AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

PRAIRIEWAVE HOLDINGS, INC.,

KNOLOGY, INC.,

KNOLOGY ACQUISITION SUB, INC.,

ALTA COMMUNICATIONS VIII, L.P., AS

THE

EQUITY HOLDERS’ REPRESENTATIVE,

AND CERTAIN EQUITY HOLDERS

JANUARY 8, 2007

TABLE OF CONTENTS

 

 

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AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (this “ Agreement ”) is dated as of January 8, 2007, by and among Knology, Inc., a Delaware corporation (“ Parent ”), Knology Acquisition Sub, Inc., a Delaware corporation (“ MergerCo ”), PrairieWave Holdings, Inc., a Delaware corporation (the “ Company ”), Alta Communications VIII, L.P., a Delaware limited partnership, solely in the capacity of the representative of holders of Company Stock (as defined in Section 4.2(a) ) (the “ Equity Holders’ Representative ”), and the parties set forth on the signature pages hereto as stockholders of the Company, solely for the purposes of agreeing to the provisions of Article IX hereof (the “ Indemnifying Equity Holders ”). Capitalized terms used in this Agreement and not otherwise defined herein are defined in Section 11.6 .

WHEREAS, Parent, MergerCo and the Company wish to effect a business combination through a merger (the “ Merger ”) of MergerCo with and into the Company on the terms and conditions set forth in this Agreement and in accordance with the Delaware General Corporation Law, as amended (the “ DGCL ”);

WHEREAS, the Board of Directors of the Company (the “ Company Board ”) has approved and adopted this Agreement, the Merger and the other transactions contemplated hereby and determined that this Agreement, the Merger and the other transactions contemplated hereby are advisable and in the best interest of its stockholders;

WHEREAS, the Boards of Directors of Parent and MergerCo have approved and adopted this Agreement, the Merger and the other transactions contemplated hereby and have determined that this Agreement, the Merger and the other transactions contemplated hereby are in the best interest of their respective stockholders, and Parent has agreed to approve and adopt this Agreement as the sole stockholder of MergerCo; and

WHEREAS, Parent, MergerCo and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and to prescribe various conditions to the Merger.

NOW THEREFORE, in consideration of the mutual agreements and covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I - THE MERGER

Section 1.1. The Merger . Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 1.2 ), 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 surviving corporation in the Merger (sometimes referred to herein as the “ Surviving Corporation ”) and shall continue to be governed by the laws of the State of Delaware, and (c) the separate corporate existence of the Company with all its rights, privileges, immunities, powers and franchises shall continue unaffected by the Merger. The Merger shall have the effects specified in the DGCL.

Section 1.2. Effective Time . Upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date (as defined in Section 1.4 ), MergerCo and the Company shall duly execute a certificate of merger in the form attached hereto as Exhibit A (the “ Certificate of Merger ”) and file such Certificate of Merger with the Secretary of State of the State of Delaware in accordance with the DGCL. The Merger shall become effective at such time as the Certificate of Merger, accompanied by payment of the filing fee (as provided in the DGCL), has been examined by and received the endorsed approval of the Secretary of State of the State of Delaware (the “ Effective Time ”).

Section 1.3. Certificate of Incorporation and By-Laws . As of the Effective Time, by virtue of the Merger and without any action on the part of MergerCo, the Company or any other Person being required, the certificate of incorporation of the Surviving Corporation shall be amended and restated to read the same as the certificate of incorporation of MergerCo as in effect immediately prior to the Effective Time (except that Article I thereof shall read “The name of the corporation is PrairieWave Holdings, Inc.” and except that Article 5 shall be deleted and the subsequent articles therein renumbered) and, as so amended and restated, shall be the certificate of incorporation of the Surviving Corporation until thereafter amended as provided by law and the terms of such certificate of incorporation. As of the Effective Time, the bylaws of the Surviving Corporation shall have been amended and restated as contemplated by Section 8.2(t) .

Section 1.4. Closing . The closing of the Merger (the “ Closing ”) shall occur no later than the fifth Business Day (as defined below) after the conditions set forth in Sections 8.1 , 8.2 and 8.3 have been satisfied or waived (other than conditions required to be satisfied at the Closing); and, provided further that, notwithstanding the foregoing, the Closing may occur on any other date agreed upon in writing by the Company, MergerCo and Parent. The date on which the Closing occurs pursuant to the foregoing sentence is referred to in this Agreement as the “ Closing Date .” The Closing shall take place at the offices of Morris, Manning & Martin, LLP, 1600 Atlanta Financial Center, 3343 Peachtree Road NE, Atlanta, Georgia 30326, or at such other place as agreed to by the Company, MergerCo and Parent. “ Business Day ” means any day other than a day on which the office of the Secretary of State of the State of Delaware is closed.

ARTICLE II - EFFECT OF THE MERGER ON THE CAPITAL STOCK

OF THE CONSTITUENT CORPORATIONS

Section 2.1. Effect on Capital Stock . As of the Effective Time, by virtue of the Merger and without any action on the part of the holders of any of the Company Stock (each such holder, and any Optionholder (as defined in Section 3.2(a) ) or Warrantholder (as defined in Section 3.3 ), an “ Equity Holder ” and all such holders, together with all Optionholders and Warrantholders, the “ Equity Holders ”) or the holders of any of the capital stock of MergerCo:

(a) Each issued and outstanding share of capital stock of MergerCo immediately prior to the Effective Time shall be converted into one share of common stock, par value $0.01 per share, of the Surviving Corporation following the Merger.

 

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(b) Each share of Company Stock that is owned by the Company, or by any wholly owned Subsidiary of the Company, shall automatically be canceled and shall cease to exist, and no cash or other consideration shall be delivered or deliverable in exchange therefor.

(c) Each issued and outstanding share of Company Stock immediately prior to the Effective Time shall be treated as follows:

(i) Each share of Series A Preferred Stock (as defined in Section 4.2(a) ) issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive an amount in cash equal to the Series A Merger Price Per Share (as defined in Section 11.6 ).

(ii) Each share of Series B Preferred Stock (as defined in Section 4.2(a) ) issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive an amount in cash equal to the Series B Merger Price Per Share (as defined in Section 11.6 ).

(iii) Each share of Class A Common Stock (as defined in Section 4.2(a) ) issued and outstanding immediately prior to the Effective Time and each share of Common Stock (as defined in Section 4.2(a) ) issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive an amount in cash equal to Common Stock Merger Price Per Share (as defined in Section 11.6 ).

(d) The “ Closing Cash Merger Consideration ” shall mean an amount equal to: (i) Two Hundred Fifty-Five Million Dollars ($255,000,000) (the “ Transaction Price ”), subject to possible increase pursuant to Section 3.10 ; less (ii) the EBITDA Adjustment Amount (as defined in Section 3.7(c) ), if any; plus (iii) the Estimated Working Capital Adjustment (which number shall be subtracted if it is a negative number); plus (iv) the Aggregate Option Exercise Price Proceeds (as defined in Section 11.6 ); plus (v) the Aggregate Warrant Exercise Price Proceeds (as defined in Section 11.6 ); less (vi) the aggregate amount of all Indebtedness (as defined in Section 3.5 ) of the Company to be paid by Parent pursuant to Section 3.5 ; less (vii) all Company Expenses (as defined in Section 3.6 ) to be paid by Parent pursuant to Section 3.6 ; less (viii) the Escrow Amount (as defined in Section 3.1(a) ); less (ix) the Holdback Amount (as defined in Section 11.6 ).

(e) The “ Total Merger Consideration ” shall mean the amount equal to: (A) the Closing Cash Merger Consideration; plus (B) the aggregate amount of any additional payments to be made to the Equity Holders under this Agreement, including, without limitation, payments to be made under Section 3.8 , Section 7.6 , or Article IX and/or pursuant to the Escrow Agreement or the Equity Holders Agreement.

(f) All shares of Company Stock, when converted as provided in Section 2.1(c) above, shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each certificate (“ Certificate ”) previously evidencing such shares shall thereafter

 

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represent only the right to receive that portion of the Total Merger Consideration applicable to the shares formerly evidenced by such Certificate. The holders of Certificates previously evidencing shares of Company Stock outstanding immediately prior to the Effective Time shall cease to have any rights with respect to the Company Stock except as otherwise provided herein or by law, and upon the surrender of Certificates in accordance with the provisions of Section 3.1 , such Certificates shall only represent the right to receive the Total Merger Consideration applicable to the shares formerly evidenced by such Certificates.

ARTICLE III - PAYMENT WITH RESPECT TO SHARES; OTHER CLOSING

PAYMENTS; POST-CLOSING ADJUSTMENTS AND DISSENTING SHARES

Section 3.1. Payment with respect to Shares of Company Stock .

(a) At the Effective Time, Parent shall cause to be delivered to SunTrust Bank, a Georgia banking corporation (the “ Escrow Agent ”), an amount in cash equal to $10,000,000.00 (the “ Escrow Amount ”), such deposit to constitute an escrow fund (the “ Escrow Fund ”). The Escrow Fund shall be governed by the terms hereof and the terms of an escrow agreement to be entered into by and among Parent, the Equity Holders’ Representative and the Escrow Agent, such escrow agreement to be substantially in the form attached hereto as Exhibit B (the “ Escrow Agreement ”). The Escrow Fund shall be held in escrow and shall be available to settle certain contingencies as provided in Sections 3.8 and 9.2 of this Agreement and will be distributable to the Equity Holders and/or Parent in accordance with the Escrow Agreement.

(b) Prior to the Closing Date, Parent shall deliver or mail to each holder of record of a Certificate or Certificates that immediately prior to the Effective Time will represent outstanding shares of Company Stock the following: (A) 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 proper delivery of the Certificates to Parent; and (B) instructions for use in surrendering the Certificates to the Equity Holders’ Representative, for further delivery to Parent at or after Closing in exchange for the Closing Cash Merger Consideration applicable to the shares of Company Stock represented by the Certificates.

(c) At or following the Effective Time, and upon surrender of a Certificate representing Series A Preferred Stock, Series B Preferred Stock, Class A Common Stock or Common Stock to Parent for cancellation, together with a letter of transmittal properly completed and duly executed, and such other documents as may be required pursuant to such instructions, Parent shall pay to the holder of such Certificate, as applicable:

(i) the Series A Per Share Closing Cash (as defined in Section 11.6 ) for each share of Series A Preferred Stock represented by such Certificate;

(ii) the Series B Merger Price Per Share (as defined in Section 11.6 ) for each share of Series B Preferred Stock represented by such Certificate; and

 

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(iii) the Common Per Share Closing Cash (as defined in Section 11.6 ) for each share of Class A Common Stock or each share of Common Stock represented by such Certificate.

Any Certificate duly surrendered under this Section 3.1(c) shall forthwith be canceled. No interest will be paid or accrued on any of the Total Merger Consideration payable to holders of the Certificates.

(d) Until surrendered in accordance with this Section 3.1 , each such Certificate (other than Certificates representing shares of Common Stock to be canceled in accordance with Section 2.1(b) and Dissenting Shares (as defined in Section 3.4(a) )) shall represent solely the right to receive the Total Merger Consideration relating thereto (subject to applicable abandoned property, escheat, and similar laws). If the Total Merger Consideration relating thereto (or any portion thereof) is to be delivered to any person other than the person in whose name the Certificate surrendered therefor is registered, it shall be a condition to such right to receive such Total Merger Consideration relating thereto that the Certificate so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the person surrendering such Certificate shall pay to Parent any Transfer Taxes (as defined in Section 7.6 ) or other Taxes required by reason of the payment of any portion of the Total Merger Consideration to a person other than the registered holder of the Certificate surrendered, or shall establish to the satisfaction of Parent that such Tax has been paid or is not applicable.

(e) At the Effective Time, the stock transfer books of the Company shall be closed, and thereafter, there shall be no further registration or transfers of shares of Company Stock on the stock transfer books of the Surviving Corporation of any shares of Company Stock that were outstanding immediately prior to the Effective Time. On or after the Effective Time, any Certificates formerly representing shares of Company Stock presented to the Surviving Corporation or Parent shall be surrendered and canceled in return for the payment of the Total Merger Consideration relating thereto, as provided in this Article III .

(f) None of Parent, the Surviving Corporation or the Equity Holders’ Representative or any of their respective Subsidiaries or Affiliates shall be liable to any person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

(g) If any Certificate shall have been lost, stolen or destroyed, upon the making and delivery of an affidavit of that fact and an indemnity in form and substance reasonably satisfactory to Parent by the person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent in its discretion from any holder of more than five percent (5%) of the capital stock of the Company (on an as-if-converted to Common Stock basis), a bond in form and substance reasonably satisfactory to Parent, Parent will issue the applicable Total Merger Consideration in exchange for such lost, stolen or destroyed Certificate in accordance with this Article III .

(h) If Parent is required to make a payment pursuant to Section 3.8(e) , Parent shall promptly distribute all such amounts to the Equity Holders (other than holders of the Series B Preferred Stock) pro rata in the proportion that the amount of the Closing Cash Merger Consideration received by each of them bears to the Closing Cash Merger Consideration received by all of such Equity Holders in the aggregate.

 

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(i) Parent and the Surviving Corporation shall be entitled to deduct and withhold from the Total Merger Consideration or other amounts payable pursuant to this Agreement to any Equity Holder such amounts as Parent or the Surviving Corporation is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of United States federal, state or local Tax laws, and shall instead pay such amount to the applicable Governmental Authority. To the extent that amounts are so withheld by Parent or the Surviving Corporation, such amounts withheld shall be treated for all purposes of this Agreement as having been paid to the Equity Holder in respect of which such deduction and withholding was made by Parent or the Surviving Corporation.

Section 3.2. Options .

(a) Vested Options . Prior to the Effective Time, the Board of Directors of the Company shall have made a determination pursuant to Section 10.2 of the Plan (as defined in Section 4.2(a) ) to pay cash in retirement of all vested Options (as defined in Section 4.2(a) ) that are outstanding and unexercised immediately prior to the Effective Time (each such vested Option, a “ Vested Option ,” and each holder of a Vested Option, individually, an “ Optionholder ” and, collectively, the “ Optionholders ”) in accordance with this Section 3.2 . At the Effective Time, the Company shall pay to each holder of a Vested Option that is outstanding and unexercised immediately prior to the Effective Time an amount of cash for each share of Common Stock then issuable upon exercise of such Vested Option equal to the amount payable pursuant to Section 10.2 of the Plan, which shall be (i) the Common Per Share Closing Cash less (ii) the exercise price of such Vested Option less (iii) any required employment and other withholding Taxes applicable or relating to the exercise of, or any other action relating to, such Vested Options. Each Optionholder shall thereafter be entitled to receive in respect of each such share of Common Stock any additional amounts of Common Stock Merger Price Per Share payable in respect of shares of Common Stock hereunder when, as and if paid pursuant to the terms hereof less any required employment and other withholding Taxes applicable or relating to the exercise of, or any other action relating to, such Vested Options.

(b) Unvested Options . Prior to the Effective Time, the Company shall have taken all actions necessary such that, as of the Effective Time, no unvested Options will be outstanding, and no agreements with respect to any such unvested Options will be binding on the Company.

(c) Treatment as Compensation . All consideration to be received by the Optionholders pursuant to this Section 3.2 (as well as any amounts paid to the Optionholders under Sections 3.8 , 7.6 , 9.2 and/or pursuant to the Escrow Agreement or the Equity Holders Agreement) shall be treated as compensation by the Company and shall be net of any applicable Taxes.

Section 3.3. Warrants . Prior to the Effective Time, the Company shall have provided notice to the Warrantholders (as defined below) of the Merger and this Agreement in accordance with the terms of the Warrant (as defined below), and the Warrantholders shall have elected to receive the Common Per Share Closing Cash less the applicable exercise price of such Warrants in accordance with the terms of this Agreement. At the Effective Time, the Company shall pay

 

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to each holder of a warrant that is outstanding and unexercised immediately prior to the Effective Time (each such warrant, a “ Warrant ,” and each holder of a Warrant, individually, a “ Warrantholder ” and, collectively, the “ Warrantholders ”) an amount of cash for each share of Common Stock then issuable upon exercise of such Warrant (each such share, a “ Warrant Share ”) equal to (i) the Common Per Share Closing Cash less (ii) the exercise price of such Warrant. Each Warrantholder shall thereafter be entitled to receive in respect of each such share of Common Stock any additional amounts of Common Stock Merger Price Per Share payable in respect of shares of Common Stock hereunder when, as and if paid pursuant to the terms hereof. In consideration of receiving the Common Stock Merger Price Per Share in accordance with this Agreement, each Warrantholder shall have entered into agreements with the Company canceling and terminating the Warrants.

Section 3.4. Appraisal Rights .

(a) Notwithstanding anything in this Agreement to the contrary, any shares of Company Stock (collectively, the “ Dissenting Shares ”) that are issued and outstanding immediately prior to the Effective Time and that are held by stockholders of the Company who have not executed the Written Consent (as defined in Section 7.1(a) ) and who shall have demanded properly in writing appraisal for such shares in accordance with Section 262 of the DGCL (the “ Appraisal Rights Provisions ”) will not be converted as described in Section 2.1 , but will thereafter constitute only the right to receive payment of the fair value of such shares of Company Stock in accordance with the Appraisal Rights Provisions; provided, however, that all shares of Company Stock held by Equity Holders who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to appraisal of such shares of Company Stock under the Appraisal Rights Provisions shall thereupon be deemed to have been canceled and to have been converted, as of the Effective Time, into the right to receive the applicable portion of the Total Merger Consideration, without interest, in the manner provided in Sections 2.1 and 3.1 . Persons who have perfected statutory rights with respect to Dissenting Shares as aforesaid will not be paid by the Surviving Corporation as provided in this Agreement and will have only such rights as are provided by the Appraisal Rights Provisions with respect to such Dissenting Shares. The Company shall give Parent and MergerCo prompt notice of any demands received by the Company for the exercise of appraisal rights with respect to shares of Company Stock, withdrawals of such demands, and any other instruments served pursuant to the DGCL and received by the Company, and Parent shall have the right to participate in all negotiations and proceedings with respect to such demands.

(b) Each dissenting stockholder who becomes entitled under the Appraisal Rights Provisions to payment for Dissenting Shares shall receive payment therefor after the Effective Time from the Surviving Corporation (but only after the amount thereof shall have been agreed upon or finally determined pursuant to the Appraisal Rights Provisions), and such shares of Company Stock shall be canceled.

Section 3.5. Payments at Closing for Indebtedness . As of the Closing Date, Parent shall repay, by wire transfer of immediately available funds, all indebtedness then outstanding under those certain agreements, instruments, and facilities entered into by and among the Company and various lending institutions, all of such agreements, instruments and facilities being as described on Schedule 3.5 attached hereto (collectively, the “ Indebtedness ”); provided that the Company has provided payoff letters from the lenders of such Indebtedness. Parent and

 

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MergerCo, on the one hand, and the Company, on the other hand, will cooperate in arranging for such repayment and shall take such reasonable actions as may be necessary to facilitate such repayment and to facilitate the release, in connection with such repayment, of any mortgages, pledges, liens, security interests, encumbrances, claims, charges, conditional sale agreements and restrictions of any kind or character (collectively, “ Encumbrances ”) securing such Indebtedness and the delivery of payoff letters to Parent or Parent’s lenders.

Section 3.6. Payments at Closing for Expenses . As of the Closing Date, Parent and MergerCo shall provide sufficient funds to the Surviving Corporation to enable the Surviving Corporation to pay all outstanding fees and expenses of the Company and each of its Subsidiaries in connection with the negotiation and the consummation of the transactions contemplated by this Agreement that have not been paid on or prior to the Closing Date (the “ Company Expenses ”).

Section 3.7. Estimated Working Capital Adjustment; EBITDA Adjustment Amount .

(a) At least ten (10) Business Days prior to the Closing Date, the Company shall deliver to Parent and MergerCo a good faith estimate of the Company’s Net Working Capital as of the close of business on the Closing Date (the “ Company’s Estimated Working Capital ”), together with supporting documentation for such estimate and any additional information relating thereto reasonably requested by Parent or MergerCo. Parent and its accountants and advisors shall be given full access to all of the Company’s and its Subsidiaries’ books and records for purposes of evaluating the accuracy and completeness of the Company’s Estimated Working Capital. If Parent believes, in good faith, that the Company’s Estimated Working Capital is in error, Parent may challenge the amount of the Company’s Estimated Working Capital within six (6) Business Days following delivery by delivering a written notice of disagreement to the Company. If Parent does not timely deliver a notice of disagreement to the Company, the amount of the Closing Cash Merger Consideration to be paid at the Effective Time shall be based on the Company’s Estimated Working Capital as delivered to Parent. If Parent timely delivers a written notice of disagreement to the Company, Parent and the Company shall use their good faith efforts to resolve any disputes with respect to the Company’s Estimated Working Capital prior to the Closing Date, and the amount of Closing Cash Merger Consideration to be paid at the Effective Time shall be based on the Estimated Working Capital (as defined below) as mutually agreed to in writing by Parent and the Company. If Parent timely delivers a notice of disagreement to the Company but Parent and the Company are unable to resolve their dispute regarding the Company’s Estimated Working Capital within four (4) Business Days of the delivery by Parent to the Company of such notice of disagreement, then the amount of Closing Cash Merger Consideration to be paid at the Effective Time shall be based on the amount of working capital set forth in such notice of disagreement. “ Estimated Working Capital ” shall mean the estimate of the Company’s Net Working Capital at the close of business on the Closing Date as determined by the parties pursuant to this Section 3.7(a) .

(b) “ Target Working Capital ” means $285,980.00 in Net Working Capital. The “ Estimated Working Capital Adjustment ” shall be an amount equal to the Estimated Working Capital, as determined in accordance with Section 3.7(a) , less the Target Working Capital.

 

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(c) Concurrently with the delivery of the Audited Financial Statements to Parent as contemplated by Section 7.9 of this Agreement, the Company shall deliver to Parent a calculation of the Company’s EBITDA (as defined below) for the Company’s fiscal year ended December 31, 2006 (the “ FY 2006 EBITDA ”) which shall be derived from and based solely upon the elements of EBITDA that are set forth in such Audited Financial Statements. If FY 2006 EBITDA is less than $33,300,000 (the “ Target EBITDA ”), then the Purchase Price shall be reduced by a dollar amount (the “ EBITDA Adjustment Amount ”) equal to (i) the difference between the Target EBITDA minus the FY 2006 EBITDA, with such difference then being multiplied by (ii) 7.658. The term “ EBITDA ” shall mean the Company’s total revenues, less the Company’s total expenses, each for the Company’s fiscal year ended December 31, 2006, except for its interest, taxes, depreciation and amortization expenses for such period. Such expenses shall also exclude the items set forth on Schedule 3.7(c) .

Section 3.8. Post Closing Adjustments .

(a) Within sixty (60) days following the Closing Date, Parent shall prepare and deliver to the Equity Holders’ Representative a consolidated balance sheet of the Company and its Subsidiaries as of the close of business on the Closing Date (the “ Closing Balance Sheet ”), which will include Parent’s calculation of the Company’s actual Net Working Capital as of the close of business on the Closing Date (the “ Closing Working Capital ”) and a certificate based on such Closing Balance Sheet setting forth Parent’s calculation of the Closing Working Capital Adjustment (as defined in Section 3.8(b) ) (such Closing Balance Sheet, statement of Net Working Capital, and certificate, collectively, are referred to herein as, the “ Closing Statement ”). The Closing Balance Sheet shall be prepared in accordance with GAAP (as defined in Section 11.6 ), consistent with the practices, policies and procedures used in preparation of the Base Balance Sheet (as defined in Section 4.5(a)(ii) ), and shall be certified by an authorized officer of Parent. The preparation of the Closing Statement shall be for the sole purpose of determining the Closing Working Capital Adjustment. The Equity Holders’ Representative shall have twenty (20) Business Days following its receipt of the Closing Statement (the “ Review Period ”) to review the same. On or before the expiration of the Review Period, the Equity Holders’ Representative shall deliver to Parent a written statement accepting or objecting to the Closing Statement. If the Equity Holders’ Representative objects to the Closing Statement, such statement shall include an itemization of the Equity Holders’ Representative’s objections and the reasons therefor. If the Equity Holders’ Representative does not deliver such statement to Parent within the Review Period, the Equity Holders’ Representative shall be deemed to have accepted the Closing Statement.

(b) The “ Closing Working Capital Adjustment ” shall mean (i) if the Estimated Working Capital Adjustment was zero, then an amount equal to the Target Working Capital minus the Closing Working Capital; (ii) if the Estimated Working Capital Adjustment was positive, then an amount equal to the Target Working Capital plus the Estimated Working Capital Adjustment minus the Closing Working Capital; or (iii) if the Estimated Working Capital Adjustment was negative, then an amount equal to the Target Working Capital minus the absolute value of the Estimated Working Capital Adjustment minus the Closing Working Capital.

(c) The Closing Working Capital Adjustment set forth on the Closing Statement, as accepted or deemed accepted under Section 3.8(a) or, if applicable, as determined in accordance with Section 3.8(d) below, shall constitute the “ Final Closing Adjustment ” for purposes of determining any adjustment to the Total Merger Consideration.

 

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(d) If the Equity Holders’ Representative objects to the Closing Statement within the Review Period, Parent and the Equity Holders’ Representative shall promptly and in good faith attempt to resolve such objections. Any such objections that cannot be resolved between Parent and the Equity Holders’ Representative within thirty (30) days following Parent’s receipt of the Equity Holders’ Representative’s statement of objections shall be resolved in accordance with this Section 3.8(d) . Any such unresolved objections shall be submitted to Grant Thornton, LLP (the “ Accounting Referee ”) for review and resolution, with instructions to complete the same as promptly as practicable, but in any event within thirty (30) days of its engagement, and to make any calculations in accordance with GAAP, consistent with the practices, policies and procedures used in preparation of the Base Balance Sheet. Such Accounting Referee shall deliver a statement setting forth its own calculation of the Closing Working Capital Adjustment within thirty (30) days of the submission of the matter to such firm, which calculation, absent manifest error, shall be binding and conclusive on the parties and not subject to appeal. The fees and costs of the Accounting Referee, if one is required, shall be payable (i) out of the Escrow Fund on behalf of the Equity Holders, on the one hand, and (ii) by Parent, on the other hand, on the basis, for each such party, of the ratio of (A) the positive difference between the amount of Closing Working Capital Adjustment submitted by such party and the determination of the actual Closing Working Capital Adjustment made by the Accounting Referee to (B) the difference between the Closing Working Capital Adjustment amounts submitted by each party.

(e) If the Final Closing Adjustment is a positive amount, Parent shall receive (out of the Escrow Fund) an amount in cash equal to the Final Closing Adjustment, including all interest earned thereon. In the event the Final Closing Adjustment is a negative amount, then Parent shall pay to the Equity Holders an amount in cash equal to the Final Closing Adjustment, plus interest on such amount, from the Closing Date until the date of determination of the Final Closing Adjustment, earned at the same rate of interest as was earned on the Escrow Fund for the same period of time, and shall distribute such amount proportionally to the Equity Holders based on each such Equity Holder’s Pro Rata Portion of such amount. Any payment made under this Section 3.8(e) shall be made within five (5) Business Days of the final determination of the Final Closing Adjustment.

Section 3.9. Holdback Amount . At the Effective Time, Parent shall cause to be delivered to the Equity Holders’ Representative an amount in cash equal to the Holdback Amount. The distribution of the Holdback Amount to the Equity Holders’ Representative shall be governed by the terms hereof and the terms of an agreement to be entered into by and among the Equity Holders’ Representative and the Equity Holders party thereto, such agreement to be substantially in the form attached hereto as Exhibit C (the “ Equity Holders Agreement ”). The Holdback Amount shall be held in escrow by the Equity Holders’ Representative and shall be available to pay the fees and expenses of the Equity Holders’ Representative in connection with the consummation of the Closing and the obligations of the Equity Holders’ Representative hereunder and under the Escrow Agreement. Any portion of the Holdback Amount not used to pay such fees and expenses shall be distributed to the Equity Holders in accordance with the terms of the Equity Holders Agreement; it being understood and agreed that Parent’s sole obligation to the Equity Holders with respect to the Holdback Amount shall be Parent’s

 

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obligation to pay the Holdback Amount to the Equity Holders’ Representative in accordance with this Section 3.9 at the Closing, and following such payment, Parent shall have no further obligation with respect to the payment or delivery of such Holdback Amount to the Equity Holders.

Section 3.10. Increase in Transaction Price . In the event that the Closing occurs after the later of (i) the date which is sixty (60) days following delivery to Parent of the Audited Financial Statements (as defined in Section 7.9 ) and (ii) June 1, 2007 (the later of such dates, the “ Price Increase Start Date ”), then the initial Transaction Price set forth in Section 2.1(d) shall be increased by an amount equal to one percent (1%) per annum, based on a 360-day year, of such initial Transaction Price, pro-rated for the number of days beginning on and including the Price Increase Start Date and ending on and including the day immediately prior to the Closing Date; provided , that if on the Price Increase Start Date all of the conditions to the Closing set forth in Article VIII (other than the condition set forth in Section 8.2(p) ) are not satisfied, or could not be satisfied subject only to consummation of the Closing, then the increase in the Transaction Price shall be calculated based on the number of days beginning on and including the first date on which all of the conditions to the Closing set forth in Article VIII (other than the condition set forth in Section 8.2(p) ) are satisfied, or could be satisfied subject only to consummation of the Closing, and ending on and including the day immediately prior to the Closing Date; provided further , however , that if at any time after any Price Increase Start Date any of the conditions to the Closing set forth in Article VIII (other than the condition set forth in Section 8.2(p) ) is no longer satisfied or capable of being satisfied subject only to consummation of the Closing (the “ Stop Date ”), then the increase in the Transaction Price pursuant to this Section 3.10 shall be terminated and all increases accrued prior to the Stop Date shall be ignored and have no effect, but if thereafter all of the conditions to the Closing set forth in Article VIII (other than the conditions set forth in Section 8.2(p) ) again become satisfied, or could be satisfied subject only to consummation of the Closing, then a new Price Increase Start Date shall be deemed to have occurred on such date with the increase in the Transaction Price being calculated based on the number of days beginning on and including the date on which each of the conditions to the Closing set forth in Article VIII (other than the condition set forth in Section 8.2(p) ) again become satisfied, or could be satisfied subject only to consummation of the Closing, and ending on and including the day immediately prior to the Closing Date. Notwithstanding the foregoing, if Audited Financial Statements that comply with Section 7.9(c) have not been delivered to Parent on or before March 31, 2007, then this Section 3.10 will be null and void, and no increase to the Transaction Price shall accrue or be payable hereunder.

ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby makes to Parent and MergerCo the representations and warranties contained in this Article IV .

Section 4.1. Existence; Good Standing; Authority .

(a) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. The Company has all requisite corporate power and authority to own, use, operate, lease and transfer its properties and carry on its

 

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business as currently conducted. The Company is duly licensed or qualified to do business as a foreign corporation under the laws of each jurisdiction listed on Schedule 4.1(a) and each other jurisdiction in which the character of its properties or in which the transaction of its business makes such qualification necessary, except where the failure to be so licensed or qualified would not have or be reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect (as defined below). The Company has delivered to Parent (including via the Company’s electronic data room) true, correct and complete copies of (a) its Certificate of Incorporation and Bylaws, in each case as amended through the date hereof, (b) all of its committee charters, codes of conduct or other comparable governing documents, in each case as amended through the date hereof, (c) all the written consents and minutes of the meetings of its Board of Directors and each committee of its Board of Directors held since its inception and (d) all the written consents and minutes of the meetings of its stockholders held since its inception. There are no amendments pending with respect to the Company’s Certificate of Incorporation or Bylaws, other than as contemplated hereby. “ Company Material Adverse Effect ” means any event, change, circumstance, effect or state of facts that (i) is or would reasonably be expected to be materially adverse to the business, financial condition, operations, assets, liabilities or results of operations of the Company and its Subsidiaries, taken as a whole; provided, however, that a Company Material Adverse Effect under this clause (i) shall not include the effect of any event, change, circumstance, effect or state of facts arising out of or attributable to any of the following: (1) matters affecting the telecommunications industry generally, including the multi-channel video programming distribution, voice communications (including voice over internet protocol) or high speed internet services industries, that do not affect the Company’s business disproportionately as compared to other similarly situated participants in the telecommunications industry, (2) the public announcement of this Agreement or the fact that this Agreement will be consummated, (3) any changes in general economic or financial conditions or markets that do not affect the Company’s business disproportionately as compared to other similarly situated participants in the telecommunications industry or (4) any changes in federal or state laws that do not affect the Company’s business disproportionately as compared to other similarly situated participants in the telecommunications industry or (ii) has prevented, materially impaired or materially delayed, or could reasonably be expected to prevent, materially impair or materially delay, the ability of the Company or any Subsidiary to perform its obligations under this Agreement or to consummate the transactions contemplated hereby.

(b) The Company has the corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement, the performance by the Company of its obligations hereunder and the consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of the Company. This Agreement has been duly executed and delivered by the Company, and assuming the due authorization, execution and delivery of this Agreement by each of the other parties hereto, this Agreement constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and by general equitable principles (regardless of whether enforcement is sought in a proceeding at law or in equity) (collectively, “ General Enforceability Exceptions ”). The Board of Directors of the Company, at a meeting duly called and held at which all directors of the Company were present in accordance with the Bylaws of the Company, duly adopted resolutions (i) adopting and approving and declaring advisable this Agreement, the

 

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Merger and the other transactions contemplated hereby, (ii) declaring that it is advisable, and making a determination that it is in the best interests of the Company and the Equity Holders, that the Company enter into this Agreement and consummate the Merger on the terms and subject to the conditions set forth in this Agreement, (iii) directing that this Agreement be submitted to a vote for adoption by written consent of the Equity Holders, and (iv) recommending that the Equity Holders adopt this Agreement (it being understood and agreed that nothing in this Section 4.1(b)(iv) shall be deemed to prevent the Board of Directors of the Company prior to the Time of the Requisite Vote (as defined in Section 11.6(gg) ) from modifying or altering its recommendation that the Equity Holders adopt this Agreement if the Board of Directors reasonably determines that such modification or withdrawal is necessary to comply with its fiduciary duties to the Equity Holders of the Company).

Section 4.2. Capitalization .

(a) The total amount of authorized capital stock of the Company as of the date of this Agreement consists of Eight Hundred Forty-Five Thousand Two Hundred Seventeen (845,217) shares, of which (i) Three Hundred Thirty-Five Thousand (335,000) shares have been designated as Series A Convertible Preferred Stock, par value $.01 per share (the “ Series A Preferred Stock ”), of which Three Hundred Thirty-Five Thousand (335,000) shares are issued and outstanding; (ii) Ten Thousand Two Hundred Sixteen and 9,820/10,000th (10,216.9820) shares have been designated as Series B Redeemable Preferred Stock, par value $.01 per share (the “ Series B Preferred Stock ”), of which Ten Thousand Two Hundred Sixteen and 9,820/10,000th (10,216.9820) shares are issued and outstanding; (iii) Fifty-Four Thousand (54,000) shares have been designated as Class A Common Stock, par value $.01 per share (the “ Class A Common Stock ”), of which Twenty-Nine Thousand Two Hundred Seventy-Five (29,275) shares are issued and outstanding; and (iv) Four Hundred Forty-Six Thousand (446,000) shares have been designated as Common Stock, par value $.01 per share (the “ Common Stock ,” and, together with the Series A Preferred Stock, the Series B Preferred Stock, and the Class A Common Stock, the “ Company Stock ”), of which Six Thousand Seven Hundred Eighty-Eight (6,788) shares are issued and outstanding. Schedule 4.2(a) sets forth a list of all Company Stock held by the Company in its treasury. All outstanding options to purchase Common Stock (“ Options ”) have been issued and are outstanding under the PrairieWave Holdings, Inc. 2002 Stock Incentive Plan, as amended (the “ Plan ”). Schedule 4.2(a) sets forth a true, correct and complete list of the number of shares of Company Stock, Options and Warrants held by each registered holder thereof as of the date hereof, and such list sets forth the true, correct and complete name, address and contact number for each such Equity Holder.

(b) All of the issued and outstanding shares of capital stock of the Company have been duly authorized and validly issued, are fully paid and non-assessable and are not subject to and were not issued in violation of any purchase option, call option, right of first refusal, pre-emptive right, subscription right or any similar right under any provision of the DGCL, the Company’s Certificate of Incorporation or Bylaws or any contract to which the Company is a party or is otherwise bound or which, to the Company’s knowledge, exists. None of the outstanding shares of Company Stock has been issued in violation of any federal, state or other securities law. Except as set forth on Schedule 4.2(b) , there are no options, preemptive rights, warrants, calls, rights, commitments or agreements of any kind to which the Company or any of its Subsidiaries is a party, or by which the Company or any of its Subsidiaries is bound, or

 

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which, to the Company’s knowledge, exist obligating the Company or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of the Company or any of its Subsidiaries or obligating the Company or any of its Subsidiaries to grant, extend or accelerate the vesting of or otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. Except as set forth on Schedule 4.2(b) , there are no rights or obligations, contingent or otherwise (including rights of first refusal in favor of the Company), of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its Subsidiaries or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any such Subsidiary or any other Person. Except as set forth on Schedule 4.2(b) , there are no registration rights or other agreements or understandings to which the Company or any of its Subsidiaries is a party or by which it or they are bound with respect to any capital stock of the Company or any of its Subsidiaries. Except as set forth on Schedule 4.2(b) , there are no agreements to which the Company is a party or which, to the Company’s knowledge, exist with respect to the voting of any shares of capital stock of the Company or that restrict the transfer of any such shares. Except as set forth on Schedule 4.2(b) , there are no accrued and unpaid dividends with respect to any outstanding shares of Company Stock.

Section 4.3. Subsidiaries .

(a) The Company’s Subsidiaries are listed on Schedule 4.3(a) . Schedule 4.3(a) also sets forth the name, jurisdiction of organization, outstanding shares of capital stock the registered holders thereof for each of the Company’s Subsidiaries. The Company owns directly or indirectly all of the outstanding shares of capital stock or other equity interest of each of the Company’s Subsidiaries, free and clear of all Encumbrances. Except as set forth in Schedule 4.3(a) , neither the Company nor any Subsidiary owns, directly or indirectly, any capital stock, equity or other ownership interest in any other Person.

(b) Each of the Company’s Subsidiaries is a corporation duly incorporated or organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to own, use, operate, lease and transfer its properties and carry on its business as currently conducted. Each such Subsidiary is duly licensed or qualified to do business as a foreign corporation in each jurisdiction listed on Schedule 4.3(b) and each other jurisdiction in which the character of its properties or in which the transaction of its business makes such qualification necessary, except where the failure to be so licensed or qualified would not be reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. The Company has delivered to Parent true, correct and complete copies of the following documents: (i) the certificate of incorporation and bylaws (or similar organizational documents), in each case as amended through the date hereof, of each of the Company’s Subsidiaries, (ii) all the written consents and minutes of the meetings of the Boards of Directors of each of the Company’s Subsidiaries and each committee of such Boards of Directors held since September 30, 2002; and (iii) all the written consents and minutes of the meetings of the stockholders of each of the Company’s Subsidiaries held since September 30, 2002.

Section 4.4. No Conflict; Consents . The execution and delivery by the Company of this Agreement, and the consummation by the Company of the transactions contemplated hereby in accordance with the terms hereof, do not (i) except as set forth on Schedule 4.4 , violate,

 

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conflict with or result in a default (whether after the giving of notice, lapse of time or both) under, or give rise to a right of termination, material modification or acceleration of, any Franchise, Material Contract or material Company License to which the Company or any of its Subsidiaries is a party or by which the Company’s or any of its Subsidiaries’ assets are bound; (ii) violate any provision of the Company’s or its Subsidiaries’ certificate of incorporation or bylaws (or other organizational documents); (iii) cause the Company or its Subsidiaries to violate any provision of any law, regulation or rule, or any order of, or any restriction imposed by, any court or other Governmental Authority applicable to the Company or any of its Subsidiaries, except where such violation would not be reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect; (iv) except as set forth on Schedule 4.4 , require from the Company or any of its Subsidiaries any notice to, declaration or filing with, or consent or approval of any Governmental Authority or other third party, including any such notice, declaration, filing or consent that is necessary to prevent the termination of any right, privilege, license or qualification of the Company or its Subsidiaries; or (v) except as set forth on Schedule 4.4 , result in the creation of any Encumbrance or give to any Person other than Parent or MergerCo any interest, right or claim, in or with respect to any of the Company’s or its Subsidiaries’ assets or properties.

Section 4.5. Financial Statements; Off-Financial Statement Transactions; Interested Party Transactions .

(a) The Company has delivered to Parent and MergerCo the following financial statements, true, complete and correct copies of which are attached hereto as Schedule 4.5(a) (collectively, the “ Financial Statements ”):

(i) Audited consolidated balance sheets of the Company and its Subsidiaries as of December 31, 2004 and December 31, 2005, and audited consolidated statements of income and retained earnings and consolidated statements of cash flows for each of the years then ended;

(ii) An unaudited consolidated balance sheet of the Company and its Subsidiaries as of September 30, 2006 (the “ Base Balance Sheet ”); and

(iii) An unaudited consolidated statement of income of the Company and its Subsidiaries for the period ended September 30, 2006.

(b) Subject to the absence of footnotes and normal and recurring year-end audit adjustments with respect to any unaudited Financial Statements, the Financial Statements have been prepared in accordance with GAAP consistently applied and present fairly and accurately in all material respects the consolidated financial condition, results of operations, income and cash flows of the Company at and for the periods presented. All Subsidiaries of the Company that are required by GAAP to be consolidated in the Financial Statements have been so consolidated. Schedule 4.5(b) contains a description of all non-audit services performed by the Company’s auditors for the Company and its Subsidiaries since January 1, 2004 and the fees paid for such services. The Company has delivered or made available to Parent true, correct and complete copies of all policies, manuals and other documents promulgating the Company’s internal accounting controls.

 

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(c) Neither the Company nor any of its Subsidiaries is a party to, or has any commitment to become a party to, any joint venture, partnership agreement or any similar contract (including any contract relating to any transaction, arrangement or relationship between or among the Company or any of its Subsidiaries, on the one hand, and any unconsolidated Affiliate, including any structured finance, special purpose or limited purpose Person, on the other hand) where the purpose or intended effect of such arrangement is to avoid disclosure of any material transaction involving the Company or any of its Subsidiaries in the Financial Statements.

(d) Except as set forth on Schedule 4.5(d) , there are no loans, leases, contracts, commitments or other continuing arrangements or agreements, whether written or oral, between the Company, on the one hand, and any officer, director or stockholder of the Company, on the other hand.

Section 4.6. Absence of Certain Changes. Except as set forth on Schedule 4.6 , since September 30, 2006 (a) the Company and its Subsidiaries have operated only in the ordinary course of business consistent with past practices, and (b) there has been no change in the condition (financial or otherwise), assets or business of the Company or its Subsidiaries, except such changes that have not had or would not be reasonably expected to have, individually or in the aggregate, a Company Material Adverse Effect.

Section 4.7. Litigation . Except for actions, proceedings or investigations affecting the telecommunications industry in general and which do not affect the Company disproportionately, and except as disclosed on Schedule 4.7 , there is no (a) claim, action, suit, proceeding at law or in equity by any Person, (b) arbitration or administrative or other proceeding by or before, or to the Company’s knowledge, investigation, inquiry or subpoena by or before, any Governmental Authority, or (c) audit or investigation pending or, to the Company’s knowledge, threatened against the Company or any of its Subsidiaries either (i) with respect to this Agreement or the transactions contemplated hereby or (ii) otherwise against or affecting the Company or any of its Subsidiaries or their respective properties or assets. Neither the Company nor any of its Subsidiaries is subject to any order, judgment or decree entered in any lawsuit or proceeding that would constitute a Company Material Adverse Effect or would prevent the consummation of the transactions contemplated by this Agreement. Except as disclosed on Schedule 4.7 , there has not been, since January 1, 2003, nor are there currently, any internal investigations or inquiries being conducted by the Company, its Subsidiaries, their respective Boards of Directors or other equivalent management bodies, or to the Company’s knowledge, being conducted by any third party or any Governmental Authority, in each case, concerning any illegal activity, fraud, violation of Company policy or willful misconduct with respect to financial, accounting or Tax matters or matters involving conflicts of interest, self-dealing, fraudulent conduct or willful misconduct.

Section 4.8. Taxes . Except as set forth on Schedule 4.8 :

(a) The Company and its Subsidiaries have timely filed or been included in, or will timely file or be included in, all Tax Returns required to be filed by them or in which they are to be included with respect to Taxes for any period ending on or before the date of this Agreement, taking into account any extension of time to file granted to or obtained on behalf of the Company or any of its Subsidiaries, and all such Tax Returns were correct and complete in all material respects when filed;

 

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(b) The Company and its Subsidiaries have paid or caused to be paid all Taxes due and owing (whether or not shown on such Tax Returns) prior to the date of this Agreement or have made provision, in accordance with GAAP, for all Taxes owed or accrued through the date of this Agreement;

(c) Neither the Company nor any of its Subsidiaries currently is the beneficiary of any extension of time within which to file any federal or state income Tax Return or any other material Tax Return, and neither the Company nor any of its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency;

(d) Neither the IRS nor any other Governmental Authority is asserting as of the date of this Agreement by written notice to the Company or any of its Subsidiaries or, to the Company’s knowledge, proposing in writing as of the date of this Agreement to assert against the Company or its Subsidiaries, any deficiency or claim for any amount of additional Taxes;

(e) No federal, state, local or foreign audits or other administrative proceedings or court proceedings are pending as of the date of this Agreement with regard to any Taxes or Tax Returns of the Company or any of its Subsidiaries and neither the Company nor any of its Subsidiaries has received a written notice prior to the date of this Agreement of any actual or threatened audits or proceedings or is otherwise aware of any such audits or proceedings;

(f) No claim has been made by a taxing authority of a jurisdiction where the Company or any Subsidiary does not file a Tax Return that the Company or any Subsidiary is or may be subject to taxation in that jurisdiction, and no power of attorney has been granted by the Company or any of its Subsidiaries with respect to any matters related to Taxes that is currently in force;

(g) All Taxes and other assessments and levies which the Company and its Subsidiaries were or are required to withhold or collect have been withheld and collected and have been paid over to the proper Governmental Authorities;

(h) There are no Encumbrances for Taxes upon the assets of the Company or its Subsidiaries, except for Encumbrances relating to current Taxes not yet due;

(i) Neither the Company nor any of its Subsidiaries has ever been a member of an affiliated group of corporations filing a combined federal income Tax Return (other than a group the common parent of which is or was the Company) nor does the Company or any of its Subsidiaries have any liability for Taxes of any other Person (other than the Company or any of its Subsidiaries) under Treasury Regulations Section 1.1502-6 (or any similar provision of foreign, state or local law);

(j) Neither the Company nor any of its Subsidiaries is a party to any agreement or arrangement requiring the indemnification, sharing or allocation of Taxes;

 

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(k) Neither the Company nor any of its Subsidiaries has distributed the stock of another entity or had its stock distributed by another entity in a transaction that was purported or intended to be governed in whole or in part by Code Sections 355 or 361;

(l) Neither the Company nor any of its Subsidiaries has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code;

(m) Neither the Company nor any of its Subsidiaries has agreed to, nor is required to make, any adjustment under Section 481 of the Code by reason of a change in accounting method;

(n) None of the assets of the Company or any of its Subsidiaries is “tax-exempt use property” within the meaning of Section 168(h) of the Code;

(o) To the knowledge of the Company, neither the Company nor any of its Subsidiaries is currently a party to a joint venture, partnership, or other arrangement that is treated as a partnership for tax purposes;

(p) Neither the Company nor any of its Subsidiaries has been a party to any cost sharing agreement subject to the provisions of Treas. Reg. §1.482-7;

(q) The Company or its Subsidiaries have documentation (which was in existence as of the time an affected Tax Return was filed) meeting the requirements of Code Section 6662(e)(3)(B) with respect to all transactions with related parties subject to the provisions of Code Section 482;

(r) Neither the Company nor any of its Subsidiaries has ever and does not have a permanent establishment in any foreign country, as defined in any applicable Tax treaty or convention between the United States of America and such foreign country;

(s) The Company and its Subsidiaries have not (A) taken any deduction or received any Tax benefit arising from their participation in a “tax shelter” as defined for purposes of Section 6111(c) of the Code, (B) participated in a “listed transaction” as defined in Treas. Reg. §1.6011-4(b)(2) or Treas. Reg. §1.6011-4T(b)(2) and designated by the Internal Revenue Service as such in published guidance issued prior to the Closing Date, or (C) participated in a “loss transaction” as defined in Treas. Reg. §1.6011-4(b)(5) or Treas. Reg. §1.6011-4T(b)(5); and

(t) The unpaid Taxes of the Company and its Subsidiaries (A) did not, as of the Base Balance Sheet Date, exceed the reserve for Tax liability (as distinguished from any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Base Balance Sheet (as distinguished from in any notes thereto) and (B) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company and its Subsidiaries in filing their Tax Returns. Since the Base Balance Sheet Date, neither the Company nor any of its Subsidiaries has incurred any liability for Taxes arising from extraordinary gains or losses, as that term is used in GAAP, outside the ordinary course of business consistent with past custom and practice.

 

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Section 4.9. Employee Benefit Plans .

(a) Schedule 4.9(a) sets forth a list of all Company Plans (as defined below) sponsored or maintained by the Company or any of its Subsidiaries within the past seven (7) years or with respect to which the Company or any of its Subsidiaries has made or has had any obligation to make contributions or provide benefits within the past seven (7) years. For purposes of this Agreement, “ Company Plans ” shall mean any “employee benefit plan”, as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”) and any other profit-sharing, bonus, stock option, stock purchase, stock ownership, phantom stock, pension, retirement, employment, severance, deferred compensation, excess benefit, supplemental unemployment, post-retirement medical or life insurance, welfare, incentive, sick leave, disability, medical hospitalization, vision, dental, life insurance, cafeteria, flexible spending account, or other insurance or benefit plan, trust, arrangement, policy, practice, arrangement or understanding (whether written or, if material, oral) (1) that are sponsored, maintained or to which contributions are made (now or within the past seven (7) years) by the Company or any of its Subsidiaries for the benefit of current or former employees, directors, officers, leased employees, independent contractors or agents of the Company or any of its Subsidiaries, or their current or former spouses, dependents, or other beneficiaries, or (2) with respect to which the Company or any of its Subsidiaries or any ERISA Affiliate of the Company could have any liability . For purposes of the preceding sentence, the term “ ERISA Affiliate ” means any trade or business (whether or not incorporated) that together with the Company is treated as a single employer pursuant to Sections 414(b), (c), (m) or (o) of the Code. Except as disclosed on Schedule 4.9(a) , neither the Company nor any of its Subsidiaries, ERISA Affiliates, or sponsors maintains or contributes to (or is obligated to contribute to) (now or within the past seven (7) years) any “employee pension plan,” as defined in Section 3(2) of ERISA, that is subject to Title IV of ERISA or Section 412 of the Code, any “multiple employer welfare arrangement,” as defined in Section 3(40) of ERISA, or any “multiemployer plan,” as defined in Sections 3(37) or 4001(a)(3) of ERISA. Except as set forth on Schedule 4.9(a) , none of the Company Plans provides benefits for any individual who, at the time the benefit is to be provided, is a former director, officer, or employee of, or other provider of services to, the Company or any of its Subsidiaries, except as may be required under the Consolidate Omnibus Budget Reconciliation Act of 1985, as amended (or similar state law) and at the expense of the participant or the participant’s beneficiary, or except for any Company Plan which meets the qualification requirements of Section 401(a) of the Code.

(b) The Company Plans have been administered in all material respects in accordance with the applicable provisions of ERISA and the Code, and all applicable laws. Each Company Plan that is intended to qualify under Section 401(a) of the Code has (A) either (1) received a favorable determination from the IRS regarding its qualification thereunder, or the expiration of the requisite period under applicable regulations promulgated by the IRS under the Code or IRS pronouncements in which to apply for such determination letter and to make any amendments necessary to obtain a favorable determination has not occurred, or (2) has been established under a prototype plan for which an IRS opinion letter has been obtained by the plan sponsor and is valid as to the adopting employer, and (B) to the knowledge of the Company, nothing has occurred or could reasonably be expected to occur that has caused or would reasonably be expected to cause the loss of such qualification or the imposition of any penalty or Tax.

 

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(c) There is neither any pending litigation, suit, or proceeding nor, to the knowledge of the Company, any litigation, suit or proceeding threatened in writing against the Company related to the Company Plans which would be reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. Other than claims for benefits arising in the ordinary course of business of the Company Plans, to the knowledge of the Company, no claims, investigations, lawsuits, arbitrations or other controversies are pending or threatened against the Company Plans, or any trustee, fiduciary, custodian, administrator or other person holding or controlling assets of any Company Plan and, to the knowledge of the Company, no basis for any such claim exists.

(d) Except as expressly contemplated by this Agreement or as set forth on Schedule 4.9(d) , neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment becoming due to any Employee (as defined in Section 4.11(c) ) of the Company or any of its Subsidiaries or under any Company Plan, (ii) increase any benefits otherwise payable under any Company Plan or (iii) result in the acceleration of the time of payment or vesting of any such benefits under any Company Plan.

(e) No non-exempt “prohibited transaction” (within the meaning of Section 4975 of the Code and/or Section 406 of ERISA) has occurred with respect to any Company Plan. The Company and its Subsidiaries have not been notified that any Company Plan is under audit or investigation by any Governmental Authority, and no Company Plan is subject to, or has in the past been subject to, any voluntary compliance, amnesty, closing agreement or other similar program.

(f) Except as set forth on Schedule 4.9(f) , each Company Plan may, without any liability (other than liability for benefits already accrued under such Company Plan) be amended, terminated or otherwise discontinued at any time.

(g) Neither the Company nor any ERISA Affiliate is obligated to make any parachute payments as such term is defined in Section 280G of the Code, and neither is a party to any agreement that would reasonably be likely to obligate it, or any successor in interest, to make any parachute payments that will not be deductible under Section 280G of the Code. Neither the Company nor any ERISA Affiliate is obligated to make reimbursement or gross-up payments to any person in respect to excess parachute payments. Without limiting the generality of the foregoing, no economic benefit that could be received (whether in cash or property or the vesting of property) as a result of the execution and delivery of this Agreement, the consummation of the Merger or the consummation of any other transaction contemplated by this Agreement, including as a result of the acceleration of the vesting of any Options or the termination of employment on or following the Effective Time, by or for the benefit of any director, officer, employee or consultant of the Company or any of its Affiliates who is a “disqualified individual” (within the meaning of the Treasury Regulation Section 1.280G-1) would be characterized as an “excess parachute payment” (within the meaning of Section 280G(b)(1) of the Code). No “disqualified individual” is entitled to receive any additional payment from the Company, any of its Subsidiaries, the Surviving Corporation or any other Person in the event that the excise tax required by Section 4999(a) of the Code is imposed on such “disqualified individual.”

 

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(h) Each Company Plan that is a “nonqualified deferred compensation plan” (as defined in Section 409A(d)(1) of the Internal Revenue Code) and was in existence prior to October 3, 2004, has not been “materially modified” (within the meaning of Section 885(d)(2)(B) of the American Jobs Creation Act of 2004 and any applicable guidance issued thereunder) since October 3, 2004, in a manner which would cause amounts deferred in taxable years beginning before January 1, 2005 under such plan to be subject to Section 409A of the Internal Revenue Code. Except as set forth on Schedule 4.9(h) , each Company Plan that is a “nonqualified deferred compensation plan” (as defined in Section 409A(d)(1) of the Internal Revenue Code) and which has not been terminated has been operated in good faith compliance with the provisions of Section 409A of the Internal Revenue Code and Notice 2005-1 since January 1, 2005, and no amount payable or benefit available under any Company Plan is taxable to any individual by reason of Section 409A of the Internal Revenue Code.

Section 4.10. Property .

(a) Schedule 4.10(a) sets forth a true, complete and correct list of all real property owned by the Company or any of its Subsidiaries (the “ Owned Real Property ”). The Company or a Subsidiary (as indicated on Schedule 4.10(a) ) has good and marketable fee simple title to all of the Owned Real Property, free and clear of all Encumbrances, except for Permitted Encumbrances (as defined in Section 4.10(e) ).

(b) Schedule 4.10(b) sets forth a true, complete and correct list of each real property lease, sublease, license or other occupancy agreement, including any modification, amendment or supplement thereto and any other related document or agreement that is currently in effect and has been executed or entered into by the Company or any of its Subsidiaries (including any of the foregoing which the Company or any of its Subsidiaries has subleased or assigned to another Person and as to which the Company or such Subsidiary remains liable) (each a “ Real Property Lease ”). Each property subject to a Real Property Lease is a “ Leased Real Property .” With respect to each Real Property Lease:

(i) the Company or its Subsidiary, as applicable, has a valid and enforceable leasehold interest to the leasehold estate on such Leased Real Property, except as such enforceability may be limited by the General Enforceability Exceptions, and the Company or such Subsidiary holds the leasehold estate on such Leased Real Property free and clear of all Encumbrances, except for Permitted Encumbrances;

(ii) such Real Property Lease has been duly authorized and executed by the Company or such Subsidiary, as applicable, and is in full force and effect;

(iii) neither the Company nor such Subsidiary is in default under such Real Property Lease, nor, to the Company’s knowledge, is any other party to such Real Property Lease in default, and no event has occurred which, with notice or the passage of time, or both, would give rise to a default by the Company or such Subsidiary, as applicable, under such Real Property Lease;

(iv) all rents and additional rents and other sums, expenses and charges due to date by the Company or such Subsidiary under such Real Property Leases have been paid;

 

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(v) the lessee under such Real Property Lease has been in peaceable possession since the commencement of the original term thereof;

(vi) no waiver, indulgence or postponement of the lessee’s obligations under such Real Property Lease has been granted by the lessor; and

(vii) there are no outstanding claims of breach or indemnification or notice of default or termination under such Real Property Lease.

(c) The improvements on the Owned Real Properties and the Leased Real Properties are in a state of good maintenance and repair and are adequate and suitable for the purposes for which they are presently being used, and, to the Company’s knowledge, there are no material repair or restoration works needed in connection with any of the Owned Real Properties or Leased Real Properties that the Company or any of its Subsidiaries are responsible to make. The Company or one of its Subsidiaries is in physical possession and actual and exclusive occupation of the whole of each of the Owned Real Properties and the Leased Real Properties, except as set forth on Schedule 4.10(c) . Neither the Company nor any of its Subsidiaries owes any brokerage commission with respect to any Owned Real Property or any Leased Real Property.

(d) The Company and its Subsidiaries have good and valid title to, or enforceable leasehold interests in, or valid rights under contract to use, all personal property and assets owned or used by it or them (personal, tangible and intangible), in each case free and clear of all Encumbrances, except for Permitted Encumbrances.

(e) “ Permitted Encumbrances ” shall mean Encumbrances (i) for Taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty, (ii) for carriers’, warehousemens’, mechanics’, landlords’, materialmens’, repairmens’ or other similar Encumbrances arising in the ordinary course of business, (iii) consisting of pledges or deposits required in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation or to secure liability to insurance carriers, (iv) of landlords which are inchoate arising solely by operation of law with respect to the Leased Real Property, (v) mortgages, deeds of trust, ground leases or other encumbrances upon the Leased Real Property granted by the landlords of such property that do not materially interfere with the use of such property by the Company or (vi) as set forth on Schedule 4.10(e) .

(f) Schedule 4.10(f) sets forth the material rights to use all other real property used by the Company’s business pursuant to easements and rights of way (“ Easements ”). The Company has valid and enforceable rights to use the Easements, subject only to Permitted Encumbrances.

Section 4.11. Labor and Employment Matters .

(a) Except as set forth on Schedule 4.11(a) , the Company and each of its Subsidiaries are, as of the date hereof, in compliance with all federal, state and local laws, rules, regulations and ordinances respecting employment and employment practices, terms and conditions of employment, termination of employment, occupational safety and health, immigration, and wages and hours, and are not engaged in any unfair labor practice, as defined in the National

 

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Labor Relations Act or other applicable law. There has been no “mass layoff” or “plant closing” within the meaning of the Worker Adjustment and Retraining Notification Act of 1988, as amended, and any similar state or local “mass layoff” or “plant closing” law with respect to the Company or any of its Subsidiaries within the six (6) months prior to Closing. There is no unfair practice complaint pending with respect to any Employees of the Company or its Subsidiaries or, to the Company’s knowledge, threatened before the National Labor Relations Board or any other Governmental Authority.

(b) Except as set forth on Schedule 4.11(b) , neither the Company, any Subsidiary of the Company nor any of their respective Affiliates is a party to or otherwise bound, or has ever been bound, by any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, and none of the Employees of the Company and its Subsidiaries is represented by a labor union or labor organization. Neither the Company nor any Subsidiary of the Company is subject to any charge, demand, petition or representation proceeding seeking to compel, require or demand it to bargain with any labor union or labor organization nor, as of the date of this Agreement, is there pending or, to the Company’s knowledge, threatened, any material labor strike, picketing, handbilling, dispute, grievance, arbitration, walkout, work stoppage, slow-down or lockout involving the Company or any Subsidiary of the Company. There have not been any labor union organizational campaigns by or directed at any Employees of the Company or its Subsidiaries. To the Company’s knowledge, no representation petition with respect to any Employee has been filed with the National Labor Relations Board. The Company and its Subsidiaries have not experienced any primary work stoppage.

(c) Schedule 4.11(c) lists each of the Company’s and any Company Subsidiaries’ employees as of the date hereof (the “ Employees ”) and his/her (i) job title and work location and (ii) date of hire.

(d) Schedule 4.11(d) lists the names of each current independent contractor retained by the Company or any Company Subsidiary who performs services for the Company or any Company Subsidiary (“ Independent Contractors ”) and the current rate of compensation paid to each such Independent Contractor. Schedule 4.11(d) specifies the site at which each such Independent Contractor performs services for the Company or any Company Subsidiary. Except as set forth in Schedule 4.11(d) , the Independent Contractors, and all other independent contractors who have previously rendered services to the Company or any Company Subsidiary, have been and are legally, properly and appropriately treated as non-employees for all Tax purposes, as well as all ERISA and employee benefit purposes. There has been no determination by any Governmental Authority that any Independent Contractor constitutes an employee of the Company or any Company Subsidiary and to the Company’s knowledge, there is no basis for a Governmental Authority or any other Person to make such a claim. There has been no investigation or Claim made by or, to the Company’s knowledge, threatened by any Person or Governmental Authority that any Independent Contractor constitutes an employee of the Company or any Company Subsidiary. The Company and each Company Subsidiary have paid or accrued all compensation and all other monetary amounts earned by any Independent Contractors or due and owing to any of the Independent Contractors.

(e) Except as set forth on Schedule 4.11(e) , the services of all Employees and Independent Contractors of the Company or any of its Subsidiaries may be terminated at any

 

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time by the Company or one of its Subsidiaries without any liability except for any ongoing liability, such as the continuing liabilities with respect to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“ COBRA ”), that are mandated by applicable law.

Section 4.12. Contracts and Commitments . Except as set forth on Schedules 4.10(b) or 4.12 , neither the Company nor any Subsidiary of the Company is a party to the following types of agreements (written or oral):

(a) any partnership agreement or joint venture agreement which requires a payment, or delivery of assets or services, in excess of One Hundred Thousand Dollars ($100,000) in any 12-month period;

(b) any agreement with another Person materially limiting or restricting the ability of the Company or any Subsidiary of the Company to enter into or engage in any market or line of business including agreements with exclusivity, “most favored customer” pricing or other similar provisions;

(c) any agreements for the sale of any of the assets of the Company or any of its Subsidiaries other than in the ordinary course of business or for the grant to any person of any preferential rights to purchase any of its assets;

(d) any lease, sub-lease, license, sub-license or other agreement with respect to real property;

(e) any agreement of the Company or any of its Subsidiaries with any Affiliate of the Company;

(f) any agreement of the Company or any of its Subsidiaries relating to the acquisition, issuance, voting, registration, sale or transfer, preemptive rights, participation rights, rights of first refusal, repurchase or redemption rights of or with respect to any securities of the Company, other than those in connection with the Plan;

(g) any material agreement with respect to the intellectual property of the Company and its Subsidiaries;

(h) any collective bargaining or union agreement to which the Company or any of its Subsidiaries is bound;

(i) any agreement relating to the incurrence, assumption, surety or guarantee of any indebtedness;

(j) any agreement relating to interconnection, reciprocal compensation, co-location, cable TV programming and retransmission/must carry, conduits, pole attachments and rights of way with respect to the same; or

(k) any other agreement (or group of related agreements) the performance of which will require aggregate payments, or delivery of assets or services, to or from the Company or any of its Subsidiaries in excess of One Hundred Thousand Dollars ($100,000) in any 12-month period.

 

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Each of the contracts set forth on Schedule 4.12 (the “ Material Contracts ”) is in full force and effect and constitutes a legal, valid and binding obligation of the Company and/or its Subsidiaries, as applicable, enforceable against them in accordance with its terms, except as such enforceability may be limited by the General Enforceability Exceptions. The Company or one of its Subsidiaries, as applicable, has performed all of their material obligations (except those that have not yet become due) under, and is not in violation or breach of or default under, any of the Material Contracts, except for such non-performance, violation or breach which would not have or reasonably be expected to have a Company Material Adverse Effect. The Company has paid in full all amounts owed by the Company in connection with the Material Contracts, regardless of whether or not such amounts have been invoiced to the Company. To the Company’s knowledge, each of the other parties to each of the Material Contracts has performed all of their material obligations (except those that have not yet become due) under, and is not in violation or breach of or default under, such Material Contracts, except for such non-performance, violations, breaches or defaults which would not have or reasonably be expected to have a Company Material Adverse Effect. Except as set forth on Schedule 4.12 , the execution of this Agreement and the consummation of the transactions contemplated hereby will not conflict with or cause a breach of any of the Material Contracts, and no notice to or approval or consent of any other party to any of the Material Contracts is required in order for those Material Contracts to continue in full force and effect without breach, default, acceleration or any change in terms after the consummation of the Merger.

Section 4.13. Intellectual Property .

(a) Schedule 4.13(a) sets forth an accurate and complete list of all Patents, registered and unregistered Marks and registered Copyrights owned by the Company and its Subsidiaries and used in connection with the business of the Company and its Subsidiaries as currently conducted.

(b) The Intellectual Property owned, and to the knowledge of the Company, the Intellectual Property used, practiced, licensed or otherwise commercially exploited by the Company or its Subsidiaries does not (i) constitute an unauthorized use or misappropriation of any patent, copyright, trademark, trade secret or other intellectual property right of any Person or (ii) infringe, constitute an unauthorized use of, or violate any other right of any Person (including pursuant to any non-disclosure agreements or obligations to which Company or its Subsidiaries or any of their present or former employees or consultants is a party).

(c) Schedule 4.13(c) sets forth a complete and accurate list of all material licenses, sublicenses and other agreements to which the Company and/or its Subsidiaries is a party (i) granting any other Person the right to use the Intellectual Property, or (ii) pursuant to which Company or its Subsidiaries are authorized to use any third party Intellectual Property, which are incorporated in, are, or from a part of any product manufactured, distributed, or sold or any service provided by the Company or any Subsidiary or which are otherwise used (or currently proposed to be used) by the Company or its Subsidiaries in the business of the Company as currently conducted, other than commercial off-the-shelf software.

(d) The Company and each of its Subsidiaries has been and is in material compliance with the terms and conditions of any and all privacy policies and other policies governing the use of its and other Persons’ data, used in connection with the Company’s and its Subsidiaries’

 

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business, as well as all industry standards and applicable laws and regulations on privacy and marketing. No claims, demands, or allegations have been made by any Person or Governmental Authority against the Company or its Subsidiaries asserting that it has not complied with the terms and conditions of any such policies, standards, laws or regulations and to the knowledge of the Company, no such claims are threatened by any Person or Governmental Authority, nor are there, to the knowledge of the Company, any valid grounds for any such claim.

(e) Except as set forth on Schedule 4.13(e) , the Intellectual Property owned, and to the knowledge of the Company, the Intellectual Property used, practiced or otherwise commercially exploited by the Company or its Subsidiaries, contains no Publicly Available Material (as defined below), and no Publicly Available Material operates with or has been incorporated in whole or in part into any part therein, and no Publicly Available Material has been used in whole or in part in the development of any part of the Intellectual Property owned by the Company or its Subsidiaries in a manner that may subject Intellectual Property in whole or in part, to all or part of the license obligations governing any Publicly Available Materials.

(f) For purposes of this Agreement, “ Publicly Available Materials ” means each of (i) any material that contains, or is derived in any manner (in whole or in part) from, any material that is distributed as free software, open source, “copyleft,” or similar licensing or distribution models, other than material that has been clearly and conspicuously released into the public domain by its copyright holders, and (ii) any material that requires as a condition of its use, modification and/or distribution that such material or other material incorporated into, derived from or distributed with such material: (A) be disclosed or distributed in source code form; (B) be licensed for the purpose of making derivative works; or (C) be redistributable at no charge, other than a nominal fee or copying charge.

Section 4.14. Environmental Matters . Except as set forth on Schedule 4.14 , or as would not be reasonably likely to have a Company Material Adverse Effect:

(a) the Company and the Subsidiaries are in compliance with all Environmental Laws (as defined below) applicable to their operations and the use of the Leased Real Properties and the Owned Real Properties;

(b) neither the Company nor any of its Subsidiaries (nor, to the Company’s knowledge, any of the Company’s predecessors or Affiliates) has generated, transported, treated, stored, or disposed of any Hazardous Material (as defined below) at or on the Leased Real Properties or Owned Real Properties, except in compliance with all applicable Environmental Laws, and to the Company’s knowledge, there has been no Release (as defined below) or threat of Release of any Hazardous Material by the Company or any of its Subsidiaries at or on the Leased Real Properties or the Owned Real Properties;

(c) neither the Company nor any of its Subsidiaries has (i) received written notice under the citizen suit provisions of any Environmental Law; (ii) received any written request for information, notice, demand letter, administrative inquiry or written complaint or claim from any Governmental Authority under any Environmental Law; or (iii) been subject to or, to the Company’s knowledge, threatened with any lawsuit or governmental or citizen enforcement action with respect to any Environmental Law or arising from a Release;

 

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(d) the Company and its Subsidiaries have, and there currently are in full force and effect,