AGREEMENT AND PLAN OF MERGER
AMONG
RCN CORPORATION,
21ST HOLDING CORP.
AND
21ST CENTURY TELECOM GROUP, INC.
DATED AS OF DECEMBER 12, 1999
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TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER
Section 1.1 The Merger . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Closing; Effective Time of the Merger . . . . . . . . 1
Section 1.3 Effects of Merger . . . . . . . . . . . . . . . . . . 2
Section 1.4 Directors and Officers . . . . . . . . . . . . . . . 2
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock . . . . . . . . . . . . . 2
Section 2.2 Exchange of Certificates . . . . . . . . . . . . . . 6
Section 2.3 Options . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.4 Contingent Deferred Payment . . . . . . . . . . . . 10
Section 2.5 Payment of Contingent Deferred Payment . . . . . . 12
Section 2.6 Franchise Amount . . . . . . . . . . . . . . . . . 13
Section 2.7 Shares of Dissenting Shareholders . . . . . . . . . 15
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization . . . . . . . . . . . . . . . . . . . 16
Section 3.2 Company Subsidiaries . . . . . . . . . . . . . . . 16
Section 3.3 Company Capital Structure . . . . . . . . . . . . . 17
Section 3.4 Authority; No Conflict; Required Filings and
Consents . . . . . . . . . . . . . . . . . . . . 19
Section 3.5 SEC Filings . . . . . . . . . . . . . . . . . . . . 22
Section 3.6 Financial Statements . . . . . . . . . . . . . . . 22
Section 3.7 Absence of Undisclosed Liabilities . . . . . . . . 22
Section 3.8 Absence of Certain Changes or Events . . . . . . . 23
Section 3.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.10 Real Properties; Title to and Condition of Assets . 26
Section 3.11 Intellectual Property . . . . . . . . . . . . . . . 28
Section 3.12 Agreements, Contracts and Commitments . . . . . . . 28
Section 3.13 Litigation . . . . . . . . . . . . . . . . . . . . 30
Section 3.14 Environmental Matters . . . . . . . . . . . . . . . 30
Section 3.15 Transactions with Affiliates . . . . . . . . . . . 31
Section 3.16 Employee Benefit Plans . . . . . . . . . . . . . . 31
Section 3.17 Labor Matters . . . . . . . . . . . . . . . . . . . 34
Section 3.18 Compliance with Laws; Regulatory Approvals . . . . 34
Section 3.19 Systems Information . . . . . . . . . . . . . . . . 38
Section 3.20 Outside Plant/Network; CLEC; Internet Related
Systems . . . . . . . . . . . . . . . . . . . . . 41
Section 3.21 No Other Operators . . . . . . . . . . . . . . . . 43
Section 3.22 Franchises; Licenses . . . . . . . . . . . . . . . 43
Section 3.23 Bonds . . . . . . . . . . . . . . . . . . . . . . . 44
Section 3.24 Commitments . . . . . . . . . . . . . . . . . . . . 45
Section 3.25 Brokers . . . . . . . . . . . . . . . . . . . . . . 45
Section 3.26 Insurance . . . . . . . . . . . . . . . . . . . . . 45
Section 3.27 Fairness Opinion . . . . . . . . . . . . . . . . . 46
Section 3.28 Year 2000 Compliance . . . . . . . . . . . . . . . 46
Section 3.29 Full Disclosure . . . . . . . . . . . . . . . . . . 47
Section 3.30 Registered Securities . . . . . . . . . . . . . . . 47
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Section 4.1 Organization . . . . . . . . . . . . . . . . . . . 47
Section 4.2 Authority; No Conflict; Required Filings and
Consents . . . . . . . . . . . . . . . . . . . . 48
Section 4.3 SEC Documents . . . . . . . . . . . . . . . . . . . 49
Section 4.4 Parent Common Stock Issued in the Merger . . . . . 49
Section 4.5 Litigation . . . . . . . . . . . . . . . . . . . . 49
Section 4.6 Interim Operations of Sub . . . . . . . . . . . . . 49
Section 4.7 Brokers . . . . . . . . . . . . . . . . . . . . . . 50
Section 4.8 Tax Matters . . . . . . . . . . . . . . . . . . . . 50
Section 4.9 Financial Statements . . . . . . . . . . . . . . . 50
Section 4.10 Absence of Undisclosed Liabilities . . . . . . . . 51
Section 4.11 Absence of Certain Changes or Events . . . . . . . 51
ARTICLE V
CONDUCT OF BUSINESS
Section 5.1 Covenants of the Company . . . . . . . . . . . . . 51
Section 5.2 Cooperation . . . . . . . . . . . . . . . . . . . . 53
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 No Solicitation . . . . . . . . . . . . . . . . . . 53
Section 6.2 Access to Information . . . . . . . . . . . . . . . 54
Section 6.3 Consents . . . . . . . . . . . . . . . . . . . . . 55
Section 6.4 Public Disclosure . . . . . . . . . . . . . . . . . 55
Section 6.5 Tax-Free Reorganization . . . . . . . . . . . . . . 55
Section 6.6 Affiliate Agreements . . . . . . . . . . . . . . . 55
Section 6.7 Commercially Reasonable Efforts . . . . . . . . . . 56
Section 6.8 Certain Filings . . . . . . . . . . . . . . . . . . 56
Section 6.9 Further Assurances . . . . . . . . . . . . . . . . 56
Section 6.10 Notification of Certain Matters . . . . . . . . . . 56
Section 6.11 Affiliate Transactions . . . . . . . . . . . . . . 57
Section 6.12 Shareholders Meeting . . . . . . . . . . . . . . . 57
Section 6.13 Proxy Statement; Registration Statement; Board
Recommendation . . . . . . . . . . . . . . . . . 57
Section 6.14 Nasdaq Listing . . . . . . . . . . . . . . . . . . 58
Section 6.15 Letter of Independent Auditors . . . . . . . . . . 58
Section 6.16 Treatment of Company Debt and Exchangeable
Preferred . . . . . . . . . . . . . . . . . . . 59
Section 6.17 Employee Matters . . . . . . . . . . . . . . . . . 61
Section 6.18 280G Approval . . . . . . . . . . . . . . . . . . . 61
Section 6.19 Director and Officer Liability . . . . . . . . . . 61
Section 6.20 Employee Benefits after the Effective Time . . . . 62
Section 6.21 ISP Plan . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE VII
CONDITIONS TO MERGER
Section 7.1 Conditions to Each Party's Obligation to Effect
the Merger . . . . . . . . . . . . . . . . . . . 63
Section 7.2 Additional Conditions to Obligations of Parent and
Sub . . . . . . . . . . . . . . . . . . . . . . . 64
Section 7.3 Additional Conditions to Obligations of the Company 66
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination . . . . . . . . . . . . . . . . . . . . 67
Section 8.2 Procedure and Effect of Termination . . . . . . . . 68
Section 8.3 Amendment . . . . . . . . . . . . . . . . . . . . . 68
Section 8.4 Extension; Waiver . . . . . . . . . . . . . . . . . 69
Section 8.5 Fees and Expenses . . . . . . . . . . . . . . . . . 69
ARTICLE IX
INDEMNIFICATION
Section 9.1 Survival . . . . . . . . . . . . . . . . . . . . . 69
Section 9.2 Obligations of the Shareholders . . . . . . . . . . 69
Section 9.3 Indemnification Procedures . . . . . . . . . . . . 70
Section 9.4 Shareholder Representative . . . . . . . . . . . . 72
Section 9.5 Certain Definitions . . . . . . . . . . . . . . . . 73
ARTICLE X
TAX MATTERS
Section 10.1 Indemnification by the Company Shareholders . . . . 73
Section 10.2 Allocation of Taxes . . . . . . . . . . . . . . . . 74
Section 10.3 Mutual Cooperation; Contests . . . . . . . . . . . 74
Section 10.4 Other Tax Agreements . . . . . . . . . . . . . . . 75
ARTICLE XI
MISCELLANEOUS
Section 11.1 Notices . . . . . . . . . . . . . . . . . . . . . . 76
Section 11.2 Interpretation; Certain Definitions . . . . . . . . 77
Section 11.3 Counterparts . . . . . . . . . . . . . . . . . . . 77
Section 11.4 Entire Agreement; No Third Party Beneficiaries . . 78
Section 11.5 Governing Law . . . . . . . . . . . . . . . . . . . 78
Section 11.6 Jurisdiction . . . . . . . . . . . . . . . . . . . 78
Section 11.7 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . 78
Section 11.8 Assignment . . . . . . . . . . . . . . . . . . . . 78
Section 11.9 Severability . . . . . . . . . . . . . . . . . . . 79
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of December
12, 1999 by and among RCN Corporation, a Delaware corporation ("Parent"),
21st Holding Corp., an Illinois corporation and a wholly owned subsidiary
of Parent ("Sub"), and 21st Century Telecom Group, Inc., an Illinois
corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, Sub and the Company have
approved this Agreement and deem it advisable and in the best interests of
each corporation and its respective stockholders and shareholders to enter
into this Agreement and the other agreements contemplated herein and
consummate the transactions contemplated hereby and thereby; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section
368(a) of the 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 below, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the
conditions of this Agreement and in accordance with the Business
Corporation Act of the State of Illinois (the "Illinois Statute"), Sub
shall be merged with and into the Company (the "Merger"). As a result of
the Merger, the outstanding shares of capital stock of Sub and the Company
shall be converted or canceled in the manner provided in Article II of this
Agreement, the separate corporate existence of Sub shall cease and the
Company shall be the surviving corporation in the Merger.
Section 1.2 Closing; Effective Time of the Merger. Unless
this Agreement shall have been terminated pursuant to Section 8.1, the
closing of the Merger (the "Closing") will take place at 10:00 a.m., New
York time, on a date to be specified in writing by Parent and the Company
(the "Closing Date"), which shall be no later than the third business day
after satisfaction (or waiver in accordance with Section 8.4) of all
conditions set forth in Article VII, at the offices of Skadden, Arps,
Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036,
unless another date or place is agreed to in writing by Parent and the
Company. Subject to the provisions of this Agreement, a certificate of
merger (the "Certificate of Merger") shall be duly prepared and executed in
accordance with the Illinois Statute and simultaneously with or as soon as
practicable following the Closing delivered to the Secretary of State of
the State of Illinois for filing. The Merger shall become effective upon
the later of: (a) the date and time of the filing of the Certificate of
Merger with the Secretary of State of the State of Illinois, or (b) such
other date and time as is provided in this Agreement (the "Effective
Time").
Section 1.3 Effects of Merger.
(a) At the Effective Time: (i) the separate existence of Sub
shall cease and Sub shall be merged with and into the Company (Sub and the
Company are sometimes referred to collectively herein as the "Constituent
Corporations" and the Company is sometimes referred to herein as the
"Surviving Corporation"); and (ii) the articles of incorporation and bylaws
of the Company in effect immediately prior to the Effective Time shall be
the articles of incorporation and bylaws of the Surviving Corporation until
amended in accordance with the terms thereof and in accordance with
applicable law.
(b) The Merger shall have the effects set forth in this
Agreement and the Illinois Statute.
Section 1.4 Directors and Officers. The directors of Sub and
the officers of the Company immediately prior to the Effective Time shall
be the initial directors and officers of the Surviving Corporation, and
shall hold office in accordance with the articles of incorporation and
bylaws of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of the
Constituent Corporations or the holder of any shares of capital stock of
the Constituent Corporations (other than Dissenting Shares (as defined in
Section 2.7)):
(a) Capital Stock of Sub. Each issued and outstanding share of
the capital stock of Sub shall be converted into and become one fully paid
and nonassessable share of common stock, no par value, of the Surviving
Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. All
shares of Company Stock (as defined below) that are owned by the Company as
treasury stock and any shares of Company Stock owned by Parent, Sub or any
other wholly owned Subsidiary (as defined in Section 3.1 below) of Parent
shall be canceled and retired and shall cease to exist and no stock of
Parent or other consideration shall be delivered in exchange therefor.
(c) Company Common Stock. Each issued and outstanding share of
Company Common Stock (as defined in Section 3.3) shall be converted into
the right to receive the sum of:
(i) that number of shares of Common Stock, par
value $1.00 per share, of Parent ("Parent Common Stock") equal to
(A) the Exchange Ratio (as defined below) multiplied by (B) one
minus the Indemnification Percentage (as defined below);
(ii) subject to offset in accordance with the
provisions of Section 2.1(l) and Articles IX and X hereof and the
Escrow Agreement (as defined below), that number of shares of
Parent Common Stock equal to (A) the Exchange Ratio multiplied by
(B) the Indemnification Percentage (the "Escrowed Common
Consideration");
(iii) its applicable share of the Contingent
Deferred Payment (as defined below), if any; and
(iv) its applicable share of the Franchise Amount
(as defined below), if any.
(d) Class A Preferred Stock. Each issued and outstanding share
of Class A Preferred Stock (as defined in Section 3.3) shall be converted
into the right to receive the sum of:
(i) that number of shares of Parent Common Stock
equal to (A) the Exchange Ratio multiplied by (B) one minus the
Indemnification Percentage multiplied by (C) the Preferred
Conversion Number (as defined below);
(ii) subject to offset in accordance with the
provisions of Section 2.1(l) and Articles IX and X hereof and the
Escrow Agreement, that number of shares of Parent Common equal to
(A) the Exchange Ratio multiplied by (B) the Indemnification
Percentage multiplied by (C) the Preferred Conversion Number
(the "Escrowed Preferred Consideration");
(iii) its applicable share of the Contingent
Deferred Payment (as defined below), if any; and
(iv) its applicable share of the Franchise Amount,
if any.
(e) Warrants. Each Warrant (as defined in Section 3.3(a)) to
acquire shares of Company that is outstanding immediately prior to the
Effective Time, whether or not then exercisable, shall, effective as of the
Effective Time, be cancelled and in exchange therefor, shall be converted
into the right to receive the sum of:
(i) that number of shares of Parent Common Stock
equal to (1) the Exchange Ratio multiplied by (2) one minus the
Indemnification Percentage multiplied by (3) the difference
between (A) the total number of shares of Company Common Stock
subject to such Warrant less (B) the quotient obtained by
dividing (i) the product of (x) the total number of shares of
Company Common Stock subject to such Warrant multiplied by (y)
the exercise price of such Warrant, by (ii) the Net Equity Value;
(ii) subject to offset in accordance with the
provisions of Section 2.1(l) and Articles IX and X hereof and the
Escrow Agreement, that number of shares of Parent Common equal to
(1) the Exchange Ratio multiplied by (2) the Indemnification
Percentage multiplied by (3) the difference between (A) the total
number of shares of Company Common Stock subject to such Warrant
less (B) the quotient obtained by dividing (i) the product of (x)
the total number of shares of Company Common Stock subject to
such Warrant multiplied by (y) the exercise price of such
Warrant, by (ii) the Net Equity Value (the "Escrowed Warrant
Consideration");
(iii) its applicable share of the Contingent
Deferred Payment (as defined below), if any; and
(iv) its applicable share of the Franchise Amount,
if any.
(f) As used herein, the term "Company Stock" shall mean the
Company Common Stock, the Class A Preferred Stock and, as applicable, the
Warrants and the shares of Company Common Stock subject to the Warrants.
(g) As used herein, the term "Exchange Ratio" means a fraction,
the numerator of which is the Net Equity Value (as defined below) and the
denominator of which is $45.441667 (the "Parent Stock Price"). The
aggregate shares of Parent Common Stock into which all shares of Company
Stock will be converted into the right to receive is referred to herein as
the "Merger Consideration." The aggregate Escrowed Common Consideration,
Escrowed Preferred Consideration, Escrowed Warrant Consideration, Escrowed
CDP (as defined in Section 2.5(a)) and Escrowed Franchise Amount (as
defined in Section 2.6(c)) are collectively referred to as the "Escrowed
Consideration."
(h) As used herein, the term "Net Equity Value" means a
fraction, the numerator of which is (A) the excess of (i) $212,377,112.50
less (ii) in the event that the Company shall not have delivered the
Franchise Certificate (as defined in Section 2.6(b)) to Parent prior to the
Closing, the Initial Franchise Amount (as defined in Exhibit A-1 hereto),
and (B) the denominator of which is the number of shares of Company Common
Stock outstanding immediately prior to the Effective Time assuming, in each
case, immediately prior to the Effective Time and at the then applicable
exercise or conversion prices, whether or not then vested, exercisable or
convertible: (i) conversion of all shares of Class A Preferred into Company
Common Stock; (ii) the exercise of all outstanding options to acquire
shares of Company Common Stock; (iii) the exercise of all warrants to
acquire shares of Company Common Stock; and (iv) the exercise or
conversion, as applicable, of all other securities convertible into or
exchangeable for shares of Company Common Stock.
(i) As used herein, (i) the term "Indemnification Percentage"
means ten percent (10%) and (ii) the term "Preferred Conversion Number"
means 1,000.
(j) Effect on Company Stock. All such shares of Company Stock,
when so converted, shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the shares of Parent
Common Stock and any cash in lieu of fractional shares of Parent Common
Stock to be issued or paid in consideration therefor upon the surrender of
such certificate in accordance with Section 2.2, without interest.
(k) Adjustment of Exchange Ratio for Dilution and Other Matters.
If between the date of this Agreement and the Effective Time, the
outstanding shares of Parent Common Stock shall have been changed into a
different number of shares or a different class by reason of any
reclassification, recapitalization, split-up, stock dividend, stock
combination, exchange of shares, readjustment or otherwise, then the
Exchange Ratio shall be correspondingly adjusted.
(l) Escrow of Shares. At the Effective Time, any Franchise
Amount Payment Date and any CDP Payment Date, as applicable, Parent shall
deposit the number of shares of Parent Common Stock comprising the Escrowed
Consideration (the "Escrow Shares") with an escrow agent reasonably
satisfactory to the Company and Parent to be held and disbursed by that
escrow agent in accordance with the form of escrow agreement attached as
Exhibit B (the "Escrow Agreement"). Those shares will be withheld from the
shares of Parent Common Stock allocable to each former holder of the
Company Stock in accordance with the provisions of Sections 2.1(c)(ii), 2.1
(d)(ii), 2.1(e)(ii), 2.5(a) and 2.6(c). To the extent Parent is entitled
to indemnification out of the Escrow Shares pursuant to Articles IX or X of
this Agreement and subject to the conditions and limitations therein,
Parent shall set off and apply against Indemnified Losses (as defined in
Section 9.2) the Escrow Shares in accordance with the terms hereof and of
the Escrow Agreement. Pursuant to the terms of the Escrow Agreement, the
Escrow Shares shall be valued for purposes of set off against any
Indemnified Losses at the Parent Stock Price.
Section 2.2 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, Parent shall
deposit with an exchange agent designated by Parent and reasonably
acceptable to the Company (the "Exchange Agent"), for the benefit of the
holders of shares of Company Stock, for exchange in accordance with this
Article II, through the Exchange Agent, (A) certificates representing the
shares of Parent Common Stock (such shares of Parent Common Stock, together
with any dividends or distributions with respect thereto, being hereinafter
referred to as the "Exchange Fund") issuable pursuant to this Article II in
exchange for the shares of Company Stock and (B) cash in an amount
sufficient for payment in lieu of fractional shares as contemplated by this
Article II.
(b) Exchange Procedures. As soon as reasonably practicable
after the Effective Time, the Exchange Agent shall mail to each holder of
record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Company Stock (each a
"Certificate" and collectively, the "Certificates") whose shares were
converted pursuant to this Article II into the right to receive shares of
Parent Common Stock (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 delivery of (1) the Certificates or (2) an affidavit
in accordance with Section 2.2(h) to the Exchange Agent and shall be in
such form and have such other provisions as Parent and the Company may
reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates or affidavits in exchange for certificates
representing shares of Parent Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent
or agents reasonably acceptable to the Company as may be appointed by
Parent, together with such letter of transmittal, duly executed, and such
other documents as may be reasonably required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange
therefor (x) a certificate representing that number of whole shares of
Parent Common Stock which such holder has the right to receive, pursuant to
the provisions of this Article II, and (y) cash in lieu of any fractional
shares of Parent Common Stock in accordance with Section 2.2(e), and the
Certificate so surrendered shall immediately be canceled. In the event of
a transfer of ownership of Company Stock which is not registered in the
transfer records of the Company, a certificate representing the proper
number of shares of Parent Common Stock may be issued to a transferee if
the Certificate representing such Company Stock is 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 Article
II, each Certificate shall be deemed at any time after the Effective Time
to represent only the right to receive upon such surrender the certificate
representing shares of Parent Common Stock and cash in lieu of any
fractional shares of Parent Common Stock as contemplated by this Article
II.
(c) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the Effective Time
with respect to Parent Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate or
affidavit pursuant to Section 2.2(h) with respect to the shares of Parent
Common Stock represented thereby and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to paragraph (e) below
until the holder of record of such Certificate shall surrender such
Certificate or affidavit. Subject to the effect of applicable laws,
following surrender of any such Certificate or affidavit, there shall be
paid to the record holder of the certificates representing whole shares of
Parent Common Stock issued in exchange therefor, without interest, (i) at
the time of such surrender, the amount of any cash payable in lieu of a
fractional share of Parent Common Stock to which such holder is entitled
pursuant to paragraph (e) below and the amount of dividends or other
distributions with a record date after the Effective Time previously paid
with respect to such whole shares of Parent 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 subsequent to surrender payable with respect to such whole
shares of Parent Common Stock.
(d) No Further Ownership Rights in Company Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of
Company Stock in accordance with the terms hereof (including any cash paid
pursuant to paragraph (c) or (e) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such shares of Company Stock,
subject, however, to the Surviving Corporation's obligation to pay any
dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared or made by the Company on such
shares of Company Stock in accordance with the terms of this Agreement on
or prior to the date hereof and which remain unpaid at the Effective Time,
and there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Company Stock
which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation
for any reason, they shall be canceled and exchanged as provided in this
Article II.
(e) No Fractional Shares. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a shareholder of
Parent. Notwithstanding any other provision of the Agreement, each holder
of shares of Company Stock, exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Parent
Common Stock (after taking into account all Certificates delivered by such
holder) shall receive from Parent, in lieu thereof, cash (without interest)
in an amount equal to such fractional part of a share of Parent Common
Stock multiplied by the average of the closing prices of Parent Common
Stock, as reported on the Nasdaq, on each of the fifteen trading days
immediately preceding the date of the Effective Time.
(f) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the shareholders of the Company for one
year after the Effective Time shall be delivered to Parent, upon demand,
and any former shareholders of the Company who have not previously complied
with this Article II shall thereafter look only to Parent for payment of
their claim for Parent Common Stock, any cash in lieu of fractional shares
of Parent Common Stock, and any dividends or distributions with respect to
Parent Common Stock.
(g) No Liability. Neither the Exchange Agent, Parent, Sub nor
the Company shall be liable to any holder of shares of Company Stock or
Parent Common Stock, as the case may be, for such shares (or dividends or
distributions with respect thereto) delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(h) Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates,
upon the making of an affidavit of that fact by the holder thereof, such
shares of Parent Common Stock, cash in lieu of fractional shares of Parent
Common Stock, to which such holder is entitled pursuant to paragraph (e)
above and any dividends or other distributions with respect to Parent
Common Stock to which such holder is entitled.
Section 2.3 Options.
(a) Except as may otherwise be agreed upon between a holder of
Company Stock Options and Parent, each option granted to a Company employee
to acquire shares of Company Common Stock ("Company Stock Option") that is
outstanding immediately prior to the Effective Time, whether or not then
vested or exercisable, shall, effective as of the Effective Time, become
and represent an option to acquire the number of shares of Parent Common
Stock (a "Substitute Option"), rounded up or down to the nearest whole
share, determined by multiplying (i) the number of shares of Company Common
Stock subject to such Company Stock Option immediately prior to the
Effective Time by (ii) the Exchange Ratio, at an exercise price per share
of Parent Common Stock (increased to the nearest whole cent) equal to the
exercise price per share of such Company Stock Option divided by the
Exchange Ratio; provided, however, that in the case of any Company Stock
Option to which Section 421 of the Code applies by reason of its
qualification as an incentive stock option under Section 422 of the Code,
the conversion formula shall be adjusted if necessary to comply with
Section 424(a) of the Code; and provided, further, that the conversion
formula shall be further adjusted as provided in Section 2.3(d). After the
Effective Time, except as provided in this Section 2.3, each Substitute
Option shall be exercisable upon the same terms and conditions as were
applicable to the related Company Stock Option immediately prior to the
Effective Time.
(b) Prior to the Effective Time, the Company shall (i) obtain
any consents from holders of Company Stock Options and (ii) amend the terms
of its equity incentive plans or arrangements, in each case to the extent,
if any, necessary to give effect to the provisions of Section 2.3(a).
(c) As soon as reasonably practicable after the Effective Time,
Parent shall (i) file with the Securities and Exchange Commission (the
"SEC") a registration statement on Form S-8 or another appropriate form
with respect to the shares of Parent Common Stock subject to such options,
(ii) as soon as reasonably practicable, prepare and file with the Nasdaq
listing applications covering the shares of Parent Common Stock issuable
upon the exercise of Substitute Options and use all reasonable efforts to
obtain approval for the listing of such shares of Parent Common Stock,
subject only to official notice of issuance and (iii) amend the terms of
its equity incentive plans or arrangements, in each case to the extent, if
any, necessary to give effect to the provisions of Section 2.3(a). Parent
shall take all corporate action necessary to reserve for issuance a
sufficient number of shares of Parent Common Stock for delivery upon
exercise of Substitute Options.
(d) In the event that any Franchise Amount becomes due in
accordance with the provisions of Section 2.6, the conversion formula
applicable to each Substitute Option shall be adjusted by recalculating
such formula in accordance with clauses (i) and (ii) of Section 2.3(a) as
if the Exchange Ratio had been determined at the Effective Time to include
the value of the Franchise Amount that is actually due in accordance with
Section 2.6.
(e) On any date on which either (i) a Contingent Deferred
Payment is paid or (ii) the Escrow Agent releases any portion of the Escrow
Account (as it may be increased) to Parent in respect of any Indemnified
Losses, the conversion formula applicable to each Substitute Option shall
be adjusted by recalculating such formula in accordance with clauses (i)
and (ii) of Section 2.3(a) hereof as if the Exchange Ratio had been
determined at the Effective Time to include the value of any Contingent
Deferred Payment that is actually paid in accordance with Section 2.5 and
to exclude the value of any portion of the Escrow Account that is released
to Parent in respect of any Indemnified Losses.
Section 2.4 Contingent Deferred Payment.
(a) For purposes of this Agreement, the Contingent Deferred
Payment shall have the meaning set forth in Exhibit A hereto. Capitalized
terms used herein and not otherwise defined in this Agreement shall have
the meanings set forth in Exhibit A hereto.
(b) As promptly as practicable, but no later than ninety (90)
days after the end of the twelve month period ended March 31, 2001, the
Company shall prepare and deliver to the Shareholder Representative (as
defined in Section 9.4) the financial statements of the Company for the
twelve month period ended March 31, 2001, which shall include a statement
of the Indicators set forth on Exhibit A hereto and the calculation thereof
(the "Company March 2001 Financials"). Such financial statements shall be
prepared in accordance with GAAP based upon the books and records of the
Company in a manner consistent with the Company's past practice as of the
date hereof and shall be certified by the Chief Financial Officer of the
Company. Concurrently with delivery of the Company March 2001 Financials,
the Company shall deliver to the Shareholder Representative a statement
setting forth the calculation of the Contingent Deferred Payment (the "CDP
Statement"). Following the delivery of the CDP Statement, the Company
shall give the Shareholder Representative and any independent auditors of
the Shareholder Representative access at all reasonable times to the
properties, books, records and personnel of the Company for purposes of
reviewing the CDP Statement. The Shareholder Representative shall have
thirty (30) days following delivery of the CDP Statement during which to
notify the Company of any dispute regarding the calculation of the
Contingent Deferred Payment set forth in the CDP Statement or the Company's
calculation of the Indicators, as the case may be, which notice shall set
forth in reasonable detail the basis for such dispute. If the Shareholder
Representative fails to notify the Company of any such dispute within such
30-day period, the CDP Statement and the Indicator calculations shall be
deemed to be final and binding upon the Company, Shareholder Representative
and the shareholders. In the event that the Shareholder Representative
shall so notify the Company of any dispute, the Shareholder Representative
and the Company shall cooperate in good faith to resolve such dispute as
promptly as possible.
(c) If the Shareholder Representative and the Company are unable
to resolve any such dispute within thirty (30) days of the delivery of
notice of a dispute, such dispute shall be resolved by an independent
accounting firm (the "Accounting Firm") reasonably acceptable to the
Company and the Shareholder Representative, and such determination shall be
final and binding on the Company, the shareholders and the Shareholder
Representative. If the Shareholder Representative and the Company cannot
mutually agree on the identity of the Accounting Firm, the Shareholder
Representative and the Company shall each submit to the other party's
independent auditor the name of a "big five accounting firm" which does not
at such time and has not in the two years prior to such time provided
material services to any of the Shareholder Representative, the Company or
any of their respective affiliates, and the Accounting Firm shall be
selected by lot from these two firms by the independent auditors of the two
parties. Any expenses relating to the engagement of the Accounting Firm
shall be paid by the party whom the Accounting Firm determines to be the
non-prevailing party with respect to such dispute. The shareholders'
portion, if any, of such expenses shall be deducted from the Contingent
Deferred Payment, if any, and if sufficient funds are not available
therein, Parent and the Shareholder Representative shall instruct the
Escrow Agent to surrender to Parent a sufficient number of Escrowed Shares,
valued at the Parent Stock Price, as payment for the shareholders' portion
of such expenses. The Accounting Firm shall be instructed to use every
reasonable effort to perform its services within thirty (30) days of
submission of the CDP Statement to it and, in any case, as promptly as
practicable after such submission.
(d) The Company shall make the Contingent Deferred Payment, if
any, in shares of Parent Common Stock to the Exchange Agent for
distribution to the shareholders in accordance with the provisions of
Section 2.5. For purposes of this Agreement, a "Final Determination" shall
mean the earliest of (i) the expiration of the applicable time periods for
notifying parties of disputes pursuant to Section 2.4(b) (assuming no such
notification has been made during such time periods), (ii) the parties
reaching a final agreement on such amount or (iii) the Accounting Firm
rendering its determination pursuant to paragraph (c) above.
Section 2.5 Payment of Contingent Deferred Payment.
(a) Exchange Agent; CDP Exchange Fund. On the later of (i)
fifteen (15) business days following a Final Determination and (ii) the
Escrow Termination Date (as defined in the Escrow Agreement) (such date
being hereinafter referred to as the "CDP Payment Date"), Parent shall
deposit with the Exchange Agent certificates representing a number of
shares of Parent Common Stock equal to the quotient of the Contingent
Deferred Payment divided by the average of the closing prices of Parent
Common Stock, as reported on the Nasdaq, on each of the fifteen trading
days immediately preceding the date on which such shares are deposited with
the Exchange Agent (such shares of Parent Common Stock, together with any
dividends or distributions with respect thereto, being hereinafter referred
to as the "CDP Exchange Fund") issuable pursuant to this Section 2.5 in
respect of the Contingent Deferred Payment, and cash in an amount
(determined in accordance with Section 2.2(e)) sufficient for payment in
lieu of fractional shares. Notwithstanding the foregoing, if, on the CDP
Payment Date, the aggregate amount of unpaid and unresolved claims for
Indemnified Losses (as defined in Section 9.2(a)), as determined in
accordance with Articles IX and X hereof, and subject to the conditions and
limitations therein, and the Escrow Agreement, exceeds the value of the
Escrow Account as it then exists, then the portion of the Contingent
Deferred Payment which would be necessary to satisfy such claims shall be
excluded from the CDP Exchange Fund and shall be deposited with the Escrow
Agent (such shares of Parent Common Stock to be deposited in respect
thereof, together with any dividends or distributions with respect thereto,
being hereinafter referred to as the "Escrowed CDP") and shall be added to
the Escrow Account to be released in accordance with the terms of the
Escrow Agreement.
(b) Payment Amount. The Exchange Agent shall pay to each person
who held shares of Company Stock (other than Dissenting Shares) immediately
prior to the Effective Time, out of the CDP Exchange Fund, a number of
shares of Parent Common Stock (together with cash in lieu of fractional
shares) equal to the product of (A) the number of shares of Parent Common
Stock comprising the CDP Exchange Fund multiplied by (B) a fraction, (x)
the numerator of which is the number of shares of Company Stock held by
each such shareholder immediately prior to the Effective Time and (y) the
denominator of which is the aggregate number of shares of Company Stock
outstanding immediately prior to the Effective Time.
(c) Payment Procedure. The Exchange Agent shall make such
payment of shares of Parent Common Stock (together with cash in lieu of
fractional shares) to each such shareholder in the manner and at the
location specified in the letter of transmittal previously delivered by
each such shareholder to the Exchange Agent pursuant to Section 2.2 (unless
the Exchange Agent has otherwise been notified in writing by the
Shareholder Representative) and otherwise in accordance with the applicable
provisions of Section 2.2.
Section 2.6 Franchise Amount.
(a) Computation. For purposes of this Agreement, the "Franchise
Amount" and "Partial Franchise Amount" shall have the respective meanings
set forth in Exhibit A-1 hereto. Capitalized terms used herein and not
otherwise defined in this Agreement shall have the meanings set forth in
Exhibit A-1 hereto.
(b) Franchise Certificate. In the event that the Company
obtains franchises for any or all of Chicago Areas 2, 3 and 4, in each
case, on terms generally no less favorable than the terms of the Company's
franchise with respect to Chicago Area 1 or otherwise approved by Parent,
the Company shall prepare and deliver to Parent a certificate (each a
"Franchise Certificate") executed by the Chief Executive Officer and the
Chief Financial Officer of the Company and in form and substance reasonably
satisfactory to Parent, certifying as to (i) the receipt of such franchise
or franchises on such terms, (ii) the date on which such franchises shall
have been obtained (each a "Franchise Receipt Date") and that such
franchise or franchises are in full force and effect and (iii)
documentation evidencing such franchise or franchises.
(c) Exchange Agent; Franchise Exchange Fund. Within ten (10)
business days following Parent's receipt of a Franchise Certificate in form
and substance reasonably satisfactory to Parent (each such date being
hereinafter referred to as a "Franchise Amount Payment Date"), Parent shall
deposit with the Exchange Agent certificates representing a number of
shares of Parent Common Stock equal to the quotient of (A) the product of
(i) the Franchise Amount or a Partial Franchise Amount, as the case may be,
multiplied by (ii) one minus the Indemnification Percentage divided by (B)
the Parent Stock Price (such shares of Parent Common Stock, together with
any dividends or distributions with respect thereto, being hereinafter
referred to as the "Franchise Exchange Fund") issuable pursuant to this
Section 2.6 in respect of the Franchise Amount or a Partial Franchise
Amount, and cash in an amount (determined in accordance with Section
2.2(e)) sufficient for payment in lieu of fractional shares.
Simultaneously therewith, Parent shall deposit with the Escrow Agent
pursuant to Section 2.1(l) certificates representing a number of shares of
Parent Common Stock equal to the quotient of (A) the product of (i) the
Franchise Amount or a Partial Franchise Amount, as the case may be,
multiplied by (ii) the Indemnification Percentage divided by (B) the Parent
Stock Price (such shares of Parent Common Stock, together with any
dividends or distributions with respect thereto, being hereinafter referred
to as the "Escrowed Franchise Amount") to be included in the Escrowed
Consideration and to be held and disbursed by the Escrow Agent in
accordance with the Escrow Agreement. Notwithstanding the foregoing, in
the event that the Franchise Amount, or any Partial Franchise Amount, as
the case may be, is payable after the first anniversary of the Closing,
then, if on such date or dates the aggregate amount of unpaid and
unresolved claims for Indemnified Losses (as defined in Section 9.2), as
determined in accordance with Articles IX and X hereof, and subject to the
conditions and limitations therein, and the Escrow Agreement, exceeds the
value of the Escrow Account as it then exists, the portion the Escrowed
Franchise Amount which would be necessary to satisfy such claims shall be
deposited with the Escrow Agent and the remainder of the Escrowed Franchise
Amount, if any, shall be included in the Franchise Exchange Fund.
(d) Payment Amount. The Exchange Agent shall pay to each person
who held shares of Company Stock (other than Dissenting Shares) immediately
prior to the Effective Time, out of the Franchise Exchange Fund, a number
of shares of Parent Common Stock (together with cash in lieu of fractional
shares) equal to the product of (A) the number of shares of Parent Common
Stock comprising the Franchise Exchange Fund multiplied by (B) a fraction,
(x) the numerator of which is the number of shares of Company Stock held by
each such shareholder immediately prior to the Effective Time and (y) the
denominator of which is the aggregate number of shares of Company Stock
outstanding immediately prior to the Effective Time.
(e) Payment Procedure. The Exchange Agent shall make such
payment of shares of Parent Common Stock (together with cash in lieu of
fractional shares) to each such shareholder in the manner and at the
location specified in the letter of transmittal previously delivered by
each such shareholder to the Exchange Agent pursuant to Section 2.2 (unless
the Exchange Agent has otherwise been notified in writing by the
Shareholder Representative) and otherwise in accordance with the applicable
provisions of Section 2.2.
Section 2.7 Shares of Dissenting Shareholders.
Notwithstanding anything in this Agreement to the contrary, any shares of
Company Stock that are issued and outstanding as of the Effective Time and
that are held by a shareholder that has exercised its right (to the extent
such right is available by law) to demand and to receive the fair value of
such shares (the "Dissenting Shares") under Section 5/11.70 of the Illinois
Statute shall not be converted into the right to receive the Merger
Consideration unless and until the holder shall have failed to perfect, or
shall have effectively withdrawn or lost, his right to dissent from the
Merger under the Illinois Statute and to receive such consideration as may
be determined to be due with respect to such Dissenting Shares pursuant to
and subject to the requirements of the Illinois Statute. If any such holder
shall have so failed to perfect or have effectively withdrawn or lost such
right, each share of such holder's Company Stock shall thereupon be deemed
to have been converted into and to have become, as of the Effective Time,
without any interest thereon, the right to receive the Merger
Consideration. The Company shall give Parent (i) prompt notice of any
notice or demands for appraisal or payment for shares of Company Stock
received by the Company and (ii) the opportunity to participate in and
direct all negotiations and proceedings with respect to any such demands or
notices. The Company shall not, without the prior written consent of
Parent, make any payment with respect to, or settle, offer to settle or
otherwise negotiate, any such demands. Except as provided in Section 6.5
hereof, provided that the Company has sufficient assets to, and actually
does pay all holders of Dissenting Shares in accordance with the Illinois
Statute and this Agreement, no assets of Parent will be used in the payment
for Dissenting Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Company Disclosure Schedules (as defined in
Section 3.2), the Company represents and warrants to Parent and Sub as
follows:
Section 3.1 Organization. Each of the Company and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power to own, lease and operate its property and to
carry on its business as now being conducted or as its present business
(excluding expansions or additions to that business) is contemplated to be
conducted ("Conducted"), and is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified would have a Material Adverse Effect (as defined
below). When used in connection with the Company or any of its
Subsidiaries, the term "Material Adverse Effect" means any change, event or
effect that is materially adverse to the business, assets (including
intangible assets), liabilities, condition (financial or otherwise),
operations or results of operations of the Company and its Subsidiaries
taken as a whole except for such changes, events or effects which are
directly the result of (i) the entering into or the public announcement of
this Agreement or the transactions contemplated hereby, (ii) changes in the
telecommunications industry generally or (iii) changes in general economic
(excluding changes in the capital markets), regulatory or political
conditions in the United States; except, in the case of each of (ii) and
(iii), if the impact on the Company is more than insignificantly
disproportionate to the more general impact of the change, event or effect.
The Company has provided complete and correct copies of the articles of
incorporation, by-laws or other organizational documents of the Company and
each of its Subsidiaries as currently in effect. As used herein,
"Subsidiary" means, with respect to any person, any entity of which such
person owns, directly or indirectly, at least a majority of the voting
securities or economic interests or which is directly or indirectly owned
or controlled by such person.
Section 3.2 Company Subsidiaries. All of the issued and
outstanding shares of capital stock or other equity interest of each of the
Company's Subsidiaries are owned by the Company or by a Subsidiary of the
Company free and clear of all Liens (as defined in Section 3.3(a)) and are
validly issued, fully paid and nonassessable, and there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions, arrangements, rights or warrants
with respect to any such Subsidiary's capital stock or other equity
interest, including any right obligating any such Subsidiary to issue,
deliver or sell additional shares of its capital stock. A list of the
Subsidiaries of the Company (including the authorized capital stock and
beneficial and record owner thereof) is set forth in Section 3.2 of the
disclosure schedules delivered by the Company to Parent in connection with
this Agreement (the "Company Disclosure Schedules"). Neither the Company
nor any of its Subsidiaries, directly or indirectly, owns any equity or
similar interest, or any interest convertible into or exchangeable for any
such equity or similar interest, in any entity other than a Subsidiary.
Section 3.3 Company Capital Structure.
(a) The authorized capital stock of the Company consists of:
(i) 50,000,000 shares of Voting Common Stock, no par value, of the Company
(the "Company Voting Common Stock") and 1,000,000 shares of Non Voting
Common Stock, no par value, of the Company (the "Company Non Voting Common
Stock" and, together with the Company Voting Common Stock, the "Company
Common Stock"); (ii) 500,000 shares of Class A Convertible 8% Cumulative
Preferred Stock, no par value, of the Company (the "Class A Preferred
Stock"); (iii) 500,000 shares of Class B Convertible 8% Cumulative
Preferred Stock, no par value, of the Company, ("Class B Preferred Stock");
and (iv) 100,000 shares of 133/4 Senior Cumulative Exchangeable Preferred
Stock, $0.01 par value, of the Company ("Exchangeable Preferred"). As of
the date hereof, (x) 3,728,666.2150 shares of Company Voting Common Stock;
552,271.8965 shares of Company Non Voting Common Stock; 1554.8710 shares of
Class A Preferred Stock and 65,668.2 shares of Exchangeable Preferred were
issued and outstanding, all of which were validly issued, fully paid and
nonassessable, and no shares of Class B Preferred Stock were issued and
outstanding; (y) no shares of Company Common Stock were held in the
treasury of the Company or by Subsidiaries of the Company; and (z)
6,518,486.6 shares of Company Voting Common Stock were reserved for
issuance pursuant to the following: (A) 145,235.8330 shares pursuant to
the 1998 Employee Stock Option Plan; (B) 140,375 shares pursuant to the
1998 Key Management Stock Option Plan; (C) 331,200 shares pursuant to the
1998 Stock Option Agreement entered into between the Company and each of
Robert J. Currey and Ronald D. Webster; (D) 575,758.5360 shares pursuant to
the 1997 Stock Option Plan; (E) 53,640 shares pursuant to the Company 1999
Stock Incentive Plan; (F) subjection to the provisions of Section 6.21
hereof, 599,916 shares pursuant to the Company 1999 ISP Stock Plan; (G)
97,830.00 shares pursuant to the Company ISP Employee Stock Option Plan;
(H) 322,000.00 shares pursuant to an option agreement entered into with
Robert J. Currey dated December 10 , 1999; (I) 1,554,871 shares pursuant to
the conversion of the Class A Preferred Stock; (J) 3,016,060.35 shares
pursuant to Warrants (as defined below), of which 1,308,195.65 are
attributable to Warrants issued in connection with the Class A Preferred
Stock, 438,870 are attributable to Warrants issued in connection with the
Exchangeable Preferred, 18,994.7 are attributable to Warrants issued to
Carr, Nickey & Company and 1,250,000 are attributable to the LaSalle
Options (as defined below). As used herein, the term "Warrants" means (i)
warrants to purchase Company Common Stock and (ii) options (the "LaSalle
Options") issued pursuant to a Contribution and Indemnity Agreement, dated
June 24, 1996, and any amendments thereto. All shares of Company Voting
Common Stock subject to issuance as specified above, upon issuance on the
terms and conditions specified in the instruments pursuant to which they
are issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. There are no obligations, contingent or otherwise, of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any such shares of capital stock or the capital stock of any of the
Company's Subsidiaries or make any investment (in the form of a loan,
capital contribution or otherwise) in any such Subsidiary or any other
entity. All of the outstanding shares of capital stock of each Subsidiary
of the Company are duly authorized, validly issued, fully paid and
nonassessable, and all such shares are owned by the Company or another
Subsidiary of the Company free and clear of all security interests, liens,
claims, pledges, agreements, limitations on voting rights, limitations on
transfer, charges or other encumbrances of any nature (collectively
"Liens").
(b) Section 3.3 of the Company Disclosure Schedules sets forth a
complete and accurate list of each of the record and beneficial holders of
(i) each class or series of the Company's capital stock and the number of
shares of the Company's capital stock held by each holder as of the date
hereof and the number of shares or other securities into which such capital
stock is convertible, (ii) options and warrants and the exercise price,
date of grant, and number of shares and class of capital stock of the
Company into which such options and warrants are exercisable by each such
holder as of the date hereof and the vesting schedules of each such option
or warrant and (iii) the percentage of each class or series of capital
stock of the Company held by each holder as of the date hereof, the
percentage of the total outstanding capital stock of the Company held by
each holder as of the date hereof, and the percentage of each such class or
series and the percentage of the total outstanding capital stock as of the
date hereof, assuming, at the then applicable exercise or conversion
prices, whether or not then vested, exercisable or convertible: (A)
conversion of all shares of Class A Preferred; (B) the exercise of all
outstanding options; (C) the exercise of all warrants; and (D) the exercise
or conversion, as applicable, of all other securities convertible into or
exchangeable for shares of capital stock of the Company. No shares of
capital stock of the Company and no securities convertible into or
exercisable for shares of capital stock of the Company are convertible into
or exercisable for any other class or series of capital stock of the
Company other than Company Common Stock. Immediately prior to the
Effective Time, the Company shall provide Parent with a revised
capitalization table substantially in the form of Section 3.3 of the
Company Disclosure Schedules and setting forth any changes made in the
capitalization of the Company after the date hereof and prior to the
Effective Time.
(c) Except as set forth in this Section 3.3, there are no equity
securities of any class of the Company or any of its Subsidiaries, or any
security exchangeable into or exercisable for such equity securities,
issued and outstanding or, reserved for issuance and the Company has not
authorized the issuance of such security. Except as set forth in this
Section 3.3, there are no options, warrants, equity securities, calls,
rights commitments or agreements of any character to which the Company or
any of its Subsidiaries is a party or by which it is bound obligating the
Company or any of its Subsidiaries to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock of the
Company or any of its Subsidiaries or obligating the Company or any of its
Subsidiaries to grant, extend, accelerate the vesting of or enter into any
such option, warrant, equity, security, call, right, commitment or
agreement, and to the knowledge of the Company, there are no voting trusts,
proxies or other agreements or understandings with respect to the shares of
capital stock of the Company.
(d) Each share of Class A Preferred Stock is, and immediately
prior to the Effective Time will be, convertible into 1,000 shares of
Company Voting Stock.
(e) On January 9, 1998, the Company effected a 1,000 for 1 share
split with respect to the Company Common Stock and no other splits or
similar adjustments with respect to any of the Company's capital stock or
securities convertible thereinto have otherwise occurred. The Board of
Directors of the Company has rescinded, or will prior to the Effective Time
rescind, the 3 for 1 share split described on the Company's Quarterly
Report on Form 10-Q for the Quarterly Period ended September 30, 1999 and
will file a Current Report on Form 8-K reflecting the foregoing and
revising the disclosure contained in the Company's Quarterly Report on Form
10-Q for the Quarterly Period ended September 30, 1999.
Section 3.4 Authority; No Conflict; Required Filings and
Consents.
(a) The Company has all requisite corporate power and authority
to enter into and deliver this Agreement and the other agreements
contemplated herein, and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the other
agreements contemplated herein and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of the Company and each of its Subsidiaries,
subject only (in the case of this Agreement) to the approval of the Merger
by the Company's shareholders under the Illinois Statute. This Agreement
and the other agreements contemplated herein have been duly executed and
delivered by the Company and constitute valid and binding obligations of
the Company, enforceable in accordance with the terms hereof and thereof,
except as such enforceability may be limited by (i) bankruptcy laws and
other similar laws affecting creditors' rights generally and (ii) general
principles of equity, regardless of whether asserted in a proceeding in
equity or at law.
(b) The only vote of the Company's shareholders required for the
approval of the Merger and the consummation of the transactions
contemplated hereby is the affirmative vote of (i) two-thirds of the
outstanding shares of Company Voting Common Stock and Class A Preferred
Stock, voting together as a class, and (ii) a majority of the outstanding
shares of Class A Preferred Stock. This Agreement and the transactions
contemplated hereby have been approved by (i) at least a majority of the
directors comprising the Company's Board of Directors and (ii) at least a
majority of the directors appointed by the holders of the Class A Preferred
Stock, which are the only votes of the Company's Board of Directors
required for approval of this Agreement and the consummation of the
transactions contemplated hereby. The Company has taken all appropriate
action so that the restrictions on business combinations contained in
Section 5/11.75 of the Illinois Statute and in any other applicable laws
will not apply to Parent or Sub and their respective associates and
affiliates with respect to or as a result of this Agreement and the
transactions contemplated hereby.
(c) Persons holding, beneficially and of record, (i) (A) two-
thirds of the outstanding shares of Company Voting Common Stock and Class A
Preferred Stock, voting together as a class, and (B) two-thirds of the
shares of Company Voting Common Stock and Class A Preferred Stock, voting
together as a class, that would be outstanding assuming the exercise or
conversion, as the case may be, of any and all options, warrants or other
securities exercisable or convertible into Company Voting Common Stock or
Class A Preferred Stock, whether or not then convertible or exercisable and
(ii) (A) a majority of the outstanding shares of Class A Preferred Stock
and (B) a majority of the shares of Class A Preferred Stock that would be
outstanding assuming the exercise or conversion, as the case may be, of any
and all options, warrants or other securities exercisable or convertible
into Class A Preferred Stock, whether or not then convertible or
exercisable, have each validly executed and delivered a Voting and Lock-Up
Agreement substantially in the form attached hereto as Exhibit C and each
such agreement is enforceable against each such person that is a party
thereto in accordance with its terms except as such enforceability may be
limited by (i) bankruptcy laws and other similar laws affecting creditors'
rights generally and (ii) general principles of equity, regardless of
whether asserted in a proceeding in equity or at law and the votes
represented thereby represent the only approval required by the Company's
shareholders as of the date hereof and at any time prior to the Effective
Time necessary to approve the Merger and the other transactions
contemplated hereby and thereby.
(d) Except as set forth in Section 3.4 of the Company Disclosure
Schedules, the execution and delivery of this Agreement and the other
agreements contemplated herein does not, and the consummation of the
transactions contemplated hereby and thereby will not, (i) conflict with,
or result in any violation or breach of any provision of the certificates
of incorporation or bylaws of the Company or any of its Subsidiaries, (ii)
result in any violation or breach of, or constitute (with or without notice
or lapse of time, or both) a default or conflict with (or give rise to a
right of termination, amendment, cancellation or acceleration of any
obligation or loss of any benefit) or require any consent or notice to any
person, under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which the Company or any of its Subsidiaries is a party or by
which any of them or any of their properties or assets may be bound, (iii)
conflict with or violate any permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries or any of their
properties or assets or (iv) result in the imposition of any Lien (except
the claims, agreements, limitations on voting rights or transfer and other
encumbrances contemplated by this Agreement) against any of the properties
or assets of the Company or any of its Subsidiaries.
(e) No consent, approval, order or authorization of, or
registration, declaration or filing with, any supranational, national,
state, municipal, county or local government, any instrumentality,
subdivision, court, administrative agency or commission or other authority
thereof, or any quasi-governmental or private body exercising any
regulatory, taxing, importing or other governmental or quasi-governmental
authority (each such entity shall hereinafter be referred to as a
"Governmental Entity"), is required by or with respect to the Company or
any of its Subsidiaries in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby,
except for (i) the filing of a pre-merger notification report under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the filing of the Illinois Articles of Merger with, and the
issuance of the Illinois Certificate of Merger by, the Secretary of State
of the State of Illinois in accordance with Illinois Statute, (iii) the
filing of documents to satisfy the applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and state
takeover laws, (iv) the filing with the SEC of the Registration Statement
(as defined in Section 6.13(d)), (v) approval by the Illinois Public
Utility Commission and applicable state and local franchising authorities
and (vi) consents, authorizations, filings, approvals and registrations
pursuant to the foregoing or set forth in Section 3.4 of the Company
Disclosure Schedules.
Section 3.5 SEC Filings. The Company has filed all reports
and registration statements required to be filed by it with the SEC since
May 14, 1998 (collectively, the "Company SEC Reports"). As of its filing
date, and giving effect to any amendments thereof, each Company SEC Report
complied as to form in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), and the Exchange Act, as the case may be. As of its filing date,
and giving effect to any amendments thereof, each Company SEC Report filed
pursuant to the Exchange Act did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which
they were made, not misleading. Each Company SEC Report that is a
registration statement, as amended or supplemented, if applicable, filed
pursuant to the Securities Act, as of the date of such registration
statement or amendment became effective, did not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading.
Section 3.6 Financial Statements. Each of the consolidated
financial statements (including, in each case, any related notes thereto)
contained in the Company SEC Reports (the "Financial Statements") complied
as to form in all material respects with applicable accounting requirements
and with the published rules and regulations of the SEC with respect
thereto, had been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case
of the unaudited financial statements contained therein (the "Interim
Financial Statements"), as permitted by Form 10-Q or the Exchange Act
regulations promulgated by the SEC), and each fairly presented the
consolidated financial position of the Company and its consolidated
Subsidiaries in all material respects as at the respective dates thereof
and the consolidated results of its operations and cash flows for the
periods indicated in accordance with GAAP (subject, in the case of the
Interim Financial Statements, to normal audit adjustments which were not
and are not expected, individually or in the aggregate, to be material in
amount).
Section 3.7 Absence of Undisclosed Liabilities. The Company
and its Subsidiaries do not have any liabilities or obligations of any
nature, whether accrued or contingent (whether or not required to be
reflected in financial statements in accordance with GAAP), and whether due
or to become due, and there is no existing condition or situation which
could reasonably be expected to result in any such liabilities or
obligations other than (i) liabilities reflected in the consolidated
balance sheet of the Company dated as of September 30, 1999 (the "Company
Balance Sheet"); (ii) normal or recurring immaterial liabilities incurred
since September 30, 1999 in the ordinary course of business consistent with
past practices; and (iii) liabilities set forth in Section 3.7 of the
Company Disclosure Schedules.
Section 3.8 Absence of Certain Changes or Events. Since the
date of the Company Balance Sheet, the Company and its Subsidiaries have
conducted their businesses in the ordinary course, in a manner consistent
with past practice, and there has not been: (i) any event, occurrence or
development of a state of circumstances or facts which has had or could
reasonably be expected to have a Material Adverse Effect; (ii) any
declaration, setting aside or payment of any dividend or other distribution
with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other securities
of, or other ownership interests in, the Company or any of its
Subsidiaries; (iii) any amendment of any term of any outstanding security
of the Company or any of its Subsidiaries; (iv) any incurrence, assumption
or guarantee by the Company (other than guarantees of its Subsidiaries'
obligations) or any of its Subsidiaries (other than guarantees of their
Subsidiaries' obligations) of any indebtedness for borrowed money; (v) any
creation or assumption by the Company or any of its Subsidiaries of any
Lien (except as contemplated by this Agreement) on any asset; (vi) any
making of any loan, advance or capital contributions to or investment in
any person other than loans, advances or capital contributions to or
investments in wholly owned Subsidiaries made in the ordinary course of
business consistent with past practices; (vii) any condemnation, seizure,
damage, destruction or other casualty loss (whether or not covered by
insurance) affecting the business or assets of the Company or any of its
Subsidiaries; (viii) any transaction or commitment made, or any contract or
agreement entered into, amended or terminated by the Company or any of its
Subsidiaries or any relinquishment by the Company or any Subsidiary of any
contract or other right, in either case, material to the Company and its
Subsidiaries taken as a whole; (ix) any change in any method of accounting
or accounting practice by the Company or any of its Subsidiaries; (x) any
(A) grant of any severance or termination pay to any director, officer or
employee of the Company or any of its Subsidiaries, (B) entering into or
renewal of any employment, deferred compensation, severance, retirement or
other similar agreement (or any amendment to any such existing agreement)
with any director, officer or employee of the Company or any of its
Subsidiaries, (C) increase in benefits payable under any existing severance
or termination pay policies or employment agreements, or (D) except in the
ordinary course of business consistent with past practice, increase in
compensation, bonus or other benefits payable to directors, officers or
employees of the Company or any of its Subsidiaries; (xi) any labor
dispute, other than routine individual grievances, or any activity or
proceeding by a labor union or representative thereof to organize any
employees of the Company or any of its Subsidiaries, or any lockouts,
strikes, slowdowns, work stoppages or threats thereof by or with respect to
such employees; (xii) any capital expenditure, or commitment for a capital
expenditure, for additions or improvements to property, plant and equipment
in excess of $500,000, individually or $1,000,000 in the aggregate other
than expenditures for planned build out of the Company's network that are
in accordance with the budget agreed to between Parent and the Company;
(xiii) except for capital expenditures and commitments referred to in
subsection (xii) above, any acquisition or disposition of any material
assets or properties or any Intellectual Property (as defined in Section
3.11) in one or more transactions, or any commitment in respect thereof;
(xiv) any express or deemed election for Tax (as defined below) purposes or
any offer to settle or compromise or any settlement or compromise of any
liability with respect to Taxes (as defined below); (xv) any offers to
existing Subscribers (as defined in Section 3.19(i)) for renewal at rates
below the standard rates charged by the Company and its Subsidiaries; or
(xvi) any Outage (as defined below). As used herein, "Outage" means any
complete loss of any service to any System, including but not limited to
any complete loss of network access, telephone, video, audio, Internet,
data, bandwidth access, mail, web or other services.
Section 3.9 Taxes.
(a) (i) The Company and each of its Subsidiaries have duly and
timely filed (or there have been duly and timely filed on its behalf), or a
valid extension of time to file has been obtained, with the appropriate
governmental authorities all Tax Returns (as hereinafter defined) required
to be filed by it and all such Tax Returns are true, correct and complete
in all material respects, and (ii) all Taxes for which the Company or any
Subsidiary is or may be liable (whether or not shown on any Tax Return) in
respect of periods (or portions thereof) ending on or before the Closing
Date have been timely paid, or will be timely paid, or have been provided
for on the Financial Statements and Interim Financial Statements in
accordance with GAAP. With respect to any period (or portion thereof)
through the Closing Date for which Taxes are not yet due or owing, the
Company and each of its Subsidiaries have established due and sufficient
reserves for the payments of such Taxes in accordance with generally
accepted accounting principles, and such current reserves through the
Closing Date are duly and fully provided for in the Financial Statements
and Interim Financial Statements.
(b) No deficiencies for Taxes have been claimed, proposed or
assessed by any taxing or other governmental authority against the Company
or any of its Subsidiaries, and none of the Company shareholders or the
Company or any Subsidiary has received any notice, or otherwise has any
knowledge, of any potential claim, proposal or assessment against the
Company or any of its Subsidiaries for any such deficiency for Taxes.
There are no pending, or to the best of the Company's or any Subsidiary's
knowledge, threatened audits, investigations or claims for or relating to
any liability in respect of Taxes, and there are no matters under
discussion between the Company or any Subsidiary on the one hand and any
governmental authority on the other hand with respect to Taxes that, in the
reasonable judgment of the Company shareholders, the Company or any of its
Subsidiaries are likely to result in a material additional liability of the
Company or any of its Subsidiaries for Taxes.
(c) There are no liens for Taxes upon any property or assets of
the Company or any of its Subsidiaries, except for liens for Taxes not yet
due and payable, and for which adequate reserves have been provided for on
the Financial Statements and Interim Financial Statements in accordance
with GAAP.
(d) Each of the Company and each of its Subsidiaries has duly
and timely withheld, collected and paid to the proper governmental
authority all Taxes required to have been withheld, collected or paid.
(e) No claim has ever been made to the Company or any Subsidiary
by an authority in a jurisdiction where the Company or any Subsidiary has
not filed Tax Returns that the Company or any Subsidiary is or may be
subject to taxation by that jurisdiction.
(f) Neither the Company nor any of its Subsidiaries has waived
any statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency.
(g) There is no contract, plan or arrangement (written or
otherwise) covering any current or former employee or independent
contractor of the Company or any of its Subsidiaries that, individually or
in the aggregate, could give rise to the payment of any amount that will
not be deductible by the Company or any of its Subsidiaries under Section
280G of the Code.
(h) Other than an affiliated group (as defined under Section
1504 of the Code) of which the common parent was the Company, neither the
Company nor any of its Subsidiaries has (i) been a member of an affiliated
group or (ii) any liability for Taxes of any person (other than the Company
or any of its Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or
successor, by contract or otherwise.
(i) No power of attorney that is currently in force has been
granted by the Company or any of its Subsidiaries with respect to any
matters relating to Taxes.
(j) There are no tax sharing agreements or other similar
arrangements with respect to or involving the Company or any of its
Subsidiaries.
(k) Neither the Company nor any of its Subsidiaries is, and
during the five-year period ending on the Closing Date has been, a "United
States Real Property Holding Corporation," as such term is defined in
Section 897(c) of the Code or the Treasury Regulations promulgated
thereunder.
(l) "Tax" or "Taxes" shall mean any and all taxes, charges,
fees, levies or other assessments, including all net income, gross income,
gross receipts, excise, stamp, real or personal property, ad valorem,
sales, withholding, estimated, social security, employment, unemployment,
occupation, use, service, service use, license, net worth, payroll,
franchise, environmental, severance, transfer, recording, escheat, or other
taxes, duties, assessments, or charges, imposed by any governmental
authority and any interest, penalties, or additions to tax attributable
thereto. "Tax Return" shall mean any report, return, document,
declaration, information, return or filing (including any related or
supporting information) filed or required to be filed with respect to
Taxes.
Section 3.10 Real Properties; Title to and Condition of Assets.
(a) Neither the Company nor any Subsidiary of the Company now
owns or at any time in the past has owned any fee interest in fee estates.
(b) Section 3.10(b) of the Company Disclosure Schedules contains
a complete and correct list of all Real Property leased, subleased,
licensed, used or occupied by the Company and each of its Subsidiaries
pursuant to the Leases ("Leased Real Property") setting forth information
sufficient to identify specifically such Leased Real Property and material
terms of the Leases with respect thereto. For purposes of this Agreement,
"Leases" means the Real Property leases, subleases, licenses and use or
occupancy agreements pursuant to which the Company or any of its
Subsidiaries is the lessee, sublessee, licensee, user or occupant of Real
Property, or interests therein with lease payments in excess of $1,000 per
month. Each Lease grants the lessee under the Lease the right to use and
occupy the premises and rights demised thereunder in accordance with the
terms thereof, free and clear of any Liens, other than (i) Liens for
current Taxes, assessments and other governmental charges not yet due and
payable or that may subsequently be paid without penalty or that are being
contested in good faith by appropriate proceedings, and (ii) matters set
forth in Section 3.10(b) of the Company Disclosure Schedules (collectively,
"Permitted Liens"). The Company and its Subsidiaries have good and valid
title to the leasehold estate or other interest created under its
respective Leases free and clear of any Liens other than Permitted Liens
and except as otherwise provided in the Leases. In the case of easements,
rights of access, rights-of-way, licenses and other interests included in
the Real Property, the Company and its Subsidiaries have such title or
other interest as is necessary to permit the use and enjoyment of such
properties substantially in the manner such properties are used and are
contemplated to be used.
(c) The Leased Real Property constitutes all the leasehold and
other interests in Real Property held by the Company and its Subsidiaries,
and constitutes all of the leasehold and other interests in Real Property
necessary for the conduct of, or otherwise material to, the business of the
Company and its Subsidiaries as it is Conducted, except for any leasehold
or other interest acquired or disposed of in the ordinary course of
business after the date hereof.
(d) The Real Property has been maintained in compliance with (i)
all applicable laws, treaties, statutes, ordinances, codes, rules or
regulations of Governmental Entities, including, without limitation, local
zoning and subdivision ordinances ("Laws"), (ii) all applicable judgments,
decrees, orders, writs, awards, injunctions or determinations of an
arbitrator or court or other Governmental Entity ("Orders") and (iii) all
applicable Licenses (as defined in Section 3.22(a)), except, in each case,
where the failure to be in compliance would not have, individually or in
the aggregate, a Material Adverse Effect. To the knowledge of the Company
and its Subsidiaries, none of the Real Property is subject to any decree or
order of any Governmental Entity to be sold or is being condemned,
expropriated or otherwise taken by any Governmental Entity.
(e) As used herein, "Real Property" means all the leasehold and
fee simple interests in all fee estates, and all buildings, fixtures, and
all other improvements located thereon (including, without limitation,
towers), leasehold interests in real estate, private easements, private
rights to access, private rights-of-way, and other real property interests
including, without limitation, head-end sites which are owned, leased or
used by the Company and its Subsidiaries in the conduct of their business
or operation of the Systems.
(f) The Company and its Subsidiaries have good and marketable
title to, or valid leasehold or other interests in, and possession or valid
use of, all of their respective assets and properties, including without
limitation the Systems (as defined in Section 3.19), free and clear of all
Liens. Such assets and properties are in good operating condition and
repair, ordinary wear and tear excepted, and will permit the Company and
its Subsidiaries to comply with the material terms of their current
Franchises (as defined in Section 3.22(a), but excluding franchises applied
for but not yet awarded). Such assets and properties constitute all
property and rights, real and personal, tangible and intangible, necessary
or required to operate the Systems and Conduct the business of the Company
and its Subsidiaries.
Section 3.11 Intellectual Property. The Company and its
Subsidiaries own or have a valid license to use each trademark, service
mark, trade name, invention, patent, trade secret, copyright, know-how
(including any registrations or applications for registration of any of the
foregoing) or any other similar type of proprietary intellectual property
right (collectively, the "Intellectual Property") necessary to carry on its
business substantially as Conducted. Neither the Company nor any of its
Subsidiaries has received any notice of infringement of or conflict with,
and to their knowledge, there are no infringements of or conflicts with,
the rights of any person with respect to the use of any Intellectual
Property.
Section 3.12 Agreements, Contracts and Commitments. Section
3.12 of the Company Disclosure Schedules sets forth a true and complete
list of all the following arrangements, agreements, or understandings,
whether written or oral, to which the Company or any of its Subsidiaries is
a party, (i) any agreements relating to indebtedness for borrowed money
(whether incurred, assumed, guaranteed, secured by any asset or otherwise),
(ii) any agreements for the lease of personal property to or from any
person, (iii) any agreement concerning a partnership or joint venture, (iv)
any agreement concerning confidentiality or non-competition other than
those entered into in the ordinary course of business for the benefit of
the Company's vendors or potential investors, (v) any profit sharing, stock
option, stock purchase, stock appreciation, deferred compensation,
severance, or other material plan or arrangement for the benefit of the
current or former employees of the Company or any of its Subsidiaries, (vi)
any collective bargaining agreement, (vii) any agreement for the employment
or retention of any individual on a full-time, part-time, consulting, or
other basis not terminable on less than 30 days notice without penalty or
cost, (viii) any agreement under which it has advanced or loaned any amount
in excess of $1,000 to any of the employees or affiliates of the Company or
any of its Subsidiaries, (ix) any agreement providing for indemnification
of or by the Company, (x) any agreement by the Company or any of its
Subsidiaries providing products or services to any person for consideration
other than cash or receiving consideration from any person in products or
services in lieu of cash, (xi) any agreement for the purchase of materials,
software, supplies, goods, services, equipment or other assets providing
for either annual or aggregate payments by the Company and its Subsidiaries
of $100,000 or more; (xii) any sales, distribution or other similar
agreement providing for the sale by the Company or any Subsidiary of
materials, supplies, goods, services, equipment or other assets that
provides for annual or aggregate payments by the Company and its
Subsidiaries of $100,000 or more, (xiii) any agreement relating to the
acquisition or disposition of any business (whether by merger, sale of
stock, sale of assets or otherwise); (xiv) any option, license, franchise
or similar agreement; (xv) any agency, dealer, sales representative,
marketing or other similar agreement; (xvi) any agreement to provide
service to any Subscriber other than the standard dial-up service contracts
previously disclosed to Parent which individually or in the aggregate would
be material; (xvii) any formal or informal partnership arrangement with any
merchant or service or web content provider; (xviii) any agreement with any
local exchange carrier, competitive local exchange carrier, competitive
access provider or other telecommunications carrier; (xix) any collocation
or other similar agreements; (xx) any peering, transit or other agreement
with any Internet service provider, online company or similar entity; (xxi)
any pole attachment agreements; (xxii) any programming agreements; (xxiii)
any right of entry agreements; (xxiv) any bulk agreements and (xxv) any
other agreement (or group of related agreements) material to the Company or
any of its Subsidiaries or disclosed, or required to be disclosed, in the
Company SEC Reports (such contracts and agreements, the "Material
Agreements"). The Company has delivered to Parent a correct and complete
copy of each written Material Agreement and a written summary setting forth
the terms and conditions of each oral Material Agreement. Except as set
forth in Section 3.12 of the Company Disclosure Schedules, all Material
Agreements are valid, binding and enforceable in accordance with their
terms and will continue to be so on identical terms immediately following
the consummation of the transactions contemplated by this Agreement, and
neither the Company or any of its Subsidiaries are in default under any of
such agreements, nor, to the best knowledge the Company, has any event or
circumstance occurred that, with notice or lapse of time or both, would
constitute any event of default by the Company or any of its Subsidiaries.
Except as set forth in Section 3.12 of the Company Disclosure Schedules,
(i) all right of entry agreements have perpetual terms and (ii) none of the
Material Agreements contain any revenue sharing provisions and to the
extent any such agreements contain such provisions, the schedule shall
describe the revenue sharing information with respect to such agreements.
Section 3.13 Litigation.
(a) Except as set forth in Section 3.13 of the Company
Disclosure Schedules, there are no claims, actions, suits, proceedings or
investigations pending or, to the knowledge of the Company, threatened by
or against the Company or any of its Subsidiaries at law or in equity or
before or by any court, Governmental Entity or arbitrator, nor is there any
judgment, decree, injunction, rule or order of any court, Governmental
Entity or arbitrator outstanding against the Company or any of its
Subsidiaries. Neither the Company nor any of its subsidiaries is in
violation of any term of any judgment, decree, injunction or order
outstanding against it.
(b) No demands have been made on the Company or any of its
Subsidiaries by any Governmental Entity, utility, pole lessor, or other
party, which seek or could reasonably be expected to result in the
termination, modification, suspension or limitation to the rights or
obligations of the Company or any of its Subsidiaries with respect to the
Franchises, Licenses or Material Agreements.
Section 3.14 Environmental Matters.
(a) The Company and its Subsidiaries are in compliance with all
applicable Environmental Laws (as defined below) (which compliance
includes, but is not limited to, the possession by the Company and its
Subsidiaries of all permits and other governmental authorizations required
under applicable Environmental Laws, which are in full force and effect,
and compliance with the terms and conditions thereof). As of the date of
this Agreement, the Company and its Subsidiaries have not received since
January 1, 1995 any written communication, whether from a governmental
authority, citizens' group, employee or otherwise, alleging that the
Company and its Subsidiaries is not in such compliance.
(b) Except as set forth in Section 3.14 of the Company
Disclosure Schedule, there is no Environmental Claim (as defined below)
pending or, to the knowledge of the Company, threatened against the Company
or any of its Subsidiaries or against any person or entity whose liability
for any Environmental Claim the Company or any of its Subsidiaries has or
may have retained or assumed either contractually or by operation of law.
(c) There have been (a) no Releases (as defined below) of
Hazardous Materials (as defined below) at any of the Real Property or (b)
to the knowledge of the Company, at any other location that could have a
Material Adverse Effect on the Company and its Subsidiaries, taken as a
whole.
(d) Except as set forth in Section 3.14 of the Company
Disclosure Schedules, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation, the Release or presence of any Hazardous Material, which could
form the basis of any Environmental Claim against the Company or any of its
Subsidiaries, or to the knowledge of the Company, against any person or
entity whose liability for any Environmental Claim the Company or any of
its Subsidiaries has or may have retained or assumed either contractually
or by operation of law which could have a Material Adverse Effect on the
Company and its Subsidiaries, taken as a whole.
(e) As used herein, (i) "Environmental Claim" means any claim,
action, cause of action, investigation or notice (written or oral) by any
person or entity alleging any actual or potential liability arising out of,
based on or resulting from (a) the presence or Release of any Hazardous
Materials at any location, whether or not owned or operated by the Company,
or (b) circumstances forming the basis of any violation of any
Environmental Law, (ii) "Environmental Laws" means all federal, state,
local and foreign laws and regulations relating to pollution, protection of
human health or the environment, including, without limitation, those
relating to Releases or threatened Releases of Hazardous Materials or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, transport or handling of Hazardous Materials, (iii)
"Hazardous Materials" means all substances defined as Hazardous Substances,
Oils, Pollutants or Contaminants in the National Oil and Hazardous
Substances Pollution Contingency Plan, 40 C.F.R. ss. 300.5, or defined as
such by, or regulated as such under, any Environmental Law and (iv)
"Release" means any release, spill, emission, discharge, leaking, pumping,
pouring, dumping, injection, deposit, disposal, dispersal, leaching or
migration of Hazardous Materials into the environment (including, without
limitation, ambient air, surface water, groundwater and surface or
subsurface strata).
Section 3.15 Transactions with Affiliates. Neither the Company
nor any of its Subsidiaries is involved with any of its officers,
directors, affiliates, employees or shareholders in any contract, loan,
commitment, transaction or in any other situation which may generally be
characterized as a "conflict of interest," including, without limitation,
any direct or indirect interest in the business of competitors, suppliers
or customers of the Company or any of its Subsidiaries.
Section 3.16 Employee Benefit Plans.
(a) Section 3.16 of the Company Disclosure Schedules contains a
true and complete list of, (i) each deferred compensation and each bonus or
other incentive compensation, stock purchase, stock option and other equity
compensation plan, program, agreement or arrangement; (ii) each severance
or termination pay, medical, surgical, hospitalization, life insurance and
other "welfare" plan, fund or program (within the meaning of Section 3(1)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")); (iii) each profit-sharing, stock bonus or other "pension" plan,
fund or program (within the meaning of Section 3(2) of ERISA); (iv) each
employment, termination or severance agreement; and (v) each other employee
benefit plan, fund, program, agreement or arrangement, other than the Bonus
Pool as defined in Section 6.17, in each case, that is sponsored,
maintained or contributed to or required to be contributed to by the
Company or by any trade or business, whether or not incorporated, that
together with the Company would be deemed a "single employer" within the
meaning of Section 4001(b) of ERISA (an "ERISA Affiliate"), or to which the
Company or an ERISA Affiliate is party, whether written or oral, for the
benefit of any employee or former employee of the Company or any of its
Subsidiaries (collectively, the "Plans"). No Plan is subject to Section
302 or Title IV of ERISA or Section 412 of the Code. Neither the Company,
any of its Subsidiaries nor any ERISA Affiliate has any commitment or
formal plan, whether legally binding or not, to create any additional
employee benefit plan or modify or change any existing Plan (other than a
modification or change required by applicable Laws) that would affect any
employee or former employee of the Company or any of its Subsidiaries.
(b) With respect to each Plan, the Company has heretofore
delivered or made available to Parent true and complete copies of each of
the following documents: (i) a copy of the Plan and any amendments thereto
(or if the Plan is not a written Plan, a description thereof); (ii) a copy
of the two most recent annual reports and actuarial reports, if required
under ERISA, and the most recent report prepared with respect thereto in
accordance with Statement of Financial Accounting Standards No. 87; (iii) a
copy of the most recent Summary Plan Description required under ERISA with
respect thereto; (iv) if the Plan is funded through a trust or any third
party funding vehicle, a copy of the trust or other funding agreement and
the latest financial statements thereof; and (v) the most recent
determination letter received from the IRS with respect to each Plan
intended to qualify under Section 401 of the Code.
(c) No liability under Title IV or Section 302 of ERISA has been
incurred by the Company or any ERISA Affiliate that has not been satisfied
in full, and no condition exists that presents a material risk to the
Company or any ERISA Affiliate of incurring any such liability, other than
liability for premiums due to the Pension Benefit Guaranty Corporation
(which premiums have been paid when due).
(d) All contributions required to be made with respect to any
Plan on or prior to the Effective Time have been timely made or are
reflected on the Company's balance sheet.
(e) Neither the Company nor any of its Subsidiaries, any Plan,
any trust created thereunder, nor any trustee or administrator thereof has
engaged in a transaction in connection with which the Company or any of its
Subsidiaries, any Plan, any such trust, or any trustee or administrator
thereof, or any party dealing with any Plan or any such trust could be
subject to either a civil penalty assessed pursuant to Section 409 or
502(i) of ERISA or a tax imposed pursuant to Section 4975 or 4976 of the
Code.
(f) Each Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but not
limited to ERISA and the Code. There are no pending or, to the knowledge
of the Company, threatened or anticipated claims by or on behalf of any
Plan, by any employee or beneficiary covered under any such Plan, or
otherwise involving any such Plan (other than routine claims for benefits).
(g) Each Plan intended to be "qualified" within the meaning of
Section 401(a) of the Code is so qualified and the trusts maintained
thereunder are exempt from taxation under Section 501(a) of the Code. Each
Plan intended to satisfy the requirements of Section 501(c)(9) of the Code
has satisfied such requirements.
(h) No Plan provides medical, surgical, hospitalization, death
or similar benefits (whether or not insured) for employees or former
employees of the Company or any of its Subsidiaries for periods extending
beyond their retirement or other termination of service, other than (i)
coverage mandated by applicable law, (ii) death benefits under any "pension
plan," or (iii) benefits the full cost of which is borne by the current or
former employee (or his beneficiary). No condition exists that would
prevent the sponsor of any Plan providing health or medical benefits in
respect of any active employee of the Company or any of its Subsidiaries
from amending or terminating such Plan.
(i) No amounts payable under the Plans will fail to be
deductible for federal income tax purposes by virtue of Section 162(m) or
280G of the Code.
(j) Except as expressly provided in this Agreement or disclosed
in Section 3.16 of the Company Disclosure Schedule, the consummation of the
transactions contemplated by this Agreement will not, either alone or in
combination with another event, (i) entitle any current or former employee
or officer of the Company or any ERISA Affiliate to severance pay,
unemployment compensation or any other payment or (ii) accelerate the time
of payment or vesting, or increase the amount of compensation due any such
employee or officer.
Section 3.17 Labor Matters. Except as set forth in Section
3.17 of the Company Disclosure Schedules, (i) the Company and its
Subsidiaries are not a party to or bound by any collective bargaining
agreement or other labor union contract applicable to persons employed by
the Company, nor does the Company know of any activities or proceedings on
behalf of or by any labor union to organize any such employees, (ii) there
are no unfair labor practice charges or complaints, or any current union
representation questions, involving employees or former employees of the
Company or any of its Subsidiaries pending against the Company or any of
its Subsidiaries before the National Labor Relations Board or similar
foreign entity and (iii) there is no labor strike, lockout, organized
slowdown or organized work stoppage in effect or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries.
Section 3.18 Compliance with Laws; Regulatory Approvals.
(a) No Violation of Law. The Company and its Subsidiaries are
in compliance, and have conducted their respective businesses and operated
the Systems in accordance, with (and, to the knowledge of the Company, are
not under investigation with respect to and have not been threatened in
writing to be charged with or given notice that the continued operation of
any business or assets does or will violate or conflict with), all
applicable Laws and Orders and the Company and its Subsidiaries are not in
default of, or in violation with respect to, any Order. The Company and
its Subsidiaries hold all Licenses and Franchises and all certificates,
consents, permits, qualifications and authorizations from all Governmental
Entities necessary for the lawful conduct of the business and operations of
the Systems. Except as set forth in Section 3.18 of the Company Disclosure
Schedules, each of the Company and its Subsidiaries has all requisite
authority from federal, state, local or municipal authorities to hold
itself out as a provider of, and to provide, telecommunications services
and to Conduct the business and operations of the Systems, including local
exchange telephone and interexchange toll services, Internet access, or any
other telecommunications services offered by the Company, and whether
offered on facilities within its own or other private rights-of-way or on
public rights-of-way. The Company has timely filed all required tariffs,
reports, or other information required for the conduct of its
telecommunications business. The Company's tariffs are in effect and no
action is pending or, to the knowledge of the Company, threatened
challenging the lawfulness of the Company's operations or services or any
element of such operations or services. Except as set forth in Section
3.18 of the Company Disclosure Schedules, (i) all television stations
carried by the cable systems are carried either pursuant to retransmission
consent agreements or must-carry elections (or must-carry defaults) (which
Schedule includes a description of the basis for the exception) and (ii)
the Company has delivered or made available to Parent full and complete
copies of all retransmission consent agreements. For each commercial
television station carried on a System that has elected must-carry status,
but that is not being carried because of signal quality problems or
potential copyright liability, Section 3.18 of the Company Disclosure
Schedules lists the call sign of the station and the reason for non-
carriage. Except as set forth in Section 3.18 of the Company Disclosure
Schedules, there are no requests by any television station which asserts
that it is entitled to must-carry status seeking carriage on any System
which the Company or any of its Subsidiaries has denied or refused to honor
or which is the subject of a complaint filed with the FCC.
(b) Licensing. The Company and its Subsidiaries are permitted
under all applicable Franchises, Licenses and rules, regulations and orders
of the Federal Communications Commission ("FCC"), all applicable state,
local or municipal laws or regulations to distribute the transmissions
(whether television, satellite, radio or otherwise) of video programming or
other information that they make available to Subscribers (the "Signals")
and to use all carrier frequencies generated by the operations of the
Systems. The Company and its Subsidiaries are licensed to operate all the
facilities required by law to be licensed, including, without limitation,
any business radio and any cable television relay service system being
operated as part of the Systems. Other than requests for network
non-duplication and syndicated exclusivity, and sports black-out
protection, neither the Company nor any of its Subsidiaries has received
any written requests from the FCC, the United States Copyright Office or
any other person challenging or questioning the right of operation of the
Systems and of any FCC-licensed or registered facility used in conjunction
with the Company and its Subsidiaries' operation of the Systems. The
Company and its Subsidiaries have not violated any Laws or any duty or
obligation with regard to protecting the privacy rights of any past or
present Subscribers. Except as set forth in Section 3.18(b)(ii) of the
Company Disclosure Schedules, neither the Company nor any of its
Subsidiaries has made or is bound by any commitments to any state,
municipal, local or other governmental commission, agency or body with
respect to the operation and construction of their respective systems which
are not fully reflected in the Franchises or Licenses.
(c) Pole Attachment Agreements. Each of the Company and its
Subsidiaries (i) has complied in all material respects with the terms and
conditions of all pole attachment agreements to which it is a party
(including any requirements for notifications, filing, reporting, posting
and maintaining logs and records) and (ii) has not performed any act or
failed to perform any act, the doing of which or failure to do so, would
invalidate or impair in any material respect its rights under the pole
attachment agreements. There is no pending claim that operations by the
Company or any of its Subsidiaries pursuant to any pole attachment
agreement have been improperly conducted or maintained in any material
respect. There is no action, suit or proceeding pending, or to the
knowledge of the Company, threatened, to terminate, suspend or modify in
any material respect any pole attachment agreement.
(d) Programming Agreements. Each of the Company and its
Subsidiaries (i) has complied in all material respects with the terms and
conditions of the programming agreements to which it is a party (including
any requirements for notifications, filing, reporting, posting and
maintaining logs and records) and (ii) has not performed any act or failed
to perform any act, the doing of which or the failure to do, would
invalidate or impair in any material respect its rights under the
programming agreements. Except as set forth in Section 3.18(d) of the
Company Disclosure Schedules, no consents, permits or approvals of, or
notice to, or declaration, filing or registration with, any Governmental
Entity or any other person under the Franchises, Licenses, Material
Agreements or other agreement involving the Company or any of its
Subsidiaries or under any Law or otherwise is required in connection with
the execution, delivery or performance of any programming agreement.
Except as set forth in Section 3.18(d) of the Company Disclosure Schedules,
no material programming agreement expires or requires renewal or other
material modification within two years of the date of this Agreement.
Except as set forth in Section 3.18(d) of the Company Disclosure Schedules,
there is no pending claim that operations by the Company or any of its
Subsidiaries pursuant to any programming agreement have been improperly
conducted or maintained in any material respect. There is no action, suit
or proceeding pending, or to the knowledge of the Company, threatened, to
terminate, suspend or modify in any material respect any programming
agreement.
(e) Cable Act. The Company and its Subsidiaries are operating
the Systems in material compliance with the Franchises, the Copyright Act,
the Cable Act, the provisions of the Communications Act of 1934, as
amended, 47 U.S.C. section151 et seq. and the rules and regulations
promulgated thereunder ("Communications Act"), as such Laws apply to the
Systems, including those relating to signal carriage, syndicated
exclusivity, network non-duplication, sports black-out, must-carry and
retransmission consent. No written notice or demands, and to the knowledge
of the Company and its Subsidiaries, no oral notice or demands, have been
received from any television station or from any other person claiming to
have a right, or objecting to or challenging the right of the Systems, to
carry or deliver any signal, or challenging the channel position on which
any television station is carried. The Company and its Subsidiaries have
used reasonable good faith efforts to establish rates charged to
Subscribers that are or were allowable under the Cable Act and any
authoritative interpretation thereof now or then in effect, whether or not
such rates are or were subject to regulation at that date by any
Governmental Entity, including any local franchising authority and/or the
FCC, unless such rates were not subject to regulation pursuant to a
specific exemption from rate regulation contained in the Cable Act, other
than the failure of any franchising authority to have been certified to
regulate rates. The Company and its Subsidiaries have filed complete and
correct reports and filings required to be filed pursuant to the Cable Act
or FCC rules or regulations with respect to the Systems, including but not
limited to equal opportunity reporting in accordance with Section 634 of
the Cable Act. No System is rate-regulated under any Law. A request for
renewal has been timely filed under Section 626(a) of the Cable Act with
the proper Governmental Entity with respect to each Franchise expiring
within 36 months of the date of this Agreement. Neither the Company nor
any of its Subsidiaries have received any written notice or, to the
knowledge of the Company and its Subsidiaries, any oral notice from any
Governmental Entity with respect to the intention to enforce customer
service standards pursuant to the Cable Act, and neither the Company nor
any of its Subsidiaries have agreed with any Governmental Entity to
establish customer service standards that exceed the standards in the Cable
Act. Except as set forth in Section 3.18(e) of the Company Disclosure
Schedules, there are no requests by any television station that asserts
must-carry status seeking carriage on any System that the Company or any of
its Subsidiaries has denied or refused to honor or that is the subject of a
complaint filed with the FCC. For the purposes of this Agreement, "Cable
Act" means Title VI of the Communications Act of 1934, as amended, 47
U.S.C. section151 et seq., and all other provisions of the Cable
Communications Policy Act of 1984, Pub. L. No. 98-549, the Cable
Television Consumer Protection and Competition Act of 1992, Pub. L. No.
102-385, and the provisions of the Telecommunications Act of 1996 amending
Title VI of the Communications Act, as such statutes may be amended from
time to time, and the rules and regulations promulgated thereunder.
(f) CLI. The Company and its Subsidiaries have conducted all
system and microwave performance tests required by any applicable Law,
including all Cumulative Leakage Index ("CLI") related tests applicable to
the Systems. The Company and its Subsidiaries have (i) maintained
appropriate log books and other record keeping which accurately and
completely reflect in all material respects all results required to be
shown thereon, (ii) to the extent required by the rules and regulations of
the FCC, corrected any radiation leakage of the Systems required to be
corrected in connection with monitoring obligations of the Company and its
Subsidiaries under the rules and regulations of the FCC and (iii) otherwise
complied in all material respects with all applicable CLI rules and
regulations in connection with the operation of the Systems. Parent may,
with reasonable notice, review all tests and filings at offices of the
Company. Neither the Company nor any of its Subsidiaries is using any
frequency whose use is prohibited by the FAA (as defined below), Department
of Defense or any other Governmental Entity.
(g) FAA Rules and Regulations. The Systems are being operated
in all material respects in compliance with the rules and regulations of
the Federal Aviation Administration ("FAA"). Section 3.18(g) of the
Company Disclosure Schedules lists the existing towers, if any, utilized in
conjunction with the Systems. Without limiting the generality of the
foregoing, the existing towers, if any, of the Systems are obstruction-
marked and lighted in all material respects in accordance with the rules
and regulations of the FAA and FCC if so required. All required
authorizations, including, without limitation, hazard to air navigation
determinations, for any such towers have been issued by and pursuant to the
rules and regulations of the FAA. Except as set forth in Section 3.18(g)
of the Company Disclosure Schedules, neither the Company nor any of its
Subsidiaries leases space on any such towers to any third party.
(h) Copyright. The Company has deposited with the United States
Copyright Office all statements of account and other documents and
instruments, and paid all royalties, supplemental royalties, fees and other
sums to the United States Copyright Office required under the Copyright Act
with respect to the business and operations of the Systems as are required
to obtain, hold and maintain the compulsory copyright license for cable
television systems prescribed in Section 111 of the Copyright Act and has
made all payments to ASCAP and BMI required under the Copyright Act.
Neither the Company nor any of its Subsidiaries has any knowledge of any
deficiency in the amount of compulsory copyright or other fee payments made
and has not received any statement, notice or claim respecting an
underpayment or nonpayment of any compulsory copyright or other fee payment
for the Systems. Except as set forth in Section 3.18(h) of the Company
Disclosure Schedules, the Company and its Subsidiaries are in compliance
in all material respects with the Copyright Act and the rules and
regulations of the Copyright Office with respect to the operation of the
Systems. The Company and its Subsidiaries are entitled to hold and do hold
the compulsory copyright license described in Section 111 of the Copyright
Act, which compulsory copyright license is in full force and effect and has
not been revoked, canceled, encumbered or adversely affected in any manner.
Section 3.19 Systems Information. Section 3.19 of the Company
Disclosure Schedules sets forth a complete and correct description of the
following applicable information with respect to each System operated by
the Company and its Subsidiaries as of the date hereof (unless a different
date is specified below or indicated in Section 3.19 of the Company
Disclosure Schedules) with paragraph references corresponding to those set
forth below. As used herein, "Systems" means the infrastructure used to
provide telephone, video, audio, Internet, data, bandwidth access and
related services, including network components, communications facilities,
computing platforms and services (including for mail, news, DNS, web,
authentication, and other services), power plants, data processing
platforms, MIS systems, DRS Network components, office