POST-MERGER CORECOMM'S INTERNET BUSINESS DEPENDS ON CONTINUED GROWTH OF THE
INTERNET AS A MEDIUM OF COMMUNICATION AND COMMERCE.
Post-merger CoreComm's future success in the Internet service provider
business substantially depends on continued growth in the use of the Internet.
Although we believe that Internet usage and popularity will continue to grow, it
cannot be certain that this growth will continue or that it will continue in its
present form. If Internet usage declines or evolves away from post-merger
CoreComm's business, its growth in this case will slow or stop and its financial
results may suffer.
POST-MERGER CORECOMM'S SERVICES WILL DEPEND UPON ITS NETWORK INFRASTRUCTURE,
AND THE FAILURE TO HAVE SUFFICIENT CAPACITY TO ACCOMMODATE NEW USERS, TO
MAINTAIN RELIABILITY OR TO MAINTAIN SECURITY COULD HAVE A MATERIAL ADVERSE
EFFECT ON POST-MERGER CORECOMM'S ABILITY TO ATTRACT AND RETAIN CUSTOMERS.
Success in post-merger CoreComm's businesses depends, in part, on the
capacity, reliability and security of its network infrastructure. Network
capacity constraints may occur in the future, both at the local and national
levels. These capacity constraints would result in slowdowns, delays or
inaccessibility when members try to use a particular service. Poor network
performance could cause customers to discontinue service with post-merger
CoreComm. Reducing the incidence of these problems will require constantly
expanding and improving post-merger CoreComm's infrastructure, which could be
very costly and time consuming.
Our Internet services network infrastructure is composed of a complex
system of routers, switches, transmission lines and other hardware used to
provide Internet access
40
and other services. This network infrastructure will require continual upgrades
and adaptation as the number of customers and the amount and type of information
they wish to transmit over the Internet increases. This development of network
infrastructure will require substantial financial, operational and managerial
resources. We cannot be certain that post-merger CoreComm will be able to
upgrade or adapt its network infrastructure to meet additional demand or
changing customer requirements on a timely basis and at a commercially
reasonable cost, or at all. If post-merger CoreComm fails to upgrade its network
infrastructure on a timely basis or adapt it to an expanding customer base,
changing customer requirements or evolving industry standards, its business
could be adversely affected.
Post-merger CoreComm will also have to protect its infrastructure against
fire, power loss, telecommunications failure, computer viruses, security
breaches and similar events. We do not currently maintain a redundant or backup
network operations center. A significant portion of Voyager's computer
equipment, including critical equipment dedicated to its Internet access
services, is presently located at two network operating centers: one in East
Lansing, Michigan and the other in New Berlin, Wisconsin. A natural disaster or
other unanticipated occurrence at post-merger CoreComm's switch or collocation
facilities, network operations center or points-of-presence through which
members connect to the Internet, in the networks of telecommunications carriers
post-merger CoreComm will use, or in the Internet backbone in general could
cause interruptions in post-merger CoreComm's Internet services.
POST-MERGER CORECOMM'S GROWTH STRATEGY AND ACQUISITIONS MAY NOT BE SUCCESSFUL.
In the future, post-merger CoreComm may acquire or try to acquire products
and businesses from, make investments in, or enter into strategic alliances
with, companies which have products or distribution networks in its current
markets or in areas into which it intends to expand its networks. Any future
acquisitions, investments, strategic alliances or related efforts will be
accompanied by risks such as:
- the difficulty of identifying appropriate acquisition candidates;
- the difficulty of assimilating the operations of the respective entities;
- the potential disruption of post-merger CoreComm's ongoing business;
- the inability of management to capitalize on the opportunities presented
by acquisitions, investments, strategic alliances or related efforts;
- the failure to successfully incorporate licensed or acquired trademarks
and technology rights into its manufacturing and distribution of its
products;
- the inability to maintain uniform standards, controls, procedures and
policies; and
- the impairment of relationships with employees and customers as a result
of changes in management.
We cannot assure you that post-merger CoreComm will be successful in
overcoming these risks or any other problems encountered with these
acquisitions, investments, strategic alliances or related efforts.
41
POST-MERGER CORECOMM WILL DEPEND ON THE SERVICES OF A SMALL NUMBER OF KEY
MANAGEMENT PEOPLE WHO CURRENTLY MANAGE CORECOMM.
We believe that post-merger CoreComm's success depends to a significant
extent upon the abilities and continued efforts of CoreComm's current senior
management, including George S. Blumenthal, the Chairman of the board of
directors, J. Barclay Knapp, its President, Chief Executive Officer and Chief
Financial Officer and Patty J. Flynt, its Senior Vice President and Chief
Operating Officer. The loss of the services of any of these people could have a
negative effect upon post-merger CoreComm's results of operations and financial
condition. You should be aware that several members of senior management are
officers and/or directors of other companies and that none of these individuals
have entered into employment agreements with post-merger CoreComm.
RISK FACTORS RELATING TO POST-MERGER CORECOMM'S CAPITAL STRUCTURE:
POST-MERGER CORECOMM WILL HAVE SUBSTANTIAL INDEBTEDNESS, WHICH COULD ADVERSELY
AFFECT ITS FINANCIAL HEALTH AND PREVENT IT FROM FULFILLING ITS OBLIGATIONS
UNDER ITS EXISTING DEBT.
Post-merger CoreComm will assume substantial debt and debt service
obligations from CoreComm and Voyager. As of June 30, 2000, on a pro forma basis
it would have had $351.7 million of consolidated indebtedness outstanding and
$661.4 million of stockholders' equity after giving effect to both the ATX
merger and the Voyager merger. As of the same date, it would have had $304.3
million of consolidated indebtedness outstanding and $476.6 million of
stockholders' equity after giving effect to only the ATX merger, and it would
have had $187.4 million of consolidated indebtedness outstanding and $233.2
million of stockholders' equity after giving effect to only the Voyager merger.
We also expect post-merger CoreComm to seek significant vendor financing from
equipment manufacturers as well as other additional debt financing arrangements.
The substantial amount of debt that post-merger CoreComm will have and that
it or its subsidiaries may incur in the future could have important consequences
for you. For example, it could:
- limit post-merger CoreComm's ability to obtain additional financing, if
needed, for working capital, capital expenditures, acquisitions, debt
service requirements or other purposes;
- increase post-merger CoreComm's vulnerability to adverse economic and
industry conditions;
- require post-merger CoreComm to dedicate a substantial portion of its
cash flow from operations to payments on its debt and accordingly reduce
funds available for operations, future business opportunities or other
purposes;
- limit post-merger CoreComm's flexibility in planning for, or reacting to,
changes in post-merger CoreComm's business and the industry in which it
competes; and
- place post-merger CoreComm at a competitive disadvantage compared to its
competitors that have less debt.
42
RESTRICTIONS IMPOSED BY POST-MERGER CORECOMM'S DEBT AGREEMENTS MAY
SIGNIFICANTLY LIMIT ITS ABILITY TO EXECUTE ITS BUSINESS STRATEGY AND INCREASE
THE RISK OF DEFAULT UNDER ITS DEBT OBLIGATIONS.
Any debt instruments for future indebtedness incurred by post-merger
CoreComm or its subsidiaries are expected to contain a number of covenants that
may significantly limit post-merger CoreComm's or its subsidiaries' ability to,
among other things:
- borrow additional money;
- make capital expenditures and other investments;
- pay dividends;
- merge, consolidate or dispose of assets; and
- enter into transactions with related entities.
In addition, in the future, post-merger CoreComm's debt instruments or
those of its subsidiaries may contain financial maintenance covenants. If the
affected company fails to comply with these covenants, it will be in default
under the applicable debt instrument. A default, if not waived, could result in
acceleration of indebtedness, in which case the debt would become immediately
due and payable. If this occurs, post-merger CoreComm may not be able to repay
its debt or borrow sufficient funds to refinance it. Even if new financing is
available, it may not be on terms that are acceptable. In addition, complying
with these covenants may cause post-merger CoreComm to take actions that it
otherwise would not take, or refrain from actions that it otherwise would take.
POST-MERGER CORECOMM WILL HAVE ANTI-TAKEOVER DEFENSE PROVISIONS THAT MAY DETER
POTENTIAL ACQUIRORS AND DEPRESS ITS STOCK PRICE.
Post-merger CoreComm's certificate of incorporation and by-laws will
contain provisions that could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of post-merger CoreComm. These provisions include the
following:
- post-merger CoreComm will be able to issue preferred stock with rights
senior to those of its common stock;
- post-merger CoreComm will have a classified board of directors;
- post-merger CoreComm's by-laws will prohibit action by written consent by
stockholders; and
- post-merger CoreComm's bylaws will require advance notice for nomination
of directors and for stockholder proposals.
The indenture for CoreComm's 6% convertible notes, which will become the
obligation of a subsidiary of post-merger CoreComm, also contain provisions that
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from attempting to acquire, control of
post-merger CoreComm. These
43
provisions would require it to make an offer to purchase all of the 6%
convertible notes upon a change of control if required by the noteholders.
Provisions such as these in post-merger CoreComm's or its subsidiaries'
indebtedness may decrease the likelihood that stockholders will receive a
possibly substantial premium for their shares over then current market prices,
and may limit the ability of stockholders to approve transactions that they may
deem to be in their best interest.
In addition, under the shareholder rights plan that may be adopted by
post-merger CoreComm, holders of its common stock would be entitled to one
preferred share purchase right for each outstanding share of common stock they
hold, exercisable under defined circumstances involving a potential change of
control as discussed in this joint proxy statement and prospectus. If adopted,
the preferred share purchase rights would have the anti-takeover effect of
causing substantial dilution to a person or group that attempts to acquire
post-merger CoreComm on terms not approved by its board of directors. Those
provisions could have a material adverse effect on the premium that potential
acquirors might be willing to pay in an acquisition or that investors might be
willing to pay in the future for shares of post-merger CoreComm's common stock.
Please refer to the section of this joint proxy statement and prospectus
entitled "Description of the Capital Stock of Post-merger CoreComm -- The
Shareholder Rights Plan."
POST-MERGER CORECOMM MAY HAVE RESTRICTIONS ON DIVIDENDS.
Neither CoreComm nor Voyager has ever paid a cash dividend in respect of
its stock, and we do not currently intend to do so in the foreseeable future. In
addition, the payment of any dividends by post-merger CoreComm in the future
will be at the discretion of its board of directors and will depend upon, among
other things, future earnings, operations, capital requirements, its general
financial condition, the general financial condition of its subsidiaries and
general business conditions.
In addition, post-merger CoreComm's or its subsidiaries' present and future
debt instruments may restrict post-merger CoreComm's payment of dividends or the
payment of dividends or distributions to post-merger CoreComm by its
subsidiaries. Please refer to the section of this discussion of risk factors
entitled "Restrictions imposed by post-merger CoreComm's debt agreements may
significantly limit its ability to execute its business strategy and increase
the risk of default under its debt obligations."
RISK FACTORS RELATING TO THE MERGER TRANSACTIONS:
BECAUSE OF THE CASH COMPONENT OF THE MERGER CONSIDERATION IN BOTH THE ATX
MERGER AND THE VOYAGER MERGER, CORECOMM WILL BE REQUIRED TO OBTAIN FINANCING
IN ORDER TO COMPLETE THE MERGERS.
The consideration in both the ATX merger and the Voyager merger includes
cash, and, therefore, CoreComm intends to undertake either an equity or
debt-based financing in order to fund the cash payments prior to closing. On
August 14, 2000 CoreComm announced that it had received a total of $310 million
of committed financing. This financing is subject to the fulfillment of some
conditions, including obtaining an
44
additional $50 million of financing. See "Summary -- Recent Development" for
more information regarding the financing commitments and conditions.
Any debt financing that is obtained may have the following effects on
post-merger CoreComm:
- post-merger CoreComm will likely have a higher degree of leverage than
CoreComm currently does, resulting in a larger amount of debt service
costs;
- any debt instruments to which post-merger CoreComm will be subject as a
result of financing the mergers will likely have restrictive covenants
that may limit post-merger CoreComm's ability to obtain additional
financing to fund future working capital, acquisitions or other needs;
- the debt instruments may impose financial and other restrictive covenants
that may limit post-merger CoreComm's flexibility in planning for or
reacting to changes in its industry; and
- any equity financing may have the effect of diluting the outstanding
shares of CoreComm and post-merger CoreComm, and thus may cause a
decrease in the share price of CoreComm and post-merger CoreComm common
stock.
POST-MERGER CORECOMM MAY NOT BE ABLE TO INTEGRATE VOYAGER OR ATX OR ITS OTHER
RECENT ACQUISITIONS. FAILING TO DO SO WOULD ADVERSELY AFFECT ITS RESULTS OF
OPERATIONS.
CoreComm entered into the ATX merger agreement and the Voyager merger
agreement to strengthen its positions in the provision of both Internet and
telephone services and to create the opportunity for potential cost savings.
Achieving the benefits of the ATX merger and the Voyager merger will depend in
part on integrating technology, operations and personnel in a timely and
efficient manner to minimize the risk that the ATX merger and the Voyager merger
will result in the unplanned loss of customers or key employees or the continued
diversion of the attention of management. Another challenge is to demonstrate to
our customers that the ATX merger and the Voyager merger will not result in
adverse changes in client service standards or business focus and persuade our
personnel that the component companies' business cultures are compatible. We
cannot assure you that the ATX merger and the Voyager merger can be successfully
integrated or that any of the anticipated benefits will be realized, and failure
to do so could have a material adverse effect on post-merger CoreComm's
business, financial condition and operating results.
Moreover, Voyager has expanded its operations rapidly during the past two
years. Much of this growth is attributable to 27 acquisitions that Voyager has
made since July 1998. Furthermore, during 1999, CoreComm acquired MegsINet Inc.
and USN Communications Inc. and is continuing to integrate those acquisitions.
Failure to integrate these acquisitions successfully could have a material
adverse effect on post-merger CoreComm's business, financial condition and
operating results.
45
GENERAL RISK FACTORS:
MANY OF POST-MERGER CORECOMM'S OFFICERS AND DIRECTORS FACE POTENTIAL CONFLICTS
OF INTEREST BECAUSE THEY ARE OFFICERS AND DIRECTORS OF OTHER COMPANIES IN THE
TELECOMMUNICATIONS INDUSTRY, WHICH COULD IMPEDE THEIR ABILITY TO MAKE
DECISIONS FOR POST-MERGER CORECOMM. IN ADDITION, SOME OF POST-MERGER
CORECOMM'S OFFICERS AND OTHER EMPLOYEES ARE EMPLOYED BY POST-MERGER CORECOMM'S
AFFILIATES.
Many of post-merger CoreComm's directors and officers are also directors
and officers of other companies in post-merger CoreComm's industry, and some are
employed by historical affiliates of post-merger CoreComm. In addition, some of
post-merger CoreComm's officers and all of its directors are also officers
and/or directors of NTL Incorporated, a commonly managed historical affiliate,
which is a telecommunications company that has historical ties to CoreComm. From
time to time, opportunities may arise that would be pursued by one or more of
these companies and post-merger CoreComm at the same time. In addition, CoreComm
and NTL have entered into various transactions and service arrangements. Because
all of post-merger CoreComm's directors will be directors of NTL, decisions
about these opportunities or transactions may result in conflicts of interest.
In those instances, post-merger CoreComm's board of directors will seek to act,
with the advice of its counsel, in a manner consistent with each director's
duties to post-merger CoreComm and its stockholders under applicable law.
Furthermore, many of post-merger CoreComm's officers and employees will
allocate their business time between post-merger CoreComm and NTL. These
officers and employees will not be available on a full-time basis to post-merger
CoreComm in the future, and they may have duties to these other companies which
may interfere with their duties to post-merger CoreComm.
RISK FACTORS RELATED TO VOYAGER THAT WILL BE APPLICABLE TO POST-MERGER CORECOMM
PRIMARILY BECAUSE OF THE COMPLETION OF THE VOYAGER MERGER:
VOYAGER'S OPERATING RESULTS FLUCTUATE.
Voyager has experienced significant fluctuations in its results of
operations on a quarterly and annual basis, which it expects to continue to
experience in its future quarterly and annual results of operations due to a
variety of factors, many of which are outside of Voyager's control, including:
- demand for and market acceptance of Voyager's services;
- customer retention;
- the timing and magnitude of capital expenditures, including costs
relating to the expansion of operations and network infrastructure;
- introductions of new services or enhancements by Voyager and its
competitors;
- increased competition in Voyager's markets within the Midwest;
- growth of Internet use and establishment of Internet operations by
mainstream enterprises;
46
- changes in Voyager's and its competitors' pricing policies; and
- general economic conditions affecting Voyager's industry.
VOYAGER'S FUTURE SUCCESS DEPENDS SIGNIFICANTLY ON RETAINING EXISTING CUSTOMERS
AND GENERATING NEW ONES.
Voyager believes that its long-term success depends largely on its ability
to retain existing customers while continuing to attract new customers. Voyager
has invested significant resources in its network infrastructure and customer
and technical support capabilities to provide high levels of customer care.
Voyager cannot be certain that these investments will maintain or improve its
customer retention rate. Voyager believes that intense competition from its
competitors, some of which offer free hours of service or other enticements for
new customers, has caused, and may continue to cause, some of Voyager's
customers to switch to its competitors' services. Voyager is also susceptible to
losing customers that it acquires through its acquisitions due to the customers'
lack of familiarity with Voyager and the billing and network difficulties that
sometimes occur after an acquisition. In addition, some new subscribers use the
Internet only as a novelty and do not become consistent users of Internet
services and, therefore, may be more likely to discontinue their service. These
factors may adversely affect Voyager's subscriber retention rates, which would
have an adverse effect on its business and operating results.
RISK FACTORS RELATING TO THE TERMS OF THE VOYAGER MERGER AGREEMENT:
VOYAGER STOCKHOLDERS CANNOT BE CERTAIN OF THE MARKET VALUE OR THE AVERAGE
TRADING PRICE OF THE POST-MERGER CORECOMM COMMON SHARES THEY WILL RECEIVE FOR
THEIR SHARES OF VOYAGER COMMON STOCK
In the Voyager merger, Voyager stockholders will be entitled to receive
0.292 of a post-merger CoreComm common share plus $3.00 in cash for each share
of Voyager common stock they hold.
If the average per share trading price of CoreComm common shares is less
than $33.03, Voyager has the right to terminate the Voyager merger agreement,
subject to CoreComm's ability to prevent Voyager from doing so. In order for
CoreComm to prevent termination, it would have to increase the fraction of a
post-merger CoreComm common share to be issued to Voyager stockholders for each
Voyager share such that the value of the CoreComm common shares to be included
in the consideration paid for each share of Voyager common stock will not be
lower than $12.02. If CoreComm elects not to exercise this "topping-up" right,
the Voyager merger agreement would then be terminated. However, Voyager may
elect not to exercise its right to terminate the Voyager merger agreement. In
that case, the aggregate value to be received for each share of Voyager common
stock, based on the average trading price, would be less than $15.02.
If the average per share trading price of CoreComm common shares is less
than $41.17 and at or above $33.03, then the fraction of a post-merger CoreComm
share to be issued to Voyager stockholders for each Voyager share will be
increased such that
47
total merger consideration (including the $3.00 in cash) for each share of
Voyager common stock will not be lower than $15.02. As a result, post-merger
CoreComm could be required to issue more than 0.292 of a post-merger CoreComm
common share in exchange for each share of Voyager common stock.
If the average per share trading price of CoreComm common shares during a
specified period shortly before the completion of the Voyager merger is at or
below $56.97 and at or above $41.17, for each share of Voyager common stock,
Voyager stockholders will receive 0.292 of a share of post-merger CoreComm stock
plus $3.00 in cash. Because the average trading price of shares of CoreComm
stock may fluctuate while the exchange ratio is fixed, Voyager stockholders
would receive between $15.02 and $19.64 in total merger consideration (including
the $3.00 in cash). Therefore, a decrease in the average trading price of
CoreComm common shares within the range will result in Voyager stockholders
receiving a set number of post-merger CoreComm common shares at a lower value
and thus less total merger consideration.
If the average per share trading price of CoreComm common shares is greater
than $56.97, the fraction of a post-merger CoreComm common share to be issued to
Voyager stockholders for each Voyager share will be reduced such that total
merger consideration (including the $3.00 in cash) for each share of Voyager
common stock will not exceed $19.64. As a result, Voyager stockholders may
receive less than 0.292 of a post-merger CoreComm common share in exchange for
each share of Voyager common stock.
If the Voyager merger has not occurred by July 15, 2000 due to reasons
specified in the Voyager merger agreement, the fraction of a post-merger
CoreComm common share to be issued to Voyager stockholders for each Voyager
share will be fixed at 0.292 if the average per share trading price of CoreComm
common shares is at or above $41.17 and no greater than $58.17 (not $56.97). The
upper threshold will increase at a fixed rate for each 31-day period elapsed
after July 31, 2000 in which the Voyager merger is not completed. If these
specified events occur, the value of the consideration (including the $3.00 in
cash) Voyager stockholders will receive for each share of Voyager common stock
may exceed $19.64.
The average per share trading price of CoreComm common shares is computed
based on the volume weighted-average trading price of CoreComm common shares on
the Nasdaq Stock Market for ten randomly selected trading days out of the 20
consecutive trading days ending on the last trading day prior to closing of the
Voyager merger. However, the actual trading price of CoreComm common shares at
the time of the closing of the Voyager merger may be either higher or lower than
the average trading price, so the actual market value of the post-merger
CoreComm common shares you receive in the Voyager merger may be either higher or
lower than the value of those shares for purposes of calculating the amount of
consideration under the Voyager merger agreement. The average trading price of
CoreComm common stock may vary because of factors such as:
- changes in the business, operating results or prospects of CoreComm, ATX
or Voyager;
48
- market assessments of the likelihood that the Voyager merger or ATX
merger will occur;
- the timing of the completion of the Voyager and/or ATX merger;
- the prospects of operations post-Voyager merger and post-ATX merger;
- adjustments resulting from stock splits, spin-offs or similar events; and
- the general market and economic conditions.
In addition, the exchange of the certificates representing shares of
Voyager common stock for certificates representing shares of post-merger
CoreComm common stock will not take place immediately upon completion of the
Voyager merger. Voyager stockholders will thus be unable to sell or otherwise
transfer these shares of post-merger CoreComm common stock for a period
following the completion of the Voyager merger. The market value of the shares
of post-merger CoreComm common stock may be either lower or higher at the time
Voyager stockholders receive certificates representing shares of post-merger
CoreComm common stock and thus become able to sell those shares, than at the
time of the Voyager merger.
THE TERMINATION FEE AND VOTING AGREEMENT MAY DISCOURAGE OTHER COMPANIES FROM
TRYING TO ACQUIRE VOYAGER.
In the Voyager merger agreement, Voyager agreed to pay a termination fee of
$19.0 million to CoreComm in specified circumstances, including some
circumstances where a third party acquires or seeks to acquire Voyager. This
provision could discourage other companies from trying to acquire Voyager, even
if those other companies might be willing to offer a greater amount of
consideration to Voyager stockholders than CoreComm has offered in the Voyager
merger agreement. Payment of the termination fee would have a material adverse
effect on Voyager's financial condition. In addition, in connection with the
execution of the Voyager merger agreement some of the directors and officers of
Voyager, holding 63.9% of the outstanding shares of Voyager common stock,
entered into a voting agreement with CoreComm. These stockholders agreed to vote
their shares in favor of the Voyager merger agreement and granted CoreComm and
its designees irrevocable proxies to vote their shares in favor of the Voyager
merger. In some circumstances, this agreement will remain in effect for a period
of six months after the Voyager merger agreement is terminated. These provisions
may discourage other companies from trying to acquire Voyager.
RISK FACTORS RELATED TO ATX THAT WILL BE APPLICABLE TO POST-MERGER CORECOMM
PRIMARILY BECAUSE OF THE COMPLETION OF THE ATX MERGER:
RISK FACTORS RELATING TO THE BUSINESS OF ATX:
ATX MAY BE REQUIRED TO MAKE SIGNIFICANT CAPITAL EXPENDITURES RELATING TO ITS
INFORMATION SYSTEMS INFRASTRUCTURE.
ATX's billing, customer service and management information systems are
vital to its growth and its ability to bill customers, monitor costs and respond
to customer service issues. As ATX continues its transition to being a full
service, integrated telecommunica-
49
tions provider, its need for sophisticated systems will increase. The cost of
implementing these systems has been, and will continue to be, significant.
Additionally, any of the following developments could negatively affect ATX's
business or financial condition:
- ATX's failure to adequately and timely identify all of its information
and processing needs;
- the failure of ATX's systems to operate as expected;
- ATX's failure to upgrade systems as necessary; and
- failure by third party service providers to deliver necessary systems or
services.
ATX IS A PRIVATE COMPANY AND RELIES TO A SIGNIFICANT EXTENT ON SERVICES AND
OTHER ASSISTANCE PROVIDED AT MARKET COST BY AFFILIATES AND OWNERS OF ATX. THIS
ASSISTANCE WILL NO LONGER BE AVAILABLE TO ATX AFTER THE ATX MERGER.
For fifteen years, ATX has operated as a private company. Only recently has
ATX begun to implement initiatives to create and expand its management
infrastructure so that ATX's growth can be sustained. For instance, ATX
currently shares employees with University City Housing, an entity controlled by
Michael Karp, the Chief Executive Officer and the majority stockholder of ATX.
University City Housing provides general accounting, cash management, tax return
preparation, payroll and human resources services to ATX. Under a transition
services agreement, these arrangements will be provided on a scale that will be
reduced over time following the completion of the ATX merger. Failure to replace
the services and assistance formerly provided by affiliates and owners of ATX on
terms acceptable to ATX could result in material disruptions to the business and
operations of ATX.
RISK FACTORS RELATING TO THE TERMS OF THE ATX MERGER AGREEMENT:
THE MARKET PRICE OF POST-MERGER CORECOMM COMMON STOCK AFTER THE ATX MERGER IS
UNCERTAIN BECAUSE OF THE COMPLEX STRUCTURE OF THE ATX MERGER.
There is currently no public market for ATX common stock. While it is
believed that the securities markets will recognize that, despite its complex
structure, the ATX merger is actually an acquisition of ATX by CoreComm, and
treat post-merger CoreComm's common stock as it has CoreComm common shares
historically, there can be no assurance that an active trading market will
develop or be sustained. There is uncertainty as to the prices at which the
shares of post-merger CoreComm common stock will trade.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In this joint proxy statement and prospectus there are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Exchange Act of 1934, which are usually identified by the use
of words such as "will," "anticipates," "believes," "estimates," "expects,"
"projects," "plans," "intends," "should" or similar expressions. CoreComm,
Voyager, ATX and post-merger CoreComm intend those forward-looking statements to
be covered by the safe harbor provisions for
50
forward-looking statements contained in the Private Securities Reform Act of
1995 and are including this statement for purposes of complying with these safe
harbor provisions.
These forward-looking statements reflect current views about the relevant
company's plans, strategies and prospects, which are based on the information
currently available and on current assumptions.
Although each company believes that its plans, intentions and expectations
as reflected in or suggested by those forward-looking statements are reasonable,
it can give no assurance that the plans, intentions or expectations will be
achieved. Listed below and discussed elsewhere in this joint proxy statement and
prospectus are some important risks, uncertainties and contingencies which could
cause each company's actual results, performances or achievements to be
materially different from the forward-looking statements made in this joint
proxy statement and prospectus. These risks, uncertainties and contingencies
include, but are not limited to, the following:
- the success or failure of our efforts to implement current business
strategy;
- economic conditions generally and in the telecommunications markets
specifically;
- industry trends;
- the actions of competitors and the relevant company's ability to respond
to those actions;
- changes in governmental regulations, tax rates and similar matters;
- legislative and regulatory changes;
- our ability to continue to design network routes, install facilities,
obtain and maintain any required government licenses or approvals and
finance construction and development, all in a timely manner, at
reasonable costs and on satisfactory terms and conditions;
- our assumptions about customer acceptance, churn rates, overall market
penetration and competition from providers of alternative services;
- our actual funding requirements;
- availability, terms and deployment of capital; and
- other factors discussed under the heading "Risk Factors" and elsewhere in
this joint proxy statement and prospectus.
The companies assume no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
In evaluating forward-looking statements, you should consider these risks and
uncertainties, together with the other risks described from time to time in
CoreComm's and Voyager's reports and documents filed with the Securities and
Exchange Commission, and you should not place undue reliance on those
statements.
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ABOUT THE COMPANIES
CORECOMM LIMITED
For more information on the business, properties and financial data of
CoreComm, please refer to CoreComm's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999. Please refer to the section of this joint proxy
statement and prospectus entitled "Where You Can Find More Information" in order
to find out where you can obtain a copies of CoreComm's Annual Report as well as
the other documents CoreComm files with the SEC.
VOYAGER.NET, INC.
Voyager is a large Internet communications company focused in the
Midwestern United States with approximately 368,000 subscribers as of June 30,
2000. Voyager provides high-speed data communications services and Internet
access to residential and business subscribers. Services include high-speed DSL,
providing dedicated telecommunications services to business, cable modem access,
dial-up Internet access, Web-hosting, electronic commerce, situating servers at
a common location and long distance phone services. Voyager operates the largest
dial-up Internet network in the Midwest in terms of geographic coverage, with
approximately 200 Voyager-owned points of presence in Michigan, Wisconsin, Ohio,
Illinois, Indiana and Minnesota. Voyager has competitive local exchange carrier
status in Michigan, Ohio, Indiana and Wisconsin.
INDUSTRY BACKGROUND
The Internet has rapidly developed into an integral business and personal
communications tool. Consumers and businesses are demanding solutions that
provide them with the ability to access and utilize the Internet in a fast,
secure and reliable manner. Factors driving the growth in the number of Internet
users and Web sites include the large and growing installed base of low-cost
personal computers, advances in the performance and speed of personal computers
and modems, improvements in network infrastructure, easier access to the
Internet and the increasing importance of the Internet as a communications and
commercial medium. Businesses have also rapidly established corporate Internet
sites and connectivity as a means to expand customer reach and improve
communications efficiency. Many businesses are utilizing the Internet as a lower
cost alternative to certain traditional telecommunications services.
The Internet communications market is highly fragmented. These Internet
service providers vary widely in their geographic coverage, customer focus and
the nature and the quality of their services. The Internet service provider
market is generally segmented into three broad categories:
- national providers that are typically full-service providers that offer a
broad range of Internet access and other services to businesses;
- regional providers that include the regional telephone operators,
competitive local exchange carriers and Internet access providers, such
as Voyager; and
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- local providers that are typically closely-held start-ups or small
companies serving a single market.
The vast majority of Internet communication companies are small, local
operations with fewer than 10,000 customers each.
Despite the growth in the Internet communications industry, very few
Internet communication companies are profitable. In addition, the dramatic
growth of Internet usage and dependency has prompted customers to demand from
their providers more enhanced technology and services and reliable, high-speed,
quality Internet access. Thus, Internet service providers will be faced with
expending significant capital resources to attract and retain subscribers. As a
result, the industry is expected to undergo substantial consolidation over the
next few years, particularly among the local providers, who typically lack the
financial resources necessary to continue to compete. Voyager believes that the
anticipated growth in Internet use and the significant number of under-
capitalized local providers within its region meeting its acquisition criteria
provides Voyager with an excellent opportunity to extend its scalable business
model.
VOYAGER
The business model that Voyager has developed has resulted in substantial
revenue and subscriber growth, reduced customer acquisition costs and
significant cash flow from operations and includes customer satisfaction
efforts. Voyager's business model is based on the following key principles:
- Voyager controls the costs of acquiring new customers by focusing on
markets in the Midwestern United States, thereby reducing the need for
more expensive, broad-based marketing campaigns;
- Voyager focuses on delivering product quality and services and customer
care, which Voyager believes results in word-of-mouth referrals and
customer retention greater than the industry average;
- Voyager manages 100% of its network equipment and customer care
operations, which reduces its telecommunication costs and enhances
control over its network utilization, efficiency, scalability and
quality, and Voyager owns or leases 100% of its network equipment; and
- Voyager realizes cost savings and economies of scale from its acquired
businesses by reducing duplicated network infrastructure and taking steps
to consolidate sales and marketing, network operations, customer support
and back office operations.
Voyager has begun to implement a strategy to become a leading provider of
high-speed DSL services in the Midwest. DSL technology is a high-speed Internet
connectivity option using existing telephone wiring, widely heralded as the
next-generation Internet connectivity option. DSL enables connection speeds up
to 50 times faster than using a standard, 28.8 Kbps modem over existing phone
lines. Voyager's DSL deployment strategy will establish a network capable of
providing bundled phone, high-speed Internet and future communications services.
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DSL technology is particularly well suited for small and medium-sized
businesses looking to connect their entire staff to the Internet over a single
high-speed Internet connection, or for customers looking to access the Internet
at top speeds. DSL includes the following benefits:
- provides a dedicated, "always on" connection;
- is faster than integrated services digital network and modem connections;
- is more affordable than dedicated T1 and frame relay connections; and
- is more reliable, and less complicated to use than dial-up connectivity
options.
Voyager has a two-tiered strategy to provide DSL services:
- provide DSL services directly as a competitive local exchange carrier to
customers in secondary and tertiary markets throughout our region; and
- continue to provide DSL services through existing relationships with
major data competitive local exchange carriers in selected major
metropolitan areas.
Voyager expects to soon begin deploying DSL services in approximately 40
cities from the central offices of 240 incumbent local exchange carriers,
reaching more than 400,000 small and medium-sized business customers and 3.8
million residential customers. Voyager is targeting secondary and tertiary
markets within its region, covering areas that are less competitive than the
major metropolitan areas. Target markets include Michigan cities of Alpena, Ann
Arbor, Battle Creek, Charlotte, Flint, Gaylord, Grand Rapids, Hastings,
Hillsdale, Jackson, Kalamazoo, Lansing, Petoskey, Sturgis, Three Rivers, and
Traverse City; Ohio cities of Akron, Canton, Dayton, Hamilton, Middletown,
Springfield, Toledo, Troy, and Youngstown; Indiana cities of Columbus, and
Seymour; Illinois cities of Aurora, Elgin, and Joliet; and Wisconsin cities of
Appleton, Kenosha, Madison, Milwaukee, Newberg, Stevens Point, Green Bay, and
Vandyne. When Voyager's DSL network is deployed in these cities, service will be
available in more than 170 cities and townships in the Midwest region.
Voyager is well positioned to begin offering DSL services directly to its
customers in its Midwest region as it has a strong presence, a large installed
customer base, and a substantial network infrastructure. Voyager's high-speed
strategy is intended to establish Voyager as one of the dominant providers of
DSL services in the Midwest. Voyager's sales and marketing plans include
up-selling its installed customer base as well as attracting customers from
other providers in the region.
VOYAGER SERVICE OFFERINGS
Internet Access Services. Voyager offers a full range of dial-up, DSL,
and cable modem Internet access services to residential subscribers and
dedicated, web hosting, and dial-up Internet access to business customers. By
selecting between the various types of access services and pricing plans
available, subscribers can select services that fit their specific needs.
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- DIAL-UP ACCESS. Voyager's residential access services are designed to
provide subscribers with reliable Internet access through standard
dial-up modems. Voyager's dial-up Internet access service includes:
-- local access numbers;
-- personal Web space;
-- multiple e-mail accounts;
-- toll-free customer support;
-- light usage plans; and
-- Internet chat and news groups.
Voyager also offers prepaid plans for quarterly, semi-annual and annual
access. A majority of its residential subscribers pay their monthly fee
automatically by a pre-authorized monthly charge to their credit card.
Additional service options include Web content filter service, e-mail alias
(forwarding) and national toll-free roaming service.
- DSL. Voyager provides DSL services to customers in Detroit, Chicago,
Milwaukee, and Minneapolis through agreements with Covad Communications
Company, @Link Networks, and USWest. Through these partnerships, Voyager
offers DSL service with speeds from 144 Kbps to 1.5 Mbps.
Voyager is engaged in activities to provide a variety of high-speed data
services directly to customers, such as synchronous DSL and asynchronous DSL,
and also provide the opportunity to offer high-quality voice services over DSL.
Service is expected to be available in up to 40 cities in Voyager's Midwest
market in 2000, with service becoming available in selected cities as soon as
the end of the third quarter of 2000.
- DEDICATED ACCESS. Voyager offers high-speed dedicated connections to
both business and residential subscribers at a range of speeds using
traditional telecommunications lines and frame relay communications
services for those customers requiring greater speed and reliability.
- CABLE MODEMS. Through a reseller arrangement with Millennium Digital
Media Systems, L.L.C., Voyager offers high-speed Internet access in
certain locations through the use of modems integrated with local cable
television networks and provides the technical and billing support to
this fast-growing segment of the Internet access business.
- VOYAGER.NETTV. Voyager.netTV allows individuals without a computer or
who need a second Internet terminal to access the Internet easily and
inexpensively through their television. The complete Voyager.netTV
service, which includes a set-top box, keyboard, remote control unit, all
necessary cables and unlimited Internet access, is available at a monthly
subscription rate, with no additional equipment, installation or set-up
costs. Voyager.netTV is a pre-configured set-top box that connects to a
customer's television in the same manner as a VCR or game system and is
controlled with the use of a wireless keyboard or remote control. A
built-in control pad, included on both the keyboard and remote,
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provides the user with a simple point and click interface to call up Web
sites or e-mail services that are displayed in a large, easy-to-read
format on the TV screen.
Web Services. Voyager's Web services help organizations and individuals
implement their Web site and e-commerce goals. Voyager offers various Web
hosting and other services that enable customers to establish a Web site
presence without maintaining their own Web servers and high-speed connectivity
to the Internet.
- WEB HOSTING. Voyager offers a diverse range of shared, dedicated and
co-location Web hosting services for small and medium businesses.
Voyager's Web hosting service includes state-of-the-art Web servers,
high-speed connections to the Internet at its network operations centers,
and registration of Voyager's customers' domain name and Internet
address. Voyager also offers Web page design, development, maintenance
and traffic reporting and consulting services. Voyager currently has over
12,900 Web hosting subscribers.
- CO-LOCATION. Voyager offers co-location services, providing
telecommunications facilities for customer-owned Web servers, for
customers who prefer to own and have physical access to their servers but
require the reliability, security and performance of its on-site
facilities. Voyager's co-location customers house their equipment at
Voyager's secure network operating centers and receive direct high-speed
connections to the Internet.
- E-COMMERCE. Voyager has launched a suite of Web hosting and e-commerce
solutions that enable businesses to easily and affordably create Web
sites and sell their products and services over the Internet. The product
suite includes EasyWeb, which allows a business to quickly create a Web
site online through a series of menu-driven screens and templates, and
EasyShop, a comprehensive e-commerce solution, which allows businesses to
accept real-time credit card purchases via their Web site.
- LOCAL CONTENT. The Voyager portal is a feature-rich web site including
personalized local news and weather, sports, entertainment, finance,
stock quotes, shopping, classifieds and chat services for Voyager
customers. Content is automatically tailored to individual customers
using a sophisticated database driven process that presents customers
with location-specific information. Customers can also customize the
layout and specific content options available to them. Content is made
available through revenue sharing and co-branding agreements with
organizations including CMGI Inc.'s MyWay.com, Wizshop.com, Amazon.com,
eToys, and local media. Customers access the portal page at
www.voyager.net.
Other Services and Offerings. Voyager also offers other enhanced
communications services to meet the one-stop shopping demands of residential and
business customers.
- VIRTUAL PRIVATE NETWORKS. Voyager's custom virtual private networks
solutions enable its customers to deploy tailored, Internet
protocol-based mission-critical business applications for internal
enterprise, business-to-business and business-to-
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customer data communications on its network while also affording
high-speed access to the Internet. Voyager offers its customers a secure
network on which to communicate and access information between an
organization's geographically dispersed locations, collaborate with
external groups or individuals, including customers, suppliers, and other
business partners and use the Web to access information on the Internet
and communicate with other Web users.
- LONG DISTANCE AND OTHER TELECOMMUNICATIONS. Voyager currently resells
long distance telecommunications services as well as an 800 service,
calling cards and prepaid cards to its Internet customers through its
VoyagerLink operations. Voyager currently offers this interstate and
intrastate long-distance service to its customers at a fixed rate per
minute, with no set-up or monthly charges. Voyager also has begun
offering bundled voice and data services to customers who seek Internet
access and telecommunications services from a single source.
SALES AND MARKETING
Marketing. Voyager's marketing philosophy is based on the belief that a
consumer's selection of an Internet service provider is often strongly
influenced by a personal referral. Accordingly, Voyager believes that the
customer satisfaction of its subscriber base has led to significant
word-of-mouth referrals. Voyager's referral incentive program awards subscribers
one month of free service for every customer referred. As a result, over 70% of
new sign-ups come from existing subscriber referrals. Voyager's proprietary
customer care and billing system automatically tracks and credits the
subscriber's account, thus providing Voyager with valuable marketing information
and flexibility with this program. Voyager also markets its services through
strategic relationships with value added resellers in the local communities,
such as computer stores, trade associations, unions, Web development companies,
local area network administrators and other retail stores which represent and
promote Voyager on a commission basis. These relationships are a significant
source of new customers. In addition, Voyager offers free Internet training
classes within its markets to cultivate interest in the Internet and increase
brand recognition. Voyager does not use mass marketing media as a major source
of acquiring new customers, but instead believes that by providing superior
customer service and developing strong relationships within local communities,
particularly in small- and medium-sized markets, Voyager can continue to grow at
rates greater than the industry average with very low costs per new customer
acquired.
Web-based Marketing. Voyager maintains a Web site (www.voyager.net) that
provides Internet users with the opportunity to learn about Voyager and enroll
in one of its Internet access service plans. Upon viewing information on
Voyager's services, potential customers can either subscribe online or contact a
customer support employee for enrollment. Customers who sign up online or
through Voyager's toll-free number have their accounts created immediately and
are thus able to use their accounts within minutes of account activation.
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Free CDs and Diskettes. Upon the request of prospective customers,
Voyager distributes free software via CD and diskettes that contain both the
Netscape browser software for Windows 95, Windows 3.1 and Macintosh as well as
Microsoft's Internet Explorer 4.0. The software is configured to facilitate
installation and connection to a Voyager point of presence. Individuals
receiving the CD or diskettes have the opportunity to obtain the free browser
software contained on the CD by opening an account with Voyager, either online
or via a toll-free telephone number. New customers can be online in a matter of
minutes after opening an account online or by calling Voyager's toll-free
telephone number.
Business Sales and Support. Voyager has a business sales and support team
dedicated to selling and providing customized support to its growing small- and
medium-sized business customers. Voyager's business teams include support
personnel located throughout its target region. This strong local presence
allows it to meet face-to-face with its business customers to evaluate their
needs and respond with customized solutions. Voyager's locally-based sales and
support teams are supported by additional network engineers at its headquarters
for trouble-shooting on specific problems.
CUSTOMER SERVICE AND TECHNICAL SUPPORT
Voyager provides its customer service and technical support through two
large call centers located in East Lansing, Michigan and New Berlin, Wisconsin.
Voyager provides 100% of its customer care internally and does not outsource any
customer operations to third party providers. Voyager has staffed its call
centers with over 260 employees, or more than 50% of its workforce. Voyager's
two main centers are fully-integrated so that both centers can handle calls from
subscribers located anywhere within the region. This interoperability allows
Voyager to more efficiently handle support calls, thus reducing telephone hold
times. Voyager has upgraded its phone system that routes calls, tracks important
call-in data, automatically answers certain questions and moves customers
quickly through the call-in process. Its comprehensive staff training program
and incentive compensation program linked to customer satisfaction has led to
significant improvements in the time required to move subscribers through the
various calling queues. In addition to using Voyager's call centers, subscribers
can also e-mail questions directly to technical support staff, as well as find
solutions online through the use of the tutorials found at Voyager's Web site.
Voyager's free Internet training and educational classes within its markets also
allow its customers and potential subscribers to ask questions about the
Internet and Voyager's services.
NETWORK AND TECHNOLOGY
Network Infrastructure. Voyager designed and built its network to
specifically service Internet (data) traffic. The network is comprised primarily
of the latest Cisco Systems' routing and switching equipment, which provides a
common platform for increased flexibility and maintenance while allowing for the
use of advanced routing protocols to quickly and dependably deliver customer
traffic. Voyager has two network operating centers to oversee traffic flows and
general network operations, as opposed to a single network operating center as
found in many national networks, which helps create
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redundancy and ensures a secure and reliable network. Voyager is continuously
improving its network infrastructure and connectivity costs through its
relationships with incumbent local exchange carriers such as Ameritech
Corporation and GTE Corporation as well as with competitive local exchange
carriers such as Brooks Fiber (MCI WorldCom), Phone Michigan (McLeodUSA), Time
Warner, Coast to Coast and Focal Communications.
Voyager's points of presence are linked to regional network points, or
hubs, which are its two network operating centers. These network points are
linked to the Internet by fiber optic connections and employ asynchronous
transfer mode, frame relay and other methods of handling traffic efficiently.
Interlinked network points allow Internet users to access sites located on other
network points. In the event that one of its subscribers wishes to access a Web
site that is located on another service provider's network, data is directed to
a network access point where information sharing is conducted under arrangements
known as peering. The flow of information across a network access point allows
information to be downloaded from one service provider's network to a subscriber
on another service provider's network.
Points of Presence. Voyager's approximately 200 dial-in points of
presence primarily utilize digital access servers manufactured by 3Com
Corporation and Lucent Technologies, Inc. These servers allow for a variety of
customer connections from standard dial-up to traditional telecommunications
lines, including integrated digital services network. Voyager's network has been
reconfigured to include redundant data circuits which will automatically route
customer traffic in the event of a failure. Voyager's network topology offers
high levels of performance and security. Through various relationships with
competitive local exchange carriers, Voyager has been able to reduce the overall
number of points of presence by consolidating several of them into "SuperPOPs"
with expanded calling areas. The SuperPOP allows Voyager to consolidate its
equipment into one large modem bank and eliminate various telecommunication
links from its points of presence back to the network operating center, thereby
creating enhanced network reliability and reducing telecommunication costs.
Voyager has worked with its providers to create additional SuperPOPs and Voyager
intends to explore opportunities to create additional SuperPOPs in the future.
Network Operation Centers. Voyager has two main network operation
centers, or hubs, in East Lansing, Michigan and New Berlin, Wisconsin. These two
hubs house all of its internal network equipment, including servers, routers,
mail, hosting and disk arrays, as well as its main routing equipment and
connection to the Internet. The two hubs have been interconnected to provide
redundancy and to ensure the highest quality network. The hubs are monitored on
a 24 hours per day, seven days per week basis in order to provide the highest
level of network performance.
Peering Relationships. Peering is the act of exchanging data across
networks, typically at specific, discrete locations. By allowing separate
networks to exchange data, users on a particular Internet service provider's
network are able to access information and communicate with users on another
provider's network. Many formal peering points exist where several dozen
Internet service providers and other providers exchange data,
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including network access points. Internet service providers can also run
connections to peer with several different providers, known as multihoming.
Multihoming allows an Internet service provider to provide better service, as
inbound and outbound data can go over different routes if a particular network
is overloaded. Voyager has relationships at multiple points with several
different organizations, including Verio, Inc. in Ann Arbor, Michigan, NAP.net
in Chicago, Illinois and MCI and Savvis in Kalamazoo, Michigan, thus building in
network redundancy that allows for better connectivity for its customers.
Integrating Acquired Networks. As Voyager continues to play a leading
role in consolidating the Internet service provider industry, one of its tasks
is to configure the acquired equipment and network into its regional
Internet-based network. Voyager has taken steps to gain scale economies by
eliminating redundant and expensive Internet connectivity and better utilizing
Voyager's current infrastructure. Its integration plan calls for connecting the
acquired points of presence directly to its network at the most cost effective
point and eliminating duplicate Internet telecommunication costs. Voyager
typically connects within three to six months after the acquisition so as to
allow for a prompt yet smooth integration of the acquired networks and to reduce
service disruptions.
COMPETITION
The Internet services market is extremely competitive and highly
fragmented. Voyager faces competition from numerous types of providers in its
six state region and anticipates that competition will only intensify in the
future as the Internet service provider industry consolidates. Voyager believes
that the primary competitive factors determining success as an Internet service
provider are:
- accessibility and performance of service;
- quality customer support;
- price;
- access speed;
- brand awareness;
- ease of use; and
- scope of geographic coverage.
Voyager believes that it has competed favorably based on these factors,
particularly due to:
- regionally focused operating strategy;
- focus on customer care and service;
- performance of Voyager-owned network facilities; and
- competitive, multi-tiered pricing policy.
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Voyager's current competitors include many large companies that have
substantially greater market presence, brand name recognition and financial
resources. Some of Voyager's local or regional competitors may also enjoy
greater recognition within a particular community. Voyager currently competes,
or expects to compete, with the following types of companies:
- established online information service providers, which provide basic
Internet access as well as proprietary information not available through
public Internet access, such as America Online, Inc.;
- national Internet service providers, including EarthLink Network, Inc.;
- numerous regional and local Internet service providers, some of which
have significant market share in their particular market area;
- providers of Web hosting, co-location and other Internet-based business
services, such as Verio, Inc.;
- computer hardware and software and other technology companies that
provide Internet connectivity with their products, including IBM and
Microsoft Corporation;
- national long distance carriers such as AT&T Corporation, MCI WorldCom
and Sprint Corporation;
- regional Bell operating companies and local telephone companies;
- cable operators, including Tele-Communications, Inc. and Time Warner
Cable; and
- nonprofit or educational Internet service providers.
Many of the major cable companies and some other Internet access providers
have begun to offer or are exploring the possibility of offering Internet
connectivity through the use of cable modems. Cable companies, however, are
faced with large-scale upgrades of their existing plant equipment and
infrastructure in order to support connections to the Internet backbone via
high-speed cable access devices. Voyager believes that there is a trend toward
horizontal integration through acquisitions or joint ventures between cable
companies and telecommunications carriers. Other alternative service companies
have also announced plans to enter the Internet connectivity market with various
wireless terrestrial and satellite-based service technologies. In addition,
several competitive local exchange carriers and other Internet access providers
have launched national or regional digital subscriber line programs providing
high speed Internet access using the existing copper telephone infrastructure.
Several of these competitive local exchange carriers have announced strategic
alliances with local, regional and national Internet service providers to
provide broadband Internet access. Recently, several national access providers
have begun to offer Internet access for free or at substantial discounts to
prevailing rates, which may result in significant pricing pressure. Voyager also
believes that manufacturers of computer hardware and software products, media
and telecommunications companies and others will continue to enter the Internet
services market, which will also intensify competition. Any of these
developments could materially and adversely affect Voyager's business, operating
results and financial condition.
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GOVERNMENT REGULATION
The further deployment of competitive services in the market will continue
to be hampered by incumbent local exchange carrier activities. This is a
challenge not only affecting Voyager, but affects all competitive local exchange
carriers in all states in the country.
Voyager has begun negotiations of interconnection agreements with the major
incumbent local exchange carriers in its service territories. These agreements
set forth the terms, conditions and rates of Voyager's interconnection with the
incumbent local exchange carriers' telecommunications networks, including, but
not limited to, co-location and UNEs. Under the Federal Telecommunications Act
of 1996, these negotiations are to be commenced upon the competitive local
exchange carriers' written request for negotiations. If an interconnection
agreement is unable to be negotiated within 135-160 days after the incumbent
local exchange carriers' receipt of the written request for negotiation, either
party may petition the state public service commission/ public utility
commission for arbitration of the outstanding issues. Although each state varies
as to its own arbitration practice and procedure, parties generally present oral
and written evidence, participate at hearings at which witnesses are subject to
cross examination, and are allowed to submit briefs and response briefs in
support of their respective positions. 180-210 days after the complaint for
arbitration is filed is the normal time frame within which the state commission
will issue their decision.
Even if Voyager does not have an interconnection agreement with a
particular incumbent local exchange carrier, Voyager is able to order service
from the incumbent local exchange carrier's tariff in most circumstances. This
allows Voyager to continue to move forward with implementing its business plan
even though Voyager may not have an executed interconnection agreement. Upon
execution of an interconnection agreement, Voyager's continued ordering of
service from the incumbent local exchange carrier will be under the
interconnection agreement in what should be a seamless transition.
In addition to Voyager's competitive local exchange carrier services,
Voyager provides long distance service as a reseller through its subsidiary
Horizon Telecommunications, Inc. Long distance service consists of both
intrastate and interstate service and therefore is influenced by decisions of
both state commissions and the FCC. Voyager is authorized in all six states in
which it provides long distance service: Indiana, Illinois, Michigan, Minnesota,
Ohio and Wisconsin. As a reseller, Voyager does not have the significant capital
investment in network equipment necessary to provide long distance telephone
service. The state commissions and the FCC have implemented rules and procedures
for the transferring of customers from one provider to another in order to
reduce "slamming," the transfer of the customer from one long distance carrier
to another without the customer's consent. Voyager has long implemented
procedures to obtain a letter of authority, or other approved method (e.g.,
third party verification), to confirm that the customer does in fact want to
change from its current long distance provider to Voyager. Voyager has tariffs
on file with the FCC setting forth the terms, conditions and rates applicable to
its provisioning of long distance service. Although the long distance regulatory
environment is not as active as the local telecommunications arena, it is
difficult to predict how either state and/or federal regulatory authority will
62
impact the provisioning of long distance service in the short or long term. For
more information on government regulation of the telecommunications industry,
please refer to the section of this joint proxy statement and prospectus
entitled "Government Regulation of the Telecommunications Services Business."
INTELLECTUAL PROPERTY
Voyager has developed and acquired certain proprietary rights for which it
has sought and will continue to seek federal, state and local protection.
Voyager relies on a combination of copyright, trademark and trade secret laws to
protect its proprietary rights, particularly related to its names and logos.
"Voyager.net" and the associated logo are names and marks which belong to
Voyager. In addition, Voyager has registered VoyagerLink and several other
names, marks and logos, and has additional registrations pending for names and
marks, under which it does business at local levels within its region. An
integral part of its successful business strategy is its proprietary Web-based
customer care and billing system. Voyager is exploring whether to seek patent
protection with respect to this customer care system and will act accordingly.
Voyager has each of its employees enter into an inventions agreement under which
each agrees that any intellectual property rights developed while in Voyager's
employment belong to Voyager. Voyager cannot assure you that the steps taken by
it to protect its proprietary rights will be adequate to prevent
misappropriation of its technology or that third parties, including competitors,
will not independently develop technologies that are substantially equivalent or
superior to its proprietary technology.
In connection with the delivery of its access and other services, Voyager
relies on the use of products of software manufacturers that it bundles in its
software for users with personal computers operating on the Windows or Macintosh
platforms. While some of the applications included in its start-up kit for
access service subscribers are shareware that it has obtained permission to
distribute or that are otherwise in the public domain and freely distributable,
certain other applications included in the start-up kit have been licensed where
necessary. Voyager currently intends to maintain or negotiate renewals of all
existing software licenses and authorizations as necessary, although Voyager
cannot be certain that such renewals will be available to it on acceptable
terms, if at all. Voyager may also enter into licensing arrangements in the
future for other applications.
EMPLOYEES
As of June 30, 2000, Voyager had 487 employees, including 408 full-time
employees and 79 regular part-time employees. Voyager is not a party to any
collective bargaining agreements covering any of its employees, has never
experienced any material labor disruption and is unaware of any current efforts
or plans to organize its employees. Voyager considers its relationships with its
employees to be good.
PROPERTIES
Voyager leases each of its office locations. Voyager leases currently cover
in the aggregate approximately 55,000 square feet of space. Voyager has two
primary lease locations which serve as its network operating centers: East
Lansing, Michigan, which is also its corporate headquarters, with approximately
17,000 square feet, which lease
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expires in 2007; and New Berlin, Wisconsin, where Voyager leases space at four
locations covering in the aggregate approximately 25,000 square feet under
long-term leases. Voyager recently renegotiated its leases in East Lansing and
New Berlin to increase the square feet of space at these facilities to
approximately 32,000 square feet and 67,000 square feet, respectively. The
effective time of each lease is expected to be mid-July. Voyager also leases
space, typically less than 50 square feet per location, to house its network
equipment at each of its points of presence. Voyager does not own any real
estate. Voyager believes that its current facilities are suitable and adequate
for its business and, upon expiration of its leases, Voyager does not anticipate
any significant difficulty in obtaining renewals or alternative space in its
desired markets.
LITIGATION
Voyager has been, from time to time, involved in various litigation matters
arising in the ordinary course of business. Voyager is not involved currently in
any pending legal proceedings that, either individually or taken as a whole,
will have a material adverse effect on its business, financial condition and
results of operations.
ATX TELECOMMUNICATIONS SERVICES, INC.
ATX offers its customers a full range of high-speed communications services
including long distance, local, wireless and network services such as network
data integration, Internet access and Web consulting, development and hosting
throughout the New York-Virginia corridor. In addition, ATX offers Advanced
Communications Solutions products tailored to meet the needs of its business
customers, such as conference calling, travel services, pre-paid calling,
enhanced fax and PC-based billing. Customers are billed on a single,
consolidated invoice, delivered by traditional means or near real time Web-based
billing that allows the customer to sort the information to detail calling
patterns.
The predecessors to ATX started operations in 1985. On February 9, 2000,
ATX Telecommunications Services, Ltd., its general partner A.T. Communications,
Inc., Global Telecom Services, Ltd. and its general partner Global
Telecommunications, Inc., merged with and into ATX Telecommunications Services,
Inc., a newly-formed Delaware corporation, which was the surviving corporation.
BUSINESS STRATEGY
ATX intends to:
- PROVIDE INTEGRATED COMMUNICATIONS SERVICES AND TARGET HIGH GROWTH
SECTORS. ATX offers a full complement of high-speed data and
telecommunications services on a bundled and individual basis for which
it provides a single bill. ATX believes that providing one-stop
communications services, including local and long distance services as
well as data and Internet services, will help ATX to meet the needs of
its customers, penetrate its targeted markets, capture a larger portion
of its customers' communications expenditures and increase customer
retention. ATX is focusing on the following products in an effort to grow
its revenues: local service, network data integration, Web hosting/Web
development and Internet service.
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- CONTINUE TO DEVELOP A SUPER-REGIONAL NETWORK IN COMMUNICATIONS INTENSIVE
MARKETS. ATX's goal is to expand its network reach in the Northeast
region.
- TARGET SMALL- AND MEDIUM-SIZED BUSINESSES. ATX will continue to target
small-and medium-sized businesses, as well as Fortune 1,000 companies, in
the New York-Virginia corridor. ATX believes that these customers are
typically under-served by incumbent local exchange carriers and that they
will value ATX's ability to provide an integrated suite of advanced
telecommunications and consulting services on one bill. ATX believes that
its 15-year operating history and strong presence in its region make it
well-positioned to exploit this attractive market.
- EXPAND ATX'S SALES FORCE TO INCREASE REVENUE, MARKET SHARE AND GEOGRAPHIC
REACH. With an experienced sales force in the New York-Virginia
corridor, in an effort to expand its revenues, ATX plans to expand its
sales force going forward with new offices in southern New England,
southern New Jersey and New York.
- CONTINUE TO PENETRATE ENHANCED VOICE AND DATA SERVICES INTO ITS EXISTING
CUSTOMER BASE. ATX cross-sells voice and data services to its existing
customer base. ATX's dedicated client care specialists focus on customer
service and opportunities to introduce new products to existing accounts.
Compared with generating new customers, this process is less
time-intensive due to existing customers' familiarity with ATX and has
the ability to provide higher revenue margins because it is likely there
will be lower additional sales expense. Moreover, ATX believes that
providing additional services significantly increases customer retention.
Since April 1998, when ATX entered the local service market, ATX has
delivered local services to approximately 28% of its long distance
customer base. ATX plans to focus on marketing to its existing customers
its data products, including network data integration, Web hosting/Web
development and Internet service.
- EXPAND SMART-BUILD NETWORK EXPANSION FOCUSED ON CLUSTERED CUSTOMER
FOOTPRINT. ATX operates a capital-efficient switch and facilities-based
network that utilizes highly advanced technology. From its inception, ATX
has used a "smart-build" network strategy, building and owning the
intelligent components of its network while leasing unbundled local loops
and inter-exchange transport facilities from other carriers. The purpose
of this strategy is to allow ATX to enter new markets rapidly,
selectively target customer clusters, provide low cost redundancy, and
generate cash flow quickly, while minimizing capital expenditures. As a
result, approximately 90% of total ATX traffic originates and
approximately 75% of ATX traffic terminates on its network.
PRODUCTS AND SERVICES
ATX offers its customers a full range of broadband communications services.
ATX's current product offerings include:
Long distance. ATX has offered switched and dedicated long distance
services since its inception in 1985. Long distance services include
inbound/outbound service, international, 800 or 888 service and calling card
telephone service. ATX currently
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provides intraLATA and interstate long distance services nationwide and
international termination worldwide. ATX also offers a full line of Advanced
Communications Solutions along with long distance, Internet-based call
management, Insight billing applications, traveling calling cards, fax
broadcasting, voice mail, conference calling and enhanced call routing services.
Local. ATX's local service was introduced in April 1998. Following its
smart-build strategy, ATX captures market share as a reseller of local service
and then migrates customers on-switch to provide services on an unbundled
network element basis. ATX is focusing on increasing local service penetration
into its existing commercial customer base, expanding its sales force and
broadening its network.
Network Services. ATX offers a complete high-speed network solution to
its customers. These services include network data integration for private line
services, Internet services, Web design, development, hosting and consulting
services.
Internet Services. ATX utilizes a state-of-the-art network to deliver
Internet access designed for business use, ensuring high-speed, stable
connectivity to a global resource of information. ATX customers are connected
via high-speed dedicated lines, from 56K up to DS3.
Web Services/E-Commerce. ATX is able to facilitate virtually every aspect
of establishing and maintaining an interactive global presence in Web services.
The various segments of Web services include Web design, hosting, electronic
commerce, Intranet development, database integration, Internet marketing and
Internet security.
Consulting Services, Local Area Network/Wide Area Network Data Integration.
ATX's network services and integration unit assists organizations in the design,
construction, implementation and management of practical local and wide area
networks. This business unit manages local area network/wide area network data
integration for private line services, Internet network and integrated services
digital network, as well as professional consulting services and
hardware/software sales. ATX executes efficient and high performance solutions
while educating clients on specific business applications and the technology
that make them possible. Consulting services include wide area network
architecture and implementation, router and CSU configuration, local area
network switching, electronic commerce, cabling and VLAN design and set-up.
Wireless. ATX offers portable tools that enable wireless contact
throughout the United States. ATX offers wireless services primarily as a
customer retention tool, consisting of both cellular and paging service. ATX
offers digital and analog cellular services as well as ESMR service, which is
two-way radio and digital cellular service, through Nextel.
New Products and Services. ATX believes that DSL, network managed
services and co-location server farm for electronic commerce platforms offer
significant potential for revenue growth. ATX intends to continue focusing its
efforts on advancing these new products and services.
SALES, MARKETING AND DISTRIBUTION
The ATX sales model is based on its consultative sales approach, its
proprietary marketing and training tools, the experience of its sales force, its
"farm-team" training
66
and career development program, and its shared vision and incentive structure to
reward individual and team performance objectives.
Each ATX sales consultant provides value to the customer by tailoring
telecommunications products that meet the specific needs of the customer. Each
sale begins with an evaluative consultation that investigates the telecom needs
of the customer. The ATX sales consultant then designs a tailored, integrated
and cost-effective telecom platform that addresses the specific customer's
communications needs. The level of the sales consultant's telecom and customer
knowledge necessary to sell successfully can be achieved only through
significant training, mentoring and devotion of corporate resources.
ATX has an experienced and long-tenured sales force. Over 25% of ATX's
senior sales force professionals have been with ATX for more than 5 years, and
18 out of 22 members of the sales management team have been promoted from within
the ATX organization. ATX's 243 sales personnel are organized in ten teams,
including sales consultants at all levels.
GEOGRAPHIC MONTHLY REVENUE DISTRIBUTION
APPROXIMATE
PERCENTAGE
JURISDICTION OF REVENUE
------------ -----------
Pennsylvania.............................. 60.4%
Maryland.................................. 7.0%
New Jersey................................ 21.8%
Virginia.................................. 3.7%
Delaware.................................. 2.7%
Washington D.C............................ 1.1%
Other..................................... 3.3%
-----
Total............................... 100.0%
CUSTOMERS AND PROPRIETARY SYSTEMS
Customers. Approximately ninety percent of ATX's customers are located in
the New York-Virginia corridor. No single customer represents more than 2% of
total sales. These customers are typically under-served by the incumbent local
exchange carrier and value ATX's ability to provide an integrated complement of
advanced telecommunications and consulting services on one bill. All of ATX's
revenues are from end-users, with no wholesale, carrier or reciprocal
compensation revenues. In addition, a large portion of ATX's customers are in
industries, such as health services, insurance, legal services, banking and
transportation, that have a high demand for data intensive and comprehensive
telecommunication services.
Management Information Systems. ATX has invested in the construction of a
series of proprietary software applications and an extensive corporate Intranet
in its efforts to achieve a paperless work environment in which all job critical
information is readily available online. ATX's employees can use the corporate
Intranet to access detailed product and corporate information, industry research
and updates, competitive intelligence files, online training and certification,
calendars, a personnel directory,
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community activities, philanthropic organizations, and other important content
from the convenience of their desktops. Online forms and sophisticated e-mail
applications have further increased productivity by enhancing communications at
ATX.
ATX currently utilizes internally developed proprietary systems for
integrated order management and provisioning, as well as for customer relations
management. For billing, ATX uses a combination of an external service bureau
and proprietary software.
ATX NETWORK ARCHITECTURE
ATX employs a "smart build" network architecture for the delivery of local
and long distance telephony and data services. Since its predecessors'
inception, ATX has invested capital in switching and networking technologies.
ATX's growth has been through deliberate, planned expansion, resulting in an
efficient heterogeneous, interconnect network connecting the major metropolitan
service areas throughout North America. ATX's network development strategy has
focused around high-density commercial zones where ATX gains control of the
"last mile" of fiber or copper loop via a potential build or a lease. This "last
mile" ultimately connects each customer to the ATX network, which ATX believes
creates a desirable customer dynamic that affords operating efficiencies and
results in higher customer retention rates.
ATX believes that, in the future, a significant amount of
telecommunications traffic will utilize packet switching technologies. The
current and emerging technologies provide for the encapsulation of all types of
telecommunications services within a common packet switched protocol. As a
result, ATX is currently developing its network towards an Internet network,
packet switched, centric model.
COMPETITION
The telecommunications industry and all of its segments are highly
competitive and many of ATX's existing and potential competitors have greater
financial, marketing, technical and other resources than does ATX. ATX faces
heavy competition in the telecommunications industry for all of the services it
currently provides and those it intends to provide in the future. Competition
for ATX's products and services is based on price, quality, network reliability,
service features and responsiveness to customers' needs. ATX's strongest
competitors in the long distance market are AT&T and MCI-WorldCom, and to a
lesser degree, emerging competitive local exchange carriers. In the local
market, ATX's strongest competitors are AT&T (Teleport), MCI-WorldCom (MFS) and
Bell Atlantic. In the Internet connectivity market, MCI-WorldCom, Sprint and
some local Internet service providers offering dial-up connectivity in the small
business segment represent ATX's strongest competition. ATX's primary
competitors in the Web development market are local Web development companies.
Competition is relatively strong in the areas of network integration and
integrated access. In other markets, such as data communications and wireless,
ATX faces relatively strong competition.
EMPLOYEES
As of June 30, 2000, ATX had approximately 600 employees, none of whom are
represented by a labor union or are members of a collective bargaining unit.
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PROPERTIES AND FACILITIES
ATX's properties and facilities are listed in the table below:
PROPERTY SIZE LOCATION
------------------------------ --------------------------------- ----------------
Headquarters/Executive offices 50,000 sq. ft. Bala Cynwyd, PA
Network Operations Center 31,000 sq. ft. Philadelphia, PA
Sales Office 4,300 sq. ft. Vienna, VA
Sales Office 5,000 sq. ft. Towson, MD
Sales Office 4,000 sq. ft. Woodbridge, NJ
Sales Office 3,000 sq. ft. Allentown, PA
Sales Office 2,000 sq. ft. Newark, DE
Technical Operations Facility 1,700 sq. ft. Philadelphia, PA
ATX's headquarters/executive offices and primary technical operations
facility are leased from entities controlled by Michael Karp, the Chief
Executive Officer and principal stockholder of ATX. ATX currently pays
approximately $1.0 million per year in rent for its headquarters/executive
offices and approximately $450,000 per year in rent for its primary technical
operations facility. The lease for ATX's headquarters/executive offices expires
in January 2004, and ATX has an option to renew the lease for an additional five
years. The lease for ATX's primary technical operations facility expires in
December 2002. All of ATX's sales offices and the smaller technical operations
facility are leased. ATX pays a total of approximately $425,000 per year in rent
for its sales offices and the smaller technical operations facility. The leases
for ATX's sales offices and the smaller technical operations facility expire
between August 2001 and March 2005. ATX has options to renew certain of these
leases. For more information regarding these leases please read the section of
this joint proxy statement and prospectus entitled "Certain Relationships and
Related Transactions for ATX -- ATX Properties and Facilities."
LITIGATION
ATX is involved in legal proceedings arising in the ordinary course of
business. Management does not believe that any pending proceedings will have a
material adverse effect on ATX's financial condition or results of operations.
GOVERNMENT REGULATION
For information on government regulation of the telecommunications
industry, please refer to the section of this joint proxy statement and
prospectus entitled "Government Regulation of the Telecommunications Services
Business."
INTELLECTUAL PROPERTY
ATX has 18 registered service marks and has applied to register two
additional service marks.
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GOVERNMENT REGULATION OF
THE TELECOMMUNICATIONS SERVICES BUSINESS
The following section describes government regulation that is applicable to
the businesses of CoreComm, Voyager, ATX and post-merger CoreComm.
OVERVIEW
Many of the telecommunications services that post-merger CoreComm,
CoreComm, Voyager and ATX currently provide and will provide in the future are
regulated by federal, state and local government agencies. The following summary
does not purport to describe all current and proposed regulations and laws
affecting the telecommunications industry. Other existing federal and state
regulations and legislation are the subject of judicial proceedings, legislative
hearings and administrative proposals, which could change in varying degrees the
manner in which this industry operates. Neither the outcome of these proceedings
nor their impact on the telecommunications industry or our business can be
determined at this time. Future federal or state regulations and legislation may
be less favorable to us than current regulation and legislation and therefore
may have a material and adverse impact on our business and financial prospects.
In addition, we may expend significant financial and managerial resources to
participate in proceedings setting rules at either the federal or state level,
without achieving a favorable result.
At the federal level, the FCC has jurisdiction over interstate and
international services. Interstate services are communications that originate in
one state and terminate in another. State public service commissions exercise
jurisdiction over intrastate services, which are communications that originate
and terminate in a single state. Municipalities and other local government
agencies may also regulate limited aspects of post-merger CoreComm's business,
such as the use of government-owned rights-of-way and construction permits.
Post-merger CoreComm's networks also may have to comply with numerous local
regulations such as building codes, franchise and right-of-way licensing
requirements.
TELECOMMUNICATIONS ACT OF 1996
The Telecommunications Act of 1996 has resulted and will continue to result
in substantial changes in the marketplace for telecommunications services. These
changes include opening local exchange services to competition and a substantial
increase in the addressable services for us. Among its more significant
provisions, the Telecommunications Act:
- removes legal barriers to entry into all telecommunications markets,
including long distance and local exchange services;
- requires incumbent local exchange carriers, such as SBC or Bell South, to
"interconnect" with and provide telecommunications services for resale by
competitors;
70
- permits incumbent local exchange carriers, including Bell regional
operating companies in some circumstances to enter into new markets, such
as long distance and cable television;
- relaxes regulation of telecommunications services provided by incumbent
local exchange carriers and all other telecommunications service
providers; and
- directs the FCC to establish an explicit subsidy mechanism for the
preservation of universal service.
The FCC was also directed by Congress to revise and make explicit subsidies
inherent in the access charge paid by inter-exchange carriers for use of local
exchange carriers' services.
REMOVAL OF ENTRY BARRIERS
The provisions of the Telecommunications Act enable post-merger CoreComm to
provide a full range of telecommunications services in any state. Although
post-merger CoreComm will be required to obtain certification from state public
service commissions in almost all cases, the Telecommunications Act limits
substantially the ability of a state public service commission to deny a request
for certification. The provisions of the Telecommunications Act also reduce the
barriers to entry by other potential competitors and therefore increase the
level of competition post-merger CoreComm will likely face in all markets
affected by the Telecommunications Act. Please refer to the section of this
joint proxy statement and prospectus entitled "Risk Factors -- Risk factors
relating to post-merger CoreComm's business."
INTERCONNECTION WITH LOCAL EXCHANGE CARRIER FACILITIES
A company cannot compete effectively with the incumbent local exchange
carriers in the switched local telephone services market unless it is able to
connect its facilities with the incumbent local exchange carriers' facilities
and obtain access to essential services and resources under reasonable rates,
terms and conditions. The Telecommunications Act places a number of access and
interconnection requirements on all local exchange providers, including
competitive local exchange carriers, with additional requirements placed on
incumbent local exchange carriers. These requirements are intended to provide
access to networks under reasonable rates, terms and conditions. Specifically,
incumbent local exchange carriers must provide the following:
Separation of Network Elements. Incumbent local exchange carriers
must offer access to various parts of their network on a separate basis.
This requirement allows new competitors such as us to purchase at
cost-based rates elements of an incumbent local exchange carrier's network
that may be necessary to provide service to our customers.
Dialing Parity. All local exchange carriers must provide dialing
parity, which means that a customer calling to or from a competitive local
exchange carrier network cannot be required to dial more digits than is
required for a comparable call originating and terminating on the incumbent
local exchange carriers' network.
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Telephone Number Portability. Telephone number portability enables a
customer to keep the same telephone number when the customer switches local
exchange carriers.
Reciprocal Compensation. The duty to provide reciprocal compensation
means that local exchange carriers must terminate calls that originate on
competing networks in exchange for a cost based level of compensation and
that they are entitled to termination of calls that originate on their
network at the same level of compensation.
Resale. Local exchange carriers generally may not prohibit or place
unreasonable restrictions on the resale of their telecommunications
services. In addition, incumbent local exchange carriers must offer these
services to resellers at a wholesale rate that is less than the retail rate
charged to end users.
Collocation. Subject to space and equipment use limitations,
incumbent local exchange carriers must permit competitive local exchange
carriers to install and maintain certain types of their own network
equipment in incumbent local exchange carriers' central offices and remote
terminals. The rates, terms and conditions are subject to negotiation and,
failing agreement, to arbitration before state public utilities
commissions.
Access to Rights-of-Way. All incumbent local exchange carriers,
competitive local exchange carriers and certain other utilities must
provide access to their poles, ducts, conduits and rights-of-way on a
reasonable, nondiscriminatory basis.
Incumbent local exchange carriers are required to negotiate in good faith
with other carriers that request any or all of the arrangements discussed above.
If a requesting carrier is unable to reach agreement with the incumbent local
exchange carriers within a prescribed time, either carrier may request
arbitration by the applicable state commission.
The rates charged by incumbent local exchange carriers for interconnection
and separate network elements must be calculated using a forward-looking,
incremental cost methodology, but may still vary greatly from state to state.
These rates must be approved by state regulatory commissions, often following a
lengthy and expensive negotiation, arbitration, and review process. Recurring
and non-recurring charges for local loops and other separate network elements
may change based on the rates proposed by incumbent local exchange carriers and
approved by state regulatory commissions from time to time, which creates
uncertainty about how interconnection and separate element rates will be
determined in the future and which could have an adverse effect on our
operations. In January 1999, the United States Supreme Court upheld the FCC's
authority to adopt national pricing rules for interconnection services,
unbundled network elements, and resale by competitive local exchange carriers.
The Supreme Court left open, however, the question of the legality of the total
element long-run incremental pricing methodology adopted by the FCC. On July 18,
2000, the United States Court of Appeals for the Eighth Circuit vacated and
remanded several of the FCC's pricing rules, which may require the FCC to
implement a new pricing methodology that may be less
72
favorable to competitive local exchange carriers. For example, the Eighth
Circuit overturned the FCC's pricing rule that required the total element
long-run incremental cost of an element to be measured based on the use of the
"most efficient telecommunications technology currently available and the lowest
cost network configuration." The Eighth Circuit did, however, find that the use
of a forward-looking incremental cost methodology is reasonable. Portions of the
Eighth Circuit's July 2000 ruling may be appealed to the Supreme Court.
While the Telecommunications Act generally requires incumbent local
exchange carriers to offer interconnection, separate network elements and resold
services to competitive local exchange carriers, incumbent local exchange
carriers-to-competitive local exchange carriers interconnection agreements may
have short terms, requiring the competitive local exchange carriers to
renegotiate the agreements. In addition, incumbent local exchange carriers may
not provide timely provisioning or adequate service quality, thereby impairing a
competitive local exchange carrier's reputation with customers who can easily
switch back to the incumbent local exchange carriers. In January 1999, the
United States Supreme Court upheld the FCC's authority to adopt national pricing
rules for interconnection services, separate network elements, and resale by
competitive local exchange carriers.
On remand from the Supreme Court's January 1999 decision, the FCC adopted
an order on September 15, 1999, which specified the separate elements that
incumbent local exchange carriers must make available to competitors. The FCC
reaffirmed that incumbents must provide separate access to six of the seven
network elements that were listed in the FCC's 1996 order. According to the FCC,
separate access to the seventh item, operator and directory assistance services,
is no longer necessary to facilitate competition. The FCC's order also added
additional separate elements to the list -- subloops, portions of loops and dark
fiber -- but declined, except in limited circumstances, to require incumbent
local exchange carriers to separate the facilities used exclusively to provide
high-speed Internet access and other data services. In addition, the FCC
initiated a further rulemaking proceeding to consider whether carriers should be
able to combine separate elements to provide special access services in
competition with those provided by the incumbent local exchange carriers.
Portions of the FCC's 1999 ruling have been appealed by several parties.
In February 1999, the FCC determined that calls to Internet service
providers are interstate in nature, thus falling under the FCC's jurisdiction
and outside the scope of the Telecommunications Act's reciprocal compensation
requirements. The FCC initiated a review of compensation arrangements for calls
to Internet service providers but stated that, in the meantime, parties may
voluntarily include reciprocal compensation provisions in their interconnection
agreements and that state commissions may order compensation for termination of
Internet service provider calls. Many states decided to leave intact existing
decisions in favor of reciprocal compensation for Internet service
provider-bound calls. On March 24, 2000, the U.S. Court of Appeals for the D.C.
Circuit overturned the FCC's decision that calls to Internet service providers
are not local. The court found that the FCC had failed to explain adequately its
determination that a call does not
73
"terminate" at an Internet service provider merely because the Internet service
providers then originate further telecommunications that extend beyond state
boundaries. In response to this court ruling, the FCC could restate its original
jurisdictional conclusion, it could determine that calls to Internet service
providers are local, or it could create a new classification for them. If it
concludes that such calls are local, competitive local exchange carriers could
be entitled to reciprocal compensation under the Telecommunications Act for
terminating Internet service provider-bound traffic, which could have a
favorable impact on our revenues. Such a decision, however, could also
potentially lead to more state control over Internet-related services, which
could have a negative effect on our roll out of such services. Legislation has
been introduced in Congress that would declare Internet traffic not to be
subject to reciprocal compensation. Enactment of such a provision could have an
adverse effect on our revenues.
Several incumbent local exchange carriers have filed petitions at the FCC
and have initiated legislative efforts to effect a waiver of the obligation to
unbundle and offer services for resale with regard to high-speed data or
"advanced" services. In addition, certain incumbent local exchange carriers are
seeking to provide these services on an interLATA (long distance) basis before
they have been granted approval by the FCC pursuant to Section 271 of the
Telecommunications Act to enter the long distance market. Permitting incumbent
local exchange carriers to provision data services through separate affiliates
with fewer regulatory requirements could have a material adverse impact on our
ability to compete in the data services sector. The FCC imposed conditions on
the merger of SBC with Ameritech in October 1999 and on the merger of Bell
Atlantic and GTE in June 2000 that permit the provisioning of advanced data
services via separate subsidiaries under various requirements, some of which
expire in the near term. We cannot predict whether these requirements are
enforceable, nor whether they will deter anticompetitive behavior if they are
enforceable. Bell Atlantic's, now Verizon's, application for long distance
service in New York and SBC's application for long distance service in Texas
have been approved subject to similar separate subsidiary provisions. These
areas of regulation are subject to change through additional proceedings at the
FCC or upon judicial review.
Although the FCC has held that incumbent local exchange carriers providing
advanced services continue to be required to comply with the resale and
unbundling obligations of the Telecommunications Act, it has started a
proceeding to determine whether incumbent local exchange carriers can create
separate affiliates for advanced services that would be free of these
obligations. In November 1999, the FCC ruled that quality discounts on tariffed
digital subscriber line services that incumbent local exchange carriers provide
to Internet service providers need not be resold to competitive
telecommunications providers at lower wholesale rates.
The FCC has adopted rules requiring incumbent local exchange carriers to
provide collocation to competitive local exchange carriers for the purpose of
interconnecting their competing networks. Under the rules adopted by the Local
Competition Orders, incumbent local exchange carriers are required to provide
either physical collocation or virtual collocation at their switching offices.
Recently, the FCC established new rules
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designed to make it easier and less expensive for competitive local exchange
carriers to obtain collocation at incumbent local exchange carrier central
offices by, among other things, restricting the incumbent local exchange
carriers' ability to prevent certain types of equipment from being collocated
and requiring incumbent local exchange carriers to offer alternative collocation
arrangements to competitive local exchange carriers. On March 17, 2000, however,
the U.S. Court of Appeals for the D.C. Circuit overturned several of these
collocation rules, finding that the FCC had failed to make a determination about
whether all the types of equipment incumbent local exchange carriers are
required to collocate is "necessary" for interconnection or access to separate
elements. According to the court, such a determination is required under the
Telecommunications Act. The court also rejected other FCC rules that permit
competitive local exchange carriers to cross-connect their equipment with the
equipment of other competitive local exchange carriers and give competitive
local exchange carriers the option of collocating equipment in any unused space
in an incumbent local exchange carrier central office. While ultimately the FCC
could provide reasoned explanations for its current collocation requirements,
the uncertainty created by this court decision could provide incumbent local
exchange carriers with a basis for refusing to collocate multi-function
equipment or provide collocation in a timely and efficient manner. This could
have a negative impact on our network deployment plans.
In this March 17, 2000 order, the court also overturned the FCC's
determination that incumbent local exchange carriers must permit collocating
competitive local exchange carriers to cross-connect their facilities. The court
stated that the FCC failed to explain how cross-connects between competitive
local exchange carriers are necessary for interconnection with or access to the
separate elements of the incumbent local exchange carriers. In addition, the
court rejected some of the FCC's provisions regarding the implementation of
physical collocation, such as the requirement that incumbent local exchange
carriers give competitors the option of collocating equipment "in any unused
space." The immediate impact of these rulings is that incumbent local exchange
carriers may seek to hinder physical collocation, driving up collocation costs.
The FCC will have the opportunity to offer explanations for its decisions, but
these explanations may not be issued in the near future. The March 17, 2000
order did uphold FCC rules regarding cost allocation and imposing the
requirement that incumbent local exchange carriers provide cageless and adjacent
collocation.
On December 9, 1999, the FCC released an order that requires incumbent
local exchange carriers to offer line sharing as a separate network element by
June 6, 2000. Line sharing permits competitive local exchange carriers to use a
customer's existing line to provide DSL services while the incumbent local
exchange carrier continues to use the same line to provide voice service. Prices
for line sharing will be set by the states based on a cost methodology adopted
by the FCC. This decision has been appealed. In the meantime, a number of Bell
regional operating companies have reached agreements to provide line sharing at
no or at very low cost, subject to a true-up once the applicable state
commission sets a price. These cost-based line sharing charges may improve the
business outlook for our Internet-related products and services initiatives.
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SBC, through its Project Pronto, is changing its network architecture.
These changes may have an impact on CoreComm's ability to interconnect and
collocate for the provision of DSL services. One of the changes is the
replacement of copper lines with fiber lines in certain parts of the SBC
network. Currently, many types of DSL services can be transmitted only over
copper lines. Another change involves a reduction in the size of remote terminal
facilities in SBC's network. This limits the space available for CoreComm and
other providers to place their DSL equipment in those remote terminal
facilities. SBC may also be deploying DSL-related equipment that is not
compatible for interconnection with competitors' DSL equipment.
In addition to requiring the incumbent local exchange carriers to open
their networks to competitors and reducing the level of regulation applicable to
competitive local exchange carriers, the Telecommunications Act also reduces the
level of regulation that applies to the incumbent local exchange carriers,
thereby increasing their ability to respond quickly in a competitive market. For
example, the FCC has applied "streamlined" tariff regulation of the incumbent
local exchange carriers, which shortens the requisite waiting period before
which tariff changes may take effect. These developments enable the incumbent
local exchange carriers to change rates more quickly in response to competitive
pressures. The FCC has also adopted heightened price flexibility for the
incumbent local exchange carriers, subject to specified caps. If exercised by
the incumbent local exchange carriers, this flexibility may decrease CoreComm's
ability to compete effectively with the incumbent local exchange carriers in its
markets.
The Telecommunications Act also gives the FCC authority to decide to
forebear from regulating carriers if it believes regulation would not serve the
public interest. The FCC is charged with reviewing its regulations for continued
relevance on a regular basis. As a result of this mandate, a number of
regulations that apply to competitive local exchange carriers have been, and
others may in the future be, eliminated. We cannot, however, guarantee that any
regulations that are now or will in the future be applicable to us will be
eliminated.
Congress is considering a number of bills that would deregulate the
provision of advanced services by incumbent local exchange carriers. These
regulatory or legislative outcomes could have an adverse effect on our ability
to obtain access to the network elements necessary for the provision of advanced
services to our customers or to compete with incumbent local exchange carriers
in the provision of such services.
LOCAL EXCHANGE CARRIER ENTRY INTO NEW MARKETS
Our principal competitor in each local exchange market we enter is the
incumbent local exchange carrier. Bell regional operating companies are
currently permitted to provide long distance services to customers outside of
their local service areas and in conjunction with their mobile telephone service
offerings, but they are prohibited from providing long distance services that
originate in the states where they provide local telephone service, which is
referred to as in-region long distance service. Section 271 of the
Telecommunications Act established procedures under which regional Bell
operating
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companies can provide in-region long distance services in a state after
receiving approval from the FCC. To obtain approval, the regional Bell operating
companies must comply with a competitive checklist that incorporates, among
other requirements, the interconnection requirements discussed above. Please
refer to the section entitled "Government Regulation of the Telecommunications
Services Business -- Interconnection with Local Exchange Carrier Facilities."
Approval under Section 271 from the FCC will enable regional Bell operating
companies to provide customers with a full range of local and long distance
telecommunications services. The provision of long distance services by regional
Bell operating companies is expected to reduce the market share of the major
long distance carriers, which may be significant customers of our services.
Consequently, the entry of the regional Bell operating companies into the long
distance market may have adverse consequences on the ability of competitive
local exchange carriers such as us both to generate access revenues from the
inter-exchange carriers and to compete in offering a package of local and long
distance services. On December 22, 1999, the FCC approved an application filed
by Bell Atlantic, now Verizon, seeking authority to begin providing long
distance services to customers located in the State of New York. This action
represented the first Section 271 approval by the FCC, which on June 30, 2000,
also approved SBC's application for Section 271 authority in Texas. We
anticipate that Verizon, SBC and other Bell regional operating companies will
soon initiate similar proceedings to obtain long distance service authority in
other states in which we operate or plan to operate. For example, Verizon
already has begun the necessary regulatory review process in the Commonwealth of
Massachusetts.
COMPETITIVE LOCAL EXCHANGE CARRIER INTERSTATE ACCESS CHARGES
In addition to charging other carriers reciprocal compensation for
terminating local traffic, CoreComm also collects access charges from carriers
for originating and terminating interexchange traffic. Some interexchange
carriers, including AT&T and Sprint, have challenged the switched access rates
of certain competitive local exchange carriers, and have withheld some payments
for the switched access services that they continue to receive. Although no
formal complaints have been filed against CoreComm, AT&T and Sprint have filed
complaints against other competitive local exchange carriers asserting that such
competitive local exchange carriers' service charges for switched access
services are higher than those of the incumbent local exchange carriers serving
the same territory, and are therefore unjust and unreasonable. These
interexchange carriers have refused to pay competitive local exchange carriers
any originating access charges in excess of the corresponding incumbent rate.
Because CoreComm's access charges are appreciably less than those of some
competitive local exchange carriers, and are lower than the access charges of
smaller incumbents having traffic volumes similar to CoreComm's, CoreComm does
not expect the FCC to require any appreciable reduction in CoreComm's tariffed
rates. In addition, in June 2000, the FCC denied the first complaint brought by
Sprint against another competitive local exchange carrier based solely on a
comparison of the rates of the competitive local exchange carrier to those of
incumbent local exchange carriers in the same territory.
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RELAXATION OF REGULATION
Through a series of proceedings, the FCC has established different levels
of regulation for "dominant carriers" and "non-dominant carriers." As a
non-dominant carrier, we are subject to relatively limited regulation by the
FCC. However, at a minimum, we must offer interstate services at just and
reasonable rates in a manner that is not unreasonably discriminatory.
One goal of the Telecommunications Act is to increase competition for
telecommunications services and thus reduce the need for regulation of these
services. To this end, the Telecommunications Act requires the FCC to streamline
its regulation of incumbent local exchange carriers and permits the FCC to
forbear from regulating particular classes of telecommunications services or
providers. Since post-merger CoreComm is a non-dominant carrier and, therefore,
is not heavily regulated by the FCC, the potential for regulatory forbearance
likely will be more beneficial to the incumbent local exchange carriers than to
us in the long run.
The Telecommunications Act requires all common carriers, including us, to
charge just and reasonable rates for their services and to file schedules of
these rates with the FCC. These schedules are known as "tariffs" and they
represent a contract between a carrier and its customers. The Telecommunications
Act permits the FCC to "forbear" from enforcing certain provisions of the
Telecommunications Act and the FCC has used this authority to determine that it
is in the public interest to prohibit non-dominant carriers from filing tariffs
for their interstate services. This decision of the FCC and its "mandatory
detariffing" was recently affirmed by the U.S. Court of Appeals for the D.C.
Circuit. Currently, the FCC is not permitting non-dominant carriers to file new
tariffs and will require existing tariffs to be withdrawn by 2001. The FCC's
preclusion of non-dominant interstate carriers from filing tariffs may increase
our exposure to litigation. Currently, tariffs contain provisions limiting the
liability of providers on a variety of issues. In the absence of filed tariffs,
carriers would have to rely on negotiated contracts with each customer to
provide these liability limitations.
Another FCC decision permits, but does not require, competitive local
exchange carriers to file tariffs for the charges that they levy on interstate
long distance carriers for completing calls to competitive local exchange
carriers' customers. Proposals are pending before the FCC to make detariffing of
access services mandatory for competitive local exchange providers. See
"Government Regulation of the Telecommunications Services Business -- Universal
Service and Access Charge Reform" below.
UNIVERSAL SERVICE AND ACCESS CHARGE REFORM
On May 8, 1997, the FCC issued an order implementing the provisions of the
Telecommunications Act relating to the preservation and advancement of universal
telephone service. This order requires all telecommunications carriers providing
interstate telecommunications services, including us, to contribute to universal
service support for schools, libraries and rural health care programs. Our
contribution to the federal support funds is calculated based on a percentage of
our gross end-user interstate and international telecommunications revenue.
Although we have already begun contributing
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to the federal universal service and high cost funds, the amount of our required
contribution changes each quarter. Various states are also in the process of
implementing their own universal service programs. We are currently unable to
quantify the amount of subsidy payments that we will be required to make and the
effect that these required payments will have on our financial condition.
On July 30, 1999, the United States Court of Appeals for the Fifth Circuit
overturned some of the FCC's rules governing the collection and distribution of
those payments. In October 1999, the FCC released two orders in response to the
Fifth Circuit's decision. One order permits incumbent local exchange carriers to
continue to recover their universal service contributions from access charges or
to establish end-user charges. The second order changed the contribution basis
for school/library funding to eliminate calculations based upon intrastate
revenues. A number of parties have petitioned the Supreme Court to review the
Fifth Circuit's decision. The Supreme Court recently agreed to decide the
constitutionality of the FCC's methodology used to compute universal service
support payments.
In May 1999, the FCC adopted a framework for a new, forward-looking,
high-cost support mechanism that will provide support for non-rural
telecommunications carriers. The FCC stated that the support mechanism will be
used only to determine federal support and will not impose any obligation on a
state to impose intrastate surcharges. It is not possible to determine at this
time what effect this ruling will have on the level of contributions we are
required to make to either the federal or various state universal service
programs, or if it will become easier for us to become qualified as recipients
of universal service funds when we serve high-cost areas.
In a related proceeding, on May 16, 1997, the FCC issued an order
implementing reforms to its access charge rules. Access charges are charges
imposed by local exchange carriers on long distance providers for access to the
local exchange network, and are designed to compensate the local exchange
carrier for its investment in the local network. The FCC regulates interstate
access and the states regulate intrastate access. This order required incumbent
local exchange carriers to substantially decrease over time the prices they
charge for switched and special access and changed how access charges are
calculated. These changes are intended to reduce access charges and shift
certain usage-based charges to flat-rated, monthly per-line charges. To the
extent that these rules are effective in reducing access charges, our ability to
offer customers lower-cost access services might be impaired.
On August 27, 1999, the FCC issued an order implementing further reforms to
its access charge rules. The FCC's order granted most local exchange carriers
greater pricing flexibility and instituted other access charge reforms designed
to increase competition and reduce access charges. These changes could impair
our ability to offer customers lower-cost access services. The FCC also issued a
notice of proposed rulemaking, proposing additional pricing flexibility. In
addition, the FCC has initiated a proceeding to consider whether to adopt rules
constraining competitive local exchange carrier access charges. To the extent
competitive local exchange carrier access charges are reduced, our revenue could
decrease.
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On May 31, 2000, the FCC issued an order adopting an integrated interstate
access reform and universal service proposal put forth by a coalition of
incumbent local exchange carriers and inter-exchange carriers. These reforms are
aimed primarily at price cap (incumbent) local exchange carriers, but it is too
early to assess what impact, if any, they will have on CoreComm.
Some state public service commissions have adopted rules or are currently
considering actions to preserve universal services and promote the public
interest.
LOCAL GOVERNMENT AUTHORIZATIONS
Many jurisdictions where we may provide services require license or
franchise fees based on a percentage of certain revenues. Because the
Telecommunications Act specifically allows municipalities to charge fees for use
of the public rights-of-way, it is likely that jurisdictions that do not
currently impose fees will seek to impose fees in the future. However, the
amount and basis of these fees have been successfully challenged by several
telecommunications service providers. Federal courts have struck down municipal
ordinances that:
- do not relate the fees imposed under the ordinance to the extent of a
provider's use of the rights-of-way;
- do not relate the fees imposed under the ordinance to the costs incurred
by the local government in maintaining the rights-of-way; or
- seek to impose fees based on a concept of the "value" of the use to the
provider by relating the fees to provider revenues.
Additionally, because the Telecommunications Act requires jurisdictions to
charge non-discriminatory fees to all telecommunications providers,
telecommunications providers are challenging municipal fee structures that
excuse other companies, particularly the incumbent local exchange carriers, from
paying license or franchise fees, or allow them to pay fees that are materially
lower than those that are required from new competitors such as CoreComm. A
number of these decisions have been appealed and, in any event, it is uncertain
how quickly particular jurisdictions will respond to the court decisions without
a specific legal challenge initiated by us or another competitive local exchange
carrier to the fee structure at issue.
REGULATION OF RESELLERS
The FCC has defined resale as any activity in which a party, the reseller,
subscribes to the services or facilities of a facilities-based provider, or
another reseller, and then reoffers communications services to the public for
profit, with or without adding value. Resellers are common carriers generally
subject to all rules and regulations placed on providers of the underlying
services by either the FCC or the states in which they operate. The FCC has held
that prohibitions on the resale of common carrier services are unjust,
unreasonable, and unlawfully discriminatory in violation of the
Telecommunications Act. Accordingly, all common carriers must make their
services available for resale at rates, terms, and conditions that do not
unreasonably discriminate against
80
resellers. The Telecommunications Act imposes the additional duty upon incumbent
local exchange carriers to make their services available for resale at wholesale
rates. The FCC adopted specific requirements for determining these wholesale
rates for local telecommunications services. While the United States Supreme
Court upheld the FCC's authority to adopt these rules, the FCC's specific
pricing rules remained subject to further judicial review.
On July 18, 2000, the United States Court of Appeals for the Eighth Circuit
vacated the FCC's rule that required the incumbent local exchange carriers to
exclude all costs that reasonably can be avoided when an incumbent local
exchange carrier provides a telecommunications service for resale at wholesale
rates to a requesting carrier. The Eighth Circuit ruled that incumbent local
exchange carriers should only exclude those costs that an incumbent local
exchange carrier will actually avoid incurring in the future. To the extent that
the cost of resale services increases as a result of this Eighth Circuit
decision, our operating expenses could increase. This Eighth Circuit ruling may
be appealed to the Supreme Court.
As to other telecommunications service providers, such as competitive local
exchange carriers and wireless providers, there is no regulation that requires
them to give discounts to resellers below the rates offered to end users of the
same quantities of similar services. The FCC's requirement that wireless
providers offer resale services is currently set to expire on November 24, 2002.
LOCAL MULTIPOINT DISTRIBUTION SERVICE
The FCC has established a new wireless service referred to as local
multipoint distribution service. The FCC allocated two frequency blocks in each
of 493 Basic Trading Areas in the United States to local multipoint distribution
service: Block A with 1,150 MHz of spectrum in the 28 GHz and 31 GHz bands, and
Block B with 150 MHz in the 31 GHz band. Local multipoint distribution service
licenses are awarded for ten-year terms with renewal expectancies provided to
licensees that make a showing of substantial service in their licensed areas.
Local multipoint distribution service may be used to provide any kind of
communications service on a common carrier or non-common carrier basis. Radio
frequencies in the 28 and 31 GHz bands are generally capable of only
"line-of-sight" transmission and reception, may receive interference from
certain weather conditions, and do not lend themselves to mobile applications.
Local multipoint distribution service is expected to be used for the delivery of
various broadband services to homes and offices, including telecommunications,
Internet access and two-way video. At least seven other countries, including
Canada and Mexico, have licensed local multipoint distribution service on either
a permanent or experimental basis. Local multipoint distribution service
licensees are expected to be able to provide a wide array of services, two-way
capabilities and high capacity through the use of newer digital equipment and
transmission mechanisms. The FCC expects that Block-A local multipoint
distribution service licensees especially, by applying cellular-style frequency
re-use technology to an already
81
large frequency bandwidth, have the potential to become competitors to incumbent
local exchange carriers and cable operators.
In the initial auction, CoreComm won 15 Block-A licenses for Basic Trading
Areas encompassing substantially all population centers in the state of Ohio,
for a total bid of $25,241,133. The FCC has since granted CoreComm's 15 local
multipoint distribution service licenses with an effective date of June 8, 1998.
INTERNATIONAL OPERATIONS
CoreComm already provides international resale services and may ultimately
expand its operations to other countries. The FCC requires every carrier that
originates international telecommunications from within the U.S., either through
the use of its own facilities or on a resale basis, to secure in advance an
authorization from the FCC under Section 214 of the Telecommunications Act.
Additionally, these carriers must file with the FCC a tariff containing the
rates, terms, and conditions of their international service offerings. CoreComm
holds a Section 214 Authorization for both facilities-based and resale
international services and has filed a tariff for its international resale
services.
INTERNET REGULATION
The FCC currently does not regulate the provision of Internet service,
although it does regulate common carriers that provide elements of the
"backbone" networks on which the Internet is based. Similarly, state public
utility commissions generally do not regulate Internet service, except in some
limited circumstances where incumbent local exchange carriers provide Internet
services. The FCC and some states, however, are reviewing the development of the
Internet and the types of services that are provided through it. For example, if
the FCC should determine that an Internet service provider offers a service that
is an exact substitute for long distance telephone service with the sole
distinction that it is based on a packet-switched network rather than a circuit-
switched network, the FCC may determine that it should impose similar regulation
on the new services.
STATE REGULATION GENERALLY
Most states require companies to be certified or authorized by the state's
public utility commission in order to provide common carrier services. These
certifications generally require a showing that the carrier has adequate
financial, managerial and technical resources to offer the proposed services in
a manner consistent with the public interest.
In addition to obtaining certification, in each state, we must negotiate
terms of interconnection with the incumbent local exchange carrier before we can
begin providing switched services. See "Government Regulation of the
Telecommunication Services Business -- Interconnection with Local Exchange
Carrier Facilities." State public utility commissions are required to approve
interconnection agreements before they become effective and must arbitrate
disputes among the parties upon request. We have already entered into
interconnection agreements with Ameritech, which is now a part of SBC,
82
Cincinnati Bell Telephone and Verizon. We have also initiated the process of
negotiations with SBC and Verizon for additional interconnection agreements.
Regulatory changes could require renegotiation of relevant portions of existing
interconnection agreements, or require additional court and regulatory
proceedings.
We are not presently subject to price regulation based on costs or
earnings. Most states require competitive local exchange carriers to file
tariffs setting forth the terms, conditions and prices for intrastate services.
Some states permit tariffs to list a rate range or set prices on an individual
case basis. Other state requirements may include filing of periodic reports, the
payment of regulatory fees and surcharges and compliance with service standards
and consumer protection rules.
Several states provide incumbent local exchange carriers with flexibility
for their rates, special contracts (selective discounting) and tariffs,
particularly for services that are considered to be competitive. This pricing
flexibility increases the ability of the incumbent local exchange carrier to
compete with us and constrains the rates we may charge for our services. States
may grant incumbent local exchange carriers additional pricing flexibility. At
the same time, some incumbent local exchange carriers may request increases in
local exchange rates to offset revenue losses due to competition.
Some states require prior approvals or notification for certain transfers
of assets, customers or ownership of a competitive local exchange carrier and
for issuance of bonds, notes or other evidence of indebtedness or securities of
any nature. Delays in receiving required regulatory approvals may occur.
RECIPROCAL COMPENSATION
Reciprocal compensation is the compensation paid by one carrier to complete
local calls placed by its customers to customers on another local exchange
carrier's network. Because Internet service providers, such as Voyager, receive
many more calls than they make, we expect that after completion of the Voyager
merger, we will receive significantly more reciprocal compensation than we will
pay. However, as a result of uncertainties in the current regulatory environment
and several trends in the telecommunications business, which are discussed
below, it is not clear by how much CoreComm's revenues from reciprocal
compensation will increase over the next few years.
Some incumbent local exchange carriers have refused to pay reciprocal
compensation charges that they claim are the result of Internet service provider
traffic because they believe that this type of traffic is outside the scope of
existing interconnection agreements. On February 26, 1999, the FCC issued a
declaratory ruling and Notice of Proposed Rulemaking concerning Internet service
provider traffic. The FCC concluded in that ruling that Internet service
provider traffic is jurisdictionally mixed and largely interstate in nature, and
thus within the FCC's jurisdiction. However, the FCC also determined that there
was no federal rule that governed reciprocal compensation for Internet service
provider traffic at the time that the then-existing interconnection agreements
were negotiated and concluded that it should permit states to determine whether
reciprocal compensation should be paid for calls to Internet service providers
under existing interconnection agreements. The FCC requested comment as to what
83
reciprocal compensation rules should govern this traffic upon expiration of
existing interconnection agreements.
In light of the FCC's order, state commissions which have previously
addressed this issue and required reciprocal compensation to be paid for
Internet service provider traffic may reconsider and may modify their prior
rulings. Some recent state regulatory commission decisions regarding reciprocal
compensation calls placed to Internet service providers could result in lower
revenues for competitive local exchange carriers, including us, in those states.
The issue remains undecided in various other states. Several incumbent local
exchange carriers, including SBC and Verizon, are seeking to overturn prior
orders that they claim are inconsistent with the FCC's February 26, 1999 order.
The relief they seek includes repayment of reciprocal compensation amounts they
previously paid. The great majority of the state commissions that have
considered the issue since the FCC's February 26, 1999 order have rejected the
incumbent local exchange carriers' arguments and required them to pay reciprocal
compensation for Internet service provider-bound traffic. Only a small minority
of the state commissions that have considered the issue are not requiring
reciprocal compensation for this traffic, at least pending negotiations and a
further FCC decision. A few states are not requiring current payment, but are
requiring a true-up if necessary at the time of the FCC's future decision. In
addition, all of the federal courts that have reviewed this issue on the merits
have upheld state decisions requiring that reciprocal compensation be paid for
internet service provider-bound traffic.
On March 24, 2000, the U.S. Court of Appeals for the District of Columbia
Circuit vacated the FCC's declaratory ruling that Internet-bound calls,
including Internet service provider calls, are jurisdictionally interstate and
therefore not local calls for which reciprocal compensation is owed. The Court
remanded the proceeding to the FCC for a further review of the nature of these
calls for purposes of reciprocal compensation. CoreComm cannot predict the
impact of the Court's ruling on pending or future proceedings at this time. In
May 2000, the Illinois Commerce Commission, in an interconnection arbitration,
reaffirmed its prior holding that Internet service provider calls are local and
subject to payment of reciprocal compensation. However, the Illinois Commerce
Commission at the same time opened a general proceeding to examine the issues
surrounding the explosion of Internet traffic and its effect on the issue of
reciprocal compensation. A finding that reciprocal compensation is not payable
for Internet service provider traffic in Ohio, Illinois or New York would have
an adverse effect on our future revenues and business strategy.
As our existing interconnection agreements expire and as we enter new
markets, we must negotiate new reciprocal compensation rates and traffic scope
with each incumbent carrier. We expect that rates for Internet service provider
reciprocal compensation will be lower under new interconnection agreements than
under our existing agreements. A reduction in rates payable for Internet service
provider reciprocal compensation could have an adverse effect on our future
revenues and business strategy.
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THE MEETINGS
This joint proxy statement and prospectus is furnished in connection with
the solicitation of proxies (1) from the holders of CoreComm common shares by
the CoreComm board of directors for use at the CoreComm special meeting of
shareholders and (2) from the holders of Voyager common stock by the Voyager
board of directors for use at the Voyager special meeting of stockholders. This
joint proxy statement and prospectus and accompanying forms of proxy are first
being mailed to the respective stockholders of CoreComm and Voyager on or about
, 2000.
TIMES AND PLACES; PURPOSES
The CoreComm special meeting will be held at 10:00 a.m., local time, at the
conference rooms on the concourse level of Paul, Weiss, Rifkind, Wharton &
Garrison, located at 1285 Avenue of the Americas, New York, New York 10019, on
September , 2000. At the CoreComm special meeting, the shareholders of
CoreComm will be asked:
1. To consider and approve the domestication merger proposal to make
CoreComm a domestic U.S. company and to approve and adopt the related
domestication merger agreement. (See page 134).
2. If the domestication merger proposal is approved, to consider,
approve and adopt the merger agreement among CoreComm, Voyager.net, Inc.
and other parties, under which Voyager will become a wholly-owned
subsidiary of CoreComm and common stock of CoreComm (or its successor) will
be issued in addition to a cash payment to the current stockholders of
Voyager. (See page 91).
3. If the domestication merger proposal is approved, to consider,
approve and adopt the merger agreement among CoreComm, ATX
Telecommunications Services, Inc., all of the current ATX stockholders and
other parties. (See page 120).
4. To consider and approve the proposal to increase the authorized
share capital of CoreComm to 200 million common shares and 5 million
preferred shares. (See page 135). This proposal will be considered only if
neither the Voyager merger nor the ATX merger is approved.
5. To transact any other business as may properly come before the
meeting and any adjournments of the meeting.
The Voyager special meeting will be held at 9:00 a.m., local time, on
September , 2000 at the Second Floor Conference Center of Goodwin, Procter &
Hoar LLP, located at Exchange Place, 53 State Street, Boston, Massachusetts,
02109. At the Voyager special meeting, the stockholders of Voyager will be
asked:
1. To consider and vote upon a proposal to adopt the merger agreement
among Voyager, CoreComm Limited, CoreComm Merger Sub, Inc. and CoreComm
Group Sub I, Inc., a newly-formed wholly-owned subsidiary of CoreComm
Limited, which CoreComm Group Sub I, Inc. will merge with and into Voyager
with Voyager
85
continuing as the surviving corporation and as a wholly-owned subsidiary of
CoreComm, once it is domesticated (or its successor).
2. To transact any other business as may properly come before the
special meeting and any adjournments or postponements of the special
meeting.
THE CORECOMM SPECIAL MEETING
Voting Rights; Votes Required for Approval. The CoreComm board of
directors has fixed the close of business on August 11, 2000 as the record date
for the determination of the CoreComm shareholders entitled to notice of the
CoreComm special meeting. On August 11, 2000, there were 40,162,454 common
shares of CoreComm, which were held of record by 320 holders. As of July 13,
2000, CoreComm's directors and executive officers and their affiliates
beneficially owned an aggregate of 6,740,437 common shares of CoreComm
(excluding common shares reserved for options), or approximately 22.49% of the
outstanding shares of CoreComm entitled to vote on the proposals.
The presence, either in person or by proxy, of the holders of a majority of
the outstanding common shares of CoreComm is necessary to constitute a quorum at
the CoreComm special meeting. Assuming the existence of a quorum, the
affirmative vote of the holders of a majority of CoreComm's outstanding common
shares voting at that meeting is required to approve and adopt the Voyager
merger agreement, approve and adopt the ATX merger agreement, approve the
domestication merger, approve and adopt the domestication merger agreement and
approve the increase in CoreComm's authorized share capital. Holders of record
of CoreComm common shares on the CoreComm record date are entitled to one vote
per common share of CoreComm at the CoreComm special meeting.
If a shareholder attends the CoreComm special meeting, that shareholder may
vote by ballot. However, since many shareholders may be unable to attend the
CoreComm special meeting, those shareholders can ensure that their shares are
voted at the meeting by signing and dating the enclosed proxy card and returning
it in the envelope provided. When a proxy card is returned properly signed and
dated, the CoreComm shares represented by that proxy card will be voted in
accordance with the instructions on the proxy card.
Shareholders are urged to mark the box on the proxy card to indicate how
their CoreComm common shares are to be voted. If a shareholder returns a signed
proxy card but does not indicate how that shareholder's CoreComm shares are to
be voted, the CoreComm shares represented by the proxy card will be voted "FOR"
all of the proposals. The proxy card also confers discretionary authority on the
individuals appointed by the CoreComm board of directors and named on the proxy
card to vote the CoreComm shares represented on the proxy card on any other
matter that is properly presented for action at the CoreComm special meeting,
including any adjournments or postponements of the special meeting. That
discretionary authority will not be used to vote for adjournment of the CoreComm
special meeting to permit further solicitation of proxies if the shareholder
votes against any proposal.
86
Any CoreComm shareholder who executes and returns a proxy card may revoke
the proxy at any time before it is voted by:
- delivery to the Secretary of CoreComm, prior to the special meeting, a
written notice of revocation bearing a later date or time than the proxy;
- granting a subsequent proxy; or
- appearing in person and voting at the CoreComm special meeting.
Attendance at the CoreComm special meeting will not in and of itself
constitute revocation of a proxy.
Solicitation of Proxies. CoreComm will bear its own costs of solicitation
of proxies. The cost of preparing, printing and mailing this joint proxy
statement and prospectus will be paid by the party incurring those expenses.
Brokerage houses, fiduciaries, nominees and others will, upon request, be
reimbursed for their out-of-pocket expenses in forwarding proxy materials to
owners of CoreComm common shares held in their names. In addition to the
solicitation of proxies by use of the mails, proxies may be solicited from
CoreComm shareholders by directors, officers and employees of CoreComm in person
or by telephone, telegraph, facsimile or other appropriate means of
communication. No additional compensation, except for reimbursement of
reasonable out-of-pocket expenses, will be paid to these directors, officers and
employees of CoreComm in connection with the solicitation. In addition, D.F.
King & Co., a proxy solicitation firm, has been engaged by CoreComm to act as
proxy solicitor and will receive fees estimated at $10,000, plus reimbursement
of out-of-pocket expenses. Any questions or requests for assistance regarding
this joint proxy statement and prospectus and related proxy materials may be
directed to:
CoreComm Limited D.F. King & Co.
110 East 59th Street 77 Water Street
New York, New York 10022 New York, NY 10005
Attention: Amy Minnick Telephone: (212) 269-5550
Telephone: (212) 418-0315 Fax: (212) 809-8839
Fax: (212) 752-1157
Other Matters. CoreComm is not aware of any business or matter other than
those indicated above that may be properly presented at the CoreComm special
meeting. If, however, any other matter properly comes before the CoreComm
special meeting, the proxy holders will, in their discretion, vote on it in
accordance with their best judgment. Any proposal by a shareholder intended to
be presented at the 2001 annual meeting of shareholders must have been received
by CoreComm at the address listed above not later than December 28, 2000 for
inclusion in CoreComm's proxy statement and form of proxy relating to CoreComm's
2001 annual meeting of shareholders. CoreComm's board of directors will review
any shareholder proposals that are filed as required, and will determine whether
those proposals meet the criteria for inclusion in the proxy solicitation
materials or for consideration at the 2001 annual meeting. Copies of CoreComm's
bylaws are available to shareholders free of charge upon request to Amy Minnick,
Associate
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Director of CoreComm's Investor Relations. CoreComm retains discretion to vote
proxies on matters of which it is not properly notified.
THE VOYAGER SPECIAL MEETING
Voting Rights; Votes Required for Approval. The Voyager board of
directors has fixed the close of business on August 15, 2000, as the record date
for the determination of the Voyager stockholders entitled to notice of and to
vote at the Voyager special meeting. On August 15, 2000, there were 31,654,758
Voyager common shares outstanding, which were held of record by 94 holders. As
of August 15, 2000, Voyager's directors and executive officers beneficially
owned an aggregate of 20,837,577 shares of Voyager common stock (excluding
shares reserved for options), or approximately 65.8% of the outstanding Voyager
common stock entitled to vote on the merger proposal, which requires the
affirmative vote of a majority of Voyager's outstanding shares of common stock
voting together as a single class. In connection with the execution of the
Voyager merger agreement, certain principal stockholders of Voyager,
beneficially owning 63.9% of the outstanding shares of Voyager common stock,
agreed to vote in favor of the Voyager merger agreement, thus assuring that the
Voyager merger will be approved by the Voyager stockholders and therefore those
principal stockholders have sufficient voting power to assure adoption of the
Voyager merger agreement. Please refer to the section of this joint proxy
statement and prospectus entitled "The Merger Agreements -- The Merger Agreement
between CoreComm and Voyager -- Related Agreements -- The Voting Agreement" for
more information regarding the agreements of the principal stockholders of
Voyager and a description of the rights granted to CoreComm.
The presence, either in person or by proxy, of the holders of a majority of
the outstanding Voyager shares is necessary to constitute a quorum at the
Voyager special meeting. Assuming the existence of a quorum, the affirmative
vote of the holders of at least a majority of the issued and outstanding shares
of Voyager common stock is required to approve the merger with CoreComm. Holders
of record of Voyager common stock on the Voyager record date are entitled to one
vote per share at the Voyager special meeting.
If a stockholder attends the Voyager special meeting, that stockholder may
vote by ballot. However, since many stockholders may be unable to attend the
Voyager special meeting, the Voyager board of directors is soliciting proxies so
that each holder of Voyager common stock on the Voyager record date has the
opportunity to vote on the proposals to be considered at the Voyager special
meeting. The Voyager common stock represented by a properly signed, dated and
returned proxy card will be voted in accordance with the instructions on the
proxy card. WITH RESPECT TO ADOPTION OF THE MERGER AGREEMENT WITH CORECOMM, IF A
STOCKHOLDER DOES NOT RETURN A SIGNED PROXY CARD, THAT STOCKHOLDER'S VOYAGER
COMMON STOCK WILL NOT BE VOTED AND THUS WILL HAVE THE EFFECT OF A VOTE "AGAINST"
THE PROPOSAL. SIMILARLY, A BROKER NON-VOTE OR AN ABSTENTION WILL HAVE THE EFFECT
OF A VOTE "AGAINST" THE PROPOSAL.
Stockholders are urged to mark the box on the proxy card to indicate how
their shares of Voyager common stock are to be voted. If a stockholder returns a
signed proxy
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card, but does not indicate how their shares of Voyager common stock are to be
voted, the Voyager common stock represented by the proxy card will be voted
"FOR" all of the proposals. The proxy card also confers discretionary authority
on the individuals appointed by the Voyager board of directors and named on the
proxy card to vote the Voyager common stock represented thereby on any other
matter that is properly presented for action at the Voyager special meeting,
including any adjournments or postponements of the special meeting. That
discretionary authority will not be used to vote for adjournment of the Voyager
special meeting to permit further solicitation of proxies if the stockholder
votes against any proposal.
Any Voyager stockholder who executes and returns a proxy card may revoke
the proxy at any time before it is voted by:
- delivery to the Secretary of Voyager.net, Inc. at 4660 S. Hagadorn Road,
Suite 320, East Lansing, Michigan 48823, prior to the special meeting, of
a written notice of revocation bearing a later date or time than the
proxy;
- granting a subsequent proxy; or
- appearing in person and voting at the Voyager special meeting.
Attendance at the Voyager special meeting will not in and of itself
constitute revocation of a proxy.
Solicitation of Proxies. Voyager will bear its own costs of solicitation
of proxies. The cost of preparing, printing and mailing this joint proxy
statement and prospectus will be paid by the party incurring those expenses.
Brokerage houses, fiduciaries, nominees and others will, upon request, be
reimbursed for their out-of-pocket expenses in forwarding proxy materials to
owners of Voyager common shares held in their names. In addition to the
solicitation of proxies by use of the mails, proxies may be solicited from
Voyager stockholders by directors, officers and employees of Voyager in person
or by telephone, telegraph, facsimile or other appropriate means of
communication. No additional compensation, except for reimbursement of
reasonable out-of-pocket expenses, will be paid to these directors, officers and
employees of Voyager in connection with the solicitation. Any questions or
requests for assistance regarding this joint proxy statement and prospectus and
related proxy materials may be directed to:
Voyager.net, Inc.
4660 S. Hagadorn Road, Suite 320
East Lansing, Michigan 48823
Attention: James Militello
Telephone: (517) 324-5887
Fax: (517) 324-8965
STOCKHOLDER PROPOSALS
Voyager will hold an annual meeting of stockholders in the year 2000 only
if the Voyager merger has not been completed. Voyager will publicly announce the
date of such meeting once it has been set. Under the rules of the SEC relating
to when a
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company must include a stockholder's proposal in its proxy statement,
stockholder proposals intended to be included in the Voyager 2000 proxy
statement must be received at Voyager's principal executive offices no later
than the 10th day following the date on which Voyager publicly announces the
date of such meeting. Additionally, under the provisions of the Voyager by-laws
relating to nominations of persons for election to the Voyager board of
directors and the proposal of business, stockholder nominations and proposals
eligible to be considered at the Voyager 2000 annual meeting must be received at
Voyager's principal executive offices no later than the 10th day following the
date on which Voyager publicly announces the date of such meeting.
Other Matters. Voyager is not aware of any business or matter other than
those indicated above that may be properly presented at the Voyager special
meeting. If, however, any other matter properly comes before the Voyager special
meeting, the proxy holders will, in their discretion, vote thereon in accordance
with their best judgment. Copies of Voyager's by-laws are available to
stockholders free of charge upon request to Voyager's Investor Relations
Department. Voyager retains discretion to vote proxies on matters of which it is
not properly notified.
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THE MERGER TRANSACTIONS
THE MERGER BETWEEN CORECOMM AND VOYAGER
BACKGROUND OF THE MERGER BETWEEN CORECOMM AND VOYAGER
In January, 1998, Voyager retained Chase Securities, Inc. to evaluate
strategic alternatives for Voyager, including the possible sale of Voyager
which, at the time, was privately held. Chase set up an auction process for
exploring these alternatives that continued for approximately a month and a
half. During this auction process in which Chase contacted CoreComm for their
possible interest in such a transaction. On March 16, 1999, CoreComm submitted a
preliminary, non-binding indicative expression of interest to acquire Voyager.
CoreComm and Voyager did not enter into a transaction at that time due to
differences as to the valuation of Voyager. Following the auction process,
Voyager's management decided not to sell Voyager and went ahead with an initial
public offering in July 1999.
On December 15, 1999, Christopher P. Torto, Voyager's Chief Executive
Officer, was contacted by Albert E. Schneider III, a CoreComm consultant, to
reintroduce CoreComm to Voyager and discuss possible ways in which CoreComm and
Voyager could cooperate. A meeting was scheduled for December 20, 1999 at
Voyager's offices in East Lansing, Michigan.
On December 20, 1999, Mr. Torto and Glenn Friedly, Voyager's chairman, met
with Mr. Schneider at Voyager's offices. At the meeting, the parties discussed
various potential scenarios for cooperation, including a potential merger of the
companies.
On December 21, 1999, in light of its preliminary discussions with CoreComm
and its recognition of the significant consolidation occurring in the Internet
services providers market, Voyager engaged Morgan Stanley Dean Witter & Co.
Incorporated to explore the possibility of pursuing a strategic business
combination or possible sale of Voyager.
On January 17, 2000, Messrs. Torto and Friedly met with Barclay Knapp,
CoreComm's Chief Executive Officer, Patty Flynt, CoreComm's Chief Operating
Officer, Michael Peterson of CoreComm's Corporate Development group and Mr.
Schneider, in New Brunswick, New Jersey for an introductory meeting and to
discuss possible business combinations.
On January 28, 2000, representatives of CoreComm met with Mr. Torto at
Voyager's offices in order to perform operational due diligence on Voyager.
On January 30, 2000, Mr. Torto met in Atlanta, Georgia, with executives of
a major Internet service provider to discuss a possible acquisition of Voyager
by that company.
During the month of January 2000, Morgan Stanley contacted eleven parties,
including a larger Internet service provider, regarding the possible acquisition
of Voyager. Following this contact, a second larger Internet service provider
expressed an interest in Voyager and requested due diligence materials to
further evaluate a potential acquisition.
On February 2, 2000, Messrs. Torto and Friedly and a representative of
Morgan Stanley, met with Mr. Knapp, Ms. Flynt, Mr. Peterson and Mr. Schneider at
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CoreComm's offices in Cleveland, Ohio. At the meeting, the parties discussed the
various operating strategies of the two companies.
On February 3, 2000, Voyager received an oral proposal from the second
major Internet service provider to acquire Voyager. This proposal included
common stock of the second major Internet service provider issued at an exchange
ratio that reflected a ten percent premium to the exchange ratio based on the
then-prevailing market price of Voyager stock and did not include any cash
component. In addition, the second major Internet service provider demanded
exclusivity rights for a period of two weeks. Voyager's management felt that the
proposal was inadequate and that the request for exclusivity was inappropriate
in light of the preliminary status of the discussions between the parties.
On February 9, 2000, Goldman, Sachs & Co. was engaged by CoreComm to
undertake a study to render an opinion as to the fairness to CoreComm of the
possible acquisition of all or a portion of the stock or assets of Voyager.
On February 10, 2000, at a regularly scheduled meeting, the Voyager board
of directors discussed at length various growth strategies that might be
available to Voyager. The strategies included possible business combinations
with CoreComm, the two Internet service providers that had already contacted
Voyager and other companies. The Voyager board instructed management to continue
to explore strategic combinations with interested parties.
On February 15, 2000, representatives of CoreComm met with Chris Michaels,
Voyager's Chief Technology Officer, in East Lansing, Michigan. The purpose of
the meeting was to conduct further due diligence on Voyager's operations.
Following execution of confidentiality agreements with each of the second
Internet service provider and CoreComm, the parties and their attorneys and
accountants conducted due diligence between February 18-22. Legal counsel for
Voyager began the preparation of preliminary documentation for each of the
proposed business combinations.
On February 21, 2000, Mr. Schneider met with Mr. Torto in East Lansing,
Michigan to discuss a preliminary term sheet for a transaction with CoreComm.
The main items discussed were valuation, form of consideration, lock-up issues
and numerous employee issues, including the vesting of stock options under
Voyager's stock option plan.
On February 25, 2000, representatives of Voyager visited CoreComm's offices
in Cleveland to conduct due diligence on CoreComm's operations.
During the month of February 2000, Morgan Stanley continued discussions
with the two Internet service providers that had already contacted Voyager
regarding the potential sale of Voyager. The second Internet service provider
did not substantially change its offer, which Voyager's management believed to
be inadequate. The first Internet service provider never made a formal offer to
acquire Voyager. Of the other nine other parties contacted by Morgan Stanley,
none made a formal offer to acquire Voyager.
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A draft of a proposed merger agreement was sent to CoreComm on March 1,
2000 by Voyager's counsel. CoreComm's counsel began reviewing the draft at that
time.
On March 2, 2000, Mr. Peterson, on behalf of CoreComm, forwarded proposed
terms for a strategic business combination to Mr. Torto. The proposal
contemplated that CoreComm would acquire 100% of the outstanding capital stock
of Voyager through a merger. The proposed terms offered consideration of $15.00
per share for all of the outstanding shares of Voyager, with $3.00 to be paid in
cash and $12.00 to be paid in CoreComm common shares. In addition, CoreComm
requested a two week period of exclusivity. The letter setting forth the
CoreComm proposal provided that unless it was accepted by March 3, 2000, it
would be withdrawn.
On March 3, 2000, the Voyager board of directors met in New York, New York.
Mr. Torto described the CoreComm proposal to the Voyager board. Voyager's legal
and financial advisors discussed the process and the CoreComm proposal. It was
agreed that Voyager management would pursue further discussions with CoreComm
regarding the proposed business combination.
On March 4, 2000, Messrs. Friedly, Torto and John Hayes, a member of
Voyager's board of directors, met telephonically with their legal advisors and
Morgan Stanley to further discuss the structure and terms of the proposed
transaction with CoreComm. During discussions between representatives of Morgan
Stanley and CoreComm on March 4, 2000, after being told by Voyager that the
$15.00 per share offered by CoreComm was inadequate to enter into a transaction,
CoreComm increased the offered consideration to $16.00 per share for all of the
outstanding shares of Voyager, with $3.00 to be paid in cash and $13.00 to be
paid in CoreComm common shares. At that time it was agreed that management would
continue the discussions with CoreComm. It was arranged that the parties along
with their legal and financial advisors would meet in New York, New York on
March 5, 2000.
On March 5, 2000, the parties along with their legal and financial
advisors, met in New York, New York to discuss the general structure and terms
of the proposed transaction. During this meeting, CoreComm proposed a one week
period of exclusivity. After a lengthy discussion of the material issues that
would be presented by such a transaction, Voyager agreed to an exclusivity
period until Friday, March 10, 2000 at 12:00 noon. CoreComm's counsel continued
their review of the draft Voyager merger agreement and related documents and
provided a revised draft reflecting their comments. The parties agreed to a
meeting the following day to discuss the terms of the proposed transaction in
more detail. Although at this point a number of material terms were not
resolved, the parties had narrowed the issues considerably.
On March 6, 2000, the parties met again with their legal and financial
advisors. Counsel for Voyager identified open negotiation matters relating to
the proposed transaction. Mr. Peterson and Mr. Schneider met separately with Mr.
Torto to inform him of CoreComm's negotiations to acquire ATX. During the next
several days, Voyager's attorneys and financial advisors began conducting due
diligence on ATX.
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On March 7, 2000, the board of directors of CoreComm held a preliminary
meeting at which Messrs. Knapp and Peterson and Richard J. Lubasch, CoreComm's
general counsel, made a presentation to the CoreComm board of the principal
terms of the proposed agreements with Voyager as well as ATX. CoreComm's board
of directors gave approval to continue negotiations with each party.
On March 9, 2000, the CoreComm board of directors held another meeting at
which Messrs. Knapp, Peterson and Lubasch again discussed the principal terms of
the proposed merger with Voyager. At this meeting, Goldman Sachs delivered a
presentation to the CoreComm board of directors regarding its analysis of the
financial terms of the proposed transaction with Voyager. At the conclusion of
the presentation, Goldman Sachs expressed its willingness to render an opinion
as to the fairness to CoreComm of the consideration to be paid to Voyager under
the proposed Voyager merger agreement, subject to negotiation of a definitive
merger agreement with terms and in a form not materially different to the form
presented at the meeting. After discussion, the CoreComm board unanimously
determined that the proposed Voyager merger agreement, the Voyager merger and
the issuance of common shares of CoreComm in connection with the Voyager merger
were advisable and in the best interests of the CoreComm stockholders, and the
CoreComm board approved the Voyager merger agreement and the related issuance of
the common shares of CoreComm. The CoreComm board also unanimously resolved to
recommend that CoreComm's shareholders approve the issuance of the common shares
of CoreComm under the Voyager merger agreement.
On the morning of March 10, 2000, CoreComm and ATX issued a joint press
release publicly announcing CoreComm's agreement to buy ATX for approximately
$900.0 million in cash and stock.
On March 10, 2000, the parties reconvened in New York and continued
discussions to finalize the terms of the proposed merger.
On March 10, 2000, Messrs. Peterson and Schneider met with Mr. Torto and a
representative of Morgan Stanley to discuss further any open issues. Following
this discussion, Messrs. Torto, Friedly and Hayes, met with Messrs. Knapp,
Peterson and Schneider to discuss CoreComm's strategic direction and plans for
growth. Following such discussions, Mr. Torto continued the negotiation of the
terms of the proposed transaction with Mr. Knapp. At this time, the parties
finalized the economic terms of the transaction and agreed on an exchange ratio
of 0.292 CoreComm common shares for each Voyager share, $3.00 in cash
consideration per Voyager share, and the terms of the collar mechanisms.
On March 10, 2000, CoreComm and Voyager extended the exclusivity period
until Monday, March 13, 2000 at 12:00 noon.
From March 10, 2000 through March 12, 2000, definitive agreements to
implement the Voyager merger were finalized by the parties.
On March 12, 2000, prior to the execution of the definitive merger
agreement, Goldman Sachs delivered its oral opinion to CoreComm management,
which was
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subsequently confirmed by a written opinion, dated March 12, 2000 and addressed
to the CoreComm board, that as of that date, the stock consideration and the
cash consideration, in the aggregate, to be exchanged by CoreComm under the
merger agreement was fair from a financial point of view to CoreComm.
On the evening of March 12, 2000, the Voyager board of directors met by
telephone to discuss the proposed merger and the definitive documentation. Legal
counsel for Voyager summarized the status of negotiations and terms of the
definitive documentation for the Voyager board. Morgan Stanley made a financial
presentation to the Voyager board and delivered its opinion that the merger
consideration to be received by the holders of shares of common stock of Voyager
under the Voyager merger agreement was fair from a financial point of view to
Voyager's stockholders. After extensive discussions with its legal counsel and
its financial advisors of the risks and advantages of the proposed transaction
to Voyager and its stockholders, the Voyager board unanimously approved the
proposed Voyager merger, the Voyager merger agreement and the transactions
contemplated by it on the terms discussed at the meeting and authorized
management to complete and execute the definitive Voyager merger agreement.
On the morning of March 13, 2000, CoreComm and Voyager issued a joint press
release publicly announcing the Voyager merger and the execution of the Voyager
merger agreement.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF CORECOMM; REASONS FOR THE MERGER
The board of directors of CoreComm has determined that the Voyager merger
is in the best interests of CoreComm and its shareholders and has unanimously
approved and adopted the Voyager merger agreement. ACCORDINGLY, CORECOMM'S BOARD
OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF CORECOMM VOTE "FOR" APPROVAL
AND ADOPTION OF THE VOYAGER MERGER AGREEMENT.
In reaching the determination that the Voyager merger agreement and the
Voyager merger are in the best interests of CoreComm and its shareholders, the
CoreComm board consulted with CoreComm's management, as well as its financial
advisor, legal counsel and accountants and considered the short-term and
long-term interests of CoreComm and the other acquisitions available to
CoreComm. While the CoreComm board considered all of these factors, it did not
make determinations with respect to each of the factors. Rather, the CoreComm
board made its judgment with respect to the Voyager merger and Voyager merger
agreement based on the total mix of information available to it, and the
judgments of individual board members may have been influenced to a greater or
lesser degree by their individual views with respect to different factors.
Positive Factors Considered by the CoreComm Board of Directors. In making
its determination with respect to the Voyager merger, the CoreComm board
considered the following material positive factors:
Geographic Fit and Concentration. Voyager operates principally in
Michigan, Ohio, Wisconsin, Illinois and Indiana, and this coverage
complements CoreComm's
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geographic footprint in this region. In addition, because Voyager's
subscribers are geographically concentrated, CoreComm will have the ability
to offer telephone service to Voyager's subscribers.
Enhanced Position as an Integrated Communications Provider. The
Voyager merger will improve CoreComm's ability to market DSL services and
enlarge its subscriber base, which will enhance CoreComm's overall growth
potential. In addition, post-merger CoreComm will be able to cross-sell its
services to both Voyager and CoreComm customers, which will provide an
excellent opportunity for post-merger CoreComm to generate additional value
per subscriber. The aggregation of the customer base of CoreComm and
Voyager will also create a much larger Internet service provider that will
be better able to compete with other Internet service providers.
Voyager is a Unique Internet Service Provider Asset. Voyager is a
large independent Internet communications company focused on the Midwestern
United States. Voyager also has a large installed customer base and a
substantial network infrastructure. Voyager has also focused attention on
customer care and has been able to achieve good customer retention and
word-of-mouth referrals.
Complementary Business Strategies. Voyager and CoreComm have
complementary business models and services that will allow CoreComm to
offer a broader range of the two companies combined services to both
existing and new customers. Both companies have maintained a customer
focus, and their businesses rely on their ability to retain and attract
customers. Voyager's Internet service provider customers fit within
CoreComm's plan of marketing telephone services to Internet service
provider customers.
Strong Balance Sheet. Following the Voyager merger, post-merger
CoreComm is expected to have a strong balance sheet. The pro forma equity
of the two companies combined at December 31, 1999 is approximately $575
million. In addition, post-merger CoreComm should have access to a broad
range of financing, including secured and unsecured debt due to increased
physical assets.
Management Team. The Voyager merger will give CoreComm access to an
experienced management team that has the breadth and depth to effectively
lead and manage post-merger CoreComm's targeted growth in the Internet
service provider business, make future acquisitions and develop post-merger
CoreComm's "Internet-centric" plan.
Opinion of Goldman, Sachs & Co. Goldman, Sachs & Co. has delivered
its written opinion, dated March 12, 2000, to the board of directors of
CoreComm that, as of that date, the cash consideration and the stock
consideration, in the aggregate, to be exchanged under the Voyager merger
agreement was fair from a financial point of view to CoreComm. The opinion
of Goldman Sachs does not constitute a recommendation as to how any holder
of CoreComm common shares should vote with respect to the transaction. A
copy of Goldman Sachs' written opinion is attached to this joint proxy
statement and prospectus as Annex F, and the
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shareholders of CoreComm are encouraged to, and should read this opinion in
its entirety. Please also see the section of this joint proxy statement and
prospectus entitled "The Merger between CoreComm and Voyager -- The Opinion
of Goldman Sachs" for more detailed information regarding Goldman Sachs'
opinion.
Negative Factors Considered by the CoreComm Board of Directors. The
CoreComm board considered the matters described in this joint proxy statement
and prospectus under the heading "Risk Factors" as well as the following
potentially negative factors in its deliberations concerning the Voyager merger.
Unrealized Benefits. There is a risk that the potential benefits of
the Voyager merger may not be realized.
Loss of Key Management. There is a risk of management and employee
disruption associated with the Voyager merger, including the risk that
despite the efforts of post-merger CoreComm following the Voyager merger,
key technical, sales and management personnel might not remain employed by
post-merger CoreComm following the Voyager merger.
Service Disruptions. Any disruptions in Voyager's services due to the
Voyager merger or system failure could result in the loss of existing and
prospective customers, which is one of the key factors on which Voyager's
future success is dependent.
Market Changes. There is potential for the dial-up Internet service
provider services to become increasingly commoditized, as more Internet
service providers start offering dial-up service at lower prices.
Price Pressures. There is a possibility that the increased
competition could lead Internet-service providers to change pricing
structures, which could negatively affect Voyager's business and financial
results.
The CoreComm board concluded that potentially negative factors considered
by it were not sufficient, either individually or collectively, to outweigh the
advantages of the Voyager merger.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF VOYAGER; REASONS FOR THE MERGER
The board of directors of Voyager has determined that the terms of the
Voyager merger, the Voyager merger agreement and the transactions contemplated
by the Voyager merger agreement are fair to, and are in the best interests of,
Voyager and its stockholders. Voyager's board of directors has unanimously
approved the Voyager merger and the Voyager merger agreement. ACCORDINGLY,
VOYAGER'S BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF VOYAGER VOTE
"FOR" APPROVAL AND ADOPTION OF THE VOYAGER MERGER AND THE VOYAGER MERGER
AGREEMENT.
In reaching the determination that the Voyager merger and the Voyager
merger agreement are in the best interests of Voyager and its stockholders, the
Voyager board of directors consulted with Voyager management, legal counsel and
accountants and was advised by Morgan Stanley Dean Witter, its financial advisor
in this transaction, and
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considered the short-term and long-term interests of Voyager. In particular, the
Voyager board of directors considered the following material factors, among
others, all of which it deemed favorable, in reaching its decision to approve
the Voyager merger and the Voyager merger agreement:
- Value of Consideration to be Received by Voyager Stockholders in the
Voyager Merger as Compared to Historical and Recent Market Price of
Voyager Common Stock; Cash Consideration. Based upon the exchange ratio
and the closing price of CoreComm common shares on March 10, 2000 (the
last trading day prior to the public announcement of the Voyager merger),
Voyager stockholders would receive, subject to adjustment, post-merger
CoreComm common shares and cash in the Voyager merger having an aggregate
value of $17.00, representing a 31% premium over the closing price of
$13.00 for Voyager common stock on March 10, 2000 and a 15% premium over
$15.00, the price for Voyager common stock at the time of its initial
public offering. Additionally, the Voyager board of directors viewed as
favorable the meaningful cash component of the Voyager merger
consideration of $3.00 per share to be received by Voyager stockholders.
- Adjustment to Exchange Ratio. As a result of the Voyager merger, each
share of Voyager common stock held by a Voyager stockholder at the
effective time will be exchanged for 0.292 of a post-merger CoreComm
common share and $3.00 in cash. If the average trading price of common
shares of CoreComm during a specified period ending shortly before the
completion of the Voyager merger is at or below $56.97 and at or above
$41.17, for each share of Voyager common stock, Voyager stockholders will
receive 0.292 of a share of post-merger CoreComm common stock having a
value, based on the average trading price, ranging from $12.02 per share
to $16.64 per share. For more information about this "collar" provision,
please read the section of this joint proxy statement and prospectus
entitled "The Merger Agreements -- The Merger Agreement between CoreComm
and Voyager -- Merger Consideration."
- Termination Rights of Voyager in the Event of a Decrease in the Price of
CoreComm Common Stock. Voyager has the right to terminate the Voyager
merger agreement and "walk away" from the Voyager merger if the volume
weighted average closing price per share of the CoreComm common shares
described above decreases below $33.03, subject to CoreComm's option to
"top-up" or increase the number of post-merger CoreComm common shares to
be issued to Voyager stockholders so that the aggregate value of each
post-merger CoreComm common share to be received by Voyager stockholders
will be equal to at least $12.02.
- Voyager's Business, Condition and Prospects. The Voyager board of
directors recognized that the market for Internet service providers was
becoming increasingly competitive and that the industry, which had been
highly fragmented, was experiencing significant consolidation. The
Voyager board of directors considered Voyager's plan to remain
competitive in the rapidly evolving Internet communications industry
through the roll-out of its strategy to become a leading
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provider of broadband DSL services in the Midwest. In order to roll-out
its DSL plan, Voyager would need greater access to capital and expansion
of its senior and mid-level management. By merging with CoreComm, the
Voyager board of directors believed Voyager would enjoy significantly
greater access to such resources and particularly noted CoreComm's strong
management team.
- Structure and Tax-Free Nature of the Voyager Merger. The Voyager board
of directors viewed as favorable to its determination the fact that a
significant portion of the merger consideration to be received by Voyager
stockholders would be stock rather than cash. This allows the Voyager
stockholders both to share in any future appreciation of post-merger
CoreComm and to convert their shares of Voyager common stock into
post-merger CoreComm common shares on a tax-free basis, although Voyager
stockholders will be taxed on the lesser of cash received or gain
realized.
- Termination Rights of Voyager in the Event of a Superior Acquisition
Proposal and Termination Fee. The Voyager merger agreement permits the
Voyager board of directors to continue to receive unsolicited inquiries
and proposals regarding other potential business combinations, negotiate
and give information to third parties, and subject to the satisfaction of
certain conditions, in the exercise of its fiduciary duties, withdraw or
modify its recommendation to the Voyager stockholders regarding the
Voyager merger and enter into an agreement with respect to a more
favorable transaction with a third party, subject to the payment of a
$19.0 million termination fee to CoreComm.
- Increased Market Capitalization. As of March 10, 2000, on a pro forma
combined basis, assuming completion of the merger with Voyager and the
merger with ATX, the total market capitalization of the surviving
company, based on shares of common stock outstanding, would be
approximately $2.9 billion, which is considerably greater than the total
market capitalization of Voyager of approximately $411.0 million on this
date. Based in part on discussions with its financial advisors, the
Voyager board of directors believes that this increased total market
capitalization will provide Voyager stockholders with enhanced liquidity.
- Morgan Stanley Fairness Opinion. The board of directors of Voyager
considered as favorable to its determination the opinion, analyses and
presentations of Morgan Stanley to the effect, that as of the date of the
opinion, and based upon and subject to certain matters stated in the
opinion, the merger consideration to be received by the Voyager
stockholders was fair from a financial point of view to the stockholders.
The opinion of Morgan Stanley contains a description of the factors
considered, the assumptions made and the scope of review undertaken by
Morgan Stanley in rendering its opinion. A more detailed description of
Morgan Stanley's fairness opinion is provided below under the caption
"The Opinion of Morgan Stanley" and the full text of the opinion received
by the Voyager board of directors is attached as Annex E.
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The Voyager board of directors also considered the following potentially
negative factors in its deliberations concerning the Voyager merger:
- Limited Public Trading History. CoreComm was spun-off on September 2,
1998, and consequently, the CoreComm common shares have a limited trading
history in the public market. The Voyager board of directors, however,
did note that the value of a CoreComm common share had increased 372%
from its closing price on the first day after the spin-off to its closing
price on March 10, 2000, the last trading day prior to the public
announcement of the Voyager merger.
- Limited Public Float. Despite CoreComm's larger total market
capitalization, the average trading volume of its common shares since the
September 2, 1998 spin-off is 150,806 as contrasted with the average
trading volume of Voyager since its initial public offering on July 21,
1999, excluding the trading volume on July 21, 1999, of 398,276. The
Voyager board of directors believes that an increased public float will
result following the completion of the Voyager merger, as well as the ATX
merger, thus increasing liquidity for Voyager stockholders.
- Other Potential Transactions May Delay the Completion of the Voyager
Merger. The Voyager board of directors noted potential transactions by
CoreComm, including the ATX merger, prior to or simultaneously with the
completion of the Voyager merger, and the difficulty of evaluating the
Voyager merger in light of these potential transactions. The Voyager
board of directors also considered the possibility that the closing for
the Voyager merger could be delayed until October 31, 2000 or later as a
result of these transactions. This negative factor was partially offset
by providing for automatic adjustments to the exchange ratio to allow
Voyager stockholders to participate in a greater portion of any increases
in the trading price of CoreComm common shares in the event that the
Voyager merger is not consummated on or prior to July 15, 2000.
- Post-Merger CoreComm Will Have Substantial Indebtedness. The Voyager
board of directors considered the substantial indebtedness that
post-merger CoreComm will have after completion of the Voyager merger and
ATX merger.
- Successful Implementation of CoreComm Business Strategy May Not be
Realized. The Voyager board of directors considered the risk that
CoreComm is in the early growth stage of its development, having been
formed in September, 1998 from previously owned subsidiaries of another
company as well as from other independent businesses. As a result,
CoreComm has only recently begun to develop the necessary staff to
effectively manage and operate its businesses and implement its "Smart
LEC" strategy.
- Successful Integration of Acquisitions May Not be Realized. Post-merger
CoreComm's success in the telecommunications industry depends largely on
its ability to successfully integrate the businesses that it has acquired
in the recent past, as well as its ability to integrate the business of
Voyager and ATX following the mergers.
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- Anticipated Benefits May Not be Realized. The Voyager board of
directors considered the risk that the anticipated benefits of the
Voyager merger to Voyager's stockholders may not be realized as a result
of possible changes in the Internet services and telecommunications
industry in general, the inability to achieve the anticipated reduction
in expenses or other potential difficulties in integrating the two
companies.
- Significant Costs Involved. The Voyager board of directors considered
the significant costs involved in connection with completing the Voyager
merger and the ATX merger and the substantial management time and effort
required to complete the Voyager merger and the ATX merger.
The Voyager board of directors was aware of the potential benefits to the
members of Voyager's management and the Voyager board of directors, discussed
below in "Interests of Certain Persons In the Merger -- Voyager Affiliates,"
including the acceleration of certain options to acquire shares of Voyager
common stock; agreements by certain officers and directors to enter into revised
promissory notes related to outstanding loans owed to Voyager by those persons;
and the provisions granting indemnification and directors' insurance to the
directors of Voyager for actions and omissions of such person occurring prior to
the effective time of the Voyager merger. The Voyager board of directors
determined that these potential benefits were such that they would not affect
the ability of the members of the Voyager board of directors to discharge their
duties.
In view of the wide variety of factors considered by the Voyager board of
directors, the Voyager board of directors did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered. The Voyager board of directors viewed its position
and recommendation as being based on the totality of the information presented
to and considered by it. After taking into consideration all the factors set
forth above, the Voyager board of directors determined that the potential
benefits of the proposed Voyager merger outweighed the potential detriments
associated with the proposed Voyager merger.
THE OPINION OF GOLDMAN SACHS
Opinion of Goldman Sachs to CoreComm in the Voyager Transaction. Goldman
Sachs has delivered its written opinion, dated March 12, 2000, to the board of
directors of CoreComm that, as of that date, the stock consideration and the
cash consideration, in the aggregate, to be exchanged under the Voyager merger
agreement was fair from a financial point of view to CoreComm.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED MARCH 12, 2000,
WHICH IDENTIFIES ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX F AND IS
INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT AND PROSPECTUS.
SHAREHOLDERS OF CORECOMM ARE URGED TO, AND SHOULD, READ THIS OPINION IN ITS
ENTIRETY.
101
In connection with its opinion, Goldman Sachs reviewed, among other things:
- the Voyager merger agreement,
- the annual reports to shareholders and annual reports on Form 10-K of
CoreComm for the year ended December 31, 1998,
- registration statement on Form S-1 of Voyager relating to the initial
public offering of Voyager,
- interim reports to stockholders and Quarterly Reports on Form 10-Q of
CoreComm and Voyager,
- other communications from CoreComm and Voyager to their respective
stockholders,
- internal financial analyses and forecasts for CoreComm prepared by the
management of CoreComm,
- internal financial analyses and forecasts for Voyager prepared by the
management of Voyager and approved for use in its analyses by the
management of CoreComm, referred to as the Voyager forecasts, and
- estimates of operating synergies projected by the management of CoreComm
to result from the Voyager merger, referred to as the Synergies.
Goldman Sachs also held discussions with members of the senior managements
of Corecomm and Voyager regarding the past and current business operations,
financial condition, and future prospects of their respective companies. In
addition, Goldman Sachs:
- reviewed the reported price and trading activity for the CoreComm and
Voyager common stock and relied upon the various valuation analyses for
CoreComm that it had previously prepared in connection with the ATX
merger,
- compared financial and stock market information for CoreComm and Voyager
with similar information for selected other companies the securities of
which are publicly traded, and
- reviewed the financial terms of recent business combinations and
performed such other studies and analyses as it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion. Goldman Sachs assumed with
CoreComm's consent that the Voyager forecasts and synergies had been reasonably
prepared and reflected the best currently available estimates and judgments of
CoreComm. In addition, Goldman Sachs did not make an independent evaluation or
appraisal of the assets and liabilities of CoreComm or Voyager or any of their
respective subsidiaries and Goldman Sachs has not been furnished with any such
evaluation or appraisal. The opinion of Goldman Sachs was provided for the
information and assistance of the board of directors of CoreComm in connection
with its consideration of the transaction contemplated by the Voyager
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merger agreement and this opinion does not constitute a recommendation as to how
any holder of CoreComm shares should vote with respect to the transaction.
CoreComm and Voyager did not impose any material limitations on Goldman
Sachs in performing its financial analyses and investigations.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its written opinion, dated March 12,
2000, to CoreComm's board of directors.
THE FOLLOWING SUMMARIES OF FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED
IN TABULAR FORMAT. YOU SHOULD READ THESE TABLES TOGETHER WITH THE TEXT OF EACH
SUMMARY.
Historical Stock Trading Analysis. Goldman Sachs reviewed the historical
trading performance of the CoreComm and Voyager common stock and a composite
index comprised of certain publicly traded Internet service providers and the
S&P 500 for the period from March 3, 1999 to March 3, 2000. The Internet service
provider composite index consisted of America Online, Inc., EarthLink Network,
Inc., Flashnet Communications, Inc., Internet America, Inc., Juno Online
Services, Inc., NetZero, Inc. and OneMain.com, Inc. These companies were chosen
because they are publicly-traded companies with operations that for purposes of
analysis may be considered similar to Voyager. These analyses indicated that the
CoreComm common stock outperformed Voyager, the Internet service provider
composite and the S&P 500, while Voyager underperformed CoreComm, generally
outperformed the Internet service provider composite and generally
underperformed the S&P 500 during the period of time analyzed.
Selected Companies Analysis. Goldman Sachs reviewed and compared certain
financial information relating to CoreComm and Voyager to corresponding
financial information, ratios and public market multiples for the following
publicly traded corporations in the Internet service provider industry:
- America Online, Inc.
- EarthLink Network, Inc.
- Flashnet Communications, Inc.
- Internet America, Inc.
- Juno Online Services, Inc.
- NetZero, Inc.
- OneMain.com, Inc.
The selected companies were chosen because they are publicly traded
companies with operations that for purposes of analysis may be considered
similar to Voyager.
Goldman Sachs also calculated and compared various financial multiples and
ratios based on information it obtained from SEC filings, Goldman Sachs Equity
Research estimates, other equity research estimates and other publicly available
data. The multiples and ratios for CoreComm and Voyager were calculated using
their respective
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common stock closing prices on March 7, 2000. The multiples and ratios for
CoreComm and Voyager were based on information provided by their respective
management and publicly available data. The multiples and ratios for each of the
selected comparable Internet service providers were based on the most recent
publicly available information. Goldman Sachs' analyses of the selected
companies compared the following to the results for CoreComm and Voyager:
- levered market capitalization as a multiple of estimated 2000 revenue,
- levered market capitalization as a multiple of estimated 2001 EBITDA,
- levered market capitalization as a multiple of estimated 1999
subscribers, and
- levered market capitalization as a multiple of estimated 2000
subscribers.
The results of these analyses are summarized as follows:
MARKET VALUE -- MARCH
07, 2000
---------------------- MULTIPLE OF
REVENUE EBITDA SUBSCRIBERS
PRICE % OF 52 MULTIPLE MULTIPLE ----------------
COMPANY PER SHARE WK HIGH 2000E 2001E 1999E 2000E
------- ---------- -------- -------- -------- ------ ------
($ IN MILLIONS EXCEPT PER SHARE)
VOYAGER.NET, INC.................. 12.00 80 4.4X 17.6X $1,211 $ 743
------------------------------------------------------------------------------------------------------
America Online, Inc. ............. 56.00 60 10.1 10.7 3,515 2,566
EarthLink Network, Inc. .......... 23.56 78 9.5 67.5 865 594
Flashnet Communications, Inc. .... 6.63 14 1.2 10.7 305 222
Internet America, Inc. ........... 9.00 25 2.8 NA NA NA
Juno Online Services, Inc. ....... 19.25 29 4.3 NA 1,016 NA
NetZero, Inc. .................... 19.25 54 25.7 NM 1,373 897
OneMain.com, Inc. ................ 12.38 31 1.8 30.0 NA NA
------------------------------------------------------------------------------------------------------
MEAN.............................. 7.9X 29.7X $1,415 1,070
MEDIAN............................ 4.3 20.3 1,016 745
------------------------------------------------------------------------------------------------------
CoreComm.......................... 41.00 92 17.3 NM NA 8,568
Discounted Cash Flow Analysis. Goldman Sachs performed a discounted cash
flow analysis of Voyager on a standalone basis, as well as considering the
estimated potential benefits of the combination of Voyager and CoreComm, based
upon forecasts provided by Voyager management and approved for use in connection
with the opinion by the management of CoreComm. Goldman Sachs calculated a range
of per share values for the common stock based on the sum of (i) the discounted
present value of the five-year (2000-2004) stream of projected after-tax cash
flows of Voyager, using discount rates ranging from 14% to 18%; and (ii) the
present value of Voyager of the terminal value of Voyager in 2004, assuming an
EBITDA exit multiple range between 8.0x and 12.0x. The above financial
sensitivity analysis yielded per share values as of January 1, 2000 ranging from
$15.19 to $25.20 on a stand alone basis, and $32.97 to $56.77 when considering
the estimated potential benefits of the Voyager merger.
Goldman Sachs also examined the sensitivity of the discounted cash flow
value of Voyager to changes in operating assumptions. Using for illustration
purposes a weighted average cost of capital, or WACC, discount rate of 15% and
an EBITDA exit multiple of 11.0x, Goldman Sachs calculated the per share value
of Voyager common stock, on
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both a stand alone basis and considering the estimated potential benefits of the
combination, assuming the increase or decrease in revenues and basis change in
EBITDA margin. The results of these analyses are as follows:
Selected Transactions Analysis. Goldman Sachs compared information for
selected merger transactions in the Internet service provider industry for the
years 1997 through 1999, specifically, the acquisitions by:
- ICG Communications, Inc. of Netcom On-Line Communications Services, Inc.
(10/13/97)
- RCN Corporation of Erols Internet, Inc. (1/21/98)
- Verio, Inc. of NTX, Inc. (7/6/98)
- Verio, Inc. of Highway Technologies, Inc. (7/29/98)
- MindSpring Enterprises, Inc. of Spry, Inc. (9/8/98)
- Mindspring Enterprises, Inc. of Netcom On-Line Communications Services,
Inc(1/6/99)
- Earthlink Network, Inc. of MindSpring Enterprises, Inc. (9/23/99)
- Prodigy Communications Corporation of Flashnet Communications, Inc.
(11/8/99)
- Prodigy Communications Corporation of SBC Communications, Inc.'s internet
subscribers (11/22/99)
- OneMain.com, Inc. (18 different acquisitions).
Goldman Sachs reviewed the aggregate consideration paid as a multiple of
subscribers.
105
Pro Forma Merger Analysis. Goldman Sachs prepared pro forma analyses of
the financial impact of the merger using discounted cash flows estimates for the
five year period of 2000-2004 for CoreComm and Voyager prepared by their
respective managements. For each of the years 2000 through 2004, Goldman Sachs
assumed merger consideration to be comprised of 81% stock and 19% cash and a
share price of $17.00 per share of Voyager common stock. Based on such analyses,
the proposed transaction would be highly accretive to CoreComm stockholders on
an earnings per share basis in the years 2000 through 2004, considering the
estimated potential benefits of the combination and slightly dilutive to
CoreComm shareholders on an earnings per share basis in the years 2000 through
2004, on a stand alone basis.
Pro Forma Contribution Analysis. Goldman Sachs reviewed selected
estimated future operating and financial information for CoreComm, Voyager and
the combined company on a stand alone basis resulting from the merger based on
their respective managements' financial forecasts. Goldman Sachs also analyzed
the relative income statement contribution of CoreComm and Voyager to the
combined company, before taking into account any of the possible benefits that
may be realized following the Voyager merger, based upon estimated results for
the years 1999 through 2004.
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 set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
CoreComm or Voyager, or the contemplated transaction.
The analyses were prepared solely for purposes of Goldman Sachs' providing
its opinion to the CoreComm board of directors as to the fairness from a
financial point of view to CoreComm of the cash consideration and the stock
consideration, in the aggregate, to be exchanged under the Voyager merger
agreement. These analyses do not purport to be appraisals or necessarily reflect
the prices at which businesses or securities actually may be sold. Analyses
based upon forecasts of future results are not necessarily indicative of actual
future results, which may be significantly more or less favorable than suggested
by such analyses. Because these analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties or
their respective advisors, none of CoreComm, Voyager, Goldman Sachs or any other
person assumes responsibility if future results are materially different from
those forecast.
As described above, Goldman Sachs' opinion to the board of directors of
CoreComm was one of many factors taken into consideration by the CoreComm board
of directors in making its determination to approve the merger agreement. The
foregoing is a summary of the material financial analyses used by Goldman Sachs
in connection with providing its opinion but it does not purport to be a
complete description of the analyses performed by Goldman Sachs.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and
106
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for estate, corporate and other purposes. Goldman Sachs is familiar
with CoreComm having provided investment banking services in conjunction with
the acquisition of ATX and having been retained to undertake a study to render
their opinion in connection with the transactions contemplated by the Voyager
merger agreement.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of CoreComm for its own account and for the account of customers.
Under a letter agreement dated February 9, 2000, CoreComm exclusively
engaged Goldman Sachs to undertake a study to render an opinion as to the
fairness to CoreComm of the possible acquisition of all or a portion of the
stock or assets of Voyager. Under the terms of this engagement letter, CoreComm
has agreed to pay Goldman Sachs a fee of $2,000,000 in cash for its services
upon consummation of such acquisition.
CoreComm also has agreed to reimburse Goldman Sachs for its reasonable
out-of-pocket expenses, including attorneys' fees, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
THE OPINION OF MORGAN STANLEY
Under a letter agreement dated as of December 21, 1999, Morgan Stanley was
engaged to provide financial advisory services to Voyager. Morgan Stanley was
selected by the Voyager board to act as its financial advisor for the Voyager
merger based on Morgan Stanley's qualifications, expertise and reputation, as
well as its knowledge of the business and affairs of Voyager. On March 12, 2000,
Morgan Stanley delivered its oral opinion to the Voyager board that, as of this
date, the consideration to be received by the holders of shares of common stock
under the Voyager merger agreement was fair from a financial point of view to
the Voyager stockholders. Morgan Stanley later confirmed its oral opinion in
writing by delivery of its written opinion dated March 12, 2000, which stated
the considerations and assumptions upon which Morgan Stanley's opinion was
based.
THE FULL TEXT OF THE OPINION DATED MARCH 12, 2000, WHICH SETS FORTH
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE
SCOPE OF THE REVIEW UNDERTAKEN BY MORGAN STANLEY IN RENDERING ITS OPINION, IS
ATTACHED AS ANNEX E TO THIS JOINT PROXY STATEMENT AND PROSPECTUS. VOYAGER
STOCKHOLDERS ARE URGED TO READ THE ENTIRE OPINION CAREFULLY. MORGAN STANLEY'S
WRITTEN OPINION IS DIRECTED TO THE VOYAGER BOARD AND ONLY ADDRESSES THE FAIRNESS
OF THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF SHARES OF VOYAGER COMMON
STOCK UNDER THE VOYAGER MERGER AGREEMENT FROM A FINANCIAL POINT OF VIEW AS OF
THE DATE OF THE OPINION. MORGAN STANLEY'S WRITTEN OPINION DOES NOT ADDRESS ANY
OTHER ASPECT OF THE VOYAGER MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY VOYAGER STOCKHOLDER AS TO HOW TO VOTE AT THE
107
VOYAGER SPECIAL MEETING. THIS SUMMARY OF THE OPINION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE OPINION'S FULL TEXT.
In arriving at Morgan Stanley's written opinion, Morgan Stanley, among
other things:
- reviewed publicly available financial statements and other information of
Voyager and CoreComm;
- reviewed internal financial statements and other financial and operating
data concerning Voyager, CoreComm, and ATX prepared by the managements of
Voyager, CoreComm, and ATX, respectively;
- reviewed financial projections prepared by the managements of Voyager,
CoreComm, and ATX, respectively;
- discussed the past and current operations and financial condition and the
prospects of Voyager, including information relating to the strategic,
financial and operational benefits anticipated from the Voyager merger
with senior executives of Voyager;
- discussed the past and current operations and financial condition and the
prospects of CoreComm, including information relating to the strategic,
financial and operational benefits anticipated from the Voyager merger
and the ATX merger, with senior executives of CoreComm;
- discussed the past and current operations and financial condition and the
prospects of ATX, including information relating to the strategic,
financial and operational benefits anticipated from the ATX merger, with
senior executives of ATX and CoreComm;
- reviewed the pro forma impact of the Voyager merger and the ATX merger on
CoreComm's consolidated capitalization and financial ratios;
- reviewed the reported prices and trading activity for the Voyager common
stock and the CoreComm common shares;
- compared the financial performance of Voyager, CoreComm, and ATX and the
prices and trading activity of the Voyager common stock and the CoreComm
common shares with those of other comparable publicly-traded companies
and their securities;
- participated in discussions and negotiations among representatives of
Voyager, CoreComm and their legal advisors;
- reviewed the Voyager merger agreement, the ATX merger agreement and
related documents; and
- performed other analyses and considered other factors that Morgan Stanley
considered to be appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by
108
Morgan Stanley for the purposes of its opinion. Morgan Stanley relied upon the
assessment of the managements of Voyager, CoreComm, and ATX of their ability to
retain key employees of their respective companies. With respect to the
financial projections, including information relating to certain strategic,
financial and operational benefits anticipated from the Voyager merger and the
ATX merger, Morgan Stanley assumed they were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the future
financial performance of Voyager, CoreComm, and ATX. In addition, Morgan Stanley
assumed the Voyager merger will be completed in accordance with the terms set
forth in the Voyager merger agreement, including that the Voyager merger will be
treated as a tax-free reorganization and/or exchange pursuant to the Internal
Revenue Code of 1986. Morgan Stanley has not made any independent valuation or
appraisal of the assets or liabilities of Voyager, CoreComm, or ATX, nor was
Morgan Stanley furnished with any such appraisals. Morgan Stanley's opinion is
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 this
document.
The following is a brief summary of the material financial analyses
performed by Morgan Stanley in connection with its oral opinion and the
preparation of its opinion letter dated March 12, 2000. Certain 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.
Historical Public Market Trading Value. Morgan Stanley reviewed the
recent stock price performance of Voyager based on an analysis of the historical
closing prices and trading volumes from July 21, 1999, the date of Voyager's
initial public offering, through March 10, 2000. The following table lists the
average daily closing prices of shares of Voyager common stock for the periods
indicated. Morgan Stanley then compared the CoreComm offer price of
approximately $17.00, based on the closing price of the CoreComm common shares
on March 10, 2000, to the average Voyager closing prices over this period.
VOYAGER HISTORICAL CLOSING PRICES
PREMIUM IMPLIED
PERIOD ENDING 3/10/00 AVERAGE BY OFFER
--------------------- ------- ---------------
Since IPO (7/21/99)......................................... $10.29 65%
Six Months.................................................. 10.13 68
Three Months................................................ 11.17 52
One Month................................................... 11.58 47
As of 3/10/00............................................... 13.00 31
Comparative Stock Price Performance. As part of its analysis, Morgan
Stanley compared the stock price performance of the Voyager common stock from
July 21, 1999 through March 10, 2000 with that of the Nasdaq Composite Index and
a group of
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selected domestic Internet service providers and the stock price performance of
the CoreComm common shares from March 10, 1999 through March 10, 2000 with that
of the Nasdaq Composite Index and a group of selected competitive local exchange
carriers.
The group of selected domestic Internet service providers forming Voyager's
peer group included EarthLink Network, Inc., Prodigy Communications Corporation,
OneMain.Com, Inc. and Internet America, Inc. The group of selected competitive
local exchange carriers forming CoreComm's peer group included Allegiance
Telecom, Inc., Focal Communications Corporation, MGC Communications, Inc. and US
LEC Corp.
Morgan Stanley observed that over the specified periods the closing market
prices appreciated as set forth below:
Comparable Companies Analysis. Using closing market prices on March 10,
2000, Morgan Stanley calculated aggregate value, defined as equity value
adjusted for capital structure, to revenue multiples for Voyager for calendar
years 2000 and 2001 and subscriber multiples for Voyager at the end of calendar
years 1999 through 2001, based on estimates developed by Voyager's management.
Morgan Stanley then compared the revenue and subscriber multiples obtained for
Voyager with multiples obtained for the Voyager peer group based on publicly
available research estimates. Morgan Stanley calculated aggregate value to
calendar year 1999 gross property, plant and equipment multiples and aggregate
value to revenue multiples for calendar years 1999 and 2000 for CoreComm based
on estimates developed by CoreComm's management. Morgan Stanley then compared
the gross property, plant and equipment and revenue multiples for CoreComm with
multiples obtained for the CoreComm peer group based on publicly available
research estimates. In addition, Morgan Stanley calculated aggregate value to
calendar year-end 1999 gross property, plant and equipment multiples and
aggregate value to revenue multiples for calendar years 1999 and 2000 for ATX,
CoreComm's pending merger partner, based on estimates developed by ATX's
management. Morgan Stanley then compared the gross property, plant and equipment
and revenue multiples for ATX with multiples obtained for a group of selected
peer companies based on publicly available research estimates. The group of
selected companies forming ATX's peer group included ITC DeltaCom, Inc., Network
Plus Corp., CTC Communications
110
Group, Inc., Northeast Optic Network, Inc. and US LEC Corp. This analysis
resulted in the following information:
CORECOMM
PEER GROUP
---------------
CORECOMM MEDIAN MEAN
-------- ------ -----
CORECOMM PEER GROUP
1999 Gross P,P&E Multiple................. 28.5x 15.1x 17.2x
1999 Revenue Multiple..................... 42.1x 25.4x 27.9x
2000 Revenue Multiple..................... 21.5x 14.7x 15.0x
ATX
PEER GROUP
---------------
ATX MEDIAN MEAN
----- ------ -----
ATX PEER GROUP
1999 Gross P,P&E Multiple.................... 51.4x 18.1x 19.1x
1999 Revenue Multiple........................ 6.6x 19.3x 47.3x
2000 Revenue Multiple........................ 5.0x 10.7x 20.0x
Morgan Stanley noted that CoreComm's offer price based on the closing price
of CoreComm common shares on March 10, 2000 represented a multiple of 5.8x
Voyager's calendar year 2000 revenue and 3.6x Voyager's calendar year 2001
revenue.
No company used in the peer group comparison is identical to Voyager,
CoreComm or ATX. In evaluating the peer group companies, Morgan Stanley 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 Voyager, CoreComm and ATX, such as the impact of
competition on Voyager, CoreComm and ATX and the industry generally, industry
growth and the absence of any material adverse change in the financial condition
and prospects of Voyager, CoreComm and ATX or the industry or in the financial
markets in general. Mathematical analysis, such as determining the average or
median, is not in itself a meaningful method of using peer group data.
Securities Research Analysts' Future Price Targets Analysis. Morgan
Stanley reviewed the 12-month price targets for the shares of the Voyager common
stock as
111
projected by analysts from various financial institutions in recent reports.
These targets reflected each analyst's estimate of the future public market
trading price of the Voyager common stock at the end of the particular period
considered for each estimate. Morgan Stanley then arrived at the present value
for these targets using an estimated equity discount rate of 14.8% for the
Voyager common stock.
This analysis supported the following mean and median values for the
Voyager common stock:
Discounted Cash Flow Analysis. Morgan Stanley performed a discounted cash
flow analysis, which considers the present value of projected cash flows using
discount rates and terminal year EBITDA multiples as indicated below, of
Voyager's business. Morgan Stanley analyzed Voyager's business using a forecast
for the period beginning January 1, 2000 and ending December 31, 2004, based on
estimates developed by Voyager's management. Morgan Stanley estimated Voyager's
discounted cash flow value by using a discount rate range of 13.5% to 14.5% and
terminal multiples of estimated 2004 EBITDA ranging from 7.0x to 9.0x. This
analysis yielded a range of values for the Voyager common stock of approximately
$12 per share to $17 per share. CoreComm's offer price of approximately $17,
based on the closing price of CoreComm common shares on March 10, 2000,
represented a premium to the discounted cash flow values of 0% to 42%.
Morgan Stanley also performed a discounted cash flow analysis of CoreComm's
business. Morgan Stanley analyzed CoreComm's business using a forecast for the
period beginning January 1, 2000 and ending December 31, 2005, based on
estimates developed by CoreComm's management. Morgan Stanley estimated
CoreComm's discounted cash flow value by using a discount rate of 17.5% and
terminal multiples of estimated 2004 EBITDA ranging from 9.0x to 11.0x. This
analysis yielded a range of values for CoreComm common shares of approximately
$63 per share to $78 per share. Morgan Stanley noted that the public market
trading price for the CoreComm common stock as of March 10, 2000 was $47.88. The
discounted cash flow value of the CoreComm common stock represented a premium to
the public market trading value of CoreComm common shares of 32% to 63%. In
addition, Morgan Stanley performed a discounted cash flow analysis of ATX's
business. Morgan Stanley analyzed ATX's business using a forecast for the period
beginning January 1, 2000 and ending December 31, 2004, based on estimates
developed by ATX's management. Morgan Stanley estimated ATX's discounted cash
flow value by using a discount rate of 17.5% and terminal multiples of estimated
2004 EBITDA ranging from 9.0x to 11.0x. This analysis yielded a range of values
for ATX of approximately $722 million to $871 million.
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Morgan Stanley performed a variety of financial and comparative analyses
solely for purposes of providing its opinion to the Voyager board as to the
fairness from a financial point of view to the Voyager stockholders of the
merger consideration.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to 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
considered by it. Furthermore, selecting any portion of its analyses, without
considering all analyses, would create an incomplete view of the process
underlying its opinion. In addition, Morgan Stanley may have given various
analyses and factors more or less weight than other analyses and factors, and
may have considered various assumptions more or less probable than other
assumptions, so that 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 Voyager, CoreComm or ATX.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Voyager, CoreComm or ATX.
The analyses performed by Morgan Stanley are not necessarily indicative of
future results or actual values, which may be significantly more or less
favorable than those suggested by such estimates. The analyses performed were
prepared solely as part of Morgan Stanley's analysis of the fairness of the
merger consideration from a financial point of view to the Voyager stockholders
and were conducted in connection with the delivery of its opinion to the Voyager
board. The analyses are not intended to be appraisals or to reflect the prices
at which Voyager, CoreComm or ATX might actually be sold or the price at which
their securities may trade.
The merger consideration was determined through arm's-length negotiations
between Voyager and CoreComm and was approved by the Voyager board. Morgan
Stanley did not recommend any specific merger consideration to Voyager or that
any specific merger consideration constituted the only appropriate merger
consideration for the merger. Morgan Stanley's opinion to the Voyager board was
one of many factors taken into consideration by the Voyager board in making its
determination to approve the Voyager merger. Consequently, the Morgan Stanley
analyses described above should not be viewed as determinative of the opinion of
the Voyager board with respect to the value of Voyager or whether the Voyager
board would have been willing to agree to different merger consideration.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. In the ordinary course of
Morgan Stanley's trading, brokerage and financing activities, Morgan Stanley or
its affiliates may at any time hold long or short positions, may trade,
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make a market or otherwise effect transactions, for its own account or for the
accounts of customers, in the securities of Voyager, CoreComm and ATX.
Under the letter agreement dated as of December 21, 1999, Morgan Stanley
has provided advisory services and a financial opinion in connection with the
merger and Voyager has agreed to pay a fee of approximately $5.0 million to
Morgan Stanley based on the aggregate value of the transaction if the Voyager
merger is consummated. In addition, Voyager has also agreed to indemnify Morgan
Stanley and its affiliates, their respective directors, officers, agents and
employees and each person, if any, controlling Morgan Stanley or any of its
affiliates against specified liabilities and expenses, including the fees of its
legal counsel and specified liabilities under the federal securities laws,
arising out of Morgan Stanley's engagement and the transactions in connection
with their engagement.
INTERESTS OF CERTAIN PARTIES IN THE MERGER -- VOYAGER AFFILIATES
Treatment of Options Granted Under Voyager's Stock Option Plan. Voyager's
stock option plan provides for acceleration of unvested shares in the event of a
change of control of Voyager. Accordingly, unvested options granted under
Voyager's stock option plan to officers and directors of Voyager will vest upon
completion of the Voyager merger.
Voyager Employment Agreements. CoreComm has agreed to honor all
obligations under the terms of the employment agreements to which Voyager or any
of its subsidiaries is presently a party.
Registration Rights Agreement. Upon consummation of the Voyager merger,
certain principal stockholders of Voyager, including certain officers and
directors, will enter into a registration rights agreement pursuant to which
these principal stockholders will have the right to demand that post-merger
CoreComm, at any time on or after six months from the date of the closing of the
Voyager merger, register all or part of their registrable shares of common
stock, provided that post-merger CoreComm is not required to effect more than
one registration. In addition, these principal stockholders may participate, or
"piggy-back" in equity offerings initiated by post-merger CoreComm that are
registered under the Securities Act of 1934, subject to, the approval of the
underwriters involved with any such equity offering and other customary terms
and conditions.
Indemnification and Insurance. Under the Voyager merger agreement,
post-merger CoreComm will preserve all rights to indemnification existing as of
March 12, 2000 in favor of any current or former director, officer, or employee
of Voyager for a period of at least six years following the Voyager merger.
Post-merger CoreComm will also indemnify directors, officers, agents and
employees of Voyager against liabilities or claims arising before the Voyager
merger is completed and as a result of their positions with Voyager. Finally,
post-merger CoreComm will pay the applicable person's legal and other expenses
in connection with any proceeding arising out of any matter occurring until the
Voyager merger is completed.
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Prior to the effective time of the Voyager merger, CoreComm will purchase,
subject to limitations as to cost, an extended reporting period endorsement
under Voyager's existing directors' and officers' liability insurance coverage
for Voyager's directors and officers which shall provide Voyager's directors and
officers with coverage at least as favorable as the current policy for six years
following the Voyager merger. It is anticipated that the total aggregate cost of
such coverage will be approximately $750,000.
Certain Indebtedness of Voyager Affiliates. In connection with the
execution of the Voyager merger agreement, certain executive officers and a
director agreed to revise the terms of certain outstanding promissory notes
which each such person had issued in favor of Voyager.
- Voyager had previously made two loans, evidenced by promissory notes, to
Christopher Torto, its Chief Executive Officer and President. In April
1999, Voyager made a loan in the principal amount of $0.5 million to Mr.
Torto which is payable over three years and in July 1999, Voyager made a
loan in the principal amount of $5.0 million which is payable over four
years. Mr. Torto executed a side agreement with CoreComm in which Mr.
Torto agreed to enter into revised notes effective as of the closing of
the Voyager merger. In the side letter, Mr. Torto agreed to pay 25% of
the principal due on the promissory notes at the closing of the Voyager
merger with the remainder of the principal and interest due two years
from the closing, subject to certain earlier repayment obligations if Mr.
Torto sells any shares of CoreComm common stock prior to the maturity of
the revised notes.
- In January 1999, Voyager made a loan to Mr. Friedly, Chairman of the
Voyager board of directors, in the principal amount of $4.2 million, in
connection with the sale of certain Voyager stock to Mr. Friedly. The
promissory note issued in connection with this loan matures in January
2003. Mr. Friedly executed a side agreement with CoreComm in which Mr.
Friedly agreed to enter into a revised note effective as of the closing
of the Voyager merger. In the side letter, Mr. Friedly agreed to pay 25%
of the principal due on the promissory note at the closing of the Voyager
merger with the remainder of the principal and interest due two years
from the closing, subject to certain earlier repayment obligations if Mr.
Friedly sells any shares of CoreComm common stock prior to the maturity
of the revised note.
- In January 1999, Voyager made a loan to Mr. Osvaldo deFaria, the Chief
Operating Officer of Voyager, in the principal amount of $1.8 million, in
connection with the sale of certain Voyager stock to Mr. deFaria. The
promissory note issued in connection with this loan matures in January
2003. Mr. deFaria executed a side agreement with CoreComm in which Mr.
deFaria agreed to enter into a revised note effective as of the closing
pursuant to which Mr. deFaria agreed to certain earlier repayment
obligations if Mr. deFaria sells any shares of CoreComm common stock
prior to the maturity of the revised note.
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ACCOUNTING TREATMENT
For more information regarding the accounting treatment of the Voyager
merger, please refer to the unaudited pro forma financial data of Voyager in the
section of this joint proxy statement and prospectus entitled "Pro Forma
Condensed Consolidated Financial Statements (Unaudited)."
APPRAISAL RIGHTS
Under Delaware law, a Voyager stockholder may exercise his, her or its
appraisal rights by delivering to Voyager a demand in writing for the appraisal
of its shares and not voting for or consenting in writing to the Voyager merger
agreement or the Voyager merger. Voyager stockholders considering seeking
appraisal should recognize that the fair value of shares could be determined to
be more than, the same as or less than the value of the Voyager merger
consideration to which stockholders are entitled if they do not exercise their
appraisal rights. Stockholders who elect to exercise appraisal rights must
comply strictly with all of the procedures set forth in Section 262 of the
Delaware General Corporation Law to preserve those rights. We have attached a
copy of Section 262 of the Delaware General Corporation Law, which sets forth
these appraisal rights, as Annex D to this joint proxy statement and prospectus.
Section 262 of the Delaware General Corporation Law sets forth the required
procedure a stockholder seeking appraisal must follow. Making sure that you
actually perfect your appraisal rights can be complicated. The procedural rules
are specific and must be followed completely. Failure to comply with the
procedure may cause you to lose your appraisal rights. The following is only a
summary of your rights and the procedure relating to appraisal rights and is
qualified in its entirety by the provisions of Section 262 of the Delaware
General Corporation Law. Please review Section 262 for the complete procedure.
Voyager will not give you any notice other than as described in this joint proxy
statement and prospectus and as required by Delaware law.
APPRAISAL RIGHTS PROCEDURES
If you are a Voyager stockholder and you wish to exercise your appraisal
rights, you must satisfy the following provisions of Section 262 of the Delaware
General Corporation Law. Only a record holder may demand appraisal, and
therefor, if you are the beneficial owner of shares held of record by a broker,
bank or other nominee, you must direct such record owner to comply with the
requirements of the statute.
- You must make a written demand for appraisal: You must deliver a written
demand for appraisal to Voyager before the taking of the vote on the
Voyager merger agreement and the Voyager merger at the special meeting.
- You must not vote for or consent in writing to the Voyager merger: You
must not consent to or vote for the Voyager merger or the adoption of the
Voyager merger agreement. If you vote for or consent by written consent
to the Voyager merger agreement and Voyager merger, you will not be
entitled to any right to seek appraisal.
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- You must continuously hold your Voyager shares: You must continuously
hold, as a record holder, your shares of Voyager common stock from the
date you make the demand for appraisal through the completion of the
Voyager merger. If you are the record holder of Voyager common stock on
the date you make a written demand for appraisal but then transfer your
shares before the Voyager merger, you will lose any right to appraisal in
respect of those shares.
- You should read the paragraphs below for more details on making a demand
for appraisal.
A written demand for appraisal of Voyager common stock must be executed by
or on behalf of a stockholder of record and must reasonably identify the
stockholder and that he, she or it intends to demand appraisal of his, her or
its shares. If you own Voyager common stock in a fiduciary capacity, such as a
trustee, guardian or custodian, the demand for appraisal must be executed by or
for the record owner.
If you own Voyager common stock with one or more persons, such as in a
joint tenancy or tenancy in common, the demand for appraisal must be executed by
or for all joint owners. An authorized agent, which could include one or more of
the joint owners, may sign the demand for appraisal for a stockholder of record;
however, the agent must expressly disclose who the stockholder of record is and
that the agent is signing the demand as that stockholder's agent.
If you are a record owner, such as a broker, who holds Voyager common stock
as a nominee for others, you may exercise a right of appraisal with respect to
the shares held for one or more beneficial owners, while not exercising such
right for other beneficial owners. In such a case, you should specify in the
written demand the number of shares as to which you wish to demand appraisal. If
you do not expressly specify the number of shares, we will assume that your
written demand covers all the shares of Voyager common stock that are in your
name.
If you are a Voyager stockholder who elects to exercise appraisal rights,
you should mail or deliver by hand a written demand to:
Voyager.net, Inc.
4660 S. Hagadorn Road, Suite 320
East Lansing, MI 48823
Attention: Secretary
It is important that Voyager receives all written demands before the
stockholder meeting on September , 2000. As explained above, this written
demand should be signed by, or on behalf of, the stockholder of record. The
written demand for appraisal should specify the stockholder's name and mailing
address, the number of shares of common stock owned, and that the stockholder is
thereby demanding appraisal of his, her or its shares.
If you fail to comply with any of these conditions and the Voyager merger
becomes effective, you will only be entitled to receive the Voyager merger
consideration provided in the Voyager merger agreement.
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Written Notice. Within 10 days after the completion of the Voyager
merger, Voyager must give written notice setting forth the date the Voyager
merger has become effective to each stockholder who has fully exercised his, her
or its appraisal rights in full compliance with the conditions of Section 262 of
the Delaware General Corporation Law.
Petition with the Chancery Court. Within 120 days after the completion of
the Voyager merger, either Voyager or any stockholder who has complied with the
conditions of Section 262 may file a petition for appraisal in the Delaware
Chancery Court demanding that the Chancery Court determine the value of the
shares of Voyager stock held by all of the stockholders who are entitled to
appraisal rights. Voyager has no present intention of filing an appraisal
petition. Accordingly, if you intend to preserve your rights of appraisal, you
should file a petition in the Delaware Court of Chancery. Because Voyager has no
obligation to file a petition, if no stockholder files a petition within 120
days after the completion of the Voyager merger, you will lose your rights of
appraisal.
Withdrawal of Demand. If you change your mind and decide you no longer
want to assert appraisal rights, you may withdraw your demand for appraisal
rights at any time within 60 days after the closing of the Voyager merger. You
may also withdraw your demand for appraisal rights after 60 days after the
closing of the Voyager merger, but only with the written consent of Voyager.
Once a petition for appraisal has been filed with the Delaware Court of
Chancery, such proceeding may not be discussed as to any stockholder without
approval of the court. If you effectively withdraw your demand for appraisal
rights, you will receive the merger consideration provided in the Voyager merger
agreement.
Request for Appraisal Rights Statement. If you have complied with the
conditions of Section 262, you are entitled to receive a statement from Voyager
which sets forth the number of shares held by stockholders who have demanded
appraisal rights, and the number of stockholders who own those shares. To
receive this statement, you must send a written request to Voyager within 120
days after the completion of the Voyager merger. Voyager has 10 days after
receiving a request to mail you the statement.
Chancery Court Procedures. If you properly file a petition for appraisal
in the Delaware Chancery Court, Voyager will then have 20 days after service of
a copy of the petition is made on it to provide the Chancery Court with a list
of the names and addresses of all stockholders who have demanded appraisal
rights and have not reached an agreement with Voyager as to the value of their
shares. At a hearing on the petition, the Chancery Court will determine which
stockholders, if any, have fully complied with Section 262 of the Delaware
General Corporation Law and whether they are entitled to appraisal rights under
Section 262. The Chancery Court may also require you to submit your stock
certificates to the Register in Chancery so that it can note on the certificates
that an appraisal proceeding is pending. If you do not follow the Chancery
Court's directions, you may be dismissed from the proceeding.
Appraisal of Shares. After the Chancery Court determines which
stockholders are entitled to appraisal rights, it shall determine the fair value
of your shares exclusive of
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any value arising from the expectation or accomplishment of the Voyager merger.
After the Chancery Court determines the fair value of their shares, it will
direct Voyager to pay that value to the stockholders who qualified to have their
shares appraised. The Chancery Court can also direct Voyager to pay interest,
simple or compound, on that value if the Chancery Court determines that interest
is appropriate. In order to receive your payment for your shares, you must then
surrender your stock certificates to Voyager.
The Chancery Court could determine that the fair value of shares of stock
is more than, the same as or less than the merger consideration. You should also
be aware that an opinion of an investment banking firm that the Voyager merger
is fair is not an opinion of an investment banking firm that the merger
consideration constitutes fair value under Section 262.
Costs and Expenses of Appraisal Proceeding. The costs of the appraisal
proceeding may be assessed against Voyager and/or the stockholders participating
in the appraisal proceeding, as the Chancery Court deems equitable under the
circumstances. You may also request that the Chancery Court allocate the
expenses of the appraisal action incurred by any stockholder pro rata against
the value of all of the shares entitled to appraisal.
Loss of Stockholder's Rights. If you demand appraisal rights, after the
completion of the Voyager merger you will not be entitled to:
- vote shares of stock, for any purpose, for which you have demanded
appraisal rights;
- receive payment of dividends or any other distribution with respect to
such shares, except for dividends or distributions, if any, that are
payable to holders of record as of a record date prior to the effective
time of the Voyager merger; or
- receive the payment of the consideration provided for in the Voyager
merger agreement, unless you properly withdraw your demand for appraisal.
If you fail to comply strictly with the procedures described above you will
lose your appraisal rights. Consequently, if you wish to exercise your appraisal
rights, we strongly urge you to consult a legal advisor.
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THE MERGER BETWEEN CORECOMM AND ATX
BACKGROUND OF THE MERGER BETWEEN CORECOMM AND ATX
On December 9, 1999, Michael Peterson of CoreComm was contacted by Louis
Friedman, a Managing Director at Donaldson, Lufkin & Jenrette Securities
Corporation. Mr. Friedman informed Mr. Peterson that DLJ had been engaged by ATX
to assist it in considering various strategic alternatives, including a possible
sale of ATX, and inquired whether CoreComm would be interested in receiving a
confidential information memorandum prepared by DLJ concerning ATX with a view
towards participating in a transaction with ATX. Mr. Peterson indicated that
CoreComm would be interested in receiving the confidential information
memorandum.
On December 15, 1999, CoreComm executed a confidentiality agreement and was
given a copy of the confidential information memorandum. The confidential
information memorandum provided a detailed summary of ATX's corporate structure,
business and projections and was intended to solicit interest in a business
combination transaction. CoreComm was informed by DLJ that various other
interested parties selected by DLJ had also received a copy of the confidential
information memorandum and that following a review of such materials, all
interested parties would be requested to submit a nonbinding indication of
interest, which should include, among other things, the form of a proposed
transaction, the form of consideration and a valuation range for ATX. CoreComm
was informed that based on these nonbinding indications of interest, parties
selected by DLJ and ATX would be invited to participate in a second phase which
would include management presentations, tours of facilities, access to a data
room and other due diligence procedures. DLJ informed CoreComm that the deadline
for receipt of indications of interest was 12:00 noon on January 7, 2000.
Over the next three weeks, members of CoreComm management reviewed the
materials that had been supplied. During this same period, representatives of
CoreComm also spoke to representatives of DLJ in order to obtain certain
clarifications and supplemental information.
On December 28, 1999, Goldman, Sachs & Co. was engaged by CoreComm to act
as its financial advisor and to undertake a study to enable it to render an
opinion in connection with the possible acquisition of all or a portion of the
equity interest or assets of ATX.
On January 7, 2000, Michael Peterson met with Thomas Gravina, who was at
that time Co-Chief Executive Officer of ATX and James Broner of DLJ to discuss
in more detail the business and operations of ATX and CoreComm. Later that same
day, CoreComm submitted a formal indication of interest. At that time, the
proposal contemplated the purchase of substantially all the stock or assets of
ATX by way of purchase or merger and assumed an estimation of valuation of ATX
between $700.0 million and $900.0 million. The indication of interest further
stated that any transaction would be subject to valuation adjustments depending
on:
- ATX's debt and other noncurrent liabilities;
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- working capital adjustments; and
- capital expenditures amounts.
At a regularly scheduled meeting of the CoreComm board of directors held on
January 18, 2000, the CoreComm board of directors reviewed for the first time in
a preliminary fashion the potential transaction with ATX. At that time the board
of directors authorized CoreComm to continue to review a potential transaction
with ATX.
On January 19, 2000, the management of ATX conducted a presentation for
representatives of CoreComm's senior management at ATX's executive offices in
Bala Cynwyd, Pennsylvania, a suburb of Philadelphia. Attending on behalf of
CoreComm were Patty Flynt, Chief Operating Officer, Mr. Peterson and other
representatives of CoreComm. In addition, CoreComm was accompanied by
representatives of Goldman Sachs. All of ATX's senior management, including Mr.
Gravina and Debra Buruchian, the other Co-Chief Executive Officer at that time,
Tim Allen, Vice President of Sales and Marketing, and Jeffrey Coursen, Vice
President of Strategic Development, were present, as were representatives of
DLJ.
On January 24 and January 25, 2000, counsel to CoreComm conducted legal due
diligence in a data room at ATX's headquarters in Bala Cynwyd, Pennsylvania. In
addition, Goldman Sachs also conducted its financial due diligence. On those
dates CoreComm simultaneously conducted operational due diligence at the same
location.
On February 1, 2000, a meeting was held at ATX's headquarters in Bala
Cynwyd, Pennsylvania. This meeting was attended by Barclay Knapp, the President,
Chief Executive Officer and Chief Financial Officer of CoreComm, Mr. Peterson,
Mr. Gravina, Michael Karp (ATX's then principal partner and current principal
stockholder) and a representative of DLJ. The purpose for these discussions was
for the parties to further familiarize themselves with each other and to further
assess the interest of the parties in pursuing a business combination
transaction.
On February 3, 2000, DLJ informed CoreComm that it was invited to submit a
definitive proposal to ATX as part of the process DLJ was conducting on behalf
of ATX. CoreComm was informed that all definitive proposals had to be received
by Tuesday, February 22, 2000. The invitation was accompanied by a draft merger
agreement prepared by ATX's outside counsel. CoreComm was asked to mark up the
agreement, provide clear descriptions of its contemplated structure for the
transaction, clearly state the valuation and the form of consideration in a
transaction, as well as provide other customary terms to be included in a
proposal.
Between February 3, 2000 and February 22, 2000, on a number of occasions
representatives of CoreComm met and/or had discussions with representatives of
ATX, DLJ and Goldman Sachs in order for both parties to obtain additional
information about each other (including information that CoreComm desired to
have in order to prepare its definitive proposal) and for both parties to
conduct operational due diligence.
On February 22, 2000, CoreComm submitted its proposal to DLJ and ATX. That
proposal contemplated a structure substantially in the form being submitted for
approval
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in this joint proxy statement and prospectus. The proposal assumed an estimated
valuation of ATX at approximately $800.0 million, with valuation adjustments
depending on:
- debt and other noncurrent liabilities;
- working capital adjustments; and
- capital expenditure amounts.
The proposal contemplated the $800.0 million being allocated $80.0 million in
cash, $200.0 million in common stock and $520.0 million in preferred stock.
On February 23, 2000, DLJ invited CoreComm and its legal and financial
advisers to meet with representatives of ATX and its financial and legal
advisers in order to discuss and resolve outstanding due diligence items. On
February 25, 2000, a meeting was held in the offices of ATX's lawyers.
During the next week, ATX and CoreComm and their respective advisors
conducted intensive due diligence on the remaining legal and financial issues
and negotiated via conference calls and through the exchange of facsimiles the
underlying documentation and various proposals. The negotiations covered, among
other things, the determination of the total consideration, as well as the mix
among the cash, common stock and convertible preferred stock components.
On March 2, 2000, CoreComm presented a revised proposal to DLJ. The major
revisions involved increasing the cash portion of the consideration and
adjusting the features of the convertible preferred stock to create more
immediate value for the existing ATX stockholders.
On March 3, 2000, the parties entered into an exclusivity agreement that
provided that the parties would negotiate exclusively with each other until 9:00
a.m. on Thursday, March 9, 2000.
On March 3, 2000, the parties orally agreed on a term sheet for the
transaction laying out the total consideration, the mix between the different
components of the consideration, and the general terms of the different
components of the consideration.
On March 4, 2000, Mr. Gravina and Mr. Knapp discussed issues related to
management roles, incentive plans for management and employees and the future
operations of the combined company. This conversation was a continuation of
discussions Mr. Gravina had with Mr. Peterson throughout the period of
negotiations which continued up until the date of execution of the ATX merger
agreement.
Beginning on March 6, 2000, and continuing on March 7, 2000,
representatives of the parties met at CoreComm's attorneys' offices in New York
City with a view to negotiating definitive terms for the transaction.
Negotiations centered primarily around the structure of the transaction and
details related to the forms of consideration to be received by the existing ATX
stockholders. In addition, at these meetings CoreComm management indicated for
the first time to ATX and DLJ the potential transaction being negotiated with
Voyager.
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On March 7, 2000, CoreComm's board of directors held a special meeting at
which they received a report from Messrs. Peterson and Lubasch as to the status
of the transaction (as well as the Voyager merger). The board of directors
indicated its approval to continue negotiations and finalize documentation for a
definitive agreement in each transaction, subject to final approval by the board
of directors.
On March 8, 2000, the parties met with their respective lawyers and
advisers in order to review the documentation and the parties agreed to have
their representatives reconvene in New York on March 9, 2000 in order to
finalize the transaction. Also, on March 8, 2000, the parties extended the
exclusivity agreement until 4:30 A.M. on Friday, March 10, 2000.
On March 9, 2000, the parties again met at CoreComm's attorneys' offices to
finalize documentation and negotiate the remaining open issues.
Also on March 9, 2000, the CoreComm board of directors held a meeting to
approve the ATX merger agreement and the ATX merger. Representatives of Goldman
Sachs made a presentation regarding its analysis of the financial terms of the
proposed transaction and delivered their oral opinion, which was subsequentially
confirmed in writing that, as of that date, the stock consideration and the cash
consideration, in the aggregate, to be paid by CoreComm under the ATX merger
agreement was fair from a financial point of view to CoreComm.
Late on the evening of March 9, 2000, the material open issues having been
resolved, documentation was completed and definitive agreements relating to the
ATX merger and the other related transactions were executed. The ATX merger was
announced publicly early on March 10, 2000.
Beginning in mid-July, CoreComm, ATX and the stockholders of ATX began
discussions to explore the possibility of restructuring the terms of the ATX
merger to increase the portion of the $150 million of cash consideration that
could be paid, at CoreComm's option, in the form of notes, and to make other
changes to the terms of the consideration to be received by the ATX
stockholders. Negotiations continued through July 31, 2000, when the parties
agreed to amend the original ATX merger agreement. The CoreComm board of
directors approved all of the amendments.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF CORECOMM; REASONS FOR THE ATX MERGER
The board of directors of CoreComm has determined that the ATX merger is
fair and in the best interests of the shareholders of CoreComm and has
unanimously approved and adopted the ATX merger agreement. ACCORDINGLY,
CORECOMM'S BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF CORECOMM VOTE
"FOR" APPROVAL AND ADOPTION OF THE ATX MERGER AGREEMENT.
In considering the recommendation of the CoreComm board of directors with
respect to the ATX merger, CoreComm shareholders should also consider that some
of
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the members of the CoreComm board of directors have interests in the merger that
may be different from, or in addition to, the interests of the shareholders of
CoreComm generally. For more information concerning the interests of these
persons in the ATX merger, please refer to the section of this joint proxy and
prospectus entitled "The Merger between CoreComm and ATX -- Interests of Certain
Parties in the Merger -- CoreComm Affiliates."
In reaching the determination that the ATX merger agreement and the ATX
merger are in the best interests of CoreComm and its shareholders, CoreComm's
board of directors consulted with CoreComm's management, as well as its
financial advisor, legal counsel and accountants and considered the short-term
and long-term interests of CoreComm and other acquisitions available to
CoreComm. The factors considered by CoreComm's board of directors include those
described below. While all of these factors were considered by CoreComm's board
of directors, CoreComm's board of directors did not make determinations with
respect to each of the factors. Rather, CoreComm's board of directors made its
judgment with respect to the ATX merger and the ATX merger agreement based on
the total mix of information available to it, and the judgments of individual
directors may have been influenced to a greater or lesser degree by their
individual views with respect to different factors.
In particular, the CoreComm board of directors considered the following
material factors, among others, all of which it deemed favorable, in reaching
its decision to approve the ATX merger and the ATX merger agreement:
- Judgment, advice and analyses of management. The board of directors
placed significant reliance on the judgment, advice and analyses of its
management with respect to the strategic, financial and operational
benefits of the merger with ATX, based in part on the business,
financial, accounting and legal due diligence investigations performed
with respect to ATX.
- Potential synergies as a result of the ATX merger. Among other things,
the combination of ATX and CoreComm should enable post-merger CoreComm to
extract the better sales practices and superior skills that are currently
found in their separate sales forces, eliminating those practices and
skills that are less effective. Growth is anticipated through the
offering of post-merger CoreComm's residential services in the geographic
markets currently serviced by ATX, while incorporating ATX's proven
customer service and retention capabilities. ATX has a customer base
consisting of approximately 100,000 local access lines and approximately
320,000 long distance access line equivalents, an asset which potentially
can be penetrated with CoreComm's services. Specifically, combining with
ATX should augment CoreComm's penetration of its "Smart LEC" rollout in
the Eastern U.S. and provide an immediate boost to the increasing
Internet-centric focus of CoreComm's business. Coupled with general cost
synergies inherent in combining back-office operations and correlated
business strategies, the board of directors recognized the potential for
efficiencies and cost savings.
- Superior business strategy, capability, market position and growth
prospects. The board of directors believes that a business combination
with ATX will enhance
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CoreComm's goal of expansion and the creation of a national
telecommunications presence. ATX's principal markets, Pennsylvania, New
Jersey, Delaware, Maryland, the District of Columbia and Virginia, are
within the geographic areas that were next scheduled to be developed by
CoreComm. In addition, by combining CoreComm's operations in the Midwest
with ATX's presence in the Mid-Atlantic, post-merger CoreComm's footprint
will expand to areas currently occupied by a number of different regional
Bell operating companies and other competitive local exchange carriers.
The board of directors believes that the ATX merger would be accretive to
post-merger CoreComm EBITDA, thus enhancing its cash flow and enabling
additional expansion with available funds. Furthermore, it is expected
that post-merger CoreComm will be able to target higher margin
data-centric business customers than CoreComm does today. Accordingly,
the potential expanded customer base could combine with enhanced revenues
per customer (and the reduced churn characteristics ATX brings) to
provide more rapid growth.
- The ATX merger agreement. The express terms and conditions of the ATX
merger agreement provide an equitable basis to combine the two companies
from the standpoint of CoreComm. The form of consideration given to ATX
stockholders potentially was a particularly attractive feature in that a
significant portion of the consideration was non-cash, in the form of
post-merger CoreComm common and preferred stock and, potentially, senior
notes.
- Advantages of a larger enterprise. The combination of ATX and CoreComm
should result in a larger company that should provide post-merger
CoreComm with more depth to the management team and cost savings in its
dealings with its vendors, due to the larger volume of business it would
generate for them.
- Improved cash flow. Historically, ATX has generated substantial
revenues. If those results were to continue, post-merger CoreComm could
manifest better financial results, capital raising abilities and
available cash than CoreComm alone.
- The complementary nature of CoreComm's and ATX's businesses. In
addition to the synergies discussed above, the board of directors also
focused on the complementary features of ATX's and CoreComm's businesses.
For instance, ATX employs "Smart Build" network architecture similar to
that utilized by CoreComm.
- Opinion of CoreComm's financial advisor. Goldman, Sachs & Co. has
delivered its written opinion, dated March 9, 2000, to the board of
directors of CoreComm that, as of that date, the stock consideration and
the cash consideration, in the aggregate, to be paid by CoreComm under
the ATX merger agreement, as in effect on that date, was fair from a
financial point of view to CoreComm. The opinion of Goldman Sachs does
not constitute a recommendation as to how any holder of CoreComm common
shares should vote with respect to the transaction. The board of
directors of CoreComm also reviewed the methodologies used by Goldman
Sachs in rendering this opinion in valuing ATX. A copy of Goldman Sachs'
written opinion dated August 10, 2000 is attached to this joint proxy
statement and prospectus as Annex G, and the shareholders of CoreComm are
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encouraged to, and should read this opinion in its entirety. Please also
see the section of this joint proxy statement and the prospectus
entitled, "The Merger between CoreComm and ATX -- The Opinion of Goldman
Sachs" for more detailed information regarding Goldman Sachs' opinion.
The CoreComm board of directors also considered the following potentially
negative factors in its deliberations concerning the merger:
- ATX is a private entity. The fact that ATX is a newly-formed
corporation derived from two limited partnerships meant that analyzing
its financial information, especially in light of absence of historical
financial information prepared in accordance with United States generally
accepted accounting principles, was more difficult than if ATX had been a
publicly-traded entity. In addition, ATX's management infrastructure is
not as well-developed as that of a publicly-traded company.
- Inherent challenges to effecting the transaction. The inherent
challenges to effecting the ATX merger and the attendant risk that
management resources may be diverted from other strategic opportunities
and from operational matters for an extended period of time.
- The possibility that, despite the efforts of the combined company,
technical and management personnel might not remain employees with
post-merger CoreComm. There is a risk of management and employee
disruption with the ATX merger, including the risk that despite the
efforts of post-merger CoreComm following the ATX merger, key technical,
sales and management personnel might not remain employed by post-merger
CoreComm.
The board of directors of CoreComm concluded that the potential negative
factors considered by it were not sufficient, either individually or
collectively, to outweigh the advantages of the ATX merger.
THE OPINION OF GOLDMAN SACHS
Opinion of Goldman Sachs to CoreComm in the ATX Transaction. Goldman Sachs
has delivered its written opinions, dated March 9, 2000 and August 10, 2000 to
the board of directors of CoreComm that, as of these dates, the stock
consideration and the cash consideration in the aggregate, to be paid by
CoreComm under the March 9, 2000 ATX merger agreement and that agreement, as
amended through July 31, 2000, respectively, was fair from a financial point of
view to CoreComm.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED AUGUST 10,
2000, WHICH IDENTIFIES ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX G AND
IS INCORPORATED HEREIN BY REFERENCE IN THIS JOINT PROXY STATEMENT AND
PROSPECTUS. SHAREHOLDERS OF CORECOMM ARE URGED TO, AND SHOULD, READ THIS OPINION
IN ITS ENTIRETY.
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In connection with its August 10, 2000 opinion, Goldman Sachs reviewed,
among other things:
- the ATX merger agreement, as amended through July 31, 2000,
- the annual reports to shareholders and annual reports on Form 10-K of
CoreComm for the year ended December 31, 1999,
- audited cash basis financial statements of ATX for the two years ended
December 31, 1997,
- draft GAAP basis financial statements of ATX for the three years ended
December 31, 1999,
- interim reports to shareholders and Quarterly Reports on Form 10-Q of
CoreComm,
- other communications from CoreComm to their shareholders,
- other information related to ATX,
- internal financial analyses and forecasts for CoreComm and ATX prepared
by their respective managements, and
- internal financial analyses and forecasts for ATX prepared by the
management of ATX and approved for use in its analyses by the management
of CoreComm, which is referred to as the ATX forecasts.
Goldman Sachs also held discussions with members of the senior managements
of CoreComm and ATX regarding the past and current business operations,
financial condition, and future prospects of their respective companies. In
addition, Goldman Sachs:
- reviewed the reported price and trading activity for the CoreComm common
stock and performed various valuation analyses of CoreComm based upon
projections by the management of CoreComm and other financial and stock
market information,
- compared certain financial and stock market information for CoreComm and
ATX with similar information for certain other companies the securities
of which are publicly traded, and
- reviewed the financial terms of certain recent business combinations and
performed such other studies and analyses as it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion. Goldman Sachs assumed with
CoreComm's consent that the ATX forecasts had been reasonably prepared and
reflected the best currently available estimates and judgments of ATX. In
addition, Goldman Sachs did not make an independent evaluation or appraisal of
the assets and liabilities of CoreComm or ATX or any of their respective
subsidiaries and Goldman Sachs has not been furnished with any such evaluation
or appraisal. The opinion of Goldman Sachs was provided for the information and
assistance of the board of directors of CoreComm in connection with its
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consideration of the transaction contemplated by the ATX merger agreement and
this opinion does not constitute a recommendation as to how any holder of
CoreComm shares should vote with respect to such transaction.
CoreComm and ATX did not impose any material limitations on Goldman Sachs
in performing its financial analyses and investigations.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its opinion to CoreComm's board of
directors on March 9, 2000.
In connection with its August 10, 2000 opinion, Goldman Sachs updated
certain of the analyses described below and the results of such updates did not
change Goldman Sachs' opinion as to the fairness, from a financial point of
view, of the stock consideration and the cash consideration, in the aggregate,
to be paid by CoreComm under the ATX merger agreement. The updated Goldman Sachs
discounted cash flow analysis of ATX on a standalone basis used the same
methodology described below under "Discounted Cash Flow Analysis" below but used
a range of discount rates of 15% to 35% and a range of EBITDA exit multiples of
9x to 12x yielded values as of June 30, 2000 ranging from $464,000,000 to
$1,161,000,000.
THE FOLLOWING SUMMARIES OF FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED
IN TABULAR FORMAT. YOU SHOULD READ THESE TABLES TOGETHER WITH THE TEXT OF EACH
SUMMARY.
Historical Stock Trading Analysis. Goldman Sachs reviewed the historical
trading performance of the CoreComm common stock and three composite indices
comprised of certain publicly traded competitive local exchange carriers for the
period from May 1, 1999 to March 1, 2000. The first composite index consisted of
Allegiance Telecom, Focal, Mpower Communications and US LEC, or "Smart Build
Competitive Local Exchange Carriers." The second composite index consisted of
CTC, e.spire and ITC DeltaCom, or "Other competitive local exchange carriers."
The third composite index was Network Plus, Inc. These companies were chosen
because they are publicly-traded companies with operations that for purposes of
analysis may be considered similar to ATX Telecommunications Services, Inc.
Selected Companies Analysis. Goldman Sachs reviewed and compared certain
financial information relating to CoreComm and ATX to corresponding financial
information, ratios and public market multiples for the following publicly
traded corporations in the competitive local exchange carrier industry:
SMART BUILD COMPETITIVE LOCAL OTHER COMPETITIVE LOCAL COMPETITIVE LOCAL
EXCHANGE CARRIERS EXCHANGE CARRIERS EXCHANGE CARRIERS
----------------------------- ----------------------- -----------------
Allegiance Telecom Inc. CTC Communications Group Inc. Network Plus, Corp.
Focal Communications Corp. e.spire Communications Inc.
Mpower Communications Inc. ITC DeltaCom Inc.
US LEC Corp.
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The selected companies were chosen because they are publicly traded
companies with operations that for purposes of analysis may be considered
similar to CoreComm and ATX.
Goldman Sachs also calculated and compared various financial multiples and
ratios based on information it obtained from SEC filings, Goldman Sachs Equity
Research estimates, other equity research estimates and other publicly available
data. The multiples and ratios for CoreComm were calculated using the CoreComm
common stock closing price on March 7, 2000. The multiples and ratios for
CoreComm were based on information provided by its management. The multiples and
ratios for each of the selected comparable competitive local exchange carriers
were based on the most recent publicly available information. Goldman Sachs'
analyses of the selected companies compared the following to the results for
CoreComm:
- levered market capitalization, which is the market value of fully diluted
common equity plus the book value of debt and capital lease obligations
less cash, as a multiple of gross plant, property and equipment (PPE),
- levered market capitalization as a multiple of net PPE,
- levered market capitalization as a multiple of estimated 2000 revenue,
- levered market capitalization as a multiple of estimated 2001 revenue,
and
- levered market capitalization as a multiple of estimated 2002 earnings
before interest, taxes, depreciation and amortization, or EBITDA.
The results of these analyses are summarized as follows:
Discounted Cash Flow Analysis. Goldman Sachs performed a discounted cash
flow analysis of ATX Telecommunications Services, Inc. on a standalone basis
based upon forecasts provided by ATX management and approved for use in
connection with the
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opinion by the management of CoreComm. Goldman Sachs calculated a range of
values for the common stock based on the sum of (i) the discounted present value
of the five-year (2000-2004) stream of projected after-tax cash flows of ATX,
using a range of weighted average cost of capital, or WACC, discount rates
between 14% and 17%; and (ii) the present value of ATX of the terminal value of
ATX Telecommunications Services, Inc. in 2004, assuming an EBITDA exit multiple
range between 9.0x and 12.0x. The above financial sensitivity analysis yielded
values as of January 1, 2000 ranging from $759,000,000 to $1,121,000,000.
Goldman Sachs also examined the sensitivity of the discounted cash flow
value of ATX to changes in operating assumptions. Using for illustration
purposes a WACC discount rate of 15% and an EBITDA exit multiple of 11.0x,
Goldman Sachs calculated the value of ATX assuming the increase or decrease of
up to 20% in the variations of number of new consultants and their respective
productivities. Finally, using the same illustrative scenario, Goldman Sachs
analyzed the value of ATX assuming increases in capital expenditures and
attrition, which is the number of local lines and their associated revenues
terminated in a given year. The results of these analyses are as follows:
Variation of Consultants and Productivity
AVERAGE NEW CONSULTANTS ADDED
---------------------------------------------
BASE
AVERAGE PRODUCTIVITY PER CONSULTANT -20% -10% CASE 10% 20%
----------------------------------- --------- ----- ----- --------- -----
-20%........................... 667 732 802 865 932
-10%........................... 725 797 873 943 1,018
BASE CASE...................... 819 903 992 1,073 1,160
10%............................ 932 1,030 1,134 1,229 1,329
20%............................ 1,045 1,157 1,276 1,384 1,499
Variation of Capital Expenditures and Attrition
INCREASE IN CAPITAL EXPENDITURES
----------------------------------
ATTRITION PER LOCAL LINE 25% 50% 75% 100%
------------------------ ---------- ---- ---- ----
BASE CASE........................... 961 931 900 870
10%................................. 909 878 848 817
17.5%............................... 858 828 797 767
25%................................. 814 784 753 723
Selected Transactions Analysis. Goldman Sachs compared information for
selected transactions in the competitive local exchange carrier industry for the
years 1998 and 1999, specifically, the acquisitions by:
- McLeod USA Inc. of Splitrock Services Inc. (1/10/2000);
- NEXTLINK Communications, Inc. of Concentric Networks Corporation
(1/10/2000);
- McLeodUSA Inc. of Access Communications (6/21/99);
- AT&T of MetroNet Communications (3/4/1999);
- McLeodUSA Inc. of Ovation (1/8/1999);
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- MetroNet Communications of Rogers Telecom (5/20/1998);
- AT&T Corp. of Teleport Communications Group, Inc. (1/8/1998);
- WinStar Communications Inc. of MIDCOM Communications (12/17/1997);
- Intermedia Communications Inc. of Shared Technologies Fairchild
Communications Corporation (11/17/1997);
- WinStar Communications Inc. of US ONE Communications (10/16/1997);
- WorldCom Inc. of Brooks Fiber Properties Inc. (9/30/97);
- McLeodUSA Inc. of Consolidated Communications (6/16/1997);
- Brooks Fiber Properties Inc. of Metro Access Networks (3/31/1997);
- Teleport Communications Group, Inc. of Eastern Telelogic (10/23/1996);
- WorldCom Inc. of MFS Communications Company, Inc. (8/26/1996);
- Citizens Utilities of Ogden Telephone (8/1/1996);
- WinStar Communications Inc. of Local Area Telecommunications (4/1/96);
- Intermedia Communications Inc. of EMI Communications (2/20/1996);
- Brooks Fiber Properties Inc. of City Signal (1/17/1996);
- Shared Technologies Cellular, Inc. of Fairchild Communications Services
(11/9/1995);
- Intermedia Communications Inc. of FiberNet USA (1/30/1995);
- Brooks Fiber Properties Inc. of Phoenix Fiberlink (7/29/1994); and
- IntelCom Group of PTI Harbor Bay/Upsouth Corp (Pacific Telecom Units)
(10/5/1993).
Goldman Sachs reviewed the aggregate consideration paid as a multiple of
last twelve months, or LTM, and going forward revenue and EBITDA and multiple of
gross PPE and premium to market selected. Based on information provided by
Company Reports, Wall Street Research, Securities Data Corporation and Bloomberg
Financial Markets, L.P., the results of these analyses were:
Pro Forma Merger Analysis. Goldman Sachs prepared pro forma analyses of
the financial impact of the ATX merger using discounted cash flows estimates for
the five year period of 2000 through 2004 for CoreComm and ATX prepared by their
respective managements. For each of the years 2000 through 2004, Goldman Sachs
assumed the consideration to be paid to ATX stockholders comprised of 56% stock,
28% convertible
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stock and 17% cash and a ten day weighted average share price of $45.10 per
share of CoreComm common stock, a 10% premium to the closing price of CoreComm
common stock on March 7, 2000. Based on these analyses, the proposed transaction
would be slightly dilutive to CoreComm's stockholders on a 2004 discounted cash
flow basis.
Pro Forma Contribution Analysis. Goldman Sachs reviewed selected
estimated future operating and financial information for CoreComm, ATX and the
combined company resulting from the merger based on their respective
managements' financial forecasts. Goldman Sachs also analyzed the relative
income statement contribution of CoreComm and ATX to the combined company based
upon estimated results for the years 1999 through 2004.
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 set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinions. In arriving at its fairness determination,
Goldman Sachs considered the results of all of these analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
CoreComm or ATX or the contemplated transaction.
The analyses were prepared solely for purposes of Goldman Sachs' providing
its opinions to the CoreComm board of directors as to the fairness from a
financial point of view to CoreComm of the stock consideration and the cash
consideration, in the aggregate, to be paid by CoreComm under the ATX merger
agreement. These analyses do not purport to be appraisals or necessarily reflect
the prices at which businesses or securities actually may be sold. Analyses
based upon forecasts of future results are not necessarily indicative of actual
future results, which may be significantly more or less favorable than suggested
by such analyses. Because these analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties or
their respective advisors, none of CoreComm, ATX, Goldman Sachs or any other
person assumes responsibility if future results are materially different from
those forecast.
As described above, Goldman Sachs' March 9, 2000 opinion to the board of
directors of CoreComm was one of many factors taken into consideration by the
CoreComm board of directors in making its determination to approve the ATX
merger agreement. The foregoing is a summary of the material financial analyses
used by Goldman Sachs in connection with providing its opinions but it does not
purport to be a complete description of the analyses performed by Goldman Sachs.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Goldman Sachs has acted
as CoreComm's financial advisor in connection with, and has participated in
negotiations leading to, the ATX merger agreement.
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Goldman Sachs may also provide investment banking services to CoreComm in
the future. CoreComm selected Goldman Sachs as its financial advisor because it
is a nationally recognized investment banking firm that has substantial
experience in transactions similar to the ATX merger.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of CoreComm for its own account and for the account of customers.
Under a letter agreement dated December 28, 1999, CoreComm exclusively
engaged Goldman Sachs to act as its financial advisor and to undertake a study
to enable it to render an opinion in connection with the possible acquisition of
all or a portion of the equity interests or assets of ATX. Under the terms of
this engagement letter, CoreComm has agreed to pay Goldman Sachs a transaction
fee based on the outcome of the transaction as follows:
- if at least 50% of the outstanding equity interests or assets (based on
the book value thereof) of ATX is acquired in one or more transactions,
Goldman Sachs will be paid a transaction fee of $7,000,000; and
- if less than 50% of the outstanding equity interests or assets (based on
the book value thereof) of ATX is acquired, Goldman Sachs will be paid a
mutually acceptable transaction fee.
CoreComm has agreed to pay the transaction fee to Goldman Sachs in cash
upon consummation of such acquisition.
CoreComm also has agreed to reimburse Goldman Sachs for its reasonable
out-of-pocket expenses, including attorneys' fees, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
INTERESTS OF CERTAIN PARTIES IN THE MERGER -- CORECOMM AFFILIATES
Merger Agreement Terms Governing the Composition of the Board of Directors
of Post-merger CoreComm. The ATX merger agreement provides that the board of
directors of CoreComm will become the members of the board of directors of post-
merger CoreComm after the ATX merger and that the current directors of ATX will
resign. For more information regarding the directors of post-merger CoreComm,
please read the section of this joint proxy statement and prospectus entitled
"Management of Post-merger CoreComm."
Merger Agreement Terms Governing the Composition of Post-merger CoreComm's
Management. The ATX merger agreement provides that the current officers of
CoreComm will become the officers of post-merger CoreComm after the ATX merger
and that the current officers of ATX will resign. For more information regarding
the officers of post-merger CoreComm, please read the section of this joint
proxy statement and prospectus entitled "Management of post-merger CoreComm."
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Accelerated Vesting of CoreComm Stock Options. All outstanding options
under CoreComm's 1998 and 1999 stock option plans will vest and become
exercisable upon the completion of the ATX merger. CoreComm has obtained waivers
from its directors and officers and is seeking waivers from its other employees
to forego the accelerated vesting of these options.
ACCOUNTING TREATMENT
For more information regarding the accounting treatment of the ATX merger,
please refer to the unaudited pro forma financial data of ATX in the section of
this joint proxy statement and prospectus entitled "Unaudited Pro Forma
Financial Data."
APPRAISAL RIGHTS
CoreComm shareholders have no appraisal rights with respect to the ATX
merger. CoreComm shareholders will have appraisal rights with respect to the
domestication merger. Please read the section of this discussion of the merger
transactions entitled "-- The Domestication Merger -- Appraisal Rights" for more
information regarding appraisal rights with respect to the domestication merger.
THE DOMESTICATION MERGER
PRINCIPAL REASONS FOR THE DOMESTICATION PROPOSAL
The CoreComm board of directors has determined that the domestication
merger is fair and in the best interests of CoreComm and its shareholders and
has unanimously approved the domestication merger. The domestication merger will
not occur unless either the Voyager merger or the ATX merger or both mergers are
to be completed immediately after the completion of the domestication merger.
ACCORDINGLY, CORECOMM'S BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF
CORECOMM VOTE "FOR" AUTHORIZATION OF THE DOMESTICATION MERGER SO LONG AS EITHER
THE VOYAGER MERGER OR THE ATX MERGER OR BOTH MERGERS WILL BE COMPLETED
IMMEDIATELY AFTER THE COMPLETION OF THE DOMESTICATION MERGER.
The domestication merger is motivated principally by the tax efficiencies
that the board of directors of CoreComm believes will be achieved if CoreComm
changes its domicile from Bermuda to the State of Delaware in the United States
immediately prior to completing either the ATX merger or the Voyager merger.
If the Voyager merger occurs but the ATX merger does not occur, and if
CoreComm does not change its domicile immediately prior to the Voyager merger,
the Voyager merger would not be able to be structured as a tax-free transaction.
This would effectively have prevented Voyager from entering into the
transaction.
If only the ATX merger occurs or if both the ATX merger and the Voyager
merger occur, the board of directors of CoreComm believes it is also in the best
interests of
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CoreComm and its shareholders to change CoreComm's domicile to the United States
in order to avoid the tax inefficiencies that would result if CoreComm were to
remain a Bermuda corporation in which case it would become a subsidiary of a
Delaware parent (post-merger CoreComm). Specifically, as a Bermuda company, it
would not be able to consolidate for United States federal income tax purposes
with post-merger CoreComm. Moreover, if CoreComm remained a Bermuda corporation
after it became a wholly-owned subsidiary of post-merger CoreComm, CoreComm
would become subject to the "deemed dividend" and other provisions applicable to
"controlled foreign corporations" under the "subpart F" rules of the United
States federal income tax code of 1986, as amended, which were enacted in order
to discourage U.S. companies from conducting certain operations through foreign
subsidiaries.
APPRAISAL RIGHTS
If you are a shareholder of CoreComm who does not vote in favor of the
domestication merger and are not satisfied that you have been offered the fair
value of your common shares, you may (within one month after the date notice of
the CoreComm Special General Meeting was given) apply to the Bermuda courts to
appraise the fair value of your common shares.
Within one month after the Bermuda court's appraisal, CoreComm will be
entitled to pay you an amount equal to the value of your common shares as
appraised by the court. However, where the court has appraised any shares under
this procedure and the amalgamation has been completed prior to the appraisal
then, within one month after the court's appraisal, if the amount paid to you
for your shares is less than the appraisal by the court, CoreComm will pay to
you the difference between the amount paid to you and the value appraised by the
court. There is no appeal from an appraisal by the court under this procedure.
THE INCREASE IN SHARE CAPITAL
CoreComm's board of directors has determined that the increase in share
capital of CoreComm to 200 million common shares and 5 million preferred shares
is in the best interests of CoreComm and its shareholders and has unanimously
approved the increase in share capital. ACCORDINGLY, CORECOMM'S BOARD OF
DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF CORECOMM VOTE "FOR" THE PROPOSAL
TO INCREASE CORECOMM'S SHARE CAPITAL.
The board of directors of CoreComm recommends that shareholders vote for
the increase in share capital in order to facilitate future acquisitions by
CoreComm in the event the ATX merger and the Voyager merger do not occur. The
increase in share capital will not be needed if either the ATX merger or the
Voyager merger occurs, because post-merger CoreComm will have authorized share
capital of 200 million common shares and 5 million preferred shares.
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THE MERGER AGREEMENTS
The following is a brief summary of the significant provisions of the
merger agreements. Copies of the merger agreements between CoreComm and Voyager
and between CoreComm and ATX are attached to this joint proxy statement and
prospectus as Annex A and Annex B, respectively. A copy of the amalgamation
agreement between CoreComm and CoreComm Merger Sub, Inc. is attached to this
joint proxy statement and prospectus as Annex C. YOU SHOULD READ BOTH MERGER
AGREEMENTS AND THE AMALGAMATION AGREEMENT CAREFULLY AND IN THEIR ENTIRETY.
THE MERGER AGREEMENT BETWEEN CORECOMM AND VOYAGER
The following is a brief summary of the significant provisions of the
merger agreement between CoreComm and Voyager. A copy of the Voyager merger
agreement is attached as Annex A and incorporated into this joint proxy
statement and prospectus. YOU SHOULD READ THE VOYAGER MERGER AGREEMENT CAREFULLY
AND IN ITS ENTIRETY.
GENERAL
The Voyager merger agreement provides for the merger of a newly-formed
wholly-owned subsidiary of CoreComm with and into Voyager. Voyager will survive
and become a wholly-owned subsidiary of post-merger CoreComm.
MERGER CONSIDERATION
In the Voyager merger, each outstanding share of common stock, par value
$0.0001 per share, of Voyager will be converted into the right to receive $3.00
in cash and 0.292 of a share of common stock of post-merger CoreComm based on an
exchange ratio calculated as follows:
If the average trading price prior to closing per common share of CoreComm
is:
- equal to or greater than $41.17 and equal to or less than $56.97 (subject
to adjustment as described below), the exchange ratio will be fixed at
0.292;
- greater than $56.97, the exchange ratio will be calculated by dividing
$16.64 by the average trading price per CoreComm common share; or
- less than $41.17 and equal to or greater than $33.03, the exchange ratio
will be calculated by dividing $12.02 by the average trading price per
CoreComm common share; or
- less than $33.03, then Voyager has the right to notify CoreComm it wishes
to terminate the Voyager merger agreement:
- if Voyager gives that notification, CoreComm can prevent the
termination by adjusting the exchange ratio so that the Voyager
stockholders receive $12.02 worth of post-merger CoreComm common
stock per share of Voyager common stock; and
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- if Voyager does not give that notification, the exchange ratio will
be 0.3639 shares of post-merger CoreComm common stock for each share
of Voyager common stock, subject to adjustments described below to
preserve the tax-free treatment of the Voyager merger.
The average trading price per CoreComm common share will be computed by
taking the volume weighted average trading price of CoreComm common shares for
ten randomly selected trading days out of the 20 consecutive trading days ending
with the last day prior to the closing of the Voyager merger.
ADJUSTMENTS TO STOCK CONSIDERATION
If the average trading price of CoreComm common shares is below $33.03,
Voyager has the right to notify CoreComm that it wishes to terminate the Voyager
merger agreement. The average trading price will be calculated as of the end of
the trading day prior to the scheduled closing date of the Voyager merger, so it
will only be possible to determine whether Voyager has the right to give the
termination notification on that date.
-- Voyager elects not to give the termination notice:
Voyager stockholders will be entitled to receive merger consideration with
a total value equal to 0.3639 of a share of common stock of post-merger
CoreComm, plus $3.00 for each share of Voyager common stock.
In order to ensure that the Voyager merger will be treated as a tax-free
reorganization under the federal tax laws, the composition of the
consideration will be adjusted to 80% post-merger CoreComm common stock and
20% cash. The value of the post-merger CoreComm common stock for purposes
of the adjustment will be based on the trading price of the CoreComm common
shares on the date the Voyager merger closes.
The following table shows, for various assumed trading prices of CoreComm
common stock on the closing date:
- the total value of the consideration to be received;
- the composition, cash versus stock, of the consideration after the
adjustment; and
- the fraction of a share of post-merger CoreComm common stock to be issued
for each share of Voyager common stock, after adjustment.
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TOTAL VALUE OF
TRADING PRICE CONSIDERATION (BASED FRACTION OF A SHARE
ON CLOSING ON TRADING PRICE ON VALUE OF CASH/ STOCK TO BE ISSUED, AFTER
DATE CLOSING DATE) AFTER ADJUSTMENT ADJUSTMENT
------------- -------------------- -------------------- -------------------
$10.00 $6.6390 $1.3278 / $5.3112 0.5311
$12.00 $7.3668 $1.4734 / $5.8934 0.4911
$15.00 $8.4585 $1.6917 / $6.7668 0.4511
$18.00 $9.5502 $1.9100 / $7.6402 0.4245
$20.00 $10.2780 $2.0556 / $8.2224 0.4111
$22.00 $11.0058 $2.2011 / $8.8047 0.4002
$25.00 $12.0975 $2.4195 / $9.6780 0.3871
$28.00 $13.1892 $2.6378 / $10.5514 0.3768
$30.00 $13.9170 $2.7834 / $11.1336 0.3711
-- Voyager elects to give the termination notice:
- CoreComm may elect to adjust the fraction of a share of post-merger
CoreComm common stock to be issued in respect of each share of Voyager
common stock so that the value of that fraction of a share will be $12.02.
In that case, Voyager may not terminate the Voyager merger agreement.
For example, if the average trading price of CoreComm common shares were
$20.00, then Voyager could give CoreComm notice of its intention to
terminate the Voyager merger agreement. If CoreComm elects not to accept
the termination, it would be required to increase the fraction of a share
of post-merger CoreComm common stock to be issued in respect of each share
of Voyager common stock to 0.601 of a share. In this example, Voyager
stockholders would receive 0.601 of a share of post-merger CoreComm common
stock plus $3.00 in cash for each share of Voyager common stock, totaling
$15.02 worth of consideration per share.
The following table sets forth the exchange ratios between post-merger
CoreComm common stock and Voyager common stock for some average trading
prices of CoreComm common shares, assuming that Voyager notifies CoreComm
of its intention to terminate the Voyager merger agreement and CoreComm
elects to adjust the exchange ratio:
FRACTION OF A SHARE OF POST-MERGER CORECOMM
AVERAGE TRADING PRICE OF CORECOMM COMMON SHARES COMMON STOCK PER SHARE OF VOYAGER COMMON STOCK
----------------------------------------------- ----------------------------------------------
$10.00 1.202
$15.00 0.801
$20.00 0.601
$25.00 0.481
$30.00 0.401
- CoreComm may also elect not to adjust the exchange ratio, in which case the
Voyager merger agreement will terminate and the Voyager merger will not
occur.
To date, the Voyager board of directors has not made any decision as to
whether Voyager will notify CoreComm that it wishes to terminate the Voyager
merger agreement if the average trading price is less than $33.03. To date, the
CoreComm board of directors has not made any decision as to whether it would
elect to adjust the
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exchange ratio between Voyager common stock and post-merger CoreComm common
stock.
Adjustments will also be required to be made to the exchange ratio if (1)
the closing of the Voyager merger has not occurred on or prior to July 15, 2000,
(2) CoreComm has engaged in a transaction that would (x) require the approval of
the shareholders of CoreComm, (y) require CoreComm to include information
relating to the transaction in the pro forma financial statements that are
required to be contained in this joint proxy statement and prospectus or (z)
require CoreComm to amend or restate its pro forma financial statements in any
material manner, and (3) all other conditions to closing have been satisfied (or
waived by the party entitled to waive the condition) or are capable of being
satisfied on that date with reasonable best efforts.
In these circumstances, commencing on the later to occur of July 16, 2000
and the first business day after which the circumstances described above are
present, which is referred to as the trigger date, the fraction of a share of
post-merger CoreComm common stock that a Voyager stockholder will be entitled to
receive will be fixed at 0.292 so long as the average trading price per CoreComm
common share does not exceed $47.875 multiplied by the applicable collar
percentage, which will be increased by an additional five percentage points per
each 31 day period beginning on the sixteenth calendar day following the trigger
date.
The following chart presents some examples of how the exchange ratio and
maximum value of the merger consideration would be adjusted assuming a base
stock price of $47.875 and a trigger date of July 16, 2000:
EXCHANGE RATIO TO BE FIXED
AT 0.292 UNTIL THE AVERAGE
TRADING PRICE EXCEEDS THE
THRESHOLD SET FORTH BELOW MAXIMUM
(DETERMINED BY MULTIPLYING AGGREGATE VALUE
COLLAR THE BASE AMOUNT OF $47.875 OF MERGER
CLOSING DATE PERCENTAGE BY THE COLLAR PERCENTAGE) CONSIDERATION
------------ ---------- -------------------------- ---------------
July 16.................... 121.5% $58.17 $19.99
August 31.................. 126.5% $60.56 $20.68
October 1.................. 131.5% $62.96 $21.38
November 1................. 136.5% $65.35 $22.08
In addition, the base amount of $47.875 is to be adjusted:
- upon any reclassification, recapitalization, stock split, reverse stock
split, combination or exchange of shares or any dividend payable in
CoreComm common shares so that the existing Voyager stockholders achieve
the same economic effect originally contemplated; and
- upon any distribution to CoreComm shareholders of, or rights or warrants
for, capital stock, other than common stock debt, other assets, other
than cash dividends or by reducing the base amount in a manner designed
to reflect the decrease in value achieved by the distribution.
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CoreComm may only effect a distribution described in this paragraph, if the
distribution does not include operating assets that are required to maintain the
current operating businesses of CoreComm, Inc. (a subsidiary of CoreComm) and
the distribution of such operating assets would not have a material adverse
effect on the current operating businesses of CoreComm, Inc., provided that this
paragraph shall not prohibit a distribution of the local multipoint distribution
service licenses and related assets.
If the average trading price of CoreComm common shares is above $33.03, the
fraction of a share of post-merger CoreComm common stock to be received by
Voyager stockholders for each share of Voyager common stock will be adjusted,
based on the average trading price. Under that adjustment formula, Voyager
stockholders will receive up to a maximum of $16.64 worth of post-merger
CoreComm common stock for each share of Voyager common stock plus the $3.00 in
cash.
All per-share consideration may be adjusted if CoreComm engages in any
transaction that has the mathematical effect of reducing the value of each share
of CoreComm common stock while preserving CoreComm's existing shareholder's
total value, such as a stock split or spin-off. In that case, the shares of
post-merger CoreComm common stock to be received by Voyager's stockholders will
be increased to preserve the value to be received.
Post-merger CoreComm will not issue fractional shares in the Voyager
merger. As a result, the total number of shares of post-merger CoreComm common
stock that each Voyager stockholder receives in the Voyager merger will be
rounded down to the nearest whole number. Each of these stockholders will also
receive a cash payment for the remaining fractional share.
POST CLOSING CAPITALIZATION
The percentages calculated below do not take into account the exercise of
any outstanding stock options or warrants or the conversion of any convertible
securities that would result in the issuance of the common equity of any of the
companies mentioned.
Assuming that the ATX merger does not occur and that no adjustment to the
exchange ratio between Voyager common stock and post-merger CoreComm common
stock is made, following the Voyager merger, post-merger CoreComm will have
approximately 49.3 million shares of common stock outstanding. Voyager
stockholders will own approximately 18.7% of this total. The remaining 81.3% of
post-merger CoreComm's common stock will be owned by CoreComm's common
stockholders as of immediately prior to the Voyager merger.
Assuming that the ATX merger occurs and that no adjustment to the exchange
ratio between Voyager or ATX common stock and post-merger CoreComm common stock
is made, following the Voyager merger, post-merger CoreComm will have
approximately 61.7 million shares of common stock outstanding. Voyager
stockholders will own approximately 15.0% of this total. The remaining 85.0% of
post-merger CoreComm's common stock will be owned by a combination of CoreComm's
current
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common shareholders and ATX's common stockholders or their transferees as of
immediately prior to the ATX merger.
Assuming that the average trading price of CoreComm common shares is $20.00
and CoreComm elects to adjust the exchange ratio between Voyager common stock
and post-merger CoreComm common stock, following the Voyager merger and without
taking into account the ATX merger, post-merger CoreComm will have approximately
53.1 million shares of its common stock outstanding. Voyager stockholders will
own approximately 24.5% of that total, and the remaining 75.5% will be owned by
CoreComm shareholders as of immediately prior to the Voyager merger.
Assuming that the average trading price of CoreComm common shares is $20.00
and CoreComm elects to adjust the exchange ratio between Voyager common stock
and post-merger CoreComm common stock, following the ATX merger and the Voyager
merger, post-merger CoreComm will have approximately 65.5 million shares of its
common stock outstanding. Voyager stockholders will own approximately 19.9% of
that total. Current ATX stockholders will own approximately 18.9% of that total,
and the remaining 61.2% will be owned by CoreComm shareholders as of immediately
prior to the Voyager merger.
The calculations contained in the preceding two paragraphs do not take into
account the exercise of any outstanding stock options or warrants or the
conversion of any convertible securities that would result in the issuance of
the common equity of any of the companies involved.
ADJUSTMENTS TO STOCK AND CASH CONSIDERATION
The amount of cash consideration, which is $3.00 for each share of Voyager
common stock, that Voyager stockholders are entitled to receive could be
adjusted if either of the tax opinions to be delivered by counsel to CoreComm or
Voyager is not reasonably expected to be delivered because less than 80% of the
value of the merger consideration would be in the form of post-merger CoreComm
common stock. In this case, the number of common shares of post-merger CoreComm
to be received will be increased, and accordingly the amount of cash to be
received will be reduced, so that the value of the shares of common stock of
post-merger CoreComm to be received in the Voyager merger will constitute 80% of
the total merger consideration. The purpose of this adjustment is to ensure that
the transaction will be treated as a tax-free reorganization under federal tax
laws.
EFFECTIVE TIME OF THE VOYAGER MERGER
Promptly after the satisfaction or waiver of the conditions of the Voyager
merger set forth in the Voyager merger agreement, CoreComm will file a
certificate of merger with the Secretary of State of the State of Delaware. When
this filing has been made, a newly-formed subsidiary of CoreComm will be merged
with and into Voyager, and the separate corporate existence of this merger
subsidiary will cease. Voyager will survive the Voyager merger and exist as a
wholly-owned subsidiary of post-merger CoreComm. The directors of Voyager
immediately following the Voyager merger will be those of
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CoreComm's merger subsidiary. Immediately following the Voyager merger, the
officers of Voyager immediately prior to the Voyager merger will continue as the
officers of Voyager.
VOYAGER STOCK OPTIONS
Each outstanding Voyager stock option will become an option to acquire a
number of shares of post-merger CoreComm common stock equal to the number of
shares of Voyager common stock subject to the option immediately prior to the
effective time using a formula based on the exchange ratio used to determine the
fraction of a share of post-merger CoreComm common stock to be received by
Voyager stockholders in connection with the Voyager merger plus the quotient
obtained by dividing the cash consideration received by Voyager stockholders in
connection with the merger by the average trading price of CoreComm common
shares. Under the Voyager stock option plan, all outstanding options will vest
and become exercisable upon completion of the Voyager merger. The issuance of
the shares of post-merger CoreComm common stock to be received upon exercise of
the options issued by post-merger CoreComm will be registered by post-merger
CoreComm.
EXCHANGE OF CERTIFICATES
Post-merger CoreComm will appoint an exchange agent to handle the exchange
of the Voyager common stock certificates in the Voyager merger. Once the Voyager
merger is complete, post-merger CoreComm will deposit with the exchange agent
the certificates representing post-merger CoreComm common stock, the aggregate
cash consideration, including the cash to be provided instead of fractional
shares, and any related dividends or distributions, issuable in the merger in
exchange for outstanding shares of Voyager common stock.
Soon after the closing of the Voyager merger, the exchange agent will send
to each holder of Voyager common stock a letter of transmittal for use in the
exchange and instructions explaining how to surrender certificates to the
exchange agent. Holders who surrender their certificates to the exchange agent,
together with a properly completed letter of transmittal, will receive the
appropriate merger consideration. Holders of unexchanged stock certificates will
receive any dividends or other distributions payable by post-merger CoreComm
after the Voyager merger only after their certificates are surrendered. VOYAGER
STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
No certificates or scrip representing CoreComm common stock will be issued
upon surrender for exchange of Voyager certificates. Cash will be issued instead
of fractional shares of post-merger CoreComm common stock otherwise issuable
upon surrender of those certificates, based on the closing price for CoreComm
common shares on Nasdaq on the first business day immediately following the
closing of the Voyager merger.
If Voyager stock certificates have been lost, stolen or destroyed, Voyager
stockholders will only be entitled to obtain post-merger CoreComm common stock
and the cash consideration by providing an affidavit of loss and, if required by
post-merger
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CoreComm, posting a bond in an amount sufficient to protect post-merger CoreComm
against claims related to the Voyager certificates.
REPRESENTATIONS AND WARRANTIES
Representations and Warranties of Voyager
The Voyager merger agreement contains representations and warranties of
Voyager, almost all of which are qualified by a materiality threshold specified
in the Voyager merger agreement, relating to:
- due organization, good standing and existence;
- compliance with laws;
- corporate power and authority to execute, deliver and perform its
obligations under the Voyager merger agreement;
- board approval of the Voyager merger, its determination that the Voyager
merger is in the best interest of Voyager and its stockholders and
recommendation that Voyager's stockholders approve and adopt the Voyager
merger agreement and that the Voyager board has taken the actions and
votes as are necessary on its part to satisfy the provisions of Section
203 of the Delaware General Corporation Law and all other statutes
applicable to the Voyager merger agreement, the Voyager merger, and the
Voyager voting agreement;
- capitalization;
- subsidiaries and their organization, good standing and existence;
- interests in other persons;
- compliance of the Voyager merger agreement and the transactions under the
Voyager merger agreement with Voyager's organizational documents and
contracts and with applicable law;
- required governmental and regulatory approvals and permits, including
those required under the Telecommunications Act;
- permits and authorizations required by state public utilities commission
or similar state regulatory body of the Federal Communications Commission
and Voyager's compliance with these permits;
- required consents under material contracts;
- SEC documents, financial statements and undisclosed liabilities;
- litigation;
- absence of material changes;
- taxes;
- real property leases and properties;
- intellectual property;
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- environmental matters;
- employee benefit plans;
- labor matters;
- brokers' and finders' fees with respect to the Voyager merger;
- receipt of opinion of financial advisor;
- material contracts, non-competition agreements and other specified
agreements;
- subscribers;
- information in the proxy statement and registration statement; and
- vote required.
Representations and Warranties by CoreComm
The Voyager merger agreement contains representations and warranties of
CoreComm, almost all of which are qualified by a materiality threshold specified
in the Voyager merger agreement, relating to:
- due organization, good standing and existence;
- compliance with laws;
- corporate power and authority to execute, deliver and perform its
obligations under the Voyager merger agreement;
- CoreComm board approval of the issuance of the CoreComm common shares;
- capitalization;
- subsidiaries and their organization, good standing and existence;
- interests in other persons;
- compliance of the Voyager merger agreement and the transactions under the
Voyager merger agreement with CoreComm's organizational documents and
contracts and with applicable law;
- SEC documents;
- intellectual property;
- litigation;
- absence of material changes;
- taxes;
- brokers' and finders' fees with respect to the Voyager merger;
- environmental matters;
- employee benefit plans; and
- receipt of opinion of financial advisor.
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NO SOLICITATIONS
Voyager has agreed in the Voyager merger agreement that it will not, and
will cause its subsidiaries and affiliates and their respective officers,
directors, employees, investment bankers, attorneys, accountants and other
advisors or representatives not to, solicit, initiate, or encourage (including
by way of furnishing non-public information), or take any action to facilitate,
any inquiries or the making of any proposal that constitutes an acquisition
proposal or any inquiries or making of any proposal that constitutes, or is
reasonably expected to lead to, an acquisition proposal or participate in any
activities, discussions or negotiations regarding an acquisition proposal. Under
the Voyager merger agreement, an acquisition proposal means any proposed or
actual:
- merger, consolidation or similar transaction involving Voyager;
- sale or other disposition of any assets representing 15% or more of the
consolidated assets of Voyager and its subsidiaries;
- issuance, sale or other disposition of securities representing 15% or
more of the votes of the outstanding shares of Voyager common stock;
- recapitalization, restructuring, liquidation or similar transaction with
respect to Voyager;
- tender offer or exchange offer in which any person has the right to
acquire beneficial ownership of 15% or more of the outstanding shares of
Voyager common stock;
- transaction which is similar in form, substance or purpose to any of the
foregoing transactions; or
- public announcement of a proposal or plan to do any of the foregoing.
However, Voyager may furnish information to, and enter into discussions or
negotiations with, any person that makes an unsolicited written acquisition
proposal if:
- after consultation with its outside legal counsel, the Voyager board
determines in good faith that these actions are necessary for the Voyager
board to comply with its fiduciary duties to the Voyager stockholders
under applicable law;
- the proposal is not subject to financing contingencies or is, in the good
faith judgment of the Voyager board after consultation with a nationally
recognized financial advisor, reasonably capable of being financed and is
at least as likely to be consummated as the Voyager merger;
- the Voyager board determines in good faith that the acquisition proposal
would result in a more favorable transaction to Voyager's stockholders
from a financial point of view; and
- Voyager enters into a confidentiality agreement with the person making
the proposal.
For any acquisition proposal that it receives, Voyager agreed to notify
CoreComm of the identity of the company making the proposal and the material
terms of the proposal
145
and to provide CoreComm with a copy of any written proposal. Additionally,
Voyager agreed to inform CoreComm of, and provide CoreComm with copies of, any
material changes to the proposal. Voyager also agreed to terminate and to cause
its subsidiaries and affiliates and their respective officers, directors,
employees, investment bankers, attorneys, accountants and other advisors, to
terminate activities, discussions or negotiations relating to any acquisition
proposal that was ongoing at the time of the signing of the Voyager merger
agreement.
CONDUCT OF THE BUSINESS
Conduct of Business by Voyager
Voyager has agreed to carry on its business, and cause its subsidiaries to
carry on their businesses, in the usual, regular and ordinary course of
business, consistent with past practice and in accordance with and to the extent
consistent with the business plan of Voyager, with no less diligence and effort
than would be applied in the absence of the Voyager merger agreement and will
use its reasonable best efforts to preserve intact its and its subsidiaries
business organization, to keep available the services of the present officers
and key employees and to preserve the goodwill of customers, suppliers and all
other persons having business relationships with Voyager. In addition, without
the prior written consent of CoreComm, Voyager has agreed that it will not among
other things:
- split, combine, subdivide, reclassify or redeem, retire, purchase or
otherwise acquire, or propose to redeem, retire or purchase any shares of
its capital stock;
- declare any dividends or make any other distributions;
- issue or authorize for issuance, including through pledges, any equity
securities, except as permitted under the Voyager stock option plan;
- acquire, transfer or otherwise dispose of any material assets outside the
ordinary course of business or enter into any material commitment or
transaction outside the ordinary course of business, with limited
exceptions;
- except as contemplated by its business plan, incur, assume or prepay any
indebtedness for borrowed money or guarantee or become liable or
responsible for any debt of others, make any loans or other investments
in any material assets or create any material liens on any material
assets, other than in the ordinary course of business consistent with
prior practice;
- pay, discharge or satisfy any claims, liabilities or obligations other
than in the ordinary course of business consistent with past practice, or
in connection with the transactions contemplated by the Voyager merger
agreement;
- change any of its accounting principles or practices, except as required
by generally accepted accounting principles;
- pay any benefit not required by any existing plan or arrangement or enter
into employment or severance agreements with any director, officer or
other employee of Voyager or its subsidiaries;
146
- adopt, amend or terminate any existing benefit plan of Voyager or other
arrangement between Voyager or its subsidiaries and one or more of their
directors or officers;
- increase the compensation or fringe benefits of any director, officer or
employee, except for normal increases in the ordinary course of business;
- except for normal increases in the ordinary course of business consistent
with past procedure, increase in any manner the compensation or fringe
benefits of any director, officer or employee of Voyager or its
subsidiaries or pay any benefit not required by an existing benefit plan;
- establish or amend any collective bargaining, bonus, profit sharing or
any other plan or arrangement for current or former officers, directors
or other employees, except as required by law;
- amend any organization document;
- make or file any elections in respect of taxes;
- terminate or request any material change in any material contract or
enter into any contract that would be material to Voyager or its
subsidiaries, taken as a whole, in either case other than in the ordinary
course of business consistent with past practice;
- make or authorize any capital expenditure that would be material to
Voyager or its subsidiaries, other than in the ordinary course of
business consistent with past practice or in accordance with their
business plans;
- enter into any agreement or arrangement that materially limits Voyager or
its subsidiaries or that would, after the closing of the merger, limit or
restrict Voyager or CoreComm or their affiliates from engaging or
competing in any line of business or in any geographic area, other than
in the ordinary course of business consistent with past practice;
- adopt a plan of, or resolutions providing for, complete or partial
liquidation, merger, consolidation, restructuring, recapitalization or
reorganization;
- settle, release, waive or otherwise compromise any material rights,
claims or litigation; or
- take any action that would result in any of Voyager's representations or
warranties set forth in the Voyager merger agreement becoming untrue or
cause any conditions to closing to not be satisfied, other than those
actions that would not materially adversely affect Voyager's ability to
complete the transactions contemplated by the Voyager merger agreement.
CONDUCT OF BUSINESS BY CORECOMM
Without the prior written consent of Voyager, CoreComm will not declare,
set aside or pay any dividends or make any other distributions, except for
dividends paid by a subsidiary of CoreComm to CoreComm or any subsidiary of
CoreComm that is, directly
147
or indirectly, wholly-owned by CoreComm and except as permitted by the Voyager
merger agreement.
MEETINGS OF STOCKHOLDERS; OBLIGATIONS TO RECOMMEND
Voyager has agreed to take all actions necessary to convene a meeting of
its stockholders and to consider and vote upon the approval of the Voyager
merger agreement and the Voyager merger and CoreComm has agreed to take all
actions necessary to convene a meeting of its shareholders to consider and vote
upon the Voyager merger agreement and the issuance of common stock of CoreComm
in connection with the Voyager merger.
The Voyager board has agreed to recommend to its stockholders the adoption
of the Voyager merger agreement. The Voyager board is not permitted to withdraw
or modify its recommendation unless:
- Voyager has complied with the restrictions of solicitation described
above;
- there is a pending superior proposal;
- the Voyager board determines in good faith that this action is necessary
to comply with its fiduciary duty; and
- Voyager delivers prior notice to CoreComm that it intends to take this
action.
The CoreComm board has agreed to recommend to its shareholders that they
approve and adopt the Voyager merger agreement.
TAX-FREE TREATMENT
Neither of CoreComm nor Voyager will take, or fail to take, or cause to be
taken or fail to cause to be taken, any action, whether before or after the
closing of the Voyager merger, which action or failure to take any action would
cause the merger to fail to constitute a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code or a transaction that, together with
the reincorporation of CoreComm from a Bermuda corporation to a Delaware
corporation, qualifies as an exchange under the provisions of Section 351 of the
Internal Revenue Code and which is treated for U.S. federal income tax purposes
as a transfer of Voyager common stock by the stockholders of Voyager to CoreComm
in exchange for the merger consideration. However, it is further intended by
CoreComm and Voyager that if the ATX merger occurs prior to the Voyager merger,
and the Voyager merger agreement is assigned to post-merger CoreComm, then the
ATX merger, the ATX recapitalization and the transactions described in the
Voyager merger agreement will be treated for U.S. federal income tax purposes as
one integrated transaction qualifying as an exchange under the provisions of
Section 351 of the Internal Revenue Code in which the stockholders of Voyager
transfer Voyager common stock in exchange for post-merger CoreComm common stock.
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CONSENTS AND APPROVALS
CoreComm and Voyager have agreed to make all necessary filings, including
those under U.S. antitrust laws and under the Telecommunications Act, and to use
all reasonable efforts to obtain all consents and approvals required in
connection with the closing of the transactions contemplated by the Voyager
merger agreement.
LISTING APPLICATION
CoreComm and Voyager have agreed to cooperate in the preparation and
submission to Nasdaq of all reports, applications and other documents that may
be necessary to enable all of the CoreComm common stock that will be outstanding
or reserved for issuance at the effective time of the Voyager merger to be
listed for trading on Nasdaq. CoreComm and Voyager will also use reasonable best
efforts to cause the Voyager common stock to be de-listed from Nasdaq as soon as
practicable following the effective time of the Voyager merger.
PROXY STATEMENT; REGISTRATION STATEMENT
CoreComm and Voyager will cooperate in the preparation and filing of the
joint proxy statement and prospectus.
EXPENSES
Whether or not the Voyager merger is consummated, all expenses incurred in
connection with the Voyager merger agreement and the transactions contemplated
by the Voyager merger agreement will be paid by the party incurring the
expenses, except as described under the section of this joint proxy statement
and prospectus entitled "The Merger Agreement Between CoreComm and
Voyager -- Termination Fee."
OFFICERS' AND DIRECTORS' INDEMNIFICATION
After the Voyager merger is completed, post-merger CoreComm will preserve
all rights to indemnification existing as of March 12, 2000, the date of the
Voyager merger agreement, in favor of any current or former director, officer or
employee of Voyager for a period of at least six years following the Voyager
merger. Post-merger CoreComm will also indemnify directors, officers, agents and
employees of Voyager against liabilities or claims arising before the Voyager
merger is completed and as a result of their positions at Voyager. Finally,
post-merger CoreComm will pay the applicable persons' legal and other expenses
incurred in connection with any proceeding arising out of any matter occurring
until the Voyager merger is completed, and, with limitations as to cost,
maintain Voyager's current directors' and officers' liability insurance in place
for at least six years following the Voyager merger.
EMPLOYEE BENEFITS
Post-merger CoreComm has agreed that it will honor all obligations under
the existing terms of the employment and severance agreements to which Voyager
or any of
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its subsidiaries is presently a party, except as may otherwise be agreed to by
the parties to these agreements.
CoreComm has agreed that individuals who are employed by Voyager or any of
its subsidiaries immediately prior to the closing of the Voyager merger will
remain employees of Voyager or any of its subsidiaries, provided, that no
employee will have the right to continued employment by post-merger CoreComm,
Voyager or any of their respective subsidiaries for any period of time after the
closing of the Voyager merger that is not otherwise required by law or contract.
To the extent that any employee of Voyager or any of its subsidiaries
becomes a participant in any employee benefit plan maintained by post-merger
CoreComm or any of its subsidiaries, post-merger CoreComm will, or will cause
its subsidiaries to, give the affected employees full credit solely for the
purposes of eligibility and vesting under its employee benefits plans for the
affected employee's service with post-merger CoreComm, Voyager or any affiliate
of either one to the same extent recognized immediately prior to the closing of
the Voyager merger, provided, that the entry dates into the employee benefit
plans for the affected employees will be in the normal course of the plan's
administration, which may be the beginning of the plan year.
After the effective time of the Voyager merger, until the date post-merger
CoreComm determines in its sole discretion to modify, amend, terminate or
replace the benefit plans of Voyager, post-merger CoreComm will cause Voyager to
maintain its benefit plans (but not bonus or equity-based plans) on
substantially similar terms to those currently in effect. After the effective
time of the Voyager merger, if post-merger CoreComm decides to move any
employees of Voyager or its subsidiaries to a post-merger CoreComm employee
benefit plan, the affected employees will be permitted to participate in the
post-merger CoreComm employee benefit plan on terms substantially similar to
those provided to employees of post-merger CoreComm.
REINCORPORATION
CoreComm has agreed to take any and all action that may be considered
advisable or necessary to reincorporate by merger from a Bermuda corporation to
a Delaware corporation so that at the time of the completion of the transactions
contemplated by the Voyager merger agreement, CoreComm is a Delaware
corporation.
THE ATX MERGER
CoreComm will be permitted to take any and all action that may be
considered advisable or necessary to complete the ATX merger and none of the
actions taken in accordance with the ATX merger or consequences of these actions
will be considered a breach of a representation or warranty or be considered to
cause a failure of a condition to closing to be satisfied if, but for action or
consequence of the ATX merger, the condition would otherwise be satisfied.
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OTHER ACTIONS
Prior to the effective time of the Voyager merger, Voyager and CoreComm
will not, and will not permit any of their respective subsidiaries to, take any
action that would, or that could reasonably be expected to, result in any of the
conditions to the Voyager merger not being satisfied other than as provided in
the Voyager merger agreement.
CoreComm will have the right to have its designated representatives, as
provided to Voyager from time to time, upon reasonable notice, present within
normal business hours and without material disruption to the business of Voyager
for consultation at Voyager's principal offices until the closing of the merger.
These designated representatives will have the right to review and become
familiar with the conduct of the business of Voyager and will be available to be
consulted and will have authority on behalf of CoreComm in regard to
consultation regarding Voyager's material decisions. CoreComm will take all
reasonable actions necessary to ensure that its designated representatives will
be readily available during normal business hours. Voyager will not take any
action involving any material decision without written notice to and favorable
consultation with the designated representatives of CoreComm (which shall not be
unreasonably withheld, delayed or conditioned with respect to time or content),
unless CoreComm or its designated representatives have failed to respond within
five business days to the written notice.
A material decision means, for purposes of the Voyager merger agreement,
any of the following to the extent the decision may affect the assets, the
obligations or the business of Voyager:
- any purchase order, capital expenditure or other purchase of assets in
excess of $100,000 in any instance to be delivered, or the payment for
which will become due, after the closing of the Voyager merger;
- the acceptance of any material customer contract or the establishment of
any pricing policy that deviates in any material respect from the terms
and conditions of current pricing policies as previously provided to
CoreComm;
- any general communication with customers related to the business or to
the Voyager merger; or
- a material change in material promotional or marketing decisions or
policies.
NOTIFICATION OF SPECIFIED EVENTS
CoreComm and Voyager have agreed to promptly notify each other of the
occurrence or non-occurrence of specified events, including if, prior to the
closing of the merger, CoreComm will enter into a definitive agreement for a
transaction that would affect timing of the transactions.
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CONDITIONS TO OBLIGATION OF EACH PARTY TO COMPLETE THE VOYAGER MERGER
Each of CoreComm's and Voyager's respective obligations to complete the
Voyager merger are subject to the satisfaction of the following conditions:
- Stockholder Approval. The Voyager stockholders will have duly adopted
the Voyager merger agreement and the shareholders of CoreComm will have
duly approved the Voyager merger agreement and the issuance of
post-merger CoreComm common stock in the Voyager merger;
- Effectiveness of the Registration Statement. The registration statement
of which this document is a part will have been declared effective and
the SEC will not have issued any stop order suspending its effectiveness,
nor will it have started or threatened any proceedings for that purpose;
- Listing. The post-merger CoreComm common stock to be issued in
connection with the Voyager merger and upon exercise of the options will
have been approved for listing on Nasdaq;
- No Injunction, Order or Restraints. No statute, rule, regulation,
executive order, decree, ruling or injunction, whether permanent,
preliminary or temporary, will have been enacted, entered, promulgated or
enforced by any governmental entity or court which restrains, enjoins or
otherwise prohibits the completion of the merger substantially on the
terms contemplated by the Voyager merger agreement and no governmental
entity will have instituted any proceeding seeking any law, order,
injunction or decree or any other person will have filed a motion and
this motion will not have been dismissed;
- Government Consents. All consents, approvals and action of any
governmental entity required to permit the completion of the Voyager
merger and the other transactions contemplated by the Voyager merger
agreement will have been obtained or made, free of any condition that
would reasonably be expected to have a material adverse effect on Voyager
or CoreComm, as the case may be;
- Registration Rights Agreement. CoreComm and Voyager's principal
stockholders will have entered into a registration rights agreement;
- HSR Act. The waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act will have expired or terminated;
- Representations and Warranties. Those representations and warranties of
each party set forth in the Voyager merger agreement that are qualified
by a materiality threshold will be true and correct as of the closing of
the Voyager merger, and those representations and warranties of each
party not so qualified by a materiality threshold will be true and
correct in all material respects as of the closing of the Voyager merger;
- Covenants. Each party will have performed in all material respects all
its obligations under the Voyager merger agreement;
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- Tax Opinion. Each party will have received the written opinion of its
counsel with respect to the tax-free nature of the Voyager merger; and
- Consents, Approvals, Etc. All material consents, authorizations, orders
and approvals of, or filings or registrations with, any governmental
commission, board, other governmental entity or third parties required to
be made or obtained by CoreComm and its subsidiaries and affiliated
entities in connection with the execution, delivery and performance of
the Voyager merger agreement will have been obtained or made.
ADDITIONAL CONDITIONS TO OBLIGATIONS OF CORECOMM TO COMPLETE THE VOYAGER MERGER
The obligation of CoreComm to complete the Voyager merger is also subject
to the following conditions:
- Absence of Changes in Voyager. From September 30, 1999 through the
closing date of the Voyager merger, there shall not have occurred any
change concerning Voyager or any of its subsidiaries that has had, or is
reasonably expected to have, a material adverse effect on the business,
properties, assets, results of operations or financial condition of
Voyager and its subsidiaries taken as a whole, other than any regulatory
changes generally affecting the industries in which Voyager operates,
including changes due to actual or proposed changes in law or
regulations, or changes that are related to a general drop in stock
prices in the United States resulting from political or economic turmoil;
- Stockholders Agreement. The Voyager stockholders who are required by
the voting agreement to enter into a stockholders agreement, and
CoreComm, will have entered into the Voyager stockholders agreement,
which shall remain in full force and effect;
- Affiliate Letters. CoreComm will have received an executed copy of an
affiliate letter from each affiliate of Voyager; and
- Other Agreements. The letter agreements entered into on March 12, 2000
between CoreComm and persons associated with Voyager, and executed in
connection with the Voyager merger agreement will have been performed at
or prior to the closing of the Voyager merger.
TERMINATION
The Voyager merger agreement may be terminated at any time prior to the
closing of the Voyager merger by mutual written consent. Either CoreComm or
Voyager may terminate the Voyager merger agreement if:
- any required approval of the CoreComm shareholders or Voyager
stockholders has not been obtained at the applicable stockholder meeting;
- any governmental entity has issued a final and non-appealable injunction
that permanently enjoins the Voyager merger; or
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- the other party breaches any material representation, warranty, covenant
or agreement contained in the Voyager merger agreement or if any
representation or warranty shall have become untrue, and, in each case,
as a result there would be a failure to satisfy a condition to the
Voyager merger.
The Voyager merger agreement may be terminated by Voyager if:
- the Voyager board elects to terminate the Voyager merger agreement in
order to recommend or approve a superior proposal, provided that Voyager:
- has complied with all the terms of non-solicitation in accordance
with the Voyager merger agreement;
- has notified CoreComm in writing that it intends to terminate the
Voyager merger agreement in order to recommend or approve a superior
proposal;
- has notified CoreComm of its intention to enter into a binding
agreement with respect to a superior proposal and, after taking into
account any modifications to the transactions contemplated by the
Voyager merger agreement that CoreComm has then proposed in writing
and not withdrawn, the Voyager board has determined that the other
proposal is and continues to be a superior proposal; and
- concurrently with the effectiveness of the termination, has paid to
CoreComm the termination fee described under the section of this
joint proxy statement and prospectus entitled "The Merger Agreement
Between CoreComm and Voyager -- Termination Fees."
- the Voyager merger is not consummated by October 31, 2000 and Voyager is
not in material breach of its obligations, or
- as of a date not more than three business days before the expected
closing date of the merger, the average trading price of CoreComm common
shares would be less than $33.03 and, following notification, CoreComm
has not agreed to increase the exchange ratio so that each share of
Voyager common stock will be exchanged for a fraction of a share of
post-merger CoreComm common stock with a value equal to $12.02.
The Voyager merger agreement may be terminated by CoreComm if:
- the Voyager board shall have resolved to or has withdrawn, modified or
changed in a manner adverse to CoreComm its approval or recommendation of
the Voyager merger agreement; failed to include its recommendation
regarding the Voyager merger in this joint proxy statement and
prospectus; approved or recommended any acquisition proposal; entered
into a definitive agreement with respect to a superior proposal; or made
a public announcement of its intention to take any of the foregoing
actions;
- a tender offer or exchange offer for more than 15% of the outstanding
shares of the Voyager common stock is commenced and the Voyager board
fails to recommend against acceptance of this tender offer or exchange
offer by its
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stockholders, including by taking no position with respect to the
acceptance of the tender offer or exchange offer by its stockholders; and
- it is not in material breach of its obligations under the Voyager merger
agreement, on or after the later of October 31, 2000, and 120 days
following the date on which CoreComm last made an initial announcement
that it had entered into a definitive agreement for a transaction that
would result in adjustments being made to the exchange ratio, if any
specified conditions of the Voyager merger agreement have not been
satisfied and have not been waived in writing by CoreComm prior to that
date.
TERMINATION FEE
The Voyager merger agreement requires Voyager to pay CoreComm a termination
fee of $19.0 million in cash if:
- the Voyager merger agreement is terminated by the Voyager board in order
to recommend or approve a superior proposal;
- the Voyager merger agreement is terminated by CoreComm as a result of the
Voyager board resolving to or having withdrawn, modified or changed in a
manner adverse to CoreComm its approval or recommendation of the Voyager
merger agreement; failing to include its recommendation regarding the
Voyager merger in this joint proxy statement and prospectus; approving or
recommending any acquisition proposal; entering into a definitive
agreement with respect to a superior proposal; or making a public
announcement of its intention to take any of the foregoing actions; or
- the Voyager merger agreement is terminated by CoreComm due to the
initiation of a tender offer or exchange offer for more than 15% of the
outstanding shares of the Voyager common stock and the Voyager board's
failure to recommend against acceptance of this tender offer or exchange
offer by its stockholders, including by taking no position with respect
to the acceptance of the tender offer or exchange offer by its
stockholders.
AMENDMENTS
CoreComm and Voyager may amend the Voyager merger agreement at any time
before or after the necessary approval by the stockholders of CoreComm and
Voyager, but in any event following authorization by the CoreComm board and the
Voyager board; provided, however, that after any required stockholder approval,
no amendment will be made that by law requires further approval by the
stockholders without obtaining their approval. The Voyager merger agreement was
amended for technical reasons by the parties to the agreement on August 10,
2000.
ASSIGNMENT TO POST-MERGER CORECOMM
CoreComm shall assign all of its rights, interests and obligations under
the Voyager merger agreement to post-merger CoreComm (formerly ATX) upon
completion of the
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ATX merger if the completion occurs prior to the closing of the Voyager merger,
provided that, CoreComm will remain liable under the Voyager merger agreement.
If this assignment occurs, then post-merger CoreComm will acquire Voyager by
merging a wholly-owned domestic subsidiary of post-merger CoreComm into Voyager.
RELATED AGREEMENTS
THE VOTING AGREEMENT
In connection with the execution of the Voyager merger agreement, the
principal stockholders of Voyager (Media/Communications Partners II Limited
Partnership, Media/Communication Investors Limited Partnership, Christopher P.
Torto, Glenn R. Friedly, Apache Holdings II Limited Partnership and Apache
Holdings Limited Partnership), who together hold approximately 63.9% of the
voting power of Voyager's outstanding common stock, executed a voting agreement
with CoreComm, dated as of March 12, 2000.
In the voting agreement, the principal stockholders of Voyager agreed:
- to vote their shares in favor of the Voyager merger, the Voyager merger
agreement and the transactions contemplated by the Voyager merger
agreement;
- to vote against any business combination other than the Voyager merger;
- to grant, and did grant, CoreComm and its designees irrevocable proxies
to vote their shares as required by the voting agreement; and
- not to, nor permit any person under their control to, enter into any
voting agreement or grant a proxy or power of attorney with respect to
their shares held of record or beneficially owned by any of them or form
a group under the securities law.
In addition, the principal stockholders further agreed not to:
- solicit, initiate, encourage (including by way of furnishing information
or assistance) or take any other action to facilitate, any inquiry or the
making of any proposal which constitutes, or may reasonably be expected
to lead to, any acquisition proposal or agree to or endorse any
acquisition proposal;
- propose, enter into or participate in any discussions or negotiations
regarding any of the foregoing;
- furnish to any other person any information with respect to Voyager's
business, properties or assets;
- otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other person to do
or seek any of the foregoing.
Furthermore, each principal stockholder agreed not to tender, sell, assign,
pledge or otherwise transfer its shares of Voyager common stock and to enter
into a stockholder
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agreement upon completion of the Voyager merger, which is described below, in
the event that the principal stockholder holds 7.5% or more of post-merger
CoreComm common stock.
The voting agreement terminates upon the earliest to occur of:
- the closing of the transactions contemplated by the Voyager merger
agreement;
- the date the Voyager merger agreement is terminated if terminated by
Voyager because of a breach of any material representation, warranty or
agreement on the part of CoreComm or if any representation or warranty of
CoreComm in the Voyager merger agreement becomes untrue, which in each
case results in a failure to satisfy a condition to closing;
- the date the Voyager merger agreement is terminated if terminated by
mutual consent of Voyager and CoreComm;
- the date the Voyager merger agreement is terminated if terminated by
either Voyager or CoreComm because a governmental entity has issued a
final and nonappealable injunction that permanently enjoins the Voyager
merger;
- the date the Voyager merger agreement is terminated if terminated by
Voyager if it is not in material breach of its obligations under the
Voyager merger agreement and the Voyager merger has not occurred by
October 31, 2000;
- the date the Voyager merger agreement is terminated if terminated by
Voyager because as of a date no more than three business days before the
closing of the Voyager merger the average trading stock price of a
CoreComm common share is less than $33.03 and CoreComm elected not to
exercise its right to prevent Voyager from terminating the merger
agreement by increasing the number of shares to be delivered to Voyager
stockholders;
- the date the Voyager merger agreement is terminated if terminated by
Voyager because the shareholders of CoreComm have failed to approve the
issuance of common shares of CoreComm in connection with the Voyager
merger; or
- 180 days after the date the Voyager merger agreement is terminated in
accordance with its terms, other than as set forth above.
THE STOCKHOLDERS AGREEMENT
In connection with the Voyager merger, each principal stockholder of
Voyager will execute a stockholders agreement, the terms of which provide that,
in the event that the principal stockholder holds 7.5% or more of post-merger
CoreComm common stock, that principal stockholder will:
- Not acquire or agree to acquire ownership of any post-merger CoreComm
voting securities (including any rights, warrants or options to acquire,
or any securities convertible or exchangeable into voting securities),
except
- through the exercise of conversion rights;
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- by way of stock splits, reclassifications or stock dividends or other
distributions or offerings made to holders of voting securities;
- from another stockholder who is a party to the stockholders agreement
by bequest, gift, will, pledge or hypothecation;
- through a bequest or similar gift or transfer from another person who
is not a party to the stockholders agreement;
- through a will or the laws of descent and distribution from another
person; or
- through the exercise of stock options or the receipt of other
compensation or benefits involving voting securities, granted to any
party to the stockholder agreement.
- Vote its shares in the same proportion as the votes cast by all holders
of post-merger CoreComm voting securities other than the parties to this
agreement and any affiliates and associates of post-merger CoreComm with
respect to the applicable matter, or, in the event of a proposed change
of control transaction, in the manner recommended to the stockholders by
the post-merger CoreComm board of directors.
- Not deposit any voting securities in a voting trust or subject any voting
securities to any voting arrangement or agreement.
- Not solicit proxies or become a participant in a solicitation in
opposition to the recommendation of CoreComm's board of directors with
respect to any matter.
- Not initiate, propose or solicit stockholder approval of any stockholder
proposals or induce others to initiate a stockholder proposal.
- Not join or encourage the formation of a partnership, limited
partnership, syndicate or other group, or act in concert with any person
or entity, in order to control CoreComm or acquire or dispose of its
voting securities.
- Not offer, sell, assign, pledge, encumber or dispose of or transfer any
shares of post-merger CoreComm common stock prior to nine months after
the date of the closing of the Voyager merger, except that the common
stock may be pledged in respect of a margin loan or to a lending
institution that agrees to be similarly restricted.
- Not offer, sell, assign, pledge, encumber or dispose of or transfer any
voting securities, if after this action, the holder of the voting
securities disposed of would own 5% or more of the aggregate voting power
of all outstanding post-merger CoreComm voting securities on an
as-converted basis.
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- Generally offer, sell, assign, pledge, encumber, dispose or transfer
voting securities only in the following manners:
- under a public offering;
- through unsolicited open market sales during any three-month period
of not more than 1% aggregate voting power in accordance with Rule
144 of the Exchange Act;
- under a tender offer recommended by post-merger CoreComm's board of
directors;
- through a privately-negotiated transaction with a person who is not
already a party to the stockholder agreement and who will own shares
having not more than 5% of the aggregate voting power;
- through a will or laws of descent and distribution, with specified
conditions;
- through a bequest or similar gift or transfer to a person who is not
a party to the stockholder agreement, with specified conditions; or
- as a result of a pledge or hypothecation to a financial institution
as security for a bona fide loan, guaranty or other financial
accommodation or as a result of a related foreclosure.
- Not propose, solicit or participate in any transaction relating to an
acquisition of, a business combination or similar transaction with, or a
change of control of, post-merger CoreComm or make or solicit or
encourage any party to make a tender offer for voting securities of
post-merger CoreComm.
The stockholder agreement terminates with respect to any stockholder who is
a party to the stockholders agreement when a stockholder ceases to hold (either
of record or beneficially) at least 7.5% of the issued and outstanding
post-merger CoreComm common stock.
THE REGISTRATION RIGHTS AGREEMENT
In connection with the Voyager merger, post-merger CoreComm and the
principal stockholders of Voyager will enter into a registration rights
agreement. Under the registration rights agreement, the principal stockholders
of Voyager will be granted various registration rights with respect to
post-merger CoreComm common shares issued to them in connection with the Voyager
merger.
- Demand Registration Rights. The holders of at least 43.5% of the then
outstanding post-merger CoreComm common stock covered by the registration
rights agreement, at any time on or after six months from the date of the
closing of the Voyager merger, have the right to demand that post-merger
CoreComm register all or part of their registrable shares of common
stock. The following conditions must be met to trigger this registration
obligation:
- post-merger CoreComm is not required to effect more than one demand
registration; and
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- the number of shares of post-merger CoreComm common stock proposed to
be registered by these stockholders shall not be less that 1,500,000
shares, subject to adjustment.
Post-merger CoreComm's obligation to file a demand registration statement
is subject to reasonable and customary delays due to post-merger
CoreComm's intentions or activities or the effectiveness of another
stockholder's registration statement.
- Piggyback Registration Rights. The principal stockholders of Voyager
can request to have their shares of registrable common stock registered
if, at any time prior to the second anniversary of the registration
rights agreement, post-merger CoreComm files a registration statement to
register any of its common shares for its own account. The following
conditions must be met to trigger this registration obligation:
- The number of shares that can be registered at any one time may be
limited by any underwriter, if, in its opinion, the amount of common
stock required to be included in the registration statement exceeds
the amount that can be sold in the offering without adversely
affecting the distribution.
- No piggyback registration rights apply with respect to most Forms S-8
or Forms S-4.
The number of times the piggyback registration rights may be exercised is
unlimited. The registration rights agreement contains restrictions on
future grants of registration rights by post-merger CoreComm that could
interfere with the demand rights described above.
The registration rights agreement also contains customary provisions
regarding the payment of expenses by post-merger CoreComm and mutual
indemnification agreements between post-merger CoreComm and the securityholders
who are parties to the registration rights agreement for securities law
violations.
THE MERGER AGREEMENT BETWEEN CORECOMM AND ATX
The following is a brief summary of the significant provisions of the
merger agreement between CoreComm and ATX. A copy of the ATX merger agreement is
attached to and incorporated into this joint proxy statement and prospectus as
Annex B. You should read the ATX merger agreement carefully and in its entirety.
GENERAL
The ATX merger agreement provides for a merger and amalgamation of CoreComm
with and into a newly-formed wholly-owned subsidiary, CoreComm Merger Sub Inc.,
solely in order to relocate the jurisdiction of CoreComm from Bermuda to
Delaware. In this domestication merger, each existing common share of CoreComm
(and the accompanying right to acquire one one-hundredth of a share of
CoreComm's
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Series A Junior Preferred Stock under CoreComm's shareholders rights plan) will
be exchanged for one share of common stock of the subsidiary.
Immediately following the completion of the domestication merger, the newly
reincorporated CoreComm will merge directly into ATX, and ATX will be renamed
"CoreComm Limited" (also referred to as post-merger CoreComm).
Simultaneously with the ATX merger, ATX will be recapitalized by having the
existing ATX stockholders exchange all of the issued and outstanding shares of
ATX common stock, par value $0.01 per share, for the consideration outlined
below.
In the ATX merger, each issued and outstanding common share of CoreComm
will be exchanged for one share of post-merger CoreComm common stock.
In the recapitalization, all of the shares of ATX common stock will be
exchanged for the following aggregate consideration:
- $500.0 million of post-merger CoreComm common stock (based on the value
of CoreComm common shares at the time of signing, and subject to
adjustment and a collar, as discussed below);
- $250.0 million of post-merger CoreComm convertible preferred stock, (for
further description of the terms and provisions of the convertible
preferred stock, please read the section of this joint proxy statement
and prospectus entitled "Description of the Capital Stock of post-merger
CoreComm"); and
- $150.0 million in cash, of which up to $110 million may be paid in the
form of three-year senior notes, at CoreComm's option, plus up to $9
million of additional three-year senior notes, if any three-year senior
notes are actually issued.
The number of shares of post-merger CoreComm common stock to be issued in
the ATX recapitalization is initially set assuming the price per share (based on
the price per share of the CoreComm common shares during the ten trading day
period before the signing of the ATX merger agreement) will equal $40.328,
otherwise known as the base amount. This will result in the issuance of
approximately 12.4 million shares of post-merger CoreComm common stock. However,
if the volume weighted average trading price of CoreComm common shares during
the ten trading days prior to the closing date of the ATX merger is greater than
a specified price, known as the threshold stock price, then the number of shares
of post-merger CoreComm common stock to be issued in the recapitalization will
be adjusted such that the aggregate value of the post-merger CoreComm common
stock received by ATX stockholders, based on the ten-day average trading price,
is increased to equal the original value ($500.0 million) multiplied by a
fraction, the numerator of which is the collar stock price and the denominator
of which is the base amount. While the aggregate value of post-merger CoreComm
common stock received in the ATX recapitalization will have increased (because
the value of each share will be more than the base amount) the ATX stockholders
will receive no more than, and could receive less than, the approximately 12.4
million shares discussed above.
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The threshold stock price is determined by multiplying the base amount by
115%, with the following further adjustments:
- if the closing of the ATX merger has not occurred on or prior to July 15,
2000; and
- after the date of the ATX merger agreement, CoreComm has engaged in a
transaction that would:
- require the approval of the CoreComm shareholders; or
- require CoreComm to include the information relating to the
transaction in the pro forma financial statements required for the
registration statement of which this proxy statement is a part; or
- require CoreComm to materially amend the pro forma financial
statements; and
- all closing conditions to the ATX merger agreement have been satisfied or
are capable of being satisfied with reasonable best efforts, other than
the granting of all regulatory consents and/or the effectiveness of the
registration statement, because of the engagement by CoreComm in a
transaction other than the ATX merger,
then, commencing on the trigger date, which is the later to occur of
- July 16, 2000 and
- the first business day after which the circumstances set forth in the
third bullet point in the prior paragraph are present,
the 115% will be increased as follows: 2.5 percentage points on the trigger
date, and an additional five percentage points per each 31-day period beginning
on the sixteenth calendar day following the trigger date. Any increase of that
nature will be prorated during each such 31-day period.
In addition, the base amount of $40.328 will also be adjusted:
- upon any reclassification, recapitalization, stock split, reverse stock
split, combination or exchange of shares or any dividend payable in
CoreComm common shares so that the existing ATX stockholders achieve the
same economic effect originally contemplated in the ATX merger agreement;
and
- upon any distribution to CoreComm shareholders of, or rights or warrants
for, capital stock (other than common stock), debt, other assets (other
than cash dividends) or by reducing the base amount in a manner designed
to reflect the decrease in value achieved by such distribution.
The ATX merger agreement provides that CoreComm, at its election, may cause
up to $110 million of the $150 million payable in cash to be paid in the form of
three-year senior notes. If any three-year senior notes are issued, the
stockholders of ATX will be entitled to receive an additional amount in the form
of three-year senior notes. This additional amount will not exceed $9 million
and will be reduced proportionately to the
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extent that less than $110 million of the cash consideration that could be paid
in three-year senior notes is actually paid in three-year senior notes.
The features of these three-year senior notes are as follows:
- The notes will mature three years after the closing of the ATX merger.
- The interest rate will be set at 7% per year. Interest will be paid in
cash or common stock, at post-merger CoreComm's election, on a
semi-annual basis. If interest is paid in the form of common stock,
either the issuance of that common stock must be covered by an effective
registration statement under the Securities Act or a registration
statement under the Securities Act covering the resale of that common
stock must be effective as of the date of the interest payment.
- Post-merger CoreComm is permitted to prepay the notes at any time without
penalty or premium.
- The notes must generally be repaid out of the net proceeds on any future
equity or debt financing, excluding certain contemplated financings and
the refinancing of the same. Specifically, 50% of all those net proceeds
must be applied to repay the notes until $100 million in aggregate
principal amount of notes is repaid. After $100 million in aggregate
principal amount of notes is repaid, 100% of those net proceeds must be
applied to repay the notes.
- If $110 million of the cash consideration is paid in the form of notes,
post-merger CoreComm must make the following mandatory repayments:
- $2.3 million on January 1, 2001;
- $700,000 on the six-month anniversary of the closing of the ATX merger;
- $3 million on January 1, 2002; and
- $3 million on January 1, 2003.
If less than $110 million of the cash consideration is paid in the form
of notes, the above-described repayments will be reduced proportionately.
If the principal amount of notes issued has been reduced, other than by
payment of the above amounts, the required repayments set forth above
shall be reduced proportionately and the excess shall be forgiven.
- Post-merger CoreComm will be entitled to satisfy in full all of its
obligations under the notes by paying less than the full outstanding
principal amount of the notes if:
- On or before December 31, 2001, post-merger CoreComm pays an amount
equal to the excess of the outstanding aggregate principal amount of
the notes (plus any accrued interest) over $6 million; or
- On or before December 31, 2002, post-merger CoreComm pays an amount
equal to the excess of the outstanding aggregate principal amount of
the notes (plus any accrued interest) over $3 million.
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- The notes will rank senior to all subordinated indebtedness and equal
with all other senior indebtedness. Post-merger CoreComm will not be
permitted to incur secured indebtedness, other than vendor financing and
certain other currently contemplated financing, and any refinancings of
those financings, unless it secures the notes equally, to the extent that
the amount of secured indebtedness is less than or equal to the amount
repaid on the notes; and to the extent that the amount of that secured
indebtedness is greater than the amount repaid on the notes, the notes
must be given a security interest that is superior to that of the secured
indebtedness.
The ATX merger agreement also provides that the aggregate consideration to
be received by the existing ATX stockholders:
- is to be reduced or increased, respectively, by the amount that working
capital of ATX at closing is greater or less than $0 on the earlier of
the closing date and August 31, 2000;
- is to be reduced by the amount of debt of ATX at the earlier of the
closing date and August 31, 2000;
- is to be reduced or increased to the extent ATX has made less than or
more than approximately $5.8 million of capital expenditures between
January 1 to July 31, 2000, with any increase to be limited to $1.5
million; and
- is to be reduced to the extent that ATX makes specified distributions or
payments to its stockholders or is required to make transaction-related
payments, including investment banking and professional fees, after
August 31, 2000.
The ATX merger agreement requires the ATX stockholders to satisfy ATX's
obligations to ATX employees who have rights under the ATX Phantom Unit Plan. It
is currently expected that in satisfying those obligations, approximately
930,000 shares of post-merger CoreComm common stock that would otherwise be
issued to the ATX stockholders in the ATX recapitalization will be delivered
directly to those ATX employees in satisfaction of their rights under the ATX
Phantom Unit Plan, which will be terminated at the time of the ATX
recapitalization.
No certificates or scrip representing fractional shares of post-merger
CoreComm common stock will be issued upon surrender for exchange of holders of
CoreComm certificates. Cash will be issued instead of fractional shares of
post-merger CoreComm common stock upon surrender of that certificate, along with
any dividends or other distributions to which the holder is entitled, in each
case without interest and less any required withholding taxes.
The ATX merger and the recapitalization are intended to qualify as
exchanges and as tax-free reorganizations for federal income tax purposes.
Dissenters' rights of appraisal are not available to CoreComm's
shareholders in connection with the ATX merger. However, dissenters' rights of
appraisal are available to CoreComm's shareholders in connection with the
domestication merger.
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The ATX merger agreement is governed by the laws of the State of Delaware
without regard to conflicts of law rules.
Except as otherwise specified in the ATX merger agreement or agreed by the
parties, each party will pay all fees and expenses it incurs in the ATX merger.
POST CLOSING CAPITALIZATION
Following the ATX recapitalization and the ATX merger, post-merger CoreComm
will have approximately 52.5 million shares of common stock outstanding.
CoreComm's pre-merger shareholders will own approximately 76.4% of the total and
ATX's current shareholders will own approximately 23.6% of the total.
Taking into account the ATX merger and the Voyager merger, post-merger
CoreComm will have approximately 61.7 million shares of the common stock
outstanding, CoreComm's current shareholders will own approximately 64.9% of the
total, ATX's current stockholders will own approximately 20.1% of the total and
Voyager's current stockholders will own approximately 15.0% of the total.
All of the percentages calculated above do not take into account any
adjustments to the number of shares of post-merger CoreComm common stock that
current ATX stockholders or Voyager stockholders will receive. The percentages
also do not take into account the exercise of any outstanding stock options or
warrants or the conversion of any convertible securities that would result in
the issuance of additional common equity of CoreComm, Voyager or ATX. For more
information about how the Voyager merger will affect the capitalization of
post-merger CoreComm, please read "The Merger Agreements -- The Merger Agreement
Between CoreComm and Voyager -- Post-Closing Capitalization."
EFFECTIVE TIME OF THE MERGER
The ATX merger will be completed upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware. The parties believe this
will occur at the same time as the closing, which, unless the parties otherwise
agree, will occur on the second business day immediately following the day on
which the last of the conditions to closing are fulfilled or waived.
EXCHANGE OF CERTIFICATES
Once the ATX merger is complete, ATX will deposit with the exchange agent
for the ATX merger, the certificates representing the shares of post-merger
CoreComm common stock and cash issuable under the ATX merger (and cash instead
of fractional shares) in exchange for outstanding CoreComm common shares.
All shares of post-merger CoreComm common stock issued upon the surrender
for exchange of CoreComm common shares will be issued in full satisfaction of
all rights to CoreComm common shares, except for ATX's obligation to pay any
dividends or make any other distributions with a record date prior to the date
the ATX merger is effected
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which may have been declared or made by CoreComm on or prior to March 9, 2000
and that remain unpaid.
As soon as possible after the ATX merger, the exchange agent will mail a
letter of transmittal and instructions to CoreComm shareholders, explaining how
to surrender CoreComm common shares to the exchange agent. Upon surrender of
CoreComm certificates to the exchange agent, CoreComm shareholders will be
entitled to receive a certificate representing the number of whole shares of
post-merger CoreComm common stock, and cash instead of any fractional share.
REPRESENTATIONS AND WARRANTIES
The ATX merger agreement contains various customary representations and
warranties by both ATX and CoreComm relating to:
- due organization, existence, standing and corporate power;
- capital structure;
- authority, noncontravention, consents and approvals;
- financial statements;
- absence of material changes or events;
- compliance with laws;
- contracts and commitments;
- brokers or finders, schedule of fees and expenses;
- accounting and tax matters; and
- proxy statement/prospectus and registration statement.
The ATX merger agreement also contains various customary representations
and warranties by ATX relating to:
- regulatory licenses and authority;
- interests of ATX affiliates;
- contingent or undisclosed liabilities;
- litigation and orders;
- employee benefit matters and ERISA and Internal Revenue Code compliance;
- taxes;
- licenses and Communications Permits (as defined in the ATX merger
agreement);
- insurance;
- intellectual property;
- labor matters;
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- environmental matters;
- title to, and encumbrances on, properties;
- receipt of reasonable assurance from ATX's tax counsel and regulatory
counsel regarding ATX's counsel's ability to deliver a legal opinion
required by the ATX merger agreement;
- noncompetition agreements;
- customers of ATX; and
- full disclosure;
The ATX merger agreement also contains various customary representations
and warranties by CoreComm relating to:
- SEC filings;
- receipt of reasonable assurance from CoreComm's tax counsel regarding
CoreComm's counsel's ability to deliver a legal opinion required by the
ATX merger agreement; and
- receipt of a fairness opinion from CoreComm's financial advisor.
COVENANTS
ATX has agreed to carry on its own business, and to conduct the business of
ATX Merger Sub, Inc., in the usual and ordinary course, consistent with past
practice and the business plan of ATX. Except with the written consent of
CoreComm, ATX will:
- use its reasonable best efforts to preserve its business organization and
its current relationships with its employees, suppliers, distributors,
customers and subscribers;
- not split, combine, reclassify, issue, deliver, sell, pledge or otherwise
encumber or subject to any lien, any equity interests, or any rights,
options or warrants to acquire any shares of capital stock, or declare,
set aside or pay any distribution in respect of any equity interest, or
redeem, purchase or otherwise acquire any equity interest;
- make contemplated capital expenditures through July 31, 2000, and, after
July 31, 2000, make further capital expenditures as required to execute
its business plan but only to the extent:
- requested by CoreComm; and
- that CoreComm is willing to provide by loan the funds required for
the capital expenditures;
- not take any action, which, if it occurred prior to March 9, 2000, would
have resulted in a breach of ATX's representation regarding the absence
of material changes;
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- not take any action that would result in any of the representations and
warranties becoming untrue or any of the conditions failing to be
satisfied, except as would not materially adversely affect ATX's ability
to consummate the ATX merger;
- not merge or consolidate with or, except in the ordinary course of
business, acquire a material amount of assets or securities of any other
person;
- not sell, lease, license, mortgage, subject to lien or otherwise
surrender, relinquish, encumber or dispose of any assets, other than the
disposition of obsolete or damaged assets in the ordinary course of its
business;
- not change any method of accounting or accounting practice used by ATX,
except for any change required by the ATX merger agreement or by United
States generally accepted accounting principles;
- not establish or increase the benefits, or promise to establish or
increase the benefits, under any bonus, insurance, severance, deferred
compensation pension, retirement, profit sharing, stock option, stock
purchase or employee benefit plan or other employee benefit plan or
employment, consulting or severance agreement, or otherwise increase the
compensation payable to any directors, officers or employees of ATX,
except in the ordinary course of business and consistent with past
practice, or establish, adopt or enter into any collective bargaining
agreement;
- not amend any organizational documents, except for changes required by
the ATX merger agreement;
- not take any action to expand the states in which any of its businesses
currently operate, other than through public announcements made prior to,
or required by, agreements entered into prior to March 9, 2000;
- not incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for the obligations of any person for
borrowed money, except for indebtedness incurred on reasonable commercial
terms for the purpose of funding capital expenditures contemplated by the
ATX merger agreement;
- not take or agree to take any action that would prevent the ATX merger
and the recapitalization from qualifying as exchanges under Section 351
of the Internal Revenue Code or as reorganizations under Section 368 of
the code;
- not pay any bonus or other extraordinary compensation to any of the
existing ATX stockholders, with specified exceptions; and
- not agree or commit to do any of the foregoing.
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ATX has further agreed, among other things, that it will:
- permit designated representatives of CoreComm to be present at ATX for
consultation and will not, without written notice to, and favorable
consultation with, the representatives, take any action involving any of
the following:
- entering into, termination or material amendment of, or waiver of any
rights in respect of, any material contracts;
- any purchase order in excess of $100,000 in any instance to be
delivered, or the payment of which becomes due, after the closing of
the ATX merger;
- the acceptance of any material customer contract that deviates from
the terms and conditions of current pricing policies;
- any action to respond to any material customer or regulatory
complaint outside of the ordinary course of business;
- any general communication with customers related to the business or
to the ATX merger; or
- a material change in pricing, promotional, marketing or any other
decision that would affect any of ATX's customary profit margins;
- on or prior to March 15, 2000, provide to CoreComm financial statements
prepared in accordance with generally accepted accounting principles
(which financial statements were in fact delivered to CoreComm on March
14, 2000);
- use its reasonable best efforts to cause to be delivered to CoreComm
"cold comfort" letters of ATX's accountants;
- provide CoreComm with any and all further financial statements or
information necessary or advisable to prepare or include in the
registration statement of which this joint proxy statement and prospectus
is a part;
- prepare and submit an application to The Nasdaq National Market to list
the shares of post-merger CoreComm common stock and use its best efforts
to cause the shares to be approved for listing;
- entitle CoreComm and its representatives to make any investigation of the
properties, businesses and operations of ATX, and any examination of the
books, records and financial condition of ATX, as they wish;
- obtain, maintain in full force and effect and renew specified regulatory
permits, and make all filings and reports and pay all fees reasonably
necessary or required for the continued operation of its business;
- prepare and deliver to CoreComm as promptly as practicable, ATX's
completed portion of the regulatory applications with respect to the
assignment of ATX's regulatory permits to CoreComm;
- terminate all contracts between ATX and the existing ATX stockholders or
any of their respective affiliates or family members, with specified
exceptions;
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- cause existing ATX stockholders to take all actions reasonably required
to satisfy ATX's obligations under its 1998 Phantom Unit Plan and use its
reasonable best efforts to cause each person receiving any consideration
in satisfaction of ATX's obligations under the 1998 Phantom Unit Plan to
agree to enter into ancillary agreements;
- terminate, and cause the ATX stockholders to terminate, an existing
stockholders agreement dated as of February 9, 2000 by and among Debra
Buruchian, Thomas Gravina, Michael Karp and ATX, as amended;
- at the request of CoreComm, take any and all action that may be
reasonably requested to place ATX's operating assets into one or more
wholly-owned operating subsidiaries;
- take any and all action that may be considered advisable or necessary in
order to file "subchapter-S" elections for the purposes of state and
federal income taxes;
- assign any right to reimbursement from health and welfare providers to
the existing ATX stockholders;
- take any and all action that may be necessary to cause the officers and
directors of CoreComm to be the officers and directors of post-merger
CoreComm immediately after the ATX merger;
- ensure that each current employee of ATX will have executed ATX's
standard non-solicitation and confidentiality agreement by the closing;
- use its reasonable best efforts to enter into employment agreements with
15 key and/or management employees of ATX;
- offer to enter into, and cause each of Thomas Gravina and Debra Buruchian
to enter into, new employment agreements with post-merger CoreComm to
take effect on the closing date; and
- permit CoreComm to take any actions (a) in order to provide for the
domestication merger and (b) to enter into and complete the Voyager
merger.
The existing ATX stockholders have each agreed, among other things, that
each of them will:
- not, without CoreComm's prior written consent, contract to sell or
otherwise encumber, transfer or dispose of the pre-recapitalization
shares of ATX common stock or any interest in them prior to the closing
of the ATX merger;
- cooperate reasonably with CoreComm and ATX in connection with the
completion of the contemplated transactions; and
- not permit any of its affiliates, officers, employees, representatives
and agents, directly or indirectly, to solicit, initiate or encourage any
inquiries or the making of any proposal with respect to an acquisition of
ATX or its businesses or assets, or the stockholder's
pre-recapitalization shares of ATX common stock or provide information to
or in any other way cooperate with any person with respect to any
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such transaction or enter into any arrangement causing ATX to fail to
complete the contemplated transactions.
Each of ATX and CoreComm has agreed, among other things, that each of them
will:
- hold in strict confidence, unless required to disclose by law, all
documents and information concerning the other parties furnished to it by
any other party in connection with the ATX merger;
- cooperate in preparing and filing this joint proxy statement and
prospectus and the related registration statement;
- use its reasonable best efforts to make all necessary filings with
respect to the ATX merger under the federal and state securities laws;
- use its reasonable best efforts to take all actions and to do all things
necessary under applicable laws and regulations to consummate the
contemplated transaction, including furnishing all information required
by the FCC or any state or municipal regulatory agency, including any
antitrust filings required;
- cooperate in all respects with each other in connection with any
submissions in connection with any inquiries, including any proceedings
initiated by a private party, to promptly inform the other parties of any
communication received by that party from, or given by that party to, the
Antitrust Division of the Department of Justice, the Federal Trade
Commission, the FCC or any other governmental entity and of any material
communication received or given in connection with the contemplated
transactions;
- cooperate in all respects with each other and contest and resist any
action or proceeding if any action is instituted challenging the
contemplated transactions as violative of any regulatory law;
- use its reasonable best efforts to resolve any objections that may be
asserted under any regulatory law or if any suit is instituted by any
governmental entity or any private party challenging the contemplated
transactions as violative of any regulatory law;
- consult with, and utilize reasonable best efforts to take all actions
with respect to, the obtaining of all permits and approvals of all third
parties and governmental entities necessary or advisable in order to
complete the contemplated transactions;
- not issue any press release or make any public statement without the
prior consent of the other party, with specified exceptions;
- file, or cause to be filed, federal and state regulatory applications;
- pay one-half of any regulatory application fees that may be payable;
- use its reasonable best efforts to prosecute the federal and state
regulatory applications in good faith and with due diligence;
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- take all reasonable actions necessary to comply promptly with all legal
requirements imposed upon ATX or CoreComm and to cooperate promptly with
and furnish information to CoreComm or ATX, as the case may be, in
connection with any requirements with respect to the contemplated
transactions;
- execute and deliver the stockholders agreement, substantially in the form
attached to the ATX merger agreement;
- execute and deliver the transition services agreement, substantially in
the form attached to the ATX merger agreement;
- cooperate and take all actions required to cause ATX's name to be changed
to "CoreComm Limited;"
- negotiate, and cause the existing ATX stockholders to negotiate, the
ancillary agreements contemplated in the ATX merger agreement; and
- use its best efforts, and cause the existing ATX stockholders to use
their best efforts, to ensure that the certificate of incorporation and
the by-laws of ATX will be in the forms requested by CoreComm.
CoreComm has agreed, among other things, to:
- take actions necessary to convene the meeting of CoreComm shareholders as
promptly as practicable after the registration statement is declared
effective to vote upon the adoption of the ATX merger agreement and the
domestication merger;
- recommend to its shareholders approval of the ATX merger agreement and
the contemplated transactions;
- use its reasonable best efforts to cause to be delivered to ATX "cold
comfort" letters of Ernst & Young LLP;
- implement a stock option plan under which award grants may at CoreComm's
discretion be made to post-closing employees of ATX and its subsidiaries;
- prepare and deliver to ATX, CoreComm's portion of all appropriate federal
and state regulatory applications;
- promptly notify ATX in writing if it enters into a definitive agreement
for a transaction that might trigger an adjustment in the collar stock
price; and
- fund ATX's capital expense obligations subsequent to July 31, 2000 in
accordance with ATX's business plan and provide a letter of credit in the
amount of $900,000 to secure ATX's obligations under an office space
lease.
NO SOLICITATION OF TRANSACTIONS
ATX has agreed that without the written consent of CoreComm it will not,
and will not authorize any of its officers, directors, employees, agents or
affiliates, or authorize any representative, either directly or indirectly, to
solicit, encourage, or furnish any
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information with respect to ATX to any person in connection with, or engage in
any discussions with any other person in connection with, any proposal:
- for a merger or other business combination involving ATX; or
- the acquisition of a substantial equity interest in ATX or a substantial
portion of ATX's assets.
INDEMNIFICATION
Each of the existing ATX stockholders has agreed, jointly and severally, to
indemnify and hold harmless ATX against and with respect to any losses or claims
resulting from any breach of a representation, warranty, covenant or agreement
made by ATX, ATX Merger Sub, Inc. or any of the existing ATX stockholders in the
ATX merger agreement or due to the failure of ATX to have regulatory
authorization in specified states.
However, the aggregate liability for any losses indemnified under the ATX
merger agreement is limited in the following manner:
- the existing ATX stockholders have no liability for any losses unless
written notice of a claim is made prior to April 30, 2001 (except for
claims related to taxes or environmental representations and warranties,
which survive until the claim is barred by all applicable statutes of
limitations);
- the existing ATX stockholders' maximum aggregate liability for any losses
is $250,000,000, plus the aggregate amount of any costs, charges and
expenses incurred in enforcing any claims against the ATX stockholders;
and
- the existing ATX stockholders are liable for losses only if and to the
extent that the aggregate amount of the losses (with specified
exceptions) exceeds $10,000,000 and then only for the amounts that in the
aggregate are in excess of $5,000,000; however, they are liable for all
losses related to breaches of representations dealing with due
organization, existence, standing and corporate power, capital structure,
authorization and brokers and finders.
CONDITIONS TO THE ATX MERGER
The obligations of CoreComm and ATX to complete the ATX merger and the
other transactions contemplated by the ATX merger agreement depend on the
following conditions being fulfilled:
- representations and warranties of the other party being true and correct
in all material respects, in most cases, as of the closing date of the
ATX merger, or if qualified by materiality, the representations and
warranties of the other party being true and correct, in most cases, as
of the closing date of the ATX merger;
- performance and compliance by the other party with all agreements,
obligations, covenants and conditions required by the ATX merger
agreement;
- absence of any injunctions or restraint preventing the ATX merger;
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- expiration or termination of any waiting period applicable under the
Hart-Scott-Rodino Act;
- granting of federal and state regulatory approvals;
- absence of any material adverse change of the other party; and
- the registration statement with respect to the ATX common stock and
convertible preferred stock to be issued in the ATX merger is and remains
effective.
The obligations of CoreComm to complete the ATX merger and the other
transactions contemplated by the ATX merger agreement depend on the following
conditions being fulfilled:
- delivery by ATX of a closing certificate executed by the Chief Executive
Officer of ATX;
- receipt by ATX of all necessary licenses, permits, consents, approvals
and authorizations of all third parties and governmental entities
required in order for ATX to complete the transactions contemplated by
the ATX merger agreement;
- approval of the ATX merger agreement and the domestication merger by
shareholders of CoreComm;
- execution and delivery of the transition services agreement by
post-merger CoreComm and University City Housing;
- delivery to CoreComm of all resignations of directors and officers of ATX
that have been requested in writing by CoreComm;
- execution by the existing ATX stockholders of a new stockholder
agreement;
- authorization for listing the post-merger CoreComm common stock on the
Nasdaq;
- incorporation and capitalization of the subsidiary of ATX;
- no change in applicable law or related interpretations, or any change in
facts or circumstance, preventing Paul, Weiss, Rifkind, Wharton &
Garrison, tax counsel to CoreComm, from delivering to CoreComm a tax
opinion to the effect that the ATX merger and the recapitalization will
constitute a tax-free reorganization and/or exchange;
- delivery of a legal opinion in an agreed form from ATX's
telecommunications regulatory counsel;
- delivery of a legal opinion in an agreed form from Klehr, Harrison,
Harvey, Branzburg and Ellers LLP, ATX's outside tax and corporate
counsel;
- the composition of the board of directors and each committee of the board
of directors and each officer of post-merger CoreComm being the same as
the current board of directors of CoreComm by the time of the ATX merger;
- receipt of all material consents and approvals;
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- termination of the existing ATX stockholders agreement;
- post-merger CoreComm having entered into "key employee" employment
agreements in form and substance reasonably acceptable to CoreComm with
at least 5 identified employees; and
- at least 50% of the persons receiving consideration in satisfaction of
ATX's obligations under the 1998 Phantom Unit Plan, plus all identified
employees, having entered into ancillary agreements relating to Phantom
Unit holders as set forth in the ATX merger agreement.
The obligations of ATX to complete the ATX merger and the other
contemplated transactions by the ATX merger agreement depend on the following
conditions being fulfilled:
- delivery by CoreComm of a closing certificate executed by the Chief
Executive Officer of CoreComm;
- execution of a registration rights agreement by post-merger CoreComm and
each of the existing ATX stockholders in the form attached to the ATX
merger agreement;
- receipt by CoreComm of all necessary licenses, permits, consents,
approvals and authorizations of all third parties and governmental
entities required in order for CoreComm to complete the transactions
contemplated by the ATX merger agreement;
- no change in applicable law or related interpretations, or any change in
facts or circumstance, preventing Klehr, Harrison, Harvey, Branzburg &
Ellers LLP, tax counsel to ATX, from delivering to ATX a tax opinion to
the effect that the ATX merger and the recapitalization will constitute a
tax-free reorganization and/or exchange; and
- replacement of, or effective relief to Michael Karp or his affiliates of
liability under, any letter of credit issued on behalf of ATX that has
been guaranteed or secured by Michael Karp or his affiliates.
TERMINATION
The ATX merger agreement may be terminated at any time prior to the
completion of the ATX merger, whether before or after approval by the CoreComm
shareholders, under the following circumstances:
- by CoreComm's and ATX's mutual agreement;
- by CoreComm, upon a breach in a material respect of any representation,
warranty or covenant on the part of ATX set forth in the ATX merger
agreement if the breach would give rise to the relevant closing condition
not being satisfied and the breach cannot be or is not cured by the
closing of the ATX merger;
- by ATX, upon a breach in a material respect of any representation,
warranty or covenant on the part of CoreComm set forth in the ATX merger
agreement if the
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breach would give rise to the relevant closing condition not being
satisfied and the breach cannot be or is not cured by the closing of the
ATX merger;
- by CoreComm, on or after the later of (a) October 31, 2000, or (b) 120
days following the date on which CoreComm last made an initial
announcement that it had entered into a definitive agreement for a
transaction that might trigger an adjustment in the collar stock price,
if any of the CoreComm closing conditions have not been satisfied or
waived; or
- by ATX, on or after October 31, 2000, if any of the ATX closing
conditions have not been satisfied or waived.
RELATED AGREEMENTS
THE STOCKHOLDERS AGREEMENT
In connection with the ATX merger, post-merger CoreComm and the existing
stockholders of ATX will execute a new stockholders agreement the terms of which
will provide that the stockholders will:
- not acquire or agree to acquire ownership of any voting securities of
post-merger CoreComm, including any rights, warrants or options to
acquire, or any securities convertible or exchangeable into voting
securities, except
- through the exercise of conversion rights,
- by way of stock splits, reclassifications or stock dividends or other
distributions or offerings made to holders of voting securities,
- from another stockholder who is a party to the stockholder agreement
by bequest, gift, will, pledge or hypothecation,
- through a bequest or similar gift or transfer from another person,
- through a will or the laws of descent and distribution from another
person; or
- through the grant or exercise of stock options or the receipt of
other compensation or benefits involving voting securities, granted
to any party to the stockholders agreement;
- vote their shares of post-merger CoreComm in the same proportion as the
votes cast by all holders of voting securities other than the former ATX
stockholders and any former affiliate or associate of ATX, with respect
to this matter, or, in the event of a proposed change of control
transaction, in the manner recommended to the stockholders by the board
of directors of post-merger CoreComm;
- not deposit any voting securities of post-merger CoreComm in a voting
trust or subject any voting securities of post-merger CoreComm to any
voting arrangement or agreement;
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- not solicit proxies or become a participant in a solicitation in
opposition to the recommendation of post-merger CoreComm's board of
directors with respect to any matter;
- not initiate, propose or solicit stockholder approval of any stockholder
proposals or induce others to initiate a stockholder proposal;
- not join or encourage the formation of a partnership, limited
partnership, syndicate or other group, or act in concert with any person
or entity, in order to control post-merger CoreComm or acquire or dispose
of its voting securities;
- not offer, sell, assign, pledge, encumber or dispose of or transfer any
shares of common stock of post-merger CoreComm prior to nine months after
the date of closing of the ATX merger, except that the post-merger
CoreComm common stock may be pledged in respect of a margin loan or to a
lending institution that agrees to be similarly restricted, provided,
however, that if less than 50% of aggregate principal amount of the
three-year senior notes issued to the ATX stockholders in connection with
the ATX recapitalization have been repaid within six months after the
date of the ATX merger closing, this restriction will terminate on the
six-month anniversary of the ATX merger closing with respect to 25% of
the shares of post-merger CoreComm common stock received by each of the
existing ATX stockholders;
- not offer, sell, assign, pledge, encumber or dispose of or transfer any
voting securities of post-merger CoreComm if after that action, the
holder of the voting securities would own 5% or more of the aggregate
voting power of all outstanding voting securities of post-merger CoreComm
on an as-converted basis;
- Generally offer, sell, assign, pledge, encumber, dispose or transfer
voting securities of post-merger CoreComm only in the following ways:
- in a public offering with a broad public distribution;
- in unsolicited open market sales of less than 1% aggregate voting
power in accordance with Rule 144 of the Exchange Act;
- in a tender offer recommended by the board of directors of
post-merger CoreComm;
- in a privately-negotiated transaction with a person not already party
to the stockholders agreement and who will own shares having not more
than 5% of the aggregate voting power after giving effect to the
transaction;
- through a will or laws of descent and distribution;
- through a bequest or similar gift or transfer to a person not party
to the stockholder agreement; or
- as a result of a pledge or hypothecation to a financial institution
as security for a loan or guaranty or as a result of a related
foreclosure; and
177
- not propose, solicit or participate in any transaction relating to an
acquisition of, a business combination or similar transaction with, or a
change of control of, post-merger CoreComm or make or solicit or
encourage any party to make a tender offer for voting securities of
post-merger CoreComm.
The stockholder agreement will be effective at the closing of the ATX
merger and terminates (a) in the case of Michael Karp and The Florence Karp
Trust, when they cease to own voting securities having, in the aggregate, 5% or
more of the total voting power, and (b) in the case of each of Debra Buruchian
and Thomas Gravina, when each owns less than 50% of the voting securities issued
to him or her under the ATX recapitalization.
THE REGISTRATION RIGHTS AGREEMENT
In connection with the ATX merger, post-merger CoreComm and the existing
stockholders of ATX will enter into a registration rights agreement. Under the
registration rights agreement, the stockholders will be granted various
registration rights with respect to:
- the shares of post-merger CoreComm common stock issued to them in the ATX
recapitalization;
- the shares of convertible preferred stock issued to them in the
recapitalization; and
- any shares of post-merger CoreComm common stock issued to them upon
conversion of, or as payment of dividends on, or in exchange for shares
of the convertible preferred stock or in respect of interest payments
under the three-year senior notes issued to the ATX stockholders in
connection with the ATX recapitalization.
Shelf Registration Rights. Post-merger CoreComm will be required to file
and keep in place until all shares issued to the ATX stockholders in the ATX
recapitalization may be sold in accordance with Rule 144 under the Securities
Act, a shelf registration statement covering the resale of all of the securities
identified above. Only one underwritten offering will be permitted to be made
using the shares registered under the shelf registration.
Demand Registration Rights. At any time on or after nine months from the
date of closing of the ATX merger, the holders of at least 10% of the
outstanding shares of common stock subject to the agreement will have the right,
exercisable only once, to demand that post-merger CoreComm register all or part
of their registrable shares of common stock under the Securities Act, provided
that the number of shares of common stock proposed to be registered may not be
less than 1,500,000 shares as of the date of the request (subject to appropriate
adjustments).
In addition, at any time after the date the registration rights agreement
is executed, the holders of at least 25% of the outstanding shares of
convertible preferred stock have the right, exercisable only once, to demand
that post-merger CoreComm register all or
178
part of their shares of convertible preferred stock under the Securities Act.
The following conditions must be met to trigger this registration obligation:
- post-merger CoreComm is not required to effect more than one such demand
registration of preferred stock; and
- the stated value of the preferred shares to be registered may not be less
than $80,000,000 as of the date of the request.
The requirement to file a demand registration statement is subject to
reasonable and customary delays due to post-merger CoreComm's intentions or
activities or effectiveness of another stockholder's registration statement.
Piggyback Registration Rights. The existing stockholders of ATX can
request that their shares of registrable common stock be registered under the
Securities Act if, at any time prior to the fourth anniversary of the
registration rights agreement, post-merger CoreComm files a registration
statement to register any of its common stock for its own account or for the
account of any of its stockholders. The following conditions must be met to
trigger this registration obligation:
- The number of shares that can be registered at any one time may be
limited by any underwriters; and
- No piggyback registration rights apply with respect to most registration
statements utilizing Forms S-8 or Forms S-4.
The registration rights agreement contains restrictions on future grants of
registration rights by post-merger CoreComm that could interfere with the demand
rights described above.
The registration rights agreement also contains customary provisions
regarding the payment of expenses by post-merger CoreComm and mutual
indemnification agreements between post-merger CoreComm and the securityholders
who are parties to the registration rights agreement for security law
violations.
THE TRANSITION SERVICES AGREEMENT
In connection with the ATX merger, post-merger CoreComm and University City
Housing, an entity owned by Michael Karp, the Chief Executive Officer and
principal stockholder of ATX, will enter into a transition services agreement
providing:
- During the 12 month term of the transition services agreement, UCH or its
affiliates will provide, to post-merger CoreComm or to a subsidiary, the
services that are currently being provided by UCH to ATX, including, but
not limited to, general accounting, cash management, taxes, payroll and
human resource services, in a manner and at a level of service consistent
with the services previously provided.
- Other services may be contracted by post-merger CoreComm or a subsidiary
on a project-by-project basis, consistent with the specified fees.
179
- The transition services agreement may be terminated by post-merger
CoreComm on 20 days' prior written notice to UCH.
THE DOMESTICATION MERGER AGREEMENT
The following is a brief summary of the significant terms and provisions of
the amalgamation and merger agreement between CoreComm and its wholly-owned
subsidiary, CoreComm Merger Sub, Inc. A full copy of the domestication and
amalgamation merger agreement is attached as Annex C to and incorporated into
this joint proxy statement and prospectus. We encourage you to read the
domestication merger agreement carefully and in its entirety.
The domestication merger agreement provides for the amalgamation and merger
of CoreComm into CoreComm Merger Sub, Inc. The domestication merger will occur
immediately prior to the earlier of the closing of (a) the ATX merger or (b) the
Voyager merger. As a result of the domestication merger CoreComm will cease to
exist as a Bermuda company. Please refer to the section entitled "The Merger
Transactions -- The Domestication Merger" for more information.
The certificate of incorporation and by-laws of CoreComm Merger Sub, Inc.
will govern the Delaware corporation formed by the domestication merger.
In the domestication merger each issued and outstanding common share, par
value $0.01 per share, of CoreComm, together with each accompanying right to
acquire one one-hundredth of a share of CoreComm Series A Junior Participating
Preferred Stock, shall be canceled and exchanged for one share of CoreComm
Merger Sub, Inc. common stock. Each share of CoreComm Merger Sub, Inc. held by
CoreComm will be cancelled for no consideration.
Appraisal Rights. Under the domestication amalgamation and merger
agreement, the shares of CoreComm owned by a dissenting CoreComm shareholder who
has applied for appraisal will be canceled with effect at the time of the
domestication merger in consideration for the right to receive such
consideration as may be payable pursuant to Bermuda law to the dissenting
shareholders upon completion of the domestication merger. In the event that a
dissenting shareholder fails to perfect, effectively withdraws or otherwise
loses any right to appraisal and payment under Section 106 of the Companies Act,
that dissenting shareholder will no longer have any right to appraisal
thereunder and will be entitled to elect to receive the merger consideration.
Conditions. Each of CoreComm's and CoreComm Merger Sub, Inc.'s obligation
to complete the domestication merger is subject to the certain completion of
either of the ATX merger or the Voyager merger.
Directors. The directors of CoreComm will be the directors of CoreComm
Merger Sub, Inc. immediately following the domestication merger.
Termination. The domestication merger agreement will automatically
terminate upon the later of (a) the termination of the ATX merger agreement and
(b) the termination of the Voyager merger agreement.
180
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS FOR CORECOMM
CONFLICTS OF INTEREST
Many of CoreComm's officers and directors are also officers and directors
of other companies in post-merger CoreComm's industry and some are employed by
CoreComm's affiliates. Their duties to these companies may require significant
amounts of their attention and may also present conflicts of interest, either of
which may impede their ability to make decisions for post-merger CoreComm.
Please refer to the section entitled "Risk Factors."
SERVICES PROVIDED BY NTL INCORPORATED
NTL, an historical affiliate of CoreComm, shares some resources with
CoreComm, such as office space and employees. NTL will provide post-merger
CoreComm and its subsidiaries with management, financial, legal and technical
services, access to office space and equipment and use of supplies. Amounts
charged to post-merger CoreComm by NTL will consist of salaries and direct costs
allocated to post-merger CoreComm where identifiable, and a percentage of the
portion of NTL's corporate overhead which cannot be specifically allocated to
NTL (which will be agreed upon by post-merger CoreComm's board of directors and
the board of directors of NTL). It is not practicable to determine the amounts
of these expenses that would be incurred if post-merger CoreComm were to operate
as an unaffiliated entity. In our opinion, this allocation method is reasonable.
For the year ended December 31, 1999 and for the period from April 1, 1998 (date
operations commenced) to December 31, 1998, NTL charged CoreComm $2,330,000 and
$313,000, respectively.
In 1998, the percentage of NTL's non-allocated overhead that was charged to
CoreComm was 30 percent. This percentage was increased to 50% because two other
companies that had been sharing these expenses have been sold.
OTHER SERVICES
Through CoreComm's subsidiary, CoreComm Newco, Inc., CoreComm currently
provides billing and software development services to subsidiaries of NTL, and
historically provided such services to Cellular Communications of Puerto Rico,
Inc., the company from which CoreComm was spun-off in 1998. We believe that
these transactions are priced on an arm's length basis. General and
administrative expenses were reduced by $800,000, $275,000, $138,000 and
$217,000 for the year ended December 31, 1999, the period from April 1, 1998
(date operations commenced) to December 31, 1998, the period from January 1,
1998 to May 31, 1998, and the year ended December 31, 1997, respectively, as a
result of these charges.
181
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS FOR ATX
ATX PROPERTIES AND FACILITIES
ATX's headquarters and executive offices and primary technical operations
facility are leased from entities controlled by Michael Karp, the Chief
Executive Officer and the majority stockholder of ATX. ATX currently pays
approximately $1 million per year in rent for its headquarters/executive offices
and approximately $450,000 per year in rent for its primary technical operations
facility. The lease for ATX's primary technical operations facility currently
expires in December 2002. In connection with the ATX merger, these leases are
expected to be modified to reflect provisions found in arm's length negotiations
for such arrangements, including, without limitation:
- the landlord will be required to give consent to a reasonable sublease,
and will be entitled to all profits from that sublease;
- there will be a standard recapture right;
- there will be a standard non-disturbance clause;
- post-merger CoreComm will no longer be obligated to share facilities,
employees and/or supplies with the landlord;
- existing provisions regarding the purchase of telecommunications services
by landlord or other tenants from ATX/post-merger CoreComm will be
eliminated; and
- existing arrangements granting the landlord a percentage of
ATX's/post-merger CoreComm's revenues will be eliminated.
ATX 401(k) PLAN AND HEALTH BENEFIT PLANS
Prior to July 1, 2000 ATX's 401(k) plan and ATX's health benefit plans were
joint plans with University City Housing. These plans have been amended so that
employees of University City Housing do not participate in these ATX plans. It
is expected that post-merger CoreComm will adopt CoreComm's existing plans and
ATX's employees will be entitled to participate in those plans instead of the
existing ATX plans.
ATX LIABILITY INSURANCE PLANS
ATX's liability insurance plans are held jointly with University City
Housing. In connection with the ATX merger, each of ATX's liability insurance
plans will be amended so that University City Housing will not be entitled to
participate in these plans.
LETTERS OF CREDIT
Michael Karp has guaranteed or secured letters of credit issued by
financial institutions on behalf of ATX. As of March 2000, the aggregate amount
of these letters of credit is approximately $667,000. In connection with the ATX
merger, arrangements will be made by CoreComm to replace the letters of credit
or otherwise relieve Mr. Karp of liability under these letters of credit.
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LOANS BY ATX TO THOMAS GRAVINA AND DEBRA BURUCHIAN
During 1999 and 2000, ATX's predecessor, two limited partnerships, made
loans to Thomas Gravina, the current Co-President and a stockholder of ATX, and
Debra Buruchian, the other current Co-President and also a stockholder of ATX,
in the aggregate principle amounts of $2,132,842.32 each. These loans have been
satisfied.
INDEBTEDNESS OF ATX TO MICHAEL KARP
The predecessor entities of ATX were indebted to Michael Karp in the
aggregate principle amount of $3.6 million. Approximately $1.45 million of this
amount was used to fund operating expenses of ATX. The remaining $2.15 million
was used to fund acquisitions of property, plant and equipment by ATX. These
loans have been retired.
PROVISION OF SERVICES TO ATX BY UNIVERSITY CITY HOUSING
University City Housing, an entity controlled by Michael Karp, currently
provides general accounting, cash management, tax return preparation, payroll
and human resources services to ATX. ATX pays UCH approximately 0.38% of its
gross annual receipts for providing these services. For the year ended December
31, 1999, ATX paid UCH $501,000 for providing these services. For the six months
ended June 30, 2000, ATX paid UCH $302,000 for these services.
In connection with the ATX merger, UCH and post-merger CoreComm will enter
into a transition services agreement under which UCH will continue to provide
these services to post-merger CoreComm for a limited period of time. The
transition services agreement is more fully described in the section of this
joint proxy statement and prospectus entitled "The Merger Agreements -- The
Merger Agreement between CoreComm and ATX -- Related Agreements -- The
Transition Services Agreement."
183
MARKET PRICE AND DIVIDEND POLICY
CORECOMM
The common shares of CoreComm trade on the Nasdaq Stock Market's National
Market under the symbol "COMM". On September 2, 1998, CoreComm's common shares
began trading on the Nasdaq National Market under the symbol "COMFV".
Subsequently, on September 3, 1998, the symbol was changed to "COMMF", and on
September 17, 1999, the symbol was changed to "COMM". For the periods indicated,
the table below provides information about the high and low sales prices for
Voyager's common stock on the Nasdaq National Market. The information provided
below gives retroactive effect to the 3-for-2 stock splits in September 1999 and
February 2000.
CORECOMM
------------------
COMMON SHARES
------------------
HIGH LOW
------- -------
1998
Third Quarter......................................... $10.141 $ 4.445
Fourth Quarter........................................ 7.668 3.332
1999
First Quarter......................................... $17.391 $ 7.277
Second Quarter........................................ 22.000 16.109
Third Quarter......................................... 25.500 20.527
Fourth Quarter........................................ 39.582 23.832
2000
First Quarter......................................... $49.313 $32.168
Second Quarter........................................ 42.813 14.813
Third Quarter (through August 15, 2000)............... 20.438 11.25
On March 9, 2000, the last trading day prior to the public announcement of
the proposed ATX merger, the last sale price of CoreComm's common shares was
$41.187. On March 10, 2000, the last trading day prior to the public
announcement of the proposed Voyager merger, the last sale price of CoreComm's
common shares was $47.875. On August 15, 2000, the last sale price for the
common shares of CoreComm on the Nasdaq National Market was $11.63. As of August
15, 2000, there were approximately 320 record holders of CoreComm's common
shares. This figure does not reflect beneficial ownership of shares held in
nominee names. CoreComm has never declared or paid any cash dividends on its
common shares. CoreComm anticipates that post-merger CoreComm will retain
earnings, if any, for use in the operation and expansion of post-merger
CoreComm's business and for debt service, and CoreComm does not anticipate that
post-merger CoreComm will pay any cash dividends in the foreseeable future.
The market price of CoreComm's common shares is subject to fluctuation. As
a result, shareholders of CoreComm are urged to obtain current market
quotations.
184
VOYAGER
The common stock of Voyager trades on the Nasdaq National Market under the
symbol "VOYN". For the periods indicated, the table below provides information
about the high and low sales prices for Voyager's common stock on the Nasdaq
National Market.
VOYAGER
------------------
COMMON STOCK
------------------
HIGH LOW
------- -------
1999
Third Quarter......................................... $20.500 $ 8.000
Fourth Quarter........................................ 13.125 6.187
2000
First Quarter......................................... $15.000 $ 8.875
Second Quarter........................................ 13.8125 6.625
Third Quarter (through August 15, 2000)............... 10.125 6.3125
On March 10, 2000, the last trading day prior to the public announcement of
the proposed Voyager merger, the last sale price of Voyager's common stock was
$13.00. On August 15, 2000, the last sale price for the common stock of Voyager
on the Nasdaq National Market was $6.75. As of August 15, 2000, there were
approximately 94 record holders of Voyager's common stock. This figure does not
reflect beneficial ownership of stock held in nominee names. Voyager has never
declared or paid any cash dividends on its common stock.
ATX
There is no established public trading market for the shares of common
stock of ATX. As of August 16, 2000, there were four holders of shares of ATX's
common stock.
185
MANAGEMENT OF POST-MERGER CORECOMM
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The following table provides information about the intended directors and
executive officers of post-merger CoreComm, who currently are the directors and
officers of CoreComm Limited:
NAME AGE TITLE
---- --- -----
George S. Blumenthal................. 56 Chairman of the Board of Directors
Barclay Knapp........................ 43 President, Chief Executive Officer, Chief
Financial Officer and Director
Patty J. Flynt....................... 48 Senior Vice President -- Chief Operating
Officer; President of Operating Company
Richard J. Lubasch................... 53 Senior Vice President -- General Counsel and
Secretary
Gregg N. Gorelick.................... 41 Vice President -- Controller and Treasurer
Michael A. Peterson.................. 30 Vice President -- Corporate Development
Alan J. Patricof..................... 65 Director
Warren Potash........................ 69 Director
Ted H. McCourtney.................... 61 Director
Del Mintz............................ 73 Director
Post-merger CoreComm's Certificate of Incorporation will provide for a
classified board of directors consisting of three classes as nearly equal in
number as possible with the directors in each class serving staggered three year
terms. The Class I directors will be George S. Blumenthal and Barclay Knapp; The
Class I directors will be Alan J. Patricof and Warren Potash, the Class II
directors will be Ted H. McCourtney and Del Mintz and the Class III directors
will be George S. Blumenthal and Barclay Knapp. The terms of the Class I, Class
II and Class III Directors will expire in 2001, 2002 and 2003, respectively. At
each annual meeting of the stockholders, the successors to the class of
directors whose term expires will be held in the third year following their
election.
The following is a brief description of the present and past business
experience of each of the persons who will serve as directors, executive
officers and other key employees (who are not executive officers) of post-merger
CoreComm. Each of these persons is currently serving in the listed capacity with
CoreComm and will serve in the identical capacity with post-merger CoreComm:
George S. Blumenthal has been CoreComm's Chairman since March 1998. Mr.
Blumenthal was Chairman, Treasurer and a director of Cellular Communications of
Puerto Rico, Inc. from February 1992 until its sale and was Chief Executive
Officer from March 1994 until March 1998. In addition, Mr. Blumenthal is
Chairman, Treasurer and a director of NTL Incorporated. Mr. Blumenthal was also
Chairman, Treasurer and a director of Cellular Communications International from
its organization until April 1994. Mr. Blumenthal was also Chairman, Treasurer
and a director of
186
Cellular Communications, Inc. from its founding in 1981 until its merger in 1996
into a subsidiary of AirTouch Communications, Inc.
Barclay Knapp has been CoreComm's President, Chief Executive Officer, Chief
Financial Officer and director since March 1998. Mr. Knapp was appointed
President of Cellular Communications of Puerto Rico in March 1994 and Chief
Executive Officer in March 1998, and remained in those positions until the sale
of Cellular Communications of Puerto Rico. Mr. Knapp has been a director of
Cellular Communications of Puerto Rico since February 1992 and was Chief
Financial Officer from that date to 1997. Mr. Knapp was Executive Vice
President, Chief Operating Officer and a director of Cellular Communications
International from July 1991 until June 1998. He is President, Chief Executive
Officer and a director of NTL. Mr. Knapp is also a director of Bredbandsbolaget,
a Swedish company in which NTL holds a 25% interest. Mr. Knapp was also
Executive Vice President, Chief Operating Officer, Chief Financial Officer and a
director of Cellular Communications until its acquisition.
Patty J. Flynt has been CoreComm's Senior Vice President and Chief
Operating Officer since 1998 and was OCOM Corporation's President from 1996
until 1998. Previously she served as Group Managing Director -- Information
Systems for NTL and Vice President of Information Systems for CCI. Prior to
joining OCOM Corporation in 1996, Ms. Flynt was a Vice President of New Par, a
joint venture of CCI and AirTouch Communications, Inc. from 1989 until 1996.
Richard J. Lubasch has been CoreComm's Senior Vice President -- General
Counsel and Secretary since March 1998. Additionally, Mr. Lubasch was Cellular
Communications of Puerto Rico's Senior Vice President -- General Counsel and
Secretary from February 1992 until its sale. He was also the Senior Vice
President -- General Counsel, Secretary and Treasurer of Cellular Communications
International from July 1991 until its sale, and was Executive Vice
President -- General Counsel and Secretary of NTL since 1999 and was Senior Vice
President since its formation. Mr. Lubasch was Vice President -- General Counsel
and Secretary of Cellular Communications from July 1987 until its acquisition.
Gregg N. Gorelick has been CoreComm's Vice President -- Controller and
Treasurer since March 1998. Mr. Gorelick was Cellular Communications of Puerto
Rico's Vice President -- Controller from February 1992 until its sale, held that
position at Cellular Communications International, Inc. from July 1991 until its
sale and has held that position at NTL since its formation. From 1981 to 1986 he
was employed by Ernst & Whinney (now known as Ernst & Young LLP). Mr. Gorelick
is a certified public accountant and was Vice President -- Controller of
Cellular Communications from 1986 until its acquisition.
Michael A. Peterson has served as Vice President -- Corporate Development
of CoreComm since June 2000 and, until that time, had served as CoreComm's
Director -- Corporate Development since its inception. He has worked for
CoreComm and its related historical affiliates since 1996. He is also
Director -- Corporate Development at NTL. Prior to joining NTL, he was in the
investment banking division at Donaldson, Lufkin & Jenrette, specializing in the
communications industry.
187
Alan J. Patricof has been CoreComm's director since March 1998. Mr.
Patricof is Chairman of Patricof & Co. Ventures, Inc., a venture capital firm he
founded in 1969. Mr. Patricof was a director of Cellular Communications
International from July 1991 until its sale in March 1999 and was a director of
Cellular Communications of Puerto Rico from February 1992 until its sale.
Additionally, Mr. Patricof has been a director of NTL since its formation and is
a director of other privately owned companies.
Warren Potash has been CoreComm's director since March 1998. Mr. Potash
retired in 1991 as President and Chief Executive Officer of the Radio
Advertising Bureau, a trade association, a position he held since 1989. Prior to
that time, and beginning in 1986, he was President of New Age Communications,
Inc., a communications consultancy firm. Until his retirement in 1986, Mr.
Potash was a Vice President of Capital Cities/ABC Broadcasting, Inc., a position
he held since 1970. Mr. Potash was also a director of Cellular Communications
International from July 1991 until its sale, and was a director of Cellular
Communications of Puerto Rico from February 1992 until its sale and of NTL since
its formation.
Ted H. McCourtney has been CoreComm's director since March 1998. Mr.
McCourtney was a General Partner of Venrock Associates, a venture capital
investment partnership, a position he held from 1970 until his retirement in
June 2000. Mr. McCourtney also has been a director of NTL since its formation
and serves as a director of Care Mark, RX, Inc., Visual Networks, Inc. and
several privately owned companies.
Del Mintz has been CoreComm's director since March 1998. Mr. Mintz is
President of Cleveland Mobile Tele Trak, Inc., Cleveland Mobile Radio Sales,
Inc. and Ohio Mobile Tele Trak, Inc., companies providing telephone answering
and radio communications services in Cleveland and Columbus, respectively. Mr.
Mintz has held similar positions with the predecessors of these companies since
1967. Mr. Mintz is president of several other companies, and was President and a
principal stockholder of Cleveland Mobile Cellular Telephone, Inc. before that
company was acquired through a merger with Cellular Communications, Inc.'s
predecessor in 1985. Mr. Mintz was also a director of Cellular Communications
International from July 1991 until its sale, and was a director of Cellular
Communications of Puerto Rico until its sale. Additionally, Mr. Mintz has been a
director of NTL since its formation and is a director of several privately owned
companies.
EXECUTIVE COMPENSATION
The table below discloses compensation received by CoreComm's Chief
Executive Officer and our four other most highly paid executive officers for the
period from January 1, 1999 through December 31, 1999.
188
GENERAL
The following table discloses compensation received by CoreComm's Chief
Executive Officer and the four other most highly paid executive officers for the
year ended December 31, 1999 and for the period from March 16, 1998 (the date of
inception) to December 31, 1998.
SUMMARY COMPENSATION TABLE*
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------- COMMON
OTHER ANNUAL STOCK ALL OTHER
BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) ($) ($) OPTIONS(#)(3) ($)
--------------------------- ---- --------- ------- ------------ ------------- ------------
Barclay Knapp..................... 1999 51,667 -- -- --
President and Chief Executive 1998 21,200 -- -- 1,842,190
and Financial Officer
George S. Blumenthal(1)........... 1999 51,667 -- -- --
Chairman 1998 20,600 -- -- 1,842,188
Richard J. Lubasch................ 1999 39,583 -- -- 30,000
Senior Vice President-- 1998 17,300 -- -- 385,313
General Counsel and Secretary
Patty J. Flynt.................... 1999 206,250 100,435 -- 450,001
Senior Vice President and 1998 183,600 131,400 -- 67,500
Chief Operating Officer
Gregg N. Gorelick................. 1999 27,417 -- 562,775(2) 22,501
Vice President, Controller 1998 10,000 -- 57,900(2) 56,250
and Treasurer
* NTL provides management, financial, legal and technical services to
CoreComm. Amounts charged to CoreComm consist of salaries and direct costs
allocated to the Company. In 1999 and 1998, NTL charged CoreComm $2,268,000
and $313,000, respectively. It is not practicable to determine the amounts
of these expenses that would have been incurred had CoreComm operated as an
unaffiliated entity. However, in the opinion of management of CoreComm, the
allocation method is reasonable. The named executives, except Ms. Flynt,
receive salaries from NTL and spend portions of their time providing
executive management to CoreComm.
(1) Mr. Blumenthal resigned as Chief Executive Officer in March 1998, and Mr.
Knapp was appointed Chief Executive Officer in March 1998.
(2) Other annual compensation consists of relocation expenses of $562,775 and
$57,900 for 1999 and 1998, respectively.
(3) 1998 option grants do not include an aggregate of 508,246 options issued to
the named executives as a result of an adjustment to pre-existing options in
CCPR as a consequence of the spin-off. 1999 option grants do not include an
aggregate of 4,110,207 options issued to the named executives as replacement
options upon the exercise or cancellation of their respective warrants or
options, in accordance with the plan under which these warrants or options
were issued.
189
OPTION GRANTS TABLE
The following table provides information on stock option grants during 1999
to the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
POTENTIAL ----------------------
REALIZABLE VALUE AT ASSUMED
% OF TOTAL ANNUAL RATE OF
OPTIONS STOCK PRICE
NUMBER OF GRANTED APPRECIATION FOR
SECURITIES TO EXERCISE OPTION TERM(**)
UNDERLYING EMPLOYEES OR BASE ----------------------
OPTIONS IN FISCAL PRICE EXPIRATION 5%($) 10%($)
NAME GRANTED(*) YEAR ($/SHARE) DATE $36.38 $57.92
---- ---------- ---------- --------- ---------- --------- ----------
Barclay Knapp.............. --(1) -- -- -- -- --
George S. Blumenthal....... --(2) -- -- -- -- --
Richard J. Lubasch......... 30,000(3) 0.43 22.33 09/13/09 421,367 1,067,821
Patty J. Flynt............. 450,001 6.43 22.33 09/13/09 6,320,521 16,017,345
Gregg N. Gorelick.......... 22,501(4) 0.32 22.33 09/13/09 316,039 800,901
* All options were granted on September 14, 1999; 20% were exercisable upon
issuance, 20% became exercisable on January 1, 2000 and an additional 20%
will become exercisable on each of January 1, 2001, 2002 and 2003. Upon a
change of control of CoreComm, all unvested options become fully vested and
exercisable.
** The amounts shown in these columns are the potential realizable value of
options granted at assumed rates of stock price appreciation (5% and 10%)
specified by the SEC, and have not been discounted to reflect the present
value of such amounts. The assumed rates of stock price appreciation are not
intended to forecast the future appreciation of the Common Stock.
(1) Does not include 1,842,190 options issued as a result of the exercise or
cancellation of an aggregate of 1,842,190 warrants.
(2) Does not include 1,842,188 options issued as a result of the exercise or
cancellation of an aggregate of 1,842,188 warrants.
(3) Does not include 385,313 options issued as a result of the exercise or
cancellation of an aggregate of 385,313 warrants.
(4) Does not include 46,516 options issued as a result of the exercise or
cancellation of an aggregate of 46,516 options.
190
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table provides information on stock option exercises during
1999 by the named executive officers and the value at December 31, 1999 of
unexercised in-the-money options held by each of the named executive officers of
CoreComm.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR-END AND FISCAL YEAR-END OPTION
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS AT
SHARES AT FY-END(#) FY-END($)*
ACQUIRED ON VALUE EXERCISABLE(E)/ EXERCISABLE(E)/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(U) UNEXERCISABLE(U)
---- ----------- ----------- ---------------- ----------------
Barclay Knapp.................. 1,426,301 25,743,732 605,777(E) 16,753,423(E)
1,473,750(U) 29,177,487(U)
George S. Blumenthal........... 1,380,104 25,733,733 431,581(E) 9,328,391(E)
1,473,750(U) 27,379,512(U)
Richard J. Lubasch............. 293,694 4,978,686 151,545(E) 4,401,974(E)
332,250(U) 6,824,977(U)
Patty J. Flynt................. -- -- 131,063(E) 3,015,673(E)
400,502(U) 7,574,943(U)
Gregg N. Gorelick.............. 46,516 606,103 100,210(E) 3,317,804(E)
98,704(U) 2,742,290(U)
* Based on the closing price on the Nasdaq on December 31, 1999 of $39.58.
OPTION PLANS
Post-merger CoreComm will adopt and inherit the option plans of CoreComm.
The following disclosure relates to those plans.
In 1998, CoreComm's board of directors adopted the CoreComm Limited 1998
Stock Option Plan and in 1999, CoreComm's board of directors adopted the
CoreComm Limited 1999 Stock Option Plan, reserving under these plans shares for
issuance to employees and directors.
The purpose of CoreComm's stock option plan is to encourage stock ownership
by its employees and non-employee directors, and the employees and non-employee
directors of its divisions, subsidiary corporations and other affiliates, so as
to encourage its employees to continue being employed by CoreComm and to put
forth maximum efforts for the success of its business. Under CoreComm's stock
option plans, grants may be made of options to acquire shares of CoreComm's
common stock. The options may be "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code. The terms of options granted under
CoreComm's stock option plans, including provisions regarding vesting,
exercisability, exercise price and duration, are generally set by the
compensation committee of CoreComm's board of directors. In general, options
under CoreComm's plans are 20% vested at grant and vest 20% each January 1 after
they are granted, until they are fully vested.
191
In January 1999, CoreComm, Inc., one of CoreComm's wholly-owned
subsidiaries, adopted a stock option plan. Options granted under that plan were
not to be become exercisable unless and until there was either a registered
public offering of CoreComm, Inc.'s common stock or a spin-off of CoreComm, Inc.
However, under the terms of the options granted under that plan, CoreComm
reserved the right to cancel the plan and issue new options in the parent
company, CoreComm Limited. In March 2000, the compensation and option committee
of CoreComm's board of directors approved the cancellation of the CoreComm, Inc.
plan and the issuance of options in CoreComm Limited to eligible employees of
CoreComm, which resulted in the issuance of options to purchase approximately
2.7 million shares of CoreComm Limited common stock. The strike prices of the
new grants are approximately 30% of the fair market value of our common stock on
the date of the board approval, $14.55. Eligibility for receiving the new grants
was determined by, among other things, continued employment with CoreComm.
192
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
CORECOMM
The following table provides, as of July 13, 2000, information regarding
the beneficial ownership of CoreComm common stock by (a) each of CoreComm's
executive officers and directors, (b) all those directors and executive officers
as a group and (c) each person known by CoreComm to be the beneficial owner of
more than 5% of any class of its voting securities as calculated in accordance
with Rule 13d-3 of the Securities Exchange Act of 1934.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
-----------------------------------------------------
PRESENTLY
EXERCISABLE
OPTIONS,
WARRANTS AND
EXECUTIVE OFFICERS, DIRECTORS COMPANY CONVERTIBLE
AND PRINCIPAL STOCKHOLDERS(1) STOCK NOTES(2) TOTAL PERCENT(3)
----------------------------- ---------- ------------ --------- ----------
Barclay Knapp(4)........................... 1,446,997 985,167 2,432,164 5.91%
George S. Blumenthal(5).................... 1,763,186 800,019 2,563,205 6.26%
Richard J. Lubasch(6)...................... 301,081 264,607 565,688 1.40%
Patty J. Flynt............................. 232,695 177,421 410,116 1.02%
Gregg N. Gorelick.......................... 125,639 172,141 297,780 *
Ted H. McCourtney(7)....................... 733,554 110,642 844,196 2.10%
Del Mintz(8)............................... 1,815,288 119,155 1,934,443 4.80%
Alan J. Patricof(9)........................ 175,201 93,598 268,799 *
Michael A. Peterson........................ 76,332 112,753 189,085 *
Warren Potash(10).......................... 70,464 117,115 187,579 *
All directors and officers as a group (9 in
number).................................. 6,740,437 2,952,618 9,693,055 22.49%
Ronald Baron(11)........................... 6,090,177 740,052 6,830,229 16.70%
Baron Capital Group, Inc.(11)..............
Bamco, Inc.(11)............................
Baron Capital Management, Inc.(11).........
Baron Asset Fund(11).......................
767 Fifth Avenue
New York, NY 10153
Prime 66 Partners L.P.(12)................. 3,923,000 -- 3,923,000 9.77%
Composite 66, L.P. ...................... 1,097,050 -- 1,097,050 2.73%
H&S Partners I........................... 20,000 73,019 93,019 0.23%
201 Main Street, Suite 3200
Fort Worth, Texas 76102
* Represents less than one percent
(1) Unless otherwise noted, the business address of each person is 110 East
59th Street, New York, NY 10022
(2) Includes shares of common stock purchased upon the exercise of options
which are exercisable or become so in the next 60 days (referred to as
presently exercisable options), warrants and shares of Common Stock
purchased upon the conversion of the Company's 6% Convertible Subordinated
Notes due 2006 (referred to as the 6% notes).
(3) Includes common stock, presently exercisable options, warrants and 6%
Notes.
(4) Includes $300,000 of the 6% notes, convertible into 10,952 shares of common
stock.
193
(5) Includes 4,455 shares of common stock owned by trusts for the benefit of
Mr. Blumenthal's children. An additional 6,750 shares of common stock are
owned by Mr. Blumenthal's wife, as to which shares Mr. Blumenthal disclaims
beneficial ownership. Also includes 584,840 shares of common stock and
168,100 options held by Grantor Retained Annuity Trusts.
(6) Includes 234 shares of common stock owned by Mr. Lubasch as custodian for
his child, as to which shares Mr. Lubasch disclaims beneficial ownership.
(7) Includes 616,500 shares of common stock held by various entities of which
Mr. McCourtney is a general partner, as to which shares Mr. McCourtney
disclaims beneficial ownership except to the extent of his pro-rata
interest. An additional 3,212 shares of common stock are held by trusts for
the benefit of Mr. McCourtney's children, as to which shares Mr. McCourtney
disclaims beneficial ownership.
(8) Includes 57 shares of common stock owned by Mr. Mintz's wife, as to which
shares Mr. Mintz disclaims beneficial ownership. Also includes $700,000 of
the 6% notes, convertible into 25,554 shares of common stock.
(9) Includes 2,395 shares of common stock owned by Mr. Patricof's wife, as to
which shares Mr. Patricof disclaims beneficial ownership.
(10) Includes $250,000 of the 6% notes, convertible into 9,126 shares of common
stock.
(11) Based upon Schedule 13-G (Amendment No. 1), dated February 11, 2000, filed
by Ronald Baron, Baron Capital Group, Inc., Bamco, Inc., Baron Capital
Management, Inc. and Baron Asset Fund with the SEC and $9,998,774 of the 6%
Notes, convertible into 365,052 shares of common stock. Also includes
375,000 warrants.
(12) Based solely upon Schedule 13-G (Amendment No. 1) dated May 24, 2000, filed
by Prime 66 Partners, L.P., Composite 66, L.P. and H&S Partners.
ATX
The following table provides, as of August 16, 2000, information regarding
the beneficial ownership of ATX's common stock by all stockholders.
COMMON
STOCKHOLDERS STOCK PERCENT
------------ ------ -------
Michael Karp(1)(2).......................................... 650 65.0%
The Florence Karp Trust(1)(2)............................... 40 4.0%
Thomas Gravina(3)........................................... 155 15.5%
Debra Buruchian(3).......................................... 155 15.5%
----- -----
1,000 100.0%
(1) The business address is c/o University City Housing, 3418 Sansom Street,
Philadelphia, PA 19104.
(2) The Florence Karp Trust is for the benefit of Michael Karp's children. Mr.
Karp has no power to direct the voting of the shares held by The Florence
Karp Trust. Mr. Karp disclaims beneficial ownership of the shares held by
The Florence Karp Trust.
(3) The business address is c/o ATX Telecommunications Services, Inc., 50
Monument Road, Bala Cynwyd, PA 19004.
194
COMPARISON OF STOCKHOLDER RIGHTS
COMPARISON OF RIGHTS OF SHAREHOLDERS OF CORECOMM LIMITED (BERMUDA)
AND POST-MERGER CORECOMM
GENERAL
The rights of the holders of CoreComm common stock are currently governed
by CoreComm's present memorandum of association, bye-laws and the Companies Act
1981 of Bermuda (the Companies Act). Through the domestication merger, the
Bermuda company, CoreComm Limited, will become a Delaware corporation. If only
the Voyager merger and not the ATX merger occurs, the resulting company will be
a Delaware corporation. If the ATX merger occurs (regardless of whether the
Voyager merger occurs), the resulting company will also be a Delaware
corporation but will have adopted a certificate of incorporation and by-laws
that are identical to those which would have been adopted by the resulting
company in the Voyager merger. The following summary, which does not purport to
be a complete statement of the general differences among the rights of the
stockholders, sets forth material differences between the DGCL and the Companies
Act, the new certificate of incorporation and by-laws to be adopted by
post-merger CoreComm after consummation of the domestication merger and the
Voyager and/or ATX mergers and the present memorandum of association and by-laws
of CoreComm Limited. This summary is qualified in its entirety by reference to
the full text of the DGCL and the Companies Act. For information as to how these
documents may be obtained, see the section of this joint proxy statement and
prospectus entitled "Where You Can Find More Information."
BERMUDA AND DELAWARE CORPORATE LAW
The Bermuda Companies Act, under which CoreComm was incorporated, differs
in material respects from the provisions of the DGCL. Set forth below is a
summary of significant provisions of the Companies Act that are materially
different from the DGCL. The following statements are summaries, and do not
purport to deal with all aspects of Bermuda or Delaware law that may be relevant
to CoreComm and its shareholders and post-merger CoreComm and its stockholders.
AUTHORIZED CAPITAL STOCK
CoreComm had, as of July 31, 2000, 75.0 million authorized common shares,
par value $0.01 per share, of which 40,161,704 were issued and outstanding and
1.0 million authorized preferred shares, par value $0.01 per share, of which
none were issued and outstanding. The new certificate of incorporation and
by-laws to be adopted by post-merger CoreComm will authorize the issuance of
200.0 million common shares, par value $0.01 per share, and 5.0 million
preferred shares, par value $0.01 per share. If the ATX merger occurs,
post-merger CoreComm will designate 250,000 preferred shares as convertible
preferred stock.
195
VOTING RIGHTS WITH RESPECT TO EXTRAORDINARY CORPORATE TRANSACTIONS
Bermuda. Bermuda law permits amalgamation between two or more Bermuda
companies (or between a Bermuda company and one or more Bermuda or foreign
companies, and, subject to any requirement of the bye-laws of any of those
companies, generally requires the approval, in the case of the amalgamation of
non-affiliated companies, of a majority vote of three-fourths of shareholders of
each of those companies present, in person or by proxy, at a meeting called for
that purpose. CoreComm's bye-laws stipulate that a simple majority of the votes
cast by the shareholders present, in person or by proxy, at the meeting is
required to approve and any amalgamation of CoreComm with any other company. A
90% vote may be required where the amalgamation amounts to a scheme or contract
under Section 102 of the Companies Act. A majority vote of shareholders is
required to increase the authorized capital of a Bermuda company, but unless an
increase is required, and unless there is any provision in the bye-laws to the
contrary, no shareholder approval is required for the issuance of shares by an
acquiring company in a share-for-share exchange, asset purchase, or, subject to
the limitations set forth below, other forms of reorganization.
Delaware. Approval of mergers and consolidations and of sales, leases or
exchanges of all or substantially all of the property or assets of a company,
require the approval of the holders of a majority of the outstanding shares
entitled to vote, except that no vote of the stockholders of a corporation
surviving a merger is necessary if (a) the merger does not amend the certificate
of incorporation of the corporation, (b) each outstanding share immediately
prior to the effective date of the merger is to be an identical share after the
merger, and (c) either no common stock of the corporation and no securities or
obligations convertible into common stock are to be issued in the merger, or the
common stock to be issued in the merger plus common stock initially issuable on
conversion of other securities issued in the merger does not exceed 20% of the
common stock of the corporation immediately before the effective date of the
merger.
DISSENTERS' RIGHTS
Bermuda. Under Bermuda law, a dissenting shareholder of a company
participating in extraordinary corporate transactions may, under varying
circumstances, receive cash in the amount of the fair market value of its shares
(as determined by a court), in lieu of the consideration it would otherwise
receive in the transactions. Bermuda law generally does not condition
dissenters' rights to circumstances in which a vote of the stockholders of the
surviving company is required. Bermuda law, in general, provides for dissenters'
rights in an amalgamation between non-affiliated companies and affiliated
companies where one company is not a Bermuda company, an amendment to a
company's memorandum of association, a scheme of arrangement, or reconstruction
and certain other transactions. For a more thorough discussion of dissenters'
rights under Bermuda law, see the section of this joint proxy statement and
prospectus entitled "The Merger Transactions -- The Domestication
Merger -- Appraisal Rights."
196
Delaware. Stockholders are entitled to demand appraisal of their shares
in the case of mergers or consolidations, except where (a) they are stockholders
of the surviving company and the merger did not require their approval under the
DGCL, or (b) their shares are either listed on a national securities exchange or
the Nasdaq Stock Market or held of record by more than 2,000 stockholders.
Appraisal rights are available in either (a) or (b) above, however, if the
stockholders are required by the terms of the merger or consolidation to accept
any consideration other than (w) shares of the corporation surviving or
resulting from the merger or consolidation, (x) shares of another company that
are either listed on a national securities exchange or held of record by more
than 2,000 stockholders, (y) cash in lieu of fractional shares, or (z) any
combination of the above. Appraisal rights are not available in the case of a
sale, lease, exchange or other disposition by a company of all or substantially
all of its property and assets.
DERIVATIVE SUITS
Bermuda. In the event of extraordinary corporate transactions an action
can be brought by minority shareholders, on behalf of a Bermuda company, seeking
to enforce a right of action of that company. Under Bermuda law, a shareholder
may commence a derivative action in the name of the company to remedy a wrong
done to the company only (a) where the act complained of is alleged to be beyond
the corporate capacity of the company or illegal, (b) where the act complained
of constitutes a fraud against the minority shareholders by those controlling
the company, (c) where an act requires approval by a greater percentage of the
company's shareholders than actually approved it or (d) where the act infringes
the personal rights of an individual shareholder. However, a derivative action
will not be permitted where there is an alternative action available that would
provide an adequate remedy. Any property or damages recovered by derivative
action go to the company, not to the plaintiff shareholders. The Companies Act
enables a shareholder who complains that the affairs of a company are being or
have been conducted in a manner oppressive or prejudicial to some part of the
shareholders, including itself, to petition the court. The Court will consider
the interests of the shareholders in determining whether or not the company
should be dissolved, with its assets distributed and may make any order it
thinks fit. The Companies Act also provides that a company may be wound up by
the court if the court is of the opinion that minority shareholders need relief
from the oppressive conduct of the majority.
Except as mentioned above, claims against a Bermuda company by its
shareholders must be based on the common law of Bermuda. A statutory right of
action is conferred on subscribers to shares of a Bermuda company against
persons (including directors and officers) responsible for the issue of a
prospectus in respect of damage suffered by reason of an untrue statement
contained in the prospectus, but this confers no right of action against the
Bermuda company itself. In addition, a Bermuda company itself (as opposed to its
shareholders) may take action against its officers (including directors) for
breach of their statutory and fiduciary duty to act honestly and in good faith
with a view to the best interests of the company.
Delaware. Derivative actions may be brought in Delaware by a stockholder
on behalf of, and for the benefit of, the corporation. The DGCL provides that a
stockholder
197
must state in the complaint that it was a stockholder of the corporation at the
time of the transaction it is complaining about. A stockholder may not sue
derivatively unless it first makes demand on the corporation that it bring suit
and the demand has been refused, unless it is shown that the demand would have
been futile. No suit may be brought against any officer, director, or
stockholder for any debt of a corporation for which it is an officer, director,
or stockholder, until judgment and execution for the action is obtained against
the corporation.
SPECIAL MEETINGS OF STOCKHOLDERS
Bermuda. Under Bermuda law, a special meeting of shareholders may be
convened by the shareholders at any time and must be convened upon the presence
of shareholders holding not less than one-tenth of the paid-in capital of a
company carrying the right to vote at general meetings.
Delaware. Stockholders generally do not have the right to call meetings
of stockholders unless the right is granted in the certificate of incorporation
or bylaws. However, if a company fails to hold its annual meeting within a
period of 30 days after the date designated for the meeting, or if no date has
been designated for a period of 13 months after its last annual meeting, the
Delaware Court of Chancery may order a meeting to be held upon the formal
request of a stockholder or director. The new by-laws to be adopted by
post-merger CoreComm will state that the board of directors of post-merger
CoreComm, the Chairman or the President may call a special meeting of
stockholders but that a special meeting of stockholders may not be called by any
other person or persons, including the stockholders of post-merger CoreComm.
AMENDMENTS TO CHARTER
Bermuda. Amendments to the memorandum of association and bye-laws of a
Bermuda company must be submitted to a general meeting of the shareholders and
will be effective only to the extent approved by the shareholders at such
meeting. If the holders of not less than 20% in par value of the shares do not
support the amendments they may apply to a court to annul the amendment within
twenty-one days of the resolution amending the memorandum. The present by-laws
require a 66 2/3% vote to amend some of their provisions.
Delaware. Amendments to the certificate of incorporation require the
affirmative vote of the holders of a majority of the outstanding shares entitled
to vote on that matter; except that if the certificate of incorporation requires
the vote of a greater number or proportion of the holders of any class of stock
than is required by Delaware law with respect to any matter, the provision of
the certificate of incorporation may not be amended, altered or repealed except
by the greater vote required. In addition, the holders of the outstanding shares
of a class are entitled to vote as a class on any amendment to the certificate
of incorporation, whether or not they are entitled to vote on that matter by the
certificate of incorporation, if the amendment would increase or decrease the
aggregate number of authorized shares of the class, increase or decrease the par
value of the shares of the class or alter or change the powers, preferences or
special
198
rights of the class so as to affect them adversely. The new certificate of
incorporation and new by-laws will require a 66 2/3% vote to amend some of its
provisions.
ANTI-TAKEOVER STATUTES
Bermuda. Bermuda does not currently have a tender offer statute. However,
the Companies Act provides that where an offer is made for shares in a company
by another company and, within four months of the offer, the holders of not less
than 90% in value of the shares that are the subject of the offer accept it, the
offeror may by notice, given within two months after the expiration of the four
months, require that dissenting shareholders transfer their shares under the
terms of the offer. Dissenting shareholders may apply to a court within one
month of the notice objecting to the transfer, and the court may give any order
as it thinks fit. The Companies Act also provides that the holders of not less
than 95% of the shares of any class of shares in a company may give notice to
the remaining shareholders or class of shareholders of the intention to acquire
their shares on the terms set out in the notice. Recipients of the notice have a
right to apply to the Bermuda courts for an appraisal.
Delaware. Generally, Section 203 of the DGCL prohibits a publicly held
Delaware company from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (a) prior to such
time, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder, (b) upon completion of the transaction that resulted in
the stockholder becoming an interested stockholder, the interested stockholder
owns at least 85% of the outstanding voting stock (with certain exclusions), or
(c) on or after such date the business combination is approved by the board of
directors and by the affirmative vote of at least 66 2/3% of the outstanding
voting shares that is not owned by the interested stockholder. An "interested
stockholder" is a person who, together with affiliates or associates, owns 15%
or more of the corporation's voting stock.
LIMITATIONS ON DIRECTOR LIABILITY
Bermuda. Under Bermuda law, a director must observe the statutory duty of
care, which requires such director to act honestly and in good faith with a view
to the best interests of a company and exercise the care, diligence and skill
that a reasonably prudent person would exercise in comparable circumstances.
Bermuda law renders void any provision in the bye-laws or any contract between a
company and any such director exempting it from or indemnifying it against any
liability for fraud or dishonesty of which it may be guilty in relation to that
company.
Delaware. Under Delaware law, a company may include in its certificate of
incorporation, a provision eliminating or limiting the liability of a director
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that a company may not eliminate or limit
the liability of a director (a) for any breach of the director's duty of loyalty
to the corporation or its stockholders,
199
(b) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (c) acts concerning unlawful payments
of dividends or stock purchases or redemptions under Section 174 of the DGCL, or
(d) for any transactions from which a director derived an improper personal
benefit. The new certificate of incorporation will contain some provisions which
will limit the liability of post-merger CoreComm's board of directors as
permitted under Delaware law.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Bermuda. Under Bermuda law, a company is permitted to indemnify its
officers and directors, out of the funds of the company, against any liability
incurred by them in defending any proceedings, whether civil or criminal, in
which judgment is given in their favor, or in which they are acquitted, or in
connection with any application under relevant Bermuda legislation in which
relief from liability is granted to them by the court. The present by-laws
contain provisions regarding the indemnification of the officers and directors
of CoreComm as permitted under Bermuda law.
Delaware. Under Delaware law, a company is permitted to indemnify its
officers, directors and certain others against any liability or expenses
incurred in any civil, criminal, administrative or investigative proceeding if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe their conduct was
unlawful, except that in any action brought by or in the right of the
corporation, such indemnification may be made only for expenses (not judgments
or amounts paid in settlement) and may not be made even for expenses if the
officer, director or other person is adjudged liable to the corporation (unless
otherwise determined by the court). In addition, under Delaware law, to the
extent that a director or officer of a company has been successful on the merits
or otherwise in defense of any proceeding referred to above, it must be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by that party. The new by-laws will contain provisions relating to the
indemnification of post-merger CoreComm's officers and directors.
INSPECTION OF BOOKS AND RECORDS; SHAREHOLDER LISTS
Bermuda. Bermuda law provides the general public with a right of
inspection of a Bermuda company's public documents at the office of the
Registrar of Companies in Bermuda, and provides a Bermuda company's shareholders
with a right of inspection of the company's bye-laws, minutes of general
(shareholder) meetings, and audited financial statements. The register of
shareholders is also open to inspection by shareholders free of charge and, upon
payment of a small fee, by any other person. A Bermuda company is required to
maintain its share register in Bermuda but may, in certain circumstances,
establish a branch register outside of Bermuda. A Bermuda company is required to
keep at its registered office a register of its directors and officers that is
open for inspection by members of the public without charge. Bermuda law does
not, however, provide a general right for shareholders to inspect or obtain
copies of any other corporate records.
200
Delaware. Any stockholder of record, in person or by attorney or other
agents, upon written demand under oath stating the purpose of the demand, has
the right during the corporation's usual hours for business to inspect, for any
proper purpose, the corporation's stock ledger, a list of its stockholders, and
its other books and records, and to make copies or extracts from these
documents.
PREEMPTIVE RIGHTS
Bermuda. Under Bermuda law, no shareholder has a preemptive right to
subscribe for additional issues of a company's shares unless, and to the extent
that, the right is expressly granted to the shareholder under the bye-laws of a
company or under any contract between the shareholder and the company.
Delaware. Under Delaware law, no stockholder has a preemptive right to
subscribe to additional issues of a corporation's stock unless, and to the
extent that, the right is expressly granted to the stockholder in the
corporation's certificate of incorporation. The new certificate of incorporation
will not provide for preemptive rights.
DIVIDENDS
Bermuda. Bermuda law permits payment of dividends and distributions of
contributed surplus by a company unless the company, after the payment is made,
would be unable to pay its liabilities as they become due, or the realizable
value of the company's assets would be less, as a result of the payment, than
the aggregate of its liabilities and its issued share capital and share premium
accounts. The excess of the consideration paid on the issuance of shares over
the aggregate par value of the shares must (except in certain limited
circumstances) be credited to a share premium account. Share premium may be
distributed in limited circumstances, for example to pay up unissued shares that
may be distributed to shareholders in proportion to their holdings, but is
otherwise subject to limitation.
Delaware. Delaware law generally allows dividends to be paid out of
surplus of the corporation or out of the net profits of the corporation for the
current fiscal year and/or the prior fiscal year. No dividends may be paid if
they would result in the capital of the corporation being less than the capital
represented by the preferred shares of the corporation.
VOTING RIGHTS AND QUORUM REQUIREMENTS
Bermuda. Under Bermuda law, in the absence of any other agreement to the
contrary, the voting rights of shareholders are regulated by the present
by-laws. The by-laws now in place for CoreComm specify that at least two
shareholders present in person or by proxy and entitled to vote representing the
holders of more than 50% of the issued shares shall be a quorum for all purposes
which is required to transact business. Under the present by-laws, any
shareholder of CoreComm who is present at a meeting may vote in person or by
proxy and each shareholder is entitled to one vote for each CoreComm share
owned.
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Delaware. Under the DGCL and the new certificate of incorporation to be
adopted by post-merger CoreComm, each holder of common shares will be entitled
to one vote per share. A quorum will be satisfied when enough holders of the
capital stock issued and outstanding and entitled to vote are present at an
annual or special meeting, in person or by proxy, to cast a majority of the
votes entitled to be cast by the stockholders. The new by-laws will provide that
all matters which require a vote by the stockholders may (but need not) be by
written ballot, and this determination will be made at the discretion of
post-merger CoreComm's board of directors or the officer presiding at the
meeting.
NUMBER AND QUALIFICATIONS OF DIRECTORS; SIZE OF BOARD
Bermuda. Under Bermuda law, the minimum number of directors on the board
of directors of a company is two, although the minimum number of directors may
be set higher and the maximum number of directors may also be set in accordance
with the bye-laws of the company. The exact number of directors is usually fixed
by the shareholders in general meeting. Only the shareholders may increase or
decrease the number of director seats last approved by the shareholders.
The present by-laws of CoreComm set forth that the directors shall be
divided into three classes, designated Class I, Class II and Class III and each
class shall consist, as nearly as may be possible, of one-third of the total
number of directors constituting the entire board. The term of the initial Class
I directors shall terminate on the date of the year 2000 annual meeting; the
term of the initial Class II Directors shall terminate on the date of the year
2001 annual meeting and the terms of the initial Class III directors shall
terminate on the date of the year 2002 annual meeting of shareholders. At each
annual meeting beginning in 2000, successors to the class of directors whose
term expires at that annual meeting shall be elected for a three-year term. If
the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible.
The present by-laws of CoreComm set forth that the minimum number of
directors shall be not less than three (3) and the maximum number of directors
shall be fifteen (15). The current size of the board of directors of CoreComm is
currently fixed at 8. The current by-laws also provide that whenever the holders
of any one or more classes or series of preference shares issued by CoreComm
shall have the right to elect directors at an annual or special meeting of
shareholders, the election shall be governed by the terms of resolutions adopted
by the board of directors at the time the class of preference shares is
established.
Delaware. Under Delaware law, the minimum number or directors is one. The
number of directors constituting the board of directors of a Delaware
corporation may be specified in the bylaws or the certificate of incorporation.
Accordingly, unless the certificate of incorporation provides otherwise, the
directors may change the number of directors constituting the board by amending
the bylaws. If the number of directors is specified in the certificate of
incorporation, then any change in the number of directors must be made through a
certificate of amendment approved by the stockholders.
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The number of directors for post-merger CoreComm will be set in the new
by-laws. The board of directors of post-merger CoreComm will be classified in
the same manner as the board of directors of CoreComm.
REMOVAL OF DIRECTORS
Bermuda. Subject to its bye-laws the shareholders of a Bermuda company
may, at a special general meeting called for the purpose, remove any director or
the entire board of directors provided that notice of the meeting will be served
on the director or directors concerned not less than fourteen days before such
meeting. Any director given notice of removal will be entitled to be heard at
the meeting. The present by-laws provide that directors may be removed from
office for cause by the affirmative vote of at least a majority of the shares
entitled to vote for the election of directors.
Delaware. Unless a corporation's certificate of incorporation provides
otherwise and except in the case of a classified board of directors or where
cumulative voting applies, Delaware law allows directors of a corporation to be
removed with or without cause by the vote of the holders of a majority of the
shares entitled to vote in any election of directors.
The new certificate of incorporation to be adopted by post-merger CoreComm
will provide that directors may be removed only for cause by the affirmative
vote of the holders of at least two-thirds (66 2/3%) of the outstanding shares
of post-merger CoreComm then entitled to vote generally in the election of
directors.
COMPARISON OF RIGHTS OF STOCKHOLDERS OF POST-MERGER CORECOMM AND VOYAGER
The rights of Voyager stockholders are currently governed by the Delaware
General Corporation Law, or DGCL, Voyager's second amended and restated
certificate of incorporation and Voyager's by-laws. The rights of post-merger
CoreComm stockholders will be governed by the DGCL, post-merger CoreComm's
certificate of incorporation and post-merger CoreComm's by-laws. Voyager's
by-laws and second amended and restated certificate of incorporation and
post-merger CoreComm's by-laws and certificate of incorporation are also
sometimes referred to as charter documents. The following is a summary of
material differences between the rights of Voyager stockholders and the rights
of post-merger CoreComm stockholders. It is not a complete statement of the
provisions affecting, and the differences between, the rights of Voyager
stockholders and post-merger CoreComm stockholders. The summary is qualified in
its entirety by reference to the DGCL, Voyager's second amended and restated
certificate of incorporation and by-laws, and post-merger CoreComm's certificate
of incorporation and by-laws.
CAPITALIZATION
Voyager. Voyager's current authorized capital stock is fifty million
(50,000,000) shares of common stock, par value $.0001 per share, of which
31,654,758 shares were outstanding as of July 17, 2000 and five million
(5,000,000) shares of undesignated
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preferred stock, par value $.01 per share, of which no shares were outstanding
as of March 15, 2000.
Post-merger CoreComm. The charter documents of post-merger CoreComm will
authorize two hundred million (200,000,000) shares of common stock and five
million (5,000,000) shares of preferred stock, each common and preferred share
with a par value of $0.01 per share.
NUMBER OF DIRECTORS
The DGCL provides that the board of directors of a Delaware corporation
shall consist of one or more directors as fixed by the corporation's certificate
of incorporation or by-laws.
Voyager. The Voyager by-laws provide that the number of directors of
Voyager shall be fixed solely by resolution from time to time by the board of
directors. The Voyager board of directors currently consists of six directors.
Post-merger CoreComm. The post-merger CoreComm by-laws will provide that
the post-merger CoreComm board shall consist of not less than three nor more
than fifteen members, the exact number of which shall be fixed from time to time
by the post-merger CoreComm board.
CLASSIFICATION OF BOARD OF DIRECTORS
Voyager. The second amended and restated certificate of incorporation of
Voyager provides for a classified board of directors into three classes, as
nearly equal in number as possible. The initial class I directors shall serve
for a term expiring at the annual meeting of stockholders to be held in 2000,
the initial class II director shall serve for a term expiring at the annual
meeting of stockholders to be held in 2001, and the initial class III directors
shall serve for a term expiring at the annual meeting of stockholders to be held
in 2002.
Post-merger CoreComm. The post-merger CoreComm certificate of
incorporation and post-merger CoreComm by-laws, will provide for a classified
board of directors. The post-merger CoreComm directors will be divided into
three classes, each of which shall serve a staggered three year term.
QUORUM FOR MEETING -- DIRECTORS
Voyager. The Voyager by-laws state that a majority of the total number of
directors shall constitute a quorum for the transaction of business at all
meetings of the board of directors then in office.
Post-merger CoreComm. The post-merger CoreComm by-laws will provide that
a majority of the total number of post-merger CoreComm board of directors shall
constitute a quorum for the transaction of business at all meetings of the board
of directors.
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QUORUM FOR MEETING -- STOCKHOLDERS
Voyager. Voyager's by-laws state that a quorum consists of a majority of
the total outstanding shares entitled to vote.
Post-merger CoreComm. Post-merger CoreComm's by-laws will state that a
quorum consists of a majority of the total outstanding shares entitled to vote.
ELECTION OF DIRECTORS
Voyager. The Voyager by-laws provide that directors shall be elected at
the annual meeting of Voyager stockholders by the affirmative vote of a
plurality of the Voyager shares properly cast on the election of directors.
Post-merger CoreComm. The post-merger CoreComm by-laws will provide that
directors will be elected at the annual meeting of post-merger CoreComm
stockholders by the affirmative vote of a plurality of the post-merger CoreComm
shares voted at the meeting for the election of directors.
REMOVAL OF DIRECTORS
Voyager. The second amended and restated certificate of incorporation of
Voyager provides that directors may be removed from office only with cause and
only by the affirmative vote of the holders of two-thirds (66 2/3%) of the
shares then entitled to vote at an election of directors.
Post-merger CoreComm. The post-merger CoreComm certificate of
incorporation will provide that any or all of the directors of post-merger
CoreComm may be removed from office at any time, but only for cause and only by
the affirmative vote of the holders of two-thirds (66 2/3%) of the outstanding
shares of post-merger CoreComm then entitled to vote in the election of
directors.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Voyager. The Voyager by-laws provide that any vacancies in the board of
directors, however resulted, shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even if less than a quorum
of the board of directors.
Post-merger CoreComm. The post-merger CoreComm certificate of
incorporation and the post-merger CoreComm by-laws will provide that any
vacancy, however resulted, may be filled only by a majority of the directors
then in office, though less than a quorum, or by a sole remaining director.
SPECIAL STOCKHOLDER MEETINGS
Voyager. The Voyager by-laws provide that special meetings of the Voyager
stockholders may be called only by the board of directors by a resolution
approved by the affirmative vote of a majority of the directors then in office.
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Post-merger CoreComm. The post-merger CoreComm certificate of
incorporation will provide that a special meeting of holders of post-merger
CoreComm common stock may be called at any time by the board of directors, the
chairman of the board or the president but may not be called by or at the
request of any other person.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Voyager. Voyager's second amended and restated certificate of
incorporation prohibits stockholder action by written consent in lieu of a
stockholder meeting.
Post-merger CoreComm. Post-merger CoreComm's certificate of incorporation
will prohibit stockholder action by written consent in lieu of a stockholder
meeting.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS AND INDEMNIFICATION
Voyager. Voyager's second amended and restated certificate of
incorporation provides that a director will not be personally liable to Voyager
or to its stockholders for monetary damages for breach of fiduciary duty as a
director, except, if required by law, for liability; for any breach of the
director's duty of loyalty to Voyager or its stockholders; for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; under Section 174 of the Delaware General Corporation Law; and for any
transaction from which the director derived an improper personal benefit.
Voyager's second amended and restated certificate of incorporation provides a
right to indemnification to directors and officers of Voyager to the fullest
extent permitted by the DGCL. In addition, Voyager must indemnify any present or
former director or officer of Voyager who or any person who is or was serving at
the request of Voyager as a director, officer, employee or agent of another
corporation who has been successful on the merits or otherwise in the defense of
any claim or proceeding for expenses (including attorneys' fees) actually and
reasonably incurred. Voyager will indemnify in connection with a proceeding
initiated by a person seeking indemnification only if the proceeding was
authorized by Voyager's board of directors.
Post-merger CoreComm. Post-merger CoreComm's certificate of incorporation
will provide that a director will not be personally liable to post-merger
CoreComm or to its stockholders for monetary damages for breach of fiduciary
duty as a director, except, if required by law, for liability; for any breach of
the director's duty of loyalty to post-merger CoreComm or its stockholders; for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; under Section 174 of the Delaware General Corporation
Law; and for any transaction from which the director derived an improper
personal benefit. Post-merger CoreComm's certificate of incorporation will
provide a right to indemnification to directors and officers of post-merger
CoreComm to the fullest extent permitted by the Delaware General Corporation
Law. Also, the post-merger CoreComm by-laws will provide, in substance, that
each person made, or threatened to be made, a defendant or witness to any
action, suit or proceedings, whether civil, criminal or otherwise by reason of
the fact that he or she is or was serving, at the request of post-merger
CoreComm, in any capacity any other
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corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, will be indemnified by post-merger CoreComm to the full extent
permitted by the DGCL.
DIVIDENDS
Voyager. Voyager's second amended and restated certificate of
incorporation provides that the board of directors, or an authorized committee
of the board of directors, may, in designating the terms of a series of
preferred stock, state the conditions upon which the holders of the series of
preferred stock shall be entitled to receive dividends. The common stockholders
shall be entitled to dividends only if the board of directors, or an authorized
committee of the board of directors, declares dividends and as may be permitted
by law.
Post-merger CoreComm. Post-merger CoreComm's certificate of incorporation
will provide that the board of directors may state the conditions upon which the
holders of a series of preferred stock shall be entitled to receive dividends.
Post-merger CoreComm's certificate of incorporation will also provide that the
common stockholders will be entitled to dividends as may be permitted by law.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Voyager. Voyager's second amended and restated certificate of
incorporation provides that the certificate of incorporation may be amended by
the affirmative vote of the majority of the outstanding shares entitled to vote
on the amendment or repeal, and the affirmative vote of the majority of the
outstanding shares of each class entitled to vote on that matter as a class, at
a meeting of stockholders called expressly for that purpose. Some provisions of
the certificate of incorporation require the affirmative vote of not less than
two-thirds (66 2/3%) of the outstanding shares entitled to vote on the
amendment, and the affirmative vote of not less than two-thirds (66 2/3%) of the
outstanding shares of each class entitled to vote on the amendment as a class.
Post-merger CoreComm. Post-merger CoreComm's certificate of incorporation
will provide that amendments the certificate of incorporation will generally
require majority approval of stockholders of post-merger CoreComm entitled to
vote unless a different proportion is specified in the certificate of
incorporation. Post-merger CoreComm's certificate of incorporation will also
provide that an amendment to the certificate of incorporation that would
adversely affect the rights of any holders of shares of a class or series of
stock must be approved by vote of the holders of a majority of all outstanding
shares of the class or series voting as a class in addition to the standard vote
of a majority of the outstanding stock entitled to vote on the amendment. The
post-merger CoreComm certificate of incorporation will also provide that
amendments to certain provisions of the certificate of incorporation will
require the approval of the holders of 66 2/3% of the stock entitled to vote on
the amendment.
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AMENDMENTS TO BY-LAWS
Voyager. The Voyager by-laws provide that the by-laws may be amended or
repealed by the board of directors by the affirmative vote of a majority of the
directors then in office. The by-laws may also be amended or repealed at any
annual meeting, or special meeting of stockholders called for that purpose, by
the affirmative vote of at least two-thirds (66 2/3%) of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
amendment or repeal, voting together as a single class. However, if the board of
directors recommends that stockholders approve an amendment or repeal at a
meeting of stockholders, that amendment or repeal shall only require the
affirmative vote of the majority of the shares present in person or represented
by proxy at the meeting and entitled to vote on the amendment or repeal, voting
together as a single class.
Post-merger CoreComm. Post-merger CoreComm's certificate of incorporation
will provide that the by-laws may be altered, amended or repealed, in whole or
in part, or new by-laws may be adopted by either the affirmative vote of the
holders of sixty-six and two-thirds percent (66 2/3%) of the outstanding capital
stock of post-merger CoreComm entitled to vote on that matter or by a resolution
adopted by the board of directors.
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DESCRIPTION OF THE CAPITAL STOCK OF POST-MERGER CORECOMM
GENERAL
Post-merger CoreComm's authorized capital stock will consist of 200,000,000
shares of common stock, par value $0.01 per share, and 5,000,000 shares of
preferred stock, par value $0.01 per share.
POST-MERGER CORECOMM COMMON STOCK
The holders of post-merger CoreComm's common stock will be entitled to one
vote for each share held of record on all matters submitted to a vote of
post-merger CoreComm's stockholders and do not have cumulative voting rights in
the election of directors. Holders of post-merger CoreComm common stock will be
entitled to receive proportionately dividends as may from time to time be
declared by post-merger CoreComm's board of directors out of funds legally
available for the payment of dividends. In the event of post-merger CoreComm's
liquidation, dissolution or winding up, holders of post-merger CoreComm common
stock would be entitled to share proportionately in all of post-merger
CoreComm's assets available for distribution to holders of post-merger CoreComm
common stock remaining after payment of liabilities and liquidation preference
of any outstanding post-merger CoreComm preferred stock. Holders of post-merger
CoreComm common stock will have no preemptive rights and will have no rights to
convert post-merger CoreComm common stock into any other securities, and there
will be no redemption provisions with respect to the common stock.
PREFERRED STOCK
The by-laws of post-merger CoreComm will authorize the board of directors
to issue one or more series of preferred stock and determine, with respect to
any series rights, if any, and their qualifications, limitations or
restrictions, as are stated in resolutions adopted by the board of directors
providing for the issue of the series and as are permitted by the DGCL.
The ability of the board of directors to issue one or more series of
preferred stock will provide increased flexibility in structuring possible
future financings and acquisitions and in meeting other corporate needs which
might arise. The authorized shares of preferred stock, as well as shares of
post-merger CoreComm common stock, will be available for issuance without
further action by post-merger CoreComm stockholders, unless such action is
required by applicable law or the rules of any stock exchange or automated
quotation system on which post-merger CoreComm securities may be listed or
applicable rules of any self-regulatory organization. If the approval of
post-merger CoreComm stockholders is not required for the issuance of shares of
preferred stock or common stock, the board of directors does not intend to seek
stockholder approval. The board of directors will make any determination to
issue the shares based on its judgment as to post-merger CoreComm's best
interests and the best interests of its stockholders. The board of directors, in
so acting, could issue preferred stock having terms that could discourage an
acquisition attempt or other transaction that some or a majority of the
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stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their shares over the then current
market price of such shares.
SPECIAL CHARTER PROVISIONS
Post-merger CoreComm's certificate of incorporation, which post-merger
CoreComm refers to as the "charter," will contain the provisions described
below. Those charter provisions may have the effect, alone or in combination
with each other or with the existence of authorized but unissued common stock
and any series of preferred stock, of precluding or rendering more difficult a
hostile takeover, making it more difficult to remove or change the composition
of post-merger CoreComm's incumbent board of directors and its officers, being
adverse to stockholders who desire to anticipate in a tender offer and depriving
stockholders of possible opportunities to sell their shares at temporarily
higher prices.
Classified board and filling of vacancies on the board of directors. The
charter will provide that the directors shall be divided into three classes,
each of which shall serve a staggered three-year term, and that vacancies on
post-merger CoreComm's board of directors that may occur between annual meetings
may be filled by post-merger CoreComm's board of directors. In addition, this
provision will specify that any director elected to fill a vacancy on
post-merger CoreComm's board of directors will serve for the balance of the term
of the replaced director.
Removal of directors. The charter will provide that directors can be
removed only by the stockholders for cause and then only by the affirmative vote
of the holders of not less than two-thirds (66 2/3%) of post-merger CoreComm's
combined voting power.
Voting requirement for some business combinations. The charter will also
provide that, in addition to any affirmative vote required by law, the
affirmative vote of holders of two-thirds (66 2/3%) of post-merger CoreComm's
voting power will be necessary to approve any "business combination," as defined
below, proposed by an "interested stockholder," as defined below. The additional
voting requirements will not apply, however, if:
- the business combination was approved by not less than a majority of the
continuing directors;
- a series of conditions are satisfied requiring, in summary, the
following:
(A) that the consideration to be paid to post-merger CoreComm's
stockholders in the business combination must be at least equal to
the higher of:
(1) the highest per-share price paid by the interested stockholder
in acquiring any shares of common stock during the two years
prior to the announcement date of the business combination or
in the transaction in which it became an interested
stockholder, this date is referred to as the "determination
date," whichever is higher; or
(2) the fair market value per share of common stock on the
announcement date or determination date, whichever is higher,
in either case
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appropriately adjusted for any stock dividend, stock split,
combination of shares or similar event with non-cash
consideration treated similarly; and
(B) various "procedural" requirements are complied with, including the
consent solicitation of proxies according to the rules of the SEC
and no decrease in regular dividends, if any, after the interested
stockholder became an interested stockholder, except as approved by
a majority of the continuing directors.
An "interested stockholder" is defined as anyone who is the beneficial
owner of more than 15% of the voting power of the voting stock, other than
post-merger CoreComm and any employee stock plans sponsored by post-merger
CoreComm, and includes any person who is an assignee of or has succeeded to any
shares of voting stock in a transaction not involving a public offering that
were at any time within the prior two-year period beneficially owned by an
interested stockholder. The term "beneficial owner" includes persons directly
and indirectly owning or having the right to acquire or vote the stock.
Interested stockholders participate fully in all stockholder voting.
A "business combination" includes the following transactions:
- merger or consolidation of post-merger CoreComm or any subsidiary of
post-merger CoreComm with an interested stockholder or with any other
corporation or entity which is, or after the merger or consolidation
would be, an affiliate of an interested stockholder;
- the sale or other disposition by post-merger CoreComm or a subsidiary of
post-merger CoreComm of assets having a fair market value of $5,000,000
or more if an interested stockholder, or an affiliate of an interested
stockholder is a party to the transaction;
- the adoption of any plan or proposal for post-merger CoreComm's
liquidation or dissolution proposed by or on behalf of an interested
stockholder, or an affiliate of an interested stockholder; or
- any reclassification of securities, recapitalization, merger with a
subsidiary, or other transaction which has the effect, directly or
indirectly, of increasing the proportionate share of any class of
post-merger CoreComm's outstanding stock, or securities convertible in to
stock, or a subsidiary owned by an interested stockholder, or an
affiliate of an interested stockholder.
Determinations of the fair market value of non-cash consideration are made
by a majority of the continuing directors.
The term "continuing directors" means any member of post-merger CoreComm's
board of directors, while that person is a member of post-merger CoreComm's
board of directors, who is not a affiliate or associate or representative of the
interested stockholder and was a member of post-merger CoreComm's board of
directors prior to the time that the interested stockholder became an interested
stockholder, and any successor of a continuing director while that successor is
a member of the post-merger CoreComm's
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board of directors, who is not an affiliate or associate or representative of
the interested stockholder and is recommended or elected to succeed the
continuing director by a majority of continuing directors.
Voting requirements for some amendments to the charter. The charter will
provide that the provisions set forth in this section under the heading "Special
Charter Provisions" may not be repealed or amended in any respect, unless that
action is approved by the affirmative vote of the holders of not less than
two-thirds (66 2/3%) of post-merger CoreComm's voting power. The requirement of
an increased stockholder vote is designed to prevent a stockholder who controls
a majority of post-merger CoreComm's voting power from avoiding the requirements
of the provisions discussed above by simply amending or repealing those
provisions.
THE SHAREHOLDER RIGHTS PLAN
CoreComm currently has a shareholder rights plan in effect but concurrently
with the domestication merger, the common shares of CoreComm and the rights
attached to the shares will be exchanged for common stock of post-merger
CoreComm. The current CoreComm shareholder rights plan will therefore be
canceled by CoreComm. After the domestication merger and the ATX and Voyager
mergers are consummated, the board of directors of post-merger CoreComm may
adopt a shareholder rights plan. Any such plan would likely be substantially
identical to the one currently in place by CoreComm. Adoption of a new
shareholder rights plan by post-merger CoreComm will occur only if the
domestication merger occurs.
The terms and provisions of the CoreComm shareholder rights plan have
various anti-takeover effects as they cause substantial dilution to a person or
group that attempts to acquire a substantial interest in CoreComm without the
prior approval of the board of directors. Among the effects of the shareholder
rights plan is that the rights from the shareholder rights plan could discourage
a takeover attempt that might otherwise allow the holders of CoreComm common
shares to sell their shares at a premium to the then current market price or
which might otherwise be beneficial to shareholders. If a similar plan is
adopted by post-merger CoreComm, these anti-takeover provisions in the
shareholder rights plan could also have a material adverse effect on the premium
that potential acquirors might be willing to pay in an acquisition or that
investors might be willing to pay in the future for shares of post-merger
CoreComm's common stock. For further discussion of the risk factors associated
with the shareholder rights plan, please refer to the section of this joint
proxy statement and prospectus entitled "Risk Factors -- Risk Factors relating
to post-merger CoreComm's capital structure -- Post-merger CoreComm will have
anti-takeover defense provisions that may deter potential acquirors and depress
its stock price."
For more information regarding the shareholder rights plan of CoreComm,
please refer to the description of the plan in the Registration Statement on
Form 10, filed by CoreComm with the Securities and Exchange Commission on June
24, 1998 or refer to the plan itself, included as an exhibit to the Registration
Statement on Form 10-12G, filed by CoreComm with the SEC on August 19, 1998 and
Amendments Number One
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and Two to the shareholder rights plan, included as exhibits to the Form 10-K
filed by CoreComm with the SEC on March 29, 2000.
TRANSFER AGENT AND REGISTRAR
Post-merger CoreComm's transfer agent and registrar for the common stock
will be Continental Stock Transfer & Trust Company.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Generally, Section 203 of the Delaware General Corporation Law prohibits a
publicly held Delaware corporation from engaging in any business combination
with an interested stockholder for a period of three years following the time
that a stockholder becomes an interested stockholder, unless:
- prior to that time either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder is
approved by the board of directors of the corporation;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding, for purposes of determining the
number of shares outstanding, those shares held by persons who are both
directors and officers and certain employee stock plans; or
- at or after that time the business combination is approved by the board
and authorized at an annual or special meeting of stockholders, and not
by written consent, by the affirmative vote of at least two-thirds of the
outstanding voting stock which is not owned by the interested
stockholder.
A business combination includes certain mergers, consolidations, asset
sales, transfers and other transactions resulting in a financial benefit to the
interested stockholder. An interested stockholder is a person who, together with
affiliates and associates, owns 15% or more of the corporation's voting stock.
INDEMNIFICATION PROVISIONS
Section 145 of the Delaware General Corporation Law authorizes a
corporation to indemnify its directors, officers, employees and agents against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement reasonably incurred, including liabilities under the Securities Act,
provided they act in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of the corporation, although in the case of
proceedings brought by or on behalf of the corporation, such indemnification is
limited to expenses and is not permitted if the individual is adjudged liable to
the corporation (unless the court determines otherwise). The registrant's
Certificate of Incorporation and Bylaws require the registrant to indemnify its
officers and directors to the full extent permitted by Delaware law.
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Section 102 of the Delaware General Corporation Law authorizes a
corporation to limit or eliminate its directors' liability to the corporation or
its stockholders for monetary damages for breaches of fiduciary duties, other
than for (i) breaches of the duty of loyalty, (ii) acts or omissions not in good
faith or that involve intentional misconduct or knowing violations of law, (iii)
unlawful payments of dividends, stock purchases or redemptions, or (iv)
transactions from which a director derives an improper personal benefit. The
registrant's Certificate of Incorporation contains provisions limiting the
liability of the directors to the registrant and to its stockholders to the full
extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law authorizes a
corporation to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the corporation against any
liability asserted against him or her and incurred by him or her in any such
capacity, or arising out of his or her status as such. The registrant's
Certificate of Incorporation and Bylaws provide that the registrant may, to the
full extent permitted by law, purchase and maintain insurance on behalf of any
director, officer, employee or agent of the registrant against any liability
that may be asserted against him or her and the registrant currently maintains
such insurance. The registrant will obtain liability insurance covering its
directors and officers for claims asserted against them or incurred by them in
such capacity, including claims brought under the Securities Act.
Insofar as indemnification for liabilities arising from the Securities Act
may be permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, the registrant has been informed that in
the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
CONVERTIBLE PREFERRED STOCK
As part of the recapitalization of ATX occurring simultaneously with the
ATX merger, the ATX stockholders will create a series of convertible preferred
stock to be issued to its existing stockholders, with the material terms and
conditions as are described below.
Dividends. Each share of convertible preferred stock entitles its holder
to receive dividends out of funds of the corporation legally available for the
payment of dividends prior to and in preference to any declaration or payment of
any dividend on any securities junior in dividend rights to the convertible
preferred stock (other than dividends payable in the form of those junior
securities or securities convertible into those junior securities) and on a
parity with any securities that are designated to be on a parity with the
convertible preferred stock. Dividends are payable when and as authorized and
declared by the board of directors of post-merger CoreComm. Dividends on each
share of convertible preferred stock accrue at the rate determined as described
below on the liquidation value of $1,000 per share. The dividend on the
convertible preferred stock is cumulative and is payable in arrears on the
anniversary of the date of issuance of the convertible preferred stock.
Dividends accrue whether or not they have
214
been declared and whether or not there are profits, surplus or other funds of
post-merger CoreComm legally available for the payment of dividends.
At the sole discretion of post-merger CoreComm, dividends may be paid
either in cash or in shares of common stock. If paid in shares of post-merger
CoreComm common stock, the amount of common stock to be paid will be calculated
assuming such common stock has a value equal to 98% of the volume weighted
average sale price during the prior 5 trading days immediately preceding the
dividend payment date.
Post-merger CoreComm may not pay any dividends on any junior securities,
other than dividends payable in the form of those junior securities, unless all
accrued and unpaid dividends required to be paid on the convertible preferred
stock and any parity securities as of the immediately prior scheduled dividend
payment date have been paid in full and sufficient funds have been set aside for
the next scheduled dividend payment date. Likewise, post-merger CoreComm may not
redeem, acquire or repurchase any junior securities, except as required to
comply with an employee incentive or benefit plan, unless it is current in its
dividend payments on the convertible preferred stock and sufficient funds have
been set aside for the next scheduled dividend payment date.
The dividend rate on the convertible preferred stock will be 3% per year
for the first 12 months after the issuance of the three-year senior notes in the
ATX merger. If any three-year senior notes remain outstanding as of the end of
that period, the rate increases to 5% per year. If any three-year senior notes
remain outstanding as of 18 months after the issuance of the three-year senior
notes in the ATX merger, the rate increases to 7% per year. The amount of
dividends payable for any period shorter or longer than a full year will be
computed daily on the basis of a 360-day year. Dividends will be payable
quarterly.
Liquidation, Dissolution or Winding up; Mergers, Consolidations and Asset
Sales. In the event of any voluntary or involuntary liquidation, dissolution or
winding up of post-merger CoreComm, the holders of convertible preferred stock
then outstanding will be entitled to be paid out of the assets of post-merger
CoreComm available for distribution to its stockholders after payment of any
liquidation values of any securities senior in liquidation rights to the
convertible preferred stock and before any securities junior in liquidation
rights to the convertible preferred stock.
If, upon any liquidation, dissolution or winding up of post-merger
CoreComm, the remaining assets of post-merger CoreComm available for
distribution to its stockholders are insufficient to pay the holders of
convertible preferred stock and all other classes or series of stock ranking
equal to it with respect to liquidation the full amount to which they are
entitled, the holders of convertible preferred stock and, together with holders
of the equally preferenced stock, will share ratably (based on their relative
liquidation values) in any distribution of the remaining assets and funds of
post-merger CoreComm.
The voluntary consolidation or merger of post-merger CoreComm into another
entity, or the sale of all or substantially all of the assets of post-merger
CoreComm is not a liquidation or dissolution with respect to the convertible
preferred stock.
215
Voting Rights. Except as otherwise provided below or as otherwise
provided by law, holders of convertible preferred stock are not entitled to
vote.
Post-merger CoreComm will not (a) alter, amend or repeal the preferences,
special rights or other powers or privileges of the convertible preferred stock,
or (b) create any class or series of securities senior to the convertible
preferred stock without the written consent or affirmative vote of holders of a
majority of the then outstanding shares of convertible preferred stock.
Mandatory Redemption. The convertible preferred stock is mandatorily
redeemable by post-merger CoreComm on the twentieth anniversary of its date of
issuance, to the extent there are funds legally available for such payment. At
such time, post-merger CoreComm will redeem all shares of the convertible
preferred stock at a redemption price of $1,000 per share, payable together with
accrued and unpaid dividends either, in the sole discretion of post-merger
CoreComm, in cash or in shares of common stock. If paid in shares of post-merger
CoreComm common stock, the amount of common stock to be paid will be calculated
assuming the common stock has a value equal to 98% of the volume weighted
average sale price during the five trading days immediately preceding the
redemption date.
All holders of record of convertible preferred stock will be given written
notice of the redemption and the date and place for the redemption not less than
30 days nor more than 60 days prior to the redemption date. Each holder of
convertible preferred stock will surrender that holder's certificates
representing the convertible preferred stock to post-merger CoreComm at the
place designated in the notice, and on the later of the date for the redemption
and the date the certificates are surrendered, will receive the payment to which
it is entitled.
On the redemption date, assuming notice has been provided in accordance
with the paragraph above, all rights with respect to the convertible preferred
stock, will terminate, except for the right of the holders of that stock to
receive the redemption price (in cash or common stock).
Conversion Rights.
Conversion at the Option of Post-merger CoreComm. Beginning any time
after the second anniversary of the initial issuance date of the convertible
preferred stock, if the average current market price of the common stock for 20
consecutive trading days is at least 125% of the conversion price as of such
time, post-merger CoreComm can require the conversion of the convertible
preferred stock into that number of shares of common stock as is determined by
dividing the liquidation value of the shares by a number equal to the conversion
price as of that time. Similarly, at any time after the fifth anniversary, if
the current market price is equal to or greater than the conversion price at
that time, post-merger CoreComm can also require conversion of the convertible
preferred stock.
Conversion at the Option of the Holder. At any time, the holder of the
convertible preferred stock may convert the shares into shares of post-merger
CoreComm common stock determined by dividing the liquidation value of the shares
by a number equal to the conversion price as of such time. Furthermore, in the
event of a change of control of
216
post-merger CoreComm, the holders shall, if the then current market price is
less than the conversion price, have a one time option, upon not less than 30
days' notice nor more than 60 days' notice, to convert the convertible preferred
stock into common stock determined by dividing the liquidation price by the
greater of (a) 66.67% of the price of CoreComm common shares at the date of
issuance of the convertible preferred stock and (b) the price per common share
at which the change of control is occurring.
Determination of the Conversion Price. The conversion price for a
conversion made at the option of the holder in the absence of a change of
control or at the option of post-merger CoreComm is determined as follows:
- If three-year senior notes are issued to current ATX stockholders:
The conversion price is initially $32.11 per share and is subject to upward
adjustment, depending on the aggregate principal amount of three-year
senior notes that remain outstanding as of the six-month anniversary of the
completion of the ATX merger. At the six-month anniversary, if all of the
three-year senior notes remain outstanding, the conversion price will
remain at $32.11 per share of post-merger CoreComm common stock. If less
than all of the three-year senior notes remain outstanding at the six-month
anniversary, the conversion price will increase from $32.11 per share by up
to $3.94 per share, pro rata based on the then outstanding portion of the
maximum $110 million aggregate principal amount of three-year senior notes
that could be issued. If no three-year senior notes are outstanding at the
six-month anniversary, the conversion price will be $36.05 per share. The
following chart shows, for some assumed outstanding aggregate principal
amounts of 3-year senior notes at the six-month anniversary, the conversion
price that would apply and the number of shares that would result from a
full conversion of the convertible preferred stock at that conversion
price.
NUMBER OF SHARES
AGGREGATE PRINCIPAL OF COMMON STOCK
AMOUNT OF THREE-YEAR SENIOR CONVERSION PRICE INTO WHICH THE
NOTES OUTSTANDING AS OF PER SHARE OF 250,000 SHARES OF
THE SIX-MONTH POST-MERGER CORECOMM CONVERTIBLE PREFERRED STOCK
ANNIVERSARY COMMON STOCK WILL BE CONVERTIBLE
--------------------------- -------------------- ---------------------------
$110.0 million $32.11 7,785,737
$80.0 million $33.18 7,533,627
$40.0 million $34.62 7,221,828
None $36.05 6,934,813
- If no three-year senior notes are issued to current ATX stockholders:
The conversion price will initially be the higher of:
(a) $40.328, subject to adjustment under the ATX merger agreement,
multiplied by 110%; and
(b) 100% of the volume weighted-average trading price of the CoreComm
common shares for the 10 trading day period ending on the trading day
prior to the closing date of the ATX merger.
As of the date of this joint proxy statement and prospectus, the initial
conversion price determined according to this method would be $44.36, and
approximately 5.64
217
million shares of post-merger CoreComm common stock would be issued upon
conversion of all of the convertible preferred stock.
Adjustments to Conversion Price. The conversion price is subject to
adjustments based on changes in capitalization of post-merger CoreComm common
stock such as stock splits, stock dividends, and the like. The conversion price
will also be adjusted if, among other things, post-merger CoreComm issues to
substantially all holders of post-merger CoreComm common stock rights, options
or warrants to subscribe for or purchase shares of post-merger CoreComm common
stock at a price below the then current conversion price.
Other Rights. Under the terms of the registration rights agreement to be
entered into at the closing of the ATX merger, the initial holders of the
convertible preferred stock will have the right in certain circumstances to sell
their shares of convertible preferred stock or shares of common stock underlying
the convertible preferred stock in underwritten offerings. For further
information about these registration rights, please read the section of this
joint proxy statement and prospectus entitled "The Merger Agreements -- The
Merger Agreement Between CoreComm and ATX -- Related Agreements -- The
Registration Rights Agreement."
218
MORE ABOUT THE COMPANIES
CORECOMM LIMITED
UNAUDITED PRO FORMA FINANCIAL DATA
In May 1999, CoreComm acquired MegsINet Inc. in exchange for cash and
common stock and acquired certain assets of USN Communications, Inc. in exchange
for cash and warrants to purchase common stock. The unaudited pro forma
financial data of CoreComm presented below gives effect to the completed
acquisitions of MegsINet and USN and the following proposed transactions:
- the ATX merger only;
- the Voyager merger only; and
- both the ATX merger and the Voyager merger together.
The pro forma financial data is based on CoreComm's historical financial
statements and the historical financial statements of MegsINet, USN, ATX and
Voyager. CoreComm is treated as the acquiring company for purposes of these pro
forma financial data. Certain amounts in these historical financial statements
have been reclassified to conform to CoreComm's presentation.
CoreComm will require $40.0 million in cash for the ATX merger and
approximately $46.2 million in cash for the Voyager merger based on CoreComm's
closing stock price of $11.81 per share on August 10, 2000, as well as the
payment of any outstanding indebtedness under the Voyager credit agreement (as
of July 14, 2000, the amount was approximately $23.8 million). The unaudited pro
forma financial data has been prepared assuming Voyager does not elect to give a
termination notice based on the trading price of CoreComm's common shares.
CoreComm is evaluating its financing options and anticipates issuing additional
debt and/or equity to fund the cash portion of these mergers. We expect
post-merger CoreComm to incur negative cash flow from operations at least until
post-merger CoreComm establishes an adequate customer base for its services.
Post-merger CoreComm will require a significant amount of cash to develop its
business, fund its capital commitments and service its indebtedness and other
obligations. The unaudited pro forma financial data does not give effect to
financing required to fund future operations of the combined companies.
The completed acquisitions have been accounted for using the purchase
method of accounting, in which the assets acquired and liabilities assumed have
been recorded at their fair values. The proposed mergers have been accounted for
using the purchase method of accounting. Accordingly, the assets acquired and
liabilities assumed have been recorded at their estimated fair values. We are
unaware of events other than those disclosed in the notes to the unaudited pro
forma financial data, including the potential adjustment to the Voyager merger
exchange ratio, that would require a material change to the preliminary purchase
price allocation. However, a final determination of necessary purchase
accounting adjustments will be made upon the completion of a study to be
undertaken to determine the fair value of certain assets and liabilities,
including
219
intangible assets. Assuming CoreComm completes the ATX merger only, the Voyager
merger only or both the ATX merger and the Voyager merger, the actual financial
position and results of operations will differ, perhaps significantly, from the
unaudited pro forma amounts reflected in this joint proxy statement and
prospectus because of a variety of factors, including access to additional
information, changes in value not currently identified and changes in operating
results between the dates of the unaudited pro forma financial data and the
dates on which the acquisitions take place.
The unaudited pro forma condensed statements of operations for the six
months ended June 30, 2000 and the year ended December 31, 1999 give effect to
the completed acquisitions and proposed mergers as if they had been consummated
on January 1, 1999. The unaudited pro forma condensed balance sheets at June 30,
2000 give the effect to the proposed mergers as if they had been consummated on
June 30, 2000.
ATX provided for bonuses and certain other compensation to its partners.
Upon the merger with CoreComm, the compensation of these individuals will either
cease or be reduced to be more consistent with compensation levels of other
members of management. Approximately $4.2 million and $8.5 million of expense in
the six months ended June 30, 2000 and the year ended December 31, 1999,
respectively, would not have been incurred had the merger been consummated on
January 1, 1999.
The pro forma adjustments are based upon available information and
assumptions that we believe were reasonable at the time made. We believe that
any variations from the available information and assumptions applied will not
have a material effect on the pro forma financial data presented. The unaudited
pro forma condensed statements of operations do not purport to present
CoreComm's results of operations had the acquisitions occurred on the dates
specified, nor are they necessarily indicative of the results of operations that
may be achieved in the future. The unaudited pro forma condensed statements of
operations do not reflect any adjustments for synergies that we expect to
realize. We cannot assure you as to the amounts of, or that any, cost savings or
revenue enhancements will be realized.
A significant component of the revenues included in the pro forma results
is the historical revenues of USN from January 1, 1999 through the date CoreComm
acquired the wireline assets of USN. Although USN quickly developed a large
customer list and revenue base in 1997 and 1998, it had difficulties under its
previous management providing services, including billing, customer care and
other operational areas, and filed for bankruptcy in February 1999. Since the
acquisition, CoreComm has been focusing on improving these operations, and has
been successful in many areas. However, CoreComm did not actively continue to
sell additional lines in these markets because it was not fully satisfied with
the quality of the operations. Consequently, and consistent with CoreComm's due
diligence, transaction structure and purchase price, revenues associated with
the USN assets have declined significantly since the acquisition, and additional
declines may continue as customers leave or "churn" off the service. However,
CoreComm anticipates that the future operating results derived from the USN
assets
220
will improve, although CoreComm has no way of assuring this. Please refer to the
section entitled "Special Note Regarding Forward-Looking Statements."
The unaudited pro forma financial statements should be read in conjunction
with CoreComm's financial statements and related notes, and with the financial
statements and related notes of USN, MegsINet, ATX and Voyager, and the pro
forma financial statements of Voyager, incorporated by reference or appearing
elsewhere in this joint proxy statement and prospectus.
221
CORECOMM LIMITED
PRO FORMA CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 2000
(INCLUDING ATX AND VOYAGER)
(IN THOUSANDS)
CORECOMM ATX VOYAGER
(HISTORICAL) (HISTORICAL) (HISTORICAL) ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ----------- ----------
ASSETS:
Current assets:
Cash, cash equivalents
and securities........ $ 84,220 $ 3,531 $ 12,330 $ (81,795)A,B,G,I $ 18,286
Other current assets..... 17,794 26,414 9,567 -- 53,775
--------- ------- -------- ---------- ----------
Total current assets....... 102,014 29,945 21,897 (81,795) 72,061
Fixed assets, net.......... 109,739 13,311 25,525 24,914A 173,489
Goodwill, net.............. 53,110 -- -- 799,769A 852,879
Local multipoint
distribution service
license costs............ 25,366 -- -- -- 25,366
Other assets, net.......... 22,686 900 56,665 (55,717)A,B 24,534
Affiliate receivable,
net...................... -- -- -- 9,785G 9,785
--------- ------- -------- ---------- ----------
Total assets............... $ 312,915 $44,156 $104,087 $ 696,956 $1,158,114
========= ======= ======== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Current liabilities:
Other current
liabilities........... $ 61,563 $36,444 $ 15,974 $ -- $ 113,981
Current portion of debt
and capital leases.... 17,726 -- 3,158 -- 20,884
Due to affiliates........ -- 1,445 -- -- 1,445
--------- ------- -------- ---------- ----------
Total current
liabilities.............. 79,289 37,889 19,132 -- 136,310
Debt and capital leases.... 185,255 -- 25,866 140,568A,B,I 351,689
Deferred income taxes...... -- -- -- 8,720A 8,720
Shareholders' equity:
Preferred stock, Common
stock and additional
paid-in capital....... 319,315 -- -- 613,024A 932,339
Deferred non-cash
compensation.......... (28,104) -- -- -- (28,104)
Acquired company
equity................ -- 6,267 59,089 (65,356) --
Deficit.................. (242,840) -- -- -- (242,840)
--------- ------- -------- ---------- ----------
48,371 6,267 59,089 547,668 661,395
--------- ------- -------- ---------- ----------
Total liabilities and
shareholders' equity..... $ 312,915 $44,156 $104,087 $ 696,956 $1,158,114
========= ======= ======== ========== ==========
222
CORECOMM LIMITED
PRO FORMA CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 2000
(ATX EXCLUDING VOYAGER)
(IN THOUSANDS)
CORECOMM ATX PRO
(HISTORICAL) (HISTORICAL) ADJUSTMENTS FORMA
------------ ------------ ----------- --------
ASSETS:
Current assets:
Cash, cash equivalents and
securities................... $ 84,220 $ 3,531 $(52,000)A $ 35,751
Other current assets............ 17,794 26,414 -- 44,208
--------- ------- -------- --------
Total current assets.............. 102,014 29,945 (52,000) 79,959
Fixed assets, net................. 109,739 13,311 14,542A 137,592
Goodwill, net..................... 53,110 -- 584,140A 637,250
Local multipoint distribution
service license costs........... 25,366 -- -- 25,366
Other assets, net................. 22,686 900 (638)A 22,948
--------- ------- -------- --------
Total assets...................... $ 312,915 $44,156 $546,044 $903,115
========= ======= ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Current liabilities:
Other current liabilities....... $ 61,563 $36,444 $ -- $ 98,007
Current portion of debt and
capital leases............... 17,726 -- -- 17,726
Due to affiliates............... -- 1,445 -- 1,445
--------- ------- -------- --------
Total current liabilities......... 79,289 37,889 -- 117,178
Debt and capital leases........... 185,255 -- 119,000A 304,255
Deferred income taxes............. -- -- 5,090A 5,090
Shareholders' equity:
Preferred stock, Common stock
and additional paid-in
capital...................... 319,315 -- 428,221A 747,536
Deferred non-cash
compensation................. (28,104) -- -- (28,104)
Acquired company equity......... -- 6,267 (6,267) --
Deficit......................... (242,840) -- -- (242,840)
--------- ------- -------- --------
48,371 6,267 421,954 476,592
--------- ------- -------- --------
Total liabilities and
shareholders' equity............ $ 312,915 $44,156 $546,044 $903,115
========= ======= ======== ========
223
CORECOMM LIMITED
PRO FORMA CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 2000
(VOYAGER EXCLUDING ATX)
(IN THOUSANDS)
CORECOMM VOYAGER
(HISTORICAL) (HISTORICAL) ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ---------
ASSETS:
Current assets:
Cash, cash equivalents and
securities.................. $ 84,220 $ 12,330 $ (73,527)A,G,I $ 23,023
Other current assets........... 17,794 9,567 -- 27,361
--------- -------- --------- ---------
Total current assets............. 102,014 21,897 (73,527) 50,384
Fixed assets, net................ 109,739 25,525 10,372A 145,636
Goodwill, net.................... 53,110 -- 215,629A 268,739
Local multipoint distribution
service license costs.......... 25,366 -- -- 25,366
Other assets, net................ 22,686 56,665 (56,665)A 22,686
Affiliate receivable, net........ -- -- 9,785G 9,785
--------- -------- --------- ---------
Total assets..................... $ 312,915 $104,087 $ 105,594 $ 522,596
========= ======== ========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Current liabilities:
Other current liabilities...... $ 61,563 $ 15,974 $ -- $ 77,537
Current portion of debt and
capital leases.............. 17,726 3,158 -- 20,884
--------- -------- --------- ---------
Total current liabilities........ 79,289 19,132 -- 98,421
Debt and capital leases.......... 185,255 25,866 (23,750)I 187,371
Deferred income taxes............ -- -- 3,630A 3,630
Shareholders' equity:
Preferred stock, Common stock
and additional paid-in
capital..................... 319,315 -- 184,803A 504,118
Deferred non-cash
compensation................ (28,104) -- -- (28,104)
Acquired company equity........ -- 59,089 (59,089) --
Deficit........................ (242,840) -- -- (242,840)
--------- -------- --------- ---------
48,371 59,089 125,714 233,174
--------- -------- --------- ---------
Total liabilities and
shareholders' equity........... $ 312,915 $104,087 $ 105,594 $ 522,596
========= ======== ========= =========
224
CORECOMM LIMITED
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(INCLUDING ATX AND VOYAGER)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CORECOMM ATX VOYAGER
(HISTORICAL) (HISTORICAL) (PRO FORMA) ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ----------- ---------
REVENUES........................... $ 38,356 $76,566 $ 37,060 $ -- $ 151,982
COSTS AND EXPENSES
Operating.......................... 51,700 51,338 14,751 -- 117,789
Selling, general and
administrative................... 48,921 30,730 16,336 (4,235)J 91,752
Corporate.......................... 5,196 -- -- -- 5,196
Nonrecurring charges............... 1,018 -- -- -- 1,018
Non-cash compensation.............. 32,186 -- 50 --H 32,236
Depreciation and amortization...... 18,440 1,445 18,575 67,179C 105,639
--------- ------- -------- -------- ---------
157,461 83,513 49,712 62,944 353,630
--------- ------- -------- -------- ---------
Operating (loss)................... (119,105) (6,947) (12,652) (62,944) (201,648)
OTHER INCOME/EXPENSE
Interest and other income.......... 3,850 51 (1,248) (1,263)E 1,390
Interest expense................... (7,534) -- -- (5,881)D (13,415)
--------- ------- -------- -------- ---------
(Loss) before income taxes......... (122,789) (6,896) (13,900) (70,088) (213,673)
Income tax provision............... (272) -- -- -- (272)
--------- ------- -------- -------- ---------
Net (loss)......................... (123,061) (6,896) (13,900) (70,088) (213,945)
Preferred stock dividends.......... -- -- -- (3,750)F (3,750)
--------- ------- -------- -------- ---------
Net (loss) available to common
shareholders..................... $(123,061) $(6,896) $(13,900) $(73,838) $(217,695)
========= ======= ======== ======== =========
Net (loss) per common stock --basic
and fully diluted................ $ (3.12) $ (3.22)
========= =========
Weighted average shares
outstanding...................... 39,501 28,046 67,547
========= ======== =========
225
CORECOMM LIMITED
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(ATX EXCLUDING VOYAGER)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CORECOMM ATX
(HISTORICAL) (HISTORICAL) ADJUSTMENTS PRO FORMA
------------ ------------ -------------- ------------
REVENUES...................................... $ 38,356 $76,566 $ -- $ 114,922
COSTS AND EXPENSES
Operating..................................... 51,700 51,338 -- 103,038
Selling, general and administrative........... 48,921 30,730 (4,235)J 75,416
Corporate..................................... 5,196 -- -- 5,196
Nonrecurring charges.......................... 1,018 -- -- 1,018
Non-cash compensation......................... 32,186 -- --H 32,186
Depreciation and amortization................. 18,440 1,445 59,779C 79,664
--------- ------- -------- ---------
157,461 83,513 55,544 296,518
--------- ------- -------- ---------
Operating (loss).............................. (119,105) (6,947) (55,544) (181,596)
OTHER INCOME/EXPENSE
Interest and other income..................... 3,850 51 (780)E 3,121
Interest expense.............................. (7,534) -- (4,165)D (11,699)
--------- ------- -------- ---------
(Loss) before income taxes.................... (122,789) (6,896) (60,489) (190,174)
Income tax provision.......................... (272) -- -- (272)
--------- ------- -------- ---------
Net (loss).................................... (123,061) (6,896) (60,489) (190,446)
Preferred stock dividends..................... -- -- (3,750) F (3,750)
--------- ------- -------- ---------
Net (loss) available to common shareholders... $(123,061) $(6,896) $(64,239) $(194,196)
========= ======= ======== =========
Net (loss) per common stock -- basic and fully
diluted..................................... $ (3.12) $ (3.74)
========= =========
Weighted average shares outstanding........... 39,501 12,398 51,899
========= ======== =========
226
CORECOMM LIMITED
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(VOYAGER EXCLUDING ATX)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CORECOMM VOYAGER
(HISTORICAL) (PRO FORMA) ADJUSTMENTS PRO FORMA
------------ ----------- -------------- ------------
REVENUES................................. $ 38,356 $ 37,060 $ -- $ 75,416
COSTS AND EXPENSES
Operating................................ 51,700 14,751 -- 66,451
Selling, general and administrative...... 48,921 16,336 -- 65,257
Corporate................................ 5,196 -- -- 5,196
Nonrecurring charges..................... 1,018 -- -- 1,018
Non-cash compensation.................... 32,186 50 -- 32,236
Depreciation and amortization............ 18,440 18,575 7,400C 44,415
--------- -------- -------- ---------
157,461 49,712 7,400 214,573
--------- -------- -------- ---------
Operating (loss)......................... (119,105) (12,652) (7,400) (139,157)
OTHER INCOME/EXPENSE
Interest and other income................ 3,850 (1,248) (1,139)E 1,463
Interest expense......................... (7,534) -- 1,082D (6,452)
--------- -------- -------- ---------
(Loss) before income taxes............... (122,789) (13,900) (7,457) (144,146)
Income tax provision..................... (272) -- -- (272)
--------- -------- -------- ---------
Net (loss)............................... $(123,061) $(13,900) $ (7,457) $(144,418)
========= ======== ======== =========
Net (loss) per common stock -- basic and
fully diluted.......................... $ (3.12) $ (2.62)
========= =========
Weighted average shares outstanding...... 39,501 15,648 55,149
========= ======== =========
227
CORECOMM LIMITED
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
PRO FORMA ADJUSTMENTS FOR PROPOSED MERGERS -- FOR THE SIX MONTHS ENDED AND AS OF
JUNE 30, 2000
A. PURCHASE PRICE AND ALLOCATION OF PURCHASE PRICE:
BOTH ATX
ATX VOYAGER AND
ONLY ONLY VOYAGER
-------- -------- ------------
Shares of post-merger CoreComm common
stock to be issued (For ATX: $500
million/$40.328) (For Voyager:
31,655 shares X 0.4943)............. 12,398 15,648 28,046
CoreComm common stock price(1)......... $ 14.375 $ 11.81
-------- -------- --------
178,221 184,803 363,024
Preferred stock to be issued........... 250,000 -- 250,000
Three-year senior notes................ 119,000 -- 119,000
Estimated merger related costs......... 12,000 6,000 18,000
Cash consideration(2).................. 40,000 46,202 86,202
-------- -------- --------
Purchase price......................... 599,221 237,005 836,226
Net assets at June 30, 2000, after
reclassification of Voyager related
party receivables (see Adjustment
G).................................. 6,267 71,299 77,566
Less: Intangible assets................ (638) (56,665) (57,303)
-------- -------- --------
5,629 14,634 20,263
-------- -------- --------
Excess of purchase price over net
assets acquired..................... $593,592 $222,371 $815,963
======== ======== ========
Preliminary allocation to:
Fixed assets........................... $ 14,542 $ 10,372 $ 24,914
Deferred tax liability................. (5,090) (3,630) (8,720)
Intangible assets...................... 584,140 215,629 799,769
-------- -------- --------
$593,592 $222,371 $815,963
======== ======== ========
(1) The ATX share price was determined at the time of the third amendment to the
ATX merger agreement on July 31, 2000. The Voyager merger exchange ratio is
subject to adjustment if the average trading price prior to closing per
common share of CoreComm is greater than $56.97 or less than $41.17. The
ratio of cash and stock consideration that Voyager stockholders are entitled
to receive is subject to
228
CORECOMM LIMITED
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL DATA -- (CONTINUED)
(IN THOUSANDS)
adjustment if less than 80% of the value of the merger consideration would
be in the form of New CoreComm common stock based on the price prior to
closing. The Voyager share price is based on the closing price of CoreComm
common stock on August 10, 2000 of $11.81.
(2) The Voyager cash consideration was adjusted to represent 20% of the value of
the merger consideration.
The number of shares to be issued to ATX and Voyager stockholders may
change based on the share price of CoreComm's common stock. If the share price
of CoreComm's common stock were to exceed $46.38 and if the shares issued for
the ATX merger decrease by 100,000, the total price in accordance with the
purchase method of accounting would decrease by $1.4 million, which would be
allocated entirely to intangibles, and the related amount of amortization
expense would decrease by $0.3 million annually. If the average trading price
prior to closing per common share of CoreComm is less than $33.03, and if
Voyager does not elect to give a termination notice, for every $1.00 change in
the average trading price per common share of CoreComm from the $11.81 assumed
herein, the total price in accordance with the purchase method of accounting for
the Voyager merger would increase or decrease by approximately $11.5 million,
which would be allocated entirely to intangibles, and the related amount of
amortization expense would increase or decrease by approximately $2.3 million
annually.
The intangible assets arising from the ATX merger and the Voyager merger
may include customer lists, other intangibles and goodwill. The amount of each
individual intangible is not currently determinable. The amounts of each
intangible will be determined based on appraisals and other analyses. The
amortization period for each may vary, although it is assumed in Pro Forma
Adjustment C below, that 5 years is a representative blended amortization
period.
BOTH ATX
ATX VOYAGER AND
ONLY ONLY VOYAGER
------- -------- --------
B. MERGER FINANCING
Total cash consideration for
acquisitions........................... $ 86,202
Estimated merger related costs............ 18,000
Repayment of Voyager bank loan............ 23,750
--------
127,952
Less: CoreComm cash, cash equivalents and
securities at June 30, 2000............ (84,220)
--------
43,732
229
CORECOMM LIMITED
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL DATA -- (CONTINUED)
(IN THOUSANDS)
BOTH ATX
ATX VOYAGER AND
ONLY ONLY VOYAGER
------- -------- --------
Plus: Financing costs (assumed 3.5%)...... 1,586
--------
Total debt incurred(3).................... $ 45,318
========
C. DEPRECIATION AND AMORTIZATION
Depreciation of fixed asset allocation
(over 5 years)......................... $ 1,454 $ 1,037 $ 2,491
Amortization of intangibles (over 5
years)................................. 58,414 21,563 79,977
Historical amortization of intangibles.... (89) (15,200) (15,289)
------- -------- --------
$59,779 $ 7,400 $ 67,179
======= ======== ========
D. INTEREST EXPENSE
Interest on the borrowings utilized for
the transactions (3)................... $ -- $ -- $ 2,719
Amortization of fees on borrowings
recorded as deferred financing costs
(10 year term)......................... -- -- 79
Interest on the three-year senior notes at
7%..................................... 4,165 -- 4,165
Historical interest expense on Voyager
debt (4)............................... -- (1,082) (1,082)
------- -------- --------
$ 4,165 $ (1,082) $ 5,881
======= ======== ========
E. INTEREST INCOME
Reduction of interest income on cash on
hand used for acquisition.............. $ 780 $ 1,139 $ 1,263
======= ======== ========
F. PREFERRED STOCK DIVIDEND
Dividends at 3% on the post-merger
CoreComm convertible preferred stock to
be issued in the ATX
recapitalization....................... $ 3,750 $ -- $ 3,750
======= ======== ========
(3) As of June 30, 2000 CoreComm would have needed to finance approximately
$43.7 million of the cash consideration and repayment of the Voyager bank
loan assuming the completion of both mergers. The cash consideration for the
Voyager merger is subject to adjustment. The assumed interest rate used for
the pro forma data is 12.0%. As of June 30, 2000, CoreComm did not need any
additional financing to complete the ATX merger or the Voyager merger.
230
CORECOMM LIMITED
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL DATA -- (CONTINUED)
(IN THOUSANDS)
BOTH ATX
ATX VOYAGER AND
ONLY ONLY VOYAGER
------- -------- --------
G. RELATED PARTY TRANSACTIONS
Reclassification of related party
receivables and payable, net of amounts
settled in cash:
Reclassification.......................... $ 12,210 $ 12,210
Net cash (received)....................... (2,425) (2,425)
-------- --------
$ 9,785 $ 9,785
======== ========
H. PHANTOM UNIT COMPENSATION
Upon a change of control of ATX (which
includes the ATX merger), ATX will
record a compensation charge equal to
the fair market value of its currently
outstanding phantom units under its
Phantom Unit Plan less amounts
previously recorded. ATX estimated that
the fair market value will be $28.0
million................................ $28,000 $ -- $ 28,000
The expense related to the Phantom Unit
Plan has been excluded from the pro
forma condensed statement of operations
since it is a non-recurring charge..... (28,000) -- (28,000)
------- -------- --------
Net statement of operations impact........ $ -- $ -- $ --
======= ======== ========
I. LONG-TERM DEBT
Payment of Voyager debt (4)............... $ -- $ 23,750 $ 23,750
======= ======== ========
J. HISTORICAL PARTNER BONUSES
ATX provided for bonuses and certain other
compensation to its partners. Upon the
merger with CoreComm, the compensation
to these individuals will either cease
or be reduced to be more consistent
with compensation levels of other
members of management.................. $(4,235) $ -- $ (4,235)
======= ======== ========
(4) This facility will be repaid at the closing of the Voyager merger.
231
CORECOMM LIMITED
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(INCLUDING ATX AND VOYAGER)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED ACQUISITIONS PRO FORMA
----------------------------------------- FOR
CORECOMM MEGSINET USN COMPLETED
(HISTORICAL) (HISTORICAL) (HISTORICAL) ADJUSTMENTS ACQUISITIONS
------------ ------------ ------------ ----------- ------------
REVENUES................... $ 58,151 $ 2,785 $ 36,919 $ 97,855
COSTS AND EXPENSES
Operating.................. 58,561 3,740 33,784 96,085
Selling, general and
administrative............ 74,185 3,489 23,330 101,004
Corporate.................. 7,996 -- -- 7,996
Non-cash compensation...... 1,056 -- -- 1,056
Depreciation and
amortization.............. 19,578 1,679 4,883 $ 2,300A 28,440
--------- ------- -------- ------- ---------
161,376 8,908 61,997 2,300 234,581
--------- ------- -------- ------- ---------
Operating (loss)........... (103,225) (6,123) (25,078) (2,300) (136,726)
OTHER INCOME/EXPENSE
Interest and other
income.................... 5,773 27 (646) -- 5,154
Interest expense........... (5,341) (814) (5,405) 5,405B (6,155)
--------- ------- -------- ------- ---------
(Loss) before income
taxes..................... (102,793) (6,910) (31,129) 3,105 (137,727)
Income tax provision....... (731) -- -- -- (731)
--------- ------- -------- ------- ---------
Net (loss)................. (103,524) (6,910) (31,129) 3,105 (138,458)
Preferred stock
dividends................. -- -- -- -- --
--------- ------- -------- ------- ---------
Net (loss) available to
common shareholders....... $(103,524) $(6,910) $(31,129) $ 3,105 $(138,458)
========= ======= ======== ======= =========
Net (loss) per common
stock -- basic and fully
diluted................... $ (3.03) $ (3.74)
========= =========
Weighted average shares
outstanding............... 34,189 2,865 37,054
========= ======= =========
PROPOSED ACQUISITIONS PRO FORMA
---------------------------------------- FOR COMPLETED
ATX VOYAGER AND PROPOSED
(HISTORICAL) (PRO FORMA) ADJUSTMENTS ACQUISITIONS
------------ ----------- ----------- -------------
REVENUES................... $135,021 $ 64,997 $ 297,873
COSTS AND EXPENSES
Operating.................. 85,477 22,570 204,132
Selling, general and
administrative............ 49,393 27,475 $ (8,459)I 169,413
Corporate.................. -- -- -- 7,996
Non-cash compensation...... -- -- --H 1,056
Depreciation and
amortization.............. 1,820 36,873 143,614D 210,747
-------- -------- --------- ---------
136,690 86,918 135,155 593,344
-------- -------- --------- ---------
Operating (loss)........... (1,669) (21,921) (135,155) (295,471)
OTHER INCOME/EXPENSE
Interest and other
income.................... 119 914 (3,716)F 2,471
Interest expense........... (47) (5,478) (6,005)E (17,685)
-------- -------- --------- ---------
(Loss) before income
taxes..................... (1,597) (26,485) (144,876) (310,685)
Income tax provision....... -- -- -- (731)
-------- -------- --------- ---------
Net (loss)................. (1,597) (26,485) (144,876) (311,416)
Preferred stock
dividends................. -- -- (7,500)G (7,500)
-------- -------- --------- ---------
Net (loss) available to
common shareholders....... $ (1,597) $(26,485) $(152,376) $(318,916)
======== ======== ========= =========
Net (loss) per common
stock -- basic and fully
diluted................... $ (4.90)
=========
Weighted average shares
outstanding............... 28,046 65,100
========= =========
232
CORECOMM LIMITED
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(ATX EXCLUDING VOYAGER)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED ACQUISITIONS PROPOSED ACQUISITION
----------------------------------------- PRO FORMA --------------------------
CORECOMM MEGSINET USN FOR COMPLETED ATX
(HISTORICAL) (HISTORICAL) (HISTORICAL) ADJUSTMENTS ACQUISITIONS (HISTORICAL) ADJUSTMENTS
------------ ------------ ------------ ----------- ------------- ------------ -----------
REVENUES.................... $ 58,151 $ 2,785 $ 36,919 $ 97,855 $135,021
COSTS AND EXPENSES
Operating................... 58,561 3,740 33,784 96,085 85,477
Selling, general and
administrative............ 74,185 3,489 23,330 101,004 49,393 $ (8,459)I
Corporate................... 7,996 -- -- 7,996 -- --
Non-cash compensation....... 1,056 -- -- 1,056 -- --H
Depreciation and
amortization.............. 19,578 1,679 4,883 $2,300A 28,440 1,820 118,021D
--------- ------- -------- ------ --------- -------- ---------
161,376 8,908 61,997 2,300 234,581 136,690 109,562
--------- ------- -------- ------ --------- -------- ---------
Operating (loss)............ (103,225) (6,123) (25,078) (2,300) (136,726) (1,669) (109,562)
OTHER INCOME/EXPENSE
Interest and other income... 5,773 27 (646) -- 5,154 119 (1,560)F
Interest expense............ (5,341) (814) (5,405) 5,405B (6,155) (47) (8,330)E
--------- ------- -------- ------ --------- -------- ---------
(Loss) before income
taxes..................... (102,793) (6,910) (31,129) 3,105 (137,727) (1,597) (119,452)
Income tax provision........ (731) (731) -- --
--------- ------- -------- ------ --------- -------- ---------
Net (loss).................. (103,524) (6,910) (31,129) 3,105 (138,458) (1,597) (119,452)
Preferred stock dividends... -- -- -- -- -- -- (7,500)G
--------- ------- -------- ------ --------- -------- ---------
Net (loss) available to
common shareholders....... $(103,524) $(6,910) $(31,129) $3,105 $(138,458) $ (1,597) $(126,952)
========= ======= ======== ====== ========= ======== =========
Net (loss) per common
stock -- basic and
fully diluted............. $ (3.03) $ (3.74)
========= =========
Weighted average shares
outstanding............... 34,189 2,865 37,054 12,398
========= ====== ========= =========
PRO FORMA
FOR
COMPLETED
AND PROPOSED
ACQUISITIONS
-------------
REVENUES.................... $ 232,876
COSTS AND EXPENSES
Operating................... 181,562
Selling, general and
administrative............ 141,938
Corporate................... 7,996
Non-cash compensation....... 1,056
Depreciation and
amortization.............. 148,281
---------
480,833
---------
Operating (loss)............ (247,957)
OTHER INCOME/EXPENSE
Interest and other income... 3,713
Interest expense............ (14,532)
---------
(Loss) before income
taxes..................... (258,776)
Income tax provision........ (731)
---------
Net (loss).................. (259,507)
Preferred stock dividends... (7,500)
---------
Net (loss) available to
common shareholders....... $(267,007)
=========
Net (loss) per common
stock -- basic and
fully diluted............. $ (5.40)
=========
Weighted average shares
outstanding............... 49,452
=========
233
CORECOMM LIMITED
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(VOYAGER EXCLUDING ATX)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED ACQUISITIONS PROPOSED ACQUISITION
----------------------------------------- PRO FORMA -------------------------
CORECOMM MEGSINET USN FOR COMPLETED VOYAGER
(HISTORICAL) (HISTORICAL) (HISTORICAL) ADJUSTMENTS ACQUISITIONS (PRO FORMA) ADJUSTMENTS
------------ ------------ ------------ ----------- ------------- ----------- -----------
REVENUES............. $ 58,151 $ 2,785 $ 36,919 $ 97,855 $ 64,997
COSTS AND EXPENSES
Operating............ 58,561 3,740 33,784 96,085 22,570
Selling, general and
administrative..... 74,185 3,489 23,330 101,004 27,475
Corporate............ 7,996 -- -- 7,996 --
Non-cash
compensation....... 1,056 -- -- 1,056 --
Depreciation and
amortization....... 19,578 1,679 4,883 $2,300A 28,440 36,873 $ 25,593D
--------- ------- -------- ------ --------- -------- ---------
161,376 8,908 61,997 2,300 234,581 86,918 25,593
--------- ------- -------- ------ --------- -------- ---------
Operating (loss)..... (103,225) (6,123) (25,078) (2,300) (136,726) (21,921) (25,593)
OTHER INCOME/ EXPENSE
Interest and other
income............. 5,773 27 (646) -- 5,154 914 (2,156)F
Interest expense..... (5,341) (814) (5,405) 5,405B (6,155) (5,478) 2,325E
--------- ------- -------- ------ --------- -------- ---------
(Loss) before income
taxes.............. (102,793) (6,910) (31,129) 3,105 (137,727) (26,485) (25,424)
Income tax
provision.......... (731) -- -- -- (731) -- --
--------- ------- -------- ------ --------- -------- ---------
Net (loss)........... $(103,524) $(6,910) $(31,129) $3,105 $(138,458) $(26,485) $ (25,424)
========= ======= ======== ====== ========= ======== =========
Net (loss) per common
stock -- basic and
fully diluted...... $ (3.03) $ (3.74)
========= =========
Weighted average
shares
outstanding........ 34,189 2,865 37,054 15,648
========= ====== ========= =========
PRO FORMA
FOR
COMPLETED
AND PROPOSED
ACQUISITIONS
-------------
REVENUES............. $ 162,852
COSTS AND EXPENSES
Operating............ 118,655
Selling, general and
administrative..... 128,479
Corporate............ 7,996
Non-cash
compensation....... 1,056
Depreciation and
amortization....... 90,906
---------
347,092
---------
Operating (loss)..... (184,240)
OTHER INCOME/ EXPENSE
Interest and other
income............. 3,912
Interest expense..... (9,308)
---------
(Loss) before income
taxes.............. (189,636)
Income tax
provision.......... (731)
---------
Net (loss)........... $(190,367)
=========
Net (loss) per common
stock -- basic and
fully diluted...... $ (3.61)
=========
Weighted average
shares
outstanding........ 52,702
=========
234
CORECOMM LIMITED
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
PRO FORMA ADJUSTMENTS FOR COMPLETED ACQUISITIONS -- FOR THE YEAR ENDED DECEMBER
31, 1999
A. DEPRECIATION AND AMORTIZATION
Amortization of intangibles................. $ 5,053
To adjust USN depreciation for fixed assets
not acquired and for the write down of
the fixed assets acquired to fair
value.................................... (2,753)
--------
$ 2,300
========
B. DEBT NOT ASSUMED
To eliminate USN interest expense from debt
not assumed.............................. $ 5,405
========
PRO FORMA ADJUSTMENTS FOR PROPOSED MERGERS -- FOR THE YEAR ENDED DECEMBER 31,
1999
C. PURCHASE PRICE AND ALLOCATION OF PURCHASE
PRICE:
BOTH ATX
ATX VOYAGER AND
ONLY ONLY VOYAGER
-------- -------- ------------
Shares of post-merger CoreComm common stock
to be issued (For ATX: $500
million/$40.328) (For Voyager: 31,655
shares X 0.4943)........................ 12,398 15,648 28,046
CoreComm common stock price (1)............ $ 14.375 $ 11.81
-------- -------- --------
178,221 184,803 363,024
Preferred stock to be issued............... 250,000 -- 250,000
Three-year senior notes.................... 119,000 -- 119,000
Estimated merger related costs............. 12,000 6,000 18,000
Cash consideration (2)..................... 40,000 46,202 86,202
-------- -------- --------
Purchase price............................. 599,221 237,005 836,226
Net assets at December 31, 1999, after
reclassification of Voyager related
party receivables....................... 13,564 85,022 98,586
Less: Intangible assets.................... (727) (66,639) (67,366)
-------- -------- --------
12,837 18,383 31,220
-------- -------- --------
Excess of purchase price over net assets
acquired................................ $586,384 $218,622 $805,006
======== ======== ========
235
CORECOMM LIMITED
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL DATA -- (CONTINUED)
(IN THOUSANDS)
BOTH ATX
ATX VOYAGER AND
ONLY ONLY VOYAGER
-------- -------- ------------
Preliminary allocation to:
Fixed assets............................... $ 13,186 $ 7,069 $ 20,255
Deferred tax liability..................... (4,615) (2,474) (7,089)
Intangible assets.......................... 577,813 214,027 791,840
-------- -------- --------
$586,384 $218,622 $805,006
======== ======== ========
(1) The ATX share price was determined at the time of the third amendment to the
ATX merger agreement on July 31, 2000. The Voyager merger exchange ratio is
subject to adjustment if the average trading price prior to closing per
common share of CoreComm is greater than $56.97 or less than $41.17. The
ratio of cash and stock consideration that Voyager stockholders are entitled
to receive is subject to adjustment if less than 80% of the value of the
merger consideration would be in the form of New CoreComm common stock based
on the price prior to closing. The Voyager share price is based on the
closing price of CoreComm common stock on August 10, 2000 of $11.81.
(2) The Voyager cash consideration was adjusted to represent 20% of the value of
the merger consideration.
The number of shares to be issued to ATX and Voyager stockholders may
change based on the share price of CoreComm's common stock. If the share price
of CoreComm's common stock were to exceed $46.38 and if the shares issued for
the ATX merger decrease by 100,000, the total price in accordance with the
purchase method of accounting would decrease by $1.4 million, which would be
allocated entirely to intangibles, and the related amount of amortization
expense would decrease by $.03 million annually. If the average trading price
prior to closing per common share of CoreComm is less than $33.03, and if
Voyager does not elect to give the termination notice, for every $1.00 change in
the average trading price per common share of CoreComm from the $11.81 assumed
herein, the total price in accordance with the purchase method of accounting for
the Voyager merger would increase or decrease by approximately $11.5 million,
which would be allocated entirely to intangibles, and the related amount of
amortization expense would increase or decrease by approximately $2.3 million
annually.
The intangible assets arising from the ATX merger and the Voyager merger
may include customer lists, other intangibles and goodwill. The amount of each
individual intangible is not currently determinable. The amounts of each
intangible will be determined based on appraisals and other analyses. The
amortization period for each may vary, although it is
236
CORECOMM LIMITED
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL DATA -- (CONTINUED)
(IN THOUSANDS)
assumed in Pro Forma Adjustment D below, that 5 years is a representative
blended amortization period.
BOTH ATX
ATX VOYAGER AND
ONLY ONLY VOYAGER
-------- ------- ------------
D. DEPRECIATION AND AMORTIZATION
Depreciation of fixed asset allocation (over
5 years).................................. $ 2,637 $ 1,414 $ 4,051
Amortization of intangibles (over 5 years) 115,563 42,805 158,368
Historical amortization of intangibles....... (179) (18,626) (18,805)
-------- ------- --------
$118,021 $25,593 $143,614
======== ======= ========
E. INTEREST EXPENSE
Interest on the three-year senior notes at
7%........................................ 8,330 -- 8,330
Historical interest expense on Voyager debt
(3)....................................... -- (2,325) (2,325)
-------- ------- --------
$ 8,330 $(2,325) $ 6,005
======== ======= ========
F. INTEREST INCOME
Reduction of interest income on cash on hand
used for acquisition...................... $ 1,560 $ 2,156 $ 3,716
======== ======= ========
G. PREFERRED STOCK DIVIDEND
Dividends at 3% on the post-merger CoreComm
convertible preferred stock to be issued
in the ATX recapitalization............... $ 7,500 $ -- $ 7,500
======== ======= ========
H. PHANTOM UNIT COMPENSATION
Upon a change of control of ATX (which
includes the ATX merger), ATX will record
a compensation charge equal to the fair
market value of its currently outstanding
phantom units under its Phantom Unit Plan
less amounts previously recorded. ATX
estimated that the fair market value will
be $28.0 million.......................... $ 28,000 $ -- $ 28,000
237
CORECOMM LIMITED
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL DATA -- (CONTINUED)
(IN THOUSANDS)
BOTH ATX
ATX VOYAGER AND
ONLY ONLY VOYAGER
-------- ------- ------------
The expense related to the Phantom Unit Plan
has been excluded from the pro forma
condensed statement of operations since it
is a non-recurring charge................. (28,000) -- (28,000)
-------- ------- --------
Net statement of operations impact $ -- $ -- $ --
======== ======= ========
I. HISTORICAL PARTNER BONUSES
ATX provided for bonuses and certain other
compensation to its partners. Upon the
merger with CoreComm, the compensation to
these individuals will either cease or be
reduced to be more consistent with
compensation levels of other members of
management................................ $ (8,459) $ -- $ (8,459)
======== ======= ========
(3) This facility will be repaid at the closing of the Voyager merger.
238
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CORECOMM FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For more information on the management's discussion and analysis of
CoreComm's financial condition and results of operations, please refer to
CoreComm's Quarterly Report on Form 10-Q for the six months ended June 30, 2000
and Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
Please refer to the section of this joint proxy statement and prospectus
entitled "Where You Can Find More Information" in order to find out where you
can obtain copies of CoreComm's Quarterly Report and Annual Report as well as
the other documents CoreComm files with the SEC.
239
VOYAGER.NET, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
During the year ended December 31, 1999 and the months ended June 30, 2000,
Voyager.net (the "Company") completed twenty business acquisitions as follows:
COMPANY DATE
------- --------
Hoosier On-Line Systems, Inc. .............................. 1/15/99
Infinite Systems, Ltd. ..................................... 2/24/99
Exchange Network Services, Inc. ............................ 3/10/99
StarNet, Inc. .............................................. 4/23/99
GDR Enterprises, Inc. ...................................... 5/7/99
PCLink.com.................................................. 6/4/99
Core Digital Communications, Inc. .......................... 6/17/99
American Information Services, Inc. ........................ 6/25/99
Data Management Consultants, Inc. .......................... 9/2/99
NetDirect................................................... 9/8/99
Raex........................................................ 9/14/99
Internet Connection Services, LLC........................... 9/21/99
MichWeb, Inc. .............................................. 9/22/99
ComNet, LLC................................................. 10/4/99
Choice Dot Net, LLC......................................... 10/7/99
TDI Internet Services, Inc. ................................ 10/7/99
Internet Illinois........................................... 11/9/99
Wholesale ISP............................................... 12/10/99
Valley Business Equipment, Inc. ............................ 2/11/00
Livingston Internet Service................................. 3/12/00
These acquisitions were accounted for using the purchase method of
accounting. Accordingly, the purchase prices were allocated to assets acquired
and liabilities assumed based upon their estimated fair values at the dates of
acquisitions.
Condensed pro forma financial statements are presented for the companies
listed above with the following exceptions. The pro forma combined historical
results for Starnet, Inc., American Information Services, Inc., and Internet
Connection Services, LLC were not deemed to be material and are not included for
the year ended December 31, 1999. The unaudited pro forma condensed consolidated
statement of operations for the year ended December 31, 1999 assumes, that for
the acquired entities presented, that the acquisitions in 1999 and 2000 had
occurred on January 1, 1999. The unaudited pro forma condensed consolidated
statement of operations for the six months ended June 30, 2000 assumes, that for
the acquired entities presented, that the acquisition in 2000 had occurred on
January 1, 2000. The unaudited pro forma condensed consolidated statements of
operations are not necessarily indicative of the results of operations that
would actually have occurred if the transactions had been consummated as of
January 1, 1999 and January 1, 2000 and are not intended to indicate the
expected results for any future period. These statements should be read in
conjunction with the historical consolidated financial statements and related
notes of Voyager.net, and certain acquired businesses, included herein.
240
VOYAGER.NET, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
PRE-ACQUISITION RESULTS
----------------------------
LIVINGSTON
INTERNET VALLEY BUSINESS
VOYAGER.NET, INC. SERVICE EQUIPMENT, INC. ADJUSTMENTS TOTAL
----------------- ---------- --------------- ----------- ------------
Revenue:
Internet access
service.............. $36,484,158 $48,048 $281,651 $ 36,813,857
Other................... 245,901 -- -- 245,901
------------ ------- -------- ------------
Total revenue........ 36,730,059 48,048 281,651 37,059,758
Internet access service
costs................... 14,628,026 15,721 107,335 14,751,082
Sales and marketing....... 4,358,192 2,077 2,789 4,363,058
General and
administrative.......... 11,912,961 18,899 40,763 11,972,623
Depreciation and
amortization............ 18,377,773 578 23,956 $ 173,042A 18,575,349
Compensation charge for
issuance of common stock
and options............. 50,000 -- -- -- 50,000
------------ ------- -------- --------- ------------
Total operating
expenses................ 49,326,952 37,275 174,843 173,042 49,712,112
------------ ------- -------- --------- ------------
Total operating income
(loss).................. (12,596,893) 10,773 106,808 (173,042) (12,652,354)
Other (expense)........... (1,197,842) -- (423) (49,426)B (1,247,691)
------------ ------- -------- --------- ------------
Net income (loss)
applicable to common
stockholders............ $(13,794,735) $10,773 $106,385 $(222,468) $(13,900,045)
============ ======= ======== ========= ============
BASIC AND DILUTED NET
(LOSS) PER SHARE........ $ (0.44) $ (0.44)
============ ============
BASIC AND DILUTED WEIGHTED
AVERAGE SHARES.......... 31,653,466 31,653,466
============ ============
See accompanying notes to pro forma condensed consolidated financial statements.
241
VOYAGER.NET, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
A. Acquired customer bases in the amount of $4.3 million are being amortized
over a three-year period beginning January 1, 2000 as if the acquisitions
had occurred on that date.
B. Voyager.net utilized $4.4 million of its revolving credit facility to
complete the acquisitions in 2000. Additional interest expense on the
related debt would have been approximately $0.5 million. The assumed
interest rate was 8.5% for all periods presented.
242
VOYAGER.NET, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
PRE-ACQUISITION RESULTS
--------------------------------------------------------------------------
HOOSIER EXCHANGE CORE
ON-LINE INFINITE NETWORK GDR DIGITAL
SYSTEMS, SYSTEMS, SYSTEMS, ENTERPRISES, PC COMMUNICATIONS,
VOYAGER.NET INC. LTD. INC. INC. LINK.COM INC.
------------ -------- -------- -------- ------------ -------- ---------------
Revenue:
Internet access
service................ $ 47,423,462 $8,889 $454,034 $386,419 $1,528,411 $622,055 $589,127
Other.................... 1,074,173 -- -- -- -- 21,912 4,900
------------ ------ -------- -------- ---------- -------- --------
Total revenue.......... 48,497,635 8,889 454,034 386,419 1,528,411 643,967 594,027
------------ ------ -------- -------- ---------- -------- --------
Internet access service
costs.................... 15,933,377 871 221,248 186,210 426,057 86,505 93,384
Sales and marketing....... 6,401,810 652 19,570 24,904 101,678 8,552 7,505
General and
administrative........... 14,150,924 4,528 99,523 186,572 565,492 246,932 164,786
Depreciation and
amortization............. 23,836,385 3,371 -- 20,215 231,590 49,291 --
Compensation charge for
issuance of common stock
and options.............. 2,563,311
------------ ------ -------- -------- ---------- -------- --------
Total operating
expenses................. 62,885,807 9,422 340,341 417,901 1,324,817 391,280 265,675
------------ ------ -------- -------- ---------- -------- --------
Total operating income
(loss)................... (14,388,172) (533) 113,693 (31,482) 203,594 252,687 328,352
Other income (expense).... (1,740,777) (454) -- -- (73,718) 853 1,068
------------ ------ -------- -------- ---------- -------- --------
Net income (loss)......... (16,128,949) (987) 113,693 (31,482) 129,876 253,540 329,420
Preferred stock,
dividends................ (367,265) -- -- -- -- -- --
------------ ------ -------- -------- ---------- -------- --------
Net income (loss)
applicable to common
stockholders............. $(16,496,214) $ (987) $113,693 $(31,482) $ 129,876 $253,540 $329,420
============ ====== ======== ======== ========== ======== ========
Basic and diluted earnings
per share................ $ (.61)
============
Basic and diluted weighted
average shares........... 27,238,084
============
PRE-ACQUISITION RESULTS
------------------------------------------------------------------------------------------------------
DATA TDI
MANAGEMENT INTERNET
CONSULTANTS, MICHWEB, NET RAEX COMNET, CHOICE DOT SERVICES, INTERNET
INC. INC. DIRECT INC. CORPORATION LLC NET, LLC INC. ILLINOIS
------------ -------- ----------- ----------- ---------- ---------- --------- ----------
Revenue:
Internet access
service................ $ 900,772 $187,699 $1,642,916 $1,512,851 $1,691,114 $814,801 $834,939 $ 995,842
Other.................... -- 17,409 -- 19,458 -- -- 83,310 --
--------- -------- ---------- ---------- ---------- -------- -------- ----------
Total revenue.......... 900,772 205,108 1,642,916 1,532,309 1,691,114 814,801 918,249 995,842
--------- -------- ---------- ---------- ---------- -------- -------- ----------
Internet access service
costs.................... 494,975 82,726 647,774 609,257 865,106 427,697 160,305 366,872
Sales and marketing....... 28,825 1,739 220,163 68,320 40,089 26,848 4,735 32,513
General and
administrative........... 319,062 111,122 685,977 812,784 756,287 240,263 583,512 109,462
Depreciation and
amortization............. 56,749 22,331 179,034 123,480 251,235 20,427 21,340 16,001
Compensation charge for
issuance of common stock
and options..............
--------- -------- ---------- ---------- ---------- -------- -------- ----------
Total operating
expenses................. 899,611 217,918 1,682,948 1,613,841 1,912,717 715,235 769,892 524,848
--------- -------- ---------- ---------- ---------- -------- -------- ----------
Total operating income
(loss)................... 1,161 (12,810) (40,032) (81,532) (221,603) 99,566 148,357 470,994
Other income (expense).... -- -- (20,237) (1,206) (2,960) 4,376 -- --
--------- -------- ---------- ---------- ---------- -------- -------- ----------
Net income (loss)......... 1,161 (12,810) (60,269) (82,738) (224,563) 103,942 148,357 470,994
Preferred stock,
dividends................ -- -- -- -- -- -- -- --
--------- -------- ---------- ---------- ---------- -------- -------- ----------
Net income (loss)
applicable to common
stockholders............. $ 1,161 $(12,810) $ 60,269 $ (82,738) $ (224,563) $103,942 $148,357 $ 470,994
========= ======== ========== ========== ========== ======== ======== ==========
Basic and diluted earnings
per share................
Basic and diluted weighted
average shares...........
PRE-ACQUISITION RESULTS
----------
VALLEY
BUSINESS LIVINGSTON
WHOLESALE EQUIPMENT, INTERNET
ISP INC. SERVICE ADJUSTMENTS TOTAL
---------- ---------- ---------- ------------ ------------
Revenue:
Internet access
service................ $2,318,653 $1,621,987 $232,630 $ 63,766,601
Other.................... 8,988 -- -- 1,230,150
---------- ---------- ------------
Total revenue.......... 2,327,641 1,621,987 232,630 64,996,751
---------- ---------- --------
Internet access service
costs.................... 1,123,280 780,715 63,808 22,570,167
Sales and marketing....... 104,645 28,652 13,078 7,134,278
General and
administrative........... 853,520 297,855 152,472 20,341,173
Depreciation and
amortization............. 233,583 238,757 10,148 $ 11,607,802A 36,872,739
Compensation charge for
issuance of common stock
and options.............. -- -- (2,563,311)B --
---------- ---------- -------- ------------ ------------
Total operating
expenses................. 2,315,028 1,347,078 239,508 9,044,491 86,918,357
---------- ---------- -------- ------------ ------------
Total operating income
(loss)................... 12,613 274,808 (6,876) (9,044,491) (21,921,606)
Other income (expense).... 2,401 (5,277) -- (2,727,855)C (4,563,786)
---------- ---------- -------- ------------ ------------
Net income (loss)......... 15,014 269,631 (6,876) (11,272,346) (26,485,392)
Preferred stock,
dividends................ -- -- -- -- (367,265)
---------- ---------- -------- ------------ ------------
Net income (loss)
applicable to common
stockholders............. $ 15,014 $ 269,631 $ (6,876) $(11,772,346) $(26,852,657)
========== ========== ======== ============ ============
Basic and diluted earnings
per share................ $ (.99)
============
Basic and diluted weighted
average shares........... 27,238,084
============
243
VOYAGER.NET, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
A. Acquired customer bases in the amount of $58.4 million are being amortized
over a three-year period beginning January 1, 1999 as if the acquisitions
had occurred on that date.
B. The expense related to the issuance of common stock and options has been
excluded from the pro forma condensed consolidated statement of operations
since it is a non-recurring charge.
C. Voyager.net utilized $51.2 million of its revolving credit facility to
complete the acquisitions in 1999 and in 2000. Additional interest expense
on the related debt would have been approximately $2.7 million. The assumed
interest rate was 8.5% for all periods presented.
244
VOYAGER.NET, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
VOYAGER FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT ACCOUNTING INTERPRETATION
On December 3, 1999, the SEC issued Staff Accounting Bulletin 101, Revenue
Recognition in Financial Statements. SAB 101 summarizes some of the SEC's
interpretations of the application of generally accepted accounting principles
to revenue recognition. Revenue recognition under SAB 101 was initially
effective for the Company's first quarter 2000 financial statements. However,
SAB 101B, which was released June 26, 2000, delayed adoption of SAB 101 until no
later than the fourth fiscal quarter 2000. Changes resulting from SAB 101
require that a cumulative effect of such changes for 1999 and prior years be
recorded as an adjustment to net income on January 1, 2000 plus adjust the
statement of operations for the three months ended in the quarter of adoption.
Although Voyager is still in the process of reviewing SAB 101, it believes
that its revenue recognition practices are in substantial compliance with SAB
101 for the year ending December 31, 2000 or that adoption of its provisions
would not be material to its annual or quarterly results of operations.
ACQUISITIONS
Voyager's acquisition strategy was designed to leverage its existing
network and administrative operations to allow it to enter new markets within
the Midwest, as well as to expand its presence in existing markets, and to
realize economies of scale. Since December 31, 1999 Voyager has acquired two
Internet service provider businesses in the Midwest totaling approximately
12,200 subscribers. Below is a summary of Voyager's completed acquisitions, with
the number of subscribers acquired at the respective date of acquisition:
COMPANY DATE LOCATION CUSTOMERS
------- --------- ----------- ---------
Valley Business Equipment.............. Feb. 2000 Oshkosh, WI 11,000
Livingston Online...................... Mar. 2000 Howell, MI 1,200
As a result of the Voyager merger agreement, all acquisition activity has
been halted.
245
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statement of operations
data for the three and six months ended June 30, 2000 and 1999. This information
should be read in conjunction with Voyager's consolidated financial statements
and notes.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
Revenue:
Internet access service.......... $18,445 $10,538 $36,484 $18,943
Other............................ 173 176 246 290
------- ------- ------- -------
Total revenue....................... 18,618 10,714 36,730 19,233
------- ------- ------- -------
Operating expenses:
Internet access service costs.... 7,399 3,602 14,628 6,392
Sales and marketing.............. 2,221 1,229 4,358 2,198
General and administrative....... 5,931 3,081 11,913 5,544
Depreciation and amortization.... 10,167 5,005 18,378 8,532
Compensation charge for issuance
of common stock and stock
options....................... 25 1,044 50 2,509
------- ------- ------- -------
Total operating expenses............ 25,743 13,961 49,327 25,175
------- ------- ------- -------
Loss from operations before interest
expense, net..................... (7,125) (3,247) (12,597) (5,942)
Other expense, net.................. (792) (1,043) (1,198) (1,814)
------- ------- ------- -------
Net loss............................ (7,917) (4,290) (13,795) (7,756)
======= ======= ======= =======
EBITDA Margin....................... 16.5% 26.2% 15.9% 26.5%
======= ======= ======= =======
Three Months Ended June 30, 2000 Compared to June 30, 1999
Revenues. Total consolidated revenues increased from $10.7 million for
the three months ended June 30, 1999 to $18.6 million for the three months ended
June 30, 2000, representing an increase of 74%. The revenue growth was primarily
driven by the increase in Voyager's customer base from approximately 222,000 at
June 30, 1999 to approximately 368,000 at June 30, 2000. The growth in customers
was the result of both organic growth and acquisition activity; Voyager
experienced internal growth from its effort to provide high quality customer and
technical service and support, geographic expansion in its coverage areas and
low customer churn rates.
Internet access service costs. Internet access service costs increased
from $3.6 million for the three months ended June 30, 1999 to $7.4 million for
the three months ended June 30, 2000. Internet access service costs as a percent
of revenue increased from 34% for the three months ended June 30, 1999 to 40%
for the three months ended June 30, 2000 due to investments in our network
infrastructure and call centers. The increase in spending was primarily a result
of an increase in customers and their associated network expenses and an
increase in billing costs.
246
Sales and marketing. Sales and marketing expenses increased from $1.2
million for the three months ended June 30, 1999 to $2.2 million for the three
months ended June 30, 2000. The increase in spending was primarily attributable
to the growth in Voyager's customer base and support functions and the expansion
of its geographic coverage area. As a percent of revenue, sales and marketing
costs remained relatively constant at approximately 11% to 12% for the three
months ended June 30, 1999 and 2000.
General and administrative. General and administrative expenses increased
from $3.0 million for the three months ended June 30, 1999 to $5.9 million for
the three months ended June 30, 2000. The absolute increase in spending was due
to the growth of Voyager's business and the administrative functions necessary
to support Voyager's growth. As a percentage of revenue, general and
administrative costs increased from 28% for the three months ended June 30, 1999
to 32% for the three months ended June 30, 2000 due to additional recurring
expenses as a result of Voyager's initial public offering on July 21, 1999.
These recurring expenses included public relations, investor relations, and
increases in legal, audit, and insurance. Additional expenses are a result of
additional staff requirements as a result of Voyager's growth from June 30, 1999
to June 30, 2000.
Depreciation and amortization. Depreciation and amortization expenses
increased from $5.0 million for the three months ended June 30, 1999 to $10.2
million for the three months ended June 30, 2000. This increase was primarily a
result of the amortization of intangible assets related to acquiring Voyager's
customer base since June 30, 1998, as well as increased capital spending for
expanded network operations and infrastructure.
Compensation charge for issuance of common stock and stock
options. Voyager incurred a charge of $1.0 million for the three months ended
June 30, 1999 and $25,000 for the three months ended June 30, 2000 related to
the issuance of common stock and stock options. The amount of this charge was
based on the issuance and grant of common stock and options at purchase and
exercise prices below fair market value and a charge to reflect vesting of
previously issued common stock or options granted. Voyager believes these
charges to be non-recurring in nature because it expects to issue all future
shares and stock options at prices that approximate market value. However, some
unvested options to purchase common stock will continue to vest over the next
four years, which will result in additional compensation expense of
approximately $76,000 in periods subsequent to June 30, 2000.
Other expenses, net. Other expenses, net decreased from $1.0 million for
the three months ended June 30, 1999 to $0.7 million for the three months ended
June 30, 2000. This decrease is the net result of interest income on notes
receivable from related parties offset by a higher average balance on Voyager's
line-of-credit which was used to fund acquisitions completed during 1999 and
2000.
Net loss. As a result of the above, Voyager reported net loss of $4.5
million, or $0.19 per share applicable to common stockholders, for the three
months ended June 30, 1999 as compared to net loss of $7.9 million, or $0.25 per
share applicable to common stockholders, for the three months ended June 30,
2000.
247
EBITDA. EBITDA increased from $2.8 million for the three months ended
June 30, 1999 to $3.1 million for the three months ended June 30, 2000. EBITDA
represents earnings before interest, taxes, depreciation, amortization and
non-recurring, non-cash compensation charges. EBITDA is provided because it is a
measure commonly used by investors to analyze and compare companies on the basis
of operating performance. EBITDA is not a measurement of financial performance
under generally accepted accounting principles and should not be construed as a
substitute for operating income, net income or cash flows from operating
activities for purposes of analyzing our operating performance, financial
position and cash flows. EBITDA, as calculated by Voyager, is not necessarily
comparable with similarly titled measures for other companies.
Six Months Ended June 30, 2000 Compared to June 30, 1999
Revenues. Total consolidated revenues increased from $19.2 million for
the six months ended June 30, 1999 to $36.7 million for the six months ended
June 30, 2000, representing an increase of 91%. The revenue growth was primarily
driven by the increase in Voyager's customer base from approximately 222,000 at
June 30, 1999 to approximately 368,000 at June 30, 2000. The growth in customers
was the result of both organic growth and acquisition activity. Voyager
experienced internal growth from its effort to provide high quality customer and
technical service and support, geographic expansion in its coverage areas and
low customer churn rates.
Internet access service costs. Internet access service costs increased
from $6.4 million for the six months ended June 30, 1999 to $14.6 million for
the three months ended June 30, 2000. Internet access service costs as a percent
of revenue increased from 33% for the six months ended June 30, 1999 to 40% for
the six months ended June 30, 2000 due to investments in Voyager's network
infrastructure and call centers. The increase in spending period over period was
primarily a result of an increase in customers and their associated network
expenses and an increase in billing costs.
Sales and marketing. Sales and marketing expenses increased from $2.2
million for the six months ended June 30, 1999 to $4.4 million for the six
months ended June 30, 2000. The increase in spending was primarily attributable
to the growth in Voyager's customer base and support functions and the expansion
of its geographic coverage area. As a percent of revenue, sales and marketing
costs remained relatively constant at approximately 11% to 12% for the six
months ended June 30, 1999 and 2000.
General and administrative. General and administrative expenses increased
from $5.5 million for the six months ended June 30, 1999 to $11.9 million for
the six months ended June 30, 2000. The absolute increase in spending was due to
the growth of Voyager's business and the administrative functions necessary to
support its growth. As a percentage of revenue, general and administrative costs
increased from 29% for the six months ended June 30, 1999 to 32% for the six
months ended June 30, 2000 due to additional recurring expenses as a result of
Voyager's initial public offering on July 21, 1999. These recurring expenses
included public relations, investor relations, and increases in legal, audit,
and insurance. Additional expenses are a result of additional staff
248
requirements as a result of Voyager's growth from June 30, 1999 to June 30,
2000. Headcount for General and Administrative staffing increased 41% from June
30, 1999 to June 30, 2000.
Depreciation and amortization. Depreciation and amortization expenses
increased from $8.5 million for the six months ended June 30, 1999 to $18.4
million for the six months ended June 30, 2000. This increase was primarily a
result of the amortization of intangible assets related to acquiring Voyager's
customer base since June 30, 1998, as well as increased capital spending for
expanded network operations and infrastructure.
Compensation charge for issuance of common stock and stock options.
Voyager incurred a charge of $2.5 million for the six months ended June 30, 1999
and $50,000 for the six months ended June 30, 2000 related to the issuance of
common stock and stock options. The amount of this charge was based on the
issuance and grant of common stock and options at purchase and exercise prices
below fair market value and a charge to reflect vesting of previously issued
common stock or options granted. Voyager believes these charges to be
non-recurring in nature because it expects to issue all future shares and stock
options at prices that approximate market value. However, some unvested options
to purchase common stock will continue to vest over the next four years, which
will result in additional compensation expense of approximately $76,000 in
periods subsequent to June 30, 2000.
Other expenses, net. Other expenses, net decreased from $1.8 million for
the six months ended June 30, 1999 to $1.2 for the six months ended June 30,
2000. This decrease is the net result of interest income on notes receivable
from related parties offset by a higher average balance on Voyager's
line-of-credit which was used to fund acquisitions completed during 1998, 1999
and 2000.
Net loss. As a result of the above, Voyager reported net loss of $7.8
million, or $0.35 per share applicable to common stockholders, for the six
months ended June 30, 1999 as compared to net loss of $13.8 million, or $0.44
per share applicable to common stockholders, for the six months ended June 30,
2000.
EBITDA. EBITDA increased from $5.1 million for the six months ended June
30, 1999 to $5.8 million for the six months ended June 30, 2000. EBITDA
represents earnings before interest, taxes, depreciation, amortization and
non-recurring, non-cash compensation charges. EBITDA is provided because it is a
measure commonly used by investors to analyze and compare companies on the basis
of operating performance. EBITDA is not a measurement of financial performance
under generally accepted accounting principles and should not be construed as a
substitute for operating income, net income or cash flows from operating
activities for purposes of analyzing our operating performance, financial
position and cash flows. EBITDA, as calculated by Voyager, is not necessarily
comparable with similarly titled measures for other companies.
249
Fiscal Year Ended December 31, 1999 Compared to Fiscal Year Ended December 31,
1998
Revenues. Total consolidated revenues increased from $10.7 million for
the twelve months ended December 31, 1998 to $48.5 million for the twelve months
ended December 31, 1999, representing an increase of 353.2%. The revenue growth
was driven by the increase in Voyager's customer base from approximately 142,000
at December 31, 1998 to approximately 336,000 at December 31, 1999. The growth
in customers was primarily the result of Voyager's acquisition activity and
strong internal growth from Voyager's effort to provide high quality customer
and technical service and support, geographic expansion in Voyager's coverage
areas and low customer churn rates.
Internet Access Service Costs. Internet access service costs increased
from $3.6 million for the twelve months ended December 31, 1998 to $15.9 million
for the twelve months ended December 31, 1999. The increase in absolute spending
for the twelve months ended December 31, 1999 was primarily the result of an
increase in customers and their associated network expenses and an increase in
billing expenses for the increased customer base. Internet access service costs
as a percent of revenue decreased from 33.7% for the twelve months ended
December 31, 1998 to 32.9% for the twelve months ended December 31, 1999 due to
improved telecommunication contracts and economies of scale, partially offset by
higher telecommunication costs being incurred by the entities acquired during
September and October.
Sales and Marketing. Sales and marketing expenses increased from $2.0
million for the twelve months ended December 31, 1998 to $6.4 million for the
twelve months ended December 31, 1999. The increase in spending was attributable
to the growth in Voyager's customer base and support functions and the expansion
of its geographic coverage area. As a percentage of revenue, sales and marketing
expenses decreased from 18.5% for the twelve months ended December 31, 1998 to
13.2% for the twelve months ended December 31, 1999. The decrease in sales and
marketing expenses as a percentage of revenue reflects lower average customer
acquisition costs, which is primarily attributable to the strong word of mouth
and referral programs offered by Voyager.net.
General and Administrative. General and administrative expenses increased
from $3.4 million for the twelve months ended December 31, 1998 to $14.2 million
for the twelve months ended December 31, 1999. The absolute increase in spending
was primarily due to the growth of Voyager's business and the administrative
functions necessary to support Voyager's growth. As a percentage of revenue,
general and administrative costs decreased from 31.8% for the twelve months
ended December 31, 1998 to 29.2% for the twelve months ended December 31, 1999.
The decrease on a percentage basis represents leveraging of resources across an
increased customer base.
Depreciation and Amortization. Depreciation and amortization expense
increased from $3.9 million for the twelve months ended December 31, 1998 to
$23.8 million for the twelve months ended December 31, 1999. This increase was
primarily the result of the amortization of intangible assets related to
acquiring Voyager's customer base since December 31, 1998, as well as increased
capital spending for expanded network operations and infrastructure.
250
Compensation Charge for Issuance of Common Stock and Stock
Options. Voyager incurred a charge of $4.2 million for the twelve months ended
December 31, 1998 which decreased to $2.6 million for the twelve months ended
December 31, 1999. These charges were based on the issuance and grant of common
stock and options to purchase at exercise prices below fair market value and a
charge to reflect vesting of previously issued common stock or options granted.
Voyager believes these charges to be non-recurring in nature because Voyager
expects to issue all future shares and stock options at prices that approximate
market value. However, some unvested options to purchase common stock will
continue to vest over the next three years, which will result in additional
compensation expense of approximately $111,000 in periods subsequent to December
31, 1999.
Other Income (Expense), Net. Other expense, net increased from $0.9
million for the twelve months ended December 31, 1998 to $1.7 million for the
twelve months ended December 31, 1999. This increase is the result of the higher
average balance during the first seven months of 1999 on Voyager's
line-of-credit which was used to fund acquisitions completed during 1998 and
1999. The line of credit was paid off on July 25, 1999 with proceeds from the
initial public offering.
Net Loss. As a result of the above, Voyager reported net loss of $(7.3)
million, or $(0.43) per share applicable to common stockholders, for the twelve
months ended December 31, 1998 as compared to net loss of $(16.1) million, or
$(0.61) per share applicable to common stockholders, for the twelve months ended
December 31, 1999.
EBITDA (as defined). EBITDA increased from $1.7 million for the twelve
months ended December 31, 1998 to $12.0 million for the twelve months ended
December 31, 1999. As a percentage of revenues, EBITDA increased from 16.1% for
the twelve months ended December 31, 1998 to 24.8% for the twelve months ended
December 31, 1999.
Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended December 31,
1997
Revenues. Total consolidated revenues increased from $3.5 million for the
year ended December 31, 1997 to $10.7 million for the year ended December 31,
1998, representing an increase of 205.7%. The revenue growth was primarily
driven by the increase in Voyager's customer base from approximately 17,000 at
December 31, 1997 to approximately 142,000 at December 31, 1998. The growth in
customers was primarily a result of the seven acquisitions during 1998, which
added approximately 100,000 subscribers to our customer base.
Internet Access Service Costs. Internet access service costs increased
from $1.3 million for the year ended December 31, 1997 to $3.6 million for the
year ended December 31, 1998. Internet access service costs as a percent of
revenue decreased from 37.1% for the year ended December 31, 1997 to 33.6% for
the year ended December 31, 1998 due to improved telecommunication contracts and
economies of scale. The increase in absolute spending for the year ended
December 31, 1998 was driven by a significant
251
increase in customers and their associated network expenses and an increase in
billing costs.
Sales and Marketing. Sales and marketing expense increased from $1.0
million for the year ended December 31, 1997 to $2.0 million for the year ended
December 31, 1998. The increase in absolute spending was a result of the rapid
growth of Voyager's operations and the acquisitions completed during 1998. As a
percentage of revenue, sales and marketing costs decreased from 28.6% for the
year ended December 31, 1997 to 18.7% for the year ended December 31, 1998. The
decrease of sales and marketing expenses as a percentage of revenues reflects
the efficiencies of Voyager's marketing programs over a larger customer base.
General and Administrative. General and administrative expenses increased
from $1.5 million for the year ended December 31, 1997 to $3.4 million for the
year ended December 31, 1998. The absolute increase in spending was due to the
increase in support functions and basic infrastructure necessary to support the
expansion of Voyager's business and the acquisition activity. As a percentage of
revenue, general and administrative expenses decreased from 42.9% for the year
ended December 31, 1997 to 31.8% for the year ended December 31, 1998. The
decrease on a percentage basis represents efficiencies achieved through the
integration of acquired businesses and leveraging resources across an increased
customer base.
Depreciation and Amortization. Depreciation and amortization expense
increased from $394,000 for the year ended December 31, 1997 to $3.9 million for
the year ended December 31, 1998. This increase was a result of the amortization
of intangible assets related to acquiring Voyager's customer base since December
31, 1997, as well as increased capital spending for expanded network operations
and infrastructure.
Compensation Charge for Issuance of Common Stock and Stock
Options. Voyager incurred a charge of $4.2 million for the year ended December
31, 1998 related to the issuance of common stock and stock options. The amount
of this charge was based on the issuance and grant of common stock and options
at purchase and exercise prices below fair market value.
Other Income (Expense), Net. Other expenses, net increased from $62,000
for the year ended December 31, 1997 to $0.9 million for the year ended December
31, 1998. This increase is the result of the higher average balance on Voyager's
$40.0 million line-of-credit which was used to fund acquisitions completed
during 1998.
Net (Loss). As a result of the above, Voyager reported a net loss of
$(0.8) million, or $(0.10) per share, applicable to common stockholders, for the
year ended December 31, 1997 as compared to a net loss of $(7.3) million, or
$(0.43) per share applicable to common stockholders, for the year ended December
31, 1998.
EBITDA. EBITDA increased from ($364,000) for the year ended December 31,
1997 to $1.7 million for the year ended December 31, 1998. As a percentage of
revenues, EBITDA increased from (10.5%) for the year ended December 31, 1997 to
16.1% for the year ended December 31, 1998.
252
LIQUIDITY AND CAPITAL RESOURCES.
Voyager's principal capital and liquidity needs historically have related
to funding the cash portion of acquisitions, sales and marketing activities, the
development and expansion of network infrastructure, the establishment of
customer service and support operations and general working capital needs.
Voyager's capital needs have historically been met through receipts from its
prepaid customer base and additional capital from outside sources, including
vendor capital leases, and the use of a $60.0 million revolving credit facility
with a bank group led by Fleet National Bank.
On July 21, 1999, Voyager completed its initial public offering in which it
raised net proceeds of approximately $99.5 million. Upon closing of the
offering, $60.6 million of senior bank debt and accrued interest and fees were
repaid, $8.8 million of preferred stock and cumulative dividends were redeemed,
and $2.3 million of subordinated notes and accrued interest were repaid. Since
the initial public offering, Voyager has used all of the remaining proceeds for
general corporate purposes, acquisitions and capital expenditures.
Net cash provided by operating activities was $1.7 million for the six
months ended June 30, 2000, compared to net cash provided by operating
activities of $4.6 million for the six months ended June 30, 1999. The primary
sources of cash from operating activities for the six months ended June 30, 2000
were $18.0 million in depreciation and amortization. These sources were
partially offset by a $13.8 million net loss and a $1.1 million increase in
deferred revenue.
Net cash used in investing activities was $10.1 million for the six months
ended June 30, 2000, compared to net cash used in investing activities of $26.2
million for the six months ended June 30, 1999. Net cash provided from investing
activities for the six months ended June 30, 2000 consisted of $5.3 million to
acquire two Internet service provider businesses and $4.8 million for the
purchase of capital equipment. Cash used in investing activities for the six
months ended June 30, 1999 related to acquisition activity and the purchase of
capital equipment.
Net cash provided by financing activities was $2.7 million for the six
months ended June 30, 2000, compared to net cash provided by financing
activities of $24.0 million for the six months ended June 30, 1999. The primary
sources of cash from financing activities for the six months ended June 30, 2000
was the use of proceeds from Voyager's revolving credit facility and payments on
capital leases.
Voyager believes that available cash on hand, amounts available under the
credit facility, additional capital financing arrangements and cash flow from
operations will be sufficient to meet Voyager's capital requirements for the
next twelve months. Voyager's capital requirements depend on numerous factors
including market acceptance of its services, its ability to maintain and expand
its customer base, the rate of expansion of its infrastructure, the roll out of
its DSL plan, which is expected to be available in selected Midwest cities at
the end of the third quarter 2000 and other factors.
253
YEAR 2000 COMPLIANCE.
Voyager relies on third party telecommunications and information systems
equipment and software that may not be Year 2000 compliant to provide its
services. Voyager's efforts to address Year 2000 issues prior to January 1,
2000, included conducting an audit of its own systems and of its third-party
suppliers as to assessment. Voyager developed and implemented a remediation plan
with respect to third-party software, computer technology and services that may
have failed to be Year 2000 compliant. Costs incurred to date related to Year
2000 issues have not been material, nor does it expect to incur additional
material costs related to Year 2000 issues.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that are subject to future events, risk and uncertainties
that could cause actual results to differ materially from those expressed or
implied. These statements can sometimes be identified by use of forward-looking
words such as "may," "will," "anticipate," "estimate," "expect," or "intend."
Important factors that either individually or in the aggregate could cause
actual results to differ materially from those expressed include, without
limitation, (1) the risk that the merger of Voyager and CoreComm will not be
consummated, (2) Voyager's ability to provide superior customer care, (3) the
success of its growth strategy, (4) its ability to integrate acquisitions
successfully, (5) increased competition from regional and national Internet
service providers, Voyager's ability to rollout its DSL strategy and (6) general
economic conditions.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Voyager believes its exposure to market rate fluctuations on its
investments is nominal due to the short-term nature of these investments.
Voyager has no material future earnings or cash flow exposures with respect to
its capital leases, which are all at fixed rates. To the extent it has
borrowings outstanding under its credit facility, Voyager would have market risk
relating to those amounts because the interest rates under the credit facility
are variable. At present, Voyager has no plans to enter into any hedging
arrangements with respect to those borrowings.
254
ATX
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
ATX FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the unaudited condensed financial statements and notes thereto of ATX included
herein as well as the combined financial statements and notes included in this
joint proxy statement and prospectus. This information is not necessarily
indicative of future operating results. Except for the historical information
contained below, the matters discussed in this section are forward-looking
statements that involve a number of risks and uncertainties, including those
described in "Risk Factors." ATX's actual liquidity needs, capital resources and
operating results may differ materially from the discussion set forth below in
these forward-looking statements.
GENERAL
ATX operates a switch and facilities-based network that provides integrated
voice and broadband data services including long distance, local and network
services, Internet access and Web consulting, development and hosting. ATX was
formed in 1985 and began as a switch and facilities-based provider of long
distance services. Over time, ATX expanded its product offerings to meet the
needs of its customers.
ATX has diversified its revenues by broadening its services in becoming a
competitive local exchange carrier, Internet service provider and offering web
based hosting and networking services to new and existing customers. ATX is in
the process of transitioning local customers to its switched-based facility
which ATX believes will increase gross profit margins by significantly reducing
local carrier costs.
Until it was organized on February 9, 2000 as a corporation, ATX conducted
its business operations through two limited partnerships, ATX Telecommunications
Services, Ltd. and Global Telecom Services, Ltd. Upon the incorporation of ATX,
Inc., ATX was subject to federal and state income taxation. ATX did not provide
for an income tax benefit for the six months ended June 30, 2000 based on the
uncertainty of future earnings and profits.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
REVENUE BY PRODUCT LINE
Long Distance......................... $24,051,353 $23,831,134 $46,275,339 $46,761,585
Local Exchange........................ 9,557,597 5,238,066 17,704,408 9,391,140
Network/Internet/e-commerce........... 5,379,863 3,113,739 10,063,698 5,762,829
Wireless.............................. 1,314,452 1,282,180 2,522,971 2,483,369
----------- ----------- ----------- -----------
Total Revenues................... 40,303,265 33,465,119 76,566,416 64,398,923
Cost of Revenues...................... 29,586,139 20,914,123 51,337,853 39,949,002
----------- ----------- ----------- -----------
Gross Profit.......................... 10,717,126 12,550,996 25,228,563 24,449,921
----------- ----------- ----------- -----------
Selling, General and Administrative
Expenses............................ 15,927,345 12,912,934 32,175,309 24,459,164
----------- ----------- ----------- -----------
(Loss) income from operations......... (5,210,219) (361,938) (6,946,746) (9,243)
Interest income, net.................. 16,136 19,899 50,327 24,317
----------- ----------- ----------- -----------
Net (loss) income..................... $(5,194,083) $ (342,039) $(6,896,419) $ 15,074
=========== =========== =========== ===========
Three Months Ended June 30, 2000 as Compared to Three Months Ended June 30,
1999
Revenues
Revenues increased by $6.8 million or 20.4% to $40.3 million for the three
months ended June 30, 2000 from $33.5 million for the same period in the prior
year. The increase was primarily due to the development of local, Internet and
network integration service revenue. Local exchange revenues increased
approximately $4.3 million or 82.5% compared to the same period in the prior
year. Network and wireless revenues increased approximately $2.3 million or
52.3% compared to the same period in the prior year.
Gross Profit
Gross profit decreased $1.8 million or 14.6% to $10.7 million for the three
months ended June 30, 2000 from $12.5 million for the same period in the prior
year. Gross profit as a percentage of revenue decreased 10.9% for the three
months ended June 30, 2000 compared with the same period in the prior year as a
result of additional costs associated with the transitioning of local exchange
customers to ATX's network from a resale environment. Such transition costs
include the build-out of co-locations and increased carrier costs to transition
customers from a resale environment to ATX's network.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $3.0 million to
$15.9 million for the three months ended June 30, 2000 from $12.9 million for
the same period in the
256
prior year because of the expansion of the sales force and infrastructure in
anticipation of providing additional local exchange service and other products.
Selling, general and administrative expenses excluding executive's salaries and
bonuses represented 34.3% of revenues for the three months ended June 30, 2000
compared to 32.2% for the same period in the prior year.
Net Loss
As a result of additional costs incurred relating to the transitioning of
local exchange customers to ATX's network and the expansion of the sales force
and customer service department in anticipation of future local exchange service
and new product growth, ATX incurred a net loss of $5.2 million for the three
months ended June 30, 2000 as compared to net loss of $300,000 for the same
period in the prior year.
Six Months Ended June 30, 2000 as Compared to Six Months Ended June 30, 1999
Revenues
Revenues increased by $12.2 million or 18.9% to $76.6 million for the six
months ended June 30, 2000 from $64.4 million for the same period in the prior
year. The increase was primarily due to the development of local, Internet and
network integration service revenue. Local exchange revenues increased
approximately $8.3 million or 88.5% compared to the same period in the prior
year. Network and wireless revenues increased approximately $4.3 million or
52.6% compared to the same period in the prior year.
Gross Profit
Gross profit increased $.8 million or 3.2% to $25.2 million for the six
months ended June 30, 2000 from $24.4 million for the same period in the prior
year. Gross profit as a percentage of revenue decreased 5.1% for the six months
ended June 30, 2000 compared with the same period in the prior year as a result
of additional costs associated with the transitioning of local exchange
customers to ATX's network from a resale environment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $7.7 million to
$32.2 million for the six months ended June 30, 2000 from $24.5 million for the
same period in the prior year due to the expansion of the sales force and
infrastructure in anticipation of providing additional local exchange service
and other products. Selling, general and administrative expenses excluding
executive's salaries and bonuses represented 36.5% of revenues for the six
months ended June 30, 2000 compared to 31.4% for the same period in the prior
year.
Net Loss
As a result of additional costs incurred relating to the transitioning of
local exchange customers to ATX's network and the expansion of the sales force
and customer service department in anticipation of future local exchange service
and new product growth,
257
ATX incurred a net loss of $6.9 million for the six months ended June 30, 2000
as compared to net income of $15,000 for the same period in the prior year.
Year Ended December 31, 1999 as Compared to Year Ended December 31, 1998
Revenues
Revenues increased by $21.4 million to $135.0 million in fiscal year 1999
from $113.7 million in fiscal year 1998, representing an 18.8% increase. The
increase was primarily due to the increase in long distance traffic and the
development of local, Internet and network integration service revenues. There
was also an increase in long distance traffic. The components of revenues
include the diversification of services related to local exchange service,
network and Internet and wireless based revenues. Local exchange revenues
increased $14.4 million, representing an increase of 215.3% from fiscal year
1998. Network and wireless services revenues increased $4.7 million,
representing an increase of 33.3% from fiscal 1998. Long distance revenues
increased $2.3 million, representing an increase of 2.5% from fiscal year 1998.
Gross Profit
Gross profit increased to $49.5 million in fiscal year 1999 from $45.2 in
fiscal year 1998, representing an increase of 9.5%. Gross profit as a percentage
of revenues decreased 3.1% in fiscal year 1999 from 39.8% to 36.7% in fiscal
year 1998, primarily as a result of ATX's lower gross margin for providing local
exchange service in a resale environment.
258
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $51.2 million in
fiscal year 1999 from $43.3 million in fiscal year 1998 but decreased as a
percentage of revenues to 37.9% in fiscal year 1999 from 38.1% in fiscal year
1998. Selling, general and administrative expenses, excluding partners' salaries
and bonuses, increased $7.9 million relating to the expansion of the sales force
and infrastructure in anticipation of providing additional local exchange
service and other products. Salaries and related expenses excluding partners'
salaries and bonuses are the most significant component of selling, general and
administrative expenses and decreased as a percentage of selling, general and
administrative expenses to 46.9% in fiscal year 1999 from 50.4% in fiscal year
1998. Selling, general and administrative expenses, excluding partners' salaries
and bonuses, represented 31.0% and 29.9% of revenues for fiscal year 1999 and
fiscal year 1998, respectively.
Net Loss
As a result of the expansion of the sales force and customer service in
anticipation of future local exchange service and new product growth and Year
2000 expenditures, ATX incurred a net loss of $1.6 million in fiscal year 1999
compared with net income of $2.1 million in fiscal year 1998.
Year Ended December 31, 1998 as Compared to Year Ended December 31, 1997
Revenues
Revenues increased $21.1 million to $113.7 million in fiscal year 1998 from
$92.6 million in fiscal year 1997, representing an increase of 22.8%. The
increase was primarily due to the development of new products, including local
exchange service and Internet based revenues. Local exchange service, network
and Internet and wireless based revenues increased $11.5 million, representing a
123.6% increase from fiscal year 1997. Long distance revenues increased $9.6
million, representing a 11.5% increase from fiscal year 1997.
Gross Profit
Gross profit increased to $45.2 million in 1998 from $39.8 in 1997,
representing an increase of 13.6%. Gross profit as a percentage of revenues
decreased 3.2% to 39.8% in 1998 from 43.0% in 1997 primarily as a result of
local carrier costs that resulted in lower margins in 1998 compared with 1997.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $43.3 million in
fiscal year 1998 from $26.4 million in fiscal year 1997 and increased as a
percentage of revenues to 38.1% in fiscal year 1998 from 28.5% in fiscal year
1997. Salaries and related expenses, excluding partners' salaries and bonuses,
are the most significant component of selling, general and administrative
expenses and decreased to 50.4% of selling, general and administrative expenses
in fiscal year 1998 from 51.4% in fiscal year 1997. In fiscal year 1998,
selling, general and administrative expenses included partners bonuses of $8.0
million compared to $0 in fiscal year 1997. Selling, general and administrative
expenses,
259
excluding partners' bonuses and salaries, increased $8.9 million relating to the
expansion of the sales force and infrastructure in anticipation of providing
local exchange service and other products. Selling, general and administrative
expenses, excluding partners' bonuses and salaries, represented 29.9% and 27.1%
of revenues for fiscal year 1999 and fiscal year 1998, respectively.
Additionally, ATX instituted a phantom unit plan for its employees in fiscal
year 1998 that resulted in a non-cash charge to selling, general and
administrative expenses of $1.8 million in fiscal year 1998.
Net Income
As a result of the partners' bonuses of $8 million and increased cost of
revenues due to expansion of the sales force and costs related to increased
customer service in anticipation of future local exchange service growth, ATX's
net income decreased to $2.1 million in fiscal year 1998 compared to net income
of $13.6 million in fiscal year 1997.
LIQUIDITY AND CAPITAL RESOURCES
ATX intends to continue its growth and its coverage of products and
services in the northeastern region of the United States. ATX plans to expand
its local exchange services through the build out of co-locations and purchases
of network equipment. ATX has historically funded expansion into new markets,
offering of new products and services and capital acquisitions through
operations. If the ATX merger is not consummated, ATX may seek to raise
additional funds through short term borrowings or private investment or raise
capital in the public markets to fund those estimated capital expenditures and
expansion of Competitive Local Exchange Service including the build out of
co-locations and customer transition costs from a resale environment to its
network. There can be no assurance that such funding will be available on
acceptable terms and conditions which may cause the delay of certain of ATX's
development plans.
ATX believes that its future cash flows from operations will be sufficient
to fund its growth and future capital expenditures for the next 12 months
including the additional costs relating to the expansion of Completive Local
Exchange Service and its effect on future operations and earnings. ATX's
expectations of future capital requirements and cash flows are based on current
estimates and such estimates include the future increase in overall operating
gross margins upon transitioning local exchange customers to its network. Based
on the terms and conditions of the ATX merger agreement, ATX cannot be sure that
actual costs or the timing and scope of the expenditures will be consistent with
current estimates.
Cash and cash equivalents increased $300,000 at June 30, 2000 to $3.5
million from $3.2 million as of December 31, 1999. The increase is primarily
attributable to cash provided by operation activities of $4.7 million, advances
from related parties and capital contributions of $1.9 million, net of capital
expenditures of $6.3 million.
INFLATION
ATX management does not believe that its business is impacted by inflation
to a significantly different extent than the general economy.
260
WHERE YOU CAN FIND MORE INFORMATION
CoreComm and Voyager are subject to the reporting requirements of the
Securities and Exchange Act of 1934, and each files annual, quarterly and
special reports, proxy statements and other information with the SEC. You may
read and copy any materials CoreComm or Voyager files at the SEC's Public
Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the Public Reference Room.
CoreComm's and Voyager's SEC filings are also available to the public at the
SEC's web site at http://www.sec.gov. CoreComm's shares are listed on the Nasdaq
Stock Market under the symbol "COMM," and all reports, proxy statements and
other information filed by CoreComm with the Nasdaq Stock Market may be
inspected at The National Association of Securities Dealers at 1735 K Street,
N.W., Washington, D.C. 20006. Voyager's shares are listed on the Nasdaq Stock
Market under the symbol "VOYN" and all reports, proxy statements and other
information filed by Voyager with the Nasdaq Stock Market may be inspected at
the Nasdaq Stock Market's office at the above-listed address.
The SEC allows CoreComm to "incorporate by reference" some of the
information CoreComm files with it, which means that CoreComm can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this joint proxy
statement and prospectus, and later information filed with the SEC will
automatically update and supersede this information. CoreComm incorporates by
reference any future filings, as of the date of those filings, made by it with
the SEC under Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act
of 1934, after the date of this joint proxy statement and prospectus and prior
to the dates of the CoreComm special meeting and the Voyager special meeting and
the dates all of the transactions contemplated in this joint proxy statement and
prospectus are completed.
Any statement contained in a document incorporated or deemed to be
incorporated in this joint proxy statement and prospectus will be deemed
modified or superseded for purposes of this joint proxy statement and prospectus
to the extent that a statement contained in it or in any other subsequently
filed document that is deemed to be incorporated in this document modifies or
supersedes that statement. Any statement so modified or superseded will not be
deemed, except as so modified or superseded, to constitute a part of this joint
proxy statement and prospectus.
CoreComm incorporates by reference the documents listed below:
- Annual Report on Form 10-K for the year ended December 31, 1999;
- Quarterly Reports on Form 10-Q for the three months ended March 31, 2000
and for the six months ended June 30, 2000;
- Current reports on Form 8-K dated January 20, 2000, March 6, 2000, March
10, 2000, March 13, 2000, June 1, 2000 and August 7, 2000;
- The consolidated balance sheets of MegsINet Inc. and its subsidiary as of
December 31, 1998 and 1997 and the related consolidated statements of
261
operations, stockholder's deficit and cash flows for the year ended
December 31, 1998, which are contained in CoreComm's Registration
Statement on Form S-3 (File No. 333-90113), filed on November 1, 1999 and
amended on November 19, 1999;
- The consolidated balance sheets of USN Communications, Inc. and its
subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholder's deficit and cash
flows for the years ended December 31, 1997 and 1998, which are contained
in CoreComm's Registration Statement on Form S-3 (File No. 333-90113),
filed on November 1, 1999 and amended on November 19, 1999; and
- The description of CoreComm's common shares and its shareholder rights
plan contained in the Registration Statement on Form 10-12G, File No.
0-24521.
You may request a copy of each of the above-listed CoreComm documents at no
cost by contacting CoreComm at:
CoreComm Limited
110 East 59th Street
New York, NY 10022
Attention: Amy Minnick
Telephone: (212) 418-0315
Fax: (212) 752-1157
ATX is not currently subject to the reporting requirements of the
Securities Exchange Act of 1934, and accordingly does not file any reports,
proxy statements or other information with the SEC. Upon the filing of the
registration statement on Form S-4 and the completion of the ATX merger and the
Voyager merger, however, post-merger CoreComm will become subject to the
Exchange Act and will be required to file the applicable reports, proxy
statements and other information with the SEC. You will be able to obtain copies
of these filed documents from post-merger CoreComm, and you will be able to
review and copy these documents in the manner described above.
This joint proxy statement and prospectus will be part of a registration
statement on Form S-4 to be filed with the SEC under the Securities Act of 1933
by the surviving company in the ATX merger, which will be named CoreComm
Limited, to register the issuance of its common stock to the current
shareholders of CoreComm and the current stockholders of Voyager. Those shares
will be held by public stockholders only if the ATX merger is approved and
completed. This joint proxy statement and prospectus will also be part of a
registration statement on Form S-4 to be filed with the SEC under the Securities
Act by the Delaware corporation into which CoreComm will merge in the
domestication merger, to register the issuance of its common stock to the
current shareholders of CoreComm and the current stockholders of Voyager in
connection with the Voyager merger. Those shares will be held by public
stockholders only if the Voyager merger is approved and completed but the ATX
merger is not.
This joint proxy statement and prospectus, which will constitute a part of
each registration statement, does not contain all the information that will be
set forth in the
262
registration statements. Some items of information will be contained in exhibits
to the registration statements, as permitted by the rules and regulations of the
SEC. Statements made in this joint proxy statement and prospectus as to the
content of any contract, agreement or other document referred to are not
necessarily complete. With respect to each of those contracts, agreements or
other documents to be filed or incorporated by reference as an exhibit to the
relevant registration statement, you should refer to the corresponding exhibit,
when it is filed, for a more complete description of the matter involved and
read all statements in this joint proxy statement and prospectus in light of
that exhibit.
Because the completion of each of the Voyager merger and the ATX merger is
not conditioned on the completion of the other, until the required shareholder
votes occur and the mergers that are approved are completed, it is not possible
to know which company will survive the mergers as the ultimate parent company.
Therefore, registration statements for the surviving company resulting from
completion of the ATX merger and the surviving company resulting from the
completion of only the Voyager merger and not the ATX merger will be filed.
However, the stock of only one company -- the ultimate parent company, depending
on which mergers occur -- will be held and publicly traded.
263
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material United States federal income
tax consequences of the Voyager merger, the ATX merger and the domestication
merger. The following discussion and the United States federal income tax
opinions referred to below are based on and subject to the Internal Revenue Code
of 1986, as amended, the regulations promulgated thereunder, existing
administrative interpretations and court decisions and related laws, all of
which are subject to change, possibly with retroactive effect, and based on
assumptions, limitations, representations and covenants, including those
contained in the representation letters of CoreComm, ATX and Voyager referred to
below. This discussion does not address all aspects of United States federal
income taxation that may be important to you in light of your particular
circumstances or if you are subject to special rules, such as rules relating to:
- shareholders who are not citizens or residents of the United States
- financial institutions
- tax-exempt organizations
- insurance companies
- dealers in securities
- shareholders who acquired their shares of CoreComm or Voyager common
stock through the exercise of options or similar derivative securities or
otherwise as compensation
- shareholders who hold their shares of CoreComm or Voyager common stock as
part of a straddle or conversion transaction.
This discussion assumes that you hold your CoreComm common stock or Voyager
common stock as a capital asset within the meaning of Section 1221 of the
Internal Revenue Code.
None of CoreComm, ATX or Voyager has requested or intends to request a
ruling from the Internal Revenue Service regarding the tax consequences of any
of the transactions with respect to CoreComm, ATX, Voyager or the shareholders
of CoreComm, ATX or Voyager. Accordingly, no assurance can be given that the
statements set forth in this discussion, which do not bind the Internal Revenue
Service or the courts, will not be challenged by the Internal Revenue Service or
sustained by the courts if so challenged.
Paul, Weiss, Rifkind, Wharton & Garrison, counsel to CoreComm, has
delivered an opinion that the description of the federal income tax consequences
to holders of CoreComm common shares contained under the heading "Treatment of
CoreComm Shareholders" below and under the heading "Reporting Requirements"
below correctly sets forth the material federal income tax consequences for
CoreComm shareholders. Goodwin, Procter & Hoar LLP, counsel to Voyager, has
delivered an opinion that the description of the federal income tax consequences
to holders of Voyager Common Stock contained under the heading "Treatment of
Voyager Shareholders" below and under the
264
heading "Reporting Requirements" below correctly sets the forth material federal
income tax consequences for Voyager shareholders. Those opinions and the
opinions set forth in the following paragraph are based on, among other things,
representation letters provided to counsel by CoreComm, ATX and Voyager that
will be confirmed by CoreComm, ATX and Voyager prior to the closing of the
respective mergers.
Based upon, among other things, the representation letters referred to in
the preceding paragraph, (a) it is the opinion of Paul, Weiss, Rifkind, Wharton
& Garrison that the domestication merger constitutes for federal income tax
purposes a reorganization described in Section 368(a) of the Internal Revenue
Code; (b) it is the opinion of Paul, Weiss, Rifkind, Wharton & Garrison that the
ATX merger constitutes for federal income tax purposes a reorganization
described in Section 368(a) of the Internal Revenue Code and/or an exchange
described in Section 351 of the Internal Revenue Code; (c) it is the opinion of
Paul, Weiss, Rifkind, Wharton & Garrison that the Voyager merger constitutes for
federal income tax purposes a reorganization within the meaning of Section
368(a) of the Internal Revenue Code and/or an exchange described in Section 351
of the Internal Revenue Code and (d) it is the opinion of Goodwin, Procter &
Hoar LLP that the Voyager merger constitutes for federal income tax purposes a
reorganization described in Section 368(a) of the Internal Revenue Code and/or
an exchange described in Section 351 of the Internal Revenue Code. It is a
condition to the obligation of CoreComm to complete the ATX merger that CoreComm
shall have received the written opinion of its counsel to the effect set forth
in clause (b) of the preceding sentence, and that such opinion shall not have
been withdrawn. It is a condition to the respective obligations of CoreComm and
Voyager to complete the Voyager merger that each shall have received the written
opinion of its respective counsel to the effect set forth in clauses (c) and (d)
of the preceding sentence, and that such opinion shall not have been withdrawn.
TREATMENT OF CORECOMM SHAREHOLDERS
Consequences of the Domestication Merger to CoreComm Shareholders.
A holder of CoreComm common shares who, under the domestication merger,
exchanges CoreComm common shares for common stock of the newly-formed wholly-
owned subsidiary of CoreComm will not recognize gain or loss as a result of this
exchange, provided that CoreComm does not have any earnings and profits at the
time of the domestication merger and further provided that, in the case of
holders of CoreComm common shares that own less than 10% of CoreComm, such
holder files an election with the Internal Revenue Service to include earnings
and profits in lieu of recognizing gain. CoreComm believes it will not have any
earnings and profits at the time of the domestication merger. The tax basis of
the common shares received by the holder will be equal to the tax basis of the
common shares surrendered, and the holding period of the common shares will
include the holding period of the CoreComm common shares surrendered.
265
Consequences of the ATX Merger, If the Voyager Merger Does Not Occur, and
Consequences of the ATX Merger and the Voyager Merger, If Both Occur, to
CoreComm Shareholders Who Have Become Stockholders of the Newly-Formed
Wholly-Owned Subsidiary of CoreComm Under the Domestication Merger
If the ATX merger occurs and the Voyager merger does not occur or if both
the ATX merger and the Voyager merger occur, a holder of common stock received
under the domestication merger who exchanges such common stock for ATX common
stock under the ATX merger will not recognize gain or loss as a result of such
exchange. The tax basis of the post-merger CoreComm common stock received by the
holder will be equal to the tax basis of the domesticated CoreComm Merger Sub,
Inc. common stock surrendered, and the holding period of the post-merger
CoreComm common stock will include the holding period of the common stock of
CoreComm Merger Sub, Inc. surrendered.
Consequences of the Voyager Merger, If the ATX Merger Does Not Occur, to
CoreComm Shareholders Who Have Become Stockholders of the Newly-Formed
Wholly-Owned Subsidiary of CoreComm Under the Domestication Merger
If the Voyager merger occurs and the ATX merger does not occur, a holder of
domesticated CoreComm Merger Sub, Inc. common stock received under the
domestication merger will not recognize gain or loss as a result of the Voyager
merger.
TREATMENT OF VOYAGER STOCKHOLDERS
A holder of Voyager stock will recognize gain as a result of the Voyager
merger equal to the lesser of the amount of cash received or the amount of gain
realized. The holder's tax basis in the common stock of post-merger CoreComm
received in the Voyager merger will be the holder's tax basis in the Voyager
stock surrendered, decreased by the amount of cash received and increased by the
amount of gain recognized, and the holder's holding period in the common stock
of CoreComm (or its successor) received in the Voyager merger will include the
holding period in the Voyager stock surrendered.
TAX IMPLICATIONS TO CORECOMM, ATX AND VOYAGER
CoreComm, ATX and Voyager will not recognize gain or loss for United States
federal income tax purposes as a result of the domestication merger, the ATX
merger and/or the Voyager merger.
REPORTING REQUIREMENTS
If you participate in an exchange of stock under the domestication merger,
the ATX merger and/or the Voyager merger, you will be required to retain records
and attach a statement to your tax returns for the taxable year in which the
mergers are completed that contains facts relating to the exchange of stock,
including the cost or other basis of stock surrendered in the merger(s) and the
amount of stock received under the merger(s). All stockholders are urged to
consult their own tax advisors to determine the
266
specific information that they may need to retain and/or file with the Internal
Revenue Service.
This foregoing discussion is not intended to be a complete analysis or
description of all potential United States federal income tax consequences or
any other consequences of the merger(s). In addition, this discussion does not
address tax consequences that may vary with, or are contingent on, your
individual circumstances. Moreover, this discussion does not address any
non-income tax or any foreign, state or local tax consequences of the merger(s).
Accordingly, you are strongly urged to consult with your tax advisor to
determine the particular United States federal, state, local or foreign income
or other tax consequences to you of the mergers.
267
LEGAL MATTERS
The validity of the shares of common stock of post-merger CoreComm offered
to holders of Voyager common stock by this joint proxy statement and prospectus
will be passed upon for post-merger CoreComm by Paul, Weiss, Rifkind, Wharton
and Garrison, New York, New York, unless the ATX merger has occurred before the
Voyager merger, in which case the opinion will be provided by Klehr, Harrison,
Harvey, Branzburg & Ellers, LLP. An opinion as to certain federal income tax
consequences of the Voyager merger will be rendered for Voyager by Goodwin,
Procter & Hoar LLP, Boston, Massachusetts, and for CoreComm by Paul, Weiss.
The validity of the shares of post-merger CoreComm common stock and post-
merger CoreComm convertible preferred stock to be issued in connection with the
ATX recapitalization and ATX merger by this joint proxy statement and prospectus
has been passed upon for post-merger CoreComm by Klehr, Harrison, Harvey,
Branzburg & Ellers LLP, Philadelphia, Pennsylvania. An opinion as to certain
federal income tax consequences of the ATX merger will be rendered for CoreComm
by Paul, Weiss.
EXPERTS
Ernst & Young LLP, independent auditors, have audited CoreComm's
consolidated financial statements at December 31, 1999 and 1998 and for the year
ended December 31, 1999 and for the period from April 1, 1998 to December 31,
1998, as set forth in their report. CoreComm's financial statements have been
incorporated by reference in this joint proxy statement and prospectus in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
Ernst & Young LLP, independent auditors, have audited CoreComm's
predecessor, OCOM Corporation Telecoms Division, for the period from January 1,
1998 to May 31, 1998 and the year ended December 31, 1997, as set forth in their
report. These financial statements have been incorporated by reference in this
joint proxy statement and prospectus in reliance on Ernst & Young LLP's report,
given on their authority as experts in accounting and auditing.
KPMG LLP, independent auditors, have audited the consolidated financial
statements of MegsINet Inc. as of December 31, 1998 and 1997 and for the year
ended December 31, 1998, as set forth in their report. These financial
statements have been incorporated in this joint proxy statement by reference to
CoreComm's Registration Statement on Form S-3, file number 333-90113, filed on
November 1, 1999 and amended on November 19, 1999 in reliance on KPMG LLP's
report, given on their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of USN Communications, Inc. as of December 31, 1998 and for
the year then ended, as set forth in their report. These financial statements
have been incorporated by reference in this joint proxy statement and prospectus
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
268
The consolidated financial statements of USN Communications, Inc. and
subsidiaries as of and for the year ended December 31, 1997, incorporated in
this joint proxy statement and prospectus by reference to CoreComm Limited's
Registration Statement on Form S-3 (File No. 333-90113), filed on November 1,
1999 and amended on November 19, 1999, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report, which is incorporated
herein by reference, and have been so incorporated in reliance upon Deloitte &
Touche LLP's report, given upon their authority as experts in accounting and
auditing.
BDO Seidman, LLP, independent auditors, have audited the combined financial
statements of ATX Telecommunications Services Group as of December 31, 1999,
1998 and 1997 and for each of the three years in the period ended December 31,
1999 as set forth in their report. ATX's financial statements have been included
in this joint proxy statement and prospectus in reliance on BDO Seidman, LLP's
report, given on their authority as experts in accounting and auditing.
PricewaterhouseCoopers LLP, independent auditors, have audited the
consolidated financial statements of Voyager.net, Inc. as of December 31, 1999,
1998, and for the years ended December 31, 1999, 1998 and 1997, as set forth in
their report. Voyager's financial statements have been included in this joint
proxy statement and prospectus in reliance on PricewaterhouseCoopers LLP's
report, given on their authority as experts in accounting and auditing.
269
FINANCIAL STATEMENTS
VOYAGER.NET, INC
PAGE(S)
-------
Condensed Consolidated Balance Sheet -- June 30, 2000
(unaudited)............................................... F-2
Condensed Consolidated Statements of Operations -- Six
Months ended June 30, 1999 and 2000 (unaudited)........... F-3
Condensed Consolidated Statements of Stockholders'
Equity -- Six Months ended June 30, 2000 (unaudited)...... F-4
Condensed Consolidated Statements of Cash Flows -- Six
Months ended June 30, 1999 and 2000 (unaudited)........... F-5
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................... F-6
Report of Independent Accountants........................... F-9
Consolidated Balance Sheets -- December 31, 1998 and 1999... F-10
Consolidated Statements of Operations -- Years ended
December 31, 1997, 1998 and 1999.......................... F-11
Consolidated Statements of Stockholders' Equity
(Deficit) -- Years ended December 31, 1997, 1998 and
1999...................................................... F-12
Consolidated Statements of Cash Flows -- Years ended
December 31, 1997, 1998 and 1999.......................... F-14
Notes to Consolidated Financial Statements.................. F-15 - F-28
ATX TELECOMMUNICATIONS SERVICES GROUP
Financial statements
Balance sheet -- June 30, 2000 and 1999................... F-29
Statements of operations -- Six months ended June 30, 2000
and 1999............................................... F-30
Changes in equity/partners' capital -- Six months ended
June 30, 2000 and 1999................................. F-31
Cash flows -- Six months ended June 30, 2000 and 1999..... F-32
Notes to unaudited financial statements..................... F-33 - F-34
Auditors' Report of Independent Certified Public
Accountants............................................... F-35
Combined financial statements
Balance sheets -- December 31, 1999, 1998 and 1997........ F-36
Statements of operations -- Years ended December 31, 1999,
1998 and 1997.......................................... F-37
Changes in partners' capital -- Years ended December 31,
1999, 1998 and 1997.................................... F-38
Statements of Cash flows -- Years ended December 31, 1999,
1998 and 1997.......................................... F-39
Notes to financial statements............................... F-40 - F-46
F-1
VOYAGER.NET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30,
2000
------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 12,329,741
Accounts receivable, less allowance....................... 7,837,616
Prepaid and other assets.................................. 1,729,869
------------
Total current assets.............................. 21,897,226
Property and equipment, net................................. 25,524,813
Intangible assets, net...................................... 56,665,195
------------
Total assets...................................... $104,087,234
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of obligations under capital leases....... $ 3,157,610
Accounts payable.......................................... 805,961
Other liabilities......................................... 2,898,448
Deferred revenue.......................................... 12,269,517
------------
Total current liabilities......................... 19,131,536
Commitments and contingencies............................... --
Obligations under capital leases............................ 2,116,236
Long-term debt.............................................. 23,750,000
Stockholders' equity:
Preferred stock, 8% cumulative, non-voting, $.01 par
value, $100 redemption value: 5,000,000 shares
authorized, none outstanding
Common stock, $.0001 par value; authorized 50,000,000
shares in 1999 and 2000; issued and outstanding
31,650,108 and 31,654,758 in 1999 and 2000,
respectively........................................... 2,712
Additional paid-in capital................................ 112,151,544
Receivables for preferred and common stock................ (6,441,935)
Notes and interest receivable, stockholder................ (5,768,418)
Deferred compensation..................................... 161,420
Accumulated deficit....................................... (41,015,861)
------------
Total stockholders' equity........................ 59,089,462
------------
Total liabilities and stockholders' equity........ $104,087,234
============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-2
VOYAGER.NET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ------------ -----------
Revenue:
Internet access service......... $18,444,717 $10,537,560 $ 36,484,158 $18,942,762
Other........................... 173,064 176,339 245,901 290,363
----------- ----------- ------------ -----------
Total revenue.......... 18,617,781 10,713,899 36,730,059 19,233,125
----------- ----------- ------------ -----------
Operating expenses:
Internet access service......... 7,398,439 3,602,005 14,628,026 6,391,681
Sales and marketing............. 2,221,192 1,229,038 4,358,192 2,198,069
General and administrative...... 5,931,172 3,081,402 11,912,961 5,544,602
Depreciation and amortization... 10,166,904 5,004,953 18,377,773 8,531,777
Compensation charge for issuance
of common stock and stock
options...................... 25,000 1,044,000 50,000 2,509,000
----------- ----------- ------------ -----------
Total operating
expenses............. 25,742,707 13,961,398 49,326,952 25,175,129
----------- ----------- ------------ -----------
Loss from operations before other
income (expense)................ (7,124,926) (3,247,499) (12,596,893) (5,942,004)
----------- ----------- ------------ -----------
Other income (expense):
Interest income................. 266,077 4,822 515,076 31,594
Interest expense................ (839,873) (1,047,378) (1,453,949) (1,845,663)
Other........................... (218,262) -- (258,969) --
----------- ----------- ------------ -----------
Total other expense.... (792,058) (1,042,556) (1,197,842) (1,814,069)
----------- ----------- ------------ -----------
Net loss.......................... (7,916,984) (4,290,055) (13,794,735) (7,756,073)
Preferred stock dividends......... -- (165,496) -- (330,992)
----------- ----------- ------------ -----------
Net loss applicable to
common
stockholders......... $(7,916,984) $(4,455,551) $(13,794,735) $(8,087,065)
----------- ----------- ------------ -----------
Per share data:
Basic and diluted net loss per
share applicable to common
stockholders................. $ (0.25) $ (0.19) $ (0.44) $ (0.35)
=========== =========== ============ ===========
Weighted average common shares
outstanding:
Basic and diluted............ 31,654,758 23,766,309 31,653,466 23,163,442
=========== =========== ============ ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-3
VOYAGER.NET, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
RECEIVABLES
FOR
PREFERRED
COMMON STOCK ADDITIONAL AND NOTES AND
-------------------- PAID-IN COMMON INTEREST DEFERRED ACCUMULATED
SHARES AMOUNT CAPITAL STOCK RECEIVABLE COMPENSATION DEFICIT
---------- ------ ------------ ----------- ----------- ------------ ------------
Balance January 1,
2000............... 31,650,108 $2,712 $112,129,038 $(6,291,935) $(5,630,418) $111,420 $(27,221,126)
Interest on
receivables........ -- -- -- (150,000) (138,000) -- --
Exercise of stock
options............ 4,650 -- 22,506 -- -- -- --
Deferred
compensation....... -- -- -- -- -- 50,000 --
Net loss............. -- -- -- -- -- -- (13,794,735)
---------- ------ ------------ ----------- ----------- -------- ------------
Balance June 30,
2000............... 31,654,758 $2,712 $112,151,544 $(6,441,935) $(5,768,418) $161,420 $(41,015,861)
========== ====== ============ =========== =========== ======== ============
TOTAL
STOCKHOLDERS'
EQUITY
-------------
Balance January 1,
2000............... $73,099,691
Interest on
receivables........ (288,000)
Exercise of stock
options............ 22,506
Deferred
compensation....... 50,000
Net loss............. (13,794,735)
-----------
Balance June 30,
2000............... $59,089,462
===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-4
VOYAGER.NET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
----------------------------
2000 1999
------------ ------------
Cash flows from operating activities:
Net loss..................................... $(13,794,735) $(7,756,073)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................ 18,377,773 8,531,777
Loss on disposal/sale of equipment........... 124,878 4,572
Compensation charge for issuance of common
stock and stock options................... 50,000 2,509,000
Changes in assets and liabilities excluding
effects of business combinations, net..... (3,105,198) 1,272,295
------------ ------------
Net cash provided by operating
activities.......................... 1,652,718 4,561,571
Cash flows used in investing activities:
Business acquisition costs, net of cash
acquired.................................. (5,290,361) (23,577,768)
Purchase of property and equipment........... (4,793,294) (2,658,104)
------------ ------------
Net cash used in investing
activities.......................... (10,083,655) (26,235,872)
Cash flows provided by financing activities:
Payments on capital leases................... (1,424,224) (262,767)
Loan/payments to related party............... -- (500,000)
Payment of bank financing fees............... -- (1,124,770)
Proceeds from issuance of debt............... 4,100,000 25,200,000
Proceeds from common stock issuance.......... 22,506 248
Proceeds from preferred stock................ -- 666,700
------------ ------------
Net cash provided by financing
activities.......................... 2,698,282 23,979,411
------------ ------------
Net (decrease) increase in cash and cash
equivalents.................................. (5,732,655) 2,305,110
Cash and cash equivalents at beginning of
period....................................... 18,062,396 2,350,292
------------ ------------
Cash and cash equivalents at end of period...... $ 12,329,741 $ 4,655,402
============ ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-5
VOYAGER.NET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
These condensed consolidated financial statements of Voyager.net, Inc. and
its subsidiaries (the "Company") for the three and six months ended June 30,
2000 and 1999 and the related footnote information are unaudited and have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. These financial statements included herein should be
read in conjunction with the Company's audited consolidated financial statements
and the related notes to the consolidated financial statements as of and for the
year ended December 31, 1999, which are included in the Company's Form 10-K
filed with the Securities and Exchange Commission and dated March 31, 2000. In
management's opinion, the accompanying unaudited financial statements contain
all adjustments (consisting of normal, recurring adjustments) which management
considers necessary to present the consolidated financial position of the
Company at June 30, 2000 and the results of its operations and cash flows for
the three and six months ended June 30, 2000 and 1999. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The results of operations for
the three and six months ended June 30, 2000 are not necessarily indicative of
the results of operations expected for the year ended December 31, 2000.
2. BUSINESS COMBINATIONS:
During the six months ended June 30, 2000, the Company acquired certain
assets used in connection with the Internet access service business of two
entities as described below:
February 11, 2000, the Company purchased assets of Valley Business
Equipment, Inc. for approximately $4,050,000. Approximately $3,910,000 was
allocated to the acquired customer base cost as a result of this transaction.
March 12, 2000, the Company purchased assets of Livingston On-Line for
approximately $325,000. Approximately $310,000 was allocated to the acquired
customer base cost as a result of this transaction.
The unaudited pro forma combined historical results, as if the entities
listed above had been acquired at the beginning of the six months ended June 30,
2000 and 1999, respectively, and if all entities acquired in 1999 had been
acquired at the beginning of 1999 are included in the table below.
(IN THOUSANDS EXCEPT
PER SHARE DATA)
SIX MONTHS ENDED
JUNE 30,
--------------------
2000 1999
-------- --------
Revenues.................................................... $ 37,060 $ 31,223
Net loss.................................................... (13,900) (15,925)
Basic and diluted loss per share............................ (0.44) (0.70)
F-6
VOYAGER.NET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma results above include amortization of intangibles and
interest expense on debt assumed issued to finance the acquisitions. The pro
forma results are not necessarily indicative of what actually would have
occurred if the acquisitions had been completed as of the beginning of each of
the fiscal periods presented, nor are they necessarily indicative of future
consolidated results.
3. DEBT:
The Company has a revolving available credit facility with a bank group in
the amount of $60 million, with the option to extend to $70 million, on similar
terms and conditions. The credit facility matures on June 30, 2005. The
revolving credit facility agreement allows the Company to elect an interest rate
as of any borrowing date based on either the (1) prime rate, or (2) LIBOR, plus
a margin ranging from 0.5% to 2.75% depending on the ratio of funded debt to
EBITDA. The elected rate as of June 30, 2000 is approximately 8.70%. Automatic
and permanent reductions of the maximum commitments begin June 30, 2001 and
continue until maturity.
4. EARNINGS PER SHARE:
The impact of dilutive shares is not significant. Net loss per share is
computed using the weighted average number of common shares outstanding during
the period. Inclusion of common share equivalents of 3,983,847 would be
antidilutive and have been excluded from per share calculations.
5. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
The following is the supplemental cash flow information for all periods
presented:
SIX MONTHS ENDED
JUNE 30,
---------------------------
2000 1999
----------- ------------
Cash paid during the period for interest................. $ 1,731,501 $ 1,359,051
Noncash financing and investing activities:
In conjunction with the acquisitions described in Note
2, liabilities were assumed as follows:
Fair value of assets acquired....................... 5,848,698 27,343,972
Business acquisition costs, net of cash acquired.... (5,290,361) (23,577,768)
----------- ------------
Liabilities assumed...................................... $ 558,337 $ 3,766,204
=========== ============
Acquisition of equipment through capital lease........... $ 2,455,598 $ 1,478,600
Issuance of compensatory common stock and options........ $ 50,000 $ 1,044,000
6. STOCK-BASED COMPENSATION PLAN:
During the six months ended June 30, 2000, the Company granted 545,381
options to purchase common stock to certain members of management, employees and
non-
F-7
VOYAGER.NET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employees. At the grant date, all of the options granted vest in four equal
annual installments beginning January 6, 2001. The exercise price for these
options was not less than the fair market value of the Company's common stock on
the grant date. Therefore, no additional compensation expense has been
recognized in the six months ended June 30, 2000 for these options.
During the six months ended June 30, 2000, the Company recognized
compensation expense of $50,000 relating to options granted prior to January 1,
2000.
7. RECENT ACCOUNTING INTERPRETATION:
On December 3, 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 summarizes some of the SEC's interpretations of the
application of generally accepted accounting principles to revenue recognition.
Revenue recognition under SAB 101 was initially effective for the Company's
first quarter 2000 financial statements. However, SAB 101B, which was released
June 26, 2000, delayed adoption of SAB 101 until no later than the fourth fiscal
quarter 2000. Changes resulting from SAB 101 require that a cumulative effect of
such changes for 1999 and prior years be recorded as an adjustment to net income
on January 1, 2000 plus adjust the statement of operations for the three months
ended in the quarter of adoption.
Although the Company is still in the process of reviewing SAB 101, it
believes that its revenue recognition practices are in substantial compliance
with SAB 101 for the year ending December 31, 2000 or that adoption of its
provisions would not be material to its annual or quarterly results of
operations.
8. MERGER AGREEMENT:
On March 12, 2000, the Company entered into an agreement to merge with
CoreComm Limited is a stock and cash transaction. The transaction is subject to
stockholder approval, certain regulatory approvals and other conditions.
F-8
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and the Stockholders of
Voyager.net, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows, present fairly, in all material respects, the financial position
of Voyager.net, Inc. and its subsidiaries (the "Company") at December 31, 1999
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion expressed above.
PricewaterhouseCoopers LLP
Grand Rapids, Michigan
February 10, 2000, except for Note 18,
for which the date is March 12, 2000
F-9
VOYAGER.NET, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------------
1998 1999
------------ ------------
ASSETS
Currents assets:
Cash and cash equivalents.................... $ 2,350,292 $ 18,062,396
Accounts receivable, less allowance for
doubtful accounts of $99,000 and $500,000
in 1998 and 1999.......................... 950,381 4,994,026
Prepaid and other assets..................... 154,059 1,460,356
------------ ------------
Total current assets................ 3,454,732 24,516,778
Property and equipment, net..................... 9,528,372 21,298,456
Intangible assets, net.......................... 28,741,650 66,638,733
------------ ------------
Total assets........................ $ 41,724,754 $112,453,967
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of obligations under capital
leases.................................... $ 303,562 $ 2,049,878
Notes payable, related party................. 2,252,713 --
Accounts payable............................. 659,351 520,326
Other liabilities............................ 855,727 3,696,845
Deferred revenue............................. 5,625,627 11,244,633
------------ ------------
Total current liabilities........... 9,696,980 17,511,682
Commitments and contingencies...................
Obligations under capital leases................ 751,613 2,192,594
Long-term debt.................................. 30,000,000 19,650,000
Stockholders' equity:
Preferred stock, 8% cumulative, non-voting,
$.01 par value, $100 redemption value:
100,000 shares authorized, issued and
outstanding in 1998 (includes 6,667 shares
in 1998 subject to purchase), authorized
5,000,000 shares in 1999, none
outstanding............................... 8,274,819 --
Common stock, $.0001 par value, authorized
25,000,000 shares in 1998 and 50,000,000
shares in 1999; issued and outstanding,
22,216,308 shares in 1998 and 31,650,108
shares in 1999............................ 1,792 2,712
Additional paid-in capital................... 3,214,748 112,129,038
Receivable and interest for preferred and
common stock.............................. (666,700) (6,291,935)
Notes and interest receivable, stockholder... -- (5,630,418)
Deferred compensation........................ 1,008,420 111,420
Accumulated deficit.......................... (10,556,918) (27,221,126)
------------ ------------
Total stockholders' equity.......... 1,276,161 73,099,691
------------ ------------
Total liabilities and stockholders'
equity........................... $ 41,724,754 $112,453,967
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-10
VOYAGER.NET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
---------- ----------- ------------
Revenue:
Internet access service.......... $3,440,212 $10,588,963 $ 47,423,462
Other............................ 14,063 133,199 1,074,173
---------- ----------- ------------
Total revenue........... 3,454,275 10,722,162 48,497,635
---------- ----------- ------------
Operating expenses:
Internet access service.......... 1,318,163 3,607,665 15,933,377
Sales and marketing.............. 1,038,459 1,987,113 6,401,810
General and administrative....... 1,461,720 3,405,870 14,150,924
Depreciation and amortization.... 394,385 3,862,041 23,836,385
Compensation charge for issuance
of common stock and stock
options....................... -- 4,218,407 2,563,311
---------- ----------- ------------
Total operating
expenses............. 4,212,727 17,081,096 62,885,807
---------- ----------- ------------
Loss from operations before other
income (expenses)................ (758,452) (6,358,934) (14,388,172)
Other income (expense):
Interest income.................. 11,312 30,987 905,080
Interest expense................. (72,932) (942,766) (2,645,857)
---------- ----------- ------------
Total other expense..... (61,620) (911,779) (1,740,777)
---------- ----------- ------------
Net loss............................ (820,072) (7,270,713) (16,128,949)
Preferred stock dividends........... (73,456) (348,494) (367,265)
---------- ----------- ------------
Net loss applicable to
common
stockholders......... $ (893,528) $(7,619,207) $(16,496,214)
========== =========== ============
Per Share Data:
Basic and diluted net loss per share
applicable to common
stockholders..................... $ (.10) $ (.43) $ (.61)
========== =========== ============
Weighted average common shares
outstanding:
Basic and diluted................... 8,878,498 17,655,484 27,238,084
========== =========== ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-11
VOYAGER.NET, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------- ---------- ---------- ------ ------------
Balance at January 1, 1997.............. 20,000 $2,000,000 5,351,840 $ 432 $ 44,374
Redemption of common stock.............. -- -- (2,341,120) (189) (44,374)
Issuance of common stock................ -- -- 11,862,235 957 3,292
Issuance of preferred stock............. 5,000 500,000 -- -- --
Net loss................................ -- -- -- -- --
------- ---------- ---------- ------ ------------
Balance at December 31, 1997............ 25,000 2,500,000 14,872,955 1,200 3,292
Conversion of notes payable to preferred
stock and issuance of preferred and
common stock.......................... 40,324 4,032,419 446,400 36 144
Issuance of preferred and common
stock................................. 15,000 1,500,000 4,664,953 376 1,505
Conversion of preferred dividends to
preferred stock....................... 2,424 242,400 -- -- --
Issuance of common stock and options.... -- -- 2,232,000 180 3,209,807
Deferred compensation................... -- -- -- -- --
Net loss................................ -- -- -- -- --
------- ---------- ---------- ------ ------------
Balance at December 31, 1998............ 82,748 8,274,819 22,216,308 1,792 3,214,748
Issuance of common stock................ -- -- 1,240,000 100 7,354,900
Issuance of notes to stockholders....... -- -- -- -- --
Proceeds from initial public offering... -- -- 7,425,000 743 99,454,156
Proceeds from preferred stock........... -- -- -- -- --
Redemption of preferred stock........... (82,748) (8,274,819) -- -- --
Payment of preferred stock dividends.... -- -- -- -- --
Exercise of stock options and vesting of
restricted stock...................... -- -- 768,800 77 2,105,234
Deferred compensation................... -- -- -- -- --
Net loss................................ -- -- -- -- --
------- ---------- ---------- ------ ------------
Balance at December 31, 1999............ -- $ -- 31,650,108 $2,712 $112,129,038
======= ========== ========== ====== ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-12
VOYAGER.NET, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) -- (CONTINUED)
RECEIVABLE
FOR
PREFERRED TOTAL
AND NOTES AND STOCKHOLDERS'
COMMON INTEREST DEFERRED ACCUMULATED EQUITY
STOCK RECEIVABLE COMPENSATION DEFICIT (DEFICIT)
----------- ----------- ------------ ------------ -------------
Balance at January 1, 1997... $ -- $ -- $ -- $ (2,193,296) $ (148,490)
Redemption of common stock... -- -- -- (30,437) (75,000)
Issuance of common stock..... -- -- -- -- 4,249
Issuance of preferred
stock...................... -- -- -- -- 500,000
Net loss..................... -- -- -- (820,072) (820,072)
----------- ----------- ----------- ------------ ------------
Balance at December 31,
1997....................... -- -- -- (3,043,805) (539,313)
Conversion of notes payable
to preferred stock and
issuance of preferred and
common stock............... (666,700) -- -- -- 3,365,899
Issuance of preferred and
common stock............... -- -- -- -- 1,501,881
Conversion of preferred
dividends to preferred
stock...................... -- -- -- (242,400) --
Issuance of common stock and
options.................... -- -- -- -- 3,209,987
Deferred compensation........ -- -- 1,008,420 -- 1,008,420
Net loss..................... -- -- -- (7,270,713) (7,270,713)
----------- ----------- ----------- ------------ ------------
Balance at December 31,
1998....................... (666,700) -- 1,008,420 (10,556,918) 1,276,161
Issuance of common stock..... (6,291,935) -- -- -- 1,063,065
Issuance of notes to
stockholders............... -- (5,630,418) -- -- (5,630,418)
Proceeds from initial public
offering................... -- -- -- -- 99,454,899
Proceeds from preferred
stock...................... 666,700 -- -- -- 666,700
Redemption of preferred
stock...................... -- -- -- -- (8,274,819)
Payment of preferred stock
dividends.................. -- -- -- (535,259) (535,259)
Exercise of stock options and
vesting of restricted
stock...................... -- -- (1,090,000) -- 1,015,311
Deferred compensation........ -- -- 193,000 -- 193,000
Net loss..................... -- -- -- (16,128,949) (16,128,949)
----------- ----------- ----------- ------------ ------------
Balance at December 31,
1999....................... $(6,291,935) $(5,630,418) $ 111,420 $(27,221,126) $ 73,099,691
=========== =========== =========== ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-13
VOYAGER.NET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
---------- ------------ ------------
Cash flows from operating activities:
Net loss......................................... $ (820,072) $ (7,270,713) $(16,128,949)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 394,385 3,862,041 23,836,385
Interest on stockholder notes and
receivable.................................. -- -- (422,353)
(Gain) loss on sale of equipment.............. (7,071) 5,952 --
Compensation charge for issuance of common
stock and stock options..................... -- 4,218,407 2,563,311
Changes in assets and liabilities excluding
effects of business combinations:
Accounts receivable......................... (28,199) (513,909) (3,292,112)
Prepaids and other assets................... (24,251) (104,990) (1,939,885)
Accounts payable............................ (237,551) 512,591 (329,443)
Accrued expenses............................ 137,486 831,577 2,708,626
Deferred revenue............................ 187,203 1,160,698 (468,851)
---------- ------------ ------------
Net cash provided by (used in) operating
activities............................. (398,070) 2,701,654 6,526,729
Cash flows used in investing activities:
Business acquisition costs, net of cash
acquired...................................... -- (32,850,289) (55,630,048)
Purchase of property and equipment............... (661,312) (1,514,323) (5,032,682)
Proceeds from the sale of equipment.............. 87,282 28,248 --
---------- ------------ ------------
Net cash used in investing activities.... (574,030) (34,336,364) (60,662,730)
Cash flows provided by financing activities:
Payments on capital leases....................... (54,216) (54,565) (2,122,110)
Proceeds from notes payable...................... -- 2,800,000 --
Proceeds from common stock....................... 4,249 2,061 311
Proceeds from preferred stock.................... 500,000 2,065,719 666,700
Redemption of common stock....................... (75,000) -- --
Advances from related party...................... 1,127,777 4,047 --
Payments to related party........................ (15,000) (25,521) --
Issuance of loan to stockholder.................. -- -- (5,500,000)
Payment of bank financing fees................... -- (1,325,530) (1,474,770)
Proceeds from issuance of debt................... -- 30,000,000 49,850,000
Payment of preferred stock dividends............. -- -- (535,259)
Payment of debt.................................. -- -- (60,200,000)
Proceeds from initial public offering............ -- -- 101,925,743
Payment of initial public offering expenses...... -- -- (2,470,844)
Redemption of preferred stock.................... -- -- (8,274,819)
Payment of note payable.......................... -- -- (2,016,847)
---------- ------------ ------------
Net cash provided by financing
activities............................. 1,487,810 33,466,211 69,848,105
---------- ------------ ------------
Net increase in cash............................... 515,710 1,831,501 15,712,104
Cash and cash equivalents at beginning of year..... 3,081 518,791 2,350,292
---------- ------------ ------------
Cash and cash equivalents at end of year........... $ 518,791 $ 2,350,292 $ 18,062,396
========== ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-14
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and basis of presentation
Voyager.net, Inc. (the "Company ") owns 100% of Voyager Information
Networks, Inc., which was incorporated in the State of Michigan in 1994.
Voyager.net was incorporated in 1998 in the State of Delaware under the name
Voyager Holdings, Inc. The Company's name was changed to Voyager.net, Inc. on
April 29, 1999. The Company provides full service access to the Internet for
corporate and residential users in Michigan, Illinois, Indiana, Minnesota, Ohio
and Wisconsin.
Revenue recognition
The Company recognizes revenue for dial-up Internet access services,
dedicated Internet access services and value-added Web services when the
services are provided. Dial-up and dedicated Internet access service plans range
from one month to one year. Value-added Web services are sold on a monthly
basis. Advance collections relating to future access services are recorded as
deferred revenue and recognized as revenue when earned.
Cash equivalents
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
Property and equipment
Property and equipment are stated at cost and depreciated over their
estimated useful lives using the straight-line method. Equipment acquired under
capital leases is depreciated over the related lease terms or the estimated
productive useful lives, depending on the criteria met in determining the
qualification as a capital lease. Costs of repair and maintenance are charged to
expense as incurred.
Intangible assets
Intangible assets consist primarily of the cost of the acquired customer
base. The acquired customer base is amortized using the straight-line method
over 3 years based on the estimated customer churn rate. Bank financing fees,
included in intangible assets, are being amortized on a straight-line basis over
the term of the related debt. Other intangible assets are amortized over a 10
year period. Impairments, if any, are measured based upon discounted cash flow
analyses and are recognized in operating results in the period in which the
impairment in value is determined.
F-15
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Advertising costs
Advertising costs are expensed as incurred. Advertising expense of
approximately $372,000, $185,000 and $1,174,000 was charged to operations in
1997, 1998 and 1999, respectively.
Financial instruments
The Company's financial instruments, as defined by Statement of Financial
Accounting Standards ("SFAS") No. 107 "Disclosures About Fair Value of Financial
Instruments," consist of cash, notes payable and long-term debt. The Company's
estimate of the fair value of these financial instruments approximates their
carrying amounts at December 31, 1998 and 1999.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income taxes
A current tax liability or asset is recognized for the estimated taxes
payable or refundable on tax returns for the year. Deferred tax liabilities or
assets are recognized for the estimated future tax effects of temporary
differences between financial and tax accounting.
F-16
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS COMBINATIONS
In 1998 and 1999, the Company acquired certain assets used in connection
with the Internet access service business as follows:
PURCHASE
ACQUISITION DATE ACQUIRED ASSETS PRICE
---------------- ------------------------------------------------- -----------
1998:
July 1 CDL Corp......................................... $ 69,000
July 1 Internet-Michigan, Inc. ......................... 215,000
July 31 Freeway, Inc. ................................... 3,991,000
September 23 EXEC-PC, Inc. ................................... 24,815,000
October 2 Netimation, Inc. ................................ 318,000
October 2 NetLink Systems, L.L.C. ......................... 3,428,000
November 20 Add, Inc. ....................................... 14,000
-----------
$32,850,000
===========
1999:
January 15 Hoosier On-Line Systems, Inc. ................... $ 2,347,000
February 24 Infinite Systems, Ltd. .......................... 3,100,000
March 10 Exchange Network Services, Inc. ................. 3,531,000
April 23 StarNet, Inc. ................................... 2,013,000
May 7 GDR Enterprises, Inc. ........................... 9,125,000
June 4 Edgeware, Inc. d/b/a PCLink.com.................. 1,922,000
June 17 Core Digital Communications, Inc. ............... 1,320,000
June 25 American Information Services, Inc. ............. 1,206,000
September 2 Data Management Consultants, Inc. ............... 2,073,000
September 8 Net Direct....................................... 4,519,000
September 14 Raex............................................. 4,370,000
September 21 Internet Connection Services, LLC................ 708,000
September 22 MichWeb, Inc. ................................... 521,000
October 4 ComNet, LLC...................................... 8,886,000
October 7 TDI Internet Services, Inc. ..................... 1,831,000
October 7 Choice Dot Net, LLC.............................. 1,765,000
November 9 Internet Illinois................................ 1,811,000
December 10 Wholesale ISP.................................... 4,693,000
-----------
$55,741,000
===========
F-17
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aforementioned acquisitions were accounted for using the purchase
method of accounting. The operations of the entities are included in the income
statement of Voyager.net from the acquisition date forward. For each
acquisition, the excess of cost of the acquired assets less liabilities assumed
resulted in a substantial portion of the purchase price being allocated to the
acquired customer base (see Note 4).
The unaudited pro forma combined historical results for the year of
acquisition and the preceding year, as if the entities listed above had been
acquired at the beginning of the year ended December 31, 1997, 1998 or 1999,
respectively, are included in the table below. The pro forma combined historical
results for CDL Corp., Internet-Michigan, Inc., Netimation, Inc., Add, Inc.,
StarNet, Inc., American Information Services, Inc. and Internet Connection
Services, LLC were not deemed to be material and are not included for the year
ended December 31, 1997, 1998 and 1999.
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- -------- --------
Revenue............................. $ 14,120 $ 43,296 $ 62,858
Net Loss............................ (12,590) (37,656) (24,918)
Basic and diluted net loss per
share............................ (1.43) (2.13) (0.91)
The pro forma results above include amortization of intangibles and
interest expense on debt assumed issued to finance the acquisitions. The pro
forma results are not necessarily indicative of what actually would have
occurred if the acquisition had been completed as of the beginning of each of
the fiscal periods presented, nor are they necessarily indicative of future
consolidated results.
3. PROPERTY AND EQUIPMENT
Cost of property and equipment and depreciable lives are summarized as
follows:
The Company leases computer equipment under capital leases expiring in
various years through the year 2002. The assets under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. The net book value of these assets as of December 31,
1998 and 1999 was $982,222 and $4,319,370, respectively. Depreciation of assets
under capital leases is included in depreciation expense.
Future minimum lease payments under capital leases as of December 31, 1999
are as follows:
2000............................................ $ 2,355,280
2001............................................ 2,015,212
2002............................................ 341,263
-----------
Total minimum lease payments.................... 4,711,755
Less amount representing interest............... (469,283)
-----------
Present value of net minimum lease payments..... $ 4,242,472
Less current portion............................ (2,049,878)
-----------
Long-term portion of obligations under capital
leases....................................... $ 2,192,594
===========
6. RELATED PARTY TRANSACTIONS
The notes payable, related party, represent principal and interest payable
on demand to Horizon Cable I Limited Partnership, an entity under common
management. Interest on the notes was at rates of 10.5 percent in 1997, 8.0 and
8.5 percent in 1998 and in
F-19
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999. Concurrent with the Company's initial public offering, these notes,
including accumulated interest, were paid in the amount of $2,336,174.
On July 31, 1998, the Company issued to a majority stockholder $2,800,000
in notes payable at interest of 8 percent per annum. These notes, along with
$32,526 of accrued interest and cash in the amount of $533,333, were converted
into 33,657 shares of preferred stock for $100 per share and 446,400 shares of
common stock for $1,881.
In July 1999, the Company re-negotiated its revolving available credit
facility with its bank group concurrent with its initial public offering (see
Note 11) for a $60 million line of credit, with the option to extend to $70
million on similar terms and conditions. The credit facility matures on
September 30, 2005. At December 31, 1999, $19,650,000 was outstanding under the
credit facility. Interest is payable quarterly through maturity. The revolving
credit facility agreement allows the Company to elect an interest rate as of any
borrowing date based on either the (1) prime rate, or (2) LIBOR, plus a margin
ranging from 1.0% to 2.75% depending on the ratio of funded debt to EBITDA. The
elected rate as of December 31, 1999 is approximately 9.0% with an effective
weighted average rate of approximately 8.6% and 8.4% at December 31, 1998 and
1999, respectively. Commitment fees on the unused credit facility are 0.5%.
Automatic and permanent reductions of the maximum commitments begin April 2001
and continue until maturity. Based on the balance as of December 31, 1999, the
scheduled permanent reductions of long-term debt are as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The revolving credit facility is collateralized by all of the Company's
tangible and intangible personal property and fixtures as well as substantially
all of the issued and outstanding equity securities of the Company.
The revolving credit facility is subject to an agreement that contains,
among other provisions, certain financial covenants. These financial covenants
include maintenance of a minimum fixed charges ratio, a total interest coverage
ratio, and a leverage ratio.
9. INCOME TAXES
The Company's effective tax rate varies from the statutory rate as follows:
Based on the Company's current financial status, realization of the
Company's deferred tax assets does not meet the "more likely than not" criteria
under SFAS No. 109 and accordingly a valuation allowance for the entire deferred
tax asset amount has been recorded. The components of the net deferred tax asset
(liability) and the related valuation allowance are as follows:
Net operating loss ("NOL") carryforwards expire in years 2013 through 2018.
NOLs totaled $3,102,000, $5,500,000 and $5,000,000 at December 31, 1997, 1998
and 1999, respectively.
10. RETIREMENT SAVINGS PLAN
In 1997, the Company established a retirement savings 401(k) plan for all
employees. The Company can make discretionary matching contributions to the
plan. Contributions to the plan totaled approximately $7,300, $15,000 and
$53,000 in 1997, 1998 and 1999, respectively.
F-21
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. EQUITY TRANSACTIONS
On July 21, 1999, the Company completed its initial public offering in
which it sold 7,425,000 shares of common stock at $15.00 per share resulting in
net proceeds of $99,454,899. In addition, a total of 1,575,000 shares were
offered for sale by the stockholders. Upon the closing of the offering,
$60,622,173 of senior bank debt and accrued interest and fees were repaid,
$8,810,078 of preferred stock and cumulative dividends were redeemed, and
$2,336,174 of subordinated notes and accrued interest were repaid. The remainder
of the proceeds were used for general corporate purposes, including acquisitions
and capital expenditures.
On January 11, 1999, the Company issued to a member of management and the
Chairman of the Board, an aggregate 1,240,000 shares of common stock at $4.84
per share in exchange for promissory notes receivable in the aggregate amount of
$6,000,000 which are due January 11, 2003 and have an interest rate of 5% per
annum compounded annually. The notes are collateralized by a pledge of the
related shares of common stock and are a recourse obligation to these
individuals in the amount of 25% of the outstanding principal and 100% of the
accrued interest.
In April 1999, the Company loaned a member of senior management $500,000.
It is payable in three years and accrues interest at 5% per year. The loan is
uncollateralized and the Company has full recourse against the borrower.
Additionally, in July 1999, the Company loaned $5 million to the same
individual. It is due in 2003 and accrues interest at 5% per year. The loan is
collateralized by a pledge of 416,667 shares of common stock and is a recourse
obligation of the borrower in the amount of 25% of the outstanding principal and
100% of the accrued interest on the loan.
In May 1999, the Company sold an aggregate 6,667 shares of series A
preferred stock to certain shareholders pursuant to the exercise of an option to
purchase shares of series A preferred stock in the stock purchase agreement, for
an aggregate purchase price of $666,700.
On September 23, 1998, the Company issued 33,657 shares of preferred stock
at $100 per share and 446,400 shares of common stock in exchange for $2,800,000
notes payable to its majority stockholders along with $32,566 in accrued
interest and $533,513 in cash. Also on September 23, 1998, the Company converted
accumulated preferred stock dividends in the amount of $242,400 through
September 23, 1998 into 2,424 shares of preferred stock at $100 per share.
On June 24, 1999, July 6, 1998 and August 22, 1997, the Board of Directors
declared a stock split of 1.24 for 1, a 20 for 1 and a 100 for 1, respectively.
All references to the number of common shares and per share amounts in the
consolidated financial statements and related footnotes have been restated to
reflect the effect of these stock splits for all periods presented.
F-22
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. STOCK-BASED COMPENSATION PLAN
In 1998, a Stock Option and Incentive Plan (the "Plan") was established.
The Plan provides for the ability to issue Stock Options (either Incentive Stock
Options or Non-Qualified Stock Options), Stock Appreciation Rights, Restricted
Stock Awards, Deferred Stock Awards, Unrestricted Stock Awards, Performance
Share Awards and Dividend Equivalent Rights. As of December 31, 1999, there were
4,816,160 options to purchase common stock authorized with 1,626,658 options
available for issuance.
The Plan provides for the granting of options to officers, employees,
consultants, members of the Board of Directors and other key persons for
purchase of the Company's common shares. The Plan is administered by the Board
of Directors. No option can be for a term of more than ten years from the grant
date. The option price and the vesting provisions are determined by the Board of
Directors at the time of the grant.
Stock option activity under the Plan during the year ended December 31,
1998 and 1999 (there were no stock options granted during 1997) are as follows:
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
OPTIONS PRICE
--------- --------
Outstanding at January 1, 1998......................... -- --
Granted................................................ 768,800 $ .0004
Exercised, forfeited and expired....................... -- --
--------- --------
Outstanding at December 31, 1998....................... 768,800 .0004
--------- --------
Granted................................................ 3,297,980 13.431
Exercised.............................................. 768,800 .0004
Forfeited.............................................. -- --
Expired................................................ 101,894 14.6609
--------- --------
Outstanding at December 31, 1999....................... 3,196,086 $13.3992
========= ========
Exercisable at December 31, 1999....................... 558,000 $ 15.00
========= ========
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations, in accounting for
its stock and stock options issued to employees. During 1998, the Company
granted 768,800 options to purchase common stock to certain members of
management of which 582,800 options were fully vested and the remaining 186,000
options became fully vested in January 1999. During 1999, the Company granted
3,297,980 options to purchase common stock; 3,130,580 were granted at market
prices and 167,400 were granted at $4.84 per share which was less than market
price. The weighted-average remaining contractual life of the options
outstanding at December 31, 1999 is in approximately
F-23
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10 years. During 1998, the Company issued 2,232,000 shares of restricted common
stock to certain members of management for a nominal amount; 496,000 of which
were subject to certain vesting provisions at December 31, 1998 through October
2002. During 1999, the Company issued an aggregate of 1,240,000 shares of
restricted common stock at $4.84 per share to a member of management and the
Chairman of the Board. Certain of these shares were subject to vesting through
2003. Prior to the Company's initial public offering, all shares of the unvested
restricted common stock were accelerated and became 100% fully vested. The
weighted average fair value at issuance for the restricted common stock and
options were $1.77 and $6.16 per share at December 31, 1998 and 1999,
respectively. Accordingly, the Company recorded compensation expense of
$4,218,407 and $2,563,311 for the years ended December 31, 1998 and 1999,
respectively.
Under SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123),
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service (or vesting) period. Under SFAS 123, the
Company's net loss and loss per share for the years ended December 31, 1998 and
1999 would have been adjusted to the pro forma amounts indicated in the
following table:
1998 1999
----------- ------------
Net loss applicable to common
stockholders:
As reported........................... $(7,619,207) $(16,496,215)
Pro forma............................. $(8,737,394) $(26,346,231)
Loss per share:
As reported:
Basic and diluted.................. $ (.43) $ (.61)
Pro forma:
Basic and diluted.................. $ (.49) $ (.97)
The fair value of each option granted was estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
YEARS ENDED DECEMBER 31
----------------------------------------
1997 1998 1999
---- ----------- ------------
Net loss..................... $(820,072) $(7,270,713) $(16,128,949)
Less preferred stock
dividends................. (73,456) (348,494) (367,265)
--------- ----------- ------------
Net loss applicable to common
stockholders.............. $(893,528) $(7,619,207) $(16,496,214)
--------- ----------- ------------
Basic and diluted weighted
average common shares
outstanding............... 8,878,498 17,655,484 27,238,084
========= =========== ============
Basic and diluted net loss
per share applicable to
common stockholders....... $ (.10) $ (.43) $ (.61)
========= =========== ============
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Inclusion of common share equivalents
would be anti-dilutive and have been excluded from the per share calculations
for 1999. The impact of dilutive shares was not significant for 1997 and 1998.
F-25
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following is the supplemental cash flow information for all periods
presented:
YEARS ENDED DECEMBER 31
--------------------------------------
1997 1998 1999
-------- ------------ ------------
Cash paid during the year for
interest...................... $ 7,604 $ 632,027 $ 2,718,404
Noncash financing and investing
activities:
In connection with the
acquisitions described in
Note 2, liabilities were
assumed as follows:
Fair value of assets
acquired................ -- 37,890,628 60,721,084
Business acquisition costs,
net of cash acquired.... -- (32,850,289) (55,630,048)
-------- ------------ ------------
Liabilities assumed.............. -- $ 5,040,339 $ 5,091,036
======== ============ ============
Acquisition of equipment through
capital lease................. $159,974 $ 951,117 $ 4,861,250
Conversion of note payable and
accumulated dividends to
preferred stock............... $ -- $ 3,042,400 $ --
Issuance of compensatory common
stock and options............. $ -- $ 4,218,407 $ 2,563,311
Issuance of common stock in
exchange for promissory
notes......................... $ -- $ -- $ --
F-26
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities, point of presence locations, certain
network equipment and vehicles under operating lease agreements that expire in
the years 2000, 2001, 2002, 2003, 2004 and 2007. The following is a schedule of
future minimum rental payments under these leases:
In addition to these leases, the Company also leases point of presence
locations under lease terms of less than one year.
Rent expense under all operating leases of approximately $103,000, $190,000
and $760,000 was charged to operations in 1997, 1998 and 1999, respectively.
16. SEGMENT REPORTING
The Company has a single operating segment, Internet access services. The
Company has no organizational structure dictated by product lines, geography or
customer type. Sales are substantially derived from one service line, Internet
access service, and are residential and business customers in the Midwestern
United States. The Company evaluates performance based on profit or loss from
operations before interest, income taxes, depreciation and amortization and
non-recurring, non-cash compensation charges.
F-27
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
FOR THE THREE MONTHS ENDED
-----------------------------------------------------
1999
-----------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
----------- ----------- ----------- -----------
Total revenue............... $ 8,519,226 $10,713,899 $12,904,996 $16,359,514
Loss from operations before
other income (expense)... (2,694,505) (3,247,499) (3,169,243) (5,276,925)
Net loss.................... (3,466,018) (4,290,055) (3,357,604) (5,015,272)
Basic and diluted net loss
per share applicable to
common stockholders...... $ (.16) $ (.19) $ (.11) $ (.16)
Weighted average common
shares outstanding, basic
and diluted.............. 22,987,865 23,776,309 30,084,336 31,650,108
1998
-----------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
----------- ----------- ----------- -----------
Total revenue............... $ 1,135,244 $ 1,222,266 $ 2,045,296 $ 6,319,356
Income (loss) from
operations before other
income (expense)......... 102,866 (39,587) (944,947) (5,477,266)
Net income (loss)........... 63,825 (77,981) (1,040,681) (6,215,876)
Basic and diluted net loss
per share applicable to
common stockholders...... $ -- $ (.01) $ (.06) $ (.29)
Weighted average common
shares outstanding, basic
and diluted.............. 14,998,673 15,021,831 18,255,050 22,210,920
18. SUBSEQUENT EVENTS (UNAUDITED)
On February 11, 2000, the Company purchased assets from Valley Business
Equipment, Inc. for approximately $4,100,000 of which approximately $3,700,000
was remitted to Valley Business Equipment, Inc. and the remainder was deposited
in an escrow account. Approximately $4,000,000 was allocated to the acquired
customer base cost as a result of this transaction.
On March 12, 2000, the Company entered into an agreement to merge with
CoreComm Limited in a stock and cash transaction. The transaction is subject to
stockholder approval, certain regulatory approvals and other conditions.
F-28
ATX TELECOMMUNICATIONS SERVICES, INC.
BALANCE SHEET
(UNAUDITED)
JUNE 30,
2000
-----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................ $ 3,530,871
Accounts receivable, net of allowances for doubtful
accounts and credits of $2,108,000 and $1,811,000,
respectively........................................... 25,669,479
Other current assets..................................... 744,860
-----------
TOTAL CURRENT ASSETS........................................ 29,945,210
PROPERTY AND EQUIPMENT, net................................. 13,310,781
INTANGIBLE ASSETS, net...................................... 638,210
OTHER ASSETS................................................ 261,864
-----------
TOTAL ASSETS.................................... $44,156,065
===========
LIABILITIES AND EQUITY/PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable......................................... $28,465,971
Accrued expenses......................................... 1,069,050
Accrued payroll and related expenses..................... 4,886,165
Sales and excise taxes payable........................... 2,023,133
Payables, related parties................................ 1,445,168
-----------
TOTAL CURRENT LIABILITIES................................... 37,889,487
-----------
TOTAL LIABILITIES........................................... 37,889,487
-----------
CONTINGENCIES
PHANTOM UNIT COMPENSATION................................... 1,200,000
EQUITY/PARTNERS' CAPITAL.................................... 5,066,578
-----------
TOTAL LIABILITIES AND EQUITY/PARTNERS'
CAPITAL........................................ $44,156,065
===========
See accompanying notes to unaudited financial statements.
F-29
ATX TELECOMMUNICATIONS SERVICES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
------------- ------------- ------------- -------------
REVENUES.............. $40,303,265 $33,465,119 $76,566,416 $64,398,923
----------- ----------- ----------- -----------
EXPENSES
Cost of revenues... 29,586,139 20,914,123 51,337,853 39,949,002
Selling, general
and
administrative... 15,927,345 12,912,934 32,175,309 24,459,164
----------- ----------- ----------- -----------
TOTAL EXPENSES........ 45,513,484 33,827,057 83,513,162 64,408,166
----------- ----------- ----------- -----------
LOSS FROM
OPERATIONS......... (5,210,219) (361,938) (6,946,746) (9,243)
----------- ----------- ----------- -----------
INTEREST INCOME,
NET................ 16,136 19,899 50,327 24,317
----------- ----------- ----------- -----------
NET (LOSS) INCOME..... $(5,194,083) $ (342,039) $(6,896,419) $ 15,074
=========== =========== =========== ===========
See accompanying notes to unaudited financial statements.
F-30
ATX TELECOMMUNICATIONS SERVICES, INC.
STATEMENTS OF CHANGES IN EQUITY/PARTNERS' CAPITAL
(UNAUDITED)
BALANCE, December 31, 1999.................................. $12,164,122
Net loss for the Six Months ended June 30, 2000............. (6,896,419)
Capital contributions....................................... 4,064,560
Partners' distributions..................................... (4,265,685)
-----------
BALANCE, June 30, 2000...................................... $ 5,066,578
===========
See accompanying notes to unaudited financial statements.
F-31
ATX TELECOMMUNICATIONS SERVICES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income.............................. $(6,896,419) 15,074
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating
activities Depreciation and amortization.... 1,445,010 962,703
Provision for allowances.................... 199,500 98,000
Phantom unit compensation................... (200,000) (200,000)
Changes in assets and liabilities
(Increase) decrease in assets
Accounts receivable................... (5,229,893) (1,733,868)
Other current assets.................. (643,684) 250,576
Increase (decrease) in liabilities
Accounts payable...................... 16,125,512 512,443
Accrued payroll and related
expenses........................... 185,283 (321,030)
Accrued expenses...................... 2,870 110,956
Sales and excise taxes payable........ (233,383) (528,691)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES..................................... 4,754,796 (833,837)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment............. (6,306,632) (1,361,048)
Increase (decrease) in receivables and payable,
related parties............................. (305,668) 197,733
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES............. (6,612,300) (1,163,315)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long term debt...................... - (275,000)
Capital Distributions.......................... (691,190)
Capital contributions.......................... 2,200,000 --
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES..................................... 2,200,000 (966,190)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... 342,496 (2,963,342)
BEGINNING CASH AND CASH EQUIVALENTS............... 3,188,375 5,067,315
----------- -----------
ENDING CASH AND CASH EQUIVALENTS.................. $ 3,530,871 2,103,973
=========== ===========
See accompanying notes to unaudited financial statements.
F-32
ATX TELECOMMUNICATIONS SERVICES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
ATX Telecommunication Services, Inc. ("ATX, Inc." or "the Company") was
organized in the state of Delaware on February 9, 2000 upon the consent of the
former partners of ATX Telecommunications LP ("ATX") and Global Telecom LP
("Global"). The financial position of the Company as of June 30, 2000 included
the net assets contributed by the former partnerships of ATX and Global to ATX,
Inc. on February 9, 2000 at their historical costs basis. For financial
reporting purposes, the results of operations for the Six Months ended June 30,
2000 include the results of operations of the former partnerships of ATX and
Global. These partnerships were terminated on February 9, 2000 upon their merger
into ATX, Inc. ATX, Inc. was capitalized with 10,000 shares of common stock at
$.01 par value. Upon the merger, 1,000 shares of common stock was issued to the
former partners of ATX and Global.
Upon the merger into ATX, Inc., distributions were made to certain former
partners of ATX to satisfy their loans and advances.
The Company is a single-source provider of voice and data services offering
a full range of telecommunications services, including long distance, local,
data, private line, cellular, PC-based billing, prepaid calling, paging,
Internet access and World Wide Web consulting, development and hosting.
The ATX Shareholders Agreement and former Partnership Agreements provided
for bonuses to certain executives totaling $8,000,000 per year. The Company has
recorded $4,000,000 of compensation expense for these bonuses included in
selling, general and administrative expenses for the Six Months ended June 30,
2000 and June 30, 1999. These bonuses will be eliminated upon the merger
agreement as discussed on Note 2.
2. PLAN OF RECAPITALIZATION AND MERGER
On April 9, 2000, ATX, Inc. and its stockholders ("ATX Stockholders")
entered into a plan of recapitalization and merger ("Merger Agreement") with
CoreComm Limited ("CoreComm"). Under the terms of the merger agreement, as
amended, the ATX stockholders will exchange their issued and outstanding common
stock for the following aggregate consideration: (i) approximately 12.4 million
shares of CoreComm common stock; (ii) $250 million of CoreComm's 3% senior
convertible preferred stock and (iii) $150 million in cash from CoreComm. Such
amounts may be subject to adjustments as defined in the merger agreement. In the
event CoreComm has not completed a debt or equity financing prior to the closing
date, CoreComm may elect to issue short term notes of $110 million and reduce
the cash consideration by such amount. The Merger Agreement is subject to
regulatory and CoreComm shareholder approval, amongst other conditions.
3. BASIS OF PRESENTATION
In the opinion of management, all adjustments which have been made are
necessary to present fairly the financial position of the Company as of June 30,
2000 and 1999 and the results of operations for the six month periods ended June
30, 2000 and 1999. The
F-33
ATX TELECOMMUNICATIONS SERVICES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
results of operations for the six month period ending June 30, 2000 are not
necessarily indicative of the results to be experienced for the fiscal year
ending December 31, 2000.
The Statements and related notes herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. The accompanying notes
should therefore be read in conjunction with the Company's December 31, 1999
financial statements included elsewhere herein.
INCOME TAXES
Upon the incorporation of ATX, Inc as of February 9, 2000, ATX is subject
to federal and state income taxation. ATX did not provide for an income tax
benefit for the Six Months ended June 30, 2000 based on the uncertainty of
future earnings and profits.
Prior to the incorporation of ATX, Inc., the partners were required to
report their respective share of the Company's profits and losses in their
individual income tax returns. Accordingly, no provision for federal, state and
local income taxes is reflected in these statements for periods prior to
February 9, 2000.
4. PHANTOM UNIT PLAN
The Phantom Unit Plan ("the Plan") provides for the issuance of a total of
5,000,000 phantom units. The phantom units shall become payable on the earlier
of termination or a change of control. Upon the termination of employment, such
phantom unit holders shall be entitled to compensation. Such compensation shall
be payable over a 36-month period beginning in the thirteenth month after
termination. Compensation is determined by the Phantom Unit Plan's formula and
is based on average net income as defined in the Plan for the three years prior
to termination.
Upon a change in control as defined in the Plan, the Company will record a
compensation charge equal to the fair market value of the phantom units. Such
event would be the consummation of the Merger Agreement above resulting in a
charge of approximately 5% of the fair market value of the aggregate
consideration as described in Note 2.
5. SUPPLEMENTAL CASH FLOW INFORMATION
Prior to the merger into ATX, Inc. distributions were made to the former
partners of ATX of approximately $4.3 million to satisfy their loan balances.
Additionally, loans to an officer of the Company were forgiven of approximately
$1.9 million and shown as a contribution to equity.
F-34
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ATX Telecommunications Services Group
Bala Cynwyd, Pennsylvania
We have audited the accompanying combined balance sheets of ATX
Telecommunications Services Group as of December 31, 1999, 1998 and 1997, and
the related combined statements of operations, changes in partners' capital, and
cash flows for the years then ended. These financial statements are the
responsibility of the management of ATX Telecommunications Services Group. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of ATX
Telecommunications Services Group as of December 31, 1999, 1998 and 1997, and
the results of their operations and their cash flows for the three years then
ended in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Philadelphia, Pennsylvania
March 10, 2000
F-35
ATX TELECOMMUNICATIONS SERVICES GROUP
COMBINED BALANCE SHEETS
DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents........ $ 3,188,375 $ 5,067,315 $ 3,231,366
Accounts receivable, net of
allowances for doubtful
accounts and credits of
$1,909,000, $1,713,000 and
$1,412,000, respectively...... 20,639,086 16,857,357 12,987,283
Other current assets............. 101,176 1,267,796 924,227
Receivables, related parties..... -- -- 2,924,430
----------- ----------- -----------
TOTAL CURRENT ASSETS................ 23,928,637 23,192,468 20,067,306
PROPERTY AND EQUIPMENT, net......... 8,359,873 6,304,365 3,275,769
INTANGIBLE ASSETS, net.............. 727,496 906,067 1,084,638
OTHER ASSETS........................ 261,864 -- --
RECEIVABLES, partners............... 4,265,685 2,037,620 570,442
----------- ----------- -----------
TOTAL ASSETS........................ $37,543,555 $32,440,520 $24,998,155
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable................. $12,340,460 $ 9,709,815 $ 6,536,352
Accrued expenses................. 1,066,180 1,072,655 931,500
Accrued payroll and related
expenses...................... 4,700,882 4,518,969 475,547
Accrued partners'
distributions................. -- 1,350,000 --
Sales and excise taxes payable... 2,256,516 1,908,584 2,528,878
Current portion of long-term
debt.......................... -- 562,500 275,000
Payables, related parties........ 1,750,835 678,793 --
----------- ----------- -----------
TOTAL CURRENT LIABILITIES........... 22,114,873 19,801,316 10,747,277
LONG-TERM DEBT...................... -- -- 562,500
PAYABLES, related parties........... 1,864,560 1,864,560 170,885
----------- ----------- -----------
TOTAL LIABILITIES................... 23,979,433 21,665,876 11,480,662
COMMITMENTS AND CONTINGENCIES
PHANTOM UNIT COMPENSATION........... 1,400,000 1,800,000 --
PARTNERS' CAPITAL................... 12,164,122 8,974,644 13,517,493
----------- ----------- -----------
TOTAL LIABILITIES AND PARTNERS'
CAPITAL.......................... $37,543,555 $32,440,520 $24,998,155
=========== =========== ===========
See accompanying notes to combined financial statements.
F-36
ATX TELECOMMUNICATIONS SERVICES GROUP
COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
------------ ------------ -----------
REVENUES.......................... $135,020,849 $113,654,155 $92,594,419
------------ ------------ -----------
EXPENSES
Cost of revenues............... 85,477,119 68,435,883 52,769,825
Selling, general and
administrative.............. 51,213,416 43,280,185 26,406,902
------------ ------------ -----------
TOTAL EXPENSES.................... 136,690,535 111,716,068 79,176,727
------------ ------------ -----------
(LOSS) INCOME FROM OPERATIONS..... (1,669,686) 1,938,087 13,417,692
INTEREST INCOME, net.............. 71,844 115,042 179,215
------------ ------------ -----------
NET (LOSS) INCOME................. $ (1,597,842) $ 2,053,129 $13,596,907
============ ============ ===========
See accompanying notes to combined financial statements.
F-37
ATX TELECOMMUNICATIONS SERVICES GROUP
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
BALANCE, December 31, 1996.................................. $ 11,313,825
Net income for the year ended December 31, 1997............. 13,596,907
Partners' contributions..................................... 412,500
Partners' distributions..................................... (11,805,739)
------------
BALANCE, December 31, 1997.................................. 13,517,493
Net income for the year ended December 31, 1998............. 2,053,129
Partners' contributions..................................... 2,000,000
Partners' distributions..................................... (8,595,978)
------------
BALANCE, December 31, 1998.................................. 8,974,644
Net loss for the year ended December 31, 1999............... (1,597,842)
Partners' contributions..................................... 4,847,739
Partners' distributions..................................... (60,419)
------------
BALANCE, December 31, 1999.................................. $ 12,164,122
============
See accompanying notes to combined financial statements.
F-38
ATX TELECOMMUNICATIONS SERVICES GROUP
COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income..................... $(1,597,842) $ 2,053,129 $13,596,907
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities
Depreciation and amortization... 1,820,453 1,947,830 1,830,449
Provision for allowances........ 196,000 301,000 112,000
Loss on sale of equipment....... -- 5,380 --
Phantom unit compensation....... (400,000) 1,800,000 --
Changes in assets and
liabilities
(Increase) decrease in assets
Accounts receivable.......... (3,977,729) (4,171,074) (1,892,732)
Other current assets......... 1,166,620 (343,569) 41,083
Other assets................. (261,864) -- --
Increase (decrease) in
liabilities
Accounts payable............. 2,630,645 3,173,463 1,179,702
Accrued expenses............. (6,475) 141,155 280,701
Accrued payroll and related
expenses.................. 181,913 4,043,422 98,822
Sales and excise taxes
payable................... 347,932 (620,294) 38,146
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................ 99,653 8,330,442 15,285,078
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property and
equipment.......................... -- 11,000 --
Purchase of property and equipment.... (3,697,390) (4,814,235) (1,214,911)
Purchase of intangible assets......... -- -- (412,500)
Decrease (increase) in receivables and
payable, related parties........... 1,072,042 5,296,898 (1,924,745)
Increase in loans to partners......... (2,228,065) (117,178) (324,765)
----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES............................ (4,853,413) 376,485 (3,876,921)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt............. (562,500) (275,000) --
Partners' contributions............... 4,847,739 2,000,000 412,500
Partners' distributions............... (1,410,419) (8,595,978) (11,805,739)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES............................ 2,874,820 (6,870,978) (11,393,239)
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS........................... (1,878,940) 1,835,949 14,918
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR.................................. 5,067,315 3,231,366 3,216,448
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,188,375 $ 5,067,315 $ 3,231,366
=========== =========== ===========
See accompanying notes to combined financial statements.
F-39
ATX TELECOMMUNICATIONS SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
The combined financial statements of ATX Telecommunications Services Group
("the Company") include the accounts of ATX Telecommunications Services Ltd.
("ATX") and Global Telecom Services, Ltd. ("Global") which were under common
control and ownership by the same partners/family members. ATX and Global were
limited partnerships organized under the laws of the Commonwealth of
Pennsylvania. ATX and Global are single-source providers of voice and data
services offering a full range of telecommunications services, including long
distance, local, data, private line, cellular, PC-based billing, prepaid
calling, paging, Internet access and World Wide Web consulting, development and
hosting.
These partnerships were terminated on February 9, 2000 upon their merger
into ATX Telecommunication Services, Inc. ("ATX, Inc."). ATX, Inc. was
incorporated on the above date in the state of Delaware upon the consent of the
Company's partners. ATX, Inc. was capitalized with 10,000 shares of common stock
at $.01 par value. Upon the merger, 1,000 shares of common stock was issued to
the former partners of ATX and Global. On such date, the Company contributed its
assets and its liabilities were assumed by ATX, Inc. at their historical cost
basis.
The partnership agreement provides for the allocation of profits and losses
on an annual basis. Profits and losses are allocated among partners based on the
partnership agreement.
Distributions, other than liquidating distributions, shall be made to all
partners in proportion to their percentage interests except as otherwise
stipulated in the partnership agreement.
The partnership agreement required that during 1999 certain partners
receive distributions totaling $1,350,000 for prior years. This agreement also
provides for bonuses to these partners totaling $8,000,000 per year for the
years 1998 through 2002. The Company has recorded compensation expenses for
these bonuses included in selling, general and administrative expenses for the
years ended December 31, 1999 and 1998, respectively.
If a sale or public offering of the Company does not occur before January
31, 2003, certain minority partners have an option to put their respective
interests to the Company at fair value, as defined within the partnership
agreement. The total amount to be paid to these partners for their respective
interests will be paid over a seven and one-half year period.
2. PLAN OF RECAPITALIZATION AND MERGER
On March 9, 2000, ATX, Inc. and its stockholders ("ATX Stockholders")
entered into a plan of recapitalization and merger ("Merger Agreement") with
CoreComm Limited ("CoreComm"). Under the terms of the merger agreement, ATX will
be
F-40
ATX TELECOMMUNICATIONS SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
recapitalized such that the ATX Stockholders will receive the following
aggregate consideration: (i) approximately 12.4 million shares of CoreComm
common stock; (ii) $250 million of CoreComm's 3% senior preferred stock and
(iii) $150 million in cash from CoreComm. Such amounts may be subject to
adjustments as defined in the merger agreement. In the event CoreComm has not
completed a debt or equity financing prior to the closing date, CoreComm may
elect to issue short term notes of $70 million and reduce the cash consideration
by such amount. The Merger Agreement is subject to regulatory and CoreComm
shareholder approval, among other conditions.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company recognizes revenue based on the customers' usage of services.
Revenues are presented net of estimated discounts. Additionally, the Company
accrues for unbilled telecommunication revenue as a result of its billing cycle
and such amounts are included in accounts receivable.
Cost of Revenues
Cost of revenues includes network costs which consist of access, transport,
and termination costs. Such costs are recognized when incurred in connection
with the provision of telecommunication services.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are provided by the straight-line method over the estimated useful lives of the
respective assets. Property and equipment are depreciated over useful lives
ranging from five to seven years and leasehold improvements are amortized over
the terms of the lease.
Intangible Assets
Intangible assets represent acquired customer lists which are being
amortized using the straight line method over a 7-year period. Intangible assets
are presented net of accumulated amortization of $522,504, $343,933 and $165,362
as of December 31, 1999, 1998 and 1997, respectively.
F-41
ATX TELECOMMUNICATIONS SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Impairment of Assets
The Company's long-lived assets and identifiable intangibles are reviewed
for impairment whenever events or changes in circumstances indicate that the net
carrying amount may not be recoverable. When such events occur, the Company
measures impairment by comparing the carrying value of the long-lived asset to
the estimated undiscounted future cash flows expected to result from the use of
the assets and their eventual disposition. The Company determined that, as of
December 31, 1999, there had been no impairment in the carrying value of the
long-lived and intangible assets.
Advertising and Marketing Costs
All costs related to advertising and marketing the Company's products and
services are expensed in the period incurred.
Income Taxes
The partners are required to report their respective share of the Company's
profits and losses in their individual income tax returns. Accordingly, no
provision for federal, state and local income taxes is reflected in the
financial statements.
Concentrations of Credit Risk
The Company maintains its cash deposits and temporary cash investments with
high-quality institutions at levels which may exceed federally insured limits.
The Company has not experienced any losses on cash deposits or temporary cash
investments maintained in this manner.
The Company sells its telecommunications services and products to customers
operating primarily in the Northeastern region of the United States. The Company
performs ongoing credit evaluation of its customers, and it generally does not
require collateral from those customers.
Fair Value of Financial Instruments
The carrying value of all financial instruments approximates their fair
value due to the short maturity of the respective instruments.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-42
ATX TELECOMMUNICATIONS SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with an acquisition of customer lists during 1997 for
$1,250,000, Global issued a note for $837,500. The note provided for payments of
$275,000 and $562,500 with interest at 5.5% in 1998 and 1999, respectively.
During 1999, the note was repaid in full. Global recorded interest expense of
$47,238 and $39,724 for the years ended 1999 and 1998.
6. LEASE COMMITMENTS
The Company leases various facilities classified as operating leases. Under
terms of these leases, the Company is required to pay its proportionate share of
real estate taxes, operating expenses and other related costs. Rent expense for
the years ended December 31, 1999, 1998 and 1997 was $1,619,083, $1,444,456 and
$1,295,971, respectively.
Additionally, the Company leases its principal office and equipment space
from various partnerships in which the general partner was also a partner of the
Company. The Company recorded rent included in the above amounts aggregating
$1,227,010, $1,182,515 and $1,179,358 to these partnerships for the years ended
December 31, 1999, 1998 and 1997, respectively.
F-43
ATX TELECOMMUNICATIONS SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental payments, including those due to related parties, are
summarized as follows:
There are various transactions with a partner of the Company relating to
certain professional services approximating $1,000,000 for each of the years
1999, 1998 and 1997. These transactions resulted in intercompany balances shown
as payables to related parties, with the related costs reflected in general and
administrative expenses. Additionally, companies affiliated with this partner
advanced funds to the Company for their operations and purchases of certain
telecommunication equipment. These amounts have no formal repayment terms or
interest rates and are shown as payables, related party.
Additionally, the Company advanced funds to certain partners. These amounts
are included in receivables, partners and had no formal repayment terms or
interest rates. Subsequent to December 31, 1999, prior to the partnerships'
merger into ATX, Inc., a distribution of approximately $4.3 million was declared
and satisfied by the above mentioned receivables, partners.
8. CONTINGENCIES
The Company is a defendant in various lawsuits relative to its business
operations. Management believes that the outcome of these pending lawsuits will
not materially effect the financial position, results of operations or cash
flows of the Company.
9. EMPLOYEE BENEFITS
The Company and affiliated business entities controlled by a partner of the
Company maintain a self-insured health plan for their employees and partners.
The Company is responsible for participant claims, stop loss premiums and
administrative fees. Such plan does not provide for post retirement benefits.
F-44
ATX TELECOMMUNICATIONS SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. RETIREMENT PLAN
The Company's employees participate in a defined contribution profit
sharing plan established under Section 401(k) of the Internal Revenue Code. The
plan allows employees to defer up to 15% of their income through contributions
to the plan on a pretax basis, subject to a statutory dollar limitation. In
accordance with the provisions of the plan, the employer may match employees'
contributions. In addition, the employer may make optional contributions to the
plan. The Company and other business entities controlled by a partner of the
Company participate in this plan. The Company made matching contributions to the
plan for the years ended December 31, 1999, 1998 and 1997 of $176,166, $127,670
and $58,047, respectively.
11. PHANTOM UNIT PLAN
During 1998, ATX adopted the 1998 Phantom Unit Plan (the "Plan"). The Plan
provides for the issuance of a total of 5,000,000 phantom units representing a
phantom 5% equity interest in ATX. Eligible employees may receive phantom units
or equivalent consideration as determined by a committee appointed by ATX to
administer the Plan. The committee has the authority at its sole discretion to
designate the employees eligible to participate in the Plan. In addition, the
committee may terminate or amend the Plan at its discretion. Termination or
amendment of the Plan shall not affect phantom awards previously granted.
Typically, the awards vest over a seven-year period from the date of grant;
however, an employee may receive credit for employment time prior to the date of
the award at the discretion of the committee. The Plan is unfunded.
The phantom units become payable to a participant on the earlier of his
termination of employment or a change of control. Upon termination of
employment, a participant is entitled to compensation under the Plan. Such
compensation is payable over a 36-month period beginning in the thirteenth month
after termination. The participant's compensation is determined by his
proportionate ownership of units and the Plan's formula for determining value,
which is 10 times average net cash income as defined in the Plan for the prior
three fiscal years.
The Company has recorded a noncash (benefit) charge of ($400,000) and
$1,800,000 for the years ended December 31, 1999 and 1998, respectively, related
to the issuance of the phantom units.
Upon a change in control as defined in the Plan, the participants will
become entitled to receive compensation based upon the exchange or transaction
value of ATX's equity. ATX, Inc. will record a compensation charge equal to the
fair market value of the consideration payable to the Plan participants less
amounts previously recorded. The consummation of the Merger Agreement, described
in Note 2 above, would result in a non-cash charge of approximately $44 million.
F-45
ATX TELECOMMUNICATIONS SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table contains information on phantom units for units granted
under the Plan from the date of adoption of the Plan through December 31, 1999:
NUMBER OF
PHANTOM UNITS
-------------
Outstanding at January 1, 1998........... --
Granted.................................. 3,350,000
Cancelled................................ (75,000)
---------
Outstanding at December 31, 1998......... 3,275,000
Granted.................................. 1,725,000
Cancelled................................ --
---------
Outstanding at December 31, 1999......... 5,000,000
=========
12. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Global financed $837,500 in 1997 related to the purchase of customer lists
and paid interest of $47,238 and $39,724 in 1999 and 1998, respectively, in
connection with this note.
F-46
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
CORECOMM LIMITED,
CORECOMM GROUP SUB I, INC.
AND
VOYAGER.NET, INC.
DATED AS OF MARCH 12, 2000
TABLE OF CONTENTS
PAGE
----
ARTICLE I THE MERGER................................................... A-7
1.1 The Merger.................................................. A-7
1.2 Effective Time.............................................. A-7
1.3 Closing..................................................... A-7
1.4 Tax Consequences............................................ A-8
ARTICLE II DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION......... A-8
2.1 Directors of the Surviving Corporation...................... A-8
2.2 Officers of the Surviving Corporation....................... A-8
ARTICLE III EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS............................................ A-9
3.1 Effect on Capital Stock..................................... A-9
3.2 Company Stock Options and Related Matters................... A-12
ARTICLE IV PAYMENT OF SHARES........................................... A-13
4.1 Payment for Shares of Company Common Stock.................. A-13
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ A-16
5.1 Existence; Good Standing; Authority; Compliance With Law.... A-16
5.2 Authorization, Validity and Effect of Agreements............ A-18
5.3 Capitalization.............................................. A-19
5.4 Subsidiaries................................................ A-20
5.5 Other Interests............................................. A-20
5.6 No Violation; Consents...................................... A-20
5.7 SEC Documents............................................... A-21
5.8 Litigation.................................................. A-22
5.9 Absence of Certain Changes.................................. A-23
5.10 Taxes....................................................... A-24
5.11 Real Property Leases; Properties............................ A-25
5.12 Intellectual Property....................................... A-28
5.13 Environmental Matters....................................... A-29
5.14 Employee Benefit Plans...................................... A-30
5.15 Labor Matters............................................... A-32
5.16 No Brokers.................................................. A-33
5.17 Opinion of Financial Advisor................................ A-33
5.18 Non-Competition Agreements.................................. A-33
A-1
5.19 Material Contracts. A-33
5.20 Certain Agreements.......................................... A-34
5.21 Subscribers................................................. A-35
5.22 Information................................................. A-35
5.23 Vote Required............................................... A-35
5.24 Definition of the Companys Knowledge........................ A-35
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PARENT.................... A-35
6.1 Existence; Good Standing; Authority; Compliance With Law.... A-36
6.2 Authorization, Validity and Effect of Agreement............. A-37
6.3 Capitalization.............................................. A-37
6.4 Subsidiaries................................................ A-38
6.5 Other Interests............................................. A-38
6.6 No Violation; Consents...................................... A-39
6.7 SEC Documents............................................... A-39
6.8 Litigation.................................................. A-40
6.9 Absence of Certain Changes.................................. A-40
6.10 Intellectual Property....................................... A-41
6.11 No Brokers.................................................. A-41
6.12 Opinion of Financial Advisor................................ A-41
6.13 Taxes....................................................... A-41
6.14 Employee Benefit Plans...................................... A-42
6.15 Definition of Parents Knowledge............................. A-42
ARTICLE VII COVENANTS.................................................. A-42
7.1 No Solicitations............................................ A-42
7.2 Conduct of Businesses....................................... A-44
7.3 Tax-Free Treatment.......................................... A-47
ARTICLE VIII ADDITIONAL AGREEMENTS..................................... A-48
8.1 Meetings of Stockholders.................................... A-48
8.2 HSR and Other Filings....................................... A-48
8.3 Proxy Statement; Registration Statement..................... A-50
8.4 Listing Application......................................... A-51
8.5 Affiliates of the Company................................... A-51
8.6 Expenses.................................................... A-52
8.7 Officers and Directors Indemnification...................... A-52
8.8 Access to Information; Confidentiality...................... A-54
A-2
8.9 Publicity. A-54
8.10 Employee Benefits........................................... A-55
8.11 Reincorporation and Acquisition............................. A-55
8.12 Other Actions............................................... A-56
8.13 Notification of Certain Matters............................. A-56
8.14 Notification of Parent Transactions......................... A-57
ARTICLE IX CONDITIONS TO THE MERGER.................................... A-57
9.1 Conditions to the Obligations of Each Party................. A-57
9.2 Conditions to Obligations of the Company.................... A-58
9.3 Conditions to Obligations of Parent......................... A-59
9.4 Parent Transactions......................................... A-60
ARTICLE X TERMINATION, AMENDMENT AND WAIVER............................ A-60
10.1 Termination................................................. A-60
10.2 Effect of Termination....................................... A-63
10.3 Amendment................................................... A-63
ARTICLE XI GENERAL PROVISIONS.......................................... A-64
11.1 Notices..................................................... A-64
11.2 Certain Definitions......................................... A-64
11.3 Non-Survival of Representations, Warranties, Covenants and
Agreements.................................................. A-65
11.4 Miscellaneous............................................... A-65
11.5 Assignment.................................................. A-66
11.6 Severability................................................ A-66
11.7 Choice of Law/Consent to Jurisdiction....................... A-66
11.8 Incorporation............................................... A-67
11.9 The Headings................................................ A-67
11.10 No Agreement Until Executed................................. A-67
11.11 Obligations of Parent and of the Company.................... A-67
EXHIBITS
Exhibit A Affiliate Letter
Exhibit B Registration Rights Agreement
Exhibit C Stockholders Agreement
A-3
COMPANY DISCLOSURE SCHEDULE
SECTION TITLE
------- -----
5.1(b) Organizational and Good Standing
5.1 Organizational Documents
5.1(f) Communications Permits
5.1(g) Violations of Communications Permits
5.3 Capitalization
5.4 Subsidiaries
5.5 Other Interests
5.6(a) No Violations
5.6(b) Consents
5.8 Litigation
5.9 Absence of Certain Changes
5.10 Taxes
5.11 Real Property Leases; Properties
5.12(a) Intellectual Property
5.12(b) Intellectual Property Licenses
5.12(c) Intellectual Property Enforcement Actions
5.13 Environmental Matters
5.14(a) Company Benefit Plans
5.14(b) Employee Matters
5.14(c) Employee Compensation
5.15 Labor Matters
5.18 Non-Competition Agreements
5.19(a) Material Contracts
5.19(b) Other Contracts
5.19(c) Circuit Schedule
5.20 Certain Agreements
7.2(a) Conduct by the Company
8.12 Pricing Policies
A-4
PARENT DISCLOSURE SCHEDULE
SECTION TITLE
------- -----
6.1 Organizational and Good Standing
6.3 Capitalization
6.4 Subsidiaries
6.5 Other Interests
6.6(a) No Violations
6.6(b) Consents
6.8 Litigation
6.9 Absence of Certain Changes
6.10 Intellectual Property
6.13 Taxes
7.3(b) Conduct by Parent
A-5
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of March 12, 2000,
by and among CoreComm Limited, a Bermuda corporation ("Parent"), CoreComm Group
Sub I, Inc., a Delaware corporation and a wholly owned subsidiary of Parent
("MergerCo"), and Voyager.net, Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the respective Boards of Directors of Parent, MergerCo and the
Company have approved the merger of MergerCo with and into the Company (the
"Merger") in accordance with the Delaware General Corporation Law (the "DGCL")
and, upon the terms and subject to the conditions set forth in this Agreement,
holders of shares of common stock, par value $.0001 per share, of the Company
(the "Company Common Stock") issued and outstanding immediately prior to the
Effective Time (as hereinafter defined) will be entitled, subject to the terms
and conditions hereof, to the right to receive shares of common stock, par value
$.01 per share, of Parent (the "Parent Common Stock") and cash, without any
interest thereon, subject to certain adjustments;
WHEREAS, the Board of Directors of the Company (the "Company Board") has,
in light of and subject to the terms and conditions set forth herein, (i)
determined that (A) the consideration to be paid for each share of Company
Common Stock in the Merger is fair to the stockholders of the Company, and (B)
the Merger is in the best interests of the Company and its stockholders, and
(ii) resolved to approve and adopt this Agreement and the transactions
contemplated or required by this Agreement, including the Merger (collectively,
the "Transactions"), and to recommend approval and adoption by the stockholders
of the Company of this Agreement and the Transactions;
WHEREAS, as a condition to the willingness of Parent and MergerCo to enter
into this Agreement, Media/Communications Partners II Limited Partnership,
Media/ Communications Investors Limited Partnership Glenn R. Friedly and
Christopher P. Torto and certain of their affiliates (collectively, the
"Principal Stockholders") have entered into a Voting Agreement, dated as of the
date hereof, with Parent and MergerCo (the "Voting Agreement"), pursuant to
which each Principal Stockholder has agreed, among other things, to vote such
Principal Stockholder's shares of Company Common Stock in favor of the approval
of the Transactions, upon the terms and subject to the conditions set forth in
the Voting Agreement;
WHEREAS, Parent, MergerCo and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Transactions, and also to prescribe various conditions to the Transactions;
WHEREAS, the parties intend, by executing this Agreement, to either or both
(i) adopt a plan of reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code") and to cause the Merger
to qualify as a reorganization under the provisions of Section 368(a) of the
Code or (ii) agree to a transaction that qualifies as an exchange under the
provisions of Section 351 of the Code; and
A-6
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, Parent, MergerCo and the Company hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time, the Company and MergerCo shall consummate the Merger
pursuant to which (a) MergerCo shall be merged with and into the Company and the
separate corporate existence of MergerCo shall thereupon cease, (b) the Company
shall be the successor or surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and shall continue to be
governed by the laws of the State of Delaware and the DGCL, and (c) the separate
corporate existence of the Company with all its rights, privileges, immunities,
powers and franchises shall continue unaffected by the Merger. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time, all
the properties, rights, privileges, powers and franchises of the Company and
MergerCo shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and MergerCo shall become the debts, liabilities and
duties of the Surviving Corporation. The Company shall take such steps as are
permitted under the DGCL to (i) amend the Certificate of Incorporation of the
Company (the "Company Certificate") so that the Certificate of Incorporation of
MergerCo, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation, and (ii) amend
the Bylaws of the Company (the "Company Bylaws") so that the Bylaws of MergerCo,
as in effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by law, by the
Certificate of Incorporation of the Surviving Corporation and by such Bylaws.
Notwithstanding the foregoing, the name of the Surviving Corporation shall be
"CoreComm-Voyager, Inc." and the Certificate of Incorporation and Bylaws of the
Surviving Corporation shall so provide. The Merger shall have the effects
specified in the DGCL, including Section 259 of the DGCL.
1.2 Effective Time. As promptly as practicable after all of the
conditions set forth in Article IX shall have been satisfied or, if permissible,
waived by the party entitled to the benefit of the same, MergerCo and the
Company shall duly execute and file a certificate of merger (the "Certificate of
Merger") with the Secretary of State of the State of Delaware in accordance with
the DGCL. The Merger shall become effective as of the time of the Certificate of
Merger has been duly filed or such other subsequent date or time as shall be
agreed upon by the parties and set forth in the Certificate of Merger and
in accordance with the DGCL (the "Effective Time").
1.3 Closing. The closing of the Merger (the "Closing") shall take place
at such time and on a date to be specified by the parties, which shall be no
later than the second business day after satisfaction or waiver of all of the
conditions set forth in Article IX
A-7
hereof (the "Closing Date"), at the offices of Paul, Weiss, Rifkind, Wharton &
Garrison, 1285 Avenue of the Americas, New York, NY 10019, unless another date
or place is agreed to by the parties hereto.
1.4 Tax Consequences. It is intended by all of the parties hereto that
the Merger will qualify both or either (i) as a reorganization within the
meaning of Section 368(a) of the Code or (ii) a transaction that, together with
the Reincorporation (as defined herein) qualifies as an exchange under the
provisions of Section 351 of the Code and which is treated for U.S. federal
income tax purposes as a transfer of Company Common Stock by the shareholders of
the Company to Parent in exchange for the Merger Consideration. All of the
parties to this Agreement agree to report the Merger, for all purposes, in a
manner which is consistent with the preceding sentence and no party shall take
any action, or fail to take any action which action or failure to take such
action would cause the Merger to fail to qualify (i) as a reorganization within
the meaning of Section 368(a) of the Code or (ii) a transaction that, together
with the Reincorporation (as defined herein) qualifies as an exchange under the
provisions of Section 351 of the Code and which is treated for U.S. federal
income tax purposes as a transfer of Company Common Stock by the shareholders of
the Company to Parent in exchange for the Merger Consideration. However, it is
further intended by all of the parties hereto that if the transactions with ATX
Communications Services, Inc. ("ATX") described in Section 8.11 occur, and this
Agreement is assigned as provided in Section 11.5, then the incorporation of
ATX, the transactions with ATX described in Section 8.11, and the transactions
described in this Agreement will be treated for U.S. federal income tax purposes
as one integrated transaction qualifying as an exchange under the provisions of
Section 351 of the Code in which the shareholders of the Company transfer
Company Common Stock in exchange for ATX stock.
ARTICLE II
DIRECTORS AND OFFICERS
OF THE SURVIVING CORPORATION
2.1 Directors of the Surviving Corporation. The directors of MergerCo
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation immediately after the Effective Time until their successors shall
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 Corporation. The Company will use reasonable efforts to
cause any director who is a designee of the Company on the Board of Directors of
any Company Subsidiary to resign as of the Effective Time.
2.2 Officers of the Surviving Corporation. The officers of the Company
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation immediately after the Effective Time until their successors shall
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 Corporation.
A-8
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
3.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of Company
Common Stock or any shares of capital stock of MergerCo:
(a) Each issued and outstanding share of Company Common Stock held by
the Company as a treasury share or held by any direct or indirect Company
Subsidiary and each issued and outstanding share of Company Common Stock
owned by Parent, MergerCo or any other direct or indirect Parent Subsidiary
immediately prior to the Effective Time, shall be canceled and retired and
cease to exist without any conversion thereof and no payment or
distribution shall be made with respect thereto.
(b) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time, other than those shares referred
to in Section 3.1(a), shall be canceled and shall be converted
automatically into and represent the right to receive: (i) an amount equal
to $3.00, net to the holder in cash, without any interest thereon (plus any
cash in lieu of fractional shares as described in Section 4.1(e), the "Cash
Consideration") and (ii) that number of fully paid and nonassessable shares
of Parent Common Stock equal to $14.00 divided by the Base Stock Price (as
defined below) (the "Exchange Ratio") (rounded to the nearest thousandth
and subject to adjustment, as provided below, and subject to cash in lieu
of fractional shares of Parent Common Stock, if any, pursuant to Section
4.1(e), the "Stock Consideration" and together with the Cash Consideration,
the "Merger Consideration").
(c) The Exchange Ratio shall be adjusted as follows:
(i) if the Average Parent Common Stock Price is greater than the
Collar Percentage multiplied by the Base Stock Price (such product
being the "Ceiling Stock Price"), then the Exchange Ratio shall be
adjusted such that the aggregate value (based on the Average Parent
Common Stock Price) of the Stock Consideration will be equal to the
value the Stock Consideration would represent if the Average Parent
Common Stock Price were equal to the Ceiling Stock Price and there were
no adjustments to the Exchange Ratio as contemplated in this Section
3.1. The Collar Percentage shall be equal to 119%, subject to the
following adjustments: If (1) the Closing has not occurred on or prior
to July 15, 2000, (2) subsequent to the date of this Agreement, Parent
has engaged in a transaction (other than transactions contemplated by
this Agreement or any transaction which would result in a Base
Adjustment (as defined below)) (a "Parent Transaction") that would (x)
require the approval of the stockholders of Parent or, (y) require
Parent to include the information relating to such transaction in the
pro forma financial statements (the "Pro Formas") that are required to
be contained in the Registration
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Statement or (z) require Parent to amend or restate the Pro Formas in
any material manner, and (3) all conditions to Closing have been
satisfied (or waived by the party entitled to waive such condition) or
are capable of being satisfied on such date with reasonable best
efforts, other than the conditions set forth in Sections 9.1(a) and
9.1(d) and the failure of either such condition to be satisfied is the
result of a Parent Transaction, then, commencing on the later to occur
of (i) July 16, 2000 and (ii) the first business day after which the
circumstances set forth in clause (3) are present (such later date
being the "Trigger Day") the Collar Percentage shall be increased as
follows: 2.5 percentage points on the Trigger Day, and an additional
five percentage points per each 31 day period (a "Monthly Period") (on
a pro rata basis, based on the actual number of elapsed days in such
Monthly Period at the Closing Date) beginning on the sixteenth calendar
day following the Trigger Day;
(ii) if the Average Parent Common Stock Price is equal to or
greater than 69% of the Base Stock Price and less than 86% of the Base
Stock Price (86% of the Base Stock Price being the "Floor Stock
Price"), then the Exchange Ratio shall be adjusted such that the
aggregate value (based on the Average Parent Common Stock Price) of the
Stock Consideration will be equal to the value the Stock Consideration
would represent if the Average Parent Common Stock Price were equal to
the Floor Stock Price and there were no adjustments to the Exchange
Ratio as contemplated in this Section 3.1; and
(iii) subject to the provisions of Section 10.1(i), if the
Average Parent Common Stock Price is less than 69% of the Base Stock
Price, then the Exchange Ratio will equal that number that it would be
set to in clause (ii) above if the Average Parent Common Stock Price
were equal to 69% of the Base Stock Price.
For purposes of this Agreement, the "Average Parent Common Stock Price"
means the volume weighted average trading price of Parent Common Stock for
ten randomly selected trading days out of the twenty (20) consecutive
trading days ending with the last trading day prior to the Closing Date.
The "Base Stock Price" shall be equal to $47.875, subject to the following
"Base Adjustments": (i) if, after the date of this Agreement and on or
prior to the Closing Date the outstanding shares of Parent Common Stock
shall be changed into a different number of shares by reason of any
reclassification, recapitalization, stock split, reverse stock split,
combination or exchange of shares, or any dividend payable in Parent Common
Stock shall be declared thereon with a record date within such period, or
any similar event shall occur, the Base Stock Price shall be adjusted
accordingly to provide to the shareholders of the Company the same economic
effect as contemplated by this Agreement absent such reclassification,
recapitalization, stock split, reverse stock split, combination, exchange,
dividend or similar event; and (ii) if, after the date of this Agreement
and on or prior to the Closing Date, Parent shall distribute to all holders
of Parent Common Stock shares of capital stock of Parent other than Parent
Common Stock, evidences of indebtedness or other assets
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(other than cash dividends out of current or retained earnings), or shall
distribute to substantially all holders of Common Stock rights or warrants
to subscribe for securities (other than those referred to in subsection (i)
above), then in each such case the Base Stock Price shall be multiplied by
a fraction of which the numerator shall be the Current Market Price (as
defined below) of the Parent Common Stock on the record date less the then
fair market value (as determined in good faith by the Board of Directors of
Parent (the "Parent Board"), whose determination shall be conclusive
evidence of such fair market value (absent manifest error or bad faith) and
described in a board resolution) of the portion of the assets so
distributed or of such subscription rights or warrants applicable to one
share of Parent Common Stock and of which the denominator shall be the
Current Market Price of the Parent Common Stock. The "Current Market Price"
shall mean the volume weighted average trading price of Parent Common Stock
for the ten randomly selected trading days out of the prior twenty (20)
consecutive trading days. Parent may only effect a distribution described
under (ii) above, if such distribution does not include operating assets
that are required to maintain the current operating businesses of CoreComm,
Inc. (a subsidiary of Parent) and the distribution of such operating assets
would not have a material adverse effect on the current operating
businesses of CoreComm, Inc., other than the local multipoint distribution
service licenses and related assets.
(d) If at any time prior to Closing, either the written opinion of
counsel required to be received by the Company pursuant to Section 9.2(e)
or the written opinion required to be received by Parent pursuant to
Section 9.3(g) is not reasonably expected to be delivered in a form
acceptable to the Company and Parent because less than 80% of the value of
the Merger Consideration will be Stock Consideration (determined as of the
Closing Date) and all other conditions to Closing set forth in Article IX
have been satisfied (or waived by the party entitled to make such
condition), then the Merger Consideration shall be adjusted by increasing
the Stock Consideration and decreasing the Cash Consideration so that the
Stock Consideration shall constitute 80% of the value of the Merger
Consideration (determined as of the Closing Date) provided, that, after
such adjustment, the Merger qualifies as a reorganization under the
provisions of Section 368(a)(2)(E) of the Code.
(e) Each share of common stock, par value $.01 per share, of MergerCo
(the "MergerCo Common Stock") issued and outstanding immediately prior to
the Effective Time shall be converted into one validly issued, fully paid
and non-assessable share of common stock, par value $.01 per share, of the
Surviving Corporation (the "Surviving Corporation Common Stock"),
certificates for which shall be issued to the stockholders of MergerCo on a
pro rata basis in accordance with their respective shares of MergerCo upon
surrender to the Surviving Corporation of such stockholders' certificates
formerly representing such shares of MergerCo Common Stock.
(f) All shares of Company Common Stock, when converted as provided in
Section 3.1(b), shall no longer be outstanding and shall automatically be
canceled
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and retired and shall cease to exist, and each Certificate previously
evidencing such shares shall thereafter represent only the right to receive
the Merger Consideration and cash in lieu of fractional shares of Parent
Common Stock in accordance with Sections 3.1(b) and 4.1(e) and any
distribution or dividend under Section 4.1(c). The holders of Certificates
previously evidencing shares of Company Common Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to the Company Common Stock except as otherwise provided herein or
by law and, upon the surrender of Certificates in accordance with the
provisions of Article III hereof, shall only represent the right to receive
for their shares of Company Common Stock the Merger Consideration and cash
in lieu of fractional shares of Parent Common Stock in accordance with
Sections 3.1(b) and 4.1(e) and any distribution or dividend under Section
4.1(c) in each case without interest.
3.2 Company Stock Options and Related Matters.
(a) Each option (collectively, the "Company Options") granted under the
Company's Amended and Restated 1998 Stock Option and Incentive Plan (the
"Company Stock Option Plan"), which is outstanding (whether or not then
exercisable) as of immediately prior to the Effective Time and which has not
been exercised or canceled prior thereto, shall, at the Effective Time, be
assumed by Parent, subject to the provisions of this Section 3.2 (the "Assumed
Options"). The Assumed Options shall not terminate in connection with the Merger
and shall continue to have, and be subject to, the same terms and conditions as
set forth in the Company Stock Option Plan and agreements (as in effect
immediately prior to the Effective Time) pursuant to which the Company Options
were granted, provided that (i) all references to the Company shall be deemed to
be references to Parent and all references to shares of Company Common Stock
shall be deemed to be references to shares of Parent Common Stock, (ii) each
Company Option shall be exercisable for that number of whole shares of Parent
Common Stock equal to the product of the number of shares of Company Common
Stock covered by such Company Option immediately prior to the Effective Time
multiplied by the Option Exchange Ratio (as defined below) and rounded to the
nearest whole number of shares of Parent Common Stock and (iii) the exercise
price per share of Company Common Stock under such Company Option shall be equal
to the exercise price per share of Company Common Stock under the Company Option
divided by the Option Exchange Ratio and rounded to the nearest cent. Parent
shall (A) reserve for issuance the number of shares of Parent Common Stock that
will become issuable upon the exercise of such Assumed Options pursuant to this
Section 3.2, (B) promptly after the Effective Time issue to each holder of a
Company Option a document evidencing the assumption by Parent of the Company's
obligations with respect thereto under this Section 3.2, and (C) promptly after
the Effective Time, cause to be filed a registration statement on an appropriate
form under the Securities Act of 1933, as amended (the "Securities Act"),
relating to the Company Stock Option Plans then in effect and covering the
shares of Parent Common Stock issuable upon exercise of the Assumed Options. As
used in this Section 3.2, "Option Exchange Ratio" means the sum of
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(i) the Exchange Ratio (as it may be adjusted) and (ii) the quotient obtained by
dividing the per share Cash Consideration by the Average Parent Common Stock
Price.
(b) The adjustments provided in this Section 3.2 with respect to any
Company Options that are "incentive stock options" as defined in Section 422 of
the Code, shall be and are intended to be effected in a manner which is
consistent with Section 424(a) of the Code.
(c) The parties to this Agreement shall take all reasonable action required
to exempt under SEC Rule 16(b)-3 the treatment of options contemplated hereby,
including, if necessary or appropriate, obtaining approvals, by each party's
Board of Directors, of the type described in a pertinent SEC no-action letter
dated January 12, 1999.
ARTICLE IV
PAYMENT OF SHARES
4.1 Payment for Shares of Company Common Stock.
(a) From and after the Effective Time, such bank or trust company
designated by Parent, and reasonably acceptable to the Company, shall act as
exchange agent (the "Exchange Agent"). At or prior to the Effective Time,
MergerCo shall deposit, or MergerCo shall otherwise take all steps necessary to
cause to be deposited, with the Exchange Agent the aggregate Merger
Consideration and the cash in lieu of fractional shares of Parent Common Stock
(such aggregate Merger Consideration and cash in lieu of shares of Parent Common
Stock together with any dividends or distributions with respect thereto to which
the holders of Certificates may be entitled pursuant to Section 4.1(c) being
hereinafter referred to as the "Exchange Fund") to which holders of shares of
Company Common Stock shall be entitled pursuant to Section 3.1.
(b) Promptly after the Effective Time, Parent shall cause the Exchange
Agent to mail to each holder of record of a Certificate or Certificates other
than the Company, Parent, MergerCo or any Parent Subsidiary (i) a letter of
transmittal which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent may reasonably specify and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration and cash in lieu of fractional shares of Parent Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent together with
such letter of transmittal, duly executed and completed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor (x) a certificate representing the number of whole
shares of Parent Common Stock representing the Stock Consideration to which such
holder shall be entitled, (y) a check representing the amount of the Cash
Consideration to which such holder shall be entitled and (z) a check
representing the amount of cash in lieu of fractional shares of Parent Common
Stock, if any, plus the amount of any dividends (other than stock dividends), or
distributions, if any, pursuant to paragraph (c) below, in the case of
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(y) and (z), after giving effect to any required withholding tax, and the
Certificate so surrendered shall forthwith be canceled. No interest will be paid
or accrued on the Cash Consideration or on cash payable in lieu of fractional
shares or on the dividend or distribution, if any, payable to holders of
Certificates pursuant to this Section 4.1. In the event of a transfer of
ownership of Company Common Stock which is not registered in the transfer
records of the Company, a Certificate representing the proper number of shares
of Parent Common Stock, together with checks for the Cash Consideration to which
such holder shall be entitled and for any cash to be paid in lieu of fractional
shares of Parent Common Stock plus, to the extent applicable, the amount of any
dividend or distribution, if any, payable pursuant to paragraph (c) below, may
be issued and paid to such a transferee if the Certificate representing shares
of such Company Common Stock is presented to the Exchange Agent, accompanied by
all documents required to evidence and effect such transfer and to evidence that
any applicable stock transfer taxes have been paid. If any certificate for
shares of Parent Common Stock is to be issued in a name other than that in which
the surrendered Certificate is registered, it shall be a condition of such
exchange that the person requesting such exchange shall pay any transfer or
other taxes required by reason of the issuance of certificates for shares of
Parent Common Stock in a name other than that of the registered holder of the
surrendered Certificate, or shall establish to the satisfaction of Parent or the
Exchange Agent that such tax has been paid or is not applicable.
(c) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions on Parent Common Stock shall be paid with respect to any
shares of Company Common Stock represented by a Certificate until such
Certificate is surrendered for exchange as provided herein; provided, however,
that subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the holder of the certificates representing
whole shares of Parent Common Stock issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore payable
with respect to such whole shares of Parent Common Stock and not paid, less the
amount of any withholding taxes which may be required thereon, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of Parent
Common Stock, less the amount of any withholding taxes which may be required
thereon.
(d) At and after the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the shares of Company Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation, they
shall be canceled and exchanged for the Merger Consideration and cash in lieu of
fractional shares, if any, in accordance with this Section 4.1 (plus dividends
and distributions to the extent set forth in Section 4.1(c), if any).
(e) No certificates or scrip representing fractional shares of Parent
Common Stock shall be issued upon the surrender for exchange of Certificates,
and such fractional share
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interest will not entitle its owner to vote, to receive dividends or to any
other rights of a stockholder of Parent. In lieu of the issuance of any
fractional shares of Parent Common Stock pursuant to Section 3.1(b), the
Exchange Agent shall pay to each holder of shares of Company Common Stock
exchanged pursuant to the Merger who are entitled to receive a fraction of a
share of Parent Common Stock (after taking into account all Certificates
delivered by such holder) in accordance with the provisions of this Article IV,
an amount in cash equal to the product obtained by multiplying (A) the
fractional shares of Parent Common Stock to which such holder is entitled (after
taking into account all shares of Company Common Stock held at the Effective
Time) by (B) the closing price for a share of Parent Common Stock on NASDAQ on
the first business day immediately following the Effective Time.
(f) Any portion of the Exchange Fund (including the proceeds of any
investments thereof and any shares of Parent Common Stock) that remains
unclaimed by the former stockholders of the Company one year after the Effective
Time shall be delivered to the Surviving Corporation. Any former stockholders of
the Company who have not theretofore complied with this Article IV shall
thereafter look only to the Surviving Corporation for payment of their Merger
Consideration and cash in lieu of fractional shares (plus dividends and
distributions to the extent set forth in Section 4.1(c), if any), as determined
pursuant to this Agreement, without any interest thereon. None of Parent,
MergerCo, the Company, the Exchange Agent or any other person shall be liable to
any former holder of shares of Company Common Stock for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws. If any Certificates shall not have been surrendered
prior to five years after the Effective Time (or immediately prior to such
earlier date on which any Merger Consideration in respect of such Certificate
would otherwise escheat to or become the property of any Governmental Entity (as
defined herein)), any amounts payable in respect of such Certificate shall, to
the extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interests of any person previously
entitled to those amounts. In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent or the Surviving Corporation will issue and pay in exchange for
such lost, stolen or destroyed Certificate the Merger Consideration and cash in
lieu of fractional shares (plus, to the extent applicable, dividends and
distributions payable pursuant to Section 4.1(c)) in each case without interest.
(g) Each of the Surviving Corporation and Parent shall be entitled to
deduct and withhold from any amounts otherwise payable pursuant to this
Agreement to any holder of a Certificate such amounts as it is required to
deduct and withhold with respect to the making of such payment under the Code,
or any provisions of Law. To the extent that amounts are so withheld by the
Surviving Corporation or Parent, as the case may be, such withheld amounts shall
be treated for purposes of this Agreement as having been
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paid to the holder of a Certificate in respect to which such deduction and
withholding was made by the Surviving Corporation or Parent, as the case may be.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure letter delivered at or prior to the
execution hereof to Parent, which shall refer to the relevant Sections of this
Agreement (the "Company Disclosure Schedule"), the Company represents and
warrants to Parent and MergerCo as follows:
5.1 Existence; Good Standing; Authority; Compliance With Law.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Except as set forth in
Section 5.1 of the Company Disclosure Schedule, the Company is duly licensed or
qualified to do business as a foreign corporation and is in good standing under
the laws of any other state of the United States in which the character of the
properties owned, leased or operated by it therein or in which the transaction
of its business makes such qualification or licensing necessary, except where
the failure to be so licensed or qualified would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
business, assets, properties, results of operations or financial condition of
the Company and the Company Subsidiaries (as defined herein) taken as a whole (a
"Company Material Adverse Effect"). The Company has all requisite corporate
power and authority to own, operate, lease and encumber its properties and carry
on its business as now conducted.
(b) Each of the Company Subsidiaries is a corporation, partnership or
limited liability company (or similar entity or association in the case of those
Company Subsidiaries organized and existing other than under the laws of a state
of the United States) duly incorporated or organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization, has the corporate or other power and authority to own its
properties and to carry on its business as it is now being conducted, and is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the character of the properties owned, leased or operated
by it therein or in which the transaction of its business makes such
qualification or licensing necessary, except as set forth in Section 5.1(b) of
the Company Disclosure Schedule and except for jurisdictions in which such
failures to be so qualified or to be in good standing would not, individually or
in the aggregate, reasonably be expected to have a Company Material Adverse
Effect.
(c) Neither the Company nor any of the Company Subsidiaries is in violation
of any order of any court, Governmental Entity or arbitration board or tribunal,
or any domestic law, statute, order, judgment, decree, ordinance, rule or
regulation ("Law"), applicable to the Company or any Company Subsidiary or by
which any of their respective properties or assets is bound or affected, which
violations would, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect.
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(d) The Company and the Company Subsidiaries have obtained all franchises,
grants, authorizations, licenses, permits, easements, variances, exceptions,
consents, waivers, rights, certificates, approvals and orders of, and
registrations required to be made with, any United States (federal, state or
local) government, or governmental, regulatory or administrative authority,
agency or commission, court or arbitrator of competent jurisdiction or stock
exchange (each of the foregoing, a "Governmental Entity") that are material to
its business as it is now being or is intended to be conducted (the "Company
Permits"), except where failure to obtain any such Company Permit would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. The Company or one or more of the Company Subsidiaries
is in possession of all of the Company Permits, no material violations are or
have been recorded in respect of any of the Company Permits and no suspension or
cancellation of any of the Company Permits is pending or, to the knowledge of
the Company, threatened that has resulted or would be, individually or in the
aggregate, reasonably expected to result in a Company Material Adverse Effect.
Except for such defaults or violations that would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect, all
of the Company Permits are in full force and effect and neither the Company nor
any of its Subsidiaries is, or has received notice alleging that it is, in
conflict with, or in default or violation of, or, with the giving of notice or
lapse of time or both, would be in conflict with, or in default or violation of,
(i) any Law applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or affected
by or (ii) any of the Company Permits.
(e) The copies of the Company certificate of incorporation and by-laws,
each as amended through the date of this Agreement that are incorporated by
reference in, as exhibits to the Company's registration statement on Form S-8
dated August 12, 1999 and all comparable corporate organizational documents of
the Company Subsidiaries made available to Parent by the Company are complete
and correct copies of those documents. All such corporate organizational
documents of the Company and the Company Subsidiaries are listed on Section
5.1(e) of the Company Disclosure Schedule. Such certificate of incorporation and
by-laws and all comparable organizational documents of the Company Subsidiaries
are in full force and effect. The Company is not in violation of any of the
provisions of such certificate of incorporation or by-laws.
(f) All Company Permits issued by a state public utilities commission or a
similar state regulatory body ("PUC") or the Federal Communications Commission
("FCC"), or a municipal authority used in conjunction with Company's provision
of telecommunications services (collectively, the "Communications Permits") are
listed in Section 5.1(f) of the Company Disclosure Schedule. Each of the
Communications Permits was duly issued and is valid and in full force and effect
and has not been modified, canceled, revoked, or conditioned in any adverse
manner except for such modifications, cancellations, revocations or conditions
that would not, individually or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect. None of the Communications Permits has been
sold, conveyed, pledged, assigned or transferred to any other party, and no
other party has any present or future right to acquire use of
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them that would in either case, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect.
(g) Except as disclosed in Section 5.1(g) the Company Disclosure Schedule,
the Company has complied with and is in compliance with all regulations and laws
applicable to its operations under the Communications Permits, except where any
such failure would not, individually or in the aggregate, reasonably be expected
to have a Company Material Adverse Effect. The Company is in compliance with,
and its businesses have operated in compliance with, the Communications Act of
1934, as amended, FCC regulations, or any applicable state laws or regulations,
and has filed all tariffs, registrations and reports and paid all required fees,
including any renewal applications, required by the Communications Act of 1934,
as amended, or any applicable state regulations and has complied with the terms
of each such tariff or regulation, except where any such failure would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. There is no action, suit, investigation or other
proceeding pending or, to the Company's knowledge, threatened against the
Company which might adversely affect the Communications Permits, or the
assignment of the Communications Permits to Parent or MergerCo that would,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. No event has occurred with respect to the
Communications Permits which permits or, after notice or lapse of time, or both,
would permit revocation or termination thereof, or would result in any
impairment of the rights of the holder of the Communications Permits or the
imposition of a forfeiture against the Company or any subsequent holder of the
Communications Permits with respect to the operation of the facilities
authorized thereby that would, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect.
(h) The Company has delivered to Parent correct and complete copies of (a)
the Company's Communications Permits and the applications related thereto
together with any pending applications filed by the Company for new or modified
facilities related to the purchased business, and (b) all other Permits and any
tariffs filed by the Company relating to the purchased business, and any
applications for additional or modified Permits to the purchased business,
except for those Communications Permits or other Permits that would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
5.2 Authorization, Validity and Effect of Agreements. The Company has the
requisite power and authority to enter into the transactions and to execute and
deliver this Agreement. The Company Board has unanimously approved this
Agreement, the Merger and the other Transactions and has resolved to recommend
that the holders of Company Common Stock adopt and approve this Agreement at the
stockholders' meeting of the Company to be held in accordance with the
provisions of Section 8.1. In connection with the foregoing, the Company Board
has taken such actions and votes as are necessary on its part to render the
provisions of Section 203 of the DGCL and all other applicable takeover statutes
inapplicable to this Agreement, the Merger, the other Transactions and the
Voting Agreement. Subject only to the approval of this Agreement
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by the holders of a majority of the outstanding shares of Company Common Stock
(the "Requisite Company Vote"), the execution by the Company of this Agreement
and the consummation of the Transactions have been duly authorized by all
requisite corporate action on the part of the Company and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the Transactions. As of the date hereof, all of the directors
and executive officers of the Company have indicated that they presently intend
to vote all shares of the Company Common Stock which they own to approve this
Agreement and the Transactions at the stockholders' meeting of the Company to be
held in accordance with the provisions of Section 8.1. This Agreement, assuming
due and valid authorization, execution and delivery thereof by Parent,
constitutes a valid and legally binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
5.3 Capitalization.
(a) The authorized capital stock of the Company consists of 50,000,000
shares of Company Common Stock and 5,000,000 shares of preferred stock, par
value $.01 per share, of the Company (the "Company Preferred Stock"). As of the
date of this Agreement, (i) 31,650,108 shares of Company Common Stock were
issued and outstanding, (ii) 9,775,688 shares of Company Common Stock have been
authorized and reserved for issuance and are available for grant pursuant to the
Company Stock Option Plan, subject to adjustment on the terms set forth in the
Company Stock Option Plan, (iii) 3,493,467 options were outstanding under the
Company Stock Option Plan, (iv) no shares of Company Preferred Stock were issued
and outstanding, and (v) no shares of Company Common Stock and no shares of
Company Preferred Stock were held in the treasury of the Company. All such
issued and outstanding shares of capital stock of the Company are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. As of the date of this Agreement, no shares of capital stock or voting
securities of the Company were issued, outstanding or reserved for issuance by
the Company or outstanding other than as described above and, since such date,
no shares of capital stock or other voting securities or options in respect
thereof have been issued except upon the exercise of the Company Options
outstanding on such date. The Company has no outstanding bonds, debentures,
notes or other obligations the holders of which have the right to vote (or which
are convertible into or exercisable for securities having the right to vote)
with the stockholders of the Company on any matter. Except for the Company
Options (all of which have been issued under the Company Stock Option Plan),
there are no existing options, warrants, calls, subscriptions, convertible
securities, redemption rights, or other rights, agreements or commitments to
which the Company is a party or by which the Company is bound relating to the
issued or unissued capital stock of, other equity interests in, or securities
exchangeable for or convertible into capital stock or other equity interests in,
the Company or any Company Subsidiary or any Company Subsidiary which obligate
the Company to issue, transfer or sell any shares of capital stock of the
Company.
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(b) Section 5.3 of the Company Disclosure Schedule sets forth a full list
of the Company Options, including the name of the person to whom such Company
Options have been granted, the number of shares subject to each Company Option,
the per share exercise price for each Company Option and the vesting schedule
for each Company Option. Except as set forth in Section 5.3 of the Company
Disclosure Schedule, there are no agreements or understandings to which the
Company or any Company Subsidiary is a party with respect to the voting of any
shares of capital stock of the Company or which restrict the transfer of any
such shares, nor does the Company have knowledge of any third party agreements
or understandings with respect to the voting of any such shares or which
restrict the transfer of any such shares. Except as set forth in Section 5.3 of
the Company Disclosure Schedule, there are no outstanding contractual
obligations of the Company or any Company Subsidiary to repurchase, redeem or
otherwise acquire any shares of capital stock, partnership interests or any
other securities of the Company or any Company Subsidiary. Except as set forth
in Section 5.3 of the Company Disclosure Schedule, neither the Company nor any
Company Subsidiary is under any obligation, contingent or otherwise, by reason
of any agreement to register the offer and sale or resale of any of their
securities under the Securities Act.
5.4 Subsidiaries. The Company owns directly or indirectly each of the
outstanding shares of capital stock or other equity interest of each of the
Company Subsidiaries. Each of the outstanding shares of capital stock of each of
the Company Subsidiaries having corporate form is duly authorized, validly
issued, fully paid and nonassessable. Except as set forth in Section 5.4 of the
Company Disclosure Schedule, each of the outstanding shares of capital stock or
other equity interest of each of the Company Subsidiaries is owned, directly or
indirectly, by the Company free and clear of all liens, pledges, security
interests, claims, options, rights of first refusal, agreements, limitations on
the Company or such other Company's voting rights, charges or other encumbrances
(collectively, "Liens"). Section 5.4 of the Company Disclosure Schedule sets
forth: (i) name and jurisdiction of incorporation or organization of each
subsidiary of the Company (the "Company Subsidiaries"); (ii) the authorized
capital stock, share capital or other equity interest, to the extent applicable
of each Company Subsidiary; and (iii) the name of each stockholder or equity
interest holder and the number of issued and outstanding shares of capital
stock, share capital or other equity interest held by it with respect to each
Subsidiary.
5.5 Other Interests. Except as set forth in Section 5.5 of the Company
Disclosure Schedule, neither the Company nor any Company Subsidiary owns
directly or indirectly any interest or investment (whether equity or debt) in
any corporation, partnership, limited liability company, joint venture,
business, trust or other entity (other than investments in short-term investment
securities), other than in any Company Subsidiary.
5.6 No Violation; Consents.
(a) Except as set forth in Section 5.6(a) of the Company Disclosure
Schedule, neither the execution and delivery by the Company of this Agreement
nor consummation by the Company of the Transactions in accordance with the terms
hereof, will conflict with or result in a breach of any provisions of the
Company Certificate or the Company
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Bylaws or any comparable organizational documents of any Company Subsidiary.
Except as set forth in Section 5.6(a) of the Company Disclosure Schedule, the
execution and delivery by the Company of this Agreement and consummation by the
Company of the Transactions in accordance with the terms hereof will not
violate, or conflict with, or result in (x) a violation of any Law applicable to
the Company or any Company Subsidiary or by which any property or asset of the
Company or any Company Subsidiary is bound or affected or (y) any provision of,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination or in a
right of termination or cancellation of, or accelerate the performance required
by, or result in the creation of any Lien, upon any of the properties or assets
of the Company or the Company Subsidiaries under, or result in being declared
void, voidable or without further binding effect, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, lease, contract, agreement or other instrument, commitment or
obligation (collectively, "Contracts") to which the Company or any of the
Company Subsidiaries is a party, or by which the Company or any of the Company
Subsidiaries or any of their properties is bound, except in each such case as
would not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect. Other than the filings provided for in Article
I of this Agreement, the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR Act"), the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Securities Act or applicable state securities and "Blue Sky" laws,
the Communications Act of 1934, as amended, and any regulations promulgated
thereunder (the "Communications Act"), the rules and regulations of local,
state, or foreign PUCs (the "PUC Regulations"), and the applicable local, state,
or foreign laws regulating the telecommunications industry (the "Utility Laws")
(collectively, the "Regulatory Filings") the execution and delivery of this
Agreement by the Company does not, and the performance of this Agreement by the
Company and consummation of the Transactions does not, require any consent,
approval or authorization of, or declaration, filing or registration with, any
Governmental Entity, except where the failure to obtain any such consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
(b) Section 5.6(b) of the Company Disclosure Letter sets forth a correct
and complete list of all material Contracts to which the Company or any Company
Subsidiaries are a party or by which they or their assets or properties is bound
or affected under which consents or waivers are required prior to consummation
of the transactions contemplated by this Agreement and the Transactions.
5.7 SEC Documents.
(a) The Company has filed all required forms, reports, exhibits, schedules,
statements and other documents with the Securities and Exchange Commission (the
"SEC") since July 21, 1999 (collectively, and including the Company's
registration statement on Form S-1 dated July 20, 1999, the "Company SEC
Reports"), all of which
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were prepared in accordance with the applicable requirements of the Exchange
Act, the Securities Act and the rules and regulations promulgated thereunder
(the "Securities Laws"). All required Company SEC Reports have been filed with
the SEC and constitute all forms, reports, exhibits, schedules, statements and
other documents required to be filed by the Company under the Securities Laws
since July 21, 1999. As of their respective dates, the Company SEC Reports,
including any financial statements or schedules included or incorporated therein
by reference, (i) complied as to form in all material respects with the
applicable requirements of the Securities Laws and (ii) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. Each of the
consolidated balance sheets of the Company included in or incorporated by
reference into the Company SEC Reports (including the related notes and
schedules) fairly presents the consolidated results of operations and cash flow
of the Company and the Company Subsidiaries as of its date and each of the
consolidated statements of income, retained earnings and cash flows of the
Company included in or incorporated by reference into the Company SEC Reports
(including any related notes and schedules) fairly presents the results of
operations, retained earnings or cash flows, as the case may be, of the Company
and the Company Subsidiaries for the periods set forth therein (subject, in the
case of unaudited statements, to normal year-end audit adjustments which would
not be material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein and except, in the case of the unaudited
statements, as permitted by Form 10-Q pursuant to Section 13 or 15(d) of the
Exchange Act. All of such balance sheets and statements complied as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto. No Company
Subsidiary is subject to the periodic reporting requirements of the Exchange Act
or is otherwise required to file any documents with the SEC or any national
securities exchange or quotation service or comparable Governmental Entity.
(b) Except as and to the extent set forth on the consolidated balance sheet
of the Company and the consolidated Company Subsidiaries as of September 30,
1999 including the related notes, neither the Company nor any Company Subsidiary
has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on a balance
sheet or in the related notes prepared in accordance with generally accepted
accounting principles, except for liabilities or obligations incurred in the
ordinary course of business since September 30, 1999 that have not resulted and
would not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect.
5.8 Litigation. Except as set forth in Section 5.8 of the Company
Disclosure Schedule, there is no litigation, suit, claim, action or proceeding
pending or, to the knowledge of the Company, threatened against the Company or
any of the Company Subsidiaries, as to which there is a reasonable likelihood of
an adverse determination and which, if adversely determined, would, individually
or in the aggregate, reasonably be
A-22
expected to have a Company Material Adverse Effect. Neither the Company nor any
Company Subsidiary is subject to any outstanding order, writ, injunction or
decree which has resulted or would, individually or in the aggregate, reasonably
be expected to result in a Company Material Adverse Effect.
5.9 Absence of Certain Changes. Except as disclosed in the Company SEC
Reports filed with the SEC between September 30, 1999 and the date of this
Agreement or in Section 5.9 of the Company Disclosure Schedule, since September
30, 1999 the Company and the Company Subsidiaries have conducted their
businesses only in the ordinary course of business and there has not been:
(a) any declaration, setting aside or payment of any dividend or other
distribution with respect to Company Common Stock or any redemption,
purchase or other acquisition of the Company's securities;
(b) any material commitment, contractual obligation (including, without
limitation, any management or franchise agreement, any lease (capital or
otherwise) or any binding letter of intent), borrowing, liability,
guaranty, capital expenditure or transaction (each, a "Commitment") entered
into by the Company or any of the Company Subsidiaries outside the ordinary
course of business except for Commitments for expenses of attorneys,
accountants and investment bankers incurred in connection with the
Transactions;
(c) any material change in the Company's accounting principles,
practices or methods;
(d) any damage, destruction or other casualty loss with respect to any
asset or property owned, leased or otherwise used by it or any Company
Subsidiaries, whether or not covered by insurance, which damage,
destruction or loss, individually or in the aggregate, has resulted or
would, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect;
(e) any increase in the compensation or benefits or establishment of
any bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option (including, the granting of stock
options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan, or any other
increase in the compensation payable or to become payable to any executive
officers of the Company or any Company Subsidiary except in the ordinary
course of business consistent with past practice or except as required by
applicable Law or pursuant to agreements in effect as of September 30,
1999;
(f)(A) any material incurrence or assumption by the Company or any
Company Subsidiary of any indebtedness for borrowed money or (B) any
guarantee, endorsement or other incurrence or assumption of material
liability (whether directly, contingently or otherwise) by the Company or
any Company Subsidiary for the obligations of any other person (other than
any wholly-owned Company Subsidiary), other than in the ordinary course of
business consistent with past practice;
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(g) any creation or assumption by the Company or any Company Subsidiary
of any Lien on any material asset of the Company or any Company Subsidiary,
other than in the ordinary course of business consistent with past
practice;
(h) any making of any loan, advance or capital contribution to or
investment in any person by the Company or any Company Subsidiary, other
than in the ordinary course of business consistent with past practice or in
an amount which are not in the aggregate in excess of $100,000;
(i)(A) any Contract or agreement entered into by the Company or any
Company Subsidiary on or prior to the date hereof relating to any material
acquisition or disposition of any assets or business or (B) any
modification, amendment, assignment or termination of or relinquishment by
the Company or any Company Subsidiary of any rights under any other
Contract (including any insurance policy naming it as a beneficiary or a
loss payable payee) that has resulted or would, individually or in the
aggregate, reasonably be expected to result in a Company Material Adverse
Effect other than transactions, commitments, contracts or agreements in the
ordinary course of business consistent with past practice or those
contemplated by this Agreement; or
(j) the circuits identified in Section 5.19(c) of the Company
Disclosure Schedule have not been materially altered or otherwise changed
in any manner that would, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect.
5.10 Taxes.
(a) Except as set forth in Section 5.10 of the Company Disclosure Schedule,
each of the Company and the Company Subsidiaries (i) has filed, or will have
filed, all Tax Returns (as defined below) required to be filed by it on or
before the Closing Date (taking into account any applicable extensions) and all
such Tax Returns are true, correct and complete in all material respects, and
(ii) has paid, or will have paid, all Taxes (as defined below) required to be
paid by it on or before the Closing Date (whether or not shown on any Tax
Return), except, in each case, where the failure to file such Tax Returns or pay
such Taxes would not, individually or in the aggregate, reasonably be expected
to have a Company Material Adverse Effect. Except as set forth in Section 5.10
of the Company Disclosure Schedule, the most recent audited financial statements
contained in the Company's Quarterly Report on Form 10-Q for the quarter year
ended September 30, 1999 reflect an adequate reserve for all material Taxes
payable by the Company and the Company Subsidiaries for all taxable periods and
portions thereof through the date of such financial statements in accordance
with United States generally accepted in accounting principles ("GAAP"). To the
knowledge of the Company, and except as set forth in Section 5.10 of the Company
Disclosure Schedule, no deficiencies for any Taxes have been proposed, asserted
or assessed against the Company or any of the Company Subsidiaries, there are no
Tax liens on any assets of the Company or of any of the Company Subsidiaries
(other than Liens for current Taxes not yet due), and no requests for waivers of
the time to assess any such Taxes are pending. Section 5.10 of the Company
Disclosure Schedule lists all (A) Tax sharing
A-24
allocation or indemnification agreements and (B) agreements for exemptions with
Governmental Entities to which the Company or any of the Company Subsidiaries is
a party.
(b) Except as set forth on Schedule 5.10 of the Company Disclosure
Schedule, neither the Company nor any of the Company Subsidiaries has been a
member of any "affiliated group" (as defined in section 1504(a) of the Code)
other than the affiliated group of which the Company is the "parent" and, except
with respect to any group of which only the Company and/or its Subsidiaries are
members, is not subject to Treas. Reg. Section 1.1502-6 (or any similar
provision under foreign, state or local law) for any period. Except as set forth
on Schedule 5.10 of the Company Disclosure Schedule, neither the Company nor any
of the Company Subsidiaries has been required to include in income any
adjustment pursuant to Section 481 of the Code (or any similar provision of
state, local or foreign tax law) by reason of a voluntary change in accounting
method initiated by the Company or any of the Company Subsidiaries, and to the
knowledge of the Company the Internal Revenue Service has not initiated or
proposed any such adjustment or change in accounting method. Except as set forth
on Schedule 5.10 of the Company Disclosure Schedule, no closing agreement that
could affect the Taxes of the Company or any of the Company Subsidiaries for
periods ending after the Effective Time pursuant to Section 7121 of the Code (or
any predecessor provision) or any similar provision of any state, local or
foreign law has been entered into by or with respect to the Company or any of
the Company Subsidiaries. Except as set forth on Schedule 5.10 of the Company
Disclosure Schedule, there is no contract, agreement, plan or arrangement
covering any person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by the Company or any of the
Company Subsidiaries by reason of Section 162(m) or Section 280G of the Code and
neither the Company nor any of the Company Subsidiaries has made or expects to
make any such payments. Neither the Company nor any of the Company Subsidiaries
is, or has been, a United States real property holding corporation (as defined
in Section 897(c)(2) of the Code) during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code.
(c) For purposes of this Agreement, "Taxes" means all federal, state, local
and foreign income, property, sales, franchise, employment, excise, use,
franchise, capital stock, withholding, payroll, gross receipts, value added,
transfer and gains and other taxes, tariffs or governmental charges of any
nature whatsoever, together with any interest, penalties or additions to Tax
with respect thereto.
(d) For purposes of this Agreement, "Tax Returns" means all reports,
returns, declarations, statements or other information required to be supplied
to a domestic or foreign taxing authority in connection with Taxes.
5.11 Real Property Leases; Properties.
(a) Section 5.11 of the Company Disclosure Schedule is a true and correct
Schedule of all real property leased, subleased, licensed or occupied or used by
the Company or any Company Subsidiary under any agreements, other than point-of-
presence related agreements ("POP Agreements"), (collectively, the "Leases") to
or by
A-25
the Company or any of the Company Subsidiaries (collectively, the "Real
Property") and lists the dates of and parties to each such Lease, the dates and
parties to each amendment, modification, supplement to such Lease, the term of
such Lease, any extension and expansion options, and the rent payable
thereunder. Neither the Company nor any Company Subsidiary owns any real
property. The Company has delivered to Parent complete and accurate copies of
the Leases (as amended to date).
(b) With respect to each of the Leases, except as would not, individually
or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect:
(i) each Lease is legal, valid, binding, enforceable obligation of the
Company;
(ii) each Lease will continue to be legal, valid, binding, enforceable
obligation of the Company immediately following the Closing in accordance
with the terms thereof as in effect immediately prior to the Closing;
(iii) neither the Company nor, to the knowledge of the Company, any
other party, is in material breach or violation of, or default under, any
such Lease, and, to the knowledge of the Company, no event has occurred, is
pending or, is threatened, which, after the giving of notice, with lapse of
time, would constitute a material breach or default by the Company or, to
the knowledge of the Company, any other party under such Lease nor has any
termination event or on condition occurred under the Leases;
(iv) the Company has not assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the leasehold or
subleasehold;
(v) to the knowledge of the Company, there are no Liens, easement,
covenant or other restriction applicable to the Real Property, except for
recorded easements, covenants and other restrictions which do not
materially impair the current uses or the occupancy by the Company of the
property subject thereto;
(vi) neither the Company nor any Company Subsidiary thereof has any
ownership, financial or other interest in the landlord under any Lease;
(vii) there are no Leases granting to any person or entity other than
the Company or any of the Company Subsidiaries any right to the possession,
use, occupancy or enjoyment of the Real Property, or any portion thereof;
(viii) there is no underlying mortgage, deed of trust, lease, grant of
term or other estate in or interest affecting any Real Property which is
superior to the interest of the Company and the Company Subsidiaries, as
tenants under the applicable Lease; and
(ix) except for as disclosed in Section 5.11(c) of the Company
Disclosure Schedule or easements, rights-of-way and other non-monetary
encumbrances of a minor nature that do not individually or in the aggregate
(i) interfere in any material respect with, or materially increase the cost
of, the use, occupancy or operation of the applicable parcel of Real
Property as currently used, occupied and operated or (ii) materially reduce
the fair market value of the applicable parcel of
A-26
Real Property below the fair market value such parcel would have had but
for such encumbrances, the Real Property is free and clear of all liens,
pledges, mortgages, deeds of trust, security interests, claims, leases,
licenses, charges, options, rights of first refusal, easements, servitudes,
transfer restrictions, encumbrances, restrictive covenants, encroachment or
other survey defect or any other restriction or limitation whatsoever and
the Company or one of the Company Subsidiaries holds the leasehold estate
and interest in each Lease free and clear of all liens, pledges, mortgages,
deeds of trust, security interests, claims, leases, licenses, charges,
options, rights of first refusals, easements, servitudes, transfer
restrictions, encumbrances or any other restriction or limitation
whatsoever.
(c) All of the land, buildings, structures and other improvements used by
the Company and the Company Subsidiaries in the conduct of their businesses are
included in the Real Property, except for such land, buildings, structures and
other improvements that would not, in the aggregate, reasonably be expected to
have a Company Material Adverse Effect.
(d) Each of the POP Agreements of the Company and the Company Subsidiaries
constitute legal, valid, binding, enforceable obligation of the Company and will
continue to be legal, valid, binding, enforceable obligation of the Company
immediately following the Closing in accordance with the terms thereof as in
effect immediately prior to the Closing, except for those the absence of which
would not in the aggregate reasonably be expected to have a Company Material
Adverse Effect. Neither the Company nor any Company Subsidiary, nor to the
Company's knowledge, any other person, is in violation of or in default under
(nor does there exist any condition which with the passage of time or the giving
of notice would cause such a violation of or default under) any POP Agreement to
which the Company or a Company Subsidiary is a party or by which it or any of
its properties or assets is bound or affected, except for violations or defaults
that have not resulted and would not, in the aggregate, reasonably be expected
to have a Company Material Adverse Effect.
(e) Except as set forth in Section 5.11(f) of the Company Disclosure
Schedule, the Company and the Company Subsidiaries own good and marketable
title, free and clear of all Liens, to all of the property and assets shown on
the Company's balance sheet at September 30, 1999 as reflected in the Company
SEC Reports (the "Company Balance Sheet") or acquired after September 30, 1999,
except for (A) assets which have been disposed of to nonaffiliated third parties
since September 30, 1999 in the ordinary course of business, (B) Liens reflected
in the Company Balance Sheet, (C) Liens or imperfections of title which are not,
individually or in the aggregate, material in character, amount or extent and
which do not materially detract from the value or materially interfere with the
present or presently contemplated use of the assets subject thereto or affected
thereby, and (D) Liens for current Taxes not yet due and payable. All of the
machinery, equipment and other tangible personal property and assets owned or
used by the Company and the Company Subsidiaries are, to the Company's
knowledge, in good condition and repair, except for ordinary wear and tear not
caused by neglect, and are useable in the ordinary course of business.
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5.12 Intellectual Property.
(a) Section 5.12(a) of the Company Disclosure Letter sets forth all United
States and foreign patents and patent applications, trademark and service mark
registrations and applications, Internet domain name registrations and
applications, and copyright registrations and applications owned or licensed by
the Company and material to the business of the Company and the Company
Subsidiaries, taken as a whole, as conducted as of the date hereof, specifying
as to each item, as applicable: (i) the owner of the item; and (ii) the
issuance, registration or application numbers and dates.
(b) Section 5.12(b) of the Company Disclosure Letter sets forth all
material licenses, sublicenses, and other agreements or permissions ("IP
Licenses") under which the Company is a licensor or licensee or otherwise is
authorized to use or practice any Intellectual Property. For purposes of this
Agreement, "Intellectual Property" means all of the following as they exist in
all jurisdictions throughout the world, in each case, to the extent owned by,
licensed to, or otherwise used by the Company or any Company Subsidiaries or, as
applicable, Parent or any Parent Subsidiary: (A) patents, patent applications,
and other patent rights (including any divisions, continuations,
continuations-in-part, substitutions, or reissues thereof, whether or not
patents are issued on any such applications and whether or not any such
applications are modified, withdrawn, or resubmitted); (B) trademarks, service
marks, trade dress, trade names, brand names, Internet domain names, designs,
logos, or corporate names, whether registered or unregistered, and all
registrations and applications for registration thereof; (C) copyrights,
including all renewals and extensions, copyright registrations and applications
for registration, and non-registered copyrights; (D) trade secrets, concepts,
ideas, designs, research, processes, procedures, techniques, methods, know-how,
data, mask works, discoveries, inventions, modifications, extensions,
improvements, and other proprietary rights (whether or not patentable or subject
to copyright, mask work, or trade secret protection); and (E) computer software
programs, including all source code, object code, and documentation related
thereto.
(c) Except as set forth in Section 5.12(c) of the Company Disclosure
Schedule, the Company or the Company Subsidiaries are the owner of free and
clear of any Liens, or a licensee under a valid sufficient license for, all
Intellectual Property that is material to the business of the Company and the
Company Subsidiaries conducted as of the date hereof, taken as a whole. Except
as disclosed in the Company SEC Reports or Section 5.12(c) of the Company
Disclosure Schedule, there are no claims pending or, to the Company's knowledge,
threatened, that the Company or any Company Subsidiary is in violation of any
such intellectual property right of any third party or that challenges the
validity, enforceability, ownership, or right to use, sell, or license any
Intellectual Property which would, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect, and, to the Company's
knowledge, no third party is in violation of any intellectual property rights of
the Company or any Company Subsidiary which would, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
A-28
(d) The Company and/or one or more of its Subsidiaries owns, or is licensed
or otherwise possesses valid rights to use, all material computer software
programs or applications, including the Company's web-based customer care and
billing system, and other tangible or intangible proprietary information or
materials (the "Software") that are used in the business of the Company and the
Company Subsidiaries as conducted as of the date hereof, except for software
that is "off the shelf" or "shrink-wrapped" and except for any such failures to
own, be licensed or possess that would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect. In addition to
the foregoing, as to the Company's web-based customer care and billing system,
the Company owns all source code, object code, and documents related thereto,
except as would not reasonably be expected to have a Company Material Adverse
Effect. The Software performs in conformance with its documentation and is fully
and freely transferable to Parent without any third party consents, except for
failures to perform or to be fully and freely transferable that, individually or
in the aggregate, have not resulted and would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect on the
Company.
5.13 Environmental Matters. The Company and the Company Subsidiaries are
and have been in compliance with all Environmental Laws (as defined below),
except for any noncompliance that would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect. As used in
this Agreement, "Environmental Laws" shall mean all federal, state and local
laws, rules, regulations, ordinances and orders that regulate the release of
hazardous substances or other pollutants or contaminants into the environment,
or impose requirements relating to environmental protection, pollution or health
and safety. As used in this Agreement, "Hazardous Materials" means any
"hazardous waste" as defined in either the United States Resource Conservation
and Recovery Act or regulations adopted pursuant to said act, any "hazardous
substances" or "hazardous materials" as defined in the United States
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
and, to the extent not included in the foregoing, any oil or fractions thereof,
pollutants or contaminants. Except as set forth in Section 5.13 of the Company
Disclosure Schedule, there is no administrative or judicial enforcement
proceeding or other claim, demand, order, decree or judgment pending, or to the
knowledge of the Company, threatened against the Company or any Company
Subsidiary under any Environmental Law. Except as set forth in Section 5.13 of
the Company Disclosure Schedule, neither the Company nor any Subsidiary or, to
the knowledge of the Company, any legal predecessor of the Company or any
Subsidiary, has received any written notice that it is potentially responsible
under any Environmental Law for response costs or natural resource damages, as
those terms are defined under the Environmental Laws, at any location and
neither the Company nor any Subsidiary has transported or disposed of, or
arranged for any third party to transport or dispose of, any Hazardous Materials
at any location included on the National Priorities List, as defined under
CERCLA or any location proposed for inclusion on that list or at any location on
any analogous state list. Except as set forth in Section 5.13 of the Company
Disclosure Schedule, (i) the Company has no knowledge of any release on the real
property owned
A-29
or leased by the Company or any Company Subsidiary or predecessor entity of
Hazardous Materials in a manner that could result in an order to which the
Company or any Company Subsidiary is subject to perform a response action or in
material liability to the Company or any Company Subsidiary under the
Environmental Laws, and (ii) to the Company's knowledge, there is no hazardous
waste treatment, storage or disposal facility, underground storage tank,
landfill, surface impoundment, underground injection well, friable asbestos or
PCB's, as those terms are defined under the Environmental Laws, located at any
of the real property owned or leased by the Company or any Company Subsidiary or
predecessor entity or facilities utilized by the Company or the Company
Subsidiaries in a condition likely to result in material liability to the
Company or any Company Subsidiary under Environmental Laws.
5.14 Employee Benefit Plans.
(a) Section 5.14(a) of the Company Disclosure Schedule sets forth a list of
every Benefit Plan (as hereinafter defined) that is maintained by the Company or
an Affiliate (as hereinafter defined) on the date hereof (each a "Company
Benefit Plan").
(b) Each Company Benefit Plan which has been intended to qualify under
Section 401(a) of the Code, has received a favorable determination or approval
letter from the Internal Revenue Service ("IRS") regarding its qualification
under such section, its related trust has been determined to be exempt from
taxation under Section 501(a) of the Code, and nothing has occurred since the
date of such letter that has or is likely to adversely affect such qualification
or exemption. Each Company Benefit Plan that requires registration with a
government body has been so registered.
(c) With respect to any Company Benefit Plan, there has been no event in
that could subject, directly or indirectly, the Company or any Affiliate or any
Company Benefit Plan to any material liability under ERISA, the Code or any
other law, regulation or governmental order applicable to any Company Benefit
Plan, including, without limitation, Section 406, 409, 502(i), 502(l) or 4069 of
ERISA, or Section 4971, 4975 or 4976 of the Code, or under any agreement,
instrument, statute, rule of law or regulation pursuant to or under which the
Company or any Affiliate has agreed to indemnify any person against liability
incurred under, or for a violation or failure to satisfy the requirement of, any
such statute, regulation or order. Except as set forth on Section 5.14(b) of the
Company Disclosure Schedule, there are no actions, liens, suits or claims
pending or, to the knowledge of the Company or any Affiliate, threatened (other
than routine claims for benefits) with respect to any Company Benefit Plan as to
which the Company or any Affiliate has or could reasonably be expected to have
any direct or indirect actual or contingent material liability. No litigation or
governmental administrative proceeding (or investigation) or other proceeding
(other than those relating to routine claims for benefits) is pending or, to the
Company's knowledge, threatened with respect to any such Company Benefit Plan.
(d) Neither the Company nor any Affiliate maintains or has any obligation
to contribute to, or has within the preceding six years maintained or
contributed to, or has had during such period the obligation to maintain or
contribute to, or may have any liability with respect to, any Company Benefit
Plan subject to Title IV of ERISA,
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Section 412 of the Code, any Multiemployer Plan or any "multiple employer plan"
within the meaning of the Code or ERISA or the regulations promulgated
thereunder.
(e) Except as provided in Section 5.14(c) of the Disclosure Schedule,
neither the Company nor any Affiliate is a party to any plan or agreement that
will, as a result of the consummation of the transactions contemplated by this
Agreement or otherwise, (i) result in the acceleration of the time for payment
or vesting of, or increase the amount of compensation due to any employee,
former employee, consultant or independent contractor, (ii) reasonablely be
expected to result in any "excess parachute payment" under Section 280G of the
Code or any payment which is non-deductible under Section 162(m) of the Code.
The consummation of the transactions contemplated by this Agreement will not
entitle any employee or former employee to severance pay or similar payment
which payments, individually or in the aggregate, would be material to the
Company and the Company Subsidiaries.
(f) Neither the Company nor any Affiliate has an announced plan or legally
binding commitment to create any additional Company Benefit Plans or to amend or
modify any existing Company Benefit Plan, other than amendments to comply with
law.
(g) Neither the Company nor any Affiliate has any material liability,
whether absolute or contingent, direct or indirect, including any obligations
under any Company Benefit Plan, with respect to any misclassification of a
person as an independent contractor rather than as an employee or with respect
to any employees "leased" from any employer.
(h) Neither the Company nor any Affiliate has any obligation to provide or
any direct or indirect liability, whether contingent or otherwise, with respect
to the provision of health or death benefits to or in respect of former
employees, except as may be required pursuant to COBRA or state health coverage
continuation law and the costs of which are fully paid by such former employees.
(i) Each Company Benefit Plan which is a "group health plan" (as defined in
Section 601 of ERISA) is in material compliance with the provisions of COBRA,
HIPAA and any other applicable federal, state or local law.
(j) With respect to each Company Benefit Plan, complete and correct copies
of the following documents (if applicable to such Company Benefit Plan) have
previously been delivered to Parent: (i) all documents embodying or governing
such Company Benefit Plan, and any funding medium for such Company Benefit Plan
(including, without limitation, trust agreements) as they may have been amended
to the date hereof; (ii) the most recent IRS determination or approval letter
with respect to such Company Benefit Plan under Code Section 401(a), and any
applications for determination or approval subsequently filed with the IRS;
(iii) the current summary plan description for such Company Benefit Plan (or
other descriptions of such Company Benefit Plan provided to employees) and all
modifications thereto; and for the three most recent years, (w) the Forms 5500,
with all applicable schedules and accountants' opinions attached thereto; (x)
audited financial statements; (y) actuarial valuation reports, if any; and (z)
attorney's response to an auditor's request for information.
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(k) For purposes of Sections 5.14 and 6.14 of this Agreement:
(i) "Benefit Plan" means any plan, program, arrangement, agreement or
commitment which is an employment, consulting or deferred compensation
agreement, or an executive compensation, incentive bonus or other bonus,
employee pension, profit-sharing, savings, retirement, stock option, stock
purchase, severance pay, life, health, disability or accident insurance
plan, or vacation, or other employee benefit plan, program, arrangement,
agreement or commitment, including, without limitation, any "employee
benefit plan" as defined in Section 3(3) of ERISA;
(ii) An entity "maintains" a Benefit Plan if such entity sponsors,
contributes to, or provides benefits under or through such Benefit Plan, or
has any obligation (by agreement or under applicable law) to contribute to,
or has any direct or indirect liability, whether contingent or otherwise,
with respect to any such Benefit Plan, or if such Benefit Plan provides
benefits to or otherwise covers employees of such entity (or their spouses,
dependents, or beneficiaries);
(iii) An entity is an "Affiliate" of another entity if it would have
ever been considered a single employer with such other entity under ERISA
Section 4001(b) or part of the same "controlled group" as such other entity
for purposes of ERISA Section 302(d)(8)(C) and Sections 414(b), (c), (m) or
(o) of the Code; and
(iv) "Multiemployer Plan" means an employee pension or welfare benefit
plan to which more than one unaffiliated employer contributes and which is
maintained pursuant to one or more collective bargaining agreements;
(v) "COBRA" means Section 4980B of the Code and Section 601 et seq. of
ERISA, and regulations thereunder; and
(vi) "HIPAA" means the Health Insurance Portability and Accountability
Act of 1996.
5.15 Labor Matters.
(i) Except as disclosed in Section 5.15 of the Company Disclosure Schedule,
neither the Company nor any Company Subsidiary is a party to, or bound by, any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor union organization. There is no unfair labor
practice or labor arbitration proceeding pending or, to the knowledge of the
Company, threatened against the Company or any of the Company Subsidiaries
relating to their business. To the Company's knowledge, there are no
organizational efforts with respect to the formation of a collective bargaining
unit presently being made or threatened involving employees of the Company or
any of the Company Subsidiaries.
(ii) Neither the Company nor any Company Subsidiary has violated any
provision of federal or state law or any governmental rule or regulation, or any
order, decree, judgment arbitration award of any court, arbitrator or any
government agency regarding the terms and conditions of employment of employees,
former employees or prospective employees or other labor related matters,
including, without limitation, laws, rules, regulations, orders, rulings,
decrees, judgments and awards relating to discrimination, fair
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labor standards and occupational health and safety, wrongful discharge or
violation of the personal rights of employees, former employees or prospective
employees, except for such violations that would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
5.16 No Brokers. Neither the Company nor any of the Company Subsidiaries
has entered into any contract, arrangement or understanding with any person or
firm which may result in the obligation of such entity or Parent to pay any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or consummation of
the Transactions, except that the Company has retained Morgan Stanley Dean
Witter ("Morgan Stanley") as its financial advisor in connection with the
Transactions. The Company has delivered to Parent a true and complete copy of
any contract, agreement or understanding entered into with Morgan Stanley in
connection with the Merger or the Transactions. Other than the foregoing
arrangements and Parent's arrangements with Goldman Sachs & Co. and Albert
Schneider, the Company is not aware of any claim for payment of any finder's
fees, brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or consummation of the Transactions.
5.17 Opinion of Financial Advisor. The Company has received the opinion
of Morgan Stanley to the effect that, as of the date hereof, the Merger
Consideration is fair to the holders of Company Common Stock from a financial
point of view. The Company has delivered or will promptly after receipt of such
written opinion, deliver a signed copy of that opinion to Parent.
5.18 Non-Competition Agreements. Except as set forth in Section 5.18 of
the Company Disclosure Letter, neither the Company nor any Company Subsidiary is
a party to any agreement which purports to restrict or prohibit in any material
respect the Company and the Company Subsidiaries collectively from, directly or
indirectly, engaging in any business involving Internet service access or
telecommunications currently engaged in by the Company, any Company Subsidiary
or any other persons affiliated with the Company. None of the Company's
officers, directors or key employees is a party to any agreement which, by
virtue of such person's relationship with the Company, restricts in any material
respect the Company or any Company Subsidiary or affiliate of either of them
from, directly or indirectly, engaging in any of the businesses described above.
5.19 Material Contracts.
(a) Schedule 5.19(a) of the Company Disclosure Letter lists or describes,
and the Company has been furnished copies of all material contracts or
arrangements to which the Company or any Company Subsidiary is a party or to
which its assets, property or business is bound or subject (other than contracts
between the Company and any Company Subsidiary), which involve aggregate
payments by or to the Company or any Company Subsidiary (including, without
limitation, payments pursuant to a guaranty of any obligations of any Company
Subsidiary or third party) of $100,000 or more, whether or not made in the
ordinary course of business (the "Company Contracts").
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(b) Except for the Company Contracts or as set forth in Section 5.19(b) of
the Company Disclosure Schedule, there is no Contract that is material to the
business, results of operations, assets, properties or financial condition of
the Company and the Company Subsidiaries taken as a whole. Each of the Company
Contracts constitutes a valid and legally binding obligation of the Company or
such Company Subsidiary and, to the knowledge of the Company, of the other
parties thereto, enforceable in accordance with its terms, and is in full force
and effect, except to the extent the failure to be so valid, binding or
enforceable, has not and would not, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect. Neither the Company nor
any Company Subsidiary, nor to the Company's knowledge, any other person, is in
violation of or in default under (nor does there exist any condition which with
the passage of time or the giving of notice would cause such a violation of or
default under) any Contract to which the Company or a Company Subsidiary is a
party or by which it or any of its properties or assets is bound or affected,
except for violations or defaults that have not resulted and would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. The Company has satisfied all volume commitment
requirements under the applicable Company Contracts to allow for the most
favorable pricing structure to be provided to the Company under such Company
Contracts. Set forth in Schedule 5.19(b), the Company Disclosure Letter is a
description of any material changes to the amount and terms of the indebtedness
of the Company and the consolidated Company Subsidiaries as described in the
notes to the financial statements set forth as incorporated by reference in the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1999. The aggregate amount of indebtedness of the Company and the Company
Subsidiaries which is outstanding under the Amended and Restated Credit
Agreement, dated as of July 26, 1999, among Voyager Information, Inc., Fleet
National Bank, as agent and certain lenders, is no more than $23,750,000.
(c) Section 5.19(c) of the Company Disclosure Schedule sets forth a true
and complete list as of February 1, 2000 of all circuit and related agreements
and any amendments, supplements or other modifications thereto except for those
circuit and related agreements that would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.
5.20 Certain Agreements. Except as set forth in Section 5.20 of the
Company Disclosure Letter, neither the Company nor any of the Company
Subsidiaries is a party to any oral or written (i) agreement with any executive
officer or other key employee of the Company or Company Subsidiary the benefits
of which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Company of the nature contemplated by
this Agreement, or agreement with respect to any executive officer of the
Company providing any term of employment or compensation guarantee (x) extending
for a period longer than one year after the Effective Time or (y) for the
payment of in excess of $100,000 or (ii) plan or arrangements, including any
stock option plan, stock appreciation right plan, restricted stock plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the occurrence of any of the
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transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement.
5.21 Subscribers. The Company has at least 325,000 subscribers as
calculated in accordance with the Company's customary practices. As used herein,
the term "Subscriber" means a customer of the Company or a Company Subsidiary
who (i) is currently connected to and receiving Internet access service from the
system and (ii) is being charged and is paying for such service. Notwithstanding
the foregoing, it shall not be deemed to be a reduction in the number of
Subscribers if a Subscriber continues to remain as a customer of the Company,
even though such Subscriber has been aggregated with one or more other
Subscribers into one account.
5.22 Information. None of the information to be supplied by the Company
for inclusion or incorporation by reference in the Proxy Statement or the Form
S-4 will, in the case of the Form S-4, at the time it becomes effective and at
the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated in that Form S-4 or necessary to
make the statements in that Form S-4 not misleading, or, in the case of the
Proxy Statement or any amendments of or supplements to the Proxy Statement, at
the time of the mailing of the Proxy Statement and any amendments of or
supplements to the Proxy Statement and at the time of the Company Stockholders
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated in that Proxy Statement or necessary in
order to make the statements in that Proxy Statement, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
(except for those portions of the Proxy Statement that relate only to Parent or
Parent Subsidiaries or affiliates of Parent) will comply as to form in all
material respects with the provisions of the Exchange Act.
5.23 Vote Required. The Requisite Company Vote is the only vote of the
holders of any class or series of the Company's capital stock necessary (under
the Company Certificate and Company By-laws, the DGCL, other applicable Law or
otherwise) to approve this Agreement, the Merger or the other Transactions.
5.24 Definition of the Company's Knowledge. As used in this Agreement,
the phrase "to the knowledge of the Company" or any similar phrase means the
actual (and not the constructive or imputed) knowledge after due inquiry of
Christopher P. Torto, Osvaldo deFaria, Glenn R. Friedly and James Militello.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth in the disclosure letter delivered at or prior to the
execution hereof to the Company, which shall refer to the relevant Sections of
this Agreement
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(the "Parent Disclosure Schedule"), each of Parent and MergerCo represents and
warrants to the Company as follows:
6.1 Existence; Good Standing; Authority; Compliance With Law.
(a) Each of Parent and MergerCo is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. Except as set forth in Section 6.1 of Parent Disclosure Schedule,
each of Parent and MergerCo is duly licensed or qualified to do business as a
foreign corporation and is in good standing under the laws of any other state of
the United States in which the character of the properties owned, leased or
operated by it therein or in which the transaction of its business makes such
qualification or licensing necessary, except where the failure to be so licensed
or qualified would not, individually or in the aggregate, reasonably be expected
to have a material adverse effect on the business, assets, properties, results
of operations or financial condition of Parent and the Parent Subsidiaries (as
defined herein) taken as a whole (a "Parent Material Adverse Effect"). Each of
Parent and MergerCo has all requisite corporate power and authority to own,
operate, lease and encumber its properties and carry on its business as now
conducted.
(b) Each of the Parent Subsidiaries is a corporation, partnership or
limited liability company (or similar entity or association in the case of those
Parent Subsidiaries organized and existing other than under the laws of a state
of the United States) duly incorporated or organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization, has the corporate or other power and authority to own its
properties and to carry on its business as it is now being conducted, and is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which character of the properties owned, leased or operated by
it therein or in which the transaction of its business makes such qualification
or licensing necessary, except for jurisdictions in which such failures to be so
qualified or to be in good standing would not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect.
(c) Except as set forth in Section 6.1(c) of the Parent Disclosure
Schedule, neither Parent, MergerCo nor any of the Parent Subsidiaries is in
violation of any order of any court, Governmental Entity or arbitration board or
tribunal, or any Law, applicable to Parent, MergerCo or any Parent Subsidiary or
by which any of their respective properties or assets is bound or affected by
which violation would, individually or in the aggregate, reasonably be expected
to have a Parent Material Adverse Effect. Parent, MergerCo and the Parent
Subsidiaries have obtained all franchises, grants, authorizations, licenses,
permits, easements, variances, exceptions, consents, waivers, rights,
certificates, approvals and orders of, and registrations required to be made
with any Governmental Entity that are material to its business as it is now
being or is intended to be conducted (the "Parent Permits"), where the failure
to obtain any such Parent Permits would not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect.
(d) The copies of the Parent's Memorandum of Association ("Parent
Certificate") and by-laws ("Parent ByLaws"), each as amended through the date of
this Agreement
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that are incorporated by reference in, as exhibits to the Parent's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999 and all comparable
corporate organizational documents of the Parent Subsidiary made available to
the Company by Parent are complete and correct copies of those documents. Such
Memorandum of Association and by-laws and all comparable organizational
documents of the Parent Subsidiaries are in full force and effect. The Parent is
not in violation of any of the provisions of such Memorandum of Association or
by-laws.
6.2 Authorization, Validity and Effect of Agreements. Each of Parent and
MergerCo has the requisite power and authority to enter into the Transactions
and to execute and deliver this Agreement. The Parent Board has unanimously
approved this Agreement, the Merger and the other Transactions and has resolved
to recommend that the holders of Parent Common Stock adopt and approve this
Agreement at the stockholders' meeting of Parent to be held in accordance with
the provisions of Section 8.1. The Board of Directors of MergerCo (the "MergerCo
Board") and the stockholders of MergerCo have approved this Agreement and the
Transactions. Subject only to the approval of this Agreement by the holders of a
majority of the outstanding shares of Parent Common Stock (the "Requisite Parent
Vote"), the execution by Parent of this Agreement and the consummation of the
Transactions have been duly authorized by all requisite corporate action on the
part of Parent and MergerCo and no other corporate proceedings on the part of
Parent or MergerCo are necessary to authorize this Agreement or to consummate
the Transactions. As of the date hereof, all of the directors and executive
officers of Parent have indicated that they presently intend to vote all shares
of Parent Common Stock which they own to approve this Agreement and the
Transactions at the stockholders' meeting of Parent to be held in accordance
with the provisions of Section 8.1. This Agreement, assuming due and valid
authorization, execution and delivery thereof by the Company, constitutes a
valid and legally binding obligation of Parent and MergerCo, enforceable against
Parent and MergerCo in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
6.3 Capitalization. The authorized capital stock of Parent consists of
75,000,000 shares of Parent Common Stock and 1,000,000 shares of preferred
stock, par value $.01 per share, of Parent ("Parent Preferred Stock"). As of
March 6, 2000, (i) 39,213,036 shares of Parent Common Stock were issued and
outstanding, (ii) 19,125,000 shares of Parent Common Stock have been authorized
and reserved for issuance and are available for grant pursuant to Parent's stock
option plans (the "Parent Stock Option Plans"), subject to adjustment on the
terms set forth in Parent Stock Option Plans, (iii) 10,511,875 options (the
"Parent Options") were outstanding under Parent Stock Option Plans, (iv) no
shares of Parent Preferred Stock were issued and outstanding, and (v) no shares
of Parent Common Stock and no shares of Parent Preferred Stock were held in the
treasury of Parent. As of the date of this Agreement, no shares of capital stock
or voting securities of Parent were issued, outstanding or reserved for issuance
by Parent or outstanding other than as described above and, since such date, no
shares of capital stock or other voting securities or options in respect thereof
have been issued except upon the exercise of the Parent Options outstanding on
such date. The authorized
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capital stock of MergerCo consists of 1,500 shares of MergerCo Common Stock, of
which 1,500 shares were outstanding as of the date of this Agreement. All such
issued and outstanding shares of capital stock of Parent are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. Parent
has no outstanding bonds, debentures, notes or other obligations the holders of
which have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of Parent on any
matter. Except as set forth in the Parent SEC Reports and in Section 6.3 of the
Parent Disclosure Schedule, there are no existing options, warrants, calls,
subscriptions, convertible securities, redemption rights or other rights,
agreements or commitments to which Parent is a party or by which Parent is bound
relating to the issued or unissued capital stock of, other equity interests in,
or securities exchangeable for or convertible into capital stock or other equity
interests in, Parent or any Parent Subsidiary or any Parent Subsidiary which
obligate Parent to issue, transfer or sell any shares of capital stock of
Parent, other than the Parent Options. Except as set forth in Section 6.3 of
Parent Disclosure Schedule or in the Parent SEC Reports, there are no agreements
or understandings to which Parent or any Parent Subsidiary is a party with
respect to the voting of any shares of capital stock of Parent or which restrict
the transfer of any such shares, nor does Parent have knowledge of any third
party agreements or understandings with respect to the voting of any such shares
or which restrict the transfer of any such shares. Except as set forth in
Section 6.3 of Parent Disclosure Schedule or in the Parent SEC Reports, there
are no outstanding contractual obligations of Parent or any Parent Subsidiary to
repurchase, redeem or otherwise acquire any shares of capital stock, partnership
interests or any other securities of Parent or any Parent Subsidiary. Except as
set forth in Section 6.3 of Parent Disclosure Schedule or in the Parent SEC
Reports, neither Parent nor any Parent Subsidiary is under any obligation,
contingent or otherwise, by reason of any agreement to register the offer and
sale or resale of any of their securities under the Securities Act.
6.4 Subsidiaries. Parent owns directly or indirectly each of the
outstanding shares of capital stock or other equity interest of MergerCo and
each of the Parent Subsidiaries. Each of the outstanding shares of capital stock
of MergerCo and each of the Parent Subsidiaries having corporate form is duly
authorized, validly issued, fully paid and nonassessable. Each of the
outstanding shares of capital stock or other equity interest of MergerCo and
each of the Parent Subsidiaries is owned, directly or indirectly, by Parent free
and clear of all Liens. Section 6.4 of Parent Disclosure Schedule sets forth:
(i) the name and jurisdiction of incorporation or organization of each
Subsidiary of Parent ("Parent Subsidiaries") and (ii) the name of each
stockholder or equity interest holder and the number of issued and outstanding
shares of capital stock, share capital or other equity interest held by it with
respect to each Parent Subsidiary.
6.5 Other Interests. Except as set forth in Section 6.5 of Parent
Disclosure Schedule, neither Parent nor any Parent Subsidiary owns directly or
indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, limited liability company, joint venture, business,
trust or other entity (other investments in short-term investment securities),
other than in any Parent Subsidiary.
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6.6 No Violation; Consents.
(a) Except as set forth in Section 6.6(a) of Parent Disclosure Schedule,
neither the execution and delivery by Parent of this Agreement nor consummation
by Parent of the Transactions in accordance with the terms hereof, will conflict
with or result in a breach of any provisions of Parent Certificate or Parent
ByLaws or any comparable organizational documents of any Parent Subsidiary.
Except as set forth in Section 6.6(a) of Parent Disclosure Schedule, the
execution and delivery by Parent of this Agreement and consummation by Parent of
the Transactions in accordance with the terms hereof will not violate, or
conflict with, or result in (x) a violation of any Law applicable to Parent or
any Parent Subsidiary or by which any property or asset of Parent or any Parent
Subsidiary is bound or affected or (y) any provision of, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination or in a right of termination or
cancellation of, or accelerate the performance required by, or result in the
creation of any Lien upon any of the properties or assets of Parent or the
Parent Subsidiaries under, or result in being declared void, voidable or without
further binding effect, any of the terms, conditions or provisions of any
Contract to which Parent or any of Parent Subsidiaries is a party, or by which
Parent or any of the Parent Subsidiaries or any of their properties is bound,
except as would not, individually or in the aggregate, reasonably be expected to
have a Parent Material Adverse Effect. Other than the Regulatory Filings, the
execution and delivery of this Agreement by Parent does not, and the performance
of this Agreement by Parent and consummation of the Transactions does not,
require any consent, approval or authorization of, or declaration, filing or
registration with, any Governmental Entity, except where the failure to obtain
any such consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority would not,
individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect.
(b) Section 6.6(b) of the Parent Disclosure Letter sets forth a correct and
complete list of all material Contracts to which Parent or any Parent
Subsidiaries are a party or by which they or their assets or properties is or
may be bound or affected under which consents or waivers are required prior to
consummation of the transactions contemplated by this Agreement and the
Transactions.
6.7 SEC Documents. Parent has filed all required forms, reports,
exhibits, schedules, statements and other documents with the SEC since September
2, 1998 (collectively, the "Parent SEC Reports"), all of which were prepared in
accordance with the applicable requirements of the Securities Laws. All required
Parent SEC Reports have been filed with the SEC and constitute all forms,
reports, exhibits, schedules, statements and other documents required to be
filed by Parent under the Securities Laws since September 2, 1998. As of their
respective dates, Parent SEC Reports, including any financial statement or
schedules included or incorporated therein by reference (i) complied as to form
in all material respects with the applicable requirements of the Securities Laws
and (ii) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements
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made therein, in the light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets of Parent included in or
incorporated by reference into Parent SEC Reports (including the related notes
and schedules) fairly presents the consolidated results of operations and cash
flow position of Parent and Parent Subsidiaries as of its date and each of the
consolidated statements of income, retained earnings and cash flows of Parent
included in or incorporated by reference into Parent SEC Reports (including any
related notes and schedules) fairly presents the results of operations, retained
earnings or cash flows, as the case may be, of Parent and Parent Subsidiaries
for the periods set forth therein (subject, in the case of unaudited statements,
to normal year-end audit adjustments which would not be material in amount or
effect), in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as may be
noted therein and except, in the case of the unaudited statements, as permitted
by Form 10-Q pursuant to Section 13 or 15(d) of the Exchange Act. All of such
balance sheets and statements complied as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto. No Parent Subsidiary is subject to the periodic
reporting requirements of the Exchange Act or is otherwise required to file any
documents with the SEC or any national securities exchange or quotation service
or comparable Governmental Entity.
6.8 Litigation. Except as set forth in Section 6.8 of Parent Disclosure
Schedule and in the Parent SEC Reports, there is no litigation, suit, claim,
action or proceeding pending or, to the knowledge of Parent, threatened against
Parent or any of Parent Subsidiaries, as to which there is a reasonable
likelihood of an adverse determination and which, if adversely determined,
would, individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect. Neither Parent nor any Parent Subsidiary is subject to
any outstanding order, writ, injunction or decree which, individually or in the
aggregate, has resulted or would, individually or in the aggregate, reasonably
be expected to have a Parent Material Adverse Effect.
6.9 Absence of Certain Changes. Except as disclosed in Parent SEC Reports
filed with the SEC between September 30, 1999 and the date of this Agreement or
in Section 6.9 of the Parent Disclosure Schedule, since September 30, 1999
Parent and Parent Subsidiaries have conducted their businesses only in the
ordinary course of business and there has not been:
(a) any declaration, setting aside or payment of any dividend or other
distribution with respect to Parent Common Stock or any redemption,
purchase or other acquisition of Parent's securities;
(b) any Commitment entered into by Parent or any of Parent Subsidiaries
outside the ordinary course of business except for Commitments for expenses
of attorneys, accountants and investment bankers incurred in connection
with the Transactions;
(c) any material change in Parent's accounting principles, practices or
methods; or
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(d) any damage, destruction or other casualty loss with respect to any
asset or property owned, leased or otherwise used by it or any Parent
Subsidiaries, whether or not covered by insurance, which damage,
destruction or loss, individually or in the aggregate, has resulted or
would, individually or in the aggregate, reasonably be expected to have a
Parent Material Adverse Effect.
6.10 Intellectual Property. Parent or the Parent Subsidiaries are the
owner free and clear of any Liens of, or a licensee under a valid unrestricted
license for, all Intellectual Property which are material to the business of
Parent and the Parent Subsidiaries as currently conducted, taken as a whole.
Except as disclosed in Parent SEC Reports or Section 6.10 of Parent Disclosure
Schedule, there are no claims pending or, to Parent's knowledge, threatened,
that Parent or any Parent Subsidiary is in violation of any such intellectual
property right of any third party or that challenges the validity,
enforceability, ownership, or right to use, sell, or license any Intellectual
Property which would, individually or in the aggregate, reasonably be expected
to have a Parent Material Adverse Effect, and, to Parent's knowledge, no third
party is in violation of any intellectual property rights of Parent or any
Parent Subsidiary which would, individually or in the aggregate, reasonably be
expected to have a Parent Material Adverse Effect.
6.11 No Brokers. Neither Parent nor any of Parent Subsidiaries has
entered into any contract, arrangement or understanding with any person or firm
which may result in the obligation of such entity or the Company to pay any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or consummation of
the Transactions, except that Parent has retained Goldman, Sachs & Co. and
Albert Schneider as its financial advisor in connection with the Transactions.
Other than the foregoing arrangements and the Company's arrangements with Morgan
Stanley, Parent is not aware of any claim for payment of any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or consummation of the Transactions.
6.12 Opinion of Financial Advisor. Parent has received the opinion of
Goldman, Sachs & Co. to the effect that, as of the date hereof, the Merger
Consideration is fair to the holders of Parent Common Stock from a financial
point of view.
6.13 Taxes. Except as set forth in Section 6.13 of the Parent Disclosure
Schedule, each of the Parent and the Parent Subsidiaries (i) has filed, or will
have filed, all Tax Returns required to be filed by it on or before the Closing
Date (taking into account any applicable extensions) and all such Tax Returns
are true, correct and complete in all material respects, and (ii) has paid, or
will have paid, all Taxes required to be paid by it on or before the Closing
Date (whether or not shown on any Tax Return), except, in each case, where the
failure to file such Tax Returns or pay such Taxes would not, individually or in
the aggregate, reasonably be expected to have a Parent Material Adverse Effect.
Except as set forth in Section 6.13 of the Parent Disclosure Schedule, the most
recent unaudited financial statements contained in the Parent's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1999 reflect an adequate
reserve for all material Taxes payable by the Parent and the Parent Subsidiaries
for all taxable periods and portions thereof through the date of such financial
statements in
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accordance with United States GAAP. To the knowledge of the Parent, and except
as set forth in Section 6.13 of the Parent Disclosure Schedule, no deficiencies
for any Taxes have been proposed, asserted or assessed against the Parent or any
of the Parent Subsidiaries, there are no Tax liens on any assets of the Parent
or of any of the Parent Subsidiaries (other than liens for current Taxes not yet
due), and no requests for waivers of the time to assess any such Taxes are
pending. The transactions described in Section 8.11, including the
Reincorporation (as defined herein), will not result in any material Tax
liability to Parent or to ATX.
6.14 Employee Benefit Plans. Each Parent Benefit Plan which is intended
to be qualified under Section 401(a) of the Code has received a favorable
determination or approval letter from the IRS regarding its qualification under
such section, and neither the Parent nor any Affiliate knows of any event that
has occurred which would preclude qualified status. With respect each Parent
Benefit Plan, there has been no material failure to comply with any applicable
provision of ERISA, the Code or any other law which would subject the Parent or
any Affiliate to liability for any damages, penalty, or taxes that would,
individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect.
6.15 Definition of Parent's Knowledge. As used in this Agreement, the
phrase "to the knowledge of Parent" or any similar phrase means the actual (and
not the constructive or imputed) knowledge after due inquiry of the executive
officers of Parent.
ARTICLE VII
COVENANTS
7.1 No Solicitations.
(a) The Company represents and warrants that it has terminated, and has
caused its subsidiaries and affiliates, and their respective officers,
directors, employees, investment bankers, attorneys, accountants and other
advisors or representatives to terminate, any activities, discussions or
negotiations relating to, or that may be reasonably be expected to lead to, any
Acquisition Proposal (as hereinafter defined) and will promptly request the
return of all confidential information regarding the Company provided to any
third party prior to the date of this Agreement pursuant to the terms of any
confidentiality agreements. From the date hereof until the termination hereof
and except as permitted by the following provisions of this Section 7.1, the
Company shall not, and shall not authorize or permit any of its officers,
directors or employees or any investment banker, financial advisor, attorney,
accountant or other advisor or Representative retained by it to, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
non-public information), or take any other action to facilitate, any inquiries
or the making of any proposal that constitutes an Acquisition Proposal or any
inquiries or making of any proposal that constitutes, or may reasonably be
expected to lead to, an Acquisition Proposal, or (ii) participate in any
activities, discussions or negotiations regarding an Acquisition Proposal;
provided, however, that subject to compliance by the Company with the provisions
of Section 7.1(b), the Company Board
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may furnish information to, or enter into discussions or negotiations with, any
person that makes an unsolicited written Acquisition Proposal if, and only to
the extent that (A) the Company Board, after consultation with its outside legal
counsel, determines in good faith that such action is necessary for the Company
Board to comply with its fiduciary duties to the Company's stockholders under
applicable law, (B) such Acquisition Proposal is not subject to any financing
contingencies or is, in the good faith judgment of the Company Board after
consultation with a nationally recognized financial advisor, reasonably capable
of being financed, and is at least as likely to be consummated as is the Merger,
(C) the Company Board determines in good faith that such Acquisition Proposal,
based upon such matters as it deems relevant (including consultation with a
nationally recognized financial advisor) would, if consummated, result in a
transaction more favorable to the Company's stockholders from a financial point
of view than the Merger (any such more favorable Acquisition Proposal being
referred to herein as a "Superior Proposal"), (D) the Company receives from such
person an executed confidentiality agreement in reasonably customary form and
(E) at least three (3) business days prior to taking such action, the Company
shall provide written notice to Parent to the effect that it is taking such
action.
(b) Prior to providing any information to or entering into discussions with
any person in connection with an Acquisition Proposal by a person as set forth
in Section 7.1(a), the Company shall notify Parent orally and in writing of any
Acquisition Proposal (including, without limitation, the material terms and
conditions thereof and the identity of the person making it) or any inquiries
indicating that any person is considering making or wishes to make an
Acquisition Proposal, as promptly as practicable (but in no case later than 24
hours) after its receipt thereof, and shall provide Parent with a copy of any
written Acquisition Proposal or amendments or supplements thereto, and shall
thereafter inform Parent on a prompt basis of (x) any material changes to the
terms and conditions of such Acquisition Proposal, and shall promptly give
Parent a copy of any information delivered to such person that amends or
supplements the Acquisition Proposal and that has not previously been provided
to Parent, and (y) any request by any person for nonpublic information relating
to its or any Company Subsidiaries' properties, books or records.
(c) The Company Board will not withdraw or modify, or propose to withdraw
or modify, in any manner adverse to Parent, its approval or recommendation of
this Agreement or the Merger except in connection with a Superior Proposal and
then only upon or after the termination of this Agreement pursuant to Section
10.1(c) and payment to Parent of the amounts referred to in Section 10.2(b).
(d) Nothing contained in this Section 7.1 shall prohibit the Company from
at any time taking and disclosing to its stockholders a position contemplated by
Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act or making any
disclosure required by Rule 14a-9 promulgated under the Exchange Act if, the
Company Board determines, in its good faith reasonable judgment after
consultation with outside legal counsel, that failure to so disclose would be
inconsistent with its obligations under applicable law.
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(e) As used in this Agreement, the term "Acquisition Proposal" shall mean
any proposed or actual (i) merger, consolidation or similar transaction
involving the Company, (ii) sale, lease, exchange, mortgage, pledge, transfer or
other disposition, directly or indirectly, by merger, consolidation, share
exchange or otherwise, of any assets of the Company or the Company Subsidiaries
representing 15% or more of the consolidated assets of the Company and the
Company Subsidiaries, (iii) issue, sale or other disposition by the Company of
(including by way of merger, consolidation, share exchange or any similar
transaction) securities (or options, rights or warrants to purchase, or
securities convertible into, such securities) representing 15% or more of the
votes associated with the outstanding securities of the Company, (iv) tender
offer or exchange offer in which any person shall acquire beneficial ownership
(as such term is defined in Rule 13d-3 under the Exchange Act), or the right to
acquire beneficial ownership, or any "group" (as such term is defined under the
Exchange Act) shall have been formed which beneficially owns or has the right to
acquire beneficial ownership of, 15% or more of the outstanding shares of
Company Common Stock, (v) recapitalization, restructuring, liquidation,
dissolution, or other similar type of transaction with respect to the Company,
(vi) transaction which is similar in form, substance or purpose to any of the
foregoing transactions or (vii) any public announcement of a proposal or plan to
do any of the foregoing (including, without limitation, the filing of a
registration statement under the Securities Act) or any agreement to engage in
any of the foregoing; provided, however, that the term "Acquisition Proposal"
shall not include the Merger and the other Transactions.
7.2 Conduct of Businesses.
(a) Conduct by the Company. Prior to the Effective Time, except as
specifically permitted by this Agreement, unless Parent or MergerCo has
consented in writing thereto, the Company shall cause each Company Subsidiary to
conduct its operations according to their usual, regular and ordinary course of
business consistent with past practice or in accordance with the Business Plan
of the Company which has been provided to Parent ("Business Plan") and, to the
extent consistent therewith, with no less diligence and effort then would be
applied in the absence of this Agreement, will use its reasonable best efforts
to, and to cause each Company Subsidiary to, preserve intact the business
organization of the Company and each of the Company Subsidiaries, to keep
available the services of the present officers and key employees of the Company
and the Company Subsidiaries, and to preserve the good will of customers,
suppliers and all other persons having business relationships with the Company
and the Company Subsidiaries. Without limiting the generality of the foregoing,
and except as set forth on Section 7.2(a) of the Company Disclosure Schedule,
neither the Company nor any Company Subsidiary shall (except as expressly
permitted by this Agreement or to the extent Parent or MergerCo shall otherwise
consent in writing):
(i) directly or indirectly, split, combine, subdivide, reclassify or
redeem, retire, purchase or otherwise acquire, or propose to redeem, retire
or purchase or otherwise acquire, any shares of its capital stock, or any
of its other securities; or declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property
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or any combination thereof) in respect of Company Common Stock, except for
dividends paid by any Company Subsidiary to the Company or any Company
Subsidiary that is, directly or indirectly, wholly owned by the Company;
(ii) authorize for issuance, issue, pledge, reissue, sell, deliver or
agree or commit to issue, pledge, reissue, sell or deliver (whether through
the issuance or granting of options, warrants, commitments, subscriptions,
rights to purchase or otherwise) any stock of any class or any other
securities (including indebtedness having the right to vote) or equity
equivalents (including, without limitation, securities convertible into
capital stock, options, warrants and stock appreciation rights), other than
the issuance of shares of Company Common Stock upon the exercise of Company
Options in accordance with their present terms;
(iii) acquire, sell, lease, encumber, license, pledge, grant, transfer
or dispose of any assets outside the ordinary course of business which are
material to the Company or any of the Company Subsidiaries (whether by
merger, consolidation, purchase, sale, asset acquisition, stock acquisition
or otherwise) or enter into any material commitment or transaction outside
the ordinary course of business, except as set forth in Section 7.2(a) of
the Company Disclosure Schedule;
(iv) except as contemplated by the Business Plan, incur, assume or
prepay any amount of indebtedness for borrowed money, guarantee any
indebtedness, issue or sell debt securities or warrants or rights to
acquire any debt securities, guarantee (or become liable or responsible
for, whether directly, contingently or otherwise) any debt of others, make
any loans, advances or capital contributions, or investments in, mortgage,
pledge or otherwise encumber any material assets, create or suffer any
material Lien thereupon other than in the ordinary course of business
consistent with prior practice;
(v) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than any payment, discharge or satisfaction (A) in the ordinary course of
business consistent with past practice, or (B) in connection with the
transactions contemplated by this Agreement;
(vi) change any of the accounting principles or practices used by it
(except as required by GAAP, in which case written notice shall be provided
to Parent prior to any such change);
(vii) except as required by law, (A) enter into, adopt, amend or
terminate any Company Benefit Plan, (B) enter into, adopt, amend or
terminate any agreement, arrangement, plan or policy between the Company or
any of the Company Subsidiaries and one or more of their directors or
officers, (C) except for normal increases in the ordinary course of
business consistent with past practice, increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any Company Benefit Plan or arrangement as in
effect as of the date hereof, (D) pay any benefit not required by any
existing plan or arrangement (including the granting of stock options,
stock appreciation rights,
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shares of restricted stock or performance units) or grant any severance or
termination pay to (except pursuant to existing agreements, plans or
policies), or enter into any employment or severance agreement with, any
director, officer or other employee of the Company or any Company
Subsidiaries or (E) establish, adopt, enter into, amend or take any action
to accelerate rights under any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, savings, welfare, deferred compensation, employment,
termination, severance or other employee benefit plan, agreement, trust,
fund, policy or arrangement for the benefit or welfare of any directors,
officers or current or former employees, except in each case to the extent
required by applicable Law; provided, however, that nothing in this
Agreement will be deemed to prohibit the payment of benefits as they become
payable;
(viii) adopt any amendments to the Company Certificate or the Company
Bylaws or comparable organizational documents of any Company Subsidiary,
except as expressly provided by the terms of this Agreement;
(ix) make or file and elections in respect of Taxes with respect to the
Company or any of its Subsidiaries;
(x) terminate, cancel or request any material change in, or agree to
any material change in any Contract which is material to the Company and
the Company Subsidiaries taken as a whole, or enter into any Contract which
would be material to the Company and the Company Subsidiaries taken as a
whole, in either case other than in the ordinary course of business
consistent with past practice;
(xi) make or authorize any capital expenditure, which would be material
to the Company and the Company Subsidiaries taken as a whole, other than in
the ordinary course of business consistent with past practice or in
accordance with the Business Plan;
(xii) enter into any agreement or arrangement that materially limits or
otherwise restricts the Company or any Company Subsidiary or any successor
thereto, or that would, after the Effective Time, limit or restrict the
Surviving Corporation and its affiliates (including Parent) or any
successor thereto, from engaging or competing in any line of business or in
any geographic area, other than in the ordinary course of business
consistent with past practice;
(xiii) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization (other
than plans of complete or partial liquidation or dissolution of inactive
Company Subsidiaries);
(xiv) settle, waive, release, assign or compromise any material rights,
claims or litigation (whether or not commenced prior to the date of this
Agreement);
(xv) take any action that would result in any of its representations or
warranties set forth in this Agreement becoming untrue or cause any
conditions to closing set forth in Article IX, to not be satisfied, other
than those actions that
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would not materially adversely affect the Company's ability to consummate
the transactions contemplated by this Agreement; or
(xvi) authorize or enter into any formal or informal written or other
agreement or otherwise make any commitment to do any of the foregoing
actions.
(b) Conduct by Parent. Except as expressly provided in this Agreement or
as disclosed on Section 7.2(b) of Parent Disclosure Schedule, neither Parent nor
any Parent Subsidiary shall (except as expressly permitted by this Agreement or
to the extent the Company shall otherwise consent in writing):
(i) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of Parent Common Stock, except for dividends paid by any Parent Subsidiary
to Parent or any Parent Subsidiary that is, directly or indirectly, wholly
owned by Parent; or
(ii) authorize or enter into any formal or informal written or other
agreement or otherwise make any commitment to do any of the foregoing
actions; provided that nothing in this Section 7.2(b) shall prohibit Parent
from undertaking any actions contemplated by the definition of Base
Adjustments in Section 3.1(c)(ii) prior to Closing.
7.3 Tax-Free Treatment. Parent, MergerCo and the Company intend that the
Merger will qualify as either (i) a reorganization within the meaning of Section
368(a) of the Code or (ii) a transaction that, together with the Reincorporation
(as defined herein) qualifies as an exchange under the provisions of Section 351
of the Code and which is treated for U.S. federal income tax purposes as a
transfer of Company Common Stock by the shareholders of the Company to Parent in
exchange for the Merger Consideration. None of Parent, MergerCo or the Company
shall take, or fail to take, or cause to be taken or fail to cause to be taken,
any action, whether before or after the Closing, which action or failure to take
any action would cause the Merger to fail to constitute a "reorganization"
within the meaning of Section 368(a) of the Code or a transaction that, together
with the Reincorporation (as defined herein) qualifies as an exchange under the
provisions of Section 351 of the Code and which is treated for U.S. federal
income tax purposes as a transfer of Company Common Stock by the shareholders of
the Company to Parent in exchange for the Merger Consideration. However, it is
further intended by all of the parties hereto that if the transactions with ATX
described in Section 8.11 occur, and this Agreement is assigned as provided in
Section 11.5, then the incorporation of ATX, the transactions with ATX described
in Section 8.11, and the transactions described in this Agreement will be
treated for U.S. federal income tax purposes as one integrated transaction
qualifying as an exchange under the provisions of Section 351 of the Code in
which the shareholders of the Company transfer Company Common Stock in exchange
for ATX stock. No party to this Agreement shall take a position on any Tax
return that is inconsistent with the intentions expressed in this Section 7.3.
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ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 Meetings of Stockholders. Following execution of this Agreement, (i)
Parent will take all action necessary in accordance with applicable law, Parent
Certificate and Parent ByLaws to convene a meeting of its stockholders as
promptly as practicable to consider and vote upon the approval of the issuance
of Parent Common Stock to be issued pursuant to the Merger and (ii) the Company
will take all action necessary in accordance with applicable Law, the Company
Certificate and the Company Bylaws to convene a meeting of its stockholders as
promptly as practicable to consider and vote upon the approval of this Agreement
and the Transactions (the "Company Stockholders Meeting"). The proxy statements
of Parent and the Company related to their respective stockholders' meeting
shall, subject to Section 7.1 hereof, contain the recommendation of Parent Board
and the Company Board, respectively, that its stockholders approve this
Agreement and the Transactions. Subject to and in accordance with applicable
Law, each of Parent and the Company shall use its reasonable best efforts to
obtain the such approval, including, without limitation, by timely mailing the
Proxy Statement (as hereinafter defined) contained in the Form S-4 to its
stockholders. Parent and the Company shall coordinate and cooperate with each
other with respect to the timing of their respective stockholders' meetings and
shall use their reasonable best efforts to hold such meetings on the same day.
8.2 HSR and Other Filings.
(a) Subject to the terms and conditions herein provided and to applicable
legal requirements, each of the parties hereto agrees to use its reasonable best
efforts to (i) take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable to consummate and make effective
as promptly as practicable the transactions contemplated by this Agreement and
(ii) to cooperate with each other in connection with the foregoing, including
the taking of such actions as are necessary to obtain any necessary consents,
licenses, approvals, orders, exemptions and authorizations by or from any public
or private third party or Governmental Entity, including, without limitation,
those consents, licenses, approvals, exemptions or authorizations required with
respect to the agreements set forth in Sections 5.6(a) and 5.6(b) of the Company
Disclosure Schedule and any others that are required to be obtained under any
Law or any Contract to which the Company or any Company Subsidiary is a party or
by which any of their respective properties or assets are bound, (iii) to defend
all lawsuits or other legal proceedings challenging this Agreement or the
consummation of the Transactions, (iv) to cause to be lifted or rescinded any
injunction or restraining order or other order adversely affecting the ability
of the parties to consummate the Transactions, and (iv) to effect all necessary
registrations and submissions of information requested by governmental
authorities. For purposes of the foregoing sentence, the obligations of Parent
and the Company to use their "reasonable best efforts" to obtain waivers,
consents and approvals to loan agreements, leases and other contracts shall not
include any obligation to agree to an adverse modification of the terms of such
documents or to prepay or incur additional obligations to such other parties.
If, at any
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time after the Effective Time, any further action is necessary or desirable to
carry out the purpose of this Agreement, the proper officers and directors of
Parent and the Company shall take all such necessary action. The Company shall
use its reasonable best efforts to properly record all assignments of its
Intellectual Property and make all other necessary filings with the United
States Patent and Trademark Office and the United States Copyright Office.
(b) Without limiting the generality of the foregoing, as promptly as
practicable, Parent and the Company each shall properly prepare and file any
other filings required under applicable Law relating to the Merger and the other
Transactions (including filings, if any, required under the HSR Act, the
Securities Act, the Exchange Act and any other applicable federal or Blue Sky
Laws, the DGCL, Bermuda Law, other applicable Law and the rules and regulations
of NASDAQ, and the Communications Act, the PUC Regulations, and the Utility Laws
(collectively, "Other Filings"). Each of Parent and the Company shall promptly
notify the other of the receipt of any comments on, or any request for
amendments or supplements to, any Other Filings by any Governmental Entity or
official, and each of Parent and the Company shall supply the other with copies
of all correspondence between it and each of its Subsidiaries and
representatives, on the one hand, and any other appropriate governmental
official, on the other hand, with respect to any Other Filings. None of the
parties will file any such document if any of the other parties shall have
reasonably objected to the filing of such document. No party to this Agreement
shall consent to any voluntary extension of any statutory deadline or waiting
period or to any voluntary delay of the consummation of the Merger and the other
Transactions at the behest of any Governmental Entity without the consent and
agreement of the other party to this Agreement, which consent shall not be
unreasonably withheld or delayed. Parent and the Company hereby covenant and
agree to use their respective reasonable best efforts to secure termination of
any waiting periods under the HSR Act and obtain the approval of the Federal
Trade Commission (the "FTC") or any other Governmental Entity for the
transactions contemplated hereby. The Company and Parent shall keep the other
apprised of the status of matters relating to the completion of the transactions
contemplated hereby and work cooperatively in connection with obtaining any
consents from Governmental Entity, including, without limitation: (i) promptly
notifying the other of, and if in writing, furnishing the other with copies of
(or, in the case of material oral communications, advise the other orally of)
any communications from or with any Governmental Entity with respect to the
Merger or any of the other transactions contemplated by this Agreement, (ii)
permitting the other party to review and discuss in advance, and considering in
good faith the views of one another in connection with, any proposed written (or
any material proposed oral) communication with any Governmental Entity, (iii)
not participating in any meeting with any Governmental Entity unless it consults
with the other party in advance and to the extent permitted by such Governmental
Entity gives the other party the opportunity to attend and participate thereat,
(iv) furnishing the other party with copies of all correspondence, filings and
communications (and memoranda setting forth the substance thereof) between it
and any Governmental Entity with respect to this Agreement and the Merger, and
(v) furnishing the other party with such necessary information and
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reasonable assistance as such other party may reasonably request in connection
with its preparation of necessary filings or submissions of information to any
Governmental Entity. The Company and Parent may, as each deems advisable and
necessary, reasonably designate any competitively sensitive material provided to
the other under this Section as "outside counsel only." Such materials and the
information contained therein shall be given only to the outside legal counsel
of the recipient and will not be disclosed by such outside counsel to employees,
officers, or directors of the recipient unless express permission is obtained in
advance from the source of the materials (the Company or Parent, as the case may
be) or its legal counsel.
8.3 Proxy Statement; Registration Statement. As promptly as practicable
after the execution of this Agreement, Parent and the Company shall prepare and
file with the SEC under the Securities Act a registration statement on Form S-4
(such registration statement, together with any amendments or supplements
thereto, the "Form S-4"), in connection with the registration under the
Securities Act of the shares of Parent Common Stock to be distributed to the
stockholders of the Company in the Merger (the "Registered Securities"). The
Form S-4 also shall include a joint proxy statement/prospectus and forms of
proxies (such joint proxy statement/prospectus together with any amendments or
supplements thereto, the "Proxy Statement") relating to the stockholder meetings
of Parent and the Company and the vote of the stockholders of Parent and the
Company with respect to this Agreement and the Transactions. Parent will cause
the Proxy Statement and the Form S-4 to comply as to form in all material
respects with the applicable provisions of the Securities Act, the Exchange Act
and the rules and regulations thereunder, the rules and regulations of NASDAQ,
and the DGCL and Bermuda Law, and the Company will cause the Proxy Statement to
comply as to form in all material respects with the applicable provisions of the
Exchange Act and the rules and regulations thereunder, the rules and regulations
of NASDAQ and the DGCL. Each of Parent and the Company shall furnish all
information about itself and its business and operations and all necessary
financial information to the other as the other may reasonably request in
connection with the preparation of the Proxy Statement and the Form S-4. Parent
shall use its reasonable best efforts, and the Company will cooperate with them,
to have the Form S-4 declared effective by the SEC as promptly as practicable
(including clearing the Proxy Statement with the SEC). Each of Parent and the
Company agrees promptly to correct any information provided by it for use in the
Proxy Statement and the Form S-4 if and to the extent that such information
shall have become false or misleading in any material respect, and each of the
parties hereto further agrees to take all steps necessary to amend or supplement
the Proxy Statement and, in the case of Parent, the Form S-4, and to cause the
Proxy Statement and, in the case of Parent, the Form S-4, as so amended or
supplemented to be filed with the SEC and to be disseminated to their respective
stockholders, in each case as and to the extent required by applicable federal
and state securities laws. No amendment or supplement to the Proxy Statement
will be made without the approval of each of Parent and the Company, which
approval shall not be unreasonably withheld or delayed. Each of Parent and the
Company agrees that the information provided by it for inclusion in the Proxy
Statement or the Form S-4 and each amendment or supplement thereto, at the time
of
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mailing thereof and at the time of the respective meetings of stockholders of
Parent and the Company, will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Each of the Company and Parent will advise the other, and
deliver copies (if any) to the other, promptly after either receives notice
thereof, of any request by the SEC for amendment of the Proxy Statement or the
Form S-4 or comments thereon and responses thereto or requests by the SEC for
additional information, or notice of the time when the Form S-4 has become
effective or any supplement or amendment has been filed, the issuance of any
stop order or the suspension of the qualification of the Registered Securities
issuable in connection with the Merger for offering or sale in any jurisdiction.
Each of Parent and the Company shall use its reasonable best efforts to timely
mail the Proxy Statement to its stockholders as promptly as practicable
following the effective date of the Proxy Statement.
8.4 Listing Application. Parent and the Company shall cooperate and
promptly prepare and submit to the NASDAQ all reports, applications and other
documents that may be necessary or desirable to enable all of the shares of
Parent Common Stock that will be outstanding or will be reserved for issuance at
the Effective Time to be listed for trading on the NASDAQ. Each of Parent and
the Company shall furnish all information about itself and its business and
operation and all necessary financial information to the other as the other may
reasonably request in connection with such NASDAQ listing process. Each of
Parent and the Company agrees promptly to correct any information provided by it
for use in the NASDAQ listing process if and to the extent that such information
shall have become false or misleading in any material respect. Each of Parent
and the Company will advise and deliver copies (if any) to the other party,
promptly after it receives notice thereof, of any request by the NASDAQ for
amendment of any submitted materials or comments thereon and responses thereto
or requests by the NASDAQ for additional information. The parties shall use
their reasonable best efforts to cause the Surviving Corporation to cause the
Company Common Stock to be de-listed from NASDAQ and de-registered under the
Exchange Act as soon as practicable following the Effective Time.
8.5 Affiliates of the Company.
(a) At least 30 days prior to the Closing Date, the Company shall deliver
to Parent a list of names and addresses of those persons who were, in the
Company's reasonable judgment, at the record date for its stockholders' meeting
to approve the Merger, "affiliates" (each such person, an "Affiliate") of the
Company within the meaning of Rule 145. The Company shall provide Parent such
information and documents as Parent shall reasonably request for purposes of
reviewing such list. The Company shall advise the persons identified on the list
of the resale restrictions imposed by applicable securities laws and shall use
its reasonable best efforts to deliver or cause to be delivered to Parent, prior
to the Closing Date, from each of the Affiliates of the Company identified in
the foregoing list, an Affiliate Letter in the form attached hereto as Exhibit
A. Parent shall be entitled to place legends as specified in such Affiliate
Letters
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on the certificates evidencing any shares of Parent Common Stock to be received
by such Affiliates pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for such shares of
Parent Common Stock, consistent with the terms of such Affiliate Letters.
(b) Parent shall file the reports required to be filed by it under the
Exchange Act and the rules and regulations adopted by the SEC thereunder, and it
will take such further action as any Affiliate of the Company may reasonably
request, all to the extent required from time to time to enable such Affiliate
to sell shares of Parent Common Stock received by such Affiliate in the Merger
without registration under the Securities Act pursuant to (i) Rule 145(d)(1) or
(ii) any successor rule or regulation hereafter adopted by the SEC.
8.6 Expenses. Except as otherwise provided in Section 10.2(b), whether or
not the Merger is consummated, all Expenses incurred in connection with this
Agreement and the Transactions shall be paid by the party incurring such
Expenses. For purposes of this Agreement, "Expenses" consist of all
out-of-pocket expenses (including, all fees and expenses of counsel,
accountants, investment bankers, experts and consultants to a party to this
Agreement and its affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of this Agreement, the preparation, printing, filing and mailing of
the Proxy Statement, the solicitation of stockholder approvals and all other
matters related to the closing of the transactions contemplated by this
Agreement.
8.7 Officers' and Directors' Indemnification.
(a) In the event of any threatened or actual claim, action, proceeding or
investigation, whether civil, criminal or administrative, including, without
limitation, any such claim, action, suit, demand, proceeding or investigation in
which any person who is now, or has been at any time prior to the date hereof,
or who becomes prior to the Effective Time, a director, officer, employee,
fiduciary or agent of the Company or any of the Company Subsidiaries (the
"Indemnified Parties") is, or is threatened to be, made a party based in whole
or in part on, or arising in whole or in part out of, or pertaining to (i) the
fact that he is or was a director, officer, employee, fiduciary or agent of the
Company or any of the Company Subsidiaries, or is or was serving at the request
of the Company or any of the Company Subsidiaries as a director, officer,
employee, fiduciary or agent of the Company or any Company Subsidiary or (ii)
the negotiation, execution or performance of this Agreement or any of the
Transactions, whether in any case asserted or arising before or after the
Effective Time, the parties hereto agree to cooperate and use their reasonable
best efforts to defend against and respond thereto. It is understood and agreed
that the Company shall indemnify and hold harmless, and after the Effective Time
the Surviving Corporation and Parent shall indemnify and hold harmless, as and
to the full extent permitted by applicable law, each Indemnified Party against
any losses, claims, damages, liabilities, costs, expenses (including attorneys'
fees and expenses), judgments, fines and amounts paid in settlement in
connection with any such threatened or actual claim, action, suit, demand,
proceeding or investigation. In the event any such Indemnified Party is or
becomes
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involved in any capacity in any action, proceeding or investigation for which
indemnification is to be provided under this Agreement (whether asserted or
arising before or after the Effective Time), (A) the Company, and Parent and the
Surviving Corporation after the Effective Time, shall promptly pay expenses in
advance of the final disposition of any claim, action, suit, demand, proceeding
or investigation to the full extent permitted by law, provided that the
Indemnified Party may not retain more than one counsel (in addition to any
necessary local counsel) to represent all the Indemnified Parties and the
Company, Parent and the Surviving Corporation shall pay all reasonable fees and
expenses for such counsel for the Indemnified Parties promptly after statements
therefor are received and (B) the Company, Parent and the Surviving Corporation
will use their respective reasonable best efforts to assist in the defense of
any such matter; provided that in no event shall the Company, Parent or the
Surviving Corporation be liable for any settlement effected without its prior
written consent (which consent shall not be unreasonably withheld); and provided
further that neither Parent nor the Surviving Corporation shall have no
obligation hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall become
final and non-appealable, that indemnification of such Indemnified Party in the
manner contemplated hereby is prohibited by applicable law. Any Indemnified
Party wishing to claim indemnification under this Section 8.7, upon learning of
any such claim, action, suit, demand, proceeding or investigation, shall notify
the Company and, after the Effective Time, Parent and the Surviving Corporation,
thereof; provided that the failure to so notify shall not affect the obligations
of the Company, Parent and the Surviving Corporation except to the extent such
failure to notify materially prejudices such party.
(b) Parent agrees that all rights to indemnification existing in favor of,
and all limitations on the personal liability of, the directors, officers,
employees and agents of the Company and the Company Subsidiaries provided for in
the Company Certificate or Bylaws as in effect as of the date hereof with
respect to matters occurring prior to the Effective Time, and including the
Merger, shall continue in full force and effect for a period of not less then
six years from the Effective Time; provided, however, that all rights to
indemnification in respect of any claims (each a "Claim") asserted or made
within such period shall continue until the final disposition of such Claim.
Prior to the Effective Time, the Company may purchase an extended reporting
period endorsement under the Company's existing directors' and officers'
liability insurance coverage for the Company's directors and officers in a form
and with terms acceptable to the Company, which shall provide such directors and
officers with coverage for six years following the Effective Time of not less
than the existing coverage under, and have other terms not materially less
favorable to, the insured persons than the directors' and officers' liability
insurance coverage presently maintained by the Company, so long as the cost is
less than $ 750,000, provided that, the Company agrees to cooperate in good
faith with the Parent in order to obtain the lowest premium for the above
referenced coverage. In the event that $ 750,000 is insufficient for the above
referenced coverage, the Company may spend up to that amount to purchase such
lesser coverage as is possible.
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(c) This Section 8.7 is intended for the irrevocable benefit of, and to
grant third party rights to, the Indemnified Parties and shall be binding on all
successors and assigns of Parent, the Company and the Surviving Corporation.
Each of the Indemnified Parties shall be entitled to enforce the covenants
contained in this Section 8.7.
(d) In the event that Parent, the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person or
entity and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers or conveys all or substantially
all of its properties and assets to any person or entity, then, and in each such
case, proper provision shall be made so that the successors and assigns of
Parent or the Surviving Corporation assume the obligations set forth in this
Section 8.7.
8.8 Access to Information; Confidentiality. From the date hereof until
the Effective Time, each of Parent and the Company shall, and shall cause each
of their respective Subsidiaries and each of their and their respective
Subsidiaries' officers, employees and agents to, afford to the other and to the
officers, accountants, consultants, legal counsel, financial advisors,
investment bankers, employees, agents and other representatives (collectively
"Representatives") of the other complete access at all reasonable times, upon
prior notice, to such Representatives, properties, books, records and contracts,
and shall furnish to the other such financial, operating and other data and
information concerning the business, properties, contracts, assets, liabilities,
personnel and other aspects of the other party and its Subsidiaries as the other
or its Representatives may reasonably request. Prior to the Effective Time, the
Company and the Parent shall hold in confidence all such information on the
terms and subject to the conditions contained in that certain confidentiality
agreement between Parent and the Company dated January 27, 2000 (the
"Confidentiality Agreement"). The Company hereby waives the provisions of the
Confidentiality Agreement as and to the extent necessary to permit the making
and consummation of the transactions contemplated by this Agreement. At the
Effective Time, such Confidentiality Agreement shall terminate.
8.9 Publicity. Parent and the Company shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to this Agreement or any transaction contemplated hereby and shall not
issue any such press release or make any such public statement without the prior
consent of the other party, which consent shall not be unreasonably withheld;
provided, however, that a party may, without the prior consent of the other
party, issue such press release or make such public statement as may be required
by law or the applicable rules of any stock exchange if it has used its best
efforts to consult with the other party and to obtain such party's consent but
has been unable to do so in a timely manner. With regard to the Merger, the
parties shall make a joint public announcement of the Transactions no later than
(i) the close of trading on NASDAQ on the day this Agreement is signed, if such
signing occurs during a business day or (ii) the opening of trading on NASDAQ on
the business day following the date on which this Agreement is signed, if such
signing does not occur during a business day.
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8.10 Employee Benefits.
(a) Parent agrees that the Company will honor, and from and after the
Effective Time, Parent will cause the Surviving Corporation to honor, all
obligations under the existing terms of the employment and severance agreements
to which the Company or any Company Subsidiary is presently a party, except as
may otherwise be agreed to by the parties thereto.
(b) Parent agrees that individuals who are employed by the Company or any
Company Subsidiary immediately prior to the Closing Date shall remain employees
of the Company or such Company Subsidiary as of the Closing Date (each such
employee, an "Affected Employee"); provided, however, that nothing contained
herein shall confer upon any Affected Employee the right to continued employment
by the Company or any Company Subsidiary for any period of time after the
Closing Date which is not otherwise required by law or contract.
(c) To the extent that any Affected Employees becomes a participant in any
employee benefit plan maintained by Parent or any Parent Subsidiary, Parent
shall, or shall cause such Parent Subsidiary to, give such Affected Employees
full credit solely for the purposes of eligibility and vesting under such
employee benefits plans for such Affected Employee's service with Parent, the
Company or any affiliate thereof to the same extent recognized immediately prior
to the Closing Date; provided, that the entry dates into such employee benefit
plans for such Affected Employees will be in the normal course of such plan's
administration, which may be the beginning of the plan year.
(d) After the Effective Time, until the date Parent determines in its sole
discretion to modify, amend, terminate or replace the Company Benefit Plans,
Parent shall cause the Surviving Corporation to maintain the Company Benefit
Plans (but not bonus or equity-based plans) on substantially similar terms to
those currently in effect. After the Effective Time, if Parent decides to move
the Affected Employees to a Parent employee benefit plan, the Affected Employees
will be permitted to participate in Parent employee benefit plan on terms
substantially similar to those provided to employees of Parent.
8.11 Reincorporation and Acquisition.
(a) Parent shall take any and all action which may be deemed advisable or
necessary to reincorporate by merger (the "Reincorporation") from a Bermuda
corporation to a Delaware corporation so that at the time of the consummation of
the transactions contemplated by this Agreement, Parent is a Delaware
corporation.
(b) Parent shall be permitted to take any and all action which may be
deemed advisable or necessary to consummate the transactions contemplated by the
Recapitalization and Plan of Merger, dated as of March 9, 2000, among ATX,
certain stockholders of ATX and Parent (the "ATX Transaction"); provided that,
none of the actions taken in accordance with Sections 8.11(a) and (b) or
consequences thereof shall be deemed a breach of a representation or warranty or
be deemed to cause a failure of a condition set forth in Article IX not to be
satisfied if, but for such action or consequence thereof, such condition would
otherwise be satisfied.
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8.12 Other Actions. (a) During the period from the date of this Agreement
to the Effective Time, the Company and Parent shall not, and shall not permit
any of their respective subsidiaries to, take any action that would, or that
could reasonably be expected to, result in any of the conditions to the Merger
set forth in Article IX of this Agreement not being satisfied other than as
provided in this Agreement.
(b) Parent shall have the right to have its designated representatives, as
provided to the Company from time to time (the "Designated Parent
Representatives"), upon reasonable notice, present within normal business hours
and without material disruption to the business of the Company for consultation
at the Company's principal offices from the date hereof until the Closing Date.
Such Designated Parent Representatives shall have the right to review and become
familiar with the conduct of the business of the Company and shall be available
to be consulted and shall have authority on behalf of Parent in regard to
consultation in regard to Material Decisions (as defined below in this Section
8.12(b)). Parent shall take all reasonable actions necessary to ensure that its
Designated Parent Representatives will be readily available during normal
business hours. Without written notice to and favorable consultation (which
shall not be unreasonably withheld, delayed or conditioned with respect to time
or content) with the Designated Parent Representatives, unless the Parent or the
Designated Parent Representatives shall have failed to respond within five
business days to such written notice, the Company shall not take any action
involving any Material Decision. "Material Decision" shall mean, for purposes of
this Agreement, any of the following to the extent the same may affect the
assets, the obligations or the business of the Company following the date
hereof: (i) any purchase order, capital expenditure or other purchase of assets
in excess of $100,000 in any instance to be delivered, or the payment for which
shall become due, after the Closing Date; (ii) the acceptance of any material
customer contract or the establishing of any pricing policy that deviates in any
material respect from the terms and conditions of current pricing policies as
set forth in Section 8.12(b) of the Company Disclosure Schedule; (iii) any
general communication with customers related to the business or to the Merger;
or (iv) a material change in material promotional or marketing decisions or
policies.
8.13 Notification of Certain Matters. The Parent and the Company shall
promptly notify each other of (a) the occurrence or non-occurrence of any fact
or event which would reasonably be expected (i) to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date of this Agreement to the Effective Time, (ii)
to cause any material covenant, condition or agreement hereunder not to be
complied with or satisfied in all material respects or (iii) to result in the
case of Parent, a Parent Material Adverse Effect, or in the case of the Company,
a Company Material Adverse Effect, (b) any failure of the Company or Parent, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder in any material respect;
provided, however, that no such notification shall affect the representations or
warranties of any party or the conditions to the obligations of any party
hereunder, (c) any notice or other material communications from any Governmental
Entity in connection with the transactions contemplated by this Agreement and
(d) the
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commencement of any suit, action or proceeding that seeks to prevent, seeks
damages in respect of, or otherwise relates to the consummation of the
transactions contemplated by this Agreement.
8.14 Notification of Parent Transactions. If prior to the Closing Date
Parent shall enter into a definitive agreement for a Parent Transaction, Parent
shall promptly notify the Company of such transaction. Nothing set forth in this
Agreement shall be deemed to prohibit or otherwise limit Parent from pursuing
and entering into agreements for or consummating Parent Transactions.
ARTICLE IX
CONDITIONS TO THE MERGER
9.1 Conditions to the Obligations of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver, where permissible, at or prior to the Closing Date,
of each of the following conditions:
(a) Stockholder Approvals. This Agreement and the Transactions shall
have been duly approved by the Requisite Company Vote of the stockholders
of the Company and the issuance of shares of Parent Common Stock in the
Merger shall have been duly approved by the Requisite Parent Vote.
(b) Hart-Scott-Rodino Act. Any waiting period (and any extension
thereof) applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated.
(c) No Injunctions, Orders or Restraints; Illegality. No statute,
rule, regulation, executive order, decree, ruling or injunction, whether
permanent, preliminary or temporary (an "Injunction"), shall have been
enacted, entered, promulgated or enforced by any Governmental Entity or
court which restrains, enjoins or otherwise prohibits the consummation of
the Merger substantially on the terms contemplated hereby and no
Governmental Entity shall have instituted any proceeding seeking any such
law, order, injunction or decree or any other Person has filed a motion and
such motion has not been dismissed, including for an Injunction, which
restrains, enjoins or otherwise prohibits consummation of the Merger
substantially on the terms contemplated hereby; provided that the party
seeking to rely upon this condition has fully complied with and performed
its obligations pursuant to Section 8.2 hereof.
(d) Form S-4. The Form S-4 shall have been declared effective by the
SEC under the Securities Act, and no stop order suspending the
effectiveness of the Form S-4 shall have been issued by the SEC, and no
proceeding for that purpose shall have been initiated or, to the knowledge
of Parent or the Company, threatened by the SEC.
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(e) Listing. Parent shall have obtained the approval for the listing
of the shares of Parent Common Stock issuable in the Merger and upon
exercise of the Assumed Options on NASDAQ, subject to official notice of
issuance.
(f) Registration Rights Agreement. Parent and the Voting Agreement
Stockholders shall have entered into a registration rights agreement in
substantially the form set forth in Exhibit B to this Agreement (the
"Registration Rights Agreement").
(g) Government Consents. All consents, approvals and action of any
Governmental Entity required to permit the consummation of the Merger and
the other transactions contemplated by this Agreement shall have been
obtained or made, free of any condition that would reasonably be expected
to have a Company Material Adverse Effect or a Parent Material Adverse
Effect, as the case may be.
9.2 Conditions to Obligations of the Company. The obligations of the
Company to effect the Merger are further subject to the following conditions:
(a) Representations and Warranties. (i) Those representations and
warranties of Parent set forth in this Agreement which are qualified by a
Parent Material Adverse Effect or words of similar effect shall be true and
correct as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent such
representations and warranties expressly relate to a specific date or as of
the date hereof, in which case such representations and warranties shall be
true and correct as of such date), and (ii) those representations and
warranties of Parent set forth in this Agreement which are not so qualified
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date as though made on and as of the
Closing Date (other than representations and warranties that expressly
relate to a specific date or as of the date hereof, in which case such
representations and warranties shall be true and correct in all material
respects as of such date).
(b) Performance of Obligations of Parent. Parent shall have performed
in all material respects all obligations required to be performed by it
under this Agreement, including, without limitation, the covenants
contained in Articles VII and VIII hereof.
(c) Officers' Certificate. The Company shall have received a
certificate of the Chief Executive Officer or President and the Chief
Financial Officer of Parent, dated the Closing Date, to the effect that the
statements set forth in paragraphs (a) and (b) of this Section 9.2 are true
and correct.
(d) Consents, Approvals, Etc. All material consents, authorizations,
orders and approvals of (or filings or registrations with) any governmental
commission, board, other Governmental Entity or third parties required to
be made or obtained by Parent and Parent Subsidiaries and affiliated
entities in connection with the execution, delivery and performance of this
Agreement shall have been obtained or made.
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(e) Legal Opinion. The Company shall have received a written opinion
from its counsel, Goodwin, Procter & Hoar LLP, in form and substance
reasonably satisfactory to it, to the effect that the Merger will
constitute either (i) a tax free reorganization within the meaning of
Section 368(a) of the Code or (ii) a transaction that, together with the
Reincorporation (as defined herein) qualifies as an exchange under the
provisions of Section 351 of the Code and which is treated for U.S. federal
income tax purposes as a transfer of Company Common Stock by the
shareholders of the Company to Parent in exchange for the Merger
Consideration and such opinion shall not have been withdrawn.
9.3 Conditions to Obligations of Parent. The obligation of Parent to
effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. (i) Those representations and
warranties of the Company set forth in this Agreement which are qualified
by a Company Material Adverse Effect or words of similar effect shall be
true and correct as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date (except to the extent
such representations and warranties expressly relate to a specific date or
as of the date hereof, in which case such representations and warranties
shall be true and correct as of such date), and (ii) those representations
and warranties of the Company set forth in this Agreement which are not so
qualified shall be true and correct in all material respects as of the date
of this Agreement and as of the Closing Date as though made on and as of
the Closing Date (other than such representations and warranties that
expressly relate to a specific date, in which case such representations and
warranties shall be true and correct in all material respects as of such
date).
(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, including, without limitation, the covenants
contained in Articles VII and VIII hereof.
(c) Absence of Company Changes. From September 30, 1999 through the
Closing Date, there shall not have occurred any change concerning the
Company or any of the Company Subsidiaries that has had, or is reasonably
expected to have, a material adverse effect on the business, properties,
assets, results of operations or financial condition of the Company and the
Company Subsidiaries taken as a whole (other than any (i) regulatory
changes generally affecting the industries in which the Company operates,
including changes due to actual or proposed changes in law or regulations,
or (ii) changes that are related to a general drop in stock prices in the
United States resulting from political or economic turmoil.)
(d) Officers' Certificate. Parent shall have received a certificate
of the Chief Executive Officer or President and the Controller of the
Company to the effect that the statements set forth in paragraphs (a) and
(b) of this Section 9.3 are true and correct.
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(e) Consents, Approvals, Etc. All material consents, authorizations,
orders and approvals of (or filings or registrations with) any governmental
commission, board, other Governmental Entity or third parties required to
be made or obtained by the Company and the Company Subsidiaries and
affiliated entities in connection with the execution, delivery and
performance of this Agreement shall have been obtained or made.
(f) Stockholders Agreement. The Principal Stockholders who are required
by the Voting Agreement to enter into the Stockholders Agreement,
substantially in the form of Exhibit C attached hereto, and Parent shall
have entered into such agreement, which shall remain in full force and
effect.
(g) Legal Opinion. Parent shall have received a written opinion from
its counsel, Paul, Weiss, Rifkind, Wharton & Garrison, in form and
substance reasonably satisfactory to it, to the effect that the Merger will
constitute (i) a tax free reorganization within the meaning of Section
368(a) of the Code or (ii) a transaction that, together with the
Reincorporation (as defined herein) qualifies as an exchange under the
provisions of Section 351 of the Code and which is treated for U.S. federal
income tax purposes as a transfer of Company Common Stock by the
shareholders of the Company to Parent in exchange for the Merger
Consideration and such opinion shall not have been withdrawn.
(h) Affiliate Letters. The Parent shall have received an executed copy
of an Affiliate Letter from each Affiliate of the Company.
(i) Other Agreements. Those letter agreements dated as of the date
hereof between Parent and certain individuals and executed in connection
herewith shall have been performed at or prior to Closing.
9.4 Parent Transactions. In the event that Parent undertakes any action
contemplated by the definition of Base Adjustments in Section 3.1(c)(ii) prior
to the Closing, no condition set forth in this Article IX shall be deemed not to
be satisfied if, but for such action or the consequences thereof, such condition
would otherwise be satisfied.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated and abandoned at any
time prior to the Effective Time, whether before or after the approval of
matters presented in connection with the Merger by the stockholders of Parent
and the Company:
(a) by the mutual written consent of Parent and the Company.
(b) by either of Parent or the Company:
(i) if any required approval of the stockholders of Parent or the
Company that is a condition to the obligations of Parent or the Company
under Section 9.1 of this Agreement shall not have been obtained at the
Company Stockholders Meeting or the special meeting of the Parent's
stockholders to be
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held to consider approval of the issuance of Parent Common Stock to be
issued in the Merger; or
(ii) if any Governmental Entity shall have issued a final and
nonappealable Injunction (which Injunction the parties have used their
best efforts to lift), which permanently enjoins the Merger.
(c) by the Company, if the Company Board shall elect to terminate this
Agreement in order to recommend or approve a Superior Proposal, provided
that (i) the Company has complied with all the terms of Section 7.1 and
notified Parent in writing that it intends to terminate this Agreement in
order to recommend or approve a Superior Proposal, attaching the most
current version of such proposal to such notice, (ii) at any time after the
third business day following written notification by the Company to Parent
of the Company's intention to enter into a binding agreement with respect
to such proposal, after taking into account any modifications to the
transactions contemplated by this Agreement that Parent has then proposed
in writing and not withdrawn, the Company Board has determined that such
proposal is and continues to be a Superior Proposal and (iii) concurrently
with the effectiveness of such termination, pays to Parent the termination
fee under Section 10.2(b), it being understood on the date of the
effectiveness of such termination, whether or not prior to such
effectiveness, the Company may enter into an agreement with respect to such
Superior Proposal which agreement, if entered into prior to such
effectiveness must be conditioned upon the payment of the termination fee
on the same date as provided herein. The termination under this Section
10.1(c) shall not be effective until the Company has made payment to Parent
of the amounts required to be paid pursuant to Section 10.2(b).
(d) by Parent, if (i) the Company Board shall have resolved to or shall
have (A) withdrawn, modified or changed in a manner adverse to Parent its
approval or recommendation of this Agreement, (B) failed to include such
recommendation in the Proxy Statement, (C) approved or recommended any
Acquisition Proposal, (D) entered into a definitive agreement with respect
to a Superior Proposal or (E) made a public announcement of its intention
to take any of the foregoing actions or (ii) a tender offer or exchange
offer for more than 15% of the outstanding shares of the Company Common
Stock is commenced and the Company Board fails to recommend against
acceptance of such tender offer or exchange offer by its stockholders
(including by taking no position with respect to the acceptance of such
tender offer or exchange offer by its stockholders).
(e) by Parent, if it is not in material breach of its obligations under
this Agreement, on or after the later of (x) October 31, 2000, or (y) 120
days following the date on which Parent last made an initial announcement
that it had entered into a definitive agreement for a Parent Transaction,
if any of the conditions provided in Sections 9.1 and 9.3 of this Agreement
have not been satisfied and have not been waived in writing by Parent prior
to such date; provided that, if the Merger has not occurred by reason of
the nonsatisfaction of the condition set forth in Section 9.1(b) hereof or
the pendency of a non final Injunction, Parent shall have used
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its best efforts to cause such condition to be satisfied or have any such
Injunction stayed or reversed.
(f) by the Company, if it is not in material breach of its obligations
under this Agreement, on or after October 31, 2000, if any of the
conditions provided in Sections 9.1 and 9.2 of this Agreement have not been
satisfied and have not been waived by the Company; provided, however, if
the Merger has not occurred by reason of the nonsatisfaction of the
condition set forth in Section 9.1(b) hereof or the pendency of a non-final
Injunction, the Company shall have used its best efforts to cause such
condition to be satisfied or have any such Injunction stayed or reversed.
(g) by Parent, upon a breach of any material representation, warranty,
covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have
become untrue, in either case such that the conditions set forth in either
of Section 9.3(a) or 9.3(b) would not be satisfied (a "Terminating Company
Breach"); provided, however, that, if such Terminating Company Breach is
curable by the Company through the exercise of its reasonable best efforts
and for so long as the Company continues to exercise such reasonable best
efforts, Parent may not terminate this Agreement under this Section
10.1(g).
(h) by the Company, upon breach of any material representation,
warranty, covenant or agreement on the part of Parent set forth in this
Agreement, or if any representation or warranty of Parent shall have become
untrue, in either case such that the conditions set forth in either of
Section 9.2(a) or 9.2(b) would not be satisfied (a "Terminating Parent
Breach"); provided, however, that, if such Terminating Parent Breach is
curable by Parent through its reasonable best efforts and for so long as
Parent continues to exercise such reasonable best efforts, the Company may
not terminate this Agreement under this Section 10.1(h); or
(i) by the Company if (i) as of a date not more than three business
days before the expected Closing Date, the Average Parent Common Stock
Price would be less than 69% of the Base Stock Price, (ii) irrevocable
notice shall have been provided to Parent in accordance with the notice
provisions hereunder indicating the Company's intention to terminate the
Agreement, and (iii) within one business day of receipt of such notice,
Parent shall not have agreed (by unilateral notice to the Company) to
increase the number of shares of Parent Common Stock to be issued to the
shareholders of the Company pursuant to the Merger such that as of the
Closing Date, the aggregate value (based on the Average Parent Common Stock
Price) of the Parent Common Stock to be received by the shareholders of the
Company will be equal to the aggregate value (based on the Average Parent
Common Stock Price) of Parent Common Stock they would have been entitled to
receive if the Average Parent Common Stock Price were equal to the Floor
Stock Price. In the event the Company serves the notice provided for in
(ii) above, and the Parent does not agree to increase the number of shares
in accordance with
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(iii) above, then the termination shall become effective immediately on the
following business day.
10.2 Effect of Termination.
(a) In the event of the termination of this Agreement pursuant to Section
10.1 hereof, this Agreement shall forthwith become null and void and have no
effect, without any liability on the part of any party hereto or its
Representatives, affiliates, trustees, directors, officers or stockholders and
all rights and obligations of any party hereto shall cease except for the
agreements contained in Sections 8.6, 8.8 and 11.4 and this Section 10.2 which
shall survive the termination; provided, however, that nothing contained in this
Section 10.2 shall relieve any party from liability for any fraud or willful
breach of its representations or warranties or breach of its covenants or
agreements set forth in this Agreement.
(b) In the event the Company shall have terminated this Agreement pursuant
to Section 10.1(c), or Parent shall have terminated this Agreement pursuant to
Section 10.1(d)(i), then the Company shall simultaneously with such termination
pay Parent a termination fee equal to $19.0 million (the "Termination Amount").
In the event that Parent shall have terminated this Agreement pursuant to
Section 10.1(d)(ii) and either (x) the Company shall have entered into a
definitive agreement with respect to the tender or exchange offer giving rise to
such termination or (y) the person making the tender or exchange offer giving
rise to such termination shall have accepted shares for payment pursuant to such
tender or exchange offer, the Company shall pay, upon the earlier of entering
into a definitive agreement and the acceptance of shares for payment, to the
Parent a termination fee equal to the Termination Amount.
(c) Any payment required by this Section 10.2 shall be payable by the
Company to Parent by wire transfer of immediately available funds to an account
designated by Parent.
(d) The Company acknowledges that the agreements contained in this Section
10.2 are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, Parent and MergerCo would not enter into
this Agreement; accordingly, if the Company fails to pay promptly the amounts
due pursuant to Section 10.2(b), and, in order to obtain such payment, Parent
commences a suit which results in a judgment against the Company for all or a
portion of such amounts, the Company shall pay to Parent's Expenses in
connection with such suit, together with interest on the amounts payable to
Parent at the prime rate of The Chase Manhattan Bank in effect on the date such
payment was required to be made.
10.3 Amendment. This Agreement may be amended by the parties hereto by an
instrument in writing signed on behalf of each of the parties hereto at any time
before or after any approval hereof by the stockholders of Parent and the
Company, but in any event following authorization by Parent Board and the
Company Board; provided, however, that after any such stockholder approval, no
amendment shall be made which by law requires further approval by the
stockholders without obtaining such approval.
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ARTICLE XI
GENERAL PROVISIONS
11.1 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered or sent if delivered personally or sent by cable,
telegram, telecopier, facsimile or telex or sent by prepaid overnight carrier to
the parties at the following addresses (or at such other addresses as shall be
specified by the parties by like notice):
(a) if to Parent:
CoreComm Limited
110 East 59th Street
New York, NY 10022
Attention: Jared L. Gurfein, Esq.
Facsimile No.: (212) 906-8489
with a copy to:
Kenneth M. Schneider, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Facsimile No.: (212) 757-3990
(b) if to the Company:
Voyager.net, Inc.
4660 S. Hagadorn Road
Suite 320
East Lansing, MI 48823
Attention: Christopher P. Torto
Facsimile No.: (517) 324-8947
with a copy to:
David F. Dietz, P.C.
Joseph L. Johnson III
Neil McLaughlin, P.C.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Facsimile No.: (617) 523-1231
11.2 Certain Definitions. For purposes of this Agreement:
(a) The term "affiliate," as applied to any person, means any other
person directly or indirectly controlling, controlled by, or under common
control with, that person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as applied to any person, means the
possession, directly or indirectly, of the
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power to direct or cause the direction of the management and policies of
that person, whether through the ownership of voting securities, by
contract or otherwise.
(b) The term "business day" means any day, other than Saturday, Sunday
or a federal holiday, and shall consist of the time period from 12:01 a.m.
through 12:00 midnight Eastern time. In computing any time period under
this Agreement, the date of the event which begins the running of such time
period shall be included except that if such event occurs on other than a
business day such period shall begin to run on and shall include the first
business day thereafter.
(c) The term "including" means, unless the context clearly requires
otherwise, including but not limited to the things or matters named or
listed after that term.
(d) The term "person" shall include individuals, corporations, limited
and general partnerships, trusts, limited liability companies,
associations, joint ventures, Governmental Entities and other entities and
groups (which term shall include a "group" as such term is defined in
Section 13(d)(3) of the Exchange Act).
(e) The term "Subsidiary" means any corporation more than 50% of whose
outstanding voting securities, or any partnership, joint venture or other
entity more than 50% of whose total equity interest, is directly or
indirectly owned by Parent or the Company, as the case may be.
11.3 Non-Survival of Representations, Warranties, Covenants and Agreements.
Except for Articles I, II and IV, the last sentence of Section 8.2(a), and
Sections 7.3, 8.4, 8.5, 8.6, 8.7 and 8.10 and this Article XI, none of the
representations, warranties, covenants and agreements contained in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, and thereafter there shall be no liability on the
part of none of Parent, MergerCo or the Company or any of their respective
officers, directors or stockholders in respect thereof. Except as expressly set
forth in this Agreement, there are no representations or warranties of any party
hereto, express or implied.
11.4 Miscellaneous. This Agreement (i) constitutes, together with the
Confidentiality Agreement, Parent Disclosure Schedule and the Company Disclosure
Schedule, the entire agreement and supersedes all of the prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof, (ii) shall be binding upon and inure to
the benefits of the parties hereto and their respective successors and assigns
and is not intended to confer upon any other person (except as set forth below)
any rights or remedies hereunder and (iii) may be executed in two or more
counterparts which together shall constitute a single agreement. Except as
provided in Section 8.7, this Agreement is not intended to confer upon any
person other than the parties to this Agreement any rights or remedies under
this Agreement. The parties hereto agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in the Delaware Courts (as
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hereinafter defined), this being in addition to any other remedy to which they
are entitled at law or in equity.
11.5 Assignment. Except as expressly permitted by the terms hereof,
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by either party hereto without the prior written consent of
the other party, except that Parent shall assign all of its rights, interests
and obligations under this Agreement to ATX, upon consummation of the ATX
Transaction if such consummation occurs prior to the Closing provided that,
notwithstanding such assignment, Parent shall remain liable under this
Agreement. If such assignment occurs, then (i) ATX will acquire the Company by
merging a wholly owned first-tier domestic subsidiary of ATX into the Company,
(ii) the acquisition of Parent by ATX will be consummated after the
Reincorporation of Parent, and (iii) the acquisition of Parent by ATX will be
structured so that it will be treated for U.S. federal income tax purposes as a
transfer of stock of Parent by Parent stockholders in exchange for stock issued
by ATX.
11.6 Severability. If any provision of this Agreement, or the application
thereof to any person or circumstance is held invalid or unenforceable, the
remainder of this Agreement, and the application of such provision to other
persons or circumstances, shall not be affected thereby, and to such end, the
provisions of this Agreement are agreed to be severable.
11.7 Choice of Law/Consent to Jurisdiction. All disputes, claims or
controversies arising out of this Agreement, or the negotiation, validity or
performance of this Agreement, or the Transactions shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
its rules of conflict of laws. Each of Parent, MergerCo and the Company hereby
irrevocably and unconditionally consents to submit to the sole and exclusive
jurisdiction of the courts of the State of Delaware and of the United States of
America located in the State of Delaware (the "Delaware Courts") for any
litigation arising out of or relating to this Agreement, or the negotiation,
validity or performance of this Agreement, or the Transactions (and agrees not
to commence any litigation relating thereto except in such courts), waives any
objection to the laying of venue of any such litigation in the Delaware Courts
and agrees not to plead or claim in any Delaware Court that such litigation
brought therein has been brought in any inconvenient forum. Each of the parties
hereto agrees, (a) to the extent such party is not otherwise subject to service
of process in the State of Delaware, to appoint and maintain an agent in the
State of Delaware as such party's agent for acceptance of legal process, and (b)
that service of process may also be made on such party by prepaid certified mail
with a proof of mailing receipt validated by the United States Postal Service
constituting evidence of valid service. Service made pursuant to (a) or (b)
above shall have the same legal force and effect as if served upon such party
personally within the State of Delaware. For purposes of implementing the
parties' agreement to appoint and maintain an agent for service of process in
State of Delaware, each such party does hereby appoint The Corporation Trust
Company, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, as
such agent.
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11.8 Incorporation. The Parent Disclosure Schedule and the Company
Disclosure Schedule and all Exhibits and Schedules attached hereto and thereto
and referred to herein and therein respectively are hereby incorporated herein
and made a part hereof for all purposes as if fully set forth herein.
11.9 The Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.10 No Agreement Until Executed. Irrespective of negotiations among the
parties or the exchanging of drafts of this Agreement, this Agreement shall not
constitute or be deemed to evidence a contract, agreement, arrangement or
understanding among the parties hereto unless and until (i) the Company Board
has approved the terms of this Agreement, including, without limitation, for
purposes of Section 203 of the DGCL and any applicable provision of the Company
Certificate, (ii) Parent Board has approved the terms of this Agreement,
including, without limitation, for purposes of the DGCL and Bermuda law and any
applicable provisions of Parent Certificate and (ii) this Agreement is executed
by the parties hereto.
11.11 Obligations of Parent and of the Company. Whenever this Agreement
requires a Parent Subsidiary to take any action, that requirement shall be
deemed to include an undertaking on the part of Parent to cause that Parent
Subsidiary to take that action. Whenever this Agreement requires a Company
Subsidiary to take any action, that requirement shall be deemed to include an
undertaking on the part of the Company to cause that Company Subsidiary to take
that action and, after the Effective Time, on the part of the Surviving
Corporation to cause that Company Subsidiary to take that action.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, Parent, MergerCo and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
CORECOMM LIMITED
By: /s/ RICHARD J. LUBASCH
--------------------------------------
Name: Richard J. Lubasch
Title: Senior Vice President --
General Counsel
VOYAGER.NET, INC.
By: /s/ CHRISTOPHER P. TORTO
--------------------------------------
Name: Christopher P. Torto
Title: Chief Executive Officer
CORECOMM GROUP SUB I, INC.
By: /s/ RICHARD J. LUBASCH
--------------------------------------
Name: Richard J. Lubasch
Title: Senior Vice President --
General Counsel
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FIRST AMENDMENT TO MERGER AGREEMENT
FIRST AMENDMENT, dated as of August 10, 2000 (this "Amendment"), to the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of March 12,
2000, by and among CoreComm Limited, a Bermuda corporation ("Parent"), CoreComm
Group Sub I, Inc., a Delaware corporation and a wholly owned subsidiary of
Parent ("MergerCo"'), CoreComm Merger Sub, Inc., a Delaware corporation, and
Voyager.net, Inc., a Delaware corporation (the "Company"). Capitalized terms
used herein and not defined herein have the meanings ascribed thereto in the
Merger Agreement.
WHEREAS, pursuant to Section 10.3 of the Merger Agreement, the Merger
Agreement may be amended by the parties thereto by an instrument in writing
signed on behalf of each of the parties thereto at any time before or after any
approval thereof by the stockholders of Parent and the Company;
WHEREAS, the parties hereto wish to amend the Merger Agreement as set forth
below; and
WHEREAS, following execution of this Amendment, Parent, as the sole
stockholder of MergerCo, will approve this Amendment in accordance with the
DGCL.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:
1. Section 1.1. The third and fourth sentences of Section 1.1 of the
Merger Agreement are hereby amended by deleting such sentences in their entirety
and replacing them with the following sentence:
"At the Effective Time, the certificate of incorporation of the
Surviving Corporation shall be amended so as to read in its entirety as
set forth in Exhibit D hereto and the bylaws of MergerCo in effect
immediately prior to the Effective Time shall be the bylaws of the
Surviving Corporation until amended in accordance with applicable law."
2. Section 1.2. The first sentence of Section 1.2 of the Merger Agreement
is hereby amended by deleting the words "MergerCo and" in such sentence.
3. Section 3.1(b). The first sentence of Section 3.1(b) of the Merger
Agreement is hereby amended by inserting the following words after the words
"Section 3.1(a)" in such sentence:
", and other than shares of Company Common Stock as to which appraisal
rights are duly demanded and perfected under the DGCL and not withdrawn
or lost"
4. Section 3.1(d). Section 3.1(d) of the Merger Agreement is hereby
amended by inserting the word "both" after the words "in a form acceptable to"
in such Section 3.1(d).
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5. Article 3. Article 3 of the Merger Agreement is hereby amended by
inserting the following sections at the end of such article:
Section 3.3 Appraisal Rights. Any shares of Company Common Stock as to
which the holder thereof shall have properly demanded appraisal in
accordance with the requirements of Section 262 of the DGCL (any holder
duly making such demand is referred to herein as a "Dissenting
Stockholder") shall not be converted into the right to receive the Merger
Consideration, unless and until such holder shall have failed to perfect,
or shall have effectively withdrawn or lost, the right to appraisal of and
payment for such shares of Common Stock under the DGCL, but instead such
holder shall be entitled only to such rights as are provided for under
Section 262 of the DGCL. If a Dissenting Stockholder fails to perfect, or
effectively withdraws or loses the right to receive payment for such shares
of Common Stock, pursuant to Section 262 of the DGCL, such shares of
Company Common Stock shall be deemed converted as of the Effective Time
(but without any interest thereon) as provided in Section 3.1.
Section 3.4 Effect of the ATX Transaction. In the event the ATX
Transaction (as defined) is consummated (the date of such consummation
being referred to as the "ATX Closing Date") prior to the Closing and the
rights and obligations of Parent are assigned in accordance with Section
11.5 of this Agreement (the "ATX Assignment"), the following shall occur:
(i) in lieu of the number of shares of Parent Common Stock otherwise to
be received (A) by the holders of Company Common Stock as part of the
Merger Consideration and (B) with respect the Assumed Options, a like
number of shares of common stock of ATX ("ATX Stock") shall be
automatically substituted for shares of Parent Common Stock, on precisely
the same terms, and based on the same adjustments to the Exchange Ratio and
the Option Exchange Ratio, as would be applicable if such holders received
shares of Parent Common Stock in accordance with the terms of this
Agreement and all references to Stock Consideration shall include ATX Stock
in lieu of Parent Common Stock;
(ii) unless the context otherwise requires, all references to Parent
Common Stock in this Agreement shall mean ATX Stock following the ATX
Closing Date; and
(iii) if the context requires, all references to Parent in Articles I,
II, II or IV of this Agreement shall mean ATX following the ATX Closing
Date, provided the representations, warranties, covenants and other
agreements of Parent shall continue to refer to Parent before and after the
ATX Closing Date; and
(iv) the acquisition of the Company by Parent will be structured so
that it will be treated for U.S. federal income tax purposes as a transfer
of Company Common Stock by Company stockholders in exchange for ATX Stock.
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6. Section 5.1(e). Section 5.1(e) of the Merger Agreement is hereby
amended by deleting this section in its entirety and replacing it with the
following:
"The copies of the Company Certificate and Company Bylaws, each as
amended through the date of this Agreement that are incorporated by
reference in, as exhibits to the Company's registration statement on Form
S-8 dated August 12, 1999 and all comparable corporate organizational
documents of the Company Subsidiaries made available to Parent by the
Company are complete and correct copies of those documents. All such
corporate organizational documents of the Company and the Company
Subsidiaries are listed on Section 5.1(e) of the Company Disclosure
Schedule. The Company Certificate and Company Bylaws and all comparable
organizational documents of the Company Subsidiaries are in full force and
effect. The Company is not in violation of any of the provisions of the
Company Certificate or Company Bylaws."
7. Section 6.2. The third sentence of Section 6.2 of the Merger Agreement
is hereby amended by deleting this sentence in its entirety and replacing this
sentence with the following:
"The Board of Directors of MergerCo (the "MergerCo Board") has approved
and declared advisable this Agreement and the Transactions and, immediately
following the execution of this Agreement by MergerCo, the stockholders of
MergerCo will approve this Agreement and the Transactions."
8. Section 8.11. Section 8.11(b) of the Merger Agreement is hereby
amended by inserting the words ", as amended," prior to the words (the "ATX
Transaction").
9. Section 11.5. Section 11.5 of the Merger Agreement is hereby amended
by deleting this section in its entirety and replacing it with the following:
"Section 11.5. Assignment. Except as expressly permitted by the terms
hereof, neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by either party hereto without the prior written
consent of the other party, provided, however that, all of Parent's rights,
interests and obligations under this Agreement shall be automatically assigned
to ATX, upon consummation of the ATX Transaction if such consummation occurs
prior to the Closing and provided further that, notwithstanding such assignment,
Parent shall remain liable under this Agreement. If such assignment occurs, then
(i) ATX will acquire the Company by merging a wholly owned first-tier domestic
subsidiary of ATX into the Company, (ii) the acquisition of Parent by ATX will
be consummated after the Reincorporation of Parent, and (iii) the provisions set
forth in Section 3.4 of this Agreement shall become immediately effective."
10. Exhibit D. The Merger Agreement is hereby amended by inserting
Exhibit D following Exhibit C to the Merger Agreement.
11. MISCELLANEOUS.
(a) Severability. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any
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respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions hereof shall
not be in any way impaired, unless the provisions held invalid, illegal or
unenforceable shall substantially impair the benefits of the remaining
provisions hereof.
(b) GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
(c) Counterparts. This First Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
(d) Continued Force and Effect. Except as expressly amended or modified
herein, the provisions of the Merger Agreement are and shall remain in full
force and effect.
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IN WITNESS WHEREOF, the undersigned has executed, or has caused to be
executed, this First Amendment on the date first written above.
CORECOMM LIMITED
By: /s/ RICHARD J. LUBASCH
------------------------------------
Name: Richard J. Lubasch
Title: Senior Vice President,
General Counsel and
Secretary
VOYAGER.NET, INC.
By: /s/ CHRISTOPHER P. TORTO
------------------------------------
Name: Christopher P. Torto
Title: President and Chief
Executive Officer
CORECOMM GROUP SUB I, INC.
By: /s/ RICHARD J. LUBASCH
------------------------------------
Name: Richard J. Lubasch
Title: Senior Vice President,
General Counsel and
Secretary
CORECOMM MERGER SUB, INC.
By: /s/ RICHARD J. LUBASCH
------------------------------------
Name: Richard J. Lubasch
Title: President and Secretary
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EXHIBIT B
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of , 2000 (the
"Agreement"), by and between [CoreComm Limited], a corporation
("CoreComm" or the "Company") and the holders of Common Stock (as hereinafter
defined) listed on Schedule 1 attached hereto (each a "Stockholder" and,
collectively, the "Stockholders").
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of March
, 2000 (the "Merger Agreement"), by and among the Company, CoreComm Group Sub
I, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent, and
Voyager.net, Inc., a Delaware corporation, and, with respect to certain
provisions thereof, each of the Stockholders is entitled to receive shares of
the Company's common stock, par value $.01 per share (the "Common Stock") and
cash;
WHEREAS, it is a condition to the consummation of the merger and the other
transactions contemplated by the Merger Agreement that the Company grant to the
Stockholders the registration rights and other rights set forth herein; and
In consideration of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. General; Securities Subject to this Agreement.
1.1 Grant of Rights. The Company hereby grants registration rights to
the Stockholders upon the terms and subject to the conditions set forth in
this Agreement. Capitalized terms used herein and not defined shall have
the meanings assigned to such terms in the Merger Agreement.
1.2 Registrable Securities. For the purposes of this Agreement,
"Registrable Securities" means any shares of Common Stock issued to the
Stockholders pursuant to the Merger Agreement; provided, however, that (i)
shares shall cease to be Registrable Securities for purposes of this
Agreement when a registration statement covering such Registrable
Securities has been declared effective under the Securities Act by the
Commission and all such Registrable Securities have been disposed of
pursuant to such effective registration statement and (ii) the securities
of a Stockholder shall be deemed not to be Registrable Securities at any
time when the entire amount of such Stockholder's Registrable Securities
proposed to be sold in a single sale are or, in the opinion of counsel
satisfactory to the Company, in its reasonable judgment, may be distributed
to the public pursuant to Rule 144 (or any successor provision then in
effect) under the Securities Act.
1.3 Stockholders of Registrable Securities. A Person is deemed to be
a holder of Registrable Securities whenever such Person (i) is a party to
this Agreement (or a permitted transferee thereof) and (ii) owns of record
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more
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Persons with respect to the same Registrable Securities, the Company may
act upon the basis of the instructions, notice or election received from
the registered owner of such Registrable Securities.
2. Demand Registration Rights.
2.1 Demand Registration.
(a) At any time on or after six (6) months from the date of this
Agreement, the Stockholders may make a written request (specifying the
intended method of disposition) (such Stockholders, the "Initiating
Stockholders") for registration under the Securities Act (a "Demand
Registration") of all or part of the shares of Common Stock which
constitute such Initiating Stockholders' Registrable Securities; provided,
however, that, (i) the Company shall not be required to effect more than
one (1) Demand Registration pursuant to this Agreement, (ii) the number of
the shares of Common Stock proposed to be registered by the Initiating
Stockholders shall not be less than 1,500,000 shares (subject to
appropriate adjustments to reflect stock splits, stock dividends, corporate
recapitalizations or similar transactions) as of the date of the request,
and (iii) the Initiating Stockholders shall be the holders as of the date
of the request of at least 43.5% of the then outstanding shares of Common
Stock that constitute Registrable Securities hereunder.
(b) If at the time of any request to register Registrable Securities
pursuant to this Section 2.1, the Company is engaged or plans to engage in
within ninety (90) days of the time of such request in a registered public
offering or any other activity which, in the good faith determination of
the Board of Directors of the Company, would be required to be disclosed
under applicable law as a result of such request or would be materially and
adversely affected by the requested registration (each, a "Company Event"),
then the Company may at its option direct that such request be delayed for
a reasonable period of time not in excess of three (3) months from the
effective date of such offering or the date of completion of such other
activity, as the case may be, such right to delay a request to be exercised
by the Company not more than once in any 365-day period. In addition, the
Company shall not be required to effect any registration within three (3)
months after the effective date of any other Registration Statement of the
Company. Within ten days after receipt of a request for a Demand
Registration, the Company shall give written notice (the "Notice") of such
request to all other Stockholders holding the class of stock to which such
Demand Registration relates and shall include in such registration all
Registrable Securities of that class that the Company has received written
requests for inclusion therein within 15 days after the Notice is given.
Thereafter, in the case of Demand Registration, the Company may elect to
include in such registration additional shares of Common Stock issued by
the Company. All requests made pursuant to this Section 2.1 shall specify
the class and aggregate number of Registrable Securities to be registered.
2.2 Effective Demand Registration. The Company shall use reasonable
commercial efforts to cause any Demand Registration to become effective not
later than
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ninety (90) days after it receives a request under Section 2.1 hereof and
to remain effective for the lesser of (i) the period during which all
Registrable Securities registered in the Demand Registration are sold and
(ii) one hundred and twenty (120) days; provided, however, that if the
Initiating Stockholders request the Company to withdraw such registration,
other than as the result of a breach by the Company, it shall constitute a
Demand Registration unless the Initiating Stockholders promptly pay all of
the costs and expenses incurred by the Company in connection with such
registration.
2.3 Underwriting Procedures.
(a) The offering of Registrable Securities pursuant to a Demand
Registration shall be in the form of a firm commitment underwritten
offering and the managing underwriter and other underwriters selected for
such offering shall be selected by the Company, provided that the managing
underwriter and other underwriters are reasonably acceptable to the
Initiating Stockholders (having due regard to the experience and
relationship with the Company of the managing underwriter and the other
underwriters) (the "Approved Underwriter"). In such event, if the Approved
Underwriter advises the Company in writing that in its opinion the
aggregate amount of such Registrable Securities requested to be included in
such offering is sufficiently large to have a material adverse effect on
the success of such offering, the Company shall include in such
registration only the aggregate amount of Registrable Securities that in
the opinion of the Approved Underwriter may be sold without any such
material adverse effect and shall reduce pro rata based on the number of
Registrable Securities included in the request for Demand Registration, the
amount of Registrable Securities to be included by each Stockholder in such
registration.
(b) Distribution by Underwriters. The managing underwriter or
underwriters selected for any offering shall enter into an agreement with
the Company and the Stockholders whereby the underwriters shall be
prohibited from (i) distributing 5% or greater of the Registrable
Securities to any Person in connection with the initial placement of the
Registrable Securities for the offering and from (ii) distributing 5% or
greater of the Registrable Securities to any Person for 90 days after such
initial placement.
3. Incidental or "Piggy-Back" Registration Rights.
3.1 Notice of Registration. If, at any time or from time to time
prior to the second anniversary of the date hereof, the Company shall
determine to register any of its Common Stock for sale in an Underwritten
Offering for its own account (other than a registration relating to (i) a
registration of an employee compensation plan or arrangement adopted in the
ordinary course of business on Form S-8 (or any successor form) or any
dividend reinvestment plan or (ii) a registration of securities on Form S-4
(or any successor form) including, without limitation, in connection with a
proposed issuance in exchange for securities or assets of, or in connection
with a merger or consolidation with another corporation), the Company will
promptly give to the Stockholders written notice thereof, and include in
such
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registration (subject to Section 3.2) all the Registrable Securities
specified in a written request made by any one or more of the Stockholders
within ten days after such Stockholder's receipt of such written notice
from the Company ("Incidental Registration"). The right of such Stockholder
to have Registrable Securities included in a registration pursuant to this
Section 3.1 shall be conditioned upon such Stockholder's entering into
(together with the Company and/or the other holders, if any, distributing
their securities through such underwriting) an underwriting agreement in
customary form with the managing underwriter or underwriters selected for
such underwriting by the Company (the "Company Underwriter").
3.2 Cutback. If the lead managing underwriter of an offering covered
by Section 3.1 shall advise the Company in writing on or before the date
five days prior to the date then scheduled for such offering that, in its
opinion, the amount of Common Stock (including Registrable Securities)
requested to be included in such registration exceeds the amount which can
be sold in such offering without adversely affecting the distribution of
the Common Stock being offered, then the Company will include in such
registration: first, any shares proposed to be offered by the Company;
second, Registrable Securities requested to be registered by the
Stockholders and any other shares requested by other stockholders of the
Company, including the Stockholders, to be included in such registration,
allocated, if necessary, pro rata among the Stockholders and such other
holders requesting such registration on the basis of the number of the
shares Beneficially Owned at the time, provided, however, that in the event
the Company will not, by virtue of the foregoing cut-back mechanism,
include in any such registration all of the Registrable Securities
requested to be included in such registration, the Stockholders may, upon
written notice to the Company given within three days of the time the
Stockholders first are notified of such matter, reduce the amount of
Registrable Securities they desire to have included in such registration,
whereupon only the Registrable Securities, if any, they desire to have
included will be considered for such inclusion.
3.3 Right of Termination. The Company shall have the right to
terminate or withdraw any registration initiated by it under Section 3.2
prior to the effectiveness of such registration whether or not the
Stockholders have elected to include Registrable Securities in such
registration.
4. Provisions Applicable to Demand and Piggy-Back Registrations.
4.1 Expenses. The Company shall pay all Registration Expenses (as
defined in Section 6 hereof) incurred in connection with any registration
pursuant to Section 2 or 3 hereto, unless such registration fails to become
effective as a result of the fault of one or more Stockholders, in which
case the Company will not be required to pay the Registration Expenses
incurred with respect to the offering of such Stockholder's or
Stockholders' Registrable Securities. The Registration Expenses incurred
with respect to the offering of such Stockholder's or Stockholders'
Registrable Securities shall be the product of (a) the aggregate amount of
all
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Registration Expenses incurred in connection with such registration and (b)
the ratio that the number of such Registrable Securities bears to the total
number of Registrable Securities included in the registration.
4.2 Holdback Agreements. Each Stockholder agrees not to effect any
public sale or distribution of any Registrable Securities being registered
or of any securities convertible into or exchangeable or exercisable for
such Registrable Securities, including a sale pursuant to Rule 144 under
the Act, during the ninety (90) day period beginning on the effective date
of any Demand Registration or Incidental Registration or other underwritten
offering in which such Stockholder is participating (except as part of such
registration), if and to the extent requested by any other Stockholders, in
the case of a non-underwritten public offering, or if and to the extent
requested by the Approved Underwriter or Company Underwriter, in the case
of an underwritten public offering.
5. Registration Procedures.
In connection with any registration statement filed pursuant to this
Agreement, the Company will, as expeditiously as possible:
(a) in connection with a request pursuant to this Agreement, prepare
and file with the Commission, after receipt of a request to file a
registration statement with respect to Registrable Securities, a
registration statement on any form for which the Company then qualifies or
which counsel for the Company shall deem appropriate and which form shall
be available for the sale of such Registrable Securities in accordance with
the intended method of distribution thereof and, if the offering is an
underwritten offering, shall be reasonably satisfactory to the managing
underwriter or underwriters, and use its best efforts to cause such
registration statement to become effective; provided, however, that before
filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall (i) furnish to the counsel selected
by the Stockholder or Stockholders making the demand, if any, copies of all
such documents proposed to be filed, and (ii) notify such counsel and each
seller or prospective seller of Registrable Securities of any stop order
issued or threatened by the Commission and take all reasonable actions
required to prevent the entry of such stop order or to remove it if
entered;
(b) in connection with a registration pursuant to this Agreement,
prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a
period of not more than one hundred twenty (120) days (or such shorter
period that will terminate when all Registrable Securities covered by such
registration statement have been disposed of);
(c) furnish to each seller of Registrable Securities such number of
copies of the registration statement, each amendment and supplement thereto
(in each case including all exhibits thereto), the prospectus included in
such registration statement (including each preliminary prospectus) and
such other documents as each seller
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may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(d) use reasonable efforts to register or qualify such Registrable
Securities under such other securities or "blue sky" laws of such
jurisdictions as any seller or underwriter reasonably requests in writing
and to do any and all other acts and things that may be reasonably
necessary or advisable to register or qualify for sale in such
jurisdictions the Registrable Securities owned by such seller; provided,
however, that the Company shall not be required to (i) qualify generally to
do business in any jurisdiction where it is not then so qualified, (ii)
subject itself to taxation in any such jurisdiction, (iii) consent to
general service of process in any such jurisdiction or (iv) provide any
undertaking required by such other securities or "blue sky" laws or make
any change in its charter or by-laws that the Board of Directors of the
Company determines in good faith to be contrary to the best interest of the
Company and its stockholders;
(e) use reasonable efforts to cause the Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary by virtue of
the business and operations of the Company to enable the seller or sellers
thereof or the underwriters, if any, to consummate the disposition of such
Registrable Securities;
(f) notify each seller of such Registrable Securities at any time when
a prospectus relating thereto is required to be delivered under the
Securities Act of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, and
prepare and file with the Commission as soon thereafter as practicable,
after consultation with the Initiating Stockholders, a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
(g) enter into customary agreements (including an underwriting
agreement in customary form, if the offering is an underwritten offering)
and take such other actions as are reasonably required in order to expedite
or facilitate the disposition of such Registrable Securities;
(h) otherwise use reasonable efforts to comply with all applicable
rules and regulations of the Commission; and
(i) use reasonable efforts to cause all Registrable Securities covered
by the registration statement to be listed on each securities exchange or
market, if any, on which similar securities issued by the Company are then
listed, provided that the applicable listing requirements are satisfied.
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The Company may require each seller or prospective seller of Registrable
Securities as to which any registration is being effected to furnish to the
Company such information regarding the distribution of such securities and other
matters as may be required to be included in the registration statement.
Each holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
paragraph (f) of this Section 5, such holder shall forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such holder's receipt of the copies
of the supplemented or amended prospectus contemplated by paragraph (f) of this
Section 5 and, if so directed by the Company, such holder shall deliver to the
Company all copies, other than permanent file copies then in such holder's
possession or copies delivered to prospective purchasers, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. If the Company shall give any such notice, the Company shall extend the
period during which such registration statement shall be maintained effective
pursuant to this Agreement (including the period referred to in paragraph (b) of
this Section 5) by the number of days during the period from and including the
date of the giving of such notice pursuant to paragraph (f) of this Section 5 to
and including the date when each seller of Registrable Securities covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by paragraph (f) of this Section 5.
6. Registration Expenses. The Company shall pay all expenses incident to
its performance of or compliance with this Agreement; provided, however, that
the Company shall not pay the costs and expenses of any Stockholder relating to
underwriters' commissions and discounts relating to Registrable Securities to be
sold by such Stockholder, brokerage fees, transfer taxes or the fees or expenses
of any counsel, accountants or other representatives retained by the
Stockholders, individually or in the aggregate. All of the expenses described in
this Section 6 that are to be paid by the Company are herein called the
"Registration Expenses."
7. Indemnification; Contribution.
7.1 Indemnification by the Company. The Company agrees to indemnify,
in the case of any registration statement filed pursuant to this Agreement,
each seller of any Registrable Securities covered by such registration
statement, each other person who participates as an underwriter in the
offering or sale of such securities, and each person, if any, who controls
such seller or any such underwriter within the meaning of the Securities
Act (each an "Indemnified Party" and collectively, the "Indemnified
Parties") against any losses, claims, damages or liabilities to which such
Indemnified Party may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such securities
were registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or
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alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances in
which they were made not misleading, or any violation by the Company of the
Securities Act or any rule or regulation thereunder applicable to the
Company; provided, however, that the Company shall not be liable to the
extent that any loss, claim, or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement
in reliance upon and in conformity with written information furnished to
the Company by or on behalf of such Indemnified Party expressly for use in
the Registration Statement; provided, further, that the Company shall not
be liable to any seller of Registrable Securities (or to any person who
acts as an underwriter in such sale or who controls such seller) to the
extent that any loss, claim, or liability arises out of an untrue
statement, alleged untrue statement, omission, or alleged omission made in
any preliminary prospectus if either (a)(i) such seller failed to send or
deliver a copy of the prospectus with or prior to written confirmation of
the sale by such seller to the person asserting the claim and (ii) the
prospectus would have corrected such untrue statement, alleged untrue
statement, omission or alleged omission; or (b)(x) such untrue statement,
alleged untrue statement, omission or alleged omission is corrected in an
amendment or supplement to the prospectus and (y) having been furnished by
or on behalf of the Company with copies of the prospectus as so amended or
supplemented, such seller fails to deliver such prospectus as so amended or
supplemented, with or prior to the written confirmation of the sale by such
seller to the person asserting the claim.
7.2 Indemnification by Stockholders. In connection with any
registration statement in which a Stockholder is participating, each such
Stockholder shall furnish to the Company in writing such information and
affidavits with respect to such Stockholder as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and agrees to indemnify, to the fullest extent permitted by law,
the Company, its officers, directors and agents and each person, if any,
who controls the Company (within the meaning of the Securities Act) against
any and all losses, claims, damages, and liabilities resulting from any
untrue or alleged untrue statement of a material fact or any omission or
alleged omission of a material fact required to be stated in any
registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or necessary to make the statements
therein (in the case of a prospectus, in light of the circumstances under
which they were made) not misleading, to the extent that such untrue or
alleged untrue statement or omission is contained in or omitted from, as
the case may be, any information or affidavit with respect to such
Stockholder so furnished in writing by such Stockholder expressly for use
in any such prospectus or preliminary prospectus; provided, however, that
the liability of such Stockholder shall not exceed the net proceeds
received by such Stockholder from the sale of its Registrable Securities.
Each Stockholder also shall indemnify any underwriters of the Registrable
Securities, their officers and directors and each
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person who controls such underwriters (within the meaning of the Securities
Act) to the same extent as provided above with respect to the
indemnification of the Company; provided, however, that the indemnification
of such Stockholder shall be limited to the net proceeds received by such
Stockholder from the sale of its Registrable Securities.
7.3 Contribution. If the indemnification provided for in this Section
7 is unavailable to any Indemnified Party hereunder in respect of any
losses, claims, damages, liabilities or expenses referred to herein, then
the indemnifying party, to the extent such indemnification is unavailable,
in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such
losses, claims, damages, liabilities or expenses in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and
Indemnified Parties in connection with the actions that resulted in such
losses, claims, damages, liabilities or expenses. The relative fault of
such indemnifying party and Indemnified Parties shall be determined by
reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or Indemnified Parties,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7.3 were determined by pro rata allocation
or by any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person.
8. Definitions. As used herein, the following terms shall have the
following respective meanings:
"Beneficial Ownership" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
"Board of Directors" means the board of directors of the Company.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" means the common stock of the Company or any other
equity securities of the Company into which such securities are converted,
reclassified, reconstituted or exchanged.
"Person" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or
other entity of any kind, and shall include any successor (by merger or
otherwise) of any such entity.
"Registration Expenses" shall have the meaning specified in Section 6
herein.
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"Securities Act" means the Securities Act of 1933, or any successor
federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Underwritten Offering" shall mean a sale of securities of the Company
to an underwriter or underwriters for re-offering to the public, which
shall include a road show and other customary selling efforts.
9. Miscellaneous.
9.1 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written
consent of the holders of a majority of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder
of any securities of the Company which would allow such holder or
prospective holder to include such securities in any registration filed
under Section 2.1(a) hereof, unless under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of such securities will
not reduce the amount of the Registrable Securities of the holders which is
included.
9.2 Assignment. The rights of the Stockholders to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assignable by each Stockholder to any transferee (other than
the transferee of such shares in a registered transaction) of all or any
portion of the Registrable Securities if: (i) the Stockholder agrees in
writing with the transferee or assignee to assign such rights, and a copy
of such agreement is furnished to the Company after such assignment, (ii)
the Company is furnished with written notice of (a) the name and address of
such transferee or assignee, and (b) the securities with respect to which
such registration rights are being transferred or assigned, (iii) the
transferee or assignee agrees in writing for the benefit of the Company to
be bound by all of the provisions contained herein, and (iv) if required
under the terms of the Stockholders Agreement, such transferee enters into
the requisite stockholders agreement with the Company as contemplated by
the Stockholders Agreement, of even date herewith, among the Company and
the Stockholders (the "Stockholders Agreement").
9.3 Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of the
Stockholders that own, in the aggregate, 50% or more of the Registrable
Securities then outstanding.
9.4 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telecopied
(and confirmed) or sent by certified, registered or express mail, postage
prepaid. Any such notice shall be deemed given when so delivered
personally, telecopied (and
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confirmed) or, if mailed, five days (or, in the case of express mail, one
day) after the date of deposit in the United States mail, as follows:
(i) if to the Company, to:
CoreComm Limited
110 East 59th Street
26th Floor
New York, NY 10022
Attention: Richard J. Lubasch
Telecopier No.: (212) 906-8497
with copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Kenneth M. Schneider, Esq.
Telecopier No.: (212) 757-3990
(ii) if to any Stockholder, to the most current address of such
Stockholder provided by such Stockholder to the Company in
writing.
with copies to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attention: Joseph L. Johnson III, Esq.
Neil McLaughlin, P.C.
Telecopier No.: (617) 523-1231
Any party may by notice given in accordance with this section to the
other parties designate another address or person for receipt of notices
hereunder.
9.5 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the Stockholders and their permitted successors and
assigns as provided for in Section 9.1 hereof and the successors and
assigns of the Company; provided, however, that such successors and assigns
become parties to this Agreement by executing counterparts thereto and, in
the case of successors and assigns of a Stockholder, there has been
compliance with Section 9.1 hereof.
9.6 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
9.7 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
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9.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO THE
RULES OF CONFLICT OF LAWS OF THE STATE OF DELAWARE OR ANY OTHER
JURISDICTION.
9.9 Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect
and of the remaining provisions hereof shall not be in any way impaired.
9.10 Entire Agreement. This Agreement is entered into and delivered
pursuant to the Merger Agreement and as such contains the entire agreements
among the parties with respect to the subject matter hereof and supersedes
all prior agreements and understandings, written or oral, with respect
thereto.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the date first written above.
CORECOMM LIMITED
By:
Name:
Title:
STOCKHOLDERS:
MEDIA/COMMUNICATIONS
PARTNERS II LIMITED PARTNERSHIP
By: M/CP II Limited Partnership,
its general partner
By: M/CP II General Partner-H, Inc.,
a general partner
AGREEMENT dated as of , 2000 among [CoreComm Limited], a
corporation (the "Company"), and each of the Persons listed on
Schedule A hereto (each, a "Stockholder").
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of March
, 2000 (the "Merger Agreement"), by and among the Company, [MergerCo], a
Delaware corporation and a wholly-owned subsidiary of the Company ("MergerCo"),
and Voyager.net, Inc., a Delaware corporation ("Voyager"), MergerCo is being
merged with and into Voyager (the "Merger") and as a result thereof each share
of Voyager's common stock, par value $.01 per share, issued and outstanding
immediately prior to the effective time of the Merger (the "Effective Time") is
being converted into shares the Company's common stock, par
value $.01 per share (the "Common Stock"), as well as the right to receive cash;
and
WHEREAS, it is a condition to the obligation of the Company to consummate
the Merger, that the Company and each of Stockholders enter into this Agreement;
and
WHEREAS, each Stockholder has independently determined that the Merger is
in its best interest and each Stockholder wishes to facilitate the consummation
of the Merger by entering into this Agreement and agreeing to be bound by the
terms hereof;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, provisions and covenants herein contained, each Stockholder and the
Company hereby agree as follows:
Section 1. Covenants of Stockholders with Respect to Voting Securities of
the Company.
During the term of this Agreement and subject to all of the provisions
hereof, each Stockholder and the Company agree as follows:
1.1 Acquisition of Voting Securities. Each Stockholder shall not acquire,
agree to acquire or offer or propose to acquire, directly or indirectly, or in
conjunction with or through any Person, record or beneficial ownership of any
Voting Securities (as hereinafter defined), except (i) through the exercise of
conversion rights, if any, of Voting Securities; (ii) by way of stock splits,
reclassifications or stock dividends or other distributions or offerings made on
a pro rata basis to holders of Voting Securities or any class of Voting
Securities; (iii) from another Stockholder by bequest (including, without
limitation, through the creation of a trust), gift, will, pledge, hypothecation
or otherwise in accordance with clause (i) of Section 1.6 hereof; (iv) pursuant
to a bequest or similar gift or transfer from a Person who is not a Stockholder,
including, without limitation, through the creation of a trust for the benefit
of a Stockholder; (v) pursuant to a will or the laws of descent and distribution
from a Person who is not a Stockholder; or (vi) pursuant to the exercise of
stock options or the receipt of other compensation or benefits involving Voting
Securities granted to a Stockholder in such Stockholder's
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capacity (if applicable) as an employee of the Company or any subsidiary of the
Company; provided, however, that if, in connection with the transfer of Voting
Securities to a Stockholder pursuant to clauses (iv) and (v) of this Section
1.1, a trust, corporation or other entity is formed for the purpose of holding
Voting Securities for the benefit of a Stockholder (other than solely as an
income beneficiary of a trust), then, as a condition precedent to the receipt by
such Stockholder of any direct or indirect beneficial interest in such Voting
Securities, such trust, corporation or other entity shall agree to be bound by
the terms and conditions of a stockholder agreement having the same or
substantially the same terms and conditions as this Agreement.
If a Stockholder shall acquire, directly or indirectly, record or
beneficial ownership of, or the right to acquire, any Voting Securities in
contravention of this Agreement, then such Stockholder shall promptly notify the
Company, and the Company, in its sole discretion, may either (x) purchase (or
cause its designee(s) to purchase) any or all of such acquired Voting Securities
at a price equal to the price paid by such Stockholder or (y) require such
Stockholder to dispose of, within 30 days from the date on which the Company
requests such Stockholder to do so, only in accordance with the provisions of
Section 1.6 (ii) or (iv), the Voting Securities acquired in violation of this
Section 1.1, provided that any sale may be delayed to avoid a violation of
Section 16(b) of the Exchange Act or any other provisions of the Exchange Act or
Securities Act, including, without limitation, any applicable volume limits
under Rule 144 of the Securities Act, or any successor rules or regulations
permitting sales of unregistered or otherwise restricted securities. Each
Stockholder hereby acknowledges that any acquisition of Voting Securities in
contravention of this Agreement shall constitute a breach of this Agreement and
that the Company's right to purchase or require the disposition of Voting
Securities pursuant to this Section 1.1 shall not be exclusive and shall be in
addition to any other rights and remedies the Company may have in connection
with a breach of this Agreement.
For the purposes of this Agreement, "Voting Securities" means all
securities of the Company, or any successor to the Company, entitling the holder
thereof to vote as a stockholder for any purpose or under any circumstance or
any securities convertible into or exchangeable for under any circumstance such
securities or any rights, warrants or options to acquire (through purchase,
exchange, conversion or otherwise) any such securities under any circumstance.
1.2 Voting of Voting Securities. Each Stockholder shall vote or direct
the vote of all Shares of Voting Securities that are (a) acquired pursuant to
the Merger, (b) acquired by a Stockholder pursuant to Section 1.1, (c) held in
trusts, corporations or other entities formed as contemplated by Section 1.6 or
(d) otherwise hereinafter acquired, with respect to which such Stockholder has
the legal capacity to vote or to direct the vote of such Voting Securities, on
each matter submitted to a vote of the stockholders of the Company, (x) in the
same proportion as the votes cast by all holders of Voting Securities other than
the Stockholders and any affiliates and associates of the Company, with respect
to such matter, or, (y) in the event of a proposed change of control transaction
for the Company, in the manner recommended to the stockholders by
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the Board of Directors of the Company provided that the Board of Directors,
prior to such recommendation, shall have received an opinion from a nationally
recognized investment banking firm to the effect that the transaction or the
consideration to be received by the unaffiliated holders of the Common Stock is
fair from a financial point of view to such stockholders; provided, further,
that in the absence of such opinion such Voting Securities shall be voted as
provided in clause (x) of this Section 1.2.
Each Stockholder shall take such action as may be required so that all
Voting Securities with respect to which such Stockholder has the legal capacity
to vote or to direct the vote of such Voting Securities as provided for herein
shall be present in person or by proxy at all duly noticed and convened meetings
of holders of Voting Securities for the purpose of determining the presence of a
quorum at such meetings.
1.3 No Voting Trusts. No Stockholder shall, directly or indirectly,
deposit any Voting Securities in a voting trust or in any other manner, except
pursuant to this Agreement, subject any Voting Securities to any arrangement or
agreement with respect to the voting thereof.
1.4 No Election Contests. No Stockholder shall, directly or indirectly,
solicit proxies or become a "participant" in a "solicitation" in opposition to
the recommendation of the Company's Board of Directors with respect to any
matter, including, without limitation, any "election contest" relating to the
election of directors of the Company (as such terms are defined in Regulation
14A under the Exchange Act) or initiate, propose or otherwise solicit
stockholders of the Company for the approval of one or more stockholder
proposals at any time, or induce or attempt to induce any other person to
initiate any stockholder proposal; provided, however, that each Stockholder
shall vote any Voting Securities directly or indirectly beneficially owned by
such Stockholder in any "election contest" in accordance with the provisions of
the first paragraph of Section 1.2 hereof.
1.5 No Syndications. No Stockholder shall, directly or indirectly, join
or encourage the formation of a partnership, limited partnership, syndicate or
other "group," or otherwise act in concert with any other Person (except as
contemplated by Section 1.2 hereof) for the purpose of affecting or influencing
control of the Company or acquiring, holding, or disposing of Voting Securities.
1.6 Disposition of Voting Securities. No Stockholder shall, directly or
indirectly, offer, sell, assign, pledge, encumber or otherwise dispose of or
transfer in any manner any Voting Securities (or enter into agreements or
understandings with respect to the foregoing), if after such disposition, the
Person holding such Voting Securities would own 5% or more of any class or
Series of the Company's Voting Securities (or Voting Securities which are
convertible into or exercisable for shares which, after giving effect to such
exercise or conversion, would represent 5% or more of any class of the Company's
Voting Securities). Any offer, sale, assignment, pledge, encumbrance or other
disposition or transfer of Voting Securities not otherwise prohibited by this
Agreement shall only be effected, to the extent otherwise legally permissible,
in the following manners: (i) pursuant to a bona fide public offering of Voting
Securities (which may include a secondary distribution effected through the
facilities of any national securities
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exchange on which the Voting Securities are listed); provided, however, that in
case of any such proposed public offering, each Stockholder selling pursuant to
such offering (the "Selling Stockholder") will use his/her/its best efforts (and
will instruct the managing underwriter of any such public offering or
broker-dealer to or through which such public offering is being made to use its
best efforts) to achieve a sufficiently broad public distribution of the
securities being offered (in light of the number of securities being offered),
with the intention that no person or related group of persons should purchase in
such public offering Voting Securities representing 5% or more of the securities
being offered; (ii) pursuant to an unsolicited open market sale or sales during
any three-month period involving, in the aggregate, Voting Securities
representing not more than 1% of the Total Voting Power, as defined in Section
5.4, (in accordance with the requirements as to the manner of sale set forth in
Rules 144(f), 144(g) and 145 and (g) of the Securities Act or any successor
rules or regulations permitting sales of unregistered or otherwise restricted
securities, whether or not such sale is subject to Rule 144, Rule 145 or such
successor rules or regulations) on any national securities exchange on which the
Voting Securities are listed; (iii) pursuant to a tender offer made by the
Company or any subsidiary of the Company or made by a third person to the
stockholders of the Company as to which the Company's Board of Directors has
recommended to the stockholders of the Company; (iv) pursuant to a privately-
negotiated transaction with a Person who is not a Stockholder; provided, that in
no case shall any such sale, transfer or other disposition under this clause
(iv) be made to such Person if, immediately after such transaction, such Person
(based upon the written representation of such Person, which as a condition
precedent to such sale, transfer or other disposition shall be delivered to such
Stockholder and to the Company prior to the consummation of such transaction),
together with its affiliates and associates would be the direct or indirect
beneficial or record owner of Voting Securities (when added to the Voting
Securities (if any) already beneficially owned by such Person and its affiliates
and associates) representing in excess of 5% of the Total Voting Power; (v)
pursuant to a will or the laws of descent and distribution; provided, that the
estate of a Stockholder shall be bound by the terms and conditions of this
Agreement and if, immediately after any distribution out of such estate, any
distributee, together with such distributee's affiliates and associates would
(other than solely as an income beneficiary of a trust) be the direct or
indirect beneficial or record owner of, or have the right to acquire, Voting
Securities (when added to the Voting Securities (if any) already owned by such
distributee and his/her affiliates and associates representing in excess of 5%
of the Total Voting Power, then such distributee shall, as a condition precedent
to receiving such shares of Voting Securities, agree to be bound by the terms
and conditions of a stockholder agreement having the same terms and conditions
as this Agreement; (vi) pursuant to a bequest or similar gift or transfer to any
Person who is not a Stockholder or; provided that if, immediately after delivery
of a bequest or similar gift or transfer, including, but not limited to, through
the creation of a trust, the recipient, together with such recipient's
affiliates and associates (including, as the case may be, the Stockholder making
such transfer), would (other than solely as an income beneficiary of a trust) be
the direct or indirect beneficial or record owner of, or have the right to
acquire, Voting Securities (when added to the Voting Securities (if any) already
owned
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by such recipient and its affiliates and associates (including, as the case may
be, the Stockholder making such transfer)) representing in excess of 5% of the
Total Voting Power, then such recipient shall, as a condition precedent to
receiving such shares of Voting Securities, agree to be bound by the terms and
conditions of a stockholder agreement having the same terms and conditions as
this Agreement; or (vii) as a result of any pledge or hypothecation to a bona
fide financial institution to secure a bona fide loan, guaranty or other
financial accommodation or as a result of any foreclosure with respect thereto;
provided, however, that in connection with any transfer by a Stockholder of
Voting Securities pursuant to clauses (v) or (vi) of this Section 1.6 to a
trust, corporation or other entity and a Stockholder retains the authority, as
trustee or otherwise, to vote, acquire or dispose of, or to direct the voting,
acquisition or disposition of, Voting Securities to be held by such trust or
other entity, then as a condition precedent to the transfer of such shares of
Voting Securities to such trust or other entity, such Stockholder shall cause
such trust or other entity to be bound by the terms and conditions of a
stockholder agreement having the same or substantially the same terms and
conditions as this Agreement.
Notwithstanding anything to the contrary contained herein, a Stockholder
shall not dispose of or otherwise transfer any Voting Securities in violation of
the provisions of Section 5 of the Securities Act.
1.7 No Solicitation. No Stockholder shall propose, solicit or participate
in any fashion, in any transaction relating to an acquisition of, a business
combination or similar transaction with, or a change of control of, the Company
or make or solicit or encourage any Person to make a tender offer for Voting
Securities.
1.8 Legend on Voting Securities. Each Stockholder agrees that each
certificate representing its Voting Securities shall bear the following legend,
which will remain thereon as long as such Voting Securities are subject to the
restrictions contained in this Agreement:
The shares represented by this certificate are subject to the
provisions of a Stockholder Agreement dated as of , 2000, among
the Company and certain Stockholders, and may not be sold or transferred
except in accordance therewith. Copies of said Agreement are on file at the
offices of the Secretary of the Company.
The Company may enter a stop transfer order with the transfer agent (or agents)
and the registrar (or registrars) of the Voting Securities against the transfer
of legended Voting Securities held by a Stockholder except in compliance with
the requirements of this Agreement. The Company agrees to remove promptly any
stop transfer order with respect to, and issue promptly either legended (if the
Voting Securities remain subject to the restrictions of this Agreement) or
unlegended certificates in substitution for, certificates for any such Voting
Securities that are no longer subject to or are to be transferred in compliance
with the restrictions contained in this Agreement. Without limiting the
generality of the foregoing, the Company shall promptly remove any stop transfer
order in effect with respect to such certificates, upon the delivery to the
Company of an opinion of counsel to a Stockholder, in form and substance
reasonably
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satisfactory to the Company, that legended certificates representing Voting
Securities are no longer subject to this Agreement or that such Voting
Securities are being transferred in compliance with the provisions of Sections
1.6, and shall promptly issue unlegended certificates in substitution for such
legended certificates, except if such legended certificates are being
transferred pursuant to Section 1.6 to a transferee who shall be bound by the
terms and conditions of a Stockholder Agreement, in which event the Company may
issue legended certificates.
Section 2. Representations and Warranties.
2.1 Representations and Warranties of the Stockholders. Each Stockholder
represents and warrants to the Company as follows:
(i) At the Effective Time, such Stockholder will be the record and
beneficial owner of the Shares of Common Stock set forth beside its name on
Schedule A hereto (such Stockholder's "Shares") and will be the lawful
owner of such Shares, free and clear of all liens, charges, encumbrances,
voting agreements and commitments of every kind, other than this Agreement.
Such Stockholder has full legal power, authority and right to vote all of
such Stockholder's Shares in the manner required by this Agreement without
the consent or approval of, or any other action on the part of, any other
person or entity.
(ii) The execution, delivery and performance by such Stockholder of
this Agreement has been approved by all necessary action on the part of
such Stockholder.
(iii) This Agreement has been duly executed and delivered by such
Stockholder and constitutes the valid and binding agreement of such
Stockholder, enforceable against the Stockholder in accordance with its
terms.
(iv) The execution, delivery and performance of this Agreement by such
Stockholder does not violate or breach, and will not give rise to any
violation or breach of, any law, contract, instrument, arrangement or
agreement by which such Stockholder is, or any of such Stockholder's Shares
are, bound.
(v) The execution, delivery and performance of this Agreement by such
Stockholder does not create or give rise to any right in any other Person
or entity (other than the Company) with respect to such Stockholder's
Shares or any other Voting Securities.
2.2 Representations and Warranties of the Company. The Company represents
and warrants to each Stockholder as follows:
(i) The execution, delivery and performance by the Company of this
Agreement has been approved by all necessary corporate action on the part
of the Company.
(ii) This Agreement has been duly executed and delivered by a duly
authorized officer of the Company and constitutes a valid and binding
agreement of the Company, enforceable against The Company in accordance
with its terms.
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(iii) The execution and delivery of this Agreement by the Company does
not violate or breach, and will not give rise to any violation or breach
of, the charter or bylaws of the Company, or, except as will not materially
impair its ability to effectuate, carry out or comply with all of the terms
of this Agreement, any law, contract, instrument, arrangement or agreement
by which the Company is bound.
2.3 No Indirect Conduct. No Stockholder shall engage in any conduct or
take any action through any agent or any entity acting in concert with such
Stockholder that the Stockholder has hereby agreed not to engage in or take.
Section 3. Covenants of the Company.
3.1 Registration Rights. During the term and subject to all of the
provisions hereof (including, without limitation Section 1.6(vi)), the Company
agrees to provide registration rights to each Stockholder on the terms and
subject to the provisions set forth in Registration Rights Agreement attached as
Appendix I hereto.
3.2 Access to Management. The Company agrees that so long as a
Stockholder continues to hold 7.5% or more of any class of Voting Securities,
the Company shall provide such Stockholder with an opportunity on a regularly
scheduled basis to review with senior management of the Company, significant
issues facing the Company; provided, however, that such Stockholder shall agree
(i) to maintain the confidentiality of any non-public information disclosed to
such Stockholder in any such session, and (ii) if necessary, refrain from
engaging in any transaction involving the Company's securities (or any other
securities) while in possession of any material non-public information about the
Company disclosed to such Stockholder by the Company in the course of the
Company's complying with the provisions of this Section 3.2.
Section 4. Term of Agreement.
The term of this Agreement shall commence at the Effective Time and shall
terminate with respect to any given Stockholder (but only such Stockholder) when
such Stockholder ceases to hold at least 7.5% of the issued and outstanding
shares of Common Stock (as adjusted for any stock splits, stock dividends,
combinations, recapitalizations, reclassifications or other similar event)
unless the transaction or transactions which resulted in such Stockholder
ceasing to hold at least 7.5% of any Common Stock or Voting Securities shall
have violated the terms of this Agreement. For purposes hereof, ownership of
Common Stock or Voting Securities shall include record ownership of such
securities as well as beneficial ownership thereof within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934, as amended.
Section 5. Miscellaneous.
5.1 Specific Performance. The Company and each Stockholder acknowledge
and agree that irreparable damage would occur in the event any of the provisions
of this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the Company or a
Stockholder, as the case may be, shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically, the terms and provisions hereof in any
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court of the United States or any state thereof having jurisdiction, in addition
to any other remedy to which it may be entitled at law or equity.
5.2 The Term "Company." The term "Company" shall be deemed to include any
successor to the Company by way of merger, consolidation, sale of assets or
otherwise, except as the context otherwise requires, it being the intention
hereof that this Agreement shall continue to be binding on each Stockholder
notwithstanding such merger, consolidation, sale of assets or other succession,
unless the provisions of Section 4.2 of this Agreement shall otherwise provide.
5.3 The Terms "Affiliate," Associate," "Beneficial Owner" "Entity," and
"Person." As used herein, the term "affiliate" shall have the meaning set forth
in Rule 12b-2 under the Exchange Act; the term "beneficial owner" (which shall
include "beneficially owned" or other similar phrasing as used herein) shall
have the meaning set forth in Section 13(d)(3) of the Securities Act; the term
"associate" shall mean (1) a corporation or organization (other than the Company
or a subsidiary of the Company) of which such Person (as defined herein) is an
officer or partner or is, directly or indirectly, the beneficial owner of 10
percent or more of any class of equity securities, (2) any trust or other estate
in which such Person has a substantial beneficial interest or as to which such
Person serves as trustee or in a similar capacity, and (3) any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such Person; and the term "Person" shall mean any individual, partnership,
corporation, joint venture, association, unincorporated organization, trust,
government or agency thereof, or any other entity.
5.4 The Term "Total Voting Power." The term "Total Voting Power," as used
in this Agreement, shall mean the aggregate voting power of all Voting
Securities outstanding at the time of any determination which at such time have
ordinary voting power to vote in the election of directors of the Company. In
determining Total Voting Power for purposes of this Agreement, the Stockholder
may conclusively rely on the most recent reports filed by the Company with the
SEC in which the number of Voting Securities outstanding is set forth or from
which Total Voting Power can reasonably be derived, it being understood that
each Stockholder shall not be considered to be in breach of this Agreement if
he/she has acted in good faith on the basis of a determination of Total Voting
Power as contemplated herein.
5.5 Notices. All notices, requests and other communications to any person
named hereunder shall be in writing (including wire, telex or similar writing)
and shall be given to such person at its address set forth below or such address
or telex number as such person may hereafter specify for the purpose by notice
to the other person:
If to the Company:
CoreComm Limited
110 East 59th Street
26 Floor
New York, NY 10022
Attention: Jared L. Gurfein, Esq.
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Copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Kenneth M. Schneider, Esq.
Facsimile: 212-757-3990
If to any Stockholder, to the most current address of such Stockholder
provided by such Stockholder to the Company in writing.
Each such notice, request or other communication shall be effective (a) if given
by facsimile, when such facsimile is transmitted to the facsimile number
specified in this subsection and the appropriate answer back is received or (b)
if given by any other means, when actually received at the address specified in
this subsection, provided that a notice given other than during normal business
hours on a business day at the place of receipt shall not be effective until the
opening of business on the next business day.
5.6 Governing Law and Jurisdiction. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
AGREEMENTS MADE AND PERFORMED ENTIRELY WITHIN SUCH STATE. THE UNDERSIGNED HEREBY
SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURTS LOCATED WITHIN THE
STATE OF DELAWARE, COUNTY OF NEW CASTLE, AND WAIVES ANY RIGHT TO A TRIAL BY JURY
IN CONNECTION WITH ANY ACTION OR PROCEEDING RELATING HERETO.
5.7 Amendments. This Agreement may be amended, modified or supplemented
only by written agreement of each Stockholder and the Company.
5.8 Waiver. Any failure of any party to comply with any obligation,
covenant, agreement or condition herein may be waived by the party entitled to
the benefit of such obligation, covenant, agreement or condition only by a
written instrument signed by such party, but such waiver or failure to insist
upon strict compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other non-compliance. Wherever this Agreement requires or permits consent by or
on behalf of any party hereto, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this Section 5.8.
5.9 Successors and Assigns. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, including, without
limitation, (i) any person who acquires any interest, beneficial or otherwise,
in Voting Securities by will or pursuant to the laws of descent and distribution
and (ii) any successor trust.
5.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.11 Entire Agreement. This Agreement, including the appendices referred
to herein, embodies the entire agreement and understanding of the parties hereto
in respect
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of the subject matter contained herein. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
5.12 Severability. If any provision of this Agreement shall be deemed or
declared to be unenforceable, invalid or void, the same shall not impair any of
the other provisions of this Agreement.
5.13 Other Rights and Privileges. Except as otherwise specifically set
forth in this Agreement, each Stockholder shall have and enjoy all rights and
privileges otherwise permitted stockholders of the Company under applicable law.
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IN WITNESS WHEREOF, each Stockholder and the Company have duly executed
this Agreement as of day and year first above written.
CORECOMM LIMITED
By:
Name:
Title:
STOCKHOLDERS:
MEDIA/COMMUNICATIONS
PARTNERS II LIMITED PARTNERSHIP
By: M/CP II Limited Partnership,
its general partners
By: M/CP II General Partner-H, Inc.,
a general partner
VOTING AGREEMENT, dated as of March 12, 2000 (the "Agreement"), by and
among CoreComm Limited, a Bermuda corporation ("Parent"), and the Persons listed
on Schedule A hereto (each, a "Shareholder" and, collectively, the
"Shareholders").
WHEREAS, Voyager.net, Inc., a Delaware corporation (the "Company"), and
Parent propose to enter into an Agreement and Plan of Merger in the form
attached hereto as Exhibit A (as amended, the "Merger Agreement"), which
provides for, among other things, the merger of a wholly owned subsidiary of
Parent with and into the Company (the "Merger");
WHEREAS, as of the date hereof, the Shareholders are holders of record or
Beneficially Own (as defined herein) shares of common stock, par value $.01 per
share ("Company Common Stock"), of the Company; and
WHEREAS, as a condition to the willingness of Parent to enter into the
Merger Agreement, Parent has required that each Shareholder agree, and in order
to induce Parent to enter into the Merger Agreement, each Shareholder has
agreed, to enter into this Agreement with respect to all of the shares of
Company Common Stock now held of record or Beneficially Owned and which may
hereafter be acquired by such Shareholder (collectively, the "Shares").
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 General. Capitalized terms used and not defined herein have
the respective meanings ascribed to them in the Merger Agreement.
Section 1.2 Beneficial Ownership. For purposes of this Agreement,
"Beneficially Own" or "Beneficial Ownership" with respect to any securities
shall mean "beneficial ownership" of such securities (as determined pursuant to
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including pursuant to any agreement, arrangement or understanding,
whether or not in writing. Without duplicative counting of the same securities
by the same holder, securities Beneficially Owned by a Shareholder shall include
securities Beneficially Owned by all other Persons (as defined in the Merger
Agreement) with whom such Person would constitute a "group" within the meaning
of Section 13(d) of the Exchange Act other than parties to this Agreement.
ARTICLE II
Section 2.1 Voting Agreement. Each of the Shareholders hereby irrevocably
and unconditionally agrees that during the term of this Agreement as specified
in Section 5.1,
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at any meeting of the shareholders of the Company, however called, and in any
action by consent of the shareholders of the Company, each of the Shareholders
shall vote (or cause to be voted) the Shares held of record (to the extent such
Person also has the right to vote such Shares) or Beneficially Owned (to the
extent such Person also has the right to vote such Shares) by such Shareholder:
(a) in favor of the Merger, the Merger Agreement (provided that the
Merger Agreement shall not have been amended in a manner materially adverse
to the interests of the Shareholders thereunder) and the transactions
contemplated by the Merger Agreement. Each of the Shareholders acknowledges
receipt and review of a copy of the Merger Agreement.
(b) against any Business Combination (as defined below) other than the
Merger. For purposes of this Agreement, "Business Combination" shall mean,
whether effected in one transaction or a series of transactions, or (a) any
merger, consolidation, reorganization or other business combination
pursuant to which the business of the Company is combined with that of one
or more Persons including, without limitation, any joint venture, in
violation of the Merger Agreement, or (b) the acquisition, directly or
indirectly, by another Person of all or a substantial portion of the assets
of, or of any right to all or a substantial portion of the revenues or
income of, the Company by way of a negotiated purchase, lease, license,
exchange, joint venture or other means, in violation of the Merger
Agreement, or (c) the acquisition, directly or indirectly, by another
Person of control of the Company through a proxy contest or otherwise, in
violation of the Merger Agreement, or (d) the acquisition, directly or
indirectly, by another Person of Voting Securities representing more than
15% of the Total Voting Power of the Company.
Section 2.2 Grant of Irrevocable Proxy. In furtherance and not in
limitation of the foregoing, each Shareholder hereby grants to, and appoints,
the Parent and each of Barclay Knapp and Richard Lubasch in their respective
capacities as officers of the Parent, and any individual who shall hereafter
succeed any such officer of the Parent, and any other designee of the Parent,
each of them individually, its irrevocable proxy and attorney-in-fact (with full
power of substitution and resubstitution) to vote the Shares as indicated in
this Article II. Each Shareholder intends this proxy to be irrevocable and
coupled with an interest and will take such further action and execute such
other instruments as may be necessary to effectuate the intent of this proxy.
Section 2.3 The Terms "Total Voting Power" and "Voting Securities". The
term "Total Voting Power," as used in this Agreement, shall mean the aggregate
voting power of all Voting Securities outstanding at the time of any
determination which at such time have ordinary voting power to vote in the
election of directors of the Company. For the purposes of this Agreement,
"Voting Securities" means all securities of the Company, or any successor to the
Company, entitling the holder thereof to vote as a shareholder for any purpose
or under any circumstance or any securities convertible into or exchangeable for
under any circumstance such securities or any rights, warrants or options to
acquire (through purchase, exchange, conversion or otherwise) any such
securities under any circumstance.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each of the Shareholders hereby represents and warrants, severally and not
jointly, to Parent as follows:
Section 3.1 Authority Relative to this Agreement. Such Shareholder has
all necessary power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. Where such Shareholder is a corporation, limited liability
company, partnership or other entity, the execution and delivery of this
Agreement by such Shareholder and the consummation by such Shareholder of the
transactions contemplated hereby have been duly and validly authorized by the
board of directors or other governing body of such Shareholder, and no other
proceedings on the part of such Shareholder are necessary to authorize this
Agreement or to consummate such transactions. This Agreement has been duly and
validly executed and delivered by such Shareholder and constitutes a legal,
valid and binding obligation of such Shareholder, enforceable against such
Shareholder in accordance with its terms, except to the extent enforceability
may be limited by bankruptcy, insolvency, moratorium or other laws affecting
creditors' rights generally or by general principles governing the availability
of equitable remedies.
Section 3.2 No Conflict.
(a) The execution and delivery of this Agreement by such Shareholder does
not, and the performance of this Agreement by such Shareholder shall not, (i)
where such Shareholder is a corporation, limited liability company, partnership
or other entity, conflict with or violate the organizational documents of such
Shareholder, (ii) conflict with or violate any agreement, arrangement, law,
rule, regulation, order, judgment or decree to which such Shareholder is a party
or by which such Shareholder (or the Shares held of record or Beneficially Owned
by such Shareholder) is bound or affected or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the Shares held of record or Beneficially Owned by such
Shareholder pursuant to any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which such Shareholder is a party or by which such Shareholder (or the Shares
held of record or Beneficially Owned by such Shareholder) is bound or affected,
except, in the case of clauses (ii) and (iii) of this Section 3.2(a), for any
such conflicts, violations, breaches, defaults or other occurrences which would
not prevent or delay the performance by such Shareholder of its obligations
under this Agreement.
(b) The execution and delivery of this Agreement by such Shareholder does
not, and the performance of this Agreement by such Shareholder shall not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental entity except for applicable requirements, if
any, of the Exchange Act, and except where the failure to obtain such consents,
approvals, authorizations or permits, or
A-102
to make such filings or notifications, would not prevent or delay the
performance by such Shareholder of its obligations under this Agreement.
Section 3.3 Title to the Shares. As of the date hereof, such Shareholder
is the record or Beneficial Owner of the number of Shares listed opposite the
name of such Shareholder on Schedule A hereto. The Shares listed opposite the
name of such Shareholder on Schedule A hereto are all the securities of the
Company either held of record or Beneficially Owned by such Shareholder. Such
Shareholder has not appointed or granted any proxy, which appointment or grant
is still effective, with respect to the Shares held of record or Beneficially
Owned by such Shareholder. Each Shareholder has the right to vote or cause to be
voted each of the Shares listed opposite the name of such Shareholder on
Schedule A hereto and such Shares are owned free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on such Shareholder's voting rights, charges and other encumbrances
of any nature whatsoever.
ARTICLE IV
COVENANTS OF THE SHAREHOLDERS
Section 4.1 No Inconsistent Agreement or Action. Each of the Shareholders
hereby covenants and agrees that such Shareholder shall not, or permit any
Person under such Shareholder's control to, enter into any voting agreement or
grant a proxy or power of attorney with respect to the Shares held of record or
Beneficially Owned by such Shareholder or form any "group" for purposes of the
Exchange Act or the rules promulgated thereunder. No Shareholder shall (i)
solicit, initiate, encourage (including by way of furnishing information or
assistance) or take any other action to facilitate, any inquiry or the making of
any proposal which constitutes, or may reasonably be expected to lead to, any
Acquisition Proposals (as defined in the Merger Agreement) or agree to or
endorse any Acquisition Proposal, (ii) propose, enter into or participate in any
discussions or negotiations regarding any of the foregoing, (iii) furnish to any
other Person any information with respect to the Company's business, properties
or assets or (iv) otherwise cooperate in any way with, or assist or participate
in, facilitate or encourage, any effort or attempt by any other Person to do or
seek any of the foregoing, provided, without limiting any of the obligations of
any Shareholder under this Agreement in his capacity as a shareholder of the
Company, any Shareholder acting solely in his capacity as a director of the
Company may take any of the actions that are expressly permitted by Section 7.1
of Merger Agreement.
Section 4.2 Transfer of Title. Each of the Shareholders hereby covenants
and agrees that such Shareholder shall not (i) tender any Shares, (ii) sell,
assign or transfer record or Beneficial Ownership of any of the Shares, or (iii)
pledge, hypothecate or otherwise dispose of any Shares.
Section 4.3 Stockholders Agreement. Each of the Shareholders hereby
covenants and agrees that each Shareholder that will hold 7.5% or more of the
issued and outstanding shares of common stock of Parent upon consummation of the
Merger shall
A-103
enter into the Stockholders Agreement substantially in the form of Exhibit C
attached to the Merger Agreement at the closing of the Merger. For purposes
hereof, ownership of Common Stock shall include record ownership of such
securities as well as beneficial ownership thereof within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934, as amended.
ARTICLE V
MISCELLANEOUS
Section 5.1 Termination. This Agreement shall be effective as of the date
of this Agreement and shall terminate upon the earliest to occur of:
(i) the closing of the transactions contemplated by the Merger
Agreement;
(ii) the date the Merger Agreement is terminated, if such termination
is by the Company pursuant to Section 10.1(h) of the Merger Agreement;
(iii) the date the Merger Agreement is terminated, if such termination
is by mutual consent pursuant to Section 10.1(a) of the Merger Agreement;
(iv) the date the Merger Agreement is terminated, if such termination
is by either Parent or the Company pursuant to Section 10.1(b)(ii) of the
Merger Agreement;
(v) the date the Merger Agreement is terminated, if such termination is
by the Company pursuant to Section 10.1(f);
(vi) the date the Merger Agreement is terminated, if such termination
is by the Company pursuant to Section 10.1(i);
(vii) the date the Merger Agreement is terminated, if such termination
is by either Parent or the Company pursuant to Section 10.1(b)(i) of the
Merger Agreement due to the failure to obtain the required approval of the
stockholders of Parent, which approval is required to be obtained under
Section 9.1(a) of the Merger Agreement; and
(viii) 180 days after the date the Merger Agreement is terminated in
accordance with its terms, other than as set forth in clauses (ii) through
(vii) inclusive, above.
Section 5.2 Additional Shares. If, after the date hereof, a Shareholder
acquires the right to vote any additional shares of Company Common Stock (any
such shares shall be referred to herein as "Additional Shares"), including,
without limitation, upon exercise of any option, warrant or right to acquire
shares of Company Common Stock or through any stock dividend or stock split, the
provisions of this Agreement applicable to the Shares shall be applicable to
such Additional Shares as if such Additional Shares had been Shares as of the
date hereof. The provisions of the immediately preceding sentence shall be
effective with respect to Additional Shares without action by any Person
immediately upon the acquisition by a Shareholder of record or Beneficial
Ownership of such Additional Shares.
A-104
Section 5.3 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
Section 5.4 Entire Agreement. This Agreement constitutes the entire
agreement between Parent and the Shareholders with respect to the subject matter
hereof and supersedes all prior agreements and understandings, both written and
oral, between Parent and the Shareholders with respect to the subject matter
hereof.
Section 5.5 Amendment and Waiver. No alteration, waiver, amendment or
supplement of this Agreement shall be binding or effective unless the same is
set forth in an instrument in writing signed by the parties hereto. The waiver
or failure to insist upon strict compliance with any condition or provision
hereof shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other waiver or failure.
Section 5.6 Severability. If any term or other provision of this
Agreement is held to be invalid, illegal or unenforceable, all other conditions
and provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of this Agreement is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereby shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible to the fullest extent permitted by applicable law in a mutually
acceptable manner in order that the terms of this Agreement remain as originally
contemplated.
Section 5.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed entirely within such state.
Section 5.8 Waiver of Jury Trial. Parent and each Shareholder hereby
irrevocably waives, to the fullest extent permitted by law, all rights to trial
by Jury in any action, proceeding or counterclaim (whether based on contract,
tort or otherwise) arising out of or relating to this Agreement or any of the
transactions contemplated hereby.
Section 5.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one and the same instrument.
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IN WITNESS WHEREOF, each of the Shareholders and Parent have caused this
Agreement to be duly executed as of the date first written above.
CORECOMM LIMITED
By: /s/ RICHARD J. LUBASCH
------------------------------------
Name: Richard J. Lubasch
Title: Senior Vice President --
General Counsel
THE SHAREHOLDERS
MEDIA/COMMUNICATIONS
PARTNERS II LIMITED PARTNERSHIP
By: M/CP II Limited Partnership,
its general partner
By: M/CP II General Partner-H, Inc.,
a general partner
By: /s/ JOHN G. HAYS
------------------------------------
Name: John G. Hays
Title:
By: /s/ JOHN G. HAYS
------------------------------------
Name: John G. Hays
Title:
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APACHE HOLDINGS II LIMITED
PARTNERSHIP
By: /s/ GLENN R. FRIEDLY
------------------------------------
Name: Glenn R. Friedly
Title: Managing General Partner
APACHE HOLDINGS LIMITED
PARTNERSHIP
By: /s/ GLENN R. FRIEDLY
------------------------------------
Name: Glenn R. Friedly
Title: Managing General Partner
/s/ GLENN R. FRIEDLY
--------------------------------------
Glenn R. Friedly
/s/ CHRISTOPHER P. TORTO
--------------------------------------
Christopher P. Torto
A-107
SCHEDULE A
NAME OF SHAREHOLDER NUMBER OF SHARES
------------------- -------------------
Media/Communications Partners II Limited Partnership........ 13,761,243
Media/Communications Investors Limited Partnership.......... 426,256
Apache Holdings II Limited Partnership...................... 2,853,078
Apache Holdings Limited Partnership......................... 310,000
Glenn R. Friedly............................................ 868,000
Christopher R. Torto........................................ 1,994,000
----------
20,212,577
A-108
ANNEX B
RECAPITALIZATION AGREEMENT AND
PLAN OF MERGER
BY AND AMONG
ATX TELECOMMUNICATIONS SERVICES, INC.,
THOMAS GRAVINA, DEBRA BURUCHIAN, MICHAEL KARP AND THE FLORENCE KARP TRUST
AND
CORECOMM LIMITED
DATED AS OF MARCH 9, 2000
TABLE OF CONTENTS
PAGE
----
I. THE MERGER.......................................................... B-6
1.1 The Formation of ATX Merger Sub, CoreComm Merger Sub and the
Merger...................................................... B-6
1.2 The Recapitalization........................................ B-8
1.3 Conversion of CoreComm Common Stock......................... B-15
1.4 Exchange of Certificates.................................... B-16
1.5 Directors and Officers of Surviving Corporation............. B-18
1.6 Directors and Officers of ATX............................... B-18
II. CLOSING............................................................ B-19
2.1 Closing..................................................... B-19
III. REPRESENTATIONS AND WARRANTIES OF ATX AND ATX MERGER SUB.......... B-19
3.1 Organization, Etc. ......................................... B-19
3.2 Authorization............................................... B-21
3.3 Capitalization.............................................. B-21
3.4 No Violation................................................ B-22
3.5 Financial Statements........................................ B-23
3.6 No Undisclosed or Contingent Liabilities.................... B-24
3.7 Absence of Certain Changes.................................. B-24
3.8 Litigation, Orders.......................................... B-25
3.9 Title to Properties; Encumbrances........................... B-26
3.10 Compliance with Law; Licenses............................... B-26
3.11 Taxes....................................................... B-28
3.12 Consents and Approvals...................................... B-29
3.13 Contracts and Commitments................................... B-29
3.14 Insurance................................................... B-31
3.15 Certain Interests........................................... B-31
3.16 Intellectual Property....................................... B-31
3.17 Employee Benefit Plans...................................... B-31
3.18 Labor Matters............................................... B-33
3.19 Environmental Protection.................................... B-33
3.20 Brokers or Finders.......................................... B-33
3.21 Accounting and Tax Matters.................................. B-34
3.22 Registration Statement; Proxy Statement/Prospectus.......... B-34
3.23 Non-Competition Agreements.................................. B-34
3.24 Customers................................................... B-34
B-1
PAGE
----
3.25 Legal Opinion............................................... B-34
3.26 Full Disclosure............................................. B-34
3.27 No Other Representations or Warranties...................... B-35
IV. REPRESENTATIONS AND WARRANTIES OF CORECOMM......................... B-35
4.1 Organization, Etc. ......................................... B-35
4.2 Authorization............................................... B-35
4.3 Capitalization.............................................. B-36
4.4 No Violation................................................ B-36
4.5 SEC Filings; Financial Statements........................... B-37
4.6 Absence of Certain Changes.................................. B-37
4.7 Consents and Approvals...................................... B-38
4.8 Brokers or Finders.......................................... B-38
4.9 Accounting and Tax Matters.................................. B-38
4.10 Registration Statement; Proxy Statement/Prospectus.......... B-38
4.11 Fairness Opinion............................................ B-39
4.12 Legal Opinion............................................... B-39
4.13 No other Representations or Warranties...................... B-39
V. OBLIGATIONS OF ATX AND CORECOMM..................................... B-39
5.1 Other Transactions.......................................... B-39
5.2 Supplemental Disclosure..................................... B-39
5.3 Conduct of Business......................................... B-40
5.4 Confidentiality............................................. B-42
5.5 Proxy Statement/Prospectus; Registration Statement.......... B-42
5.6 Stockholders' Meeting....................................... B-42
5.7 Cooperation; Regulatory Filings............................. B-43
5.8 Public Announcements........................................ B-45
5.9 Effect of Due Diligence..................................... B-45
5.10 Letters from Accountants; New Financial Statements.......... B-45
5.11 Nasdaq Application.......................................... B-46
5.12 Stock Plans and Options..................................... B-46
5.13 Access and Investigations................................... B-47
5.14 Communications Licenses and Authorizations.................. B-47
5.15 FCC/State PUC Applications.................................. B-47
5.16 Stockholders Agreement...................................... B-48
5.17 Transition Services Agreement............................... B-48
5.18 Reincorporation and Acquisition............................. B-48
B-2
PAGE
----
5.19 Termination of Agreements................................... B-48
5.20 Escrow Agreements........................................... B-49
5.21 Phantom Unit Plan........................................... B-49
5.22 Name........................................................ B-49
5.23 Existing Stockholders' Agreement............................ B-49
5.24 Negotiation of Term Sheets.................................. B-49
5.25 Operating Subsidiaries...................................... B-49
5.26 Subchapter S Election....................................... B-49
5.27 Assignment of Reimbursement Rights.......................... B-49
5.28 Certificate of Incorporation, Etc. ......................... B-50
5.29 CoreComm Transactions....................................... B-50
5.30 Protective Agreements....................................... B-50
5.31 Key Employee Employment Agreements.......................... B-50
5.32 Gravina and Buruchian Employment Agreements................. B-50
5.33 Transaction Not Subject to Outside Conditions............... B-50
5.34 Working Capital Loans....................................... B-50
VI. CONDITIONS TO OBLIGATIONS OF CORECOMM.............................. B-51
6.1 Representations and Warranties.............................. B-51
6.2 Performance................................................. B-51
6.3 No Proceeding or Litigation................................. B-51
6.4 No Injunction............................................... B-51
6.5 Officer's Certificates...................................... B-51
6.6 Consents and Approvals...................................... B-51
6.7 HSR Act..................................................... B-52
6.8 No Material Adverse Change.................................. B-52
6.9 Stockholder Approval........................................ B-52
6.10 FCC/State PUC Consents...................................... B-52
6.11 Registration Statement...................................... B-52
6.12 Transition Services Agreement............................... B-52
6.13 Resignations................................................ B-52
6.14 The GAAP Financial Statements of ATX........................ B-52
6.15 Stockholders' Agreement..................................... B-52
6.16 NASDAQ Listing.............................................. B-52
6.17 Formation of ATX Merger Sub................................. B-52
6.18 Escrow Agreement............................................ B-52
6.19 Opinions of Counsel......................................... B-53
B-3
PAGE
----
6.20 Corporate Governance........................................ B-53
6.21 Necessary Consents.......................................... B-53
6.22 Existing Stockholders' Agreement............................ B-53
6.23 Employment Matters.......................................... B-53
VII. CONDITIONS TO OBLIGATIONS OF ATX.................................. B-53
7.1 Representations and Warranties.............................. B-54
7.2 Performance................................................. B-54
7.3 No Proceeding or Litigation................................. B-54
7.4 No Injunction............................................... B-54
7.5 Officer's Certificate....................................... B-54
7.6 Consents and Approvals...................................... B-54
7.7 HSR Act..................................................... B-55
7.8 Registration Rights Agreement............................... B-55
7.9 FCC/State PUC Consents...................................... B-55
7.10 No Material Adverse Change.................................. B-55
7.11 Registration Statement...................................... B-55
7.12 Tax Opinion................................................. B-55
7.13 Letters of Credit........................................... B-55
VIII. TERMINATION OF AGREEMENT......................................... B-55
8.1 Termination of Agreement.................................... B-55
8.2 Procedure Upon Termination.................................. B-56
IX. INDEMNIFICATION.................................................... B-56
9.1 Indemnification by ATX Stockholders......................... B-56
9.2 Procedures for Indemnification.............................. B-57
9.3 Cooperation in Defense...................................... B-59
9.4 Limitations on Indemnification by ATX Stockholders.......... B-59
9.5 Mitigation of Losses........................................ B-59
9.6 Exclusivity................................................. B-60
9.7 Indemnification Escrow...................................... B-60
X. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.......................... B-60
10.1 ATX, ATX Merger Sub and ATX Stockholders.................... B-60
10.2 CoreComm.................................................... B-60
XI. MISCELLANEOUS...................................................... B-61
11.1 Expenses.................................................... B-61
11.2 Further Assurances.......................................... B-61
11.3 Parties in Interest......................................... B-61
B-4
PAGE
----
11.4 Entire Agreement, Amendments and Waiver..................... B-61
11.5 Interpretation.............................................. B-61
11.6 Notices..................................................... B-62
11.7 Governing Law............................................... B-62
11.8 Submission to Jurisdiction; Waivers......................... B-62
11.9 Third Parties............................................... B-63
11.10 Severability................................................ B-63
11.11 Counterparts................................................ B-63
XII. DEFINED TERMS..................................................... B-63
12.1 Location of Certain Defined Terms........................... B-63
12.2 Other Defined Terms......................................... B-68
XIII. ATX STOCKHOLDER COVENANTS........................................ B-69
13.1 No Transfers................................................ B-69
13.2 Cooperation; No Solicitation................................ B-69
Exhibit A -- Convertible Preferred Stock Term Sheet
Exhibit B -- Form of Short Term Senior Notes Term Sheet
Exhibit C -- Form of Stockholders Agreement
Exhibit D -- Form of Transition Services Agreement
Exhibit E -- Lease Amendments
Exhibit F -- Phantom Unit Plan Matters
Exhibit G -- Registration Rights Agreement
Exhibit H -- Required Consents
Exhibit I -- Employment Issues
Exhibit J -- Collar Stock Price Example
B-5
RECAPITALIZATION AGREEMENT AND PLAN OF MERGER
RECAPITALIZATION AGREEMENT AND PLAN OF MERGER, dated as of March 9, 2000,
by and among ATX Telecommunications Services, Inc., a Delaware corporation
("ATX"), CoreComm Limited, a Bermuda corporation ("CoreComm"), Thomas Gravina
("Gravina"), Debra Buruchian ("Buruchian"), Michael Karp ("Karp") and The
Florence Karp Trust (the "Karp Trust" and, collectively with Gravina, Buruchian
and Karp, the "ATX Stockholders").
RECITALS
WHEREAS, the Boards of Directors of ATX, and CoreComm, respectively, deem
it advisable and in the best interests of ATX, CoreComm and their respective
stockholders that ATX and CoreComm combine in order to advance the long-term
business interests of ATX and CoreComm;
WHEREAS, the combination of ATX and CoreComm shall be effected by the terms
of this Recapitalization Agreement and Plan of Merger (the "Agreement") through
the Merger (of CoreComm Merger Sub (as defined herein) and ATX Merger Sub (as
defined herein)) and the Recapitalization (each as defined herein) of ATX; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
and Recapitalization shall qualify as exchanges within the meaning of Section
351 of the Internal Revenue Code of 1986, as amended (the "Code") and as
reorganizations within the meaning of Section 368(a) of the Code.
WHEREAS, the Boards of Directors of ATX and CoreComm have approved this
Agreement and each of the documents required to be executed in connection with
this Agreement to which it is a party.
Accordingly, in consideration of the representations, warranties, covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
I. THE MERGER
1.1 The Formation of ATX Merger Sub, CoreComm Merger Sub and the Merger.
(a) As promptly as practicable following the execution of this Agreement,
ATX shall cause to be organized for the sole purpose of effectuating the Merger
contemplated herein a corporation organized under the laws of the State of
Delaware ("ATX Merger Sub"). As promptly as practicable following the execution
of this Agreement, CoreComm shall cause to be organized for the sole purpose of
effecting the Domestication Merger (as defined in Section 1.1(d) below) and the
Merger contemplated herein, a corporation organized under the laws of the State
of Delaware ("CoreComm Merger Sub"). The respective certificates of
incorporation and Bylaws of each of ATX Merger Sub and CoreComm Merger Sub shall
be in such forms as shall be mutually determined by ATX and CoreComm as soon as
practicable following the execution of this Agreement and the authorized capital
stock of each of ATX Merger
B-6
Sub and CoreComm Merger Sub shall initially consist of 100 shares of common
stock, par value $0.01 per share. All of the outstanding shares of ATX Merger
Sub shall be issued to ATX at a price of $1.00 per share and all of the
outstanding shares of CoreComm Merger Sub shall be issued to CoreComm at a price
of $1.00 per share.
(b) As promptly as practicable following the execution of this Agreement,
ATX (with respect to ATX Merger Sub) and CoreComm (with respect to CoreComm
Merger Sub) shall take all requisite action to designate the directors and
officers of ATX Merger Sub and CoreComm Merger Sub and take such steps as may be
necessary or appropriate to complete the organization of ATX Merger Sub and
CoreComm Merger Sub. ATX shall cause the directors of ATX Merger Sub to ratify
and approve this Agreement. CoreComm shall cause the directors of CoreComm
Merger Sub to ratify and approve this Agreement.
(c) As promptly as practicable following the organization of ATX Merger
Sub, ATX, as the sole stockholder of ATX Merger Sub, shall cause ATX Merger Sub
to adopt this Agreement and to perform its obligations under this Agreement. As
promptly as practicable following the organization of CoreComm Merger Sub,
CoreComm, as the sole stockholder of CoreComm Merger Sub shall cause CoreComm
Merger Sub to adopt this Agreement and to perform its obligations under this
Agreement. As promptly as practicable after the organization of ATX Merger Sub
and CoreComm Merger Sub, the parties shall cause this Agreement to be amended to
add ATX Merger Sub and CoreComm Merger Sub as parties hereto. Such amendment
shall provide for the making by ATX Merger Sub of those representations and
warranties equivalent to those set forth in Article 3 hereof that apply to ATX
Merger Sub, and covenants and obligations equivalent to those set forth in
Article 5 hereof that apply to ATX Merger Sub, and ATX Merger Sub and CoreComm
Merger Sub shall each become a constituent corporation in the Merger.
(d) Immediately prior to the Merger, CoreComm shall amalgamate and merge
with and into CoreComm Merger Sub (the "Domestication Merger"), subject to
compliance with applicable provisions of the Delaware General Corporation Law
(the "DGCL") and the laws of Bermuda. As a result of the Domestication Merger,
each issued and outstanding share of CoreComm Common Stock shall become and
represent one share of common stock, par value $.01 per share ("CoreComm Merger
Sub Common Stock"), of CoreComm Merger Sub, and the independent existence of
CoreComm shall cease. Prior to the consummation of the Domestication Merger,
CoreComm, as sole stockholder of CoreComm Merger Sub, shall adopt this
Agreement. Unless the context otherwise requires, all references in this
Agreement to CoreComm shall be deemed to mean CoreComm prior to the consummation
of the Domestication Merger and CoreComm Merger Sub following the consummation
of the Domestication Merger, and all references to CoreComm Common Stock shall
be deemed to mean the CoreComm Common Stock prior to the consummation of the
Domestication Merger and CoreComm Merger Sub Common Stock after the consummation
of the Domestication Merger.
B-7
(e) Subject to the provisions of this Agreement, a certificate of merger
(the "Certificate of Merger") in such form as is required by the relevant
provisions of the DGCL shall be duly prepared, executed and acknowledged by the
appropriate parties and thereafter delivered to the Secretary of State of the
State of Delaware for filing, as provided in the DGCL, on the Closing Date (as
defined in Section 2.1). The Merger shall become effective upon the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
(the "Effective Time").
(f) At the Effective Time, the separate existence of ATX Merger Sub shall
cease and ATX Merger Sub shall be merged (the "Merger") with and into CoreComm
Merger Sub (ATX Merger Sub and CoreComm Merger Sub are sometimes referred to
herein as the "Constituent Corporations" and CoreComm Merger Sub is sometimes
referred to herein as the "Surviving Corporation"). The Certificate of
Incorporation of CoreComm Merger Sub as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by the DGCL, the Bylaws of
CoreComm Merger Sub as in effect immediately prior to the Effective Time shall
be the Bylaws of the Surviving Corporation until thereafter amended as provided
by the DGCL, the Certificate of Incorporation and such Bylaws.
(g) At and after the Effective Time, the effect of the Merger shall be as
provided in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing, and subject thereto, the Surviving Corporation
shall possess all the rights, privileges, powers and franchises of a public as
well as of a private nature, and be subject to all the restrictions,
disabilities and duties of each of the Constituent Corporations; and all and
singular rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, and all debts due to
either of the Constituent Corporations on whatever account, as well as for stock
subscriptions and all other things in action or belonging to each of the
Constituent Corporations, shall be vested in the Surviving Corporation, and all
property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter the property of the Surviving Corporation as they
were of the Constituent Corporations, and the title to any real estate vested by
deed or otherwise, in either of the Constituent Corporations, shall not revert
or be in any way impaired; but all rights of creditors and all liens upon any
property of either of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities and duties of the Constituent
Corporations shall thereafter attach to the Surviving Corporation, and may be
enforced against it to the same extent as if such debts and liabilities had been
incurred by it.
1.2 The Recapitalization.
(a) Simultaneously with the Merger, ATX shall recapitalize (the
"Recapitalization") by causing the ATX Stockholders to exchange, and the ATX
Stockholders agree to exchange, all of the issued and outstanding shares of
pre-Recapitalization ATX
B-8
common stock, par value $.01 per share ("ATX Common Stock") for the following
aggregate consideration:
(i) That number of shares of ATX Common Stock equal to $500 million
divided by the Base Stock Price. The "Base Stock Price" shall be equal to
$40.328, subject to the Base Adjustments as defined below.
The number of shares of ATX Common Stock to be received by the ATX
Stockholders in connection with the Recapitalization will be subject to a collar
mechanism as follows: in the event that the volume weighted average trading
price of CoreComm Common Stock for the ten trading days ending with the last
trading day prior to the Closing Date (the "Closing Stock Price") is greater
than the Collar Stock Price (as defined below), then the number of shares of ATX
Common Stock to be issued to the ATX Stockholders pursuant to the
Recapitalization will be adjusted such that the aggregate value (based on the
Closing Stock Price) of the ATX Common Stock received by the ATX Stockholders is
equal to the aggregate value (based on the Closing Stock Price) of ATX Common
Stock they would have been entitled to receive if the Closing Stock Price were
equal to the Collar Stock Price.
The "Collar Stock Price" shall be the Base Stock Price multiplied by the
Collar Percentage. The Collar Percentage shall be equal to 115%, subject to the
following adjustments: If (1) the Closing has not occurred on or prior to July
15, 2000, (2) subsequent to the date of this Agreement, CoreComm has engaged in
a transaction (other than transactions contemplated by this Agreement, which
shall not be deemed to include the potential transaction referred to in Section
5.18 or any transaction which would result in a Base Adjustment) (a "CoreComm
Transaction") that would (x) require the approval of the stockholders of
CoreComm or, (y) require CoreComm to include the information relating to such
transaction in the pro forma financial statements (the "Pro Formas") that are
required to be contained in the Registration Statement or (z) require CoreComm
to amend or restate the Pro Formas in any material manner, and (3) all
conditions to Closing have been satisfied (or waived by the party entitled to
waive such condition) or are capable of being satisfied on such date with
reasonable best efforts, other than the conditions set forth in Sections 6.10
and/or 6.11, and the failure of either such condition to be satisfied is the
direct result of a CoreComm Transaction, then, commencing on the later to occur
of (i) July 16, 2000 and (ii) the first business day after which the
circumstances set forth in clause (3) are present (such later date being the
"Trigger Day") the Collar Percentage shall be increased as follows: 2.5
percentage points on the Trigger Day, and an additional five percentage points
per each 31 day period (a "Monthly Period") (on a pro rata basis, based on the
actual number of elapsed days in such Monthly Period at the Closing Date)
beginning on the sixteenth calendar day following the Trigger Day. An example of
this calculation is set forth on Exhibit J.
The "Base Adjustments" shall be as follows: (i) if, after the date of this
Agreement and on or prior to the Closing Date the outstanding shares of CoreComm
Common Stock shall be changed into a different number of shares by reason of any
reclassification, recapitalization, stock split, reverse stock split,
combination or exchange
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of shares, or any dividend payable in CoreComm Common Stock shall be declared
thereon with a record date within such period, or any similar event shall occur,
the Base Stock Price shall be adjusted accordingly to provide to the ATX
Stockholders the same economic effect as contemplated by this Agreement prior to
such reclassification, recapitalization, stock split, reverse stock split,
combination, exchange, dividend or similar event; and (ii) if, after the date of
this Agreement and on or prior to the Closing Date, CoreComm shall distribute to
all holders of CoreComm Common Stock shares of capital stock of CoreComm other
than CoreComm Common Stock, evidences of indebtedness or other assets (other
than cash dividends out of current or retained earnings), or shall distribute to
substantially all holders of Common Stock rights or warrants to subscribe for
securities (other than those referred to in subsection (i) above), then in each
such case the Base Stock Price shall be multiplied by a fraction of which the
numerator shall be the Current Market Price (as defined below) of the CoreComm
Common Stock on the record date less the then fair market value (as determined
by the CoreComm Board of Directors, whose determination shall be conclusive
evidence of such fair market value (absent manifest error) and described in a
board resolution) of the portion of the assets so distributed or of such
subscription rights or warrants applicable to one share of CoreComm Common Stock
and of which the denominator shall be the Current Market Price of the CoreComm
Common Stock. The "Current Market Price" shall mean the volume weighted average
trading price of CoreComm Common Stock for the ten prior trading days. CoreComm
may only effect a distribution described under (ii) above, if such distribution
does not include operating assets that are required to maintain the current
operating businesses of CoreComm, Inc. (a subsidiary of CoreComm), other than
the local multipoint distribution service licenses and related assets.
(ii) 250,000 shares of ATX Series 3% Senior Convertible Exchangeable
Preferred Stock, par value $.01 per share ("ATX Convertible Preferred Stock"),
with such rights and preferences as set forth in the term sheet attached hereto
as Exhibit A setting forth the terms and conditions of the ATX Convertible
Preferred Stock; and
(iii) $150 million in cash (the "Cash Consideration") (subject to certain
adjustments set forth herein) (collectively with the ATX Common Stock and the
ATX Convertible Preferred Stock, the "Exchange Consideration"); provided,
however, that in the event CoreComm has not completed a debt or equity financing
(including a public or private sale of equity securities or an institutional
debt financing) prior to the Closing Date, at CoreComm's election, the aggregate
amount of Cash Consideration to be paid by CoreComm to the ATX Stockholders may
be reduced by up to $70 million and such portion of the Cash Consideration shall
be paid through the issuance of short term senior notes with such terms and
conditions as set forth in the term sheet attached hereto as Exhibit B.
(b) ATX shall prepare as of a date not more than five (5) business days
prior to the Closing Date, an unaudited consolidated balance sheet (estimated as
of the Closing Date) and unaudited statements of income and cash flows of ATX
for the period from the ATX Balance Sheet Date to the date of such statements
(the "Pre-Closing Financial Statements") from the GAAP Audited Financials and
the books and records of ATX in
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accordance with GAAP (applied on a consistent basis using the same accounting
methods, policies, practices, principles and procedures with consistent
classifications, judgments and estimation methodologies used in preparation of
the GAAP Audited Financials) and shall set forth the Working Capital ("Estimated
Closing Working Capital"), the ATX Debt (the "Estimated Closing ATX Debt") and
the estimated capital expenditures made by ATX during such period (the
"Estimated Closing Capital Expenditures"). To the extent ATX intends to make
distributions at Closing as permitted by Section 1.2(j), such intended
distributions shall be included in the Pre-Closing Financial Statements on a
pro-forma basis. ATX shall provide a copy of the Pre-Closing Financial
Statements to CoreComm within three (3) days of its completion.
In the event that the Pre-Closing Financial Statements reflect that the
Estimated Closing Working Capital is less than zero (such deficiency, the
"Working Capital Shortfall"), then the Exchange Consideration shall be reduced
(subject to the calculation of the Final Closing Financial Statements) by an
amount equal to the excess of zero over the Estimated Closing Working Capital.
If the Pre-Closing Financial Statements reflect that the Estimated Closing
Working Capital is greater than zero (such excess, the "Working Capital Excess")
then the Exchange Consideration shall be increased (subject to the calculation
of the Final Closing Financial Statements) by an amount equal to the amount of
the Working Capital Excess. The Working Capital Shortfall or Working Capital
Excess, as applicable, shall be the "Pre-Closing Working Capital Adjustment."
In the event that the Pre-Closing Financial Statements reflect that
Estimated Closing ATX Debt is greater than zero, then the Exchange Consideration
shall be reduced (subject to the calculation of the Final Closing Financial
Statements) by an amount equal to the Estimated Closing ATX Debt.
In the event that the Pre-Closing Financial Statements reflect that the
Capital Expenditure Adjustment, as calculated using the Estimated Closing
Capital Expenditures from the Pre-Closing Financial Statements, is greater than
zero (such amount, the "Pre-Closing Capital Expenditure Adjustment"), then the
Exchange Consideration shall be reduced (subject to a calculation of the final
Closing Financial Statements) by an amount equal to the Pre-Closing Capital
Expenditure Adjustment.
(c) Within ninety (90) days after the Closing Date (the "Closing Financial
Statements Delivery Date"), ATX shall cause to be prepared and delivered to the
Stockholder Representative (as defined below) a proposed unaudited balance sheet
and proposed unaudited statements of income and cash flows (the "Proposed
Closing Financial Statements") prepared in accordance with GAAP (applied on a
consistent basis using the same accounting methods, policies, practices,
principles and procedures with consistent classifications, judgments and
estimation methodologies that were used in preparation of the GAAP Audited
Financials) setting forth the Working Capital of ATX and ATX Debt as of the
Closing Date and Capital Expenditures of ATX for the period from the ATX Balance
Sheet Date through the Closing Date. For purposes of this Section 1.2, the
Stockholder Representative shall mean BDO Seidman, LLP.
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(d) The Stockholder Representative shall have a period of thirty (30) days
(the "Review Period") from the date on which ATX delivers the Proposed Closing
Financial Statements to the Stockholder Representative pursuant to Section
1.2(c), to review the Proposed Closing Financial Statements. If, prior to the
expiration of the Review Period, the Stockholder Representative does not deliver
a Dispute Notice (as defined below) to ATX, the unaudited balance sheet and
unaudited statements of income and cash flows included in the Proposed Closing
Financial Statements shall be deemed to be final and binding upon ATX and the
ATX Stockholders for purposes of determining the Working Capital of ATX and the
ATX Debt as of the Closing Date and the Capital Expenditures of ATX for the
period from the ATX Balance Sheet Date through the Closing Date for purposes of
this Agreement. The unaudited balance sheet and unaudited statements of income
and cash flows included in the Proposed Closing Financial Statements shall not
become final and binding at the end of the Review Period if, prior to the
expiration of the Review Period, the Stockholder Representative delivers a
written notice to ATX (the "Dispute Notice") setting forth in reasonable detail
the disagreements that the Stockholder Representative has with the unaudited
balance sheet and/or either of the unaudited statements of income and cash flows
included in the Proposed Closing Financial Statements and the effect which such
disagreements would have on the calculation of any of the Working Capital of ATX
and ATX Debt as of the Closing Date or Capital Expenditures of ATX for the
period from the ATX Balance Sheet Date through the Closing Date. If the
Stockholder Representative delivers a Dispute Notice prior to the end of the
Review Period, the representatives of ATX and the Stockholder Representative
shall have a ten (10) day period (the "Settlement Period") from the date of the
delivery of the Dispute Notice to attempt to resolve any dispute set forth in
the Dispute Notice and to agree upon an unaudited balance sheet and unaudited
statements of income and cash flows which shall be binding on ATX and the ATX
Stockholder for purposes of this Agreement and to agree upon the Working Capital
of ATX and ATX Debt as of the Closing Date and the Capital Expenditures of ATX
for the period from the ATX Balance Sheet Date through the Closing Date. If the
Stockholder Representative and ATX have not arrived at an agreement during the
Settlement Period then, at any time following the termination of the Settlement
Period, either the Stockholder Representative or ATX may submit the issue in
dispute to the Philadelphia, Pennsylvania office of PricewaterhouseCoopers LLP
(the "Accountant") for resolution in accordance with this Section. In resolving
any disputed item, the Accountant (i) shall be bound by the provisions of this
Section 1.2, (ii) may not assign a value to any item greater than the greatest
value for such item claimed by either party or less than the smallest value for
such item claimed by either party, (iii) shall make its determination based
solely on information submitted by the parties and not by independent review and
(iv) shall be instructed to issue a report containing its resolution of the
disputed issue or issues (the "Accountant's Report") within thirty (30) days
following submission of the dispute. The Accountant's Report shall be delivered
by the Accountant to ATX and the Stockholder Representative, and shall be final
and binding on ATX and the ATX Stockholders for purposes of this Agreement. The
fees charged by the Accountant shall be paid by ATX.
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(e) During the period of any dispute within the contemplation of this
Section 1.2, the ATX Stockholders, the Stockholder Representative and their
representatives (including counsel and accountants) shall have reasonable access
during normal business hours to all books, records, employees, offices and other
facilities and properties of the Surviving Corporation to the extent required to
complete their review of the Closing Financial Statements and shall be permitted
to review the working papers (subject to the execution of customary waivers,
releases and indemnifications), if any, of ATX or its auditor relating to the
Closing; provided that any such access shall not unreasonably interfere with the
day-to-day operations of ATX and shall be limited to those items related to the
assessment of the Closing Financial Statements and matters related thereto. ATX
and CoreComm or their auditors shall cooperate with the ATX Stockholders and
other representatives of the ATX Stockholders in facilitating such review.
(f) In the event that the Final Closing Financial Statements reflect that
the Working Capital of ATX as of the Closing Date is less than the Applicable
Amount (such deficiency, the "Final Working Capital Shortfall"), then an amount
equal to the excess of the Applicable Amount over the Final Working Capital
Shortfall shall be paid to ATX from the Escrow (defined below) as provided in
Subsection 1.2(i) (the "Final Shortfall"); provided, however, that the Final
Shortfall shall be adjusted to reflect any adjustments to the Closing Exchange
Consideration previously made due to a Pre-Closing Working Capital Adjustment.
If the Final Closing Balance Sheet reflects that the Working Capital of ATX as
of the Closing Date is greater than the Applicable Amount (a "Final Working
Capital Excess") then an amount equal to the excess of the Final Working Capital
Excess over the amount of Working Capital generated subsequent to July 31, 2000
shall be delivered to the ATX Stockholders by ATX as provided in Subsection
1.2(i); provided, however, that the Final Working Capital Excess (and any
related amounts to be paid) shall be adjusted to reflect any adjustments to the
Closing Exchange Consideration previously made due to a Pre-Closing Working
Capital Adjustment. As used herein, the "Applicable Amount" means $2,000,000, if
the Closing occurs on or prior to July 31, 2000 and zero if the Closing occurs
after July 31, 2000.
(g) In the event that the Final Closing Financial Statements reflect that
the ATX Debt is greater than zero (such amount the "Final ATX Debt"), then an
amount equal to the Final ATX Debt shall be paid to ATX from the Escrow as
provided in Subsection 1.2(i); provided, however, that the Final ATX Debt shall
be adjusted to reflect any adjustments to the Closing Exchange Consideration
previously made due to any Estimated Closing ATX Debt.
(h) In the event that the Final Closing Financial Statements reflect that
the Capital Expenditure Adjustment, as calculated utilizing the Capital
Expenditures as set forth on the Final Closing Financial Statements, is greater
than zero (the "Final Capital Expenditure Adjustment"), then the amount equal to
the Final Capital Expenditure Adjustment shall be paid to ATX from the Escrow as
provided in Subsection 1.2(i); provided, however, that the Final Capital
Expenditure Adjustment shall be adjusted to
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reflect adjustments to the Closing Exchange Consideration previously made due to
a Pre-Closing Capital Expenditure Adjustment.
(i) Upon the Recapitalization, an aggregate of 1.1111% of all shares of ATX
Common Stock, ATX Convertible Preferred Stock and Cash Consideration (provided
that if any portion of the Cash Consideration is to be payable in Short Term
Senior Notes, the Short Term Senior Notes shall be delivered prior to the Cash
Consideration) comprising the Exchange Consideration shall be deposited in
escrow (the "Escrow") pursuant to an escrow agreement among ATX, CoreComm, each
ATX Stockholder and an escrow agent selected by such parties (the "Escrow
Agreement"). In the event of any reduction in the Exchange Consideration
requiring a repayment to ATX under Subsections (f) through (h) above, such
repayment shall be made pro rata from the ATX Common Stock, ATX Convertible
Preferred Stock and cash in the Escrow, for purposes of which the ATX Common
Stock shall be valued at the closing price for ATX Common Stock on the trading
day immediately preceding the day on which the repayment of such share to ATX is
effected. Any amounts payable by ATX under Subsection (f) as additional Exchange
Consideration shall be in shares of ATX Common Stock based on the same valuation
as set forth in the preceding sentence subject to the right of any ATX
Stockholders to elect to receive such additional Exchange Consideration in cash.
(j) From the ATX Balance Sheet Date through the Closing Date, ATX shall be
permitted to:
(i) make such cash distributions and payments to the ATX Stockholders:
(x) in order to satisfy any debt obligation of ATX to the ATX
Stockholder(s) (including affiliates thereof); (y) in order to return any
capital to the ATX Stockholders (including the amount of any positive
capital account balances respecting the ATX Partnerships) (as hereinafter
defined); and (z) of any undistributed profits computed in accordance with
GAAP of ATX or the ATX Partnership through the Closing Date; provided that
if there is insufficient cash on hand to make such distributions and
payments, the amounts shall be payable by ATX on the business day next
following the Closing Date and the payment of such amounts shall be deemed
to have been made on the business day prior to the Closing Date for
purposes of the adjustments set forth in this Section 1.2; or (ii) cancel
or eliminate any indebtedness owed by any ATX Stockholders to ATX.
(k) The following terms, whenever used herein, shall have the following
meanings for all purposes of this Agreement:
"ATX Balance Sheet Date" means December 31, 1999.
"ATX Capital Expenditure Obligation" means the obligation of ATX and the
ATX Partnerships to make Capital Expenditures from the period commencing
January 1, 2000 through the Closing Date in the amount and for those
categories of items set forth on Section 1.2 of the ATX Disclosure
Schedule.
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"ATX Debt" means all liabilities of ATX, other than current liabilities,
as set forth on the Pre-Closing Financial Statements, the Closing Financial
Statements and the Final Closing Financial Statement, as applicable.
"Capital Expenditures" means, with respect to a period, all amounts that
would, in accordance with GAAP, be set forth as "capital expenditures" or
"purchase of property and equipment"on the statement of cash flows for ATX
for such period.
"Capital Expenditure Adjustment" means the excess of the amount of ATX
Capital Expenditure Obligation over the actual Capital Expenditures of ATX
from the period between the ATX Balance Sheet Date and Closing, but in no
event shall the Capital Expenditure Adjustment be a negative amount.
"GAAP" means generally accepted accounting principles as in effect on
the date or for the period with respect to which such principles apply in
all cases applied on a consistent basis.
"Working Capital" shall mean, as of any date, the current assets of ATX
less the current liabilities of ATX (exclusive of the current portion of
long term debt), all determined in accordance with GAAP.
1.3 Conversion of CoreComm Common Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of ATX Merger Sub's common stock, par value $.01 per share ("ATX Merger
Sub Common Stock") or CoreComm's common stock, par value $.01 per share
("CoreComm Common Stock"):
(a) Each issued and outstanding share of ATX Merger Sub Common Stock
shall be converted into the right to receive one (1) share of CoreComm
Common Stock.
(b) All shares of CoreComm Common Stock that are owned by CoreComm as
treasury stock or by any Subsidiary of CoreComm shall be canceled and
retired and shall cease to exist and no consideration shall be delivered in
exchange therefor. As used in this Agreement, the word "Subsidiary" means,
with respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which (i) such party or any other
Subsidiary of such party is a general partner (excluding partnerships, the
general partnership interests of which held by such party or any Subsidiary
of such party do not have a majority of the voting interest in such
partnership) or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority
of the Board of Directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries.
(c) Subject to Section 1.4, each issued and outstanding share of
CoreComm Common Stock (other than shares to be canceled in accordance with
Sec-
B-15
tion 1.3(b) and shares to be issued under Section 1.3(a)) shall be
converted into the right to receive one (1) (the "Merger Ratio") fully paid
and nonassessable shares of ATX Common Stock. All such shares of CoreComm
Common Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have
any rights with respect thereto, except the right to receive the shares of
ATX Common Stock and any cash in lieu of fractional shares of ATX Common
Stock to be issued or paid in consideration therefor upon the surrender of
such certificate in accordance with Section 1.4.
1.4 Exchange of Certificates. The procedures for exchanging outstanding
shares of CoreComm Common Stock for ATX Common Stock pursuant to the Merger
shall be as follows:
(a) As of the Effective Time, ATX shall deposit with an exchange agent
selected by CoreComm and reasonably acceptable to ATX (the "Exchange
Agent"), for the benefit of the holders of shares of CoreComm Common Stock,
certificates representing the shares of ATX Common Stock and cash (such
shares of ATX Common Stock together with any dividends or distributions
with respect thereto, together with such cash, being hereinafter referred
to as the "Exchange Fund") issuable pursuant to Section 1.3 in exchange for
outstanding shares of CoreComm Common Stock.
(b) Promptly after the Effective Time, the Exchange Agent shall mail to
each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding shares of CoreComm
Common Stock (each a "Certificate" and, collectively, the "Certificates")
whose shares were converted pursuant to Section 1.4 into the right to
receive shares of ATX Common Stock (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
ATX and CoreComm may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of ATX Common Stock. Upon surrender of a Certificate
for cancellation to the Exchange Agent, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor a certificate representing that
number of whole shares of ATX Common Stock which such holder has the right
to receive pursuant to the provisions of this Article 1, and the
Certificate so surrendered shall immediately be canceled. In the event of a
transfer of ownership of CoreComm Common Stock which is not registered in
the transfer records of CoreComm, a certificate representing the proper
number of shares of ATX Common Stock may be issued to a transferee if the
Certificate representing such CoreComm Common Stock is presented to the
Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock transfer
taxes have been paid. Until surrendered as contemplated by this Section
1.4, each Certificate shall
B-16
be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the certificate representing shares of ATX
Common Stock and cash in lieu of any fractional share as contemplated by
this Section 1.4. All shares of ATX Common Stock issued upon the surrender
for or exchange of Certificates in accordance with the terms of this
Agreement, shall be deemed to have been issued in full satisfaction of all
rights pertaining to the CoreComm Common Stock shares formerly represented
by such Certificates. The instructions for effecting the surrender of the
Certificates shall set forth procedures that must be taken by the holder of
any Certificate that has been lost, destroyed or stolen. It shall be a
condition to the right of such holder to receive a certificate representing
shares of ATX Common Stock that the Exchange Agent shall have received,
along with the letter of transmittal, a duly executed lost certificate
affidavit, including an agreement to indemnify ATX, signed exactly as the
name or names of the registered holder or holders appeared on the books of
CoreComm immediately prior to the Effective Time, together with a customary
bond and such other documents as ATX or the Exchange Agent may reasonably
require in connection therewith.
(c) No dividends or other distributions declared or made after the
Effective Time with respect to ATX Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of ATX Common Stock represented
thereby and no cash payment in lieu of fractional shares shall be paid to
any such holder pursuant to subsection (e) below until the holder of such
Certificate shall surrender such Certificate. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall
be paid to the holder of the certificates representing whole shares of ATX
Common Stock issued in exchange therefor, without interest, (i) at the time
of such surrender, the amount of any cash payable in lieu of a fractional
share of ATX Common Stock to which such holder is entitled pursuant to
subsection (e) below and the amount of dividends or other distributions
with a record date after the Effective Time previously paid with respect to
such whole shares of ATX Common Stock, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of ATX
Common Stock.
(d) All shares of ATX Common Stock issued upon the surrender for
exchange of shares of CoreComm Common Stock in accordance with the terms
hereof (including any cash paid pursuant to subsection (c) or (e) of this
Section 1.4) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of CoreComm Common Stock, subject,
however, to the Surviving Corporation's obligation to pay any dividends or
make any other distributions with a record date prior to the Effective Time
which may have been declared or made by CoreComm on such shares of CoreComm
Common Stock in accordance with the terms of this Agreement on or prior to
the date hereof and which remain unpaid at the Effective Time, and there
shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the shares of CoreComm
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Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Section 1.4.
(e) No certificate or scrip representing fractional shares of ATX Common
Stock shall be issued upon the surrender for exchange of Certificates, and
such fractional share interests will not entitle the owner thereof to vote
or to exercise any rights of a stockholder of ATX. Notwithstanding any
other provision of this Agreement, each holder of shares of CoreComm Common
Stock exchanged pursuant to the Merger who would otherwise have been
entitled to receive a fraction of a share of ATX Common Stock (after taking
into account all Certificates delivered by such holder) shall receive, in
lieu thereof, cash (without interest) in an amount equal to such fractional
part of a share of ATX Common Stock multiplied by the last reported sale
price of ATX Common Stock, as reported on The Nasdaq National Market, on
the first trading day after the Effective Time.
(f) Any portion of the Exchange Fund which remains undistributed to the
stockholders of CoreComm for one year after the Effective Time shall be
delivered to ATX, and any former stockholders of CoreComm who have not
previously complied with this Section 1.4 shall thereafter look only to ATX
for payment of their claim for ATX Common Stock, any cash in lieu of
fractional shares of ATX Common Stock, and any dividends or distributions
with respect to CoreComm Common Stock or ATX Common Stock.
(g) Neither CoreComm nor ATX shall be liable to any former holder of
shares of CoreComm Common Stock or current holder of ATX Common Stock, as
the case may be, for such shares (or dividends or distributions with
respect thereto) delivered to a public official as required by any
applicable abandoned property, escheat or similar law.
1.5 Directors and Officers of Surviving Corporation. The initial
directors of the Surviving Corporation shall be the directors of CoreComm
immediately prior to the Merger, each to hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation, and the
initial officers of the Surviving Corporation shall be the officers of CoreComm
immediately prior to the Merger, in each case until their respective successors
are duly elected or appointed.
1.6 Directors and Officers of ATX. At Closing, the directors of ATX shall
be the directors of CoreComm immediately prior to the Merger, each to hold
office in accordance with the Certificate of Incorporation and Bylaws of ATX,
and the initial officers of ATX shall be the officers of CoreComm immediately
prior to the Merger, in each case until their respective successors are duly
elected or appointed.
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II. CLOSING
2.1 Closing.
(a) The closing of the transaction contemplated by this Agreement (the
"Closing") shall take place at the offices of Klehr, Harrison, Harvey, Branzburg
& Ellers LLP, 260 South Broad Street, Philadelphia, Pennsylvania 19102, at 10:00
A.M., on the second business day immediately following the day on which the last
to be fulfilled or waived of the conditions set forth in Articles 6 and 7 shall
be fulfilled or waived in accordance herewith or at such other time, date or
place as the parties hereto may agree. The date on which the Closing actually
occurs is referred to herein as the "Closing Date."
(b) At the Closing, ATX and ATX Merger Sub shall deliver all previously
undelivered documents, instruments and writings required to be delivered by ATX
and ATX Merger Sub at or prior to the Closing pursuant to this Agreement or
otherwise required in connection therewith.
(c) At the Closing, CoreComm shall deliver all previously undelivered
documents, instruments and writings required to be delivered by CoreComm at or
prior to the Closing pursuant to this Agreement or otherwise required in
connection therewith.
III. REPRESENTATIONS AND WARRANTIES OF
ATX AND ATX MERGER SUB
The predecessors of ATX were two limited partnerships formed under the laws
of the Commonwealth of Pennsylvania, ATX Telecommunications Services Ltd. and
Global Telecom Services (the "ATX Partnerships") who, together with A. T.
Telecommunications, Inc. and Global Telecommunications, Inc., their respective
general partners, merged with and into ATX on February 9, 2000 (the "ATX
Merger"). With the exceptions of Sections 3.1, 3.2 and 3.3 hereof, which shall
refer solely to ATX, unless otherwise specifically provided for therein, the
representations and warranties of ATX in this Article 3 shall refer to the ATX
Partnerships and to ATX, as applicable. Except as set forth in the ATX
Disclosure Schedule delivered by ATX to CoreComm prior to the execution of this
Agreement (the "ATX Disclosure Schedule") (each section of which qualifies the
correspondingly numbered representation and warranty or covenant to the extent
specified therein), ATX (and ATX Merger Sub to the extent set forth herein)
represents and warrants to CoreComm as follows:
3.1 Organization, Etc.
(a) ATX is a corporation duly organized, validly existing and in good
standing as a corporation under the laws of the State of Delaware. ATX has the
power and authority to conduct its business as it is currently being conducted
and as heretofore been conducted by the ATX Partnerships and to own, operate and
lease the property and assets that it now owns and leases. ATX is duly qualified
or licensed and in good standing to do business (and has paid all relevant
franchise and similar taxes) in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or license necessary, except where the failure to be
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so qualified would not have, individually or in the aggregate, a Material
Adverse Effect and each such jurisdiction is listed on Section 3.1(a)(i) of the
ATX Disclosure Schedule. ATX is duly licensed or permitted as a "public utility"
or similar regulated entity by state Governmental Authority in all states where
such licensing or permitting is necessary and each such state and license or
permit is set forth in Section 3.1(a)(ii) of the ATX Disclosure Schedule. The
copies of the Certificate of Incorporation (the "ATX Certificate of
Incorporation") and Bylaws (the "ATX Bylaws") of ATX and the Partnership
Agreements of the ATX Partnerships (the "ATX Partnership Agreements"), as
previously delivered to CoreComm by ATX, are complete and correct copies of such
instruments as currently in full force and effect. The minute books, or
comparable records, of ATX and the ATX Partnerships heretofore have been made
available to CoreComm for its inspection and contains true and complete records
of all meetings and consents in lieu of meetings of the Board of Directors (and
any committee thereof), and the stockholders of ATX and the partners of the ATX
Partnerships since the time of the ATX's organization and the organization of
the ATX Partnerships, as the case may be, and accurately reflect all
transactions referred to in such minutes and consents in lieu of meetings. The
stock books, or comparable records, of ATX and the ATX Partnerships heretofore
have been made available to the CoreComm for its inspection and are true and
complete. ATX does not directly or indirectly own any equity or similar interest
in, or any interest convertible into or exchangeable or exercisable for any
equity or similar interest, in any corporation, partnership, joint venture or
other business association or entity.
(b) At the Closing, ATX Merger Sub shall be a corporation duly organized,
validly existing and in good standing as a corporation under the laws of the
State of Delaware. ATX Merger Sub shall have the power and authority to conduct
its business as it is currently being conducted and to own, operate and lease
the property and assets that it then owns and leases. ATX Merger Sub shall be
duly qualified or licensed and in good standing to do business (and shall have
paid all relevant franchise and similar taxes) in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes such
qualification or license necessary, except where the failure to be so qualified
would not have, individually or in the aggregate, a Material Adverse Effect. The
copies of the Certificate of Incorporation (the "ATX Merger Sub Certificate of
Incorporation") and Bylaws (the "ATX Merger Sub Bylaws") of ATX Merger Sub, as
shall be delivered to CoreComm by ATX Merger Sub, will be complete and correct
copies of such instruments as in full force and effect at the Closing. The
minute books, or comparable records, of ATX Merger Sub shall have been made
available to CoreComm for its inspection and shall contain true and complete
records of all meetings and consents in lieu of meetings of the Board of
Directors (and any committee thereof), and the stockholders of ATX Merger Sub
from the time of the ATX's Merger Sub's organization to Closing, and will
accurately reflect all transactions referred to in such minutes and consents in
lieu of meetings. The stock books, or comparable records, of ATX Merger Sub
shall have been made available to CoreComm for its inspection and will be true
and complete. At the Closing, ATX Merger Sub will not directly or indirectly own
any equity or similar interest in, or any interest convertible into or
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exchangeable or exercisable for any equity or similar interest, in any
corporation, partnership, joint venture or other business association or entity.
3.2 Authorization.
(a) ATX has all power and authority necessary to execute and deliver this
Agreement and to perform its obligations under this Agreement and to consummate
the transactions contemplated by this Agreement. The execution and delivery of
this Agreement and the performance of ATX's obligations and consummation of the
transactions contemplated hereby have been duly authorized by ATX and no
corporate proceedings on the part of ATX are necessary to authorize this
Agreement or to consummate such transactions. The stockholders of ATX have
approved the entering into by ATX of the Agreement and the performance of the
transactions contemplated hereby and no additional stockholder proceedings are
necessary to authorize this Agreement or to consummate such transactions. This
Agreement has been duly executed and delivered by ATX and constitutes a valid
and binding obligation of ATX, enforceable against ATX in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or affecting creditors
rights generally, or by general equity principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(b) At the Closing, ATX Merger Sub shall have all power and authority
necessary to execute and deliver this Agreement and to perform its obligations
under this Agreement and to consummate the transactions contemplated by this
Agreement. Such execution and delivery of this Agreement and the performance of
ATX Merger Sub's obligations and consummation of the transactions contemplated
hereby shall have been duly authorized by ATX Merger Sub and no corporate
proceedings on the part of ATX Merger Sub shall be necessary to authorize this
Agreement or to consummate such transactions. At the time of ATX Merger Sub's
execution and delivery of this Agreement and at the Closing, the stockholders of
ATX Merger Sub shall have approved the entering into by ATX Merger Sub of the
Agreement and the performance of the transactions contemplated hereby and no
additional stockholder proceedings shall be necessary to authorize this
Agreement or to consummate such transactions. At the time of ATX Merger Sub's
execution and delivery of this Agreement this Agreement shall have been duly
executed and delivered by ATX Merger Sub and shall constitute a valid and
binding obligation of ATX Merger Sub, enforceable against ATX Merger Sub in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and similar laws relating to
or affecting creditors rights generally, or by general equity principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
3.3 Capitalization.
(a) The authorized capital stock of ATX consists of 10,000 shares of ATX
Common Stock. As of the date hereof, (i) 1,000 shares of ATX Common Stock were
issued and outstanding, all of which are validly issued, fully paid and
nonassessable and (ii) no shares of ATX Common Stock were held in the treasury
of ATX. All of the
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outstanding shares of ATX Common Stock are owned by the persons listed on
Section 3.3 of the ATX Disclosure Schedule, in the respective amounts set forth
on Section 3.3 of the ATX Disclosure Schedule, free and clear of any Liens.
There are no obligations, contingent or otherwise, of ATX to repurchase, redeem
or otherwise acquire any shares of ATX Common Stock.
(b) (i) Except for the ATX Common Stock, there are no equity securities of
any class of ATX, or any security exchangeable into or exercisable for such
equity securities, issued, reserved for issuance or outstanding; (ii) except as
set forth on Section 3.3 of the ATX Disclosure Schedule, there are no options,
warrants, equity securities, calls, rights, commitments or agreements of any
character to which ATX is a party or by which it is bound obligating ATX or any
successor to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of equity securities of ATX or any successor or obligating ATX
or any successor to grant, extend, accelerate the vesting of or enter into any
such option, warrant, equity security, call, right, commitment or agreement; and
(iii) except as may be contemplated by this Agreement there are no voting
trusts, proxies or other voting agreements or understandings with respect to the
shares of equity securities of ATX.
(c) At the Closing, the authorized capital stock of ATX Merger Sub shall
consist of 1,000 shares of ATX Merger Sub Common Stock. As of the Closing Date,
(i) 100 shares of ATX Merger Sub Common Stock shall be issued and outstanding,
all of which shall be validly issued, fully paid and nonassessable and (ii) no
shares of ATX Merger Sub Common Stock shall be held in the treasury of ATX
Merger Sub. At the Closing, all of the outstanding shares of ATX Merger Sub
Common Stock shall be owned by ATX free and clear of any Liens. At the Closing,
there are no obligations, contingent or otherwise, of ATX Merger Sub to
repurchase, redeem or otherwise acquire any shares of ATX Merger Sub Common
Stock .
(d) (i) At the Closing, except for the ATX Merger Sub Common Stock, there
shall be no equity securities of any class of ATX Merger Sub, or any security
exchangeable into or exercisable for such equity securities, issued, reserved
for issuance or outstanding; (ii) there shall be no options, warrants, equity
securities, calls, rights, commitments or agreements of any character to which
ATX Merger Sub is a party or by which it is bound obligating ATX Merger Sub or
any successor to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of equity securities of ATX Merger Sub or any successor
or obligating ATX Merger Sub or any successor to grant, extend, accelerate the
vesting of or enter into any such option, warrant, equity security, call, right,
commitment or agreement; and (iii) except as may be contemplated by this
Agreement there shall be no voting trusts, proxies or other voting agreements or
understandings with respect to the shares of equity securities of ATX Merger
Sub.
3.4 No Violation. Neither the execution or delivery of this Agreement or
any agreement contemplated hereby by ATX, nor the performance by ATX of the
transactions contemplated hereby (including, without limitation, the ATX Merger)
violates, conflicts with results in a breach of or constitutes a default (or an
event or condition that, with notice or lapse of time or both, would constitute
a default) under,
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gives others any right of termination, amendment, acceleration, cancellation or
revocation of or results in the termination, amendment, cancellation or
revocation of, or accelerates the performance required by, or causes the
acceleration of the maturity of any liability or obligation pursuant to, or
results in the creation or imposition of any security interest, lien, charge or
other encumbrance ("Liens") upon any of the property or assets of ATX under (a)
the ATX Certificate of Incorporation, the ATX Bylaws or the ATX Partnership
Agreement or (b) except as individually or in the aggregate would not have a
Material Adverse Effect any judgment, order, writ, injunction, decree, law,
statute, ordinance, rule, regulation, ("Law") or any note, bond, mortgage,
indenture, deed of trust, license, lease, contract, Permit, franchise,
commitment, understanding, arrangement, agreement or restriction of any kind or
character ("Contract") to which ATX is a party or by which ATX or its assets or
properties is or may be bound or affected. The ATX Disclosure Schedule sets
forth a correct and complete list in all material respects of Contracts to which
ATX is a party or by which it or its assets or properties is or may be bound or
affected under which consents or waivers are or may be required prior to
consummation of the transactions contemplated by this Agreement, including,
without limitation, the ATX Merger. Other than as set forth in Section 3.4 of
the ATX Disclosure Schedule, no consent, approval, order or authorization of, or
registration or filing with, any Governmental Authority is required to be
obtained by or on behalf of ATX in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby
(including, without limitation, the ATX Merger).
3.5 Financial Statements.
(a) ATX has delivered to CoreComm audited balance sheets of the ATX
Partnerships at December 31, 1996, December 31, 1997 and December 31, 1998,
together with audited statements of income and cash flows for each of the years
then ended, in each case, together with the reports thereon of BDO Seidman, LLP,
independent certified public accountants (the "ATX Financial Statements"). All
such financial statements (including the notes thereto) were prepared on a cash
basis, which is a basis of accounting other than generally accepted accounting
principles, and fairly present, in all material respects, the financial
condition and results of operations and cash flows of the ATX Partnerships as of
the respective dates or for the periods referred to therein. In addition, ATX
has delivered to CoreComm an unaudited balance sheet (the "ATX Balance Sheet")
as of December 31, 1999, prepared in accordance with GAAP together with
unaudited statements of income and cash flows for the twelve months then ended,
each in draft form and prepared in accordance with GAAP (the "Unaudited 1999
Financials").
(b) (i) The net income of the ATX Partnerships, before provision for income
taxes, partner salaries and bonuses, interest expense, depreciation expense,
amortization and non-recurring expenses (including expenses relating to the
Phantom Unit Plan), as derived from the GAAP Audited Financial Statements (as
defined in Section 5.10) (prepared in accordance with United States generally
accepted accounting principles) for each of the fiscal years 1997, 1998 and 1999
are not less than $16,300,000, $14,800,000
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and $10,000,000, respectively. No expense has been recorded by reason of awards
under the Phantom Unit Plan.
(ii) The net revenues of the ATX Partnerships as derived from the GAAP
Audited Financial Statements (as defined in Section 5.11) (prepared in
accordance with United States generally accepted accounting principles) for each
of the fiscal years 1997, 1998 and 1999 are not less than $90,300,000,
$110,800,000 and $131,600,000, respectively.
(c) The Unaudited 1999 Financials do, and the GAAP Audited Financials to be
delivered by ATX pursuant to Section 5.10(b) will, (x) reflect a non cash
compensation charge for the issuance of the units under the 1998 Phantom Unit
Plan, and (y) fully reserve in current liabilities for the following contingent
ATX liabilities:
(i) liabilities in respect of claims by the Pennsylvania Department of
Revenue asserting that ATX failed to remit certain gross receipts taxes for
the years 1992, 1993, 1994 and 1996; and
(ii) liabilities, which shall not exceed $175,000, in respect of the
failure to file sales and use taxes, in any jurisdiction.
3.6 No Undisclosed or Contingent Liabilities. Except as set forth on
Section 3.6 of the ATX Disclosure Schedule, ATX has no liabilities or
obligations of any nature (whether absolute, accrued, contingent or otherwise
and whether due or to become due) (whether or not of a kind required by
generally accepted accounting principles to be set forth on a financial
statement or in notes thereto) ("Liabilities") that were not fully and
adequately reflected or reserved against on the ATX Balance Sheet or described
on any schedule or in the notes to the ATX Financial Statements except for
liabilities and obligations (i) incurred in the ordinary course of business
consistent with past practice since the ATX Balance Sheet Date, or (ii) arising
from this Agreement and transaction expenses incurred in connection with this
Agreement and (iii) which individually or in the aggregate would not have a
Material Adverse Effect.
3.7 Absence of Certain Changes. Since the ATX Balance Sheet Date, ATX has
conducted its business in the ordinary course and consistent with past practice,
and has not, except in the ordinary course and consistent with past practice or
as set forth on Section 3.7 of the ATX Disclosure Schedule:
(a) suffered any change in its operations, financial condition, assets,
liabilities or earnings or working capital which, individually or in the
aggregate, have had a Material Adverse Effect;
(b) permitted or allowed any of its assets to be subjected to any
mortgage, pledge, lien, security interest, encumbrance, restriction or
charge of any kind, other than those which individually or in the aggregate
would not have a Material Adverse Effect;
(c) written down the value of any inventory or written off as
uncollectible any notes or accounts receivable, other than those which,
individually or in the aggregate, would not have a Material Adverse Effect;
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(d) canceled any debt, or waived any claim or right with a value greater
than $20,000;
(e) disposed of or permitted to lapse any rights to the use of any
material patent, trademark, trade name, service mark or copyright, or
disposed of or disclosed to any Person other than an officer, director or
employee of ATX any trade secret, formula, process or know-how not
theretofore a matter of public knowledge;
(f) granted any material general increase in the compensation of
employees (including any such increase pursuant to any bonus, pension,
profit sharing or other plan or commitment) or any material increase in the
compensation payable or to become payable to any management employee, and
no such increase is customary on a periodic basis or required by agreement
or understanding (except for ordinary course increases consistent with past
practice and current industry practice);
(g) made any material capital expenditure or material commitment for
additions to its property, equipment or intangible capital assets, other
than those required to execute its current business plan;
(h) made any change in any method of accounting or accounting practice
(other than as is contemplated by this Agreement) or failed to maintain its
books, accounts and records in the ordinary course of business and
consistent with past practice;
(i) failed to maintain in full force and effect all material existing
policies of insurance at least at such levels as were in effect prior to
such date or canceled any such insurance or taken or failed to take any
action that would enable the insurers under such policies to avoid
liability for claims arising out of occurrences prior to the Closing;
(j) entered into any material transaction or made or entered into any
material contract or commitment, or terminated or amended any material
contract or commitment;
(k) taken any action that, individually or in the aggregate, could have
a Material Adverse Effect on ATX or materially adversely affect its current
relationships with its employees, suppliers, distributors, advertisers,
subscribers or others having business relationships with it;
(l) except as contemplated by this Agreement, declared, paid or set
aside for payment any distribution in respect of the ATX Common Stock or
interests in the ATX Partnerships or redeemed, purchased or otherwise
acquired, directly or indirectly, any of the ATX Common Stock or interests
in the ATX Partnerships; or
(m) agreed to take any action with respect to any of the matters
described in this Section 3.7.
3.8 Litigation, Orders. Except as set forth on Section 3.8 of the ATX
Disclosure Schedule, there are no claims, actions, suits, proceedings,
complaints, demands, litigations or legal, administrative or arbitral
proceedings, investigations or inquiries
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pending before any court, arbitrator or governmental or regulatory authority
(collectively, "Legal Actions"), or, to the knowledge of ATX, threatened against
or affecting ATX or any of its properties owned or leased, except as would not,
individually or in the aggregate, have a Material Adverse Effect or which relate
to, or could have a material effect on, the transactions contemplated by this
Agreement. There are no Legal Actions questioning the validity of this
Agreement, the transactions contemplated hereby or any action taken or to be
taken by ATX pursuant to this Agreement or any other agreement contemplated
hereby, at law or in equity, before or by any federal, state, local or foreign
governmental authority; nor, to the knowledge of ATX, is there any valid basis
for any Legal Action. To the knowledge of ATX, there is no fact, event or
circumstances that could give rise to any Legal Actions that, individually or in
the aggregate, would have a Material Adverse Effect. ATX is not subject to any
judgment, order or decree entered in any lawsuit or proceeding that has had or
will have a Material Adverse Effect or materially adversely affect ATX's ability
to acquire any property for the use or benefit of ATX or to conduct its business
in any area or which relate to, or could have any effect on, the transactions
contemplated by this Agreement.
3.9 Title to Properties; Encumbrances. Except as set forth on Section 3.9
of the ATX Disclosure Schedule, ATX has good and marketable title to all of its
properties and assets including all of the assets reflected on the ATX Balance
Sheet, free and clear of all Liens except liens for taxes not yet due and
payable and such liens or other imperfections of title, if any, that do not
materially detract from the value of or materially interfere with the present
use of the property affected thereby and all material leases, subleases,
licenses or other agreements pursuant to which ATX leases real or personal
property, are in good standing, valid and effective in accordance with their
respective terms, and there is not, under any such lease, any existing default
(or event which with notice or lapse of time, or both, would constitute a
default).
3.10 Compliance with Law; Licenses.
(a) Except as set forth on Section 3.10(a) of the ATX Disclosure Schedule,
the business of ATX (including, without limitation, the ATX Partnerships prior
to the ATX Merger) has not been and is not being conducted in violation of any
laws (whether statutory or otherwise), rules, regulations, orders, ordinances,
judgments, decrees, writs and injunctions of all federal, state, local or
foreign governmental authorities including subdivisions thereof (collectively,
"Laws"), including all Laws relating to the safe conduct of ATX's business,
environmental protection and conservation, antitrust, taxes, consumer
protection, currency exchange, telecommunications, equal opportunity, health,
sanitation, fire, zoning, building, occupational safety, pension, securities and
trademark and copyright, except for such violations as would not, individually
or in the aggregate, have a Material Adverse Effect. Except as set forth on
Section 3.10(a) of the ATX Disclosure Schedule, ATX holds all licenses, permits,
variances, exemptions, authorizations, operating certificates, orders and
approvals of all Governmental Entities (collectively, "Licenses") that are
required for it to own, lease and operate its properties and conduct its
business as currently conducted, except where the failure to hold Licenses would
not, individually or in the aggregate, have a Material Adverse Effect. Except as
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set forth on Section 3.10(a) of the ATX Disclosure Schedule, there has occurred
no default under or violation of any such License, except for such violations or
defaults that would not, individually or in the aggregate, have a Material
Adverse Effect.
(b) Since December 31, 1998, ATX has filed with the applicable PUCs (as
defined below) or the FCC, as the case may be, all forms, statements, reports
and documents (including exhibits, annexes and any amendments thereto) required
to be filed by them, and each such filing complied in all material respects with
all applicable laws, rules, and regulations, other than such failures to file
and non-compliance that would, individually or in the aggregate, have a Material
Adverse Effect on it or prevent or impair its ability to consummate the
transactions contemplated by this Agreement.
(c) ATX has all permits, licenses, franchises, consents, registrations,
certificates, variances, exemptions, orders and other governmental or regulatory
authorizations, consents and approvals, necessary to conduct its business as
presently conducted and for the ownership, lease or operation of property that
it now owns or leases, except for those the absence of which would not,
individually or in the aggregate, have a Material Adverse Effect on it or
prevent, delay or impair its ability to consummate the transactions contemplated
by this Agreement (collectively, "Permits"). All such Permits are listed on
Section 3.10(c) of the ATX Disclosure Schedule and are in full force and effect;
no material violations are or have been recorded in respect of any Permit and no
proceeding is pending or threatened to revoke or limit any Permit. No action by
ATX or CoreComm or any other person is required in order that all Permits will
remain in full force or effect following the consummations of the transactions
contemplated by this Agreement. All Permits are valid and in full force and
effect, and ATX has duly performed and is in compliance in all material respects
with all of its obligations under such Permits.
(d) Except as set forth on Section 3.10(d) of the ATX Disclosure Schedule,
ATX has validly and properly obtained the necessary Permits from the appropriate
governmental authority in each such jurisdiction, including, without limitation,
state public service and public utilities commissions ("State PUCs") (the "State
Permits") and municipal authorities (the "Municipal Permits") and holds all
Permits issued by the FCC (the "FCC Permits") that are required for the conduct
of its business as it has been and is presently conducted, and for the holding
of its assets. All of the FCC Permits, the State Permits and the Municipal
Permits (collectively the "Communications Permits") are set forth in Section
3.10(d) of the ATX Disclosure Schedule.
(e) Each of the Communications Permits was duly issued and is valid and in
full force and effect and each of the Communications Permits has not been
modified, canceled, revoked, or conditioned in any adverse manner. Each of the
Communications Permits has not been sold, conveyed, pledged, assigned or
transferred to any other party, and no other party has any present or future
right to acquire use of them.
(f) Except as set forth on Section 3.10(d)(i) of the ATX Disclosure
Schedule, ATX has complied with and is in compliance with all regulations and
laws applicable to its operations under the Communications Permits, except where
any such failure would not individually or in the aggregate have a Material
Adverse Effect. ATX is in
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compliance with, and its businesses have operated in compliance with, the
Communications Act of 1934, as amended, FCC regulations, or any applicable state
laws or regulations, and has filed all tariffs, registrations and reports and
paid all required fees, including any renewal applications, required by the
Communications Act of 1934, as amended, or any applicable state regulations and
has complied with the terms of each such tariff or regulation, except where any
such failure would not individually or in the aggregate have a Material Adverse
Effect. There is no action, suit, investigation or other proceeding pending or,
to ATX's knowledge, threatened against ATX which might materially adversely
affect the Communications Permits, or the assignment of the Communications
Permits to CoreComm. No event has occurred with respect to the Communications
Permits which, after notice or lapse of time, or both, would permit revocation
or termination thereof, or would result in any impairment of the rights of the
holder of the Communications Permits or the imposition of a forfeiture against
ATX or any subsequent holder of the Communications Permits with respect to the
operation of the facilities authorized thereby.
(g) ATX has delivered to CoreComm correct and complete copies of (a) ATX's
Communications Permits and the applications related thereto together with any
pending applications filed by ATX for new or modified facilities related to the
purchased business, and (b) all other Permits and any tariffs filed by ATX
relating to the purchased business, and any applications for additional or
modified Permits to the purchased business.
3.11 Taxes.
(a) ATX has timely filed or will file (including any applicable extension
periods) all material tax reports, returns and forms required to be filed by it
on or before the Closing Date in the manner provided by applicable federal,
state, local or foreign tax laws. Copies of all material tax returns for ATX in
respect of all years not barred by the statute of limitations have been
delivered by ATX to CoreComm and all such returns are listed on Section 3.11 of
the ATX Disclosure Schedule.
(b) With respect to each of ATX's tax returns that has been examined or
audited by the Internal Revenue Service or a state, local or foreign taxing
authority (collectively, an "Authority"), which returns are identified on the
ATX Disclosure Schedule, all deficiencies asserted as a result of such
examinations or audits have been fully paid, adequately provided for or are
being contested in good faith, except where the failure to be fully paid,
adequately provided for or contested would not have a Material Adverse Effect
individually or in the aggregate. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any federal, state,
local or foreign tax return for any period.
(c) Except as set forth on Section 3.11 of the ATX Disclosure Schedule, ATX
has timely paid or will pay all federal, state, local and foreign income,
payroll, withholding, excise, sales, use, real and personal property, use and
occupancy, business and occupancy, business and occupation, mercantile, real
estate, capital stock and franchise or other tax (collectively, "Taxes") due or
claimed to be due on or before the Closing Date to the Internal Revenue Service,
to any Authority or to any Person from ATX by
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the Internal Revenue Service or any Authority, other than any failures to make
such payments which have not had, individually or in the aggregate, a Material
Adverse Effect. Except as set forth on Section 3.11 of the ATX Disclosure
Schedule, no tax liens have been filed on any property or assets of ATX and no
claims are being asserted with respect to any Taxes which, individually or in
the aggregate, would have a Material Adverse Effect.
3.12 Consents and Approvals. Except for consents and approvals that will
be obtained prior to Closing (which such consents and approvals are listed on
Section 3.12 of the ATX Disclosure Schedule and which have heretofore been
provided to CoreComm for review) and consents and approvals the failure of which
to obtain would not, individually or in the aggregate, have a Material Adverse
Effect or prevent or impede or delay the consummation of the transactions
contemplated hereby, ATX is not required to obtain, transfer or cause to be
transferred any consent, approval or License of, or make any declaration, filing
or registration with, any third party or any governmental or regulatory
authority in connection with (a) the execution and delivery by ATX of this
Agreement or any agreement contemplated hereby, or (b) the consummation by ATX
of the transactions contemplated hereby or thereby except for those required
under (i) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations promulgated thereunder (the "HSR Act") (ii) the
Communications Act of 1934, as amended, and any regulations promulgated
thereunder (the "Communications Act") (iii) the rules and regulations of local,
state or foreign public utility commissions or similar local, state or foreign
regulatory bodies (each, a "PUC") and local, state and foreign Government
Entities identified on Section 3.12 of the ATX Disclosure Schedule pursuant to
applicable local state or foreign laws regulating the telephone or other
telecommunications business ("Utilities Laws") and (iv) the antitrust or other
competition laws of any jurisdiction.
3.13 Contracts and Commitments.
(a) Section 3.13(a) of the ATX Disclosure Schedule sets forth complete and
accurate lists of the following:
(i) all real property and the location thereof and the description of
any structures located thereon that are leased by ATX, together with the
annual rental and unexpired lease term and identity of the owner of any
real property leased;
(ii) all employment, consulting or agency agreements requiring payments
in excess of $100,000 per annum to which ATX is a party or is otherwise
bound;
(iii) each instrument or agreement defining the terms on which any debt
of, or guarantees by, ATX in excess of $250,000 has been or may be issued;
(iv) all outstanding loans or advances (excluding advances for ordinary
and necessary business expenses) by ATX to any of its officers, directors
or stockholders or any member of the immediate families of such officers,
directors or stockholders; and
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(v) all contracts, commitments or agreements to which ATX is a party or
is otherwise bound and which involve future payments, performance of
services or delivery of goods to or by ATX for annual payments (for any one
or a series of related contracts) of at least $100,000.
(b) ATX and, to ATX's knowledge, all other parties to the contracts,
commitments, instruments and agreements listed in Section 3.13(a) of the ATX
Disclosure Schedule have complied with the provisions thereof in all material
respects, no party is in default thereunder, and no event has occurred which,
but for the passage of time or the giving of notice or both, would constitute a
default thereunder, other than those which, individually or in the aggregate,
would not have a Material Adverse Effect. Except as set forth on Section 3.13(b)
of the ATX Disclosure Schedule, no contract, commitment, instrument or agreement
listed in Section 3.13(a) of the ATX Disclosure Schedule requires the consent of
any party thereto in order to consummate the transactions contemplated hereby
(including, without limitation, the ATX Merger) except for such consents the
failure of which to obtain would not, individually or in the aggregate, have a
Material Adverse Effect or to prevent or impede or delay the consummation of the
transactions contemplated hereby.
(c) (i) Except as may be disclosed on Section 3.13(c)(i) of the ATX
Disclosure Schedule, ATX is not a party to or bound by any contracts or
commitments that require payments in excess of $100,000 per annum by any party
thereto and are not cancelable by ATX on notice of not longer than 30 days;
(ii) subject to obtaining any requisite consents of third parties, the
enforceability of the contracts and commitments referred to in Section 3.13(a)
will not be affected in any manner by the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby or by the
other agreements referred to herein, other than those which, individually or in
the aggregate, would not have a Material Adverse Effect;
(iii) Except as set forth on Section 3.13(c)(iii) of the ATX Disclosure
Schedule, ATX is not a party to or bound by any contracts or commitments with
officers, employees, agents, consultants, advisors, salesmen, sales
representatives, distributors or dealers that require payments, or would be
reasonably expected to result in payments, in excess of $100,000 per annum and
are not cancelable by it on notice of not longer than 30 days and without
liability, penalty or premium or any agreement or arrangement providing for the
payment of any bonus or commission based on sales or earnings; and
(iv) Except as set forth on Section 3.13(c)(iv) of the ATX Disclosure
Schedule, ATX is not a party to or bound by any employment agreement or any
other agreement that contains any severance or termination pay, liabilities or
obligations.
(d) Section 1.2 of the ATX Disclosure Schedule is derived from, and sets
forth all capital expenditures which will be required by ATX in order to carry
out, the business plan of ATX referred to in Section 5.3 hereof within the time
periods contemplated by such business plan.
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3.14 Insurance. ATX maintains policies of fire, medical, life, liability,
workers' compensation and other forms of insurance in such amounts, with such
deductibles and against such risks and losses as are, in ATX's judgment,
reasonable for the business and assets of ATX. All such insurance policies are
listed on Section 3.14 of the ATX Disclosure Schedule.
3.15 Certain Interests. Neither ATX nor any officer, director or
stockholder thereof, nor any of their respective Affiliates, spouses or
immediate family, has (a) any direct or indirect interest (other than the
ownership of less than one percent of the outstanding securities of a publicly
held company) in any corporation or business that is involved in or competes
with ATX, (b) any direct or indirect interest in any property or assets used by,
or relating to, ATX or its business, except through the ownership of shares of
ATX Common Stock or ATX Merger Sub Common Stock or (c) has a claim whatsoever
against, or owes any amount to, ATX, except for claims in the ordinary course of
business, such as accrued vacation pay, accrued benefits under Benefit Plans or
similar matters in any agreements in effect on the date hereof. Section 3.15 of
the ATX Disclosure Schedule sets forth a complete list of all agreements and
arrangements between ATX and each of its officers, directors, stockholders and
their respective spouses or immediate family and true and correct copies of all
such agreements and arrangements have been delivered to CoreComm.
3.16 Intellectual Property. Section 3.16 of the ATX Disclosure Schedule
sets forth a list of all patents, internet domain name registrations,
trademarks, servicemarks, trade names and copyrights (collectively, the
"Scheduled Intellectual Property") that ATX either owns or has a license to use.
ATX owns or is licensed to use all of its trade secrets, know-how, software and
other proprietary rights and all Scheduled Intellectual Property (collectively,
the "Intellectual Property"), free and clear of any Liens except for Liens which
would not have, individually or in the aggregate, a Material Adverse Effect.
None of ATX's Intellectual Property is subject to any pending or, to the
knowledge of ATX, threatened, challenge or reversion except for challenges or
reversions which would not have, individually or in the aggregate, a Material
Adverse Effect. To the knowledge of ATX, the conduct of the business of ATX as
now being conducted, and the use of ATX's Intellectual Property in the conduct
of such business, do not infringe or otherwise conflict with any trademarks,
patents, registrations, or other intellectual property or proprietary rights of
others, nor, has any claim been made that the conduct of such business as now
being conducted infringes or otherwise is covered by the intellectual property
of a third party other than claims which would not have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of ATX, none of its
Intellectual Property is currently being infringed by a third party.
3.17 Employee Benefit Plans.
(a) ATX has made available to CoreComm true and complete copies of all
employment, retention, severance, deferred compensation, change of control or
other agreements or contracts with any employee of ATX and Section 3.17 of the
ATX Disclosure Schedule contains a list of all of the foregoing.
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(b) ATX does not contribute to, maintain, have an actual or contingent
liability with respect to, or sponsor any plan subject to Title IV of ERISA.
(c) ATX has made available to CoreComm with respect to each Benefit Plan, a
true and complete copy (or, to the extent no such copy exists, an accurate
description) thereof and, to the extent applicable: (i) any related trust
agreement or other funding instrument; (ii) the most recent determination
letter, if applicable; (iii) any summary plan description and other written
communications (or a description of any oral communications) by ATX to its
employees concerning the extent of the benefits provided under a Benefit Plan;
and (iv) for the three most recent years (A) the Form 5500 and attached
schedules; (B) audited financial statements, (C) actuarial valuation reports and
(D) attorney's response to an auditor's request for information.
(d) (i) With respect to each Benefit Plan, such plan has been established
and administered in accordance with its terms, and in compliance with the
applicable provisions of ERISA, the Code, and other applicable laws, rules and
regulations and no transaction prohibited by any applicable statute or
regulation, including Section 406 of ERISA or Section 4975 of the Code, has
occurred with respect to any Benefit Plan that would individually or in the
aggregate be reasonably likely to result in material liability to ATX; (ii) each
Benefit Plan which is intended to be qualified within the meaning of Section
401(a) of the Code is so qualified and has received a favorable determination
letter as to its qualification, and nothing has occurred, whether by action or
failure to act, that could reasonably be expected to cause the loss of such
qualification; (iii) no event has occurred and no condition exists that would
subject ATX or any of its subsidiaries either directly or by reason of their
affiliation with any member of their "Controlled Group" (defined as any
organization which is a member of a controlled group of organizations within the
meaning of Code sections 414(b), (c), (m) or (o)), to any tax, fine, lien,
penalty or other liability imposed by ERISA, the Code or other applicable laws,
rules and regulations; and (v) there are no actions, suits or claims (other than
routine claims for benefits) pending or threatened against the Benefit Plans
and, no facts exist which could give rise to any such actions, suits, or claims
that would be reasonably likely to result in material liability to the Company
with respect to the Benefit Plans.
(e) No Benefit Plan or other agreement or arrangement exists that, as a
result of the transactions contemplated by this Agreement, could result in the
payment to any present or former employee of ATX of any money or other property
or accelerate the time of, or increase the amount of payment to which such
person may otherwise be entitled or to provide any other rights or benefits to
any present or former employee of ATX or any other person, whether or not such
payment would constitute a parachute payment within the meaning of Section 280G
of the Code. Except as set forth in the ATX Disclosure Schedule, no employee or
former employee of ATX will become entitled to any bonus, retirement, severance,
job security or similar benefit or enhancement of such benefit (including
acceleration of vesting or exercise of an incentive award) as a result of the
transactions contemplated hereby.
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(f) ATX does not have any current or projected liability in respect of
post-employment or post-retirement health or medical or life insurance benefits
for retired, former or current employees of ATX nor maintains any deferred
compensation plan.
(g) No Benefit Plan or other agreement or arrangement exists that, as a
result of the transactions contemplated by this Agreement (including the ATX
Merger), could result in the payment by ATX to any present or former employee of
University City Housing ("UCH") of any money or other property or accelerate the
time of, or increase the amount of payment by ATX to which such person may
otherwise be entitled, or could result in the requirement that ATX provide any
other rights or benefits to any present or former employee of UCH or any other
person (as a result of such person's status as an employee of UCH), including
but not limited to, any severance payment, whether or not such payment would
constitute a parachute payment within the meaning of Section 280G of the Code.
No employee or former employee of UCH (as a result of such person's status as an
employee of UCH) is or will become entitled to any bonus, retirement, severance,
job security or similar benefit or enhancement of such benefit (including
acceleration of vesting or exercise of an incentive award) from ATX as a result
of the transactions contemplated hereby.
3.18 Labor Matters. None of the individuals employed by ATX or any of its
subsidiaries or affiliates is represented by a union. ATX has made no collective
bargaining agreements with respect to any current or former employees of ATX or
any of its subsidiaries or affiliates. No labor strike, picketing, work
stoppage, work slowdown, soliciting, petition for a representation election or
civil action, or other labor dispute has, within the last five years, occurred
or, to ATX's knowledge, has been threatened with respect to ATX.
3.19 Environmental Protection. ATX has obtained all Licenses under
federal, state and local laws, rules and regulations relating to pollution or
protection of the environment (collectively, the "Environmental Laws") required
for the operation of its business except for Licenses the lack of which would
not have a Material Adverse Effect individually or in the aggregate. ATX is in
compliance in all material respects with all terms and conditions of such
Licenses and all Environmental Laws and has not received any notice alleging
non-compliance. There is no civil, criminal or administrative action, suit,
demand, claim, investigation, proceeding, notice or demand letter pending or, to
the knowledge of ATX, threatened against ATX relating in any way to any
Environmental Laws. There are no past or present events or conditions relating
to ATX that may interfere with or prevent compliance in any material respect
with any Environmental Laws or that may give rise to any material common law or
other legal liability thereunder.
3.20 Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fees or any similar commission or fee in connection with the
transaction contemplated by this Agreement, based upon arrangements made by or
on behalf of ATX, except Donaldson, Lufkin & Jenrette Securities Corporation,
whose fees and expenses will be paid by ATX.
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3.21 Accounting and Tax Matters. Neither ATX nor any of its Affiliates
has taken or agreed to take any action which would prevent the Merger and the
Recapitalization from constituting transactions qualifying as exchanges under
Section 351 of the Code and a merger under Section 368(a) of the Code.
3.22 Registration Statement; Proxy Statement/Prospectus. The information
supplied or to be supplied by ATX or its Affiliates for inclusion in or
incorporation by reference in the registration statement on Form S-4 pursuant to
which shares of ATX Common Stock issuable in the Merger and the Recapitalization
will be registered with the SEC (the "Registration Statement") shall not at the
time the Registration Statement is declared effective by the SEC under the
Securities Act of 1933, as amended, contain any untrue statement of a material
fact or omit to state any material fact required to be stated in the
Registration Statement or necessary in order to make the statements in the
Registration Statement, in light of the circumstances under which they were
made, not misleading. The information supplied or to be supplied by ATX for
inclusion in the proxy statement/prospectus (the "Proxy Statement") to be sent
to the stockholders of CoreComm in connection with its meeting of stockholders
to consider this Agreement and the Merger (collectively, the "Stockholders'
Meeting") shall not, on the date the Proxy Statement is first mailed to
stockholders of CoreComm at the time of the Stockholders' Meeting and at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it was made, is false or misleading with respect to
any material fact, or omit to state any material fact necessary in order to make
the statements made in the Proxy Statement not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Stockholders'
Meeting which has become false or misleading. If at any time prior to the
Effective Time any event relating to ATX or any of its Affiliates, officers or
directors should be discovered by ATX which should be set forth in an amendment
to the Registration Statement or a supplement to the Proxy Statement, ATX shall
promptly inform CoreComm.
3.23 Non-Competition Agreements. Neither ATX nor any officer, director,
or key employee of ATX, is a party to any agreement, other than with ATX or its
predecessors, that purports to restrict or prohibit it, directly or indirectly,
from engaging in any business involving telecommunications or any other material
business currently engaged in by ATX, or to the knowledge of ATX, by CoreComm or
any corporations affiliated with CoreComm.
3.24 Customers. No single customer of ATX generates greater than 2% of
the total sales of ATX. As of March 7, 2000, there were approximately 20,000
customers of ATX.
3.25 Legal Opinion. As of the date of execution of this Agreement, ATX
has received reasonable assurances from Klehr, Harrison, Harvey, Branzburg &
Ellers LLP, counsel to ATX, regarding its ability to deliver the opinion
required by Section 7.12 of the Agreement.
3.26 Full Disclosure. No representation or warranty of ATX contained in
this Agreement or which will be contained in the Escrow Agreement, and no
document
B-34
furnished by or on behalf of ATX to CoreComm pursuant to this Agreement contains
an untrue statement of a material fact or omits to state a material fact
required to be stated herein or necessary to make the statements made, in the
context in which made, not materially false or misleading. There is no fact,
event, circumstance or condition that ATX has not disclosed to CoreComm in
writing that has or would have, insofar as ATX can now foresee, a Material
Adverse Effect on ATX or the ability of ATX to perform this Agreement or the
Escrow Agreement.
3.27 NO OTHER REPRESENTATIONS OR WARRANTIES. EXCEPT AS SPECIFICALLY AND
EXPRESSLY SET FORTH IN THIS ARTICLE 3, (I) ATX MAKES NO REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, RELATING TO ATX, OR THE ASSETS OR BUSINESS OF ATX,
INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY AS TO VALUE,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR FOR ORDINARY PURPOSES, OR
ANY OTHER MATTER AND (II) ATX MAKES NO, AND HEREBY DISCLAIMS ANY, OTHER
REPRESENTATIONS OR WARRANTIES REGARDING THE ASSETS OR THE BUSINESS OF ATX.
IV. REPRESENTATIONS AND WARRANTIES OF CORECOMM
Except as set forth in the CoreComm Disclosure Schedule delivered by
CoreComm to ATX prior to the execution of this Agreement (the "CoreComm
Disclosure Schedule") (each section of which qualifies the correspondingly
numbered representation and warranty or covenant to the extent specified
therein) or in the CoreComm SEC Reports, CoreComm represents and warrants to ATX
as follows:
4.1 Organization, Etc. CoreComm is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. CoreComm has the power and authority to conduct its business as
it is currently being conducted and to own, operate and lease the property and
assets that it now owns and leases. CoreComm is duly qualified or licensed and
in good standing to do business and has paid all relevant franchise and similar
taxes in each jurisdiction in which the nature of its business or the ownership
or leasing of its properties makes such qualification or license necessary,
except where the failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect. The copies of the Memorandum of
Association (the "CoreComm Memorandum of Association") and Bylaws (the "CoreComm
Bylaws") of CoreComm, as previously delivered to ATX by CoreComm, are complete
and correct copies of such instruments as currently in effect.
4.2 Authorization. CoreComm has all power and authority necessary to
execute and deliver this Agreement, to perform its obligations under this
Agreement and consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement, the performance of CoreComm's
obligations hereunder and the consummation of the transactions contemplated
hereby has been duly authorized by CoreComm and no corporate proceedings on the
part of CoreComm are necessary to authorize this Agreement or to consummate such
transactions. This Agreement has been duly executed and delivered by CoreComm
and constitutes a valid and binding obligation
B-35
of CoreComm, enforceable against CoreComm in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors rights generally,
or by general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4.3 Capitalization.
(a) The authorized capital stock of CoreComm consists of 75,000,000 shares
of common stock par value $.01 per share, and 1,000,000 shares of preferred
stock, par value $.01 per share. As of March 6, 2000, (i) 39,213,036 shares of
CoreComm Common Stock were issued and outstanding, all of which are validly
issued, fully paid and nonassessable and no shares of preferred stock were
issued and outstanding, and (ii) no shares of CoreComm Common Stock are held in
the treasury of CoreComm. Section 4.3 of the CoreComm Disclosure Schedule shows,
as of March 6, 2000, the number of shares of CoreComm Common Stock reserved for
future issuance pursuant to (i) stock options granted and outstanding as of the
date hereof, the plans under which such options were granted and award
agreements pursuant to which "non-plan" options were granted (collectively, the
"CoreComm Stock Plans"), (ii) the conversion of CoreComm's issued and
outstanding 6% convertible subordinated notes due 2006; and (iii) the exercise
of outstanding warrants. As of the date hereof, no other shares of CoreComm
Common Stock are issued and outstanding. All shares of CoreComm Common Stock
subject to issuance as specified above are duly authorized and, upon issuance on
the terms and conditions specified in the instruments pursuant to which they are
issuable, shall be validly issued, fully paid and nonassessable. There are no
obligations, contingent or otherwise, of CoreComm to repurchase, redeem or
otherwise acquire any shares of CoreComm Common Stock.
(b) Except as reserved for future grants of options under the CoreComm
Stock Plans and as set forth on Section 4.3 of the CoreComm Disclosure Schedule,
(i) there are no equity securities of any class of CoreComm, or any security
exchangeable into or exercisable for such equity securities, issued, reserved
for issuance or outstanding; (ii) there are no options, warrants, equity
securities, calls, rights, commitments or agreements of any character to which
CoreComm is a party or by which it is bound obligating CoreComm to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
equity securities of CoreComm or obligating to grant, extend, accelerate the
vesting of or enter into any such option, warrant, equity security, call, right,
commitment or agreement; and (iii) there are no voting trusts, proxies or other
voting agreements or understandings with respect to the shares of equity
securities of CoreComm.
4.4 No Violation. Except as set forth on Section 4.4 of the CoreComm
Disclosure Schedule, neither the execution or delivery of this Agreement or any
agreement contemplated hereby by CoreComm, nor the performance by CoreComm of
the transactions contemplated hereby or thereby violates, conflicts with,
results in a breach of or constitutes a default (or an event or condition that,
with notice or lapse of time or both, would constitute a default) under, gives
others any right of termination,
B-36
acceleration, amendment, cancellation or revocation of or results in the
termination, amendment, cancellation or revocation of, or accelerates the
performance required by, or causes the acceleration of the maturity of any
liability or obligation pursuant to, or results in the creation or imposition of
any Lien upon any of the property or assets of CoreComm under (a) the CoreComm
Memorandum of Association or the CoreComm Bylaws or (b) except as individually
or in the aggregate would not have a Material Adverse Effect on any Law or any
Contract to which CoreComm is a party or by which CoreComm or its assets or
properties is or may be bound or affected.
4.5 SEC Filings; Financial Statements.
(a) CoreComm has timely filed all forms, reports and documents filed or
required to be filed by CoreComm with the SEC since January 1, 1999
(collectively, the "CoreComm SEC Reports") and has made the CoreComm SEC Reports
available to ATX. The CoreComm SEC Reports (i) at the time filed, complied in
all material respects with the applicable requirements of the Securities Act of
1933, as amended (the "Securities Act") and the Securities Exchange Act of 1934
(the "Exchange Act"), as the case may be, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated in such
CoreComm SEC Reports or necessary in order to make the statements in such
CoreComm SEC Reports, in the light of the circumstances under which they were
made, not misleading. CoreComm does not know of any fact, event or circumstance
that has occurred since the date of the last CoreComm SEC Report, or that now
exists, that (i) would have been required to be disclosed in a CoreComm SEC
Report if it had occurred prior to the date thereof, or (ii) that has had or
would have a Material Adverse Effect individually or in the aggregate.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the CoreComm SEC Reports complied as to form in
all material respects with the applicable published rules and regulations of the
SEC with respect thereto, was prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited statements, in conformity with the requirements of
Form 10-Q under the Exchange Act) and fairly presented in all material respects
the consolidated financial position of CoreComm as of the dates and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not or are not expected to
be material in amount. The CoreComm SEC Reports contain a balance sheet as of
September 30, 1999 which shall be referred to as the "CoreComm Balance Sheet".
September 30, 1999 shall be referred to as the "CoreComm Balance Sheet Date."
4.6 Absence of Certain Changes. Except as disclosed in the CoreComm SEC
Reports or in the CoreComm Disclosure Schedule, since the CoreComm Balance Sheet
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Date, there has not been any condition, event or occurrence that would have a
Material Adverse Effect to CoreComm, individually or in the aggregate.
4.7 Consents and Approvals. Except for consents and approvals that will
be obtained prior to Closing and except for those consents and approvals with
regard to ATX's Communication Permits that are listed in Sections 3.10(d) and
3.12 of the ATX Disclosure Schedule (the "ATX Communications Consents") (which
consents and approvals other than the ATX Communications Consents are listed in
Section 4.7 of the CoreComm Disclosure Schedule and which have heretofore been
provided to ATX for review) and consents and approvals the failure of which to
obtain would not, individually or in the aggregate, have a Material Adverse
Effect or prevent or impede or delay the consummation of the transactions
contemplated hereby, CoreComm is not required to obtain, transfer or cause to be
transferred any consent, approval or License of, or make any declaration, filing
or registration with, any third party or any governmental or regulatory
authority in connection with (a) the execution and delivery by CoreComm of this
Agreement or any agreement contemplated hereby, or (b) the consummation by
CoreComm of the transactions contemplated hereby or thereby except for those
required under (i) the HSR Act, (ii) the Communications Act, (iii) the rules and
regulations of any PUC and local, state and foreign Government Entities
identified in the CoreComm Disclosure Schedule pursuant to applicable Utilities
Laws and (iv) the antitrust or other competition laws of any jurisdiction.
4.8 Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fees or any similar commission or fee in connection with the
transaction contemplated by this Agreement, based upon arrangements made by or
on behalf of CoreComm, except Goldman, Sachs & Co., whose fees and expenses will
be paid by CoreComm.
4.9 Accounting and Tax Matters. Neither CoreComm nor any of its
Affiliates has taken or agreed to take any action which would prevent the
Mergers and the Recapitalization from constituting transactions qualifying as
exchanges under Section 351 of the Code and a merger under Section 368(a) of the
Code.
4.10 Registration Statement; Proxy Statement/Prospectus. The information
supplied or to be supplied by CoreComm or its Affiliates for inclusion in or
incorporation by reference in the Registration Statement shall not at the time
the Registration Statement is declared effective by the SEC under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information
supplied or to be supplied by CoreComm for inclusion in the Proxy Statement
shall not, on the date the Proxy Statement is first mailed to stockholders of
CoreComm, at the time of the Stockholders' Meeting and at the Effective Time,
contain any statement which, at such time and in light of the circumstances
under which it was made, is false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements made in the Proxy Statement not false or misleading, or omit to state
any material fact necessary to correct any
B-38
statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders' Meeting which has become false or misleading. If
at any time prior to the Effective Time any event relating to CoreComm or any of
its Affiliates, officers or directors should be discovered by CoreComm which
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, CoreComm shall promptly inform ATX.
4.11 Fairness Opinion. CoreComm has received an opinion from Goldman,
Sachs & Co., dated March 9, 2000, that the transactions contemplated herein are
fair, from a financial point of view, based on information available as of the
date of the opinion, and such opinion has not been withdrawn.
4.12 Legal Opinion. As of the date of execution of this Agreement,
CoreComm has received reasonable assurances from Paul, Weiss, Rifkind, Wharton
and Garrison, counsel to CoreComm and from Kelley, Drye and Warren LLP,
regulatory counsel to ATX, regarding each firm's ability to deliver the opinions
required by Section 6.19 of the Agreement.
4.13 NO OTHER REPRESENTATIONS OR WARRANTIES. EXCEPT AS SPECIFICALLY AND
EXPRESSLY SET FORTH IN THIS ARTICLE 4, (I) CORECOMM MAKES NO REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, RELATING TO CORECOMM, OR THE ASSETS OR BUSINESS OF
CORECOMM, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY AS TO
VALUE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR FOR ORDINARY
PURPOSES, OR ANY OTHER MATTER AND (II) CORECOMM MAKES NO, AND HEREBY DISCLAIMS
ANY, OTHER REPRESENTATIONS OR WARRANTIES REGARDING THE ASSETS OF OR THE BUSINESS
OF CORECOMM.
V. OBLIGATIONS OF ATX AND CORECOMM
5.1 Other Transactions. From and after the date hereof and continuing
until the Closing or the earlier termination of this Agreement pursuant to
Article 8 hereof, ATX agrees that it will not and will not authorize any
officer, director, employee or agent of ATX or any Affiliate of ATX to, or
authorize any investment banker, attorney, accountant or other representative
retained by ATX to, directly or indirectly, without the written consent of
CoreComm, solicit or encourage, furnish any information with respect to ATX to
any Person in connection with, or engage in any discussions with any other
Person in connection with, any proposal for a merger or other business
combination involving ATX or for the acquisition of a substantial equity
interest in ATX or a substantial portion of ATX's assets, other than as
contemplated by this Agreement.
5.2 Supplemental Disclosure. Each of ATX and CoreComm shall have the
continuing obligation promptly to supplement or amend the ATX Disclosure
Schedule or the CoreComm Disclosure Schedule, as the case may be, with respect
to any matter arising or discovered after the date hereof that, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the ATX
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Disclosure Schedule or the CoreComm Disclosure Schedule, as the case may be;
provided, however, that for purposes of the rights and obligations of the
parties hereunder, any such supplemental or amended disclosure shall not be
deemed to have been disclosed as of the date of this Agreement unless agreed to
in writing by the parties. Notwithstanding the delivery of new ATX Disclosure
Schedules or new CoreComm Disclosure Schedules, no representation or warranty
set forth herein shall be deemed modified by the information set forth in such
new ATX Disclosure Schedules or new CoreComm Disclosure Schedules unless the
other party hereto accepts such new ATX Disclosure Schedules or new CoreComm
Disclosure Schedules in writing; provided that completion of Closing by the
other party hereto shall be deemed acceptance of new ATX Disclosure Schedules or
new CoreComm Disclosure Schedules delivered pursuant to this Section 5.2.
5.3 Conduct of Business. From the date of this Agreement to the Closing,
other than as set forth on Section 5.3 of the ATX Disclosure Schedule, ATX shall
conduct its business (and ATX shall conduct the business of ATX Merger Sub) only
in the ordinary course and consistent with past practice and the business plan
of ATX, which business plan has previously been delivered by ATX to CoreComm.
Without limiting the generality of the foregoing, and except as otherwise
expressly provided in this Agreement or consented to in writing by CoreComm from
the date of this Agreement to the Closing, ATX shall:
(a) use its reasonable best efforts to preserve its business
organization and its current relationships with its employees, suppliers,
distributors, customers, subscribers and others having business
relationships with it and to keep available to it the services of its
employees;
(b) not split, combine, reclassify, issue, deliver, sell, pledge or
otherwise encumber or subject to any Lien, any equity interests, or any
rights, options or warrants to acquire any shares of capital stock, or
declare, set aside or pay any distribution in respect of any equity
interest, or redeem, purchase or otherwise acquire any equity interest;
(c) through July 31, 2000 make capital expenditures set forth in Section
1.2 of the ATX Disclosure Schedule, at the time called for by such Section,
and after July 31, 2000, such further capital expenditures as required to
execute its current business plan within the time periods contemplated
thereby but only to the extent (i) requested by CoreComm and (ii) that
CoreComm is willing to provide by loan the funds required therefor;
(d) not take any action which would have resulted in a breach of Section
3.7 had such action taken place after the ATX Balance Sheet Date, but prior
to the date hereof;
(e) not take any action that would result in any of its representations
or warranties set forth in this Agreement becoming untrue or cause any of
the conditions to the Closing set forth in Article 6, to not be satisfied,
other than those
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actions that would not materially adversely affect ATX's ability to
consummate the transactions contemplated by this Agreement;
(f) not merge or consolidate with any other person or (except in the
ordinary course of business) acquire a material amount of assets of any
other person or acquire the securities of any other Person;
(g) not sell, lease, license, mortgage, encumber, subject to Lien or
otherwise surrender, relinquish, encumber, or dispose of any assets other
than the disposition of obsolete or damaged assets in the ordinary course
of its business;
(h) not change any method of accounting or accounting practice used by
them, except for any change required by this Agreement or by United States
generally accepted accounting principles;
(i) not establish or increase the benefits under, or promise to
establish, modify or increase the benefits under, any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing,
stock option (including without limitation, the granting of stock options,
stock appreciation rights, performance awards, or restricted stock awards),
stock purchase or other employee benefit plan or employment, consulting or
severance agreement, or otherwise increase the compensation payable to any
directors, officers or employees of ATX, except in the ordinary course of
business and consistent with past practice, or establish, adopt or enter
into any collective bargaining agreement;
(j) amend its articles of organization, by-laws or other comparable
organizational documents, except for any change required by this Agreement;
(k) take any action to expand the states in which any of its businesses
currently operate, other than pursuant to public announcements made prior
to the date hereof or as may be required under agreements entered into
prior to the date hereof;
(l) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for the obligations of any person for
borrowed money, except for indebtedness incurred on reasonable commercial
terms for the purpose of funding capital expenditures contemplated by
Section 1.2 of the ATX Disclosure Schedule;
(m) not take or agree to take any action that would prevent the Merger
and Recapitalization from qualifying as exchanges under Section 351 of the
Code or as reorganizations under Section 368 of the Code;
(n) not pay any bonus or other extraordinary compensation to any ATX
Stockholder except to the extent otherwise expressly permitted by this
Agreement; and
(o) not agree or commit to do any of the foregoing.
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Further, ATX hereby covenants that ATX Merger Sub shall conduct no activity
following its incorporation other than in connection with the transactions
contemplated by this Agreement.
5.4 Confidentiality. ATX and CoreComm shall hold, and shall cause their
respective Affiliates, employees, agents, consultants and advisors to hold, in
strict confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law (including, without limitation,
disclosure requirements under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, or the requirement of any stock
exchange or the NASDAQ National Market), all documents and information
concerning the other parties furnished to it by any other party or its
representatives in connection with the transaction contemplated by this
Agreement (except to the extent that such information shall be shown to have
been (a) previously known by the party to which it was furnished, (b) in the
public domain through no fault of such party or (c) later lawfully acquired from
other sources by the party to which it was furnished), and each party shall not
release or disclose such information to any other person, except its auditors,
attorneys, financial advisors, bankers and other consultants and advisors in
connection with the transaction contemplated by this Agreement. Each party shall
be deemed to have satisfied its obligation to hold confidential information
concerning or supplied by the other party if it exercises the same care as it
takes to preserve confidentiality for its own similar information.
(a) As promptly as practicable after the execution of this Agreement, ATX
and CoreComm shall jointly prepare and file with the SEC the Proxy Statement and
the Registration Statement in which the Proxy Statement will be included. Such
Registration Statement shall register the shares to be issued under the Merger
and, to the extent legally permissible, the shares of ATX Common Stock to be
issued in the Recapitalization, and, if legally permitted, shall also register
the resale of the shares of ATX Convertible Preferred Stock (including the
shares of ATX Common Stock issuable upon conversion thereof) to be issued
pursuant to the Recapitalization. CoreComm and ATX shall use their reasonable
best efforts to cause the Registration Statement to become effective as soon
after such filing as practicable. The Proxy Statement shall include the
recommendations of the Board of Directors of CoreComm in favor of this Agreement
and the Merger.
(b) CoreComm and ATX shall use their reasonable best efforts make all
necessary filings with respect to the Merger under the Securities Act and the
Exchange Act and applicable state blue sky laws and the rules and regulations
thereunder.
5.6 Stockholders' Meeting. CoreComm will take, in accordance with
applicable law and the CoreComm Memorandum of Association and the CoreComm
Bylaws, all actions necessary to convene the meeting of holders of CoreComm
Common Stock (the "CoreComm Stockholders' Meeting") as promptly as practicable
after the Registration Statement is declared effective to consider and vote upon
the adoption of this Agreement and the Domestication Merger. Subject to
fiduciary and other legal obligations under applicable law and the terms of this
Agreement, CoreComm's Board of Directors shall
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recommend that the stockholders of CoreComm adopt this Agreement and thereby
approve the transactions contemplated hereby and shall take all lawful action to
solicit such adoption.
5.7 Cooperation; Regulatory Filings.
(a) Subject to the terms and conditions of this Agreement, each party
hereto will use its reasonable best efforts 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 laws and regulations to consummate the transaction
contemplated by this Agreement as soon as practicable after the date hereof
(including furnishing all information required by the FCC, any State regulatory
agency or commission or any municipal authority). In furtherance and not in
limitation of the foregoing, each of CoreComm and ATX shall (i) make an
appropriate filing of a Notification and Report Form pursuant to the HSR Act
with respect to the transaction contemplated hereby as promptly as practicable
and to supply as promptly as practicable any additional information and
documentary material that may be requested pursuant to the HSR Act and to
otherwise use its reasonable best efforts to cause the expiration or termination
of the applicable waiting periods under the HSR Act as soon as practicable; and
(ii) make an appropriate filing with the Federal Communications Commission (the
"FCC") requesting the FCC's written consent to the transaction contemplated
hereby (the "FCC Consent Application").
(b) Each party hereto shall, in connection with the efforts referenced in
this Section 5.7 to obtain all requisite approvals and authorizations for the
transaction contemplated by this Agreement under the HSR Act, the Communications
Act or any other Regulatory Law (as defined below), (i) cooperate in all
respects with each other in connection with any filing or submission and in
connection with any investigation or other inquiry, including any proceeding
initiated by a private party; (ii) promptly inform the other parties of any
communication received by such party from, or given by such party to, the
Antitrust Division of the Department of Justice (the "DOJ"), the Federal Trade
Commission (the "FTC"), the FCC or any other Governmental Entity and of any
material communication received or given in connection with any proceeding by a
private party, in each case regarding the transaction contemplated hereby, and
(iii) permit the other party to review any communication given by it to, and
consult with each other in advance of any meeting or conference with, the DOJ or
any such other Governmental Entity or, in connection with any proceeding by a
private party, with any other Person, and to the extent permitted by the DOJ or
such other applicable Governmental Entity or other Person, give the other party
the opportunity to attend and participate in such meetings and conferences. For
purposes of this Agreement, "Regulatory Law" means the Sherman Act, as amended,
the Clayton Act, as amended, the HSR Act, the Communications Act, the Federal
Trade Commission Act, as amended, and all other federal, state and foreign, if
any, 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 of competition through merger or acquisition.
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(c) In furtherance and not in limitation of the covenants of the parties
contained in this Section 5.7, if any administrative or judicial action or
proceeding, including any proceeding by a private party, is instituted (or
threatened to be instituted) challenging the transaction contemplated by this
Agreement as violative of any Regulatory Law, each of the parties hereto shall
cooperate in all respects with each other and contest and resist any such action
or proceeding and use its respective reasonable best efforts to have vacated,
lifted, reversed or overturned any decree, judgment, injunction or other order,
whether temporary, preliminary or permanent, that is in effect and that
prohibits, prevents or restricts consummation of the transaction contemplated by
this Agreement.
(d) If any objections are asserted with respect to the transaction
contemplated hereby under any Regulatory Law or if any suit is instituted by any
Governmental Entity (including any foreign governmental entity) or any private
party challenging the transaction contemplated hereby as violative of any
Regulatory Law, each of the parties hereto shall use its reasonable best efforts
to resolve (through litigation, settlement or otherwise as CoreComm and ATX
shall reasonably determine) any such objections or challenge as such
Governmental Entity or private party may have to such transaction under such
Regulatory Law so as to permit consummation of the transaction contemplated by
this Agreement.
(e) Each party hereto shall consult with, and utilize reasonable best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable (including using its best
efforts to provide all appropriate and necessary assistance to the other parties
hereto) with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary or
advisable in order to consummate the transaction contemplated by this Agreement
and each party will keep the other party apprized of the status of matters
relating to completion of the transaction contemplated hereby.
(f) Nothing in this Section 5.7 shall require CoreComm or ATX to sell, hold
separate or otherwise dispose of or conduct its business in a specified manner,
or permit the sale, holding separate or other disposition of, any of its assets
or the conduct of its business in a specified manner, or agree to payments or
modifications to contractual arrangements, whether as a condition to obtaining
any approval from a Governmental Entity or any permits, consents, approvals or
authorization of any other Person or for any other reason, if in CoreComm's or
ATX's sole judgment, as the case may be, such sale, holding separate or other
disposition of, or the conduct of its business in a specified manner or
agreement or modification, would reasonably be expected to materially diminish
the value of the transaction contemplated hereby to CoreComm or ATX, as the case
may be.
(g) CoreComm shall have the right to have its designated representatives,
as provided to ATX from time to time (the "Designated CoreComm
Representatives"), present within normal business hours and without material
disruption to the business of ATX for consultation at ATX's principal offices
from the date hereof until the Closing Date. Such Designated CoreComm
Representatives shall have the right to review and become familiar with the
conduct of the business of ATX and shall be available to be
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consulted and shall have authority on behalf of CoreComm in regard to
consultation in regard to Material Decisions (as defined below in this Section
5.7(g)). CoreComm shall take all reasonable actions necessary to ensure that its
Designated CoreComm Representatives will be readily available during normal
business hours. Without written notice to and favorable consultation (which
shall not be unreasonably withheld, delayed or conditioned with respect to time
or content) with the Designated CoreComm Representatives, ATX shall not take any
action involving any Material Decision. "Material Decision" shall mean, for
purposes of this Agreement, any of the following to the extent the same may
affect the assets, the obligations or the business of ATX following the date
hereof: (i) any entering into, termination or material amendment of, or waiver
of any ATX's rights in respect of, any material contracts; (ii) any purchase
order in excess of $100,000 in any instance to be delivered, or the payment for
which shall become due, after the Closing Date; (iii) the acceptance of any
material customer contract that deviates from the terms and conditions of
current pricing policies; (iv) any action to respond to any material customer or
regulatory complaint outside of the ordinary course of business; (v) any general
communication with customers related to the business or to the Merger; or (vi) a
material change in pricing, promotional, marketing or any other decision that
would affect any of ATX's customary profit margins.
5.8 Public Announcements. CoreComm and ATX shall consult with each other
before issuing any press release or otherwise making any public statement with
respect to this Agreement or the transaction contemplated hereby and shall not
issue any press release or make any such public statement without the prior
consent of the other party, which consent shall not be unreasonably withheld or
delayed except as may be required by applicable law or any requirement of any
stock exchange on which the stock of any party is listed.
5.9 Effect of Due Diligence. In connection with CoreComm's investigation
of the business of ATX, CoreComm may have received from or on behalf of ATX
certain projections, including projected statements of operating revenues and
income from operations of ATX. CoreComm acknowledges that there are
uncertainties inherent in attempting to make such estimates, projections and
other forecasts and plans, that CoreComm is familiar with such uncertainties,
that CoreComm is taking full responsibility for making its own evaluation of the
adequacy and accuracy of all estimates, projections and other forecasts and
plans so furnished to it (including the reasonableness of the assumptions
underlying such estimates, projections and forecasts), and that CoreComm shall
have no claim against ATX, or any of its Affiliates with respect thereto.
Accordingly, ATX makes no representation or warranty with respect to such
estimates, projections and other forecasts and plans (including the
reasonableness of the assumptions underlying such estimates, projections and
forecasts).
5.10 Letters from Accountants; New Financial Statements.
(a) CoreComm shall use its reasonable best efforts to cause to be delivered
to ATX "cold comfort" letters of Ernst & Young LLP its independent public
accountants, dated the date on which the Registration Statement shall become
effective and as of the
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Effective Time, respectively, and addressed to ATX, in form and substance
reasonably satisfactory to ATX and comparable in scope and substance to letters
customarily delivered by independent public accountants in connection with
registration statements similar to the Registration Statement and transactions
such as the transactions contemplated by this Agreement.
(b) On or prior to March 15, 2000, ATX shall provide to CoreComm revised
versions of the ATX Financial Statements and the revised ATX Balance Sheet,
which will present the combined balance sheets of the ATX Partnerships at
December 31, 1997, December 31, 1998 and December 31, 1999 and the related
combined statements of income, shareholder's equity and changes in financial
position for the years then ended, including the footnotes thereto, and shall be
certified by BDO Seidman, LLP, and shall fairly present the consolidated
financial position of ATX and/or the ATX Partnerships at such dates and the
consolidated results of operations of the ATX Partnerships and their
subsidiaries for such respective periods, in each case in accordance with
generally accepted accounting principles consistently applied for the periods
covered thereby. (The foregoing consolidated financial statements of ATX and the
ATX Partnerships are herein called the "GAAP Audited Financials.") Prior to the
filing of the Registration Statement, ATX shall use its reasonable best efforts
to cause its accountants to supply to CoreComm the GAAP Audited Financials.
(c) ATX shall use its reasonable best efforts to cause to be delivered to
CoreComm "cold comfort" letters of BDO Seidman LLP, its independent public
accountants, dated the date on which the Registration Statement shall become
effective and as of the Effective Time, respectively, and addressed to CoreComm
in form and substance reasonably satisfactory to CoreComm and comparable in
scope and substance to letters customarily delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement and transactions such as the transaction contemplated by
this Agreement.
(d) ATX shall provide CoreComm with any and all further financial
statements or information which is necessary or advisable to prepare or include
in the Registration Statement.
5.11 Nasdaq Application. ATX shall promptly prepare and submit an
application to The Nasdaq National Market to list the shares of ATX Common Stock
to be issued in the Merger and the Recapitalization and shall use its best
efforts to cause such shares of ATX Common Stock to be approved for listing by
The Nasdaq National Market, subject to official notice of issuance, prior to the
Closing Date.
5.12 Stock Plans and Options. CoreComm currently intends to implement a
stock option plan under which award grants may be made to post-Effective Time
employees of ATX and its subsidiaries, and that such post-Effective Time
employees shall include persons who prior to the Effective Time were employees
of ATX or its subsidiaries as well as of CoreComm or its subsidiaries; it being
understood that (i) nothing set forth herein shall be deemed to grant to any
specific employee of post-Effective Time ATX or its subsidiaries any right to
receive an option grant under any such plan, and (ii) the decision as to whether
or not any such plan shall be implemented, the terms of any such
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stock option plan, and the terms of any grant made thereunder, shall be within
the discretion of post-Effective Time ATX, its board of directors, and any
committee of such board which may administer such plan.
5.13 Access and Investigations. Prior to the Closing Date, ATX agrees
that CoreComm shall be entitled to, through its employees and representatives,
including Paul, Weiss, Rifkind, Wharton & Garrison, and Ernst & Young LLP
(collectively, their "Representatives"), to make such investigation of the
properties, businesses and operations of ATX, and such examination of the books,
records and financial condition of ATX, as it wishes. Any such investigation and
examination shall be conducted at a reasonable time, upon reasonable advance
notice and under reasonable circumstances and ATX shall cooperate fully therein;
provided, however, that no such investigation or examination shall interfere
with the day-to-day operations of ATX. No investigation by CoreComm shall
diminish or obviate any of the representations, warranties, covenants or
agreements of ATX contained in this Agreement. In order that CoreComm may have
full opportunity to make such physical, business, accounting and legal review,
examination or investigation as it may wish of the affairs of ATX, ATX shall
make available to the Representatives during such period all such information
and copies of documents concerning the affairs of ATX as the Representatives may
reasonably request, and shall permit the Representatives access to the
properties of ATX in all parts thereof.
5.14 Communications Licenses and Authorizations. ATX shall obtain and
maintain in full force and effect all Permits, and any renewals thereof, from
the FCC and any appropriate State PUC and any municipal authority, and make all
filings and reports and pay all fees reasonably necessary or required for the
continued operation of its business, as and when such Permits, filings or
reports are necessary or required, other than any Permits, filings or reports
which would not, individually or in the aggregate, have a Material Adverse
Effect.
5.15 FCC/State PUC Applications.
(a) As promptly as practicable after the execution and delivery of this
Agreement, ATX shall prepare and deliver to CoreComm ATX's completed portion of
all appropriate applications for FCC State PUC and municipal authority approval,
and such other documents as may be required, with respect to the assignment of
ATX's Permits to CoreComm (collectively, the "FCC/State PUC Applications"). As
promptly as practicable after the execution and delivery of this Agreement,
CoreComm shall prepare and deliver to ATX, CoreComm's portion of all appropriate
FCC/State PUC Applications. As soon as practical after the execution and
delivery of this Agreement, the parties shall file, or cause to be filed, the
FCC/State PUC Applications. If the Closing shall not have occurred for any
reason within any applicable initial consummation period relating to the FCC's
or the State PUCs grant of the FCC/State PUC Applications, and neither ATX nor
CoreComm shall have terminated this Agreement pursuant to Section 8.1, CoreComm
and ATX shall jointly request one or more extensions of the consummation period
of such grant. No party hereto shall knowingly take, or fail to take, any action
if the intent or reasonably anticipated consequence of such action or failure to
act is, or would be, to cause the FCC or State PUCs not to
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grant approval of the FCC/State PUC Applications or materially delay either such
approval or the consummation of the assignment of Permits and the Customer Base
of ATX.
(b) CoreComm and ATX shall each pay one-half of any FCC or State PUC fees
that may be payable in connection with the filing or granting of approval of the
FCC/State PUC Applications. Except as set forth in the immediately preceding
sentence, ATX and CoreComm each shall bear its own expenses in connection with
the preparation and prosecution of the FCC/ State PUC Applications. ATX and
CoreComm each shall use its reasonable best efforts to prosecute the FCC/State
PUC Applications in good faith and with due diligence before the FCC and the
State PUCs, and in connection therewith shall take such action or actions as may
be necessary or reasonably required in connection with the FCC/State PUC
Applications, including furnishing to the FCC and the State PUCs any documents,
materials or other information requested by the FCC and the State PUCs in order
to obtain such approvals as expeditiously as practicable.
(c) Promptly upon execution of this Agreement, each of ATX and CoreComm
shall take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on ATX or CoreComm, as the case may be, with
respect to this Agreement and the transactions contemplated hereby (including
furnishing all information required by the FCC or any state regulatory agency or
commission) and shall take all reasonable actions necessary to cooperate
promptly with and furnish information to CoreComm or ATX, as the case may be, in
connection with any such requirements imposed upon ATX or CoreComm in connection
with this Agreement and the transactions contemplated hereby.
5.16 Stockholders Agreement. At or prior to the Closing, each of the ATX
Stockholders, CoreComm and ATX, shall execute and deliver to CoreComm the
Stockholders Agreement, substantially in the form attached as Exhibit C hereto.
5.17 Transition Services Agreement. At or prior to the Closing, each of
ATX and CoreComm shall execute and deliver the Transition Services Agreement,
substantially in the form attached as Exhibit D hereto.
5.18 Reincorporation and Acquisition. Notwithstanding anything to the
contrary contained herein, CoreComm shall be permitted to take any and all
action which may be deemed advisable or necessary (i) in order to provide for
the reincorporation of CoreComm from Bermuda to Delaware and (ii) to enter into
and consummate the potential transaction identified by CoreComm to ATX on March
6, 2000.
5.19 Termination of Agreements. At the Effective Time, all contracts
between ATX and the ATX Stockholders or any of their respective Affiliates or
family members (other than this Agreement, the Escrow Agreement, the
Indemnification Escrow Agreement and the Senior Management Employment Agreements
(as defined in Section 5.31)) shall be terminated and ATX shall have no further
liability or obligations thereunder, except that the leases identified on
Exhibit E shall continue in effect beyond
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the Effective Date but shall be amended on the Effective Date as described on
Exhibit E.
5.20 Escrow Agreements. At or prior to the Closing, (i) each of ATX, the
ATX Stockholders, CoreComm and the escrow agent thereunder shall execute and
deliver the Escrow Agreement contemplated by Section 1.2, and (ii) each of ATX,
the ATX Stockholders and the Escrow Agent thereunder, shall execute and deliver
the Indemnification Escrow Agreement contemplated by Section 9.7, each of which
shall contain usual and customary terms and conditions for the transactions
contemplated hereby be in such form as shall be reasonably satisfactory to the
respective parties thereto and CoreComm.
5.21 Phantom Unit Plan. At the Effective Time, ATX Stockholders shall
take all actions reasonably required to satisfy ATX's obligations pursuant to
ATX's 1998 Phantom Unit Plan, all of which funds and/or securities utilized to
satisfy such obligations shall be derived from the Exchange Consideration, as
further delineated on Exhibit F hereto. ATX shall use its reasonable best
efforts to cause each Person receiving any consideration in satisfaction of
ATX's obligations pursuant to the 1998 Phantom Unit Plan to agree to enter into
agreements that include the terms outlined on Exhibit I.
5.22 Name. Following the Effective Time, the parties hereto shall
cooperate and take all actions required to cause ATX's name to be changed from
"ATX Telecommunications Services, Inc." to "CoreComm Limited".
5.23 Existing Stockholders' Agreement. On the Closing Date, the ATX
Stockholders and ATX shall terminate that certain Stockholders' Agreement dated
as of February 9, 2000 by and among Buruchian, Gravina, Karp and ATX (the
"Existing Stockholders' Agreement").
5.24 Negotiation of Term Sheets. Promptly following the date of execution
of this Agreement, ATX, CoreComm and the ATX Stockholders shall negotiate the
agreements or instruments contemplated by the term sheets identified in Sections
1.2 and 5.19 of this Agreement, each of which shall be consistent with such term
sheets and otherwise be in form and substance reasonably satisfactory to such
parties..
5.25 Operating Subsidiaries. Notwithstanding anything to the contrary
contained herein, ATX shall at the request of CoreComm take any and all action
which may be reasonably requested to place its operating assets at or
immediately prior to the Closing into one or more wholly-owned operating
subsidiaries.
5.26 Subchapter S Election. Notwithstanding anything to the contrary
contained herein, ATX shall take, and shall be permitted to take, any and all
action which may be deemed advisable or necessary in order to file Subchapter S
elections for the purposes of state and federal income taxes.
5.27 Assignment of Reimbursement Rights. As of the Effective Time, ATX
shall assign any right to reimbursement from health and welfare providers to the
ATX Stockholders.
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5.28 Certificate of Incorporation, Etc. Each of CoreComm, ATX and the ATX
Stockholders shall use their best efforts to ensure that the Certificate
Incorporation and then By-laws of ATX immediately prior to the Effective Time
shall be in the forms requested by CoreComm. ATX shall take such action as may
be necessary to effect Section 1.6 of this Agreement.
5.29 CoreComm Transactions. If prior to the Closing Date CoreComm shall
enter into a definitive agreement for a CoreComm Transaction, CoreComm shall
promptly notify ATX of such transaction. Nothing set forth in this Agreement
shall be deemed to prohibit or otherwise limit CoreComm from pursuing and
entering into agreements for or consummating CoreComm Transactions.
5.30 Protective Agreements. ATX shall insure that as of the Closing Date
each then current employee of ATX shall have executed ATX's standard
non-solicitation/confidentiality agreement in substantially the form previously
delivered to CoreComm.
5.31 Key Employee Employment Agreements. ATX shall use its reasonable
best efforts to enter into employment agreements to be effective from the
Closing Date with 15 key and/or management employees of ATX identified by
CoreComm (the "Identified Employees"), which employment agreements (the "Key
Employee Employment Agreements") shall contain the terms set forth on Exhibit I,
and shall also be otherwise in form and substance reasonably satisfactory to
CoreComm.
5.32 Gravina and Buruchian Employment Agreements. ATX shall offer to
enter into, and shall cause each of Gravina and Buruchian to enter into new
employment agreements with ATX to take effect on the Closing Date, which
agreements (the "Senior Management Employment Agreements") shall contain the
terms set forth on Exhibit I and shall otherwise be in form and substance
reasonably satisfactory to CoreComm.
5.33 Transaction Not Subject to Outside Conditions. The parties agree
that their respective obligations to consummate the transactions contemplated
hereby shall not be subject to, or intentionally delayed by any party hereto
pending satisfaction of, any condition not expressly provided for herein.
5.34 Working Capital Loans. If CoreComm requests ATX to make capital
expenditures following July 31, 2000, CoreComm shall loan to ATX the amount
required to fund such capital expenditures. Any such loan shall be at reasonable
commercial terms and collateral for a loan from CoreComm. If this Agreement
shall be terminated prior to the consummation of the Merger, all amounts
advanced by CoreComm to ATX shall be repaid, together with accrued unpaid
interest to the date of repayment and without set-off, not later than ten days
following such termination.
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VI. CONDITIONS TO OBLIGATIONS OF CORECOMM
The obligations of CoreComm under this Agreement are subject to the
satisfaction or waiver (such waiver being the exclusive right of CoreComm), at
or before the Closing, of each of the following conditions:
6.1 Representations and Warranties. Each of the representations and
warranties of ATX contained herein, and the statements contained in any
schedule, instrument, list, certificate or writing delivered by ATX pursuant to
this Agreement, that is qualified as to materiality or Material Adverse Effect
or which are contained in Section 3.5(b) shall be true and correct as of the
date when made and as of the Closing Date as if made at and as of the Closing
Date and each of such representations, warranties and statements (other than
those in Section 3.5(b)) that is not so qualified shall be true and correct in
all material respects as of the date when made and as of the Closing Date as if
made at and as of the Closing Date (except, in each case, for those
representations, warranties and statements that address matters only as of a
particular date, in which case they shall be true and correct, or true and
correct in all material respects, as applicable, as of such date).
6.2 Performance. ATX shall have performed and complied with all
agreements, obligations, covenants and conditions required by this Agreement to
be performed or complied with by ATX at or prior to the Closing that are
qualified as to materiality or Material Adverse Effect and shall have performed
and complied in all material respects with all other agreements, obligations,
covenants and conditions required by this Agreement to be performed or complied
with by ATX at or prior to the Closing that are not so qualified as to
materiality.
6.3 No Proceeding or Litigation. There shall not be instituted or pending
any suit, action, investigation, inquiry or other proceeding by or before any
court or governmental or other regulatory or administrative agency or commission
requesting or looking toward an order, judgment or decree that restrains or
prohibits the consummation of the transactions contemplated hereby.
6.4 No Injunction. No statute, rule, regulation, executive order, decree
or injunction shall have been enacted, entered, promulgated or enforced by any
court or governmental authority that prohibits the consummation of the
transactions contemplated hereby.
6.5 Officer's Certificates. The Chief Executive Officer of ATX shall have
delivered to CoreComm a certificate, dated the Closing Date, certifying the
fulfillment of the conditions specified in Sections 6.1, 6.2 and 6.3.
6.6 Consents and Approvals. All Licenses, Permits, consents, approvals
and authorizations of all third parties and Governmental Entities shall have
been obtained that are necessary in connection with the execution and delivery
by ATX of this Agreement, or the consummation by ATX of the transactions
contemplated hereby, and shall be in full force and effect, and copies of all
such Licenses, Permits, consents, approvals and authorizations shall have been
delivered to CoreComm, except to the
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extent that such lack of approval or delivery would not have a Material Adverse
Effect on ATX following consummation of the transactions contemplated hereby.
6.7 HSR Act. The waiting period (and any extension thereof) applicable to
the consummation of the transactions contemplated hereby under the HSR Act, if
applicable, shall have expired or been terminated.
6.8 No Material Adverse Change. From the date of this Agreement through
the Closing Date, there shall not have occurred any change in the financial
condition, business or operations of ATX that would individually or in the
aggregate, have a Material Adverse Effect.
6.9 Stockholder Approval. This Agreement and the Domestication Merger
shall have been approved in the manner required under applicable law by the
holders of the issued and outstanding shares of capital stock of CoreComm.
6.10 FCC/State PUC Consents. The FCC and State PUCs shall have granted by
Final Order the FCC/State PUC Consent Applications, without conditions,
qualifications or other restrictions that are likely to have a Material Adverse
Effect whether imposed by the FCC or any other Governmental Entity.
6.11 Registration Statement. The Registration Statement shall have become
effective under the Securities Act and shall not be subject of any stop order or
proceedings seeking a stop order.
6.12 Transition Services Agreement. ATX and UHC shall have executed and
delivered the Transition Services Agreement, which shall remain in full force
and effect.
6.13 Resignations. All resignations of directors and officers of ATX
which have been previously requested in writing by CoreComm shall have been
delivered to CoreComm.
6.14 The GAAP Financial Statements of ATX. CoreComm shall have received
the GAAP Audited Financials with no qualifications that would prevent the
inclusion of such financial statements in any SEC filing of CoreComm or ATX.
6.15 Stockholders' Agreement. The ATX Stockholders and ATX shall have
executed and delivered to CoreComm the ATX Stockholders' Agreement, which shall
remain in full force and effect.
6.16 NASDAQ Listing. The ATX Common Stock to be issued in the Merger and
the Recapitalization pursuant to this Agreement shall have been authorized for
listing on the NASDAQ National Market, subject to official notice of issuance.
6.17 Formation of ATX Merger Sub. ATX Merger Sub shall have been
incorporated and capitalized as described in Section 1.1.
6.18 Escrow Agreement. ATX, the ATX Stockholders and the Escrow Agent
shall have executed and delivered the Escrow Agreement, which shall remain in
full force and effect.
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6.19 Opinions of Counsel.
(a) Since the date of this Agreement, there shall have been no change in
applicable law or interpretations thereof, or any change in facts (including the
discovery of any facts not known as of the date of this Agreement) or
circumstance, which shall have prevented Paul, Weiss, Rifkind, Wharton &
Garrison, counsel to CoreComm, on the Closing Date, from delivering to CoreComm
a written opinion of such firm to the effect that for federal income tax
purposes the Merger and Recapitalization will constitute an exchange to which
Section 351 of the Code applies or a reorganization within the meaning of
Section 368(a) of the Code, or both.
(b) CoreComm shall have received an opinion, dated the Closing Date, from
ATX's telecommunications regulatory counsel, substantially in the form agreed to
by the parties.
(c) CoreComm shall have received an opinion, dated the Closing Date, from
Klehr, Harrison, Harvey, Branzburg and Ellers LLP, substantially in the form
agreed to by the parties.
6.20 Corporate Governance. ATX shall have taken all actions necessary so
that not later than the Closing Date, the composition of the Board of Directors
and each committee of the Board of Directors and each officer of ATX shall be
the same as those for CoreComm immediately prior to the Effective Date.
6.21 Necessary Consents. ATX shall have obtained all material consents
and approvals, including, but not limited to, any waivers, consents or approval,
in connection with the agreements (including any amendments thereto) set forth
on Exhibit H hereto, and each shall be in full force and effect.
6.22 Existing Stockholders' Agreement. The Existing Stockholders'
Agreement shall have been terminated and ATX shall have no further or continuing
obligations thereunder.
6.23 Employment Matters. ATX shall have entered into Key Employee
Employment Agreements in form and substance reasonably acceptable to CoreComm
with at least 5 Identified Employees so long as CoreComm has complied with its
obligation to offer employment to the Identified Employees as set forth on
Exhibit I. In addition, at least 50% of the persons receiving consideration in
satisfaction of ATX's obligations under the 1998 Phantom Unit Plan, plus all
Identified Employees shall have entered into agreements relating to Phantom
Unitholders as set forth on Exhibit I.
VII. CONDITIONS TO OBLIGATIONS OF ATX
The obligations of ATX under this Agreement are subject to the satisfaction
or waiver (such waiver being the exclusive right of ATX), at or before the
Closing, of each of the conditions set forth in this Article VII. In the event
that CoreComm undertakes any action contemplated by the definition of Base
Adjustments in Section 1.2(i) prior to the Closing, no condition set forth in
this Article VII shall be deemed not to be satisfied
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if, but for such action or the consequences thereof, such condition would
otherwise be satisfied.
7.1 Representations and Warranties. Each of the representations and
warranties of CoreComm contained herein, and the statements contained in any
schedule, instrument, list, certificate or writing delivered by CoreComm
pursuant to this Agreement, that is qualified as to materiality or Material
Adverse Effect shall be true and correct as of the date when made and as of the
Closing Date if made at and as of the Closing Date and each of such
representations, warranties and statements that is not so qualified shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as if made at and as of the Closing Date (except, in each case, for
those representations, warranties and statements that address matters only as of
a particular date, in which case they shall be true and correct, or true and
correct in all material respects, as applicable, as of such date).
7.2 Performance. CoreComm shall have performed and complied with all
agreements, obligations, covenants and conditions required by this Agreement to
be performed or complied with by CoreComm at or prior to the Closing that are
qualified as to materiality or Material Adverse Effect and shall have performed
and complied in all material respects with all other agreements, obligations,
covenants and conditions required by this Agreement to be performed or complied
with by CoreComm at or prior to the Closing that are not so qualified as to
materiality.
7.3 No Proceeding or Litigation. There shall not be threatened,
instituted or pending any suit, action, investigation, inquiry or other
proceeding by or before any court or governmental or other regulatory or
administrative agency or commission requesting or looking toward an order,
judgment or decree that restrains or prohibits the consummation of the
transactions contemplated hereby.
7.4 No Injunction. No statute, rule, regulation, executive order, decree
or injunction shall have been enacted, entered, promulgated or enforced by any
court or governmental authority which prohibits the consummation of the
transactions contemplated hereby.
7.5 Officer's Certificate. CoreComm shall have delivered to ATX a
certificate, dated the Closing Date, executed by the Chief Executive Officer of
CoreComm, certifying to the fulfillment of the conditions specified in Sections
7.1, 7.2 and 7.3.
7.6 Consents and Approvals. All Licenses, Permits, consents, approvals
and authorizations of all third parties and Governmental Entities shall have
been obtained that are necessary in connection with the execution and delivery
by CoreComm of this Agreement, or the consummation by CoreComm of the
transactions contemplated hereby and shall be in full force and effect and
copies of all such Licenses, Permits, consents, approvals and authorizations
shall have been delivered to ATX, except to the extent such lack of approval or
delivery would not have a Material Adverse Effect on ATX following consummation
of the transactions contemplated hereby.
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7.7 HSR Act. The waiting period (and any extension thereof) applicable to
the consummation of the transactions contemplated hereby under the HSR Act, if
applicable, shall have expired or been terminated.
7.8 Registration Rights Agreement. ATX, CoreComm and each of the ATX
Stockholders shall have entered into a Registration Rights Agreement in the form
attached hereto as Exhibit G.
7.9 FCC/State PUC Consents. The FCC shall have granted by Final Order and
the State PUCs shall have granted the FCC/State PUC Consent Applications,
without conditions, qualifications or other restrictions that are likely to have
a Material Adverse Effect, whether imposed by the FCC or any other Governmental
Entity.
7.10 No Material Adverse Change. From the date of this Agreement through
the Closing Date, there shall not have occurred any change in the financial
condition, business or operations of CoreComm that would have a Material Adverse
Effect.
7.11 Registration Statement. The Registration Statement shall have become
effective under the Securities Act and shall not be subject of any stop order or
proceedings seeking a stop order.
7.12 Tax Opinion. Since the date of this Agreement, there shall have been
no change in law or interpretations thereof, or changes in facts (including the
discovery of facts not known as of the date of this Agreement) or circumstances,
which shall have prevented Klehr, Harrison, Harvey, Branzburg & Ellers LLP,
counsel to ATX, on the Closing Date, from delivering to ATX a written opinion of
such firm to the effect that for federal income tax purposes the Merger and
Recapitalization will constitute an exchange to which Section 351 of the Code
applies or a reorganization within the meaning of Section 368(a) of the Code, or
both.
7.13 Letters of Credit. Effective on the Closing Date, arrangements shall
have been made to replace or effectively relieve Karp or his Affiliates (other
than ATX or one of its subsidiaries) of liability under any letter of credit
issued on behalf of ATX which has been guaranteed or secured by Karp or one of
his Affiliates (other than ATX or one of its subsidiaries).
VIII. TERMINATION OF AGREEMENT
8.1 Termination of Agreement. This Agreement may be terminated at any
time prior to the Closing:
(a) by mutual agreement of ATX and CoreComm;
(b) by CoreComm, on or after the later of (x) October 31, 2000, or (y)
120 days following the date on which CoreComm last made an initial
announcement that it had entered into a definitive agreement for a CoreComm
Transaction, if any of the conditions provided in Article 6 of this
Agreement have not been satisfied and have not been waived in writing by
CoreComm prior to such date; provided that, in the case of a failure to
satisfy the conditions set forth in Section 6.3 as a result of a suit,
action, investigation, inquiry or other proceeding or
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Section 6.4 as a result of an order, decree or injunction, CoreComm shall
have used its reasonable best efforts to remove such suit, action,
investigation, inquiry or other proceeding in the case of Section 6.3 or
such order decree or injunction in the case of Section 6.4;
(c) by ATX on or after October 31, 2000, if any of the conditions
provided in Article 7 of this Agreement have not been satisfied and have
not been waived in writing by ATX prior to such date; provided that, in the
case of a failure to satisfy the conditions set forth in Section 7.3 as a
result of a suit, action, investigation, inquiry or other proceeding or
Section 7.4 as a result of an order, decree or injunction, ATX shall have
used its reasonable best efforts to remove such suit, action,
investigation, inquiry or other proceeding in the case of Section 7.3 or
such order, decree or injunction in the case of Section 7.4;
(d) by CoreComm if ATX breaches in a material respect any of its
representations, warranties or covenants contained in this Agreement and
such breach would give rise to the condition under Section 6.1 or 6.2 not
being satisfied and which breach cannot be or is not cured by the Closing
Date; or
(e) by ATX if CoreComm breaches in a material respect any of it
representations, warranties or covenants contained in this Agreement and
such breach would give rise to the condition under Section 7.1 or 7.2 not
being satisfied and which breach cannot be or is not cured by the Closing
Date.
8.2 Procedure Upon Termination.
(a) In the event of termination pursuant to Section 8.1, written notice
thereof shall immediately be given by the terminating party to the other party
and the transaction contemplated by this Agreement shall be terminated, without
further action or obligation on the part of either party except as set forth in
this Section 8.2, , except that any such termination shall be without prejudice
to the rights of any party on account of nonsatisfaction of the conditions set
forth in Articles 6 or 7 resulting from the intentional or willful breach or
violation of the representations, warranties, covenants or agreements of another
party under this Agreement.
(b) ATX, on the one hand, and CoreComm on the other hand, shall return all
documents, work papers and other material of the other parties relating to the
transaction contemplated hereby, whether obtained before or after the execution
hereof, to the party furnishing such items;
(c) all confidential information received by ATX or CoreComm with respect
to the business of the other parties or their Affiliates shall be treated in
accordance with Section 5.4.
IX. INDEMNIFICATION
9.1 Indemnification by ATX Stockholders. Subject to the limitations set
forth in this Article 9, and as an inducement to prompt CoreComm to enter into
this Agreement (without which such inducement CoreComm would not have entered
into this
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Agreement), each of the ATX Stockholders hereby agree, jointly and severally, to
indemnify and hold harmless ATX from and after the Closing against and with
respect to any and all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries, and deficiencies, including interest,
penalties, and reasonable fees and expenses of attorneys, experts, personnel and
consultants incurred by the Indemnified Party (as defined herein) (including in
any action or proceeding between the Indemnifying Party (as defined herein) and
the Indemnified Party or between the Indemnified Party and any third party or
otherwise) (together referred to as "ATX Losses") resulting from (i) any breach
of a representation, warranty, covenant, or agreement made by ATX, ATX Merger
Sub, or any of the ATX Stockholders, in this Agreement, the ATX Disclosure
Schedules or any other certificate or document delivered by ATX, ATX Merger Sub
or any of the ATX Stockholders to CoreComm pursuant to this Agreement each of
which representation, warranty, covenant or agreement shall be considered
without regard to any materiality or Material Adverse Effect qualification
therein for purposes of determining whether a breach has occurred, and any and
all demands, claims, actions, suits or proceedings, assessments, judgments,
costs and legal and other expenses incident to the foregoing, and (ii) the
failure of ATX to have either applied for or obtained any necessary regulatory
authorization or approval from any state public utilities commission or
comparable entity (regardless of whether or not such failure is disclosed in the
ATX Disclosure Schedule) in any state in which ATX had in excess of $25,000 of
revenues from intra-state operations in calendar year 1999.
9.2 Procedures for Indemnification.
(a) Promptly after receipt by a party (the "Indemnified Party") of notice
of the commencement of any action by a person not a party to this Agreement
involving the subject matter of the foregoing indemnity provisions other than
with respect to Taxes (a "Third Party Suit"), such Indemnified Party shall, if a
claim thereof is to be made against another party hereto (the "Indemnifying
Party") pursuant to the provisions of Section 9.1, promptly notify such
Indemnifying Party of the commencement thereof; but the omission to so notify
such Indemnifying Party will not relieve it from any liability which it may have
to the Indemnified Party to the extent the Indemnifying Party was not prejudiced
by such omission.
(b) The Indemnifying Party shall have ten (10) days from receipt of such
notice to notify the Indemnified Party whether or not it disputes its liability
to the Indemnified Party with respect to such Third Party Suit and whether or
not it desires, at its sole cost and expense, to defend such Third Party Suit.
If the Indemnifying Party shall so notify the Indemnified Party that it desires
to defend against such Third Party Suit, the Indemnifying Party shall have the
right to defend against such Third Party Suit (unless (i) the Indemnifying Party
is also a party to such Proceeding and the Indemnified Party determines in good
faith that joint representation would be inappropriate, or (ii) the Indemnifying
Party fails to provide reasonable assurance to the Indemnified Party of its
financial capacity to defend such Proceeding and provide indemnification with
respect to such Proceeding), with counsel reasonably satisfactory to such
Indemnified Party, by
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appropriate proceedings which shall be promptly settled or prosecuted by the
Indemnifying Party, so long as it diligently conducts such defenses, to a final
conclusion such that a (i) it will be conclusively established for purposes of
this Agreement that the claims made in that Proceeding are within the scope of
and subject to indemnification; (ii) no compromise or settlement of such claims
may be effected by the Indemnifying Party without the Indemnified Party's
consent unless (A) there is no finding or admission of any violation of Laws or
any violation of the rights of any Person and no effect on any other claims that
may be made against the Indemnified Party, and (B) the sole relief provided is
monetary damages that are paid in full by the Indemnifying Party; and (iii) the
Indemnified Party will have no liability with respect to any compromise or
settlement of such claims effected without its consent and the Indemnified Party
shall receive a full release. The Indemnified Party may elect to participate in
any such contest at its own cost and expense; provided, however, that the
control of such contest shall rest primarily with the Indemnifying Party.
(c) Notwithstanding the foregoing (i) if the defendants in any action
include both the Indemnified Party and the Indemnifying Party and the
Indemnified Party shall have reasonably concluded that there may be legal
defenses available to it which are different from or additional to those
available to the Indemnifying Party, or if there is a conflict of interest which
would prevent counsel for the Indemnifying Party from also representing the
Indemnified Party, the Indemnified Party shall have the right to select separate
counsel to participate in the defense of such Third Party Suit on behalf of such
Indemnified Party, at the cost of the Indemnified Party; and (ii) in the event
that such Third Party Suit involves potentially criminal or fraudulent activity
of an Indemnifying Party, the Indemnified Party shall have the right, at its
sole option, to defend such Third Party Suit at the expense of the Indemnifying
Party.
(d) If the Indemnifying Party shall fail to elect to defend against such
Third Party Suit, then the amount of any such Third Party Suit, including all
losses, judgments, expenses and costs incurred by the Indemnified Party in
connection with any defense thereof shall be deemed to be a liability of the
Indemnifying Party hereunder.
(e) After notice from the Indemnifying Party to such Indemnified Party of
its election to assume the defense thereof, the Indemnifying Party shall not be
liable to the Indemnified Party pursuant to the provisions of Sections 9.1 for
any legal or other expense subsequently incurred by such Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation, unless (i) the Indemnified Party shall have employed counsel in
accordance with Subsection (c) above, (ii) the Indemnifying Party shall not have
employed counsel reasonably satisfactory to the Indemnified Party to represent
the Indemnified Party within a reasonable time after the notice of the
commencement of the action, or (iii) the Indemnifying Party has authorized the
employment of counsel for the Indemnified Party at the expense of the
Indemnifying Party.
(f) In the event the Indemnified Party shall have any claim against the
Indemnifying Party hereunder which does not involve a claim or demand by or
against a third party, the Indemnified Party shall promptly notify the
Indemnifying Party of such
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claim, providing reasonable details of the facts giving rise to the claim and a
statement of the Indemnified Party's Loss in connection with the claim, to the
extent such Loss is then known to the Indemnified Party and, otherwise, an
estimate of the amount of the Loss that it reasonably anticipates that it will
incur or suffer; however, failure by the Indemnifying Party to give notice shall
not prejudice any rights contained herein.
9.3 Cooperation in Defense. In case of any claim, arbitration or legal
proceeding, the defense of which is assumed by an Indemnifying Party in
accordance with this Article 9, the Indemnified Party, upon request of the
Indemnifying Party, shall provide reasonable cooperation (at the expense of the
Indemnifying Party in accordance with this Article 9) in the defense thereof.
9.4 Limitations on Indemnification by ATX Stockholders. Notwithstanding
Section 9.1 or any other provision of this Agreement or applicable law, the ATX
Stockholders' aggregate liability for ATX Losses indemnified pursuant to Section
9.1 is subject to the following limitations:
(a) The ATX Stockholders shall have no liability for any ATX Loss unless
notice of a claim for such ATX Loss, specifying in reasonable detail the
basis for such claim, is made upon ATX Stockholders prior to the expiration
of the survival periods set forth in Section 10.1. The ATX Stockholders'
maximum aggregate liability for ATX Losses shall be $250,000,000; plus the
aggregate amount of any costs, charges and expenses (including without
limitation legal expenses) incurred by ATX and CoreComm in bringing or
enforcing any claims against the ATX Stockholders under this Agreement.
(b) The ATX Stockholders shall be liable for ATX Losses (other than ATX
Losses due to or arising out of any inaccuracy in or any breach of a
representation, warranty, covenant or agreement of ATX, ATX Merger Sub or
the ATX Stockholders contained in Sections 3.1, 3.2, 3.3 and 3.20) (the
"Basket Exclusions"), only if and to the extent that the aggregate ATX
Losses exceed $10,000,000; provided, however, that the ATX Stockholders
shall be liable only for amounts in excess of $5,000,000 (including the
Basket Exclusions); provided further that the ATX Stockholders shall be
liable for all ATX Losses related to the Basket Exclusions.
9.5 Mitigation of Losses.
(a) ATX Losses shall be subject to appropriate mitigation for (i) any
actual recovery from third parties (less attorneys' fees, expenses and other
costs of recovery), (ii) the actual collection of insurance proceeds (less
attorneys' fees, expenses and other costs of recovery, net of any adjustments to
the corresponding insurance premiums).
(b) Where an Indemnified Party is entitled (whether by right of indemnity,
reimbursement or any other means) to recover from any Person (not being any
employee or officer of an Indemnified Party, but including its or their
insurers) any sum with respect to any matter giving rise to a claim, then
(subject first to being indemnified and secured to the reasonable satisfaction
of an Indemnified Party against all costs, expenses, tax or other liabilities
which may be thereby incurred) the Indemnified Party
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shall take all reasonable steps to enforce such recovery (keeping the
Indemnifying Party fully informed of the progress of any action taken) and
account to the Indemnifying Party for any net amounts that are recovered (not
exceeding the amount previously paid by the Indemnifying Party and after first
taking account of any liability or loss of the Indemnified Party with respect to
which the Indemnifying Party is not liable).
9.6 Exclusivity. Following the Closing, the remedies (subject to the
limitations) set forth in this Article 9 shall be the sole remedy for claims for
liability for ATX Losses arising under this Agreement.
9.7 Indemnification Escrow. Upon the Recapitalization, 27% of the shares
of ATX Common Stock comprising the Exchange Consideration shall be deposited in
escrow (the "Indemnification Escrow") pursuant to an escrow agreement among ATX,
each ATX Stockholder and an escrow agent selected by such parties with the
consent of CoreComm (the "Indemnification Escrow Agreement"). Such shares
(together with any distributions thereon or the proceeds from the sales thereof)
shall be held in the Indemnification Escrow subject to the terms of the
Indemnification Escrow Agreement to secure the indemnification obligations of
the ATX Stockholders under Section 9.1 hereof, and such assets shall be held and
disbursed in accordance with the terms of the Indemnification Escrow Agreement.
In the event of any claim by ATX against such assets, the shares of ATX Common
Stock shall be valued at the closing price on the business day immediately
preceding the date on which such shares are to be disbursed to an Indemnified
Party in accordance with the terms of the Indemnification Escrow Agreement.
X. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
10.1 ATX, ATX Merger Sub and ATX Stockholders. Notwithstanding the right
of CoreComm to investigate fully the affairs of ATX, ATX Merger Sub and the ATX
Stockholders and notwithstanding any knowledge of facts determined or
determinable by CoreComm pursuant to such investigation or right of
investigation, CoreComm shall have the right to rely fully upon the
representations, warranties, covenants and agreements of ATX, ATX Merger Sub and
the ATX Stockholders contained in this Agreement or in any document or
certificate delivered pursuant to this Agreement. All such representations,
warranties, covenants and agreements shall survive the execution and delivery of
this Agreement and the Closing hereunder. Except for those representations and
warranties set forth in Section 3.3 hereof (all of which representations and
warranties shall survive without limitation as to time), all representations and
warranties of ATX and ATX Merger Sub contained in this Agreement shall expire
(i) April 30, 2001, and (ii) with respect to any claim related to taxes or
environmental representations and warranties, on the date upon which the
liability to which any such claim may relate is barred by all applicable statues
of limitations.
10.2 CoreComm. None of the representations, warranties, covenants and
agreements of CoreComm contained in this Agreement or in any document or
certificate delivered pursuant to this Agreement shall survive the Closing
hereunder other than those covenants that by their terms are to be performed
after the Closing.
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XI. MISCELLANEOUS
11.1 Expenses. Except as otherwise provided herein, each party hereto
shall pay all fees and expenses incurred by it in connection with this
Agreement.
11.2 Further Assurances. Following the Closing, at the request of any
party, the other party or parties shall deliver any further instruments of
transfer and take all commercially reasonable actions as may be necessary or
appropriate to effectuate any of the other transactions contemplated by this
Agreement.
11.3 Parties in Interest. This Agreement shall be binding upon, inure to
the benefit of, and be enforceable by the respective successors and permitted
assigns of the parties hereto. The rights and obligations of CoreComm and ATX
hereunder may not be assigned, in whole or in part, without the prior written
consent of the other, which shall not be unreasonably withheld and any attempt
to make any such assignment without such consent shall be null and void.
11.4 Entire Agreement, Amendments and Waiver.
(a) This Agreement, the exhibits, the schedules and other writings referred
to herein or delivered pursuant hereto that form a part hereof contain the
entire understanding, both written and oral, of the parties with respect to its
subject matter. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its subject matter.
(b) This Agreement may be amended only by a written instrument duly
executed by each of the parties hereto. Any condition to a party's obligations
hereunder may be waived in writing by such party to the extent permitted by law.
11.5 Interpretation. When a reference is made in this Agreement to
Articles, Sections, Exhibits or Schedules, such reference shall be to an Article
or Section of or Exhibit or Schedule to this Agreement unless otherwise
indicated. The table of contents, glossary of defined terms 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. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation." 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 not to any particular provision of
this Agreement. The term "or" is not exclusive.
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11.6 Notices. All notices, claims, certificates, requests, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, by facsimile transmission or mailed
(registered or certified mail, postage prepaid, return receipt requested or
recognized overnight carrier) as follows:
If to CoreComm to:
CoreComm Limited
110 East 59th Street
New York, NY 10022
Attention: Jared L. Gurfein, Esq.
Facsimile No.: (212) 906-8489
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Attention: Kenneth M. Schneider, Esq.
Facsimile No.: (212) 373-2825
If to ATX:
ATX Telecommunications Services, Inc.
50 Monument Road
Bala Cynwyd, PA 19004
Attention: Thomas Gravina
Facsimile No.: (610) 668-6336
with a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
260 South Broad Street
Philadelphia, PA 19102
Attention: Michael C. Forman, Esq.
Facsimile No.: (215) 568-6603
or to such other address as the Person to whom notice is to be given
may have previously furnished to the others in writing in the manner
set forth above, provided that notice of a change of address shall be
deemed given only upon receipt.
11.7 Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware without
regard to its or any other jurisdiction's conflicts of law rules.
11.8 Submission to Jurisdiction; Waivers. Each of CoreComm and ATX
irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by any other party hereto or its successors or assigns may be brought
and determined in the Chancery Court of the State of Delaware or any federal
District Court in the State of Delaware, and irrevocably submits with regard to
any such action or proceeding for itself and in respect to its property,
generally and unconditionally, to the exclusive jurisdiction of such courts,
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and agrees that service of process in any such action or proceeding shall be
effective if mailed to such party at the address specified in Section 11.6. Each
of CoreComm and ATX hereby irrevocably waives, and agrees not to assert, by way
of motion, as a defense, counterclaim or otherwise, in any action or proceeding
with respect to this Agreement, (a) any claim that it is not personally subject
to the jurisdiction of such courts for any reason other than the failure to
lawfully serve process, (b) that it or its property is exempt or immune from
jurisdiction of any such court or from any legal process commenced in such
courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise),
and (c) to the fullest extent permitted by applicable law, that (i) the suit,
action or proceeding in any such court is brought in an inconvenient forum, (ii)
the venue of such suit, action or proceeding is improper, (iii) this Agreement,
or the subject matter hereof, may not be enforced in or by such court and (iv)
any right to a trial by jury.
11.9 Third Parties. Nothing herein expressed or implied is intended or
shall be construed to confer upon or give to any person, other than the parties
hereto and their successors or permitted assigns, any rights or remedies under
or by reason of this Agreement.
11.10 Severability. If it is determined that any term or provision of
this Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transaction contemplated hereby is not affected in any manner
materially adverse to any party. To such end, the provisions of this Agreement
are agreed to be severable. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transaction contemplated hereby is consummated as originally
contemplated to the greatest extent possible.
11.11 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be deemed to be an original and considered one
and the same agreement and shall become effective when one or more counterparts
have been signed by each of the parties and delivered (including by facsimile
transmission) to the other parties hereto, it being understood that all parties
need not sign the same counterpart.
XII. DEFINED TERMS
12.1 Location of Certain Defined Terms. The following terms used in this
Agreement are defined in the Section indicated:
TERM SECTION
---- -----------
Applicable Amount 1.2
ATX forepart
ATX Balance Sheet 3.5
ATX Balance Sheet Date 1.2
ATX Bylaws 3.1
ATX Capital Expenditure Obligation 1.2
ATX Certificate of Incorporation 3.1
ATX Common Stock 1.2
ATX Debt 1.2
ATX Disclosure Schedule Article III
ATX Financial Statements 3.5
ATX Losses 9.1
ATX Merger Article III
ATX Merger Sub 1.1
ATX Merger Sub Common Stock 1.3
ATX Partnership Agreements 3.1
ATX Partnerships Article III
ATX Stockholders forepart
Authority 3.11
Base Adjustments 1.2
Base Stock Price 1.2
Basket Exclusions 9.4
Buruchian forepart
Capital Expenditure Adjustment 1.2
Capital Expenditures 1.2
Cash Consideration 1.2
Certificate of Merger 1.1
Certificate 1.4
Closing 2.1
Closing Date 2.1
Closing Exchange Consideration 1.2
Closing Financial Statements Delivery Date 1.2
Closing Stock Price 1.2
Collar Stock Price 1.2
Code forepart
Communications Act 3.12
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TERM SECTION
---- -----------
Communications Permits 3.10
Constituent Corporations 1.1
Contract 3.4
Controlled Group 3.17
Convertible Preferred Stock 1.2
CoreComm forepart
CoreComm Balance Sheet 4.5
CoreComm Balance Sheet Date 4.5
CoreComm Bylaws 4.1
CoreComm Common Stock 1.3
CoreComm Disclosure Schedule Article IV
CoreComm Memorandum of Association 4.1
CoreComm Merger Sub 1.1
CoreComm Merger Sub Common Stock 1.1
CoreComm SEC Reports 4.5
CoreComm Stock Plans 4.3
CoreComm Stockholders' Meeting 5.6
CoreComm Transaction 1.2
Current Market Price 1.2
Dispute Notice 1.2
DGCL 1.1
Domestication Merger 1.1
DOJ 5.7
Effective Time 1.1
Environmental Laws 3.19
ERISA 3.19
Escrow 1.2
Escrow Agreement 1.2
Estimated Closing ATX Debt 1.2
Estimated Closing Capital Expenditures 1.2
Estimated Closing Working Capital 1.2
Exchange Agent 1.4
Exchange Act 4.5
Exchange Consideration 1.2
Exchange Fund 1.4
FCC 5.7
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TERM SECTION
---- -----------
FCC Consent Application 5.7
FCC Permits 3.10
FCC/State PUC Applications 5.16
Final ATX Debt 1.2
Final Capital Expenditure Adjustment 1.2
Final Shortfall 1.2
Final Working Capital Excess 1.2
Final Working Capital Shortfall 1.2
Financial Closing Financial Statements 1.2
FTC 5.7
GAAP 1.2
GAAP Audited Financials 5.11
GAAP Balance Sheet 5.11
GAAP Balance Sheet Date 5.11
GAAP Interim Financials 5.11
Gravina forepart
HSR Act 3.12
Identified Employees 5.30
Indemnification Escrow 9.7
Indemnification Escrow Agreement 9.7
Indemnified Party 9.3
Indemnifying Party 9.3
Intellectual Property 3.16
Karp forepart
Karp Trust forepart
Key Employee Employment Agreements 5.30
Law 3.4
Laws 3.10
Legal Actions 3.8
Liabilities 3.6
Licenses 3.10
Liens 3.4
Losses 9.1
Material Decision 5.7
Merger 1.1
Merger Ratio 1.3
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TERM SECTION
---- -----------
Monthly Period 1.2
Municipal Permits 3.10
Permits 3.10
Phantom Unit Plan 5.14
Pre-Closing Capital Expenditure Adjustment 1.2
Pre-Closing Financial Statements 1.2
Pre-Closing Working Capital Adjustment 1.2
Pro Formas 1.2
Proposed Closing Financial Statements 1.2
Proxy Statement 3.22
PUC 3.12
Recapitalization 1.2
Registration Statement 3.22
Regulatory Law 5.8
Representatives 5.14
Representation Termination Date 9.3
Review Period 1.2
Rights Holders 7.8
Scheduled Intellectual Property 3.16
Securities Act 4.5
Senior Management Employment Agreements 5.31
Settlement Period 1.2
Stockholders 9.1
Stockholders' Representative 1.2
State Permits 3.10
State PUCs 3.10
Stockholders' Meetings 3.22
Subsidiary 1.3
Surviving Corporation 1.1
Third Party Suit 9.2
Taxes 3.11
Trigger Day 1.2
Unaudited 1999 Financials 3.5
Utilities Laws 3.12
Working Capital 1.2
Working Capital Shortfall 1.2
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12.2 Other Defined Terms. As used in this Agreement, the following terms
have the meanings indicated:
"Affiliate" of a specified Person means a Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the Person specified.
"Benefit Plans" means, with respect to any Person, each employee
benefit plan, program, arrangement and contract (including, without
limitation, any "employee benefit plan," as defined in Section 3(3) of
ERISA and any bonus, incentive, deferred compensation, stock bonus, stock
purchase, restricted stock, stock option, employment, retention,
termination, stay agreement or bonus, change in control and severance plan,
program, arrangement and contract) and on the date of this Agreement, which
is maintained or contributed to by such Person or under which, on the date
of this Agreement, such Person may have an actual or contingent liability
(excluding any plans or programs required to be maintained or contributed
to under the local law of the jurisdiction in which such person is
employed).
"Final Order" means an order, action or decision of a Governmental
Entity that has not been reversed, stayed, or enjoined and as to which the
time to appeal, petition for certiorari or seek reargument or rehearing or
administrative reconsideration or review has expired and as to which no
appeal, reargument, petition for certiorari or rehearing or petition for
reconsideration or application for review is pending or as to which any
right to appeal, reargue, petition for certiorari or rehearing for
reconsideration or review has been waived in writing by each party having
such a right or, if any appeal, reargument, petition for certiorari or
rehearing or reconsideration or review thereof has been sought, the order
or judgment of the court or agency has been affirmed by the highest court
(or the administrative entity or body) to which the order was appealed or
from which the argument or rehearing or reconsideration or review was
sought, or certiorari has been denied, and the time to take any further
appeal or to seek certiorari or further reargument or rehearing, or
reconsideration or review, has expired.
"Governmental Entity" means any government, court, administrative
agency or commission or other governmental authority or instrumentality,
domestic, foreign or supranational, or any quasi-governmental or private
body exercising any regulatory, taxing, importing or other governmental or
quasi-governmental authority.
"Knowledge" means the actual knowledge or notice of Gravina, Buruchian,
Karp or the Karp Trust or any officer or director of ATX, after due
inquiry.
"Material Adverse Effect" means, with respect to any entity, a material
adverse effect on its business, assets, operations or financial condition,
taken as a whole, other than any such effect arising out of or resulting
from general economic or financial conditions or changes in or affecting
the communications industry.
"Person" means an individual, corporation, limited liability
corporation, limited liability partnership, partnership, association,
trust, unincorporated organization,
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other entity or group (as defined in the Securities Exchange Act of 1934,
as amended).
XIII. ATX STOCKHOLDER COVENANTS
13.1 No Transfers. Each ATX Stockholder agrees that prior to the Closing
such ATX Stockholder will not, and will not contract to, sell or otherwise
pledge, encumber, transfer or dispose of such ATX Stockholder's
pre-Recapitalization shares of ATX shares or any interest therein other than (i)
pursuant to the Recapitalization or (ii) with CoreComm's prior written consent.
13.2 Cooperation; No Solicitation. Each ATX Stockholder hereby agrees to
cooperate reasonably with CoreComm and ATX in connection with the consummation
of the transactions contemplated thereby. Each ATX Stockholder agrees that it
will not, and will not cause or permit any of its affiliates, or any of their
respective officers, employees, representatives and agents, directly or
indirectly, to solicit, initiate or encourage any inquiries or the making of any
proposal with respect to an acquisition of ATX or its businesses or assets, or
such ATX Stockholder's pre-Recapitalization shares or provide information to or
negotiate, explore, otherwise engage in discussions with or in any other way
cooperate with any Person (other than CoreComm or its subsidiaries or their
respective directors, officers, employees, agents and representatives) with
respect to any such transaction or enter into any agreement, arrangement or
understanding requiring or causing ATX to abandon, terminate or fail to
consummate the transactions contemplated by this Agreement.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of CoreComm and ATX, Thomas Gravina, Debra
Buruchian, Michael Karp and The Florence Karp Trust on the date first written
above.
CORECOMM LIMITED
By: /s/ RICHARD J. LUBASCH
------------------------------------
Name: Richard J. Lubasch
Title: Senior Vice
President-General
Counsel
ATX TELECOMMUNICATIONS
SERVICES, INC.
By: /s/ MICHAEL KARP
------------------------------------
Name: Michael Karp
Title:
SOLELY WITH RESPECT
TO ARTICLES 9, 11, 12 and 13 HEREOF
/s/ THOMAS GRAVINA
---------------------------------------------------------
Thomas Gravina
/s/ DEBRA BURUCHIAN
---------------------------------------------------------
Debra Buruchian
/s/ MICHAEL KARP
---------------------------------------------------------
Michael Karp
THE FLORENCE KARP TRUST
By: /s/ LISA G. KAMINSKY
--------------------------------------------------------
Name: Lisa G. Kaminsky
Title: Trustee
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EXHIBIT C
FORM OF STOCKHOLDER AGREEMENT
AGREEMENT dated as of , 2000 among ATX Telecommunications
Services, Inc., a Delaware corporation (the "Company") and each of the Persons
listed on Schedule A hereto (each, a "Stockholder").
WHEREAS, pursuant to a Recapitalization Agreement and Plan of Merger, dated
as of March 9, 2000, as amended (the "Merger Agreement"), by and among CoreComm
Limited ("CoreComm"), the Company, the Stockholders (with respect only to
certain provisions thereof), ATX Merger Sub, Inc. ("ATX Merger Sub") and
CoreComm Merger Sub, Inc. ("CoreComm Merger Sub"), (i) CoreComm has been merged
with and into CoreComm Merger Sub (with each issued and outstanding share of
CoreComm's common stock converted into a share of common stock of CoreComm
Merger Sub) (the "Domestication Merger") and (ii) CoreComm Merger Sub is being
merged with and into the Company (the "Merger");
WHEREAS as a result of the Merger (i) each share of the Company's common
stock, par value $.01 per share (the "Pre-Recapitalization Common Stock") issued
and outstanding immediately prior to the effective time of the Merger (the
"Effective Time") is being converted into shares the Company's
Common Stock, par value $.01 per share (the "Common Stock"),
shares of the Company's Convertible Preferred Stock, par value $.01 per share
(the "Preferred Stock"), as well as the right to receive cash or Senior Notes
(as defined in the Merger Agreement) and (ii) each share of common stock of
CoreComm Merger Sub issued and outstanding immediately prior to the Effective
Time, other than treasury shares, is being converted into one share of the
Common Stock; and
WHEREAS, it is a condition to the obligation of CoreComm Merger Sub to
consummate the Merger, that the Company and each of the holders immediately
prior to the Effective Time of the issued and outstanding shares of
Pre-Recapitalization Common Stock enter into this Agreement; and
WHEREAS, the Stockholders are the holders of all of the shares of Pre-
Recapitalization Common Stock issued and outstanding immediately prior to the
Effective Time; and
WHEREAS, each Stockholder has independently determined that the Merger is
in its best interest and each Stockholder wishes to facilitate the consummation
of the Merger by entering into this Agreement and agreeing to be bound by the
terms hereof;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, provisions and covenants herein contained, each Stockholder and the
Company hereby agree as follows:
Section 1 Covenants of Stockholders with Respect to Voting Securities of
the Company.
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During the term of this Agreement and subject to all of the provisions
hereof, each Stockholder and the Company agree as follows:
1.1 Acquisition of Voting Securities. Each Stockholder shall not acquire,
agree to acquire or offer or propose to acquire, directly or indirectly, or in
conjunction with or through any Person, record or beneficial ownership of any
Voting Securities (as hereinafter defined), except (i) through the exercise of
conversion rights, if any, of Voting Securities (including any conversion of the
Preferred Stock); (ii) by way of stock splits, reclassifications or stock
dividends or other distributions or offerings made on a pro rata basis to
holders of Voting Securities or any class of Voting Securities; (iii) from
another Stockholder by bequest (including, without limitation, through the
creation of a trust), gift, will, pledge, hypothecation or otherwise in
accordance with clause (i) of Section 1.6 hereof; (iv) pursuant to a bequest or
similar gift or transfer from a Person who is not a Stockholder, including,
without limitation, through the creation of a trust for the benefit of a
Stockholder; (v) pursuant to a will or the laws of descent and distribution from
a Person who is not a Stockholder; or (vi) pursuant to the grant or exercise of
stock options or the receipt of other compensation or benefits involving Voting
Securities granted to a Stockholder in such Stockholder's capacity (if
applicable) as an employee or consultant of the Company or any subsidiary of the
Company; provided, however, that if, in connection with the transfer of Voting
Securities to a Stockholder pursuant to clauses (iv) and (v) of this Section
1.1, a trust, corporation or other entity is formed for the purpose of holding
Voting Securities for the benefit of a Stockholder (other than solely as an
income beneficiary of a trust), then, as a condition precedent to the receipt by
such Stockholder of any direct or indirect beneficial interest in such Voting
Securities, such trust, corporation or other entity shall agree to be bound by
the terms and conditions of a stockholder agreement having the same or
substantially the same terms and conditions as this Agreement.
If a Stockholder shall acquire, directly or indirectly, record or
beneficial ownership of, or the right to acquire, any Voting Securities in
contravention of this Agreement, then such Stockholder shall promptly notify the
Company, and the Company, in its sole discretion, may either (x) purchase (or
cause its designee(s) to purchase) any or all of such acquired Voting Securities
at a price equal to the price paid by such Stockholder or (y) require such
Stockholder to dispose of, within 30 days from the date on which the Company
requests such Stockholder to do so, only in accordance with the provisions of
Section 1.6 (ii) or (iv), the Voting Securities acquired in violation of this
Section 1.1, provided that any sale may be delayed by the Stockholders to avoid
a violation of Section 16(b) of the Exchange Act or any other provisions of the
Exchange Act or Securities Act, including, without limitation, any applicable
volume limits under Rule 144 of the Securities Act, or any successor rules or
regulations permitting sales of unregistered or otherwise restricted securities.
Each Stockholder hereby acknowledges that any acquisition of Voting Securities
in contravention of this Agreement shall constitute a breach of this Agreement
and that the Company's right to purchase or require the disposition of Voting
Securities pursuant to this Section 1.1 shall not be exclusive and shall be in
addition to any other rights and remedies the Company may have in connection
with a breach of this Agreement.
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For the purposes of this Agreement, "Voting Securities" means all
securities of the Company, or any successor to the Company, entitling the holder
thereof to vote as a stockholder for any purpose or under any circumstance or
any securities convertible into or exchangeable for under any circumstance such
securities or any rights, warrants or options to acquire (through purchase,
exchange, conversion or otherwise) any such securities under any circumstance.
1.2 Voting of Voting Securities. Each Stockholder shall vote or direct
the vote of all Shares of Voting Securities that are (a) acquired pursuant to
the Merger, (b) acquired by a Stockholder pursuant to Section 1.1, (c) held in
trusts, corporations or other entities formed as contemplated by Section 1.6 or
(d) otherwise hereinafter acquired, with respect to which such Stockholder has
the legal capacity to vote or to direct the vote of such Voting Securities, on
each matter submitted to a vote of the stockholders of the Company, (x) in the
same proportion as the votes cast by all holders of Voting Securities other than
the Stockholders and any affiliates and associates of the Company, with respect
to such matter, or, (y) in the event of a proposed change of control transaction
for the Company, in the manner recommended to the stockholders by the Board of
Directors of the Company provided that the Board of Directors, prior to such
recommendation, shall have received an opinion from a nationally recognized
investment banking firm to the effect that the transaction or the consideration
to be received by the unaffiliated holders of the Common Stock is fair from a
financial point of view to such stockholders; provided, further, that in the
absence of such opinion such Voting Securities shall be voted as provided in
clause (x) of this Section 1.2.
Each Stockholder shall take such action as may be required so that all
Voting Securities with respect to which such Stockholder has the legal capacity
to vote or to direct the vote of such Voting Securities as provided for herein
shall be present in person or by proxy at all duly noticed and convened meetings
of holders of Voting Securities for the purpose of determining the presence of a
quorum at such meetings.
1.3 No Voting Trusts. No Stockholder shall, directly or indirectly,
deposit any Voting Securities in a voting trust or in any other manner, except
pursuant to this Agreement, subject any Voting Securities to any arrangement or
agreement with respect to the voting thereof.
1.4 No Election Contests. No Stockholder shall, directly or indirectly,
solicit proxies or become a "participant" in a "solicitation" in opposition to
the recommendation of the Company's Board of Directors with respect to any
matter, including, without limitation, any "election contest" relating to the
election of directors of the Company (as such terms are defined in Regulation
14A under the Exchange Act) or initiate, propose or otherwise solicit
stockholders of the Company for the approval of one or more stockholder
proposals at any time, or induce or attempt to induce any other person to
initiate any stockholder proposal; provided, however, that each Stockholder
shall vote any Voting Securities directly or indirectly beneficially owned by
such Stockholder in any "election contest" in accordance with the provisions of
the first paragraph of Section 1.2 hereof.
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1.5 No Syndications. No Stockholder shall, directly or indirectly, join
or encourage the formation of a partnership, limited partnership, syndicate or
other "group," or otherwise act in concert with any other Person (except as
contemplated by Section 1.2 hereof) for the purpose of affecting or influencing
control of the Company or acquiring, holding, disposing of or Voting Securities.
1.6 Disposition of Voting Securities.
(a) Prior to ,(1) no Stockholder shall directly or
indirectly, offer, sell, assign, pledge, encumber or otherwise dispose of or
transfer in any manner any shares of Common Stock held by such Stockholder (the
shares of Common Stock which may not be offered, sold, assigned, pledged,
encumbered or otherwise disposed of during such period being the "Restricted
Shares"), except that the Restricted Shares may be pledged in respect of a
margin loan or to a bona fide third party lending institution provided that the
pledgee shall be bound by the restrictions contained in this sentence; provided
however, that if less than 50% of the Senior Notes (as defined in the Merger
Agreement) issued to the Stockholders pursuant to the Merger Agreement have been
repaid within six (6) months of the Closing (as defined in the Merger
Agreement), the restrictions set forth in this Section 1.6(a), with respect to
25% of the Restricted Shares held by such Stockholder shall terminate on the six
month anniversary of the Closing; provided, however, that disposition of any
such shares that are released from such restrictions shall be subject to the
volume limitations set forth in Rule 144(e) under the Securities Act.
(b) In addition, except as set forth above no Stockholder shall, directly
or indirectly, offer, sell, assign, pledge, encumber or otherwise dispose of or
transfer in any manner any Voting Securities (or enter into agreements or
understandings with respect to the foregoing), if after such disposition, the
Person holding such Voting Securities would own 5% or more of the Total Voting
Power (or Voting Securities which are convertible into or exercisable for shares
which, after giving effect to such exercise or conversion, would represent 5% or
more of the Total Voting Power). Any offer, sale, assignment, pledge,
encumbrance or other disposition or transfer of Voting Securities not otherwise
prohibited by this Agreement shall only be effected, to the extent otherwise
legally permissible, in the following manners: (i) pursuant to a bona fide
public offering of Voting Securities (which may include a secondary distribution
effected through the facilities of any national securities exchange on which the
Voting Securities are listed); provided, however, that in case of any such
proposed public offering, each Stockholder selling pursuant to such offering
(the "Selling Stockholder") will use his/her/its best efforts (and will instruct
the managing underwriter of any such public offering or broker-dealer to or
through which such public offering is being made to use its best efforts) to
achieve a sufficiently broad public distribution of the securities being offered
(in light of the number of securities being offered), with the intention that no
person or related group of persons should purchase in such public offering
Voting Securities representing 5% or more of the Total Voting Power; (ii)
pursuant to an unsolicited open market sale
(1) Nine (9) months from the closing.
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or sales during any three-month period involving, in the aggregate, Voting
Securities representing not more than 1% of the Total Voting Power, as defined
in Section 5.4, (in accordance with the requirements as to the manner of sale
set forth in Rule 144(f) and (g) of the Securities Act or any successor rules or
regulations permitting sales of unregistered or otherwise restricted securities,
if such sale is subject to Rule 144 or such successor rules or regulations) on
any national securities exchange on which the Voting Securities are listed;
(iii) pursuant to a tender offer made by the Company or any subsidiary of the
Company or made by a third person to the stockholders of the Company as to which
the Company's Board of Directors has recommended to the stockholders of the
Company; (iv) pursuant to a privately-negotiated transaction with a Person who
is not a Stockholder; provided, that in no case shall any such sale, transfer or
other disposition under this clause (iv) be made to such Person if, immediately
after such transaction, such Person (based upon the written representation of
such Person, which as a condition precedent to such sale, transfer or other
disposition shall be delivered to such Stockholder and to the Company prior to
the consummation of such transaction), together with its affiliates and
associates would be the direct or indirect beneficial or record owner of Voting
Securities (when added to the Voting Securities (if any) already beneficially
owned by such Person and its affiliates and associates) representing in excess
of 5% of the Total Voting Power; (v) pursuant to a will or the laws of descent
and distribution; provided, that the estate of a Stockholder shall be bound by
the terms and conditions of this Agreement and if, immediately after any
distribution out of such estate, any distributee, together with such
distributee's affiliates and associates would (other than solely as an income
beneficiary of a trust) be the direct or indirect beneficial or record owner of,
or have the right to acquire, Voting Securities (when added to the Voting
Securities (if any) already owned by such distributee and his/her affiliates and
associates representing in excess of 5% of the Total Voting Power, then such
distributee shall, as a condition precedent to receiving such shares of Voting
Securities, agree to be bound by the terms and conditions of a stockholder
agreement having the same terms and conditions as this Agreement; (vi) pursuant
to a bequest or similar gift or transfer to any Person who is not a Stockholder
or; provided that if, immediately after delivery of a bequest or similar gift or
transfer, including, but not limited to, through the creation of a trust, the
recipient, together with such recipient's affiliates and associates (including,
as the case may be, the Stockholder making such transfer), would (other than
solely as an income beneficiary of a trust) be the direct or indirect beneficial
or record owner of, or have the right to acquire, Voting Securities (when added
to the Voting Securities (if any) already owned by such recipient and its
affiliates and associates (including, as the case may be, the Stockholder making
such transfer)) representing in excess of 5% of the Total Voting Power, then
such recipient shall, as a condition precedent to receiving such shares of
Voting Securities, agree to be bound by the terms and conditions of a
stockholder agreement having the same terms and conditions as this Agreement; or
(vii) as a result of any pledge or hypothecation to a bona fide financial
institution to secure a bona fide loan, guaranty or other financial
accommodation or as a result of any foreclosure with respect thereto; provided,
however, that in connection with any transfer by a Stockholder of Voting
Securities pursuant to clauses (v) or (vi) of this Section 1.6 to a trust,
corporation or other entity and a
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Stockholder retains the authority, as trustee or otherwise, to vote, acquire or
dispose of, or to direct the voting, acquisition or disposition of, Voting
Securities to be held by such trust or other entity, then as a condition
precedent to the transfer of such shares of Voting Securities to such trust or
other entity, such Stockholder shall cause such trust or other entity to be
bound by the terms and conditions of a stockholder agreement having the same or
substantially the same terms and conditions as this Agreement.
Notwithstanding anything to the contrary contained herein, a Stockholder
shall not dispose of or otherwise transfer any Voting Securities in violation of
the provisions of Section 5 of the Securities Act.
1.7 No Solicitation. No Stockholder shall propose, solicit or participate
in any fashion, in any transaction relating to an acquisition of, a business
combination or similar transaction with, or a change of control of, the Company
or make or solicit or encourage any Person to make a tender offer for Voting
Securities.
1.8 Legend on Voting Securities. Each Stockholder agrees that each
certificate representing its Voting Securities shall bear the following legend,
which will remain thereon as long as such Voting Securities are subject to the
restrictions contained in this Agreement:
The shares represented by this certificate are subject to the
provisions of a Stockholder Agreement dated as of , 2000, among
the Company and certain Stockholders, and may not be sold or transferred
except in accordance therewith. Copies of said Agreement are on file at the
offices of the Secretary of the Company.
The Company may enter a stop transfer order with the transfer agent (or agents)
and the registrar (or registrars) of the Voting Securities against the transfer
of legended Voting Securities held by a Stockholder except in compliance with
the requirements of this Agreement. The Company agrees to remove promptly any
stop transfer order with respect to, and issue promptly either legended (if the
Voting Securities remain subject to the restrictions of this Agreement) or
unlegended certificates in substitution for, certificates for any such Voting
Securities that are no longer subject to or are to be transferred in compliance
with the restrictions contained in this Agreement. Without limiting the
generality of the foregoing, the Company shall promptly remove any stop transfer
order in effect with respect to such certificates, upon the delivery to the
Company of an opinion of counsel to a Stockholder, in form and substance
reasonably satisfactory to the Company, that legended certificates representing
Voting Securities are no longer subject to this Agreement or that such Voting
Securities are being transferred in compliance with the provisions of Sections
1.6, and shall promptly issue unlegended certificates in substitution for such
legended certificates, except if such legended certificates are being
transferred pursuant to Section 1.6 to a transferee who shall be bound by the
terms and conditions of a Stockholder Agreement, in which event the Company may
issue legended certificates.
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Section 2. Representations and Warranties.
2.1 Representations and Warranties of the Stockholders. Each Stockholder
represents and warrants to the Company as follows:
(i) At the Effective Time, such Stockholder will be the record and
beneficial owner of the Shares of Common Stock and Preferred Stock set
forth beside its name on Schedule A hereto (such Stockholder's "Shares")
and will be the lawful owner of such Shares, free and clear of all liens,
charges, encumbrances, voting agreements and commitments of every kind,
other than this Agreement. Such Stockholder has full legal power, authority
and right to vote all of such Stockholder's Shares in the manner required
by this Agreement without the consent or approval of, or any other action
on the part of, any other person or entity.
(ii) The execution, delivery and performance by such Stockholder of
this Agreement has been approved by all necessary action on the part of
such Stockholder.
(iii) This Agreement has been duly executed and delivered by such
Stockholder and constitutes the valid and binding agreement of such
Stockholder, enforceable against the Stockholder in accordance with its
terms.
(iv) The execution, delivery and performance of this Agreement by such
Stockholder does not violate or breach, and will not give rise to any
violation or breach of, any law, contract, instrument, arrangement or
agreement by which such Stockholder is, or any of such Stockholder's Shares
are, bound.
(v) The execution, delivery and performance of this Agreement by such
Stockholder does not create or give rise to any right in any other Person
or entity (other than the Company) with respect to such Stockholder's
Shares or any other Voting Securities.
2.12 Representations and Warranties of the Company. The Company
represents and warrants to each Stockholder as follows:
(i) The execution, delivery and performance by the Company of this
Agreement has been approved by all necessary corporate action on the part
of the Company.
(ii) This Agreement has been duly executed and delivered by a duly
authorized officer of the Company and constitutes a valid and binding
agreement of the Company, enforceable against The Company in accordance
with its terms.
(iii) The execution and delivery of this Agreement by the Company does
not violate or breach, and will not give rise to any violation or breach
of, the charter or bylaws of the Company, or, except as will not materially
impair its ability to effectuate, carry out or comply with all of the terms
of this Agreement, any law, contract, instrument, arrangement or agreement
by which the Company is bound.
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2.3 No Indirect Conduct. No Stockholder shall engage in any conduct or
take any action through any agent or any entity acting in concert with such
Stockholder that the Stockholder has hereby agreed not to engage in or take.
Section 3. Covenants of the Company.
3.1 Registration Rights. During the term and subject to all of the
provisions hereof (including, without limitation Section 1.6(vi)), the Company
agrees to provide registration rights to each Stockholder on the terms and
subject to the provisions set forth in Registration Rights Agreement attached as
Appendix I hereto.
3.2 Access to Management. The Company agrees that so long as a
Stockholder continues to hold 5% or more (or in the case of Debra Buruchian and
Thomas Gravina, 2% or more) of any class of Voting Securities, the Company shall
provide such Stockholder with an opportunity on a regularly scheduled basis to
review with senior management of the Company, significant issues facing the
Company; provided, however, that such Stockholder shall agree (i) to maintain
the confidentiality of any non-public information disclosed to such Stockholder
in any such session, and (ii) if necessary, refrain from engaging in any
transaction involving (x) the Company's securities while in possession of any
material non-public information about the Company disclosed to such Stockholder
by the Company in the course of the Company's complying with the provisions of
this Section 3.2 or (y) or any other securities to which such material non-
public information relates.
Section 4. Term of Agreement.
The term of this Agreement shall commence at the Effective Time and shall
terminate with respect to any given Stockholder (but only such Stockholder) (x)
in the case of Michael Karp and The Florence Karp Trust, when such Stockholders
(together with any transferees who are members of such Stockholder's immediate
family or entities described in clause (v) of Section 1.6 hereof) ceased to own
Voting Securities having, in the aggregate, 5% or more of the Total Voting
Power, and (y) in the case of each of Debra Buruchian and Thomas Gravina, when
such Stockholder (together with any transferees who are members of such
Stockholder's immediate family or entities described in clause (v) of Section
1.6 hereof) ceases to own less than 50% of the Voting Securities issued to such
party pursuant to the Recapitalization (after giving effect to any stock splits
or stock dividends), unless the transaction or transactions which resulted in
such Stockholder ceasing to hold such threshold number or percentage of Voting
Securities shall have violated the terms of this Agreement. For purposes hereof,
ownership of Voting Securities shall include record ownership of such securities
as well as beneficial ownership thereof within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934, as amended.
Section 5. Miscellaneous.
5.1 Specific Performance. The Company and each Stockholder acknowledge
and agree that irreparable damage would occur in the event any of the provisions
of this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the Company or a
Stockholder, as the case may
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be, shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically, the terms and
provisions hereof in any court of the United States or any state thereof having
jurisdiction, in addition to any other remedy to which it may be entitled at law
or equity.
5.2 The Term "Company." The term "Company" shall be deemed to include any
successor to the Company by way of merger, consolidation, sale of assets or
otherwise, except as the context otherwise requires, it being the intention
hereof that this Agreement shall continue to be binding on each Stockholder
notwithstanding such merger, consolidation, sale of assets or other succession,
unless the provisions of Section 4.2 of this Agreement shall otherwise provide.
5.3 The Terms "Affiliate," Associate," "Beneficial Owner" "Entity," and
"Person." As used herein, the term "affiliate" shall have the meaning set forth
in Rule 12b-2 under the Exchange Act; the term "beneficial owner" (which shall
include "beneficially owned" or other similar phrasing as used herein) shall
have the meaning set forth in Section 13(d)(3) of the Securities Act; the term
"associate" shall mean (1) a corporation or organization (other than the Company
or a subsidiary of the Company) of which such Person (as defined herein) is an
officer or partner or is, directly or indirectly, the beneficial owner of 10
percent or more of any class of equity securities, (2) any trust or other estate
in which such Person has a substantial beneficial interest or as to which such
Person serves as trustee or in a similar capacity, and (3) any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such Person; and the term "Person" shall mean any individual, partnership,
corporation, joint venture, association, unincorporated organization, trust,
government or agency thereof, or any other entity.
5.4 The Term "Total Voting Power." The term "Total Voting Power," as used
in this Agreement, shall mean the aggregate voting power of all Voting
Securities outstanding at the time of any determination which at such time have
ordinary voting power to vote in the election of directors of the Company. In
determining Total Voting Power for purposes of this Agreement, the Stockholder
may conclusively rely on the most recent reports filed by the Company with the
SEC in which the number of Voting Securities outstanding is set forth or from
which Total Voting Power can reasonably be derived, it being understood that
each Stockholder shall not be considered to be in breach of this Agreement if
he/she has acted in good faith on the basis of a determination of Total Voting
Power as contemplated herein.
5.5 Notices. All notices, requests and other communications to any person
named hereunder shall be in writing (including wire, telex or similar writing)
and shall be given to such person at its address set forth below or such address
or telex number as such person may hereafter specify for the purpose by notice
to the other person:
If to the Company:
ATX Telecommunications Services, Inc.
[address]
Attention:
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Copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Kenneth M. Schneider, Esq.
Facsimile: 212-757-3990
If to any Stockholder, to the most current address of such Stockholder
provided by such Stockholder to the Company in writing
Each such notice, request or other communication shall be effective (a) if
given by facsimile, when such facsimile is transmitted to the facsimile number
specified in this subsection and the appropriate answer back is received or (b)
if given by any other means, when actually received at the address specified in
this subsection, provided that a notice given other than during normal business
hours on a business day at the place of receipt shall not be effective until the
opening of business on the next business day.
5.6 Governing Law and Jurisdiction. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
AGREEMENTS MADE AND PERFORMED ENTIRELY WITHIN SUCH STATE. THE UNDERSIGNED HEREBY
SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURTS LOCATED WITHIN THE
STATE OF DELAWARE, COUNTY OF NEW CASTLE, AND WAIVES ANY RIGHT TO A TRIAL BY JURY
IN CONNECTION WITH ANY ACTION OR PROCEEDING RELATING HERETO.
5.7 Amendments. This Agreement may be amended, modified or supplemented
only by written agreement of each Stockholder and the Company.
5.8 Waiver. Any failure of any party to comply with any obligation,
covenant, agreement or condition herein may be waived by the party entitled to
the benefit of such obligation, covenant, agreement or condition only by a
written instrument signed by such party, but such waiver or failure to insist
upon strict compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other non-compliance. Wherever this Agreement requires or permits consent by or
on behalf of any party hereto, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this Section 5.8.
5.9 Successors and Assigns. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, including, without
limitation, (i) any person who acquires any interest, beneficial or otherwise,
in Voting Securities by will or pursuant to the laws of descent and distribution
and (ii) any successor trust.
5.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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5.11 Entire Agreement. This Agreement, including the appendices referred
to herein, embodies the entire agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, representations, warranties, covenants or undertakings, other than
those expressly set forth or referred to herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
5.12 Severability. If any provision of this Agreement shall be deemed or
declared to be unenforceable, invalid or void, the same shall not impair any of
the other provisions of this Agreement.
5.13 Other Rights and Privileges. Except as otherwise specifically set
forth in this Agreement, each Stockholder shall have and enjoy all rights and
privileges otherwise permitted stockholders of the Company under applicable law.
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IN WITNESS WHEREOF, each Stockholder and the Company have duly executed
this Agreement as of day and year first above written.
ATX TELECOMMUNICATIONS
SERVICES, INC.
By:
Name:
Title:
STOCKHOLDERS:
Michael Karp
Debra Buruchian
Thomas Gravina
THE FLORENCE KARP TRUST
By:
Name:
Title:
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EXHIBIT G
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of , 2000 (the
"Agreement"), by and between ATX Telecommunications Services, Inc. , a Delaware
corporation (the "Company"), and each of Michael Karp ("Karp"), Debra Buruchian
("Buruchian"), Thomas Gravina ("Gravina") and The Florence Karp Trust (the
"Trust"). Each of Karp, Buruchian, Gravina and the Trust is referred to as a
"Stockholder").
WHEREAS, pursuant to a Recapitalization Agreement and Plan of Merger, dated
as of March 9, 2000, as amended (the "Recapitalization and Merger Agreement"),
by and among the Company, CoreComm Limited ("CoreComm"), and, with respect to
certain provisions thereof, the Stockholders, ATX Merger Sub, Inc. ("ATX Merger
Sub") and CoreComm Merger Sub, Inc. ("CoreComm Merger Sub") (i) CoreComm has
been merged with and into CoreComm Merger Sub (with each issued and outstanding
share of CoreComm's common stock converted into a share of common stock of
CoreComm Merger Sub) (the "Domestication Merger"); (ii) CoreComm Merger Sub is
being merged with and into the Company (the "Merger"); and (iii) the Company is
being recapitalized by exchanging each pre-recapitalization share of the
Company's common stock for shares of the Company's
post-recapitalization common stock, par value $.01 per share (the "Common
Stock"), shares of the Company Convertible Preferred Stock,
par value $.01 per share (the "Preferred Stock"), and $150 million in cash and
Senior Notes (as defined in the Recapitalization and Merger Agreement) with a
possible issuance of up to $110 million in notes (the "Recapitalization").
WHEREAS, the Stockholders are the holders of all of the outstanding pre-
recapitalization shares of the Company's common stock and it is a condition to
the consummation of the recapitalization and the other transactions contemplated
by the Recapitalization and Merger Agreement that the Company grant to the
Stockholders the registration rights and other rights set forth herein; and
In consideration of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. General; Securities Subject to this Agreement.
1.1 Grant of Rights. The Company hereby grants registration rights to the
Stockholders upon the terms and subject to the conditions set forth in this
Agreement. Capitalized terms used herein and not defined shall have the meanings
assigned to such terms in the Recapitalization and Merger Agreement.
1.2 Registrable Securities. For the purposes of this Agreement,
"Registrable Securities" means, each of the following: (a) any shares of Common
Stock issued to the Stockholders pursuant to the Recapitalization and Merger
Agreement, (b) any shares of Preferred Stock issued to the Stockholders pursuant
to the Recapitalization and Merger
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Agreement, (c) any shares of Common Stock issued upon conversion of, or as
payment of dividends on, or in exchange for shares of the Preferred Stock issued
pursuant to the Recapitalization and Merger Agreement, and (d) any shares of
Common Stock issued in payment of a dividend on the Senior Notes (as defined in
the Recapitalization and Merger Agreement); provided, however, that shares shall
cease to be Registrable Securities for purposes of this Agreement when a
registration statement covering such Registrable Securities has been declared
effective under the Securities Act by the SEC and all such Registrable
Securities have been disposed of pursuant to such effective registration
statement.
1.3 Stockholders of Registrable Securities. A Person is deemed to be a
holder of Registrable Securities whenever such Person (i) is a party to this
Agreement (or a permitted transferee thereof) and (ii) owns of record
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more Persons with respect to the same
Registrable Securities, the Company may act upon the basis of the instructions,
notice or election received from the registered owner of such Registrable
Securities.
2. Demand Registration Rights.
2.1 Shelf and Demand Registration.
(a) Within 15 days following the Closing (as defined in the Merger
Agreement), the Company shall cause to be filed with the Securities and
Exchange Commission a Registration Statement registering under Rule 415
under the Securities Act all Registrable Securities (the "Shelf
Registration"). The Company shall use its reasonable best efforts to cause
such Shelf Registration to be declared effective under the Securities Act
as soon as practicable following the filing thereof, and shall use its
reasonable best efforts to cause such Shelf Registration to remain
continuously effective under the Securities Act until such time as the
securities which have been issued to the Stockholders at the Closing (as
defined in the Recapitalization and Merger Agreement) may be freely sold
without regard to the volume limitations under Rule 144 of the Securities
Act by a Stockholder who is not otherwise an Affiliate of the Company
within the meaning of Rule 144 (or such shorter period that will terminate
when all Registrable Securities covered by the Shelf Registration have been
sold). Subject to the provisions of Section 2.1(d), the Company agrees, if
necessary, to supplement or make amendments to the Shelf Registration, if
required by the registration form used by the Company for the Shelf
Registration or by the instructions applicable to such registration form or
by the Securities Act or the rules or regulations thereunder.
(b) At any time on or after the Closing, the Stockholders may make a
written request (specifying the intended method of disposition) (such
Stockholders, the "Initiating Common Stockholders") for one additional
registration under the Securities Act (a "Demand Common Registration") of
all or part of the shares of Common Stock which constitute such Initiating
Stockholders' Registrable Securities; provided, however, that, (i) the
number of shares of Common Stock proposed to be registered by the
Initiating Common Stockholders in any Demand Common
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Registration shall not be less than 1,500,000 shares (subject to
appropriate adjustments to reflect stock splits, stock dividends, corporate
recapitalizations or similar transactions) as of the date of the request,
and (ii) the Initiating Common Stockholders shall be the holders as of the
date of the request of at least 25% of the then outstanding shares of
Common Stock that constitute Registrable Securities hereunder; provided,
however, that such Demand Common Registration may be requested by
Initiating Common Stockholders owning less than 25% of the then outstanding
shares of Common Stock that constitute Registrable Securities hereunder so
long as such Initiating Common Stockholders are the holders as of the date
of the request of at least 10% of the then outstanding shares of Common
Stock that constitute Registrable Securities hereunder.
(c) At any time on or after the Closing, the Stockholders may make a
written request (specifying the intended method of disposition) (such
Stockholders, the "Initiating Preferred Stockholders") for one additional
registration under the Securities Act (a "Demand Preferred Registration")
of all or part of the shares of Preferred Stock which constitute such
Initiating Stockholders' Registrable Securities; provided, however, that,
(i) the face value of the shares of Preferred Stock proposed to be
registered by the Initiating Stockholders shall not be less than
$80,000,000 as of the date of the request, and (iv) the Initiating
Preferred Stockholders shall be the holders as of the date of the request
of at least 25% of the then outstanding shares of Preferred Stock that
constitute Registrable Securities hereunder.
(d) If, so long as the Shelf Registration is in effect or at the time a
demand for a Demand Registration (as defined below) is received by the
Company, the Company is engaged in, or within 90 days plans to engage in a
registered public offering for its own account or any other activity which,
in the good faith determination of the Board of Directors of the Company,
would (i) be required to be disclosed in a Demand Registration or which,
under applicable law would require an amendment of or supplement to the
Shelf Registration, and (ii) be materially and adversely affected by the
proceeding with any such Demand Registration or amending or supplementing
the Shelf Registration (each, a "Company Event"), then the Company may at
its option direct that sales under the Shelf Registration be suspended, and
requests for a Demand Registration be delayed for a reasonable period of
time not in excess of three (3) months from the effective date of such
offering or the date of completion of such other activity, as the case may
be, such right to delay a Demand Registration or to suspend sales under the
Shelf Registration to be exercised by the Company not more than once in any
365-day period; provided, however, that if the Company receives a written
request from Initiating Common Stockholders or the Initiating Preferred
Stockholders (the "Initiating Stockholders") to register the Registrable
Securities of such Stockholders prior to the occurrence of a Company Event,
then such registration shall not be delayed by any registration statement
thereafter effected by the Company. In addition, the Company shall not be
required to effect any Demand Registration within three (3) months after
the effective date of any other registration statement
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of the Company (other than the Shelf Registration). Within ten days after
receipt of a request for a Demand Common Registration or a Demand Preferred
Registration (each, a "Demand Registration"), the Company shall give
written notice (the "Notice") of such request to all other Stockholders
holding the class of stock to which such Demand Registration relates and
shall include in such registration all Registrable Securities of that class
that the Company has received written requests for inclusion therein within
15 days after the Notice is given. Thereafter, in the case of Demand Common
Registration, the Company may elect to include in such registration
additional shares of Common Stock issued by the Company. All requests made
pursuant to this Section 2.1 (other than the Shelf Registration), shall
specify the class and aggregate number of Registrable Securities to be
registered.
2.2 Effective Demand Registration. The Company shall use reasonable
commercial efforts to cause any Demand Registration to become effective not
later than ninety (90) days after it receives a request under Section 2.1
of this Agreement and to remain effective for the lesser of (i) the period
during which all Registrable Securities registered in the Demand
Registration are sold and (ii) one hundred and twenty (120) days; provided,
however, that if the Initiating Stockholders request the Company to
withdraw such registration, other than as the result of a breach by the
Company, it shall constitute a Demand Registration unless the Initiating
Stockholders promptly pay all of the costs and expenses incurred by the
Company in connection with such registration.
2.3 Underwriting Procedures.
(a) The offering of Registrable Securities pursuant to a Demand
Registration shall be in the form of a firm commitment underwritten
offering and the managing underwriter and other underwriters selected for
such offering shall be selected by the Initiating Stockholders, provided
that the managing underwriter and other underwriters are reasonably
acceptable to the Company (having due regard to the experience and
relationship with the Company of the managing underwriter and the other
underwriters) (the "Approved Demand Underwriter"). In such event, if the
Approved Demand Underwriter advises the Company in writing that in its
opinion the aggregate amount of such Registrable Securities requested to be
included in such offering is sufficiently large to have a material adverse
effect on the success of such offering, the Company shall include in such
registration only the aggregate amount of Registrable Securities that in
the opinion of the Approved Demand Underwriter may be sold without any such
material adverse effect and shall reduce pro rata based on the number of
Registrable Securities included in the request for Demand Registration, the
amount of Registrable Securities to be included by each Stockholder in such
registration.
(b) An offering of Registrable Securities under the Shelf Registration
may, but need not be, pursuant to an underwritten offering. However, if any
such offering is to be pursuant to an underwritten offering, the
Stockholder or Stockholders intending to sell Registrable Securities in
such underwritten offering shall give the
B-86
Company written notice of their desire to proceed with an underwritten
offering under the Shelf Registration. Only one underwritten offering under
the Shelf Registration shall be permitted, and any such offering must be
for at least 1,500,000 shares of Common Stock (subject to appropriate
adjustments to reflect stock splits, stock dividends, corporate
recapitalizations or similar transactions) or at least $80,000,000 face
amount of Preferred Stock. The managing underwriter and other underwriters
selected for such offering shall be selected by the Stockholders seeking to
sell such shares through such underwriter, provided that the managing
underwriter and other underwriters are reasonably acceptable to the Company
(having due regard to the experience and relationship with the Company of
the managing underwriter and the other underwriters) (the "Approved Shelf
Underwriter" and together with an Approved Demand Underwriter, an "Approved
Underwriter").
(c) Distribution by Underwriters. The managing underwriter or
underwriters selected for any offering shall enter into an agreement with
the Company and the Stockholders whereby the underwriters shall be
prohibited from (i) distributing 5% or greater of the Registrable
Securities to any Person in connection with the initial placement of the
Registrable Securities for the offering and from (ii) distributing 5% or
greater of the Registrable Securities to any Person for 90 days after such
initial placement.
3. Incidental or "Piggy-Back" Registration Rights.
3.1 Notice of Registration. If, at any time or from time to time
prior to the fourth anniversary of the date hereof, the Company shall
determine to register any of its Common Stock for sale in an Underwritten
Offering for its own account (other than a registration relating to (i) a
registration of an employee compensation plan or arrangement adopted in the
ordinary course of business on Form S-8 (or any successor form) or any
dividend reinvestment plan or (ii) a registration of securities on Form S-4
(or any successor form) including, without limitation, in connection with a
proposed issuance in exchange for securities or assets of, or in connection
with a merger or consolidation with another corporation) (a "Company
Registration"), or shall register any of its Common Stock pursuant to a
demand request for registration by any holder of the Company's Common Stock
other than the Stockholders (a "Third Party Demand Registration"), the
Company will promptly give to the Stockholders written notice thereof, and
include in such registration (subject to Section 3.2) all the Common Stock
Registrable Securities specified in a written request made by any one or
more of the Stockholders within ten days after such Stockholder's receipt
of such written notice from the Company ("Incidental Registration"). The
right of the Stockholder to have Common Stock Registrable Securities
included in a registration pursuant to this Section 3.1 shall be
conditioned upon such Stockholder entering into (together with the Company
and/or the other holders, if any, distributing their securities through
such underwriting) an underwriting agreement in customary form with the
managing underwriter or underwriters selected for such underwriting by the
Company or by
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the stockholders who have demanded such registration (the "Company
Underwriter").
3.2 Cutback. If the lead managing underwriter of an offering covered
by Section 3.1 shall advise the Company in writing on or before the date
five days prior to the date then scheduled for such offering that, in its
opinion, the amount of Common Stock (including Common Stock Registrable
Securities) requested to be included in such registration exceeds the
amount which can be sold in such offering without adversely affecting the
distribution of the Common Stock being offered, then the Company will
include in such registration:
(i) in the case of a Company Registration, first, any shares
proposed to be offered by the Company; second, Registrable Securities
requested to be registered by the Stockholders and any other shares
requested by other stockholders of the Company, including the
Stockholders, to be included in such registration, allocated, if
necessary, pro rata among the Stockholders and such other holders
requesting such registration on the basis of the number of the shares
Beneficially Owned at the time; and
(ii) in the case of a Third Party Demand Registration, first, any
shares proposed to be offered by the stockholder or stockholders
exercising their right to cause the Company to proceed with such Third
Party Demand Registration (the "Initiating Third Party Holders"),
second, any shares proposed to be offered by the Company, and third,
Registrable Securities requested to be registered by the Stockholders
and any other shares requested by other stockholders of the Company,
including the Stockholders but excluding the Initiating Third Party
Holders, to be included in such registration, allocated, if necessary,
pro rata among the Stockholders and such other holders requesting such
registration on the basis of the number of the shares Beneficially
Owned at the time;
provided, however, that in the event the Company will not, by virtue of the
foregoing cut-back mechanism, include in any such registration all of the
Common Stock Registrable Securities requested to be included in such
registration, the Stockholders may, upon written notice to the Company
given within three days of the time the Stockholders first are notified of
such matter, reduce the amount of Registrable Securities they desire to
have included in such registration, whereupon only the Registrable
Securities, if any, they desire to have included will be considered for
such inclusion.
3.3 Right of Termination. The Company shall have the right to
terminate or withdraw any registration initiated by it under Section 3.2
prior to the effectiveness of such registration whether or not the
Stockholders have elected to include Registrable Securities in such
registration.
4. Provisions Applicable to Demand and Piggy-Back Registrations.
4.1 Expenses. The Company shall pay all Registration Expenses (as
defined in Section 6 hereof) incurred in connection with any registration
pursuant to
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Section 2 or 3 hereto, unless registration fails to become effective as a
result of the fault of one or more Stockholders, in which case the Company
will not be required to pay the Registration Expenses incurred with respect
to the offering of such Stockholder's or Stockholders' Registrable
Securities. The Registration Expenses incurred with respect to the offering
of such Stockholder's or Stockholders' Registrable Securities shall be the
product of (a) the aggregate amount of all Registration Expenses incurred
in connection with such registration and (b) the ratio that the number of
such Registrable Securities bears to the total number of Registrable
Securities included in the registration.
4.2 Holdback Agreements. Each Stockholder agrees not to effect any
public sale or distribution of any Registrable Securities being registered
or of any securities convertible into or exchangeable or exercisable for
such Registrable Securities, including a sale pursuant to Rule 144 under
the Act, during the ninety (90) day period beginning on the effective date
of any Demand Registration or Incidental Registration or other underwritten
offering in which such Stockholder is participating (except as part of such
registration), if and to the extent requested by any other Stockholders, in
the case of a non-underwritten public offering, or if and to the extent
requested by the Company Underwriter, in the case of an under-written
public offering.
5. Registration Procedures.
In connection with any registration statement filed pursuant to this
Agreement, the Company will, as expeditiously as possible:
(a) in connection with a request pursuant to this Agreement, prepare
and file with the Commission, after receipt of a request to file a
registration statement with respect to Registrable Securities, a
registration statement on any form for which the Company then qualifies or
which counsel for the Company shall deem appropriate and which form shall
be available for the sale of such Registrable Securities in accordance with
the intended method of distribution thereof and, if the offering is an
underwritten offering, shall be reasonably satisfactory to the Approved
Underwriters, and use its best efforts to cause such registration statement
to become effective; provided, however, that before filing a registration
statement or prospectus or any amendments or supplements thereto, the
Company shall (i) furnish to the counsel selected by the Stockholder or
Stockholders making the demand, if any, copies of all such documents
proposed to be filed, and (ii) notify such counsel and each seller or
prospective seller of Registrable Securities of any stop order issued or
threatened by the Commission and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(b) in connection with a registration pursuant to this Agreement (other
than a Shelf Registration), prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not more than one hundred
and twenty (120) days (or such shorter period
B-89
that will terminate when all Registrable Securities covered by such
registration statement have been disposed of);
(c) furnish to each seller of Registrable Securities such number of
copies of the registration statement, each amendment and supplement thereto
(in each case including all exhibits thereto), the prospectus included in
such registration statement (including each preliminary prospectus) and
such other documents as each seller may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
seller;
(d) use reasonable efforts to register or qualify such Registrable
Securities under such other securities or "blue sky" laws of such
jurisdictions as any seller or underwriter reasonably requests in writing
and to do any and all other acts and things that may be reasonably
necessary or advisable to register or qualify for sale in such
jurisdictions the Registrable Securities owned by such seller; provided,
however, that the Company shall not be required to (i) qualify generally to
do business in any jurisdiction where it is not then so qualified, (ii)
subject itself to taxation in any such jurisdiction, (iii) consent to
general service of process in any such jurisdiction or (iv) provide any
undertaking required by such other securities or "blue sky" laws or make
any change in its charter or by-laws that the Board of Directors of the
Company determines in good faith to be contrary to the best interest of the
Company and its Stockholders;
(e) use reasonable efforts to cause the Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary by virtue of
the business and operations of the Company to enable the seller or sellers
thereof or the Approved Underwriters, if any, to consummate the disposition
of such Registrable Securities;
(f) notify each seller of such Registrable Securities at any time when
a prospectus relating thereto is required to be delivered under the
Securities Act of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, and
prepare and file with the Commission as soon thereafter as practicable,
after consultation with the Initiating Stockholders and subject to the
provisions of Section 2.1(d), a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(g) enter into customary agreements (including, in the case of a Demand
Registration or a single underwritten offering under the Shelf Registration
by Approved Shelf Underwriters an underwriting agreement in customary form)
and take such other actions as are reasonably required in order to expedite
or facilitate the disposition of such Registrable Securities in the manner
permitted hereby;
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(h) in the case of either a Demand Registration or a single
underwritten offering under the Shelf Registration by Approved Shelf
Underwriter, causing its officers to be available at reasonable times to
participate in "road shows" and other information meetings organized by the
managing Approved Demand Underwriter;
(i) otherwise use reasonable efforts to comply with all applicable
rules and regulations of the Commission; and
(j) use reasonable efforts to cause all Registrable Securities covered
by the registration statement to be listed on each securities exchange or
market, if any, on which similar securities issued by the Company are then
listed, provided that the applicable listing requirements are satisfied.
The Company may require each seller or prospective seller of Registrable
Securities as to which any registration is being effected to furnish to the
Company such information regarding the distribution of such securities and other
matters as may be required to be included in the registration statement.
Each holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
paragraph (f) of this Section 5, such holder shall forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such holder's receipt of the copies
of the supplemented or amended prospectus contemplated by paragraph (f) of this
Section 5 and, if so directed by the Company, such holder shall deliver to the
Company all copies, other than permanent file copies then in such holder's
possession or copies delivered to prospective purchasers, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. If the Company shall give any such notice, the Company shall extend the
period during which such registration statement shall be maintained effective
pursuant to this Agreement (including the period referred to in paragraph (b) of
this Section 5) by the number of days during the period from and including the
date of the giving of such notice pursuant to paragraph (f) of this Section 5 to
and including the date when each seller of Registrable Securities covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by paragraph (f) of this Section 5.
6. Registration Expenses. The Company shall pay all expenses incident to
its performance of or compliance with this Agreement; provided, however, that
the Company shall not pay the costs and expenses of any Stockholder relating to
underwriters' commissions and discounts relating to Registrable Securities to be
sold by such Stockholder, brokerage fees, transfer taxes or the fees or expenses
of any counsel, accountants or other representatives retained by the
Stockholders, individually or in the aggregate. All of the expenses described in
this Section 6 that are to be paid by the Company are herein called the
"Registration Expenses."
7. Indemnification; Contribution.
7.1 Indemnification by the Company. The Company agrees to indemnify,
in the case of any registration statement filed pursuant to this Agreement,
each seller
B-91
of any Registrable Securities covered by such registration statement, each
other person who participates as an underwriter in the offering or sale of
such securities, and each person, if any, who controls such seller or any
such underwriter within the meaning of the Securities Act (collectively,
the "Indemnified Parties") against any losses, claims, damages or
liabilities to which such Indemnified Party may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration
statement under which such securities were registered under the Securities
Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any omission
or alleged omission to state a material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances
in which they were made not misleading, or any violation by the Company of
the Securities Act or any rule or regulation thereunder applicable to the
Company; provided, however, that the Company shall not be liable to the
extent that any loss, claim, or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement
in reliance upon and in conformity with written information furnished to
the Company by or on behalf of such Indemnified Party expressly for use in
the Registration Statement; provided, further, that the Company shall not
be liable to any seller of Registrable Securities (or to any person who
acts as an underwriter in such sale or who controls such seller) to the
extent that any loss, claim, or liability arises out of an untrue
statement, alleged untrue statement, omission, or alleged omission made in
any preliminary prospectus if either (a)(i) such seller failed to send or
deliver a copy of the prospectus with or prior to written confirmation of
the sale by such seller to the person asserting the claim and (ii) the
prospectus would have corrected such untrue statement, alleged untrue
statement, omission or alleged omission; or (b)(x) such untrue statement,
alleged untrue statement, omission or alleged omission is corrected in an
amendment or supplement to the prospectus and (y) having been furnished by
or on behalf of the Company with copies of the prospectus as so amended or
supplemented, such seller fails to deliver such prospectus as so amended or
supplemented, with or prior to the written confirmation of the sale by such
seller to the person asserting the claim.
7.2 Indemnification by Stockholders. In connection with any
registration statement in which a Stockholder is participating, each such
Stockholder shall furnish to the Company in writing such information and
affidavits with respect to such Stockholder as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and agrees to indemnify, to the fullest extent permitted by law,
the Company, its officers, directors and agents and each person, if any,
who controls the Company (within the meaning of the Securities Act) against
any and all losses, claims, damages, and liabilities resulting from any
untrue or alleged untrue statement of a material fact or any omission or
alleged
B-92
omission of a material fact required to be stated in any registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein (in the case
of a prospectus, in light of the circumstances under which they were made)
not misleading, to the extent that such untrue or alleged untrue statement
or omission is contained in or omitted from, as the case may be, any
information or affidavit with respect to such Stockholder so furnished in
writing by such Stockholder expressly for use in any such prospectus or
preliminary prospectus; provided, however, that the liability of such
Stockholder shall not exceed the net proceeds received by such Stockholder
from the sale of its Registrable Securities. Each Stockholder also shall
indemnify any underwriters of the Registrable Securities, their officers
and directors and each person who controls such underwriters (within the
meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the Company; provided, however, that the
indemnification of such Stockholder shall be limited to the net proceeds
received by such Stockholder from the sale of its Registrable Securities.
7.3 Contribution. If the indemnification provided for in this Section
7 is unavailable to any indemnified party hereunder in respect of any
losses, claims, damages, liabilities or expenses referred to herein, then
the indemnifying party, to the extent such indemnification is unavailable,
in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities or expenses in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and
indemnified parties in connection with the actions that resulted in such
losses, claims, damages, liabilities or expenses. The relative fault of
such indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or indemnified parties,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7.3 were determined by pro rata allocation
or by any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person.
8. Definitions. As used herein, the following terms shall have the
following respective meanings:
"Beneficial Ownership" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
"Board of Directors" means the board of directors of the Company.
B-93
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" means the common stock of the Company or any other
equity securities of the Company into which such securities are converted,
reclassified, reconstituted or exchanged.
"Person" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or
other entity of any kind, and shall include any successor (by merger or
otherwise) of any such entity.
"Registration Expenses" shall have the meaning specified in Section 6
herein.
"Securities Act" means the Securities Act of 1933, or any successor
federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Underwritten Offering" shall mean a sale of securities of the Company
to an underwriter or underwriters for re-offering to the public, which
shall include a road show and other customary selling efforts.
9. Miscellaneous.
9.1 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written
consent of the holders of a majority of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder
of any securities of the Company which would allow such holder or
prospective holder (a) to include such securities in any registration filed
under Section 2.1(a) hereof, unless under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of such securities will
not reduce the amount of the Registrable Securities of the holders which is
included, or (b) to make a demand registration which could result in such
registration statement being declared effective within ninety (90) days of
the effective date of any registration effected pursuant to Section 2.1.
9.2 Assignment. The rights of the Stockholders to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assignable by each Stockholder to any transferee (other than
the transferee of such shares in a registered transaction) of all or any
portion of the Registrable Securities if: (i) the Stockholder agrees in
writing with the transferee or assignee to assign such rights, and a copy
of such agreement is furnished to the Company after such assignment, (ii)
the Company is furnished with written notice of (a) the name and address of
such transferee or assignee, and (b) the securities with respect to which
such registration rights are being transferred or assigned, (iii) the
transferee or assignee agrees in writing for the benefit of the Company to
be bound by all of the provisions contained herein, and (iv) if required
under the terms of the Stockholders Agreement, such transferee enters into
the requisite stockholders agreement with the
B-94
Company as contemplated by the Stockholders Agreement, of even date
herewith, among the Company and each of Karp, Buruchian, Gravina and the
Trust (the "Stockholders Agreement").
9.3 Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of the
Stockholders that own, in the aggregate, 50% or more of the Registrable
Securities then outstanding.
9.4 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telecopied
(and confirmed) or sent by certified, registered or express mail, postage
prepaid. Any such notice shall be deemed given when so delivered
personally, telecopied (and confirmed) or, if mailed, five days (or, in the
case of express mail, one day) after the date of deposit in the United
States mail, as follows:
(i) if to the Company, to:
[ATX Telecommunications Services, Inc.]
110 East 59th Street
26th Floor
New York, NY 10022
Attention: Richard J. Lubasch
Telecopier No.: (212) 906-8497
with copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Kenneth M. Schneider, Esq.
Telecopier No.: (212) 757-3990
(ii) if to any Stockholder, to the most current address of such
Stockholder provided by such Stockholder to the Company in
writing.
with copies to:
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
260 South Broad Street
Philadelphia, PA 19102
Attention: Michael C. Forman, Esq.
Telecopier No.: (215) 568-6603
Any party may by notice given in accordance with this section to the other
parties designate another address or person for receipt of notices hereunder.
9.5 Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the Stockholders and their permitted successors and assigns
as provided for
B-95
in Section 9.1 hereof and the successors and assigns of the Company; provided,
however, that such successors and assigns become parties to this Agreement by
executing counterparts thereto and, in the case of successors and assigns of the
Stockholder, there has been compliance with Section 9.1 hereof.
9.6 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
9.7 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
9.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO THE RULES OF
CONFLICT OF LAWS OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION.
9.9 Severability. If any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired.
9.10 Entire Agreement. This Agreement is entered into and delivered
pursuant to the Recapitalization and Merger Agreement and as such contains the
entire agreements among the parties with respect to the subject matter hereof
and supersedes all prior agreements and understandings, written or oral, with
respect thereto.
B-96
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the date first written above.
ATX TELECOMMUNICATIONS SERVICES, INC.
By:
Name:
Title:
STOCKHOLDERS:
Michael Karp
Debra Buruchian
Thomas Gravina
THE FLORENCE KARP TRUST
By:
Name:
Title:
B-97
AMENDMENT NO. 1
TO
RECAPITALIZATION AGREEMENT
AND PLAN OF MERGER
BY AND AMONG
ATX TELECOMMUNICATIONS SERVICES, INC.
THOMAS GRAVINA, DEBRA BURUCHIAN
MICHAEL KARP, THE FLORENCE KARP TRUST,
CORECOMM LIMITED,
ATX MERGER SUB, INC.
AND
CORECOMM MERGER SUB, INC.
DATED AS OF APRIL 10, 2000
B-98
AMENDMENT NO. 1
TO
RECAPITALIZATION AGREEMENT AND PLAN OF MERGER
This Amendment No. 1 to the Recapitalization Agreement and Plan of Merger
(this "Amendment") is made and entered into as of April 10, 2000, by and between
ATX Telecommunications Services, Inc., Thomas Gravina, Debra Buruchian, Michael
Karp, The Florence Karp Trust, CoreComm Limited, ATX Merger Sub, Inc., a
Delaware corporation ("ATX Merger Sub") and CoreComm Merger Sub, Inc., a
Delaware corporation ("CoreComm Merger Sub"). All capitalized terms which are
used but not otherwise defined herein shall have meanings specified in the
Agreement (as defined below).
WHEREAS, CoreComm, ATX and the ATX Stockholders are parties to that certain
Recapitalization Agreement and Plan of Merger, dated March 9, 2000 (the
"Agreement"), pursuant to which ATX and CoreComm have agreed to combine in order
to advance the long-term business interests of ATX and CoreComm;
WHEREAS, CoreComm, ATX and the ATX Stockholders desire for ATX Merger Sub
and CoreComm Merger Sub to become parties to the Agreement as contemplated by
Sections 1.1(b) and (c) of the Agreement;
WHEREAS, the parties hereto desire to clarify the conversion of shares of
CoreComm Common Stock in the Merger; and
WHEREAS, the parties hereto desire to revise Section 6.18 of the Agreement
as set forth below;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and for other good and valuable consideration,
the receipt and adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
1. Amendment to Article III. ATX Merger Sub hereby represents and
warrants to CoreComm that each of the representations and warranties
contained in Sections 3.1(b), 3.2(b) and 3.3(c-d) of the Agreement is true
and correct.
2. General Amendment. Effective hereby, each of CoreComm Merger Sub
and ATX Merger Sub shall become parties to the Agreement and hereby agree
to comply with all covenants and obligations otherwise provided therein
which were contemplated to be performed by each of them, respectively, and
otherwise be subject to the terms and provisions of the Agreement as is
contemplated therein and herein.
3. Clarification of Conversion of CoreComm Common Stock. The parties
to this Agreement hereby agree that, in the event that the transaction
identified by CoreComm to ATX on March 6, 2000, as contemplated in Section
5.18(ii), (the "Voyager Transaction") is consummated prior to the Closing
of the Merger, then references in Section 1.3 and 1.4 to shares of CoreComm
Common Stock shall be deemed automatically to include shares of CoreComm
Common Stock issuable in
B-99
the Voyager Transaction upon surrender of certificates for Voyager.net,
Inc. common stock which by the Effective Time have not been surrendered for
shares of CoreComm Common Stock in accordance with the terms and provisions
of the definitive documentation for the Voyager Transaction, and the
references in Section 1.3 and 1.4 to a certificate or certificates for
shares for CoreComm Common Stock shall be deemed automatically to include
such certificate or certificates for Voyager.net, Inc. common stock not yet
surrendered; provided, that the foregoing shall not apply with respect to
shares of Voyager.net, Inc. common stock and certificates therefore if the
holder of such Voyager.net, Inc. common stock has demanded appraisal rights
with respect to such shares in accordance with the DGCL in connection with
the Voyager Transaction unless and until such Voyager.net, Inc. stockholder
withdraws such claim or fails to perfect, effectively withdraws or
otherwise loses any right to appraisal and payment under the DGCL.
4. Amendment to Section 6.18. Effective hereby, the following
paragraph shall be substituted in its entirety for Section 6.18 of the
Agreement:
"6.18. Escrow Agreements. ATX, the ATX Stockholders and the Escrow Agent
shall have executed and delivered the Escrow Agreement and the Indemnification
Escrow Agreement, both of which shall remain in full force and effect."
5. Other Provisions Unchanged. Except as specifically amended hereby,
all other terms and conditions of the Agreement shall remain in full force
and effect. To the extent that the Agreement includes such terms as
"herein," "hereto," "in this Agreement" and the like, such terms shall be
interpreted to refer to the Agreement, as modified by this Amendment.
6. Counterparts. This Amendment may be executed in separate
counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
CORECOMM LIMITED
By: /s/ RICHARD J. LUBASCH
-----------------------------------
Name: Richard J. Lubasch
Title: Senior Vice President --
General Counsel
ATX TELECOMMUNICATIONS
SERVICES, INC.
By: /s/ MICHAEL KARP
-----------------------------------
Name: Michael Karp
Title: Chief Executive Officer
B-100
CORECOMM MERGER SUB, INC.
By: /s/ RICHARD J. LUBASCH
------------------------------------
Name: Richard J. Lubasch
Title: President
ATX MERGER SUB, INC.
By: /s/ MICHAEL KARP
------------------------------------
Name: Michael Karp
Title: Chief Executive Officer
SOLELY WITH RESPECT TO
ARTICLES 9, 11, 12, and 13 of
the Recapitalization Agreement and
Plan of Merger, as amended hereby
/s/ THOMAS GRAVINA
--------------------------------------
Thomas Gravina
/s/ DEBRA BURUCHIAN
--------------------------------------
Debra Buruchian
/s/ MICHAEL KARP
--------------------------------------
Michael Karp
THE FLORENCE KARP TRUST
By: /s/ LISA G. KAMINSKY
----------------------------------
Name: Lisa G. Kaminsky
Title: Trustee
B-101
AMENDMENT NO. 2
TO
RECAPITALIZATION AGREEMENT
AND PLAN OF MERGER, ORIGINALLY EXECUTED ON
MARCH 9, 2000 AND AMENDED ON APRIL 10, 2000
BY AND AMONG
ATX TELECOMMUNICATIONS SERVICES, INC.
THOMAS GRAVINA, DEBRA BURUCHIAN
MICHAEL KARP, THE FLORENCE KARP TRUST,
CORECOMM LIMITED,
ATX MERGER SUB, INC.
AND
CORECOMM MERGER SUB, INC.
DATED AS OF JULY 10, 2000
B-102
AMENDMENT NO. 2
TO
RECAPITALIZATION AGREEMENT AND PLAN OF MERGER
This Amendment No. 2 to the Recapitalization Agreement and Plan of Merger
(this "Amendment") is made and entered into as of July 10, 2000, by and between
ATX Telecommunications Services, Inc., Thomas Gravina, Debra Buruchian, Michael
Karp, The Florence Karp Trust, CoreComm Limited, ATX Merger Sub, Inc. and
CoreComm Merger Sub, Inc. All capitalized terms which are used but not otherwise
defined herein shall have meanings specified in the Agreement (as defined
below).
WHEREAS, CoreComm, CoreComm Merger Sub, ATX, ATX Merger Sub and the ATX
Stockholders are parties to that certain Recapitalization Agreement and Plan of
Merger, dated March 9, 2000, as amended by Amendment No. 1 to the
Recapitalization Agreement and Plan of Merger, dated April 10, 2000 (the
"Agreement"), pursuant to which ATX and CoreComm have agreed to combine in order
to advance the long-term business interests of ATX and CoreComm; and
WHEREAS, the parties hereto desire to revise the Agreement to reflect that
CoreComm will be merging directly into ATX as opposed to ATX Merger Sub merging
into CoreComm;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and for other good and valuable consideration,
the receipt and adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
Amendment to Section 1.1(f). Section 1.1(f) shall be deleted and replaced
in its entirety with the following:
"At the Effective Time, the separate existence of CoreComm Merger Sub
shall cease and CoreComm Merger Sub shall be merged (the "Merger") with and
into ATX (ATX and CoreComm Merger Sub are sometimes referred to herein as
the "Constituent Corporations" and ATX is sometimes referred to herein as
the "Surviving Corporation"). The Certificate of Incorporation of ATX as in
effect immediately prior to the Effective Time (as theretofore amended in
accordance with Section 5.28 below) shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as
provided by the DGCL, and the Bylaws of ATX as in effect immediately prior
to the Effective Time (as theretofore amended in accordance with Section
5.28 below) shall be the Bylaws of the Surviving Corporation until
thereafter amended as provided by the DGCL, the Certificate of
Incorporation and such Bylaws."
1. Amendment to Section 1.3. Section 1.3 shall be deleted and replaced
in its entirety with the following:
"1.3 Conversion of CoreComm Common Stock. As of the Effective Time,
by virtue of the Merger and without any action on the part of the holder of
any
B-103
shares of ATX Common Stock or CoreComm's common stock, par value $.01 per
share ("CoreComm Common Stock"):
(a) INTENTIONALLY OMITTED.
(b) All shares of CoreComm Common Stock that are owned by
CoreComm as treasury stock or by any Subsidiary of CoreComm shall be
canceled and retired and shall cease to exist and no consideration
shall be delivered in exchange therefor. As used in this Agreement, the
word "Subsidiary" means, with respect to any party, any corporation or
other organization, whether incorporated or unincorporated, of which
(i) such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests of
which held by such party or any Subsidiary of such party do not have a
majority of the voting interest in such partnership) or (ii) at least a
majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or
others performing similar functions with respect to such corporation or
other organization is directly or indirectly owned or controlled by
such party or by any one or more of its Subsidiaries, or by such party
and one or more of its Subsidiaries.
(c) Subject to Section 1.4, each issued and outstanding share of
CoreComm Common Stock (other than shares to be canceled in accordance
with Section 1.3(b) and shares to be issued under Section 1.3(a)) shall
be converted into the right to receive one (1) (the "Merger Ratio")
fully paid and nonassessable shares of ATX Common Stock. All such
shares of CoreComm Common Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the
right to receive the shares of ATX Common Stock and any cash in lieu of
fractional shares of ATX Common Stock to be issued or paid in
consideration therefor upon the surrender of such certificate in
accordance with Section 1.4."
2. Amendment to Section 1 of Amendment No. 1. Section 1 to Amendment
No. 1 to the Recapitalization Agreement and Plan of Merger is hereby deleted in
its entirety.
3. Amendment to Section 1.5. Section 1.5 shall be deleted and replace
in its entirety with the following: "INTENTIONALLY OMITTED".
4. Amendment to Section 6.17. Section 6.17 of the Agreement is hereby
deleted in its entirety.
5. General Amendment. Effective hereby, each reference in the Agreement
to ATX Merger Sub which is no longer appropriate by virtue of the actions
contemplated by this Amendment shall be considered ineffective and inapplicable
and, accordingly, the Agreement shall be interpreted and enforced by the parties
hereto as if ATX Merger Sub is not in existence and is not a party to this
Agreement.
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6. Other Provisions Unchanged. Except as specifically amended hereby,
all other terms and conditions of the Agreement shall remain in full force and
effect. To the extent that the Agreement includes such terms as "herein,"
"hereto," "in this Agreement" and the like, such terms shall be interpreted to
refer to the Agreement, as modified by this Amendment.
7. Counterparts. This Amendment may be executed in separate
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date first
above written.
CORECOMM LIMITED
By: /s/ RICHARD J. LUBASCH
------------------------------------
Name: Richard J. Lubasch
Title: Senior Vice President -
General Counsel
ATX TELECOMMUNICATIONS SERVICES, INC.
By: /s/ MICHAEL KARP
------------------------------------
Name: Michael Karp
Title: Chief Executive Officer
CORECOMM MERGER SUB, INC.
By: /s/ RICHARD J. LUBASCH
------------------------------------
Name: Richard J. Lubasch
Title: President
ATX MERGER SUB, INC.
By: /s/ MICHAEL KARP
------------------------------------
Name: Michael Karp
Title: Chief Executive Officer
SOLELY WITH RESPECT TO
ARTICLES 9, 11, 12, and 13 of
the Recapitalization Agreement and
Plan of Merger, as amended hereby
/s/ THOMAS GRAVINA
--------------------------------------
Thomas Gravina
B-106
/s/ DEBRA BURUCHIAN
--------------------------------------
Debra Buruchian
/s/ MICHAEL KARP
--------------------------------------
Michael Karp
THE FLORENCE KARP TRUST
By: /s/ LISA G. KAMINSKY
----------------------------------
Name: Lisa G. Kaminsky
Title: Trustee
B-107
AMENDMENT NO. 3
TO
RECAPITALIZATION AGREEMENT
AND PLAN OF MERGER, ORIGINALLY EXECUTED ON
MARCH 9, 2000 AND AMENDED ON APRIL 10, 2000 AND ON JULY 10, 2000
BY AND AMONG
ATX TELECOMMUNICATIONS SERVICES, INC.
THOMAS GRAVINA, DEBRA BURUCHIAN
MICHAEL KARP, THE FLORENCE KARP TRUST,
CORECOMM LIMITED,
ATX MERGER SUB, INC.
AND
CORECOMM MERGER SUB, INC.
DATED JULY 31, 2000
B-108
AMENDMENT NO. 3
TO
RECAPITALIZATION AGREEMENT AND PLAN OF MERGER
This Amendment No. 3 to the Recapitalization Agreement and Plan of Merger
(this "Amendment") is made and entered into July 31, 2000, by and between ATX
Telecommunications Services, Inc., Thomas Gravina, Debra Buruchian, Michael
Karp, The Florence Karp Trust, CoreComm Limited, ATX Merger Sub, Inc. and
CoreComm Merger Sub, Inc. All capitalized terms which are used but not otherwise
defined herein shall have meanings specified in the Agreement (as defined
below), and all amendments thereto.
WHEREAS, CoreComm, CoreComm Merger Sub, ATX, ATX Merger Sub and the ATX
Stockholders are parties to that certain Recapitalization Agreement and Plan of
Merger, dated March 9, 2000, as amended by Amendment No. 1 to the
Recapitalization Agreement and Plan of Merger, dated April 10, 2000, and by
Amendment No. 2 to the Recapitalization Agreement and Plan of Merger, dated July
10, 2000 (the "Agreement"), pursuant to which ATX and CoreComm have agreed to
combine in order to advance the long-term business interests of ATX and
CoreComm; and
WHEREAS, the parties hereto desire to revise the Agreement to provide for
certain changes to the terms of the Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and for other good and valuable consideration,
the receipt and adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
1. Amendment to Section 1.2(a)(iii). Section 1.2(a)(iii) of the
Agreement is hereby amended in its entirety to read as follows:
(iii) $150 million in cash (subject to certain adjustments set
forth herein); provided, however, that CoreComm may, at its sole
discretion, reduce the aggregate amount of cash to be paid by CoreComm
to the ATX Stockholders to not less than $40 million (subject to
certain adjustments set forth herein, the "Cash Consideration") and the
balance of the $150 million payable under this subsection shall be paid
through the issuance of notes with such terms and conditions as set
forth in the term sheet attached hereto as Exhibit B (the "Senior
Notes;" the combination of the Cash Consideration and Senior Notes
payable hereunder being referred to as the "Notes and Cash
Consideration;" the Notes and Cash Consideration, together with the ATX
Common Stock and the ATX Convertible Preferred Stock, are collectively
referred to as the "Exchange Consideration").(1) The adjustments set
forth below to the contrary notwithstanding, if the result of the
adjustments set forth below would be the payment to the ATX
Stockholders of less than $40 million of the
1As described in Exhibit B, if Senior Notes are issued the principal amount
thereof shall be increased by up to $9,000,000.
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Notes and Cash Consideration in the form of cash (including adjustments pursuant
to Section 1.2(j)), such adjustments shall, instead of reducing the Cash
Consideration, reduce, on a dollar-for-dollar basis, the principal amount of
Senior Notes to the extent that (but only to the extent that) the ATX
Stockholders would be entitled to an increase in the Notes and Cash
Consideration as a result of the Capital Expenditure Amount as of July 31, 2000
having been greater than $5,877,817. If such adjustment based on the Capital
Expenditure Amount is greater than the reduction in cash, the excess of such
adjustment shall be made by an increase in the principal amount of the Senior
Notes. For avoidance of doubt, the intention of the parties is that any upward
adjustment in the purchase price resulting from capital expenditures shall first
be by way of a setoff against reductions of the cash consideration otherwise due
in accordance with the adjustments below, and any excess over such reduction
shall be by way of an increase in the principal amount of the Senior Notes.
2. Amendment to Section 1.2(b) through (i). Sections 1.2(b) through
(i) of the Agreement are hereby amended in their entirety to read as
follows:
(b) ATX shall prepare as of the earlier of (x) the Closing Date
and (y) August 31, 2000, an unaudited consolidated balance sheet
(estimated as of the Closing Date or August 31, 2000, as the case may
be) (the date as of which such balance sheet is dated being the "Target
Date") and unaudited estimated statements of income and cash flows of
ATX for the period from the ATX Balance Sheet Date to the Target Date
(the "Estimated Target Date Financial Statements") from the GAAP
Audited Financials and the books and records of ATX in accordance with
GAAP (applied on a consistent basis using the same accounting methods,
policies, practices, principles and procedures with consistent
classifications, judgments and estimation methodologies used in
preparation of the GAAP Audited Financials) and shall set forth the
Working Capital as of the Target Date ("Estimated Target Date Working
Capital"), the ATX Debt as of the Target Date (the "Estimated Target
Date ATX Debt") and the estimated capital expenditures made by ATX and
the ATX Partnerships during the period from the ATX Balance Sheet Date
to July 31, 2000 (the "Estimated 7/31 Capital Expenditures Amount").
ATX shall prepare the Estimated Target Date Financial Statements as
promptly as practicable, but in no event later than the earlier of (A)
five (5) business days prior to the scheduled Closing Date, and (B)
September 15, 2000. ATX shall provide a copy of the Estimated Target
Date Financial Statements to CoreComm not later than three (3) days
after its completion, and in any event at least two (2) business days
prior to the scheduled Closing Date. If the Target Date is the Closing
Date, ATX shall also deliver to CoreComm, together with the delivery of
the Estimated Target Date Financial Statements, a detailed schedule of
the distributions permitted by Section 1.2(j) hereof, if any, that it
estimates will be made on or prior to the Closing Date (the "Estimated
Closing Date Distributions"). If the Target Date is August 31, 2000
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(and August 31, 2000 is not the Closing Date), not later than five (5)
business days prior to the scheduled Closing Date, ATX shall deliver to
CoreComm a detailed schedule of the distributions permitted by Section
1.2(j) which (i) have actually been made subsequent to August 31, 2000
and prior to (but not including) the date of such schedule (the "Actual
Distributions"), and (ii) ATX estimates will be made from the date of
such schedule through the Closing Date (the "Estimated Additional
Distributions;" the the Actual Distributions together with the
Estimated Additional Distributions are together referred to as the
"Estimated Distributions."
In the event that the Estimated Target Date Financial Statements
reflect that the Estimated Target Date Working Capital is less than
zero (such deficiency, the "Estimated Working Capital Shortfall"), then
the Notes and Cash Consideration shall be reduced (subject to the
calculation of the final Target Date Financial Statements) by an amount
equal to the Estimated Working Capital Shortfall. Any such reduction
shall be made as follows: the aggregate amount of Senior Notes to be
issued as part of the Notes and Cash Consideration shall be reduced on
a dollar-for-dollar basis by an amount equal to the lesser of $5
million and the amount of Estimated Working Capital Shortfall, and, if
the Estimated Working Capital Shortfall exceeds $5 million, the Cash
Consideration portion of the Notes and Cash Consideration shall be
reduced by an amount equal to the amount by which the Estimated Working
Capital Shortfall exceeds $5 million. If the Estimated Target Date
Financial Statements reflect that the Estimated Target Date Working
Capital is greater than zero (such excess, the "Estimated Working
Capital Excess") then the Notes and Cash Consideration shall be
increased (subject to the calculation of the final Target Date
Financial Statements) by increasing the aggregate principal amount of
Senior Notes to be issued at the Closing by an amount equal to the
amount of the Estimated Working Capital Excess. The Estimated Working
Capital Shortfall or Estimated Working Capital Excess, as applicable,
shall be the "Estimated Target Date Working Capital Adjustment."
In the event that the Estimated Target Date Financial Statements
reflect that Estimated Target Date ATX Debt is greater than zero, then
the Notes and Cash Consideration shall be reduced (subject to the
calculation of the final Target Financial Statements) by reducing the
amount of the Cash Consideration portion of the Notes and Cash
Consideration by an amount equal to the Estimated Target Date ATX Debt.
In the event that the Estimated Target Date Financial Statements
reflect that the Estimated 7/31 Capital Expenditure Amount is less than
$5,877,817 (the "Capital Expenditure Target Amount,") the Notes and
Cash Consideration shall be reduced (subject to the calculation thereof
based on the final Target Date Financial Statements) by reducing the
aggregate principal amount of Senior Notes to be issued at the Closing
by an amount equal to the difference between the Capital Expenditure
Target Amount and the 7/31
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Capital Expenditure Amount. In the event that the Estimated Target Date
Financial Statements reflect that the 7/31 Capital Expenditure Amount
is greater than the Capital Expenditure Target Amount, the Notes and
Cash Consideration shall be increased (subject to the calculation
thereof based on the final Target Date Financial Statements) by
increasing the aggregate principal amount of Senior Notes to be issued
at the Closing by an amount equal to the lesser of (i) $1,500,000, and
(ii) the difference between the Capital Expenditure Target Amount and
the 7/31 Capital Expenditure Amount (the adjustments contemplated by
this paragraph being the "Capital Expenditure Adjustment").
(c) Within ninety (90) days after the Closing Date (the
"Financial Statements Delivery Date"), ATX shall cause to be prepared
and delivered to the Stockholder Representative (as defined below) a
proposed unaudited balance sheet and proposed unaudited statements of
income and cash flows (the "Proposed Target Date Financial Statements")
prepared in accordance with GAAP (applied on a consistent basis using
the same accounting methods, policies, practices, principles and
procedures with consistent classifications, judgments and estimation
methodologies that were used in preparation of the GAAP Audited
Financials) setting forth the Working Capital of ATX and ATX Debt as of
the Target Date, and the Capital Expenditures of ATX and the ATX
Partnerships for the period from (and excluding) the ATX Balance Sheet
Date through (and including) July 31, 2000. For purposes of this
Section 1.2, the Stockholder Representative shall mean BDO Seidman,
LLP. ATX shall also prepare and deliver to the Stockholder
Representative at the same time as it delivers the Proposed Target Date
Financial Statements, its calculation of the amount of the
distributions made pursuant to Section 1.2(j) subsequent to the Target
Date (the "ATX Distribution Calculation").
(d) The Stockholder Representative shall have a period of thirty
(30) days (the "Review Period") from the date on which ATX delivers the
Proposed Target Date Financial Statements and the ATX Distribution
Calculation to the Stockholder Representative pursuant to Section
1.2(c), to review the Proposed Target Date Financial Statements and the
ATX Distribution Calculation. If, prior to the expiration of the Review
Period, the Stockholder Representative does not deliver a Dispute
Notice (as defined below) to ATX, the unaudited balance sheet and
unaudited statements of income and cash flows included in the Proposed
Target Date Financial Statements and the ATX Distribution Calculation
shall be deemed to be final and binding upon ATX and the ATX
Stockholders for purposes of determining the Working Capital of ATX,
the ATX Debt as of the Target Date, the Capital Expenditures of ATX for
the period from the ATX Balance Sheet Date through July 31, 2000 and
the amount of the distributions made pursuant to Section 1.2(j)
subsequent to the Target Date (the "Post-Target Date Distributions").
The unaudited balance sheet and unaudited statements of income and cash
flows included in the Proposed Target Date Financial
B-112
Statements shall not become final and binding at the end of the Review
Period, nor shall the ATX Distribution Calculation become final and
binding if, prior to the expiration of the Review Period, the
Stockholder Representative delivers a written notice to ATX (the
"Dispute Notice") setting forth in reasonable detail the disagreements
that the Stockholder Representative has with the unaudited balance
sheet and/or either of the unaudited statements of income and cash
flows included in the Proposed Target Date Financial Statements and/or
with the ATX Distribution Calculation and the effect which such
disagreements would have on the calculation of any of the Working
Capital of ATX, the ATX Debt as of the Target Date, the Capital
Expenditures of ATX for the period from the ATX Balance Sheet Date
through July 31, 2000, the ATX Distribution Calculation or the amount
(or form) of Notes and Cash Consideration payable to the ATX
Stockholders. If the Stockholder Representative delivers a Dispute
Notice prior to the end of the Review Period, the representatives of
ATX and the Stockholder Representative shall have a ten (10) day period
(the "Settlement Period") from the date of the delivery of the Dispute
Notice to attempt to resolve any dispute set forth in the Dispute
Notice and to agree upon an unaudited balance sheet and unaudited
statements of income and cash flows and/or upon the amount of the
Post-Target Date Distributions, which shall be binding on ATX and the
ATX Stockholders for purposes of this Agreement and to agree upon the
Working Capital of ATX, the ATX Debt as of the Target Date, the Capital
Expenditures of ATX for the period from the ATX Balance Sheet Date
through July 31, 2000 and the Post-Target Date Distributions. If the
Stockholder Representative and ATX have not arrived at an agreement
during the Settlement Period, then, at any time following the
termination of the Settlement Period, either the Stockholder
Representative or ATX may submit the issue in dispute to the
Philadelphia, Pennsylvania office of PricewaterhouseCoopers LLP (the
"Accountant") for resolution in accordance with this Section. In
resolving any disputed item, the Accountant (i) shall be bound by the
provisions of this Section 1.2, (ii) may not assign a value to any item
greater than the greatest value for such item claimed by either party
or less than the smallest value for such item claimed by either party,
(iii) shall make its determination based solely on information
submitted by the parties and not by independent review and (iv) shall
be instructed to issue a report containing its resolution of the
disputed issue or issues (the "Accountant's Report") within thirty (30)
days following submission of the dispute. The Accountant's Report shall
be delivered by the Accountant to ATX and the Stockholder
Representative, and shall be final and binding on ATX and the ATX
Stockholders for purposes of this Agreement. The fees charged by the
Accountant shall be paid by ATX.
(e) During the period of any dispute within the contemplation of
this Section 1.2, the ATX Stockholders, the Stockholder Representative
and their representatives (including counsel and accountants) shall
have reasonable access during normal business hours to all books,
records, employees, offices
B-113
and other facilities and properties of the Surviving Corporation to the
extent required to complete their review of the Target Date Financial
Statements and their examination of the calculations with respect to
the ATX Distribution Calculation and shall be permitted to review the
working papers (subject to the execution of customary waivers, releases
and indemnifications), if any, of ATX or its auditor relating to the
Target Date Financial Statements or the ATX Distribution Calculation;
provided that any such access shall not unreasonably interfere with the
day-to-day operations of ATX and shall be limited to those items
related to the assessment of the Target Date Financial Statements or
the ATX Distribution Calculation, as the case may be, and matters
related thereto. ATX and CoreComm or their auditors shall cooperate
with the ATX Stockholders and other representatives of the ATX
Stockholders in facilitating such review.
(f) In the event that the final Target Date Financial Statements
reflect that the Working Capital of ATX as of the Target Date is less
than zero (such deficiency, the "Final Working Capital Shortfall"),
then the Notes and Cash Consideration shall be reduced by an amount
equal to the excess of zero over the Final Working Capital Shortfall
(the "Final Shortfall"); provided, however, that the Final Shortfall
shall be adjusted to reflect any adjustments to the Notes and Cash
Consideration previously made due to an Estimated Target Date Working
Capital Adjustment. Any such reduction shall be made to by reducing the
Cash Consideration and/or the Notes to the same extent as they would
have been reduced had the Final Shortfall been used at the Closing
rather than the Estimated Working Capital Adjustment. If the Final
Target Date Balance Sheet reflects that the Working Capital of ATX as
of the Target Date is greater than zero (a "Final Working Capital
Excess") then the Notes and Cash Consideration shall be increased by
issuing additional Senior Notes to the ATX Stockholders in an aggregate
amount equal to the excess of the Final Working Capital Excess over the
amount of Working Capital generated subsequent to July 31, 2000;
provided, however, that the Final Working Capital Excess (and any
related amounts to be paid) shall be adjusted to reflect any
adjustments to the Notes and Cash Consideration previously made due to
an Estimated Target Date Working Capital Adjustment.
(g) In the event that the final Target Date Financial Statements
reflect that the ATX Debt is greater than zero (such amount the "Final
ATX Debt"), then the Notes and Cash Consideration shall be decreased by
reducing the Cash Consideration portion of the Notes and Cash
Consideration as provided in Section 1.2(i); provided, however, that
the Final ATX Debt shall be adjusted to reflect any adjustments to the
Closing Exchange Consideration previously made due to any Estimated
Target Date ATX Debt.
(h) In the event that the final Target Date Financial Statements
reflect that the capital expenditures made by ATX during the period
from the ATX Balance Sheet Date to July 31, 2000 (the "7/31 Capital
Expenditure
B-114
Amount") is less than the Estimated 7/31 Capital Expenditure Amount,
then the Notes and Cash Consideration shall be decreased by decreasing
the aggregate principal amount of Senior Notes by an amount equal to
the excess of the Estimated 7/31 Capital Expenditure Amount over the
7/31 Capital Expenditure Amount; provided, however, if the Estimated
7/31 Capital Expenditure Amount was an amount in excess of $1,500,000
over the Capital Expenditure Target Amount, then, for purposes of the
calculation required by this subsection (h), the Estimated 7/31 Capital
Expenditure Amount shall be deemed to have been an amount equal to
$1,500,000 over the Capital Expenditure Target Amount. For purposes of
Section 1.2, the 7/31 Capital Expenditure Amount shall include only
amounts paid or payable by ATX prior to the Target Date which have been
purchased and installed by ATX on or prior to July 31, 2000.
(i) In the event of any reduction to the Notes and Cash
Consideration occurring after the Closing by operation of Subsections
(f) through (h) above which involves a reduction in the Cash
Consideration, the ATX Stockholders shall be jointly and severally
liable to pay to ATX in cash the amount in question. In the event of
any reduction of the Notes and Cash Consideration occurring after the
Closing by operation of Subsections (f) through (h) above which
involves a reduction in the aggregate principal amount of the Senior
Notes, ATX shall be entitled to cause each of the Senior Notes to be
reduced by its pro-rata portion of such amount; provided, however, that
in lieu of having the principal amount of any Senior Note reduced, the
ATX Stockholder who originally received the indebtedness evidenced by
such Senior Note may deliver to ATX a personal note having the same
interest rate, payment and maturity dates as the Senior Notes in an
amount equal to the amount which such ATX Stockholder's Senior Note
would have been reduced; provided further, however, that such personal
notes may only be delivered in respect of such ATX Stockholder's
ratable share of $5,000,000. For purposes hereof, an ATX Stockholder's
ratable share shall mean a fraction, the numerator of which is the
aggregate principal amount of Senior Notes actually issued to such ATX
Stockholder at the Closing (without giving effect to any post-Closing
adjustment thereof pursuant to Sections 1.2(f) through (h) hereof) and
the denominator of which is the aggregate amount of all Senior Notes
actually issued to the ATX Stockholders at the Closing (without giving
effect to any post-Closing adjustment thereof pursuant to Sections
1.2(f) through (h) hereof).
3. Amendments to Section 1.2(j). Section 1.2(j) of the Agreement is
amended as follows:
(a) The period at the end of clause (ii) of Section 1.2(j) is
deleted and a semicolon is inserted in lieu thereof followed by the
word "or."
B-115
(b) A new clause (iii) is added following clause (ii) and reading
as follows:
(iii) pay fees and expenses of ATX in connection with the
transactions contemplated by this Agreement (such fees and
expenses include any and all investment banking, legal, accounting
and similar fees and expenses payable by ATX in connection with
the transactions contemplated hereby).
(c) The following additional language is inserted following (but
not as part of) clause (iii):
The Notes and Cash Consideration shall be reduced by
reducing the Notes and Cash Consideration by an amount equal to
any distribution made in accordance with this Section 1.2(j), such
reductions being made as follows: the amount of Notes and Cash
Consideration, and the portion thereof constituting the Cash
Consideration, shall be reduced on a dollar for dollar basis by an
amount equal to the Estimated Distributions permitted to be made
pursuant to clauses (i) and (ii) of this Section 1.2(j); and the
amount of Notes and Cash Consideration, and the portion thereof
payable in Senior Notes, shall be reduced on a dollar for dollar
basis by an amount equal to the Estimated Distributions that
constitute distributions permitted to be made pursuant to clause
(iii) of this Section 1.2(j). If the distributions permitted to be
made pursuant to clauses (i) and (ii) of this Section 1.2(j)
exceeds the amount of the Estimated Distributions in respect
thereof, ATX shall be entitled to be paid, and the ATX
Stockholders shall be jointly and severally liable to pay to ATX,
an amount in cash equal to the amount by which the actual amount
of the distributions permitted to be made pursuant to such clauses
(i) and (ii) exceeds the amount of the Estimated Distributions in
respect thereof. If the distributions permitted to be made
pursuant to clause (iii) of this Section 1.2(j) exceeds the amount
of the Estimated Distributions in respect thereof, ATX shall be
entitled to cause each of the Senior Notes to be reduced by its
pro-rata portion of the actual amount of the distributions
permitted to be made pursuant to such clause (iii) to the extent
that such amount exceeds the amount of the Estimated Distributions
in respect thereof. The foregoing notwithstanding, any payment
made subsequent to August 31, 2000 by ATX to any ATX Stockholder
to the extent that such payment constitutes the repayment of funds
advanced in cash by such ATX Stockholder to ATX subsequent to
August 31, 2000 in order to fund ATX's working capital
requirements for the period following August 31, 2000 through the
Closing Date shall not be reflected in any purchase price
adjustment and ATX shall make such reimbursements, if not already
made, at or prior to the Closing Date. Anything in this Section
1.2(j) to the contrary notwithstanding, under no circumstances
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may the aggregate amount of all distributions permitted by this
Section 1.2(j) exceed $25,000,000.
4. Amendments to Section 1.2(k). Section 1.2 (k) of the Agreement is
amended as follows:
(a) The definition of the term "ATX Capital Expenditure
Obligation" is amended to read in its entirety as follows:
"ATX Capital Expenditure Obligation" means the obligation of
ATX and the ATX Partnerships to make Capital Expenditures from the
period commencing January 1, 2000 through July 31, 2000 in the
amount and for those categories of items set forth on Section 1.2
of the ATX Disclosure Schedule.
(b) The definition of the term "ATX Debt" is amended to read in
its entirety as follows:
"ATX Debt" means all liabilities of ATX, other than current
liabilities, as set forth on the Estimated Target Date Financial
Statements, the Proposed Target Date Financial Statements and the
final Target Date Financial Statements, as applicable.
(c) The definition of the term "Capital Expenditure Adjustment"
is deleted in its entirety.
5. Amendment to Section 5.19. The following text in Section 5.19 of
the Agreement is deleted in its entirety:
"the Escrow Agreement, the Indemnification Escrow Agreement."
6. Amendment to Section 5.20. Section 5.20 of the Agreement is
deleted in its entirety.
7. Amendment to Section 5.34. Section 5.34 of the Agreement is
amended to read in its entirety as follows:
5.34 Capital Expenditure Loans. From August 1, 2000 until the
earlier of the Closing or the termination of this Agreement in
accordance with Article VIII hereof, CoreComm shall provide to ATX the
amount required to fund capital expenditures scheduled to be made
subsequent to August 1, 2000 in accordance with the ATX business plan
heretofore provided by ATX to CoreComm. Any such loan shall be at
reasonable commercial terms. If this Agreement shall be terminated
prior to the consummation of the Merger as a result of a breach thereof
by ATX or an ATX Stockholder or a failure to satisfy any of the
conditions set forth in Sections 6.1, 6.2, 6.5, 6.13 through 6.15,
6.19(c), 6.20 and 6.22 of the Agreement, all amounts provided by
CoreComm to ATX shall be repaid, together with accrued unpaid interest
to the date of repayment and without set-off, not later than thirty
days following such termination. If this Agreement is terminated prior
to the consummation of the Merger for any reason other than as set
forth in the preceding sentence, no
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repayment of such funds shall be required, and ATX shall have no
repayment or other obligations in respect thereof.
8. Amendment to Section 6.10. Section 6.10 of the Agreement is
amended to read in its entirety as follows:
6.10 FCC/State PUC Consents. The FCC and State PUCs (other than
the Connecticut PUC) shall have granted by Final Order the FCC/State
PUC Consent Applications, without conditions, qualifications or other
restrictions that are likely to have a Material Adverse Effect whether
imposed by the FCC or any other Governmental Entity.
9. Amendment to Section 6.18. Section 6.18 of the Agreement is
deleted in its entirety.
10. Amendment to Section 9.7. Section 9.7 is deleted in its entirety.
11. Defined Terms. Each reference in the Agreement to the "short term
senior notes" or the "Short Term Senior Notes" is hereby amended to refer
to the "Senior Notes".
12. Amendment to Section 12.1. (a) Section 12.1 is hereby amended to
delete the following cross-referenced defined terms: "Applicable Amount,"
"Closing Financial Statements Delivery Date," "Estimated Closing ATX Debt,"
"Estimated Closing Capital Expenditures," "Estimated Closing Working
Capital," "Pre-Closing Financial Statements," "Pre-Closing Working Capital
Adjustment" and "Working Capital Shortfall."
(b) Section 12.1 is hereby further amended to include the
following additional defined term cross-references:
TERM SECTION
---- -------
Actual Distributions 1.2
ATX Distribution Calculation 1.2
ATX Pre-Target Date Distribution 1.2
Capital Expenditure Adjustment 1.2
Capital Expenditure Target Amount 1.2
Estimated Additional Distributions 1.2
Estimated Distributions 1.2
Estimated Target Date ATX Debt 1.2
Estimated Target Date Financial Statements 1.2
Estimated Target Date 7/31 Capital
Expenditure Amount 1.2
Estimated Target Date Working Capital 1.2
Estimated Target Date Working Capital
Adjustment 1.2
Estimated Working Capital Excess 1.2
Estimated Working Capital Shortfall 1.2
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TERM SECTION
---- -------
Notes and Cash Consideration 1.2
Post-Target Date Distributions 1.2
Proposed Target Date Financial Statements 1.2
Senior Notes 1.2
7/31 Capital Expenditure Amount 1.2
Target Date 1.2
13. Amendment to Exhibits. Exhibits A, B, C and G to the Agreement
are hereby superseded and replaced in their entirety with Exhibits A, B, C
and G attached hereto, respectively.
14. Proxy Statement. Subject to obtaining the approval thereof of all
parties in interest, CoreComm shall use its reasonable best efforts to
cause an amended Schedule 14A relating to the transactions contemplated by
the Agreement to be filed with the Securities and Exchange Commission
within three (3) business days following the execution and delivery of this
Amendment by all parties hereto. As soon as practicable following the
filing of a definitive proxy statement with the Securities and Exchange
Commission, having due regard for the rules and policies of the Securities
and Exchange Commission, CoreComm will mail definitive proxy materials to
its stockholders and will convene a meeting of its shareholders to consider
the transactions contemplated by the Agreement not later than 30 days
following the date of mailing of the definitive proxy materials to the
CoreComm stockholders.
15. Conduct in the Ordinary Course. ATX acknowledges that
notwithstanding the fact that the working capital adjustment provided for
in Section 1.2 of the Agreement shall be based on working capital of ATX as
of August 31, 2000 (if the Closing Date is subsequent to August 31, 2000),
ATX shall continue to be obligated to conduct its business as required by
Section 5.3 of the Agreement until the Closing Date; provided, however that
the ATX Stockholders and their Affiliates may make advances to ATX to fund
ATX's working capital requirements in the ordinary course consistent with
past practices, which advances shall not be deemed to constitute a breach
of Section 5.3 of the Agreement.
16. Financing Terms. If CoreComm undertakes its proposed bank and its
proposed Rule 144a financing prior to Closing, such financing shall be
completed on terms which are not materially different from, in a manner
materially adverse to CoreComm, the terms heretofore described to the ATX
Stockholders. If either such financing is completed on terms materially
different from those described to the ATX Stockholders, and such
differences are materially adverse to CoreComm, CoreComm shall immediately
notify the ATX Stockholders of such event, and absent a waiver by the ATX
Stockholders of such noncompliance, CoreComm shall not be permitted to
borrow under the Senior Notes described herein, and the remainder of this
amendment shall remain in full force and effect. "Materially different"
shall be considered to be any adverse modification to any term of such
financings by at least 15% (other than the amount of each type of
financing), which
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may not be increased. The foregoing bank financing must be one
comprehensive financing, including the syndication thereof. The intent is
that CoreComm will enter the market to obtain one bank financing
arrangement to be completed at one time in an amount between $100 million
and $200 million. It is not contemplated that CoreComm will do two or more
separate bank financings that do not close simultaneously. However, nothing
herein is intended to limit CoreComm's ability to structure such bank
financing in a customary manner, including, but not limited to, multiple
tranches, staggered drawing and other standard provisions. In addition,
upon delivery to the ATX Stockholders of a term sheet reasonably acceptable
to the ATX Stockholders, the foregoing provisions (and their counterparts
in Exhibit B) shall be deemed to apply to a bridge financing in addition to
the bank and 144a financings. Such bridge financing will be subject to the
same constraints described herein (and in Exhibit B) that apply to the bank
and 144a financings.
17. Stock Option Plan; etc. Not later than seven (7) business days
following the date of this Amendment, CoreComm shall deliver to ATX a
proposal outlining employee stock option arrangements for ATX as well as
term sheets outlining employment and/or consulting services to be provided
to CoreComm by Thomas Gravina and Debra Buruchian subsequent to the
Closing.
18. Letter of Credit. CoreComm shall cause to be posted a letter of
credit, not to exceed $900,000, which shall be absolute and unconditional
supporting ATX's leasehold obligations in respect of the rental of
approximately 25,000 square feet of office space located in Bala Cynwyd,
Pennsylvania. If this Agreement shall be terminated under conditions which
would result in ATX being obligated to repay any capital expenditure
advances made by CoreComm pursuant to Section 5.34 of the Agreement,
without regard to any changes made herein, then ATX shall be obligated to
take all actions necessary in order to promptly and effectively relieve
CoreComm of any liability which it may have in respect of such letter of
credit. In the event that the Agreement is terminated and ATX occupies the
office space under such lease for at least 30 days following such
termination, then ATX shall be required to replace CoreComm on the letter
of credit.
19. Other Provisions Unchanged. Except as specifically amended
hereby, all other terms and conditions of the Agreement shall remain in
full force and effect. To the extent that the Agreement includes such terms
as "herein," "hereto," "in this Agreement" and the like, such terms shall
be interpreted to refer to the Agreement, as modified by this Amendment.
20. Counterparts. This Amendment may be executed in separate
counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
CORECOMM LIMITED
By: /s/ RICHARD J. LUBASCH
------------------------------------
Name: Richard J. Lubasch
Title: Senior Vice President --
General Counsel
ATX TELECOMMUNICATIONS
SERVICES, INC.
By: /s/ MICHAEL KARP
------------------------------------
Name: Michael Karp
Title: Chief Executive Officer
CORECOMM MERGER SUB, INC.
By: /s/ RICHARD J. LUBASCH
------------------------------------
Name: Richard J. Lubasch
Title: President and Secretary
ATX MERGER SUB, INC.
By: /s/ MICHAEL KARP
------------------------------------
Name: Michael Karp
Title: Chief Executive Officer
B-121
Solely with respect to
Articles 9, 11, 12, and 13 of
the Recapitalization Agreement and
Plan of Merger, as amended hereby
/s/ THOMAS GRAVINA
---------------------------------------------------------
Thomas Gravina
/s/ DEBRA BURUCHIAN
---------------------------------------------------------
Debra Buruchian
/s/ MICHAEL KARP
---------------------------------------------------------
Michael Karp
THE FLORENCE KARP TRUST
By: /s/ LISA G. KAMINSKY
-------------------------------------------------------
Name: Lisa G. Kaminsky
Title: Trustee
B-122
Annex C
AMALGAMATION AGREEMENT
This AMALGAMATION AGREEMENT is made as of April 10, 2000.
BETWEEN:
(1) CoreComm Limited, a company incorporated under the laws of Bermuda having
its registered office at Cedar House, 41 Cedar Avenue, Hamilton, Bermuda
("CoreComm") of the first part; and
(2) CoreComm Merger Sub, Inc., a company incorporated under the laws of
Delaware having its registered office at 1013 Centre Road, City of
Wilmington, County of Dover, Delaware, USA ("CoreComm Merger Sub") of the
second part.
WHEREAS:
1. CoreComm was incorporated under the laws of Bermuda pursuant to the
Companies Act 1981, as evidenced by a Certificate of Incorporation
dated 6 March 1998;
2. CoreComm Merger Sub was incorporated under the laws of Delaware on
April 7, 2000;
3. Pursuant to the Recapitalisation Agreement and Plan of Merger (as
herein defined) CoreComm and CoreComm Merger Sub agree to amalgamate
(the "Amalgamation");
4. The board of directors of CoreComm has determined that the
Amalgamation is in the best interests of CoreComm and its
shareholders;
5. The board of directors of CoreComm has determined that the
Amalgamation is in the best interests of CoreComm and its
shareholder;
6. The shareholder of CoreComm Merger Sub has approved the Amalgamation
Agreement and the transactions contemplated hereby;
7. CoreComm and CoreComm Merger Sub have each made full disclosure to
the other of all their respective assets and liabilities;
8. CoreComm has an authorised share capital of $760,000 consisting of
75,000,000 common shares, par value $0.01 per share and 1,000,000
preferred shares, par value $0.01 per share;
9. CoreComm Merger Sub has an authorised share capital of $1.00
consisting of 100 shares of common stock, par value $0.01 per share
("CoreComm Merger Sub Common Stock");
10. CoreComm is the legal and beneficial owner of all of the issued and
outstanding shares of CoreComm Merger Sub;
11. It is desired by the parties that the Amalgamation shall be effected
and shall be treated for United States Federal income tax purposes as
a tax-free
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reorganisation described in Section 368(a)(1)(f) of the United States
Internal Revenue Code of 1986, as amended;
12. Capitalised terms used and not defined herein have the respective
meanings described to them in the Recapitalisation Agreement and Plan
of Merger.
NOW THEREFORE THE PARTIES HAVE AGREED AS FOLLOWS:
1. INTERPRETATION
1.1 In this Agreement:
(a) "Agreement and Plan of Merger" means the agreement and plan of
merger dated as of 12 March 2000 and made by and among CoreComm,
CoreComm Group Sub I, Inc. and Voyager.net, Inc., as amended from
time to time.
(b) "Amalgamating Companies" means CoreComm and CoreComm Merger Sub,
the parties hereto;
(c) "Amalgamated Company" means the company continuing from the
Amalgamation of the Amalgamating Companies;
(d) "Amalgamation Agreement" or "Agreement" means this Amalgamation
Agreement;
(e) "Act" means the Bermuda Companies Act 1981;
(f) "CoreComm Common Shares" means the issued and outstanding common
shares in the capital stock of CoreComm Limited as at the
Domestication Merger Effective Time.
(g) "Domestication Merger Effective Time" means the time that the
Certificate of Merger is filed with the Secretary of State of the
State of Delaware, pursuant to the Delaware General Corporation
Law ("DGCL"), which time is deemed to be the effective time of
Amalgamation;
(h) "Recapitalisation Agreement and Plan of Merger" means the
recapitalisation agreement and plan of merger dated as of 9 March
2000 and made by and among CoreComm, ATX Telecommunications
Services, Inc., Thomas Gravina, Deborah Buruchian, Michael Karp
and the Florence Karp Trust, as amended from time to time.
2. AMALGAMATION
Each of the Amalgamating Companies does hereby agree to amalgamate, at the
Domestication Merger Effective Time, under the provisions of the Act and
Section 252 of the DGCL and to continue as one company under the terms and
conditions hereinafter set out. The Amalgamation shall occur immediately
prior to the earlier of the following to occur: (i) the merger of ATX
Merger Sub, Inc. with and into CoreComm Merger Sub, pursuant to the
Recapitalisation Agreement and
C-2
Plan of Merger (the "ATX Merger") and (ii) the merger of CoreComm Group Sub
I, Inc. with and into Voyager.net, Inc., pursuant to the Agreement and Plan
of Merger (the "Voyager Merger").
3. NAME, CERTIFICATE OF INCORPORATION, BY-LAWS
3.1 The name of the Amalgamated Company shall be (i) "CoreComm Merger
Sub, Inc." if the ATX Merger occurs prior to the Voyager Merger or
(ii) "CoreComm Limited" if the Voyager Merger occurs prior to the ATX
Merger and the registered office of the Amalgamated Company shall be
1013 Centre Road, City of Wilmington, County of Dover, Delaware, USA;
3.2 The Amalgamated Company shall be governed by the Certificate of
Incorporation of CoreComm Merger Sub.
3.3 The By-laws of the Amalgamated Company shall be the By-laws of
CoreComm Merger Sub, until repealed, amended or altered.
4. DIRECTORS
The Board of Directors of the Amalgamated Company shall consist of the
members of the Board of Directors of CoreComm Merger Sub whose names and
addresses are set out in Schedule A, attached hereto, who shall hold office
until the first annual meeting of the Amalgamated Company or until their
successors are elected or appointed.
5. AUTHORISED CAPITAL
The Amalgamated Company shall have an authorised share capital of
$2,050,000 divided into 200,000,000 shares of Amalgamated Company Common
Stock, par value $0.01 per share, and 5,000,000 shares of Amalgamated
Company Preferred Stock, par value $0.01 per share having all the rights,
conditions, restrictions and limitations set out in the Certificate of
Incorporation and the By-laws of the Amalgamated Company.
6. CONVERSION OF SHARES; EXCHANGE PROCEDURE
6.1 At the Domestication Merger Effective Time, by virtue of the
Amalgamation and without any action on the part of CoreComm Merger
Sub, CoreComm or the holders of any shares or securities thereof;
6.1.1 each CoreComm Common Share, together with each accompanying
right to acquire one one-hundredth of a share of CoreComm
Series A Junior Participating Preferred Stock, stated value
$1.00 per share, will be converted into one issued and fully
paid share of CoreComm Merger Sub Common Stock; and
6.1.2 each CoreComm Merger Sub Common Stock held by CoreComm
immediately prior to the Domestication Merger Effective Time
shall be
C-3
cancelled and extinguished without any conversion thereof, and
no payment shall be made with respect thereto;
6.2 At the Domestication Merger Effective Time or as soon as practicable
thereafter, the CoreComm Merger Sub Common Stock Certificates to be
issued to the shareholders of CoreComm shall be deposited with the
Exchange Agent, who shall exchange them for certificates of common
stock of ATX Telecommunications Services, Inc., par value $.01 per
share, if the ATX Merger closes.
6.3 CoreComm Common Shares held by Dissenting Shareholders, together with
each accompanying right to acquire one one-hundredth of a share of
CoreComm Series A Junior Participating Preferred Stock, shall not be
converted into shares of CoreComm Merger Sub Common Stock as provided
in clause 6.1.1 and shall be cancelled and converted into a right to
receive payment of fair value under the Act, provided that if a
Dissenting Shareholder withdraws his claim, fails to perfect,
effectively withdraws or otherwise loses any right to appraisal and
payment under the Act such right to receive payment shall be deemed
to have been converted as of the Effective Date into a right to
receive shares of CoreComm Merger Sub in accordance with clause
6.1.1.
7. CONDITIONS OF THE AMALGAMATION
The obligations of CoreComm and CoreComm Merger Sub to consummate the
Amalgamation are subject to the satisfaction or, if permitted by applicable
law, waiver by each of CoreComm and CoreComm Merger Sub in their sole
discretion of either (i) the conditions set out in Article VI of the
Recapitalisation Agreement and Plan of Merger or (ii) the conditions set
out in Sections 9.1 and 9.3 of the Agreement and Plan of Merger.
8. TERMINATION
8.1 This Agreement shall automatically terminate upon the later of (i)
the termination of the Recapitalisation Agreement and Plan of Merger
and (ii) the termination of the Agreement and Plan of Merger.
8.2 In the event of the termination of this Agreement pursuant to clause
8.1, this Agreement shall forthwith become void, there shall be no
liability under this Agreement on the part of CoreComm Merger Sub or
CoreComm or any of their respective officers or directors and all
rights and obligations of any party hereto under this Agreement shall
cease; provided however that nothing herein shall relieve any party
from liability for any prior breach of the terms hereof.
9. EFFECTS OF AMALGAMATION
9.1 The Amalgamated Company shall possess all the property, assets,
rights and privileges and shall be subject to all the contracts,
liabilities, debts and obligations of the Amalgamating Companies.
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9.2 All the rights of creditors against the property, assets, rights and
privileges of the Amalgamating Companies and all liens upon their
property, rights and assets shall be unimpaired by Amalgamation and
all debts, contracts, liabilities and duties of the Amalgamating
Companies shall henceforth attach to and may be enforced against the
Amalgamated Company.
9.3 No action or proceeding by or against the Amalgamating Companies
shall abate or be affected by the Amalgamation but, for the purposes
of such action or proceeding, the name of the Amalgamated Company
shall be substituted in such action or proceeding in place of
CoreComm or CoreComm Merger Sub as the case may be.
10. GENERAL PROVISIONS
10.1 CoreComm and CoreComm Merger Sub agree to execute and do all such
acts, deeds and things as shall or may be necessary to give effect
to their respective undertakings pursuant to this Agreement.
10.2 This Agreement shall be governed by and construed in accordance with
the laws of Bermuda and the parties hereto hereby irrevocably submit
to the non-exclusive jurisdiction of the Courts of Bermuda.
C-5
SCHEDULE A
BOARD OF DIRECTORS OF AMALGAMATED COMPANY
George S. Blumenthal
J. Barclay Knapp
Alan J. Patricof
Ted H. McCourtney
Del Mintz
Warren Potash
Sidney R. Knafel
The address for each of the foregoing directors is as follows:
110 East 59th Street
26th Floor
New York, NY 10022
USA
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IN WITNESS WHEREOF this Agreement has been duly executed by the parties
hereto under their respective seals as witnessed by the signatures of their
proper officers.
CoreComm Limited
By: /s/ RICHARD J. LUBASCH
------------------------------------
Name: Richard J. Lubasch
Title: Senior Vice
President -- General
Counsel
CoreComm Merger Sub, Inc.
By: /s/ RICHARD J. LUBASCH
------------------------------------
Name: Richard J. Lubasch
Title: President
C-7
Annex D
DELAWARE GENERAL CORPORATION LAW
SEC.262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a corporation and
also a member of record of a nonstock corporation; the words "stock" and "share"
mean and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251 (other than a merger effected pursuant to
sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263 or
sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
D-1
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. W
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