SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
May 5, 1997
BROOKS FIBER PROPERTIES, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
0-28036
- --------------------------------------------------------------------------------
(Commission File Number)
43-1656187
(I.R.S. Employer Identification Number)
425 Woods Mill Road South, Suite 300, St. Louis, Missouri 63017
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(314) 878-1616
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On May 5, 1997, the Registrant acquired Metro Access Networks, Inc., a
Delaware corporation ("MAN") 89% owned by Century Telephone Enterprises, Inc.,
a Louisiana corporation ("Century"), pursuant to the merger (the "Merger") of
Brooks Fiber Communications of Texas, Inc., a Delaware corporation wholly-owned
by the Registrant ("BFC of Texas"), with and into MAN. Upon consummation of the
Merger, MAN became a wholly-owned subsidiary of the Registrant. The Merger was
effected pursuant to an Agreement and Plan of Merger dated as of April 1, 1997
by and among the Registrant, BFC of Texas, Century and MAN (the "Merger
Agreement").
The consideration paid by the Registrant pursuant to the Merger
Agreement consisted of 4,586,226 newly issued shares of the Registrant's Common
Stock plus cash payments totaling $5,931,953.40 paid out of the Registrant's
existing cash balances. As a result of the Merger, Century has acquired
4,336,226 shares of the Registrant's Common Stock and will have two
representatives on the Registrant's Board of Directors. In addition, the
Registrant and Century have formed a 50-50 joint venture to develop
telecommunications networks in new markets in the state of Michigan. Century
will also be able to purchase dedicated and switched network services in certain
markets in Texas and Michigan from the Registrant at favorable prices, and the
Registrant will be able to purchase a variety of operational or administrative
services from Century.
The terms of the Merger were determined in accordance with the Merger
Agreement, which is attached hereto as Exhibit 2.1 and is incorporated herein by
reference, and were established through arm's length negotiations between the
Registrant, Century and MAN.
(b) Through its acquisition of MAN, the Registrant has acquired
telecommunications networks in operation or under development in seven Texas
cities, including 326 route miles of fiber optic cable (representing a 31%
increase in the Registrant's route miles nationwide) in operating networks in
Austin, Dallas, Fort Worth and San Antonio and networks under development in
Corpus Christi, Houston and Waco. As a result of the addition of the foregoing
systems, the Registrant currently has systems in operation or under development
in 44 cities.
The Registrant intends to continue using property, plant and equipment
acquired pursuant to the Merger for the purposes previously noted.
A copy of the Registrant's press release dated May 6, 1997, with
respect to the transaction described above, is attached hereto as Exhibit 99.1
and is incorporated herein by reference.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Independent Auditor's Report
The Board of Directors
Metro Access Networks, Inc.:
We have audited the accompanying balance sheet of Metro Access Networks, Inc.
(the Company) as of December 31, 1996, and the related statements of operations,
changes in stockholders' equity, and cash flows for the period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Metro Access Networks, Inc. as
of December 31, 1996, and the results of its operations and its cash flows for
the period then ended, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
St. Louis, Missouri
April 7, 1997
3
<PAGE>
METRO ACCESS NETWORKS, INC.
(a subsidiary of Century Telephone Enterprises, Inc.)
Balance Sheets
December 31,
----------------------------
1996 1995
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................... $ 5,000 --
Accounts receivable
Customers, less allowance for
doubtful accounts of $32,000
in 1996 ................................. 498,000 268,000
Other .................................... 1,272,000 6,000
Note receivable .............................. -- 325,000
Prepayments .................................. 106,000 8,000
------------ ------------
1,881,000 607,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment ................ 35,017,000 13,611,000
Accumulated depreciation ..................... (1,960,000) (813,000)
------------ ------------
33,057,000 12,798,000
------------ ------------
DEFERRED INCOME TAXES ............................ 107,000 457,000
------------ ------------
OTHER ASSETS ..................................... 1,078,000 421,000
------------ ------------
$ 36,123,000 14,283,000
============ ============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable
Century Telephone Enterprises, Inc. ...... $ 37,959,000 16,014,000
Construction ............................. 3,216,000 --
Trade .................................... 684,000 1,000
Accrued expenses
Taxes .................................... 173,000 8,000
Other .................................... 1,090,000 32,000
------------ ------------
43,122,000 16,055,000
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.10 par value,
10,000 shares authorized, 1,000
issued and outstanding ..................... -- --
Paid-in capital .............................. 2,476,000 2,250,000
Accumulated deficit .......................... (9,475,000) (4,022,000)
------------ ------------
(6,999,000) (1,772,000)
------------ ------------
$ 36,123,000 14,283,000
============ ============
See accompanying notes to financial statements
4
<PAGE>
METRO ACCESS NETWORKS, INC.
(a subsidiary of Century Telephone Enterprises, Inc.)
Statements of Operations
Year ended December 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
(Unaudited) (Unaudited)
Operating revenues ................ $ 3,999,000 634,000 --
------------ ------------ ------------
Operating expenses
Cost of services .............. 4,082,000 1,267,000 19,000
Selling, general and
administrative expenses ...... 5,183,000 2,138,000 1,720,000
Depreciation and amortization . 1,259,000 819,000 4,000
------------ ------------ ------------
Total operating expenses ... 10,524,000 4,224,000 1,743,000
------------ ------------ ------------
Operating loss .................... (6,525,000) (3,590,000) (1,743,000)
------------ ------------ ------------
Other income (expense)
Interest expense .............. (1,866,000) (739,000) (5,000)
Interest income ............... 8,000 31,000 57,000
------------ ------------ ------------
Total other income (expense) (1,858,000) (708,000) 52,000
------------ ------------ ------------
Loss before income tax benefit .... (8,383,000) (4,298,000) (1,691,000)
Income tax benefit ................ (2,930,000) (1,502,000) (590,000)
------------ ------------ ------------
Net loss .......................... $ (5,453,000) (2,796,000) (1,101,000)
============ ============ ============
Primary loss per share ............ $ (2,908) (1,524) (615)
============ ============ ============
Fully diluted loss per share ...... $ (2,908) (1,524) (615)
============ ============ ============
See accompanying notes to financial statements.
5
<PAGE>
<TABLE>
METRO ACCESS NETWORKS, INC.
(a subsidiary of Century Telephone Enterprises, Inc.)
Statements of Cash Flows
<CAPTION>
Year ended December 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ............................................ $ (5,453,000) (2,796,000) (1,101,000)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization .................. 1,259,000 819,000 4,000
Deferred income taxes .......................... 350,000 (459,000) 3,000
Changes in current assets and current liabilities:
Increase in accounts receivable ..................... (1,496,000) (249,000) (25,000)
Increase in accounts payable-trade .................. 683,000 1,000 --
Changes in other current assets and
other current liabilities, net ............... 1,125,000 31,000 1,000
Other, net ..................................... (56,000) (296,000) (172,000)
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES .............. (3,588,000) (2,949,000) (1,290,000)
------------ ------------ ------------
INVESTING ACTIVITIES
Payments for property, plant and
equipment .......................................... (18,734,000) (12,284,000) (1,326,000)
Note receivable .................................... 325,000 -- --
Other, net ......................................... 57,000 35,000 --
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES .............. (18,352,000) (12,249,000) (1,326,000)
------------ ------------ ------------
FINANCING ACTIVITIES
Advances from Century Telephone
Enterprises, Inc. ................................ 21,945,000 15,198,000 726,000
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents ......................................... 5,000 -- (1,890,000)
Cash and cash equivalents at
beginning of year ................................... -- -- 1,890,000
------------ ------------ ------------
Cash and cash equivalents at
end of year ......................................... $ 5,000 -- --
============ ============ ============
See accompanying notes to financial statements.
</TABLE>
6
<PAGE>
<TABLE>
METRO ACCESS NETWORKS, INC.
(a subsidiary of Century Telephone Enterprises, Inc.)
Statements of Stockholders' Equity
<CAPTION>
Year ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Common stock
Balance at beginning and end of year .... $ -- -- --
----------- ----------- -----------
Paid in capital
Balance at beginning of year ............ 2,250,000 2,250,000 2,250,000
Amortization of compensation under
stock option agreements ................ 226,000 -- --
----------- ----------- -----------
Balance at end of year .................. 2,476,000 2,250,000 2,250,000
----------- ----------- -----------
Accumulated deficit
Balance at beginning of year ............ (4,022,000) (1,226,000) (125,000)
Net loss ................................ (5,453,000) (2,796,000) (1,101,000)
----------- ----------- -----------
Balance at end of year .................. (9,475,000) (4,022,000) (1,226,000)
----------- ----------- -----------
Total stockholders' equity .................. $(6,999,000) (1,772,000) 1,024,000
=========== =========== ===========
See accompanying notes to financial statements.
</TABLE>
7
<PAGE>
METRO ACCESS NETWORKS, INC.
(a subsidiary of Century Telephone Enterprises, Inc.)
Notes to Financial Statements
(Information related to 1995 and 1994 is unaudited)
December 31, 1996
(1) General and Summary of Significant Accounting Policies
General
Metro Access Networks, Inc. (the "Company") is a subsidiary of Century
Telephone Enterprises, Inc. ("Century"). Century owns an 80% interest in
the Company; the remaining 20% is owned by Richard Kolsby ("Kolsby"). The
Company was formed in late 1993 and its primary business is to provide
enhanced data transmission services, transport to local area network users
and central office interconnection primarily for large business customers
in certain metropolitan areas of Texas. The Company is dependent upon
Century and certain Century subsidiaries to fund construction and
maintenance services, to fund the operational requirements of the Company
and to provide managerial, technical and accounting services.
Estimates
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 and
disclosure of contingent 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.
Revenue Recognition
Carrier and end user revenues are recognized when the services are
rendered. Installation revenue is recognized upon installation or delivery
of the related equipment.
In 1996 the Company entered into agreements with unrelated third parties
whereby the Company will provide indefeasible rights of use ("IRUs") in
installed fiber and conduits. The Company receives (i) compensation for the
installation of the fiber and (ii) a monthly amount over the term of the
agreement applicable to the maintenance of the fiber and conduit. The
Company records the amount received for installation as revenue and charges
cost of services for (i) the costs of installation and (ii) the pro rata
cost of the assets subject to the IRUs.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation of property
is provided on the straight line method over estimated service lives
ranging from three to twenty years. When property is sold or retired, a
gain or loss is recognized.
In 1996 the Company adopted Statement of Financial Accounting Standards No.
121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." SFAS 121 established accounting
standards for the impairment of long-lived assets, certain identifiable
8
<PAGE>
intangibles and for long-lived assets and certain identifiable intangibles
to be disposed of. The carrying value of long-lived assets is reviewed for
impairment at least annually, or whenever events or changes in
circumstances indicate that such carrying value may not be recoverable, by
assessing the recoverability of such carrying value through estimated
undiscounted future net cash flows expected to be generated by the assets.
The adoption of SFAS 121 did not affect the Company's financial position or
results of operations.
Income Taxes
The Company is included in the consolidated federal income tax return of
Century. For financial accounting purposes, federal income taxes are
computed and recorded as if the Company filed a separate federal income tax
return, except that (i) in the event the Company generates a net tax loss
which is utilized in Century's consolidated return, the Company will be
given the benefit of such loss, and (ii) income taxes are calculated based
upon the statutory tax rate in effect for Century and its subsidiaries on a
consolidated basis. The Company periodically settles amounts for federal
income taxes with Century.
The Company uses the asset and liability method of accounting for income
taxes under which deferred tax assets and liabilities are established for
the future tax consequences attributable to differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases.
Loss Per Share
Loss per share amounts are determined on the basis of the weighted average
number of common shares and common stock equivalents outstanding during the
year. Common stock equivalents consist of shares issuable under employee
stock option agreements. Century has an arrangement whereby if common
shares are issued to parties other than Century, Century will be issued a
sufficient number of common shares (at $.10 per share) in order to maintain
its 80% ownership interest in the Company. Such shares are also considered
common stock equivalents as they relate to shares issuable under stock
option agreements. The weighted average number of shares used in computing
primary and fully diluted loss per share for 1996, 1995 and 1994 was 1,875,
1,835 and 1,790, respectively.
Stock Compensation
During 1996 the Company adopted Statement of Financial Accounting Standards
No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." As allowed
by SFAS 123, the Company accounts for employee stock compensation plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees."
Cash Equivalents
The Company considers short-term investments with a maturity at date of
purchase of three months or less to be cash equivalents.
9
<PAGE>
(2) Property, Plant and Equipment
The following table summarizes the major classes of property, plant and
equipment.
December 31,
------------------------
1996 1995
----------- -----------
(Unaudited)
Telecommunications equipment ...... $20,086,000 7,969,000
Electronics equipment ............. 12,833,000 5,212,000
Buildings, office equipment
and vehicles .................... 1,096,000 278,000
Leasehold improvements ............ 1,002,000 152,000
----------- -----------
$35,017,000 13,611,000
=========== ===========
As of December 31, 1996 and 1995, property, plant and equipment included
$13,872,000 and $3,485,000 of construction in progress that was not in
service and, accordingly, has not been depreciated. Depreciation expense
was $1,090,000, $809,000 and $4,000 during 1996, 1995 and 1994,
respectively.
(3) Other Assets
Other assets primarily represent collocation costs that have been
capitalized and are being amortized over five years. Amortization of other
assets was $169,000 during 1996 and $10,000 during 1995 and is included in
depreciation and amortization.
(4) Income Taxes
Income tax benefit consists of the following components.
Year ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
(Unaudited) (Unaudited)
Federal
Current ....... $(3,280,000) (1,043,000) (593,000)
Deferred ...... 350,000 (459,000) 3,000
----------- ----------- -----------
(2,930,000) (1,502,000) (590,000)
=========== =========== ===========
10
<PAGE>
The following is a reconciliation from the statutory federal income tax
rate to the Company's effective income tax rate:
Year ended December 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
(Unaudited) (Unaudited)
Statutory federal
income tax rate (35.0)% (35.0) (35.0)
Other, net ...... -- .1 .1
----------- ----------- -----------
Effective income
tax rate ....... (35.0) (34.9) (34.9)
=========== =========== ===========
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities were as
follows:
December 31,
-----------------------
1996 1995
----------- -----------
(Unaudited)
Deferred tax assets:
Start-up costs capitalized for tax/
expensed for book ............... $ 441,000 599,000
Employee stock compensation ....... 116,000 --
Other ............................. 20,000 3,000
----------- -----------
Total gross deferred tax assets 577,000 602,000
Less valuation allowance ...... -- --
----------- -----------
Net deferred tax assets ....... 577,000 602,000
----------- -----------
Deferred tax liability:
Property, plant and equipment,
primarily due to depreciation
differences ..................... (470,000) (145,000)
----------- -----------
Net deferred tax asset ........ $ 107,000 457,000
=========== ===========
The Company is included in the consolidated tax return of Century and it is
anticipated that the Company's deferred tax assets will be realized based
upon expected future taxable income in Century's consolidated tax return.
(5) Employee Benefit Plans
Certain of the employees of the Company began participating in Century's
Employee Stock Ownership Plan and Employee Stock Bonus Plan in 1995. The
Company contributes a proportionate amount, based on participating employee
salaries, of the total contributions made by Century and subsidiaries to
these plans as determined annually by the Board of Directors of Century.
11
<PAGE>
The Company recorded contributions, costs and administrative expenses
related to these plans in the amount of $46,000 and $39,000 during 1996 and
1995, respectively.
Century and the Company sponsor a defined benefit health care plan that
provides postretirement medical, life and dental benefits to substantially
all retired full-time employees.
Net periodic postretirement benefit cost, which was based on actuarial
studies performed for Century and allocated to its subsidiaries, totaled
$39,000, $22,000 and $10,000 for 1996, 1995 and 1994, respectively.
(6) Fair Value of Financial Instruments
Cash and Cash Equivalents, Accounts Receivable, Note Receivable, Accounts
Payable and Accrued Expenses - The carrying amount approximates the fair
value due to the short maturity of these instruments.
(7) Stock Option Program
Under the Company's stock option program, options have been granted to
employees at a price equal to the then-current estimated market price. All
of the options expire ten years after the date of grant. In a supplemental
agreement with stock option recipients, the Company agreed to provide for
bonuses equivalent to the aggregate exercise price at the time of exercise.
Such bonuses are being amortized to operations over the vesting period of
the option agreements.
During 1996 the Company granted 36 options. The weighted-average fair value
of each of the options was estimated as of the date of grant to be $795
using an option pricing model with the following assumptions: dividend
yield - 0%; expected volatility - 35%, risk-free interest rate - 6.5%; and
expected life - six years.
Stock option transactions during 1996, 1995 and 1994 were as follows:
Number of Average
options price
---------- ----------
Outstanding December 31, 1993 ............... 149 $ 1,410
Granted ..................................... 18 1,410
Outstanding December 31, 1994 and 1995 ...... 167 1,410
Granted ..................................... 36 1,937
Forfeited ................................... (23) 1,410
---------- ----------
Outstanding December 31, 1996 ............... 180 1,515
========== ==========
12
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The following summarizes certain information about the Company's stock
options at December 31, 1996:
Options outstanding and exercisable
Weighted average
Number of Number of remaining
Exercise options options contractual
prices outstanding exercisable life
--------------- --------------- --------------- ----------------
1,410 148 113 7.6 years
2,003 32 12 9.1
--------------- --------------- ----------------
180 125 7.9
=============== =============== ================
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for its program. Pro forma
net loss for 1996 as computed under the provisions of SFAS 123 was not
materially different than the reported net loss of $5,453,000.
(8) Stock Appreciation Rights
At December 31, 1996, the Company had outstanding 26.125 stock appreciation
rights ("SARs") granted in 1996 to certain employees at prices that ranged
from $1,410 to $2,003. The SARs were granted for a ten-year period;
twenty-five percent of the SARs vest at each anniversary date over the
first four years. Compensation expense recorded during 1996 related to the
SARs totaled $331,000 based upon the estimated fair market value of the
SARs.
(9) Certain Transactions
Since inception of the Company, Century has funded substantially all of the
capital expenditure requirements and operational requirements of the
Company and it is anticipated that Century will continue to fund such
requirements for the next several years. The Company is assessed interest
on its payable to Century each month based upon the weighted-average
interest rate of Century's long-term debt. Such interest rate was 7.4% and
7.7% at December 31, 1996 and 1995, respectively. Related interest expense
amounted to $1,866,000 in 1996, $739,000 in 1995 and $5,000 in 1994.
The Company purchases certain services (primarily managerial, accounting
and human resources) from Century and other affiliated companies. Services
purchased by the Company from Century and its subsidiaries totaled
approximately $477,000, $385,000 and $414,000 during 1996, 1995 and 1994,
respectively. The Company believes such amounts are representative of
arms-length transactions for the underlying services.
In 1993 the Company loaned Kolsby $325,000. Interest was assessed on a
monthly basis at the then-current prime rate. During 1996 Kolsby repaid the
note, including accrued interest. Related interest income was $8,000 in
1996, $31,000 in 1995 and $25,000 in 1994.
13
<PAGE>
In addition to leasing its main office, the Company leases space in
buildings which house certain of the Company's telecommunications
equipment. Rental expense for 1996, 1995 and 1994 was $483,000, $184,000
and $31,000, respectively. Future minimum rental payments under operating
leases that have initial or remaining noncancelable lease terms in excess
of one year at December 31, 1996 are as follows: 1997 - $905,000; 1998 -
$990,000, 1999 - $942,000; 2000 - $843,000; 2001 - $789,000; and thereafter
$4,233,000.
(10) Lease Agreements
The Company has entered into several agreements whereby the Company leases
fiber to its customers for periods that range from three to ten years. The
amounts received from such lease agreements through December 31, 1996, have
not been material to the Company's results of operations.
(11) Commitments
Expenditures for property, plant and equipment are anticipated to be
approximately $30,000,000 during 1997. It is anticipated that such
expenditures will be financed through advances from Century.
(12) Subsequent Event (Unaudited)
On March 31, 1997, Century signed a definitive agreement with Brooks Fiber
Properties, Inc. ("Brooks") under which Brooks will acquire 100% of the
common stock of the Company. Century will receive common stock of Brooks as
consideration in the transaction and the remaining shareholders will
receive cash and/or Brooks common stock. This transaction is expected to be
finalized in the second quarter of 1997.
Pursuant to a Settlement Agreement dated as of May 1, 1997 by and among the
Company, Century, Kolsby and each of the holders of options to acquire
shares of the Company's common stock (the "Option Holders"), Century
exchanged all of its rights to be repaid the entire indebtedness owned to
it by the Company, totaling $44,999,688, for 1,543 shares of the Company's
common stock, and Century received an additional 720 shares of the
Company's common stock in connection with the Option Holders' agreement to
exercise their options immediately prior to the closing of the merger with
Brooks. Pursuant to an Agreement Among SAR Holders dated as of May 1, 1997
by and among the Company and each of the holders of the Company's SARs, the
Company paid such holders an aggregate of $487,917 in full settlement of
their rights under the Company's SARs.
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<PAGE>
(b) Pro Forma Financial Information.
UNAUDITED PRO FORMA COMBINED
CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma combined consolidated financial information
gives effect to the merger of the Company with Metro Access Networks, Inc. (MAN)
(which occurred on May 5, 1997) using the purchase method of accounting and
assumes (i) for purposes of the pro forma statement of operations data for the
year ended December 31, 1996, that the merger was consummated on January 1,
1996; and (ii) for purposes of the pro forma balance sheet that the merger was
consummated on December 31, 1996.
The unaudited pro forma combined consolidated financial information and
accompanying notes reflect the historical operations and balances of the Company
and MAN and the application of the purchase method of accounting.
The unaudited pro forma combined consolidated financial information is intended
for informational purposes only and is not necessarily indicative of the future
financial position or future results of operations of the combined companies
after the merger with MAN or of the financial position or the results of
operations of the combined company that would have actually occurred had the
merger with MAN been in effect as of the date or for the period presented.
The unaudited pro forma combined consolidated financial information and the
accompanying notes should be read in conjunction with and are qualified in their
entirety by the consolidated financial statements, including the accompanying
notes, of the Company as of December 31, 1996 and 1995 and for the years ended
December 31, 1996, 1995, and 1994, and of MAN as of December 31, 1996 and 1995
and for the years ended December 31, 1996, 1995, and 1994, which are included
herein.
15
<PAGE>
<TABLE>
BROOKS FIBER PROPERTIES, INC. AND SUBSIDIARIES
PRO FORM COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<CAPTION>
BFP
Pro Forma
Metro Access Pro Forma Combined
BFP Networks, Inc. (MAN) Adjustments Consolidated
----------- ---------------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenues .............................................. 45,574,000 3,999,000 49,573,000
Expenses:
Service Costs .................................... 21,468,000 4,082,000 25,550,000
Selling, general and administrative expenses ..... 38,596,000 5,183,000 43,459,000
-- (320,000)(1)
Depreciation and amortization .................... 16,296,000 1,259,000 2,305,000(2) 19,860,000
----------- ---------------------- ------------- ---------------
76,360,000 10,524,000 1,985,000 88,869,000
----------- ---------------------- ------------- ---------------
Loss from operations ............................. (30,786,000) (6,525,000) (1,985,000) (39,296,000)
Other income (expense):
Interest income .................................. 16,539,000 8,000 (8,000)(3) 16,539,000
Interest expense ................................. (31,186,000) (1,866,000) 1,866,000 (3) (31,186,000)
----------- ---------------------- ------------- ---------------
Loss before income taxes and minority interests .. (45,433,000) (8,383,000) (127,000) (53,943,000)
Income tax benefit .................................... -- (2,930,000) 2,930,000 (4) --
----------- ---------------------- ------------- ---------------
Loss before minority interests .................... (45,433,000) (5,453,000) (3,057,000) (53,943,000)
Minority interest in share of loss .................... 1,590,000 -- 1,590,000
----------- ---------------------- ------------- ---------------
Net Loss ......................................... (43,843,000) (5,453,000) (3,057,000) (52,353,000)
=========== ====================== ============= ===============
Pro forma loss per common equivalent share............. $ (1.73)(5)
===============
See accompanying notes to pro forma combined consolidated financial statements.
</TABLE>
16
<PAGE>
<TABLE>
BROOKS FIBER PROPERTIES, INC. AND SUSIDIARIES
PRO FORM COMBINED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(UNAUDITED)
<CAPTION>
BFP
Metro Access Pro Forma
Networks, Inc. Pro Forma Combined
BFP (MAN) Adjustments Consolidated
------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................ 261,880,000 5,000 (6,497,000)(1) 255,388,000
Marketable securities, at cost ................... 182,304,000 -- 182,304,000
------------ --------------- --------------- ---------------
444,184,000 5,000 (6,497,000) 437,692,000
Accounts receivable, net ......................... 13,989,000 498,000 14,487,000
Other current assets ............................. 11,989,000 1,378,000 13,367,000
------------ --------------- --------------- ---------------
Total currents assets ....................... 470,162,000 1,881,000 (6,497,000) 465,546,000
Networks and equipment, at cost ....................... 306,455,000 35,017,000 341,472,000
Less accumulated depreciation and amortization ... 16,114,000 1,960,000 18,074,000
------------ --------------- --------------- ---------------
Networks and equipment, net ...................... 290,341,000 33,057,000 323,398,000
Investment in minority owned venture .................. 20,000,000 -- 20,000,000
Other assets, net ..................................... 99,078,000 1,185,000 57,623,000 (4) 157,779,000
(107,000)(2)
------------ --------------- --------------- ---------------
Total assets ................................ 879,581,000 36,123,000 51,019,000 966,723,000
============ =============== =============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. 6,511,000 41,859,000 (37,959,000)(2) 10,411,000
Accrued liabilities .............................. 17,915,000 1,263,000 19,178,000
Other current liabilities ........................ 10,511,000 10,511,000
------------ --------------- --------------- ---------------
Total current liabilities ................... 34,937,000 43,122,000 (37,959,000) 40,100,000
Long-term debt, net of current portion ................ 552,810,000 -- 552,810,000
Minority interests .................................... -- -- --
Common stock, subject to redemption ................... 25,200,000 -- 25,200,000
Shareholders' equity:
Common stock ..................................... 291,000 -- 46,000(1) 337,000
Additional paid-in capital ....................... 323,850,000 2,476,000 (2,476,000)(4) 405,783,000
81,933,000 (1)
Accumulated deficit .............................. (57,507,000) (9,475,000) 9,475,000 (4) (57,507,000)
------------ --------------- --------------- ---------------
Total shareholders' equity .................. 266,634,000 (6,999,000) 88,978,000 348,613,000
------------ --------------- --------------- ---------------
Total liabilities and shareholders' equity .. 879,581,000 36,123,000 51,019,000 966,723,000
============ =============== =============== ===============
See accompanying notes to pro forma combined consolidated financial statements.
</TABLE>
17
<PAGE>
BROOKS FIBER PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
STATEMENT OF OPERATIONS
The following notes to the pro forma combined consolidated financial statements
represent explanations related to the pro forma adjustments to the historical
statements of operations of BFP and MAN.
1. Adjustment represents the elimination of corporate allocation expenses
charged to MAN by Century Telephone Enterprises, Inc. (Century) which would
be non-recurring in nature.
2. Amount represents the annual amortization, over a period of 25 years, of the
pro forma goodwill related to the merger with MAN of approximately
$57,623,000.
3. Represents the elimination of interest expense on outstanding debt payable to
Century as well as interest income earned from Century on the related cash
balances. The debt payable to Century was exchanged for shares of common
stock of MAN at the time of the merger for purposes of determining the merger
consideration to be paid to Century.
4. Adjustment represents the elimination of an income tax benefit allocated to
MAN resulting from Century utilizing a net tax loss generated by MAN on its
consolidated federal income tax return. No provision for income taxes would
be recorded on the pro forma consolidated statement of operations for 1996.
5. Pro forma loss per share has been computed using the weighted average number
of shares outstanding of BFP for the year-ended December 31, 1996 of
25,627,328 plus the 4,586,226 shares issued in connection with the MAN
merger. The resultant number of shares used in computing pro forma loss per
share was 30,213,554.
18
<PAGE>
BALANCE SHEET
The following notes to the pro forma combined consolidated financial statements
represent the explanations related to the pro forma adjustments to the balance
sheets of BFP and MAN.
1. Reflects the issuance of 4,586,226 shares of common stock by the Company and
additional cash paid in connection with the merger with MAN.
2. The adjustment represents the elimination of outstanding debt to Century. The
debt payable to Century was exchanged for shares of common stock of MAN at
the time of the merger for purposes of determining the merger consideration
to be paid to Century.
3. Represents the elimination of deferred tax assets of $107,000 which would not
be recorded in the pro forma combined consolidated balance sheet as all tax
assets would have been reserved through a valuation allowance.
4. Represents the pro forma goodwill related to the MAN merger of approximately
$57,623,000 based on the issuance of shares and cash paid, as well as
assumption of certain specified liabilities. The purchase price of
$88,476,000 was allocated based on the fair value of tangible assets acquired
of $36,016,000 and the fair value of liabilities assumed of $5,163,000.
19
<PAGE>
(c) Exhibits.
Exhibit No. Description of Exhibit
- ----------- -------------------------------------------------------------------
2.1 Agreement and Plan of Merger dated as of April 1, 1997 between the
Registrant, Brooks Fiber Communications of Texas, Inc., Century
Telephone Enterprises, Inc. and Metro Access Networks, Inc.
23.1 Consent of KPMG Peat Marwick LLP
99.1 Press release issued by the Registrant on May 6, 1997
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BROOKS FIBER PROPERTIES, INC.
Date: May 12, 1997 By: David L. Solomon
-----------------------------------
David L. Solomon
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
21
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- -------------------------------------------------------------------
2.1 Agreement and Plan of Merger dated as of April 1, 1997 between the
Registrant, Brooks Fiber Communications of Texas, Inc., Century
Telephone Enterprises, Inc. and Metro Access Networks, Inc.**
23.1 Consent of KPMG Peat Marwick LLP
99.1 Press release issued by the Registrant on May 6, 1997
- ---------------
** The Registrant hereby undertakes to furnish supplementally a copy of any of
the exhibits and schedules listed in the Merger Agreement to the Securities and
Exchange Commission upon request.
22
AGREEMENT AND PLAN OF MERGER
DATED AS OF APRIL 1, 1997
BETWEEN
BROOKS FIBER PROPERTIES, INC.,
BROOKS FIBER COMMUNICATIONS OF TEXAS, INC.,
CENTURY TELEPHONE ENTERPRISES, INC.
AND
METRO ACCESS NETWORKS, INC.
------------
ACQUISITION
OF
METRO ACCESS NETWORKS, INC.
BY
BROOKS FIBER PROPERTIES, INC.
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
ARTICLE I - THE MERGER AND RELATED TRANSACTIONS................................1
1.01 The Merger.......................................................1
1.02 The Closing; Effective Time......................................2
1.03 Effect of the Merger.............................................2
1.04 Certificate of Incorporation and Bylaws of the Surviving
Corporation..................................................2
1.05 Officers and Directors of the Surviving Corporation..............3
1.06 Name of the Surviving Corporation................................3
1.07 Management Agreement.............................................3
1.08 Agreements with Shareholders, Option Holders and SAR
Holders......................................................3
1.09 Employment of Metro Personnel....................................4
1.10 Most Favored Pricing.............................................5
1.11 Additional Borrowings............................................5
1.12 Assumed Name.....................................................5
1.13 Supplemental Payment.............................................5
ARTICLE II - CONVERSION OF SECURITIES..........................................6
2.01 Conversion of Securities.........................................6
2.02 Exchange of Certificates.........................................7
2.03 Merger Consideration.............................................8
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER.........................9
3.01 Existence and Qualification......................................9
3.02 Ownership of Shares..............................................9
3.03 Capitalization of Metro..........................................9
3.04 Approval of Agreement...........................................10
3.05 Books and Records...............................................10
3.06 Financial Statements............................................10
3.07 Events Subsequent to December 31, 1996..........................11
3.08 Work in Progress................................................11
3.09 Accounts and Notes Receivable...................................11
3.10 No Undisclosed Liabilities......................................11
3.11 Tax Returns and Audit...........................................11
3.12 Contracts and Other Obligations.................................12
3.13 Real Property - Owned...........................................13
3.14 Personal Property - Owned.......................................13
3.15 Real and Personal Property - Leased by Metro....................13
3.16 Real and Personal Property - Leased to Metro....................13
3.17 Patents, Trademarks and Copyrights..............................14
3.18 Other Intangible or Intellectual Property.......................14
3.19 Necessary Property..............................................15
3.20 Description of Networks; Use and Condition of Property, Plant
and Equipment...............................................15
3.21 Licenses, Rights of Way and Permits.............................16
3.22 Contracts and Commitments.......................................16
3.23 Business Relationships..........................................18
i
<PAGE>
3.24 No Breach of Law or Governing Documents.........................18
3.25 Litigation and Arbitration......................................18
3.26 Employees and Consultants.......................................18
3.27 Indebtedness to and from Shareholders and Others................18
3.28 Outside Financial Interests.....................................19
3.29 Payments, Compensation and Perquisites of Agents,
Consultants and Others......................................19
3.30 Labor Agreements, Employee Benefit Plans, and Employment
Agreements..................................................19
3.31 ERISA...........................................................19
3.32 Terminated Plans................................................20
3.33 Overtime, Back Wages, Vacation and Minimum Wages................20
3.34 Discrimination and Occupational Safety and Health...............21
3.35 Alien Employment Eligibility....................................21
3.36 Labor Disputes; Unfair Labor Practices..........................21
3.37 Insurance Policies..............................................21
3.38 Environmental Matters...........................................22
3.39 Broker's Fees...................................................22
3.40 Foreign Assets..................................................22
3.42 Truthfulness....................................................22
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BUYER
AND SUB.......................................................................22
4.01 Corporate Existence.............................................23
4.02 Approval of Agreement...........................................23
4.03 Outstanding Shares of Capital Stock.............................23
4.04 Authorization and Issuance of Shares............................24
4.05 Books and Records...............................................24
4.06 Financial Statements............................................24
4.07 Events Subsequent to December 31, 1996..........................24
4.08 No Undisclosed Liabilities......................................25
4.09 No Breach of Law or Governing Documents.........................25
4.10 Litigation and Arbitration......................................25
4.11 Tax Returns and Audit...........................................25
4.12 Licenses, Rights of Way and Permits.............................26
4.13 Business Relationships..........................................26
4.14 Environmental Matters...........................................26
4.15 Broker's Fees...................................................27
4.16 Buyer's SEC Reports.............................................27
4.17 Truthfulness....................................................27
ARTICLE V - COVENANTS OF SELLER...............................................27
5.01 Operation of the Business.......................................27
5.02 Preservation of Business........................................29
5.03 Insurance and Maintenance of Property...........................29
5.04 Full Access.....................................................29
5.05 Books, Records and Financial Statements.........................29
5.06 Other Governmental Filings......................................29
5.07 Third Party Offers and Negotiations.............................30
5.08 Employees of the Companies......................................30
5.09 Tax Matters.....................................................30
5.10 Notification of Certain Matters.................................31
ii
<PAGE>
ARTICLE VI - COVENANTS OF BUYER...............................................32
6.01 Operation of the Business.......................................32
6.02 Preservation of Business........................................33
6.03 Insurance and Maintenance of Property...........................33
6.04 Full Access.....................................................33
6.05 Books, Records and Financial Statements.........................34
6.06 Other Governmental Filings......................................34
6.07 Notification of Certain Matters.................................34
ARTICLE VII - COVENANTS NOT TO COMPETE........................................35
ARTICLE VIII - CONDITIONS TO OBLIGATIONS OF BUYER AND
SUB TO EFFECT THE MERGER......................................................36
8.01 Representations and Warranties of Seller........................37
8.02 Performance of this Agreement...................................37
8.03 Certificate of Seller...........................................37
8.04 Opinion of Counsel..............................................37
8.05 No Prohibitions.................................................37
8.06 Consents........................................................37
8.07 Compliance With Applicable Law..................................37
8.08 Resignations....................................................38
8.09 Books and Records...............................................38
8.10 Tax Status......................................................38
8.11 Joint Venture Agreement.........................................38
8.12 Master Service Agreement........................................38
8.13 Miscellaneous Services Agreement................................38
8.14 Agreements with Shareholders, Option Holders and SAR
Holders.....................................................38
8.12 Shareholder Approval............................................39
8.13 March Balance Sheet.............................................39
ARTICLE IX - CONDITIONS TO OBLIGATIONS OF SELLER, AND
METRO TO EFFECT THE MERGER....................................................39
9.01 Representations and Warranties of Buyer.........................39
9.02 Performance of this Agreement...................................39
9.03 Certificate of Buyer............................................39
9.04 Opinion of Counsel..............................................40
9.05 No Prohibitions.................................................40
9.06 Compliance with Applicable Law..................................40
9.07 Payment of Merger Consideration.................................40
9.11 March Balance Sheet.............................................40
9.08 Release of Guaranties...........................................40
9.10 Joint Venture Agreement.........................................40
9.11 Master Service Agreement........................................40
9.12 Miscellaneous Service Agreement.................................41
9.13 Agreements with Shareholders, Option Holders and SAR
Holders.....................................................41
ARTICLE X - INDEMNIFICATION...................................................41
10.01 Indemnification................................................41
10.02 Participation in Litigation....................................42
10.03 Claims Procedure...............................................42
iii
<PAGE>
10.04 Right of Offset................................................43
10.05 Limitations on Indemnification.................................43
ARTICLE XI - MISCELLANEOUS....................................................43
11.01 Binding Agreement..............................................43
11.02 Termination of Agreement.......................................44
11.03 Manner and Effect of Termination...............................45
11.04 Survival of Representations, Warranties and Covenants..........46
11.05 Further Assurances.............................................46
11.06 Dispute Resolution Procedures..................................46
11.07 Entire Agreement and Modification..............................47
11.08 Severability...................................................47
11.09 Counterparts...................................................47
11.10 Interpretation.................................................47
11.11 Governing Law..................................................48
11.12 Payment of Fees and Expenses...................................48
11.13 No Waiver......................................................48
11.14 Public Announcements...........................................48
11.15 Notices........................................................49
List of Exhibits
Exhibit A - Maps of Dallas/Irving/Ft. Worth, Austin, San Antonio, Houston,
Corpus Christi and Waco Networks
Exhibit B - Form of Management Agreement
Exhibit C - Procedures and Form of Cash Election
Exhibit D - Form of Buyer Stock Option Agreement
Exhibit E - Form of Letter of Transmittal
Exhibit F - Form of Opinion of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P., Counsel to Seller
Exhibit G - Form of Affiliate Agreement
Exhibit H - Form of Stockholder Agreement
Exhibit I - Form of Opinion of Bryan Cave LLP, Counsel to Buyer
Exhibit J - Form of Guarantee Agreement
Exhibit K - Forms of Joint Venture Agreements
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of April 1,
1997, by and among Brooks Fiber Properties, Inc., a Delaware corporation
("Buyer"), Brooks Fiber Communications of Texas, Inc., a Delaware corporation
wholly-owned by Buyer ("Sub"), Century Telephone Enterprises, Inc., a Louisiana
corporation ("Seller"), and Metro Access Networks, Inc., a Delaware corporation
eighty percent owned by Seller ("Metro").
RECITALS
A. Seller owns directly 80% of the issued and outstanding capital stock of
Metro.
B. Metro owns and operates fiber optic telecommunications networks in
Dallas/Irving/Ft. Worth, Austin and San Antonio, Texas, has networks under
construction in Houston, Corpus Christi and Waco, Texas, and has ordered or
committed to the purchase of four DMS-500 switches to allow the provision of
full local exchange switched services in its networks.
C. The respective Boards of Directors of Sub and Metro have approved and
determined it is advisable and in the best interests of their respective
stockholders to consummate, and their respective stockholders have approved, the
business combination transaction provided for herein in which Sub would merge
with and into Metro upon the terms and conditions set forth herein, in
accordance with the General Corporation Law of the State of Delaware ("Delaware
Law").
D. The respective Boards of Directors of Metro and Sub have approved and
adopted this Agreement and Plan of Merger as a plan of reorganization within the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "IRC").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants of the parties hereinafter expressed, it is hereby agreed as follows:
ARTICLE I
THE MERGER AND RELATED TRANSACTIONS
1.01 THE MERGER. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with Delaware Law, at the Effective Time (as
defined in Section 1.02), Sub shall be merged with and into Metro (the
"Merger"). As a result of the Merger, the separate corporate existence of Sub
shall cease and Metro shall continue as the surviving corporation of the Merger
(the "Surviving Corporation").
1.02 THE CLOSING; EFFECTIVE TIME.
(a) Subject to satisfaction or, if permissible, waiver, of the conditions
set forth in Articles VIII and IX hereto, consummation of the Merger (the
"Closing") shall take place at the
1
<PAGE>
offices of Seller, 100 Century Park Drive, Monroe, Louisiana, at 10:00 A.M.
local time on a date to be mutually agreed upon by Buyer and Metro (the "Closing
Date"), which shall be no later than the fifth business day following
satisfaction of the conditions to the closing specified in Sections 8.07 and
9.06 hereof, or at such other place, time or date (not later than June 30, 1997,
unless extended by written mutual agreement of the parties hereto) as Metro and
Buyer shall mutually agree, and will be effective at the Effective Time.
(b) On the day of the Closing, or as soon as reasonably practicable
following the Closing, the Surviving Corporation shall execute and deliver to
the Secretary of State of Delaware a certificate of merger in proper form for
filing under Delaware Law (the "Certificate of Merger"). The Merger shall become
effective on the date the Certificate of Merger is filed with the Secretary of
State of Delaware or at such later time as may be specified in the Certificate
of Merger, such time being herein called the "Effective Time." As soon as
reasonably practicable following the Effective Time, the Certificate of Merger
endorsed by the Secretary of State of Delaware shall be recorded in the Office
of the Recorder of the county in which the registered office of the Surviving
Corporation is located in accordance with Delaware Law.
(c) Subject to the terms and conditions hereof, Sub and Metro shall each
use reasonable efforts to take all such action as may be necessary or
appropriate to effectuate the Merger under Delaware Law at the time specified in
this Section 1.02. Effective as of the date hereof, Seller and Buyer have
entered into the Stockholder Agreement attached hereto as Exhibit H.
(d) If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to all
properties, interests, assets, rights, privileges, immunities, powers and
franchises of either Sub or Metro, the officers of the Surviving Corporation are
fully authorized in the name of Sub or Metro, as the case may be, or otherwise
to take, and shall take, all such necessary or desirable action.
1.03 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of Delaware Law. Without
limiting the generality of, and subject to the provisions of, Delaware Law, at
the Effective Time, except as otherwise provided in this Agreement, all the
properties, interests, assets, rights, privileges, immunities, powers and
franchises of Sub and Metro shall vest in the Surviving Corporation, and all
debts, liabilities, duties and obligations of Sub and Metro shall become the
debts, liabilities, duties and obligations of the Surviving Corporation.
1.04 CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION.
At the Effective Time, the Certificate of Incorporation of Sub shall be the
Certificate of Incorporation of the Surviving Corporation, and the By-laws of
Sub in effect immediately prior to the Effective Time shall be the By-laws of
the Surviving Corporation.
1.05 OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION. The officers and
directors of Sub immediately prior to the Effective Time shall be the officers
and directors of the Surviving Corporation, each to hold office in accordance
with the Certificate of Incorporation and
2
<PAGE>
By-laws of the Surviving Corporation until their respective successors are duly
elected or appointed and qualified or until their respective earlier death,
resignation or removal.
1.06 NAME OF THE SURVIVING CORPORATION. The name of the Surviving
Corporation shall be "Brooks Fiber Communications of Texas, Inc."
1.07 MANAGEMENT AGREEMENT. Effective April 1, 1997, the Buyer and Metro
shall enter into a Management Agreement substantially in the form attached
hereto as Exhibit B (the "Management Agreement").
1.08 AGREEMENTS WITH SHAREHOLDERS, OPTION HOLDERS AND SAR HOLDERS.
(a) Pursuant to the terms of the letter agreement dated March 27, 1997
between Metro, Seller, Richard B. Kolsby and each of the holders of options (the
"Option Holders") to purchase common stock, $.10 par value per share, of Metro
("Metro Common Stock"), Metro and Seller shall use their best efforts to enter
into one or more agreements with Mr. Kolsby and the Option Holders, pursuant to
which the following actions would be taken:
(i) all indebtedness of Metro to Seller reflected on the balance sheet
of Metro as of March 31, 1997 (the "March Balance Sheet") shall be converted
prior to the Effective Time into shares of Metro Common Stock;
(ii) each Option Holder (other than those Option Holders, if any,
identified on Schedule 2.01(c) hereto) shall agree to exercise, no later than
the day before the Closing Date, each of their options to purchase Metro Common
Stock ("Metro Stock Options"), in each case on the terms and conditions of the
Stock Option Agreements listed on Schedule 3.03 hereto (as to options held by
the Option Holders) and the terms and conditions of Section 3.05 of the
Shareholders Agreement dated October 14, 1993 (the "Shareholders Agreement")
between Metro, Seller and Richard B. Kolsby (as to options held by Seller); and
(iii) all rights and obligations of the parties to the Put Agreements
listed on Schedule 3.03 hereto ("Put Agreements"), and the Shareholders
Agreement shall be terminated prior to the Effective Time.
(b) Metro and Seller shall use their best efforts to enter into one or more
agreements with each of the holders of the Stock Appreciation Rights Agreements
listed on Schedule 1.08 hereto (the "Metro SARs"), pursuant to which each of
such holders shall agree to receive, at the time and in the manner provided in
Section 2.01(d), cash payments in full settlement of the rights under the Metro
SARs based upon the number of Fully-Diluted Metro Shares (as defined below) at
the Effective Time.
(c) Metro and Seller shall use their best efforts to enter into an
agreement with M.D. English to terminate the Consulting Agreement with him
referenced on Schedule 3.26 hereto.
3
<PAGE>
(d) Metro shall furnish to Buyer at least five business days prior to the
Closing a certificate setting forth (i) the number of shares of Metro Common
Stock that will be issued and outstanding as of the Effective Time, after
consummation of each of the transactions contemplated by paragraph (a) above,
(ii) the number of such shares that will be held as of such time by Seller and
each other holder of issued and outstanding shares of Metro Common Stock
(collectively, with Seller, the "Shareholders"), (iii) the number of
Fully-Diluted Metro Shares (as defined below) that will be outstanding at the
Effective Time, and (iv) the total cash payments made or to be made by Metro
under Section 1.08(b). For purposes hereof, Fully-Diluted Metro Shares shall
mean, as of any respective date, the sum of (i) the number of shares of Metro
Common Stock issued and outstanding as of such date and (ii) the number of
shares of Metro Common Stock issuable upon the exercise of all Metro Stock
Options outstanding as of such date.
1.09 EMPLOYMENT OF METRO PERSONNEL.
(a) The Surviving Corporation will offer employment on an at-will basis to
the employees of Metro as of the Effective Time, including, without limitation,
the individuals listed on Schedule 3.26 hereto, for a period of at least six
months following the Effective Time (unless earlier terminated for Cause as
defined in paragraph (b) below or terminated pursuant to paragraph (c)(i) below)
at such individuals' respective current salary levels and locations and will
adopt and maintain such benefit programs and plans for their benefit, including
appropriate Buyer stock options in accordance with their job descriptions, as
are specified on Schedule 1.09 hereto.
(b) If, during the six-month period referred to in paragraph (a) above, the
Surviving Corporation (or any controlling entity of the Surviving Corporation)
shall terminate the employment of any such employee with the Surviving
Corporation, other than for Cause, the Surviving Corporation shall pay such
employee a lump sum severance payment equal to such employee's salary for the
balance of the six-month period. For purposes hereof, "Cause" shall mean
conviction of a felony, habitual intoxication, abuse of or addiction to a
controlled or dangerous substance, excessive absenteeism, the willful and
continued failure by the employee to substantially perform his or her duties as
an employee of the Surviving Corporation or otherwise to abide by its corporate
policies, or the willful engaging by the employee in misconduct which is
materially injurious to the Surviving Corporation, monetarily or otherwise.
(c) If, during the six month period referred to in paragraph (a) above, the
Surviving Corporation assigns any of such employees to a job assignment which
requires such employee to be based more than fifty miles from such employee's
current location, such employee may decline such assignment in which event the
Surviving Corporation may either (i) terminate such employee and pay such
employee a lump sum severance payment equal to such employee's salary for the
balance of the six month period or (ii) elect to continue the at-will employment
of such employee at such employee's then current location.
4
<PAGE>
1.10 MOST FAVORED PRICING. The Buyer will offer Seller a ten-year contract
with two ten-year renewal options to purchase (the "Master Service Agreement"),
at the Surviving Corporation's most favored pricing regardless of volume,
dedicated and switched services for resale from the Dallas/Irving/Ft. Worth,
Austin, San Antonio, Corpus Christi and Waco networks of the Surviving
Corporation.
1.11 ADDITIONAL BORROWINGS. Subject to Section 5.01(h), Buyer acknowledges
that Metro may borrow additional funds from Seller after March 31, 1997. Buyer
(i) agrees that any such additional borrowings from Seller after March 31, 1997
shall be repaid by Buyer no later than 30 days after the Closing Date and (ii)
acknowledges that no such additional borrowing from Seller after March 31, 1997
with Buyer's prior approval shall be deemed to breach any representation,
warranty, covenant or agreement of Metro or Seller hereunder. Buyer has given
its prior approval with respect to additional borrowings necessary to enable
Metro to satisfy its payroll and accounts payable obligations until such time as
Buyer notifies Seller that such additional borrowings are no longer required.
1.12 ASSUMED NAME. Immediately prior to the Effective Time, Metro shall
assign to Seller all right, title and interest in Metro's registered assumed
name "New Century Communications," as more fully described on Schedule 3.17
hereto.
1.13 SUPPLEMENTAL PAYMENT. In connection with the negotiation, execution
and delivery of the letter agreement referred to in Section 1.08(a), Buyer
acknowledges that the Option Holders have requested to receive, and Metro has
agreed to pay, supplemental cash payments in connection with the exercise of
their Metro Stock Options to partially offset the income taxes that will become
due and payable as a result of such exercises. Upon the request of Metro, Buyer
agrees to loan to Metro up to $565,000 to fund these payments by Metro to the
Option Holders. In the event Buyer loans such cash and the Merger is not
consummated hereunder, Seller shall, or shall cause Metro to, repay such loan.
Metro's obligation to make these payments to the Option Holders shall not be
accrued as a liability of Metro on the March Balance Sheet.
ARTICLE II
CONVERSION OF SECURITIES
2.01 CONVERSION OF SECURITIES. At the Effective Time, by virtue of the
Merger and without any further action on the part of Sub or Metro or any
stockholder thereof:
(a) Effective as of the Effective Time, each share of the $0.01 par value
Common Stock of Sub ("Sub Common Stock") shall be converted into and become one
fully paid and non-assessable share of common stock, $0.01 par value per share,
of the Surviving Corporation ("Surviving Corporation Common Stock"). Each
certificate representing outstanding shares of Sub Common Stock shall at the
Effective Time represent an equal number of shares of Surviving Corporation
Common Stock.
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(b) Each share of Metro Common Stock issued and outstanding immediately
prior to the Effective Time shall be converted into (A) that number of full
shares of the common stock of Buyer, par value $0.01 per share (such shares,
together with the associated Preferred Stock Purchase Rights issued pursuant to
the Rights Agreement dated February 29, 1996 between the Company and The
Boatmen's Trust Company, as Rights Agent, being hereinafter referred to
collectively as "Buyer Common Stock"), as shall be determined by dividing the
Merger Consideration (as defined in Section 2.03 hereof) by the total number of
the Fully-Diluted Metro Shares (the "Metro Per Share Consideration") and
dividing the result by $20.60, or (B) at the option of any holder of Metro
Common Stock other than Seller, exercised in the manner specified herein in
Exhibit C hereto on or prior to the third business day prior to the date of the
Closing (a "Cash Election"), a right to receive, in lieu of some or all of the
shares of Buyer Common Stock otherwise issuable to such holder pursuant to
clause (A), a cash payment equal to the product of such number of shares of
Buyer Common Stock, times $20.60, provided, however, that the aggregate amount
of cash (including cash paid for fractional shares) for which shares of Metro
Common Stock may be exchanged may in no event exceed an amount of cash which
would result in the Shareholders surrendering less than 80% of their Metro
Common Stock in exchange solely for Buyer Common Stock as required for the
Merger to be a tax-free reverse triangular reorganization under Section
368(a)(2)(E) of the IRC (the "Cash Limitation"). The shares of Buyer Common
Stock issued pursuant to clause (A) are herein referred to as the "Stock
Consideration" and the amount of cash, if any, paid pursuant to clause (B) is
herein referred to as the "Cash Consideration." The Stock Consideration shall be
issued pursuant to Buyer's shelf registration statement (the "Registration
Statement") on Form S-4 (No. 333-21223) under the Securities Act of 1933, as
amended ("Securities Act").
(c) Any of the Metro Stock Options listed on Schedule 2.01(c) hereto, which
is outstanding immediately prior to the Effective Time (the "Assumed Metro Stock
Options"), shall be converted into an option, substantially in the form of
Exhibit D hereto, to purchase from Buyer ("Buyer Stock Option") the number of
shares of Buyer Common Stock (rounded down to the nearest full share) as shall
be determined by (A) multiplying (i) the number of shares of Metro Common Stock
issuable upon exercise of such Assumed Metro Stock Option immediately prior to
the Effective Time by (ii) the Metro Per Share Consideration and (B) dividing
the resulting product by $20.60, and having an option exercise price per share
of Buyer Common Stock (rounded to the nearest cent) as shall be determined by
dividing (i) the aggregate exercise price of such Assumed Metro Stock Option by
(ii) such number of shares of Buyer Common Stock. Buyer shall reserve for
issuance the number of shares of Buyer Common Stock that will become issuable
upon the exercise of the Buyer Stock Options. Seller and Metro shall cause all
other Metro Stock Options to be exercised prior to the Closing Date.
(d) The amounts payable pursuant to the Metro SARs outstanding immediately
prior to the Effective Time shall be accrued as a liability on the March Balance
Sheet and shall be paid by Metro immediately prior to the Closing Date
(e) Each share of Metro Common Stock, if any, held in the treasury of Metro
immediately prior to the Effective Time shall be canceled and extinguished and
no payment shall be made with respect thereto.
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(f) From and after the Effective Time, each certificate
theretofore evidencing one or more shares of Metro Common Stock shall no longer
evidence such shares, but shall evidence only the right to receive, in exchange
therefor, the Merger Consideration set forth in this Article II in the manner
provided in Section 2.02 of this Agreement.
2.02 EXCHANGE OF CERTIFICATES.
(a) At the Closing, each of the Shareholders shall surrender or shall cause
to be surrendered to Buyer certificates for all of the issued and outstanding
shares of Metro Common Stock duly endorsed for transfer and accompanied by a
letter of transmittal substantially in the form attached hereto as Exhibit E,
and Buyer shall cause the Merger Consideration to be delivered in exchange
therefor to the Shareholders in accordance with their respective holdings of the
issued and outstanding shares of Metro Common Stock.
(b) No certificate or scrip representing fractional shares of Buyer Common
Stock to which holders of Metro Common Stock would otherwise be entitled
pursuant to Section 2.01(b) will be issued in the Merger, and such fractional
share interests will not entitle the owner thereof to vote or to any rights of a
stockholder of Buyer. In lieu thereof, Buyer shall pay each holder of Metro
Common Stock who is otherwise entitled to a fractional share of Buyer Common
Stock cash in an amount equal to the product of such fractional share of Buyer
Common Stock and $20.60.
(c) At the Closing, each holder of an Assumed Metro Stock Option to be
converted pursuant to Section 2.01(c) shall surrender the agreement evidencing
such Assumed Metro Stock Option to Buyer, and Buyer shall deliver to such holder
the Buyer Stock Option into which such Assumed Metro Stock Option shall be
converted at the Effective Time in accordance with the provisions of Section
2.01(c).
2.03 MERGER CONSIDERATION.
(a) The Merger Consideration will be an amount equal to the sum of
$63,449,203 plus the Net Book Value of Metro as of March 31, 1997 (the "Merger
Consideration"). For this purpose, "Net Book Value" means the total amount of
Metro's assets shown on the March Balance Sheet less the total amount of Metro's
liabilities shown on the March Balance Sheet (except any indebtedness of Metro
to Seller).
(b) On or prior to April 15, 1997, Metro shall deliver the March Balance
Sheet to Buyer and to Seller. Except as set forth on Schedule 2.03 hereto, the
March Balance Sheet shall be prepared in accordance with generally accepted
accounting principles consistently applied ("GAAP"), with all appropriate
accruals and reserves, whether or not such accruals and reserves have previously
been included in financial statements of Metro. The proposed accounting
treatment of each of the various matters listed on Schedule 2.03 hereto shall be
final, conclusive and binding on the parties hereto and the Shareholders.
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(c) Buyer shall have ten (10) business days after its receipt of the March
Balance Sheet either to agree with it or, if Buyer disputes any amount thereon,
to give written notice ("Notice of Dispute") to Metro and to Seller of such
dispute, specifying in reasonable detail all points of disagreement with the
March Balance Sheet. If Buyer fails to deliver a Notice of Dispute during such
ten (10) business day period, the March Balance Sheet shall conclusively be
deemed to have been agreed upon by the parties and shall be final, conclusive
and binding on all parties hereto and the Shareholders.
(d) Upon receipt of a Notice of Dispute, Metro and Seller shall promptly
consult with the Buyer with respect to its specified points of disagreement in
an effort to resolve the dispute. If any such dispute cannot be resolved by the
parties within ten (10) business days after Metro and Seller receive the Notice
of Dispute, the parties shall refer the dispute to a partner in national firm of
certified public accountants mutually agreed upon by Buyer and Metro (the
"Arbiter"), as an arbitrator to finally determine, as soon as practicable, and
in any event within fifteen (15) days after such reference, all points of
disagreement with respect to the March Balance Sheet. For purposes of such
arbitration each of Buyer and Metro shall submit a proposed March Balance Sheet.
Metro's proposed March Balance Sheet need not be identical to the March Balance
Sheet delivered pursuant to Section 2.03(b). The Arbiter shall conduct the
arbitration under such procedures as the parties may agree or, failing such
agreement, under the Commercial Arbitration Rules of the American Arbitration
Association. The fees and expenses of the arbitration and the Arbiter incurred
in connection with the arbitration of the March Balance Sheet shall be allocated
between Buyer and Seller by the Arbiter in proportion to the extent either Buyer
or Metro did not prevail on items in dispute in the March Balance Sheet;
provided, that such fees and expenses shall not include, so long as such party
complies in all material respects with the procedures of this Section 2.03, the
other party's outside counsel or accounting fees. All determinations by the
Arbiter with respect to the March Balance Sheet and the allocation of
arbitration fees and expenses shall be final, conclusive and binding on Buyer,
Metro and the Shareholders.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby makes the following representations and warranties to Buyer
and Sub.
3.01 EXISTENCE AND QUALIFICATION.
(a) Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Louisiana and has the corporate power
and authority to own all of the outstanding shares of Metro Common Stock owned
by it, to perform its obligations hereunder and to consummate the transactions
contemplated hereby.
(b) Metro is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and (i) has the corporate power
and authority to own and use its properties and to transact the businesses in
which it is engaged, (ii) holds all of the franchises, licenses, rights of way,
operating permits, grants of location and carrier
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agreements and certifications necessary and required therefor, except where the
failure to hold any such rights would not have a material adverse effect upon
Metro, (iii) is duly licensed or qualified to do business and is in good
standing in the State of Texas, and (iv) is not required to be registered,
licensed or qualified to do business in any other jurisdiction, except any
jurisdiction where the failure to be so registered, licensed or qualified would
not have a material adverse effect upon Metro. Metro does not have any direct or
indirect subsidiaries or other entity in which it has any direct or indirect
ownership or beneficial interest.
(c) Metro is a telecommunications corporation certificated to provide local
exchange services and other public telecommunications services anywhere within
the State of Texas ("Network Services"), as described in exhibits from time to
time filed by Metro with the Public Utility Commission of the State of Texas
("PUC"), pursuant to a valid service provider certificate of authority granted
by the PUC by its Consolidated Order (Docket No. 16452).
3.02 OWNERSHIP OF SHARES. Except as set forth on Schedule 3.02 hereto, each
of Seller and the other persons listed on Schedule 3.02 hereto is the lawful
holder of record and beneficial owner of the number of shares of Metro Common
Stock, Metro Stock Options and Metro SARs set forth in Schedule 3.02 hereto
opposite Seller's or such person's name, in each case free and clear of any
claim, lien, pledge, charge, option, security interest or other encumbrance, or
any legal, contractual or other limitation or restriction including, without
limitation, any restriction on transfer or the right to vote.
3.03 CAPITALIZATION OF METRO. The entire authorized issued and outstanding
capital stock of Metro is as set forth on Schedule 3.03 hereto. Each of the
issued and outstanding shares of capital stock of Metro is validly issued and
outstanding, fully paid and non-assessable. Except as set forth on Schedule 3.03
hereto, there are no outstanding subscription, rights, options, warrants,
convertible or exchangeable securities or other agreements of any kind entitling
any person or entity to acquire from Metro any shares of capital stock of Metro
(or any securities convertible into or exchangeable for shares of such capital
stock), and there are no agreements, arrangements, rights or commitments of any
character relating to the issuance, sale, purchase or redemption, or restricting
the transfer of, or the declaration as payment of dividends on, any shares of
capital stock of Metro.
3.04 APPROVAL OF AGREEMENT. Except as set forth on Schedule 3.04 hereto,
the execution, delivery and performance of this Agreement by Seller and Metro
has been duly authorized and approved by all necessary corporate action on the
part of Seller and Metro. Pursuant to such authorizations and approvals, Seller
and Metro each have full power and authority to enter into this Agreement and to
perform its obligations hereunder. Subject to compliance with the filing and
waiting period requirements under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 ("H-S-R Act") and the filing and recordation of the Certificate of
Merger and except as set forth on Schedule 3.04 hereto, neither the execution
and delivery by Seller or Metro of this Agreement nor the performance by Seller
or Metro of its respective obligations hereunder does or will (i) conflict with
or result in any violation of or constitute a breach of any provision of its
respective Articles or Certificate of Incorporation, Bylaws and, except as set
forth in Schedule 3.21 hereto, the franchises, licenses, rights of way,
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permits, grants of location and carrier agreements and certifications, of Metro,
or any indenture, evidence of indebtedness or other agreement to which Seller or
Metro is a party or by which Seller or Metro is bound, (iii) result in the
creation of any lien or other encumbrance upon any of the assets of Metro, (iv)
violate any judgment, order, injunction, decree or award of any court,
administrative agency or governmental body against or binding upon Seller or
Metro or (v) constitute a violation by Seller or Metro of any applicable law or
regulation.
3.05 BOOKS AND RECORDS. The books of account, stock record books, minute
books, bank accounts and other corporate records of Metro have been made
available to Buyer and its representatives and are true, correct and complete in
all material respects, have been maintained in accordance with sound business
practices and the matters contained therein are accurately reflected in the
December Financial Statements (as hereinafter defined) of Metro to the extent
appropriate.
3.06 FINANCIAL STATEMENTS. Attached hereto as Schedule 3.06 are the balance
sheet of Metro as of December 31, 1996 ("Metro's December Balance Sheet"), and
the related statement of operations, statement of stockholders' equity and
statement of cash flows for the year then ended (collectively, "Metro's December
Financial Statements"). Metro's December Financial Statements are true, complete
and correct in all material respects, have been prepared in conformity with GAAP
consistently applied, and present fairly in all material respects the financial
position of Metro at December 31, 1996 and the results of operations of Metro
for the year then ended. Without limiting the foregoing, all of the assets and
liabilities of Metro at December 31, 1996 have been properly reflected on
Metro's December Balance Sheet in accordance with GAAP, and, as of the date
hereof, Metro does not have any indebtedness for money borrowed (other than
money borrowed from Seller) which is not reflected on Metro's December Balance
Sheet.
3.07 EVENTS SUBSEQUENT TO DECEMBER 31, 1996. Except as set forth on
Schedule 3.07 hereto, since December 31, 1996, there has been no (a) change in
the business, condition (financial or otherwise), operations, prospects, assets
or liabilities of Metro, other than changes in the ordinary course of business,
none of which have been materially adverse, (b) material damage, destruction or
loss, whether covered by insurance or not, affecting any of the assets of Metro,
(c) declaration, setting aside or payment of any dividend or other distribution
in respect of or to the holder of any of the shares of the capital stock of
Metro, (d) issuance of any stock or other securities by Metro (except upon
exercise of existing Metro Stock Options), (e) waiver of any rights or suffering
of any losses by Metro, except in the ordinary course of business, none of which
have been materially adverse, or (f) entering into any transaction by Metro
other than in the ordinary course of business.
3.08 WORK IN PROGRESS. The construction work in progress reflected in
Metro's December Balance Sheet is properly valued in accordance with GAAP. The
assets of Metro do not include any materials held on consignment or in the
possession of others.
3.09 ACCOUNTS AND NOTES RECEIVABLE. Subject to applicable reserves for bad
debts shown on or reflected in Metro's December Balance Sheet, (a) all accounts
and notes
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receivable reflected on Metro's December Balance Sheet are, and all
accounts and notes receivable of Metro subsequently accruing to the Effective
Time will be (except those which have been collected since December 31, 1996),
to the best knowledge of Seller and Metro (i) valid, genuine and subsisting,
(ii) subject to no known defenses, set-offs or counterclaims and (iii) current
and collectible and (b) all accounts and notes receivable of Metro reflected on
the March Balance Sheet and its balance sheet immediately prior to the first day
of the month in which the Effective Time occurs will be paid in full, net of
such reserves, on or before 120 days after the Effective Time, less any
applicable trade discounts.
3.10 NO UNDISCLOSED LIABILITIES. Metro does not have any liabilities or
obligations whatsoever, either accrued, absolute, contingent or otherwise, and
Seller knows of no basis for any claim against Metro for any liability or
obligation, except (a) to the extent set forth or reflected on Metro's December
Balance Sheet, (b) to the extent specifically set forth on any Schedule
delivered by Seller pursuant hereto or otherwise described in this Article III,
or (c) liabilities or obligations incurred in the normal and ordinary course of
business since December 31, 1996, none of which liabilities or obligations since
December 31, 1996 have been materially adverse.
3.11 TAX RETURNS AND AUDIT. Metro (or Seller on behalf of Metro) has filed,
or caused to be filed, on a timely basis with the appropriate agencies all U.S.
federal, state, local, foreign and other tax returns and tax reports required by
law to be filed by or with respect to Metro and each of its employees and
employee benefit plans, and, except as set forth on Schedule 3.11 hereto, (a)
such returns and reports are true, complete and correct, (b) no audit or
investigation of Metro or of any such returns or reports is in progress, pending
or threatened, (c) except for the tax returns filed by Seller and described on
Schedule 3.11 hereto, Metro has not joined in and will not join in the filing of
any consolidated or combined tax return with respect to which it is or could be
jointly or severally liable and Metro is not a party to any affiliated group
consolidated return tax allocation, tax sharing or tax indemnity agreement, (d)
Metro is not a foreign person within the meaning of Section 1445(b)(2) of the
IRC and the regulations thereunder, (e) all income, profits, employment
(including Social Security, unemployment insurance and employee income tax
withholding), franchise, gross receipts, sales, use, transfer, stamp,
occupation, property, excise, ad valorem and other taxes, all Pension Benefit
Guaranty Corporation ("PBGC") premiums and other governmental charges of a
similar nature, and all penalties, additions to tax and interest relating to
such taxes, premiums and charges (all of which are referred to herein
individually as a "Tax" and collectively as "Taxes"), due from Metro have been
fully paid or accrued, (f) there exists no unpaid Tax or Tax deficiency assessed
by any governmental authority against Metro or with respect to either of their
respective businesses, (g) to the best knowledge of Seller and Metro, there
exist no grounds for the assertion or assessment of any additional Taxes against
Metro or with respect to its businesses, (h) copies of all U.S. federal, Texas
and Delaware income Tax returns (or schedules included in Seller's consolidated
U.S. federal returns that relate to Metro), Tax examination reports and
statements of deficiencies assessed against, or agreed to by Seller (to the
extent they relate to Metro) and/or Metro have been made available to Buyer, (i)
no waiver of any statute of limitations has been given and is in effect in
respect to the assessment of any Taxes against Metro, (j) Metro has not made an
election under Section 338 of the IRC or taken any action that would result in
any
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income Tax liability to Metro as a result of a deemed election within the
meaning of Section 338 of the IRC, and (k) the adjusted tax basis of the assets
of Metro is equal to or greater than the amount shown on Schedule 3.11 hereto,
and the useful life of such assets for purposes of determining depreciation or
amortization for federal income tax purposes is as set forth on Schedule 3.11
hereto.
3.12 CONTRACTS AND OTHER OBLIGATIONS. Except as specifically set forth on
Schedule 3.12 hereto, each of the agreements, contracts, commitments and other
obligations of Metro listed on the Schedules to this Agreement ("Contracts") is
a valid and binding obligation of Metro in accordance with its terms and is in
full force and effect and neither Metro nor, to the best knowledge of Seller or
Metro, any other party thereto is in default with respect to any term or
condition thereof, nor, to the best knowledge of Seller and Metro, has any event
occurred which, through the passage of time or the giving of notice, or both,
would constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto or would give any party thereto an affirmative
defense against Metro. Except as specifically set forth on Schedule 3.12 hereto,
no termination or other penalty will result under, and no consent is required
under, any Contract for the consummation of the transactions contemplated by
this Agreement. Metro has delivered or otherwise made available to Buyer true,
correct and complete copies of the contracts, agreements or other documents
creating or evidencing each of the Contracts.
3.13 REAL PROPERTY - OWNED. Metro does not own any parcel of real property
or have any interest in or any right or obligation to acquire any interest in
any parcel of real property.
3.14 PERSONAL PROPERTY - OWNED. Except as set forth on Schedule 3.14
hereto, Metro has good and marketable title to all personal property owned and
used in its businesses (including without limitation all personal property
reflected on the December Balance Sheet or acquired after the date thereof,
except any subsequently sold in the ordinary course of business), free and clear
of all mortgages, options, liens, charges, security interests, leases,
covenants, conditions, agreements, claims, restrictions and other encumbrances
of every kind and there exists no restriction on the use or transfer of such
property.
3.15 REAL AND PERSONAL PROPERTY - LEASED BY METRO.
(a) Set forth on Schedule 3.15 hereto is a description of each lease under
which Metro is the lessor of any real or personal property. Metro has delivered
or made available to Buyer a true, correct and complete copy of each lease
identified on Schedule 3.15. The premises or property described in such leases
are presently occupied or used by the lessee under the terms of such leases.
(b) All rentals or other payments due under such leases have been paid and
there exists no default under the terms of such leases and no event has occurred
which, upon passage of time or the giving of notice, or both, would result in
any event of default or prevent Metro from exercising and obtaining the benefits
of any rights contained therein. No consent is
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required under any such lease for the consummation of the transactions
contemplated hereby. Upon the Closing Buyer will have all right, title and
interest of the lessor under the terms of such leases, free of all liens, claims
or encumbrances and all such leases are valid and in full force and effect.
3.16 REAL AND PERSONAL PROPERTY - LEASED TO METRO.
(a) Set forth on Schedule 3.16 hereto is a description of each lease under
which Metro is the lessee of any real or personal property. Metro has delivered
or made available to Buyer a true, correct and complete copy of each lease
identified on Schedules 3.16. The premises or property described in said leases
are presently occupied or used by Metro in its businesses as lessee under the
terms of such leases. To the best knowledge of Seller and Metro, all
improvements located on and the use presently being made of all real property
leased by Metro comply with all applicable zoning and building codes and
ordinances and all applicable fire, environmental, occupational safety and
health and similar standards established by law or regulation. There is no
proposed, pending or, to the best knowledge of Seller and Metro, threatened
change in any such code, ordinance or standard which would adversely affect the
respective businesses of Metro or the use of any of such property or leasehold
improvements. There is no proposed, pending or, to the best knowledge of Seller
and Metro, threatened condemnation proceeding or similar action affecting any of
such property, plant, equipment or leasehold improvements or with respect to any
streets or public amenities appurtenant thereto or in the vicinity thereof which
would adversely affect the respective businesses of Metro or the use of any of
such property or leasehold improvements.
(b) Except as set forth on Schedules 3.16, all rentals due under such
leases have been paid and there exists no default under the terms of such leases
and no event has occurred which, upon passage of time or the giving of notice,
or both, would result in any event of default or prevent Metro from exercising
and obtaining the benefits of any rights or options contained therein. Except as
set forth on Schedule 3.16 hereto, no consent under any such lease is necessary
for the consummation of the transactions contemplated hereby. Metro has all
right, title and interest of the lessee under the terms of said leases, free of
all liens, claims or encumbrances and all such leases are valid and in full
force and effect.
(c) There is no default or basis for acceleration or termination under, nor
has any event occurred nor does any condition exist which, with the passage of
time or the giving of notice, or both, would constitute a default or basis for
acceleration or termination under any underlying lease, agreement, mortgage or
deed of trust, which default or basis for acceleration or termination would
adversely affect any lease described on Schedule 3.16 or the property or use of
the property covered by such lease in the respective businesses of Metro. There
will be no default or basis for acceleration or termination under any such
underlying lease, agreement, mortgage or deed of trust as a result of the
transactions provided for in this Agreement.
3.17 PATENTS, TRADEMARKS AND COPYRIGHTS. Set forth on Schedule 3.17 hereto
is a listing of all the patents, applications for patents, trademark
registrations, applications for trademark registrations, unregistered
trademarks, tradenames, copyright registrations,
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applications for copyright registration and license agreements with respect to
the foregoing used, owned or granted by or to Metro. Except as set forth on
Schedule 3.17, (a) all such items are valid and subsisting; (b) good and
marketable title to all such items together with all common law rights (if any)
to the subject matter thereof is held by Metro, free and clear of all options,
adverse claims, defenses, liens, charges, security interests, covenants,
conditions, agreements, restrictions and other encumbrances; (c) except for
requirements of applicable law, there exists no restriction on the use or
transfer of any such item; (d) there are no interferences, challenges,
proceedings or infringement suits pending or, to the knowledge of Seller or
Metro, threatened, with respect to any such item; and (e) Metro has not granted
a license to any other party with respect to any such item. Metro is not
infringing upon the right of any other person under any patent, trademark on
other intellectual property right (including rights described in Section 3.18)
and, to the best knowledge of Seller and Metro, no other person is infringing
upon any patent, trademark or intellectual property right (including rights
described in Section 3.18) of Metro.
3.18 OTHER INTANGIBLE OR INTELLECTUAL PROPERTY. Metro has valid title to or
the valid right to use all intangible or intellectual property used by it
(including all inventions, discoveries, processes, formulae, trade secrets,
unregistered copyrights, proprietary technical information and know-how, to the
extent such property is not covered by Section 3.17 hereof), free and clear of
any claim, defense or right of any other person or entity.
3.19 NECESSARY PROPERTY. The tangible and intangible property owned and
leased by Metro and listed or described on Schedule 3.19 hereto and in the other
Schedules hereto constitute all of the property and property rights owned and
leased by Metro and all of the property and property rights which in any way
relate to, are used in or, except as set forth on Schedule 3.19 hereto, are
necessary for, the continued conduct of the respective businesses of Metro in
the manner and to the extent presently conducted or planned.
3.20 DESCRIPTION OF NETWORKS; USE AND CONDITION OF PROPERTY, PLANT AND
EQUIPMENT.
(a) Metro has the following networks in operation or under construction:
(i) Metro's Dallas/Irving/Ft. Worth network consists of approximately
281 route miles (as of February 12, 1997) of fiber optic cable plant (with
minimum and maximum fiber counts of 12 and 144, respectively) installed and
operating as intended and as shown on map Exhibit A-1 delivered pursuant to
Section 3.20(b), with rings in Ft. Worth, Irving and Dallas, and a transport
route connecting the three markets. The Dallas/Irving/Ft. Worth network is
approximately 87 miles of underground construction and the balance is aerial
construction. The Dallas/Irving/Ft. Worth network passes three Southwestern Bell
central offices and one GTE central office and is interconnected with all major
inter-exchange carriers ("IXCs"). Metro is currently in the process of deploying
a DMS-500 switch in the Dallas/Irving/Ft. Worth network and has deployed a
Cascade 9000 frame relay switch in the Dallas/Irving/Ft. Worth network.
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(ii) Metro's Austin network consists of approximately 38 route miles
(as of February 12, 1997) of fiber optic cable plant (with minimum and maximum
fiber counts of 12 and 144, respectively) installed and operating as intended
and as shown on map Exhibit A-2 delivered pursuant to Section 3.20(b), of which
approximately 5.75 miles consists of underground construction and the balance is
aerial construction. The Austin network passes three Southwestern Bell central
offices and is interconnected with all major IXCs. Metro has ordered a DMS-500
switch for deployment in the Austin network, and has deployed a Cascade 9000
frame relay switch in the Austin network.
(iii) Metro's San Antonio network consists of approximately 7 route
miles (as of February 12, 1997) of fiber optic cable plant (with minimum and
maximum fiber counts of 12 and 144, respectively) installed and operating as
intended and as shown on map Exhibit A-3 delivered pursuant to Section 3.20(b),
of which approximately 2.5 miles consists of underground construction and the
balance is aerial construction. The San Antonio network passes three
Southwestern Bell central offices and is interconnected with all major IXCs.
Metro has ordered a DMS-500 switch for deployment in the San Antonio network and
has deployed a Cascade 9000 frame relay switch in the San Antonio network.
(iv) Metro's networks in Houston, Corpus Christi and Waco are planned
for construction along routes indicated on maps Exhibits A-4, A-5 and A-6
hereto, respectively, delivered pursuant to Section 3.20(b). Metro has committed
to order a DMS-500 switch for deployment in the Houston network.
(b) By letter dated March 28, 1997, Metro's counsel furnished to Buyer
copies of maps that reflect (i) those portions of Metro's networks for
Dallas/Irving/Fort Worth, Austin and San Antonio, Texas that were built and
those portions that were planned for construction as of March 27, 1997 and (ii)
Metro's proposed networks for Houston, Corpus Christi and Waco, Texas as of
March 27, 1997. All of Metro's fiber optic cable installed in the central
business districts of Dallas/Irving/Fort Worth, Austin and San Antonio has a
fiber count of 144. Each such district is labeled on the maps for these markets.
In all other areas in these markets, the fiber count of Metro's fiber optic
cable is less than 144.
(c) All of the property, plant and equipment of Metro is in good operating
condition and repair as required for its use in the businesses of Metro as
presently conducted or planned (reasonable wear and tear excepted), and conforms
in all material respects to all applicable laws, and no notice of any violation
of any law, statute, ordinance or regulation relating thereto has been received
by Seller or Metro except such as have been fully complied with.
3.21 LICENSES, RIGHTS OF WAY AND PERMITS. Set forth on Schedule 3.21 hereto
is a listing of each franchise, license, right of way, construction or operating
permit, grant of location and carrier agreement and certification owned or held
by Metro, which are all that is required for the conduct of the businesses of
Metro in the manner and to the extent presently conducted or planned, showing,
in each case, the name of the person, government agency or other entity issuing
or granting such license, right of way, permit, grant of location and carrier
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agreement and certification. Such licenses, rights of way, permits, grants of
location and carrier agreements and certifications are valid and in full force
and effect and, except as specifically set forth on Schedule 3.21 hereto, no
termination or other penalty will result thereunder, and no consent is required
thereunder, for the consummation of the transactions contemplated by this
Agreement.
3.22 CONTRACTS AND COMMITMENTS. Except as set forth in Schedule 3.22
hereto, there is not outstanding:
(a) Any single contract or purchase order providing for an expenditure by
Metro in excess of $50,000, contracts or purchase orders with the same or
affiliated vendor(s) providing for an expenditure by Metro in excess of $50,000,
or contracts or purchase offers in the aggregate providing for expenditures by
Metro in excess of $50,000, for the purchase of any real property, machinery,
equipment or other items which are in the nature of capital investment;
(b) Any other single contract or purchase order providing for an
expenditure by Metro in excess of $50,000, other contracts or purchase orders
with the same or affiliated vendor(s) providing for an expenditure by Metro in
excess of $50,000, or contracts or purchase offers in the aggregate providing
for expenditures by Metro in excess of $50,000, for the purchase of materials,
supplies, component parts or any other items or services;
(c) Any contract, bid or offer to which Metro is a party or by which Metro
is bound to provide services to third parties (i) which Seller or Metro knows or
has reason to believe is at a price which would result, for more than two
consecutive months, in a loss before interest, income taxes, depreciation and
amortization (an "EBITDA Loss") on the providing of such services in the manner
contemplated under the contract, bid or offer (e.g., Metro is not buying type-2
circuits and selling them at less than cost), (ii) which is pursuant to terms or
conditions that Metro cannot reasonably expect to satisfy or fulfill in their
entirety, or (iii) which involves more than $15,000 in monthly revenues or
which, together with all other contracts, bids or offers to or with the same
party or any affiliated parties, involves more than $30,000 in monthly revenues;
(d) Any purchase commitment by Metro for materials, supplies, component
parts or other items or services in excess of the normal, ordinary, usual and
current requirements of its businesses or at a price in excess of the current
reasonable market price charged to similarly situated companies;
(e) Any revocable or irrevocable power of attorney granted by Metro to any
person, firm or corporation for any purpose whatsoever;
(f) Any loan agreement, indenture, promissory note, conditional sales
agreement or other similar type of agreement or instrument to which Metro is a
party or by which Metro is bound;
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(g) Any arrangement or other agreement to which Metro is a party, or by
which Metro is bound, which involves (i) a sharing of profits, (ii) future
payments by Metro of $15,000 or more per annum to any other person, or (iii) any
joint venture or similar contract or arrangement to which it is a party;
(h) Any sales agency, sales representation, distributorship or franchise
agreement, oral or written, to which Metro is a party or by which Metro or its
businesses is bound;
(i) Any contract containing covenants limiting the freedom of Metro to
compete in any line of business or with any person or in any area;
(j) Any material contract or commitment to which Metro is a party which is
or was not made in the ordinary course of its businesses; or
(k) Any other material contract or commitment to which Metro is a party
which is not cancelable without penalty on thirty (30) days notice or less and
which is not specifically described on any other Schedule hereto.
3.23 BUSINESS RELATIONSHIPS. No current customer of Metro, no carrier with
which Metro has an interconnect agreement and no entity which since January 1,
1996 has supplied equipment or optical fiber cable to Metro has threatened in
writing to cancel or otherwise terminate its relationship with Metro, except
where such cancellation or termination would not have a material adverse effect
upon Metro.
3.24 NO BREACH OF LAW OR GOVERNING DOCUMENTS. There is no material default
under or material violation of any applicable statute, law, ordinance, decree,
order, rule or regulation of any governmental body, or the provisions of any
franchise, license, right of way, construction or operating permit, grant of
location or carrier agreement or certification, by Metro and there is no default
under or violation of any provision of the Certificate of Incorporation or
By-laws of Metro or the Shareholders Agreement, Put Agreements, Employment
Agreements, Metro Stock Options or Metro SARs. Except as set forth in Section
3.04 or Schedule 3.24 hereto, no governmental permits or consents are necessary
for Metro and Seller to effect the transactions contemplated hereby.
3.25 LITIGATION AND ARBITRATION. Except as set forth on Schedule 3.25
hereto, there is no suit, claim, action or proceeding now pending or, to the
best knowledge of Seller or Metro, threatened before any court, grand jury,
administrative or regulatory body, governmental agency, arbitration or mediation
panel or similar body, to which Metro is a party or which may result in any
judgment, order, decree, liability, award or other determination against Metro
which, if determined adversely to Metro, would individually or in the aggregate
have a material adverse effect on Metro or which will prevent or hamper the
consummation of the transactions contemplated by this Agreement. No such
judgment, order, decree or award has been entered against Metro which has, or
could have, any continuing effect.
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3.26 EMPLOYEES AND CONSULTANTS. Set forth on Schedule 3.26 hereto is a
complete list of:
(a) all employees of Metro (including all employees of Century Service
Group, Inc. that devote all of their working time to Metro)who earn $25,000 or
more per year; and
(b) all agents and consultants to Metro;
together, in each case, with the current rate of compensation payable to each.
3.27 INDEBTEDNESS TO AND FROM SHAREHOLDERS AND OTHERS. Except as set forth
on Schedule 3.27 hereto, Metro is not indebted to any of its Shareholders or,
except for amounts due as normal salaries, wages and bonuses and in
reimbursement of ordinary expenses on a current basis, any of its officers,
employees or agents, and no Shareholder, officer, employee or agent of Metro is
indebted to it except for advancements for ordinary business expenses in a
nominal amount.
3.28 OUTSIDE FINANCIAL INTERESTS. Except as set forth on Schedule 3.28
hereto, neither Seller nor any director or officer of Seller or Metro has any
direct or indirect financial interest in any competitor, supplier or customer of
Metro other than ownership of passive investments constituting not more than 1%
of the outstanding securities of publicly-traded companies.
3.29 PAYMENTS, COMPENSATION AND PERQUISITES OF AGENTS, CONSULTANTS AND
OTHERS. All payments to agents, consultants and others made by Metro have been
in payment of bona fide fees and commissions and not as illegal or improper
payments. Metro has properly and accurately reflected on its books and records
all compensation paid to and perquisites provided to its agents, consultants and
others. Such compensation and perquisites have been properly and accurately
disclosed in the public or private reports, records and filings of Metro, to the
extent required by law.
3.30 LABOR AGREEMENTS, EMPLOYEE BENEFIT PLANS, AND EMPLOYMENT AGREEMENTS.
Except as set forth on Schedule 3.30 hereto, Metro is not a party to (a) any
union collective bargaining, works council or similar agreement or arrangement,
(b) any qualified or non-qualified pension, retirement, profit-sharing, deferred
compensation, bonus, stock option, stock purchase, retainer, consulting, health,
welfare or incentive plan or agreement whether legally binding or not, (c) any
plan or policy providing for employee benefits, including but not limited to
vacation, disability, sick leave, medical, hospitalization, life and other
insurance plans, and related benefits, or (d) any employment agreement. True,
correct and complete copies of all documents creating or evidencing any
agreement, arrangement, plan or policy listed on Schedule 3.30 have been
delivered or made available to Buyer. Except as set forth on Schedule 3.30
hereto, there are no negotiations, demands or proposals which are pending or
which have occurred since January 1, 1997 which concern matters now covered, or
that would be covered, by the type of agreements, arrangements, plans or
policies listed in this Section.
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3.31 ERISA.
(a) All employee benefit plans disclosed on Schedule 3.30 (collectively,
"Plans") comply in all material respects with, and have been operated and
maintained in compliance with, the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and all other applicable laws and regulations, to
the extent applicable. No "reportable event" (as defined in Section 4043(b) of
ERISA) or "prohibited transaction" (as defined in Section 4975(c)(1) of the IRC,
or Section 406 of ERISA) has occurred with respect to any Plan, and, except as
may result from the Merger, there is no fact or circumstance which may lead to
the occurrence of any reportable event or prohibited transaction. With respect
to each Plan:
(i) All minimum funding standards of ERISA and the IRC have been
complied with, without waiver thereof;
(ii) Full payment has been made of all amounts which are required and
due under the terms of each Plan, and full payment will be made of all amounts
which are required and due through the date of the Closing;
(iii) No "accumulated funding deficiency" (as defined in Section 302
of ERISA and Section 412 of the IRC) exists, and there has been no waiver
thereof applied for or granted;
(iv) The "current value" of the assets of each Plan does, and at the
Effective Time will, exceed the "present value" of all "accrued benefits"
thereunder (as such terms are defined in Section 3 of ERISA);
(v) Metro has not incurred any liability to the PBGC, and there exists
no fact or circumstance which may result in any such liability; and
(vi) The statements of assets and liabilities of each audited Plan as
of December 31, 1995 and the statements of changes in fund balances and in
financial position and the statements of changes in net assets available for
benefits under such Plan for such fiscal year, copies of which have been
furnished or made available to Buyer, fairly present in all material respects
the financial condition of such Plan as at such date and the results of
operations thereof for the year ended on such date, all in accordance with GAAP
applied on a consistent basis. The Plans for which separate audited statements
are not available from Metro are identified on Schedule 3.30. All expenses and
liabilities relating to all of the Plans have been and will be on the Effective
Date fully and properly accrued on Metro's books and records.
(b) Neither Metro nor any of its affiliates is presently a party to or
participant in any multi-employer plan (as defined in Section 3(37) of ERISA).
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3.32 TERMINATED PLANS. Neither Metro nor any of its affiliates has
terminated or taken action to terminate any Plan and neither Metro nor any of
its affiliates has any liability to any person or entity, including without
limitation the PBGC, any other governmental agency or any participant in or
beneficiary of any such Plan. Neither Metro nor any of its affiliates is liable
for any excise, income or other tax or penalty as a result of any such
termination.
3.33 OVERTIME, BACK WAGES, VACATION AND MINIMUM WAGES. Except as set forth
on Schedule 3.33 hereto, no present or former employee of Metro has any claim
against Metro (whether under U.S., federal, state or local law, foreign law, any
employment agreement, or otherwise) on account of or for (a) overtime pay, other
than overtime pay for the current payroll period, (b) wages or salary (excluding
current bonus accruals and amounts accruing under pension and profit-sharing
plans) for any period other than the current payroll period, (c) vacation, time
off or pay in lieu of vacation or time off, other than that earned in respect of
the current fiscal year, or (d) any violation of any statute, ordinance or
regulation relating to minimum wages or maximum hours of work.
3.34 DISCRIMINATION AND OCCUPATIONAL SAFETY AND HEALTH. Except as set forth
on Schedule 3.25 hereto, no person or party (including, but not limited to,
governmental agencies of any kind) has any claim, or basis for any action or
proceeding, against Metro arising out of any statute, ordinance or regulation
relating to discrimination in employment or employment practices or occupational
safety and health standards. Metro has not received any notice from any U.S.
federal, state, local or foreign governmental entity alleging a claim of
discrimination in employment or employment practices or a violation of
occupational safety or health standards.
3.35 ALIEN EMPLOYMENT ELIGIBILITY. With respect to each person employed by
Metro since its inception, (a) Metro has hired such person in compliance with
the Immigration Reform and Control Act of 1986 and the rules and regulations
thereunder ("IRCA") and (b) Metro has complied in all material respects with all
recordkeeping and other regulatory requirements under IRCA.
3.36 LABOR DISPUTES; UNFAIR LABOR PRACTICES. There is neither pending nor,
to the best knowledge of Seller and Metro, threatened any labor dispute, strike
or work stoppage which affects or which may affect the businesses of Metro.
Neither Metro nor any of its agents, representatives or employees has committed
any unfair labor practice as defined in the National Labor Relations Act of
1947, as amended. There is not now pending or, to the best knowledge of Seller
and Metro, threatened any charge or complaint against Metro by the National
Labor Relations Board, any state or local labor or employment agency or any
representative thereof, and the execution of this Agreement and the Merger
hereunder will not result in any such charge or complaint.
3.37 INSURANCE POLICIES. Set forth on Schedule 3.37 hereto is a list of all
insurance policies and bonds in force covering or relating to any of the
properties, assets or businesses of Metro. Policies therein described evidence
insurance in such amounts and against
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such risks and losses as are generally maintained with respect to comparable
businesses and properties.
3.38 ENVIRONMENTAL MATTERS.
(a) There is no investigation, inquiry and other proceeding now pending or,
to the knowledge of Seller or Metro, threatened by any U.S. federal, state or
local governmental entity or any foreign governmental entity with respect to the
properties, assets or businesses of Metro in connection with the actual or
alleged failure to comply with any requirement of any law, regulation or
ordinance relating to air or water quality, waste management, hazardous or toxic
substances, or the protection of health or the environment.
(b) Metro does not generate, handle, transport or dispose of any hazardous
substances, hazardous wastes, hazardous materials or toxic substances, as
defined under applicable environmental laws (collectively, "waste materials")
and there is no waste disposal, treatment or storage site used by Metro.
(c) Metro has not engaged any person, firm, corporation or other entity to
handle, transport or dispose of waste materials for Metro.
(d) Metro has maintained all documents and records and made all filings
required by, and has otherwise fully complied with, all applicable laws,
regulations and ordinances relating to air or water quality, waste management,
hazardous or toxic substances, and the protection of health or the environment.
To the best knowledge of Seller and Metro and except as provided in Schedule
3.38 hereto, none of the properties leased by Metro or otherwise used in
connection with its business is contaminated with any hazardous waste or
substance.
3.39 BROKER'S FEES. Neither Seller, Metro nor any of their respective
affiliates has retained any broker, finder or agent or agreed to pay any
brokerage fee, finder's fee or commission with respect to the transactions
contemplated by this Agreement.
3.40 FOREIGN ASSETS. Metro does not have any interest in any real property
or tangible or intangible personal property located outside of the United
States, including any stock, securities or investments in, claims against, or
receivables from any entity or person with substantially all of its property or
business so located.
3.41 TRUTHFULNESS. No representation or warranty of Seller herein and no
statement or information contained or referenced in any Schedule delivered by
Metro or Seller pursuant hereto contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact necessary in
order to make the statements contained herein or therein not misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND SUB
Buyer and Sub hereby make the following representations and warranties to
Seller.
4.01 CORPORATE EXISTENCE. Each of Buyer and Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, (i) has the corporate power and authority to own and use its
properties and to transact the business in which it is engaged and to consummate
the transactions contemplated hereby and (ii) holds all of the franchises,
licenses, rights of way, operating permits, grants of location and carrier
agreements and certifications necessary and required therefor, except where the
failure to hold any such rights would not have a material adverse effect upon
Buyer. Sub is duly licensed or qualified to do business and is in good standing
in the State of Texas.
4.02 APPROVAL OF AGREEMENT. The execution, delivery and performance of this
Agreement by Buyer and Sub has been duly authorized and approved by all
necessary corporate action on the part of Buyer and Sub. Pursuant to such
authorizations and approvals, each of Buyer and Sub has full power and authority
to enter into this Agreement and to perform its obligations hereunder. Subject
to compliance with the filing and waiting period requirements under the H-S-R
Act and the filing and recordation of the Certificate of Merger, neither the
execution and delivery by Buyer or Sub of this Agreement nor the performance by
Buyer or Sub of its obligations hereunder does or will (i) conflict with or
result in any violation of or constitute a breach of any provision of the
Certificate of Incorporation or By-Laws of Buyer or Sub and, except as set forth
in any of the Schedules delivered under this Article, the franchises, licenses,
rights of way, permits, grants of location and carrier agreements and
certifications of Buyer or Sub, or any indenture, evidence of indebtedness or
other agreement to which Buyer or Sub is a party or by which Buyer or Sub is
bound, (ii) violate any judgment, order, injunction, decree or award of any
court, administrative agency or governmental body against or binding upon Buyer
or Sub or (iii) constitute a violation by Buyer or Sub of any applicable law or
regulation.
4.03 OUTSTANDING SHARES OF CAPITAL STOCK. The authorized capital stock of
Buyer consists of 50,000,000 shares of Buyer Common Stock, of which 32,672,579
shares were issued and outstanding as of February 28, 1997, and 1,040,012 shares
of preferred stock, par value $0.01 per share, none of which are issued and
outstanding, and no shares of any capital stock are held by Buyer in its
treasury. All of the outstanding shares of Buyer Common Stock are duly
authorized and validly issued, fully paid and non-assessable and free of
preemptive rights. Except as described in Buyer's Prospectus dated March 20,
1997 filed as part of Buyer's Registration Statement No. 333-21223 on Form S-4
under the Securities Act and attached as Schedule 4.03 hereto (the
"Prospectus"), and options granted pursuant to Buyer's employee stock plans
since February 28, 1997, no subscription, warrant, option or other right to
purchase or acquire any shares of any class of capital stock of Buyer or
securities convertible into or exchangeable for shares of such capital stock is
authorized or outstanding, and there is no commitment of Buyer to issue any such
shares, warrants, options or other such rights or securities. Except as
described in the Prospectus, there are no agreements, arrangements, rights
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or commitments of any character relating to the issuance, sale, purchase or
redemption, or restricting the transfer, of, or the declaration or payment of
dividends on, any shares of capital stock of Buyer.
4.04 AUTHORIZATION AND ISSUANCE OF STOCK CONSIDERATION AND BUYER STOCK
OPTIONS. The issuance of the Stock Consideration and Buyer Stock Options as
contemplated by this Agreement have been duly authorized and, upon delivery to
the Seller and to the other holders of Metro Common Stock of certificates for
the Stock Consideration in exchange for the shares of Metro Common Stock and,
upon delivery to the holders of Metro Stock Options of the Buyer Stock Options
in exchange for their respective Metro Stock Options in accordance with the
terms hereof, the Stock Consideration will have been validly issued, fully paid
and non-assessable, and free of preemptive rights, and, if and when the shares
of Buyer Common Stock issuable upon exercise of the Buyer Stock Options are
issued and delivered against payment therefor as provided in such Buyer Stock
Options, such shares of Buyer Common Stock will be validly issued, fully paid
and non-assessable and free of preemptive rights.
4.05 BOOKS AND RECORDS. The books of account, stock record books, minute
books, bank accounts and other corporate records of Buyer have been made
available to Metro and Seller and are true, correct and complete in all material
respects, have been maintained in accordance with sound business practices and
the matters contained therein are accurately reflected in the Buyer's December
Financial Statements (as hereinafter defined) to the extent appropriate.
4.06 FINANCIAL STATEMENTS. The consolidated balance sheet of Buyer as of
December 31, 1996 ("Buyer's December Balance Sheet"), and the related
consolidated statements of operations, changes in shareholders' equity and cash
flow for the year then ended (collectively, "Buyer's December Financial
Statements") set forth in the Prospectus are true, complete and correct in all
material respects, have been prepared in conformity with GAAP consistently
applied, and present fairly in all material respects the consolidated financial
position of Buyer at December 31, 1996 and the consolidated results of
operations of Buyer for the year then ended. Without limiting the foregoing, all
of the consolidated assets and liabilities of Buyer at December 31, 1996 have
been properly reflected on Buyer's December Balance Sheet in accordance with
GAAP.
4.07 EVENTS SUBSEQUENT TO DECEMBER 31, 1996. Except as set forth on
Schedule 4.07 hereto or described in the Prospectus, since December 31, 1996,
there has been no (a) change in the business, condition (financial or
otherwise), operations, prospects, assets or liabilities of Buyer, other than
changes in the ordinary course of business, none of which have been materially
adverse, (b) material damage, destruction or loss, whether covered by insurance
or not, affecting any of the assets of Buyer or any of its subsidiaries, (c)
declaration, setting aside or payment of any dividend or other distribution in
respect of or to the holder of any of the shares of the capital stock of Buyer,
(d) issuance of any stock or other securities by Buyer (except upon exercise of
options granted pursuant to Buyer's 1993 Stock Option Plan), (e) waiver of any
rights or suffering of any losses by Buyer or any of its subsidiaries, except in
the ordinary course of
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business, none of which have been materially adverse, or (f) entering into any
transaction by Buyer or any of its subsidiaries other than in the ordinary
course of business.
4.08 NO UNDISCLOSED LIABILITIES. Buyer does not have any liabilities or
obligations whatsoever, either accrued, absolute, contingent or otherwise, and
Buyer knows of no basis for any claim against Buyer or any of its subsidiaries
for any liability or obligation, except (a) to the extent set forth or reflected
on the Buyer's December Balance Sheet, or (b) to the extent specifically set
forth on any Schedule delivered by Buyer pursuant hereto or otherwise described
in this Article IV, or (c) liabilities or obligations incurred in the normal and
ordinary course of business since December 31, 1996, none of which liabilities
or obligations since December 31, 1996 have been materially adverse.
4.09 NO BREACH OF LAW OR GOVERNING DOCUMENTS. There is no material default
under or violation of any applicable statute, law, ordinance, decree, order,
rule or regulation of any governmental body, or the provisions of any franchise,
license, right of way, construction or operating permit, grant of location or
carrier agreement or certification, by Buyer or any of its subsidiaries and
there is no default under or violation of the Certificate of Incorporation or
By-laws of Buyer or Sub. Except as set forth in Sections 3.24 and 4.02, no
governmental permits or consents are necessary for Buyer and Sub to effect the
transactions contemplated hereby.
4.10 LITIGATION AND ARBITRATION. Except as described in the Prospectus,
there is no suit, claim, action or proceeding now pending or, to the best
knowledge of Buyer, threatened before any court, grand jury, administrative or
regulatory body, governmental agency, arbitration or mediation panel or similar
body, to which Buyer or any of its subsidiaries is a party or which may result
in any judgment, order, decree, liability, award or other determination against
Buyer or any of its subsidiaries which, if determined adversely to Buyer or any
of its subsidiaries, would individually or in the aggregate have a material
adverse effect on Buyer or which will prevent or hinder the consummation of the
transactions contemplated by this Agreement. No such judgment, order, decree or
award has been entered against Buyer which has, or could have, any continuing
effect.
4.11 TAX RETURNS AND AUDIT. Buyer has filed, or caused to be filed, on a
timely basis with the appropriate agencies all U.S. federal, state, local,
foreign and other tax returns and tax reports required by law to be filed by or
with respect to Buyer and each of its employees and employee benefit plans, and,
except as set forth on Schedule 4.11 hereto, (a) such returns and reports are
true, complete and correct, (b) no audit or investigation of Buyer or any such
returns or reports is in progress, pending or threatened, (c) all Taxes due from
Buyer have been fully paid or accrued, (d) there exists no unpaid Tax or Tax
deficiency assessed by any governmental authority against Buyer or with respect
to its businesses, (e) to the best knowledge of Buyer, there exist no grounds
for the assertion or assessment of any additional Taxes against Buyer or with
respect to its businesses, and (f) no waiver of any statute of limitations has
been given and is in effect in respect to the assessment of any Taxes against
Buyer.
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4.12 LICENSES, RIGHTS OF WAY AND PERMITS. Buyer and its subsidiaries hold
all licenses, rights of way, operating permits, grants of location and carrier
agreements and certifications which are required for the conduct of the
businesses of Buyer and its subsidiaries in all material respects in the manner
and to the extent presently conducted. Such licenses, rights of way, permits,
grants of location and carrier agreements and certifications are valid and in
full force and effect and, except as specifically set forth on Schedule 4.12
hereto, no termination or other penalty will result thereunder, and no consent
is required thereunder, for the consummation of the transactions contemplated by
this Agreement.
4.13 BUSINESS RELATIONSHIPS. No current customer of Buyer or any of its
Subsidiaries, no carrier with which Buyer or any of its subsidiaries has an
interconnect agreement and no entity which since January 1, 1996 has supplied
network equipment or optical fiber cable to Buyer or any of its subsidiaries has
threatened in writing to cancel or otherwise terminate its relationship with
Buyer or any of its subsidiaries, except where such cancellation or termination
would not have a material adverse effect on Buyer.
4.14 ENVIRONMENTAL MATTERS.
(a) There is no investigation, inquiry and other proceeding now pending or,
to the knowledge of such Buyer, threatened by any U.S. federal, state or local
governmental entity or any foreign governmental entity with respect to the
properties, assets or businesses of Buyer or any of its subsidiaries in
connection with the actual or alleged failure to comply with any requirement of
any law, regulation or ordinance relating to air or water quality, waste
management, hazardous or toxic substances, or the protection of health or the
environment.
(b) Neither Buyer nor any of its subsidiaries generates, handles,
transports or deposes of any hazardous substances, hazardous wastes, hazardous
materials or toxic substances, as defined under applicable environmental laws
(collectively, "waste materials").
(c) Neither Buyer nor any of its subsidiaries has engaged any person, firm,
corporation or other entity to handle, transport or dispose of waste materials.
(d) Buyer and its subsidiaries have maintained all documents and records
and made all filings required by, and has otherwise fully complied with, all
applicable laws, regulations and ordinances relating to air or water quality,
waste management, hazardous or toxic substances, and the protection of health or
the environment. To the best knowledge of Buyer, none of the properties owned or
leased by Buyer or any of its subsidiaries or otherwise used in connection with
any of their respective businesses is contaminated with any hazardous waste or
substance.
4.15 BROKER'S FEES. Neither Buyer nor Sub nor any of their respective
affiliates has retained any broker, finder or agent or agreed to pay any
brokerage fee, finder's fee or commission with respect to the transactions
contemplated by this Agreement.
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4.16 BUYER'S SEC REPORTS. The Prospectus and each report filed by Buyer
with the Securities and Exchange Commission ("SEC Reports") pursuant to Section
13 or 14(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
since May 2, 1996 complied as to form in all material respects with each
applicable provision of the Securities Act, the Exchange Act, and the rules and
regulations promulgated thereunder and did not as of such date contain an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements contained therein, in light of the circumstances in which
they were made, not misleading. Each SEC Report to be filed by Buyer between the
date of this Agreement and the Effective Time will comply as to form in all
material respects with each applicable provision of the Exchange Act and the
rules and regulations promulgated thereunder and will not as of such date
contain an untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading.
4.17 TRUTHFULNESS. No representation or warranty of Buyer or Sub herein and
no statement or information contained or referenced in any Schedule delivered by
Buyer or Sub pursuant hereto contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary in order
to make the statements contained herein or therein not misleading.
ARTICLE V
COVENANTS OF SELLER
Seller covenants and agrees with Buyer that, from and after the date of
this Agreement and until the Effective Time, Seller will cause Metro to conduct
the businesses of Metro subject to the following provisions and limitations:
5.01 OPERATION OF THE BUSINESS. Without the prior written consent of Buyer,
Metro will not:
(a) Grant any increase in the rate of pay of any of its officers, employees
or agents, enter into or increase the benefits provided under any bonus,
profit-sharing, incentive compensation, pension, retirement, medical,
hospitalization, life insurance or other insurance plan or plans, or other
contracts or commitments, or in any other way increase in any amount the
benefits or compensation of any such officer, employee or agent;
(b) Enter into any employment contract or collective bargaining agreement;
(c) Enter into any material contract or commitment or engage in any
transaction which is not in the usual and ordinary course of its business or
which is inconsistent with past practices;
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(d) Sell, transfer, assign or permit to expire or be canceled any license,
right of way, permit, grant of location or carrier agreement or certification;
(e) Sell or dispose of or encumber any material amount of assets;
(f) Make, or enter into any contract for, any capital expenditure or enter
into any lease of capital equipment or real estate not contemplated by Metro's
1997 capital or operating budget which involves more than $50,000 or enter into
any series of such contracts with any one party or affiliated group of parties
involving more than $50,000 in the aggregate;
(g) Enter into any contract, whether for the purchase or sale of materials,
supplies, component parts or other items or services or otherwise, and whether
in the ordinary course of its business or otherwise, not contemplated by Metro's
1997 capital or operating budget which involves more than $50,000 or enter into
any series of such contracts with any one party or affiliated group of parties
involving more than $50,000 in the aggregate;
(h) Create, assume, incur or guarantee any indebtedness for borrowed money,
other than indebtedness for money borrowed from Seller which, if borrowed after
March 31, 1997 with Buyer's prior approval, Buyer agrees at the time of
borrowing to repay said borrowing pursuant to Section 1.11;
(i) Except as required by Section 1.08 hereof or upon exercise of Metro
Stock Options, declare or pay any distribution in respect of, or make any sale
of, its equity interests or directly or indirectly redeem, purchase or otherwise
acquire any of its equity interests;
(j) Change any accounting procedures or practices or its financial
structure or make any new elections with respect to Taxes or any changes in
current elections with respect to Taxes;
(k) Perform any act, or attempt to do any act, or permit any act or
omission to act, which will cause a breach of any material contract, commitment
or obligation to which it is a party;
(l) Except in the ordinary course of its business and consistent with its
past practices, take any other action or incur any other liability or obligation
in excess of $250,000 (other than a liability for which Seller agrees in writing
at Closing to fully indemnify the Buyer, without regard to any of the
limitations in Section 10.05 hereof) which, if taken or incurred prior to the
date of this Agreement, would be required to be disclosed on any of Seller's
Schedules hereto; or
(m) Authorize, agree or become committed to do or take any of the foregoing
actions.
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5.02 PRESERVATION OF BUSINESS. Metro will carry on its businesses
diligently and substantially in the same manner as heretofore conducted and keep
its business organization intact, including its present employees (except as may
occur in the ordinary course of business) and present relationships with
suppliers and customers and others having business relations with it (except as
may occur in the ordinary course of business). Metro will at all times maintain
in inventory quantities of component parts and other supplies and materials
sufficient to allow the Surviving Corporation to continue to operate its
businesses and complete its construction plans, after the Effective Time, free
from any shortage of such items.
5.03 INSURANCE AND MAINTENANCE OF PROPERTY. All of the property owned or
leased by Metro will be insured against all ordinary and insurable risks
pursuant to the policies listed on Schedule 3.37 hereto or replacement policies
and Metro will operate, maintain and repair all of its property in a careful,
prudent and efficient manner.
5.04 FULL ACCESS. Representatives of Buyer shall have full access at all
reasonable times to all premises, properties, books, records, contracts, tax
records and documents of Metro and Metro will furnish to Buyer any information
with respect thereto as Buyer may from time to time request. Such examination
and investigation by Buyer shall not affect the warranties and representations
of the Seller contained in this Agreement; provided, however, that if any
executive officer of Buyer is finally held by a trier of fact or an arbitrator
to have knowingly breached its covenant under Section 6.07(a)(v), then Seller
shall be relieved of any liability for any unintentional breach discovered, but
not disclosed, by Buyer.
5.05 BOOKS, RECORDS AND FINANCIAL STATEMENTS. Metro will maintain its books
and financial records in accordance with GAAP consistently applied, and on a
basis consistent with its past practices. Said books and financial records shall
fairly and accurately reflect the operations of the respective businesses of
Metro in all material respects. Metro shall furnish to Buyer promptly, as
available, financial statements and operating reports applicable to Metro since
December 31, 1996, all of which shall be prepared in accordance with GAAP
consistently applied and shall present fairly in all material respects, the
financial position and results of operations of Metro at the dates and for the
periods indicated.
5.06 OTHER GOVERNMENTAL FILINGS. Seller and Metro will cooperate with Buyer
in making, as soon as practicable following the execution hereof, all filings
required by any governmental agency and to obtain as promptly as practicable all
required waivers, consents and approvals from governmental agencies and others
in connection with the transactions contemplated by this Agreement. All
information provided by Seller and Metro in connection with such filings and
requests for waivers, consents and approvals will be true, accurate and complete
and will comply with all applicable laws and regulations and contractual
requirements.
5.07 THIRD PARTY OFFERS AND NEGOTIATIONS. Seller shall not and shall not
permit Metro to entertain any offer from or negotiate with any other party with
respect to the sale or acquisition of any shares of the capital stock or any
material asset of Metro.
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5.08 EMPLOYEES OF THE COMPANIES. Neither Seller nor any of its affiliates,
successors or assigns will, at any time prior to the first anniversary of the
Effective Time, directly or indirectly, without the express written consent of
Buyer, solicit or encourage any employee of Metro to leave the employment of
Metro or hire any employee of Metro or any person who was an employee of Metro
at any time after January 1, 1996 (other than the persons identified in the
letter dated March 24, 1997 from W. Bruce Hanks to James C. Allen or any person
whose employment is involuntarily terminated by the Surviving Corporation
following the Effective Time). As used in this Section 5.08 and elsewhere in
this Agreement, the term "affiliates" of Seller means each "affiliate" of Seller
as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended.
5.09 TAX MATTERS.
(a) All income, deductions, losses, gains and credits of Metro incurred on
or prior to the date which includes the Effective Time shall be reportable on
the consolidated return of Seller. Upon Seller's reasonable request, Buyer will
afford Seller and its representatives access to the books and records of Metro
for purposes of preparing federal and state income Tax returns and reports
(including any amendments to previously filed returns and reports) for all Tax
periods of Metro ending on or prior to the Effective Time. Seller shall prepare
(or cause to be prepared) and file (or cause to be filed) all federal and state
income Tax returns and reports (including any amended returns and reports) for
all such periods. Seller shall provide Buyer and its representatives with copies
of each such completed return and report (and amended return and report) (except
that in the case of such consolidated federal return and report of Seller, only
the schedules relating to Metro included in the Seller consolidated federal
return need be provided) and, a statement certifying the amounts of Tax shown
thereon which are payable by Metro, if any, at least twenty (20) business days
prior to the due date for the filing thereof. Each such return and report shall
be true, correct and complete. Any Taxes shown to be due or payable by Metro on
any such returns and reports shall be paid by Metro, provided that the Seller
shall pay to Metro any amount that is not accrued as a liability on the March
Balance Sheet no later than five (5) business days before the due date for
payment of such Taxes.
(b) In the event of an audit or investigation of any Tax return or report
(a "Pre-Closing Action") of Metro (or of Seller which relates in any way to
Metro) with respect to any of the operations or activities of Metro on or prior
to the Effective Time or any claim or demand for any additional Tax with respect
thereto, Seller shall provide Buyer with such factual information which Seller
possesses as Buyer may request with respect thereto and shall otherwise provide
such assistance as Buyer may request in connection with such audit or
investigation. Seller may control the defense and settlement of any issues
arising as a result of any such audit or investigation unless such issue may
impact upon any Tax of Buyer or Metro which is attributable to periods ending
after the Effective Time (in which event the defense and settlement thereof
shall be shared by Buyer and Seller). Each party shall provide the other with
such factual information which it possesses and shall otherwise provide such
assistance as the other may reasonably request in connection with the defense
and settlement of any such matter.
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(c) If any adjustment is made in a Pre-Closing Action of Metro (or of
Seller which relates in any way to Metro) resulting in a deficiency which would
have required a larger Tax payment by Metro if such adjustment had been included
in the original return, and such deficiency represents a permanent difference in
Tax liability, the Seller shall be solely responsible for such deficiency. If
the deficiency represents a timing difference in Tax liability, the Seller will
pay to Buyer an amount equal to the Tax liability net of any future Tax benefit
to the Surviving Corporation, in each case discounted to present value on the
date of payment from the due date of such future Tax liability and Tax benefit
at the rate of 9% per annum.
(d) If any adjustment is made in a Pre-Closing Action of Metro (or of
Seller which relates in any way to Metro) resulting in a refund or credit, and
such adjustment does not affect the future Tax liability of the Surviving
Corporation, the refund or credit shall be retained by or paid to the Seller. If
any adjustment is made which increases the future Tax liability of the Surviving
Corporation, Seller will pay to Buyer an amount equal to the amount of such
future Tax liability discounted to present value on the date of payment from the
due date of such future Tax liability at the rate of 9% per annum.
(e) Seller shall maintain and preserve their records with respect to Metro
for at least ten (10) years after the Effective Time and until any outstanding
claims in respect of Taxes for any period or periods ending on or prior to the
Effective Time are resolved.
5.10 NOTIFICATION OF CERTAIN MATTERS.
(a) Each of Seller and/or Metro shall give prompt written notice to Buyer
of (i) the occurrence, or failure to occur, of any event which will be likely to
cause any representation or warranty of Seller contained in this Agreement to be
untrue or inaccurate at any time from the date hereof to the Effective Time,
(ii) any failure of Seller to comply with or satisfy any covenant or agreement
to be complied with or satisfied by it under this Agreement or the inability of
the Seller to satisfy any condition specified in Article VIII, (iii) any claim,
action, proceeding or investigation commenced or threatened, involving or
affecting Metro or any of its properties, assets, or businesses, (iv) any
material adverse change in the business, condition (financial or otherwise),
operations, prospects, assets or liabilities of Metro or the occurrence of an
event known to any Seller and/or Metro which, so far as reasonably can be
foreseen at the time of its occurrence, would result in any such change, and (v)
the discovery by Seller, through Seller's performance of its due diligence in
connection with this Agreement, of any fact or circumstance relating to the
business or operations of Buyer or any of its subsidiaries which leads the
Seller to determine in good faith that any representation of Buyer or Sub
contained in this Agreement is, or is reasonably likely to be, untrue or
inaccurate at any time from the date hereof to the Effective Time.
(b) In addition to, and not in lieu of, the foregoing, Seller shall deliver
to Buyer a true and complete schedule of changes (the "Seller Update Schedule")
to any of the information contained in the Seller's Schedules to this Agreement
(including changes to any of the representations or warranties of Seller in
Article III hereof as to which no Schedules have been created as of the date
hereof but as to which a Schedule would have been required
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hereunder to have been created on or before the date hereof if such changes had
existed on the date hereof) in writing to Buyer, dated within five business days
of the Effective Time, together with a certificate executed by an authorized
officer of Seller stating that he has supervised or conducted a reasonable
investigation necessary for purposes of such certificate and certifying as to
the accuracy and completeness of such Seller Update Schedule.
ARTICLE VI
COVENANTS OF BUYER
From and after the date of this Agreement and until the Effective Time,
Buyer and Sub covenant and agree with Metro as follows:
6.01 OPERATION OF THE BUSINESS. Without the prior written consent of Metro,
neither Buyer nor any of its subsidiaries will:
(a) Enter into any material contract or commitment or engage in any
transaction which is not in the usual and ordinary course of its business or
which is inconsistent with past practices;
(b) Sell, transfer, assign or permit to expire or be canceled any license,
right of way, permit, grant of location or carrier agreement or certification,
other than pursuant to currently outstanding credit facilities described in the
Prospectus or in connection with an additional senior secured bank credit
facility in an aggregate principal amount of up to $300 million;
(c) Sell or dispose of or encumber any material amount of assets other than
pursuant to currently outstanding credit facilities described in the Prospectus
or in connection with an additional senior secured bank credit facility in an
aggregate principal amount of up to $300 million;
(d) Create, assume, incur or guarantee any indebtedness for borrowed money
other than pursuant to currently outstanding credit facilities described in the
Prospectus or in connection with an additional senior secured bank credit
facility in an aggregate principal amount of up to $300 million;
(e) In the case of Buyer, (i) declare, set aside or pay any dividends on or
make any other distributions in respect of the Buyer Common Stock, (ii) split,
combine, reclassify or take similar action with respect to the Buyer Common
Stock or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for the Buyer Common Stock or (iii) adopt a
plan of complete or partial liquidation or dissolution or any recapitalization
affecting the Buyer Common Stock;
(f) In the case of Buyer and except upon exercise of outstanding warrants
or commitments described in the Prospectus or upon exercise of Buyer Stock
Options,
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make any sale of its equity interests or directly or indirectly redeem,
purchase or otherwise acquire any of its equity interests;
(g) Change any accounting procedures or practices or its financial
structure or make any new elections with respect to Taxes or any changes in
current elections with respect to Taxes;
(h) Perform any act, or attempt to do any act, or permit any act or
omission to act, which will cause a breach of any material contract, commitment
or obligation to which it is a party;
(i) Except in the ordinary course of its business and consistent with its
past practices, take any other action or incur any other liability or obligation
in excess of $2,500,000 which, if taken or incurred prior to the date of this
Agreement, would be required to be disclosed on any of Buyer's Schedules hereto;
or
(j) Authorize, agree or become committed to take any of the foregoing
actions.
6.02 PRESERVATION OF BUSINESS. Buyer and its subsidiaries will carry on
their respective businesses diligently and substantially in the same manner as
heretofore conducted and keep their respective business organizations intact,
including their respective present employees (except as may occur in the
ordinary course of business) and present relationships with suppliers and
customers and others having business relations with them (except as may occur in
the ordinary course of business).
6.03 INSURANCE AND MAINTENANCE OF PROPERTY. All of the property owned or
leased by Buyer and its subsidiaries will be insured against all ordinary and
insurable risks and Buyer and its subsidiaries will operate, maintain and repair
all of their respective property in a careful, prudent and efficient manner.
6.04 FULL ACCESS. Metro and Seller and their representatives shall have
full access at all reasonable times to all premises, properties, books, records,
contracts, tax records and documents of Buyer and its subsidiaries and Buyer and
its subsidiaries will furnish to Seller any information with respect thereto as
Seller may from time to time request. Such examination and investigation by
Metro and Seller shall not affect the warranties and representations of the
Buyer and Sub contained in this Agreement; provided, however, that if any
executive officer of Metro or Seller is finally held by a trier of fact or an
arbitrator to have knowingly breached its covenant under Section 5.10(a)(v),
then Buyer shall be relieved of liability for any unintentional breach
discovered, but not disclosed, by Metro or Seller, as the case may be.
6.05 BOOKS, RECORDS AND FINANCIAL STATEMENTS. Buyer will maintain its
consolidated books and financial records in accordance with GAAP consistently
applied, and on a basis consistent with its past practices. Said books and
financial records shall fairly and accurately reflect the consolidated
operations of the respective businesses of Buyer in all material
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respects. Buyer shall furnish to Seller promptly, as available, all SEC Reports
filed by Buyer between the date hereof and the Effective Time, including
quarterly consolidated financial statements of Buyer since the date of Buyer's
December Financial Statements, all of which shall be prepared in accordance with
GAAP consistently applied and shall present fairly in all material respects the
consolidated financial position and results of operations of Buyer at the dates
and for the periods indicated.
6.06 OTHER GOVERNMENTAL FILINGS. Buyer and Sub will cooperate with Seller
and Metro in making, as soon as practicable following the execution hereof, all
filings required by any governmental agency and to obtain as promptly as
practicable all required waivers, consents and approvals from governmental
agencies and others in connection with the transactions contemplated by this
Agreement. All information provided by Buyer and Sub in connection with such
filings and requests for waivers, consents and approvals will be true, accurate
and complete and will comply with all applicable laws and regulations and
contractual requirements. Buyer shall use its best efforts to have the Stock
Consideration approved for listing on the Nasdaq National Market System, upon
official notice of issuance.
6.07 NOTIFICATION OF CERTAIN MATTERS.
(a) Buyer or Sub, as the case may be, shall give prompt written notice to
Metro and Seller of (i) the occurrence, or failure to occur, of any event which
will be likely to cause any representation or warranty of Buyer or Sub contained
in this Agreement to be untrue or inaccurate at any time from the date hereof to
the Effective Time, (ii) any failure of Buyer or Sub to comply with or satisfy
any covenant or agreement to be complied with or satisfied by it under this
Agreement or the inability of Buyer to satisfy any condition specified in
Article IX, (iii) any claim, action, proceeding or investigation commenced or
threatened, involving or affecting Buyer or any of its subsidiaries or any of
their respective properties, assets, or businesses, (iv) any material adverse
change in the consolidated business, condition (financial or otherwise),
operations, prospects, assets or liabilities of Buyer or the occurrence of an
event known to Buyer which, so far as reasonably can be foreseen at the time of
its occurrence, would result in any such change, and (v) the discovery by Buyer,
either through Buyer's performance of its due diligence in connection with this
Agreement or through Buyer's performance of its obligations under the Management
Agreement, of any fact or circumstance relating to Metro's businesses or
operations which leads Buyer to determine in good faith that any representation
of Seller contained in this Agreement is or is reasonably likely to be untrue or
inaccurate at any time from the date hereof to the Effective Time.
(b) In addition to, and not in lieu of, the foregoing, Buyer shall deliver
to Metro and Seller a true and complete schedule of changes (the "Buyer Update
Schedule") to any of the information contained in Buyer's Schedules to this
Agreement (including any changes to any of the representations or warranties of
Buyer or Sub in Article IV hereof as to which no Schedules have been created as
of the date hereof but as to which a Schedule would have been required hereunder
to have been created on or before the date hereof if such changes had existed on
the date hereof) in writing to Metro and Seller, dated within five business days
of the Effective Time, together with a certificate executed by an authorized
officer of Buyer stating that
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he has supervised or conducted a reasonable investigation necessary for
purposes of such certificate and certifying as to the accuracy and completeness
of such Buyer Update Schedule.
ARTICLE VII
COVENANTS NOT TO COMPETE
(a) Seller acknowledges and agrees that the value to Buyer of the
transactions provided for herein would be substantially diminished if Seller (or
any of its affiliates, successors or assigns) were to enter into business
activities competitive with those of Metro for a reasonable period following the
Effective Time. Consequently, as an inducement to Buyer to enter into this
Agreement, which Seller acknowledges benefits it, and in consideration of the
payments, promises and representations of Buyer under this Agreement, Seller
covenants and agrees, for the benefit of Buyer and the Surviving Corporation,
that neither Seller nor any of its affiliates, successors or assigns will engage
in, or have any interest in, directly or indirectly, any other person, firm,
corporation or other entity engaged in, for a period of three (3) years
following the Effective Time, any competitive local telecommunications exchange
business in any of the counties in the State of Texas listed on Schedule 7.00
hereto, except that (i) in relation to Seller's local telephone operations in
Lake Dallas, San Marcos and Mustang Island, Texas, Seller and its affiliates,
successors and assigns (referred to below collectively as "Century" for purposes
of this Article VII) shall be entitled to continue to offer service within their
franchise territories to existing and additional customers and to build
extensions to their networks to offer service to additional customers unless the
Surviving Corporation is able to provide such services, utilizing facilities
suitable to Century for these purposes, in which event Seller shall purchase
such services from the Surviving Corporation pursuant to the Master Service
Agreement and (ii) Seller may invest in or acquire one or more independent local
exchange companies, other than Southwestern Bell Telephone or GTE Corp., with
operations in the counties in the State of Texas listed on Schedule 7.00 hereto.
Additionally, it is acknowledged by Buyer that Century is engaged in certain
other telecommunications businesses in the listed counties, including but not
limited to retail long distance, wholesale long distance, interactive
information services, internet service provision and wireless local services,
none of which shall be deemed to constitute a "competitive local
telecommunications exchange business" for purposes of this Article VII. It is
also agreed that Seller shall be free to make passive investments in any
publicly-traded security of a telecommunications company which does not
constitute more than 1% of the total outstanding amount of such security (and to
continue to hold Buyer Common Stock on the terms contemplated hereby) and may
make investments in any entity which does not have any significant operations in
any of the counties listed on Schedule 7.00 hereto.
(b) Seller specifically acknowledges and agrees that the foregoing
covenants are commercially reasonable and reasonably necessary to protect the
interests Buyer will acquire in the businesses of Metro hereunder.
(c) If any court or tribunal of competent jurisdiction shall refuse to
enforce one or more of the covenants contained in this Article VII because the
time limit applicable thereto is deemed unreasonable, it is expressly understood
and agreed between the parties hereto that such covenant or covenants shall not
be void but that for the purpose of such proceeding
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such time limitation shall be deemed to be reduced to the extent necessary to
permit the enforcement of such covenant or covenants. If any court or tribunal
of competent jurisdiction shall refuse to enforce any or all of the covenants
contained in this Article VII because, taken together, they are more extensive
(whether as to geographic area, scope of business or otherwise) than is deemed
to be reasonable, it is expressly understood and agreed between the parties
hereto that such covenant or covenants shall not be void but that for the
purpose of such proceeding the restrictions contained therein (whether as to
geographic area, scope of business or otherwise) shall be deemed to be reduced
to the extent necessary to permit the enforcement of such covenant or covenants.
(d) Seller hereby acknowledges that the businesses of Metro are unique and
that Buyer, the Surviving Corporation and their respective successors and
assigns will suffer irreparable and continuing harm to the extent that any of
the foregoing covenants is breached and that legal remedies would be inadequate
in the event of any such breach. Accordingly, Seller agrees that, in the event
of a breach of any of the covenants contained in this Article VII, Buyer and the
Surviving Corporation shall, in addition to any other rights and remedies
available under law and in equity, have the right and remedy to have the
provisions of this Article VII specifically enforced by any court having
jurisdiction.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF BUYER AND SUB TO EFFECT THE MERGER
The obligations of Buyer and Sub to consummate the transactions provided
for in this Agreement shall be subject to the satisfaction of each of the
following conditions on or before the date of the Closing, subject to the right
of Buyer to waive any one or more of such conditions:
8.01 REPRESENTATIONS AND WARRANTIES OF SELLER. The representations and
warranties of Seller contained in this Agreement shall be true and correct when
made and the information contained therein, as updated by the Seller Update
Schedule, taken as a whole, shall not have materially adversely changed as of
the date of Closing (except for changes specifically permitted hereunder or as
may be caused solely by the gross negligence of Buyer under the Management
Agreement).
8.02 PERFORMANCE OF THIS AGREEMENT. Seller shall have duly performed or
complied in all material respects with all of the obligations to be performed or
complied with by it under the terms of this Agreement on or prior to the date of
the Closing.
8.03 CERTIFICATE OF SELLER. Buyer shall have received a certificate signed
by chief executive officer of Seller dated as of the date of the Closing and
subject to no qualification certifying that the conditions set forth in Sections
8.01, 8.02, 8.05 and 8.06 hereof have been fully satisfied. Such certificate
shall be deemed a representation and warranty of Seller under this Agreement.
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8.04 OPINION OF COUNSEL. Buyer shall have received from Jones, Walker,
Waechter, Poitevent, Carrere & Denegre, L.L.P., special counsel to Metro and the
Seller, a favorable opinion of counsel dated the date of the Closing
substantially in the form of Exhibit F hereto.
8.05 NO PROHIBITIONS. No preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission shall be in
effect, or shall have been recommended by the staff of a governmental,
regulatory or administrative agency or commission, which would prevent the
consummation of the transactions contemplated hereby.
8.06 CONSENTS. All of the consents and approvals listed on Schedules 3.12
and 3.21 hereto (other than those related to office leases) shall have been
obtained.
8.07 COMPLIANCE WITH APPLICABLE LAW. The filing and other requirements
under any applicable law, rule or regulation, including without limitation the
filing and waiting period requirements under the H-S-R Act, relating to the
consummation of the transactions provided for herein shall have been duly
complied with. The Registration Statement covering the issuance of the Stock
Consideration shall be effective under the Securities Act and no stop order
suspending such effectiveness shall have been entered and no proceeding seeking
a stop order suspending such effectiveness shall be pending or threatened. The
Buyer Common Stock to be issued in connection with the Merger shall have been
approved for listing, upon notice of issuance, on the Nasdaq National Market
System. Seller and each other holder of Metro Common Stock listed on Schedule
8.07 hereto shall have executed and delivered to Buyer an Affiliate Agreement
substantially in the form of Exhibit G hereto.
8.08 RESIGNATIONS. Metro and Seller shall have caused to be delivered to
Buyer the resignations of all of the directors and officers of Metro, effective
as of the Closing, in form reasonably satisfactory to Buyer, provided that no
such resignation will prevent the continued employment of any individual listed
on Schedule 1.09 hereto as provided in Section 1.09 hereto.
8.09 BOOKS AND RECORDS. Metro shall have caused to be delivered to Buyer
the minute books, stock record books, stock transfer ledgers, corporate seals
and other corporate books and records of Metro and shall have surrendered
custody of all of the other business records, engineering records and other
documents, discs, tapes and other records owned by Metro, including but not
limited to all sales data, customer lists and records, accounts, bids,
contracts, supplier records, drawings, designs, specifications, process
information, performance data, software, programs and other information and
data.
8.10 TAX STATUS. Buyer shall have received an affidavit signed by the chief
executive officer of Metro dated as of the Effective Time stating, under penalty
of perjury, the United States taxpayer identification number of each of the
Shareholders and that Metro is not a foreign person, pursuant to Section
1445(b)(2) of the IRC.
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8.11 JOINT VENTURE AGREEMENT. Seller and Brooks Fiber Communications of
Michigan, Inc., a Delaware corporation wholly-owned by Buyer ("BFC of
Michigan"), shall have executed and delivered agreements, substantially in the
forms attached hereto as Exhibit K, for a joint venture to construct and operate
local telecommunications networks within the State of Michigan (the "Joint
Venture").
8.12 MASTER SERVICE AGREEMENT. Seller and Buyer shall have executed and
delivered a mutually satisfactory Master Service Agreement.
8.13 MISCELLANEOUS SERVICES AGREEMENT. Seller and Buyer shall have executed
and delivered a mutually satisfactory three-year "take or pay" agreement whereby
Seller will provide Buyer at competitive prices services relating to customer
care, billing, provisioning and/or other services at an annual minimum level of
$1,000,000 commencing January 1, 1998 ("Miscellaneous Services Agreement"),
which Miscellaneous Services Agreement shall provide that, in the event in any
calendar year Buyer's purchases thereunder total less than $1,000,000, Buyer
shall pay Seller 25% of the difference between $1,000,000 and the actual amount
of such purchases.
8.14 AGREEMENTS WITH SHAREHOLDERS, OPTION HOLDERS AND SAR HOLDERS. Each of
the Agreements contemplated by Section 1.08 shall have been executed and
delivered and the transactions contemplated thereby shall have been consummated.
8.15 TERMINATION OF CERTAIN AGREEMENTS. Each of the Put Agreements and the
Shareholders Agreement shall have been terminated in the manner contemplated by
Section 1.08(a)(iii), in each case without liability to Metro other than any
liability therefor accrued on the March Balance Sheet or any liability expressly
assumed in writing by Buyer.
8.16 SHAREHOLDER APPROVAL. Seller and each of the other holders of Metro
Common Stock shall have duly approved this Agreement and the Merger in
accordance with Delaware Law and Metro's certificate of incorporation, by-laws
and the Shareholders Agreement.
8.17 MARCH BALANCE SHEET. No unresolved dispute under Section 2.03(d) shall
be pending.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF SELLER AND
METRO TO EFFECT THE MERGER
The obligations of each of Seller and Metro to consummate the transactions
provided for in this Agreement shall be subject to the satisfaction of each of
the following conditions on or before the date of the Closing, subject to the
right of Metro to waive any one or more of such conditions in Sections 9.01
through 9.08, and the right of Seller to waive any one or more of such
conditions in Sections 9.09 through 9.13:
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9.01 REPRESENTATIONS AND WARRANTIES OF BUYER. The representations and
warranties of Buyer contained in this Agreement shall be true and correct when
made and the information contained therein, as updated by the Buyer Update
Schedule, taken as a whole, shall not have materially adversely changed as of
the date of the Closing (except for changes specifically permitted hereunder).
9.02 PERFORMANCE OF THIS AGREEMENT. Buyer shall have duly performed or
complied in all material respects with all of the obligations to be performed or
complied with by it under the terms of this Agreement on or prior to the date of
the Closing.
9.03 CERTIFICATE OF BUYER. Seller shall have received a certificate signed
by the chief executive officer of Buyer dated as of the date of the Closing and
subject to no qualification certifying that the conditions set forth in Sections
9.01, 9.02 and 9.05 hereof have been fully satisfied. Such certificate shall be
deemed a representation and warranty of Buyer hereunder.
9.04 OPINION OF COUNSEL. Seller shall have received from Bryan Cave LLP,
special counsel to Buyer, a favorable opinion of counsel dated the date of the
Closing substantially in the form of Exhibit I hereto.
9.05 NO PROHIBITIONS. No preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission shall be in
effect, or shall have been recommended by the staff of a governmental,
regulatory or administrative agency or commission, which would prevent the
consummation of the transactions contemplated hereby.
9.06 COMPLIANCE WITH APPLICABLE LAW. The filing and other requirements
under any applicable law, rule or regulation, including without limitation the
filing and waiting period requirements under the H-S-R Act, relating to the
consummation of the transactions provided for herein shall have been duly
complied with. The Registration Statement covering the issuance of the Stock
Consideration shall be effective under the Securities Act and no stop order
suspending such effectiveness shall have been entered and no proceeding seeking
a stop order suspending such effectiveness shall be pending or threatened. The
Buyer Common Stock to be issued in connection with the Merger shall have been
approved for listing, upon notice of issuance, on the Nasdaq National Market
System.
9.07 PAYMENT OF MERGER CONSIDERATION. On the date of the Closing the Buyer
shall have delivered the Merger Consideration as provided in Section 2.02(a) and
(b) hereof and the Buyer Stock Options as provided in Section 2.02(c) hereof.
9.08 MARCH BALANCE SHEET. No unresolved dispute under Section 2.03(d) shall
be pending.
9.09 RELEASE OF GUARANTIES. With respect to any agreement described on
Schedule 3.21 for which Seller has guaranteed the payment or performance of the
grantee, in the event the grantor thereof is unwilling to release fully the
guarantee of Seller, Buyer shall have
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agreed to indemnify Seller against liability under its guarantee with respect to
the payment and performance of the grantee from and after the Effective Time
pursuant to a Guarantee Agreement substantially in the form of Exhibit J hereto.
9.10 JOINT VENTURE AGREEMENT. Seller and BFC of Michigan shall have
executed and delivered agreements for the Joint Venture substantially in the
forms attached hereto as Exhibit K.
9.11 MASTER SERVICE AGREEMENT. Seller and Buyer shall have executed and
delivered a mutually satisfactory Master Service Agreement.
9.12 MISCELLANEOUS SERVICE AGREEMENT. Seller and Buyer shall have executed
and delivered a mutually satisfactory Miscellaneous Services Agreement.
9.13 AGREEMENTS WITH SHAREHOLDERS, OPTION HOLDERS AND SAR HOLDERS. Each of
the Agreements contemplated by Section 1.08 shall have been executed and
delivered and the transactions contemplated thereby shall have been consummated.
ARTICLE X
INDEMNIFICATION
10.01 INDEMNIFICATION.
(a) Seller will indemnify, defend and hold harmless each of Buyer, the
Surviving Corporation and any stockholder, director, officer, employee or agent
of any of them from and against all claims, liabilities, losses, costs,
deficiencies or expenses, including reasonable attorneys' fees, interest and
penalties in connection therewith ("Losses"), which may be sustained by any such
indemnified party and arise from:
(i) The breach of any agreement, covenant or other obligation, and,
subject to Sections 5.04 and 11.04 hereof, any representation or warranty, of
Seller made or incurred under or pursuant to this Agreement or any document
delivered pursuant hereto;
(ii) The assertion against any such indemnified party of any liability
or obligation of Seller or Metro for Taxes with respect to periods ending on or
prior to the Effective Time as provided in Section 5.09 or with respect to or
arising directly or indirectly from any transaction effected or deemed effected
prior to the Effective Time or with respect to any profits earned, accrued or
received by Metro or any affiliate of Metro prior to the Effective Time;
(iii) The assertion against any such indemnified party of any
liability or obligation of Seller or Metro arising from or in connection with
any severance, termination of employment, dismissal, constructive dismissal, or
other release from employment prior to the Effective Time of any employee or
former employee of Metro; and/or
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(iv) The assertion against any such indemnified party of any claim
resulting from or arising out of the operations or activities of Metro or the
ownership or operation of any of its properties or assets prior to the Effective
Time, including, without limitation, any claim for violation of any law, for
service interruption or other breach of any service obligation or for injury,
death, property or economic damage, except to the extent Seller is entitled to
be indemnified by Buyer pursuant to Section 10.01(b)(i), or except to the extent
and only to the extent that the Losses are finally determined by a trier of fact
or arbitrator to have been directly caused by a negligent act or omission of any
employee, representative or agent of Buyer that occurred in connection with
Buyer's provision of services under the Management Agreement.
(b) Buyer will indemnify, defend and hold harmless each of Seller and any
stockholder, director, officer, employee or agent of Seller from and against all
Losses which may be sustained by any such indemnified party and arise from:
(i) The breach of any agreement, covenant, or other obligation, and,
subject to Sections 6.04 and 11.04 hereof, any representation or warranty of
Buyer made or incurred under or pursuant to this Agreement or any document
delivered pursuant hereto; and/or
(ii) The operations or activities of the Surviving Corporation after
the Effective Time, except to the extent Buyer is entitled to be indemnified by
Seller under Section 10.01(a) hereof.
(c) The rights to indemnification and the obligations to indemnify provided
in this Section 10.01 are subject to the provisions of Sections 10.02, 10.03,
10.04 and 10.05 below and the last sentence of Section 11.03(c) below.
10.02 PARTICIPATION IN LITIGATION. In the event any suit or other
proceeding is initiated against a party (an "Indemnified Party") with respect to
which such party alleges that the other party hereto (an "Indemnifying Party")
is or may be obligated to indemnify an Indemnified Party hereunder, the
Indemnified Party shall be entitled to participate in such suit or proceeding,
at its expense and by counsel of its choosing, provided that (a) such counsel is
reasonably satisfactory to the Indemnifying Party, and (b) the Indemnifying
Party shall retain primary control over such suit or proceeding. Such counsel
for the Indemnified Party shall be afforded access to all information pertinent
to the suit or proceeding in question. Neither the Indemnified Party nor the
Indemnifying Party shall settle or otherwise compromise any such suit or
proceeding without the prior consent of the other party, which shall not be
unreasonably withheld, delayed or conditioned.
10.03 CLAIMS PROCEDURE.
(a) In the event from time to time an Indemnified Party believes that it or
any other Indemnified Party has or will suffer any Losses for which the
Indemnifying Party is obligated to indemnify it hereunder, it shall promptly
notify the Indemnifying Party in writing of the matter, specifying therein the
reason why the Indemnified Party believes that the Indemnifying Party is or will
be obligated to indemnify, the amount, if liquidated,
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to be indemnified, and the basis on which the Indemnified Party has calculated
such amount; if not yet liquidated, the notice shall so state. If the parties do
not agree on any claims submitted, they shall endeavor to settle and compromise
such claim for a period of thirty (30) days after the date of the Indemnified
Party's notice. If they are unable to resolve such dispute within such thirty
(30) day period, then either party may initiate the dispute resolution
procedures specified in Section 11.06.
(b) Subject to the provisions of Section 10.05, Seller shall pay any Losses for
which it becomes obligated to indemnify Buyer or the Surviving Corporation
hereunder as follows:
(i) all Losses which in the aggregate amount are equal to or less than
4% of the Merger Consideration shall be paid by delivery of a number of shares
of Buyer Common Stock valued at $20.60 per share as shall be equal in value to
the amount of such Losses; and
(ii) after Seller has paid Buyer for Losses in an aggregate amount
which is equal to 4% of the Merger Consideration, Seller shall have the option
to pay for any additional Losses either in cash or by delivery of shares of
Buyer Common Stock valued at $20.60 per share.
10.04 RIGHT OF OFFSET. All Losses shall be computed net of any recovery of
insurance proceeds.
10.05 LIMITATIONS ON INDEMNIFICATION.
(a) Notwithstanding the foregoing, no party will be entitled to
indemnification pursuant to this Article X following the Closing until and only
to the extent that the aggregate amount of Losses for which (i) the Buyer would
otherwise be entitled to receive indemnification under Section 10.01(a), in the
case of Buyer's Losses, or (ii) Seller would otherwise be entitled to receive
indemnification under Section 10.01(b), in the case of Seller's Losses, exceeds
$250,000; provided, however, such $250,000 deductible amount shall not apply to
any Losses due to the matters described on Schedule 10.05 hereto.
(b) Notwithstanding the foregoing, neither party shall be liable to the
other under Section 10.01 hereof unless the claim is asserted in writing prior
to the second anniversary of the date of the Closing except (i) claims under
Section 10.01(a)(ii) and (iii) and any claims related to a breach of the
representations and warranties contained in Sections 3.02 (Ownership of Shares),
3.03 (Capitalization of Metro), 3.04 (Approval of Agreement) and 4.02 (Approval
of Agreement) may be asserted at any time (subject to the expiration of
applicable statutes of limitation) and (ii) claims under Section 10.01(a)(iv)
may be asserted at any time prior to the fifth anniversary of the date of the
Closing.
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(c) Notwithstanding the foregoing, neither party shall have any liability
under Section 10.01 in an amount greater than the value of the Stock
Consideration received by Seller, valued at $20.60 per share.
ARTICLE XI
MISCELLANEOUS
11.01 BINDING AGREEMENT.
This Agreement shall be binding upon and shall inure to the benefit of
Buyer, Sub, Seller and their respective successors and assigns.
11.02 TERMINATION OF AGREEMENT. This Agreement and the transactions
contemplated hereby may be terminated prior to June 30, 1997 only as follows:
(a) By mutual consent of Buyer and Metro;
(b) By either (i) Buyer, on the one hand, if any of the terms or conditions
set forth in Article VIII are not satisfied on or before the date of the
Closing, or (ii), on the other hand, by Metro if any of the terms or conditions
set forth in Sections 9.01 through 9.08 are not satisfied on or before the date
of the Closing or by Seller if any of the terms or conditions set forth in
Sections 9.09 through 9.13 are not satisfied on or before the date of the
Closing, and, in either case, if the Closing shall not have occurred on the date
provided for in Section 1.02(a) hereof or such other date, if any, as Metro and
Buyer shall agree upon pursuant to Section 1.02(a) hereof;
(c) By Buyer:
(i) after the thirtieth business day following receipt by Metro of
Buyer's written notice of the occurrence of either of the following events,
describing such event in sufficient detail to enable Metro and Seller to attempt
to cure the problem identified in the notice during such thirty business days,
if Metro and Seller do not cure the problem during such thirty-day period:
(A) if Seller fails to perform any of its obligations under this
Agreement which is required to be performed prior to such time, except to the
extent such breach is directly caused by Buyer or Sub; or
(B) if at any time the representations and warranties of Seller
set forth in this Agreement are not true and correct in all material respects,
except as affected by transactions approved in writing by Buyer or contemplated
or required under this Agreement and except to the extent such breach is
directly caused by the gross negligence of Buyer under the Management Agreement;
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(ii) If any statute, rule, regulation, order or decree not yet
announced or proposed shall have been enacted, entered, promulgated, proposed or
enforced between the date hereof and the day of the Closing by any governmental,
regulatory or administrative entity, agency or commission which would have a
material adverse effect upon Metro;
(iii) if any material claim, action, proceeding or investigation is
commenced between the date hereof and the day of the Closing involving or
affecting Metro or any of its properties or assets which would have a material
adverse effect upon Metro; or
(iv) if the information contained in the March Balance Sheet or in any
of the financial statements or operating reports of Metro for any period
subsequent to December 31, 1996 delivered pursuant to Section 5.05 hereof
reveals a material adverse change in Metro (except to the extent such material
adverse change in Metro is directly caused by the gross negligence of Buyer
under the Management Agreement); or
(d) By Metro:
(i) after the thirtieth day following receipt by Buyer of Metro's
written notice of the occurrence of either of the following events, describing
such event in sufficient detail to enable Buyer to attempt to cure the problem
identified in the notice during such thirty days, if Buyer does not cure the
problem during such thirty-day period:
(A) if Buyer fails to perform any of its obligations under this
Agreement which is required to be performed prior to such time, except to the
extent such breach is directly caused by Metro or Seller; or
(B) if at any time the representations and warranties of Buyer
set forth in this Agreement are not true and correct in all material respects,
except as affected by transactions approved in writing by Metro or Seller or
contemplated or required under this Agreement;
(ii) If any statute, rule, regulation, order or decree not yet
announced or proposed shall have been enacted, entered, promulgated, proposed or
enforced between the date hereof and the day of the Closing by any governmental,
regulatory or administrative entity, agency or commission which would have a
material adverse effect upon Buyer;
(iii) if any material claim, action, proceeding or investigation is
commenced between the date hereof and the day of the Closing involving or
affecting Buyer or any of its properties or assets which would have a material
adverse effect upon Buyer; or
(iv) if the information contained in any of the financial statements
of Buyer for any period subsequent to December 31, 1996 delivered pursuant to
Section 6.05 hereto reveals a material adverse change in Buyer.
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11.03 MANNER AND EFFECT OF TERMINATION.
(a) Any action by Metro to terminate this Agreement and the transactions
contemplated hereby, as provided in Section 11.02 hereof, shall be taken by its
Chairman. Any such action by Seller shall be taken by its President and Chief
Executive Officer. Any such action by Buyer shall be taken by its Chairman of
the Board or its Vice Chairman of the Board.
(b) If this Agreement is terminated pursuant to Section 11.02 hereof
without fault of either party or breach of this Agreement, all obligations of
the parties hereunder (except those under Section 11.12 hereof) shall terminate,
without liability of Seller or Metro to Buyer or Sub or of Buyer or Sub to
Seller or Metro.
(c) Nothing in this Section 11.03 or elsewhere in this Agreement shall
impair or restrict the rights of any party to any and all remedies at law or in
equity in the event of a breach of or default under this Agreement prior to
termination pursuant to Section 11.02 hereof, including, without limitation, the
right of specific performance and injunctive relief giving effect to its rights
hereunder; provided, however, that neither party shall be liable to the other
party for any indirect, incidental, special or consequential damages, including
lost profits or revenue, lost savings, loss of managerial time, business
interruption or other lost opportunity, as a result of any such breach or
default by the other party even if such other party has been advised of the
possibility of such damages, whether any claim for such recovery is based on
theories of contract, negligence or tort, including strict liability. After the
Closing, the rights of indemnification granted under Article X hereof shall be
the sole and exclusive remedy at law and in equity of and with respect to all
Losses of either party hereto (including the respective successors and assigns
of either party hereto).
11.04 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The right to
indemnification for any breach of the representations and warranties made by
each party herein shall survive for twenty four months after the date of the
Closing, except as follows: (a) the representations and warranties of Seller
contained in Sections 3.02 (Ownership of Shares), 3.03 (Capitalization of Metro)
and 3.04 (Approval of Agreement) shall survive indefinitely (subject to the
expiration of any applicable statutes of limitations) and (b) the
representations and warranties of the Sellers in Section 3.11 (Tax Returns and
Audits) shall survive until the expiration of the applicable statute of
limitations with respect to the Taxes to which any claim relates, as such
limitation period may be extended from time to time. Each party hereto
acknowledges and confirms that neither party hereto makes any representations or
warranties whatsoever other than those specifically set forth herein. All
covenants in this Agreement not fully performed as the date of the Closing shall
survive the date of the Closing and continue thereafter until fully performed.
11.05 FURTHER ASSURANCES. From time to time, as and when requested by
either party (whether before or after the Effective Time), the other party shall
execute and deliver, or cause to be executed and delivered, all such documents
and instruments and shall take, or cause to be taken, all such further and other
action as the requesting party may reasonably deem
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necessary, proper or desirable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement and the orderly
transition of the respective businesses of Metro to Buyer.
11.06 DISPUTE RESOLUTION PROCEDURES. If any question shall arise in regard
to the interpretation of any provision of this Agreement or as to the rights and
obligations of the parties hereunder, Glen F. Post, III, acting in his capacity
as Chairman of Metro and/or chief executive officer of Seller, as appropriate,
and James C. Allen, as chief executive officer of Buyer, shall meet with each
other to negotiate and attempt to resolve such question in good faith. Such
representatives may, if they so desire, consult outside experts for assistance
in arriving at a resolution. In the event that a resolution is not achieved
within fifteen (15) days after their first meeting, then either party may submit
the question for final resolution by binding arbitration in accordance with the
rules and procedures of the American Arbitration Association applicable to
commercial transactions, and judgment upon any award thereon may be entered in
any court having jurisdiction thereof. If Buyer initiates the arbitration, it
shall be held in New Orleans, Louisiana, and if Metro or Seller initiates the
arbitration, it shall be held in St. Louis, Missouri. In the event of any
arbitration, Buyer shall select one arbitrator, Seller or Metro shall select one
arbitrator and the two arbitrators so selected shall select a third arbitrator,
any two of which arbitrators together shall make the necessary determinations.
In making the foregoing selections, each party, as well as the arbitrators
selected by such parties, shall endeavor to designate an arbitrator having
substantive experience in the telecommunications industry. All out of pocket
costs and expenses of Buyer, Metro and Seller in connection with such
arbitration, including, without limitation, the fees of the arbitrators and any
administration fees and reasonable attorney's fees and expenses, shall be borne
by Buyer and Seller in such proportions as the arbitrators shall decide that
such expenses should, in equity, be apportioned.
11.07 ENTIRE AGREEMENT AND MODIFICATION. This Agreement, including the
Schedules and Exhibits attached hereto, the letter referenced in Section 5.08
hereof and the Confidentiality Agreement dated October 2, 1996 between Seller
and Buyer, constitutes the entire agreement between the parties. No changes of,
modifications of, or additions to this Agreement shall be valid unless the same
shall be in writing and signed by each of the parties hereto.
11.08 SEVERABILITY. If any provision of this Agreement shall be determined
to be contrary to law and unenforceable by any court of law, the remaining
provisions shall be severable and enforceable in accordance with their terms.
11.09 COUNTERPARTS. This Agreement may be executed in one or more identical
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
11.10 INTERPRETATION.
(a) The table of contents and article and section headings contained in
this Agreement are inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Agreement. Each of the parties has
participated substantially in
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the negotiation and drafting of this Agreement and each party hereby disclaims
any defense or assertion in any litigation or arbitration that any ambiguity
herein should be construed against the draftsman.
(b) References herein to effects which are "materially adverse" or
"material" to Metro are to the businesses, assets, prospects, condition
(financial or otherwise), liabilities or results of operations of Metro,
provided, however, that (i) an event (such as a regulatory change) which affects
the CLEC industry as a whole (an "Industry Wide Event"), (ii) an EBITDA Loss of
Metro during any month which is not more than 120% of the amount of EBITDA Loss
contemplated for such month by Metro's 1997 operating budget, (iii) any public
statement or the release of any publicly-available information confirming that a
competitor has received a franchise or intends to seek a franchise in any
territory where Metro currently conducts operations or plans to conduct
operations, or confirming that a competitor has expanded its existing networks
or otherwise improved its competitive position in any such markets and (iv) any
liabilities which, if in existence on the date hereof, would be required to be
specifically set forth on any Schedule delivered by Seller pursuant hereto
(other than a liability for which Seller agrees in writing at Closing to fully
indemnify Buyer, without regard to the limitations in Section 10.05 hereof, and
except for liabilities not requiring Buyer's consent under Section 5.01 hereof)
incurred by Metro after December 31, 1996 which are not in the aggregate in
excess of $250,000, would not be deemed "materially adverse" to Metro.
(c) References herein to effects which are "materially adverse" or
"material" to Buyer are to the businesses, assets, prospects, condition
(financial or otherwise), liabilities or results of operations of Buyer and its
subsidiaries taken as a whole, provided, however, that (i) an Industry Wide
Event and (ii) a consolidated EBITDA Loss of Buyer during any month which is not
more than 120% of the amount of EDITDA Loss contemplated for such month by
Buyer's 1997 operating budget, would not be deemed "materially adverse" to
Buyer.
(d) Notwithstanding any cross-references in one Schedule to another
Schedule (all of which are included as a matter of convenience only), each
Schedule shall be deemed to include the information contained in all other
Schedules, such that reference to a matter or item under one Schedule shall be
deemed to constitute disclosure under all other Schedules.
11.11 GOVERNING LAW. This Agreement shall be governed by and construed and
interpreted in accordance with the substantive laws of the State of Delaware as
applied to contracts made and performed within the State of Delaware without
regard to its conflicts of law principles.
11.12 PAYMENT OF FEES AND EXPENSES. Buyer and Seller shall pay all of the
fees and expenses of their respective counsel, accountants and other advisors
and all other expenses incurred by such party incident to the negotiation,
preparation and execution of this Agreement and the consummation of the
transactions contemplated hereby.
11.13 NO WAIVER. The failure of either party to exercise any of its rights
hereunder or to enforce any of the terms or conditions of this Agreement on any
occasion shall
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not constitute or be deemed a waiver of that party's rights thereafter to
exercise any rights hereunder or to enforce each and every term and condition of
this Agreement.
11.14 PUBLIC ANNOUNCEMENTS. Except as otherwise required by applicable law
or regulation or the rules of any applicable securities exchange or national
market system, so long as this Agreement is in effect prior to the Effective
Time, neither Buyer nor Seller will issue or cause to be issued any press
release or make any other public announcement with respect to the transactions
contemplated by this Agreement without the consent of the other party, which
consent shall not be unreasonably withheld.
11.15 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
the same shall be delivered personally, one business day after being sent
prepaid by reputable overnight courier, or three business days after being sent
by registered or certified mail, postage prepaid, and addressed as set forth
below:
(a) If to Buyer or Sub:
Brooks Fiber Properties, Inc.
425 Woods Mill Road South, Suite 300
Town & Country, Missouri 63017
Attention: Mr. James C. Allen
Vice Chairman and Chief Executive Officer
Fax (314) 579-4854
copy to:
Bryan Cave LLP
211 North Broadway, Suite 3600
St. Louis, Missouri 63102
Attention: John P. Denneen, Esq.
Fax (314) 259-2020
(b) If to Metro or Seller:
Century Telephone Enterprises, Inc.
100 Century Park Drive
Monroe, Louisiana 71203
Attention: Mr. Glen F. Post, III
President and Chief Executive Officer
Fax (318) 388-9562
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copy to:
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P.
Place St. Charles
201 St. Charles Avenue
New Orleans, LA 70171-5100
Attention: Kenneth J. Najder, Esq.
Fax (504) 582-8012
Either party may change the address to which notices are to be addressed by
giving the other party notice in the manner herein set forth.
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THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of
the day and year first above written.
BUYER:
BROOKS FIBER PROPERTIES, INC.
By /s/ James C. Allen
--------------------------------------
ATTEST: Vice Chairman and
Chief Executive Officer
/s/ John P. Denneen
- ---------------------------------------
Secretary
SUB:
BROOKS FIBER COMMUNICATIONS
OF TEXAS, INC.
By /s/ James C. Allen
--------------------------------------
ATTEST: Vice Chairman and
Chief Executive Officer
/s/ John P. Denneen
- ---------------------------------------
Secretary
SELLER:
CENTURY TELEPHONE ENTERPRISES, INC.
By /s/ Glenn F. Post, III
--------------------------------------
ATTEST: President and Chief Executive Officer
Taxpayer ID No.: 72-0651161
/s/ Harvey Perry
- ---------------------------------------
Secretary
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METRO:
METRO ACCESS NETWORKS, INC.
By /s/ Glenn F. Post, III
--------------------------------------
ATTEST: Chairman of the Board
/s/ Joy B. Eppinette
- ---------------------------------------
Secretary
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LIST OF SCHEDULES
A) Seller's Schedules:
1.08 - Metro SARs
2.01(c) - Assumed Metro Stock Options
2.03 - GAAP Accrual Exceptions
3.02 - Securityholders; Restrictions on Shares
3.03 - Authorized Capital Stock of Metro
3.04 - Required Authorizations
3.06 - Metro's December Financial Statements
3.07 - Events Subsequent to December 31, 1996
3.11 - Disclosures regarding Taxes
3.12 - Contracts: penalties on termination and required consents
3.14 - Personal property title exceptions
3.15 - Real and personal property leased by Metro
3.16 - Real property leased to Metro - list and exceptions
3.17 - Patents, Trademarks, Tradenames and Copyrights - list and
exceptions
3.19 - List of physical assets and shared tangible and intangible
property
3.21 - Licenses, Rights of Way and Permits
3.22 - Contracts
3.24 - Needed Governmental Permits
3.25 - Litigation and Arbitration
3.26 - Employees and Consultants
3.27 - Indebtedness to and from stockholders and others
3.28 - Outside financial interests
3.30 - Labor Agreements, Employee Benefit Plans and Employment
Agreements
3.33 - Employee claims
3.37 - Insurance Policies
3.38 - Environmental Matters
B) Buyer's Schedules:
4.03 - Prospectus
4.07 - Events subsequent to December 31, 1996
4.11 - Disclosures Regarding Taxes
4.12 - Consents Required Under Licenses, Rights of Way and Permits
C) Other Schedules:
1.09 - Employees and Benefit Programs and Plans
7.00 - Restricted Counties
8.07 - Affiliates of Metro
10.05 - Exclusions from Section 10.05
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Metro Access Networks, Inc.:
We consent to the use of our report on Metro Access Networks, Inc. dated
April 7, 1997 included here in the filing on Form 8-K of Brooks Fiber
Properties, Inc.
KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
St. Louis, Missouri
May 12, 1997
EXHIBIT 99.1
[Corporate Logo] BROOKS FIBER PROPERTIES
Your Gateway Brooks Fiber Properties, Inc.
To The 425 Woods Mill Road South/Suite 300
Information Age Town & Country, Missouri 63017
314 878-1616 Fax 314 878-3211
FOR IMMEDIATE RELEASE
Contact: Waymon R. Tipton
Senior Vice President
(800) 799-8914, ext. 313
BROOKS FIBER PROPERTIES COMPLETES PREVIOUSLY ANNOUNCED
AGREEMENT WITH CENTURY TELEPHONE ENTERPRISES, INC. TO MERGE
METRO ACCESS NETWORKS, INC. WITH BROOKS FIBER
-----------------------------------------
MERGER TO ESTABLISH BROOKS IN KEY STATE OF TEXAS WITH FIBER
NETWORKS IN SEVEN CITIES
St. Louis, MO (March 31, 1997) - Brooks Fiber Properties, Inc. (Nasdaq/NM:BFPT)
today announced the completion of the previously announced agreement with
Century Telephone Enterprises, Inc. (NYSE: CTL) for the merger of Metro Access
Networks, Inc. ("MAN"), Century's competitive local exchange carrier (CLEC) in
Texas, and Brooks Fiber. The merger consists of MAN's networks in seven Texas
cities, including operating networks in Dallas, Ft. Worth, San Antonio and
Austin and networks under development in Houston, Corpus Christi and Waco. In
exchange, Century will receive 4.3 million shares of Brooks Fiber common stock
and will have representation on Brooks Fiber's Board of Directors.
Commenting on the transaction, James C. Allen, Brooks Fiber Properties'
chief executive officer, commented, "We are very pleased to consummate this
transaction with Century. This partnership provides us with an excellent
opportunity to expand our national coverage and establish a strategic market
presence in Texas, the third largest telecommunications state in the country.
The addition of these markets represents a significant increase in our
addressable market potential, to approximately $29 billion for 44 markets from
approximately $21 billion in our existing 37 markets, without changing the
expected timing of peak EBITDA losses and subsequent EBITDA break-even."
Brooks Fiber Properties, Inc., headquartered in St. Louis, Missouri, is
a leading full service provider of competitive local telecommunications services
in cities across the United States. With networks operational or under
construction in 44 U.S. cities, the company provides its customers with advanced
and reliable high-capacity voice, video, data and other enhanced
telecommunications services.
You can now receive fax copies of recent Brooks Fiber news releases 24
hours a day by calling 1-888-329-2304 and or visit Brooks Fiber on the Internet
at www.Brooks.net
