
5.12 Welfare Benefits................................................43
5.13 Taxes...........................................................45
5.14 Intentionally Omitted...........................................45
5.15 Citizens' Guarantees and Surety Instruments.....................45
5.16 Assumption of Seller Debt.......................................45
5.17 Schedule of Permits.............................................48
5.18 Title Information...............................................48
5.19 Transaction with Related Parties................................49
5.20 Approval by Citizens............................................49
5.21 Supplemental Information........................................49
5.22 Non-Competition.................................................49
5.23 Intentionally Omitted...........................................49
5.24 IDRB Obligations................................................50
5.25 Cooperation with Respect to Like-Kind Exchange..................50
5.26 Transition Plan.................................................51
5.27 Procedures regarding Refunds of Advances........................51
5.28 Title Insurance.................................................51
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ARTICLE 6 CONDITIONS PRECEDENT; TERMINATION...............................52
6.1 Conditions Precedent to Obligations of Buyer and Parent.........52
6.1.1 Performance of Agreements; Representations and Warranties.52
6.1.2 Opinion of Counsel........................................53
6.1.3 HSR Act...................................................53
6.1.4 Required PUC and Other Consents...........................53
6.1.5 Injunction; Litigation....................................53
6.1.6 Documents.................................................53
6.1.7 Related Closings..........................................54
6.2 Conditions Precedent to Obligations of Seller Parties...........54
6.2.1 Performance of Agreements; Representations and Warranties.54
6.2.2 Opinion of Counsel........................................54
6.2.3 HSR Act...................................................54
6.2.4 Required PUC and Other Consents...........................54
6.2.5 Injunction; Litigation....................................55
6.2.6 Documents.................................................55
6.2.7 Related Closings..........................................55
6.3 Termination.....................................................55
ARTICLE 7 CERTAIN ADDITIONAL COVENANTS....................................56
7.1 Certain Taxes and Expenses......................................56
7.2 Maintenance of Books and Records................................56
7.3 Survival........................................................57
7.4 Indemnification.................................................59
7.4.1 General Indemnification Obligations.......................59
7.4.2 General Indemnification Procedures........................61
7.4.3 Indemnification for Negligence............................64
7.5 UCC Matters.....................................................64
7.6 Financial Statements............................................64
7.7 Collection of Receivables.......................................65
ARTICLE 8 MISCELLANEOUS...................................................65
8.1 Construction....................................................65
8.2 Notices.........................................................65
8.3 Successors and Assigns..........................................67
8.4 Exhibits and Schedules..........................................67
8.5 Governing Law...................................................67
8.6 Dispute Resolution..............................................68
8.7 Severability....................................................69
8.8 No Third Party Beneficiaries....................................69
8.9 Entire Agreement................................................69
8.10 Amendment and Waiver............................................69
8.11 Counterparts....................................................70
8.12 Headings........................................................70
8.13 Definitions.....................................................70
8.14 No Implied Representation.......................................70
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8.15 Construction of Certain Provisions..............................71
8.16 Bulk Sales......................................................71
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List of Schedules
Schedule 1.1.1(a)................................................... Real Estate
Schedule 1.1.10............................................ Assumed Indebtedness
Schedule 1.1.52.................................................. IDRB Documents
Schedule 2.2.12................................................. Excluded Assets
Schedule 3.3................................. No Violation of Laws or Agreements
Schedule 3.4............................................... Financial Statements
Schedule 3.5......................................................... No Changes
Schedule 3.6.......................................................... Contracts
Schedule 3.7......................... Permits and Compliance with Laws Generally
Schedule 3.8...................................Environmental Matters - Generally
Schedule 3.8.10................................. Compliance with Water Standards
Schedule 3.8.11................................................ Deed Restriction
Schedule 3.9........................................... Seller Parties' Consents
Schedule 3.10............................................................. Title
Schedule 3.11........................................... Real Estate Proceedings
Schedule 3.12............................................................. Taxes
Schedule 3.15................................................... Labor Relations
Schedule 3.16.1.......................................... Employee Benefit Plans
Schedule 3.16.4............................. Employee Benefit Plans - Compliance
Schedule 3.16.9................. Employee Benefit Plans - Extraordinary Benefits
Schedule 3.17................................ Absence of Undisclosed Liabilities
Schedule 3.18.............................. No Pending Litigation or Proceedings
Schedule 3.19............................................... Supply of Utilities
Schedule 3.20................................................ Seller's.Insurance
Schedule 3.22.......................................................... WARN Act
Schedule 3.23............................................... Condition of Assets
Schedule 3.25........................................................ All Assets
Schedule 3.27................................................. Product Liability
Schedule 4.7.................................................. Buyer's Insurance
Schedule 5.1................................................ Conduct of Business
Schedule 5.9.1........................................................ Employees
Schedule 5.9.2................................. Collective Bargaining Agreements
Schedule 5.12.................................................. Former Employees
Schedule 5.15.............................................. Citizens' Guarantees
Schedule 5.16............................................... Schedule of Permits
Schedule 6.1.7.......................................Related Purchase Agreements
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TABLE OF EXHIBITS
Exhibit A - Form of Assumption Agreement
Exhibit B - Form of Assignment and Bill of Sale
Exhibit C - Intentionally Omitted
Exhibit D - Form of Retained IDRB Obligations Agreement
Exhibit E - Form of Seller's Opinion of Counsel
Exhibit F - Form of Buyer's Opinion of Counsel
<PAGE>
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ASSET PURCHASE AGREEMENT
THIS IS AN ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of October
15, 1999, by and among Citizens Utilities Company, a Delaware corporation
("Citizens"), and each of the wholly-owned subsidiaries of Citizens named on the
signature page hereof (collectively with Citizens, "Seller" or the "Seller
Parties"), and American Water Works Company, Inc., a Delaware corporation
("Parent"), and Pennsylvania-American Water Company, a Pennsylvania corporation
("Buyer").
Background
1. Citizens Utilities Water Company of Pennsylvania is a public utility
engaged, among other things, in the business of storing, supplying, distributing
and selling water to the public, wholesale water transmission and related
services and activities in the State of Pennsylvania (the "Business").
2. Parent is a holding company which desires to cause the Buyer to
purchase substantially all of the assets, properties and rights of the Seller
Parties relating to the Business, and Seller desires to sell, and to cause the
sale of, such assets, properties and rights, on the terms and subject to the
conditions set forth in this Agreement.
Terms
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the respective meanings ascribed to them in this Section:
1.1.1 "Acquired Assets" means, subject to Section 2.2, all of
each Seller Party's right, title, and interest in, under and to all of the
assets, properties and rights exclusively used in the Business as a going
concern of every kind, nature and description existing on the Closing Date,
wherever such assets, properties and rights are located and whether such assets,
properties and rights are real, personal or mixed, tangible or intangible, and
whether or not any of such assets, properties and rights have any value for
accounting purposes or are carried or reflected on or specifically referred to
in Seller's books or financial statements, including all of the assets,
properties and rights exclusively relating to the Business enumerated below:
(a) all real property described in Schedule 1.1.1(a),
together with all fixtures, fittings, buildings, structures and other
improvements erected thereon, and easements, rights of way, water lines, rights
of use, licenses, railroad crossing agreements, hereditaments,
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Pennsylvania
tenements, privileges and other appurtenances thereto or otherwise exclusively
related to the Business (such as appurtenant rights in and to public streets)
(the "Real Estate");
(b) to the extent not included in clause (a) above, all
water tanks, reservoirs, water works, plant and systems, purification and
filtration systems, pumping stations, pumps, wells, mains, water pipes,
hydrants, equipment, machinery, vehicles, tools, dies, spare parts, materials,
water supplies, fixtures and improvements, construction in progress, jigs,
molds, patterns, gauges and production fixtures and other tangible personal
property, in transit or otherwise, used exclusively in the Business (the
"Equipment and Other Tangible Personal Property");
(c) notwithstanding the provisions of Section 2.2 but
subject to Section 2.4, all of Seller's water appropriation and flowage rights
to the extent not transferred to Buyer upon assignment of the Contracts and
Permits to Buyer;
(d) all notes receivable, accounts receivable, accrued
utility revenues, materials and supplies (at average cost net of reserve for
obsolescence) and prepayments attributable in each case exclusively to the
Business;
(e) all unamortized debt expense related to the Assumed
Indebtedness, deferred capital costs, and other deferred charges (excluding
deferred taxes collectable) attributable exclusively to the Business of which
recovery in future rates is probable;
(f) Intellectual Property and goodwill, licenses and
sublicenses granted and obtained with respect thereto;
(g) subject to Section 2.4 hereof, (i) contracts,
commitments, agreements and instruments relating to the sale of any assets,
services, properties, materials or products, including all customer contracts,
operating contracts and distribution contracts relating exclusively to the
conduct of the Business; (ii) orders, contracts, supply agreements and other
agreements relating exclusively to the purchase of any assets, services,
properties, materials, or products for the Business; (iii) all leases of Real
Estate exclusively related to the Business; (iv) all other contracts, agreements
and instruments related exclusively to the Business (other than contracts,
agreements and instruments included in the definition of Real Estate or
Permits); and (v) any such contracts, agreements and other instruments referred
to in clauses (i) - (iv) inclusive, entered into between the date hereof and the
Closing Date which are consistent with the terms of this Agreement and are
entered into in the ordinary course of business consistent with past practice,
and including in the case of clauses (i) - (iv) all such contracts, agreements
and instruments more specifically listed or described in Schedule 3.6 (but
specifically excluding any contract, agreement and instrument listed or
described on Schedule 2.2.12) (the "Contracts");
(h) subject to Section 2.4 hereof, franchises,
approvals, permits, authorizations, licenses, orders, registrations,
certificates, variances, and other similar permits or rights obtained from any
Authority relating exclusively to the conduct of the Business and all pending
applications therefor (the "Permits");
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(i) books, records, ledgers, files, documents (including
originally executed copies of written Contracts, to the extent available, and
copies to the extent not available), correspondence, Tax returns relating
exclusively to the Business, memoranda, forms, lists, plats, architectural
plans, drawings, and specifications, new product development materials, creative
materials, advertising and promotional materials, studies, reports, sales and
purchase correspondence, books of account and records relating to the
Transferred Employees (to the extent such transfer is not prohibited by law),
photographs, records of plant operations and materials used, quality control
records and procedures, equipment maintenance records, manuals and warranty
information, research and development files, data and laboratory books,
inspection processes, in each case, whether in hard copy or magnetic format, in
each instance, to the extent exclusively relating to the Business, the Acquired
Assets or the Transferred Employees;
(j) all rights or choses in action arising out of
occurrences before or after the Closing Date and exclusively related to any of
the Acquired Assets, including third party warranties and guarantees and all
related claims, credits, rights of recovery and set-off and other similar
contractual rights, as to third parties held by or in favor of Seller; provided,
however, that (notwithstanding the foregoing provisions of this Section
1.1.1(j)), to the extent that Seller pays or discharges a liability related to
the Business or any of the Acquired Assets and related to such right or chose in
action (whether by reason of indemnification under this Agreement or otherwise),
Buyer will reassign or reconvey to Seller such right or chose in action to the
extent that such right or chose in action relates to a recovery of amounts paid
to Buyer; and
(k) all rights to insurance and condemnation proceeds
(i) to the extent relating to the damage, destruction, taking or other
impairment of the Acquired Assets which damage, destruction, taking or other
impairment occurs on or prior to the Closing but only to the extent that the
proceeds exceed the amount of the write-down of the net book value of such
Acquired Assets on the books and records of Seller as a result of such damage,
destruction, taking or other impairment, (ii) to the extent they relate to
amounts paid by Buyer for Damages to the extent Buyer does not receive payment
pursuant to Section 7.4.1(a), but only to the extent Buyer is entitled to
indemnification by Seller pursuant to Sections 7.3 and 7.4, and (iii) as
provided in Section 4 of the agreement attached as Exhibit D hereto.
1.1.2 "Adjusted Net Assets" has the meaning set forth in
Section 2.6.4(a) hereof.
1.1.3 "Affected Participant" has the meaning set forth as
Section 5.11.1 hereof.
1.1.4 "Affiliate" of any Person means any Person, directly or
indirectly controlling, controlled by or under common control with such Person.
1.1.5 "Agreement" has the meaning set forth in the
introduction hereof.
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1.1.6 "American Pension Plan" has the meaning set forth in
Section 5.10.1 hereof.
1.1.7 "American Savings Plan" has the meaning set forth in
Section 5.11.1 hereof.
1.1.8 "Antitrust Division" has the meaning set forth in
Section 5.5 hereof
1.1.9 "Assumed Benefit Liabilities" has the meaning set forth
in Section 3.16.6 hereof.
1.1.10 "Assumed Indebtedness" means the liabilities and
obligations from and after the Closing Date (except as set forth below) with
respect to the IDRB Financings and IDRB Documents set forth on Schedule 1.1.10.
For purposes of clarity, except as set forth in the next sentence below,
"Assumed Indebtedness" shall not include any liability or obligation to the
extent accrued prior to the Closing Date or to the extent arising out of or
relating to an event, circumstance or occurrence prior to the Closing Date.
"Assumed Indebtedness" shall include the outstanding principal amount and the
accrued but unpaid interest owed by Seller on the debt obligations set forth in
the first sentence of this definition.
1.1.11 "Assumed Liabilities" has the meaning set forth in
Section 2.3 hereof.
1.1.12 "Assumption Agreement" has the meaning set forth in
Section 2.3.2 hereof.
1.1.13 "Authority" means any federal, state, local or foreign
governmental or regulatory entity (or any department, agency, authority or
political subdivision thereof).
1.1.14 "Base Cash Purchase Price" has the meaning set forth in
Section 2.6.1 hereof.
1.1.15 "Beneficiary" means the Person(s) designated by an
Employee, by operation of law or otherwise, as entitled to compensation,
benefits, insurance coverage, payments or any other goods or services under a
Benefit Plan.
1.1.16 "Benefit Plans" has the meaning set forth in Section
3.16.1 hereof.
1.1.17 "Bonds" means any of the bonds issued pursuant to the
Indentures of Trust, the proceeds from the issuance of which were advanced to
Seller pursuant to any of the IDRB Documents.
1.1.18 "Business" has the meaning set forth in the Background
section hereof.
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1.1.19 "Business Day" means any day other than a Saturday,
Sunday, or a day on which banking institutions in the Commonwealth of
Pennsylvania are authorized or obligated by law or executive order to close.
1.1.20 "Buyer" shall have the meaning set forth in the
introduction hereof.
1.1.21 "Buyer's IDRB Obligations" means the obligations of
Parent and Buyer set forth in Section 5.24 (a) and in the instruments to be
executed and delivered by Parent and Buyer on or prior to the Closing Date in
accordance with Section 5.24 (a).
1.1.22 "Buyer's Accountants" means PricewaterhouseCoopers LLP
or any firm of independent public accountants hereafter designated by Buyer for
purposes of this Agreement.
1.1.23 Intentionally Omitted.
1.1.24 "Ceiling" has the meaning set forth in Section 7.4.2(e)
hereof.
1.1.25 "CERCLA" has the meaning set forth in Section 3.8.2
hereof.
1.1.26 "CERCLIS" has the meaning set forth in Section 3.8.7
hereof.
1.1.27 "Citizens" has the meaning set forth in the
introduction hereof.
1.1.28 "Closing" has the meaning set forth in Section 2.5
hereof.
1.1.29 "Closing Date" has the meaning set forth in Section 2.5
hereof.
1.1.30 "Closing Statement of Net Assets" has the meaning set
forth in Section 2.6.4(a) hereof.
1.1.31 "Code" means the Internal Revenue Code of 1986, as
amended.
1.1.32 Intentionally Omitted.
1.1.33 "Competing Transaction" has the meaning set forth in
Section 5.2.
1.1.34 "Contracts" has the meaning set forth in Section
1.1.1(g) hereof.
1.1.35 "Control" with respect to any Person means the
ownership, directly or indirectly, of at least a majority of the voting power of
each class of capital stock of such Person entitled to vote in the election of
directors of such Person generally.
1.1.36 "Damages" has the meaning set forth in Section 7.4.1
hereof.
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1.1.37 "Disclosure Schedules" means the Schedules referenced
in Articles 3, 4 and 5 of this Agreement, as amended or supplemented pursuant to
Section 5.3.
1.1.38 "Dispute" has the meaning set forth in Section 8.6.
1.1.39 "Employees" has the meaning set forth in Section 5.9.1
hereof.
1.1.40 "Environmental Laws" has the meaning set forth in
Section 3.8 hereof.
1.1.41 "Equipment and Other Tangible Personal Property" has
the meaning set forth in Section 1.1.1(b) hereof.
1.1.42 "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
1.1.43 "ERISA Affiliate" means (a) any corporation included
with any of the Seller Parties in a controlled group of corporations within the
meaning of Section 414(b) of the Code; (b) any trade or business (whether or not
incorporated) which is under common control with any of the Seller Parties
within the meaning of Section 414 of the Code; any member of an affiliated
service group of which any of the Seller Parties is a member within the meaning
of Section 414(m) of the Code; or (d) any other person or entity treated as an
affiliate of any of the Seller Parties under Section 414(o) of the Code.
1.1.44 "Excluded Assets" has the meaning set forth in Section
2.2 hereof.
1.1.45 "Financial Statements" has the meaning set forth in
Section 3.4 hereof.
1.1.46 "FIRPTA Affidavit" has the meaning set forth in Section
2.7.1 hereof.
1.1.47 "Former Employees" means all salaried and hourly
employees once employed by Seller or any of its Affiliates, but who are no
longer so employed on the Closing Date.
1.1.48 "FTC" has the meaning set forth in Section 5.5 hereof.
1.1.49 "GAAP" has the meaning set forth in Section 3.4 hereof.
1.1.50 "Hazardous Substance" has the meaning set forth in
Section 3.8 hereof.
1.1.51 "HSR Act" has the meaning set forth in Section 3.9
hereof.
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1.1.52 "IDRB Documents" shall mean the Loan Agreements, the
Tax Regulatory Agreements, the Project Tax Certificates, and the other Contracts
related thereto to which Citizens is a party and which are listed on Schedule
1.1.52.
1.1.53 "IDRB Financings" shall mean the indebtedness arising
under the Loan Agreements included among the IDRB Documents.
1.1.54 "Indemnified Party" has the meaning set forth in
Section 7.4.2(a) hereof.
1.1.55 "Indemnifying Party" has the meaning set forth in
Section 7.4.2(a) hereof.
1.1.56 "Intellectual Property" means the trademarks, patents,
trade names and copyrights and applications therefor, inventions, trade secrets,
and confidential business information (including know-how, formulas, water
filtration, purification and pumping processes and techniques, technical data,
designs, drawings, customer and supplier lists, and business and marketing plans
and proposals), all computer software (including data and related documentation
and object and source codes), whether in magnetic format or hard copy, and
tangible embodiments thereof (in whatever form or medium) of Seller, in each
case, utilized exclusively in the Business.
1.1.57 "Interim Statement of Net Assets" means the Citizens
Water Resources Statement of Net Assets - Pennsylvania, June 30, 1999, which is
attached hereto as Schedule 3.4.
1.1.58 "Interim Statement of Net Assets Date" means June 30,
1999.
1.1.59 "IRS" has the meaning set forth in Section 3.16.2
hereof.
1.1.60 "Lien" means any lien, charge, claim, pledge, security
interest, conditional sale agreement or other title retention agreement, lease,
mortgage, security agreement, right of first refusal, option, restriction,
tenancy, license, right of way, easement or other encumbrance (including the
filing of, or agreement to give, any financing statement under the Uniform
Commercial Code or statute or law of any jurisdiction).
1.1.61 "Material Adverse Effect" means a change or effect (or
series of related changes or effects) which has or is reasonably likely to have
a material adverse change in or effect upon the business, assets, condition
(financial or otherwise), or results of operations of the Business or the
Acquired Assets, taken as a whole and taken together with the businesses and
assets being acquired by Buyer or Affiliates of Buyer pursuant to the Related
Purchase Agreements. For purpose of this Agreement, an occurrence or condition
shall not constitute a Material Adverse Effect (a) if it arises from general
business, economic or financial market conditions, from conditions generally
effecting the industries in which Seller competes, or from the transactions
contemplated by this Agreement, or (b) solely with respect to matters arising
prior to Closing, to the extent that
8
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either (i) Seller realizes the benefit of insurance maintained by Citizens on or
prior to the Closing Date and Buyer receives the cash proceeds of such insurance
to the extent required by Section 1.1.1(k), or (ii) Seller arranges for Buyer to
recover payments in respect of such occurrence or condition from any other
source (whether in a lump sum or stream of payments), it being understood and
agreed that a Material Adverse Effect may have occurred irrespective of such
insurance recovery if the occurrence or condition giving rise to such recovery
also causes a non-monetary material adverse change in or effect upon the
Business or the Acquired Assets, taken as a whole and taken together with the
businesses and assets being acquired by Buyer or Affiliates of Buyer pursuant to
the Related Purchase Agreements.
1.1.62 "Mortgage Indenture" means Indenture of Mortgage and
Deed of Trust between BNY Western Trust Company (successor in interest to Wells
Fargo Bank, N.A.) and First Interstate Bank of California (as successor trustee
to Marine Midland, N.A., formerly the Marine Midland Trust Company of New York).
1.1.63 "OSHA" has the meaning set forth in Section 3.7.1
hereof.
1.1.64 "PCBs" has the meaning set forth in Section 3.8.6
hereof.
1.1.65 "Permits" has the meaning set forth in Section 1.1.1(h)
hereof.
1.1.66 "Permitted Exceptions" has the meaning set forth in
Section 3.10 hereof; provided, however, that from and after the Closing,
Permitted Exceptions shall not include any Lien arising under or resulting from
the Mortgage Indenture.
1.1.67 "Person" means an individual, a corporation, a
partnership, an association, an Authority, a trustor other entity or
organization.
1.1.68 "Pre-Existing Conditions" has the meaning set forth in
Section 2.3.1(d).
1.1.69 "Prime Rate" means the rate per annum announced from
time to time during the reference period by Citibank N.A. as its United States
prime, reference or base rate for commercial loans.
1.1.70 "PUC" has the meaning set forth in Section 5.5 hereof.
1.1.71 "Purchase Price" has the meaning set forth in Section
2.6.1 hereof.
1.1.72 "Real Estate" has the meaning set forth in Section
1.1.1(a) hereof.
1.1.73 "Recovery" has the meaning set forth in Section
7.4.2(l) hereof.
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1.1.74 "Related Purchase Agreements" as the meaning set forth
in Section 6.1.7 hereof.
1.1.75 "Release" or "Released" has the meaning set forth in
Section 3.8 hereof.
1.1.76 "Remedial Action" has the meaning set forth in Section
3.8 hereof.
1.1.77 "Retained IDRB Indebtedness" means the indebtedness of
the Seller owing to the issuers of the Bonds and arising under the Loan
Agreements included among the IDRB Documents but only to the extent not included
in the Assumed Indebtedness.
1.1.78 "Retained Liabilities" has the meaning set forth in
Section 2.3 hereof.
1.1.79 "Review Period" has the meaning set forth in Section
2.6.4(b) hereof.
1.1.80 "SEC" means the U.S. Securities and Exchange
Commission.
1.1.81 "Securities Filings" has the meaning set forth in
Section 5.8.2 hereof.
1.1.82 "Seller" and "Seller Parties" have the respective
meaning set forth in the introduction hereof.
1.1.83 "Seller's Accountants" means KPMG LLP or any other firm
of independent public accountants hereafter designated by Seller for purposes of
this Agreement.
1.1.84 "Seller's Adjusted Amount" has the meaning set forth in
Section 2.6.4(a) hereof.
1.1.85 "Seller's Pension Plan" has the meaning set forth in
Section 5.10.1 hereof.
1.1.86 "Seller's 401(k) Plan" has the meaning set forth in
Section 5.11.1 hereof.
1.1.87 "Specified Liabilities" has the meaning set forth in
Section 7.4.2(f) hereof.
1.1.88 "Taxes" means any federal, state, local and foreign
income, payroll, withholding, excise, sales, use, personal property, use and
occupancy, business and occupation, mercantile, real estate, gross receipts,
license, employment, severance, stamp, premium, windfall profits, social
security (or similar unemployment), disability, transfer, registration, value
added, alternative, or add-on minimum, estimated, or capital stock and franchise
and other tax of any kind whatsoever, including any interest, penalty or
addition thereto, whether disputed or not.
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1.1.89 "Third Accounting Firm" has the meaning set forth in
Section 2.6.4(b) hereof.
1.1.90 "Threshold Amount" has the meaning set forth in Section
7.4.2(e) hereof.
1.1.91 "Third Party Claim" has the meaning set forth in
Section 7.4(b)(i) hereof.
1.1.92 "Transferred Accounts" has the meaning set forth in
Section 5.11.2 hereof.
1.1.93 "Transaction Documents" has the meaning set forth in
Section 3.2 hereof.
1.1.94 "Transferred Employees" has the meaning set forth in
Section 5.9.2 hereof.
1.1.95 "Union Employees" has the meaning set forth in Section
5.9.1 hereof.
1.1.96 "VEBAs" has the meaning set forth in Section 5.12
hereof.
1.1.97 "WARN Act" means the Worker Adjustment and Retraining
Notification Act, as codified at 29 U.S.C. section 2102- 2109, as amended.
ARTICLE 2
THE TRANSACTION
2.1 Sale and Purchase of Assets. Subject to the terms and conditions
of this Agreement, at the Closing referred to in Section 2.5 below, Citizens
shall, and shall cause the other Seller Parties to, sell, assign, transfer,
deliver and convey to Buyer, and Parent shall cause Buyer to purchase, the
Acquired Assets for the Purchase Price specified in Section 2.6.
2.2 Excluded Assets. The following assets of Seller shall be
excluded from the Acquired Assets (the "Excluded Assets"):
2.2.1 assets of the Seller used in both the Business and in
Citizens' gas, electric or communications businesses, the material items of
which are described on Schedule 2.2.12;
2.2.2 cash and cash equivalents in transit, in hand or in bank
accounts.
2.2.3 except as otherwise set forth herein, assets
attributable or related to any Benefit Plan;
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2.2.4 the stock record and minute books of Seller;
2.2.5 Acquired Assets disposed of by Seller after the date of
this Agreement to the extent such dispositions are not prohibited by this
Agreement;
2.2.6 except to the extent set forth in Sections 2.9, rights
to refunds of Taxes payable with respect to the Business, assets, properties or
operations of any of the Seller Parties or any member of any affiliated group of
which any of them is a member, and which are treated as Retained Liabilities
under Section 2.3.3(b) below.
2.2.7 customer and other deposits held in Seller's accounts;
2.2.8 accounts owing by and among Seller and its Affiliates;
2.2.9 notes receivable and other receivables (other than note
and accounts receivable attributable exclusively to the Business);
2.2.10 all deferred tax assets or collectibles;
2.2.11 duplicate copies of all books and records transferred
to Buyer; and
2.2.12 those certain items listed on Schedule 2.2.12.
2.3 Assumption of Certain Liabilities.
2.3.1 Buyer shall not assume any liabilities of Citizens or
Seller or any of their Affiliates, except that Buyer shall assume the following
specific liabilities and obligations:
(a) the obligations and liabilities set forth in
Sections 5.9, 5.10, 5.11 and 5.12 hereof;
(b) except as set forth in Section 2.3.3(b), all
liabilities and obligations of Seller in respect of the Contracts and Permits
assigned or transferred to Buyer pursuant to this Agreement in accordance with
the respective terms thereof, except that Buyer shall not assume any liabilities
or obligations for any breach or default by, or payment obligations of, Seller
under such Contracts and Permits occurring or arising or accruing on or prior to
the Closing Date;
(c) the Assumed Indebtedness and the Buyer's IDRB
Obligations;
(d) any liability, obligation or responsibility of
Seller for conditions at the Real Estate, whether based on statutory or common
law, now or hereafter in effect,
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known or unknown, contingent or actual, relating to or arising from pollution,
contamination or protection of the environment, human health or safety or
natural resources or relating to or arising from the presence or Release or
threat of Release of Hazardous Substances into the environment at the Real
Estate or into or from any building, structure, pipeline or other facility at
the Real Estate, or from violation of any law relating to the foregoing,
including without limitation, any CERCLA or similar liability under any federal
or state law or regulation, except to the extent Buyer has given written notice
of a claim for indemnification pursuant to Sections 7.3 and 7.4 hereof prior to
the expiration of the claims period set forth in Section 7.3.2(a) or (b) (and if
Buyer has given written notice prior to the expiration of such claims period, to
the extent that such claim is not entitled to indemnification under Sections 7.3
and 7.4) (the foregoing, the "Pre-Existing Conditions");
(e) all liabilities and obligations of Seller related to
unperformed service obligations, easement and right-of-way relocation
obligations, and construction work in progress, and all engineering and
construction required to complete scheduled construction and other capital
projects for the Business, in each case relating to the Business and outstanding
on or arising after the Closing Date except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment obligations
of, Seller under such Contracts and Permits occurring or arising or accruing on
or prior to the Closing Date;
(f) liability for accrued but unused vacation pay for
the Transferred Employees to the extent provided in Section 5.9.2;
(g) any liability, obligation or responsibility relating
to customer deposits held by Seller on the Closing Date and relating to the
Business; and
(h) all liabilities and obligations imposed on Buyer by
any PUC in connection with the operation of the Business or the ownership of the
Acquired Assets, including with respect to any liability of the types that
appear as "Accrued Liabilities" and "Non-Current Liabilities" on the financial
statements of Seller.
2.3.2 Any liabilities or obligations which are assumed by
Buyer pursuant to Section 2.3.1 above are hereinafter referred to as the
"Assumed Liabilities." At the Closing, Parent shall cause Buyer to execute and
deliver to Seller an assumption agreement, in substantially the form of the
Assumption Agreement attached hereto as Exhibit A (the "Assumption Agreement"),
pursuant to which Buyer shall assume the Assumed Liabilities. Each of Parent and
Buyer hereby irrevocably and unconditionally waives and releases the Seller
Parties from all Assumed Liabilities and all liabilities or obligations
exclusively relating to the Business or the Acquired Assets to the extent
arising from events or occurrences after the Closing or to the extent otherwise
relating to the period after the Closing, including any liabilities created or
which arise by statute or common law, including CERCLA (it being understood that
this shall not constitute a waiver and release of any claims arising out of the
contractual relationships and indemnification arrangements between Buyer and
Seller).
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2.3.3 Buyer shall not assume any liabilities, commitments or
obligations (contingent or absolute and whether or not determinable as of the
Closing) of any of the Seller Parties or any of their Affiliates except for the
Assumed Liabilities as specifically and expressly provided for above, whether
such liabilities or obligations relate to payment, performance or otherwise, and
all liabilities, commitments or obligations not expressly transferred to Buyer
hereunder as Assumed Liabilities are being retained by the Seller Parties, (the
"Retained Liabilities"). Each of the Seller Parties hereby irrevocably and
unconditionally waives and releases Buyer from all Retained Liabilities
including any liabilities created or which arise by statute or common law,
including CERCLA (it being understood that this shall not constitute a waiver
and release of any claims arising out of the contractual relationships and
indemnification arrangements between Buyer and Seller).
Without limitation to the foregoing, all of the following shall be
considered Retained Liabilities and not Assumed Liabilities (except as specified
below) for the purposes of this Agreement:
(a) any product liability, toxic tort or similar claim
for injury to person or property, regardless of when made or asserted, to the
extent that it arises out of or is based upon any express or implied
representation, warranty, agreement or guarantee made by any of the Seller
Parties or any of their Affiliates prior to Closing, or alleged to have been
made by any of such Persons, or to the extent that it is imposed or asserted to
be imposed by operation of law, in connection with any service performed or
product distributed or sold by or on behalf of any of the Seller Parties or any
of their Affiliates prior to Closing, including any claim referred to above in
this Section 2.3.3(a) relating to water quality standards, any claim relating to
any product delivered in connection with the performance of services provided by
Seller and any claim seeking recovery for consequential damages, lost revenue or
income;
(b) all refund obligations relating to the advances
existing on the Closing Date for construction of facilities relating to the
Business;
(c) except to the extent set forth in Section 2.9, any
federal, state, foreign or local income or other Tax payable with respect to the
business, assets, properties or operations of any of the Seller Parties or any
member of any affiliated group of which any of them is a member.
(d) any liability or obligation associated with or in
connection with any common plant assets of Seller (other than the liabilities
and obligations exclusively related to any common plant assets included among
the Acquired Assets);
(e) except as provided in Section 2.3.1 above, any
liability or obligation with respect to compensation or employee benefits of any
nature owed to any employees, agents or independent contractors of any of the
Seller Parties or any of their Affiliates, whether or not employed by Buyer
after the Closing, that arises out of or relates to events or conditions to the
extent occurring before the Closing Date;
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(f) except to the extent set forth in Section 2.3.1(d),
any liability, obligation or responsibility of any of the Seller Parties, or any
of their Affiliates or predecessors, whether based on statutory or common law,
but only as any such law is interpreted, amended and in effect on the Closing
Date, known or unknown, contingent or actual, relating to or arising from
pollution, contamination or protection of the environment, human health or
safety or natural resources or relating to or arising from the presence or
Release or threat of Release of Hazardous Substances into the environment or
into or from any building, structure, pipeline or other facility or relating to
or arising from the generation, use, storage, treatment, disposal, transport or
other handling of Hazardous Substances or sale or product containing Hazardous
Substances from violation of any law relating to the foregoing (but only as such
law is interpreted, amended and in effect on the Closing Date) including without
limitation, any (A) CERCLA or similar liability under any federal or state law
or regulation as interpreted, amended and in effect on the Closing Date or (B)
any such liability associated with businesses or assets of the Seller Parties
other than the Business or the Acquired Assets;
(g) liabilities and obligations relating to the Business
to the extent arising prior to Closing (unless otherwise constituting Assumed
Liabilities) arising by operation of law under any common law or statutory
doctrine (including successor liability or de facto merger);
(h) any obligation or liability arising under any
contract, commitment, instrument or agreement (1) except for Buyer's IDRB
Obligations and subject to the penultimate sentence of Section 2.4, that is not
transferred to Buyer as part of the Acquired Assets, or (2) that relates to any
breach or default (or to the extent that it relates to an event which would,
with the passing of time or the giving of notice, or both, constitute a default)
under any Contract, instrument or agreement or to any services to be provided by
Seller under any such Contract, instrument or agreement to the extent that such
services were performed or were required to have been performed on or prior to
the Closing Date;
(i) any liability or obligation in respect of the
Excluded Assets;
(j) any liability or obligation of any of the Seller
Parties or any of their Affiliates existing as a result of any act, failure to
act or other state of facts or occurrence which constitutes a breach or
violation of any of Seller's representations, warranties, covenants or
agreements contained in this Agreement, except to the extent set forth in
Section 7.4; or
(k) except for the Assumed Liabilities as specifically
and expressly set forth herein, any liability to the extent arising out of or
relating to the ownership or operation of the Acquired Assets or the Business
prior to the Closing Date (including any predecessor operations), any claims,
obligations or litigation to the extent arising out of or relating to events or
conditions occurring before the Closing Date, and any liability associated with
any business other than the Business.
2.4 Consent of Third Parties. On the Closing Date, Citizens shall
cause Seller to assign to Buyer, and Parent shall cause Buyer to assume, the
Contracts and the Permits which are
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to be transferred to Buyer as provided in this Agreement by means of the
Assumption Agreement. To the extent that the assignment of all or any portion of
any Contract or Permit shall require the consent (or result in a breach or
violation thereof) of the other party thereto or any other third party, and such
consent shall not be obtained prior to Closing, this Agreement shall not
constitute an agreement to assign any such Contract or Permit included in the
Acquired Assets. In order, however, to provide Buyer the full realization and
value of every Contract of the character described in the immediately preceding
sentence, Seller agrees that on and after the Closing, it will, at the request
and under the direction of Buyer, in the name of Seller or otherwise as Buyer
shall specify, take all reasonable actions (including without limitation the
appointment of Buyer as attorney-in-fact for Seller to proceed at Buyer's sole
cost and expense) and do or cause to be done all such things as shall in the
reasonable opinion of Buyer be necessary (a) to assure that the rights of Seller
or its Affiliates under such Contracts shall be preserved for the benefit of
Buyer and (b) to facilitate receipt of the consideration to be received by
Seller or its Affiliates in and under every such Contract. To the extent that
Buyer does receive the benefits of any such Contract pursuant to the preceding
sentence, such Contract shall be a Contract "assigned or transferred to Buyer
pursuant to this Agreement" within the meaning of Section 2.3.1(b) hereof.
Nothing in this Section 2.4 shall in any way diminish the obligations of Seller
to obtain consents and approvals under this Agreement.
2.5 Closing. Subject to the terms and conditions of this Agreement,
the closing of the sale and purchase of the Acquired Assets (the "Closing")
shall take place at 10 a.m., East Coast time, on a date mutually satisfactory to
Buyer and Seller which is no later than the fifth Business Day after
satisfaction (or waiver) of the conditions to Closing set forth in Sections 6.1
and 6.2 hereof (other than those conditions which require the delivery of any
documents or the taking of other action, at the Closing) at the offices of
Fleischman and Walsh, LLP, 1400 Sixteenth Street, N.W., Washington, D.C. 20036,
or on such other date and at such other time or place as may be mutually agreed
upon by the parties hereto (the "Closing Date"). Upon payment of the Initial
Cash Payment by Buyer and confirmed receipt thereof by Seller or the Escrow
Agent pursuant to Section 2.6.2 below, Seller shall operate the Business at the
direction of and under the control of Buyer. Notwithstanding the foregoing, the
Closing shall be deemed to be effective as of 11:59 p.m. on the Closing Date for
all purposes.
2.6 Purchase Price.
2.6.1 Purchase Price. Subject to the terms and conditions of
this Agreement, the aggregate purchase price be paid by Buyer for the purchase
of the Acquired Assets (the "Purchase Price") shall be: (i) $152,280,000 in cash
(the "Base Cash Purchase Price," the Base Cash Purchase Price as adjusted in
accordance with Section 2.6.3, Section 2.6.5 and Section 2.6.6 is referred to as
the "Initial Cash Payment"), subject to adjustment pursuant to the provisions of
this Agreement (including Section 2.6.3, Section 2.6.4, Section 2.6.5, Section
2.6.6 and Section 2.9 of this Agreement) and (ii) the assumption by Buyer of the
Assumed Liabilities.
2.6.2 Payment of Initial Cash Payment. Subject to the terms
and conditions of this Agreement, the Initial Cash Payment shall be paid by
Buyer on the Closing Date by federal other wire transfer of immediately
available funds to the account designated by Seller in writing at
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least two (2) Business Days prior to the Closing Date. If the Closing Date is
not a business day on which financial institutions are open and operating, then
on or before the last business day on which financial institutions are open and
operating before the Closing Date, Buyer shall deliver the Initial Cash Payment
to Buyer's lead bank (the "Escrow Agent") in immediately available funds in U.S.
dollars. Upon receipt, the Escrow Agent shall invest the Initial Cash Payment in
an interest-bearing account mutually agreed upon by Seller and Buyer. At
Closing, Parent shall sign and deliver to Citizens a statement which confirms
that the Closing has occurred and which instructs the Escrow Agent to transfer
to Citizens the funds representing the Initial Cash Payment, plus an amount
representing the interest earned after the Closing Date until the date the funds
are transferred, to an account that Citizens shall designate at least two (2)
business days prior to the date the funds are required to be transferred
hereunder. The Escrow Agent shall refund the balance to Buyer. The fees and
expenses of Escrow Agent shall be paid by Buyer.
2.6.3 Estimated Closing Statement. At least five (5) business
days prior to the Closing Date, Citizens shall deliver to Parent and Buyer a
statement of net assets (the "Estimated Statement of Net Assets") reflecting its
good faith calculation of the Acquired Assets of the Business as of the last day
of the latest calendar month for which financial statements of Seller are
available (the "Estimated Adjusted Net Assets"). The Estimated Statement of Net
Assets shall be prepared in the same manner and utilizing the same accounting
principles, policies and methods used in the preparation of the Interim
Statement of Net Assets (excluding for this purpose any change required by GAAP
or any Authority since June 30, 1999). The Base Cash Purchase Price shall be
increased or decreased on a dollar for dollar basis by the amount, if any, by
which the Estimated Adjusted Net Assets is greater than or less than
$106,248,178 (such increase or decrease, as the case may be, is referred to
herein as the "Estimated Net Asset Adjustment").
2.6.4 Post-Closing Adjustment to Purchase Price.
(a) Within 90 days after the Closing, Citizens shall
prepare and deliver to Parent and Buyer a Statement of Net Assets (the "Closing
Statement of Net Assets") which reflects the Acquired Assets, as of 11:59 p.m.
on the Closing Date, based on actual financial performance and calculated in the
same manner, utilizing the same accounting principles, policies and methods
utilized in preparing the Interim Statement of Net Assets (excluding for this
purpose any change required by GAAP or any Authority since June 30, 1999),
together with (A) an audit report of Seller's Accountants stating that the
Closing Statement of Net Assets has been prepared utilizing the same accounting
principles, policies and methods used in the preparation of the Interim
Statement of Net Assets and (B) a calculation of Citizens' determination of the
amount of increase or decrease in the amount of the Acquired Assets of the
Business from the Interim Statement of Net Assets Date to the Closing Date which
is derived from the Closing Statement of Net Assets ("Seller's Adjustment
Amount"). The Closing Statement of Net Assets shall not give effect to any
purchase accounting treatment arising from Buyer's purchase of the Acquired
Assets. Buyer shall pay the fees and expenses of Seller's Accountants incurred
in connection with this Section 2.6.4. Buyer agrees to cooperate, and agrees to
cause Buyer's Accountants to cooperate, with Citizens and Seller's Accountants
in connection with the preparation of the Closing Statement of Net Assets, and
related information, and shall provide to Citizens and Seller's Accountants such
books, records and
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information as may be reasonably requested from time to time, including the work
papers of Buyer's Accountants. Citizens will give Buyer and its representatives
access during the normal business hours of Citizens to the personnel, books and
records of Citizens and the work papers of Seller's Accountants to assist Buyer
in the review of the Closing Statement of Net Assets and related matters. Buyer
agrees that, following the Closing through the date on which the Closing
Statement of Net Assets is delivered, it will not take any actions with respect
to any accounting books, records, policies or procedures on which the Closing
Statement of Net Assets is to be based that would make it impossible or
impracticable to calculate the Acquired Assets in the manner and utilizing the
methods required hereby. Without limiting the generality of the foregoing, no
changes shall be made in any reserve or other account existing as of the date of
the Interim Statement of Net Assets except in the ordinary course or as a result
of events occurring after the date of the Interim Statement of Net Assets and,
in such event, only in a manner consistent with past practices of Seller.
(b) Parent or Buyer may dispute any amounts reflected on
the Closing Statement of Net Assets, in the Seller's Adjustment Amount or in the
Statement of Certain Assumed Liabilities, provided, however, that Buyer shall
notify Citizens in writing of each disputed amount, and specify the amount
thereof in dispute and the basis of such dispute, within 30 days of the Buyer's
receipt of the Closing Statement of Net Assets and the Seller's Adjustment
Amount (such 30 day period hereinafter referred to as the "Review Period"). In
the event of a dispute with respect to the Closing Statement of Net Assets, the
Seller's Adjustment Amount or the Statement of Certain Assumed Liabilities,
Buyer and Seller shall attempt to reconcile their differences and any resolution
by them as to any disputed amounts shall be final, binding and conclusive on the
parties. If Buyer and Seller are unable to reach a resolution of such
differences within 30 days of receipt of Buyer's written notice of dispute to
Seller, Buyer and Seller shall submit the amounts remaining in dispute (together
with any amounts remaining in dispute pursuant to Section 2.6.4(b) of each of
the Related Purchase Agreements) for resolution to an independent accountant
firm of national reputation mutually appointed by Seller and Buyer (such
independent accounting firm being herein referred to as the "Third Accounting
Firm"), which shall be requested to determine and report to the parties, within
30 days after such submission, upon such remaining disputed amounts, and such
report shall be final, binding and conclusive on the parties hereto with respect
to the amounts disputed. The fees and disbursements of the Third Accounting Firm
shall be allocated between Buyer and the Seller Parties so that the Seller
Parties' share of such fees and disbursements shall be in the same proportion
that the aggregate amount of such remaining disputed amounts so submitted by
Buyer to the Third Accounting Firm that is unsuccessfully disputed by the Buyer
(as finally determined by the Third Accounting Firm) bears to the total amount
of such remaining disputed amounts so submitted by the Buyer to the Third
Accounting Firm. Buyer shall pay the fees and expenses of Buyer's Accountants
incurred in connection with this Section 2.6.4(b). Seller's Adjustment Amount,
if there are no disputes with respect thereto, or Seller's Adjustment Amount as
adjusted after the resolution of all disputes with respect thereto in accordance
herewith, shall be referred to as the "Final Net Asset Adjustment."
(c) If the Base Cash Purchase Price plus (or minus, if
negative) the Final Net Asset Adjustment exceeds the Initial Cash Payment, then
within five (5) business days after final determination thereof Buyer shall pay
Seller the amount of such excess together with
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interest thereon for the period commencing on the Closing Date through the date
of payment calculated at the Prime Rate in cash by federal or other wire
transfer of immediately available funds, or certified or bank cashier's check.
If the Initial Cash Payment exceeds the sum of the Base Cash Purchase Price plus
(or minus, if negative) the Final Net Asset Adjustment, then within five (5)
business days after final determination thereof Seller shall pay Buyer the
amount of such excess together with interest thereon for the period commencing
on the Closing Date through the date of payment calculated at the Prime Rate in
cash by federal or other wire transfer of immediately available funds, or
certified or bank cashier's check.
2.6.5 Adjustment for Certain Liabilities. Concurrent with the
delivery of the Estimated Statement of Net Assets, Citizens also shall deliver
to Parent and Buyer a statement reflecting (i) the customer and other deposits
held by Seller on the Closing Date and relating to the Business, (ii) the total
amount of the Assumed Indebtedness that will be outstanding immediately after
the Closing Date, (iii) the items specified in Section 2.9 to the extent set
forth therein, and (iv) without duplications of any amount included in clause
(i) above any payments received by Seller under the Contracts and Permits for
obligations not performed as of the Closing Date (the "Statement of Certain
Assumed Liabilities"). The Statement of Certain Assumed Liabilities shall
reflect Citizens' good faith calculation of such liabilities as of the Closing
Date. The Base Cash Purchase Price shall be decreased by the net amount set
forth in the Statement of Certain Assumed Liabilities. Concurrent with the
delivery of the Closing Statement of Net Assets, Citizens also shall deliver to
Parent a statement showing any adjustments to the Statement of Certain Assumed
Liabilities and the Base Cash Purchase Price shall be further adjusted to give
effect to any such adjustments to the Statement of Certain Assumed Liabilities.
2.6.6 Additional Adjustment to the Purchase Price. The Base
Cash Purchase Price shall be decreased by an amount equal to the proceeds of
Seller's sale of the property described in Item 7 of Schedule 3.5 (net of
expenses) less the sum of (i) the federal and state income taxes payable by
Seller in respect of those proceeds and (ii) the book value of such property, as
of June 30, 1999, on Seller's books.
2.7 Deliveries and Proceedings at Closing. Subject to the terms and
conditions of this Agreement, at the Closing:
2.7.1 Deliveries to Buyer. Citizens shall, and shall cause
Seller to deliver to Buyer:
(a) bills of sale and instruments of assignment to the
Acquired Assets, duly executed by Seller, substantially in the form of Exhibit B
hereto and;
(b) the consents to transfer, of all transferable or
assignable Contracts, Intellectual Property, Permits (including Environmental
Permits), to the extent specifically required hereunder;
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(c) title certificates to any motor vehicles included in
the Acquired Assets, duly executed by Seller (together with any other transfer
forms necessary to transfer title to such vehicles);
(d) special warranty deeds of conveyance with respect to
the parcels of Real Estate owned in fee simple by Seller (or, with respect to
any such parcel which was acquired by Seller (or its predecessor in interest, in
cases involving mergers) by deed without covenant or warranty of title, a quit
claim deed without covenant or warranty of title) to Buyer, duly executed and
acknowledged by Seller and in recordable form;
(e) the Foreign Investment in Real Property Tax Act
Certification and Affidavit for each parcel of Real Estate, duly executed by the
Seller Parties (the "FIRPTA Affidavit");
(f) the certificates, opinions and other documents
required to be delivered by the Seller Parties pursuant to Section 6.1 hereof
and certified resolutions evidencing the authority of the Seller Parties as set
forth in Section 3.2 hereof;
(g) all agreements and other documents required by this
Agreement;
(h) a receipt for the payment of the Initial Cash
Payment duly executed by Citizens; and
(i) all such other instruments of conveyance as shall,
in the reasonable opinion of Buyer and its counsel, be necessary to transfer to
Buyer the Acquired Assets in accordance with this Agreement and where necessary
or desirable, in recordable form.
2.7.2 Deliveries By Buyer to the Seller Parties. Parent shall,
and shall cause Buyer to deliver to the Seller Parties:
(a) wire transfer of immediately available funds in an
amount equal to the Initial Cash Payment;
(b) the Assumption Agreement, duly executed by Buyer;
(c) the certificates, opinions and other documents
required to be delivered by Buyer pursuant to Section 6.2 hereof;
(d) all of the instruments contemplated by Section
5.24(a) to the extent not previously executed and delivered by Parent; and
(e) all such other instruments of assumption as shall,
in the reasonable opinion of Seller and its counsel, be necessary for Parent and
Buyer to assume the Assumed Liabilities in accordance with this Agreement.
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2.8 Allocation of Consideration. Buyer and Seller shall use their
good faith efforts to agree upon the allocation (the "Allocation") of the
Purchase Price, the Assumed Liabilities and other relevant items (including, for
example, adjustments to the Purchase Price) to the individual assets or classes
of assets within the meaning of Section 1060 of the Code. If Buyer and Seller
agree to such Allocation on or before ninety (90) days after the Closing Date,
Buyer and Seller covenant and agree that (i) the values assigned to the assets
by the parties' mutual agreement shall be conclusive and final for all purposes,
and (ii) neither Buyer nor Seller will take any position before any Authority or
in any proceeding that is in any way inconsistent with such Allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an Allocation
on or before ninety (90) days after the Closing Date, Buyer and Seller covenant
and agree to file and to cause their respective Affiliates to file, all Tax
returns and schedules thereto (including, for example, amended returns, claims
for refund, and those returns and forms required under Section 1060 of the Code
and any Treasury regulations promulgated thereunder) consistent with each of
Buyer and Seller's good faith Allocations, unless otherwise required because of
a change in any legal requirement.
2.9 Prorations. The parties hereto agree that the following expenses
shall be calculated and pro rated as of the Closing Date, with Seller
responsible for such expenses and to receive the benefit for the same for the
period through and including the Closing Date, and Buyer to be responsible for
and to receive the benefit of the same after the Closing Date:
2.9.1 personal and real property taxes (on the basis on which
the same were assessed and paid) and sales, occupation and use taxes, in each
case, to the extent relating to the Business and except as otherwise provided in
Section 7.1;
2.9.2 electric, fuel, gas, telephone, sewer and utility
charges, in each case, to the extent relating to the Business;
2.9.3 rentals and other charges under Contracts to be assumed
by Buyer pursuant to Section 2.3 (except to the extent provided in Section
2.3.3(h)); and
2.9.4 charges under maintenance and service contracts and
other Contracts (except to the extent provided in Section 2.3.3(h)), and fees
under Permits to be transferred to Buyer as part of the Acquired Assets;
2.9.5 water, sewer and other similar types of taxes, and
installments on special benefit assessments; and
2.9.6 payroll expenses, payroll taxes, reimbursable employee
business expenses and the financial cost of the accrued vacation of each
Transferred Employee.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
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Each of the Seller Parties jointly and severally represent and warrant to
Parent and Buyer as follows:
3.1 Qualification; No Interest in Other Entities.
3.1.1 Each of the Seller Parties is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and has all requisite corporate power and authority to own, lease
and operate the Acquired Assets and the Business as presently being conducted.
Each of the Seller Parties is qualified to do business and is in good standing
as a foreign corporation in all jurisdictions wherein the nature of the business
conducted by it or such Seller Party's ownership or use of assets and properties
make such qualification necessary, except such failures to be qualified or to be
in good standing, if any, which when taken together with all such other failures
of the Seller Parties do not have a Material Adverse Effect.
3.1.2 No shares of any corporation or any ownership or other
investment interest, either of record, beneficially or equitably, in any Person
are included in the Acquired Assets.
3.2 Authorization and Enforceability. Each of the Seller Parties has
full corporate power and authority to execute, deliver and perform this
Agreement and all other agreements and instruments to be executed by them in
connection herewith (such other agreements and instruments being hereinafter
referred to collectively as the "Transaction Documents"). The execution,
delivery and performance by each of the Seller Parties of this Agreement and the
Transaction Documents to which such Seller Party is a party have been duly
authorized by all necessary corporate action on the part of each of them. This
Agreement has been duly executed and delivered by each of the Seller Parties,
and as of the Closing Date the other Transaction Documents will be duly executed
and delivered by the Seller Parties. This Agreement is a legal, valid and
binding obligation of each Seller Party, enforceable against them in accordance
with its terms except as such enforceability may be limited by applicable laws
relating to bankruptcy, insolvency, fraudulent conveyance, reorganization or
affecting creditors' rights generally and except to the extent that injunctive
or other equitable relief is within the discretion of a court. As of the Closing
Date, each of the other Transaction Documents to which each of the Seller
Parties is a party will be duly executed and delivered by each of the Seller
Parties and will constitute the legal, valid and binding obligations of each of
the Seller Parties, enforceable against them in accordance with its respective
terms, except as such enforceability may be limited by applicable laws relating
to bankruptcy, insolvency, fraudulent conveyance, reorganization or affecting
creditors' rights generally and except to the extent that injunctive or other
equitable relief is within the discretion of a court.
3.3 No Violation of Laws or Agreements. The execution, delivery, and
performance of this Agreement and the Transaction Documents by each of the
Seller Parties do not, and the consummation of the transactions contemplated by
this Agreement and the Transaction Documents by the Seller Parties, will not:
(a) contravene any provision of the Restated Articles of Incorporation or Bylaws
of Citizens or the Articles of Incorporation or Bylaws of the other Seller
Parties; or (b) except as set forth on Schedule 3.3, violate, conflict with,
result in a breach of, or
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constitute a default (or an event which would, with the passage of time or the
giving of notice or both, constitute a default) under, or result in or permit
the termination, modification, acceleration, or cancellation of, or result in
the creation or imposition of any Lien of any nature whatsoever upon any of the
Acquired Assets or give to others any interests or rights therein under (i) any
indenture, mortgage, loan or credit agreement, license, instrument, lease,
contract, plan, permit or other agreement or commitment, oral or written, to
which any of the Seller Parties is a party, or by which the Business or any of
the Acquired Assets may be bound or affected, except for such violations,
conflicts, breaches, terminations, modifications, accelerations, cancellations,
Liens, interests or rights which, individually and in the aggregate, do not have
a Material Adverse Effect or will be cured, waived or terminated prior to the
Closing Date, or (ii) any judgment, injunction, writ, award, decree,
restriction, ruling, or order of any court, arbitrator or Authority or any
applicable constitution, law, ordinance, rule or regulation, to which any of the
Seller Parties is subject, other than those violations or conflicts which
individually and in the aggregate would not have a Material Adverse Effect.
3.4 Financial Statements. Citizens has previously delivered to Buyer
the statement of income of the Business (the "Income Statement") and the Interim
Statement of Net Assets contained in Schedule 3.4 (collectively, the "Financial
Statements"). The Income Statement (a) fairly presents in all material respects
the results of operations of the Business in accordance with generally accepted
accounting principles ("GAAP") consistently applied except for the omission of
full footnotes to the Income Statement and (b) has in all material respects been
derived from the books and records of Seller and reflects the separation of the
operation associated with the Business from other operations of Citizens. The
Interim Statement of Net Assets (a) has in all material respects been derived
from the books and records of Seller and reflects the separation of the
operations associated with the Business from other operations of Citizens; (b)
fairly presents in all material respects the Acquired Assets as of the Interim
Statement of Net Assets Date; and (c) has in all material respects been prepared
in accordance with GAAP consistently applied except for the omission of full
footnotes to such Interim Statement of Net Assets. The financial statements
included in the Annual Report to each PUC for the year ended December 31, 1998,
were prepared in all material respects in accordance with the rules and
regulations of such PUC.
3.5 No Changes. Since the Interim Statement of Net Assets Date to
the date hereof, except as disclosed in Schedule 3.5, the Seller Parties have
conducted the Business as presently operated only in the ordinary course of
business consistent with past practice. Since the Interim Statement of Net
Assets Date, except as disclosed in Schedule 3.5, there has not been:
3.5.1 any Material Adverse Effect;
3.5.2 prior to the date of this Agreement, any change in the
salaries or other compensation payable or to become payable to, or any advance
(excluding advances for ordinary business expenses) or loan to, any Transferred
Employee, or material change or material addition to, or material modification
of, other benefits (including any bonus, profit-sharing, pension or other plan
in which any of the Transferred Employees participate) to which any of the
Transferred Employees may be entitled, or any payments to any pension,
retirement, profit-sharing, bonus or
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similar plan other than in any such case (i) in the ordinary course consistent
with past practice, (ii) as required by law, or (iii) as required by any
collective bargaining agreement, if any;
3.5.3 any alteration in any material respect of the customary
practices with respect to the collection of accounts receivable of the Business
or the provision of discounts, rebates or allowances;
3.5.4 any disposition of or failure to keep in effect any
rights in, to or for the use of any Permit of the Business which individually or
in the aggregate would have a Material Adverse Effect;
3.5.5 any damage, destruction or loss affecting the Business
which individually or in the aggregate would have a Material Adverse Effect
whether or not covered by insurance;
3.5.6 prior to the date of this Agreement, any change by
Seller in its method of accounting or keeping its books of account or accounting
practices with respect to the Business except as required by GAAP and is set
forth on Schedule 3.5; or
3.5.7 prior to the date of this Agreement, any sale, transfer
or other disposition of any material assets, properties or rights of the
Business, except in the ordinary course of business consistent with past
practice.
3.6 Contracts. As of the date of this Agreement, Schedule 3.6
contains a list of all Contracts (other than (i) with respect to which the
Business' total annual liability or expense is less than (a) $250,000 per such
Contract and (b) $6,123,000 per all such Contracts (when taken together with
similar contracts omitted from Schedule 3.6 of the Related Purchase Agreements),
and (ii) Contracts that may be terminated by Seller, without penalty, on notice
of 90 days or less) except line extension agreements and similar agreements and
construction and design contracts. Seller has furnished to Buyer a correct and
complete copy of each written agreement listed in Schedule 3.6. Except as
disclosed on Schedule 3.6, with respect to each Contract, neither Seller nor, to
the Seller Parties' knowledge, any other party thereto, is in breach or default,
and to the Seller Parties' knowledge, no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the Contract, except in each case where
such breaches, terminations, modifications, accelerations or defaults,
individually or in the aggregate, do not have a Material Adverse Effect. Except
as set forth in Schedule 3.6, there are no disputes pending or to the best of
the Seller Parties' knowledge, threatened, under or in respect of any of the
Contracts, other than those that individually and in the aggregate do not have a
Material Adverse Effect.
3.7 Permits and Compliance With Laws Generally.
3.7.1 Except as disclosed on Schedule 3.7, Seller possesses
and is in compliance with all Permits required to operate the Business as
presently operated and to own, lease
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or otherwise hold the Acquired Assets under all applicable laws, rules,
regulations, ordinances and codes, including Environmental Laws (as defined
below), except to the extent that any failure to possess, or to comply with, any
Permit, laws, rules, regulations or orders would not, individually or in the
aggregate, have a Material Adverse Effect. Except as disclosed in Schedule 3.7,
the Business is conducted by Seller in compliance with all applicable laws
(including the Occupational Safety and Health Act and the rules and regulations
thereunder ("OSHA"), zoning, building and similar laws and Environmental Laws),
rules, regulations, ordinances, codes, judgments and orders, except for such
failures to comply which do not individually or in the aggregate have a Material
Adverse Effect. Except as disclosed on Schedule 3.7, all Permits of Seller
relating to the operation of the Business are in full force and effect, other
than those the failure of which to be in full force and effect would not
individually or in the aggregate have a Material Adverse Effect. There are no
proceedings pending or, to the Seller Parties' knowledge, threatened that seek
the revocation, cancellation, suspension or any adverse modification of any such
Permits presently possessed by Seller other than those revocations,
cancellations, suspensions or modifications which do not individually or in the
aggregate have a Material Adverse Effect.
3.7.2 Except as set forth on Schedule 3.7, no outstanding
notice, citation, summons or order has been issued, no outstanding complaint has
been filed, no outstanding penalty has been assessed and no investigation or
review is pending or, to the knowledge of the Seller Parties, threatened, by any
Authority or other Person with respect to any alleged (i) violation by Seller or
any Affiliate of Seller relating to the Business of any law, ordinance, rule,
regulation, code or order of any Authority; or (ii) failure by Seller or any
Affiliate to have any Permit required in connection with the conduct of the
Business or otherwise applicable to the Business (including the Acquired
Assets), except, in each case, where such violations or failures, individually
or in the aggregate, would not have a Material Adverse Effect.
3.8 Environmental Matters. Except as set forth on Schedule 3.8
hereto, and with such exceptions as are not reasonably likely, individually or
in the aggregate, to have a Material Adverse Effect:
3.8.1 Seller has not disposed of or arranged for the disposal
of or Released any Hazardous Substances, other than in conformity with
Environmental Laws, at any Real Estate, or, in connection with the Business or
Acquired Assets, at any other facility, location, or other site.
3.8.2 Seller has not received any written notice or request
for information with respect to, and to the best of the Seller Parties'
knowledge, Seller has not been designated a potentially liable party for
Remedial Action, in connection with any Real Estate, or, as of the date hereof,
with respect to the Business or Acquired Assets, at any other facility,
location, or other site under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") or comparable state statutes.
3.8.3 To the best of the Seller Parties' knowledge, except for
such use or storage of Hazardous Substances as is incidental to the conduct of
the Business, which use and storage is or has been in compliance with
Environmental Laws, and which use and storage has not
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caused any condition that requires Remedial Action, no Real Estate has been used
for the storage, treatment, generation, processing, production or disposal of
any Hazardous Substances or as a landfill or other waste disposal site in
violation of any Environmental Law.
3.8.4 To the best of the Seller Parties' knowledge,
underground storage tanks are not, and have not in the past been, located on or
under any Real Estate.
3.8.5 There are no pending or unresolved claims against Seller
or the Business for investigatory costs, cleanup, removal, remedial or response
costs, or natural resource damages arising out of any Releases or threat of
Release of any Hazardous Substances at any Real Estate or, as of the date
hereof, with respect to the Business or the Acquired Assets or at any other
facility, location, or other site.
3.8.6 To the best of the Seller Parties' knowledge, no
polychlorinated biphenyls ("PCBs") or asbestos-containing materials are located
at or in any Real Estate in violation of Environmental Laws or which require
Remedial Action.
3.8.7 To the best of the Seller Parties' knowledge, no
Hazardous Substance managed or generated by or on behalf of Seller at the Real
Estate or in connection with the Business or Acquired Assets has come to be
located at any site that is listed or formally proposed for listing under
CERCLA, the Comprehensive Environmental Response, Compensation and Liability
Information System ("CERCLIS"), or any similar state list or that is the subject
of federal, state, or local enforcement actions or investigations.
3.8.8 The Seller Parties know of no facts or circumstances
related to environmental matters (i) in connection with the operation of the
Business or (ii) concerning the Real Estate, that are reasonably likely to
result in any material reduction in the quality or quantity of water available
for supply to the Seller Parties' customers.
3.8.9 The Seller Parties will within thirty (30) days of the
date hereof provide Buyer with copies of all written environmental audits or
investigations of which they are aware (after due inquiry) prepared for the Real
Estate or operations of the Business.
3.8.10 Except as set forth in Schedule 3.8.10 or Citizens'
Annual Report on Form 10-K for the year ended December 31, 1998:
(a) The Seller Parties (including for purposes of
Section 3.8.10(a) and (b), Affiliates and predecessors of the Seller Parties)
are and have been for the past three years in full compliance with all federal
and state primary drinking water standards;
(b) The Seller Parties are and have been for the past
three years in full compliance with all federal and state secondary drinking
water standards; and
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(c) As to all outstanding violations of state or federal
drinking water standards, as of the date hereof, the Seller Parties have
completed or are in the process of completion in accordance with all applicable
deadlines, all actions required by Environmental Law or Authorities to correct
or otherwise respond to such violations.
3.8.11 Except as set forth in Schedule 3.8.11, none of the
Seller Parties will be required to place any notice or restriction relating to
the presence of Hazardous Substances in the deed to any Real Estate, or in any
written instrument accompanying this Agreement, and no Real Estate has such a
notice or restriction in its deed or any other written instrument relating to
the purchase, lease or rental of such property.
For the purposes of these Sections 3.7 and 3.8: (A) "Remedial Action" means all
actions to (x) clean up, remove, treat or in any other way respond to any
presence, Release or threat of Release of Hazardous Substances; (y) prevent the
Release or threat of Release, or minimize the further Release of any Hazardous
Substances so it does not endanger or threaten to endanger public or employee
health or welfare or the environment; or (z) perform studies, investigations or
monitoring necessary or required to investigate the foregoing; (B)
"Environmental Laws" means any common law or federal, state or local law,
statutes, rule, regulation, ordinance, code, judgment or order relating to the
protection of the environment or human health and safety and includes, but is
not limited to, CERCLA (42 U.S.C. section 9601, et seq.), the Clean Water Act
(33 U.S.C. section 1251 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. section 6901 et seq.), the Toxic Substances Control Act (15 U.S.C.
section 2601 et seq.), the Safe Drinking Water Act (42 U.S.C. section 300f et
seq.) and the Oil Pollution Act of 1990 (33 U.S.C. section 2701 et seq.), each
as has been or may be interpreted or amended as of the Closing Date and the
regulations promulgated pursuant thereto and in effect as of the Closing Date;
(C) "Released" means released, spilled, leaked, discharged, disposed of, pumped,
poured, emitted, emptied, injected, leached, dumped or allowed to escape; and
(D) "Hazardous Substances" means hazardous or toxic or polluting substance or
waste or contaminant under or pursuant to any Environmental Law, including
petroleum products, PCBs and radioactive materials.
3.9 Consents. No consent, approval or authorization of, or
registration or filing with, any Person (governmental or private) is required in
connection with the execution, delivery and performance by the Selling Parties
of this Agreement, the Transaction Documents, or the consummation of the
transactions contemplated hereby or thereby by the Seller Parties, including
without limitation in connection with the assignment of the Contracts and
Permits contemplated hereby, except (i) as required by the Hart-Scott Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), (ii) as specified on
Schedule 3.9, (iii) as required by the IDRB Documents, and (iv) for such other
consents, approvals, authorizations, registrations or filings the failure of
which to obtain or make would not individually or in the aggregate have a
Material Adverse Effect or which are obtained by the Closing Date.
3.10 Title. Seller has good and valid title to all of the Acquired
Assets constituting personal property, good and marketable title in fee simple
to all of the owned Acquired Assets constituting Real Estate and good and valid
leasehold title to all of the leased Acquired Assets
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constituting Real Estate, in each case, free and clear of Liens subject only to
the Permitted Exceptions. "Permitted Exceptions" as used herein shall mean (a)
the Liens set forth in Schedule 3.10 hereto, (b) Liens securing Taxes,
assessments, governmental charges or levies, or the claims of materialmen,
mechanics, carriers and like persons, all of which are not yet due and payable
or which are being contested in good faith or (c) such other Liens which,
individually or in the aggregate, do not have a Material Adverse Effect (it
being understood that to the extent a Permitted Exception relates to or arises
from a Retained Liability, Seller shall still be liable for such Retained
Liability to the extent set forth herein).
3.11 Real Estate.
3.11.1 As of the date hereof, Seller has not received any
written or oral notice for assessments for public improvements against the Real
Estate which remains unpaid, and to the best knowledge of the Seller Parties, no
such assessment has been proposed. Except as set forth on Schedule 3.11, as of
the date hereof, there is no pending condemnation, expropriation, eminent domain
or similar proceeding affecting all or any portion of any of the Real Estate and
to the best knowledge of the Seller Parties no such proceeding is threatened.
3.11.2 Except as disclosed on Schedule 3.6, as of the date
hereof, Seller is not a lessee under any Contract relating to the use or
occupancy of the Real Estate involving annual payments in excess of $100,000.
3.11.3 Each parcel of the Real Estate has physical and, to
Seller's knowledge, legal vehicular and pedestrian access to and from public
roadways as may be reasonably necessary to the operation of the Business except
where the failure to have such access does not have a Material Adverse Effect.
To Seller's knowledge, no fact or condition exists which would result in the
termination of (a) the current access from each parcel of the Real Estate, and
(b) continued use, operation, maintenance, repair and replacement of all
existing and currently committed water lines used by Seller in connection with
the Business, except where such termination would not have a Material Adverse
Effect.
3.12 Taxes. The Seller Parties have (a) timely filed all material
returns and reports for Taxes, including information returns, that are required
to have been filed in connection with, relating to, or arising out of, the
Business, (b) paid all Taxes that are shown to have come due pursuant to such
returns or reports and (c) paid all other material Taxes not required to be
reported on returns in connection with, relating to, or arising out of, or
imposed on the property of the Business for which a notice of assessment or
demand for payment has been received or which have otherwise become due. To the
best of the Seller Parties' knowledge, all such returns or reports have been
prepared in accordance with all applicable laws and requirements in all material
respects. Except to the extent disclosed on Schedule 3.12, none of the assets of
the Business or constituting any of the Acquired Assets (a) is property that is
required to be treated as owned by another Person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code, (b) is
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"tax-exempt use property" within the meaning of Section 168(h) of the Code or
(c) directly or indirectly secures any debt the interest on which is tax-exempt
under Section 103(a) of the Code.
3.13 Patents and Intellectual Property Rights. To the best of the
Seller Parties' knowledge, the operations of Seller do not make any unauthorized
use of any Intellectual Property except for any such unauthorized uses which do
not have a Material Adverse Effect. Assuming the consents listed as item XII on
Schedule 3.9 are obtained, Buyer will not lose any of Seller's rights to, or be
required to pay increased royalties for, any Intellectual Property included in
the Acquired Assets as a result of the Closing and the consummation of the
transactions contemplated by this Agreement, except for any such rights or such
increased royalties the loss or payment of which would, individually or in the
aggregate, not have a Material Adverse Effect.
3.14 Accounts Receivable. The accounts receivable of Seller arising
from the Business as set forth on the Interim Statement of Net Assets or arising
since the date thereof have arisen out of bona fide sales and deliveries of
goods, performance of services and other business transactions in the ordinary
course of business consistent with past practice; the allowance for collection
losses on the Interim Statement of Net Assets has been determined in accordance
with GAAP consistent with past practice.
3.15 Labor Relations. As of the date hereof, except as set forth in
Schedule 3.15, to best of the knowledge of the Seller Parties, there has been no
union organizing efforts with respect to the Business conducted within the last
three (3) years and there are none now being conducted with respect to the
Business. Except as set forth in Schedule 3.15, Seller has not at any time
during the three (3) years prior to the date of this Agreement had, nor, to the
best of the Seller Parties' knowledge, is there now threatened, a strike, work
stoppage or work slow down with respect to or affecting the Business which had
or could reasonably be expected to have a Material Adverse Effect. As of the
date hereof, except as set forth in Schedule 3.15, (i) no Employee is
represented by any union or other labor organization and (ii) there is no unfair
labor practice charge pending or, to the best knowledge of the Seller Parties,
threatened against Seller relating to any of the Employees as related to the
Business which could reasonably be expected to have a Material Adverse Effect.
3.16 Employee Benefit Plans.
3.16.1 Schedule 3.16.1 contains a true and complete list of
each "employee benefit plan," as defined in Section 3(3) of ERISA (including any
"multiemployer plan" as defined in Section 3(37) of ERISA), bonus, incentive,
deferred compensation, excess benefit, employment contract, stock purchase,
stock ownership, stock option, supplemental unemployment, vacation, sabbatical,
sick-day, severance or other material employee benefit plan, program or
arrangement (other than those required to be maintained by law), whether written
or unwritten, qualified or nonqualified, funded or unfunded, foreign or
domestic, (i) maintained by, or contributed to by Citizens or any of its
Affiliates, in respect of any Employee or Former Employee, or (ii) with respect
to which Citizens or any of its Affiliates has any liability in respect of any
Employee or Former
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Employee (the"Benefit Plans"). Except as disclosed on Schedule 3.16.1, neither
Citizens nor any of its Affiliates maintains any bonus, pension or welfare
benefit plan, program or arrangement, including any deferred compensation
arrangement, for directors, consultants or independent contractors of the
Business.
3.16.2 A true and complete copy of each Benefit Plan and
related trust agreements and (to the extent applicable) a copy of each Benefit
Plan's current summary plan description and in the case of an unwritten Benefit
Plan, a written description thereof, has been furnished to Buyer. In addition,
to the extent applicable, Buyer has been provided a copy of the most recent
Internal Revenue Service ("IRS") determination letter issued to each Benefit
Plan and a copy of the most recent IRS Form 5500 together with all schedules and
accountants' statement filed, and actuarial reports prepared, on behalf of each
Benefit Plan.
3.16.3 Each Benefit Plan which is intended to be qualified
under Section 401(a) of the Code (as designated on Schedule 3.16.1) is so
qualified, and will remain so qualified upon the timely making of certain
amendments required by law during the applicable remedial amendment period, and
any trust forming a part of such a Benefit Plan is tax exempt under Section
501(a) of the Code. Each such Benefit Plan has been amended, as and when
necessary, to comply with the Tax Reform Act of 1986 and upon timely filing of
an Application for Determination with the Internal Revenue Service, will be
eligible to make further such amendments under the"remedial amendment period."
3.16.4 Except as disclosed in Schedule 3.16.4, each Benefit
Plan has been operated and administered in all material respects in accordance
with its terms and all applicable laws, including ERISA and the Code.
3.16.5 None of the Acquired Assets is subject to a Lien or Tax
under the Code or ERISA.
3.16.6 Neither Citizens nor any ERISA Affiliate and, to the
knowledge of the Seller Parties, no other Person, has taken any action or failed
to take any action with respect to any Benefit Plan that may subject Buyer or
any Benefit Plan under which liabilities may be assumed by Buyer under Sections
5.10, 5.11 or 5.12 ("Assumed Benefit Liabilities") to any material liability or
Tax under the Code or ERISA.
3.16.7 Neither Citizens nor any ERISA Affiliate has incurred
or expects to incur any withdrawal liability with respect to any Benefit Plan
which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of
ERISA, including any contingent liability under Section 4204 of ERISA or
withdrawal liability arising from the actions of Citizens or any ERISA Affiliate
contemplated by this Agreement. All contributions that Citizens or any ERISA
Affiliate have been obliged to make to any Benefit Plan, including any
multiemployer plan, have been duly and timely made.
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3.16.8 There are no pending or, to the knowledge of the Seller
Parties, threatened claims (other than routine claims for benefits),
assessments, complaints, proceedings or investigations of any kind in any court
or governmental agency with respect to any Benefit Plan which could reasonably
be expected to give rise to a material liability to Buyer.
3.16.9 Except as disclosed on Schedule 3.16.9, no Benefit Plan
provides benefits, including without limitation, death or medical benefits,
beyond termination of service or retirement other than (i) coverage mandated by
law, or (ii) death or retirement benefits under a Benefit Plan qualified under
Section 401(a) of the Code. Seller's Retiree Medical Plan contains provisions
permitting Seller to modify or terminate retiree medical benefits at any time,
without prior notice to any covered individual. Except with respect to retirees,
"grandfathered" employees and collectively bargained employees, Seller knows of
no reason why its ability to effect those provisions would be limited.
3.16.10 With respect to each Benefit Plan that is a "group
health plan" within the meaning of Section 607 of ERISA and that is subject to
Section 4980B of the Code, Citizens and each ERISA Affiliate have complied in
all material respects with the continuation coverage requirements of the Code
and ERISA.
3.17 Absence of Undisclosed Liabilities. Except as disclosed in
Schedule 3.17, Seller has no liabilities with respect to the Business which
would constitute Assumed Liabilities, either direct or indirect, matured or
unmatured or absolute, contingent or otherwise, except:
3.17.1 the Assumed Indebtedness and those other liabilities
which would decrease the Base Cash Purchase Price pursuant to Section 2.6.5 to
the extent assumed by Buyer at Closing;
3.17.2 liabilities arising in the ordinary course of business
under any Contract or Permit or with respect to any agreement or instrument
included within the definition of Real Estate; and
3.17.3 those liabilities incurred, consistent with past
business practice, in or as a result of the normal and ordinary course of
business and reflected in the books and records related to the Business;
3.17.4 the obligations and liabilities set forth in Sections
5.9, 5.10, 5.11 and 5.12 hereof; and
3.17.5 those other liabilities, which individually and in the
aggregate, would not have a Material Adverse Effect.
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3.18 No Pending Litigation or Proceedings. Except as disclosed in
Schedule 3.18, there are no actions, suits, investigations or proceedings
pending against or, to the best of the Seller Parties' knowledge, threatened,
against or affecting, Seller, the Business or any of the Acquired Assets before
any court or arbitrator or Authority which individually or in the aggregate,
would have a Material Adverse Effect. Except as disclosed in Schedule 3.18,
there are currently no outstanding judgments, decrees or orders of any court or
Authority against any of the Seller Parties, which relate to or arise out of the
conduct of the Business or the ownership, condition or operation of the Business
or the Acquired Assets (other than any PUC order relating to rates, tariffs and
similar matters arising in the ordinary course of business) which individually
or in the aggregate would have a Material Adverse Effect.
3.19 Supply of Utilities. Except as set forth on Schedule 3.19, the
Real Estate has adequate arrangements for supplies of electricity, gas, oil,
coal and/or sewer for all operations at the 1998 or current operating levels,
whichever is greater. Except as set forth on Schedule 3.19, there are no actions
or proceedings pending or, to the best of the Seller Parties' knowledge,
threatened, that would adversely affect the supply of electricity, gas, coal or
sewer to the Real Estate except for those which individually and in the
aggregate would not have a Material Adverse Effect.
3.20 Insurance. Schedule 3.20 lists the Seller Parties' policies and
contracts in effect as of the date hereof for insurance covering the Acquired
Assets or Assumed Liabilities and the operation of the facilities constituting
the Business owned or held by Seller, together with the risks insured against,
coverage limits and deductible amounts.
3.21 Relationship with Customers. As of the date hereof, Seller does
not have any current customer which accounted for more than 5% of the net sales
of the Business (taken together with the businesses being acquired by Buyer or
Affiliates of Buyer pursuant to the Related Purchase Agreements) for the
immediately preceding 12-month period.
3.22 WARN Act. Except as contemplated by Section 5.9 hereby or as
set forth in Schedule 3.22 hereto, within six months prior to the date hereof,
(i) Seller has not effectuated (a) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of the Business; or (b) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment or one or
more facilities or operating units within any site of employment or facility of
the Business; (ii) Seller has not been affected by any transaction or engaged in
layoffs or employment terminations with respect to the Business sufficient in
number to trigger application of any similar state or local law; and (iii) none
of Seller's employees who are employed in connection with the Business has
suffered an "employment loss" (as defined in the WARN Act) .
3.23 Condition of Assets. Except as set forth on Schedule 3.23, the
buildings, machinery, equipment, tools, furniture, improvements and other fixed
tangible assets of the Business included in the Acquired Assets, taken as a
whole and taken together with the similar assets included
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among the assets being acquired by Buyer or Affiliates of Buyer pursuant to the
Related Purchase Agreements, are in good operating condition and repair,
reasonable wear and tear excepted.
3.24 Brokerage. None of the Seller Parties or their Affiliates have
made any agreement or taken any other action which might cause any Person to
become entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to Buyer or
its Affiliates.
3.25 All Assets. Except as set forth on Schedule 3.25 and for the
Excluded Assets, the Acquired Assets include all assets, rights, properties and
contracts the use of which is necessary to the continued conduct of the Business
by Buyer substantially in the manner as it was conducted prior to the Closing
Date, including the service of all utility customers in substantially the same
manner and at substantially the same service levels as provided by Seller on the
date hereof.
3.26 Year 2000 Matters. Citizens has (1) initiated a review and
assessment of all mission critical areas within the Business and related
operations (including those affected by suppliers and vendors) that it
reasonably believes could be adversely affected by the "Year 2000 Problem" (that
is, the risk that computer applications used by any Seller Party (or suppliers
and vendors) may be unable to recognize and properly perform date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem
all as set forth in Citizens' Annual report on Form 10-K for the fiscal year
ended December 31, 1998 and Citizens' Quarterly reports on Form 10-Q for the
periods ending March 31, 1999 and June 30, 1999, and (iii) to date, implemented
that plan substantially in accordance with that timetable. Seller has
contingency plans that are dedicated to ensuring that established and expected
levels of customer service are maintained without interruption, while core
business functionality is preserved during the millennium transition. With
respect to its suppliers and vendors, the foregoing representation and warranty
is expressly limited to matters known to Seller after making reasonable
inquiries of such suppliers and vendors. Seller makes no representation or
warranty with respect to the receipt or accuracy of any response received from
any vendor or supplier.
3.27 Product Liability. Except as disclosed in Schedule 3.27 and
except for those liabilities which individually or in the aggregate would not
have a Material Adverse Effect, there are no (a) liabilities of the Seller
Parties or their Affiliates, fixed or contingent, asserted or, to the knowledge
of the Seller Parties, unasserted, with respect to any product liability or
similar claim that relates to any product or service sold by Seller or the
Business to others or (b) liabilities of the Seller Parties or their Affiliates,
fixed or contingent, asserted or, to the knowledge of the Seller Parties
unasserted, with respect to any claim for the breach of any express or implied
product warranty or a similar claim with respect to any product or service sold
by Seller or the Business to others.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
Parent and Buyer jointly and severally represent and warrant to Seller as
follows:
4.1 Organization and Good Standing.
4.1.1 Parent is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
4.1.2 Buyer is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation and has all
requisite corporate power and authority to own, lease and operate the Acquired
Assets and the Business. Buyer is qualified to do business and is in good
standing in all jurisdictions wherein the nature of the business conducted by it
or Buyer's ownership or use of assets and properties make such qualification
necessary, except such failures to be qualified or to be in good standing, if
any, which when taken together with all such failures of Buyer do not have a
material adverse effect on its ability to perform its obligations under this
Agreement and the Transaction Documents.
4.2 Authorization and Enforceability. Each of Buyer and Parent has
full corporate power and authority to execute, deliver and perform this
Agreement and the other Transaction Documents to which either of them is a
party. The execution, delivery and performance by Buyer and Parent of this
Agreement and the Transaction Documents to which Buyer and/or Parent is a party
have been duly authorized by all necessary corporate action on the part of each
of them. This Agreement has been duly executed and delivered by Buyer and
Parent, and as of the Closing Date the other Transaction Documents will be duly
executed and delivered by Buyer and Parent. This Agreement is a legal, valid and
binding obligation of Buyer and Parent, enforceable against them in accordance
with its terms, except as such enforceability may be limited by applicable laws
relating to bankruptcy, insolvency, fraudulent conveyance, reorganization or
affecting creditors' rights generally and except to the extent that injunctive
or other equitable relief is within the discretion of a court. As of the Closing
Date, each of the other Transaction Documents to which Buyer and Parent is a
party will be duly executed and delivered by Buyer and Parent and will
constitute the legal, valid and binding obligations of Buyer and Parent,
enforceable against them in accordance with its respective terms, except as such
enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief is
within the discretion of a court.
4.3 No Violation of Laws or Agreements. The execution, delivery and
performance of this Agreement and the Transaction Documents by Buyer and/or
Parent do not, and
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the consummation of the transactions contemplated hereby and thereby will not,
(a) contravene any provision of the Articles of Incorporation or Bylaws of Buyer
or the Certificate of Incorporation or Bylaws of Parent; or (b) violate,
conflict with, result in a breach of, or constitute a default (or an event which
would with the passage of time or the giving of notice, or both, constitute a
default) under, or result in or permit the termination, modification,
acceleration, or cancellation of (i) any indenture, mortgage, loan or credit
agreement, license, instrument, lease, contract, plan, permit, authorization,
proof of dedication or other agreement or commitment, oral or written, to which
Parent or Buyer is a party, or by which any of their assets or properties may be
bound or affected, except for such violations, conflicts, breaches,
terminations, modifications, accelerations, cancellations, interests or rights
which, individually or in the aggregate do not have a material adverse effect on
their respective ability to perform their obligations under this Agreement and
the Transaction Documents, or (ii) any judgment, injunction, writ, award,
decree, restriction, ruling, or order of any court, arbitrator or Authority or
any applicable constitution, law, ordinance, rule or regulation to which Buyer
or Parent is subject other than those violations and conflicts which
individually or in the aggregate do not have a material adverse effect on their
respective ability to perform their obligations under this Agreement and the
Transaction Documents.
4.4 Consents. No consent, approval or authorization of, or
registration or filing with, any Person (governmental or private) is required in
connection with the execution, delivery and performance by Buyer and Parent of
this Agreement, the other Transaction Documents, or the consummation of the
transactions contemplated hereby or thereby by Buyer or Parent except (i) as
required by the HSR Act, (ii) as specified on Schedule 3.9 and (iii) for such
consents, approvals, authorizations, registrations or filings, the failure to
obtain or make would not individually or in the aggregate have a material
adverse effect on their respective ability to perform their obligations under
this Agreement and the Transaction Documents.
4.5 Financing. Buyer and Parent have, and at the Closing Date, will
have sufficient resources to pay the Purchase Price, and Parent, Buyer or the
other Affiliates of Parent that are buyers of the assets and businesses being
acquired pursuant to the Related Purchase Agreements have, and at the Closing
Date, will have sufficient resources to pay the purchase prices set forth in the
Related Purchase Agreements.
4.6 Brokerage. None of Parent, Buyer or their Affiliates have made
any agreement or taken any other action which might cause any Person to become
entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to the
Seller Parties.
4.7 Insurance. Schedule 4.7 lists the policies and contracts in
effect as of the date hereof for casualty and property insurance covering
Buyer's assets and properties and the operation of Buyer's business, together
with the risks insured against, coverage limits and deductible amounts.
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ARTICLE 5
ADDITIONAL COVENANTS
5.1 Conduct of Business. Except (i) as otherwise specifically
permitted by this Agreement, (ii) as set forth in Schedule 5.1 hereto or (iii)
with the prior written consent of Buyer, from and after the date of this
Agreement and up to and including the Closing Date, each of the Seller Parties
agree that:
5.1.1 Seller shall conduct the Business as presently operated
and only in the ordinary course of business consistent with past practice.
5.1.2 They shall promptly inform Buyer in writing of any
specific event or circumstance of which they are aware, or of which they receive
notice, that has or is likely to have, individually or in the aggregate, taken
together with the other events or circumstances, a Material Adverse Effect on
the Acquired Assets or the Assumed Liabilities.
5.1.3 Seller shall not:
(a) change or modify in any material respect existing
credit and collection policies, procedures and practices with respect to
accounts receivable;
(b) enter into any contract or commitment, waive any
right or enter into any other transaction (except in the ordinary course of
business) which would have a Material Adverse Effect;
(c) except in the event of service interruption,
emergency or casualty loss, commit to acquire subsequent to the Closing Date on
behalf of the Business any capital asset or group of capital assets costing in
excess of $1,000,000 that is not included in the capital budget of Seller for
fiscal year 2000 and which, if so acquired, would be included in the Acquired
Assets; commencing December 1, 1999, accept or receive customer advances for
construction in excess of $9,000,000 (when combined with customer advances
relating to the businesses being acquired by Buyer or Affiliates of Buyer
pursuant to the Related Purchase Agreements) per each of the next four
consecutive three-month periods unless pursuant to an existing tariff, Contract
or Permit of Seller; or sell or lease or agree to sell or lease or otherwise
dispose of any assets included in the Acquired Assets except in the ordinary
course of the conduct of the Business, consistent with past practice;
(d) except in the ordinary course of business,
consistent with past practice or as required under any of Seller's debt
instruments or indentures, mortgage, pledge or subject to any Lien (other than
Permitted Liens) any of the Acquired Assets;
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(e) change any compensation or benefits or grant any
material new compensation or benefits payable to or in respect of any
Transferred Employee except (i) as required by law, and (ii) in the ordinary
course, consistent with past practice; provided, however, no individual Employee
shall in any event receive a compensation increase in excess of seven percent
(7%);
(f) other than in the ordinary course of business
consistent with past practice, sell or otherwise transfer any assets necessary,
or otherwise material to the conduct of, the Business which would constitute
Acquired Assets;
(g) change the Seller's method of accounting or keeping
its books of account or accounting practices with respect to the Business,
except as required by GAAP or any Authority;
(h) intentionally and wilfully take or omit to take any
action which if taken or omitted prior to the date hereof would constitute or
result in a breach of any representations or warranties set forth in Sections
3.1, 3.2, 3.3, 3.4, 3.7, 3.8, 3.10, 3.14, 3.16 and 3.25 hereof (it being
understood that the failure to cure a breach shall not, by itself, be an
intentional and wilful omission to take action); or
(i) prepay, redeem, retire, refund or otherwise
extinguish any of the Assumed Indebtedness.
5.2 Negotiations. Neither Citizens nor any Person controlled by
Citizens or under common control with Citizens (each such person being a
"Section 5.2 Affiliate"), nor any officer, director, employee, representative or
agent of Citizens or any of their Section 5.2 Affiliates, shall, directly or
indirectly, solicit or initiate or participate in any way in discussions or
negotiations with, or provide any information or assistance to, or enter into an
agreement with any Person or group of Persons (other than Parent, Buyer or any
Person controlled by Parent or Buyer or under common control with Parent, Buyer
or any Persons providing financing to the parties hereto in connection with
facilitating the consummation of the transactions contemplated by this
Agreement) concerning any acquisition, merger, consolidation, liquidation,
dissolution, disposition or other transaction (or series of such transactions)
that would result in the transfer to any such Person or group of Persons of ten
percent (10%) of the Acquired Assets (as measured by net book value of such
assets on the date of each such transaction) or the acquisition, merger,
consolidation, liquidation, dissolution, disposition or other transaction (or
series of such transactions) involving the Seller Parties, if such acquisition,
merger, consolidation, liquidation, dissolution, disposition or other
transaction (or series of such transactions) would be inconsistent, in any
respect, with the obligations of the Seller Parties hereunder (any of the
foregoing transactions, a "Competing Transaction").
5.3 Disclosure Schedules. As promptly as practicable, the Seller
Parties will provide Buyer with a supplement or amendment to the Disclosure
Schedules with respect to any
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matter, condition or occurrence which is required to be set forth or described
in the Disclosure Schedules. For the avoidance of doubt, a matter, condition or
occurrence shall only be "required" to be set forth or described in the
Disclosure Schedules if the failure to be so disclosed would result in a breach
of the applicable representation or warranty (qualified by Material Adverse
Effect where applicable) on the date hereof or on the Closing Date. In addition,
Seller shall have the right at any time and from time to time prior to the
Closing to supplement or amend the Disclosure Schedules. Seller may provide
Disclosure Schedules with respect to any representation or warranty of this
Agreement whether or not a specific schedule is referred to therein. In the
event that any supplement or amendment of such Disclosure Schedules shall be
provided later than five (5) business days prior to the Closing Date, the Buyer
shall have the right to delay the Closing for a period of five (5) business days
in order for Buyer to review such supplement or amendment. No such supplement or
amendment shall be deemed to cure any breach of or alter any representation or
warranty made in this Agreement so as to permit the Closing to occur unless
Buyer specifically agrees thereto in writing. The Seller Parties shall promptly
inform Buyer, and Buyer will promptly inform the Seller Parties of any fact or
event which comes to their attention, the existence of which constitutes or
likely will constitute a breach in any material respects of any representation
or warranty in this Agreement. In addition, Parent will, within five (5) days of
receipt thereof, forward to Seller (i) any title report Buyer receives from a
title company with respect to the Real Estate and (ii) any written communication
regarding a specific Lien or title defect affecting a specifically identified
parcel of the Real Estate sent to the President, Treasurer or General Counsel of
Parent or the President or Corporate Counsel of any other Buyer Party, and sent
by a party other than the Seller Parties, their legal counsel, financial
advisors or representatives.
5.4 Mutual Covenants. The parties mutually covenant from the date of
this Agreement to the Closing Date (and subject to the other terms of this
Agreement, including Section 5.8 hereof):
5.4.1 to cooperate with each other in determining whether
filings are required to be made or consents required to be obtained in any
jurisdiction in connection with the consummation of the transactions
contemplated by this Agreement and in making or causing to be made any such
filings promptly and in seeking to obtain timely any such consents;
5.4.2 to use all reasonable efforts to obtain promptly the
satisfaction (but not waiver) of the conditions to the Closing of the
transactions contemplated herein (each party hereto shall furnish to the other
and to the other's counsel all such information as may be reasonably required in
order to effectuate the foregoing action); and
5.4.3 to advise the other parties promptly if such party
determines that any condition precedent to its obligations hereunder will not be
satisfied in a timely manner.
5.5 Filings and Authorizations. The parties hereto will as promptly
as practicable, make or cause to be made all such filings and submissions under
laws, rules and
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regulations applicable to it or its Affiliates as may be required to consummate
the terms of this Agreement, including all notifications and information to be
filed or supplied pursuant to the HSR Act and with the applicable public utility
commission (each, a "PUC"). Any such filings and supplemental information will
be in substantial compliance with the requirements of the applicable law, rule
or regulation. Each of Parent and Buyer, on the one hand, and the Seller
Parties, on the other, shall furnish to the other such necessary information and
reasonable assistance as the other may request in connection with its
preparation of any filing or submission to the PUC or which is necessary under
the HSR Act. The Seller Parties, on the one hand and Buyer and Parent, on the
other, shall keep each other apprised of the status of any communications with,
and inquiries or requests for additional information from, any Authority,
including the PUC, the United States Federal Trade Commission ("FTC") and the
Antitrust Division of the United States Department of Justice (the "Antitrust
Division"), and shall comply promptly with any such inquiry or request. Each of
Citizens, Seller, Parent and Buyer will use its reasonable efforts to obtain any
clearance required under the HSR Act and from the PUC for the purchase and sale
of the Acquired Assets in accordance with the terms and conditions hereof.
Notwithstanding the foregoing, nothing contained in this Agreement will require
or obligate any party or their respective Affiliates: (i) to initiate, pursue or
defend any litigation (or threatened litigation) to which any Authority
(including the PUC, the Antitrust Division and the FTC) is a party; (ii) to
agree or otherwise become subject to any material limitations on (A) the right
of Buyer or its Affiliates effectively to control or operate the Business or the
right of Seller or its Affiliates effectively to control or operate Citizens'
other businesses, (B) the right of Buyer or its Affiliates to acquire or hold
the Business or the right of Seller or its Affiliates to hold the Excluded
Assets or Citizens' other businesses, or (C) the right of Buyer to exercise full
rights of ownership of the Business or all or any material portion of the
Acquired Assets or the right of Citizens to exercise full rights of ownership of
Citizens' other businesses or all or any material portion of the Excluded
Assets; or (iii) to agree or otherwise be required to sell or otherwise dispose
of, hold separate (through the establishment of a trust or otherwise), or divest
itself of all or any portion of the business, assets or operations of Citizens,
Seller, Parent, Buyer, any Affiliate of Buyer or the Business. The parties agree
that no representation, warranty or covenant of Buyer, Parent, or Citizens
contained in this Agreement shall be breached or deemed breached as a result of
the failure by Parent and Buyer on the one hand or the Seller Parties, on the
other, to take any of the actions specified in the preceding sentence.
5.6 Public Announcement. No party hereto shall make or issue, or
cause to be made or issued, any public announcement or written statement
concerning this Agreement or the transactions contemplated hereby without the
prior written consent of the other party (which will not be unreasonably
withheld or delayed), unless counsel to such party advises that such
announcement or statement is required by law (in which case the parties shall
make reasonable efforts to consult with each other prior to such required
announcement).
5.7 Further Assurances. Each of Citizens, Parent, Buyer and Seller,
from time to time after the Closing, at Buyer's or Seller's request, will
execute, acknowledge and deliver to the applicable person such other instruments
of conveyance and transfer and will take such other actions
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and execute such other documents, certifications, and further assurances as
Buyer or Seller, as the case may be, may reasonably require in order to
transfer, in accordance with the terms and conditions of this Agreement, more
effectively in Buyer or to put Buyer more fully in possession of any of the
Acquired Assets or better to enable Buyer to complete, perform and discharge any
of the Assumed Liabilities. Each party shall cooperate and deliver such
instruments and take such action as may be reasonably requested by the other
party in order to carry out the provisions and purposes of this Agreement and
the transactions contemplated hereby.
5.8 Cooperation.
5.8.1 Parent, Buyer, Citizens and Seller shall cooperate and
shall cause their respective Affiliates, officers, employees, agents and
representatives to cooperate to ensure the orderly transition of the Business
from Seller to Buyer and to minimize the disruption to the Business resulting
from the transactions contemplated hereby.
5.8.2 Without limiting the foregoing, neither Parent and
Buyer, nor Citizens and Seller (nor any of their respective Affiliates) shall
make any filings pursuant to federal or state securities laws ("Securities
Filings") or make any consent solicitations to holders of Assumed Indebtedness
which include any information about Seller, Buyer (or their respective
Affiliates) or the transactions contemplated hereby without consulting with the
other party and providing the other party a reasonable opportunity to review and
comment on such information, it being understood and agreed that any party may
so disclose such information in its reasonable judgment to the extent such
party's counsel advises it that such disclosure is advisable under applicable
law. Each of Parent, Buyer, Citizens and Seller shall, and shall cause their
respective Affiliates to, comply with all applicable federal and state
securities laws in connection with this Agreement and the transactions
contemplated hereby (including any solicitation of consents of holders of
Assumed Indebtedness), and all information supplied by any party for inclusion
in any Securities Filing or consent solicitation, including, without limitation,
any proxy or information statement, or any registration statement on Form S-4
shall be true and correct in all material respect and shall not contain any
untrue statement of a material fact or omit to state any material fact which is
required to be stated therein or which is necessary to make the statements
contained therein not misleading in light of the circumstances in which they
were made.
5.8.3 During the first 90 days after the Closing Date (180
days for Trademarks on tanks), Buyer shall have the right to use all of the
logos, trademarks and trade identification of Seller as are located at the Real
Estate or on the Acquired Assets (collectively, the "Trademarks"). Buyer's use
of the Trademarks shall be in accordance with such reasonable quality control
standards as may be promulgated by Seller and provided to Buyer. If Seller shall
notify Buyer in writing of Buyer's material failure to comply with such
reasonable quality control standards and Buyer continues to not comply with such
reasonable quality control standards for more than 20 days after receipt of such
notice, Seller shall have the right to terminate Buyer's right under this
Section 5.8.3 to use the Trademarks.
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5.8.4 Seller shall give Buyer and its representatives
(including Buyer's Accountants, consultants, counsel and employees), upon
reasonable notice and during normal business hours, full access to the
properties, contracts, employees, books, records and affairs of Seller to the
extent relating to the Business and the Acquired Assets, and shall cause its
officers, employees, agents and representatives to furnish to Buyer all
documents, records and information (and copies thereof), to the extent relating
to the Business and the Acquired Assets, as Buyer may reasonably request. Except
to the extent disclosed in the Disclosure Schedules in accordance with Sections
5.3 and 8.4, no investigation or receipt of information by Buyer pursuant to, or
in connection with, this Agreement, shall diminish or obviate any of the
representations, warranties, covenants or agreements of the Seller Parties under
this Agreement or the conditions to the obligations of Parent or Buyer under
this Agreement. All information provided to Buyer under this Agreement shall be
held subject to the terms and conditions of the Confidentiality Agreement dated
August 2, 1999 between Citizens and Parent.
5.9 Employees; Employee Benefits.
5.9.1 Schedule 5.9.1 lists divisions and the number of all
salaried and hourly employees actively employed (as of the date of this
Agreement) in each division by Seller or any of its Affiliates whose primary
responsibilities relate to the Business. Schedule 5.9.1 lists job
classifications and number of employees in each job classification of those
employees whose terms and conditions of employment are subject to a collective
bargaining agreement ("Union Employees"). All individuals referred to on
Schedule 5.9.1 are herein referred to as the "Employees." No later than March 1,
2000, Buyer and Seller shall determine the number of Employees to whom Buyer
will offer employment, which number shall be at least equal to 250 (when
combined with offers made by Buyer or Affiliates of Buyer to employees of
Affiliates of Seller in connection with the Related Purchase Agreements) (the
"Base Number"), and such additional number of Employees, if any, whom Buyer also
wishes to employ. Upon determination of such Employees, Seller will supplement
Schedule 5.9.1 with the name, job title, unused vacation, current base salary or
hourly wage, date of hire and assigned location of each Transferred Employee (as
that term is defined below). At the Closing, Seller shall provide an updated
Schedule 5.9.1 which shall disclose all the information required under the
preceding sentence as of the most recent practicable date prior to Closing.
5.9.2 Effective as of the Closing, Buyer shall offer
employment to at least the Base Number of those employees included on Schedule
5.9.1. All Employees to whom Buyer offers employment and who accept such
employment are herein referred to as the "Transferred Employees." In the event
any Employees do not accept Buyer's offer of employment, Buyer shall offer
employment to such additional employees (the identity of whom shall be
determined by Buyer and Seller) as are necessary to bring the total number of
Transferred Employees to the Base Number. Subject to the provisions of this
Section 5.9 and Section 5.12, Buyer shall provide each Transferred Employee with
base compensation at least equal to that provided by Seller on the Closing Date,
and employee benefits which are substantially comparable to those provided by
Buyer to its other
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similarly situated employees. Buyer agrees (i) to credit the service of each
Transferred Employee with Seller and its Affiliates before the Closing, for all
purposes under all employee benefit plans and arrangements maintained by Buyer
(and/or any of its Affiliates) for the benefit of any Transferred Employee
(including without limitation for purposes of attainment of retirement dates and
payment of optional forms of benefits), other than for purposes of benefit
accrual under any "defined benefit plan", within the meaning of Section 3(35) of
ERISA, (ii) to provide accrued vacation to Transferred Employees in the year in
which the Closing occurs, equal to the excess, if any, of the accrued vacation
to which the Transferred Employee would otherwise be entitled under Seller's
vacation plan during that year over the amount of accrued vacation the
Transferred Employee had taken during that year, and, thereafter, to provide
vacation to Transferred Employees on the same basis as provided to similarly
situated employees of Buyer, with service credit as provided in (i) hereof,
(iii) to provide severance benefits to Transferred Employees terminated by Buyer
that are substantially comparable to those benefits provided by Buyer to
similarly situated employees, and (iv) to comply with all applicable legal
requirements with respect to Union Employees (including without limitation any
applicable duty to bargain with those employees' bargaining representative).
Buyer shall be responsible for providing to each Transferred Employee vacation
in an amount equal to the Transferred Employee's vacation entitlement for the
year of Closing reduced by the number of vacation days such Transferred Employee
has taken on or before Closing. Nothing in this Section 5.9 shall limit Buyer's
authority to terminate the employment of any Transferred Employee at any time
and for whatever reason. Until the second anniversary of the Closing Date,
neither Seller nor any of its Affiliates shall directly or indirectly solicit or
offer employment to any Transferred Employee then employed by Buyer or its
Affiliates.
5.9.3 Except as specifically provided in Sections 5.9 and
5.12, Seller shall be solely responsible for any liability, claim or expense
(including reasonable attorneys' fees) related to compensation or employee
benefits incurred by Buyer as the result of any claims against Buyer or its
Affiliates that are made by any Employees or Former Employees (or the
Beneficiary of any Employee or Former Employee) who are not made offers to
become employees of Buyer or its Affiliates including, without limitation,
claims asserted against Buyer as a result of their termination by Seller or its
Affiliates.
5.9.4 Seller shall be solely responsible for any liability,
claim or expense with respect to compensation or employee benefits of any nature
(including, but not limited to, workers compensation claims or the benefits
provided under the Benefit Plans, whether paid before or after the Closing) owed
to any Transferred Employee or the Beneficiary of any Transferred Employee or
any Water Sector Retiree or the Beneficiary of any Water Sector Retiree that
arises out of or relates to (i) the employment relationship between Seller or
any of its Affiliates and such Transferred Employee or Beneficiary or (ii) any
benefit claim or expense (including medical expenses) incurred before Closing
under any Benefit Plan. For purposes of this Agreement, a medical expense shall
be deemed to be incurred when the services giving rise to a claim are rendered,
regardless of when billed or paid. Without limiting the foregoing, Seller shall
be
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responsible for the payment of any employee benefits that become due to any
Transferred Employees as a result of their termination by Seller.
5.9.5 Except as otherwise specifically provided in Section
5.9, 5.11 or 5.12, Buyer shall be solely responsible for any liability, claim or
expense with respect to compensation or employee benefits of any nature
(including, but not limited to, workers compensation, claims or the benefits
provided under any employee benefit plan or arrangement of Buyer incurred after
Closing) owed to any Transferred Employee or Beneficiary of any Transferred
Employee or any Water Sector Retiree or Beneficiary of any Water Sector Retiree
that arises out of or relates to (i) the employment relationship between Buyer
or any of its Affiliates and any Transferred Employee or (ii) any benefit claim
or expense (including medical expense) incurred after Closing under any employee
benefit plan sponsored or contributed to by Buyer or an ERISA Affiliate after
Closing. Notwithstanding the foregoing, Buyer shall not be responsible for the
payment of any employee benefits that become due to any Transferred Employees
under any Benefit Plan (other than the Assumed Benefit Liabilities).
5.9.6 Buyer agrees to reimburse Seller for its proportionate
share (as defined below) of any amount in excess of $1,000,000 paid by Seller as
severance under Citizens' severance plan as in effect on the date hereof to any
Employees (when such amount paid by Seller is aggregated with amounts paid by
Citizens to other employees as referenced in Section 5.9.6 of the Related
Purchase Agreements) provided (i) Buyer does not hire such Employees in
accordance with the provisions of Sections 5.9, 5.11 and 5.12 and (ii) Seller
provides notice to those Employees on or before the Closing Date to the effect
that their employment will be terminated on or shortly after the Closing Date.
Buyer will pay such reimbursement to Citizens within 5 days after receipt of a
list of the Employees showing which are entitled to severance pay, the amounts
of that severance pay and certifying that those amounts have been paid. The
Buyer's "proportionate share" means the amount obtained by multiplying the
amount in excess of $1,000,000 by a fraction, the numerator of which is the
amount of severance paid by Seller to Employees under Section 5.9.6 of this
Agreement and the denominator of which is the sum of (i) the amount paid by
Seller to Employees under Section 5.9.6 of this Agreement and (ii) the aggregate
amount paid by Citizens under Section 5.9.6 of each of the Related Purchase
Agreements.
5.9.7 Until the second anniversary of the Closing Date, Buyer
shall not directly or indirectly solicit or offer employment to any active
employee of Seller, other than the Transferred Employees.
5.10 Employee Pension Plan.
5.10.1 At least fifteen days prior to the Closing Date, Seller
shall take any and all actions necessary to cease benefit accruals and fully
vest all Transferred Employees in their accrued benefits under the Citizens
Pension Plan ("Seller's Pension Plan" or "Citizens Pension
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Plan"). Seller shall retain liability and related assets for benefits accrued
through the Closing Date by Transferred Employees under Seller's Pension Plan.
5.10.2 As of the Closing Date, Transferred Employees shall be
covered under the American Pension Plan, and shall be given credit for service
with Seller and its Affiliates for eligibility, vesting, attainment of
retirement dates, subsidized benefits, and entitlement to optional forms of
payment, but not for accrual of benefits.
5.11 Employee Savings Plan.
5.11.1 Effective upon the date of the transfer described in
Section 5.11.2, subject to the terms and conditions of this Agreement, Parent
shall cause the Savings Plan for Employees of American Water Works Company, Inc.
(the "American Savings Plan") to assume the liability of the Seller's 401(k)
Plan for the account balances of those Transferred Employees participating in
the Seller's 401(k) Plan on the Closing Date (the "Affected Participants") that
are transferred to the American Savings Plan. As of the Closing Date, Affected
Participants shall be 100% vested in their account balances under the Seller's
401(k) Plan. Transferred Employees shall be given credit under the American
Savings Plan for service with Seller and its Affiliates for eligibility,
vesting, attainment of retirement dates, contribution levels and optional forms
of benefit payment, to the same extent that credit for such service has been
given by Seller and its Affiliates.
5.11.2 Buyer shall deliver to Seller as soon as practicable,
but in no event later than ninety (90) days after Closing (i) a certified copy
of the American Savings Plan and any amendment necessary to effectuate the
transfer of assets and the assumption of account balances in accordance with
this Section 5.11, (ii) a certified copy of the trust agreement for the American
Savings Plan; (iii) the most recent favorable determination letter from the IRS
with respect to the American Savings Plan; and (iv) an opinion from Buyer's
legal counsel acceptable to Seller that the American Savings Plan, as so
amended, complies or will comply on a timely basis with the applicable
provisions of the Code relating to the qualification of, and the transfer of
assets and assumption of benefit liabilities by, the American Savings Plan.
Seller shall deliver to Buyer as soon as practicable, but in no event later than
ninety (90) days after Closing, an opinion from Seller's legal counsel
acceptable to Buyer that the Seller's 401(k) Plan complies or will comply on a
timely basis with the applicable provisions of the Code relating to the
qualification of the Seller's 401(k) Plan, and the transfer of assets to, and
assumptions of benefit limitations by, the American Savings Plan. As soon as
practicable, but in any event within 120 days after Closing, Seller shall cause
the trustee of the Seller's 401(k) Plan to transfer in cash and promissory notes
representing outstanding loans to Affected Participants to the trustee of the
American Savings Plan an amount equal to the sum of the account balances of the
Transferred Employees (the "Transferred Accounts") calculated as of the most
recent valuation date under the Seller's 401(k) Plan (which shall, in any event,
be within thirty (30) days of the transfer). Both the Seller Parties and Buyer
will file any IRS Form 5310A that is required with respect to the transfer
contemplated by this Section 5.11 date at least 30 days prior to the transfer.
Upon the transfer described in this Section 5.11, Buyer and the American Savings
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Plan shall be responsible for all benefits attributable to the Transferred
Accounts to which Transferred Employees were entitled under the Seller's 401(k)
Plan as of such date, and Seller and the Seller's 401(k) Plan shall cease to
have any liability, contingent or otherwise, for such benefits.
5.12 Welfare Benefits.
5.12.1 Within sixty (60) days after the Closing, Seller agrees
to transfer to trusts established by Buyer under Section 501(c)(9) of the Code
("Buyer's VEBAs") the amount held under any trust established by Seller under
Section 501(c)(9) of the Code ("Seller's VEBAs") to fund post-retirement health
care and life insurance benefits attributable to the Business, including Former
Employees identified on Schedule 5.12 (the "Water Sector Retirees") and any
"grandfathered" Transferred Employees as set forth on Schedule 5.12. Buyer
agrees to provide post-retirement health care and life insurance benefits to the
Water Sector Retirees and, as applicable, Transferred Employees who become
eligible for such benefits after Closing and further agrees that Buyer's VEBAs
will apply an amount at least equal to the sum of the assets (and earnings
thereon calculated at the rate of return generated by Buyer's VEBAs) transferred
from Seller's VEBAs to provide post-retirement health care and life insurance
benefits for such employees. Upon Closing, Buyer shall be responsible for all
obligations of the Seller Parties to provide post-retirement health care and
life insurance benefits "incurred" (within the meaning of Section 5.9.4) after
the Closing and the Seller Parties shall cease to have any liability, contingent
or otherwise, for such benefits. In consideration of such transfer, Buyer agrees
not to terminate or materially modify those post-retirement health and life
benefit provisions applicable to such grandfathered Transferred Employees and
Water Sector Retirees as such provisions are in effect immediately prior to the
Closing Date.
5.12.2 Buyer shall take all action necessary and appropriate
to ensure that, as of the Closing Date, Buyer provides medical, health, dental,
flexible spending account, accident, life, short-term disability, long-term
disability and other employee welfare benefits (including retiree medical
benefits) to Transferred Employees that, in the case of Non-Union Transferred
Employees and Union Transferred Employees are substantially similar to those
benefits provided by Buyer under its corresponding welfare benefit plans (the
"Buyer's Welfare Plans"). For purposes of determining eligibility to
participate, and entitlement to benefits, in each Buyer Welfare Plan, each
Transferred Employee shall be credited with service, determined under the terms
of the corresponding welfare plans maintained by Seller on the Closing Date
(hereinafter referred to collectively as the "Seller Welfare Plans"). Any
restrictions on coverage for pre-existing conditions, waiting periods, and
requirements for evidence of insurability under the Buyer Welfare Plans shall be
waived in Buyer's Welfare Plans for Transferred Employees and retirees of the
Water Sector and their respective Beneficiaries, and Transferred Employees and
retirees of the Water Sector and their respective Beneficiaries shall receive
credit under the Buyer Welfare Plans for co-payments, payments under a
deductible limit made by them, and for out-of-pocket maximums applicable to them
during the plan year of the Seller Welfare Plan in which the Closing Date
occurs. As soon as practicable after the Closing Date, Seller shall deliver to
Buyer a list of the Transferred Employees and retirees of the Water Sector and
their respective Beneficiaries who had credited service under
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a Seller Welfare Plan, together with each such individual's service, copayment,
deductible and out-of-pocket payment amounts under such plan.
5.12.3 Seller shall transfer to Buyer's flexible benefits plan
any balances standing to the credit of Transferred Employees under Seller's
flexible benefits plan as of the Closing Date. Seller shall provide to Buyer
prior to the Closing Date a list of those Transferred Employees that have
participated in the health or dependent care reimbursement accounts of Seller,
together with their elections made prior to the Closing Date with respect to
such Account, and balances standing to their credit as of the Closing Date.
5.13 Taxes. The Seller Parties, on the one hand, and Parent and
Buyer, on the other, shall (a) each provide the other with such assistance as
may reasonably be requested by either of them in connection with the preparation
of any Tax return, any audit or other examination by any taxing authority or any
judicial or administrative proceeding with respect to Taxes; (b) each retain and
provide the other with any records or other information which may be relevant to
such return, audit, examination or proceeding, and (c) each provide the other
with any final determination of any such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax return of
the other for any period (which shall be maintained confidentially). Without
limiting the generality of the foregoing, Parent and Buyer, on the one hand, and
the Seller Parties, on the other, shall retain, until the applicable statutes of
limitations (including all extensions) have expired, copies of all Tax returns,
supporting workpapers, and other books and records or information which may be
relevant to such returns for all Tax periods or portions thereof ending before
or including the Closing Date, and shall not destroy or dispose of such records
or information without first providing the other party with a reasonable
opportunity to review and copy the same.
5.14 Intentionally Omitted.
5.15 Citizens' Guarantees and Surety Instruments. Each of Parent and
Buyer shall use its reasonable efforts to assist Citizens in obtaining full and
complete releases on the guarantees, letters of credit, bonds and other surety
instruments listed on Schedule 5.15. For purposes of this Section 5.15 and
Section 5.16, reasonable efforts: (a) shall include Parent's or Buyer's
assumption of the Assumed Indebtedness, the Contracts and the Permits on the
terms set forth in this Agreement; (b) shall include an obligation on the part
of Parent or Buyer to provide a guarantee, letter of credit, bond or other
required surety instrument at Closing to the extent required by any Contract or
Permit and in general to provide an equivalent surety instrument to be
substituted for any surety instrument provided by Citizens to any beneficiary in
connection with the Business; and (c) shall include the obligation of Buyer
and/or Parent to provide a debt obligation (including obtaining a minimum credit
rating necessary to prevent any change to the tax-exempt status of any of the
Assumed Indebtedness and providing credit enhancements such as bond insurance)
to the issuer of any Bonds relating to the Assumed Indebtedness satisfactory to
such issuer in replacement of and in substitution for Citizens' obligations to
such issuer under the Assumed Indebtedness, all to enable Parent or Buyer to
assume the Assumed Indebtedness.
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5.16 Assumption of Seller Debt.
5.16.1 Each of Buyer and Parent shall use its reasonable
efforts (as defined in Section 5.15) to assist Seller in obtaining all consents
and opinions and taking such other actions as may be required to enable Buyer or
Parent, as the case may be, to assume at the Closing all of Seller's liabilities
and obligations under the Assumed Indebtedness to the extent provided in Section
2.3. If, after using such reasonable efforts, the parties reasonably conclude
that all such required consents and opinions will not be obtained by the date
that the conditions to Closing set forth in the first sentences of Sections
6.1.4 and 6.2.4 are expected to be satisfied, then Citizens, Parent and Buyer
will use their reasonable efforts and take such other actions as may be required
to enable Citizens to assign at the Closing all of Seller's liabilities and
obligations under the Assumed Indebtedness to the extent provided in Section
2.3, including complying with the provisions of Section 5.24 to the extent
applicable to such assignment of the Assumed Indebtedness.
5.16.2 Representations Re: Assumed Indebtedness.
(a) The Seller Parties represent that each of the Bonds
which make up the Assumed Indebtedness is a bond issue which was used to finance
sewage facilities within the meaning of Section 103(b)(4)(E) of the Internal
Revenue Code of 1954 as amended ("1954 Code") or Section 142(a)(5) of the Code,
as the case may be, or facilities for the furnishing of water within the meaning
of Section 103(b)(4)(G) of the 1954 Code or Section 142(a)(4) and Section 142(e)
of the Code, as the case may be, and that the interest of such Bonds was as of
their date of issue, excludable from the gross income of the holders of such
Bonds for federal or state (other than Illinois) income tax purposes pursuant to
such sections of the IRC or the Code. In the case of the facilities for the
furnishing of water (a) the water is or will be made available to members of the
general public (including electric utility, industrial, agricultural, or
commercial users) and (b) either the facility is operated by a governmental unit
or the rates for the furnishing or sale of the water have been established or
approved by a State or political subdivision thereof, by an agency or
instrumentality of the United States, or by a public service or public utility
commission or other similar body of any State or political subdivision thereof.
(b) The Seller Parties represent that they have complied
with all of their duties and obligations under the IDRB Documents, including
their obligations relating to the use of the proceeds of the bonds and the
ownership, operation, use and maintenance of the Assets financed with the
proceeds of the Bonds. Citizens and the other Seller Parties represent that the
representations and warranties of "Company" in the IDRB Documents remain true
and correct, and that they have not taken nor permitted to be taken any action
which would have the effect of subjecting the interest on any of such Bonds to
federal or state (other than Illinois) income taxation, except as otherwise
contemplated or permitted by the IDRB Documents.
(c) The Seller Parties represent that as of Closing all
the proceeds of the Bonds will have been spent in accordance with the IDRB
Documents, the construction of the
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projects to be financed with the Bonds will have been completed, that there are
no reserve funds associated with the Trust Indentures for such Bonds, and that
all of the proceeds of such Bonds were invested in tax-exempt obligations of
state and local governments (except to the extent used to acquire or construct
the facilities financed by such Bonds) and, that therefore, the Seller Parties
do not have any arbitrage profits subject to the rebate requirements of Section
148 of the Code.
(d) The Seller Parties represent that there is and has
been no audit or other examination by any taxing authority relating to the
Bonds.
(e) The Seller Parties further represent the following
with respect to the Bonds:
(1) The Assets financed by the Bonds are sewage facilities or
facilities for the furnishing of water, which means that (a)
the water is or will be made available to members of the
general public (including electric utility, industrial,
agricultural, or commercial users) and (b) either the facility
is operated by a governmental unit or the rates for the
furnishing or sale of the water have been established or
approved by a State or political subdivision thereof, by an
agency or instrumentality of the United States, or by a public
service or public utility commission or other similar body of
any State or political subdivision thereof;
(2) They have not caused or permitted to be caused any reissuance
of the Bonds under Section 1001 of the Code, without first
obtaining a "no adverse effect" opinion of bond counsel;
(3) They have not caused an extension of the maturity of such
Bonds without first obtaining a "no adverse effect" opinion of
bond counsel;
(4) They have not taken or caused to be taken any action that
would cause the Bonds to be arbitrage bonds under Section 148
of the Code, including, but not limited to, the failure to
rebate arbitrage profits, if any, as required by Section
148(f) of the Code;
(5) They have not taken any action that would cause the Bonds not
to be registered in accordance with Section 149(a) of the
Code; and
(6) They have not permitted the Bonds to become directly or
indirectly "federally guaranteed" under Section 149 of the
Code.
5.16.3 Covenants of Parent and Buyer. Parent and Buyer
covenant and agree, so long as any Assumed IDRB Indebtedness is outstanding, to
cause the Assets that were acquired,
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constructed, improved or equipped with the proceeds of such Assumed IDRB
Indebtedness to be used as sewage facilities within the meaning of Section
103(b)(4)(E) of the 1954 Code or Section 142(a)(5) of the Code, as the case may
be, and facilities for the furnishing of water within the meaning of Section
103(b)(4)(G) of the 1954 Code or 142(a)(4) and Section 142(e) of the Code, as
the case may be, which means in the case of the facilities for the furnishing of
water that (a) the water is or will be made available to members of the general
public (including electric utility, industrial, agricultural, or commercial
users) and (b) either the facility is operated by a governmental unit or the
rates for the furnishing or sale of the water have been established or approved
by a State or political subdivision thereof, by an agency or instrumentality of
the United States, or by a public service or public utility commission or other
similar body of any State or political subdivision thereof. Each of Parent and
Buyer further covenants and agrees, so long as any Assumed IDRB Indebtedness is
outstanding, the following:
(a) It will not cause or permit to be caused any
reissuance under Section 1001 of the Code without first obtaining a "no adverse
effect" opinion of bond counsel;
(b) It will not cause an extension of the maturity of
the Bonds without first obtaining a "no adverse effect" opinion of bond counsel;
(c) It will not take or cause to be taken any action
that would cause the Bonds to be arbitrage bonds under Section 148 of the Code,
including, but not limited to, the failure to rebate arbitrage profits, if any,
as required by Section 148(f) of the Code;
(d) It will not take any action that would cause the
Bonds not to be registered in accordance with Section 149(a) of the Code;
(e) It will not permit the Bonds to become directly or
indirectly "federally guaranteed" under Section 149 of the Code; and
(f) It will comply with each representation, warranty,
covenant or other agreement or obligation set out by the IDRB Documents as in
effect on the date of execution of this Agreement.
5.17 Schedule of Permits. No later than March 13, 2000, Citizens
shall deliver to Buyer a schedule, to be identified as Schedule 5.17, which sets
forth all material Permits required for the use of the Acquired Assets and the
operation of the Business by Buyer substantially in the manner as it was
conducted prior to the date hereof. For purposes of this Section 5.17, material
Permits shall include those required for the service of all utility customers at
substantially the same service levels as provided by Seller on the date of this
Agreement. All Permits listed on Schedule 5.17 that are required to be listed on
Schedule 3.3 or Schedule 3.9 shall be so designated. Seller has made or will
make prior to the Closing Date timely applications for renewals of all such
Permits
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listed on Schedule 5.17, which under applicable law must be filed prior to the
Closing Date to maintain the Permits listed on Schedule 5.17 in full force and
effect.
5.18 Title Information. No later than March 13, 2000, Seller shall
use its reasonable efforts to deliver to Buyer true, correct and complete copies
of all existing title policies, surveys, leases, deeds, instruments and
agreements relating to title to the Real Estate in Seller's possession.
5.19 Transaction with Related Parties. Effective as of the Closing
Date, except as otherwise provided in Sections 5.9 through 5.12, 5.15, 5.24,
5.26, 5.27 and 2.7.1(j) of this Agreement, Seller shall have terminated and
canceled all contracts, commitments and agreements (including employment
relationships) relating to the Acquired Assets or the Business, between Seller,
any Affiliate of Seller (including Citizens), any officer or director of any
Seller Party, or any Affiliate of the foregoing. Seller shall be solely liable
for any contractual or other claims, express or implied arising out of the
termination and cancellation of any of the foregoing raised by any party
thereto.
5.20 Approval by Citizens. Citizens shall, as the sole owner of
common stock of each other Seller Party, vote all of such shares of common stock
to approve this Agreement and the transactions contemplated hereby.
5.21 Supplemental Information.
5.21.1 Citizens shall provide Buyer, within fifteen (15) days
after the execution or the date of receipt thereof, a copy of (a) each Contract
(other than with respect to which the Business' total annual liability or
expense is less than $100,000 per such Contract) entered into by Seller after
the date hereof and prior to the Closing Date; (b) a copy of any written notice
for assessments for public improvements against the Real Estate received after
the date hereof and prior to the Closing Date; (c) a copy of the filing of any
condemnation, expropriation, eminent domain or similar proceeding affecting all
or any portion of any of the Real Estate received after the date hereof but
prior to the Closing Date; and (d) a copy of any Contract where Seller is a
lessee relating to the use or occupancy of the Real Estate and where such
Contract involves annual payments in excess of $100,000 entered into by Seller
after the date hereof and prior to the Closing Date.
5.21.2 Within fifteen (15) days after the receipt of notice of
violation, Citizens shall notify Buyer of any violations of state or federal
drinking water standards which, if such violations existed on the date hereof,
would be required to be disclosed pursuant to Section 3.8.10 hereof, and shall
promptly notify Buyer of the actions proposed to be taken by Seller to correct
or otherwise respond to such violations.
5.22 Non-Competition. The Seller Parties agree that for a period of
fifteen (15) years after the Closing Date no Seller Party nor any Affiliate of a
Seller Party shall directly or indirectly own, manage, operate, control or
participate in the ownership, management, operation or
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control of or be otherwise connected in any substantial manner with any entity
(other than Buyer and its successors and assigns) engaged in the business of
storing, supplying and distributing water in the States in which Buyer acquires
any Acquired Assets, whether or not such business is subject to regulation by a
PUC (it being understood that the individual directors of Seller and Citizens
are not Affiliates of a Seller Party).
5.23 Intentionally Omitted.
5.24 IDRB Obligations.
(a) Buyer's IDRB Obligations. Each party acknowledges that (x)
Citizens is and after the Closing Date shall continue to be and shall remain the
primary obligor with respect to the Retained IDRB Indebtedness outstanding
immediately after the Closing Date to the same extent as though no sale of the
Acquired Assets had been made and that Parent and Buyer shall have no payment
obligations with respect to such Retained IDRB Indebtedness and (y) the IDRB
Documents require Citizens not to take or permit to be taken any action which
would have the effect, directly or indirectly, of subjecting the interest on any
of the Bonds to federal or state (other than Illinois) income taxation.
Accordingly, Parent and Buyer covenant and agree (i) at Closing to execute and
deliver to Citizens an agreement substantially in the form attached hereto as
Exhibit D, with respect to each issuer of Bonds relating to Retained IDRB
Documents that will be outstanding after the Closing Date, and (ii) so long as
any such Bonds are outstanding, to cause the Acquired Assets that were acquired,
constructed, improved or equipped with the proceeds of such Bonds to be used as
facilities for the furnishing of water (that is, (a) the water is or will be
made available to members of the general public (including electric utility,
industrial, agricultural, or commercial users) and (b) either the facility is
operated by a governmental unit or the rates for the furnishing or sale of the
water have been established or approved by a State or political subdivision
thereof, by an agency or instrumentality of the United States, or by a public
service or public utility commission or other similar body of any State or
political subdivision thereof) or sewage facilities within the meaning of
Section 103(b)(4)(E) of the 1954 Code, or Section 142(a)(5) of the Code as the
case may be.
(b) IDRB Construction Funds. Citizens hereby represents that
there will be no construction funds or unspent bond proceeds available after the
Closing Date that are held by the trustees of the Bonds relating to the Retained
IDRB Indebtedness.
(c) Consents and Opinions. The parties shall use their
respective best commercially reasonable efforts to obtain all consents and legal
opinions as may be required under the Retained IDRB Documents to enable Seller
to retain all Retained IDRB Indebtedness and to sell the Acquired Assets to
Buyer.
5.25 Cooperation with Respect to Like-Kind Exchange. Buyer agrees
that Seller may, at Seller's written election delivered to Buyer no later than
five (5) days prior to the Closing
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Date, direct that all or a portion of the Initial Cash Payment be delivered to a
"qualified intermediary" as defined in Treasury Regulation ss.1.1031(k) - (g)(4)
as to enable Seller's relinquishment of the Acquired Assets to qualify as part
of a like-kind exchange of property covered by Section 1031 of the Code. If
Seller so elects, Buyer shall reasonably cooperate with Seller (but without
being required to incur any out-of-pocket costs in the course thereof) in
connection with Seller's efforts to effect such like-kind exchange, which
cooperation shall include, without limitation, taking such actions as Seller
reasonably requests in order to enable Seller to qualify such transfer as part
of a like-kind exchange of property covered by Section 1031 of the Code
(including any actions reasonably required to facilitate the use of a "qualified
intermediary"), and Buyer agrees that Seller may assign all or part of its
rights (but no obligations) under this Agreement to a person or entity acting as
a qualified intermediary to qualify the transfer of the Assets as part of a
like-kind exchange of property covered by Section 1031 of the Code. Buyer and
Seller agree in good faith to use reasonable efforts to coordinate the
transactions contemplated by this Agreement with any other transactions engaged
in by either Buyer or Seller; provided that such efforts shall, in no event,
result in any delay in the consummation of the transactions contemplated by this
Agreement. Seller shall indemnify and hold Buyer harmless from any cost, expense
or liability arising from its cooperating under this Section 5.25.
5.26 Transition Plan. Within 30 days after the execution date of
this Agreement, the parties jointly shall establish a transitional services
team, which shall include expertise from various functional specialties
associated with or involved in providing billing, payroll and other support
services provided to Seller by any automated or manual process using facilities
or employees that are not included among the Acquired Assets or Transferred
Employees. Such team will be responsible for preparing, and timely implementing,
a transition plan which will identify and describe substantially all of the
various transition activities that the parties will cause to occur before and
after Closing and any other transfer of control matters that any party
reasonably believes should be addressed in such transition plan. The transition
plan will set forth reasonable arrangements providing Buyer, at Buyer's sole
expense, with appropriate access to Seller's relevant computer systems to allow
for a full conversion of the relevant data and functionality to Buyer's systems
on the Closing Date. Buyer and Seller shall use their commercially reasonable
efforts to cause their representatives on such transition team to cooperate in
good faith and take all reasonable steps necessary to develop a mutually
acceptable transition plan no later than 60 days prior to the Closing Date.
5.27 Procedures regarding Refunds of Advances. Within 30 days after
the execution date of this Agreement, the parties jointly shall establish a
working group of appropriate subject matter experts to determine the appropriate
obligations of Parent and Buyer regarding notification and the provision of
other accurate and timely data to Citizens to enable Citizens timely and
accurately to satisfy the refund obligations described in Section 2.3.3(b). Such
working group will be responsible for preparing a comprehensive agreement no
later than March 13, 2000, which agreement shall be executed by the parties at
Closing. Among other arrangements, the parties would require that the customers
and developers owed refunds provide joint notices to Buyer and Citizens.
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5.28 Title Insurance. Prior to Closing, Seller shall cooperate with
Buyer and use commercially reasonable efforts to assist Buyer if Buyer desires
to obtain ALTA title insurance commitments (collectively, the "Title
Commitments," and each a "Title Commitment"), in final form, from one or more
title insurance companies (collectively, the "Title Company"), committing the
Title Company (subject only to the satisfaction of any industry standard
requirements contained in the Title Commitment) to issuing ALTA (or its local
equivalent) form of title insurance policies insuring good, valid, indefeasible
fee simple title to the Real Estate in Buyer, in all cases, at Buyer's sole
expense and in the respective amounts that Buyer requests prior to Closing,
subject to no Liens or other exceptions to title other than Permitted Exceptions
(collectively the "Title Policies"). On or prior to the Closing Date, Seller
shall execute and deliver, or cause to be executed and delivered, to the Title
Company, at no cost to Seller, any customary affidavits, standard gap
indemnities and similar documents reasonably requested by the Title Company in
connection with the issuance of the Title Commitments or the Title Policies;
provided that such efforts and Buyers' request for Title Policies or Title
Commitments shall, in no event, result in any delay in the consummation of the
transactions contemplated by this Agreement.
ARTICLE 6
CONDITIONS PRECEDENT; TERMINATION
6.1 Conditions Precedent to Obligations of Buyer and Parent. The
obligations of Buyer and Parent to cause the purchase of the Acquired Assets and
the assumption of the Assumed Liabilities and to consummate the other
transactions contemplated hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions (any one or more of which
may be waived in writing in whole or in part by Buyer and Parent in their sole
discretion):
6.1.1 Performance of Agreements; Representations and
Warranties. Seller shall have performed or complied in all material respects
with all agreements and covenants required by this Agreement to be performed or
complied with by them at or prior to the Closing; and the representations and
warranties set forth in this Agreement made by Seller shall be true and correct
on and as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date,
except for representations and warranties that speak as of a specific date or
time other than the Closing Date (which need only be true and correct as of such
date or time), other than, in all such cases (except Section 3.25), such
failures to be true and/or correct as would not in the aggregate reasonably be
expected to have a Material Adverse Effect; provided, however, that if any such
representation or warranty is already qualified in any respect by materiality or
as to material adverse effect, for purposes of determining whether this
condition has been satisfied, such materiality or material adverse effect
qualification will be in all respects ignored and such representation or
warranty shall be true and correct in all respects without regard to such
qualification (but subject to the overall exception as to material adverse
effect set forth immediately prior to this proviso); and provided further, that
the representation and
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warranty set forth in Section 3.5.1 shall be deemed to be true and correct on
and as of the Closing Date if any Material Adverse Effect that may have arisen
or occurred between the execution date of this Agreement and the Closing Date
shall have been cured or remedied such that such Material Adverse Effect is not
continuing as of the Closing Date. Buyer shall have been furnished with a
certificate of the Chief Financial Officer or other Vice President of Citizens
dated the Closing Date, certifying to the foregoing.
6.1.2 Opinion of Counsel. Buyer shall have received from L.
Russell Mitten II, Vice President and General Counsel of Seller, an opinion
dated the Closing Date, in form and substance satisfactory to Buyer, to the
effect set forth in Exhibit E hereto.
6.1.3 HSR Act. The applicable waiting period under the HSR Act
with respect to the transactions contemplated hereby shall have expired or been
terminated.
6.1.4 Required PUC and Other Consents. The PUC shall have
issued an order approving the transactions contemplated hereby, and such order
shall not contain any restrictions or conditions (other than those in effect on
the date hereof or requiring that the regulatory treatment with respect to the
Business in existence as of the date of this Agreement applicable to Seller be
continued following the transactions contemplated hereby) which would have a
Material Adverse Effect or a material adverse effect on any other regulated
business of Buyer in the state in which the PUC has jurisdiction, and such order
shall be final and unappealable; Seller shall have obtained all statutory,
regulatory and other consents and approvals which are required in order to
consummate the transactions contemplated hereby and to permit Buyer to conduct
the Business in the manner contemplated by Section 3.25 hereof other than those
the failure of which to obtain would not have a Material Adverse Effect. Seller
shall have also obtained (i) all consents and legal opinions required to enable
Parent or Buyer to assume (or for Citizens to assign to Parent or Buyer) the
Assumed Indebtedness (without any change in the tax-exempt status of such
Assumed Indebtedness and without any event of taxability relating to the matters
set forth in Sections 7.4.1(a)(D) and 7.4.1(b)(F)) and all other consents and
legal opinions required to enable Seller to sell the Acquired Assets to Buyer at
the Closing (without any change in the tax-exempt status of such Assumed
Indebtedness and without any event of taxability relating to the matters set
forth in Sections 7.4.1(a)(D) and 7.4.1(b)(F)), free and clear of all Liens
other than Permitted Exceptions (and specifically free and clear of any Lien
arising under or pursuant to the Mortgage Indenture) and (ii) all consents
required under Contracts and Permits relating to Seller's water appropriation
and flowage rights to the extent reasonably sufficient to enable Buyer to
service the customers of the Business and to service future commitments under
such Contracts.
6.1.5 Injunction; Litigation. (i) No statute, rule, regulation
or order of any court or Authority shall be in effect which restrains or
prohibits the transactions contemplated by this Agreement or which would limit
or materially adversely affect Buyer's ownership of all or any material portion
of the Acquired Assets, nor (ii) shall there be pending or threatened any
litigation,
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suit, action or proceeding by any party which would reasonably be expected to
materially limit or materially adversely affect Buyer's ownership of the
Acquired Assets.
6.1.6 Documents. Seller and Citizens shall have delivered all
of the certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Section 2.7 hereof and shall
have made arrangements reasonably satisfactory to Buyer to deliver to Buyer as
promptly as practicable after the Closing such records (including customer and
employee records) necessary to own and operate the Business.
6.1.7 Related Closings. Buyer shall be reasonably satisfied
that the consummation of each of the asset purchase and sale transactions
contemplated by those certain purchase agreements described on Schedule 6.1.7
(the "Related Purchase Agreements") will occur concurrently with the Closing.
6.2 Conditions Precedent to Obligations of Seller Parties. The
obligations of the Seller Parties to cause the sale of the Acquired Assets and
to consummate the other transactions contemplated hereby are subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions (any one or more of which may be waived in writing in whole or in
part by the Seller Parties in their sole discretion):
6.2.1 Performance of Agreements; Representations and
Warranties. Parent and Buyer shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by them at or prior to the Closing; and the
representations and warranties set forth in this Agreement made by Buyer and
Parent shall be true and correct on and as of the Closing Date, with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date, except for representations and warranties that speak
as of a specific date or time other than the Closing Date (which need only be
true and correct as of such date or time), other than, in all such cases (except
Section 4.2), such failures to be true and/or correct as would not in the
aggregate reasonably be expected to have a material adverse effect on the
respective ability of Buyer and Parent to perform their obligations under this
Agreement and the Transaction Documents, provided, however, that if any such
representation or warranty is already qualified in any respect by materiality or
as to material adverse effect, for purposes of determining whether this
condition has been satisfied, such materiality or material adverse effect
qualification will be in all respects ignored and such representation or
warranty shall be true and correct in all respects without regard to such
qualification (but subject to the overall exception as to material adverse
effect set forth immediately prior to this proviso). Seller shall have been
furnished with a certificate of the President or Vice President of Parent and
Buyer, dated the Closing Date, certifying to the foregoing.
6.2.2 Opinion of Counsel. Seller shall have received from
Dechert Price & Rhoads, counsel to Parent and Buyer, an opinion dated the
Closing Date, in form and substance satisfactory to Seller, to the effect set
forth in Exhibit F hereto.
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6.2.3 HSR Act. The applicable waiting period under the HSR Act
with respect to the transactions contemplated hereby shall have expired or been
terminated.
6.2.4 Required PUC and Other Consents. The PUC shall have
issued an order approving the transactions contemplated hereby and such order
shall not contain any restrictions or conditions which would have a material
adverse effect on Seller's business activities in the State in which the PUC has
jurisdiction or any significant adverse effect on Citizens' acquisition and
divestiture activities in that State (including divestiture of the Acquired
Assets), and such order shall be final and unappealable; Seller shall have
obtained all statutory and regulatory consents and approvals which are required
in order to consummate the transactions contemplated hereby, other than those
the failure of which to obtain would not have a material adverse effect on the
Seller after the Closing. Seller shall have obtained (i) all consents and legal
opinions required to enable Parent or Buyer to assume (or Citizens to assign to
Parent or Buyer) the Assumed Indebtedness without any change in the tax-exempt
status thereof and without any event of taxability relating to the matters set
forth in Sections 7.4.1(a)(D) and 7.4.1(b)(F), (ii) all consents and legal
opinions required under the Retained IDRB Documents to enable Seller to retain
the Retained IDRB Indebtedness until maturity and to sell the Acquired Assets to
Buyer at the Closing (in each case without any change in the tax-exempt status
of the Assumed Indebtedness or the Retained IDRB Indebtedness and without any
event of taxability relating to the matters set forth in Sections 7.4.1(a)(D)
and 7.4.1(b)(F)), free and clear of all Liens other than Permitted Exceptions
(and specifically free and clear of any Lien arising under or pursuant to the
Mortgage Indenture), and (iii) all other consents required or advisable in order
for Seller to transfer Acquired Assets without incurring material liability
under any Contract, Permit or Real Estate instrument.
6.2.5 Injunction; Litigation. (i) No statute, rule, regulation
or order of any court or Authority shall be in effect which restrains or
prohibits the transactions contemplated by this Agreement or which would limit
or materially adversely affect Seller's ownership of all or any material portion
of its properties, nor (ii) shall there be pending or threatened any litigation,
suit, action or proceeding by any party which could reasonably be expected to
materially limit or materially adversely affect Seller's ownership of any of its
properties.
6.2.6 Documents. Parent and Buyer shall have delivered all the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Sections 2.7, 5.24 and 5.27,
and shall have taken such actions as Seller may have requested pursuant to
Section 5.25 hereof.
6.2.7 Related Closings. Seller shall be reasonably satisfied
that the consummation of each of the Related Purchase Agreements will occur
concurrently with Closing.
6.3 Termination. This Agreement may be terminated at anytime prior
to the Closing Date:
6.3.1 by mutual written consent of the Seller Parties, Buyer
and Parent;
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6.3.2 by any of the Seller Parties, Parent or Buyer if: (i)
any governmental or regulatory body the consent of which is a condition to the
obligations of the Seller Parties, Parent and Buyer to consummate the
transactions contemplated hereby shall have determined not to grant its consent
and all appeals of such determination shall have been taken and have been
unsuccessful; (ii) any court of competent jurisdiction shall have issued an
order, judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and such order, judgment or decree shall have become final and
nonappealable; or (iii) the Closing shall not have occurred on or before March
31, 2001; provided, however, that the right to terminate this Agreement under
this Section 6.3.2(iii) will not be available to any party that is in material
breach of its representations, warranties, covenants or agreements contained
herein; and provided, further, that if Closing has not occurred by such date
because the conditions precedent to Closing set forth in the first sentence of
Section 6.1.4 and the first sentence of Section 6.2.4 have not been fulfilled,
then such date shall be automatically extended to September 30, 2001; or
6.3.3 If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Section 6.3, this
Agreement shall become void and of no further force and effect, except for the
provisions of Section 5.6 relating to publicity, Sections 3.24 and 4.6 relating
to brokerage and Section 7.1 relating to expenses. Nothing in this Section 6.3
shall be deemed to release either party from any liability for any willful
breach by such party of the terms and provisions of this Agreement.
ARTICLE 7
CERTAIN ADDITIONAL COVENANTS
7.1 Certain Taxes and Expenses. Citizens shall be solely responsible
for all state and local sales, use, transfer, real property transfer and other
similar taxes, fees and charges that are calculated based on the value of the
Acquired Assets being transferred arising from and with respect to the sale and
purchase of the Acquired Assets and Buyer shall be solely responsible for all
transfer, registration, documentary stamp, recording and other similar fees and
charges arising from and with respect to the transfer and recording of title
documentation relating to the Acquired Assets. Parent shall be responsible for
all costs and expenses relating to the assumption by or assignment to Parent or
Buyer of the Assumed Indebtedness. Except as otherwise provided in this
Agreement, each of the parties hereto shall each bear its respective accounting,
legal and other expenses incurred in connection with the transactions
contemplated by this Agreement.
7.2 Maintenance of Books and Records. The Seller Parties, on the one
hand, and Buyer and Parent, on the other hand, shall cooperate fully with each
other after the Closing so that (subject to any limitations that are reasonably
required to preserve any applicable attorney-client privilege) each party has
access to the business records, contracts and other information existing at the
Closing Date and relating in any manner to the Acquired Assets or the Assumed
Liabilities or
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the conduct of the Business (whether in the possession of the Seller Parties or
Buyer or Parent). No files, books or records existing at the Closing Date and
relating in any manner to the Acquired Assets or the conduct of the Business
shall be destroyed by any party for a period of six years after the Closing Date
without giving the other party at least 30 days prior written notice, during
which time such other party shall have the right (subject to the provisions
hereof) to examine and to remove any such files, books and records prior to
their destruction. The access to files, books and records contemplated by this
Section 7.2 shall be during normal business hours and upon not less than two (2)
business days prior written request, shall be subject to such reasonable
limitations as the party having custody or control thereof may impose to
preserve the confidentiality of information contained therein, and shall not
extend to material subject to a claim of privilege unless expressly waived by
the party entitled to claim the same.
7.3 Survival.
7.3.1 Subject to this Section 7.3, Section 7.4.2(g) and
Section 7.4.2(j), all representations, warranties, covenants and agreements
contained in this Agreement or the Transaction Documents shall survive (and not
be affected in any respect by) the Closing, any investigation conducted by any
party hereto and any information which any party may receive. Notwithstanding
the foregoing:
(a) the covenants contained in Sections 5.1, 5.3, 5.4,
5.5, 5.8.2 through 5.8.4 and 5.21 and the related indemnity obligations
contained in Section 7.4 shall terminate on, and no action or claim with respect
thereto may be brought after, the third anniversary of the Closing Date;
(b) the covenants contained in Section 5.2 and the
related indemnity obligations contained in Section 7.4 shall terminate on, and
no action or claim with respect thereto may be brought after, the Closing Date;
(c) the representations and warranties contained in
Sections 3.12 and 3.16 and the related indemnity obligations contained in
Section 7.4 shall terminate on, and no action or claim with respect thereto may
be brought following the expiration of the applicable statute of limitations (or
extensions or waivers thereof);
(d) the representations and warranties contained in
Section 3.2 and the related indemnity obligations contained in Section 7.4 shall
survive for an unlimited period of time;
(e) the representations and warranties contained in
Section 3.10 and the related indemnity obligations contained in Section 7.4
shall terminate on, and no action or claim with respect thereto may be brought
after, the third anniversary of the Closing Date;
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(f) the representations and warranties contained in
Section 3.7 and 3.17 and the related indemnity obligations contained in Section
7.4 shall terminate on, and no action or claim with respect thereto may be
brought after, the third anniversary of the Closing Date;
(g) the representations and warranties contained in
Sections 3.3, 3.5, 3.6, 3.8, 3.9 and 3.25 and the related indemnity obligations
contained in Section 7.4 shall terminate on, and no action or claim with respect
thereto may be brought after, the third anniversary of the Closing Date;
(h) the representations and warranties contained in
Section 3.11 and the related indemnity obligations contained in Section 7.4
shall terminate on, and no action or claim with respect thereto may be brought
after, the third anniversary of the Closing Date;
(i) the representations and warranties contained in
Section 4.2 and the related indemnity obligations contained in Section 7.4 shall
survive for an unlimited period of time;
(j) the representations and warranties contained in
Sections 4.3 and 4.4 and the related indemnity obligations contained in Section
7.4 shall terminate on, and no action or claim with respect thereto may be
brought after, the third anniversary of the Closing Date;
(k) the representations and warranties contained in
Section 4.5 and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be brought after,
the Closing Date; and
(l) all other representations and warranties contained
in this Agreement and the related indemnity obligations contained in Section 7.4
shall terminate on and no further action or claim with respect thereto may be
brought after, the second anniversary of the Closing Date;
(m) such representations and warranties specified in the
foregoing clauses (c) through (k), and the covenants contained in Section 5.1,
5.2, 5.3, 5.4, 5.5, 5.8.2 through 5.8.4 and 5.21 and the liability of any party
with respect thereto, shall not terminate with respect to any claim, whether or
not fixed as to liability or liquidated as to amount, with respect to which such
party has been given written notice setting forth the facts upon which the claim
for indemnification is based and, if possible, a reasonable estimate of the
amount of the claims prior to the relevant anniversary of the Closing Date or
the 30th day after the expiration of the applicable statute of limitations (or
extensions or waivers thereof), as the case may be. If any claim for
indemnification is asserted or could be asserted with respect to a breach or
asserted breach of Section 3.17 (Undisclosed Liabilities) and the Buyer or
Parent is also entitled to indemnification in respect of that claim for breach
or asserted breach of any other representation or warranty in this Agreement for
which there is a shorter survival period, such shorter period will apply to such
claim except to the
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extent that such claim is a product liability, toxic tort or similar claim (as
described in Section 2.3.3(a)) brought by a private party litigant.
7.3.2 No claim for indemnity under Section 7.4 shall be
brought or made by Buyer or Parent pursuant to Sections 7.4.1(a)(B) or
7.4.1(a)(C):
(a) after the tenth anniversary of the Closing Date (the
seventh anniversary of the Closing Date in the event of a Change of Control of
Citizens), for any action or claim with respect to the Pre-Existing Conditions;
(b) after the tenth anniversary of the Closing Date (the
seventh anniversary of the Closing Date in the event of a Change of Control of
Citizens), with respect to the presence of Hazardous Substances at any locations
other than the Real Estate; and
(c) after the third anniversary of the Closing Date, for
any action or claim with respect to any other Retained Liability;
Provided, however, that the foregoing time limitations shall not apply to
any such claims which have been the subject of a written notice from Parent
and/or Buyer to the Seller Parties prior to such period setting forth the facts
upon which the claim for indemnification is based and, if possible, a reasonable
estimate of the amount of the claims; and, provided, further, that the foregoing
time limitations shall also not apply to any such claims: (u) with respect to
Taxes; (v) with respect to any liability of the types that appear as "Trade
Payables" or "Other Current and Accrued Liabilities" on the financial statements
of Seller; (w) not exclusively related to the Acquired Assets or not exclusively
related to the Business; and (x) with respect to any of the matters discussed in
Section 3.16 hereof.
For purposes of Sections 7.3.2(a) and (b), a "Change of Control of
Citizens" shall be deemed to have occurred if: (i) any "person" (as such term is
used in Section 13(d) and 14(d) of the Exchange Act of 1934, as amended (the
"Exchange Act"), other than an underwriter engaged in a firm commitment
underwriting on behalf of Citizens, is or becomes the beneficial owner (as such
term is used in Rule 13D-3 and 13D-5 under the Exchange Act, except that for
purposes of this clause (i) a person shall be deemed to have beneficial
ownership of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total outstanding shares of common stock of
the Company; (ii) all or substantially all of Citizens' and its Subsidiaries'
assets are sold, leased, exchanged or otherwise transferred to any person or
group of persons acting in concert; (iii) Citizens is merged or consolidated
with any other person, whether or not Citizens is the surviving corporation in
such merger or consolidation; or (iv) Citizens is liquidated or dissolved or
adopts a plan of liquidation.
7.4 Indemnification. Seller, Parent and Buyer agree as follows:
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7.4.1 General Indemnification Obligations.
(a) Seller shall indemnify Buyer and its directors,
officers and other Affiliates (including Parent) and hold Buyer and such other
parties harmless from and against any and all Damages arising out of or
resulting from (A) any breach of any representation, warranty, covenant or
agreement made by the Seller Parties in this Agreement or in any document or
certificate required to be furnished to Buyer by any of the Seller Parties
pursuant to this Agreement (including the Transaction Documents); (B) subject to
Section 7.3.2, any Excluded Assets or Retained Liabilities; (C) subject to
Section 7.3.2, the ownership, operation or use of any of the businesses or
assets of the Seller Parties or their Affiliates (other than the Business and
the Acquired Assets) whether before, on or after the Closing Date; and (D) an
event of taxability, as such term is customarily used in municipal securities
transactions, relating to the Retained IDRB Indebtedness and arising from the
sale of the Acquired Assets pursuant to this Agreement.
(b) Buyer and Parent shall indemnify Seller, and their
directors, officers and other Affiliates (including Citizens) and hold Seller
and such other parties harmless from and against any and all Damages arising out
of or resulting from (A) any breach of any representation, warranty, covenant or
agreement made by Parent or Buyer in this Agreement or in any document or
certificate required to be furnished to Seller by Parent or Buyer pursuant to
this Agreement (including the Transaction Documents), including the Buyer's IDRB
Obligations; (B) any Assumed Liabilities after the Closing Date, including the
Assumed Indebtedness; (C) the ownership, operation or use of the Business or the
Acquired Assets after the Closing Date (except to the extent resulting from
Retained Liabilities or to the extent resulting from breaches by the Seller
Parties of representations, warranties, covenants or agreements hereunder or in
the other Transaction Documents); (D) any claim by a Transferred Employee or a
Former Employee referred to on Schedule 5.12 or the Beneficiary of any such
employee or former employee for post-retirement health care or life insurance
benefits "incurred" (within the meaning of Section 5.9.4) after the Closing; (E)
any violation by Parent or Buyer, or any assignee, lessee or successor of Parent
or Buyer, of the covenants and agreements as provided by Section 5.16.3 hereof
and Section 5 of Exhibit D hereto; and (F) an event of taxability, as such term
is customarily used in municipal securities transactions, relating to the
Assumed Indebtedness and arising from the sale of the Acquired Assets pursuant
to this Agreement and/or the assignment or assumption of the Assumed
Indebtedness.
(c) For purposes of this Agreement, "Damages" shall mean
any and all losses, liabilities, obligations, damages (including any
governmental penalty or punitive damages assessed or asserted against the party
seeking indemnification and including costs of investigation, clean-up and
remediation), deficiencies, interest, costs and expenses and any claims,
actions, demands, causes of action, judgments, costs and reasonable expenses
(including reasonable attorneys' fees and all other reasonable expenses incurred
in investigating, preparing or defending any litigation or proceeding, commenced
or threatened, incident to the successful enforcement of this Agreement). For
purposes of this Section 7.4, the determination of whether any breach of any
representation, covenant or agreement has occurred, and the calculation of the
amount of Damages
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incurred by the Indemnified Party arising out of or resulting from any breach of
a representation, covenant or agreement by any party hereto, the references to a
"Material Adverse Effect" or materiality (or other correlative terms) shall be
disregarded, provided that no such breach shall be found to have occurred due to
facts or circumstances arising from an occurrence or condition described in
Section 1.1.61(a). Notwithstanding the foregoing, Damages shall not include the
loss of profits of the party seeking indemnification, or punitive damages unless
the party seeking indemnification has had punitive damages assessed or asserted
against it.
(d) Notwithstanding any language contained in any
Transaction Document (including deeds to Real Estate and instruments delivered
by Seller to the Title Company), representations and warranties as to Real
Estate set forth in Section 3.10 and 3.11 will not be merged into any
Transaction Document and the indemnification obligations of Seller, and the
limitations on such obligations, set forth in this Agreement, shall control. No
provision set forth in any Transaction Document shall be deemed to enlarge,
alter or amend the terms or provisions of this Agreement.
7.4.2 General Indemnification Procedures.
(a) A party seeking indemnification pursuant to this
Section 7.4 (an "Indemnified Party") shall give prompt written notice to the
party from whom such indemnification is sought (the "Indemnifying Party") of the
assertion of any claim, the incurrence of any Damages, or the commencement of
any action, suit or proceeding, of which it has knowledge and in respect of
which indemnity may be sought hereunder, and will give the Indemnifying Party
such information with respect thereto as the Indemnifying Party may reasonably
request, but failure to give such required notice shall relieve the Indemnifying
Party of any liability hereunder only to the extent that the Indemnifying Party
has suffered actual prejudice thereby. The Indemnifying Party shall have the
right, exercisable by written notice to the Indemnified Party after receipt of
notice from the Indemnified Party of the commencement of or assertion of any
claim or action, suit or proceeding by a third party in respect of which
indemnity may be sought hereunder (a "Third Party Claim"), to assume the defense
of such Third Party Claim which involves (and continues to involve) solely
monetary damages; provided, that (A) the Indemnifying Party expressly agrees in
such notice that, as between the Indemnifying Party and the Indemnified Party,
solely the Indemnifying Party shall be obligated to satisfy and discharge the
Third Party Claim, (B) such Third Party Claim does not include a request or
demand for injunctive or other equitable relief by an Authority and (C) the
Indemnifying Party makes reasonably adequate provision to assure the Indemnified
Party of the ability of the Indemnifying Party to satisfy the full amount of any
adverse monetary judgment that is reasonably likely to result. The Indemnifying
Party shall be deemed to have satisfied the condition set forth in clause (C) of
the proceeding sentence if it is a regulated utility.
(b) Neither the Indemnified Party nor the Indemnifying
Party shall settle any Third Party Claim without the prior written consent of
the other, which consent shall not be unreasonably withheld or delayed.
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(c) The Indemnifying Party or the Indemnified Party, as
the case may be, shall have the right to participate in (but not control), at
its own expense, the defense of any Third Party Claim which the other party is
defending as provided in this Agreement.
(d) Amounts paid in respect of indemnification
obligations of the parties shall be treated as an adjustment to the Purchase
Price.
(e) Subject to Section 7.4.2(f) and Section 7.4.2(i),
neither Parent nor Buyer (and the other Persons for which they can claim
indemnity hereunder) shall be entitled to indemnification for Damages incurred
unless the aggregate amount of Damages incurred by Parent or Buyer (or the other
Persons for which they can claim indemnification), together with all other
claims for Damages under Section 7.4.2(e) of each of the Related Purchase
Agreements, exceeds $6,123,000 in the aggregate (the "Threshold Amount"), in
which case Seller shall then be liable for Damages in excess of the Threshold
Amount. Subject to Section 7.4.2(f) and Section 7.4.2(i), the cumulative
aggregate indemnity obligation of Citizens and its Affiliates under Section 7.4
of this Agreement and the Related Purchase Agreements shall not exceed
$60,000,000 (the "Ceiling").
(f) Notwithstanding the foregoing, the parties
acknowledge that Parent or Buyer (and the other Persons for which they can claim
indemnity hereunder) shall be entitled to indemnification for Damages in respect
of intentional and wilful breaches of covenants or agreements in this Agreement
or any of the Retained Liabilities other than the Specified Liabilities
irrespective of the Threshold Amount or the Ceiling (it being understood that
the failure to cure a breach shall not, by itself, be an intentional and wilful
breach). As used herein, the "Specified Liabilities" shall mean the Retained
Liabilities arising from claims made after the Closing Date which (i) do not
relate to matters within the scope of clauses (u), (v), (w) and (x) of Section
7.3.2; (ii) were not known to the Seller Parties on or prior to Closing; and
(iii) relate exclusively to the Acquired Assets or the Business prior to the
Closing Date. Notwithstanding anything to the contrary in this Section 7.4,
Parent or Buyer (or the other Persons for which they can claim indemnification)
shall be entitled to indemnification for Damages in respect of a breach of
Section 3.2, 3.12 or 3.16 irrespective of the Threshold Amount or the Ceiling.
(g) The rights and remedies of Seller, Parent and Buyer
under this Section 7.4 are exclusive and in lieu of any and all other rights and
remedies which Seller, Parent and Buyer may have under this Agreement or
otherwise for monetary relief with respect to (x) the inaccuracy of any
representation, warranty, certification or other statement made (or deemed made)
by Seller, Parent or Buyer in or pursuant to this Agreement or any of the
Transaction Documents or (y) any breach or failure to perform any covenant or
agreements set forth in this Agreement or any of the Transaction Documents.
(h) Except to the extent provided in Section 7.4.2(j)
below, no right to indemnification under this Section 7.4 shall be limited by
reason of any investigation or audit conducted before or after the Closing of
any party hereto including, without limitation, the
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knowledge of such party of any breach of any representation, warranty, agreement
or covenant by the other party at any time, or the decision by such party to
complete the Closing.
(i) No party shall have any liability to another party
under this Section 7.4 for Damages (and no cost or expense relating to such
Damages shall be included in determining the extent of Damages incurred by such
party for purposes of Section 7.4.2(e)) to the extent that:
(A) the Indemnified Party recovers insurance
proceeds covering the Damages or otherwise recovers payments in respect of such
Damages from any other source (whether in a lump sum or stream of payments); or
(B) the Indemnified Party's Tax liability is
actually reduced as a result of a tax benefit to which the Indemnified Party
becomes entitled in respect of the Damages.
(j) Seller shall have no liability or obligation under
this Section 7.4 for any Damages resulting from the inaccuracy or breach of any
representation or warranty if such inaccuracy or breach is disclosed by Seller
pursuant to and in accordance with Sections 5.3 and 8.4 hereof;
(k) Buyer agrees to use its commercially reasonable
efforts to give timely and effective written notice to the appropriate insurance
carrier(s) of any occurrence or circumstances which, in the judgment of Buyer
consistent with its customary risk management practices, appear likely to give
rise to a claim against Buyer that is likely to involve one or more insurance
policies of Buyer. Any such notice shall be given in good faith by Buyer without
regard to the possibility of indemnification payments by Seller under this
Section 7.4, and shall be processed by Buyer in good faith and in a manner
consistent with its risk management practices involving claims for which no
third party contractual indemnification is available. Buyer agrees that (i) if
it is entitled to receive payment from Seller for Damages arising under or
pursuant to a breach of the representation and warranty set forth in Section
3.10, and (ii) if Buyer has obtained title insurance which may cover the claim
or matter giving rise to such Damages, then (iii) such title insurance shall be
primary coverage and Buyer will make a claim under the title insurance if such
claim can be made in good faith before enforcing its right to receive payment
from Seller. Buyer shall be under no obligation to obtain title insurance or
prosecute such claim (other than the initial filing of such claim).
(l) If at any time subsequent to the receipt by an
Indemnified Party of an indemnity payment hereunder, such Indemnified Party (or
any Affiliate thereof) receives any recovery, settlement or other similar
payment with respect to the Damages for which it received such indemnity payment
(including insurance proceeds and other payments pursuant to Section 7.4.2(i)(A)
and a tax benefit pursuant to Section 7.4.2(i)(B)) (the "Recovery"), such
Indemnified Party shall promptly pay to the Indemnifying Party an amount equal
to the amount of such Recovery,
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less any expense incurred by such Indemnified Party (or its Affiliates) in
connection with such Recovery, but in no event shall any such payment exceed the
amount of such indemnity payment;
(m) In the event of any indemnification claim under this
Section 7.4 involving the claim of any third party, the Indemnified Party shall
cooperate fully (and shall cause its Affiliates to cooperate fully) with the
Indemnifying Party in the defense of any such claim under this Section 7.4.
Without limiting the generality of the foregoing, the Indemnified Party shall
furnish the Indemnifying Party with such documentary or other evidence as is
then in its or any of its Affiliates' possession as may reasonably be requested
by the Indemnifying Party for the purpose of defending against any such claim.
Whether or not the Indemnifying Party chooses to defend or prosecute any claim
involving a third party, all the parties hereto shall cooperate in the defense
or prosecution thereof and shall furnish such records, information and
testimony, and attend such conferences, discovery proceedings, hearings, trials
and appeals, as may be reasonably requested in connection therewith.
7.4.3 Indemnification for Negligence. WITHOUT LIMITING OR
ENLARGING THE SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS
AGREEMENT, AN INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER
IN ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM
GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE,
CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY, VIOLATION OF ANY LAW OR
OTHER LEGAL FAULT OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS
PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
7.5 UCC Matters. From and after the Closing Date, Seller will
promptly refer all inquiries with respect to ownership of the Acquired Assets or
the Business to Buyer. In addition, Seller will execute such documents and
financing statements as Buyer may reasonably request from time to time to
evidence transfer of the Acquired Assets to Buyer in accordance with this
Agreement, including any necessary assignment of financing statements.
7.6 Financial Statements. In connection with the preparation and
filing of any registration statement or periodic report of Buyer or its
Affiliates pursuant to Rule 3-05, Article 11 of Regulation S-X or other rule or
regulation promulgated under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, Seller, at Buyer's expense, shall
provide Buyer (a) by April 30, 2000 or within 120 days after Buyer's written
request therefor if made after January 1, 2000, with the following audited
financial statements: (i) a statement of net assets of the Business as of the
end of the last fiscal year prior to Closing; and (ii) a statement of income of
the Business and a statement of cash flows or its equivalent of the Business for
the last fiscal year prior to Closing (in each case combined with the businesses
being acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements), including opinions thereon of Seller's Accountants, and (b) within
90 days after Buyer's written request made therefor (provided such request is
made after the end of the fiscal quarter described below), the following
unaudited
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statements: (i) a statement of net assets of the Business as of the end of the
last fiscal quarter prior to Closing (but only if such quarter is subsequent to
the last fiscal year prior to Closing); and (ii) a statement of income of the
Business and a statement of cash flows or its equivalent of the Business, for
the period from the end of the last fiscal year through the end of the last
fiscal quarter prior to Closing (in each case combined with the businesses being
acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements).
7.7 Collection of Receivables. Seller agrees that it shall promptly
(and in any event no later than five (5) Business Days following receipt)
deliver all such payments with respect to accounts receivable from customers of
the Business received on and after the Closing Date (including but not limited
to negotiable instruments tendered in payment of accounts receivable assigned to
Buyer hereunder which shall be duly endorsed by Seller to the order of Buyer) to
Buyer. Seller shall cooperate with Buyer in coordinating the transfer of
collection agents and customers of the Business who pay their bills through the
Automated Clearinghouse (ACH) process to Buyer.
ARTICLE 8
MISCELLANEOUS
8.1 Construction. Parent, Buyer and the Seller Parties have
participated jointly in the negotiation and drafting of this Agreement and the
Transaction Documents. In the event any ambiguity or question of intent or
interpretation arises, this Agreement and the Transaction Documents shall be
construed as if drafted jointly by Parent, Buyer and the Seller Parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The word "including" in this Agreement shall mean
including without limitation. Words in the singular shall be held to include the
plural and vice versa and words of one gender shall be held to include the other
genders as the context requires. The terms "hereof," "herein," and "herewith"
and words of similar import shall, unless otherwise stated, be construed to
refer to this Agreement as a whole (including all of the Schedules and Exhibits
hereto) and not to any particular provision of this Agreement, and Article,
Section, paragraph, Exhibit and Schedule references are to the Articles,
Sections, paragraphs, Exhibits and Schedules to this Agreement unless otherwise
specified. The word "or" shall not be exclusive. Provisions of this Agreement
shall apply, when appropriate, to successive events and transactions. Section
references refer to this Agreement unless otherwise specified.
8.2 Notices. Any notice, request, demand, waiver, consent, approval
or other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to the
party personally or sent to the party by telecopy, by registered or certified
mail (return receipt requested) with postage and registration or certification
fees thereon prepaid, or by any nationally recognized overnight courier
addressed to the party at its address set forth below:
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If to Parent:
American Water Works Company
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, New Jersey 08043
Fax: (609) 346-8299
Attention: General Counsel
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to Buyer:
Pennsylvania-American Water Company
800 West Hersheypark Drive
Hershey, PA 17033
Fax: (717) 531-3252
Attention: Corporate Counsel
with a copy to Parent and a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to Seller:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: Robert J. DeSantis
Telecopier: (203) 614-4625
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with copies to:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: L. Russell Mitten, II
Telecopier: (203) 614-4651
and
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: J. Michael Love
Telecopier: (203) 614-5201
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention: Jeffry L. Hardin
Telecopier: (202) 387-3467
8.3 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided, however, that no party
may assign, delegate or otherwise transfer any of its rights or obligations
under this Agreement without the consent of the other party hereto; provided
that Seller may assign its rights or delegate its duties under this Agreement to
a qualified intermediary chosen by Seller to structure the transactions
contemplated hereby as a like-kind exchange of property covered by Section 1031
of the Code.
8.4 Exhibits and Schedules. All Exhibits and Disclosure Schedules
annexed hereto or referred to herein are hereby incorporated in and made a part
of this Agreement as if set forth in full herein. Disclosure of any fact or item
in any Schedule referenced by a particular paragraph or Section in this
Agreement shall, should the existence of the fact or item or its contents be
clearly related to any other paragraph or section, be deemed to be disclosed
with respect to that other paragraph or section.
8.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
the conflicts of laws principles thereof.
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8.6 Dispute Resolution. Except as otherwise provided herein, any
dispute, controversy or claim between the parties relating to, arising out of or
in connection with this Agreement (or any subsequent agreements or amendments
thereto), including as to its existence, enforceability, validity,
interpretation, performance or breach or as to indemnification or damages,
including claims in tort, whether arising before or after the termination of
this Agreement (any such dispute, controversy or claim being herein referred to
as a "Dispute") shall be settled without litigation and only by use of the
following alternative dispute resolution procedure:
(a) At the written request of a party, each party shall
appoint a knowledgeable, responsible representative to meet and negotiate in
good faith to resolve any Dispute. The discussions shall be left to the
discretion of the representatives. Upon agreement, the representatives may
utilize other alternative dispute resolution procedures such as mediation to
assist in the negotiations. Discussions and correspondence among the parties'
representatives for purposes of these negotiations shall be treated as
confidential information developed for the purposes of settlement, exempt from
discovery and production, and without the concurrence of both parties shall not
be admissible in the arbitration described below, or in any lawsuit. Documents
identified in or provided with such communications, which are not prepared for
purposes of the negotiations, are not so exempted and may, if otherwise
admissible, be admitted in the arbitration.
(b) If negotiations between the representatives of the parties
do not resolve the Dispute within 60 days of the initial written request, the
Dispute shall be submitted to binding arbitration by a single arbitrator
pursuant to the Commercial Arbitration Rules, as then amended and in effect, of
the American Arbitration Association (the "Rules"); provided, however, that at
the election of either party, the arbitration shall take place before three (3)
arbitrators, one arbitrator being selected by Parent, one arbitrator being
selected by Citizen, and the third arbitrator, knowledgeable in the general
subject matter of the dispute, controversy or claim, being selected by the other
two arbitrators. Either party may demand such arbitration in accordance with the
procedures set out in the Rules. The parties hereto shall use reasonable efforts
to coordinate any arbitration commenced under this Agreement with any
arbitration on the same or similar issues commenced under any of the Related
Purchase Agreements so that the resolution of the arbitration under this
Agreement and the similar issues under the Related Purchase Agreements can be
resolved as expeditiously and efficiently as reasonably practicable. Reasonable
efforts shall include use of a common arbitrator or panel of arbitrators where
practicable. The arbitration shall take place in Newark, New Jersey. The
arbitration hearing shall be commenced within 60 days of such party's demand for
arbitration. The arbitrator(s) shall have the power to and will instruct each
party to produce evidence through discovery (i) that is reasonably requested by
the other party to the arbitration in order to prepare and substantiate its case
and (ii) the production of which will not materially delay the expeditious
resolution of the dispute being arbitrated; each party hereto agrees to be bound
by any such discovery order. The arbitrator(s) shall control the scheduling (so
as to process the matter expeditiously) and any discovery. The parties may
submit written briefs. At the arbitration hearing, each party may make written
and oral presentations to the arbitrator(s), present testimony and written
evidence and examine witnesses. No party shall be eligible to receive, and the
arbitrator(s) shall not have the authority to award, exemplary or punitive
damages. The
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arbitrator(s) shall rule on the Dispute by issuing a written opinion within 30
days after the close of hearings. The arbitrators' majority decision shall be
binding and final. Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction.
(c) Each party will bear its own costs and expenses in
submitting and presenting its position with respect to any Dispute to the
arbitrator(s); provided, however, that if the arbitrator(s) determines that the
position taken in the Dispute by the non-prevailing party taken as a whole is
unreasonable, the arbitrator(s) may order the non-prevailing party to bear such
fees and expenses, and reimburse the prevailing party for all or such portion of
its reasonable costs and expenses in submitting and presenting its position, as
the arbitrator(s) shall reasonably determine to be fair under the circumstances.
Each party to the arbitration shall pay one-half of the fees and expenses of the
arbitrator(s) and the American Arbitration Association.
(d) Notwithstanding any other provision of this Agreement, (i)
either party may commence an action to compel compliance with this Section 8.6
and (ii) if any party, as party of a Dispute, seeks injunctive relief or any
other equitable remedy, including specific enforcement, then such party shall be
permitted to seek such injunctive or equitable relief in any federal or state
court or competent jurisdiction before, during or after the pendency of a
mediation or arbitration proceed under this Section 8.6.
8.7 Severability. The parties agree that (a) the provisions of this
Agreement shall be severable in the event that any provision hereof is held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable,
(b) such invalid, void or otherwise unenforceable provision shall be
automatically replaced by another provision which is as similar as possible in
terms to such invalid, void or otherwise unenforceable provision but which is
valid and enforceable and (c) the remaining provisions shall remain enforceable
to the fullest extent permitted by law.
8.8 No Third Party Beneficiaries. Nothing herein expressed or
implied is intended or should be construed to confer upon or give to any Person
other than the parties hereto and their successors and permitted assigns any
rights or remedies under or by reason of this Agreement.
8.9 Entire Agreement. This Agreement, the Schedules and Exhibits
hereto and the other Transaction Documents, and the Confidentiality Agreement
dated August 2, 1999, between Citizens and Parent, (i) together constitute the
entire understanding of the parties (and their affiliates) with respect to the
subject matter hereof, and any related matter, (ii) supercede all prior
agreements or understandings, written or oral, entered into by any of the
parties that concern the subject matter hereof and (iii) are not intended to
confer upon any Person other than the parties hereto any benefit, right or
remedy.
8.10 Amendment and Waiver. The parties may, by mutual agreement,
amend this Agreement in any respect, and any party, as to such party, may (i)
extend the time for the performance of any of the obligations of the other
party; (ii) waive any inaccuracies in
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representations and warranties by the other party; (iii) waive compliance by the
other party with any of the covenants or agreements contained herein and
performance of any obligations by the other party; and (iv) waive the
fulfillment of any condition that is precedent to the performance by such party
of any of its obligations under this Agreement. To be effective, any such
amendment or waiver must be in writing and be signed by the party providing such
waiver or extension, as the case may be. The waiver by any party hereto of any
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach, whether or not similar.
8.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
8.12 Headings. The headings preceding the text of the sections and
subsections hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
8.13 Definitions. For purposes of this Agreement, references to the
knowledge of the Seller Parties (including a reference to "the best of the
knowledge of the Seller Parties" and similar references) shall mean the actual
knowledge possessed by any of the following officers or employees of Citizens:
Chief Financial Officer, Vice President and Treasurer; President, Citizens
Public Services; Vice President, Corporate Human Resources; Secretary; Vice
President, Water; and the general manager of the Business.
8.14 No Implied Representation. NOTWITHSTANDING ANYTHING CONTAINED
IN THIS AGREEMENT, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO THAT NEITHER
OF THE SELLER PARTIES ARE MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER,
EXPRESS OR IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS AGREEMENT, ANY SCHEDULE
HERETO, THE TRANSACTION DOCUMENTS, OR ANY DOCUMENT, EXHIBIT, CERTIFICATE,
INSTRUMENT OR STATEMENT TO BE DELIVERED HEREUNDER OR THEREUNDER INCLUDING, BUT
NOT LIMITED TO, ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION,
MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO ANY OF
THE ACQUIRED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IT IS
UNDERSTOOD AND AGREED THAT ANY COST ESTIMATES, PROJECTIONS OR OTHER PREDICTIONS
CONTAINED OR REFERRED TO IN THE SCHEDULES AND ANY COST ESTIMATES, PROJECTIONS OR
PREDICTIONS OR ANY OTHER INFORMATION CONTAINED OR REFERRED TO IN OTHER MATERIALS
THAT HAVE BEEN OR SHALL HEREINAFTER BE PROVIDED TO PARENT, BUYER OR ANY OF THEIR
AFFILIATES, AGENTS OR REPRESENTATIVES ARE NOT AND SHALL NOT BE DEEMED TO BE
REPRESENTATIONS OR WARRANTIES OF ANY OF THE SELLER PARTIES.
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8.15 Construction of Certain Provisions. It is understood and agreed
that neither the specification of any dollar amount in the representations and
warranties contained in this Agreement nor the inclusion of any specific item in
the Schedules or Exhibits is intended to imply that such amounts or higher or
lower amounts, or the items so included or other items, are or are not material,
and none of the parties shall use the fact of the setting of such amounts or the
fact of any inclusion of any such item in the Schedules or Exhibits in any
dispute or controversy between the parties as to whether any obligation, item or
matter is or is not material for purposes hereof.
8.16 Bulk Sales. Buyer agrees that it shall not make any filings
under any tax bulk sales provisions with respect to the transactions
contemplated by this Agreement.
[Signatures appear on following page.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first written above.
CITIZENS UTILITIES COMPANY
By:________________________________________________
Robert J. DeSantis, Chief Financial Officer,
Vice President and Treasurer
CITIZENS BUSINESS SERVICES COMPANY
CITIZENS RESOURCES COMPANY
CITIZENS UTILITIES WATER COMPANY OF PENNSYLVANIA
By:________________________________________________
Robert J. DeSantis, Vice President
AMERICAN WATER WORKS COMPANY, INC.
By:_________________________________________________
Joseph F. Hartnett, Jr., Treasurer
PENNSYLVANIA-AMERICAN WATER COMPANY
By:_________________________________________________
R. M. Ross, President
EXHIBIT 12
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Statement Showing Computation of Ratio of Earnings to Fixed Charges
and Earnings to Combined Fixed Charges
for the year ended December 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C>
Ratio of
Ratio of Earnings to
Earnings to Combined Fixed
Fixed Charges Charges
-------------------------------
Pre-tax income before dividends on convertible preferred securities and
discontinued operations $ 187,924 $ 187,924
Income or loss from equity investees (2,019) (2,019)
Minority interest (23,227) (23,227)
-------------------------------
Pre-tax income from continuing operations before adjustment for minority
interest in consolidated subsidiaries or income or loss from
equity investees 162,678 162,678
Fixed charges 108,268 118,331
Amortization of capitalized interest - -
Distributed income of equity investees 600 600
Interest capitalized (8,681) (8,681)
Preference security dividend requirements of consolidated subsidiaries (10,063) (10,063)
Minority interest in pre-tax income of subsidiaries that have not
incurred fixed charges - -
-------------------------------
Total earnings $ 252,803 $ 262,865
-------------------------------
Ratio of earnings to fixed charges 2.33
==============
Ratio of earnings to combined fixed charges 2.22
=================
</TABLE>
EXHIBIT NO. 21
21. SUBSIDIARIES (all wholly-owned, except where otherwise indicated)
<TABLE>
<CAPTION>
State of
Name Incorporation
<S> <C>
Citizen Solutions Company Arizona
Citizens Business Services Company Illinois
Citizens Cable Company Delaware
Subsidiary of Citizens Cable Company
NCC Systems, Inc. Texas
Citizens Capital Ventures Company Delaware
Citizens Consumers Services, Inc. California
Citizens Directory Services Company L.L.C. Delaware
Citizens Directory Services Company, Inc. Delaware
Citizens International Management Services Company Delaware
Citizens Lake Water Company Illinois
Citizens Mohave Cellular Company Delaware
Citizens Mountain State Telephone Company West Virginia
Citizens NEWCOM Company Delaware
Citizens NEWTEL Company Delaware
Citizens Public Works Service Company of Arizona Minnesota
Citizens Resources Company Delaware
Citizens Telecom Services Company L.L.C. Delaware
Citizens Telecommunications Company Delaware
Citizens Telecommunications Company of California, Inc. California
Citizens Telecommunications Company of Colorado Delaware
Citizens Telecommunications Company of Idaho Delaware
Citizens Telecommunications Company of Iowa Delaware
Citizens Telecommunications Company of Minnesota, Inc. Delaware
Citizens Telecommunications Company of Montana Delaware
Citizens Telecommunications Company of Nebraska Delaware
Citizens Telecommunications Company of Nevada Nevada
Citizens Telecommunications Company of New York, Inc. New York
Citizens Telecommunications Company of North Dakota Delaware
Citizens Telecommunications Company of Oregon Delaware
Citizens Telecommunications Company of Tennessee L.L.C. Delaware
Citizens Telecommunications Company of the Golden State California
Citizens Telecommunications Company of the Volunteer State L.L.C. Delaware
Citizens Telecommunications Company of the White Mountains, Inc. Delaware
Citizens Telecommunications Company of Tuolumne California
Citizens Telecommunications Company of Utah Delaware
Citizens Telecommunications Company of West Virginia Delaware
Citizens Telecommunications Company of Wyoming Delaware
Citizens Utilities Company of California California
Citizens Utilities Company of Illinois Illinois
Citizens Utilities Company of Ohio Ohio
Citizens Utilities Rural Company, Inc. Delaware
Citizens Utilities Water Company of Pennsylvania Pennsylvania
Citizens Water Resources Company of Arizona Arizona
Citizens Water Resources Company Delaware
Citizens Water Resources Management Services Company Delaware
Citizens Water Services Company of Arizona Arizona
Conference-Call USA, Inc. Delaware
Subsidiary of Conference-Call USA, Inc.:
Dial Services, Ltd., Inc. Delaware
CU CapitalCorp Delaware
Subsidiary of CU CapitalCorp:
Electric Lightwave, Inc. * Delaware
CU Wireless Management L.L.C. Delaware
Flowing Wells, Inc. Indiana
Havasu Water Company, Inc. Arizona
LGS Natural Gas Company Louisiana
Navajo Communications Company, Inc. New Mexico
Ogden Telephone Company New York
Subsidiaries of Ogden Telephone Company:
NewOp Communications Corporation New York
Phone Trends, Inc. New York
Rhinelander Telecommunications, Inc. Wisconsin
Subsidiary of Rhinelander Telecommunications, Inc.
Crandon Telephone Company Wisconsin
Headwaters Telephone Company Wisconsin
New North Telecommunications, Inc. Wisconsin
Rhinelander Telephone Company Wisconsin
Rib Lake Telephone Company Wisconsin
Subsidiary of Rib Lake Telephone Company
Rib Lake Cellular for Wisconsin RSA #3 Wisconsin
Rib Lake Telecom, Inc. Wisconsin
Southwestern Capital Corporation Delaware
Southwestern Investments, Inc. Nevada
Sun City Sewer Company Arizona
Sun City Water Company Arizona
Sun City West Utilities Company Arizona
Tubac Valley Water Company, Inc. Arizona
</TABLE>
* Economic interest 82.11%, voting interest 97.87%.
Exhibit 23
----------
Independent Auditors' Consent
-----------------------------
The Board of Directors
Citizens Utilities Company:
We consent to the incorporation by reference in the Registration Statement (No.
333-35527) on Form S-1, in the Registration Statement (No. 33-1880) on Form S-3,
in the Registration Statement (No. 33-44068) on Form S-3, in the Registration
Statement (No. 33-44069) on Form S-3, in the Registration Statement (No.
33-41379) on Form S-3, in the Registration Statement (No. 33-51529) on Form S-3,
in the Registration Statement (No. 33-52873) on Form S-3, in the Registration
Statement (No. 33-55075) on Form S-3, in the Registration Statement (No.
33-60729) on Form S-3, in the Registration Statement (No. 33-63615) on Form S-3,
in the Registration Statement (No. 333-7047) on Form S-3, in the Registration
Statement (No. 333-18049) on Form S-3, in the Registration Statement (No.
33-40069) on Form S-4, in the Registration Statement (No. 333-71821) on Form
S-8, in the Registration Statement (No. 333-71597) on Form S-8, in the
Registration Statement (No. 333-71029) on Form S-8, in the Registration
Statement (No. 33-7177) on Form S-8, in the Registration Statement (No.
33-37602) on Form S-8, in the Registration Statement (No. 33-42972) on Form S-8,
in the Registration Statement (No. 33-41682) on Form S-8, in the Registration
Statement (No. 33-39455) on Form S-8, in the Registration Statement (No.
33-39566) on Form S-8, in the Registration Statement (No. 33-48683) on Form S-8,
in the Registration Statement (No. 33-54376) on Form S-8 of Citizens Utilities
Company of our report dated March 14, 2000, relating to the consolidated balance
sheets of Citizens Utilities Company and subsidiaries as of December 31, 1999,
1998, and 1997 and the related consolidated statements of income and
comprehensive income, shareholders' equity, and cash flows for the years then
ended, which report apears in the December 31, 1999 annual report on Form 10-K
of Citizens Utilities Company.
New York, New York
March 14, 2000
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of CITIZENS
UTILITIES COMPANY constitutes and appoints Robert J. DeSantis and Livingston E.
Ross, jointly and severally, for him in any and all capacities to sign on Form
10-K for the fiscal year 1999 for CITIZENS UTILITIES COMPANY, and any and all
amendments to said Form 10-K, and to file the same with the Securities and
Exchange Commission, hereby ratifying and conforming all that each of said
attorneys-in-fact, or his substitute or substitutes may do or cause to be done
by virtue hereof.
/s/ Norman I. Botwinik
_____________________
Norman I. Botwinik
January 24, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of CITIZENS
UTILITIES COMPANY constitutes and appoints Robert J. DeSantis and Livingston E.
Ross, jointly and severally, for him in any and all capacities to sign on Form
10-K for the fiscal year 1999 for CITIZENS UTILITIES COMPANY, and any and all
amendments to said Form 10-K, and to file the same with the Securities and
Exchange Commission, hereby ratifying and conforming all that each of said
attorneys-in-fact, or his substitute or substitutes may do or cause to be done
by virtue hereof.
/s/ Aaron I. Fleischman
___________________
Aaron I. Fleischman
January 31, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of CITIZENS
UTILITIES COMPANY constitutes and appoints Robert J. DeSantis and Livingston E.
Ross, jointly and severally, for him in any and all capacities to sign on Form
10-K for the fiscal year 1999 for CITIZENS UTILITIES COMPANY, and any and all
amendments to said Form 10-K, and to file the same with the Securities and
Exchange Commission, hereby ratifying and conforming all that each of said
attorneys-in-fact, or his substitute or substitutes may do or cause to be done
by virtue hereof.
/s/ Stanley Harfenist
__________________
Stanley Harfenist
January 18, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of CITIZENS
UTILITIES COMPANY constitutes and appoints Robert J. DeSantis and Livingston E.
Ross, jointly and severally, for him in any and all capacities to sign on Form
10-K for the fiscal year 1999 for CITIZENS UTILITIES COMPANY, and any and all
amendments to said Form 10-K, and to file the same with the Securities and
Exchange Commission, hereby ratifying and conforming all that each of said
attorneys-in-fact, or his substitute or substitutes may do or cause to be done
by virtue hereof.
/s/ Andrew N. Heine
___________________
Andrew N. Heine
January 24, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of CITIZENS
UTILITIES COMPANY constitutes and appoints Robert J. DeSantis and Livingston E.
Ross, jointly and severally, for him in any and all capacities to sign on Form
10-K for the fiscal year 1999 for CITIZENS UTILITIES COMPANY, and any and all
amendments to said Form 10-K, and to file the same with the Securities and
Exchange Commission, hereby ratifying and conforming all that each of said
attorneys-in-fact, or his substitute or substitutes may do or cause to be done
by virtue hereof.
/s/ John L. Schroeder
_____________________
John L. Schroeder
February 7, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of CITIZENS
UTILITIES COMPANY constitutes and appoints Robert J. DeSantis and Livingston E.
Ross, jointly and severally, for him in any and all capacities to sign on Form
10-K for the fiscal year 1999 for CITIZENS UTILITIES COMPANY, and any and all
amendments to said Form 10-K, and to file the same with the Securities and
Exchange Commission, hereby ratifying and conforming all that each of said
attorneys-in-fact, or his substitute or substitutes may do or cause to be done
by virtue hereof.
/s/ Robert D. Siff
__________________
Robert D. Siff
January 25, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of CITIZENS
UTILITIES COMPANY constitutes and appoints Robert J. DeSantis and Livingston E.
Ross, jointly and severally, for him in any and all capacities to sign on Form
10-K for the fiscal year 1999 for CITIZENS UTILITIES COMPANY, and any and all
amendments to said Form 10-K, and to file the same with the Securities and
Exchange Commission, hereby ratifying and conforming all that each of said
attorneys-in-fact, or his substitute or substitutes may do or cause to be done
by virtue hereof.
/s/ Robert A. Stanger
_____________________
Robert A. Stanger
January 24, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of CITIZENS
UTILITIES COMPANY constitutes and appoints Robert J. DeSantis and Livingston E.
Ross, jointly and severally, for him in any and all capacities to sign on Form
10-K for the fiscal year 1999 for CITIZENS UTILITIES COMPANY, and any and all
amendments to said Form 10-K, and to file the same with the Securities and
Exchange Commission, hereby ratifying and conforming all that each of said
attorneys-in-fact, or his substitute or substitutes may do or cause to be done
by virtue hereof.
/s/ Charles H. Symington, Jr.
_________________________
Charles H. Symington, Jr.
January 25, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of CITIZENS
UTILITIES COMPANY constitutes and appoints Robert J. DeSantis and Livingston E.
Ross, jointly and severally, for him in any and all capacities to sign on Form
10-K for the fiscal year 1999 for CITIZENS UTILITIES COMPANY, and any and all
amendments to said Form 10-K, and to file the same with the Securities and
Exchange Commission, hereby ratifying and conforming all that each of said
attorneys-in-fact, or his substitute or substitutes may do or cause to be done
by virtue hereof.
/s/ Edwin Tornberg
__________________
Edwin Tornberg
February 7, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of CITIZENS
UTILITIES COMPANY constitutes and appoints Robert J. DeSantis and Livingston E.
Ross, jointly and severally, for him in any and all capacities to sign on Form
10-K for the fiscal year 1999 for CITIZENS UTILITIES COMPANY, and any and all
amendments to said Form 10-K, and to file the same with the Securities and
Exchange Commission, hereby ratifying and conforming all that each of said
attorneys-in-fact, or his substitute or substitutes may do or cause to be done
by virtue hereof.
/s/ Claire Tow
_____________
Claire Tow
March 13, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of CITIZENS
UTILITIES COMPANY constitutes and appoints Robert J. DeSantis and Livingston E.
Ross, jointly and severally, for him in any and all capacities to sign on Form
10-K for the fiscal year 1999 for CITIZENS UTILITIES COMPANY, and any and all
amendments to said Form 10-K, and to file the same with the Securities and
Exchange Commission, hereby ratifying and conforming all that each of said
attorneys-in-fact, or his substitute or substitutes may do or cause to be done
by virtue hereof.
/s/ Leonard Tow
_____________
Leonard Tow
January 24, 2000
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES' CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. IN ADDITION,
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES' CONSOLIDATED FINANCIAL
INFORMATION HAS BEEN RESTATED FOR 1998 AND 1997 AS A RESULT OF THE
DECISION TO DIVEST ITS PUBLIC UTILITY OPERATIONS.
</LEGEND>
<CIK> 0000020520
<NAME> CITIZENS UTILITIES COMPANY
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,888,718 2,705,087 2,394,787
<OTHER-PROPERTY-AND-INVEST> 591,386<F1> 464,146<F1> 447,695<F1>
<TOTAL-CURRENT-ASSETS> 308,624 306,562 281,869
<TOTAL-DEFERRED-CHARGES> 184,942<F2> 189,866<F2> 194,257<F2>
<OTHER-ASSETS> 141,661<F3> 113,223<F3> 115,038<F3>
<TOTAL-ASSETS> 5,771,745<F4> 5,292,932<F4> 4,872,852<F4>
<COMMON> 65,519 64,787 62,749
<CAPITAL-SURPLUS-PAID-IN> 1,577,903 1,554,188 1,480,425
<RETAINED-EARNINGS> 261,590 117,104 132,217
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,919,935 1,792,771 1,679,211
201,250<F5> 201,250<F5> 201,250<F5>
0 0 0
<LONG-TERM-DEBT-NET> 2,107,460 1,775,338 1,583,902
<SHORT-TERM-NOTES> 0 110,000 0
<LONG-TERM-NOTES-PAYABLE> 0 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 31,156 7,672 5,089
0 0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0 0
<LEASES-CURRENT> 0 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,511,944<F6> 1,405,901<F6> 1,403,400<F6>
<TOT-CAPITALIZATION-AND-LIAB> 5,771,745<F6> 5,292,932<F6> 4,872,852<F6>
<GROSS-OPERATING-REVENUE> 1,087,428 932,858 860,332
<INCOME-TAX-EXPENSE> 64,587 3,948 1,928
<OTHER-OPERATING-EXPENSES> 111,419<F7> 105,003<F7> 110,057<F7>
<TOTAL-OPERATING-EXPENSES> 1,079,360 851,214 911,113
<OPERATING-INCOME-LOSS> 8,068 81,644 (50,781)
<OTHER-INCOME-NET> 266,828 19,324 120,775
<INCOME-BEFORE-INTEREST-EXPEN> 274,896 100,968 69,994
<TOTAL-INTEREST-EXPENSE> 86,972 67,944 65,779
<NET-INCOME> 144,486<F8> 57,060<F8> 10,100<F8>
6,210<F5> 6,210<F5> 6,210<F5>
<EARNINGS-AVAILABLE-FOR-COMM> 144,486<F8> 57,060<F8> 10,100<F8>
<COMMON-STOCK-DIVIDENDS> 0 0 0
<TOTAL-INTEREST-ON-BONDS> 0 0 0
<CASH-FLOW-OPERATIONS> 347,509 156,098 139,856
<EPS-BASIC> .55<F9> .22<F9> .04<F9>
<EPS-DILUTED> .55<F9> .22<F9> .04<F9>
<FN>
<F1>REPRESENTS INVESTMENT FUNDS.
<F2>REPRESENTS REGULATORY ASSETS.
<F3>DEFERRED DEBITS AND OTHER ASSETS.
<F4>TOTAL ASSETS INCLUDES $1,656,414, 1,514,048 AND 1,439,206 FOR 1999, 1998 AND
1997, RESPECTIVELY, OF ASSETS OF DISCONTINUED OPERATIONS.
<F5>COMPANY OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES
OF A SUBSIDIARY TRUST, THE SOLE ASSETS OF WHICH ARE SECURITIES OF A
SUBSIDIARY PARTNERSHIP, SUBSTANTIALLY ALL THE ASSETS OF WHICH ARE
CONVERTIBLE DEBENTURES OF THE COMPANY.
<F6>INCLUDES $310,269, 268,286 AND 261,225 FOR 1999, 1998 AND 1997, RESPECTIVELY,
OF LIABILITIES OF DISCONTINUED OPERATIONS.
<F7>REPRESENTS NETWORK ACCESS EXPENSES.
<F8>NET INCOME INCLUDES $27,359, 36,528 AND 14,023 FOR 1999, 1998 AND 1997,
RESPECTIVELY, OF INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX. IN ADDITION, 1998 NET INCOME
INCLUDES $2,334 RELATED TO THE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF INCOME
TAX BENEFIT AND RELATED MINORITY INTEREST.
<F9>EPS BASIC AND DILUTED INCLUDES $.10, .14 AND .05 FOR 1999, 1998 AND 1997, RESPECTIVELY, OF INCOME
FROM DISCONTINUED OPERATIONS PER COMMON SHARE. IN ADDITION, 1998 EPS BASIC AND DILUTED INCLUDES
A REDUCTION OF $.01 DUE TO THE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF INCOME
TAX BENEFIT AND RELATED MINORITY INTEREST.
</FN>
</TABLE>
