Exhibit 10(o)
STOCK PURCHASE AGREEMENT
BY AND AMONG
XXXXX TELEPHONE CORPORATION XI
(AS THE PURCHASER)
XXXXX INTERACTIVE CORPORATION
(AS THE PARENT)
BRIGHTON COMMUNICATIONS CORPORATION
(AS THE COMPANY)
CALIFORNIA-OREGON TELECOMMUNICATIONS COMPANY
(AS COTC)
AND
THE SHAREHOLDERS OF COTC
(AS THE SELLERS)
DATED AS OF MARCH 22, 2004
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
March 22, 2004 (the "Execution Date") by and among California-Oregon
Telecommunications Company, a California corporation ("COTC"), each of the
persons listed on Schedule A hereto (individually a "Seller" and collectively
"Sellers"), Brighton Communications Corporation, a Delaware corporation (the
"Company"), Xxxxx Telephone Corporation XI, a Delaware corporation and a
wholly-owned subsidiary of the Company (the "Purchaser"), and Xxxxx Interactive
Corporation, a Delaware corporation ("Parent"). Purchaser, Company and Parent
are sometimes herein referred to collectively as the "Purchasing Parties," and
Sellers and COTC are sometimes herein referred to collectively as the "Selling
Parties." Capitalized terms not defined herein shall have the meaning ascribed
to them in Schedule B, attached hereto.
WHEREAS, Sellers own all of the issued and outstanding shares of common
stock (the "Common Stock") and preferred stock (the "Preferred Stock") of COTC
as set forth in Schedule A (the Common Stock and Preferred Stock are referred to
collectively as the "Purchased Stock");
WHEREAS, COTC and COTC Subsidiaries (defined below) are sometimes
hereinafter referred to individually as a "COTC Company" and collectively
referred to herein as the "COTC Companies";
WHEREAS, each of the Sellers desires to sell his, her or its Purchased
Stock to Purchaser; and
WHEREAS, Purchaser desires to purchase all of the Purchased Stock from the
Sellers upon the terms and conditions set forth herein.
Article I.
THE STOCK SALES
1.1 Sale and Purchase. Each Seller hereby agrees, on the terms and
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conditions herein, to sell to Purchaser the number of shares of Purchased Stock
set forth opposite such Seller's name on Schedule A. The Purchaser hereby
agrees, on the terms and conditions herein, to purchase from each Seller the
number of shares of Purchased Stock set forth opposite such Seller's name on
Schedule A. The sales and purchases of the Purchased Stock contemplated herein
are hereinafter referred to as the "Stock Sales."
1.2 Purchase Price. The total purchase price (the "Purchase Price") for the
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Purchased Stock shall be Twenty-One Million Two Hundred Thousand Dollars
($21,200,000) which shall be allocated among the Sellers in accordance with the
percentage allocations to be specified in writing by the Sellers by an amendment
to Schedule A (which shall be delivered by Sellers to Purchaser at least five
(5) Business Days prior to the Closing Date), payable at the Closing in
accordance with Section 1.4 hereof. The Purchase Price shall be subject to
adjustment as set forth in Section 1.7 hereof.
1.3 Form of Purchase Price. The Purchase Price shall be payable in cash and
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in promissory notes. The cash portion shall be Fourteen Million Dollars
($14,000,000.00) (the "Cash Portion"); and the promissory notes portion shall be
Seven Million Two Hundred Thousand Dollars ($7,200,000.00) (the "Note Portion")
represented by promissory notes issued by the Purchaser (the "Notes") in
substantially the form set forth in Exhibit A. The Notes shall be valued at the
principal amount thereof. The Notes shall be secured pursuant to a pledge
agreement (the "Pledge Agreement") in substantially the form set forth in
Exhibit B, and guaranteed by the Company and Parent pursuant to a guaranty
agreement in substantially the form set forth in Exhibit C (the "Guaranty
Agreement").
1.4 Payment of the Purchase Price. At the Closing, the Purchaser shall (i)
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pay the Cash Portion of the Purchase Price to each Seller by cashier or
certified check or wire transfer (with wire transfer instructions delivered to
Purchaser at least two (2) Business Days prior to the Closing Date), and (ii)
deliver the Notes to each Seller.
1.5 Closing. The closing of the Stock Sales (the "Closing") shall take
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place at 10:00 a.m. at the offices of Xxxxxx Brand LLP, 555 Capitol Mall,
Sacramento, California, on the later of: (i) the last day of the calendar month
within which all of the conditions precedent set forth in Article VII have been
satisfied or waived, or (ii) at such other time, date and place as Purchaser and
the Requisite Sellers shall by written instrument designate. Such time and date
are herein referred to as the "Closing Date." Subject to the provisions of
Article VIII (regarding termination), failure to consummate the Stock Sales on
the date and the time determined pursuant to this Section 1.5 will not result in
the termination of this Agreement and will not relieve any party of any
obligation under this Agreement.
1.6 Transactions at the Closing Date.
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(a) Sellers Deliveries. At the Closing, each of the Sellers shall deliver
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to Purchaser the following:
(i) stock certificates, in form suitable for transfer, registered in the
name of such Seller, evidencing the number of shares of Purchased Stock to be
purchased hereunder, with executed blank stock transfer powers attached, and
with all necessary stock transfer tax stamps attached thereto;
(ii) all stock books, stock transfer ledgers, minute books and the
corporate seals of COTC Companies, and except as provided in Section 6.7, the
resignations of all officers and directors of COTC Companies;
(iii) Subordination agreement(s) (the "Subordination Agreement") in the
form and containing the terms reasonably requested by the financial
institution(s) ("Acquisition Lender") lending funds to Purchaser for the
acquisition of the Purchased Stock (such acquisition financing and any
substitution or replacement thereof, which shall not exceed Fourteen Million
($14,000,000) plus the amount by which the Final Purchase Price exceeds the
Purchase Price, being referred to as the "Acquisition Financing") executed by
each Seller and pursuant to which amounts owed by the Purchaser to the Sellers
pursuant to the Notes and the Pledge Agreement are reasonably subordinated to
the rights of the Acquisition Lender; provided, however, that nothing contained
in the Subordination Agreement shall subordinate the rights of the Sellers under
this Agreement or the Guaranty Agreement to the rights of the Acquisition
Lender.
(iv) A certificate executed by the Sellers representing and warranting to
Purchaser that each of Sellers' representations and warranties in this Agreement
was accurate in all respects as of the Execution Date and is accurate in all
respects as of the Closing Date as if made on the Closing Date (giving full
effect to any supplements to the Sellers Disclosure Schedule that were delivered
by Sellers to Purchaser prior to the Closing Date in accordance with Section
5.4).
(b) Purchasing Parties Deliveries. At the Closing, Purchasing Parties shall
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deliver to each Seller the following:
(i) The Purchase Price as required and in the manner indicated in this
Article I;
(ii) A certificate executed by the Purchasing Parties representing and
warranting to Seller that each of Purchasing Parties' representations and
warranties in this Agreement was accurate in all respects as of the Execution
Date and is accurate in all respects as of the Closing Date as if made on the
Closing Date (giving full effect to any supplements to the Purchaser Disclosure
Schedule that were delivered by Purchasing Parties to Sellers prior to the
Closing Date in accordance with Section 5.4); and
(iii) The Pledge Agreement and Guaranty Agreement, executed by the required
parties.
1.7 Post-Closing Adjustments.
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(a) As soon as reasonably practical after the Closing, but in no event more
than forty five (45) calendar days after the Closing Date, Purchaser shall
prepare and deliver to Sellers Representative a schedule (the "Adjustment
Report") showing the computation of the Marketable Securities Adjustment, the
Excess Marketable Securities Proceeds Adjustment, the Dividends Paid Adjustment,
Miscellaneous Asset Adjustment and the Final Purchase Price. The procedures for
calculating the Adjustment Report are set forth in Section 1.7 of Sellers
Disclosure Schedule.
(b) Within forty-five (45) calendar days after receipt of the Adjustment
Report, the Sellers Representative may, by written notice to Purchaser, object
to the Adjustment Report. If the Sellers Representative shall not object thereto
in writing within such forty-five (45) calendar day period, the calculations on
the Adjustment Report shall become final and shall not be subject to further
review, challenge or adjustment absent fraud. The Sellers Representative may in
good faith object to the Adjustment Report within such forty-five (45) calendar
day period by delivering a written notice of his objection (the "Objection
Notice") to the Purchaser: (i) setting forth the items being disputed and the
reasons therefor, and (ii) specifying the Sellers Representative's calculation
of the figures on the Adjustment Report. In connection with the preparation of
the Objection Notice (and any subsequent submissions to the Arbiter), Purchaser
shall grant the Sellers Representative and his accountants and other
representatives reasonable access to all of the books and records of COTC
Companies. Any delay in granting access to all such books and records shall
accordingly extend such forty-five (45) calendar day period for delivery of the
Objection Notice.
(c) For thirty (30) calendar days after delivery of the Objection Notice,
Purchaser and Sellers Representative shall attempt to resolve all disputes
between them regarding the Adjustment Report. If Purchaser and the Sellers
Representative cannot resolve all such disputes within such thirty (30) day
period, the matters in dispute shall be determined by an accounting firm
mutually acceptable to them to resolve the remaining objections (the "Arbiter").
If the Purchaser and the Sellers Representative are unable to agree on the
choice of an accounting firm, they will select a nationally-recognized
accounting firm by lot after excluding their respective regular outside
accounting firms. Subject to Section 1.7(d), any advance retainer and any
periodic payments to the Arbiter shall be advanced equally by Purchaser and
Sellers. Promptly, but not later than forty-five (45) days after the acceptance
of its appointment, the Arbiter shall determine (based solely on presentations
by the Sellers Representative and Purchaser to the Arbiter and not by
independent review) only those items in dispute and shall render a report as to
its resolution of such items and the resulting calculation of the Adjustment
Report. For purposes of the Arbiter's determination, the amounts to be included
shall be the amounts from the Adjustment Report as to items that are not in
dispute, and the amounts determined by the Arbiter, as to items that are
submitted for resolution by the Arbiter. In resolving any disputed item, the
Arbiter must select the Adjustment Report proffered by the Purchaser or the
Adjustment Report proffered by the Sellers Representative (and cannot substitute
the Arbiter's own judgment) based upon the position the Arbiter determines to be
closest to the correct amount. Purchaser and the Sellers shall cooperate with
the Arbiter in making its determination and such determination shall be
conclusive and binding upon the Purchaser and the Sellers.
(d) The fees and expenses of the Arbiter shall be paid by the party (the
"Losing Party") whose Final Purchase Price (as reported on the Adjustment Report
with respect to the Purchaser or on the Objection Notice with respect to the
Sellers) is furthest from the Final Purchase Price as determined by the Arbiter.
If the other party (the "Prevailing Party") has advanced or provided a portion
of the Arbiter's fees and costs as provided above in Section 1.7(c), the Losing
Party shall reimburse the Prevailing Party for such fees and costs within ten
(10) Business Days of the Arbiter's final decision.
(e) Within five (5) Business Days after the determination of the Final
Purchase Price:
(i) If the Final Purchase Price is greater than the Purchase Price, then
Purchaser shall pay or shall cause to be paid to each Seller of Common Stock,
such Seller's pro rata share (based on the percentage allocations for Common
Stock specified on Schedule A) of the amount by which the Final Purchase Price
exceeds the Purchase Price.
(ii) If the Final Purchase Price is less than the Purchase Price, then each
Seller of Common Stock shall pay or shall cause to be paid to Purchaser such
Seller's pro rata share (based on the percentage allocations for Common Stock
specified on Schedule A) of the amount by which the Purchase Price exceeds the
Final Purchase Price.
1.8 Sellers Representative.
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(a) In order to administer efficiently the obligations and requirements of
Sellers under this Agreement, the Sellers hereby designate Xxxxxx X. Xxxxx as
their representative (the "Sellers Representative").
(b) The Sellers hereby authorize the Sellers Representative upon the
receipt of written instructions of Requisite Sellers: (i) to take all action
necessary in connection with the defense and/or settlement of any claims for
which the Sellers may be required to indemnify Purchasing Parties pursuant to
Section 9.2 hereof, (ii) to give and receive all notices required to be given
and take all action required or permitted to be taken under this Agreement and
any related agreement contemplated hereby to which all the Sellers are parties,
and (iii) to take any and all additional action as is contemplated to be taken
by or on behalf of the Sellers by the terms of this Agreement and any related
agreement.
(c) Upon receiving notice of the death or incapacity of the Sellers
Representative, the Sellers (who shall be deemed to include any successor in
interest to any Seller) shall by a vote of the Requisite Sellers (based on their
percentage interest in the Purchase Price if there were a Closing as set forth
in Schedule A) appoint a successor to fill the vacancy. The Sellers may by a
vote of the Requisite Sellers remove the Sellers Representative with or without
cause and appoint a successor, provided that notice thereof is given by the new
Sellers Representative to each of the other parties hereto. The Sellers
Representative may resign (other than by death or incompetency) if, and only if,
he is simultaneously replaced with a substitute Sellers Representative.
(d) By their execution of this Agreement, the Sellers agree that:
(i) Notwithstanding any other provision herein to the contrary, the
Purchasing Parties shall be able to rely conclusively on the instructions and
decisions of the Sellers Representative as to the settlement of any claims for
indemnification by Purchasing Parties pursuant to Section 9.2 hereof or any
other actions required to be taken by the Sellers Representative hereunder, and
no party hereunder shall have any cause of action against Purchasing Parties for
any action taken by Purchasing Parties in reliance upon the instructions or
decisions of the Sellers Representative;
(ii) All actions, decisions and instructions of the Sellers Representative,
including the defense or settlement of any claims for which the Sellers may be
required to indemnify Purchasing Parties pursuant to Section 9.2 hereof, shall
be conclusive and binding upon all of the Sellers, and no Seller shall have any
right to object, dissent, protest or otherwise contest the same or have any
cause of action against the Sellers Representative for any action taken,
decision made or instruction given by the Sellers Representative under this
Agreement, except for willful misconduct (which shall include fraud), gross
negligence or breach by the Sellers Representative of his obligations as such
Sellers Representative;
(iii) The provisions of this Section 1.8 are independent and severable, are
irrevocable and shall be enforceable notwithstanding any rights or remedies that
any Seller may have in connection with the transactions contemplated by this
Agreement;
(iv) Remedies available at law for any breach of the provisions of this
Section 1.8 are inadequate; therefore, Purchasing Parties and the Sellers
Representative shall be entitled to temporary and permanent injunctive relief
without the necessity of proving damages if either Purchasing Parties or the
Sellers Representative brings an action to enforce the provisions of this
Section 1.8; and
(v) The provisions of this Section 1.8 shall be binding upon the executors,
heirs, legal representatives, successors and assigns of each Seller, and any
references in this Agreement to a Seller or the Sellers shall mean and include
the successors to the Sellers' rights hereunder, whether pursuant to assignment,
testamentary disposition, the laws of descent, and distribution or otherwise.
(e) All fees and expenses incurred by the Sellers Representative in
connection with this Agreement shall be paid by the Sellers in proportion to
their respective percentage allocations for Common Stock specified in Schedule A
as if there were a Closing.
(f) In acting as the representative of the Sellers, the Sellers
Representative may rely upon, and shall not be liable to any Seller (or such
Seller's successor in interest) for acting or refraining from acting upon, an
opinion of counsel, certificate of auditors or other certificate, statement,
instrument, opinion, report, notice, request, consent, order, arbitrator's
award, appraisal, bond or other paper or document reasonably believed by him to
be genuine and to have been signed or presented by the proper party or parties.
The Sellers Representative shall incur no liability to any Seller (or such
Seller successor in interest) with respect to any action taken or suffered by
him in his capacity as Sellers Representative in reliance upon any note,
direction, instruction, consent, statement or other documents believed by him to
be genuinely and duly authorized, nor for other action or inaction except his
own willful misconduct or gross negligence and the Shareholders' Representative
shall be indemnified and held harmless by the Sellers of Common Stock from all
losses, costs and expenses, including reasonable attorney's fees, which the
Sellers Representative may incur as a result of involvement in any legal
proceedings arising from the performance of his or her duties hereunder. The
Sellers Representative may perform his duties as Sellers Representative either
directly or by or through his agents or attorneys and the Sellers Representative
shall not be responsible to the other Sellers for any misconduct or negligence
on the part of any agent or attorney appointed with reasonable care by him
hereunder.
Article II.
REPRESENTATIONS AND WARRANTIES CONCERNING COTC COMPANIES
Except as set forth in the disclosure schedule delivered by Sellers to the
Purchaser prior to the execution of this Agreement (the "Sellers Disclosure
Schedule"), which Sellers Disclosure Schedule shall reference disclosure items
by section, each of the Sellers jointly and severally, represents and warrants
to the Purchaser that:
2.1 Organization and Qualification; Subsidiaries.
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(a) COTC is a corporation validly existing and in good standing under the
laws of the State of California. Each Subsidiary of COTC (individually, "COTC
Subsidiary" or collectively, "COTC Subsidiaries") is a corporation, limited
liability company or general partnership (as set forth in Section 2.1(d))
validly existing and in good standing under the laws of the State of California.
Each COTC Company has the requisite corporate power and authority necessary to
own, lease and operate its properties and to carry on its business as it is now
being conducted.
(b) Each COTC Company is duly qualified to do business as a foreign
corporation, and is in good standing in each jurisdiction where the character of
its properties owned, leased or operated by it or the nature of its activities
makes such qualification necessary, except where such failures to be so duly
qualified and in good standing would not, either individually or in the
aggregate, have a Material Adverse Effect.
(c) Telephone Company is a duly certified public utility subject to the
rules and regulations of the PUC and the California Public Utilities Code,
including, but not limited to, the specific obligations set forth in California
Public Utilities Commission Resolution T-16762 adopting COTC's General Rate
Case.
(d) A list of all COTC Subsidiaries, together with (i) COTC's percentage
ownership of each COTC Subsidiary and (ii) laws under which each COTC Subsidiary
is formed, is set forth in Section 2.1(d) of Sellers Disclosure Schedule. COTC
and/or one or more of the COTC Subsidiaries own beneficially and of record
substantially all of the outstanding equity interests of each of the COTC
Subsidiaries. COTC does not directly or indirectly own any equity or similar
interests in, or any interests convertible into or exchangeable or exercisable
for any equity or similar interest in, any corporation, partnership, joint
venture or other business association or entity other than in the ordinary
course of business, and in no event in excess of 5% of the outstanding equity
securities of such entity.
2.2 Articles of Incorporation and Bylaws. COTC has previously furnished to
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Purchaser a copy of the current articles of incorporation and bylaws, as amended
or restated of COTC and the articles of incorporation, articles of organization,
bylaws, operating agreement, or partnership agreement, as applicable, of each
COTC Subsidiary (such organizational documents being referred to collectively as
the "Organizational Documents"). The Organizational Documents are in full force
and effect. COTC is not in violation of any of the provisions of its articles or
bylaws.
2.3 Capitalization.
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(a) The authorized capital stock of COTC consists of 20,000 shares of
Common Stock and 1,000,000 shares of Preferred Stock. As of the Execution Date,
4,088 shares of Common Stock and 105,160 shares of Preferred Stock (identified
in the articles of incorporation as "Preferred Stock, First Series") are issued
and outstanding (of which none are restricted shares under employee benefit
plans which have not been awarded) and held of record by the respective Sellers
set forth in Schedule A, all of which are duly authorized, validly issued, fully
paid and non-assessable, and were not issued in violation of any preemptive
right of any COTC stockholder. There are no options, warrants or other rights,
agreements, arrangements or commitments of any character, including without
limitation voting agreements or arrangements, relating to the issued or unissued
capital stock of any COTC Company or obligating any COTC Company to issue or
sell any shares of capital stock of any COTC Company. There are no obligations
of any COTC Company to repurchase, redeem or otherwise acquire any equity
securities of any COTC Subsidiary. Each of the outstanding shares of capital
stock of each COTC Subsidiary are duly authorized, validly issued, fully paid
and nonassessable, and were not issued in violation of any preemptive rights of
any COTC Subsidiary stockholder.
(b) Any equity securities purchased or otherwise acquired by any COTC
Company were purchased or acquired in accordance with all laws including
fiduciary duties.
2.4 Authority. COTC has the requisite corporate power and authority to
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execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by COTC and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
and no other corporate proceedings on the part of COTC are necessary to
authorize this Agreement or to consummate the transactions so contemplated
hereby. This Agreement has been duly executed and delivered by, and constitutes
a valid and binding obligation of COTC and, assuming due authorization,
execution and delivery by the Purchasing Parties, is enforceable against COTC in
accordance with its terms, except as enforcement may be limited by general
principles of equity whether applied in a court of law or a court of equity and
by bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally.
2.5 No Conflict; Required Filings and Consents.
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(a) The execution and delivery of this Agreement by COTC does not, and the
performance of this Agreement and the transactions contemplated hereby by COTC
shall not, (i) conflict with or violate the Organizational Documents of any COTC
Company, (ii) conflict with or violate any federal or state law, statute,
ordinance, rule, regulation, order, judgment or decree (collectively, "Laws")
applicable to COTC Companies or by which COTC Companies or any COTC Subsidiary
or any of their respective properties is bound or affected, or (iii) result in
any breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration, cancellation of, or result in rights of
payment, compensation or other rights or the creation of a lien or encumbrance
on any of the properties or assets of any COTC Company pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which any COTC Company is a party
or by which any COTC Company or any of its properties is bound or affected.
(b) Except as set forth in Section 2.5(b) of Sellers Disclosure Schedule
(the list of which shall be referred to herein as the "Government Consents") the
execution and delivery of this Agreement by COTC does not, and the performance
of this Agreement by COTC shall not, require any consent, approval,
authorization or permit of, or filing with or notification to any governmental
or regulatory authority except the consents or approvals from the California
Public Utility Commission ("PUC") and the Federal Communications Commission
("FCC").
2.6 Compliance; Permits. No COTC Company is in conflict with, or in default
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or violation of, (i) any Law applicable to it or by which its or any of their
respective properties is bound or affected, or (ii) any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which it is a party or by which its properties is
bound or affected.
2.7 Reports; Financial Statements.
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(a) Each COTC Company has filed all forms, reports and documents required
to be filed with the PUC and FCC, and as of the Execution Date, COTC has
delivered to Purchaser copies of its annual report to the PUC for the years
ended December 31, 2000, 2001 and 2002 (the "COTC Reports"). The COTC Reports,
including all COTC Reports filed after the date of this Agreement and prior to
or at the Closing Date, (i) were or will be prepared in all material respects in
accordance with the requirements of applicable Law, and (ii) did not at the time
they were filed, or will not at the time they are filed, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(b) COTC has heretofore furnished Purchaser with the audited and unaudited
financial statements for the periods listed in Section 2.7(b) of Sellers
Disclosure Statement (the "Financial Statements"). The Financial Statements,
including the footnotes thereto, and the financial statements to be furnished
Purchaser pursuant to Section 5.1(h) hereof (the "Section 5.1(h) Financial
Statements") except as indicated therein, have been or will be prepared in
accordance with generally accepted accounting principles consistently applied
("GAAP") and the uniform system of accounts of the Federal Communications
Commission as set forth in 47 C.F.R. Part 32 and fairly present in all material
respects the financial condition and results of the operations of entities
included therein and the changes in their financial position at such dates and
for such periods; provided however, that the Section 5.1(h) Financial Statements
shall be subject to normal year end adjustments and lack footnotes and other
presentation items. The term "Balance Sheet" shall mean, as the context
requires, either or both of (i) the balance sheet of COTC (and its consolidated
subsidiaries) as of June 30, 2003, and (ii) the balance sheet of COTC (and its
consolidated subsidiaries) to be included in the Section 5.1(h) Financial
Statements.
(c) There are no material liabilities or obligations of any nature, whether
absolute, accrued, fixed, contingent, matured or unmatured, against, relating to
or affecting any COTC, except (i) as and to the extent reflected or reserved
against on the Balance Sheet, and (ii) those incurred since the date of the
latest Balance Sheet in the ordinary course of business consistent with prior
practice and consistent with Sections 5.1 and 5.2 hereof and which individually
or in the aggregate do not have and are not expected to have a Material Adverse
Effect.
(d) The revenues attributable to long distance network access that are
included in the revenues stated in the Financial Statements (and in the Section
5.1(h) Financial Statements) have been calculated in a manner consistent with
prior years, as modified by and in accordance with, all applicable federal and
state rules and regulations; the cost separation studies of the COTC Companies
upon which the access settlement revenues set forth in the Financial Statement
(and in the Section 5.1(h) Financial Statements) are based, have been prepared
in a manner consistent with prior years, as modified by and in accordance with,
all applicable federal and state tariffs; and all local service rates currently
utilized by COTC and all of the COTC Subsidiaries are in compliance with
applicable tariffs.
2.8 Absence of Certain Changes or Events. Since June 30, 2003: (a) COTC
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Companies have conducted their businesses only in the ordinary course and in a
manner consistent with past practice and, (b) there has not been (i) any change
in the financial condition, results of operations or business of COTC or any of
the COTC Subsidiaries having a Material Adverse Effect, (ii) any damage,
destruction or loss (whether or not covered by insurance) with respect to any
assets of COTC Companies having a Material Adverse Effect, (iii) any
declaration, setting aside or payment of any dividends or distributions in
respect of Common Stock or Preferred Stock or any redemption, purchase or other
acquisition of any of its securities or any of the securities of any COTC
Subsidiary, (iv) any strike, work stoppage, slow-down or other material labor
disturbance suffered by COTC Companies, (v) any collective bargaining agreement,
contract or other agreement or understanding with a labor union or organization
to which any COTC Company has been a party (vi) any union organizing activities
relating to employees of any COTC Company, (vii) any incurrence of debt for
money borrowed (other than the replacement of existing credit facilities or
incurred in the ordinary course of business) or any lease of any property or
assets outside the ordinary course of business, or (viii) any material
transaction not in the ordinary course of business consistent with past
practice.
2.9 Absence of Litigation.
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(a) No COTC Company is a party to any, and there are no pending or, to the
best of Sellers' knowledge, threatened, legal, administrative, arbitral or other
proceedings, claims, actions or governmental or regulatory investigations of any
nature against or relating in any way to any COTC Company, or challenging the
validity or propriety of the transactions contemplated by this Agreement.
(b) There is no injunction, order, judgment, decree or regulatory
restriction imposed upon, or, to the knowledge of Sellers, threatened against
COTC relating in any way to any COTC Company, or the assets of any COTC Company
which has had or may have a Material Adverse Effect.
2.10 Employee Benefit Plans.
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(a) Plans of COTC. Section 2.10(a) of Sellers Disclosure Schedule lists (i)
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all employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), and all bonus,
stock option, stock purchase, restricted stock, incentive, deferred
compensation, retiree medical or life insurance, supplemental retirement,
severance or other benefit plans, programs or arrangements, and all material
employment, termination, severance or other employment contracts or employment
agreements, with respect to which any COTC Company has any obligation
(collectively, the "Plans"). COTC has furnished or made available to Purchaser a
copy of each Plan (or a description of the Plans, if the Plans are not in
writing) and a copy of each material document prepared in connection with each
such Plan, including, without limitation, and where applicable, a copy of (i)
each trust or other funding arrangement, (ii) each summary plan description and
summary of material modifications, (iii) the three most recently filed Internal
Revenue Service ("IRS") Forms 5500 and related schedules, (iv) the most recently
issued IRS determination letter for each such Plan and (v) the three most
recently prepared actuarial and financial statements in connection with each
such Plan.
(b) Absence of Certain Types of Plans. No member of COTC's "controlled
-----------------------------------
group," within the meaning of Section 4001(a)(14) of ERISA, maintains or
contributes to, or within the five (5) years preceding the Execution Date has
maintained or contributed to, an employee pension benefit plan subject to Title
IV of ERISA ("Title IV Plan"). No Title IV Plan of any member of COTC's
"controlled group" is a "multi-employer pension plan" as defined in Section
3(37) of ERISA. None of the Plans obligates any COTC Company to pay material
separation, severance, termination or similar-type benefits solely as a result
of any transaction contemplated by this Agreement or as a result of a "change in
ownership or control," within the meaning of such term under regulations adopted
pursuant to Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code").
(c) Compliance with Applicable Law. Each Plan has been operated in all
---------------------------------
material respects in accordance with the requirements of all applicable Laws and
all persons who participate in the operation of such Plans and all Plan
"fiduciaries" (within the meaning of Section 3(21) of ERISA) have acted in
accordance with the provisions of all applicable Laws, except where such
violations of applicable Laws would not, individually or in the aggregate, have
a Material Adverse Effect. COTC Companies have performed all obligations
required to be performed by any of them under, are not in any respect in default
under or in violation of, and to Sellers' knowledge have not been any default or
violation by any party to, any Plan, except where such failures, defaults or
violations would not, individually or in the aggregate, have a Material Adverse
Effect.
(d) Qualification of Certain Plans. Each Plan that is intended to be
---------------------------------
qualified under Section 401(a) of the Code or Section 401(k) of the Code
(including each trust established in connection with such a Plan that is
intended to be exempt from federal income taxation under Section 501(a) of the
Code) has received a favorable determination letter from the IRS that it is so
qualified, and Sellers are not aware of any fact or event that has occurred
since the date of such determination letter from the IRS to adversely affect the
qualified status of any such Plan. No trust maintained or contributed to by any
COTC Company is intended to be qualified as a voluntary employees' beneficiary
association or is intended to be exempt from federal income taxation under
Section 501(c)(9) of the Code.
(e) Absence of Certain Liabilities and Events. There has been no prohibited
-----------------------------------------
transaction (within the meaning of Section 406 of ERISA or Section 4975 of the
Code) with respect to any Plan. No COTC Company has incurred any liability for
any excise tax arising under Section 4972 or 4980B of the Code that would
individually or in the aggregate have a Material Adverse Effect, and, to the
knowledge of Sellers, no fact or event exists that could give rise to any such
liability.
(f) Plan Contributions. All contributions, premiums or payments required to
------------------
be made prior to the Closing Date with respect to any Plan have been made on or
before the Closing Date.
(g) Funded Status of Plans and Rights to Terminate. With respect to each
------------------------------------------------
Title IV Plan, the present value of all accrued benefits under each such Plan,
based upon the actuarial assumptions used for funding purposes in the most
recent actuarial report prepared by each such Plan's actuary with respect to
each such Plan did not exceed, as of the most recent valuation date, the then
current value of assets of such Plan, allocable to each accrued benefit. No
provision of any such Plan, nor any amendment thereto, would result in any
limitation on the rights of any COTC Company to terminate each such Plan and to
receive any residual amounts under Section 4044 of ERISA.
(h) Employment Contracts. Except as disclosed on Section 2.10(h) of Sellers
--------------------
Disclosure Schedule, no COTC Company is a party to any employment, consulting,
severance or other similar contracts with present or former employees,
consultants, officers or directors of any COTC Company. No COTC Company is a
party to any collective bargaining agreement.
(i) Post-Retirement Plans. No COTC Company has any arrangement to provide
----------------------
post-retirement medical or life insurance benefits, with any present or former
director, officer or other employee of any COTC Company.
2.11 Title to Property.
-----------------
(a) All of the real property and all of the personal property owned by COTC
Companies is identified in Section 2.11(a)-1 and Section 2.11(a)-2 (by those
items or groups of similar items in excess of $100,000), respectively, of
Sellers Disclosure Schedule. COTC Companies have good and indefeasible title to
all of their respective real and personal properties and assets owned by them,
free and clear of all mortgage liens, and free and clear of all other liens,
charges and encumbrances except liens listed on Section 2.11(a)-3 of Sellers
Disclosure Schedule and except for taxes not yet due and payable, pledges to
secure deposits and such minor imperfections of title, if any, as do not
materially detract from the value of or interfere with the present use or
marketability of the property affected thereby.
(b) All real property leases and material personal property leases of COTC
Companies are identified in Section 2.11(b) of Sellers Disclosure Schedule. The
real property leases and all personal property leases are valid and are
enforceable in accordance with their respective terms.
(c) Substantially all buildings and equipment in regular use by COTC
Companies have been reasonably maintained and are in good and serviceable
condition, reasonable wear and tear excepted.
2.12 Environmental Matters. (a) (i) Each COTC Company and properties owned,
---------------------
leased or operated by the COTC Companies, is in material compliance with all
applicable Environmental Laws; (ii) there is no asbestos or ureaformaldehyde
materials in or on any property owned, leased or operated by COTC Companies and
no electric transformers or capacitors, other than those owned by public utility
companies, on any such properties which contain any PCBs; (iii) there are no
underground or aboveground storage tanks located on, in or under any properties
currently or formerly owned or operated by COTC Companies; (iv) COTC Companies
have not received any written notice from any governmental agency or third party
notifying COTC Companies of any Environmental Claim (as defined herein); (v) no
COTC Company has been notified by any governmental agency or any third party
that a COTC Company may be a potentially responsible party for environmental
contamination or any Release (as defined below) of Hazardous Materials (as
defined below); (vi) COTC Companies have obtained and each holds all material
Environmental Permits, (as defined below) relating to the ownership or
operations of COTC Companies; (vii) each COTC Company is in material compliance
with all terms, conditions and provisions of all applicable Environmental
Permits; (viii) no Releases of Hazardous Materials have occurred at, from, in,
on, to or under any property owned, operated or leased by COTC Companies that
violate any Environmental Law, and no Hazardous Materials are present in, on or
about or migrating to or from any such property that would give rise to an
Environmental Claim by a third party against COTC Companies; (ix) no COTC
Company has nor to Seller's knowledge any predecessors thereof have transported
or arranged for the treatment, storage, handling, disposal or transportation of
any Hazardous Material to any location which could result in an Environmental
Claim against or liability to COTC Companies; and (x) no COTC Company has any
environmental report or statement prepared by or on its behalf or in its
possession or control relating to any of its present or former properties.
(b) For purposes of this Section:
"Environmental Claims" shall mean any and all administrative, regulatory,
---------------------
judicial or private actions, suits, demands, notices, claims, liens,
investigations, injunctions or similar proceedings that may result in COTC
Companies being liable for: (i) a violation of any Environmental Law; (ii) the
release and ordered remediation of any Hazardous Material, including without
limitation, any investigation, monitoring abatements, removal, remedial,
corrective or other response action in connection with the release of any
Hazardous Material or order or notice of liability or violation of a
governmental authority or Environmental Law; or (iii) any actual or alleged
damage, injury, threat or harm to the environment.
"Environmental Law" shall mean any and all federal and state civil and
------------------
criminal laws, statutes, ordinances, orders, permits, codes, rules or
regulations of any governmental or regulatory authority relating to the
protection of health, the environment, natural resources, worker health and
safety and/or governing the handling, use, generation, treatment, storage,
transportation, disposal, manufacture, distribution, formulation, packaging,
labeling, or Release of Hazardous Materials, including but not limited to: the
Clean Air Act, 42 U.S.C.ss.7401 et seq.; the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. ss.9601 et seq.; the
Federal Water Pollution Control Act, 33 U.S.C.ss.1251 et seq.; the Hazardous
Material Transportation Act 49 U.S.C.ss.1801 et seq.; the Federal Insecticide,
Fungicide and Rodenticide Act 7 U.S.C.ss.136 et seq.; the Resource Conservation
and Recovery Act of 1976 ("RCRA"), 42 U.S.C.ss.6901 et seq.; the Toxic
Substances Control Act, 15 U.S.C.ss.2601 et seq.; the Occupational Safety &
Health Act of 1970, 29 U.S.C.ss.651 et seq.; the Oil Pollution Act of 1990, 33
U.S.C.ss.2701 et seq.; and the state analogies thereto, all as amended or
superceded from time to time, on or before, but not after, the date of Closing.
"Environmental Permits" shall mean any action, approval, consent, waiver,
---------------------
exemption, variance, franchise, order, permit, authorization, right or license
issued from any federal, state or local governmental body, agency or authority
relating to the protection of health, the environment or natural resources.
"Hazardous Materials" shall mean any and all chemicals, pollutants,
--------------------
contaminants, wastes, toxic substances, compounds, products, solid, liquid, gas,
petroleum, asbestos, asbestos-containing materials, polychlorinated biphenyls or
other regulated substances or materials which are hazardous, toxic or otherwise
harmful to the environment.
"Release" shall mean any spilling, leaking, pumping, pouring, emitting,
-------
emptying, discharging, injecting, escaping, leaching, dumping or disposing of a
Hazardous Material into the environment.
2.13 Absence of Agreements. No COTC Company is a party to any agreement,
----------------------
order, directive, memorandum of understanding or similar arrangement with any
governmental authority that materially restricts the conduct of its business
(other than restrictions imposed by the PUC or the FCC on telephone companies
generally or as imposed on COTC Companies and which have been disclosed to
Purchaser), nor has any COTC Company been advised that any governmental
authority is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such agreement, order, directive,
memorandum of understanding or similar arrangement.
2.14 Taxes.
-----
(a) Section 2.14(a) of Sellers Disclosure Schedule identifies the tax
classification of each COTC Company. COTC Companies have timely filed all
material Tax Returns (as defined below) required to be filed by them or will
duly and timely file (including any extension periods) such Tax Returns, and
COTC Companies have timely paid and discharged all Taxes (as defined below) due
in connection with or with respect to the filing of such Tax Returns and have
timely paid all other Taxes as are due, except such as are being contested (as
set forth as Section 2.14(a) of Sellers Disclosure Schedule) in good faith by
appropriate proceedings and with respect to which the applicable COTC Company is
maintaining reserves adequate for their payment. The liability for Taxes set
forth on each such Tax Return adequately reflects the Taxes required to be
reflected on such Tax Return. For purposes of this Agreement, "Tax" or "Taxes"
shall mean taxes, charges, fees, levies, and other governmental assessments and
impositions of any kind, payable to any federal, state, local or foreign
governmental entity or taxing authority or agency, including, without
limitation, (i) income, franchise, profits, gross receipts, estimated, ad
valorem, value added, sales, use, service, real or personal property, capital
stock, license, payroll, withholding, disability, employment, social security,
workers compensation, unemployment compensation, utility, severance, production,
excise, stamp, occupation, premiums, windfall profits, transfer and gains taxes,
(ii) customs duties, imposts, charges, levies or other similar assessments of
any kind, and (iii) interest, penalties and additions to tax imposed with
respect thereto; and "Tax Returns" shall mean returns, reports, and information
statements with respect to Taxes required to be filed with the IRS or any other
governmental entity or taxing authority or agency, domestic or foreign,
including, without limitation, consolidated, combined and unitary tax returns.
Neither the IRS nor any other governmental entity or taxing authority or agency
has (i) delivered a written notice, or (ii) to the knowledge of the Sellers had
personal contact with any of them, asserting, either through audits,
administrative proceedings or court proceedings, any deficiency or claim for
additional Taxes. No COTC Company has granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any Tax. Except for statutory liens for current taxes not yet due, there are no
tax liens on any assets of COTC Companies. No COTC Company has received a ruling
or entered into an agreement with the IRS or any other taxing authority that
would have a Material Adverse Effect. Except as disclosed in Section 2.14(a) of
Sellers Disclosure Schedule, no agreements relating to allocating or sharing of
Taxes exist among the COTC Companies.
(b) The Balance Sheet includes sufficient accruals for Taxes in accordance
with GAAP in all material respects with respect to any period for which Tax
Returns for COTC Companies were not filed or for which Taxes were not then due
and owing.
(c) True and complete copies of all income tax returns, and all other
material Tax Returns for the last three (3) years and all written tax audit
reports from any governmental authority with respect to COTC Companies have been
furnished to the Purchaser. Any deficiencies proposed in tax audits have been
duly and fully paid, settled, or reserved against in the Financial Statements
and the Section 5.1(i) Financial Statements. Section 2.14(c) of Sellers
Disclosure Schedule identifies all Tax audits which a governmental agency has
notified in writing COTC Companies during the five-year period ending on the
Execution Date with respect to (i) income Taxes, and (ii) all other material Tax
Returns.
(d) No election under Code Section 338 (or any predecessor provision) has
been made or filed by or with respect to any COTC Company. No consent to the
application of former Section 341(f)(2) of the Code (or any predecessor
provision) has been made or filed by or with respect to any COTC Company or any
of its assets or properties. None of the assets or properties of any COTC
Company is an asset or property that COTC is or will be required to treat as
being (i) owned by any other person pursuant to the provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect before
the enactment of the Tax Reform Act of 1986, or (ii) tax-exempt use property
within the meaning of Section 168(h)(1) of the Code. No closing agreement
pursuant to Section 7121 of the Code (or any predecessor provision) or any
similar provision of any state, local, or, if applicable, foreign Law has been
entered into by or with respect to any COTC Company or any of its assets or
properties.
(e) No COTC Company has agreed to make any adjustment pursuant to Section
481(a) of the Code (or any predecessor provision) by reason of any change in any
tax accounting method of any COTC Company, and no COTC Company has any
application pending with any governmental authority requesting permission for
any changes in any tax accounting method. To the knowledge of Sellers, the IRS
has not proposed any such adjustment or change in accounting method.
(f) COTC Companies have withheld and paid all Taxes required to have been
withheld and paid in connection with any amounts paid or owing to any employee,
independent contractor or other third party.
(g) No audit is pending or, to the knowledge of Sellers, threatened with
respect to any Taxes due from, or Tax Return filed by or relating to, any COTC
Company.
(h) No COTC Company is party to any agreement, contract, or arrangement
that would require any COTC Company to make any gross-up payments with respect
to any Taxes or otherwise indemnify or hold harmless any employee with respect
to Taxes.
(i) COTC Companies have no deferred intercompany gains or losses (as such
term is defined in Treas. Reg. ss. 1.1502-13).
2.15 Insurance. Section 2.15 of the Sellers Disclosure Schedule lists all
---------
material policies of insurance of COTC Companies currently in effect. No COTC
Company has any liability for unpaid premiums or premium adjustments not
properly reflected on the Financial Statements or on the Section 5.1(h)
Financial Statements.
2.16 Broker/Expenses. Except as disclosed in Section 2.16 of Sellers
---------------
Disclosure Schedule, no COTC Company has paid, or agreed to pay, any brokerage,
finder's, consultant's, or other fee or commission in connection with the
transactions contemplated by this Agreement.
2.17 Material Adverse Effect. Since June 30, 2003, there has been no
-------------------------
Material Adverse Effect with respect to any Selling Party.
2.18 Material Contracts/Licenses.
---------------------------
(a) Each Material Contract of COTC Companies as of the Execution Date is
identified in Schedule 2.18(a) of Sellers Disclosure Schedule. Except as set
forth in Schedule 2.18(a) of Sellers Disclosure Schedule, no COTC Company is a
party to or obligated under any Material Contract that is not terminable by the
appropriate COTC Companies without additional payment or penalty within 90 days.
Each Material Contract is in full force and effect, and constitutes a legal,
valid, and binding obligation of the applicable COTC Company, and to the
knowledge of Sellers each other party to such Material Contracts in accordance
with their terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, moratorium, or similar laws affecting the enforcement of
creditors' rights generally, or by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in law or in equity).
No COTC Company and to the knowledge of Sellers any other party to any Material
Contract is in violation or breach of or default under any Material Contract
(with or without notice or lapse of time or both). For purposes of this Section
2.18, the term "Material Contract" shall include any agreement, contract,
instrument or understanding involving the payment or receipt by any COTC Company
of $50,000 ($100,000 in the case of billing and collecting agreements) or more
per year or $100,000 ($200,000 in the case of billing and collecting agreements)
or more in the aggregate through the life of the contract.
(b) Section 2.18(b) of Sellers Disclosure Schedule contains a true and
complete list and brief description of all franchises, permits, licenses,
approvals, and other authorizations that are necessary for the business,
operations, and affairs of COTC Companies as being conducted as of the Execution
Date. COTC Companies own or validly hold each such franchise, permit, license,
approval, and other authorization. Each such franchise, permit, license,
approval, and other authorization is valid, in good standing, and in full force
and effect. To the knowledge of Sellers, no basis exists for the termination,
suspension, restriction, or limitation of any such franchise, permit, license,
approval, or other authorization.
2.19 Intangible Property. COTC Companies own or have the right to use (by
--------------------
way of license or lease) the material items of intangible personal property
(including inventions, processes, designs, formulas, licenses, royalty
arrangements, trade secrets, know-how and proprietary techniques (collectively,
"Intellectual Property")) necessary for the conduct of their respective
businesses, which are listed on Section 2.19 of Sellers Disclosure Schedule.
COTC Companies have the right and authority to use each item of Intellectual
Property, and to the knowledge of Sellers, such use does not conflict with,
infringe upon or violate any patent, trademark, trade name, trademark or trade
name registration, copyright, copyright registration or any pending application
relating thereto of any other person, firm or corporation.
2.20 State Takeover Statutes; Absence of Supermajority Provision. No
-----------------------------------------------------------------
provision of the California General Corporation Law or the Organizational
Documents or the terms of any rights plan or other takeover defense mechanism of
COTC would, directly or indirectly, restrict or impair the ability of any Seller
or Purchaser to consummate the transactions contemplated by this Agreement nor
will any such provisions restrict or impair the ability of the Purchaser to
exercise the same rights to vote or otherwise exercise the same rights as the
other or former stockholders of COTC in the event that Purchaser were to acquire
securities of COTC.
2.21 Easements; Rights of Way. Section 2.21 of Sellers Disclosure Schedule
-------------------------
identifies (i) each parcel of leased real property, and (ii) each material
easement and license to use real property, that is required for its business,
operations, and affairs as being conducted by COTC Companies as of the Execution
Date. COTC Companies have a valid interest in or right to use each such lease,
easement and license according to its terms. Each such lease, easement and
license is in full force and effect and constitutes a legal, valid, and binding
obligation of the applicable COTC Company and, to the knowledge of Sellers, each
other party thereto, enforceable against the parties thereto in accordance with
the terms thereof except as such enforcement may be limited by applicable
bankruptcy, insolvency, moratorium, or similar laws affecting the enforcement of
creditors' rights generally, or by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in law or in equity).
There have been no disputes concerning material easements in which any COTC
Company has been involved during the last five (5) years. To the knowledge of
Sellers, there are no events or circumstances existing as of the Execution Date
that would materially and adversely affect the rights of way of COTC Companies
for its telephone and cables and lines with respect to the conduct of its
business as presently conducted.
2.22 Transactions with Affiliates. Since December 31, 2000, no COTC Company
----------------------------
has made any payments or distributions to any present or former director,
officer or person holding in excess of 1% of outstanding common stock, of any
COTC Company, or any affiliate of any such person, other than normal directors
fees, normal retirement benefits under the Plans, normal salary and other
employee compensation, and normal dividends and dividends disclosed in the
audited financial statements, and there have been and are no outstanding
liabilities or contracts between or among the COTC Companies and any such person
or affiliate of such person.
2.23 Disclosure.
----------
(a) No representation or warranty of Sellers in this Agreement and no
statement in the Sellers Disclosure Schedule omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) No notice of the Sellers given pursuant to Sections 5.4 and 5.9 will
contain any untrue statement or omit to state a material fact necessary to make
the statements therein or in this Agreement, in light of the circumstances in
which they were made, not misleading.
Article III.
SELLERS' REPRESENTATIONS AND WARRANTIES
Except as set forth in Sellers Disclosure Schedule delivered by Sellers to
the Purchaser prior to the execution of this Agreement, which Sellers Disclosure
Schedule shall reference disclosure items by section, each of the Sellers
represents and warrants to the Purchaser with respect to himself, herself, or
itself and not with respect to the other Sellers that:
3.1 Authority. Each of the Sellers has the requisite power and authority to
---------
execute and deliver this Agreement, to perform his, her or its respective
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by each of the Sellers and the
consummation by him, her or it of the transactions contemplated hereby have been
duly and validly authorized by all necessary action and no other proceedings on
the part of each of the Sellers is necessary to authorize this Agreement or to
consummate the transactions so contemplated hereby. This Agreement has been duly
executed and delivered by, and constitutes a valid and binding obligation of
each of the Sellers and, assuming due authorization, execution and delivery by
the Company and the Purchaser, is enforceable against each of the Sellers in
accordance with its terms, except as enforcement may be limited by general
principles of equity whether applied in a court of law or a court of equity and
by bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally.
3.2 No Conflict; Required Filings and Consents.
------------------------------------------
(a) The execution and delivery of this Agreement by each Seller does not,
and the performance of this Agreement and the transactions contemplated hereby
by each of the Sellers shall not, (i) conflict with or violate any Laws
applicable to such Seller or by which such Seller or any of such Seller's
respective properties is bound or affected, or (ii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration, cancellation of, or result in rights of payment,
compensation or other rights or the creation of a lien or encumbrance on any of
the properties or assets of such Seller pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which such Seller is a party or by which such Seller
or any of such Seller's respective properties is bound or affected.
(b) Except for the Government consents, the execution and delivery of this
Agreement by each Seller does not, and the performance of this Agreement by such
Seller shall not, require any consent, approval, authorization or permit of, or
filing with or notification to any governmental or regulatory authority except
(i) the consents or approvals of the PUC or the FCC, and (ii) where the failure
to give notice, to file, or to obtain any authorization, consent or approval
would have a Material Adverse Effect.
3.3 Title to Stock. Each Seller owns outright the number of shares of
--------------
Common Stock and Preferred Stock set forth opposite such Seller's name on
Schedule A hereto, free and clear of all encumbrances, security interests and
charges of any kind. There are no options, warrants or other rights, agreements,
arrangements or commitments of any character, including without limitation
voting agreements or arrangements relating to any of such Seller's Purchased
Stock.
3.4 Investment Purpose. Each Seller is acquiring the Notes for his, her or
------------------
its own account as principal for investment only and not with a present view
towards the public sale or distribution thereof, except pursuant to sales
exempted from registration under the Securities Act of 1933, as amended (the
"1933 Act").
3.5 Accredited Investor Status. Each Seller is an "accredited investor" as
--------------------------
that term is defined in Rule 501(a) of Regulation D and has such business and
financial experience (either alone or with his, her or its financial advisor) as
is required to give him, her or its the capacity to protect his, her or its own
interests in connection with the decision to receive the Notes.
3.6 Reliance on Exemptions. Each Seller understands that the Notes are
-----------------------
being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that Purchaser and Parent are relying upon the truth and accuracy of, and such
Seller's compliance with, the representations, warranties, agreements,
covenants, acknowledgments and understandings of such Seller set forth in this
Article III in order to determine the availability of such exemptions and the
eligibility of such Seller to acquire the Notes.
3.7 Information. Each Seller has been furnished with all materials relating
-----------
to the business, finances and operations of Purchaser and Parent and materials
relating to the Notes that have been requested by such Seller. Such Seller has
been afforded the opportunity to ask questions of Purchaser and Parent and has
received what such Seller believes to be satisfactory answers to any such
inquiries. Neither such inquiries nor any other due diligence investigation
conducted by such Seller or any of its advisors or representatives shall modify,
amend or affect such Seller's right to rely on Purchasing Parties'
representations and warranties contained in Article IV.
3.8 No Governmental Review. Each Seller understands that no United States
------------------------
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Notes.
3.9 Transfer or Resale. Each Seller understands that (i) no public market
------------------
now exists for the Notes and it is very unlikely that a public market will ever
exist for the Notes, (ii) the Notes have not been and are not being registered
under the 1933 Act or any applicable state securities laws, and may not be
transferred unless (a) subsequently included in an effective registration
statement thereunder, or (b) such Seller shall have delivered to the Purchaser
an opinion of counsel (which opinion shall be reasonably satisfactory to the
Purchaser) to the effect that the Notes to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; and (iii) neither
the Purchaser nor any other person is under any obligation to register such
Notes under the 1933 Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder.
3.10 Legends. Each Seller understands that the Notes will bear a
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restrictive legend in substantially the form set forth on the face of the Notes.
Article IV.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASING PARTIES
Except as set forth in the disclosure schedule delivered by the Purchasing
Parties to Sellers prior to the execution of this Agreement (the "Purchaser
Disclosure Schedule"), which Purchaser Disclosure Schedule shall reference
disclosure items by section, Purchasing Parties, jointly and severally,
represent and warrant to the Selling Parties that:
4.1 Organization and Qualification.
------------------------------
(a) Each of the Purchasing Parties is a corporation validly existing and in
good standing under the laws of the state of Delaware. Each of the Purchasing
Parties has the requisite corporate power and authority necessary to own, lease
and operate its properties and to carry on its business as it has been
conducted.
(b) Each of the Purchasing Parties is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature of
its activities makes such qualification necessary, except for such failures to
be so duly qualified or licensed and in good standing that would not, either
individually or in the aggregate, have a Material Adverse Effect.
4.2 Authority. Purchasing Parties have the requisite corporate power and
---------
authority to execute and deliver this Agreement and Exhibits and to perform
their respective obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and Exhibits
by the Purchasing Parties and the consummation by the Purchasing Parties of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of the Purchasing Parties and no other
corporate proceedings on the part of the Purchasing Parties are necessary to
authorize this Agreement and the Exhibits or to consummate the transactions so
contemplated thereby. This Agreement has been and as of the Closing Date all of
the Exhibits will be duly and validly executed and delivered by the Purchasing
Parties and constitute the valid and binding obligations of the Purchasing
Parties and assuming the due authorization, execution and delivery by the
Selling Parties, are enforceable against the Purchasing Parties in accordance
with their terms, except as enforcement may be limited by general principles of
equity, whether applied in a court of law or a court of equity, and by
bankruptcy, insolvency and similar laws affecting creditors' rights and remedies
generally.
4.3 No Conflict; Required Filings and Consents.
------------------------------------------
(a) The execution and delivery of this Agreement and the Exhibits hereto by
the Purchasing Parties does not, and the performance of this Agreement and the
Exhibits by the Purchasing Parties shall not, (i) conflict with or violate the
articles of incorporation or bylaws of the Purchasing Parties, (ii) conflict
with or violate any Laws applicable to any Purchasing Party or by which any of
their respective properties is bound or affected, or (iii) result in any breach
of or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in right of payment,
compensation or other rights or in the creation of a lien or encumbrance on any
of the properties or assets of the Purchasing Parties pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which any of the Purchasing
Parties is a party or by which any of the Purchasing Parties or any of their
respective properties is bound or affected.
(b) The execution and delivery of this Agreement and the Exhibits by the
Purchasing Parties do not, and the performance of this Agreement and the
Exhibits by the Purchasing Parties shall not, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, except the consents or approvals
of the PUC or FCC.
4.4 Compliance; Permits. No Purchasing Party is in conflict with, or in
--------------------
default or violation of, (i) any Law applicable to them or by which its or any
of their respective properties is bound or affected, or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which any Purchasing Party is a party or by
which any Purchasing Party or its or any of their respective properties is bound
or affected.
4.5 Absence of Certain Changes or Events. Since June 30, 2003, there has
-------------------------------------
not been (i) any change in the financial condition, results of operations or
business of any Purchasing Party; (ii) any material decline in the
creditworthiness (including, without limitation the ability to borrow, become
obligated on or guaranty any debt) or the debt repayment capacity of any
Purchaser Party; (iii) the maturity of any debt with any lenders of any
Purchasing Party (or any debt with any lender guaranteed by any Purchasing
Party) that has not been paid in full at maturity; or (iv) the occurrence or
nonoccurrence of any fact, event or circumstance affecting any Purchasing Party
which has or may reasonably be expected to have a Material Adverse Effect on any
of the Purchasing Parties.
4.6 Absence of Litigation.
---------------------
(a) Except as disclosed in Parent's 1934 Act filings, no Purchasing Party
is a party to any, and there are no pending or, to the best of Purchasing
Parties' knowledge, threatened, legal, administrative, arbitral or other
proceedings, claims, actions or governmental or regulatory investigations of any
nature against or relating in any way to any Purchasing Party, or challenging
the validity or propriety of the transactions contemplated by this Agreement.
(b) There is no injunction, order, judgment, decree or regulatory
restriction imposed upon, or, to the knowledge of Purchasing Parties, threatened
against any Purchasing Party relating in any way to any Purchasing Party, or the
assets of any Purchasing Party which has had or may have a Material Adverse
Effect on any of the Purchasing Parties.
4.7 Investment Purpose. Purchaser is acquiring the Purchased Stock for its
------------------
own account as principal for investment only and not with a present view towards
the public sale or distribution thereof, except pursuant to sales exempted from
registration under the 1933 Act.
4.8 Accredited Investor Status. Purchaser is an accredited investor and has
--------------------------
such business and financial experience as is required to give it the capacity to
protect its own interests in connection with the decision to receive the
Purchased Stock.
4.9 Information. Purchaser has been furnished with all materials relating
-----------
to the business, finances and operations of COTC Companies and materials
relating to the Purchased Stock that have been requested by Purchaser. Purchaser
has been afforded the opportunity to ask questions of Sellers and COTC and has
received what Purchaser believes to be satisfactory answers to any such
inquiries. Neither such inquiries nor any other due diligence investigation
conducted by Purchaser or any of its advisors or representatives shall modify,
amend or affect Purchaser's right to rely on Sellers' and COTC's representations
and warranties contained in Articles II and III.
4.10 SEC Filings.
-----------
(a) Parent has filed all reports, schedules, forms, statements and other
documents (the "Parent SEC Documents") required to be filed by it with the
Securities and Exchange Commission (the "SEC") since January 1, 1999.
(b) As of its filing date, each Parent SEC Document filed pursuant to the
Securities Exchange Act of 1934 (the "1934 Act") complied in all material
respects with the requirements of the 1934 Act and did not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(c) Each Parent SEC Document that is a registration statement, as amended
or supplemented, if applicable, filed pursuant to the 1933 Act, complied in all
material respects with the requirements of the 1933 Act and as of the date 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.
4.11 Broker/Expenses. No Purchasing Party has paid, or agreed to pay, any
---------------
brokerage, finder's, consultant's, or other fee or commission in connection with
the transactions contemplated by this Agreement.
4.12 Employees. It is the intent of the Purchasing Parties to offer
---------
continued employment to COTC Company's non-shareholder employees on
substantially the same terms as they have with COTC Companies as of the Closing
Date.
4.13 Disclosure.
----------
(a) No representation or warranty of the Purchasing Parties in this
Agreement and no statement in the Purchaser Disclosure Schedule omits to state a
material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
(b) No notice of the Purchasing Parties given pursuant to Sections 5.4 and
5.9 will contain any untrue statement or omit to state a material fact necessary
to make the statements therein or in this Agreement, in light of the
circumstances in which they were made, not misleading
Article V.
PRE-CLOSING COVENANTS
5.1 Affirmative Covenants of Selling Parties. Each of the Selling Parties
-----------------------------------------
covenants and agrees with the Purchaser that from and after the Execution Date
and prior to the Closing Date, unless the prior written consent (which shall not
be unreasonably withheld) of the Purchaser shall have been obtained and except
as otherwise contemplated herein, each Seller will cause COTC and each COTC
Subsidiary to:
(a) operate its business only in the ordinary course consistent with past
practices or as described in Section 5.1(a) of Sellers Disclosure Schedule;
(b) use reasonable efforts to: (i) preserve intact its business
organization and assets, (ii) maintain its rights and franchises, (iii) retain
the services of its officers and key employees, and (iv) maintain its
relationships with and the goodwill of regulators and customers;
(c) maintain and keep its properties in as good repair and condition as at
present, ordinary wear and tear excepted;
(d) keep in full force and effect insurance and bonds comparable in amount
and scope of coverage to that now maintained by it;
(e) perform in all material respects all obligations required to be
performed by it under all material contracts, leases, and documents relating to
or affecting its assets, properties, and business;
(f) maintain in good standing all material franchises, permits, licenses,
approvals and other authorizations owned or held by COTC Companies;
(g) comply in all material respects with all material laws and regulations
applicable to the business operations and affairs of COTC Companies;
(h) provide to Purchaser, COTC's monthly financial statements promptly upon
their completion; and
(i) notify Purchaser in writing of any power of attorney granted by any
COTC Company concerning any Tax matter that will be in force as of the Closing
Date.
5.2 Negative Covenants of Selling Parties. Except as specifically
------------------------------------------
contemplated by this Agreement, from the Execution Date and prior to the Closing
Date, each of the Sellers shall not permit any COTC Company to do, without the
prior written consent (which consent may not be unreasonably withheld) of the
Purchaser, any of the following:
(a) except as required by applicable Laws or to maintain qualification
pursuant to the Code or as set forth in Section 5.2(a) on Sellers Disclosure
Schedule, adopt, amend, renew or terminate any Plan or any agreement,
arrangement, plan or policy between any COTC Company and one or more of its
current or former directors, officers or employees, or except as required by
applicable Law, increase in any manner the base salary, bonus, incentive
compensation or fringe benefits of any director, officer or employee (other than
normal and usual wage and salary increases for non-Seller employees) or pay any
benefit not required by any plan or agreement as in effect as of the Execution
Date;
(b) except as provided in this Article V or in Section 5.2(b) of Sellers
Disclosure Schedule, declare or pay any dividend on, or make any other
distribution in respect of, its outstanding shares of capital stock, except for
dividends by a COTC Subsidiary to COTC;
(c) except as provided in Section 5.2(c) of Sellers Disclosure Schedule,
(i) redeem, purchase or otherwise acquire any shares of its capital stock or any
securities or obligations convertible into or exchangeable for any shares of its
capital stock, or any options, warrants, conversion or other rights to acquire
any shares of its capital stock or any such securities or obligations; (ii)
merge with or into any other corporation, permit any other corporation to merge
into it or consolidate with any other corporation, or effect any reorganization
or recapitalization; (iii) purchase or otherwise acquire any substantial portion
of the assets, or more than 5% of any class of stock, of any corporation or
other business other than in the ordinary course of business and consistent with
past practice; (iv) liquidate, sell, dispose of, or encumber any assets or
acquire any assets, other than in the ordinary course of its business consistent
with past practice; or (v) split, combine or reclassify any of its capital stock
or issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock;
(d) issue, deliver, award, grant or sell, or authorize or propose the
issuance, delivery, award, grant or sale of, any shares of any class of capital
stock of any COTC Company (including shares held in treasury) or any rights,
warrants or options to acquire, any such shares;
(e) directly or indirectly through any director, officer, shareholder,
employee, agent, adviser or otherwise, orally or in writing, initiate, solicit,
encourage, respond to, discuss, negotiate or accept any inquiries, indications
of interest, proposals or offers from, or make any inquiries, indications of
interest, proposals, offers, counter proposals or counteroffers to, or furnish
any information to, any other person with respect to (i) an acquisition of
shares of any COTC Company, (ii) additional equity or convertible debt financing
for any COTC Company, (iii) an acquisition of all or a substantial part of the
assets of any COTC Company (other than the sale of the Cal One Interest as
permitted under Section 5.13(e)), or (iv) a merger, consolidation or any other
transaction which would result in a change in control in any COTC Company or a
substantial change in the business of any COTC Company, or (v) provide third
parties (other than governmental agencies regulating its business or its
consultants and advisors) with any nonpublic information relating to any such
inquiry or proposal;
(f) propose or adopt any amendments to the Organizational Documents in any
way adverse to the Purchaser;
(g) change any of its methods of financial accounting for any material item
in effect at June 30, 2003, or change in any material respect its methods of
reporting income or deductions for federal income tax purposes from those
employed in the preparation of its federal income tax returns for the taxable
year ended December 31, 2002, except, in each case, as may be required by Law or
GAAP; (h) change in any material respect any material policies concerning the
business or operations of the COTC Companies (except as required by Law)
including, without limitation taking any action to: (i) sell, assign, transfer,
pledge, mortgage or otherwise encumber any of its assets, except for those
(other than pledges, mortgages or encumbrances) incurred in individual amounts
of less than $25,000 incurred in the ordinary course of business consistent with
past practice subject to an aggregate maximum of $200,000 or refinancing of the
outstanding principal balance of existing debt; (ii) make any investment except
in Permitted Investments with a maturity of six months or less; (iii) enter into
any agreement with respect to any acquisition of or acquire assets except in
individual amounts of less than $10,000 incurred in the ordinary course of
business consistent with past practice subject to an aggregate maximum of
$100,000 (other than capital improvements in fiber optic lines under existing
projects and construction projects proposed in the rate case), or any discharge,
waiver, satisfaction, release or relinquishment of any contract rights, liens,
encumbrances, debt or claims, except in individual amounts of less than $10,000
in the ordinary course of business consistent with past practice subject to an
aggregate maximum of $100,000; (iv) settle any claim, action, suit, litigation,
proceeding, arbitration, investigation or controversy of any kind, for any
amount in any single controversy in excess of $25,000, net of any insurance
proceeds, or in any manner which would restrict the operations or business of
the COTC Companies; (v) make any capital expenditure, except in individual
amounts of less than $50,000 incurred in the ordinary course of business
consistent with past practice subject to an aggregate maximum of $200,000 (other
than existing projects to expand fiber optic lines); (vi) enter into any
transaction with a present or former director, officer, employee (other than
routine employment arrangements with non-Seller employees) or stockholder of
COTC Companies or any affiliate of any such person except as specifically
described in Sellers Disclosure Schedule; (vii) incur any indebtedness (other
than refinancing of existing debt) for money borrowed or lease any property or
assets that is not in the ordinary course of business; (viii) lower any current
prices or rates with respect to telephone or other services provided by COTC
Companies except for changes in the ordinary course of business or as otherwise
required by regulatory authorities; or (ix) take any action or fail to take any
action which individually or in the aggregate is likely to have a Material
Adverse Effect; or
(i) agree in writing or otherwise to do any of the foregoing.
5.3 Access and Information.
----------------------
(a) From the Execution Date and until the Closing Date and upon reasonable
notice, Sellers and COTC shall, and shall cause each COTC Subsidiary to, afford
to the Purchaser's officers, employees, accountants, legal counsel and other
representatives of the Purchaser, access, during normal business hours, to all
its properties, books, contracts, commitments and records, excluding any books,
contracts, commitments and records related to the Stock Sales. From the
Execution Date and until the Closing Date, Sellers and COTC shall (and shall
cause each COTC Subsidiary to) furnish promptly (as soon as available or
received by COTC Companies) to the Purchaser (i) a copy of each COTC Report
filed by it or received by it after the Execution Date and prior to the Closing
Date pursuant to the requirements of any applicable Laws promptly after such
documents are available, (ii) a copy of any action, including all minutes, taken
by the board of directors, or any committee thereof, COTC Companies and any
documents or other materials of any kind provided to such boards or committees
promptly after such action, minutes, materials or other documents become
available without further request by the Purchaser, (iii) a copy of each income
tax return filed by each COTC Company for the three (3) most recent years
available, a copy of any correspondence received from the IRS or any other
governmental entity or taxing authority or agency and any other correspondence
relating to Taxes, and any other documents relating to Taxes as the Purchaser
may reasonably request, and (iv) all other information concerning its business,
properties and personnel as the Purchaser may reasonably request.
(b) Unless otherwise required by Law, the parties will hold all information
of the other party or parties obtained as part of this transaction and which is
nonpublic in confidence until such time as such information becomes publicly
available through no wrongful act of either party, and in the event of
termination of this Agreement for any reason each party shall promptly return
all nonpublic documents obtained from any other party, and any copies made of
such documents, to such other party or destroy such documents (including any
resulting work product) and copies; provided that a party may make such
disclosure concerning the transactions contemplated herein as it deems necessary
or appropriate (after consultation with the other parties) to comply with its
obligations under applicable Law.
5.4 Update Disclosure. From and after the Execution Date until the Closing
-----------------
Date, each of the Selling Parties and each of the Purchasing Parties shall
update the other on a regular basis by written notice to the other party to
reflect any matters which have occurred from and after the Execution Date, if
existing on the Execution Date would have been required to be described on
Sellers Disclosure Statement or Purchasers Disclosure Schedule.
5.5 Delivery of Stockholder List. Sellers and COTC shall deliver to the
------------------------------
Purchaser or its designee, from time to time prior to the Closing Date, a true
and complete list setting forth the names and addresses of COTC's stockholders,
their holdings of stock as of the latest practicable date, and such other
stockholder information as the Purchaser may reasonably request.
5.6 Appropriate Action; Consents; Filings. Between the Execution Date and
---------------------------------------
the Closing Date, Selling Parties and Purchasing Parties will use their best
efforts to cause the conditions in Article VII to be satisfied.
5.7 Government Consents. Promptly after the Execution Date, Purchasing
--------------------
Parties and Selling Parties shall fully cooperate with each other and take all
further actions reasonably necessary or appropriate in connection with the
making of all filings with all applicable governmental agencies (including,
without limitation, the PUC and the FCC) so as to obtain all governmental
consents, licenses, permits, waivers, approvals, authorizations, and permits
required in connection with the transactions contemplated by this Agreement.
Such cooperation shall include providing copies of all documents to the
non-filing party and its advisors prior to such filing and, if requested,
accepting all reasonable additions, deletions or changes suggested in connection
therewith. Each of the Purchasing Parties and each of the Selling Parties shall
furnish all information required for any application or other filing to be made
pursuant to the rules and regulations of any applicable Law in connection with
the transactions contemplated by this Agreement. Nothing contained in this
Section 5.7 shall be interpreted as requiring any party to amend or otherwise
change this Agreement or any of the documents attached hereto or require any of
them to diminish their rights or increase their burdens therein. COTC Companies
shall be primarily responsible for preparing and obtaining all PUC and FCC
filings and consents, and shall pay all costs and expenses relating thereto
(including, without limitation, all filing fees, studies and their attorneys
fees, but not the costs and expenses and attorneys fees of Purchasing Parties)
Costs and expenses of COTC Companies in obtaining PUC and FCC consent shall be
permitted expenses not shall reduce the Purchase Price or the Final Purchase
Price.
5.8 Expenses. All Expenses (as defined below) incurred by the parties
--------
hereto shall be borne solely and entirely by the party which has incurred the
same. "Expenses" as used in this Agreement shall include all reasonable
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to the party
and its affiliates) incurred by a party or on its behalf in connection with or
related to the authorization, preparation and execution of this Agreement, the
solicitation of stockholder approvals and all other matters related to the
closing of the transactions contemplated hereby. Except as provided in Section
5.7, the COTC Companies shall not pay or agree to pay in the aggregate in excess
of $275,000 in connection with the consummation of the transactions contemplated
in this Agreement (the payment of which shall be considered to have been made in
the ordinary course of business) except with the prior written consent of the
Purchaser, which consent shall not be unreasonably withheld or delayed.
5.9 Notification of Certain Matters. Selling Parties shall give prompt
---------------------------------
notice to the Purchaser, and the Purchasing Parties shall give prompt notice to
the Selling Parties, of (i) the occurrence or non-occurrence of any event, the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate and (ii) any failure of the Selling Parties or the Purchasing Parties
as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 5.9 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice. If, however, the parties consummate the Stock Sales contemplated herein,
they shall be deemed to have waived any breach of a representation, warranty or
covenant which has been corrected prior to the satisfaction of the conditions
set out in Article VII.
5.10 Environmental Investigation. Within thirty (30) days following the
----------------------------
execution of this Agreement, Sellers Representative and Purchaser shall mutually
select a qualified environmental consultant (at the sole cost and expense of
Purchaser) to conduct, and prepare, a Phase I Environmental Report (or, at
Purchaser's option, an Environmental Site Survey) with respect to COTC Company
properties and operations, which review shall be conducted in accordance with
ASTM standards. Purchaser shall have the right to conduct such further
environmental investigations as it reasonably deems appropriate (which
collectively with the Phase I Environmental Report or Environmental Site Survey
referred to in the preceding sentence are referred to as the "Environmental
Investigation").
5.11 Shareholder Indebtedness. Each Seller agrees to pay or cause to be
-------------------------
paid any and all advances and indebtedness (including interest thereon) owed by
such Seller and any Affiliate of such Seller to COTC Companies on or prior to
the Closing Date.
5.12 Marketable Securities.
---------------------
(a) Sale of Marketable Securities. Prior to the Closing Date, Sellers shall
cause the COTC Companies to sell or otherwise dispose of all of the Marketable
Securities.
(b) Distribution of Excess Proceeds. On or prior to the Closing, COTC may
make one or more distributions to the Sellers of the Common Stock of an amount
not to exceed the Excess Marketable Securities Proceeds Adjustment (defined
below). For purposes of this Agreement, "Excess Marketable Securities Proceeds
Adjustment" means the aggregate amount by which the Marketable Securities
Adjustment exceeds the Dividends Paid Adjustment from time to time. Any
distributions made to the Sellers pursuant to this Section 5.12, shall be
included and made a part of the Adjustment Report.
5.13 Distribution of Miscellaneous Assets. At or prior to the Closing, COTC
------------------------------------
Companies may make a distribution, bonus or other transfer of the following
assets, or proceeds from the sale of such assets, to one or more of the Sellers
or other Persons; provided, however, that such distributions, in the aggregate,
do no result in an aggregate net income Tax liability of COTC Companies in
excess of cash proceeds from such distributed assets that is retained by COTC
Companies to pay such Tax liability (the determination of the amount of the
assets to be retained by COTC shall have been approved by Purchaser prior to any
distribution contemplated hereby, and such approval shall not be unreasonably
withheld or delayed); provided, further, that to the extent any such Tax
liability is less than or greater than such retained assets, such difference
shall result in a reduction or an increase, as the case may be, by the amount of
such difference to the Final Purchase Price by way of a proportionate reduction
to or increase of the amount of cash paid by the Purchaser or the Sellers of
Common Stock, as the case may be, pursuant to Section 1.7(e) (such amount being
referred to as the "Miscellaneous Asset Adjustment"):
(a) All of COTC Companies' investment (including notes and stock) in
FuGasity Corporation existing as of December 31, 2002 (whether held directly or
indirectly through an investment in High Desert Investments, a California
general partnership), including the repayments and proceeds therefrom, less any
additional investment in FuGasity Corporation (whether as debt or equity) made
after December 31, 2002 to the extent such additional investment is not repaid
on or prior to the Closing (collectively, such net amount being referred to as
the "FuGasity Investment"), which are identified in Section 5.13(a) of Sellers
Disclosure Schedule.
(b) The life insurance policies (or the proceeds therefrom) on the lives of
Xxxxxx X. Xxxxx and Xxxxxx X. Xxxxx.
(c) The approximate eighty (80) acre parcel of land in Dorris, California,
as described in Section 2.11(a)-1 of Sellers Disclosure Schedule.
(d) Miscellaneous notes receivable (including repayments and proceeds
therefrom) from current and former employees and others as of December 31, 2002
in the approximate principal amount of $260,645 (which notes are identified in
Section 5.13(d) of Sellers Disclosure Schedule.
(e) If the COTC Company holding the limited partnership interest in Cal.
One Cellular, a California limited partnership, sells, or enters into a binding
contract to sell, such limited partnership on or prior to the Closing Date,
Purchaser shall increase the Purchase Price by Two Hundred Fifty Thousand
Dollars ($250,000.00) and shall pay such additional amount when the proceeds
from such sale are received from the buyer thereof; provided, however, that such
COTC Company shall first obtain the consent of the Purchaser (which consent
shall not be unreasonably withhold or delayed) prior to selling or entering into
a contract to sell such limited partnership interest.
5.14 Vehicles Used By Sellers. On or prior to the Closing Date, COTC shall
------------------------
be permitted to sell the vehicles identified in Section 5.14 of Sellers
Disclosure Schedule to Sellers at fair market value, and for this purpose only,
fair market value will be the approximate midpoint value from Xxxxx Blue Book
(trade-in value) for vehicles in similar condition.
Article VI.
POST-CLOSING COVENANTS OF PURCHASING PARTIES
From and after the Closing Date and for so long as any amount remains owing
to Sellers under the Notes or any Obligation of the Purchasing Parties to any
Seller shall remain unpaid or unsatisfied, unless the Sellers Representative
waives compliance in writing, the Purchasing Parties jointly and severally
covenant and agree to:
6.1 Financial Statements and Regulatory Filings. Deliver to the Sellers
----------------------------------------------
Representative, in form and detail satisfactory to the Sellers Representative:
(a) as soon as available, but not later than ninety (90) days after the end
of each fiscal year, commencing with the first fiscal year ending after the
Closing Date, a copy of the consolidated balance sheet of Cal-Ore Telephone
Company, a California corporation ("Telephone Company") and the consolidated
balance sheet of the COTC Companies, both as at the end of such year and the
related statements of income, shareholders' equity and cash flows for such year
(together with footnote disclosure), setting forth in each case in comparative
form the figures for the previous fiscal year, and accompanied by the
unqualified audit opinion of a certified public accountant, reasonably
acceptable to Sellers ("Independent Auditor"), which report shall state that
such financial statements present fairly the financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with prior
years. Such opinion shall not be qualified or limited because of a restricted or
limited examination by the Independent Auditor of any material portion of the
Telephone Company's records;
(b) as soon as available, but not later than forty-five (45) days after the
end of each fiscal quarter of each fiscal year, commencing with the first fiscal
quarter following the Closing Date, a copy of the unaudited balance sheet of the
Telephone Company as of the end of such calendar quarter and the related
statements of income and shareholders' equity for the period commencing on the
first day and ending on the last day of such quarter; and
(c) as soon as available, but in no event later than fifteen (15) days
after the applicable filing date, the regulatory filings of the COTC Companies
submitted to the PUC and FCC.
6.2 Certificates; Other Information. Upon and during the continuance of an
Event of Default, promptly deliver such additional information regarding the
business, financial or corporate affairs of COTC Companies as the Sellers
Representative may from time to time request.
6.3 Notices. Promptly notify the Sellers Representative:
-------
(a) of the occurrence of any Default and of the occurrence or existence of
any event or circumstance for which it is reasonably foreseeable will become a
Default, in each case after any Purchasing Party knows or has reason to know of
the occurrence thereof;
(b) of any breach or non-performance of, or any default under the
Acquisition Financing;
(c) of any Material Adverse Effect Post-Closing with respect to any change
in COTC Companies' or Purchasing Parties' business condition (financial or
otherwise), operations, properties or prospects, or ability to repay the Notes.
Each notice under this Section 6.3 shall be accompanied by a written
statement by the Purchasing Party setting forth details of the occurrence
referred to therein, and stating what action the Purchasing Party proposes to
take with respect thereto and at what time. Each notice under subsection 6.3(a)
shall describe with particularity any and all clauses or provisions of this
Agreement or other Transaction Documents that have been (or foreseeably will be)
breached or violated.
6.4 Preservation of Corporate Existence, Etc. Cause Purchaser, COTC and the
----------------------------------------
Telephone Company to:
(a) preserve and maintain in full force and effect its corporate existence
and good standing under the laws of its state of incorporation and states where
it conducts business;
(b) preserve and maintain in full force and effect all governmental rights,
privileges, qualifications, permits, licenses and franchises necessary or
desirable in the normal conduct of its business; and
(c) use commercially reasonable efforts, in the ordinary course of
business, to preserve its business organization and goodwill.
6.5 Payment of Obligations. Cause Purchaser to pay, to discharge, and to
fully perform and comply when and as required under the Acquisition Financing.
6.6 Maintenance of Books and Records. Maintain proper books of record and
--------------------------------
account, in which full, true and correct entries in conformity with GAAP
consistently applied shall be made of all financial transactions and matters
involving the assets and business of the COTC Companies. Upon the occurrence and
during the continuance of an Event of Default, permit, and the Purchasing
Parties shall cause the COTC Companies to permit, representatives of the Sellers
to visit and inspect any of their respective properties, to examine their
respective corporate, financial and operating records, and make copies thereof
or abstracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective directors, officers, and independent public
accountants, at such reasonable times during normal business hours and as often
as may be reasonably desired, upon reasonable advance notice to the Purchaser.
6.7 Directorships. Following the Closing Date, and at the option of the
------------------
Sellers, the Purchasing Parties agree to elect the Sellers identified in Section
6.7 of Sellers Disclosure Schedule to the Board of Directors of COTC for so long
as any principal balance remains owing under any of the Notes. In connection
therewith and at the sole cost and expense of COTC, such Sellers shall receive:
(i) during such period, health care benefits generally provided to the full-time
employees of COTC Companies to the extent such Sellers are eligible for and
covered by such health benefits, and (ii) the benefits of and be covered under
(A) any directors and officers liability insurance policy(ies) generally
provided the officers and directors of the Purchasing Parties, and (B) any
indemnification agreement(s) generally provided the officers and directors of
the Purchasing Parties. Purchaser and Sellers will cooperate in amending the
bylaws of COTC so that the authorized number of directors will be such that the
Purchaser will have the ability to appoint no less than a majority of the board.
6.8 SEC Filings. Timely comply in all material respects with the reporting
-----------
and disclosure provisions of the 1933 Act and the 1934 Act, and shall make all
required filings within the prescribed time periods.
6.9 Dividends and Affiliate Transactions. For so long as any amount remains
-----------------------------------
owing by Purchaser to the Sellers under any of the Notes, Purchasing Parties
will not permit: (i) Purchaser to make dividends or other distributions to any
equity owner, (ii) Purchaser to issue any equity securities (or derivatives
thereon) to any Person where such securities or derivatives are not covered by
the Pledge Agreement, and (iii) Purchaser or any COTC Company to transact
business with any Affiliate of Purchasing Parties other than on terms that are
fair and reasonable to the COTC Company, including reasonable intercompany
charges.
Article VII.
CONDITIONS PRECEDENT TO CLOSING
7.1 Conditions to Obligation of Each Party to Effect the Stock Sales. The
----------------------------------------------------------------
respective obligations of each party to effect the transactions contemplated
herein shall be subject to the satisfaction at or prior to the Closing Date of
the following conditions:
(a) No Order. No federal or state governmental or regulatory authority or
other agency or commission, or federal or state court of competent jurisdiction,
shall have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which has the effect of restricting in any
material respect (except as provided in Section 7.1(c)), preventing or
prohibiting consummation of the transactions contemplated by this Agreement.
(b) Reserved.
(c) Governmental Imposed Restrictions. The approvals and consents of the
PUC, the FCC and the Government Consents shall have been obtained and shall be
final and be in full force and effect. The terms and conditions of the approvals
and consents shall be acceptable in all material respects to Sellers and the
Purchaser in the exercise of their reasonable discretion and for this purpose
the Sellers may deem any such approval or consent to be unreasonable if it in
any way restricts or limits the Sellers' ability to retain all of the gain
realized on the sale of the Purchased Stock and the dividends and distributions
allowed by the terms of this Agreement.
(d) No Challenge. There shall not be a pending action, proceeding or
investigation before any court or administrative agency or by a government
agency (i) challenging or seeking damages in connection with, the Stock Sales or
(ii) seeking to restrain, prohibit or limit the exercise of full rights of
ownership or operation by the Purchaser of all or any portion of the business or
assets of COTC Companies, which in either case is reasonably likely to have a
Material Adverse Effect.
7.2 Additional Conditions to Obligations of the Purchaser. The obligations
-----------------------------------------------------
of the Purchaser to effect the purchase and sale are also subject to the
following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Selling Parties in this Agreement shall, without giving effect to
any update to Sellers Disclosure Schedule or notice to the Purchaser under
Section 5.4, be true and correct in all material respects at and as of the
Execution Date and (except to the extent such representations and warranties
speak as of a certain date or period and except as permitted or contemplated by
this Agreement) as of the Closing Date as though made on and as of the Closing
Date.
(b) Agreements and Covenants. The Selling Parties shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by each of them on or prior to
Closing Date.
(c) Consents Obtained. Each of the material consents and approvals
identified in Section 2.5 and Section 2.6 of Sellers Disclosure Schedule must
have been obtained and be in the form and substance reasonably satisfactory to
Purchaser (including without limitation, any terms or conditions that are
materially adverse to the Purchaser).
(d) No Material Adverse Changes. Since the Execution Date, there shall not
have been any change in the financial condition, results of operations or
business of COTC Companies, taken as a whole, that either individually or in the
aggregate would have a Material Adverse Effect.
(e) Opinion of Counsel. The Purchaser shall have received from (i) Xxxxxx
Brand LLP, counsel to Selling Parties ("Sellers' Counsel") an opinion of counsel
in the form and substance as set forth in Exhibit D addressed to Purchaser and
on which Purchaser's lenders preceding the Acquisition Financing shall be
entitled to rely, and dated as of the Closing Date.
(f) Officers Certificate. The Purchaser shall have received a certificate of the
Chief Executive Officer and Chief Financial Officer of COTC with respect to the
conditions set forth in Sections 7.2(a), (b) and (c).
(g) Environmental Review by Acquisition Lender. The Acquisition Lender
shall be reasonably satisfied with the Environmental Investigation.
7.3 Additional Conditions to Obligations of Sellers. The obligation of
Sellers to effect the transactions contemplated herein subject to the following
conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Purchasing Parties in this Agreement shall, without giving
effect to any update to Purchasers Disclosure Schedule or notice to Selling
Parties under Section 5.4, be true and correct in all material respects as at
and as of the Execution Date and (except to the extent such representation and
warranties speak as of a certain date or period) as of the Closing Date, as
though made on and as of the Closing Date.
(b) Agreements and Covenants. The Purchasing Parties shall have performed
or complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by them on or prior to the
Closing Date.
(c) Officers' Certificate. Selling Parties shall have received a
certificate signed on behalf of the Purchasing Parties by the Chief Executive
Officer or President and the Chief Financial Officer of the Purchaser to the
effect that each of the conditions specified above in Section 7.3(a) and (b) is
satisfied in all respects.
(d) Consents Under Agreements. All consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to be
made by the Purchaser for the authorizations, execution and delivery of this
Agreement and the consummation by it of the transactions contemplated hereby
shall have been obtained and made by the Purchaser.
(e) Opinion of Counsel. The Sellers shall have received from Steefel,
Xxxxxx & Xxxxx and from Xxxx Xxxxx, Esq., general counsel to Purchasing Parties,
opinions of counsel in the forms and substance as set forth in Exhibit E and
Exhibit F addressed to Sellers and dated as of the Closing Date.
(f) No Material Adverse Changes. Since the Execution Date, there shall not
have been any change in the financial condition, results of operations or
business of any Purchasing Party taken as a whole, that either individually or
in the aggregate would have a Material Adverse Effect.
Article VIII.
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated as provided below:
-----------
(a) by mutual written consent of the Purchaser and Sellers holding at least
seventy-five percent (75%) of the voting power of the Purchased Stock (the
"Requisite Sellers");
(b) Purchaser may terminate this Agreement by giving written notice to
Sellers Representative at any time prior to the Closing in the event any Selling
Party has breached any material representation, warranty, or covenant contained
in this Agreement in any material respect, Purchaser has notified Sellers
Representative of the breach, and the breach has continued without cure for a
period of thirty (30) days after the notice of breach;
(c) The Sellers Representative may terminate this Agreement by giving
written notice to Purchaser at any time prior to the Closing in the event any
Purchasing Party has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, Sellers Representative has
notified Purchaser of the breach, and the breach has continued without cure for
a period of thirty (30) days after the notice of breach;
(d) by either the Purchaser or the Requisite Sellers if any permanent
injunction preventing the consummation of the purchase and sale shall have
become final and nonappealable;
(e) by either the Purchaser or the Sellers Representative if the Closing
has not occurred (other than through the failure of any party seeking to
terminate this Agreement to comply in all material respects with its obligations
under this Agreement) on or before June 30, 2005;
(f) by either the Purchaser or the Requisite Sellers if the PUC or the FCC
has denied approval of the transactions contemplated herein, and neither the
Purchaser nor COTC has, within thirty (30) days after the date of issuance of
the decision denying approval, filed a petition seeking review of such order as
provided by applicable law;
(g) by Purchaser if any of the conditions in Sections 7.1 and 7.2 has not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of any Purchasing Parties
to comply with their obligations under this Agreement) and Purchaser has not
waived such condition on or before the Closing Date; or
(h) by Sellers Representative, if any of the conditions in Sections 7.1 and
7.3 has not be satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of any
Selling Party to comply with its obligations under this Agreement) and the
Sellers Representative have not waived such condition on or before the Closing
Date.
8.2 Effect of Termination. In the event of the termination of this
-----------------------
Agreement pursuant to Section 8.1, this Agreement shall forthwith become void
and all rights and obligations of any party shall cease except that nothing
herein shall relieve any party from liability for any breach of this Agreement
or any representation, warranty, covenant or agreement contained in this
Agreement or shall restrict either party's rights in the case thereof.
8.3 Waiver. At any time prior to the Closing Date, the parties may (i)
------
extend the time for the performance of any of the obligations or other acts of
the other party, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained
herein. Any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party (in the case of Sellers, by
the Sellers Representative), but such extension or waiver or failure to insist
on strict compliance with an obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
Article IX.
INDEMNIFICATION
9.1 Survival of Representations. All representations and warranties of
----------------------------
Purchasing Parties and Selling Parties contained in this Agreement shall survive
the Closing Date and shall continue for a period of two (2) years after the
Closing Date, at which time such representations and warranties shall expire and
become null and void, except as to any matters with respect to which a bona fide
written claim shall have been made before such date, in which event survival
shall continue (but only with respect to, and to the extent of, such claim);
provided, however, that the representations and warranties set forth in Sections
2.3, 2.4, 2.6, 2.14, 3.1, 3.3, 4.2, and 4.4 shall survive until sixty (60)
calendar days after the expiration of all applicable statutes of limitations
(including all periods of extension, whether automatic or permissive), at which
time they shall expire and become null and void, except as to any matters with
respect to which a bona fide written claim shall have been made before such
date, in which event survival shall continue (but only with respect to, and to
the extent of, such claim).
9.2 Indemnification by Sellers. Subject to the limitations set forth in
---------------------------
this Article IX, each Seller of Common Stock will indemnify and hold harmless
Purchasing Parties and their respective officers, directors, agents and
attorneys, and each person, if any, who controls or may control Purchasing
Parties within the meaning of the Securities Act (hereinafter "Purchaser
Indemnified Persons") from and against any and all losses, costs, damages,
penalties, fines, liabilities and expenses (including without limitation legal
fees and expenses) arising from claims, demands, actions, causes of action,
injunctions, judgments, orders or rulings (collectively, "Damages") incurred or
sustained by Purchaser Indemnified Persons as a result of:
(a) any inaccuracy or breach of, or any claim by a third party alleging
facts that, if true, would mean the Sellers have breached, any representation or
warranty made by the Sellers contained herein; and
(b) a breach by the Selling Parties of any covenant or other agreement
contained herein.
The aggregate indemnification obligation for all Sellers of Common Stock
for all Damages to Purchaser Indemnified Persons resulting from Section 9.2(a)
shall not exceed $2,000,000 and the aggregate indemnification obligation for any
Seller of Common Stock shall not exceed his, her or its proportionate share
(based on the percentage allocation for Common Stock on Schedule A) of such
aggregate limit; provided, however, that the aggregate indemnification liability
for each Seller (including Sellers of Preferred Stock) for Damages resulting
from breaches of representations and warranties contained in Sections 2.3 and
3.3 shall be up to the total Purchase Price received by each respective Seller
(less any amount paid under the $2.0 million cap in the previous clause).
Sellers selling solely Preferred Stock shall have no liability (whether by way
of contribution, indemnity or otherwise) to any other Selling Party or any
Purchasing Party under Section 9.2(a) other than for breaches of the warranties
and representations contained in Sections 2.3 and 3.3.
9.3 Indemnification by Purchaser. Subject to the limitations set forth in
----------------------------
this Article IX, Purchasing Parties will jointly and severally indemnify, defend
and hold harmless Sellers and their respective officers, directors, agents and
attorneys, and each Person, if any, who controls or may control Seller within
the meaning of the Securities Act (hereinafter "Seller Indemnified Persons")
from and against any and all Damages incurred or sustained by Seller Indemnified
Persons as a result of:
(a) any inaccuracy or breach of, or any claim by a third party alleging
facts that, if true, would mean Purchasing Parties have breached, any
representation or warranty by it contained herein; and
(b) a breach by any Purchasing Party of any covenant or other agreement
contained herein.
The aggregate indemnification obligation for all Purchasing Parties for all
Damages to the Seller Indemnified Persons resulting from Section 9.3(a) shall
not exceed $2,000,000; provided, however, that the aggregate indemnification
liability for Damages resulting from breaches of representations and warranties
contained in Article IV shall be up to the total Purchase Price (less any amount
paid under the $2 million cap in the previous clause).
9.4 Indemnification Procedure. Any Person entitled to indemnification under
-------------------------
Sections 9.2 or 9.3 hereof that asserts a claim under Sections 9.2 or 9.3 hereof
is hereinafter referred to as the "Indemnitee," and the party against whom such
claim is asserted under Sections 9.2 or 9.3 hereof is hereinafter referred to as
the "Indemnifying Party."
(a) If an Indemnitee becomes aware of any matter that it believes is
indemnifiable pursuant to this Article IX and such matter involves (i) any claim
made against the Indemnitee by any person or entity other than a Purchasing
Party or a Selling Party or (ii) the commencement of any action, suit,
investigation, arbitration, or similar proceeding against Indemnitee by any
person or entity other than a Purchasing Party or a Selling Party, Indemnitee
will give the Indemnifying Party prompt written notice of such claim or the
commencement of such action, suit, investigation, arbitration, or similar
proceeding. Such notice will (i) provide (with reasonable specificity) the bases
on which indemnification is being asserted, (ii) set forth the actual or
estimated amount of Damages for which indemnification is being asserted, and
(iii) be accompanied by copies of all relevant pleadings, demands, and other
papers served on Indemnitee. If Indemnifying Party's ability to defend against
any such claim, action, suit, investigation, arbitration, or similar proceeding
is irrevocably prejudiced by the failure of Indemnitee to provide prompt written
notice, as provided above, then Indemnifying Party will not be obligated to
indemnify Indemnitee with respect to such prejudiced claim, action, suit,
investigation, arbitration, or similar proceeding to the extent damaged thereby.
(b) Indemnifying Party will have a period of the earlier of (i) thirty (30)
calendar days, or (ii) three (3) days prior to the due date of the earliest
statutory response (after the delivery of each notice required by Section 9.3(a)
hereof) within which to respond to such notice. If Indemnifying Party accepts
full responsibility for the claim described in such notice or does not respond
within such response period, Indemnifying Party will be obligated to compromise
or defend (and will control the defense of) such claim, at its own expense, by
counsel reasonably satisfactory to Indemnitee, and Indemnifying Party will
provide the Indemnitee with such assurances as may be reasonably required by the
Indemnitee to assure that Indemnifying Party will assume, and be responsible
for, the entire liability for such claim, subject to the limitations set forth
in this Article IX. Indemnitee will cooperate reasonably with Indemnifying Party
and counsel for Indemnifying Party in the defense against any such claim, and
the Indemnitee will have the right to participate at its own expense in the
defense of any such claim. If Indemnifying Party responds within such response
period denying or rejecting responsibility for such claim in whole or in part or
fails to promptly provide Indemnitee with such assurances as may be reasonably
required by Indemnitee as provided above, Indemnitee will be free, without
prejudice to any of Indemnitee's rights hereunder, to compromise or settle or
defend (and control the defense of) such claim and to pursue such remedies as
may be available to Indemnitee under applicable law.
(c) Any compromise or settlement of any claim (whether defended by
Indemnitee or by the Indemnifying Party) will require the prior written consent
(which may not be unreasonably withheld or delayed) of Indemnitee and, except as
provided in the last sentence of Section 9.3(b), Indemnifying Party. If,
however, Indemnitee refuses to consent to a bona fide offer of compromise or
settlement that (i) Indemnifying Party desires to accept and (ii) imposes no
obligation or liability on Indemnitee and does not adversely restrict Indemnitee
in its business, Indemnitee may continue to pursue such claim, free of any
participation by Indemnifying Party, at the sole expense of Indemnitee. In such
event, the obligation of Indemnifying Party to Indemnitee will equal the lesser
of (i) the amount of the offer of compromise or settlement that Indemnifying
Party desired to accept, plus the reasonable out-of-pocket expenses (except for
expenses resulting from Indemnitee's participation in any defense controlled by
Indemnifying Party) incurred by Indemnitee before the date the Indemnifying
Party notified Indemnitee of the offer of compromise or settlement, or (ii) the
actual out-of-pocket amount that Indemnitee is obligated to pay as a result of
Indemnitee's continuing to pursue such claim, plus the reasonable out-of-pocket
expenses (except for expenses resulting from Indemnitee's participation in any
defense controlled by Indemnifying Party) incurred by Indemnitee before the date
Indemnifying Party notified Indemnitee of the offer of compromise or settlement,
minus the reasonable out-of-pocket expenses incurred by Indemnifying Party after
such notice date.
(d) If an Indemnitee becomes aware of any matter that it believes is
indemnifiable pursuant to Article IX hereof and such matter involves a claim
made by any Purchasing Party or any Selling Party, Indemnitee will give
Indemnifying Party prompt written notice of such claim. Such notice will (i)
provide (with reasonable specificity) the bases for which indemnification is
being asserted and (ii) set forth the actual or estimated amount of Damages for
which indemnification is being asserted. Indemnifying Party will have a period
of thirty (30) calendar days (after the delivery of each notice required by this
Section 9.4(d)) within which to respond to such notice. If Indemnifying Party
accepts full responsibility for the claim described in such notice or does not
respond within such thirty (30) day period, the actual or estimated amount of
Damages reflected in such notice will be conclusively deemed a liability that
Indemnifying Party owes, and will pay (in cash) upon demand, to Indemnitee. If
Indemnifying Party has timely disputed such claim, as provided above,
Indemnifying Party and Indemnitee agree to proceed in good faith to negotiate a
resolution of such dispute. If all such disputes are not resolved through
negotiations within sixty (60) calendar days thereafter, either Indemnifying
Party or Indemnitee may initiate arbitration to resolve such disputes.
9.5 Limitations on Indemnification Obligations.
------------------------------------------ (a) Neither the Selling Parties nor
Purchasing Parties shall have any liability (for indemnification or otherwise)
with respect to claims under Section 9.2(a) or Section 9.3(a), respectively,
until the total of all Damages with respect to such matters exceeds $250,000 and
then only for the amount by which such Damages exceed $250,000 (the "Basket").
However, this Section 9.5(a) will not apply to matters arising from breaches of
Sections 2.1(c), 2.3, 2.16, 2.22, 3.3, and 4.11, and with regard to such
Sections, the Indemnified Parties shall be entitled to seek compensation for all
Damages without regard to the Basket.
(b) In computing the amount of Damages which are sustained, suffered or
incurred by an Indemnitee, the Indemnifying Party or Parties are to be given the
benefit of (i) insurance proceeds, if any (up to the maximum amount of Damages),
that the Indemnitee shall have the right to receive.
(c) Two Million Dollars ($2,000,000) principal amount of the Notes (from
the Sellers of Common Stock) shall be held by Purchaser as security for Sellers'
indemnification obligations, but the holders of such Notes shall be entitled to
receive all interest and principal on such Notes so long as such holder of the
Notes shall not be in default of his or her indemnification obligations. Such
Notes (or the excess over claimed indemnification) shall be delivered to the
holders of such Notes if no claim for indemnification has been made (or if made
has been resolved) on the second anniversary of the Closing Date. Any Seller
receiving Notes may pay for his, hers or its indemnification obligation by
surrendering Notes issued to him, her or it, which will be valued for payment
purposes at the principal amount thereof, plus accrued but unpaid interest. If
the Damages are less than the Notes, the outstanding principal balance of Notes
shall remain outstanding as to that portion thereof exceeding the Damages.
Purchaser will give such Seller notice of the adjusted outstanding principal
amount of such Notes.
(d) Notwithstanding anything to the contrary in this Agreement, if the
Closing occurs, no claim for indemnification may be asserted by any Purchasing
Party with respect to any matter discovered by or known to any Purchasing Party
on or before the Closing Date.
(e) For purposes of this Article IX, if no agreement can be reached after
good faith negotiation between the parties, either Purchaser, on behalf of
Purchasing Parties, or Sellers Representative, on behalf of Selling Parties,
may, by written notice to the other, demand arbitration of the matter unless the
amount of the Damages is at issue in pending litigation with a third party, in
which event arbitration shall not be commenced until such amount is ascertained
or both parties agree to arbitration; and in either such event the matter shall
be settled by arbitration conducted by one arbitrator. Purchaser and Sellers
Representative shall agree on the arbitrator; provided, however, that if
Purchaser and Sellers Representative cannot agree on the arbitrator, either
Purchaser or Sellers Representative can request that the American Arbitration
Association select the arbitrator. Any such arbitration shall be held in
Sacramento, California, in each case under the commercial rules then in effect
of the American Arbitration Association. The arbitrator shall set a limited time
period and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the sole
judgment of the arbitrator, to discover relevant information from the opposing
parties about the subject matter of the dispute. The arbitrator shall rule upon
motions to compel or limit discovery and shall have the authority to impose
sanctions, including attorneys' fees and costs, to the same extent as a court of
law or equity, should the arbitrator determine that discovery was sought without
substantial justification or that discovery was refused or objected to without
substantial justification. The decision of the arbitrator shall be written,
shall be in accordance with applicable law and with this Agreement, and shall be
supported by written findings of fact and conclusions of law which shall set
forth the basis for the decision of the arbitrator. The decision of the
arbitrator as to the validity and amount of any claim disputed by the parties
hereto shall be binding and conclusive upon the parties to this Agreement, and
notwithstanding anything in Article IX hereof, the parties shall be required to
act in accordance with such decision. Judgment upon any award rendered by the
arbitrator may be entered in any court having jurisdiction.
(f) For purposes of this Section 9.5(f), in any arbitration hereunder in
which any disputed claim or the amount is at issue, the party seeking
indemnification shall be deemed to be the non-prevailing party unless the
arbitrator awards the party seeking indemnification more than one-half (1/2) of
the amount in dispute, in which case the Person against whom indemnification is
sought shall be deemed to be the non-prevailing party. The non-prevailing party
to an arbitration shall pay its own expenses, the fees of the arbitrator and the
expenses, including attorneys' fees and costs, reasonably incurred by the other
party to the arbitration.
9.6 Other Indemnification Provisions. The parties acknowledge and agree
----------------------------------
that, except as provided in Section 10.13, the foregoing indemnification
provisions in this Article IX shall be the exclusive remedy with respect to the
warranties, representations and covenants contained in this Agreement.
Article X.
GENERAL PROVISIONS
10.1 Notices. All Notices and other communications given or made pursuant
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hereto shall be in writing and shall be deemed given if delivered personally,
mailed by register or certified mail (postage prepaid, return receipt requested)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice) and shall be effective upon receipt:
(a) If to the Purchasing Parties:
Brighton Communications Corporation
000 Xxxxxxxx Xxxxx Xxxxxx
Xxx, Xxx Xxxx 00000
Copy to (which shall not constitute notice):
Steefel, Xxxxxx & Xxxxx
Xxx Xxxxxxxxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Attn: Xxxx Xxxxxxxx, Esq.
(b) If to Sellers:
Xxxxxx X. Xxxxx, Sellers Representative
X.X. Xxx 000
Xxxxxx, XX 00000
Copy to (which shall not constitute notice):
Xxxxxx Brand LLP
000 Xxxxxxx Xxxx, 00xx Xxxxx
Xxxxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx X. Xx Xxxxxxx, Esq.
(c) If to COTC:
California-Oregon Telecommunications Company
X.X. Xxx 000
Xxxxxx, Xxxxxxxxxx 00000
Copy to (which shall not constitute notice):
Xxxxxx Brand LLP
000 Xxxxxxx Xxxx, 00xx Xxxxx
Xxxxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx X. Xx Xxxxxxx, Esq.
10.2 Headings. The headings contained in this Agreement are for reference
--------
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
10.3 Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
10.4 Entire Agreement. This Agreement constitutes the entire agreement of
----------------
the parties and supersedes all prior agreements and undertakings, both written
and oral, between the parties, or any of them, with respect to the subject
matter hereof.
10.5 Assignment. This Agreement shall not be transferred or assigned by
----------
operation of law or otherwise without the prior written consent of the other
parties.
10.6 Parties in Interest. This Agreement shall be binding upon and inure
-------------------
solely to the benefit of each party and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other person any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement.
10.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts, and by the different parties in separate counterparts, each of
which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
10.8 Amendment/Waiver. This Agreement may not be amended except by an
----------------
instrument in writing signed by the parties hereto. No provision or obligation
in this Agreement may be waived except by an instrument in writing signed by the
waiving party(s). Any instrument amending this Agreement or waiving any
provision or obligation herein shall be deemed to have been taken on behalf of
and signed by all Sellers if the instrument in writing is signed by the Sellers
Representative.
10.9 Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the domestic laws of the State of California without giving
effect to any choice or conflict of law provision or rule (whether of the State
of California or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of California. The parties hereto
agree that any action brought in a court of law hereunder will be brought in
federal court, and not in state court, unless no federal court has subject
matter jurisdiction over such proceeding.
10.10 Waiver of Jury Trial.
(a) EACH PARTY ACKNOWLEDGES AND AGREES THAT ALL DISPUTES BETWEEN THE
PARTIES TO THIS AGREEMENT ARE TO BE SETTLED BY ARBITRATION AS SET FORTH IN
SECTION 9.5(e). HOWEVER, EACH PARTY FURTHER ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT AND WHICH FOR ANY REASON IS NOT
SETTLED BY ARBITRATION IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES. AS
A RESULT, EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT HE,
SHE OR IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
(b) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT
OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, (ii) HE, SHE OR IT UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF SUCH WAIVER, (iii) HE, SHE OR IT MAKES SUCH WAIVER VOLUNTARILY,
AND (iv) HE, SHE OR IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVER AND CERTIFICATIONS IN THIS SECTION 10.10.
10.11 Remedies Cumulative. Except as provided in Article IX or as otherwise
-------------------
provided herein, any and all remedies herein expressly conferred upon a party
will be deemed cumulative with and not exclusive of any other remedy conferred
hereby, or by law or equity upon such party, and the exercise by a party of any
one remedy will not preclude the exercise of any other remedy.
10.12 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
--------------------------------------
identified in this Agreement are incorporated herein by reference and made a
part hereof.
10.13 Specific Performance. Each of the parties acknowledges and agrees
---------------------
that the other parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, notwithstanding the arbitration
provisions of Section 9.5(e), each of the parties agrees that the other parties
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof. The parties agree that such injunctive relief may
only be sought in a state or federal court located in Sacramento, California and
that such court shall have jurisdiction over the parties and the matter thereof.
10.14 Presentment, Demand and Notice. Sellers shall be under no duty or
-------------------------------
obligation to make or give any presentment, demands for performances, notices or
nonperformance, protests, notices of protest or notices of dishonor in
connection with any Obligation or Indebtedness owing by any Purchasing Party to
any Seller under the Notes, the Guaranty Agreement or the Pledge Agreement.
[Signatures Follow Immediately]
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the Execution Date by their respective officers thereunto duly authorized.
COTC
CALIFORNIA-OREGON TELECOMMUNICATIONS
COMPANY
By: /s/Xxxxxx X. Xxxxx
Name: Xxxxxx X. Xxxxx
Title: President
PURCHASER
XXXXX TELEPHONE CORPORATION XI
By: /s/Xxxxxx X. Xxxxx
Name: Xxxxxx X. Xxxxx
Title: President
COMPANY
BRIGHTON COMMUNICATIONS CORPORATION
By: /s/Xxxxxx X. Xxxxx
Name: Xxxxxx X. Xxxxx
Title: President
PARENT
XXXXX INTERACTIVE CORPORATION
By: /s/Xxxxxx X. Xxxxx
Name: Xxxxxx X. Xxxxx
Title: Chief Financial Officer
SELLERS:
/s/E. Xxx Xxxxxx
/s/Xxxxx X. Xxxxxx
Xxxxx X. Xxxxxx, as Co-Trustee of the Xxxx
Xxx Xxxxxx and Xxxxx X. Xxxxxx
Trust of 1977, Restated March 8, 2000
/s/Xxxxxx X. Xxxxx
Xxxxxx X. Xxxxx
/s/Xxx X. Xxxxx
/s/Xxxxx X. Xxxxx
Xxxxx X. Xxxxx, as Co-Trustee of the Xxxxx
Family Revocable Trust dated
October 3, 2001
/s/Xxxxx X. Xxxxx
Xxxxx X. Xxxxx, Co-Trustee of the Xxxxx X. Xxxxx
and Xxxxx X. Xxxxx 2002 Revocable Trust
/s/Xxxxx X. Xxxxx
Xxxxx X. Xxxxx, Co-Trustee of the Xxxxx X. Xxxxx
and Xxxxx X. Xxxxx 2002 Revocable Trust
/s/Xxxxxx X. Xxxxx
Xxxxxx X. Xxxxx, as Co-Trustee of the Xxxxx
Family Revocable Trust U/A dated
March 2, 1999
/s/Xxxxxx X. Xxxxx
Xxxxxx Xxxxx, as Co-Trustee of the Xxxxx Family
Revocable
Trust U/A dated March 2, 1999
TABLE OF CONTENTS
Page
Article I. THE STOCK SALES.............................................1
1.1 Sale and Purchase...........................................1
1.2 Purchase Price..............................................1
1.3 Form of Purchase Price......................................2
1.4 Payment of the Purchase Price...............................2
1.5 Closing.....................................................2
1.6 Transactions at the Closing Date............................2
1.7 Post-Closing Adjustments....................................3
1.8 Sellers Representative......................................5
Article II. REPRESENTATIONS AND WARRANTIES CONCERNING COTC COMPANIES....6
2.1 Organization and Qualification; Subsidiaries................6
2.2 Articles of Incorporation and Bylaws........................7
2.3 Capitalization..............................................7
2.4 Authority...................................................8
2.5 No Conflict; Required Filings and Consents..................8
2.6 Compliance; Permits.........................................8
2.7 Reports; Financial Statements...............................9
2.8 Absence of Certain Changes or Events........................10
2.9 Absence of Litigation.......................................10
2.10 Employee Benefit Plans......................................10
2.11 Title to Property...........................................12
2.12 Environmental Matters.......................................12
2.13 Absence of Agreements.......................................14
2.14 Taxes.......................................................14
2.15 Insurance...................................................16
2.16 Broker/Expenses.............................................16
2.17 Material Adverse Effect.....................................16
2.18 Material Contracts/Licenses.................................16
2.19 Intangible Property.........................................17
2.20 State Takeover Statutes; Absence of Supermajority Provision.17
2.21 Easements; Rights of Way....................................17
2.22 Transactions with Affiliates................................17
2.23 Disclosure..................................................17
Article III. SELLERS' REPRESENTATIONS AND WARRANTIES....................18
3.1 Authority...................................................18
3.2 No Conflict; Required Filings and Consents..................18
3.3 Title to Stock..............................................19
3.4 Investment Purpose..........................................19
3.5 Accredited Investor Status..................................19
3.6 Reliance on Exemptions......................................19
3.7 Information.................................................19
3.8 No Governmental Review......................................19
3.9 Transfer or Resale..........................................19
3.10 Legends.....................................................20
Article IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASING PARTIES....20
4.1 Organization and Qualification..............................20
4.2 Authority...................................................20
4.3 No Conflict; Required Filings and Consents..................20
4.4 Compliance; Permits.........................................21
4.5 Absence of Certain Changes or Events........................21
4.6 Absence of Litigation.......................................21
4.7 Investment Purpose..........................................22
4.8 Accredited Investor Status..................................22
4.9 Information.................................................22
4.10 SEC Filings.................................................22
4.11 Broker/Expenses.............................................22
4.12 Employees...................................................22
4.13 Disclosure..................................................22
Article V. PRE-CLOSING COVENANTS.......................................23
5.1 Affirmative Covenants of Selling Parties....................23
5.2 Negative Covenants of Selling Parties.......................24
5.3 Access and Information......................................25
5.4 Update Disclosure...........................................26
5.5 Delivery of Stockholder List................................26
5.6 Appropriate Action; Consents; Filings.......................26
5.7 Government Consents.........................................26
5.8 Expenses....................................................27
5.9 Notification of Certain Matters.............................27
5.10 Environmental Investigation.................................27
5.11 Shareholder Indebtedness....................................28
5.12 Marketable Securities.......................................28
5.13 Distribution of Miscellaneous Assets........................28
5.14 Vehicles Used By Sellers....................................29
Article VI. POST-CLOSING COVENANTS OF PURCHASING PARTIES................29
6.1 Financial Statements and Regulatory Filings.................29
6.2 Certificates; Other Information.............................30
6.3 Notices.....................................................30
6.4 Preservation of Corporate Existence, Etc....................30
6.5 Payment of Obligations......................................31
6.6 Maintenance of Books and Records............................31
6.7 Directorships...............................................31
6.8 SEC Filings.................................................31
6.9 Dividends and Affiliate Transactions........................31
Article VII. CONDITIONS PRECEDENT TO CLOSING.............................31
7.1 Conditions to Obligation of Each Party to Effect the Stock
Sales..............................31
7.2 Additional Conditions to Obligations of the Purchaser.......32
7.3 Additional Conditions to Obligations of Sellers.............33
Article VIII. TERMINATION, AMENDMENT AND WAIVER...........................34
8.1 Termination.................................................34
8.2 Effect of Termination.......................................35
8.3 Waiver......................................................35
Article IX. INDEMNIFICATION.............................................35
9.1 Survival of Representations.................................35
9.2 Indemnification by Sellers..................................35
9.3 Indemnification by Purchaser................................36
9.4 Indemnification Procedure...................................36
9.5 Limitations on Indemnification Obligations..................38
9.6 Other Indemnification Provisions............................39
Article X. GENERAL PROVISIONS..........................................39
10.1 Notices.....................................................39
10.2 Headings....................................................40
10.3 Severability................................................40
10.4 Entire Agreement............................................41
10.5 Assignment..................................................41
10.6 Parties in Interest.........................................41
10.7 Counterparts................................................41
10.8 Amendment/Waiver............................................41
10.9 Governing Law...............................................41
10.10 Waiver of Jury Trial........................................41
10.11 Remedies Cumulative.........................................42
10.12 Incorporation of Exhibits and Schedules.....................42
10.13 Specific Performance........................................42
10.14 Presentment, Demand and Notice..............................42
EXHIBITS:
Exhibit A - Note
Exhibit B - Pledge Agreement
Exhibit C - Guaranty Agreement
Exhibit D - Opinion of Sellers' Counsel
Exhibit E - Opinion of Steefel, Xxxxxx & Xxxxx
Exhibit F - Opinion of Xxxx Xxxxx
SCHEDULES:
Schedule A - List of Sellers and Allocation of Purchase Price
Schedule B - Definitions
Sellers Disclosure Schedule
Purchasers Disclosure Schedule
SCHEDULE B
ADDITIONAL DEFINITIONS
For purposes of this Agreement, the term:
(a) "Affiliate" means a person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person; including, without limitation, any partnership
or joint venture in which any person (either alone, or though or together with
any other subsidiary) has, directly or indirectly, an interest of 5% or more.
(b) "Business Day" means any day that is not a Saturday, Sunday or legal
holiday on which federally-chartered banks are required or authorized to be
closed.
(c) "Default" means any event of default or any event or circumstance
which, with the giving of notice, the lapse of time, or both, would (if not
cured or otherwise remedied during such time) constitute an Event of Default.
(d) "Dividends Paid Adjustment" means an amount equal to all
dividends and distributions made by COTC to its stockholders during period
beginning on January 1, 2003 and continuing to the Closing that are not included
in the Marketable Securities Adjustment, the Excess Marketable Securities
Proceeds Adjustment or the Miscellaneous Asset Adjustment.
(e) "Event of Default" means, with respect to this Agreement, any of the
events or circumstances specified as such in the Notes, and any material breach
of this Agreement by any Purchasing Party that is not cured within 30 Business
Days thereof.
(f) "Final Purchase Price" means the Purchase Price adjusted for: (i)the
Marketable Securities Adjustment, (ii) the Excess Marketable Securities Proceeds
Adjustment, (iii) the Dividends Paid Adjustment, and (iv) the Miscellaneous
Asset Adjustment.
(g) "Indebtedness" of an person means the aggregate amount of all (i)
indebtedness for money borrowed from others, redemption obligations in respect
of mandatorily redeemable preferred stock, capital lease obligations, dividends
payable to its stockholders, and purchase money indebtedness of such person,
(ii) indebtedness of the type described in clause (i) above guaranteed, directly
or indirectly, in any manner by such person, or in effect guaranteed, directly
or indirectly, in any manner by such person through an agreement, contingent or
otherwise, to supply funds to, or in any other manner to invest in, the debtor,
or to purchase indebtedness, or to purchase and pay for property if not
delivered or to pay for services if not performed, primarily for the purpose of
enabling the debtor to make payment of the indebtedness or to assure the owners
of the indebtedness against loss, but excluding endorsements of checks and other
instruments in the ordinary course, (iii) indebtedness of the type described in
clause (i) above secured by any lien upon property owned by such person, even
though such person has not in any manner become liable for the payment of such
indebtedness and (iv) interest expense accrued but unpaid, and all prepayment
premiums, on or relating to any such indebtedness.
(h) "Lien" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or other) or preferential arrangement of any kind or nature
whatsoever in respect of any property (including those created by, arising under
or evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease, any financing lease having
substantially the same economic effect as any of the foregoing, or the filing of
any financing statement naming the owner of the asset to which such lien relates
as debtor, under the UCC or any comparable law) and any contingent or other
agreement to provide any of the foregoing, but not including the interest of a
lessor under an operating lease if such lease is treated as an operating lease
both under GAAP and under the Code for income tax purposes.
(i) "Marketable Securities" means all of the direct investments in publicly
traded securities, mutual funds and brokerage accounts of the COTC Companies in
the total fair market value of $3,286,834 as of December 31, 2002, which written
list of securities is set forth in Section B(i) of Sellers Disclosure Schedule.
(j) "Marketable Securities Adjustment" means (i) the difference between (A)
the Marketable Securities Valuation as of the Closing Date, and (B) the
Marketable Securities Valuation as of December 31, 2002, (ii) plus (A) the net
proceeds received from the sale or exchange of Marketable Securities after
December 31, 2002, minus (B) the cost basis of purchases of additional
Marketable Securities after December 31, 2002, (iii) net of the aggregate tax
affect of the sale, disposition or change in value of the Marketable Securities
from December 31, 2002 to the Closing Date. For purposes of determining the
aggregate tax affect, any tax benefit realized by COTC Companies from the sale
or other disposition of the Miscellaneous Assets shall be offset (without
duplication) against any tax benefit/detriment resulting from the sale,
exchange, disposition or change in value of the Marketable Securities.
(k) "Marketable Securities Valuation" means the aggregate fair market value
of the Marketable Securities as of the Closing Date.
(l) "Material Adverse Effect" means any effect or change that would be
materially adverse to the business, assets, condition (financial or otherwise),
operating results, operations, or business prospects of COTC Companies on the
one hand, or Purchasing Parties on the other hand taken as a whole, or on the
ability of any Party to consummate timely the transactions contemplated hereby.
(m) "Material Adverse Effect Post-Closing" means any effect or change that
would be materially adverse to the business, assets, condition (financial or
otherwise), operating results, operations, or business prospects of COTC
Companies, taken as a whole, or Purchasing Parties, taken as a whole, or on the
ability of Purchasing Parties to timely pay all amounts owing on the Notes in
accordance with their term, (regardless of whether or not such adverse effect or
change can be or has been cured at any time or whether Sellers have knowledge of
such effect or change on the date hereof), including any adverse change, event,
development, or effect arising from or relating to (a) general business or
economic conditions, including such conditions related to the business of COTC
Companies or Purchasing Parties, (b) national or international political or
social conditions, including the engagement by the United States in hostilities,
whether or not pursuant to the declaration of a national emergency or war, or
the occurrence of any military or terrorist attack upon the United States, (c)
financial, banking, or securities markets, (d) changes in United States
generally accepted accounting principles, (e) changes in law, rules,
regulations, orders, or other binding directives issued by any governmental
entity, and (f) the taking of any action contemplated by this Agreement and the
other agreements contemplated hereby.
(n) "Obligation" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Transaction Documents owing by any
Purchasing Party to any Seller, whether direct or indirect (including those
acquired by assignment), absolute or contingent, due or to become due, now
existing or hereafter arising.
(o) "Permitted Investment" means investments issued or fully guaranteed as
to principal and interest by the United States (or any money market mutual fund
which invests solely in such investments) or certificates of deposits or
accounts fully insured by the Federal Deposit Insurance Corporation.
(p) "Person" means an individual, limited liability company, corporation,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in Section 13(d) of the 1934 Act).
(q) "Subsidiary" or "subsidiaries" of any Person means any corporation,
partnership, joint venture or other legal entity of which any Person (either
alone or through or together with any other subsidiary), owns, directly or
indirectly, 50% or more of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation or other legal entity.
(r) "Transaction Documents" means this Agreement, the Exhibits and
Schedules to this Agreement, and all other documents delivered in connection
with the transactions contemplated by this Agreement.
TERMS DEFINED IN THE AGREEMENT
The following are terms defined within this Agreement:
1. "1933 Act" has the meaning set forth in Section 3.4.
2. "1934 Act" has the meaning set forth in Section 4.10(b).
3. "Acquisition Financing" has the meaning set forth in Section
1.6(a)(iii).
4. "Acquisition Lender" has the meaning set forth in Section 1.6(a)(iii).
5. "Adjustment Report" has the meaning set forth in Section 1.7(a).
6. "Agreement" has the meaning set forth in the Recital Section hereof.
7. "Arbiter" has the meaning set forth in Section 1.7(c).
8. "Balance Sheet" has the meaning set forth in Section 2.7(b).
9. "Basket" has the meaning set forth in Section 9.5(a).
10. "Broker" has the meaning set forth in Section 5.13(e)(ii).
11. "Buyer Indemnified Persons" has the meaning set forth in Section 9.2.
12. "Cal One Excess Proceeds" has the meaning set forth in Section
5.13(e)(i).
13. "Cal One Interest" has the meaning set forth in Section 5.13(e)(i).
14. "Cash Portion" has the meaning set forth in Section 1.3.
15. "Closing" has the meaning set forth in Section 1.5.
16. "Closing Date" has the meaning set forth in Section 1.5.
17. "Code" has the meaning set forth in Section 2.10(b).
18. "Common Stock" has the meaning set forth in the Recital Section hereof.
19. "Company" has the meaning set forth in the Recital Section hereof.
20. "Damages" has the meaning set forth in Section 9.2.
21. "Environmental Claims" for purposes of Section 2.12 has the meaning set
forth in Section 2.12(b).
22. "Environmental Investigation" has the meaning set forth in Section
5.10.
23. "Environmental Law" for purposes of Section 2.12 has the meaning set
forth in Section 2.12(b).
24. "Environmental Permits" for purposes of Section 2.12 has the meaning
set forth in Section 2.12(b).
25. "ERISA" has the meaning set forth in Section 2.10(a).
26. "Excess Marketable Securities Proceeds Adjustment" has the meaning set
for in Section 5.11(b).
27. "Execution Date" has the meaning set forth in the Recital Section
hereof.
28. "Expenses" has the meaning set forth in Section 5.8.
29. "FCC" has the meaning set forth in Section 2.5(b).
30. "Financial Statements" has the meaning set forth in Section 2.7(b).
31. "FuGasity Investment" has the meaning set forth in Section 5.13(a).
32. "GAAP" has the meaning set forth in Section 2.7(b).
33. "Government Consents" has the meaning set forth in Section 2.5(b).
34. "Guaranty Agreement" has the meaning set forth in Section 1.3.
35. "Hazardous Materials" has the meaning set forth in Section 2.12(b).
36. Reserved.
37. "Indemnifying Party" has the meaning set forth in Section 9.4.
38. "Indemnitee" has the meaning set forth in Section 9.4.
39. "Independent Auditor" has the meaning set forth in Section 6.1(a).
40. "Intellectual Property" has the meaning set forth in Section 2.18(a).
41. "IRS" has the meaning set forth in Section 2.10(a).
42. "Laws" has the meaning set forth in Section 2.5(a).
43. "Losing Party" has the meaning set forth in Section 1.7(d).
44. "Material Contract" has the meaning set forth in Section 2.18(a).
45. "Miscellaneous Asset Adjustment" has the meaning set forth in Section
5.13.
46. "Net Proceeds" has the meaning set forth in Section 5.13(e)(i).
47. "Note Portion" has the meaning set forth in Section 1.3.
48. "Notes" has the meaning set forth in Section 1.3.
49. "Objection Notice" has the meaning set forth in Section 1.7(b).
50. "Organizational Documents" has the meaning set forth in Section 2.2."
51. "Parent" has the meaning set forth in the Recital Section hereof.
52. "Parent SEC Documents" has the meaning set forth in Section 4.10(a).
53. "Plans" has the meaning set forth in Section 2.10(a).
54. "Pledge Agreement" has the meaning set forth in Section 1.3.
55. "Preferred Stock" has the meaning set forth in the Recital Section
hereof.
56. "Prevailing Party" has the meaning set forth in Section 1.7(d).
57. "PUC" has the meaning set forth in Section 2.5(b).
58. "Purchase Price" has the meaning set forth in Section 1.2.
59. "Purchased Stock" has the meaning set forth in the Recital Section
hereof.
60. "Purchaser" has the meaning set forth in the Recital Section hereof.
61. "Purchaser Disclosure Schedule" has the meaning set forth in the
preamble of Article IV.
62. "Purchasing Parties" has the meaning set forth in the Recital Section
hereof.
63. "RCRA" has the meaning set forth in Section 2.12(b).
64. "Release" for purposes of Section 2.12 has the meaning set forth in
Section 2.12(b).
65. "Requisite Sellers" has the meaning set forth in Section 8.1(a).
66. "SEC" has the meaning set forth in Section 4.10(a).
67. "Section 5.1(h) Financial Statements" has the meaning set forth in
Section 2.7(b).
68. "Seller" has the meaning set forth in the Recital Section hereof.
69. "Sellers" has the meaning set forth in the Recital Section hereof.
70. "Sellers' Counsel" has the meaning set forth in Section 7.2(e).
71. "Sellers Disclosure Schedule" has the meaning set forth in the preamble
of Article II.
72. "Sellers Representative" has the meaning set forth in Section 1.8.
73. "Seller Indemnified Persons" has the meaning set forth in Section 9.3.
74. "Selling Parties" has the meaning set forth in the Recital Section
hereof.
75. "Stock Sales" has the meaning set forth in Section 1.1.
76. "Subordination Agreement" has the meaning set forth in Section
1.6(a)(iii).
77. "COTC" has the meaning set forth in the Recital Section hereof.
78. "COTC Company" and "COTC Companies" have the meanings set forth in the
Recital Section hereof.
79. "COTC Reports" has the meaning set forth in Section 2.7(a).
80. "COTC Subsidiary" and "COTC Subsidiaries" have the meaning set forth in
Section 2.1(a).
81. "Tax" has the meaning set forth in Section 2.14(a).
82. "Tax Returns" has the meaning set forth in Section 2.14(a).
83. "Taxes" has the meaning set forth in Section 2.14(a).
84. "Telephone Company" has the meaning set forth in Section 6.1(a).
85. "Title IV Plan" has the meaning set forth in Section 2.10(b).
