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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): August 15, 1996
MCLEOD, INC.
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(Exact name of registrant as specified in its charter)
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Delaware 0-20763 58-421407240
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification
Number)
221 Third Avenue SE, Suite 500, Cedar Rapids, IA 52401
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(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number, including area code: (319) 364-0000
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS.
On August 15, 1996, McLeod, Inc. (the "Company") entered into
an Agreement and Plan of Reorganization (the "Agreement") with Telecom*USA
Publishing Group, Inc., an Iowa corporation ("Telecom"), pursuant to which a
newly formed subsidiary of the Company will be merged with and into Telecom
(the "Merger"), and Telecom will become a wholly owned subsidiary of the
Company.
Pursuant to the terms of the Agreement, (i) each outstanding
share of common stock, no par value, of Telecom ("Telecom Common Stock") (other
than shares identified in clause (ii) below and shares as to which dissenters'
rights of appraisal have been perfected under Iowa law) will be converted into
the right to receive $12.75 in cash, and (ii)(a) all the outstanding shares of
Telecom Common Stock owned by Clark E. McLeod, Chairman, Chief Executive
Officer, Director and stockholder of the Company, and his wife, Mary E. McLeod,
(assuming exercise of all options and warrants to purchase Telecom Common
Stock, and conversion of all debentures convertible into Telecom Common Stock,
owned by them) will be converted into the right to receive an aggregate of
$13,598,417 and 192,308 shares of class A common stock, $0.01 par value of the
Company (the "McLeod Common Stock") and (b) all the outstanding shares of
Telecom Common Stock held by the Arthur Christoffersen IRA (Mr. Christoffersen
is the President and Chief Executive Officer of Telecom) will be converted into
the right to receive an aggregate of 44,135 shares of McLeod Common Stock. The
Agreement also provides that the Company will have the option to pay an
additional $5,000,008, in aggregate, to Clark and Mary McLeod and an
additional $1,147,500 to Arthur Christoffersen IRA in lieu of issuing the McLeod
Common Stock identified in clause (ii) above if the average of the closing
price per share of McLeod Common Stock as quoted on The Nasdaq National Market
and reported in The Wall Street Journal for the five days immediately
preceding (but not including) the effective time of the Merger exceeds $32.50
per share.
Consummation of the Merger is subject to the satisfaction of a
number of conditions, including, but not limited to: (i) compliance with all
applicable provisions of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the expiration of all applicable waiting periods
thereunder; (ii) approval of the Agreement and the Merger by the shareholders
of Telecom; (iii) the exercise of dissenters' rights in connection with the
Merger by holders of not more than five percent of the outstanding shares of
Telecom Common Stock; and (iv) certain other customary conditions. Clark E.
McLeod, Mary E. McLeod, Arthur Christoffersen and certain other shareholders
of Telecom, owning in the aggregate more than fifty percent of the outstanding
shares of Telecom Common Stock, have entered into a Securityholders Agreement
pursuant to which, among other things, such shareholders have agreed to vote
their shares of Telecom Common Stock in favor of the Agreement and the Merger
at a meeting of Telecom's shareholders.
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The foregoing description of the Agreement does not purport to
be complete and is qualified in its entirety by the terms and conditions of the
Agreement, which is filed as Exhibit 2 to this Current Report on Form 8-K and
is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(c) Exhibits.
2. Agreement and Plan of Reorganization, dated as of August 15,
1996, by and among Telecom*USA Publishing Group, Inc. and
McLeod, Inc.
99.1 Press Release, dated August 15, 1996, regarding the agreement
to acquire Telecom*USA Publishing Group, Inc.
99.2 Form of Securityholders Agreement, dated as of August 15, 1996, among
McLeod, Inc., Telecom*USA Publishing Group, Inc. and
certain shareholders of Telecom*USA Publishing Group, Inc.
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SIGNATURES
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.
Date: August 26, 1996 McLEOD, INC.
By: /s/ BLAKE O. FISHER, JR.
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Blake O. Fisher, Jr.
Chief Financial Officer and
Treasurer
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EXHIBIT INDEX
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PAGE NUMBER IN
EXHIBIT NUMBER EXHIBIT SEQUENTIAL NUMBERING SYSTEM
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2. Agreement and Plan of Reorganization, dated as of August 15,
1996, by and among Telecom*USA Publishing Group, Inc. and
McLeod, Inc.
99.1 Press Release, dated August 15, 1996, regarding the agreement
to acquire Telecom*USA Publishing Group, Inc.
99.2 Form of Securityholders Agreement, dated as of August 15,
1996, among McLeod, Inc., Telecom*USA Publishing Group,
Inc. and certain shareholders of Telecom*USA Publishing
Group, Inc.
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EXHIBIT 2
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "AGREEMENT") is dated as
of August 15, 1996, (the "Agreement Date"), by and among Telecom*USA
Publishing Group, Inc., an Iowa corporation with offices in Cedar Rapids, Iowa
("NORTH STAR"), and MCLEOD, INC., a Delaware corporation with offices in Cedar
Rapids, Iowa ("BIG DIPPER").
A. Subject to the terms of this Agreement, NORTH STAR will be merged
with a newly formed Iowa corporation that will be organized as a wholly-owned
subsidiary of BIG DIPPER, McLeod Reverse Merging Co. ("MERGECO") in a reverse
triangular merger (the "MERGER") with NORTH STAR to be the surviving
corporation of the Merger, all pursuant to the terms and conditions of this
Agreement and a Plan of Merger in substantially the form of Exhibit A (the
"Plan of Merger") and applicable law.
B. Upon the effectiveness of the Merger, all the outstanding shares of
NORTH STAR Common Stock (as defined below) will be converted into cash, except
for certain shareholders who shall receive cash and shares of the BIG DIPPER
Common Stock (as defined below), all as provided in this Agreement and in the
Plan of Merger.
The parties agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms will
have the meanings set forth below:
1.1. "BIG DIPPER Common Stock" means the Class A Common Stock, $0.01 par
value, of BIG DIPPER.
1.2. "NORTH STAR Common Stock" means the Common Stock, no par value, of
NORTH STAR.
1.3. The "Effective Time" means the time and date on which the Plan of
Merger together with any required officers certificates and Articles of
Merger reflecting the Merger, substantially in the form of Exhibit B (the
"ARTICLES OF MERGER"), are filed with the office of the Iowa Secretary of
State, and the Merger becomes effective under Iowa law.
1.4. "NORTH STAR's knowledge" means the actual knowledge of the
executive officers of NORTH STAR after due inquiry.
1.5. "BIG DIPPER's knowledge" means the actual knowledge of the
executive officers of BIG DIPPER after due inquiry.
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2. PLAN OF REORGANIZATION.
2.1. The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, NORTH STAR will be merged with MERGECO
pursuant to this Agreement and the Plan of Merger and in accordance with
applicable provisions of the laws of the State of Iowa as follows:
2.1.1. Conversion of NORTH STAR Shares. Except as provided in
Section 2.1.2, each share of NORTH STAR Common Stock issued and
outstanding immediately prior to the Effective Time (other than
NORTH STAR Dissenting Shares, as defined in Section 2.1.5) will by
virtue of the Merger and at the Effective Time, and without the
need for any further action on the part of any holder thereof, be
converted into the right to receive $12.75 in cash, upon surrender
of the certificates representing such shares of NORTH STAR Common
Stock in the manner provided in Section 8.2.
2.1.2. Other Conversions. Subject to the last sentence of this
subsection, all shares of NORTH STAR Common Stock owned by Clark
E. McLeod and Mary E. McLeod, after the exercise of all options,
warrants and conversion of all debentures, will by virtue of the
Merger and at the Effective Time, and without the need for any
further action on their part, be converted into the right to
receive $13,598,417 and 192,308 shares of BIG DIPPER Common Stock
upon surrender of the certificates representing such shares of
NORTH STAR Common Stock in the manner provided in Section 8.2.
Subject to the last sentence of this subsection, all shares of
NORTH STAR Common Stock held by the Art Christoffersen IRA will by
virtue of the Merger and at the Effective Time, and without the
need for any further action on its part, be converted into the
right to receive 44,135 shares of BIG DIPPER Common Stock upon
surrender of the certificates representing such shares of NORTH
STAR Common Stock in the manner provided in Section 8.2. In the
event that the average of the closing price per share of BIG DIPPER
Common Stock as quoted on the NASDAQ National Market and reported
in The Wall Street Journal for the five (5) days immediately
preceding (but not including) the Effective Time, exceeds $32.50
per share, then BIG DIPPER has the option to elect to pay Clark
McLeod, Mary McLeod and the Art Christoffersen IRA cash instead of
the amount of BIG DIPPER Common Stock which would require an
additional cash payment to Clark and Mary McLeod of $5,000,008 and
as cash payment to the Art Christoffersen IRA of $1,147,500.
2.1.3. Conversion of Non-Vested Options. All non-vested options to
purchase NORTH STAR Common Stock outstanding immediately prior to
the Effective Time will, by virtue of the Merger and at the
Effective Time,
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and without the need for any further action on the part of any
holder thereof, be immediately terminated and be null and void and
all rights in respect thereof shall cease to exist without any
payment therefor, and no shares of BIG DIPPER Common Stock or other
consideration shall be delivered in exchange therefor. The
non-vested options shall be replaced with a deferred compensation
program as described in Exhibit 2.1.3.
2.1.4. Dissenters' Rights of NORTH STAR Shareholders. Any shares of
NORTH STAR Common Stock entitled to dissenters' rights in connection
with the Merger under Iowa law ("NORTH STAR Dissenting Shares")
shall not be converted into cash as provided in Section 2.1.1 or
cash and shares of BIG DIPPER Common Stock as provided in Section
2.1.2, but shall be entitled to receive such consideration as may be
determined to be due with respect to such dissenting shares pursuant
to the law of the State of Iowa. NORTH STAR shall give BIG DIPPER
prompt notice of any demands for appraisal or withdrawals of demands
for appraisal received by NORTH STAR and any other documents
obtained by NORTH STAR pursuant to the applicable provisions of Iowa
law and, except with the prior written consent of BIG DIPPER, shall
not settle or offer to settle any such demands.
2.2. Effects of the Merger. In addition to the foregoing effects of the
Merger, at and upon the Effective Time, each of the following will occur:
(a) the separate existence of MERGECO will cease and MERGECO will be
merged with and into NORTH STAR, and NORTH STAR will be the surviving
corporation of the Merger (the "Surviving Corporation") pursuant to the
terms of the Plan of Merger; (b) the Articles of Incorporation and Bylaws
of NORTH STAR, as in effect immediately prior to the Effective Time, will
continue unchanged and will be the Articles of Incorporation and Bylaws
of the Surviving Corporation until thereafter duly amended; (c) the one
share of MERGECO common stock outstanding immediately prior to the
Effective Time will, by virtue of the Merger and without any action on
the part of any holder thereof, be converted into and become the number
of shares of common stock of the Surviving Corporation as are converted
into cash or stock pursuant to Sections 2.1.1 and 2.1.2, and shall be
owned by BIG DIPPER. Each share of such common stock issued pursuant to
this section shall be fully paid and nonassessable; and (d) the Merger
will have all of the effects provided by the Plan of Merger and
applicable law, from and after the Effective Time.
2.3. Not a Tax Free Exchange. The parties acknowledge that the
transaction contemplated by this Agreement shall not qualify as a
tax-free plan of reorganization.
2.4. Purchase Accounting. The parties hereto acknowledge that the Merger
will be treated as a purchase for accounting purposes.
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3. REPRESENTATIONS AND WARRANTIES OF NORTH STAR. NORTH STAR represents and
warrants to BIG DIPPER that, except as set forth in a letter addressed to BIG
DIPPER dated the Agreement Date and delivered by NORTH STAR to BIG DIPPER
concurrent herewith (the "NORTH STAR DISCLOSURE LETTER") (the contents of
which NORTH STAR Disclosure Letter shall be deemed to be representations and
warranties made to BIG DIPPER by NORTH STAR under this Section 3, and which
may be updated up to the Closing to reflect changes that are not material,
consistent with the conditions to closing set forth in Section 10) each of the
representations and statements in this Section are true and correct as of the
date hereof and as of the Closing Date.
3.1. Organization and Good Standing. Each of NORTH STAR and its
subsidiaries (i) is a corporation duly organized, validly existing and in
good standing under the laws of Iowa, (ii) has the corporate power and
authority to own, operate and lease its properties and to carry on its
business as now conducted and as proposed to be conducted, and (iii) is
qualified to transact business as a foreign corporation in each
jurisdiction in which the nature of its business or the ownership or
leasing or its properties makes such qualification necessary, other than
where a failure to be so qualified would not reasonably be expected to
have a material adverse effect on its present or expected operations or
financial condition.
3.2. Power. NORTH STAR has the right, power, and authority to enter
into, execute and deliver this Agreement and all agreements to which
NORTH STAR is or will be a party that are to be executed pursuant to this
Agreement (collectively, the "NORTH STAR ANCILLARY AGREEMENTS") and,
subject to the approval of the Merger by the shareholders of NORTH STAR,
for the consummation of the transactions contemplated by such agreements.
The execution and delivery of this Agreement and each of the NORTH STAR
Ancillary Agreements and the consummation of the transactions
contemplated by such agreements have been duly and validly approved and
authorized by all necessary corporate action on the part of NORTH STAR's
Board of Directors.
3.3. Authorization. No filing, authorization, consent, approval or order,
governmental or otherwise, is necessary or required for the execution and
delivery of this Agreement and the NORTH STAR Ancillary Agreements by
NORTH STAR or the consummation of the transactions contemplated by such
agreements, except for (a) the filing of the Articles of Merger with the
office of the Iowa Secretary of State, and the filing of appropriate
Merger documents with the relevant authorities of other states in which
NORTH STAR is qualified to do business, if any, (b) such filings as may
be required to comply with federal and state securities laws, (c) the
approval of the Merger by the shareholders of NORTH STAR, and (d) the
filings required by the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act").
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3.4. Validity. This Agreement and the NORTH STAR Ancillary Agreements
are, or when executed by NORTH STAR will be, valid and binding
obligations of NORTH STAR, and enforceable in accordance with their
respective terms, except as to the effect, if any, of (i) applicable
bankruptcy and other similar laws affecting the rights of creditors
generally, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies; provided, however, that
the Merger will not become effective until the Articles of Merger
reflecting the Merger are filed with the office of the Iowa Secretary of
State.
3.5. Capitalization of NORTH STAR. NORTH STAR is capitalized as
follows.
3.5.1. Outstanding Stock. The authorized capital stock of NORTH
STAR consists of 10,000,000 shares of NORTH STAR Common Stock, of
which a total of 2,681,731 shares are issued and outstanding, all of
which are now owned and held, and all of which at the Effective Time
will be owned and held, only by the shareholders of NORTH STAR as
set forth on Exhibit 3.5.1, and no other shares of the capital stock
of NORTH STAR are authorized, issued or outstanding. All issued and
outstanding shares of NORTH STAR Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable, are
not subject to any claim, lien, preemptive right, or right of
rescission, and have been offered, issued, sold and delivered by
NORTH STAR in compliance with all registration or qualification
requirements (or applicable exemptions) of all applicable federal
and state securities laws. A list of all holders of NORTH STAR
Common Stock, and the number of shares held by each has been
delivered by NORTH STAR to BIG DIPPER and is reflected on Exhibit
3.5.1.
3.5.2. No Options, Warrants or Rights. Except for (i) options to
purchase an aggregate of 555,250 shares of NORTH STAR Common Stock
("NORTH STAR OPTIONS") under NORTH STAR's Incentive Stock Option
Plan and Directors Stock Option Plan (the "OPTION PLANS") granted to
employees, and directors of NORTH STAR, (ii) warrants to purchase an
aggregate of 488,650 shares of NORTH STAR Common Stock ("NORTH STAR
Warrants"), and (iii) convertible debentures convertible into an
aggregate of 2,359,750 shares of NORTH STAR Common Stock at the
option of the holders thereof ("NORTH STAR Convertible Debentures"),
as disclosed on Exhibit 3.5.2, there are no options, warrants,
exchangeable or convertible securities, puts, calls, commitments,
conversion privileges or preemptive or other rights or agreements of
any character to which NORTH STAR is a party or by which NORTH STAR
is bound to issue, transfer, deliver, sell, redeem, purchase or
otherwise acquire (whether directly or indirectly) or cause to be
issued, transferred, delivered, sold, redeemed, purchased or
otherwise acquired, (i) any shares of NORTH STAR's capital stock, or
(ii)
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any securities convertible into or exchangeable for any shares of
NORTH STAR's capital stock, and NORTH STAR has no obligation to
grant, issue, extend, or enter into any such option, warrant,
exchangeable or convertible security, put, call, commitment,
conversion privilege or preemptive or other rights or agreements.
Any shares of NORTH STAR Common Stock issued upon exercise of any
NORTH STAR Option or NORTH STAR Warrant, when issued pursuant to
exercise of such NORTH STAR Option or NORTH STAR Warrant, and any
shares of NORTH STAR Common Stock issued upon exercise of any NORTH
STAR Convertible Debenture, when issued pursuant to such conversion,
will be validly issued, fully paid and nonassessable and not subject
to any claim, lien, presumptive right or right of rescission. The
terms of the Option Plans permit the assumption or substitution of a
deferred compensation program as described in Exhibit 2.1.4,
without the consent of NORTH STAR optionees or shareholders under
the Option Plans. The NORTH STAR Options are qualified as incentive
stock options under Section 422 of the Internal Revenue Code of
1986, as amended (the "CODE"), other than the options granted to
directors which are nonqualified. Exhibit 3.5.2 sets forth (i) the
name of the holder of record of each NORTH STAR Option, NORTH STAR
Warrant and NORTH STAR Convertible Debenture, (ii) the number of
shares of NORTH STAR Common Stock issuable upon exercise of each
such NORTH STAR Option, (iii) the expiration date of each such NORTH
STAR Option, NORTH STAR Warrant and NORTH STAR Convertible
Debenture, and (iv) the exercise price of each NORTH STAR Option and
NORTH STAR Warrant, and the conversion ratio of each such NORTH STAR
Convertible Debenture. True and complete copies of all agreements
and instruments relating to the NORTH STAR Options, NORTH STAR
Warrants and NORTH STAR Convertible Debentures have been made
available to BIG DIPPER and such agreements and instruments have not
been amended, modified or supplemented and there are no agreements
or commitments to amend, modify or supplement such agreements and
instruments in each case from the form made available to BIG DIPPER.
NORTH STAR has no liability for dividends accrued but unpaid. To
the knowledge of NORTH STAR, no person or entity holds or has any
option, warrant or other right to acquire any issued and outstanding
shares of the capital stock of NORTH STAR from any holder of shares
of the capital stock of NORTH STAR.
3.5.3. No Voting Arrangements or Registration Rights. There are no
voting agreements, voting trusts, or other agreements or
arrangements with respect to the voting of NORTH STAR's outstanding
securities and there are no rights of first refusal or other
restrictions (other than normal restrictions on transfer under
applicable federal and state securities laws) applicable to any of
NORTH STAR's outstanding securities or the
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conversion of any NORTH STAR securities in the Merger. NORTH STAR
is not under any obligation to register any of its outstanding
securities, or any securities that may be subsequently issued,
under the Securities Act of 1933, as amended (the "SECURITIES ACT").
3.6. Subsidiaries. Except for the subsidiaries of NORTH STAR listed on
Exhibit 3.6 (collectively the "SUBSIDIARIES" and each a "SUBSIDIARY"),
each of which is wholly owned by NORTH STAR, NORTH STAR does not have any
subsidiaries or any interest, direct or indirect, in any corporation,
partnership, joint venture or other business entity. All issued and
outstanding shares of the capital stock of each Subsidiary are validly
issued, fully paid and nonassessable and are owned and held solely by
NORTH STAR free and clear of any option, liens, security interests,
claims, charges or encumbrances. There are no outstanding options,
warrants, exchangeable or convertible securities, puts, calls,
commitments, conversion privileges or preemptive or other rights or
agreements of any character to which any Subsidiary is a party or by
which any Subsidiary is bound to issue, transfer, deliver, sell, redeem,
purchase or otherwise acquire (whether directly or indirectly) or cause
to be issued, transferred, delivered, sold, redeemed, purchased or
otherwise acquired, (i) any shares of capital stock of any Subsidiary, or
(ii) any securities convertible into or exchangeable for any shares of
capital stock of any Subsidiary, and no Subsidiary has any obligation to
grant, issue, extend, or enter into any such option, warrant,
exchangeable or convertible security, put, call, commitment, conversion
privilege or preemptive or other rights or agreements.
3.7. No Violation of Existing Agreements. Neither the execution and
delivery of this Agreement nor any NORTH STAR Ancillary Agreement, nor
the consummation of the transactions contemplated by such agreements,
will conflict with, or (with or without notice or lapse of time, or both)
result in:
3.7.1. a termination, breach, impairment or violation of (i) any
provision of the Articles of Incorporation or Bylaws of NORTH STAR
or any Subsidiary, as currently in effect or (ii) any federal,
state, local or foreign judgment, writ, decree, order, statute, rule
or regulation applicable to NORTH STAR or any Subsidiary or their
respective assets or properties; or
3.7.2. a termination, or a material breach, impairment or violation
of, any material instrument, agreement, contract or commitment to
which NORTH STAR or any Subsidiary is a party or by which NORTH STAR
or any Subsidiary or their respective assets or properties are
bound.
3.8. Litigation. There is no action, suit, arbitration, proceeding,
claim, or investigation pending or to NORTH STAR's knowledge, threatened
against NORTH STAR, or any Subsidiary before any court, administrative
agency or
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arbitrator (each a "Claim") that may reasonably be expected to have a
material adverse effect on the present or future operations or financial
condition of NORTH STAR or any Subsidiary if such Claim is decided
adversely to NORTH STAR or any Subsidiary.
3.8.1. To NORTH STAR's knowledge, there is no basis for any person
or entity to assert a Claim against NORTH STAR or any Subsidiary
based upon (i) ownership, rights to ownership, or options, warrants
or other rights to acquire ownership, of any shares of the capital
stock of NORTH STAR or any Subsidiary, or (ii) any rights as a
holder of NORTH STAR Common Stock, including any option, warrant or
preemptive rights or rights to notice or to vote.
3.8.2. To the best of NORTH STAR's knowledge, there is no basis for
any party to successfully assert a Claim for any material damages
against NORTH STAR or any Subsidiary based on a claim that any
product or service developed, owned, marketed, or distributed by
NORTH STAR or any Subsidiary (i) was or is defective in any material
respect, or did not or will not perform in accordance with any
warranty, (ii) was not or is not suitable for a use for which it was
intended, (iii) omitted or omits necessary information, or (iv)
included or includes forms of documents, advice or information that
was negligently prepared and/or marketed, inaccurate or incomplete
in any respect, or did not conform to or comply with applicable law.
3.8.3. There is no judgment, decree, injunction, rule or order of
any governmental entity or agency, court or arbitrator outstanding
against NORTH STAR or any Subsidiary.
3.9. Taxes. NORTH STAR and each of its Subsidiaries have (i) timely
filed all federal, state, local and foreign tax returns required to be
filed and such returns are true and correct in all material respects,
(ii) timely paid all taxes required to be paid in respect of all periods
for which returns have been filed, (iii) established an adequate accrual
or reserve for the payment of all taxes payable in respect of the periods
subsequent to the periods covered by the most recent applicable tax
returns, (iv) made all necessary estimated tax payments, and (v) has no
material liability for taxes in excess of the amount so paid or accruals
or reserves so established. Neither NORTH STAR nor any Subsidiary is
delinquent in the payment of any tax or is delinquent in the filing of
any tax returns and no deficiencies for any tax have been threatened,
claimed, proposed or assessed. Neither NORTH STAR nor any Subsidiary has
received any notification that any material issues have been raised (and
are currently pending) by the Internal Revenue Service or any other
taxing authority (including but not limited to any
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sales tax authority). No tax return of NORTH STAR or any Subsidiary has
ever been audited by the Internal Revenue Service or any state taxing
agency or authority. No tax liens have been filed against any assets of
NORTH STAR or any Subsidiary. NORTH STAR is not a "personal holding
company" within the meaning of Section 542 of the Code. There are no
outstanding agreements or waivers extending the statutory period of
limitations applicable to any tax return of NORTH STAR or any Subsidiary
for any period. For the purposes of this section, the terms "TAX" and
"TAXES" include all federal, state, local and foreign income, alternative
or add-on minimum income, gains, franchise, excise, property, sales,
use, employment, license, payroll, ad valorem, stamp, occupation,
recording, value added or transfer taxes, governmental charges, fees,
customs duties, levies or assessments (whether payable directly or by
withholding), and, with respect to such taxes, any estimated tax,
interest and penalties or additions to tax and interest on such penalties
and additions to tax.
3.10. NORTH STAR Financial Statements. NORTH STAR has delivered to BIG
DIPPER copies of each of the following:
3.10.1. NORTH STAR's audited consolidated balance sheet as of
August 31, 1995 (the "NORTH STAR Balance Sheet") and audited
consolidated income statement and consolidated statement of cash
flows for the year then ended (collectively with the NORTH STAR
Balance Sheet, the "1995 NORTH STAR Financial Statements");
3.10.2. NORTH STAR's audited consolidated balance sheets as of, and
NORTH STAR's audited consolidated income statements and consolidated
statement of cash flows for each of the years in the three-year
period ended August 31, 1994 (collectively the "NORTH STAR Audited
Financial Statements"); and
3.10.3. NORTH STAR's unaudited consolidated balance sheet, as of
June 30, 1996 and unaudited consolidated income statement and
unaudited consolidated statement of cash flows for the ten-month
period then ended (collectively the "NORTH STAR Unaudited Financial
Statements").
The NORTH STAR Audited Financial Statements and NORTH STAR Unaudited
Financial Statements (a) accurately reflect the books and records of NORTH
STAR and its Subsidiaries, (b) fairly present the consolidated financial
condition of NORTH STAR and its Subsidiaries as of the respective dates
indicated and the consolidated results of operations and changes in financial
position for the respective periods specified, and (c) have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis. Neither NORTH STAR nor any Subsidiary has any material
debt, liability or obligation of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, that is not
reflected or reserved against in the
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NORTH STAR Balance Sheet, except for those that may have been incurred after
the date of the NORTH STAR Balance Sheet in the ordinary course of NORTH
STAR's business consistent with past practice, and that are not material in
amount either individually or collectively. All reserves established by NORTH
STAR and set forth in the NORTH STAR Balance Sheet were reasonably adequate.
At June 30, 1996, there were no material loss contingencies (as such term is
used in Statement of Financial Accounting Standards No. 5 issued by the
Financial Accounting Standards Board in March 1975) which are not adequately
provided for in the NORTH STAR Unaudited Financial Statements as required by
such accounting statement.
3.11. Title to Properties. NORTH STAR and each of its Subsidiaries have
good and marketable title to all of their respective assets and
properties reflected on the NORTH STAR Balance Sheet, free and clear of
all liens, mortgages, security interests, claims, charges, restrictions
or encumbrances. All machinery, vehicles, equipment and other tangible
personal property included in such assets and properties are in good
condition and repair, normal wear and tear excepted. The NORTH STAR
Disclosure Letter sets forth a list and brief description of each real
property or equipment lease which involves payments by NORTH STAR or any
Subsidiary in excess of $100,000 annually. A true and correct copy of
each such lease of NORTH STAR and each Subsidiary has been delivered by
NORTH STAR to BIG DIPPER prior to the date hereof. All leases of real or
personal property to which NORTH STAR or any Subsidiary is a party are
fully effective and afford NORTH STAR or each Subsidiary peaceful and
undisturbed possession of the subject matter of such leases. Any
property (real or personal) covered by the terms of such leases is
presently occupied or used by NORTH STAR or its Subsidiaries as lessee
under the terms of such leases for its business and in particular, in the
case of any leases for real property, NORTH STAR or its Subsidiaries is
entitled, by the terms of such leases and under applicable laws, rules
and regulations, to use any leased premises for the purposes for which
and in the manner in which they are currently being used by NORTH STAR
and its Subsidiaries. All rentals due under such leases have been paid
and there exists no default under any such leases, and no event has
occurred which, upon the passage of time or giving of notice, or both,
would result in any default or prevent NORTH STAR or any Subsidiary,
currently or after consummation of the transaction contemplated by this
Agreement and the NORTH STAR Ancillary Agreement, from exercising or
obtaining the benefits thereunder or the benefits of any options
contained therein. Neither NORTH STAR nor any Subsidiary is in violation
of any zoning, building, safety or environmental ordinance, regulation or
requirement or other law or regulation applicable to the operation of
owned or leased properties (the violation of which would have a material
adverse effect on its business), or has received any notice of violation
with which it has not complied. Neither NORTH STAR nor any Subsidiary
owns any real property.
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3.12. Absence of Certain Changes. Since the date of the NORTH STAR
Balance Sheet, NORTH STAR and each of its Subsidiaries have conducted
their business only in the ordinary course in a manner consistent with
past practice and, since such date, there has not been any:
3.12.1. material adverse change in the condition (financial or
otherwise), properties, assets, liabilities, businesses, operations,
results of operations or prospects of NORTH STAR and any Subsidiary,
taken as a whole;
3.12.2. amendments or changes in the Articles of Incorporation or
Bylaws of NORTH STAR or any Subsidiary;
3.12.3. (i) incurrence, creation, assumption or guarantee by NORTH
STAR or any Subsidiary of (A) any mortgage, security interest,
pledge, lien or other encumbrance on any of the assets or properties
of NORTH STAR or any Subsidiary or (B) any material obligation or
liability or any indebtedness for borrowed money in excess of a
cumulative aggregate amount (computed with reference to all
transactions described in (A) or (B) of this clause) of $50,000; or
(ii) issuance or sale of any debt or equity securities of NORTH STAR
or any Subsidiary or any options or other rights to acquire from
NORTH STAR or any Subsidiary, directly or indirectly, any debt or
equity securities of NORTH STAR or any Subsidiary;
3.12.4. payment or discharge of a material lien or liability for
such lien that was not either shown on the NORTH STAR Balance Sheet
or incurred in the ordinary course of business after the date of the
NORTH STAR Balance Sheet;
3.12.5. purchase, license, sale or other disposition, or any
agreement or other arrangement for the purchase, license, sale or
other disposition, of any of the assets or properties of NORTH STAR
or any Subsidiary other than in the ordinary course of business;
3.12.6. damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets
or business of NORTH STAR or any Subsidiary;
3.12.7. declaration, setting aside or payment of any dividend on,
or the making of any other distribution in respect of, the capital
stock of NORTH STAR or any Subsidiary, any split, combination or
reclassification of the capital stock of NORTH STAR or any
Subsidiary, or any direct or indirect redemption, purchase or other
acquisition of the capital stock of
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NORTH STAR or any Subsidiary, or any change in any rights,
preferences, privileges or restrictions of any outstanding security
of NORTH STAR or any Subsidiary;
3.12.8. change or increase in the compensation payable or to become
payable to any of the officers, employees or agents of NORTH STAR or
any Subsidiary, or any bonus or pension, insurance or other benefit
payment or arrangement (including without limitation stock awards,
stock appreciation rights or stock option grants) made to or with
any of such officers, employees or agents, except in connection with
normal employee salary or performance reviews or otherwise in the
ordinary course of business consistent with past practice;
3.12.9. change with respect to the management, supervisory or other
key personnel of NORTH STAR or any Subsidiary;
3.12.10. obligation or liability incurred by NORTH STAR or any
Subsidiary to any of their officers, directors or shareholders,
except normal compensation and expense allowances payable to
officers;
3.12.11. making of any loan, advance or capital contribution to, or
any investment in, any officer, director or shareholder other than
(i) travel loans or advances made in the ordinary course of business
of NORTH STAR and (ii) other loans and advances in an aggregate
amount which do not exceed $35,000 outstanding at any time;
3.12.12. entering into, amendment, violation, relinquishment,
termination or non-renewal by NORTH STAR or any Subsidiary of any
contract, lease transaction, commitment or other right or
obligation, other than in the ordinary course of business;
3.12.13. transfer or grant of a right under the NORTH STAR IP
Rights (as defined in Section 3.15 below), except those transferred
or granted in the ordinary course of NORTH STAR's business
consistent with past practices; or
3.12.14. agreement or arrangement by NORTH STAR or any Subsidiary
to take any action which, if taken prior to the date of this
Agreement, would have made any representation or warranty of NORTH
STAR as set forth in this Agreement untrue or incorrect.
3.13. Contracts and Commitments. Exhibit 3.13 sets forth a list of each
of the following written or oral contracts, agreements, commitments or
other
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instruments, (including, in the case of each oral contract, agreement,
commitment or other instrument, a description thereof) to which NORTH STAR
or any Subsidiary is a party or by which NORTH STAR or any Subsidiary or
any of their respective assets or properties are bound:
3.13.1. continuing contract for the future purchase, sale or
manufacture of products, material, supplies, equipment or services
requiring payment to or from NORTH STAR or any Subsidiary in an
amount in excess of $100,000 per annum which is not terminable on
120 days' or less notice without cost or other liability to NORTH
STAR or any Subsidiary at or at any time after the Effective Time,
or in which NORTH STAR or any Subsidiary has granted or received
manufacturing rights, "most favored nations" pricing provisions or
exclusive marketing rights relating to any product, group of
products or territory;
3.13.2. joint venture or partnership contract or agreement or other
agreement which has involved or is reasonably expected to involve a
sharing of profits or losses in excess of $25,000 per annum with any
other party;
3.13.3. contract or commitment for the employment of any officer,
employee or consultant of NORTH STAR or any Subsidiary or any other
type of contract or understanding with any officer, employee or
consultant of NORTH STAR or any Subsidiary which is not immediately
terminable by NORTH STAR or any Subsidiary without cost or other
liability;
3.13.4. indenture, mortgage, promissory note, loan agreement,
guarantee or other agreement or commitment for the borrowing of
money, for a line of credit or for a leasing transaction of a type
required to be capitalized in accordance with Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards
Board;
3.13.5. lease or other agreement under which NORTH STAR or any
Subsidiary is the lessee of or holds or operates any items of
tangible personal property or real property owned by any third party
and under which payments to such third party exceed $50,000 per
annum;
3.13.6. agreement or arrangement for the sale of any assets,
properties or rights having a value in excess of $20,000, other than
in the ordinary course of business consistent with past practice;
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3.13.7. agreement containing any covenant purporting to restrict
NORTH STAR or any Subsidiary from engaging in any aspect of its
business or competing in any line of business in any geographic
area;
3.13.8. agreement involving any NORTH STAR IP Rights (as defined in
Section 3.15 below);
3.13.9. any agreement relating to the sale, issuance, grant,
exercise, award, purchase, repurchase or redemption of any shares of
capital stock or other securities of NORTH STAR or any Subsidiary or
any options, warrants or other rights to purchase or otherwise
acquire any such shares of capital stock, other securities or
options, warrants or other related rights; or
3.13.10. any other agreement, contract, commitment or instrument
that is material to the business of NORTH STAR or any Subsidiary or
involves a commitment in excess of $100,000.
A copy of each contract, agreement, commitment or other instrument
required to be listed on Exhibit 3.13 has been delivered to BIG DIPPER's
General Counsel.
3.14. No Default. Neither NORTH STAR nor any Subsidiary, nor to the best
knowledge of NORTH STAR any other party thereto, is in breach or default
in any material respect under any contract, agreement, commitment or
other instrument or obligation that is required to be listed on Exhibit
3.13 or that is otherwise material to the business of NORTH STAR or any
Subsidiary, and all such contracts, agreements, commitments or other
instruments or obligations are in full force and effect. Neither NORTH
STAR nor any Subsidiary is a party to any contract, agreement or
arrangement which has had or could reasonably be expected to have a
material adverse effect on its business or prospects. Neither NORTH STAR
nor any Subsidiary has any material liability for renegotiation of
government contracts or subcontracts, if any.
3.15. Intellectual Property. NORTH STAR and each of its Subsidiaries
own, license or have the right to use all material Intellectual Property
Rights (as defined below) necessary or required for the conduct of their
respective businesses as presently conducted (collectively, the "NORTH
STAR IP Rights"), and such NORTH STAR IP Rights are sufficient for such
conduct of its business.
3.15.1. NORTH STAR and each of its Subsidiaries have taken
reasonable and practicable steps designed to protect, preserve and
maintain the secrecy and confidentiality of all NORTH STAR IP Rights
and all related proprietary rights. All granted and issued patents,
all registered
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<PAGE> 15
trademarks and all copyrights listed on Exhibit 3.15 are valid and
subsisting.
3.15.2. Exhibit 3.15 contains a list of all NORTH STAR IP Rights,
including, without limitation, all patents, patent applications,
copyrights (whether or not registered), copyright applications,
trademarks or service marks (whether or not registered) or trademark
or service mark applications.
3.15.3. To NORTH STAR's knowledge, as now used or proposed for use
by NORTH STAR or any Subsidiary, none of the NORTH STAR IP Rights
has infringed, misappropriated or otherwise violated, or is likely
to violate, directly or indirectly, any Intellectual Property Right
of any third party. To the best knowledge of NORTH STAR, there is
no unauthorized use, infringement or misappropriation of any NORTH
STAR IP Right by any third party, employee or former employee.
3.15.4. As used in this Section 3.15, the term "Intellectual
Property Rights" means, collectively, all worldwide industrial and
intellectual property rights, including, without limitation,
patents, patent applications, patent rights, trademarks, trademark
applications, trade names, service marks, service mark applications,
copyrights, copyright applications, franchises, licenses,
inventions, know-how, trade secrets, customer lists, proprietary
processes and formulae, software source and object code, algorithms,
architecture, structure, display screens, layouts, inventions,
development tools and all documentation and media constituting,
describing or relating to the above, including, without limitation,
manuals, memoranda and records.
3.16. Compliance with Laws. To NORTH STAR's knowledge, NORTH STAR and
each of its Subsidiaries have complied in all material respects with all
applicable federal, state, local or foreign laws, ordinances,
regulations, and rules, and all orders, writs, injunctions, awards,
judgments, and decrees applicable to them and their respective assets,
properties, and business (the violation of which would have a material
adverse effect upon their business). NORTH STAR and each of its
Subsidiaries hold all permits, licenses and approvals from, and have made
all filings with, third parties, including government agencies and
authorities, that are necessary in connection with its present business.
3.17. Certain Transactions and Agreements. To NORTH STAR's knowledge,
none of the officers or directors of NORTH STAR or any Subsidiary, nor
any member of their immediate families, has any direct or indirect
ownership interest in any entity that competes with, or does business
with, or has any contractual
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<PAGE> 16
arrangement with NORTH STAR (except with respect to any interest in less
than one percent (1%) of the stock of any corporation whose stock is
publicly traded). None of such officers or directors, nor any member of
their immediate families, is directly or indirectly interested in any
contract or arrangement with NORTH STAR, except for normal compensation
for services as an officer, director or employee that have been disclosed
to BIG DIPPER. Neither NORTH STAR nor any Subsidiary is indebted to any
director, officer, employee or agent of NORTH STAR or any Subsidiary
(except for amounts due as normal salaries and bonuses and in
reimbursement of ordinary expenses), and no such person is indebted to
NORTH STAR or any Subsidiary. Neither NORTH STAR nor any Subsidiary is a
party to any (i) agreement with any officer or other employee of NORTH
STAR or any Subsidiary (A) the benefits of which are contingent, or the
terms of which are altered, upon the occurrence of a transaction
involving NORTH STAR or any Subsidiary of the nature of any of the
transactions contemplated by this Agreement or the NORTH STAR Ancillary
Agreements, (B) providing severance benefits or other benefits (which are
conditioned upon a change of control) after the termination of employment
of such employee regardless of the reason for such termination of
employment or (C) providing for bonuses, pensions, deferred compensation,
retirement payments, profit sharing or similar payments, which in the
case of (A), (B) or (C) is not terminable by NORTH STAR or any Subsidiary
on ten days notice or less without penalty or obligation to make payments
related to such termination, or (ii) agreement or plan, including without
limitation, any stock option plan, stock appreciation right plan or stock
purchase plan, any of the benefits of which will be increased, or the
vesting of benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the NORTH STAR
Ancillary Agreements or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement or the NORTH STAR Ancillary Agreements.
3.18. Employees. To NORTH STAR's knowledge, NORTH STAR and each of its
Subsidiaries are in compliance in all material respects with all
applicable laws, agreements, contracts and other arrangements relating to
employment, employment practices, wages, hours, and terms and conditions
of employment, including, but not limited to, employee compensation
matters. A list of all employees, officers and consultants of NORTH STAR
and its Subsidiaries and their current compensation has been made
available to BIG DIPPER. Neither NORTH STAR nor any Subsidiary has any
employment contracts or consulting agreements currently in effect that
are not terminable at will (other than agreements for the sole purpose of
providing for the confidentiality of proprietary information or
assignment of inventions).
3.19. Labor Relations. To NORTH STAR's knowledge, neither NORTH STAR
nor any of its Subsidiaries (i) has ever been or is now subject to a
union organizing
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effort, (ii) is subject to any collective bargaining agreement with
respect to any of its employees, (iii) is subject to any other contract
or agreement, written or oral, with any trade or labor union, employees'
association or similar organization, and (iv) has any current labor
disputes. NORTH STAR and each of its Subsidiaries have good labor
relations, and have no knowledge of any facts indicating that the
consummation of the transactions contemplated hereby will have a material
adverse effect on such labor relations, and has no knowledge that any of
its key employees intends to leave its employ. There is neither pending
nor, to the best knowledge of NORTH STAR, threatened any labor dispute,
strike or work stoppage which affects or which may affect NORTH STAR's or
any Subsidiary's business. Neither NORTH STAR nor any Subsidiary, nor
any agents, representatives or employees of NORTH STAR or any Subsidiary
has committed any unfair labor practice as defined in the National Labor
Relations Act of 1947, as amended, and there is not now pending nor, to
the best knowledge of NORTH STAR, threatened any unfair labor practice
charge against NORTH STAR or any Subsidiary within the jurisdiction of
the National Labor Relations Board or any representative thereof.
3.20. Employee Benefit Plans / ERISA. Exhibit 3.20 identifies (i) each
"employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and (ii)
all other written or formal plans or agreements involving direct or
indirect compensation or benefits (including any employment agreements
entered into between NORTH STAR or any Subsidiary and any employee of
NORTH STAR or any Subsidiary, but excluding workers' compensation,
unemployment compensation and other government-mandated programs)
currently or previously maintained, contributed to or entered into by
NORTH STAR or any Subsidiary under which NORTH STAR or any Subsidiary or
any ERISA Affiliate (as defined below) has any present or future
obligation or liability (collectively, the "NORTH STAR Employee Plans").
For purposes of this Section, "ERISA Affiliate" means any entity which is a
member of (A) a "controlled group of corporations," as defined in Section
414(b) of the Code, (B) a group of entities under "common control," as
defined in Section 414(c) of the Code, or (C) an "affiliated service
group," as defined in Section 414(m) of the Code, or treasury regulations
promulgated under Section 414(o) of the Code, any of which includes NORTH
STAR or any Subsidiary. Copies of all NORTH STAR Employee Plans (and, if
applicable, related trust agreements) and all related amendments and
written interpretations (including summary plan descriptions) have been
delivered to BIG DIPPER. All NORTH STAR Employee Plans which
individually or collectively would constitute an "employee pension
benefit plan," as defined in Section 3(2) of ERISA (collectively, the
"NORTH STAR Pension Plans"), are identified as such in Exhibit 3.20. All
contributions due from NORTH STAR or any Subsidiary with respect to any
of the NORTH STAR Employee Plans have been made as required under ERISA
or have been accrued on the NORTH
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STAR Unaudited Financial Statements as of June 30, 1996. Each NORTH STAR
Employee Plan has been maintained in compliance with its terms and with
the requirements prescribed by any and all statutes, orders, rules and
regulations, including, without limitation, ERISA and the Code which are
applicable to such NORTH STAR Employee Plans.
3.20.1. No NORTH STAR Pension Plan constitutes, or has since the
enactment of ERISA constituted, a "multi-employer plan," as defined
in Section 3(37) of ERISA. No NORTH STAR Pension Plan constitutes
an Employee Stock Ownership Plan as defined in Section 4975(e)(7) of
the Code. No NORTH STAR Pension Plans are subject to Title IV of
ERISA. No "prohibited transaction," as defined in Section 406 of
ERISA or Section 4975 of the Code, has occurred with respect to any
NORTH STAR Employee Plan which is covered by Title I of ERISA which
would result in a material liability to NORTH STAR, excluding
transactions effected pursuant to a statutory or administrative
exemption. Nothing done or omitted to be done and no transaction or
holding of any asset under or in connection with any NORTH STAR
Employee Plan has or will make NORTH STAR or any officer or director
of NORTH STAR subject to any material liability under Title I of
ERISA or liable for any material tax (as defined in Section 3.9) or
penalty pursuant to Sections 4972, 4975, 4976 or 4979 of the Code or
Section 502 of ERISA.
3.20.2. Any NORTH STAR Pension Plan which is intended to be
qualified under Section 401(a) of the Code (a "NORTH STAR 401(a)
Plan") is so qualified and has been so qualified during the period
from its adoption to date, and the trust forming a part of such plan
is exempt from tax pursuant to Section 501(a) of the Code. NORTH
STAR has made available to BIG DIPPER a complete and correct copy of
the most recent Internal Revenue Service determination letter with
respect to each NORTH STAR 401(a) Plan. Nothing has occurred since
the date of the most recent applicable Internal Revenue Service
determination letter that would adversely affect the qualified
status of any NORTH STAR 401(a) Plan.
3.21. NORTH STAR Benefit Arrangements. Exhibit 3.20 lists each
employment, severance or other similar contract, arrangement or policy
and each plan or arrangement (written or oral) providing for insurance
coverage (including any self-insured arrangements), workers' benefits,
vacation benefits, severance benefits, disability benefits, death
benefits, hospitalization benefits, retirement benefits, deferred
compensation, profit-sharing, bonuses, stock options, stock purchase,
phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits for
employees, consultants or directors which (i) is not a NORTH STAR
Employee Plan, (ii) is entered into,
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maintained or contributed to by NORTH STAR or any Subsidiary and (iii)
covers any employee or former employee of NORTH STAR or any Subsidiary
(collectively, the "NORTH STAR Benefit Arrangements"). Each NORTH STAR
Benefit Arrangement has been maintained in substantial compliance with
its terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations that are applicable to such NORTH STAR
Benefit Arrangement.
3.22. Employee Benefit Costs. There has been no amendment, written
interpretation or announcement (whether or not written) by NORTH STAR or
any Subsidiary relating to, or change in employee participation or
coverage under, any NORTH STAR Employee Plan or NORTH STAR Benefit
Arrangement that would increase materially the expense of maintaining
such NORTH STAR Employee Plan or NORTH STAR Benefit Arrangement above the
level of the expense incurred for such items for the year ended December
31, 1995.
3.23. COBRA Notices. NORTH STAR and each Subsidiary have provided to
the individuals entitled thereto all notices and coverages that are
required by Section 4980B of the Code and the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), with respect to any
"qualifying event" (as defined in Section 4980B(f)(3) of the Code)
occurring prior to and including the Closing Date. No material tax
payable under Section 4980B. of the Code has been incurred with respect
to any current or former employees (or their beneficiaries) of NORTH
STAR.
3.24. Other Employee Matters. No benefit payable or which may become
payable by NORTH STAR or any Subsidiary pursuant to any NORTH STAR
Employee Plan or any NORTH STAR Benefit Arrangement or as a result of or
arising under this Agreement shall constitute an "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code) which is subject
to the imposition of an excise tax under Section 4999 of the Code, or
which would not be deductible by reason of Section 280G of the Code.
Neither NORTH STAR nor any Subsidiary is a party to any agreement with
any executive officer or other key employee (i) the benefits of which are
contingent, or the terms of which would become materially altered because
of the transactions contemplated by this Agreement, (ii) that provides
any term of employment or compensation guarantee, or (iii) that provides
severance benefits or other benefits after the termination of employment
of such employee regardless of the reason for such termination of
employment. Neither NORTH STAR nor any Subsidiary is a party to any
agreement or plan, including, without limitation, any stock option plan,
stock appreciation rights plan or stock purchase plan, under which (i)
the benefits will be materially increased, (ii) the vesting of benefits
of which will be materially accelerated, or (iii) the calculation of the
value of any of the benefits will be affected by the transactions
contemplated by this Agreement.
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3.25. Corporate Document. NORTH STAR has made available to BIG DIPPER
for examination all documents and information listed in the NORTH STAR
Disclosure Letter or other exhibits of this Agreement, including, without
limitation, the following: (i) copies of NORTH STAR's and each
Subsidiary's Articles of Incorporation and Bylaws as currently in effect;
(ii) NORTH STAR's and each Subsidiary's minute book containing all
records of all proceedings, consents, actions, and meetings of NORTH
STAR's and each Subsidiary's shareholders, board of directors and
committees; (iii) NORTH STAR's and each Subsidiary's stock ledger and
journal reflecting all stock issuances and transfers; and (iv) all
permits, orders, and consents issued by any regulatory agency with
respect to NORTH STAR or any Subsidiary, or any securities of NORTH STAR
or any Subsidiary, and all applications for such permits, orders, and
consents.
3.26. No Brokers. Neither NORTH STAR nor any shareholder of NORTH STAR
is obligated for the payment of fees or expenses of any investment
banker, broker or finder in connection with the origin, negotiation or
execution of this Agreement or the transaction contemplated by this
Agreement.
3.27. Books and Records. The books, records and accounts of NORTH STAR
and each Subsidiary (i) are in all material respects true, complete and
correct, (ii) have been maintained in accordance with good business
practices on a basis consistent with prior years, (iii) are stated in
reasonable detail and accurately and fairly reflect the transactions and
dispositions of the assets of NORTH STAR and each Subsidiary, and (iv)
are appropriately, accurately and fairly reflected in the NORTH STAR
Financial Statements.
3.28. Internal Controls. NORTH STAR and each Subsidiary have devised
and maintain a system of internal accounting controls sufficient to
provide reasonable assurances that (i) transactions are executed in
accordance with management's general or specific authorization, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles or
any other criteria applicable to such statements, and to maintain
accountability for assets, and (iii) the amount recorded for assets on
the books and records of NORTH STAR and each Subsidiary is compared with
the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
3.29. Insurance. NORTH STAR and each Subsidiary maintain, and at all
times during the prior three years have maintained, fire and casualty,
general liability, product liability, and sprinkler and water damage
insurance in amounts which NORTH STAR believes to be reasonably prudent
for similarly sized and similarly situated businesses under valid and
enforceable policies issued by insurers of
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recognized responsibility. Each such policy is listed and briefly
described in the NORTH STAR Disclosure Letter.
3.30. Environmental Matters. During the period that NORTH STAR and each
Subsidiary have leased or owned their properties or owned or operated any
facilities, there have been no disposals, releases or threatened releases
of Hazardous Materials (as defined below) on, from or under such
properties or facilities. NORTH STAR has no knowledge of any presence,
disposals, releases or threatened releases of Hazardous Materials on,
from or under any of such properties or facilities, which may have
occurred prior to NORTH STAR or any Subsidiary having taken possession of
any of such properties or facilities.
3.30.1. The terms "disposal", "release", and "threatened release"
have the meaning as defined in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Section
9601 et seq., as amended ("CERCLA").
3.30.2. The term "Hazardous Materials" means any hazardous or toxic
substance, material or waste which is or becomes prior to the
Closing regulated under, or defined as a "hazardous substance,"
"pollutant," "contaminant," "toxic chemical," "hazardous materials,"
"toxic substance" or "hazardous chemical" under CERCLA, any similar
federal, state or local law, or regulations promulgated under any of
the above laws or statutes.
3.30.3. To NORTH STAR's knowledge, none of the properties or
facilities of NORTH STAR or any Subsidiary is in violation of any
federal, state or local law, ordinance, regulation or order relating
to industrial hygiene or to the environmental conditions on, under
or about such properties or facilities, including, but not limited
to, soil and ground water condition. During the time that NORTH
STAR or any Subsidiary has owned or leased their respective
properties and facilities, neither NORTH STAR nor any Subsidiary
nor, to NORTH STAR's knowledge, any third party, has used,
generated, manufactured or stored on, under or about such properties
or facilities or transported to or from such properties or
facilities any Hazardous Materials.
3.30.4. During the time that NORTH STAR or any Subsidiary has owned
or leased their respective properties and facilities, there has been
no litigation brought or threatened against NORTH STAR or any
Subsidiary, or any lessor or owner of real property leased by NORTH
STAR or any Subsidiary by, or any settlement reached by NORTH STAR
or any Subsidiary with, any party or parties alleging the presence,
disposal, release
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or threatened release of any Hazardous Materials on, from or under
any of such properties or facilities.
3.31. Disclosure. No statement by NORTH STAR contained in this Agreement,
its exhibits, the NORTH STAR Disclosure Letter, or any of the
certificates or documents to be delivered by NORTH STAR to BIG DIPPER
under this Agreement, taken together, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material
fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which such statements were
made, not misleading.
3.32. Information Supplied. None of the information supplied or to be
supplied by NORTH STAR for inclusion in (i) proxy materials relating to
the approval of the Merger and the transactions contemplated hereby by
the shareholders of NORTH STAR (the "Proxy Materials") (ii) reports filed
under the Securities Exchange Act of 1934, as amended, (the "Exchange
Act") in connection with the Merger or (iii) the NORTH STAR Disclosure
Letter, at the respective times that (a) the Proxy Materials are mailed
to the shareholders of NORTH STAR, and (b) any meeting of shareholders
(including any adjournment thereof) is held to consider the Merger and
the transactions contemplated thereby, contains or will contain any
untrue statement of a material fact or omits or will omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they
are made, not misleading.
3.33. Opinion of Financial Advisor. NORTH STAR has been advised by its
financial advisor William Blair & Company, that in its opinion, as of the
date hereof, the consideration to be received by the holders of NORTH
STAR Common Stock is fair, from a financial point of view, to the
shareholders of NORTH STAR.
4. REPRESENTATIONS AND WARRANTIES OF BIG DIPPER.
BIG DIPPER hereby represents and warrants to NORTH STAR that each of the
representations and statements in this Section 4 are true and correct, except
as set forth in a letter addressed to NORTH STAR dated as of the Agreement and
delivered by BIG DIPPER to NORTH STAR concurrently with the signing of this
Agreement (the "BIG DIPPER Disclosure Letter"). The contents of the BIG
DIPPER Disclosure Letter shall be deemed to be representations and warranties
made to NORTH STAR by BIG DIPPER under this section 4.
4.1. Organization and Good Standing. BIG DIPPER and each of its
subsidiaries (i) is a corporation duly organized, validly existing, and
in good standing under the laws of Delaware, in the case of BIG DIPPER,
or Iowa, in the case of each of its Subsidiaries, (ii) has the corporate
power and authority to own, operate and lease
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its properties and to carry on its business as now conducted and as
proposed to be conducted, and (iii) is qualified to transact business as
a foreign corporation in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification necessary, other than where a failure to be so qualified
would not reasonably be expected to have a material adverse effect on its
present or expected operations or financial condition. Upon its
formation and prior to the Effective Time, MERGECO will be a corporation
duly organized, validly existing and in good standing under the laws of
the State of Iowa, and will have the corporate power and authority to
own, operate and lease its properties and to carry on its business as
proposed to be conducted.
4.2. Power. BIG DIPPER has the right, power, and authority to enter
into, execute and deliver this Agreement and all related agreements to
which it will be a party in accordance with this Agreement (collectively,
the "BIG DIPPER Ancillary Agreements") and, subject to the approval of
the Merger by all necessary corporate action, for the consummation of the
transactions contemplated hereby and thereby. The execution and delivery
of this Agreement and each of the BIG DIPPER Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby have
been duly and validly approved and authorized by all necessary corporate
action by the board of directors of BIG DIPPER. Upon MERGECO's
formation, MERGECO will have the right, power, and authority to execute
and perform its obligations under the Plan of Merger and all other
agreements to which MERGECO is to be a party that are to be executed by
MERGECO pursuant to this Agreement.
4.3. Authorization. No filing, authorization, consent, approval or
order, is necessary or required for the execution and delivery of this
Agreement and the BIG DIPPER Ancillary Agreements by BIG DIPPER or the
consummation of the transactions contemplated by such agreements, except
as disclosed in the BIG DIPPER Disclosure Letter and except for (a) the
filing of the Articles of Merger with the Office of the Iowa Secretary of
State, and the filing of appropriate Merger documents with the relevant
authorities of other states in which BIG DIPPER or MERGECO is qualified
to do business, if any, (b) the filing of such filings as may be required
to comply with federal and state securities laws, (c) the approval of the
Merger by the shareholders of NORTH STAR, and (d) the filings required by
the HSR Act.
4.4. Validity. This Agreement and the BIG DIPPER Ancillary Agreements
are valid and binding obligations of BIG DIPPER, and enforceable in
accordance with their respective terms, except as to the effect, if any,
of (i) applicable bankruptcy and other similar laws affecting the rights
of creditors generally, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies;
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provided, however, that the Merger will not become effective until the
Articles of Merger are filed with the office of the Iowa Secretary of
State.
4.5. Capitalization of BIG DIPPER. BIG DIPPER is capitalized as follows:
4.5.1. Stock. The authorized capital stock of BIG DIPPER consists
of 75,000,000 shares of BIG DIPPER Common Stock, 22,000,000 shares
of BIG DIPPER Class B Common Stock, $0.01 par value, 2,000,000
shares of BIG DIPPER Preferred Stock, $0.01 par value, and 1,150,000
shares of BIG DIPPER Class A Preferred Stock, $5.50 par value. At
the close of business on August 14, 1996, (i) 30,755,865 shares of
BIG DIPPER Common Stock were issued and outstanding, no shares of
BIG DIPPER Common Stock were held by BIG DIPPER in its treasury and
7,024,374 shares of BIG DIPPER Common Stock were reserved for
issuance upon the exercise of outstanding options to purchase BIG
DIPPER Class A Common Stock ("BIG DIPPER Options"); (ii) 16,410,519
shares of BIG DIPPER Class B Common Stock were issued and
outstanding and no shares of BIG DIPPER Class B Common Stock were
held by BIG DIPPER in its treasury; (iii) no shares of BIG DIPPER
Preferred Stock were outstanding or held in treasury; and (iv) no
shares of BIG DIPPER Class A Preferred Stock were outstanding or
held in treasury. All outstanding shares of BIG DIPPER Common Stock
and BIG DIPPER Class B Common Stock are validly issued, fully paid
and nonassessable and not subject to preemptive rights.
4.5.2. No Other Commitments. Except for the BIG DIPPER Options and
the BIG DIPPER Class B Common Stock disclosed in Section 4.5.1. and
as listed in the BIG DIPPER Disclosure Letter, there are no options,
warrants, convertible or other securities, calls, commitments,
conversion privileges or preemptive or other rights or agreements
(collectively, "Stock Rights Agreements") outstanding to purchase or
otherwise acquire (whether directly or indirectly) (i) any shares of
BIG DIPPER's authorized but unissued capital stock, or (ii) any
securities convertible into or exchangeable for any shares of BIG
DIPPER's capital stock. BIG DIPPER has no obligations to grant,
issue, extend, or enter into any Stock Rights Agreements. BIG
DIPPER has no liability for dividends accrued but unpaid.
4.5.3. No Voting Arrangements or Registration Rights. To BIG
DIPPER's knowledge, and except for that certain Investor Agreement
dated as of April 1, 1996, among BIG DIPPER and certain of its
stockholders, there are no voting agreements, voting trusts, rights
of first refusal or other restrictions (other than normal
restrictions on transfer under applicable federal and state
securities laws) applicable to any of BIG DIPPER's
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outstanding securities. BIG DIPPER is not under any obligation to
register any of its presently outstanding securities or any
securities that may be subsequently issued under the Securities Act.
4.6. No Violation of Existing Agreements. Except as disclosed in the BIG
DIPPER Disclosure Letter, neither the execution and delivery of this
Agreement nor any BIG DIPPER Ancillary Agreement, nor the consummation of
the transactions contemplated by such agreements, will conflict with, or
(with or without notice or lapse of time, or both) result in:
4.6.1. a termination, breach, impairment or violation of (i) any
provision of the Articles of Incorporation or Bylaws of BIG DIPPER,
as currently in effect or (ii) any federal, state, local or foreign
judgment, writ, decree, order, statute, rule or regulation
applicable to BIG DIPPER or its assets or properties; or
4.6.2. a termination, or a material breach, impairment or violation
of, any material instrument, agreement, contract or commitment to
which BIG DIPPER is a party or by which BIG DIPPER is bound. The
transfer of the BIG DIPPER Common Stock to certain shareholders of
NORTH STAR under this Agreement will not require the consent of any
third party with respect to any material rights, licenses,
franchises, leases or agreements of BIG DIPPER.
4.7. Litigation. There is no action, suit, claim, arbitration,
proceeding, or investigation pending or threatened, to BIG DIPPER's
knowledge, against BIG DIPPER before any court, administrative agency or
arbitrator (each a "BIG DIPPER Claim") that may reasonably be expected to
have a material adverse effect on the present or future operations or
financial condition of BIG DIPPER, if such BIG DIPPER Claim is decided
adversely to BIG DIPPER.
4.7.1. To BIG DIPPER's knowledge, there is no basis for any person
or entity to assert a BIG DIPPER Claim against BIG DIPPER based upon
(i) ownership, rights to ownership, or options, warrants or other
rights to acquire ownership, of any shares of the capital stock of
BIG DIPPER, or (ii) any rights as a BIG DIPPER shareholder,
including any option, warrant or preemptive rights or rights to
notice or to vote.
4.7.2. To BIG DIPPER's knowledge, there is no basis for any party
to successfully assert a BIG DIPPER Claim for any material damages
against BIG DIPPER based on a claim that any product or service
developed, owned, marketed, or distributed by BIG DIPPER (i) was or
is defective in any material respect, or did not or will not perform
in accordance with any
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warranty, (ii) was not or is not suitable for a use for which it was
intended, (iii) omitted or omits necessary information, or (iv)
included or includes forms of documents, advice or information that
was negligently prepared and/or marketed, inaccurate or incomplete
in any respect, or did not conform to or comply with applicable law.
4.7.3. There is no judgment, decree, injunction, rule or order of
any governmental entity or agency, court or arbitrator outstanding
against BIG DIPPER.
4.8. Disclosure. BIG DIPPER's final prospectus, dated June 10, 1996, in
connection with the initial public offering of BIG DIPPER Common Stock
(the "BIG DIPPER PROSPECTUS"), this Agreement, the BIG DIPPER Disclosure
Letter, the exhibits and schedules hereto, and any certificates or
documents to be delivered to the certain shareholders of NORTH STAR
identified in Section 2.1.2, pursuant to this Agreement, as of their
respective dates did not, and when taken together, do not, contain or
will not contain any untrue statement of a material fact or omit or will
omit to state any material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances under which
such statements were made, not misleading.
4.9. BIG DIPPER Financial Statements. The financial statements of BIG
DIPPER included in the BIG DIPPER Prospectus complied as to form in all
material respects with the then applicable accounting requirements and
the published rules and regulations of the Securities and Exchange
Commission (the "SEC"), with respect thereto, were prepared in accordance
with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may have been indicated in
the notes thereto or, in the case of the unaudited statements, as
permitted by Form S-1 promulgated by the SEC) and fairly present
(subject, in the case of the unaudited statements, to normal year end
audit adjustments) the consolidated financial position of BIG DIPPER and
its consolidated subsidiaries as at the respective dates thereof and the
consolidated results of their operations and cash flows.
5. ADDITIONAL AGREEMENTS.
5.1. Proxy Statement. As promptly as practicable after the execution and
delivery of this Agreement, NORTH STAR shall prepare and distribute to
the shareholders of NORTH STAR in accordance with applicable law the
Proxy Materials. The Proxy Materials shall include a recommendation of
the Board of Directors of NORTH STAR in favor of the Merger, which
recommendation shall not be changed, unless the Board of Directors of
NORTH STAR, upon receipt of an unsolicited written proposal or offer
which qualifies as a "bona fide offer" within the meaning of Section 5.4,
shall determine that to include such recommendation
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or not withdraw such recommendation if previously included is reasonably
likely to result in a breach of the Board's fiduciary duty under
applicable law.
5.2. Access to Information. For so long as this Agreement is in effect,
NORTH STAR shall afford to BIG DIPPER and to BIG DIPPER's accountants,
counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to all of
NORTH STAR's properties, books, contracts, commitments and records and,
during such period, each party shall use reasonable efforts to furnish
promptly to each other party (a) a copy of each report, schedule and
other document filed or received by it during such period pursuant to the
requirements of federal and state securities laws and (b) all other
information concerning its business, properties and personnel as such
other party may reasonably request, provided that no party shall be
required to disclose any information which it is legally required to keep
confidential or which is subject to attorney-client privilege.
5.3. NORTH STAR Shareholder Meeting. NORTH STAR shall call a special
meeting of its shareholders to be held as promptly as practicable after
the date hereof for the purpose of voting upon the Merger and other
matters contemplated thereby. NORTH STAR will use its best efforts to
solicit from the shareholders of NORTH STAR proxies in favor of the
Merger, and such other matters as may be necessary to consummate the
transactions contemplated by this Agreement.
5.4. No Other Bids. During the period from the Agreement Date and
continuing until the Effective Time, NORTH STAR will not directly or
indirectly through any subsidiary, officer, director or otherwise, make,
solicit, initiate or encourage submission of proposals or offers from any
persons (including any of its officers of employees) relating to any
liquidation, dissolution, recapitalization, merger, consolidation or the
acquisition of all or a material portion of the assets of, or any
controlling equity interest in NORTH STAR or any Subsidiary or other
similar transaction or business combination involving NORTH STAR or any
subsidiary, and will not directly or indirectly participate in any
negotiations regarding, or furnish to any other person any information
with respect to, or otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage any effort or attempt by any
other person to do or seek any of the foregoing, and shall immediately
cease and cause to be terminated all such contracts or negotiations with
third parties. Notwithstanding anything contained in this Section 5.4 to
the contrary, if NORTH STAR shall receive an unsolicited written offer or
proposal relating to such transaction from a prospective buyer which
offer or proposal, including any financing thereof, has been determined
by the Board of Directors of NORTH STAR, upon receipt of advice of its
investment banker to be on terms financially superior to the Merger (a
"bona fide offer"), it may thereafter furnish information relating to it
to such buyer in connection with such bona fide offer. Following receipt
of any bona fide offer, NORTH STAR may
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negotiate with the person making such offer or proposal and may, if the
Board of Directors of NORTH STAR determines that such bona fide offer is
reasonably likely to result in a transaction that is financially superior
to the Merger and is otherwise in the best interests of its stockholders,
enter into a letter of intent or agreement with such person in order to
pursue or consummate the transaction set forth in the bona fide offer.
NORTH STAR shall promptly notify BIG DIPPER orally and in writing of any
effort or attempt by any person to do or seek any of the foregoing.
NORTH STAR recognizes and acknowledges that a breach of this Section 5.4
may cause irreparable and material loss and damage to BIG DIPPER as to
which BIG DIPPER may not have an adequate remedy at law or in damages and
that, accordingly, NORTH STAR agrees that the issuance of an injunction
or other equitable remedy is the appropriate remedy for any such breach
and that in the event that the transactions described in this Agreement
are not consummated because of NORTH STAR's acceptance of a bid or
proposal relating to such transactions from another bidder, of if this
Agreement is terminated pursuant to Section 11.1.4, then NORTH STAR will
promptly pay BIG DIPPER a termination fee equal to five percent (5%) of
the value of the cash and stock to have been delivered and issued under
Section 2.1 and 8.2.
5.5. Breach by BIG DIPPER. If this Agreement is terminated pursuant to
Section 11.1.3 as a result of a material breach of any covenant or
agreement contained in this Agreement on the part of BIG DIPPER and such
breach has not been cured within thirty days after written notice to BIG
DIPPER, then BIG DIPPER will promptly pay to NORTH STAR a termination fee
equal to five percent (5%) of the value of the cash and stock to have
been delivered under Section 2.1. NORTH STAR agrees that this termination
fee shall be its sole and exclusive remedy for a material breach by and
failure to complete the transactions contemplated by BIG DIPPER.
5.6. Legal Conditions to the Merger. Each party will take all
reasonable actions necessary to comply with all legal requirements which
may be imposed on such party with respect to the Merger and will promptly
cooperate with and furnish information to the other party in connection
with any such requirements imposed upon such other party or any
subsidiary of such other party in connection with the Merger. Each party
will take, and will cause its subsidiaries to take, all reasonable
actions to obtain (and to cooperate with the party and its subsidiaries
in obtaining) any consent, authorization, order or approval of, or any
exemption by, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, or other
third party, required to be obtained or made by such party or its
subsidiaries (or by the other party or its subsidiaries) in connection
with the Merger or the taking of any action contemplated thereby or by
this Agreement or the Plan of Merger.
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5.7. Indemnification and Insurance. Following the Effective Time, to the
extent permitted by law, the indemnification provisions of BIG DIPPER's
Certificate of Incorporation and Bylaws shall apply to the officers and
directors of NORTH STAR who shall become officers of BIG DIPPER. BIG
DIPPER shall cause NORTH STAR to continue NORTH STAR's indemnification
obligations as in effect on the date hereof to its officers and directors
after the consummation of the Merger.
5.8. Management of NORTH STAR After the Effective Time of the Merger.
Promptly following the Effective Time, NORTH STAR Board of Directors
shall be reconstituted to consist of Clark McLeod, Blake Fisher, Art
Christoffersen, Stephen Gray and Jim Haddad. Promptly after the
Effective Time, NORTH STAR's Board of Directors, as reconstituted, shall
appoint as officers Art Christoffersen as President and Chief Executive
Officer, Blake Fisher as Chief Financial Officer, James Haddad as Vice
President and Treasurer, Tom Anderson as Vice President, Henry Hey as
Vice President, Bruce Scheff as Vice President, Cathy Smith as Vice
President, Todd Pike as Assistant Vice President and Casey D. Mahon as
Secretary, each to serve in such office position at the discretion of the
Board of Directors. Officers of the Surviving Corporation shall have the
salary and options described on Exhibit 5.8. Each of Jim Haddad and Tom
Andersen will be required, as a condition to their employment by the
Surviving Corporation, to execute and deliver to BIG DIPPER at or prior
to the Closing an agreement in form and substance reasonably acceptable
to BIG DIPPER which will require 25% of the amount of cash each is to
receive under Section 2.1.1 to be placed in escrow, to be paid out over
two years, subject to their continued employment with NORTH STAR. These
agreements will be delivered at Closing.
5.9. Public Announcements. Upon execution of this Agreement, BIG DIPPER
and NORTH STAR will issue a press release approved by both parties
announcing the agreement to enter into the Merger. BIG DIPPER and NORTH
STAR shall cooperate with each other in releasing information concerning
this Agreement and the transactions contemplated herein. Where
practicable each of the parties shall furnish to the other drafts of all
releases prior to publication and each party agrees, prior to the
consummation of the Merger, to refrain from issuing any statement or
communication to the public with respect to the transactions contemplated
hereby without the prior written consent of the other party, which
consent shall not be unreasonably withheld. Nothing contained herein
shall prevent either party at any time from furnishing any information to
any governmental agency or from issuing any release where it reasonably
believes it is legally required to do so.
5.10. Hart-Scott-Rodino Filing. Each of BIG DIPPER and NORTH STAR will
promptly prepare and file the applicable notices (if any) required to be
filed by it under the HSR ACT, and will comply promptly with any requests
to it from the Federal Trade Commission or the United States Department
of Justice for additional information.
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5.11. Audited Financial Statements. As soon as possible after August
31, 1996, but in no event later than September 30, 1996, NORTH STAR shall
prepare and deliver to McGladrey & Pullen, LLP and BIG DIPPER a
consolidated balance sheet as of August 31, 1996 and a consolidated
income statement and consolidated statement of cash flows for the year
then ended (the "1996 NORTH STAR Financial Statements"), prepared in
accordance with generally accepted accounting principals applied on a
consistent basis. NORTH STAR shall cause McGladrey & Pullen, LLP to
perform an audit of the 1996 NORTH STAR Financial Statements immediately
after they become available and shall deliver a copy of the audit report
to BIG DIPPER as soon as it has been prepared. NORTH STAR shall make
available to BIG DIPPER and its representatives, as and when reasonably
requested by BIG DIPPER, all books, records and other documents
pertaining to NORTH STAR, and all work papers directly related to the
preparation and formulation of the 1996 NORTH STAR Financial Statements
and personnel responsible for preparing or maintaining such books,
records and documents.
5.12. Best Efforts and Further Assurances. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the
conditions to the Closing under this Agreement. Each party hereto, at
the reasonable request of the other party hereto, shall execute and
deliver such other instruments and do and perform such other acts and
things as may be necessary or desirable for effecting completely the
consummation of this Agreement and the transactions contemplated hereby.
If, at any time after the Effective Time, any such 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 assets, property, rights, privileges, powers and franchises of NORTH
STAR and its Subsidiaries, then BIG DIPPER and its officers and directors
are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action.
6. NORTH STAR PRECLOSING COVENANTS.
During the period from the Agreement Date until the earlier to occur of
(i) the Effective Time or (ii) the termination of this Agreement in accordance
with Section 11, NORTH STAR covenants and agrees with BIG DIPPER as follows:
6.1. Advice of Changes. NORTH STAR will promptly advise BIG DIPPER in
writing (a) of any event occurring subsequent to the Agreement Date that
would render any representation or warranty of NORTH STAR contained in
this Agreement, if made on or as of the date of such event or the Closing
Date, untrue or inaccurate in any material respect and (b) of any
material adverse change in NORTH STAR's or any Subsidiary's business,
results of operations or financial condition; provided, however, that the
delivery of any notice pursuant to this
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Section 6.1 shall not cure any breach of any representation or warranty
or otherwise limit or affect the remedies available hereunder to BIG
DIPPER under this Agreement. NORTH STAR shall deliver to BIG DIPPER
within fifteen (15) days after each month end, an unaudited balance sheet
and statement of operations, which financial statements shall be prepared
in the ordinary course of business, in accordance with NORTH STAR's books
and records and generally accepted accounting principles and shall
fairly present the financial position of NORTH STAR as of the respective
dates and the results of NORTH STAR's operations for the periods then
ended.
6.2. Maintenance of Business. NORTH STAR will, and will cause each of
its Subsidiaries to, use its best efforts to carry on and preserve its
business and its relationships with customers, suppliers, employees and
others in substantially the same manner as it has prior to the Agreement
Date. If NORTH STAR becomes aware of a material deterioration in the
relationship with any customer, supplier or key employee, it will
promptly bring such information to the attention of BIG DIPPER in writing
and, if requested by BIG DIPPER, will exert its best efforts to restore
the relationship.
6.3. Conduct of Business. NORTH STAR will, and will cause each of its
Subsidiaries to, continue to conduct its business and maintain its
business relationships in the ordinary and usual course and will not, and
will cause each of its Subsidiaries not to, without the prior consent of
the Chief Financial Officer of BIG DIPPER (which consent will not be
unreasonably withheld):
6.3.1. borrow or lend any money other than advances for travel and
expenses that are incurred in the ordinary course of business
consistent with past practice;
6.3.2. enter into any transaction or agreement not in the ordinary
course of business;
6.3.3. encumber or permit to be encumbered any of its assets except
in the ordinary course of its business consistent with past practice
and to an extent which is not material;
6.3.4. dispose of any of its assets except in the ordinary course
of business consistent with past practice;
6.3.5. enter into any material lease or contract for the purchase
or sale of any property, real or personal, except in the ordinary
course of business consistent with past practice;
6.3.6. pay any bonus, increased salary or special remuneration to
any officer, employee or consultant (except for normal salary
increases
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consistent with past practices not to exceed 10% of such officer's,
employee's or consultant's base annual compensation, except pursuant
to existing arrangements previously disclosed to and approved by the
Chief Financial Officer of BIG DIPPER) or enter into any new
employment or consulting agreement with any such person;
6.3.7. change any of its accounting methods;
6.3.8. declare, set aside or pay any cash or stock dividend or
other distribution in respect of capital stock, or redeem or
otherwise acquire any of its capital stock;
6.3.9. amend or terminate any contract, agreement or license to
which it is a party except those amended or terminated in the
ordinary course of business, consistent with past practice, and
which are not material in amount or effect;
6.3.10. guarantee or act as a surety for any obligation except for
the endorsement of checks and other negotiable instruments in the
ordinary course of business, consistent with past practice, which
are not material in amount;
6.3.11. waive or release any material right or claim except in the
ordinary course of business, consistent with past practice or agree
to any audit assessment by any tax authority or file any federal or
state income or franchise tax return unless copies of such returns
have been delivered to BIG DIPPER for its review prior to filing;
6.3.12. issue or sell any shares of its capital stock of any class
(except upon the exercise of an option or warrant currently
outstanding), or any other of its securities, or issue or create any
warrants, obligations, subscriptions, options, convertible
securities, or other commitments to issue shares of capital stock,
or accelerate the vesting of any outstanding option or other
security;
6.3.13. split or combine the outstanding shares of its capital
stock of any class or enter into any recapitalization affecting the
number of outstanding shares of its capital stock of any class or
affecting any other of its securities;
6.3.14. merge, consolidate or reorganize with, or acquire any
entity;
6.3.15. amend its Articles of Incorporation or Bylaws;
6.3.16. license any of its technology or intellectual property
except in the ordinary course of business consistent with past
practice;
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6.3.17. substantially decrease, in scope of coverage or policy
limit, any insurance coverage or issue any certificates of
insurance;
6.3.18. agree to any audit assessment by any tax authority or file
any federal or state income or franchise tax return unless copies of
such returns have first been delivered to BIG DIPPER for its review
prior to filing; or
6.3.19. agree to do, or permit any Subsidiary to do or agree to do,
any of the things described in the preceding clauses 6.3.1. through
6.3.18.
6.4. Necessary Consents. NORTH STAR will use its best efforts to obtain
such written consents and take such other actions as may be necessary or
appropriate in addition to those set forth in Sections 5.6 and 5.11 to
allow the consummation of the transactions contemplated hereby.
6.5. Litigation. NORTH STAR will notify BIG DIPPER in writing promptly
after learning of any material action, suit, arbitration, proceeding or
investigation by or before any court, arbitrator or arbitration panel,
board or governmental agency, initiated by or against it or any
Subsidiary, or known by it to be threatened against it or any Subsidiary.
6.6. Satisfaction of Conditions Precedent. NORTH STAR will use its best
efforts to satisfy or cause to be satisfied all the conditions precedent
which are set forth in Section 10, and NORTH STAR will use its best
efforts to cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the foregoing, to
obtain all consents and authorizations of third parties and to make all
filings with, and give all notices to, third parties that may be
necessary or reasonably required on its part in order to effect the
transactions contemplated hereby.
6.7. Regulatory Approvals. NORTH STAR will execute and file, or join in
the execution and filing of, any application or other document that may
be necessary in order to obtain the authorization, approval or consent of
any governmental body, federal, state, local or foreign, which may be
reasonably required, or which BIG DIPPER may reasonably request, in
connection with the consummation of the transactions contemplated by this
Agreement. NORTH STAR will use its best efforts to obtain, and to
cooperate with BIG DIPPER in obtaining, all such authorizations,
approvals and consents (including but not limited to any clearance from
the Federal Trade Commission or the United States Department of Justice
under the HSR Act.
6.8. Investment Agreement. NORTH STAR shall use its best efforts to
cause each of Clark McLeod, Mary McLeod and Art Christoffersen to execute
and deliver to BIG DIPPER, at or prior to the Closing, an Investment
Agreement in
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substantially the form of Exhibit 6.8 (the "INVESTMENT AGREEMENT"),
including the Accredited Investor Questionnaire attached as Exhibit A
thereto.
6.9. Best Efforts on Warrants and Debentures. NORTH STAR shall use its
best efforts to cause each holder of NORTH STAR Warrants to exercise all
such NORTH STAR Warrants prior to the Closing for, and to cause each
holder of NORTH STAR Convertible Debentures to convert all such NORTH
STAR Convertible Debentures prior to the Closing into shares of NORTH
STAR Common Stock. BIG DIPPER shall be entitled to review and comment,
on a timely basis, on all communications that NORTH STAR intends to make
to any NORTH STAR shareholder, any holders of NORTH STAR Warrants or any
holders of NORTH STAR Convertible Debentures in connection with the
Merger or the other transactions contemplated by this Agreement.
7. BIG DIPPER PRECLOSING COVENANTS.
During the period from the Agreement Date until the earlier to occur of
(i) the Effective Time or (ii) the termination of this Agreement in accordance
with Section 11, BIG DIPPER covenants and agrees as follows:
7.1. Advice of Changes. BIG DIPPER will promptly advise NORTH STAR in
writing (a) of any event occurring subsequent to the Agreement Date that
would render any representation or warranty of BIG DIPPER contained in
this Agreement, if made on or as of the date of such event or the Closing
Date, untrue or inaccurate in any material respect and (b) of any
material adverse change in BIG DIPPER's business, results of operations
or financial condition; provided, however, that the delivery of any
notice pursuant to this Section 7.1 shall not cure any breach of any
representation or warranty or otherwise limit or affect the remedies
available hereunder to NORTH STAR under this Agreement.
7.2. Regulatory Approvals. BIG DIPPER will execute and file, or join in
the execution and filing of, any application or other document that may
be necessary in order to obtain the authorization, approval or consent of
any governmental body, federal, state, local or foreign, which may be
reasonably required, or which NORTH STAR may reasonably request, in
connection with the consummation of the transactions contemplated by this
Agreement. BIG DIPPER will use its best efforts to obtain, and to
cooperate with NORTH STAR to obtain, all such authorizations, approvals
and consents (including but not limited to any clearance from the Federal
Trade Commission or the United States Department of Justice under the HSR
Act).
7.3. Satisfaction of Conditions Precedent. BIG DIPPER will use its best
efforts to satisfy or cause to be satisfied all the conditions precedent
which are set forth in Section 9, and BIG DIPPER will use its best
efforts to cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the
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generality of the foregoing, to obtain all consents and authorizations of
third parties and to make all filings with, and give all notices to,
third parties that may be necessary or reasonably required on its part in
order to effect the transactions contemplated hereby.
7.4. Necessary Consents. BIG DIPPER will use its best efforts to obtain
such written consents and take such other actions as may be necessary or
appropriate to allow the consummation of the transactions contemplated
hereby and to allow BIG DIPPER to conduct NORTH STAR's business after
the Closing in substantially the same manner as such business was
conducted prior to the Closing.
7.5. Litigation. BIG DIPPER will notify NORTH STAR in writing promptly
after learning of any material action, suit, arbitration, proceeding or
investigation by or before any court, arbitrator or arbitration panel,
board or governmental agency, initiated by or against BIG DIPPER or known
by it to be threatened against it.
7.6. MERGECO. BIG DIPPER will cause MERGECO to be promptly formed in
accordance with Iowa law. Subject to BIG DIPPER's rights to terminate
this Agreement and abandon the Merger for any reason in accordance with
this Agreement (including without limitation the failure of any condition
in Section 8 to be satisfied), to the fullest extent permitted by law, BIG
DIPPER shall cause MERGECO and its Board of Directors to approve, execute
and deliver all documents required to be executed and delivered by
MERGECO pursuant to this Agreement.
8. CLOSING MATTERS.
8.1. The Closing. Subject to the terms and conditions of this
Agreement, the closing of the transactions for consummation of the Merger
(the "CLOSING") will take place at the offices of BIG DIPPER on the
earliest date practicable after the satisfaction or waiver of the
conditions to Closing set forth in Sections 9 and 10 hereof (the "CLOSING
DATE"). Concurrently with the Closing, the Articles of Merger, the Plan
of Merger, and any required officers' certificates and will be executed
and filed in the office of the Iowa Secretary of State.
8.2. Exchange of Certificates.
8.2.1. At the Closing, each holder of shares of NORTH STAR Common
Stock will surrender to BIG DIPPER the certificate(s) for such shares
(each a "NORTH STAR Certificate"), duly endorsed as requested by BIG
DIPPER for cancellation. Promptly after the Effective Time (but in
no event later than one business day thereafter) BIG DIPPER shall
send by check or wire transfer (at the option of each holder of
shares of NORTH STAR Common
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<PAGE> 36
Stock) to each tendering holder cash in the amount payable to such
holder under Section 2.1.1 and Section 2.1.2 in accordance with the
written instructions provided by such holder to BIG DIPPER and shall
mail certificates for the number of shares of BIG DIPPER Common
Stock pursuant to Section 2.1.2.
8.2.2. No dividends or distributions payable to holders of record
of BIG DIPPER Common Stock after the Effective Time, or cash payable
in lieu of fractional shares, will be paid to the holder of any
unsurrendered NORTH STAR Certificate until such holder surrenders
such NORTH STAR Certificate to BIG DIPPER as provided above.
Subject to the effect, if any, of applicable escheat and other laws,
following surrender of any NORTH STAR Certificate, there will be
delivered to the person entitled thereto, without interest, the
amount of any dividends and distributions therefor paid with respect
to BIG DIPPER Common Stock so withheld as of any date subsequent to
the Effective Time and prior to such date of delivery.
8.2.3. After the Effective Time there will be no further
registration of transfers on the stock transfer books of NORTH STAR.
If, after the Effective Time, NORTH STAR Certificates are presented
for any reason, they will be canceled and exchanged as provided in
this Section 8.2.
8.2.4. Until NORTH STAR Certificates representing NORTH STAR Common
Stock outstanding prior to the Merger are surrendered pursuant to
Section 8.2.1 above, such NORTH STAR Certificates will be deemed, for
all purposes, to evidence ownership of the right to receive cash
into which the NORTH STAR Common Stock would have been converted
pursuant to Section 2.1.1, or the right to receive cash and/or the
number of shares of BIG DIPPER Common Stock into which such NORTH
STAR Common Stock would have been converted pursuant to Section
2.1.2, as applicable.
9. CONDITIONS TO OBLIGATIONS OF NORTH STAR.
NORTH STAR's obligations hereunder are subject to the fulfillment or
satisfaction, at or prior to the Closing, of each of the following conditions
(any one or more of which may be waived by NORTH STAR, but only in a writing
signed by NORTH STAR):
9.1. Accuracy of Representations and Warranties. The representations and
warranties of BIG DIPPER as set forth in section 4 (as qualified by the
BIG DIPPER Disclosure Letter, as such may be amended in accordance with
this Agreement to disclose changes that are not material) shall be true
and accurate in every material respect on and as of the Closing with the
same force and effect as if they had been made at the Closing and NORTH
STAR shall have received a certificate to that effect executed by BIG
DIPPER's President and Chief Financial Officer.
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<PAGE> 37
9.2. Covenants. BIG DIPPER shall have performed and complied in all
material respects with all of its covenants and agreements required by
this Agreement to be performed or complied with by it at or before the
Closing, and NORTH STAR shall have received a certificate to such effect
signed by BIG DIPPER's President and Chief Financial Officer.
9.3. Compliance with Law. There shall not be outstanding or
threatened, or enacted or adopted, any order, decree, temporary,
preliminary or permanent injunction, legislative enactment, statute,
regulation, action, proceeding or any judgment or ruling by any court,
arbitrator, governmental agency, authority or entity, or any other fact
or circumstance, that, directly or indirectly, challenges, threatens,
prohibits, enjoins, restrains, suspends, delays, conditions, or renders
illegal or imposes limitations on (or is likely to result in a challenge,
threat to, or a prohibition, injunction, restraint, suspension, delay or
illegality of, or to impose limitations on) the transactions contemplated
by this Agreement.
9.4. Government Consents. BIG DIPPER, Clark McLeod and Mary McLeod,
shall have fully complied with the applicable provisions of the HSR Act
and any and all applicable waiting periods thereunder shall have expired
or been terminated early. There shall have been obtained at or prior to
the Closing Date such other permits or authorizations, and there shall
have been taken such other action by any regulatory authority having
jurisdiction over the parties and the actions proposed to be taken under
this Agreement, as may be required to lawfully consummate the proposed
transaction, including but not limited to requirements under applicable
federal and state securities laws.
9.5. Opinion of BIG DIPPER's Counsel. NORTH STAR shall have received from
counsel to BIG DIPPER an opinion in substantially the form of Exhibit
9.5.
9.6. No Litigation. No litigation or proceeding shall be threatened or
pending for the purpose or with the probable effect of enjoining or
preventing the consummation of any of the transactions contemplated by
this Agreement, or which could be reasonably expected to have a material
adverse effect on the present or future operations or financial condition
of BIG DIPPER.
9.7. BIG DIPPER Requisite Approvals. The principal terms of this
Agreement shall have been approved and adopted by BIG DIPPER's Board of
Directors in accordance with applicable law and BIG DIPPER's Certificate
of Incorporation and Bylaws. The principal terms of the Plan of Merger
shall have been approved and adopted by MERGECO's Board of Directors and
shareholder in accordance with applicable law and MERGECO's Articles of
Incorporation and Bylaws.
9.8. Satisfactory Form of Legal and Accounting Matters. The form, scope
and substance of all legal matters contemplated by this Agreement,
including all
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closing documents, shall be reasonably acceptable to NORTH STAR's counsel
and independent public accountants.
9.9. No Material Adverse Change. There shall not have been any material
adverse change in the financial condition, properties, assets,
liabilities, business or operations of BIG DIPPER and its subsidiaries
taken as a whole, other than any change (a) in the market price of the
BIG DIPPER Common Stock or (b) that results from general economic
conditions or conditions generally affecting the communications industry.
9.10. NORTH STAR Requisite Approval. The principal terms of this
Agreement shall have been approved by NORTH STAR's shareholders in
accordance with applicable law and NORTH STAR's Articles of Incorporation
and Bylaws.
9.11. Fairness Opinion. The advice given to the Board of Directors of
NORTH STAR by William Blair and Company described in Section 3.33 shall
not have been withdrawn.
10. CONDITIONS TO OBLIGATIONS OF BIG DIPPER. BIG DIPPER's obligations
under this Agreement are subject to the fulfillment or satisfaction, at or
prior to the Closing, of each of the following conditions (any one or more of
which may be waived by BIG DIPPER, but only in a writing signed by BIG
DIPPER).
10.1. Accuracy of Representations and Warranties. The representations
and warranties of NORTH STAR as set forth in section 3 (as qualified by
the NORTH STAR Disclosure Letter, as such may be amended in accordance
with this Agreement to disclose changes that are not material) shall be
true and accurate in every material respect on and as of the Closing and
BIG DIPPER shall have received a certificate to such effect executed by
NORTH STAR's President and Chief Financial Officer.
10.2. Covenants. NORTH STAR shall have performed and complied in all
material respects with all of its covenants and agreements required by
this Agreement to be performed or complied with by it at, on or before
the Closing and BIG DIPPER shall have received a certificate to such
effect signed by NORTH STAR's President and Chief Financial Officer.
10.3. Compliance with Law. There shall not be outstanding or
threatened, or enacted or adopted, any order, decree, temporary,
preliminary or permanent injunction, legislative enactment, statute,
regulation, action, proceeding or any judgment or ruling by any court,
arbitrator, governmental agency, authority or entity, or any other fact
or circumstance, that, directly or indirectly, challenges, threatens,
prohibits, enjoins, restrains, suspends, delays, conditions, or renders
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illegal or imposes limitations on (or is likely to result in a challenge,
threat to, or a prohibition, injunction, restraint, suspension, delay or
illegality of, or to impose limitations on) the transactions contemplated
by this Agreement.
10.4. Government Consents. NORTH STAR, Clark McLeod and Mary McLeod
shall have fully complied with the applicable provisions of the HSR Act
and any and all applicable waiting periods thereunder shall have expired
or been terminated early. There shall have been obtained at or prior to
the Closing Date such other permits or authorizations, and there shall
have been taken such other action by any regulatory authority having
jurisdiction over the parties and the actions proposed to be taken under
this Agreement, as may be required to lawfully consummate the proposed
transaction, including but not limited to requirements under applicable
federal and state securities laws.
10.5. Opinion of NORTH STAR's Counsel. BIG DIPPER shall have received
from counsel to NORTH STAR an opinion in substantially the form of
Exhibit 10.5.
10.6. Consents. BIG DIPPER and/or NORTH STAR shall have received all
written consents, assignments, waivers, authorizations or other
certificates reasonably deemed necessary by BIG DIPPER to consummate the
transactions contemplated by this Agreement and to allow the Surviving
Corporation to conduct NORTH STAR's business after the Closing in
substantially the same manner as such business was conducted prior to the
Closing, including, without limitation, NORTH STAR's secured lender,
Norwest Bank, N.A., in form and substance reasonably satisfactory to BIG
DIPPER, consenting to the Merger.
10.7. No Litigation. No litigation or proceeding shall be threatened or
pending for the purpose or with the probable effect of enjoining or
preventing the consummation of any of the transactions contemplated by
this Agreement, or which could be reasonably expected to have a material
adverse effect on the present or future operations or financial condition
of NORTH STAR.
10.8. Requisite Approvals. The principal terms of this Agreement shall
have been approved and adopted by NORTH STAR's Board of Directors and by
NORTH STAR's shareholders in accordance with applicable law and NORTH
STAR's Articles of Incorporation and Bylaws.
10.9. Dissenting Shareholders. No more than five percent (5%) in the
aggregate of the shares of NORTH STAR Common Stock issued and outstanding
immediately prior to the Effective Time shall be NORTH STAR Dissenting
Shares.
10.10. Employment, Confidentiality and Non-Competition Agreement. Arthur
Christoffersen shall have executed and delivered to BIG DIPPER an
Employment, Confidentiality and Non-Competition Agreement, containing
terms and
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conditions substantially similar to the terms and conditions of BIG
DIPPER's standard Employment, Confidentiality and Non-Competition
Agreement, in form and substance reasonably acceptable to BIG DIPPER.
10.11. Confidentiality and Non-Competition Agreement. Jim Haddad and Tom
Anderson shall each have executed and delivered to BIG DIPPER a
Confidentiality and Non-Competition Agreement in form and substance
reasonably acceptable to BIG DIPPER.
10.12. Termination of Rights. Any registration rights, rights of first
refusal, rights to any liquidation preference, redemption rights or any
similar rights of any shareholder of NORTH STAR shall have been
terminated or waived as of the Closing.
10.13. Satisfactory Form of Legal and Accounting Matters. The form,
scope and substance of all legal matters contemplated by this Agreement,
including all closing documents, shall be reasonably acceptable to BIG
DIPPER's counsel and independent public accountants.
10.14. No Material Adverse Change. There shall not have been any
material adverse change in the financial condition, properties, assets,
liabilities, business or operations of NORTH STAR taken as a whole, other
than any change that results from general economic conditions or
conditions generally affecting the business being conducted by NORTH
STAR.
10.15. Fairness Opinion. The fairness opinion delivered to the Board of
Directors of BIG DIPPER by its financial advisor shall not have been
withdrawn.
10.16. Conversion of Debentures and Exercise of Warrants. In the
aggregate, at least 1,688,529 additional shares of NORTH STAR Common
Stock shall have been validly issued pursuant to the conversion of NORTH
STAR Convertible Debentures and the exercise of NORTH STAR Warrants and
all such shares are fully paid and nonassessable.
10.17. Investment Agreement. Each of Clark McLeod, Mary McLeod and Art
Christoffersen shall have executed and delivered the Investment
Agreement, including the Accredited Investor Questionnaire attached as
Exhibit A thereto, to BIG DIPPER in accordance with Section 6.8.
10.18. Shareholders Agreement. The Shareholders Agreement dated January
28, 1991, as amended, among certain shareholders of NORTH STAR shall have
been terminated and shall be null and void and of no further effect.
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10.19. Audit of 1996 NORTH STAR Financial Statements. BIG DIPPER shall
have received the final audit report of McGladrey & Pullen, LLP regarding
the 1996 NORTH STAR Financial Statements.
11. TERMINATION OF AGREEMENT.
11.1. Termination. This Agreement may be terminated at any time prior to
the Closing, whether before or after approval by the shareholders of NORTH
STAR contemplated by this Agreement:
11.1.1. by the mutual written consent of NORTH STAR and BIG DIPPER.
11.1.2. by BIG DIPPER or NORTH STAR if the Closing shall not have
occurred on or before November 30, 1996, provided that the right to
terminate this Agreement under this Section 11.1.2 shall not be
available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of
the Closing to occur on or before such date.
11.1.3. by NORTH STAR if it is not in material breach of its
obligations under this Agreement and there has been a material
breach of any representation, warranty, covenant or agreement
contained in this Agreement on the part of BIG DIPPER and such
breach has not been cured within ten business days after written
notice to BIG DIPPER (provided that no cure period shall be required
for a breach which by its nature cannot be cured).
11.1.4. by BIG DIPPER if it is not in material breach of its
obligations under this Agreement and there has been a material
breach of any representation, warranty, covenant or agreement
contained in this Agreement on the part of NORTH STAR and such
breach has not been cured within ten business days after written
notice to NORTH STAR (provided that no cure period shall be required
for a breach which by its nature cannot be cured).
11.1.5. by BIG DIPPER or NORTH STAR if any required approval of the
shareholders of NORTH STAR shall not have been obtained.
11.1.6. by BIG DIPPER or NORTH STAR if NORTH STAR shall have
accepted or recommended to the shareholders of NORTH STAR a bona
fide offer as defined in Section 5.4, in which case NORTH STAR shall
pay the amount provided for in Section 5.4.
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Any termination of this Agreement under this Section 11.1 will be
effective by the delivery of notice by the terminating party to the other
party hereto.
11.2. No Liability. Any termination of this Agreement in accordance
with this Section 11 will be without further obligation or liability upon
any party in favor of the other party hereto other than the obligations
provided in Sections 5.4, 5.5 and this Section 11.2 which will survive
termination of this Agreement; provided, however, that (i) nothing herein
will limit the obligation of NORTH STAR and BIG DIPPER to use their best
efforts to cause the Merger to be consummated, as set forth in Sections
5.11, 6.4, 6.6 7.3, and 7.4 hereof, respectively, (ii) nothing herein
shall relieve any party from liability for any breach hereof, and (iii)
each party shall be entitled to any remedies at law or in equity for such
breach.
12. GENERAL PROVISIONS.
12.1. Nonsurvival of Representations and Warranties. All
representations and warranties and agreements in this Agreement or in any
instrument delivered pursuant to this provision shall be deemed to be
conditions to the Merger and shall not survive the Merger except for the
provisions of Articles 2 and 12, Sections 3.5, 5.7, 5.8, 5.11, 5.12, 8.2
and the last sentence of Section 5.2 and the agreements delivered
pursuant to Sections 10.10 and 10.17, which shall survive the Merger.
12.2. Governing Law. The internal laws of the State of Iowa
(irrespective of its choice of law principles) will govern the validity
of this Agreement, the construction of its terms, and the interpretation
and enforcement of the rights and duties of the parties to this
Agreement.
12.3. Assignment, Binding Upon Successors and Assigns. No party to this
Agreement may assign any of its rights or obligations under this
Agreement without the prior written consent of the other party. This
Agreement will be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns.
12.4. Severability. If any portion of this Agreement shall be held to
be invalid or unenforceable for any reason, the remaining provisions
shall continue to be valid and enforceable so as to reasonably effect the
intent of the parties. The parties further agree to replace such invalid
or unenforceable provision with a valid and enforceable provision that
will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
12.5. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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12.6. Other Remedies. Except as otherwise provided in this Agreement,
any and all remedies expressly conferred upon a party in this Agreement
will be deemed cumulative, with and not exclusive of any other remedy
conferred by this Agreement or by law. The exercise of any one remedy
will not preclude the exercise of any other remedy.
12.7. Amendment and Waivers. Any term or provision of this Agreement
may be amended, and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either
retroactively or prospectively) only by a writing signed by the party to
be bound thereby. The waiver by a party of any breach of this Agreement
or default in the performance of this Agreement will not be deemed to
constitute a waiver of any other default or any succeeding breach or
default.
12.8. No Waiver. The failure of any party to enforce any of the
provisions of this Agreement shall not be construed to be a waiver of the
right of such party to enforce such provisions at a subsequent time.
12.9. Expenses. Each party will bear its respective expenses and legal
fees incurred with respect to this Agreement, and the transactions
contemplated under this Agreement.
12.10. Attorneys' Fees. If a suit is brought to enforce or interpret
any part of this Agreement, the prevailing party will be entitled to
recover, as an element of the costs of suit and not as damages,
reasonable attorneys' fees to be fixed by the court (including without
limitation, costs, expenses and fees on any appeal). The prevailing
party will be entitled to recover its costs of suit, regardless of
whether such suit proceeds to final judgment.
12.11. Notices. All notices and other communications required or
permitted under this Agreement will be in writing and will be either hand
delivered in person, sent by telecopier, sent by certified or registered
first class mail, postage prepaid, or sent by nationally recognized
express courier service. Such notices and other communications will be
effective upon receipt if hand delivered or sent by telecopier, five (5)
days after mailing if sent by mail, and one (1) day after dispatch if
sent by express courier, to the following addresses, or such other
addresses as any party may notify the other parties in accordance with
this section:
If to BIG DIPPER:
221 Third Avenue, S.E., Suite 500
Cedar Rapids, IA 52401
ATTN: Stephen Gray
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If to NORTH STAR:
201 Third Avenue, S.E., Suite 500
Cedar Rapids, IA 52401
ATTN: Art Christoffersen and Jim Haddad
or to such other address as a party may have furnished to the other
parties in writing pursuant to this section.
12.12. Construction of Agreement. This Agreement has been negotiated by
the respective parties and their attorneys and the language of this
Agreement and the related ancillary documents will not be construed for
or against either party. A reference to a section or an exhibit will
mean a section in, or exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings of this Agreement are for
reference purposes only and will not in any manner limit the construction
of this Agreement which will be considered as a whole.
12.13. Absence of Third Party Beneficiary Rights. No provisions of this
Agreement (or any ancillary agreement) are intended, nor will be
interpreted, to provide or create any third party beneficiary rights or
any other rights of any kind in any client, customer, affiliate,
shareholder, partner or any party, unless specifically provided otherwise
in this Agreement, and, except as so provided, all provisions of this
Agreement (or any ancillary agreement) will be personal solely among the
parties to this Agreement (or the applicable ancillary agreement).
12.14. Entire Agreement. This Agreement and the related exhibits
constitute the entire understanding and agreement of the parties with
respect to the subject matter of this Agreement, and supersede all prior
and contemporaneous agreements or understandings, inducements or
conditions, express or implied, written or oral, between the parties.
The express terms of this Agreement control and supersede any course of
performance or usage of the trade inconsistent with any of the terms of
this Agreement.
MCLEOD,INC.
By: /s/ STEPHEN C. GRAY
----------------------------------
Name: Stephen C. Gray
-------------------------------
Title: President
------------------------------
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TELECOM*USA PUBLISHING GROUP, INC.
By: /s/ ARTHUR L. CHRISTOFFERSEN
---------------------------------
Name: Arthur L. Christoffersen
-------------------------------
Title: President
-------------------------------
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EXHIBIT LIST
Exhibit A Plan of Merger
Exhibit B Articles of Merger
Exhibit 2.1.3 Deferred Compensation Program
Exhibit 3.5.1 List of Stockholders
Exhibit 3.5.2 List of Options, Warrants and Debentures
Exhibit 3.6 Subsidiaries
Exhibit 3.11 Title to Properties
Exhibit 3.13 Contracts and Commitments
Exhibit 3.15 Intellectual Property
Exhibit 3.20 Employee Benefit Plans
Exhibit 3.29 Insurance
Exhibit 5.8 Salaries and Bonuses
Exhibit 6.8 Investment Agreement
Exhibit 9.5 Opinion of Counsel
Exhibit 10.5 Opinion of Counsel
McLeod, Inc. agrees to furnish supplementally a copy of any of
the exhibits listed above to the Commission upon request.
<PAGE> 1
EXHIBIT 99.1
[MCLEOD LETTERHEAD]
PRESS RELEASE
<TABLE>
<S> <C>
McLeod, Inc. TELECOM*USA Publishing Group, Inc.
221 3rd Avenue, SE, Suite 500 201 3rd Avenue, SE
Cedar Rapids, IA Cedar Rapids, IA
Press Contact: Justin Saylor Contact: Arthur L. Christoffersen
Investor Contact: Bryce E. Nemitz
Phone: (319) 364-0000 Phone: (319) 366-1100 ext. 3100
FAX: (319) 298-7767 FAX: (319) 368-1303
</TABLE>
FOR IMMEDIATE RELEASE
MCLEOD, INC. AGREES TO ACQUIRE TELECOM*USA
PUBLISHING GROUP, INC.
Cedar Rapids, IA, August 15 - McLeod, Inc. (NASDAQ/NMS:MCLD) announced today
that it has signed an agreement to acquire 100% of the outstanding shares of
TELECOM*USA Publishing Group, Inc. in a cash and stock transaction valued at up
to $81.5 million. The agreement remains subject to the satisfaction of certain
conditions.
McLeod, Inc. is a provider of integrated local and long distance services to
business and residential customers primarily in Iowa and Illinois. On June 21,
1996, McLeod, Inc. introduced its new PrimeLine(R) service to residential
customers in the Cedar Rapids and Iowa City markets. PrimeLine includes local
phone service, long distance, voice mail, Internet access and paging.
"This alliance will provide us the opportunity to optimize and simplify our
marketing and customer service efforts for our business and residential
customers," said Steve Gray, President and Chief Operating Officer of McLeod,
Inc. "This combination will create opportunities for McLeod to extend its
relationship with its customers through nearly three million directories that
TELECOM*USA Publishing currently distributes in McLeod's targeted upper midwest
region."
-more-
<PAGE> 2
TELECOM*USA Publishing is headquartered in Cedar Rapids and currently employs
over 600 full- and part-time staff. TELECOM*USA Publishing had revenue of
approximately $61 million for the twelve-month period ended July 31, 1996 and
publishes approximately 8 million telephone directories in about 5,000
communities in 15 states in the midwestern United States. As a wholly owned
subsidiary of McLeod, Inc., TELECOM*USA Publishing would continue to operate
from its current headquarters location with its existing management and would
continue its publishing, yellow page advertising, and interactive audiotex
services.
Arthur Christoffersen, formerly Executive Vice President and CFO of the
Teleconnect Company, will continue as President and CEO of TELECOM*USA
Publishing, which will become a wholly owned subsidiary of McLeod, Inc. Mr.
Christoffersen joins McLeod, Inc. executives Clark McLeod, Chairman and CEO, and
Steve Gray, President and COO, as well as other former Teleconnect Company
executives who now work at McLeod.
Arthur Christoffersen commented on the synergies between McLeod, Inc. and
TELECOM*USA Publishing. "Our customer base and publishing services complement
McLeod's sales efforts in both the business and residential markets. The merger
of our companies represents a strategic alliance between an independent
telephone directory publisher and a company like McLeod, Inc. which provides
extensive and innovative packages of services. I look forward to the benefits
this partnership provides for our customers and employees."
The acquisition agreement was signed on August 15, 1996 and its is expected that
the acquisition will be completed in September or October of this year.
Approximately $69 million will be paid in the form of cash, $6 million in the
form of McLeod, Inc. Class A Common Stock and the remainder to be the assumption
of certain TELECOM*USA Publishing Indebtedness.
PrimeLine(R) is a registered trademark of McLeod TeleManagement, Inc.
<PAGE> 1
EXHIBIT 99.2
SECURITYHOLDERS AGREEMENT
August 15, 1996
McLeod, Inc.
3rd Avenue SE
Suite 500
Cedar Rapids, Iowa 52401
Attn: Stephen C. Gray
Re: Agreement of Securityholders Concerning Voting and Transfer of
Securities of Telecom*USA Publishing Group, Inc. (the
"Company")
Each of the undersigned, a securityholder of the Company, understands
that you and the Company are prepared to enter into an Agreement and Plan of
Reorganization dated as of August 15, 1996 (the "Agreement") calling for the
merger ("Merger") of your wholly owned subsidiary ("Sub") with and into the
Company, but that you have conditioned your willingness to proceed with the
Agreement upon your receipt from each of the undersigned of assurances
satisfactory to you of each of the undersigned's support of and commitment to
the Merger on the terms set forth in the Agreement.
For valid consideration, the receipt and sufficiency of which is
hereby acknowledged, and to evidence such commitment and induce you to enter
into the Agreement, each of the undersigned, in its capacity solely as a
securityholder of the Company, hereby severally but not jointly, represents and
warrants to you and agrees with you as follows:
1. Defined Terms. Capitalized terms not defined herein are used
as defined in the Agreement.
2. Voting. Until November 30, 1996, or if the Agreement is
extended in accordance with its terms or by mutual written agreement of the
parties thereto, such extended date, each of the undersigned (a) will vote or
cause to be voted all shares of capital stock of the Company owned of record of
beneficially or held in any capacity by or under the control of any of the
undersigned and entitled to vote in favor of the Merger and transactions
contemplated by the Agreement and against any inconsistent actions, proposals
or transactions, and (b) will not claim or exercise any dissenter or appraisal
rights with respect to the Merger.
3. Ownership. As of the date of this letter agreement, each of
the undersigned's only ownership of, or interest in, capital stock of the
Company, including stock
<PAGE> 2
options and other securities convertible into or exchangeable for
capital stock of the Company (the "Securities"), consists solely of the
interests described in Schedule 1 hereto (including, if applicable, a notation
of any pledges of, or liens or other encumbrances on, the Securities).
4. Exclusive Dealing; Restriction on Transfer. Until November
30, 1996, or if the Agreement is extended in accordance with its terms or by
mutual written agreement of the parties thereto, such extended date, each of
the undersigned, except as required by the Merger or as otherwise contemplated
by the Agreement, will not sell, transfer, pledge or otherwise dispose of any
of the Securities or any interest therein or agree to sell, transfer, pledge or
otherwise dispose of any of the Securities or any interest therein or solicit
offers to do or entertain discussions or negotiate to do any of the foregoing,
without your express written consent.
5. Compliance. By its execution of this letter agreement, the
Company acknowledges the foregoing restrictions on transfer and agrees to use
its best efforts to ensure compliance with such restrictions, including,
without limitation, by refusing to register any such transfer of Securities in
the stock ledger of the Company.
6. Pre- and Post-Merger Sale Restrictions; Other Conditions. To
the extent applicable to any Securities held of record or beneficially by the
undersigned securityholder, each such undersigned securityholder agrees to the
terms and conditions contemplated by Sections 5.3 (North Star Shareholder
Meeting), 5.4 (No Other Bids), 6.8 (Investment Agreement), 6.9 (Best Efforts on
Warrants and Convertible Debentures) and 8.2 (Exchange of Certificates) of the
Agreement, and each of the undersigned securityholders will execute such
further agreements, documents and instruments and take such further actions
including those contemplated by the foregoing Sections of the Agreement as you
may reasonably request to implement this letter agreement.
7. Waiver of Rights; Termination of Agreements. To the extent
applicable to any Securities held of record or beneficially by the undersigned
securityholders, each such undersigned securityholder hereby irrevocably waives
any and all rights of first refusal and other similar rights, advance notice
rights, election rights and other similar rights, and contractual and other
pre-emptive rights and other rights of any nature whatsoever, which would be in
conflict with or variance from or which would otherwise be required or called
for in order to effect the treatment of the Securities as contemplated by the
merger and the other transactions contemplated under the Agreement and this
letter agreement. The Company, McLeod, Inc., Sub and their respective outside
accountants, counsel and financial advisors shall be entitled to rely upon the
waivers set forth in this Paragraph 7 for the purposes of consummating the
Merger and the other transactions contemplated by the Agreement.
<PAGE> 3
8. Successors and Assigns; Remedies. Upon your execution of this
letter agreement, this letter agreement will mutually bind and benefit you and
each of the undersigned, any of the undersigned's heirs, successors and assigns
and any of your successors. You will not assign any of your rights or
obligations under this letter agreement other than to one of your wholly owned
subsidiaries. Each of the undersigned agrees that in light of the inadequacy
of damages as a remedy, specific performance will be available to you, in
addition to any other remedies you may have for any breach of this letter
agreement.
9. Nature of Holdings; Securities. All references herein to each
of the undersigned's holdings of the Securities are deemed to include
Securities held or controlled by any of the undersigned individually, jointly
(as community property or otherwise), in trust, by or through partnerships or
other entities or in any other capacity, and will extend to any securities,
cash or other property issued to any of the undersigned by the Company in
respect of the Securities prior to the Effective Time.
10. Termination. If the Agreement terminates in accordance with
its terms other than because of any securityholder's default, misrepresentation
or breach under this letter agreement, this letter agreement will also
terminate. Nothing in this Paragraph 10 shall affect the period of time during
which by their terms Paragraphs 2 and 4 of this letter agreement remain in
effect.
11. Counterparts. This letter agreement may be executed in two or
more counterparts, each of which shall be considered an original, but all of
which together shall constitute one and the same instrument.
Very truly yours,
-------------------------
[NAME OF SECURITYHOLDER]
ACCEPTED: AGREED TO AND ACKNOWLEDGED:
McLEOD, INC. TELECOM*USA PUBLISHING GROUP, INC.
By By:
----------------------- -----------------------
Name: Name:
-------------------- --------------------
Title Title:
--------------------- ---------------------
<PAGE> 4
SCHEDULE 1 TO LETTER AGREEMENT
DATED AUGUST 15, 1996
OWNERSHIP OF COMPANY SECURITIES
BY SECURITYHOLDERS
