<PAGE>
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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): January 7, 1999
McLEODUSA INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 0-20763 42-1407240
(State or Other (Commission (IRS Employer
Jurisdiction File Number) Identification Number)
of Incorporation)
McLeodUSA Technology Park 52406-3177
6400 C Street, S.W., P.O. Box 3177, Cedar Rapids, (Zip Code)
IA
(Address of Principal Executive Offices)
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
Agreement to Acquire Ovation Communications, Inc.
On January 7, 1999, McLeodUSA Incorporated (the "Company") entered into an
Agreement and Plan of Merger (the "Ovation Merger Agreement") with Ovation
Communications, Inc., a Delaware corporation ("Ovation"), and certain
stockholders of Ovation pursuant to which Ovation will be merged with and into
a newly formed wholly owned subsidiary of the Company (the "Ovation Merger").
As a result of the Ovation Merger, (i) each share of Ovation's preferred stock
will be converted into the right to receive cash, and (ii) each share of
Ovation's common stock will be converted, at the election of the holder
thereof, into the right to receive cash or shares of the Company's Class A
common stock. The amount of cash into which each share of Ovation's preferred
stock will be converted and the amount of cash or number of shares of the
Company's Class A common stock into which each share of Ovation's common stock
will be converted will be determined immediately prior to consummation of the
Ovation Merger in accordance with formulas specified in the Ovation Merger
Agreement. The Company estimates that it will be required to issue
approximately 5.1 million shares of its Class A common stock and to pay
approximately $141 million pursuant to the Ovation Merger. The Company also
will assume approximately $83 million in Ovation debt. In addition, under the
terms of the Ovation Merger Agreement, each option to purchase Ovation common
stock issued under Ovation's stock option plan will become or be replaced by
an option to purchase a number of shares of the Company's Class A common stock
equal to the number of shares of Ovation common stock that could have been
purchased (assuming full vesting) under the Ovation stock option multiplied by
the exchange ratio used to convert Ovation common stock into the Company's
Class A common stock. The Company has agreed to register under the Securities
Act of 1933 the shares of its Class A common stock to be issued in the Ovation
Merger.
Consummation of the Ovation Merger is subject to the satisfaction of certain
conditions, including (i) approval of the Ovation Merger Agreement and the
Ovation Merger by the stockholders of Ovation, (ii) effectiveness of the
registration statement registering the shares of the Company's Class A common
stock to be issued in the Ovation Merger, (iii) compliance with all applicable
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
expiration of all applicable waiting periods thereunder, (iv) receipt of
specified regulatory approvals and (v) certain other customary conditions.
Certain stockholders and executive officers of Ovation have entered into
voting agreements pursuant to which, among other things, they have agreed to
vote their shares of Ovation common stock and preferred stock in favor of the
Ovation Merger at a meeting of the stockholders of Ovation. Both the Company
and Ovation may terminate the Ovation Merger Agreement if the Ovation Merger
has not been consummated by May 1, 1999.
In connection with the execution of the Ovation Merger Agreement, the
Company entered into a Revolving Credit Agreement with Ovation pursuant to
which the Company agreed to lend to Ovation up to $20 million on a senior
subordinated unsecured basis. In addition, certain stockholders of Ovation
entered into a Stockholders' Agreement (the "Stockholders' Agreement") with
the Company and certain stockholders of the Company pursuant to which, among
other things, such Ovation stockholders agreed through December 31, 2001 to
certain restrictions on their ability to transfer the shares of the Company's
Class A common stock that they will receive in the Ovation Merger.
Ovation is a facilities-based competitive local exchange carrier
headquartered in Minneapolis, Minnesota. Ovation offers local, long distance,
Integrated Services Digital Network (ISDN), voice mail, teleconferencing,
calling card and other telecommunications services to business and residential
customers primarily in urban areas in the upper Midwestern region of the
United States. As of December 31, 1998, Ovation served approximately 32,650
business local lines and 12,900 residential local lines to approximately 2,900
business customers and 11,750 residential customers in 135 cities and towns,
generating estimated 1998 revenues of $34.6 million.
2
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Ovation has four switches and approximately 564 route miles of fiber optic
network. As of December 31, 1998, Ovation had 384 employees.
The foregoing descriptions of the Ovation Merger Agreement and the
Stockholders' Agreement, and the transactions contemplated thereby, do not
purport to be complete and are qualified in their entirety by reference to the
Ovation Merger Agreement and the Stockholders' Agreement, copies of which are
attached hereto as Exhibit 2.1 and Exhibit 4.1, respectively, and incorporated
herein by reference. A copy of the press release, dated January 7, 1999,
issued by the Company regarding the above-described transactions is attached
as Exhibit 99.1 hereto and incorporated herein by reference.
Agreements to Acquire Talking Directories, Inc. and Info America Phone Books,
Inc.
On January 7, 1999, the Company and its indirect wholly owned subsidiary,
McLeodUSA Publishing Company ("Pubco"), entered into an Agreement and Plan of
Merger (the "TDI Merger Agreement") with Talking Directories, Inc., a Michigan
corporation ("TDI"), and the stockholders of TDI pursuant to which a newly
formed wholly owned subsidiary of Pubco will be merged with and into TDI (the
"TDI Merger"). As a result of the TDI Merger, each share of TDI common stock
will be converted into the right to receive a number of shares of the
Company's Class A common stock determined in accordance with a formula
contained in the TDI Merger Agreement. The maximum number of shares of the
Company's Class A common stock issuable pursuant to the TDI Merger is expected
to be approximately 2,556,391. The Company will also assume approximately
$15.6 million of TDI debt. The Company intends to account for the TDI Merger
as a "pooling of interests."
Consummation of the TDI Merger is subject to the satisfaction of certain
conditions, including (i) approval of the TDI Merger Agreement and the TDI
Merger by the stockholders of TDI, (ii) compliance with all applicable
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
expiration of all applicable waiting periods thereunder, (iii) receipt of
required regulatory approvals, (iv) receipt of an opinion of the Company's
accountants that the TDI Merger may be treated as a "pooling of interests" for
accounting purposes, and (v) certain other customary conditions. Both Pubco
and TDI may terminate the TDI Merger Agreement if the TDI Merger has not been
consummated by February 15, 1999.
In a related transaction, on January 7, 1999, the Company and Pubco entered
into an Agreement and Plan of Merger (the "Info America Merger Agreement")
with Info America Phone Books, Inc., a Michigan corporation ("Info America"),
and certain stockholders of Info America pursuant to which a newly formed
wholly owned subsidiary of Pubco will be merged with and into Info America
(the "Info America Merger"). As a result of the Info America Merger, each
share of Info America's common stock will be converted into the right to
receive a number of shares of the Company's Class A common stock determined in
accordance with a formula contained in the Info America Merger Agreement. The
maximum number of shares of the Company's Class A common stock issuable
pursuant to the Info America Merger is expected to be approximately 1,203,007.
The Company intends to account for the Info America Merger as a "pooling of
interests."
Consummation of the Info America Merger is subject to the satisfaction of
certain conditions, including (i) approval of the Info America Merger
Agreement and the Info America Merger by the stockholders of Info America,
(ii) compliance with all applicable provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the expiration of all applicable
waiting periods thereunder, (iii) receipt of required regulatory approvals,
(iv) receipt of an opinion of the Company's accountants that the Info America
Merger may be treated as a "pooling of interests" for accounting purposes, and
(v) certain other customary conditions. Both Pubco and Info America may
terminate the Info America Merger Agreement if the Info America Merger has not
been consummated by February 15, 1999.
TDI and Info America are related companies, headquartered in Grand Rapids,
Michigan, that together publish and distribute proprietary "white page" and
"yellow page" telephone directories primarily in Michigan and northwestern
Ohio. In 1998, TDI and Info America collectively published and distributed
approximately
3
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2.6 million copies of 19 telephone directories. As of December 31, 1998, TDI
had 257 employees and Info America had no employees.
The foregoing descriptions of the TDI Merger Agreement and the Info America
Merger Agreement, and the transactions contemplated thereby, do not purport to
be complete and are qualified in their entirety by reference to the TDI Merger
Agreement and the Info America Merger Agreement, copies of which are attached
hereto as Exhibit 2.2 and Exhibit 2.3, respectively, and incorporated herein
by reference. A copy of the press release, dated January 7, 1999, issued by
the Company regarding the above-described transactions is attached as Exhibit
99.2 hereto and incorporated herein by reference.
Certain statements contained in this Current Report on Form 8-K are forward-
looking statements that involve risks and uncertainties, including, but not
limited to revision of expansion plans, availability of financing and
regulatory approvals, the number of potential customers in a target market,
the existence of strategic alliances or relationships, technological,
regulatory or other developments in the Company's business, changes in the
competitive climate in which the Company operates and the emergence of future
opportunities, all of which could cause actual results and experiences of the
Company to differ materially from anticipated results and expectations
expressed in the forward-looking statements contained herein. These and other
applicable risks are summarized under the caption "Risk Factors" and elsewhere
in the Company's Registration Statement on Form S-4, Registration
No. 333-68891, filed with the Securities and Exchange Commission on December
14, 1998.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits.
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<S> <C>
2.1 Agreement and Plan of Merger, dated as of January 7, 1999, among McLeodUSA
Incorporated, Bravo Acquisition Corporation, Ovation Communications, Inc. and certain
stockholders of Ovation Communications, Inc.
2.2 Agreement and Plan of Merger, dated as of January 7, 1999, among McLeodUSA
Incorporated, McLeodUSA Publishing Company, Pubco Merging Co., Talking Directories,
Inc. and certain stockholders of Talking Directories, Inc.
2.3 Agreement and Plan of Merger, dated as of January 7, 1999, among McLeodUSA
Incorporated, McLeodUSA Publishing Company, Publication Merge Co., Info America Phone
Books, Inc. and certain stockholders of Info America Phone Books, Inc.
4.1 Stockholders' Agreement, dated as of January 7, 1999, by and among McLeodUSA
Incorporated, IES Investments Inc., Clark E. McLeod, Mary E. McLeod, Richard A.
Lumpkin, Gail Lumpkin, M/C Investors L.L.C. and Media/Communications Partners III
Limited Partnership.
99.1 Press Release, dated January 7, 1999, announcing the Company's execution of a
definitive agreement to acquire Ovation Communications, Inc.
99.2 Press Release, dated January 7, 1999, announcing McLeodUSA Publishing Company's
execution of definitive agreements to acquire Talking Directories, Inc. and Info
America Phone Books, Inc.
</TABLE>
4
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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.
McLeodUSA Incorporated
Date: January 14, 1999
/s/ Randall Rings
By: _________________________________
Randall Rings
Vice President, Secretary and
General Counsel
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EXHIBIT INDEX
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<CAPTION>
Page Number
in Sequential
Exhibit Number Exhibit Numbering System
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<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of
January 7, 1999, among McLeodUSA
Incorporated, Bravo Acquisition
Corporation, Ovation Communications, Inc.
and certain stockholders of Ovation
Communications, Inc.
2.2 Agreement and Plan of Merger, dated as of
January 7, 1999, among McLeodUSA
Incorporated, McLeodUSA Publishing Company,
Pubco Merging Co., Talking Directories,
Inc. and certain stockholders of Talking
Directories, Inc.
2.3 Agreement and Plan of Merger, dated as of
January 7, 1999, among McLeodUSA
Incorporated, McLeodUSA Publishing Company,
Publication Merge Co., Info America Phone
Books, Inc. and certain stockholders of
Info America Phone Books, Inc.
4.1 Stockholders' Agreement, dated as of January
7, 1999, by and among McLeodUSA
Incorporated, IES Investments Inc., Clark
E. McLeod, Mary E. McLeod, Richard A.
Lumpkin, Gail Lumpkin, M/C Investors L.L.C.
and Media/Communications Partners III
Limited Partnership.
99.1 Press Release, dated January 7, 1999,
announcing McLeodUSA Incorporated's
execution of a definitive agreement to
acquire Ovation Communications, Inc.
99.2 Press Release, dated January 7, 1999,
announcing McLeodUSA Publishing Company's
execution of definitive agreements to
acquire Talking Directories, Inc. and Info
America Phone Books, Inc.
</TABLE>
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MCLEODUSA INCORPORATED,
BRAVO ACQUISITION CORPORATION,
OVATION COMMUNICATIONS, INC.
and
Certain of the Stockholders of
OVATION COMMUNICATIONS, INC.
Dated as of January 7, 1999
<PAGE>
TABLE OF CONTENTS
Page
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ARTICLE I THE MERGER..........................................................2
SECTION 1.01. The Merger...................................................2
SECTION 1.02. Effective Time...............................................2
SECTION 1.03. Effect of the Merger.........................................2
SECTION 1.04. Certificate of Incorporation; Bylaws.........................3
SECTION 1.05. Directors and Officers.......................................3
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES.................3
SECTION 2.01. Conversion of Securities.....................................3
SECTION 2.02. Exchange of Certificates.....................................6
SECTION 2.03. Stock Transfer Books.........................................9
SECTION 2.04. Stock Options................................................9
SECTION 2.05. Closing.....................................................10
SECTION 2.06. Dissenting Stockholders.....................................10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................11
SECTION 3.01. Organization and Standing...................................11
SECTION 3.02. Subsidiaries................................................12
SECTION 3.03. Certificate of Incorporation and Bylaws.....................12
SECTION 3.04. Capitalization..............................................12
SECTION 3.05. Authority; Binding Obligation...............................13
SECTION 3.06. No Conflict; Required Filings and Consents..................14
SECTION 3.07. Licenses; Compliance........................................16
SECTION 3.08. Financial Statements........................................17
SECTION 3.09. Absence of Undisclosed Liabilities..........................18
SECTION 3.10. Absence of Certain Changes or Events........................18
SECTION 3.11. Litigation; Disputes........................................20
SECTION 3.12. Debt Instruments............................................20
SECTION 3.13. Real Property Leases........................................21
SECTION 3.14. Other Agreements; No Default................................21
SECTION 3.15. Labor Relations.............................................23
SECTION 3.16. Pension and Benefit Plans...................................24
SECTION 3.17. Taxes and Tax Matters.......................................27
SECTION 3.18. Customers...................................................29
SECTION 3.19. Certain Business Practices..................................29
SECTION 3.20. Insurance...................................................30
SECTION 3.21. Potential Conflicts of Interest.............................30
SECTION 3.22. Receivables.................................................31
SECTION 3.23. Real Property...............................................31
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SECTION 3.24. Books and Records...........................................32
SECTION 3.25. Assets......................................................33
SECTION 3.26. No Infringement or Contest..................................33
SECTION 3.27. Intentionally Deleted.......................................34
SECTION 3.28. Board Recommendation........................................34
SECTION 3.29. Vote Required...............................................35
SECTION 3.30. Banks; Attorneys-in-fact....................................35
SECTION 3.31. Intentionally Deleted.......................................35
SECTION 3.32. Brokers.....................................................35
SECTION 3.33. Environmental Matters.......................................35
SECTION 3.34. Disclosure..................................................37
SECTION 3.35. Directors, Officers and Affiliates..........................37
SECTION 3.36. Copies of Documents.........................................38
SECTION 3.37. Condition and Operation of the System.......................38
SECTION 3.38. Reorganization..............................................39
SECTION 3.39. State Takeover Statutes; Certain Charter Provisions.........40
SECTION 3.40. Year 2000 Review............................................40
SECTION 3.41. Affiliate Agreements........................................40
ARTICLE IIIA REPRESENTATIONS AND WARRANTIES OF PRINCIPAL COMPANY
STOCKHOLDERS....................................................41
SECTION 3A.01. Principal Company Stockholders That Are Entities...........41
SECTION 3A.02. Principal Company Stockholders That Are Individuals........42
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND ACQUIROR SUB.......42
SECTION 4.01. Organization and Qualification; Subsidiaries................43
SECTION 4.02. Certificate of Incorporation and Bylaws.....................43
SECTION 4.03. Authority; Binding Obligation...............................43
SECTION 4.04. No Conflict; Required Filings and Consents..................44
SECTION 4.05. No Prior Activities of Acquiror Sub.........................45
SECTION 4.06. Brokers.....................................................45
SECTION 4.07. SEC Documents...............................................45
SECTION 4.08. Acquiror Common Stock.......................................46
SECTION 4.09. Capitalization..............................................46
SECTION 4.10. Reorganization..............................................48
SECTION 4.11. Compliance..................................................48
SECTION 4.12. Disclosure..................................................48
<PAGE>
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS.................... 49
SECTION 5.01. Conduct of Business of the Company.................... 49
SECTION 5.02. Other Actions......................................... 52
SECTION 5.03. Certain Tax Matters................................... 52
SECTION 5.04. Access and Information................................ 53
SECTION 5.05. No Solicitation....................................... 53
ARTICLE VI ADDITIONAL AGREEMENTS....................................... 54
SECTION 6.01. Registration Statement; Proxy Statement............... 54
SECTION 6.02. Stockholder Approval.................................. 56
SECTION 6.03. Appropriate Action; Consents; Filings................. 57
SECTION 6.04. Amendment to Stockholders' Agreement.................. 58
SECTION 6.05. Update Disclosure; Breaches........................... 58
SECTION 6.06. Public Announcements.................................. 59
SECTION 6.07. Registration of Company Options....................... 59
SECTION 6.08. Unaudited Financial Information....................... 60
SECTION 6.09. Environmental Matters................................. 60
SECTION 6.10. Post-Signing SEC Documents............................ 60
SECTION 6.11. Indemnification....................................... 61
SECTION 6.12. Procedures; Conditions of Indemnification............. 62
SECTION 6.13. Affiliates; Tax Treatment............................. 64
SECTION 6.14. Tax Returns........................................... 64
SECTION 6.15. Reorganization........................................ 65
SECTION 6.16. Directors' and Officers' Insurance; Indemnification... 65
SECTION 6.17. Obligations of Acquiror Sub........................... 66
SECTION 6.18. Loan Agreement........................................ 66
SECTION 6.19 Letters of Accountants................................ 67
ARTICLE VII CONDITIONS PRECEDENT....................................... 67
SECTION 7.01. Conditions to Obligations of Each Party Under This
Merger Agreement...................................... 67
SECTION 7.02. Additional Conditions to Obligations of Acquiror and
Acquiror Sub.......................................... 69
SECTION 7.03. Additional Conditions to Obligations of the Company... 71
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER......................... 73
SECTION 8.01. Termination........................................... 73
SECTION 8.02. Effect of Termination................................. 75
SECTION 8.03. Expenses.............................................. 75
SECTION 8.04. Amendment............................................. 75
SECTION 8.05. Extension; Waiver..................................... 75
<PAGE>
ARTICLE IX GENERAL PROVISIONS................................................76
SECTION 9.01. Survival of Representations and Warranties..................76
SECTION 9.02. Notices.....................................................76
SECTION 9.03. Headings....................................................78
SECTION 9.04. Severability................................................78
SECTION 9.05. Entire Agreement............................................78
SECTION 9.06. Assignment..................................................79
SECTION 9.07. Parties in Interest.........................................79
SECTION 9.08. Mutual Drafting.............................................79
SECTION 9.09. Specific Performance........................................79
SECTION 9.10. Governing Law...............................................80
SECTION 9.11. Counterparts................................................80
SECTION 9.12. Confidentiality.............................................80
SECTION 9.13. General Exclusion...........................................80
ARTICLE X DEFINITIONS........................................................81
EXHIBITS
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EXHIBIT A FORM OF AFFILIATE AGREEMENT
EXHIBIT B FORM OF REVOLVING CREDIT AGREEMENT AND PROMISSORY NOTE
EXHIBIT C FORM OF TAX OPINION TO BE RENDERED BY COUNSEL TO ACQUIROR
EXHIBIT D FORM OF ACQUIROR TAX CERTIFICATE
EXHIBIT E FORM OF COMPANY TAX CERTIFICATE
EXHIBIT F FORM OF TAX OPINION TO BE RENDERED BY COUNSEL TO THE COMPANY
EXHIBIT G FORM OF ACQUIROR TAX CERTIFICATE
EXHIBIT H FORM OF COMPANY TAX CERTIFICATE
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of January 7, 1999 (this "Merger
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Agreement"), among McLeodUSA Incorporated, a Delaware corporation ("Acquiror"),
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Bravo Acquisition Corporation, a Delaware corporation ("Acquiror Sub") and a
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direct wholly owned subsidiary of Acquiror, Ovation Communications, Inc., a
Delaware corporation (the "Company"), and those stockholders of the Company
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named on the signature pages hereof (the "Principal Company Stockholders");
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WHEREAS, the Company, upon the terms and subject to the conditions of this
Merger Agreement and in accordance with the General Corporation Law of the State
of Delaware ("Delaware Law"), will merge with and into Acquiror Sub (the
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"Merger");
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WHEREAS, the Board of Directors of the Company has (i) determined that the
Merger is advisable and fair to the holders of Company Capital Stock (as defined
in Section 3.04) and is in the best interests of such stockholders and (ii)
approved and adopted this Merger Agreement and the transactions contemplated
hereby and recommended approval and adoption of this Merger Agreement by the
stockholders of the Company (the "Company Stockholders");
--------------------
WHEREAS, the Board of Directors of Acquiror has determined that the Merger
is advisable and in the best interests of Acquiror and its stockholders and the
Boards of Directors of Acquiror and Acquiror Sub and the sole stockholder of
Acquiror Sub have approved and adopted this Merger Agreement and the
transactions contemplated hereby;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a tax-free reorganization under the provisions of Section
368(a) and Section 368(a)(2)(D) of the United States Internal Revenue Code of
1986, as amended (the "Code"); and
----
WHEREAS, in order to induce Acquiror and Acquiror Sub to enter into this
Merger Agreement, concurrently herewith (i) M/C Investors, L.L.C.,
Media/Communications Partners III Limited Partnership, Timothy T. Devine,
Kenneth A. Kirley, Nicholas Lenoci, Jr., Charles M. Osborne and Scott A. Rediger
are entering into voting agreements pursuant to which, among other things, each
such stockholder agrees to vote in favor of this Merger Agreement and the Merger
and against any Competing Transaction (as defined in Section 5.05(a)), (ii) M/C
Investors, L.L.C. and Media/Communications Partners III Limited Partnership are
entering into a stockholders' agreement with Acquiror, Clark E. and Mary E.
McLeod, Richard Lumpkin and IES Investments Inc. (the "Stockholders' Agreement")
-----------------------
and (iii) Acquiror is agreeing to lend to the Company up to $20,000,000 on a
senior subordinated unsecured basis as provided in Section 6.18 (the "Acquiror
Loan");
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this Merger
Agreement, and intending to be legally bound hereby, the parties hereto agree as
follows.
ARTICLE I
THE MERGER
SECTION 1.01. The Merger.
Upon the terms and subject to the conditions set forth in this Merger
Agreement, and in accordance with Delaware Law, at the Effective Time (as
defined in Section 1.02) the Company shall be merged with and into Acquiror Sub.
As a result of the Merger, the separate corporate existence of the Company shall
cease and Acquiror Sub shall continue as the surviving corporation of the Merger
(the "Surviving Corporation").
---------------------
SECTION 1.02. Effective Time.
Subject to the provisions of Section 2.05, as promptly as practicable after
the satisfaction or, if permissible, waiver of the conditions set forth in
Article VII, the parties hereto shall cause the Merger to be consummated by
filing this Merger Agreement, articles of merger or other appropriate documents
(in any such case, the "Articles of Merger") with the Secretary of State of the
------------------
State of Delaware, in such form as required by, and executed in accordance with
the relevant provisions of, Delaware Law (the date and time of such filing being
the "Effective Time"). The day on which the Effective Time shall occur shall
--------------
hereinafter be referred to as the "Closing Date."
------------
SECTION 1.03. Effect of the Merger.
At the Effective Time, the effect of the Merger shall be as provided in the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of the Company and Acquiror Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Acquiror Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.04. Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Acquiror prior to the Effective
Time, at the Effective Time the certificate of incorporation of Acquiror Sub
shall
- 2 -
<PAGE>
continue unchanged and shall be the certificate of incorporation of the
Surviving Corporation, until thereafter amended as provided by Law (as defined
in Article X) and such certificate of incorporation, except that Article I of
Acquiror Sub's certificate of incorporation shall be amended at the Effective
Time to read as follows: "The name of the corporation is Ovation Communications,
Inc."
(b) Unless otherwise determined by Acquiror prior to the Effective
Time, at the Effective Time the bylaws of Acquiror Sub shall continue unchanged
and shall be the bylaws of the Surviving Corporation until thereafter amended as
provided by Law, the certificate of incorporation of the Surviving Corporation
and such bylaws.
SECTION 1.05. Directors and Officers.
The directors of Acquiror Sub immediately prior to the Effective Time shall
be the initial directors of the Surviving Corporation, each to hold office in
accordance with the certificate of incorporation and bylaws of the Surviving
Corporation, and the officers of Acquiror Sub immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities.
At the Effective Time, as provided in this Merger Agreement, by virtue
of the Merger and without any action on the part of Acquiror Sub, the Company or
the Company Stockholders:
(a) Conversion.
----------
(i) Company Common Stock. Subject to the provisions of this
--------------------
Section 2.01, each share of common stock, $.01 par value per share, of the
Company ("Company Common Stock") issued and outstanding immediately prior
--------------------
to the Effective Time (other than any shares of Company Common Stock to be
canceled pursuant to Section 2.01(c) or any Company Dissenting Shares (as
defined in Article X)), shall be converted, subject to Section 2.01(a)(iv)
and Section 2.02(e), into the right to receive, at the election of the
holder thereof, either (A) the Common Stock Cash Amount (as defined in
Article X), or (B) one share of Class A common stock, par value $.01 per
share, of Acquiror ("Acquiror Common Stock") multiplied by the Common Stock
---------------------
Exchange Ratio (as defined in Article X). Each record holder of shares
- 3 -
<PAGE>
of Company Common Stock immediately prior to the Effective Time will be
entitled to elect to receive either cash pursuant to the Common Stock Cash
Amount (such election being referred to herein as a "Cash Election" and
-------------
such shares being referred to herein as "Cash Election Shares") or Acquiror
--------------------
Common Stock pursuant to the Common Stock Exchange Ratio for each such
share of Company Common Stock. All such elections must be made on a form
designated for that purpose by Acquiror (a "Form of Election") that must be
----------------
delivered to Acquiror after the effectiveness of the Registration Statement
(as defined in Section 6.01(a)), unless otherwise permitted by Law, and
prior to the third (3rd) business day preceding the Scheduled Closing Date.
If Acquiror does not receive a Form of Election from a holder of shares of
Company Common Stock prior to the third (3rd) business day preceding the
Scheduled Closing Date, then such holder shall be deemed to have elected to
receive Acquiror Common Stock for all shares of Company Common Stock owned
by such holder. Holders of record of shares of Company Common Stock who
hold such shares as nominees, trustees or in other representative
capacities (a "Representative") may submit multiple Forms of Election,
--------------
provided such Representative certifies that each such Form of Election
covers all the shares of Company Common Stock held by such Representative
for a particular beneficial owner.
All such shares of Company Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each certificate previously representing any such shares
shall thereafter represent the right to receive the Acquiror Common Stock
and/or cash into which such shares were converted in the Merger. No
fractional share of Acquiror Common Stock shall be issued, and, in lieu
thereof, a cash payment shall be made pursuant to Section 2.02(e) hereof.
(ii) Company Preferred Stock. Each share of Series A Preferred
-----------------------
Stock, $.01 par value per share, of the Company ("Company Series A
----------------
Preferred Stock") issued and outstanding immediately prior to the Effective
---------------
Time (other than any shares of Company Series A Preferred Stock to be
canceled pursuant to Section 2.01(c) or any Company Dissenting Shares),
shall be converted into the right to receive its Preferred Liquidation
Preference (as defined in Article X) in cash, without interest (the
"Preferred Stock Cash Amount").
----------------------------
All such shares of Company Series A Preferred Stock shall no
longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each certificate previously representing any such
shares shall thereafter represent the right to receive the Preferred Stock
Cash Amount into which such shares were converted in the Merger.
- 4 -
<PAGE>
(iii) Merger Consideration. If between the date of this Merger
--------------------
Agreement and the Effective Time the outstanding shares of Acquiror Common
Stock or Company Common Stock shall have been changed into a different
number of shares or a different class, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares, the Common Stock Exchange Ratio and the Common Stock
Cash Amount shall be appropriately and correspondingly adjusted to reflect
such stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares.
(iv) Adjustment for Changes in Value. To the extent that the
-------------------------------
value of the Acquiror Common Stock forming part of the Merger Consideration
(as defined in Article X) as of the Effective Time, based upon the closing
price of the Acquiror Common Stock on The Nasdaq Stock Market's National
Market System on the last trading day immediately prior to the Closing Date
(as defined in Section 2.05) (the "Acquiror Common Stock Closing Price"),
-----------------------------------
would be less than 50% (or such lesser percentage, not below 40%, as the
Company may reasonably determine in connection with the qualification of
the Merger as a tax-free reorganization under Section 368(a) of the Code)
of the sum of (A) the aggregate value of the Merger Consideration (with
Acquiror Common Stock being valued for this purpose at the Acquiror Common
Stock Closing Price), (B) any amounts paid directly or indirectly by the
Company or Acquiror to purchase or redeem shares of the Company's capital
stock on or after December 1, 1998 and (C) an amount equal to the number of
Company Dissenting Shares multiplied by the Common Stock Cash Amount, then
(A) the Acquiror Common Stock portion of the Merger Consideration shall be
increased by a number of shares of Acquiror Common Stock equal to the
amount of such deficit in value divided by the Acquiror Common Stock
Closing Price (rounded to the nearest whole share) (the "Stock Adjustment
----------------
Amount"), (B) the aggregate Common Stock Cash Amount shall be
------
correspondingly reduced by an amount equal to the product of the Stock
Adjustment Amount multiplied by the Acquiror Common Stock Closing Price
(the "Cash Adjustment Amount"), and (C) each Cash Election Share shall be
----------------------
converted, subject to Section 2.02(e), into the right to receive (1) a
number of shares of Acquiror Common Stock equal to the Stock Adjustment
Amount divided by the Cash Election Shares and (2) an amount in cash equal
to the Common Stock Cash Amount minus the quotient of the Cash Adjustment
Amount divided by the Cash Election Shares.
(b) Cancellation and Retirement of Company Capital Stock. All such
----------------------------------------------------
shares of Company Capital Stock referred to in Section 2.01(a) (other than
any shares of Company Capital Stock to be canceled pursuant to Section
2.01(c)) shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each certificate previously
representing any such shares shall thereafter represent the right to
receive
- 5 -
<PAGE>
the Merger Consideration as described in Section 2.01(a). The holders of
certificates which prior to the Effective Time represented shares of
Company Capital Stock shall cease to have any rights with respect thereto
except as otherwise provided herein or by Law.
(c) Cancellation of Treasury Stock. Any shares of Company Capital
------------------------------
Stock held in the treasury of the Company and any shares of Company Capital
Stock owned by Acquiror or any direct or indirect wholly owned subsidiary
of Acquiror or of the Company immediately prior to the Effective Time shall
be canceled and extinguished without any conversion thereof and no payment
shall be made with respect thereto.
(d) Acquiror Sub Common Stock. Each share of common stock, par value
--------------------------
$0.01 per share, of Acquiror Sub issued and outstanding immediately prior
to the Effective Time shall continue to be one issued and outstanding share
of common stock, par value $.01 per share, of the Surviving Corporation,
and all of which shall continue to be held by Acquiror.
SECTION 2.02. Exchange of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Acquiror shall
--------------
deposit, or shall cause to be deposited, with Norwest Bank Minnesota, N.A., or
another bank or trust company designated by Acquiror (the "Exchange Agent"), for
--------------
the benefit of the holders of Company Capital Stock for exchange through the
Exchange Agent in accordance with this Article II as of the Effective Time, (i)
certificates representing the whole shares of Acquiror Common Stock issuable to
such holders pursuant to Section 2.01, (ii) cash in an amount sufficient to
permit payment of the cash payable pursuant to Section 2.01 and (iii) cash in an
amount sufficient to permit payment of the cash payable in lieu of fractional
shares pursuant to Section 2.02(e) (such certificates for shares of Acquiror
Common Stock, together with any dividends or distributions with respect thereto,
and such amounts of cash, being hereafter referred to as the "Exchange Fund").
-------------
Acquiror shall irrevocably instruct the Exchange Agent, at the Effective Time,
to deliver the shares of Acquiror Common Stock to be issued and to deliver by
check or, if requested, in immediately available funds the amount of cash to be
paid to the holders of Company Capital Stock pursuant to Section 2.01 out of the
Exchange Fund pursuant to the procedures set forth in Section 2.02(b) beginning
immediately after the Effective Time.
(b) Exchange Procedures. At the earliest practicable date prior to
-------------------
the Effective Time, Acquiror shall mail or shall cause to be delivered to each
holder of record of a certificate or certificates of Company Capital Stock which
immediately prior to the Effective Time represented outstanding shares of
Company Capital Stock (the "Certificates") (i) a letter of transmittal (which
------------
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon
- 6 -
<PAGE>
proper delivery of the Certificates to the Exchange Agent and shall be in
customary form) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for cash or certificates representing shares of
Acquiror Common Stock. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with such letter of transmittal, duly executed, and
such other customary documents as may be required pursuant to such instructions,
the holder of such Certificate shall be entitled to receive in exchange
therefor, and Acquiror shall thereupon cause the Exchange Agent to deliver to
the holder of such Certificate, (i) the amount of cash, by check or, if
requested, in immediately available funds, which such holder has the right to
receive in accordance with Section 2.01, (ii) a certificate representing that
number of whole shares of Acquiror Common Stock which such holder has the right
to receive in accordance with Section 2.01 together with any dividends or other
distributions to which such holder is entitled pursuant to Section 2.02(c) and
(iii) cash in lieu of fractional shares of Acquiror Capital Stock to which such
holder is entitled pursuant to Section 2.02(e). The Certificates so surrendered
shall forthwith be canceled. In the event of a transfer of ownership of shares
of Company Capital Stock which is not registered in the transfer records of the
Company, the proper number of shares of Acquiror Common Stock may be issued
and/or the proper amount of cash may be paid pursuant hereto to a transferee if
the Certificates representing such shares of Company Capital Stock, properly
endorsed or otherwise in proper form for transfer, are presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 2.02, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the Merger Consideration issuable in exchange
therefor, together with any dividends or other distributions to which such
holder is entitled pursuant to Section 2.02(c). No interest will be paid or will
accrue on any cash payable pursuant to Sections 2.01(a), 2.02(c) or 2.02(e).
(c) Distributions with Respect to Unexchanged Shares of Acquiror
------------------------------------------------------------
Common Stock. No dividends or other distributions declared or made after the
- ------------
Effective Time with respect to Acquiror Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the whole shares of Acquiror Common Stock represented thereby
until the holder of such Certificate shall surrender such Certificate. Subject
to the effect of escheat, tax or other applicable Laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Acquiror Common Stock issued in
exchange therefor, without interest, (i) promptly, the amount of any cash
payable with respect to (A) the shares of Company Common Stock formerly
represented by such Certificate, and (B) a fractional share of Acquiror Common
Stock to which such holder is entitled pursuant to Section 2.02(e), and the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Acquiror
Common Stock, and (ii) at the appropriate payment date, the
- 7 -
<PAGE>
amount of dividends or other distributions, with a record date after the
Effective Time but prior to surrender and a payment date occurring after
surrender, payable with respect to such whole shares of Acquiror Common Stock.
(d) No Further Rights in Company Capital Stock. All shares of
------------------------------------------
Acquiror Common Stock issued or cash paid upon conversion of the shares of
Company Capital Stock in accordance with the terms hereof (including any cash
paid pursuant to Sections 2.01(a), 2.02(c) or 2.02(e)) shall be deemed to have
been issued and paid in full satisfaction of all rights pertaining to such
shares of Company Capital Stock.
(e) No Fractional Shares. No fractional shares of Acquiror Common
--------------------
Stock shall be issued upon surrender for exchange of the Certificates, and any
such fractional share interests will not entitle the owner thereof to vote or to
any rights of a stockholder of Acquiror, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to receive a
fraction of a share of Acquiror Common Stock, after aggregating all Certificates
delivered by such holder, and rounding down to the nearest whole share, shall
receive an amount in cash equal to the average, during the ten (10) trading days
immediately prior to the Effective Time, of the daily closing prices for
Acquiror Common Stock on The Nasdaq Stock Market's National Market System as
reported by Nasdaq (the "Average Trading Price") multiplied by the fraction of a
---------------------
share of Acquiror Common Stock to which such holder would otherwise be entitled.
Such payment in lieu of fractional shares shall be administered by the Exchange
Agent pursuant to the procedures set forth in Section 2.02(b).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
----------------------------
which remains undistributed to the holders of Company Capital Stock for six (6)
months after the Effective Time shall be delivered to Acquiror, upon demand.
Any holders of Company Capital Stock who have not theretofore complied with this
Article II shall thereafter look only to Acquiror for the cash and shares of
Acquiror Common Stock to which they are entitled pursuant to Section 2.01, any
dividends or other distributions with respect to Acquiror Common Stock to which
they are entitled pursuant to Section 2.02(c) and any cash in lieu of fractional
shares of Acquiror Common Stock to which they are entitled pursuant to Section
2.02(e).
(g) No Liability. None of Acquiror, Acquiror Sub, the Company, the
------------
Surviving Corporation or the Exchange Agent shall be liable to any Person (as
defined in Article X) for any shares of Acquiror Common Stock (or dividends or
distributions with respect thereto) or cash delivered to a public official
pursuant to any abandoned property, escheat or similar Laws.
(h) Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
certificate evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or
- 8 -
<PAGE>
destroyed certificate, upon the making of an affidavit of that fact by the
holder thereof, such shares of Acquiror Common Stock and cash, if any, as may be
required pursuant to this Article II; provided, however, that Acquiror may, in
-------- -------
its reasonable discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate to deliver a
bond in such sum as it may reasonably direct as indemnity against any claim that
may be made against Acquiror, the Surviving Corporation, or the Exchange Agent
with respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 2.03. Stock Transfer Books.
At the Effective Time, the stock transfer books of the Company shall be
closed and there shall be no further registration of transfers of shares of
Company Capital Stock thereafter on the records of the Company. From and after
the Effective Time, the holders of certificates representing shares of Company
Capital Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such shares of Company Capital Stock except as
otherwise provided herein or by Law. On or after the Effective Time, any
Certificates presented to the Exchange Agent or Acquiror for any reason shall be
converted into cash and/or shares of Acquiror Common Stock issuable in exchange
therefor pursuant to Section 2.01(a), any dividends or other distributions to
which the holders thereof are entitled pursuant to Section 2.02(c) and any cash
in lieu of fractional shares of Acquiror Common Stock to which the holders
thereof are entitled pursuant to Section 2.02(e).
SECTION 2.04. Stock Options.
Prior to the Effective Time, the Company and Acquiror shall take such
action as may be necessary or appropriate for Acquiror, at its option, to assume
or to issue a substitute option with respect to each outstanding unexpired and
unexercised option to purchase shares of Company Common Stock (collectively, the
"Company Stock Options") under the Company's 1997 Stock Option Plan (the
---------------------
"Company Stock Plan") so that at the Effective Time each Company Stock Option
- -------------------
will become or be replaced by an option to purchase a number of whole shares of
Acquiror Common Stock (an "Acquiror Option") equal to the product of the Common
---------------
Stock Exchange Ratio and the number of shares of Company Common Stock subject to
such Company Stock Options (assuming full vesting) under the Company Stock
Option (and rounding any fractional share up to the nearest whole share), at a
price per share equal to the aggregate exercise price for the shares of Company
Common Stock subject to such Company Stock Option divided by the number of whole
shares of Acquiror Common Stock deemed to be purchasable pursuant to such
Company Stock Option. Each substituted Acquiror Option shall otherwise be
subject to the same terms and conditions as apply to the related Company Stock
Option. The date of grant of each substituted Acquiror Option for purposes of
such terms and
- 9 -
<PAGE>
conditions shall be deemed to be the date on which the corresponding Company
Stock Option was granted. As to each assumed Company Stock Option, at the
Effective Time (i) all references to the Company in the stock option agreements
with respect to the Company Stock Options being assumed shall be deemed to refer
to Acquiror; (ii) Acquiror shall assume all of the Company's obligations with
respect to the related Company Stock Option; and (iii) Acquiror shall issue to
each holder of a Company Stock Option a document evidencing the foregoing
assumption by Acquiror. Nothing in this Section 2.04 shall affect the schedule
of vesting with respect to the Company Stock Options in accordance with the
terms of the Company Stock Plan. It is the purpose and intention of the parties
that, subject to applicable Law, the assumption of such Company Stock Options or
the substitution of Acquiror Options for Company Stock Options shall meet the
requirements of Section 424(a) of the Code and that each assumed Company Stock
Option or the substituted Acquiror Option shall qualify immediately after the
Effective Time as incentive stock options as defined in Section 422 of the Code
to the extent that the related Company Stock Option so qualified immediately
before the Effective Time and the foregoing provisions of this Section 2.04
shall be interpreted to further such purpose and intention. The Company
represents and warrants that the assumption of Company Stock Options or
substitution of Acquiror Options therefor, as contemplated by this Section 2.04,
may be effected pursuant to the terms of the Company Stock Options and the
Company Stock Plan without the consent of any holder of a Company Stock Option
and without liability to any such holder. Acquiror represents and warrants that
it has the full power and authority to assume the Company Stock Options or to
substitute Acquiror Options therefor.
SECTION 2.05. Closing.
Subject to the terms and conditions of this Merger Agreement, the closing
of the Merger (the "Closing") will take place after the satisfaction of the
-------
latest to occur or, if permissible, waiver of the conditions set forth in
Article VII hereof. The scheduled closing date will take place as soon as
practicable (but, in any event, no later than the first business day following
the tenth (10th) day) after the satisfaction of the latest to occur or, if
permissible, waiver of the conditions set forth in Section 7.01 hereof (the
"Scheduled Closing Date"), at the offices of Hogan & Hartson L.L.P., Columbia
- -----------------------
Square, 555 13th Street, N.W., Washington, D.C. 20004, unless another date or
place is agreed to in writing by the parties hereto.
SECTION 2.06. Dissenting Stockholders.
Subject to the terms and conditions hereof, at and after the Effective
Time, any holder of shares of Company Capital Stock who complies with Section
262 of Delaware Law (a "Company Dissenting Stockholder") shall be entitled to
------------------------------
obtain payment from the Surviving Corporation of the fair value of such Company
Dissenting Stockholder's shares of Company Capital Stock as determined pursuant
- 10 -
<PAGE>
to Section 262 of Delaware Law; provided, however, that, to the extent
-------- -------
permissible under Delaware Law, no such payment shall be made unless and until
such Company Dissenting Stockholder has surrendered to the Exchange Agent the
Certificate representing the shares of Company Capital Stock for which payment
is being made. The Company shall give Acquiror prompt notice of any demands for
appraisal or withdrawals of demands for appraisal received by the Company and
any other documents obtained by the Company pursuant to the provisions of
Section 262 of Delaware Law, and, except with the prior written consent of
Acquiror, which shall not be unreasonably withheld, shall not settle or offer to
settle any such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as specifically set forth in the Disclosure Schedule delivered by
the Company to Acquiror prior to the execution and delivery of this Merger
Agreement (the "Company Disclosure Schedule") (the contents of which Company
---------------------------
Disclosure Schedule may be updated, corrected or otherwise modified by the
Company up to ten (10) days prior to the Closing Date in accordance with Section
6.05(b) hereof) (with (i) a disclosure with respect to a Section of this Merger
Agreement to require a specific reference in the Company Disclosure Schedule to
the Section of this Merger Agreement to which each such disclosure applies, (ii)
no disclosure to be deemed to apply with respect to any Section to which it does
not expressly refer and (iii) the Company having the right to cross-reference
the sections of the Company Disclosure Schedule as appropriate with respect to
disclosures that are reasonably related), the Company hereby represents and
warrants (which representation and warranty shall be deemed to include the
disclosures with respect thereto so specified in the Company Disclosure
Schedule) to, and agrees with, Acquiror and Acquiror Sub as follows, in each
case as of the date of this Merger Agreement, unless otherwise specifically set
forth herein or in the Company Disclosure Schedule:
SECTION 3.01. Organization and Standing.
The Company is a corporation duly organized, validly existing and in good
standing under Delaware Law, and has the full and unrestricted corporate power
and authority to own, operate and lease its Assets (as defined in Article X), to
carry on its business as currently conducted, to execute and deliver this Merger
Agreement and to carry out the transactions contemplated hereby. The Company is
duly qualified to conduct business as a foreign corporation and is in good
standing in Illinois, Michigan, Minnesota and Wisconsin and in each jurisdiction
where the nature of its business or the ownership or leasing of its properties
makes such qualification necessary other than where the failure to be so
qualified would not have a Company Material Adverse Effect (as defined in
Article X).
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<PAGE>
SECTION 3.02. Subsidiaries.
Except as set forth in Section 3.02 of the Company Disclosure Schedule, the
Company has no Subsidiaries (as defined in Article X) and neither the Company
nor any Subsidiary has any equity investment or other interest in, nor has the
Company or any Subsidiary made advances or loans to (other than intra-company
transactions between or among the Company and any Subsidiary and other than for
customary credit extended to customers of the Company in the Ordinary Course of
Business (as defined in Article X) and reflected in the Financial Statements (as
defined in Section 3.08)), any Person. Section 3.02 of the Company Disclosure
Schedule sets forth (a) the authorized capital stock or other equity interests
of each Subsidiary and the percentage of the outstanding capital stock or other
equity interests of each Subsidiary owned by the Company. All of such shares of
capital stock or other equity interests of the Subsidiaries have been duly
authorized and validly issued and are outstanding, fully paid and nonassessable
and except as set forth in Section 3.02 of the Company Disclosure Schedule, are
owned by the Company free and clear of all Encumbrances (as defined in Article
X) other than Encumbrances arising under applicable securities Laws. Each
Subsidiary is duly organized, validly existing and in good standing under the
Laws of its state or jurisdiction of organization (as listed in Section 3.02 of
the Company Disclosure Schedule), and has the requisite corporate or limited
liability company power and authority to own, operate and lease its Assets and
to carry on its business as currently conducted. Each Subsidiary is duly
qualified to conduct business as a foreign Person and is in good standing in
each jurisdiction where the nature of its business or the ownership or leasing
of its properties makes such qualification necessary, other than where the
failure to be so qualified would not have a Company Material Adverse Effect.
SECTION 3.03. Certificate of Incorporation and Bylaws.
The Company has furnished to Acquiror a true and complete copy of (i) the
certificate of incorporation and (ii) the organizational documents of the
Company and each Subsidiary, as in effect on the date hereof, certified as of a
recent date by the Company's corporate secretary, and a true and complete copy
of the Company's bylaws and the bylaws or other governing agreements of each
Subsidiary, as currently in effect, certified by the Company's corporate
secretary.
SECTION 3.04. Capitalization.
The authorized capital stock of the Company consists of (a) 30,000,000
shares of Company Common Stock, of which: (i) 23,971,756 shares are issued and
outstanding, all of which are duly authorized, validly issued, fully paid and
nonassessable; (ii) no shares are held in the treasury of the Company; and (iii)
806,845 shares are reserved for issuance pursuant to Company Stock Options
(including 127,705 shares to be issued pursuant to Section 4.2 of the Ovation
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<PAGE>
Stockholders' Agreement); (b) 6,000,000 shares of Company preferred stock, $.01
par value per share ("Company Preferred Stock"), of which (A) 500,000 are
-----------------------
designated "Series A Preferred Stock", of which: (i) 240,000 shares are issued
------------------------
and outstanding, all of which are duly authorized, validly issued, fully paid
and nonassessable; and (ii) no shares are held in the treasury of the Company;
(B) 5,000 are designated "Series B Preferred Stock", of which: (i) no shares
------------------------
are issued and outstanding; and (ii) no shares are held in the treasury of the
Company; and (C) 5,495,000 are designated "Preferred Stock," of which none have
ever been issued. The Company Common Stock and Company Preferred Stock are
referred to collectively in this Merger Agreement as the "Company Capital
---------------
Stock." Section 3.04 of the Company Disclosure Schedule sets forth the names
- -----
and addresses of all holders of record of the Company Common Stock and the
Company Preferred Stock. Except as described in this Section 3.04 or in Section
3.04 of the Company Disclosure Schedule, no other shares of Company Capital
Stock have been reserved for any purpose. Except as set forth in clause
(a)(iii) above or in Section 3.04 of the Company Disclosure Schedule, there are
no outstanding securities convertible into or exchangeable for Company Common
Stock, any other securities of the Company, or any capital stock or other
securities of any of the Subsidiaries and no outstanding options, rights
(preemptive or otherwise), or warrants to purchase or to subscribe for any
shares of such stock or other securities of the Company or any of the
Subsidiaries. Except as set forth in Section 3.04 of the Company Disclosure
Schedule, there are no outstanding Agreements (as defined in Article X)
affecting or relating to the voting, issuance, purchase, redemption,
registration, repurchase or transfer of Company Common Stock, any other
securities of the Company, or any capital stock or other securities of any
Subsidiary, except as contemplated hereunder. Each of the outstanding shares of
Company Common Stock and of capital stock of, or other equity interests in, the
Subsidiaries was issued in compliance with all applicable federal and state Laws
concerning the issuance of securities. There are no obligations, contingent or
otherwise, of the Company or any Subsidiary to provide funds to, make any
investment (in the form of a loan, capital contribution or otherwise) in, or
provide any guarantee with respect to, any Person other than the Company or its
wholly owned Subsidiaries. There are no Agreements pursuant to which any Person
(other than the Company or its wholly owned Subsidiaries) is or may be entitled
to receive any of the revenues or earnings, or any payment based thereon or
calculated in accordance therewith, of the Company or any Subsidiary.
SECTION 3.05. Authority; Binding Obligation.
The execution and delivery by the Company of this Merger Agreement, the
execution and delivery by the Company and the Subsidiaries of all other
agreements, documents, certificates or other instruments contemplated hereby,
and the consummation by the Company and the Subsidiaries of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
- 13 -
<PAGE>
corporate action, and no other corporate proceedings on the part of the Company
or the Subsidiaries are necessary to authorize this Merger Agreement and the
other agreements, documents, certificates or other instruments contemplated
hereby, or to consummate the transactions contemplated hereby and thereby, other
than the approval and adoption of this Merger Agreement by the holders of a
majority of the voting power attributable to the outstanding shares of Company
Common Stock and Company Series A Preferred Stock, voting together as a class,
in accordance with Delaware Law and the Company's certificate of incorporation
and bylaws. This Merger Agreement has been duly executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except as such enforceability may be
subject to the effects of any applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or similar Laws affecting creditors'
rights generally and subject to the effects of general equitable principles
(whether considered in a proceeding in equity or at law); provided, however,
that the Merger will not become effective until Articles of Merger reflecting
the Merger are filed with the office of the Secretary of State of the State of
Delaware.
SECTION 3.06. No Conflict; Required Filings and Consents.
(a) The execution, delivery and performance by the Company and the
Subsidiaries of this Merger Agreement and all other agreements, documents,
certificates or other instruments contemplated hereby, the fulfillment of and
compliance with the respective terms and provisions hereof and thereof, and the
consummation by the Company and the Subsidiaries of the transactions
contemplated hereby and thereby, do not and will not: (i) conflict with, or
violate any provision of, the certificate of incorporation or bylaws of the
Company or the certificate or articles of incorporation or bylaws of any
Subsidiary; (ii) subject to (A) obtaining the requisite approval and adoption of
this Merger Agreement by the holders of a majority of the voting power
attributable to the outstanding shares of Company Common Stock and Company
Series A Preferred Stock, voting together as a class, in accordance with
Delaware Law and the Company's certificate of incorporation and bylaws and (B)
obtaining the consents, approvals, authorizations and permits of, and making
filings with or notifications to, the applicable Governmental Entity pursuant to
the applicable requirements, if any, of the Securities Act (as defined in
Article X), the Exchange Act (as defined in Article X), Blue Sky Laws (as
defined in Article X), the HSR Act (as defined in Article X), the Communications
Act (as defined in Article X), the Federal Aviation Act (as defined in Article
X), applicable state utility Laws, applicable municipal franchise Laws and the
filing and recordation of the Articles of Merger as required by Delaware Law,
conflict with or violate any Law applicable to the Company or any Subsidiary, or
any of their respective Assets; (iii) subject to obtaining the consents and
approvals set forth in Section 3.06(b) of the Company Disclosure Schedule,
conflict with, result in any breach of, or constitute a default (or an event
that with notice or lapse of
- 14 -
<PAGE>
time or both would become a default) under any Agreement to which the Company or
any Subsidiary is a party or by which the Company or any Subsidiary, or any of
their respective Assets, may be bound; or (iv) except as disclosed in Section
3.06(b) of the Company Disclosure Schedule, result in or require the creation or
imposition of, or result in the acceleration of, any indebtedness or any
Encumbrance of any nature upon, or with respect to, the Company or any
Subsidiary or any of the Assets now owned or hereafter acquired by the Company
or any Subsidiary; except for any such conflict or violation described in clause
(ii), any such conflict, breach or default described in clause (iii), or any
such creation, imposition or acceleration described in clause (iv) that would
not have a Company Material Adverse Effect and that would not prevent the
Company from consummating the Merger on a timely basis.
(b) Except as set forth in Section 3.06(b) of the Company Disclosure
Schedule and non-material Agreements allowing the installation, maintenance or
operation of the Company's or its Subsidiaries' fiber optic network on, over,
under or across a specific parcel of real property, the execution, delivery and
performance by the Company and the Subsidiaries of this Merger Agreement and all
other agreements, documents, certificates or other instruments contemplated
hereby, the fulfillment of and compliance with the respective terms and
provisions hereof and thereof, and the consummation by the Company and the
Subsidiaries of the transactions contemplated hereby and thereby, do not and
will not: (i) require any consent, approval, authorization or permit of, or
filing with or notification to, any Person not party to this Merger Agreement,
except (A) the approval and adoption of this Merger Agreement by the holders of
a majority of the voting power attributable to the outstanding shares of Company
Common Stock and Company Series A Preferred Stock, voting together as a class,
in accordance with Delaware Law and the Company's certificate of incorporation
and bylaws, (B) pursuant to the applicable requirements, if any, of the
Securities Act, the Exchange Act, Blue Sky Laws, the HSR Act, the Communications
Act, the Federal Aviation Act, applicable state utility Laws and applicable
municipal franchise Laws and Laws of other Governmental Entities, (C) the filing
and recordation of the Articles of Merger as required by Delaware Law, and (D)
where the failure to obtain any consent, approval, authorization or permit or to
make any filing or notification otherwise required to be disclosed hereunder
would not have a Company Material Adverse Effect; or (ii) result in or give rise
to any penalty, forfeiture, Agreement termination, right of termination,
amendment or cancellation, or restriction on business operations of Acquiror,
the Company, the Surviving Corporation or any Subsidiary that would have a
Company Material Adverse Effect. Furthermore, there is no Agreement when
considered on its face when standing alone where the failure to obtain consent
to the transactions contemplated by this Merger Agreement would cause the
Company to be unable to conduct its business.
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SECTION 3.07. Licenses; Compliance.
(a) Each of the Company and each Subsidiary is in possession of all
Licenses (as defined in Article X) necessary for the Company or any Subsidiary
to own, lease and operate its Assets or to carry on its business as it is now
being conducted (the "Company Licenses"), except where the failure to possess
----------------
any such Company License would not have a Company Material Adverse Effect. All
Company Licenses that are FCC (as defined in Article X), FAA (as defined in
Article X) or state utilities Licenses or municipal franchises, and all other
Company Licenses the loss of which would not have a Company Material Adverse
Effect, are listed and described in Section 3.07(a) of the Company Disclosure
Schedule. All Company Licenses are valid and in full force and effect through
the respective dates indicated in such Company Licenses, except for any such
invalidity or failure to be in full force and effect that would not have a
Company Material Adverse Effect, and no suspension, cancellation, complaint,
proceeding, order or investigation of or with respect to any Company License (or
operations thereunder) the loss of which would not have a Company Material
Adverse Effect is pending or, to the knowledge of the Company or any Subsidiary,
threatened. The Company has indicated in Section 3.07 of the Company Disclosure
Schedule those Company Licenses which expire within 12 months from the date of
this Merger Agreement. Neither the Company nor any Subsidiary is in violation
of or default under any Company License, except for any such violation or
default that would not have a Company Material Adverse Effect. Except as set
forth in Section 3.07(a) of the Company Disclosure Schedule, since January 1,
1997, neither the Company nor any Subsidiary has received written or, to the
knowledge of the Company or any Subsidiary, oral notice from any Governmental
Entity or any other Person of any allegation of any such violation or default
under a Company License.
(b) Neither the Company nor any Subsidiary is in violation of or
default under, nor has it breached, (i) any term or provision of its certificate
or articles of incorporation or bylaws or (ii) any Agreement or restriction to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary, or any of their respective Assets, is bound or affected, except for
any such violation, default or breach described in clause (ii) that would not
have a Company Material Adverse Effect. The Company and the Subsidiaries have
complied and are in full compliance with all Laws, except where the failure so
to comply would not have a Company Material Adverse Effect.
(c) All returns, reports, statements and other Documents required to
be filed by the Company or any Subsidiary with any Governmental Entity have been
filed and complied with and are true, correct and complete in all material
respects (and any related fees required to be paid have been paid in full except
where the failure to so file or to so pay such fees would not have a Company
Material Adverse Effect). To the knowledge of the Company and the Subsidiaries,
all material records of every type and nature relating to the Company Licenses
or
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<PAGE>
the business, operations or Assets of the Company or any Subsidiary have been
maintained in all material respects in accordance with good business practices
and the rules of any Governmental Entity and are maintained at the Company or
the appropriate Subsidiary.
(d) Except as provided in Section 3.07(a) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary has any interest in any License
(including both any Company License and any License held by third parties in
which the Company or any Subsidiary has an interest) the loss of which would
have a Company Material Adverse Effect and that is subject to restrictions on
assignment or transfer based on the circumstances under which the License was
granted (such as eligibility or auction rules), the status of construction and
operation (such as rules restricting resale for a certain period after
construction), or any other restrictions other than an ordinary course
requirement for prior approval of transactions such as the Merger contemplated
herein.
(e) Neither the Company nor any Subsidiary is aware of any fact or
circumstance related to them that would reasonably be expected to cause the
filing of any objection to any application for any Governmental consent required
hereunder, lead to any delay in processing such application, or require any
waiver of any Governmental rule, policy or other applicable Law.
SECTION 3.08. Financial Statements.
(a) The Company has prepared an audited consolidated balance sheet of
the Company and the Subsidiaries as of the end of the fiscal year ended December
31, 1997 (the "Audited Balance Sheet") and the related audited consolidated
---------------------
statements of income, shareholders' equity and cash flows of the Company and the
Subsidiaries for such fiscal year (the Audited Balance Sheet and such audited
consolidated statements of income, shareholders' equity and cash flows are
hereinafter referred to collectively as the "Audited Statements"), in each case,
------------------
audited by Ernst & Young L.L.P. in accordance with generally accepted auditing
standards and accompanied by the related report of Ernst & Young L.L.P.. A true
and complete copy of the Audited Statements has been delivered to Acquiror and
is attached as an exhibit to, and constitutes an integral part of, the Company
Disclosure Schedule. The Company has also prepared unaudited consolidated
balance sheets of the Company and the Subsidiaries as of the last day of each
month ending after January 1, 1998 and prior to December 1, 1998 (including the
unaudited consolidated balance sheets to be furnished to Acquiror pursuant to
Section 6.08, the "Unaudited Balance Sheets") and the unaudited consolidated
------------------------
statements of income of the Company and the Subsidiaries for the one-month
periods then ended (the Unaudited Balance Sheets and such statements of income,
including the unaudited consolidated statements of income to be furnished to
Acquiror pursuant to Section 6.08, are hereinafter referred to collectively as
the
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<PAGE>
"Unaudited Statements" and, together with the Audited Statements, as the
--------------------
"Financial Statements").
--------------------
(b) The Financial Statements, including, without limitation, the notes
thereto, (i) are complete and correct in all material respects, (ii) have been
prepared in accordance with the books and records of the Company and the
Subsidiaries, and (iii) present fairly the consolidated financial position of
the Company and the Subsidiaries and their consolidated results of operations
and cash flows as of and for the respective dates and time periods in accordance
with GAAP applied on a basis consistent with prior accounting periods, except as
noted thereon and subject to, in the case of the Unaudited Statements, the
absence of footnotes and a statement of cash flows and normal and recurring
year-end adjustments which were not or are not expected to be material in
amount, other than as a result of the recording of the acquisition of BRE
Communications, L.L.C. All changes in accounting methods (for financial
accounting purposes) made, agreed to, requested or required with respect to the
Company or any of the Subsidiaries since January 1, 1998 are reflected in the
Financial Statements.
SECTION 3.09. Absence of Undisclosed Liabilities.
There are no material liabilities or obligations (whether absolute or
contingent, matured or unmatured, known or unknown) of the Company or any
Subsidiary, including but not limited to liabilities for Taxes (as defined in
Article X), of a nature required by GAAP to be reflected, or reserved against,
in the Financial Statements and that are not so reflected, or reserved against,
in the Financial Statements, except for those that may have been incurred after
November 30, 1998 in the Ordinary Course of Business and that are not material
in amount either individually or collectively. Except as described in Section
3.09 of the Company Disclosure Schedule or reflected in the Financial
Statements, since December 31, 1997, neither the Company nor any Subsidiary has
incurred any liabilities or obligations (whether absolute or contingent, matured
or unmatured, known or unknown) other than in the Ordinary Course of Business
(as defined in Article X).
SECTION 3.10. Absence of Certain Changes or Events.
Other than as set forth in Section 3.10 to the Company Disclosure Schedule
from December 31, 1997 through the date of this Merger Agreement, there has been
no material adverse change, and no change except in the Ordinary Course of
Business, in the business, operations, prospects, condition (financial or
otherwise), Assets or liabilities of the Company or any Subsidiary. Except as
disclosed pursuant to other provisions of this Merger Agreement or described in
the Company Disclosure Schedule, since November 30, 1998, the Company and the
Subsidiaries have conducted their respective businesses substantially in the
manner theretofore conducted and only in the Ordinary Course of Business, and
neither the Company
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nor any Subsidiary has (a) incurred any material damage, destruction or loss not
covered by insurance with respect to any Assets of the Company or of any such
Subsidiary; (b) issued any capital stock or other equity securities or granted
any options, warrants or other rights calling for the issuance thereof; (c)
issued any bonds or other long-term debt instruments, granted any options,
warrants or other rights calling for the issuance thereof, or borrowed any
funds; (d) incurred, or become subject to, any material obligation or liability
(whether absolute or contingent, matured or unmatured, known or unknown), except
current liabilities incurred in the Ordinary Course of Business; (e) discharged
or satisfied any Encumbrance or paid any material obligation or liability
(whether absolute or contingent, matured or unmatured, known or unknown) other
than current liabilities shown in the Unaudited Balance Sheets and current
liabilities incurred since December 31, 1997 in the Ordinary Course of Business;
(f) declared or made payment of, or set aside for payment, any dividends or
distributions of any Assets, or purchased, redeemed or otherwise acquired any of
its capital stock, any securities convertible into capital stock, or any other
securities; (g) mortgaged, pledged or subjected to any Encumbrance (other than a
Permitted Encumbrance) any of its Assets; (h) sold, exchanged, transferred or
otherwise disposed of any of its Assets, or canceled any debts or claims, except
in each case in the Ordinary Course of Business; (i) written down the value of
any Assets or written off as uncollectable any debt, notes or accounts
receivable, except to the extent previously reserved against in the Financial
Statements and not material in amount, and except for write-downs and write-offs
in the Ordinary Course of Business, none of which, individually or in the
aggregate, are material; (j) entered into any transactions other than in the
Ordinary Course of Business; (k) increased the rate of compensation payable, or
to become payable, by it to any of its officers, employees, agents or
independent contractors over the rate being paid to them on November 30, 1998,
except for any increase in the rate of compensation payable, or to become
payable in connection with normal employee salary and performance reviews or
otherwise in the Ordinary Course of Business; (l) made or permitted any
amendment or termination of any material Agreement to which it is a party other
than in the Ordinary Course of Business; (m) through negotiation or otherwise
made any commitment or incurred any liability to any labor organization; (n)
made any accrual or arrangement for or payment of bonuses or special
compensation of any kind to any director, officer or employee, except for any
accrual or arrangement for or payment of bonuses or special compensation in
connection with normal employee salary and performance reviews or otherwise in
the Ordinary Course of Business; (o) directly or indirectly paid any severance
or termination pay in excess of two months' salary to any officer or employee
with an annual salary in excess of $70,000; (p) made capital expenditures, or
entered into commitments therefor, not provided for in the Company's capital
budget for 1998 (a copy of which has been furnished by the Company to Acquiror)
or, if applicable, the Company's capital budget for 1999 (a copy of which has
been furnished by the Company to Acquiror), except for capital expenditures
permitted by Section 5.01; (q) made any change in any method of accounting or
accounting practice except as required by GAAP and
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except as specified in the Financial Statements; (r) entered into any
transaction of the type described in Section 3.19; (s) made any charitable
contributions or pledges exceeding $10,000 individually or $100,000 in the
aggregate; or (t) made any Agreement to do any of the foregoing.
SECTION 3.11. Litigation; Disputes.
(a) Except as disclosed in Section 3.11(a) of the Company Disclosure
Schedule, there are no actions, suits, claims, arbitrations, proceedings or
investigations pending or, to the knowledge of the Company or any Subsidiary,
threatened against, affecting or involving the Company or any Subsidiary or
their respective businesses or Assets, or the transactions contemplated by this
Merger Agreement, at law or in equity, or before or by any court, arbitrator or
Governmental Entity, domestic or foreign that would have a Company Material
Adverse Effect. Neither the Company nor any Subsidiary is (i) operating under
or subject to any order (except for orders that Persons similarly situated,
engaged in similar businesses and owning similar Assets are operating under or
subject to), award, writ, injunction, decree or judgment of any court,
arbitrator or Governmental Entity, or (ii) in default with respect to any order,
award, writ, injunction, decree or judgment of any court, arbitrator or
Governmental Entity.
(b) Except as set forth in Section 3.11(b) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary is currently involved in, or to
the knowledge of the Company or any Subsidiary, reasonably anticipates any
dispute with, any of its current or former employees, agents, brokers,
distributors, vendors, customers, business consultants, franchisees,
franchisors, representatives or independent contractors (or any current or
former employees of any of the foregoing Persons) affecting the business or
Assets of the Company or any Subsidiary, except for any such disputes that, if
resolved adversely to the Company or any Subsidiary, would not have a Company
Material Adverse Effect.
SECTION 3.12. Debt Instruments.
Section 3.12 of the Company Disclosure Schedule lists all mortgages,
indentures, notes, guarantees and other Agreements for or relating to borrowed
money (including, without limitation, conditional sales agreements and capital
leases) to which the Company or any Subsidiary is a party or which have been
assumed by the Company or any Subsidiary or to which any Assets of the Company
or any Subsidiary are subject that evidences an indebtedness in excess of
$100,000. Neither the Company nor the Subsidiaries is in default under any of
such mortgages, indentures, notes, guarantees and other Agreements, and there
has not occurred any event which (whether with or without notice, lapse of time
or the happening or occurrence of any other event) would constitute such a
default, except for any such default that would not have a Company Material
Adverse Effect.
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SECTION 3.13. Real Property Leases.
Section 3.13 of the Company Disclosure Schedule lists all real property
leases with a term in excess of two (2) years or requiring payments in excess of
$100,000 in the aggregate over its term under which the Company or any
Subsidiary is the lessee or lessor. The Company and the Subsidiaries are the
owners and holders of all the leasehold estates purported to be granted to them
by the leases listed in Section 3.13 of the Company Disclosure Schedule. Each
such lease is in full force and effect and constitutes a legal, valid and
binding obligation of, and to the Company's knowledge, is legally enforceable in
all material respects against, the respective parties thereto and grants the
leasehold estate it purports to grant free and clear of all Encumbrances other
than Permitted Encumbrances. The Company and the Subsidiaries have in all
respects performed all material obligations thereunder required to be performed
by any of them to date. To the knowledge of the Company and the Subsidiaries,
no party is in default in any material respect under any of the foregoing, and
there has not occurred any event which (whether with or without notice, lapse of
time or the happening or occurrence of any other event) would constitute such a
material default.
SECTION 3.14. Other Agreements; No Default.
(a) Except non-material Agreements allowing the installation,
maintenance or operation of the Company's or its Subsidiaries' fiber optic
network on, over, under or across a specific parcel of real property, Sections
3.04, 3.13 and 3.14(a) of the Company Disclosure Schedule list each Agreement
(other than Agreements solely between the Company and its wholly owned
Subsidiaries) to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary, or any of their respective Assets, is bound, and
which is:
(i) an Agreement with a term in excess of two (2) years or
requiring payments in excess of $100,000 in any twelve (12) month period or
$100,000 in the aggregate over its term for the employment of any director,
officer, employee, consultant or independent contractor, or providing for
severance payments to any such director, officer, employee, consultant or
independent contractor;
(ii) a license Agreement or distributor, dealer, sales
representative, sales agency, advertising, property management or brokerage
Agreement involving an annual payment in excess of $100,000;
(iii) an Agreement with any labor organization or other
collective bargaining unit;
(iv) an Agreement for the future purchase of materials, supplies,
services, merchandise or equipment involving payments of more
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than $100,000 over its remaining term (including, without limitation,
periods covered by any option to renew by any party);
(v) an Agreement for the purchase, sale or lease of any Asset
with a purchase or sale price or aggregate rental payment in excess of
$100,000;
(vi) a profit-sharing, bonus, incentive compensation, deferred
compensation, stock option, severance pay, stock purchase, employee
benefit, insurance, hospitalization, pension, retirement or other similar
plan or Agreement;
(vii) an Agreement for the sale of any of its Assets or services
or the grant of any preferential rights to purchase any of its Assets,
services or rights, other than in the Ordinary Course of Business;
(viii) an Agreement that contains any provisions requiring the
Company or any Subsidiary to indemnify any other party;
(ix) a joint venture Agreement or other Agreement involving the
sharing of revenues or profits;
(x) an Agreement with an Affiliate (as defined in Article X) of
the Company or any Subsidiary;
(xi) an Agreement (including, without limitation, an Agreement
not to compete and an exclusivity Agreement) that reasonably could be
interpreted to impose any restriction on the business or operations of the
Company or any Subsidiary, or any of their respective Affiliates, prior to
the Effective Time, or on the business or operations of Acquiror or any of
its Affiliates after the Effective Time;
(xii) an Agreement material to the Company and its Subsidiaries
not otherwise described in this Section 3.14(a) which by its terms does not
terminate or is not terminable by the Company or by a Subsidiary within
thirty (30) days or upon thirty (30) days' (or less) notice;
(xiii) an Agreement with any Governmental Entity the loss or
cancellation of which would reasonably be expected to have a Company
Material Adverse Effect;
(xiv) an Agreement with any of the twenty (20) largest customers
of the Company and the Subsidiaries, taken as a whole (based on amounts
billed), for each of (A) the year ended December 31, 1997 and (B) the
period from January 1, 1998 through the date of this Merger Agreement;
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(xv) a material Agreement to provide any customer with free
service or service at rates departing from the standard rate schedules of
the System (as defined in Article X);
(xvi) an Agreement with any incumbent local exchange carrier
involving an aggregate payment in excess of $100,000; or
(xvii) any other Agreement (A) that is material to the Company
and the Subsidiaries, taken as a whole, or the conduct of their businesses
or operations, or (B) the absence of which would have a Company Material
Adverse Effect,
(the foregoing Agreements referred to herein as the "Company Contracts"). The
-----------------
Company has furnished Acquiror with access to true and complete copies of each
Company Contract (including any amendments thereto).
(b) Each Company Contract is in full force and effect and constitutes
a legal, valid and binding obligation of, and, to the Company's knowledge, is
legally enforceable in all material respects against the respective parties
thereto. All necessary approvals of any Governmental Entity with respect
thereto have been obtained (except where the failure so to obtain any such
approval would not have a Company Material Adverse Effect), all material filings
or registrations therefor have been made, and there are no outstanding material
disputes thereunder and, to the knowledge of the Company or any Subsidiary, no
threatened cancellation or termination thereof. The Company and the
Subsidiaries have performed all material obligations thereunder required to be
performed by any of them to date. To the knowledge of the Company and the
Subsidiaries, no party is in default in any material respect under any of the
Company Contracts, and there has not occurred any event which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute such a material default. No Agreement has been canceled or
otherwise terminated within the twelve (12) months prior to the date of this
Merger Agreement that would have been a "Company Contract" had such Agreement
not been canceled or terminated and the cancellation or termination of which has
had or is reasonably likely to have a Company Material Adverse Effect. Except
as specifically described in Section 3.14(a) of the Company Disclosure Schedule,
there has been no material written or oral modification or amendment to any
Company Contract and, to the Company's knowledge, there are no reasonably
expected changes to any Company Contract.
SECTION 3.15. Labor Relations.
There are no collective bargaining or other labor union Agreements to which
the Company or any Subsidiary is a party. There are no strikes, work stoppages,
union organization efforts or other controversies (other than grievance
proceedings)
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pending, to the Company's knowledge, threatened or reasonably anticipated
between the Company or any Subsidiary and (a) any current or former employees of
the Company or of any Subsidiary (other than disputes with sales employees not
in excess of $3,000 in the aggregate per such employee) or (b) any union or
other collective bargaining unit representing such employees. The Company and
the Subsidiaries have complied and are in compliance with all Laws relating to
employment or the workplace, including, without limitation, Laws relating to
wages, hours, collective bargaining, safety and health, work authorization,
equal employment opportunity, immigration, withholding, unemployment
compensation, worker's compensation, employee privacy and right to know, except
where the failure so to comply would have a Company Material Adverse Effect.
Except as set forth in Section 3.15(b) of the Company Disclosure Schedule,
neither the Company nor any Subsidiary has been notified by any Governmental
Agency or counsel to any claimant of any unresolved violation or alleged
violation of any Law relating to equal employment opportunity, civil or human
rights, or employment discrimination generally. Except as set forth in Section
3.15(c) to the Company Disclosure Schedule, there are no collective bargaining
Agreements, employment Agreements between the Company or any Subsidiary and any
of their respective employees, or professional service Agreements not terminable
at will relating to the businesses and Assets of the Company or of any
Subsidiary. Except as set forth in Section 3.15(d) to the Company Disclosure
Schedule, the consummation of the transactions contemplated hereby will not
cause Acquiror, the Surviving Corporation, the Company or any Subsidiary to
incur or suffer any liability relating to, or obligation to pay, severance,
termination or other payments to any Person under any Agreement.
SECTION 3.16. Pension and Benefit Plans.
(a) Except as set forth in Section 3.16(a) to the Company Disclosure
Schedule, neither the Company nor any Subsidiary (i) maintains or during the
past six (6) years has maintained any Plan (as defined in Article X) or Other
Arrangement (as defined in Article X), (ii) is or during the past six (6) years
has been a party to any Plan or Other Arrangement, or (iii) has obligations
under any Plan or Other Arrangement.
(b) The Company has furnished to Acquiror true and complete copies of
each of the following Documents: (i) the Documents setting forth the terms of
each Plan; (ii) all related trust Agreements or annuity Agreements (and any
other funding Document) for each Plan; (iii) for the three (3) most recent plan
years, all annual reports (Form 5500 series) on each Plan that have been filed
with any Governmental Entity; (iv) the current summary plan description and
subsequent summaries of material modifications for each Title I Plan (as defined
in Article X); (v) all DOL (as defined in Article X) opinions on any Plan; (vi)
all correspondence with the PBGC (as defined in Article X) on any Plan exchanged
during the past three (3) years; (vii) all IRS (as defined in Article X)
rulings, opinions or technical
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advice relating to any Plan and the current IRS determination letter issued with
respect to each Qualified Plan (as defined in Article X); and (viii) all current
Agreements with service providers or fiduciaries for providing services on
behalf of any Plan. For each Other Arrangement, the Company has furnished to
Acquiror true and complete copies of each policy, Agreement or other Document
setting forth or explaining the current terms of the Other Arrangement, all
related trust Agreements or other funding Documents (including, without
limitation, insurance contracts, certificates of deposit, money market accounts,
etc.), all significant employee communications, all correspondence with or other
submissions to any Governmental Entity, and all current Agreements with service
providers or fiduciaries for providing services on behalf of any Other
Arrangement.
(c) No Plan is a Multiemployer Plan (as defined in Article X).
(d) No Plan is an ESOP (as defined in Article X).
(e) No Plan is a Minimum-Funding Plan (as defined in Article X).
(f) Section 3.16(g) of the Company Disclosure Schedule sets forth the
contributions that (i) the Company or any Subsidiary has promised or is
otherwise obligated to make under each Individual Account Plan that is a
Statutory-Waiver Plan (as defined in Article X) and (ii) are unpaid as of the
date of this Merger Agreement.
(g) The Company and the Subsidiaries have made all contributions and
other payments required by and due under the terms of each Plan and Other
Arrangement or have accrued such payments and contributions on the Company's
Financial Statements as of December 31, 1998. Neither the Company nor any of
its Subsidiaries has taken any action (other than actions required by Law)
relating to any Plan or Other Arrangement that will materially increase
Acquiror's, the Surviving Corporation's, the Company's or any Subsidiary's
obligation under any Plan or Other Arrangement above the level of expense
incurred for the year ended December 31, 1997.
(h) Section 3.16(i) of the Company Disclosure Schedule sets forth a
list of all Qualified Plans (as defined in Article X). All Qualified Plans and
any related trust Agreements or annuity Agreements (or any other funding
Document) comply and have complied with ERISA, the Code (including, without
limitation, the requirements for Tax qualification described in Section 401
thereof), and all other Laws, except where the failure so to comply would not
have a Company Material Adverse Effect. The trusts established under such Plans
are exempt from federal income taxes under Section 501(a) of the Code. The
Company and the Subsidiaries have received determination letters issued by the
IRS with respect to each Qualified Plan, and the Company has furnished to
Acquiror true and complete copies of all such determination letters and all
correspondence relating to the applications therefor. All statements made by or
on behalf of the Company or any Subsidiary to
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the IRS in connection with applications for determinations with respect to each
Qualified Plan were true and complete in all material respects when made and
continue to be true and complete in all material respects. To the knowledge of
the Company and the Subsidiaries, nothing has occurred since the date of the
most recent applicable determination letter that would adversely affect the tax-
qualified status of any Qualified Plan.
(i) To their knowledge, the Company and the Subsidiaries have complied
in all material respects with all applicable provisions of the Code, ERISA, the
National Labor Relations Act, Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Fair Labor Standards Act, the Securities
Act, the Exchange Act, and all other Laws pertaining to the Plans, Other
Arrangements and other employee or employment related benefits, and all premiums
and assessments relating to all Plans or Other Arrangements. There are no
investigations by any Governmental Entity, termination proceedings or other
claims (except claims for benefits payable in the normal operation of the Plans
and Other Arrangements), suits or proceedings pending or, to the knowledge of
the Company, threatened or anticipated, against or involving any Plan or Other
Arrangement or asserting any rights or claims to benefits under any Plan or
Other Arrangement that would reasonably be expected to give rise to any material
liability on the part of the Company or the Subsidiaries. Neither the Company
nor any Subsidiary has any pending claims or lawsuits before any court, arbiter
or Governmental Entity arising under any Law governing any Plan (except claims
for benefits payable in the normal operation of the Plan and Other
Arrangements), and to the knowledge of the Company and the Subsidiaries there
exist no facts that would reasonably be likely to give rise to such a claim.
(j) Neither the Company nor any Subsidiary nor any of the Plans has
engaged in violation of Section 406(a) or 406(b) of ERISA for which no exemption
exists under Section 408 of ERISA and all "prohibited transactions" (as such
term is defined in Section 4975(c)(1) of the Code), for which no exemption
exists under Section 4975(c)(2) or 4975(d) of the Code which would result in a
material liability to the Company and the Subsidiaries. The Company has
furnished to Acquiror true and complete copies of each request for a prohibited
transaction exemption and each exemption obtained in response to such request.
All such requests were true and complete when made and continue to be true and
complete.
(k) Except as set forth in Section 3.16(n) of the Company Disclosure
Schedule, no Plan or Other Arrangement, individually or collectively, provides
for any payment by the Company or any Subsidiary to any employee or independent
contractor that is not deductible under Section 162(a)(1) or 404 of the Code or
that is an "excess parachute payment" pursuant to Section 280G of the Code.
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(l) No Plan is a "qualified foreign plan" (as such term is defined in
Section 404A(e) of the Code), and no Plan is subject to the Laws of any
jurisdiction other than the United States of America or one of its political
subdivisions.
(m) No Plan is a funded Welfare Plan (as defined in Article X) that
provide benefits to current or former employees of the Company or any
Subsidiary, or to their beneficiaries.
(n) No Plan provides or promises post-retirement medical, life
insurance or other benefits now or in the future to current, former or retired
employees of the Company or any Subsidiary except as required by applicable
federal and state continuation law, and (ii) identifies the method of funding
(including, without limitation, any individual accounting) for all such
benefits.
(o) All Welfare Plans and the related trusts that are subject to
Section 4980B(f) of the Code and Sections 601 through 607 of ERISA comply in all
material respects with and have been administered in material compliance with
the health care continuation-coverage requirements under Section 4980B(f) of the
Code, Sections 601 through 607 of ERISA, and all proposed or final regulations
under Section 162 of the Code explaining those requirements.
(p) The Company and the Subsidiaries have (i) filed or caused to be
filed all returns and reports on the Plans that they are required to file, and
(ii) paid or made adequate provision for all fees, interest, penalties,
assessments or deficiencies that have become due pursuant to those returns or
reports or pursuant to any assessment or adjustment that has been made relating
to those returns or reports. All other fees, interest, penalties and
assessments that are due and payable by or for the Company or any Subsidiary
with respect to any Plan have been timely reported, fully paid and discharged.
There are no unpaid fees, penalties, interest or assessments due from the
Company or any Subsidiary or from any other Person that are or could become an
Encumbrance on any Asset of the Company or any Subsidiary or could otherwise
have a Company Material Adverse Effect. The Company and the Subsidiaries have
collected or withheld all amounts that are required to be collected or withheld
by them to discharge their obligations with respect to each Plan, and all of
those amounts have been paid to the appropriate Governmental Entity or set aside
in appropriate accounts for future payment when due.
SECTION 3.17. Taxes and Tax Matters.
(a) The Company and the Subsidiaries have (or, in the case of Company
Tax Returns (as defined in Article X) becoming due after the date hereof and
before the Effective Time, will have prior to the Effective Time) duly filed all
Company Tax Returns required to be filed by the Company and the Subsidiaries at
or before the Effective Time with respect to all applicable material Taxes. No
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material penalties or other charges are or will become due with respect to any
such Company Tax Returns as the result of the late filing thereof. All such
Company Tax Returns are (or, in the case of returns becoming due after the date
hereof and before the Effective Time, will be) true and complete in all material
respects. The Company and the Subsidiaries: (i) have paid all Taxes due in
connection with any such Company Tax Returns; or (ii) have established (or, in
the case of amounts becoming due after the date hereof, prior to the Effective
Time will have paid or established) in the Financial Statements adequate
reserves (in conformity with GAAP consistently applied) for the payment of such
Taxes. The amounts set up as reserves for Taxes in the Financial Statements are
sufficient for the payment of all unpaid Taxes, whether or not such Taxes are
disputed or are yet due and payable, for or with respect to the applicable
period, and for which the Company or any Subsidiary may be liable in its own
right (including, without limitation, by reason of being a member of the same
affiliated group) or as a transferee of the Assets of, or successor to, any
Person.
(b) Neither the Company nor any Subsidiary, either in its own right
(including, without limitation, by reason of being a member of the same
affiliated group) or as a transferee, has or at the Effective Time will have any
liability for Taxes payable for or with respect to any periods prior to and
including the Effective Time in excess of the amounts actually paid prior to the
Effective Time or reserved for in the Financial Statements, except for any Taxes
due in connection with the Merger or incurred in the Ordinary Course of Business
subsequent to the date of the latest Financial Statement.
(c) Except as set forth in Section 3.17(c) of the Company Disclosure
Schedule, there is no action, suit, proceeding, audit, investigation or claim
pending or, to the knowledge of the Company or any Subsidiary, threatened in
respect of any Taxes for which the Company or any Subsidiary is or may become
liable, nor has any deficiency or claim for any such Taxes been proposed,
asserted or, to the knowledge of the Company or any Subsidiary, threatened.
Except as set forth in Section 3.17(c) of the Company Disclosure Schedule,
neither the Company nor any Subsidiary has consented to any waivers or
extensions of any statute of limitations with respect to any taxable year of the
Company or any Subsidiary. Except as set forth in Section 3.17(c) of the
Company Disclosure Schedule, there is no Agreement, waiver or consent providing
for an extension of time with respect to the assessment or collection of any
Taxes against the Company or any Subsidiary, and no power of attorney granted by
the Company or any Subsidiary with respect to any Tax matters is currently in
force.
(d) The Company has made available to Acquiror true and complete
copies of all Company Tax Returns and all material written communications with
any Governmental Entity relating to any such Company Tax Returns or to any
deficiency or claim proposed or asserted, irrespective of the outcome of such
matter, but only to the extent such items relate to Tax years (i) which are
subject to an
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audit, investigation, examination or other proceeding, or (ii) with respect to
which the statute of limitations has not expired.
(e) Except as set forth in Section 3.17(e) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary (i) is or has ever been a
partner in a partnership or an owner of an interest in an entity treated as a
partnership for federal income Tax purposes; (ii) has executed or filed with the
IRS any consent to have the provisions of Section 341(f) of the Code apply to
it; (iii) is subject to Section 999 of the Code; (iv) is a passive foreign
investment company as defined in Section 1296(a) of the Code; or (v) is a party
to an Agreement relating to the sharing, allocation or payment of, or indemnity
for, Taxes (other than an Agreement the only parties to which are the Company
and the Subsidiaries).
(f) The Company has complied in all material respects with all rules
and regulations relating to the withholding of Taxes.
SECTION 3.18. Customers.
To the knowledge of the Company and the Subsidiaries, the relationships of
the Company and the Subsidiaries with their customers are generally good
commercial working relationships. Except as set forth in Section 3.18 of the
Company Disclosure Schedule, during the twelve (12) months prior to the date of
this Merger Agreement, no customer of the Company or any Subsidiary which
accounted for in excess of $120,000 of the revenues of the Company and the
Subsidiaries during such twelve (12) months has canceled or otherwise terminated
its relationship with the Company or any Subsidiary and except to the extent of
events described in Section 9.13(a).
SECTION 3.19. Certain Business Practices.
Neither the Company, the Subsidiaries nor any of their officers, directors
or, to the knowledge of the Company or any Subsidiary, any of their employees or
agents (or stockholders, distributors, representatives or other persons acting
on the express, implied or apparent authority of the Company or of any
Subsidiary) have paid, given or received or have offered or promised to pay,
give or receive, any bribe or other unlawful payment of money or other thing of
value, any unlawful discount, or any other unlawful inducement, to or from any
Person or Governmental Entity in the United States or elsewhere in connection
with or in furtherance of the business of the Company or any Subsidiary
(including, without limitation, any offer, payment or promise to pay money or
other thing of value (a) to any foreign official or political party (or official
thereof) for the purposes of influencing any act, decision or omission in order
to assist the Company or any Subsidiary in obtaining business for or with, or
directing business to, any Person, or (b) to any Person, while knowing that all
or a portion of such money or other thing of value will be offered, given or
promised to any such official or party for such purposes). The business of the
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Company and the Subsidiaries is not in any manner dependent upon the making or
receipt of such payments, discounts or other inducements.
SECTION 3.20. Insurance.
Section 3.20 of the Company Disclosure Schedule lists and briefly describes
all policies of title, Asset, fire, hazard, casualty, liability, life, worker's
compensation and other forms of insurance of any kind owned or held by the
Company or any Subsidiary. All such policies: (a) are with insurance companies
reasonably believed by the Company to be financially sound and reputable; (b)
are in full force and effect; (c) are sufficient for compliance by the Company
and by each Subsidiary with all requirements of Law and of all Agreements to
which the Company or any Subsidiary is a party; (d) are valid and outstanding
policies enforceable against the insurer; (e) insure against risks of the kind
customarily insured against and in amounts customarily carried by companies
similarly situated and by companies engaged in similar businesses and owning
similar Assets; and (f) provide that they have the policy expiration dates as
set forth in Section 3.20 of the Company Disclosure Schedule.
SECTION 3.21. Potential Conflicts of Interest.
Except as set forth in Section 3.21 of the Company Disclosure Schedule,
neither any present or, to the knowledge of the Company or any Subsidiary,
former director, officer, employee with a salary in excess of $60,000, or
stockholder of the Company or any Subsidiary who beneficially owns more than 5%
of the capital stock of the Company or any Subsidiary, nor any Affiliate of such
director, officer, employee or stockholder:
(a) owns, directly or indirectly, any interest in (except for holdings
in securities that are listed on a national securities exchange, quoted on
a national automated quotation system or regularly traded in the over-the-
counter market, where such holdings are not in excess of two percent (2%)
of the outstanding class of such securities and are held solely for
investment purposes), or is a stockholder, partner, other holder of equity
interests, director, officer, employee, consultant or agent of, any Person
that is a lessor, lessee or customer of, or supplier of goods or services
to, the Company or any Subsidiary, except where the value to such
individual of any such arrangement with the Company or any Subsidiary has
been less than $60,000 in the last twelve (12) months;
(b) owns, directly or indirectly, in whole or in part, any Assets with
a fair market value of $60,000 or more which the Company or any Subsidiary
currently uses in its business;
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(c) has any cause of action or other suit, action or claim whatsoever
against, or owes any amount to, the Company or any Subsidiary, except for
claims arising in the Ordinary Course of Business from any such Person's
service to the Company or any Subsidiary as a director, officer or
employee;
(d) has sold or leased to, or purchased or leased from, the Company or
any Subsidiary any Assets for consideration in excess of $60,000 in the
aggregate since the inception of the Company;
(e) is a party to any Agreement pursuant to which the Company or any
Subsidiary provides office space to any such Person, or provides services
of any nature to any such Person, other than in the Ordinary Course of
Business in connection with the employment of such Person by the Company or
any Subsidiary; or
(f) has, since the inception of the Company, engaged in any other
material transaction with the Company or any Subsidiary involving in excess
of $60,000, other than (i) in the Ordinary Course of Business in connection
with the employment of such Person by the Company or any Subsidiary, (ii)
dividends, distributions and stock issuances to all common and preferred
stockholders (as applicable) on a pro rata basis and (iii) as set forth in
Section 3.04 of the Company Disclosure Schedule.
SECTION 3.22. Receivables.
The accounts receivable of the Company and the Subsidiaries shown on the
Audited Balance Sheet and the Unaudited Balance Sheets, or thereafter acquired
by any of them, have been collected or are collectible in amounts not less than
the amounts thereof carried on the books of the Company and the Subsidiaries,
without right of recourse, defense, deduction, counterclaim, offset or setoff on
the part of the obligor, and can reasonably be expected to be collected within
ninety (90) days of the date incurred, except to the extent of the allowance for
doubtful accounts shown on such Audited Balance Sheet and Unaudited Balance
Sheets and except to the extent of events described in Section 9.13(a).
SECTION 3.23. Real Property.
(a) Section 3.23(a) of the Company Disclosure Schedule lists all the
Real Property (as defined in Article X), specifying the owner of each parcel
thereof, and all such Real Property is suitable and adequate for the uses for
which it is currently being used.
(b) Except as set forth in Section 3.23(b) of the Company Disclosure
Schedule, the Company and the Subsidiaries are the sole owners of good, valid,
fee simple, marketable and insurable (at standard rates) title to the Real
Property
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respectively owned by them, including, without limitation, all buildings,
structures, fixtures and improvements thereon and all equipment, machinery and
personal property therein, in each case free and clear of all Encumbrances,
except for Permitted Encumbrances.
(c) All material buildings, structures, fixtures and other
improvements on the Real Property are in reasonable repair, free of known
defects and are fit for the uses to which they are currently devoted. All such
buildings, structures, fixtures and improvements on the Real Property conform to
all Laws, except for any such non-conformance that would not have a Company
Material Adverse Effect. The buildings, structures, fixtures and improvements
on each parcel of the Real Property lie entirely within the boundaries of such
parcel of the Real Property, and no structures of any kind encroach on the Real
Property, except as may be disclosed on an accurate ALTA Land Title Survey, and
except where the failure of any such buildings, structures, fixtures and
improvements on each parcel of Real Property to lie entirely within the
boundaries of such parcel of the Real Property or the encroachment of any such
structure on the Real Property would not have a Company Material Adverse Effect.
(d) To the knowledge of the Company and the Subsidiaries, none of the
Real Property is subject to any Agreement or other restriction of any nature
whatsoever (recorded or unrecorded), other than Permitted Encumbrances,
preventing or limiting the Company's or any Subsidiary's right to convey or to
use it.
(e) No portion of the Real Property or any material building,
structure, fixture or improvement thereon is the subject of, or affected by, any
condemnation, eminent domain or inverse condemnation proceeding currently
instituted or pending, and neither the Company nor any Subsidiary has any
knowledge that any of the foregoing are, or will be, the subject of, or affected
by, any such proceeding.
(f) The Real Property has reasonable access to adequate electric, gas,
water, sewer and telephone lines, all of which are adequate for the uses to
which the Real Property is currently devoted.
SECTION 3.24. Books and Records.
The books of account, stock records, minute books and other corporate and
financial records of the Company are complete and correct in all material
respects and have been maintained in accordance with reasonable business
practices for companies similar to the Company, and the matters contained
therein are appropriately and accurately reflected in all material respects in
the Financial Statements in accordance with GAAP.
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SECTION 3.25. Assets.
Except as set forth in Section 3.25 of the Company Disclosure Schedule, the
Company and the Subsidiaries have good, valid and marketable title to all
material Assets respectively owned by them, including, without limitation, all
material Assets reflected in the Audited Balance Sheet and in the Unaudited
Balance Sheets and all material Assets purchased by the Company or by any
Subsidiary since December 31, 1997 (except for Assets reflected in such Audited
Balance Sheet and Unaudited Balance Sheets or acquired since December 31, 1997
which have been sold or otherwise disposed of in the Ordinary Course of
Business), free and clear of all Encumbrances other than Permitted Encumbrances.
All personal property of the Company and the Subsidiaries is in good operating
condition and repair and is suitable and adequate for the uses for which it is
intended or is being used. All Inventory (as defined in Article X) of the
Company and the Subsidiaries (i) consists of items which are good and
merchantable and of a quality and quantity presently usable and salable in the
Ordinary Course of Business and (ii) have been reflected in the Financial
Statements at the lower of cost or market, in accordance with GAAP, and include
no obsolete or discontinued items, except to the extent reserved against in the
Financial Statements.
SECTION 3.26. No Infringement or Contest.
(a) Section 3.26(a) of the Company Disclosure Schedule identifies and
describes each item of Intellectual Property (as defined in Article X) (i) owned
by the Company or a Subsidiary, (ii) owned by any third party and used by the
Company or any Subsidiary pursuant to license, sublicense or other Agreement, or
(iii) otherwise used by the Company or any Subsidiary and not otherwise
generally used by Persons similarly situated (including, in each case,
specification of whether each such item is owned, licensed or used by the
Company or any Subsidiary) in the case of each of the foregoing clauses (i),
(ii) or (iii), the absence of which would have a Company Material Adverse
Effect.
(b) With respect to each item of Intellectual Property listed in
Section 3.26(a) of the Company Disclosure Schedule that is owned by the Company
or any Subsidiary, such Intellectual Property can be used by the Company and the
Subsidiaries in their respective businesses as presently conducted by them, free
and clear of any material restrictions, Encumbrances (other than Permitted
Encumbrances) and royalties on such use, and the Company and the Subsidiaries
have the right to bring action for infringement of such Intellectual Property.
With respect to the Intellectual Property listed in Section 3.26(a) of the
Company Disclosure Schedule that is used by the Company or a Subsidiary pursuant
to license, sublicense or other Agreement, such Intellectual Property has been
licensed on an arm's-length basis and can be used by the Company and the
Subsidiaries in their respective businesses as currently conducted by them in
accordance with the terms and conditions of such licenses, sublicenses or other
Agreements. With
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respect to each item of Intellectual Property listed in Section 3.26(a) of the
Company Disclosure Schedule that is otherwise used by the Company or any
Subsidiary, such Intellectual Property can be used by the Company and the
Subsidiaries in their respective businesses as presently conducted by them, free
and clear of any material restrictions, Encumbrances (other than Permitted
Encumbrances) and royalties on such use. Each item of Intellectual Property
owned or used by the Company or any Subsidiary immediately prior to the Closing
will be owned or available for use by the Company or such Subsidiary on
identical terms and conditions identified in all material respects immediately
after the Closing.
(c) As used in the businesses of the Company and the Subsidiaries as
conducted in the past and as currently conducted, to the knowledge of the
Company, none of the Intellectual Property listed in Section 3.26(a) of the
Company Disclosure Schedule has at any time infringed or misappropriated or
otherwise violated, or is likely to infringe, misappropriate or violate, any
Intellectual Property of any other Person, nor is the Company or any Subsidiary
otherwise in the conduct of their respective businesses infringing upon, or
alleged to be infringing upon, any Intellectual Property of any other Person.
There are no pending or, to the knowledge of the Company or any Subsidiary,
threatened claims against the Company or any Subsidiary alleging that the
conduct of the Company's or any Subsidiary's business infringes or conflicts
with any Intellectual Property rights of others. To the knowledge of the
Company or any Subsidiary, there is no Intellectual Property of another Person
which infringes, misappropriates or violates any of the Intellectual Property
listed in Section 3.26(a) of the Company Disclosure Schedule.
(d) The Company and the Subsidiaries own or have the right to use
pursuant to a valid license, sublicense or other Agreement all Intellectual
Property that is material in the operation of the businesses of the Company and
the Subsidiaries as currently conducted and as currently proposed to be
conducted.
SECTION 3.27. Intentionally Deleted.
SECTION 3.28. Board Recommendation.
The Board of Directors of the Company has adopted, in compliance with
Delaware Law, a resolution approving and adopting this Merger Agreement and the
transactions contemplated hereby and recommending approval and adoption of this
Merger Agreement and the transactions contemplated hereby by the Company
Stockholders.
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SECTION 3.29. Vote Required.
The affirmative vote of the holders of a majority of the voting power
attributable to the outstanding shares of Company Common Stock and Company
Series A Preferred Stock, voting together as a class, is the only vote of the
holders of any class or series of capital stock of the Company necessary to
approve the transactions contemplated by this Merger Agreement.
SECTION 3.30. Banks; Attorneys-in-fact.
Section 3.30 of the Company Disclosure Schedule sets forth a complete list
showing the name of each bank or other financial institution in which the
Company or any Subsidiary has accounts (including a description of the names of
all Persons authorized to draw thereon or to have access thereto). Such list
also shows the name of each Person holding a power of attorney from the Company
or any Subsidiary and a brief description thereof.
SECTION 3.31. Intentionally Deleted.
SECTION 3.32. Brokers.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Merger Agreement based upon arrangements made by or on
behalf of the Company or any Subsidiary or any of their respective Affiliates.
SECTION 3.33. ENVIRONMENTAL MATTERS.
(a) The Company and each of the Subsidiaries have complied and are in
compliance with, and the Real Property and any real property that is leased by
the Company or any Subsidiary and all improvements thereon are in compliance
with, all Environmental Laws (as defined in Article X), except where the failure
so to comply would not have a Company Material Adverse Effect.
(b) To the knowledge of the Company and the Subsidiaries, neither the
Company nor any Subsidiary has any liability under any Environmental Law, nor is
the Company or any Subsidiary responsible for any liability of any other Person
under any Environmental Law. Except as set forth in Section 3.33(b) of the
Company Disclosure Schedule, there are no pending or, to the knowledge of the
Company or any Subsidiary, threatened actions, suits, claims, legal proceedings
or other proceedings based on, and neither the Company nor any Subsidiary, has
received any formal or informal notice of any complaint, order, directive,
citation, notice of responsibility, notice of potential responsibility, or
information request from any Governmental Entity or any other Person since
January 1, 1993 (or prior
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thereto with respect to any such complaint, order, directive, citation, notice
of responsibility, notice of potential responsibility, or information request
which has not been finally resolved) or knows any fact(s) which might reasonably
be expected to form the basis for any such actions or notices arising out of or
attributable to: (i) the current or past presence at any part of the Real
Property or any real property that is leased by the Company or any Subsidiary of
Hazardous Materials (as defined in Article X) or any substances that pose a
hazard to human health or an impediment to working conditions; (ii) the current
or past release or threatened release into the environment from the Real
Property or any real property that is leased by the Company or any Subsidiary
(including, without limitation, into any storm drain, sewer, septic system or
publicly owned treatment works) of any Hazardous Materials or any substances
that pose a hazard to human health or an impediment to working conditions; (iii)
the off-site disposal of Hazardous Materials originating on or from the Real
Property or any real property that is leased by the Company or any Subsidiary or
the businesses or Assets of the Company or any Subsidiary; (iv) any facility
operations, procedures or designs of the Company or any Subsidiary which do not
conform to requirements of the Environmental Laws; or (v) any violation of
Environmental Laws at any part of the Real Property or any real property that is
leased by the Company or any Subsidiary or otherwise arising from the Company's
or any Subsidiary's activities (or the activities of the Company's or any
Subsidiary's predecessors in title) involving Hazardous Materials.
(c) The Company and the Subsidiaries have been duly issued, and
currently have and will maintain through the Effective Time, all Licenses
required under any Environmental Law. A true and complete list of all such
Licenses the absence of which would have a Company Material Adverse Effect is
set out in Section 3.33(c) of the Company Disclosure Schedule. All Licenses
listed in Section 3.33(c) of the Company Disclosure Schedule are valid and in
full force and effect. Except in accordance with such Licenses, as described in
Section 3.33(c) of the Company Disclosure Schedule or as otherwise permitted by
Law, there has been no Hazardous Discharge (as defined in Article X) or
discharge of any other material regulated by such Licenses. Except as disclosed
in Section 3.33(c) of the Company Disclosure Schedule, to the knowledge of the
Company and the Subsidiaries no such Licenses are non-transferable or which
require consent, notification or other action to remain in full force and effect
following consummation of the Merger and the other transactions contemplated
hereby.
(d) Except as set forth in Section 3.33(d) of the Company Disclosure
Schedule, neither the Real Property nor any real property that is leased by the
Company or any Subsidiary contains any underground improvements, including but
not limited to treatment or storage tanks, or underground piping associated with
such tanks, used currently or in the past for the storage, throughput or other
management of Hazardous Materials, and no portion of the Real Property or any
real property that is leased by the Company or any Subsidiary is or has been
used as a dump or landfill or consists of or contains filled in land or
wetlands.
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SECTION 3.34. Disclosure.
(a) None of the information supplied by the Company expressly for
inclusion (and so included or relied on for information included) in (i) the
Registration Statement (as defined in Section 6.01(a)) and (ii) the Proxy
Statement (as defined in Section 6.01(a)), at the respective times that (w) the
Registration Statement is filed with the SEC, (x) the Registration Statement
becomes effective, (y) the Proxy Statement is mailed, and (z) any meeting of
stockholders (and any adjournment thereof) is held to consider, or written
consents are effective with respect to approval of, the transactions
contemplated by this Merger Agreement, shall contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
(b) No representation or warranty contained in this Merger Agreement
or the Company Disclosure Schedule (giving full effect to the concepts and
qualifications of materiality and knowledge contained therein and not with the
intention or effect of eliminating or limiting such concepts and qualifications
in any way), and no other agreements, documents, certificates, instruments or
other information furnished or to be furnished, or made available or to be made
available to Acquiror by the Company pursuant to this Merger Agreement or
otherwise in connection herewith or with the transactions contemplated hereby,
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 therein, in light of the circumstances under which they were made, not
misleading; provided however, that this representation shall not apply to the
matters specifically covered by any other representation or warranty in this
Merger Agreement, it being the intent of the parties that this sentence not be
applied so as to broaden the scope of those representations and warranties. As
of the date of this Merger Agreement, the Company believes that the Company has
a reasonable likelihood of attaining the results of its business plan as set
forth in the Confidential Information Memorandum (relating to certain senior
credit facilities) dated December 1998, as furnished to Acquiror, based upon the
assumptions used in the preparation of such business plan (which assumptions the
Company believes to be reasonable).
SECTION 3.35. Directors, Officers and Affiliates.
Section 3.35 of the Company Disclosure Schedule lists all current directors
and officers of the Company and the Subsidiaries, showing each such person's
name, positions, and annual remuneration, bonuses and fringe benefits paid by
the Company or any Subsidiary for the current fiscal year and the most recently
completed fiscal year.
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SECTION 3.36. Copies of Documents.
True and complete copies of all agreements, documents, certificates or
other instruments listed in the Company Disclosure Schedule have been made
available to Acquiror prior to the execution of this Merger Agreement.
SECTION 3.37. Condition and Operation of the System.
(a) Section 3.37(a)(1) of the Company Disclosure Schedule contains a
description of the size and capacity of the System (as defined in Article X)
(including, as of December 31, 1998, the percentage of the System capacity that
was activated and in operation and the percentage of the System capacity that
was unactivated and in reserve). The system coverage map which constitutes an
integral part of the Company Disclosure Schedule has previously been made
available to Acquiror. The System and all major component parts (including but
not limited to transmission towers, microwave facilities, fiber optic cables and
switches) are in compliance in all material respects with all applicable build-
out requirements, are in good operating condition and repair ordinary wear and
tear excepted, and are suitable, adequate and fit for the uses for which they
are intended and are being used, as the case may be. Since January 1, 1998,
there have been no material complaints with respect to the Company's or any
Subsidiary's performance under Agreements with customers that have not been
substantially corrected, and there have been no material System outages. The
System and the Assets of the Company and the Subsidiaries meet the technical
standards, if any, of the FCC and the FAA and the technical specifications of
the Company Licenses, and do not violate any applicable Laws, engineering
standards or building, fire, zoning, health and safety or other Laws in any
material respect.
(b) Section 3.37(b) of the Company Disclosure Schedule sets forth:
(i) information with respect to System services offered and rates
charged for initiation and provision of System services that is complete
and accurate in all material respects;
(ii) the rate of customer churn for each of (A) the year ended
December 31, 1997 and (B) the period from January 1, 1998 through November
30, 1998;
(iii) the amount of fraud loss for each of (A) the year ended
December 31, 1997 to the extent such amount exceeded $100,000 and (B) the
period from January 1, 1998 through November 30, 1998 to the extent such
amount exceeded $100,000;
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(iv) a list of all independent marketing or selling agents for
each month during the period from January 1, 1998 through December 31,
1998, indicating the volume of sales generated by such agents;
(v) any complaints received by the Company or any Subsidiary
regarding "slamming" or "cramming" (as such term are understood in the
telephone industry) by the Company, any Subsidiary or any of their
respective employees, resellers, agents or representatives;
(vi) a list and description of all material easements for the
installation, use and repair of fiber optic cable used by the System;
(vii) a list of all FCC Licenses held by the Company or any
Subsidiary;
(viii) all material filings by the Company or any Subsidiary
with the FCC since January 1, 1996; and
(ix) a list of any proceedings (other than proceedings of general
applicability) before the FCC, a state utility commission, or other
regulatory body that are reasonably likely to result in (A) adjustments in
and/or refunds of material amounts in the past charged to or paid to third
parties by the Company or any Subsidiary, or (B) adjustments in amounts
otherwise in the future to be charged to or paid to third parties by the
Company or any Subsidiary, in each case including but not limited to
amounts related to universal service, access charges, service rates charged
to customers, franchise fees, or any other revenues or expenses subject to
regulatory oversight.
(c) To the knowledge of the Company, the easements required to be
disclosed pursuant to Section 3.37(b)(vi) above (i) are valid, binding,
enforceable and sufficient for the purposes for which they are used as of the
date hereof and (ii) will be valid, binding, enforceable and sufficient for the
such purposes immediately following the Effective Time without the consent or
approval of any Person.
SECTION 3.38. Reorganization.
To the knowledge of the Company, neither it nor any of the Subsidiaries has
taken any action or failed to take any action that would jeopardize the
qualification of the Merger as a reorganization within the meaning of Section
368(a) or Section 368(a)(2)(D) of the Code.
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SECTION 3.39. State Takeover Statutes; Certain Charter Provisions.
The Board of Directors of the Company has, to the extent such statutes are
applicable, taken all action (including appropriate approvals of the Board of
Directors of the Company) necessary to exempt the Company, the Subsidiaries and
affiliates, the Merger, this Merger Agreement and the transactions contemplated
hereby and thereby from Section 203 of Delaware Law. To the knowledge of the
Company, no other state takeover statutes or charter or bylaw provisions are
applicable to the Merger or this Merger Agreement and the transactions
contemplated hereby or thereby.
SECTION 3.40. Year 2000 Review.
(a) The Company and the Subsidiaries will not, to the Company's
knowledge, be materially adversely affected by (i) any failure of the Company's
and the Subsidiaries' computer hardware, software, firmware or embedded chip
technology to be Year 2000 Compliant (as defined in Article X); or (ii) the cost
and/or disruption to normal activities caused by work to be carried out to
ensure such computer hardware, software or embedded chip technology is Year 2000
Compliant.
(b) The Company and the Subsidiaries are currently reviewing their
information technology ("IT") and non-IT computer systems and programs to
--
determine which are not capable of recognizing the Year 2000 and to verify
system readiness for the millennium date (the "Company Year 2000 Review"). The
------------------------
Company Year 2000 Review covers all of the Company's and the Subsidiaries'
material operations and is centrally managed.
(c) All of the information related to the Company Year 2000 Review
disclosed in any of the Company's filings with any Governmental Entity was to
the Company's knowledge accurate and complete in all material respects as of the
date the filing was made with such Governmental Entity.
SECTION 3.41. Affiliate Agreements.
In accordance with Section 6.13, the executive officers, directors and
certain Company Stockholders specified in Section 3.41 of the Company Disclosure
Schedule ("Company Affiliates") have indicated to the Company that they intend
------------------
to execute and deliver to Acquiror affiliate agreements in substantially the
form attached hereto as Exhibit A (the "Affiliate Agreements") and each such
--------- --------------------
Affiliate Agreement, when so executed and delivered, will, to the knowledge of
the Company, constitute a legal, valid and binding obligation of the respective
Company Affiliate who is a party thereto, enforceable against such Company
Affiliate in accordance with its terms. Except for the Principal Company
Stockholders, John F. Wade and
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Peter H. O. Claudy, there are no affiliates of the Company as of the date hereof
as that term is used in SEC Rule 145.
ARTICLE IIIA REPRESENTATIONS AND WARRANTIES OF PRINCIPAL COMPANY STOCKHOLDERS
SECTION 3A.01. Principal Company Stockholders That Are Entities.
To induce Acquiror to enter into this Merger Agreement, each Principal
Company Stockholder that is an entity, severally and not jointly, represents and
warrants to Acquiror on its own behalf and only with respect to itself as of the
date hereof and as of the Effective Date that:
(a) The execution and delivery by such Principal Company Stockholder
of this Merger Agreement, the execution and delivery by such Principal Company
Stockholder of all other agreements, documents, certificates or other
instruments contemplated hereby, and the consummation by such Principal Company
Stockholder of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate, partnership or limited liability company
action, and no other corporate, partnership or limited liability company
proceedings on the part of such Principal Company Stockholder are necessary to
authorize such Principal Company Stockholder to execute this Merger Agreement
and the other agreements, documents, certificates or other instruments
contemplated hereby, or to consummate the transactions contemplated hereby and
thereby, other than the approval and adoption of this Merger Agreement by a
majority of the voting power attributable to the outstanding Company Common
Stock and Company Series A Preferred Stock, voting together as a class, in
accordance with Delaware Law and the Company's articles of incorporation and
bylaws.
(b) This Merger Agreement has been duly executed and delivered by
such Principal Company Stockholder and constitutes a legal, valid and binding
obligation of such Principal Company Stockholder, enforceable in accordance with
its terms, except as such enforceability may be subject to the effects of any
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar Laws affecting creditors' rights generally and subject to
the effects of general equitable principles (whether considered in a proceeding
in equity or at law).
(c) All of the shares of Company Capital Stock beneficially owned by
such Principal Company Stockholder are set forth on Section 3.04 of the Company
Disclosure Schedule, all of which shares are owned by such Principal Company
Stockholder free and clear of all Encumbrances other than Encumbrances arising
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under applicable securities Laws and other than Encumbrances that will be
released at or prior to the Effective Time.
SECTION 3A.02. Principal Company Stockholders That Are Individuals.
To induce Acquiror to enter into this Merger Agreement, each Principal
Company Stockholder who is an individual, severally and not jointly, represents
and warrants to Acquiror on his own behalf and only with respect to himself as
of the date hereof and as of the Effective Date that:
(a) Such Principal Company Stockholder has the legal capacity and all
other necessary power and authority necessary to execute and deliver this Merger
Agreement, to execute and deliver all other agreements, documents, certificates
or other instruments contemplated hereby, and to consummate the transactions
contemplated hereby and thereby.
(b) This Merger Agreement has been duly executed and delivered by
such Principal Company Stockholder and constitutes a legal, valid and binding
obligation of such Principal Company Stockholder, enforceable in accordance with
its terms, except as such enforceability may be subject to the effects of any
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar Laws affecting creditors' rights generally and subject to
the effects of general equitable principles (whether considered in a proceeding
in equity or at law).
(c) All of the shares of Company Capital Stock beneficially owned by
such Principal Company Stockholder are set forth on Section 3.04 of the Company
Disclosure Schedule, all of which shares are owned by such Principal Company
Stockholder free and clear of all Encumbrances other than Encumbrances arising
under applicable securities Laws and other than Encumbrances that will be
released at or prior to the Effective Time.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF ACQUIROR AND ACQUIROR SUB
Except as specifically set forth in the Disclosure Schedule delivered by
Acquiror and Acquiror Sub to the Company prior to the execution and delivery of
this Merger Agreement (the "Acquiror Disclosure Schedule") (with (i) a
----------------------------
disclosure with respect to a Section of this Merger Agreement to require a
specific reference in the Acquiror Disclosure Schedule to the Section of this
Merger Agreement to which each such disclosure applies, (ii) no disclosure to be
deemed to apply with respect to
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any Section to which it does not expressly refer and (iii) Acquiror and Acquiror
Sub having the right to cross-reference the sections of the Acquiror Disclosure
Schedule as appropriate with respect to disclosures that are reasonably
related), Acquiror and Acquiror Sub hereby jointly and severally represent and
warrant (which representation and warranty shall be deemed to include the
disclosures with respect thereto so specified in the Acquiror Disclosure
Schedule) to, and agrees with, the Company as follows, in each case as of the
date of this Merger Agreement, unless otherwise specifically set forth herein or
in the Acquiror Disclosure Schedule:
SECTION 4.01. Organization and Qualification; Subsidiaries.
Each of Acquiror, Acquiror Sub and Acquiror's Significant Subsidiaries (as
defined in Article X) is a corporation duly organized, validly existing and in
good standing under the Laws of the jurisdiction of its incorporation or
organization, and has the full and unrestricted corporate power and authority to
own, operate and lease its Assets, and to carry on its business as currently
conducted. Each of Acquiror, Acquiror Sub and Acquiror's Significant
Subsidiaries is duly qualified to conduct business as a foreign corporation and
is in good standing in the states, countries and territories in which the nature
of the business conducted by it or the character of the Assets owned, leased or
otherwise held by it makes such qualification necessary, except where the
absence of such qualification as a foreign corporation would not have an
Acquiror Material Adverse Effect (as defined in Article X).
SECTION 4.02. Certificate of Incorporation and Bylaws.
Acquiror has furnished to the Company a true and complete copy of the
Amended and Restated Certificate of Incorporation of Acquiror and the
certificate of incorporation of Acquiror Sub, as currently in effect, certified
as of a recent date by the Secretary of State (or comparable Governmental
Entity) of their respective jurisdictions of incorporation, and a true and
complete copy of the Amended and Restated Bylaws of Acquiror and the bylaws of
Acquiror Sub, as currently in effect, certified by their respective corporate
secretaries. Such certified copies are attached as exhibits to, and constitute
an integral part of, the Acquiror Disclosure Schedule.
SECTION 4.03. Authority; Binding Obligation.
Each of Acquiror and Acquiror Sub has the full and unrestricted corporate
power and authority to execute and deliver this Merger Agreement and to carry
out the transactions contemplated hereby. The execution and delivery by
Acquiror and Acquiror Sub of this Merger Agreement and all other agreements,
documents, certificates or other instruments contemplated hereby, and the
consummation by Acquiror and Acquiror Sub of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary corporate action,
and no other corporate
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proceedings on the part of Acquiror or Acquiror Sub are necessary to authorize
this Merger Agreement and the other agreements, documents, certificates or other
instruments contemplated hereby, or to consummate the transactions contemplated
hereby and thereby. This Merger Agreement has been duly executed and delivered
by Acquiror and Acquiror Sub and constitutes a legal, valid and binding
obligation of Acquiror and Acquiror Sub, enforceable in accordance with its
terms, except as such enforceability may be subject to the effect of any
applicable bankruptcy, insolvency fraudulent conveyance, reorganization,
moratorium or similar Laws affecting creditors' rights generally and subject to
the effect of general equitable principles (whether considered in a proceeding
in equity or at law); provided, however, that the Merger will not become
effective until Articles of Merger reflecting the Merger are filed with the
office of the Secretary of State of Delaware.
SECTION 4.04. No Conflict; Required Filings and Consents.
(a) The execution, delivery and performance by Acquiror and Acquiror
Sub of this Merger Agreement and all other agreements, documents, certificates
or other instruments contemplated hereby, the fulfillment of and compliance with
the respective terms and provisions hereof and thereof, and the consummation by
Acquiror and Acquiror Sub of the transactions contemplated hereby and thereby,
do not and will not: (i) conflict with, or violate any provision of, the Amended
and Restated Certificate of Incorporation or the Amended and Restated Bylaws of
Acquiror, or the certificate or articles of incorporation or bylaws of Acquiror
Sub or any of Acquiror's Significant Subsidiaries; or (ii) subject to obtaining
the consents, approvals, authorizations and permits of, and making filings with
or notifications to, the applicable Governmental Entity pursuant to the
applicable requirements, if any, of the Securities Act, the Exchange Act, Blue
Sky Laws, the HSR Act, the Communications Act, the Federal Aviation Act,
applicable state utility Laws and applicable municipal franchise Laws, and the
filing and recordation of the Articles of Merger as required by Delaware Law,
conflict with or violate any Law applicable to Acquiror, Acquiror Sub or any of
Acquiror's Significant Subsidiaries, or any of their respective Assets; (iii)
conflict with, result in any breach of, constitute a default (or an event that
with notice or lapse of time or both would become a default) under any Agreement
to which Acquiror, Acquiror Sub or any of Acquiror's Significant Subsidiaries is
a party or by which Acquiror, Acquiror Sub or any of Acquiror's Significant
Subsidiaries, or any of their respective Assets, may be bound; or (iv) result in
or require the creation or imposition of, or result in the acceleration of, any
indebtedness or any Encumbrance of any nature upon, or with respect to,
Acquiror, Acquiror Sub or any of Acquiror's Significant Subsidiaries or any of
the Assets of Acquiror, Acquiror Sub or any of Acquiror's Significant
Subsidiaries; except for any such conflict or violation described in clause
(ii), any such conflict, breach or default described in clause (iii), or any
such creation, imposition or acceleration described in clause (iv) that would
not have an
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Acquiror Material Adverse Effect and that would not prevent Acquiror or Acquiror
Sub from consummating the Merger on a timely basis.
(b) Except as set forth in Section 4.04(b) of the Acquiror Disclosure
Schedule, the execution, delivery and performance by Acquiror and Acquiror Sub
of this Merger Agreement and all other agreements, documents, certificates or
other instruments contemplated hereby, the fulfillment of and compliance with
the respective terms and provisions hereof and thereof, and the consummation by
Acquiror and Acquiror Sub of the transactions contemplated hereby and thereby,
do not and will not: (i) require any consent, approval, authorization or permit
of, or filing with or notification to, any Person not party to this Merger
Agreement, except (A) pursuant to the applicable requirements, if any, of the
Securities Act, the Exchange Act, Blue Sky Laws, the HSR Act, the Communications
Act, the Federal Aviation Act, applicable state utility Laws and applicable
municipal franchise Laws and Laws of other Governmental Entities, (B) the filing
and recordation of the Articles of Merger as required by Delaware Law and (C)
where the failure to obtain any consent, approval, authorization or permit or to
make any filing or notification otherwise required to be disclosed hereunder
would not have an Acquiror Material Adverse Effect; or (ii) result in or give
rise to any penalty, forfeiture, Agreement termination, right of termination,
amendment or cancellation, or restriction on business operations of Acquiror,
the Surviving Corporation or any of Acquiror's Significant Subsidiaries that
would have an Acquiror Material Adverse Effect.
SECTION 4.05. No Prior Activities of Acquiror Sub.
Acquiror Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Merger Agreement and has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.
SECTION 4.06. Brokers.
No broker or finder or investment banker (other than Salomon Smith Barney
Inc., the fees of which shall be solely the responsibility of Acquiror) is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Merger Agreement based upon
arrangements made by or on behalf of Acquiror or any of its Affiliates.
SECTION 4.07. SEC Documents.
Acquiror has filed all required reports, schedules, forms, statements and
other documents with the SEC (as defined in Article X) since January 1, 1997
(including the Acquiror Post-Signing SEC Documents (as defined in Section 6.10),
the "Acquiror SEC Documents"). As of their respective dates, the Acquiror SEC
----------------------
Documents complied or, in the case of the Acquiror Post-Signing SEC Documents,
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will comply as to form in all material respects with the applicable requirements
of the Securities Act or the Exchange Act, as the case may be, and none of the
Acquiror SEC Documents contained or, in the case of the Acquiror Post-Signing
SEC Documents, will contain, any untrue statement of a material fact or omitted
or, in the case of the Acquiror Post-Signing SEC Documents, will omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of Acquiror included in
the Acquiror SEC Documents comply or, in the case of the Acquiror Post-Signing
SEC Documents, will comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been or, in the case of the Acquiror Post-Signing SEC
Documents, will have been prepared in accordance with GAAP (except, in the case
of unaudited statements, for the lack of normal year-end adjustments, the
absence of footnotes and as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods subject thereto (except as may be indicated
in the notes thereto) and fairly present the consolidated financial position of
Acquiror and its consolidated subsidiaries as of the dates thereof and the
consolidated results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end adjustments
and the absence of footnotes). Except as disclosed in the Acquiror SEC
Documents, as required by GAAP or as required by any Governmental Entity,
Acquiror has not, since December 31, 1997, made any change in accounting
practices or policies applied in the preparation of financial statements.
SECTION 4.08. Acquiror Common Stock.
The Acquiror Common Stock to be issued and delivered to the Company
Stockholders pursuant to the Merger has been duly authorized and, when issued in
the Merger in accordance with this Merger Agreement, will be validly issued,
fully paid and nonassessable and will have been approved for listing subject to
official notice of issuance by The Nasdaq Stock Market's National Market System.
SECTION 4.09. Capitalization.
The authorized capital stock of Acquiror consists of (a) 250,000,000 shares
of Acquiror Common Stock, of which, as of January 5, 1999: (i) 63,545,925 shares
were issued and outstanding, all of which were duly authorized, validly issued,
fully paid and nonassessable; (ii) no shares were held in the treasury of
Acquiror; (iii) 12,278,323 shares were reserved for issuance pursuant to
outstanding options to purchase Acquiror Common Stock granted to employees and
certain other Persons; (iv) 245,536 shares were reserved for issuance pursuant
to a Stock Option Agreement dated August 21, 1998 between Acquiror and QST
Enterprises, Inc.; (v) 10,414 shares were reserved for issuance pursuant to a
Stock Option Agreement
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dated November 25, 1998 between Acquiror, Inlet, Inc. and certain shareholders
of Inlet, Inc.; (vi) 917,398 shares were reserved for issuance pursuant to the
McLeodUSA Incorporated Employee Stock Purchase Plan; and (vii) 961,920 shares
were reserved for issuance pursuant to the McLeodUSA Incorporated 401(k) Profit
Sharing Plan; (b) 22,000,000 shares of Class B common stock, par value $.01 per
share ("Acquiror Class B Common Stock"), of which, as of January 5, 1999:
-----------------------------
(i) no shares were issued and outstanding; (ii) no shares were held in the
treasury of Acquiror; and (iii) 1,300,688 shares were reserved for issuance
pursuant to outstanding options to purchase Acquiror Class B Common Stock
granted to a significant stockholder of Acquiror; and (c) 2,000,000 shares of
serial preferred stock, par value $.01 per share, of which: (i) no shares are
issued and outstanding; and (ii) no shares are held in the treasury of Acquiror.
Except for the options set forth in clauses (a)(iii), (a)(iv), (a)(v), (a)(vi)
and (b)(iii) above and as set forth in Section 4.09(a) of the Acquiror
Disclosure Schedule, as of January 5, 1999, there were no outstanding securities
convertible into or exchangeable for capital stock or any other securities of
Acquiror, or any capital stock or other securities of any of Acquiror's
Significant Subsidiaries and no outstanding options, rights (preemptive or
otherwise), or warrants to purchase or to subscribe for any shares of such
capital stock or other securities of Acquiror or any of Acquiror's Significant
Subsidiaries. Except as set forth in Section 4.09(b) of the Acquiror Disclosure
Schedule and except for Agreements relating to the options specified in clauses
(a)(iii), (a)(iv), (a)(v), (a)(vi) and (b)(iii) above, there are no outstanding
Agreements to which Acquiror or any of its Significant Subsidiaries is a party
affecting or relating to the voting, issuance, purchase, redemption,
registration, repurchase or transfer of capital stock or any other securities of
Acquiror, or any capital stock or other securities of any of Acquiror's
Significant Subsidiaries, except as contemplated hereunder. Each of the
outstanding shares of Acquiror Common Stock, and of capital stock of, or other
equity interests in, Acquiror's Significant Subsidiaries was issued in
compliance with all applicable federal and state Laws concerning the issuance of
securities, and, except as set forth in Section 4.09(d) of the Acquiror
Disclosure Schedule, such shares or other equity interests owned by Acquiror or
any of its Significant Subsidiaries are owned free and clear of all
Encumbrances. There are no obligations, contingent or otherwise, of Acquiror or
any of its Significant Subsidiaries to provide funds to, make any investment (in
the form of a loan, capital contribution or otherwise) in, or provide any
guarantee with respect to, any of Acquiror's Significant Subsidiaries or any
other Person. Except as set forth in Section 4.09(e) of the Acquiror Disclosure
Schedule, there are no Agreements pursuant to which any Person (other than
Acquiror or Acquiror's Significant Subsidiaries) is or may be entitled to
receive any of the revenues or earnings, or any payment based thereon or
calculated in accordance therewith, of Acquiror or any of its Significant
Subsidiaries. No vote of the stockholders of Acquiror is required in connection
with the consummation of the Merger and the other transactions contemplated
hereby. Acquiror is the legal and beneficial owner of all of Acquiror Sub's
outstanding capital stock.
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SECTION 4.10. Reorganization.
To the knowledge of Acquiror, neither Acquiror, Acquiror Sub nor any of
Acquiror's Significant Subsidiaries has taken any action or failed to take any
action that would jeopardize the qualification of the Merger as a reorganization
within the meaning of Section 368(a) or Section 368(a)(2)(D) of the Code.
SECTION 4.11. Compliance.
Neither Acquiror nor Acquiror Sub is aware of any fact or circumstance
related to them that could reasonably be expected to cause the filing of any
objection to any application for any Governmental consent required hereunder,
lead to any delay in processing such application, or require any waiver of any
Governmental rule, policy or other applicable Law.
SECTION 4.12. Disclosure.
(a) None of the information supplied by Acquiror or Acquiror Sub expressly
for inclusion (and so included or relied on for information included) in (i) the
Registration Statement and (ii) the Proxy Statement, at the respective times
that (w) the Registration Statement is filed with the SEC, (x) the Registration
Statement becomes effective, (y) the Proxy Statement is mailed, and (z) any
meeting of stockholders (and any adjournment thereof) is held to consider, or
written consents are effective with respect to approval of, the transactions
contemplated by this Merger Agreement, shall contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
(b) No representation or warranty contained in this Merger Agreement
or the Acquiror Disclosure Schedule (giving full effect to the concepts and
qualifications of materiality and knowledge contained therein and not with the
intention or effect of eliminating or limiting such concepts and qualifications
in any way), and no other agreements, documents, certificates, instruments or
other information furnished or to be furnished, or made available or to be made
available to the Company by Acquiror or Acquiror Sub pursuant to this Merger
Agreement or otherwise in connection herewith or with the transactions
contemplated hereby, 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 therein, in light of the circumstances under which they
were made, not misleading; provided however, that this representation shall not
apply to the matters specifically covered by any other representation or
warranty in this Merger Agreement, it being the intent of the parties that this
sentence not be applied so as to broaden the scope of those representations and
warranties.
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ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.01. Conduct of Business of the Company.
The Company hereby covenants and agrees that, from the date of this Merger
Agreement until the Effective Time, the Company, unless otherwise expressly
contemplated by this Merger Agreement or consented to in writing by Acquiror,
will, and will cause the Subsidiaries to, carry on their respective businesses
only in the Ordinary Course of Business or as contemplated by the Company's 1999
capital budget, a copy of which was previously furnished to Acquiror or in the
Confidential Offering Memorandum (relating to certain senior credit facilities)
dated December 1998, use their respective reasonable best efforts to preserve
intact their business organizations and Assets, maintain their rights and
franchises, retain the services of their officers and employees and maintain
their relationships with customers, suppliers, licensors, licensees and others
having business dealings with them, and use their respective reasonable best
efforts to keep in full force and effect liability insurance and bonds
comparable in amount and scope of coverage to that currently maintained.
Without limiting the generality of the foregoing, except as otherwise consented
to in writing by Acquiror or orally by Stephen C. Grey, J. Lyle Patrick or John
Wray or as otherwise expressly contemplated by this Merger Agreement or as
contemplated by the Company's 1999 capital budget, a copy of which was
previously furnished to Acquiror or in the Confidential Offering Memorandum
(relating to certain senior credit facilities) dated December 1998, from the
date of this Merger Agreement until the Effective Time the Company shall not,
and shall not permit any of the Subsidiaries to:
(a) (i) increase in any manner the compensation or fringe benefits of,
or pay any bonus to, any director, officer or employee, except for
increases or bonuses in the Ordinary Course of Business to employees who
are not directors or officers and except pursuant to existing arrangements
previously disclosed to or approved in writing by Acquiror; (ii) grant any
severance or termination pay (other than pursuant to the normal severance
practices or existing Agreements of the Company or any Subsidiary in effect
on the date of this Merger Agreement as described in Section 5.01(a)(ii) of
the Company Disclosure Schedule) to, or enter into any severance Agreement
with, any director, officer or employee, or enter into any employment
Agreement with any director, officer or employee; (iii) establish, adopt,
enter into or amend any Plan or Other Arrangement, except as may be
required to comply with applicable Law; (iv) pay any benefit not provided
for under any Plan or Other Arrangement; (v) grant any awards under any
bonus, incentive, performance or other compensation plan or arrangement or
Plan or Other Arrangement (including the grant of stock options, stock
appreciation rights, stock-based or stock-related awards, performance units
or restricted stock, or the removal of
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existing restrictions in any Plan or Other Arrangement or Agreement or
awards made thereunder), except for grants in the Ordinary Course of
Business or as required under the Agreements set forth in Section
5.01(a)(ii) of the Company Disclosure Schedule, or (vi) take any action to
fund or in any other way secure the payment of compensation or benefits
under any Agreement, except as required under the Agreements set forth in
Section 5.01(a)(ii) of the Company Disclosure Schedule;
(b) declare, set aside or pay any dividend on, or make any other
distribution in respect of, outstanding shares of capital stock other than
capital stock repurchased from departing employees in the Ordinary Course
of Business;
(c) (i) redeem, purchase or otherwise acquire any shares of capital
stock of the Company or any Subsidiary or any securities or obligations
convertible into or exchangeable for any shares of capital stock of the
Company or any Subsidiary, or any options, warrants or conversion or other
rights to acquire any shares of capital stock of the Company or any
Subsidiary or any such securities or obligations, or any other securities
thereof, other than redemption and purchases from departing employees in
the Ordinary Course of Business; (ii) effect any reorganization or
recapitalization; or (iii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities
in respect of, in lieu of or in substitution for, shares of its capital
stock;
(d) except upon the exercise of Company Stock Options in accordance
with their terms, issue, deliver, award, grant or sell, or authorize the
issuance, delivery, award, grant or sale (including the grant of any
limitations in voting rights or other Encumbrances) of, any shares of any
class of its capital stock (including shares held in treasury), any
securities convertible into or exercisable or exchangeable for any such
shares, or any rights, warrants or options to acquire, any such shares, or
amend or otherwise modify the terms of any such rights, warrants or options
the effect of which shall be to make such terms more favorable to the
holders thereof;
(e) except as contemplated by Agreements which have been identified in
Section 3.14(a) of the Company Disclosure Schedule, acquire or agree to
acquire, by merging or consolidating with, by purchasing an equity interest
in or a portion of the Assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any Assets of
any other Person (other than the purchase of assets from suppliers or
vendors in the Ordinary Course of Business);
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(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise
subject to any Encumbrance or dispose of, or agree to sell, lease,
exchange, mortgage, pledge, transfer or otherwise subject to any
Encumbrance or dispose of, any of its Assets, except for sales,
dispositions or transfers in the Ordinary Course of Business;
(g) adopt any amendments to its articles or certificate of
incorporation, bylaws or other comparable charter or organizational
documents;
(h) make or rescind any express or deemed election relating to Taxes,
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes, or
change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of the federal
income tax returns for the taxable year ended December 31, 1997, except in
either case as may be required by Law, the IRS or GAAP;
(i) make or agree to make any new capital expenditures which are not
included in the Company's 1999 capital budget, a copy of which was
furnished to Acquiror, it being understood that the Company shall provide
prior notice to Acquiror of any expenditures which are individually in
excess of $1,000,000;
(j) (i) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any Subsidiary, guarantee any debt securities of another Person, enter into
any "keep well" or other Agreement to maintain any financial statement
condition of another Person or enter into any Agreement having the economic
effect of any of the foregoing, except for borrowings incurred in the
Ordinary Course of Business, or (ii) make any loans, advances or capital
contributions to, or investments in, any other Person other than intra-
group loans, advances, capital contributions or investments between or
among the Company and any of its wholly owned Subsidiaries other than in
the Ordinary Course of Business;
(k) except for costs incurred by the Company in connection with the
transactions contemplated by this Merger Agreement but only to the extent
such costs are deducted pursuant to the calculation of Merger Consideration
in Article II hereof, pay, discharge, settle or satisfy any claims,
liabilities or obligations (whether absolute or contingent, matured or
unmatured, known or unknown), other than the payment, discharge or
satisfaction, in the Ordinary Course of Business or in accordance with
their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent
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Financial Statement or incurred in the Ordinary Course of Business, or
waive any material benefits of, or agree to modify in any material respect,
any confidentiality, standstill or similar Agreements to which the Company
or any Subsidiary is a party;
(l) except in the Ordinary Course of Business, waive, release or
assign any rights or claims, or modify, amend or terminate any Agreement to
which the Company or any Subsidiary is a party;
(m) make any change in any method of accounting or accounting practice
or policy other than those required by GAAP or a Governmental Entity;
(n) take any action or fail to take any action that would have a
Company Material Adverse Effect prior to or after the Effective Time or an
Acquiror Material Adverse Effect after the Effective Time, or that would
adversely affect the ability of the Company or any Subsidiary prior to the
Effective Time, or Acquiror or any of its subsidiaries after the Effective
Time, to obtain consents of third parties or approvals of Governmental
Entities required to consummate the transactions contemplated in this
Merger Agreement; or
(o) authorize, or commit or agree to do any of the foregoing.
SECTION 5.02. Other Actions.
The Company and Acquiror shall not, and shall not permit any of their
respective Affiliates to, take any action that would, or that could reasonably
be expected to, result in (a) any of the representations and warranties of such
party set forth in this Merger Agreement becoming untrue, or (b) any of the
conditions to the Merger set forth in Article VII not being satisfied.
SECTION 5.03. Certain Tax Matters.
From the date hereof until the Effective Time, the Company and the
Subsidiaries (a) will prepare and timely file with the relevant Taxing authority
all Company Tax Returns ("Post-Signing Returns") required to be filed, which
--------------------
Post-Signing Returns shall be accurate in all material respects, or permitted
extensions with respect thereto, (b) will timely pay all Taxes due and payable
with respect to such Post-Signing Returns, (c) will pay or otherwise make
adequate provision for all Taxes payable by the Company and the Subsidiaries for
which no Post-Signing Return is due prior to the Effective Time, and (d) will
promptly notify Acquiror of any action, suit, proceeding, claim or audit pending
against or with respect to the Company or any Subsidiary in respect of any
Taxes.
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SECTION 5.04. Access and Information.
For so long as this Merger Agreement is in effect, the Company shall, and
shall cause each Subsidiary to, (a) afford to Acquiror and its officers,
employees, accountants, consultants, legal counsel and other representatives
reasonable access during normal business hours, subject to reasonable advance
notice, to all of their respective properties, Agreements, books, records and
personnel and (b) furnish promptly to Acquiror (i) a copy of each agreement,
document, certificate or other instrument filed with, or received from any
Governmental Entity and (ii) all other information concerning their respective
businesses, operations, prospects, conditions (financial or otherwise), Assets,
liabilities and personnel as Acquiror may reasonably request.
SECTION 5.05. No Solicitation.
(a) The Company shall, and shall cause its directors, officers,
employees, representatives, agents and Subsidiaries and their respective
directors, officers, employees, representatives and agents to, and the Principal
Company Stockholders shall, and shall cause their respective representatives and
agents to, immediately cease any discussions or negotiations with any Person
that may be ongoing with respect to a Competing Transaction (as defined in this
Section 5.05(a)). While this Merger Agreement is in effect, the Company shall
not, and shall cause the Subsidiaries not to, and the Principal Company
Stockholders shall not, initiate, solicit or encourage (including by way of
furnishing information or assistance), or take any other action to facilitate,
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Competing Transaction, or enter into discussions or
furnish any information or negotiate with any Person or otherwise cooperate in
any way in furtherance of such inquiries or to obtain a Competing Transaction,
or agree to or endorse any Competing Transaction, or authorize any of the
directors, officers, employees, agents or representatives of the Company or any
Subsidiary to take any such action, and the Company shall, and shall cause the
Subsidiaries to, direct and instruct and use its or their reasonable best
efforts to cause the directors, officers, employees, agents and representatives
of the Company and the Subsidiaries (including, without limitation, any
investment banker, financial advisor, attorney or accountant retained by the
Company or any Subsidiary) not to take any such action, and the Company or the
applicable Principal Company Stockholders shall promptly notify Acquiror if any
such inquiries or proposals are received by the Company, any Subsidiary, or such
Principal Company Stockholders or any of its or their respective directors,
officers, employees, agents, investment bankers, financial advisors, attorneys,
accountants or other representatives, and the Company or the applicable
Principal Company Stockholders shall promptly inform Acquiror as to the material
terms of such inquiry or proposal and, if in writing, promptly deliver or cause
to be delivered to Acquiror a copy of such inquiry or proposal, and the Company
or the applicable Principal Company Stockholders shall keep Acquiror
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informed, on a current basis, of the nature of any such inquiries and the status
and terms of any such proposals. For purposes of this Merger Agreement,
"Competing Transaction" shall mean any of the following involving the Company
--------- -----------
or the Subsidiaries (other than the transactions contemplated by this Merger
Agreement): (i) any merger, consolidation, share exchange, business combination,
or other similar transaction; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of ten percent (10%) or more of the Assets of the
Company and the Subsidiaries, taken as a whole, or issuance of ten percent (10%)
or more of the outstanding voting securities of the Company or any Subsidiary in
a single transaction or series of transactions; (iii) any tender offer or
exchange offer for ten percent (10%) or more of the outstanding shares of
capital stock of the Company or any Subsidiary or the filing of a registration
statement under the Securities Act in connection therewith; (iv) any
solicitation of proxies in opposition to approval by the Company Stockholders of
the Merger; (v) any Person shall have acquired beneficial ownership or the right
to acquire beneficial ownership of, or any "group" (as such term is defined
-----
under Section 13(d) of the Exchange Act) shall have been formed after the date
of this Merger Agreement which beneficially owns or has the right to acquire
beneficial ownership of, ten percent (10%) or more of the then outstanding
shares of capital stock of the Company or any Subsidiary; or (vi) any Agreement
to, or public announcement by the Company or any other Person of a proposal,
plan or intention to, do any of the foregoing.
(b) Neither the Board of Directors of the Company nor any committee
thereof nor any Principal Company Stockholder shall (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Acquiror or Acquiror Sub,
the approval or recommendation by such Board of Directors or any such committee
or Principal Company Stockholder of this Merger Agreement or the Merger, (ii)
approve or recommend, or propose to approve or recommend, any Competing
Transaction or (iii) enter into any Agreement with respect to any Competing
Transaction.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Registration Statement; Proxy Statement.
(a) As promptly as practicable after the execution of this Merger
Agreement, Acquiror shall prepare and file with the SEC a registration statement
on Form S-4 (such registration statement, together with the amendments thereto
being the "Registration Statement"), containing a proxy statement/prospectus, in
----------------------
connection with the registration under the Securities Act of the shares of
Acquiror Common Stock issuable pursuant to Section 2.01, the vote or consent of
the Company Stockholders with respect to the Merger (such proxy
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<PAGE>
statement/prospectus, together with any amendments thereof or supplements
thereto, in each case in the form or forms delivered to the Company
Stockholders, being the "Proxy Statement") and the other transactions
---------------
contemplated by this Merger Agreement. Acquiror agrees to provide the Company
with an opportunity to review and comment on the Registration Statement and the
Proxy Statement before filing. Acquiror agrees promptly to provide the Company
with copies of all correspondence from and all responsive correspondence to the
SEC regarding the Registration Statement and Proxy Statement. Acquiror agrees
promptly to notify the Company of all stop orders or threatened stop orders of
which it becomes aware with respect to the Registration Statement. Each of
Acquiror and the Company will use all reasonable best efforts to have or cause
the Registration Statement to become effective as promptly as practicable, and
shall take any action required to be taken under any applicable federal or state
securities Laws in connection with the issuance of shares of Acquiror Common
Stock in the Merger. Each of Acquiror and the Company shall furnish all
information concerning it and the holders of its capital stock as the other may
reasonably request in connection with such actions. As promptly as practicable
after the Registration Statement shall have become effective, the Company shall
mail or otherwise deliver the Proxy Statement to its stockholders, and the
Company shall comply with the proxy solicitation rules and regulations under the
Exchange Act in connection with the solicitation of such stockholders. The
Proxy Statement shall include the recommendation of the Company's Board of
Directors to the Company Stockholders to vote for or consent to the approval of
this Merger Agreement and the transactions contemplated hereby.
(b) The information supplied by the Company for inclusion in the
Registration Statement shall not, at the time the Registration Statement is
declared effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. The information supplied by the
Company for inclusion in the Proxy Statement to be sent to the Company
Stockholders in connection with securing the vote or consent of the Company
Stockholders to consider the Merger shall not, at the date the Proxy Statement
(or any amendment thereof or supplement hereto) is first delivered to
stockholders, at the time the vote or consent is secured or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading. If at any time prior to the Effective Time any event or
circumstance relating to the Company or any of its affiliates, or its or their
respective officers or directors, should be discovered by the Company which
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, the Company shall promptly inform Acquiror.
All documents that the Company is responsible for filing with the SEC in
connection with the transactions contemplated herein will comply as to form and
substance in all material respects with the applicable requirements of the
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<PAGE>
Securities Act and the rules and regulations thereunder and the Exchange Act and
the rules and regulations thereunder.
(c) The information supplied by Acquiror for inclusion in the
Registration Statement shall not, at the time the Registration Statement is
declared effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. The information supplied by
Acquiror for inclusion in the Proxy Statement to be sent to the Company
Stockholders in connection with securing the vote or consent shall not, at the
date the Proxy Statement (or any amendment thereof or supplement thereto) is
first delivered to stockholders, at the time the vote or consent is secured or
at the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances under which
they are made, not misleading. If at any time prior to the Effective Time any
event or circumstance relating to Acquiror or any of its respective affiliates,
or its or their respective officers or directors, should be discovered by
Acquiror which should be set forth in an amendment to the Registration Statement
or a supplement to the Proxy Statement, Acquiror shall promptly inform the
Company. All documents that Acquiror is responsible for filing with the SEC in
connection with the transactions contemplated herein will comply as to form and
substance in all material respects with the applicable requirements of the
Securities Act and the rules and regulations thereunder and the Exchange Act and
the rules and regulations thereunder.
(d) The Company and Acquiror each hereby (i) consents to the use of
its name and, on behalf of its subsidiaries and affiliates, the names of such
subsidiaries and affiliates and to the inclusion of financial statements and
business information relating to such party and its subsidiaries and affiliates
(in each case, to the extent required by applicable securities Laws) in any
registration statement or proxy statement prepared by the Company or Acquiror
pursuant to this Merger Agreement; (ii) agrees to use its reasonable best
efforts to obtain the written consent of any Person retained by it which may be
required to be named (as an expert or otherwise) in such registration statement
or proxy statement; and (iii) agrees to cooperate, and to use its reasonable
best efforts to cause its subsidiaries and affiliates to cooperate, with any
legal counsel, investment banker, accountant or other agent or representative
retained by any of the parties specified in clause (i) in connection with the
preparation of any and all information required, as determined after
consultation with each party's counsel, to be disclosed by applicable securities
Laws in any such registration statement or proxy statement.
SECTION 6.02. Stockholder Approval.
The Company shall promptly after the date of this Merger Agreement take all
action necessary in accordance with Delaware Law and its certificate of
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incorporation and bylaws to secure the vote or consent of the Company
Stockholders required by Delaware Law to approve this Merger Agreement and the
transactions contemplated hereby.
SECTION 6.03. Appropriate Action; Consents; Filings.
(a) Upon the terms and subject to the conditions set forth in this
Merger Agreement, the Company and Acquiror shall use their reasonable best
efforts to take, or cause to be taken, all appropriate action, and do, or cause
to be done, and to assist and cooperate with the other parties in doing all
things necessary, proper or advisable under applicable Law or otherwise to
consummate and make effective the transactions contemplated by this Merger
Agreement as promptly as practicable, including (i) executing and delivering any
additional instruments necessary, proper or advisable to consummate the
transactions contemplated by, and to carry out fully the purposes of, this
Merger Agreement, (ii) obtaining from any Governmental Entities any material
Licenses required to be obtained or made by Acquiror or the Company or any of
their subsidiaries in connection with the authorization, execution and delivery
of this Merger Agreement and the consummation of the transactions contemplated
herein, including, without limitation, the Merger, and (iii) making all
necessary filings, and thereafter making any other required submissions, with
respect to this Merger Agreement and the Merger required under (A) the
Securities Act, the Exchange Act and any other applicable federal or state
securities Laws, (B) the HSR Act and (C) any other applicable Law; provided that
--------
Acquiror and the Company shall cooperate with each other in connection with the
making of all such filings, including providing copies of all such documents to
the non-filing party and its advisors prior to filing and discussing all
reasonable additions, deletions or changes suggested in connection therewith.
The Company and Acquiror shall furnish to each other all information required
for any application or other filing to be made pursuant to the rules and
regulations of any applicable Law in connection with the transactions
contemplated by this Merger Agreement.
(b) (i) The Company and Acquiror shall give (or shall cause their
respective subsidiaries to give) any notices to third parties, and use, and
cause their respective subsidiaries to use, their reasonable best efforts to
obtain any third party consents, approvals or waivers (A) necessary, proper or
advisable to consummate the transactions contemplated in this Merger Agreement,
(B) disclosed or required to be disclosed in the Company Disclosure Schedule or
the Acquiror Disclosure Schedule, as the case may be, or (C) required to prevent
a Company Material Adverse Effect from occurring prior to or after the Effective
Time or an Acquiror Material Adverse Effect from occurring prior to or after the
Effective Time.
(ii) In the event that either the Company or Acquiror shall fail to
obtain any third party consent, approval or waiver described in subsection
(b)(i) above, such party shall use its reasonable best efforts, and shall take
any such
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actions reasonably requested by the other parties hereto, to minimize any
adverse effect upon the Company and Acquiror, their respective subsidiaries, and
their respective businesses resulting, or which could reasonably be expected to
result after the Effective Time, from the failure to obtain such consent,
approval or waiver.
(c) From the date of this Merger Agreement until the Effective Time,
the Company and Acquiror shall promptly notify each other in writing of any
pending or, to the knowledge of the Company or Acquiror (or their respective
subsidiaries), threatened action, proceeding or investigation by any
Governmental Entity or any other Person (i) challenging or seeking damages in
connection with the Merger or the conversion of the Company Capital Stock into
the Merger Consideration pursuant to the Merger or (ii) seeking to restrain or
prohibit the consummation of the Merger or otherwise limit the right of Acquiror
or its subsidiaries to own or operate all or any portion of the businesses or
Assets of the Company or any Subsidiary. The Company and Acquiror shall
cooperate with each other in defending any such action, proceeding or
investigation, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed.
(d) Concurrently with the Closing, Acquiror shall infuse the Company
with a sufficient amount of cash necessary and otherwise cause the Company and
the Subsidiaries to pay and satisfy in full in cash by wire transfer of
immediately available funds all of the Company's and the Subsidiaries'
indebtedness for borrowed money to (i) AT&T Commercial Finance Corporation
("AT&T CFC") and (ii) Media/Communications Partners III Limited Partnership and
- ----------
M/C Investors, L.L.C.
SECTION 6.04. Amendment to Stockholders' Agreement.
Acquiror shall use reasonable best efforts to amend the Stockholders'
Agreement promptly following the Closing to add those parties who are parties to
the Stockholders' Agreement, dated as of November 18, 1998, among such Persons,
IES Investments Inc., Acquiror, Clark E. McLeod, Mary E. McLeod and Richard A.
Lumpkin as parties to the Stockholders' Agreement for purposes of Section 1
thereof and who are not parties to the Stockholders' Agreement.
SECTION 6.05. Update Disclosure; Breaches.
(a) From and after the date of this Merger Agreement until the
Effective Time, each party hereto shall promptly notify the other parties hereto
by written update to its Disclosure Schedule of (i) any representation or
warranty made by it in connection with this Merger Agreement becoming untrue or
inaccurate, (ii) the occurrence, or non-occurrence, of any event the occurrence,
or non-occurrence, of which would be likely to cause any condition to the
obligations of any party to effect the Merger and the other transactions
contemplated by this
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Merger Agreement not to be satisfied, or (iii) the failure of the Company,
Acquiror or Acquiror Sub, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it pursuant
to this Merger Agreement which would be likely to result in any condition to the
obligations of any party to effect the Merger and the other transactions
contemplated by this Merger Agreement not to be satisfied; provided, however,
-------- -------
that subject to Section 6.05(b), the delivery of any notice pursuant to this
Section 6.05(a) shall not cure any breach of any representation or warranty
requiring disclosure of such matter prior to the date of this Merger Agreement
or otherwise limit or affect the rights and remedies available hereunder to the
party receiving such notice.
(b) The Company shall be permitted to update, correct or otherwise
modify the contents of the Company Disclosure Schedule up to ten (10) days prior
to the Closing Date to reflect changes or corrections so long as the changes or
corrections do not disclose any information that would have a Company Material
Adverse Effect. The representations and warranties of the Company set forth in
Article III shall be deemed to include, retroactively to the date hereof, any
Company Disclosure Schedule updated or modified consistent with the requirements
of this Section 6.05(b).
SECTION 6.06. Public Announcements.
Acquiror, Acquiror Sub and the Company shall consult with each other before
issuing or making, and shall give each other the opportunity to review and
comment upon, any press release or other public statement with respect to the
Merger and the other transactions contemplated in this Merger Agreement, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by Law or any listing agreement
with the NASD (as defined in Article X).
SECTION 6.07. Registration of Company Options.
Acquiror shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Acquiror Common Stock for delivery upon
exercise of the Company Stock Options assumed in accordance with Section 2.04.
Acquiror shall either (i) include such Company Stock Options on Acquiror's
registration statement or Form S-8 relating to Acquiror's 1996 Employee Stock
Option Plan or (ii) file a registration statement on Form S-8 (or any successor
form) or another appropriate form, effective as of the Effective Time, with
respect to shares of Acquiror Common Stock subject to such Company Stock Options
and shall use its reasonable best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
Company Stock Options remain outstanding. With respect to those individuals who
subsequent to the Merger will be subject to the reporting requirements under
Section 16(a) of the Exchange Act, Acquiror shall
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administer the Company Stock Options assumed pursuant to Section 2.04 in a
manner that complies with Rule 16b-3 promulgated under the Exchange Act.
SECTION 6.08. Unaudited Financial Information.
The Company will cause to be prepared and will furnish to Acquiror as
promptly as possible an unaudited consolidated balance sheet of the Company and
the Subsidiaries as of the last day of each month ending after November 30, 1998
and the related unaudited consolidated statements of income of the Company and
the Subsidiaries for the one-month period then ended. The Company will ensure
that such Unaudited Statements are complete and correct in all material
respects, have been prepared in accordance with the books and records of the
Company and the Subsidiaries, and present fairly the consolidated financial
position of the Company and the Subsidiaries and their consolidated results of
operations and cash flows as of and for the respective dates and time periods in
accordance with GAAP applied on a basis consistent with prior accounting
periods, except as noted thereon and subject to the absence of footnotes and a
statement of cash flows and normal and recurring year-end adjustments which are
not expected to be material in amount.
SECTION 6.09. Environmental Matters.
(a) The Company will promptly furnish to Acquiror written notice of
any Hazardous Discharge or of any actions or notices described in Section
3.33(b).
(b) The Company will permit Acquiror, in Acquiror's discretion and at
Acquiror's expense, to cause to be prepared a Phase I environmental report on
each parcel of the Real Property or any real property leased by the Company or
any Subsidiary (to the extent the Company or a Subsidiary has the right to allow
Acquiror to do the same) designated by Acquiror and, if recommended under the
Phase I environmental report and so requested by Acquiror, a Phase II
environmental report, in each case prepared by an environmental consultant
designated by Acquiror (the "Environmental Reports"). The Company shall
---------------------
cooperate with, and provide such information or other assistance as may be
requested by, Acquiror or the environmental consultant designated by Acquiror in
connection with the preparation and completion of such Environmental Reports.
Acquiror shall cause all Environmental Reports (including drafts thereof) to be
provided to the Company promptly after their receipt by Acquiror.
SECTION 6.10. Post-Signing SEC Documents.
Acquiror will file with the SEC all reports, schedules, forms, statements
and other documents required to be filed by it after the date of this Merger
Agreement but before the Effective Time (the "Acquiror Post-Signing SEC
-------------------------
Documents").
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SECTION 6.11. Indemnification.
(a) After the Effective Time, subject to the terms and conditions set
forth in Sections 6.11 and 6.12, the Company Stockholders shall severally and
not jointly indemnify and hold harmless Acquiror, the Surviving Corporation and
their respective officers and directors, and each person, if any, who controls
or may control Acquiror or the Surviving Corporation within the meaning of the
Securities Act (all such persons hereinafter are referred to individually as an
"Indemnified Person" and collectively as "Indemnified Persons," but in no event
------------------ -------------------
shall any stockholder of the Company be such an Indemnified Person), from and
against any and all losses, costs, damages, liabilities and expenses, including
reasonable attorneys' fees and expenses, ("Damages") actually suffered and
-------
arising out of the breach of the representations, warranties, covenants and
agreements given or made by the Company in this Merger Agreement, in the
Articles of Merger or in the Exhibits or Schedules hereto or in any certificate
or document delivered by or on behalf of the Company pursuant hereto; provided
--------
however, that the maximum liability of the Company Stockholders for
- -------
indemnification under this Section 6.11 shall be limited to $37,000,000;
provided, further, that such limitation on the indemnification obligations of
- -------- -------
the Company Stockholders shall not apply to any claim or claims for
indemnification to the extent such claim or claims are based on common law
fraud; provided, further, the Company Stockholders shall have no liability under
-------- -------
this Section 6.11(a) to the extent claims for Damages hereunder do not exceed an
aggregate of $1,750,000 and that if such Damages exceed an aggregate of
$1,750,000 then the indemnification provided for hereunder shall apply only to
Damages to the extent exceeding $1,750,000. It shall be a condition of the
right of each Indemnified Person to indemnification pursuant to this Section
6.11(a) that such Indemnified Person shall deliver to the Company Stockholder
from whom indemnification is sought a written claim for such indemnification,
setting forth in reasonable detail the basis therefor and setting forth the
amount of damages sought, on or prior to the date that the particular
representation, warranty, covenant or agreement for the breach of which the
indemnification is being sought, expires under the terms of this Merger
Agreement.
(b) In addition to the indemnification provided by Company
Stockholders as set forth in Section 6.11(a), each Principal Company Stockholder
shall severally and not jointly indemnify and hold harmless the Indemnified
Persons for Damages actually suffered and arising out of the breach of the
representations, warranties, covenants and agreements given or made by such
Principal Company Stockholder on its own behalf and only with respect to itself
or this Merger Agreement or in its Exhibits or Schedules thereto or in any
certificate or document delivered by or on behalf of such Principal Company
Stockholder pursuant hereto. No Principal Company Stockholder shall have any
liability for any breach of representation, warranty or covenant by any other
Principal Company Stockholder.
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(c) Any payment to be made to an Indemnified Person by a Company
Stockholder or a Principal Company Stockholder under this Section 6.11 may be
made in cash or, in whole or in part, in Acquiror Common Stock having a value
per share equal to the average of the daily closing price, on The Nasdaq Stock
Market's National Market System as reported by Bloomberg, L.P., for the ten (10)
trading days immediately preceding the date of such payment.
(d) Except as set forth in Section 6.11(e), with respect to any
Damages or other amounts payable under this Merger Agreement, a Company
Stockholder shall be liable only for a fraction of such Damages or other amount,
the numerator of which is the number of shares of Company Common Stock (computed
on a fully diluted basis after giving pro forma effect to the exercise of all
options, warrants and rights to acquire Company Common Stock) held by such
Company Stockholder immediately prior to the Effective Time and the denominator
of which is equal to the aggregate number of shares of Company Common Stock
outstanding immediately prior to the Effective Time (computed on a fully diluted
basis and after giving pro forma effect to the exercise of all options, warrants
and rights to acquire Company Common Stock). After the Effective Time,
indemnification pursuant to this Section 6.11 shall be the sole and exclusive
remedy of Acquiror and the Surviving Corporation under or in connection with
this Merger Agreement or any of the transactions contemplated herein.
(e) With respect to any Damages or other amounts payable under this
Merger Agreement by a Principal Company Stockholder under Section 6.11(b), the
indemnification provided with respect to a representation or warranty shall
apply to all Damages without regard to amount and there shall be no limitation
on the maximum liability for indemnification under Section 6.11(b).
SECTION 6.12. Procedures; Conditions of Indemnification.
With respect to any indemnification provided pursuant to this Merger
Agreement, the Indemnified Person agrees to give prompt written notice to the
Company Stockholder or Principal Company Stockholder, as the case may be, from
whom indemnification is sought of any claim or other assertion of liability by
third parties (hereinafter called collectively "Claims"), it being understood
------
that the failure to give such notice shall not affect the Indemnified Person's
right to indemnification and the indemnifying party's obligation to indemnify as
set forth in this Merger Agreement, unless the Company Stockholders' or
Principal Company Stockholders' rights with respect to such Claim are thereby
materially prejudiced.
The obligations and liabilities of the parties hereto with respect to their
respective indemnities pursuant to this Merger Agreement resulting from any
Claim shall be subject to the following terms and conditions:
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(a) The Company Stockholders or Principal Company Stockholders, as the
case may be, shall have the right to undertake, by counsel or other
representatives of their own choosing, the defense of such Claim.
(b) In the event that the Company Stockholders or Principal Company
Stockholders, as the case may be, shall elect not to undertake such defense, or
within a reasonable time after notice of any such Claim from the Indemnified
Person shall fail to defend, the Indemnified Person (upon further written notice
to the Company Stockholders or Principal Company Stockholders, as the case may
be) shall have the right to undertake the defense, compromise or settlement of
such Claim, by counsel or other representatives of its own choosing, on behalf
of and for the account and risk of the Company Stockholders or Principal Company
Stockholders, as the case may be (subject to the right of the Company
Stockholders or Principal Company Stockholders, as the case may be, to assume
defense of such Claim at any time prior to settlement, compromise or final
determination thereof); provided however, that no settlement or compromise of
-------- -------
such Claim shall be made without the written consent of the Company Stockholders
or Principal Company Stockholders, as the case may be, which consent shall not
be unreasonably withheld.
(c) Anything in this Section 6.12 to the contrary notwithstanding, (i)
if the Indemnified Person notifies the Company Stockholder or Principal Company
Stockholder, as the case may be, that the Indemnified Person has concluded that
a Claim may materially and adversely affect the Indemnified Person other than as
a result of money damages or other money payments, the Indemnified Person shall
have the right, at its own cost and expense, to participate in the defense,
compromise or settlement of the Claim, (ii) the Company Stockholders or
Principal Company Stockholders, as the case may be, shall not, without the
Indemnified Person's written consent, settle or compromise any Claim or consent
to entry of any judgment that does not include as an unconditional term thereof
the giving by the claimant or the plaintiff to the Indemnified Person of a
release from all liability in respect of such Claim, and (iii) in the event that
the Company Stockholders or Principal Company Stockholders, as the case may be,
undertake defense of any Claim, the Indemnified Person, by counsel or other
representative of its own choosing and at its sole cost and expense, shall have
the right to consult with the Company Stockholders or Principal Company
Stockholders, as the case may be, and their counsel or other representatives
concerning such Claim and the Company Stockholders or Principal Company
Stockholders, as the case may be, and the Indemnified Person and their
respective counsel or other representatives shall cooperate with respect to such
Claim.
(d) Notwithstanding any other provision of this Section 6.12, the
Indemnified Person may at any time assume full control over the responsibility
for any Claim (other than a Claim against one or more Company Stockholders or
Principal Company Stockholders, as the case may be), by written notice to the
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Company Stockholders or Principal Company Stockholders, as the case may be,
releasing the Company Stockholders or Principal Company Stockholders, as the
case may be, from any further indemnity obligation pursuant to this Merger
Agreement with respect to said Claim.
(e) Any decision with respect to any matter under this Section 6.12
relating to indemnification by the Company Stockholders (including, without
limitation, the defense, prosecution, settlement or resolution of Claims) shall
be binding on all Company Stockholders if consented to by those Company
Stockholders who, immediately prior to the Effective Time, hold a majority of
the Company Common Stock held by all Company Stockholders.
SECTION 6.13. Affiliates; Tax Treatment.
Prior to the Effective Time, the Company shall use its reasonable best
efforts to obtain Affiliate Agreements from each Person listed in Section 3.41
of the Company Disclosure Schedule and any Person who may be deemed to have
become an affiliate of the Company (under SEC Rule 145 of the Securities Act)
after the date of this Merger Agreement and on or prior to the Effective Time,
provided that the Company shall use its reasonable best efforts to obtain
- --------
Affiliate Agreements from each such Person as soon as practicable after the date
of this Merger Agreement or the date on which such Person attains such status,
as the case may be. Each party hereto shall use its reasonable best efforts to
cause the Merger to qualify, and shall not take any actions which could prevent
the Merger from qualifying, as a reorganization qualifying under the provisions
of Section 368(a) and Section 368(a)(2)(D) of the Code.
SECTION 6.14. Tax Returns.
(a) To the extent permitted under applicable Tax Laws, the Merger
shall be reported as a "reorganization" within the meaning of Section 368(a) and
Section 368(a)(2)(D) of the Code in all federal, state and local Tax Returns
filed after the Effective Time. To the extent permitted under applicable Tax
Laws, no party to this Merger Agreement shall take any position inconsistent
with the foregoing on any Tax Return, in any audits or proceeding or otherwise.
Notwithstanding any other provision of this Merger Agreement, the obligations
set forth in this Section 6.14(a) shall survive the Effective Time without
limitation as to time or in any other respect.
(b) Acquiror and the Company each hereby represents and warrants to
the other that it is not aware of any applicable Tax Law that would require such
party to take any position inconsistent with the foregoing on any Tax Return.
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SECTION 6.15. Reorganization.
During the period from the date of this Merger Agreement through the
Effective Time, unless Acquiror and the Company shall otherwise agree in
writing, Acquiror and the Company shall not, and shall cause their respective
subsidiaries not to, and the Principal Company Stockholders shall not, knowingly
take or fail to take any action which action or failure would jeopardize the
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
SECTION 6.16. Directors' and Officers' Insurance; Indemnification.
Acquiror agrees that for the entire period from the Effective Time until at
least six (6) years after the Effective Time, (a) Acquiror will cause the
Surviving Corporation to maintain the Company's current directors' and officers'
insurance and indemnification policy and related arrangements, or an equivalent
policy and related arrangements, subject in either case to terms and conditions
no less advantageous to the present and former directors and officers of the
Company than those contained in the policy and arrangements in effect on the
date hereof, for all present and former directors and officers of the Company,
covering claims made and insurable events occurring prior to or within six (6)
years after the Effective Time (provided that the Surviving Corporation will not
be required to maintain such policy except to the extent that the aggregate
annual cost of maintaining such policy is not in excess of two hundred percent
(200%) of the current annual cost, in which case the Surviving Corporation shall
maintain such policies up to an annual cost of two hundred percent (200%) of the
current annual cost); and (b) Acquiror will cause the Surviving Corporation to
maintain indemnification provisions, including, without limitation, provisions
for expense advances, for present and former officers and directors in the
Surviving Corporation's certificate of incorporation and bylaws to the fullest
extent permitted by Delaware Law. In the event of any threatened or actual
claim, action, suit, proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim, action, suit
proceeding or investigation in which any of the present or former officers or
directors (the "Managers") of the Company is, or is threatened to be, made a
--------
party by reason of the fact that such Manager is or was a director, officer,
employee or agent of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other entity, whether before or after the
Effective Time, the parties hereto agree to cooperate and use their reasonable
best efforts to defend against and respond thereto. It is understood and agreed
that the Company shall indemnify and hold harmless, and after the Effective Time
each of the Surviving Corporation and Acquiror shall indemnify and hold
harmless, as and to the full extent that the Surviving Corporation would be
permitted by applicable Law (and as to matters arising from or relating to this
Merger Agreement and the possible change in control of the Company, to the full
extent that Acquiror would be permitted under applicable Law), each such Manager
against any losses, claims, damages, liabilities,
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costs, expenses (including reasonable attorneys' fees), judgments, fines and
amounts paid in settlement in connection with any such claim, action, suit,
proceeding or investigation; and in the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) the Managers may retain counsel satisfactory to them, and the
Company, or the Surviving Corporation and Acquiror after the Effective Time,
shall pay all reasonable fees and expenses of such counsel for the Managers
promptly as statements therefor are received whether before or after final
determination of the matter, and (ii) the Company, or the Surviving Corporation
and Acquiror after the Effective Time, will use their respective reasonable best
efforts to assist in the vigorous defense of any such matter; provided that
--------
neither the Company nor the Surviving Corporation or Acquiror shall be liable
for any settlement effected without its prior written consent (which consent
shall not be unreasonably withheld); and provided further that the Company's,
-------- -------
the Surviving Corporation's and Acquiror's obligations hereunder shall only be
reduced or relieved when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final and non-
appealable, that indemnification of such Manager in the manner contemplated is
prohibited by applicable Law.
SECTION 6.17. Obligations of Acquiror Sub.
Acquiror shall take all action necessary to cause Acquiror Sub to perform
its obligations under this Merger Agreement and to consummate the Merger on the
terms and conditions set forth in this Merger Agreement.
SECTION 6.18. Loan Agreement.
Concurrently with the execution of this Merger Agreement, the Company and
Acquiror shall enter into a Revolving Credit Agreement and Promissory Note in
the form attached hereto as Exhibit B (the "Revolving Credit Agreement"),
--------- --------------------------
pursuant to which the Acquiror shall make available to the Company a loan (the
"Credit Facility") on the terms and subject to the conditions set forth therein.
- ----------------
In connection with the Revolving Credit Agreement, Acquiror shall, within three
(3) days of receiving executed signature pages by the Company and AT&T
Commercial Finance Corporation ("ATT CFC"), enter into a subordination agreement
-------
with the Company and ATT CFC (the "Subordination Agreement") substantially in
-----------------------
the form attached as Exhibit A to the Revolving Credit Agreement or in such
---------
other form as ATT CFC may reasonably request. Pursuant to the Subordination
Agreement, Acquiror shall subordinate the Credit Facility to the prior payment
in full of all of the Company's obligations owing to ATT CFC. Acquiror's
obligation to execute the Subordination Agreement is subject to and conditioned
upon Acquiror's receipt of a subordination agreement executed by the Company,
M/C Investors L.L.C. and Media/Communications Partners III Limited Partnership
(collectively "M/C") pursuant to which subordination agreement the Company and
---
M/C shall
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<PAGE>
subordinate all indebtedness of the Company to M/C, to the prior payment in full
of all of the Company's obligations owing to Acquiror to the same extent that
the Acquiror subordinates its obligations to ATT CFC.
SECTION 6.19 Letters of Accountants.
The Company shall use its reasonable best efforts to cause to be delivered
to Acquiror "cold comfort" letters of Ernst & Young L.L.P. dated the date on
which the Registration Statement shall become effective and the Effective Time,
respectively, and addressed to Acquiror, reasonably customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement and
transactions such as those contemplated by this Merger Agreement.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.01. Conditions to Obligations of Each Party Under This Merger
Agreement.
The respective obligations of each party to effect the Merger and the other
transactions contemplated herein shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions, any or all of which may
be waived by agreement of Acquiror and the Company, in whole or in part, to the
extent permitted by applicable Law:
(a) Stockholder Approval. This Merger Agreement and the Merger shall
--------------------
have been approved and adopted by the requisite vote of the Company
Stockholders.
(b) No Order. No Governmental Entity or federal or state court of
--------
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, judgment,
injunction or other order (whether temporary, preliminary or permanent), in
any case which is in effect and which prevents or prohibits consummation of
the Merger; provided, however, that each of the parties shall use its
-------- -------
reasonable best efforts to cause any such decree, judgment, injunction or
other order to be vacated or lifted and provided further, that the failure
to obtain a required consent or approval of a Governmental Entity (other
than those specified in Section 7.01(c) and Section 7.01(d)) shall not form
the basis for an assertion that this condition is not satisfied.
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<PAGE>
(c) HSR Act. The applicable waiting period with respect to the Merger
-------
and the other transactions contemplated hereby, together with any
extensions thereof, under the HSR Act shall have expired or been
terminated.
(d) Certain Governmental Approvals. All consents, waivers, approvals
------------------------------
and authorizations required to be obtained, and all filings or notices
required to be made, by Acquiror or the Company prior to consummation of
the transactions contemplated in this Merger Agreement (other than the
filing of the Articles of Merger in accordance with Delaware Law) shall
have been obtained from and made with the FCC and each of the public
utility commissions of the states of Illinois, Michigan, Minnesota and
Wisconsin.
(e) Company Securities. Other than (i) 23,971,756 shares of Company
------------------
Common Stock (which number of shares may be increased between the date of
the Merger Agreement and the Closing in connection with the exercise of
Company Stock Options described in clause (iii) below in accordance with
their terms), (ii) 240,000 shares of Series A Preferred Stock, and (iii)
Company Stock Options exercisable for 806,845 shares of Company Common
Stock (which number of Company Stock Options may be decreased between the
date of the Merger Agreement and the Closing in connection with the
exercise of Company Stock Options in accordance with their terms), there
shall be no other securities of the Company outstanding that are securities
convertible into or exchangeable for Company Common Stock or any other
equity securities of the Company and no outstanding options, rights
(preemptive or otherwise), or warrants to purchase or to subscribe for any
shares of such stock or other equity securities of the Company.
(f) Effectiveness of the Registration Statement. The Registration
-------------------------------------------
Statement shall have been declared effective by the SEC under the
Securities Act. No stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceedings
for that purpose shall have been initiated or, to the knowledge of Acquiror
or the Company, threatened by the SEC. Acquiror shall have received all
other federal or state securities permits and other authorizations
necessary to issue Acquiror Common Stock in exchange for Company Common
Stock and to consummate the Merger.
(g) Accountant Letters. Acquiror shall have received from the Company
------------------
"cold comfort" letters of Ernst & Young L.L.P. dated the date on which the
Registration Statement shall become effective and the Effective Time,
respectively, and addressed to Acquiror, reasonably customary in scope and
substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration
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Statement and transactions such as those contemplated by this Merger
Agreement.
SECTION 7.02. Additional Conditions to Obligations of Acquiror and
Acquiror Sub.
The obligations of Acquiror and Acquiror Sub to effect the Merger and the
other transactions contemplated herein are also subject to the satisfaction at
or prior to the Effective Time of the following conditions, any or all of which
may be waived by Acquiror, in whole or in part, to the extent permitted by
applicable Law:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company and the Principal Company Stockholders contained
in this Merger Agreement shall be true and correct as of the date of this
Merger Agreement and shall be true and correct in all material respects
(except that where any statement in a representation or warranty expressly
includes a standard of materiality, such statement shall be true and
correct in all respects giving effect to such standard) as of the Effective
Time as though made as of the Effective Time, except that those
representations and warranties which address matters only as of a
particular date shall be true and correct in all material respects (except
that where any statement in a representation or warranty expressly includes
a standard of materiality, such statement shall be true and correct in all
respects giving effect to such standard) as of such date, and except (A)
for changes permitted by or consistent with this Merger Agreement, or (B)
in a representation and warranty that does not expressly include a standard
of a Company Material Adverse Effect, any untrue or incorrect statements
therein that, considered in the aggregate, do not indicate a Company
Material Adverse Effect. Acquiror shall have received a certificate of the
chief executive officer or chief financial officer of the Company to that
effect.
(b) Updated Company Disclosure Schedule. The revised versions of the
-----------------------------------
Company Disclosure Schedules delivered to Acquiror pursuant to Section
6.05(b) shall not disclose any Company Material Adverse Effect as compared
to such Sections of the Company Disclosure Schedule as of the date of this
Merger Agreement.
(c) Agreements and Covenants. The Company and the Principal Company
------------------------
Stockholders shall have performed or complied in all respects with all
agreements and covenants required by this Merger Agreement to be performed
or complied with by them on or prior to the Effective Time except for such
noncompliance that does not have a Company Material Adverse Effect.
Acquiror shall have received a certificate of each Principal Company
Stockholder and the chief executive officer or chief financial officer of
the Company (as to the Company) to that effect.
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(d) Opinion of Counsel. Acquiror shall have received from Edwards &
------------------
Angell, LLP, counsel to the Company, an opinion dated the Closing Date,
which is reasonable and customary for transactions of the type contemplated
by this Merger Agreement.
(e) No Challenge. There shall not be pending any enforcement action
------------
or similar proceeding by any Government Entity that is likely to place
limitations on the ownership of shares of Company Capital Stock (or shares
of common stock of the Surviving Corporation) by Acquiror or Acquiror Sub
such that consummation of the Merger would violate any provisions of
Acquiror's indentures relating to its outstanding public indebtedness.
There shall not be pending any enforcement action or similar proceeding by
any state or federal Governmental Entity that is likely to have a Company
Material Adverse Effect or, if such action arises in connection with the
transactions contemplated hereby, an Acquiror Material Adverse Effect.
(f) Company Material Adverse Effect. Since December 31, 1997, there
-------------------------------
shall not have occurred a Company Material Adverse Effect (or any
development that, insofar as reasonably can be foreseen, is reasonably
likely to result in any Company Material Adverse Effect) not disclosed in
the Company Disclosure Schedule.
(g) Tax Opinion. Acquiror shall have received the opinion of Hogan &
-----------
Hartson L.L.P., counsel to Acquiror, in the form of Exhibit C, dated the
---------
Closing Date, to the effect that the Merger will not result in taxation to
Acquiror or Acquiror Sub under the Code. In rendering such opinion, Hogan
& Hartson L.L.P. shall require delivery of and rely upon the representation
letters delivered by Acquiror, Acquiror Sub and the Company substantially
in the forms of Exhibit D and Exhibit E hereto.
--------- ---------
(h) Environmental Matters. The Environmental Reports shall indicate
---------------------
that the Real Property does not contain any Hazardous Materials and is not
subject to any risk of contamination from any off-site Hazardous Materials,
except to the extent that the presence of any such Hazardous Materials or
the risk of such contamination would not have a Company Material Adverse
Effect or an Acquiror Material Adverse Effect. This Section 7.02(h) shall
be deemed waived by Acquiror and Acquiror Sub if Acquiror shall not have
caused the Phase I environmental reports to be prepared pursuant to Section
6.09(b) within fifteen (15) days following the date of this Merger
Agreement and the Phase II environmental reports, if requested by Acquiror,
to be prepared pursuant to Section 6.09(b) within thirty-five (35) days
following the date hereof, or if Acquiror shall have failed to give an
Environmental Problem Notice within the period provided in Section 8.01(e).
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(i) Claims Certificate. The Company shall have delivered to Acquiror
------------------
and Acquiror Sub a certificate dated as of the Closing Date signed by a
duly authorized officer stating that (i) to its knowledge, except as
specified in such certificate in reasonable detail, the Company is aware of
no breach of any representation, warranty or covenant by Acquiror or
Acquiror Sub under this Merger Agreement or under any agreement or
instrument executed in connection herewith that could be reasonably
expected to result in a claim for indemnification under this Merger
Agreement and (ii) the Company and the Principal Company Stockholders
irrevocably waive any and all rights to indemnification against Acquiror
and Acquiror Sub to the extent any Damages arising from the matters
described in such certificate or any other matters of which the Company
then has knowledge exceed $5,000,000 in the aggregate.
(j) Affiliate Agreements. Acquiror shall have received, after the
--------------------
date of this Merger Agreement and on or prior to the Closing Date, a signed
Affiliate Agreement from each Person listed in Section 3.41 of the Company
Disclosure Schedule and any other Person who may be deemed to have become
an affiliate of the Company (under Rule 145 of the Securities Act).
SECTION 7.03. Additional Conditions to Obligations of the Company.
The obligations of the Company to effect the Merger and the other
transactions contemplated herein are also subject to the satisfaction at or
prior to the Effective Time of the following conditions, any or all of which may
be waived by the Company, in whole or in part, to the extent permitted by
applicable Law:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of Acquiror and Acquiror Sub contained in this Merger Agreement
shall be true and correct as of the date of this Merger Agreement and shall
be true and correct in all material respects (except that where any
statement in a representation or warranty expressly includes a standard of
materiality, such statement shall be true and correct in all respects
giving effect to such standard) as of the Effective Time as though made as
of the Effective Time, except that those representations and warranties
which address matters only as of a particular date shall be true and
correct in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality,
such statement shall be true and correct in all respects giving effect to
such standard) as of such date, and except (A) for changes permitted by or
consistent with this Merger Agreement or (B) in a representation and
warranty that does not expressly include a standard of an Acquiror Material
Adverse Effect, any untrue or incorrect statements therein that, considered
in the aggregate, do not indicate an Acquiror Material Adverse Effect. The
Company shall have
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received a certificate of the chief executive officer or chief financial
officer of Acquiror to that effect.
(b) Agreements and Covenants. Acquiror and Acquiror Sub shall have
------------------------
performed or complied in all respects with all agreements and covenants
required by this Merger Agreement to be performed or complied with by them
on or prior to the Effective Time except for such noncompliance that does
not have an Acquiror Material Adverse Effect. The Company shall have
received a certificate of the chief executive officer or chief financial
officer of Acquiror and Acquiror Sub to that effect.
(c) Opinion of Counsel. The Company shall have received from Hogan &
------------------
Hartson L.L.P. an opinion dated the Closing Date, which is reasonable and
customary for transactions of the type contemplated by the Merger
Agreement.
(d) Intentionally Deleted.
---------------------
(e) Tax Opinion. The Company shall have received the opinion of
-----------
Edwards & Angell, LLP, counsel to the Company, in the form of Exhibit F,
---------
dated the Closing Date, to the effect that the Merger will not result in
taxation to the Company or the Company Stockholders under the Code. In
rendering such opinion, Edward & Angell, LLP may require delivery of and
rely upon the representation letters delivered by Acquiror, Acquiror Sub
and the Company substantially in the forms of Exhibit G and Exhibit H
--------- ---------
hereto.
(f) Acquiror Material Adverse Effect. Since December 31, 1997, there
--------------------------------
shall not have occurred an Acquiror Material Adverse Effect (or any
development that, insofar as reasonably can be foreseen, is reasonably
likely to result in any Acquiror Material Adverse Effect) not disclosed in
the Acquiror Disclosure Schedule.
(g) Claims Certificate. Acquiror and Acquiror Sub shall have
------------------
delivered to the Company a certificate dated as of the Closing Date signed
by a duly authorized officer stating that (i) to their knowledge, except as
specified in such certificate in reasonable detail, Acquiror and Acquiror
Sub are aware of no breach of any representation, warranty or covenant by
the Company or any Principal Company Stockholder under this Merger
Agreement or under any agreement or instrument executed in connection
herewith that could be reasonably expected to result in a claim for
indemnification under this Merger Agreement and (ii) Acquiror and Acquiror
Sub irrevocably waive any and all rights to indemnification against the
Principal Company Stockholders and the Company Stockholders to the extent
any Damages arising from the matters described in such certificate or any
other matters of which Acquiror or Acquiror Sub then has knowledge exceed
$5,000,000 in the aggregate.
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(h) No Challenge. There shall not be pending any enforcement action
------------
or similar proceeding by any Government Entity that is likely to place
limitations on the ownership of shares of Company Capital Stock (or shares
of common stock of the Surviving Corporation) by Acquiror or Acquiror Sub
such that consummation of the Merger would violate any provisions of
Acquiror's indentures relating to its outstanding public indebtedness.
There shall not be pending any enforcement action or similar proceeding by
any state or federal Governmental Entity that is likely to have an Acquiror
Material Adverse Effect or, if such action arises in connection with the
transactions contemplated hereby, a Company Material Adverse Effect.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination.
This Merger Agreement may be terminated at any time (except where otherwise
indicated) prior to the Effective Time, whether before or after approval of this
Merger Agreement and the Merger by the Company Stockholders:
(a) by mutual written consent of Acquiror and the Company;
(b) (i) by Acquiror, if there has been a breach by the Company of
any of its representations, warranties, covenants or agreements contained
in this Merger Agreement, or any such representation and warranty shall
have become untrue, in any such case such that Section 7.02(a), Section
7.02(b) or Section 7.02(c) will not be satisfied and such breach or
condition has not been cured such that Section 7.02(a), Section 7.02(b), or
Section 7.02(c), as the case may be, will be satisfied within twenty (20)
business days following receipt by the Company of written notice of such
breach describing the extent and nature thereof in reasonable detail;
(ii) by the Company, if there has been a breach by Acquiror or
Acquiror Sub of any of its representations, warranties, covenants or
agreements contained in this Merger Agreement, or any such representation
and warranty shall have become untrue, in any such case such that Section
7.03(a) or Section 7.03(b) will not be satisfied and such breach or
condition has not been cured such that Section 7.03(a) or Section 7.03(b),
as the case may be, will be satisfied within twenty (20) business days
following receipt by Acquiror of written notice of such breach describing
the extent and nature thereof in reasonable detail;
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(c) by either Acquiror or the Company if any decree, permanent
injunction, judgment, order or other action by any court of competent
jurisdiction or any other federal or state (but not county or municipal)
Governmental Entity preventing or prohibiting consummation of the Merger
shall have become final and non-appealable;
(d) by either Acquiror or the Company if this Merger Agreement shall
fail to receive the requisite vote for approval and adoption by the Company
Stockholders;
(e) by either Acquiror or the Company if the Merger shall not have
been consummated by the earlier to occur of the Scheduled Closing Date or
May 1, 1999; provided however, that the right to terminate this Merger
-------- -------
Agreement under this Section 8.01(e) shall not be available to (i)
Acquiror, where Acquiror's willful failure to fulfill any obligation under
this Merger Agreement has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date, or (ii) the Company,
where the Company's willful failure to fulfill any obligation under this
Merger Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date;
(f) by either the Company or the Acquiror upon written notice to the
other party if (i) having performed the Phase I and Phase II Environmental
Reports contemplated in Section 6.09(b) within the time periods provided in
Section 7.02(h) and (ii) having reasonably concluded that the Real Property
does contain Hazardous Materials or is subject to a risk of contamination
from off site Hazardous Materials that, in either case, would be reasonably
expected to have a Company Material Adverse Effect, the Acquiror notifies
the Company of such conclusion specifying the basis therefor in reasonable
detail in writing (the "Environmental Problem Notice") within two (2)
business days following the completion of such Environmental Reports;
provided, however, that this Section 8.01(f) shall be deemed waived by
-------- -------
Acquiror if the Company Stockholders representing at least 85% of the
Merger Consideration agree in writing to indemnify and hold harmless the
Indemnified Persons from and against any and all Damages actually suffered
and arising out of the existence of any Hazardous Materials on the Real
Property or the contamination of the Real Property from any off-site
Hazardous Materials (without regard to any deductibles or caps on liability
set forth in Section 6.11);
(g) by either Acquiror or the Company upon written notice to the other
if such party does not receive the certificate containing the information
specified in clause (i) of Section 7.02(i) or 7.03(g), respectively;
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(h) by either Acquiror or the Company upon written notice to the other
party if such party does not receive the certificate containing the waiver
specified in clause (ii) of Sections 7.02(i) or 7.03(g), respectively.
SECTION 8.02. Effect of Termination.
In the event of termination of this Merger Agreement by either Acquiror or
the Company as provided in Section 8.01, this Merger Agreement shall forthwith
become void and there shall be no liability or obligation on the part of
Acquiror, Acquiror Sub or the Company or any of their respective directors or
officers except (i) nothing herein shall relieve any party from liability for
any breach hereof, (ii) each party shall be entitled to any remedies at law or
in equity for such breach and (iii) Sections 8.02 and 8.03 and Article IX shall
remain in full force and effect and survive any termination of this Merger
Agreement. Notwithstanding the foregoing, if this Merger Agreement is
terminated pursuant to (x) Section 8.01(f), then the Company shall have no
liability to Acquiror or Acquiror Sub for a breach of the representation and
warranty set forth in Section 3.33, (y) Section 8.01(g), then neither the
Company, on the one hand, nor Acquiror and Acquiror Sub, on the other hand,
shall have any liability under this Agreement or (z) Section 8.01(h), then
neither the Company, on the one hand, nor Acquiror and Acquiror Sub, on the
other hand, shall be entitled to any recovery for such liability in excess of
$750,000.
SECTION 8.03. Expenses.
Whether or not the Merger is consummated, all costs and expenses incurred
in connection with this Merger Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expense.
SECTION 8.04. Amendment.
Subject to applicable Law, this Merger Agreement may be amended by the
parties hereto at any time prior to the Effective Time. This Merger Agreement
may not be amended except by an instrument in writing signed by the parties
hereto.
SECTION 8.05. Extension; Waiver.
At any time prior to the Effective Time, the parties hereto may (a) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any agreements, documents, certificates or
other instruments delivered pursuant hereto and (c) waive compliance with any of
the agreements or conditions contained herein. Any such extension or waiver
shall be valid if set forth in an instrument in writing signed by the party or
parties to be bound thereby. The
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failure of any party to assert any of its rights under this Merger Agreement or
otherwise shall not constitute a waiver of such rights.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Survival of Representations and Warranties.
The representations and warranties of the Company and the Principal Company
Stockholders contained in the Merger Agreement shall survive the Effective Time
for a period of eighteen (18) months; provided, however, that the
representations and warranties of the Company contained in Sections 3.16
(Pension and Benefits Plan), Section 3.17 (Taxes and Tax Matters), and Section
3.33 (Environmental Matters), shall survive until the expiration of the
applicable statute of limitations, it being understood that after the Effective
Time any claim for Damages resulting from a breach of any representation and
warranty of the Company shall be subject to the limitations contained in Section
6.11 and Section 6.12. The representations and warranties of Acquiror contained
in the Merger Agreement shall survive the Effective Time for a period of
eighteen (18) months; it being understood that after the Effective Time the
maximum liability of Acquiror for any breach of the representations, warranties,
covenants and agreements given or made by Acquiror in this Merger Agreement, in
the Articles of Merger or in the Exhibits or Schedules hereto or in any
certificate or document delivered by or on behalf of Acquiror pursuant hereto,
shall be limited to an amount equal to $37,000,000. Notwithstanding anything
herein to the contrary, any representation, warranty, covenant or agreement
which is the subject of a claim which is asserted in writing in compliance with
Section 6.11(a) or Section 6.11(b) prior to the expiration of the applicable
period set forth above shall survive with respect to such claim or dispute until
the final resolution thereof.
SECTION 9.02. Notices.
All notices and other communications given or made pursuant hereto shall be
in writing and shall be deemed to have been duly given or made as of the date
delivered, mailed or transmitted if delivered personally, mailed by registered
or certified mail (postage prepaid, return receipt requested) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses or sent by electronic transmission to the following telecopier numbers
(or at such other address or telecopy number for a party as shall be specified
by like notice):
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(a) If to Acquiror or Acquiror Sub:
McLeodUSA Incorporated
McLeodUSA Technology Park
6400 C Street SW
PO Box 3177
Cedar Rapids, Iowa 52406-3177
Telecopier No.: (319) 298-7901
Attention: Randall Rings
Vice President, General Counsel and Secretary
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, DC 20004
Telecopier No.: (202) 637-5910
Attention: Joseph G. Connolly, Jr.
(b) If to the Company:
Ovation Communications, Inc.
400 South Highway 169
Suite 750
Minneapolis, MN 55426
Telecopier No.: (612) 252-5150
Attention: Timothy T. Devine
With a copy (which shall not constitute notice) to:
Edwards & Angell, LLP
101 Federal Street
Boston, Massachusetts 02110
Telecopier No.: (617) 439-4170
Attention: Stephen O. Meredith, Esq.
(c) If to any Principal Company Stockholder, to it at the address set
forth in the Company Disclosure Schedule.
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<PAGE>
With copies (which shall not constitute notice) to:
Edwards & Angell, LLP
101 Federal Street
Boston, Massachusetts 02110
Telecopier No.: (617) 439-4170
Attention: Stephen O. Meredith, Esq.
(d) If to a Company Stockholder (other than the Principal Company
Stockholders whose notice shall be made pursuant to paragraph (c)
above) to it at the last known address on the Company's books and
records.
SECTION 9.03. Headings.
The headings contained in this Merger Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Merger Agreement.
SECTION 9.04. Severability.
If any term or other provision of this Merger Agreement is invalid, illegal
or incapable of being enforced by any rule of Law or public policy, all other
conditions and provisions of this Merger Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Merger Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 9.05. Entire Agreement.
This Merger Agreement (together with the Exhibits, Schedules, the Company
Disclosure Schedule and the Acquiror Disclosure Schedule and the other documents
delivered pursuant hereto) and the Confidentiality Agreement (as defined in
Article X) constitute the entire agreement of the parties and supersede all
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein, are not intended to confer upon any other Person any
rights or remedies hereunder.
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SECTION 9.06. Assignment.
This Merger Agreement shall not be assigned by operation of Law or
otherwise.
SECTION 9.07. Parties in Interest.
This Merger Agreement shall be binding upon and inure solely to the benefit
of each party hereto, and nothing in this Merger Agreement, express or implied,
other than the right to receive the consideration payable in the Merger pursuant
to Article II, is intended to or shall confer upon any other Person any right,
benefit or remedy of any nature whatsoever under or by reason of this Merger
Agreement.
SECTION 9.08. Mutual Drafting.
Each party hereto has participated in the drafting of this Merger
Agreement, which each party acknowledges is the result of extensive negotiations
between the parties.
SECTION 9.09. Specific Performance.
In addition to any other remedies which any party may have at law or in
equity, (a) the Company hereby acknowledges that the Company Capital Stock and
the Company and the Subsidiaries are unique, and that the harm to Acquiror
resulting from breaches by the Company of its obligations cannot be adequately
compensated by damages and (b) Acquiror and Acquiror Sub hereby acknowledge that
the Acquiror Common Stock and Acquiror and Acquiror Sub are unique, and that the
harm to the Company resulting from breaches by the Acquiror or Acquiror Sub of
their respective obligations cannot be adequately compensated by damages.
Accordingly, (i) the Company agrees that Acquiror and Acquiror Sub shall have
the right to have all obligations, undertakings, agreements, covenants and other
provisions of this Merger Agreement specifically performed by the Company and
that Acquiror and Acquiror Sub shall have the right to obtain an order or decree
of such specific performance in any of the courts of the United States of
America or of any state or other political subdivision thereof and (ii) Acquiror
and Acquiror Sub agree that the Company shall have the right to have all
obligations, undertakings, agreements, covenants and other provisions of this
Merger Agreement specifically performed by Acquiror and Acquiror Sub and that
the Company shall have the right to obtain an order or decree of such specific
performance in any of the courts of the United States of America or of any state
or other political subdivision thereof.
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<PAGE>
SECTION 9.10. Governing Law.
This Merger Agreement shall be governed by, and construed in accordance
with, the Laws of the State of Delaware, regardless of the Laws that might
otherwise govern under applicable principles of conflicts of law.
SECTION 9.11. Counterparts.
This Merger Agreement may be executed and delivered in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed and delivered shall be deemed to be an original but all
of which taken together shall constitute one and the same agreement.
SECTION 9.12. Confidentiality.
All information delivered to or obtained by or on behalf of any party to
this Merger Agreement shall be held pursuant to the Confidentiality Agreement.
SECTION 9.13. General Exclusion.
(a) Company Exclusion. Notwithstanding anything to the contrary set
-----------------
forth in this Agreement, in no event shall it constitute a breach of any
representation, warranty or covenant of the Company set forth herein, or a
failure of any condition to Acquiror's or Acquiror Sub's obligations herein if
any fact, matter or thing referred to herein changes or results in the failure
of any condition to Acquiror's or Acquiror Sub's obligations to the extent that
such change or failure of condition results from (i) changes that are applicable
to the competitive local exchange carrier industry generally in the states in
which the Company or its Subsidiaries operate (including, without limitation,
changes in federal or state Law) or (ii) any act or omission following the date
of this Merger Agreement on the part of any incumbent local exchange carrier
with which the Company or any of its Subsidiaries has an Agreement, against or
affecting the Company or its Subsidiaries, whether (aa) in connection with an
effective or anticipated change in Law (such as the cessation of reciprocal
compensation payments), (bb) as a result of the transactions contemplated in
this Merger Agreement or (cc) otherwise; provided that the Company or the
Subsidiaries are otherwise materially in compliance with their Agreement with
such incumbent local exchange carrier.
(b) Acquiror and Acquiror Sub Exclusion. Notwithstanding anything to
-----------------------------------
the contrary set forth in this Agreement, in no event shall it constitute a
breach of any representation, warranty or covenant of Acquiror or Acquiror Sub
set forth herein, or a failure of any condition to the Company's obligations
herein if any fact, matter or thing referred to herein changes or results in the
failure of any condition to the Company's obligations to the extent that such
change or failure of condition results from (i) changes that are applicable to
the telecommunications or
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<PAGE>
directory publishing industries generally (including, without limitation,
changes in federal or state Law), (ii) any act or omission following the date of
this Merger Agreement on the part of any incumbent local exchange carrier with
which Acquiror or any of its subsidiaries has an Agreement, against or affecting
Acquiror or its subsidiaries, whether (aa) in connection with an effective or
anticipated change in Law (such as the cessation of reciprocal compensation
payments), (bb) as a result of the transactions contemplated in this Merger
Agreement or (cc) otherwise; provided that Acquiror or its subsidiaries are
otherwise materially in compliance with their Agreement with such incumbent
local exchange carrier, or (iii) any decrease in the trading price of the
Acquiror Common Stock on The Nasdaq Stock Market's National Market System as
reported by Nasdaq.
ARTICLE X
DEFINITIONS
For purposes of this Merger Agreement, the following terms, and the
singular and plural thereof, shall have the meanings set forth below:
"Acquiror" is defined in the Preamble to this Merger Agreement.
--------
"Acquiror Common Stock" is defined in Section 2.01.
---------------------
"Acquiror Common Stock Closing Price" is defined in Section 2.01(a)(iv).
-----------------------------------
"Acquiror Disclosure Schedule" is defined in Article IV.
----------------------------
"Acquiror Material Adverse Effect" means any event, change or effect that,
--------------------------------
individually or when taken together with any and all other events, changes or
effects, is or is reasonably likely to be materially adverse to the business,
operations, condition (financial or otherwise), Assets or liabilities of
Acquiror and its subsidiaries, taken as a whole; provided, however, the parties
-------- -------
expressly agree that an Acquiror Material Adverse Effect shall not mean or be
deemed to include any event, change or effect described in Section 9.13(b).
"Acquiror Options" is defined in Section 2.04.
----------------
"Acquiror Post-Signing SEC Documents" is defined in Section 6.10.
-----------------------------------
"Acquiror SEC Documents" is defined in Section 4.07.
----------------------
"Acquiror Sub" is defined in the Preamble to this Merger Agreement.
------------
"Affiliate" means: (a) with respect to an individual, any member of such
---------
individual's family; (b) with respect to an entity, any officer, director,
stockholder, partner or investor of or in such entity or of or in any Affiliate
of such entity; and
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(c) with respect to a Person, any Person which directly or indirectly, through
one or more intermediaries, Controls, is Controlled by, or is under common
Control with such person or entity.
"affiliate" means, with respect to any Person, a Person that directly or
---------
indirectly, through one or more intermediaries, Controls, is Controlled by, or
is under common Control with, such Person.
"Agreement" means any agreement between two or more Persons with respect to
---------
their relative rights and/or obligations or with respect to a thing done or to
be done, including, without limitation, agreements denominated as contracts,
leases, promissory notes, covenants, easements, rights of way, covenants,
commitments, arrangements and understandings.
"Articles of Merger" is defined in Section 1.02.
------------------
"Assets" means assets of every kind and everything that is or may be
------
available for the payment of liabilities (whether inchoate, tangible or
intangible), including, without limitation, real and personal property.
"Audited Balance Sheet" is defined in Section 3.08(a).
---------------------
"Audited Statements" is defined in Section 3.08(a)
------------------
"Average Trading Price" is defined in Section 2.02(e).
---------------------
"beneficial owner" means, with respect to any shares of Company Common
----------------
Stock or Company Preferred Stock, a Person who shall be deemed to be the
beneficial owner of such shares (i) which such Person or any of its affiliates
or associates beneficially owns, directly or indirectly, (ii) which such Person
or any of its affiliates or associates (as such term is defined in Rule 12b-2
under the Exchange Act) has, directly or indirectly, (A) the right to acquire
(whether such right is exercisable immediately or subject only to the passage of
time), pursuant to any Agreement or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (B) the right to vote
pursuant to any Agreement, (iii) which are beneficially owned, directly or
indirectly, by any other Persons with whom such Person or any of its affiliates
or associates has any Agreement for the purpose of acquiring, holding, voting or
disposing of any such shares, or (iv) pursuant to Section 13(d) of the Exchange
Act and any rules or regulations promulgated thereunder.
"business day" means a day other than a Saturday, a Sunday or any other day
------------
on which commercial banks in the State of Minnesota and in the State of Iowa are
authorized or obligated to be closed.
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"Blue Sky Laws" means state securities or blue sky laws and the rules and
-------------
regulations thereunder.
"Cash Election" is defined in Section 2.01(a)(i).
-------------
"Cash Election Shares" is defined in Section 2.01(a)(i).
--------------------
"Certificates" is defined in Section 2.02(b).
------------
"Claims" is defined in Section 6.12.
------
"Closing" is defined in Section 2.05.
-------
"Closing Date" is defined in Section 1.02.
------------
"Code" is defined in the Preamble to this Merger Agreement.
----
"Common Control Entity" means any trade or business under common control
---------------------
(as such term is defined in Section 414(b) or 414(c) of the Code) with the
Company or any Subsidiary.
"Common Stock Cash Amount" means the result of:
------------------------
(A) the total of $289 million minus (1) the amount to payoff the
subordinated debt owed by the Company to M/C Investors L.L.C. and
Media/Communications Partners III Limited Partnership (collectively,
"M/C"); and, minus (2) the amount paid in exchange for the conversion
of all of the Company Series A Preferred Stock pursuant to Section
2.01(a)(ii); and, minus (3) costs incurred by the Company in connection
with the transactions contemplated by this Merger Agreement;
(B) divided by the number of shares of Company Common Stock validly issued
and outstanding and fully paid and nonassessable at the close of
business on the business day before the Closing Date.
"Common Stock Exchange Ratio" means the ratio with:
---------------------------
(A) the numerator being the result of (1) the total of $289 million minus
(a) the amount to payoff the subordinated debt owed by the Company to
M/C Investors L.L.C. and Media/Communications Partners III Limited
Partnership (collectively, "M/C"); and, minus (b) the amount paid in
exchange for the conversion all of the Company Series A Preferred Stock
pursuant to Section 2.01(a)(ii); and, minus (c) costs incurred by the
Company in connection with the transactions contemplated by this Merger
Agreement; divided by (2) $29.00; and,
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(B) the denominator being the number of shares of Company Common Stock
validly issued and outstanding and fully paid and nonassessable at the
close of business on the business day before the Closing Date.
"Common Stock Merger Consideration" means the Common Stock Cash Amount
---------------------------------
together with the Common Stock Exchange Ratio.
"Communications Act" means the Communications Act of 1934, as amended, and
------------------
all Laws promulgated pursuant thereto or in connection therewith.
"Company" is defined in the Preamble to this Merger Agreement.
-------
"Company Affiliates" is defined in Section 3.41.
------------------
"Company Capital Stock" is defined in Section 3.04.
---------------------
"Company Common Stock" is defined in Section 2.01(a).
--------------------
"Company Contracts" is defined in Section 3.14(a).
-----------------
"Company Disclosure Schedule" is defined in Article III.
---------------------------
"Company Dissenting Shares" means shares of Company Capital Stock held by
-------------------------
any Company Stockholder who elects to exercise appraisal rights in compliance
with Delaware Law.
"Company Dissenting Stockholder" is defined in Section 2.06.
------------------------------
"Company Licenses" is defined in Section 3.07(a).
----------------
"Company Material Adverse Effect" means any event, change or effect that,
-------------------------------
individually or when taken together with any and all other events, changes or
effects, is or is reasonably likely to be materially adverse to the business,
operations, condition (financial or otherwise), Assets or liabilities of the
Company and the Subsidiaries, taken as a whole; provided, however, the parties
-------- -------
expressly agree that a Company Material Adverse Effect shall not mean or be
deemed to include any event, change or effect described in Section 9.13(a).
"Company Series A Preferred Stock" is defined in Section 2.01.
--------------------------------
"Company Stock Options" is defined in Section 2.04.
---------------------
"Company Stockholders" is defined in the Preamble to this Merger Agreement.
--------------------
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"Company Tax Returns" means all Tax Returns required to be filed by the
-------------------
Company or any of the Subsidiaries (without regard to extensions of time
permitted by law or otherwise).
"Company Year 2000 Review" is defined in Section 3.40(b).
------------------------
"Competing Transaction" is defined in Section 5.05(a).
---------------------
"Confidentiality Agreement" means the letter agreement, signed in December
-------------------------
1998, between Acquiror and the Company relating to the exchange of confidential
information.
"Control" (including the terms "Controlled by" and "under common Control
------- ------------- --------------------
with") means, as used with respect to any Person, possession, directly or
- ----
indirectly or as a trustee or executor, of power to direct or cause the
direction of management or policies of such Person (whether through ownership of
voting securities, as trustee or executor, by Agreement or otherwise).
"Damages" is defined in Section 6.11.
-------
"Defined Benefit Plan" means a Plan that is or was a "defined benefit plan"
--------------------
as such term is defined in Section 3(35) of ERISA.
"Delaware Law" is defined in the Preamble to this Merger Agreement.
------------
"DOL" means the United States Department of Labor and its successors.
---
"Effective Time" is defined in Section 1.02.
--------------
"Encumbrance" means any mortgage, lien, pledge, encumbrance, security
-----------
interest, deed of trust, option, encroachment, reservation, order, decree,
judgment, condition, restriction, charge, Agreement, claim or equity of any
kind.
"Environmental Laws" means any Laws (including, without limitation, the
------------------
Comprehensive Environmental Response, Compensation, and Liability Act),
including any plans, other criteria, or guidelines promulgated pursuant to such
Laws, now or hereafter in effect relating to Hazardous Materials generation,
production, use, storage, treatment, transportation or disposal, or noise
control, or the protection of human health or the environment.
"Environmental Reports" is defined in Section 6.09(b).
---------------------
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and all Laws promulgated pursuant thereto or in connection therewith.
"ESOP" means an "employee stock ownership plan" as such term is defined in
----
Section 407(d)(6) of ERISA or Section 4975(e)(7) of the Code.
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"Exchange Agent" is defined in Section 2.02(a).
--------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
------------
all Laws promulgated pursuant thereto or in connection therewith.
"Exchange Fund" is defined in Section 2.02(a).
-------------
"FAA" means the United States Federal Aviation Administration and its
---
successors.
"FCC" means the United States Federal Communications Commission and its
---
successors.
"Federal Aviation Act" means the Federal Aviation Act of 1958, as amended,
--------------------
and all Laws promulgated pursuant thereto or in connection therewith.
"Financial Statements" is defined in Section 3.08.
--------------------
"Form of Election" is defined in Section 2.01(a)(i).
----------------
"GAAP" means United States generally accepted accounting principles.
----
"Governmental Entities" (including the term "Governmental") means any
--------------------- ------------
governmental, quasi-governmental or regulatory authority, whether domestic or
foreign.
"group" is defined in Section 5.05(a).
-----
"Hazardous Discharge" means any emission, spill, release or discharge
-------------------
(whether on Real Property, on property adjacent to the Real Property, or at any
other location or disposal site) into or upon the air, soil or improvements,
surface water or groundwater, or the sewer, septic system, or waste treatment,
storage or disposal systems servicing the Real Property, in each case of
Hazardous Materials used, stored, generated, treated or disposed of at the Real
Property.
"Hazardous Materials" means any wastes, substances, radiation or materials
-------------------
(whether solids, liquids or gases) that are regulated by a Governmental Entity
or defined or listed by a Governmental Entity as hazardous, toxic, pollutants or
contaminants, including, without limitation, substances defined as "hazardous
wastes," "hazardous substances," "toxic substances," "radioactive materials," or
other similar designations in, or otherwise subject to regulation under, any
Environmental Laws. "Hazardous Materials" includes polychlorinated biphenyls
-------------------
(PCBs), asbestos, lead-based paints, and petroleum and petroleum products
(including, without limitation, crude oil or any fraction thereof).
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"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
-------
as amended, and all Laws promulgated pursuant thereto or in connection
therewith.
"Indemnified Persons" is defined in Section 6.11.
-------------------
"Individual Account Plan" means a Plan that is or was an "individual
-----------------------
account plan" as such term is defined in Section 3(34) of ERISA.
"Intellectual Property" means (a) all inventions (whether patentable or
---------------------
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, all rights to database
information, and all applications, registrations, and renewals in connection
therewith, (d) all mask works and all applications, registrations, and renewals
in connection therewith, (e) all trade secrets and confidential business
information (including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information, and business and marketing plans and proposals), (f) all
computer software (including data and related documentation), (g) all rights,
including rights of privacy and publicity, to use the names, likenesses and
other personal characteristics of any individual, (h) all other proprietary
rights, and (i) all copies and tangible embodiments thereof (in whatever form or
medium) existing in any part of the world.
"Inventory" means all new materials, work in progress and finished goods
---------
and inventorable supplies.
"IRS" means the United States Internal Revenue Service and its successors.
---
"IT" is defined in Section 3.40(b).
--
"knowledge" will be deemed to be present with respect to the Company and
---------
the Subsidiaries when the matter in question (i) is actually known to M/C
Investors L.L.C. or Media/Communications Partners III Limited Partnership or
(ii) was brought to the attention of or, if due diligence had been exercised by
the persons named in this clause (ii), would have been brought to the attention
of any of Timothy T. Devine, Kenneth A. Kirley, Nicholas Lenoci, Jr., Charles M.
Osborne, Scott A. Rediger or John Biasetti; "knowledge" will be deemed to be
---------
present with respect to Acquiror when the matter in question was brought to the
attention of or,
- 87 -
<PAGE>
if due diligence had been exercised by the persons named in this clause (ii),
would have been brought to the attention of, any of Stephen C. Gray, J. Lyle
Patrick, John Wray, Randall Rings, Laura J. Hahn or Joseph H. Ceryanec.
"Laws" means all foreign, federal, state and local statutes, laws,
----
ordinances, regulations, rules, resolutions, orders, tariffs, determinations,
writs, injunctions, awards (including, without limitation, awards of any
arbitrator), judgments and decrees applicable to the specified Person and to the
businesses and Assets thereof (including, without limitation, Laws relating to
securities registration and regulation; the sale, leasing, ownership or
management of real property; employment practices, terms and conditions, and
wages and hours; building standards, land use and zoning; safety, health and
fire prevention; and environmental protection, including Environmental Laws).
"License" means any franchise, grant, authorization, license, tariff,
-------
permit, easement, variance, exemption, consent, certificate, approval or order
of any Governmental Entity, except non-material Agreements allowing the
installation, maintenance or operation of the Company's or the Subsidiaries'
fiber optic network on, over, under or across a specific parcel of real
property.
"Managers" is defined in Section 6.15.
--------
"Merger" is defined in the Preamble to this Merger Agreement.
------
"Merger Agreement" is defined in the Preamble to this Merger Agreement.
----------------
"Merger Consideration" means the aggregate Common Stock Merger
--------------------
Consideration together with the aggregate Preferred Stock Cash Amount.
"Minimum-Funding Plan" means a Pension Plan that is subject to Title I,
--------------------
Subtitle B, Part 3, of ERISA (concerning "funding").
"Multiemployer Plan" means a "multiemployer plan" as such term is defined
------------------
in Section 3(37) of ERISA.
"NASD" means the National Association of Securities Dealers, Inc.
----
"Ordinary Course of Business" means ordinary course of business consistent
---------------------------
with past practices and reasonable business operations.
"Other Arrangement" means a benefit program or practice providing for
-----------------
bonuses, incentive compensation, vacation pay, severance pay, insurance,
restricted stock, stock options, employee discounts, company cars, tuition
reimbursement or any other perquisite or benefit (including, without limitation,
any fringe benefit under Section 132 of the Code) to employees, officers or
independent contractors that is not a Plan.
- 88 -
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation or its successors.
----
"Pension Plan" means an "employee pension benefit plan" as such term is
------------
defined in Section 3(2) of ERISA.
"Permitted Encumbrance" means (i) easements, rights of way, minor
---------------------
irregularities of title, and liens for taxes not yet due and payable, (ii)
landlord, warehouse and materialmen's liens and (ii) other Encumbrances similar
to clauses (i) and (ii); provided, however, that any or all of the foregoing do
not materially affect the utility or value of the Assets or other matters to
which they relate.
"Person" means an individual, corporation, partnership, limited liability
------
company, joint venture, trust, unincorporated organization or other entity, or a
Governmental Entity.
"Plan" means any plan, program or arrangement, whether or not written, that
----
is or was an "employee benefit plan" as such term is defined in Section 3(3) of
ERISA and (a) which was or is established or maintained by the Company or any
Subsidiary; (b) to which the Company or any Subsidiary contributed or was
obligated to contribute or to fund or provide benefits; or (c) which provides or
promises benefits to any person who performs or who has performed services for
the Company or any Subsidiary and because of those services is or has been (i) a
participant therein or (ii) entitled to benefits thereunder.
"Post-Signing Returns" is defined in Section 5.03.
--------------------
"Preferred Liquidation Preference" means the amount to be paid upon
--------------------------------
liquidation of the Series A Preferred Stock in accordance with the Company's
Certificate of Incorporation.
"Principal Company Stockholders" means the following stockholders of the
------------------------------
Company; M/C Investors L.L.C., Media/Communications Partners III Limited
Partnership, Timothy T. Devine, Kenneth A. Kirley, Nicholas Lenoci, Jr., Charles
M. Osborne and Scott A. Rediger.
"Proxy Statement" is defined in Section 6.01(a).
---------------
"Qualified Plan" means a Pension Plan that satisfies, or is intended by the
--------------
Company to satisfy, the requirements for Tax qualification described in Section
401 of the Code.
"Real Property" means the real property owned in fee by the Company or any
-------------
of the Subsidiaries as of December 31, 1996, and any additional real property
owned since that date, and, for purposes of Section 3.33, any real property
formerly owned by the Company or any of the Subsidiaries, except non-material
Agreements allowing the installation, maintenance or operation of the Company's
or the
- 89 -
<PAGE>
Subsidiaries' fiber optic network on, over, under or across a specific parcel of
real property.
"Registration Statement" is defined in Section 6.01(a).
----------------------
"Representative" is defined in Section 2.01(a)(i).
--------------
"Scheduled Closing Date" is defined in Section 2.05.
----------------------
"SEC" means the United States Securities and Exchange Commission and its
---
successors.
"Securities Act" means the Securities Act of 1933, as amended, and all Laws
--------------
promulgated pursuant thereto or in connection therewith.
"Significant Subsidiary" means any subsidiary of Acquiror disclosed in its
----------------------
most recent Annual Report on Form 10-K, and any other subsidiary that would
constitute a "Significant Subsidiary" of Acquiror within the meaning of
Rule 1-02 of Regulation S-X of the SEC.
"Statutory-Waiver Plan" means a Pension Plan that is not subject to Title
---------------------
I, Subtitle B, Part 3, of ERISA (concerning "funding").
"Stock Adjustment Amount" is defined in Section 2.01(a)(iv).
-----------------------
"Stockholders' Agreement" is defined in the Preamble to the Agreement.
-----------------------
"Stock Option Exchange Ratio" is defined in Section 2.04.
---------------------------
"Subsidiary" means a corporation, partnership, joint venture or other
----------
entity of which the Company owns, directly or indirectly, at least 50% of the
outstanding securities or other interests the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body or otherwise exercise Control of such entity.
"Survey" means a current, as-built survey of each parcel of the Real
------
Property.
"System" means the telecommunication system described in the Confidential
------
Offering Memorandum (relating to certain senior credit facilities) dated
December 1998.
"Taxes" (including the terms "Tax" and "Taxing") means all federal, state,
----- --- ------
local and foreign taxes (including, without limitation, income, profit,
franchise, sales, use, real property, personal property, ad valorem, excise,
employment, social security and wage withholding taxes) and installments of
estimated taxes, assessments, deficiencies, levies, imports, duties, license
fees, registration fees, withholdings, or other similar charges of every kind,
character or description
- 90 -
<PAGE>
imposed by any Governmental Entity, and any interest, penalties or additions to
tax imposed thereon or in connection therewith but does not include municipal or
county franchise fees or similar payments due or payable in connection with the
construction of the System.
"Tax Returns" means all federal, state, local, foreign and other applicable
-----------
returns, declarations, reports and information statements with respect to Taxes
required to be filed with the IRS or any other Governmental Entity or Tax
authority or agency, including, without limitation, consolidated, combined and
unitary tax returns.
"Title I Plan" means a Plan that is subject to Title I of ERISA.
------------
"Unaudited Balance Sheets" is defined in Section 3.08(a).
------------------------
"Unaudited Financial Statements" is defined in Section 3.08(a).
------------------------------
"Welfare Plan" means an "employee welfare benefit plan" as such term is
------------
defined in Section 3(1) of ERISA.
"Year 2000 Compliant" means that neither performance nor functionality is
-------------------
affected by dates prior to, during or after the year 2000; in particular (i) no
value for current date will cause any interruption in operation; (ii) date-based
functionality must behave consistently for dates before, during and after the
year 2000; (iii) in all interfaces and data storage, the century in any date is
specified either explicitly or by unambiguous algorithms or inferencing rules;
and (iv) the year 2000 must be recognized as a leap year.
- 91 -
<PAGE>
IN WITNESS WHEREOF, Acquiror, Acquiror Sub, the Company and each of the
Principal Company Stockholders have only executed and delivered or have caused
this Merger Agreement to be duly executed and delivered as of the date first
written above.
McLEODUSA INCORPORATED
By: /s/ Stephen C. Gray
--------------------------------------------
Name: Stephen C. Gray
Title: President and Chief Operating Officer
BRAVO ACQUISITION CORPORATION
By: /s/ Stephen C. Gray
--------------------------------------------
Name: Stephen C. Gray
Title: President
OVATION COMMUNICATIONS, INC.
By: /s/ Timothy T. Devine
--------------------------------------------
Name: Timothy T. Devine
Title: President and Chief Executive Officer
M/C INVESTORS L.L.C.
By: /s/ James F. Wade
-------------------------------------
Name: James F. Wade
Title:
- 92 -
<PAGE>
MEDIA/COMMUNICATIONS PARTNERS III LIMITED
PARTNERSHIP
By: M/C III L.L.C., its General Partner
By: /s/ James F. Wade
-------------------------------------
Name: James F. Wade
Title:
/s/ Timothy T. Devine
-------------------------------------
Timothy T. Devine
/s/ Kenneth A. Kirley
-------------------------------------
Kenneth A. Kirley
/s/ Nicholas Lenoci, Jr.
-------------------------------------
Nicholas Lenoci, Jr.
/s/ Charles M. Osborne
-------------------------------------
Charles M. Osborne
/s/ Scott A. Rediger
-------------------------------------
Scott A. Rediger
- 93 -
<PAGE>
Exhibit 2.2
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MCLEODUSA INCORPORATED,
MCLEODUSA PUBLISHING COMPANY
PUBCO MERGING CO.
and
TALKING DIRECTORIES, INC.
Dated as of January 7, 1999
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of January 7, 1999 (this
"Merger Agreement"), among McLeodUSA Incorporated, a Delaware corporation
- -----------------
("McLeod"), McLeodUSA Publishing Company, an Iowa corporation ("Pubco") (an
-----
indirect wholly-owned subsidiary of McLeod), Pubco Merging Co., an Iowa
corporation ("Pubco Sub") (a wholly-owned subsidiary of Pubco), Talking
---------
Directories, Inc., a Michigan corporation (the "Company"), and each of the
-------
stockholders the Company listed as signatories to this Merger Agreement (the
"Principal Company Stockholders");
WHEREAS, Pubco Sub, upon the terms and subject to the conditions of
this Merger Agreement and in accordance with the General Corporation Law of the
State of Iowa ("Iowa Law"), will merge with and into the Company (the "Merger");
-------- ------
WHEREAS, the Board of Directors of the Company has (i) determined that
the Merger is fair to the holders of Company Common Stock (as defined in Section
2.01(a)) and is in the best interests of such stockholders and (ii) approved and
adopted this Merger Agreement and the transactions contemplated hereby and
recommended approval and adoption of this Merger Agreement by the stockholders
of the Company (the "Company Stockholders");
--------------------
WHEREAS, the Board of Directors of McLeod has determined that the
Merger is in the best interests of McLeod and Pubco and the Boards of Directors
of Pubco and Pubco Sub have approved and adopted this Merger Agreement and the
transactions contemplated hereby; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a tax-free reorganization under the provisions of
Section 368(a) of the United States Internal Revenue Code of 1986, as amended
(the "Code");
----
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this Merger
Agreement, and intending to be legally bound hereby, the parties hereto agree as
follows.
ARTICLE I
THE MERGER
SECTION 1.01. The Merger.
Upon the terms and subject to the conditions set forth in this Merger
Agreement, and in accordance with Iowa Law, at the Effective Time (as defined in
Section 1.02 below) Pubco Sub shall be merged with and into the Company. As a
result of the Merger, the separate corporate existence of Pubco Sub shall cease
and the Company shall continue as the surviving corporation of the Merger (the
"Surviving Corporation").
- ----------------------
<PAGE>
SECTION 1.02. Effective Time.
Subject to the provisions of Section 2.04, as promptly as practicable
after the satisfaction or, if permissible, waiver of the conditions set forth in
Article VII below, the parties hereto shall cause the Merger to be consummated
by filing this Merger Agreement, articles of merger or other appropriate
Documents (as defined in Article X) (in any such case, the "Articles of Merger")
------------------
with the Secretary of State of the States of Michigan and Iowa, in such form as
required by, and executed in accordance with the relevant provisions of,
Michigan Law and Iowa Law (the date and time of such filing being the "Effective
---------
Time").
- ----
SECTION 1.03. Effect of the Merger.
At the Effective Time, the effect of the Merger shall be as provided
in the applicable provisions of Michigan and Iowa Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of Pubco Sub and the Company
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of Pubco Sub and the Company shall become the debts, liabilities and duties of
the Surviving Corporation.
SECTION 1.04. Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Pubco prior to the Effective Time,
at the Effective Time the certificate of incorporation of the Company shall be
amended in its entirety to conform to the certificate of incorporation of Pubco
Sub in effect immediately prior to the Effective Time, and shall become the
certificate of incorporation of the Surviving Corporation, until thereafter
amended as provided by Law (as defined in Article X) and such certificate of
incorporation.
(b) Unless otherwise determined by Pubco prior to the Effective Time,
at the Effective Time the bylaws of the Company shall be amended in their
entirety to conform to the bylaws of Pubco Sub in effect immediately prior to
the Effective Time, and shall become the bylaws of the Surviving Corporation
until thereafter amended as provided by Law, the certificate of incorporation of
the Surviving Corporation and such bylaws.
SECTION 1.05. Directors and Officers.
The directors of Pubco Sub immediately prior to the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold office
in accordance with the certificate of incorporation and bylaws of the Surviving
Corporation, and the officers of Pubco Sub immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified.
-2-
<PAGE>
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities.
At the Effective Time, as provided in this Merger Agreement, by virtue
of the Merger and without any action on the part of Pubco Sub, the Company or
the Company Stockholders:
(a) Company Common Shares. Each share of common stock, $1.00 par
---------------------
value per share, of the Company ("Company Common Stock") issued and outstanding
--------------------
immediately prior to the Effective Time (other than any shares of Company Common
Stock to be canceled pursuant to Section 2.01(c)), shall be converted, subject
to Section 2.02(e), into the right to receive that number of shares of Class A
common stock, par value $.01 per share, of McLeod ("McLeod Common Stock") (the
-------------------
"Merger Consideration") determined by dividing $85,000,000 by the average of
- ---------------------
the closing bid and ask price for McLeod Common Stock quoted on the National
Association of Securities Dealers' Automated Quotation System on the date hereof
as reported in the Wall Street Journal (the "Common Share Exchange Ratio").
------------------- ---------------------------
All such shares of Company Common Stock shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist, and
each certificate previously representing any such shares shall thereafter
represent the right to receive (i) a certificate representing whole shares of
McLeod Common Stock into which such Company Common Stock was converted pursuant
to the Merger, and (ii) an amount in cash, without interest, in lieu of
fractional shares. No fractional share of McLeod Common Stock shall be issued,
and, in lieu thereof, a cash payment shall be made pursuant to Section 2.02(e)
hereof. In any event, if between the date of this Merger Agreement and the
Effective Time the outstanding shares of McLeod Common Stock shall have been
changed into a different number of shares or a different class, by reason of any
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Common Share Exchange Ratio shall be
appropriately and correspondingly adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares. As used in this Merger Agreement, the term "Total Outstanding
-----------------
Company Shares" shall mean the aggregate number of shares of Company Common
- --------------
Stock issued and outstanding immediately prior to the Effective Time (other than
shares to be canceled pursuant to Section 2.01(c)).
(b) Cancellation and Retirement of Company Common Stock. All such
---------------------------------------------------
shares of Company Common Stock referred to in Section 2.01(a) (other than any
shares of Company Common Stock to be canceled pursuant to Section 2.01(c)) shall
no longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each certificate previously representing any such
shares shall thereafter represent the
-3-
<PAGE>
right to receive the Merger Consideration as described in Section 2.01(a). The
holders of certificates which prior to the Effective Time represented shares of
Company Common Stock shall cease to have any rights with respect thereto except
as otherwise provided herein or by Law.
(c) Cancellation of Treasury Stock. Any shares of Company Common
------------------------------
Stock held in the treasury of the Company and any shares of Company Common Stock
owned by McLeod, Pubco or any direct or indirect wholly owned subsidiary of
McLeod or Pubco or of the Company immediately prior to the Effective Time shall
be canceled and extinguished without any conversion thereof and no payment shall
be made with respect thereto.
(d) Pubco Sub Common Stock. Each share of common stock, no par value
-----------------------
per share, of Pubco Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one newly and validly
issued, fully paid and non-assessable share of common stock of the Surviving
Corporation.
SECTION 2.02. Exchange of Certificates.
(a) Exchange. As of the Effective Time, Pubco shall deliver, or cause
--------
to be delivered, (i) certificates representing the whole shares of McLeod Common
Stock issuable to the Company Stockholders pursuant to Section 2.01, and (ii)
cash in an amount sufficient to permit payment of the cash payable in lieu of
fractional shares pursuant to Section 2.02(e), to the holders of Company Common
Stock pursuant to Section 2.01.
(b) Exchange Procedures. At the Closing, a certificate or
-------------------
certificates of Company Common Stock which immediately prior to the Effective
Time represented outstanding shares of Company Common Stock (the "Certificates")
------------
shall be surrendered in exchange for certificates representing shares of McLeod
Common Stock. Upon surrender of a Certificate for cancellation to Pubco or
McLeod, together with such other Documents as may be required, the holder of
such Certificate shall be entitled to receive in exchange therefor (i) a
certificate representing that number of whole shares of McLeod Common Stock
which such holder has the right to receive in respect of such Certificate (after
taking into account all shares of Company Common Stock then held by such holder
under all such Certificates so surrendered), together with any dividends or
other distributions to which such holder is entitled pursuant to Section
2.02(c), and (ii) cash in lieu of fractional shares of McLeod Common Stock to
which such holder is entitled pursuant to Section 2.02(e). The Certificates so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of shares of Company Common Stock that is not registered in the transfer records
of the Company, the proper number of shares of McLeod Common Stock may be issued
pursuant hereto to a transferee if the Certificates representing such shares of
Company Common Stock, properly endorsed or otherwise in proper form for
transfer, are presented to Pubco or McLeod, accompanied by all Documents
required to
-4-
<PAGE>
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
2.02, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender Merger Consideration
issuable in exchange therefor, together with any dividends or other
distributions to which such holder is entitled pursuant to Section 2.02(c). No
interest will be paid or will accrue on any cash payable pursuant to Sections
2.02(c) or 2.02(e).
(c) Distributions with Respect to Unexchanged Shares of McLeod Common
-----------------------------------------------------------------
Stock. No dividends or other distributions declared or made after the Effective
- -----
Time with respect to McLeod Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the whole shares of McLeod Common Stock represented thereby until the holder
of such Certificate shall surrender such Certificate. Subject to the effect of
escheat, tax or other applicable Laws, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of McLeod Common Stock issued in exchange therefor,
without interest, (i) promptly, the amount of any cash payable with respect to
(A) the shares of Company Common Stock formerly represented by such Certificate,
and (B) a fractional share of McLeod Common Stock to which such holder is
entitled pursuant to Section 2.02(e), and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of McLeod Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions, with a record date
after the Effective Time but prior to surrender and a payment date occurring
after surrender, payable with respect to such whole shares of McLeod Common
Stock.
(d) No Further Rights in Company Common Stock. All shares of McLeod
-----------------------------------------
Common Stock issued upon conversion of the shares of Company Common Stock in
accordance with the terms hereof (including any cash paid pursuant to Sections
2.02(c) or (e)) shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to such shares of Company Common Stock.
(e) No Fractional Shares. No fractional shares of McLeod Common Stock
--------------------
shall be issued upon surrender for exchange of the Certificates, and any such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of McLeod, but in lieu thereof each holder of shares of
Company Common Stock who would otherwise be entitled to receive a fraction of a
share of McLeod Common Stock, after aggregating all Certificates delivered by
such holder, and rounding down to the nearest whole share, shall receive an
amount in cash equal to the denominator used in the Common Share Exchange Ratio
described in Section 2.01(a) above, multiplied by the fraction of a share of
McLeod Common Stock to which such holder would otherwise be entitled.
(f) Intentionally omitted.
-5-
<PAGE>
(g) No Liability. None of McLeod, Pubco, Pubco Sub, the Company, the
------------
Surviving Corporation or the Principal Company Shareholders shall be liable to
any Person (as defined in Article X) for any shares of McLeod Common Stock (or
dividends or distributions with respect thereto) or cash delivered to a public
official pursuant to any abandoned property, escheat or similar Laws.
(h) Lost, Stolen or Destroyed Certificates. If any certificate
--------------------------------------
evidencing shares of Company Common Stock shall have been lost, stolen or
destroyed, Pubco shall cause to be issued in exchange for such lost, stolen or
destroyed certificate, upon the making of an affidavit of that fact by the
holder thereof, such shares of McLeod Common Stock and cash, if any, as may be
required pursuant to this Article II; provided, however, that McLeod or Pubco
-------- -------
may, in its reasonable discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against McLeod or Pubco, or the Surviving Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 2.03. Stock Transfer Books.
At the Effective Time, the stock transfer books of the Company shall
be closed and there shall be no further registration of transfers of shares of
Company Common Stock thereafter on the records of the Company. From and after
the Effective Time, the holders of certificates representing shares of Company
Common Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such shares of Company Common Stock except as
otherwise provided herein or by Law. On or after the Effective Time, any
Certificates presented to the Exchange Agent or Pubco for any reason shall be
converted into shares of McLeod Common Stock issuable in exchange therefor
pursuant to Section 2.01(a), any dividends or other distributions to which the
holders thereof are entitled pursuant to Section 2.02(c) and any cash in lieu of
fractional shares of McLeod Common Stock to which the holders thereof are
entitled pursuant to Section 2.02(e).
SECTION 2.04. Closing.
Subject to the terms and conditions of this Merger Agreement, the
closing of the Merger (the "Closing") will take place on or before February 1,
-------
1999, or as soon as practicable (but, in any event, within five (5) business
days) after satisfaction of the latest to occur or, if permissible, waiver of
the conditions set forth in Article VII hereof (the "Closing Date"), at the
------------
offices of Pubco, 201 Third Avenue SE, Suite 500, Cedar Rapids, Iowa 52401,
unless another date or place is agreed to in writing by the parties hereto.
-6-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as specifically set forth in the Disclosure Schedule delivered
by the Company to Pubco prior to the execution and delivery of this Merger
Agreement (the "Company Disclosure Schedule") (the contents of which may be
---------------------------
updated or otherwise modified by the Company up to five (5) days prior to the
Closing Date), the Company hereby represents and warrants (which representation
and warranty shall be deemed to include the disclosures with respect thereto so
specified in the Company Disclosure Schedule) to, and covenants and agrees with,
McLeod, Pubco and Pubco Sub as follows, in each case as of the date of this
Merger Agreement, unless otherwise specifically set forth herein or in the
Company Disclosure Schedule:
SECTION 3.01. Organization and Standing.
The Company is a corporation duly organized, validly existing and in
good standing under Michigan Law, and has the full and unrestricted corporate
power and authority to own, operate and lease its Assets (as defined in Article
X), to carry on its business as currently conducted, to execute and deliver this
Merger Agreement and to carry out the transactions contemplated hereby. The
Company is duly qualified to conduct business as a foreign corporation and is in
good standing in the states, countries and territories listed in Section 3.01 of
the Company Disclosure Schedule. The Company is not qualified to conduct
business in any other jurisdiction, and neither the nature of the business
conducted by the Company nor the character of the Assets owned, leased or
otherwise held by it makes any such qualification necessary, except where the
absence of such qualification as a foreign corporation would not have a Company
Material Adverse Effect (as defined in Article X). The Company has elected and
qualified as an S-corporation under the applicable provisions of the Code, and
such election remains in full force and effect.
SECTION 3.02. Subsidiaries.
Except as set forth in Section 3.02 of the Company Disclosure
Schedule, the Company has no Subsidiaries (as defined in Article X) and neither
the Company nor any Subsidiary has any equity investment or other interest in,
nor has the Company or any Subsidiary made advances or loans to (other than for
customary credit extended to customers of the Company in the Ordinary Course of
Business (as defined in Article X) and reflected in the Financial Statements (as
defined in Section 3.08)), any corporation, association, partnership, joint
venture or other entity. Section 3.02 of the Company Disclosure Schedule sets
forth (a) the authorized capital stock or other equity interests of each direct
and indirect Subsidiary of the Company and the percentage of the outstanding
capital stock or other equity interests of each Subsidiary directly or
indirectly owned by the Company, and (b) the nature and amount of any such
equity investment, other interest or advance. All of such shares of capital
stock or other equity interests of Subsidiaries directly or indirectly held by
the Company have been duly authorized and
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<PAGE>
validly issued and are outstanding, fully paid and nonassessable. The Company
directly, or indirectly through wholly owned Subsidiaries, owns all such shares
of capital stock or other equity interests of the direct or indirect
Subsidiaries free and clear of all Encumbrances (as defined in Article X). Each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the Laws of its state or jurisdiction of incorporation (as listed
in Section 3.02 of the Company Disclosure Schedule), and has the full and
unrestricted corporate power and authority to own, operate and lease its Assets
and to carry on its business as currently conducted. Each Subsidiary is duly
qualified to conduct business as a foreign corporation and is in good standing
in the states, countries and territories listed in Section 3.02 of the Company
Disclosure Schedule. The Subsidiaries are not qualified to conduct business in
any other jurisdictions, and neither the nature of their businesses nor the
character of the Assets owned, leased or otherwise held by them makes any such
qualification necessary, except where the absence of such qualification as a
foreign corporation would not have a Company Material Adverse Effect.
SECTION 3.03. Certificate of Incorporation and Bylaws.
The Company has furnished to Pubco a true and complete copy of the
certificate or articles of incorporation of the Company and of each Subsidiary,
as currently in effect, certified as of a recent date by the Secretary of State
(or comparable Governmental Entity (as defined in Article X)) of the respective
jurisdictions of incorporation, and a true and complete copy of the bylaws of
the Company and of each Subsidiary, as currently in effect, certified by their
respective corporate secretaries. Such certified copies are attached as
exhibits to, and constitute an integral part of, the Company Disclosure
Schedule.
SECTION 3.04. Capitalization.
The authorized capital stock of the Company consists of 60,000 shares
of Company Common Stock, of which 40,000 shares are issued and outstanding, all
of which are duly authorized, validly issued, fully paid and nonassessable.
Except as described in this Section 3.04, no other shares of Company Common
Stock have been reserved for any purpose. There are no outstanding securities
convertible into or exchangeable for Company Common Stock, any other securities
of the Company, or any capital stock or other securities of any of the
Subsidiaries and no outstanding options, rights (preemptive or otherwise), or
warrants to purchase or to subscribe for any shares of such stock or other
securities of the Company or any of the Subsidiaries. Except as set forth in
Section 3.04 of the Company Disclosure Schedule, there are no outstanding
Agreements (as defined in Article X) affecting or relating to the voting,
issuance, purchase, redemption, registration, repurchase or transfer of Company
Common Stock, any other securities of the Company, or any capital stock or other
securities of any Subsidiary, except as contemplated hereunder. Since December
31, 1997, no shares of Company Common Stock have been issued by the Company,
except as set forth in
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<PAGE>
Section 3.04 of the Company Disclosure Schedule. Each of the outstanding shares
of Company Common Stock and of capital stock of, or other equity interests in,
the Subsidiaries was issued in compliance with all applicable federal and state
Laws concerning the issuance of securities, and such shares or other equity
interests owned by the Company or any Subsidiary are owned free and clear of all
Encumbrances. There are no obligations, contingent or otherwise, of the Company
or any Subsidiary to provide funds to, make any investment (in the form of a
loan, capital contribution or otherwise) in, or provide any guarantee with
respect to, any Subsidiary or any other Person. There are no Agreements pursuant
to which any Person is or may be entitled to receive any of the revenues or
earnings, or any payment based thereon or calculated in accordance therewith, of
the Company or any Subsidiary.
SECTION 3.05. Authority; Binding Obligation.
The execution and delivery by the Company of this Merger Agreement,
the execution and delivery by the Company and the Subsidiaries of all other
Documents contemplated hereby, and the consummation by the Company and the
Subsidiaries of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action, and no other corporate proceedings
on the part of the Company or the Subsidiaries are necessary to authorize this
Merger Agreement and the other Documents contemplated hereby, or to consummate
the transactions contemplated hereby and thereby, other than the approval and
adoption of this Merger Agreement by the holders of a majority of the
outstanding shares of Company Common Stock in accordance with Michigan Law and
the Company's certificate of incorporation and bylaws. This Merger Agreement
has been duly executed and delivered by the Company and constitutes a legal,
valid and binding obligation of the Company, enforceable in accordance with its
terms, except as such enforceability may be subject to the effects of any
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar Laws affecting creditors' rights generally and subject to
the effects of general equitable principles (whether considered in a proceeding
in equity or at law).
SECTION 3.06. No Conflict; Required Filings and Consents.
(a) The execution, delivery and performance by the Company and the
Subsidiaries of this Merger Agreement and all other Documents contemplated
hereby, the fulfillment of and compliance with the respective terms and
provisions hereof and thereof, and the consummation by the Company and the
Subsidiaries of the transactions contemplated hereby and thereby, do not and
will not: (i) conflict with, or violate any provision of, the certificate of
incorporation or bylaws of the Company or the certificate or articles of
incorporation or bylaws of any Subsidiary; (ii) subject to (A) obtaining the
requisite approval and adoption of this Merger Agreement by the holders of a
majority of the outstanding shares of Company Common Stock in accordance with
Michigan Law and the Company's certificate of incorporation and bylaws and (B)
obtaining the consents, approvals, authorizations and permits of, and making
filings with or notifications to, the
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<PAGE>
applicable Governmental Entity, including pursuant to the applicable
requirements, if any, of the HSR Act, and the filing and recordation of the
Articles of Merger as required by Michigan Law, conflict with or violate any Law
applicable to the Company or any Subsidiary, or any of their respective Assets;
(iii) subject to obtaining the consents and approvals set forth in Section
3.06(b) of the Company Disclosure Schedule, conflict with, result in any breach
of, or constitute a default (or an event that with notice or lapse of time or
both would become a default) under any Agreement to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary, or any of their
respective Assets, may be bound; or (iv) except as disclosed in Section 3.06(b)
of the Company Disclosure Schedule, result in or require the creation or
imposition of, or result in the acceleration of, any indebtedness or any
Encumbrance of any nature upon, or with respect to, the Company or any
Subsidiary or any of the Assets now owned or hereafter acquired by the Company
or any Subsidiary; except for any such conflict or violation described in clause
(ii), any such conflict, breach or default described in clause (iii), or any
such creation, imposition or acceleration described in clause (iv) that would
not have a Company Material Adverse Effect and that would not prevent the
Company from consummating the Merger on a timely basis.
(b) Except as set forth in Section 3.06(b) of the Company Disclosure
Schedule, the execution, delivery and performance by the Company and the
Subsidiaries of this Merger Agreement and all other Documents contemplated
hereby, the fulfillment of and compliance with the respective terms and
provisions hereof and thereof, and the consummation by the Company and the
Subsidiaries of the transactions contemplated hereby and thereby, do not and
will not: (i) require any consent, approval, authorization or permit of, or
filing with or notification to, any Person not party to this Merger Agreement,
except (A) the approval and adoption of this Merger Agreement by the holders of
a majority of the outstanding shares of Company Common Stock in accordance with
Law and the Company's certificate of incorporation and bylaws, (B) the filing
and recordation of the Articles of Merger as required by Law; or (ii) result in
or give rise to any penalty, forfeiture, Agreement termination, right of
termination, amendment or cancellation, or restriction on business operations of
Pubco, the Company, the Surviving Corporation or any Subsidiary that would have
a Company Material Adverse Effect. Section 3.06(b) of the Company Disclosure
Schedule lists all Agreements that reasonably could be interpreted or expected
to require the consent or acquiescence of any Person not party to this Merger
Agreement with respect to any aspect of the execution, delivery or performance
of this Merger Agreement by the Company and the Subsidiaries, except where
failure to obtain such consent or acquiecense would not have a Company Material
Adverse Effect.
SECTION 3.07. Licenses; Compliance.
(a) Each of the Company and each Subsidiary is in possession of all
Licenses (as defined in Article X) necessary for the Company or any Subsidiary
to own, lease and operate its Assets or to carry on its business as it is now
being conducted
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<PAGE>
(the "Company Licenses"), except where the failure to possess any such Company
----------------
License would not have a Company Material Adverse Effect. All Company Licenses
are valid and in full force and effect through the respective dates indicated in
the Company Disclosure Schedule, except for any such invalidity or failure to be
in full force and effect that would not, alone or in the aggregate, have a
Company Material Adverse Effect, and no suspension, cancellation, complaint,
proceeding, order or investigation of or with respect to any Company License (or
operations thereunder) is pending or, to the knowledge of the Company or any
Subsidiary, threatened. Neither the Company nor any Subsidiary is in violation
of or default under any Company License, except for any such violation or
default that would not have a Company Material Adverse Effect. Except as set
forth in Section 3.07(a) of the Company Disclosure Schedule, since December 31,
1996, neither the Company nor any Subsidiary has received written or, to the
knowledge of the Company or any Subsidiary, oral notice from any Governmental
Entity or any other Person of any allegation of any such violation or default
under a Company License.
(b) Neither the Company nor any Subsidiary is in violation of or
default under, nor has it breached, (i) any term or provision of its certificate
or articles of incorporation or bylaws or (ii) any Agreement or restriction to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary, or any of their respective Assets, is bound or affected, except for
any such violation, default or breach described in clause (ii) that would not
have a Company Material Adverse Effect. The Company and the Subsidiaries have
complied and are in full compliance with all Laws, except where the failure so
to comply would not have a Company Material Adverse Effect.
(c) All returns, reports, statements and other Documents required to
be filed by the Company or any Subsidiary with any Governmental Entity have been
filed and complied with and are true, correct and complete in all material
respects (and any related fees required to be paid have been paid in full). To
the knowledge of the Company and the Subsidiaries, all records of every type and
nature relating to the Company Licenses or the business, operations or Assets of
the Company or any Subsidiary have been maintained in all material respects in
accordance with good business practices and the rules of any Governmental Entity
and are maintained at the Company or the appropriate Subsidiary.
(d) Except as provided in Section 3.07(a) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary has any interest in any License
(including both any Company License and any License held by third parties in
which the Company or any Subsidiary has an interest) that is subject to
restrictions on assignment or transfer based on the circumstances under which
the License was granted (such as eligibility or auction rules), the status of
construction and operation (such as rules restricting resale for a certain
period after construction), or any other restrictions other than an ordinary
course requirement for prior approval of transactions such as the Merger
contemplated herein.
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<PAGE>
(e) Neither the Company nor any Subsidiary is aware of any fact or
circumstance related to them that could reasonably be expected to cause the
filing of any objection to any application for any Governmental consent required
hereunder, lead to any delay in processing such application, or require any
waiver of any Governmental rule, policy or other applicable Law.
SECTION 3.08. Financial Statements.
(a) The Company has prepared a consolidated balance sheet of the
Company and the Subsidiaries as of the end of the fiscal year ending in 1997,
(the "Reviewed Balance Sheet") and the related consolidated statement of income,
----------------------
shareholders' equity and cash flows of the Company and the Subsidiaries for such
fiscal year (the Balance Sheet and such consolidated statement of income,
shareholders' equity and cash flows are hereinafter referred to collectively as
the "Reviewed Statement"), in each case, reviewed by Arthur Anderson in
------------------
accordance with generally accepted auditing standards and accompanied by the
related report of Arthur Anderson. A true and complete copy of each of the
Reviewed Statement has been delivered to Pubco and is attached as an exhibit to,
and constitute an integral part of, the Company Disclosure Schedule. The
Company has also prepared unaudited consolidated balance sheets of the Company
and the Subsidiaries as of the last day of each month ending after January 1,
1998 (including the unaudited consolidated balance sheets to be furnished to
Pubco pursuant to Section 6.07, the "Unaudited Balance Sheets") and the
------------------------
unaudited consolidated statements of income and cash flows of the Company and
the Subsidiaries for the one-month periods then ended (the Unaudited Balance
Sheets and such statements of income and cash flows, including the unaudited
consolidated statements of income and cash flows to be furnished to Pubco
pursuant to Section 6.07, are hereinafter referred to collectively as the
"Unaudited Statements" and, together with the Reviewed Statements, as the
- ---------------------
"Financial Statements").
- ---------------------
(b) The Financial Statements, including, without limitation, the notes
thereto, (i) are complete and correct in all material respects, (ii) have been
prepared in accordance with the books and records of the Company and the
Subsidiaries, and (iii) present fairly the consolidated financial position of
the Company and the Subsidiaries and their consolidated results of operations
and cash flows as of and for the respective dates and time periods in accordance
with GAAP applied on a basis consistent with prior accounting periods, except as
noted thereon and subject to, in the case of the Unaudited Statements, normal
and recurring year-end adjustments which were not or are not expected to be
material in amount. All changes in accounting methods (for financial accounting
purposes) made, agreed to, requested or required with respect to the Company or
any of the Subsidiaries since August 31, 1998 are reflected in the Financial
Statements.
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<PAGE>
SECTION 3.09. Absence of Undisclosed Liabilities.
Except as described in Section 3.09 of the Company Disclosure
Schedule, there are no liabilities or obligations (whether absolute or
contingent, matured or unmatured, known or unknown) of the Company or any
Subsidiary, including but not limited to liabilities for Taxes (as defined in
Article X), of a nature required by GAAP to be reflected, or reserved against,
in the Financial Statements and that are not so reflected, or reserved against,
in the Financial Statements. Except as described in Section 3.09 of the Company
Disclosure Schedule, since August 31, 1998, neither the Company nor any
Subsidiary has incurred any liabilities or obligations (whether absolute or
contingent, matured or unmatured, known or unknown) other than in the Ordinary
Course of Business (as defined in Article X).
SECTION 3.10. Absence of Certain Changes or Events.
Other than as set forth in Section 3.10 to the Company Disclosure
Schedule, since August 31, 1998, there has been no material adverse change, and
no change except in the Ordinary Course of Business, in the business,
operations, prospects, condition (financial or otherwise), Assets or liabilities
of the Company or any Subsidiary. Except as set forth in Section 3.10 to the
Company Disclosure Schedule, since August 31, 1998, the Company and the
Subsidiaries have conducted their respective businesses substantially in the
manner theretofore conducted and only in the Ordinary Course of Business, and
neither the Company nor any Subsidiary has (a) incurred any material damage,
destruction or loss not covered by insurance with respect to any Assets of the
Company or of any such Subsidiary; (b) issued any capital stock or other equity
securities or granted any options, warrants or other rights calling for the
issuance thereof; (c) issued any bonds or other long-term debt instruments,
granted any options, warrants or other rights calling for the issuance thereof,
or borrowed any funds; (d) incurred, or become subject to, any material
obligation or liability (whether absolute or contingent, matured or unmatured,
known or unknown), except current liabilities incurred in the Ordinary Course of
Business; (e) discharged or satisfied any Encumbrance or paid any material
obligation or liability (whether absolute or contingent, matured or unmatured,
known or unknown) other than current liabilities shown in the Unaudited Balance
Sheets (as defined in Section 6.08) and current liabilities incurred since
August 31, 1998, in the Ordinary Course of Business; (f) declared or made
payment of, or set aside for payment, any dividends or distributions of any
Assets, or purchased, redeemed or otherwise acquired any of its capital stock,
any securities convertible into capital stock, or any other securities;
(g) mortgaged, pledged or subjected to any Encumbrance any of its material
Assets; (h) sold, exchanged, transferred or otherwise disposed of any of its
material Assets, or canceled any debts or claims, except in each case in the
Ordinary Course of Business; (i) written down the value of any Assets or written
off as uncollectable any debt, notes or accounts receivable, except to the
extent previously reserved against in the Financial Statements and not material
in amount, and except for write-downs and write-offs in the Ordinary Course of
Business, none of which, individually or in the aggregate, are material;
(j) entered into any transactions other than in the Ordinary Course of Business;
(k) except in the Ordinary
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<PAGE>
Course of Business, increased the rate of compensation payable, or to become
payable, by it to any of its officers, employees, agents or independent
contractors over the rate being paid to them on August 31, 1998, (l) made or
permitted any amendment or termination of any material Agreement to which it is
a party; (m) through negotiation or otherwise made any commitment or incurred
any liability to any labor organization; (n) made any accrual or arrangement for
or payment of bonuses or special compensation of any kind to any director,
officer or employee, except for any accrual or arrangement for or payment of
bonuses or special compensation in the Ordinary Course of Business to employees
who are not directors or officers; (o) directly or indirectly paid any severance
or termination pay in excess of two months' salary to any officer or employee
with an annual salary in excess of $60,000; (p) made capital expenditures, or
entered into commitments therefor, not provided for in the Company's capital
budget for 1998 (a copy of which has been furnished by the Company to Pubco) or,
if applicable, the Company's capital budget for 1999 (which capital budget shall
have been approved by Pubco as provided in Section 5.01(i)), except for capital
expenditures permitted by Section 5.01; (q) made any change in any method of
accounting or accounting practice except as required by GAAP; (r) entered into
any transaction of the type described in Section 3.19; (s) made any charitable
contributions or pledges exceeding $10,000 individually or $100,000 in the
aggregate; or (t) made any Agreement to do any of the foregoing. At the Closing,
the Company shall deliver to Pubco an updated Section 3.10 to the Company
Disclosure Schedule in accordance with the provisions of Section 6.04.
SECTION 3.11. Litigation; Disputes.
(a) Except as disclosed in Section 3.11(a) of the Company Disclosure
Schedule, there are no actions, suits, claims, arbitrations, proceedings or
investigations pending or, to the knowledge of the Company or any Subsidiary,
threatened against, affecting or involving the Company or any Subsidiary or
their respective businesses or Assets, or the transactions contemplated by this
Merger Agreement, at law or in equity, or before or by any court, arbitrator or
Governmental Entity, domestic or foreign. Neither the Company nor any
Subsidiary is (i) operating under or subject to any order (except for orders
that Persons similarly situated, engaged in similar businesses and owning
similar Assets are operating under or subject to), award, writ, injunction,
decree or judgment of any court, arbitrator or Governmental Entity, or (ii) in
default with respect to any order, award, writ, injunction, decree or judgment
of any court, arbitrator or Governmental Entity.
(b) Except as set forth in Section 3.11(b) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary is currently involved in, or to
the knowledge of the Company or any Subsidiary, reasonably anticipates any
dispute with, any of its current or former employees, agents, brokers,
distributors, vendors, customers, business consultants, franchisees,
franchisors, representatives or independent contractors (or any current or
former employees of any of the foregoing Persons) affecting the
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<PAGE>
business or Assets of the Company or any Subsidiary, except for any such
disputes that, if resolved adversely to the Company or any Subsidiary, would not
have a Company Material Adverse Effect.
SECTION 3.12. Debt Instruments.
Section 3.12 of the Company Disclosure Schedule lists all mortgages,
indentures, notes, guarantees and other Agreements for or relating to borrowed
money (including, without limitation, conditional sales agreements and capital
leases) to which the Company or any Subsidiary is a party or which have been
assumed by the Company or any Subsidiary or to which any Assets of the Company
or any Subsidiary are subject and, with respect to each such Agreement so
listed, briefly describes the principal amount, interest rate, original and
maturity dates and any sinking fund installments, prepayment premiums,
restrictive covenants and any other material provisions. With respect to the
Documents listed on Section 3.12 of the Company Disclosure Schedule, the Company
and the Subsidiaries have performed all the obligations required to be performed
by any of them to date and are not in default in any respect under any of the
foregoing, and there has not occurred any event which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute such a default, except for any failure so to perform or any such
default that would not have a Company Material Adverse Effect.
SECTION 3.13. Leases.
Section 3.13 of the Company Disclosure Schedule lists all leases and
other Agreements with a term in excess of one (1) year or requiring payments in
excess of $5,000 in the aggregate over its term under which the Company or any
Subsidiary is the lessee or lessor of any Asset, or holds, manages or operates
any Asset owned by any third party, or under which any Asset owned by the
Company or by any Subsidiary is held, operated or managed by a third party. The
Company and the Subsidiaries are the owners and holders of all the leasehold
estates purported to be granted to them by the Documents listed in Section 3.13
of the Company Disclosure Schedule. Each such lease and other Agreement is in
full force and effect and constitutes a legal, valid and binding obligation of,
and is legally enforceable against, the respective parties thereto and grants
the leasehold estate it purports to grant free and clear of all Encumbrances.
The Company and the Subsidiaries have in all respects performed all material
obligations thereunder required to be performed by any of them to date. To the
knowledge of the Company, no party is in default in any material respect under
any of the foregoing, and there has not occurred any event which (whether with
or without notice, lapse of time or the happening or occurrence of any other
event) would constitute such a default. All of the Assets subject to such
leases and other Agreements are in a condition adequate for the uses to which
they are currently being used.
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<PAGE>
SECTION 3.14. Other Agreements; No Default.
(a) Section 3.14(a) of the Company Disclosure Schedule lists each
Agreement to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary, or any of their respective Assets, is bound, and
which is:
(i) an Agreement with a term in excess of one (1) year or
requiring payments in excess of $5,000 in any twelve (12) month period
or $10,000 in the aggregate over its term for the employment of any
director, officer, employee, consultant or independent contractor, or
providing for severance payments to any such director, officer,
employee, consultant or independent contractor;
(ii) a license Agreement or distributor, dealer, sales
representative, sales agency, advertising, property management or
brokerage Agreement involving an annual payment in excess of $25,000;
(iii) an Agreement for the future purchase of materials,
supplies, services, merchandise or equipment involving payments of
more than $25,000 over its remaining term (including, without
limitation, periods covered by any option to renew by any party);
(iv) an Agreement for the purchase, sale or lease of any Asset
with a purchase or sale price or aggregate rental payment in excess of
$25,000;
(v) a profit-sharing, bonus, incentive compensation, deferred
compensation, stock option, severance pay, stock purchase, employee
benefit, insurance, hospitalization, pension, retirement or other
similar plan or Agreement;
(vi) an Agreement for the sale of any of its Assets or services
or the grant of any preferential rights to purchase any of its Assets,
services or rights, other than in the Ordinary Course of Business;
(vii) an Agreement that contains any provisions requiring the
Company or any Subsidiary to indemnify any other party;
(viii) a joint venture Agreement or other Agreement involving
the sharing of revenues or profits;
(ix) an Agreement with an Affiliate (as defined in Article X)
of the Company or any Subsidiary;
(x) an Agreement (including, without limitation, an Agreement
not to compete and an exclusivity Agreement) that reasonably could be
interpreted to impose any material restriction on the business or
operations
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<PAGE>
of the Company or any Subsidiary, or any of their respective
Affiliates, prior to the Effective Time, or on the business or
operations of Pubco or any of its Affiliates after the Effective Time;
(xi) an Agreement material to the Company and its Subsidiaries
not otherwise described in this Section 3.14(a) which by its terms
does not terminate or is not terminable by the Company or by a
Subsidiary within thirty (30) days or upon thirty (30) days' (or less)
notice;
(xii) an Agreement with any Governmental Entity;
(xiii) an Agreement with any of the twenty (20) largest
customers of the Company and the Subsidiaries, taken as a whole (based
on amounts billed), for each of (A) the year ended December 31, 1997
and (B) the period from January 1, 1998 through the date of this
Merger Agreement;
(xiv) an Agreement to provide any customer with free listings or
advertisements or service at rates departing from the standard rate
schedules other than in the Ordinary Course of Business; or
(xv) any other Agreement (A) that is material to the Company
and the Subsidiaries, taken as a whole, or the conduct of their
businesses or operations, or (B) the absence of which would have a
Company Material Adverse Effect,
(the foregoing Agreements referred to herein as the "Company Contracts"). The
-----------------
Company has furnished Pubco with true and complete copies of each written
Company Contract (including any amendments thereto) and a complete written
summary of each oral Company Contract.
(b) Each Company Contract is in full force and effect and constitutes
a legal, valid and binding obligation of, and is legally enforceable against,
the respective parties thereto. All necessary approvals of any Governmental
Entity with respect thereto have been obtained (except where the failure so to
obtain any such approval would not have a Company Material Adverse Effect), all
necessary filings or registrations therefor have been made, and there are no
outstanding disputes thereunder and, to the knowledge of the Company or any
Subsidiary, no threatened cancellation or termination thereof. The Company and
the Subsidiaries have performed all material obligations thereunder required to
be performed by any of them to date. To the knowledge of the Company and the
Subsidiaries, no party is in default in any material respect under any of the
Company Contracts, and there has not occurred any event which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute such a default. No Agreement has been canceled or otherwise
terminated within the twelve (12) months prior to the date of this Merger
Agreement which would have been a
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<PAGE>
"Company Contract" had such Agreement not been canceled or terminated and the
cancellation or termination of which has had or is reasonably likely to have a
Company Material Adverse Effect. Except as specifically described in Section
3.14(a) of the Company Disclosure Schedule, there has been no written or oral
modification or amendment to any Company Contract and there are no reasonably
expected changes to any Company Contract. At the Closing, the Company shall
deliver to Pubco an updated Section 3.14(a) to the Company Disclosure Schedule
in accordance with the provisions of Section 6.04.
SECTION 3.15. Labor Relations.
Section 3.15(a) of the Company Disclosure Schedule lists all
collective bargaining or other labor union Agreements to which the Company or
any Subsidiary is a party. There are no strikes or work stoppages, or, to the
knowledge of the Company, union organization efforts or other controversies
(other than grievance proceedings) pending, threatened or reasonably anticipated
between the Company or any Subsidiary and (a) any current or former employees of
the Company or of any Subsidiary or (b) any union or other collective bargaining
unit representing such employees. The Company and the Subsidiaries have complied
and are in compliance with all Laws relating to employment or the workplace,
including, without limitation, Laws relating to wages, hours, collective
bargaining, safety and health, work authorization, equal employment opportunity,
immigration, withholding, unemployment compensation, worker's compensation,
employee privacy and right to know, except where the failure so to comply would
not have a Company Material Adverse Effect. Except as set forth in Section
3.15(b) of the Company Disclosure Schedule, neither the Company nor any
Subsidiary has been notified by any Governmental Agency or counsel to any
claimant of any unresolved violation or alleged violation of any Law relating to
equal employment opportunity, civil or human rights, or employment
discrimination generally. Except as set forth in Section 3.15(c) to the Company
Disclosure Schedule, there are no collective bargaining Agreements, employment
Agreements between the Company or any Subsidiary and any of their respective
employees, or professional service Agreements not terminable at will relating to
the businesses and Assets of the Company or of any Subsidiary. Except as set
forth in Section 3.15(d) to the Company Disclosure Schedule, the consummation of
the transactions contemplated hereby will not cause Pubco, the Surviving
Corporation, the Company or any Subsidiary to incur or suffer any liability
relating to, or obligation to pay, severance, termination or other payments to
any Person.
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SECTION 3.16. Pension and Benefit Plans.
(a) Except as set forth in Section 3.16(a) to the Company Disclosure
Schedule, neither the Company nor any Subsidiary (i) maintains or during the
past six (6) years has maintained any Plan (as defined in Article X) or Other
Arrangement (as defined in Article X), (ii) is or during the past six (6) years
has been a party to any Plan or Other Arrangement, or (iii) has obligations
under any Plan or Other Arrangement.
(b) The Company has furnished to Pubco true and complete copies of
each of the following Documents: (i) the Documents setting forth the terms of
each Plan; (ii) all related trust Agreements or annuity Agreements (and any
other funding Document) for each Plan; (iii) for the three (3) most recent plan
years, all annual reports (Form 5500 series) on each Plan that have been filed
with any Governmental Entity; (iv) the current summary plan description and
subsequent summaries of material modifications for each Title I Plan (as defined
in Article X); (v) all DOL (as defined in Article X) opinions on any Plan;
(vi) all correspondence with the PBGC (as defined in Article X) on any Plan
exchanged during the past three (3) years; (vii) all IRS (as defined in Article
X) rulings, opinions or technical advice relating to any Plan and the current
IRS determination letter issued with respect to each Qualified Plan (as defined
in Article X); and (viii) all current Agreements with service providers or
fiduciaries for providing services on behalf of any Plan. For each Other
Arrangement, the Company has furnished to Pubco true and complete copies of each
policy, Agreement or other Document setting forth or explaining the current
terms of the Other Arrangement, all related trust Agreements or other funding
Documents (including, without limitation, insurance contracts, certificates of
deposit, money market accounts, etc.), all significant employee communications,
all correspondence with or other submissions to any Governmental Entity, and all
current Agreements with service providers or fiduciaries for providing services
on behalf of any Other Arrangement.
(c) No Plan is a Multiemployer Plan (as defined in Article X).
(d) Section 3.16(d) of the Company Disclosure Schedule sets forth each
Individual Account Plan (as defined in Article X) that is an ESOP (as defined in
Article X) (indicating whether such ESOP is leveraged) or otherwise invests in
employer securities (as such term is defined in Section 409(l) of the Code).
The Company has furnished to Pubco true and complete copies of all loan
Agreements and other related Documents for each leveraged ESOP.
(e) The funding method used under each Minimum-Funding Plan (as
defined in Article X) does not violate the funding requirements in Title I,
Subtitle B, Part 3, of ERISA (as defined in Article X). For each Defined
Benefit Plan (as defined in Article X), the Company has furnished to Pubco a
true and complete copy of the actuarial valuation reports issued by the
actuaries of that Defined Benefit Plan for the three (3) most recent plan years,
setting forth: (i) the actuarial present value (based upon the same actuarial
assumptions as were used for that period for funding purposes) of all vested and
nonvested accrued benefits under that Defined Benefit Plan; (ii) the actuarial
present value (based upon the same actuarial
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assumptions, other than turnover assumptions, as were used for that period for
funding purposes) of vested benefits under that Defined Benefit Plan; (iii) the
net fair market value of that Defined Benefit Plan's Assets; and (iv) a detailed
description of the funding method used under that Defined Benefit Plan.
(f) No "accumulated funding deficiency" as defined in Section
302(a)(2) of ERISA or Section 412 of the Code, whether or not waived, and no
"unfunded current liability" as determined under Section 412(l) of the Code
exists with respect to any Minimum-Funding Plan. No security is required under
Section 401(a)(29) of the Code as to any Minimum-Funding Plan. Section 3.16(f)
of the Company Disclosure Schedule sets forth all unpaid obligations and
liabilities of the Company and the Subsidiaries to provide contributions
currently due with respect to any Minimum-Funding Plan.
(g) Section 3.16(g) of the Company Disclosure Schedule sets forth the
contributions that (i) the Company or any Subsidiary has promised or is
otherwise obligated to make under each Individual Account Plan that is a
Statutory-Waiver Plan (as defined in Article X) and (ii) are unpaid as of the
date of this Merger Agreement.
(h) The Company and the Subsidiaries have made all contributions and
other payments required by and due under the terms of each Plan and Other
Arrangement and have taken no action during the past three (3) years (other than
actions required by Law) relating to any Plan or Other Arrangement that will
increase Pubco's, the Surviving Corporation's, the Company's or any Subsidiary's
obligation under any Plan or Other Arrangement.
(i) Section 3.16(i) of the Company Disclosure Schedule sets forth a
list of all Qualified Plans (as defined in Article X). All Qualified Plans and
any related trust Agreements or annuity Agreements (or any other funding
Document) comply and have complied with ERISA, the Code (including, without
limitation, the requirements for Tax qualification described in Section 401
thereof), and all other Laws, except where the failure so to comply would not
have a Company Material Adverse Effect. The trusts established under such Plans
are exempt from federal income taxes under Section 501(a) of the Code. The
Company and the Subsidiaries have received determination letters issued by the
IRS with respect to each Qualified Plan, and the Company has furnished to Pubco
true and complete copies of all such determination letters and all
correspondence relating to the applications therefor. All statements made by or
on behalf of the Company or any Subsidiary to the IRS in connection with
applications for determinations with respect to each Qualified Plan were true
and complete when made and continue to be true and complete. To the knowledge
of the Company and the Subsidiaries, nothing has occurred since the date of the
most recent applicable determination letter that would adversely affect the tax-
qualified status of any Qualified Plan.
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(j) To their knowledge, the Company and the Subsidiaries have complied
in all material respects with all applicable provisions of the Code, ERISA, the
National Labor Relations Act, Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Fair Labor Standards Act, the Securities
Act, the Exchange Act, and all other Laws pertaining to the Plans, Other
Arrangements and other employee or employment related benefits, and all premiums
and assessments relating to all Plans or Other Arrangements. Neither the
Company nor any Subsidiary has any liability for any delinquent contributions
within the meaning of Section 515 of ERISA (including, without limitation,
related attorneys' fees, costs, liquidated damages and interest) or for any
arrearages of wages. Neither the Company nor any Subsidiary has any pending
unfair labor practice charges, contract grievances under any collective
bargaining agreement, other administrative charges, claims, grievances or
lawsuits before any court, arbiter or Governmental Entity arising under any Law
governing any Plan, and to the knowledge of the Company and the Subsidiaries
there exist no facts that could give rise to such a claim.
(k) Section 3.16(k) of the Company Disclosure Schedule describes all
transactions in which the Company or any Subsidiary or any of the Plans has
engaged in violation of Section 406(a) or 406(b) of ERISA for which no exemption
exists under Section 408 of ERISA and all "prohibited transactions" (as such
term is defined in Section 4975(c)(1) of the Code), for which no exemption
exists under Section 4975(c)(2) or 4975(d) of the Code. The Company has
furnished to Pubco true and complete copies of each request for a prohibited
transaction exemption and each exemption obtained in response to such request.
All such requests were true and complete when made and continue to be true and
complete.
(l) The Company and the Subsidiaries have paid all premiums (and
interest charges and penalties for late payment, if applicable) due to the PBGC
for each Defined Benefit Plan. The Company has reflected (or shall reflect) in
the Financial Statements the current value of such premium obligation that is
accrued and unsatisfied as of the date of each such Financial Statement.
Section 3.16(l) of the Company Disclosure Schedule sets forth the amount of all
such unpaid premium obligations (including, without limitation, proportionate
partial accruals for the current year). Other than being required to make and
making premium payments when due, no liability to the PBGC has been incurred by
the Company or by any Common Control Entity (as defined in Article X) on account
of Title IV of ERISA. During the past three (3) years, no filing has been made
by, or required of, the Company or any Common Control Entity with the PBGC, the
PBGC has not started any proceeding to terminate any Defined Benefit Plan that
was or is maintained or wholly or partially funded by the Company or any Common
Control Entity, and to the knowledge of the Company and the Subsidiaries, no
facts exist that would permit the PBGC to begin such a proceeding. Neither the
Company nor any Common Control Entity has, or will have as a result of the
transactions contemplated hereby, (i) withdrawn as a substantial employer so as
to become subject to Section 4063 of ERISA; or (ii) ceased making contributions
to any Pension Plan that is subject to
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Section 4064(a) of ERISA to which the Company or any Common Control Entity made
contributions during the past five (5) years.
(m) Section 3.16(m) of the Company Disclosure Schedule identifies any
terminated Plan that covered any current or former employees of the Company or
any Subsidiary, and any other Plan that has been terminated, during the past
five (5) years. The Company has furnished to Pubco true and complete copies of
all filings with any Governmental Entity, employee communications, board minutes
and all other Documents relating to each such Plan termination.
(n) Except as set forth in Section 3.16(n) of the Company Disclosure
Schedule, no Plan or Other Arrangement, individually or collectively, provides
for any payment by the Company or any Subsidiary to any employee or independent
contractor that is not deductible under Section 162(a)(1) or 404 of the Code or
that is an "excess parachute payment" pursuant to Section 280G of the Code.
(o) No Plan has within the past three (3) years experienced a
"reportable event" (as such term is defined in Section 4043(b) of ERISA) that is
not subject to an administrative or statutory waiver from the reporting
requirement.
(p) No Plan is a "qualified foreign plan" (as such term is defined in
Section 404A(e) of the Code), and no Plan is subject to the Laws of any
jurisdiction other than the United States of America or one of its political
subdivisions.
(q) The Company and the Subsidiaries have timely filed and the Company
has furnished to Pubco true and complete copies of each Form 5330 (Return of
Excise Taxes Related to Employee Benefit Plans) that the Company or any
Subsidiary filed on any Plan during the past three (3) years. The Company and
the Subsidiaries have no liability for Taxes required to be reported on Form
5330.
(r) Section 3.16(r) of the Company Disclosure Schedule lists all
funded Welfare Plans (as defined in Article X) that provide benefits to current
or former employees of the Company or any Subsidiary, or to their beneficiaries.
The funding under each Welfare Plan does not exceed and has not exceeded the
limitations under Sections 419A(b) and 419A(c) of the Code. To their knowledge,
the Company and the Subsidiaries are not subject to taxation on the income of
any Welfare Plan's welfare benefit fund (as such term is defined in Section
419(e) of the Code) under Section 419A(g) of the Code.
(s) Section 3.16(s) of the Company Disclosure Schedule (i) identifies
all post-retirement medical, life insurance or other benefits promised, provided
or otherwise due now or in the future to current, former or retired employees of
the Company or any Subsidiary, (ii) identifies the method of funding (including,
without limitation, any individual accounting) for all such benefits, (iii)
discloses the funded status of the Plans providing or promising such benefits,
and (iv) sets forth the method of accounting for
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such benefits to any key employees (as defined in Section 416(i) of the Code) of
the Company or any Subsidiary .
(t) All Welfare Plans and the related trusts that are subject to
Section 4980B(f) of the Code and Sections 601 through 607 of ERISA comply in all
material respects with and have been administered in compliance with the health
care continuation-coverage requirements for tax-favored status under Section
4980B(f) of the Code (formerly Section 162(k) of the Code), Sections 601 through
607 of ERISA, and all proposed or final regulations under Section 162 of the
Code explaining those requirements.
(u) The Company and the Subsidiaries have (i) filed or caused to be
filed all returns and reports on the Plans that they are required to file, and
(ii) paid or made adequate provision for all fees, interest, penalties,
assessments or deficiencies that have become due pursuant to those returns or
reports or pursuant to any assessment or adjustment that has been made relating
to those returns or reports. All other fees, interest, penalties and
assessments that are due and payable by or for the Company or any Subsidiary
with respect to any Plan have been timely reported, fully paid and discharged.
There are no unpaid fees, penalties, interest or assessments due from the
Company or any Subsidiary or from any other Person that are or could become an
Encumbrance on any Asset of the Company or any Subsidiary or could otherwise
have a Company Material Adverse Effect. The Company and the Subsidiaries have
collected or withheld all amounts that are required to be collected or withheld
by them to discharge their obligations with respect to each Plan, and all of
those amounts have been paid to the appropriate Governmental Entity or set aside
in appropriate accounts for future payment when due.
SECTION 3.17. Taxes and Tax Matters.
(a) The Company and the Subsidiaries have (or, in the case of Company
Tax Returns (as defined in Article X) becoming due after the date hereof and
before the Effective Time, will have prior to the Effective Time) duly filed all
Company Tax Returns required to be filed by the Company and the Subsidiaries at
or before the Effective Time with respect to all applicable material Taxes. No
material penalties or other charges are or will become due with respect to any
such Company Tax Returns as the result of the late filing thereof. All such
Company Tax Returns are (or, in the case of returns becoming due after the date
hereof and before the Effective Time, will be) true and complete in all material
respects. The Company and the Subsidiaries: (i) have paid all Taxes due or
claimed to be due by any Taxing authority in connection with any such Company
Tax Returns (without regard to whether or not such Taxes are shown as due on any
Company Tax Returns); or (ii) have established (or, in the case of amounts
becoming due after the date hereof, prior to the Effective Time will have paid
or established) in the Financial Statements adequate reserves (in conformity
with GAAP consistently applied) for the payment of such Taxes. The amounts set
up as reserves for Taxes in the Financial
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Statements are sufficient for the payment of all unpaid Taxes, whether or not
such Taxes are disputed or are yet due and payable, for or with respect to the
applicable period, and for which the Company or any Subsidiary may be liable in
its own right (including, without limitation, by reason of being a member of the
same affiliated group) or as a transferee of the Assets of, or successor to, any
Person.
(b) Neither the Company nor any Subsidiary, either in its own right
(including, without limitation, by reason of being a member of the same
affiliated group) or as a transferee, has or at the Effective Time will have any
liability for Taxes payable for or with respect to any periods prior to and
including the Effective Time in excess of the amounts actually paid prior to the
Effective Time or reserved for in the Financial Statements, except for any Taxes
due in connection with the Merger or incurred in the Ordinary Course of Business
subsequent to the date of the latest Financial Statement.
(c) Except as set forth in Section 3.17(c) of the Company Disclosure
Schedule, all Company Tax Returns have been examined by the relevant Taxing
authorities, or closed without audit by applicable Law, and all deficiencies
proposed as a result of such examinations have been paid, settled or reserved
for in the Financial Statements, for all taxable years prior to and including
the taxable year ended December 31, 1997. Except as set forth in Section
3.17(c) of the Company Disclosure Schedule, there is no action, suit,
proceeding, audit, investigation or claim pending or, to the knowledge of the
Company or any Subsidiary, threatened in respect of any Taxes for which the
Company or any Subsidiary is or may become liable, nor has any deficiency or
claim for any such Taxes been proposed, asserted or, to the knowledge of the
Company or any Subsidiary, threatened. Except as set forth in Section 3.17(c)
of the Company Disclosure Schedule, neither the Company nor any Subsidiary has
consented to any waivers or extensions of any statute of limitations with
respect to any taxable year of the Company or any Subsidiary. Except as set
forth in Section 3.17(c) of the Company Disclosure Schedule, there is no
Agreement, waiver or consent providing for an extension of time with respect to
the assessment or collection of any Taxes against the Company or any Subsidiary,
and no power of attorney granted by the Company or any Subsidiary with respect
to any Tax matters is currently in force.
(d) The Company has furnished to Pubco true and complete copies of all
Company Tax Returns and all written communications with any Governmental Entity
relating to any such Company Tax Returns or to any deficiency or claim proposed
or asserted, irrespective of the outcome of such matter, but only to the extent
such items relate to Tax years (i) which are subject to an audit, investigation,
examination or other proceeding, or (ii) with respect to which the statute of
limitations has not expired.
(e) Section 3.17(e) of the Company Disclosure Schedule sets forth
(i) all federal Tax elections that currently are in effect with respect to the
Company or any Subsidiary, and (ii) all elections for purposes of foreign, state
or local Taxes and all consents or Agreements for purposes of federal, foreign,
state or local Taxes in each case
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that reasonably could be expected to affect or be binding upon the Surviving
Corporation or any Subsidiary or their respective Assets or operations after the
Effective Time. Section 3.17(e) of the Company Disclosure Schedule sets forth
all changes in accounting methods for Tax purposes at any time made, agreed to,
requested or required with respect to the Company or any of the Subsidiaries.
(f) Except as set forth in Section 3.17(f) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary (i) is or has ever been a
partner in a partnership or an owner of an interest in an entity treated as a
partnership for federal income Tax purposes; (ii) has executed or filed with the
IRS any consent to have the provisions of Section 341(f) of the Code apply to
it; (iii) is subject to Section 999 of the Code; (iv) is a passive foreign
investment company as defined in Section 1296(a) of the Code; or (v) is a party
to an Agreement relating to the sharing, allocation or payment of, or indemnity
for, Taxes (other than an Agreement the only parties to which are the Company
and the Subsidiaries).
(g) The Company has complied in all material respects with all rules
and regulations relating to the withholding of Taxes.
SECTION 3.18. Customers.
To the knowledge of the Company and the Subsidiaries, the
relationships of the Company and the Subsidiaries with their customers are good
commercial working relationships. Except as set forth in Section 3.18 of the
Company Disclosure Schedule, during the twelve (12) months prior to the date of
this Merger Agreement, no customer of the Company or any Subsidiary that
accounted for in excess of $25,000 of the revenues of the Company and the
Subsidiaries during such twelve (12) months has canceled or otherwise terminated
its relationship with the Company or any Subsidiary.
SECTION 3.19. Certain Business Practices.
Neither the Company, the Subsidiaries nor any of their officers,
directors or, to the knowledge of the Company or any Subsidiary, any of their
employees or agents (or stockholders, distributors, representatives or other
persons acting on the express, implied or apparent authority of the Company or
of any Subsidiary) have paid, given or received or have offered or promised to
pay, give or receive, any bribe or other unlawful payment of money or other
thing of value, any unlawful discount, or any other unlawful inducement, to or
from any Person or Governmental Entity in the United States or elsewhere in
connection with or in furtherance of the business of the Company or any
Subsidiary (including, without limitation, any offer, payment or promise to pay
money or other thing of value (a) to any foreign official or political party (or
official thereof) for the purposes of influencing any act, decision or omission
in order to assist the Company or any Subsidiary in obtaining business for or
with, or directing business to, any Person, or (b) to any Person, while knowing
that all or a portion of such money or other thing of value will be
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offered, given or promised to any such official or party for such purposes). The
business of the Company and the Subsidiaries is not in any manner dependent upon
the making or receipt of such payments, discounts or other inducements.
SECTION 3.20. Insurance.
Section 3.20 of the Company Disclosure Schedule lists and briefly
describes all policies of title, Asset, fire, hazard, casualty, liability, life,
worker's compensation and other forms of insurance of any kind owned or held by
the Company or any Subsidiary. All such policies: (a) are with insurance
companies reasonably believed by the Company to be financially sound and
reputable; (b) are in full force and effect; (c) are, to the knowledge of the
Company, sufficient for compliance by the Company and by each Subsidiary with
all requirements of Law and of all Agreements to which the Company or any
Subsidiary is a party; (d) are valid and outstanding policies enforceable
against the insurer; (e) to the knowledge of the Company, insure against risks
of the kind customarily insured against and in amounts customarily carried by
companies similarly situated and by companies engaged in similar businesses and
owning similar Assets, and provide adequate insurance coverage for the
businesses and Assets of the Company and the Subsidiaries; and (f) provide that
they will remain in full force and effect through the respective dates set forth
in Section 3.20 of the Company Disclosure Schedule.
SECTION 3.21. Potential Conflicts of Interest.
Except as set forth in Section 3.21 of the Company Disclosure
Schedule, neither any present or, to the knowledge of the Company or any
Subsidiary, former director, officer, employee with a salary in excess of
$60,000, or stockholder of the Company or any Subsidiary who beneficially owns
more than 5% of the capital stock of the Company or any Subsidiary, nor any
Affiliate of such director, officer, employee or stockholder:
(a) owns, directly or indirectly, any interest in (except for holdings
in securities that are listed on a national securities exchange, quoted on a
national automated quotation system or regularly traded in the over-the-counter
market, where such holdings are not in excess of two percent (2%) of the
outstanding class of such securities and are held solely for investment
purposes), or is a stockholder, partner, other holder of equity interests,
director, officer, employee, consultant or agent of, any Person that is a
competitor, lessor, lessee or customer of, or supplier of goods or services to,
the Company or any Subsidiary, except where the value to such individual of any
such arrangement with the Company or any Subsidiary has been less than $60,000
in the last twelve (12) months;
(b) owns, directly or indirectly, in whole or in part, any Assets with
a fair market value of $60,000 or more which the Company or any Subsidiary
currently uses in its business;
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(c) has any cause of action or other suit, action or claim whatsoever
against, or owes any amount to, the Company or any Subsidiary, except for claims
arising in the Ordinary Course of Business from any such Person's service to the
Company or any Subsidiary as a director, officer or employee;
(d) has sold or leased to, or purchased or leased from, the Company or
any Subsidiary any Assets for consideration in excess of $60,000 in the
aggregate since January 1, 1995;
(e) is a party to any Agreement pursuant to which the Company or any
Subsidiary provides office space to any such Person, or provides services of any
nature to any such Person, other than in the Ordinary Course of Business in
connection with the employment of such Person by the Company or any Subsidiary;
or
(f) has, since January 1, 1995, engaged in any other material
transaction with the Company or any Subsidiary involving in excess of $60,000,
other than (i) in the Ordinary Course of Business in connection with the
employment of such Person by the Company or any Subsidiary, and (ii) dividends,
distributions and stock issuances to all common and preferred stockholders (as
applicable) on a pro rata basis.
SECTION 3.22. Receivables.
To the knowledge of the Company, the accounts receivable of the
Company and the Subsidiaries shown on the Reviewed Balance Sheets and the
Unaudited Balance Sheets, or thereafter acquired by any of them, have been
collected or are collectible in amounts not less than the amounts thereof
carried on the books of the Company and the Subsidiaries, without right of
recourse, defense, deduction, counterclaim, offset or setoff on the part of the
obligor, and can reasonably be expected to be collected within ninety (90) days
of the date incurred or due, except to the extent of the allowance for doubtful
accounts shown on such Reviewed Balance Sheets and Unaudited Balance Sheets.
SECTION 3.23. Books and Records.
The books of account, stock records, minute books and other corporate
and financial records of the Company are complete and correct in all material
respects and have been maintained in accordance with good business practices,
and the matters contained therein are appropriately and accurately reflected in
all material respects in the Financial Statements in accordance with GAAP.
SECTION 3.24. Assets.
Except as set forth in Section 3.24 of the Company Disclosure
Schedule, the Company and the Subsidiaries have good, valid, marketable and
insurable (at standard rates) title to, or a valid leasehold interest in, all
material Assets respectively owned or
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leased by them, including, without limitation, all material Assets reflected in
the Reviewed Balance Sheets and in the Unaudited Balance Sheets and all material
Assets purchased or leased by the Company or by any Subsidiary since August 31,
1998 (except for Assets reflected in such Reviewed Balance Sheets and Unaudited
Balance Sheets or acquired since August 31, 1998 which have been sold or
otherwise disposed of in the Ordinary Course of Business), free and clear of all
Encumbrances. All personal property of the Company and the Subsidiaries is in
good operating condition and repair (ordinary wear and tear excepted) and is
suitable and adequate for the uses for which it is intended or is being used.
All inventory (as defined in Article X) of the Company and the Subsidiaries
(i) consists of items which are good and merchantable and of a quality and
quantity presently usable and salable in the Ordinary Course of Business and
(ii) have been reflected in the Financial Statements at the lower of cost or
market, in accordance with GAAP, and include no absolute or discontinued items,
except to the extent reserved against in the Financial Statements.
SECTION 3.25. No Infringement or Contest.
(a) Section 3.25(a) of the Company Disclosure Schedule identifies and
describes each item of Intellectual Property (as defined in Article X) (i) owned
by the Company or a Subsidiary, (ii) owned by any third party and used by the
Company or any Subsidiary pursuant to license, sublicense or other Agreement, or
(iii) otherwise used by the Company or any Subsidiary (including, in each case,
specification of whether each such item is owned, licensed or used by the
Company or any Subsidiary).
(b) With respect to each item of Intellectual Property listed in
Section 3.25(a) of the Company Disclosure Schedule that is owned by the Company
or any Subsidiary, such Intellectual Property can be used by the Company and the
Subsidiaries in their respective businesses as presently conducted by them, free
and clear of restrictions, Encumbrances and royalties on such use, and the
Company and the Subsidiaries have the right to bring action for infringement of
such Intellectual Property. With respect to the Intellectual Property listed in
Section 3.25(a) of the Company Disclosure Schedule that is used by the Company
or a Subsidiary pursuant to license, sublicense or other Agreement, such
Intellectual Property has been licensed on an arm's-length basis and can be used
by the Company and the Subsidiaries in their respective businesses as currently
conducted by them in accordance with the terms and conditions of such licenses,
sublicenses or other Agreements. With respect to each item of Intellectual
Property listed in Section 3.25(a) of the Company Disclosure Schedule that is
otherwise used by the Company or any Subsidiary, such Intellectual Property can
be used by the Company and the Subsidiaries in their respective businesses as
presently conducted by them, free and clear of restrictions, Encumbrances and
royalties on such use Each item of Intellectual Property owned or used by the
Company or any Subsidiary immediately prior to the Closing will be owned or
available for use by the Company or such Subsidiary on identical terms and
conditions immediately after the Closing.
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(c) As used in the businesses of the Company and the Subsidiaries as
conducted in the past and as currently conducted, none of the Intellectual
Property listed in Section 3.25(a) of the Company Disclosure Schedule has at any
time infringed or misappropriated or otherwise violated, or is likely to
infringe, misappropriate or violate, any Intellectual Property of any other
Person, nor is the Company or any Subsidiary otherwise in the conduct of their
respective businesses infringing upon, or alleged to be infringing upon, any
Intellectual Property of any other Person. There are no pending or, to the
knowledge of the Company or any Subsidiary, threatened claims against the
Company or any Subsidiary alleging that the conduct of the Company's or any
Subsidiary's business infringes or conflicts with any Intellectual Property
rights of others. To the knowledge of the Company or any Subsidiary, there is
no Intellectual Property of another Person that infringes, misappropriates or
violates any of the Intellectual Property listed in Section 3.25(a) of the
Company Disclosure Schedule.
(d) The Company and the Subsidiaries own or have the right to use
pursuant to a valid license, sublicense or other Agreement all Intellectual
Property used in the operation of the businesses of the Company and the
Subsidiaries as currently conducted and as currently proposed to be conducted.
(e) The Company and the Subsidiaries have not caused obscene, libelous
or indecent material to be transmitted or received through the Company's or the
Subsidiaries' services or directories and have instituted procedures to ensure
that no such material is transmitted.
SECTION 3.26. Board Recommendation.
At a meeting duly called and held, or by unanimous written consent, in
compliance with Michigan Law, the Board of Directors of the Company has adopted
by unanimous vote a resolution approving and adopting this Merger Agreement and
the transactions contemplated hereby and recommending approval and adoption of
this Merger Agreement and the transactions contemplated hereby by the Company
Stockholders.
SECTION 3.27. Vote Required.
The affirmative vote of the holders of a majority of the outstanding
shares of Company Common Stock is the only vote of the holders of any class or
series of capital stock of the Company necessary to approve the transactions
contemplated by this Merger Agreement.
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SECTION 3.28. Banks; Attorneys-in-fact.
Section 3.28 of the Company Disclosure Schedule sets forth a complete
list showing the name of each bank or other financial institution in which the
Company or any Subsidiary has accounts (including a description of the names of
all Persons authorized to draw thereon or to have access thereto). Such list
also shows the name of each Person holding a power of attorney from the Company
or any Subsidiary and a brief description thereof.
SECTION 3.29. Brokers.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Merger Agreement based upon arrangements made by or on
behalf of the Company or any Subsidiary or any of their respective Affiliates.
SECTION 3.30. Environmental Matters.
(a) To the knowledge of the Company, the Company and each of the
Subsidiaries have complied and are in compliance with, and the Real Property (as
defined in Article X) and all improvements thereon are in compliance with, all
Environmental Laws (as defined in Article X), except where the failure so to
comply would not have a Company Material Adverse Effect.
(b) To the knowledge of the Company and the Subsidiaries, neither the
Company nor any Subsidiary has any liability under any Environmental Law, nor is
the Company or any Subsidiary responsible for any liability of any other Person
under any Environmental Law. Except as set forth in Section 3.30(b) of the
Company Disclosure Schedule, there are no pending or, to the knowledge of the
Company or any Subsidiary, threatened actions, suits, claims, legal proceedings
or other proceedings based on, and neither the Company nor any Subsidiary, has
received any formal or informal notice of any complaint, order, directive,
citation, notice of responsibility, notice of potential responsibility, or
information request from any Governmental Entity or any other Person since
January 1, 1993 (or prior thereto with respect to any such complaint, order,
directive, citation, notice of responsibility, notice of potential
responsibility, or information request which has not been finally resolved) or
knows any fact(s) which might reasonably be expected to form the basis for any
such actions or notices arising out of or attributable to: (i) the current or
past presence at any part of the Real Property of Hazardous Materials (as
defined in Article X) or any substances that pose a hazard to human health or an
impediment to working conditions; (ii) the current or past release or threatened
release into the environment from the Real Property (including, without
limitation, into any storm drain, sewer, septic system or publicly owned
treatment works) of any Hazardous Materials or any substances that pose a hazard
to human health or an impediment to working conditions; (iii) the off-site
disposal of Hazardous Materials originating on or from the Real Property or the
businesses or Assets of the Company or any Subsidiary; (iv) any
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facility operations, procedures or designs of the Company or any Subsidiary
which do not conform to requirements of the Environmental Laws; or (v) any
violation of Environmental Laws at any part of the Real Property or otherwise
arising from the Company's or any Subsidiary's activities (or the activities of
the Company's or any Subsidiary's predecessors in title) involving Hazardous
Materials.
(c) The Company and the Subsidiaries have been duly issued, and
currently have and will maintain through the Effective Time, all Licenses
required under any Environmental Law. A true and complete list of such
Licenses, all of which are valid and in full force and effect, is set out in
Section 3.30(c) of the Company Disclosure Schedule. Except in accordance with
such Licenses, as described in Section 3.30(c) of the Company Disclosure
Schedule or as otherwise permitted by Law, there has been no Hazardous Discharge
(as defined in Article X) or discharge of any other material regulated by such
Licenses. Except as disclosed in Section 3.30(c) of the Company Disclosure
Schedule, to the knowledge of the Company and the Subsidiaries no such Licenses
are non-transferable or which require consent, notification or other action to
remain in full force and effect following consummation of the Merger and the
other transactions contemplated hereby.
(d) Except as set forth in Section 3.30(d) of the Company Disclosure
Schedule, the Real Property contains no underground improvements, including but
not limited to treatment or storage tanks, or underground piping associated with
such tanks, used currently or in the past for the storage, throughput or other
management of Hazardous Materials, and no portion of the Real Property is or has
been used as a dump or landfill or consists of or contains filled in land or
wetlands.
SECTION 3.31. Disclosure.
To the knowledge of the Company, all facts regarding the business,
operations, prospects, condition (financial or otherwise), Assets or liabilities
of the Company and the Subsidiaries which have been disclosed in writing
(including, without limitation, in this Merger Agreement and the Company
Disclosure Schedule) or otherwise provided to Pubco by the Company have been
fully and truthfully disclosed to Pubco. No representation or warranty by the
Company, and no Document furnished or to be furnished to Pubco by the Company
pursuant to this Merger Agreement or otherwise in connection herewith or with
the transactions contemplated hereby, 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 therein, in light of the
circumstances under which they were made, not misleading.
SECTION 3.32. Directors, Officers and Affiliates
Section 3.32 of the Company Disclosure Schedule lists all current
directors and officers of the Company and the Subsidiaries, showing each such
person's name,
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positions, and annual remuneration, bonuses and fringe benefits paid by the
Company or any Subsidiary for the current fiscal year and the most recently
completed fiscal year.
SECTION 3.33. Copies of Documents.
True and complete copies of all Documents listed in the Company
Disclosure Schedule have been, or will be, furnished to Pubco.
SECTION 3.34. Publication of Directories.
Section 3.34 of the Company Disclosure Schedule lists the white and
yellow page directories published by the Company, the month of publication, the
number of each directory published, and the Net Cash Revenue (as defined in
Article X) from each directory. Except as set forth in Section 3.34 of the
Company Disclosure Schedule, all sales, production and distribution of the last
edition of the directories has been completed by the Company in the same manner
as the previously published editions of such directories, including but not
limited to, the number of directories printed and distributed, the distribution
area and system, the pricing, the credit terms, the quality and size of print
and paper, and the general production standards. The Company has paid all sales
and production expenses for all editions of the directories published by the
Company.
SECTION 3.35. Reorganization.
To the knowledge of the Company, neither it nor any of the
Subsidiaries has taken any action or failed to take any action which action or
failure would jeopardize the qualification of the Merger as a reorganization
within the meaning of Section 368(a) of the Code.
SECTION 3.36. State Takeover Statutes; Certain Charter Provisions.
No state of Michigan takeover statutes or charter or bylaw provisions
will prevent the Merger or this Merger Agreement and the transactions
contemplated hereby or thereby.
SECTION 3.37. Dissenters Rights.
All Company Stockholders have waived any appraisal or dissenters'
rights under Michigan Law or any other Law arising from, or in connection with,
the consummation of the Merger and the other transactions contemplated hereby.
SECTION 3.38. Year 2000 Review.
(a) To the knowledge of the Company, the Company and the Subsidiaries
will not be materially adversely affected by (i) any failure of the Company's
and the
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Subsidiaries computer hardware, software, firmware or embedded chip technology
to be Year 2000 Compliant (as defined in Article X); or (ii) the cost and/or
disruption to normal activities caused by work to be carried out to ensure such
computer hardware, software or embedded chip technology is year 2000 Compliant;
provided, however, Section 3.38(a) of the Company Disclosure Schedule lists any
computer hardware, software or embedded chip technology that is not year 2000
Compliant.
(b) The Company and the Subsidiaries are currently reviewing their
information technology ("IT") and non-IT computer systems and programs to
determine which are not capable of recognizing the Year 2000 and to verify
system readiness for the millennium date (the "Company Year 2000 Review"). The
Company Year 2000 review covers all of the Company's and the Subsidiaries'
operations and is centrally managed.
SECTION 3.39. Investment Agreements.
In accordance with Section 6.01, Investment Agreements substantially
in the form attached hereto as Exhibit A (the "Investment Agreements") will be
executed and delivered to McLeod by the Company Stockholders and each such
Investment Agreement constitutes a legal, valid and binding obligation of the
respective Company Stockholder who is a party thereto, enforceable against such
Company Stockholder in accordance with its terms.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF MCLEOD, PUBCO AND PUBCO SUB
Except as specifically set forth in the Disclosure Schedule delivered
by McLeod, Pubco and Pubco Sub to the Company prior to the execution and
delivery of this Merger Agreement (the "Pubco Disclosure Schedule"), McLeod,
-------------------------
Pubco and Pubco Sub hereby jointly and severally represent and warrant (which
representation and warranty shall be deemed to include the disclosures with
respect thereto so specified in the Pubco Disclosure Schedule) to the Company as
follows, in each case as of the date of this Merger Agreement, unless otherwise
specifically set forth herein or in the Pubco Disclosure Schedule:
SECTION 4.01. Organization and Qualification; Subsidiaries.
Each of McLeod, Pubco, Pubco Sub and Pubco's Significant Subsidiaries
(as defined in Article X) is a corporation duly organized, validly existing and
in good standing under the Laws of the jurisdiction of its incorporation or
organization, and has the full and unrestricted corporate power and authority to
own, operate and lease its Assets, and to carry on its business as currently
conducted. Each of McLeod, Pubco, Pubco Sub and Pubco's Significant
Subsidiaries is duly qualified to conduct business as a foreign
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corporation and is in good standing in the states, countries and territories in
which the nature of the business conducted by it or the character of the Assets
owned, leased or otherwise held by it makes such qualification necessary, except
where the absence of such qualification as a foreign corporation would not have
an Pubco Material Adverse Effect (as defined in Article X).
SECTION 4.02. Certificate of Incorporation and Bylaws.
Pubco has furnished to the Company a true and complete copy of the
Certificate of Incorporation of Pubco and the certificate of incorporation of
Pubco Sub, as currently in effect, certified as of a recent date by the
Secretary of State (or comparable Governmental Entity) of their respective
jurisdictions of incorporation, and a true and complete copy of the Bylaws of
Pubco and the Bylaws of Pubco Sub, as currently in effect, certified by their
respective corporate secretaries. Such certified copies are attached as
exhibits to, and constitute an integral part of, the Pubco Disclosure Schedule.
SECTION 4.03. Authority; Binding Obligation.
Each of McLeod, Pubco and Pubco Sub has the full and unrestricted
corporate power and authority to execute and deliver this Merger Agreement and
to carry out the transactions contemplated hereby. The execution and delivery
by McLeod, Pubco and Pubco Sub of this Merger Agreement and all other Documents
contemplated hereby, and the consummation by McLeod, Pubco and Pubco Sub of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action and no other corporate proceedings on the part of
McLeod, Pubco or Pubco Sub are necessary to authorize this Merger Agreement and
the other Documents contemplated hereby, or to consummate the transactions
contemplated hereby and thereby. This Merger Agreement has been duly executed
and delivered by McLeod, Pubco and Pubco Sub and constitutes a legal, valid and
binding obligation of McLeod, Pubco and Pubco Sub in accordance with its terms,
except as such enforceability may be subject to the effect of any applicable
bankruptcy, insolvency fraudulent conveyance, reorganization, moratorium or
similar Laws affecting creditors' rights generally and subject to the effect of
general equitable principles (whether considered in a proceeding in equity or at
law).
SECTION 4.04. No Conflict; Required Filings and Consents.
(a) The execution, delivery and performance by McLeod, Pubco and Pubco
Sub of this Merger Agreement and all other Documents contemplated hereby, the
fulfillment of and compliance with the respective terms and provisions hereof
and thereof, and the consummation by McLeod, Pubco and Pubco Sub of the
transactions contemplated hereby and thereby, do not and will not: (i) conflict
with, or violate any provision of, the Certificate of Incorporation or the
Bylaws of McLeod or Pubco, or the Certificate or Articles of Incorporation or
Bylaws of Pubco Sub or any of Pubco's
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Significant Subsidiaries; or (ii) subject to obtaining the consents, approvals,
authorizations and permits of, and making filings with or notifications to, the
applicable Governmental Entity pursuant to the applicable requirements, if any,
of the Securities Act, the Exchange Act, Blue Sky Laws, the HSR Act, the
Communications Act, the Federal Aviation Act, applicable state utility Laws and
applicable municipal franchise Laws, and the filing and recordation of the
Articles of Merger as required by Michigan Law and Iowa Law, conflict with or
violate any Law applicable to McLeod, Pubco, Pubco Sub or any of Pubco's
Significant Subsidiaries, or any of their respective Assets; (iii) conflict
with, result in any breach of, constitute a default (or an event that with
notice or lapse of time or both would become a default) under any Agreement to
which McLeod, Pubco, Pubco Sub or any of Pubco's Significant Subsidiaries is a
party or by which McLeod, Pubco, Pubco Sub or any of Pubco's Significant
Subsidiaries, or any of their respective Assets, may be bound; or (iv) result in
or require the creation or imposition of, or result in the acceleration of, any
indebtedness or any Encumbrance of any nature upon, or with respect to, McLeod,
Pubco, Pubco Sub or any of Pubco's Significant Subsidiaries or any of the Assets
of McLeod, Pubco, Pubco Sub or any of Pubco's Significant Subsidiaries; except
for any such conflict or violation described in clause (ii), any such conflict,
breach or default described in clause (iii), or any such creation, imposition or
acceleration described in clause (iv) that would not have an Pubco Material
Adverse Effect and that would not prevent McLeod, Pubco or Pubco Sub from
consummating the Merger on a timely basis.
(b) Except as set forth in Section 4.04(b) of the Pubco Disclosure
Schedule, the execution, delivery and performance by McLeod, Pubco and Pubco Sub
of this Merger Agreement and all other Documents contemplated hereby, the
fulfillment of and compliance with the respective terms and provisions hereof
and thereof, and the consummation by McLeod, Pubco and Pubco Sub of the
transactions contemplated hereby and thereby, do not and will not: (i) require
any consent, approval, authorization or permit of, or filing with or
notification to, any Person not party to this Merger Agreement, except (A)
pursuant to the applicable requirements, if any, of the Securities Act, the
Exchange Act, Blue Sky Laws, the HSR Act, the Communications Act, the Federal
Aviation Act, and applicable state utility Laws and applicable municipal
franchise Laws and (B) the filing and recordation of the Articles of Merger as
required by Michigan and Iowa Law; or (ii) result in or give rise to any
penalty, forfeiture, Agreement termination, right of termination, amendment or
cancellation, or restriction on business operations of McLeod, Pubco, the
Surviving Corporation or Pubco Sub.
SECTION 4.05. No Prior Activities of Pubco Sub.
Pubco Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Merger Agreement and has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.
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SECTION 4.06. Brokers.
No broker or finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Merger Agreement based upon arrangements made by or on
behalf of McLeod, Pubco, Pubco Sub or any of its Affiliates.
SECTION 4.07. SEC Documents.
McLeod has filed all required reports, schedules, forms, statements
and other Documents with the SEC (as defined in Article X) since January 1, 1997
(including the McLeod Post-Signing SEC Documents (as defined in Section 6.10),
the "McLeod SEC Documents"). As of their respective dates, the McLeod SEC
--------------------
Documents complied or, in the case of the McLeod Post-Signing SEC Documents,
will comply as to form in all material respects with the applicable requirements
of the Securities Act or the Exchange Act, as the case may be, and none of the
McLeod SEC Documents contained or, in the case of the McLeod Post-Signing SEC
Documents, will contain, any untrue statement of a material fact or omitted or,
in the case of the McLeod Post-Signing SEC Documents, will omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of McLeod included in the
McLeod SEC Documents comply or, in the case of the McLeod Post-Signing SEC
Documents, will comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been or, in the case of the McLeod Post-Signing SEC
Documents, will have been prepared in accordance with GAAP (except, in the case
of unaudited statements, for the absence of footnotes and as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods subject
thereto (except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of McLeod and its consolidated subsidiaries as
of the dates thereof and the consolidated results of operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end adjustments and the absence of footnotes). Except as disclosed
in the McLeod SEC Documents, as required by GAAP or as required by any
Governmental Entity, McLeod has not, since December 31, 1997, made any change in
accounting practices or policies applied in the preparation of financial
statements.
SECTION 4.08. McLeod Common Stock.
The McLeod Common Stock to be issued and delivered to the Company
Stockholders pursuant to the Merger has been duly authorized and, when issued in
the Merger in accordance with this Merger Agreement, will be validly issued,
fully paid and nonassessable and will have been approved for listing by The
Nasdaq Stock Market's National Market System.
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SECTION 4.09. Capitalization.
The authorized capital stock of McLeod consists of (a) 250,000,000
shares of McLeod Common Stock, of which, as of January 5, 1999: (i)
63,545,925shares were issued and outstanding, all of which were duly authorized,
validly issued, fully paid and nonassessable; (ii) no shares were held in the
treasury of McLeod;(iii) 12,278,323 shares were reserved for issuance pursuant
to outstanding options to purchase McLeod Common Stock granted to employees and
certain other Persons; (iv) 245,536 shares were reserved for issuance pursuant
to a Stock Option Agreement dated August 21, 1998 between McLeod and QST
Enterprises, Inc.; (vi) 10,414 shares were reserved for issuance pursuant to a
Stock Option Agreement dated November 25, 1998 between McLeod, Inlet, Inc. and
certain shareholders of Inlet, Inc.; (vi) 917,398 shares were reserved for
issuance pursuant to the McLeodUSA Incorporated Employee Stock Purchase Plan;
and (vii) 961,920 shares were reserved pursuant to the McLeodUSA 401(k) Profit
Sharing Plan; (b) 22,000,000 shares of Class B common stock, par value $.01 per
share ("McLeod Class B Common Stock"), of which, as of January 5, 1999: (i) no
---------------------------
shares were issued and outstanding; (ii) no shares were held in the treasury of
McLeod; and (iii) 1,300,688shares were reserved for issuance pursuant to
outstanding options to purchase McLeod Class B Common Stock granted to a
significant stockholder of McLeod; and (c) 2,000,000 shares of serial preferred
stock, par value $.01 per share, of which: (i) no shares are issued and
outstanding; and (ii) no shares are held in the treasury of McLeod. Except for
the options set forth in clauses (a)(iii) through (a)(vi) and (b)(iii) above and
as set forth in Section 4.09(a) of the Pubco Disclosure Schedule, as of January
5, 1999, there were no outstanding securities convertible into or exchangeable
for capital stock or any other securities of McLeod, or any capital stock or
other securities of any of McLeod's or Pubco's Significant Subsidiaries and no
outstanding options, rights (preemptive or otherwise), or warrants to purchase
or to subscribe for any shares of such capital stock or other securities of
McLeod or any of McLeod's or Pubco's Significant Subsidiaries. Except as set
forth in Section 4.09(b) of the Pubco Disclosure Schedule and except for
Agreements relating to the options specified in clauses (a)(iii) through (a)(vi)
and (b)(iii) above, there are no outstanding Agreements to which McLeod, Pubco
or any of its Significant Subsidiaries is a party affecting or relating to the
voting, issuance, purchase, redemption, registration, repurchase or transfer of
capital stock or any other securities of McLeod, or any capital stock or other
securities of any of McLeod's or Pubco's Significant Subsidiaries, except as
contemplated hereunder. Each of the outstanding shares of McLeod Common Stock,
and of capital stock of, or other equity interests in, McLeod's or Pubco's
Significant Subsidiaries was issued in compliance with all applicable federal
and state Laws concerning the issuance of securities, and, except as set forth
in Section 4.09(d) of the Pubco Disclosure Schedule, such shares or other equity
interests owned by McLeod, Pubco or any of its Significant Subsidiaries are
owned free and clear of all Encumbrances. There are no obligations, contingent
or otherwise, of McLeod, Pubco or any of its Significant Subsidiaries to provide
funds to, make any investment (in the form of a loan, capital contribution or
otherwise) in, or provide any guarantee with respect to, any of McLeod's or
Pubco's Significant Subsidiaries or any other Person. Except as set forth in
Section 4.09(e) of the Pubco Disclosure Schedule, there are no Agreements
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pursuant to which any Person is or may be entitled to receive any of the
revenues or earnings, or any payment based thereon or calculated in accordance
therewith, of McLeod, Pubco or any of their Significant Subsidiaries. No vote
of the stockholders of McLeod or Pubco is required in connection with the
consummation of the Merger and the other transactions contemplated hereby.
SECTION 4.10. Reorganization.
To the knowledge of McLeod and Pubco, neither McLeod, Pubco, Pubco Sub
nor any of Pubco's Significant Subsidiaries has taken any action or failed to
take any action which action or failure would jeopardize the qualification of
the Merger as a reorganization within the meaning of Section 368(a) of the Code.
SECTION 4.11. Compliance.
Neither McLeod, Pubco nor Pubco Sub is aware of any fact or
circumstance related to them that could reasonably be expected to cause the
filing of any objection to any application for any Governmental consent required
hereunder, lead to any delay in processing such application, or require any
waiver of any Governmental rule, policy or other applicable Law.
SECTION 4.12. Disclosure.
All material facts regarding the business, operations, prospects,
condition (financial or otherwise), Assets or liabilities of McLeod, Pubco,
Pubco Sub and Pubco's Significant Subsidiaries that have been disclosed orally
or in writing (including, without limitation, in this Merger Agreement and the
Pubco Disclosure Schedule) or otherwise provided to the Company by Pubco have
been fully and truthfully disclosed to the Company. No representation or
warranty by McLeod, Pubco or Pubco Sub, and no Document furnished or to be
furnished to the Company by McLeod, Pubco or Pubco Sub pursuant to this Merger
Agreement or otherwise in connection herewith or with the transactions
contemplated hereby, 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 therein, in light of the circumstances under which they
were made, not misleading.
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ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.01. Conduct of Business of the Company.
The Company hereby covenants and agrees that, from the date of this
Merger Agreement until the Effective Time, the Company, unless otherwise
expressly contemplated by this Merger Agreement or consented to in writing by
Pubco, will, and will cause the Subsidiaries to, carry on their respective
businesses only in the Ordinary Course of Business, use their respective
reasonable best efforts to preserve intact their business organizations and
Assets, maintain their rights and franchises, retain the services of their
officers and key employees and maintain their relationships with customers,
suppliers, licensors, licensees and others having business dealings with them,
and use their respective reasonable best efforts to keep in full force and
effect liability insurance and bonds comparable in amount and scope of coverage
to that currently maintained. Without limiting the generality of the foregoing,
except as otherwise expressly contemplated by this Merger Agreement, from the
date of this Merger Agreement until the Effective Time the Company shall not,
and shall not permit any of the Subsidiaries to:
(a) (i) increase in any manner the compensation or fringe benefits of,
or pay any bonus to, any director, officer or employee, except for increases or
bonuses in the Ordinary Course of Business to employees who are not directors or
officers; (ii) grant any severance or termination pay (other than pursuant to
the normal severance practices or existing Agreements of the Company or any
Subsidiary in effect on the date of this Merger Agreement as described in
Schedule 5.01(a)(ii)) to, or enter into any severance Agreement with, any
director, officer or employee, or enter into any employment Agreement with any
director, officer or employee; (iii) establish, adopt, enter into or amend any
Plan or Other Arrangement, except as may be required to comply with applicable
Law; (iv) pay any benefit not provided for under any Plan or Other Arrangement;
(v) grant any awards under any bonus, incentive, performance or other
compensation plan or arrangement or Plan or Other Arrangement (including the
grant of stock options, stock appreciation rights, stock-based or stock-related
awards, performance units or restricted stock, or the removal of existing
restrictions in any Plan or Other Arrangement or Agreement or awards made
thereunder), except for grants in the Ordinary Course of Business or as required
under the Agreements set forth in Schedule 5.01(a)(v), or (vi) take any action
to fund or in any other way secure the payment of compensation or benefits under
any Agreement, except as required under the Agreements set forth in Schedule
5.01(a)(vi);
(b) declare, set aside or pay any dividend on, or make any other
distribution in respect of, outstanding shares of capital stock;
(c) (i) redeem, purchase or otherwise acquire any shares of capital
stock of the Company or any Subsidiary or any securities or obligations
convertible into or exchangeable for any shares of capital stock of the Company
or any Subsidiary, or any options, warrants or conversion or other rights to
acquire any shares of capital stock of the Company or any Subsidiary or any such
securities or obligations, or any other securities thereof; (ii) effect any
reorganization or recapitalization; or (iii) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock;
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(d) issue, deliver, award, grant or sell, or authorize the issuance,
delivery, award, grant or sale (including the grant of any limitations in voting
rights or other Encumbrances) of, any shares of any class of its capital stock
(including shares held in treasury), any securities convertible into or
exercisable or exchangeable for any such shares, or any rights, warrants or
options to acquire, any such shares, or amend or otherwise modify the terms of
any such rights, warrants or options the effect of which shall be to make such
terms more favorable to the holders thereof;
(e) except as contemplated by Agreements that have been identified in
Section 3.14(a) of the Company Disclosure Schedule, acquire or agree to acquire,
by merging or consolidating with, by purchasing an equity interest in or a
portion of the Assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any Assets of any other Person
(other than the purchase of assets from suppliers or vendors in the Ordinary
Course of Business);
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise
subject to any Encumbrance or dispose of, or agree to sell, lease, exchange,
mortgage, pledge, transfer or otherwise subject to any Encumbrance or dispose
of, any of its Assets, except; as identified in Schedule 5.01;
-------------
(g) adopt any amendments to its articles or certificate of
incorporation, bylaws or other comparable charter or organizational documents;
(h) make or rescind any express or deemed election relating to Taxes,
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes, or change
any of its methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of the federal income tax
returns for the taxable year ended December 31, 1997, except in either case as
may be required by Law, the IRS or GAAP;
(i) make or agree to make any new capital expenditure or expenditures
which are not included in the Company's 1999 capital budget, a copy of which was
furnished to Pubco, and which are, individually, in excess of $25,000 or, in the
aggregate, in excess of $50,000;
(j) (i) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or any
Subsidiary, guarantee any debt securities of another Person, enter into any
"keep well" or other Agreement to maintain any financial statement condition of
another Person or enter into any Agreement having the economic effect of any of
the foregoing, except for short-term borrowings
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incurred in the Ordinary Course of Business, or (ii) make any loans, advances or
capital contributions to, or investments in, any other Person other than intra-
group loans, advances, capital contributions or investments between or among the
Company and any of its wholly owned Subsidiaries;
(k) pay, discharge, settle or satisfy any claims, liabilities or
obligations (whether absolute or contingent, matured or unmatured, known or
unknown), other than the payment, discharge or satisfaction, in the Ordinary
Course of Business or in accordance with their terms, of liabilities reflected
or reserved against in, or contemplated by, the most recent Financial Statement
or incurred in the Ordinary Course of Business, or waive any material benefits
of, or agree to modify in any material respect, any confidentiality, standstill
or similar Agreements to which the Company or any Subsidiary is a party;
(l) except in the Ordinary Course of Business, waive, release or
assign any rights or claims, or modify, amend or terminate any Agreement to
which the Company or any Subsidiary is a party;
(m) make any change in any method of accounting or accounting practice
or policy other than those required by GAAP or a Governmental Entity;
(n) take any action or fail to take any action which could reasonably
be expected to have a Company Material Adverse Effect prior to or after the
Effective Time or an Pubco Material Adverse Effect after the Effective Time, or
that could reasonably be expected to adversely affect the ability of the Company
or any Subsidiary prior to the Effective Time, or Pubco or any of its
subsidiaries after the Effective Time, to obtain consents of third parties or
approvals of Governmental Entities required to consummate the transactions
contemplated in this Merger Agreement; or
(o) authorize, or commit or agree to do any of the foregoing.
SECTION 5.02. Other Actions.
The Company and Pubco shall not, and shall not permit any of their
respective Affiliates to, take any action that would, or that could reasonably
be expected to, result in (a) any of the representations and warranties of such
party set forth in this Merger Agreement becoming untrue, or (b) any of the
conditions to the Merger set forth in Article VII not being satisfied.
SECTION 5.03. Certain Tax Matters.
From the date hereof until the Effective Time, the Company and the
Subsidiaries (a) will prepare and timely file with the relevant Taxing authority
all Company Tax Returns ("Post-Signing Returns") required to be filed, which
--------------------
Post-Signing Returns shall
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be accurate in all material respects, (b) will timely pay all Taxes due and
payable with respect to such Post-Signing Returns, (c) will pay or otherwise
make adequate provision for all Taxes payable by the Company and the
Subsidiaries for which no Post-Signing Return is due prior to the Effective
Time, and (d) will promptly notify Pubco of any action, suit, proceeding, claim
or audit pending against or with respect to the Company or any Subsidiary in
respect of any Taxes.
SECTION 5.04. Access and Information.
For so long as this Merger Agreement is in effect, the Company shall,
and shall cause each Subsidiary to, (a) afford to Pubco and its officers,
employees, accountants, consultants, legal counsel and other representatives
reasonable access during normal business hours, subject to reasonable advance
notice, to all of their respective properties, Agreements, books, records and
personnel and (b) furnish promptly to Pubco (i) a copy of each Document filed
with, or received from any Governmental Entity and (ii) all other information
concerning their respective businesses, operations, prospects, conditions
(financial or otherwise), Assets, liabilities and personnel as Pubco may
reasonably request.
SECTION 5.05. No Solicitation.
(a) The Company shall, and shall cause its directors, officers,
employees, representatives, agents and Subsidiaries and their respective
directors, officers, employees, representatives and agents to, immediately cease
any discussions or negotiations with any Person that may be ongoing with respect
to a Competing Transaction (as defined in this Section 5.05(a)). The Company
shall not, and shall cause the Subsidiaries not to, initiate, solicit or
encourage (including by way of furnishing information or assistance), or take
any other action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Competing
Transaction, or enter into discussions or furnish any information or negotiate
with any Person or otherwise cooperate in any way in furtherance of such
inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize any of the directors, officers, employees,
agents or representatives of the Company or any Subsidiary to take any such
action, and the Company shall, and shall cause the Subsidiaries to, direct and
instruct and use its or their reasonable best efforts to cause the directors,
officers, employees, agents and representatives of the Company and the
Subsidiaries (including, without limitation, any investment banker, financial
advisor, attorney or accountant retained by the Company or any Subsidiary) not
to take any such action, and the Company shall promptly notify Pubco if any such
inquiries or proposals are received by the Company or any Subsidiary, or any of
its or their respective directors, officers, employees, agents, investment
bankers, financial advisors, attorneys, accountants or other representatives,
and the Company shall promptly inform Pubco as to the material terms of such
inquiry or proposal and, if in writing, promptly deliver or cause
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to be delivered to Pubco a copy of such inquiry or proposal, and the Company
shall keep Pubco informed, on a current basis, of the nature of any such
inquiries and the status and terms of any such proposals. For purposes of this
Merger Agreement, "Competing Transaction" shall mean any of the following
---------------------
involving the Company or the Subsidiaries (other than the transactions
contemplated by this Merger Agreement): (i) any merger, consolidation, share
exchange, business combination, or other similar transaction; (ii) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition of ten percent
(10%) or more of the Assets of the Company and the Subsidiaries, taken as a
whole, or issuance of ten percent (10%) or more of the outstanding voting
securities of the Company or any Subsidiary in a single transaction or series of
transactions; (iii) any tender offer or exchange offer for ten percent (10%) or
more of the outstanding shares of capital stock of the Company or any Subsidiary
or the filing of a registration statement under the Securities Act in connection
therewith; (iv) any solicitation of proxies in opposition to approval by the
Company Stockholders of the Merger; (v) any Person shall have acquired
beneficial ownership or the right to acquire beneficial ownership of, or any
"group" (as such term is defined under Section 13(d) of the Exchange Act) shall
-----
have been formed after the date of this Merger Agreement which beneficially owns
or has the right to acquire beneficial ownership of, ten percent (10%) or more
of the then outstanding shares of capital stock of the Company or any
Subsidiary; or (vi) any Agreement to, or public announcement by the Company or
any other Person of a proposal, plan or intention to, do any of the foregoing.
(b) Neither the Board of Directors of the Company nor any committee
thereof shall (i) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to Pubco or Pubco Sub, the approval or recommendation by such
Board of Directors or any such committee of this Merger Agreement or the Merger,
(ii) approve or recommend, or propose to approve or recommend, any Competing
Transaction or (iii) enter into any Agreement with respect to any Competing
Transaction.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Investment Agreements.
(a) As promptly as practicable after the date of this Merger
Agreement, the Company shall use its best efforts to obtain Investment
Agreements from each Company Stockholder who is to receive shares of McLeod
Common Stock in the Merger.
(b) The parties hereto acknowledge, agree, and confirm that the McLeod
Common Stock to be issued pursuant to Section 2.01,(i) will not be registered
under the Securities Act of 1933, as amended (as defined in Article X), or
registered or qualified
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under any state securities laws, (ii) must be held indefinitely unless a
subsequent disposition thereof is made pursuant to an effective registration
thereof under the Securities Act or is exempt from such registration and cannot
be offered for sale, sold or otherwise transferred unless the McLeod Common
Stock is subsequently so registered or qualified for exemption from registration
under the Securities Act, (iii) will bear a legend to that effect (and McLeod
will make a notation on its transfer of books to that effect), and (iv) will be
considered "registered securities" within the meaning of Rule 144 of the
Securities Act; Rule 144 may not be available to exempt from the registration
requirements of the Securities Act the sale of such "restricted securities;" if
Rule 144 is available, sale may be made in reliance upon Rule 144 only in
accordance with the terms and conditions of Rule 144; and if an exemption for
such sale is not available, registration of the McLeod Common Stock may be
required, but McLeod is under no obligation to register the McLeod Common Stock
or to facilitate compliance or to comply with any exemption, except as expressly
set out in Section 6.19 below.
SECTION 6.02. Meeting of Stockholders.
The Company shall promptly after the date of this Merger Agreement
take all action necessary in accordance with Michigan and Iowa Law and its
certificate of incorporation and bylaws to duly call, give notice of, convene
and hold the Stockholders' Meeting, and the Company shall consult with Pubco in
connection therewith. The Company shall use its reasonable best efforts to
solicit from the Company Stockholders proxies or consents to approve this Merger
Agreement and the transactions contemplated hereby and shall take all other
actions reasonably necessary or advisable to secure the vote or consent of the
Company Stockholders required by Michigan and Iowa Law to approve this Merger
Agreement and the transactions contemplated hereby.
SECTION 6.03. Appropriate Action; Consents; Filings.
(a) Upon the terms and subject to the conditions set forth in this
Merger Agreement, the Company, McLeod and Pubco shall use all reasonable efforts
to take, or cause to be taken, all appropriate action, and do, or cause to be
done, and to assist and cooperate with the other parties in doing all things
necessary, proper or advisable under applicable Law or otherwise to consummate
and make effective the transactions contemplated by this Merger Agreement as
promptly as practicable, including (i) executing and delivering any additional
instruments necessary, proper or advisable to consummate the transactions
contemplated by, and to carry out fully the purposes of, this Merger Agreement,
(ii) obtaining from any Governmental Entities any Licenses required to be
obtained or made by McLeod, Pubco or the Company or any of their subsidiaries in
connection with the authorization, execution and delivery of this Merger
Agreement and the consummation of the transactions contemplated herein,
including, without limitation, the Merger, and (iii) making all necessary
filings, and thereafter making any other required submissions, with respect to
this Merger Agreement and the Merger required under (A) the
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Securities Act and any other applicable federal or state securities Laws, (B)
the HSR Act and (C) any other applicable Law; provided that McLeod, Pubco and
--------
the Company shall cooperate with each other in connection with the making of all
such filings, including providing copies of all such Documents to the non-filing
party and its advisors prior to filing and discussing all reasonable additions,
deletions or changes suggested in connection therewith. The Company, McLeod and
Pubco shall furnish to each other all information required for any application
or other filing to be made pursuant to the rules and regulations of any
applicable Law in connection with the transactions contemplated by this Merger
Agreement.
(b) (i) The Company, McLeod and Pubco shall give (or shall cause
their respective subsidiaries to give) any notices to third parties, and use,
and cause their respective subsidiaries to use, all reasonable efforts to obtain
any third party consents, approvals or waivers (A) necessary, proper or
advisable to consummate the transactions contemplated in this Merger Agreement,
(B) disclosed or required to be disclosed in the Company Disclosure Schedule or
the Pubco Disclosure Schedule, as the case may be, or (C) required to prevent a
Company Material Adverse Effect from occurring prior to or after the Effective
Time or an Pubco Material Adverse Effect from occurring prior to or after the
Effective Time.
(ii) If any party shall fail to obtain any third party consent,
approval or waiver described in subsection (b)(i) above, such party shall use
all reasonable efforts, and shall take any such actions reasonably requested by
the other parties hereto, to minimize any adverse effect upon the Company and
Pubco, their respective subsidiaries, and their respective businesses resulting,
or which could reasonably be expected to result after the Effective Time, from
the failure to obtain such consent, approval or waiver.
(c) From the date of this Merger Agreement until the Effective Time,
the Company, McLeod and Pubco shall promptly notify each other in writing of any
pending or, to the knowledge of the Company, McLeod or Pubco (or their
respective subsidiaries), threatened action, proceeding or investigation by any
Governmental Entity or any other Person (i) challenging or seeking damages in
connection with the Merger or the conversion of the Company Common Stock into
McLeod Common Stock pursuant to the Merger or (ii) seeking to restrain or
prohibit the consummation of the Merger or otherwise limit the right of Pubco or
its subsidiaries to own or operate all or any portion of the businesses or
Assets of the Company or any Subsidiary. The Company and Pubco shall cooperate
with each other in defending any such action, proceeding or investigation,
including seeking to have any stay or temporary restraining order entered by any
court or other Governmental Entity vacated or reversed.
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SECTION 6.04. Update Disclosure; Breaches.
From and after the date of this Merger Agreement until the Effective
Time, each party hereto shall promptly notify the other parties hereto by
written update to its Disclosure Schedule of (i) any representation or warranty
made by it in connection with this Merger Agreement becoming untrue or
inaccurate, (ii) the occurrence, or non-occurrence, of any event the occurrence,
or non-occurrence, of which would be likely to cause any condition to the
obligations of any party to effect the Merger and the other transactions
contemplated by this Merger Agreement not to be satisfied, or (iii) the failure
of the Company, McLeod, Pubco or Pubco Sub, as the case may be, to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it pursuant to this Merger Agreement which would be likely to result in any
condition to the obligations of any party to effect the Merger and the other
transactions contemplated by this Merger Agreement not to be satisfied. The
Company shall deliver to Pubco updated versions of Sections 3.10 and 3.14(a) of
the Company Disclosure Schedule as of the Closing Date, solely to reflect events
occurring between the date of this Merger Agreement and the Closing Date, or
shall have notified Pubco that no changes to such Sections of the Company
Disclosure Schedule are required.
SECTION 6.05. Public Announcements.
Pubco, Pubco Sub and the Company shall consult with each other before
issuing or making, and shall give each other the opportunity to review and
comment upon, any press release or other public statement with respect to the
Merger and the other transactions contemplated in this Merger Agreement, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by Law or any listing agreement
with the NASD (as defined in Article X).
SECTION 6.06. Employee Matters.
The Company and Pubco shall use their respective reasonable best
efforts to cause the officers and employees of the Company and the Subsidiaries
listed in Schedule 6.06 (the "Company Key Employees") to enter into employment,
------------- ---------------------
confidentiality and non-competition agreements, substantially in the form of
Pubco's standard Employment, Confidentiality and Non-Competition Agreement, a
copy of which is attached hereto as Exhibit B (the "Employment Agreements"), at
--------- ---------------------
or prior to the Effective Time.
SECTION 6.07. Unaudited Financial Information.
The Company will cause to be prepared and will furnish to Pubco as
promptly as possible an unaudited consolidated balance sheet of the Company and
the Subsidiaries as of the last day of each month ending after August 31, 1998
and the related unaudited consolidated statements of income and cash flows of
the Company and the Subsidiaries for the one-month periods then ended. The
Company will ensure that such Unaudited Statements are complete and correct in
all material respects, have been
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prepared in accordance with the books and records of the Company and the
Subsidiaries, and present fairly the consolidated financial position of the
Company and the Subsidiaries and their consolidated results of operations and
cash flows as of and for the respective dates and time periods applied on a
basis consistent with prior accounting periods, except as noted thereon and
subject to normal and recurring year-end adjustments.
SECTION 6.08. Environmental Matters.
The Company will promptly furnish to Pubco written notice of any
Hazardous Discharge or of any actions or notices described in Section 3.30(b).
SECTION 6.09. Post-Signing SEC Documents.
McLeod and Pubco will file with the SEC all reports, schedules, forms,
statements and other Documents required to be filed by it after the date of this
Merger Agreement but before the Effective Time (the "McLeod Post-Signing SEC
-----------------------
Documents").
- ---------
SECTION 6.10. Indemnification by Principal Company Stockholders.
(a) After the Effective Time, the Principal Company Stockholders,
individually and as Trustees, shall, severally and not jointly, indemnify and
hold harmless McLeod, Pubco, the Surviving Corporation and their respective
officers and directors, and each person, if any, who controls or may control
McLeod, Pubco or the Surviving Corporation within the meaning of the Securities
Act (all such persons hereinafter are referred to individually as an
"Indemnified Person" and collectively as "Indemnified Persons," but in no event
- ------------------- -------------------
shall any stockholder of the Company be such an Indemnified Person), from and
against any and all losses, costs, damages, liabilities and expenses, including
reasonable attorneys' fees and expenses, ("Damages") actually suffered and
-------
arising out of the breach of the representations, warranties, covenants and
agreements given or made by the Company or the Principal Company Stockholders in
this Merger Agreement, in the Articles of Merger or in the Exhibits or Schedules
hereto or in any certificate or document delivered by or on behalf of the
Company or the Principal Company Stockholders pursuant hereto. The Principal
Company Stockholders shall have no liability under this Section 6.10 to the
extent claims for Damages hereunder do not exceed an aggregate of $250,000 (the
"Bucket") (other than for Damages incurred in connection with any income tax
liabilities of the Company or the Principal Company Stockholders, in which case
the Basket shall not apply); provided, further, that if such Damages exceed an
-------- -------
aggregate of $250,000 then the indemnification provided for hereunder shall
apply only to Damages exceeding the $250,000 threshold provided for above. It
shall be a condition of the right of each Indemnified Person to indemnification
pursuant to this Section 6.10 that such Indemnified Person shall assert a claim
for such indemnification on or prior to the date that the particular
representation, warranty, covenant or agreement for the breach of which the
indemnification is being sought, expires under the terms of this Merger
Agreement.
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(b) Any payment to be made to an Indemnified Person by a Principal
Company Stockholder under this Section 6.10 shall be made in cash.
(c) The amount of any Damages under this Section 6.10 shall be
computed net of (i) any tax benefit realized therefrom to an Indemnified Person,
and (ii) any insurance proceeds received with respect thereto that reduces the
Damages that would otherwise be sustained. Additionally, the Principal Company
Stockholders shall be entitled to a credit against any Damages for which they
are liable for indemnification under this Section 6.10 in an amount equal to the
sum of the amount, if any, by which the actual amount of any liability shown on
the balance sheet of the Company as of the Closing Date is less than the amount
of such liability or reserve therefor as recorded on such balance sheet.
SECTION 6.11. Procedures; Conditions of Indemnification.
With respect to any indemnification provided pursuant to this Merger
Agreement, the Indemnified Person agrees to give prompt written notice to the
Principal Company Stockholders of any claim or other assertion of liability by
third parties (hereinafter called collectively "Claims"), it being understood
------
that the failure to give such notice shall not affect the Indemnified Person's
right to indemnification and the indemnifying party's obligation to indemnify as
set forth in this Agreement, unless the Principal Company Stockholders' rights
with respect to such Claim are thereby demonstrably and materially prejudiced.
The obligations and liabilities of the parties hereto with respect to
their respective indemnities pursuant to this Merger Agreement resulting from
any Claim shall be subject to the following terms and conditions:
(a) The Principal Company Stockholders shall have the right to
undertake, by counsel or other representatives of their own choosing, the
defense of such Claim.
(b) If the Principal Company Stockholders elect not to undertake such
defense, or within a reasonable time after notice of any such Claim from the
Indemnified Person shall fail to defend, the Indemnified Person (upon further
written notice to the Principal Company Stockholders) shall have the right to
undertake the defense, compromise or settlement of such Claim, by counsel or
other representatives of its own choosing, on behalf of and for the account and
risk of the Principal Company Stockholders (subject to the right of the
Principal Company Stockholders to assume defense of such Claim at any time prior
to settlement, compromise or final determination thereof).
(c) Anything in this Section 6.11 to the contrary notwithstanding, (i)
if the Indemnified Person notifies the Principal Company Stockholder that the
Indemnified Person has concluded that a Claim may materially and adversely
affect the Indemnified Person other than as a result of money damages or other
money payments, the
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Indemnified Person shall have the right, at its own cost and expense, to
participate in the defense, compromise or settlement of the Claim, (ii) the
Principal Company Stockholders shall not, without the Indemnified Person's
written consent, settle or compromise any Claim or consent to entry of any
judgment that does not include as an unconditional term thereof the giving by
the claimant or the plaintiff to the Indemnified Person of a release from all
liability in respect of such Claim, and (iii) in the event that the Principal
Company Stockholders undertake defense of any Claim, the Indemnified Person, by
counsel or other representative of its own choosing and at its sole cost and
expense, shall have the right to consult with the Principal Company Stockholders
and their counsel or other representatives concerning such Claim and the
Principal Company Stockholders and the Indemnified Person and their respective
counsel or other representatives shall cooperate with respect to such Claim.
(d) Notwithstanding any other provision of this Section 6.11, the
Indemnified Person may at any time assume full control over the responsibility
for any Claim, by written notice to the Principal Company Stockholders releasing
the Principal Company Stockholders from any further indemnity obligation
pursuant to this Merger Agreement with respect to said Claim.
(e) Any decision with respect to any matter under this Section 6.11
(including, without limitation, the defense, prosecution, settlement or
resolution of Claims) shall be binding on all Principal Company Stockholders if
consented to by those Principal Company Stockholders who, immediately prior to
the Effective Time, hold a majority of the Company Common Stock held by all
Principal Company Stockholders.
SECTION 6.12. Tax Treatment.
Each party hereto shall use its reasonable best efforts to cause the
Merger to qualify, and shall not take any actions which could prevent the Merger
from qualifying, as a reorganization qualifying under the provisions of Section
368(a) of the Code.
SECTION 6.13. Tax Returns.
To the extent permitted under applicable Tax Laws, the Merger shall be
reported as a "reorganization" within the meaning of Section 368(a) of the Code
in all federal, state and local Tax Returns filed after the Effective Time.
Notwithstanding any other provision of this Merger Agreement, the obligations
set forth in this Section 6.13 shall survive the Effective Time without
limitation as to time or in any other respect.
SECTION 6.14. Reorganization.
During the period from the date of this Merger Agreement through the
Effective Time, unless Pubco and the Company shall otherwise agree in writing,
Pubco
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and the Company shall not, and shall cause their respective subsidiaries not to
knowingly take or fail to take any action which action or failure would
jeopardize the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code.
SECTION 6.15. Directors' and Officers' Insurance; Indemnification.
Pubco agrees that for the entire period from the Effective Time until
at least six (6) years after the Effective Time, (a) Pubco will cause the
Surviving Corporation to maintain the Company's current directors' and officers'
insurance and indemnification policy and related arrangements, if any, or an
equivalent policy and related arrangements, subject in either case to terms and
conditions no less advantageous to the present and former directors and officers
of the Company than those contained in the policy and arrangements in effect on
the date hereof, for all present and former directors and officers of the
Company, covering claims made and insurable events occurring prior to or within
six (6) years after the Effective Time (provided that the Surviving Corporation
will not be required to maintain such policy except to the extent that the
aggregate annual cost of maintaining such policy is not in excess of two hundred
percent (200%) of the current annual cost, in which case the Surviving
Corporation shall maintain such policies up to an annual cost of two hundred
percent (200%) of the current annual cost); and (b) Pubco will cause the
Surviving Corporation to maintain indemnification provisions, including, without
limitation, provisions for expense advances, for present and former officers and
directors in the Surviving Corporation's certificate of incorporation and bylaws
to the fullest extent permitted by Iowa Law. In the event of any threatened or
actual claim, action, suit, proceeding or investigation, whether civil, criminal
or administrative, including, without limitation, any such claim, action, suit
proceeding or investigation in which any of the present or former officers or
directors (the "Managers") of the Company is, or is threatened to be, made a
--------
party by reason of the fact that such Manager is or was a director, officer,
employee or agent of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other entity, whether before or after the
Effective Time, the parties hereto agree to cooperate and use their reasonable
best efforts to defend against and respond thereto. It is understood and agreed
that the Company shall indemnify and hold harmless, and after the Effective Time
each of the Surviving Corporation and Pubco shall indemnify and hold harmless,
as and to the full extent that the Surviving Corporation would be permitted by
applicable Law (and as to matters arising from or relating to this Merger
Agreement and the possible change in control of the Company, to the full extent
that Pubco would be permitted under applicable Law), each such Manager against
any losses, claims, damages, liabilities, costs, expenses (including reasonable
attorneys' fees), judgments, fines and amounts paid in settlement in connection
with any such claim, action, suit, proceeding or investigation; and in the event
of any such claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) the Managers may retain counsel
satisfactory to them, and the Company, or the Surviving Corporation and Pubco
after the Effective Time, shall pay all reasonable fees and expenses
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of such counsel for the Managers promptly as statements therefor are received
whether before or after final determination of the matter, and (ii) the Company,
or the Surviving Corporation and Pubco after the Effective Time, will use their
respective reasonable best efforts to assist in the vigorous defense of any such
matter; provided that neither the Company nor the Surviving Corporation or Pubco
--------
shall be liable for any settlement effected without its prior written consent
(which consent shall not be unreasonably withheld); and provided further that
-------- -------
the Company's, the Surviving Corporation's and Pubco's obligations hereunder
shall only be reduced or relieved when and if a court of competent jurisdiction
shall ultimately determine, and such determination shall have become final and
non-appealable, that indemnification of such Manager in the manner contemplated
is prohibited by applicable Law.
SECTION 6.16. Obligations of Pubco Sub.
Pubco shall take all action necessary to cause Pubco Sub to perform
its obligations under this Merger Agreement and to consummate the Merger on the
terms and conditions set forth in this Merger Agreement.
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SECTION 6.17. Payment of Certain Debt.
The Company shall pay in full all mortgages, indentures, notes and
other agreements for or relating to borrowed money to which the Company or any
Subsidiary is a party as listed in Section 3.12 of the Company Disclosure
Schedule, other than the debt obligation to Old Kent Bank, or make such other
arrangements or adjustments reasonably acceptable to Pubco.
SECTION 6.18. Lease Modification.
The Company shall cause the real estate lease for the Company's
headquarters in Wyoming, Michigan, described in Section 3.13 of the Company
Disclosure Schedule, to be modified, as of the Effective Date, to allow the
Surviving Corporation to terminate the Lease at any time upon six months notice
to the Landlord under such Leases.
SECTION 6.19. Agreement to Register Stock.
(a) Subject to Section 6.19(b) below, within ninety (90) days
following the Closing, McLeod shall prepare and file a registration statement on
Form S-3 (the "Resale Registration Statement") under the Securities Act of 1933
(the "Securities Act") covering the resale of a maximum of 25% of the McLeod
Common Stock to be issued in the Merger (and any shares of the capital stock of
McLeod that may be issued with respect to the McLeod Common Stock issued in the
Merger as a result of a reclassification, recapitalization, dividend, stock
split or comparable event). McLeod shall thereafter use its reasonable best
efforts to have such Resale Registration Statement declared effective by the
Securities and Exchange Commission ("SEC") as soon after the filing as
practicable and to keep that Resale Registration Statement effective and
current, including through the filing of any amendments and supplements that may
be required under provisions of applicable law, for one year after its original
effectiveness. McLeod may include other shares of McLeod Common Stock on the
Resale Registration Statement. At McLeod's option, McLeod may satisfy its
obligations under this Section 6.19(a) on another form of registration statement
under the Securities Act. McLeod agrees to notify each holder of McLeod Common
Stock registered on the Resale Registration Statement (i)when the Resale
Registration Statement (or any post-effective amendment thereto) has become
effective, (ii) if the SEC has issued any stop order with respect to the Resale
Registration Statement or initiated any proceedings for that purpose, and (iii)
if McLeod has received any written notification with respect to the suspension
of qualification of any McLeod Common Stock for sale in any jurisdiction or on
any securities exchange or market or with respect to the initiation or threat of
any proceeding for such purpose. McLeod further agrees to furnish holders of
McLeod Common Stock registered on the Resale Registration Statement such numbers
of copies of a prospectus, in conformity with the requirements of applicable
law, and such other documents as each such holder may
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reasonably request in order to facilitate the disposition of the McLeod Common
Stock owned by such holder.
(b) Intentionally omitted.
(c) McLeod will give notice to holders of McLeod Common Stock
registered on the Resale Registration Statement, at any time when a prospectus
relating thereto is required to be delivered under applicable law, of the
happening of any event as a result of which the prospectus included in such
Resale Registration Statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing. Any such holder shall cease using such
prospectus immediately upon receipt of notice from McLeod to that effect. If so
requested by McLeod, each holder shall return promptly to McLeod any copies of
any prospectus in its possession that contains an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing. At the request of such holder, McLeod shall
prepare and furnish to each holder a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing.
(d) (i) McLeod shall bear all costs incurred in preparing and
filling the Resale Registration Statement including, without limitation, all
applicable legal, accounting, printing, blue sky and SEC filing fees, provided,
however, that McLeod shall not be responsible for any underwriting commissions
or discounts, brokerage fees or legal fees or disbursements incurred by any
person or entity (other than McLeod) that sells any shares of McLeod Common
Stock under the Resale Registration Statement. McLeod shall also bear all costs
of keeping the Resale Registration Statement current during the applicable
period described in Section 6.19(a).
(ii) McLeod will indemnify and hold harmless each holder of
McLeod Common Stock registered on the Resale Registration Statement against any
losses, claims, damages or liabilities to which such holder may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Resale Registration
Statement, any final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
McLeod will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue
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statement or omission or alleged omission so made in conformity with information
furnished by such holder in writing specifically for use in the Resale
Registration Statement or prospectus.
(iii) Each holder of McLeod Common Stock registered on the Resale
Registration Statement shall furnish to McLeod in writing such information with
respect to such holder as McLeod may reasonably request or as may be required by
law for use in connection with the Resale Registration Statement and the final
prospectus contained therein, and each such holder will indemnify and hold
harmless McLeod against any losses, claims, damages or liabilities to which
McLeod may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Resale Registration Statement, any final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading to the same
extent as the foregoing indemnity from McLeod to the holders of McLeod Common
Stock registered on the Resale Registration Statement, but only with respect to
(i) any such information with respect to such holder furnished in writing to
McLeod expressly for use therein or (ii) a breach of any obligations of such
holder under this Section 6.19; provided, however, that the total amount to be
indemnified by such holder under this Section 6.19(d)(iii) shall be limited to
the net proceeds received by such holder in the offering to which the Resale
Registration Statement or prospectus relates.
(e) The rights described in this Section 6.19 shall not be
transferable and shall not be afforded to any person or entity to whom holders
of McLeod Common Stock received in the Merger transfer such stock.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.01. Conditions to Obligations of Each Party Under This Merger
Agreement.
The respective obligations of each party to effect the Merger and the
other transactions contemplated herein shall be subject to the satisfaction at
or prior to the Effective Time of the following conditions, any or all of which
may be waived by agreement of Pubco and the Company, in whole or in part, to the
extent permitted by applicable Law:
(a) Stockholder Approval. This Merger Agreement and the Merger shall
--------------------
have been approved and adopted by the requisite vote of the Company
Stockholders.
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(b) No Order. No Governmental Entity or federal or state court of
--------
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, judgment,
injunction or other order (whether temporary, preliminary or permanent), in any
case which is in effect and which prevents or prohibits consummation of the
Merger; provided, however, that each of the parties shall use its reasonable
-------- -------
best efforts to cause any such decree, judgment, injunction or other order to be
vacated or lifted.
(c) HSR Act. The applicable waiting period, together with any
-------
extensions thereof, under the HSR Act shall have expired or been terminated.
(d) Other Approvals. All consents, waivers, approvals and
---------------
authorizations required to be obtained, and all filings or notices required to
be made, by McLeod, Pubco or the Company prior to consummation of the
transactions contemplated in this Merger Agreement (other than the filing of the
Articles of Merger in accordance with Michigan and Iowa Law) shall have been
obtained from and made with all required Governmental Entities, except for such
consents, waivers, approvals or authorizations which the failure to obtain, or
such filings or notices which the failure to make, would not have a Company
Material Adverse Effect or an Pubco Material Adverse Effect or be reasonably
likely to subject the Company, any Subsidiary, McLeod, Pubco, Pubco Sub or any
of their respective directors or officers to criminal liability or substantial
penalties.
SECTION 7.02. Additional Conditions to Obligations of McLeod, Pubco and Pubco
Sub.
The obligations of McLeod, Pubco and Pubco Sub to effect the Merger
and the other transactions contemplated herein are also subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived by Pubco, in whole or in part, to the extent
permitted by applicable Law:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company contained in this Merger Agreement shall be true and
correct as of the date of this Merger Agreement and shall be true and correct in
all material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall be
true and correct in all respects giving effect to such standard) as of the
Effective Time as though made as of the Effective Time, except that those
representations and warranties which address matters only as of a particular
date shall remain true and correct in all material respects (except that where
any statement in a representation or warranty expressly includes a standard of
materiality, such statement shall be true and correct in all respects giving
effect to such standard) as of such date, and except (A) for changes permitted
or contemplated by this Merger Agreement, or (B) in a representation and
warranty that does not expressly include a standard of materiality, any untrue
or incorrect statements therein that, considered in the aggregate, do not
indicate a Company Material Adverse Effect. Pubco shall have received a
certificate of the chief executive officer or chief financial officer of the
Company to that effect.
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(b) Updated Company Disclosure Schedule. The revised versions of
-----------------------------------
Sections 3.10 and 3.14(a) of the Company Disclosure Schedule delivered to Pubco
pursuant to Section 6.04 shall not disclose any Company Material Adverse Effect
as compared to such Sections of the Company Disclosure Schedule as of the date
of this Merger Agreement.
(c) Agreements and Covenants. The Company shall have performed or
------------------------
complied in all material respects with all agreements and covenants required by
this Merger Agreement to be performed or complied with by it on or prior to the
Effective Time. Pubco shall have received a certificate of the chief executive
officer or chief financial officer of the Company to that effect.
(d) Consents Under Agreements. The Company or the appropriate
-------------------------
Subsidiary shall have obtained the consent or approval of each Person whose
consent or approval shall be required in connection with the Merger under all
Agreements to which the Company or any Subsidiary is a party, except where the
failure to obtain any such consents or approvals, considered in the aggregate,
would not have a Company Material Adverse Effect or an Pubco Material Adverse
Effect.
(e) Opinion of Counsel. Pubco shall have received from Miller,
------------------
Johnson, Snell & Cumminskey, P.L.C., counsel to the Company, an opinion dated
the Closing Date, in form usual and customary for similar transactions and
reasonably acceptable to Pubco and the Company.
(f) No Challenge. There shall not be pending any action, proceeding
------------
or investigation by any Governmental Entity (i) challenging or seeking material
damages in connection with the Merger or the conversion of Company Common Stock
into McLeod Common Stock pursuant to the Merger, or seeking to place limitations
on the ownership of shares of Company Common Stock (or shares of common stock of
the Surviving Corporation) by Pubco or Pubco Sub, (ii) seeking to restrain or
prohibit the consummation of the Merger or otherwise limit the right of the
Company, any Subsidiary, Pubco or any of its subsidiaries to own or operate all
or any portion of the business or Assets of the Company and the Subsidiaries, or
(iii) which otherwise is likely to have a Company Material Adverse Effect or an
Pubco Material Adverse Effect.
(g) Accountant Letters. McLeod and Pubco shall have received from
------------------
Arthur Anderson, its accountants, an opinion, satisfactory in form and substance
to McLeod and Pubco, to the effect that the Merger may be treated as a "pooling
of interest" for accounting purposes.
(h) Employment Agreements. Pubco shall have received executed copies
---------------------
of Employment Agreements from the Company Key Employees.
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(i) Company Material Adverse Effect. Since August 31, 1998, there
-------------------------------
shall not have occurred a Company Material Adverse Effect (or any development
that, insofar as reasonably can be foreseen, is reasonably likely to result in
any Company Material Adverse Effect) not disclosed in the Company Disclosure
Schedule.
(j) Due Diligence Investigation. Pubco shall have completed its due
---------------------------
diligence investigation of the Company and the Subsidiaries and shall have
determined (in Pubco's reasonable discretion) that no development has occurred
or information been discovered that has, or is reasonably likely to have, or
indicates a Company Material Adverse Effect.
(k) Tax Opinion. McLeod and Pubco shall have received the opinion of
-----------
Hogan & Hartson L.L.P., counsel to McLeod and Pubco, dated the Closing Date, to
the effect that the Merger and any other transactions contemplated herein, will
not result in taxation to McLeod, Pubco or Pubco Sub under the Code. In
rendering such opinion, Hogan & Hartson L.L.P. shall require delivery of and
rely upon the representation letters delivered by McLeod, Pubco, Pubco Sub and
the Company substantially in the forms of Exhibit C and Exhibit D hereto.
---------- ---------
(l) Environmental Matters. Any Environmental Reports shall indicate
---------------------
that the Real Property does not contain any Hazardous Materials and is not
subject to any risk of contamination from any off-site Hazardous Materials,
except to the extent that the presence of any such Hazardous Materials or the
risk of such contamination would not have a Company Material Adverse Effect or
an Pubco Material Adverse Effect.
(m) Board Approval. The principal terms of this Agreement shall have
---------------
been approved and adopted by McLeod's and Pubco's Boards of Directors in
accordance with applicable law and their respective Articles of Incorporation
and Bylaws.
(n) Investment Agreements. McLeod and Pubco shall have received from
----------------------
each Company Stockholder that is to receive shares of McLeod Common Stock in the
Merger a duly executed and delivered Investment Agreement. The number of
Company Stockholders that are to receive shares of McLeod Common Stock in the
Merger and that are not "accredited investors" within the meaning of 501(a)
under the Securities Act shall not exceed thirty-five (35), and each Company
Stockholder that is not an accredited investor shall have such knowledge and
experience in financial and business matters, either alone or with an
appropriate purchaser representative that has been appointed by such Company
Stockholder, that it is capable of evaluating the merits and risks of the Merger
and its investment in the McLeod Common Stock.
SECTION 7.03. Additional Conditions to Obligations of the Company.
The obligations of the Company to effect the Merger and the other
transactions contemplated herein are also subject to the satisfaction at or
prior to the
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Effective Time of the following conditions, any or all of which may be waived by
the Company, in whole or in part, to the extent permitted by applicable Law:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of McLeod, Pubco and Pubco Sub contained in this Merger Agreement
shall be true and correct as of the date of this Merger Agreement and shall be
true and correct in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality, such
statement shall be true and correct in all respects giving effect to such
standard) as of the Effective Time as though made as of the Effective Time,
except that those representations and warranties which address matters only as
of a particular date shall remain true and correct in all material respects
(except that where any statement in a representation or warranty expressly
includes a standard of materiality, such statement shall be true and correct in
all respects giving effect to such standard) as of such date, and except (A) for
changes permitted or contemplated by this Merger Agreement or (B) in a
representation and warranty that does not expressly include a standard of
materiality, any untrue or incorrect statements therein that, considered in the
aggregate, do not indicate an Pubco Material Adverse Effect. The Company shall
have received a certificate of the chief executive officer or chief financial
officer of Pubco to that effect.
(b) Agreements and Covenants. McLeod, Pubco and Pubco Sub shall have
------------------------
performed or complied in all material respects with all agreements and covenants
required by this Merger Agreement to be performed or complied with by them on or
prior to the Effective Time. The Company shall have received a certificate of
the chief executive officer or chief financial officer of McLeod, Pubco and
Pubco Sub to that effect.
(c) Opinion of Counsel. The Company shall have received from Bradley
------------------
& Riley, P.C. an opinion dated the Closing Date, in form usual and customary for
similar transactions and reasonably acceptable to the Company and Pubco.
(d) No Challenge. There shall not be pending any action, proceeding
------------
or investigation by any Governmental Entity (i) challenging or seeking material
damages in connection with the Merger or the conversion of Company Common Stock
into McLeod Common Stock pursuant to the Merger, or (ii) seeking to restrain or
prohibit the consummation of the Merger.
(e) Tax Opinion. The Company shall have received the opinion of
-----------
Arthur Anderson, its accountants, dated the Closing Date, to the effect that the
Merger, and any other transactions contemplated herein, will not result in
taxation to the Company or the Company Stockholders under the Code. In
rendering such opinion, Arthur Anderson shall require delivery of and rely upon
the representation letters delivered by McLeod, Pubco, Pubco Sub and the Company
substantially in the forms of Exhibit C and Exhibit D hereto.
--------- ---------
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination.
This Merger Agreement may be terminated at any time (except where
otherwise indicated) prior to the Effective Time, whether before or after
approval of this Merger Agreement and the Merger by the Company Stockholders:
(a) by mutual written consent of Pubco and the Company;
(b) (i) by Pubco, if there has been a breach by the Company of any
of its representations, warranties, covenants or agreements contained in this
Merger Agreement, or any such representation and warranty shall have become
untrue, in any such case such that Section 7.02(a), Section 7.02(b) or Section
7.02(c) will not be satisfied and such breach or condition has not been cured
within ten (10) business days following receipt by the Company of written notice
of such breach;
(ii) by the Company, if there has been a breach by McLeod, Pubco
or Pubco Sub of any of its representations, warranties, covenants or agreements
contained in this Merger Agreement, or any such representation and warranty
shall have become untrue, in any such case such that Section 7.03(a) or Section
7.03(b) will not be satisfied and such breach or condition has not been cured
within ten (10) business days following receipt by Pubco of written notice of
such breach ;
(c) by Pubco, upon Pubco's determination, based on its due diligence
investigation and review of the Company and the Subsidiaries, that (i) there is,
or is reasonably likely to be, any material diminution in the benefits expected
to be derived by Pubco as a result of the transactions contemplated by this
Merger Agreement or (ii) any development has occurred or information been
discovered that has, or is reasonably likely to have, or that indicates a
Company Material Adverse Effect;
(d) by either Pubco or the Company if any decree, permanent
injunction, judgment, order or other action by any court of competent
jurisdiction or any Governmental Entity preventing or prohibiting consummation
of the Merger shall have become final and non-appealable;
(e) by either Pubco or the Company if the Agreement shall fail to
receive the requisite vote for approval and adoption by the Company Stockholders
at the Stockholders' Meeting;
(f) by either Pubco or the Company if the Merger shall not have been
consummated by February 15, 1999;; provided however, that the right to terminate
-------- -------
this Merger Agreement under this Section 8.01(f) shall not be available to (i)
Pubco, where Pubco's willful failure to fulfill any obligation under this Merger
Agreement has been the
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cause of, or resulted in, the failure of the Effective Time to occur on or
before such date, or (ii) the Company, where the Company's willful failure to
fulfill any obligation under this Merger Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date;
and
(g) By the Company if the average of the closing bid and ask price for
McLeod Common Stock quoted on the National Association of Securities Dealers'
Automated Quotation System on the Closing Date, as reported in the Wall Street
-----------
Journal, is $20.00 or less per share.
- -------
SECTION 8.02. Effect of Termination.
In the event of termination of this Merger Agreement by either Pubco
or the Company as provided in Section 8.01, this Merger Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of McLeod, Pubco, Pubco Sub or the Company or any of their respective directors
or officers except (i) as set forth in Sections 8.03 and 9.01 hereof, (ii)
nothing herein shall relieve any party from liability for any breach hereof,
(iii) each party shall be entitled to any remedies at law or in equity for such
breach and (iv) Sections 8.02 and 8.03 and Article IX shall remain in full force
and effect and survive any termination of this Merger Agreement.
SECTION 8.03. Expenses.
All costs and expenses incurred in connection with this Merger
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense. Pubco shall pay the applicable HSR filing fee.
SECTION 8.04. Amendment.
This Merger Agreement may be amended by the parties hereto at any time
prior to the Effective Time; provided, however, that, after approval of the
-------- -------
Merger by the Company Stockholders, no amendment may be made which would reduce
the amount or change the type of consideration into which each share of Company
Common Stock shall be converted pursuant to this Merger Agreement upon
consummation of the Merger. This Merger Agreement may not be amended except by
an instrument in writing signed by the parties hereto.
SECTION 8.05. Extension; Waiver.
At any time prior to the Effective Time, the parties hereto may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any Document delivered pursuant hereto and (c)
subject to the proviso of Section 8.04, waive compliance with any of the
agreements or conditions contained
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herein. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby. The
failure of any party to assert any of its rights under this Merger Agreement or
otherwise shall not constitute a waiver of such rights.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Survival of Representations and Warranties.
The representations and warranties of the Company contained in this
Merger Agreement shall survive the Effective Time for a period of eighteen (18)
months, except for the representations and warranties contained in Sections
3.05, 3.16, 3.17 and 3.30, which shall survive until the expiration of the
statute of limitations. The representations and warranties of McLeod and Pubco
contained in the Merger Agreement shall survive the Effective Time for a period
of eighteen (18) months. Notwithstanding anything herein to the contrary, any
representation, warranty, covenant or agreement that is the subject of a Claim
asserted in writing prior to the expiration of the applicable period set out
above, shall survive with respect to such Claim until the final resolution
thereof.
SECTION 9.02. Notices.
All notices and other communications given or made pursuant hereto
shall be in writing and shall be deemed to have been duly given or made as of
the date delivered, mailed or transmitted if delivered personally, mailed by
registered or certified mail (postage prepaid, return receipt requested) or sent
by overnight courier (providing proof of delivery) to the parties at the
following addresses or sent by electronic transmission to the following
telecopier numbers (or at such other address or telecopy number for a party as
shall be specified by like notice):
(a) If to McLeod, Pubco or Pubco Sub:
McLeodUSA Incorporated
McLeodUSA Technology Park
6400 C Street SW
PO Box 3177
Cedar Rapids, Iowa 52406-3177
Telecopier No.: (319) 298-7901
Attention: Randall Rings
Vice President, General Counsel and Secretary
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With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, DC 20004
Telecopier No.: (202) 637-5910
Attention: Joseph G. Connolly, Jr.
(b) If to the Company:
Talking Directories, Inc.
5311 Clyde Park Avenue
Wyoming, MI 49509-9529
Telecopier No.:
Attention: John P. Morgan, President
With a copy (which shall not constitute notice) to:
Miller, Johnson, Snell & Cumminskey
250 Monroe Avenue NW, Suite 800
PO Box 306
Grand Rapids, MI 49501-0306
Telecopier No.: (616) 831-1701
Attention: Jeffrey B. Lawson
SECTION 9.03. Headings.
The headings contained in this Merger Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Merger Agreement.
SECTION 9.04. Severability.
If any term or other provision of this Merger Agreement is invalid,
illegal or incapable of being enforced by any rule of Law or public policy, all
other conditions and provisions of this Merger Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Merger Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
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SECTION 9.05. Entire Agreement.
This Merger Agreement (together with the Exhibits, Schedules, the
Company Disclosure Schedule and the Pubco Disclosure Schedule and the other
Documents delivered pursuant hereto) and the Confidentiality Agreement (as
defined in Article X) constitute the entire agreement of the parties and
supersede all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof and,
except as otherwise expressly provided herein, are not intended to confer upon
any other Person any rights or remedies hereunder.
SECTION 9.06. Assignment.
This Merger Agreement shall not be assigned by operation of Law or
otherwise.
SECTION 9.07. Parties in Interest.
This Merger Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Merger Agreement, express or
implied, other than the right to receive the consideration payable in the Merger
pursuant to Article II, is intended to or shall confer upon any other Person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Merger Agreement.
SECTION 9.08. Mutual Drafting.
Each party hereto has participated in the drafting of this Merger
Agreement, which each party acknowledges is the result of extensive negotiations
between the parties.
SECTION 9.09. Specific Performance.
In addition to any other remedies McLeod or Pubco may have at law or
in equity, the Company hereby acknowledges that the Company Common Stock and the
Company and the Subsidiaries are unique, and that the harm to McLeod or Pubco
resulting from breaches by the Company of its obligations cannot be adequately
compensated by damages. Accordingly, the Company agrees that McLeod or Pubco
shall have the right to have all obligations, undertakings, agreements,
covenants and other provisions of this Merger Agreement specifically performed
by the Company and that McLeod or Pubco shall have the right to obtain an order
or decree of such specific performance in any of the courts of the United States
of America or of any state or other political subdivision thereof.
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SECTION 9.10. Governing Law.
This Merger Agreement shall be governed by, and construed in
accordance with, the Laws of the State of Iowa, regardless of the Laws that
might otherwise govern under applicable principles of conflicts of law.
SECTION 9.11. Counterparts.
This Merger Agreement may be executed and delivered in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed and delivered shall be deemed to be an original but all
of which taken together shall constitute one and the same agreement.
SECTION 9.12. Confidentiality.
Except to the extent disclosure, filing, reporting or announcement of
this Merger Agreement is required by law, including by any rules or regulations
of any applicable governmental, regulatory or stock exchange agency or
authority, the existence and substance of this Merger Agreement shall remain
confidential until publically announced by McLeod or Pubco. If the transactions
contemplated by this Merger Agreement are not consummated, Pubco agrees that it
will return to the Company, and the Company agrees that it will return to Pubco,
all records and other documents of the other then in that party's possession and
will not itself use, or disclose, directly or indirectly, to any Business
Information with respect to the other party or the business learned by the party
during the period between the date hereof and the termination of this Merger
Agreement. The term "Business Information" as used herein means all information
of a business or technical nature relevant to each party's business that is not
generally known to or by those persons generally knowledgeable about such types
of business. The foregoing shall survive the closing or any termination of this
Merger Agreement without limitation.
ARTICLE X
DEFINITIONS
For purposes of this Merger Agreement, the following terms, and the
singular and plural thereof, shall have the meanings set forth below:
"Affiliate" means: (a) with respect to an individual, any member of such
---------
individual's family; (b) with respect to an entity, any officer, director,
stockholder, partner or investor of or in such entity or of or in any Affiliate
of such entity; and (c) with respect to a Person, any Person which directly or
indirectly, through one or more intermediaries, Controls, is Controlled by, or
is under common Control with such person or entity.
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"affiliate" means, with respect to any Person, a Person that directly or
---------
indirectly, through one or more intermediaries, Controls, is Controlled by, or
is under common Control with, such Person.
"Agreement" means any legally binding concurrence of understanding and intention
---------
between two or more Persons with respect to their relative rights and/or
obligations or with respect to a thing done or to be done (whether or not
conditional, executory, express, implied, in writing or meeting the requirements
of contract), including, without limitation, contracts, leases, promissory
notes, covenants, easements, rights of way, covenants, commitments, arrangements
and understandings.
"Articles of Merger" is defined in Section 1.02.
------------------
"Assets" means assets of every kind and everything that is or may be available
------
for the payment of liabilities (whether inchoate, tangible or intangible),
including, without limitation, real and personal property.
"beneficial owner" means, with respect to any shares of Company Common Stock, a
----------------
Person who shall be deemed to be the beneficial owner of such shares (i) which
such Person or any of its affiliates or associates beneficially owns, directly
or indirectly, (ii) which such Person or any of its affiliates or associates (as
such term is defined in Rule 12b-2 under the Exchange Act) has, directly or
indirectly, (A) the right to acquire (whether such right is exercisable
immediately or subject only to the passage of time), pursuant to any Agreement
or upon the exercise of conversion rights, exchange rights, warrants or options,
or otherwise, or (B) the right to vote pursuant to any Agreement, (iii) which
are beneficially owned, directly or indirectly, by any other Persons with whom
such Person or any of its affiliates or associates has any Agreement for the
purpose of acquiring, holding, voting or disposing of any such shares, or (iv)
pursuant to Section 13(d) of the Exchange Act and any rules or regulations
promulgated thereunder.
"business day" means a day other than a Saturday, a Sunday or any other day on
------------
which commercial banks in the State of Michigan and in the State of Iowa are
authorized or obligated to be closed.
"Blue Sky Laws" means state securities or blue sky laws and the rules and
-------------
regulations thereunder.
"Certificates" is defined in Section 2.02(b).
------------
"Closing" is defined in Section 2.04.
-------
"Closing Date" is defined in Section 2.04.
------------
"Code" is defined in the Preamble to this Merger Agreement.
----
-65-
<PAGE>
"Common Control Entity" means any trade or business under common control (as
---------------------
such term is defined in Section 414(b) or 414(c) of the Code) with the Company
or any Subsidiary.
"Common Share Exchange Ratio" is defined in Section 2.01(a).
---------------------------
"Company" is defined in the Preamble to this Merger Agreement.
-------
"Company Common Stock" is defined in Section 2.01(a).
--------------------
"Company Contracts" is defined in Section 3.14(a).
-----------------
"Company Disclosure Schedule" is defined in Article III.
---------------------------
"Company Key Employees" is defined in Section 6.06.
---------------------
"Company Licenses" is defined in Section 3.07(a).
----------------
"Company Material Adverse Effect" means any event, change or effect that,
-------------------------------
individually or when taken together with all other such events, changes or
effects, is or is reasonably likely to be materially adverse to the business,
operations, condition (financial or otherwise), Assets or liabilities of the
Company and the Subsidiaries, taken as a whole.
"Company Preferred Stock" is defined in Section 3.04.
-----------------------
"Company Stockholders" is defined in the Preamble to this Merger Agreement.
--------------------
"Company Tax Returns" means all Tax Returns required to be filed by the Company
-------------------
or any of the Subsidiaries (without regard to extensions of time permitted by
law or otherwise).
"Competing Transaction" is defined in Section 5.05(a).
---------------------
"Control" (including the terms "Controlled by" and "under common Control with")
------- ------------- -------------------------
means, as used with respect to any Person, possession, directly or indirectly or
as a trustee or executor, of power to direct or cause the direction of
management or policies of such Person (whether through ownership of voting
securities, as trustee or executor, by Agreement or otherwise).
"Damages" is defined in Section 6.10.
-------
"Defined Benefit Plan" means a Plan that is or was a "defined benefit plan" as
--------------------
such term is defined in Section 3(35) of ERISA.
"Documents" means any paper or other material (including, without limitation,
---------
computer storage media) on which is recorded (by letters, numbers or other
marks) information that may be evidentially used, including, without limitation,
legal opinions, mortgages, indentures, notes, instruments, leases, Agreements,
insurance policies, reports, studies,
-66-
<PAGE>
financial statements (including, without limitation, the notes thereto), other
written financial information, schedules, certificates, charts, maps, plans,
photographs, letters, memoranda and all similar materials.
"DOL" means the United States Department of Labor and its successors.
---
"Effective Time" is defined in Section 1.02.
--------------
"Employment Agreements" is defined in Section 6.06.
---------------------
"Encumbrance" means any mortgage, lien, pledge, security interest, deed of
-----------
trust, option, encroachment, reservation, order, decree, judgment, condition,
restriction, charge, or Agreement of any kind.
"Environmental Laws" means any Laws (including, without limitation, the
------------------
Comprehensive Environmental Response, Compensation, and Liability Act),
including any plans, other criteria, or guidelines promulgated pursuant to such
Laws, now or hereafter in effect relating to Hazardous Materials generation,
production, use, storage, treatment, transportation or disposal, or noise
control, or the protection of human health or the environment.
"Environmental Reports" is defined in Section 6.08.
---------------------
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
-----
and all Laws promulgated pursuant thereto or in connection therewith.
"ESOP" means an "employee stock ownership plan" as such term is defined in
----
Section 407(d)(6) of ERISA or Section 4975(e)(7) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and all
------------
Laws promulgated pursuant thereto or in connection therewith.
"FCC" means the United States Federal Communications Commission and its
---
successors.
"Financial Statements" is defined in Section 3.08.
--------------------
"GAAP" means United States generally accepted accounting principles.
----
"Governmental Entities" (including the term "Governmental") means any
--------------------- ------------
governmental, quasi-governmental or regulatory authority, whether domestic or
foreign.
"group" is defined in Section 5.05(a).
-----
"Hazardous Discharge" means any emission, spill, release or discharge (whether
-------------------
on Real Property, on property adjacent to the Real Property, or at any other
location or disposal site) into or upon the air, soil or improvements, surface
water or groundwater, or the sewer, septic system, or waste treatment, storage
or disposal systems servicing the Real
-67-
<PAGE>
Property, in each case of Hazardous Materials used, stored, generated, treated
or disposed of at the Real Property.
"Hazardous Materials" means any wastes, substances, radiation or materials
-------------------
(whether solids, liquids or gases) that are regulated by a Governmental Entity
or defined or listed by a Governmental Entity as hazardous, toxic, pollutants or
contaminants, including, without limitation, substances defined as "hazardous
wastes," "hazardous substances," "toxic substances," "radioactive materials," or
other similar designations in, or otherwise subject to regulation under, any
Environmental Laws. "Hazardous Materials" includes polychlorinated biphenyls
-------------------
(PCBs), asbestos, lead-based paints, and petroleum and petroleum products
(including, without limitation, crude oil or any fraction thereof).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
-------
amended, and all Laws promulgated pursuant thereto or in connection therewith.
"Individual Account Plan" means a Plan that is or was an "individual account
-----------------------
plan" as such term is defined in Section 3(34) of ERISA.
"Intellectual Property" means (a) all inventions (whether patentable or
---------------------
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, all rights to database
information, and all applications, registrations, and renewals in connection
therewith, (d) all moral rights, including all rights of paternity and
integrity, all rights to claim authorship of copyrightable works, to object to a
modification of copyrightable works, and all similar rights existing under the
judicial or statutory Law of any country in the world or under any treaty,
regardless of whether or not such right is denominated or generally referred to
as a "moral right," (e) all mask works and all applications, registrations, and
renewals in connection therewith, (f) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals),
(g) all computer software (including data and related documentation), (h) all
rights, including rights of privacy and publicity, to use the names, likenesses
and other personal characteristics of any individual, (i) all other proprietary
rights, and (j) all copies and tangible embodiments thereof (in whatever form or
medium) existing in any part of the world.
"Inventory" means all new materials, work in process and finished goods and
---------
inventorable supplies.
-68-
<PAGE>
"IRS" means the United States Internal Revenue Service and its successors.
---
"knowledge" will be deemed to be present with respect to the Company and the
---------
Subsidiaries or Pubco, when the matter in question was brought to the attention
of or, if due diligence had been exercised, would have been brought to the
attention of, any officer or responsible employee of the Company or any
Subsidiary, on the one hand, or Pubco, on the other hand.
"Laws" means all foreign, federal, state and local statutes, laws, ordinances,
----
regulations, rules, resolutions, orders, tariffs, determinations, writs,
injunctions, awards (including, without limitation, awards of any arbitrator),
judgments and decrees applicable to the specified Person and to the businesses
and Assets thereof (including, without limitation, Laws relating to securities
registration and regulation; the sale, leasing, ownership or management of real
property; employment practices, terms and conditions, and wages and hours;
building standards, land use and zoning; safety, health and fire prevention; and
environmental protection, including Environmental Laws).
"License" means any franchise, grant, authorization, license, tariff, permit,
-------
easement, variance, exemption, consent, certificate, approval or order of any
Governmental Entity.
"McLeod Common Stock" is defined in Section 2.01.
-------------------
"McLeod Post-Signing SEC Documents" is defined in Section 6.09.
---------------------------------
"McLeod SEC Documents" is defined in Section 4.07.
--------------------
"Merger" is defined in the Preamble to this Merger Agreement.
------
"Merger Agreement" is defined in the Preamble to this Merger Agreement.
----------------
"Merger Consideration" is defined in Section 2.01(a).
--------------------
"Minimum-Funding Plan" means a Pension Plan that is subject to Title I, Subtitle
--------------------
B, Part 3, of ERISA (concerning "funding").
"Multiemployer Plan" means a "multiemployer plan" as such term is defined in
------------------
Section 3(37) of ERISA.
"NASD" means the National Association of Securities Dealers, Inc.
----
"Net Cash Revenue" means all contracted for revenue in the form of cash paid or
----------------
accounts receivable, including national revenue, but excluding cancellations,
promotional discounts, payment plan discounts, and any revenue traded for value
other than cash or accounts receivable.
-69-
<PAGE>
"Other Arrangement" means a benefit program or practice providing for bonuses,
-----------------
incentive compensation, vacation pay, severance pay, insurance, restricted
stock, stock options, employee discounts, company cars, tuition reimbursement or
any other perquisite or benefit (including, without limitation, any fringe
benefit under Section 132 of the Code) to employees, officers or independent
contractors that is not a Plan.
"Ordinary Course of Business" means ordinary course of business consistent with
---------------------------
past practices and prudent business operations.
"PBGC" means the Pension Benefit Guaranty Corporation or its successors.
----
"Pension Plan" means an "employee pension benefit plan" as such term is defined
------------
in Section 3(2) of ERISA.
"Person" means an individual, corporation, partnership, joint venture, trust,
------
unincorporated organization or other entity, or a Governmental Entity.
"Plan" means any plan, program or arrangement, whether or not written, that is
----
or was an "employee benefit plan" as such term is defined in Section 3(3) of
ERISA and (a) which was or is established or maintained by the Company or any
Subsidiary; (b) to which the Company or any Subsidiary contributed or was
obligated to contribute or to fund or provide benefits; or (c) which provides or
promises benefits to any person who performs or who has performed services for
the Company or any Subsidiary and because of those services is or has been (i) a
participant therein or (ii) entitled to benefits thereunder.
"Post-Signing Returns" is defined in Section 5.03.
--------------------
"Pubco" is defined in the Preamble to this Merger Agreement.
-----
"Pubco Disclosure Schedule" is defined in Article IV.
-------------------------
"Pubco Material Adverse Effect" means any event, change or effect that,
-----------------------------
individually or when taken together with all other such events, changes or
effects, is or is reasonably likely to be materially adverse to the business,
operations, condition (financial or otherwise), Assets or liabilities of Pubco
and its subsidiaries, taken as a whole.
"Pubco Sub" is defined in the Preamble to this Merger Agreement.
---------
"Qualified Plan" means a Pension Plan that satisfies, or is intended by the
--------------
Company to satisfy, the requirements for Tax qualification described in Section
401 of the Code.
"Real Property" means the real property owned, operated, or used by the Company
-------------
or any of the Subsidiaries as of December 31, 1996, and any additional real
property owned, operated, or used since that date, and, for purposes of Section
3.30, any real property formerly owned or operated by the Company or any of the
Subsidiaries.
-70-
<PAGE>
"Reviewed Balance Sheets" is defined in Section 3.08(a).
-----------------------
"Reviewed Statements" is defined in Section 3.08(a)
-------------------
"SEC" means the United States Securities and Exchange Commission and its
---
successors.
"Securities Act" means the Securities Act of 1933, as amended, and all Laws
--------------
promulgated pursuant thereto or in connection therewith.
"Significant Subsidiary" means any subsidiary of McLeod or Pubco disclosed in
----------------------
its most recent Annual Report on Form 10-K, and any other subsidiary that would
constitute a "Significant Subsidiary" of Pubco within the meaning of Rule 1-02
of Regulation S-X of the SEC.
"Statutory-Waiver Plan" means a Pension Plan that is not subject to Title I,
---------------------
Subtitle B, Part 3, of ERISA (concerning "funding").
"Stockholders' Meeting" is defined in Section 6.02.
---------------------
"Subsidiary" means a corporation, partnership, joint venture or other entity of
----------
which the Company owns, directly or indirectly, at least 50% of the outstanding
securities or other interests the holders of which are generally entitled to
vote for the election of the board of directors or other governing body or
otherwise exercise Control of such entity.
"Taxes" (including the terms "Tax" and "Taxing") means all federal, state, local
----- --- ------
and foreign taxes (including, without limitation, income, profit, franchise,
sales, use, real property, personal property, ad valorem, excise, employment,
social security and wage withholding taxes) and installments of estimated taxes,
assessments, deficiencies, levies, imports, duties, license fees, registration
fees, withholdings, or other similar charges of every kind, character or
description imposed by any Governmental Entity, and any interest, penalties or
additions to tax imposed thereon or in connection therewith.
"Tax Returns" means all federal, state, local, foreign and other applicable
-----------
returns, declarations, reports and information statements with respect to Taxes
required to be filed with the IRS or any other Governmental Entity or Tax
authority or agency, including, without limitation, consolidated, combined and
unitary tax returns.
"Title I Plan" means a Plan that is subject to Title I of ERISA.
------------
"Total Outstanding Company Shares" is defined in Section 2.01(a).
--------------------------------
"Unaudited Balance Sheets" is defined in Section 6.07.
------------------------
"Unaudited Financial Statements" is defined in Section 6.07.
------------------------------
-71-
<PAGE>
"Welfare Plan" means an "employee welfare benefit plan" as such term is defined
------------
in Section 3(1) of ERISA.
"Year 2000 Complaint" means that neither performance nor functionality is
-------------------
affected by dates prior to, during or after the year 2000; in particular (i) no
value for current date will cause any interruption in operation; (ii) date-based
functionality must behave consistently for dates before, during and after the
year 2000; (iii) in all interfaces and data storage, the century in any date is
specified either explicitly or by unambiguous algorithms or inferencing rules;
and (iv) the year 2000 must be recognized as a leap year. IN WITNESS WHEREOF,
McLeod, Pubco, Pubco Sub, the Company and the Principal Company Stockholders
have caused this Merger Agreement to be executed and delivered as of the date
first written above.
McLEODUSA INCORPORATED
By: /s/ Arthur L. Christoffersen
------------------------------------
Arthur L. Christoffersen, Group Vice
President, Publishing Services
McLEODUSA PUBLISHING COMPANY
By: /s/ Arthur L. Christoffersen
------------------------------------
Arthur L. Christoffersen, President
-72-
<PAGE>
PUBCO MERGING CO.
By: /s/ Arthur L. Christoffersen
-----------------------------------
Arthur L. Christoffersen, President
TALKING DIRECTORIES, INC.
By: /s/ John P. Morgan
-----------------------------------
John P. Morgan, President
PRINCIPAL COMPANY STOCKHOLDERS
/s/ Hendrik G. Meijer
- ---------------------------------------
HENDRIK G. MEIJER, individually
and as Trustee of the Hendrik G. Meijer
Trust dated August 30, 1988
/s/ John P. Morgan
- ---------------------------------------
JOHN P. MORGAN, individually and as
First Trustee of the John P. Morgan
Trust under a Trust Agreement dated
May 24, 1988, as amended and restated
in its entirety on February 22, 1991
-73-
<PAGE>
EXHIBIT 2.3
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MCLEODUSA INCORPORATED,
MCLEODUSA PUBLISHING COMPANY
PUBLICATION MERGE CO.
and
INFO AMERICA PHONE BOOKS, INC.
Dated as of January 7, 1999
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of January 7, 1999 (this
"Merger Agreement"), among McLeodUSA Incorporated, a Delaware corporation
- -----------------
("McLeod"), McLeodUSA Publishing Company, an Iowa corporation ("Pubco") (an
-----
indirect wholly-owned subsidiary of McLeod), Publication Merge Co., an Iowa
corporation ("Pubco Sub") (a wholly-owned subsidiary of Pubco), Info America
---------
Phone Books, Inc., a Michigan corporation (the "Company"), and each of the
-------
stockholders the Company listed as signatories to this Merger Agreement (the
"Principal Company Stockholders");
WHEREAS, Pubco Sub, upon the terms and subject to the conditions of
this Merger Agreement and in accordance with the General Corporation Law of the
State of Iowa ("Iowa Law"), will merge with and into the Company (the "Merger");
-------- ------
WHEREAS, the Board of Directors of the Company has (i) determined that
the Merger is fair to the holders of Company Common Stock (as defined in Section
2.01(a)) and is in the best interests of such stockholders and (ii) approved and
adopted this Merger Agreement and the transactions contemplated hereby and
recommended approval and adoption of this Merger Agreement by the stockholders
of the Company (the "Company Stockholders");
--------------------
WHEREAS, the Board of Directors of McLeod has determined that the
Merger is in the best interests of McLeod and Pubco and the Boards of Directors
of Pubco and Pubco Sub have approved and adopted this Merger Agreement and the
transactions contemplated hereby; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a tax-free reorganization under the provisions of
Section 368(a) of the United States Internal Revenue Code of 1986, as amended
(the "Code");
----
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this Merger
Agreement, and intending to be legally bound hereby, the parties hereto agree as
follows.
ARTICLE I
THE MERGER
SECTION 1.01. The Merger.
Upon the terms and subject to the conditions set forth in this Merger
Agreement, and in accordance with Iowa Law, at the Effective Time (as defined in
Section 1.02 below) Pubco Sub shall be merged with and into the Company. As a
result of the Merger, the separate corporate existence of Pubco Sub shall cease
and the Company shall continue as the surviving corporation of the Merger (the
"Surviving Corporation").
- ----------------------
<PAGE>
SECTION 1.02. Effective Time.
Subject to the provisions of Section 2.04, as promptly as practicable
after the satisfaction or, if permissible, waiver of the conditions set forth in
Article VII below, the parties hereto shall cause the Merger to be consummated
by filing this Merger Agreement, articles of merger or other appropriate
Documents (as defined in Article X) (in any such case, the "Articles of Merger")
------------------
with the Secretary of State of the States of Michigan and Iowa, in such form as
required by, and executed in accordance with the relevant provisions of,
Michigan Law and Iowa Law (the date and time of such filing being the "Effective
---------
Time").
- ----
SECTION 1.03. Effect of the Merger.
At the Effective Time, the effect of the Merger shall be as provided
in the applicable provisions of Michigan and Iowa Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of Pubco Sub and the Company
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of Pubco Sub and the Company shall become the debts, liabilities and duties of
the Surviving Corporation.
SECTION 1.04. Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Pubco prior to the Effective Time,
at the Effective Time the certificate of incorporation of the Company shall be
amended in its entirety to conform to the certificate of incorporation of Pubco
Sub in effect immediately prior to the Effective Time, and shall become the
certificate of incorporation of the Surviving Corporation, until thereafter
amended as provided by Law (as defined in Article X) and such certificate of
incorporation.
(b) Unless otherwise determined by Pubco prior to the Effective Time,
at the Effective Time the bylaws of the Company shall be amended in their
entirety to conform to the bylaws of Pubco Sub in effect immediately prior to
the Effective Time, and shall become the bylaws of the Surviving Corporation
until thereafter amended as provided by Law, the certificate of incorporation of
the Surviving Corporation and such bylaws.
SECTION 1.05. Directors and Officers.
The directors of Pubco Sub immediately prior to the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold office
in accordance with the certificate of incorporation and bylaws of the Surviving
Corporation, and the officers of Pubco Sub immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified.
-2-
<PAGE>
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities.
At the Effective Time, as provided in this Merger Agreement, by virtue
of the Merger and without any action on the part of Pubco Sub, the Company or
the Company Stockholders:
(a) Company Common Shares. Each share of common stock, no par value
---------------------
per share, of the Company (as described in Section 3.04 below) ("Company Common
--------------
Stock") issued and outstanding immediately prior to the Effective Time (other
- -----
than any shares of Company Common Stock to be canceled pursuant to Section
2.01(c)), shall be converted, subject to Section 2.02(e), into the right to
receive that number of shares of Class A common stock, par value $.01 per share,
of McLeod ("McLeod Common Stock") (the "Merger Consideration") determined by
------------------- --------------------
dividing $40,000,000 by the average of the closing bid and ask price for McLeod
Common Stock quoted on the National Association of Securities Dealers' Automated
Quotation System on the date hereof as reported in the Wall Street Journal (the
-------------------
"Common Share Exchange Ratio").
---------------------------
All such shares of Company Common Stock shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist, and
each certificate previously representing any such shares shall thereafter
represent the right to receive (i) a certificate representing whole shares of
McLeod Common Stock into which such Company Common Stock was converted pursuant
to the Merger, and (ii) an amount in cash, without interest, in lieu of
fractional shares. No fractional share of McLeod Common Stock shall be issued,
and, in lieu thereof, a cash payment shall be made pursuant to Section 2.02(e)
hereof. In any event, if between the date of this Merger Agreement and the
Effective Time the outstanding shares of McLeod Common Stock shall have been
changed into a different number of shares or a different class, by reason of any
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Common Share Exchange Ratio shall be
appropriately and correspondingly adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares. As used in this Merger Agreement, the term "Total Outstanding
-----------------
Company Shares" shall mean the aggregate number of shares of Company Common
- --------------
Stock issued and outstanding immediately prior to the Effective Time (other than
shares to be canceled pursuant to Section 2.01(c)).
(b) Cancellation and Retirement of Company Common Stock. All such
---------------------------------------------------
shares of Company Common Stock referred to in Section 2.01(a) (other than any
shares of Company Common Stock to be canceled pursuant to Section 2.01(c)) shall
no longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each certificate previously representing any such
shares shall thereafter represent the
-3-
<PAGE>
right to receive the Merger Consideration as described in Section 2.01(a). The
holders of certificates which prior to the Effective Time represented shares of
Company Common Stock shall cease to have any rights with respect thereto except
as otherwise provided herein or by Law.
(c) Cancellation of Treasury Stock. Any shares of Company Common
------------------------------
Stock held in the treasury of the Company and any shares of Company Common Stock
owned by McLeod, Pubco or any direct or indirect wholly owned subsidiary of
McLeod or Pubco or of the Company immediately prior to the Effective Time shall
be canceled and extinguished without any conversion thereof and no payment shall
be made with respect thereto.
(d) Pubco Sub Common Stock. Each share of common stock, no par value
-----------------------
per share, of Pubco Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one newly and validly
issued, fully paid and non-assessable share of common stock of the Surviving
Corporation.
SECTION 2.02. Exchange of Certificates.
(a) Exchange. As of the Effective Time, Pubco shall deliver, or cause
--------
to be delivered, (i) certificates representing the whole shares of McLeod Common
Stock issuable to the Company Stockholders pursuant to Section 2.01, and (ii)
cash in an amount sufficient to permit payment of the cash payable in lieu of
fractional shares pursuant to Section 2.02(e), to the holders of Company Common
Stock pursuant to Section 2.01.
(b) Exchange Procedures. At the Closing, a certificate or
-------------------
certificates of Company Common Stock which immediately prior to the Effective
Time represented outstanding shares of Company Common Stock (the "Certificates")
------------
shall be surrendered in exchange for certificates representing shares of McLeod
Common Stock. Upon surrender of a Certificate for cancellation to Pubco or
McLeod, together with such other Documents as may be required, the holder of
such Certificate shall be entitled to receive in exchange therefor (i) a
certificate representing that number of whole shares of McLeod Common Stock
which such holder has the right to receive in respect of such Certificate (after
taking into account all shares of Company Common Stock then held by such holder
under all such Certificates so surrendered), together with any dividends or
other distributions to which such holder is entitled pursuant to Section
2.02(c), and (ii) cash in lieu of fractional shares of McLeod Common Stock to
which such holder is entitled pursuant to Section 2.02(e). The Certificates so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of shares of Company Common Stock that is not registered in the
transfer records of the Company, the proper number of shares of McLeod Common
Stock may be issued pursuant hereto to a transferee if the Certificates
representing such shares of Company Common Stock, properly endorsed or otherwise
in proper form for transfer, are presented to Pubco or McLeod, accompanied by
all Documents required to
-4-
<PAGE>
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
2.02, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender Merger Consideration
issuable in exchange therefor, together with any dividends or other
distributions to which such holder is entitled pursuant to Section 2.02(c). No
interest will be paid or will accrue on any cash payable pursuant to Sections
2.02(c) or 2.02(e).
(c) Distributions with Respect to Unexchanged Shares of McLeod Common
-----------------------------------------------------------------
Stock. No dividends or other distributions declared or made after the Effective
- -----
Time with respect to McLeod Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the whole shares of McLeod Common Stock represented thereby until the holder
of such Certificate shall surrender such Certificate. Subject to the effect of
escheat, tax or other applicable Laws, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of McLeod Common Stock issued in exchange therefor,
without interest, (i) promptly, the amount of any cash payable with respect to
(A) the shares of Company Common Stock formerly represented by such Certificate,
and (B) a fractional share of McLeod Common Stock to which such holder is
entitled pursuant to Section 2.02(e), and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of McLeod Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions, with a record date
after the Effective Time but prior to surrender and a payment date occurring
after surrender, payable with respect to such whole shares of McLeod Common
Stock.
(d) No Further Rights in Company Common Stock. All shares of McLeod
-----------------------------------------
Common Stock issued upon conversion of the shares of Company Common Stock in
accordance with the terms hereof (including any cash paid pursuant to Sections
2.02(c) or (e)) shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to such shares of Company Common Stock.
(e) No Fractional Shares. No fractional shares of McLeod Common Stock
--------------------
shall be issued upon surrender for exchange of the Certificates, and any such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of McLeod, but in lieu thereof each holder of shares of
Company Common Stock who would otherwise be entitled to receive a fraction of a
share of McLeod Common Stock, after aggregating all Certificates delivered by
such holder, and rounding down to the nearest whole share, shall receive an
amount in cash equal to the denominator used in the Common Share Exchange Ratio
described in Section 2.01(a) above, multiplied by the fraction of a share of
McLeod Common Stock to which such holder would otherwise be entitled.
(f) Intentionally omitted.
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(g) No Liability. None of McLeod, Pubco, Pubco Sub, the Company, the
------------
Surviving Corporation or the Principal Company Shareholders shall be liable to
any Person (as defined in Article X) for any shares of McLeod Common Stock (or
dividends or distributions with respect thereto) or cash delivered to a public
official pursuant to any abandoned property, escheat or similar Laws.
(h) Lost, Stolen or Destroyed Certificates. If any certificate
--------------------------------------
evidencing shares of Company Common Stock shall have been lost, stolen or
destroyed, Pubco shall cause to be issued in exchange for such lost, stolen or
destroyed certificate, upon the making of an affidavit of that fact by the
holder thereof, such shares of McLeod Common Stock and cash, if any, as may be
required pursuant to this Article II; provided, however, that McLeod or Pubco
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may, in its reasonable discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against McLeod or Pubco, or the Surviving Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 2.03. Stock Transfer Books.
At the Effective Time, the stock transfer books of the Company shall
be closed and there shall be no further registration of transfers of shares of
Company Common Stock thereafter on the records of the Company. From and after
the Effective Time, the holders of certificates representing shares of Company
Common Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such shares of Company Common Stock except as
otherwise provided herein or by Law. On or after the Effective Time, any
Certificates presented to the Exchange Agent or Pubco for any reason shall be
converted into shares of McLeod Common Stock issuable in exchange therefor
pursuant to Section 2.01(a), any dividends or other distributions to which the
holders thereof are entitled pursuant to Section 2.02(c) and any cash in lieu of
fractional shares of McLeod Common Stock to which the holders thereof are
entitled pursuant to Section 2.02(e).
SECTION 2.04. Closing.
Subject to the terms and conditions of this Merger Agreement, the
closing of the Merger (the "Closing") will take place on or before February 1,
-------
1999, or as soon as practicable (but, in any event, within five (5) business
days) after satisfaction of the latest to occur or, if permissible, waiver of
the conditions set forth in Article VII hereof (the "Closing Date"), at the
------------
offices of Pubco, 201 Third Avenue SE, Suite 500, Cedar Rapids, Iowa 52401,
unless another date or place is agreed to in writing by the parties hereto.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as specifically set forth in the Disclosure Schedule delivered
by the Company to Pubco prior to the execution and delivery of this Merger
Agreement (the "Company Disclosure Schedule") (the contents of which may be
---------------------------
updated or otherwise modified by the Company up to five (5) days prior to the
Closing Date), the Company hereby represents and warrants (which representation
and warranty shall be deemed to include the disclosures with respect thereto so
specified in the Company Disclosure Schedule) to, and covenants and agrees with,
McLeod, Pubco and Pubco Sub as follows, in each case as of the date of this
Merger Agreement, unless otherwise specifically set forth herein or in the
Company Disclosure Schedule:
SECTION 3.01. Organization and Standing.
The Company is a corporation duly organized, validly existing and in
good standing under Michigan Law, and has the full and unrestricted corporate
power and authority to own, operate and lease its Assets (as defined in Article
X), to carry on its business as currently conducted, to execute and deliver this
Merger Agreement and to carry out the transactions contemplated hereby. The
Company is duly qualified to conduct business as a foreign corporation and is in
good standing in the states, countries and territories listed in Section 3.01 of
the Company Disclosure Schedule. The Company is not qualified to conduct
business in any other jurisdiction, and neither the nature of the business
conducted by the Company nor the character of the Assets owned, leased or
otherwise held by it makes any such qualification necessary, except where the
absence of such qualification as a foreign corporation would not have a Company
Material Adverse Effect (as defined in Article X). The Company has elected and
qualified as an S-corporation under the applicable provisions of the Code, and
such election remains in full force and effect.
SECTION 3.02. Subsidiaries.
Except as set forth in Section 3.02 of the Company Disclosure
Schedule, the Company has no Subsidiaries (as defined in Article X) and neither
the Company nor any Subsidiary has any equity investment or other interest in,
nor has the Company or any Subsidiary made advances or loans to (other than for
customary credit extended to customers of the Company in the Ordinary Course of
Business (as defined in Article X) and reflected in the Financial Statements (as
defined in Section 3.08)), any corporation, association, partnership, joint
venture or other entity. Section 3.02 of the Company Disclosure Schedule sets
forth (a) the authorized capital stock or other equity interests of each direct
and indirect Subsidiary of the Company and the percentage of the outstanding
capital stock or other equity interests of each Subsidiary directly or
indirectly owned by the Company, and (b) the nature and amount of any such
equity investment, other interest or advance. All of such shares of capital
stock or other equity interests of Subsidiaries directly or indirectly held by
the Company have been duly authorized and
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validly issued and are outstanding, fully paid and nonassessable. The Company
directly, or indirectly through wholly owned Subsidiaries, owns all such shares
of capital stock or other equity interests of the direct or indirect
Subsidiaries free and clear of all Encumbrances (as defined in Article X). Each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the Laws of its state or jurisdiction of incorporation (as listed
in Section 3.02 of the Company Disclosure Schedule), and has the full and
unrestricted corporate power and authority to own, operate and lease its Assets
and to carry on its business as currently conducted. Each Subsidiary is duly
qualified to conduct business as a foreign corporation and is in good standing
in the states, countries and territories listed in Section 3.02 of the Company
Disclosure Schedule. The Subsidiaries are not qualified to conduct business in
any other jurisdictions, and neither the nature of their businesses nor the
character of the Assets owned, leased or otherwise held by them makes any such
qualification necessary, except where the absence of such qualification as a
foreign corporation would not have a Company Material Adverse Effect.
SECTION 3.03. Certificate of Incorporation and Bylaws.
The Company has furnished to Pubco a true and complete copy of the
certificate or articles of incorporation of the Company and of each Subsidiary,
as currently in effect, certified as of a recent date by the Secretary of State
(or comparable Governmental Entity (as defined in Article X)) of the respective
jurisdictions of incorporation, and a true and complete copy of the bylaws of
the Company and of each Subsidiary, as currently in effect, certified by their
respective corporate secretaries. Such certified copies are attached as
exhibits to, and constitute an integral part of, the Company Disclosure
Schedule.
SECTION 3.04. Capitalization.
The authorized capital stock of the Company consists of (a) 3,000
shares of Class A Common Stock, of which 3,000 shares are issued and
outstanding, all of which are duly authorized, validly issued, fully paid and
nonassessable, and (b) 57,000 shares of Class B Common Stock, no par value per
share, of which 57,000 shares are issued and outstanding, all of which are duly
authorized, validly issued, fully paid and nonassessable. Except as described
in this Section 3.04, no other shares of Company Common Stock have been reserved
for any purpose. There are no outstanding securities convertible into or
exchangeable for Company Common Stock, any other securities of the Company, or
any capital stock or other securities of any of the Subsidiaries and no
outstanding options, rights (preemptive or otherwise), or warrants to purchase
or to subscribe for any shares of such stock or other securities of the Company
or any of the Subsidiaries. Except as set forth in Section 3.04 of the Company
Disclosure Schedule, there are no outstanding Agreements (as defined in Article
X) affecting or relating to the voting, issuance, purchase, redemption,
registration, repurchase or transfer of Company Common Stock, any other
securities of the Company, or any capital stock or other securities of any
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<PAGE>
Subsidiary, except as contemplated hereunder. Since December 31, 1997, no
shares of Company Common Stock have been issued by the Company, except as set
forth in Section 3.04 of the Company Disclosure Schedule. Each of the
outstanding shares of Company Common Stock and of capital stock of, or other
equity interests in, the Subsidiaries was issued in compliance with all
applicable federal and state Laws concerning the issuance of securities, and
such shares or other equity interests owned by the Company or any Subsidiary are
owned free and clear of all Encumbrances. There are no obligations, contingent
or otherwise, of the Company or any Subsidiary to provide funds to, make any
investment (in the form of a loan, capital contribution or otherwise) in, or
provide any guarantee with respect to, any Subsidiary or any other Person.
There are no Agreements pursuant to which any Person is or may be entitled to
receive any of the revenues or earnings, or any payment based thereon or
calculated in accordance therewith, of the Company or any Subsidiary.
SECTION 3.05. Authority; Binding Obligation.
The execution and delivery by the Company of this Merger Agreement,
the execution and delivery by the Company and the Subsidiaries of all other
Documents contemplated hereby, and the consummation by the Company and the
Subsidiaries of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action, and no other corporate proceedings
on the part of the Company or the Subsidiaries are necessary to authorize this
Merger Agreement and the other Documents contemplated hereby, or to consummate
the transactions contemplated hereby and thereby, other than the approval and
adoption of this Merger Agreement by the holders of a majority of the
outstanding shares of Company Common Stock in accordance with Michigan Law and
the Company's certificate of incorporation and bylaws. This Merger Agreement
has been duly executed and delivered by the Company and constitutes a legal,
valid and binding obligation of the Company, enforceable in accordance with its
terms, except as such enforceability may be subject to the effects of any
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar Laws affecting creditors' rights generally and subject to
the effects of general equitable principles (whether considered in a proceeding
in equity or at law).
SECTION 3.06. No Conflict; Required Filings and Consents.
(a) The execution, delivery and performance by the Company and the
Subsidiaries of this Merger Agreement and all other Documents contemplated
hereby, the fulfillment of and compliance with the respective terms and
provisions hereof and thereof, and the consummation by the Company and the
Subsidiaries of the transactions contemplated hereby and thereby, do not and
will not: (i) conflict with, or violate any provision of, the certificate of
incorporation or bylaws of the Company or the certificate or articles of
incorporation or bylaws of any Subsidiary; (ii) subject to (A) obtaining the
requisite approval and adoption of this Merger Agreement by the holders of a
majority of the outstanding shares of Company Common Stock in accordance with
Michigan Law and
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<PAGE>
the Company's certificate of incorporation and bylaws and (B) obtaining the
consents, approvals, authorizations and permits of, and making filings with or
notifications to, the applicable Governmental Entity, including pursuant to the
applicable requirements, if any, of the HSR Act, and the filing and recordation
of the Articles of Merger as required by Michigan Law, conflict with or violate
any Law applicable to the Company or any Subsidiary, or any of their respective
Assets; (iii) subject to obtaining the consents and approvals set forth in
Section 3.06(b) of the Company Disclosure Schedule, conflict with, result in any
breach of, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under any Agreement to which the Company or
any Subsidiary is a party or by which the Company or any Subsidiary, or any of
their respective Assets, may be bound; or (iv) except as disclosed in Section
3.06(b) of the Company Disclosure Schedule, result in or require the creation or
imposition of, or result in the acceleration of, any indebtedness or any
Encumbrance of any nature upon, or with respect to, the Company or any
Subsidiary or any of the Assets now owned or hereafter acquired by the Company
or any Subsidiary; except for any such conflict or violation described in clause
(ii), any such conflict, breach or default described in clause (iii), or any
such creation, imposition or acceleration described in clause (iv) that would
not have a Company Material Adverse Effect and that would not prevent the
Company from consummating the Merger on a timely basis.
(b) Except as set forth in Section 3.06(b) of the Company Disclosure
Schedule, the execution, delivery and performance by the Company and the
Subsidiaries of this Merger Agreement and all other Documents contemplated
hereby, the fulfillment of and compliance with the respective terms and
provisions hereof and thereof, and the consummation by the Company and the
Subsidiaries of the transactions contemplated hereby and thereby, do not and
will not: (i) require any consent, approval, authorization or permit of, or
filing with or notification to, any Person not party to this Merger Agreement,
except (A) the approval and adoption of this Merger Agreement by the holders of
a majority of the outstanding shares of Company Common Stock in accordance with
Law and the Company's certificate of incorporation and bylaws, (B) the filing
and recordation of the Articles of Merger as required by Law; or (ii) result in
or give rise to any penalty, forfeiture, Agreement termination, right of
termination, amendment or cancellation, or restriction on business operations of
Pubco, the Company, the Surviving Corporation or any Subsidiary that would have
a Company Material Adverse Effect. Section 3.06(b) of the Company Disclosure
Schedule lists all Agreements that reasonably could be interpreted or expected
to require the consent or acquiescence of any Person not party to this Merger
Agreement with respect to any aspect of the execution, delivery or performance
of this Merger Agreement by the Company and the Subsidiaries, except where
failure to obtain such consent or acquiecense would not have a Company Material
Adverse Effect.
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<PAGE>
SECTION 3.07. Licenses; Compliance.
(a) Each of the Company and each Subsidiary is in possession of all
Licenses (as defined in Article X) necessary for the Company or any Subsidiary
to own, lease and operate its Assets or to carry on its business as it is now
being conducted (the "Company Licenses"), except where the failure to possess
----------------
any such Company License would not have a Company Material Adverse Effect. All
Company Licenses are valid and in full force and effect through the respective
dates indicated in the Company Disclosure Schedule, except for any such
invalidity or failure to be in full force and effect that would not, alone or in
the aggregate, have a Company Material Adverse Effect, and no suspension,
cancellation, complaint, proceeding, order or investigation of or with respect
to any Company License (or operations thereunder) is pending or, to the
knowledge of the Company or any Subsidiary, threatened. Neither the Company nor
any Subsidiary is in violation of or default under any Company License, except
for any such violation or default that would not have a Company Material Adverse
Effect. Except as set forth in Section 3.07(a) of the Company Disclosure
Schedule, since December 31, 1996, neither the Company nor any Subsidiary has
received written or, to the knowledge of the Company or any Subsidiary, oral
notice from any Governmental Entity or any other Person of any allegation of any
such violation or default under a Company License.
(b) Neither the Company nor any Subsidiary is in violation of or
default under, nor has it breached, (i) any term or provision of its certificate
or articles of incorporation or bylaws or (ii) any Agreement or restriction to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary, or any of their respective Assets, is bound or affected, except for
any such violation, default or breach described in clause (ii) that would not
have a Company Material Adverse Effect. The Company and the Subsidiaries have
complied and are in full compliance with all Laws, except where the failure so
to comply would not have a Company Material Adverse Effect.
(c) All returns, reports, statements and other Documents required to
be filed by the Company or any Subsidiary with any Governmental Entity have been
filed and complied with and are true, correct and complete in all material
respects (and any related fees required to be paid have been paid in full). To
the knowledge of the Company and the Subsidiaries, all records of every type and
nature relating to the Company Licenses or the business, operations or Assets of
the Company or any Subsidiary have been maintained in all material respects in
accordance with good business practices and the rules of any Governmental Entity
and are maintained at the Company or the appropriate Subsidiary.
(d) Except as provided in Section 3.07(a) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary has any interest in any License
(including both any Company License and any License held by third parties in
which the Company or any Subsidiary has an interest) that is subject to
restrictions on assignment or transfer based on the circumstances under which
the License was granted (such as eligibility or auction rules), the status of
construction and operation (such as rules restricting resale for a certain
period after construction), or any other restrictions other
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than an ordinary course requirement for prior approval of transactions such as
the Merger contemplated herein.
(e) Neither the Company nor any Subsidiary is aware of any fact or
circumstance related to them that could reasonably be expected to cause the
filing of any objection to any application for any Governmental consent required
hereunder, lead to any delay in processing such application, or require any
waiver of any Governmental rule, policy or other applicable Law.
SECTION 3.08. Financial Statements.
(a) The Company has prepared a consolidated balance sheet of the
Company and the Subsidiaries as of the end of the fiscal year ending in 1997,
(the "Reviewed Balance Sheet") and the related consolidated statement of income,
----------------------
shareholders' equity and cash flows of the Company and the Subsidiaries for such
fiscal year (the Balance Sheet and such consolidated statement of income,
shareholders' equity and cash flows are hereinafter referred to collectively as
the "Reviewed Statement"), in each case, reviewed by Arthur Anderson in
------------------
accordance with generally accepted auditing standards and accompanied by the
related report of Arthur Anderson. A true and complete copy of each of the
Reviewed Statement has been delivered to Pubco and is attached as an exhibit to,
and constitute an integral part of, the Company Disclosure Schedule. The
Company has also prepared unaudited consolidated balance sheets of the Company
and the Subsidiaries as of the last day of each month ending after January 1,
1998 (including the unaudited consolidated balance sheets to be furnished to
Pubco pursuant to Section 6.07, the "Unaudited Balance Sheets") and the
------------------------
unaudited consolidated statements of income and cash flows of the Company and
the Subsidiaries for the one-month periods then ended (the Unaudited Balance
Sheets and such statements of income and cash flows, including the unaudited
consolidated statements of income and cash flows to be furnished to Pubco
pursuant to Section 6.07, are hereinafter referred to collectively as the
"Unaudited Statements" and, together with the Reviewed Statements, as the
- ---------------------
"Financial Statements").
- ---------------------
(b) The Financial Statements, including, without limitation, the notes
thereto, (i) are complete and correct in all material respects, (ii) have been
prepared in accordance with the books and records of the Company and the
Subsidiaries, and (iii) present fairly the consolidated financial position of
the Company and the Subsidiaries and their consolidated results of operations
and cash flows as of and for the respective dates and time periods in accordance
with GAAP applied on a basis consistent with prior accounting periods, except as
noted thereon and subject to, in the case of the Unaudited Statements, normal
and recurring year-end adjustments which were not or are not expected to be
material in amount. All changes in accounting methods (for financial accounting
purposes) made, agreed to, requested or required with respect to the Company or
any of the Subsidiaries since August 31, 1998 are reflected in the Financial
Statements.
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SECTION 3.09. Absence of Undisclosed Liabilities.
Except as described in Section 3.09 of the Company Disclosure
Schedule, there are no liabilities or obligations (whether absolute or
contingent, matured or unmatured, known or unknown) of the Company or any
Subsidiary, including but not limited to liabilities for Taxes (as defined in
Article X), of a nature required by GAAP to be reflected, or reserved against,
in the Financial Statements and that are not so reflected, or reserved against,
in the Financial Statements. Except as described in Section 3.09 of the Company
Disclosure Schedule, since August 31, 1998, neither the Company nor any
Subsidiary has incurred any liabilities or obligations (whether absolute or
contingent, matured or unmatured, known or unknown) other than in the Ordinary
Course of Business (as defined in Article X).
SECTION 3.10. Absence of Certain Changes or Events.
Other than as set forth in Section 3.10 to the Company Disclosure
Schedule, since August 31, 1998, there has been no material adverse change, and
no change except in the Ordinary Course of Business, in the business,
operations, prospects, condition (financial or otherwise), Assets or liabilities
of the Company or any Subsidiary. Except as set forth in Section 3.10 to the
Company Disclosure Schedule, since August 31, 1998, the Company and the
Subsidiaries have conducted their respective businesses substantially in the
manner theretofore conducted and only in the Ordinary Course of Business, and
neither the Company nor any Subsidiary has (a) incurred any material damage,
destruction or loss not covered by insurance with respect to any Assets of the
Company or of any such Subsidiary; (b) issued any capital stock or other equity
securities or granted any options, warrants or other rights calling for the
issuance thereof; (c) issued any bonds or other long-term debt instruments,
granted any options, warrants or other rights calling for the issuance thereof,
or borrowed any funds; (d) incurred, or become subject to, any material
obligation or liability (whether absolute or contingent, matured or unmatured,
known or unknown), except current liabilities incurred in the Ordinary Course of
Business; (e) discharged or satisfied any Encumbrance or paid any material
obligation or liability (whether absolute or contingent, matured or unmatured,
known or unknown) other than current liabilities shown in the Unaudited Balance
Sheets (as defined in Section 6.08) and current liabilities incurred since
August 31, 1998, in the Ordinary Course of Business; (f) declared or made
payment of, or set aside for payment, any dividends or distributions of any
Assets, or purchased, redeemed or otherwise acquired any of its capital stock,
any securities convertible into capital stock, or any other securities; (g)
mortgaged, pledged or subjected to any Encumbrance any of its material Assets;
(h) sold, exchanged, transferred or otherwise disposed of any of its material
Assets, or canceled any debts or claims, except in each case in the Ordinary
Course of Business; (i) written down the value of any Assets or written off as
uncollectable any debt, notes or accounts receivable, except to the extent
previously reserved against in the Financial Statements and not material in
amount, and except for write-downs and write-offs in the Ordinary Course of
Business,
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<PAGE>
none of which, individually or in the aggregate, are material; (j) entered into
any transactions other than in the Ordinary Course of Business; (k) except in
the Ordinary Course of Business, increased the rate of compensation payable, or
to become payable, by it to any of its officers, employees, agents or
independent contractors over the rate being paid to them on August 31, 1998, (l)
made or permitted any amendment or termination of any material Agreement to
which it is a party; (m) through negotiation or otherwise made any commitment or
incurred any liability to any labor organization; (n) made any accrual or
arrangement for or payment of bonuses or special compensation of any kind to any
director, officer or employee, except for any accrual or arrangement for or
payment of bonuses or special compensation in the Ordinary Course of Business to
employees who are not directors or officers; (o) directly or indirectly paid any
severance or termination pay in excess of two months' salary to any officer or
employee with an annual salary in excess of $60,000; (p) made capital
expenditures, or entered into commitments therefor, not provided for in the
Company's capital budget for 1998 (a copy of which has been furnished by the
Company to Pubco) or, if applicable, the Company's capital budget for 1999
(which capital budget shall have been approved by Pubco as provided in Section
5.01(i)), except for capital expenditures permitted by Section 5.01; (q) made
any change in any method of accounting or accounting practice except as required
by GAAP; (r) entered into any transaction of the type described in Section 3.19;
(s) made any charitable contributions or pledges exceeding $10,000 individually
or $100,000 in the aggregate; or (t) made any Agreement to do any of the
foregoing. At the Closing, the Company shall deliver to Pubco an updated Section
3.10 to the Company Disclosure Schedule in accordance with the provisions of
Section 6.04.
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SECTION 3.11. Litigation; Disputes.
(a) Except as disclosed in Section 3.11(a) of the Company Disclosure
Schedule, there are no actions, suits, claims, arbitrations, proceedings or
investigations pending or, to the knowledge of the Company or any Subsidiary,
threatened against, affecting or involving the Company or any Subsidiary or
their respective businesses or Assets, or the transactions contemplated by this
Merger Agreement, at law or in equity, or before or by any court, arbitrator or
Governmental Entity, domestic or foreign. Neither the Company nor any
Subsidiary is (i) operating under or subject to any order (except for orders
that Persons similarly situated, engaged in similar businesses and owning
similar Assets are operating under or subject to), award, writ, injunction,
decree or judgment of any court, arbitrator or Governmental Entity, or (ii) in
default with respect to any order, award, writ, injunction, decree or judgment
of any court, arbitrator or Governmental Entity.
(b) Except as set forth in Section 3.11(b) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary is currently involved in, or to
the knowledge of the Company or any Subsidiary, reasonably anticipates any
dispute with, any of its current or former employees, agents, brokers,
distributors, vendors, customers, business consultants, franchisees,
franchisors, representatives or independent contractors (or any current or
former employees of any of the foregoing Persons) affecting the business or
Assets of the Company or any Subsidiary, except for any such disputes that, if
resolved adversely to the Company or any Subsidiary, would not have a Company
Material Adverse Effect.
SECTION 3.12. Debt Instruments.
Section 3.12 of the Company Disclosure Schedule lists all mortgages,
indentures, notes, guarantees and other Agreements for or relating to borrowed
money (including, without limitation, conditional sales agreements and capital
leases) to which the Company or any Subsidiary is a party or which have been
assumed by the Company or any Subsidiary or to which any Assets of the Company
or any Subsidiary are subject and, with respect to each such Agreement so
listed, briefly describes the principal amount, interest rate, original and
maturity dates and any sinking fund installments, prepayment premiums,
restrictive covenants and any other material provisions. With respect to the
Documents listed on Section 3.12 of the Company Disclosure Schedule, the Company
and the Subsidiaries have performed all the obligations required to be performed
by any of them to date and are not in default in any respect under any of the
foregoing, and there has not occurred any event which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute such a default, except for any failure so to perform or any such
default that would not have a Company Material Adverse Effect.
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SECTION 3.13. Leases.
Section 3.13 of the Company Disclosure Schedule lists all leases and
other Agreements with a term in excess of one (1) year or requiring payments in
excess of $5,000 in the aggregate over its term under which the Company or any
Subsidiary is the lessee or lessor of any Asset, or holds, manages or operates
any Asset owned by any third party, or under which any Asset owned by the
Company or by any Subsidiary is held, operated or managed by a third party. The
Company and the Subsidiaries are the owners and holders of all the leasehold
estates purported to be granted to them by the Documents listed in Section 3.13
of the Company Disclosure Schedule. Each such lease and other Agreement is in
full force and effect and constitutes a legal, valid and binding obligation of,
and is legally enforceable against, the respective parties thereto and grants
the leasehold estate it purports to grant free and clear of all Encumbrances.
The Company and the Subsidiaries have in all respects performed all material
obligations thereunder required to be performed by any of them to date. To the
knowledge of the Company, no party is in default in any material respect under
any of the foregoing, and there has not occurred any event which (whether with
or without notice, lapse of time or the happening or occurrence of any other
event) would constitute such a default. All of the Assets subject to such
leases and other Agreements are in a condition adequate for the uses to which
they are currently being used.
SECTION 3.14. Other Agreements; No Default.
(a) Section 3.14(a) of the Company Disclosure Schedule lists each
Agreement to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary, or any of their respective Assets, is bound, and
which is:
(i) an Agreement with a term in excess of one (1) year or
requiring payments in excess of $5,000 in any twelve (12) month period
or $10,000 in the aggregate over its term for the employment of any
director, officer, employee, consultant or independent contractor, or
providing for severance payments to any such director, officer,
employee, consultant or independent contractor;
(ii) a license Agreement or distributor, dealer, sales
representative, sales agency, advertising, property management or
brokerage Agreement involving an annual payment in excess of $25,000;
(iii) an Agreement for the future purchase of materials,
supplies, services, merchandise or equipment involving payments of
more than $25,000 over its remaining term (including, without
limitation, periods covered by any option to renew by any party);
(iv) an Agreement for the purchase, sale or lease of any Asset
with a purchase or sale price or aggregate rental payment in excess of
$25,000;
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(v) a profit-sharing, bonus, incentive compensation, deferred
compensation, stock option, severance pay, stock purchase, employee
benefit, insurance, hospitalization, pension, retirement or other
similar plan or Agreement;
(vi) an Agreement for the sale of any of its Assets or services
or the grant of any preferential rights to purchase any of its Assets,
services or rights, other than in the Ordinary Course of Business;
(vii) an Agreement that contains any provisions requiring the
Company or any Subsidiary to indemnify any other party;
(viii) a joint venture Agreement or other Agreement involving
the sharing of revenues or profits;
(ix) an Agreement with an Affiliate (as defined in Article X) of
the Company or any Subsidiary;
(x) an Agreement (including, without limitation, an Agreement not
to compete and an exclusivity Agreement) that reasonably could be
interpreted to impose any material restriction on the business or
operations of the Company or any Subsidiary, or any of their
respective Affiliates, prior to the Effective Time, or on the business
or operations of Pubco or any of its Affiliates after the Effective
Time;
(xi) an Agreement material to the Company and its Subsidiaries
not otherwise described in this Section 3.14(a) which by its terms
does not terminate or is not terminable by the Company or by a
Subsidiary within thirty (30) days or upon thirty (30) days' (or less)
notice;
(xii) an Agreement with any Governmental Entity;
(xiii) an Agreement with any of the twenty (20) largest
customers of the Company and the Subsidiaries, taken as a whole (based
on amounts billed), for each of (A) the year ended December 31, 1997
and (B) the period from January 1, 1998 through the date of this
Merger Agreement;
(xiv) an Agreement to provide any customer with free listings or
advertisements or service at rates departing from the standard rate
schedules other than in the Ordinary Course of Business; or
(xv) any other Agreement (A) that is material to the Company and
the Subsidiaries, taken as a whole, or the conduct of their businesses
or operations, or (B) the absence of which would have a Company
Material Adverse Effect,
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(the foregoing Agreements referred to herein as the "Company Contracts"). The
-----------------
Company has furnished Pubco with true and complete copies of each written
Company Contract (including any amendments thereto) and a complete written
summary of each oral Company Contract.
(b) Each Company Contract is in full force and effect and constitutes
a legal, valid and binding obligation of, and is legally enforceable against,
the respective parties thereto. All necessary approvals of any Governmental
Entity with respect thereto have been obtained (except where the failure so to
obtain any such approval would not have a Company Material Adverse Effect), all
necessary filings or registrations therefor have been made, and there are no
outstanding disputes thereunder and, to the knowledge of the Company or any
Subsidiary, no threatened cancellation or termination thereof. The Company and
the Subsidiaries have performed all material obligations thereunder required to
be performed by any of them to date. To the knowledge of the Company and the
Subsidiaries, no party is in default in any material respect under any of the
Company Contracts, and there has not occurred any event which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute such a default. No Agreement has been canceled or otherwise
terminated within the twelve (12) months prior to the date of this Merger
Agreement which would have been a "Company Contract" had such Agreement not been
canceled or terminated and the cancellation or termination of which has had or
is reasonably likely to have a Company Material Adverse Effect. Except as
specifically described in Section 3.14(a) of the Company Disclosure Schedule,
there has been no written or oral modification or amendment to any Company
Contract and there are no reasonably expected changes to any Company Contract.
At the Closing, the Company shall deliver to Pubco an updated Section 3.14(a) to
the Company Disclosure Schedule in accordance with the provisions of Section
6.04.
SECTION 3.15. Labor Relations.
Section 3.15(a) of the Company Disclosure Schedule lists all
collective bargaining or other labor union Agreements to which the Company or
any Subsidiary is a party. There are no strikes or work stoppages, or, to the
knowledge of the Company, union organization efforts or other controversies
(other than grievance proceedings) pending, threatened or reasonably anticipated
between the Company or any Subsidiary and (a) any current or former employees of
the Company or of any Subsidiary or (b) any union or other collective bargaining
unit representing such employees. The Company and the Subsidiaries have
complied and are in compliance with all Laws relating to employment or the
workplace, including, without limitation, Laws relating to wages, hours,
collective bargaining, safety and health, work authorization, equal employment
opportunity, immigration, withholding, unemployment compensation, worker's
compensation, employee privacy and right to know, except where the failure so to
comply would not have a Company Material Adverse Effect. Except as set forth in
Section 3.15(b) of the Company Disclosure Schedule, neither the Company nor any
Subsidiary has been notified
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by any Governmental Agency or counsel to any claimant of any unresolved
violation or alleged violation of any Law relating to equal employment
opportunity, civil or human rights, or employment discrimination generally.
Except as set forth in Section 3.15(c) to the Company Disclosure Schedule, there
are no collective bargaining Agreements, employment Agreements between the
Company or any Subsidiary and any of their respective employees, or professional
service Agreements not terminable at will relating to the businesses and Assets
of the Company or of any Subsidiary. Except as set forth in Section 3.15(d) to
the Company Disclosure Schedule, the consummation of the transactions
contemplated hereby will not cause Pubco, the Surviving Corporation, the Company
or any Subsidiary to incur or suffer any liability relating to, or obligation to
pay, severance, termination or other payments to any Person.
SECTION 3.16. Pension and Benefit Plans.
(a) Except as set forth in Section 3.16(a) to the Company Disclosure
Schedule, neither the Company nor any Subsidiary (i) maintains or during the
past six (6) years has maintained any Plan (as defined in Article X) or Other
Arrangement (as defined in Article X), (ii) is or during the past six (6) years
has been a party to any Plan or Other Arrangement, or (iii) has obligations
under any Plan or Other Arrangement.
(b) The Company has furnished to Pubco true and complete copies of
each of the following Documents: (i) the Documents setting forth the terms of
each Plan; (ii) all related trust Agreements or annuity Agreements (and any
other funding Document) for each Plan; (iii) for the three (3) most recent plan
years, all annual reports (Form 5500 series) on each Plan that have been filed
with any Governmental Entity; (iv) the current summary plan description and
subsequent summaries of material modifications for each Title I Plan (as defined
in Article X); (v) all DOL (as defined in Article X) opinions on any Plan; (vi)
all correspondence with the PBGC (as defined in Article X) on any Plan exchanged
during the past three (3) years; (vii) all IRS (as defined in Article X)
rulings, opinions or technical advice relating to any Plan and the current IRS
determination letter issued with respect to each Qualified Plan (as defined in
Article X); and (viii) all current Agreements with service providers or
fiduciaries for providing services on behalf of any Plan. For each Other
Arrangement, the Company has furnished to Pubco true and complete copies of each
policy, Agreement or other Document setting forth or explaining the current
terms of the Other Arrangement, all related trust Agreements or other funding
Documents (including, without limitation, insurance contracts, certificates of
deposit, money market accounts, etc.), all significant employee communications,
all correspondence with or other submissions to any Governmental Entity, and all
current Agreements with service providers or fiduciaries for providing services
on behalf of any Other Arrangement.
(c) No Plan is a Multiemployer Plan (as defined in Article X).
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(d) Section 3.16(d) of the Company Disclosure Schedule sets forth each
Individual Account Plan (as defined in Article X) that is an ESOP (as defined in
Article X) (indicating whether such ESOP is leveraged) or otherwise invests in
employer securities (as such term is defined in Section 409(l) of the Code).
The Company has furnished to Pubco true and complete copies of all loan
Agreements and other related Documents for each leveraged ESOP.
(e) The funding method used under each Minimum-Funding Plan (as
defined in Article X) does not violate the funding requirements in Title I,
Subtitle B, Part 3, of ERISA (as defined in Article X). For each Defined
Benefit Plan (as defined in Article X), the Company has furnished to Pubco a
true and complete copy of the actuarial valuation reports issued by the
actuaries of that Defined Benefit Plan for the three (3) most recent plan years,
setting forth: (i) the actuarial present value (based upon the same actuarial
assumptions as were used for that period for funding purposes) of all vested and
nonvested accrued benefits under that Defined Benefit Plan; (ii) the actuarial
present value (based upon the same actuarial assumptions, other than turnover
assumptions, as were used for that period for funding purposes) of vested
benefits under that Defined Benefit Plan; (iii) the net fair market value of
that Defined Benefit Plan's Assets; and (iv) a detailed description of the
funding method used under that Defined Benefit Plan.
(f) No "accumulated funding deficiency" as defined in Section
302(a)(2) of ERISA or Section 412 of the Code, whether or not waived, and no
"unfunded current liability" as determined under Section 412(l) of the Code
exists with respect to any Minimum-Funding Plan. No security is required under
Section 401(a)(29) of the Code as to any Minimum-Funding Plan. Section 3.16(f)
of the Company Disclosure Schedule sets forth all unpaid obligations and
liabilities of the Company and the Subsidiaries to provide contributions
currently due with respect to any Minimum-Funding Plan.
(g) Section 3.16(g) of the Company Disclosure Schedule sets forth the
contributions that (i) the Company or any Subsidiary has promised or is
otherwise obligated to make under each Individual Account Plan that is a
Statutory-Waiver Plan (as defined in Article X) and (ii) are unpaid as of the
date of this Merger Agreement.
(h) The Company and the Subsidiaries have made all contributions and
other payments required by and due under the terms of each Plan and Other
Arrangement and have taken no action during the past three (3) years (other than
actions required by Law) relating to any Plan or Other Arrangement that will
increase Pubco's, the Surviving Corporation's, the Company's or any Subsidiary's
obligation under any Plan or Other Arrangement.
(i) Section 3.16(i) of the Company Disclosure Schedule sets forth a
list of all Qualified Plans (as defined in Article X). All Qualified Plans and
any related trust Agreements or annuity Agreements (or any other funding
Document) comply and have complied with ERISA, the Code (including, without
limitation, the requirements for Tax
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qualification described in Section 401 thereof), and all other Laws, except
where the failure so to comply would not have a Company Material Adverse Effect.
The trusts established under such Plans are exempt from federal income taxes
under Section 501(a) of the Code. The Company and the Subsidiaries have received
determination letters issued by the IRS with respect to each Qualified Plan, and
the Company has furnished to Pubco true and complete copies of all such
determination letters and all correspondence relating to the applications
therefor. All statements made by or on behalf of the Company or any Subsidiary
to the IRS in connection with applications for determinations with respect to
each Qualified Plan were true and complete when made and continue to be true and
complete. To the knowledge of the Company and the Subsidiaries, nothing has
occurred since the date of the most recent applicable determination letter that
would adversely affect the tax-qualified status of any Qualified Plan.
(j) To their knowledge, the Company and the Subsidiaries have complied
in all material respects with all applicable provisions of the Code, ERISA, the
National Labor Relations Act, Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Fair Labor Standards Act, the Securities
Act, the Exchange Act, and all other Laws pertaining to the Plans, Other
Arrangements and other employee or employment related benefits, and all premiums
and assessments relating to all Plans or Other Arrangements. Neither the
Company nor any Subsidiary has any liability for any delinquent contributions
within the meaning of Section 515 of ERISA (including, without limitation,
related attorneys' fees, costs, liquidated damages and interest) or for any
arrearages of wages. Neither the Company nor any Subsidiary has any pending
unfair labor practice charges, contract grievances under any collective
bargaining agreement, other administrative charges, claims, grievances or
lawsuits before any court, arbiter or Governmental Entity arising under any Law
governing any Plan, and to the knowledge of the Company and the Subsidiaries
there exist no facts that could give rise to such a claim.
(k) Section 3.16(k) of the Company Disclosure Schedule describes all
transactions in which the Company or any Subsidiary or any of the Plans has
engaged in violation of Section 406(a) or 406(b) of ERISA for which no exemption
exists under Section 408 of ERISA and all "prohibited transactions" (as such
term is defined in Section 4975(c)(1) of the Code), for which no exemption
exists under Section 4975(c)(2) or 4975(d) of the Code. The Company has
furnished to Pubco true and complete copies of each request for a prohibited
transaction exemption and each exemption obtained in response to such request.
All such requests were true and complete when made and continue to be true and
complete.
(l) The Company and the Subsidiaries have paid all premiums (and
interest charges and penalties for late payment, if applicable) due to the PBGC
for each Defined Benefit Plan. The Company has reflected (or shall reflect) in
the Financial Statements the current value of such premium obligation that is
accrued and unsatisfied as of the date of each such Financial Statement.
Section 3.16(l) of the Company Disclosure Schedule sets forth the amount of all
such unpaid premium obligations
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(including, without limitation, proportionate partial accruals for the current
year). Other than being required to make and making premium payments when due,
no liability to the PBGC has been incurred by the Company or by any Common
Control Entity (as defined in Article X) on account of Title IV of ERISA. During
the past three (3) years, no filing has been made by, or required of, the
Company or any Common Control Entity with the PBGC, the PBGC has not started any
proceeding to terminate any Defined Benefit Plan that was or is maintained or
wholly or partially funded by the Company or any Common Control Entity, and to
the knowledge of the Company and the Subsidiaries, no facts exist that would
permit the PBGC to begin such a proceeding. Neither the Company nor any Common
Control Entity has, or will have as a result of the transactions contemplated
hereby, (i) withdrawn as a substantial employer so as to become subject to
Section 4063 of ERISA; or (ii) ceased making contributions to any Pension Plan
that is subject to Section 4064(a) of ERISA to which the Company or any Common
Control Entity made contributions during the past five (5) years.
(m) Section 3.16(m) of the Company Disclosure Schedule identifies any
terminated Plan that covered any current or former employees of the Company or
any Subsidiary, and any other Plan that has been terminated, during the past
five (5) years. The Company has furnished to Pubco true and complete copies of
all filings with any Governmental Entity, employee communications, board minutes
and all other Documents relating to each such Plan termination.
(n) Except as set forth in Section 3.16(n) of the Company Disclosure
Schedule, no Plan or Other Arrangement, individually or collectively, provides
for any payment by the Company or any Subsidiary to any employee or independent
contractor that is not deductible under Section 162(a)(1) or 404 of the Code or
that is an "excess parachute payment" pursuant to Section 280G of the Code.
(o) No Plan has within the past three (3) years experienced a
"reportable event" (as such term is defined in Section 4043(b) of ERISA) that is
not subject to an administrative or statutory waiver from the reporting
requirement.
(p) No Plan is a "qualified foreign plan" (as such term is defined in
Section 404A(e) of the Code), and no Plan is subject to the Laws of any
jurisdiction other than the United States of America or one of its political
subdivisions.
(q) The Company and the Subsidiaries have timely filed and the Company
has furnished to Pubco true and complete copies of each Form 5330 (Return of
Excise Taxes Related to Employee Benefit Plans) that the Company or any
Subsidiary filed on any Plan during the past three (3) years. The Company and
the Subsidiaries have no liability for Taxes required to be reported on Form
5330.
(r) Section 3.16(r) of the Company Disclosure Schedule lists all
funded Welfare Plans (as defined in Article X) that provide benefits to current
or former employees of the Company or any Subsidiary, or to their beneficiaries.
The funding under
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each Welfare Plan does not exceed and has not exceeded the limitations under
Sections 419A(b) and 419A(c) of the Code. To their knowledge, the Company and
the Subsidiaries are not subject to taxation on the income of any Welfare Plan's
welfare benefit fund (as such term is defined in Section 419(e) of the Code)
under Section 419A(g) of the Code.
(s) Section 3.16(s) of the Company Disclosure Schedule (i) identifies
all post-retirement medical, life insurance or other benefits promised, provided
or otherwise due now or in the future to current, former or retired employees of
the Company or any Subsidiary, (ii) identifies the method of funding (including,
without limitation, any individual accounting) for all such benefits, (iii)
discloses the funded status of the Plans providing or promising such benefits,
and (iv) sets forth the method of accounting for such benefits to any key
employees (as defined in Section 416(i) of the Code) of the Company or any
Subsidiary.
(t) All Welfare Plans and the related trusts that are subject to
Section 4980B(f) of the Code and Sections 601 through 607 of ERISA comply in all
material respects with and have been administered in compliance with the health
care continuation-coverage requirements for tax-favored status under Section
4980B(f) of the Code (formerly Section 162(k) of the Code), Sections 601 through
607 of ERISA, and all proposed or final regulations under Section 162 of the
Code explaining those requirements.
(u) The Company and the Subsidiaries have (i) filed or caused to be
filed all returns and reports on the Plans that they are required to file, and
(ii) paid or made adequate provision for all fees, interest, penalties,
assessments or deficiencies that have become due pursuant to those returns or
reports or pursuant to any assessment or adjustment that has been made relating
to those returns or reports. All other fees, interest, penalties and
assessments that are due and payable by or for the Company or any Subsidiary
with respect to any Plan have been timely reported, fully paid and discharged.
There are no unpaid fees, penalties, interest or assessments due from the
Company or any Subsidiary or from any other Person that are or could become an
Encumbrance on any Asset of the Company or any Subsidiary or could otherwise
have a Company Material Adverse Effect. The Company and the Subsidiaries have
collected or withheld all amounts that are required to be collected or withheld
by them to discharge their obligations with respect to each Plan, and all of
those amounts have been paid to the appropriate Governmental Entity or set aside
in appropriate accounts for future payment when due.
SECTION 3.17. Taxes and Tax Matters.
(a) The Company and the Subsidiaries have (or, in the case of Company
Tax Returns (as defined in Article X) becoming due after the date hereof and
before the Effective Time, will have prior to the Effective Time) duly filed all
Company Tax Returns
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required to be filed by the Company and the Subsidiaries at or before the
Effective Time with respect to all applicable material Taxes. No material
penalties or other charges are or will become due with respect to any such
Company Tax Returns as the result of the late filing thereof. All such Company
Tax Returns are (or, in the case of returns becoming due after the date hereof
and before the Effective Time, will be) true and complete in all material
respects. The Company and the Subsidiaries: (i) have paid all Taxes due or
claimed to be due by any Taxing authority in connection with any such Company
Tax Returns (without regard to whether or not such Taxes are shown as due on any
Company Tax Returns); or (ii) have established (or, in the case of amounts
becoming due after the date hereof, prior to the Effective Time will have paid
or established) in the Financial Statements adequate reserves (in conformity
with GAAP consistently applied) for the payment of such Taxes. The amounts set
up as reserves for Taxes in the Financial Statements are sufficient for the
payment of all unpaid Taxes, whether or not such Taxes are disputed or are yet
due and payable, for or with respect to the applicable period, and for which the
Company or any Subsidiary may be liable in its own right (including, without
limitation, by reason of being a member of the same affiliated group) or as a
transferee of the Assets of, or successor to, any Person.
(b) Neither the Company nor any Subsidiary, either in its own right
(including, without limitation, by reason of being a member of the same
affiliated group) or as a transferee, has or at the Effective Time will have any
liability for Taxes payable for or with respect to any periods prior to and
including the Effective Time in excess of the amounts actually paid prior to the
Effective Time or reserved for in the Financial Statements, except for any Taxes
due in connection with the Merger or incurred in the Ordinary Course of Business
subsequent to the date of the latest Financial Statement.
(c) Except as set forth in Section 3.17(c) of the Company Disclosure
Schedule, all Company Tax Returns have been examined by the relevant Taxing
authorities, or closed without audit by applicable Law, and all deficiencies
proposed as a result of such examinations have been paid, settled or reserved
for in the Financial Statements, for all taxable years prior to and including
the taxable year ended December 31, 1997. Except as set forth in Section
3.17(c) of the Company Disclosure Schedule, there is no action, suit,
proceeding, audit, investigation or claim pending or, to the knowledge of the
Company or any Subsidiary, threatened in respect of any Taxes for which the
Company or any Subsidiary is or may become liable, nor has any deficiency or
claim for any such Taxes been proposed, asserted or, to the knowledge of the
Company or any Subsidiary, threatened. Except as set forth in Section 3.17(c)
of the Company Disclosure Schedule, neither the Company nor any Subsidiary has
consented to any waivers or extensions of any statute of limitations with
respect to any taxable year of the Company or any Subsidiary. Except as set
forth in Section 3.17(c) of the Company Disclosure Schedule, there is no
Agreement, waiver or consent providing for an extension of time with respect to
the assessment or collection of any Taxes against the Company or any Subsidiary,
and no power of attorney granted by the Company or any Subsidiary with respect
to any Tax matters is currently in force.
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(d) The Company has furnished to Pubco true and complete copies of all
Company Tax Returns and all written communications with any Governmental Entity
relating to any such Company Tax Returns or to any deficiency or claim proposed
or asserted, irrespective of the outcome of such matter, but only to the extent
such items relate to Tax years (i) which are subject to an audit, investigation,
examination or other proceeding, or (ii) with respect to which the statute of
limitations has not expired.
(e) Section 3.17(e) of the Company Disclosure Schedule sets forth (i)
all federal Tax elections that currently are in effect with respect to the
Company or any Subsidiary, and (ii) all elections for purposes of foreign, state
or local Taxes and all consents or Agreements for purposes of federal, foreign,
state or local Taxes in each case that reasonably could be expected to affect or
be binding upon the Surviving Corporation or any Subsidiary or their respective
Assets or operations after the Effective Time. Section 3.17(e) of the Company
Disclosure Schedule sets forth all changes in accounting methods for Tax
purposes at any time made, agreed to, requested or required with respect to the
Company or any of the Subsidiaries.
(f) Except as set forth in Section 3.17(f) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary (i) is or has ever been a
partner in a partnership or an owner of an interest in an entity treated as a
partnership for federal income Tax purposes; (ii) has executed or filed with the
IRS any consent to have the provisions of Section 341(f) of the Code apply to
it; (iii) is subject to Section 999 of the Code; (iv) is a passive foreign
investment company as defined in Section 1296(a) of the Code; or (v) is a party
to an Agreement relating to the sharing, allocation or payment of, or indemnity
for, Taxes (other than an Agreement the only parties to which are the Company
and the Subsidiaries).
(g) The Company has complied in all material respects with all rules
and regulations relating to the withholding of Taxes.
SECTION 3.18. Customers.
To the knowledge of the Company and the Subsidiaries, the
relationships of the Company and the Subsidiaries with their customers are good
commercial working relationships. Except as set forth in Section 3.18 of the
Company Disclosure Schedule, during the twelve (12) months prior to the date of
this Merger Agreement, no customer of the Company or any Subsidiary that
accounted for in excess of $25,000 of the revenues of the Company and the
Subsidiaries during such twelve (12) months has canceled or otherwise terminated
its relationship with the Company or any Subsidiary.
SECTION 3.19. Certain Business Practices.
Neither the Company, the Subsidiaries nor any of their officers,
directors or, to the knowledge of the Company or any Subsidiary, any of their
employees or agents (or
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stockholders, distributors, representatives or other persons acting on the
express, implied or apparent authority of the Company or of any Subsidiary) have
paid, given or received or have offered or promised to pay, give or receive, any
bribe or other unlawful payment of money or other thing of value, any unlawful
discount, or any other unlawful inducement, to or from any Person or
Governmental Entity in the United States or elsewhere in connection with or in
furtherance of the business of the Company or any Subsidiary (including, without
limitation, any offer, payment or promise to pay money or other thing of value
(a) to any foreign official or political party (or official thereof) for the
purposes of influencing any act, decision or omission in order to assist the
Company or any Subsidiary in obtaining business for or with, or directing
business to, any Person, or (b) to any Person, while knowing that all or a
portion of such money or other thing of value will be offered, given or promised
to any such official or party for such purposes). The business of the Company
and the Subsidiaries is not in any manner dependent upon the making or receipt
of such payments, discounts or other inducements.
SECTION 3.20. Insurance.
Section 3.20 of the Company Disclosure Schedule lists and briefly
describes all policies of title, Asset, fire, hazard, casualty, liability, life,
worker's compensation and other forms of insurance of any kind owned or held by
the Company or any Subsidiary. All such policies: (a) are with insurance
companies reasonably believed by the Company to be financially sound and
reputable; (b) are in full force and effect; (c) are, to the knowledge of the
Company, sufficient for compliance by the Company and by each Subsidiary with
all requirements of Law and of all Agreements to which the Company or any
Subsidiary is a party; (d) are valid and outstanding policies enforceable
against the insurer; (e) to the knowledge of the Company, insure against risks
of the kind customarily insured against and in amounts customarily carried by
companies similarly situated and by companies engaged in similar businesses and
owning similar Assets, and provide adequate insurance coverage for the
businesses and Assets of the Company and the Subsidiaries; and (f) provide that
they will remain in full force and effect through the respective dates set forth
in Section 3.20 of the Company Disclosure Schedule.
SECTION 3.21. Potential Conflicts of Interest.
Except as set forth in Section 3.21 of the Company Disclosure
Schedule, neither any present or, to the knowledge of the Company or any
Subsidiary, former director, officer, employee with a salary in excess of
$60,000, or stockholder of the Company or any Subsidiary who beneficially owns
more than 5% of the capital stock of the Company or any Subsidiary, nor any
Affiliate of such director, officer, employee or stockholder:
(a) owns, directly or indirectly, any interest in (except for holdings
in securities that are listed on a national securities exchange, quoted on a
national automated quotation system or regularly traded in the over-the-counter
market, where such holdings
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are not in excess of two percent (2%) of the outstanding class of such
securities and are held solely for investment purposes), or is a stockholder,
partner, other holder of equity interests, director, officer, employee,
consultant or agent of, any Person that is a competitor, lessor, lessee or
customer of, or supplier of goods or services to, the Company or any Subsidiary,
except where the value to such individual of any such arrangement with the
Company or any Subsidiary has been less than $60,000 in the last twelve (12)
months;
(b) owns, directly or indirectly, in whole or in part, any Assets with
a fair market value of $60,000 or more which the Company or any Subsidiary
currently uses in its business;
(c) has any cause of action or other suit, action or claim whatsoever
against, or owes any amount to, the Company or any Subsidiary, except for claims
arising in the Ordinary Course of Business from any such Person's service to the
Company or any Subsidiary as a director, officer or employee;
(d) has sold or leased to, or purchased or leased from, the Company or
any Subsidiary any Assets for consideration in excess of $60,000 in the
aggregate since January 1, 1995;
(e) is a party to any Agreement pursuant to which the Company or any
Subsidiary provides office space to any such Person, or provides services of any
nature to any such Person, other than in the Ordinary Course of Business in
connection with the employment of such Person by the Company or any Subsidiary;
or
(f) has, since January 1, 1995, engaged in any other material
transaction with the Company or any Subsidiary involving in excess of $60,000,
other than (i) in the Ordinary Course of Business in connection with the
employment of such Person by the Company or any Subsidiary, and (ii) dividends,
distributions and stock issuances to all common and preferred stockholders (as
applicable) on a pro rata basis.
SECTION 3.22. Receivables.
To the knowledge of the Company, the accounts receivable of the
Company and the Subsidiaries shown on the Reviewed Balance Sheets and the
Unaudited Balance Sheets, or thereafter acquired by any of them, have been
collected or are collectible in amounts not less than the amounts thereof
carried on the books of the Company and the Subsidiaries, without right of
recourse, defense, deduction, counterclaim, offset or setoff on the part of the
obligor, and can reasonably be expected to be collected within ninety (90) days
of the date incurred or due, except to the extent of the allowance for doubtful
accounts shown on such Reviewed Balance Sheets and Unaudited Balance Sheets.
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SECTION 3.23. Books and Records.
The books of account, stock records, minute books and other corporate
and financial records of the Company are complete and correct in all material
respects and have been maintained in accordance with good business practices,
and the matters contained therein are appropriately and accurately reflected in
all material respects in the Financial Statements in accordance with GAAP.
SECTION 3.24. Assets.
Except as set forth in Section 3.24 of the Company Disclosure
Schedule, the Company and the Subsidiaries have good, valid, marketable and
insurable (at standard rates) title to, or a valid leasehold interest in, all
material Assets respectively owned or leased by them, including, without
limitation, all material Assets reflected in the Reviewed Balance Sheets and in
the Unaudited Balance Sheets and all material Assets purchased or leased by the
Company or by any Subsidiary since August 31, 1998 (except for Assets reflected
in such Reviewed Balance Sheets and Unaudited Balance Sheets or acquired since
August 31, 1998 which have been sold or otherwise disposed of in the Ordinary
Course of Business), free and clear of all Encumbrances. All personal property
of the Company and the Subsidiaries is in good operating condition and repair
(ordinary wear and tear excepted) and is suitable and adequate for the uses for
which it is intended or is being used. All inventory (as defined in Article X)
of the Company and the Subsidiaries (i) consists of items which are good and
merchantable and of a quality and quantity presently usable and salable in the
Ordinary Course of Business and (ii) have been reflected in the Financial
Statements at the lower of cost or market, in accordance with GAAP, and include
no absolute or discontinued items, except to the extent reserved against in the
Financial Statements.
SECTION 3.25. No Infringement or Contest.
(a) Section 3.25(a) of the Company Disclosure Schedule identifies and
describes each item of Intellectual Property (as defined in Article X) (i) owned
by the Company or a Subsidiary, (ii) owned by any third party and used by the
Company or any Subsidiary pursuant to license, sublicense or other Agreement, or
(iii) otherwise used by the Company or any Subsidiary (including, in each case,
specification of whether each such item is owned, licensed or used by the
Company or any Subsidiary).
(b) With respect to each item of Intellectual Property listed in
Section 3.25(a) of the Company Disclosure Schedule that is owned by the Company
or any Subsidiary, such Intellectual Property can be used by the Company and the
Subsidiaries in their respective businesses as presently conducted by them, free
and clear of restrictions, Encumbrances and royalties on such use, and the
Company and the Subsidiaries have the right to bring action for infringement of
such Intellectual Property. With respect to the Intellectual Property listed in
Section 3.25(a) of the Company Disclosure Schedule that is used by the Company
or a Subsidiary pursuant to license, sublicense or other Agreement, such
Intellectual Property has been licensed on an
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arm's-length basis and can be used by the Company and the Subsidiaries in their
respective businesses as currently conducted by them in accordance with the
terms and conditions of such licenses, sublicenses or other Agreements. With
respect to each item of Intellectual Property listed in Section 3.25(a) of the
Company Disclosure Schedule that is otherwise used by the Company or any
Subsidiary, such Intellectual Property can be used by the Company and the
Subsidiaries in their respective businesses as presently conducted by them, free
and clear of restrictions, Encumbrances and royalties on such use Each item of
Intellectual Property owned or used by the Company or any Subsidiary immediately
prior to the Closing will be owned or available for use by the Company or such
Subsidiary on identical terms and conditions immediately after the Closing.
(c) As used in the businesses of the Company and the Subsidiaries as
conducted in the past and as currently conducted, none of the Intellectual
Property listed in Section 3.25(a) of the Company Disclosure Schedule has at any
time infringed or misappropriated or otherwise violated, or is likely to
infringe, misappropriate or violate, any Intellectual Property of any other
Person, nor is the Company or any Subsidiary otherwise in the conduct of their
respective businesses infringing upon, or alleged to be infringing upon, any
Intellectual Property of any other Person. There are no pending or, to the
knowledge of the Company or any Subsidiary, threatened claims against the
Company or any Subsidiary alleging that the conduct of the Company's or any
Subsidiary's business infringes or conflicts with any Intellectual Property
rights of others. To the knowledge of the Company or any Subsidiary, there is
no Intellectual Property of another Person that infringes, misappropriates or
violates any of the Intellectual Property listed in Section 3.25(a) of the
Company Disclosure Schedule.
(d) The Company and the Subsidiaries own or have the right to use
pursuant to a valid license, sublicense or other Agreement all Intellectual
Property used in the operation of the businesses of the Company and the
Subsidiaries as currently conducted and as currently proposed to be conducted.
(e) The Company and the Subsidiaries have not caused obscene, libelous
or indecent material to be transmitted or received through the Company's or the
Subsidiaries' services or directories and have instituted procedures to ensure
that no such material is transmitted.
SECTION 3.26. Board Recommendation.
At a meeting duly called and held, or by unanimous written consent, in
compliance with Michigan Law, the Board of Directors of the Company has adopted
by unanimous vote a resolution approving and adopting this Merger Agreement and
the transactions contemplated hereby and recommending approval and adoption of
this Merger Agreement and the transactions contemplated hereby by the Company
Stockholders.
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SECTION 3.27. Vote Required.
The affirmative vote of the holders of a majority of the outstanding
shares of Company Common Stock is the only vote of the holders of any class or
series of capital stock of the Company necessary to approve the transactions
contemplated by this Merger Agreement.
SECTION 3.28. Banks; Attorneys-in-fact.
Section 3.28 of the Company Disclosure Schedule sets forth a complete
list showing the name of each bank or other financial institution in which the
Company or any Subsidiary has accounts (including a description of the names of
all Persons authorized to draw thereon or to have access thereto). Such list
also shows the name of each Person holding a power of attorney from the Company
or any Subsidiary and a brief description thereof.
SECTION 3.29. Brokers.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Merger Agreement based upon arrangements made by or on
behalf of the Company or any Subsidiary or any of their respective Affiliates.
SECTION 3.30. Environmental Matters.
(a) To the knowledge of the Company, the Company and each of the
Subsidiaries have complied and are in compliance with, and the Real Property (as
defined in Article X) and all improvements thereon are in compliance with, all
Environmental Laws (as defined in Article X), except where the failure so to
comply would not have a Company Material Adverse Effect.
(b) To the knowledge of the Company and the Subsidiaries, neither the
Company nor any Subsidiary has any liability under any Environmental Law, nor is
the Company or any Subsidiary responsible for any liability of any other Person
under any Environmental Law. Except as set forth in Section 3.30(b) of the
Company Disclosure Schedule, there are no pending or, to the knowledge of the
Company or any Subsidiary, threatened actions, suits, claims, legal proceedings
or other proceedings based on, and neither the Company nor any Subsidiary, has
received any formal or informal notice of any complaint, order, directive,
citation, notice of responsibility, notice of potential responsibility, or
information request from any Governmental Entity or any other Person since
January 1, 1993 (or prior thereto with respect to any such complaint, order,
directive, citation, notice of responsibility, notice of potential
responsibility, or information request which has not been finally resolved) or
knows any fact(s) which might reasonably
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be expected to form the basis for any such actions or notices arising out of or
attributable to: (i) the current or past presence at any part of the Real
Property of Hazardous Materials (as defined in Article X) or any substances that
pose a hazard to human health or an impediment to working conditions; (ii) the
current or past release or threatened release into the environment from the Real
Property (including, without limitation, into any storm drain, sewer, septic
system or publicly owned treatment works) of any Hazardous Materials or any
substances that pose a hazard to human health or an impediment to working
conditions; (iii) the off-site disposal of Hazardous Materials originating on or
from the Real Property or the businesses or Assets of the Company or any
Subsidiary; (iv) any facility operations, procedures or designs of the Company
or any Subsidiary which do not conform to requirements of the Environmental
Laws; or (v) any violation of Environmental Laws at any part of the Real
Property or otherwise arising from the Company's or any Subsidiary's activities
(or the activities of the Company's or any Subsidiary's predecessors in title)
involving Hazardous Materials.
(c) The Company and the Subsidiaries have been duly issued, and
currently have and will maintain through the Effective Time, all Licenses
required under any Environmental Law. A true and complete list of such
Licenses, all of which are valid and in full force and effect, is set out in
Section 3.30(c) of the Company Disclosure Schedule. Except in accordance with
such Licenses, as described in Section 3.30(c) of the Company Disclosure
Schedule or as otherwise permitted by Law, there has been no Hazardous Discharge
(as defined in Article X) or discharge of any other material regulated by such
Licenses. Except as disclosed in Section 3.30(c) of the Company Disclosure
Schedule, to the knowledge of the Company and the Subsidiaries no such Licenses
are non-transferable or which require consent, notification or other action to
remain in full force and effect following consummation of the Merger and the
other transactions contemplated hereby.
(d) Except as set forth in Section 3.30(d) of the Company Disclosure
Schedule, the Real Property contains no underground improvements, including but
not limited to treatment or storage tanks, or underground piping associated with
such tanks, used currently or in the past for the storage, throughput or other
management of Hazardous Materials, and no portion of the Real Property is or has
been used as a dump or landfill or consists of or contains filled in land or
wetlands.
SECTION 3.31. Disclosure.
To the knowledge of the Company, all facts regarding the business,
operations, prospects, condition (financial or otherwise), Assets or liabilities
of the Company and the Subsidiaries which have been disclosed in writing
(including, without limitation, in this Merger Agreement and the Company
Disclosure Schedule) or otherwise provided to Pubco by the Company have been
fully and truthfully disclosed to Pubco. No representation or warranty by the
Company, and no Document furnished or to be furnished to Pubco by the Company
pursuant to this Merger Agreement or otherwise in
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connection herewith or with the transactions contemplated hereby, 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
therein, in light of the circumstances under which they were made, not
misleading.
SECTION 3.32. Directors, Officers and Affiliates
Section 3.32 of the Company Disclosure Schedule lists all current
directors and officers of the Company and the Subsidiaries, showing each such
person's name, positions, and annual remuneration, bonuses and fringe benefits
paid by the Company or any Subsidiary for the current fiscal year and the most
recently completed fiscal year.
SECTION 3.33. Copies of Documents.
True and complete copies of all Documents listed in the Company
Disclosure Schedule have been, or will be, furnished to Pubco.
SECTION 3.34. Publication of Directories.
Section 3.34 of the Company Disclosure Schedule lists the white and
yellow page directories published by the Company, the month of publication, the
number of each directory published, and the Net Cash Revenue (as defined in
Article X) from each directory. Except as set forth in Section 3.34 of the
Company Disclosure Schedule, all sales, production and distribution of the last
edition of the directories has been completed by the Company in the same manner
as the previously published editions of such directories, including but not
limited to, the number of directories printed and distributed, the distribution
area and system, the pricing, the credit terms, the quality and size of print
and paper, and the general production standards. The Company has paid all sales
and production expenses for all editions of the directories published by the
Company.
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SECTION 3.35. Reorganization.
To the knowledge of the Company, neither it nor any of the
Subsidiaries has taken any action or failed to take any action which action or
failure would jeopardize the qualification of the Merger as a reorganization
within the meaning of Section 368(a) of the Code.
SECTION 3.36. State Takeover Statutes; Certain Charter Provisions.
No state of Michigan takeover statutes or charter or bylaw provisions
will prevent the Merger or this Merger Agreement and the transactions
contemplated hereby or thereby.
SECTION 3.37. Dissenters Rights.
All Company Stockholders have waived any appraisal or dissenters'
rights under Michigan Law or any other Law arising from, or in connection with,
the consummation of the Merger and the other transactions contemplated hereby.
SECTION 3.38. Year 2000 Review.
(a) To the knowledge of the Company, the Company and the Subsidiaries
will not be materially adversely affected by (i) any failure of the Company's
and the Subsidiaries computer hardware, software, firmware or embedded chip
technology to be Year 2000 Compliant (as defined in Article X); or (ii) the cost
and/or disruption to normal activities caused by work to be carried out to
ensure such computer hardware, software or embedded chip technology is year 2000
Compliant; provided, however, Section 3.38(a) of the Company Disclosure Schedule
lists any computer hardware, software or embedded chip technology that is not
year 2000 Compliant.
(b) The Company and the Subsidiaries are currently reviewing their
information technology ("IT") and non-IT computer systems and programs to
determine which are not capable of recognizing the Year 2000 and to verify
system readiness for the millennium date (the "Company Year 2000 Review"). The
Company Year 2000 review covers all of the Company's and the Subsidiaries'
operations and is centrally managed.
SECTION 3.39. Investment Agreements.
In accordance with Section 6.01, Investment Agreements substantially
in the form attached hereto as Exhibit A (the "Investment Agreements") will be
executed and delivered to McLeod by the Company Stockholders and each such
Investment Agreement constitutes a legal, valid and binding obligation of the
respective Company Stockholder who is a party thereto, enforceable against such
Company Stockholder in accordance with its terms.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF MCLEOD, PUBCO AND PUBCO SUB
Except as specifically set forth in the Disclosure Schedule delivered
by McLeod, Pubco and Pubco Sub to the Company prior to the execution and
delivery of this Merger Agreement (the "Pubco Disclosure Schedule"), McLeod,
-------------------------
Pubco and Pubco Sub hereby jointly and severally represent and warrant (which
representation and warranty shall be deemed to include the disclosures with
respect thereto so specified in the Pubco Disclosure Schedule) to the Company as
follows, in each case as of the date of this Merger Agreement, unless otherwise
specifically set forth herein or in the Pubco Disclosure Schedule:
SECTION 4.01. Organization and Qualification; Subsidiaries.
Each of McLeod, Pubco, Pubco Sub and Pubco's Significant Subsidiaries
(as defined in Article X) is a corporation duly organized, validly existing and
in good standing under the Laws of the jurisdiction of its incorporation or
organization, and has the full and unrestricted corporate power and authority to
own, operate and lease its Assets, and to carry on its business as currently
conducted. Each of McLeod, Pubco, Pubco Sub and Pubco's Significant
Subsidiaries is duly qualified to conduct business as a foreign corporation and
is in good standing in the states, countries and territories in which the nature
of the business conducted by it or the character of the Assets owned, leased or
otherwise held by it makes such qualification necessary, except where the
absence of such qualification as a foreign corporation would not have an Pubco
Material Adverse Effect (as defined in Article X).
SECTION 4.02. Certificate of Incorporation and Bylaws.
Pubco has furnished to the Company a true and complete copy of the
Certificate of Incorporation of Pubco and the certificate of incorporation of
Pubco Sub, as currently in effect, certified as of a recent date by the
Secretary of State (or comparable Governmental Entity) of their respective
jurisdictions of incorporation, and a true and complete copy of the Bylaws of
Pubco and the Bylaws of Pubco Sub, as currently in effect, certified by their
respective corporate secretaries. Such certified copies are attached as
exhibits to, and constitute an integral part of, the Pubco Disclosure Schedule.
SECTION 4.03. Authority; Binding Obligation.
Each of McLeod, Pubco and Pubco Sub has the full and unrestricted
corporate power and authority to execute and deliver this Merger Agreement and
to carry out the transactions contemplated hereby. The execution and delivery
by McLeod, Pubco and Pubco Sub of this Merger Agreement and all other Documents
contemplated hereby,
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and the consummation by McLeod, Pubco and Pubco Sub of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action and no other corporate proceedings on the part of McLeod, Pubco
or Pubco Sub are necessary to authorize this Merger Agreement and the other
Documents contemplated hereby, or to consummate the transactions contemplated
hereby and thereby. This Merger Agreement has been duly executed and delivered
by McLeod, Pubco and Pubco Sub and constitutes a legal, valid and binding
obligation of McLeod, Pubco and Pubco Sub in accordance with its terms, except
as such enforceability may be subject to the effect of any applicable
bankruptcy, insolvency fraudulent conveyance, reorganization, moratorium or
similar Laws affecting creditors' rights generally and subject to the effect of
general equitable principles (whether considered in a proceeding in equity or at
law).
SECTION 4.04. No Conflict; Required Filings and Consents.
(a) The execution, delivery and performance by McLeod, Pubco and Pubco
Sub of this Merger Agreement and all other Documents contemplated hereby, the
fulfillment of and compliance with the respective terms and provisions hereof
and thereof, and the consummation by McLeod, Pubco and Pubco Sub of the
transactions contemplated hereby and thereby, do not and will not: (i) conflict
with, or violate any provision of, the Certificate of Incorporation or the
Bylaws of McLeod or Pubco, or the Certificate or Articles of Incorporation or
Bylaws of Pubco Sub or any of Pubco's Significant Subsidiaries; or (ii) subject
to obtaining the consents, approvals, authorizations and permits of, and making
filings with or notifications to, the applicable Governmental Entity pursuant to
the applicable requirements, if any, of the Securities Act, the Exchange Act,
Blue Sky Laws, the HSR Act, the Communications Act, the Federal Aviation Act,
applicable state utility Laws and applicable municipal franchise Laws, and the
filing and recordation of the Articles of Merger as required by Michigan Law and
Iowa Law, conflict with or violate any Law applicable to McLeod, Pubco, Pubco
Sub or any of Pubco's Significant Subsidiaries, or any of their respective
Assets; (iii) conflict with, result in any breach of, constitute a default (or
an event that with notice or lapse of time or both would become a default) under
any Agreement to which McLeod, Pubco, Pubco Sub or any of Pubco's Significant
Subsidiaries is a party or by which McLeod, Pubco, Pubco Sub or any of Pubco's
Significant Subsidiaries, or any of their respective Assets, may be bound; or
(iv) result in or require the creation or imposition of, or result in the
acceleration of, any indebtedness or any Encumbrance of any nature upon, or with
respect to, McLeod, Pubco, Pubco Sub or any of Pubco's Significant Subsidiaries
or any of the Assets of McLeod, Pubco, Pubco Sub or any of Pubco's Significant
Subsidiaries; except for any such conflict or violation described in clause
(ii), any such conflict, breach or default described in clause (iii), or any
such creation, imposition or acceleration described in clause (iv) that would
not have an Pubco Material Adverse Effect and that would not prevent McLeod,
Pubco or Pubco Sub from consummating the Merger on a timely basis.
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(b) Except as set forth in Section 4.04(b) of the Pubco Disclosure
Schedule, the execution, delivery and performance by McLeod, Pubco and Pubco Sub
of this Merger Agreement and all other Documents contemplated hereby, the
fulfillment of and compliance with the respective terms and provisions hereof
and thereof, and the consummation by McLeod, Pubco and Pubco Sub of the
transactions contemplated hereby and thereby, do not and will not: (i) require
any consent, approval, authorization or permit of, or filing with or
notification to, any Person not party to this Merger Agreement, except (A)
pursuant to the applicable requirements, if any, of the Securities Act, the
Exchange Act, Blue Sky Laws, the HSR Act, the Communications Act, the Federal
Aviation Act, and applicable state utility Laws and applicable municipal
franchise Laws and (B) the filing and recordation of the Articles of Merger as
required by Michigan and Iowa Law; or (ii) result in or give rise to any
penalty, forfeiture, Agreement termination, right of termination, amendment or
cancellation, or restriction on business operations of McLeod, Pubco, the
Surviving Corporation or Pubco Sub.
SECTION 4.05. No Prior Activities of Pubco Sub.
Pubco Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Merger Agreement and has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.
SECTION 4.06. Brokers.
No broker or finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Merger Agreement based upon arrangements made by or on
behalf of McLeod, Pubco, Pubco Sub or any of its Affiliates.
SECTION 4.07. SEC Documents.
McLeod has filed all required reports, schedules, forms, statements
and other Documents with the SEC (as defined in Article X) since January 1, 1997
(including the McLeod Post-Signing SEC Documents (as defined in Section 6.10),
the "McLeod SEC Documents"). As of their respective dates, the McLeod SEC
--------------------
Documents complied or, in the case of the McLeod Post-Signing SEC Documents,
will comply as to form in all material respects with the applicable requirements
of the Securities Act or the Exchange Act, as the case may be, and none of the
McLeod SEC Documents contained or, in the case of the McLeod Post-Signing SEC
Documents, will contain, any untrue statement of a material fact or omitted or,
in the case of the McLeod Post-Signing SEC Documents, will omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of McLeod included in the
McLeod SEC Documents comply or, in the case of the McLeod Post-Signing SEC
Documents, will
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comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been or, in the case of the McLeod Post-Signing SEC Documents,
will have been prepared in accordance with GAAP (except, in the case of
unaudited statements, for the absence of footnotes and as permitted by Form 10-Q
of the SEC) applied on a consistent basis during the periods subject thereto
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of McLeod and its consolidated subsidiaries as
of the dates thereof and the consolidated results of operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end adjustments and the absence of footnotes). Except as disclosed
in the McLeod SEC Documents, as required by GAAP or as required by any
Governmental Entity, McLeod has not, since December 31, 1997, made any change in
accounting practices or policies applied in the preparation of financial
statements.
SECTION 4.08. McLeod Common Stock.
The McLeod Common Stock to be issued and delivered to the Company
Stockholders pursuant to the Merger has been duly authorized and, when issued in
the Merger in accordance with this Merger Agreement, will be validly issued,
fully paid and nonassessable and will have been approved for listing by The
Nasdaq Stock Market's National Market System.
SECTION 4.09. Capitalization.
The authorized capital stock of McLeod consists of (a) 250,000,000
shares of McLeod Common Stock, of which, as of January 5, 1999: (i)
63,545,925shares were issued and outstanding, all of which were duly authorized,
validly issued, fully paid and nonassessable; (ii) no shares were held in the
treasury of McLeod;(iii) 12,278,323 shares were reserved for issuance pursuant
to outstanding options to purchase McLeod Common Stock granted to employees and
certain other Persons; (iv) 245,536 shares were reserved for issuance pursuant
to a Stock Option Agreement dated August 21, 1998 between McLeod and QST
Enterprises, Inc.; (vi) 10,414 shares were reserved for issuance pursuant to a
Stock Option Agreement dated November 25, 1998 between McLeod, Inlet, Inc. and
certain shareholders of Inlet, Inc.; (vi) 917,398 shares were reserved for
issuance pursuant to the McLeodUSA Incorporated Employee Stock Purchase Plan;
and (vii) 961,920 shares were reserved pursuant to the McLeodUSA 401(k) Profit
Sharing Plan; (b) 22,000,000 shares of Class B common stock, par value $.01 per
share ("McLeod Class B Common Stock"), of which, as of January 5, 1999: (i) no
---------------------------
shares were issued and outstanding; (ii) no shares were held in the treasury of
McLeod; and (iii) 1,300,688shares were reserved for issuance pursuant to
outstanding options to purchase McLeod Class B Common Stock granted to a
significant stockholder of McLeod; and (c) 2,000,000 shares of serial preferred
stock, par value $.01 per share, of which: (i) no shares are issued and
outstanding; and (ii) no shares are held in the treasury of McLeod. Except for
the options
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set forth in clauses (a)(iii) through (a)(vi) and (b)(iii) above and as set
forth in Section 4.09(a) of the Pubco Disclosure Schedule, as of January 5,
1999, there were no outstanding securities convertible into or exchangeable for
capital stock or any other securities of McLeod, or any capital stock or other
securities of any of McLeod's or Pubco's Significant Subsidiaries and no
outstanding options, rights (preemptive or otherwise), or warrants to purchase
or to subscribe for any shares of such capital stock or other securities of
McLeod or any of McLeod's or Pubco's Significant Subsidiaries. Except as set
forth in Section 4.09(b) of the Pubco Disclosure Schedule and except for
Agreements relating to the options specified in clauses (a)(iii) through (a)(vi)
and (b)(iii) above, there are no outstanding Agreements to which McLeod, Pubco
or any of its Significant Subsidiaries is a party affecting or relating to the
voting, issuance, purchase, redemption, registration, repurchase or transfer of
capital stock or any other securities of McLeod, or any capital stock or other
securities of any of McLeod's or Pubco's Significant Subsidiaries, except as
contemplated hereunder. Each of the outstanding shares of McLeod Common Stock,
and of capital stock of, or other equity interests in, McLeod's or Pubco's
Significant Subsidiaries was issued in compliance with all applicable federal
and state Laws concerning the issuance of securities, and, except as set forth
in Section 4.09(d) of the Pubco Disclosure Schedule, such shares or other equity
interests owned by McLeod, Pubco or any of its Significant Subsidiaries are
owned free and clear of all Encumbrances. There are no obligations, contingent
or otherwise, of McLeod, Pubco or any of its Significant Subsidiaries to provide
funds to, make any investment (in the form of a loan, capital contribution or
otherwise) in, or provide any guarantee with respect to, any of McLeod's or
Pubco's Significant Subsidiaries or any other Person. Except as set forth in
Section 4.09(e) of the Pubco Disclosure Schedule, there are no Agreements
pursuant to which any Person is or may be entitled to receive any of the
revenues or earnings, or any payment based thereon or calculated in accordance
therewith, of McLeod, Pubco or any of their Significant Subsidiaries. No vote of
the stockholders of McLeod or Pubco is required in connection with the
consummation of the Merger and the other transactions contemplated hereby.
SECTION 4.10. Reorganization.
To the knowledge of McLeod and Pubco, neither McLeod, Pubco, Pubco Sub
nor any of Pubco's Significant Subsidiaries has taken any action or failed to
take any action which action or failure would jeopardize the qualification of
the Merger as a reorganization within the meaning of Section 368(a) of the Code.
SECTION 4.11. Compliance.
Neither McLeod, Pubco nor Pubco Sub is aware of any fact or
circumstance related to them that could reasonably be expected to cause the
filing of any objection to any application for any Governmental consent required
hereunder, lead to any delay in
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processing such application, or require any waiver of any Governmental rule,
policy or other applicable Law.
SECTION 4.12. Disclosure.
All material facts regarding the business, operations, prospects,
condition (financial or otherwise), Assets or liabilities of McLeod, Pubco,
Pubco Sub and Pubco's Significant Subsidiaries that have been disclosed orally
or in writing (including, without limitation, in this Merger Agreement and the
Pubco Disclosure Schedule) or otherwise provided to the Company by Pubco have
been fully and truthfully disclosed to the Company. No representation or
warranty by McLeod, Pubco or Pubco Sub, and no Document furnished or to be
furnished to the Company by McLeod, Pubco or Pubco Sub pursuant to this Merger
Agreement or otherwise in connection herewith or with the transactions
contemplated hereby, 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 therein, in light of the circumstances under which they
were made, not misleading.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.01. Conduct of Business of the Company.
The Company hereby covenants and agrees that, from the date of this
Merger Agreement until the Effective Time, the Company, unless otherwise
expressly contemplated by this Merger Agreement or consented to in writing by
Pubco, will, and will cause the Subsidiaries to, carry on their respective
businesses only in the Ordinary Course of Business, use their respective
reasonable best efforts to preserve intact their business organizations and
Assets, maintain their rights and franchises, retain the services of their
officers and key employees and maintain their relationships with customers,
suppliers, licensors, licensees and others having business dealings with them,
and use their respective reasonable best efforts to keep in full force and
effect liability insurance and bonds comparable in amount and scope of coverage
to that currently maintained. Without limiting the generality of the foregoing,
except as otherwise expressly contemplated by this Merger Agreement, from the
date of this Merger Agreement until the Effective Time the Company shall not,
and shall not permit any of the Subsidiaries to:
(a) (i) increase in any manner the compensation or fringe benefits of,
or pay any bonus to, any director, officer or employee, except for increases or
bonuses in the Ordinary Course of Business to employees who are not directors or
officers; (ii) grant any severance or termination pay (other than pursuant to
the normal severance practices or existing Agreements of the Company or any
Subsidiary in effect on the date of this
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Merger Agreement as described in Schedule 5.01(a)(ii)) to, or enter into any
severance Agreement with, any director, officer or employee, or enter into any
employment Agreement with any director, officer or employee; (iii) establish,
adopt, enter into or amend any Plan or Other Arrangement, except as may be
required to comply with applicable Law; (iv) pay any benefit not provided for
under any Plan or Other Arrangement; (v) grant any awards under any bonus,
incentive, performance or other compensation plan or arrangement or Plan or
Other Arrangement (including the grant of stock options, stock appreciation
rights, stock-based or stock-related awards, performance units or restricted
stock, or the removal of existing restrictions in any Plan or Other Arrangement
or Agreement or awards made thereunder), except for grants in the Ordinary
Course of Business or as required under the Agreements set forth in Schedule
5.01(a)(v), or (vi) take any action to fund or in any other way secure the
payment of compensation or benefits under any Agreement, except as required
under the Agreements set forth in Schedule 5.01(a)(vi);
(b) declare, set aside or pay any dividend on, or make any other
distribution in respect of, outstanding shares of capital stock;
(c) (i) redeem, purchase or otherwise acquire any shares of capital
stock of the Company or any Subsidiary or any securities or obligations
convertible into or exchangeable for any shares of capital stock of the Company
or any Subsidiary, or any options, warrants or conversion or other rights to
acquire any shares of capital stock of the Company or any Subsidiary or any such
securities or obligations, or any other securities thereof; (ii) effect any
reorganization or recapitalization; or (iii) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock;
(d) issue, deliver, award, grant or sell, or authorize the issuance,
delivery, award, grant or sale (including the grant of any limitations in voting
rights or other Encumbrances) of, any shares of any class of its capital stock
(including shares held in treasury), any securities convertible into or
exercisable or exchangeable for any such shares, or any rights, warrants or
options to acquire, any such shares, or amend or otherwise modify the terms of
any such rights, warrants or options the effect of which shall be to make such
terms more favorable to the holders thereof;
(e) except as contemplated by Agreements that have been identified in
Section 3.14(a) of the Company Disclosure Schedule, acquire or agree to acquire,
by merging or consolidating with, by purchasing an equity interest in or a
portion of the Assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any Assets of any other Person
(other than the purchase of assets from suppliers or vendors in the Ordinary
Course of Business);
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(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise
subject to any Encumbrance or dispose of, or agree to sell, lease, exchange,
mortgage, pledge, transfer or otherwise subject to any Encumbrance or dispose
of, any of its Assets, except; as identified in Schedule 5.01;
-------------
(g) adopt any amendments to its articles or certificate of
incorporation, bylaws or other comparable charter or organizational documents;
(h) make or rescind any express or deemed election relating to Taxes,
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes, or change
any of its methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of the federal income tax
returns for the taxable year ended December 31, 1997, except in either case as
may be required by Law, the IRS or GAAP;
(i) make or agree to make any new capital expenditure or expenditures
which are not included in the Company's 1999 capital budget, a copy of which was
furnished to Pubco, and which are, individually, in excess of $25,000 or, in the
aggregate, in excess of $50,000;
(j) (i) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or any
Subsidiary, guarantee any debt securities of another Person, enter into any
"keep well" or other Agreement to maintain any financial statement condition of
another Person or enter into any Agreement having the economic effect of any of
the foregoing, except for short-term borrowings incurred in the Ordinary Course
of Business, or (ii) make any loans, advances or capital contributions to, or
investments in, any other Person other than intra-group loans, advances, capital
contributions or investments between or among the Company and any of its wholly
owned Subsidiaries;
(k) pay, discharge, settle or satisfy any claims, liabilities or
obligations (whether absolute or contingent, matured or unmatured, known or
unknown), other than the payment, discharge or satisfaction, in the Ordinary
Course of Business or in accordance with their terms, of liabilities reflected
or reserved against in, or contemplated by, the most recent Financial Statement
or incurred in the Ordinary Course of Business, or waive any material benefits
of, or agree to modify in any material respect, any confidentiality, standstill
or similar Agreements to which the Company or any Subsidiary is a party;
(l) except in the Ordinary Course of Business, waive, release or
assign any rights or claims, or modify, amend or terminate any Agreement to
which the Company or any Subsidiary is a party;
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(m) make any change in any method of accounting or accounting practice
or policy other than those required by GAAP or a Governmental Entity;
(n) take any action or fail to take any action which could reasonably
be expected to have a Company Material Adverse Effect prior to or after the
Effective Time or an Pubco Material Adverse Effect after the Effective Time, or
that could reasonably be expected to adversely affect the ability of the Company
or any Subsidiary prior to the Effective Time, or Pubco or any of its
subsidiaries after the Effective Time, to obtain consents of third parties or
approvals of Governmental Entities required to consummate the transactions
contemplated in this Merger Agreement; or
(o) authorize, or commit or agree to do any of the foregoing.
SECTION 5.02. Other Actions.
The Company and Pubco shall not, and shall not permit any of their
respective Affiliates to, take any action that would, or that could reasonably
be expected to, result in (a) any of the representations and warranties of such
party set forth in this Merger Agreement becoming untrue, or (b) any of the
conditions to the Merger set forth in Article VII not being satisfied.
SECTION 5.03. Certain Tax Matters.
From the date hereof until the Effective Time, the Company and the
Subsidiaries (a) will prepare and timely file with the relevant Taxing authority
all Company Tax Returns ("Post-Signing Returns") required to be filed, which
--------------------
Post-Signing Returns shall be accurate in all material respects, (b) will timely
pay all Taxes due and payable with respect to such Post-Signing Returns, (c)
will pay or otherwise make adequate provision for all Taxes payable by the
Company and the Subsidiaries for which no Post-Signing Return is due prior to
the Effective Time, and (d) will promptly notify Pubco of any action, suit,
proceeding, claim or audit pending against or with respect to the Company or any
Subsidiary in respect of any Taxes.
SECTION 5.04. Access and Information.
For so long as this Merger Agreement is in effect, the Company shall,
and shall cause each Subsidiary to, (a) afford to Pubco and its officers,
employees, accountants, consultants, legal counsel and other representatives
reasonable access during normal business hours, subject to reasonable advance
notice, to all of their respective properties, Agreements, books, records and
personnel and (b) furnish promptly to Pubco (i) a copy of each Document filed
with, or received from any Governmental Entity and (ii) all other information
concerning their respective businesses, operations, prospects, conditions
(financial or otherwise), Assets, liabilities and personnel as Pubco may
reasonably request.
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SECTION 5.05. No Solicitation.
(a) The Company shall, and shall cause its directors, officers,
employees, representatives, agents and Subsidiaries and their respective
directors, officers, employees, representatives and agents to, immediately cease
any discussions or negotiations with any Person that may be ongoing with respect
to a Competing Transaction (as defined in this Section 5.05(a)). The Company
shall not, and shall cause the Subsidiaries not to, initiate, solicit or
encourage (including by way of furnishing information or assistance), or take
any other action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Competing
Transaction, or enter into discussions or furnish any information or negotiate
with any Person or otherwise cooperate in any way in furtherance of such
inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize any of the directors, officers, employees,
agents or representatives of the Company or any Subsidiary to take any such
action, and the Company shall, and shall cause the Subsidiaries to, direct and
instruct and use its or their reasonable best efforts to cause the directors,
officers, employees, agents and representatives of the Company and the
Subsidiaries (including, without limitation, any investment banker, financial
advisor, attorney or accountant retained by the Company or any Subsidiary) not
to take any such action, and the Company shall promptly notify Pubco if any such
inquiries or proposals are received by the Company or any Subsidiary, or any of
its or their respective directors, officers, employees, agents, investment
bankers, financial advisors, attorneys, accountants or other representatives,
and the Company shall promptly inform Pubco as to the material terms of such
inquiry or proposal and, if in writing, promptly deliver or cause to be
delivered to Pubco a copy of such inquiry or proposal, and the Company shall
keep Pubco informed, on a current basis, of the nature of any such inquiries and
the status and terms of any such proposals. For purposes of this Merger
Agreement, "Competing Transaction" shall mean any of the following involving the
---------------------
Company or the Subsidiaries (other than the transactions contemplated by this
Merger Agreement): (i) any merger, consolidation, share exchange, business
combination, or other similar transaction; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of ten percent (10%) or more of
the Assets of the Company and the Subsidiaries, taken as a whole, or issuance of
ten percent (10%) or more of the outstanding voting securities of the Company or
any Subsidiary in a single transaction or series of transactions; (iii) any
tender offer or exchange offer for ten percent (10%) or more of the outstanding
shares of capital stock of the Company or any Subsidiary or the filing of a
registration statement under the Securities Act in connection therewith; (iv)
any solicitation of proxies in opposition to approval by the Company
Stockholders of the Merger; (v) any Person shall have acquired beneficial
ownership or the right to acquire beneficial ownership of, or any "group" (as
-----
such term is defined under Section 13(d) of the Exchange Act) shall have been
formed after the date of this Merger Agreement which beneficially owns or has
the right to acquire beneficial ownership of, ten percent (10%) or more of the
then outstanding shares of capital stock of the Company or any Subsidiary; or
(vi) any Agreement to, or public
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announcement by the Company or any other Person of a proposal, plan or intention
to, do any of the foregoing.
(b) Neither the Board of Directors of the Company nor any committee
thereof shall (i) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to Pubco or Pubco Sub, the approval or recommendation by such
Board of Directors or any such committee of this Merger Agreement or the Merger,
(ii) approve or recommend, or propose to approve or recommend, any Competing
Transaction or (iii) enter into any Agreement with respect to any Competing
Transaction.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Investment Agreements.
(a) As promptly as practicable after the date of this Merger
Agreement, the Company shall use its best efforts to obtain Investment
Agreements from each Company Stockholder who is to receive shares of McLeod
Common Stock in the Merger.
(b) The parties hereto acknowledge, agree, and confirm that the McLeod
Common Stock to be issued pursuant to Section 2.01,(i) will not be registered
under the Securities Act of 1933, as amended (as defined in Article X), or
registered or qualified under any state securities laws, (ii) must be held
indefinitely unless a subsequent disposition thereof is made pursuant to an
effective registration thereof under the Securities Act or is exempt from such
registration and cannot be offered for sale, sold or otherwise transferred
unless the McLeod Common Stock is subsequently so registered or qualified for
exemption from registration under the Securities Act, (iii) will bear a legend
to that effect (and McLeod will make a notation on its transfer of books to that
effect), and (iv) will be considered "registered securities" within the meaning
of Rule 144 of the Securities Act; Rule 144 may not be available to exempt from
the registration requirements of the Securities Act the sale of such "restricted
securities;" if Rule 144 is available, sale may be made in reliance upon Rule
144 only in accordance with the terms and conditions of Rule 144; and if an
exemption for such sale is not available, registration of the McLeod Common
Stock may be required, but McLeod is under no obligation to register the McLeod
Common Stock or to facilitate compliance or to comply with any exemption, except
as expressly set out in Section 6.19 below.
SECTION 6.02. Meeting of Stockholders.
The Company shall promptly after the date of this Merger Agreement
take all action necessary in accordance with Michigan and Iowa Law and its
certificate of
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incorporation and bylaws to duly call, give notice of, convene and hold the
Stockholders' Meeting, and the Company shall consult with Pubco in connection
therewith. The Company shall use its reasonable best efforts to solicit from the
Company Stockholders proxies or consents to approve this Merger Agreement and
the transactions contemplated hereby and shall take all other actions reasonably
necessary or advisable to secure the vote or consent of the Company Stockholders
required by Michigan and Iowa Law to approve this Merger Agreement and the
transactions contemplated hereby.
SECTION 6.03. Appropriate Action; Consents; Filings.
(a) Upon the terms and subject to the conditions set forth in this
Merger Agreement, the Company, McLeod and Pubco shall use all reasonable efforts
to take, or cause to be taken, all appropriate action, and do, or cause to be
done, and to assist and cooperate with the other parties in doing all things
necessary, proper or advisable under applicable Law or otherwise to consummate
and make effective the transactions contemplated by this Merger Agreement as
promptly as practicable, including (i) executing and delivering any additional
instruments necessary, proper or advisable to consummate the transactions
contemplated by, and to carry out fully the purposes of, this Merger Agreement,
(ii) obtaining from any Governmental Entities any Licenses required to be
obtained or made by McLeod, Pubco or the Company or any of their subsidiaries in
connection with the authorization, execution and delivery of this Merger
Agreement and the consummation of the transactions contemplated herein,
including, without limitation, the Merger, and (iii) making all necessary
filings, and thereafter making any other required submissions, with respect to
this Merger Agreement and the Merger required under (A) the Securities Act and
any other applicable federal or state securities Laws, (B) the HSR Act and (C)
any other applicable Law; provided that McLeod, Pubco and the Company shall
--------
cooperate with each other in connection with the making of all such filings,
including providing copies of all such Documents to the non-filing party and its
advisors prior to filing and discussing all reasonable additions, deletions or
changes suggested in connection therewith. The Company, McLeod and Pubco shall
furnish to each other all information required for any application or other
filing to be made pursuant to the rules and regulations of any applicable Law in
connection with the transactions contemplated by this Merger Agreement.
(b) (i) The Company, McLeod and Pubco shall give (or shall cause
their respective subsidiaries to give) any notices to third parties, and use,
and cause their respective subsidiaries to use, all reasonable efforts to obtain
any third party consents, approvals or waivers (A) necessary, proper or
advisable to consummate the transactions contemplated in this Merger Agreement,
(B) disclosed or required to be disclosed in the Company Disclosure Schedule or
the Pubco Disclosure Schedule, as the case may be, or (C) required to prevent a
Company Material Adverse Effect from occurring prior to or after the Effective
Time or an Pubco Material Adverse Effect from occurring prior to or after the
Effective Time.
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(ii) If any party shall fail to obtain any third party consent,
approval or waiver described in subsection (b)(i) above, such party shall use
all reasonable efforts, and shall take any such actions reasonably requested by
the other parties hereto, to minimize any adverse effect upon the Company and
Pubco, their respective subsidiaries, and their respective businesses resulting,
or which could reasonably be expected to result after the Effective Time, from
the failure to obtain such consent, approval or waiver.
(c) From the date of this Merger Agreement until the Effective Time,
the Company, McLeod and Pubco shall promptly notify each other in writing of any
pending or, to the knowledge of the Company, McLeod or Pubco (or their
respective subsidiaries), threatened action, proceeding or investigation by any
Governmental Entity or any other Person (i) challenging or seeking damages in
connection with the Merger or the conversion of the Company Common Stock into
McLeod Common Stock pursuant to the Merger or (ii) seeking to restrain or
prohibit the consummation of the Merger or otherwise limit the right of Pubco or
its subsidiaries to own or operate all or any portion of the businesses or
Assets of the Company or any Subsidiary. The Company and Pubco shall cooperate
with each other in defending any such action, proceeding or investigation,
including seeking to have any stay or temporary restraining order entered by any
court or other Governmental Entity vacated or reversed.
SECTION 6.04. Update Disclosure; Breaches.
From and after the date of this Merger Agreement until the Effective
Time, each party hereto shall promptly notify the other parties hereto by
written update to its Disclosure Schedule of (i) any representation or warranty
made by it in connection with this Merger Agreement becoming untrue or
inaccurate, (ii) the occurrence, or non-occurrence, of any event the occurrence,
or non-occurrence, of which would be likely to cause any condition to the
obligations of any party to effect the Merger and the other transactions
contemplated by this Merger Agreement not to be satisfied, or (iii) the failure
of the Company, McLeod, Pubco or Pubco Sub, as the case may be, to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it pursuant to this Merger Agreement which would be likely to result in any
condition to the obligations of any party to effect the Merger and the other
transactions contemplated by this Merger Agreement not to be satisfied. The
Company shall deliver to Pubco updated versions of Sections 3.10 and 3.14(a) of
the Company Disclosure Schedule as of the Closing Date, solely to reflect events
occurring between the date of this Merger Agreement and the Closing Date, or
shall have notified Pubco that no changes to such Sections of the Company
Disclosure Schedule are required.
SECTION 6.05. Public Announcements.
Pubco, Pubco Sub and the Company shall consult with each other before
issuing or making, and shall give each other the opportunity to review and
comment upon,
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any press release or other public statement with respect to the Merger and the
other transactions contemplated in this Merger Agreement, and shall not issue
any such press release or make any such public statement prior to such
consultation, except as may be required by Law or any listing agreement with the
NASD (as defined in Article X).
SECTION 6.06. Employee Matters.
The Company and Pubco shall use their respective reasonable best
efforts to cause the officers and employees of the Company and the Subsidiaries
listed in Schedule 6.06 (the "Company Key Employees") to enter into employment,
------------- ---------------------
confidentiality and non-competition agreements, substantially in the form of
Pubco's standard Employment, Confidentiality and Non-Competition Agreement, a
copy of which is attached hereto as Exhibit B (the "Employment Agreements"), at
--------- ---------------------
or prior to the Effective Time.
SECTION 6.07. Unaudited Financial Information.
The Company will cause to be prepared and will furnish to Pubco as
promptly as possible an unaudited consolidated balance sheet of the Company and
the Subsidiaries as of the last day of each month ending after August 31, 1998
and the related unaudited consolidated statements of income and cash flows of
the Company and the Subsidiaries for the one-month periods then ended. The
Company will ensure that such Unaudited Statements are complete and correct in
all material respects, have been prepared in accordance with the books and
records of the Company and the Subsidiaries, and present fairly the consolidated
financial position of the Company and the Subsidiaries and their consolidated
results of operations and cash flows as of and for the respective dates and time
periods applied on a basis consistent with prior accounting periods, except as
noted thereon and subject to normal and recurring year-end adjustments.
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SECTION 6.08. Environmental Matters.
The Company will promptly furnish to Pubco written notice of any
Hazardous Discharge or of any actions or notices described in Section 3.30(b).
SECTION 6.09. Post-Signing SEC Documents.
McLeod and Pubco will file with the SEC all reports, schedules, forms,
statements and other Documents required to be filed by it after the date of this
Merger Agreement but before the Effective Time (the "McLeod Post-Signing SEC
-----------------------
Documents").
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SECTION 6.10. Indemnification by Principal Company Stockholders.
(a) After the Effective Time, the Principal Company Stockholders,
individually, shall, severally and not jointly, indemnify and hold harmless
McLeod, Pubco, the Surviving Corporation and their respective officers and
directors, and each person, if any, who controls or may control McLeod, Pubco or
the Surviving Corporation within the meaning of the Securities Act (all such
persons hereinafter are referred to individually as an "Indemnified Person" and
------------------
collectively as "Indemnified Persons," but in no event shall any stockholder of
-------------------
the Company be such an Indemnified Person), from and against any and all losses,
costs, damages, liabilities and expenses, including reasonable attorneys' fees
and expenses, ("Damages") actually suffered and arising out of the breach of the
-------
representations, warranties, covenants and agreements given or made by the
Company or the Principal Company Stockholders in this Merger Agreement, in the
Articles of Merger or in the Exhibits or Schedules hereto or in any certificate
or document delivered by or on behalf of the Company or the Principal Company
Stockholders pursuant hereto. The Principal Company Stockholders shall have no
liability under this Section 6.10 to the extent claims for Damages hereunder do
not exceed an aggregate of $250,000 (the "Bucket") (other than for Damages
incurred in connection with any income tax liabilities of the Company or the
Principal Company Stockholders, in which case the Basket shall not apply);
provided, further, that if such Damages exceed an aggregate of $250,000 then the
- -------- -------
indemnification provided for hereunder shall apply only to Damages exceeding the
$250,000 threshold provided for above. It shall be a condition of the right of
each Indemnified Person to indemnification pursuant to this Section 6.10 that
such Indemnified Person shall assert a claim for such indemnification on or
prior to the date that the particular representation, warranty, covenant or
agreement for the breach of which the indemnification is being sought, expires
under the terms of this Merger Agreement.
(b) Any payment to be made to an Indemnified Person by a Principal
Company Stockholder under this Section 6.10 shall be made in cash.
(c) The amount of any Damages under this Section 6.10 shall be
computed net of (i) any tax benefit realized therefrom to an Indemnified Person,
and (ii) any insurance proceeds received with respect thereto that reduces the
Damages that
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would otherwise be sustained. Additionally, the Principal Company Stockholders
shall be entitled to a credit against any Damages for which they are liable for
indemnification under this Section 6.10 in an amount equal to the sum of the
amount, if any, by which the actual amount of any liability shown on the balance
sheet of the Company as of the Closing Date is less than the amount of such
liability or reserve therefor as recorded on such balance sheet.
SECTION 6.11. Procedures; Conditions of Indemnification.
With respect to any indemnification provided pursuant to this Merger
Agreement, the Indemnified Person agrees to give prompt written notice to the
Principal Company Stockholders of any claim or other assertion of liability by
third parties (hereinafter called collectively "Claims"), it being understood
------
that the failure to give such notice shall not affect the Indemnified Person's
right to indemnification and the indemnifying party's obligation to indemnify as
set forth in this Agreement, unless the Principal Company Stockholders' rights
with respect to such Claim are thereby demonstrably and materially prejudiced.
The obligations and liabilities of the parties hereto with respect to
their respective indemnities pursuant to this Merger Agreement resulting from
any Claim shall be subject to the following terms and conditions:
(a) The Principal Company Stockholders shall have the right to
undertake, by counsel or other representatives of their own choosing, the
defense of such Claim.
(b) If the Principal Company Stockholders elect not to undertake such
defense, or within a reasonable time after notice of any such Claim from the
Indemnified Person shall fail to defend, the Indemnified Person (upon further
written notice to the Principal Company Stockholders) shall have the right to
undertake the defense, compromise or settlement of such Claim, by counsel or
other representatives of its own choosing, on behalf of and for the account and
risk of the Principal Company Stockholders (subject to the right of the
Principal Company Stockholders to assume defense of such Claim at any time prior
to settlement, compromise or final determination thereof).
(c) Anything in this Section 6.11 to the contrary notwithstanding, (i)
if the Indemnified Person notifies the Principal Company Stockholder that the
Indemnified Person has concluded that a Claim may materially and adversely
affect the Indemnified Person other than as a result of money damages or other
money payments, the Indemnified Person shall have the right, at its own cost and
expense, to participate in the defense, compromise or settlement of the Claim,
(ii) the Principal Company Stockholders shall not, without the Indemnified
Person's written consent, settle or compromise any Claim or consent to entry of
any judgment that does not include as an unconditional term thereof the giving
by the claimant or the plaintiff to the Indemnified Person of a release from all
liability in respect of such Claim, and (iii) in the event that the Principal
Company
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Stockholders undertake defense of any Claim, the Indemnified Person, by counsel
or other representative of its own choosing and at its sole cost and expense,
shall have the right to consult with the Principal Company Stockholders and
their counsel or other representatives concerning such Claim and the Principal
Company Stockholders and the Indemnified Person and their respective counsel or
other representatives shall cooperate with respect to such Claim.
(d) Notwithstanding any other provision of this Section 6.11, the
Indemnified Person may at any time assume full control over the responsibility
for any Claim, by written notice to the Principal Company Stockholders releasing
the Principal Company Stockholders from any further indemnity obligation
pursuant to this Merger Agreement with respect to said Claim.
(e) Any decision with respect to any matter under this Section 6.11
(including, without limitation, the defense, prosecution, settlement or
resolution of Claims) shall be binding on all Principal Company Stockholders if
consented to by those Principal Company Stockholders who, immediately prior to
the Effective Time, hold a majority of the Company Common Stock held by all
Principal Company Stockholders.
SECTION 6.12. Tax Treatment.
Each party hereto shall use its reasonable best efforts to cause the
Merger to qualify, and shall not take any actions which could prevent the Merger
from qualifying, as a reorganization qualifying under the provisions of Section
368(a) of the Code.
SECTION 6.13. Tax Returns.
To the extent permitted under applicable Tax Laws, the Merger shall be
reported as a "reorganization" within the meaning of Section 368(a) of the Code
in all federal, state and local Tax Returns filed after the Effective Time.
Notwithstanding any other provision of this Merger Agreement, the obligations
set forth in this Section 6.13 shall survive the Effective Time without
limitation as to time or in any other respect.
SECTION 6.14. Reorganization.
During the period from the date of this Merger Agreement through the
Effective Time, unless Pubco and the Company shall otherwise agree in writing,
Pubco and the Company shall not, and shall cause their respective subsidiaries
not to knowingly take or fail to take any action which action or failure would
jeopardize the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code.
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SECTION 6.15. Directors' and Officers' Insurance; Indemnification.
Pubco agrees that for the entire period from the Effective Time until
at least six (6) years after the Effective Time, (a) Pubco will cause the
Surviving Corporation to maintain the Company's current directors' and officers'
insurance and indemnification policy and related arrangements, if any, or an
equivalent policy and related arrangements, subject in either case to terms and
conditions no less advantageous to the present and former directors and officers
of the Company than those contained in the policy and arrangements in effect on
the date hereof, for all present and former directors and officers of the
Company, covering claims made and insurable events occurring prior to or within
six (6) years after the Effective Time (provided that the Surviving Corporation
will not be required to maintain such policy except to the extent that the
aggregate annual cost of maintaining such policy is not in excess of two hundred
percent (200%) of the current annual cost, in which case the Surviving
Corporation shall maintain such policies up to an annual cost of two hundred
percent (200%) of the current annual cost); and (b) Pubco will cause the
Surviving Corporation to maintain indemnification provisions, including, without
limitation, provisions for expense advances, for present and former officers and
directors in the Surviving Corporation's certificate of incorporation and bylaws
to the fullest extent permitted by Iowa Law. In the event of any threatened or
actual claim, action, suit, proceeding or investigation, whether civil, criminal
or administrative, including, without limitation, any such claim, action, suit
proceeding or investigation in which any of the present or former officers or
directors (the "Managers") of the Company is, or is threatened to be, made a
--------
party by reason of the fact that such Manager is or was a director, officer,
employee or agent of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other entity, whether before or after the
Effective Time, the parties hereto agree to cooperate and use their reasonable
best efforts to defend against and respond thereto. It is understood and agreed
that the Company shall indemnify and hold harmless, and after the Effective Time
each of the Surviving Corporation and Pubco shall indemnify and hold harmless,
as and to the full extent that the Surviving Corporation would be permitted by
applicable Law (and as to matters arising from or relating to this Merger
Agreement and the possible change in control of the Company, to the full extent
that Pubco would be permitted under applicable Law), each such Manager against
any losses, claims, damages, liabilities, costs, expenses (including reasonable
attorneys' fees), judgments, fines and amounts paid in settlement in connection
with any such claim, action, suit, proceeding or investigation; and in the event
of any such claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) the Managers may retain counsel
satisfactory to them, and the Company, or the Surviving Corporation and Pubco
after the Effective Time, shall pay all reasonable fees and expenses of such
counsel for the Managers promptly as statements therefor are received whether
before or after final determination of the matter, and (ii) the Company, or the
Surviving Corporation and Pubco after the Effective Time, will use their
respective reasonable best efforts to assist in the vigorous defense of any such
matter; provided that neither the Company nor the Surviving Corporation or Pubco
--------
shall be liable for any settlement effected without its prior written consent
(which consent shall not be unreasonably
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withheld); and provided further that the Company's, the Surviving Corporation's
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and Pubco's obligations hereunder shall only be reduced or relieved when and if
a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and non-appealable, that indemnification
of such Manager in the manner contemplated is prohibited by applicable Law.
SECTION 6.16. Obligations of Pubco Sub.
Pubco shall take all action necessary to cause Pubco Sub to perform
its obligations under this Merger Agreement and to consummate the Merger on the
terms and conditions set forth in this Merger Agreement.
SECTION 6.17. Payment of Certain Debt.
The Company shall pay in full all mortgages, indentures, notes and
other agreements for or relating to borrowed money to which the Company or any
Subsidiary is a party as listed in Section 3.12 of the Company Disclosure
Schedule, other than the debt obligation to Old Kent Bank, or make such other
arrangements or adjustments reasonably acceptable to Pubco.
SECTION 6.18. Lease Modification.
The Company shall cause the real estate lease for the Company's
headquarters in Wyoming, Michigan, described in Section 3.13 of the Company
Disclosure Schedule, to be modified, as of the Effective Date, to allow the
Surviving Corporation to terminate the Lease at any time upon six months notice
to the Landlord under such Leases.
SECTION 6.19. Agreement to Register Stock.
(a) Subject to Section 6.19(b) below, within ninety (90) days
following the Closing, McLeod shall prepare and file a registration statement on
Form S-3 (the "Resale Registration Statement") under the Securities Act of 1933
(the "Securities Act") covering the resale of a maximum of 25% of the McLeod
Common Stock to be issued in the Merger (and any shares of the capital stock of
McLeod that may be issued with respect to the McLeod Common Stock issued in the
Merger as a result of a reclassification, recapitalization, dividend, stock
split or comparable event). McLeod shall thereafter use its reasonable best
efforts to have such Resale Registration Statement declared effective by the
Securities and Exchange Commission ("SEC") as soon after the filing as
practicable and to keep that Resale Registration Statement effective and
current, including through the filing of any amendments and supplements that may
be required under provisions of applicable law, for one year after its original
effectiveness. McLeod may include other shares of McLeod Common Stock on the
Resale Registration Statement. At McLeod's option, McLeod may satisfy its
obligations under this Section 6.19(a) on another form of registration statement
under the Securities Act. McLeod agrees to notify
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each holder of McLeod Common Stock registered on the Resale Registration
Statement (i)when the Resale Registration Statement (or any post-effective
amendment thereto) has become effective, (ii) if the SEC has issued any stop
order with respect to the Resale Registration Statement or initiated any
proceedings for that purpose, and (iii) if McLeod has received any written
notification with respect to the suspension of qualification of any McLeod
Common Stock for sale in any jurisdiction or on any securities exchange or
market or with respect to the initiation or threat of any proceeding for such
purpose. McLeod further agrees to furnish holders of McLeod Common Stock
registered on the Resale Registration Statement such numbers of copies of a
prospectus, in conformity with the requirements of applicable law, and such
other documents as each such holder may reasonably request in order to
facilitate the disposition of the McLeod Common Stock owned by such holder.
(b) Intentionally omitted.
(c) McLeod will give notice to holders of McLeod Common Stock
registered on the Resale Registration Statement, at any time when a prospectus
relating thereto is required to be delivered under applicable law, of the
happening of any event as a result of which the prospectus included in such
Resale Registration Statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing. Any such holder shall cease using such
prospectus immediately upon receipt of notice from McLeod to that effect. If so
requested by McLeod, each holder shall return promptly to McLeod any copies of
any prospectus in its possession that contains an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing. At the request of such holder, McLeod shall
prepare and furnish to each holder a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing.
(d) (i) McLeod shall bear all costs incurred in preparing and filling
the Resale Registration Statement including, without limitation, all applicable
legal, accounting, printing, blue sky and SEC filing fees, provided, however,
that McLeod shall not be responsible for any underwriting commissions or
discounts, brokerage fees or legal fees or disbursements incurred by any person
or entity (other than McLeod) that sells any shares of McLeod Common Stock under
the Resale Registration Statement. McLeod shall also bear all costs of keeping
the Resale Registration Statement current during the applicable period described
in Section 6.19(a).
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(ii) McLeod will indemnify and hold harmless each holder of McLeod
Common Stock registered on the Resale Registration Statement against any losses,
claims, damages or liabilities to which such holder may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Resale Registration
Statement, any final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
McLeod will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by such holder in writing specifically for
use in the Resale Registration Statement or prospectus.
(iii) Each holder of McLeod Common Stock registered on the Resale
Registration Statement shall furnish to McLeod in writing such information with
respect to such holder as McLeod may reasonably request or as may be required by
law for use in connection with the Resale Registration Statement and the final
prospectus contained therein, and each such holder will indemnify and hold
harmless McLeod against any losses, claims, damages or liabilities to which
McLeod may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Resale Registration Statement, any final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading to the same
extent as the foregoing indemnity from McLeod to the holders of McLeod Common
Stock registered on the Resale Registration Statement, but only with respect to
(i) any such information with respect to such holder furnished in writing to
McLeod expressly for use therein or (ii) a breach of any obligations of such
holder under this Section 6.19; provided, however, that the total amount to be
indemnified by such holder under this Section 6.19(d)(iii) shall be limited to
the net proceeds received by such holder in the offering to which the Resale
Registration Statement or prospectus relates.
(e) The rights described in this Section 6.19 shall not be transferable
and shall not be afforded to any person or entity to whom holders of McLeod
Common Stock received in the Merger transfer such stock.
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ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.01. Conditions to Obligations of Each Party Under This Merger
Agreement.
The respective obligations of each party to effect the Merger and the
other transactions contemplated herein shall be subject to the satisfaction at
or prior to the Effective Time of the following conditions, any or all of which
may be waived by agreement of Pubco and the Company, in whole or in part, to the
extent permitted by applicable Law:
(a) Stockholder Approval. This Merger Agreement and the Merger shall
--------------------
have been approved and adopted by the requisite vote of the Company
Stockholders.
(b) No Order. No Governmental Entity or federal or state court of
--------
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, judgment,
injunction or other order (whether temporary, preliminary or permanent), in any
case which is in effect and which prevents or prohibits consummation of the
Merger; provided, however, that each of the parties shall use its reasonable
-------- -------
best efforts to cause any such decree, judgment, injunction or other order to be
vacated or lifted.
(c) HSR Act. The applicable waiting period, together with any
-------
extensions thereof, under the HSR Act shall have expired or been terminated.
(d) Other Approvals. All consents, waivers, approvals and
---------------
authorizations required to be obtained, and all filings or notices required to
be made, by McLeod, Pubco or the Company prior to consummation of the
transactions contemplated in this Merger Agreement (other than the filing of the
Articles of Merger in accordance with Michigan and Iowa Law) shall have been
obtained from and made with all required Governmental Entities, except for such
consents, waivers, approvals or authorizations which the failure to obtain, or
such filings or notices which the failure to make, would not have a Company
Material Adverse Effect or an Pubco Material Adverse Effect or be reasonably
likely to subject the Company, any Subsidiary, McLeod, Pubco, Pubco Sub or any
of their respective directors or officers to criminal liability or substantial
penalties.
SECTION 7.02. Additional Conditions to Obligations of McLeod, Pubco and Pubco
Sub.
The obligations of McLeod, Pubco and Pubco Sub to effect the Merger
and the other transactions contemplated herein are also subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived by Pubco, in whole or in part, to the extent
permitted by applicable Law:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company contained in this Merger Agreement shall be true and
correct as of the date of this Merger Agreement and shall be true and correct in
all material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall be
true and correct in all respects giving effect to such standard) as of the
Effective Time as though made as of the
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Effective Time, except that those representations and warranties which address
matters only as of a particular date shall remain true and correct in all
material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall be
true and correct in all respects giving effect to such standard) as of such
date, and except (A) for changes permitted or contemplated by this Merger
Agreement, or (B) in a representation and warranty that does not expressly
include a standard of materiality, any untrue or incorrect statements therein
that, considered in the aggregate, do not indicate a Company Material Adverse
Effect. Pubco shall have received a certificate of the chief executive officer
or chief financial officer of the Company to that effect.
(b) Updated Company Disclosure Schedule. The revised versions of
-----------------------------------
Sections 3.10 and 3.14(a) of the Company Disclosure Schedule delivered to Pubco
pursuant to Section 6.04 shall not disclose any Company Material Adverse Effect
as compared to such Sections of the Company Disclosure Schedule as of the date
of this Merger Agreement.
(c) Agreements and Covenants. The Company shall have performed or
------------------------
complied in all material respects with all agreements and covenants required by
this Merger Agreement to be performed or complied with by it on or prior to the
Effective Time. Pubco shall have received a certificate of the chief executive
officer or chief financial officer of the Company to that effect.
(d) Consents Under Agreements. The Company or the appropriate
-------------------------
Subsidiary shall have obtained the consent or approval of each Person whose
consent or approval shall be required in connection with the Merger under all
Agreements to which the Company or any Subsidiary is a party, except where the
failure to obtain any such consents or approvals, considered in the aggregate,
would not have a Company Material Adverse Effect or an Pubco Material Adverse
Effect.
(e) Opinion of Counsel. Pubco shall have received from Miller,
------------------
Johnson, Snell & Cumminskey, P.L.C., counsel to the Company, an opinion dated
the Closing Date, in form usual and customary for similar transactions and
reasonably acceptable to Pubco and the Company.
(f) No Challenge. There shall not be pending any action, proceeding
------------
or investigation by any Governmental Entity (i) challenging or seeking material
damages in connection with the Merger or the conversion of Company Common Stock
into McLeod Common Stock pursuant to the Merger, or seeking to place limitations
on the ownership of shares of Company Common Stock (or shares of common stock of
the Surviving Corporation) by Pubco or Pubco Sub, (ii) seeking to restrain or
prohibit the consummation of the Merger or otherwise limit the right of the
Company, any Subsidiary, Pubco or any of its subsidiaries to own or operate all
or any portion of the business or Assets of the
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Company and the Subsidiaries, or (iii) which otherwise is likely to have a
Company Material Adverse Effect or an Pubco Material Adverse Effect.
(g) Accountant Letters. McLeod and Pubco shall have received from
------------------
Arthur Anderson, its accountants, an opinion, satisfactory in form and substance
to McLeod and Pubco, to the effect that the Merger may be treated as a "pooling
of interest" for accounting purposes.
(h) Employment Agreements. Pubco shall have received executed copies
---------------------
of Employment Agreements from the Company Key Employees.
(i) Company Material Adverse Effect. Since August 31, 1998, there
-------------------------------
shall not have occurred a Company Material Adverse Effect (or any development
that, insofar as reasonably can be foreseen, is reasonably likely to result in
any Company Material Adverse Effect) not disclosed in the Company Disclosure
Schedule.
(j) Due Diligence Investigation. Pubco shall have completed its due
---------------------------
diligence investigation of the Company and the Subsidiaries and shall have
determined (in Pubco's reasonable discretion) that no development has occurred
or information been discovered that has, or is reasonably likely to have, or
indicates a Company Material Adverse Effect.
(k) Tax Opinion. McLeod and Pubco shall have received the opinion of
-----------
Hogan & Hartson L.L.P., counsel to McLeod and Pubco, dated the Closing Date, to
the effect that the Merger and any other transactions contemplated herein, will
not result in taxation to McLeod, Pubco or Pubco Sub under the Code. In
rendering such opinion, Hogan & Hartson L.L.P. shall require delivery of and
rely upon the representation letters delivered by McLeod, Pubco, Pubco Sub and
the Company substantially in the forms of Exhibit C and Exhibit D hereto.
--------- ---------
(l) Environmental Matters. Any Environmental Reports shall indicate
---------------------
that the Real Property does not contain any Hazardous Materials and is not
subject to any risk of contamination from any off-site Hazardous Materials,
except to the extent that the presence of any such Hazardous Materials or the
risk of such contamination would not have a Company Material Adverse Effect or
an Pubco Material Adverse Effect.
(m) Board Approval. The principal terms of this Agreement shall have
---------------
been approved and adopted by McLeod's and Pubco's Boards of Directors in
accordance with applicable law and their respective Articles of Incorporation
and Bylaws.
(n) Investment Agreements. McLeod and Pubco shall have received from
----------------------
each Company Stockholder that is to receive shares of McLeod Common Stock in the
Merger a duly executed and delivered Investment Agreement. The number of
Company Stockholders that are to receive shares of McLeod Common Stock in the
Merger and that are not "accredited investors" within the meaning of 501(a)
under the Securities Act shall
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not exceed thirty-five (35), and each Company Stockholder that is not an
accredited investor shall have such knowledge and experience in financial and
business matters, either alone or with an appropriate purchaser representative
that has been appointed by such Company Stockholder, that it is capable of
evaluating the merits and risks of the Merger and its investment in the McLeod
Common Stock.
SECTION 7.03. Additional Conditions to Obligations of the Company.
The obligations of the Company to effect the Merger and the other
transactions contemplated herein are also subject to the satisfaction at or
prior to the Effective Time of the following conditions, any or all of which may
be waived by the Company, in whole or in part, to the extent permitted by
applicable Law:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of McLeod, Pubco and Pubco Sub contained in this Merger Agreement
shall be true and correct as of the date of this Merger Agreement and shall be
true and correct in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality, such
statement shall be true and correct in all respects giving effect to such
standard) as of the Effective Time as though made as of the Effective Time,
except that those representations and warranties which address matters only as
of a particular date shall remain true and correct in all material respects
(except that where any statement in a representation or warranty expressly
includes a standard of materiality, such statement shall be true and correct in
all respects giving effect to such standard) as of such date, and except (A) for
changes permitted or contemplated by this Merger Agreement or (B) in a
representation and warranty that does not expressly include a standard of
materiality, any untrue or incorrect statements therein that, considered in the
aggregate, do not indicate an Pubco Material Adverse Effect. The Company shall
have received a certificate of the chief executive officer or chief financial
officer of Pubco to that effect.
(b) Agreements and Covenants. McLeod, Pubco and Pubco Sub shall have
------------------------
performed or complied in all material respects with all agreements and covenants
required by this Merger Agreement to be performed or complied with by them on or
prior to the Effective Time. The Company shall have received a certificate of
the chief executive officer or chief financial officer of McLeod, Pubco and
Pubco Sub to that effect.
(c) Opinion of Counsel. The Company shall have received from Bradley
------------------
& Riley, P.C. an opinion dated the Closing Date, in form usual and customary for
similar transactions and reasonably acceptable to the Company and Pubco.
(d) No Challenge. There shall not be pending any action, proceeding
------------
or investigation by any Governmental Entity (i) challenging or seeking material
damages in connection with the Merger or the conversion of Company Common Stock
into McLeod
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Common Stock pursuant to the Merger, or (ii) seeking to restrain or prohibit the
consummation of the Merger.
(e) Tax Opinion. The Company shall have received the opinion of
-----------
Arthur Anderson, its accountants, dated the Closing Date, to the effect that the
Merger, and any other transactions contemplated herein, will not result in
taxation to the Company or the Company Stockholders under the Code. In
rendering such opinion, Arthur Anderson shall require delivery of and rely upon
the representation letters delivered by McLeod, Pubco, Pubco Sub and the Company
substantially in the forms of Exhibit C and Exhibit D hereto.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination.
This Merger Agreement may be terminated at any time (except where
otherwise indicated) prior to the Effective Time, whether before or after
approval of this Merger Agreement and the Merger by the Company Stockholders:
(a) by mutual written consent of Pubco and the Company;
(b) (i) by Pubco, if there has been a breach by the Company of any
of its representations, warranties, covenants or agreements contained in this
Merger Agreement, or any such representation and warranty shall have become
untrue, in any such case such that Section 7.02(a), Section 7.02(b) or Section
7.02(c) will not be satisfied and such breach or condition has not been cured
within ten (10) business days following receipt by the Company of written notice
of such breach;
(ii) by the Company, if there has been a breach by McLeod, Pubco
or Pubco Sub of any of its representations, warranties, covenants or agreements
contained in this Merger Agreement, or any such representation and warranty
shall have become untrue, in any such case such that Section 7.03(a) or Section
7.03(b) will not be satisfied and such breach or condition has not been cured
within ten (10) business days following receipt by Pubco of written notice of
such breach;
(c) by Pubco, upon Pubco's determination, based on its due diligence
investigation and review of the Company and the Subsidiaries, that (i) there is,
or is reasonably likely to be, any material diminution in the benefits expected
to be derived by Pubco as a result of the transactions contemplated by this
Merger Agreement or (ii) any development has occurred or information been
discovered that has, or is reasonably likely to have, or that indicates a
Company Material Adverse Effect;
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(d) by either Pubco or the Company if any decree, permanent
injunction, judgment, order or other action by any court of competent
jurisdiction or any Governmental Entity preventing or prohibiting consummation
of the Merger shall have become final and non-appealable;
(e) by either Pubco or the Company if the Agreement shall fail to
receive the requisite vote for approval and adoption by the Company Stockholders
at the Stockholders' Meeting;
(f) by either Pubco or the Company if the Merger shall not have been
consummated by February 15, 1999;; provided however, that the right to terminate
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this Merger Agreement under this Section 8.01(f) shall not be available to (i)
Pubco, where Pubco's willful failure to fulfill any obligation under this Merger
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date, or (ii) the Company, where the Company's
willful failure to fulfill any obligation under this Merger Agreement has been
the cause of, or resulted in, the failure of the Effective Time to occur on or
before such date; and
(g) By the Company if the average of the closing bid and ask price for
McLeod Common Stock quoted on the National Association of Securities Dealers'
Automated Quotation System on the Closing Date, as reported in the Wall Street
-----------
Journal, is $20.00 or less per share.
- -------
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SECTION 8.02. Effect of Termination.
In the event of termination of this Merger Agreement by either Pubco
or the Company as provided in Section 8.01, this Merger Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of McLeod, Pubco, Pubco Sub or the Company or any of their respective directors
or officers except (i) as set forth in Sections 8.03 and 9.01 hereof, (ii)
nothing herein shall relieve any party from liability for any breach hereof,
(iii) each party shall be entitled to any remedies at law or in equity for such
breach and (iv) Sections 8.02 and 8.03 and Article IX shall remain in full force
and effect and survive any termination of this Merger Agreement.
SECTION 8.03. Expenses.
All costs and expenses incurred in connection with this Merger
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense. Pubco shall pay the applicable HSR filing fee.
SECTION 8.04. Amendment.
This Merger Agreement may be amended by the parties hereto at any time
prior to the Effective Time; provided, however, that, after approval of the
-------- -------
Merger by the Company Stockholders, no amendment may be made which would reduce
the amount or change the type of consideration into which each share of Company
Common Stock shall be converted pursuant to this Merger Agreement upon
consummation of the Merger. This Merger Agreement may not be amended except by
an instrument in writing signed by the parties hereto.
SECTION 8.05. Extension; Waiver.
At any time prior to the Effective Time, the parties hereto may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any Document delivered pursuant hereto and (c)
subject to the proviso of Section 8.04, waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall
be valid if set forth in an instrument in writing signed by the party or parties
to be bound thereby. The failure of any party to assert any of its rights under
this Merger Agreement or otherwise shall not constitute a waiver of such rights.
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ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Survival of Representations and Warranties.
The representations and warranties of the Company contained in this
Merger Agreement shall survive the Effective Time for a period of eighteen (18)
months, except for the representations and warranties contained in Sections
3.05, 3.16, 3.17 and 3.30, which shall survive until the expiration of the
statute of limitations. The representations and warranties of McLeod and Pubco
contained in the Merger Agreement shall survive the Effective Time for a period
of eighteen (18) months. Notwithstanding anything herein to the contrary, any
representation, warranty, covenant or agreement that is the subject of a Claim
asserted in writing prior to the expiration of the applicable period set out
above, shall survive with respect to such Claim until the final resolution
thereof.
SECTION 9.02. Notices.
All notices and other communications given or made pursuant hereto
shall be in writing and shall be deemed to have been duly given or made as of
the date delivered, mailed or transmitted if delivered personally, mailed by
registered or certified mail (postage prepaid, return receipt requested) or sent
by overnight courier (providing proof of delivery) to the parties at the
following addresses or sent by electronic transmission to the following
telecopier numbers (or at such other address or telecopy number for a party as
shall be specified by like notice):
(a) If to McLeod, Pubco or Pubco Sub:
McLeodUSA Incorporated
McLeodUSA Technology Park
6400 C Street SW
PO Box 3177
Cedar Rapids, Iowa 52406-3177
Telecopier No.: (319) 298-7901
Attention: Randall Rings
Vice President, General Counsel and Secretary
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, DC 20004
Telecopier No.: (202) 637-5910
Attention: Joseph G. Connolly, Jr.
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(b) If to the Company:
Info America Phone Books, Inc.
5311 Clyde Park Avenue
Wyoming, MI 49509-9529
Telecopier No.:
Attention: John P. Morgan, President
With a copy (which shall not constitute notice) to:
Miller, Johnson, Snell & Cumminskey
250 Monroe Avenue NW, Suite 800
PO Box 306
Grand Rapids, MI 49501-0306
Telecopier No.: (616) 831-1701
Attention: Jeffrey B. Lawson
SECTION 9.03. Headings.
The headings contained in this Merger Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Merger Agreement.
SECTION 9.04. Severability.
If any term or other provision of this Merger Agreement is invalid,
illegal or incapable of being enforced by any rule of Law or public policy, all
other conditions and provisions of this Merger Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Merger Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
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SECTION 9.05. Entire Agreement.
This Merger Agreement (together with the Exhibits, Schedules, the
Company Disclosure Schedule and the Pubco Disclosure Schedule and the other
Documents delivered pursuant hereto) and the Confidentiality Agreement (as
defined in Article X) constitute the entire agreement of the parties and
supersede all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof and,
except as otherwise expressly provided herein, are not intended to confer upon
any other Person any rights or remedies hereunder.
SECTION 9.06. Assignment.
This Merger Agreement shall not be assigned by operation of Law or
otherwise.
SECTION 9.07. Parties in Interest.
This Merger Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Merger Agreement, express or
implied, other than the right to receive the consideration payable in the Merger
pursuant to Article II, is intended to or shall confer upon any other Person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Merger Agreement.
SECTION 9.08. Mutual Drafting.
Each party hereto has participated in the drafting of this Merger
Agreement, which each party acknowledges is the result of extensive negotiations
between the parties.
SECTION 9.09. Specific Performance.
In addition to any other remedies McLeod or Pubco may have at law or
in equity, the Company hereby acknowledges that the Company Common Stock and the
Company and the Subsidiaries are unique, and that the harm to McLeod or Pubco
resulting from breaches by the Company of its obligations cannot be adequately
compensated by damages. Accordingly, the Company agrees that McLeod or Pubco
shall have the right to have all obligations, undertakings, agreements,
covenants and other provisions of this Merger Agreement specifically performed
by the Company and that McLeod or Pubco shall have the right to obtain an order
or decree of such specific performance in any of the courts of the United States
of America or of any state or other political subdivision thereof.
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SECTION 9.10. Governing Law.
This Merger Agreement shall be governed by, and construed in
accordance with, the Laws of the State of Iowa, regardless of the Laws that
might otherwise govern under applicable principles of conflicts of law.
SECTION 9.11. Counterparts.
This Merger Agreement may be executed and delivered in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed and delivered shall be deemed to be an original but all
of which taken together shall constitute one and the same agreement.
SECTION 9.12. Confidentiality.
Except to the extent disclosure, filing, reporting or announcement of
this Merger Agreement is required by law, including by any rules or regulations
of any applicable governmental, regulatory or stock exchange agency or
authority, the existence and substance of this Merger Agreement shall remain
confidential until publically announced by McLeod or Pubco. If the transactions
contemplated by this Merger Agreement are not consummated, Pubco agrees that it
will return to the Company, and the Company agrees that it will return to Pubco,
all records and other documents of the other then in that party's possession and
will not itself use, or disclose, directly or indirectly, to any Business
Information with respect to the other party or the business learned by the party
during the period between the date hereof and the termination of this Merger
Agreement. The term "Business Information" as used herein means all information
of a business or technical nature relevant to each party's business that is not
generally known to or by those persons generally knowledgeable about such types
of business. The foregoing shall survive the closing or any termination of this
Merger Agreement without limitation.
ARTICLE X
DEFINITIONS
For purposes of this Merger Agreement, the following terms, and the
singular and plural thereof, shall have the meanings set forth below:
"Affiliate" means: (a) with respect to an individual, any member of such
---------
individual's family; (b) with respect to an entity, any officer, director,
stockholder, partner or investor of or in such entity or of or in any Affiliate
of such entity; and (c) with respect to a Person, any Person which directly or
indirectly, through one or more intermediaries, Controls, is Controlled by, or
is under common Control with such person or entity.
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"affiliate" means, with respect to any Person, a Person that directly or
---------
indirectly, through one or more intermediaries, Controls, is Controlled by, or
is under common Control with, such Person.
"Agreement" means any legally binding concurrence of understanding and intention
---------
between two or more Persons with respect to their relative rights and/or
obligations or with respect to a thing done or to be done (whether or not
conditional, executory, express, implied, in writing or meeting the requirements
of contract), including, without limitation, contracts, leases, promissory
notes, covenants, easements, rights of way, covenants, commitments, arrangements
and understandings.
"Articles of Merger" is defined in Section 1.02.
------------------
"Assets" means assets of every kind and everything that is or may be available
------
for the payment of liabilities (whether inchoate, tangible or intangible),
including, without limitation, real and personal property.
"beneficial owner" means, with respect to any shares of Company Common Stock, a
----------------
Person who shall be deemed to be the beneficial owner of such shares (i) which
such Person or any of its affiliates or associates beneficially owns, directly
or indirectly, (ii) which such Person or any of its affiliates or associates (as
such term is defined in Rule 12b-2 under the Exchange Act) has, directly or
indirectly, (A) the right to acquire (whether such right is exercisable
immediately or subject only to the passage of time), pursuant to any Agreement
or upon the exercise of conversion rights, exchange rights, warrants or options,
or otherwise, or (B) the right to vote pursuant to any Agreement, (iii) which
are beneficially owned, directly or indirectly, by any other Persons with whom
such Person or any of its affiliates or associates has any Agreement for the
purpose of acquiring, holding, voting or disposing of any such shares, or (iv)
pursuant to Section 13(d) of the Exchange Act and any rules or regulations
promulgated thereunder.
"business day" means a day other than a Saturday, a Sunday or any other day on
------------
which commercial banks in the State of Michigan and in the State of Iowa are
authorized or obligated to be closed.
"Blue Sky Laws" means state securities or blue sky laws and the rules and
-------------
regulations thereunder.
"Certificates" is defined in Section 2.02(b).
------------
"Closing" is defined in Section 2.04.
-------
"Closing Date" is defined in Section 2.04.
------------
"Code" is defined in the Preamble to this Merger Agreement.
----
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"Common Control Entity" means any trade or business under common control (as
---------------------
such term is defined in Section 414(b) or 414(c) of the Code) with the Company
or any Subsidiary.
"Common Share Exchange Ratio" is defined in Section 2.01(a).
---------------------------
"Company" is defined in the Preamble to this Merger Agreement.
-------
"Company Common Stock" is defined in Section 2.01(a).
--------------------
"Company Contracts" is defined in Section 3.14(a).
-----------------
"Company Disclosure Schedule" is defined in Article III.
---------------------------
"Company Key Employees" is defined in Section 6.06.
---------------------
"Company Licenses" is defined in Section 3.07(a).
----------------
"Company Material Adverse Effect" means any event, change or effect that,
-------------------------------
individually or when taken together with all other such events, changes or
effects, is or is reasonably likely to be materially adverse to the business,
operations, condition (financial or otherwise), Assets or liabilities of the
Company and the Subsidiaries, taken as a whole.
"Company Preferred Stock" is defined in Section 3.04.
-----------------------
"Company Stockholders" is defined in the Preamble to this Merger Agreement.
--------------------
"Company Tax Returns" means all Tax Returns required to be filed by the Company
-------------------
or any of the Subsidiaries (without regard to extensions of time permitted by
law or otherwise).
"Competing Transaction" is defined in Section 5.05(a).
---------------------
"Control" (including the terms "Controlled by" and "under common Control with")
------- ------------- -------------------------
means, as used with respect to any Person, possession, directly or indirectly or
as a trustee or executor, of power to direct or cause the direction of
management or policies of such Person (whether through ownership of voting
securities, as trustee or executor, by Agreement or otherwise).
"Damages" is defined in Section 6.10.
-------
"Defined Benefit Plan" means a Plan that is or was a "defined benefit plan" as
--------------------
such term is defined in Section 3(35) of ERISA.
"Documents" means any paper or other material (including, without limitation,
---------
computer storage media) on which is recorded (by letters, numbers or other
marks) information that may be evidentially used, including, without limitation,
legal opinions, mortgages, indentures, notes, instruments, leases, Agreements,
insurance policies, reports, studies,
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financial statements (including, without limitation, the notes thereto), other
written financial information, schedules, certificates, charts, maps, plans,
photographs, letters, memoranda and all similar materials.
"DOL" means the United States Department of Labor and its successors.
---
"Effective Time" is defined in Section 1.02.
--------------
"Employment Agreements" is defined in Section 6.06.
---------------------
"Encumbrance" means any mortgage, lien, pledge, security interest, deed of
-----------
trust, option, encroachment, reservation, order, decree, judgment, condition,
restriction, charge, or Agreement of any kind.
"Environmental Laws" means any Laws (including, without limitation, the
------------------
Comprehensive Environmental Response, Compensation, and Liability Act),
including any plans, other criteria, or guidelines promulgated pursuant to such
Laws, now or hereafter in effect relating to Hazardous Materials generation,
production, use, storage, treatment, transportation or disposal, or noise
control, or the protection of human health or the environment.
"Environmental Reports" is defined in Section 6.08.
---------------------
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
-----
and all Laws promulgated pursuant thereto or in connection therewith.
"ESOP" means an "employee stock ownership plan" as such term is defined in
----
Section 407(d)(6) of ERISA or Section 4975(e)(7) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and all
------------
Laws promulgated pursuant thereto or in connection therewith.
"FCC" means the United States Federal Communications Commission and its
---
successors.
"Financial Statements" is defined in Section 3.08.
--------------------
"GAAP" means United States generally accepted accounting principles.
----
"Governmental Entities" (including the term "Governmental") means any
--------------------- ------------
governmental, quasi-governmental or regulatory authority, whether domestic or
foreign.
"group" is defined in Section 5.05(a).
-----
"Hazardous Discharge" means any emission, spill, release or discharge (whether
-------------------
on Real Property, on property adjacent to the Real Property, or at any other
location or disposal site) into or upon the air, soil or improvements, surface
water or groundwater, or the sewer, septic system, or waste treatment, storage
or disposal systems servicing the Real
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<PAGE>
Property, in each case of Hazardous Materials used, stored, generated, treated
or disposed of at the Real Property.
"Hazardous Materials" means any wastes, substances, radiation or materials
-------------------
(whether solids, liquids or gases) that are regulated by a Governmental Entity
or defined or listed by a Governmental Entity as hazardous, toxic, pollutants or
contaminants, including, without limitation, substances defined as "hazardous
wastes," "hazardous substances," "toxic substances," "radioactive materials," or
other similar designations in, or otherwise subject to regulation under, any
Environmental Laws. "Hazardous Materials" includes polychlorinated biphenyls
-------------------
(PCBs), asbestos, lead-based paints, and petroleum and petroleum products
(including, without limitation, crude oil or any fraction thereof).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
-------
amended, and all Laws promulgated pursuant thereto or in connection therewith.
"Individual Account Plan" means a Plan that is or was an "individual account
-----------------------
plan" as such term is defined in Section 3(34) of ERISA.
"Intellectual Property" means (a) all inventions (whether patentable or
---------------------
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, all rights to database
information, and all applications, registrations, and renewals in connection
therewith, (d) all moral rights, including all rights of paternity and
integrity, all rights to claim authorship of copyrightable works, to object to a
modification of copyrightable works, and all similar rights existing under the
judicial or statutory Law of any country in the world or under any treaty,
regardless of whether or not such right is denominated or generally referred to
as a "moral right," (e) all mask works and all applications, registrations, and
renewals in connection therewith, (f) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals),
(g) all computer software (including data and related documentation), (h) all
rights, including rights of privacy and publicity, to use the names, likenesses
and other personal characteristics of any individual, (i) all other proprietary
rights, and (j) all copies and tangible embodiments thereof (in whatever form or
medium) existing in any part of the world.
"Inventory" means all new materials, work in process and finished goods and
---------
inventorable supplies.
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<PAGE>
"IRS" means the United States Internal Revenue Service and its successors.
---
"knowledge" will be deemed to be present with respect to the Company and the
---------
Subsidiaries or Pubco, when the matter in question was brought to the attention
of or, if due diligence had been exercised, would have been brought to the
attention of, any officer or responsible employee of the Company or any
Subsidiary, on the one hand, or Pubco, on the other hand.
"Laws" means all foreign, federal, state and local statutes, laws, ordinances,
----
regulations, rules, resolutions, orders, tariffs, determinations, writs,
injunctions, awards (including, without limitation, awards of any arbitrator),
judgments and decrees applicable to the specified Person and to the businesses
and Assets thereof (including, without limitation, Laws relating to securities
registration and regulation; the sale, leasing, ownership or management of real
property; employment practices, terms and conditions, and wages and hours;
building standards, land use and zoning; safety, health and fire prevention; and
environmental protection, including Environmental Laws).
"License" means any franchise, grant, authorization, license, tariff, permit,
-------
easement, variance, exemption, consent, certificate, approval or order of any
Governmental Entity.
"McLeod Common Stock" is defined in Section 2.01.
-------------------
"McLeod Post-Signing SEC Documents" is defined in Section 6.09.
---------------------------------
"McLeod SEC Documents" is defined in Section 4.07.
--------------------
"Merger" is defined in the Preamble to this Merger Agreement.
------
"Merger Agreement" is defined in the Preamble to this Merger Agreement.
----------------
"Merger Consideration" is defined in Section 2.01(a).
--------------------
"Minimum-Funding Plan" means a Pension Plan that is subject to Title I, Subtitle
--------------------
B, Part 3, of ERISA (concerning "funding").
"Multiemployer Plan" means a "multiemployer plan" as such term is defined in
------------------
Section 3(37) of ERISA.
"NASD" means the National Association of Securities Dealers, Inc.
----
"Net Cash Revenue" means all contracted for revenue in the form of cash paid or
----------------
accounts receivable, including national revenue, but excluding cancellations,
promotional discounts, payment plan discounts, and any revenue traded for value
other than cash or accounts receivable.
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"Other Arrangement" means a benefit program or practice providing for bonuses,
-----------------
incentive compensation, vacation pay, severance pay, insurance, restricted
stock, stock options, employee discounts, company cars, tuition reimbursement or
any other perquisite or benefit (including, without limitation, any fringe
benefit under Section 132 of the Code) to employees, officers or independent
contractors that is not a Plan.
"Ordinary Course of Business" means ordinary course of business consistent with
---------------------------
past practices and prudent business operations.
"PBGC" means the Pension Benefit Guaranty Corporation or its successors.
----
"Pension Plan" means an "employee pension benefit plan" as such term is defined
------------
in Section 3(2) of ERISA.
"Person" means an individual, corporation, partnership, joint venture, trust,
------
unincorporated organization or other entity, or a Governmental Entity.
"Plan" means any plan, program or arrangement, whether or not written, that is
----
or was an "employee benefit plan" as such term is defined in Section 3(3) of
ERISA and (a) which was or is established or maintained by the Company or any
Subsidiary; (b) to which the Company or any Subsidiary contributed or was
obligated to contribute or to fund or provide benefits; or (c) which provides or
promises benefits to any person who performs or who has performed services for
the Company or any Subsidiary and because of those services is or has been (i) a
participant therein or (ii) entitled to benefits thereunder.
"Post-Signing Returns" is defined in Section 5.03.
--------------------
"Pubco" is defined in the Preamble to this Merger Agreement.
-----
"Pubco Disclosure Schedule" is defined in Article IV.
-------------------------
"Pubco Material Adverse Effect" means any event, change or effect that,
-----------------------------
individually or when taken together with all other such events, changes or
effects, is or is reasonably likely to be materially adverse to the business,
operations, condition (financial or otherwise), Assets or liabilities of Pubco
and its subsidiaries, taken as a whole.
"Pubco Sub" is defined in the Preamble to this Merger Agreement.
---------
"Qualified Plan" means a Pension Plan that satisfies, or is intended by the
--------------
Company to satisfy, the requirements for Tax qualification described in Section
401 of the Code.
"Real Property" means the real property owned, operated, or used by the Company
-------------
or any of the Subsidiaries as of December 31, 1996, and any additional real
property owned, operated, or used since that date, and, for purposes of Section
3.30, any real property formerly owned or operated by the Company or any of the
Subsidiaries.
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<PAGE>
"Reviewed Balance Sheets" is defined in Section 3.08(a).
-----------------------
"Reviewed Statements" is defined in Section 3.08(a)
-------------------
"SEC" means the United States Securities and Exchange Commission and its
---
successors.
"Securities Act" means the Securities Act of 1933, as amended, and all Laws
--------------
promulgated pursuant thereto or in connection therewith.
"Significant Subsidiary" means any subsidiary of McLeod or Pubco disclosed in
----------------------
its most recent Annual Report on Form 10-K, and any other subsidiary that would
constitute a "Significant Subsidiary" of Pubco within the meaning of Rule 1-02
of Regulation S-X of the SEC.
"Statutory-Waiver Plan" means a Pension Plan that is not subject to Title I,
---------------------
Subtitle B, Part 3, of ERISA (concerning "funding").
"Stockholders' Meeting" is defined in Section 6.02.
---------------------
"Subsidiary" means a corporation, partnership, joint venture or other entity of
----------
which the Company owns, directly or indirectly, at least 50% of the outstanding
securities or other interests the holders of which are generally entitled to
vote for the election of the board of directors or other governing body or
otherwise exercise Control of such entity.
"Taxes" (including the terms "Tax" and "Taxing") means all federal, state, local
----- --- ------
and foreign taxes (including, without limitation, income, profit, franchise,
sales, use, real property, personal property, ad valorem, excise, employment,
social security and wage withholding taxes) and installments of estimated taxes,
assessments, deficiencies, levies, imports, duties, license fees, registration
fees, withholdings, or other similar charges of every kind, character or
description imposed by any Governmental Entity, and any interest, penalties or
additions to tax imposed thereon or in connection therewith.
"Tax Returns" means all federal, state, local, foreign and other applicable
-----------
returns, declarations, reports and information statements with respect to Taxes
required to be filed with the IRS or any other Governmental Entity or Tax
authority or agency, including, without limitation, consolidated, combined and
unitary tax returns.
"Title I Plan" means a Plan that is subject to Title I of ERISA.
------------
"Total Outstanding Company Shares" is defined in Section 2.01(a).
--------------------------------
"Unaudited Balance Sheets" is defined in Section 6.07.
------------------------
"Unaudited Financial Statements" is defined in Section 6.07.
------------------------------
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"Welfare Plan" means an "employee welfare benefit plan" as such term is defined
------------
in Section 3(1) of ERISA.
"Year 2000 Complaint" means that neither performance nor functionality is
-------------------
affected by dates prior to, during or after the year 2000; in particular (i) no
value for current date will cause any interruption in operation; (ii) date-based
functionality must behave consistently for dates before, during and after the
year 2000; (iii) in all interfaces and data storage, the century in any date is
specified either explicitly or by unambiguous algorithms or inferencing rules;
and (iv) the year 2000 must be recognized as a leap year.
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<PAGE>
IN WITNESS WHEREOF, McLeod, Pubco, Pubco Sub, the Company and the
Principal Company Stockholders have caused this Merger Agreement to be executed
and delivered as of the date first written above.
McLEODUSA INCORPORATED
By: /s/ Arthur L. Christoffersen
-----------------------------------------------
Arthur L. Christoffersen, Group Vice President,
Publishing Services
McLEODUSA PUBLISHING COMPANY
By: /s/ Arthur L. Christoffersen
-----------------------------------------------
Arthur L. Christoffersen, President
PUBLICATION MERGE CO.
By: /s/ Arthur L. Christoffersen
-----------------------------------------------
Arthur L. Christoffersen, President
INFO AMERICA PHONE BOOKS, INC.
By: /s/ John P. Morgan
-----------------------------------------------
John P. Morgan, President
PRINCIPAL COMPANY STOCKHOLDERS
/s/ John P. Morgan
- ---------------------------------------
JOHN P. MORGAN
/s/ Hendrik G. Meijer
- ---------------------------------------
HENDRIK G. MEIJER
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EXHIBIT 4.1
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement (this "Agreement") is entered into as of
January 7, 1999, by and among McLeodUSA Incorporated, a Delaware corporation
(the "Company"); IES Investments Inc., an Iowa corporation ("IES"); Clark E.
McLeod ("McLeod"); Mary E. McLeod (together with McLeod, the "McLeods"); Richard
A. Lumpkin ("Lumpkin") and each of the former stockholders of Consolidated
Communications Inc. ("CCI") and certain permitted transferees of the former CCI
shareholders in each case who are listed in Schedule I hereto (the "CCI
----------
Shareholders"); and M/C Investors L.L.C. ("M/C Investors") and
Media/Communications Partners III Limited Partnership, a Delaware limited
partnership ("M/C Partners" and together with M/C Investors, the "New
Stockholders"). IES, the McLeods, Lumpkin and the CCI Shareholders party hereto
are referred to herein collectively as the "1998 Stockholders" and individually
as a "1998 Stockholder."
WHEREAS, the Company and the 1998 Stockholders are parties to a
Stockholders' Agreement entered into as of November 18, 1998 (the "1998
Stockholders' Agreement");
WHEREAS, in order to induce the Company and Bravo Acquisition
Corporation, a wholly owned subsidiary of the Company, to enter into an
Agreement and Plan of Merger (the "Merger Agreement") to which the New
Stockholders and certain others are a party, the New Stockholders, concurrent
with the execution and delivery of the Merger Agreement, are entering into this
Agreement;
WHEREAS, upon the closing of the Merger Agreement and the transactions
contemplated thereby, the New Stockholders will become stockholders of the
Company; and
WHEREAS, the Company, the 1998 Stockholders and the New Stockholders
deem it to be in the best interests of the Company and its stockholders to enter
into this Agreement to continue to provide for the continuity and stability of
the business and policies of the Company on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, for and in consideration of the foregoing and of the
mutual covenants and agreements contained herein, the parties hereto agree as
follows:
<PAGE>
1. [INTENTIONALLY DELETED]
2. VOTING AGREEMENT
2.1 Board of Directors
(i) For the period commencing on the Effective Date (as defined in Section
2.2) and ending on the Expiration Date (as defined in Section 2.2), each 1998
Stockholder, for so long as such 1998 Stockholder beneficially and continuously
owns at least four million (4,000,000) shares of the Company's Class A common
stock, $.01 par value per share (the "Class A Common Stock"), subject to
adjustment pursuant to Section 5.1, shall take or cause to be taken all such
action within their respective power and authority as may be required:
(a) to cause to be elected to the Board of Directors of the Company
(the "Board of Directors" or the "Board") one (1) director
designated by the New Stockholders, for so long as the New
Stockholders collectively beneficially and continuously own at
least two million five hundred thousand (2,500,000) shares of
Class A Common Stock (subject to adjustment pursuant to Section
5.1);
(b) (b) to cause to be elected to the Board a director nominated by
the Board to replace a director designated pursuant to paragraph
(i)(a) above upon the earlier to occur of such designated
director's resignation (and the acceptance of such resignation by
the Board) and the expiration of such director's term as a result
of the New Stockholders no longer collectively beneficially and
continuously owning at least two million five hundred thousand
(2,500,000) shares of Class A Common Stock (subject to adjustment
pursuant to Section 5.1) at any time during the period commencing
on the Effective Date and ending on the Expiration Date; it being
understood that within three (3) business days following such time
as the New Stockholders no longer collectively beneficially and
continuously own at least two million five hundred thousand
(2,500,000) shares of Class A Common Stock (subject to adjustment
pursuant to Section 5.1) at any time during such period, the New
Stockholders shall use their best efforts to cause the director
designated by the New Stockholders to tender its immediate
resignation to the Board which the Board may accept or, if
consented to by such director, reject;
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<PAGE>
(c) to establish and maintain the authorized size of the Board at up
to eleven (11) directors; and
(d) to cause to be elected to the Board, if and as nominated by the
Board, up to five (5) non-employee directors.
(ii) For the period commencing on the Effective Date and ending on the
Expiration Date, the New Stockholders, for so long as the New Stockholders
collectively beneficially and continuously own at least two million five hundred
thousand (2,500,000) shares of Class A Common Stock, subject to adjustment
pursuant to Section 5.1, shall take or cause to be taken all such action within
their respective power and authority as may be required:
(a) to establish and maintain the authorized size of the Board of
Directors at up to eleven (11) directors;
(b) to cause to be elected to the Board one (1) director designated by
IES, for so long as IES beneficially and continuously owns at
least four million (4,000,000) shares of Class A Common Stock
(subject to adjustment pursuant to Section 5.1);
(c) to cause Lumpkin to be elected to the Board, for so long as
Lumpkin and the CCI Shareholders collectively beneficially and
continuously own at least four million (4,000,000) shares of Class
A Common Stock (subject to adjustment pursuant to Section 5.1);
(d) to cause to be elected to the Board three (3) directors who are
executive officers of the Company designated by McLeod, for so
long as the McLeods collectively beneficially and continuously own
at least four million (4,000,000) shares of Class A Common Stock
(subject to adjustment pursuant to Section 5.1);
(e) to cause to be elected to the Board one (1) director designated by
the New Stockholders, for so long as the New Stockholders
collectively beneficially and continuously own at least two
million five hundred thousand (2,500,000) shares of Class A Common
Stock (subject to adjustment pursuant to Section 5.1);
(f) to cause to be elected to the Board a director or directors
nominated by the Board to replace a director or directors
designated pursuant to paragraphs (ii)(b) through (ii)(e) above
upon the earlier to occur of such designated
-3-
<PAGE>
director's or directors' resignation (and the acceptance of such
resignation by the Board) and the expiration of such director's or
directors' term as a result of any party or parties identified in
paragraphs (ii)(b) through (ii)(e) above no longer beneficially
owning the specified number of shares of Class A Common Stock as
set forth in paragraphs (ii)(b) through (ii)(e), as the case may
be, at any time during the period commencing on the Effective Date
and ending on the Expiration Date; it being understood that within
three (3) business days following such time as the party or
parties identified in paragraphs (ii)(b) through (ii)(e) above no
longer beneficially and continuously own the specified number of
shares of Class A Common Stock as set forth in paragraphs (ii)(b)
through (ii)(e), as the case may be, during such period, such
party or parties shall use its or their respective best efforts to
cause the director or directors designated by such party or
parties to tender their immediate resignation to the Board which
the Board may accept or reject; and
(g) to cause to be elected to the Board, if and as nominated by the
Board, up to five (5) non-employee directors.
For purposes of this Section 2.1, (i) the New Stockholders shall be
deemed to be a single stockholder of the Company, and a New Stockholder shall be
deemed to own shares "continuously" as long as the shares of such New
Stockholder are owned by such New Stockholder or a New Stockholder Permitted
Transferee (as defined in Section 3.1) and (ii) Lumpkin and all of the CCI
Shareholders shall be deemed to be a single stockholder of the Company, and a
CCI Shareholder shall be deemed to own shares "continuously" as long as the
shares of such CCI Shareholder are owned by such CCI Shareholder or a CCI
Permitted Transferee (as defined in the 1998 Stockholders' Agreement).
2.2 Definitions
For purposes of this Agreement, the following terms have the meanings
indicated:
(a) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
(b) A person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
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(i) which such person or any of such person's Affiliates or
Associates, directly or indirectly, has the right to acquire
(whether such right is exercisable immediately or only after
the passage of time) pursuant to any agreement, arrangement
or understanding (whether or not in writing), or upon the
exercise of conversion rights, exchange rights, other
rights, warrants or options, or otherwise;
(ii) which such person or any of such person's Affiliates or
Associates, directly or indirectly, has the right to vote or
dispose of or has "beneficial ownership" of (as determined
pursuant to Rule 13d-3 under the Exchange Act), including
pursuant to any agreement, arrangement or understanding,
whether or not in writing; or
(iii) which are beneficially owned, directly or indirectly, by any
other person (or any Affiliate or Associate thereof) with
which such person or any of such person's Affiliates or
Associates has any agreement, arrangement or understanding
(whether or not in writing), for the purpose of acquiring,
holding, voting or disposing of any voting securities of the
Company.
For purposes of the definition of "Beneficial Owner" and "beneficially
own," the terms "agreement," "arrangement" and "understanding" shall
not include this Agreement, the 1998 Stockholders' Agreement or the
Stockholders' Agreement, dated as of June 14, 1997, as amended on
September 19, 1997 (the "1997 Stockholders' Agreement").
(c) "Effective Date" shall mean the date on which the Merger (as
defined in the Merger Agreement) is consummated in accordance with
the terms and conditions of the Merger Agreement.
(d) "Expiration Date" shall mean December 31, 2001.
3. TRANSFERS OF SECURITIES
3.1 Restrictions on Transfers
(a) Except as otherwise provided in this Section 3.1 or Section 3.2,
the New Stockholders hereby agree that until the Expiration Date, the New
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Stockholders will not offer, sell, contract to sell, grant any option to
purchase, or otherwise dispose of, directly or indirectly, ("Transfer"), any
equity securities of the Company or any other securities convertible into or
exercisable for such equity securities ("Securities") beneficially owned by such
New Stockholders as a result of the Merger (including distributions of
Securities with respect to such Securities and Securities acquired as a result
of a stock split with respect to such Securities) without submitting a written
request to, and receiving the prior written consent of, the Board of Directors;
provided, however, that a New Stockholder may transfer Securities to any
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beneficial owner or Affiliate of such New Stockholder, in each case provided
that (i) such transfer is done in accordance with the transfer restrictions
applicable to such Securities under federal and state securities laws and (ii)
the transferee agrees to be bound by the terms hereof as a New Stockholder with
respect to the shares being transferred pursuant to this Section (any such New
Stockholder transferee pursuant to this proviso, a "New Stockholder Permitted
Transferee"), and any such transfer shall not constitute a "Transfer" for
purposes of this Agreement. Notwithstanding the foregoing, no party hereto
shall avoid the provisions of this Agreement by making one or more transfers to
one or more New Stockholder Permitted Transferees and then disposing of all or
any portion of such party's interest in any such New Stockholder Permitted
Transferee. In the event that the Board of Directors consents to any Transfer
of Securities by a Principal Stockholder (for purposes of this Agreement, the
term "Principal Stockholder" shall have the same meaning as ascribed to such
term in the 1998 Stockholders' Agreement) pursuant to the written request of
such Principal Stockholder (the "Transferring Principal Stockholder") during the
period commencing on January 1, 2000 and ending on the Expiration Date and
except as otherwise provided in Section 3.1(b) and Section 3.2, the New
Stockholders shall notwithstanding the provisions of this Section 3.1(a), have
the right to Transfer a percentage of the total number of Securities
beneficially owned by the New Stockholders equal to the percentage of the total
number of Securities beneficially owned by the Transferring Principal
Stockholder that the Board of Directors has consented may be Transferred by such
Transferring Principal Stockholder. In the event the Board of Directors
consents to any Transfer of Securities by the New Stockholders pursuant to the
written request of the New Stockholders (the "Transferring New Stockholders"),
and except as otherwise provided in Section 3.1(b) and Section 3.2 of the 1998
Stockholders' Agreement, each Principal Stockholder shall, notwithstanding the
provisions of Section 3.1(a) of the 1998 Stockholders' Agreement, have the right
to Transfer a percentage of the total number of Securities beneficially owned by
such Principal Stockholder equal to the percentage of the total number of
Securities beneficially owned by the Transferring New Stockholders that the
Board of Directors has consented may be Transferred by such Transferring New
Stockholders.
(b) In addition to the provisions of Section 3.1(a), for the period
commencing for the quarter ending December 31, 1999 and ending on the Expiration
Date, the Board shall determine prior to the public release of the
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Company's consolidated financial results with respect to each such financial
reporting quarter during such period, the aggregate number, if any, of shares of
Class A Common Stock (not to exceed in the aggregate fifty thousand (50,000)
shares of Class A Common Stock per quarter, subject to adjustment pursuant to
Section 5.1) that may be Transferred by the New Stockholders (the "Transfer
Amount") during the period commencing on the third (3rd) business day and ending
on the twenty-third (23rd) business day following such public release of the
Company's quarterly or annual financial results or such other trading period
designated or permitted by the Board with respect to the purchase and sale of
its Securities (each such period, a "Transfer Period"). Notwithstanding the
provisions of Section 3.1(a), the New Stockholders shall be entitled to Transfer
during each Transfer Period, provided such Transfer is effected in accordance
with all applicable federal and state securities laws, a number of shares of
Class A Common Stock equal to the Transfer Amount, if any, for such Transfer
Period. In no event shall any portion of a Transfer Amount that is not utilized
by the New Stockholders during a Transfer Period be reallocated or otherwise
credited to any subsequent Transfer Periods. Notwithstanding the foregoing
provisions of this Section 3.1(b), to the extent that the Company permits the
Principal Stockholders the opportunity to Transfer shares of Class A Common
Stock pursuant to Section 3.1(b) of the 1998 Stockholders' Agreement during the
period commencing on January 1, 2000 and ending on the Expiration Date, the
Company shall grant the New Stockholders the opportunity to Transfer on the same
terms and conditions a number of shares of Class A Common Stock equal to the
number of shares which each Principal Stockholder is entitled to Transfer
pursuant to such Section 3.1(b), without considering those provisions of Section
3.1(b) of the 1998 Stockholders' Agreement relating to the reallocation of
amounts among the Principal Stockholders. To the extent the Board determines a
Transfer Amount with respect to the New Stockholders for any particular quarter,
the Board shall determine an equal Transfer Amount for such quarter with respect
to each Principal Stockholder pursuant to Section 3.1(b) of the 1998
Stockholders' Agreement.
(c) For the period commencing for the quarter ending December 31, 1999
and ending on the Expiration Date, the Company shall give the New Stockholders
prompt written notice (in any event no later than fifty (50) days prior to the
beginning of the applicable Transfer Period) of its determination of any
Transfer Amount. Within seven (7) days of receipt of such notice, the New
Stockholders shall provide written notice to the Company of the number of shares
of Class A Common Stock that the New Stockholders desire to Transfer pursuant to
Section 3.1(b).
(d) During the year ending December 31, 1999, to the extent the
Company participates in a strategic transaction with an outside investor(s)
pursuant to which such investor(s) acquires Securities of the Company at a
premium to the then average trading price of the Company's Securities, and after
the Company has been paid or otherwise received its consideration or proceeds
from
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such transaction as determined by the Company, the Principal Stockholders and
the New Stockholders may be entitled to participate in such transaction on a pro
rata basis as determined by the Board of Directors.
(e) For purposes of this Section 3.1, the New Stockholders shall be
deemed to be a single stockholder of the Company, and Lumpkin and all of the CCI
Shareholders shall be deemed to be a single Principal Stockholder.
3.2 Registration Rights
(a) In the event that the Board of Directors consents pursuant to
Section 3.1(a) of the 1998 Stockholders' Agreement to a Principal Stockholder's
request for a Transfer during the period commencing on January 1, 2000 and
ending on the Expiration Date and in connection therewith, the Company agrees to
register Securities with respect to such Transfer under the Securities Act of
1933, as amended (the "Securities Act"), the Company shall grant the New
Stockholders the opportunity (subject to reduction in the event the registered
Transfer is underwritten) to register for Transfer under the Securities Act a
percentage of the total number of Securities beneficially owned by the New
Stockholders equal to the percentage of the total number of Securities
beneficially owned by the Transferring Principal Stockholder that such
Transferring Principal Stockholder is registering for Transfer under the
Securities Act, on the same terms and conditions as the Transferring Principal
Stockholder. In the event that the Board of Directors consents pursuant to
Section 3.1(a) of this Agreement to the New Stockholders' request for a
Transfer, and in connection therewith the Company agrees to register Securities
with respect to such Transfer under the Securities Act, the Company shall grant
each Principal Stockholder pursuant to Section 3.1(a) of the 1998 Stockholders'
Agreement the opportunity (subject to reduction in the event the registered
Transfer is underwritten) to register for Transfer under the Securities Act a
percentage of the total number of Securities beneficially owned by such
Principal Stockholder equal to the percentage of the total number of Securities
beneficially owned by the Transferring New Stockholders that such Transferring
New Stockholders are registering under the Securities Act, on the same terms and
conditions as the Transferring New Stockholders.
(b) To the extent that the Company grants pursuant to Section 3.1(b)
of the 1998 Stockholders' Agreement a Principal Stockholder the opportunity to
register shares of Class A Common Stock for Transfer under the Securities Act
during the period commencing on January 1, 2000 and ending on the Expiration
Date, the Company shall grant the New Stockholders the opportunity (subject to
reduction in the event the registered Transfer is underwritten) to register an
equal number of shares of Class A Common Stock for Transfer under the Securities
Act on the same terms and conditions, without considering those provisions of
Section 3.1(b) of the 1998 Stockholders' Agreement relating to the reallocation
of amounts among the Principal Stockholders. To the extent that the Company
grants pursuant
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to Section 3.1(b) of this Agreement the New Stockholders the opportunity to
register shares of Class A Common Stock for Transfer under the Securities Act,
the Company shall grant each Principal Stockholder pursuant to Section 3.1(b) of
the 1998 Stockholders' Agreement the opportunity (subject to reduction in the
event the registered Transfer is underwritten) to register an equal number of
shares of Class A Common Stock for Transfer under the Securities Act on the same
terms and conditions.
(c) For the period commencing on January 1, 2000 and ending on the
Expiration Date, in the event the Company proposes to register any shares of
Class A Common Stock under the Securities Act pursuant to an underwritten
primary offering (other than pursuant to a registration statement on Form S-4 or
Form S-8 or any successor forms thereto or other form which would not permit the
inclusion of the shares of Class A Common Stock of the New Stockholders), the
Company, as determined by the Board of Directors, shall give written notice to
the New Stockholders of its intention to effect such a registration. Following
any such notice, the Board of Directors shall undertake to determine the
aggregate number, if any, of shares of Class A Common Stock held by the New
Stockholders (not to exceed in the aggregate on a per year basis a number of
shares of Class A Common Stock equal to fifteen percent (15%) of the total
number of shares of Class A Common Stock beneficially owned by the New
Stockholders as of the Effective Date) to be registered by the Company under the
Securities Act (the "Registrable Amount") for Transfer by the New Stockholders
in connection with such offering during such period. If the Board determines to
register shares of Class A Common Stock held by the New Stockholders pursuant to
this Section 3.2(c), the Company will promptly give written notice of such
determination to the New Stockholders, and thereupon the Company will use
commercially reasonable efforts to effect the registration of that portion of
the Registrable Amount that the New Stockholders indicate a desire to register.
All terms, conditions and rights with respect to such registration (including
but not limited to any determination to reduce the Registrable Amount) shall be
determined by the Board, provided that (i) the representations and warranties of
the New Stockholders shall be customary taking into account, among other things,
the nature of the offering and the New Stockholders' relationship with the
Company, and (ii) the Company shall be responsible for all expenses with respect
to such registration other than underwriting discounts and commissions allocable
to the Class A Common Stock of the New Stockholders, which underwriting
discounts and commissions shall be the responsibility of the New Stockholders.
Notwithstanding the foregoing provisions of this Section 3.2(c), to the extent
that the Company grants pursuant to Section 3.2(c) of the 1998 Stockholders'
Agreement the Principal Stockholders the opportunity to register shares of Class
A Common Stock for Transfer under the Securities Act during the period
commencing on January 1, 2000 and ending on the Expiration Date, the Company
shall grant the New Stockholders the opportunity to register shares of Class A
Common Stock on a substantially similar basis. To the extent that the Company
grants pursuant to Section 3.2(c) of this Agreement the New
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Stockholders the opportunity to register shares of Class A Common Stock for
Transfer under the Securities Act, the Company shall grant each Principal
Stockholder pursuant to Section 3.2(c) of the 1998 Stockholders' Agreement the
opportunity to register shares of Class A Common Stock on a substantially
similar basis.
(d) In addition to the registration rights granted pursuant to
Sections 3.2(a), (b) and (c), no more frequently than once during each of the
calendar years ending December 31, 2000 and 2001 (each such year, an "Annual
Period"), and upon either (i) the receipt of a written request of the New
Stockholders or (ii) a determination by the Board of Directors, the Board shall
undertake to determine the Registrable Amount, if any, for Transfer by the New
Stockholders. If the Board determines to register shares of Class A Common
Stock held by the New Stockholders pursuant to this Section 3.2(d), the Company
will promptly give written notice of such determination to the New Stockholders,
and thereupon the Company will use commercially reasonable efforts to effect the
registration of that portion of the Registrable Amount that the New Stockholders
indicate a desire to register. All terms, conditions and rights with respect to
such registration (including but not limited to any determination to reduce the
Registrable Amount) shall be determined by the Board, provided that (i) the
representations and warranties of the New Stockholders shall be customary taking
into account, among other things, the nature of the offering and the New
Stockholders' relationship with the Company, and (ii) the Company shall be
responsible for all expenses with respect to such registration other than
underwriting discounts and commissions allocable to the Class A Common Stock of
the New Stockholders, which underwriting discounts and commissions shall be the
responsibility of the New Stockholders. Notwithstanding the foregoing
provisions of this Section 3.2(d), to the extent that the Company grants
pursuant to Section 3.2(d) of the 1998 Stockholders' Agreement the Principal
Stockholders the opportunity to register shares of Class A Common Stock for
Transfer under the Securities Act during the period commencing on January 1,
2000 and ending on the Expiration Date, the Company shall grant the New
Stockholders the opportunity to register shares of Class A Common Stock on a
substantially similar basis. To the extent that the Company grants pursuant to
Section 3.2(d) of this Agreement the New Stockholders the opportunity to
register shares of Class A Common Stock for Transfer under the Securities Act,
the Company shall grant each Principal Stockholder pursuant to Section 3.2(d) of
the 1998 Stockholders' Agreement the opportunity to register shares of Class A
Common Stock on a substantially similar basis.
(e) For purposes of this Section 3.2, the New Stockholders shall be
deemed to be a single stockholder of the Company, and Lumpkin and all of the CCI
Shareholders shall be deemed to be a single Principal Stockholder.
(f) Notwithstanding any other provision of this Agreement, to the
extent the Company has undertaken to register Securities of the New Stockholders
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pursuant to this Section 3.2, the Company may subsequently determine not to
register such Securities and may either not file a registration statement or
otherwise withdraw or abandon a registration statement previously filed with
respect to the registration of such Securities; provided that to the extent the
Principal Stockholders are also participating in such registration, the New
Stockholders and the Principal Stockholders will be treated on a substantially
similar basis with respect to any such determination not to register Securities
or the withdrawal or abandonment of a registration statement previously filed as
contemplated by this Section 3.2(f).
4. REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Non-individual Stockholders
Each non-individual party to this Agreement hereby represents and
warrants, as of the date of this Agreement, to the Company and to each other
party as follows:
4.1.1 Authorization
Such party has taken all action necessary for it to enter into this
Agreement and to consummate the transactions contemplated hereby.
4.1.2 Binding Obligation
This Agreement constitutes a valid and binding obligation of such
party, enforceable in accordance with its terms, except to the extent that such
enforceability may be limited by bankruptcy, insolvency, and similar laws
affecting the rights and remedies of creditors generally, and by general
principles of equity and public policy; and each document and instrument to be
executed by such party pursuant hereto, when executed and delivered in
accordance with the provisions hereof, shall be a valid and binding obligation
of such party, enforceable in accordance with its terms (with the aforesaid
exceptions).
4.2 Representations and Warranties of Individual Stockholders
Each party to this Agreement who is an individual hereby represents
and warrants, as of the date of this Agreement, to the Company and to each other
party as follows:
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4.2.1 Power and Authority
Such party has the legal capacity and all other power and authority
necessary to enter into this Agreement and to consummate the transactions
contemplated hereby.
4.2.2 Binding Obligation
This Agreement constitutes a valid and binding obligation of such
party, enforceable in accordance with its terms, except to the extent that such
enforceability may be limited by bankruptcy, insolvency, and similar laws
affecting the rights and remedies of creditors generally, and by general
principles of equity and public policy; and each document and instrument to be
executed by such party pursuant hereto, when executed and delivered in
accordance with the provisions hereof, shall be a valid and binding obligation
of such party, enforceable in accordance with its terms (with the aforesaid
exceptions).
4.3 Representations and Warranties of the Company
The Company hereby represents and warrants, as of the date of this
Agreement, to each party as follows:
4.3.1 Authorization
The Company has taken all corporate action necessary for it to enter
into this Agreement and to consummate the transactions contemplated hereby.
4.3.2 Binding Obligation
This Agreement constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms, except to the extent that
such enforceability may be limited by bankruptcy, insolvency, and similar laws
affecting the rights and remedies of creditors generally, and by general
principles of equity and public policy; and each document and instrument to be
executed by the Company pursuant hereto, when executed and delivered in
accordance with the provisions hereof, shall be a valid and binding obligation
of the Company, enforceable in accordance with its terms (with the aforesaid
exceptions).
5. MISCELLANEOUS
5.1 Effect of Changes in Capitalization
All share amounts of the Company's capital stock referred to in this
Agreement shall be appropriately and proportionally adjusted for any
recapitalization, reclassification, stock split-up, combination of shares,
exchange of
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shares, stock dividend or other distribution payable in capital stock, or other
increase or decrease in such shares effected without receipt of consideration by
the Company, occurring after the date of this Agreement.
5.2 Additional Actions and Documents
Each of the parties hereto hereby agrees to take or cause to be taken
such further actions, to execute, deliver and file or cause to be executed,
delivered and filed such further documents and instruments, and to obtain such
consents, as may be necessary or as may be reasonably requested in order to
fully effectuate the purposes, terms and conditions of this Agreement, whether
before, at or after the Effective Date.
5.3 Entire Agreement; Amendment
This Agreement constitutes the entire agreement among the parties
hereto as of the date hereof with respect to the specific matters contemplated
herein (except with respect to the 1998 Stockholders, as set forth in the 1998
Stockholders' Agreement and the 1997 Stockholders' Agreement). No amendment,
modification or discharge of this Agreement shall be valid or binding unless set
forth in writing and duly executed by the Company and by the party against whom
enforcement of the amendment, modification or discharge is sought. Any
amendment, modification or discharge of this Agreement to be enforced against
the New Stockholders shall be valid and binding with respect to all New
Stockholders if such amendment, modification or discharge is executed by those
New Stockholders holding a majority of the shares of Class A Common Stock issued
to the New Stockholders in the Merger (including distributions of Securities
with respect to such Securities and Securities acquired as a result of a stock
split with respect to such Securities).
5.4 Limitation on Benefit; Parties
It is the explicit intention of the parties hereto that no person or
entity other than the parties hereto is or shall be entitled to bring any action
to enforce any provision of this Agreement against any of the parties hereto,
and the covenants, undertakings and agreements set forth in this Agreement shall
be solely for the benefit of, and shall be enforceable only by, the parties
hereto or their respective successors, heirs, executors, administrators, legal
representatives and permitted assigns. For purposes of this Agreement and
notwithstanding any other provision hereof, a "party" to or of this Agreement
shall be deemed to mean only those individuals or entities that have executed
and delivered this Agreement.
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5.5 Binding Effect; Specific Performance
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors, heirs, executors,
administrators, legal representatives and permitted assigns. No party shall
assign this Agreement without the written consent of the other parties hereto;
and such consent shall not be unreasonably withheld. The parties hereto agree
that irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy at law or in equity.
5.6 Governing Law
This Agreement, the rights and obligations of the parties hereto, and
any claims or disputes relating thereto, shall be governed by and construed in
accordance with the laws of Delaware (excluding the choice of law rules
thereof).
5.7 Notices
All notices, demands, requests, or other communications which may be
or are required to be given, served, or sent by any party to any other party
pursuant to this Agreement shall be in writing and shall be hand-delivered or
mailed by first-class, registered or certified mail, return receipt requested,
postage prepaid, or transmitted by telegram, telecopy, facsimile transmission or
telex, addressed as follows:
(i) If to the Company or to the McLeods:
McLeodUSA Incorporated
McLeodUSA Technology Park
6400 C Street, SW, P.O. Box 3177
Cedar Rapids, IA 52406-3177
Attention: Randall Rings
Facsimile: (319) 298-7901
(ii) If to IES:
IES Investments Inc.
200 1st Street SE
Cedar Rapids, IA 52401
Attention: James E. Hoffman
Facsimile: (319) 398-4204
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(iii) If to Lumpkin or any CCI Shareholder:
P.O. Box 1234
Mattoon, IL 61938
Attention: Richard A. Lumpkin
Facsimile: (217) 234-9934
with a copy to :
Schiff Hardin & Waite
6600 Sears Tower
Chicago, Illinois 60606
Attention: David R. Hodgman, Esq.
Facsimile: (312) 258-5600
(iv) If to the New Stockholders:
c/o Media/Communications Partners III
Limited Partnership
75 State Street
Boston, Massachusetts 02109
Attention: James F. Wade
Facsimile: (617) 345-7201
with a copy to:
Edwards & Angell, LLP
101 Federal Street
Boston, MA 02110
Attention: Stephen O. Meredith, Esq.
Facsimile: (617) 439-4170
Each party may designate by notice in writing a new address to which
any notice, demand, request or communication may thereafter be so given, served
or sent. Each notice, demand, request or communication which shall be hand-
delivered, mailed, transmitted, telecopied or telexed in the manner described
above, or which shall be delivered to a telegraph company, shall be deemed
sufficiently given, served, sent, received or delivered for all purposes at such
time as it is delivered to the addressee (with the return receipt, the delivery
receipt, or the answerback being deemed conclusive, but not exclusive, evidence
of such delivery) or at such time as delivery is refused by the addressee upon
presentation.
5.8 Termination
(a) This Agreement shall terminate and be of no further force or
effect as to a 1998 Stockholder (and not as to the Company and the New
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Stockholders) at such time as the 1998 Stockholders' Agreement shall terminate
and be of no further force or effect with respect to such 1998 Stockholder.
(b) If (i) during any Annual Period the Board of Directors has not
provided the New Stockholders a reasonable opportunity to Transfer shares of
Class A Common Stock pursuant to the registration of such shares under the
Securities Act pursuant to Section 3.2 in an aggregate amount equal to not less
than fifteen percent (15%) of the total number of shares of Class A Common Stock
beneficially owned by the New Stockholders as of the Effective Date or (ii)
after January 1, 2000, the 1998 Stockholders' Agreement has been terminated by
all parties thereto, then the New Stockholders may terminate this Agreement by
providing written notice of termination to all other parties (x) in the case of
clause (b)(i) above, no later than thirty (30) days following the end of such
Annual Period and (y) in the case of cause (b)(ii) above, at any time after
January 1, 2000, such that all rights and obligations hereunder shall cease, and
this Agreement shall be of no further force or effect.
(c) Unless otherwise previously terminated by the New Stockholders
pursuant to Section 5.8(b), this Agreement shall terminate on the earlier to
occur of (i) the termination of the Merger Agreement in accordance with the
terms thereof and (ii) the Expiration Date.
(d) For purposes of this Section 5.8, the New Stockholders shall be
deemed to be a single stockholder of the Company, and Lumpkin and all of the CCI
Shareholders shall be deemed to be a single stockholder of the Company.
5.9 Publicity
The New Stockholders will use their reasonable best efforts to consult
with the Company prior to issuing any press release, making any filing with any
governmental entity or national securities exchange or making any other public
dissemination of information by the New Stockholders within which this Agreement
or the contents hereof are referenced or described.
5.10 Appointment of Representative
(a) Each of the New Stockholders hereby appoints Media/Communications
Partners III Limited Partnership, with power of substitution, as its exclusive
agent to act on its behalf with respect to any and all actions to be taken under
or amendments or modifications to be made to this Agreement (the "M/C
Representative"). The M/C Representative shall take, and the New Stockholders
agree that the M/C Representative shall take, any and all actions which the M/C
Representative believes are necessary or advisable under this Agreement for and
on behalf of each of the New Stockholders, as fully as if each of
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the New Stockholders was acting on its own behalf, including, without
limitation, dealing with the Company and the other parties hereto with respect
to all matters arising under this Agreement, entering into any amendment or
modification to this Agreement deemed advisable by the M/C Representative and
taking any and all other actions specified in or contemplated by this Agreement.
The Company and the other parties hereto shall have the right to rely upon all
actions taken or not taken by the M/C Representative pursuant to this Agreement,
all of which actions or omissions shall be legally binding upon each of the New
Stockholders.
(b) Each of the CCI Shareholders hereby appoints Lumpkin, with power
of substitution, as its exclusive agent to act on its behalf with respect to any
and all actions to be taken under or amendments or modifications to be made to
this Agreement (the "CCI Representative"). The CCI Representative shall take,
and the CCI Shareholders agree that the CCI Representative shall take, any and
all actions which the CCI Representative believes are necessary or advisable
under this Agreement for and on behalf of each of the CCI Shareholders, as fully
as if each of the CCI Shareholders was acting on its own behalf, including,
without limitation, dealing with the Company and the other parties hereto with
respect to all matters arising under this Agreement, entering into any amendment
or modification to this Agreement deemed advisable by the CCI Representative and
taking any and all other actions specified in or contemplated by this Agreement.
The Company and the other parties hereto shall have the right to rely upon all
actions taken or not taken by the CCI Representative pursuant to this Agreement,
all of which actions or omissions shall be legally binding upon each of the CCI
Shareholders.
5.11 Execution in Counterparts
To facilitate execution, this Agreement may be executed in as many
counterparts as may be required; and it shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures of all
persons required to bind any party, appear on each counterpart; but it shall be
sufficient that the signature of, or on behalf of, each party, or that the
signatures of the persons required to bind any party, appear on one or more of
the counterparts. All counterparts shall collectively constitute a single
agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties hereto. It is the
express understanding of the parties hereto that this Agreement shall be binding
and enforceable with respect to the parties hereto on the terms herein set forth
even if one or more of the CCI Shareholders do not sign this Agreement.
-17-
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Stockholders' Agreement, or have caused this Stockholders' Agreement to be
duly executed and delivered on their behalf, as of the day and year first
hereinabove set forth.
MCLEODUSA INCORPORATED
By: /s/ J. Lyle Patrick
---------------------
Name: J. Lyle Patrick
Title: Group Vice President,
Chief Financial Officer and
Treasurer
M/C INVESTORS L.L.C.
By: /s/ James F. Wade
-------------------
Name: James F. Wade
Title:
MEDIA/COMMUNICATIONS PARTNERS III LIMITED PARTNERSHIP
By: M/C III L.L.C., its General Partner
By: /s/ James F. Wade
-------------------
Name: James F. Wade
Title:
/s/ Clark E. McLeod /s/ Mary E. McLeod
----------------------- ----------------------
Clark E. McLeod Mary E. McLeod
-18-
<PAGE>
/s/ Richard A. Lumpkin /s/ Gail G. Lumpkin
----------------------- ----------------------
Richard A. Lumpkin Gail G. Lumpkin
IES INVESTMENTS INC.
By: /s/ James E. Hoffman
---------------------
Name: James E. Hoffman
Title: President
Margaret Lumpkin Keon Trust Mary Lee Sparks Trust
dated May 13, 1978 dated May 13, 1978
- --------------------------------- ---------------------------
Margaret Lumpkin Keon, as Trustee Mary Lee Sparks, as Trustee
-----------------------------
Steven L. Grissom, as Trustee
- ---------------------------------
Mary Lee Sparks
-19-
<PAGE>
The twelve trusts created under the Mary Green Lumpkin Gallo Trust Agreement
dated December 29, 1989 one for the benefit of each of:
Joseph John Keon III,
Katherine Stoddert Keon,
Lisa Anne Keon,
Margaret Lynley Keon,
Pamela Keon Vitale,
Susan Tamara Keon DeWyngaert,
Benjamin Iverson Lumpkin,
Elizabeth Arabella Lumpkin,
Anne Romayne Sparks,
Barbara Lee Sparks,
Christina Louise Sparks, and
John Woodruff Sparks
Bank One, Texas, N.A., Trustee
- ------------------------------
By:
---------------------------
The twelve trusts created under the Richard Adamson Lumpkin Grandchildren's
Trust dated September 5, 1980, one for the benefit of each of:
Joseph John Keon III,
Katherine Stoddert Keon,
Lisa Anne Keon,
Margaret Lynley Keon,
Pamela Keon Vitale,
Susan Tamara Keon DeWyngaert,
Benjamin Iverson Lumpkin,
Elizabeth Arabella Lumpkin,
Anne Romayne Sparks,
Barbara Lee Sparks,
Christina Louise Sparks, and
John Woodruff Sparks
Bank One, Texas, N.A., Trustee
- ------------------------------
By:
---------------------------
-20-
<PAGE>
The three trusts established by Richard Adamson
Lumpkin under Trust Agreement dated February 6,
1970, one for the benefit of each of:
Richard Anthony Lumpkin,
Margaret Anne Keon, and
Mary Lee Sparks
Bank One, Texas, N.A., Trustee
- ------------------------------
By:
---------------------------
The twelve 1990 Personal Income Trusts established by Margaret L. Keon, Mary
Lee Sparks, and Richard A. Lumpkin, each dated April 20, 1990, one for the
benefit of each of:
Joseph John Keon III,
Katherine Stoddert Keon,
Lisa Anne Keon,
Margaret Lynley Keon,
Pamela Keon Vitale,
Susan Tamara Keon DeWyngaert,
Benjamin Iverson Lumpkin,
Elizabeth Arabella Lumpkin,
Anne Romayne Sparks,
Barbara Lee Sparks,
Christina Louise Sparks, and
John Woodruff Sparks
- -----------------------------
David R. Hodgman, Trustee
- -----------------------------
Steven L. Grissom, Trustee
-21-
<PAGE>
SCHEDULE I
Gail G. Lumpkin
Margaret Lumpkin Keon, as Trustee under the Margaret Lumpkin Keon Trust dated
May 13, 1978
Mary Lee Sparks and Steven L. Grissom, as Trustees of the Mary Lee Sparks Trust
dated May 13, 1978
Bank One, Texas, N.A., as Trustee of the twelve trusts created under the Mary
Green Lumpkin Gallo Trust Agreement dated December 29, 1989, one for the benefit
of each of Joseph John Keon III, Katherine Stoddert Keon, Lisa Anne Keon,
Margaret Lynley Keon, Pamela Keon Vitale, Susan Tamara Keon DeWyngaert, Benjamin
Iverson Lumpkin, Elizabeth Arabella Lumpkin, Anne Romayne Sparks, Barbara Lee
Sparks, Christina Louise Sparks, and John Woodruff Sparks
Bank One, Texas, N.A., as Trustee of the twelve trusts created under the Richard
Adamson Lumpkin Grandchildren's Trust dated September 5, 1980, one for the
benefit of each of Joseph John Keon III, Katherine Stoddert Keon, Lisa Anne
Keon, Margaret Lynley Keon, Pamela Keon Vitale, Susan Tamara Keon DeWyngaert,
Benjamin Iverson Lumpkin, Elizabeth Arabella Lumpkin, Anne Romayne Sparks,
Barbara Lee Sparks, Christina Louise Sparks, and John Woodruff Sparks
Bank One, Texas, N.A., as Trustee of the three trusts established by Richard
Adamson Lumpkin under the Trust Agreement dated February 6, 1970, one for the
benefit of each of Richard Anthony Lumpkin, Margaret Anne Keon, and Mary Lee
Sparks
David R. Hodgman and Steven L. Grissom, as Trustees of the twelve 1990 Personal
Income Trusts established by Margaret L. Keon, Mary Lee Sparks, and Richard A.
Lumpkin, each dated April 20, 1990, one for the benefit of each of Joseph John
Keon III, Katherine Stoddert Keon, Lisa Anne Keon, Margaret Lynley Keon, Pamela
Keon Vitale, Susan Tamara Keon DeWyngaert, Benjamin Iverson Lumpkin, Elizabeth
Arabella Lumpkin, Anne Romayne Sparks, Barbara Lee Sparks, Christina Louise
Sparks, and John Woodruff Sparks
-22-
<PAGE>
EXHIBIT 99.1
[McLEODUSA LOGO APPEARS HERE]
McLeodUSA Incorporated
McLeodUSA Technology Park
6400 C Street SW, PO Box 3177
Cedar Rapids, IA 52406-3177
Press and Investor Contact: Bryce E. Nemitz
[email protected]
Phone: (319) 298-7800
FAX: (319) 298-7767
For Immediate Release
Merger Reinforces "Super Regional" CLEC Status
McLeodUSA and Ovation Communications Sign Definitive Agreement
Cedar Rapids, IA and Minneapolis, MN -- January 7, 1999 -- Two leading
Midwestern Competitive Local Exchange Carriers (CLECs) today announced their
intention to merge. McLeodUSA Incorporated (Nasdaq NMS:MCLD) and Ovation
Communications, Inc. have signed a definitive Agreement and Plan of Merger.
Both companies provide telecommunications services to business and residential
customers in the upper Midwest. The combined company will be known as
McLeodUSA Incorporated.
The owners of Ovation Communications will receive approximately 5.1 million
shares of McLeodUSA stock and approximately $141 million in cash for all
Ovation stock. McLeodUSA will also assume $83 million in Ovation debt.
Estimated 1998 revenue for Ovation Communications is $34.6 million with
positive EBITDA of $4.4 million.
Strategic Fit
Clark McLeod, Chairman and CEO of McLeodUSA stated, "The Ovation merger
complements our strategy, dramatically expands our opportunity and accelerates
our execution. Combining these companies provides a new degree of continuity
throughout the region. The McLeodUSA market is expanded by 50 percent, which
should have a positive impact on shareholder value. And most important, the
Ovation team is outstanding, bringing additional depth and breadth to our
organization."
Tim Devine, CEO and President of Ovation Communications, added, "McLeodUSA
has long been a standout in the industry. Their success as a competitive
provider is unprecedented, their style is aggressive and their customer
loyalty is extraordinary. The combined team will dominate the region."
Operational Advantages
Once the transaction is completed, the combined company will be a
facilities-based provider with approximately 412,000 local lines, 5,400
employees, 6,900 route miles of fiber optic network and 11 switches.
Commenting on the merger, Steve Gray, McLeodUSA President and COO stated,
"The Ovation management team has over 150 years of combined CLEC
experience. This experience is specific to interconnection with the Bells,
local number portability, fiber network deployment and on-switch services.
This merger will allow us to accelerate our migration on-switch and our
independence from Bell facilities. And, we believe 1999 new lines sold will
double our 1998 results. Further, it establishes McLeodUSA as the most
prominent, ubiquitous regional CLEC in the country."
<PAGE>
Accelerated Growth
Tim Devine of Ovation: "Perhaps the most significant challenge to the growth
of both McLeodUSA and Ovation has been finding committed, experienced
telecommunications professionals in the numbers needed to tackle this
incredible marketplace opportunity. Both companies are committed to employee
growth and development, as well as providing the opportunity for our employees
to participate in Company success through stock ownership."
Most Ovation employees are located in Minneapolis and in several Michigan
cities as a result of the acquisition of Phone Michigan completed in October
1998. Additional employees are in Chicago and Milwaukee.
Anticipated Closing Date
The parties expect to complete the merger within a few months. Consummation
of the merger is subject to Hart-Scott-Rodino clearance and approval of
regulatory authorities. The merger does not require approval by McLeodUSA
stockholders.
Agreement Terms and Conditions
. McLeodUSA will purchase all shares of Ovation Communications, Inc.
stock for approximately $141 million in cash and approximately 5.1
million shares of McLeodUSA stock. These shares will represent 7.4
percent of the outstanding shares of McLeodUSA Incorporated.
. The agreement provides for no collars. The owners of more than 87
percent of the Ovation shares have signed an agreement to vote in favor
of the transaction. McLeodUSA will assume the debt of Ovation
Communications of approximately $83 million.
. Mr. James F. Wade of Media/Communications Partners will serve on the
McLeodUSA Board of Directors. Media/Communications Partners is a
venture capital firm that currently owns 78 percent of Ovation
Communications, Inc.
. Media/Communications Partners has agreed to sign a stockholders'
agreement limiting their sale of McLeodUSA stock for 36 months.
Company Descriptions
A publicly traded firm headquartered in Cedar Rapids, Iowa, McLeodUSA is a
provider of integrated telecommunications services to business and residential
customers. Current customers are located in a ten-state area that includes
Colorado, Iowa, Illinois, Indiana, Minnesota, Missouri, North Dakota, South
Dakota, Wisconsin and Wyoming. Telecommunications products include local and
long distance service, Internet access, voice mail, paging, teleconferencing
and calling card services. McLeodUSA Publishing Company is one of the largest
independent publishers of yellow and white page telephone directories in the
country. In the next 12 months, McLeodUSA Publishing will distribute nearly 16
million copies of competitive directories in 20 states reaching 28 million
people.
Ovation Communications is a privately owned, facilities-based CLEC
headquartered in Minneapolis. Ovation was incorporated during the first
quarter of 1997 and began construction of a 67-mile network in Minneapolis in
September 1997. Service was turned up in December of 1997 and over 16,000
lines were sold by October 31, 1998. Ovation completed the acquisition of
Phone Michigan in October 1998, adding 400 route miles of network and nearly
32,000 local access lines sold. Ovation targets business customers in major
Midwestern cities, offering local and long distance service as well as
Integrated Services Digital Network (ISDN) services, voice mail,
teleconferencing, calling card and other enhanced services.
<PAGE>
Operating Statistics (as of 9/30/98 for McLeodUSA, 12/31/98 for Ovation)
<TABLE>
<CAPTION>
McLeodUSA Ovation Combined
--------- ------- --------
<S> <C> <C> <C>
Local lines......................................... 366,800 45,577 412,377
Business............................................ 223,200 32,653 255,853
Residential......................................... 143,600 12,924 156,524
Local line customers................................ 179,400 14,650 194,050
Business............................................ 42,500 2,900 45,400
Residential......................................... 136,900 11,750 148,650
Interconnection agreements.......................... 5 7 12
Collocations........................................ 61 36 97
Lines per business customer......................... 5.6 11.3 --
Sales cities........................................ 66 5 71
Cities served....................................... 267 135 377*
Route miles......................................... 6,329 564 6,893
Switches............................................ 7 4 11
Employees........................................... 5,000 384 5,384
</TABLE>
- --------
*Some cities are served by both companies
The statements contained in this release are forward-looking statements that
involve risks and uncertainties, including, but not limited to revision of
expansion plans, availability of financing and regulatory approvals, the
number of potential customers in a target market, the existence of strategic
alliances or relationships, technological, regulatory or other developments in
the Company's business, changes in the competitive climate in which the
Company operates and the emergence of future opportunities, all of which could
cause actual results and experiences of McLeodUSA Incorporated to differ
materially from anticipated results and expectations expressed in the forward-
looking statements contained herein. These and other applicable risks are
summarized under the caption "Business-Risk Factors" and elsewhere in the
Company's Annual Report on Form 10-K for its fiscal year ended December 31,
1997, which is filed with the Securities and Exchange Commission.
<PAGE>
Exhibit 99.2
[McLEODUSA LOGO APPEARS HERE]
McLeodUSA Incorporated
McLeodUSA Technology Park
6400 C Street SW, PO Box 3177
Cedar Rapids, IA 52406-3177
Press and Investor Contact: Bryce E. Nemitz
[email protected]
Phone: (319) 298-7800
FAX: (319) 298-7767
For Immediate Release
McLeodUSA Publishing Company Merges with Talking Directories, Inc.
McLeodUSA Extends Brand Presence in Michigan and Ohio, Complementing Ovation
Communications Merger Announced Yesterday
Cedar Rapids, IA -- January 8, 1999 -- McLeodUSA Publishing Company announced
today that Talking Directories, Inc. and Info America Phone Books, Inc. (TDI) of
Grand Rapids, Michigan will merge with McLeodUSA. The merger will significantly
enhance McLeodUSA Publishing Company's presence in Michigan and Ohio. The merger
transaction is expected to be finalized by the end of January. Phone directories
covered in the merger are 17 Michigan directories including a large portion of
Detroit, and two directories in northwestern Ohio. Nearly 2.6 million
directories will be produced and distributed to a population of more than 4.7
million.
Steve Gray, President and COO of McLeodUSA Incorporated stated, "This
announcement dovetails nicely with our merger with Ovation Communications, Inc.
announced yesterday. Ovation has a substantial presence in Michigan, including
400 route miles of fiber optic network, thousands of telecommunications
customers and nearly 200 employees. Our distinctive black and gold directory
carrying the McLeodUSA name will strengthen our brand recognition in this new
market area for our telecommunications business."
"Talking Directories Inc. has an outstanding reputation in the telephone
directory industry," noted Arthur Christoffersen, McLeodUSA Publishing Company
President and CEO. "Merging their excellent directories with the family of
McLeodUSA directories will enhance the efficiency and scope of our service to
advertisers and telephone directory users throughout these areas."
John Morgan, Chief Executive Officer for TDI, commented, "Having known the
people at McLeodUSA for a number of years, I'm confident about the continued
growth of our company. McLeodUSA is a premiere publisher and I believe this is a
win for TDI customers and employees."
McLeodUSA Publishing Company is a wholly owned subsidiary of McLeodUSA
Incorporated (NASDAQ/NMS:MCLD), a provider of integrated telecommunications
services to business and residential customers in ten Midwestern and Rocky
Mountain states.
Including the TDI directories, McLeodUSA Publishing Company will distribute over
18 million copies of competitive directories in 20 states, reaching a population
of nearly 33 million.
