THE MERGER
The Companies
Consolidated
Consolidated, a Delaware holding company, together with its operating subsidiaries, is based in Mattoon, Illinois and is a leading business and
broadband communications provider throughout its 11-state service area. Consolidated was founded in 1894 as the Mattoon Telephone Company by the great-grandfather of one of the members of the
Consolidated Board, Richard A. Lumpkin. After several acquisitions, the Mattoon Telephone Company was incorporated as the Illinois Consolidated Telephone Company ("ICTC") on April 10, 1924.
Consolidated was incorporated under the laws of Delaware in 2002, and, through its predecessors, Consolidated has provided telecommunications services for more than a century. Through strategic
acquisitions over the last decade, Consolidated has grown its business, diversified its revenue and cash flow streams and created a strong platform for future growth. Consolidated's strategic approach
in evaluating potential transactions include analysis of the market, the quality of the network, Consolidated's ability to integrate the acquired company efficiently, the potential for creating
significant operating synergies and a positive cash flow at the inception of each acquisition. The operating synergies are created through the use of consistent platforms, convergence of processes and
functional management of the combined entities. Consolidated measures its synergies during the first two years following an acquisition. For example, the acquisition of Consolidated's Texas properties
in 2004 tripled the size of Consolidated's business and gave Consolidated the requisite scale to make system and platform decisions that would facilitate future acquisitions. For the acquisition of
Consolidated's Pennsylvania properties in 2007, Consolidated achieved synergies in excess of $12.0 million in annualized savings, which at the time, represented about 20% of its operating
expense. For Consolidated's acquisition of SureWest Communications in 2012, Consolidated achieved synergies in excess of 10% more than the originally projected amount of $25.0 million. For
Consolidated's acquisition of Enventis Corporation in October 2014, Consolidated achieved annual operating synergies of approximately $17.0 million, which exceeded the original estimate in
excess of 20%. Consolidated has positioned its business to provide services in both rural and suburban markets with service territories spanning the country.
Consolidated
leverages its advanced fiber optic network and multiple data centers to provide reliable, high-quality communication solutions including: high-speed internet, digital TV,
data, phone, managed services, a comprehensive suite of cloud services and wireless backhaul. Consolidated is dedicated to turning technology into solutions, connecting people and enriching how its
customers work and live.
FairPoint
FairPoint, a Delaware corporation, provides advanced data, voice and video technologies to single and multi-site businesses, public and private
institutions, consumers, wireless companies and wholesale re-sellers in 17 states. Leveraging an owned, fiber-based Ethernet network—with more than 21,000 route miles of fiber, including
approximately 17,000 route miles of fiber in northern New England—FairPoint has the network coverage, scalable bandwidth and transport capacity to support enhanced applications, including
the next
generation of mobile and cloud-based communications, such as small cell wireless backhaul technology, voice over IP, data center colocation services, managed services and disaster recovery.
Falcon Merger Sub, Inc.
Merger Sub is a Delaware corporation and a wholly-owned subsidiary of Consolidated. It was incorporated on December 1, 2016 solely for
the purpose of effecting the Merger with FairPoint, pursuant to the Merger Agreement.
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Background of the Merger
Early in 2015, Paul Sunu, President and Chief Executive Officer of FairPoint, engaged in discussions with representatives of a number of
industry players, including Consolidated. These discussions related to the possibility of pursuing various transactions that could be transformative for FairPoint, including acquisitions and joint
ventures. The parties expressed varying levels of interest, but no party was prepared to pursue formal discussions at that time.
On
May 13, 2015, Mr. Sunu attended a dinner meeting with representatives of another industry player ("Party [A]"), along with FairPoint Board member
Michael Robinson, to discuss a potential transaction. The representatives conveyed that they would not be in a position to consider any transaction in the near term.
On
May 21, 2015, Mr. Sunu attended a dinner meeting with Bob Currey, Executive Chairman, and Bob Udell, President and Chief Executive Officer of Consolidated, in Chicago,
Illinois. Mr. Currey and Mr. Udell indicated that they would be interested in considering a transaction. Mr. Currey and Mr. Udell also noted that if a transaction were to
move forward, the consideration would likely consist mostly of stock, with some cash consideration.
On
May 26, 2015, Mr. Sunu met with a representative of another industry player ("Party [B]"), in New York, New York. The representative indicated a
certain level of interest in considering a transaction.
At
a meeting held on May 27, 2015, the FairPoint Board determined that it would be in the best interest of FairPoint and its stockholders to explore transformative transactions
for the company (sale or purchase) by working with an advisor. The FairPoint Board selected Evercore to work with management to review strategic alternatives.
FairPoint's
regular outside counsel Paul Hastings LLP ("Paul Hastings") was asked to assist in this process, including by advising the FairPoint Board on matters such as the
FairPoint Board's fiduciary duty obligations with respect to potential transactions.
On
June 9, 2015, Mr. Sunu had a telephone conversation with Mr. Currey where Mr. Currey guided Mr. Sunu to work directly with Mr. Udell. On
June 12, 2015, the FairPoint Board (except Mr. Gingold and Mr. Mahoney) met telephonically for an update regarding the various strategic transaction discussions. Members of
FairPoint's management team were also in attendance. On June 19, 2015, Mr. Sunu met with a representative of Party [B], who concluded there could be value to
discussing a potential transaction and indicated that Party [B] would be willing to engage investment bankers to assist in any discussions.
On
June 20, 2015, Mr. Sunu and Mr. Udell met and agreed to pursue further discussions to explore the opportunity.
On
June 23, 2015, the FairPoint Board, except Mr. Austin, met telephonically for an update regarding the various strategic transaction discussions. Members of FairPoint's
management team and representatives of Evercore were also in attendance. Representatives of Evercore provided an updated review of potential strategic alternatives and next steps.
On
July 1, 2015, Mr. Sunu met with a representative of one of the potential strategic partners, with whom he had met in early 2015
("Party [D]"), in New York to discuss potential merger opportunities.
On
July 14, 2015, Mr. Sunu met with representatives of Party [B] in New York. They agreed to hold an additional meeting within the next week.
On
July 15, 2015, Mr. Sunu met with a representative of one of the potential strategic partners Mr. Sunu had met with in early 2015 ("Party
[C]"), in Charlotte, North Carolina. The representative indicated to Mr. Sunu that Party [C] did not think it was the right time to consider a
transaction.
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Also
on July 15, 2015, FairPoint entered into a non-disclosure agreement with Consolidated.
On
July 16, 2015, the FairPoint Board met telephonically for an update regarding the various strategic transaction discussions. Members of FairPoint's management team and
representatives of Evercore were also in attendance. Representatives of Evercore provided an updated review of potential strategic alternatives and industry developments since the last meeting of the
FairPoint Board. Representatives of Evercore and Mr. Sunu reported on the schedule of proposed meetings and conversations to take place over the next several weeks, noting that FairPoint would
enter into confidentiality agreements before those meetings as appropriate. Representatives of Evercore then provided the FairPoint Board with a review of a presentation to be used in future meetings
with potential strategic partners.
On
July 17, 2015, Mr. Sunu met with representatives of Party [D], communicating FairPoint's interest in a potential transaction. They noted that
they were willing to engage in discussions to determine if any transaction was feasible. They also discussed entering into a non-disclosure agreement so that the parties could begin to share
information.
On
July 20, 2015, Mr. Sunu met with Mr. Udell and Steve Childers, the Chief Financial Officer of Consolidated, in Chicago, Illinois. Mr. Sunu, Ajay Sabherwal,
then Chief Financial Officer of FairPoint, Karen Turner, then Senior Vice President, Strategy and Business Support of FairPoint, and representatives of Evercore made a presentation regarding FairPoint
and suggested as a next step that Consolidated should consider delivering an indication of interest for consideration by FairPoint.
On
July 22, 2015, Mr. Sunu met with representatives of Party [B], along with representatives of their financial advisors. Mr. Sunu,
Mr. Sabherwal, Ms. Turner, Shirley Linn, then General Counsel of FairPoint, and representatives of Evercore made a presentation regarding FairPoint. They asked for an opportunity to
review the materials in detail and create a model, and follow up with questions at a later date. Party [B] indicated that they were considering a range of alternatives to
engage in a transaction with FairPoint.
On
July 27, 2015, Mr. Sunu had a telephone conversation with Mr. Udell, where Mr. Udell indicated that FairPoint's and Consolidated's strategies were more
aligned than he initially had thought. Mr. Udell said that he would like to continue to explore a potential transaction, and they discussed organizing joint meetings of subject matter experts
from both entities. Mr. Udell told Mr. Sunu that Consolidated would be engaging Morgan Stanley in connection with the discussions and suggested that Morgan Stanley and Evercore
coordinate a meeting between the parties. Evercore and Morgan Stanley coordinated and facilitated the sharing of information in advance of the August 4, 2015 meeting.
On
July 31, 2015, Mr. Sunu and a representative of Party [B] spoke by telephone. On the call, the representative indicated that a total acquisition
of FairPoint would be difficult, but indicated considering other business transactions with FairPoint.
On
August 4, 2015, Steve Shirar, the Chief Information Officer and Corporate Secretary of Consolidated, Tom White, the Chief Technology Officer of Consolidated, and Michael Smith,
the Chief Marketing Officer of Consolidated, met with Tony Tomae, FairPoint's Chief Revenue Officer, Mr. Sabherwal, John Lunny, FairPoint's Chief Technology Officer, and Ms. Turner. Also
in attendance were representatives from Morgan Stanley and Evercore. FairPoint's representatives provided an overview of FairPoint, after which there were breakout sessions to discuss FairPoint's
revenue and technology.
On
August 31, 2015, Mr. Sunu and members of FairPoint's management team met with representatives of one of the potential strategic partners with whom Mr. Sunu had
met in early 2015 ("Party [E]"), to discuss operational issues. Subsequently, the CEO of Party [E] called Mr. Sunu to express interest in
evaluating a potential combination between the two companies. Party [E]'s CEO and Mr. Sunu agreed to a future meeting.
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On
September 3, 2015, Mr. Sunu met with a representative of Party [E] to discuss the possibility of a transaction.
On
September 14, 2015, Mr. Sunu, Mr. Sabherwal and Ms. Turner met with representatives of Consolidated in Charlotte, North Carolina and provided a financial
review of FairPoint.
On
September 23, 2015, Mr. Sunu, Mr. Sabherwal, Mr. Tomae and Ms. Turner met with representatives of Party [E] to discuss a
potential combination between the two companies. Both companies presented an overview of their organizations, operations, technology, and financials.
On
September 24, 2015, Mr. Sunu spoke with a representative of Party [E] by telephone and was informed that they were not planning on moving forward
with a transaction at that time.
On
October 1, 2015, Mr. Sunu met with Mr. Udell in Charlotte. Mr. Udell indicated that Consolidated would evaluate the transaction over the next month and
present information regarding a potential transaction to the Consolidated Board.
On
October 6, 2015, Mr. Sunu spoke with a representative of Party [D] by phone and was informed that they were not planning on moving forward with a
transaction at that time.
On
October 7, 2015, Mr. Sunu followed up with a representative of Party [E] to discuss reconsideration of a potential transaction between the two
companies.
On
October 8, 2015, FairPoint received a letter of interest from Consolidated. The letter of interest did not indicate a price but stated it would be at a modest premium to the
then trading value for 100% of the outstanding shares of FairPoint stock. The letter stated that Consolidated would consider providing consideration in cash for up to 25% of the purchase price with
the remainder in common stock, which would result in FairPoint's stockholders owning approximately 25 to 30% of the equity of Consolidated.
On
October 8, 2015, the FairPoint Board met telephonically with representatives from Evercore and members of FairPoint's management team. At the meeting, representatives of
Evercore updated the FairPoint Board regarding different potential strategic alternatives, including a potential transaction with Consolidated as well as other options, based on share price
performance.
On
October 14, 2015, Mr. Sunu spoke with a representative of Party [E] by telephone who indicated that it would not be feasible to move forward with
a transaction at that time.
On
October 19, 2015, Mr. Sunu, Mr. Sabherwal, Mr., Tomae, Ms. Turner and representatives from Evercore met with representatives of Consolidated and Morgan
Stanley in Chicago, Illinois to further discuss a potential transaction. FairPoint's management presented a detailed overview of sales and
marketing and financial areas. Consolidated's management presented an overview of its strategy, operations, financial outlook and initial thoughts on the transaction.
On
October 23, 2015, Mr. Udell and Mr. Sunu met in Washington, D.C. They discussed the parameters for and potential market reaction to a transaction and potential
terms and agreed that their respective financial advisors could discuss concepts to arrive at mutually agreeable terms.
On
October 27, 2015, the FairPoint Board met telephonically with representatives from Evercore and representatives of FairPoint's management team. At the meeting, representatives
of Evercore discussed the transaction strategy and Consolidated's history and provided an overview of a potential combination with Consolidated.
On
November 7, 2015, representatives of Morgan Stanley verbally communicated key terms of Consolidated's potential second letter of interest to representatives of Evercore.
On
November 9, 2015, FairPoint received a second letter of interest from Consolidated, proposing that Consolidated acquire 100% of the outstanding common stock of FairPoint for
total consideration
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of
$19.00 per share. The consideration would take the form of a cash component of $4.75 per share (or 25% of the total consideration) and the remainder would be paid in Consolidated common stock based
on an exchange ratio of 0.6718 of a Consolidated share for every one share of FairPoint. The transaction would result in FairPoint's stockholders owning 26.7% of the equity in Consolidated.
FairPoint's stockholders would also receive the opportunity to nominate one director to the Consolidated Board, subject to a mutually agreeable selection mechanism. The transaction would be financed
by a combination of secured and unsecured debt. Also on November 9, 2015, the FairPoint Board met with representatives of Paul Hastings and Evercore to discuss the second letter of interest
from Consolidated. At the meeting, Evercore presented the key terms of the offer and reviewed the potential transaction.
On
November 10, 2015, representatives of Evercore called representatives of Morgan Stanley to discuss FairPoint's potential counter proposal to Consolidated's second letter of
interest. On the same day, at the direction of the FairPoint Board, Evercore sent a written counter proposal to Mr. Udell, Mr. Childers and representatives of Morgan Stanley. FairPoint
proposed that Consolidated acquire 100% of the outstanding common stock of FairPoint for total consideration of $21.50 per share. The consideration would take the form of a cash component of $5.38 per
share (or 25% of the total consideration) and the remainder in the form of newly issued common stock of Consolidated using a
0.7792x exchange ratio (based on Consolidated's 30-day VWAP of $20.69 as of November 10, 2015), representing $16.12 per share. The transaction would result in FairPoint's stockholders owning
29.7% of the equity in Consolidated. Additionally, FairPoint's stockholders would receive the opportunity to nominate two directors to the Consolidated Board, subject to a mutually agreeable selection
mechanism. FairPoint also proposed that there would be neither financing conditions nor an exclusivity period. No other material changes were proposed in the counter proposal.
On
November 17, 2015, Ms. Linn, representatives of Paul Hastings and representatives of Schiff Hardin LLP, Consolidated's legal counsel ("Schiff Hardin"), met via
telephone conference to discuss beginning the legal due diligence process.
On
November 19, 2015, representatives of Consolidated's and FairPoint's management teams met in Manchester, New Hampshire to conduct operational due diligence. Concurrently, on
November 19 and 20, 2015, members of Consolidated's and FairPoint's management teams met in Charlotte to cover additional diligence areas.
On
November 20, 2015, Schiff Hardin provided an initial draft of the merger agreement. The initial draft of the merger agreement contemplated consideration of $19.00 per share,
payable in a combination of cash and stock, and a termination fee of $25,000,000 payable by FairPoint in the event that the transaction did not close.
On
November 23, 2015, representatives of Consolidated's and FairPoint's management teams met in Manchester to conduct additional due diligence.
Beginning
on November 24, 2015 and continuing until December 9, 2015, FairPoint, Consolidated, and their advisors took part in calls to discuss various due diligence items.
On November 27, 2015, FairPoint provided access to a data room to Consolidated and its advisors.
On
November 27, 2015, representatives of Paul Hastings provided extensive comments to the initial draft of the merger agreement, including additional representations and
warranties and covenants of Consolidated and a reverse termination fee payable by Consolidated and a reduction of the termination fee payable by FairPoint to 2% of the value of the transaction.
On
November 28, 2015, Mr. Udell and Mr. Sunu spoke by phone. Mr. Udell updated Mr. Sunu on the progress of the financing for the transaction, noting
that current capital market conditions were not favorable. On December 1, 2015, Mr. Udell called Mr. Sunu to schedule a meeting with their respective financial advisors in
Charlotte. The meeting was scheduled for December 15, 2015.
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On
December 4, 2015, representatives of Consolidated, FairPoint, Evercore, and Morgan Stanley met in Conroe, TX, to conduct FairPoint's reverse diligence on Consolidated's ILEC
operations.
On
December 7, 2015, representatives of Consolidated, FairPoint, Evercore, and Morgan Stanley met in Kansas City to conduct FairPoint's reverse diligence on Consolidated's CLEC
operations.
On
December 15, 2015, Mr. Udell, Mr. Childers, Mr. Sunu and Mr. Sabherwal met in Charlotte, North Carolina, along with representatives from Morgan
Stanley and Evercore, to discuss the financing structure for a potential transaction that contemplated 100% stock consideration. At the meeting, Consolidated indicated that financing market conditions
were not favorable and indicated it would have to defer the transaction until conditions improved. However, the parties agreed to work on the merger agreement.
On
December 16, 2015, the FairPoint Board met with representatives of Evercore telephonically. At the meeting, Evercore provided an update on the meeting held on
December 15, 2015 and reviewed the financial terms of the potential combination reflecting the revised transaction consideration.
On
December 22, 2015, Mr. Sunu called a representative of Party [C] to notify him that FairPoint was planning to submit a letter of interest to
purchase Party [C]. On December 22, 2015, FairPoint provided a confidential, non-binding letter of interest to Party [C]. The non-binding letter
of interest contemplated a purchase of Party [C] by FairPoint.
On
December 23, 2015, representatives of Schiff Hardin provided a revised draft of the merger agreement to representatives of Paul Hastings and FairPoint. The revised draft
accepted few of the requested changes and eliminated most of the additional representations, warranties and covenants of Consolidated proposed in the last draft circulated by Paul Hastings, as well as
the revisions to the "deal protection" provisions, including deletion of the reverse termination fee payable by Consolidated and an increase of the termination fee payable by FairPoint from 2% to 3.5%
of the transaction value.
On
December 30, 2015, representatives of Paul Hastings communicated with representatives of Schiff Hardin by email to outline certain issues presented by the current draft of the
merger agreement. Schiff Hardin's representatives responded that they had been directed by Consolidated not to continue to try to work through the issues as Consolidated did not see a transaction as a
possibility at that time
in light of adverse conditions in the capital markets. Consolidated then confirmed to FairPoint that discussions were terminated.
On
January 8, 2016, Mr. Sunu had a telephone conversation with a representative of Party [C]. The representative indicated that FairPoint's letter
had been discussed with the senior management team, the Chairman and the board of directors of Party [C]. Party [C] had also engaged an investment bank
and legal counsel in connection with the proposed transaction. The representative indicated that although the offer set forth in the letter was not compelling as drafted, Party
[C] would like for the respective advisors to discuss the proposed structure and other potential deal terms in order to present the potential transaction to Party
[C]'s board of directors. Mr. Sunu noted that the proposal was based on public information that was initially available, and that FairPoint would be open to adjusting
the proposal with additional information.
On
January 14, 2016, Mr. Sunu had a telephone conversation with a representative of Party [C], in which that representative noted that it was
advisable to connect the companies' respective financial advisors and confirmed that the purpose of the meeting was to gain a better understanding of FairPoint's plan with respect to the structure of
a potential transaction. Mr. Sunu told the representative that he would instruct Evercore to reach out to Party [C]'s financial advisor to schedule a meeting.
After this discussion, Mr. Sunu relayed the contents of the conversation to the FairPoint Board.
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On
January 20, 2016, Evercore discussed the transaction with Party [C]'s financial advisor. Party [C]'s financial
advisor indicated it would discuss the transaction with Party [C]'s management team and board of directors.
On
February 9, 2016, the FairPoint Board met with representatives of Evercore telephonically. At the meeting, Evercore provided an update on the process, market conditions and
FairPoint's potential strategic alternatives, including a potential transaction with Consolidated.
On
February 29, 2016, Mr. Sunu had a telephone conversation with a representative of Party [C]. Party [C]'s representative
indicated that the timing was not right for them to engage in discussions.
In
April 2016, the FairPoint Board decided to schedule a series of meetings to review all acquisition alternatives available to FairPoint. On April 11, 2016, the FairPoint
Board met with representatives of Evercore telephonically. At the meeting, Evercore presented an overview of the acquisition alternatives for FairPoint, and an update on potential buyers. Evercore
presented these opportunities to the FairPoint Board again on April 20, 2016.
On
May 2, 2016, Mr. Horowitz, Chairman of the FairPoint Board, Peter D. Aquino, another member of the FairPoint Board, and the Chairman of the board of directors of Party
[C] met to discuss a potential transaction between FairPoint and Party [C].
On
May 5, 2016, the FairPoint Board met with representatives of Evercore telephonically. At the meeting, Evercore reviewed certain possible acquisition alternatives.
On
May 9, 2016, Mr. Sunu called another industry player ("Party [F]"), to discuss the possibility of a strategic transaction. The parties
agreed to execute a non-disclosure agreement to allow further discussion, which was executed on May 13, 2016.
On
May 15, 2016, Mr. Sunu discussed setting a face to face meeting with Party [F] and sharing information in advance of that meeting. The meeting
date was set for May 23, 2016 and information was provided by the parties as suggested.
On
May 16, 2016, the FairPoint Board met telephonically with representatives of Evercore and members of FairPoint's management team. Evercore provided an update on FairPoint's
potential strategic alternatives.
On
May 23, 2016, Mr. Sunu, Mr. Sabherwal, Ms. Turner, and representatives of Evercore met with representatives of Party [F] to review
an overview of the company and forecasts.
On
May 27, 2016, Mr. Sunu initiated a call with a representative of another industry player ("Party [G]") to discuss the possibility of a
strategic transaction and it was agreed that parties would meet on June 15, 2016.
On
June 3, 2016, FairPoint and Party [G] executed a non-disclosure agreement.
On
June 13, 2016, a representative of Party [F] met with Mr. Sunu in Charlotte to update status and discuss another in-person meeting for additional
due diligence.
On
June 15, 2016, Mr. Sunu, Ms. Turner, Mr. Lunny and Mr. Sabherwal and representatives of Evercore attended a meeting with Party
[G] representatives and shared an overview and strategy for the respective companies.
On
July 8, 2016, the FairPoint Board met telephonically with representatives of Evercore and members of FairPoint's management team. Evercore provided an update on FairPoint's
potential strategic alternatives, including a potential transaction with Consolidated. However, Evercore noted in their presentation that there had been no new developments with respect to a potential
transaction with Consolidated since December 2015. The representatives from Evercore noted that they would contact Mr. Udell to determine Consolidated's continuing interest in a potential
transaction.
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On
July 15, 2016, Mr. Sunu sent a letter of interest to Party [G] outlining a proposal for an acquisition by FairPoint.
On
July 15, 2016, Mr. Sunu met with representatives of Party [F] to discuss network and engineering diligence.
On
July 22, 2016, the FairPoint Board met telephonically with representatives of Evercore and members of FairPoint's management team. Evercore provided an update regarding a
potential transaction with Consolidated, updating its previous presentation to reflect changes to the VWAP and other factors since the November 9, 2015 letter of interest.
On
August 1, 2016, Party [G] informed Mr. Sunu that, after consideration, they did not have interest in the proposed transaction.
On
August 9, 2016, Mr. Udell called Mr. Sunu to re-engage in discussing a potential transaction.
Also
on August 9, 2016, Mr. Sunu discussed status with Party [F] and was informed that the timing of a potential transaction would be delayed due to
an initiative being undertaken by Party [F]. FairPoint decided to defer further diligence until a later date.
On
August 15, 2016, the FairPoint Board met with representatives of Evercore and representatives of FairPoint's management team. Evercore provided an update on FairPoint's
potential strategic alternatives, including a brief update on the potential transaction with Consolidated. They noted that Evercore and Mr. Sunu had both independently spoken with
Mr. Udell on August 9, 2016, and that Consolidated would like to re-engage in discussing a potential transaction and suggested potentially meeting in mid to late September.
On
August 16, 2016, Mr. Udell called Mr. Sunu and offered to come to Charlotte for a meeting on September 12, 2016 with Mr. Sunu and Karen Turner, who
had become FairPoint's Chief Financial Officer in mid-2016.
On
August 17, 2016, Mr. Sunu sent a letter of interest to representatives of another industry player ("Party [H]") outlining a transaction whereby
FairPoint would merge with Party [H] in a stock transaction.
On
August 19, 2016, FairPoint and Consolidated entered into an updated non-disclosure agreement, as the previously executed non-disclosure agreement between the parties had
expired.
On
August 23, 2016, Mr. Edward Horowitz met telephonically with a representative of Party [H], who indicated that certain shareholders would prefer
all or more cash for the transaction. The parties discussed entering into a non-disclosure agreement.
On
September 12, 2016, there was a meeting between the parties in Charlotte, North Carolina. Mr. Udell, Mr. Childers, and Matt Smith, Consolidated's Vice President
of Finance and Treasurer, attended on behalf of Consolidated and Mr. Sunu and Ms. Turner attended on behalf of FairPoint. Also in attendance were representatives of Evercore. FairPoint
provided the representatives of Consolidated certain updated information requested by them regarding the performance of FairPoint. After the presentation, Consolidated indicated that they were focused
on completing a refinancing of indebtedness in order to gain greater flexibility for transactions like the proposed acquisition. They said that they would be focusing on the refinancing for the month
of September, and that they would evaluate moving forward with FairPoint after the refinancing was completed.
On
September 26, 2016, Mr. Udell called Mr. Sunu to inform him that he would like to propose a mutually suitable transaction but required additional information. It
was agreed to work through financial advisors to communicate the required information. Mr. Udell indicated that he wanted to
present a construct for this transaction at the October meeting of the Consolidated Board. Mr. Udell and Mr. Sunu discussed the state of the transaction documents noting that while the
documents were
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prepared,
the comments provided by FairPoint on the draft merger agreement in December 2015 had not yet been addressed.
On
October 7, 2016, Mr. Udell called Mr. Sunu to ask for additional due diligence information around FairPoint's network. Mr. Udell stated that they expected
to provide a revised draft agreement by the end of the week. Mr. Sunu expressed that it would be essential to get an understanding of the major terms and value, which Mr. Udell said
Consolidated was not yet prepared to provide. Mr. Sunu and Mr. Udell then discussed the extent and process around fulfilling requested due diligence information. On October 8,
2016, FairPoint provided Consolidated access to a data room.
Beginning
on October 11, 2016 and continuing until October 26, 2016, FairPoint, Consolidated, and their representatives took part in calls to discuss various due diligence
items.
On
October 13, 2016, Schiff Hardin provided an updated draft of the merger agreement by email to Mr. Metge. The draft was substantially similar to the draft circulated by
Schiff Hardin on December 23, 2015, except there were no terms related to price and the consideration would be paid in the form of 100% Consolidated common stock, and the draft also noted that
Consolidated would require that FairPoint maintain a minimum amount of cash at the closing of the transaction.
On
October 14, 2016, the FairPoint Board met telephonically with representatives of Evercore and representatives of FairPoint's management team. Evercore provided an update on
FairPoint's potential strategic alternatives, including a potential transaction with Consolidated. Representatives of Evercore informed the FairPoint Board that the due diligence process with
Consolidated was underway, and that diligence calls for certain topics were held on October 13 and 14, 2016. They noted that the Consolidated team was focused on updating its analysis of the
potential transaction to present to the Consolidated Board on October 31, 2016.
On
October 17 and 26, 2016, representatives of FairPoint, Consolidated, Paul Hastings and Schiff Hardin met via telephone conference to discuss outstanding issues on the merger
agreement, including a revised draft circulated by Paul Hastings on October 21, 2016. The discussions included proposals with respect to the treatment of FairPoint's warrants and FairPoint's
stock-based awards, price protections, the financial provisions of the merger agreement, which the parties agreed remained open for further discussion, and the reverse termination fees and fiduciary
out provisions.
On
October 20, 2016, FairPoint and Party [H] executed a non-disclosure agreement.
On
October 21, 2016, representatives of Paul Hastings provided a revised draft of the merger agreement to Schiff Hardin's representatives. The revised draft re-incorporated
certain reciprocal representations, warranties and covenants in light of the "stock-for-stock" nature of the transaction and a reverse termination fee payable by Consolidated. The revisions included
an additional provision regarding alternative financing and noted that the parties would need to discuss appropriate price protections and the addition of the minimum cash requirement. It was also
noted that a termination fee within a range of 3 to 3.5% of deal value would be acceptable to FairPoint, subject to acceptance by Consolidated of a reverse termination fee payable by Consolidated, at
an amount to be discussed by the parties.
On
November 4, 2016, Mr. Sunu and Mr. Udell met in Charlotte, North Carolina. Mr. Udell informed Mr. Sunu that he had presented the proposed
transaction to the Consolidated Board. He noted that, while there was more work to be done, Consolidated would like to put forward an offer of $18.00 per share. Mr. Udell and Mr. Sunu
discussed converting the $18.00 per share offer into an agreed exchange ratio as opposed to a fixed price per share. Mr. Udell indicated that he would consider moving to an exchange ratio, and
Mr. Sunu proposed a range for the exchange ratio. Mr. Sunu suggested to Mr. Udell that he would follow up after the November 7, 2016 FairPoint Board meeting.
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Also
on November 4, 2016, Consolidated provided a letter of interest updating their proposal for the proposed transaction. The updated offer price was $18.00 per share, to be paid
entirely in Consolidated common stock, subject to a fixed exchange ratio which would be determined closer to announcement. Based on then current market prices, the proposal would result in FairPoint's
stockholders owning 29.4% of the outstanding Consolidated common stock. The letter provided that FairPoint would be entitled to appoint one member of the Consolidated Board. The proposed letter of
interest included Consolidated assuming and refinancing FairPoint debt and the transaction would not be subject to a financing condition. Consolidated was targeting the week of November 21,
2016 for announcement of the transaction.
On
November 7, 2016, the FairPoint Board met telephonically with representatives of Evercore and Paul Hastings, as well as Ms. Turner, Mr. Metge, and Garrett Van
Osdell, Vice President and Deputy General Counsel of FairPoint. Evercore provided an update on FairPoint's potential strategic alternatives, including a potential transaction with Consolidated. Paul
Hastings provided the FairPoint Board with an update regarding the merger agreement. Representatives of Evercore informed the FairPoint Board of the steps that had been taken since the last the
FairPoint Board update on October 14, 2016, including a summary of the terms of the letter of interest received on November 4, 2016. Representatives of
Evercore also provided an updated review of a potential transaction with Consolidated. They noted that Consolidated had scheduled additional calls for the Consolidated Board on November 11,
2016 and November 21, 2016. Various terms of the draft merger agreement were discussed, including the FairPoint termination fee and the reverse termination fee and Consolidated's new request
for a mandatory minimum level of cash at closing. The FairPoint Board also discussed with Evercore the expectation that Consolidated would maintain its dividend following closing, and management
indicated that reciprocal due diligence of Consolidated was ongoing.
Also
on November 7, 8 and 10, 2016, representatives of Paul Hastings and Schiff Hardin held discussions regarding the merger agreement and various due diligence items.
On
November 11, 2016, the parties engaged in a due diligence meeting in Charlotte, North Carolina. Mr. Udell, Mr. Shirar, and representatives of Morgan Stanley and
Wells Fargo were in attendance on behalf of Consolidated. Mr. Sunu, Ms. Turner, Mr. Metge and representatives of Evercore were in attendance on behalf of FairPoint.
Also
on November 11, 2016, Schiff Hardin provided a revised draft of the merger agreement to Mr. Metge and representatives of Paul Hastings.
On
November 14, 2016, the FairPoint Board met with representatives of FairPoint's management team, Evercore and Paul Hastings. Evercore provided an update regarding the
transaction, including key take-aways from the due diligence session, which had been held on November 11, 2016. Paul Hastings provided the FairPoint Board with an update regarding the merger
agreement. Representatives of Evercore reviewed the strategic rationale for an acquisition of FairPoint, as it had been presented by Consolidated, including details on integration and synergies.
Consolidated presented certain strategic and financial benefits, including the regional rich network, the expanded portfolio of markets, increase in scale, financial benefits such as the accretion to
free cash flow, dividend policy, and de-leveraging (to Consolidated), as well as Consolidated's history of successfully integrating acquisitions. Representatives of Evercore then provided an update to
the review of the potential transaction with Consolidated previously provided.
From
November 14 through 18, 2016, representatives of Paul Hastings and Schiff Hardin held various due diligence discussions and Schiff Hardin opened a data room.
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On November 17, 2016, the parties engaged in in-person diligence meetings in Charlotte, North Carolina. On behalf of FairPoint, Ms. Turner,
Mr. Metge, Mr. Rush, and Mr. Lunny and representatives of Evercore were in attendance. On behalf of Consolidated, Steve Childers (CFO), Tom White (CTO), Mr. Shirar, Gabe
Waggoner (VP Operations), David Herrick (VP and Controller), Ben Wells (Tax), and representatives of Morgan Stanley and Wells Fargo were in attendance.
On
November 21, 2016, representatives from Paul Hastings and Schiff Hardin met by telephone conference to discuss the terms of the merger agreement.
On
November 22, 2016, the FairPoint Board met with representatives of FairPoint's management team, Evercore and Paul Hastings. Representatives of Evercore and Paul Hastings
provided the FairPoint Board with an update regarding the progress of discussions and the merger agreement. Evercore provided an update regarding the transaction, including describing the diligence
meeting that had occurred in Charlotte, North Carolina on November 17, 2016. Paul Hastings provided an update regarding the merger agreement. Evercore again provided an update to the review of
the potential transaction with Consolidated previously presented to the FairPoint Board. They notified the FairPoint
Board that the parties were still targeting early December for announcement of a transaction, and that Consolidated expected to obtain firm financing commitments by November 28 or 29, 2016.
Also
on November 22, 2016, Mr. Udell called Mr. Sunu to have further discussions regarding the appropriate exchange ratio to use in the transaction. He also
discussed the minimum level of cash at FairPoint at the closing of the proposed transaction referenced in the revised draft of the merger agreement. The parties agreed that $25 million might be
an appropriate figure. Next, they discussed the anticipated grant of FairPoint equity awards in January, agreeing to issue only the time vested restricted stock consistent with past practice.
Mr. Udell noted that Consolidated had two more Consolidated Board meetings scheduled to discuss the transaction. Mr. Sunu noted that FairPoint had scheduled a meeting of the FairPoint
Board on November 30, 2016.
On
November 23, 2016, Schiff Hardin provided a revised draft of the merger agreement, as well as an initial draft of Consolidated's disclosure schedules, to representatives of
FairPoint and Paul Hastings. The revised draft of the merger agreement included numerous changes, including revising the structure so that FairPoint would be the surviving entity following the
consummation of the merger, addressing the treatment of FairPoint's restricted stock, options, and other stock-based awards, and adding a requirement that Consolidated seek alternative financing in
the event the debt financing became unavailable. The draft also added a termination fee payable by FairPoint and the reverse termination fee payable by Consolidated both equal to 3.25% of the agreed
upon deal value. There were also several revisions to the representations and warranties, covenants, and closing conditions of the parties. Representatives of Paul Hastings also provided an initial
draft of FairPoint's disclosure schedules to representatives of Schiff Hardin and Consolidated.
Also
on November 25, 2016, representatives of Paul Hastings and of Schiff Hardin spoke by telephone to discuss the status of the transaction and the merger agreement.
On
November 28, 2016, Mr. Udell called Mr. Sunu to propose an exchange ratio reflecting recent increases in the price of Consolidated's common stock. After
discussion, Mr. Udell and Mr. Sunu settled on proposing an exchange ratio of 0.73 for respective board approval. They then discussed the potential timing of signing of the merger
agreement given the need for board review and approvals.
Also
on November 28, 2016, representatives of Paul Hastings provided a revised draft of the merger agreement to representatives of Schiff Hardin and Consolidated. The revised
draft included revisions to the representations and warranties of FairPoint, the financing provisions, certain covenants, and provisions relating to regulatory approvals. On November 29, 2016,
representatives of Schiff Hardin provided a further revised draft of the merger agreement to representatives of Paul Hastings and
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FairPoint.
The revised draft incorporated many of the proposed changes to the financing provisions, Company covenants, and a minimum cash requirement of $25 million.
On
November 29, 2016, Schiff Hardin provided drafts of the proposed financing documentation to FairPoint and representatives of Paul Hastings.
On
November 30, 2016, the FairPoint Board met with representatives of Evercore and of FairPoint's management team. Evercore notified the FairPoint Board that Consolidated proposed
an exchange ratio of 0.73 based on the discussion between Mr. Sunu and Mr. Udell on November 28, 2016. Evercore discussed the implied per share consideration and the various
premiums based thereon. Evercore informed the FairPoint Board that $935 million of secured financing would be required to refinance FairPoint's debt and pay fees and expenses, including call
premiums, and had received draft financing documentation on November 29, 2016. They noted that Consolidated had increased its cost synergy estimate to $55 million (from
$50 million). Mr. Metge and representatives from Paul Hastings provided an update regarding the merger agreement, noting that it was in the final stages of negotiation. Evercore informed
the FairPoint Board that the parties were targeting the morning of December 5, 2016 for announcement of transaction, and that the Consolidated Board was meeting on December 3, 2016 to
discuss the deal. Evercore provided an update to the review of the potential transaction with Consolidated previously provided to the FairPoint Board.
On
November 30, 2016, Party [H] announced it was pursuing another transaction.
On
December 2, 2016, representatives of FairPoint and Paul Hastings met with representatives of Schiff Hardin to discuss the disclosure schedules. Schiff Hardin's representatives
also provided a revised draft of the merger agreement to representatives of FairPoint and Paul Hastings. The revised draft included certain revisions to the provision relating to the restructuring of
FairPoint, the representations and warranties and covenants, and a new provision relating to repayment of certain outstanding debt of FairPoint. Paul Hastings' representatives returned comments to the
merger agreement that day including revising the termination provision to limit the Outside Date (as defined in the merger agreement) to one year from the date of execution.
On
December 3, 2016, the FairPoint Board met with representatives of FairPoint's management team and representatives of Evercore and Paul Hastings. Paul Hastings' representatives
provided the FairPoint Board with an update regarding the final Merger Agreement terms agreed, the financing and the continuing negotiations with Schiff Hardin. Representatives of Evercore provided an
updated summary of the transaction, the financing and valuation analysis, and presented their fairness opinion to the FairPoint Board. The FairPoint Board unanimously voted to approve the Merger
Agreement.
For
the remainder of the day until early evening, the parties finalized all relevant documentation and the Merger Agreement was signed.
Recommendation of the FairPoint Board; FairPoint's Reasons for the Merger
At a meeting held on December 3, 2016, the FairPoint Board, by unanimous vote, determined that the Merger was in the best interest of
FairPoint and its stockholders, approved the Merger Agreement and the transactions contemplated by the Merger Agreement and recommended that FairPoint's stockholders vote
"
FOR
" the Merger proposal.
In
reaching its decision to approve the Merger Agreement and the Merger and to recommend that FairPoint's stockholders vote "
FOR
" the
Merger proposal, the FairPoint Board, with the assistance of FairPoint's management and financial and legal advisors, considered and analyzed a number of factors, including those reviewed by the
FairPoint Board at the meetings described in this joint proxy statement/prospectus under "—Background of the Merger." The following is a summary of the material factors considered by the
FairPoint Board in determining to approve the Merger Agreement and the Merger
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transactions
and to recommend that FairPoint's stockholders vote "
FOR
" the Merger proposal (which are not listed in any relative order of importance):
Positive Factors Relating to the Merger
Factors Relating to the Transaction Generally
-
•
-
The FairPoint Board determined that the Merger Consideration to be paid per share of FairPoint common stock of 0.7300 shares of Consolidated
common stock, together with the potential value creation from the combination of the two companies, is more favorable to FairPoint's stockholders than the potential value that might result from other
alternatives reasonably available to FairPoint, including, but not limited to, the continued operation of FairPoint on a stand-alone basis, in light of a number of factors, including the
following:
-
•
-
the benefits, potential risks and uncertainties associated with the Merger as compared to those of other potential strategic
alternatives that might be available to FairPoint, as well as those of remaining as a stand-alone entity, in the context of FairPoint's business, assets and prospects, its historical and projected
financial performance and the opportunities and challenges facing FairPoint and its industry, as well as broader economic developments affecting its businesses;
-
•
-
the strategic and other alternatives reasonably available to FairPoint as determined through FairPoint's strategic alternatives
review process, including the alternative of remaining a stand-alone public company, in light of a number of factors and the potential risks and uncertainties associated with those alternatives, none
of which other alternatives was deemed likely to result in value to FairPoint's stockholders that would meet or exceed, on a present-value basis, the value of the Merger Consideration;
-
•
-
Consolidated was one of the most logical strategic partners in a consolidating industry in light of its complementary products and
strategic position and the potential for the realization of synergies, such that a business combination transaction with Consolidated was most likely to provide significant long-term value to
FairPoint's stockholders; and
-
•
-
the FairPoint Board's view that the terms of the Merger Agreement would not preclude or otherwise limit any third party with the
financial capability and strategic interest of acquiring FairPoint from pursuing a potential superior proposal.
-
•
-
The Merger would provide FairPoint stockholders with an implied ownership in the combined company of approximately 29%, thereby allowing
FairPoint stockholders the opportunity to participate in the future performance of the combined company, including synergies resulting from the Merger;
-
•
-
Consolidated management's estimate that the Merger is expected create approximately $55 million in annual operating expense synergies,
and from which FairPoint's stockholders would benefit as continuing stockholders;
-
•
-
The expectation that the combined company would benefit from utilization of FairPoint's accumulated net operating losses of approximately
$295 million as of September 2016 after the closing of the Merger;
-
•
-
FairPoint has established a solid operating platform, and the combined company could use this platform to deliver a broader range of services
and advanced communications solutions to meet customer demands;
-
•
-
FairPoint's operating platform would not require any operating systems conversions or cut-overs as a result of the closing of the Merger;
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-
•
-
The combined company would benefit from economies of scale which would provide the combined company with greater purchasing power and
expectation of earlier access to new technologies and solutions;
-
•
-
The Merger would result in an extensive fiber rich footprint spanning over 31,000 fiber route miles and operate in 24 states; and
-
•
-
The combined company would be a financially stronger company than FairPoint as a standalone company before the Merger, benefiting from a more
diverse revenue base and an increase in free cash flow.
Consolidated's Business, Operating Results, Financial Condition and Management
The business, operating results and financial condition of Consolidated, on both a historical and prospective basis, and the quality, breadth
and experience of Consolidated's senior management, including:
-
•
-
Consistent with Consolidated's current dividend practice, that the Consolidated Board expects to maintain its annual dividend of $1.55 per
share after the closing of the Merger;
-
•
-
Consolidated's successful history of integrating previous acquisitions;
-
•
-
The results of the due diligence review performed on Consolidated by FairPoint's management and financial and legal advisors regarding
Consolidated's assets, financial condition, results of operations, business plan and prospects, including the size, scale, competitive position, and prospects of the combined company;
-
•
-
The alignment between FairPoint's and Consolidated's strategic vision; and
-
•
-
The focus on business and broadband growth initiatives of Consolidated's management.
Merger Consideration
-
•
-
The Merger Consideration to be paid per share of FairPoint common stock consists of 0.7300 shares of Consolidated common stock, which
represents a 17.3% premium to the average exchange ratio of 0.6222 over the 30-business day period ended December 2, 2016 (the last trading day before the announcement);
-
•
-
Based on the fixed exchange ratio of 0.7300 shares, FairPoint stockholders would benefit from any increase in trading price of Consolidated
common stock prior to completion of the combination;
-
•
-
FairPoint stockholders would benefit from enhanced liquidity after the Merger based on the higher average daily trading volume of Consolidated
common stock compared to that of FairPoint common stock, which could provide FairPoint stockholders with the flexibility to sell their shares for cash in a more liquid market; and
-
•
-
The oral opinion followed by a confirming written opinion of Evercore, dated December 3, 2016, delivered to the FairPoint Board to the
effect that, as December 3, 2016 and based upon and subject to the assumptions, limitations, qualifications and other matters set forth therein, the exchange ratio was fair, from a financial
point of view, to the holders of FairPoint common stock, as more fully described below in the section entitled "—Opinion of Financial Advisor to Fairpoint."
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Terms of the Merger Agreement
The FairPoint Board considered the terms and conditions of the Merger Agreement in addition to the exchange ratio, including the
following:
-
•
-
The nature of the closing conditions included in the Merger Agreement, including the exceptions to the events that would constitute a material
adverse effect on FairPoint for purposes of the agreement, as well as the likelihood that all of the conditions to the transactions would be satisfied in a timely manner;
-
•
-
The Merger Agreement does not include a financing contingency;
-
•
-
The obligation of Consolidated to take all actions necessary to arrange the financing provided for in its financing commitment and, if such
financing is unavailable, to use commercially reasonable efforts to arrange to obtain alternate financing in an amount that will enable Consolidated to consummate the transaction;
-
•
-
Provisions of the Merger Agreement that would permit FairPoint, until adoption of the Merger Agreement by its stockholders, to furnish
information to, and engage in discussions and negotiations with, third parties making unsolicited acquisition proposals that the FairPoint Board determines are reasonably likely to lead to a superior
proposal and to terminate the Merger Agreement to accept a superior proposal, subject to payment to Consolidated of a termination fee of $18.9 million;
-
•
-
Provisions of the Merger Agreement that would permit the FairPoint Board, at any time prior to obtaining FairPoint's stockholder approval, if
FairPoint is then in receipt of a bona fide written alternative proposal that the FairPoint Board concludes in good faith (after consultation with its financial advisor and outside legal counsel)
constitutes a superior proposal or if there occurs any fiduciary change, to effect a change in its recommendation to the stockholders and/or recommend a superior proposal, subject to payment to
Consolidated of a termination fee of $18.9 million;
-
•
-
The FairPoint Board determined the amount of the termination fee to be reasonable in light of, among other factors, the benefits of the Merger
to FairPoint's stockholders, the advice of its legal and financial advisors that the percentage of equity value it represented is consistent with such percentage in comparable business combination
transactions, and the likelihood that an obligation to make a payment of such an amount would not preclude other acquisition proposals (the likelihood of which the board discussed with its financial
and legal advisors);
-
•
-
The right granted in the Merger Agreement for the FairPoint Board to select a member of the Consolidated Board, subject to approval by
Consolidated (such approval not to be unreasonably conditioned, withheld or delayed), which would provide assurance that legacy FairPoint stockholders would have a continuing voice to influence
achieving the benefits of the Merger and continuing Consolidated's current dividend practices;
-
•
-
The Merger Agreement would provide FairPoint with sufficient operating flexibility for it to conduct its business in the ordinary course of
business consistent with past practice between the signing of the Merger Agreement and the completion of the Merger;
-
•
-
The receipt by Consolidated of executed debt commitment letters from sources of debt financing for the transactions contemplated by the Merger
Agreement, the terms of such debt financing commitments, and the reputation of the financing sources;
-
•
-
The likelihood of that the combination would be completed, based on, among other things, the terms of the Merger Agreement that would require
Consolidated to pay FairPoint $18.9 million if the Merger Agreement is terminated under certain circumstances; and
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-
•
-
The ability of the companies to complete the Merger on a tax-free basis for federal income tax purposes, other than with respect to cash to be
received by FairPoint's stockholders in lieu of fractional shares of Consolidated common stock.
Negative Factors Relating to the Merger
The FairPoint Board also considered a number of potential risks and uncertainties in its deliberations concerning the Merger as contemplated by
the Merger Agreement, including, but not limited to, the following (not necessarily in order of relative importance):
-
•
-
the risk that Consolidated's common stock had increased in value prior to announcement and it may decline in value following the announcement;
-
•
-
risks associated with holding shares of Consolidated common stock, including the ability of the Consolidated Board to reduce its dividend
payout ratio, which may result in a decline in the trading price of Consolidated's common stock;
-
•
-
the risk that because the exchange ratio is fixed, the value of the consideration to FairPoint stockholders in the Merger could fluctuate
between signing of the Merger Agreement and the closing of the Merger, including after the FairPoint stockholder meeting;
-
•
-
the risks and costs to FairPoint if the Merger is not completed, including the potential diversion of management and employee attention,
potential employee attrition and the potential effects on business and customer and supplier relationships;
-
•
-
the risks that the Merger may not be completed, or may not be completed within the period anticipated, as a result of a failure to obtain
approval of the merger by the stockholders of FairPoint or Consolidated or failure to obtain certain regulatory approvals in connection with the Merger;
-
•
-
the risk that FairPoint may not generate sufficient cash to: (i) maintain the operations of its business as previously conducted through
the consummation of the Merger and (ii) to meet the minimum cash threshold required as a condition to the closing of the Merger;
-
•
-
the risk that Consolidated will not have sufficient cash resources at the closing of the Merger to fund fully all obligations to be paid at the
closing of the Merger to the extent not funded under Consolidated's financing commitment;
-
•
-
the risk that governmental entities may impose restrictions or conditions in order to gain approval or otherwise prevent or delay the Merger in
any manner that may adversely impact the ability of the combined company to operate or realize the synergies in the amount and in the period as projected;
-
•
-
the Merger Agreement would require FairPoint to pay Consolidated $18.9 million in the case the Merger Agreement is terminated under
certain circumstances, including a change in the recommendation of the FairPoint Board or a termination of the Merger Agreement by FairPoint to enter into a binding agreement providing for a superior
alternative transaction, and the potential that such fee or other Merger Agreement provisions might affect the potential for FairPoint to receive alternative strategic transaction proposals both
during the pendency of the Merger as well as afterward should the Merger not be consummated;
-
•
-
the risks associated with the combined company's indebtedness and the anticipated need to refinance when such indebtedness comes due;
-
•
-
the fact that forecasts of future results of operations and synergies are estimates based on assumptions and that for these and other reasons
there is a risk that anticipated performance and/or synergies may not be realized, including the ability to utilize net operating losses;
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-
•
-
the risk of diverting management focus and resources from operating FairPoint's businesses, as well as other strategic opportunities, and
potential disruption associated with combining and integrating the companies;
-
•
-
the risk that FairPoint stockholders or Consolidated stockholders may fail to adopt or approve, as applicable, the Merger Agreement and the
transactions contemplated thereby;
-
•
-
the restrictions on the conduct of FairPoint's business prior to the completion of the Merger, which restrictions generally require FairPoint
to operate its businesses in the ordinary course of business consistent with past practice with limited exceptions, which may delay or prevent FairPoint from undertaking business opportunities that
may arise pending completion of the Merger; and
-
•
-
various other risks associated with the combination and the businesses of FairPoint and Consolidated described under "Risk Factors Relating to
the Merger" beginning on page 34.
The
FairPoint Board concluded that these potential risks and uncertainties were outweighed by the benefits that the FairPoint Board expected FairPoint and its stockholders to achieve as
a result of the Merger. The FairPoint Board realized that there can be no assurance about future results, including results considered or expected as disclosed in the foregoing reasons.
In
addition to considering the factors described above, the FairPoint Board considered that some officers and directors of FairPoint have interests in the Merger as individuals that are
in addition to, and that may be different from, the interests of FairPoint stockholders generally (see "—Interests of FairPoint Directors and Executive Officers in the Merger" beginning on
page 84 of this joint proxy statement/prospectus).
The
above discussion of the material factors considered by the FairPoint Board in its consideration of the Merger and the transactions contemplated by the Merger Agreement is not
intended to be exhaustive, but does set forth the principal factors considered by the FairPoint Board. In light of the number and wide variety of factors considered in connection with the evaluation
of the Merger, the FairPoint Board did not consider it practicable to, and did not attempt to, quantify or otherwise assign relative weights to the specific factors it considered in reaching its final
decision. The FairPoint Board
viewed its position as being based on all of the information available to it and the factors presented to and considered by it. However, some directors may themselves have given different weight to
different factors. The factors, potential risks and uncertainties contained in this explanation of FairPoint's reasons for the Merger and other information presented in this section contain
information that is forward-looking in nature and, therefore, should be read in light of the factors discussed in "Special Note Regarding Forward-Looking Statements" beginning on page 41 of this joint
proxy statement/prospectus.
Opinion of Financial Advisor to FairPoint
In connection with the Merger, FairPoint retained Evercore to act as its financial advisor. As part of this engagement, FairPoint requested that
Evercore evaluate the fairness of the exchange ratio, from a financial point of view, to the holders of the shares of common stock of FairPoint. On December 3, 2016, at a meeting of the
FairPoint Board, Evercore rendered its oral opinion, subsequently confirmed by delivery of a written opinion that, based upon and subject to the factors, procedures, assumptions, qualifications and
limitations set forth in its opinion, as of such date, the exchange ratio was fair, from a financial point of view, to the holders of the shares of common stock of FairPoint.
The full text of the written opinion of Evercore, dated as of December 3, 2016, which sets forth, among other things, the procedures followed, assumptions
made, matters considered and qualifications and limitations on the scope of review undertaken in rendering its opinion, is attached as
Annex II
to this joint proxy statement/prospectus
and is incorporated by reference in its entirety into this joint
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proxy statement/prospectus. You are urged to read Evercore's opinion carefully and in its entirety. Evercore's opinion was addressed to, and provided for the information and benefit of, the FairPoint
Board (in its capacity as such) in connection with its evaluation of the exchange ratio from a financial point of view and did not address any other aspects or implications of the Merger. The opinion
does not constitute a recommendation to the FairPoint Board or to any other persons in respect of the Merger, including as to how any holder of shares of FairPoint common stock or Consolidated common
stock should vote or act in respect of the Merger. Evercore's opinion did not address the relative merits of the Merger as compared to other business or financial strategies that might be available to
FairPoint, nor did it address the underlying business decision of FairPoint to engage in the Merger.
In
connection with rendering its opinion and performing its related financial analysis, Evercore, among other things:
-
•
-
reviewed certain publicly available business and financial information relating to FairPoint and Consolidated that Evercore deemed to be
relevant, including publicly available research analysts' estimates;
-
•
-
reviewed certain non-public historical financial statements and other non-public historical financial and operating data relating to each of
FairPoint and Consolidated prepared and furnished to Evercore by the management of FairPoint and Consolidated, respectively;
-
•
-
reviewed certain non-public projected financial and operating data relating to FairPoint prepared and furnished to Evercore by the management
of FairPoint;
-
•
-
reviewed certain non-public projected financial and operating data relating to Consolidated prepared and furnished to Evercore by the
management of Consolidated;
-
•
-
reviewed the amount and timing of the cost savings estimated by the management of FairPoint and the management of Consolidated to result from
the Merger (collectively, the "Synergies");
-
•
-
reviewed the amount, timing and use of certain tax attributes of FairPoint and the combined company, as estimated by the management of
FairPoint and the management of Consolidated;
-
•
-
discussed the past and current operations, financial projections and current financial condition of each of FairPoint and Consolidated with the
management of FairPoint (including their views on the risks and uncertainties of achieving such projections);
-
•
-
reviewed the reported prices and the historical trading activity of each of the FairPoint common stock and the Consolidated common stock;
-
•
-
compared the financial performance of each of FairPoint and Consolidated and their respective stock market trading multiples with those of
certain other publicly traded companies that Evercore deemed relevant;
-
•
-
compared the financial performance of FairPoint and Consolidated and the valuation multiples relating to the Merger with those of certain other
transactions that Evercore deemed relevant;
-
•
-
reviewed the potential pro forma financial impact of the Merger on the future financial performance of the combined company based on the
projected financial data relating to each of FairPoint and Consolidated referred to above, including the projected Synergies and other strategic benefits and the amount and timing of realization
thereof, anticipated by the management of FairPoint and the management of Consolidated to be realized from the Merger;
-
•
-
reviewed a draft of the Merger Agreement dated December 2, 2016; and
-
•
-
performed such other analyses and examinations and considered such other factors that Evercore deemed appropriate.
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For
purposes of its analysis and opinion, Evercore assumed and relied upon, without undertaking any independent verification of, the accuracy and completeness of all of the information
publicly available, and all of the information supplied or otherwise made available to, discussed with, or reviewed by Evercore, and Evercore has not assumed any liability therefor. With respect to
the projected financial data relating to FairPoint and Consolidated referred to above (including the Synergies), Evercore assumed that they had been reasonably prepared on bases reflecting the best
currently available estimates and good faith judgments of the respective managements of FairPoint and Consolidated as to (i) the future financial performance of the companies under the
assumptions reflected therein and (ii) the Synergies, including the amount and timing of realization of such Synergies. Evercore expressed no view as to any projected financial data relating to
FairPoint or Consolidated or the assumptions on which they were based. Evercore relied, at FairPoint's direction, without independent verification, upon the assessments of the management of FairPoint
and the management of Consolidated as to the Synergies, including the amount and timing of the realization of such Synergies.
For
purposes of rendering its opinion, Evercore assumed, in all respects material to its analysis, that the representations and warranties of each party contained in the Merger Agreement
were true and correct, that the Merger will qualify as a tax free reorganization for United States federal income tax purposes, that each party will perform all of the covenants and agreements
required to be performed by it under the Merger Agreement in all material respects and that all conditions to the consummation of the Merger will be satisfied without material waiver or modification
thereof. Evercore further assumed that all governmental, regulatory or other consents, approvals or releases necessary for the consummation of the Merger will be obtained without any material delay,
limitation, restriction or condition that would have an adverse effect on FairPoint or the consummation of the Merger or materially reduce the benefits of the Merger to the holders of the FairPoint
common stock. Evercore also assumed that the executed Merger Agreement would not differ in any material respect from the draft Merger Agreement dated December 2, 2016 reviewed by Evercore.
Evercore
did not make nor assume any responsibility for making any physical inspection, independent valuation or appraisal of the assets or liabilities of FairPoint or Consolidated, nor
was Evercore furnished with any such inspection, valuation or appraisal, nor did Evercore evaluate the solvency or fair value of FairPoint or Consolidated under any state, federal or foreign laws
relating to bankruptcy, insolvency or similar matters. Evercore's opinion was necessarily based upon information made available to it as of the date of the opinion and financial, economic, market and
other conditions as they existed and as could be evaluated on the date of the opinion. Subsequent developments may affect Evercore's opinion and Evercore did not undertake any obligation to update,
revise or reaffirm its opinion.
Evercore
was not asked to pass upon, and expressed no opinion with respect to, any matter other than the fairness, from a financial point of view, of the exchange ratio to the holders of
the shares of
FairPoint common stock. Evercore did not express any view on, and its opinion did not address, the fairness of the Merger to, or any consideration received in connection therewith by, the holders of
any other securities, creditors or other constituencies of FairPoint, nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or
employees of FairPoint, or any class of such persons, whether relative to the exchange ratio or otherwise.
Evercore
assumed that any modification to the structure of the transaction would not vary its analysis in any material respect. Evercore's opinion did not address the relative merits of
the Merger as compared to other business or financial strategies that might be available to FairPoint, nor did it address the underlying business decision of FairPoint to engage in the Merger.
Evercore's opinion did not constitute a recommendation to the FairPoint Board or to any other persons in respect of the Merger, including as to how any holder of shares of FairPoint common Stock or
Consolidated common stock should vote or act in respect of the Merger. Evercore expressed no opinion as to the price at
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which
shares of FairPoint common stock or Consolidated common stock will trade at any time. Evercore is not a legal, regulatory, accounting or tax expert and assumed the accuracy and completeness of
assessments by FairPoint and its advisors with respect to legal, regulatory, accounting and tax matters.
Summary of Material Financial Analysis
Set forth below is a summary of the material financial and other analyses performed by Evercore and reviewed with the FairPoint Board on
December 3, 2016, in connection with rendering its opinion. The following summary, however, does not purport to be a complete description of the analyses performed by Evercore. The order of the
analyses described and the results of these analyses do not represent relative importance or weight given to these analyses by Evercore. Except as otherwise noted, the following quantitative
information, to the extent that it is based on market data, is based on market data that existed on or before December 1, 2016, and is not necessarily indicative of current market conditions.
The following summary of financial analyses includes information presented in tabular format. These tables must be read together with the text of each summary in
order to understand fully the financial analyses. The tables alone do not constitute a complete description of the financial analyses. Considering the tables below without considering the full
narrative description of the financial
analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Evercore's financial analyses.
Selected Precedent Transaction Analysis
Evercore performed an analysis of selected precedent transactions to compare multiples paid in other transactions to the multiple implied in the
Merger. Evercore analyzed ten merger and acquisition transactions that were announced between 2009 and 2015 involving acquisitions of rural local exchange carriers (each, an "RLEC" and collectively,
"RLECs") in the telecommunications industry.
While
none of the companies that participated in the selected precedent transactions is directly comparable to FairPoint and none of the transactions in the selected precedent
transactions analysis is directly comparable to the Merger, Evercore selected these transactions because each of the target companies was an RLEC and had operating characteristics, products and
services that for purposes of analysis may be considered similar to certain of FairPoint's operating characteristics, products and services.
For
each of the selected transactions, Evercore reviewed transaction values and calculated the total enterprise value ("TEV") implied for each target company based on the consideration
paid in the selected transaction, as a multiple of the target company's last twelve months ("LTM") earnings before interest, taxes, depreciation and amortization ("EBITDA") (in each case, calculated
for the twelve-month period prior to the latest available data preceding the date of announcement of such transaction).
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Evercore's
analysis indicated average and median TEV to LTM EBITDA multiples of 5.9x and 5.9x, respectively. The selected precedent transactions and the TEV and TEV to LTM EBITDA
multiple related thereto are set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
Date Announced
|
|
Acquiror
|
|
Target
|
|
TEV /
LTM EBITDA
|
|
|
February 5, 2015
|
|
Frontier Communications Corporation
|
|
Verizon Access Lines
|
|
|
6.2x
|
|
|
June 30, 2014
|
|
Consolidated Communications, Inc.
|
|
Enventis Corporation
|
|
|
7.3x
|
|
|
December 17, 2013
|
|
Frontier Communications Corporation
|
|
AT&T, Inc. (Connecticut wirelines operations)
|
|
|
4.8x
|
|
|
November 28, 2012
|
|
Blackfoot Telecommunications Group
|
|
FairPoint Communications, Inc. (Idaho operations)
|
|
|
6.0x
|
|
|
February 6, 2012
|
|
Consolidated Communications, Inc.
|
|
SureWest Communications
|
|
|
6.4x
|
|
|
April 22, 2010
|
|
CenturyLink, Inc.
|
|
Qwest Corporation
|
|
|
5.1x
|
|
|
November 24, 2009
|
|
Windstream Holdings, Inc.
|
|
Iowa Communications Network
|
|
|
7.5x
|
|
|
September 8, 2009
|
|
Windstream Holdings, Inc.
|
|
Lexcom Communications
|
|
|
5.9x
|
|
|
May 13, 2009
|
|
Frontier Communications Corporation
|
|
Verizon Communications, Inc. (13 states)
|
|
|
4.5x
|
|
|
May 11, 2009
|
|
Windstream Holdings, Inc.
|
|
D&E Communications Inc.
|
|
|
5.1x
|
|
Evercore
then applied a reference range of LTM EBITDA multiples of 5.0x to 7.0x, derived by Evercore based on its review of the selected precedent transactions and its experience and
professional judgment, to the estimated EBITDA of FairPoint for the year ending December 31, 2016, to derive a range of implied enterprise values for FairPoint. A range of implied equity values
was then calculated by reducing the range of implied enterprise values by the amount of net debt (calculated as debt less cash and cash equivalents) as of September 30, 2016. This analysis
indicated an implied per-share equity value range for FairPoint of $12.86 to $29.88.
Implied Exchange Ratio
Evercore
used the resulting per-share equity value reference range to calculate the implied exchange ratio by dividing the lowest per-share equity value for FairPoint
by Consolidated's share price of $28.27 per share, as of December 1, 2016, for the low end of the exchange ratio range and dividing the highest per-share equity value for FairPoint by
Consolidated's share price of $28.27 per share, as of December 1, 2016, for the high end of the exchange ratio range. This analysis indicated an implied exchange ratio reference range of
0.4548x to 1.0571x of a new Consolidated share for each share of FairPoint common stock. Evercore compared this resulting implied exchange ratio to the transaction exchange ratio of 0.7300x of a new
Consolidated share per share of FairPoint common stock in the Merger.
Selected Peer Trading Analysis
In performing a selected peer trading analysis of FairPoint and Consolidated, Evercore reviewed and compared certain financial, operating and
market information relating to FairPoint and Consolidated to corresponding information of the publicly traded companies listed in the tables below, which Evercore deemed most relevant to consider in
relation to FairPoint and Consolidated,
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respectively,
based on its professional judgment and experience, because they are public companies with operations that for purposes of this analysis Evercore considered similar to the operations of
FairPoint and Consolidated, respectively.
Evercore
reviewed, among other things, TEV of the selected companies as a multiple of estimated EBITDA, as well as equity value ("EV") of the selected companies as a multiple of free
cash flow ("FCF") for calendar year 2017. EBITDA of FairPoint and Consolidated was calculated on a pre-stock based compensation basis, each in accordance with company practice. Enterprise values were
calculated for the purpose of this analysis as equity value (based on the per share closing price of each selected company on December 1, 2016, multiplied by the fully diluted number of such
company's outstanding equity securities on such date), plus debt, plus minority interest, less cash and cash equivalents (in the case of debt, minority interest, cash and cash equivalents, as set
forth on the most recently publicly available balance sheet of such company, and in the case of minority interest, where applicable). In calculating the enterprise values of FairPoint and
Consolidated, net debt included in such calculations was as of September 30, 2016. Free cash flow was calculated as EBITDA less capital expenditures, interest, cash taxes and pension and other
post-retirement benefit contributions. The financial data of the selected peer companies used by Evercore for this analysis were based on publicly available research analysts' estimates. The financial
data of FairPoint and Consolidated were based on the projections provided by the management of FairPoint and Consolidated, respectively.
The
EBITDA multiples and FCF multiples for the selected peer companies are set forth in the table below:
|
|
|
|
|
|
|
|
|
|
Selected Public Company
|
|
TEV /
2017E EBITDA
|
|
EV /
2017E FCF
|
|
|
CenturyLink, Inc.(1)
|
|
|
5.1x
|
|
|
9.1x
|
|
|
Consolidated Communications, Inc.(2)
|
|
|
9.3x
|
|
|
13.3x
|
|
|
Frontier Communications Corporation
|
|
|
5.8x
|
|
|
5.8x
|
|
|
Windstream Holdings, Inc.(3)
|
|
|
4.7x
|
|
|
13.8x
|
|
|
Alaska Communications Systems Group, Inc.
|
|
|
4.3x
|
|
|
NA
|
|
|
Cincinnati Bell Inc.
|
|
|
6.6x
|
|
|
NM
|
|
|
Hawaiian Telcom Holdco, Inc.
|
|
|
4.8x
|
|
|
30.8x
|
|
|
Reference
:
|
|
|
|
|
|
|
|
|
FairPoint
|
|
|
5.5x
|
|
|
14.5x
|
|
Notes:
-
(1)
-
Not
pro forma for acquisition of Level 3 Communications, Inc.
-
(2)
-
Not
pro forma for sale of equipment business
-
(3)
-
Not
pro forma for acquisition of EarthLink Holdings Corp.
Evercore
applied a reference range of EBITDA multiples of 5.0x to 6.0x and 6.0x to 9.0x to the estimated EBITDA of FairPoint and Consolidated, respectively, for the year ending
December 31, 2017, to derive a range of implied enterprise values. Evercore applied a reference range of FCF multiples of 10.0x to 15.0x to the estimated FCF for each of FairPoint and
Consolidated for the year ending December 31, 2017, to derive a range of implied equity values. All reference ranges were derived by Evercore based on its review of the respective peer
companies selected and its experience and professional judgment. In the case of FairPoint, estimated EBITDA and FCF were based on the projections provided by the management of FairPoint. In the case
of Consolidated, estimated EBITDA and FCF were based on the projections provided by the management of Consolidated and were calculated on a pro forma basis beginning in 2017, accounting for the sale
of Consolidated's equipment business. Using the 2017 EBITDA multiples, this analysis indicated an implied equity value per-share
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reference
range for FairPoint and Consolidated of approximately $12.61 to $21.18 and $8.79 to $26.67, respectively. Using the 2017 FCF multiples, this analysis indicated an implied equity value
per-share reference range for FairPoint and Consolidated of approximately $11.69 to $17.35 and $21.18 to $31.77, respectively.
Implied Exchange Ratio
Evercore
used the resulting per-share equity value reference ranges to calculate the implied exchange ratios for the EBITDA multiple and FCF multiple cases by dividing
the lowest respective per-share equity value for FairPoint by the highest respective per-share equity value for Consolidated for the low end of the exchange ratio range in each case and dividing the
highest respective per-share equity value for FairPoint by the lowest respective per-share equity value for Consolidated for the high end of the exchange ratio range in each case. This analysis
indicated implied exchange ratio reference ranges of 0.4730x to 2.4091x and 0.3679x to 0.8191x, in the EBITDA multiple and FCF multiple cases, respectively, of a new Consolidated share for each share
of FairPoint common stock. Evercore compared these implied exchange ratios to the transaction exchange ratio of 0.7300x of a new Consolidated share per share of FairPoint common stock in the Merger.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FairPoint
|
|
Consolidated
|
|
|
|
|
Implied
Exchange Ratio
|
|
|
Multiples
|
|
$ / Share
|
|
Multiples
|
|
$ / Share
|
|
TEV / EBITDA—2017E
|
|
5.0x - 6.0x
|
|
$12.61 - $21.18
|
|
6.0x - 9.0x
|
|
$8.79 - $26.67
|
|
0.4730x - 2.4091x
|
|
EV / FCF—2017E
|
|
10.0 - 15.0x
|
|
$11.69 - $17.35
|
|
10.0 - 15.0x
|
|
$21.18 - $31.77
|
|
0.3679x - 0.8191x
|
No
company utilized in the peer company trading analysis is identical to FairPoint or Consolidated. Accordingly, an analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial, operating and market characteristics of FairPoint and Consolidated and other factors that could affect the public trading value of the
companies to which they are being compared. In evaluating the peer companies selected, Evercore made judgments and assumptions with regard to industry performance, general business, economic, market
and financial conditions and other matters, many of which are beyond the control of FairPoint and Consolidated, such as the impact of competition on FairPoint or Consolidated and the industry
generally, industry growth and the absence of any adverse material change in the financial conditions and prospects of FairPoint, Consolidated, the industry or the financial markets in general.
Mathematical analysis, such as determining the mean, median or average, is not in itself a meaningful method of using peer company trading data.
Discounted Cash Flow Analyses
FairPoint
Evercore
performed a discounted cash flow analysis of FairPoint to calculate the estimated present value of the standalone unlevered, after-tax free cash flow that
FairPoint was projected to generate from December 31, 2016 through calendar year 2021, based on financial projections for FairPoint that were provided by FairPoint management. Under the
terminal EBITDA multiple methodology, payments relating to pension and post-retirement expenses were included in the calculation of the after-tax free cash flow. Under the perpetuity growth rate case,
such pension and post-retirement payments were excluded from the calculation of after-tax free cash flow, but reflected in a one-time adjustment as described herein.
Evercore
also calculated a terminal value for FairPoint by applying (i) a terminal EBITDA multiple and (ii) a perpetuity growth rate, in each case based on its professional
judgment given the nature of FairPoint and its business and industry, of 5.0x to 6.0x and 0.0% to 1.0%, respectively, to each of (a) the projected standalone EBITDA, and (b) the
unlevered, after-tax free cash flow, in each
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case
in the terminal year. The terminal values (as calculated using both the terminal EBITDA multiple and the perpetuity growth rate methodologies) for FairPoint were then discounted to present value
as of December 31, 2016 using a discount rate of 6.75% to 7.75%, based on an estimate of FairPoint's weighted average cost of capital, and projected net operating losses (based on assumptions
provided by FairPoint management) were discounted to present value as of December 31, 2016 using a discount rate of 7.25%, to derive respective ranges of implied enterprise values for
FairPoint. Ranges of implied equity values for FairPoint were then calculated (x) in the terminal multiple case, by reducing the respective range of implied enterprise values by the amount of
projected net debt (calculated as debt less cash and cash equivalents) as of December 31, 2016, and (y) in the perpetuity growth case, by reducing the respective range of implied
enterprise values by the amount of FairPoint's projected net debt (calculated as debt less cash and cash equivalents) as of December 31, 2016 and the amount, on an after-tax basis, of
FairPoint's pension and other post-retirement benefit liabilities, in each case as provided by FairPoint's management. Evercore performed this analysis for FairPoint on a standalone basis. Evercore's
analysis indicated an implied per-share equity value reference range for FairPoint on a
standalone basis of approximately $12.88 to $20.83 in the terminal multiple case and $9.22 to $19.83 in the perpetuity growth rate case.
Consolidated
Evercore
performed a discounted cash flow analysis of Consolidated to calculate the estimated present value of the standalone unlevered, after-tax free cash flow that
Consolidated was projected to generate from December 31, 2016 through calendar year 2020, based on financial projections for Consolidated that were provided by Consolidated management and
calculated on a pro forma basis accounting for the sale of Consolidated's equipment business. Under the terminal EBITDA multiple methodology, payments relating to pension and post-retirement expenses
were included in the calculation of the after-tax free cash flow. Under the perpetuity growth rate case, such pension and post-retirement payments were excluded from the calculation of after-tax free
cash flow, but reflected in a one-time adjustment as described herein.
Evercore
also calculated a terminal value for Consolidated by applying (i) a terminal EBITDA multiple and (ii) a perpetuity growth rate, in each case based on its
professional judgment given the nature of Consolidated and its business and industry, of 8.0x to 9.0x and 1.0% to 2.0%, respectively, to each of (a) the projected standalone EBITDA and
(b) the unlevered, after-tax free cash flow, in each case in the terminal year and calculated on a pro forma basis accounting for the sale of Consolidated's equipment business. The terminal
values (as calculated using both the terminal EBITDA multiple and the perpetuity growth rate methodologies) for Consolidated were then discounted to present value as of December 31, 2016 using
a discount rate of 6.0% to 7.0%, based on an estimate of Consolidated's weighted average cost of capital, to derive respective ranges of implied enterprise values for Consolidated. Ranges of implied
equity values for Consolidated were then calculated (x) in the terminal multiple case, by reducing the respective range of implied enterprise values by the amount of Consolidated's projected
net debt (calculated as debt less cash and cash equivalents) as of December 31, 2016, and (y) in the perpetuity growth case, by reducing the respective range of implied enterprise values
by the amount of Consolidated's projected net debt (calculated as debt less cash and cash equivalents) as of December 31, 2016 and the amount, on an after-tax basis, of Consolidated's pension
and other post-retirement benefit liabilities, in each case as provided by Consolidated management and calculated on a pro forma basis accounting for the sale of Consolidated's equipment business.
Evercore's analysis indicated an implied per-share equity value reference range for Consolidated on a standalone basis of approximately $17.36 to $23.59 in the terminal multiple case and $11.16 to
$28.82 in the perpetuity growth rate case.
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Implied Exchange Ratio
Based
on the implied per-share equity value reference ranges, Evercore also calculated implied exchange ratios for the terminal multiple and perpetuity growth rate
cases by dividing the lowest respective per-share equity value for FairPoint by the midpoint of the respective implied per-share reference range for Consolidated for the low end of the exchange ratio
range and dividing the highest respective per-share equity value for FairPoint by the midpoint of the respective implied per-share reference range for Consolidated for the high end of the exchange
ratio range. This analysis indicated implied exchange ratio reference ranges of 0.6290x to 1.0174x and 0.4504x to 0.9683x, in the terminal multiple case and the perpetuity growth rate case,
respectively, of a new Consolidated share for each share of FairPoint common stock. Evercore compared each of these exchange ratios to the exchange ratio of 0.7300x of a new Consolidated share for
each share of FairPoint common stock in the Merger.
Net Present Value of Future Stock Price Analysis
FairPoint
Evercore
performed an illustrative analysis of the net present value of the future stock price of FairPoint, which is designed to provide an indication of the present
value of a theoretical future value of a company as a function of such company's estimated future EBITDA and its assumed TEV to forward ("
Fwd.
") EBITDA
multiple (based on the succeeding twelve-month period). Evercore used financial projections for FairPoint provided by the management of FairPoint through calendar year 2019. Evercore first multiplied
the EBITDA estimate for calendar year 2019 by a range of TEV to Fwd. EBITDA multiples of 5.0x to 6.0x to calculate the implied future enterprise values as of December 31, 2018. Evercore then
calculated the implied future equity values for FairPoint as of December 31, 2018 by reducing the implied future enterprise values by the amount of FairPoint's projected future net debt
(calculated as debt less cash and cash equivalents) as of December 31, 2018. Evercore then discounted the projected per-share equity value as of a particular future date, December 31,
2018, to December 31, 2016 using a discount rate of 10.0%. The discount rate was based on Evercore's analysis of the cost of equity for FairPoint. This analysis resulted in an implied per-share
equity value reference range of approximately $12.27 to $19.31.
Consolidated
Evercore
performed an illustrative analysis of the net present value of the future stock price of Consolidated, which is designed to provide an indication of the
present value of a theoretical future value of a company as a function of such company's estimated future EBITDA and its assumed TEV to Fwd. EBITDA multiple. Evercore used financial projections for
Consolidated derived from assumptions provided by Consolidated management through calendar year 2019 and calculated on a pro forma basis to account for the sale of Consolidated's equipment business.
Evercore first multiplied the EBITDA estimate for calendar year 2019 by a range of TEV to Fwd. EBITDA multiples of 8.0x to 9.0x to calculate the implied future enterprise values as of
December 31, 2018. Evercore then calculated the implied future equity values for Consolidated as of December 31, 2018 by reducing the implied future enterprise values by the amount of
Consolidated's projected future net debt (calculated as debt less cash and cash equivalents) as of December 31, 2018, and adding the cumulative future value of any dividends projected to be
paid by Consolidated as of December 31, 2018. Evercore then discounted the projected per-share equity value as of a particular future date, December 31, 2018, to December 31, 2016
using a discount rate of 9.5%. The discount rate was based on Evercore's analysis of the cost of equity for Consolidated. This analysis resulted in an implied per-share equity value reference range of
approximately $20.71 to $25.67.
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Implied Exchange Ratio
Based
on the implied per-share equity value reference ranges, Evercore calculated an implied exchange ratio reference range by dividing the lowest respective per-share
equity value for FairPoint by the midpoint of the respective implied per-share reference range for Consolidated for the low end of the exchange ratio range and dividing the highest per-share equity
value for FairPoint by the midpoint of the respective implied per-share reference range for Consolidated for the high end of the exchange ratio range. This analysis indicated, on a standalone basis,
an implied exchange ratio reference range of 0.5290x to 0.8327x of a new Consolidated share for each share of FairPoint common stock. Evercore compared these exchange ratios to the exchange ratio of
0.7300x of a new Consolidated share for each share of FairPoint common stock in the Merger.
Other Factors
Evercore also reviewed and considered other factors, which were not considered part of its financial analyses in connection with rendering its
advice, but were referenced for informational purposes, including, among other things, the 52-week trading range, the analysts' price targets and precedent premia analyses described below.
52-Week Trading Range
Evercore reviewed historical trading prices of FairPoint and Consolidated shares during the 52-week period ended December 1, 2016, noting
that the low and high intraday prices during such period ranged from $12.69 to $18.87 for FairPoint and $17.76 to $30.23 for Consolidated. Evercore calculated a daily exchange ratio for the 52-week
period ended December 1, 2016 by dividing the daily closing prices of FairPoint and Consolidated, and then selected an implied exchange ratio reference range using the lowest and highest daily
exchange ratio observed during such period. This analysis indicated an implied exchange ratio reference range of 0.5326x to 0.8500x of a new
Consolidated share for each share of FairPoint common stock. Evercore compared these exchange ratios to the exchange ratios to the exchange ratio of 0.7300x of a new Consolidated share for each share
of FairPoint common stock in the Merger.
Analyst Price Targets
Evercore reviewed publicly available share price targets of research analysts' estimates known to Evercore as of December 1, 2016, noting
that the low and high share price targets ranged from $14.00 to $15.00 for FairPoint (with an average price target of $14.50) and that the low and high share price targets ranged from $19.00 to $26.00
for Consolidated (with an average price target of $22.00). Evercore calculated an implied exchange ratio reference range by dividing the highest share price target for FairPoint by the highest share
price target for Consolidated for the low end of the exchange ratio and dividing the lowest share price target for FairPoint by the lowest share price target for Consolidated for the high end of the
exchange ratio. This analysis indicated an implied exchange ratio reference range of 0.5769x to 0.7368x of a new Consolidated share for each share of FairPoint common stock. Evercore compared these
exchange ratios to the exchange ratio of 0.7300x of a new Consolidated share for each share of FairPoint common stock in the Merger.
Precedent Premia Paid
Evercore reviewed and analyzed premia paid in all-stock transactions since 2007 involving U.S. target companies with an enterprise value greater
than $1 billion. Based on its professional judgment and premia in the precedent transactions assessed, Evercore applied reference ranges of premia of 15% to 20% to the FairPoint unaffected
share price as of December 1, 2016 of $16.75. This analysis indicated a per-share equity value reference range of approximately $19.26 to $20.10 for FairPoint.
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Evercore
used the resulting per-share equity value reference range to calculate the implied exchange ratio by dividing the lowest per-share equity value for FairPoint by Consolidated's share price of
$28.27 per share, as of December 1, 2016, for the low end of the exchange ratio range and dividing the highest per-share equity value for FairPoint by Consolidated's share price of $28.27 per
share, as of December 1, 2016, for the high end of the exchange ratio range. This analysis indicated an implied
exchange ratio reference range of 0.6814x to 0.7110x of a new Consolidated share for each share of FairPoint common stock. Evercore compared this resulting implied exchange ratio to the transaction
exchange ratio of 0.7300x of a new Consolidated share per share of FairPoint common stock in the Merger.
Miscellaneous
The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by
Evercore. In connection with the review of the Merger by the FairPoint Board, Evercore performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation
of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary described above, without
considering the analyses as a whole, could create an incomplete view of the processes underlying Evercore's opinion. In arriving at its fairness determination, Evercore considered the results of all
the analyses and did not draw, in isolation, conclusions from or with regard to any one analysis or factor considered by it for purposes of its opinion. Rather, Evercore made its determination as to
fairness on the basis of its experience and professional judgment after considering the results of all the analyses. In addition, Evercore may have given various analyses and factors more or less
weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular
analysis or combination of analyses described above should not be taken to be the view of Evercore with respect to the actual value of FairPoint common stock or Consolidated common stock. No company
used in the above analyses as a comparison is directly comparable to FairPoint or Consolidated, and no transaction used is directly comparable to the Merger. Further, Evercore's analyses involve
complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies or
transactions used, including judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the
control of FairPoint, Consolidated and their respective advisors. Rounding may result in total sums set forth in this section not equaling 100%.
Evercore
prepared these analyses for the purpose of providing an opinion to the FairPoint Board as to the fairness of the exchange ratio, from a financial point of view, to the holders
of the shares of FairPoint common stock. These analyses do not purport to be appraisals or to necessarily reflect the prices at which the business or securities actually may be sold. Any estimates
contained in these analyses are not necessarily indicative of actual future results, which may be significantly more or less favorable than those suggested by such estimates. Accordingly, estimates
used in, and the results derived from, Evercore's analyses are inherently subject to substantial uncertainty, and Evercore assumes no responsibility if future results are materially different from
those forecasted in such estimates.
Pursuant
to the terms of Evercore's engagement letter with FairPoint, a fee of $3.5 million was payable to Evercore upon the execution and delivery of the Merger Agreement.
Evercore will be entitled to
receive an additional fee of $13.7 million following the consummation of the Merger. In addition, FairPoint has agreed to indemnify Evercore for certain liabilities arising out of its
engagement.
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Prior
to Evercore's engagement in connection with the Merger, Evercore and its affiliates provided financial advisory services to FairPoint and received fees for the rendering of such
services, including the reimbursement of expenses. During the two-year period prior to the delivery of its opinion, no material relationship existed between Evercore and its affiliates and
Consolidated pursuant to which compensation was received by Evercore or its affiliates as a result of such a relationship. Evercore may provide financial or other services to Consolidated in the
future and in connection with any such services Evercore may receive compensation.
In
the ordinary course of business, Evercore or its affiliates may actively trade the securities, or related derivative securities, or financial instruments of FairPoint, Consolidated
and their respective affiliates, for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities or instruments.
The
issuance of the fairness opinion was approved by an Opinion Committee of Evercore.
The
FairPoint Board engaged Evercore to act as a financial advisor based on its qualifications, experience and reputation, as well as familiarity with the business of FairPoint. Evercore
is an internationally recognized investment banking firm and is regularly engaged in the valuation of businesses in connection with mergers and acquisitions, leveraged buyouts, competitive biddings,
private placements and valuations for corporate and other purposes.
Certain Prospective Financial Information Reviewed by the FairPoint Board and FairPoint's Financial Advisor
In connection with the Merger discussions between Consolidated and FairPoint, FairPoint's and Consolidated's management provided to
Consolidated, and Consolidated's and FairPoint's respective financial advisors, certain non-public, internal financial forecasts regarding the anticipated future operations of FairPoint on a
stand-alone basis and estimated synergies arising in connection with the Merger.
In
connection with the Merger, FairPoint's management prepared certain unaudited prospective financial information for FairPoint on a stand-alone basis, without giving effect to the
Merger, and together with Consolidated's management, prepared estimated synergies arising in connection with the Merger. The FairPoint Board also reviewed certain unaudited prospective financial
information for Consolidated on a stand-alone basis, without giving effect to the Merger, which was prepared by Consolidated's management.
FairPoint
has presented below in summary form the unaudited prospective financial information to provide both Consolidated's and FairPoint's stockholders access to this non-public
unaudited prospective financial information, because such financial information was made available to the FairPoint Board.
The
unaudited prospective financial information was also provided to Evercore for purposes of its opinion to the FairPoint Board as to the fairness, from a financial point of view, of
the exchange ratio to the holders of the FairPoint common stock. See the section entitled "—Opinion of Financial Advisor to FairPoint" beginning on page 59. The summary of these internal
financial forecasts is not being included in this joint proxy statement/prospectus to influence your decision whether to approve the FairPoint Merger Proposal.
Although
FairPoint has publicly issued limited projections concerning certain aspects of its expected financial performance, FairPoint, as a matter of course, does not make public its
management's projections as to future results, because of, among other things, the inherent difficulty of accurately predicting financial performance for future periods and the likelihood that the
underlying assumptions and estimates may prove incorrect. The unaudited prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the
guidelines
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established
by the American Institute of Certified Public Accountants with respect to prospective financial information or published guidelines of the SEC regarding forward-looking statements.
The
unaudited prospective financial information of FairPoint has been prepared by, and is the responsibility of, FairPoint's management. Ernst & Young LLP and BDO
USA, LLP, FairPoint's previous and current independent registered public accounting firm, respectively, have neither examined, compiled nor performed any procedures with respect to the
accompanying prospective financial information and, accordingly, Ernst & Young LLP and BDO USA, LLP do not express an opinion or any other form of assurance with respect thereto.
The reports of Ernst & Young LLP incorporated by reference into this joint proxy statement/prospectus relate to the historical results of Consolidated and
FairPoint and do not extend to the prospective financial information and should not be read to do so. Furthermore, the information:
-
•
-
while presented with numerical specificity, necessarily makes numerous assumptions, many of which are beyond the control of FairPoint,
including with respect to industry performance, general business, economic, regulatory, market and financial conditions, as well as matters specific to FairPoint's business, and may not prove to have
been, or may no longer be, accurate;
-
•
-
does not necessarily reflect revised prospects for FairPoint's business, changes in general business, economic, regulatory, market and
financial conditions, or any other transaction or event that has occurred or that may occur and that was not anticipated at the time the projections were prepared;
-
•
-
is not necessarily indicative of current values or future performance, which may be significantly more favorable or less favorable than as set
forth below; and
-
•
-
should not be regarded as a representation that these estimates will be achieved and readers of this joint proxy statement/prospectus are
cautioned not to place undue reliance on these estimates.
FairPoint
believes the assumptions that its management used as a basis for the estimates were reasonable at the time the estimates were prepared, given the information its management had
at the time. While the prospective financial information set forth below was prepared in good faith, no assurance can be given regarding future events. The prospective financial information is
subjective in many respects and is thus susceptible to interpretation and periodic revision based on actual experience and recent developments. In light of the foregoing, as well as the uncertainties
inherent in any prospective financial information, FairPoint's and Consolidated's stockholders are cautioned not to unduly rely on this information as a predictor of future operating results or
otherwise. None of FairPoint, Consolidated or their respective affiliates or representatives assume any responsibility to stockholders of FairPoint or Consolidated for accuracy of this information.
The
estimates involve risks, uncertainties and assumptions. The future financial results of FairPoint may materially differ from those expressed in the estimates due to factors that are
beyond FairPoint's ability to control or predict. These estimates are forward-looking information and as such are subject to the qualifications set forth in the section entitled "Special Note
Regarding Forward-Looking Statements" on page 41. FairPoint cannot assure you that the estimates will be realized or that FairPoint's future financial results will not materially vary from the
estimates. Since the estimates cover multiple years, such information by its nature becomes less reliable with each successive year. The estimates do not take into account any circumstances or events
occurring after the date they were prepared.
FairPoint have not updated, and does not intend to update or otherwise revise, the following internal financial forecasts to reflect circumstances existing since
its preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error. Furthermore, FairPoint has not updated,
and do not intend to update or
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otherwise revise, the accompanying prospective financial information to reflect any changes in general economic or industry conditions since its preparation.
FairPoint Forward-Looking Statements
The following table provides in summary form the five-year financial forecasts with respect to FairPoint provided to the FairPoint Board and
Evercore:
Summary of Five-Year Financial Forecasts of FairPoint
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected
2016
|
|
Projected
2017
|
|
Projected
2018
|
|
Projected
2019
|
|
Projected
2020
|
|
|
|
(in millions of dollars)
|
|
|
Revenue
|
|
$
|
825
|
|
$
|
800
|
|
$
|
778
|
|
$
|
762
|
|
$
|
749
|
|
|
Adjusted EBITDA(a)
|
|
|
248
|
|
|
247
|
|
|
247
|
|
|
248
|
|
|
250
|
|
|
Adjusted EBITDA less capital expenditures
|
|
|
133
|
|
|
135
|
|
|
139
|
|
|
142
|
|
|
146
|
|
|
Free Cash Flow(b)
|
|
|
33
|
|
|
32
|
|
|
38
|
|
|
41
|
|
|
45
|
|
-
(a)
-
Adjusted
EBITDA is calculated according to footnote (3)(A) of the table found under the section entitled "Selected Historical Consolidated Financial Information of
FairPoint Communications, Inc." on page 21.
-
(b)
-
Free
Cash Flow is calculated as Adjusted EBIDTA less capital expenditures, cash pension and other post-employment benefit contribution, cash taxes and interest
expense.
FairPoint
is not able to provide a reconciliation of its forward-looking non-GAAP financial measures to GAAP measures because FairPoint does not forecast certain items used to prepare
net income (loss) in accordance with GAAP.
Consolidated's Reasons for the Merger
Consolidated was formed as an acquisition vehicle in July, 2002, and completed its first transaction on December 31, 2002, when it
acquired certain central-Illinois based assets of McLeodUSA. In April, 2004, Consolidated acquired TXUC from Texas Utilities. In July, 2005, Consolidated completed its initial public offering of
common stock. On December 31, 2007, Consolidated acquired North Pittsburgh Systems, Inc. On July 2, 2012, Consolidated acquired SureWest Communications. On October 16,
2014, Consolidated acquired Enventis Corporation. Throughout
Consolidated's history, Consolidated has focused on acquisitions as a core part of its strategy, and developed a set of evaluation criteria early on which it used and intends to continue to use to
evaluate potential opportunities.
At
nearly every regular quarterly board of directors meeting, Consolidated's management team has reviewed prospective acquisition targets and ranked them according to their
attractiveness and alignment with the acquisition criteria. Where the opportunities were deemed attractive, Consolidated participated from time to time in auctions, made inquiries, and generally
attempted to advance its long-standing strategy to grow through acquisition.
As
a part of that ongoing process, the management team and the Consolidated Board determined that FairPoint met Consolidated's criteria for potential acquisitions, and identified
FairPoint as an attractive potential acquisition candidate. Consolidated entered into a non-disclosure agreement with FairPoint in July 2015 for the purpose of conducting due diligence on FairPoint
and evaluating a
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potential
transaction. Consolidated and FairPoint entered into a subsequent non-disclosure agreement in August 2016.
From
time to time throughout the period from the time beginning with the initial merger discussions between Consolidated and FairPoint in July 2015, and continuing through the time the
Merger Agreement was executed on December 3, 2016, the Consolidated Board worked with the Consolidated management team to develop various strategies and approaches, including the approval of
what became the terms of the Merger Agreement.
In
approving the Merger Agreement and the Merger, Consolidated's Board consulted with Consolidated's management, as well as with Consolidated's legal and financial advisors, and
considered, among other things, the following material factors:
-
•
-
the expectation that the Merger would have an immediate, material, positive impact on Consolidated's cash flow and leverage;
-
•
-
the expectation that the Merger would provide Consolidated with an opportunity to overlay its organic growth strategy on a new territory;
-
•
-
the expectation that the Merger would more than double Consolidated's fiber footprint;
-
•
-
the expectation that the Merger would provide a material increase in scale, including by (i) expanding Consolidated's network reach and
scale, (ii) providing an opportunity to leverage Consolidated's enhanced product suite and consultative sales approach across FairPoint's markets, and (iii) doubling the revenue base and
adjusted EBITDA (including synergies), all of which would be expected to improve Consolidated's platform for acquisition of other targets in the future;
-
•
-
the expectation that the Merger would provide Consolidated stockholders with highly compelling financial benefits, including the expectations
that the Merger would (i) allow the combined companies to realize annual, operating synergies, (ii) be accretive to free cash flow per share, (iii) provide Consolidated with the
ability to improve its leverage and dividend payout ratio over time, with expected pro forma total net leverage ratio under Consolidated's credit agreement to be 3.80:1.00 as of the closing of the
Merger (including run-rate synergies), which would represent a reduction from the total net leverage ratio of 4.38:1.00 as of September 30, 2016, and (iv) provide Consolidated with
greater strategic and financial flexibility in the future;
-
•
-
the expectation that the Merger would create a platform for future growth through acquisitions to fill in Consolidated's national footprint,
and organically through investments in the combined company's existing markets;
-
•
-
the opportunity to integrate FairPoint's business efficiently with Consolidated's existing business;
-
•
-
Consolidated management's prior record of successfully integrating acquired companies; and
-
•
-
that the Merger would bring together two companies with a common history and shared values of community involvement.
The
Consolidated Board also considered, among other things, the following risks:
-
•
-
regulatory and litigation risks associated with the Merger or combining the two companies;
-
•
-
that there are risks associated with obtaining necessary approvals on terms that satisfy closing conditions to the respective parties'
obligations to complete the Merger, and, as a result of certain conditions to the completion of the Merger, it is possible that the Merger may not be completed even if approved by both Consolidated's
and FairPoint's stockholders (see the section entitled "The Merger Agreement—Conditions of the Merger" on page 110);
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-
•
-
the challenges of combining the businesses of the two companies and the attendant risks of not achieving the expected strategic benefits and
cost savings, other financial and operating benefits or improvement in earnings, and of diverting management focus and resources from other strategic opportunities and from operational matters for an
extended period of time;
-
•
-
the perception of investors and the potential impact on Consolidated's share price;
-
•
-
the level of capital expenditures that will be required with respect to the combined business;
-
•
-
the ability to secure financing on terms satisfactory to Consolidated;
-
•
-
the potential that FairPoint's revenue might continue to decline;
-
•
-
the potential increase in cash taxes payable in the future as a result of the transaction;
-
•
-
the potential impact of FairPoint's previous acquisitions and bankruptcy;
-
•
-
the terms and conditions of the Merger Agreement, which include restrictions on the conduct of Consolidated's business pending the closing of
the Merger (see the section entitled "The Merger Agreement—Consolidated's Forbearances Before Completion of the Merger" on page 103); and
-
•
-
other risks of the type and nature discussed above under the section entitled "Risk Factors Relating to the Merger" on page 34.
Opinion of Financial Advisor to Consolidated
The Consolidated Board retained Morgan Stanley to provide it with financial advisory services in connection with the proposed merger and to
provide a financial opinion. The Consolidated Board selected Morgan Stanley to act as its financial advisor based on Morgan Stanley's qualifications, expertise and reputation and its knowledge of the
business and affairs of Consolidated. On December 3, 2016, at a meeting of the Consolidated Board, Morgan Stanley rendered its oral opinion, subsequently confirmed by delivery of a written
opinion dated December 3, 2016 that, as of that date and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on
the scope of review undertaken by Morgan Stanley as set forth in the written opinion, the exchange ratio was fair from a financial point of view to Consolidated.
The full text of the written opinion of Morgan Stanley delivered to the Consolidated Board, dated as of December 3, 2016, is attached to this joint proxy
statement/prospectus as Annex III and is incorporated herein by reference in its entirety. You should read Morgan Stanley's opinion and this summary of Morgan Stanley's opinion carefully and in
their entirety for a discussion of the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by Morgan Stanley in rendering
its opinion. This summary is qualified in its entirety by reference to the full text of such opinion. Morgan Stanley's opinion was directed to the Consolidated Board, in its capacity as such, and
addressed only the fairness from a financial point of view to Consolidated of the exchange ratio pursuant to the Merger Agreement as of the date of such opinion. Morgan Stanley's opinion did not
address any other aspects or implications of the Merger. It was not intended to, and does not, constitute advice or a recommendation to any holder of shares of Consolidated common stock as to how to
vote at the Consolidated special meeting or whether to take any other action with respect to the Merger.
For
purposes of rendering its opinion, Morgan Stanley, among other things:
-
(a)
-
reviewed
certain publicly available financial statements and other business and financial information of FairPoint and Consolidated, respectively;
-
(b)
-
reviewed
certain internal financial statements and other financial and operating data concerning FairPoint and Consolidated, respectively;
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-
(c)
-
reviewed
certain financial projections prepared by the managements of FairPoint and Consolidated, respectively;
-
(d)
-
reviewed
information relating to certain strategic, financial and operational benefits anticipated from the Merger, prepared by the managements of FairPoint and
Consolidated, respectively;
-
(e)
-
discussed
the past and current operations and financial condition and the prospects of FairPoint, including information relating to certain strategic, financial and
operational benefits anticipated from the Merger, with senior executives of FairPoint;
-
(f)
-
discussed
the past and current operations and financial condition and the prospects of Consolidated, including information relating to certain strategic, financial
and operational benefits anticipated from the Merger, with senior executives of Consolidated;
-
(g)
-
reviewed
the pro forma impact of the Merger on Consolidated's cash flow, consolidated capitalization and certain financial ratios;
-
(h)
-
reviewed
the reported prices and trading activity for FairPoint common stock and Consolidated common stock;
-
(i)
-
compared
the financial performance of FairPoint and Consolidated and the prices and trading activity of FairPoint common stock and Consolidated common stock with
that of certain other publicly-traded companies that Morgan Stanley deemed to be comparable with FairPoint and Consolidated, respectively, and their securities;
-
(j)
-
reviewed
the financial terms, to the extent publicly available, of certain comparable acquisition transactions,
-
(k)
-
participated
in certain discussions and negotiations among representatives of FairPoint and Consolidated and their financial and legal advisors;
-
(l)
-
reviewed
the Merger Agreement, a draft of the Commitment Letter (as defined below) dated December 1, 2016, and certain related documents; and
-
(m)
-
performed
such other analyses, reviewed such other information and considered such other factors as Morgan Stanley deemed appropriate.
In
arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or
supplied or otherwise made available to it by FairPoint and Consolidated, and formed a substantial basis for its opinion. With respect to the financial projections, including information relating to
certain strategic, financial and operational benefits anticipated from the Merger, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the respective managements of FairPoint and Consolidated of the future financial performance of FairPoint and Consolidated. In addition, Morgan Stanley assumed that the
Merger would be consummated in accordance with the terms set forth in the Merger Agreement without any waiver, amendment or delay of any terms or conditions, including, among other things, that the
Merger would be treated as a tax-free reorganization, pursuant to the Internal Revenue Code of 1986, as amended, that Consolidated would obtain financing in accordance with the terms set forth in the
Commitment Letter, and that the definitive Merger Agreement would not differ in any material respect from the draft thereof furnished to Morgan Stanley. Morgan Stanley assumed that in connection with
the receipt of all the necessary governmental, regulatory or other approvals and consents required for the Merger, no delays, limitations, conditions or restrictions would be imposed that would have a
material adverse effect on the contemplated benefits expected to be derived in the Merger. Morgan Stanley relied upon, without independent verification, the assessment by the managements of FairPoint
and Consolidated of:
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(i) the
strategic, financial and other benefits expected to result from the Merger; (ii) the timing and risks associated with the integration of FairPoint and Consolidated;
(iii) their ability to retain key employees of FairPoint and Consolidated, respectively; and (iv) the validity of, and risks associated with, FairPoint and Consolidated's existing and
future technologies, intellectual property, products, services and business models. Morgan Stanley's opinion did not address the relative merits of the Merger as compared to any other alternative
business transaction, or other alternatives, or whether or not such alternatives could be achieved or are achievable. Morgan Stanley is not a legal, tax or regulatory advisor. Morgan Stanley is a
financial advisor only and relied upon, without independent verification, the assessments of Consolidated and FairPoint and their legal, tax or regulatory advisors with respect to legal, tax or
regulatory matters. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of any compensation to any of the officers, directors or employees of any of the parties to
the Merger Agreement, or any class of such persons, relative to the exchange ratio. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of FairPoint or
Consolidated, nor was it furnished with any such valuations or appraisals. Morgan Stanley's opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the
information made available to it as of, the date of the opinion. Events occurring after such date may affect Morgan Stanley's opinion and the assumptions used in preparing it, and Morgan Stanley did
not assume any obligation to update, revise or reaffirm its opinion.
Summary of Financial Analyses of Morgan Stanley
The following is a summary of the material financial analyses performed by Morgan Stanley in connection with its oral opinion and the
preparation of its written opinion to the Consolidated Board, dated as of December 3, 2016. The following summary is not a complete description of the financial analyses performed and factors
considered by Morgan Stanley in connection with its opinion, nor does the order of analyses described represent the relative importance or weight given to those analyses. Except as otherwise noted,
the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before December 2, 2016, the most recent trading day prior to
Morgan Stanley's presentation to the Consolidated Board of its financial analysis on December 3, 2016. Some of these summaries of financial analyses include information presented in tabular
format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete
description of the financial analyses. The analyses listed in the tables and described below must be considered as a whole. Assessing any portion of such analyses and of the factors reviewed, without
considering all analyses and factors, could create a misleading or incomplete view of the process underlying Morgan Stanley's opinion. Furthermore, mathematical analysis (such as determining the
average or median) is not in itself a meaningful method of using the data referred to below.
In
performing the financial analyses summarized below and in arriving at its opinion, Morgan Stanley utilized and relied upon certain financial projections provided by the managements of
FairPoint and Consolidated and which are described below.
Trading Range Analysis
Morgan Stanley reviewed the trading range of FairPoint common stock and Consolidated common stock for six-month and twelve-month periods ending
December 2, 2016. Morgan Stanley observed that the low and high closing prices for FairPoint common stock for the six-month period ended December 2, 2016 were $13.04 and $17.60,
respectively, and the low and high closing prices for FairPoint common stock for the twelve-month period ended December 2, 2016 were $12.69 and $18.22, respectively. Morgan Stanley observed
that the low and high closing prices for Consolidated common stock for the six-month period ended December 2, 2016 were $21.85 and $30.23, respectively, and the
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low
and high closing prices for Consolidated common stock for the twelve-month period ended December 2, 2016 were $17.76 and $30.23, respectively.
Morgan
Stanley calculated ranges of implied exchange ratios using the six-month and twelve-month trading ranges of FairPoint common stock and Consolidated common stock. The low end of
the ranges were calculated by dividing the low value of FairPoint common stock for the period by the high value of Consolidated common stock for the period, and the high end of the ranges were
calculated by dividing the high value of FairPoint common stock for the period by the low value of Consolidated common stock for the period. The six-month trading range analysis indicated an implied
exchange ratio range of 0.43x to 0.81x, and the twelve-month trading range analysis indicated an implied exchange ratio range of 0.42x to 1.03x. Morgan Stanley noted that the Merger Agreement provided
for an exchange ratio of 0.73x.
Research Analyst Price Targets
Morgan Stanley reviewed the latest selected public market trading price targets available as of December 2, 2016 for FairPoint common
stock by three equity research analysts that published a price target for FairPoint. These targets reflected each analyst's estimate of the future public market trading price of FairPoint common
stock. Morgan Stanley noted that the range of undiscounted stock price targets for FairPoint common stock from such research targets was $14.00 to $16.00 per share and the range of discounted stock
price targets (discounted at 9% cost of equity twelve months from the date of issuance of the applicable research report) for FairPoint common stock was $12.93 to $14.78. Morgan Stanley noted that the
closing price for FairPoint common stock on December 2, 2016 was $17.00. Morgan Stanley noted that the implied price per share of FairPoint common stock based on an exchange ratio of 0.73x and
the 30-day volume weighted average price of Consolidated common stock on December 2, 2016 was $19.07, and the implied price per share of FairPoint common stock based on an exchange ratio of
0.73x and the share price of Consolidated common stock as of December 2, 2016 was $20.72.
Morgan
Stanley reviewed the latest selected public market trading price targets available as of December 2, 2016 for Consolidated common stock by five equity research analysts
that published a price target for Consolidated. These targets reflected each analyst's estimate of the future public market trading price of Consolidated common stock. Morgan Stanley noted that the
range of undiscounted stock price targets for Consolidated common stock from such research targets was $19.00 to $30.00 per share and the range of discounted stock price targets (discounted at 9% cost
of equity twelve months from the date of issuance of the research report) for Consolidated common stock was $17.93 to $27.71. Morgan Stanley noted that the closing price for Consolidated common stock
as of December 2, 2016 was $28.38. Morgan Stanley noted that the 30-day volume weighted average price of Consolidated common stock on December 2, 2016 was $26.12.
Morgan
Stanley calculated the exchange ratio range implied by the equity research price targets. In order to calculate the exchange ratio range, Morgan Stanley calculated the implied
exchange ratio only for each of the three equity research analysts that provided price targets for both companies using their price targets for FairPoint common stock and Consolidated common stock.
This analysis yielded an implied range of exchange ratios of 0.47x to 0.68x. Morgan Stanley noted that the Merger Agreement provided for an exchange ratio of 0.73x.
The
public market trading price targets published by research analysts do not necessarily reflect current market trading prices for FairPoint common stock and Consolidated common stock
and these estimates are subject to uncertainties, including the future financial performance of FairPoint and Consolidated and future financial market conditions.
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Comparable Public Companies
In order to assess how the public market values shares of publicly traded telephone communications companies to derive implied ranges for the
trading value of FairPoint common stock, Morgan Stanley reviewed and compared certain internal financial information and ratios relating to FairPoint with equivalent publicly available data for the
following companies: CenturyLink, Inc.; Cincinnati Bell Inc.; Frontier Communications Corp.; Lumos Networks Corp.; and Windstream Holdings, Inc.
For
purposes of this analysis, Morgan Stanley analyzed the ratio of aggregate value to "adjusted EBITDA" (as defined in FairPoint's Annual Report on Form 10-K for the fiscal year
ended December 31, 2015), excluding stock-based compensation, for calendar year 2017 and the ratio of aggregate value to estimated unlevered free cash flow (for these purposes Morgan Stanley
assumed cash flow to be equal to adjusted EBITDA less capital expenditures) for calendar year 2017 for each of the comparable public companies. Morgan Stanley then applied a range of these ratios,
based on its professional judgment choosing ratios from the comparable companies with an asset mix and business quality most similar to that of FairPoint, to FairPoint's estimated EBITDA for calendar
year 2017 of $247.0 million and estimated unlevered free cash flow for calendar year 2017 of $135.0 million, as applicable, based on the FairPoint management projections to derive an
implied reference range for the trading value of FairPoint common stock. The implied trading value range for FairPoint common stock resulting from the ratio of aggregate value to EBITDA was $12.51 to
$19.16. The implied trading value range for FairPoint common stock resulting from the ratio of aggregate value to unlevered free cash flow was $11.64 to $21.30.
Morgan
Stanley noted that the closing price for FairPoint common stock on December 2, 2016 was $17.00. Morgan Stanley noted that the implied price per share of FairPoint common
stock based on an exchange ratio of 0.73x and the 30-day volume weighted average price of Consolidated common stock on December 2, 2016 was $19.07, and the implied price per share of FairPoint
common stock based on an exchange ratio of 0.73x and the share price of Consolidated common stock as of December 2, 2016 was $20.72.
No
company utilized in the comparable public company analysis is identical to FairPoint. Morgan Stanley selected the companies reviewed in this analysis because it believed them to be
similar to FairPoint based on its experience with companies in the telephone communications sector. Morgan Stanley made judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters, which are beyond FairPoint's control such as the impact of competition on FairPoint and the industry generally, industry growth, and the
absence of any adverse material change in the financial condition and prospects of FairPoint or the industry, or in the financial markets in general.
Precedent Strategic Transactions Analysis
In order to assess how companies in the telephone communications sector have been valued in precedent merger and acquisition transactions,
Morgan Stanley reviewed and compared the purchase
78
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prices
and financial multiples paid in the following eight selected precedent transactions announced from October 2008 to February 2015:
|
|
|
|
|
|
|
Announcement Date
|
|
Acquiror
|
|
Target
|
|
February 5, 2015
|
|
Frontier Communications Corporation
|
|
Verizon's wireline business and fiber network in California, Florida and Texas
|
June 30, 2014
|
|
Consolidated Communications Holdings, Inc.
|
|
Enventis Corporation
|
December 17, 2013
|
|
Frontier Communications Corporation
|
|
AT&T's Connecticut wireline business and fiber network
|
February 6, 2012
|
|
Consolidated Communications Holdings, Inc.
|
|
SureWest Communications
|
April 22, 2010
|
|
CenturyTel, Inc.
|
|
Qwest Communications
|
November 24, 2009
|
|
Windstream Corporation
|
|
Iowa Telecom Services, Inc.
|
May 13, 2009
|
|
Frontier Communications Corporation
|
|
Verizon's access lines and other assets in 14 states
|
October 27, 2008
|
|
CenturyTel, Inc.
|
|
Embarq Corporation
|
Morgan
Stanley calculated multiples from the selected precedent transactions of the target company's aggregate value to its latest twelve months EBITDA both before and after taking into
account estimated synergies anticipated to be realized from the selected precedent transactions. Financial data of the selected precedent transactions were based on publicly available information at
the time of announcement of the relevant transaction. Morgan Stanley calculated implied per share equity reference ranges for FairPoint by applying ranges of multiples derived from the selected
precedent transactions of 4.5x to 6.0x (excluding estimated synergies) and 4.0x to 5.0x (including estimated synergies) to FairPoint's latest twelve months EBITDA. The implied per share equity
reference ranges for FairPoint common stock were $8.99 to $22.60 per share (excluding estimated synergies) and $11.63 to $22.50 per share (including estimated synergies).
Morgan
Stanley noted that the closing price for FairPoint common stock on December 2, 2016 was $17.00. Morgan Stanley noted that the implied price per share of FairPoint common
stock based on an exchange ratio of 0.73x and the 30-day volume weighted average price of Consolidated common stock on December 2, 2016 was $19.07, and the implied price per share of FairPoint
common stock based on an exchange ratio of 0.73x and the share price of Consolidated common stock as of December 2, 2016 was $20.72.
No
company or transaction utilized in the precedent strategic transaction analyses is identical to Consolidated, FairPoint or the Merger. In evaluating the precedent transactions, Morgan
Stanley made judgments and assumptions with regard to general business, market and financial conditions and other matters, which are beyond the control of Consolidated and FairPoint, such as the
impact of competition on the business of Consolidated, FairPoint or the industry generally, industry growth and the absence of any adverse material change in the financial condition of Consolidated,
FairPoint or the industry or in the financial markets in general, which could affect the public trading value of the companies and the aggregate value of the transactions to which they are being
compared.
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Discounted Cash Flow Analysis
Morgan Stanley performed a discounted cash flow analysis on each of FairPoint and Consolidated based on the projections from the managements of
FairPoint and Consolidated, respectively, which is designed to estimate the value of a company on a standalone basis by calculating the present value of estimated future cash flows and terminal value
of that company. Morgan Stanley calculated a range of per share equity values for each of FairPoint and Consolidated (valued as of December 31, 2016 with a terminal date of December 31,
2021).
FairPoint Discounted Cash Flow Analysis
Morgan Stanley first calculated the estimated unlevered free cash flow of FairPoint, which for these purposes Morgan Stanley assumed cash flow
to be equal to adjusted EBITDA less capital expenditures, cash pension funding, other post-employment benefits cash, unlevered tax expense and other cash flow items (including severance), for the
period from January 1, 2017 to December 31, 2021 based on the FairPoint management projections. Morgan Stanley calculated a terminal value for FairPoint by applying a range of terminal
EBITDA multiples of 5.00x to 6.00x, based on Morgan Stanley's professional judgment, to the estimated EBITDA of FairPoint for calendar year 2021 based on the FairPoint management projections. Morgan
Stanley then discounted the unlevered free cash flow and terminal values to present value as of December 31, 2016 using a range of discount rates from 6.25% to 7.25% selected by Morgan Stanley
based on Morgan Stanley's estimation of FairPoint's weighted average cost of capital utilizing the capital asset pricing model. Morgan Stanley also calculated the estimated value of the cash tax
savings associated with FairPoint's net operating losses ("NOLs") that the combined company could utilize during calendar years 2017 through 2020 based on a projected NOL balance of approximately
$300.0 million as of December 31, 2016, as directed for use by Consolidated management. The estimated cash tax savings were discounted by Consolidated's estimated weighted average cost
of capital of 6.75%. Morgan Stanley then added this cumulative value and deducted the estimated net debt as of December 31, 2016 from the resulting value, and divided that resulting value by
the number of fully diluted shares outstanding, to derive equity value. Morgan Stanley noted that the closing price for FairPoint common stock on December 2, 2016 was $17.00. Morgan Stanley
noted that the implied price per share of FairPoint common stock based on an exchange ratio of 0.73x and the 30-day volume weighted average price of Consolidated common stock on December 2,
2016 was $19.07, and the implied price per share of FairPoint common stock based on an exchange ratio of 0.73x and the share price of Consolidated common stock as of December 2, 2016 was
$20.72.
Consolidated Discounted Cash Flow Analysis
Morgan Stanley first calculated the estimated unlevered free cash flow of Consolidated, which for these purposes Morgan Stanley assumed cash
flow to be equal to adjusted EBITDA less cash taxes, capital expenditures, changes in net working capital, cash pension funding and other cash flow items, for the period from January 1, 2017 to
December 31, 2021 based on the Consolidated management projections. Morgan Stanley calculated a terminal value for Consolidated by applying a range of terminal EBITDA multiples of 8.00x to
9.00x, based on Morgan Stanley's professional judgment, to the estimated EBITDA of Consolidated for calendar year 2021 based on the Consolidated management projections. Morgan Stanley then discounted
the unlevered free cash flow and terminal value to present value as of December 31, 2016 using a range of discount rates of 6.25% to 7.25% selected by Morgan Stanley based on Morgan Stanley's
estimation of Consolidated's weighted average cost of capital utilizing the capital asset pricing model. Morgan Stanley then deducted the estimated net debt and non-controlling interests as of
December 31, 2016 from the resulting value, and divided that resulting value by the number of fully diluted shares outstanding, to derive equity value.
This analysis indicated an implied per share reference range for a share of Consolidated common stock of $16.71 to $22.90 per share, on a fully diluted basis.
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Exchange Ratio Implied by Discounted Cash Flow Analysis
Morgan Stanley calculated the exchange ratio ranges implied by the discounted cash flow analyses. Morgan Stanley compared the lowest implied per
share value for FairPoint common stock to the highest implied per share value for Consolidated common stock to derive the lowest exchange ratio implied by the analyses. Similarly, Morgan Stanley
compared the highest implied per share value for FairPoint common stock to the lowest implied per share value for Consolidated common stock to derive the highest exchange ratio implied by the
analyses. Morgan Stanley noted that the Merger Agreement provided for an exchange ratio of 0.73x.
Other Analysis
The analysis and data described below were presented to the Consolidated Board for informational/reference purposes only and did not provide the
basis for, and were not otherwise material to, the rendering of Morgan Stanley's opinion.
Pro Forma Financial Has-Gets Analysis
Morgan Stanley reviewed the Consolidated and FairPoint management projections in order to calculate the potential pro forma financial effects of
the Merger (including estimated synergies) on the combined company's calendar years 2018 and 2021 estimated financial metrics (based on Consolidated having pro forma ownership of 71.3% of the combined
company, calculated using the 0.73x exchange ratio from the Merger Agreement and the number of fully diluted shares of FairPoint
and Consolidated common stock outstanding as of December 2, 2016) relative to the same estimated financial metrics for Consolidated as a standalone company. Morgan Stanley's comparison
indicated that the following estimated financial metrics of Consolidated could increase or (decrease) as a part of the combined company relative to a standalone company as follows:
|
|
|
|
|
|
|
Revenue
|
|
Change from Standalone
to Combined
|
|
|
2018E
|
|
|
52.0
|
%
|
|
2021E
|
|
|
49.2
|
%
|
|
Adjusted EBITDA
|
|
|
|
|
|
2018E
|
|
|
34.7
|
%
|
|
2021E
|
|
|
41.9
|
%
|
|
Levered Free Cash Flow / Share (including synergies realized and cost to achieve)
|
|
|
|
|
|
2018E
|
|
|
56.7
|
%
|
|
2021E
|
|
|
53.7
|
%
|
|
Payout Ratio
|
|
|
|
|
|
2018E
|
|
|
(25
|
)%
|
|
2021E
|
|
|
(30
|
)%
|
|
Net Debt / Adjusted EBITDA
|
|
|
|
|
|
2018E
|
|
|
(0.7x
|
)
|
|
2021E
|
|
|
(1.1x
|
)
|
|
Equity Value Based on DCF Mid-point
|
|
|
|
|
|
Consolidated
|
|
|
31.6
|
%
|
|
FairPoint
|
|
|
3.7
|
%
|
The
pro forma financial has-gets analysis was presented for reference purposes only, and was not relied upon for valuation purposes.
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General
In connection with the review of the Merger by the Consolidated Board, Morgan Stanley performed a variety of financial and comparative analyses
for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its
opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that
selecting any portion of these analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley
may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the
ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley's view of the actual value of FairPoint or Consolidated.
In
performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business, regulatory, economic, market and financial conditions and
other matters. Many of these assumptions are beyond the control of FairPoint and Consolidated. These include, among other things, the impact of competition on the businesses of FairPoint and
Consolidated and the industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects of FairPoint and Consolidated and the industry, and in
the financial markets in general. Any estimates contained in Morgan Stanley's analyses are not necessarily indicative of future results or actual values, which may be significantly more or less
favorable than those suggested by such estimates.
Morgan
Stanley conducted the analyses described above solely as part of its analysis of the fairness from a financial point of view to Consolidated of the exchange ratio pursuant to the
Merger Agreement, and in connection with the delivery of its opinion to the Consolidated Board. These analyses do not purport to be appraisals or to reflect the prices at which shares of Consolidated
common stock might actually trade following consummation of the Merger or at any time.
The
exchange ratio was determined through arm's-length negotiations between FairPoint and Consolidated and was approved by the Consolidated Board. Morgan Stanley provided advice to
Consolidated during these negotiations. Morgan Stanley did not, however, recommend any specific exchange ratio to Consolidated, nor that any specific exchange ratio constituted the only appropriate
exchange ratio for the Merger. Morgan Stanley's opinion did not address the relative merits of the Merger as compared to any other alternative business transaction, or other alternatives, or whether
or not such alternatives could be achieved or are available, nor did it address the underlying business decision of Consolidated to enter into the Merger Agreement. In addition, Morgan Stanley's
opinion was not intended to, and does not, in any manner, address the prices at which Consolidated common stock might trade following consummation of the Merger or at any time, and Morgan Stanley
expressed no opinion or recommendation as to how Consolidated stockholders should vote at the Consolidated special meeting.
Morgan
Stanley's opinion and its oral presentation to the Consolidated Board was one of many factors taken into consideration by the Consolidated Board in deciding to approve the Merger
Agreement and the transactions contemplated thereby. Consequently, the analyses as described above should not be viewed as determinative of the opinion of the Consolidated Board with respect to the
exchange ratio pursuant to the Merger Agreement or of whether the Consolidated Board would have been willing to agree to a different exchange ratio.
Morgan
Stanley's opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with Morgan Stanley's customary practice. Morgan Stanley
is a global financial services firm engaged in the securities, investment management and individual wealth
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management
businesses. Its securities business is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well
as providing investment banking, financing and financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that
invest, hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for its own account or the accounts of its customers, in debt or equity
securities or loans of Consolidated, FairPoint or any other company, or any currency or commodity, that may be involved in the Merger, or any related derivative instrument.
Under
the terms of its engagement letter, Morgan Stanley provided the Consolidated Board with financial advisory services and a financial opinion described in this section and attached
to this joint proxy statement/prospectus as Annex III in connection with the Merger and Consolidated has agreed to pay Morgan Stanley a transaction fee of $13 million, which is payable
upon and is contingent upon the consummation of the Merger. Consolidated has also agreed to reimburse Morgan Stanley for its reasonable expenses incurred from time to time in connection with providing
its professional services, including reasonable fees of outside counsel and other professional advisors incurred in performing its services. In addition, Consolidated has agreed to indemnify Morgan
Stanley, its affiliates, its officers, directors, employees and agents and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including
certain liabilities under the federal securities laws, relating to or arising out of Morgan Stanley's engagement. Morgan Stanley or one or more of its affiliates is providing to Consolidated a portion
of the financing required in connection with the Merger, for which Morgan Stanley will receive additional fees from Consolidated. In the two years prior to the date of Morgan Stanley's opinion, in
addition to the services provided in connection with the Merger and the opinion, Morgan Stanley has provided financial advisory and financing services to Consolidated and its affiliates and received
aggregate fees of between $3.0 million and $4.0 million in connection with such services. During the same period, Morgan Stanley has provided financing services to FairPoint and its
affiliates, including as a lender and administrative agent with respect to FairPoint's senior secured credit facilities, and received aggregate fees of less than $1.0 million in connection with
such services. Morgan Stanley may seek to provide financial advisory and financing services to Consolidated and FairPoint and their affiliates in the future and would expect to receive fees for the
rendering of those services.
The Consolidated Board after Completion of the Merger
Consolidated's amended and restated certificate of incorporation provides for the classification of the Consolidated Board into three classes of
directors, designated Class I, Class II and Class III, as nearly equal in size as is practicable, serving staggered three-year terms. One class of directors is elected each year
to hold office for a three-year term or until successors of such directors
are duly elected and qualified. The current size of the Consolidated Board is eight directors, comprised of two Class I directors, three Class II directors and three Class III
directors.
Pursuant
to the Merger Agreement, FairPoint is entitled to select, subject to approval by Consolidated (such approval not to be unreasonably conditioned, withheld or delayed), and
Consolidated has agreed to take all such action as may be reasonably necessary to cause, one individual from among the current members of the FairPoint Board to be elected to the Consolidated Board as
of the effective time of the Merger. For further information on FairPoint's directors, see FairPoint's Form 10-K for the year ended December 31, 2015. As a result, after completion of
the Merger, Consolidated expects that the Consolidated Board would consist of Richard A. Lumpkin (Class I Director—term expiring in 2018), Timothy D. Taron (Class I
Director—term expiring in 2018), an individual selected from the FairPoint Board (Class I Director—term expiring in 2018), Thomas A. Gerke (Class II
Director—term expiring in 2019), Roger H. Moore (Class II Director—term expiring in 2019), Dale E. Parker (Class II Director—term expiring in 2019),
Robert J. Currey (Class III
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Director—term
expiring in 2017), Maribeth S. Rahe (Class III Director—term expiring in 2017) and C. Robert Udell, Jr. (Class III Director—term
expiring in 2017).
Interests of FairPoint Directors and Executive Officers in the Merger
In considering the recommendation of the FairPoint Board with respect to the Merger, FairPoint's stockholders should be aware that certain
executive officers and directors of FairPoint have interests in the Merger that may be different from, or in addition to, the interests of FairPoint's stockholders generally. The FairPoint Board was
aware of the interests described below and considered them, among other matters, when approving the FairPoint Merger Proposal and recommending that FairPoint's stockholders vote to approve the
FairPoint Merger Proposal.
Change in Control Benefits for Executive Officers
FairPoint has employment agreements with Messrs. Sunu, Nixon, Lunny, Metge and Rush and Ms. Turner and a severance in connection
with a change in control agreement with Mr. Hogshire that provide change in control benefits as summarized below.
Paul H. Sunu
On April 9, 2013, FairPoint entered into an amended and restated employment agreement with Mr. Sunu, as amended on
August 14, 2015. Pursuant to Mr. Sunu's employment agreement, in the event that Mr. Sunu's employment is terminated by FairPoint without cause (other than due to his death or
disability) within twelve months before or twelve months after a change in control, or in the event that Mr. Sunu provides FairPoint with notice of his termination of employment without good
reason during the 13th month following the consummation of a change in control, Mr. Sunu is entitled to a lump sum payment of (A) all accrued but unpaid base salary through the
date of the termination, any amounts payable under the Amended and Restated 2010 Long Term Incentive Plan (the "LTIP"), any unpaid or unreimbursed expenses and any benefits to be provided under
FairPoint's employee benefits plans upon a termination of employment ("Accrued Obligations"), (B) any unpaid annual incentive plan (the "AIP") bonus (in respect of any completed fiscal year
that has ended prior to the date of the termination of Mr. Sunu's employment), (C) two times the amount of Mr. Sunu's then-current base salary, (D) the cost of continued
health and disability insurance coverage for Mr. Sunu and his covered dependents for a period of 24 months and (E) the greater of two times the amount of his average AIP bonus for
the immediately preceding two fiscal years where such average is determined by reference to the actual annual bonus paid to Mr. Sunu for the immediately two preceding fiscal years, or two times
his target AIP bonus for the year in which the termination occurred. Mr. Sunu will also be entitled to a pro rata portion of the AIP bonus for the year in which the termination occurred and
will receive immediate accelerated vesting of all outstanding unvested equity awards.
If
Mr. Sunu terminates his employment for good reason, he will be entitled to the benefits described above, except that the bonus payment described in (E) of the preceding
paragraph will be based on two times the average AIP bonus paid to him for the two preceding fiscal years, and accelerated vesting of then outstanding equity awards is limited to the next tranche of
time-based awards and the target amount of performance-based awards.
The
employment agreement and the award agreements under the LTIP provide that upon the occurrence of a change in control, Mr. Sunu's unvested benefits under the LTIP will be
accelerated and vest in full.
The
payment of any amount or provision of any benefit upon the termination under the employment agreement as described above is conditioned upon Mr. Sunu's execution and delivery
to FairPoint of a release of all claims against, among other parties, FairPoint and its subsidiaries. In
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addition,
Mr. Sunu's entitlement to payments and benefits upon termination under his employment agreement is subject to his compliance with a non-interference agreement with FairPoint, pursuant
to which Mr. Sunu agrees to, among other things, certain non-competition and non-solicitation provisions for 24 months following the termination of his employment with FairPoint.
Karen D. Turner, Peter G. Nixon, John J. Lunny, Bruce F. Metge and Steven G. Rush
FairPoint entered into employment agreements with Ms. Turner (on November 20, 2014, as amended on August 14, 2015 and
November 21, 2016); Mr. Nixon (on January 22, 2013, as amended on August 14, 2015 and May 16, 2016); Mr. Lunny (on July 1, 2014, as amended on
August 14, 2015 and November 21, 2016); Mr. Metge (on September 6, 2016) and Mr. Rush (on August 10, 2015, as amended on June 1, 2016).
Pursuant
to the respective employment agreements, in the event the executive's employment is terminated by FairPoint without cause (other than due to death or disability) or by the
executive for good reason within six months before or six months after a change in control, the executive is entitled to a lump sum payment of (A) the Accrued Obligations, (B) any unpaid
AIP bonus (in respect of any completed fiscal year that has ended prior to the date of the termination of the executive's employment), (C) two times the amount of the executive's then-current
base salary, (D) the cost of continued health and disability insurance coverage for the executive and his or her covered dependents for a period of 24 months and (E) the greater
of two times the amount of his or her average AIP bonus for the immediately preceding two fiscal years where such average is determined by reference to the actual annual bonus paid to the executive
for the immediately two preceding fiscal years, or two times his or her target AIP bonus for the year in which the termination occurred.
If
the executive's employment is terminated by FairPoint without cause (other than due to death or disability) or by the executive for good reason outside the six month window described
above, the executive will be entitled to the benefits described above, except that the bonus payment described in (E) of the preceding paragraph will be based on two times the average AIP bonus
paid to the executive for the two preceding fiscal years.
The
employment agreements and the award agreements under the LTIP provide that upon the occurrence of a change in control, all of the executives' unvested benefits under the LTIP will be
accelerated and vest in full.
The
payment of any amount or provision of any benefit upon termination under an employment agreement (as described above) is conditioned upon the executive's execution and delivery to
FairPoint of a release of all claims against, among other parties, FairPoint and its subsidiaries. In addition, the executive's entitlement to payments and benefits under his or her employment
agreement is subject to his or her compliance with a non-interference agreement with FairPoint, pursuant to which the executive agrees to, among other things, certain non-competition and
non-solicitation provisions for twelve months following his or her employment with FairPoint.
John Hogshire
On November 5, 2015, FairPoint entered into a severance in connection with a change in control agreement, as amended on
January 11, 2017 (the "Severance Agreement"), with Mr. Hogshire, FairPoint's Principal Accounting Officer. Pursuant to the Severance Agreement, if, within twelve months of a change in
control, (i) FairPoint terminates Mr. Hogshire's employment without cause (other than due to his death or disability), (ii) Mr. Hogshire terminates his employment as a
result of a reduction in his cash compensation (
i.e.
, base salary and annual bonus opportunity) by greater than 5% without his consent or
(iii) Mr. Hogshire terminates his employment as a result of a required relocation of his principal place of employment by more than 100 miles without his consent, and such termination
results in Mr. Hogshire incurring a "separation from service" as defined under Treasury
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Regulation 1.409A-1(h)
and Mr. Hogshire has executed an general release of claims in favor of FairPoint, Mr. Hogshire is entitled to a lump sum payment equal to (A) the
amount of his then-current base salary for six months and (B) subsidization of his applicable COBRA premiums so that the COBRA premiums paid by Mr. Hogshire equal the same amount that he
paid as an active employee under FairPoint's health insurance plan for the lesser of six months following the termination of his employment or until Mr. Hogshire becomes eligible for insurance
benefits from another employer.
Mr. Hogshire's
entitlement to payments and benefits under the Severance Agreement is subject to his compliance with a non-interference provision, pursuant to which
Mr. Hogshire agrees to, among other
things, certain non-solicitation provisions for the period of six months immediately following the termination date.
The
award agreements under the LTIP provide that upon the occurrence of a change in control, all of Mr. Hogshire's unvested benefits under the LTIP will be accelerated and vest in
full.
Impact of Internal Revenue Code
If it is determined that any change in control payment due would result in an excise tax imposed pursuant to Section 4999 of the Code,
each executive can elect to either receive full payment and pay the excise tax (in which case FairPoint's tax deduction for compensation paid would be severely limited) or have the payment reduced to
the amount necessary to avoid the excise tax. The foregoing reduction is referred to herein as the "280G cutback provision."
THE MERGER AGREEMENT
The following discussion sets forth the principal terms of the Merger Agreement, a copy of which is attached as
Annex I to this joint proxy statement/prospectus and is incorporated by reference herein. The rights and obligations of the parties are governed by the express terms and conditions of the
Merger Agreement and not by this discussion, which is a summary by nature. This discussion is not complete and is qualified in its entirety by reference to the complete text of the Merger Agreement.
You are encouraged to read the Merger Agreement carefully in its entirety, as well as this joint proxy statement/prospectus, before making any decisions regarding the Merger.
The Merger
Subject to the terms and conditions of the Merger Agreement and in accordance with Delaware law, Merger Sub, a wholly-owned subsidiary of
Consolidated, will merge with and into FairPoint. FairPoint will be the surviving company in the Merger and continue its corporate existence as a wholly-owned subsidiary of Consolidated. Upon
consummation of the Merger, the separate corporate existence of Merger Sub will terminate.
Closing and Effectiveness of the Merger
The closing of the Merger will occur as soon as possible, but no later than two business days after the date of the conditions to its completion
have been satisfied or waived. The Merger will become effective at such time (the "effective time") as set forth in the certificate of merger that the parties will duly execute and file with the
Secretary of State of the State of Delaware.
Appointment of Director Designated by FairPoint
Pursuant to the Merger Agreement, FairPoint is entitled to select, subject to approval by Consolidated (such approval not to be unreasonably
conditioned, withheld or delayed), and Consolidated has agreed to take all such action as may be reasonably necessary to cause, one individual from among the current members of the FairPoint Board to
be elected to the Consolidated Board as of the effective time of the Merger.
Consideration to be Received in the Merger
At the effective time of the Merger, each outstanding share of FairPoint common stock (except shares owned by Consolidated, FairPoint or their
subsidiaries) will be converted into the right to receive 0.7300 shares of common stock of Consolidated. No fractional shares of Consolidated common stock will be issued. Each holder will be entitled
to receive, in lieu of any fractional share of Consolidated common stock to which such holder would otherwise have been entitled, an amount in cash (without interest and less any applicable taxes
required to be withheld), rounded to the nearest whole cent, equal to the product obtained by multiplying (i) the fractional share of Consolidated common stock to which such holder would
otherwise be entitled by (ii) the last reported sale price of Consolidated common stock on the NASDAQ Global Select Market on the last complete trading day prior to the date of the effective
time of the Merger.
Treatment of FairPoint Equity Awards
Each FairPoint Option, to the extent outstanding and unexercised immediately prior to the effective time of the Merger, shall become fully
vested as of the effective time of the Merger and shall, without any action on the part of the holder of such option, be automatically cancelled in exchange for the right to receive, as soon as
reasonably practicable following the effective time of the Merger, that number of shares of Consolidated common stock as is equal to (i) the product of (A) the adjusted option shares (as
defined below), multiplied by (B) the difference of (1) the per share closing price for
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Consolidated
common stock as reported on the NASDAQ Global Select Market on the trading day immediately preceding the closing date, minus (2) the adjusted exercise price (as defined below),
divided by (ii) the per share closing price for Consolidated common stock as reported on the NASDAQ Global Select Market on the trading day immediately preceding the closing date (the "option
consideration"); provided, however, that in the event that the adjusted exercise price of any FairPoint Option is equal to or greater than the per share closing price for Consolidated common stock as
reported on the NASDAQ Global Select Market on the trading day immediately preceding the closing date, such FairPoint Option shall be canceled and no option consideration shall be payable in respect
of such
FairPoint Option. The term "adjusted exercise price" means, with respect to each FairPoint Option, the quotient of (A) the exercise price set forth in such FairPoint Option, in each case as
adjusted to the date of such calculation in accordance with the terms of such FairPoint Option, divided by (B) 0.7300. The term "adjusted option shares" means, with respect to each FairPoint
Option, the product of (A) the number of shares of FairPoint common stock underlying such FairPoint Option, in each case as adjusted to the date of such calculation in accordance with the terms
of such FairPoint Option, multiplied by (B) 0.7300.
Each
FairPoint Performance Award, to the extent outstanding immediately prior to the effective time of the Merger, shall become 100% fully vested as of the effective time of the Merger
and shall, without any action on the part of any holder of such FairPoint Performance Award, be automatically canceled in exchange for the right to receive, as soon as reasonably practicable following
the effective time of the Merger, that number of shares of Consolidated common stock as is equal to the product of (i) the number of shares of FairPoint common stock underlying such FairPoint
Performance Award, multiplied by (ii) 0.7300.
Restricted
share awards granted under any FairPoint stock plan, to the extent outstanding and subject to vesting or forfeiture conditions (whether time-based or performance-based), shall
become fully vested or released from such forfeiture conditions as of the effective time of the Merger and shall be treated as shares of FairPoint common stock for all purposes of the Merger
Agreement.
Representations and Warranties
The Merger Agreement contains representations and warranties made by FairPoint to Consolidated and by Consolidated to FairPoint. The assertions
embodied in those representations and warranties were made solely for purposes of the Merger Agreement and may be subject to important qualifications and limitations agreed to by the parties in
connection with negotiating the terms of the Merger Agreement. Accordingly, FairPoint's and Consolidated's stockholders should not rely on representations and warranties as characterizations of the
actual state of facts or circumstances, and should bear in mind that the representations and warranties were made solely for the benefit of the parties to the Merger Agreement, were negotiated for
purposes of allocating contractual risk among the parties to the Merger Agreement rather than to establish matters as facts and may be subject to contractual standards of materiality different from
those generally applicable to disclosure to stockholders. Moreover, information concerning the subject matter of such representations and warranties may change after the date of the Merger Agreement,
which subsequent information may or may not be reflected in public disclosures of FairPoint and Consolidated. This description of the representations and warranties is included to provide FairPoint's
and Consolidated's stockholders with information regarding the terms of the Merger Agreement. The representations and warranties in the Merger Agreement and the description of them in this joint proxy
statement/prospectus should be read in conjunction with the other information contained in the reports, statements and filings FairPoint and Consolidated publicly file with the SEC. See the section
entitled "Where You Can Find More Information" on page 150.
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In
the Merger Agreement, FairPoint and Consolidated made a number of representations and warranties to each other. The parties' reciprocal representations and warranties relate to, among
other things:
-
•
-
due incorporation, valid existence and good standing, and corporate authorization and power to enter into the Merger Agreement and consummate
the transactions contemplated thereby;
-
•
-
the good standing and corporate power and authority of FairPoint's and Consolidated's subsidiaries, respectively;
-
•
-
capitalization and capital structure;
-
•
-
the absence of any violation of or conflict with such party's organizational documents or applicable laws as a result of entering into the
Merger Agreement and consummating the Merger;
-
•
-
required regulatory filings, consents and approvals of governmental entities in connection with the Merger Agreement and the Merger;
-
•
-
documents filed by FairPoint and Consolidated, respectively, with the SEC since January 1, 2014 and the accuracy of information
contained in those documents;
-
•
-
financial statements;
-
•
-
the absence of undisclosed broker's or finder's fees;
-
•
-
the absence of certain changes or events, and the absence of a material adverse effect on FairPoint and Consolidated, respectively, in each
case since September 30, 2016;
-
•
-
the joint proxy statement/prospectus to be filed with the Securities and Exchange Commission under the Exchange Act and the accuracy of
information contained in such document as provided by such party;
-
•
-
litigation and legal proceedings;
-
•
-
filing of tax returns, payment of taxes and other tax matters;
-
•
-
employee benefit plans;
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FairPoint's and Consolidated's respective compliance with applicable legal requirements and possession of permits and compliance with
provisions of the Sarbanes-Oxley Act of 2002 and the listing standards of the NASDAQ Stock Market;
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•
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FairPoint's and Consolidated's possession of and compliance with, and the validity of, requisite communications regulatory permits, approvals,
authorizations, certificates and licenses;
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•
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certain material contracts;
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the absence of undisclosed liabilities;
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•
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environmental matters; and
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•
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intellectual property.
In
addition to the foregoing, the Merger Agreement contains representations and warranties made by FairPoint to Consolidated relating to:
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real and personal properties;
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•
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receipt by FairPoint of a fairness opinion from Evercore;
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the inapplicability of certain state takeover statutes;
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affiliate transactions;
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labor and employment matters; and
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insurance.
FairPoint's Forbearances Before Completion of the Merger
From the date of the Merger Agreement until the effective time of the Merger, FairPoint has agreed, subject to certain exceptions, to conduct
its business in the ordinary course. In addition, FairPoint may not, among other things and subject to certain exceptions, without Consolidated's consent:
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•
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adjust, split, combine or reclassify its capital stock;
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•
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set any record or payment dates for the payment of any dividends or distributions on its capital stock or make, declare or pay any dividend or
make any other distribution on any shares of its capital stock or any securities or obligations convertible into or exchangeable for any shares of its capital stock, except that any wholly-owned
subsidiary of FairPoint may declare and pay dividends to its parent and other wholly owned subsidiaries of FairPoint;
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•
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directly or indirectly 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, except pursuant to the exercise of stock options or vesting of restricted FairPoint common stock outstanding as of the date of the Merger Agreement
or permitted to be issued under the Merger Agreement or pursuant to the surrender of shares to FairPoint or the withholding of shares by FairPoint to cover tax withholding obligations or to pay any
applicable exercise price under FairPoint stock plans;
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•
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grant any stock appreciation rights or grant any person any right to acquire any shares of its capital stock, or issue, or commit to issue,
sell, grant, dispose of, pledge or otherwise encumber, or authorize or propose the issuance, sale, grant, disposition, pledge or other encumbrance of, any additional shares of capital stock (except
pursuant to the exercise of stock options or vesting or settlement of awards under FairPoint's stock plans outstanding as of the date of the Merger Agreement), any securities convertible into or
exercisable for, or any rights, warrants or options to acquire, any additional shares of capital stock, or any other securities in respect of, in lieu of, or in substitution for, any shares of
FairPoint's capital stock outstanding on the date of the Merger Agreement; provided that Consolidated has agreed that the FairPoint Board may make grants of stock-based awards in 2017 in the ordinary
course of business consistent with past practice in an aggregate amount of up to 200,000 shares of FairPoint common stock;
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•
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sell, transfer, mortgage, encumber or otherwise dispose of any of its material assets or material properties to any person (other than a direct
wholly-owned subsidiary), by merger, consolidation, asset sale or other business combination (including formation of a joint venture) or cancel, release or assign any indebtedness to any such person
or any claims held by any such person, in each case, except (i) in the ordinary course of business consistent with past practice, including sales of repossessed assets, (ii) dispositions
of obsolete or worthless assets, (iii) sales of loans, receivables and other assets in the ordinary course of business consistent with past practice and (iv) sales of immaterial assets
which involve the sale of assets with a purchase price of $1.0 million or less in any single case or $5.0 million in all such cases;
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•
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make any investment or acquisition, by purchase or other acquisition of stock or other equity interests, by merger, consolidation, asset
purchase or other business combination, or by contributions to capital; or make any material purchases of any property or assets, in or from any other person other than a wholly-owned subsidiary of
FairPoint, except (i) as otherwise
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permitted
in the Merger Agreement, and (ii) other acquisitions in the ordinary course of business and, in any case, involving consideration in an aggregate amount not in excess of
$10.0 million;
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enter into, renew, extend, amend or terminate any material contract, lease or agreement that is or would be a company contract;
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•
-
other than general pay increases, including in connection with promotions, made in the ordinary course of business consistent with past
practice, for employees, directors or independent contractors generally or as provided by any agreement in effect on the date of the Merger Agreement, (i) increase, or commit to increase, the
compensation or severance payable (including by granting or increasing the rate or terms of any salary, bonus, pension or other compensation pursuant to the terms of any employee benefit plan),
(ii) pay any severance other than in the ordinary course of business consistent with past practice or (iii) except as may be required, or advisable, to comply with applicable law or
contract, amend, establish or enter into any pension, retirement, profit-sharing, severance, retention or welfare benefit plan or agreement or incentive or employment, agreement with or for the
benefit of any employee, director or independent contractor or accelerate the vesting of any stock options or other stock-based compensation;
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•
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amend its certificate of incorporation, bylaws or similar governing documents or similar organizational documents of any subsidiary of
FairPoint;
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•
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enter into any new material line of business outside of its existing business;
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•
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assign, transfer, lease, cancel, fail to renew or fail to extend any material permit issued by the FCC or any state or local regulator;
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•
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incur any indebtedness for borrowed money, issue any debt securities or assume, guarantee or endorse or otherwise become responsible for the
obligations of another person, or make any loans, advances of capital contributions to, or investments in, any other person, in each case, except in the ordinary course of business consistent with
past practice;
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•
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make or change any material tax election or settle or compromise any material tax liability of FairPoint or any of its subsidiaries;
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make any material changes in its accounting methods or method of tax accounting, practices or policies, except as may be required under
applicable law, rule, regulation or GAAP;
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effect or permit, with respect to FairPoint and any of its subsidiaries, a "plant closing" or "mass layoff", as such terms are defined under
the Worker Adjustment and Retraining Notification Act of 1988, as amended;
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•
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account for, manage or treat accounts receivable (including accelerating the collection thereof) or accounts payable (including delaying the
payment thereof) in any manner other than in the ordinary course of business consistent with past practice;
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except as otherwise permitted, take any action that is intended or may reasonably be expected to result in any of the conditions to the Merger
not being satisfied; or
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agree or make any commitment to do any of the foregoing.
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Consolidated's Forbearances Before Completion of the Merger
From the date of the Merger Agreement until the effective time of the Merger, Consolidated has agreed not to take the following actions, among
other things and subject to certain exceptions, without FairPoint's consent:
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adjust, split, combine or reclassify its capital stock (unless the exchange ratio and/or merger consideration is adjusted to take into account
such adjustment, split, combination or reclassification);
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•
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set any record or payment dates for the payment of any dividends or distributions on its capital stock or make, declare or pay any dividend or
make any other distribution on any shares of its capital stock or any securities or obligations convertible into or exchangeable for any shares of its capital stock, except for
(x) Consolidated's regular quarterly cash dividends and (y) any wholly-owned subsidiary of Consolidated may declare and pay dividends to its parent and other wholly owned subsidiaries of
Consolidated;
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•
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engage in any material repurchase of, or any recapitalization or other change, restructuring or reorganization with respect to, Consolidated
common stock;
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•
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grant any stock appreciation rights or grant any person any right to acquire any shares of its capital stock except in the ordinary course of
business, or issue, or commit to issue, sell, grant, dispose of, pledge or otherwise encumber, or authorize or propose the issuance, sale, grant, disposition, pledge or other encumbrance of, any
additional shares of capital stock (except pursuant to the exercise of stock options or vesting or settlement of awards under the Consolidated stock plans outstanding as of the date of Merger
Agreement or permitted to be issued under the Merger Agreement), any securities convertible into or exercisable for, or any rights, warrants or options to acquire, any additional shares of capital
stock, or any other securities in respect of, in lieu of, or in substitution for, any shares of its capital stock outstanding on the date of the Merger Agreement;
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•
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sell, transfer, mortgage, encumber or otherwise dispose of any of its material assets or material properties to any person (other than a direct
wholly-owned subsidiary of Consolidated), by merger, consolidation, asset sale or other business combination (including formation of a joint venture) except (i) in the ordinary course of
business, including sales of repossessed assets, (ii) dispositions of obsolete or worthless assets, (iii) sales of loans, receivables and other assets in the ordinary course of business
and (iv) sales of immaterial assets which involve the sale of assets with a purchase price of $1.0 million or less in any single case or $5.0 million in all such cases;
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•
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alter through merger, liquidation, reorganization, restructuring or in any other manner the corporate structure or organization of Consolidated
or engage in any action or enter into any transaction or series of transactions, or permit any action to be taken or transaction or series of transactions to be entered into that, in the case of
either of the immediately preceding clauses, could reasonably be expected to delay the consummation of, or otherwise adversely affect, the Merger, including withdrawing or modifying, in a manner
adverse to FairPoint, the approval by the Consolidated Board of the Merger Agreement, the Merger or the issuance of Consolidated common stock;
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•
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make any investment or acquisition, by purchase or other acquisition of stock or other equity interests, by merger, consolidation, asset
purchase or other business combination, or by contributions to capital; or make any material purchases of any property or assets, in or from any other person other than a wholly-owned subsidiary of
Consolidated, except (i) as otherwise permitted by the Merger Agreement and (ii) other acquisitions in the ordinary course of
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No Solicitation; Changes in Recommendations
In the Merger Agreement, FairPoint has agreed that the FairPoint Board will recommend that FairPoint's stockholders approve the FairPoint Merger
Proposal, and that none of
FairPoint, the FairPoint Board or any of its subsidiaries will, nor will any of FairPoint, the FairPoint Board or any of its subsidiaries authorize or permit any of its representatives to, directly or
indirectly:
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•
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solicit, initiate or knowingly encourage or facilitate any inquiry with respect to, or the making, submission or announcement of, any proposal
or offer that constitutes, or is reasonably expected to lead to, an alternative proposal (as defined below), including through the furnishing of non-public information;
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•
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furnish any non-public information relating to FairPoint or any of its subsidiaries or afford access to the business, properties, assets,
books, records or other non-public information of FairPoint or any of its subsidiaries, relating to an alternative proposal or any inquiries or the making of any proposal that could lead to an
alternative proposal;
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•
-
engage in, continue or otherwise participate in any discussions or negotiations regarding an alternative proposal;
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•
-
grant any waiver, amendment or release under any standstill or confidentiality agreement or anti-takeover laws;
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•
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resolve to withdraw, modify or qualify, in a manner adverse to Consolidated, the FairPoint Board's recommendation that FairPoint's stockholders
approve the Merger Agreement (a "company recommendation change");
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approve or recommend any alternative proposal; or
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enter into any letter of intent, memorandum of understanding, agreement in principal, acquisition agreement, merger agreement, option
agreement, joint venture agreement, partnership agreement or other similar agreement relating to an alternative proposal or authorize, approve or publicly recommend an alternative proposal or
agreement relating to an alternative proposal.
However,
at any time prior to obtaining FairPoint's stockholder approval, if FairPoint has complied with its non-solicitation obligations above, FairPoint may participate or engage in
discussions or negotiations with, furnish non-public information, and afford access to the business, properties, assets, books, records or other non-public information and access to FairPoint's
personnel, to any person that makes a bona fide alternative proposal, but only if:
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•
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FairPoint makes available to Consolidated any material non-public information concerning FairPoint that is provided to any person given such
access which was not previously made available to Consolidated;
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•
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prior to initiating any such action, the FairPoint Board shall have determined in good faith (after consultation with its financial advisor and
outside legal counsel) that such alternative proposal either constitutes a superior proposal (as defined below)or could reasonably be expected to result in a superior proposal; and
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•
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prior to furnishing such information or access to, or entering into substantive discussions or negotiations with, such person, FairPoint
receives a confidentiality agreement that meets terms specified in the Merger Agreement, and FairPoint notifies Consolidated that it intends to furnish information or access to, or intends to enter
into substantive discussions or negotiations with, such person.
In
addition, at any time prior to obtaining FairPoint's stockholder approval, if FairPoint is then in receipt of a bona fide written alternative proposal that the FairPoint Board
concludes in good faith (after consultation with its financial advisor and outside legal counsel) constitutes a superior proposal or if there occurs any fiduciary change (as defined below), the
FairPoint Board may:
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•
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effect a company recommendation change; and/or
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•
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in the case of superior proposal, adopt, approve, endorse or recommend, or publicly propose to adopt, approve, endorse or recommend to the
stockholders of FairPoint, any superior proposal and authorize FairPoint to terminate the Merger Agreement to enter into an alternative acquisition agreement with respect to such superior proposal
(provided, however, that in the circumstances described in this bullet point, FairPoint concurrently terminates the Merger Agreement, pays the termination fee if, when, and as required by the Merger
Agreement and enters into a definitive alternative acquisition agreement with respect to such superior proposal).
In
the circumstances set forth in the foregoing paragraph, the FairPoint Board may effect a company recommendation change, if and only if:
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•
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the FairPoint Board has determined in good faith (after consultation with its financial advisor and outside legal counsel) that failure to take
such action would be inconsistent with the directors' exercise of their fiduciary obligations to the stockholders of FairPoint under applicable laws; and
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FairPoint shall have validly terminated the Merger Agreement and paid the termination fee in accordance with the Merger Agreement, and prior to
terminating the Merger Agreement, FairPoint shall have given Consolidated at least three business days' notice (or shorter period specified in the Merger Agreement for material revisions to the
superior proposal) thereof, attaching the alternative proposal agreement, and if, within such three business day period (or such shorter period) Consolidated makes an offer that the FairPoint Board
determines in good
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faith
is more favorable to the stockholders of FairPoint, from a financial point of view, than such superior proposal, and agrees in writing to all adjustments in the terms and conditions of the
Merger Agreement to reflect such offer, FairPoint's notice of termination with respect to such superior proposal shall be deemed to be rescinded and of no further force and effect and, if FairPoint
has entered into a superior proposal agreement, it must promptly terminate such agreement.
The
term "alternative proposal" means, any proposal, indication or offer, including any proposal, indication or offer from or to FairPoint's stockholders, made by any person or group (as
defined under Rule 13(d) under the Exchange Act) other than Consolidated or its subsidiaries and/or affiliates relating to, whether in a single transaction or series of related transactions,
and whether directly or indirectly, any (i) transaction or series of transactions (including any merger, reorganization, share exchange, consolidation, business combination, joint venture,
partnership, recapitalization, dissolution, liquidation or similar direct or indirect transaction involving FairPoint and/or any of its subsidiaries) for the issuance or acquisition of shares of
FairPoint common stock or other equity securities of FairPoint whose business or businesses constitute 20% (in number or voting power) or more of the assets, revenues or earnings of FairPoint and its
subsidiaries, taken as a whole, (ii) acquisition, license or purchase of assets of FairPoint and/or its subsidiaries equal to 20% or more of the consolidated assets of FairPoint and its
subsidiaries or to which 20% or more of FairPoint's revenues or earnings on a consolidated basis are attributable or (iii) acquisition of beneficial ownership (as defined under
Rule 13(d) under the Exchange Act) of equity interests representing a 20% or greater economic or voting interest in FairPoint or tender offer (including a self-tender offer) or exchange offer
that, if consummated, would result in any person or group (as defined under Rule 13(d) under the Exchange Act) beneficially owning equity interests representing a 20% (in number or voting
power) or greater economic or voting interest in FairPoint (provided, for the avoidance of doubt, that a transfer of FairPoint common stock solely as part of the exercise of registration rights
applicable to the FairPoint common stock in effect on the date of the Merger Agreement shall not be considered an alternative proposal).
The
term "fiduciary change" means any determination by the FairPoint Board, prior to obtaining FairPoint's stockholder approval of the Merger, that it is obligated to make a company
recommendation change because such a change is advisable to comply with its fiduciary duties to stockholders of FairPoint.
The
term "superior proposal" means any bona fide alternative proposal (except that references to "20% or more" in the definition thereof will be deemed to be references to "50% or more")
made by any person that is on terms that the FairPoint Board determines in good faith (after consultation with its financial advisor and outside legal counsel) and after taking into account all legal,
financial (including the financing terms thereof), regulatory, timing and other aspects of the proposal are more
favorable to FairPoint's stockholders from a financial point of view than the transactions contemplated by the Merger Agreement.
The
Merger Agreement provides that FairPoint shall notify Consolidated if any alternative proposals are received by FairPoint indicating, in connection with such notice, the material
terms and conditions of any proposals or offers (including, if applicable, copies of any written requests, proposals or offers, including proposed agreements) and thereafter FairPoint must keep
Consolidated reasonably informed, on a prompt basis, of the status and material terms of any such proposals or offers (including any material amendments thereto), including any change in FairPoint's
intentions as previously notified. In addition, FairPoint must promptly notify Consolidated if any non-public information is requested from, or any discussions or negotiations are sought to be
initiated or continued with, FairPoint indicating, in connection with such notice, the status of any such discussions or negotiations, including any change in the FairPoint's intentions as previously
notified.
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Commercially Reasonable Efforts to Complete the Merger; Other Agreements
Commercially Reasonable Efforts.
Consolidated and FairPoint have each agreed to use their commercially reasonable efforts (i) to
take, or
cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable law to consummate the transactions contemplated by the Merger Agreement and
(ii) to promptly prepare, file and provide to third parties and governmental entities all applications, statements, notices, petitions, registrations, requests, declarations and filings which
are necessary or advisable to consummate the transactions contemplated by the Merger Agreement (including the Merger and the issuance of Consolidated common stock in connection with the Merger), to
obtain (and to cooperate with the other party to obtain) as promptly as practicable all
material permits, consents, registrations, authorizations and exemptions of or from all third parties and governmental entities which are necessary or advisable to consummate the transactions
contemplated by the Merger Agreement (including the Merger and the issuance of Consolidated common stock in connection with the Merger), and to comply with the terms and conditions of all such
permits, consents, registrations, authorizations and exemptions of all such third parties and governmental entities, provided that these agreements do not apply to the debt financing, which is
governed by other provisions of the Merger Agreement.
Proxy Statement/Prospectus; Registration Statement; Stockholders' Meeting.
Consolidated and FairPoint have agreed to prepare and file
with the SEC
this joint proxy statement/prospectus and the registration statement of which this joint proxy statement/prospectus forms a part as soon as is reasonably practicable after the execution of the
Merger Agreement. Consolidated and FairPoint have also agreed to use commercially reasonable efforts to have the registration statement declared effective by the SEC and kept effective at all times
through the effective time of the Merger in order to permit consummation of the Merger. The Merger Agreement also provides that Consolidated and FairPoint will each hold a meeting of their respective
stockholders following SEC clearance of the joint proxy statement/prospectus and will recommend, in the case of FairPoint, the approval of the FairPoint Merger Proposal by its stockholders and, in the
case of Consolidated, the approval of the Consolidated Stock Issuance Proposal by its stockholders, and FairPoint and Consolidated will use commercially reasonable efforts to obtain such approvals.
Access to Information
Under the Merger Agreement, until the effective time of the Merger, subject to reasonable prior notice, applicable law and the confidentiality
agreement between FairPoint and Consolidated dated August 19, 2016, FairPoint and Consolidated agree to provide their respective authorized representatives access to the properties, books,
contracts, commitments and records and to the officers, employees, accountants, counsel and other representatives of FairPoint, Consolidated, and the subsidiaries of each.
Covenants and Agreements with Respect to the Debt Financing
Under the Merger Agreement, among other things, Consolidated and Merger Sub agreed to take all actions and do, or cause to be done, all things
necessary, proper or advisable to
(x) maintain in effect the debt commitment letter and (y) arrange and obtain the proceeds of the debt financing on the terms and conditions described in the debt commitment letter
(including any "market flex" terms and conditions in the fee letter referenced in, and to which, the debt commitment letter is subject), including: (i) entering into definitive agreements with
respect thereto on the terms and conditions contained in the debt commitment letter as promptly as practicable; and (ii) satisfying, or cause the representatives of Consolidated and Merger Sub
to satisfy all conditions applicable to Consolidated, Merger Sub, any subsidiary of Consolidated or their respective representatives that are within their respective control in such definitive
agreements. Consolidated also agreed not to amend, modify or grant any waivers of, any condition or other provision under the debt commitment letter without prior
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consent of FairPoint if such amendments, modifications or waivers would (i) reduce the aggregate amount of the debt financing or (ii) impose new or additional conditions that
would reasonably be expected to (A) prevent or materially delay the ability of Consolidated to consummate the Merger and the other transactions contemplated by the Merger Agreement or
(B) adversely impact the ability of Consolidated, Merger Sub or any subsidiary of Consolidated to enforce its rights against the other parties to the debt commitment letter. FairPoint agreed to
cooperate, and use commercially reasonable efforts to cause FairPoint's officers, employees, representatives, auditors, and advisors, including legal and accounting advisors, to cooperate, in
connection with the arrangement of the debt financing, as may be reasonably requested by Consolidated, at Consolidated's sole expense, (provided that such requested cooperation does not unreasonably
interfere with the ongoing operations of business of FairPoint and its subsidiaries).
Alternative Financing
Under the Merger Agreement, Consolidated agreed that, in the event that any portion of the debt financing becomes unavailable in the manner or
from the sources contemplated in the Commitment Letter, (i) Consolidated will promptly notify FairPoint and (ii) Consolidated and Merger Sub will use their respective commercially
reasonable efforts to arrange and obtain, and to negotiate and enter into definitive agreements with respect to, alternative financing from alternative financial institutions in an amount sufficient
to consummate the transactions contemplated by the Merger Agreement upon conditions not less favorable to Consolidated, Merger Sub and FairPoint, taken as a whole, than those in the debt commitment
letter ("Alternative Financing"), as promptly as practicable following the occurrence of such event (and in any event no later than the closing date of the Merger);
provided
, that if Consolidated agrees
to be subject to the same obligations under the Merger Agreement with respect to any Alternative Financing as
those with respect to the debt financing. Under the Merger Agreement, Consolidated is obligated to provide to FairPoint copies of any commitment letter and fee letter associated with an Alternative
Financing as well as any
amendment or waiver of any debt commitment letter or fee letter that is permitted under the Merger Agreement.
Director and Officer Indemnification and Insurance
The Merger Agreement provides that from and after the effective time of the Merger, each of Consolidated and FairPoint, as the surviving company
shall, jointly and severally:
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•
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indemnify and hold harmless the "indemnified parties" (meaning each individual who served as a director or officer of FairPoint or its
subsidiaries prior to the effective time of the Merger) to the fullest extent required, authorized or permitted by Delaware law, in connection with any claim and any judgments, fines (including excise
taxes), penalties and amounts paid in settlement resulting therefrom; and
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•
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promptly pay on behalf of or, within 30 days after any request for advancement, advance to each of the indemnified parties, to the
fullest extent required, authorized or permitted by Delaware law, any expenses incurred in defending, serving as a witness with respect to or otherwise participating in any claim in advance of the
final disposition of such claim, but in the case of advancement of expenses upon receipt of an undertaking, to the extent required by applicable law, from such indemnified party to repay such advanced
expenses if it is determined by a court of competent jurisdiction in a final order that such indemnified party was not entitled to indemnification hereunder with respect to such expenses.
The
Merger Agreement further provides that, prior to the effective time of the Merger, FairPoint shall or, if FairPoint is unable to, Consolidated shall cause the surviving company in
the Merger as of the effective time of the Merger to, obtain and fully pay the premium for the non-cancellable extension of the directors' and officers' liability coverage of FairPoint's existing
directors' and officers' insurance
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policies
and FairPoint's existing fiduciary liability insurance policies (collectively, "D&O Insurance"), in each case for a claims reporting or discovery period of at least six years from and after
the effective time of the Merger with respect to any claim related to any period of time at or prior to the effective time of the Merger from an insurance carrier with the same or better credit rating
as FairPoint's current insurance carrier with respect to D&O Insurance with terms, conditions, retentions and limits of liability that are no less favorable than the coverage provided under
FairPoint's existing policies with respect to any actual or alleged error, misstatement, misleading statement, act, omission, neglect, breach of duty or any matter claimed against a director or
officer of FairPoint by reason of him or her serving in such capacity that existed or occurred at or prior to the effective time of the Merger (including in connection with the Merger Agreement or the
transactions or actions contemplated thereby), provided that the annual premium therefor shall not exceed $1,718,760. If such "tail policy" cannot be obtained, Consolidated or FairPoint as the
surviving company, as the case may be, is required to use commercially reasonable efforts to obtain as much directors' and officers' liability insurance coverage as can be obtained for $1,718,760 per
year on terms substantially similar to FairPoint's existing directors' and officers' liability insurance.
Employee Matters
The Merger Agreement provides that, for a period of one year from and after the effective time of the Merger, Consolidated will provide to those
employees of FairPoint and its subsidiaries who are employed immediately prior to the effective time of the Merger who remain employed by Consolidated after the effective time of the Merger (the
"continuing employees") compensation and benefits arrangements that are no less favorable in the aggregate than either the (i) levels of compensation and benefits provided to the continuing
employees immediately prior to the effective time of the Merger or (ii) the levels of compensation and benefit arrangements that are provided to similarly situated employees of Consolidated.
The Merger Agreement also provides that Consolidated will give continuing employees who remain employed by Consolidated after the effective time of the Merger, full credit for purposes of determining
eligibility and vesting (but not for purposes of any benefit accruals) under any employee benefit plans or arrangements maintained by Consolidated (other than any defined benefit or equity-based
plans) for such continuing employee's service with FairPoint or its subsidiaries, waive all limitations as to preexisting conditions, exclusions and waiting periods with respect to participation and
coverage requirements applicable to the continuing employees under any welfare benefit plan maintained by Consolidated to the same extent waived by FairPoint and its subsidiaries or otherwise not
subject to limitation by FairPoint and its subsidiaries, provide credit under any such welfare plan for any co-payments, deductible and out-of-pocket expenditures for the remainder of the coverage
period during which any transfer of coverage occurs, and honor in accordance with their terms all employee benefit plans or arrangements maintained by FairPoint immediately prior to the effective time
of the Merger.
Definition of Material Adverse Effect
Certain of the representations and warranties and provisions relating to conditions to the consummation of the Merger are qualified by "material
adverse effect." A "material adverse effect" is defined with respect to any entity as (i) a material adverse effect on the business, results of operations or financial condition of such entity
and its subsidiaries, taken as a whole or (ii) a material adverse effect on the ability of such entity to consummate the transactions contemplated by the Merger Agreement on a timely basis,
excluding any effect on the entity or its subsidiary relating to or arising in connection with:
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•
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any adverse change, effect, event or occurrence, state of facts or developments to the extent the public announcement or the pendency of the
Merger Agreement or the transactions contemplated thereby or any actions required to be taken (or refrained from being taken) in
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with the Merger Agreement or otherwise with the consent of the other party, including the impact thereof on the relationships of the entity or any of its subsidiaries with customers,
suppliers, distributors, consultants, employees or independent contractors or other third parties with whom the entity or any of its subsidiaries has any relationship and including any litigation
brought by any stockholder of FairPoint or Consolidated in connection with the transactions contemplated by the Merger Agreement;
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any failure by the entity to meet any projections or forecasts for any period ending (or for which revenues or earnings are released) on or
after the date of the Merger Agreement (it being understood that this exception does not and shall not be deemed to apply to the underlying cause or causes of any such failure);
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•
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any change in federal, state, non-U.S. or local law, regulations, policies or procedures, or interpretations thereof, GAAP or regulatory
accounting requirements applicable or potentially applicable to the industries in which the entity or its subsidiaries operate;
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•
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changes generally affecting the industries in which the entity or its subsidiaries operate that are not specifically related to the entity and
its subsidiaries and do not have a materially disproportionate adverse effect on such entity and its subsidiaries, taken as a whole;
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•
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changes in general economic conditions or political conditions, or in the financial, credit or securities markets in general (including changes
in the prevailing interest rates, exchange rates or stock, bond and/or debt prices) in the United States, in any region thereof, or in any non-U.S. or global economy that do not have a materially
disproportionate adverse effect on such entity and its subsidiaries, taken as a whole;
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•
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any attack on, or by, outbreak or escalation of hostilities or acts of terrorism involving, the United States, or any declaration of war by the
United States Congress or any hurricane or other natural disaster; or
-
•
-
changes in the market price or trading volume of such entity's common stock on NASDAQ (it being understood that this exception does not and
shall not be deemed to apply to the underlying cause or causes of any such changes).
Conditions of the Merger
Mutual Conditions.
The obligations of FairPoint, Consolidated and Merger Sub to consummate the Merger are subject to the satisfaction
or waiver of
various conditions on or prior to the effective time of the Merger, including the following:
-
•
-
The FairPoint Merger Proposal has been approved by the affirmative vote of holders of a majority of the outstanding shares of FairPoint common
stock entitled to vote on such proposal;
-
•
-
The waiting period under the HSR Act has expired or has been terminated (this condition has been satisfied. See the section entitled "The
Merger—Regulatory Approvals Required for the Merger—United States Antitrust" on page 92);
-
•
-
Certain required consents and authorizations from the FCC and specified state and local regulators in connection with the transactions
contemplated by the Merger Agreement have been obtained;
-
•
-
No order, injunction, statute, rule, regulation or decree shall have been issued, enacted, entered, promulgated or enforced by any governmental
entity that prohibits, precludes, restrains, enjoins or makes illegal the consummation of the Merger;
-
•
-
Consolidated's registration statement on Form S-4, of which this joint proxy statement/prospectus forms a part, has been declared
effective by the SEC and no stop order suspending
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the
effectiveness of the registration statement is in effect, and no proceeding for such purpose is pending or, to Consolidated's or FairPoint's knowledge, threatened by the SEC;
-
•
-
The Consolidated Stock Issuance Proposal has been approved by a majority of the votes present, in person or by proxy, and entitled to vote at
the Consolidated special meeting; and
-
•
-
The shares of Consolidated common stock to be issued in the Merger have been approved for listing on the NASDAQ Global Select Market.
Consolidated Conditions.
Consolidated's and Merger Sub's obligations to consummate the Merger are subject to the satisfaction or waiver
of additional
conditions, which include the following:
-
•
-
the accuracy (disregarding any materiality or material adverse effect qualifications contained in such representations and warranties) of such
representations and warranties except for such inaccuracies as would not, individually or in the aggregate, have a material adverse effect on FairPoint;
-
•
-
FairPoint's performance in all material respects of its obligations under the Merger Agreement;
-
•
-
the delivery to Consolidated of an officers' certificate from FairPoint confirming that the conditions described in the immediately preceding
two bullets have been satisfied;
-
•
-
the receipt of an opinion from Schiff Hardin LLP, reasonably satisfactory to Consolidated and FairPoint, to the effect that the Merger
will qualify as a tax free reorganization within the meaning of Section 368(a) of the Code; and
-
•
-
the aggregate amount of cash and cash equivalents held by FairPoint as of the effective time of the Merger being no less than
$25.0 million.
FairPoint Conditions.
FairPoint's obligations to complete the Merger are subject to the satisfaction or waiver of additional conditions,
which
include the following:
-
•
-
the accuracy (disregarding all materiality and material adverse effect qualifications contained in such representations and warranties) of such
representations and warranties except for such inaccuracies as would not, individually or in the aggregate, have a material adverse effect on Consolidated;
-
•
-
Consolidated's and Merger Sub's performance in all material respects of their obligations under the Merger Agreement;
-
•
-
the delivery to FairPoint of an officers' certificate from Consolidated confirming that the conditions described in the immediately preceding
two bullets have been satisfied; and
-
•
-
the receipt of an opinion from Paul Hastings LLP, reasonably satisfactory to Consolidated and FairPoint, to the effect that the Merger
will qualify as a tax free reorganization within the meaning of Section 368(a) of the Code.
The
Merger Agreement provides that certain of the conditions described above may be waived. Neither Consolidated nor FairPoint currently expects to waive any material condition to the
completion of the Merger.
Termination of the Merger Agreement; Termination Fees; Expenses
Termination.
The Merger Agreement may be terminated, and the Merger may be abandoned at any time prior to its
completion:
-
•
-
by mutual written consent of FairPoint and Consolidated;
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-
•
-
by either Consolidated or FairPoint, if:
-
•
-
there is a final and nonappealable legal restraint or prohibition in effect that prevents the completion of the Merger;
-
•
-
the Merger has not been completed by September 30, 2017 (the "outside date"); provided that if by such date FairPoint's
stockholders have approved the FairPoint Merger Proposal and Consolidated's stockholders have approved the Consolidated Stock Issuance Proposal, but either (i) the waiting period under the HSR
Act has not expired or terminated or (ii) any consent or authorization to be obtained from the FCC or any other state regulators in connection with the transactions contemplated by the Merger
Agreement has not been obtained or is not in full force and effect, then the outside date may be extended for one or more periods of up to thirty (30) days per extension by each of Consolidated
and FairPoint, in its respective discretion, up to an aggregate extension so that the outside date, as so extended, shall not be later than December 3, 2017; and provided further that the right
to terminate the Merger Agreement shall not be available to a party whose failure to fulfill any obligation under the Merger Agreement materially contributed to the failure to complete the Merger by
such date;
-
•
-
the FairPoint special meeting (and any adjournment or postponement thereof) is held and FairPoint's stockholders have taken a
final vote on the Merger Agreement, but FairPoint's stockholder approval of the Merger Agreement is not obtained; or
-
•
-
there is any state or federal law, rule or regulation adopted or issued that has the effect of prohibiting the Merger;
-
•
-
by FairPoint, if:
-
•
-
the requirements of a termination in the event of a superior proposal or a fiduciary change as described in the section "No
Solicitation; Changes in Recommendations" on page 104 have been fully satisfied and FairPoint pays to Consolidated the $18.9 million termination fee described below;
-
•
-
FairPoint is not in material breach of the Merger Agreement, and Consolidated breaches any of its representations or warranties or
fails to perform any covenant or obligation in the Merger Agreement in such a way as to cause the failure of the closing conditions relating thereto, and such failure cannot be cured prior to the
outside date, as such date may be extended, following receipt by Consolidated of written notice of such breach or inaccuracy from FairPoint; or
-
•
-
(A) the mutual conditions to each party's obligation to effect the Merger and the conditions to the obligations of Consolidated
and Merger Sub to effect the Merger (in each case, other than those conditions that by their nature are to be satisfied at the closing) have been satisfied, (B) FairPoint has irrevocably
confirmed in writing that (x) all of the conditions in clause (A) (other than those conditions that by their nature are to be satisfied at the Closing) have been satisfied or have been
waived by FairPoint and remain so satisfied or waived and (y) FairPoint is and remains prepared to consummate the closing, (C) Consolidated fails to consummate the closing within two
(2) Business Days immediately following the date the closing was required to occur pursuant to the terms of the Merger Agreement, and (D) FairPoint stood ready, willing and able to
consummate the closing at all times during such two (2) Business Day period;
-
•
-
by Consolidated, if:
-
•
-
neither Consolidated nor Merger Sub are in material breach of its or their obligations under the Merger Agreement, and FairPoint
breaches any of its representations or warranties or
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Table of Contents
fails
to perform any covenant or obligation in the Merger Agreement in such a way as to cause the failure of the closing conditions relating thereto, and such failure cannot be cured prior to the
outside date, as such date may be extended, following receipt by FairPoint of written notice of such breach or inaccuracy from Consolidated;
-
•
-
the FairPoint Board fails to include in the joint proxy statement/prospectus the recommendation that the stockholders approve the
FairPoint Merger Proposal, or makes a company recommendation change;
-
•
-
the FairPoint Board approves or recommends an alternative proposal or superior proposal and/or permits FairPoint to enter into an
alternative acquisition agreement related to an alternative proposal or a superior proposal;
-
•
-
FairPoint fails to call a special meeting of its stockholders or to deliver the joint proxy statement/prospectus to its
stockholders; or
-
•
-
a tender offer or exchange offer for the outstanding shares of FairPoint common stock is commenced and the FairPoint Board
recommends that FairPoint's stockholders tender their shares in connection with such offer or within ten business days after the commencement of such tender or exchange offer, the FairPoint Board
fails to recommend rejection of such offer.
If
the Merger Agreement is terminated as described in this section, the Merger Agreement will be void, and there will be no liability or obligation of any party except
that:
-
•
-
each party will remain liable for any willful and material breach of the Merger Agreement,
-
•
-
certain provisions of the Merger Agreement, including the provisions relating to the allocation of fees and expenses (including, if applicable,
the termination fees described below) and the confidentiality agreement dated August 19, 2016 between FairPoint and Consolidated will survive termination, and
-
•
-
in certain circumstances described below, FairPoint may be required to pay Consolidated a termination fee of $18.9 million and that, in
other circumstances described below, Consolidated may be required to pay FairPoint a termination fee of $18.9 million.
Termination Fees.
Under the Merger Agreement, FairPoint has agreed to pay Consolidated a termination fee of $18.9 million if the
Merger
Agreement is terminated:
-
•
-
by Consolidated or FairPoint if the Merger has not been completed by September 30, 2017, because of a breach of the covenant or
obligation described in "No Solicitation; Changes in Recommendations" above and prior to such termination, an alternative proposal (substituting 50% for the 20% threshold in the definition thereof,
which is referred to as a "qualifying transaction") was publicly announced or otherwise communicated to FairPoint or the FairPoint Board and is not withdrawn or otherwise abandoned and such qualifying
transaction is consummated within twelve months following the termination of the Merger Agreement;
-
•
-
by Consolidated or FairPoint if the FairPoint stockholder approval has not been obtained because of a breach of the covenant or obligation
described in the section entitled "No Solicitation; Changes in Recommendations" on page 104 and prior to the FairPoint special meeting a qualifying transaction was publicly announced or otherwise
communicated to FairPoint or the FairPoint Board and is not withdrawn or otherwise abandoned and such qualifying transaction is consummated within twelve months following the termination of the Merger
Agreement;
-
•
-
by Consolidated if FairPoint has breached the covenant or obligation described in "No Solicitation; Changes in Recommendations" above and prior
to such termination an alternative
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Table of Contents
Additionally,
under the Merger Agreement, Consolidated has agreed to pay FairPoint a termination fee of $18.9 million if the Merger Agreement is terminated by FairPoint if
(A) the mutual conditions to each party's obligation to effect the Merger and the conditions to the obligations of Consolidated and Merger Sub to effect the Merger (in each case, other than
those conditions that by their nature are to be satisfied at the closing) have been satisfied, (B) FairPoint has irrevocably confirmed in writing that (x) all of the conditions in
clause (A) (other than those conditions that by their nature are to be satisfied at the Closing) have been satisfied or have been waived by FairPoint and remain so satisfied or waived and
(y) FairPoint is and remains prepared to consummate the closing, (C) Consolidated fails to consummate the closing within two (2) Business Days immediately following the date the
closing was required to occur pursuant to the terms of the Merger Agreement, and (D) FairPoint stood ready, willing and able to consummate the closing at all times during such two (2)
Business Day period.
Expenses.
If FairPoint fails to pay promptly any termination fee due to Consolidated, FairPoint will also be obligated to pay the costs
and expenses
(including reasonable legal fees and expenses) incurred by Consolidated in connection with any legal action taken to collect payment, together with interest on the amount of any unpaid fee or
obligation from the date such fee was required to be paid. If Consolidated fails to pay promptly any termination fee due to FairPoint, Consolidated will also be obligated to pay the costs and expenses
(including reasonable legal fees and expenses) incurred by FairPoint in connection with any legal action taken to collect payment, together with interest on the amount of any unpaid fee or obligation
from the date such fee was required to be paid. Except as described above, all costs and expenses incurred in connection with the Merger Agreement will be paid by the party incurring the cost or
expense.
Specific Performance; Remedies
The parties to the Merger Agreement agreed that irreparable damage would occur if any provision of the Merger Agreement was not performed in
accordance with its terms and that the parties will be entitled to an injunction or injunctions to prevent breaches of the Merger Agreement or to enforce specifically the performance of its terms and
provisions in addition to any other remedy to which they are entitled at law or in equity.
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Table of Contents
Amendment; Extension and Waiver
Any provision of the Merger Agreement may be amended or waived prior to the effective time of the Merger if such amendment or waiver is in
writing and is signed, in the case of an amendment, by each party to the Merger Agreement or, in the case of a waiver, by each party against whom the waiver is to be effective. After the FairPoint
stockholder approval has been obtained, however, there will be no amendment or waiver that would require the further approval of FairPoint's stockholders under Delaware law without such approval
having been first obtained. Notwithstanding the foregoing, certain provisions of the Merger Agreement cannot be amended, supplemented, waived or modified in a manner that is materially adverse to any
persons (including without limitation, lenders,
agents and arrangers) that have committed to provide or otherwise entered into agreements in connection with the debt financing commitment or alternative debt financings in connection with the
transactions contemplated by the Merger Agreement (collectively, "Financing Sources") without the prior written consent of such Financing Sources.
Governing Law; Venue
The Merger Agreement is governed by and will be construed in accordance with the laws of the State of Delaware. The parties to the Merger
Agreement have submitted to exclusive jurisdiction and venue of the courts of the State of Delaware or of the United States of America. FairPoint and its subsidiaries have also agreed, except as
specifically set forth in the debt financing, (i) that the internal laws of the State of New York will govern any action, cause of action, claim, cross claim or third party claim against
Financing Sources and (ii) to submit such claims to the exclusive jurisdiction and venue of the Supreme Court of the State of New York, County of New York, or, if under applicable law exclusive
jurisdiction is vested in the federal courts, the United States District Court for the Southern District of New York (and appellate courts thereof).
First Amendment to Merger Agreement
On January 20, 2017, FairPoint, Consolidated and Merger Sub entered into a First Amendment to the Merger Agreement solely to amend
Exhibit A thereof, the form of Tenth Amended and Restated Certificate of Incorporation of FairPoint (the "Form of Charter") in order to conform certain provisions of the Form of Charter to
FairPoint's Ninth Amended and Restated Certificate of Incorporation, which is currently in effect.
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DEBT FINANCING
General
The Merger Agreement is not subject to any financing contingency. Consolidated intends to finance the repayment and redemption of existing
indebtedness of FairPoint and pay certain fees and expenses incurred in connection with the transactions contemplated by the Merger Agreement and the related debt financing with the proceeds of a
$935.0 million incremental term loan facility, with any remaining portion expected to be financed with cash on-hand or other sources of liquidity in an amount to be determined. Consolidated
initially obtained a commitment for the financing necessary to complete the transaction pursuant to a commitment letter, dated December 3, 2016, which is described below. Subsequently,
Consolidated entered into two amendments to its existing credit agreement, pursuant to which a syndicate of lenders agreed to provide an incremental term loan in an aggregate principal amount of up to
$935.0 million under the credit agreement, which is also described below.
Commitment Letter
In connection with the execution of the Merger Agreement, Consolidated Communications, Inc., a wholly-owned subsidiary of Consolidated
("CCI"), entered into a Commitment Letter, dated December 3, 2016 (the "Commitment Letter"), from (i) Morgan Stanley Senior Funding, Inc., (ii) The Bank of Tokyo-Mitsubishi
UFJ, Ltd., MUFG Union Bank, N.A., MUFG Securities Americas Inc. (collectively, "MUFG") and/or any other affiliates or subsidiaries as MUFG collectively deems appropriate to provide the
services referred to therein, (iii) TD Securities (USA) LLC, (iv) The Toronto-Dominion Bank, New York Branch, and (v) Mizuho Bank, Ltd. (collectively, the
"Lead Arrangers"). The Commitment Letter provided for a senior secured incremental term loan facility in an aggregate principal amount that would yield up to $865.0 million in gross proceeds to
CCI (the "Incremental Term Loan Facility") and senior unsecured term loan facility in an aggregate principal amount that would yield up to $70.0 million in gross proceeds to CCI (the "Unsecured
Term Loan Facility", together with the Incremental Term Loan Facility, collectively, the "Term Loan Facilities"). The Term Loan Facilities were to be used to finance, in part, and pay the fees and
expenses in connection with, the transactions contemplated by the Merger Agreement and to repay existing indebtedness of FairPoint, with any remaining portion expected to be financed with cash on-hand
or other sources of liquidity in an amount to be determined.
Also
pursuant to the Commitment Letter, the commitments under the Unsecured Term Loan Facility were to be automatically and permanently reduced to zero and cancelled if, within
90 days following the date of the Commitment Letter, CCI obtained an amendment, reasonably satisfactory to the Lead Arrangers, to the terms of the Credit Agreement (and such amendment went
effective within such period) (the "Amendment") allowing for an additional aggregate amount of at least $70.0 million to be incurred as a senior secured incremental term loan credit facility
pursuant to Section 2.21 of the Credit Agreement and the commitments to provide the Incremental Term Loan Facility were to be automatically and permanently increased, on a pro rata basis, by an
amount equal to $70.0 million upon effectiveness of the Amendment.
On
December 14, 2016, Consolidated, CCI, certain other subsidiaries of Consolidated, the lenders party thereto, Wells Fargo Bank, National Association, as Administrative Agent and
other agents party thereto entered into an Amendment No. 1 to the Credit Agreement reflecting the foregoing terms, and as a result thereof, the Incremental Term Loan Facility was increased to
an aggregate amount of $935.0 million.
Incremental Term Loan
On December 21, 2016, Consolidated and certain of its subsidiaries, including CCI, entered into an Amendment No. 2 ("Amendment
No. 2") to the Credit Agreement. Pursuant to Amendment No. 2,
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Table of Contents
subject
to the satisfaction of certain conditions, a syndicate of lenders has agreed to provide an incremental term loan in an aggregate principal amount of up to $935.0 million under the
Credit Agreement (the "Incremental Term Loan"). The proceeds of the Incremental Term Loan may be used, in part, to repay and redeem certain existing indebtedness of FairPoint in connection with the
Merger transaction and to pay certain fees and expenses in connection with the Merger transaction and the related financing. Amendment No. 2 was entered into in connection with the Commitment
Letter.
Pricing
and other terms of the Incremental Term Loan included the following:
-
•
-
The terms, conditions and covenants of the Incremental Term Loan are materially consistent with those in the existing Credit Agreement.
-
•
-
The maturity date of the Incremental Term Loan is October 5, 2023, provided that unless CCI's 6.50% Senior Notes, which mature on
October 1, 2022, are repaid in full or redeemed in full by March 31, 2022, such maturity date shall be March 31, 2022.
-
•
-
The Incremental Term Loan has an interest rate of LIBOR plus 3.00% and the greater of (i) the LIBO Rate (as such term is defined in the
Credit Agreement) floor of 1.00 and (ii) at Consolidated's option, the one, two, three or six-month Adjusted LIBO Rate (as such term is defined in the Credit Agreement). The Incremental Term
Loan included an original issue discount of 0.50%, which represents a significant reduction from the both the interest rate on FairPoint's existing term loan facility of approximately 7.50% and the
interest rate on FairPoint's exiting note facility of 8.75%.
-
•
-
The Incremental Term Loan is secured on a
pari passu
basis with the existing credit facilities
under the Credit Agreement.
-
•
-
Ticking fees will start accruing to the lenders providing the Incremental Term Loan commitments on January 15, 2017, at the rate equal
to the interest rate of the Incremental Term Loan.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements ("pro forma financial statements") have been prepared in accordance
with Article 11 of Regulation S-X to reflect the Merger, based on the acquisition method of accounting, with Consolidated treated as the acquirer. The pro forma financial statements
utilize the historical consolidated financial statements of Consolidated and FairPoint, which are incorporated by reference into this joint proxy statement/prospectus. The historical consolidated
financial statements have been adjusted to give effect to pro forma events that are directly attributable to the Merger and factually supportable and, in the case of the statement of income, that are
expected to have a continuing impact. The unaudited pro forma condensed combined statements of income, which have been prepared for the nine months ended September 30, 2016 and the year ended
December 31, 2015, give effect to the Merger as if it had occurred on January 1, 2015. The unaudited pro forma condensed combined balance sheet has been prepared as of
September 30, 2016 and gives effect to the Merger as if it had occurred on that date.
As
of the date of this joint proxy statement/prospectus, Consolidated has not completed the detailed valuation studies necessary to arrive at the required fair market value of the
FairPoint assets to be acquired and the liabilities to be assumed and the related allocations of purchase price, nor has it identified all adjustments necessary to conform FairPoint to Consolidated's
accounting policies. The pro forma adjustments related to the Merger are based upon preliminary estimates, and are pending the completion of the valuations of the tangible and intangible assets
acquired and liabilities assumed. As indicated in Note 2 to the pro forma financial statements, Consolidated has made certain pro forma adjustments to the historical book values of the assets
and liabilities of FairPoint to reflect certain preliminary estimates of the fair value of the net assets acquired, with the excess of the estimated purchase price over the estimated fair value of
FairPoint's acquired assets and assumed liabilities recorded as goodwill. Actual results are expected to differ from these preliminary estimates once Consolidated has determined the final purchase
price for FairPoint, has completed the valuation studies necessary to finalize the fair value estimates and identified any necessary conforming accounting policy changes for FairPoint. There can be no
assurance that such finalization will not result in material changes.
These
pro forma financial statements should be read in conjunction with Consolidated's and FairPoint's historical consolidated financial statements and accompanying notes, incorporated
by reference into this joint proxy statement/prospectus.
The
pro forma financial statements are not intended to represent or be indicative of the consolidated results of operations or financial condition of the combined company that would have
been reported had the Merger been completed as of the dates presented and should not be taken as representative of the future consolidated results of operations or financial condition of the combined
company.
The
pro forma financial statements do not include the realization of future cost savings or synergies or restructuring charges that are expected to result from the Merger.
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CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016
(amounts in thousands, except per
share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Communications
|
|
FairPoint
Communications
|
|
Pro Forma
Adjustments
|
|
Note 4
|
|
Pro Forma
Combined
|
|
|
Operating revenues
|
|
$
|
567,258
|
|
$
|
620,514
|
|
$
|
—
|
|
|
|
$
|
1,187,772
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (exclusive of depreciation and amortization)
|
|
|
365,793
|
|
|
439,785
|
|
|
—
|
|
|
|
|
805,578
|
|
|
Loss on impairment
|
|
|
610
|
|
|
—
|
|
|
|
|
|
|
|
610
|
|
|
Other post-employment benefit and pension expense
|
|
|
—
|
|
|
(174,142
|
)
|
|
|
|
|
|
|
(174,142
|
)
|
|
Depreciation and amortization
|
|
|
130,855
|
|
|
167,661
|
|
|
(33,355
|
)
|
(a)
|
|
|
265,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
497,258
|
|
|
433,304
|
|
|
(33,355
|
)
|
|
|
|
897,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
70,000
|
|
|
187,210
|
|
|
33,355
|
|
|
|
|
290,565
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income
|
|
|
(56,827
|
)
|
|
(61,891
|
)
|
|
32,315
|
|
(b)
|
|
|
(86,403
|
)
|
|
Investment income
|
|
|
24,636
|
|
|
—
|
|
|
—
|
|
|
|
|
24,636
|
|
|
Other, net
|
|
|
(374
|
)
|
|
344
|
|
|
—
|
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
37,435
|
|
|
125,663
|
|
|
65,670
|
|
|
|
|
228,768
|
|
|
Income tax expense
|
|
|
22,287
|
|
|
37,573
|
|
|
26,268
|
|
(c)
|
|
|
86,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
15,148
|
|
|
88,090
|
|
|
39,402
|
|
|
|
|
142,640
|
|
|
Less: net income attributable to noncontrolling interest
|
|
|
211
|
|
|
—
|
|
|
—
|
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
14,937
|
|
$
|
88,090
|
|
$
|
39,402
|
|
|
|
$
|
142,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share attributable to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share—basic
|
|
$
|
0.29
|
|
$
|
3.28
|
|
|
n/a
|
|
|
|
$
|
1.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share—diluted
|
|
$
|
0.29
|
|
$
|
3.26
|
|
|
n/a
|
|
|
|
$
|
1.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock used to calculate earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
50,292
|
|
|
26,847
|
|
|
(5,338
|
)
|
(d)
|
|
|
71,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
50,292
|
|
|
27,041
|
|
|
(5,532
|
)
|
(d)
|
|
|
71,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the unaudited pro forma condensed combined financial statements.
119
Table of Contents
CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2015
(amounts in thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Communications
|
|
FairPoint
Communications
|
|
Pro Forma
Adjustments
|
|
Note 4
|
|
Pro Forma
Combined
|
|
|
Operating revenues
|
|
$
|
775,737
|
|
$
|
859,465
|
|
$
|
—
|
|
|
|
$
|
1,635,202
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (exclusive of depreciation and amortization)
|
|
|
508,040
|
|
|
636,392
|
|
|
—
|
|
|
|
|
1,144,432
|
|
|
Other post-employment benefit and pension expense
|
|
|
—
|
|
|
(170,338
|
)
|
|
—
|
|
|
|
|
(170,338
|
)
|
|
Depreciation and amortization
|
|
|
179,922
|
|
|
223,819
|
|
|
(44,744
|
)
|
(a)
|
|
|
358,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
687,962
|
|
|
689,873
|
|
|
(44,744
|
)
|
|
|
|
1,333,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
87,775
|
|
|
169,592
|
|
|
44,744
|
|
|
|
|
302,111
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income
|
|
|
(79,618
|
)
|
|
(80,718
|
)
|
|
41,419
|
|
(b)
|
|
|
(118,917
|
)
|
|
Loss on extinguishment of debt
|
|
|
(41,242
|
)
|
|
—
|
|
|
—
|
|
|
|
|
(41,242
|
)
|
|
Investment income
|
|
|
36,690
|
|
|
—
|
|
|
—
|
|
|
|
|
36,690
|
|
|
Other, net
|
|
|
(1,501
|
)
|
|
485
|
|
|
—
|
|
|
|
|
(1,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,104
|
|
|
89,359
|
|
|
86,163
|
|
|
|
|
177,626
|
|
|
Income tax expense (benefit)
|
|
|
2,775
|
|
|
(1,057
|
)
|
|
34,465
|
|
(c)
|
|
|
36,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(671
|
)
|
|
90,416
|
|
|
51,698
|
|
|
|
|
141,443
|
|
|
Less: net income attributable to noncontrolling interest
|
|
|
210
|
|
|
—
|
|
|
—
|
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
(881
|
)
|
$
|
90,416
|
|
$
|
51,698
|
|
|
|
$
|
141,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share attributable to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share—basic
|
|
$
|
(0.02
|
)
|
$
|
3.39
|
|
|
n/a
|
|
|
|
$
|
1.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share—diluted
|
|
$
|
(0.02
|
)
|
$
|
3.35
|
|
|
n/a
|
|
|
|
$
|
1.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock used to calculate earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
50,176
|
|
|
26,652
|
|
|
(5,143
|
)
|
(d)
|
|
|
71,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
50,176
|
|
|
26,973
|
|
|
(5,464
|
)
|
(d)
|
|
|
71,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the unaudited pro forma condensed combined financial statements.
120
Table of Contents
CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2016
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Communications
|
|
FairPoint
Communications
|
|
Pro Forma
Adjustments
|
|
Note 5
|
|
Pro Forma
Combined
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
33,403
|
|
$
|
33,071
|
|
$
|
(54,985
|
)
|
(b)
|
|
$
|
11,489
|
|
|
Accounts receivable, net
|
|
|
68,447
|
|
|
63,162
|
|
|
—
|
|
|
|
|
131,609
|
|
|
Income tax receivable
|
|
|
9,132
|
|
|
—
|
|
|
—
|
|
|
|
|
9,132
|
|
|
Prepaid expenses and other current assets
|
|
|
18,081
|
|
|
27,859
|
|
|
—
|
|
|
|
|
45,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
129,063
|
|
|
124,092
|
|
|
(54,985
|
)
|
|
|
|
198,170
|
|
|
Property, plant and equipment, net
|
|
|
1,065,528
|
|
|
1,042,259
|
|
|
(166,614
|
)
|
(c)
|
|
|
1,941,173
|
|
|
Investments
|
|
|
106,916
|
|
|
—
|
|
|
—
|
|
|
|
|
106,916
|
|
|
Goodwill
|
|
|
760,998
|
|
|
—
|
|
|
586,220
|
|
(c)
|
|
|
1,347,218
|
|
|
Other intangible assets, net
|
|
|
34,758
|
|
|
78,701
|
|
|
217,799
|
|
(c)
|
|
|
331,258
|
|
|
Other assets
|
|
|
6,896
|
|
|
3,713
|
|
|
—
|
|
|
|
|
10,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,104,159
|
|
$
|
1,248,765
|
|
$
|
582,420
|
|
|
|
$
|
3,935,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
15,010
|
|
$
|
28,504
|
|
$
|
—
|
|
|
|
$
|
43,514
|
|
|
Advance billings and customer deposits
|
|
|
29,255
|
|
|
—
|
|
|
24,688
|
|
(a)
|
|
|
53,943
|
|
|
Dividends payable
|
|
|
19,623
|
|
|
—
|
|
|
—
|
|
|
|
|
19,623
|
|
|
Accrued compensation
|
|
|
17,569
|
|
|
22,057
|
|
|
—
|
|
|
|
|
39,626
|
|
|
Accrued interest
|
|
|
17,564
|
|
|
3,420
|
|
|
—
|
|
|
|
|
20,984
|
|
|
Accrued expense
|
|
|
38,154
|
|
|
51,522
|
|
|
(24,688
|
)
|
(a)
|
|
|
64,988
|
|
|
Current portion of long-term debt and capital lease obligations
|
|
|
14,429
|
|
|
7,607
|
|
|
2,950
|
|
(d)
|
|
|
24,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
151,604
|
|
|
113,110
|
|
|
2,950
|
|
|
|
|
267,664
|
|
|
Long-term debt and capital lease obligations
|
|
|
1,377,549
|
|
|
900,141
|
|
|
18,562
|
|
(d)
|
|
|
2,296,252
|
|
|
Deferred income taxes
|
|
|
238,359
|
|
|
23,036
|
|
|
20,474
|
|
(c), (e)
|
|
|
281,869
|
|
|
Pension and other post-retirement benefits
|
|
|
109,035
|
|
|
236,645
|
|
|
—
|
|
|
|
|
345,680
|
|
|
Other liabilities and deferred revenues
|
|
|
16,091
|
|
|
16,801
|
|
|
—
|
|
|
|
|
32,892
|
|
|
Total stockholders' equity (deficit)
|
|
|
211,521
|
|
|
(40,968
|
)
|
|
(64,075
|
)
|
(f)
|
|
|
710,987
|
|
|
|
|
|
|
|
|
|
|
|
604,509
|
|
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,104,159
|
|
$
|
1,248,765
|
|
$
|
582,420
|
|
|
|
$
|
3,935,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the unaudited pro forma condensed combined financial statements.
121
Table of Contents
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(amounts in thousands, except per share amounts)
1. Description of the Transaction
On December 3, 2016, Consolidated, Merger Sub and FairPoint entered into the Merger Agreement, which provides for, among other things, the Merger. As a
result of the Merger, the separate corporate existence of Merger Sub will cease, and FairPoint will continue as the surviving corporation and a wholly-owned subsidiary of Consolidated.
At
the effective time of the Merger, each share of common stock, par value of $0.01 per share, of FairPoint issued and outstanding immediately prior to the effective time of the Merger
will be converted into and become the right to receive 0.7300 shares of common stock, par value $0.01 per share, of Consolidated and cash in lieu of fractional shares, as set forth in the Merger
Agreement.
The
Merger is subject to various customary closing conditions, including, but not limited to, (i) approval by Consolidated's stockholders and FairPoint's stockholders,
(ii) the waiting period under the HSR Act has expired or has been terminated (this condition has been satisfied. See the section entitled "The Merger—Regulatory Approvals Required
for the Merger—United States Antitrust" on page 92), (iii) specified federal and state regulatory approvals, (iv) the absence of any order, injunction, statute, rule,
regulation or decree prohibiting, precluding, restraining, enjoining or making illegal the consummation of the Merger, (v) the accuracy of the representations and warranties of each party,
(vi) performance, in all material respects, of all obligations and compliance with, in all material respects, agreements and covenants to be performed or complied with by each party,
(vii) declaration of effectiveness of the Registration Statement on Form S-4 to be filed by Consolidated, (viii) FairPoint holding a minimum cash amount as of the effective time
of the Merger, and (ix) the approval of the listing of additional shares of Consolidated common stock to be issued to FairPoint's stockholders. The Merger is expected to close by mid-2017.
Consolidated
and FairPoint have made customary representations, warranties and covenants in the Merger Agreement, including FairPoint agreeing not to solicit alternative transactions or,
subject to certain exceptions, enter into discussions concerning, or provide confidential information in connection with, an alternative transaction. The Merger Agreement contains certain termination
rights for both Consolidated and FairPoint, and further provides that, upon termination of the Merger Agreement under certain circumstances, FairPoint may be obligated to pay Consolidated a
termination fee of $18,900 and, upon termination of the Merger Agreement under certain other circumstances, Consolidated may be obligated to pay FairPoint a termination fee of $18,900.
2. Basis of Presentation
Consolidated will account for its acquisition of FairPoint using the acquisition method of accounting, with Consolidated treated as the acquirer. The unaudited
pro forma condensed combined statements of income for the nine months ended September 30, 2016 and the year ended December 31, 2015 give effect to the Merger as if it had occurred on
January 1, 2015. The unaudited pro forma condensed combined balance sheet has been prepared as of September 30, 2016 and gives effect to the Merger as if it had occurred on that date.
Certain reclassifications have been made to the historical financial statements of FairPoint to conform to the financial statement presentation of Consolidated. The unaudited pro forma condensed
combined financial statements do not reflect any other adjustments to conform the accounting policies and presentation of the two companies. The final results of the complete review of accounting
policies and presentation may result in identifying differences that, when conformed, could have a material effect on the combined financial statements.
The
pro forma adjustments reflect preliminary estimates of the fair value of the consideration transferred, the assets acquired and the liabilities assumed, which are expected to change
upon
122
Table of Contents
finalization
of appraisals and other valuation studies. The final pro forma adjustments will be based on the fair value of the consideration transferred and the assets and liabilities that will exist
as of the effective time of the Merger. The final adjustments could be materially different from the pro forma adjustments presented herein.
The
unaudited pro forma condensed combined statements of income include certain accounting adjustments related to the Merger that are expected to have a continuing impact on the combined
results, including adjustments for depreciation and amortization on the acquired tangible and intangible assets, interest expense on the debt expected to be incurred to complete the Merger,
amortization of deferred financing fees incurred in connection with the new borrowings and the tax impact of these pro forma adjustments.
The
unaudited pro forma condensed combined statements of income do not reflect certain adjustments that are expected to result from the Merger that may be significant, such as costs that
may be incurred by Consolidated for integration and restructuring efforts, as well as payments under certain change in control agreements or other contingent payments to certain FairPoint employees,
because they are considered to be of a non-recurring nature.
Upon
completion of the Merger or shortly thereafter, various triggering events will have occurred which will result in the payment of various change in control payments and other
contingent payments to certain FairPoint employees. The estimated cash payments under these agreements will range from approximately $7,000 to $9,000 and have been included as a pro forma adjustment
in the unaudited pro forma condensed combined balance sheet as of September 30, 2016. No adjustment has been included in the unaudited pro forma condensed combined statements of income for
these payments since they are considered to be non-recurring.
The
summary pro forma financial information does not include the realization of future cost savings or synergies or restructuring charges that are expected to result from the Merger. The
transaction is expected to generate annual operating synergies of approximately $55,000, which are expected to be achieved on a run-rate basis by the end of the second year after close. However, no
assurance can be given with respect to the ultimate amount of such synergies or costs or the timing of their realization. Consolidated also expects to incur merger and integration costs over the first
two years following the close.
3. Preliminary Purchase Consideration and Related Allocation
The following is the calculation of the preliminary purchase price for the acquisition of FairPoint:
|
|
|
|
|
|
|
Estimated number of shares of FairPoint common stock and equity awards outstanding at the effective time of the Merger(a)(c)
|
|
|
29,465
|
|
|
Exchange ratio
|
|
|
0.7300
|
|
|
|
|
|
|
|
|
Estimated number of shares of Consolidated common stock to be issued to holders of FairPoint common stock
|
|
|
21,509
|
|
|
Consolidated closing common stock price on January 20, 2017
|
|
$
|
26.20
|
|
|
|
|
|
|
|
|
Stock value issued to FairPoint shareholders(b)
|
|
$
|
563,541
|
|
|
Repayment of FairPoint debt
|
|
|
917,600
|
|
|
|
|
|
|
|
|
Estimated purchase price
|
|
$
|
1,481,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Based
on the number of shares of FairPoint stock and equity awards outstanding as of December 31, 2016.
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-
(b)
-
Represents
the product of the estimated number of shares of Consolidated common stock to be issued and the closing price of Consolidated common stock as of
January 20, 2017. Pursuant to the terms of the Merger Agreement, the final purchase price will be based on the number of shares of FairPoint common stock and equity awards outstanding and the
price of Consolidated's common stock as of the closing date of the Merger. Therefore, the estimated consideration expected to be transferred as reflected in these unaudited pro forma condensed
combined financial statements does not purport to represent what the actual consideration transferred will be when the Merger is completed. An increase or decrease by 10% in Consolidated's common
stock price as of the closing day of business on January 20, 2017 ($26.20 per share) would increase or decrease the consideration expected to be transferred by approximately $56,400, which
would be reflected in these unaudited pro forma condensed combined financial statements as an increase or decrease to goodwill.
-
(c)
-
As
of January 20, 2017, there were 3,582,402 FairPoint warrants outstanding, each eligible to purchase one share of FairPoint common stock at an exercise
price of $48.81 per share. In connection with the Merger, each outstanding warrant to purchase shares of FairPoint common stock will convert into a warrant to acquire shares of Consolidated common
stock, on the same terms and condition that were applicable to such FairPoint warrant, except that the number of shares of Consolidated common stock for which such warrant may be exercisable and the
exercise price of the warrant will be adjusted to reflect the exchange ratio. Accordingly, after the Merger, there are expected to be approximately 2,615,153 Consolidated warrants outstanding, each
eligible to purchase one share of Consolidated common stock at an exercise price of $66.86 per share. These warrants are not considered part of the purchase price consideration as their estimated fair
value is expected to be zero.
The
estimated fair value of the tangible and intangible assets acquired and liabilities assumed on a preliminary basis are as follows:
|
|
|
|
|
|
|
Current assets
|
|
$
|
124,092
|
|
|
Property, plant & equipment
|
|
|
875,645
|
|
|
Intangible assets
|
|
|
296,500
|
|
|
Other assets
|
|
|
3,713
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
1,299,950
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
106,710
|
|
|
Pension & other postretirement benefit obligations
|
|
|
236,645
|
|
|
Deferred income taxes
|
|
|
43,510
|
|
|
Other liabilities
|
|
|
18,164
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
405,029
|
|
|
|
|
|
|
|
|
Preliminary fair value of net assets acquired
|
|
|
894,921
|
|
|
Goodwill
|
|
|
586,220
|
|
|
|
|
|
|
|
|
Total estimated consideration
|
|
$
|
1,481,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
purposes of preparing the pro forma financial statements, the estimated fair value of the assets acquired and the liabilities assumed are based on their preliminary estimated fair
value as of September 30, 2016. The final amount recorded will be based on the fair values of the assets acquired and liabilities assumed at the completion of the Merger and could vary
significantly from the pro forma amounts due to various factors, including but not limited to, changes in the share price of Consolidated's common stock, the composition of FairPoint's assets,
liabilities including the amount of
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debt
outstanding, outstanding equity ownership shares and changes in fair value assumptions prior to the completion of the Merger. Accordingly, the preliminary estimated fair values of the purchase
price and the assets and liabilities recorded are subject to change pending additional information that may be developed by Consolidated and FairPoint. Any changes to the initial estimates of the fair
value of the acquired assets and assumed liabilities will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill.
4. Pro Forma Adjustments—Statements of Income
The following pro forma adjustments included in the unaudited pro forma condensed combined statements of income for the nine months ended September 30,
2016 and the year ended December 31, 2015 give effect to the Merger as if it had occurred on January 1, 2015:
-
(a)
-
Depreciation and Amortization
The
pro forma adjustments to depreciation and amortization reflect the removal of the historical basis of depreciation and amortization for the FairPoint assets and the recognition of the new
depreciation and amortization expense for property and equipment and finite-lived intangible assets acquired in the Merger, based on their estimated fair value. The following table summarizes the pro
forma adjustments to depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended
September 30,
2016
|
|
Year Ended
December 31,
2015
|
|
|
Remove historical depreciation and amortization
|
|
$
|
(167,661
|
)
|
$
|
(223,819
|
)
|
|
Record new depreciation and amortization
|
|
|
134,306
|
|
|
179,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(33,355
|
)
|
$
|
(44,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(b)
-
Interest Expense
The
pro forma adjustments to interest expense, as summarized in the following table, reflect the removal of historical interest expense of FairPoint and the additional interest expense resulting from
the new borrowings to finance the Merger, as described below. The pro forma adjustments are based on the amounts borrowed and the interest rates assumed to be in effect at the closing of the Merger.
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended
September 30,
2016
|
|
Year Ended
December 31,
2015
|
|
|
Removal of historical interest expense for:
|
|
|
|
|
|
|
|
|
FairPoint interest expense including amortization of deferred financing costs
|
|
$
|
(61,330
|
)
|
$
|
(80,106
|
)
|
|
Recording of new interest expense for:
|
|
|
|
|
|
|
|
|
Issuance of Incremental Term Loan
|
|
|
28,050
|
|
|
37,400
|
|
|
Amortization of discount and deferred financing costs on Incremental Term Loan
|
|
|
965
|
|
|
1,287
|
|
|
|
|
|
|
|
|
|
|
|
Net adjustment to interest expense
|
|
$
|
(32,315
|
)
|
$
|
(41,419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
connection with the Merger, on December 21, 2016, Consolidated entered into an amendment to its Third Amended and Restated Credit Agreement, dated as of October 5, 2016 (the "Credit
Agreement") in which a syndicate of lenders has agreed to provide an
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incremental
term loan in an aggregate principal amount of up to $935.0 million under the Credit Agreement (the "Incremental Term Loan"), subject to the satisfaction of certain conditions. The
proceeds of the Incremental Term Loan may be used, in part, to repay and redeem certain existing indebtedness of FairPoint and to pay certain fees and expenses in connection with the Merger and the
related financing. The terms, conditions and covenants of the Incremental Term Loan are materially consistent with those in the existing Credit Agreement. The Incremental Term Loan included an
original issue discount of 0.50% and has an interest rate of 3.00% plus LIBOR based on the one-month adjusted rate subject to a 1.00% LIBOR floor.
The
pro forma adjustments reflect the elimination of historical interest expense of FairPoint related to the settlement of its debt through the issuance of the Incremental Term Loan as if such events
had occurred on January 1, 2015. For all periods presented, pro forma interest expense includes the amortization of the discount of $4,675 and expected financing costs of approximately $3,635
related to the issuance of the Incremental Term Loan based on a term of 6.5 years. The Incremental Term Loan has an assumed interest rate of 4.00% which is based on 3.00% plus the LIBOR floor
of 1.00% as one-month LIBOR on January 20, 2017 was below the LIBOR floor. As of January 20, 2017, an increase or decrease of 0.125% in the variable interest rate on the Incremental Term
Loan facility would not impact annual pro forma interest expense for the year ended December 31, 2015 or the nine months ended September 30, 2016 due to the LIBOR floor.
-
(c)
-
Income Tax Expense
The
blended effective tax rate applied to the pro forma adjustments related to the Merger and related financing is 40% for the periods presented.
-
(d)
-
Earnings Per Share
The
pro forma adjustment reflects the change in outstanding shares to calculate basic and dilutive earnings per share based on the Merger:
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended
September 30,
2016
|
|
Year Ended
December 31,
2015
|
|
|
Shares Used in Basic Earnings Per Share
|
|
|
|
|
|
|
|
|
Cancellation of FairPoint shares
|
|
|
(26,847
|
)
|
|
(26,652
|
)
|
|
Issuance of Consolidated shares
|
|
|
21,509
|
|
|
21,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,338
|
)
|
|
(5,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Used in Diluted Earnings Per Share
|
|
|
|
|
|
|
|
|
Cancellation of FairPoint shares
|
|
|
(27,041
|
)
|
|
(26,973
|
)
|
|
Issuance of Consolidated shares
|
|
|
21,509
|
|
|
21,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,532
|
)
|
|
(5,464
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Table of Contents
5. Pro Forma Adjustments—Balance Sheet
The following are the pro forma adjustments included in the unaudited pro forma condensed combined balance sheet as of September 30, 2016 and give effect
to the Merger as if it had occurred on that date:
-
(a)
-
Reclassifications
Certain
amounts included in FairPoint's historical condensed consolidated balance sheet have been reclassified to conform to the presentation of Consolidated's financial statements. The pro forma
adjustments reflect the reclassification of advance billings and customer deposits from accrued expense.
-
(b)
-
Cash and Cash Equivalents
Pro
forma adjustments to cash are the result of proceeds from the issuance of debt, cash used to fund the acquisition of FairPoint, estimated transaction costs and costs associated with entering into
the Incremental Term Loan. Following is a preliminary estimate of net cash used for the Merger:
|
|
|
|
|
|
|
Incremental borrowings
|
|
$
|
930,325
|
|
|
Retirement of FairPoint debt
|
|
|
(917,600
|
)
|
|
Deferred financing costs
|
|
|
(3,635
|
)
|
|
Financing commitment fees
|
|
|
(14,025
|
)
|
|
Estimated transaction costs including change-in-control payments
|
|
|
(50,050
|
)
|
|
|
|
|
|
|
|
Net change in cash
|
|
$
|
(54,985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(c)
-
Fair Value Estimates
The
pro forma adjustments reflect the preliminary estimated fair values for the net assets to be acquired. These estimates are preliminary and are subject to change upon completion of the valuation
process.
|
|
|
|
|
|
|
Decrease to property, plant and equipment
|
|
$
|
(166,614
|
)
|
|
Increase in customer relationships and tradenames
|
|
|
217,799
|
|
|
Increase in goodwill
|
|
|
586,220
|
|
|
Increase in deferred income taxes
|
|
|
20,474
|
|
Goodwill
reflects the preliminary estimate of the excess of the purchase price paid over the fair value of the identifiable assets acquired and liabilities assumed, and is not be amortized but will be
assessed at least annually for impairment. Goodwill is not expected to be deductible for income tax purposes.
Based
on the preliminary valuation analysis, the identified intangible assets to be acquired include trade names, customer relationships and contracts. The fair value estimate of the identifiable
intangible assets is determined primarily using the income approach, which requires a forecast of all the expected future cash flows. Since all of the information required to perform a detailed
valuation analysis of FairPoint's intangible assets could not be obtained as of the date of this filing, for purposes of these unaudited pro forma condensed combined financial statements, the
assumptions used are based on available information provided by FairPoint as well as industry data to develop the estimated fair value of the identifiable intangible assets. In addition, useful lives
have been estimated for each category of identifiable intangible assets, which range from 1 to 7 years. The assumptions include a straight line
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amortization
method of the intangibles as part of the preliminary valuation. Upon completion of the final valuation, the fair values and useful lives assigned to the identifiable intangible assets
could
change and any change in fair value will result in a corresponding change to the estimated goodwill used in these unaudited pro forma condensed combined financial statements.
-
(d)
-
Debt
The
pro forma adjustments to reflect the payment and incurrence of debt are as follows:
|
|
|
|
|
|
|
Non-current portion:
|
|
|
|
|
|
Issuance of Incremental Term Loan, net of discount of $4,675
|
|
$
|
920,975
|
|
|
Repayment of existing FairPoint debt
|
|
|
(911,200
|
)
|
|
Removal of discount on FairPoint credit facility
|
|
|
8,686
|
|
|
Removal of FairPoint deferred financing costs
|
|
|
3,736
|
|
|
New deferred financing costs associated with the Incremental Term Loan
|
|
|
(3,635
|
)
|
|
|
|
|
|
|
|
Adjustment to non-current portion of long-term debt
|
|
$
|
18,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion:
|
|
|
|
|
|
Issuance of Incremental Term Loan
|
|
$
|
9,350
|
|
|
Repayment of existing FairPoint credit facility
|
|
|
(6,400
|
)
|
|
|
|
|
|
|
|
|
|
$
|
2,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(e)
-
Income Taxes
The
pro forma adjustments reflect the income tax impact assuming a marginal combined state and federal tax rate of approximately 40% of the pro forma adjustments resulting from the Merger. The pro
forma adjustment to long-term deferred tax liabilities reflect the change in fair value of the net assets to be acquired.
-
(f)
-
Stockholders' Equity
The
pro forma stockholders' equity reflects the following adjustments:
|
|
|
|
|
|
|
Expected transaction costs and change-in-control payments
|
|
$
|
(50,050
|
)
|
|
Expected financing commitment fees
|
|
|
(14,025
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(64,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity issued to FairPoint shareholders
|
|
$
|
563,541
|
|
|
Elimination of historical FairPoint shareholders' equity
|
|
|
40,968
|
|
|
|
|
|
|
|
|
|
|
$
|
604,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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EXPERTS
The consolidated financial statements of Consolidated Communications Holdings, Inc. and subsidiaries appearing in Consolidated
Communications Holdings, Inc.'s Annual Report (Form 10-K) for the year ended December 31, 2015, and the effectiveness of Consolidated Communications Holdings, Inc. and
subsidiaries' internal control over financial reporting as of December 31, 2015, have been audited by Ernst & Young LLP, independent registered public accounting firm, as set
forth in their reports thereon, included therein, and incorporated by reference in this joint
proxy statement/prospectus. Such consolidated financial statements are incorporated herein by reference in reliance upon such reports given on the authority of such firm as experts in accounting and
auditing.
The
consolidated financial statements of FairPoint Communications, Inc. and subsidiaries appearing in FairPoint Communications, Inc.'s Annual Report (Form 10-K) for
the year ended December 31, 2015, and the effectiveness of FairPoint Communications, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2015, have
been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their reports thereon, included therein, and incorporated by reference in this joint
proxy statement/prospectus. Such consolidated financial
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statements
are incorporated herein by reference in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.
The
financial statements of Pennsylvania RSA No. 6 (II) Limited Partnership as of December 31, 2015 and 2014, and for the years then ended and the financial
statements of GTE Mobilnet of Texas RSA #17 Limited Partnership as of December 31, 2015 and 2014 and for the years then ended appearing in Consolidated Communications Holdings, Inc.'s
Annual Report (Form 10-K) for the year ended December 31, 2015, have been audited by Ernst & Young LLP, independent certified public accountants, as set forth in their
reports thereon, included therein, and incorporated by reference in this joint proxy statement/prospectus. Such financial statements are incorporated herein by reference in reliance upon such reports
given on the authority of such firm as experts in accounting and auditing.
FUTURE STOCKHOLDER PROPOSALS
Consolidated
The proxy rules of the SEC permit Consolidated's stockholders, after notice to Consolidated, to present proposals for stockholder action in
Consolidated's proxy statement where such proposals are consistent with applicable law, pertain to matters appropriate for stockholder action and are not properly omitted by Consolidated's action in
accordance with the proxy rules. In order for any stockholder proposal to be considered for inclusion in Consolidated's proxy statement to be issued in connection with Consolidated's 2017 annual
meeting of stockholders, that proposal must have been received at Consolidated's principal executive offices no later than December 2, 2016. Consolidated generally holds its annual meeting of
the stockholders in April or May of each year and it is anticipated that its 2018 annual meeting of stockholders will be held in April or May of 2018. In order for any stockholder proposal to be
considered for inclusion in Consolidated's proxy statement to be issued in connection with Consolidated's 2018 annual meeting of stockholders, that proposal must be received at Consolidated's
principal executive offices, 121 South 17th Street, Mattoon, Illinois 61938-3987 (Attention: Secretary), no later than 120 days before the first anniversary of the date that Consolidated
mails its proxy materials for the 2017 annual meeting.
Consolidated's
amended and restated bylaws provide that certain additional requirements be met in order that business may properly come before the stockholders at the Consolidated annual
meeting. Among other things, stockholders intending to bring business before the Consolidated annual meeting must provide written notice of such intent to the Secretary of Consolidated. Such notice
must be given not less than 90 days nor more than 120 days prior to the first anniversary of the date on which Consolidated mailed its proxy materials for the preceding year's annual
meeting. In addition, the following information must be provided regarding each proposal: as to each person whom the stockholder proposes to nominate for election or reelection as a director, the
name, age, business address and, if known, residential address, principal occupation or employment, the class, series and number of shares beneficially owned by such nominee and all information
relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required by Regulation 14A of the Exchange Act, including such
person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; a brief description of the business desired to be brought before the meeting; the
text of any resolution proposed to be adopted at the meeting; the reasons for conducting such business at the meeting; and a statement of any material interest in such business of such stockholder and
the beneficial owner, if any, on whose behalf the proposal is made and, in the case of director nominations, a description of all arrangements or understandings, including all compensation and
financial arrangements, between the stockholder and each nominee and any other persons (naming them) pursuant to which the nomination or nominations are to be made by the stockholder.
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In
addition, the following information must be provided regarding the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made: the name and
address of such stockholder, as it appears on Consolidated's stock transfer books, and of such beneficial owner; the class, series and number of shares of Consolidated which are owned beneficially and
of record by such stockholder and such beneficial owner; a representation that the stockholder giving the notice is a stockholder of record and intends to appear in person or by a qualified
representative at the Consolidated annual meeting to bring the business proposed in the notice before the meeting; a representation whether the stockholder or the beneficial owner, if any, intends or
is part of a group which intends to solicit proxies from stockholders in support of such proposal or nomination; and any other information relating to such stockholder that would be required to be
disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to the Exchange Act and the rules and regulations
promulgated thereunder.
FairPoint
It is expected that FairPoint will not hold its 2017 annual meeting of stockholders if the Merger is completed. In that case, holders of
FairPoint common stock who become holders of Consolidated common stock as a result of the Merger must submit stockholder proposals to Consolidated in accordance with the procedures described above.
FairPoint will hold its 2017 annual meeting of the stockholders only if the Merger is not completed. In that case, any stockholder nominations or proposals for other business intended to be presented
at FairPoint's 2017 annual meeting of stockholders must comply with the notice procedures set forth in FairPoint's bylaws and be submitted to FairPoint as set forth below.
Any
proposal or proposals by a FairPoint stockholder submitted pursuant to Rule 14a-8 under the Exchange Act for inclusion in the proxy statement and proxy card relating to
FairPoint's 2017 annual meeting of stockholders, if any, must have been submitted to FairPoint no later than November 30, 2016. However, if FairPoint does hold a 2017 annual meeting of
stockholders and the date of such meeting is changed by more than 30 days from the date of FairPoint's 2016 annual meeting of the stockholders, stockholder proposals for inclusion in the proxy
statement and proxy card must be submitted a reasonable time before FairPoint begins to print and send its proxy materials for such meeting, if any. All such submissions must comply with
Rule 14a-8 under the Exchange Act. In addition, stockholders who desire to bring business or submit a proposal (including director nominations) before an annual meeting of FairPoint's
stockholders outside of Rule 14a-8 under the Exchange Act (
i.e.
, where such business or proposal will not be included in FairPoint's proxy
statement for the annual meeting) must comply with FairPoint's bylaws, which require, among other things, that such stockholders provide written notice of such business to FairPoint's secretary, which
notice must be received not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day, prior to the first anniversary of the previous
year's annual meeting.
Notices
of intention to present proposals at an annual meeting of FairPoint's stockholders should be addressed to FairPoint Communications, Inc., Attn: Secretary, 521 East
Morehead Street, Suite 500, Charlotte, North Carolina 28202.
WHERE YOU CAN FIND MORE INFORMATION
Consolidated and FairPoint file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and
copy any report, statement or other information that Consolidated and FairPoint file with the SEC at the SEC's public reference room at the following location: Public Reference Room, 100 F
Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. These SEC filings are also available to the public from commercial
document retrieval services and at the website maintained by the SEC at
www.sec.gov.
Reports, proxy statements and other information concerning
Consolidated may
150
Table of Contents
also
be obtained at its website at
www.consolidated.com
. Reports, proxy statements and other information concerning FairPoint may also be obtained at
its website at
www.fairpoint.com
.
The
SEC allows Consolidated and FairPoint to "incorporate by reference" information into this joint proxy statement/prospectus, which means that the companies can disclose important
information to you by referring you to other documents filed separately with the SEC. The information incorporated by reference is considered part of this joint proxy statement/prospectus, except for
any information superseded by information contained directly in this joint proxy statement/prospectus or in later filed documents incorporated by reference into this joint proxy statement/prospectus.
This
joint proxy statement/prospectus incorporates by reference the documents set forth below that Consolidated and FairPoint have previously filed with the SEC.
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Consolidated Filings
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Period
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Annual Report on Form 10-K
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Fiscal Year ended December 31, 2015
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Quarterly Report on Form 10-Q
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Fiscal Quarter ended March 31, 2016
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Quarterly Report on Form 10-Q
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Fiscal Quarter ended June 30, 2016
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Quarterly Report on Form 10-Q
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Fiscal Quarter ended September 30, 2016
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Current Reports on Form 8-K
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Filed on January 5, 2016, May 4, 2016, October 7, 2016,
December 5, 2016 (two Current Reports), December 6,
2016, December 15, 2016 and December 22, 2016
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Registration Statement on Form 8-A
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Filed on July 19, 2005
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FairPoint Filings
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Period
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Annual Report on Form 10-K
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Fiscal Year ended December 31, 2015
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Quarterly Report on Form 10-Q
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Fiscal Quarter ended March 31, 2016
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Quarterly Report on Form 10-Q
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Fiscal Quarter ended June 30, 2016
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Quarterly Report on Form 10-Q
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Fiscal Quarter ended September 30, 2016
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Current Reports on Form 8-K
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Filed on January 19, 2016, January 22, 2016, February 10,
2016, March 18, 2016, April 14, 2016, May 17, 2016, July 13,
2016, September 6, 2016 and December 5, 2016 (two
Current Reports)
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Registration Statement on Form 8-A
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Filed on January 18, 2005
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Registration Statement on Form 8-A
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Filed January 24, 2011
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Amendment to Registration Statement on Form 8-A/A
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Filed January 24, 2011
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Consolidated
and FairPoint also incorporate by reference additional documents that may be filed with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act between
the date of this joint proxy statement/prospectus and the date of the Consolidated special meeting and the FairPoint special meeting. These include Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and proxy statements, excluding any information "furnished" pursuant to Item 2.02 or Item 7.01 of any Current Report on
Form 8-K.
Consolidated
has supplied all information contained in or incorporated by reference into this joint proxy statement/prospectus relating to Consolidated, and FairPoint has supplied all
such information relating to FairPoint.
You
may have previously received some of the documents incorporated by reference into this joint proxy statement/prospectus, but you can obtain any of them through Consolidated or
FairPoint, as
applicable, or the SEC or the SEC's website as described above. Documents incorporated by reference are available from the appropriate company without charge, excluding all exhibits, except that if
the companies have specifically incorporated by reference an exhibit in this joint proxy statement/
151
Table of Contents
prospectus,
the exhibit will also be provided without charge. Stockholders may obtain documents incorporated by reference into this joint proxy statement/prospectus by requesting them in writing or by
telephone from the appropriate company at the following addresses:
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FairPoint Communications, Inc.
521 East Morehead Street, Suite 500
Charlotte, North Carolina 28202
Attention: Investor Relations
Telephone (704) 344-8150
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Consolidated Communications Holdings, Inc.
121 South 17th Street
Mattoon, Illinois 61938
Attention: Investor Relations
Telephone: (507) 386-3765
|
You
should rely only on the information contained in or incorporated by reference into this joint proxy statement/prospectus. Consolidated and FairPoint have not authorized anyone to
provide you with information that is different from what is contained in or incorporated by reference into this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated
[•], 2017. You should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date other than that date. Neither
the mailing of this joint proxy statement/prospectus to stockholders of Consolidated or stockholders of FairPoint nor the issuance of Consolidated common stock in the Merger creates any implication to
the contrary.
152
Table of Contents
Annex I
Merger Agreement
EXECUTION VERSION
AGREEMENT
AND PLAN OF MERGER
by
and among
FAIRPOINT
COMMUNICATIONS, INC.,
CONSOLIDATED
COMMUNICATIONS HOLDINGS, INC.,
and
FALCON
MERGER SUB, INC.
Dated
as of December 3, 2016
Table of Contents
TABLE OF CONTENTS
I-i
Table of Contents
I-ii
Table of Contents
I-iii
Table of Contents
Index of Defined Terms
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Page
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Acceptable Confidentiality Agreement
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48
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Adjusted Exercise Price
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4
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Adjusted Option Shares
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4
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Affiliate
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6
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Agreement
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1
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Alternative Acquisition Agreement
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46
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Alternative Financing
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50
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Alternative Proposal
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48
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Bankruptcy and Equity Exceptions
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10
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Borrower
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32
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Business Day
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2
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Capitalization Date
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8
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Certificate
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3
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Certificate of Incorporation
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2
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Certificate of Merger
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1
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Claim
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43
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Closing
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2
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Closing Date
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2
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Closing Date Parent Stock Price
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4
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Code
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6
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Company
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1
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Company Benefit Plans
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14
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Company Board
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9
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Company Common Stock
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2
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Company Common Stock Holder
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5
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Company Contract
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16
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Company Designee
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52
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Company Disclosure Schedule
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7
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Company Equity Awards
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4
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Company Material Adverse Effect
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7
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Company Option
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3
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Company Performance Award
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4
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Company Personal Information
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16
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Company Preferred Stock
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8
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Company Privacy Policy
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15
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Company Recommendation
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9
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Company Recommendation Change
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46
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Company Related Party
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62
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Company Required Vote
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10
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Company RSA
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4
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Company SEC Reports
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11
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Company Stock Plans
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8
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Company Stockholder Meeting
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38
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Company Termination Fee
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51
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Confidentiality Agreement
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38
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Consent
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10
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Continuing Employees
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41
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D&O Insurance
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44
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I-iv
Table of Contents
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Page
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Debt Commitment Letter
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32
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Debt Financing
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32
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Debt Payment Expenses
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53
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Delaware Secretary
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1
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DGCL
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1
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Dissenting Shares
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3
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Effective Time
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1
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Environmental Laws
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19
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Equity Award Consideration
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4
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ERISA
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14
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ERISA Affiliate
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14
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Exchange Act
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11
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Exchange Agent
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5
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Exchange Ratio
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2
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Excluded Shares
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2
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Expenses
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43
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FCC
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10
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Fiduciary Change
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49
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Financing Agreements
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50
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Financing Documents
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50
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Financing Sources
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32
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Funded Debt
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53
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GAAP
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8
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Governmental Entity
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10
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HSR Act
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10
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Indemnified Parties
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42
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Intellectual Property Rights
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19
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Knowledge of the Company
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12
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Knowledge of the Parent
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25
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Leased Real Property
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18
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Licenses
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19
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Liens
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9
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Merger
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1
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Merger Consideration
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2
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Merger Sub
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1
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MUFG
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32
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Option Consideration
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4
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Outside Date
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55
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Owned Real Property
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17
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Parent
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1
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Parent Benefit Plan
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28
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Parent Board
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24
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Parent Capitalization Date
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23
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Parent Contract
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30
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Parent Credit Agreement
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29
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Parent Disclosure Schedule
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21
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Parent Intellectual Property Rights
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31
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Parent Licenses
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31
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Parent Material Adverse Effect
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22
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Parent Personal Information
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29
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I-v
Table of Contents
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Page
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Parent Plans
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42
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Parent Privacy Policy
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29
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Parent Recommendation
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24
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Parent Registration Statement
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37
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Parent Required Vote
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24
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Parent SEC Reports
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25
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Parent Stock
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2
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Parent Stock Issuance
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32
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Parent Stock Plans
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23
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Parent Stockholder Meeting
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39
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Parent Termination Fee
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57
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Performance Award Consideration
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4
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Permits
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7
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Permitted Liens
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18
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Person
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6
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Proxy Statement/Prospectus
|
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37
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Qualifying Transaction
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57
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Regulatory Law
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40
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Representatives
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38
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SEC
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7
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|
|
Securities Act
|
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11
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State Regulators
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10
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Subsidiary
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10
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Superior Proposal
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49
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Surviving Company
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|
1
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|
|
Tax Return
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|
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14
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Taxes
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13
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Termination Date
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55
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I-vi
Table of Contents
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of December 3, 2016 (as amended, supplemented or otherwise modified from time to time, and
together with all exhibits and schedules hereto, this "
Agreement
"), is entered into by and among Consolidated Communications Holdings, Inc., a
Delaware corporation ("
Parent
"), FairPoint Communications, Inc., a Delaware corporation (the
"
Company
"), and Falcon Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("
Merger
Sub
").
WHEREAS
, the respective Boards of Directors of each of the Company, Parent and Merger Sub have approved the acquisition of the Company by
Parent through the statutory merger of Merger Sub with and into the Company, whereupon the separate corporate existence of Merger Sub shall cease, and the Company shall be the surviving corporation
(the "
Merger
") upon the terms and subject to the conditions of this Agreement;
WHEREAS
, the parties hereto intend that the Merger qualify as a tax-free reorganization within the meaning of Section 368(a) of the
Code;
WHEREAS
, the Board of Directors of the Company has (a) determined that this Agreement and the transactions contemplated by this
Agreement, including the Merger, are advisable for and in the best interests of the Company and its stockholders, (b) approved and adopted this Agreement and the transactions contemplated
hereby, including the Merger, and (c) resolved, subject to the terms of this Agreement, to recommend that the Company's stockholders adopt this Agreement and approve the transactions
contemplated hereby, including the Merger;
WHEREAS,
the Board of Directors of Parent has (a) determined that this Agreement and the transactions contemplated by this
Agreement, including the Merger, are advisable for and in the best interests of Parent and its stockholders, (b) approved and adopted this Agreement and the transactions contemplated hereby,
including the Merger and the Parent Stock Issuance, and (c) resolved, subject to the terms of this Agreement, to recommend that Parent's stockholders approve the Parent Stock Issuance in
connection with the Merger; and
WHEREAS
, the Company, Parent and Merger Sub desire to make certain representations, warranties, covenants and agreements in connection
with the Merger and to prescribe certain conditions to the Merger;
NOW, THEREFORE
, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein, and
intending to be legally bound hereby, the parties hereto hereby agree as follows:
1.
THE MERGER
1.1
The Merger.
Upon the terms and subject to the conditions of this Agreement, in
accordance with the Delaware General Corporation Law ("
DGCL
"), at the Effective Time, Merger Sub shall merge with and into the Company, whereupon the
separate corporate existence of Merger Sub shall cease, and the Company shall be the surviving corporation (the "
Surviving Company
"). The parties to
this Agreement agree to report the Merger for any and all federal and state income tax reporting purposes as a "reorganization" within the meaning of Section 368(a)(2)(E) of the Code. The
parties to this Agreement hereby adopt this Agreement as a "plan of reorganization" within the meaning of Treasury Regulations Section 1.368-2(g).
1.2
Effective Time.
The Merger shall become effective as set forth in a
certificate of merger executed and acknowledged in accordance with, and otherwise satisfying, the applicable requirements of the DGCL (the "
Certificate of
Merger
"), which shall be duly
executed by the Company and Merger Sub and filed with the Secretary of State of the State of Delaware (the "
Delaware Secretary
") on the Closing Date or
as soon thereafter as practicable. As used herein, the term "
Effective Time
" shall mean the date
I-1
Table of Contents
and
time when the Merger becomes effective as provided by the Certificate of Merger and otherwise in accordance with applicable law.
1.3
Closing of the Merger.
Upon the terms and subject to the conditions of this
Agreement, the closing of the Merger (the "
Closing
") will take place (a) at the offices of Schiff Hardin LLP, 233 South Wacker Drive,
Suite 6600, Chicago, Illinois, at 7:00 a.m., Central Time, on the date that is the second (2nd) Business Day after the satisfaction or waiver of the conditions set forth in
Section 8
hereof, other than conditions which by their terms are to be satisfied at the Closing, or (b) such other location, date or time
as the parties may mutually agree (the "
Closing Date
"). For purposes of this Agreement, a "
Business Day
"
shall mean any day that is not a Saturday, a Sunday or other day on which the office of the Delaware Secretary is closed.
1.4
Certificate of Incorporation.
The Ninth Amended and Restated Certificate of
Incorporation of the Company (the "
Certificate of Incorporation
"), as in effect immediately prior to the Effective Time, shall at the Effective Time be
amended and restated to read as set forth in
Exhibit A
hereto and as so amended and restated shall be the Certificate of Incorporation of the
Surviving Company, until thereafter amended in accordance with applicable law and such Certificate of Incorporation.
1.5
Bylaws.
At the Effective Time, the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the bylaws of the Surviving Company until thereafter amended in accordance with applicable law and such bylaws.
1.6
Board of Directors; Officers.
The directors of Merger Sub immediately prior to
the Effective Time shall be the directors of the Surviving Company, each to hold office until their successors have been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Certificate of Incorporation and Bylaws of the Surviving Company and applicable law. The officers of Merger Sub immediately prior to the Effective Time
shall be the officers of the Surviving Company, each to hold office until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in
accordance with the Certificate of Incorporation and Bylaws of the Surviving Company and applicable law.
2.
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
2.1
Conversion of Company Capital Stock.
At the Effective Time, by virtue of the
Merger and without any action on the part of Parent, the Company or the holder of any of the shares of Company Common Stock, Parent Stock or any capital stock of Merger Sub:
(a) All
shares of common stock, par value $0.01 per share, of the Company (the "
Company Common Stock
") held in treasury or
owned directly by the Company, any Subsidiary of the Company, Merger Sub or Parent (other than shares in trust accounts, managed accounts and the like or shares held in satisfaction of a debt
previously contracted) shall be cancelled and retired and shall not represent capital stock of the Surviving Company and shall not be exchanged for the Merger Consideration. Shares of Company Common
Stock that are canceled and retired pursuant to this
Section 2.1
are hereinafter referred to as the "
Excluded
Shares
"; and
(b) Each
share of Company Common Stock (other than Excluded Shares and Dissenting Shares) issued and outstanding immediately prior to the Effective Time shall be converted
into and become the right to receive 0.7300 (the "
Exchange Ratio
") validly issued, fully paid and nonassessable shares of common stock, par value $0.01
per share, of Parent (the "
Parent Stock
"), subject to adjustment in accordance with
Section 2.1(d)
(such per share amount, together with any
cash in lieu of fractional shares of Parent Stock to be paid pursuant to
Section 2.1(c)
, is hereinafter referred to as the "
Merger Consideration
"). Effective as of the
Effective Time, each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than Excluded Shares) shall no longer be outstanding and shall automatically be
canceled and
I-2
Table of Contents
retired
and shall cease to exist, and each holder of certificates or evidence of shares in book-entry form which immediately prior to the Effective Time evidenced shares of Company Common Stock (each,
a "
Certificate
") shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration therefor upon surrender of
such Certificate in accordance with
Section 3.2
.
(c)
No Fractional Shares.
No fractional shares of Parent Stock shall be issued in respect of shares of Company
Common Stock that are to be converted in the Merger into the right to receive shares of Parent Stock. Each holder of a Certificate (other than holders of Certificates representing Excluded
Shares) shall be entitled to receive in lieu of any fractional share of Parent Stock to which such holder would otherwise have been entitled pursuant to
Section 2.1(b)
an amount in cash (without
interest), rounded to the nearest whole cent, equal to the product obtained by
multiplying
(i) the fractional share of Parent Stock to which such holder would otherwise be entitled (after taking
into account all shares of
Company Common Stock held by such holder immediately prior to the Effective Time)
by
(ii) the last reported sale price of Parent Stock on the
NASDAQ Global Select Market (as reported in The Wall Street Journal or, if not reported therein, in another authoritative source mutually selected by the Company and Parent) on the last complete
trading day prior to the date of the Effective Time.
(d)
Adjustments.
If, on or after the date of this Agreement and prior to the Effective Time, Parent splits,
combines into a smaller number of shares, or issues by reclassification any shares of Parent Stock, then the Merger Consideration and any dependent items shall be appropriately adjusted to provide to
the holders of Company Common Stock the same economic effect as contemplated by this Agreement prior to such action, and as so adjusted shall, from and after the date of such event, be the Merger
Consideration or other dependent item, as applicable, subject to further adjustment in accordance with this sentence.
2.2
Dissenting Shares.
Notwithstanding anything to the contrary contained in this
Agreement, shares of Company Common Stock held by a holder who has made a demand for appraisal of such shares in accordance with Section 262 of the DGCL (any such shares being referred to as
"
Dissenting Shares
" until such time as such holder fails to perfect or otherwise loses such holder's appraisal rights under Section 262 of the
DGCL with respect to such shares) shall not be converted into or represent the right to receive the Merger Consideration in accordance with
Section 2.1
, but shall be entitled only to such rights as
are granted by the DGCL to a holder of Dissenting Shares. At the Effective Time, the
Dissenting Shares shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of Dissenting Shares shall cease to have any rights with respect thereto,
except the right to receive the fair value of such Dissenting Shares in accordance with the provisions of Section 262 of the DGCL. If any Dissenting Shares shall lose their status as such
(through failure to perfect appraisal rights under Section 262 of the DGCL or otherwise), then, as of the later of the Effective Time or the date of loss of such status, such shares shall
automatically be converted into and shall represent only the right to receive the Merger Consideration in accordance with
Section 2.1
, without
interest thereon.
2.3
Treatment of Restricted Stock, Options and Other Stock-Based Awards.
(a) As
of the Effective Time, each option to purchase shares of Company Common Stock or other right to purchase Company Common Stock under any Company Stock Plan (each, a
"
Company Option
"), to the extent outstanding and unexercised immediately prior thereto, shall become fully vested and shall, without any action on the
part of any holder thereof, be automatically canceled in exchange for the right to receive, as soon as reasonably practicable following the Effective Time, that number of shares of Parent Stock as is
equal to (i) the product of (A) the Adjusted Option Shares, multiplied by (B) the difference of (1) the Closing Date Parent Stock Price, minus (2) the Adjusted
Exercise Price, divided by (ii) the Closing Date Parent Stock
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Price
(the "
Option Consideration
");
provided
,
however
,
that in the event that the Adjusted Exercise Price of any Company Option is equal to or greater than the Closing Date Parent Stock Price, such Company Option shall be canceled and no Option
Consideration shall be payable in respect of such Company Option. As used in this
Section 2.3(a)
:
(i) The
term "
Adjusted Exercise Price
" shall mean, with respect to each Company Option, the quotient of (A) the
exercise price set forth in such Company Option, in each case as adjusted to the date of such calculation in accordance with the terms of such Company Option, divided by (B) the Exchange Ratio.
(ii) The
term "
Adjusted Option Shares
" shall mean, with respect to each Company Option, the product of (A) the number
of shares of Company Common Stock underlying such Company Option, in each case as adjusted to the date of such calculation in accordance with the terms of such Company Option, multiplied by
(B) the Exchange Ratio.
(iii) The
term "
Closing Date Parent Stock Price
" shall mean the per share closing price for Parent Stock as reported on the
NASDAQ Global Select Market on the trading day immediately preceding the Closing Date.
(b) As
of the Effective Time, each performance award granted under any Company Stock Plan (each, a "
Company Performance
Award
" and, collectively with the Company Options, the "
Company Equity Awards
"), to the extent outstanding immediately prior
thereto, shall become fully vested (at the 100% level) and shall, without any action on the part of any holder thereof, be automatically canceled in exchange for the right to receive, as soon as
reasonably practicable following the Effective Time, that number of shares of Parent Stock as is equal to the product of (i) the number of shares of Company Common Stock underlying such Company
Performance Award, multiplied by (ii) the Exchange Ratio (collectively, the "
Performance Award Consideration
" and, together with the Option
Consideration, the "
Equity Award Consideration
").
(c) As
of the Effective Time, each restricted share award granted under any Company Stock Plan (each, a "
Company RSA
"), to
the extent outstanding and subject to vesting or forfeiture conditions (whether time-based or performance-based), shall become fully vested or released from such forfeiture conditions as of the
Effective Time and shall be treated as a share of Company Common Stock for all purposes of this Agreement.
2.4
Legal Entity Restructuring.
If, on or after the date of this Agreement and
prior to the Effective Time, Parent provides written notice to the Company of a proposed internal restructuring plan for the Company and its subsidiaries, Parent and the Company agree to reasonably
cooperate and participate in the analysis, development and implementation of the plan. The Company shall not be required to take any action with respect to such plan that would adversely affect the
treatment of the Merger as a reorganization within the meaning of Section 368(a) of the Code or have an adverse tax or economic effect on the Company or its shareholders or optionholders for a
taxable period prior to or including the Effective Time, or have the effect of materially delaying, impairing or impeding the receipt of any regulatory approvals required in connection with the
transactions contemplated by this Agreement.
3.
EXCHANGE OF CERTIFICATES FOR MERGER CONSIDERATION
3.1
Delivery of the Merger Consideration.
Prior to the Effective Time (and, with
respect to Parent Stock, from time to time after the Effective Time, as applicable), Parent shall deposit with the Exchange Agent, pursuant to an agreement providing for the matters set forth in this
Section 3.1
and such other matters as may be appropriate and the terms of which shall be mutually acceptable to Parent and the Company, an amount
in cash and certificates representing shares of Parent Stock sufficient to effect the conversion of each share of Company Common Stock (other than Excluded Shares) into the Merger Consideration
pursuant to this Agreement.
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3.2
Exchange Procedures.
(a) Promptly
after the execution of this Agreement, Parent shall designate and appoint Computershare Trust Company, N.A. or an Affiliate thereof to act as exchange agent
hereunder (the "
Exchange Agent
") for the purpose of exchanging Certificates.
(b) Promptly
after the Effective Time, but in any event not more than five (5) Business Days after the Effective Time, Parent shall cause the Exchange Agent to mail
to each holder of record as of immediately prior to the Effective Time of shares of Company Common Stock (each such holder, a "
Company Common Stock
Holder
"), (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to each Certificate representing any shares of
Company Common Stock held by such Company Common Stock Holder shall pass, only upon delivery of the completed letter of transmittal and such Certificate to the Exchange Agent and shall be in such form
and have
such other provisions as Parent and the Company shall mutually agree) and (ii) instructions for use in effecting the surrender of each such Certificate in exchange for the total amount of
Merger Consideration that such Company Common Stock Holder is entitled to receive in exchange for such holder's shares of Company Common Stock in the Merger pursuant to this Agreement. From and after
the Effective Time, until surrendered as contemplated by this
Section 3.2
, each Certificate representing shares of Company Common Stock held by a
Company Common Stock Holder shall be deemed to represent only the right to receive the total amount of Merger Consideration to which such Company Common Stock Holder is entitled in exchange for such
shares of Company Common Stock as contemplated by
Section 2
.
(c) Upon
surrender by a Company Common Stock Holder to the Exchange Agent of all Certificates representing such holder's shares of Company Common Stock, together with a
letter of transmittal duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, each Company Common
Stock Holder shall be entitled to receive in exchange therefor (and the Exchange Agent shall mail to such Company Common Stock Holder within ten (10) Business Days following such surrender):
(i) a certificate (or certificates in the aggregate) representing the number of whole shares of Parent Stock into which such holder's shares of Company Common Stock represented by such holder's
properly surrendered Certificates were converted in accordance with
Section 2
, and such Certificates so surrendered shall be forthwith cancelled,
and (ii) a check in an amount of U.S. dollars (after giving effect to any required withholdings pursuant to
Section 3.7
) equal to
(A) the amount of cash in lieu of a fractional share of Parent Stock to be paid pursuant to
Section 2.1(c)
), if any, into which such
holder's shares of Company Common Stock represented by such holder's properly surrendered Certificates were converted in accordance with
Section 2
, plus (B) any cash dividends and other
distributions that such holder has the right to receive pursuant to
Section 3.3
.
3.3
Dividends and Distributions.
No dividends or other distributions with respect
to shares of Parent Stock shall be paid to the holder of any unsurrendered Certificate until such Certificate is surrendered as provided in this
Section 3
, but provided that, to the extent that any
such dividends or distributions are declared with a record date on or after the Effective
Time, such dividends or distributions shall accrue for the account of such holder to be paid as provided in this
Section 3.3
. Subject to the
effect of applicable Laws, following such surrender, there shall be paid, without interest, to the record holder of the shares of Parent Stock issued in exchange for shares of Company Common Stock
represented immediately prior to the Effective Time by such Certificate (i) when any payment or distribution of a certificate representing any share(s) of Parent Stock is made to such holder
pursuant to
Section 3.2(b)
or (c), all dividends and other distributions payable in respect of such Parent Stock with a record date on or after
the Effective Time and a payment date on or prior to the date of such surrender and not previously paid and (ii) on the appropriate payment date, the dividends or other distributions payable
with respect to such Parent Stock with a record date after the Effective Time but prior to surrender and with a payment date subsequent to such surrender. For purposes of dividends
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and
other distributions in respect of Parent Stock, all shares of Parent Stock to be issued pursuant to the Merger shall be entitled to dividends pursuant to the immediately preceding sentence as if
issued and outstanding as of the Effective Time.
3.4
Transfer Books; No Further Ownership Rights in Shares.
After the Effective
Time, the stock transfer books of the Company shall be closed and there shall be no further registration of transfers of shares of Company Common Stock on the records of the Company. After the
Effective Time, the holders of Certificates shall cease to have any rights with respect to such shares, except the right to receive the Merger Consideration and such dividends and other distributions
on or in respect of Parent Stock as provided herein or as otherwise provided by applicable Law. If, after the Effective Time, Certificates are presented to the Surviving Company for any reason, they
shall be canceled and exchanged as provided in
Section 2
.
3.5
Termination of Fund; No Liability.
At any time following twelve
(12) months after the Effective Time, Parent shall be entitled to require the Exchange Agent to deliver to Parent (i) certificates representing shares of Parent Stock and
(ii) cash held by the Exchange Agent for payments in lieu of fractional shares of Parent Stock, in each case, not delivered to holders of Certificates. Thereafter, holders of Certificates shall
be entitled to look only to Parent, which shall thereafter act as the Exchange Agent (subject to abandoned property, escheat or other similar Laws), as general creditors of Parent with respect to the
delivery of the Merger Consideration (including payment of cash in lieu of fractional shares of Parent Stock). None of Parent, the Surviving Company and the Exchange Agent shall be liable to any
Person (as defined below) for any Merger Consideration delivered to a public official pursuant to any abandoned property, escheat or similar Law. For purposes of this Agreement,
"
Person
" means any natural person, firm, corporation, partnership, company, limited liability company, trust, joint venture, association, Governmental
Entity or other entity.
3.6
Lost, Stolen or Destroyed Certificates.
In the event that any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit attesting to that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if requested by Parent or
the Surviving Company, the delivery by such Person of a bond (in such amount as Parent or the Surviving Company may reasonably direct) as indemnity against any claim that may be made against the
Exchange Agent, Parent or the Surviving Company on account of the alleged loss, theft or destruction of such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate a certificate representing shares of Parent Stock and/or pay the cash in lieu of any fractional share of Parent Stock to which such holder is entitled, which constitute the total amount of
Merger Consideration deliverable in respect of such Certificate as determined in accordance with
Section 2
.
3.7
Withholding Taxes.
Parent or the Exchange Agent will be entitled to deduct and
withhold from the Merger Consideration, the Equity Award Consideration and any other amounts payable pursuant to this Agreement or the transactions contemplated hereby to any
holder of Company Common Stock or Company Equity Awards such amounts as the Company, Parent, or any affiliate (as defined under the Exchange Act (an
"
Affiliate
")) thereof, or the Exchange Agent are required to deduct and withhold with respect to the making of such payment under the Internal Revenue
Code of 1986, as amended (the "
Code
"), or any applicable provision of U.S. federal, state, local or non-U.S. tax law. To the extent that such amounts
are properly withheld by Parent or the Exchange Agent and paid over to the appropriate taxing authority, such withheld amounts will be treated for all purposes of this Agreement as having been paid to
the holder of the Company Common Stock or Company Equity Awards in respect of whom such deduction and withholding were made by Parent or the Exchange Agent.
3.8
Adjustments to Prevent Dilution.
Without limiting the other provisions of the
Agreement, in the event that the Company changes the number of shares of Company Common Stock issued and outstanding prior to the Effective Time as a result of a reclassification, stock split
(including a reverse stock split), stock dividend or distribution, recapitalization, merger, subdivision, issuer tender or exchange offer, or other similar transaction, the Merger Consideration and
the Equity Award Consideration shall be equitably adjusted to eliminate the effect of such change on the Merger Consideration.
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4.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except
as set forth in (a) the Company's filings with the Securities and Exchange Commission (the "
SEC
") required by the Securities
Act or the Exchange Act (excluding any disclosures set forth in any section of any such report entitled "Risk Factors" or "Forward-Looking Statements" or any other disclosures included in such filings
to the extent that they are forward-looking in nature) or (b) in the disclosure schedule of the Company delivered to Parent concurrently herewith (the "
Company
Disclosure Schedule
") (with specific reference to the section of this Agreement to which the information stated in such Company Disclosure Schedule relates;
provided
that
(i) disclosure in any section of such Company Disclosure Schedule shall be deemed to be disclosed with respect to any other Section
of this Agreement to the extent that it is reasonably apparent from the face of such disclosure that such disclosure is applicable or relevant to such other Section and (ii) the mere inclusion
of an item in such Company Disclosure Schedule as an exception to a representation or warranty shall not be deemed an admission that such item represents a material exception or material fact, event
or circumstance or that such item has had or would reasonably be expected to result in a Company Material Adverse Effect), the Company hereby represents and warrants to Parent and Merger Sub as
follows:
4.1
Corporate Organization.
(a) Each
of the Company and each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized (in
the case of the good standing, to the extent such jurisdiction recognizes such concept), except, in the case of the Subsidiaries, where the failure to be so organized, existing or in good standing,
would not reasonably be expected to result in a Company Material Adverse Effect. Each of the Company and each of its Subsidiaries has all requisite corporate or limited liability company power and
authority and possesses all governmental franchises, licenses, permits, authorizations, variances, exemptions, orders and approvals (collectively,
"
Permits
") necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its businesses as presently conducted, except
where the failure to have such power or authority or possess Permits, individually or in the aggregate, would not reasonably be expected to result in a Company Material Adverse Effect. Each of the
Company and each of its Subsidiaries is duly qualified or licensed to do business in each jurisdiction where the nature of its business or the ownership or leasing of its properties makes such
qualification necessary, other than in such jurisdictions where the failure to be so qualified or licensed, would not reasonably be expected to result in a Company Material Adverse Effect. As used in
this Agreement, the term "
Company Material Adverse Effect
" means (i) a material adverse effect on the business, results of operations or
financial condition of the Company and its Subsidiaries taken as a whole or (ii) a material adverse effect on the Company's ability to consummate the transactions contemplated hereby on a
timely basis;
provided, however,
that in determining whether a Company Material Adverse Effect has occurred, there shall be excluded any effect on the
Company or its Subsidiaries relating to or arising in connection with (A) any adverse change, effect, event or occurrence, state of facts or developments to the extent the public announcement
or the pendency of this Agreement or the transactions contemplated hereby or any actions required to be taken (or refrained from being taken) in compliance herewith or otherwise with the consent of
the other party hereto, including the impact thereof on the relationships of the Company or any of its Subsidiaries with customers, suppliers, distributors, consultants, employees or independent
contractors or other third parties with whom the Company or any of its Subsidiaries has any relationship and including any litigation brought by any stockholder of the Company in connection with the
transactions contemplated hereby, (B) any failure by the Company to meet any projections or forecasts for any period ending (or for which revenues or earnings are released) on or after the date
hereof (it being understood that this clause (B) does not and shall not be deemed to apply to the underlying cause or causes of any such failure), (C) any change in federal, state,
non-U.S. or local law, regulations, policies or procedures, or interpretations thereof, generally
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accepted
accounting principles ("
GAAP
") or regulatory accounting requirements applicable or potentially applicable to the industries in which the
Company or its Subsidiaries operate, (D) changes generally affecting the industries in which the Company or its Subsidiaries operate that are not specifically related to the Company and its
Subsidiaries and do not have a materially disproportionate
adverse effect on the Company and its Subsidiaries, taken as a whole, (E) changes in general economic conditions or political conditions, or in the financial, credit or securities markets in
general (including changes in the prevailing interest rates, exchange rates or stock, bond and/or debt prices) in the United States, in any region thereof, or in any non-U.S. or global economy that do
not have a materially disproportionate adverse effect on the Company and its Subsidiaries, taken as a whole, (F) any attack on, or by, outbreak or escalation of hostilities or acts of terrorism
involving, the United States, or any declaration of war by the United States Congress or any hurricane or other natural disaster, or (G) changes in the market price or trading volume of the
Company Common Stock on NASDAQ (it being understood that this clause (G) does not and shall not be deemed to apply to the underlying cause or causes of any such changes). As used herein,
"
Subsidiary
" means, with respect to any Person, any corporation, partnership, joint venture, limited liability company or any other entity that is
consolidated with such Person for financial reporting purposes.
(b) The
copies of the Certificate of Incorporation and Bylaws of the Company, and similar organizational documents of each its Subsidiaries, which, except as set forth in
Section 4.1(b)
of the Company
Disclosure Schedule, have previously been made available to Parent are true, complete and correct copies of such
documents as in effect as of the date of this Agreement. For purposes of this Agreement, all documents and other information posted in the online data room established by the Company prior to the date
hereof shall be deemed to have been made available to Parent and Merger Sub.
(c) The
minute books of the Company and each of its Subsidiaries, which, except as set forth in
Section 4.1(c)
of the
Company Disclosure Schedule, have been previously made available to Parent contain true, complete and correct records in all material respects of all meetings and other material corporate actions held
or taken since January 24, 2011 of their respective stockholders, members, partners or other equity holders and the Boards of Directors or other governing bodies (including committees of their
respective Boards of Directors or other governing bodies) through the date hereof.
4.2
Capitalization.
(a) The
authorized capital stock of the Company consists of 40,000,000 shares, consisting of 37,500,000 shares of Common Stock, par value $0.01 per share, and 2,500,000
shares of Preferred Stock, par value $0.01 per share (the "
Company Preferred Stock
"). As of the close of business on December 2, 2016 (the
"
Capitalization Date
"), there were 27,073,676 shares of Company Common Stock outstanding and no shares of the Company Preferred Stock outstanding. As of
the close of business on the Capitalization Date, no shares of Company Common Stock were reserved or to be made available for issuance, except as set forth in
Section 4.2(a)
of the Company
Disclosure Schedule. All of the issued and outstanding shares of Company Common Stock have been duly authorized and
validly issued and are fully paid, nonassessable and free of preemptive rights. As of the date of this Agreement, except (i) as set forth in
Section 4.2(a)
of the Company Disclosure Schedule,
(ii) pursuant to any cashless exercise provisions of any Company Options or pursuant to
the surrender of shares to the Company or the withholding of shares by the Company to cover tax withholding obligations under the Company's stock plans and arrangements set forth in
Section 4.2(a)
of the Company Disclosure Schedule (collectively, and in each case as the same may be amended to the date hereof, the
"
Company Stock Plans
"), and (iii) as set forth elsewhere in this
Section 4.2(a)
, the
Company does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase, sale,
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repurchase,
redemption or issuance of any shares of Company Common Stock or any other equity securities of the Company or any securities representing the right to purchase or otherwise receive any
shares of the Company capital stock (including any rights plan or agreement).
Section 4.2(a)
of the Company Disclosure Schedule sets forth a
true, complete and correct list of the aggregate number of shares of Company Common Stock issuable upon the exercise of each stock option or subject to each restricted stock award granted under the
Company Stock Plans that was outstanding as of the Capitalization Date and the exercise price for each such stock option. Since the Capitalization Date, the Company has not (i) issued or
repurchased any shares of its capital stock or any securities convertible into or exercisable for any shares of its capital stock, other than upon the exercise of employee stock options granted prior
to such date and disclosed in this
Section 4.2(a)
or pursuant to the surrender of shares to the Company or the withholding of shares by the
Company to cover tax withholding obligations under the Company Stock Plans, or (ii) issued or awarded any options, restricted shares or other equity-based awards under the Company Stock Plans.
(b)
Section 4.2(b)
of the Company Disclosure Schedule lists the name, jurisdiction of organization, authorized and
outstanding shares of capital stock and record and beneficial owners of such capital stock for each Subsidiary of the Company. Except as set forth in
Section 4.2(b)
of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries own, directly or indirectly, any equity or
similar interest in, or any interest convertible into or exchangeable for, any equity or similar interest in, any corporation, partnership, joint venture or other similar business association or
entity (other than its wholly owned Subsidiaries), with respect to which securities the Company or any of its Subsidiaries has invested (and currently owns) or is required to invest $5,000,000 or
more. Except as set forth in
Section 4.2(b)
of the Company Disclosure Schedule, the Company owns, directly or indirectly, all of the issued and
outstanding shares of capital stock of or all other equity interests in each of the Company's Subsidiaries free and clear of any liens, charges, encumbrances, adverse rights or claims and security
interests whatsoever ("
Liens
"), and all of such shares are duly authorized and validly issued and are fully paid, nonassessable and free of preemptive
rights. Except as set forth on
Section 4.2(b)
of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has or is bound
by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase, repurchase, sale, redemption or issuance of any shares of capital stock
or any other equity security of any Subsidiary of the Company or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of any
such Subsidiary. There are no restrictions on the Company with respect to voting the stock of any Subsidiary of the Company.
4.3
Authority; No Violation.
(a) The
Company has all requisite corporate power and corporate authority to execute and deliver this Agreement and, subject to receipt of the Company Required Vote and the
accuracy of the representations and warranties of Parent and Merger Sub set forth in this Agreement, to consummate the transactions contemplated hereby. The Board of Directors of the Company (the
"
Company Board
") at a duly held meeting has (i) determined that this Agreement and the transactions contemplated hereby, including the Merger,
are in the best interests of the Company and its stockholders, (ii) approved this Agreement and the transactions contemplated hereby, including the Merger, (iii) approved the execution
and delivery of this Agreement, and (iv) subject to
Section 7.7
, resolved to recommend that the stockholders of the Company approve this
Agreement and the transactions contemplated hereby, including the Merger (the recommendation contemplated by this clause (iv) being referred to as the "
Company
Recommendation
"), and directed that such matter be submitted for consideration by the Company's stockholders at the Company Stockholder Meeting. None of the aforesaid actions
by the Company Board has been amended,
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rescinded
or modified as of the date of this Agreement. Except for the approval of this Agreement by the affirmative vote of a majority of the outstanding shares of Company Common Stock entitled to
vote (the "
Company Required Vote
"), no other corporate proceedings on the part of the Company are necessary to approve this Agreement or to consummate
the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Company and (assuming due authorization, execution and delivery by Parent and Merger Sub)
constitutes a valid and binding obligation of the Company, enforceable against the Company 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 (the "
Bankruptcy and Equity
Exceptions
").
(b) Neither
the execution and delivery of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby, including the Merger,
will (i) violate any provision of the Certificate of Incorporation or Bylaws of the Company or any of the similar governing documents of any of its Subsidiaries, or (ii) assuming that
the consents, approvals and filings referred to in
Section 4.4
are duly obtained or made, and except as set forth in
Section 4.3(b)
of the
Company Disclosure Schedule, (A) violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to the Company or any of its Subsidiaries or any of their respective properties or assets, or (B) violate, conflict with, result in a breach of any provision of,
or require redemption or repurchase or otherwise require the purchase or sale of any securities under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute
a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance
required by, or result in the creation of any Lien upon any of the respective properties or assets of the Company or any of its Subsidiaries under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which the Company or any of its Subsidiaries is a party, or by which they or any of their
respective properties or assets may be bound or affected, except (in the case of clause (ii) above) for such violations, conflicts, breaches, defaults or other events which, either individually
or in the aggregate, would not reasonably be expected to result in a Company Material Adverse Effect.
4.4
Consents and Approvals.
No consent, approval, clearance, waiver, Permit or
order ("
Consent
") of or from, or filings or registrations with, any federal, national, state, provincial or local government or any court of competent
jurisdiction, administrative agency or commission or other governmental authority or instrumentality or self-regulatory organization of competent jurisdiction (each a
"
Governmental Entity
") or with any third Person are necessary in connection with the execution and delivery by the Company of this Agreement or the
consummation by the Company of the transactions contemplated hereby, including the Merger, except for (a) any notices required to be filed under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "
HSR Act
"), (b) the Consents from, or registrations, declarations, notices or filings made to or with the Federal
Communications Commission (the "
FCC
") or any Governmental Entity (including any state or local public service or public utilities commission or other
similar state or local regulatory bodies (collectively, the "
State Regulators
") and local cable franchise authorities) (other than with respect to
securities, antitrust, competition, trade regulation or similar laws), in each case as may be required in connection with this Agreement, the Merger or the other transactions contemplated by this
Agreement and are required with respect to mergers, business combinations or changes in control of telecommunications companies generally, (c) the filing with the SEC of the Proxy
Statement/Prospectus, as well as any other filings required to be made with the SEC pursuant to the Securities Act or the Exchange Act, (d) the filing of the Certificate of Merger with the
Delaware Secretary pursuant to the DGCL and (e) except as set forth in
Section 4.4(e)
of the Company Disclosure Schedule, other consents
or approvals of, or filings or registrations with, Governmental Entities or third parties, the
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failure
of which to be obtained or made would not be reasonably expected to result in, individually or in the aggregate, a Company Material Adverse Effect.
4.5
SEC Filings.
The Company has filed all forms, reports, statements,
certifications and other documents (including all exhibits, amendments and supplements thereto) required to be filed by it with the SEC since January 1, 2014 (collectively, the
"
Company SEC Reports
"). None of the Company's Subsidiaries is required to file or furnish reports with the SEC pursuant to the Securities Exchange Act
of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder (the "
Exchange Act
"). Each of the Company SEC Reports, as amended
prior to the date of this Agreement, complied as to form in all material respects with the applicable requirements of the Securities Act of 1933, as amended, and the rules and regulations of the SEC
promulgated thereunder (the "
Securities Act
") and the Exchange Act, each as in effect on the date so filed (or if amended or superseded by a filing
prior to the date of this Agreement, then on the date of
such subsequent filing). None of the Company SEC Reports contained, when filed or, if amended or supplemented prior to the date hereof, as of the date of such amendment or supplement, any untrue
statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. There are no outstanding or unresolved comments in comment letters received from the SEC with respect to the Company SEC Reports. To the
Knowledge of the Company, as of the date hereof, none of the Company SEC Reports is subject to ongoing SEC review.
4.6
Financial Statements.
(a) Each
of the financial statements included (or incorporated by reference) in the Company SEC Reports (including the related notes, where applicable), after giving effect
to any restatements made by the Company prior to the date of this Agreement, fairly present in all material respects (subject, in the case of the unaudited statements, to normal recurring adjustments,
none of which would be reasonably expected to result in, individually or in the aggregate, a Company Material Adverse Effect) the results of the consolidated operations and changes in stockholders'
equity and consolidated financial position of the Company and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth. Each of such financial statements
(including the related notes, where applicable), after giving effect to any restatements made by the Company prior to the date of this Agreement, complies in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC with respect thereto and each of such financial statements (including the related notes, where applicable) has been
prepared in accordance with GAAP, as in effect on the date or for the period with respect to which such principles are applied, in all material respects consistently applied during the periods
involved, except in each case as indicated in such statements or in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q. The books and records of the Company
and its Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual
transactions.
(b) The
records, systems, controls, data and information of the Company and its Subsidiaries are recorded, stored, maintained and operated under means (including any
electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of the Company or its Subsidiaries or accountants (including all
means of access thereto and therefrom), except for any non-exclusive ownership and non-direct control that would not reasonably be expected to have a material adverse effect on the system of internal
accounting controls described below in this
Section 4.6(b)
. The Company (i) has established and maintains disclosure controls and
procedures (as defined in Rule 13a-15(e) of the Exchange Act) and internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act), including to ensure that
material information relating to the Company, including its consolidated
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Subsidiaries,
is made known to the chief executive officer and the chief financial officer of the Company by others within those entities and (ii) has disclosed, based on its most recent
evaluation prior to the date hereof, to the Company's outside auditors and the audit committee of the Company Board (A) any significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which are reasonably likely to adversely affect the Company's ability to record,
process, summarize and report financial information and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal
controls over financial reporting. The Company's disclosure controls and procedures are reasonably designed to ensure that all material information required to be disclosed by the Company in the
reports that it files or furnishes under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that all such
material information is accumulated and communicated to the management of the Company as appropriate to allow timely decisions regarding required disclosure and to make the certifications required
pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act.
(c) From
January 1, 2014 to the date of this Agreement, (i) neither the Company nor any Subsidiary of the Company nor, to the Knowledge of the Company (as
defined below), any director, officer, auditor, accountant or representative of the Company or any of the Subsidiaries of the Company has received any written complaint, allegation, assertion or claim
that the Company or any of the Subsidiaries of the Company has engaged in improper or illegal accounting or auditing practices or maintains improper or inadequate internal accounting controls relating
to the Company and the Subsidiaries of the Company, taken as a whole, and (ii) no attorney representing the Company or any Subsidiary of the Company has made a report to the Company's chief
legal officer, chief executive officer or Board of Directors (or any committee thereof) pursuant to the SEC's Standards of Professional Conduct for Attorneys (17 CFR Part 205).
4.7
Broker's Fees.
Except for the Company's engagement of Evercore Group L.L.C.,
neither the Company nor any of its Subsidiaries, nor any of their respective officers or directors on behalf of the Company or any of the Company's Subsidiaries, has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's fees in connection with any of the transactions contemplated by this Agreement.
4.8
Absence of Certain Changes or Events.
(a) Except
as set forth in
Section 4.8(a)
of the Company Disclosure Schedule, since September 30, 2016, no
event has occurred which has had or would reasonably be expected to result in, individually or in the aggregate, a Company Material Adverse Effect.
(b) Except
as set forth in
Section 4.8(b)
of the Company Disclosure Schedule or as contemplated by this Agreement or
permitted under
Section 6.2
, since September 30, 2016, the Company and its Subsidiaries have carried on their respective businesses in all
material respects in the ordinary course of business.
4.9
Legal Proceedings.
(a) Except
as set forth in
Section 4.9(a)(i)
of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is a party to any, and there are no pending or, to the Knowledge of the Company, threatened, material legal, administrative, arbitral or other proceedings, claims, actions or governmental
or regulatory investigations of any nature (i) against the Company or any of its Subsidiaries that would reasonably be expected to result in, individually or in the aggregate, a Company
Material Adverse Effect or (ii) challenging the validity or propriety of the transactions contemplated by this Agreement. "
Knowledge of the
Company
" means the actual knowledge of the directors and executive officers of the Company listed in
Section 4.9(a)(ii)
of the
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Company
Disclosure Schedule, in each case without such individual being obligated to conduct any special inquiry or investigation into the affairs or records of the Company. The directors and
executive officers of the Company listed in
Section 4.9(a)(ii)
of the Company Disclosure Schedule shall not be deemed to have knowledge (actual,
constructive or otherwise) of any fact, event, condition or occurrence known or deemed to be known by any other Person other than as expressly set forth in the foregoing sentence.
(b) As
of the date of this Agreement, except as set forth in
Section 4.9(b)
of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries or any of their businesses or properties are subject to or bound by any injunction, order, judgment, decree or regulatory restriction of any
Governmental Entity specifically imposed upon the Company, any of its Subsidiaries or the assets of the Company or any of its Subsidiaries which would reasonably be expected to result in, individually
or in the aggregate, a Company Material Adverse Effect.
4.10
Taxes.
Except as set forth in
Section 4.10
of the Company Disclosure Schedule:
(a) (i)
Each of the Company and its Subsidiaries has (A) duly and timely filed (including pursuant to applicable extensions granted without penalty) all material Tax
Returns required to be filed by it, and such Tax Returns are true, correct and complete in all material respects, and (B) paid in full all Taxes shown as due on such Tax Returns; (ii) no
material deficiencies for any Taxes have been proposed, asserted or assessed in writing against the Company or any of its Subsidiaries which deficiencies have not since been resolved; and
(iii) there are no material Liens for Taxes upon the assets of either the Company or its Subsidiaries except for statutory liens for current Taxes not yet due or Liens for Taxes that are being
contested in good faith by appropriate proceedings and for which reserves adequate in accordance with GAAP have been provided.
(b) Since
January 1, 2012, neither the Company nor any of its Subsidiaries (i) has been a member of an "affiliated group" (other than a group the common parent
of which is the Company) filing a consolidated federal income tax return, or (ii) has had any liability for Taxes of any Person (other than the Company and its Subsidiaries) arising from the
application of Treasury Regulation section 1.1502-6 or any analogous provision of state, local or non-U.S. law.
(c) Since
January 1, 2012, no closing agreement pursuant to Section 7121 of the Code (or any similar provision of state, local or non-U.S. law) has been
entered into by or with respect to the Company or any of its Subsidiaries.
(d) Neither
the Company nor any of its Subsidiaries has been a "distributing corporation" or a "controlled corporation" in any distribution occurring during the last two
(2) years prior to the date of this Agreement in which the parties to such distribution treated the distribution as one to which Section 355 of the Code is applicable.
(e) Neither
the Company nor any of its Subsidiaries has granted any waiver of any federal, state, local or non-U.S. statute of limitations with respect to, or granted any
extension of a period of time for the assessment of, any Tax, which waiver or extension has not since expired.
(f) Neither
the Company nor any of its Subsidiaries has "participated", within the meaning of Treasury Regulations Section 1.6011-4(c)(3), in any of the transactions
described in Treasury Regulations Section 1.6011-4(b)(2), (3), (4), (5) or (6).
(g) Neither
the Company nor any of its Subsidiaries has taken or agreed to take any action or knows of any fact, agreement, plan or other circumstance that prevents, or
would reasonably be expected to prevent, the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code.
(h) As
used herein, "
Taxes
" shall mean all taxes, levies or other assessments imposed by any United States federal, state,
local or non-U.S. taxing authority, including income, excise, property, sales, transfer, franchise, payroll, withholding, social security or other similar taxes, including any interest or penalties
attributable thereto.
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(i) As
used herein, "
Tax Return
" shall mean any return, report, information return or other document (including any related
or supporting information) required to be filed with any taxing authority with respect to Taxes, including all information returns relating to Taxes of third parties, any claims for refunds of Taxes
and any amendments or supplements to any of the foregoing.
4.11
Employee Benefit Plans.
(a)
Section 4.11(a)
of the Company Disclosure Schedule sets forth a true and complete list or description of each
employee welfare benefit plan and employee pension benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended
("
ERISA
"), Sections 3(1) and 3(2), each other material compensation, consulting, employment or collective bargaining agreement, each stock
option, stock purchase, stock appreciation right, other stock based, life, health, disability or other insurance or benefit, bonus, deferred or incentive compensation, severance or separation, profit
sharing, retirement, or other employee benefit plan, practice, policy or arrangement of any kind, oral or written, covering employees or former employees of the Company or the Subsidiaries which the
Company or the Subsidiaries maintain or are required to contribute to as of the date of this Agreement (or, with respect to any "employee pension benefit plan," as defined under Section 3(2) of
ERISA, has
maintained or contributed to in the last six years) (collectively, the "
Company Benefit Plans
"). Copies of the Company Benefit Plan documents (and, if
applicable, related trust or funding agreements, insurance policies and service provider agreements) and all amendments thereto and written descriptions if not reduced to a written document have been
made available to Parent together with the most recent annual report (Form 5500 including, if applicable, Schedule B thereto) required to be filed, the most recent summary plan
description and the most recent IRS determination letter or opinion letter issued with respect to any Company Benefit Plan that is intended to be qualified under Section 401(a) of the Code.
(b) Except
as set forth in
Section 4.11(b)
of the Company Disclosure Schedule, neither the Company nor any entity
treated as a single employer with the Company under Section 414(b), (c), (m) or (o) of the Code (an "
ERISA Affiliate
") currently
maintains or is required to contribute to any Company Benefit Plan that (i) is a "multiemployer plan" as defined in Sections 3(37) of ERISA, (ii) is subject to the funding
requirements of Section 412 of the Code or Title IV of ERISA, (iii) is a "welfare benefit plan" as defined in Section 3(1) of ERISA that provides for post-retirement medical, life
insurance or other welfare-type benefits to any former employees of the Company (other than as required by Part 6 of Subtitle B of Title I of ERISA or Section 4980B of the Code or under
a similar state law regarding medical continuation coverage), (iv) is a "multiple employer plan" as defined in Section 413(c) of the Code or (v) is a "multiple employer welfare
arrangement" within the meaning of 3(40)(A) of ERISA.
(c) The
Company Benefit Plans and their related trusts intended to qualify under Sections 401(a) and 501(a) of the Code are subject to a favorable determination or
opinion letter from the IRS (or are entitled to rely on such a letter issued to the provider of a master, prototype, volume submitter or similar plan) and, to the Knowledge of the Company, nothing has
occurred that is expected to result in the revocation of such qualified status by the IRS, except where the failure to so comply would not reasonably be expected to result in, individually or in the
aggregate, a Company Material Adverse Effect.
(d) The
Company Benefit Plans have been maintained and administered in all material respects in accordance with their terms and applicable laws, except where the failure to
so comply would not reasonably be expected to result in, individually or in the aggregate, a Company Material Adverse Effect, it being understood that it shall not be a breach of this representation
or any other representation in this Agreement if as a result of the transactions contemplated by this
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Agreement
(or otherwise on or after the date of this Agreement) any pension plan is required to be funded or terminated.
(e) As
of the date of this Agreement, there are no material suits, actions, disputes, claims (other than routine claims for benefits) or arbitrations, or any audits,
examinations or administrative proceedings before any Governmental Entity pending or, to the Knowledge of the Company, threatened with respect to any Company Benefit Plan or any related trust or other
funding medium thereunder or with respect to the Company in its capacity as the plan sponsor or fiduciary thereof, and no Company Benefit Plan is currently the subject of a submission under IRS
Employee Plans Compliance Resolution System, nor under the Department of Labor's Delinquent Filer Voluntary Compliance Program, and the Company does not anticipate any such submission of any Company
Benefit Plan, in each case which would reasonably be expected to result in a Company Material Adverse Effect.
(f) All
contributions required to be made under the terms of any Company Benefit Plan, or applicable law, with respect to any period ending prior to the date of this
Agreement have been paid or have been timely accrued on the audited financial statements to the extent required by GAAP, and none of the Company Benefit Plans has any material unfunded liabilities as
of the date of this Agreement that are not so reflected in such audited financial statements.
4.12
Compliance With Applicable Law
.
(a) Except
as set forth in
Section 4.12(a)
of the Company Disclosure Schedule, the Company and each of its
Subsidiaries hold all licenses, franchises, permits and authorizations necessary for the lawful conduct of their respective businesses under and pursuant to, and have complied with and are not in
violation in any material respect under, any applicable law, statute, order, rule or regulation of any Governmental Entity relating to the Company or any of its Subsidiaries, except where the failure
to hold such license, franchise, permit or authorization or such non-compliance or violation would not, individually or in the aggregate, reasonably be expected to result in a Company Material Adverse
Effect, and neither the Company nor any of its Subsidiaries has received written notice of any violations of any of the above which, individually or in the aggregate, would reasonably be expected to
result in a Company Material Adverse Effect.
(b) The
Company and each of its Subsidiaries (i) is and during the past five years has in compliance with (A) all written policies of the Company and each of
its Subsidiaries pertaining to the logical and physical security of electronic data stored or used by the Company or any of its Subsidiaries (the "
Company Privacy
Policy
"), and (B) all applicable laws pertaining to privacy, data protection, user data or Company Personal Information; and (ii) has implemented and maintained
commercially reasonable administrative, technical and physical safeguards to protect such Company Personal Information against unauthorized access and use, in each case of clause (i) and
(ii) except as would not, individually or in the aggregate, reasonably be likely to result in a Company Material Adverse Effect. There has been no loss, damage or unauthorized access,
disclosure, use or breach of security of Company Personal Information maintained by or on behalf of the Company or any of its Subsidiaries, except in each case as would not, individually or in the
aggregate, reasonably be likely to result in a Company Material Adverse Effect. No Person (including any Governmental Entity) has made any written claim or commenced any action with respect to
unauthorized access, disclosure or use of Company Personal Information maintained by or on behalf of any of the Company or any of its Subsidiaries, except as would not, individually or in the
aggregate, reasonably be likely to result in a Company Material
Adverse Effect. None of (1) the execution, delivery, or performance of this Agreement or (2) the consummation of any of the transactions contemplated by this Agreement, including the
Merger, will violate any Company Privacy Policy or any law pertaining to privacy, data protection user data or Company Personal Information, except in each case as would not, individually or in the
aggregate, reasonably be likely to result in a
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Company
Material Adverse Effect. "
Company Personal Information
" means all data or information controlled, owned, stored, used or processed by the
Company or any of its Subsidiaries relating to an identified or identifiable customer or natural person (such as name, postal address, email address, telephone number, date of birth, Social Security
number (or its equivalent), driver's license number, account number, personal identification number, health or medical information (or any other unique identifier or one or more factors specific to
the Person's physical, physiological, mental, economic or social identity), whether such information is in individual or aggregate form and regardless of the media in which it is contained.
(c) Since
January 24, 2011, the Company has been and is in compliance in all material respects with (i) the applicable provisions of the Sarbanes-Oxley Act and
(ii) the applicable listing standards of the NASDAQ Stock Market, including those related to corporate governance.
4.13
Certain Contracts
.
(a) Except
as set forth in
Section 4.13(a)
of the Company Disclosure Schedule, as of the date hereof, neither the
Company nor any of its Subsidiaries is a party to or is bound by any contract, arrangement, commitment or understanding (whether written or oral) (i) which is a material contract (as defined in
Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the date of this Agreement, (ii) which restricts the rights of the Company or any of its Subsidiaries to
compete in any material respect in any line of business in any geographic area or with any Person, or which requires exclusive referrals of business or requires the Company or any of its Subsidiaries
to offer specified products or services to their customers on an exclusive basis, (iii) with or to a labor union or guild (including any collective bargaining agreement), (iv) which
relates to the incurrence of indebtedness (other than capital leases) in the principal amount of $15,000,000 or more, except as may be incurred in connection with the Company's revolving credit line
or the issuance of letters of credit, in each case, pursuant to that certain Credit Agreement, dated as of February 14, 2013, among the Company, the lenders party thereto from time to time, and
Morgan Stanley Senior Funding, Inc. as administrative agent, (v) which grants any Person a right of first refusal, right of first offer or similar right with respect to any material
properties, assets or businesses of the Company or its Subsidiaries, (vi) which involves the purchase of
assets, other than in the ordinary course of business, with a purchase price of $3,000,000 or more in any single case or $12,000,000 in all such cases, or (vii) which involves the sale of
assets, other than in the ordinary course of business, with a purchase price of $1,500,000 or more in any single case or $8,000,000 in all such cases. Each contract, arrangement, commitment or
understanding of the type described in this
Section 4.13(a)
, whether or not publicly disclosed in the Company SEC Reports filed prior to the date
hereof or set forth in
Section 4.13(a)
of the Company Disclosure Schedule, is referred to herein as a "
Company
Contract
", and neither the Company nor any of its Subsidiaries has received written notice of any material violation of a Company Contract by any of the other parties thereto.
The Company has made available to the Parent (which requirement may be satisfied by posting such information in the online data room established by the Company prior to the date hereof) all contracts
which involved payments by the Company or any of its Subsidiaries in fiscal year 2016 of more than $5,000,000 or which could reasonably be expected to involve payments during fiscal year 2017 of more
than $5,000,000 other than any such contract that is terminable at will on one-hundred twenty (120) days or less notice without payment of a penalty in excess of $5,000,000, other than any
contract entered into on or after the date hereof that is permitted under the provisions of
Section 6.2
.
(b) Except
as set forth in
Section 4.13(b)
of the Company Disclosure Schedule, (i) each Company Contract is
valid and binding on the Company and in full force and effect (other than due to the ordinary expiration of the term thereof), and, to the Knowledge of the Company, is valid and binding on the other
parties thereto, in each case, as enforceability may be limited by the Bankruptcy and Equity Exceptions, (ii) the Company and each of its Subsidiaries has in all
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material
respects performed all obligations required to be performed by it to date under each Company Contract, and (iii) no event or condition exists which constitutes or, after notice or
lapse of time or both, would constitute a material default on the part of the Company or any of its Subsidiaries under any such Company Contract, except, in each case, with respect to the foregoing
clauses (i) through (iii) as would not reasonably be expected to result in, either individually or in the aggregate, a Company Material Adverse Effect.
4.14
Undisclosed Liabilities
. Except for (a) liabilities that are fully
reflected or reserved against on the consolidated balance sheet of the Company included in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016,
(b) liabilities incurred in the ordinary course of business consistent with past practice, (c) liabilities arising under the terms of (but not from any breach or default under) any
agreement, contract, commitment, license, permit, lease or other instrument or obligation that is either (x) disclosed in the Company Disclosure Schedule or (y) not required to be so
disclosed by the terms of this Agreement (and including any of the foregoing types of instruments or obligations that are entered into or obtained after the date of this Agreement, as long as such
action does not result in a breach of this Agreement), (d) liabilities incurred
pursuant to or in connection with this Agreement or the transactions contemplated hereby or (e) liabilities that would not reasonably be expected to result in, individually or in the aggregate,
a Company Material Adverse Effect, neither the Company nor any of its Subsidiaries has any liability of any nature whatsoever (whether absolute, accrued or contingent or otherwise and whether due or
to become due) that would be required by GAAP to be reflected in the consolidated balance sheet of the Company.
4.15
Anti-Takeover Provisions
. Assuming the accuracy of the representations and
warranties of Parent and Merger Sub set forth in
Section 5
, the Company Board has taken all action necessary to render inapplicable to this
Agreement and the transactions contemplated hereby, including the Merger, the restrictions on business combinations set forth in Section 203 of the DGCL. To the Knowledge of the Company, no
other state anti-takeover statute or regulation applies to this Agreement or any of the transactions contemplated hereby, including the Merger.
4.16
Company Information
. The information relating to the Company and its
Subsidiaries to be provided by the Company for inclusion in the Parent Registration Statement or the Proxy Statement/Prospectus will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. The Proxy Statement/Prospectus (except for such portions thereof
as relate only to Parent, Merger Sub or any of their respective Subsidiaries) will comply as to form in all material respects with the Exchange Act.
4.17
Title to Property
.
(a)
Real Property
. Except as disclosed in
Section 4.17(a)(i)
of the Company Disclosure Schedule, the Company and its
Subsidiaries do not own any material real property (the
"
Owned Real Property
"). All real property and fixtures material to the business, operations or financial condition of the Company and its Subsidiaries
are in substantially good condition and repair except as would not reasonably be expected to result in, individually or in the aggregate, a Company Material Adverse Effect. The Company or a Subsidiary
of the Company has good fee simple title to all Owned Real Property specified in
Section 4.17(a)(ii)
of the Company Disclosure Schedule. Except
for Permitted Liens, as of the date of this Agreement, none of the Owned Real Properties specified in
Section 4.17(a)(ii)
of the Company
Disclosure Schedule is subject to any lease, sublease, license or other agreement granting to any Person (other than the Company or any Subsidiary of the Company) any right to the use or occupancy of
such Owned Real Property or any part thereof. Except as would not reasonably be expected to result in, in the aggregate, a Company Material Adverse Effect, to the Knowledge of the Company, there does
not exist any condemnation or eminent domain proceeding that affects any Owned Real Property.
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(b)
Personal Property
. The Company and its Subsidiaries have good and valid title to, or a valid leasehold
interest in, or with respect to licensed assets only, a valid license to use, all tangible personal property owned by them on the date hereof, free and clear of all Liens other than Permitted Liens,
except where the failure to have such title, valid leasehold or valid license would not reasonably be expected to result in, either individually or in the aggregate, a Company Material Adverse Effect.
With respect to personal property used in the business of the Company and its Subsidiaries which is leased rather than owned, neither the Company nor any Subsidiary thereof is in default under the
terms of any such lease the loss of which would reasonably be expected to result in, either individually or in the aggregate, a Company Material Adverse Effect.
(c)
Leased Property
. All material leases of real property and all other leases material to the Company and its
Subsidiaries under which the Company or a Subsidiary, as lessee, leases real or personal property (the "
Leased Real Property
") are valid and binding in
accordance with their respective terms, there is not under such lease any material existing default by the Company or such Subsidiary or, to the Knowledge of the Company, the lessors thereunder, or
any event which with notice or lapse of time would constitute such a default, and in the case of real estate leases the Company or such Subsidiary quietly enjoys the premises provided for in such
lease except, in each case, as would not reasonably be expected to result in, individually or in the aggregate, a Company Material Adverse Effect. Except as would not reasonably be expected to result
in, in the aggregate, a Company Material Adverse Effect, to the Knowledge of the Company, there does not exist any condemnation or eminent domain proceeding that affects any Leased Real Property.
(d) As
used herein, "
Permitted Liens
" means (i) Liens publicly disclosed in the Company SEC Reports filed prior to the
date hereof, (ii) Liens disclosed in
Section 4.17(d)(ii)
of the Company Disclosure Schedule, (iii) Liens for current Taxes not yet
due and payable and other standard exceptions commonly found in title policies in the jurisdiction where the property is located, (iv) such encumbrances and imperfections of title, if any, as
do not materially detract from the value of the properties and do not materially interfere with the present or proposed use of such properties or otherwise materially impair such operations,
(v) Liens imposed or promulgated by laws with respect to real property and improvements, including zoning regulations, (vi) mechanics', carriers', workmen's, repairmen's and similar
Liens incurred in the ordinary course of business or (vii) Liens that would not reasonably be expected to result in, individually or in the aggregate, a Company Material Adverse Effect.
4.18
Insurance
. The Company and its Subsidiaries are insured with reputable
insurers against such risks and in such amounts as the management of the Company reasonably has determined to be prudent in accordance with industry practice (taking into account the cost and
availability of such insurance), except as would not reasonably be expected to result in, individually or in the aggregate, a Company Material Adverse Effect. The Company and its Subsidiaries are in
compliance with their insurance policies, including any State Self Insurance program, and are not in default under any of the terms thereof, except for any such non-compliance or default that would
not reasonably be expected to result in a Company Material Adverse Effect. Each such policy is outstanding and in full force and effect (other than due to the ordinary expiration of the term thereof),
except as set forth on
Section 4.18
of the Company Disclosure Schedule. All premiums and other payments due under any such policy have been paid.
4.19
Environmental Liability
. Except as set forth in
Section 4.19
of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries has received any written notice of any legal,
administrative, arbitral or other proceedings, claims, actions, causes of action or, to the Knowledge of the Company, private environmental investigations or remediation activities or governmental
investigations of any nature seeking to impose, or that would reasonably be expected to result in the imposition, on the Company or any of its Subsidiaries of any liability or obligation arising under
common law standards relating to protection of the environment or human health, or under any local,
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state
or federal environmental statute, regulation or ordinance, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (collectively,
"
Environmental Laws
"), which liability or obligation would reasonably be expected to result in a Company Material Adverse Effect. During, or, to the
Knowledge of the Company, prior to the period of, (a) its or any of its Subsidiaries' ownership or operation of any of their respective current properties, (b) its or any of its
Subsidiaries' participation in the management of any property, or (c) its or any of its Subsidiaries' holding of a security interest or other interest in any property, there were no releases or
threatened releases of hazardous, toxic, radioactive or dangerous materials or other materials regulated under Environmental Laws in, on, under or affecting any such property which would reasonably be
expected to result in a Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries is subject to any agreement, order, judgment, decree, letter or memorandum by or with any
Governmental Entity or third Person imposing any material liability or obligation pursuant to or under any Environmental Law that would reasonably be expected to result in a Company Material Adverse
Effect. The Company and its Subsidiaries are in compliance with all Environmental Laws, including possessing all material permits required for its currently conducted operations under applicable
Environmental Laws, except, in each case, for any such non-compliance that, individually or in the aggregate, would not reasonably be expected to result in a Company Material Adverse Effect.
Notwithstanding any other provision of this Agreement to the contrary (including
Section 4.12
), the representations and warranties of the Company
in this
Section 4.19
constitute the sole representations and warranties of the Company with respect to any matter (including any liability)
relating to Environmental Laws.
4.20
Intellectual Property
. The Company and its Subsidiaries own, or are validly
licensed or otherwise have the right to use, all patents, patent applications, patent rights, trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights,
copyrights, trade secrets, designs, domain names, lists, data, databases, processes, methods, schematics, technology, know-how, documentation, and other proprietary intellectual property rights and
any such rights in computer programs (collectively, "
Intellectual Property Rights
") as used in their business as presently conducted, except where the
failure to have the right to use such Intellectual Property Rights, individually or in the aggregate, has not had and would not reasonably be expected to result in a Company Material Adverse Effect.
No actions, suits or other proceedings are pending or, to the Knowledge of the Company, threatened that the Company or any of its Subsidiaries is infringing, misappropriating or otherwise violating
the rights of the Company or any of its Subsidiaries with respect to any Intellectual Property Right owned by the Company or any of its Subsidiaries, expect for such infringement, misappropriation or
violation that, individually or in the aggregate, would not
reasonably be expected to result in a Company Material Adverse Effect. Notwithstanding any other provision of this Agreement to the contrary, the representations and warranties of the Company in this
Section 4.20
constitute the sole representations and warranties of the Company with respect to any matter (including any liability) relating to
intellectual property matters.
4.21
Communications Regulatory Matters
.
(a) The
Company and each of its Subsidiaries hold (i) all material approvals, authorizations, certificates and licenses issued by the FCC or the State Regulators that
are required for the Company and each of its Subsidiary to conduct its business as presently conducted, which approvals, authorizations, certificates and licenses are set forth in
Section 4.21(a)
of the Company Disclosure Schedule, and (ii) all other material regulatory permits, approvals, licenses and other
authorizations, including franchises, ordinances and other agreements granting access to public rights of way, issued or granted to the Company or any of its Subsidiaries by a Governmental Entity that
are required for the Company and each of its Subsidiaries to conduct its business, as presently conducted (clause (i) and (ii) collectively, the
"
Licenses
").
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(b) Each
License is valid and in full force and effect and has not been suspended, revoked, canceled or adversely modified, except where the failure to be in full force and
effect, or the suspension, revocation, cancellation or modification of which would not reasonably be expected to result in, individually or in the aggregate, a Company Material Adverse Effect. No
License is subject to (i) any conditions or requirements that have not been imposed generally upon licenses in the same service, unless such conditions or requirements would not reasonably be
expected to result in, individually or in the aggregate, a Company Material Adverse Effect, or (ii) any pending regulatory proceeding or judicial review before a Governmental Entity, unless
such pending regulatory proceeding or judicial review would not reasonably be expected to result in, individually or in the aggregate, a Company Material Adverse Effect. To the Knowledge of the
Company, there has been no event, condition or circumstance that would preclude any License from being renewed in the ordinary course (to the extent that such License is renewable by its terms),
except where the failure to be renewed would not reasonably be expected to result in, individually or in the aggregate, a Company Material Adverse Effect.
(c) The
licensee of each License is in compliance with each License and has fulfilled and performed all of its obligations with respect thereto, including all reports,
notifications and applications required by the rules, regulations, policies, instructions and orders of the FCC or the State Regulators, and the payment of all regulatory fees and contributions,
except (i) for exemptions, waivers or similar concessions or allowances and (ii) where such failure to be in compliance, fulfill or perform its obligations or pay such fees or
contributions would not reasonably be expected to result in, individually or in the aggregate, a Company Material Adverse Effect.
4.22
Labor Matters
. Except as set forth in
Section 4.22
of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries is a party to or is bound by any collective
bargaining agreement, contract or other material agreement or understanding with a labor union or labor organization involving any employees of the Company, nor is the Company or any of its
Subsidiaries the subject of a proceeding asserting that it or any such Subsidiary has committed an unfair labor practice (within the meaning of the National Labor Relations Act) or seeking to compel
the Company or any such Subsidiary to bargain with any labor organization as to wages or conditions of employment, nor is there any strike or other material labor dispute involving its or any of its
Subsidiaries' employees pending or, to the Knowledge of the Company, threatened, nor, to the Knowledge of the Company, is there any activity involving its or any of its Subsidiaries' employees seeking
to certify a collective bargaining unit or engaging in other organizational activity. As of the date of this Agreement, there is no written labor or employment-related charge, complaint or claim of
any sort against the Company or any Subsidiary of the Company pending or, to the Knowledge of the Company, threatened before any Governmental Entity, except for such charges, complaints or claims that
would not be reasonably expected to have, individually or in the aggregate, a Company Material Adverse Effect.
4.23
Transactions with Affiliates
. Except as set forth in
Section 4.23
of the Company
Disclosure Schedule, as of the date of this Agreement, there are no transactions, agreements, arrangements or
understandings between the Company or any of the Subsidiaries of the Company, on the one hand, and any Affiliate of the Company (other than the Subsidiaries of the Company), on the other hand, of the
type that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act.
4.24
Opinion of Financial Advisor
. The Company has received an opinion of
Evercore Group L.L.C., financial advisor to the Company, to the effect that, as of the date of such opinion, the Merger Consideration is fair, from a financial point of view, to the holders of
the Company Common Stock. It is agreed and understood that such opinion may not be relied on by Parent or Merger Sub.
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4.25
Acknowledgement of the Company
. The Company
acknowledges and agrees that it has conducted its own independent review and analysis of the business, assets, condition and operations of Parent and its Subsidiaries. In entering into this Agreement,
the Company has relied solely upon its own investigation and analysis and the representations and warranties, covenants and agreements of Parent and Merger Sub contained in this Agreement and the
Company (a) acknowledges that, other than as set forth in this Agreement, none of Parent, Merger Sub nor any of their respective directors, officers, employees, Affiliates, agents or
representatives makes or has made any representation or warranty, either express or implied, as to the accuracy or completeness of any of the information provided or made available to the Company or
its agents or representatives prior to the execution of this Agreement, and (b) agrees, to the fullest extent permitted by law, that none of Parent, Merger Sub nor any of their respective
directors, officers, employees, Affiliates, agents or representatives shall have any liability or responsibility whatsoever to the Company on any basis (including in contract, tort or otherwise) based
upon any information provided or made available, or statements made, to the Company prior to the execution of this Agreement.
4.26
No Other Representations or Warranties
. Except for the representations and
warranties expressly contained in this
Section 4
, neither the Company nor any other Person makes any other express or implied representation or
warranty with respect to the Company, the Company's Subsidiaries or the transactions contemplated by this Agreement, and the Company
disclaims any other representations or warranties, whether made by the Company or any of its affiliates, officers, directors, employees, agents or representatives. Except for the representations and
warranties expressly contained in this
Section 4
, the Company hereby disclaims all liability and responsibility for any representation, warranty,
projection, forecast, statement, or information made, communicated, or furnished (orally or in writing, including via any online data room) to Parent, Merger Sub or any of their Affiliates or
representatives (including any opinion, information, projection, or advice that may have been or may be provided to Parent by any director, officer, employee, agent, consultant, or representative of
the Company or any of its Affiliates).
5.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except
as set forth in (a) Parent's filings with the SEC required by the Securities Act or the Exchange Act (excluding any disclosures set forth in any section of any such report
entitled "Risk Factors" or "Forward-Looking Statements" or any other disclosures included in such filings to the extent that they are forward-looking in nature) or (b) in the disclosure
schedule of Parent and Merger Sub delivered to the Company concurrently herewith (the "
Parent Disclosure Schedule
") (with specific reference to the
section of this Agreement to which the information stated in such Parent Disclosure Schedule relates;
provided
that (i) disclosure in any section
of such Parent Disclosure Schedule shall be deemed to be disclosed with respect to any other Section of this Agreement to the extent that it is reasonably apparent from the face of such disclosure
that such disclosure is applicable or relevant to such other Section and (ii) the mere inclusion of an item in such Parent Disclosure Schedule as an exception to a representation or warranty
shall not be deemed an admission that such item represents a material exception or material fact, event or circumstance or that such item has had or would reasonably be expected to result in a Parent
Material Adverse Effect), Parent and Merger Sub hereby represent and warrant to the Company as follows:
5.1
Corporate Organization.
(a) Each
of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Parent and
Merger Sub each have all requisite corporate power and authority and possesses all Permits necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its
businesses as presently conducted, except where the failure to have such power or authority or possess Permits, individually or in the aggregate, would not reasonably be expected to result in a Parent
Material
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Adverse
Effect. Each of Parent and each of its Subsidiaries is duly qualified or licensed to do business in each jurisdiction where the nature of its business or the ownership or leasing of its
properties makes such qualification necessary, other than in such jurisdictions where the failure to be so qualified or licensed, would not reasonably be expected to result in a Parent Material
Adverse Effect. As used in this Agreement, the term "
Parent Material Adverse Effect
" means (i) a material adverse effect on the business, results
of operations or financial condition of Parent and its Subsidiaries taken as a whole or (ii) a material adverse effect on Parent's or Merger Sub's ability to consummate the transactions
contemplated hereby on a timely basis;
provided, however,
that in determining whether a Parent Material Adverse Effect has occurred, there shall be
excluded any effect on the Parent or its Subsidiaries relating to or arising in connection with (A) any adverse change, effect, event or occurrence, state of facts or developments to the extent
the public announcement or the pendency of this Agreement or the transactions contemplated hereby or any actions required to be taken (or refrained from being taken) in compliance herewith or
otherwise with the consent of the other party hereto, including the impact thereof on the relationships of Parent or any of its Subsidiaries with customers, suppliers, distributors, consultants,
employees or independent contractors or other third parties with whom Parent or any of its Subsidiaries has any relationship and including any litigation brought by any stockholder of the Company or
Parent in connection with the transactions contemplated hereby, (B) any failure by Parent to meet any projections or forecasts for any period ending (or for which revenues or earnings are
released) on or after the date hereof (it being understood that this clause (B) does not and shall not be deemed to apply to the underlying cause or causes of any such failure), (C) any
change in federal, state, non-U.S. or local law, regulations, policies or procedures, or interpretations thereof, GAAP or regulatory accounting requirements applicable or potentially applicable to the
industries in which Parent or its Subsidiaries operate, (D) changes generally affecting the industries in which Parent or its Subsidiaries operate that are not specifically related to Parent
and its Subsidiaries and do not have a materially disproportionate adverse effect on the Parent and its Subsidiaries, taken as a whole, (E) changes in general economic conditions or political
conditions, or in the financial, credit or securities markets in general (including changes in the prevailing interest rates, exchange rates or stock, bond and/or debt prices) in the United States, in
any region thereof, or in any non-U.S. or global economy that do not have a materially disproportionate adverse effect on the Parent and its Subsidiaries, taken as a whole, (F) any attack on,
or by, outbreak or escalation of hostilities or acts of terrorism involving, the United States, or any declaration of war by the United States Congress or any hurricane or other natural disaster, or
(G) changes in the market price or trading volume of the Parent Stock on the NASDAQ Global Select Market (it being understood that this clause (G) does not and shall not be deemed to
apply to the underlying cause or causes of any such changes).
(b) The
copies of the Certificate of Incorporation and Bylaws of Parent and Merger Sub, and similar organizational documents of each of Parent's Subsidiaries, which have
previously been made available to the Company are true, complete and correct copies of such documents as in effect as of the date of this Agreement. For purposes of this Agreement, all documents and
other information posted in the online data room established by Parent prior to the date hereof shall be deemed to have been made available to the Company.
(c) The
minute books of Parent previously made available to the Company contain true, complete and correct records in all material respects of all meetings and other
material corporate actions held or taken since January 24, 2011 of the Parent stockholders and the Parent Board (including committees of the Parent Board) through the date hereof.
5.2
Capitalization.
(a) The
authorized capital stock of Parent consists of 100,000,000 shares of Common Stock, par value $0.01 per share, and 10,000,000 shares of Preferred Stock, par value
$0.01 per share. As
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of
the close of business on December 2, 2016 (the "
Parent Capitalization Date
"), there were 50,654,989 shares of Parent Stock outstanding and no
shares of Parent's Preferred Stock outstanding. As of the close of business on the Parent Capitalization Date, no shares of Parent Stock were reserved or to be made available for issuance, except as
set forth in
Section 5.2(a)
of the Parent Disclosure Schedule. All of the issued and outstanding shares of Parent Stock have been duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive rights. As of the date of this Agreement, except (i) as set forth in
Section 5.2(a)
of the Parent Disclosure
Schedule, (ii) pursuant to any cashless exercise provisions of any options or pursuant to the
surrender of shares to Parent or the withholding of shares by Parent to cover tax withholding obligations under Parent's stock plans and arrangements set forth in
Section 5.2(a)
of the Parent
Disclosure Schedule (collectively, and in each case as the same may be amended to the date hereof, the
"
Parent Stock Plans
"), and (iii) as set forth elsewhere in this
Section 5.2(a)
, Parent
does not have and is not bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase, sale, repurchase, redemption or issuance
of any shares of Parent Stock or any other equity securities of Parent or any securities representing the right to purchase or otherwise receive any shares of the Parent capital stock (including any
rights plan or agreement).
Section 5.2(a)
of the Parent Disclosure Schedule sets forth a true, complete and correct list of the aggregate number
of shares of Parent Stock issuable upon the exercise of each stock option or subject to each restricted stock award granted under the Parent Stock Plans that was outstanding as of the Parent
Capitalization Date and the exercise price for each such stock option. Since the Parent Capitalization Date, Parent has not (i) issued or repurchased any shares of its capital stock or any
securities convertible into or exercisable for any shares of its capital stock, other than upon the exercise of employee stock options granted prior to such date and disclosed in this
Section 5.2(a)
or pursuant to the surrender of shares to Parent or the withholding of shares by Parent to cover tax withholding obligations under
the Parent Stock Plans, or (ii) issued or awarded any options, restricted shares or other equity-based awards under the Parent Stock Plans.
(b) The
authorized capital stock of Merger Sub consists of 100 shares of common stock, par value $0.01 per share, all of which are issued and outstanding and are owned, of
record and beneficially, solely by Parent.
(c) Except
as set forth in
Section 5.2(c)
of the Parent Disclosure Schedule, neither Parent nor any of its
Subsidiaries own, directly or indirectly, any equity or similar interest in, or any interest convertible into or exchangeable for, any equity or similar interest in, any corporation, partnership,
joint venture or other similar business association or entity (other than its wholly owned Subsidiaries), with respect to which securities Parent or any of its Subsidiaries has invested (and currently
owns) or is required to invest $5,000,000 or more. Except as set forth in
Section 5.2(c)
of the Parent Disclosure Schedule, Parent owns, directly
or indirectly, all of the issued and outstanding shares of capital stock of or all other equity interests in each of Parent's Subsidiaries free and clear of any Liens and all of such shares are duly
authorized and validly issued and are fully paid, nonassessable and free of preemptive rights. Neither Parent nor any of its Subsidiaries has or is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the purchase, repurchase, sale, redemption or issuance of any shares of capital stock or any other equity security of any
Subsidiary of Parent or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of any such Subsidiary. There are no
restrictions on the Parent with respect to voting the stock of any Subsidiary of the Parent.
5.3
Authority; No Violation.
(a) Each
of Parent and Merger Sub has all requisite corporate power and authority to execute and deliver this Agreement and, subject to receipt of the Parent Required Vote
and the
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accuracy
of the representations and warranties of the Company set forth in this Agreement, to consummate the transactions contemplated hereby. The Board of Directors of Parent (the
"
Parent Board
") at a duly held meeting has (i) determined that this Agreement and the transactions contemplated hereby, including the Merger and
the Parent Stock Issuance, are in the best interests of the Parent and its stockholders, (ii) approved this Agreement and the transactions contemplated hereby, including the Merger and the
Parent Stock Issuance, (iii) approved the execution and delivery of this Agreement, and (iv) resolved to recommend that the stockholders of Parent approve the Parent Stock Issuance (the
recommendation contemplated by this clause (iv) being referred to as the "
Parent Recommendation
"), and directed that such matter be submitted for
consideration by Parent's stockholders at the Parent Stockholder Meeting. None of the aforesaid actions by the Parent Board has
been amended, rescinded or modified as of the date of this Agreement. Except for the approval of the Parent Stock Issuance by the affirmative vote of a majority of the outstanding shares of Parent
Stock entitled to vote (the "
Parent Required Vote
") and Parent's voting of the outstanding capital stock of Merger Sub as required by
Section 7.14
, no other corporate proceedings on the part of Parent or Merger Sub are necessary to approve this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Parent and Merger Sub and (assuming due authorization, execution and delivery by the Company)
constitutes a valid and binding obligation of Parent and Merger Sub, enforceable against Parent and Merger Sub in accordance with its terms, except as enforcement may be limited by the Bankruptcy and
Equity Exceptions.
(b) Neither
the execution and delivery of this Agreement by Parent or Merger Sub, nor the consummation by Parent or Merger Sub of the transactions contemplated hereby,
including the Merger and the Parent Stock Issuance, will (i) violate any provision of the certificate of incorporation or bylaws of Parent or Merger Sub or any of the similar governing
documents of any of Parent's Subsidiaries or (ii) assuming that the consents, approvals and filings referred to in
Section 5.4
are duly
obtained or made, (A) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to Parent, Merger Sub or any of their respective
Subsidiaries or any of their respective properties or assets, or (B) violate, conflict with, result in a breach of any provision of, or require redemption or repurchase or otherwise require the
purchase or sale of any securities, constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of Parent, Merger Sub or any of their
respective Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which
Parent, Merger Sub or any of their respective Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected, except (in the case of
clause (ii) above) for such violations, conflicts, breaches, defaults or other events which either individually or in the aggregate would not reasonably be expected to result in a Parent
Material Adverse Effect.
5.4
Consents and Approvals.
Except as set forth in
Section 5.4
of the Parent Disclosure
Schedule, no Consents of, or filings or registrations with, any Governmental Entity or with any third Person
are necessary in connection with the execution and delivery by Parent or Merger Sub of this Agreement or the consummation by Parent or Merger Sub of the transactions contemplated hereby, including the
Merger and the Parent Stock Issuance, except for (a) any notices required to be filed under the HSR Act, (b) the Consents from, or registrations, declarations, notices or filings made to
or with the Federal FCC, or any Governmental Entity (including State Regulators) and local cable franchise authorities) (other than with respect to securities, antitrust, competition, trade regulation
or similar laws), in each case as may be required in connection with this Agreement, the Merger, the Parent Stock Issuance or the other transactions contemplated by this Agreement and are required
with respect to mergers, business combinations or changes in control of telecommunications companies generally, (c) the filing
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with
the SEC of the Proxy Statement/Prospectus as well as any other filings required to be made with the SEC pursuant to the Securities Act or the Exchange Act, (d) the filing of the
Certificate of Merger and related certificates with the Delaware Secretary pursuant to the DGCL, (e) such filings and approvals as may be required to be made under the state blue sky or
securities Laws or various states in connection with the Parent Stock Issuance, (f) such filings as may be required to cause the shares of Parent Stock to be issued pursuant this Agreement to
be approved for listing on the NASDAQ Global Select Market and (g) except as set forth in
Section 5.4(g)
of the Parent Disclosure
Schedule, other consents or approvals of, or filings or registrations with, Governmental Entities or third parties, the failure of which to be obtained or made would not be reasonably expected to
result in, individually or in the aggregate, a Parent Material Adverse Effect.
5.5
SEC Filings.
Parent has filed all forms, reports, statements, certifications
and other documents (including all exhibits, amendments and supplements thereto) required to be filed by it with the SEC since January 1, 2014 (collectively, the "
Parent
SEC Reports
"). None of Parent's Subsidiaries is required to file or furnish reports with the SEC pursuant to the Exchange Act. Each of the Parent SEC Reports, as amended prior
to the date of this Agreement, complied as to form in all material respects with the applicable requirements of the Securities Act and the Exchange Act, each as in effect on the date so filed (or if
amended or superseded by a filing prior to the date of this Agreement, then on the date of such subsequent filing). None of the Parent SEC Reports contained, when filed or, if amended or supplemented
prior to the date hereof, as of the date of such amendment or supplement, any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference
therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. There are no outstanding or unresolved comments in comment
letters received from the SEC with respect to the Parent SEC Reports. To the Knowledge of Parent, as of the date hereof, none of the Parent SEC Reports is subject to ongoing SEC review.
"
Knowledge of the Parent
" means the actual knowledge of the directors and executive officers of Parent listed in
Section 5.5
of the Parent
Disclosure Schedule, in each case without such individual being obligated to conduct any special inquiry or
investigation into the affairs or records of the Parent. The directors and executive officers of the Parent listed in
Section 5.5
of the Parent
Disclosure Schedule shall not be deemed to have knowledge (actual, constructive or otherwise) of any fact, event, condition or occurrence known or deemed to be known by any other Person other than as
expressly set forth in the foregoing sentence.
5.6
Financial Statements.
(a) Each
of the financial statements included (or incorporated by reference) in the Parent SEC Reports (including the related notes, where applicable), fairly present in all
material respects (subject, in the case of the unaudited statements, to normal recurring adjustments, none of which would be reasonably expected to result in, individually or in the aggregate, a
Parent Material Adverse Effect) the results of the consolidated operations and changes in stockholders' equity and consolidated financial position of Parent and its Subsidiaries for the respective
fiscal periods or as of the respective dates therein set forth. Each of such financial statements (including the related notes, where applicable), complies in all material respects with applicable
accounting requirements and with the published rules and regulations
of the SEC with respect thereto and each of such financial statements (including the related notes, where applicable) has been prepared in accordance with GAAP, as in effect on the date or for the
period with respect to which such principles are applied, in all material respects consistently applied during the periods involved, except in each case as indicated in such statements or in the notes
thereto or, in the case of unaudited statements, as permitted by Form 10-Q. The books and records of Parent and its Subsidiaries have been, and are being, maintained in all material respects in
accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions.
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(b) The
records, systems, controls, data and information of Parent and its Subsidiaries are recorded, stored, maintained and operated under means (including any electronic,
mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of Parent or its Subsidiaries or accountants (including all means of access
thereto and therefrom), except for any non-exclusive ownership and non-direct control that would not reasonably be expected to have a material adverse effect on the system of internal accounting
controls described below in this
Section 5.6(b)
. Parent (i) has established and maintains disclosure controls and procedures (as defined
in Rule 13a-15(e) of the Exchange Act) and internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act), including to ensure that material information
relating to Parent, including its consolidated Subsidiaries, is made known to the chief executive officer and the chief financial officer of Parent by others within those entities and (ii) has
disclosed, based on its most recent evaluation prior to the date hereof, to Parent's outside auditors and the audit committee of the Parent Board (A) any significant deficiencies and material
weaknesses in the design or operation of internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which are reasonably likely to adversely affect Parent's
ability to record, process, summarize and report financial information and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in
Parent's internal controls over financial reporting. Parent's disclosure controls and procedures are reasonably designed to ensure that all material information required to be disclosed by Parent in
the reports that it files or furnishes under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that all such
material information is accumulated and communicated to the management of Parent as appropriate to allow timely decisions regarding required disclosure and to make the certifications required pursuant
to Sections 302 and 906 of the Sarbanes-Oxley Act.
(c) From
January 1, 2014 to the date of this Agreement, (i) neither the Parent nor any Subsidiary of the Parent nor, to the Knowledge of Parent (as defined
below), any director, officer, auditor, accountant or representative of the Parent or any of the Subsidiaries of the Parent has received any written complaint, allegation, assertion or claim that the
Parent or any of the Subsidiaries of the Parent has engaged in improper or illegal accounting or auditing practices or maintains improper or inadequate internal accounting controls relating to the
Parent and the Subsidiaries of the Parent, taken as a whole, and (ii) no attorney representing the Parent or any Subsidiary of the Parent has made a report to the Parent's chief legal officer,
chief executive officer or Board of Directors (or any committee thereof) pursuant to the SEC's Standards of Professional Conduct for Attorneys (17 CFR Part 205).
5.7
Broker's Fees.
Except for the Parent's engagement of Morgan
Stanley & Co. LLC, Wells Fargo Securities and Foros Advisors LLC, neither Parent, Merger Sub nor any of their respective Subsidiaries, nor any of their respective
Subsidiaries, nor any of their respective officers or directors on behalf of the Parent or any of the Parent's Subsidiaries, has employed any broker or finder or incurred any liability for any
broker's fees, commissions or finder's fees in connection with any of the transactions contemplated by this Agreement.
5.8
Absence of Certain Changes or Events.
(a) Except
as set forth in
Section 5.8(a)
of the Parent Disclosure Schedule, since September 30, 2016, no event
has occurred which has had or would reasonably be expected to result in, individually or in the aggregate, a Parent Material Adverse Effect.
(b) Except
as set forth in
Section 5.8(b)
of the Parent Disclosure Schedule or as contemplated by this Agreement or
permitted under
Section 6.3
, since September 30, 2016, Parent and its Subsidiaries have carried on their respective businesses in all
material respects in the ordinary course of business.
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5.9
Legal Proceedings.
(a) Neither
Parent, Merger Sub nor any of their respective Affiliates is a party to any, and there are no pending or, to the Knowledge of Parent, threatened, material legal,
administrative, arbitral or other proceedings, claims or actions (i) against Parent, Merger Sub or any of Parent's Subsidiaries that would reasonably be expected to result in, individually or
in the aggregate, a Parent Material Adverse Effect or (ii) challenging the validity or propriety of the transactions contemplated by this Agreement.
(b) Except
as set forth in
Section 5.9(b)
of the Parent Disclosure Schedule, there is no injunction, order, judgment,
decree or regulatory restriction of any Governmental Entity specifically imposed upon Parent, Merger Sub or any of their respective Affiliates or the assets of Parent, Merger Sub or any of their
respective Affiliates which has resulted in or would reasonably be expected to result in, individually or in the aggregate, a Parent Material Adverse Effect.
5.10
Taxes.
Except as set forth in
Section 5.10
of the Parent Disclosure Schedule:
(a) (i)
Each of Parent and its Subsidiaries has (A) duly and timely filed (including pursuant to applicable extensions granted without penalty) all material Tax
Returns required to be filed by it, and such Tax Returns are true, correct and complete in all material respects, and (B) paid in full all Taxes shown as due on such Tax Returns; (ii) no
material deficiencies for any Taxes have been proposed, asserted or assessed in writing against Parent or any of its Subsidiaries which deficiencies have not since been resolved; and
(iii) there are no material Liens for Taxes upon the assets of either Parent or its Subsidiaries except for statutory liens for current Taxes not yet due or Liens for Taxes that are being
contested in good faith by appropriate proceedings and for which reserves adequate in accordance with GAAP have been provided.
(b) Since
January 1, 2012, neither Parent nor any of its Subsidiaries (i) has been a member of an "affiliated group" (other than a group the common parent of
which is Parent) filing a consolidated federal income tax return, or (ii) has had any liability for Taxes of any Person (other than Parent and its Subsidiaries) arising from the application of
Treasury Regulation section 1.1502-6 or any analogous provision of state, local or non-U.S. law.
(c) Since
January 1, 2012, no closing agreement pursuant to Section 7121 of the Code (or any similar provision of state, local or non-U.S. law) has been
entered into by or with respect to Parent or any of its Subsidiaries.
(d) Neither
Parent nor any of its Subsidiaries has been a "distributing corporation" or a "controlled corporation" in any distribution occurring during the last two
(2) years prior to the date of this Agreement in which the parties to such distribution treated the distribution as one to which Section 355 of the Code is applicable.
(e) Neither
Parent nor any of its Subsidiaries has granted any waiver of any federal, state, local or non-U.S. statute of limitations with respect to, or granted any
extension of a period for the assessment of, any Tax, which waiver or extension has not since expired.
(f) Neither
the Parent nor any of its Subsidiaries has "participated", within the meaning of Treasury Regulations Section 1.6011-4(c)(3), in any of the transactions
described in Treasury Regulations Section 1.6011-4(b)(2), (3), (4), (5) or (6).
(g) Neither
the Parent nor any of its Subsidiaries has taken or agreed to take any action or knows of any fact, agreement, plan or other circumstance that prevents, or would
reasonably be expected to prevent, the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code.
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5.11
Employee Benefit Plans.
(a) Except
as set forth in
Section 5.11(a)
of the Parent Disclosure Schedule, neither Parent nor any ERISA Affiliate
of Parent maintains or is required to contribute to any Parent Benefit Plan that (i) is a "multiemployer plan" as defined in Sections 3(37) of ERISA, (ii) is subject to the
funding requirements of Section 412 of the Code or Title IV of ERISA, (iii) is a "welfare benefit plan" as defined in Section 3(1) of ERISA that provides for post-retirement
medical, life insurance or other welfare-type benefits to any former employees of Parent (other than as required by Part 6 of Subtitle B of Title I of ERISA or Section 4980B of the Code
or under a similar state law regarding medical continuation coverage), (iv) is a multiple employer plan as defined in Section 413(c) of the Code or (v) is a "multiple employer
welfare arrangement" within the meaning of Section 3(40)(A) of ERISA.
(b) The
Parent Benefit Plans and their related trusts intended to qualify under Sections 401(a) and 501(a) of the Code are subject to a favorable determination or
opinion letter from the IRS (or are entitled to rely on such a letter issued to the provider of a master, prototype, volume submitter or similar plan) and, to the Knowledge of Parent, nothing has
occurred that is expected to result in the
revocation of such qualified status by the IRS, except where the failure to so comply would not reasonably be expected to result in, individually or in the aggregate, a Parent Material Adverse Effect.
(c) The
Parent Benefit Plans have been maintained and administered in all material respects in accordance with their terms and the applicable provisions of ERISA and the
Code except where the failure to so comply would not reasonably be expected to result in, individually or in the aggregate, a Parent Material Adverse Effect.
(d) All
contributions required to be made under the terms of any Parent Benefit Plan, or under the applicable provisions of ERISA or the Code, with respect to any period
ending prior to the date of this Agreement have been paid or have been accrued on the audited financial statements to the extent required by GAAP, and none of the Parent Benefit Plans has any unfunded
liabilities as of the date of this Agreement that are not so reflected in such audited financial statements, except where the failure to so pay or accrue such contributions would not reasonably be
expected to result in a Parent Material Adverse Effect.
(e) For
purposes of this Agreement, a "
Parent Benefit Plan
" means each employee welfare benefit plan and employee pension
benefit plan within the meaning of the ERISA, Sections 3(1) and 3(2), each other material compensation, consulting, employment or collective bargaining agreement, each stock option, stock
purchase, stock appreciation right, other stock based, life, health, disability or other insurance or benefit, bonus, deferred or incentive compensation, severance or separation, profit sharing,
retirement, or other employee benefit plan, practice, policy or arrangement of any kind, oral or written, covering employees or former employees of Parent or any of its Subsidiaries which Parent or
any of its Subsidiaries maintain or are required to contribute to as of the date of this Agreement (or, with respect to any "employee pension benefit plan," as defined under Section 3(2) of
ERISA, has maintained or contributed to in the last six years).
5.12
Compliance With Applicable Law.
(a) Except
as set forth in
Section 5.12(a)
of the Parent Disclosure Schedule, Parent and each of its Subsidiaries hold
all licenses, franchises, permits and authorizations necessary for the lawful conduct of their respective businesses under and pursuant to, and have complied with and are not in violation in any
material respect under, any applicable law, statute, order, rule or regulation of any Governmental Entity relating to Parent or any of its Subsidiaries, except where the failure to hold such license,
franchise, permit or authorization or such non-compliance or violation would
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not,
individually or in the aggregate, reasonably be expected to result in a Parent Material Adverse Effect, and neither Parent nor any of its Subsidiaries has received written notice of any
violations of any of the above which, individually or in the aggregate, would reasonably be expected to result in a Parent Material Adverse Effect.
(b) The
Parent and each of its Subsidiaries (i) is and during the past five years has in compliance with (A) all written policies of the Parent and each of its
Subsidiaries pertaining to the logical and physical security of electronic data stored or used by the Parent or any of its Subsidiaries (the "
Parent Privacy
Policy
"), and (B) all applicable laws pertaining to privacy, data protection, user data or Parent Personal Information; and (ii) has implemented and maintained
commercially reasonable administrative, technical and physical safeguards to protect such Parent Personal Information against unauthorized access and use, in each case of clause (i) and
(ii) except as would not, individually or in the aggregate, reasonably be likely to result in a Parent Material Adverse Effect. There has been no loss, damage or unauthorized access,
disclosure, use or breach of security of Parent Personal Information maintained by or on behalf of the Parent or any of its Subsidiaries, except in each case as would not, individually or in the
aggregate, reasonably be likely to result in a Parent Material Adverse Effect. No Person (including any Governmental Entity) has made any written claim or commenced any action with respect to
unauthorized access, disclosure or use of Parent Personal Information maintained by or on behalf of any of the Parent or any of its Subsidiaries, except as would not, individually or in the aggregate,
reasonably be likely to result in a Parent Material Adverse Effect. None of (1) the execution, delivery, or performance of this Agreement or (2) the consummation of any of the
transactions contemplated by this Agreement, including the Merger, will violate any Parent Privacy Policy or any law pertaining to privacy, data protection user data or Parent Personal Information,
except in each case as would not, individually or in the aggregate, reasonably be likely to result in a Parent Material Adverse Effect. "
Parent Personal
Information
" means all data or information controlled, owned, stored, used or processed by the Parent or any of its Subsidiaries relating to an identified or identifiable
customer or natural person (such as name, postal address, email address, telephone number, date of birth, Social Security number (or its equivalent), driver's license number, account number, personal
identification number, health or medical information (or any other unique identifier or one or more factors specific to the Person's physical, physiological, mental, economic or social identity),
whether such information is in individual or aggregate form and regardless of the media in which it is contained.
(c) Since
the enactment of the Sarbanes-Oxley Act, Parent has been and is in compliance in all material respects with (i) the applicable provisions of the
Sarbanes-Oxley Act and (ii) the applicable listing standards of the NASDAQ Stock Market, including those related to corporate governance.
5.13
Certain Contracts.
(a) Except
as set forth in
Section 5.13(a)
of the Parent Disclosure Schedule, as of the date hereof, neither Parent
nor any of its Subsidiaries is a party to or is bound by any contract, arrangement, commitment or understanding (whether written or oral) (i) which is a material contract (as defined in
Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the date of this Agreement, (ii) which restricts the rights of Parent or any of its Subsidiaries to compete in
any material respect in any line of business in any geographic area or with any Person, or which requires exclusive referrals of business or requires Parent or any of its Subsidiaries to offer
specified products or services to their customers on an exclusive basis, (iii) with or to a labor union or guild (including any collective bargaining agreement), (iv) which relates to
the incurrence of indebtedness (other than capital leases) in the principal amount of $15,000,000 or more, except as may be incurred in connection with that certain Third Amended and Restated Credit
Agreement, dated as of October 5, 2016 (the "
Parent Credit Agreement
"), among the Parent, certain
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of
the Parent's Subsidiaries, the lenders party thereto from time to time, Wells Fargo Bank, National Association, as administrative agent, issuing bank and swingline lender, and the other parties
named therein, (v) which grants any Person a right of first refusal, right of first offer or similar right with respect to any material properties, assets or businesses of Parent or its
Subsidiaries, (vi) which involves the purchase of assets, other than in the ordinary course of business, with a purchase price of $3,000,000 or more in any single case or $12,000,000 in all
such cases, or (vii) which involves the sale of assets, other than in the ordinary course of business, with a purchase price of $1,500,000 or more in any single case or $8,000,000 in all such
cases. Each contract, arrangement, commitment or understanding of the type described in this
Section 5.13(a)
, whether or not publicly disclosed
in the Parent SEC Reports filed prior to the date hereof or set forth in
Section 5.13(a)
of the Parent Disclosure Schedule, is referred to herein
as a "
Parent Contract
", and neither Parent nor any of its Subsidiaries has received written notice of any material violation of a Parent Contract by any
of the other parties thereto, which violation would reasonably be expected to result in a Parent Material Adverse Effect.
(b) Except
as set forth in
Section 5.13(b)
of the Parent Disclosure Schedule, (i) each Parent Contract is valid
and binding on Parent and in full force and effect (other than due to the ordinary expiration of the term thereof), and, to the Knowledge of Parent, is valid and binding on the other parties thereto,
in each case, as enforceability may be limited by the Bankruptcy and Equity Exceptions, (ii) Parent and each of its Subsidiaries has in all material respects performed all obligations required
to be performed by it to date under each Parent Contract, and (iii) no event or condition exists which constitutes or, after notice or lapse of time or both, would constitute a material default
on the part of Parent or any of its Subsidiaries under any such Parent Contract, except, in each case, with respect to the foregoing clauses (i) through (iii) as would not reasonably be
expected to result in, either individually or in the aggregate, a Parent Material Adverse Effect.
5.14
Undisclosed Liabilities.
Except for (a) liabilities that are fully
reflected or reserved against on the consolidated balance sheet of Parent included in Parent's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016,
(b) liabilities incurred in the ordinary course of business consistent with past practice, (c) liabilities arising under the terms of (but not from any breach or default under) any
agreement, contract, commitment, license, permit, lease or other instrument or obligation that is either (x) disclosed in the Parent Disclosure Schedule or (y) not required to be so
disclosed by the terms of this Agreement (and including any of the foregoing types of instruments or obligations that are entered into or obtained after the date of this Agreement, as long as such
action does not result in a breach of this Agreement), (d) liabilities incurred pursuant to or in connection with this Agreement or the transactions contemplated hereby or
(e) liabilities that would not reasonably be expected to result in, individually or in the aggregate, a Parent Material Adverse Effect, neither Parent nor any of its Subsidiaries has any
liability of any nature whatsoever (whether absolute, accrued or contingent or otherwise and whether due or to become due) that would be required by GAAP to be reflected in the consolidated balance
sheet of Parent.
5.15
Environmental Liability.
Except as set forth in
Section 5.15
of the Parent
Disclosure Schedule, neither Parent nor any of its Subsidiaries has received any written notice of any legal,
administrative, arbitral or other proceedings, claims, actions, causes of action or, to the Knowledge of Parent, private environmental investigations or remediation activities or governmental
investigations of any nature seeking to impose, or that would reasonably be expected to result in the imposition, on Parent or any of its Subsidiaries of any liability or obligation arising under
Environmental Laws, which liability or obligation would reasonably be expected to result in a Parent Material Adverse Effect. During, or, to the Knowledge of Parent, prior to the period of,
(a) its or any of its Subsidiaries' ownership or operation of any of their respective current properties, (b) its or any of its Subsidiaries' participation in the management of any
property, or (c) its or any of its Subsidiaries' holding of a security interest or other interest in any property, there were no releases or threatened releases of
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hazardous,
toxic, radioactive or dangerous materials or other materials regulated under Environmental Laws in, on, under or affecting any such property which would reasonably be expected to result in
a Parent Material Adverse Effect. Neither Parent nor any of its Subsidiaries is subject to any agreement, order, judgment, decree, letter or memorandum by or with any Governmental Entity or third
Person imposing any material liability or obligation pursuant to or under any Environmental Law that would reasonably be expected to result in a Parent Material Adverse Effect. Parent and its
Subsidiaries are in compliance with all Environmental Laws, including possessing all material permits required for its currently conducted operations under applicable Environmental Laws, except, in
each case, for any such non-compliance that, individually or in the aggregate, would not reasonably be expected to result in a Parent Material Adverse Effect. Notwithstanding any other provision of
this Agreement to the contrary (including
Section 5.12
), the representations and warranties of Parent in this
Section 5.15
constitute the sole
representations and warranties of Parent with respect to any matter (including any liability) relating to
Environmental Laws.
5.16
Intellectual Property.
Parent and its Subsidiaries own, or are validly
licensed or otherwise have the right to use, all patents, patent applications, patent rights, trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights,
copyrights, trade secrets, designs, domain names, lists, data, databases, processes, methods, schematics, technology, know-how, documentation, and other proprietary intellectual property rights and
any such rights in computer programs (collectively, "
Parent Intellectual Property Rights
") as used in their business as presently conducted, except
where the failure to have the right to use such Parent Intellectual Property Rights, individually or in the aggregate, has not had and would not reasonably be expected to result in a Parent Material
Adverse Effect. No actions, suits or other proceedings are pending or, to the Knowledge of Parent, threatened that Parent or any of its Subsidiaries is infringing, misappropriating or otherwise
violating the rights of Parent or any of its Subsidiaries with respect to any Parent Intellectual Property Right owned by Parent or any of its Subsidiaries, expect for such infringement,
misappropriation or violation that, individually or in the aggregate, would not reasonably be expected to result in a Parent Material Adverse Effect. Notwithstanding any other provision of this
Agreement to the contrary, the representations and warranties of Parent in this
Section 5.16
constitute the sole representations and warranties
of Parent with respect to any matter (including any liability) relating to intellectual property matters.
5.17
Communications Regulatory Matters.
(a) Parent
and each of its Subsidiaries hold (i) all material approvals, authorizations, certificates and licenses issued by the FCC or the State Regulators that are
required for Parent and each of its Subsidiaries to conduct its business as presently conducted and (ii) all other material regulatory permits, approvals, licenses and other authorizations,
including franchises, ordinances and other agreements granting access to public rights of way, issued or granted to Parent or any of its Subsidiaries by a Governmental Entity that are required for
Parent and each of its Subsidiaries to conduct its business, as presently conducted (clause (i) and (ii) collectively, the "
Parent
Licenses
").
(b) Each
Parent License is valid and in full force and effect and has not been suspended, revoked, canceled or adversely modified, except where the failure to be in full
force and effect, or the suspension, revocation, cancellation or modification of which would not reasonably be expected to result in, individually or in the aggregate, a Parent Material Adverse
Effect. No Parent License is subject to (i) any conditions or requirements that have not been imposed generally upon licenses in the same service, unless such conditions or requirements would
not reasonably be expected to result in, individually or in the aggregate, a Parent Material Adverse Effect, or (ii) any pending regulatory proceeding or judicial review before a Governmental
Entity, unless such pending regulatory proceeding or judicial review would not reasonably be expected to result in, individually or in the aggregate, a Parent Material Adverse Effect. To the Knowledge
of Parent, there has been
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no
event, condition or circumstance that would preclude any Parent License from being renewed in the ordinary course (to the extent that such Parent License is renewable by its terms), except where
the failure to be renewed would not reasonably be expected to result in, individually or in the aggregate, a Parent Material Adverse Effect.
(c) The
licensee of each Parent License is in compliance with each Parent License and has fulfilled and performed all of its obligations with respect thereto, including all
reports, notifications and applications required by the rules, regulations, policies, instructions and orders of the FCC or the State Regulators, and the payment of all regulatory fees and
contributions, except (i) for exemptions, waivers or similar concessions or allowances and (ii) where such failure to be in compliance, fulfill or perform its obligations or pay such
fees or contributions would not reasonably be expected to result in, individually or in the aggregate, a Parent Material Adverse Effect.
5.18
Financing.
(a) Parent
has delivered to the Company true, correct and complete copies of the executed commitment letter from (i) Morgan Stanley Senior Funding, Inc.,
(ii) The Bank of Tokyo-Mitsubishi UFJ, Ltd., MUFG Union Bank, N.A., MUFG Securities Americas Inc. (collectively, "
MUFG
") and/or any
other affiliates or subsidiaries as MUFG collectively deems appropriate to provide the services referred to therein, (iii) TD Securities (USA) LLC, (iv) The
Toronto-Dominion Bank, New York Branch, and (v) Mizuho Bank, Ltd. (including all exhibits, annexes, schedules and term sheets, as amended, modified, supplemented or replaced in
accordance with the terms hereof, the "
Debt Commitment Letter
"), pursuant to which, and subject to the terms and conditions thereof, the Financing
Sources party thereto have committed to lend the amounts set forth therein on the terms set forth therein to Consolidated Communications, Inc., a Subsidiary of Parent
("
Borrower
") for the purpose of funding the transactions contemplated by this Agreement (the "
Debt
Financing
"). As used in this Agreement, (x) "
Financing Sources
" means the Persons (including without limitation, lenders,
agents and arrangers) that have committed to provide or otherwise entered into agreements in connection with the Debt Financing commitment or alternative debt financings in connection with the
transactions contemplated by this Agreement, including any Persons that become committed thereunder pursuant to any joinder agreement thereto entered into in accordance with the terms hereof and
thereof together with their Affiliates, officers, directors, employees and Representatives involved in the Debt Financing and their respective successors and assigns and (y) "Debt Financing"
shall be deemed to include any financing pursuant to any "market flex" in the Debt Commitment Letter.
(b) As
of the date hereof, the Debt Commitment Letter is in full force and effect and has not been withdrawn or terminated or otherwise amended, supplemented or modified in
any respect. The Debt
Commitment Letter, in the form so delivered, is a legal, valid and binding obligation of Borrower and, to the Knowledge of Parent as of the date hereof, the other party or parties thereto (subject to
the Bankruptcy and Equity Exceptions). There are no side letters or other agreements, contracts or arrangements (except for customary fee letters and engagement letters, complete copies of which shall
have been provided to the Company (it being understood that such complete copies will contain redactions of fees and other customary economic terms)) relating to the Debt Financing between Parent,
Merger Sub and Borrower, on the one hand, and the provider or providers of the Debt Financing, on the other hand. As of the date hereof, no event has occurred which, with or without notice, lapse of
time or both, would constitute a default or breach on the part of Borrower under any term, or a failure of any condition, of the Debt Commitment Letter. Assuming the accuracy of the representations
and warranties set forth in
Section 4
and compliance by the Company with its covenants and agreement hereunder and subject to the satisfaction of
the conditions of the Debt Financing, the aggregate proceeds from the Debt Financing, together with the cash and cash equivalents available to the Company at the Closing
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(not
needed for other purposes), are sufficient to fund all of the amounts required to be provided by Parent for the consummation of the transactions contemplated hereby, and are sufficient for the
satisfaction of all of Parent's and Merger Sub's obligations under this Agreement, including the payment of the Merger Consideration and the Equity Award Consideration and any other amounts payable
pursuant to this Agreement and the payment of all associated costs and expenses of the Merger (including any repayment or refinancing of indebtedness of Parent, Merger Sub or the Company required in
connection therewith). There are no conditions precedent or other contingencies related to the funding or investing, as applicable, of the full amount of the Debt Financing, other than as expressly
set forth in or contemplated by the Debt Commitment Letter.
5.19
Parent Information.
The information relating to Parent and its Subsidiaries
(including Merger Sub) to be provided by Parent for inclusion in the Parent Registration Statement or the Proxy Statement/Prospectus will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. The Parent Registration Statement and the Proxy
Statement/Prospectus (except for such portions thereof as they relate only to the Company or any of its Subsidiaries) will comply as to form in all material respects with the Exchange Act.
5.20
No Business Activities by Merger Sub.
All of the outstanding capital stock
of Merger Sub is owned by Parent. Merger Sub is not a party to any contract or has not conducted any activities other than in connection with the organization of such Merger Sub, the negotiation and
execution of this Agreement and the consummation of the transactions contemplated hereby. Merger Sub has no Subsidiaries.
5.21
Ownership of Company Common Stock; No Other Agreements.
Neither Parent,
Merger Sub nor any of their respective Subsidiaries or, to the Knowledge of Parent, any of their respective Affiliates or associates (as such term is defined under the Exchange Act)
(a) beneficially owns, directly or indirectly, or (b) is a party to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of, in case of
either clause (a) or (b), any Company Common Stock, in each case, except in accordance with this Agreement, including the Merger. None of Parent, Merger Sub, or any of their respective
Subsidiaries or, to the Knowledge of Parent, any of their respective Affiliates or associates (as such term is defined under the Exchange Act) has entered into any contract or agreement with any
officer or director of the Company in connection with the transactions contemplated by this Agreement.
5.22
Acknowledgement of Parent.
Parent acknowledges and agrees that it has
conducted its own independent review and analysis of the business, assets, condition and operations of the Company and its Subsidiaries. In entering into this Agreement, Parent has relied solely upon
its own investigation and analysis and the representations and warranties, covenants and agreements of the Company contained in this Agreement and Parent (a) acknowledges that, other than as
set forth in this Agreement, none of the Company nor any of its respective directors, officers, employees, Affiliates, agents or representatives makes or has made any representation or warranty,
either express or implied, as to the accuracy or completeness of any of the information provided or made available to Parent or its agents or representatives prior to the execution of this Agreement,
and (b) agrees, to the fullest extent permitted by law, that none of the Company nor any of its respective directors, officers, employees, Affiliates, agents or representatives shall have any
liability or responsibility whatsoever to Parent on any basis (including in contract, tort or otherwise) based upon any information provided or made available, or statements made, to Parent prior to
the execution of this Agreement.
5.23
No Other Representations or Warranties.
Except for the representations and
warranties expressly contained in this
Section 5
, none of Parent, Merger Sub nor any other Person makes any other express or implied
representation or warranty with respect to the Parent, Parent's Subsidiaries, Merger Sub or the transactions contemplated by this Agreement, and Parent disclaims any other
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representations
or warranties, whether made by Parent, Merger Sub or any of their respective affiliates, officers, directors, employees, agents or representatives. Except for the representations and
warranties expressly contained in this
Section 5
, each of Parent and Merger Sub hereby disclaims all liability and responsibility for any
representation, warranty, projection, forecast, statement, or information made, communicated, or furnished (orally or in writing, including via any online data room) to the Company or any of its
Affiliates or representatives (including any opinion, information, projection, or advice that may have been or may be provided to the Company by any director, officer, employee, agent, consultant, or
representative of Parent or any of its Affiliates).
6.
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1
Conduct of Business of the Company and Parent Prior to the Effective
Time.
Except as expressly contemplated or permitted by this Agreement, including pursuant to
Sections 6.2
and
6.3
, or as required by applicable law, rule or regulation, during the period from the date of this Agreement to the Effective Time, each of Parent
and the Company shall, and shall cause each of its Subsidiaries to, (a) conduct its business in the ordinary course and (b) use commercially reasonable efforts to maintain and preserve
substantially intact its business organization and the goodwill of those having business or other third-party relationships with it, including Governmental Entities, and retain the services of its
present officers and key employees.
6.2
Company Forbearances.
Except (i) as set forth in
Section 6.2
of the Company
Disclosure Schedule, (ii) as expressly contemplated or permitted by this Agreement, (iii) as required by
applicable law, rule or regulation, or by any Governmental Entity, (iv) as required by a Company Benefit Plan or any agreement in effect on the date hereof of which Parent has been notified and
provided a true and correct copy prior to the date of this Agreement, and (v) with prior written consent of Parent (which consent shall not be unreasonably withheld or delayed), during the
period from the date of this Agreement to the Effective Time, the Company shall not, and shall not permit any of its Subsidiaries to:
(a) (i)
adjust, split, combine or reclassify its capital stock, (ii) set any record or payment dates for the payment of any dividends or distributions on its capital
stock or make, declare or pay any dividend or make any other distribution on any shares of its capital stock or any securities or obligations convertible into or exchangeable for any shares of its
capital stock, except that any wholly owned Subsidiary of the Company may declare and pay dividends to its parent and other wholly owned Subsidiaries of the Company, (iii) directly or
indirectly 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 (except pursuant
to the exercise of stock options or vesting of restricted Company Common Stock outstanding as of the date hereof or permitted to be issued under this
Section 6.2
or pursuant to the surrender of
shares to the Company or the withholding of shares by the Company to cover tax withholding
obligations or to pay any applicable exercise price under the Company Stock Plans), or (iv) grant any stock appreciation rights or grant any Person any right to acquire any shares of its
capital stock, or issue, or commit to issue, sell, grant, dispose of, pledge or otherwise encumber, or authorize or propose the issuance, sale grant, disposition, pledge or other encumbrance of, any
additional shares of capital stock (except pursuant to the exercise of stock options or vesting or settlement of awards under the Company Stock Plans outstanding as of the date hereof or permitted to
be issued under this
Section 6.2
), any securities convertible into or exercisable for, or any rights, warrants or options to acquire, any
additional shares of capital stock, or any other securities in respect of, in lieu of, or in substitution for, any shares of its capital stock outstanding on the date of this Agreement;
(b) sell,
transfer, mortgage, encumber or otherwise dispose of any of its material assets or material properties to any Person (other than a direct wholly owned Subsidiary),
by merger, consolidation, asset sale or other business combination (including formation of a joint venture) or
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cancel,
release or assign any indebtedness to any such Person or any claims held by any such Person, in each case, except (i) in the ordinary course of business consistent with past practice,
including sales of repossessed assets, (ii) dispositions of obsolete or worthless assets, (iii) sales of loans, receivables and other assets in the ordinary course of business consistent
with past practice and (iv) sales of immaterial assets which involve the sale of assets with a purchase price of $1,000,000 or less in any single case or $5,000,000 in all such cases;
(c) make
any investment or acquisition, by purchase or other acquisition of stock or other equity interests, by merger, consolidation, asset purchase or other business
combination, or by contributions to capital; or make any material purchases of any property or assets, in or from any other Person other than a wholly owned Subsidiary of the Company, except
(i) as otherwise permitted by this
Section 6.2
and (ii) other acquisitions in the ordinary course of business and, in any case,
involving consideration in an aggregate amount not in excess of $10,000,000;
(d) enter
into, renew, extend, amend or terminate any contract, lease or agreement that is or would be a Company Contract;
(e) other
than general pay increases, including in connection with promotions, made in the ordinary course of business consistent with past practice, for employees,
directors or independent contractors generally or as provided by any agreement in effect on the date hereof (true and correct copies of which have been delivered to Parent prior to the date of this
Agreement), (i) increase, or commit to increase, the compensation or severance payable (including by granting or increasing the rate or terms of any salary, bonus, pension or other compensation
pursuant to the terms of any Employee Benefit Plan, (ii) pay any severance other than in the ordinary course of business consistent with past practice or (iii) except as may be required,
or advisable, to comply with applicable law or contract, amend, establish or enter into any pension, retirement, profit-sharing, severance, retention or welfare benefit plan or agreement or incentive
or employment, agreement with or for the benefit of any employee, director or independent contractor or accelerate the vesting of any stock options or other stock-based compensation;
(f) amend
its Certificate of Incorporation, bylaws or similar governing documents or similar organizational documents of any of Subsidiary of the Company;
(g) enter
into any new material line of business outside of its existing business;
(h) assign,
transfer, lease, cancel, fail to renew or fail to extend any material Permit issued by the FCC or any State Regulator;
(i) incur
any indebtedness for borrowed money, issue any debt securities or assume, guarantee or endorse or otherwise become responsible for the obligations of another
Person, or make any loans, advances of capital contributions to, or investments in, any other Person, in each case, except in the ordinary course of business consistent with past practice;
(j) make
or change any material Tax election or settle or compromise any material Tax liability of the Company or any of its Subsidiaries;
(k) make
any material changes in its accounting methods or method of Tax accounting, practices or policies, except as may be required under applicable law, rule, regulation
or GAAP;
(l) effect
or permit, with respect to the Company and any Subsidiary of the Company, a "plant closing" or "mass layoff", as such terms are defined under the Worker
Adjustment and Retraining Act of 1988, as amended;
(m) account
for, manage or treat accounts receivable (including accelerating the collection thereof) or accounts payable (including delaying the payment thereof) in any
manner other than in the in the ordinary course of business consistent with past practice;
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(n) except
as permitted pursuant to
Section 7.7
, take any action that is intended or may reasonably be expected to
result in any of the conditions to the Merger set forth in
Section 8.1
or
8.2
not being
satisfied; or
(o) agree
to, or make any commitment to, take or announce any of the actions prohibited by this
Section 6.2
.
6.3
Parent Forbearances.
Except (i) as set forth in
Section 6.3
of the Parent
Disclosure Schedule, (ii) as expressly contemplated or permitted by this Agreement, (iii) as required by
applicable law, rule or regulation, or by any Governmental Entity, (iv) as required by a Parent Benefit Plan or any agreement in effect on the date hereof of which the Company has been notified
and provided a true and correct copy prior to the date of this Agreement, and (v) with the prior written consent of the Company (which consent shall not be unreasonably withheld or delayed,
during the period from the date of this Agreement to the Effective Time, Parent shall not, and shall not permit any of its Subsidiaries to:
(a) (i)
adjust, split, combine or reclassify its capital stock (unless the Exchange Ratio and/or Merger Consideration is adjusted to take into account such adjustment,
split, combination or reclassification), (ii) set any record or payment dates for the payment of any dividends or distributions on its capital stock or make, declare or pay any dividend or make
any other distribution on any shares of its capital stock or any securities or obligations convertible into or exchangeable for any shares of its capital stock, except for (x) Parent's regular
quarterly cash dividends and (y) any wholly owned Subsidiary of the Parent may declare and pay dividends to its parent and other wholly owned Subsidiaries of the Parent, (iii) engage in
any material repurchase of, or any recapitalization or other change, restructuring or reorganization with respect to, Parent Stock, or (iv) grant any stock appreciation rights or grant any
Person any right to acquire any shares of its capital stock except in the ordinary course of business, or issue, or commit to issue, sell, grant, dispose of, pledge or otherwise encumber, or authorize
or propose the issuance, sale grant, disposition, pledge or other encumbrance of, any additional shares of capital stock (except pursuant to the exercise of stock options or vesting or settlement of
awards under the Parent Stock Plans outstanding as of the date hereof or permitted to be issued under this
Section 6.3
), any securities
convertible into or exercisable for, or any rights, warrants or options to acquire, any additional shares of capital stock, or any other securities in respect of, in lieu of, or in substitution for,
any shares of its capital stock outstanding on the date of this Agreement;
(b) sell,
transfer, mortgage, encumber or otherwise dispose of any of its material assets or material properties to any Person (other than a direct wholly owned Subsidiary),
by merger, consolidation, asset sale or other business combination (including formation of a joint venture) except (i) in the ordinary course of business, including sales of repossessed assets,
(ii) dispositions of obsolete or worthless assets, (iii) sales of loans, receivables and other assets in the ordinary course of business and (iv) sales of immaterial assets which
involve the sale of assets with a purchase price of $1,000,000 or less in any single case or $5,000,000 in all such cases;
(c) (i)
alter through merger, liquidation, reorganization, restructuring or in any other manner the corporate structure or organization of Parent or (ii) engage in
any action or enter into any transaction or series of transactions, or permit any action to be taken or transaction or series of transactions to be entered into, that, in the case of either
clause (i) or clause (ii), could reasonably be expected to delay the consummation of, or otherwise adversely affect, the Merger or any of the other Transactions, including withdrawing or
modifying, in a manner adverse to the Company, the approval by the Parent Board of this Agreement, the Merger or the issuance of Parent Stock;
(d) make
any investment or acquisition, by purchase or other acquisition of stock or other equity interests, by merger, consolidation, asset purchase or other business
combination, or by contributions to capital; or make any material purchases of any property or assets, in or from any
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other
Person other than a wholly owned Subsidiary of the Parent, except (i) as otherwise permitted by this
Section 6.3
and
(ii) other acquisitions in the ordinary course of business and, in any case, involving consideration in an aggregate amount not in excess of $10,000,000;
(e) adopt
any amendments to the Certificate of Incorporation or Bylaws of Parent (or similar organizational documents of any of Subsidiary of Parent) which would alter any
of the terms of Parent Stock or create any series or class of capital stock that is senior to Parent Stock;
(f) incur
any indebtedness for borrowed money, issue any debt securities or assume, guarantee or endorse or otherwise become responsible for the obligations of another
Person, in each case, except (i) in the ordinary course of business consistent with past practice or (ii) in connection with the Debt Financing or any Alternative Financing and the use
of Parent's revolving credit facility to consummate the Merger and the transactions contemplated hereby;
(g) incur
any secured indebtedness to the extent that the liens securing such indebtedness would be permitted solely by Section 6.02(xvii) of the Parent Credit
Agreement;
(h) except
as permitted by this Agreement, take any action that is intended or would reasonably be expected to result in any of the conditions to the Merger set forth in
Section 8.1
or
8.3
not being satisfied; or
(i) agree
to, or make any commitment to, take or announce any of the actions prohibited by this
Section 6.3
.
7.
ADDITIONAL AGREEMENTS
7.1
Proxy Statement/Prospectus; Parent Registration Statement; Other
Filings.
Parent and the Company shall together, or pursuant to an allocation of responsibility to be agreed upon between them:
(a) prepare
and file with the SEC as soon as is reasonably practicable (i) joint proxy materials of the Company and Parent (the "
Proxy
Statement/Prospectus
") under the Exchange Act with respect to the Company Stockholder Meeting and the Parent Stockholder Meeting, and (ii) a Registration Statement on
Form S-4 or other appropriate form under the Securities Act (the "
Parent Registration Statement
") with respect to the issuance of shares of
Parent Stock pursuant to the this Agreement and the transactions contemplated hereby, including the Merger (the "
Parent Stock Issuance
"), in which the
Proxy Statement/Prospectus shall be included as a prospectus;
(b) use
commercially reasonable efforts to have, as promptly as practicable, (i) the Proxy Statement/Prospectus cleared by the SEC under the Exchange Act and
(ii) the Parent Registration Statement declared effective by the SEC under the Securities Act and kept effective at all times thereafter through the Effective Time in order to permit
consummation of the Merger;
(c) cause
the Proxy Statement/Prospectus to be mailed to their respective stockholders as promptly as practicable after the Parent Registration Statement is declared
effective under the Securities Act;
(d) if
either Parent or the Company becomes aware of any information that should be disclosed in an amendment or supplement to the Parent Registration Statement or the Proxy
Statement/Prospectus, (i) promptly inform the other party thereof, (ii) provide the other party (and its counsel) with a reasonable opportunity to review and comment on the amendment or
supplement to the Parent Registration Statement or the Proxy Statement/Prospectus prior to it being filed with the SEC, (iii) provide the other party with a copy of such amendment or supplement
promptly after it is filed with the SEC, and (iv) cooperate, if appropriate, in mailing such amendment or supplement to the stockholders of the Company or Parent;
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(e) take
all such action as shall be required under applicable state blue sky or securities Laws in connection with the transactions contemplated by this Agreement,
including the Parent Stock Issuance; and
(f) cooperate
with each other in determining whether any filings are required to be made or Consents are required to be obtained in any foreign jurisdiction prior to the
Effective Time in connection with the transactions contemplated by this Agreement, including the Merger and the Parent Stock Issuance, and in making any such filings promptly and in seeking to obtain
timely any such consents.
7.2
Access to Information.
(a) Upon
reasonable prior notice and subject to applicable law, each of Parent and the Company shall, and shall cause each of their Subsidiaries to, afford to the directors,
officers, managers, members, partners, employees, investment bankers, advisors, consultants, accountants, counsel, Financing Sources, agents and representatives (collectively
"
Representatives
") of the other party access, during normal
business hours during the period prior to the Effective Time, to all its properties, books, contracts, commitments and records, and to its officers, employees, accountants, counsel and other
representatives, in each case in a manner not unreasonably disruptive to the operation of the business of Parent or the Company and their Subsidiaries, and, during such period, Parent and the Company
shall, and shall cause their Subsidiaries to, make available to Parent or the Company, as applicable all information concerning its business, properties and personnel as Parent or the Company may
reasonably request. At the request of Parent or the Company, the other party shall use its commercially reasonable efforts to comply with its obligations under the preceding sentence by providing
electronic access to such documents and information on the online data room established by the Company prior to the date hereof. Notwithstanding any other provision of this Agreement, neither the
Company nor any of its Subsidiaries, on the one hand, nor Parent nor any of its Subsidiaries on the other hand, shall be required to provide access to or to disclose information where such access or
disclosure would (A) violate or prejudice the rights of its customers or employees, (B) jeopardize the attorney-client privilege of the institution in possession or control of such
information, (C) contravene, violate or breach any law, rule, regulation, order, judgment, decree or fiduciary duty or any binding agreement entered into prior to the date of this Agreement in
the ordinary course of business consistent with past practice or (D) be adverse to its interests in any pending or threatened litigation between the parties hereto over the terms of this
Agreement.
(b) All
information and materials furnished pursuant to this Agreement shall be subject to the provisions of the Confidentiality Agreement, dated August 19, 2016,
between Parent and the Company (the "
Confidentiality Agreement
"). The Company makes no representation or warranty as to the accuracy of any information
provided pursuant to
Section 7.2(a)
, and neither Parent nor Merger Sub may rely on the accuracy of any such information, in each case other than
as expressly set forth in the Company's representations and warranties contained in
Section 4
. Parent makes no representation or warranty as to
the accuracy of any information provided pursuant to
Section 7.2(a)
, and Company may not rely on the accuracy of any such information, other than
as expressly set forth in Parent and Merger Sub's representations and warranties contained in
Section 5
.
7.3
Stockholder Meetings.
(a)
Company Stockholder Meeting.
Following the clearance of the Proxy Statement/Prospectus by the SEC and
subject to the other provisions of this Agreement, the Company shall, as soon as reasonably practicable thereafter, (i) mail the Proxy Statement/Prospectus to the Company's stockholders and
(ii) duly and promptly call, give notice of, convene and hold an annual or special meeting of its stockholders (the "
Company Stockholder
Meeting
") for the purpose of voting upon the approval of this Agreement and the transactions contemplated hereby, including
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the
Merger. Subject to
Section 7.7
, the Company Board shall make the Company Recommendation and the Proxy Statement/Prospectus shall include the
Company Recommendation. Subject to
Section 7.7
, the Company will use commercially reasonable efforts to solicit from its stockholders proxies in
favor of the approval of this Agreement and the transactions contemplated hereby, including the Merger. Notwithstanding any other provision hereof, the Company may postpone or adjourn the Company
Stockholder Meeting any number of times (i) with the consent of Parent, (ii) for the absence of a quorum, (iii) if additional time is reasonably required to solicit proxies from
the holders of Company Common Stock in favor of the adoption of this Agreement and the approval of the transactions contemplated hereby, including the Merger, or (iv) to allow reasonable
additional time for the filing and distribution of any supplemental or amended disclosure which the Company Board has determined in good faith (after consultation with its outside legal counsel) is
necessary under applicable laws and for such supplemental or amended disclosure to be disseminated to and reviewed by the Company's stockholders prior to the Company Stockholder Meeting.
(b)
Parent Stockholder Meeting.
Following the clearance of the Proxy Statement/Prospectus by the SEC and subject
to the other provisions of this Agreement, Parent shall, as soon as reasonably practicable thereafter, (i) mail the Proxy Statement/Prospectus to the Parent's stockholders and (ii) duly
and promptly call, give notice of, convene and hold an annual or special meeting of its stockholders (the "
Parent Stockholder Meeting
") for the purpose
of voting upon the approval of the Parent Stock Issuance. The Parent Board shall make the Parent Recommendation and the Proxy Statement/Prospectus shall include the Parent Recommendation. Parent will
use commercially reasonable efforts to solicit from its stockholders proxies in favor of the approval of the issuance of the Parent Stock in connection with the Merger. Notwithstanding any other
provision hereof, Parent may postpone or adjourn the Parent Stockholder Meeting any number of times (i) with the consent of the Company, (ii) for the absence of a quorum, (iii) if
additional time is reasonably required to solicit proxies from the holders of Parent Stock in favor of the approval of the Parent Stock Issuance or (iv) to allow reasonable additional time for
the filing and distribution of any supplemental or amended disclosure which the Parent Board has determined in good faith (after consultation with its outside legal counsel) is necessary under
applicable laws and for such supplemental or amended disclosure to be disseminated to and reviewed by Parent's stockholders prior to the Parent Stockholder Meeting.
7.4
Further Actions.
(a) Subject
to the terms and conditions of this Agreement, each of Parent, Merger Sub and the Company shall, and shall cause their respective Subsidiaries to, use their
commercially reasonable efforts (i) to take, or cause to be taken, all actions necessary, proper or advisable to comply promptly with all legal requirements which may be imposed on such party
or its Subsidiaries with respect to the Merger and, subject to the conditions set forth in
Section 8
hereof, to consummate the transactions
contemplated by this Agreement; and (ii) to promptly prepare, file and provide to third parties and
Governmental Entities all applications, statements, notices, petitions, registrations, requests, declarations and filings which are necessary or advisable to consummate the transactions contemplated
by this Agreement, including the Merger and the Parent Stock Issuance, to obtain (and to cooperate with the other party to obtain) as promptly as practicable all material permits, Consents,
registrations, authorizations and exemptions of or from all third parties and Governmental Entities which are necessary or advisable to consummate the transactions contemplated by this Agreement,
including the Merger and the Parent Stock Issuance, and to comply with the terms and conditions of all such permits, Consents, registrations, authorizations and exemptions of all such third parties
and Governmental Entities provided, however, that the parties hereto acknowledge and agree that all obligations of Parent, Merger Sub, Company and any of their respective Affiliates (as applicable)
relating to obtaining the Debt
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Financing
shall be governed exclusively by
Sections 7.10
and
7.11
, and not this
Section 7.4
. Parent and the
Company shall, upon request, furnish each other with all information concerning themselves, their Subsidiaries,
stockholders and Representatives and such other matters as may be reasonably necessary or advisable in connection with any application, statement, notice, petition, registration, request, declaration
or filing made or provided by or on behalf of Parent, the Company or any of their respective Subsidiaries to any Governmental Entity in connection with this Agreement, the Merger, the Parent Stock
Issuance and the other transactions contemplated by this Agreement.
(b) In
furtherance and not in limitation of
Section 7.4(a)
, each of Parent and the Company shall promptly following
the date hereof make an appropriate filing of a Notification and Report Form pursuant to the HSR Act with respect to the transactions contemplated hereby as promptly as practicable and use
commercially reasonable efforts to obtain early termination of the waiting period under the HSR Act and thereafter make any other required submissions with respect to the transactions contemplated
hereby under the HSR Act and to take all other appropriate actions reasonably necessary, proper or advisable to cause the expiration or termination of the applicable waiting periods under the HSR Act
as soon as practicable.
(c) In
furtherance and not in limitation of
Section 7.4(a)
, each of Parent and the Company shall (i) promptly
following the date hereof make or cause to be made, in consultation and cooperation with the other, all registrations, declarations, filings, applications and other notices and submissions required to
be filed with or submitted to the FCC in order to obtain all required Consents from the FCC as soon as practicable, (ii) promptly following the date hereof make or cause to be made, in
consultation and cooperation with the other, all registrations, declarations, filings, applications and other notices and submissions required to be filed with or submitted to any State Regulators in
order to obtain all required Consents from the State Regulators as soon as practicable and (iii) promptly take all other
appropriate actions reasonably necessary, proper or advisable to cause obtain such required Consents from the FCC and the State Regulators as soon as practicable.
(d) If
any objections are asserted with respect to the transactions contemplated hereby under any applicable Regulatory Law, or if any legal proceeding, whether judicial or
administrative, is instituted by any Governmental Entity challenging any of the transactions contemplated hereby as violating any Regulatory Law, each party shall use its commercially reasonable
efforts to (i) oppose or defend against any action to prevent or enjoin consummation of this Agreement and the transactions contemplated hereby and (ii) take such action as reasonably
necessary to overturn any regulatory action by any Governmental Entity to block consummation of this Agreement and the transactions contemplated hereby, including by defending any legal proceeding,
whether judicial or administrative, brought by any Governmental Entity in order to avoid entry of, or to have vacated, overturned or terminated, including by appeal if necessary, in order to resolve
any such objections or challenge as such Governmental Entity may have to such transactions under any applicable Regulatory Law so as to permit consummation of the transactions contemplated hereby. For
purposes of this Agreement, "
Regulatory Law
" means (A) the HSR Act, the Federal Trade Commission Act, as amended, and all other statutes, rules,
regulations, orders, decrees, administrative and judicial doctrines and other laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade or lessening competition, whether in the communications industry or otherwise, through merger or acquisition, (B) the Communications Act of 1934, as
amended, or the rules, regulations, written policies and orders of the FCC or any similar state telecommunications laws and the rules, regulations, written policies and orders of State Regulators and
(C) any other applicable laws, rules, regulations, practices and orders of any other Governmental Entities regulating competition and/or the telecommunication and data communications
industries.
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(e) Each
of Parent and its Subsidiaries, on the one hand, and the Company and its Subsidiaries, on the other hand, shall keep the other party promptly informed of any
material communication regarding any of the transactions contemplated hereby in connection with any filings, investigations with, by or before any Governmental Entity relating to this Agreement or the
transactions contemplated hereby, including any proceedings initiated by a private party. If any party hereto or affiliate thereof shall receive a request for additional information or documentary
material from any Governmental Entity with respect to the transactions contemplated hereby pursuant to any Regulatory Law with respect to which any such filings have been made, then such party shall
use its commercially reasonable efforts to make, or cause to be made, as soon as reasonably practicable and after consultation with the other party, an appropriate response in compliance with such
request. In connection with and without limiting the foregoing, to the extent reasonably practicable and unless prohibited by applicable law or by the applicable Governmental Entity, the parties
hereto agree to (i) give each other reasonable advance notice of all meetings with any Governmental Entities relating to the transactions contemplated hereby, (ii) give each other an
opportunity to participate in each of such meetings, (iii) keep the other party reasonably apprised with respect to any material oral communications with any Governmental Entity regarding the
transactions contemplated hereby, (iv) cooperate in the filing of any analyses, presentations, memoranda, briefs, arguments, opinions or other written communications explaining or defending the
transactions contemplated hereby, articulating any regulatory or competitive argument
and/or responding to requests or objections made by any Governmental Entity, (v) provide each other with a reasonable advance opportunity to review and comment upon, and consider in good faith
the views of the other with respect to, all written communications (including any analyses, presentations, memoranda, briefs, arguments and opinions) with a Governmental Entity regarding the
transactions contemplated hereby, (vi) provide each other (or outside counsel of each party hereto, as appropriate) with copies of all written communications to or from any Governmental Entity
relating to the transactions contemplated hereby and (vii) cooperate and provide each other with a reasonable opportunity to participate in, and consider in good faith the views of the other
with respect to, all material deliberations with respect to all efforts to satisfy the conditions set forth in
Section 8.1(c)
and
Section 8.1(d)
.
(f) Notwithstanding
any other provision of this Agreement to the contrary, Parent agrees to take any and all steps necessary to avoid or eliminate each and every impediment
under any Regulatory Law that may be asserted by any Governmental Entity or any other third Person so as to enable the parties hereto to consummate the transactions contemplated hereby, including the
Merger and the Parent Stock Issuance, as soon as practicable, including committing to and/or effecting, by consent decree, hold separate orders, or otherwise, the sale or disposition of such of the
shares of Company Common Stock, or its or the Company's or their respective Subsidiaries' assets, as are required to be divested or entering into such other arrangements as are required in order to
avoid the entry of, or to effect the dissolution of, any injunction, temporary restraining order or other order in any suit or proceeding, which would otherwise have the effect of preventing or
materially delaying the consummation of the transactions contemplated hereby, including the Merger and the Parent Stock Issuance.
(g) Nothing
in this
Section 7.4
shall be deemed to prevent the Company or the Company Board from taking any action
they are permitted or required to take under, and in compliance with,
Section 7.7
or are required to take under applicable law.
7.5
Employees; Employee Benefit Plans.
(a) Parent
shall, or shall cause the Surviving Company and its Subsidiaries to, (i) give those employees who are, as of the Effective Time, employed by the Company
and its Subsidiaries (the "
Continuing Employees
") full credit for purposes of determining eligibility and vesting (but not for purposes of any benefit
accruals) under any Parent Benefit Plans or other arrangements
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maintained
by Parent, including, but not limited to, vacation and paid time off accruals, the Surviving Company or any Subsidiary of Parent or the Surviving Company (other than any defined benefit or
equity-based plans) (collectively, the "
Parent Plans
") for such Continuing Employees' service with the Company or any of its Subsidiaries (or any
predecessor entity) to the same extent recognized by the Company and its Subsidiaries; (ii) waive all limitations as to preexisting conditions, exclusions and waiting periods with respect to
participation and coverage requirements applicable to the Continuing Employees under any Parent Plan that is a welfare benefit plan that such employees may be eligible to participate in after the
Effective Time to the same extent waived by the Company and its Subsidiaries or otherwise not subject to a limitation by the Company and its Subsidiaries; (iii) provide credit under any such
welfare plan for any co-payments, deductibles and out-of-pocket expenditures for the remainder of the coverage period during which any transfer of coverage of any Continuing Employee occurs; and
(iv) honor in accordance with their terms all employee benefit plans or arrangements or collective bargaining agreements maintained by the Company immediately prior to the Effective Time.
(b) From
a period of one (1) year from and after the Effective Time, Parent shall, or shall cause the Surviving Company and its Subsidiaries to, provide to the
Continuing Employees levels of compensation and benefit arrangements that are no less favorable in the aggregate than either the (i) levels of compensation and benefits provided to the
continuing employees immediately prior to the Effective Time or (ii) the levels of compensation and benefit arrangements that are provided to similarly situated employees of Parent. By no later
than January 1, 2019, Parent shall, or shall cause the Surviving Company and its Subsidiaries to, cause the Continuing Employees to commence participation in such Parent Plans as are provided
to similarly situated employees of Parent, provided that such participation shall be subject to the terms of any collective bargaining agreement or similar contract covering any Continued Employee.
From and after the Effective Time, Parent and the Surviving Company shall keep in full force and effect, and comply with the terms and conditions of, any employment, severance or change of control
agreement (including, without limitation, any such agreements in the form of offer letters) in effect as of the date of this Agreement or entered into or amended after the date of this Agreement as
approved by Parent in compliance with
Section 6.2
hereof between or among the Company or any of its Subsidiaries and any of its or their
employees.
(c) The
provisions of this
Section 7.5
are for the sole benefit of the parties to this Agreement and nothing herein,
expressed or implied, is intended or shall be construed to confer upon or give to any Person (including for the avoidance of doubt any Continuing Employees, present or former employees or directors,
consultants or independent contractors of the Company or any of its Subsidiaries, Parent or any of its Subsidiaries, or on or after the Effective Time, the Surviving Company or any of its
Subsidiaries), other than the parties hereto and their respective permitted successors and assigns, any legal or equitable or other rights or remedies (with respect to the matters provided for in this
Section 7.5
) under or by reason of any provision of this Agreement. Nothing contained in this
Section 7.5
or elsewhere in the Agreement shall be construed to
prevent, from and after the Effective Time, the termination of employment of any
individual Continuing Employee or, subject to the provisions of
Sections 7.5(a)
and
7.5(b)
, any change in the employee benefits available to any
Continuing
Employee or the amendment or termination of any particular Plan in accordance with its terms.
7.6
Indemnification; Directors' and Officers' Insurance.
(a) From
and after the Effective Time, each of Parent and the Surviving Company shall jointly and severally: (i) indemnify and hold harmless each individual who
served as a director or officer of the Company or its Subsidiaries prior to the Effective Time (collectively, the "
Indemnified Parties
") (in such
Person's capacity as such and not as stockholders of the Company or any of its Subsidiaries) to the fullest extent required, authorized or permitted by Delaware law,
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as
now or hereafter in effect, in connection with any Claim and any judgments, fines (including excise taxes), penalties and amounts paid in settlement (including all interest, assessments and other
charges paid or payable in connection with or in respect of such judgments, fines, penalties or amounts paid in settlement) resulting therefrom; and (ii) promptly pay on behalf of or, within
thirty (30) days after any request for advancement, advance to each of the Indemnified Parties, to the fullest extent required, authorized or permitted by Delaware law, as now or hereafter in
effect, any Expenses incurred in defending, serving as a witness with respect to or otherwise participating in any Claim in advance of the final disposition of such Claim, including payment on behalf
of or advancement to the Indemnified Party of any Expenses incurred by such Indemnified Party in connection with enforcing any rights with respect to such indemnification and/or advancement, in each
case without the requirement of any bond or other security, but in the case of advancement of Expenses upon receipt of an undertaking, to the extent required by applicable law, from such Indemnified
Party to repay such advanced Expenses if it is determined by a court of competent jurisdiction in a final order that such Indemnified Party was not entitled to indemnification hereunder with respect
to such Expenses. In the event any Claim is brought against any Indemnified Party, Parent and the Surviving Company shall each use all commercially reasonable efforts to assist in the vigorous defense
of such matter, provided that neither Parent nor the Surviving Company shall settle, compromise or consent to the entry of any judgment in any Claim (in which indemnification could be sought by such
Indemnified Party hereunder) without the prior written consent of such Indemnified Party if and to the extent the claimant seeks any non-monetary relief (including any admission of liability or guilt)
from such Indemnified Party. Notwithstanding the foregoing, an Indemnified Party shall be entitled to control the defense of any action, suit, investigation or proceeding with counsel of its own
choosing reasonably acceptable to Parent and Parent and the Surviving Company shall cooperate in the defense thereof;
provided,
that Parent shall not be
liable for the fees of more than one counsel for all Indemnified Parties, other than local counsel, unless a conflict of interest shall be caused thereby. The indemnification and advancement
obligations of Parent and the Surviving Company pursuant to this
Section 7.6(a)
shall extend to acts or omissions occurring at or before the
Effective Time and any Claim relating thereto (including, but not limited to, any acts or
omissions occurring in connection with the approval of this Agreement by the Company Board and the Company's stockholders and the consummation of the transactions contemplated hereby and any Claim
relating thereto) and all rights to indemnification and advancement conferred hereunder shall continue as to an individual who has ceased to be a director or officer of the Company or its Subsidiaries
at or prior to the Effective Time and shall inure to the benefit of such individual's heirs, executors and personal and legal representatives. In connection with any determination as to whether the
Indemnified Parties are entitled to the benefits of this
Section 7.6
, the burden of proof shall be on Parent and the Surviving Company to
establish that an Indemnified Party is not so entitled. As used in this
Section 7.6(a)
, (A) the term
"
Claim
" means any threatened, asserted, pending or completed action, suit or proceeding, or any inquiry or investigation, whether instituted by the
Company, any Governmental Entity or any other party, that any Indemnified Party in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal,
administrative, investigative or other, including any arbitration or other alternative dispute resolution mechanism, arising out of or pertaining to matters that relate to such Indemnified Party's
duties or service as a director or officer of the Company, any of its Subsidiaries, any employee benefit plan maintained by any of the foregoing at or prior to the Effective Time and any other Person
at the request the Company or any of its Subsidiaries; and (B) the term "
Expenses
" means reasonable attorneys' fees and all other costs, expenses
and obligations (including experts' fees, travel expenses, court costs, retainers, transcript fees, duplicating, printing and binding costs, as well as telecommunications, postage and courier charges)
paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to investigate, defend, be a witness in or participate in, any
Claim for which indemnification is authorized pursuant to this
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Section 7.6(a)
, including any action relating to a claim for indemnification or advancement brought by an Indemnified Party.
(b) From
the Effective Time and for a period of six (6) years thereafter, Parent and the Surviving Company shall keep in full force and effect, and comply with the
terms and conditions of, any agreement in effect as of the date of this Agreement between or among the Company or any of its Subsidiaries and any Indemnified Party providing for the indemnification of
and advancement of expenses to such Indemnified Party.
(c) Without
limiting any of the obligations under paragraph (a) of this
Section 7.6
, Parent agrees that all
rights to indemnification and advancement of expenses and all limitations of liability existing in favor of the Indemnified Parties as provided in the Company's Certificate of Incorporation or Bylaws
or in the corresponding constituent documents of any of the Company's Subsidiaries as in effect as of the date of this Agreement with respect to matters occurring on or prior to the Effective Time
shall survive the Merger and shall continue in full force and effect thereafter, without any amendment thereto.
(d) If
Parent or the Surviving Company or any of its successors or assigns shall (i) consolidate with or merge into any other Person and shall not be the continuing
or surviving Person of such consolidation or merger or (ii) transfer all or substantially all of its properties and assets to any Person, then, in each such case, proper provisions shall be
made so that the successors and assigns of Parent and the Surviving Company, as the case may be (including Parent's ultimate parent entity, if applicable), assume all of the obligations of Parent and
the Surviving Company set forth in this
Section 7.6
.
(e) Prior
to the Effective Time, the Company shall or, if the Company is unable to, Parent shall cause the Surviving Company as of the Effective Time to, obtain and fully
pay the premium for the non-cancellable extension of the directors' and officers' liability coverage of the Company's existing directors' and officers' insurance policies and the Company's existing
fiduciary liability insurance policies (collectively, "
D&O Insurance
"), in each case for a claims reporting or discovery period of at least six
(6) years from and after the Effective Time with respect to any claim related to any period of time at or prior to the Effective Time from an insurance carrier with the same or better credit
rating as the Company's current insurance carrier with respect to D&O Insurance with terms, conditions, retentions and limits of liability that are no less favorable than the coverage provided under
the Company's existing policies with respect to any actual or alleged error, misstatement, misleading statement, act, omission, neglect, breach of duty or any matter claimed against a director or
officer of the Company or any of its Subsidiaries by reason of him or her serving in such capacity that existed or occurred at or prior to the Effective Time (including in connection with this
Agreement or the transactions or actions contemplated hereby), provided that the annual premium therefor shall not exceed $1,718,760. If the Company or the Surviving Company for any reason fail to
obtain such "tail" insurance policies as of the Effective Time, the Surviving Company shall continue to maintain in effect, for a period of at least six years from and after the Effective Time, the
D&O Insurance in place as of the date hereof with the Company's current insurance carrier or with an insurance carrier with the same or better credit rating as the Company's current insurance carrier
with respect to D&O Insurance with terms, conditions, retentions and limits of liability that are no less favorable than the coverage provided under the Company's existing policies as of the date
hereof, or the Surviving Company shall purchase from the Company's current insurance carrier or from an insurance carrier with the same or better credit rating as the Company's current insurance
carrier with respect to D&O Insurance comparable D&O Insurance for such six-year period with terms, conditions, retentions and limits of liability that are no less favorable than as provided in the
Company's existing policies as of the date hereof;
provided, however,
that Parent or the Surviving Company and its Subsidiaries, as the case may be,
shall not be required to spend as an annual premium therefor an amount in excess of
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$1,718,760
and (iii) if, during such six (6)-year period, such insurance coverage cannot be obtained at all or can be obtained only for an amount in excess of $1,718,760, Parent or the
Surviving Company and its Subsidiaries, as the case may be, shall use commercially reasonable efforts to cause to be obtained
as much directors' and officers' liability insurance coverage as can be obtained for $1,718,760, on terms and conditions substantially similar to the Company's and the Company's Subsidiaries' existing
directors' and officers' liability insurance.
(f) The
provisions of this
Section 7.6
shall survive the consummation of the Merger and (i) are intended to be
for the benefit of, and shall be enforceable by, each Indemnified Party and his or her heirs and representatives and (ii) are in addition to, and not in substitution for, any other rights to
indemnification or contribution that any such Person may have by contract or otherwise. The obligations of Parent or the Surviving Company under this
Section 7.6
shall not be terminated or modified
in such a manner as to adversely affect the rights of any Indemnified Party under this
Section 7.6
without the consent of such affected Indemnified Party. Parent shall cause the Surviving Company
to perform all of the obligations of
the Surviving Company under this
Section 7.6
. Parent and the Surviving Company, jointly and severally, shall pay all expenses, including
reasonable fees and expenses of counsel, that an Indemnified Party may incur in enforcing the indemnity and other obligations provided for in this
Section 7.6
.
7.7
No Solicitation.
(a) During
the period beginning on the date of this Agreement and continuing until the earlier of the Effective Time and the termination of this Agreement in accordance with
Section 9.1
, the Company and its
Subsidiaries and their respective officers and directors shall, and the Company shall instruct and cause its and
its Subsidiaries' other Representatives to, cease and cause to be terminated any discussions or negotiations with any Person that would otherwise be prohibited by this
Section 7.7(a)
. Promptly
following the execution of this Agreement, the Company shall deliver a written notice to each such Person to the effect
that, subject to the provisions of this
Section 7.7
, the Company is ending all discussions and negotiations with such Person with respect to any
Alternative Proposal, effective on and from the date of this Agreement, and the notice shall also request such Person to promptly return or destroy all confidential information concerning the Company
and/or its Subsidiaries. Subject to the provisions of this
Section 7.7
, during the period commencing on the date of this Agreement and continuing
until the earlier to occur of the Effective Time and the Termination Date, the Company and its Subsidiaries shall not, and shall cause its and their respective Representatives not to, directly or
indirectly, (i) solicit (including by way of furnishing non-public information), initiate or knowingly encourage or facilitate any inquiry with respect to, or the making, submission or
announcement of, any proposal or offer that constitutes, or is reasonably expected to lead to, an Alternative Proposal, (ii) furnish to any Person (other than Parent or Merger Sub or their
respective designees) any non-public information relating to the Company and/or its Subsidiaries, or afford to any Person access to the business, properties, assets, books, records or other non-public
information, or to any personnel, of the Company and/or its Subsidiaries (other than Parent or Merger Sub or their respective designees), in any such case relating to an Alternative Proposal or any
inquiries or the making of any proposal that could lead to an Alternative Proposal, (iii) engage in, continue or otherwise participate in any discussions or negotiations regarding any
Alternative Proposal with any Person, except to notify such Person as to the existence and content of the provisions of this
Section 7.7
, or
(iv) grant any waiver, amendment or release under any standstill or confidentiality agreement (except for any portion of any such standstill or confidentiality agreement that restricts the
ability of a Person to communicate an Alternative Proposal to Company Board), or anti-takeover laws.
(b) Notwithstanding
anything to the contrary set forth in this
Section 7.7
or elsewhere in this Agreement, until this
Agreement shall have been approved by the Company Required Vote, the
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Company
may, directly or indirectly through one or more Affiliates or Representatives, participate or engage in discussions or negotiations with, furnish any non-public information relating to the
Company and/or its Subsidiaries to, and/or afford access to the business, properties, assets, books, records or other non-public information, or to the personnel, of the Company and/or its
Subsidiaries to, a Person or group of Persons that makes a bona fide Alternative Proposal (under circumstances in which the Company has complied with its non-solicitation obligations under
Section 7.7(a)
);
provided, however,
that the Company shall promptly make available to Parent and
Merger Sub any material non-public information concerning the Company and/or its Subsidiaries that is provided to any Person given such access which was not previously made available to Parent or
Merger Sub or their respective Representatives (which requirement may be satisfied by posting such information in the online data room established by the Company prior to the date hereof);
and provided further
that, prior to initiating any such action, the Company Board shall have determined in good faith (after consultation with its
financial advisor and outside legal counsel) that such Alternative Proposal either constitutes a Superior Proposal or could reasonably be expected to result in a Superior Proposal;
and provided further
that prior to furnishing such information or access to, or entering into substantive discussions (except as to the existence of
this
Section 7.7
) or negotiations with, such Person(s), (A) the Company receives from such Person(s) an executed Acceptable
Confidentiality Agreement and (B) the Company notifies Parent to the effect that it intends to furnish information or access to, or intends to enter into substantive discussions or negotiations
with, such Person(s). The Company agrees that neither the Company nor any of the Company's Subsidiaries will enter into any confidentiality agreement with any Person subsequent to the date hereof that
prohibits the Company from providing such information to Parent.
(c) Except
as provided by
Section 7.7(d)
, at any time after the execution of this Agreement, the Company Board shall
not:
(i) resolve
to withdraw, modify or qualify and/or withdraw, modify or qualify the Company Recommendation in a manner adverse to Parent and Merger Sub (a
"
Company Recommendation Change
");
(ii) approve
or recommend any Alternative Proposal; or
(iii) cause
or permit the Company or any of its Subsidiaries to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement,
merger agreement, option agreement, joint venture agreement, partnership agreement or other similar agreement (an "
Alternative Acquisition Agreement
")
relating to an Alternative Proposal (other than an Acceptable Confidentiality Agreement in compliance with the terms of
Section 7.7(b)
) or
authorize, approve or publicly recommend an Alternative Proposal or any agreement, understanding or arrangement relating to an Alternative Proposal (other than an Acceptable Confidentiality Agreement
in compliance with the terms of
Section 7.7(b)
).
(d) Notwithstanding
anything to the contrary set forth in this Agreement, if at any time prior to the time that this Agreement shall have been approved by the Company
Required Vote, (i) the Company is then in receipt of a bona fide written Alternative Proposal from any Person that is not withdrawn and that the Company Board concludes in good faith (after
consultation with its financial advisor and outside legal counsel) constitutes a Superior Proposal, or (ii) if there occurs any Fiduciary Change, the Company Board may (1) effect a
Company Recommendation Change, and/or (2) in the case of a Superior Proposal, adopt, approve, endorse or recommend, or publicly propose to adopt, approve, endorse or recommend, to the
stockholders of the Company any such Superior Proposal and authorize the Company to terminate this Agreement in accordance with
Section 9.1(c)(ii)
to enter into an Alternative Acquisition Agreement
with respect to such Superior
Proposal(
provided
,
however,
that in such event under this clause (2), the Company concurrently
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terminates
this Agreement pursuant to
Section 9.1(c)(ii)
and enters into a definitive Alternative Acquisition Agreement with respect to such
Superior Proposal), provided that the Company Board may effect a Company Recommendation Change, if and only if:
(i) the
Company Board shall have determined in good faith (after consultation with its financial advisor and outside legal counsel) that failure to take such action would
be inconsistent with the directors' exercise of their fiduciary obligations to the stockholders of the Company under applicable laws; and
(ii) the
Company shall have validly terminated this Agreement in accordance with
Section 9.1(c)(ii)
, including the
payment of the Company Termination Fee in accordance with
Section 9.2(a)
;
provided, however
, that
(A) prior to terminating this Agreement, the Company shall give Parent at least three (3) Business Days' notice thereof, attaching the Alternative Proposal Agreement (or, if applicable,
the most current draft thereof), which notice need only be given once with respect to any Superior Proposal, unless such Superior Proposal is modified in any material respect in which case the three
(3) Business Day period referred to herein shall be 48 hours, and (B) if, within such three (3) Business
Day period (or where applicable, 48 -hour period), Parent makes an offer to the Company that the Company Board determines in good faith is more favorable to the stockholders of the Company (other than
Parent, Merger Sub and their respective Affiliates), from a financial point of view, than such Superior Proposal (taking into account, among other things, (I) the terms of such offer and
(II) all legal, financial (including the financing terms thereof), regulatory, timing and other aspects of such offer which the Company Board deems relevant), and agrees in writing to all
adjustments in the terms and conditions of this Agreement as are necessary to reflect such offer, the Company's notice of termination with respect to such Superior Proposal shall be deemed to be
rescinded and of no further force and effect and, if the Company or any Subsidiary of the Company has entered into a Superior Proposal Agreement, it shall promptly terminate such agreement (it being
agreed that the Company will cause any Alternative Acquisition Agreement entered into prior to the expiration of such three (3) Business Day period (or where applicable, 48-hour period) to
include a provision permitting such termination).
(e) The
Company shall keep Parent reasonably informed regarding the matters contemplated by this
Section 7.7
(including any Alternative Proposals). Without limiting the generality of foregoing, (i) the Company shall promptly notify Parent if any proposals or offers with respect to an Alternative
Proposal are received by the Company or any of its Representatives indicating, in connection with such notice, the material terms and conditions of any proposals or offers (including, if applicable,
copies of any written requests, proposals or offers, including proposed agreements) and thereafter shall keep Parent reasonably informed, on a prompt basis, of the status and material terms of any
such proposals or offers (including any material amendments thereto), including any change in the Company's intentions as previously notified, and (ii) the Company agrees that it will promptly
notify Parent if any non-public information is requested from, or any discussions or negotiations are sought to be initiated or continued with, the Company or any of its Representatives indicating, in
connection with such notice, the status of any such discussions or negotiations, including any change in the Company's intentions as previously notified. The Company agrees that it and its
Subsidiaries will not enter into any confidentiality agreement with any Person subsequent to the date hereof which prohibits the Company from providing such information to Parent.
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(f) Nothing
contained in this Agreement shall prohibit the Company or the Company Board, directly or indirectly through its Representatives, from (i) taking and
disclosing to its stockholders a position contemplated by Rules 14d-9 or 14e-2(a) or Item 1012(a) of Regulation M-A promulgated under the Exchange Act, or from issuing a "stop,
look and listen" statement pending disclosure of its position thereunder, or (ii) making any disclosure to its stockholders if the Company Board determines in good faith (after consultation
with its outside legal counsel) that the failure to make such disclosure would be inconsistent with the directors' exercise of their fiduciary obligations to the Company's stockholders under
applicable law or would constitute a violation of applicable law. It is understood and agreed that, for purposes of this Agreement (including
Section 7
and
Section 9
), a factually accurate public statement by the Company that
describes the Company's receipt of an Alternative Proposal and the operation of this Agreement with respect thereto, or any "stop, look and listen" communication by the Company Board, shall not
constitute a Company Recommendation Change or an approval or recommendation with respect to any Alternative Proposal.
(g) Other
than with respect to the Debt Commitment, neither Parent nor Merger Sub, nor any of their respective Affiliates, shall make or enter into any formal or informal
arrangements or understandings (whether or not binding) with any Person, or have any discussions or other communications with any other Person, in any such case with respect to any Alternative
Proposal involving the Company.
(h) As
used in this Agreement:
(i) "
Acceptable Confidentiality Agreement
" shall mean a customary confidentiality agreement that contains confidentiality
provisions that are not materially less favorable in the aggregate to the Company than those contained in the Confidentiality Agreement (
provided,
however,
that such confidentiality agreement shall not be required to restrict a Person from communicating an Alternative Proposal (or any amendment thereof) to the Company
Board) or, to the extent applicable, a confidentiality agreement entered into prior to the execution of this Agreement.
(ii) "
Alternative Proposal
" shall mean any proposal, indication or offer, including any proposal, indication or offer from or
to the Company's stockholders, made by any Person or group (as defined under Rule 13(d) of the Exchange Act) other than Parent or its Subsidiaries and/or Affiliates relating to, whether in a
single transaction or series of related transactions, and whether directly or indirectly, any (i) transaction or series of transactions (including any merger, reorganization, share exchange,
consolidation, business combination, joint venture, partnership, recapitalization, dissolution, liquidation or similar direct or indirect transaction involving the Company and/or any Subsidiary or
Subsidiaries of the Company) for the issuance or acquisition of shares of Company Common Stock or other equity securities of the Company whose business or businesses constitute twenty percent (20%)
(in number or voting power) or more of the assets, revenues or earnings of the Company and its Subsidiaries, taken as a whole, (ii) acquisition, license or purchase of assets of the Company
and/or its Subsidiaries equal to twenty percent (20%) or more of the consolidated assets of the Company and its Subsidiaries or to which twenty percent (20%) or more of the Company's revenues or
earnings on a consolidated basis are attributable or (iii) acquisition of beneficial ownership (as defined under Rule 13(d) of the Exchange Act) of equity interests representing a twenty
percent (20%) or greater economic or voting interest in the Company or tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in any Person or group (as
defined under Rule 13(d) of the Exchange Act) beneficially owning equity interests representing a twenty percent (20%) (in number or voting power) or greater economic or voting interest in the
Company (provided, for the avoidance of doubt, that a transfer of Company Common Stock solely as part of the exercise of registration rights applicable to the
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Company
Common Stock in effect on the date hereof shall not be considered an Alternative Proposal).
(iii) "
Fiduciary Change
" shall mean any determination by the Company Board, prior to the Company Required Vote, that it is
obligated to make a Company Recommendation Change because such a change is advisable to comply with its fiduciary duties to stockholders of the Company.
(iv) "
Superior Proposal
" shall mean any bona fide Alternative Proposal (except that references to "twenty percent (20%) or
more" in the definition thereof will be deemed to be references to "fifty percent (50%) or more") made by any Person that is on terms that the Company Board determines in good faith (after
consultation with its financial advisor and outside legal counsel and after taking into account all legal, financial (including the financing terms thereof), regulatory, timing and other aspects of
the proposal, as well as any modification to this Agreement that Parent and Merger Sub propose to make in accordance with
Section 7.7(d)(ii)
),
are more favorable to the Company's stockholders from a financial point of view than the transactions contemplated by this Agreement.
7.8
Standstill.
Until the earlier of the Effective Time or
the termination of this Agreement, neither Parent nor any of its Affiliates shall (a) purchase any shares of Company Common Stock or any security of the Company that is convertible into Company
Common Stock in the open market or in privately negotiated transactions or (b) form, join or in any way participate in a "group" (as defined in Section 13(d)(3) of the Exchange Act) in
connection with any of the foregoing or (c) commence a tender offer or exchange offer.
7.9
Section 16 Matters.
Prior to the Effective Time, the Company Board
shall take all such steps as may be required and permitted to cause the transactions contemplated by this Agreement, including any dispositions of shares of Company Common Stock (including derivative
securities with respect to such Company Common Stock) by each individual who is or will be subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to the
Company, to be exempt under Rule 16b-3 promulgated under the Exchange Act.
7.10
Financing.
(a) Parent
and Merger Sub acknowledge and agree that the Company and its Affiliates and its and their respective Representatives shall not, prior to the Effective Time,
incur any liability to any Person under any financing that Parent and Merger Sub may raise in connection with the transactions contemplated by this Agreement or any cooperation provided pursuant to
Section 7.11
and that Parent and Merger Sub shall, on a joint and several basis, indemnify and hold harmless the Company and its Affiliates and
its and their respective Representatives from and against any losses, damages, claims, costs or expenses suffered or incurred by any of them in connection with the Debt Financing and any information
utilized in connection therewith.
(b) Each
of Parent and Merger Sub shall take, or cause to be taken all actions and do, or cause to be done, all things necessary, proper or advisable to (x) maintain
in effect the Debt Commitment Letter and (y) arrange and obtain the proceeds of the Debt Financing on the terms and conditions described in the Debt Commitment Letter (including any "market
flex" terms and conditions in the fee letter referenced in, and to which, the Debt Commitment Letter is subject), including: (i) entering into definitive agreements with respect thereto on the
terms and conditions contained in the Debt Commitment Letter as promptly as practicable after the date hereof; and (ii) satisfying, or cause their
Representatives to satisfy all conditions applicable to Parent, Merger Sub, Borrower or their respective Representatives that are within their respective control in such definitive agreements.
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(c) Parent
shall not agree to any amendments or modifications to, or grant any waivers of, any condition or other provision under the Debt Commitment Letter without the
prior written consent of the Company if such amendments, modifications or waivers would (i) reduce the aggregate amount of the Debt Financing or (ii) impose new or additional conditions
that would reasonably be expected to (A) prevent or materially delay the ability of Parent to consummate the Merger and the other transactions contemplated by this Agreement or
(B) adversely impact the ability of Parent, Merger Sub or Borrower to enforce its rights against the other parties to the Debt Commitment Letter. Parent shall not release or consent to the
termination of the obligations of the Financing Sources under the Debt Commitment Letter, except for assignments and replacements of an individual Financing Source under the terms of or in connection
with the syndication of the Debt Financing or as otherwise expressly contemplated by the Debt Commitment Letter.
(d) In
the event that any portion of the Debt Financing becomes unavailable in the manner or from the sources contemplated in the Debt Commitment Letter, (i) Parent
shall promptly so notify the Company and (ii) Parent and Merger Sub shall use their respective commercially reasonable efforts to arrange and obtain, and to negotiate and enter into definitive
agreements with respect to, alternative financing from alternative financial institutions in an amount sufficient to consummate the transactions contemplated by this Agreement upon conditions not less
favorable to Parent, Merger Sub and the Company, taken as a whole, than those in the Debt Commitment Letter ("
Alternative Financing
"), as promptly as
practicable following the occurrence of such event (and in any event no later than the Closing Date);
provided
, that if Parent proceeds with Alternative
Financing, it shall be subject to the same obligations with respect to the Alternative Financing as set forth in this
Section 7.10
with respect
to the Debt Financing and all references in this Agreement to the Debt Financing shall be deemed to also refer to the Alternative Financing. The definitive agreements entered into pursuant to the
first sentence of this
Section 7.10(d)
or
Section 7.10(b)(i)
are referred to in this
Agreement, collectively, as the "
Financing Agreements
." Parent shall provide to the Company copies of any commitment letter and fee letter associated
with an Alternative Financing as well as any amendment or waiver of any debt commitment letter (including the Debt Commitment Letter) or fee letter, that is permitted hereunder.
(e) Parent
shall (i) furnish the Company complete, correct and executed copies of the Financing Documents or any alternative financing agreement promptly upon their
execution, (ii) give the Company prompt notice of any material breach or material threatened breach by any party of any of the Debt Financing commitment, any Alternative Financing commitment,
the Financing Documents, or any alternative financing agreement of which Parent or Merger Sub becomes aware or any termination thereof, and (iii) otherwise keep the Company reasonably informed
of the status of its efforts to arrange the Debt Financing (or any alternative financing). As used in this Agreement, "
Financing Documents
" means the
following agreements, documents and certificates contemplated by the Debt Financing: (i) all credit agreements, loan documents, indentures and security documents pursuant to which the Debt
Financing will be governed or contemplated by the Debt Commitment Letter and (ii) customary officer, secretary, solvency and perfection certificates contemplated by the Debt Commitment Letter
or reasonably requested by Parent or its Financing Sources.
7.11
Financing Cooperation.
(a) Prior
to the Effective Time, the Company shall and shall cause its subsidiaries to, at Parent's sole expense, cooperate, and shall use its commercially reasonable
efforts to cause its respective officers, employees, representatives, auditors, and advisors, including legal and accounting advisors, to cooperate, in connection with the arrangement of the Debt
Financing, as may be reasonably requested by Parent (provided that such requested cooperation does not
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unreasonably
interfere with the ongoing operations of business of the Company and its subsidiaries), including: (i) participation in meetings, drafting sessions, rating agency presentations,
due diligence sessions, and "road show" and other customary marketing presentations; (ii) furnishing in writing any Financing Sources as promptly as practicable with pertinent information
regarding the Company and its subsidiaries as is reasonably requested in connection with the Debt Financing, including such business or other financial data of the type that would be required in a
registered offering by Regulation S-X or Regulation S-K under the Securities Act (other than Rule 3-09, Rule 3-10 or Rule 3-16 of Regulation S-X, segment
reporting and information regarding executive compensation and certain related party disclosure related to SEC Release Nos. 33-8732A, 34-54302A and IC-27444A and other customary exceptions;
(iii) assisting any Financing Sources in the preparation of (A) one or more customary offering documents and/or information in connection with the Debt Financing and (B) materials
for rating agency presentations; (iv) executing and delivering any pledge and security documents and otherwise facilitating the pledging of collateral, subject to consummation of the Merger;
(v) taking all reasonably required corporate actions, subject to the consummation of the Merger, to permit the consummation of the Debt Financing; (vi) providing customary authorization
letters to any Financing Sources authorizing the distribution of information to prospective Financing Sources and containing a customary representation to the arranger of any financing that the
information contained in any offering document or information memorandum relating to the Company and its subsidiaries does not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; (vii) cooperating reasonably with the Financing
Sources' due diligence of the Company and its subsidiaries, to the extent customary and reasonable; (viii) furnishing such information and data related to the Company and its Subsidiaries as is
reasonably required by Parent for Parent to produce the pro forma financial statements required in a registered offering of debt securities by Regulation S-X under the Securities Act, or
otherwise required in connection with the Debt Financing; (ix) using commercially reasonable efforts in assisting Parent in its efforts to obtain corporate credit or family ratings of Parent
to the extent reasonably requested by Parent; (x) obtaining customary payoff letters, lien terminations and instruments of discharge in respect of the payoff, discharge and termination of the
Effective Date of all obligations under the Credit Agreement, including releases of liens relating thereto, and in each case as reasonably requested by Parent and (xi) furnishing Parent and
Financing Sources with historical financial statements of the Company and its subsidiaries needed to satisfy the condition set forth in clause (h) of Exhibit C of the Debt Commitment
Letter. Parent shall, promptly upon termination of this Agreement, reimburse the Company for all reasonable out-of-pocket expenses and costs incurred in connection with the Company's or its
Affiliates' obligations under this
Section 7.11
.
(b) In
addition, prior to the Effective Time, upon request by Parent from time to time, and, at the Parent's sole expense, the Company shall: (i) use its commercially
reasonable efforts to cause Ernst & Young LLP, independent accountants of the Company, to provide a letter or letters containing statements and information of the type customarily
included in accountants' "comfort letters" to underwriters with respect to financial statements and certain financial information used in connection with the Debt Financing (including "negative
assurance" comfort); (ii) use its reasonable best efforts to provide customary representation letters and other authorizations or information to Ernst & Young LLP, to enable them
to provide the foregoing "comfort letters"; (iii) use its reasonable best efforts to obtain the consent of Ernst & Young LLP for the inclusion of its reports on the Company in any
document or documents to be used in connection with the Debt Financing; and (iv) cause the appropriate representatives of the Company to execute and deliver any Financing Documents or other
certificates or documents as may be reasonably
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requested
by Parent for delivery at the consummation of the Debt Financing, subject to the consummation of the Merger.
(c) Notwithstanding
anything in this Agreement to the contrary, neither the Company nor any of its Subsidiaries shall be required to pay any commitment or other similar fee
or enter into any definitive agreement or incur any other liability of obligation in connection with the Debt Financing (or any alternative financing) prior to the Effective Time.
7.12
Tax Treatment as Reorganization.
(a) Each
of Parent, the Company and the Surviving Company shall use its reasonable best efforts to take such actions so as to cause the Merger to qualify as a reorganization
within the meaning of
Section 368(a) of the Code. Neither Parent nor the Company nor any of their respective Affiliates shall take any action prior to the Closing, and Parent shall not take any action or fail to
take any action (and shall prevent the Surviving Company from taking any action or failing to take any action) following the Closing, that would cause the Merger to fail to qualify as a
"reorganization" within the meaning of Section 368(a) of the Code. Parent and the Surviving Company shall report the Merger for income tax purposes as a "reorganization" within the meaning of
Section 368(a) of the Code, including the filing of the statement required by Treasury Regulations Section 1.368-3, unless otherwise required by a taxing authority pursuant to a
"determination" within the meaning of Section 1313(a) of the Code.
(b) Each
of Parent, Merger Sub and the Company shall use its reasonable best efforts to obtain the Tax opinions described in
Sections 8.2(c)
and
8.3(c)
,
including by causing its officers to execute and deliver to the law
firms delivering such Tax opinions certificates as to such matters and at any such time or times as may reasonably be requested by such law firms. Each of Parent, Merger Sub and the Company shall use
its reasonable best efforts not to take or cause to be taken any action that would cause to be untrue (or fail to take or cause not to be taken any action which inaction would cause to be untrue) any
of the representations included in the certificates described in this
Section 7.12(b)
.
7.13
Board of Directors of Parent After the Effective Time.
Prior to the Closing,
Parent shall take all such action as may be reasonably necessary to cause one (1) individual selected by the Company and approved by Parent (such approval not to be unreasonably conditioned,
withheld or delayed) prior to the Closing Date from among the Company Board (the "
Company Designee
") to be elected to the Parent Board effective as of
the Effective Time. If at any time prior to or after the Effective Time, the initial Company Designee is unwilling or unable to serve as a member of Parent Board, then the Company Board (which shall
be deemed, at all times after the Effective Time, to consist solely of those individuals who served as members of the Company Board immediately prior to the Effective Time) shall, by written notice to
Parent, name a new designee who shall be approved by the Parent (such approval not to be unreasonably conditioned, withheld or delayed) and who, subject to such Parent approval, shall thereupon be the
Company Designee for all purposes of this Agreement.
7.14
Parent Consent as Sole Stockholder of Merger Sub.
Parent shall deliver to
Company within five (5) Business Days of the date of this Agreement evidence of its approval, as the sole stockholder of Merger Sub, of the adoption of this Agreement and approval of the
transactions contemplated hereby, including the Merger.
7.15
Repayment of Debt.
At the Closing, and subject to the other terms and
conditions set forth in this Agreement, (a) the Parent shall make available to the Company, or pay directly, an amount in cash sufficient to pay the aggregate outstanding Funded Debt (as
defined below) together with all Debt Payment Expenses (as defined below), (b) the Company, if such amount is not paid directly by the Parent and is made available to the Company in accordance
with the foregoing clause (a), shall apply such cash to pay the Funded Debt and the Debt Payment Expenses, if any, and with respect to the
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notes
under the Indenture, the Company shall have provided irrevocable notice of redemption of all then outstanding notes and deposited with the trustee under the Indenture proceeds sufficient,
without consideration of any investment of interest, to pay and discharge the entire indebtedness on the then outstanding notes for principal, premium (if any) and accrued and unpaid interest to but
not including the redemption date and (c) solely to the extent that all outstanding obligations under the Credit Agreement on the Closing Date constitute Funded Debt (other than any indemnity
obligation for unasserted claims that by its terms survives the termination of the Credit Agreement), the Company shall cause the administrative and collateral agents under the Credit Agreement to
deliver to the Parent a pay-off letter (the "
Pay-off Letter
"), in form and substance reasonably satisfactory to the Parent, evidencing the satisfaction
of all liabilities under the Credit Agreement (other than any indemnity obligation for unasserted claims that by its terms survives the termination of the Credit Agreement) upon receipt of the amounts
set forth in such pay-off letter and a release in customary form of all Liens with respect to the capital stock, property and assets of the Company and its Subsidiaries securing the obligations under
the Credit Agreement. The term "
Debt Payment Expenses
" shall mean all costs, fees, expenses, prepayment penalties, breakage fees and other exit fees
payable in connection with the payment of Funded Debt. The term "
Funded Debt
" shall mean all liabilities and obligations of the Company and its
Subsidiaries for borrowed money pursuant to the Credit Agreement or the Indenture outstanding immediately prior to the Closing, together with all accrued but unpaid interest thereon immediately prior
to the Closing, and all prepayment penalties, breakage fees and other exit fees paid or payable in the event that such indebtedness is to be repaid as of the Closing (including, in the case of any
tender offer in respect of any notes issued pursuant to the Indenture, the aggregate consideration for the purchase of the notes accepted in such tender offer, including any consent fees (if
applicable)).
8.
CONDITIONS PRECEDENT
8.1
Conditions to Each Party's Obligation to Effect the Merger.
The respective
obligations of each party to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions:
(a)
Company Stockholder Approval.
This Agreement shall have been approved by the Company Required Vote.
(b)
Parent Stockholder Approval.
The Parent Stock Issuance shall have been approved by the Parent Required Vote.
(c)
HSR Compliance.
The applicable waiting period under the HSR Act shall have expired or been terminated.
(d)
FCC and State Regulatory Approvals.
All Consents or authorizations that are required to be obtained from the
FCC or any State Regulator and are set forth in
Section 8.1(d)
of the Company Disclosure Schedule or identified following the date hereof and on
or before February 17, 2017, notice of which will be promptly provided to the other parties hereto, in each case in connection with the transactions contemplated by this Agreement shall have
been obtained and shall be in full force and effect and shall be free of any conditions, statements or conclusions of fact or law adverse to any party hereto or their respective Affiliates which
conditions, statements or conclusions of fact or law would individually or, in the aggregate, result in a Company Material Adverse Effect or Parent Material Adverse Effect.
(e)
No Injunctions or Restraints; Illegality.
No order, injunction, statute, rule, regulation or decree shall
have been issued, enacted, entered, promulgated or enforced by a Governmental Entity that prohibits, precludes, restrains, enjoins or makes illegal the consummation of the Merger.
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(f)
Parent Registration Statement.
The Parent Registration Statement shall have been
declared effective by the SEC under the Securities Act and no stop order suspending the effectiveness of the Parent Registration Statement shall be in effect and no proceeding for such purpose shall
be pending before or, to the Knowledge of the Company or the Knowledge of Parent, threatened by the SEC.
(g)
NASDAQ Approval.
The shares of Parent Stock to be issued pursuant to this Agreement shall have been approved
for listing on the NASDAQ Global Select Market.
(h)
Statutes.
No statute, rule or regulation shall have been enacted or promulgated by any federal or state
Governmental Entity of competent jurisdiction which prohibits the consummation of the Merger.
8.2
Conditions to Obligations of Parent and Merger Sub.
The obligations of Parent
and Merger Sub to effect the Merger are also subject to the satisfaction or waiver at or prior to the Effective Time of the following conditions:
(a)
Representations and Warranties.
The representations and warranties of the Company set forth in this
Agreement shall be true and correct in all respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date
as though made on and as of the Closing Date;
provided
,
however
, that for purposes of determining the
satisfaction of this condition, no effect shall be given to any exception in such representations and warranties relating to materiality or a Company Material Adverse Effect, and instead, for purposes
of this condition, such representations and warranties shall be deemed to be true and correct in all respects unless the failure or failures of such representations and warranties to be so true and
correct, individually or in the aggregate, results or would result in a Company Material Adverse Effect. Parent shall have received a certificate signed on behalf of the Company by its Chief Executive
Officer and Chief Financial Officer to the foregoing effect.
(b)
Performance of Obligations of the Company.
The Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to the Closing Date, and Parent shall have received a certificate signed on behalf of the Company by its Chief Executive
Officer and Chief Financial Officer to such effect.
(c)
Parent Tax Opinion.
Parent shall have received the opinion of Schiff Hardin LLP, or other reputable
Tax counsel as is reasonably satisfactory to Parent and the Company, dated as of the Closing Date, to the effect that the Merger will qualify as a tax free reorganization within the meaning of
Section 368(a) of the Code. In rendering the opinion described in this
Section 8.2(c)
, the Tax counsel rendering such opinion shall have
received the certificates and may rely upon the representations referred to in
Section 7.12(b)
.
(d)
Minimum Cash Amount.
The aggregate amount of cash and cash equivalents held by the Company as of the
Effective Time shall be no less than $25,000,000.
8.3
Conditions to Obligations of the Company.
The obligation of the Company to
effect the Merger is also subject to the satisfaction or waiver at or prior to the Effective Time of the following conditions:
(a)
Representations and Warranties.
The representations and warranties of Parent and Merger Sub set forth in
this Agreement shall be true and correct in all respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date;
provided
,
however
, that for purposes of determining
the satisfaction of this condition, no effect shall be given to any exception in such representations and warranties relating to materiality or a Parent Material Adverse Effect;
provided
,
further
, that, for purposes of this condition, such representations and
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warranties
shall be deemed to be true and correct in all respects unless the failure or failures of such representations and warranties to be so true and correct, individually or in the aggregate,
results or would result in a Parent Material Adverse Effect. The Company shall have received a certificate signed on behalf of Parent by its Chief Executive Officer and Chief Financial Officer to the
foregoing effect.
(b)
Performance of Obligations of Parent and Merger Sub.
Each of Parent and Merger Sub shall have performed in
all material respects all of its respective obligations required to be performed by it under this Agreement at or prior to the Closing Date, and the Company shall have received a certificate signed on
behalf of Parent by its Chief Executive Officer and Chief Financial Officer to such effect.
(c)
Company Tax Opinion.
The Company shall have received the opinion of Paul Hastings LLP, or such other
reputable Tax counsel as is reasonably satisfactory to the Company and Parent, dated as of the Closing Date, to the effect that the Merger will qualify as a tax-free reorganization within the meaning
of Section 368(a) of the Code. In rendering the opinion described in this
Section 8.3(c)
, the Tax counsel rendering such opinion shall
have received the certificates and may rely upon the representations referred to in
Section 7.12(b)
.
9.
TERMINATION AND AMENDMENT
9.1
Termination.
This Agreement may be terminated and the Merger may be abandoned
at any time prior to the Effective Time by action taken or authorized by the Board of Directors of the terminating party or parties, notwithstanding any requisite approval of this Agreement by the
stockholders of the Company, and whether before or after the stockholders of the Company have approved this Agreement at the Company Stockholder Meeting, as follows (the date of any such termination,
the "
Termination Date
"):
(a) by
mutual consent of Parent and the Company in a written instrument, if the Board of Directors of each so determines;
(b) by
either Parent or the Company:
(i) if
any Governmental Entity of competent jurisdiction shall have issued a final nonappealable order which has the effect of making the consummation of the Merger illegal
or otherwise preventing or prohibiting the consummation of the Merger;
(ii) if
the Effective Time shall not have occurred on or before September 30, 2017 (the "
Outside Date
");
provided
,
however
, that if by the Outside Date, any of the conditions set forth in
Section 8.1(c)
or
Section 8.1(d)
shall
not have been satisfied but the conditions set
forth in
Section 8.1(a)
and
Section 8.1(b)
shall have been satisfied, the Outside Date may
be extended for one or more periods of up to thirty (30) days per extension by each of Parent and the Company, in its respective discretion, up to an aggregate extension so that the Outside
Date, as so extended, shall not be later than the twelve (12) month anniversary of the date hereof (in which case any references to the Outside Date herein shall mean the Outside Date as
extended); and
provided further
that the right to terminate this Agreement under this
Section 9.1(b)(ii)
shall not be available to a party whose
failure to fulfill any obligation under this Agreement materially contributed to the
failure of the Effective Time to occur on or before such date;
(iii) the
Company Stockholder Meeting shall have been held and completed (including any adjournments and postponements thereof), the Company stockholders shall have taken a
final vote on a proposal to adopt this Agreement and to approve the transactions contemplated hereby, and the Company Stockholder Approval shall not have been obtained; or
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(iv) if
any state or federal law, rule or regulation is adopted or issued that has the effect of making the consummation of the Merger illegal or otherwise preventing or
prohibiting the consummation of the Merger.
(c) by
the Company:
(i) if
it is not in material breach of this Agreement, and if (A) any of the representations and warranties of Parent and Merger Sub herein are or become untrue or
inaccurate such that the condition set forth in
Section 8.3(a)
would not be satisfied, or (B) there has been a breach on the part of
Parent or Merger Sub of any of their respective covenants or agreements herein such that the condition set forth in
Section 8.3(b)
would not be
satisfied, and, in either such case, such breach has not been, or cannot be, cured prior to the Outside Date (as such date may be extended pursuant to
Section 9.1(b)(ii)
) following receipt by
Parent of written notice of such breach or inaccuracy from Company;
(ii) under
the circumstances and to the extent permitted, and subject to the terms and conditions of,
Section 7.7
and
provided the Company Termination Fee referenced in
Section 9.2(a)
is concurrently paid by the Company to Parent; or
(iii) if
(A) conditions set forth in
Sections 8.1
and
8.2
(other than those conditions that by their nature are to be satisfied at the Closing) have been satisfied, (B) the Company has irrevocably confirmed in writing that (x) all of the
conditions set forth in
Sections 8.1
and
8.2
(other than those conditions that by their nature
are to be satisfied at the Closing) have been satisfied or have been waived by the Company and remain so satisfied or waived and (y) the Company is and remains prepared to consummate the
Closing, (C) Parent fails to consummate the Closing within two (2) Business Days following the date the Closing was required to have occurred pursuant to
Section 1.3
, and (D) the
Company stood ready, willing and able to consummate the Closing at all times during such two (2) Business
Day period (for the avoidance of doubt, it being understood that in accordance with the second proviso to
Section 9.1(b)(ii)
, during such two
(2) Business Day period immediately following the date on which the Company has provided written notice in accordance with this
Section 9.1(c)(iii)
, Parent shall not be entitled to terminate
this Agreement pursuant to
Section 9.1(b)(ii)
).
(d) by
Parent:
(i) if
it is not in material breach of this Agreement, and if (A) any of the representations and warranties of the Company herein are or become untrue or incorrect
such that the condition set forth in
Section 8.2(a)
would not be satisfied, or (B) there has been a breach on the part of the Company of
any of its covenants or agreements herein such that the condition set forth in
Section 8.2(b)
would not be satisfied, and, in either such case,
such breach has not been, or cannot be, cured prior to the Outside Date (as such date may be extended pursuant to
Section 9.1(b)(ii)
) following
receipt by Company of written notice of such breach or inaccuracy from Parent; or
(ii) if
(A) the Company Board shall have failed to include the Company Recommendation in the Proxy Statement/Prospectus or shall have effected a Company
Recommendation Change, (B) the Company Board shall have approved or recommended, or proposed publicly to approve or recommend, any Alternative Acquisition Agreement, Alternative Proposal or any
Superior Proposal other than this Agreement, and/or permitted the Company to enter into an Alternative Acquisition Agreement related to an Alternative Proposal or a Superior Proposal, (C) the
Company shall have failed to call the Company Stockholder Meeting in accordance with
Section 7.3
or shall have failed to deliver the Proxy
Statement/Prospectus in accordance with
Section 7.1
in material breach of such Sections and such failure shall not be due to any material breach
by Parent or Merger Sub of their
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obligations
under
Section 7.1
, or (D) a tender offer or exchange offer for outstanding shares of Common Stock shall have been commenced
(other than by Parent or Merger Sub or their respective Affiliates) and the Company Board recommends that the stockholders of the Company tender their shares in such tender or exchange offer or within
ten (10) Business Days after the commencement of such tender or exchange offer, the Company Board fails to recommend rejection (or subsequently modifies a recommendation of rejection) of such
offer.
9.2
Effect of Termination.
(a) Notwithstanding
any provision of this Agreement to the contrary, if:
(i) (A)
this Agreement is validly terminated pursuant to
Section 9.1(b)(ii)
,
Section 9.1(b)(iii)
or
Section 9.1(d)(i)
(due in any such case to a breach of
Section 7.7
), (B) following the execution and delivery of this Agreement and in the case of a termination pursuant to
Section 9.1(b)(ii)
or
Section 9.1(d)(i)
, prior to such termination, and in the case of a
termination pursuant to
Section 9.1(b)(iii)
, prior to the Company Meeting, any bona fide Alternative Proposal (substituting fifty percent (50%)
for the twenty percent (20%) thresholds set forth in the definition of "Alternative Proposal") (a "
Qualifying Transaction
") shall have been communicated
to the Company or a member of the Company Board (whether or not publicly disclosed) and not withdrawn or otherwise abandoned (and, if publicly disclosed, not publicly withdrawn or otherwise abandoned)
and (C) within twelve (12) months following the termination of this Agreement pursuant to
Section 9.1(b)(ii)
,
Section 9.1(b)(iii)
or
Section 9.1(d)(i)
, as applicable, a Qualifying Transaction is
consummated; or
(ii) this
Agreement is terminated by the Company pursuant to
Section 9.1(c)(ii)
or by Parent pursuant to
Section 9.1(d)(ii)
, then in any such event the
Company shall pay to Parent (or a Person designated in writing by Parent) by wire transfer of
same-day funds a fee equal to the Company Termination Fee. "
Company Termination Fee
" shall mean an amount equal to $18,900,000. Such payment shall be
made, in the case of a termination referenced in clause (i) above, upon the consummation of any Qualifying Transaction, or in the case of a termination referenced in clause (ii) above,
concurrently with the termination of this Agreement by the Company pursuant to
Section 9.1(c)(ii)
or within two (2) Business Days after
termination of this Agreement by Parent pursuant to
Section 9.1(d)(ii)
. For the avoidance of doubt, in no event shall the Company be required to
pay the Company Termination Fee on more than one occasion.
(b) Notwithstanding
any provision of this Agreement to the contrary, if this Agreement is terminated by the Company pursuant to
Section 9.1(c)(iii)
, then Parent shall pay to the Company (or a Person designated in
writing by the Company) by wire transfer of same-day funds a
fee equal to the Parent Termination Fee. "
Parent Termination Fee
" shall mean an amount equal to $18,900,000. Such payment shall be made within two
(2) Business Days after termination of this Agreement by the Company pursuant to
Section 9.1(c)(iii)
.
(c) Notwithstanding
anything to the contrary in this Agreement, in the circumstances in which the Company Termination Fee is or becomes payable pursuant to
Section 9.2(a)
, Parent's and Merger Sub's sole and exclusive
remedy (whether at law, in equity, in contract, in tort or otherwise) against the
Company or any of its Affiliates with respect to the facts and circumstances giving rise to such payment obligation shall be payment of the Company Termination Fee pursuant to
Section 9.2(a)
, and
upon payment in full of such amount, none of Parent nor Merger Sub or any of their respective Affiliates nor any other Person
shall have any rights or claims against the Company or any of its Affiliates (whether at law, in equity, in contract, in tort or otherwise) under or relating to this Agreement or the transactions
contemplated hereby. Notwithstanding anything to the contrary in this Agreement, if the Company fails to promptly pay Parent any amounts due under
Section 9.2(a)
, the Company shall pay the costs
and expenses (including reasonable legal
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fees
and expenses) in connection with any action, including the filing of any lawsuit or other legal action, taken to collect payment, together with interest on the amount of any unpaid fee or
obligation at the publicly announced prime rate of Wells Fargo Bank, N.A. in effect from time to time from the date such fee or obligation was required to be paid.
(d) Notwithstanding
anything to the contrary in this Agreement, in the circumstances in which the Parent Termination Fee is or becomes payable pursuant to
Section 9.2(b)
, the Company's sole and exclusive remedy
(whether at law, in equity, in contract, in tort or otherwise) against Parent, the
Financing Sources or any of their respective Affiliates with respect to the facts and circumstances giving rise to such payment obligation shall be payment of the Parent Termination Fee pursuant to
Section 9.2(b)
, and upon payment in full of such amount, neither the Company nor any of its Affiliates nor any other Person shall have any rights
or claims against Parent, the Financing Sources or any of their respective Affiliates (whether at law, in equity, in contract, in tort or otherwise) under or relating to this Agreement, the Debt
Financing or the transactions contemplated hereby. Notwithstanding anything to the contrary in this Agreement, if Parent fails to promptly pay the Company any amounts due under
Section 9.2(b)
,
Parent (but not, for the avoidance of doubt, the Financing Sources) shall pay the costs and expenses (including reasonable legal
fees and expenses) in connection with any action, including the filing of any lawsuit or other legal action, taken to collect payment, together with interest
on the amount of any unpaid fee or obligation at the publicly announced prime rate of Wells Fargo Bank, N.A. in effect from time to time from the date such fee or obligation was required to be paid.
(e) The
parties acknowledge that the agreements contained in this
Section 9.2
are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, the parties would not enter into this Agreement. The parties acknowledge that the Company Termination Fee and the Parent Termination
Fee, in the circumstances in which any such fee becomes payable, constitute liquidated damages and are not a penalty.
(f) There
shall be deducted from any payments made pursuant to this
Section 9.2
such amounts as may be required to be
withheld therefrom under the Code or under any provision of U.S. state or local tax law.
(g) The
party seeking to terminate this Agreement pursuant to
Section 9.1
(other than
Section 9.1(a)
) shall give written notice of such termination,
including a description in reasonable detail of the reasons for such termination,
to the other party in accordance with
Section 10.3
, specifying the provision or provisions hereof pursuant to which such termination is effected.
Except as otherwise provided in this
Section 9
, any valid termination of this Agreement pursuant to
Section 9.1
(other than
Section 9.1(a)
) shall be effective immediately upon the delivery
of notice of the terminating party to the other party or parties hereto, as applicable. In the event of termination of this Agreement by either Parent or the Company as provided in
Section 9.1
,
this Agreement shall forthwith become void and have no effect, and none of Parent, Merger Sub, the Company, the Financing Sources,
any of their respective Subsidiaries or any of the officers or directors of any of them shall have any liability of any nature whatsoever hereunder, or in connection with the transactions contemplated
hereby (including any liability for or any obligation to pay any consequential, special, multiple, punitive or exemplary damages, including damages arising from loss of profits, business opportunities
or goodwill, in respect of any breach or failure to comply with this Agreement, any related documentation or in respect of any of the transactions contemplated hereby or thereby (including the Merger
and Debt Financing));
provided, however
, that (i)
Sections 7.2(b)
,
9.2
and
10
shall survive any termination of this Agreement and (ii) notwithstanding anything to
the contrary contained in this Agreement, none of Parent, Merger Sub nor the Company shall be relieved or released from any liabilities or damages arising out of its willful and material breach of
this Agreement.
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9.3
Amendment.
Subject to compliance with applicable law, this Agreement may be
amended by the parties hereto, by action taken or authorized by their respective boards of directors, at any time before the Effective Time;
provided
,
however
, that after receipt of the Company Required Vote, there may not be any amendment of this Agreement which, by applicable law or in accordance
with the rules of any relevant stock exchange, requires further approval of the Company's stockholders. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto. Notwithstanding anything to the contrary contained herein,
Sections 9.2(d)
and
(g)
, this
Section 9.3
,
Sections 10.8
,
10.11
and
10.12
(and any provision
and/or definition of this Agreement to the extent an amendment,
supplement, waiver or modification of such provision and/or definition would modify the substance of any of the foregoing provisions) may not be amended, supplemented, waived or otherwise modified in
a manner that is materially adverse to any Financing Sources without the prior written consent of such Financing Sources.
9.4
Extension; Waiver.
At any time prior to the Effective Time, the parties hereto
may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained herein;
provided
,
however
, that, after receipt of the Company Required Vote, there may not be any extension or
waiver of this Agreement which decreases the Merger Consideration or which adversely affects the rights of the Company's stockholders hereunder without the approval of such stockholders. Any agreement
on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party, 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.
10.
GENERAL PROVISIONS
10.1
Nonsurvival of Representations, Warranties and Agreements.
None of the
representations, warranties, covenants and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time, except for those covenants and
agreements contained herein and therein which by their terms apply in whole or in part after the Effective Time.
10.2
Expenses.
Except as otherwise provided in this Agreement, all costs and
expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense, except that each of the Company and Parent shall bear
and pay one-half of the costs and expenses incurred in connection with the filing and fees paid in respect of any HSR Act or other regulatory filings, including filings made with the FCC or State
Regulators.
10.3
Notices.
All notices and other communications hereunder shall be in writing
and shall be deemed duly delivered (a) on the date of actual delivery if delivered personally (with written confirmation of receipt), (b) four (4) Business Days after being sent
by registered or certified mail, return receipt requested, postage prepaid, (c) one (1) Business Day after being sent for next Business Day delivery, fees prepaid, via a reputable
nationwide overnight courier service, or (d) on the date of confirmation of receipt (or the first (1st) Business Day following such receipt if the date of such receipt is not a Business Day) of
transmission by facsimile, in each case to the intended recipient as set forth
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below
(or to such other address or facsimile number as such party shall have specified in a written notice duly delivered to the other parties hereto):
|
|
|
|
|
(a)
|
|
if to Parent or Merger Sub, to:
|
|
|
Consolidated Communications Holdings, Inc.
121 South 17
th
Street
Mattoon, Illinois 61938
Attention: Steven J. Shirar
Facsimile No: (217) 234-9934
|
|
|
with a copy to:
|
|
|
Schiff Hardin LLP
233 South Wacker Drive
Suite 6600
Chicago, IL 60606
Attention: Alexander B. Young
Facsimile: (312) 258-5600
|
(b)
|
|
if to the Company, to:
|
|
|
FairPoint Communications, Inc.
521 East Morehead Street
Suite 500
Charlotte, NC 28202
Attention: Bruce Metge
Facsimile No: (704) 344-1594
|
|
|
with a copy to:
|
|
|
Paul Hastings LLP
1170 Peachtree Street, N.E.
Suite 100
Atlanta, GA 30309
Attention: Elizabeth H. Noe
Facsimile: (404) 685-5287
|
10.4
Interpretation; Construction.
The words "hereof," "herein" and "hereunder"
and words of similar import when used in this Agreement shall refer to this Agreement as a whole and the schedules hereto and not to any particular provision of this Agreement, and Section references
are to this Agreement unless otherwise specified. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without
limitation." Unless the context otherwise requires, "or" is not exclusive. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to
the masculine as well as to the feminine and neuter genders of such term. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. No provision of this Agreement shall be construed to require the Company, Merger Sub, Parent or any of their respective officers, directors,
Subsidiaries or Affiliates to take any action which would violate or conflict with any applicable law (whether statutory or common), rule or regulation. This Agreement shall be construed without
regard to any presumption or interpretation against the party drafting or causing any instrument to be drafted. All schedules accompanying this Agreement and all information specifically referenced in
any such schedule form an integral part of this Agreement, and references to this Agreement include reference to them.
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10.5
Counterparts; Delivery.
This Agreement may be executed in multiple original,
PDF or facsimile counterparts, each of which shall be deemed an original, and all of which taken together shall be considered one and the same agreement. Each executed signature page to this Agreement
and to each agreement and certificate delivered by a party hereto pursuant to this Agreement may be delivered by any of the methods described in
Section 10.3
hereof, provided that such delivery is
effected in accordance with the notice information provided for in
Section 10.3
hereof. In the event that any signature to this Agreement or any agreement or certificate delivered pursuant hereto,
or any
amendment thereof, is delivered by facsimile transmission or by e-mail delivery of a ".pdf" format data file, such signature shall create a valid and binding obligation of the party executing (or on
whose behalf such signature is executed) with the same force and effect as if such facsimile or ".pdf" signature page were an original thereof. No party hereto shall raise the use of a facsimile
machine or e-mail delivery of a ".pdf" format data file to deliver any such signature page or the fact that such signature was transmitted or communicated through the use of a facsimile machine or
e-mail delivery of a ".pdf" format data file as a defense to the formation or enforceability of a contract and each party hereto forever waives any such defense.
10.6
Entire Agreement.
This Agreement (together with the exhibits hereto), the
Company Disclosure Schedule and the Parent Disclosure Schedule constitute the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, other than the Confidentiality Agreement, which shall survive the execution and delivery of this Agreement and any termination of this Agreement.
10.7
Specific Performance.
The parties acknowledge and agree that irreparable
damage for which monetary damages, even if available, would not be an adequate remedy, would occur in the event that the parties hereto do not perform the provisions of this Agreement (including
failing to take such actions as are required of it hereunder to consummate this Agreement) in accordance with its specified terms or otherwise breach such provisions and that, accordingly, the parties
shall be entitled to an injunction, specific performance and other equitable relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, in addition to
any other remedy to which they are entitled at law or in equity. Each of the parties agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief
sought in accordance with this
Section 10.7
on the basis that any other party has an adequate remedy at law or that any award of specific
performance is not an appropriate remedy for any reason at law or in equity. Any party seeking an injunction or injunctions in accordance with this Agreement to prevent breaches of this Agreement and
to enforce specifically the terms and provisions of this Agreement shall not be required to provide any bond or other security in connection with any such order or injunction.
10.8
Governing Law; Venue.
This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without regard to any applicable conflicts of law provisions (except to the extent of mandatory provisions of federal law). Each of the parties
hereto irrevocably submit to the exclusive jurisdiction and venue of the courts of the State of Delaware or of the United States of America, for the purpose of any suit, action or other proceeding
arising out of this Agreement, or any of the agreements or transactions contemplated hereby, which is brought by or against any other party hereto and hereby irrevocably agree (a) that all
claims in respect of any such suit, action or proceeding may be heard and determined in any such court and (b) not to commence any action suit or proceeding relating to this Agreement other
than in such court. Each party hereto irrevocably and unconditionally waives and agrees not to assert in any such suit, action or proceeding, in each case, to the fullest extent permitted by
applicable law, (i) any objection to the laying of venue of any such suit, action or proceeding brought in any such court, (ii) any claim that such party is not personally subject to the
jurisdiction of any such court, and (iii) any claim that any such suit, action or proceeding is brought in an inconvenient forum. Each party hereto agrees that service of any process, summons,
notice or document by U.S. registered mail addressed to such party shall be effective service
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of
process for any action, suit or proceeding brought against such party in any such court. Each party hereto agrees that a final judgment in any such suit, action or proceeding brought in any such
court shall be conclusive and binding upon such party and may be enforced in any other courts to whose jurisdiction such party is or may be subject, by suit upon such judgment. Notwithstanding
anything to the contrary in this
Section 10.8
, each Company Related Party (as defined below) agrees that, except as specifically set forth in the
Debt Financing, all actions, including any action, cause of action, claim, cross-claim or third-party claim of any kind or description, whether in law or in equity, whether in contract or in tort or
otherwise, against any of the Financing Sources in any way relating to this Agreement or any of the transactions contemplated hereby, including any dispute arising out of or relating in any way to any
agreement entered into by the Financing Sources in connection with the Debt Commitment Letter or the performance thereof or the financings contemplated thereby, shall be
exclusively governed by, and construed in accordance with, the internal laws of the State of New York, without giving effect to principles or rules or conflict of laws to the extent such principles or
rules would require or permit the application of law of another jurisdiction. Furthermore and notwithstanding anything to the contrary in this
Section 10.8
, each Company Related Party
(i) agrees that it will not bring or support any action, including any action, cause of action,
claim, cross-claim or third-party claim of any kind or description, whether in law or in equity, whether in contract or in tort or otherwise, against any of the Financing Sources in any way relating
to this Agreement or any of the transactions contemplated hereby, including any dispute arising out of or relating in any way to any agreement entered into by the Financing Sources in connection with
the Debt Commitment Letter or the performance thereof or the financings contemplated thereby, in any forum other than the Supreme Court of the State of New York, County of New York, or, if under
applicable Law exclusive jurisdiction is vested in the federal courts, the United States District Court for the Southern District of New York (and appellate courts thereof), (ii) submits for
itself and its property with respect to any such action to the exclusive jurisdiction of such courts, (iii) agrees that service of process, summons, notice or document by registered mail
addressed to it at its address provided in
Section 10.3
shall be effective service of process against it for any such action brought in any such
court, (iv) waives and hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of, and the defense of an
inconvenient forum to the maintenance of, any such action in any such court and (v) agrees that a final judgment in any such action shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law. The parties hereto further agree that all of the provisions of
Section 10.12
relating to waiver of jury trial shall
apply to any action, cause of action, claim, cross-claim or third-party claim referenced in
this
Section 10.8
. "
Company Related Party
" means the Company and each of its Subsidiaries.
10.9
Severability.
Any term or provision of this Agreement which is determined by
a court of competent jurisdiction to be invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other
jurisdiction, and if any provision of this Agreement is determined to be so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable, in all cases so long
as neither the economic nor legal substance of the transactions contemplated hereby is affected in any manner materially adverse to any party or its stockholders. Upon any such determination, the
parties shall negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the parties.
10.10
Publicity.
Parent, Merger Sub and the Company shall consult with each
other before issuing any press release with respect to the Merger or this Agreement and shall not issue any such press release or make any such public statement without the prior consent of the other
party, which shall not be unreasonably withheld or delayed;
provided
,
however
, that a party may, without
the prior consent of the other party (but after prior consultation, to the extent practicable in the circumstances)
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issue
such press release or make such public statement or SEC filing as may upon the advice of outside counsel be required by law or the rules and regulations of any applicable stock exchange
(including the NASDAQ Stock Market). The parties have agreed upon the form of a joint press release announcing the Merger and the execution of this Agreement.
10.11
Assignment; Third Party Beneficiaries.
Neither this Agreement nor any of
the rights, interests or obligations of any party hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other
party. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns. Except
for (a) the provisions of
Section 7.6
, (b) the right of the Company's stockholders to receive the Merger Consideration at the
Effective Time, (c) the right of the holders of Company Equity Awards to receive the Equity Award Consideration in accordance with
Section 2.3
, (d) the rights of the Company's stockholders
to pursue claims for damages and other relief, including equitable relief, for Parent's or Merger Sub's
willful breach of this Agreement (provided, that the rights granted pursuant to this clause (d) shall be enforceable on behalf of the stockholders only by the Company in its sole and absolute
discretion) and (e) the rights of the Financing Sources set forth in
Section 10.8
, this Agreement (including the documents and instruments
referred to herein) is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder; provided, however, that the Financing Sources are hereby made express
third-party beneficiaries of
Sections 9.2(b), (d)
and
(g), Section 9.3
, ,
this
Section 10.11
and
Section 10.12
.
10.12
Waiver of Jury Trial.
EACH COMPANY RELATED PARTY HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREBY, ANY DEBT FINANCING OR ANY OF THE OTHER TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, INCLUDING IN ANY ACTION PROCEEDING OR COUNTERCLAIM AGAINST ANY
FINANCING SOURCE.
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this Agreement to be executed by their respective officers hereunto duly authorized.
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FAIRPOINT COMMUNICATIONS, INC.
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By:
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/s/ PAUL H. SUNU
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Name:
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Paul H. Sunu
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Title:
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Chief Executive Officer
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CONSOLIDATED COMMUNICATIONS
HOLDINGS, INC.
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By:
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/s/ C. ROBERT UDELL, JR.
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Name:
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C. Robert Udell, Jr.
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Title:
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President and CEO
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FALCON MERGER SUB, INC.
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By:
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/s/ C. ROBERT UDELL, JR.
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Name:
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C. Robert Udell, Jr.
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Title:
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President and CEO
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Exhibit A
Form of Tenth Amended and Restated Certificate of Incorporation
TENTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FAIRPOINT COMMUNICATIONS, INC.
FairPoint Communications, Inc., a corporation organized and existing under the laws of the State of Delaware (the
"
Corporation
"), hereby certifies as follows:
A. The
name of the Corporation is FairPoint Communications, Inc. The Corporation was originally incorporated under the name "MJD Communications, Inc." and
filed its original Certificate of Incorporation with the Secretary of State of the State of Delaware on June 30, 1993. The Corporation filed Certificates of Amendment with the Secretary of
State of the State of Delaware on June 6, 1996, November 24, 1998 and January 28, 2005. The Corporation filed restatements of its Certificate of Incorporation with the Secretary
of State of the State of Delaware on July 1, 1994, July 31, 1997, March 26, 1998, October 20, 1999, January 19, 2000, April 28, 2000, May 10, 2002,
February 8, 2005 and January 24, 2011.
B. In
accordance with Sections 242 and 245 of the Delaware General Corporation Law, the Corporation hereby amends and restates its Certificate of Incorporation as
follows:
1.
The
name of the Corporation is FairPoint Communications, Inc.
2.
The
address of its registered agent in the State of Delaware is in the County of Kent at 850 New Burton Road, Suite 201, Dover, Delaware 19904. The name of its registered agent at
such address is National Corporate Research, Ltd.
3.
The
purpose for which the Corporation is organized is to engage in any lawful activity for which corporations may be organized under the General Corporation Law of Delaware, and the
Corporation shall have all powers necessary to engage in such acts or activities, including, but not limited to, the powers enumerated in the General Corporation Law of Delaware or any amendment
thereto.
4.
The
total number of shares of stock which the Corporation shall have authority to issue is one hundred shares (100), all of which shall be common stock of $.01 par value.
5.
The
business and affairs of the Corporation shall be managed by the Board of Directors, and the directors need not be elected by ballot unless required by the Bylaws of the Corporation.
6.
The
Board of Directors is expressly authorized to adopt, amend or repeal the Bylaws of the Corporation.
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7.
The
Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute,
and all rights conferred upon stockholders here are granted subject to this reservation.
IN WITNESS WHEREOF
, the undersigned has executed this Tenth Amended and Restated Certificate of Incorporation on this
[•] day of [•], 2016.
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FAIRPOINT COMMUNICATIONS, INC.
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By:
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Name:
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Title:
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EXECUTION VERSION
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "
First Amendment
") is entered into as
of the 20th day of January, 2017, by and among Consolidated Communications Holdings, Inc., a Delaware corporation ("
Parent
"), FairPoint
Communications, Inc., a Delaware corporation (the "
Company
"), and Falcon Merger Sub, Inc., a Delaware corporation and a wholly owned
subsidiary of Parent ("
Merger Sub
").
WHEREAS
, Parent, the Company and Merger Sub are parties to that certain Agreement and Plan of Merger, dated as of December 3, 2016
(the "
Agreement
"), pursuant to the terms of which, among other things, Parent would acquire the Company through the statutory merger of Merger Sub with
and into the Company, whereupon the separate corporate existence of Merger Sub shall cease, and the Company shall be the surviving corporation;
WHERAS
, pursuant to
Section 9.3
of the Agreement, the Agreement may be amended by
the parties thereto, by action taken or authorized by their respective boards of directors, at any time before the Effective Time (as such term is defined in the Agreement); and
WHEREAS
, Parent, the Company and Merger Sub desire to amend the Agreement as provided herein.
NOW, THEREFORE
, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein, and
intending to be legally bound hereby, the parties hereto hereby agree as follows:
1.
Amendment
.
Exhibit A
of the Agreement shall be, and
hereby is, amended in its entirety and restated as
Exhibit A
attached hereto.
2.
Ratification
. As amended by this First Amendment, the Agreement is in all respects ratified and confirmed,
and as so amended by this First Amendment, the Agreement shall be read, taken and construed as one and the same instrument. Upon the execution of this First Amendment, each reference in the First
Agreement or the Agreement to "this Agreement," "hereby," "hereunder," "herein," "hereof" or words of like import referring to the Agreement shall mean and refer to the Agreement as amended by this
First Amendment. Any and all notices, requests, certificates and other instruments executed and delivered prior to, on or after the date of this First Amendment may refer to the Agreement without
making specific reference to this First Amendment, but nevertheless all references to the Agreement shall be a reference to such document as amended hereby.
3.
Governing Law
. This First Amendment shall be governed and construed in accordance with the laws of the State
of Delaware, without regard to any applicable conflicts of law provisions (except to the extent of mandatory provisions of federal law).
4.
Counterparts
. This First Amendment may be executed in multiple original, PDF or facsimile counterparts, each
of which shall be deemed an original, and all of which taken together shall be considered one and the same agreement. Each executed signature page to this First Amendment and to each agreement and
certificate delivered by a party hereto pursuant to this First Amendment may be delivered by any of the methods described in
Section 10.3
of the
Agreement, provided that such delivery is effected in accordance with the notice information provided for in
Section 10.3
of the Agreement. In
the event that any signature to this First Amendment or any agreement or certificate delivered
pursuant hereto, or any amendment thereof, is delivered by facsimile transmission or by e-mail delivery of a ".pdf" format data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or ".pdf" signature page were an original thereof. No party hereto shall raise the
use of a facsimile machine or e-mail delivery of a ".pdf" format data file to deliver any such signature page or the fact that such signature was transmitted or communicated through the use of a
facsimile machine or e-mail delivery of a ".pdf" format data file as a defense to the formation or enforceability of a contract and each party hereto forever waives any such defense.
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this First Amendment to be executed by their respective officers hereunto duly authorized.
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FAIRPOINT COMMUNICATIONS, INC.
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By:
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/s/ PAUL H. SUNU
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Name:
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Paul H. Sunu
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Title:
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Chief Executive Officer
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CONSOLIDATED COMMUNICATIONS
HOLDINGS, INC.
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By:
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/s/ C. ROBERT UDELL, JR.
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Name:
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C. Robert Udell, Jr.
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Title:
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President and CEO
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FALCON MERGER SUB, INC.
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By:
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/s/ C. ROBERT UDELL, JR.
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Name:
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C. Robert Udell, Jr.
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Title:
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President and CEO
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Table of Contents
Exhibit A
Form of Tenth Amended and Restated Certificate of Incorporation
TENTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FAIRPOINT COMMUNICATIONS, INC.
FairPoint Communications, Inc., a corporation organized and existing under the laws of the State of Delaware (the
"
Corporation
"), hereby certifies as follows:
A. The
name of the Corporation is FairPoint Communications, Inc. The Corporation was originally incorporated under the name "MJD Communications, Inc." and
filed its original Certificate of Incorporation with the Secretary of State of the State of Delaware on June 30, 1993. The Corporation filed Certificates of Amendment with the Secretary of
State of the State of Delaware on June 6, 1996, November 24, 1998 and January 28, 2005. The Corporation filed restatements of its Certificate of Incorporation with the Secretary
of State of the State of Delaware on July 1, 1994, July 31, 1997, March 26, 1998, October 20, 1999, January 19, 2000, April 28, 2000, May 10, 2002,
February 8, 2005 and January 24, 2011.
B. In
accordance with Sections 242 and 245 of the Delaware General Corporation Law, the Corporation hereby amends and restates its Certificate of Incorporation as
follows:
1.
Name.
The name of the Corporation is FairPoint Communications, Inc.
2.
Registered Agent.
The address of its registered agent in the State of Delaware is in
the County of Kent at 850 New Burton Road, Suite 201, Dover, Delaware 19904. The name of its registered agent at such address is National Corporate Research, Ltd.
3.
Purpose.
The purpose for which the Corporation is organized is to engage in any
lawful activity for which corporations may be organized under the General Corporation Law of Delaware ("
DGCL
"), and the Corporation shall have all
powers necessary to engage in such acts or activities, including, but not limited to, the powers enumerated in the DGCL or any amendment thereto.
4.
Authorized Stock.
The total number of shares of stock which the Corporation shall
have authority to issue is one hundred shares (100), all of which shall be common stock of par value $.01 per share.
5.
Management of the Business and Conduct of the Affairs of the Corporation.
The
following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation and for the purpose of creating, defining, limiting and regulating the powers
of the Corporation and its directors and stockholders.
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(a)
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The
business and affairs of the Corporation shall be managed by or under the directions of the Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things, except as may otherwise be provided in the DGCL or elsewhere herein.
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(b)
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Subject
to the terms of paragraph (d) of this Section 5, the number of directors constituting the Board of Directors shall be as set forth in the
by-laws of the Corporation, or determined by the Board of Directors by resolution adopted by the Board of Directors in accordance with the by-laws of the Corporation, but shall not be less than five
nor more than eleven.
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(c)
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Subject
to the terms of paragraph (d) of this Section, directors shall be elected by a plurality of the votes cast at the annual meetings of stockholders, or
at a special meeting of stockholders called for (or including) such purpose, and each director so elected shall hold office until the next annual meeting of stockholders and until such director's
successor is duly elected and qualified, or until such director's earlier death, resignation or removal.
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(d)
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Under
and in accordance with the reorganization proceeding styled FairPoint Communications, Inc., et al, Case No. 09-16335 (BRL) which confirmed the
Debtors' Third Amended Joint Plan of Reorganization, the initial Board of Directors after the date of this Certificate of Incorporation (the "
Initial Board of
Directors
") shall consist of seven members. Each director on the Initial Board of Directors shall serve until the next annual meeting of stockholders following the one-year
anniversary of the effective date of the Joint Plan of Reorganization and until such director's successor is duly elected and qualified, or until such director's earlier death, resignation or removal.
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(e)
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Advance
notice of nominations by stockholders for the election of directors, and of stockholder proposals regarding action to be taken at any meeting of
stockholders, shall be given in the manner and to the extent provided in the by-laws of the Corporation.
6.
By-laws.
In furtherance and not in limitation of the powers conferred by law, the
Board of Directors is expressly authorized to alter, amend and repeal the by-laws of the Corporation without a stockholder vote, subject to the power of the stockholders to alter, amend or repeal the
by-laws;
provided
, that with respect to the powers of stockholders to alter, amend or repeal the by-laws, the affirmative vote of the holders of at
least a majority in voting power of all the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be
required to alter, amend or repeal the by-laws of the Corporation,
provided
that the affirmative vote of the holders of at least two-thirds in such
voting power shall be required to alter, amend or repeal certain provisions of the by-laws as provided therein on the date of the Corporation's Ninth Amended and Restated Certificate of Incorporation.
7.
Exoneration.
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(a)
-
The
personal liability of the directors of the Corporation is hereby eliminated to the fullest extent permitted by the DGCL, including, without limitation,
paragraph (7) of subsection (b) of Section 102 thereof, as the same may be amended or supplemented. If the DGCL is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
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(b)
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Any
repeal or modification of Section 7(a) hereof shall be prospective only, and shall not adversely affect any elimination or limitation of the personal
liability of a director of the Corporation in respect of any act or omission occurring prior to the time of such repeal or modification.
8.
Stockholder Action.
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(a)
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Any
action required or permitted to be taken by the holders of the Common Stock of the Corporation must be effected at a duly called annual or special meeting of
such holders and may not be effected by any consent in writing by such holders.
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(b)
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Except
as otherwise required by law and subject to the rights of the holders of any series of Preferred Stock, special meetings of stockholders of the Corporation
may be called only by:
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(i)
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the
Chairman of the Board of Directors,
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(ii)
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the
Lead Director, if any, of the Board of Directors,
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(iii)
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the
Board of Directors, or
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(iv)
-
the
Secretary of the Corporation upon a request by the holders of at least 25% in voting power of all outstanding shares of the Corporation entitled to vote at such
meeting.
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(c)
-
Meetings
of stockholders may be held within or without the State of Delaware, as the by-laws of the Corporation may provide.
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(d)
-
The
books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated by the Board of Directors or in the by-laws of
the Corporation.
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(e)
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Elections
of directors need not be by written ballot.
9.
Quorum at stockholder meetings.
The holder of one-third in voting power of the
capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of
business, except that the holders of a majority in voting power of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be required
to constitute a quorum for:
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(a)
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a
vote for any director in a contested election,
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(b)
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the
removal of a director, or
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(c)
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the
filling of a vacancy on the Board of Directors by the stockholders of the Corporation.
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IN WITNESS WHEREOF
, the undersigned has executed this Tenth Amended and Restated Certificate of Incorporation on this
[•] day of [•], 2017.
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FAIRPOINT COMMUNICATIONS, INC.
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By:
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Name:
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Title:
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Annex II
Fairness Opinion of Evercore Group, L.L.C.
December 3,
2016
The
Board of Directors
FairPoint Communications, Inc.
521 E. Morehead Street, Suite 500
Charlotte, NC 28202
Members
of the Board of Directors:
We
understand that FairPoint Communications, Inc., a Delaware corporation (the "
Company
"), proposes to enter into an Agreement and
Plan of Merger (the "
Merger Agreement
"), with Consolidated Communications, Inc., a Delaware corporation
("
Parent
") and Falcon Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent ("
Merger
Sub
"), pursuant to which Merger Sub will merge with and into the Company, with the Company as the surviving entity (the "
Surviving
Company
"), as a result of which the Surviving Company will become a wholly owned subsidiary of Parent (the "
Merger
"). As a
result of the Merger, among other things, each share of common stock, par value $0.01 per share, of the Company (the "
Company Common Stock
"), other than
Excluded Shares and Dissenting Shares (each as defined in the Merger Agreement), issued and outstanding immediately prior to the Effective Time will be converted into and become the right to receive
0.73 (the "
Exchange Ratio
") validly issued, fully paid and nonassessable shares of common stock, par value $0.01 per share, of Parent (the
"
Parent Stock
"), subject to adjustment in accordance with the Merger Agreement (such per share amount, together with any cash in lieu of fractional
shares of Parent Stock to be paid pursuant to the Merger Agreement, the "
Merger Consideration
"). The terms and conditions of the Merger are more fully
set forth in the Merger Agreement and terms used herein and not defined shall have the meanings ascribed thereto in the Merger Agreement.
The
Board of Directors of the Company has asked us whether, in our opinion, the Exchange Ratio is fair, from a financial point of view, to the holders of the shares of the Company Common
Stock, other than holders of Excluded Shares or Dissenting Shares.
In
connection with rendering our opinion, we have, among other things:
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i.
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reviewed
certain publicly available business and financial information relating to the Company and Parent that we deemed to be relevant, including publicly available
research analysts' estimates;
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ii.
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reviewed
certain non-public historical financial statements and other non-public historical financial and operating data relating to each of the Company and Parent
prepared and furnished to us by the management of the Company and Parent, respectively;
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iii.
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reviewed
certain non-public projected financial and operating data relating to the Company prepared and furnished to us by the management of the Company;
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iv.
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reviewed
certain non-public projected financial and operating data relating to Parent prepared and furnished to us by the management of Parent;
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v.
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reviewed
the amount and timing of the cost savings estimated by the management of the Company and the management of Parent to result from the Merger (collectively,
the "Synergies");
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vi.
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reviewed
the amount, timing and use of certain tax attributes of the Company and the combined company, as estimated by the management of the Company and the
management of Parent;
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vii.
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discussed
the past and current operations, financial projections and current financial condition of each of the Company and Parent with the management of the
Company (including their views on the risks and uncertainties of achieving such projections);
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viii.
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reviewed
the reported prices and the historical trading activity of each of the Company Common Stock and the Parent Stock;
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ix.
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compared
the financial performance of each of the Company and Parent and their respective stock market trading multiples with those of certain other publicly traded
companies that we deemed relevant;
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x.
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compared
the financial performance of the Company and Parent and the valuation multiples relating to the Merger with those of certain other transactions that we
deemed relevant;
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xi.
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reviewed
the potential pro forma financial impact of the Merger on the future financial performance of the combined company based on the projected financial data
relating to each of the Company and Parent referred to above, including the projected Synergies and other strategic benefits and the amount and timing of realization thereof, anticipated by the
management of the Company and the management of Parent to be realized from the Merger;
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xii.
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reviewed
a draft of the Merger Agreement dated December 2, 2016 and
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xiii.
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performed
such other analyses and examinations and considered such other factors that we deemed appropriate.
For
purposes of our analysis and opinion, we have assumed and relied upon, without undertaking any independent verification of, the accuracy and completeness of all of the information
publicly available, and all of the information supplied or otherwise made available to, discussed with, or reviewed by us, and we assume no liability therefor. With respect to the projected financial
data relating to the Company and Parent referred to above (including the Synergies), we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates
and good faith judgments of the respective managements of the Company and Parent as to (i) the future financial performance of the companies under the assumptions reflected therein and
(ii) the Synergies, including the amount and timing of the realization of such Synergies. We express no view as to any projected financial data relating to the Company or Parent, the Synergies
or the assumptions on which they are based. We have relied, at your direction, without independent verification, upon the assessments of the management of the Company and the management of Parent as
to the Synergies, including the amount and timing of the realization of such Synergies.
For
purposes of rendering our opinion, we have assumed, in all respects material to our analysis, that the representations and warranties of each party contained in the Merger Agreement
are true and correct, that the Merger will qualify as a tax free reorganization for United States federal income tax
purposes, that each party will perform all of the covenants and agreements required to be performed by it under the Merger Agreement in all material respects and that all conditions to the
consummation of the Merger will be satisfied without material waiver or modification thereof. We have further assumed that all governmental, regulatory or other consents, approvals or releases
necessary for the consummation of the Merger will be obtained without any material delay, limitation, restriction or condition that would have an adverse effect on the Company or the consummation of
the Merger or materially reduce the benefits of the Merger to the holders of the Company Common Stock. We have also assumed that the executed Merger Agreement will not differ in any material respect
from the draft Merger Agreement dated December 2, 2016 reviewed by us.
We
have not made nor assumed any responsibility for making any physical inspection, independent valuation or appraisal of the assets or liabilities of the Company or Parent, nor have we
been furnished with any such inspection, valuation or appraisal, nor have we evaluated the solvency or fair value of the
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Company
or Parent under any state, federal or foreign laws relating to bankruptcy, insolvency or similar matters. Our opinion is necessarily based upon information made available to us as of the date
hereof and financial, economic, market and other conditions as they exist and as can be evaluated on the date hereof. It is understood that subsequent developments may affect this opinion and that we
do not have any obligation to update, revise or reaffirm this opinion.
We
have not been asked to pass upon, and express no opinion with respect to, any matter other than the fairness, from a financial point of view, of the Exchange Ratio to the holders of
the Company Common Stock, other than holders of Excluded Shares or Dissenting Shares. We do not express any view on, and our opinion does not address, the fairness of the Merger to, or any
consideration received in connection therewith by, the holders of any other securities, creditors or other constituencies of the Company, nor as to the fairness of the amount or nature of any
compensation to be paid or payable to any of the officers, directors or employees of the Company, or any class of such persons, whether relative to the Exchange Ratio or otherwise. We have assumed
that any modification to the structure of the transaction will not vary our analysis in any material respect. Our opinion does not address the relative merits of the Merger as compared to other
business or financial strategies that might be available to the Company, nor does it address the underlying business decision of the Company to engage in the Merger. This letter, and our opinion, does
not constitute a recommendation to the Board of Directors of the Company or to any other persons in respect of the Merger, including as to how any holder of shares of Company Common Stock or Parent
Stock should vote or act in respect of the Merger. We express no opinion herein as to the price at which shares of Company Common Stock or Parent Stock will trade at any time. We are not legal,
regulatory, accounting or tax experts and have assumed the accuracy and completeness of assessments by the Company and its advisors with respect to legal, regulatory, accounting and tax matters.
We
will receive a fee for our services following the execution and delivery of the Merger Agreement. We will be entitled to receive a success fee upon the consummation of the Merger. The
Company has also agreed to indemnify us against certain liabilities arising out of our engagement. Prior to this engagement, Evercore Group L.L.C. and its affiliates provided financial advisory
services to the Company and received fees for the rendering of these services including the reimbursement of expenses. During the two year period prior to the date hereof, no material relationship
existed between Evercore Group L.L.C. and its affiliates and Parent pursuant to which compensation was received by Evercore Group L.L.C. or its affiliates as a result of such a relationship. We may
provide financial or other services to Parent in the future and in connection with any such services we may receive compensation.
In
the ordinary course of business, Evercore Group L.L.C. or its affiliates may actively trade the securities, or related derivative securities, or financial instruments of the Company,
Parent and their respective affiliates, for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities or instruments.
This
letter, and the opinion expressed herein, is addressed to, and is for the use and benefit of, the Board of Directors of the Company in connection with its evaluation of the proposed
Merger. The issuance of this opinion has been approved by an Opinion Committee of Evercore Group L.L.C.
This
opinion may not be disclosed, quoted, referred or communicated (in whole or in part) to or by any third party for any purpose whatsoever except with our prior written approval,
except the Company or Parent may reproduce this opinion in full in any document that is required to be filed with the U.S. Securities and Exchange Commission and required to be mailed by the Company
or Parent to its stockholders relating to the Merger; provided, however, that all references to us or our opinion in any such document and the description or inclusion of our opinion therein shall be
subject to our prior consent with respect to form and substance, which consent shall not be unreasonably withheld or delayed.
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Based
upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Exchange Ratio is fair, from a financial point of view, to the holders of the shares of the
Company Common Stock, other than holders of Excluded Shares or Dissenting Shares.
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Very truly yours,
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EVERCORE GROUP L.L.C.
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By:
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/s/ DANIEL B. MENDELOW
Daniel B. Mendelow
Senior Managing Director
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Annex III
Fairness Opinion of Morgan Stanley & Co. LLC
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1585 Broadway
New York, New York 10020
tel 212 761 4000
fax 212 761 4001
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December 3,
2016
Board
of Directors
Consolidated Communications Holdings, Inc.
121 South 17
th
Street
Mattoon, IL 61938
Members
of the Board:
We
understand that FairPoint Communications Inc. (the "Company"), Consolidated Communications Holdings, Inc. (the "Buyer") and Falcon Merger Sub, Inc., a wholly
owned subsidiary of the Buyer ("Acquisition Sub"), propose to enter into an Agreement and Plan of Merger, substantially in the form
of the draft dated December 3, 2016 (the "Merger Agreement"), which provides, among other things, for the merger of Acquisition Sub with and into the Company (the "Merger"). Pursuant to the
Merger, the Company will become a wholly owned subsidiary of the Buyer, and each outstanding share of common stock, par value $0.01 per share, of the Company (the "Company Common Stock"), other than
shares held in treasury or held directly by the Company, any subsidiary of the Company, Acquisition Sub or the Buyer (other than shares in trust accounts, managed accounts and the like or shares held
in satisfaction of a debt previously contracted) or as to which dissenters' rights have been perfected, will be converted into 0.7300 shares (the "Exchange Ratio") of common stock, par value $0.01 per
share, of the Buyer (the "Buyer Common Stock"), subject to adjustment in certain circumstances and cash in lieu of fractional shares. The terms and conditions of the Merger are more fully set forth in
the Merger Agreement.
You
have asked for our opinion as to whether the Exchange Ratio pursuant to the Merger Agreement is fair from a financial point of view to the Buyer.
For
purposes of the opinion set forth herein, we have:
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1)
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Reviewed
certain publicly available financial statements and other business and financial information of the Company and the Buyer, respectively;
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2)
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Reviewed
certain internal financial statements and other financial and operating data concerning the Company and the Buyer, respectively;
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3)
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Reviewed
certain financial projections prepared by the managements of the Company and the Buyer, respectively;
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4)
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Reviewed
information relating to certain strategic, financial and operational benefits anticipated from the Merger, prepared by the managements of the Company and the
Buyer, respectively;
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5)
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Discussed
the past and current operations and financial condition and the prospects of the Company, including information relating to certain strategic, financial and
operational benefits anticipated from the Merger, with senior executives of the Company;
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6)
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Discussed
the past and current operations and financial condition and the prospects of the Buyer, including information relating to certain strategic, financial and
operational benefits anticipated from the Merger, with senior executives of the Buyer;
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7)
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Reviewed
the pro forma impact of the Merger on the Buyer's cash flow, consolidated capitalization and certain financial ratios;
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8)
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Reviewed
the reported prices and trading activity for the Company Common Stock and the Buyer Common Stock;
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9)
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Compared
the financial performance of the Company and the Buyer and the prices and trading activity of the Company Common Stock and the Buyer Common Stock with that
of certain other publicly-traded companies that we deemed to be comparable with the Company and the Buyer, respectively, and their securities;
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10)
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Reviewed
the financial terms, to the extent publicly available, of certain comparable acquisition transactions;
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11)
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Participated
in certain discussions and negotiations among representatives of the Company and the Buyer and their financial and legal advisors;
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12)
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Reviewed
the Merger Agreement, the draft commitment letter from certain lenders substantially in the form of the draft dated December 3, 2016 (the "Commitment
Letter"), and certain related documents; and
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13)
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Performed
such other analyses, reviewed such other information and considered such other factors as we have deemed appropriate.
We
have assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to
us by the Company and the Buyer, and formed a substantial basis for this opinion. With respect to the financial projections, including information relating to certain strategic, financial and
operational benefits anticipated from the Merger, we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the respective
managements of the Company and the Buyer of the future financial performance of the Company and the Buyer. In addition, we have assumed that the Merger will be consummated in accordance with the terms
set forth in the Merger Agreement without any waiver, amendment or delay of any terms or conditions, including, among other things, that the Merger will be treated as a tax-free reorganization,
pursuant to the Internal Revenue Code of 1986, as amended, that the Buyer will obtain financing in accordance with the terms set forth in the Commitment Letter, and that the definitive Merger
Agreement will not differ in any material respect from the draft thereof furnished to us. Morgan Stanley has assumed that in connection with the receipt of all the necessary governmental, regulatory
or other approvals and consents required for the proposed Merger, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated
benefits expected to be derived in the proposed Merger. We have relied upon, without independent verification, the assessment by the managements of the Company and the Buyer of: (i) the
strategic, financial and other benefits expected to result from the Merger; (ii) the timing and risks associated with the integration of the Company and the Buyer; (iii) their ability to
retain key employees of the Company and the Buyer, respectively and (iv) the validity of, and risks associated with, the Company and the Buyer's existing and future technologies, intellectual
property, products, services and business models. Our opinion does not address the relative merits of the Merger as compared to any other alternative business transaction, or other alternatives, or
whether or not such alternatives could be achieved or are achievable. We are not legal, tax or regulatory advisors. We are financial advisors only and have relied upon, without independent
verification, the assessments of the Buyer and the Company and their legal, tax, or regulatory advisors with respect to legal, tax, or regulatory matters. We express no opinion with respect
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to
the fairness of the amount or nature of the compensation to any of the officers, directors or employees of any of the parties to the Merger Agreement, or any class of such persons, relative to the
Exchange Ratio. We have not made any independent valuation or appraisal of the assets or liabilities of the Company or the Buyer, nor have we been furnished with any such valuations or appraisals. Our
opinion is necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to us as of, the date hereof. Events occurring after the date
hereof may affect this opinion and the assumptions used in preparing it, and we do not assume any obligation to update, revise or reaffirm this opinion.
We
have acted as financial advisor to the Board of Directors of the Buyer in connection with the Merger and will receive a fee for our services, all of which is contingent upon the
closing of the Merger. In addition, Morgan Stanley or one or more of its affiliates is providing to the Buyer a portion of the financing required in connection with the Merger, for which Morgan
Stanley will receive additional fees from the Buyer. In the two years prior to the date hereof, we have provided financial advisory and financing services for the Buyer and have received fees in
connection with such services. In addition, Morgan Stanley or an affiliate thereof currently is a lender to the Company and currently acts as administrative agent with respect to the Company's senior
secured credit facilities and has received fees in connection with such services. Morgan Stanley may also seek to provide financial advisory and financing services to the Buyer and its affiliates in
the future and would expect to receive fees for the rendering of these services.
Please
note that Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Our securities business
is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and
financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance
positions, and may trade or otherwise structure and effect transactions, for their own account or the accounts of its customers, in debt or equity securities or loans of the Buyer, the Company, or any
other company, or any currency or commodity, that may be involved in the Merger, or any related derivative instrument.
This
opinion has been approved by a committee of Morgan Stanley investment banking and other professionals in accordance with our customary practice. This opinion is for the information
of the Board of Directors of the Buyer and may not be used for any other purpose or disclosed without our prior written consent, except that a copy of this opinion may be included in its entirety in
any filing the Buyer is required to make with the U.S. Securities and Exchange Commission in connection with the Merger. This opinion does not in any manner address the prices at which the Buyer
Common Stock will trade following consummation of the Merger or at any time and Morgan Stanley expresses no opinion or recommendation as to how the shareholders of the Buyer and the Company should
vote at the shareholders' meetings to be held in connection with the Merger.
Based
on and subject to the foregoing, we are of the opinion on the date hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a financial point of view to the
Buyer.
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Very truly yours,
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MORGAN STANLEY & CO. LLC
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By:
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/s/ JON YOURKOSKI
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Name:
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Jon Yourkoski
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Title:
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Managing Director
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