UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
SCHEDULE 14A
Proxy Statement Pursuant to Section
14(a) of
the Securities Exchange Act of 1934 (Amendment
No. )
Filed by the Registrant
x
Filed by a Party other than the Registrant
o
Check the appropriate box:
o
Preliminary Proxy Statement
o
Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
x
Definitive Proxy Statement
o
Definitive Additional Materials
o
Soliciting Material under §240.14a-12
SureWest
Communications
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(Name of Registrant as Specified
in its Charter)
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(Name of Person(s)
Filing Proxy Statement, if other than the
Registrant)
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Payment of Filing Fee (Check the
appropriate box):
x
No fee required.
o
Fee computed on table below per Exchange Act Rules
14a-6(i)(1) and 0-11.
(1) Title of each class of securities to
which transaction applies:
(2) Aggregate number of securities to
which transaction applies:
(3) Per unit price or other underlying
value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it was
determined):
(4) Proposed maximum aggregate value of
transaction:
(5) Total fee paid:
o
Fee
paid previously with preliminary materials.
o
Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
(1)
Amount Previously Paid:
(2)
Form, Schedule or Registration Statement
No.:
(3)
Filing Party:
(4)
Date Filed:
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121 South 17th
Street
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8150 Industrial Avenue,
Building A
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Mattoon, Illinois
61938-3987
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Roseville, California
95678
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April 24,
2012
PROPOSED MERGERS YOUR VOTE IS VERY
IMPORTANT
To the Stockholders of Consolidated
Communications Holdings, Inc. and
the Shareholders of SureWest
Communications:
On February
5, 2012, Consolidated Communications Holdings, Inc. (Consolidated) and
SureWest Communications (SureWest) entered into an Agreement and Plan of
Merger (the Merger Agreement) pursuant to which Consolidated has agreed to
acquire SureWest Communications (SureWest). The Merger Agreement provides for
a two-step merger in which, first, a wholly-owned subsidiary of Consolidated
will merge with and into SureWest, with SureWest as the surviving entity (the
First Merger), and then SureWest will merge with and into a separate
wholly-owned subsidiary of Consolidated (the Second Merger and together with
the First Merger, the Mergers). As a result of these mergers, the separate
corporate existence of SureWest will cease, and the wholly-owned subsidiary of
Consolidated will continue as the surviving corporation and a wholly-owned
subsidiary of Consolidated.
In
the proposed First Merger, each issued and outstanding share of SureWest common stock will be converted into the right to receive
either (i) $23.00 in cash, without interest, or (ii) shares of Consolidated common stock having an equivalent value based on average
trading prices for the 20-day period ending two days before the closing date of the First Merger, subject to a collar so that
there will be a maximum exchange ratio of 1.40565 shares of Consolidated common stock for each share of SureWest common stock
and a minimum of 1.03896 shares of Consolidated common stock for each share of SureWest common stock, subject to certain exceptions.
On
April 23,
2012, the latest practicable date before the printing of this joint proxy statement/prospectus, the closing
price of Consolidated common stock was $
18.77
per share. Overall elections are subject to proration so that 50% of the SureWest shares (treating equity award shares as outstanding
shares) will be exchanged for cash and 50% for stock. In order to preserve the tax-free nature of the transaction, the Merger
Agreement also provides for a general consideration adjustment in certain circumstances.
Consolidated common stock trades on
the NASDAQ Global Select Market under the symbol CNSL.
Consolidated will hold its annual
meeting of stockholders on
June 12,
2012
at
9:00 a.m.,
Central time, at Consolidateds corporate headquarters, 121
South 17th Street, Mattoon, Illinois 61938. At the Consolidated annual meeting,
Consolidateds stockholders will be asked (i) to approve issuance of
Consolidated common stock to SureWest shareholders in the First Merger
contemplated by the Merger Agreement, (ii) to elect Richard A. Lumpkin to
Consolidateds board of directors as Class I director to serve for a term of
three years, in accordance with Consolidateds amended and restated certificate
of incorporation and amended and restated bylaws, (iii) to ratify the
appointment of Ernst & Young LLP as Consolidateds independent registered
public accounting firm for the
fiscal year ending December 31, 2012, (iv) to
adjourn or postpone the Consolidated annual meeting, if necessary or
appropriate, for, among other reasons, the solicitation of additional proxies,
and (v) to transact such other business as may properly be brought before the
Consolidated annual meeting and any adjournment or postponement thereof.
SureWest will hold a special meeting
of its shareholders on
June 12
, 2012
at
10:00 a.m.,
Pacific time, at SureWests corporate headquarters, 8150
Industrial Avenue, Building A, Roseville, California 95678. At the SureWest
special meeting, SureWests shareholders will be asked (i) to approve the Merger
Agreement, the agreement of merger (the Merger Certificate) satisfying the
applicable requirements of the California General Corporation Law to be filed in
connection with the First Merger and the transactions contemplated thereby,
including the First Merger, (ii) to approve, by an advisory vote, the change in
control severance payments to SureWests named executive officers, and (iii) to
adjourn or postpone the SureWest special meeting, if necessary or appropriate,
for, among other reasons, the solicitation of additional proxies.
The board
of directors of Consolidated recommends that Consolidateds stockholders vote
FOR each of (i) the issuance of Consolidated common stock to SureWest
shareholders in the First Merger contemplated by the Merger Agreement, (ii) the
election of Richard A. Lumpkin as Class I director of Consolidated, (iii) the
ratification of the appointment of Ernst & Young LLP as Consolidateds
independent registered public accounting firm for the fiscal year ending
December 31, 2012, and (iv) the proposal to adjourn or postpone the Consolidated
annual meeting, if necessary or appropriate, to, among other reasons, solicit
additional proxies.
The board of directors of
SureWest recommends that SureWests shareholders vote FOR each of (i) the
Merger Agreement, the Merger Certificate and the transactions contemplated
thereby, including the First Merger, (ii) by an advisory vote, the change in
control severance payments to SureWests named executive officers, and (iii) the
proposal to adjourn or postpone the SureWest special meeting, if necessary or
appropriate, to, among other reasons, solicit additional proxies.
YOUR VOTE IS VERY IMPORTANT.
Whether or not you plan to attend the Consolidated annual meeting or the
SureWest special meeting, as applicable, please take the time to vote by using
the Internet or by telephone as described in this joint proxy
statement/prospectus or by completing the enclosed proxy card and mailing it in
the enclosed envelope. Information about the meetings, the Mergers and the other
business to be considered at the meetings is contained in this joint proxy
statement/prospectus. You are urged to read this joint proxy
statement/prospectus carefully.
In particular, you should
read the Risk Factors Relating to the Mergers section beginning on page
37
for a discussion of the risks you should consider in evaluating the Merger
Agreement and the Mergers and how they will affect you.
Thank you for your cooperation and
continued support.
Sincerely,
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Robert J. Currey
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Steven C. Oldham
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President and Chief Executive
Officer
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President and Chief Executive
Officer
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Consolidated Communications Holdings,
Inc.
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SureWest
Communications
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Neither the Securities and Exchange
Commission nor any state securities regulator has approved or disapproved the
Merger Agreement and the Mergers described in this joint proxy
statement/prospectus or the Consolidated common stock to be issued in the First
Merger contemplated by the Merger Agreement or passed upon the adequacy or
accuracy of this joint proxy statement/prospectus. Any representation to the
contrary is a criminal offense.
This joint proxy statement/prospectus is dated
April 24,
2012
and is first being mailed to Consolidated stockholders and SureWest shareholders on or about
April 30,
2012.
REFERENCES TO ADDITIONAL INFORMATION
This joint
proxy statement/prospectus incorporates by reference important business and
financial information about Consolidated and SureWest from documents that are
not included in or delivered with this joint proxy statement/prospectus. This
information is available to you without charge upon your oral or written
request. You can obtain the documents incorporated by reference into this joint
proxy statement/prospectus by requesting them in writing or by telephone from
the appropriate company at the following addresses and telephone numbers:
SureWest Communications
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Consolidated Communications Holdings,
Inc.
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8150 Industrial Avenue, Building A
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121 South 17th Street
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Roseville, California 95678
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Mattoon, Illinois 61938
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Attention: Investor Relations
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Attention: Investor Relations
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Telephone: (916) 786-1831
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Telephone: (217)
235-3311
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If you
would like to request documents, please do so by
June 4,
2012 in order to receive
them before the meetings.
See Where You Can Find More
Information on page
176
.
ABOUT THIS DOCUMENT
This joint proxy
statement/prospectus forms a part of a registration statement on Form S-4
(Registration No.
333-180407
) filed by Consolidated and SureWest with the Securities
and Exchange Commission. It constitutes a prospectus of Consolidated under
Section 5 of the Securities Act of 1933, as amended, and the rules thereunder,
with respect to the shares of Consolidated common stock to be issued to SureWest
shareholders in the First Merger. In addition, it constitutes a proxy statement
under Section 14(a) of the Securities Exchange Act of 1934, as amended, and the
rules thereunder, and a notice of meeting with respect to (i) the Consolidated
annual meeting of stockholders at which Consolidated stockholders will consider
and vote upon (a) the proposal to approve the issuance of Consolidated common
stock to SureWest shareholders in the First Merger contemplated by the Merger
Agreement, (b) the proposal to elect Richard A. Lumpkin as Class I director to
Consolidateds board of directors to serve for a term of three years, in
accordance with Consolidateds amended and restated certificate of incorporation
and amended and restated bylaws, (c) the proposal to ratify the appointment of
Ernst & Young LLP as Consolidateds independent registered public accounting
firm for the fiscal year ending December 31, 2012, (d) the proposal to adjourn
or postpone the Consolidated annual meeting, if necessary or appropriate, for,
among other reasons, the solicitation of additional proxies, and (e) such other
business as may properly be brought before the Consolidated annual meeting and
any adjournment or postponement thereof, and (ii) the special meeting of
SureWest shareholders at which SureWest shareholders will consider and vote upon
(a) the proposal to approve the Merger Agreement, the Merger Certificate and the
transactions contemplated thereby, including the First Merger, (b) the proposal
to approve, by an advisory vote, the change in control severance payments to
SureWests named executive officers and (c) the proposal to adjourn or postpone
the SureWest special meeting, if necessary or appropriate, for, among other
reasons, the solicitation of additional proxies.
CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
JUNE 12,
2012
To Stockholders:
The 2012 annual meeting of stockholders
of Consolidated Communications Holdings, Inc. (Consolidated) will be held at Consolidateds corporate headquarters,
121 South 17th Street, Mattoon, Illinois 61938 on
June 12,
2012 at
9:00 a.m.
,
Central time. The 2012 annual meeting of stockholders is being held for the following purposes:
1. To approve the issuance of
Consolidated common stock to SureWest Communications (SureWest) shareholders
in the First Merger contemplated by the Agreement and Plan of Merger, dated as
of February 5, 2012 (the Merger Agreement), by and among Consolidated,
SureWest, WH Acquisition Corp., a California corporation and a wholly-owned
subsidiary of Consolidated (Merger Sub I), and WH Acquisition II Corp., a
California corporation and a wholly-owned subsidiary of Consolidated (Merger
Sub II), a copy of which is attached as Annex I to the accompanying joint proxy
statement/prospectus, pursuant to which SureWest will merge with and into Merger
Sub I (the First Merger), with SureWest as the surviving entity and then
SureWest will merge with and into Merger Sub II, with Merger Sub II as the
surviving entity (Consolidated Proposal No. 1);
2. To elect Richard A. Lumpkin as
Class I director to serve for a term of three years, in accordance with
Consolidateds amended and restated certificate of incorporation and amended and
restated bylaws (Consolidated Proposal No. 2);
3. To ratify the appointment of
Ernst & Young LLP as Consolidateds independent registered public accounting
firm for the fiscal year ending December 31, 2012 (Consolidated Proposal No. 3);
4. To approve the adjournment or
postponement of the annual meeting, if necessary or appropriate, for, among
other reasons, the solicitation of additional proxies in the event that there
are not sufficient votes at the time of the annual meeting to approve the
issuance of Consolidated common stock to SureWest shareholders in the First
Merger contemplated by the Merger Agreement (Consolidated Proposal No. 4); and
5. To transact such other business
as may properly come before the annual meeting and any adjournment or
postponement thereof.
Only stockholders of record at the
close of business on April 23, 2012 are entitled to vote at the meeting or at
any adjournment or postponement thereof.
We hope that as many stockholders as
possible will personally attend the meeting. Whether or not you plan to attend
the meeting, please complete the enclosed proxy card and sign, date and return
it promptly so that your shares will be represented. You also may vote your
shares by telephone or through the Internet by following the instructions set
forth on the proxy card.
Submitting your proxy in
writing, by telephone or through the Internet will not prevent you from voting
in person at the meeting.
The board of directors of
Consolidated unanimously recommends that you vote FOR each of (i) the issuance
of Consolidated common stock to SureWest shareholders in the First Merger
contemplated by the Merger Agreement; (ii) the election of Richard A. Lumpkin as
Class I director of Consolidated; (iii) the ratification of the appointment of
Ernst & Young LLP as Consolidateds independent registered public accounting
firm for the fiscal year ending December 31, 2012; and (iv) the proposal to
adjourn or postpone the annual meeting, if necessary or appropriate, to, among
other reasons, solicit additional proxies.
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By Order of the Board of
Directors,
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Steven J. Shirar
Senior
Vice President & Secretary
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April 24,
2012
Important Notice Regarding the
Availability of Proxy Materials for the Stockholder Meeting to Be Held on
June 12,
2012
Our Proxy Statement and 2011 Annual Report to Stockholders are available at
www.edocumentview.com/cnsl.
SUREWEST
COMMUNICATIONS
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS
TO BE HELD
JUNE 12
, 2012
To Our Shareholders:
A special
meeting of shareholders of SureWest Communications (SureWest) will be held at
SureWests offices at 8150 Industrial Avenue, Building A, Roseville, California,
on
June 12
, 2012 at
10:00 a.m.
,
Pacific time. The special meeting of shareholders is being held for the
following purposes:
1.
To approve the Agreement and Plan of Merger, dated as of February 5, 2012 (the Merger Agreement), by and among Consolidated,
SureWest, WH Acquisition Corp., a California corporation and a wholly-owned subsidiary of Consolidated (Merger Sub I),
and WH Acquisition II Corp., a California corporation and a wholly-owned subsidiary of Consolidated (Merger Sub II),
a copy of which is attached as Annex I to the accompanying joint proxy statement/prospectus, pursuant to which SureWest will merge
with and into Merger Sub I (the First Merger), with SureWest as the surviving entity and then SureWest will
merge
with and into Merger Sub II, the agreement of merger (the Merger Certificate) satisfying the applicable requirements
of the California General Corporation Law to be filed in connection with the First Merger and the transactions contemplated thereby,
including the First Merger (SureWest Proposal No. 1);
2. To approve, by an advisory vote,
the change in control severance payments to SureWests named executive officers
(SureWest Proposal No. 2); and
3. To approve the adjournment or
postponement of the special meeting, if necessary or appropriate, for, among
other reasons, the solicitation of additional proxies in the event that there
are not sufficient votes at the time of the special meeting to approve SureWest
Proposal No. 1 (SureWest Proposal No. 3).
Only shareholders of record at the
close of business on
April 23,
2012
are entitled to vote at the SureWest special meeting or at any adjournment or
postponement thereof.
We hope that as many shareholders as
possible will personally attend the SureWest special meeting. Whether or not you
plan to attend the special meeting, please complete the enclosed proxy card and
sign, date and return it promptly so that your shares will be represented. You
also may vote your shares by telephone or through the Internet by following the
instructions set forth on the proxy card. Submitting your proxy in writing, by
telephone or through the Internet will not prevent you from voting in person at
the special meeting.
The board of directors of
SureWest, by unanimous vote, has determined that it is in the best interests of
SureWest and its shareholders to consummate the transactions contemplated by the
Merger Agreement, and unanimously recommends that shareholders vote FOR the
proposal to approve the Merger Agreement, the Merger Certificate and the
transactions contemplated thereby, including the First Merger, FOR the proposal
to approve, by an advisory vote, the change in control severance payments to
SureWests named executive officers and FOR the proposal to adjourn or postpone
the special meeting, if necessary or appropriate, to, among other reasons,
solicit additional proxies.
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By Order of the Board of
Directors,
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DARLA J.
YETTER
Secretary
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SHAREHOLDERS WHO CANNOT ATTEND IN
PERSON ARE REQUESTED TO VOTE
AS PROMPTLY AS POSSIBLE. YOU MAY VOTE OVER THE
INTERNET,
BY TELEPHONE, OR BY U.S. MAIL.
April 24,
2012
TABLE OF
CONTENTS
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Page
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DEFINED TERMS USED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS
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1
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QUESTIONS AND ANSWERS ABOUT THE MERGERS AND THE SUREWEST SPECIAL
MEETING
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2
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QUESTIONS AND ANSWERS ABOUT THE CONSOLIDATED ANNUAL
MEETING
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10
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SUMMARY
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16
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General
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16
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The SureWest Special
Meeting
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18
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The Consolidated Annual
Meeting
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18
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Record Dates; Shares Entitled to
Vote; Required Vote with respect to the Mergers; Quorums
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19
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Shares Owned by SureWest Directors
and Executive Officers
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19
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Shares Owned by Consolidated
Directors and Executive Officers
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19
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The Mergers
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19
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SELECTED
HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF
CONSOLIDATED
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COMMUNICATIONS HOLDINGS, INC
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22
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL
INFORMATION OF SUREWEST COMMUNICATIONS
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28
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SUMMARY UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
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31
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COMPARATIVE PER SHARE MARKET PRICE, DIVIDEND
AND OTHER DATA
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33
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SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
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35
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RISK FACTORS RELATING TO THE
MERGERS
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37
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THE MERGERS
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43
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The Companies
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43
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Background of the
Mergers
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44
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SureWests Reasons for the Mergers
and Recommendation of the SureWest Board of Directors
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51
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Opinion of Financial Advisor to
SureWest
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56
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Financial Analyses
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59
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Miscellaneous
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62
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Consolidateds Reasons for the
Mergers
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62
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Opinion of Financial Advisor to
Consolidated
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64
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Board of Directors of Consolidated
after Completion of the Mergers
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70
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Interests of SureWest Directors and
Executive Officers in the Mergers
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71
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Effect of the
Mergers
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76
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Merger
Consideration
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76
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Treatment of SureWest Equity
Awards
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77
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Ownership of Consolidated Following
the Mergers
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77
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SureWest Shareholders Making Cash
and Stock Elections
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77
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Conversion of Shares; Exchange Procedures; Fractional
Shares
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82
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Accounting
Treatment
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83
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Regulatory Approvals Required for the Mergers
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83
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Dissenters
Rights of SureWest Shareholders
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84
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Stock Exchange Listing of Consolidated Common Stock
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84
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Delisting and
Deregistration of SureWest Common Stock
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84
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Legal Proceedings Related to the Mergers
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84
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MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES
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85
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-i-
TABLE OF
CONTENTS
(continued)
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Page
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THE MERGER
AGREEMENT
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89
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The Mergers
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89
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Closing and Effectiveness of the
Mergers
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89
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Directors and Officers After the
Mergers
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89
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Consideration to be Received in the
Mergers
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90
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Dissenting Shares
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90
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Treatment of SureWest Equity
Awards
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90
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Representations and
Warranties
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90
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SureWests Conduct of Business
Before Completion of the Mergers
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92
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Consolidateds Forbearances Before
Completion of the Mergers
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94
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No Solicitation; Changes in
Recommendations
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94
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Commercially Reasonable Efforts to
Complete the Mergers; Other Agreements
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96
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Access to
Information
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96
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Financing
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96
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Financing
Cooperation
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97
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Director and Officer Indemnification
and Insurance
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98
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Employee Matters
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98
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Definition of Material Adverse
Effect
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98
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Conditions of the
Mergers
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99
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Termination; Termination Fees;
Expenses
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100
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Specific Performance;
Remedies
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102
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Amendment; Extension and
Waiver
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102
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Governing Law;
Venue
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102
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DEBT FINANCING
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103
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General
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103
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Bridge Facility
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103
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Initial Bridge Loans, Extended Term
Loans and Exchange Notes
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104
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Alternative
Financing
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104
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UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
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105
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DESCRIPTION OF CONSOLIDATED CAPITAL STOCK
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114
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COMPARISON OF RIGHTS OF COMMON SHAREHOLDERS OF SUREWEST AND COMMON
STOCKHOLDERS
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OF CONSOLIDATED
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115
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Capitalization
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115
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Number, Election, Vacancy and
Removal of Directors
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115
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Amendments to Charter
Documents
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116
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Amendments to Bylaws
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116
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Action by Written
Consent
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117
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Notice
of Stockholder/Shareholder Actions
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117
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Special
Stockholder/Shareholder Meetings
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118
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Stockholder/Shareholder
Inspection Rights
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118
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Limitation of Personal
Liability and Indemnification of Directors and Officers
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119
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Dividends
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120
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Conversion; Preemptive
Rights
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120
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Rights Plan
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121
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Voting Rights; Required
Vote for Authorization of Certain Actions
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121
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Appraisal Rights and
Dissenters Rights
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123
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Interested
Directors
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124
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-ii-
TABLE OF
CONTENTS
(continued)
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Page
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DISSENTERS RIGHTS OF SUREWEST SHAREHOLDERS
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125
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THE
SUREWEST SPECIAL MEETING
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127
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Date, Time and Place
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127
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Purpose of the SureWest
Special Meeting
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127
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SureWest Board
Recommendation
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127
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Who Can Vote at the
SureWest Special Meeting
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127
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Vote Required;
Quorum
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127
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Shares Owned by SureWest
Directors and Executive Officers
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128
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Voting by Proxy
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128
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SureWest KSOP
Participants
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129
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Solicitation of
Proxies
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130
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SUREWEST PROPOSAL NO. 1: APPROVAL OF THE MERGER AGREEMENT, THE
MERGER CERTIFICATE AND
THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE FIRST MERGER
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131
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SUREWEST PROPOSAL NO. 2: APPROVAL, BY AN ADVISORY VOTE, OF THE
CHANGE IN
CONTROL SEVERANCE
PAYMENTS
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132
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SUREWEST PROPOSAL NO. 3: APPROVAL OF THE ADJOURNMENT OR
POSTPONEMENT OF
THE SUREWEST
SPECIAL MEETING, IF NECESSARY OR APPROPRIATE
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133
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THE
CONSOLIDATED ANNUAL MEETING
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134
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Date, Time and
Place
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134
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Purpose of the
Consolidated Annual Meeting
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134
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Record Date; Shares Entitled
to Vote; Required Vote; Quorum
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134
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Shares Owned by Consolidated
Directors and Executive Officers
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135
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Voting of Proxies
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135
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Changing Your Vote
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136
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Solicitation of
Proxies
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137
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STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CONSOLIDATED
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138
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CONSOLIDATED PROPOSAL NO. 1: APPROVAL OF THE ISSUANCE OF
CONSOLIDATED COMMON STOCK
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IN
CONNECTION WITH THE FIRST MERGER
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139
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CONSOLIDATED PROPOSAL
NO. 2:
ELECTION OF RICHARD A.
LUMPKIN AS DIRECTOR
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140
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CORPORATE GOVERNANCE AND BOARD COMMITTEES
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142
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REPORT OF THE AUDIT
COMMITTEE TO THE BOARD OF DIRECTORS
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150
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PRINCIPAL INDEPENDENT ACCOUNTANT FEES AND SERVICES
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151
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CONSOLIDATED PROPOSAL NO. 3:
RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED
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PUBLIC
ACCOUNTING FIRM
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152
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CONSOLIDATED PROPOSAL NO. 4: APPROVAL OF THE ADJOURNMENT OR
POSTPONEMENT OF THE
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CONSOLIDATED ANNUAL MEETING, IF NECESSARY OR APPROPRIATE
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153
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BUSINESS EXPERIENCE
OF EXECUTIVE OFFICERS
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154
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EQUITY COMPENSATION PLAN INFORMATION
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155
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COMPENSATION
COMMITTEE REPORT
|
155
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COMPENSATION DISCUSSION AND ANALYSIS
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156
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EXECUTIVE
COMPENSATION
|
166
|
-iii-
TABLE OF
CONTENTS
(continued)
|
Page
|
POTENTIAL PAYMENTS UPON TERMINATION OR
CHANGE IN CONTROL OF THE COMPANY
|
170
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|
173
|
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
|
174
|
ANNUAL
REPORT TO STOCKHOLDERS
|
174
|
GENERAL
|
175
|
LEGAL MATTERS
|
175
|
EXPERTS
|
175
|
OTHER MATTERS
|
175
|
FUTURE STOCKHOLDER PROPOSALS
|
176
|
WHERE YOU CAN FIND MORE INFORMATION
|
176
|
|
Merger Agreement
|
ANNEX I
|
Fairness Opinion of UBS Securities
LLC
|
ANNEX II
|
Fairness Opinion of Wells Fargo Securities,
LLC
|
ANNEX III
|
California Statute Relating to
Shareholders Dissenters
Rights
|
ANNEX IV
|
-iv-
DEFINED TERMS USED IN THIS JOINT
PROXY STATEMENT/PROSPECTUS
Consolidated or the
Company*
|
|
Consolidated Communications Holdings,
Inc., a Delaware corporation
|
|
Exchange Act
|
|
Securities Exchange Act of 1934, as
amended
|
|
First Merger
|
|
Business combination whereby Merger
Sub I will merge with and into SureWest, with SureWest as the surviving
entity, pursuant to the Merger Agreement
|
|
Mergers
|
|
First Merger and Second Merger,
collectively
|
|
Merger Agreement
|
|
Agreement and Plan of Merger, dated
as of February 5, 2012, as it may be amended from time to time, by and
among Consolidated, SureWest, Merger Sub I and Merger Sub II
|
|
Merger Certificate
|
|
The agreement of merger satisfying
the applicable requirements of the California General Corporation Law to
be filed in connection with the First Merger, attached as Exhibit A to the
Merger Agreement
|
|
Merger Consideration
|
|
With respect to a given share of
SureWest common stock, the cash consideration (with respect to a share of
SureWest common stock representing the right to receive the cash
consideration) or the stock consideration (with respect to a share of
SureWest common stock representing the right to receive the stock
consideration)
|
|
Merger Sub I
|
|
WH Acquisition Corp., a California
corporation and a wholly-owned subsidiary of Consolidated
|
|
Merger Sub II
|
|
WH Acquisition II Corp., a California
corporation and a wholly-owned subsidiary of Consolidated
|
|
Merger Subs
|
|
Merger Sub I and Merger Sub
II
|
|
SEC
|
|
Securities and Exchange
Commission
|
|
Second Merger
|
|
Business combination subsequent to
the First Merger whereby SureWest will merge with and into Merger Sub II,
with Merger Sub II as the surviving entity, pursuant to the Merger
Agreement
|
|
Securities Act
|
|
Securities Act of 1933, as
amended
|
|
SureWest
|
|
SureWest Communications, a California
corporation
|
* In this joint proxy
statement/prospectus, we, us or our refer to Consolidated.
1
QUESTIONS AND ANSWERS ABOUT THE
MERGERS AND THE SUREWEST SPECIAL MEETING
The
following questions and answers address briefly some questions you may have
regarding the Mergers and the SureWest special meeting. These questions and
answers may not address all questions that may be important to you as a
shareholder of SureWest or as a stockholder of Consolidated. Please refer to the
more detailed information contained elsewhere in this joint proxy
statement/prospectus, the annexes to this joint proxy statement/prospectus and
the documents referred to in or incorporated by reference into this joint proxy
statement/prospectus. You may obtain the information incorporated by reference
into this joint proxy statement/prospectus without charge by following the
instructions in the section entitled Where You Can Find More Information on
page
176
.
For
certain questions and answers about the Consolidated annual meeting, see the section entitled Questions and Answers about
the Consolidated Annual Meeting on page
10
.
What are the Mergers?
In accordance with the terms and
conditions of the Merger Agreement, if SureWest shareholders approve the Merger
Agreement, the Merger Certificate and the transactions contemplated thereby,
including the First Merger,
and Consolidated stockholders approve the issuance of
Consolidated common stock to SureWest shareholders in the First Merger
contemplated by the Merger Agreement and the other closing conditions under the
Merger Agreement are satisfied or waived, Merger Sub I will merge with and into
SureWest, with SureWest surviving the First Merger, and following consummation
of the First Merger, SureWest will merge with and into Merger Sub II, and Merger
Sub II shall be the surviving corporation. A copy of the Merger Agreement is
attached as Annex I to this joint proxy statement/prospectus.
Is my vote necessary to complete the
Mergers?
Yes. The companies have agreed to
combine the two companies upon the terms and conditions of the Merger Agreement
that is described in this joint proxy statement/prospectus. You are receiving
these proxy materials to help you decide, among other matters, how to vote your
shares of SureWest with respect to the proposed First Merger.
The Mergers cannot be completed
unless, among other things, SureWest shareholders approve the Merger Agreement,
the Merger Certificate and the transactions contemplated thereby, including the
First Merger.
The SureWest special meeting is
being held to vote on, among other matters, the proposals necessary to complete
the First Merger. Information about these meetings, the Mergers and the other
business to be considered by SureWest shareholders is contained in this joint
proxy statement/prospectus.
Your vote is important.
SureWest encourages you to vote as soon as possible.
Are there other matters related to the
Mergers that require the vote of SureWest shareholders?
Yes. At the SureWest special
meeting, shareholders will be asked to consider and vote upon a proposal to
approve, by an advisory vote, the agreements and understandings of SureWest and
its named executive officers concerning compensation that is based on or
otherwise relates to the First Merger contemplated by the Merger Agreement, and
the aggregate total of all such compensation that may be paid or become payable
to or on behalf of such executive officers, as disclosed in this joint proxy
statement/prospectus under the heading The MergersInterests of SureWest
Directors and Executive Officers in the MergersChange of Control Severance
Agreements with Executive Officers (the change in control severance
payments).
2
What will shareholders receive in the
Mergers?
SureWest shareholders may make one
of the following elections, or a combination of the two, regarding the type of
Merger Consideration they wish to receive in exchange for shares of SureWest
common stock:
-
a cash election to receive $23.00 in cash, without
interest, for each share of SureWest common stock; or
-
a stock election to receive shares of Consolidated
common stock having an equivalent value based on average trading prices for
the 20-day period ending two days before the closing date of the First Merger,
subject to a collar so that there will be a maximum exchange ratio of 1.40565
shares of Consolidated common stock for each share of SureWest common stock
and a minimum of 1.03896 shares of Consolidated common stock for each share of
SureWest common stock, subject to certain exceptions and with overall
elections subject to proration so that 50% of the SureWest shares (treating
equity award shares as outstanding shares) will be exchanged for cash and 50%
for stock.
If SureWest
shareholders make a cash election or a stock election, the form of Merger
Consideration that they actually receive as a SureWest shareholder may be
adjusted as a result of the proration procedures contained in the Merger
Agreement as described in this joint proxy statement/prospectus under The
Mergers SureWest Shareholders Making Cash and Stock Elections on page
77
.
These proration procedures are designed to ensure that 50% of the SureWest
shares outstanding immediately prior to the First Merger (treating restricted
stock units and restricted stock awardsequity award sharesas outstanding) are
converted in the First Merger into the right to receive cash and 50% of the
SureWest shares outstanding immediately prior to the First Merger are converted
into the right to receive Consolidated common stock. All holders of SureWest
equity award shares will be paid in cash and shall not be subject to such
proration. Because equity award shares reduce the number of outstanding SureWest
shares that will convert to cash, it is expected that approximately
46%
of outstanding SureWest shares (exclusive of equity award
shares) will convert into the right to receive cash, and
54%
will convert
into the right to receive stock. In order to preserve the tax-free nature of the
transaction, the Merger Agreement also provides for a general consideration
adjustment in certain circumstances, as further described under The Mergers
SureWest Shareholders Making Cash and Stock Elections General Consideration
Adjustment on page
81
.
Neither
Consolidated nor SureWest is making any recommendation as to whether SureWest
shareholders should elect to receive cash consideration or stock consideration
in the First Merger. SureWest shareholders must make their own decision with
respect to such election. No guarantee can be made that SureWest shareholders
will receive the amount of cash consideration or stock consideration they elect.
As a result of the proration procedures described in this joint proxy
statement/prospectus and in the Merger Agreement, they may receive stock
consideration or cash consideration in amounts that are different from the
amounts they elect to receive. Because the value of the stock consideration and
cash consideration may differ, they may receive consideration having an
aggregate value less than what they elected to receive. SureWest shareholders
should obtain current market quotations for Consolidated common stock before
deciding what elections to make.
Because other SureWest
shareholders would likely take the relative values of the stock consideration
and cash consideration into account in determining what form of election to
make, if you fail to make an election you are likely to receive the form of
consideration having the lower value (depending on the relative values of the
stock consideration and cash consideration at the effective time of the First
Merger).
After completion of the First
Merger, each Consolidated stockholder will have the same number of shares of
Consolidated common stock that such stockholder held immediately prior to the
completion of the First Merger. However, upon issuance of the shares of
Consolidated common stock to SureWest shareholders in connection with the First
Merger, each share of Consolidated common stock outstanding immediately prior to
the completion of the First Merger will represent a smaller percentage of the
aggregate number of shares of Consolidated common stock outstanding after the
completion of the First Merger. On the other hand, each share of Consolidated
common stock will then represent an interest in a company with more
assets.
3
How and when do SureWest shareholders
make a cash election or a stock election?
SureWest shareholders should
carefully review and follow the instructions accompanying the form of election,
which will be sent to you separately from this joint proxy statement/prospectus
promptly after approval, if received, by SureWest shareholders of the Merger
Agreement, the Merger Certificate and the transactions contemplated thereby,
including the First Merger. To make a cash election or a stock election,
SureWest shareholders of record must properly complete, sign and send the form
of election and any stock certificates representing their SureWest shares, or a
guarantee of delivery as described in the instructions accompanying the form of
election, to Computershare Trust Company, N.A., the exchange agent, as follows:
By mail:
|
By Facsimile
Transmission:
|
Overnight
Courier:
|
|
Computershare Trust Company,
N.A.
|
For Eligible
Institutions Only:
|
Computershare Trust Company,
N.A.
|
Attention: Corporate
Actions
|
(617) 360-6810
|
Attention: Corporate
Actions
|
P.O. Box 43011
|
|
250 Royall Street, Suite
V
|
Providence, RI 02940-3011
|
For Confirmation
Only:
|
Canton, MA 02021
|
|
(781) 575-2332
|
|
The exchange agent must receive the
form of election and any stock certificates representing SureWest shares, or a
guarantee of delivery as described in the instructions accompanying the form of
election, at or prior to the election deadline.
The election deadline will be 5:00 p.m., Eastern time, on the date that
is two business days immediately prior to the closing date of the First Merger
(or such other date as Consolidated and SureWest mutually agree)
. Consolidated and SureWest will publicly announce the
anticipated election deadline at least five business days prior to the
anticipated closing date of the First Merger.
If you own
SureWest shares in street name through a bank, broker or other nominee and you
wish to make an election, you should seek instructions from the financial
institution holding your shares concerning how to make your election.
Can SureWest shareholders elect to
receive cash consideration for a portion of SureWest shares and stock
consideration for remaining SureWest shares?
Yes. The form of election allows an
election to be made for cash consideration for a portion of SureWest shares and
stock consideration for remaining SureWest shares.
Can SureWest shareholders change their
election after the form of election has been submitted?
Yes. SureWest shareholders may
revoke an election at or prior to the election deadline by submitting a written
notice of revocation to the exchange agent at or prior to the election deadline.
Revocations must specify the name in which the shares are registered on the
share transfer books of SureWest and such other information as the exchange
agent may request. If SureWest shareholders wish to submit a new election, they
must do so in accordance with the election procedures described in this joint
proxy statement/prospectus and the form of election, which will be sent to you
separately from this joint proxy statement/prospectus promptly after approval,
if received, by SureWest shareholders of the Merger Agreement, the Merger
Certificate and the transactions contemplated thereby, including the First
Merger. If SureWest shareholders instructed a broker or other nominee holder to
submit an election for their shares, they must follow the brokers or other
nominees directions for changing those instructions.
The notice of revocation must be received by the exchange agent at or
prior to the election deadline in order for the revocation to be valid.
May SureWest shareholders transfer
SureWest shares after making a cash election or a stock election?
No. Once a SureWest shareholder
properly makes an election with respect to any shares of SureWest common stock,
they will be unable to sell or otherwise transfer those shares, unless they
properly revoke their election at or prior to the election deadline or unless
the Merger Agreement is terminated.
4
What happens if a SureWest shareholder
does not send a form of election or it is not received by the election deadline?
If the exchange agent does not receive a
properly completed form of election from a SureWest shareholder at or prior to the election deadline (together with any
stock certificates representing the shares of SureWest common stock covered by the election or a guarantee of delivery as
described in the form of election), then such SureWest shareholder will be deemed not to have made an election and will have
no control over the type of Merger Consideration they receive. As a result, SureWest shares may be exchanged for cash
consideration, stock consideration or a combination of cash consideration and stock consideration in accordance with the
proration procedures contained in the Merger Agreement and described under The Mergers SureWest Shareholders
Making Cash and Stock Elections beginning on page
77
.
SureWest
shareholders bear the risk of delivery of all the materials that they are required to submit to the exchange agent in order
to properly make an election.
If a SureWest shareholder does not
properly make an election with respect to all the SureWest shares they own of
record, after the completion of the First Merger they will receive written
instructions from the exchange agent on how to exchange SureWest stock
certificates for the shares of Consolidated common stock and/or cash that they
are entitled to receive in the First Merger as a non-electing SureWest
shareholder.
Because other SureWest shareholders
would likely take the relative values of the stock consideration and cash
consideration into account in determining what form of election to make, if a
SureWest shareholder fails to make an election they are likely to receive the
consideration having the lower value (depending on the relative values of the
cash consideration and the stock consideration at the effective time of the
First Merger).
May SureWest shareholders submit a form
of election even if they do not vote to approve the Merger Agreement, the Merger
Certificate and the transactions contemplated thereby, including the First
Merger?
Yes. SureWest shareholders may
submit a form of election even if they vote against the approval of the Merger
Agreement, the Merger Certificate and the transactions contemplated thereby,
including the First Merger or if they abstain or fail to vote with respect to
the approval of the Merger Agreement, the Merger Certificate and the
transactions contemplated thereby, including the First Merger.
Where and when is the special meeting
of SureWest shareholders?
The
special meeting will be held on
June 12
, 2012 at
10:00 a.m.,
Pacific
time,
at SureWests
offices at 8150 Industrial Avenue, Building A, Roseville, California 95678.
Who can vote at the SureWest special
meeting?
SureWest
shareholders can vote at the SureWest special meeting if shareholders owned
shares of SureWest common stock at the close of business on April 23, 2012, the
record date for the special meeting.
What vote of SureWest shareholders is
required to approve the proposals?
To approve the Merger Agreement, the
Merger Certificate and the transactions contemplated thereby, including the
First Merger, holders of a majority of the outstanding shares of SureWest common
stock must vote their shares
FOR
the approval of the Merger
Agreement, the Merger Certificate and the transactions contemplated thereby,
including the First Merger.
To approve, by an advisory vote, the
change in control severance payments, holders of a majority of the shares of
SureWest common stock casting votes at the special meeting must vote their
shares
FOR
the proposal.
5
To approve adjournment of the
special meeting, if necessary or appropriate, to, among other reasons, solicit
additional proxies, holders of a majority of the shares of SureWest common stock
casting votes at the special meeting must vote their shares
FOR
the
proposal.
What constitutes a quorum for the
SureWest special meeting?
A majority of the outstanding shares
of SureWests common stock entitled to vote being present in person or
represented by proxy constitutes a quorum for the special meeting. If a quorum
is not present, the shareholders present, in person or by proxy, may adjourn the
meeting, without notice other than announced at the meeting, to another place,
if any, date or time.
How does the Board of Directors of
SureWest recommend that SureWest shareholders vote?
The SureWest board of directors has
determined that the Merger Agreement and the transactions contemplated thereby
are in the best interests of SureWest and its shareholders and recommends that
SureWest shareholders vote
FOR
the approval of the Merger
Agreement, the Merger Certificate and the transactions contemplated thereby,
including the First Merger,
FOR
the approval, by advisory vote,
of the change in control severance payments and
FOR
the proposal to adjourn or
postpone the special meeting, if necessary or appropriate, to, among other
reasons, solicit additional proxies. The board is soliciting shareholder votes
consistent with the boards recommendation. You should read the section entitled
The MergersSureWests Reasons for the Mergers and Recommendation of SureWests
Board of Directors for a discussion of the factors that the board considered in
deciding to recommend voting
FOR
the approval of the Merger
Agreement, the Merger Certificate and the transactions contemplated thereby,
including the First Merger.
How do I vote?
If you are a SureWest shareholder of
record (or if you hold any shares in the SureWest KSOP) after carefully reading
and considering the information contained in this joint proxy
statement/prospectus you may vote by any of the following methods:
-
Internet.
Electronically through the Internet by accessing www.voteproxy.com. To
vote through the Internet, you should sign on to this website and follow the
procedures described at the website. Internet voting is available 24 hours a
day, and the procedures are designed to authenticate votes cast by using a
control number located on your proxy card. These procedures allow you to give
a proxy to vote your shares and to confirm that your instructions have been
properly recorded. If you vote through the Internet, you should not return
your proxy card. If you vote through the Internet, your proxy will be voted as
you direct on the website.
-
Mail.
By
returning your proxy through the mail. If you complete and properly sign the
accompanying proxy card and return it to SureWest, it will be voted as you
direct on the proxy card. You should follow the instructions set forth on the
proxy card, being sure to complete it, to sign it and to mail it in the
enclosed postage-paid envelope.
-
Telephone.
By calling 1-800-PROXIES (1-800-776-9437). This toll free number is
also included on the proxy card. Telephone voting is available 24 hours a day,
and the procedures are designed to authenticate votes cast by using a control
number located on your proxy card. These procedures allow you to give a proxy
to vote your shares and to confirm that your instructions have been properly
recorded. If you vote by telephone, you should not return your proxy
card.
-
In Person.
In person at the meeting.
SureWest
recommends that you vote in advance even if you plan to attend the meeting so
that SureWest will know as soon as possible that enough votes will be present
for SureWest to hold the meeting. If you are a shareholder of record and attend
the meeting, you may vote at the meeting or deliver your completed proxy card
6
in person. If you properly return or submit your proxy but do not indicate how you
wish to vote, SureWest (or the KSOP trustee) will count your proxy as a vote
FOR the approval of the Merger Agreement, the Merger Certificate and the
transactions contemplated thereby, including the First Merger, FOR the
approval, by advisory vote, of the change in control severance payments and
FOR the proposal to adjourn or postpone the special meeting, if necessary or
appropriate, to, among other reasons, solicit additional proxies.
If your
shares are held in street name, please refer to the information forwarded to
you by your bank, broker or other holder of record to see what you must do in
order to vote your shares, including whether you may be able to vote
electronically through your bank, broker or other record holder. If so,
instructions regarding electronic voting will be provided by the bank, broker or
other holder of record to you as part of the package that includes this joint
proxy statement/prospectus. If you are a street name stockholder and you wish
to vote in person at the meeting, you will need to obtain a proxy from the
institution that holds your shares and present it to the inspector of elections
with your ballot when you vote at the annual meeting.
What is the difference between a
shareholder of record and a street name beneficial holder of shares?
If your shares are registered
directly in your name with SureWests transfer agent, American Stock Transfer
& Trust Company, LLC, you are considered a shareholder of record with
respect to those shares. If this is the case, the shareholder proxy materials
have been sent or provided directly to you by SureWest.
If your shares are held in a stock
brokerage account or by a bank or other nominee, you are considered the
beneficial holder of the shares held for you in what is known as street
name. If this is the case, the proxy materials have been forwarded to you by
your brokerage firm, bank or other nominee, which is considered the shareholder
of record with respect to these shares. As the beneficial holder, you have the
right to direct your broker, bank or other nominee how to vote your shares.
Please contact your broker, bank, or other nominee for instructions on how to
vote any shares you beneficially own.
If my shares are held in street name
by my broker, will my broker vote my shares for me?
If your shares are held for you as a
beneficial owner in street name, your broker will vote your shares on the
proposals only if you provide instructions to your broker on how to vote. You
should follow the directions provided by your broker regarding how to instruct
your broker to vote your shares. Without instructions, your shares will not be
voted on and will have the effect of an Against vote for the proposal to
approve the Merger Agreement, the Merger Certificate and the transactions
contemplated thereby, including the First Merger, and will have no effect on the
proposals to approve, by an advisory vote, of the change in control severance
payments and to adjourn or postpone the special meeting, if necessary or
appropriate, to, among other reasons, solicit additional proxies.
Can I change my vote after I have
delivered my proxy?
Yes. You can change your vote before
the SureWest special meeting. If you are a SureWest shareholder of record (or if
you hold any shares in the SureWest KSOP), you may change your proxy voting
instructions prior to commencement of the special meeting by granting a new
proxy (by mail, by phone or over the Internet), as described under The SureWest
Special Meeting Voting by Proxy on page
128
. You may also revoke a proxy by
submitting a notice of revocation to the Secretary of SureWest at the address
set forth under The SureWest Special Meeting Voting by Proxy on page
128
prior to the commencement of the special meeting. Attendance at the special
meeting will not in and of itself constitute revocation of a proxy.
If your shares are held in street
name, you may change your vote by submitting new voting instructions to your
broker or other nominee holder in accordance with the procedures established by
it. Please contact your broker or other nominee and follow its directions in
order to change your vote.
Should I send in my SureWest stock
certificates with my proxy card?
No. Please DO NOT send your
SureWest stock certificates with your proxy card.
7
Should I send in my form of election
with my proxy card?
No. If you wish to make an election
with respect to your SureWest shares, then, prior to the election deadline, you
should send your completed, signed form of election (together with your SureWest
stock certificates or a guarantee of delivery) to the exchange agent as
described in the form of election.
This form
of election is not included with these proxy materials.
Instead, it will be sent to you separately from this joint
proxy statement/prospectus promptly after approval, if received, by SureWest
shareholders of the Merger Agreement. If your shares are held in street name,
you should follow your brokers or other nominees instructions for making an
election with respect to your shares.
If you make
no election with respect to your SureWest shares, after the completion of the
First Merger you will receive a letter of transmittal for you to use in
surrendering any SureWest stock certificates you have at that time.
What are the material U.S. federal
income tax consequences of the Mergers to U.S. holders of SureWest
shares?
Each of Orrick, Herrington & Sutcliffe LLP, tax counsel to SureWest, and Schiff Hardin LLP, tax counsel to Consolidated, are delivering an opinion
that the First Merger and the Second Merger taken together will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended.
However, neither SureWest nor Consolidated has requested
or received a ruling from the Internal Revenue Service that the Mergers will qualify as a reorganization. The U.S. federal
income tax consequences of a reorganization to a SureWest shareholder will depend on the relative mix of cash and
Consolidated common stock received by such SureWest shareholder. Assuming that the Mergers qualify as a reorganization,
SureWest shareholders should not recognize any gain or loss for U.S. federal income tax purposes if they exchange their
SureWest shares solely for shares of Consolidated common stock in the First Merger, except with respect to cash received in
lieu of fractional shares of Consolidated common stock. SureWest shareholders will recognize gain or loss if they exchange
their SureWest shares solely for cash in the First Merger. SureWest shareholders will recognize gain, but not loss, if they
exchange their SureWest shares for a combination of Consolidated common stock and cash, but their taxable gain in that case
will not exceed the cash they receive in the First Merger.
The tax opinions regarding the Mergers do not address any state, local or foreign tax consequences of the Mergers.
Please
carefully review the information set forth in the section titled Material United States Federal Income Tax Consequences
beginning on page
85
for a description of the material United States federal
income tax consequences of the Mergers.
The tax consequences of the Mergers to each SureWest shareholder will depend on such
SureWest
shareholder’s
own situation. SureWest shareholders should consult
with their own tax advisors for a full understanding of the tax consequences of the Mergers to them.
When do SureWest and Consolidated
expect the Mergers to be completed?
SureWest and Consolidated are
working to complete the Mergers as quickly as possible. If the Merger Agreement,
the Merger Certificate and the transactions contemplated thereby, including the
First Merger, are approved by SureWest shareholders, the issuance of
Consolidated common stock to SureWest shareholders in the First Merger
contemplated by the Merger Agreement is approved by Consolidated stockholders,
and the other conditions to completion of the Mergers are satisfied or waived,
including required regulatory approvals, it is anticipated that the Mergers will
be completed in the third quarter of 2012. However, it is possible that factors
outside the control of SureWest and Consolidated could require SureWest and
Consolidated to complete the Mergers at a later time or not complete it at all.
If the Mergers are not completed by November 5, 2012, either SureWest or
Consolidated may terminate the Merger Agreement. The commitments that
Consolidated received from lenders in connection with its financing of the
Mergers and the transactions contemplated thereby terminate on November 5, 2012
unless an extension is agreed to by such lenders, as described further under
Debt Financing on page
103
.
Will SureWest continue to pay dividends
on its common stock until the Mergers are completed?
SureWest
paid cash dividends of $0.08 per share, $0.08 per share and $0.10 per share in
the second, third and fourth quarters of 2011, respectively, and has declared a
cash dividend of $0.10 per share to be paid in the first quarter of the year
ending December 31, 2012. SureWest currently expects to pay comparable cash
dividends in the future and is expressly permitted to continue to pay a
quarterly dividend of $0.10 per share under the terms of the
8
Merger Agreement.
However, future dividend payments are at the discretion of the SureWest board
and changes in the dividend program will continue to depend on SureWests
earnings, capital requirements, financial condition, debt covenant and other
factors considered relevant by the SureWest board.
Can SureWest shareholders dissent and
require appraisal of their shares?
Yes. Under California law, SureWest
shareholders have the right to seek appraisal of the fair market value of their
shares of SureWest common stock as determined by a California court if the
Mergers are completed, but only if (a) they do not vote in favor of the Merger
Agreement, the Merger Certificate and the transactions contemplated thereby,
including the First Merger, (b) they make a written demand for appraisal in
compliance with California law within 30 days of notification that the Merger
Agreement has been approved, (c) they submit the certificates representing their
dissenting shares to SureWest within 30 days of notification that the Merger
Agreement has been approved, (d) they hold shares of SureWest common stock on
the record date and continuously hold such shares through the completion of the
First Merger and (e) demands for payment are filed with respect to at least five
percent of the outstanding shares of SureWest common stock. See Dissenters
Rights of SureWest Shareholders beginning on page
125
.
Who can help answer my questions?
If SureWest shareholders have any
questions about the Mergers or the SureWest special meeting, or if they need
additional copies of this joint proxy statement/prospectus or the enclosed proxy
card or the form of election that will be sent separately from this joint proxy
statement/prospectus promptly after approval, if received, by SureWest
shareholders of the Merger Agreement, the Merger Certificate and the
transactions contemplated thereby, including the First Merger, they should
contact:
Okapi
Partners LLC
437
Madison Avenue, 28th Floor
New
York, New York 10022
Banks
and Brokerage Firms, please call: (212) 297-0720
Stockholders
and
all
others, call toll-free: (877) 796-5274
Email:
info@okapipartners.com
9
QUESTIONS AND ANSWERS ABOUT THE
CONSOLIDATED ANNUAL MEETING
The
following questions and answers address briefly some questions you may have
regarding the Consolidated annual meeting. These questions and answers may not
address all questions that may be important to you as a stockholder of Consolidated. Please refer to the more
detailed information contained elsewhere in this joint proxy
statement/prospectus, the annexes to this joint proxy statement/prospectus and
the documents referred to in or incorporated by reference into this joint proxy
statement/prospectus. You may obtain the information incorporated by reference
into this joint proxy statement/prospectus without charge by following the
instructions in the section entitled Where You Can Find More Information on
page
176
.
For
certain questions and answers about the SureWest special meeting, see the
section entitled Questions and Answers about the Mergers and the SureWest
Special Meeting on page
2
.
What is the purpose of this joint proxy
statement/prospectus?
The purpose
of this joint proxy statement/prospectus is to provide information regarding
matters to be voted on at the 2012 annual meeting of Consolidateds
stockholders. Additionally, it contains certain information that the SEC
requires Consolidated to provide annually to stockholders. This joint proxy
statement/prospectus is also the document used by Consolidateds board to
solicit proxies to be used at the 2012 annual meeting. Proxies are solicited by
Consolidateds board to give all stockholders of record an opportunity to vote
on the matters to be presented at the annual meeting, even if the stockholders
cannot attend the meeting. The board has designated Steven J. Shirar and Matthew
K. Smith as proxies, who will vote the shares represented by proxies at the
annual meeting in the manner indicated by the proxies.
What proposals will be voted on at the
Consolidated annual meeting?
Consolidated stockholders will vote
on the following proposals at the annual meeting:
-
the approval of the issuance of Consolidated
common stock to SureWest shareholders in the First Merger contemplated by the
Merger Agreement, a copy of which is attached as Annex I to the accompanying
joint proxy statement/prospectus (Consolidated Proposal No.
1);
-
the election of Richard A. Lumpkin as Class I
director to serve for a term of three years, in accordance with Consolidateds
amended and restated certificate of incorporation and amended and restated
bylaws (Consolidated Proposal No. 2);
-
the ratification of the appointment of Ernst &
Young LLP as Consolidateds independent registered public accounting firm (the
independent auditors), for the fiscal year ending December 31, 2012
(Consolidated Proposal No. 3);
-
the proposal to adjourn or postpone the
Consolidated annual meeting, if necessary or appropriate, for, among other
reasons, the solicitation of additional proxies (Consolidated Proposal No. 4);
and
-
any other business properly coming before the
annual meeting and any adjournment or postponement thereof.
Who is entitled to vote?
Each
outstanding share of Consolidateds common stock entitles its holder to cast one
vote on each matter to be voted upon at the annual meeting. Only stockholders of
record at the close of business on the record date, April 23, 2012, are entitled
to receive notice of the annual meeting and to vote the shares of common stock
that they held on that date at the meeting, or any adjournment or postponement
of the meeting. If your shares are held for you as a beneficial holder in
street name, please refer to the information forwarded to you by your bank,
broker or other holder of record to see what you must do to vote your shares.
10
A complete list of stockholders
entitled to vote at the annual meeting will be available for examination by any
stockholder at Consolidateds corporate headquarters, 121 South 17th Street,
Mattoon, Illinois 61938, during normal business hours for a period of ten days
before the annual meeting and at the time and place of the annual meeting.
What is the difference between a
stockholder of record and a beneficial holder of shares?
If your shares are registered
directly in your name with Consolidateds transfer agent, Computershare Trust
Company, N.A., you are considered a stockholder of record with respect to those
shares. If this is the case, the stockholder proxy materials have been sent or
provided directly to you by Consolidated.
If your shares
are held in a stock brokerage account or by a bank or other nominee, you are
considered the beneficial holder of the shares held for you in what is known
as street name. If this is the case, the proxy materials have been forwarded
to you by your brokerage firm, bank or other nominee, which is considered the
stockholder of record with respect to these shares. As the beneficial holder,
you have the right to direct your broker, bank or other nominee how to vote your
shares. Please contact your broker, bank, or other nominee for instructions on
how to vote any shares you beneficially own.
Who can attend the meeting?
All stockholders of record as of
April 23, 2012,
or their duly appointed
proxies, may attend the meeting. Cameras, recording devices and other electronic
devices will not be permitted at the meeting. If you hold your shares in street
name, you will need to bring a copy of a brokerage statement reflecting your
stock ownership as of the record date.
What constitutes a quorum?
A quorum of stockholders is necessary to hold the annual meeting. The
presence at the meeting, in person or by proxy, of the holders of a majority of
the shares of common stock outstanding on the record date will constitute a
quorum. As of April 23, 2012, the record date,
29,951,282
shares of Consolidateds
common stock were outstanding. Proxies received but marked as withheld,
abstentions or broker non-votes will be included in the calculation of the
number of shares considered present at the meeting for purposes of establishing
a quorum. In the event that a quorum is not present at the annual meeting,
Consolidated expects that the annual meeting will be adjourned or postponed to
solicit additional proxies.
How do I vote?
If you are a stockholder of record, you
may vote by any of the following methods:
-
Internet.
Electronically through the Internet by accessing Consolidateds
materials using the information on your proxy card
.
To vote through the Internet, you
should sign on to this website and follow the procedures described at the
website. Internet voting is available 24 hours a day, and the procedures are
designed to authenticate votes cast by using a personal identification number
located on your proxy card. These procedures allow you to give a proxy to vote
your shares and to confirm that your instructions have been properly recorded.
If you vote through the Internet, you should not return your proxy card. If
you vote through the Internet, your proxy will be voted as you direct on the
website.
-
Mail.
By
returning your proxy through the mail. If you complete and properly sign the
accompanying proxy card and return it to Consolidated, it will be voted as you
direct on the proxy card. You should follow the instructions set forth on the
proxy card, being sure to complete it, to sign it and to mail it in the
enclosed postage-paid envelope.
11
-
Telephone.
By calling 1-800-652-VOTE (1-800-652-8683). This toll free number is
also included on the proxy card. Telephone voting is available 24 hours a day,
and the procedures are designed to authenticate votes cast by using a personal
identification number located on your proxy card. These procedures allow you
to give a proxy to vote your shares and to confirm that your instructions have
been properly recorded. If you vote by telephone, you should not return your
proxy card.
-
In Person.
In person at the meeting.
Consolidated recommends that you vote in advance even if you plan to
attend the meeting so that Consolidated will know as soon as possible that
enough votes will be present for Consolidated to hold the meeting. If you are a
stockholder of record and attend the meeting, you may vote at the meeting or
deliver your completed proxy card in person.
If your shares are held in street name, please refer to the information
forwarded to you by your bank, broker or other holder of record to see what you
must do in order to vote your shares, including whether you may be able to vote
electronically through your bank, broker or other record holder. If so,
instructions regarding electronic voting will be provided by the bank, broker or
other holder of record to you as part of the package that includes this joint
proxy statement/prospectus. If you are a street name stockholder and you wish
to vote in person at the meeting, you will need to obtain a proxy from the
institution that holds your shares and present it to the inspector of elections
with your ballot when you vote at the annual meeting.
Can I change my vote after I return my
proxy card?
Yes. Even after you have submitted your proxy, you may change your vote
at any time before the proxy is voted by:
-
delivering to
Consolidateds Secretary at the address on the first page of this joint proxy
statement/prospectus a written notice of revocation of your proxy by mail, by
telephone or through the Internet;
-
delivering a duly
executed proxy bearing a later date; or
-
voting in person at the annual
meeting.
If your shares
are held in street name, you may vote in person at the annual meeting if you
obtain a proxy as described in the answer to the previous question.
How many votes are required for the
proposals to pass?
Approval of the Issuance of Consolidated Common Stock to SureWest
Shareholders in the First Merger contemplated by the Merger Agreement
(Consolidated Proposal No. 1),
Ratification of the Appointment of Ernst &
Young LLP (Consolidated Proposal No. 3), Proposal to Adjourn or Postpone the
Annual Meeting, if Necessary or Appropriate (Consolidated Proposal No. 4) and
Approval of any Other Proposals.
The vote
required for each of (i) the approval of the issuance of Consolidated common
stock to SureWest shareholders in the First Merger contemplated by the Merger
Agreement (Consolidated Proposal No. 1), (ii) the ratification of the
appointment of Ernst & Young LLP (Consolidated Proposal No. 3), (iii) the
proposal to adjourn or postpone the Consolidated annual meeting, if necessary or
appropriate, for, among other reasons, the solicitation of additional proxies
(Consolidated Proposal No. 4), and (iv) the approval of any other proposal not
presently anticipated that may properly come before the annual meeting or any
adjournment or postponement of the meeting, is the approval of a majority of the
votes present, in person or by proxy, and entitled to vote on the matter.
Election of Director (Consolidated Proposal No. 2)
. Directors are elected by a plurality vote. Accordingly, the
one director nominee who receives the greatest number of votes cast will be
elected.
12
How are abstentions and broker
non-votes treated?
If a stockholder abstains from voting on Consolidated Proposal No. 1,
Consolidated Proposal No. 3 or Consolidated Proposal No. 4, it will have the
same effect as a vote AGAINST that proposal. With respect to Consolidated
Proposal No. 2, abstentions will have no effect. Broker non-votes and shares as
to which proxy authority has been withheld with respect to any matter are not
entitled to vote for purposes of determining whether stockholder approval for
that matter has been obtained and, therefore, will have no effect on the outcome
of the vote on any such matter. A broker non-vote occurs on a proposal when
shares held of record by a broker are present or represented at the meeting but
the broker is not permitted to vote on that proposal without instruction from
the beneficial owner of the shares and no instruction has been given.
What if I do not specify a choice for a
matter when returning a proxy?
Stockholders should specify their choice for each matter on the enclosed
proxy. If no specific instructions are given, proxies that are signed and
returned will be voted:
-
FOR the approval of the issuance of Consolidated common stock to
SureWest shareholders in the First Merger contemplated by the Merger Agreement (see page
139
);
-
FOR the election of Richard A. Lumpkin as Class
I director (see page
140
);
-
FOR the proposal to ratify the appointment of
Ernst & Young LLP as Consolidateds independent registered public
accounting firm (see page
152
); and
-
FOR the proposal to adjourn or postpone the
annual meeting, if necessary or appropriate, for, among other
reasons,
the
solicitation of additional proxies (see page
153
).
What are the boards recommendations?
The boards recommendations, together with the description of each
proposal, are set forth in this joint proxy statement/prospectus. In summary,
the board recommends that you vote:
-
FOR the approval
of the issuance of Consolidated common stock to SureWest shareholders in the
First Merger contemplated by the Merger Agreement (see page
139
);
-
FOR the election of Richard A. Lumpkin for Class
I director (see page
140
);
-
FOR the ratification of the appointment of Ernst
& Young LLP as Consolidateds independent registered public accounting
firm (see page
152
); and
-
FOR the proposal
to adjourn or postpone the annual meeting, if necessary or appropriate, for,
among other
reasons,
the solicitation of additional proxies (see page
153
).
You should read
the section entitled The MergersConsolidateds Reasons for the Mergers for a
discussion of the factors that Consolidateds board considered in deciding to
recommend voting FOR the approval of the issuance of Consolidated common stock
to SureWest shareholders in the First Merger contemplated by the Merger
Agreement.
Unless you give other instructions on your proxy card, the persons named
as proxy holders on the enclosed proxy card will vote in accordance with the
recommendations of the board of directors.
13
What happens if additional matters are
presented at the annual meeting?
Other than the four proposals described in this joint proxy
statement/prospectus, Consolidated is not aware of any other business to be
acted upon at the annual meeting. If you grant a proxy, the persons named as
proxy holders on the enclosed proxy card will vote your shares on any additional
matters properly presented for a vote at the meeting as recommended by the board
or, if no recommendation is given, in their own discretion.
Pursuant to the provisions of Rule 14a-4(c) under the Exchange Act, with
respect to any other matter that properly comes before the meeting, the proxy
holders will vote as recommended by the board of directors or, if no
recommendation is given, in their own discretion.
Will anyone contact me regarding this
vote?
The Company has retained Morrow & Co., LLC, 470 West Ave., Stamford,
CT 06902 to aid in the solicitation of proxies and to verify certain records
related to the solicitation. The Company will pay Morrow & Co., LLC a fee of
$8,500 as compensation for its services and will reimburse it for its reasonable
out-of-pocket expenses. Such solicitations may be made by mail, telephone,
facsimile, e-mail, the Internet or personal interviews.
Who will tabulate and certify the vote?
Representatives of Computershare Trust Company, N.A., Consolidateds
transfer agent, will tabulate the votes and act as Inspector of Elections.
Will I receive a copy of Consolidateds
2011 Annual Report to Stockholders?
Consolidateds 2011 annual report to stockholders for the fiscal year
ended December 31, 2011 is enclosed with this joint proxy statement/prospectus.
The annual report includes Consolidateds audited financial statements, along
with other financial information about Consolidated, which Consolidated urges
you to read carefully.
How can I receive a copy of
Consolidateds Annual Report on Form 10-K?
Consolidateds annual report on Form 10-K for the fiscal year ended
December 31, 2011, as filed with the SEC on March 5, 2012, is included in the
2011 annual report to stockholders, which accompanies this joint proxy
statement/prospectus.
You can also obtain, free of charge, a copy of Consolidateds annual
report on Form 10-K, including all exhibits filed with it, by:
-
accessing the investor relations section of Consolidateds website at
http://ir.consolidated.com and clicking on the SEC Filings
link;
-
accessing the materials online at
www.edocumentview.com/cnsl;
-
writing to:
Consolidated Communications
Holdings, Inc. Investor Relations
121 South 17th Street
Mattoon,
Illinois 61938; or
-
telephoning Consolidated at:
(217) 258-9522.
You can also obtain a copy of Consolidateds annual report on Form 10-K
and other periodic filings that Consolidated makes with the SEC from the SECs
EDGAR database at http://www.sec.gov.
14
Who can I contact if I have any questions?
Morrow & Co., LLC
470 West Ave.
Stamford, CT 06902
Banks and brokers please call: (203) 658-9400
Stockholders please call: (800) 607-0088
15
SUMMARY
This summary highlights selected information from this joint proxy
statement/prospectus and may not contain all the information that is important
to you. To understand the Mergers fully and for a more complete description of
the legal terms of the Mergers, you should carefully read this entire joint
proxy statement/prospectus and the other documents to which you are referred.
See also Where You Can Find More Information on page
176
. Page references
are included to direct you to a more complete description of the topics
presented in this summary.
General
What SureWest Shareholders Will
Receive in the Mergers (page
76
)
At the effective time of the First Merger,
each issued and outstanding share of SureWest common stock (other than shares held in SureWests treasury or owned by any
SureWest subsidiary, Consolidated, Merger Sub I or Merger Sub II) will be converted into the right to receive, at the holders
election, either (i) $23.00 in cash, without interest, or (ii) shares of Consolidated common stock having an equivalent value
based on average trading prices for the 20-day period ending two days before the closing date of the First Merger, subject to
a collar so that there will be a maximum exchange ratio of 1.40565 shares of Consolidated common stock for each share of SureWest
common stock and a minimum of 1.03896 shares of Consolidated common stock for each share of SureWest common stock, subject to
certain exceptions and subject to proration so that 50% of the SureWest shares (treating equity award shares as outstanding) will
be exchanged for cash and 50% for stock. All holders of SureWest equity award shares will be paid in cash and shall not be subject
to such proration. Because equity award shares reduce the number of outstanding SureWest shares that will convert to cash, it
is expected that approximately
46%
of outstanding SureWest shares (exclusive of
equity award shares) will convert into the right to receive cash, and
54%
will convert into the right to receive stock. In order to
preserve the tax-free nature of the transaction, the Merger Agreement also provides for a general consideration adjustment in
certain circumstances, as further described under The Mergers SureWest Shareholders Making Cash and Stock Elections
General Consideration Adjustment on page
81
.
In this joint proxy statement/prospectus, when the term Merger
Consideration is used with respect to a given share of SureWest common stock,
it means either the cash consideration (with respect to a share of SureWest
common stock representing the right to receive the cash consideration) or the
stock consideration (with respect to a share of SureWest common stock
representing the right to receive the stock consideration).
Ownership of Consolidated Following
the Mergers (page
77
)
Based on the number of shares of SureWest common stock and Consolidated
common stock outstanding on the record date, it is anticipated that, immediately
following the First Merger, SureWest shareholders who receive stock
consideration in the First Merger will own in the aggregate between
approximately
20.5
%
and
25.8
% of the
outstanding shares of Consolidated common stock.
Material United States Federal
Income Tax Consequences (page
85
)
Each
of Orrick, Herrington & Sutcliffe LLP, tax counsel to Sure West, and Schiff Hardin LLP, tax counsel to Consolidated,
are delivering an opinion that the First Merger and the Second Merger taken together will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.
The U.S.
federal income tax consequences of a reorganization to a SureWest shareholder will depend on the relative mix of cash and
Consolidated common stock received by such SureWest shareholder. Assuming that the Mergers qualify as a reorganization,
SureWest shareholders should not recognize any gain or loss for U.S. federal income tax purposes if they exchange their
SureWest shares solely for shares of Consolidated common stock in the First Merger, except with respect to cash received in
lieu of fractional shares of Consolidated common stock. SureWest shareholders will recognize gain or loss if they exchange
their SureWest shares solely for cash in the First Merger. SureWest shareholders will recognize gain, but not loss, if they
exchange their SureWest shares for a combination of Consolidated common stock and cash, but their taxable gain in that case
will not exceed the cash they receive in the Mergers.
The tax opinions regarding the Mergers do not address any state,
local or foreign tax consequences of the Mergers. The tax opinions are subject to customary qualifications and
assumptions, including that the Mergers will be completed according to the terms of the Merger Agreement. In rendering the tax opinions, each counsel rely on representations of Sure West,
16
Merger Sub I, Merger Sub II and Consolidated. If any such assumption or representation is or becomes inaccurate, the U.S. federal income tax consequences of the Mergers could be adversely affected. An opinion of counsel represents counsel’s best legal judgment but is not binding on the Internal Revenue Service or on any court. Neither Sure West nor Consolidated intends to request any ruling from the Internal Revenue Service as to the U.S. federal income tax consequences of the Mergers. Consequently, no assurance can be given that the Internal Revenue Service will not assert, or that a court will not sustain, a position contrary to any of the tax consequences set forth in this joint proxy statement/prospectus.
The tax consequences of the Mergers
to each SureWest shareholder will depend on such SureWest shareholders own
situation. SureWest shareholders should consult with their own tax advisors for
a full understanding of the tax consequences of the Mergers to
them.
Recommendation of the SureWest Board
of Directors (page
51
)
The board of directors of SureWest unanimously recommends that
SureWest shareholders vote FOR each of (i) the approval of the Merger
Agreement, the Merger Certificate and the transactions contemplated thereby,
including the First Merger; (ii) the approval, by an advisory vote, of the
change in control severance payments to SureWests named executive officers; and
(iii) the approval of the adjournment or postponement of the SureWest special
meeting, if necessary or appropriate, to, among other reasons, solicit
additional proxies.
Recommendations of the Consolidated Board of Directors
(page
13
)
The board of
directors of Consolidated unanimously recommends that Consolidated stockholders
vote FOR each of (i) the issuance of Consolidated common stock to SureWest
shareholders in the First Merger contemplated by the Merger Agreement; (ii) the
election of Richard A. Lumpkin as Class I director of Consolidated; (iii) the
ratification of the appointment of Ernst & Young LLP as Consolidateds
independent registered public accounting firm for the fiscal year ending
December 31, 2012; and (iv) the proposal to adjourn or postpone the annual
meeting, if necessary or appropriate, to, among other reasons, solicit
additional proxies.
Opinion of Financial Advisor to
SureWest (page
56
and Annex II)
On February 5, 2012, at a meeting of the SureWest board of directors held
to evaluate the Mergers, UBS Securities LLC (UBS) delivered an oral opinion to
the SureWest board of directors, which opinion was confirmed by delivery of a
written opinion, dated February 5, 2012, to the effect that, as of that date and
based upon and subject to the various assumptions, matters considered and
limitations described in its opinion, the Merger Consideration, taken in the
aggregate, to be received by holders of SureWest common stock in the First
Merger was fair, from a financial point of view, to such holders.
The full text of UBS opinion to the SureWest board of directors
describes the assumptions made, procedures followed, matters considered and
limitations on the review undertaken by UBS. This opinion is attached as Annex
II to this joint proxy statement/prospectus and incorporated by reference
herein.
Holders of SureWest common stock are
encouraged to read UBS opinion carefully in its entirety. UBS opinion was
provided for the benefit of the SureWest board of directors (in its capacity as
such) in connection with, and for the purpose of, its evaluation of the fairness
of the Merger Consideration to be received by holders of SureWest common stock
in the First Merger from a financial point of view and does not address any
other aspect of the Mergers. The opinion does not address the relative merits of
the Mergers as compared to other business strategies or transactions that might
be available with respect to SureWest or SureWests underlying business decision
to effect the Mergers. The opinion does not constitute a recommendation to any
shareholder of SureWest as to how such shareholder should vote or act with
respect to the Mergers. In addition, the opinion does not address, or constitute
a recommendation with respect to, any particular shareholder election.
You are encouraged to read the opinion in its
entirety, which is attached to this joint proxy statement/prospectus as Annex
II, and the description thereof in the section titled The Mergers Opinion of
Financial Advisor to SureWest.
Opinion of Financial Advisor to
Consolidated (page
64
and Annex III)
On February 5, 2012, Wells Fargo Securities, LLC (Wells Fargo
Securities) delivered its written opinion to the board of directors of
Consolidated to the effect that, as of February 5, 2012, and based on and
subject to various assumptions made, procedures followed, matters considered and
limitations on the review undertaken by Wells
17
Fargo Securities in connection
with the opinion, the experience of its investment bankers and other factors it
deemed relevant, the Merger Consideration to be paid pursuant to the Merger
Agreement was fair, from a financial point of view, to Consolidated.
The full text of the written opinion of Wells Fargo Securities sets forth
assumptions made, procedures followed, matters considered and limitations on the
review undertaken in connection with the opinion. This written opinion is
attached as Annex III to this joint proxy statement/prospectus and is
incorporated by reference in its entirety into this joint proxy
statement/prospectus. Wells Fargo Securities provided its opinion for the
information and use of the board of directors of Consolidated in connection with
its evaluation of the Mergers. Wells Fargo Securities opinion only addresses
the fairness, from a financial point of view, to Consolidated of the Merger
Consideration to the extent expressly specified in its opinion, and does not
address any other terms or aspects of the Mergers. Wells Fargo Securities
opinion does not address the merits of the underlying decision by Consolidated
to enter into the Merger Agreement or the relative merits of the Mergers or
contemplated financings compared with other business strategies or transactions
available or that have been or might be considered by the management or the
board of directors of Consolidated. Wells Fargo Securities opinion did not and
does not constitute a recommendation as to how any holder of shares of
Consolidated common stock should vote with respect to the issuance of shares of
Consolidated common stock pursuant to the First Merger and the Merger Agreement
or any other matter. You are encouraged to read the opinion in its entirety,
which is attached to this joint proxy statement/prospectus as Annex III, and the
description thereof in the section titled The Mergers Opinion of Financial
Advisor to Consolidated.
Interests of SureWest Directors and
Executive Officers in the Merger (page
71
)
In considering the recommendation of the SureWest board of directors with
respect to the Merger Agreement, you should be aware that some of SureWests
directors and executive officers have interests in the Merger that are different
from, or in addition to, those of SureWest shareholders generally. The SureWest
board of directors was aware of these interests and considered them, among other
matters, in reaching its decision to approve the Merger Agreement, the Merger
Certificate and the transactions contemplated thereby, including the First
Merger and to recommend that SureWest shareholders vote
FOR
the approval of the
Merger Agreement, the Merger Certificate and the transactions contemplated
thereby, including the First Merger.
Comparison of Rights of Common
Shareholders of
SureWest and
Common Stockholders of Consolidated
(page
115
)
SureWest
shareholders rights are currently governed by the SureWest articles of
incorporation, the SureWest bylaws and California law. Those SureWest
shareholders who receive stock consideration in the First Merger will, upon
completion of the First Merger, become stockholders of Consolidated and their
rights will be governed by the Consolidated certificate of incorporation, the
Consolidated bylaws and Delaware law.
The SureWest Special Meeting (page
127
)
The special meeting of SureWest shareholders will be held on
June 12
, 2012 at
10:00 a.m.
,
Pacific time, at SureWests corporate headquarters, 8150 Industrial
Avenue, Building A, Roseville, California 95678. At the special meeting,
SureWest shareholders will be asked to (i) vote upon the proposal to approve the
Merger Agreement, the Merger Certificate and the transactions contemplated
thereby, including the First Merger; (ii) cast an advisory vote to approve the
change in control severance payments to SureWests named executive officers; and
(iii) vote to approve the adjournment or postponement of the special meeting, if
necessary or appropriate, for, among other reasons, the solicitation of
additional proxies.
The Consolidated Annual Meeting (page
134
)
The 2012 annual meeting of stockholders of Consolidated will be held at
Consolidateds corporate headquarters, 121 South 17th Street, Mattoon, Illinois
61938 on
June 12
, 2012 at
9:00 a.m.
, Central time. The 2012 annual meeting of stockholders
is being held for the following purposes: (i) to approve the issuance of
Consolidated common stock to SureWest shareholders in the First Merger
contemplated by the Merger Agreement; (ii) to elect Richard A. Lumpkin as Class
I director to serve for a term of three years, in accordance with Consolidateds
amended and restated certificate of incorporation and amended and restated
bylaws; (iii) to ratify the appointment of Ernst & Young LLP as
Consolidateds independent registered public accounting firm for the fiscal year
ending
18
December 31, 2012; (iv) to approve the adjournment or postponement of the
annual meeting, if necessary or appropriate, for, among other reasons, the
solicitation of additional proxies in the event that there are not sufficient
votes at the time of the annual meeting to approve the issuance of Consolidated
common stock to SureWest shareholders in the First Merger contemplated by the
Merger Agreement; and (v) to transact such other business as may properly be
brought before the Consolidated annual meeting and any adjournment or
postponement thereof.
Record Dates; Shares Entitled to Vote;
Required Vote with respect to the Mergers; Quorums (pages
127
and
134
)
SureWest
shareholders are entitled to vote at the special meeting if they owned shares of SureWest common stock at the close of business
on April 23, 2012, the record date. On the record date, there were
14,330,035
shares of SureWest common stock outstanding. Shareholders will be entitled to one vote for each share of SureWest common stock
that they owned on the record date on all matters submitted to a vote at the special meeting.
To approve the Merger Agreement, the Merger Certificate and the
transactions contemplated thereby, including the First Merger, holders of a
majority of the outstanding shares of SureWest common stock must vote their
shares
FOR
the approval of the Merger Agreement, the Merger Certificate and the
transactions contemplated thereby, including the First Merger. The presence at
the special meeting on
June 12
, 2012, in person or by proxy, of shareholders
entitled to cast at least a majority of the votes that all shareholders are
entitled to cast at the special meeting will constitute a quorum, which is
necessary to hold the meeting. In the event that a quorum is not present at the
special meeting, SureWest expects that the special meeting will be adjourned or
postponed to solicit additional proxies.
Consolidated stockholders are entitled to vote at the annual meeting if
they owned shares of Common Stock common stock at the close of business on April
23, 2012, the record date. As of April 23, 2012, the record date,
29,951,282
shares of
Consolidateds common stock were outstanding. Each outstanding share of
Consolidateds common stock entitles its holder to cast one vote on each matter
to be voted upon at the annual meeting.
To approve the issuance of Consolidated common stock to SureWest
shareholders in the First Merger contemplated by the Merger Agreement, the
approval of a majority of the votes present, in person or by proxy, and entitled
to vote is required. The presence at the meeting, in person or by proxy, of the
holders of a majority of the shares of common stock outstanding on the record
date will constitute a quorum. In the event that a quorum is not present at the
annual meeting, Consolidated expects that the annual meeting will be adjourned
or postponed to solicit additional proxies.
Shares Owned by SureWest Directors and
Executive Officers (page
128
)
At the
close of business on the record date, directors and executive officers of SureWest beneficially owned and were entitled to vote,
in the aggregate,
861,384
shares of SureWest common stock, which represented approximately
6.01
%
of the shares of SureWest common stock outstanding on that date. The directors and executive officers of SureWest have informed
SureWest that they intend to vote all of their shares of SureWest common stock
FOR
the Merger Agreement, the
Merger Certificate and the transactions contemplated thereby, including the First Merger.
Shares Owned by Consolidated Directors
and Executive Officers
(page
135
)
At the close of business on the record date,
directors and executive officers of Consolidated beneficially owned and were entitled to vote, in the aggregate,
2,519,149
shares of Consolidated common stock, which represented approximately
8.4
%
of the shares of Consolidated common stock outstanding on that date. The directors and executive officers of Consolidated have
informed Consolidated that they intend to vote all of their shares of Consolidated common stock
FOR
the approval
of the issuance of Consolidated common stock to SureWest shareholders in the First Merger contemplated by the Merger Agreement.
The Mergers
(page
43
)
The Merger Agreement is attached as Annex I to this joint proxy
statement/prospectus. You are encouraged to read the Merger Agreement carefully
and in its entirety because it is the principal document governing the Mergers.
19
Conditions to the
Mergers
(page
99
)
SureWest and Consolidated are obligated to complete the
Mergers
only
if
certain conditions precedent are satisfied or waived, including the following:
-
the Merger
Agreement has been approved by the affirmative vote of a majority of the
outstanding shares of SureWest common stock at the special meeting;
-
the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the HSR Act), has expired or
has been terminated (this condition has been satisfiedsee The Mergers
Regulatory Approvals Required for the Mergers United States
Antitrust);
-
the approvals of the Federal Communications
Commission (the FCC), the California Public Utility Commission (the
California PUC) and any other state regulator required to permit
consummation of the Mergers have been obtained;
-
no order, injunction, statute, rule, regulation or
decree shall have been issued, enacted, entered, promulgated or enforced by a
governmental entity that prohibits or makes illegal the consummation of the
Mergers;
-
Consolidateds registration statement on Form S-4,
of which this joint proxy statement/prospectus forms a part, has been declared
effective by the SEC and no stop order suspending the effectiveness of the
registration statement is in effect, and no proceeding for such purpose is
pending or threatened by the SEC;
-
the issuance of Consolidated common stock to
SureWest shareholders in the First Merger contemplated by the Merger Agreement
has been approved by a majority of the votes present, in person or by proxy,
and entitled to vote at the annual meeting of stockholders of Consolidated;
-
the shares of Consolidated common stock to be
issued in the First Merger have been approved for listing on NASDAQ Global
Select Market; and
-
other contractual conditions set forth in
the Merger Agreement have been satisfied or waived.
Termination; Termination Fees;
Expenses (page
100
)
The Merger Agreement contains provisions addressing the circumstances
under which Consolidated or SureWest may terminate the Merger Agreement. In
addition, the Merger Agreement provides that, in certain circumstances, SureWest
may be required to pay Consolidated a termination fee of $14,675,000.
No Solicitation; Changes in
Recommendation (page
94
)
The Merger Agreement contains certain restrictions on SureWests ability
to solicit or engage in discussions or negotiations with a third party regarding
specified transactions involving SureWest. Notwithstanding these restrictions,
under certain circumstances, the SureWest board of directors may (i) respond to
an unsolicited bona fide proposal for an alternative acquisition or (ii)
terminate the Merger Agreement and enter into an agreement with respect to a
superior proposal (in which case SureWest will be required to pay to
Consolidated the termination fee described above).
Regulatory Approvals Required for
the Mergers (page
83
)
United States
antitrust laws prohibit Consolidated and SureWest from completing the Mergers
until they have furnished certain information and materials to the Antitrust
Division of the Department of Justice and the Federal Trade Commission under the
HSR Act and a required waiting period has ended. SureWest and Consolidated filed
the required notification and report forms with the Antitrust Division of the
Department of Justice and the Federal Trade Commission on February 15, 2012. The
required waiting period expired on March 16, 2012.
20
Completion of the Mergers is also conditioned upon the receipt of the
following approvals of the FCC, the California PUC, the Kansas Corporation
Commission (KCC) and certain local municipalities in Kansas. On February 10,
2012, SureWest and its subsidiaries that are regulated by the California PUC,
and Consolidated and certain of its subsidiaries, jointly filed an application
with the California PUC for required approvals in connection with the transfers
of control of those subsidiaries to Consolidated, as required under the
California Public Utility Code. On February 16, 17 and 22, 2012, Consolidated
and SureWest jointly filed the applications to transfer control of
SureWest’s
FCC authorizations to Consolidated. On February 23, 2012, Consolidated and
SureWest filed notice with the KCC requesting that a no action letter be issued
indicating that no further action is required by the KCC because of SureWests
statutory classification as a competitive local exchange carrier pursuant to
K.S.A. 66-1,187, et seq. On February 23, 2012, Consolidated and SureWest filed
notice with the Kansas municipalities of Lenexa, Overland Park and Shawnee, each
of which require city council approval to transfer
legacy local cable franchises there. SureWests
authority to provide video service in the Kansas
municipalities of Olathe, Fairway, Merriam, Mission, Prairie Village, Roeland
Park and Westwood is pursuant to a Video Service Authorization issued by the
KCC. Requisite notice on transferring the Video Service Authorization was
provided to the KCC on February 23, 2012.
Debt Financing (page
103
)
The Merger
Agreement is not subject to any financing contingency. Consolidated intends to finance the cash portion of the Merger Consideration
with debt and cash on hand. With respect to the debt financing, Consolidated has obtained a commitment for the financing necessary
to complete the transaction from Morgan Stanley Senior Funding, Inc., which provides for a senior unsecured bridge facility in
an aggregate principal amount of $350,000,000 that can be used to finance a portion of the aggregate cash consideration of, and
to pay the fees and expenses in connection with, the transactions contemplated by the Merger Agreement and to repay existing indebtedness
of SureWest. The terms of this commitment are described further under Debt Financing on page
103
.
The financing commitment permits Consolidated to secure other funding in lieu of drawing on the financing commitment, and Consolidateds
current credit agreement also permits it to do so. Before
or shortly after
the completion
of the Mergers, Consolidated expects to
conduct
a private
placement
of Rule 144A
notes.
Dissenters Rights of SureWest
Shareholders (page
125
)
If you do not wish to accept the $23.00 per share Merger Consideration in
the First Merger, you have the right under California law to have your shares
appraised by a California court, provided that you comply with certain
procedures. These dissenters rights are subject to a number of restrictions and
technical requirements. Generally, in order to exercise dissenters rights,
among other things, (a) you must not vote in favor of the Merger Agreement, the
Merger Certificate and the transactions contemplated thereby, including the
First Merger, (b) you must make a written demand for appraisal in compliance
with California law within 30 days of notification that the Merger Agreement has
been approved, (c) you must submit the certificates representing your dissenting
shares to SureWest within 30 days of notification that the Merger Agreement has
been approved, (d) you must hold shares of SureWest common stock on the record
date and continuously hold such shares through the completion of the First
Merger and (e) demands for payment must be filed with respect to at least five
percent of the outstanding shares of SureWest common stock. The fair value of
your shares of SureWest common stock as determined in accordance with California
law may be more or less than, or the same as, the Merger Consideration to be
paid to non-dissenting shareholders in the First Merger. Annex IV to this proxy
statement contains a copy of the California statute relating to shareholders
dissenters rights. Failure to follow all of the steps required by this statute
will result in the loss of your dissenters rights.
21
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL INFORMATION OF
CONSOLIDATED COMMUNICATIONS HOLDINGS, INC.
The selected
financial data set forth below has been derived from Consolidateds audited
historical financial statements and related notes. The selected historical
financial information as of December 31, 2011 and 2010 and for the three years
ended December 31, 2011 is derived from the audited historical financial
statements and related notes of Consolidated incorporated by reference into this
joint proxy statement/prospectus. The selected historical financial information
as of December 31, 2009, 2008 and 2007 and for the two years ended December 31,
2008 is derived from audited historical financial statements and related notes
of Consolidated which were previously filed with the SEC but are not included or
incorporated by reference into this joint proxy statement/prospectus. Historical
results are not necessarily indicative of the results to be expected in future
periods.
|
|
Year ended
December 31,
|
(In millions, except
per share amounts)
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
2007
(5)
|
Telephone operations revenues
|
|
$
|
342.6
|
|
|
$
|
349.6
|
|
|
$
|
364.6
|
|
|
$
|
379.0
|
|
|
$
|
288.2
|
|
Other operations
revenues
|
|
|
31.7
|
|
|
|
33.8
|
|
|
|
41.6
|
|
|
|
39.4
|
|
|
|
41.0
|
|
Total operating revenues
|
|
|
374.3
|
|
|
|
383.4
|
|
|
|
406.2
|
|
|
|
418.4
|
|
|
|
329.2
|
|
|
|
Cost of products and services (exclusive of
depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
amortization shown separately below)
|
|
|
139.3
|
|
|
|
142.3
|
|
|
|
145.5
|
|
|
|
143.5
|
|
|
|
107.3
|
|
Selling, general and administrative expense
|
|
|
81.1
|
|
|
|
88.0
|
|
|
|
104.8
|
|
|
|
108.8
|
|
|
|
89.6
|
|
Debt refinancing costs
|
|
|
2.6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Intangible asset impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6.1
|
|
|
|
-
|
|
Depreciation and
amortization
|
|
|
88.7
|
|
|
|
87.2
|
|
|
|
85.2
|
|
|
|
91.7
|
|
|
|
65.7
|
|
Income from operations
|
|
|
62.6
|
|
|
|
65.9
|
|
|
|
70.7
|
|
|
|
68.3
|
|
|
|
66.6
|
|
|
|
Interest expense, net (1)
|
|
|
(49.4
|
)
|
|
|
(50.7
|
)
|
|
|
(57.9
|
)
|
|
|
(66.3
|
)
|
|
|
(46.5
|
)
|
Other income (loss), net
(2)
|
|
|
28.6
|
|
|
|
27.0
|
|
|
|
25.5
|
|
|
|
10.8
|
|
|
|
(3.4
|
)
|
Income before income taxes and extraordinary
item
|
|
|
41.8
|
|
|
|
42.2
|
|
|
|
38.3
|
|
|
|
12.8
|
|
|
|
16.7
|
|
Income tax
expense
|
|
|
14.8
|
|
|
|
9.0
|
|
|
|
12.4
|
|
|
|
6.6
|
|
|
|
4.7
|
|
Income before extraordinary item
|
|
|
27.0
|
|
|
|
33.2
|
|
|
|
25.9
|
|
|
|
6.2
|
|
|
|
12.0
|
|
Extraordinary item, net of
tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7.2
|
|
|
|
-
|
|
Net income
|
|
|
27.0
|
|
|
|
33.2
|
|
|
|
25.9
|
|
|
|
13.4
|
|
|
|
12.0
|
|
Net income of
noncontrolling interest (3)
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
1.0
|
|
|
|
0.9
|
|
|
|
0.6
|
|
Net income
attributable to common shareholders (3)
|
|
$
|
26.4
|
|
|
$
|
32.6
|
|
|
$
|
24.9
|
|
|
$
|
12.5
|
|
|
$
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common sharebasic: (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share before
extraordinary item
|
|
$
|
0.88
|
|
|
$
|
1.09
|
|
|
$
|
0.84
|
|
|
$
|
0.18
|
|
|
$
|
0.43
|
|
Extraordinary item per
share
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.24
|
|
|
|
-
|
|
Net
income per common sharebasic
|
|
$
|
0.88
|
|
|
$
|
1.09
|
|
|
$
|
0.84
|
|
|
$
|
0.42
|
|
|
$
|
0.43
|
|
Basic weighted-average
number of shares
|
|
|
29,600
|
|
|
|
29,490
|
|
|
|
29,396
|
|
|
|
29,321
|
|
|
|
25,764
|
|
|
Income per common sharediluted:
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share before
extraordinary item
|
|
$
|
0.88
|
|
|
$
|
1.09
|
|
|
$
|
0.84
|
|
|
$
|
0.18
|
|
|
$
|
0.43
|
|
Extraordinary item per
share
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.24
|
|
|
|
-
|
|
Net
income per common sharediluted
|
|
$
|
0.88
|
|
|
$
|
1.09
|
|
|
$
|
0.84
|
|
|
$
|
0.42
|
|
|
$
|
0.43
|
|
Diluted weighted-average number of common
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common equivalent shares
|
|
|
29,600
|
|
|
|
29,490
|
|
|
|
29,396
|
|
|
|
29,321
|
|
|
|
25,764
|
|
|
Cash dividends per
common share
|
|
$
|
1.55
|
|
|
$
|
1.55
|
|
|
$
|
1.55
|
|
|
$
|
1.55
|
|
|
$
|
1.55
|
|
22
|
|
Year ended
December 31,
|
(In millions, except
per share amounts)
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
2007
(5)
|
Consolidated cash flow data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating
activities
|
|
$
|
130.2
|
|
|
$
|
115.0
|
|
|
$
|
116.3
|
|
|
$
|
92.4
|
|
|
$
|
82.1
|
|
Cash
flows used for investing activities
|
|
|
(41.5
|
)
|
|
|
(40.7
|
)
|
|
|
(41.6
|
)
|
|
|
(48.0
|
)
|
|
|
(305.3
|
)
|
Cash flows used for/from
financing activities
|
|
|
(50.7
|
)
|
|
|
(49.4
|
)
|
|
|
(47.4
|
)
|
|
|
(63.3
|
)
|
|
|
230.9
|
|
Capital
expenditures
|
|
|
42.6
|
|
|
|
41.8
|
|
|
|
42.4
|
|
|
|
48.0
|
|
|
|
33.5
|
|
|
Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
105.7
|
|
|
$
|
67.7
|
|
|
$
|
42.8
|
|
|
$
|
15.5
|
|
|
$
|
34.3
|
|
Total
current assets
|
|
|
168.3
|
|
|
|
136.3
|
|
|
|
107.9
|
|
|
|
78.6
|
|
|
|
99.6
|
|
Net property, plant and
equipment (6)
|
|
|
332.0
|
|
|
|
356.1
|
|
|
|
377.2
|
|
|
|
400.3
|
|
|
|
411.6
|
|
Total
assets
|
|
|
1,194.1
|
|
|
|
1,209.5
|
|
|
|
1,226.6
|
|
|
|
1,241.6
|
|
|
|
1,304.6
|
|
Total
debt (including current portion)
|
|
|
884.7
|
|
|
|
884.1
|
|
|
|
880.3
|
|
|
|
881.3
|
|
|
|
892.6
|
|
Stockholders equity
|
|
|
47.8
|
|
|
|
71.9
|
|
|
|
80.7
|
|
|
|
75.3
|
|
|
|
159.7
|
|
|
|
Other financial data
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (7)
|
|
$
|
189.5
|
|
|
$
|
185.6
|
|
|
$
|
188.8
|
|
|
$
|
189.8
|
|
|
$
|
143.8
|
|
|
|
Other data (as of the end of the period)
(Unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local access lines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
137,179
|
|
|
|
140,660
|
|
|
|
146,766
|
|
|
|
162,067
|
|
|
|
183,070
|
|
Business
|
|
|
90,813
|
|
|
|
96,481
|
|
|
|
100,469
|
|
|
|
102,256
|
|
|
|
103,116
|
|
Total local access lines
|
|
|
227,992
|
|
|
|
237,141
|
|
|
|
247,235
|
|
|
|
264,323
|
|
|
|
286,186
|
|
CLEC
access line equivalents
|
|
|
89,774
|
|
|
|
81,090
|
|
|
|
72,681
|
|
|
|
74,687
|
|
|
|
70,063
|
|
VOIP subscribers
|
|
|
9,199
|
|
|
|
8,640
|
|
|
|
8,665
|
|
|
|
6,510
|
|
|
|
2,494
|
|
IPTV
subscribers
|
|
|
34,356
|
|
|
|
29,236
|
|
|
|
23,127
|
|
|
|
16,666
|
|
|
|
12,241
|
|
ILEC DSL
subscribers
|
|
|
110,913
|
|
|
|
106,387
|
|
|
|
100,122
|
|
|
|
91,817
|
|
|
|
81,337
|
|
Total
connections
|
|
|
472,234
|
|
|
|
462,494
|
|
|
|
451,830
|
|
|
|
454,003
|
|
|
|
452,321
|
|
(1) Interest expense includes amortization
of deferred financing costs totaling $1.4 million for the year ended December
31, 2011, $1.3 million for each of 2010 and 2009, $1.4 million for 2008 and $3.2
million for 2007.
(2) Other income, during 2009, showed
improved earnings of approximately $4.8 million from Consolidateds wireless
partnerships. During 2008, Consolidated recognized income of $13.1 million from
three cellular partnerships acquired as part of the acquisition of North
Pittsburgh
Systems, Inc. (“North Pittsburgh”).
Consolidated also recognized, during 2008, $9.2 million loss on
early extinguishment of debt related to the early redemption of Consolidateds
then outstanding senior notes and the related write-off of unamortized debt
financing costs. During 2007, Consolidated recognized a loss on extinguishment
of debt of $10.3 million related to the debt refinancing from the acquisition of
North Pittsburgh.
(3) Consolidated adopted the Financial
Accounting Standards Boards (FASB) authoritative guidance on the presentation
of noncontrolling interests in consolidated financial statements effective
January 1, 2009. This presentation has been retrospectively applied to all
periods presented.
(4) Consolidated adopted the FASBs
authoritative guidance on the treatment of participating securities in the
calculation of earnings per share on January 1, 2009. This presentation has been
retrospectively applied to all periods presented.
(5) Consolidated acquired all of the
capital stock of North Pittsburgh on December 31, 2007. Balance sheet and other
data as of that date include the accounts of North Pittsburgh. Consolidateds
results of operations include North Pittsburgh beginning January 1,
2008.
23
(6) Property, plant and equipment are
recorded at cost. The cost of additions, replacements, and major improvements is
capitalized, while repairs and maintenance are charged to expenses. When
property, plant and equipment are retired from Consolidateds regulated
subsidiaries, the original cost, net of salvage, is charged against accumulated
depreciation, with no gain or loss recognized in accordance with composite group
life remaining methodology used for regulated telephone plant assets.
(7) Consolidated presents Adjusted EBITDA
(which is a non-GAAP financial measure) for three reasons: Consolidated
believes
it is a useful indicator of Consolidateds historical debt capacity and
Consolidateds ability to service debt and pay dividends; it provides a measure
of consistency in Consolidateds financial reporting; and covenants in
Consolidateds credit facilities contain ratios based on Adjusted EBITDA.
Adjusted EBITDA is defined in
Consolidateds current credit facility as:
Consolidated Net
Income (as defined in Consolidateds credit facility),
(a)
plus
the following, to the extent deducted in arriving at
Consolidated Net Income:
(i)
interest expense, amortization, or write-off of debt discount and non-cash
expense incurred in connection with equity compensation plans;
(ii)
foreign, federal, state and local income taxes;
(iii)
depreciation and amortization;
(iv) all non-cash
charges (excluding any non-cash charge to the extent that it represents an
accrual of or reserve for cash charges in any future period or amortization of a
prepaid cash expense that was paid in a prior period);
(v) transaction fees;
(b)
minus
(in the case of gains) or
plus
(in the case of losses) gain
or loss on any disposition;
(c)
plus
extraordinary losses; and
(d)
minus
the sum of interest income, extraordinary
income or gains as defined by GAAP and all non-cash items increasing net income.
Prior to 2011,
Consolidateds credit facility defined Adjusted EBITDA as:
Consolidated Net
Income (as defined in Consolidateds credit facility)
(a)
plus
the following, to the extent deducted in arriving at Consolidated Net Income:
(i) interest
expense, amortization, or write-off of debt discount and non-cash expense
incurred in connection with equity compensation plans;
(ii) provision
for income taxes;
(iii)
depreciation and amortization;
24
(iv) non-cash
charges for asset impairment; all charges, expenses, and other extraordinary,
non-recurring, and unusual integration costs or losses related to the
acquisition of North Pittsburgh, including all severance payments in connection
with the acquisition, so long as such costs or losses are incurred prior to
December 31, 2009, and do not exceed $12.0 million in the aggregate;
(v) all
non-recurring transaction fees, charges, and other amounts related to the
acquisition of North Pittsburgh (excluding all amounts otherwise included in
accordance with U.S. GAAP in determining Adjusted EBITDA), so long as such fees,
charges, and other amounts do not exceed $18 million in the
aggregate;
(b)
minus
(in the case of gains) or
plus
(in the case of losses) gain
or loss on sale of assets;
(c)
minus
(in the case of gains) or
plus
(in the case of losses)
non-cash income or charges relating to foreign currency gains or losses;
(d)
plus
(in the case of losses) or
minus
(in the case of income)
non-cash minority interest income or loss;
(e)
plus
(in the case of items deducted in arriving at Consolidated Net Income) or
minus
(in the case of items added in arriving at Consolidated Net Income)
non-cash charges resulting from changes in accounting principles;
(f)
plus
extraordinary losses and
minus
extraordinary gains as defined by GAAP;
(g)
plus
(in the case of any period ending on December 31, 2007, and any period ending
during the seven immediately succeeding fiscal quarters of the Company, to the
extent not otherwise included in Adjusted EBITDA) cost savings to be realized by
the Company and its subsidiaries in connection with the acquisition of North
Pittsburgh that are attributable to the integration of the Companys operations
and businesses in Illinois and Texas with the acquired Pennsylvania operations,
which cost savings are deemed to be the amounts set forth on a schedule to the
credit agreement for each such fiscal quarter; and
(h)
minus
interest income.
If Consolidateds
Adjusted EBITDA were to decline below certain levels, there may be violations of
covenants in Consolidateds credit facilities that are based on this measure,
including Consolidateds total net leverage and interest coverage ratios
covenants. The consequences could include a default or mandatory prepayment of
debt or a prohibition on dividends.
Consolidated believes that net cash provided by operating activities is
the most directly comparable financial measure to Adjusted EBITDA under GAAP.
Adjusted EBITDA should not be considered in isolation or as a substitute for
consolidated statement of operations and cash flows data prepared in accordance
with GAAP. Adjusted EBITDA is not a complete measure of profitability because it
does not include costs and expenses identified above, and Adjusted EBITDA is not
a complete net cash flow measure because it does not include reductions for cash
payments for an entitys obligation to service its debt, fund its working
capital, make capital expenditures, make acquisitions, or pay its income taxes
and dividends.
25
The following
table sets forth a reconciliation of Cash Provided by Operating Activities to
Adjusted EBITDA:
|
|
Year ended December
31,
|
(In millions, unaudited)
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
Net
cash provided by operating activities
|
|
$
|
130.2
|
|
|
$
|
115.0
|
|
|
$
|
116.3
|
|
|
$
|
92.4
|
|
|
$
|
82.1
|
|
Non-cash, stock-based
compensation
|
|
|
(2.1
|
)
|
|
|
(2.4
|
)
|
|
|
(1.9
|
)
|
|
|
(1.9
|
)
|
|
|
(4.0
|
)
|
Other
adjustments, net (a)
|
|
|
(11.0
|
)
|
|
|
(0.9
|
)
|
|
|
(1.0
|
)
|
|
|
3.8
|
|
|
|
(9.5
|
)
|
Changes in operating
assets and liabilities
|
|
|
(1.3
|
)
|
|
|
8.6
|
|
|
|
(2.2
|
)
|
|
|
9.9
|
|
|
|
8.5
|
|
Interest expense, net
|
|
|
49.4
|
|
|
|
50.7
|
|
|
|
57.9
|
|
|
|
66.3
|
|
|
|
46.5
|
|
Income taxes
|
|
|
14.8
|
|
|
|
9.0
|
|
|
|
12.4
|
|
|
|
6.6
|
|
|
|
4.7
|
|
EBITDA (b)
|
|
|
180.0
|
|
|
|
180.0
|
|
|
|
181.5
|
|
|
|
177.1
|
|
|
|
128.3
|
|
Adjustments to EBITDA
(c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Integration, restructuring and Sarbanes Oxley (d)
|
|
|
-
|
|
|
|
-
|
|
|
|
7.4
|
|
|
|
4.8
|
|
|
|
1.2
|
|
Debt amendment fees
(e)
|
|
|
2.6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other, net (f)
|
|
|
(23.6
|
)
|
|
|
(24.3
|
)
|
|
|
(24.4
|
)
|
|
|
(19.9
|
)
|
|
|
(6.6
|
)
|
Investment
distributions (g)
|
|
|
28.4
|
|
|
|
27.5
|
|
|
|
22.4
|
|
|
|
17.8
|
|
|
|
6.6
|
|
Loss
on extinguishment of debt (h)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9.2
|
|
|
|
10.3
|
|
Intangible asset
impairment (a)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6.1
|
|
|
|
-
|
|
Extraordinary item (i)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7.2
|
)
|
|
|
-
|
|
Non-cash, stock-based compensation
(j)
|
|
|
2.1
|
|
|
|
2.4
|
|
|
|
1.9
|
|
|
|
1.9
|
|
|
|
4.0
|
|
Adjusted EBITDA
|
|
$
|
189.5
|
|
|
$
|
185.6
|
|
|
$
|
188.8
|
|
|
$
|
189.8
|
|
|
$
|
143.8
|
|
____________________
|
(a)
|
|
Other adjustments, net includes $8.5 million of change
in income taxes for the year ended December 31, 2011. Also, other
adjustments, net includes $6.1 million of intangible asset impairment
charges for year ended December 31, 2008. During Consolidateds annual impairment review for 2008,
Consolidated determined that the projected future cash flows of the
Consolidated Market Response (CMR) business would not be sufficient to
support the carrying value of the goodwill. CMR was sold during
2010.
|
|
|
|
(b)
|
|
EBITDA is defined as net earnings before interest
expense, income taxes, depreciation and amortization on an unadjusted
basis.
|
|
|
|
(c)
|
|
These adjustments reflect those required or permitted by
the lenders under the credit facility in place at the end of each of the
years included in the periods presented.
|
|
|
|
(d)
|
|
In connection with Consolidateds
acquisition of North Pittsburgh, Consolidated incurred certain expenses
associated with integrating and restructuring the businesses. These
expenses include severance and employee relocation expenses,
Sarbanes-Oxley maintenance costs, costs to integrate Consolidateds
technology, administrative and customer service functions and billing
systems.
|
|
|
|
(e)
|
|
Debt amendment fees include $2.6 million in fees
incurred in connection with Consolidateds Amend and Extend refinancing in
June 2011. See Note 11 to the Consolidated Financial Statements included
in Consolidateds Annual Report on Form 10-K for the year ended December
31, 2011.
|
|
|
|
(f)
|
|
Other, net includes the equity earnings from
Consolidateds investments, dividend income, and certain other
miscellaneous non-operating items. Key man life insurance proceeds of $0.6
million received in 2011 and $0.3 million received in 2007 is not deducted
to arrive at Adjusted EBITDA.
|
|
|
|
(g)
|
|
For purposes of calculating Adjusted EBITDA,
Consolidated
includes
all cash dividends and other cash distributions
received from Consolidateds investments. These cash distributions are
primarily from Consolidateds interest in five Verizon Wireless Limited
Partnerships. See Note 6 to the Consolidated Financial Statements included
in Consolidateds 2011 Annual Report on Form 10-K for the year ended
December 31, 2011.
|
26
|
(h)
|
|
Represents the redemption premium and write-off of
unamortized debt issuance costs in connection with the redemption and
retirement of Consolidateds senior notes during 2008 and the write-off of
debt issuance costs in connection with retiring the obligations under
Consolidateds former credit facility and entering into a new credit
facility contemporaneously with the North Pittsburgh
acquisition.
|
|
|
|
(i)
|
|
Upon making the election to discontinue the applicable
accounting guidance for regulated enterprises in accounting for the
effects of certain types of regulation, Consolidated recognized an
extraordinary non-cash gain and began to apply the authoritative guidance
required for the discontinuance of the application of regulatory
accounting.
|
|
|
|
|
|
(j)
|
|
Represents compensation expenses in
connection with Consolidateds Restricted Share Plan. Because of their
non-cash nature, these expenses are excluded from Adjusted
EBITDA.
|
27
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL
INFORMATION OF SUREWEST COMMUNICATIONS
The selected
financial data set forth below has been derived from SureWests audited
historical financial statements and related notes. The selected historical
financial information as of December 31, 2011 and 2010 and for the three years
ended December 31, 2011 is derived from the audited historical financial
statements and related notes of SureWest incorporated by reference into this
joint proxy statement/prospectus. The selected historical financial information
as of December 31, 2009, 2008 and 2007 and for the two years ended December 31,
2008 is derived from audited historical financial statements and related notes
of SureWest which were previously filed with the SEC but are not included or
incorporated by reference into this joint proxy statement/prospectus. Historical
results are not necessarily indicative of the results to be expected in future
periods.
|
|
Year ended
December 31,
|
(In millions, except per share
amounts)
|
|
2011
|
|
|
2010
|
|
2009
|
|
2008
(1)
|
|
2007
|
Total
operating revenues
|
|
$
|
248.1
|
|
|
$
|
243.5
|
|
$
|
241.7
|
|
$
|
230.3
|
|
|
$
|
174.3
|
|
|
Cost
of products and services (exclusive of depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
amortization)
|
|
|
110.3
|
|
|
|
105.7
|
|
|
103.1
|
|
|
92.5
|
|
|
|
60.0
|
|
Selling, general and
administrative expense
|
|
|
59.1
|
|
|
|
60.8
|
|
|
65.3
|
|
|
67.7
|
|
|
|
56.8
|
|
Impairment loss
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
5.5
|
|
Depreciation and amortization
|
|
|
64.0
|
|
|
|
61.8
|
|
|
59.7
|
|
|
55.0
|
|
|
|
43.6
|
|
Income from operations
|
|
|
14.7
|
|
|
|
15.2
|
|
|
13.6
|
|
|
15.1
|
|
|
|
8.4
|
|
|
Interest expense, net
|
|
|
(11.6
|
)
|
|
|
(8.3
|
)
|
|
(11.3
|
)
|
|
(12.1
|
)
|
|
|
(6.5
|
)
|
Other income (expense), net
|
|
|
-
|
|
|
|
(0.1
|
)
|
|
0.4
|
|
|
0.9
|
|
|
|
3.0
|
|
Income from continuing operations before income taxes
|
|
|
3.1
|
|
|
|
6.8
|
|
|
2.7
|
|
|
3.9
|
|
|
|
4.9
|
|
Income tax expense (benefit)
|
|
|
1.3
|
|
|
|
3.4
|
|
|
2.0
|
|
|
3.1
|
|
|
|
(0.4
|
)
|
Net
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations
|
|
|
1.8
|
|
|
|
3.4
|
|
|
0.7
|
|
|
0.8
|
|
|
|
5.3
|
|
Income from discontinued operations
(2)(3)(4)
|
|
|
-
|
|
|
|
-
|
|
|
2.5
|
|
|
18.1
|
|
|
|
57.7
|
|
Net income
|
|
$
|
1.8
|
|
|
$
|
3.4
|
|
$
|
3.2
|
|
$
|
18.9
|
|
|
$
|
63.0
|
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share from
continuing operations
(5)
|
|
$
|
0.13
|
|
|
$
|
0.24
|
|
$
|
0.05
|
|
$
|
0.06
|
|
|
$
|
0.36
|
|
Income per share from discontinued
operations
(5)
|
|
|
-
|
|
|
|
-
|
|
|
0.18
|
|
|
1.28
|
|
|
|
3.99
|
|
Net income per basic share
|
|
$
|
0.13
|
|
|
$
|
0.24
|
|
$
|
0.23
|
|
$
|
1.34
|
|
|
$
|
4.35
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share from
continuing operations
(5)
|
|
$
|
0.13
|
|
|
$
|
0.24
|
|
$
|
0.05
|
|
$
|
0.06
|
|
|
$
|
0.36
|
|
Income per share from discontinued
operations
(5)
|
|
|
-
|
|
|
|
-
|
|
|
0.18
|
|
|
1.28
|
|
|
|
3.98
|
|
Net income per diluted share
|
|
$
|
0.13
|
|
|
$
|
0.24
|
|
$
|
0.23
|
|
$
|
1.34
|
|
|
$
|
4.34
|
|
Cash dividends per share
(6)
|
|
$
|
0.26
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
0.50
|
|
|
$
|
1.00
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
612.1
|
|
|
$
|
603.2
|
|
$
|
622.9
|
|
$
|
633.8
|
|
|
$
|
484.8
|
|
Long-term obligations
|
|
|
196.9
|
|
|
|
189.8
|
|
|
207.4
|
|
|
226.0
|
|
|
|
118.2
|
|
Shareholders’
equity
|
|
|
260.7
|
|
|
|
272.1
|
|
|
269.2
|
|
|
261.3
|
|
|
|
271.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
continuing operating activities
|
|
$
|
81.4
|
|
|
$
|
63.6
|
|
$
|
71.8
|
|
$
|
50.8
|
|
|
$
|
50.8
|
|
Cash
flows (used for)/from continuing investing activities
|
|
|
(70.4
|
)
|
|
|
(46.9
|
)
|
|
(46.6
|
)
|
|
(183.3
|
)
|
|
|
36.4
|
|
Cash flows (used
for)/from financing activities
|
|
|
(9.7
|
)
|
|
|
(21.2
|
)
|
|
(20.0
|
)
|
|
106.0
|
|
|
|
(18.1
|
)
|
Capital expenditures
|
|
|
72.5
|
|
|
|
52.6
|
|
|
58.3
|
|
|
86.5
|
|
|
|
53.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
(7)
|
|
$
|
84.4
|
|
|
$
|
82.5
|
|
$
|
77.9
|
|
$
|
69.2
|
|
|
$
|
57.3
|
|
28
____________________
|
(1)
|
|
In February 2008, SureWest acquired 100% of the issued
and outstanding stock of SureWest Kansas, Inc., formerly Everest
Broadband, Inc. (the Kansas City operations) for a total purchase price
of $181.5 million, including transaction costs. Subsequent to the
acquisition date of February 13, 2008, the operating results for the
Kansas City operations have been included in SureWests consolidated
financial statements.
|
|
|
|
|
|
(2)
|
|
In February 2009, SureWest sold its
fifty-two wireless communication towers (Tower Assets). The operating
results of its Tower Assets are included in income from discontinued
operations for the years ended on or before December 31,
2009.
|
|
|
|
(3)
|
|
In May 2008, SureWest sold the operating
assets of its Wireless business, SureWest Wireless. The operating results
and the net gain from the sale of SureWest Wireless are included in income
from discontinued operations for the years ended on or before December 31,
2008.
|
|
|
|
(4)
|
|
In February 2007, SureWest sold 100% of the
stock of SureWest Directories, its directory publishing business. The
operating results and the net gain from the sale of SureWest Directories
are included in income from discontinued operations for the year ended on
December 31, 2007.
|
|
|
|
(5)
|
|
Basic earnings per share is computed by
dividing the net income applicable to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted
earnings per share (diluted EPS) is computed based on the weighted
average number of common shares plus the effect of dilutive potential
common shares outstanding during the period using the treasury stock
method. Dilutive potential common shares include time and performance
based stock awards and stock units. Diluted EPS excludes the impact of
potential common shares related to SureWests stock options in periods
where the option exercise price is greater than the average market price
of its common stock.
|
|
|
|
(6)
|
|
Cash dividends per share were based on the
actual dividends per share, as declared by SureWests board of directors.
On each date that SureWest paid a cash dividend to the holders of its
common stock, SureWest credited to the holders of restricted stock units
(RSUs) and vested performance share units (collectively units) an
additional number of restricted units equal to the total number of whole
units and additional units previously credited to the holders multiplied
by the dollar amount of the cash dividend per share of common stock
and divided by the SureWest closing share price
. Any
fractional units resulting from such calculation were included in the
additional units.
|
|
|
|
(7)
|
|
In addition to the results reported in
accordance with United States generally accepted accounting principles
(US GAAP or GAAP), SureWest also uses certain non-GAAP measures
including adjusted EBITDA to evaluate operating performance and to
facilitate the comparison of its historical results and trends. These
financial measures are not a measure of financial performance under US
GAAP and should not be considered in isolation or as a substitute for net
income from continuing operations as a measure of performance and net cash
provided by operating activities as a measure of liquidity. The
calculation of these non-GAAP measures may not be comparable to similarly
titled measures used by other companies, including the reconciliation used
by Consolidated. Reconciliations to the most directly comparable GAAP
measure are provided below. Adjusted EBITDA represents net income from
continuing operations excluding amounts for income taxes; depreciation and
amortization; non-cash pension and certain post-retirement benefits;
non-cash stock compensation; severance and other related termination
costs; and all other non-operating income and expenses. Adjusted EBITDA is
a common measure of operating performance in the telecommunications
industry. Adjusted EBITDA helps SureWest evaluate its performance by
removing from its operating results non-cash items and items which do not
relate to its core operating performance.
|
29
|
|
|
|
|
The following table is a reconciliation of
income from continuing operations to adjusted EBITDA (in
millions):
|
|
|
|
|
Year ended
December 31,
|
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
Income from continuing operations
|
|
$
|
1.8
|
|
$
|
3.4
|
|
$
|
0.7
|
|
$
|
0.8
|
|
|
$
|
5.3
|
|
Add
(subtract):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
1.3
|
|
|
3.4
|
|
|
2.0
|
|
|
3.1
|
|
|
|
(0.4
|
)
|
Other (income)
expense, net
|
|
|
11.6
|
|
|
8.4
|
|
|
10.9
|
|
|
11.2
|
|
|
|
3.5
|
|
Depreciation and amortization
|
|
|
64.0
|
|
|
61.8
|
|
|
59.7
|
|
|
55.0
|
|
|
|
43.6
|
|
Impairment
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.5
|
|
Non-cash pension and post-retirement expense (income)
|
|
|
1.4
|
|
|
1.5
|
|
|
2.6
|
|
|
(1.8
|
)
|
|
|
(1.2
|
)
|
Non-cash stock
compensation expense
|
|
|
4.3
|
|
|
2.9
|
|
|
2.0
|
|
|
0.9
|
|
|
|
1.0
|
|
Severance and other related termination
costs
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
84.4
|
|
$
|
82.5
|
|
$
|
77.9
|
|
$
|
69.2
|
|
|
$
|
57.3
|
|
30
SUMMARY UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The following
summary unaudited pro forma condensed combined financial information (summary
pro forma financial information) is based upon the historical consolidated
financial statements of Consolidated and SureWest, which are incorporated by
reference into this proxy statement/prospectus and has been prepared to reflect
the Mergers, based on the purchase method of accounting, with Consolidated
treated as the acquirer. The historical consolidated financial statements have
been adjusted to give effect to pro forma events that are directly attributable
to the Mergers and factually supportable and, in the case of the statement of
income, that are expected to have a continuing impact.
The summary pro forma financial information is derived from the unaudited
pro forma condensed combined financial statements contained in this proxy
statement/prospectus. See Unaudited Pro Forma Condensed Combined Financial
Statements. The summary pro forma financial information should be read in
conjunction with the historical consolidated financial statements and
accompanying notes of Consolidated and SureWest, incorporated by reference into
this proxy statement/prospectus and the unaudited pro forma condensed combined
financial statements. The unaudited pro forma condensed combined statement of
income, which has been prepared for the year ended December 31, 2011, gives
effect to the Mergers as if they had occurred on January 1, 2011. The unaudited
pro forma condensed combined balance sheet has been prepared as of December 31,
2011 and gives effect to the Mergers as if they had occurred on that
date.
As of the date of this proxy statement/prospectus, Consolidated has not
finalized the detailed valuation studies necessary to arrive at the required
fair market value of the SureWest assets to be acquired and the liabilities to
be assumed and the related allocations of the purchase price. Consolidated has
made certain pro forma adjustments to the historical book values of the assets
and liabilities of SureWest to reflect certain preliminary estimates of the fair
value of the net assets acquired, with the excess of the estimated purchase
price over the estimated fair values of SureWests acquired assets and assumed
liabilities recorded as goodwill. See Note 1 to the Unaudited Pro Forma
Condensed Combined Financial Statements. Actual results are expected to differ
from these preliminary estimates once Consolidated has determined the final
purchase price (as determined by the market price of Consolidated common stock
on the closing date of the First Merger) for SureWest and completed the
valuation studies necessary to finalize the required purchase price allocations.
There can be no assurances that such finalization of the valuation studies will
not result in material changes. Consolidated performed a preliminary assessment
of accounting policies and financial statement presentation which has identified
certain adjustments necessary to conform information in SureWests historical
financial statements to Consolidateds combined accounting policies and
presentation. The review of the accounting policies is not yet complete and
additional policy and presentation differences may be identified upon
completion.
The summary pro forma financial information is not intended to represent
or be indicative of the consolidated results of operations or financial
condition of the combined company that would have been reported had the Mergers
been completed as of the dates presented and should not be taken as
representative of the future consolidated results of operations or financial
condition of the combined company.
Upon completion of the Mergers, various triggering events will have
occurred which result in the payment of various Change in Control Agreements to
certain SureWest employees. The estimated payments under these agreements will
range from approximately $12 million to $14 million. No adjustment has been
included in the unaudited pro forma condensed combined financial statements for
these payments.
The summary pro forma financial information does not include the
realization of future cost savings or synergies or restructuring charges that
are expected to result from Consolidateds acquisition of SureWest. The
transaction is expected to generate annual operating synergies of approximately
$25 million, which will be phased in over the first two years after closing as
integration projects are completed. The transaction is also expected to generate
annual capital expenditure synergies of $5 million to $10 million during the
first full fiscal year following the close. Consolidated also expects to incur
merger and integration costs, excluding closing costs, of approximately $20
million to $25 million over the first two years following the close. However, no
assurance can be given with respect to the ultimate level of such synergies or
the timing of their realization.
31
Summary Pro Forma Financial
Information:
|
|
Year
Ended
|
(In millions, except share and per share
amounts)
|
|
December 31, 2011
|
Statement of Income:
|
|
|
|
|
Operating revenues
|
|
$
|
623.6
|
|
|
Operating expenses
(exclusive of depreciation and amortization)
|
|
|
393.6
|
|
Depreciation and amortization
|
|
|
160.0
|
|
Income from
operations
|
|
|
70.0
|
|
|
Interest expense
|
|
|
(84.9
|
)
|
Other income, net
|
|
|
28.7
|
|
Income before income
taxes
|
|
|
13.8
|
|
Income tax expense
|
|
|
5.0
|
|
Net income
|
|
|
8.8
|
|
Less: Net income attributable to noncontrolling
interest
|
|
|
0.6
|
|
Net income attributable to common stockholders
|
|
$
|
8.2
|
|
|
Net income per common
share - basic and diluted
|
|
$
|
0.21
|
|
Shares of common stock used to calculate
earnings per share (in thousands):
|
|
|
|
|
Basic weighted-average
number of shares
|
|
|
38,455
|
|
Diluted
weighted-average number of common and common equivalent
|
|
|
|
|
shares
|
|
|
38,455
|
|
|
Consolidated Balance Sheet (at period
end):
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
58.8
|
|
Total current
assets
|
|
|
159.8
|
|
Net
property, plant and equipment
|
|
|
903.0
|
|
Total assets
|
|
|
1,870.4
|
|
Total
debt and capital lease obligations
|
|
|
1,234.7
|
|
Total
stockholders’
equity
|
|
|
198.1
|
|
32
COMPARATIVE PER SHARE MARKET PRICE,
DIVIDEND AND OTHER DATA
Consolidated
common stock is listed and traded on the NASDAQ Global Select Market under the
symbol CNSL. SureWests common stock is listed and traded on the NASDAQ Global
Select Market under the symbol SURW. The following table sets forth, for the
calendar quarters indicated, (1) the high and low
sales
price per share
of Consolidated common stock as reported on the NASDAQ Global Select Market, and
(2) the high and low
closing
sales
price per share of SureWest common stock as
reported on the NASDAQ Global Select
Market.
On
April
23
,
2012, the last practicable trading day prior to the date of
this joint proxy statement/prospectus, there were
29,951,282
shares of
Consolidated common stock outstanding and 14,330,035 shares of SureWest common
stock outstanding.
|
|
Consolidated
|
|
SureWest
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
For the calendar quarter ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
$
|
19.23
|
|
$
|
16.01
|
|
$
|
10.35
|
|
$
|
7.54
|
June 30, 2010
|
|
|
19.50
|
|
|
16.31
|
|
|
8.70
|
|
|
5.97
|
September 30, 2010
|
|
|
18.75
|
|
|
16.50
|
|
|
7.45
|
|
|
5.66
|
December 31, 2010
|
|
|
19.44
|
|
|
18.20
|
|
|
10.75
|
|
|
7.11
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
19.50
|
|
|
17.25
|
|
|
14.38
|
|
|
10.60
|
June 30, 2011
|
|
|
19.50
|
|
|
17.94
|
|
|
17.50
|
|
|
13.11
|
September 30, 2011
|
|
|
20.02
|
|
|
16.77
|
|
|
16.99
|
|
|
9.33
|
December 31, 2011
|
|
|
19.39
|
|
|
16.83
|
|
|
13.01
|
|
|
9.73
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012
|
|
|
19.92
|
|
|
18.00
|
|
|
22.73
|
|
|
11.96
|
June 30, 2012 (through April
23
, 2012)
|
|
|
19.72
|
|
|
18.62
|
|
|
22.59
|
|
|
22.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the closing
sale price per share of SureWest common stock and Consolidated common stock as of February 3, 2012, the last trading day
prior to the public announcement of the proposed Mergers, and as of
April
23
,
2012, the most recent practicable trading day
prior to the date of this joint proxy statement/prospectus. The table also sets forth the implied value of the Merger
Consideration proposed for each share of SureWest common stock as of the same two dates. This implied value was calculated
by adding (a) 50% of the per share cash consideration, or $23.00 per share and (b) 50% of the value obtained by multiplying
the closing sale price of Consolidated common stock on the relevant date by the applicable exchange ratio, and assuming an
aggregate of 50% cash and 50% stock consideration. For purposes of determining the exchange ratio
used in the table below, the
closing sale price of Consolidated common stock on
the relevant date
was used.
|
|
|
|
|
|
|
|
Implied Value
Per Share
|
|
|
|
|
|
Consolidated
|
|
of
SureWest
|
|
|
SureWest Common Stock
|
|
Common Stock
|
|
Common Stock
|
February 3, 2012
|
|
$
|
15.59
|
|
$
|
19.25
|
|
$
|
23.00
|
April
23
,
2012
|
|
$
|
22.55
|
|
$
|
18.77
|
|
$
|
23.00
|
The market value of the Consolidated common stock to be issued in
exchange for shares of SureWest common stock upon the completion of the First
Merger will not be known at the time of the SureWest special meeting. The above
tables show only historical comparisons. Because the market prices of
Consolidated common stock and SureWest common stock will likely fluctuate prior
to the Mergers, these comparisons may not provide meaningful information to
SureWest shareholders in determining whether to approve the Merger Agreement.
Shareholders
33
are encouraged to obtain current market quotations for Consolidated
common stock and SureWest common stock and to review carefully the other
information contained in this joint proxy statement/prospectus or incorporated
by reference in this joint proxy statement/prospectus. See Where You Can Find
Additional Information.
No assurance can be given as to the market price of Consolidated
common stock or the market price of SureWest common stock at the effective time
of the First Merger. Because the exchange ratio for the stock consideration is
subject to minimum and maximum adjustments for changes in the market price of
Consolidated common stock, the market value of the stock consideration at the
effective time of the First Merger may vary significantly from the market value
of the shares of Consolidated common stock that would have been issued in the
First Merger if the First Merger had been consummated on the date of the Merger
Agreement or on the date of this joint proxy statement/prospectus. The market
price of Consolidated common stock will continue
to fluctuate after the effective time of the First Merger. See Risk Factors
Relating to the Mergers.
As a result of the proration
procedures in the Merger Agreement, even if you properly make a cash election
for all of your SureWest shares, if more than 50% of the outstanding SureWest
shares are subject to cash elections (treating equity award shares as
outstanding, and as electing and receiving cash), you will receive Consolidated
common stock in the First Merger in exchange for some of your SureWest shares.
See The Mergers SureWest Shareholders Making Cash and Stock Elections. In
order to preserve the tax-free nature of the transaction, the Merger Agreement
also provides for a general consideration adjustment in certain circumstances,
as further described under The Mergers SureWest Shareholders Making Cash and
Stock Elections General Consideration Adjustment.
The following table sets forth for
the period presented certain per share information for Consolidated common stock
and SureWest common stock on a historical basis and on an unaudited pro forma
basis after giving effect to the First Merger under the purchase method of
accounting. The historical per share information for Consolidated and SureWest
has been derived from, and should be read in conjunction with, the historical
consolidated financial statements of Consolidated and SureWest incorporated by
reference into this proxy statement/prospectus. See Where You Can Find More
Information. The unaudited pro forma per share information has been derived
from, and should be read in conjunction with, the unaudited pro forma condensed
combined financial information included in this proxy statement/prospectus. See
Unaudited Pro Forma Condensed Combined Financial Statements.
The unaudited pro forma SureWest
equivalent information was calculated by multiplying the corresponding
Consolidated unaudited pro forma combined information by 1.1948, which is the
exchange ratio for the stock consideration in the pro forma condensed combined
financial statements. See Note 2 in the Unaudited Pro Forma Condensed Combined
Financial Statements. It does not reflect the $23.00 per share cash
consideration that SureWest shareholders may elect to receive in the First
Merger (subject to proration). See The Mergers SureWest Shareholders Making
Cash and Stock Elections. This data shows how each share of SureWest common
stock that is converted in the First Merger into shares of Consolidated common
stock would have participated in income from continuing operations, cash
dividends declared and book value of Consolidated if SureWest and Consolidated
had been combined for accounting and financial reporting purposes for the period
presented. These amounts, however, are not intended to be indicative of the
historical results that would have been achieved had the companies actually been
combined for the period presented or of the future results of the combined
company.
|
|
|
|
|
|
|
|
Consolidated
|
|
SureWest
|
|
|
|
|
|
|
|
|
Unaudited
|
|
Unaudited
|
|
|
Consolidated
|
|
SureWest
|
|
Pro
Forma
|
|
Pro
Forma
|
For Year Ended December 31, 2011
|
|
Historical
|
|
Historical
|
|
Combined
|
|
Equivalent
|
Income from continuing
operations per share (basic and
diluted)
|
|
$
|
0.88
|
|
$
|
0.13
|
|
$
|
0.21
|
|
$
|
0.25
|
|
Book value per share at
period end (unaudited)
|
|
|
1.62
|
|
|
18.79
|
|
|
5.15
|
|
|
6.15
|
|
Cash dividends per
share
|
|
|
1.55
|
|
|
0.26
|
|
|
1.55
|
|
|
1.85
|
Consolidated expects to continue to
pay quarterly dividends at an annual rate of $1.5495 per share during 2012 but
only if and to the extent declared by the Consolidated board and subject to
various restrictions on Consolidateds ability to do so. Dividends on
Consolidateds common stock are not cumulative.
34
SureWest is expressly permitted to
continue to pay a quarterly dividend of $0.10 per share under the terms of the
Merger Agreement. However, future dividend payments are at the discretion of the
SureWest board and changes in the dividend program will depend on SureWests
earnings, capital requirements, financial condition, debt covenant and other
factors considered relevant by the SureWest board.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This joint proxy statement/prospectus, and
the documents to which this joint proxy statement/prospectus refers, contain
forward-looking statements within the meaning of the safe harbor provisions of
the United States Private Securities Litigation Reform Act of 1995. Any
statements contained in this joint proxy statement/prospectus, or any such
documents, that are not statements of historical fact, including statements
about Consolidateds and/or SureWests beliefs and expectations, are
forward-looking statements and should be evaluated as such.
Forward-looking statements may be
identified by the use of words such as anticipate, believe, expect,
intend, plan, may, estimate, target, project, should, will,
can, likely, similar expressions and any other statements that predict or
indicate future events or trends or that are not statements of historical facts.
These forward-looking statements are subject to numerous risks and
uncertainties. Such forward-looking statements reflect, among other things,
Consolidateds and/or SureWests current expectations, plans, strategies and
anticipated financial results and involve a number of known and unknown risks,
uncertainties, and factors that may cause Consolidateds and/or SureWests
actual results to differ materially from those expressed or implied by these
forward-looking statements. These risks, uncertainties and factors include, but
are not limited to, the following:
-
Consolidateds and SureWests ability to complete the Mergers;
-
Consolidateds ability to successfully integrate SureWests operations and
to realize the synergies from the acquisition;
-
failure of SureWests shareholders to approve the Merger
Agreement;
-
failure of Consolidateds shareholders to approve the issuance of
Consolidated common stock to SureWest shareholders in the First
Merger;
-
failure to obtain, delays in obtaining or adverse conditions contained in
any required regulatory approvals;
-
final terms of the financing Consolidated uses for the cash portion of the
Merger Consideration and to repay SureWest debt;
-
various risks to shareholders of not receiving dividends;
-
risks to Consolidateds ability to pursue growth opportunities if
Consolidated continues to pay dividends according to its current dividend
policy;
-
the price and volatility of Consolidateds common stock;
-
the substantial amount of Consolidateds debt and Consolidateds ability
to incur additional debt in the future;
-
Consolidateds need for a significant amount of cash to service and repay
its debt and to pay dividends on its common stock;
-
restrictions contained in Consolidateds debt agreements that limit the
discretion of management in operating the business;
-
Consolidateds ability to refinance its existing debt as
necessary;
35
-
rapid development and introduction of new technologies in the
telecommunications industry;
-
intense competition in the telecommunications
industry;
-
unanticipated higher capital spending for, or delays in, the deployment of
new technologies, and the pricing and availability of equipment, materials and
inventories;
-
risks associated with Consolidateds possible pursuit of further
acquisitions;
-
economic conditions in the Consolidated and SureWest service
areas;
-
SureWests ability to continue to successfully penetrate its CLEC markets;
-
system failures;
-
losses of large customers or government contracts;
-
losses of large numbers of other customers, or an inability to secure new
customers at the pace and cost at which they have previously been secured;
-
risks associated with the rights-of-way for the network;
-
disruptions in the relationships with third party vendors;
-
losses of key management personnel and the inability to attract and retain
highly qualified management and personnel in the future;
-
changes in the extensive governmental legislation and regulations
governing telecommunications providers and the provision of telecommunications
services;
-
telecommunications carriers disputing and/or avoiding their obligations to
pay network access charges for use of Consolidateds or SureWests network;
-
high costs of regulatory compliance;
-
the cost and competitive impact of legislation and regulatory changes in
the telecommunications industry;
-
liability and compliance costs regarding environmental regulations; and
-
risks to the Mergers and the surviving company related to litigation in
which Consolidated and SureWest are or may become involved.
These and other uncertainties
related to the businesses of Consolidated and SureWest are described in greater
detail in the section entitled Risk Factors Relating to the Mergers and in the
filings of Consolidated and of SureWest with the SEC, including Consolidateds
and SureWests Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q.
See Where You Can Find More Information. Many of these risks are beyond each
of Consolidateds and SureWests managements ability to control or predict. All
forward-looking statements attributable to Consolidated, SureWest or persons
acting on behalf of them are expressly qualified in their entirety by the
cautionary statements contained, and risk factors identified, in this joint
proxy statement/prospectus and the companies filings with the SEC. Because of
these risks, uncertainties and assumptions, you should not place undue reliance
on these forward-looking statements. Furthermore, forward-looking statements
speak only as of the date they are made. Except as required under the federal
securities laws or the rules and regulations of the SEC, neither Consolidated
nor SureWest undertakes any obligation to update or review any forward-looking
information, whether as a result of new information, future events or otherwise.
36
RISK FACTORS RELATING TO THE MERGERS
In addition to the other
information included in and incorporated by reference into this joint proxy
statement/prospectus, SureWests shareholders should consider carefully the
matters described below in determining whether to approve the Merger Agreement,
the Merger Certificate and the transactions contemplated thereby, including the
First Merger, and in determining whether to make a cash election or a stock
election for each of their shares of SureWest common stock, and Consolidateds
stockholders should consider carefully the matters described below in
determining whether to approve the issuance of Consolidated common stock to
SureWest shareholders pursuant to the Merger Agreement and the First Merger.
Please also refer to the information under the heading Risk Factors set forth
in Item 1A in each of Consolidateds Annual Report on Form 10-K for the fiscal
year ended December 31, 2011 and SureWests Annual Report on Form 10-K for the
fiscal year ended December 31, 2011, each of which is incorporated by reference
into this joint proxy statement/prospectus. See Where You Can Find More
Information on page
176
.
The value of the
Consolidated common stock SureWest shareholders will receive may vary.
If you elect to receive shares of
Consolidated common stock in the First Merger, or if you receive shares of
Consolidated common stock in the First Merger as a result of the proration
procedure, an appropriate number of shares of SureWest common stock you own will
be automatically converted into shares of Consolidated common stock based upon
the exchange ratio. The exchange ratio will generally vary between 1.03896 and
1.40565 and will be equal to the number determined by dividing $23.00 by the
average closing price of Consolidateds common stock for the 20 consecutive
trading days ending two trading days before the closing of the First Merger. As
a result, the value of the shares of Consolidated common stock that you will
receive in the First Merger will not be known at the time you make your election
as to the form of Merger Consideration or at the time you vote on the Merger
Agreement, the Merger Certificate and the transactions contemplated thereby,
including the First Merger, at the special meeting, and the value may go up or
down as the market price of Consolidated common stock fluctuates, subject to the
minimum and maximum exchange ratios. The specific dollar value of Consolidated
common stock you receive upon completion of the First Merger will depend on the
market value of Consolidated common stock at the time of completion of the First
Merger. The share price of Consolidated common stock is by nature subject to the
general price fluctuations in the market for publicly traded equity securities
which has historically experienced some degree of volatility. SureWest and
Consolidated cannot predict the market price of Consolidated common stock at any
time before or after the completion of the First Merger. Differences in the
market price of Consolidated common stock may be the result of changes in the
business, operations or prospects of Consolidated, market reactions to the
proposed Mergers, regulatory considerations, general market and economic
conditions or other factors.
You may receive a form of
consideration different from what you elect, which could have an effect on your
tax situation.
Regardless of the cash or
stock elections made by SureWest shareholders, the Merger Agreement contains
proration procedures that are designed to ensure that (i) 50% of the SureWest
shares outstanding immediately prior to the First Merger, treating the
outstanding SureWest equity award shares as outstanding, are converted in the
First Merger into the right to receive cash and (ii) 50% of the SureWest shares
outstanding immediately prior to the First Merger are converted in the First
Merger into the right to receive Consolidated common stock. As a result, if more
than 50% of SureWests shares are subject to cash elections (treating equity
award shares as outstanding, and as electing and receiving cash), those
shareholders who properly make cash elections will receive Consolidated common
stock for a portion of their SureWest shares. If less than 50% of SureWests
shares are subject to cash elections (treating equity award shares as
outstanding, and as electing and receiving cash), those shareholders who
properly make stock elections will receive cash consideration for a portion of
their SureWest shares. See The Mergers SureWest Shareholders Making Cash and
Stock Elections. In order to preserve the tax-free nature of the transaction,
the Merger Agreement also provides for a general consideration adjustment in
certain circumstances, as further described under The Mergers SureWest
Shareholders Making Cash and Stock Elections General Consideration
Adjustment. There is a risk that you will receive a portion of the Merger
Consideration in the form that you do not elect that could result in, among
other things, tax consequences that differ from those that would have resulted
had you received the form of consideration you elected, including with respect
to the recognition of taxable gain to the extent cash is received.
After making a cash election
or a stock election, you will not be able to sell the SureWest shares covered by
your election, unless you revoke your election at or prior to the election
deadline or unless the Merger Agreement is terminated.
The deadline for making cash elections and stock elections is
5:00 p.m., Eastern time, on the date that is two business days immediately prior
to the closing date of the First Merger (or such other date
37
as Consolidated and
SureWest mutually agree). Consolidated and SureWest will publicly announce the
anticipated election deadline at least five business days prior to the
anticipated closing date of the First Merger. After you make a cash or stock
election and prior to completion of the First Merger, the trading price of
SureWest common stock or Consolidated common stock may decrease, and you may
otherwise want to sell SureWest shares to gain access to cash, make other
investments, or eliminate the potential for a decrease in the value of your
investment. However, once you make an election with respect to any shares of
SureWest common stock, you will not be able to sell those shares, unless you
properly revoke your election at or prior to the election deadline or the Merger
Agreement is terminated. See The Mergers SureWest Shareholders Making Cash
and Stock Elections.
The price of Consolidated
common stock may be affected by factors different from those affecting the price
of SureWest common stock.
Upon
completion of the First Merger, holders of SureWest common stock who elect to
receive Consolidated common stock and, if more than 50% of the SureWest shares
are subject to cash elections, all of the holders of SureWest common stock (as a
result of the proration procedures described herein), will become Consolidated
stockholders. Consolidateds business and results of operations and the market
price of Consolidated common stock may be affected by factors different than
those affecting SureWests business and results of operations and the market
price of SureWest common stock. For a discussion of Consolidateds and
SureWests businesses and certain factors to consider in connection with their
businesses, see the periodic reports and other documents of Consolidated and
SureWest incorporated by reference into this joint proxy statement/prospectus
and listed under Where You Can Find More Information.
The Merger Agreement
contains provisions that could discourage a potential competing acquiror that
might be willing to pay more to effect a business combination with SureWest.
The Merger Agreement contains no
solicitation provisions that restrict SureWests ability to solicit or
facilitate proposals regarding a merger or similar transaction with another
party. Further, several conditions must be satisfied in order for the SureWest
board of directors to withdraw, amend or modify its recommendation regarding the
proposed Mergers. See The Merger AgreementNo Solicitations; Changes in
Recommendation. If the SureWest board of directors withdraws, amends or
modifies its recommendation regarding the proposed Mergers, Consolidated has the
right to terminate the Merger Agreement and receive a $14,675,000 termination
fee from SureWest. These provisions could discourage a potential competing
acquiror from considering or proposing an acquisition of SureWest, even if it
were prepared to pay consideration with a higher value than the cash and shares
proposed to be issued in the First Merger, or might result in a potential
competing acquiror proposing to pay a lower per share price than it might
otherwise have proposed to pay because of the added expense of the termination
fee.
Lawsuits
have been filed against SureWest, members of SureWests board of directors, Consolidated and the Merger Subs challenging
the Mergers.
Any adverse judgment in such lawsuits may prevent the Mergers from becoming effective or from becoming effective
within the expected timeframe. SureWest, the members of the SureWest board of directors, Consolidated and the Merger Subs have
been named as defendants in
six
purported class action lawsuits brought
by individual SureWest shareholders challenging the Mergers and seeking, among other things, to enjoin the defendants from completing
the Mergers pursuant to the terms of the Merger Agreement. One of the conditions to the completion of the First Merger is that
no temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the First Merger
shall have been issued by any court of competent jurisdiction and be in effect. Consequently, if any plaintiffs are successful
in obtaining an injunction prohibiting the parties from completing the First Merger pursuant to the terms of the Merger Agreement,
such an injunction may prevent the completion of the Mergers in the expected timeframe (or altogether), and any other adverse
judgment could adversely affect the value of Consolidateds common stock. See The MergersLegal Proceedings Related
to the Mergers.
The integration of
Consolidated and SureWest following the Mergers may present significant
challenges.
Consolidated may face
significant challenges in combining SureWests operations into its operations in
a timely and efficient manner and in retaining key SureWest personnel. The
failure to integrate successfully Consolidated and SureWest and to manage
successfully the challenges presented by the integration process may result in
Consolidated not achieving the anticipated benefits of the Mergers including
operational and financial synergies.
Restrictions in
Consolidateds debt agreements may prevent Consolidated from paying dividends.
Consolidateds
ability to pay dividends will be
restricted by current and future agreements governing its debt, including its
current credit agreement and the financing agreements expected to be in place
upon consummation of the Mergers. See The Mergers Debt Financing.
Consolidated expects that, giving pro forma effect to the
38
Mergers and related
transactions, including its proposed new credit facilities, as of
January 1,
2012, it would have been
able to pay aggregate dividends of
$183.4 million
on the approximately
39.6
million shares of Consolidated common stock expected
to be outstanding upon consummation of the Mergers.
Consolidated
will have a substantial amount of debt outstanding and may incur additional indebtedness in the future, which could restrict Consolidateds
ability to pay dividends and fund working capital and planned capital expenditures.
As of December 31, 2011, Consolidated
had $880.0 million of long-term debt and $4.7 million of capital leases outstanding along with $47.8 million of stockholders
equity.
In addition to funding the Mergers with approximately $171.0 million in new Consolidated equity, Consolidated will
incur additional debt in the approximate amount of $350.0 million in order to complete the Mergers and repay SureWest’s
debt.
This amount of leverage could have important consequences, including:
-
Consolidated may be required to use a substantial portion of
Consolidateds cash flow from operations to make interest payments on
Consolidateds debt, which will reduce funds available for operations, future
business opportunities and dividends;
-
Consolidated may have limited flexibility to react to changes in
Consolidateds business and its industry;
-
It may be more difficult for Consolidated to satisfy its other
obligations;
-
Consolidated may have a limited ability to borrow additional funds or to
sell assets to raise funds if needed for working capital, capital
expenditures, acquisitions, or other purposes;
-
Consolidated may become more vulnerable to general adverse economic and
industry conditions, including changes in interest rates; and
-
Consolidated may be at a disadvantage compared to its competitors that
have less debt.
Consolidated currently expects its
cash interest expense to be approximately $
62.0
to $
65.0
million in fiscal year 2013 assuming consummation of the
Mergers by
December 31,
2012. Future
interest expense will be significantly higher than historic interest expense as
a result of higher levels of indebtedness incurred to consummate the Mergers.
Consolidateds ability to make payments on its debt and to pay dividends on its
common stock will depend on its ability to generate cash in the future, which
will depend on many factors beyond its control. Consolidated cannot assure you
that:
-
its business will generate sufficient cash flow from operations to service
and repay its debt, pay dividends on its common stock and fund working capital
and planned capital expenditures;
-
future borrowings will be available under its credit facilities or any
future credit facilities in an amount sufficient to enable it to repay its
debt and pay dividends on its common stock; or
-
it will be able to refinance any of its debt on commercially reasonable
terms or at all.
If Consolidated cannot generate
sufficient cash from its operations to meet its debt service obligations,
Consolidated may need to reduce or delay capital expenditures, the development
of its business generally and any acquisitions. If Consolidated becomes unable
to meet its debt service and repayment obligations, Consolidated would be in
default under the terms of its credit agreement, which would allow its lenders
to declare all outstanding borrowings to be due and payable. If the amounts
outstanding under its credit facilities were to be accelerated, Consolidated
cannot assure you that its assets would be sufficient to repay in full the money
owed.
Obtaining required approvals
and satisfying closing conditions may delay or prevent completion of the
Mergers.
Completion of the Mergers is
conditioned upon SureWests shareholders approving, at the special meeting, the
Merger Agreement, the Merger Certificate and the transactions contemplated
thereby, including the First Merger and Consolidateds stockholders approving,
at the annual meeting, the issuance of the common stock to SureWest shareholders
in the First Merger. If the shareholders of SureWest or the stockholders of
Consolidated do not approve these matters at their respective meetings, the
Mergers will not be consummated. Completion of
39
the Mergers is conditioned upon,
among other things, the receipt of certain governmental consents and approvals,
including approval by the FCC and the California PUC. These consents and
approvals may impose conditions on or require divestitures relating to the
divisions, operations or assets of Consolidated or SureWest. Such conditions or
divestitures may jeopardize or delay completion of the Mergers or may reduce the
anticipated benefits of the Mergers. Further, no assurance can be given that the
required consents and approvals will be obtained or that the required conditions
to closing will be satisfied. Even if all such consents and approvals are
obtained, no assurance can be given as to the terms, conditions and timing of
the consents and approvals or that they will satisfy the terms of the Merger
Agreement. See The Merger Agreement Conditions to the Mergers for a
discussion of the conditions to the completion of the Mergers, The Merger
Agreement Commercially Reasonable Efforts to Complete the Mergers; Other
Agreements for a discussion of the parties obligations to cooperate (including
certain limitations thereon) with respect to the receipt of such consents and
approvals, and The Mergers Regulatory Approvals Required for the Mergers for
a description of the regulatory approvals necessary in connection with the
Mergers. If the Mergers are not completed by November 5, 2012, either SureWest
or Consolidated may terminate the Merger Agreement. See The Merger Agreement
Termination; Termination Fees; Expenses.
Consolidated will incur
transaction, integration and restructuring costs in connection with the Mergers.
Consolidated and SureWest expect to
incur costs associated with transaction fees and other costs related to the
Mergers. Specifically, Consolidated expects to incur approximately $
22.2
million of transaction
costs related to the Mergers. In addition, Consolidated will incur integration
and restructuring costs following the completion of the Mergers as it integrates
the businesses of SureWest with those of Consolidated. Although Consolidated
expects that the realization of efficiencies related to the integration of the
businesses will offset incremental transaction, integration and restructuring
costs over time, Consolidated cannot give any assurance that this net benefit
will be achieved in the near term.
The Mergers may not be
accretive and may cause dilution to the combined companys earnings per share,
which may negatively affect the price of the common stock of the combined
company following completion of the Mergers.
Consolidated currently anticipates that the Mergers will be accretive to
the earnings per share of the combined company during the first full calendar
year after the Mergers are completed. This expectation is based on preliminary
estimates and assumes certain synergies expected to be realized by the combined
company during such time. Such estimates and assumptions could materially change
due to additional transaction-related costs, the failure to realize any or all
of the benefits expected in the Mergers or other factors beyond the control of
Consolidated and SureWest. All of these factors could delay, decrease or
eliminate the expected accretive effect of the Mergers and cause resulting
dilution to the combined companys earnings per share or to the price of the
common stock of the combined company.
SureWest
shareholders will have ownership and voting interests in Consolidated after the Mergers lower than they did in SureWest and will
exercise less influence over management of Consolidated than they currently exercise over management of SureWest.
After the
effective time of the First Merger, SureWest shareholders who receive stock consideration in the First Merger will own in the
aggregate a significantly smaller percentage of Consolidated than they currently own of SureWest. Immediately following the First
Merger, those shareholders are expected to own between approximately
20.5
%
and
25.8
% of the outstanding
shares of Consolidated common stock, based on the number of shares of SureWest common stock and Consolidated common stock outstanding
on the record date. Consequently, SureWest shareholders, as a general matter, will have less influence over the management and
policies of Consolidated than they currently exercise over the management and policies of SureWest.
The shares of Consolidated
common stock to be received by SureWest shareholders as a result of the First
Merger will have different rights from the shares of SureWest common stock.
SureWest shareholders rights are
currently governed by the SureWest articles of incorporation, the SureWest
bylaws and California law. Those SureWest shareholders who receive stock
consideration in the First Merger will, upon completion of the First Merger,
become stockholders of Consolidated and their rights will be governed by the
Consolidated certificate of incorporation, the Consolidated bylaws and Delaware
law. See Comparison of Rights of Common Shareholders of SureWest and Common
Stockholders of Consolidated.
Certain directors and
executive officers of SureWest may have potential conflicts of interest with
respect to the approval of the Merger Agreement.
Some of SureWests directors and executive officers have
interests in the Mergers that are different from, or in addition to, those of
SureWest shareholders generally. Consolidated
40
has agreed to elect one director
designated by SureWest to serve on the Consolidated board of directors after the
consummation of the First Merger, and will take all actions necessary to appoint
such individual to the board of directors of Consolidated in accordance and to
cause the authorized size of the Consolidated board of directors to increase as
of immediately following the Mergers. Although other SureWest directors will not
become directors of Consolidated after the Mergers, Consolidated will indemnify
and maintain liability insurance for all of the directors of SureWest for their
services as directors before the Mergers. In addition, each of the executive
officers of SureWest is a party to a change in control severance plan that
contains change of control severance protections that entitle each such
executive officer to enhanced severance if his employment were to terminate
following the Mergers under specific circumstances. The Merger Agreement also
provides that the equity awards held by SureWest executive officers will
accelerate and be cashed out in connection with the Mergers. See The Mergers
Interests of SureWest Directors and Executive Officers in the Mergers for a
discussion of these interests.
Whether or not the Mergers
are completed, the pendency of the transaction could cause disruptions in the
businesses of SureWest and Consolidated, which could have an adverse effect on
their businesses and financial results.
These disruptions could include the following:
-
current and prospective employees may experience uncertainty about their
future roles with the combined company or consider other employment
alternatives, which might adversely affect SureWests and Consolidateds
ability to retain or attract key managers and other employees;
-
current and prospective customers of SureWest or Consolidated may
experience variations in levels of services as the companies prepare for
integration or may anticipate change in how they are served and may, as a
result, choose to discontinue their service with either company or choose
another provider; and
-
the attention of management of each of SureWest and Consolidated may be
diverted from the operation of the businesses toward the completion of the
Mergers.
The unaudited pro forma
financial statements are presented for illustrative purposes only and should not
be viewed as a forecast of Consolidateds financial condition or results of
operations following the Mergers.
The
unaudited pro forma financial statements have been derived from the historical
financial statements of Consolidated and SureWest and certain adjustments and
assumptions have been made regarding Consolidated after giving effect to the
Mergers. The information upon which these adjustments and assumptions have been
made is preliminary, and these kinds of adjustments and assumptions are
difficult to make with complete accuracy. Moreover, the unaudited pro forma
financial statements do not reflect all costs that are expected to be incurred
or savings to be achieved by Consolidated in connection with the Mergers. For
example, neither the impact of any incremental costs incurred in integrating the
two companies, nor any potential cost savings is reflected in the unaudited pro
forma financial statements. As a result, the actual financial condition and
results of operations of Consolidated following the Mergers will likely not be
consistent with, or evident from, these unaudited pro forma financial
statements. In addition, the assumptions used in preparing the unaudited pro
forma financial information may not prove to be accurate, and other factors may
affect Consolidateds financial conditions or results of operations following
the Mergers. Therefore, stockholders of Consolidated and the shareholders of
SureWest should not place undue reliance on the pro forma financial statements
when deciding whether to vote for their respective proposals relating to the
Mergers. See Summary Unaudited Pro Forma Financial Information.
Any delay in the completion
of the Mergers may significantly reduce the benefits expected to be obtained
from the Mergers or could adversely affect the market price of Consolidated or
SureWest common stock or their future business and financial results.
In addition to the required regulatory
clearances and approvals, the Mergers are subject to a number of other
conditions, including approvals of Consolidated stockholders and SureWest
shareholders, that are beyond the control of Consolidated and SureWest and that
may prevent, delay or otherwise materially and adversely affect completion of
the Mergers. Consolidated and SureWest cannot predict whether and when these
other conditions will be satisfied.
Failure to complete the
Mergers would prevent Consolidated and SureWest from realizing the anticipated
benefits of the Mergers. Each company would also remain liable for significant
transaction costs, including legal, accounting and financial advisory fees. Any
delay in completing the Mergers may significantly reduce the synergies and other
benefits that Consolidated expects to achieve if it successfully completes the
41
Mergers within the expected timeframe and integrates the businesses. In
addition, the market price of each companys common stock may reflect various
market assumptions as to whether and when the Mergers will be completed.
Consequently, the completion of, the failure to complete, or any delay in the
completion of the Mergers could result in a significant change in the market
price of Consolidated or SureWest common stock.
42
THE MERGERS
The Companies
Consolidated
Consolidated, a Delaware
corporation, through its operating companies, operates established rural local
exchange companies (RLECs) offering a wide range of telecommunications
services to residential and business customers in Illinois, Texas and
Pennsylvania, including: local and long-distance service; high-speed broadband
Internet access (DSL); standard and high-definition digital television
(IPTV); digital telephone service (VOIP); custom calling features; private
line services; carrier access services; network capacity services over
Consolidateds regional fiber optic network; directory publishing and
Competitive Local Exchange Carrier (CLEC) services. At December 31, 2011,
Consolidated had 227,992 local access lines, 110,913 DSL lines, 34,356 IPTV
subscribers and an estimated 89,774 CLEC access line equivalents. Consolidated
also operates two non-core complementary businesses: telephone services to
correctional facilities and business equipment sales.
Founded in 1894 as the Mattoon
Telephone Company by the great-grandfather of the current chairman of
Consolidated, Richard A. Lumpkin, it began as one of the nations first
independent telephone companies. After several subsequent acquisitions, the
Mattoon Telephone Company was incorporated as Illinois Consolidated Telephone
Company (ICTC), on April 10, 1924.
On September 24, 1997, McLeodUSA
acquired ICTC and all related businesses from the Lumpkin family.
In December 2002, ICTC and several
related businesses were reacquired from McLeodUSA by a group of investors led by
Mr. Lumpkin and including Spectrum Equity and Providence Equity.
On April 14, 2004, Consolidated
acquired the rural telephone operations in Lufkin, Conroe and Katy, Texas of TXU
Communications Ventures Company from TXU Corporation, which had been operating
in those markets for over 90 years. This acquisition approximately tripled the
size of Consolidated.
On July 27, 2005, Consolidated
completed the initial public offering of its common stock. Concurrent with the
initial public offering, Spectrum Equity sold its entire investment, and
Providence Equity sold 50% of its investment, in Consolidated. On July 28, 2006,
Consolidated repurchased the remaining shares owned by Providence Equity.
On December 31, 2007, Consolidated
acquired all of the capital stock of North Pittsburgh Systems, Inc. (North
Pittsburgh). North Pittsburgh provides services to residential and business
customers in several counties in western Pennsylvania and also operates a CLEC
in the Pittsburgh metropolitan area.
Consolidated was organized in 2002
and is the successor to businesses engaged in providing telecommunications
services since 1894.
SureWest
SureWest Communications is a
California holding company with operating subsidiaries that provide a wide range
of telecommunications, cable television, Internet, data and other
facilities-based communications services in Northern California, primarily in
the greater Sacramento region and in the greater Kansas City, Kansas and
Missouri areas. SureWest was incorporated under the laws of the State of
California in 1995, and through its predecessor has operated in the
telecommunications business since 1914.
43
WH Acquisition Corp. and WH
Acquisition II Corp.
Merger Sub I is a California
corporation and a wholly-owned subsidiary of Consolidated. It was incorporated
on February 6, 2012 solely for the purpose of effecting the First Merger with
SureWest, pursuant to the Merger Agreement. Merger Sub II is a California
corporation and a wholly-owned subsidiary of Consolidated. It was incorporated
on February 6, 2012 solely for the purpose of effecting the Second Merger with
SureWest, pursuant to the Merger Agreement.
Background of the Mergers
Beginning in early 2009, the
SureWest board of directors and management undertook an initiative to evaluate
the status of its business and the outlook for SureWest on a stand-alone basis.
The board and management concluded that given the scale and geographic
concentration of the business and the trading liquidity of its stock, the time
period for the shareholders to realize the full value of SureWests business
plan may be extended. The board of directors and management determined it was in
the best interests of SureWest and its shareholders to explore opportunities to
provide greater value to the shareholders in the nearer term. As such, the
SureWest board of directors authorized management to explore a range of
strategic alternatives for the Company, including in particular: (1) executing
on its current stand-alone organic growth plan (status quo), (2) pursuing a
growth strategy focused on opportunistic acquisitions, (3) entering into a
combination with another industry participant and (4) an outright sale of the
business or portions of the business. While the SureWest board anticipated that
SureWest would continue to pursue aggressively its status quo objectives during
this process, the board also recognized a need to begin to assess other possible
alternatives for SureWest on an ongoing basis. Subsequently and through the time
when the SureWest board of directors approved the Merger Agreement, the board
actively considered several specific strategic alternatives, including some
proposed by third parties, which the board ultimately concluded were not in the
best interests of SureWest and its shareholders.
In the third quarter of 2009,
representatives of UBS Securities LLC (UBS), SureWests financial advisor, at
SureWests direction, began an initial exploratory process to assess interest
from a number of parties that representatives of UBS and SureWest viewed as
potential strategic partners, including Consolidated. Also in the third quarter
of 2009, Orrick Herrington & Sutcliffe, LLP (Orrick), SureWests counsel,
participated in a SureWest board of directors meeting and made a presentation to
the board regarding its fiduciary duties with respect to a potential
transaction.
During the exploratory process,
Consolidated expressed an interest in a possible transaction with SureWest, and
on December 1, 2009, Consolidated executed a confidentiality agreement, which
included a two-year standstill provision restricting Consolidateds ability to
purchase SureWest shares or engage in other actions which might affect control
of SureWest.
In addition, from 2006 Steven C.
Oldham, the president and chief executive officer of SureWest, and Robert J.
Currey, the president and chief executive officer of Consolidated, have both
served as directors of the United States Telecom Association (USTelecom
Association). As a result, they have had periodic contacts from time to time at
meetings of the board of directors and annual meetings of the USTelecom
Association. During such contacts, from time to time Mr. Oldham and Mr. Currey
discussed the possibility of a transaction between SureWest and Consolidated.
Mr. Oldham and Mr. Currey both continue to serve as directors of the USTelecom
Association.
On February 3, 2010, Consolidated
provided to SureWest a proposal to purchase all of the outstanding shares of
SureWest with an indicated range from $10.00 to $12.00 per share in a
stock-for-stock transaction, with an implied exchange ratio of 0.593 to 0.712 of
Consolidated common stock per share of SureWest common stock. Following
discussions between SureWest and Consolidated and their respective advisors, on
February 15, 2010, Consolidated provided to SureWest a revised proposal to
purchase all of the outstanding shares of SureWest at an exchange ratio of 0.911
of Consolidated common stock per share of SureWest common stock in a
stock-for-stock transaction. The proposal also requested that SureWest agree to
a 45-day exclusivity period to allow Consolidated to proceed with confirmatory
due diligence and negotiate a merger agreement.
44
Following receipt of Consolidateds
February 15, 2010 proposal, the SureWest board of directors held multiple
special meetings to discuss the proposal and exclusivity period. During this
time, SureWest, representatives of UBS and Consolidated and its financial
advisor, Wells Fargo Securities, LLC (Wells Fargo Securities), continued to
discuss and negotiate the exclusivity agreement and discuss the exchange ratio.
On March 8, 2010, SureWest and Consolidated entered into an exclusivity
agreement providing for a 21-day exclusivity period, which expired March 29,
2010, and a non-binding understanding on an exchange ratio of 0.911 of
Consolidated common stock per share of SureWest common stock, subject to further
due diligence.
Following execution of the
exclusivity agreement, both SureWest and Consolidated conducted extensive
diligence on each other. On March 10, 2010, Consolidated and its advisors were
granted access to a data room, which included both public and non-public
information about SureWest. On March 15, 2010 through March 17, 2010, senior
management of the companies participated in management presentations and
diligence sessions in Sacramento, California, including other diligence work at
SureWests headquarters. On March 24 and 25, 2010, Mr. Oldham and Kirk C. Doyle,
the chairman of the SureWest board of directors, had dinner with Mr. Currey and
Richard A. Lumpkin, the chairman of the Consolidated board of directors, to
further discuss the potential transaction with Consolidated. On March 25, 2010,
Mr. Oldham and Bill M. DeMuth, the then chief technology officer of SureWest,
met with Mr. Currey at SureWests facilities in Roseville, California to give
Mr. Currey an overview of SureWests operations and facilities. In addition, on
March 25 and March 26, 2010, members of senior management of the companies
participated in diligence sessions in Consolidateds service areas in Mattoon,
Illinois and Houston, Texas. During this period, the companies and their
respective advisors continued to exchange information and discuss the terms of a
possible transaction.
Following these diligence meetings
and ongoing discussions, SureWest and Consolidated mutually agreed to terminate
discussions regarding a possible business combination transaction due to the
relative movement in the trading prices of SureWests and Consolidateds common
stock during the exclusivity period, and on March 30, 2010, access to SureWests
data room was disabled for Consolidated and its representatives.
There were no substantive contacts
between the two companies with respect to a possible business combination
transaction between late March 2010 and late April 2010, and SureWest continued
to discuss and pursue other strategic alternatives during this time. In late
April 2010, Consolidated indicated that it was still interested in pursuing a
transaction with SureWest, but remained concerned about the per share premium
for SureWest common stock in the previously discussed price and valuation
ranges.
On May 15, 2010, Mr. Currey
communicated to Mr. Oldham via email a new proposal to purchase all of the
outstanding shares of SureWest at an indicated price of $13.50 per share in a
stock-for-stock transaction, subject to a collar to provide a fixed value for up
to a 10% change in the trading price of Consolidateds common stock. Following
receipt of this proposal, the SureWest board of directors reviewed the proposal,
and after consideration determined to pursue other strategic alternatives that
it believed could provide a higher value to SureWests shareholders than
Consolidateds proposal.
There were no substantive contacts
between the two companies with respect to a possible business combination
transaction between late May 2010 and August 2011, though from time to time, Mr.
Currey continued to express to Mr. Oldham an interest of Consolidated in a
transaction between SureWest and Consolidated. During this time, SureWest
continued to review and pursue a number of strategic alternatives, including
exploring a possible sale of the Kansas City and California portions of the
business separately to different purchasers and the possible purchase of
complementary businesses. Ultimately, the SureWest board of directors determined
that the presented opportunities were not in the best interests of SureWest and
its shareholders at that time.
On June 29, 2011, the financial
advisor of a private equity-backed company in SureWests industry (Company A)
contacted SureWest senior management and indicated that Company A was interested
in meeting with SureWest at an upcoming industry conference to be held in
Colorado to discuss potential business combinations. On July 27, 2011, Company A
executed a confidentiality agreement, which included a two-year standstill
provision.
On August 15, 2011, members of
senior management of SureWest held an introductory meeting with members of
senior management of Company A while attending an industry conference in
Colorado.
45
On August 16, 2011, Mr. Oldham and
Mr. Currey met while attending the same conference and discussed again the
possibility of a possible transaction between SureWest and Consolidated.
Following this conversation, on August 18, 2011, Mr. Currey communicated to Mr.
Oldham via email a new proposal to purchase all of the outstanding shares of
SureWest at an indicated price of $18.00 per share in a stock-for-stock for
transaction, though he noted that Consolidated would consider providing a small
portion of cash as consideration.
On August 24, 2011, the SureWest
board of directors held a regular meeting. At the meeting, the board of
directors reviewed and discussed the recent proposal from Consolidated.
Representatives of UBS reviewed with the SureWest board of directors the various
strategic alternatives that the SureWest board of directors had been
considering, including the most recent proposal from Consolidated, as well as
discussions with other parties, including Company A. Following discussion, the
SureWest board of directors determined that the consideration Consolidated
proposed did not provide sufficient value to the SureWest shareholders, but
authorized management to continue discussions with Consolidated.
On September 21 and 22, 2011,
members of senior management of SureWest, including Scott K. Barber, vice
president and chief operating officer, L. Scott Sommers, senior vice president,
finance and corporate development, Dan T. Bessey, vice president and chief
financial officer, Kenneth E. Johnson, vice president and chief technology
officer, Greg R. Gierczak, executive director of public policy and government
relations, and Charlie E. Sorensen, executive director of business planning and
forecasting, met in Kansas with members of senior management of Consolidated
including Steve Childers, senior vice president and chief financial officer,
Steve Shirar, senior vice president and corporate secretary, C. Robert Udell,
Jr., senior vice president and chief operating officer, Mike Shultz, vice
president-regulatory and public policy, and Matthew K. Smith, treasurer and
director of investor relations, to discuss each of their respective companies in
more detail and conduct preliminary diligence. Following the meeting, members of
management exchanged further financial and operational information.
During this time, preliminary
conversations continued between SureWest and Company A, and Company A commenced
its diligence activities in October 2011.
On October 6, 2011, Mr. Oldham and
Mr. Currey met in Salt Lake City, Utah to continue discussions regarding a
possible transaction between the two companies. Following this meeting, members
of SureWest and Consolidated management continued to exchange diligence
information about the companies. Following these discussions, the SureWest board
of directors determined that it was not in the best interests of SureWest and
its shareholders to further pursue a possible transaction with Consolidated on
the terms Consolidated had proposed.
From October through December 2011,
representatives of UBS had additional informal discussions with Mr. Currey
regarding the prospects of a possible transaction between SureWest and
Consolidated.
Also from October to early December
2011, Company A had periodic discussions with SureWest and representatives of
UBS about SureWests business.
On December 8, 2011, Mr. Oldham
received a call from Company As president and chief financial officer who
indicated he intended to send a proposal from Company A to acquire SureWest with
a purchase price in the $16.00 to $18.00 range. Mr. Oldham replied that he did
not believe that a proposal within this range would be accepted by SureWests
board of directors. Later that day, Company A provided SureWest a written
proposal to purchase all of the outstanding shares of SureWest for $18.00 per
share in cash. On December 14, 2011, the SureWest board of directors reviewed
and discussed Company As proposal, as well as the other strategic alternatives
SureWest had been considering. Although the SureWest board of directors
indicated that it continued to believe that $18.00 per share was not sufficient
consideration for SureWest shareholders in an acquisition of SureWest, the board
authorized management to continue discussions with Company A. Following this
meeting, members of senior management of SureWest and representatives of UBS
continued to discuss Company As proposal with Company A. On December 18, 2011,
Company A provided to SureWest a revised proposal to purchase all of the
outstanding shares of SureWest for $20.00 per share in cash.
46
On December 18, 2011, the SureWest
board of directors reviewed and discussed Company As revised proposal through
informal discussions. The SureWest board of directors directed management and
representatives of UBS to proceed with discussions with Company A based on the
revised proposal. At a board meeting held on December 21, 2011, to further
consider Company As proposal, the directors again discussed Company As
proposal and Orrick reviewed with the SureWest board of directors its fiduciary
duties with respect to a potential transaction.
On December 21, 2011, Company A and
its advisors were granted access to a data room, which included both public and
non-public information about SureWest. Diligence meetings and information
exchanges continued with Company A through January 2012.
On January 16, 2012, the SureWest
board held a meeting at which it reviewed and discussed Company As proposal as
well as an update on the diligence process with Company A, with representatives
of UBS and Orrick participating in the meeting. Representatives of UBS reviewed
certain financial aspects of Company As proposal and noted that on January 13,
2012, Company A communicated that it had completed a majority of its diligence
and reaffirmed its proposal to purchase all of the outstanding shares of
SureWest for $20.00 per share in cash, subject to certain stipulations. These
stipulations included that the merger agreement would not include a go shop
provision allowing SureWest to solicit additional offers following the signing
of a merger agreement with Company A. Representatives of UBS also reviewed with
the SureWest board of directors an illustrative timeline for a transaction with
Company A that would include a market check to assess the interest of other
parties in a transaction with SureWest, while concurrently negotiating a
transaction with Company A. Orrick then reviewed with the board its fiduciary
obligations relative to the proposal and a market check process. Orrick also
reviewed with the board the principal terms of a draft of a proposed merger
agreement prepared by Orrick to be presented to Company A. Following discussion,
the board determined to proceed with the market check process and discussions
with Company A concurrently.
Following the January 16, 2012 board
meeting and at the direction of the SureWest board of directors, representatives
of UBS contacted 22 parties with which SureWest either had previous discussions
regarding a
possible
transaction, including Consolidated, or that representatives of UBS
and SureWest viewed as potentially interested parties. As a result of this
process, Consolidated and three other parties executed confidentiality
agreements, each of which included a two-year standstill provision, and
received a packet of non-public information about SureWest. Consolidated
executed the confidentiality agreement and received the packet of non-public
information on January 20, 2012. Each of the interested parties
was
requested
to complete initial diligence and provide a written indication of interest by
January 24, 2012.
On January 18, 2012, Company A
received a draft merger agreement prepared by Orrick. Shortly thereafter, Orrick
and counsel for Company A exchanged comments, and began to negotiate the terms
of, the merger agreement.
On January 20, 2012, the SureWest
board of directors held a meeting at which it discussed the status of the market
check process and negotiations with Company A.
Between January 16 and 24, 2012,
members of SureWest management conducted diligence sessions and/or held
meetings
with management of two of the three other parties that had executed
a confidentiality agreement
in connection with the market check process.
On January 24, 2012, Consolidated
provided to SureWest a written proposal to acquire all of the outstanding shares
of SureWest for an indicated price of $22.00 per share, consisting of $11.00 in
cash and $11.00 in shares of Consolidated common stock, subject to certain
election and proration procedures and a collar to provide a fixed value for up
to a 15% increase and 15% decrease in the trading price of Consolidateds common
stock. The proposal also included an offered right of SureWest to appoint one
director to the Consolidated board of directors. Of the other three parties that
signed a confidentiality agreement in connection with the market check process,
two companies declined to submit a proposal and the third expressed a strong
interest in a transaction, but did not submit a proposal.
47
On January 25, 2012, the SureWest
board of directors held a regular meeting. During the meeting, representatives
of UBS and Orrick participated for a portion of the meeting, during which the
board of directors discussed and reviewed the Consolidated proposal.
Representatives of UBS reviewed the results of the market check process.
Representatives of UBS then summarized Consolidateds proposal, including value
and consideration mix, transaction structure and other considerations, and also
reviewed preliminary financial analyses of SureWest and Consolidated, as well as
a preliminary pro forma financial analysis of the combined company under
different assumptions. Representatives of UBS also reviewed the status
of the
other party that expressed an interest in a strategic
transaction with SureWest during the market check process (but did not submit a
proposal). Orrick then again reviewed the board of directors fiduciary duties
with respect to the proposals from Consolidated and Company A. Orrick also
commented
from a legal perspective
on certain terms of the merger agreement proposed by Company A. After
discussion, the board of directors determined to move forward with concurrent
negotiations with both Consolidated and Company A.
On January 26, 2012, Consolidated
received a draft merger agreement prepared by Orrick, and Consolidated and its
advisors were again granted access to the data room, which included both public
and non-public information about SureWest.
On January 29, 2012, representatives
of UBS and Orrick participated in a conference call with Company A and its
counsel to review SureWests position with respect to certain terms of the
merger agreement proposed by Company A.
On January 30, 2012, Orrick
participated in a conference call with Schiff Hardin, LLP (Schiff Hardin),
counsel for Consolidated, to discuss Consolidateds comments to the merger
agreement.
On January 31, 2012, members of
SureWests senior management, including Mr. Oldham, participated in a management
presentation and diligence session via conference call with members of
Consolidateds senior management, including Mr. Currey. Schiff Hardin also sent
to Orrick a markup of the draft merger agreement. Over the next few days,
SureWest, representatives of UBS and Orrick continued to negotiate the terms of
a merger agreement with each of Consolidated and Company A, and to comply with
remaining diligence requests.
On February 2, 2012, the SureWest
board of directors held a special meeting, with representatives of UBS, Orrick,
and Cooper White & Cooper (CWC),
SureWests
regulatory counsel,
participating. UBS reviewed the proposals of Consolidated and Company A. The
SureWest board of directors then discussed the facts that Company As proposal
was structured as an all cash, leveraged buyout transaction, where SureWests
shareholders would have no exposure to the performance of Company A or SureWest
following a transaction. They further observed that the Consolidated proposal
was structured as a mix of cash and shares of Consolidated common stock, with
SureWests shareholders owning approximately 22% of the combined company
following a transaction and would thus be exposed to the future performance of
the combined company. In addition, while both companies would be required to
finance some or all of the cash consideration offered, Company A was proposing a
six month financing commitment (inclusive of a 20 business day marketing
period), while Consolidated had offered a nine month financing commitment
without a marketing period. It was discussed that given the uncertainty of the
timeline for regulatory approval, a longer financing commitment was
preferential. Orrick then reviewed the key terms of the merger agreement markup
proposed by Company A, noting that two key open subjects were with respect to
the financing terms and the deal protection terms. With respect to the
financing terms, Orrick reviewed in detail the interplay between the length of
the financing commitment and the regulatory approval process. With respect to
the deal protection terms, Orrick highlighted that in the event Company A was
unable to obtain financing and close the transaction, SureWests only recourse
would be a reverse termination fee payable to SureWest and that specific
performance would not be an available remedy. Orrick further noted that Company
A had decreased the amount of the proposed reverse termination fee as a result
of SureWests proposal to decrease the termination fee in the event SureWest
terminated the merger agreement to accept a superior offer. Orrick also noted
that Consolidated had generally accepted the original proposed merger agreement.
Members of the board of directors asked questions throughout the meeting and
extensive discussion ensued regarding the proposed terms, financing and
regulatory matters and other transaction considerations. Orrick further reviewed
with the board of directors its fiduciary duties with respect to considering and
evaluating the two proposals. CWC provided the board and management with a
regulatory assessment of the Consolidated and Company A offers, including the
California PUC approval processes, issues and timelines. SureWest management
noted that certainty of the transaction closing was a key consideration in the
transaction, and the board of directors concurred. The board, its advisors and
management discussed the
48
tactics for moving forward with negotiations, and the
board of directors authorized management and representatives of UBS to continue
negotiations with each of Consolidated and Company A and to seek a best and
final offer from each party.
During the afternoon of February 2,
2012, Orrick participated in a conference call with counsel for Company A to
review the key open issues in the merger agreement and overall deal structure.
During the morning of February 3, 2012, members of senior management of
SureWest, Orrick and representatives of UBS participated in a conference call
with members of senior management of Company A and its advisors to discuss
certain open business covenants in the merger agreement.
Later on February 3, 2012, at the
direction of SureWest, representatives of UBS communicated to representatives of
Company A that SureWest had received a bona fide competing proposal and thus was
requesting a best and final offer by noon Eastern time on Saturday, February,
4, 2012, following which the SureWest board of directors would review the
offers. At the direction of SureWest, representatives of UBS then communicated
the same request and noon deadline to Consolidated and its advisors.
During the evening of February 3,
2012, counsel for Company A sent to SureWest, representatives of UBS and Orrick
a definitive offer letter reiterating its previous offer of $20.00 per share
cash and stating that such offer was its best and final offer, together with a
purportedly final version of the merger agreement and executed financing
commitment papers with a nine month term. The letter stated that Company A had
agreed to certain terms requested by SureWest, including a nine month financing
commitment and an increased reverse termination fee. The offer letter further
stated that the offer would expire at 9:00 pm Eastern time (approximately three
hours after receipt) unless the SureWest board of directors approved the
transaction and returned a countersigned merger agreement.
Following receipt of Company As
communication, the SureWest board of directors held a special meeting at which
Company As offer was reviewed and discussed, with representatives of UBS and
Orrick participating. Representatives of UBS and Orrick again reviewed the
differences between the proposals and merger agreements from Company A and
Consolidated. After discussion, the board of directors determined that it was
not in the best interests of SureWest and its shareholders to accept the offer
on the terms presented by Company A without first considering the best and
final offer from Consolidated expected the following day. The board of
directors directed management and representatives of UBS to communicate to
Company A that the board would review the offer from Company A following the
noon Eastern time deadline the following day. Shortly following this
communication, counsel for Company A sent to SureWest, representatives of UBS
and Orrick a letter revoking Company As offer.
In regular meetings of the
Consolidated board of directors during 2010 and 2011, including the March 2010,
May 2010 and October 2011 meetings, Consolidateds management had updated
Consolidateds directors on the status of the discussions with SureWest and
discussed a possible acquisition of SureWest, separately and in the context of
discussions of alternative acquisition possibilities.
On the morning of February 4, 2012,
the Consolidated board of directors held a special board meeting, with
representatives of Wells Fargo Securities and Schiff Hardin participating, at
which Consolidateds management updated the directors on the status of
discussions with SureWest and provided a detailed review of the proposed
transaction, including the background of the discussions between Consolidateds
and SureWests management, the various diligence efforts Consolidated had
completed on SureWest dating back to 2009, an overview of the SureWest business,
terms of the proposed transaction, including consideration consisting of $11.00
in cash and $11.00 in shares of Consolidated common stock, the strategic
rationale for the combination and the projected synergies and pro forma
financial and operating projections for the combined company, the key risks and
a downside scenario, Consolidateds plans to secure committed financing for the
transactions, since the proposed Merger Agreement would not contain a financing
contingency, and the approval process should the Merger Agreement be executed,
which would include regulatory approval and approval by stockholders of both
companies. The Consolidated board of directors reached a consensus that it
supported a transaction on the terms discussed.
Also on the morning of February 4,
2012, the SureWest board of directors held a special meeting, with
representatives of UBS and Orrick participating. Representatives of UBS
summarized the events of the prior evening and Company As offer and subsequent
revocation. At approximately 12:30 pm Eastern time on February 4, 2012, Wells
Fargo Securities, on behalf of Consolidated, sent a definitive offer letter
reaffirming Consolidateds previous
49
offer of $22.00 per share and stating that
Consolidated had obtained a financing commitment with a nine month term.
Representatives of UBS then reviewed the financial terms of the proposed
transaction with Consolidated, the history of events since SureWest began the
initial exploratory process in the third quarter of 2009 and the status of
discussions with other parties, including Company A. Representatives of UBS then
reviewed recent stock price performance and ownership of Consolidated, as well
as an updated pro forma financial analysis of the combined company under
different assumptions. Orrick then reviewed the material terms of the merger
agreement, including the transaction structure, principal conditions of the
merger, financing, deal protections, termination rights, break-up fee and
employee and director matters. Orrick then made a presentation on the fiduciary
duties of the board of directors. Members of the board asked questions
throughout the meeting and extensive discussion ensued regarding the proposed
transaction with Consolidated. Following this discussion, the SureWest board of
directors indicated that it was supportive of a transaction with Consolidated at
$22.00 per share and authorized management to move forward towards finalizing
the merger agreement and transaction with Consolidated, with the goal of
entering into a binding agreement with Consolidated prior to the market open on
Monday, February 6, 2012. At SureWests direction, representatives of UBS then
contacted Consolidated and Wells Fargo Securities to communicate that SureWest
was prepared to accept Consolidateds proposal and discussed the actions that
were required to be completed by both sides to the meet the timeline set forth
by SureWests board of directors.
Late in the evening of February 4,
2012, representatives of Company A contacted representatives of UBS to inquire
about the status of the SureWest board of directors review of its offer. At
SureWests direction, representatives of UBS informed Company A that SureWest
understood that Company As offer had been revoked pursuant to its
counsels
letter
received during
the
evening of February 3, and that SureWest was proceeding with another
offer.
On the morning of February 5, 2012,
the Consolidated board of directors held a special board meeting. At the
meeting, at the request of the Consolidated board of directors, representatives
of Wells Fargo Securities delivered its oral opinion to the effect that, as of
February 5, 2012, and based on and subject to various assumptions made,
procedures followed, matters considered and limitations on the review undertaken
by Wells Fargo Securities in connection with the opinion, the experience of its
investment bankers and other factors it deemed relevant, the consideration of
$22.00 per share to be paid pursuant to the draft merger agreement reflecting
the terms described in Consolidateds February 4, 2012 offer letter was fair,
from a financial point of view, to Consolidated. After further consideration and
deliberation, the Consolidated board of directors unanimously approved the draft
merger agreement and the transactions contemplated by it, including the issuance
of Consolidated common stock, and resolved to recommend that the stockholders of
Consolidated vote to approve these transactions, including the issuance of
Consolidated common stock.
Also on
the morning of
February 5, 2012, counsel
for Company A sent to SureWest, representatives of UBS and Orrick an unsolicited
revised definitive offer to acquire SureWest at a purchase price of $22.50 per
share in cash, together with a revised merger agreement reflecting such price.
The letter stated that it would expire in three hours unless SureWests board of
directors approved the transaction and returned a countersigned merger
agreement, though the deadline was later extended by another two hours to allow
time for the SureWest board of directors to meet and consider the proposal.
Following receipt of the offer, Mr. Oldham spoke with Company A to express the
need for their commitment with respect to the regulatory process should Company
As offer be accepted.
Following receipt of the letter, the
SureWest board of directors held a special meeting on February 5, 2012, to
discuss the offer from Company A with representatives of UBS and Orrick.
Following discussion, the board of directors instructed representatives of UBS
to contact Consolidated and its advisors. The SureWest board of directors also
noted concerns that Company A might again revoke its offer, as it had done with
respect to its prior offer on February 3. At the direction of the board,
representatives of UBS then informed Consolidated and Wells Fargo Securities
that SureWest had received an unsolicited superior offer earlier that day that
the SureWest board of directors determined it needed to consider. Mr. Oldham
then reached out to the president and chief financial officer of Company A to
confirm that $22.50 per share was Company As best and final offer and they
discussed certain provisions in the merger agreement previously furnished by
Company A. The president and chief financial officer confirmed the price as
Company As best and
final.
Following receipt of the
notification by representatives of UBS that Company A had made an offer higher
than $22.00 per share, Consolidateds management and its advisors discussed the
possibility of increasing Consolidateds offer to $23.00 per share, consisting
of $11.50 in cash and $11.50 in shares of Consolidated common stock,
50
and revising the draft merger agreement to reflect such proposed new offer. At the
request of Consolidateds management, representatives of Wells Fargo Securities
delivered its oral opinion to the effect that, as of February 5, 2012, and based
on and subject to various assumptions made, procedures followed, matters
considered and limitations on the review undertaken by Wells Fargo Securities in
connection with the opinion, the experience of its investment bankers and other
factors it deemed relevant, the consideration of $23.00 per share to be paid
pursuant to the draft merger agreement revised to reflect the proposed new offer
from Consolidated was fair, from a financial point of view, to Consolidated.
Shortly thereafter, Consolidated increased its offer to $23.00 per share,
consisting of $11.50 in cash and $11.50 in shares of Consolidated common stock
and notified SureWest and its advisors.
Following SureWests receipt of this
revised proposal, the SureWest board of directors reconvened to discuss the
proposal. Orrick and representatives of UBS reviewed with the board of directors
the new offers from each of Company A and Consolidated, and again reviewed the
differences between the two offers and merger agreements. Members of the board
of directors asked questions throughout the discussion. Following additional
discussion and deliberation, the SureWest board of directors determined that it
believed that based on the merger consideration offered and the terms of the
merger agreement proposed by Consolidated, that the proposal from Consolidated
offered more value to the SureWest shareholders than Company As proposal.
Representatives of UBS reviewed with the SureWest board of directors its
financial analysis of the merger consideration proposed by Consolidated and
delivered its oral opinion, which opinion was subsequently confirmed in writing,
to the effect that, as of February 5, 2012, and based upon and subject to
various assumptions, matters considered and limitations described in the
opinion, the merger consideration, taken in the aggregate, to be received by
holders of SureWest common stock in the First Merger was fair, from a financial
point of view, to such holders. The SureWest board of directors then unanimously
approved the Merger Agreement and the transactions contemplated by the Merger
Agreement, including the Mergers, and, subject to the terms of the Merger
Agreement, unanimously resolved to recommend that the shareholders of SureWest
vote to approve and adopt the Merger Agreement and the transactions contemplated
by the Merger Agreement, including the Mergers.
Thereafter, on February 5, 2012,
SureWest and Consolidated executed the Merger Agreement.
Later on February 5, 2012,
Consolidateds management informed Consolidateds board members of the final
transaction terms and the execution of the Merger Agreement. Wells Fargo
Securities delivered its written financial analyses and written opinion,
confirming its oral opinion delivered to Consolidateds management. Thereafter,
after further consideration, and taking into account the factors described under
Consolidateds Reasons for the Mergers beginning on page
62
,
Consolidateds board of directors, acting by unanimous written consent dated as
of February 5, 2012, formally ratified the execution of the Merger Agreement.
On February 6, 2012, prior to the
opening of trading on NASDAQ, Consolidated and SureWest issued a joint press
release announcing the Mergers.
On February 7, 2012, each of the
Merger Subs executed the Merger Agreement.
SureWests Reasons for the Mergers and
Recommendation of the SureWest Board of Directors
Recommendation of the SureWest Board
of Directors
The SureWest board of directors, by
the unanimous vote of all directors:
-
determined that the Merger Agreement, the Merger Certificate and the
transactions contemplated thereby, including the First Merger, are in the best
interests of SureWest and its shareholders;
-
approved the Merger Agreement, the Merger Certificate and the transactions
contemplated thereby, including the First Merger;
-
approved the execution and delivery of the Merger Agreement and the Merger
Certificate; and
51
-
subject to the Merger Agreement, recommended that the shareholders of
SureWest approve the Merger Agreement, the Merger Certificate and the
transactions contemplated thereby, including the First Merger.
Accordingly, the SureWest
board of directors recommends that the SureWest shareholders vote FOR approval
of the Merger Agreement, the Merger Certificate and the transactions
contemplated thereby, including the First Merger.
Reasons for the Mergers
In reaching its determination to
approve the Merger Agreement, the Merger Certificate and the transactions
contemplated thereby, including the First Merger, and to recommend that SureWest
shareholders vote
FOR
the proposal to approve the Merger Agreement, the Merger
Certificate and the transactions contemplated thereby, including the First
Merger, the SureWest board of directors consulted with and received advice from
its financial and legal advisors and SureWests management, and considered a
number of factors, including the following material factors (which are not
listed in any relative order of importance):
Factors Relating to the
Transaction Generally
-
Business considerations, including SureWests business strategy, current
financial condition and results of operations and future prospects, and the
relative short-term and long-term opportunities, risks and uncertainties of
pursuing other strategic options available to SureWest, including remaining
independent and continuing to implement SureWests current business plan or
pursuing other strategic alternatives.
-
The relative short-term and long-term opportunities, risks and
uncertainties of continuing to implement SureWests current business plan,
including challenges from SureWests telecommunications, Internet, data and
cable competitors, increasing transport and content costs and rapid
technological change, as well as with respect to the risk factors set forth
in SureWests Form 10-K for the year ended December 31, 2011.
-
The size and scale of SureWest, particularly in light of the increasing
competition from other companies that possess significantly greater resources,
economies of scope and scale, market power and abilities to access capital
than SureWest, and the status of ongoing consolidation in the industries and
markets in which SureWest competes.
Factors Relating to the Specific
Terms of the Merger Agreement
-
The current and historical market prices of SureWest common stock relative
to the $23.00 per share Merger Consideration, and the fact that the Merger
Consideration represents a: 47.5% premium over the closing price of shares of
SureWest common stock on NASDAQ on February 3, 2012 (the last full trading day
prior to the SureWest board of directors approval of the Merger Agreement);
68.3% premium over the closing price of shares of SureWest common stock on
NASDAQ on January 20, 2012 (the last full trading day before reports began to
appear over the Internet speculating about the possibility of Google Inc.
acquiring SureWest); 74.7% premium over the average trading price of shares of
SureWest common stock on NASDAQ over the thirty trading days prior to February
3, 2012; 93.1% premium over the average trading price of shares of SureWest
common stock on NASDAQ over the six months prior to February 3, 2012; 76.9%
premium over the average trading price of shares of SureWest common stock on
NASDAQ over the twelve months prior to February 3, 2012; and 29.0% premium
over the highest trading price of shares of SureWest common stock on NASDAQ in
the 52 weeks prior to February 3, 2012
-
The amount of the $23.00 per share Merger Consideration relative to
analysts publicly-available expectations for the share price of SureWest
common stock, which ranged from $14.00 to $20.00 over the next year.
-
Discussions regarding SureWests value which SureWest had with various
potential strategic acquirers and private equity firms since 2009.
52
-
The market check process conducted by UBS, at the direction of the
SureWest board of directors in light of the proposal made by Company A,
beginning on January 16, 2012, pursuant to which UBS contacted 22 potential
acquirers to assess their interest in a possible acquisition of SureWest
(including a number of parties which been contacted at least once during the
previous two years) and which resulted in both Consolidated and Company A
increasing their bid price and improving their contract terms during
negotiations related to the transaction.
-
Of the 22 parties contacted, four potential acquirers entered into
confidentiality agreements and received material, non-public information
concerning SureWest, three such potential acquirers expressed an interest in
a transaction with SureWest, two conducted diligence and one such potential
acquirer (Consolidated) submitted to SureWest a definitive acquisition
proposal.
-
Additionally, following reports which began to appear over the Internet
on January 23, 2012 speculating about the possibility of Google Inc.
acquiring SureWest, no acquisition proposals were received by UBS or
SureWest from parties other than those that had been contacted by UBS
pursuant to such solicitation process.
-
The SureWest board of directors business judgment, in light of the
foregoing process, and arms-length negotiations with Consolidated, that the
Merger Consideration is likely the highest price reasonably attainable for
SureWests shareholders in a merger or other business combination
transaction.
-
Discussions with SureWests management regarding SureWests business,
financial condition, results of operations, competitive position, business
strategy, strategic options and prospects, as well as the risks involved in
achieving these prospects, the nature of SureWests business and the industry
in which it competes, and current industry, economic, regulatory and market
conditions, both on a historical and on a prospective basis, which led the
SureWest board of directors to conclude that the Merger Consideration
represented a more attractive opportunity for SureWests shareholders than the
value of SureWest common stock likely to be realized by shareholders in the
event that SureWest remained independent and continued to pursue its business
plan.
-
The opinion of UBS, dated February 5, 2012, to the SureWest board of
directors as to the fairness, from a financial point of view and as of the
date of the opinion, of the Consideration, taken in the aggregate, to be
received by holders of SureWest common stock in the First Merger, as more
fully described below under the caption Opinion of Financial Advisor to
SureWest beginning on page
56
.
-
The SureWest board of directors and managements familiarity with
Consolidated and its business and the results of the due diligence performed
on Consolidated by SureWests management and financial and legal advisors
regarding Consolidateds assets, financial condition, results of operations,
business plan and prospects, including the size and scale of the combined
company and the expected pro forma effect of the proposed transaction on the
combined company.
-
The fact that SureWests shareholders may elect to receive Consolidated
common stock or cash as Merger Consideration (subject to any proration or
reallocation necessary to achieve as closely as practicable the 50/50
cash-stock split with respect to the aggregate Merger Consideration), which
offered a choice for shareholders that, among other things, may be attractive
both to shareholders who wish to receive a cash payment and to shareholders
who wish to continue participating in the telecommunications segment and who
would be able to participate in future increases, if any, in value of the
combined company through ownership of Consolidated stock.
-
The fact that SureWest shareholders were expected to hold approximately
22% of the combined companys stock outstanding immediately after the proposed
transaction closes and that Consolidated agreed that one individual selected
by SureWest would be appointed to the Consolidated board of
directors.
53
-
The fact that Consolidated currently pays regular quarterly cash dividends
on its common stock and that, after the transaction, SureWests shareholders,
to the extent they receive Consolidated common stock as Merger Consideration,
will be entitled to receive dividends, if any, paid by Consolidated on its
common stock and that these dividends
might
be significantly more per share
than the dividend SureWest is paying its shareholders today.
-
The likelihood that the Mergers would be consummated, and that
Consolidated had sufficient resources and financing necessary to do
so.
-
Information and discussions with Consolidateds management with respect to
Consolidateds credit profile following the proposed transactions, including
the viability of its financing plan.
-
The potential availability of dissenters rights to holders of the
SureWest common stock who comply with all of the required procedures under
Chapter 13 of the California General Corporation Law, which allows such
holders to demand that SureWest purchase their shares for the fair market
value of their shares.
-
The risk that SureWests stock price will not consistently trade in the
near term at or above $23.00 per share, which belief is based on a number of
factors, including the SureWest board of directors knowledge and
understanding of SureWest and its industry, including the performance of other
companies against which SureWest has compared itself from time to
time.
-
The SureWest board of directors assessment of the historical performance
of Consolidateds common stock.
-
The protection afforded by the collar mechanism to SureWest shareholders
receiving Consolidated common stock in the proposed First Merger against
significant fluctuations in the value of such stock.
-
The judgment that regulatory approvals necessary to complete the Mergers
are likely to be obtained without materially burdensome conditions, and that
they likely would be obtained prior to expiration of Consolidateds financing
commitment.
-
The review by the SureWest board of directors with its legal and financial
advisors of the structure of the proposed transaction and the financial and
other terms of the Merger Agreement, including the parties representations,
warranties and covenants, the conditions to their respective obligations and
the termination provisions, as well as the likelihood of consummation of the
proposed transactions and the SureWest board of directors evaluation of the
likely time period necessary to close the transaction. The SureWest board of
directors also considered in particular the following aspects of the Merger
Agreement:
-
The nature of the closing conditions included in the Merger Agreement,
including the exceptions to the events that would constitute a material
adverse effect on SureWest for purposes of the agreement, as well as the
likelihood that of all conditions to the transactions would be satisfied in
a timely manner;
-
The obligation of Consolidated to take all actions necessary to arrange
the financing provided for in its financing commitment and, if such
financing is unavailable, to use commercially reasonable efforts to arrange
to obtain alternate financing for an amount that will enable Consolidated to
consummate the transaction;
-
The SureWest board of directors ability, under
certain circumstances and prior to the time SureWest shareholders approve
the Merger Agreement, to consider and respond to an unsolicited bona fide
alternative proposal or engage in discussions or negotiations with the
person making such a proposal if the board of directors shall have
determined in good faith (after consultation with its financial advisor and
outside legal counsel) that such alternative proposal either constitutes a
superior proposal and the board of directors shall have determined in good
faith (after consultation with its financial advisor and outside legal
counsel) that the failure to take such action would be inconsistent with the
directors exercise of their fiduciary obligations to the shareholders of
SureWest under applicable laws;
54
-
The SureWest board of directors ability, under
certain circumstances, to change or withdraw its recommendation or terminate
the Merger Agreement in order to enter into an agreement providing for a
superior proposal, provided that SureWest complies with its obligations
relating to the entering into of any such agreement and immediately prior to
or concurrently with the termination of the Merger Agreement pays a
termination fee of $14,675,000, which the SureWest board of directors
concluded was reasonable in the context of termination fees payable in
comparable transactions and in light of the overall terms of the Merger
Agreement, including the Merger Consideration;
-
The fact that there is no financing condition to
the completion of the Mergers in the Merger Agreement;
-
The fact that Consolidated common stock issuable
in the First Merger will generally not be taxable for U.S. federal income
tax purposes to SureWests shareholders; and
-
The receipt by Consolidated of executed debt
commitment letters from sources of debt financing for the transactions
contemplated by the Merger Agreement and the terms of such debt financing
commitments.
Potentially
Negative Factors Relating to the Transaction
:
The SureWest board of directors also considered potential drawbacks or
risks relating to the Mergers, including the following material risks and
factors:
-
The risk that, notwithstanding the likelihood of
the Mergers being completed, the Mergers might not be completed, including the
effect of the pendency of the Mergers and such failure to be completed may
have on:
-
The trading price of shares of SureWest common
stock;
-
SureWests operating results, including the
costs incurred in connection with the Mergers; and
-
SureWests ability to attract and retain key
personnel and customers.
-
That SureWest will no longer exist as an
independent publicly traded company and that SureWest shareholders will only
participate in the future growth of SureWests business as part of the
combined company to the extent they receive shares of Consolidated common
stock as Merger Consideration.
-
That SureWest shareholders who receive shares of
Consolidated common stock as Merger Consideration will have exposure to the
risks associated with holding shares of Consolidated common
stock.
-
That, under the terms of the Merger Agreement,
SureWest must pay to Consolidated a termination fee if the Merger Agreement is
terminated under certain circumstances, which may deter other parties from
proposing an alternative transaction with SureWest that may be more
advantageous to SureWest shareholders.
-
That if the Mergers do not close, SureWests
employees will have expended extensive time and efforts to attempt to complete
the transaction and will have experienced significant distractions from their
work and progress on SureWests business plan during the pendency of the
transaction.
-
The restrictions on the conduct of SureWests
business prior to the completion of the Mergers, which could delay or prevent
SureWest from undertaking business opportunities that may arise or from taking
any other action it would otherwise take with respect to the operations of
SureWest absent the pending completion of the Mergers.
-
The fact that, while SureWest expects the Mergers
will be consummated, there can be no assurance that all conditions to the
parties obligations, including with respect to required regulatory approvals,
to complete the Mergers will be satisfied within the time frames contemplated
by the Merger Agreement, and, as a result, the Mergers may not be consummated.
55
-
The possibility that, notwithstanding the size of
the collar mechanism, shares of Consolidated common stock might trade outside
the collar, in which case the value of the stock consideration would be
different from, and may be worth less than, the cash
consideration.
-
The possibility that the proration and
reallocation provisions of the Merger Agreement might result in SureWest
shareholders receiving a combination of Merger Consideration different from
that which they elected.
-
The fact that the cash portion of the Merger
Consideration will generally be taxable for U.S. federal income tax purposes
to SureWests shareholders. See Material United States Federal Income Tax
Consequences.
-
The risk that the shareholders of Consolidated
will not approve the issuance of Consolidated common stock in connection with
the transaction.
-
The risk that the financing contemplated by the
financing commitment received by Consolidated for the consummation of the
Mergers might not be obtained.
-
The fact that the SureWest board of directors and
SureWests executive officers may have interests in the Mergers that are
different from, or in addition to, SureWest shareholders. See The
MergersInterests of SureWest Directors and Executive Officers in the Mergers
beginning on page
71
.
The foregoing
discussion is not intended to be exhaustive, but SureWest believes it addresses
the material information and factors considered by the SureWest board of
directors in its consideration of the Mergers. In view of the number and variety
of factors and the amount of information considered, the SureWest board of
directors did not find it practicable to, and did not make specific assessments
of, quantify or otherwise assign relative weights to, the specific factors
considered in reaching its determination. In addition, the SureWest board of
directors did not undertake to make any specific determination as to whether any
particular factor, or any aspect of any particular factor, was favorable or
unfavorable to its ultimate determination, and individual members of the
SureWest board of directors may have given different weights to different
factors.
Opinion of Financial Advisor to
SureWest
On February 5, 2012, at a meeting of SureWests board of directors held
to evaluate the Mergers, UBS delivered to SureWests board of directors an oral
opinion, which opinion was confirmed by delivery of a written opinion,
dated
February 5, 2012, to the effect that, as of that date and based on and
subject to various assumptions, matters considered and limitations described in
its opinion, the Merger Consideration, taken in the aggregate, to be received by
holders of SureWest common stock in the First Merger was fair, from a financial
point of view, to such holders.
The full text of UBS opinion to SureWests board of directors describes
the assumptions made, procedures followed, matters considered and limitations on
the review undertaken by UBS. This opinion is attached as
Annex II
and is
incorporated into this joint proxy statement/prospectus by reference.
Holders of SureWest common stock are
encouraged to read UBS opinion carefully in its entirety. UBS opinion was
provided for the benefit of SureWests board of directors (in its capacity as
such) in connection with, and for the purpose of, its evaluation of the fairness
of the Merger Consideration to be received by holders of SureWest common stock
in the First Merger from a financial point of view and does not address any
other aspect of the Mergers. The opinion does not address the relative merits of
the Mergers as compared to other business strategies or transactions that might
be available with respect to SureWest or SureWests underlying business decision
to effect the Mergers. The opinion does not constitute a recommendation to any
shareholder as to how such shareholder should vote or act with respect to the
Mergers. In addition, the opinion does not address, or constitute a
recommendation with respect to, any particular shareholder election. Holders of
SureWest common stock are encouraged to read UBS opinion carefully in its
entirety.
The following summary of UBS
opinion is qualified in its entirety by reference to the full text of UBS
opinion.
56
In arriving at its opinion, UBS, among other things:
-
reviewed certain publicly available business and
financial information relating to SureWest and Consolidated;
-
reviewed certain internal financial information
and other data relating to SureWests businesses and financial prospects that
were not publicly available, including financial forecasts and estimates
prepared by SureWests management that SureWests board of directors directed
UBS to utilize for purposes of its analysis;
-
reviewed certain internal financial information
and other data relating to Consolidateds businesses and financial prospects
that were not publicly available, including financial forecasts and estimates
prepared by SureWests management that SureWests board of directors directed
UBS to utilize for purposes of its analysis;
-
reviewed certain estimates of synergies prepared
by Consolidateds management and discussed with SureWest that were not
publicly available that SureWests board of directors directed UBS to utilize
for purposes of its analysis;
-
conducted discussions with members of the senior
managements of SureWest and Consolidated concerning the businesses and
financial prospects of SureWest and Consolidated;
-
reviewed publicly available financial and stock
market data with respect to certain other companies UBS believed to be
generally relevant;
-
compared the financial terms of the Mergers with
the publicly available financial terms of certain other transactions UBS
believed to be generally relevant;
-
reviewed current and historical market prices of
SureWest common stock and Consolidated common stock;
-
reviewed the Merger Agreement;
and
-
conducted such other financial studies, analyses
and investigations, and considered such other information, as UBS deemed
necessary or appropriate.
In connection with its review, with the consent of SureWests
board of directors, UBS assumed and relied upon, without independent
verification, the accuracy and completeness in all material respects of the
information provided to or reviewed by UBS for the purpose of its opinion. In
addition, with the consent of SureWests board of directors, UBS did not make
any independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of SureWest or Consolidated, and was not furnished
with any such evaluation or appraisal. With respect to the financial forecasts,
estimates and synergies
referred to above, UBS assumed, at the direction of SureWests
board of directors, that such forecasts, estimates and synergies had been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of SureWests management as to the future financial performance of
SureWest and Consolidated, respectively, and such synergies. In addition, UBS
assumed, with the approval of SureWests board of directors, that such financial
forecasts and estimates, including synergies, would be achieved at the times and
in the amounts projected. UBS also assumed, with the consent of SureWests board
of directors, that the Mergers would qualify for U.S. federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended. UBS opinion was necessarily based on
economic, monetary, market and other conditions as in effect on, and the
information available to UBS as of, the date of its opinion.
At the request of SureWests board of directors, UBS contacted third
parties to solicit indications of interest in a possible transaction with
SureWest and held discussions with certain of these parties prior to the date of
UBS opinion. In addition, at the direction of SureWests board of directors,
UBS was not asked to, and it did not, offer any opinion as to the terms, other
than the Merger Consideration to the extent expressly specified in UBS opinion,
of the Merger Agreement or the form of the Mergers. In addition, UBS expressed
no opinion as to the fairness of
57
the amount or nature of any compensation to be
received by any officers, directors or employees of any parties to the Mergers,
or any class of such persons, relative to the Merger Consideration. UBS
expressed no opinion as to what the value of Consolidated common stock would be
when issued pursuant to the Mergers or the prices at which
Consolidated
common stock or SureWest common stock would trade at any time. In
rendering its opinion, UBS assumed, with the consent of SureWests board of
directors, that (i) the parties to the Merger Agreement would comply with all
material terms of the Merger Agreement and (ii) the Mergers would be consummated
in accordance with the terms of the Merger Agreement without any adverse waiver
or amendment of any material term or condition of the Merger Agreement. UBS also
assumed that all governmental, regulatory or other consents and approvals
necessary for the consummation of the Mergers would be obtained without any
material adverse effect on SureWest, Consolidated or the Mergers. Except as
described above, SureWest imposed no other instructions or limitations on UBS
with respect to the investigations made or the procedures followed by UBS in
rendering its opinion. The issuance of UBS opinion was approved by an
authorized committee of UBS.
In connection with rendering its opinion to SureWests board of
directors, UBS performed a variety of financial and comparative analyses which
are summarized below. The following summary is not a complete description of all
analyses performed and factors considered by UBS in connection with its opinion.
The preparation of a financial opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary
description. With respect to the selected companies analysis and the selected
transactions analysis summarized below, no company or transaction used as a
comparison was identical to SureWest, Consolidated or the Mergers. These
analyses necessarily involve complex considerations and judgments concerning
financial and operating characteristics and other factors that could affect the
values of the companies concerned.
UBS believes that its analyses and the summary below must be considered
as a whole and that selecting portions of its analyses and factors or focusing
on information presented in tabular format, without considering all analyses and
factors or the narrative description of the analyses, could create a misleading
or incomplete view of the processes underlying UBS analyses and
opinion. UBS did not draw, in isolation, conclusions from or
with regard to any one factor or method of analysis for purposes of its opinion,
but rather arrived at its ultimate opinion based on the results of all analyses
undertaken by it and assessed as a whole.
The estimates of
the future performance of SureWest and Consolidated provided by SureWest in or
underlying UBS analyses are not necessarily indicative of future results or
values, which may be significantly more or less favorable than those estimates.
In performing its analyses, UBS considered industry performance, general
business and economic conditions and other matters, many of which were beyond
the control of SureWest and Consolidated. Estimates of the financial value of
companies do not purport to be appraisals or necessarily reflect the prices at
which businesses or securities actually may be sold or acquired.
The Merger Consideration was determined through negotiation between
SureWest and Consolidated and the decision by SureWest to enter into the Mergers
was solely that of SureWests board of directors. UBS opinion and financial
analyses were only one of many factors considered by SureWests board of
directors in its evaluation of the Mergers and should not be viewed as
determinative of the views of SureWests board of directors or management with
respect to the Mergers or the Merger Consideration.
The following is a brief summary of the material financial analyses
performed by UBS and reviewed with SureWests board of directors on February 5,
2012, in connection with its opinion relating to the proposed Mergers.
The financial analyses summarized below
include information presented in tabular format. In order for UBS financial
analyses to be fully understood, the tables must be read together with the text
of each summary. The tables alone do not constitute a complete description of
the financial analyses. Considering the data below without considering the full
narrative description of the financial analyses, including the methodologies and
assumptions underlying the analyses, could create a misleading or incomplete
view of UBS financial analyses.
58
Financial Analyses
Selected Public
Companies
Analysis
UBS compared selected financial and stock market data of SureWest with
corresponding data of the following 15 publicly traded companies, which are
incumbent local exchange carriers (ILECs), facility-based business telecom
services providers or cable companies:
ILECs
-
Alaska Communications Systems Group
Inc.
-
CenturyLink Inc.
-
Cincinnati Bell Inc.
-
Consolidated
-
Frontier Communications Corp.
-
Otelco Inc.
-
Windstream Corp.
Facility-based Business Telecom Services
Providers
-
Earthlink Inc.
-
Lumos Networks Corp.
-
tw telecom Inc.
Cable Companies
-
Cablevision Systems Corp.
-
Charter Communications Inc.
-
Comcast Corp.
-
Knology Inc.
-
Time Warner Cable Inc.
UBS reviewed,
among other things, enterprise values, calculated as equity market value based
on closing stock prices on February 3, 2012, plus debt at book value, preferred
stock at liquidation value and minority interests at book value, less cash and
cash equivalents, as multiples of estimated 2011, 2012 and 2013 (1) earnings
before interest, taxes, depreciation and amortization, referred to as EBITDA,
and (2) EBITDA minus capital expenditures, referred to as operating free cash
flow, or OpFCF. UBS then compared the multiples derived for the selected
companies with corresponding multiples implied for SureWest. The multiples for
SureWest were calculated using (i) the closing price of SureWest common stock on
February 3, 2012 of $15.59 and (ii) the Merger
Consideration of $23.00 per share of SureWest common stock. Financial
data for the selected companies, other than Consolidated, were based on publicly
available research analysts consensus estimates, public filings and other
publicly available
59
information. Estimated financial data for Consolidated were
based on the estimates of SureWests management. Estimated financial data for
SureWest were based on internal estimates of SureWests management, referred to
as SureWest Management Estimates. This analysis indicated the following
implied high, mean, median and low multiples for the selected companies, as
compared to corresponding multiples implied for SureWest:
|
|
EV/EBITDA
|
|
EV/OpFCF
|
|
|
CY2011
|
|
CY2012
|
|
CY2013
|
|
CY2011
|
|
CY2012
|
|
CY2013
|
Selected Public
Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
High
|
|
9.1
|
x
|
|
9.0
|
x
|
|
9.3
|
x
|
|
31.7
|
x
|
|
24.2
|
x
|
|
18.5
|
x
|
Total Mean
|
|
6.6
|
x
|
|
6.4
|
x
|
|
6.3
|
x
|
|
12.2
|
x
|
|
11.0
|
x
|
|
10.0
|
x
|
Total
Median
|
|
6.7
|
x
|
|
6.5
|
x
|
|
6.2
|
x
|
|
10.3
|
x
|
|
9.8
|
x
|
|
9.1
|
x
|
Total Low
|
|
3.8
|
x
|
|
3.9
|
x
|
|
3.9
|
x
|
|
5.7
|
x
|
|
6.4
|
x
|
|
7.0
|
x
|
Implied Multiples for SureWest
Based
|
|
5.2
|
x
|
|
5.2
|
x
|
|
4.9
|
x
|
|
41.3
|
x
|
|
34.7
|
x
|
|
15.0
|
x
|
on Closing Price on February 3,
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of $15.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied Multiples for
SureWest Based
|
|
6.6
|
x
|
|
6.6
|
x
|
|
6.1
|
x
|
|
51.9
|
x
|
|
43.5
|
x
|
|
18.8
|
x
|
on Merger Consideration of
$23.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Transactions Analysis
UBS reviewed
publicly available information relating to the following 17 transactions
announced between September 2008 and February 2012 involving ILECs,
facility-based business telecom services providers or cable companies:
ILECs
Announcement
|
|
|
|
|
Date
|
|
Target
|
|
Acquiror
|
-
April 22,
2010
-
November 24,
2009
-
September 8,
2009
-
May 13,
2009
-
May 11, 2009
-
November 21,
2008
-
October 27,
2008
|
|
-
Qwest
Communications
International, Inc.
-
Iowa
Telecommunications
Services, Inc.
-
Lexcom, Inc.
-
Certain wireline properties
of
Verizon Communications,
Inc.
-
D&E Communications,
Inc.
-
Sherburne Tele Systems,
Inc.
-
Embarq
Corp.
|
|
-
CenturyLink
Inc.
-
Windstream
Corp.
-
Windstream Corp.
-
Frontier
Communications
Corp.
-
Windstream Corp.
-
Iowa
Telecommunications
Services, Inc.
-
CenturyTel,
Inc.
|
|
|
|
Facility-based Business Telecom Services Providers
|
|
|
|
Announcement
|
|
|
|
|
Date
|
|
Target
|
|
Acquiror
|
-
August 1, 2011
-
December 20, 2010
-
October 1, 2010
-
September 13, 2010
-
November 3,
2009
|
|
-
Paetec Holding Corp.
-
One Communications Corp.
-
ITC Deltacom, Inc.
-
Cavalier Telephone LLC
-
NuVox
Communications
|
|
-
Windstream Corp.
-
Earthlink Inc.
-
Earthlink Inc.
-
Paetec Holding Corp.
-
Windstream
Corp.
|
60
Cable Companies
|
|
|
|
|
|
|
|
|
|
Announcement
|
|
|
|
|
Date
|
|
Target
|
|
Acquiror
|
-
August 15,
2011
-
November 15,
2010
-
August 4,
2010
-
March 5,
2010
-
September 8,
2008
|
|
-
Insight
Communications Co., Inc.
-
Mediacom
Communications Corp.
-
Sunflower
Broadband
-
RCN
Corp.
-
29% interest
in Mediacom
Communications Corp. owned by Morris
Communications
Co. LLC
|
|
-
Time Warner
Cable, Inc.
-
Controlling
shareholder Rocco
Commisso
-
Knology,
Inc.
-
ABRY Partners
LLC
-
Mediacom
Communications Corp.
|
UBS reviewed the
enterprise values, calculated as the purchase price paid for the target
companys equity, plus debt at book value, preferred stock at liquidation value
and minority interests at book value, less cash and cash equivalents, as a
multiple of latest twelve-months (LTM) EBITDA for the selected transactions.
UBS then compared the multiples derived for the selected transactions with
corresponding multiples for SureWest based on the closing price on February 3,
2012 and the Merger Consideration of $23.00 per share. Multiples for the
selected transactions were based on publicly available information at the time
of announcement of the relevant transaction. This analysis indicated the
following implied high, mean, median and low multiples for the selected
transactions, as compared to corresponding multiples implied for SureWest:
Implied Multiples for Selected Transactions
|
|
EV/LTM
EBITDA
|
Total High
|
8.6
|
x
|
Total Mean
|
6.2
|
x
|
Total Median
|
5.8
|
x
|
Total Low
|
4.4
|
x
|
Implied Multiples for
SureWest Based on Closing Price on February 3, 2010 of $15.59
|
5.2
|
x
|
Implied Multiples for SureWest Based on
Merger Consideration of $23.00
|
6.6
|
x
|
Discounted Cash Flow Analyses
SureWest
Standalone
UBS performed a discounted cash flow analysis of SureWest on a standalone
basis using financial forecasts and estimates relating to SureWest prepared by
SureWests management. UBS calculated a range of implied present values (as of
December 31, 2011) of the standalone unlevered, after-tax free cash flows that
SureWest was forecasted to generate from calendar year 2012 through calendar
year 2016 and of terminal values for SureWest based on SureWests calendar year
2016 estimated EBITDA. Implied terminal values were derived by applying to
SureWests calendar year 2016 estimated EBITDA a range of EBITDA terminal value
multiples of 5.0x to 6.0x. Present values of cash flows and terminal values were
calculated using discount rates ranging from 9.0% to 11.0%. The discounted cash
flow analysis resulted in a range of implied present values of approximately
$15.00 to $22.00 per share of SureWest common stock.
Consolidated Standalone
UBS performed a discounted cash flow analysis of Consolidated on a
standalone basis using financial forecasts and estimates relating to
Consolidated prepared by SureWests management. UBS calculated a range of
implied present values as (as of December 31, 2011) of the standalone unlevered,
after-tax free cash flows that Consolidated was forecasted to generate from
calendar year 2012 through calendar year 2016 and of terminal values for
Consolidated based on Consolidateds calendar year 2016 estimated EBITDA.
Implied terminal values were derived by applying to Consolidateds calendar year
2016 estimated EBITDA a range of EBITDA terminal value multiples
61
of 6.5x to 7.5x. Present values of cash flows and terminal values were calculated using
discount rates ranging from 6.5% to 7.5%. The discounted cash flow analysis
resulted in a range of implied present values of approximately $12.00 to $17.70
per share of Consolidated common stock.
SureWest Pro Forma for the Mergers, based upon the Assumed Mixed
Consideration (as defined below)
UBS performed a discounted cash flow analysis of Consolidated pro forma
for the Mergers using (i) financial forecasts and estimates for SureWest and
Consolidated prepared by SureWests management and (ii) estimates of synergies
anticipated to result from the proposed Mergers prepared by the management of
Consolidated and discussed with SureWest. UBS calculated the implied present
values (as of December 31, 2011) of the unlevered, after-tax free cash flows
that Consolidated pro forma for the Mergers was
forecasted to generate from calendar year 2012 through calendar year 2016
and of the terminal value for Consolidated pro forma for the Mergers based on
Consolidateds calendar year 2016 estimated EBITDA pro forma for the Mergers.
Implied terminal values were derived by applying to Consolidateds calendar year
2016 estimated EBITDA pro forma for the Mergers a range of EBITDA terminal value
multiples of 5.9x to 6.9x. Present values of cash flows and terminal values were
calculated using discount rates ranging from 7.1% to 8.1%. UBS then calculated
a range of implied present values per share of SureWest common stock, pro forma
for the Mergers, assuming for purposes of the calculation that all SureWest
shareholders were prorated, pursuant to the cash election, to receive an
identical mix of cash and Consolidated common stock for each share of SureWest
common stock, calculated as follows: 0.5974 shares (one half the Exchange Ratio)
of Consolidated common stock and $11.50 cash consideration per share of SureWest
common stock (collectively, the Assumed Mixed Consideration). This discounted
cash flow analysis resulted in a range of implied present values per share of
SureWest common stock, pro forma for the Mergers, based upon the Assumed Mixed
Consideration, of approximately $20.35 to $24.85.
Based on the
foregoing analyses, UBS then calculated the percentage increase between (i) the
range of implied present values per share of SureWest common stock on a
standalone basis and (ii) the range of implied present values per share of
SureWest common stock pro forma for the Mergers, based upon the Assumed Mixed
Consideration. UBS observed that such percentage increase ranged from
approximately 13% (when comparing the high end of the first range to the high
end of the second range) to 36% (when comparing the low end of the first range
to the low end of the second range).
Miscellaneous
Under the terms of UBS engagement, SureWest agreed to pay UBS for its
financial advisory services in connection with the Mergers an aggregate fee
currently estimated to be approximately $7.1 million, a portion of which was
payable in connection with UBS opinion and approximately $5.3 million of which
is contingent upon consummation of the Mergers. In addition, SureWest agreed to
reimburse UBS for its reasonable expenses, including fees, disbursements and
other charges of counsel, and to indemnify UBS and related parties against
liabilities, including liabilities under federal securities laws, relating to,
or arising out of, its engagement. In the past, UBS has provided investment
banking services to SureWest unrelated to the proposed Mergers, for which UBS
received compensation, including having acted as agent for SureWest in
connection with a share repurchase. In the ordinary course of business, UBS and
its affiliates may hold or trade, for their own accounts and the accounts of
their customers, securities of SureWest and Consolidated, and, accordingly, may
at any time hold a long or short position in such securities. SureWest selected
UBS as its financial advisor in connection with the Mergers because UBS is an
internationally recognized investment banking firm with substantial experience
in similar transactions. UBS is regularly engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, leveraged
buyouts, negotiated underwritings, competitive bids, secondary distributions of
listed and unlisted securities and private placements.
Consolidateds Reasons for the
Mergers
Consolidated was formed as an acquisition vehicle in July 2002, and
completed its first transaction on December 31, 2002, when it acquired certain
central-Illinois based assets of McLeodUSA. In April, 2004, Consolidated
acquired TXUC from Texas Utlilities. In July, 2005, Consolidated completed its
initial public offering
62
of common stock, and on December 31, 2007, Consolidated
acquired North Pittsburgh Systems, Inc. Throughout Consolidateds history,
Consolidated has focused on acquisitions as a core part of its strategy, and
developed a set of evaluation criteria early on which it used and intends to
continue to use to evaluate potential opportunities.
At nearly every regular quarterly board of directors meeting, the
Companys management team has reviewed prospective acquisition targets and
ranked them according to their attractiveness and alignment with the acquisition
criteria. Where the opportunities were deemed attractive, the Company
participated from time to time in auctions, made inquiries, and generally
attempted to advance its long-standing strategy to grow through acquisition.
As a part of that ongoing process, the management team and the
Consolidated board of directors determined that SureWest met the Companys
criteria for potential acquisitions, and identified SureWest as an attractive
potential acquisition candidate. Consolidated entered into a non-disclosure
agreement with SureWest in December 2009 for the purpose of conducting due
diligence on SureWest and evaluating a potential transaction.
From time to time throughout the period from the time beginning with the
initial merger discussions between
Consolidated
and SureWest in December 2009, and continuing through the time the Merger
Agreement was executed on February 5, 2012, the Consolidated board of directors
worked with the Consolidated management team to develop various strategies and
approaches, including the approval of what became the terms of the Merger
Agreement.
In approving the Merger Agreement and the Mergers, Consolidateds board
of directors consulted with Consolidateds management, as well as with
Consolidateds legal and financial advisors, and considered, among other things,
the following material factors:
-
that the Mergers would combine Consolidateds strong and stable cash flow
business with SureWests growth-oriented broadband and overbuilder
strategy;
-
that the Mergers would diversify
Consolidateds revenue and cash flow streams across multiple business lines
and geographies and would reduce regulatory risk;
-
the expectation that the Mergers would be
accretive to cash flow, after synergies, in the first full year of
operations;
-
the expectation that the Mergers would result in a
financially strong company with a robust balance sheet, attractive dividend
payout ratio and the ability to deliver over time;
-
the expectation that, after the consummation of
the Mergers, the combined companies would realize annual, operating and
capital synergies;
-
the expectation that the Mergers would improve
Consolidateds leverage and dividend payout ratio;
-
that, after the Mergers, the Company would have
the opportunity to utilize approximately $67 million of estimated SureWest net
operating losses, as of September 30, 2011, recognizing that Section 382 of
the Internal Revenue Code imposes timing and other limitations on the use of
these net operating losses;
-
the expectation that the Mergers would create a
platform for future growth through acquisitions to fill in
Consolidateds national footprint, and organically through
investments in the combined companys existing markets;
-
the opportunity to integrate SureWests business
efficiently with Consolidateds existing business.
-
Consolidated managements prior record of
successfully integrating acquired companies; and
-
that the Mergers would bring together two
companies with a common history of family ownership and shared values of
community involvement.
63
Consolidateds
board of directors also considered, among other things, the following risks:
-
regulatory and litigation risks associated with
the Mergers or combining the two companies;
-
that there are risks associated with obtaining
necessary approvals on terms that satisfy closing conditions to the respective
parties obligations to complete the Mergers, and, as a result of certain
conditions to the completion of the Mergers, it is possible that the Mergers
may not be completed even if approved by Consolidateds stockholders and
SureWests shareholders (see The Merger Agreement Conditions of the
Mergers);
-
the challenges of combining the businesses of the
two companies and the attendant risks of not achieving the expected strategic
benefits and cost savings, other financial and operating benefits or
improvement in earnings, and of diverting management focus and resources from
other strategic opportunities and from operational matters for an extended
period of time;
-
the perception of investors and the potential
impact on Consolidateds share price;
-
the level of capital expenditures that will be
required with respect to the SureWest cable overbuilder
business;
-
the ability to secure financing on terms
satisfactory to Consolidated;
-
the terms and conditions of the Merger Agreement,
which include restrictions on the conduct of Consolidateds business pending
the closing of the Mergers (see The Merger Agreement Consolidateds
Forbearances Before Completion of the Mergers); and
-
the other risks of the type and nature discussed
above under Risk Factors Relating to the Mergers.
Opinion of Financial Advisor to
Consolidated
Consolidated
retained Wells Fargo Securities to act as Consolidateds financial advisor in
connection with a possible transaction involving Consolidated and SureWest and
their respective affiliates. In connection with this engagement, the board of
directors of Consolidated requested that Wells Fargo Securities provide its
opinion as to the fairness, from a financial point of view, to Consolidated of
the Merger Consideration to be paid pursuant to the Merger Agreement. In
selecting Wells Fargo
Securities as its financial
advisor, Consolidated considered, among other things, the fact that Wells Fargo
Securities is a widely recognized investment banking firm with substantial
experience advising companies in the telecommunications industry and has
familiarity with Consolidated and SureWest and has substantial experience
providing strategic advisory services in similar transactions. Wells Fargo
Securities, as part of its investment banking business, is continuously engaged
in the evaluation of businesses and debt and equity securities in connection
with mergers and acquisitions, underwritings, private placements and other
securities offerings, senior credit financings, and general corporate advisory
services.
On February 5,
2012, Wells Fargo Securities delivered its written opinion to the board of
directors of Consolidated to the effect that, as of February 5, 2012, and based
on and subject to various assumptions made, procedures followed, matters
considered and limitations on the review undertaken by Wells Fargo Securities in
connection with the opinion, the experience of its investment bankers and other
factors it deemed relevant, the Merger Consideration to be paid pursuant to the
Merger Agreement was fair, from a financial point of view, to Consolidated. The
issuance of the opinion of Wells Fargo Securities was approved by an authorized
committee of Wells Fargo Securities.
The full text of the written opinion of Wells Fargo Securities
sets forth, among other things, assumptions made, procedures followed, matters
considered and limitations on the review undertaken by Wells Fargo Securities in
connection with such opinion. This written opinion is attached as Annex III to
this joint proxy statement/prospectus and is incorporated by reference in its
entirety into this joint proxy statement/prospectus. The following summary is
qualified in its entirety by reference to the full text of the opinion. Wells
64
Fargo Securities provided its opinion for the information and use of the board
of directors of Consolidated in connection with its evaluation of the Mergers.
Wells Fargo Securities opinion did not and does not constitute a recommendation
as to how any holder of shares of Consolidated common stock should vote with
respect to the issuance of shares of Consolidated common stock pursuant to the
First Merger and the Merger Agreement or any other matter.
In arriving
at its opinion, Wells Fargo Securities, among other things:
-
Reviewed a draft dated February 5, 2012 of the
Merger Agreement, including the financial terms of the Merger
Agreement;
-
Reviewed certain business, financial and other
information regarding SureWest that was publicly available or was furnished to
Wells Fargo Securities by SureWest or Consolidated;
-
Reviewed certain financial projections for
SureWest prepared by the management of SureWest as reviewed and approved for
Wells Fargo Securities use by the management of Consolidated, which are
referred to in this joint proxy statement/prospectus as the SureWest
projections;
-
Discussed with the managements of SureWest and
Consolidated the operations and prospects of SureWest, including the
historical financial performance and trends in the results of operations of
SureWest;
-
Reviewed certain business, financial and other
information regarding Consolidated that was publicly available or was
furnished to Wells Fargo Securities by Consolidated;
-
Reviewed certain financial projections for
Consolidated prepared by the management of Consolidated, which is referred to
in this joint proxy statement/prospectus as the Consolidated
projections;
-
Discussed with the management of Consolidated the
operations and prospects of Consolidated, including the historical financial
performance and trends in the results of operations of
Consolidated;
-
Reviewed certain projections of the synergies
expected to result from the Mergers prepared by the management of
Consolidated, which are referred to in this joint proxy statement/prospectus
as the synergies projections, and certain projections of the integration
costs associated with implementing the expected synergies prepared by the
management of Consolidated, which are referred to in this joint proxy
statement/prospectus as the integration costs;
-
Reviewed certain information regarding the net
operating losses held by SureWest prepared by the management of SureWest and
certain estimates regarding the utilization of such net operating losses by
Consolidated for U.S. federal income tax purposes approved for Wells Fargo
Securities use by the management of Consolidated, which is referred to in
this joint proxy statement/prospectus as the NOL
projections;
-
Discussed with the management of Consolidated the
strategic rationale for the Mergers;
-
Compared certain business, financial and other
information regarding SureWest and Consolidated, respectively, that was
publicly available or was furnished to Wells Fargo Securities by the
respective managements of SureWest and Consolidated with publicly available
business, financial and other information regarding certain publicly traded
companies that Wells Fargo Securities deemed relevant;
-
Compared the proposed financial terms of the
Merger Agreement with the financial terms of certain other business
combinations and transactions that Wells Fargo Securities deemed
relevant;
-
Prepared a discounted cash flow analysis of
SureWest based upon the SureWest projections, the NOL projections, the
synergies projections and the integration costs, as well as other assumptions
discussed with and confirmed as reasonable by the management of
Consolidated;
65
-
Prepared a pro forma analysis estimating the
financial impact on the combined company resulting from the Mergers based upon
the SureWest projections, the NOL projections, the synergies projections, the
integration costs, the Consolidated projections and the pro forma capital
structure of Consolidated projected by the management of Consolidated, as well
as other assumptions discussed with and confirmed as reasonable by the
management of Consolidated; and
-
Considered other information such as financial
studies, analyses and investigations, as well as financial, economic and
market criteria that Wells Fargo Securities deemed relevant.
In connection
with its review, Wells Fargo Securities assumed and relied upon the accuracy and
completeness of the financial and other information provided, discussed with or
otherwise made available to it, including all accounting, tax and legal
information, and Wells Fargo Securities did not make (and did not assume any
responsibility for) any independent verification of such information. Wells
Fargo Securities assumed, with the consent of the board of directors of
Consolidated, that neither the management of SureWest nor of Consolidated was
aware of any facts or circumstances that would make such information inaccurate
or misleading in any way meaningful to the analysis of Wells Fargo Securities.
With respect to the financial forecasts and estimates utilized in Wells Fargo
Securities analyses, including the SureWest projections, the NOL projections,
the synergies projections, the integration costs and the Consolidated
projections, Wells Fargo Securities assumed, with the consent of the board of
directors of Consolidated, that they were reasonably prepared and reflected the
best current estimates, judgments and assumptions of the management of
Consolidated as to the future financial performance of SureWest and
Consolidated, the utilization of the net operating losses of SureWest, the
synergies expected to result from the Mergers and the projected integration
costs associated with implementing the expected synergies. Wells Fargo
Securities assumed no responsibility for, and expressed no view as to, such
forecasts or estimates or the judgments or assumptions upon which they are
based. Wells Fargo Securities also assumed that there were no material changes
in the condition (financial or otherwise), results of operations, business or
prospects of SureWest or Consolidated since the date of the last financial
statements provided to Wells Fargo Securities. In arriving at its opinion, Wells
Fargo Securities did not conduct any physical inspection or appraisals of the
assets or liabilities (contingent or otherwise) of SureWest or Consolidated.
In rendering its opinion, Wells Fargo Securities assumed, with the
consent of the board of directors of Consolidated, that the final form of the
Merger Agreement, when signed by the parties thereto, would not differ from the
draft reviewed by it in any respect material to its opinion, that the Mergers
and financings contemplated to be undertaken by Consolidated in connection with
the Mergers or otherwise would be consummated in accordance with the terms
described in the Merger Agreement or as otherwise described to Wells Fargo
Securities by representatives of Consolidated and in compliance with all
applicable laws, without waiver of any material terms or conditions, and that in
the course of obtaining any necessary legal, regulatory or third party consents
or approvals for the Mergers or such contemplated financings, no restrictions
would be imposed or actions would be taken that would have an adverse effect on
Consolidated, SureWest or the expected benefits of the Mergers in any way
meaningful to Wells Fargo Securities analysis. Wells Fargo Securities opinion
was necessarily based on economic, market, financial and other conditions and
the information made available to it as of the date hereof. Although subsequent
developments may affect this opinion, Wells Fargo Securities does not have any
obligation to update, revise or reaffirm this opinion.
Wells Fargo Securities opinion only addresses the fairness, from a
financial point of view, to Consolidated of the Merger Consideration to the
extent expressly specified in its opinion, and does not address any other terms
or aspects of the Mergers, including, without limitation, the form or structure
of the Mergers, any allocation of the Merger Consideration, any tax or
accounting matters relating to the Mergers or otherwise, any financing
arrangements or any aspect or implication of any other agreement or arrangement
entered into in connection with or contemplated by the Mergers or otherwise. In
addition, Wells Fargo Securities opinion does not address the fairness of the
amount or nature of, or any other aspects relating to, any compensation to be
received by any officers, directors or employees of any parties to the Mergers,
or class of such persons, relative to the Merger Consideration. Wells Fargo
Securities opinion does not address the merits of the underlying decision by
Consolidated to enter into the Merger Agreement or the relative merits of the
Mergers or contemplated financings compared with other business
strategies or transactions available or that have been or might be
considered by the management or the board of directors of
Consolidated.
66
In connection
with rendering its opinion, Wells Fargo Securities performed certain financial,
comparative and other analyses as summarized below. This summary is not a
complete description of the financial analyses performed and factors considered
in connection with such opinion. In arriving at its opinion, Wells Fargo
Securities made its determinations as to the fairness, from a financial point of
view, to Consolidated of the Merger Consideration to be paid pursuant to the
Merger Agreement, on the basis of various financial and comparative analyses
taken as a whole. The preparation of a financial opinion is a complex process
and involves various determinations as to the most appropriate and relevant
methods of financial and comparative analyses and the application of those
methods to the particular circumstances. Therefore, a financial opinion is not
readily susceptible to summary description.
In arriving at its opinion, Wells Fargo Securities did not attribute any
particular weight to any single analysis or factor considered but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor relative to all other analyses and factors performed and considered and
in the context of the circumstances of the particular transaction. Accordingly,
the analyses must be considered as a whole, as considering any portion of such
analyses and factors, without considering all analyses and factors as a whole,
could create a misleading or incomplete view of the process underlying such
opinion. The fact that any specific analysis has been referred to in the summary
below is not meant to indicate that such analysis was given greater weight than
any other analysis referred to in the summary. No company, business or
transaction reviewed is identical to SureWest or Consolidated or the Mergers. An
evaluation of these analyses is not entirely mathematical; rather, the analyses
involve complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the public trading or other
values of the companies, business segments or transactions reviewed.
In performing its analyses, Wells Fargo Securities considered industry
performance, general business and economic conditions and other matters existing
as of February 5, 2012, many of which are beyond the control of SureWest and
Consolidated. None of SureWest, Consolidated or Wells Fargo Securities or any
other person assumes responsibility if future results are different from those
discussed whether or not any such difference is material. Any estimates
contained in these analyses and the ranges of valuations resulting from any
particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than as set forth below. In addition, analyses relating to the value
of businesses or securities do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities may actually be sold or
acquired. Accordingly, the assumptions and estimates used in, and the results
derived from, the following analyses are inherently subject to substantial
uncertainty.
The following is a summary of the material financial analyses provided on
February 5, 2012 to the board of directors of Consolidated by Wells Fargo
Securities in connection with its opinion
.
Certain financial analyses summarized below include information presented in
tabular format. In order to fully understand the financial analyses, the tables
must be read together with the text of each summary, as the tables alone do not
constitute a complete description of the financial analyses. Considering the
data in the tables below without considering the full narrative description of
the financial analyses, including the methodologies and assumptions underlying
the analyses, could create a misleading or incomplete view of such financial
analyses
.
Financial Analyses of SureWest
Selected Publicly Traded Companies Analysis.
Using publicly available information, Wells Fargo Securities
compared certain financial and other information and financial multiples
relating to SureWest to corresponding financial and other information and
financial multiples for certain publicly traded telecommunications companies
that Wells Fargo Securities, using its professional judgment and expertise,
deemed comparable to SureWest. Although none of these companies is directly
comparable to SureWest in all respects, Wells Fargo Securities selected these
companies because they are publicly traded companies with operations that, for
purposes of this analysis, may be considered similar to certain operations of
SureWest. The companies included in the selected publicly traded companies
analysis for SureWest were:
-
CenturyLink, Inc.
-
Consolidated Communications Holdings,
Inc.
-
Frontier Communications
Corporation
67
-
Knology, Inc.
-
Windstream Corporation
Wells Fargo
Securities reviewed, among other information, enterprise values of the selected
companies, which is referred to in this joint proxy statement/prospectus as
EV, calculated as equity value based on closing stock prices on February 3,
2012, plus book value of net debt, capitalized leases, preferred stock and
minority interest, as a multiple of calendar year 2012 estimated earnings before
interest, taxes, depreciation, amortization and excluding stock-based
compensation, which is referred to in this joint proxy statement/prospectus as
adjusted EBITDA. Based on these analyses and utilizing its professional
judgment and experience, Wells Fargo Securities then applied selected ranges of
EV/calendar year 2012 estimated adjusted EBITDA multiples of 5.5x to 7.5x,
derived from the analyses of the selected companies, to SureWests calendar year
2012 estimated adjusted EBITDA. Financial data of the selected companies were
based on public filings, equity research and common stock closing prices on
February 3, 2012. Financial data of SureWest were based on the SureWest
projections prepared by the management of SureWest as reviewed and approved for
Wells Fargo Securities use by the management of Consolidated, public filings,
common stock closing prices on February 3, 2012 and other publicly available
information. This analysis indicated the following implied per share equity
reference ranges for SureWest, as compared to the implied Merger Consideration
(based on common stock closing prices on February 3, 2012):
Implied Per Share Equity
Reference Range for SureWest
|
|
Implied Merger
Consideration
|
Based on:
|
|
|
Calendar Year 2012
Adjusted EBITDA
|
|
|
$18.90 - $30.60
|
|
$23.00
|
Selected
Transactions Analysis.
Utilizing publicly
available information, Wells Fargo Securities analyzed certain information
relating to the following selected transactions involving telecommunications
companies announced since September 2006. Although none of the companies
involved in the selected transactions are directly comparable to SureWest in all
respects, nor are any of the selected transactions directly comparable to the
Mergers in all respects, Wells Fargo Securities chose the transactions in the
selected transactions analysis because the companies that participated in the
selected transactions are companies with operations that, for the purposes of
analysis, may be considered similar to certain of the results, market size or
operations of SureWest.
Acquiror
|
|
Target
|
CenturyLink,
Inc.
|
|
Qwest
Communications
|
ABRY Partners, LLC
|
|
RCN Corporation
|
Windstream
Corporation
|
|
Iowa Telecommunications
Services, Inc.
|
Windstream Corporation
|
|
Lexcom, Inc.
|
Frontier Communications
Corporation
|
|
Verizon Communications
Inc. (access lines assets)
|
Windstream Corporation
|
|
D&E Communications
|
CenturyLink,
Inc.
|
|
Embarq
Corporation
|
Consolidated Communications Holdings,
Inc.
|
|
North Pittsburgh Systems, Inc.
|
Windstream
Corporation
|
|
CT Communications,
Inc.
|
CenturyLink, Inc.
|
|
Madison River Communications
Corp.
|
Frontier Communications
Corporation
|
|
Commonwealth Telephone
Enterprises, Inc.
|
For each of the
selected transactions, Wells Fargo Securities reviewed and analyzed, among other
things, transaction value, calculated as the equity value implied for the target
company based on the consideration payable in the selected transaction at the
announcement, plus debt, less cash, as a multiple of the target
company’s
latest
12 months adjusted EBITDA. Based on these analyses and utilizing its
professional judgment and experience, Wells Fargo Securities then applied a
selected range of latest 12 months adjusted EBITDA multiples of 6.0x to 8.0x
derived from the selected transactions to
SureWest’s
latest 12 months adjusted
EBITDA as of December 31, 2011. Financial data of the selected transactions were
based on public filings and other publicly available information at the time of
announcement of the relevant transaction. Financial data of SureWest were based
on SureWest projections prepared by the management of SureWest as reviewed and
approved for Wells Fargo Securities
68
use by the management of Consolidated,
public filings and other publicly available information. This analysis indicated
the following implied per share equity reference range for SureWest, as compared
to the implied Merger Consideration value:
Implied Per Share Equity
Reference Range for SureWest
|
|
Implied Merger
Consideration
|
Based on:
|
|
|
Calendar Year 2011
Adjusted EBITDA
|
|
|
$20.71 - $32.03
|
|
$23.00
|
Discounted
Cash Flow Analysis.
Wells Fargo Securities
conducted a discounted cash flow analysis for SureWest for the purpose of
determining an implied fully diluted equity value per share for SureWest common
stock as of December 31, 2011. A discounted cash flow analysis is a method of
evaluating an asset using estimates of the future unlevered free cash flows
generated by assets and taking into consideration the time value of money with
respect to those future cash flows by calculating their present value. Present value refers to
the current value of one or more future unlevered free cash flows from the
asset, which is referred to as that
asset’s
cash flows, and is obtained by
discounting those cash flows back to the present using a discount rate that
takes into account macro-economic assumptions and estimates of risk, the
opportunity cost of capital, capitalized returns and other appropriate factors.
Terminal value refers to the capitalized value of all cash flows from an asset
for periods beyond the final forecast period. Wells Fargo Securities calculated
the value of the unlevered free cash flows that SureWest is expected to generate
for fiscal year 2012 through 2016 implied by the SureWest projections prepared
by the management of SureWest as reviewed and approved for Wells Fargo
Securities use by the management of Consolidated. The unlevered free cash flows
and range of terminal values were then discounted to present value using a range
of discount rates from 9.0% to 11.0%, which were chosen by Wells Fargo
Securities based on its experience and professional judgment taking into account
an analysis of the weighted average cost of capital of SureWest and comparable
companies which Wells Fargo Securities deemed to be relevant to its analysis.
Wells Fargo Securities also calculated a range of terminal values for SureWest
at the end of the five-year period ending 2016 by applying a perpetual free cash
flow growth rate ranging from 1.0% to 3.0% selected based on Wells Fargo
Securities experience and professional judgment. As part of the total implied
equity value calculated for SureWest, Wells Fargo Securities also calculated the
present value, as of December 31, 2011, of the tax benefit from
SureWest’s
estimated net operating loss carry-forwards balance and estimated pre-tax
synergies expected to result from the transaction, net of estimated integration
costs to achieve such pre-tax synergies. In performing its analysis of the
present value of the tax benefit and estimated pre-tax synergies, Wells Fargo
Securities relied on the NOL projections, the synergies projections and the
integration costs provided by the management of Consolidated.
A summary of the implied valuation ranges
of the SureWest common stock that Wells Fargo Securities derived from such
analyses, as compared to the implied Merger Consideration, is set forth below:
|
|
Implied Per Share
Equity Reference Range
|
|
|
|
|
|
|
for SureWest Based
on:
|
|
|
|
|
|
SureWest
Projections
|
|
SureWest
Projections
|
|
SureWest
Projections
|
|
Implied
Merger
|
|
|
(including present value
of
|
|
(including present value
of
|
|
Consideration
|
|
|
estimated tax
benefit)
|
|
estimated tax benefit
and
|
|
|
|
|
|
|
pre-tax
synergies)
|
|
|
$14.00 - $22.00
|
|
$15.29 - $23.35
|
|
$23.83 - $34.09
|
|
$23.00
|
Other Considerations
Wells Fargo
Securities prepared the analyses described above for purposes of providing its
opinion to the board of directors of Consolidated as to the fairness, from a
financial point of view, as of February 5, 2012, to Consolidated of the Merger
Consideration to be paid pursuant to the Merger Agreement. The type and amount
of consideration payable in the First Merger were determined through
negotiations among the board of directors and management of each of Consolidated
and SureWest and their respective financial advisors. Wells Fargo Securities did
not recommend any specific consideration to the board of directors of Consolidated or state that any given consideration
constituted the only appropriate consideration for the Mergers. The decision to enter into the Merger Agreement was solely
that of the board of directors of Consolidated. As described above, Wells Fargo Securities opinion and analyses were
only one of many factors taken into consideration by the board of directors of
69
Consolidated
in evaluating the Mergers. Wells Fargo Securities analyses summarized above
should not be viewed as determinative of the views of the board of directors or
management of Consolidated with respect to the Mergers or the consideration to
be received in the First Merger.
Miscellaneous
Wells Fargo Securities is the trade name for certain capital markets and
investment banking services of Wells Fargo & Company and its subsidiaries,
including Wells Fargo Securities, LLC. Pursuant to an engagement letter between
Consolidated and Wells Fargo Securities, Consolidated agreed to pay Wells Fargo
Securities an aggregate fee of $5.0 million, a portion of which was payable upon
delivery of its opinion and a significant portion of which will be payable upon
consummation of the Mergers. Consolidated has also agreed to reimburse certain
of Wells Fargo Securities expenses and indemnify it against certain liabilities
that may arise out of its engagement. In addition, Wells Fargo Securities has
acted as sole lead arranger and bookrunner for Consolidateds amendment and
restatement of its existing credit facilities in connection with the
contemplated financing for the Mergers, and Wells Fargo Securities has received
customary fees in connection therewith.
Wells Fargo Securities and its affiliates provide a full range of
financial advisory, securities and lending services in the ordinary course of
business, for which Wells Fargo Securities and such affiliates receive customary
fees. In that regard, Wells Fargo Securities or its affiliates in the past have
provided, currently are providing, and in the future may provide, financial
services to Consolidated and its affiliates and SureWest and its affiliates,
respectively, for which Wells Fargo Securities and such affiliates
have received and expect to receive fees, including having
acted as or currently acting as a lender and administrative agent under the
existing senior secured credit facilities of Consolidated, as the sole lead
arranger in connection with the 2011 amendment and extension of such credit
facilities, and as a counterparty to certain derivative transactions with
Consolidated. In the ordinary course of business, Wells Fargo Securities and its
affiliates may actively trade or hold the securities or financial instruments of
Consolidated and SureWest for Wells Fargo Securities and its affiliates own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities or financial instruments.
Board of Directors of Consolidated
after Completion of the Mergers
Consolidateds
amended and restated certificate of incorporation provides for the
classification of Consolidateds board of directors into three classes of
directors, designated Class I, Class II and Class III, as nearly equal in size
as is practicable, serving staggered three-year terms. One class of directors is
elected each year to hold office for a three-year term or until successors of
such directors are duly elected and qualified. The current size of
Consolidateds board of directors is four directors, comprised of one Class I
director, one Class II director and two Class III directors. Class II consisted
of two directors until the February 29, 2012 death of Jack W. Blumenstein, an
independent director of Consolidated, the Chairperson of Consolidateds Audit
Committee and a member of Consolidateds Corporate Governance Committee and
Compensation Committee. For more information regarding Consolidateds directors,
see Consolidated Proposal No. 2: Election of Richard A. Lumpkin as Director.
Pursuant to the Merger Agreement, SureWest is entitled to select, and
Consolidated has agreed to take all such action as may be reasonably necessary
to cause, one individual from among the current members of the board of
directors of SureWest to be elected to Consolidateds board of directors as of
the effective time of the Mergers. Prior to completion of the Mergers, SureWest
will designate such director. For further information on SureWests directors,
see SureWests Form 10-K for the year ended December 31, 2011. As a result,
after completion of the Mergers, assuming Consolidateds stockholders elect the
nominee to the board described under Consolidated Proposal No. 2: Election of
Richard A. Lumpkin as Director, Consolidated expects that the board of
directors of Consolidated would consist of Roger H. Moore (Class II Director
term expiring in 2013), Robert J. Currey (Class III Director term expiring in
2014), Maribeth S. Rahe (Class III Director term expiring in 2014), Richard A.
Lumpkin (Class I Director term expiring in 2015) and an individual to be
designated by SureWest (Class I Director term expiring in 2015).
On March 1, 2012, Consolidated notified The NASDAQ Stock Market LLC
(NASDAQ) of Mr. Blumensteins death. As a result of Mr. Blumensteins death,
Consolidateds board of directors is no longer comprised of a majority of
independent directors and Consolidateds Audit Committee is no longer comprised
of at least three independent directors, as required for continued listing by
NASDAQ Listing Rules 5605(b)(1) and 5605(c)(2)(A),
70
respectively. On March 5,
2012, Consolidated received a deficiency letter from NASDAQ acknowledging the
failure of Consolidated to continue to satisfy the aforementioned NASDAQ Listing
Rules. In accordance with NASDAQ Listing Rules 5605(b)(1)(A) and 5605(c)(4)(A)
and the NASDAQ deficiency letter, and given the date of the Consolidated annual
meeting, Consolidated has until August 28, 2012 to regain compliance with NASDAQ
Listing Rules.
Prior to the expiration of the applicable cure period, Consolidateds
board intends to add to the board either (i) the individual to be designated by
SureWest or (ii) another new director, or both. The director or directors so
appointed would not only satisfy the independence requirements of the NASDAQ
Listing Rules, but would have no material connection to Consolidated (that is,
no material financial, personal, business, or other relationship that a
reasonable person could conclude could potentially influence boardroom
objectivity) prior to being appointed to Consolidateds board of directors.
Consolidateds board would increase the size of the board as necessary to
accommodate the addition or additions to the board.
Interests of SureWest Directors and
Executive Officers in the Mergers
In considering the recommendation of the SureWest board of directors with
respect to the Mergers, SureWest shareholders should be aware that certain
executive officers and directors of SureWest have interests in the Mergers that
may be different from, or in addition to, the interests of SureWest shareholders
generally. The SureWest board of directors was aware of the interests described
below and considered them, among other matters, when approving the Merger
Agreement and recommending that SureWest shareholders vote to approve the Merger
Agreement.
Each of SureWests executive officers and non-employee directors holds
equity awards. Pursuant to the terms of the applicable SureWest equity plan and
agreements, and subject to the terms of the Merger Agreement, all such equity
awards held by SureWests executive officers and non-employee directors will
become fully vested on the date of the closing of the First Merger and will be
cancelled in exchange for the right to receive an amount in cash (without
interest) determined (A) with respect to stock options by multiplying (a) the
excess (if any) of the cash Merger Consideration of $23.00 per share over the
applicable exercise price per share of the option by (b) the number of shares
subject to the option and (B) with respect to restricted stock units (RSUs)
and restricted stock awards (RSAs) by multiplying (b) the cash Merger
Consideration of $23.00 per share by (b) the number of shares subject to such
RSU or RSA, as applicable. In general, such awards will be treated the same as
equity awards
held by all other SureWests employees, as
described in the section titled The MergersTreatment of SureWest Equity
Awards. In addition, each of SureWests executive officers has an agreement
with SureWest that provides for severance benefits, in the form of cash, health
benefits, outplacement assistance and accelerated vesting of equity, if the
executives employment is terminated in connection with this transaction under
the circumstances described below.
Change of Control Severance
Agreements with Executive Officers
In February 2011,
SureWest entered into new Change in Control Severance Agreements (the Severance
Agreements) with Steven C. Oldham, SureWests president and chief executive
officer, and certain employees, including its named executive officers (as set
forth below). These Severance Agreements essentially renewed expiring Change in
Control Severance Agreements, with certain modifications, including the
elimination of Mr. Oldhams former Internal Revenue Service Code (the Code)
Section 280G excise tax gross-up benefit. Under the terms of these Severance
Agreements, certain benefits are provided in the event of termination of
employment, or a termination or resignation for good reason within one year
following a change in control (Qualifying Termination) and upon signing a
complete release of claims and liability in favor of SureWest, except for such
claims as may not be legally released.
A change in control is generally defined in the Severance Agreements as
(i) the acquisition by any person (as defined in the Severance Agreements) of
50% or more of SureWests outstanding securities, (ii) replacement of a majority
of the SureWest board by members not approved or recommended for nomination to
the SureWest board by a majority of incumbent directors, (iii) a merger or
consolidation, except in cases where SureWests shareholders prior to the change
in control continue to own a majority of the new company, or (iv) consummation
of a plan of complete liquidation of SureWest or sale of all or substantially
all of SureWests assets unless the sale is to a company or entity that is owned
by a majority of SureWests shareholders prior to such liquidation or
sale.
71
A resignation or termination with good reason following a change in
control is generally defined in the Severance Agreements as (i) a material
reduction in authority, duties and responsibilities, (ii) material reduction in
compensation, (iii) refusal of a successor corporation or entity to assume the
obligations of the Severance Agreements, or (iv) a greater than 50 mile
relocation of principal place of work. SureWest has the right to cure any good
reason event for a period of 30 days after receiving proper notice of a good
reason event.
Payments due on a Qualifying Termination include (i) two times base
salary (three times for Mr. Oldham), (ii) two times target annual incentive
compensation (three times for Mr. Oldham), (iii) full vesting of outstanding
unvested equity awards on the date of the Qualifying Termination, (iv) up to two
years of continued medical, dental and accidental death and disability coverage
(up to three years for Mr. Oldham), unless replacement coverage is obtained with
a new employer, and (v) reasonable outplacement services for up to 12 months
following the termination date.
All Severance Agreements, except for Mr. Oldhams, provide that if the
total payments and benefits due or payable under the Severance Agreements would
constitute an excess parachute payment within the meaning of Code Section 280G
and regulations enacted thereunder, then any payments or benefits that would
otherwise be due under the Severance Agreements formula shall be reduced to the
maximum amount permitted under the Code, without incurring an excess parachute
payment (a Section 280G Cutback). Mr. Oldhams Severance Agreement provides
that his payments and benefits will be cut back to the maximum amount permitted
under the Code without incurring an excess parachute payment, if either the
present value of his parachute payments before any reduction is less than 110%
of his parachute threshold or if such reduction would be more economically
advantageous to him. Finally, in the event an excess parachute payment is
made, Mr. Oldham would be responsible for paying all taxes due as a consequence
of or arising out of such payment, including any excise taxes.
All Severance Agreements terminate on the earlier of (i) February 7,
2014, unless a change in control event has occurred prior to such time, in which
event the Severance Agreements shall continue until the earlier of termination
of the change in control event, or one year after consummation of the change in
control event; (ii) upon termination of employment if such termination is not a
Qualifying Termination, or (iii) when SureWest has satisfied all of its
obligations under the Severance Agreements.
Golden Parachute
Compensation
The following
table sets forth the value of the benefits under the change of control severance agreements described above that would be received
by each named executive officer who has a change of control severance agreement, assuming the Mergers close and the executives
employment is terminated on
April
20
, 2012. Fred A. Arcuri was considered
a named executive officer for the year ended December 31, 2011, but retired from SureWest effective April 15, 2011, and consequently
is not included in the tables below.
|
|
|
|
|
|
Pension/
|
|
Perquisites/
|
|
Tax
|
|
|
|
|
|
|
Cash
|
|
Equity
|
|
NQDC
|
|
Benefits
|
|
Reimbursement
|
|
Other
|
|
Total
|
Name
|
|
($)(1)
|
|
($)(7)
|
|
($)
|
|
($)(10)
|
|
($)
|
|
($)
|
|
($)(11)
|
Steven C. Oldham
|
|
3,000,000
|
(2)
|
|
4,991,000
|
(8)
|
|
|
|
60,284
|
|
|
|
|
|
8,051,284
|
Dan T.
Bessey
|
|
701,775
|
(3)
|
|
1,064,072
|
(9)
|
|
|
|
52,496
|
|
|
|
|
|
1,818,343
|
L.
Scott Sommers
|
|
668,000
|
(4)
|
|
1,004,456
|
(9)
|
|
|
|
52,400
|
|
|
|
|
|
1,724,856
|
Scott K.
Barber
|
|
803,824
|
(5)
|
|
1,182,706
|
(9)
|
|
|
|
59,696
|
|
|
|
|
|
2,046,226
|
Edwin
B. Butler
|
|
660,000
|
(6)
|
|
805,874
|
(9)
|
|
|
|
52,640
|
|
|
|
|
|
1,518,514
|
____________________
(1)
|
|
The payments set forth in this column would be received
in a lump sum upon the executives double-trigger termination without cause or resignation for good reason
that occurs during the period beginning on the date the board approved the Mergers and ending twelve months following the
closing of the Mergers. These payments are equal to (a) two times (three times for Mr. Oldham) the executive officers
annual base salary in effect as of April
20
, 2012 plus (b) two times
(three times for Mr. Oldham) the most recently established annual incentive target cash award as of April
20
, 2012.
In addition, all of the named executive officers except for Mr. Oldham have Section 280G Cutback provisions in their Severance
Agreements, which would first reduce their cash severance payments. Such cutbacks, to the extent applicable, are reflected
in this column.
|
72
(2)
|
|
Represents three times
Mr. Oldhams annual base salary of $500,000 plus three times the most
recently established annual incentive target cash award of
$500,000.
|
|
(3)
|
|
Represents two times
Mr. Besseys annual base salary of $250,000 plus two times the most
recently established annual incentive target cash award of $125,000, less
$48,225
pursuant to the Section 280G Cutback provision.
|
|
(4)
|
|
Represents two times
Mr. Sommers annual base salary of $230,000 plus two times the most
recently established annual incentive target cash award of
$104,000.
|
|
(5)
|
|
Represents two times
Mr. Barbers annual base salary of $300,000 plus two times the most
recently established annual incentive target cash award of $150,000, less
$96,176
pursuant to the Section 280G Cutback provision.
|
|
(6)
|
|
Represents two times
Mr. Butlers annual base salary of $180,000 plus two times the most
recently established annual incentive target cash award of
$150,000.
|
|
(7)
|
|
The payments set forth
in this column would be received upon the closing of the First Merger
pursuant to the terms of the Merger Agreement (i.e., they are
single-trigger benefits). The value of the portion of outstanding stock
options, RSUs and RSAs, that would receive accelerated vesting as of a
closing date of April
20
, 2012 is based on a per share value of the cash
Merger Consideration of $23.00. All stock options held by the named
executive officers would be underwater (i.e., have an exercise price
higher than the per share cash consideration) and thus, the following
underwater stock options (vested and unvested) would be cancelled at the
effective time of the First Merger for no
consideration:
|
|
Name
|
|
Number of Shares Subject to Underwater
Stock Options
|
|
Dan T. Bessey
|
|
1,000
|
|
Scott K. Barber
|
|
1,500
|
(8)
|
|
Represents the value
of accelerated vesting of approximately 186,641 restricted stock units and
the value of 30,359 restricted stock awards held by Mr.
Oldham.
|
|
(9)
|
|
Represents the value
of accelerated RSAs held by Mr. Bessey, Mr. Sommers, Mr. Barber and Mr.
Butler, respectively.
|
|
(10)
|
|
The benefits set forth
in this column would be received upon the executives double-trigger
termination without cause or resignation for good reason that occurs
during the period beginning on the date the board approved the Mergers and
ending twelve months following the closing of the Mergers. The value of
these benefits is equal to (a) the estimated continuation of health
benefits for the executive officer and his dependents for two years (or
three years for Mr. Oldham) plus (b) $20,000 attributable to the value of
outplacement services for up to twelve months, following April
20
, 2012.
|
|
(11)
|
|
The payments and
benefits that the executives are entitled to receive pursuant to their
Severance Agreements is subject to their execution a release of claims,
return of all Company property and agreement not to directly solicit any
current employee of SureWest to leave the employ of SureWest for one year
following the date of their termination of employment, not to disclose any
proprietary information and not to disparage SureWest or its shareholders
unless required by law or court order.
|
Payment for Outstanding Equity
Awards for Executive Officers and Directors; Other Equity
Holdings
Executive
Officers Equity Holdings
. Each of SureWests
executive officers holds equity awards in the form of stock options, RSUs and/or
RSAs. As with equity awards held by all other employees, under the terms of the
SureWests applicable equity plan, the stock option, RSU and/or RSA agreements
with the executive officers and the Merger Agreement, all stock options, RSUs
and RSAs held by the executive officers will become fully vested on the date of
the closing of the First Merger. Pursuant to the Merger Agreement, each share
subject to all such
73
equity awards will be cancelled in exchange for the right to
receive an amount in cash, without interest, determined (A) with respect to
stock options by multiplying (x) the excess (if any) of the cash Merger
Consideration of $23.00 per share over the applicable exercise price per share
of the option by (y) the number of shares subject to the option and (B) with
respect to RSUs and RSAs by multiplying (x) the cash Merger Consideration of
$23.00 per share by (y) the number of shares subject to such RSU or RSA, as
applicable. Stock options with an exercise price higher than the per share cash
consideration will be cancelled at the time effective time of the First Merger
for no consideration. The following table sets forth
the
intrinsic value of the acceleration of unvested stock options, RSUs and/or RSAs
held by SureWests executive officers, as well as the intrinsic value of any
vested stock options and other shares held by such executive.
|
|
Value of
|
|
Value of
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Accelerated
|
|
Accelerated
|
|
Accelerated
|
|
|
|
|
|
|
|
|
|
Vesting of
|
|
Vesting of
|
|
Vesting of
|
|
Value of
|
|
Value
of
|
|
|
|
|
Unvested
Stock
|
|
Unvested
|
|
Unvested
|
|
Vested
Stock
|
|
Other
Shares
|
|
|
|
|
Options
|
|
RSUs
|
|
RSAs
|
|
Options
|
|
Owned
|
|
Total
Value
|
Name
|
|
$ (1)(2)
|
|
$ (1)(3)
|
|
$ (1)(3)
|
|
$ (1)(2)
|
|
$ (1)
|
|
$
|
Steven C. Oldham
|
|
|
|
4,292,743
|
|
698,257
|
|
|
|
4,431,295
|
(4)
|
|
9,422,295
|
Dan T. Bessey
|
|
|
|
|
|
1,064,072
|
|
|
|
598,989
|
(5)
|
|
1,663,061
|
L. Scott Sommers
|
|
|
|
|
|
1,004,456
|
|
|
|
833,865
|
(6)
|
|
1,838,321
|
Scott K. Barber
|
|
|
|
|
|
1,182,706
|
|
|
|
557,336
|
(7)
|
|
1,740,042
|
Edwin B. Butler
|
|
|
|
|
|
805,874
|
|
|
|
169,855
|
(8)
|
|
975,729
|
____________________
(1)
|
|
Based on a per share
value of the cash Merger Consideration of $23.00.
|
|
(2)
|
|
As described above,
all options held by the named executive officers would be underwater stock
options and thus, will be cancelled at the effective time of the Merger
for no consideration.
|
|
(3)
|
|
The amounts reflected
in the value of the accelerated vesting of unvested RSUs and RSAs are the
same values disclosed under the Equity column of the Golden Parachute
Compensation table above.
|
|
(4)
|
|
Represents the value
of 192,665 shares held by Mr. Oldham.
|
|
(5)
|
|
Represents the value
of
26,043
shares held by Mr. Bessey.
|
|
(6)
|
|
Represents the value
of 36,255 shares held by Mr. Sommers.
|
|
(7)
|
|
Represents the value
of
24,232
shares held by Mr. Barber.
|
|
(8)
|
|
Represents the value
of 7,385 shares held by Mr. Butler.
|
Non-Employee
Director Equity Holdings
. Under the terms of
SureWests applicable equity plan and the stock option, RSU and RSA agreements
with directors and the Merger Agreement, each share subject to all stock options
held by non-employee directors will become fully vested on the date of the
closing of the First Merger. Pursuant to the Merger Agreement, each share
subject to all such equity awards will be cancelled in exchange for $23.00 in
cash, without interest. Stock options with an exercise price higher than the per
share cash consideration will be cancelled at the time effective time of the
First Merger for no consideration. The following table sets forth the intrinsic
value of the acceleration of this unvested stock options, RSUs and/RSAs held by
SureWests non-employee directors, as well as the intrinsic value of any vested
stock options, RSUs and/or RSAs and other shares held by such director.
74
|
|
Value of
|
|
Value of
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Accelerated
|
|
Accelerated
|
|
Accelerated
|
|
|
|
|
|
|
|
|
|
Vesting of
|
|
Vesting of
|
|
Vesting of
|
|
Value of
|
|
Value
of
|
|
|
|
|
Unvested
Stock
|
|
Unvested
|
|
Unvested
|
|
Vested
Stock
|
|
Other
Shares
|
|
|
|
|
Options
|
|
RSUs
|
|
RSAs
|
|
Options
|
|
Owned
|
|
Total
Value
|
Name
|
|
$ (1)
|
|
$ (1)
|
|
$ (1)
|
|
$ (1)
|
|
$ (1)
|
|
$
|
Kirk C. Doyle
|
|
|
|
|
|
|
|
|
|
4,574,539
|
(2)
|
|
4,574,539
|
Guy R. Gibson
|
|
|
|
|
|
|
|
|
|
1,519,219
|
(3)
|
|
1,519,219
|
Robert D.
Kittredge
|
|
|
|
|
|
|
|
|
|
784,691
|
(4)
|
|
784,691
|
John R. Roberts III
|
|
|
|
|
|
|
|
|
|
864,593
|
(5)
|
|
864,593
|
Timothy D. Taron
|
|
|
|
|
|
|
|
|
|
834,003
|
(6)
|
|
834,003
|
Roger J. Valine
|
|
|
|
|
|
|
|
|
|
1,230,592
|
(7)
|
|
1,230,592
|
____________________
(1)
|
|
Based on a per share
value of the cash Merger Consideration of $23.00. Underwater stock options
will be cancelled at the effective time of the First Merger for no
consideration. All options held by the directors would be underwater stock
options. These individuals would have the following underwater stock
options (vested and unvested) that would be cancelled for no
payment:
|
|
Name
|
|
Number of Shares Subject to Underwater
Stock Options
|
|
John R. Roberts
III
|
|
2,500
|
|
Timothy D. Taron
|
|
2,500
|
____________________
(2)
|
|
Represents the value
of
198,893
shares held by Mr. Doyle.
|
|
(3)
|
|
Represents the value
of 66,053 shares held by Mr. Gibson.
|
|
|
|
(4)
|
|
Represents the value
of 34,117 shares held by Mr. Kittredge.
|
|
(5)
|
|
Represents the value
of 37,591 shares held by Mr. Roberts.
|
|
(6)
|
|
Represents the value
of 36,261 shares held by Mr. Taron.
|
|
(7)
|
|
Represents the value
of 53,504 shares held by Mr. Valine.
|
Indemnification; Directors and
Officers Insurance
The Merger
Agreement provides that from and after the effective time of the Mergers and to
the fullest extent permitted by law or provided under SureWests certificate of
incorporation or bylaws, the surviving corporation will indemnify, and pay or
advance expenses of the current or former officers, directors and certain other
individuals of SureWest with respect to acts or omissions occurring at or prior
to the effective time, provided that any person to whom expenses are advanced
will provide an undertaking to repay any advances made if a court determines the
person was not entitled to indemnification and for a period of six years after
the effective time of the Mergers shall keep in full force and effect and comply
with the terms and conditions of any agreement between SureWest and its current
or former officers, directors and certain other individuals providing for
indemnification of and advancement of expenses. The Merger Agreement further
provides that, prior to the effective time of the Mergers, SureWest shall
purchase a six-year tail officers and directors liability insurance policy
on terms and conditions no less favorable in the aggregate than SureWests
existing directors and officers liability insurance. The surviving corporation
will pay all expenses, including reasonable fees and expenses of counsel, that
an indemnified person may incur in enforcing the indemnity and other obligations
described above, and the Merger Agreement provides that the foregoing rights of
each indemnified person will survive the effective time of the Mergers and are
enforceable by each indemnified person.
75
Effect of the Mergers
Subject to the terms and conditions of the Merger Agreement and in
accordance with California law, at the effective time of the First Merger,
Merger Sub I will merge with and into SureWest. SureWest will be the surviving
corporation in the First Merger and will become a wholly-owned subsidiary of
Consolidated. Subject to the terms and conditions of the Merger Agreement and in
accordance with California law, at the effective time of the Second Merger
(which shall be within one business day of the effective time of the First
Merger), Merger Sub II will merge with and into SureWest. Merger Sub II will be
the surviving corporation in the Second Merger and will remain a wholly-owned
subsidiary of Consolidated.
Merger Consideration
At the
effective time of the First Merger, each issued and outstanding share of SureWest common stock (other than shares held in SureWests
treasury or owned by any SureWest subsidiary, Consolidated, Merger Sub I or Merger Sub II) will be converted into the right to
receive, at the holders election, either (i) $23.00 in cash, without interest (the cash consideration), or (ii)
shares of Consolidated common stock (the stock consideration) having an equivalent value based on average trading
prices for the 20 consecutive trading days ending two trading days before the closing date of the First Merger, subject to a collar
so that there will be a maximum exchange ratio of 1.40565 shares of Consolidated common stock for each share of SureWest common
stock and a minimum of 1.03896 shares of Consolidated common stock for each share of SureWest common stock. Overall elections
are subject to proration so that 50% of the SureWest shares (treating equity award shares as outstanding) will be exchanged for
cash and 50% for stock. All holders of SureWest equity award shares will be paid in cash and shall not be subject to the proration
described above. Because equity award shares reduce the number of outstanding SureWest shares that will convert to cash, it is
expected that approximately
46%
convert intog SureWest shares (exclusive of equity award shares) will convert into
the right to receive cash, and
54%
will convert into the right to receive stock. See SureWest Shareholders
Making Cash and Stock Elections and Treatment of SureWest Equity Awards. In order to preserve the tax-free
nature of the transaction, the Merger Agreement also provides for a general consideration adjustment in certain circumstances,
as further described under The Mergers SureWest Shareholders Making Cash and Stock Elections General Consideration
Adjustment on page
81
.
In this joint proxy statement/prospectus, when the term Merger
Consideration is used with respect to a given share of SureWest common stock,
it means either the cash consideration (with respect to a share of SureWest
common stock representing the right to receive the cash consideration) or the
stock consideration (with respect to a share of SureWest common stock
representing the right to receive the stock consideration).
The Merger Agreement provides that the stock consideration will be
appropriately adjusted if, during the period between February 5, 2012 and the
effective time of the First Merger, Consolidated splits, combines into a smaller
number of shares, or issues by reclassification any shares of Consolidated
common stock. In order to preserve the tax-free nature of the transaction, the
Merger Agreement also provides for a general consideration adjustment in certain
circumstances. See General Consideration Adjustment.
The rights
pertaining to Consolidated common stock will be different from the rights
pertaining to SureWest common stock, because the certificate of incorporation
and bylaws of Consolidated in effect immediately after the Mergers are completed
will be different from the articles of incorporation and bylaws of SureWest and
because Consolidated is a Delaware corporation and SureWest is a California
corporation. For a description of the rights pertaining to Consolidated common
stock and Consolidateds certificate of incorporation and bylaws, see
Description of Consolidated Capital Stock and Comparison of Rights of Common
Shareholders of SureWest and Common Stockholders of Consolidated.
76
Treatment of SureWest Equity
Awards
At the effective time of the First Merger, each option to purchase shares
of SureWest common stock, to the extent it is outstanding and unexercised
(SureWest Options), shall become fully vested and be automatically cancelled
and cease to exist. Since all SureWest Options would be underwater (i.e., have
an exercise price higher than the per share cash consideration), they would be
cancelled at the effective time of the Merger for no consideration.
At the effective
time of the First Merger, each restricted stock unit granted under any SureWest
stock plan (each a SureWest RSU) that is outstanding shall become fully vested
and automatically cancelled and cease to exist (to the extent such SureWest RSU
is not subject to Section 409A of the Internal Revenue Code). The holder of a
SureWest RSU will receive, as soon as reasonably practicable following the
effective time of the First Merger, a cash payment (without interest) equal to
the product of (i) the aggregate number of shares of SureWest common stock
subject to such SureWest RSU and (ii) the cash consideration. Each SureWest RSU
that is subject to Section 409A of the Internal Revenue Code will be settled in
cash pursuant to the timing terms of the applicable award agreement, and,
therefore, the holder thereof will receive the consideration for such SureWest
RSU at the time prescribed by the applicable award agreement. The consideration
paid to all holders of SureWest RSUs will in all cases be paid in cash and shall
not be subject to the proration described below under SureWest Shareholders
Making Cash and Stock Elections Proration Procedures.
At the effective time of the First Merger, each restricted stock award
granted under any SureWest stock plan (each a SureWest RSA) which is
outstanding and unvested shall become fully vested be automatically cancelled
and cease to exist. The holder of a SureWest RSA will receive, as soon as
reasonably practicable following the effective time of the First Merger, a cash
payment (without interest) with respect thereto equal to the product of (i) the
aggregate number of shares of SureWest common stock represented by such SureWest
RSA and (ii) the cash consideration. The consideration paid to all holders of
SureWest RSAs will in all cases be paid in cash and shall not be subject to the
proration described below under SureWest Shareholders Making Cash and Stock
Elections Proration Procedures.
Ownership of Consolidated Following the
Mergers
Based
on the closing sale price for Consolidateds shares on
April 23
, 2012, the latest practicable date before the printing
of this joint proxy statement/prospectus, stockholders of Consolidated would hold approximately
76.7
%
in the aggregate, and shareholders of SureWest would hold approximately
23.3
%
in the aggregate, of the issued and outstanding shares of Consolidated common stock if the First Merger were to occur on such
date, in each case as determined on a fullydiluted basis.
SureWest Shareholders Making Cash and
Stock Elections
SureWest shareholders of record on the record date will receive
separately from this joint proxy statement/prospectus a form of election for
purposes of making cash elections and stock elections. Any SureWest shareholder
who became a SureWest shareholder after the record date for the special meeting,
or who did not otherwise receive a form of election, should contact the
Information Agent, Okapi Partners, or his, her or its broker, bank or other
nominee to obtain a form of election. SureWest shareholders who vote against, or
abstain or fail to vote with respect to, the approval of the Merger Agreement,
the Merger Certificate and the transactions contemplated thereby, including the
First Merger, are still entitled to make elections with respect to their shares.
The form of election permits each person who, at or prior to the election
deadline, is a record holder (or, in the case of nominee record holders, the
beneficial owner, through proper instructions and documentation to the nominee
record holder) of SureWest common stock to specify (i) the number of such
holders shares of SureWest common stock with respect to which such holder makes
a cash election and/or (ii) the number of such holders shares of SureWest
common stock with respect to which such holder makes a stock election. A
shareholder who submits a form of election is not required to elect the same
form of Merger Consideration for all of his or her shares. The form of election
allows an election to be made for cash consideration for a portion of the
holders shares and stock consideration for the remaining portion of the
holders shares.
77
If the Mergers are completed, shareholders who fail to submit properly
completed elections at or prior to the election deadline will still be entitled
to receive the Merger Consideration for each of their SureWest shares. See
Conversion of Shares; Exchange Procedures; Fractional Shares. However, any
shares as to which the holder has not properly made an election at or prior to
the election deadline will be treated as described below under Non-Electing
Holders.
Exchange
Agent.
Computershare Trust Company, N.A. will
serve as the exchange agent for purposes of receiving election forms,
determining in accordance with the Merger Agreement the Merger Consideration to
be received by each holder of shares of SureWest common stock, and exchanging
the applicable Merger Consideration for certificates formerly representing
shares of SureWest stock if the Mergers are completed.
Election Deadline.
The election deadline will be 5:00 p.m.,
Eastern time, on the date that is two business days immediately prior to the
closing date of the First Merger (or such other date as Consolidated and
SureWest mutually agree).
Consolidated and
SureWest will publicly announce the anticipated election deadline at least five
business days prior to the anticipated closing date of the First Merger.
Form of Election.
The form of
election must be properly completed and signed and accompanied by:
-
certificates
representing all of the SureWest shares covered by the form of election, in a
form acceptable for transfer on SureWests books; or
-
an appropriate guarantee of delivery of such
certificates as set forth in the form of election from a firm that is an
eligible guarantor institution (as defined in Rule 17Ad-15 under the
Exchange Act); provided, that such certificates are in fact delivered to the
exchange agent by the time set forth in such guarantee of delivery.
In order to make a cash election or a stock election, the properly
completed and signed form of election, together with one of the items described
above, must be actually received by the exchange agent at or prior to the
election deadline in accordance with the instructions accompanying the form of
election.
You bear the risk of delivery of all
the materials that you are required to submit to the exchange agent in order to
properly make an election.
If your SureWest shares are held in street name through a bank, broker
or other nominee and you wish to make an election, you should contact your bank,
broker or other nominee and follow the instructions provided by it.
If it is determined that any purported cash election or stock election
was not properly made, the purported election will be deemed to be of no force
or effect and the holder making the purported election will be deemed not to
have made an election for these purposes, unless an election is subsequently
properly made on a timely basis.
Inability to Transfer SureWest Shares After an Election is Made.
Once a cash election or a stock election is
properly made with respect to any share of SureWest common stock, the electing
shareholder will not be able to sell or otherwise transfer that share, unless
the election is properly revoked or the Merger Agreement is terminated.
Election Revocation and Changes
.
Generally, an election may be revoked with respect to all or any portion of the
SureWest shares covered by the election by the holder who submitted the
applicable form of election, but only in whole share amounts by written notice
of revocation received by the exchange agent at or prior to the election
deadline. If an election is revoked, or the Merger Agreement is terminated, and
any stock certificates have been transmitted to the exchange agent, the exchange
agent will promptly return those certificates to the shareholders who submitted
them (except, in the case of a revocation, to the extent (if any) a subsequent
cash election and/or stock election is properly made with respect to any or all
of the shares of SureWest common stock represented by such certificates).
SureWest shareholders will not be entitled to
revoke or change their elections following the election deadline. As a result,
during the interval between the election deadline and the effective time of the
First Merger, SureWest shareholders who have properly made elections will not be
able to revoke their elections or sell the SureWest shares covered by their
elections.
78
Non-Electing Holders.
SureWest
shareholders who make no election to receive cash consideration or stock
consideration in the First Merger, whose elections are not received by the
exchange agent by the election deadline, or whose forms of election are not
properly completed (subject to the exchange agents discretion to disregard
immaterial defects) or are not signed will be deemed not to have made an
election.
Non-electing holders will have no
control over the type of consideration they receive in the First Merger in
exchange for their SureWest shares.
Accordingly, these shareholders may receive cash consideration for all of
their SureWest shares, stock consideration for all of their SureWest shares, or
cash consideration for some of their SureWest shares and stock consideration for
some of their SureWest shares, depending on elections that have been made by
other SureWest shareholders. See Proration Procedures below.
Proration Procedures.
SureWest
shareholders should be aware that the cash elections and/or stock elections they
make may be subject to the proration procedures contained in the Merger
Agreement. Regardless of the cash or stock elections made by SureWest
shareholders, these procedures are designed to ensure, subject to the limitation
described below, that:
-
50% of the SureWest
shares outstanding immediately prior to the effective time of the First Merger
(treating equity award shares as outstanding) will be converted into the right
to receive the cash consideration per share, namely, $23.00, without interest;
and
-
50% of the SureWest
shares outstanding immediately prior to the effective time of the First Merger
will be converted into the right to receive the stock consideration per share,
namely, a value based on average trading prices for the 20-day period ending
two days before the closing date of the First Merger, subject to a collar so
that there will be a maximum exchange ratio of 1.40565 shares of Consolidated
common stock for each share of SureWest common stock and a minimum of 1.03896
shares of Consolidated common stock for each share of SureWest common stock
(including cash in lieu of any fractional share, as described below under
Conversion of Shares; Exchange Procedures; Fractional Shares). While overall
elections are subject to proration, all holders of SureWest equity award
shares will be paid in cash and shall not be subject to
proration. Because
equity
award shares reduce the number of outstanding SureWest shares that will
convert to cash, it is expected that approximately
46%
of outstanding SureWest
shares (exclusive of equity award shares) will convert into the right to
receive cash, and
54%
will convert into the right to receive
stock.
Any shares of
SureWest common stock held in SureWests treasury or owned by any SureWest
subsidiary, Consolidated, Merger Sub I or Merger Sub II will be canceled in the
Mergers and will not be subject to or affect these proration calculations.
As previously described, the Merger Agreement provides that holders of
employee stock options, restricted shares and restricted stock units will
receive cash on a net settlement basis. For purposes of effecting the proration
described below and in the description of the scenarios that illustrate possible
effects of proration, the aggregate amount of cash to be paid in settlement of
those rights will be converted into equity award share equivalents by dividing
the aggregate amount of cash to be paid by $23.00, with the result expressed as
a number of shares. That number of shares will be (1) added to the number of
shares actually outstanding for purposes of proration and (2) treated as shares
that have elected to receive cash and will do so. Accordingly, the number of
shares actually outstanding that will receive cash will be reduced by the number
of equity award share equivalents.
For illustrative purposes, set forth below is a description of the
proration procedures, and the effects on SureWests shareholders, including
those who fail to properly make a cash or stock election, under certain
alternative scenarios.
As a result of these
procedures, even if you properly make a cash election for all of your SureWest
shares, if more than 50% of the outstanding SureWest shares are subject to cash
elections (treating equity award shares as outstanding, and as electing and
receiving cash), you will receive Consolidated common stock in the First Merger
in exchange for some of your SureWest shares. Even if you properly make a stock
election for all of your SureWest shares, if less than 50% of the outstanding
SureWest shares are subject to cash elections (treating equity awards as
outstanding, and as electing and receiving cash), you will receive cash in the
First Merger in exchange for some of your SureWest shares.
In order to preserve the tax-free nature of the transaction,
the Merger Agreement also provides for a general consideration adjustment in
certain circumstances, as further described under The Mergers SureWest
Shareholders Making Cash and Stock Elections General Consideration
Adjustment.
79
Scenario 1: If Cash Elections are
Oversubscribed More than 50% of SureWest Shares Elect to Receive Cash
Consideration
SureWest Shares Subject to Cash Elections.
Each SureWest shareholder who properly elected to receive cash
consideration will, due to proration, receive cash consideration for only a pro
rata portion of the SureWest shares for which he or she properly made a cash
election. The SureWest shareholder will receive stock consideration in the form
of shares of Consolidated common stock (and cash in lieu of any fractional
share) for his or her remaining SureWest shares.
The precise number of SureWest shares for which a SureWest shareholder
will receive cash consideration will be determined by multiplying the number of
SureWest shares for which the shareholder properly made a cash election by a
fraction with (i) a numerator equal to 50% of the sum of (a) the number of
SureWest shares issued and outstanding immediately prior to the effective time
of the First Merger and (b) the number of SureWest equity award shares
immediately prior to the effective time of the First Merger, and (ii) a
denominator equal to the number of SureWest shares for which cash elections are
properly made by all SureWest shareholders, including equity award shares (the
result of such calculation being the Cash Conversion Number). The total shares
for which cash elections are properly made plus total equity award shares are
referred to as the Cash Election Number.
EXAMPLE.
Assume for illustrative
purposes that 1,000,000 SureWest shares (including equity award shares) are
outstanding at the effective time of the First Merger and SureWest shareholders
properly make cash elections with respect to 900,000 SureWest shares (treating
equity award shares as cash election shares). If you own 100 SureWest shares and
have properly made a cash election for all of those shares, you would receive
cash consideration for 55.56 of your SureWest shares [100 × ((50% ×
1,000,000)/900,000)] and stock consideration (including cash in lieu of any
fractional share) for your remaining 44.44 SureWest shares.
SureWest
Shares Subject to Stock Elections.
Each
SureWest shareholder who properly elected to receive stock consideration will
receive stock consideration in the form of shares of Consolidated common stock
for all of the SureWest shares for which he or she properly made a stock
election (including cash in lieu of any fractional share).
SureWest
Shares Subject to No Election.
Each SureWest
shareholder who failed to properly make an election will receive stock
consideration in the form of shares of Consolidated common stock for all of the
SureWest shares for which he or she made no election (including cash in lieu of
any fractional share).
Scenario 2: If Cash Elections are
Undersubscribed Less than 50% of SureWest Shares Elect to Receive Cash
Consideration
SureWest Shares Subject to Cash Elections
. Each SureWest shareholder who properly elected to receive cash
consideration will receive cash consideration for all of the SureWest shares for
which he or she properly made a cash election.
SureWest Shares Subject to Stock Elections
. Each SureWest shareholder who properly elected to receive
stock consideration will, due to proration, receive cash consideration for a pro
rata portion of the SureWest shares for which he or she properly made a stock
election. The shareholder will receive stock consideration in the form of shares
of Consolidated common stock for his or her remaining SureWest shares (including
cash in lieu of any fractional share).
The precise number of SureWest shares for which a SureWest shareholder
will receive cash consideration will depend on whether the amount by which the
Cash Election Number is less the Cash Conversion Number (such difference being
the Shortfall Number) is less than or equal to, or more than, the number of
shares with respect to which no election is made (the Non-Electing SureWest
Shares).
If the Shortfall Number is less than or equal to the Non-Electing
SureWest Shares, then (i) each SureWest shareholder will receive stock
consideration in the form of shares of Consolidated common stock for all of the
SureWest shares for which the shareholder properly made a stock election
(including cash in lieu of any fractional share), and (ii) the precise number of
Non-Electing SureWest Shares for which a SureWest shareholder will
80
receive cash
consideration will be determined by multiplying the number of Non-Electing
Company Shares of such shareholder by a fraction with a numerator equal to the
Shortfall Number and a denominator equal to the total number of Non-Electing
SureWest Shares, and the shareholder will receive stock consideration in the
form of shares of Consolidated common stock for his or her remaining SureWest
shares (including cash in lieu of any fractional share).
If the Shortfall Number exceeds the Non-Electing SureWest Shares, then
(i) holders of Non-Electing SureWest Shares will receive cash consideration for
all of such holders SureWest shares, and (ii) the precise number of SureWest
shares for which a SureWest shareholder will receive cash consideration will be
determined by multiplying the number of SureWest shares for which the
shareholder properly made a stock election by a fraction with a numerator equal
to difference between the Shortfall Number and the Non-Electing SureWest Shares
and a denominator equal to the number of SureWest shares for which stock
elections are properly made by all SureWest shareholders, and the shareholder
will receive stock consideration in the form of shares of Consolidated common
stock for his or her remaining SureWest shares (including cash in lieu of any
fractional share).
EXAMPLE.
Assume for
illustrative purposes that 1,000,000 SureWest shares (including equity award
shares) are outstanding at the effective time of the First Merger and SureWest
shareholders properly make stock elections with respect to 900,000 SureWest
shares, cash elections with respect to 75,000 shares (treating equity award
shares as cash election shares)
and no elections with respect to 25,000
shares. If you own 100 SureWest shares and have properly made a stock election
for all of those shares, you would receive cash consideration for 44.44 of your
SureWest shares [100 × ((50% × 1,000,000)
75,000
25,000) /900,000)] and stock consideration
for your remaining 55.56 SureWest shares (including cash in lieu of any
fractional share).
SureWest Shares Subject to No Election
. Each SureWest shareholder who failed to properly make an election will
receive cash consideration for all of the SureWest shares for which he or she
made no election.
General Consideration Adjustment
.
Pursuant to the Merger Agreement and in order to preserve the tax-free nature of
the transaction, the Cash Conversion Number described above will be reduced to
the extent necessary so that the aggregate fair market value of Consolidated
common stock (based on the closing price as reported on the NASDAQ Global Select
Market on the trading day immediately preceding the closing date of the First
Merger) received by the holders of SureWest common stock in the First Merger
shall be equal to 42% of the aggregate amount of cash plus the fair market value
of the Consolidated common stock received by the holders of SureWest common
stock in the First Merger. For purposes of this adjustment, equity award shares
are not considered, as they are not treated as outstanding shares, and the
amount of cash paid for them is not included as consideration. To assure that
the holders of SureWest common stock receive equivalent value of Consolidated
common stock in consideration for the reduction of the Cash Conversion Number,
for each share by which the Cash Conversion Number is reduced additional
Consolidated common stock will be paid as part of the stock consideration so
that the aggregate fair market value of the Consolidated common stock received
with respect to such share is equal to the cash consideration.
Neither
Consolidated nor SureWest is making any recommendation as to whether SureWest
shareholders should elect to receive cash consideration or stock consideration
in the First Merger. SureWest shareholders must make their own decision with
respect to such election. No guarantee can be made that SureWest shareholders
will receive the amount of cash consideration or stock consideration they elect.
As a result of the proration procedures described in this joint proxy
statement/prospectus and in the Merger Agreement, they may receive stock
consideration or cash consideration in amounts that are different from the
amounts they elect to receive. Because the value of the stock consideration and
cash consideration may differ, they may receive consideration having an
aggregate value less than what they elected to receive. SureWest shareholders
should obtain current market quotations for Consolidated common stock before
deciding what elections to make.
Because other SureWest shareholders would likely take the
relative values of the stock consideration and cash consideration into account
in determining what form of election to make, if you fail to make an election
you are likely to receive the form of consideration having the lower value
(depending on the relative values of the stock consideration and cash
consideration at the effective time of the First Merger).
81
Conversion of Shares; Exchange
Procedures; Fractional Shares
The conversion of SureWest common stock into the right to receive the
Merger Consideration will occur automatically at the effective time of the First
Merger. Prior to the effective time of the First Merger (and, with respect to
Consolidated common stock, from time to time after the effective time of the
First Merger as applicable), Consolidated will deposit with the exchange agent
an amount in cash and certificates representing shares of Consolidated common
stock sufficient to effect the conversion of each share of SureWest common stock
into the Merger Consideration pursuant to the Merger Agreement.
The exchange agent will take the following actions with respect to each
holder of record of SureWest common stock as of immediately prior to the
effective time of the First Merger:
-
If the shareholder
properly made (and did not revoke) a cash election and/or stock election for
shares of SureWest common stock, then within 10 business days after the
effective time of the First Merger, the exchange agent will mail to such
shareholder the aggregate Merger Consideration that the shareholder is
entitled to receive pursuant to the Merger Agreement (including, if
applicable, cash in lieu of any fractional share of Consolidated common
stock).
-
If the shareholder did not properly make an
unrevoked cash election and/or stock election for shares of SureWest common
stock, then approximately 5 business days after the effective time of the
First Merger, the exchange agent will mail to such shareholder a letter of
transmittal containing instructions for obtaining the aggregate Merger
Consideration that the shareholder is entitled to receive pursuant to the
First Merger. The letter of transmittal will contain instructions for
surrendering certificates representing shares of SureWest common stock to the
exchange agent. The exchange agent will mail the aggregate Merger
Consideration (including, if applicable, cash in lieu of any fractional share
of Consolidated common stock) to the shareholder approximately 10 business
days after the exchange agent has received all of the shareholders
certificates representing shares of SureWest common stock, a properly signed
and completed letter of transmittal in accordance with the instructions
thereto, and such other documents as may be required pursuant to such
instructions.
After the
effective time of the First Merger, each certificate that previously represented
shares of SureWest common stock will represent only the right to receive the
Merger Consideration as described above and dividends and distributions on, and
cash in lieu of any fractional share of, Consolidated common stock as described
below.
Until holders of certificates previously representing shares of SureWest
common stock have surrendered those certificates to the exchange agent, those
holders will not receive dividends or distributions on any shares of
Consolidated common stock into which such shares have been converted. When
delivery of the Merger Consideration is made to such holders as described above,
the exchange agent will also pay to such holders, without interest, all
dividends and other distributions in respect of such Consolidated common stock
with a record date after the effective time of the First Merger and a payment
date on or after the date of surrender of certificates.
No fractional shares of Consolidated common stock will be issued to any
SureWest shareholder in the First Merger. Each SureWest shareholder who would
otherwise have been entitled to receive a fraction of a share of Consolidated
common stock in the First Merger will receive cash in an amount equal to the
product obtained by multiplying (i) the fractional share interest which such
holder would otherwise be entitled to by (ii) the average closing price on the
NASDAQ Global Select Market for a share of Consolidated common stock for the 20
consecutive trading days ending on the second trading day preceding the closing
date of the First Merger.
Consolidated and the exchange agent will be entitled to deduct and
withhold from the Merger Consideration, and pay to the appropriate taxing
authorities, any applicable taxes. Any such amount which is properly withheld
and paid to a taxing
authority by Consolidated or
the exchange agent will be treated for all purposes of the Merger Agreement as
having been paid to the person from whom it is withheld.
If any
certificate representing shares of SureWest common stock has been lost, stolen
or destroyed, upon the making of an affidavit attesting to that fact by the
person claiming that such certificate has been lost, stolen or destroyed and, if
required by Consolidated or the surviving corporation of the Mergers, the
delivery by such person
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of a bond (in such amount as Consolidated or the
surviving corporation may direct) as indemnity against any claim that may be
made against the exchange agent, Consolidated or the surviving corporation with
respect to on account of the alleged loss, theft or destruction of such
certificate, the exchange agent will issue, in exchange for all rights to the
lost, stolen or destroyed certificate, the total amount of Merger Consideration
in respect of the shares of SureWest common stock represented by such
certificate.
Accounting Treatment
The Mergers will be accounted for by Consolidated using the purchase
method of accounting. Under this method of accounting, the purchase price will
be allocated to the fair value of the net assets acquired. The excess purchase
price over the fair value of the assets acquired, if any, will be allocated to
goodwill.
Regulatory Approvals Required for the
Mergers
United States Antitrust
United States antitrust laws prohibit Consolidated and SureWest from
completing the Mergers until they have furnished certain information and
materials to the Antitrust Division of the Department of Justice and the Federal
Trade Commission under the HSR Act and a required waiting period has ended.
SureWest and Consolidated filed the required notification and report forms with
the Antitrust Division of the Department of Justice and the Federal Trade
Commission on February 15, 2012. The required waiting period expired on March
16, 2012.
At any time before or after the effective time of the Mergers, the
Federal Trade Commission or others (including states and private parties) could
take action under the antitrust laws, including seeking to prevent the Mergers,
to rescind the Mergers or to conditionally approve the Mergers upon the
divesture of assets of Consolidated or SureWest. There can be no assurances that
a challenge to the Mergers on antitrust grounds will not be made or, if such
challenge is made, that it will not be successful.
Other Laws
In addition to the regulatory approvals described above, completion of
the Mergers is also conditioned upon the receipt of the following approvals of
the Federal Communications Commission (FCC), the California Public Utility
Commission (the California PUC), the Kansas Corporation Commission (KCC) and
certain local municipalities in Kansas.
On February 16, 17 and 22, 2012, Consolidated and SureWest jointly filed
the applications to transfer control of SureWest’s FCC authorizations to
Consolidated.
On February 10, 2012, SureWest and its subsidiaries that are regulated by
the California PUC, and Consolidated and certain of its subsidiaries, jointly
filed an application with the California PUC for required approvals in
connection with the transfers of control of those subsidiaries to Consolidated,
as required under the California Public Utility Code.
On
February 23, 2012, Consolidated and SureWest filed notice with the KCC requesting that a no action letter be issued
indicating that no further action is required by the KCC in connection with the Mergers because of SureWests
statutory classification as a competitive local exchange carrier pursuant to K.S.A. 66-1,187, et seq. On February 23, 2012,
Consolidated and SureWest filed notice with the Kansas municipalities of Lenexa, Overland Park and Shawnee, each of which
require city council approval to transfer
legacy local cable franchises there. SureWests
authority to provide video
service in the Kansas municipalities of Olathe, Fairway, Merriam, Mission, Prairie Village, Roeland Park and Westwood is
pursuant to a Video Service Authorization issued by the KCC. Requisite notice on transferring the Video Service
Authorization was provided to the KCC on February 23, 2012.
83
Dissenters Rights of SureWest
Shareholders
If the Mergers
are completed, holders of SureWest common stock are entitled to dissenters
rights under Chapter 13 of the California General Corporation Law, as the same
exists or may hereafter be amended (CGCL), which is included with this joint
proxy statement/prospectus as Annex IV, provided that they comply with the
conditions established by Chapter 13 of the General Corporation Law of the State
of Delaware, as the same exists or may hereafter be amended (the DGCL). The
shares of stock held by holders who have properly exercised dissenters rights
will not be converted into the right to receive the consideration
discussed above, but will instead be entitled to such rights
as are granted by Chapter 13 of the CGCL. See Dissenters Rights of SureWest
Shareholders.
Stock Exchange Listing of Consolidated
Common Stock
Shares of
Consolidated common stock issuable to SureWest shareholders in the First Merger
must have been approved for listing on The NASDAQ Global Select Market.
Delisting and Deregistration of
SureWest Common Stock
If the Mergers are completed, SureWest common stock will be delisted from
the NASDAQ Global Select Market and deregistered under the Exchange Act, and
SureWest will no longer file periodic reports with the SEC on account of
SureWest common stock.
Legal Proceedings Related to the
Mergers
To date,
SureWest, the SureWest board and Consolidated are named as defendants in
six
putative class action lawsuits brought by
alleged SureWest shareholders challenging the proposed Mergers.
Five
shareholder actions were filed in the Superior Court
of California, Placer County
, and one shareholder action was filed in the United States District Court for the Eastern District
of California
. The actions are called
Needles v. SureWest Communications, et al.
, filed February 17, 2012, Case No.
SCV0030665,
Errecart v. Oldham, et al.
, filed February 24, 2012, 2012, Case No. SCV0030703,
Springer v. SureWest Communications,
et al.
, filed March 9, 2012, Case No. SCV0030669,
Aievoli v. Oldham, et al.
, filed March 15, 2012, Case No. SCV0030671
and
Waterbury v. SureWest
Communications, et al.,
filed March 26, 2012, Case No. SCV0030854
, and the federal
action is called
Broering v. Oldham, et al.
, filed April 18, 2012, Case No. 212-CV-01025-JAM-EFB
. The actions generally
allege, among other things, that each member of the SureWest board of directors breached fiduciary duties to SureWest and its
shareholders by authorizing the sale of SureWest to Consolidated for consideration that allegedly is unfair to the SureWest shareholders
and agreeing to terms that allegedly unduly restrict other bidders from making a competing offer. The complaints also allege that
Consolidated and SureWest aided and abetted the breaches of fiduciary duties allegedly committed by the members of the SureWest
board of directors.
The
Broering
complaint also alleges, among other things, that the joint proxy statement/prospectus
filed with the SEC on March 28, 2012 does not make sufficient disclosures regarding the Mergers, that SureWest’s board should
have appointed an independent committee to negotiate the transaction and that SureWest should have gone back to another bidder
to create a competitive bid process.
The lawsuits seek equitable relief, including an order to prevent the defendants from
consummating the Mergers on the agreed-upon terms and/or an award of unspecified money damages. The parties believe that these
claims are without merit.
On March 14, 2012, the Placer County Superior Court entered an order consolidating the
Needles
,
Errecart
and
Springer
actions into a single action under the caption
In re SureWest Communications Shareholder
Litigation
, Case No. SCV-0030655.
Under the terms of this order, all
cases
subsequently
filed in the Superior Court
for the State of California, County of Placer,
that relate to the same subject matter and involve similar questions of law
or fact are to be consolidated with these cases as well. Any party objecting to such consolidation must file its objection within
ten days of receiving a copy of the order. Attorneys for the plaintiffs in
Aievoli
and
Waterbury
received copies
of the order on or before March 29, 2012 and have not filed any objection.
On April 10, 2012, the plaintiff in
Waterbury
filed a request for voluntary dismissal of her complaint without prejudice.
84
MATERIAL UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES
The following
discussion summarizes the material U.S. federal income tax consequences to U.S.
Holders (as defined below) of the merger of Merger Sub I with and into SureWest,
with SureWest surviving, followed immediately by the merger of SureWest with and
into Merger Sub II, with Merger Sub II surviving, and, unless otherwise noted in
the following discussion, expresses the opinion of Orrick, Herrington &
Sutcliffe LLP, counsel for SureWest, and the opinion of Schiff Hardin LLP,
counsel for Consolidated, insofar as it relates to matters of U.S. federal
income tax law and legal conclusions with respect to those matters. This summary
is based on the Internal Revenue Code of 1986, as amended (the Code), U.S.
Treasury regulations promulgated thereunder (including proposed and temporary
regulations), rulings, current administrative interpretations and official
pronouncements of the Internal Revenue Service (the IRS) and judicial
decisions, all as currently in effect and all of which are subject to differing
interpretations or to change, possibly with retroactive effect. Such change
could materially and adversely affect the tax consequences described below. No
assurance can be given that the IRS would not assert, or that a court would not
sustain, a position contrary to any of the tax consequences described below.
This
summary
does not address all aspects of U.S. federal
income taxation that may be important to a particular person in light of its
investment or tax circumstances or to persons subject to special tax rules, such
as partnerships, subchapter S corporations or other pass-through entities,
banks, financial institutions, tax-exempt entities, insurance companies,
regulated investment companies, real estate investment trusts, trusts and
estates, dealers in stocks, securities or currencies, traders in securities that
have elected to use the mark-to-market method of accounting for their
securities, persons holding SureWest common stock as part of an integrated
transaction, including a straddle, hedge, constructive sale or conversion
transaction, persons whose functional currency for tax purposes is not the U.S.
dollar, persons subject to the alternative minimum tax provisions of the Code
and persons who acquired the SureWest common stock pursuant to the exercise of
employee incentive stock options or otherwise as compensation. This summary does
not include any description of the tax laws of any state or local government, or
of any foreign government, that may be applicable to a particular
person.
This discussion is directed solely to U.S. Holders (as defined below) who
hold SureWest common stock as capital assets within the meaning of Section 1221
of the Code, which generally means property held for investment.
As used in this section, the term U.S. Holder means a beneficial owner
of SureWest common stock who, for U.S. federal income tax purposes,
is:
-
an individual who is a citizen or
resident of the United States;
-
a corporation (including an entity
treated as a corporation for U.S. federal income tax purposes) created or
organized in or under the laws of the United States or of any state of the
United States or the District of Columbia;
-
an estate the income of which is
subject to U.S. federal income taxation regardless of its
source;
-
a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more U.S. persons have the authority to control all
substantial decisions of the trust; or
-
a trust in existence on August 20,
1996 that has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person (as defined in the Code).
If an entity or arrangement treated as a partnership for U.S. federal
income tax purposes holds SureWest common stock, the U.S. federal income tax
treatment of a partner generally will depend on the status of the partner and
the activities of the partnership. A partnership, and a partner of a
partnership, holding SureWest common stock should consult its own tax advisor
regarding the U.S. federal income tax consequences to it of the
Mergers.
This summary is not a comprehensive description of all of the
U.S. federal income tax consequences that may be relevant to you. Neither
Consolidated nor SureWest has requested a ruling from the IRS in connection with
the Mergers or related transactions. Accordingly, the discussion below neither
binds the IRS
85
nor precludes it from adopting a contrary position. Consolidated
and SureWest urge you to consult your own tax advisor regarding your particular
circumstances and the U.S. federal income tax consequences to you of the
Mergers, as well as any tax consequences arising under the laws of any state,
local, foreign or other tax jurisdiction and the possible effects of changes in
U.S. federal or other tax laws.
Treatment of the Mergers as a
ReorganizationGeneral
Consolidated and
SureWest have adopted the Merger Agreement as a plan of reorganization and
, based on the opinion of Orrick, Herrington & Sutcliffe LLP, counsel for SureWest, and the opinion of Schiff Hardin LLP, counsel for Consolidated, that the First Merger and the Second Merger taken together will qualify as a reorganization within the meaning of Section 368(a) of the Code, will treat the Mergers as a reorganization for federal income tax purposes.
However, no
ruling has been or will be obtained from the IRS with respect to the Mergers,
and therefore no assurance can be given that the IRS would not challenge the tax
treatment of the Mergers as a reorganization. If the Mergers fail to qualify as
a reorganization, U.S. Holders would be treated as if they sold their SureWest
common stock in a taxable transaction. In such event, each U.S. Holder would
recognize gain or loss with respect to the disposition of its shares of SureWest
common stock equal to the difference between (i) the U.S. Holders basis in such
shares and (ii) the amount of cash plus the fair market value (as of the date
of
the effective time of the First Merger) of the Consolidated common stock
received in the First Merger. Such gain or loss would be determined separately
for each identifiable block of SureWest common stock exchanged in the First
Merger, and such gain or loss would be treated as capital gain or capital
loss.
The
tax opinions provided by each of Orrick, Herrington & Sutcliffe LLP, tax counsel to SureWest, and Schiff Hardin LLP, tax
counsel to Consolidated, regarding the Mergers do not address any state, local or foreign tax consequences of the Mergers.
The tax opinions are subject to customary qualifications and assumptions, including that the Mergers will be completed
according to the terms of the Merger Agreement. In rendering the tax opinions, each counsel rely on
representations of Sure West, Merger Sub I, Merger Sub II and Consolidated. If any such assumption or representation is or becomes inaccurate, the U.S. federal income tax consequences of
the Mergers could be adversely affected. An opinion of counsel represents counsel’s best legal judgment but is not binding on
the Internal Revenue Service or on any court. Consequently, no assurance can be given that the Internal Revenue Service will
not assert, or that a court will not sustain, a position contrary to any of the tax consequences set forth in this
summary.
Consequences of the Mergers to SureWest
and Consolidated
Neither SureWest, Consolidated, Merger Sub I nor Merger Sub II will
recognize gain or loss as a result of the Mergers.
Tax Consequences of the Mergers for
U.S. Holders of SureWest Common Stock
The U.S. federal income tax consequences of the Mergers to a U.S. Holder
will depend on whether such U.S. Holder receives cash, shares of Consolidated
common stock or a combination of cash and stock in exchange for such U.S.
Holders SureWest common stock. At the time a U.S. Holder makes a cash or stock
election pursuant to the terms of the Merger Agreement, such U.S. Holder will
not know whether, and to what extent, the proration provisions of the Merger
Agreement will alter the mix of consideration such U.S. Holder will receive. As
a result, the tax consequences to such U.S. Holder will not be ascertainable
with certainty until such U.S. Holder knows the precise amount of cash and
shares of Consolidated common stock that such U.S. Holder will receive pursuant
to the First Merger.
Exchange of SureWest common stock
solely for Consolidated common stock
Except as discussed below, see Cash in Lieu of Fractional Shares of
Consolidated Common Stock, a U.S. Holder who exchanges all of its shares of
SureWest common stock solely for shares of Consolidated common stock pursuant to
the First Merger will not recognize gain or loss in connection with such
exchange.
A U.S. Holders aggregate tax basis in the Consolidated common stock
received in the First Merger in exchange for its SureWest common stock,
including any fractional shares deemed received by the U.S. Holder under the
treatment discussed below in Cash in Lieu of Fractional Shares of Consolidated
Common Stock, generally will
86
equal such U.S. Holders aggregate tax basis in
the SureWest common stock surrendered by such U.S. Holder in the First Merger.
The holding period for the shares of Consolidated common stock received by such
U.S. Holder in the First Merger in exchange for its SureWest common stock,
including any fractional shares deemed received by the U.S. holder under the
treatment discussed below in Cash in Lieu of Fractional Shares of Consolidated
Common Stock, generally will include the holding period for the shares of
SureWest common stock exchanged therefor.
Exchange of SureWest common stock
solely for cash
A U.S. Holder who exchanges all of its shares of SureWest common stock
solely for cash pursuant to the First Merger generally will recognize capital
gain or loss equal to the difference between the amount of cash received by such
U.S. Holder and the U.S. Holders adjusted tax basis in the SureWest common
stock exchanged therefor.
Any capital gain
or loss generally will be long-term capital gain or loss if the U.S. Holder held
the shares of SureWest common stock for more than one year at the effective time
of the First Merger. Currently, long-term capital gains of an individual
generally are subject to a maximum U.S. federal income tax rate of 15% and
short-term capital gains of an individual generally are subject to a maximum
U.S. federal income tax rate of 35%. The deductibility of capital losses is
subject to limitations.
Exchange of SureWest common stock
for a combination of Consolidated common stock and cash
Except as discussed below, a U.S. Holder who exchanges its shares of
SureWest common stock for a combination of Consolidated common stock and cash
pursuant to the First Merger will recognize gain (but not loss) equal to the
lesser of (i) the excess, if any, of the amount of cash plus the fair market
value of any Consolidated common stock received in the First Merger, over such
U.S. Holders adjusted tax basis in the shares of SureWest common stock
surrendered by such U.S. Holder in the First
Merger and (ii) the amount of cash received by such U.S. Holder in the
First Merger (other than cash received in lieu of fractional shares of
Consolidated common stock).
For purposes of
this calculation, the fair market value of Consolidated common stock is based on
the trading price of that stock on the date of the First Merger, rather than the
methodology used in calculating the number of shares of Consolidated common
stock to be issued to the stockholder. In the case of any U.S. Holder who
acquired different blocks of SureWest common stock at different times and at
different prices, any realized gain or loss will be determined separately for
each identifiable block of shares exchanged in the First Merger. A loss realized
on the exchange of one block of shares cannot be used to offset a gain realized
on the exchange of another block of shares
(or other gains)
but a U.S. Holder will generally be
able to reduce its capital gains by
other
capital losses in determining its income tax
liability. Such U.S. Holder should consult its tax advisor prior to the exchange
with regard to identifying the basis or holding periods of the particular shares
of Consolidated common stock received in the First Merger.
In addition, Treasury regulations under Section 358 of the Code provide
that where a stockholder surrenders shares of target stock in an exchange and
receives cash and shares of
acquiror
stock, then, to the extent the terms of the
exchange specify that shares of acquiror stock or cash are received in exchange
for a particular share of target stock surrendered, the terms of the exchange
shall control for the purpose of determining the gain to the extent the terms of
the exchange are economically reasonable. Therefore, a U.S. Holder might be
permitted to calculate the amount of taxable gain separately for each share of
SureWest common stock surrendered in the First Merger based on the specific
consideration received for such share. This result might be permitted if the
stockholder designates, on the letter of transmittal (and as specifically
authorized by the Merger Agreement), specific shares of SureWest common stock to
be exchanged for cash or to be exchanged for Consolidated common stock, as the
case may be. Such a designation might result in less taxable gain to a U.S.
Holder even if the holder holds a single block of SureWest common stock with a
uniform tax basis. However, it is unclear whether a designation described in
this paragraph will be treated as satisfying the requirements of the Treasury
regulations, and whether the proration provisions of the Merger Agreement may
affect such designation, and therefore there can be no assurance that the IRS
would not successfully challenge a U.S. Holder that reports taxable gain on the
basis of such a designation. U.S. Holders therefore should consult with their
tax advisors with respect to the advisability, including any benefits or risks,
of making an express designation in their letter of transmittal.
Generally, a U.S. Holders aggregate tax basis in the Consolidated common
stock received by such U.S. Holder in the First Merger in exchange for its
SureWest common stock, including any fractional shares deemed received by the
U.S. Holder under the treatment discussed below in Cash in Lieu of Fractional
Shares of Consolidated
87
Common Stock, will equal such U.S. Holders aggregate
tax basis in the SureWest common stock surrendered in the First Merger,
increased by the amount of taxable gain or dividend income (see below), if any,
recognized by such U.S. Holder in the First Merger (other than with respect to
cash received in lieu of fractional shares of Consolidated common stock), and
decreased by the amount of cash, if any, received by such U.S. Holder in the
First Merger (other than cash received in lieu of fractional shares of
Consolidated common stock). The holding period for the shares of Consolidated
common stock received in the First Merger, including any fractional shares
deemed received by the U.S. Holder under the treatment discussed below in Cash
in Lieu of Fractional Shares of Consolidated Common Stock, generally will
include the holding period for the shares of SureWest common stock exchanged
therefor.
Any capital gain generally will be long-term capital gain if the U.S.
Holder held the shares of SureWest common stock for more than one year at the
effective time of the First Merger. Currently, long-term capital gains of an
individual generally are subject to a maximum U.S. federal income tax rate of
15% and short term capital gains of an individual generally are subject to a
maximum U.S. federal income tax rate of 35%. The deductibility of capital losses
is subject to limitations. In some cases, such as if a U.S. Holder actually or
constructively owns Consolidated common stock immediately after the First Merger
that was not received in the First Merger, the gain recognized in connection
with the Mergers may be treated as having the effect of the distribution of a
dividend to such U.S. Holder, under the tests set forth in Section 302 of the
Code, in which case such gain would be treated as dividend income. These rules
are complex and dependent upon the specific factual circumstances particular to
each U.S. Holder. Consequently, each U.S. Holder that may be subject to those
rules should consult its tax advisor as to the application of these rules to the
particular facts relevant to such U.S. Holder.
Cash in Lieu of Fractional Shares of
Consolidated Common Stock
A U.S. Holder who receives cash instead of a fractional share of
Consolidated common stock will be treated as having received the fractional
share of Consolidated common stock pursuant to the First Merger and then as
having exchanged the fractional share of Consolidated common stock for cash in a
redemption by Consolidated. In general, this deemed redemption will be treated
as a sale or exchange and a U.S. Holder will recognize gain or loss equal to the
difference between (i) the amount of cash received by such U.S. Holder and (ii)
the portion of the basis of the shares of SureWest common stock allocable to
such fractional interest. Such gain or loss generally will constitute capital
gain or loss and will be long-term capital gain or loss if the U.S. Holders
holding period for the SureWest common stock exchanged by such U.S. Holder is
greater than one year as of the effective time of the First Merger. Currently,
long-term capital gains of an individual generally are subject to a maximum U.S.
federal income tax rate of 15% and short term capital gains of an individual
generally are subject to a maximum U.S. federal income tax rate of 35%. The
deductibility of capital losses is subject to limitations.
Information Reporting and Backup
Withholding
Cash payments
received in the First Merger by a U.S. Holder may, under certain circumstances,
be subject to information reporting and backup withholding at a rate of 28% of
the cash payable to the U.S. Holder, unless the U.S. Holder provides proof of an
applicable exemption, furnishes its taxpayer identification number (in the case
of individuals, their social security number) and otherwise complies with all
applicable requirements of the backup withholding rules. Any amounts withheld
from payments to a U.S. Holder under the backup withholding rules are not
additional tax and will be allowed as a refund or credit against the U.S.
Holders U.S. federal income tax liability, provided the required information is
timely furnished to the IRS.
Reporting Requirements
A U.S. Holder who receives shares of Consolidated common stock as a
result of the First Merger will be required to retain records pertaining to the
First Merger. Each U.S. holder who is required to file a U.S. tax return and who
is a significant holder that receives Consolidated common stock in the First
Merger will be required to file a statement with the significant holders U.S.
federal income tax return setting forth such significant holders basis
(determined immediately before the exchange) in the SureWest common stock
surrendered and the fair market value (determined immediately before the
exchange) of the SureWest common stock that is exchanged by such significant
holder. Generally, a significant holder is a U.S. Holder who receives shares
of Consolidated common stock in the First Merger and who, immediately before the
First Merger, owned at least 5% of the outstanding stock of SureWest (by vote or
value) or securities of SureWest with a tax basis of $1 million or
more.
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THE MERGER AGREEMENT
The following
discussion sets forth the principal terms of the Merger Agreement, a copy of
which is attached as Annex I to this joint proxy statement/prospectus and is
incorporated by reference herein. The rights and obligations of the parties are
governed by the express terms and conditions of the Merger Agreement and not by
this discussion, which is summary by nature. This discussion is not complete and
is qualified in its entirety by reference to the complete text of the Merger
Agreement. You are encouraged to read the Merger Agreement carefully in its
entirety, as well as this joint proxy statement/prospectus, before making any
decisions regarding the Mergers.
The Mergers
Subject to the terms and conditions of the Merger Agreement and in
accordance with California law, the Mergers will proceed as follows: in the
First Merger, Merger Sub I will merge with and into SureWest, with SureWest
surviving, followed promptly by the merger of SureWest with and into Merger Sub
II, with Merger Sub II surviving.
Closing and Effectiveness of the
Mergers
The closing of the First Merger will occur as soon as possible, but no
later than two business days after the date of the conditions to its completion
have been satisfied or waived. The First Merger will become effective at such
time (the effective time) as the parties file an agreement of merger with the
Secretary of State of the State of California (or at such later time as SureWest
and Consolidated may agree and is specified in the agreement of merger). The
Second Merger will become effective upon the filing of an agreement of merger
with the Secretary of State of the State of California promptly following the
effective time of the First Merger.
Directors and Officers After the
Mergers
Consolidateds
amended and restated certificate of incorporation provides for the
classification of Consolidateds board of directors into three classes of
directors, designated Class I, Class II and Class III, as nearly equal in size
as is practicable, serving staggered three-year terms. One class of directors is
elected each year to hold office for a three-year term or until successors of
such directors are duly elected and qualified. Consolidateds board of directors
currently consists of four directors, comprised of one Class I director, one
Class II director and two Class III directors. Class II consisted of two
directors until the February 29, 2012 death of Jack W. Blumenstein, an
independent director of Consolidated, the Chairperson of Consolidateds Audit
Committee and a member of Consolidateds Corporate Governance Committee and
Compensation Committee. For more information regarding Consolidateds directors,
see Consolidated Proposal No. 2: Election of Richard A. Lumpkin as Director.
Pursuant to the Merger Agreement, SureWest is entitled to select, and
Consolidated has agreed to take all such action as may be reasonably necessary
to cause, one individual from among the current members of the board of
directors of SureWest to be elected to Consolidateds board of directors as of
the effective time of the Mergers. Prior to completion of the Mergers, SureWest
will designate such director. For further information on SureWests directors,
see SureWests Form 10-K for the year ended December 31, 2011. As a result,
after completion of the Mergers, assuming Consolidateds stockholders elect the
nominee to the board described under Consolidated Proposal No. 2: Election of
Richard A. Lumpkin as Director and no other directors are appointed,
Consolidated expects that the board of directors of Consolidated would consist
of Roger H. Moore (Class II Director term expiring in 2013), Robert J. Currey
(Class III Director term expiring in 2014), Maribeth S. Rahe (Class III
Director term expiring in 2014), Richard A. Lumpkin (Class I Director term
expiring in 2015) and an individual to be designated by SureWest (Class I
Director term expiring in 2015).
On March 1, 2012, Consolidated notified NASDAQ of Mr. Blumensteins
death. As a result of Mr. Blumensteins death, Consolidateds board of directors
is no longer comprised of a majority of independent directors and Consolidateds
Audit Committee is no longer comprised of at least three independent directors,
as required for continued listing by NASDAQ Listing Rules 5605(b)(1) and
5605(c)(2)(A), respectively. On March 5, 2012, Consolidated received a
deficiency letter from NASDAQ acknowledging the failure of Consolidated to
continue to satisfy the aforementioned NASDAQ Listing Rules. In accordance with
NASDAQ Listing Rules 5605(b)(1)(A) and 5605(c)(4)(A) and the NASDAQ deficiency
letter, and given the date of the Consolidated annual meeting, Consolidated has
until August 28, 2012 to regain compliance with NASDAQ Listing Rules.
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Prior to the expiration of the applicable cure period, Consolidateds
board intends to add to the board either (i) the individual to be designated by
SureWest or (ii) another new director, or both. The director or directors so
appointed would not only satisfy the independence requirements of the NASDAQ
Listing Rules, but would have no material connection to Consolidated (that is,
no material financial, personal, business, or other relationship that a
reasonable person could conclude could potentially influence boardroom
objectivity) prior to being appointed to Consolidateds board of directors.
Consolidateds board would increase the size of the board as necessary to
accommodate the addition or additions to the board.
From the
effective time of the Mergers until successors are duly elected or appointed and
qualified in accordance with applicable law, the directors and officers of
Merger Sub II at the effective time will be the directors of the surviving
corporation resulting from the merger of Merger Sub II with and into SureWest.
These directors are Richard A. Lumpkin (Chairman), Robert J. Currey, Steven J.
Shirar and Matthew K. Smith, and the officers are Robert J. Currey (President
and Chief Executive Officer), Steven J. Shirar (Senior Vice President and
Corporate Secretary), C. Robert Udell, Jr. (Senior Vice President and Chief
Operating Officer), Christopher A. Young (Chief Information Officer) and Steven
L. Childers (Senior Vice President and Chief Financial Officer).
Consideration to be Received in the
Mergers
At the effective time of the First Merger, each outstanding share of
SureWest common stock (other than treasury stock and shares of common stock
owned by Consolidated, Merger Sub I or Merger Sub II) will be converted into the
right to receive, at the election of the shareholder, subject to certain
proration and reallocation procedures described below, either $23.00 in cash
(without interest) or shares of Consolidated common stock as determined by the
exchange ratio. The exchange ratio will be equal to the number determined by
dividing $23.00 by the average closing price for the 20 consecutive trading days
ending two trading days before the closing of the First
Merger.
However, in no event will the exchange ratio be
less than 1.03896 or greater than 1.40565. Shareholder elections will be subject
to proration to ensure that 50% of the SureWest shares are converted into the
right to receive the cash consideration and 50% of the SureWest shares are
converted into the right to receive the stock consideration, provided that all
holders of SureWest options, restricted stock units and restricted stock awards
will be paid in cash and shall not be subject to such proration. In order to
achieve this 50%/50% stock-cash mix of consideration, the Merger Agreement
provides for adjustments to and reallocation of the stock and cash elections
made by SureWest shareholders, as well as the allocation of consideration to be
paid with respect to SureWest shareholders who fail to make an election, as
described above under The MergersSureWest Shareholders Making Cash and Stock
Elections
.
In
order to preserve the tax-free nature of the transaction, the Merger Agreement
also provides for a general consideration adjustment in certain circumstances,
as further described under The Mergers SureWest Shareholders Making Cash and
Stock Elections General Consideration Adjustment.
Dissenting Shares
If the Mergers are completed, holders of SureWest common stock are
entitled to dissenters rights under Chapter 13 of the CGCL, which is included
with this joint proxy statement/prospectus as Annex IV, provided that they
comply with the conditions established by Chapter 13 of the DGCL. The shares of
stock held by holders who have properly exercised dissenters rights will not be
converted into the right to receive the consideration discussed above, but will
instead be entitled to such rights as are granted by Chapter 13 of the
CGCL.
Treatment of SureWest Equity Awards
See the discussion of the treatment of SureWest equity awards under The
MergersTreatment of SureWest Equity Awards above.
Representations and Warranties
The Merger Agreement contains representations and warranties made by
SureWest to Consolidated and by Consolidated to SureWest. The assertions
embodied in those representations and warranties were made solely for purposes
of the Merger Agreement and may be subject to important qualifications and
limitations agreed to by the parties in connection with negotiating the terms of
the Merger Agreement. Accordingly, SureWest shareholders
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should not rely on
representations and warranties as characterizations of the actual state of facts
or circumstances, and should bear in mind that the representations and
warranties were made solely for the benefit of the parties to the Merger
Agreement, were negotiated for purposes of allocating contractual risk among the
parties to the Merger Agreement rather than to establish matters as facts and
may be subject to contractual standards of materiality different from those
generally applicable to shareholders. Moreover, information concerning the
subject matter of such representations and warranties may change after the date
of the Merger Agreement, which subsequent information may or may not be
reflected in public disclosures of SureWest and Consolidated. This description
of the representations and warranties is included to provide SureWests
shareholders with information regarding the terms of the Merger Agreement. The
representations and warranties in the Merger Agreement and the description of
them in this joint proxy statement/prospectus should be read in conjunction with
the other information contained in the reports, statements and filings SureWest
and Consolidated publicly file with the SEC. See Where You Can Find Additional
Information.
In the Merger Agreement, SureWest and Consolidated made a number of
representations and warranties to each other. The parties reciprocal
representations and warranties relate to, among other things:
-
due incorporation,
valid existence and good standing, and corporate authorization and power to
enter into the Merger Agreement and consummate the transactions contemplated
thereby;
-
the good standing and corporate power and
authority of SureWests and Consolidateds subsidiaries,
respectively;
-
capitalization and capital
structure;
-
the absence of any violation of or conflict with
such partys organizational documents or applicable laws as a result of
entering into the Merger Agreement and consummating the Mergers;
-
required regulatory filings, consent and approval
of governmental entities in connection with the Merger Agreement and the
Mergers;
-
documents filed by SureWest and Consolidated,
respectively, with the SEC since January 1, 2010 and the accuracy of
information contained in those documents;
-
financial statements;
-
the absence of undisclosed finders
fees;
-
the absence of certain changes or events, and the
absence of a material adverse effect on SureWest and Consolidated,
respectively, in each case since September 30, 2011;
-
the joint proxy statement/prospectus to be filed
with the Securities and Exchange Commission under the Exchange Act and the
accuracy of information contained in such document as provided by such party;
-
litigation and legal proceedings;
-
filing of tax returns, payment of taxes and other
tax matters;
-
employee benefit plans;
-
Consolidateds and SureWests respective
compliance with applicable legal requirements and possession of permits and
compliance with provisions of the Sarbanes-Oxley Act of 2002 and the listing
standards of the NASDAQ Global Select Market;
-
certain material contracts;
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-
the absence of undisclosed liabilities;
and
-
environmental matters.
In addition to the foregoing, the Merger
Agreement contains representations and warranties made by SureWest to
Consolidated, including:
-
SureWests
possession of and compliance with, and the validity of, requisite
communications regulatory permits, approvals, authorizes, certificates and
licenses;
-
properties;
-
intellectual property;
-
receipt by SureWest of a fairness opinion from
UBS;
-
the inapplicability of certain state takeover
statutes;
-
affiliate transactions;
-
employment matters; and
-
insurance.
In addition, the
Merger Agreement contains representations and warranties made by Consolidated to
SureWest including regarding the existence of a fully executed debt commitment
letter confirming the commitments of Morgan Stanley Senior Funding, Inc. to
provide a subsidiary of Consolidated with debt financing in connection with the
Mergers and certain terms and conditions of that debt commitment letter, among
other things.
SureWests Conduct of Business Before
Completion of the Mergers
From the date of the Merger Agreement until the effective time, SureWest
has agreed, subject to certain exceptions, to conduct its business in the
ordinary course. In addition, SureWest may not, among other things and subject
to certain exceptions, without Consolidateds consent:
-
adjust, split,
combine or reclassify its capital stock;
-
set any record or payment dates for the payment of
any dividends or distributions on its capital stock or make, declare or pay
any dividend or make any other distribution on any shares of its capital stock
or any securities or obligations convertible into or exchangeable for any
shares of its capital stock, except that (a) SureWest may declare and pay
regular quarterly cash dividends of $0.10 per share and (b) any wholly owned
subsidiary of SureWest may declare and pay dividends to its parent and other
wholly owned subsidiaries of SureWest;
-
directly or indirectly redeem, purchase or
otherwise acquire, any shares of its capital stock or any securities or
obligations convertible into or exchangeable for any shares of its capital
stock (except pursuant to the exercise of stock options or vesting of
restricted stock unites or restricted stock awards outstanding as of the date
hereof or permitted to be issued or pursuant to the surrender of shares to
SureWest or the withholding of shares by SureWest to cover tax withholding
obligations);
-
grant any stock appreciation rights or grant any
person any right to acquire any shares of its capital stock except in the
ordinary course of business in accordance with past practice, or issue, or
commit to issue, sell, grant, dispose of, pledge or otherwise encumber, or
authorize or propose the issuance, sale grant, disposition, pledge or other
encumbrance of, any additional shares of capital stock (except pursuant to the
exercise of
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stock options or vesting or settlement of awards under SureWests
stock plans outstanding as of the date hereof or permitted to be issued), any
securities convertible into or exercisable for, or any rights, warrants or
options to acquire, any additional shares of capital stock, or any other
securities in respect of, in lieu of, or in substitution for, any shares of
its capital stock outstanding on the date of the Merger
Agreement;
-
sell, transfer, mortgage, encumber or otherwise
dispose of any of its material assets or material properties to any person
(other than a direct wholly owned Subsidiary), by merger, consolidation, asset
sale or other business combination (including formation of a joint venture) or
cancel, release or assign any indebtedness to any such person or any claims
held by any such person, in each case, except (i) in the ordinary course of
business consistent with past practice, including sales of repossessed assets,
(ii) dispositions of obsolete or worthless assets, (iii) sales of loans,
receivables and other assets in the ordinary course of business consistent
with past practice and (iv) sales of immaterial assets which involve the sale
of assets with a purchase price of $750,000 or less in any single case or
$3,000,000 in all such cases;
-
make any investment or acquisition, by purchase or
other acquisition of stock or other equity interests, by merger,
consolidation, asset purchase or other business combination, or by
contributions to capital; or make any material purchases of any property or
assets, in or from any other Person other than a wholly owned subsidiary of
SureWest, except (i) as expressly required by the terms of any contracts or
agreements in force at the date of the Merger Agreement, (ii) as otherwise
permitted, and (iii) other acquisitions in the ordinary course of business
consistent with past practice and, in any case, involving consideration in an
aggregate amount not in excess of $5,000,000;
-
enter into, renew, extend, amend
or terminate any material contract or lease;
-
other than general pay increases, including in
connection with promotions, made in the ordinary course of business consistent
with past practice, for employees, directors or independent contractors
generally or as provided by any agreement in effect on the date hereof, (i)
increase, or commit to increase, the compensation or severance payable
(including by granting or increasing the rate or terms of any salary, bonus,
pension or other compensation pursuant to the terms of any employee benefit
plan, policy, agreement or arrangement) to any of its employees, directors or
independent contractors, (ii) pay any severance other than in the ordinary
course of business consistent with past practice or (iii) except as may be
required, or advisable, to comply with applicable law or contract, amend,
establish or enter into any pension, retirement, profit-sharing, severance,
retention or welfare benefit plan or agreement or
incentive or employment, agreement with or for the benefit of any
employee, director or independent contractor or accelerate the vesting of any
stock options or other stock-based compensation;
-
amend its articles
of incorporation, bylaws or similar governing documents or similar
organizational documents of any of subsidiary of SureWest;
-
enter into any new material line of business
outside of its existing business;
-
assign, transfer, lease, cancel, fail to renew or
fail to extend any material permit issued by the FCC or any state or local
regulator;
-
incur any indebtedness for borrowed money, issue
any debt securities or assume, guarantee or endorse or otherwise become
responsible for the obligations of another person, or make any loans, advances
of capital contributions to, or investments in, any other person, except in
the ordinary course of business consistent with past
practice;
-
make or change any material tax election or settle
or compromise any material tax liability of SureWest or any of its
subsidiaries;
-
make any material changes in its accounting
methods or method of tax accounting, practices or policies, except as may be
required under applicable law, rule, regulation or GAAP;
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-
effect or permit, with respect to SureWest and any
of its subsidiaries, a plant closing or mass layoff, as such terms are
defined under the Worker Adjustment and Retraining Act of 1988, as
amended;
-
except as otherwise permitted pursuant, take any
action that is intended or may reasonably be expected to result in any of the
conditions to the Mergers; or
-
agree or make any commitment to do any of the
foregoing.
Consolidateds Forbearances Before
Completion of the Mergers
From the date of
the Merger Agreement until the effective time, Consolidated has agreed not to
take the following actions, among other things and subject to certain
exceptions, without SureWests consent:
-
engage in any
material repurchase of, or any recapitalization or other change, restructuring
or reorganization with respect to, Consolidated common stock, including
payment of any dividend or other distribution in respect to shares of its
common stock (other than Consolidateds regular quarterly cash
dividends);
-
(i) alter through merger, liquidation,
reorganization, restructuring or in any other manner the corporate structure
or organization of Consolidated, or (ii) engage in any action or enter into
any transaction or series of transactions, or permit any action to be taken or
transaction or series of transactions to be entered into, that, in the case of
either clause (i) or clause (ii), could reasonably be expected to delay the
consummation of, or otherwise adversely affect, the Mergers, including (x)
withdrawing or modifying, in a manner adverse to SureWest, the approval by the
Consolidated board of the Merger Agreement, the Mergers or the issuance of
Consolidated common stock or (y) engaging in any action or entering into any
transaction or series of transactions, or permitting any action to be taken or
transaction or series of transactions to be entered into, that could
reasonably be expected to delay or otherwise adversely affect the funding of
the full amount of the debt financing or the ability of Consolidated, Merger
Sub I and Merger Sub II to pay the aggregate amount of cash consideration for
the shares of SureWest common stock;
-
acquire (whether through merger, consolidation,
stock or asset purchase or otherwise), or agree to so acquire, any material
amounts of assets of or any equity in any person or any business or division
thereof, unless such acquisition or agreement would not (i) impose any delay
in the obtaining of, or materially increase the risk of not obtaining, any
authorizations, consents, orders, declarations or approvals of any
governmental entity necessary to consummate the Mergers or the expiration or
termination of any waiting period under the HSR Act or other law, (ii)
increase the risk of any governmental entity entering an order prohibiting the
consummation of the Mergers or any of the transactions contemplated by the
Merger Agreement or (iii) increase the risk of not being able to remove any
such order on appeal or otherwise;
-
adopt any amendments to the certificate of
incorporation or bylaws of Consolidated (or similar organizational documents
of any of its subsidiaries) which would alter any of the terms of the
Consolidated common stock; or
-
agree or make any commitment to do any of the
foregoing.
No Solicitation; Changes in
Recommendations
In the Merger
Agreement, SureWest has agreed that the SureWest board will recommend that
SureWests shareholders approve the Merger Agreement, and that none of SureWest,
the SureWest board or any of its subsidiaries will, nor will any of SureWest,
the SureWest board or any of its subsidiaries authorize or permit any of its
representatives to, directly or indirectly:
-
solicit, initiate
or knowingly encourage or facilitate any inquiry with respect to, or the
making, submission or announcement of, any proposal or offer that constitutes,
or is reasonably expected to lead to, an alternative proposal, including
through the furnishing of non-public information;
94
-
furnish any non-public information relating to
SureWest or any of its subsidiaries or afford access to the business,
properties, assets, books, records or other non-public information of SureWest
or any of its subsidiaries, relating to an alternative proposal or any
inquiries or the making of any proposal that could lead to an alternative
proposal;
-
engage in, continue or otherwise participate in
any discussions or negotiations regarding an alternative proposal;
-
resolve to or withdraw, modify of qualify in a
manner adverse to Consolidated the SureWest boards recommendation that
SureWests shareholders approve the Merger Agreement (an adverse
recommendation change); or
-
enter into any letter of intent, memorandum of
understanding, agreement in principal, acquisition agreement, merger
agreement, option agreement, joint venture agreement, partnership agreement or
other similar agreement relating to an alternative proposal or authorize,
approve or publicly recommend an alternative proposal or agreement relating to
an alternative proposal.
However, at any time prior to obtaining the SureWest shareholder
approval, so long as none of SureWest, its subsidiaries or their representatives
have breached or taken any actions inconsistent with SureWests above
obligations regarding non-solicitation, SureWest and the SureWest board may, to
the extent required by the SureWest boards fiduciary duties:
-
in response to a
bona fide
alternative proposal (that did not arise out of a breach of SureWests
non-solicitation obligations under the Merger Agreement) that the SureWest
board determines in good faith after consultation with its financial advisor
and outside legal counsel constitutes or could reasonably be expected to
result in a superior proposal, (i) participate or engage in discussions or
negotiations with such third party and its representatives and financing
sources and (ii) furnish non-public information relating to SureWest to the
person making such proposal pursuant to a confidentiality agreement with terms
that are not materially less favorable to SureWest than SureWests
confidentiality agreement with Consolidated; or
-
subject to compliance with the applicable terms of
the Merger Agreement, make an adverse recommendation change and/or terminate
the Merger Agreement to enter into a definitive agreement with respect to a
bona fide alternative proposal that the board concludes in good faith after
consultation with its financial advisor and outside legal counsel constitutes
a superior proposal; provided that SureWest may take such action only if the
board determines in good faith, after consultation with its financial advisor
and outside legal counsel that the failure to take such action would be
inconsistent with its fiduciary duties to SureWests shareholders and, in the
case of a termination, SureWest pays Consolidated the $14,675,000 termination
fee payable pursuant to the Merger Agreement.
The term
alternative proposal means, any proposal, indication or offer, including any
proposal, indication or offer from or to SureWests shareholders, made by any
person or group (as defined under Rule 13(d) of the Exchange Act) other than
Consolidated or its subsidiaries and/or affiliates relating to, whether in a
single transaction or series of related transactions, and whether directly or
indirectly, any (i) transaction or series of transactions (including any merger,
reorganization, share exchange, consolidation, business combination, joint
venture, partnership, recapitalization, dissolution, liquidation or similar
direct or indirect transaction involving SureWest and/or any of its subsidiaries
or the issuance or acquisition of shares of SureWest common stock or other
equity securities of SureWest whose business or businesses constitute 20% (in
number or voting power) or more of the assets, revenues or earnings of SureWest
and its subsidiaries, taken as a whole, (ii) acquisition, license or purchase of
assets of SureWest and/or its subsidiaries equal to 20% or more of the
consolidated assets of SureWest and its subsidiaries or to which 20% or more of
SureWests revenues or earnings on a consolidated basis are attributable or
(iii) acquisition of beneficial ownership (as defined under Rule 13(d) of the
Exchange Act) of equity interests representing a 20% or greater economic or
voting interest in SureWest or tender offer (including a self-tender offer) or
exchange offer that, if consummated, would result in any person or group (as
defined under Rule 13(d) of the Exchange Act) beneficially owning equity
interests representing a 20% (in number or voting power) or greater economic or
voting interest in SureWest.
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The term
superior proposal means any bona fide Alternative Proposal (except that
references to 20% or more in the definition thereof will be deemed to be
references to 50% or more) made by any person that is on terms that the
SureWest board determines in good faith (after consultation with its financial
advisor and outside legal counsel and after taking into account all legal,
financial (including the financing terms thereof)), regulatory, timing and other
aspects of the proposal are more favorable to SureWests shareholders from a
financial point of view than the transactions contemplated by the Merger
Agreement.
The Merger Agreement also provides that SureWest shall not take any of
the actions described above unless SureWest shall have notified Consolidated
that it intends to take such action and shall promptly make available any
material non-public information that is provided to a third party that was not
previously made available to Consolidated. In addition, SureWest shall notify
Consolidated promptly after receipt by SureWest (or any of its representatives)
of any alternative proposal, including of the material terms and conditions
thereof, and shall, at Consolidateds request, keep Consolidated informed on a
reasonably current basis as to the status (including changes to the material
terms) of such alternative proposal. SureWest shall also notify Consolidated
promptly after receipt by SureWest of any request for non-public information
relating to SureWest or any of its subsidiaries or for access to the business,
properties, assets, books or records of SureWest or any of its subsidiaries by
any third party that may be considering making, or has made, an alternative
proposal.
Commercially Reasonable Efforts to
Complete the Mergers; Other Agreements
Commercially Reasonable Efforts.
Consolidated and SureWest have each agreed to use their commercially
reasonable best (i) to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under applicable law
to consummate the transactions contemplated by the Merger Agreement and (ii) to
promptly prepare, file and provide to third parties and governmental entities
all applications, statements, notices, petitions, registrations, requests,
declarations and filings which are necessary or advisable to consummate the
transactions contemplated by the Merger Agreement (including the Mergers), to
obtain (and to cooperate with the other party to obtain) as promptly as
practicable all material permits, consents, registrations, authorizations and
exemptions of or from all third parties and governmental entities which are
necessary or advisable to consummate the transactions contemplated by the Merger
Agreement (including the Mergers), and to comply with the terms and conditions
of all such permits, consents, registrations, authorizations and exemptions of
all such third parties and governmental entities.
Proxy Statement/Prospectus; Registration Statement; Shareholders
Meeting.
Consolidated and SureWest have
agreed to prepare and file with the SEC this joint proxy statement/prospectus
and the registration statement in which this joint proxy statement/prospectus is
included as a prospectus as soon as is reasonably practicable after the
execution of the Merger Agreement. Consolidated and SureWest have also agreed to
use commercially reasonable efforts to have the registration statement declared
effective. The Merger Agreement also provides that Consolidated and SureWest
will each hold a meeting of their respective shareholders following SEC
clearance of the joint proxy statement/prospectus and will recommend, in the
case of SureWest, the approval of the Merger Agreement by shareholders and, in
the case of Consolidated, the approval of the issuance of shares of Consolidated
common stock to SureWest shareholder in the First Merger contemplated by the
Merger Agreement, and SureWest and Consolidated will use commercially reasonable
efforts to obtain such approvals.
Access to Information
Under the Merger Agreement, until the effective time, subject to
reasonable prior notice, applicable law and the confidentiality agreement
between SureWest and Consolidated dated January 19, 2012, SureWest will give
Consolidated and its authorized representatives access to the properties, books,
contracts, commitments and records and to the officers, employees, accountants,
counsel and other representatives of SureWest and its subsidiaries.
Financing
Consolidated has agreed to take or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper or advisable to arrange
and obtain the proceeds of the debt financing, including entering into
definitive agreements with respect to debt financing as promptly as practicable
after the date of the Merger
96
Agreement, satisfying on a timely basis all
conditions applicable to Consolidated or its subsidiaries that are within their
control in such definitive agreements and using commercially reasonable efforts
to cause the lenders or other persons providing the debt financing to fund the
debt financing at the closing of the Mergers. Consolidated has also agreed not
to agree to any amendments or modifications or grant any waivers of any
conditions under the debt financing without the written consent of SureWest that
would reduce the aggregate amount of the debt financing or impose new or
additional conditions that would prevent or materially delay the ability of
Consolidated to consummate the Mergers or adversely impact the ability of
Consolidated and its subsidiaries to enforce its rights against the other
parties to the debt financing. In the event the debt financing becomes
unavailable, Consolidated shall promptly notify SureWest and shall use its
commercially reasonable efforts to arrange and obtain alternative financing upon
conditions not materially less favorable to Consolidated and its subsidiaries
than the debt financing.
Financing Cooperation
SureWest has
agreed to and to cause its subsidiaries to and to use its reasonable best
efforts to provide, and to use its reasonable best efforts to cause its
representatives to cooperate as reasonably requested by Consolidated in
connection with the debt financing (provided, that such requested cooperation
does not unreasonably interfere with the ongoing operations of SureWest and its
subsidiaries), including, among other things:
-
participation in meetings, drafting sessions, rating agency
presentations, due diligence sessions, road shows and other customary
marketing presentations;
-
furnishing in writing any financing
sources as promptly as practicable with pertinent information regarding
SureWest and its subsidiaries as reasonably requested in connection with the
debt financing;
-
assisting any financing sources in the
preparation of one or more customary offering documents, information
memorandum and/or documents to be filed with the SEC in connection with the
debt financing and materials for rating agency presentations;
-
executing and delivering any pledge and
security documents and otherwise facilitating the pledge of
collateral;
-
taking all reasonably required corporate
actions, subject to the consummation of the Mergers, to permit the
consummation of the debt financing;
-
providing authorization letters to any
financing sources authorizing the distribution of information to prospective
lenders and containing customary representation to the arranger of any
financing that the information contained in any offering document does not
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; and
-
using reasonable best efforts to obtain
accountants comfort letters, to provide the accountants with customary
representation letters and authority authorization to enable them to issue the
comfort letters; to obtain the consent of such accounting for the including of
its reports on SureWest in any document to be used in connection with the debt
financing; and
-
using reasonable best efforts to cause
the appropriate officers of SureWest to execute and deliver any definitive
financing documents or other certificates or documents as may be reasonably
requested by Consolidated for delivery at the consummation of the debt
financing.
SureWest is not required to enter into any definitive agreement or incur
any other liability of obligation of the debt financing prior to the effective
time of the Mergers. Consolidated has acknowledged and agreed that SureWest and
its affiliates and its and their representatives shall not, prior to the
effective time of the Mergers, incur any liability under the financing or any
cooperation provided, and shall, on a joint and several basis, indemnify
SureWest and its affiliates and its and their respective representatives in
connection with the debt financing.
97
The obligations of Consolidated and the Merger Subs to consummate the
Mergers and the other transactions contemplated by the Merger Agreement on the
terms and subject to the conditions of the Merger Agreement are not conditioned
upon the availability or consummation of the debt financing or receipt of the
proceeds therefrom.
Director and Officer Indemnification
and Insurance
The Merger Agreement provides that from and after the effective time of
the Mergers and to the fullest extent permitted by law or provided under
SureWests certificate of incorporation or bylaws, the surviving corporation
will indemnify, and pay or advance expenses of the current or former officers,
directors and certain other individuals of SureWest with respect to acts or
omissions occurring at or prior to the effective time, provided that any person
to whom expenses are advanced will provide an undertaking to repay any advances
made if a court determines the person was not entitled to indemnification and
for a period of six years after the effective time of the Mergers shall keep in
full force and effect and comply with the terms and conditions of any agreement
between SureWest and its current or former officers, directors and certain other
individuals providing for indemnification of and advancement of expenses. The
Merger Agreement further provides that, prior to the effective time of the
Mergers, SureWest shall purchase a six-year tail officers and directors
liability insurance policy on terms and conditions no less favorable in the
aggregate than SureWests existing directors and officers liability insurance.
The surviving corporation will pay all expenses, including reasonable fees and
expenses of counsel, that an indemnified person may incur in enforcing the
indemnity and other obligations described above, and the Merger Agreement
provides that the foregoing rights of each indemnified person will survive the
effective time of the Mergers and are enforceable by each indemnified person.
Employee Matters
The Merger
Agreement provides that, for a period of one year after the effective time,
Consolidated will provide to those employees of SureWest and its subsidiaries
who are employed immediately prior to the effective time (the continuing
employees) who remain employed by Consolidated after the effective time
compensation and benefits arrangements that are no less favorable in the
aggregate than the compensation and benefit arrangements that are provided to
similarly situated employees of Consolidated, provided that in no event shall
such compensation and benefits be less favorable in the aggregate than such
continuing employees current compensation and benefits arrangements. The Merger
Agreement also provides that Consolidated will give continuing employees who
remain employed by Consolidated after the effective time, full credit for
purposes of determining eligibility and vesting (but not for purposes of any
benefit accruals) under any employee benefit plans or arrangements maintained by
Consolidated (other than any defined benefit or equity-based plans) for such
continuing employees service with SureWest or its subsidiaries, waive all
limitations as to preexisting conditions, exclusions and waiting periods with
respect to participate and coverage requirements applicable to the continuing
employees under any welfare benefit plan maintained by Consolidated to the same
extent waived by SureWest and its subsidiaries or otherwise not subject to
limitation by SureWest and its subsidiaries, provide credit under any such
welfare plan for any co-payments, deductible and out-of-pocket expenditures for
the remainder of the coverage period during which any transfer of coverage
occurs, and honor in accordance with their terms all employee benefit plans or
arrangements maintained by SureWest immediately prior to the effective
time.
Definition of Material Adverse Effect
A material adverse effect is defined with respect to any entity as (a)
a material adverse effect on the business, results of operations or financial
condition of such entity and its subsidiaries, taken as a whole or (b) a
material adverse effect on the ability of such entity to consummate the
transactions contemplated by the Merger Agreement on a timely basis, excluding
any effect on the entity or its subsidiary relating to or arising in connection
with:
-
any
adverse change, effect, event or occurrence, state of facts or developments to
the extent the public announcement or the pendency of the Merger Agreement or
the transactions contemplated thereby or any actions required to be taken (or
refrained from being taken) in compliance with the Merger Agreement or
otherwise with the consent of the other party, including the impact thereof on
the relationships of the entity or any of its subsidiaries with customers,
suppliers, distributors, consultants, employees or independent
98
contractors or
other third parties with whom the entity or any of its subsidiaries has any
relationship and including any litigation brought by any shareholder of
SureWest or Consolidated in connection with the transactions contemplated the
Merger Agreement;
-
any failure by the entity to meet any
projections or forecasts for any period ending (or for which revenues or
earnings are released) on or after the date of the Merger
Agreement;
-
any change in federal, state, non-U.S.
or local law, regulations, policies or procedures, or interpretations thereof,
GAAP or regulatory accounting requirements applicable or potentially
applicable to the industries in which the entity or its subsidiaries
operate;
-
changes generally affecting the
industries in which the entity or its subsidiaries operate that are not
specifically related to the entity and its subsidiaries and do not have a
materially disproportionate adverse effect on such entity and its
subsidiaries, taken as a whole;
-
changes in economic conditions
(including changes in the prevailing interest rates) in the United States, in
any region thereof, or in any non-U.S. or global economy; or
-
any attack on, or by, outbreak or
escalation of hostilities or acts of terrorism involving, the United States,
or any declaration of war by the United States Congress or any hurricane or
other natural disaster.
Conditions of the Mergers
Mutual Conditions
. The
obligations of SureWest, Consolidated and the Merger Subs to consummate the
Mergers are subject to the satisfaction or waiver of various conditions on or
prior to the effective time, including the following:
-
obtaining
the SureWest shareholder approval;
-
the expiration or termination of the
waiting period under the HSR Act;
-
the obtaining of all consents and
authorization to be obtained by the FCC or any other state regulators in
connection with the transactions contemplated by the Merger
Agreement;
-
the
absence of any injunctions or other legal prohibitions preventing the
consummation of the Mergers;
-
the effectiveness of the registration
statement on Form S-4 in which this joint proxy statement/prospectus is
included as a prospectus and the lack of any stop order suspending the
effectiveness of the Form S-4 or pending or threatened SEC proceedings to
effect a stop order;
-
the issuance of Consolidated common
stock to SureWest shareholders in the First Merger contemplated by the Merger
Agreement has been approved by a majority of the votes present, in person or
by proxy, and entitled to vote at the annual meeting of stockholders of
Consolidated; and
-
the approval for listing on the NASDAQ
Global Select Market of the shares of Consolidated common stock to be issued
pursuant to the Merger Agreement.
Consolidated
Conditions
. Consolidateds, Merger Sub Is
and Merger Sub IIs obligations to consummate the Mergers are subject to the
satisfaction or waiver of additional conditions, which include the following:
-
the
accuracy (disregarding any materiality or material adverse effect
qualifications contained in such representations and warranties) of such
representations and warranties except for such inaccuracies as would not,
individually or in the aggregate, have a material adverse effect on SureWest;
-
SureWests performance in all material
respects of its obligations under the Merger Agreement; and
99
SureWest Conditions
. SureWests
obligations to complete the Mergers are subject to the satisfaction or waiver of
additional conditions, which include the following:
-
the
accuracy (disregarding all materiality and material adverse effect
qualifications contained in such representations and warranties) of such
representations and warranties except for such inaccuracies as would not,
individually or in the aggregate, have a material adverse effect on
Consolidated;
-
Consolidateds, Merger Sub Is and
Merger Sub IIs performance in all material respects of their obligations
under the Merger Agreement; and
-
the delivery to SureWest of an officers
certificate from Consolidated confirming that the conditions described in the
immediately preceding two bullets have been satisfied.
The Merger Agreement provides that certain of the conditions described
above may be waived. Neither Consolidated nor SureWest currently expects to
waive any material condition to the completion of the Mergers.
Termination; Termination Fees; Expenses
Termination.
The Merger Agreement
may be terminated, and the Mergers may be abandoned at any time prior to its
completion:
-
the requirements of a termination in the
event of a superior proposal as described in the section No Solicitation;
Changes in Recommendations have been fully satisfied and SureWest pays to
Consolidated the $14,675,000 termination fee described below; or
-
SureWest is not in material breach of
any of its obligations under the Merger Agreement, and if Consolidated
breaches any of its representations or warranties or fails to perform any
covenant or obligation in the Merger Agreement in such a way as to cause the
failure of the closing conditions relating thereto, and such failure cannot be
cured within thirty business days after notice to Consolidated;
100
-
by Consolidated, if:
-
neither Consolidated nor the Merger Subs
are in material breach of its or their obligations under the Merger Agreement,
and if SureWest breaches any of its representations or warranties or fails to
perform any covenant or obligation in the Merger Agreement in such a way as to
cause the failure of the closing conditions relating thereto, and such failure
cannot be cured within thirty business days after notice to SureWest;
-
the SureWest board fails to include in
the joint proxy statement/prospectus the recommendation that the shareholders
approve the Merger Agreement, the Merger Certificate and the transactions
contemplated thereby, including the First Merger, or makes an adverse
recommendation change;
-
the SureWest board approves or
recommends an alternative proposal or superior proposal and/or permits
SureWest to enter into an alternative acquisition agreement related to an
alternative proposal or a superior proposal;
-
SureWest fails to call a special meeting
of its shareholders or to deliver the joint proxy statement/prospectus to its
shareholders; or
-
a tender offer or exchange offer for the
outstanding shares of SureWest common stock is commenced and the SureWest
board recommends that the SureWest shareholders tender their shares in
connection with such offer or within ten business days after the commencement
of such tender or exchange offer, the SureWest board fails to recommend
rejection of such offer.
If the Merger Agreement is terminated as described in The Merger
Agreement
Termination of the Merger Agreement above, the Merger Agreement will be
void, and there will be no liability or obligation of any party except that:
-
each
party will remain liable for any willful and material breach of the Merger
Agreement, and
-
certain provisions of the Merger
Agreement, including the provisions relating to the allocation of fees and
expenses (including, if applicable, the termination fees described above) and
the confidentiality agreement dated January 19, 2012 between SureWest and
Consolidated will survive termination.
Termination
Fees
. SureWest has agreed to pay Consolidated
a termination fee of $14,675,000 if the Merger Agreement is terminated:
-
by
Consolidated or SureWest if the Mergers has not been consummated by the end
date and prior to such termination, an alternative proposal was publicly
announced or otherwise communicated to SureWest or the SureWest board and is
not withdrawn or otherwise abandoned and such alternative offer is consummated
within 12 months following the termination of the Merger Agreement;
-
by Consolidated or SureWest if the
SureWest shareholder approval has not been obtained and prior to the special
meeting an alternative proposal was publicly announced or otherwise
communicated to SureWest or the SureWest board and is not withdrawn or
otherwise abandoned and such alternative offer is consummated within 12 months
following the termination of the Merger Agreement;
101
-
by Consolidated if SureWest fails to
perform any covenant or obligation described in No Solicitation; Changes in
Recommendations above and prior to such termination an alternative proposal
was publicly announced or otherwise communicated to SureWest or the SureWest
board and is not withdrawn or otherwise abandoned and such alternative offer
is consummated within 12 months following the termination of the Merger
Agreement;
-
by SureWest, in connection with a
accepting a superior proposal; or
-
by
Consolidated, if (i) the SureWest board fails to include in the joint proxy
statement/prospectus the recommendation that the shareholders approve the Merger
Agreement, the Merger Certificate and the transactions contemplated thereby,
including the First Merger, or makes an adverse recommendation change, (ii) the
SureWest board approves or recommends an alternative proposal or superior
proposal and/or permits SureWest to enter into an alternative acquisition
agreement related to an alternative proposal or a superior proposal, (iii)
SureWest fails to call a special meeting of its shareholders or to deliver the
joint proxy statement/prospectus to its shareholders, or (iv) a tender offer or
exchange offer for the outstanding shares of SureWest common stock and the
SureWest board recommends that the SureWest shareholders tender their shares in
connection with such offer or within ten business days after the commencement of
such tender or exchange offer, the SureWest board fails to recommend rejection
of such offer.
Expenses
. If SureWest fails
promptly to pay any termination fee due to Consolidated, SureWest will also pay
the costs and expenses (including reasonable legal fees and expenses) incurred
by Consolidated in connection with any legal action take to collect payment,
together with interest on the amount of any unpaid fee or obligation from the
date such fee was required to be paid. Except as described above, all costs and
expenses incurred in connection with the Merger Agreement will be paid by the
party incurring the cost or expense.
Specific Performance; Remedies
The parties to the Merger Agreement agreed that irreparable damage would
occur if any provision of the Merger Agreement were not performed in accordance
with its terms and that the parties will be entitled to an injunction or
injunctions to prevent breaches of the Merger Agreement or to enforce
specifically the performance of its terms and provisions in addition to any
other remedy to which they are entitled at law or in equity.
Amendment; Extension and Waiver
Any provision of the Merger Agreement may be amended or waived prior to
the effective time if such amendment or waiver is in writing and is signed, in
the case of an amendment, by each party to the Merger Agreement or, in the case
of a waiver, by each party against whom the waiver is to be effective. After the
SureWest shareholder approval has been obtained, however, there will be no
amendment or waiver that would require the further approval of SureWest
shareholders under California law without such approval having been first
obtained.
Governing Law; Venue
The Merger Agreement is governed by and will be construed in accordance
with the laws of the State of California. The parties to the Merger Agreement
have submitted to the exclusive jurisdiction and venue of the courts of the
State of California or federal courts located in the County of San Francisco,
California.
102
DEBT FINANCING
General
The Merger
Agreement is not subject to any financing contingency. Consolidated intends to
finance the cash portion of the Merger Consideration with debt and cash on hand.
With respect to the debt financing, Consolidated has obtained a commitment for
the financing necessary to complete the transaction from Morgan Stanley Senior
Funding, Inc. (MSSF). In connection with the execution of the Merger
Agreement, Consolidated Communications, Inc., a wholly-owned subsidiary of
Consolidated (CCI), entered into a Commitment Letter, dated February 5, 2012
(the Commitment Letter), from MSSF.
The commitments and other obligations set forth in the Commitment Letter
shall automatically terminate unless the lenders shall in their discretion agree
to an extension, upon the earliest to occur of (a) the execution and delivery of
financing documentation by all of the parties thereto and the consummation of
the Mergers; (b) November 5, 2012, if the financing documentation shall not have
been executed and delivered by all such parties thereto; and (c) the date of
termination or abandonment of the Merger Agreement.
Bridge Facility
The Commitment Letter provides for a senior unsecured bridge facility
evidenced by promissory notes in an aggregate principal amount of $350,000,000
(the Bridge Facility). The Bridge Facility can be used to finance a portion of
the aggregate cash consideration of, and to pay the fees and expenses in
connection with, the transactions contemplated by the Merger Agreement and to
repay existing indebtedness of SureWest.
Pursuant to the terms of the Commitment Letter, the definitive agreement
to be entered into with respect to the Bridge Facility will contain (i)
representations and warranties applicable to CCI and its subsidiaries customary
and substantially similar to the representations and warranties in the Amended
and Restated Credit Agreement, dated as of June 8, 2011, among Consolidated,
CCI, the lenders party thereto, Wells Fargo Bank, National Association, as
Administrative Agent and other agents party thereto (the Credit Agreement),
(ii) covenants that are customary for high yield debt securities of issuers of
similar size and credit quality as CCI, as determined by the lead arranger
thereunder in light of prevailing market conditions and other circumstances,
provided that prior to the date which is one year from the closing date, the
limitation on restricted payments and on debt will be more restrictive than
customary high yield covenants, and (iii) events of default customary and usual
for financings of this kind with customary exceptions, baskets and
qualifications. The Bridge Facility will be guaranteed by certain subsidiaries
of CCI.
The closing of the Bridge Facility will be subject to the satisfaction of
certain conditions, including no material adverse effect having occurred with
respect to Consolidated or SureWest and their respective subsidiaries, in each
case in the aggregate, the negotiation, execution and delivery of definitive
loan documentation for the Bridge Facility and other customary closing
conditions. CCI will pay all reasonable costs incurred in connection with the
preparation, negotiation, execution and delivery of the Bridge Facility
documentation and any security arrangements in connection therewith.
CCI will indemnify the MSSF, the bridge lenders, the administrative agent
and their respective affiliates, and hold them harmless from and against all
reasonable out-of-pocket costs, expenses and liabilities arising out of or
relating to the transactions described in the Commitment Letter and any actual
or proposed use of the proceeds of any loans made under the Bridge Facility. No
person will be indemnified for costs, expenses or liabilities to the extent
determined by a final, non-appealable judgment of a court of competent
jurisdiction to have been incurred solely from the gross negligence or willful
misconduct of such person.
Each lender may assign all or, subject to minimum amounts to be agreed, a
portion of its loans and commitments under the Bridge Facility. Assignments will
require payment of an administrative fee to the administrative agent and, except
for an assignment to an existing lender or an affiliate of an existing lender,
the consent of the administrative agent. In addition, each lender may sell
participations in all or a portion of its loans and commitments under the Bridge
Facility; provided that no purchaser of a participation shall have the right to
exercise or to cause the selling lender to exercise voting rights in respect of
the Bridge Facility (except as to certain basic issues).
103
MSSF reserved the right, prior to or after execution of definitive credit
documentation for the Bridge Facility, to syndicate all or part of CCIs
commitment for the Bridge Facility to one or more financial institutions or
institutional lenders in consultation with CCI, and the commitment of MSSF shall
be reduced as and when commitments are received from such other lenders in
respect of the Bridge Facility. Completion of syndication is not a condition
MSSFs commitments under the Commitment Letter. CCI will pay all reasonable
costs incurred in connection with the syndication of the Bridge Facility.
Initial Bridge Loans, Extended Term
Loans and Exchange Notes
If loans under the Bridge Facility made at closing (the Initial Bridge
Loans) have not been repaid in full on or prior to the first anniversary of the
closing (the Rollover Date) then, subject to payment of a fee and acceleration
on certain defaults, the Initial Bridge Loans shall automatically
be converted into term loans maturing on the seventh anniversary of the Rollover
Date (Extended Term Loans), subject to the right of the lenders under the
Bridge Facility to convert Initial Bridge Loans to Exchange Notes. Any Initial
Bridge Loan not converted into an Extended Term Loan as of the Rollover Date
shall mature on the Rollover Date. On and after the Rollover Date, the eligible
holders under the Bridge Facility have the right to convert Initial Bridge Loans
and Extended Term Loans into notes issued under an indenture which complies with
the Trust Indenture Act of 1939, as amended (Exchange Notes).
Prior to the
Rollover Date, the Initial Bridge Loans will accrue interest at a rate per annum
equal to the three-month LIBOR plus a spread, which will initially be 600 basis
points, subject to an increase in an event of default. If the Initial Bridge
Loans are not repaid in full within three months following the closing, this
spread will increase by 50 basis points at the beginning of the fourth month
following the closing and will increase by an additional 50 basis points at the
beginning of each three-month period thereafter, provided that LIBOR shall be
deemed to be not less than 1.50% per annum. Interest on the Initial Bridge Loans
will be payable in arrears at the end of each three-month period and at the
Rollover Date.
Prior to the Rollover Date, the Initial Bridge Loans may be prepaid, in
whole or in part, at the option of CCI, at any time with prior notice, at par
plus accrued and unpaid interest and breakage costs. CCI will be required to
prepay Initial Bridge Loans on a pro rata basis, at par plus accrued and unpaid
interest, in an amount equal to 100% of (i) the net proceeds received from the
sale or other disposition of assets of CCI or any of its subsidiaries after the
closing, (ii) all casualty and condemnation proceeds received by CCI, subject to
reinvestment rights, (iii) the net proceeds received by CCI from the issuance of
debt or preferred stock after the closing, and (iv) the net proceeds received
from the issuance of equity by, or equity contributions to, CCI after the
closing. The foregoing prepayment obligation (other than in clause (iii) above)
is subject to any prior prepayments required under the Credit Agreement. In
addition, upon the occurrence of a change of control of CCI, CCI will be
required, to offer to prepay Initial Bridge Loans on a pro rata basis, at a
price of 101% of the principal amount thereof, plus accrued and unpaid interest,
to the date of prepayment.
The principal amount of any Exchange Note will equal 100% of the
aggregate principal amount of the Initial Bridge Loans or the Extended Term
Loans for which it is exchanged. The Extended Term Loans and the Exchange Notes
will bear interest at a rate equal to 11.00%, subject to increase in certain
circumstances, and will be payable semi-annually in arrears. The Exchange Notes
will mature on the seventh anniversary of the Rollover Date. The Exchange Notes
will have the same guarantors as the loans under the Bridge Facility. The
Exchange Notes will be subject to certain registration rights. Covenants and
events of default with respect to the Exchange Notes shall be typical for an
indenture governing a high yield note issue of a new issuer, and covenants will
not be more restrictive than those set forth in the Credit Agreement.
Alternative Financing
Before
or shortly after the completion of the Mergers, Consolidated expects to conduct a private placement of Rule 144A notes.
Consolidated must use commercially reasonable efforts to issue Rule 144A notes, provided that the interest rate does not
exceed the interest rate payable on Extended Term Loans or the Exchange Notes, and provided that in no event will the
covenants with respect to the Rule 144A notes (take as a whole) be more restrictive than the covenants in
Consolidated’s Credit Agreement. Consolidated expects that the Rule 144A notes will result in lower interest expenses
than the Initial Bridge Loans.
104
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The following
unaudited pro forma condensed combined financial statements (pro forma
financial statements) have been prepared to reflect the Mergers, based on the
purchase method of accounting, with Consolidated treated as the acquirer. The
pro forma financial statements utilize the historical consolidated financial
statements of Consolidated and SureWest, which are incorporated by reference
into this proxy statement/prospectus. The historical consolidated financial
statements have been adjusted to give effect to pro forma events that are
directly attributable to the Mergers and factually supportable and, in the case
of the statement of income, that are expected to have a continuing impact. The
unaudited pro forma condensed combined statement of income, which has been
prepared for the year ended December 31, 2011, gives effect to the Mergers as if
they had occurred on January 1, 2011. The unaudited pro forma condensed combined
balance sheet has been prepared as of December 31, 2011 and gives effect to the
Mergers as if they had occurred on that date.
As of the date of this proxy statement/prospectus, Consolidated has not
finalized the detailed valuation studies necessary to arrive at the required
fair market value of the SureWest assets to be acquired and the liabilities to
be assumed and the related allocations of the purchase price. As indicated in
Note 1 to the pro forma financial statements, Consolidated has made certain pro
forma adjustments to the historical book values of the assets and liabilities of
SureWest to reflect certain preliminary estimates of the fair value of the net
assets acquired, with the excess of the estimated purchase price over the
estimated fair values of SureWests acquired assets and assumed liabilities
recorded as goodwill. Actual results are expected to differ from these
preliminary estimates once Consolidated has determined the final purchase price
(as determined by the market price of Consolidated common stock on the closing
date of the First Merger) for SureWest and completed the valuation studies
necessary to finalize the required purchase price allocations. There can be no
assurances that such finalization of the valuation studies will not result in
material changes. Consolidated performed a preliminary assessment of accounting
policies and financial statement presentation which has identified certain
adjustments necessary to conform information in SureWests historical financial
statements to Consolidateds combined accounting policies and presentation. The
review of the accounting policies and presentation is not yet complete and
additional policy differences may be identified when completed.
These pro forma financial statements should be read in conjunction with
the historical consolidated financial statements and accompanying notes of
Consolidated and SureWest, incorporated by reference into this proxy
statement/prospectus.
The pro forma financial statements are not intended to represent or be
indicative of the consolidated results of operations or financial condition of
the combined company that would have been reported had the Mergers been
completed as of the dates presented and should not be taken as representative of
the future consolidated results of operations or financial condition of the
combined company.
The pro forma financial statements do not include the realization of
future cost savings or synergies or restructuring charges that are expected to
result from Consolidateds acquisition of SureWest.
105
CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
INCOME
FOR YEAR ENDED DECEMBER 31,
2011
(amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
Consolidated
|
|
SureWest
|
|
Pro Forma
|
|
|
|
and
SureWest
|
|
Communications
|
|
Communications
|
|
Adjustments
|
|
Note 4
|
|
Communications
|
Operating
revenues
|
$
|
374,263
|
|
|
$
|
248,053
|
|
|
$
|
1,274
|
|
|
(a)
|
|
$
|
623,590
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
(exclusive of depreciation and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization)
|
|
222,963
|
|
|
|
169,363
|
|
|
|
1,274
|
|
|
(a)
|
|
|
393,600
|
|
Depreciation and amortization
|
|
88,745
|
|
|
|
63,965
|
|
|
|
7,311
|
|
|
(b)
|
|
|
160,021
|
|
Total operating expenses
|
|
311,708
|
|
|
|
233,328
|
|
|
|
8,585
|
|
|
|
|
|
553,621
|
|
Operating income
|
|
62,555
|
|
|
|
14,725
|
|
|
|
(7,311
|
)
|
|
|
|
|
69,969
|
|
Other income
(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
(49,394
|
)
|
|
|
(11,586
|
)
|
|
|
(23,885
|
)
|
|
(c)
|
|
|
(84,865
|
)
|
Investment
income
|
|
27,843
|
|
|
|
39
|
|
|
|
-
|
|
|
|
|
|
27,882
|
|
Other,
net
|
|
823
|
|
|
|
(41
|
)
|
|
|
-
|
|
|
|
|
|
782
|
|
Income before income
taxes
|
|
41,827
|
|
|
|
3,137
|
|
|
|
(31,196
|
)
|
|
|
|
|
13,768
|
|
Income tax expense
|
|
14,845
|
|
|
|
1,335
|
|
|
|
(11,231
|
)
|
|
(d)
|
|
|
4,949
|
|
Net
income
|
|
26,982
|
|
|
|
1,802
|
|
|
|
(19,965
|
)
|
|
|
|
|
8,819
|
|
Less: net income attributable to
noncontrolling interest
|
|
572
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
572
|
|
Net income attributable to
common stockholders
|
$
|
26,410
|
|
|
$
|
1,802
|
|
|
$
|
(19,965
|
)
|
|
|
|
$
|
8,247
|
|
|
Net income per common
share - basic
|
$
|
0.88
|
|
|
$
|
0.13
|
|
|
n/a
|
|
|
|
|
$
|
0.21
|
|
|
Net income per common
share - diluted
|
$
|
0.88
|
|
|
$
|
0.13
|
|
|
n/a
|
|
|
|
|
$
|
0.21
|
|
|
Shares of common stock
used to calculate earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
29,600
|
|
|
|
13,876
|
|
|
|
(5,021
|
)
|
|
(e)
|
|
|
38,455
|
|
Diluted
|
|
29,600
|
|
|
|
13,936
|
|
|
|
(5,081
|
)
|
|
(e)
|
|
|
38,455
|
|
See
accompanying notes to the unaudited pro forma condensed combined financial
statements.
106
CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC. AND SUBSIDIARIES
UNAUDITED PRO
FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2011
(amounts
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
Consolidated
|
|
SureWest
|
|
Pro
Forma
|
|
|
|
and
SureWest
|
|
Communications
|
|
Communications
|
|
Adjustments
|
|
Note 5
|
|
Communications
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
105,704
|
|
$
|
4,208
|
|
$
|
(51,131
|
)
|
|
(b)
|
|
$
|
58,781
|
Accounts receivable, net
|
|
35,492
|
|
|
21,540
|
|
|
-
|
|
|
|
|
|
57,032
|
Inventories
|
|
7,151
|
|
|
-
|
|
|
5,374
|
|
|
(a)
|
|
|
12,525
|
Income
tax receivable
|
|
8,988
|
|
|
280
|
|
|
-
|
|
|
|
|
|
9,268
|
Deferred income
taxes
|
|
4,825
|
|
|
2,226
|
|
|
198
|
|
|
(f)
|
|
|
7,249
|
Prepaid
expenses and other current assets
|
|
6,170
|
|
|
7,668
|
|
|
1,074
|
|
|
(c)
|
|
|
14,912
|
Total current
assets
|
|
168,330
|
|
|
35,922
|
|
|
(44,485
|
)
|
|
|
|
|
159,767
|
|
Property, plant and
equipment, net
|
|
332,046
|
|
|
522,790
|
|
|
(5,374
|
)
|
|
(a)
|
|
|
903,036
|
|
|
|
|
|
|
|
|
53,574
|
|
|
(c)
|
|
|
|
Investments
|
|
98,069
|
|
|
-
|
|
|
-
|
|
|
|
|
|
98,069
|
|
Intangible and other
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames, indefinite life assets and goodwill
|
|
532,909
|
|
|
45,814
|
|
|
34,012
|
|
|
(c)
|
|
|
612,735
|
Customer lists,
net
|
|
57,811
|
|
|
1,417
|
|
|
23,583
|
|
|
(c)
|
|
|
82,811
|
Deferred charges and other assets
|
|
4,904
|
|
|
6,133
|
|
|
2,935
|
|
|
(d)
|
|
|
13,972
|
|
|
595,624
|
|
|
53,364
|
|
|
60,530
|
|
|
|
|
|
709,518
|
|
$
|
1,194,069
|
|
$
|
612,076
|
|
$
|
64,245
|
|
|
|
|
$
|
1,870,390
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
$
|
13,673
|
|
$
|
4,315
|
|
$
|
-
|
|
|
|
|
$
|
17,988
|
Other
accrued liabilities
|
|
28,151
|
|
|
24,376
|
|
|
-
|
|
|
|
|
|
52,527
|
Advance billings and
deferred revenues
|
|
20,324
|
|
|
8,051
|
|
|
-
|
|
|
|
|
|
28,375
|
Dividends payable
|
|
11,571
|
|
|
-
|
|
|
-
|
|
|
|
|
|
11,571
|
Current portion of
long-term debt and capital lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
obligations
|
|
8,992
|
|
|
7,500
|
|
|
(7,500
|
)
|
|
(e)
|
|
|
8,992
|
Current
portion of pension and postretirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit
obligations
|
|
2,579
|
|
|
-
|
|
|
-
|
|
|
|
|
|
2,579
|
Total current
liabilities
|
|
85,290
|
|
|
44,242
|
|
|
(7,500
|
)
|
|
|
|
|
122,032
|
|
Long-term debt and capital
lease obligations
|
|
875,719
|
|
|
196,875
|
|
|
153,125
|
|
|
(e)
|
|
|
1,225,719
|
Deferred income taxes
|
|
77,327
|
|
|
49,126
|
|
|
29,059
|
|
|
(f)
|
|
|
155,512
|
Accrued pension and other
post-retirement benefits
|
|
93,754
|
|
|
54,354
|
|
|
-
|
|
|
|
|
|
148,108
|
Other liabilities and deferred
revenues
|
|
14,167
|
|
|
6,784
|
|
|
-
|
|
|
|
|
|
20,951
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders'
equity
|
|
47,812
|
|
|
260,695
|
|
|
(20,200
|
)
|
|
(b)
|
|
|
198,068
|
|
|
|
|
|
|
|
|
(90,239
|
)
|
|
(g)
|
|
|
|
|
$
|
1,194,069
|
|
$
|
612,076
|
|
$
|
64,245
|
|
|
|
|
$
|
1,870,390
|
See
accompanying notes to the unaudited pro forma condensed combined financial
statements.
107
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
(amounts in thousands, except per
share amounts)
1.
Description of the Transaction
On February 5,
2012, Consolidated Holdings, Inc., a Delaware corporation, (Consolidated),
entered into an Agreement and Plan of Merger (the Merger Agreement) by and
among SureWest Communications (SureWest), WH Acquisition Corp., a California
corporation and wholly owned subsidiary of Consolidated (Merger Sub I) and WH
Acquisition II Corp., a California corporation and wholly owned subsidiary of
Consolidated (Merger Sub II), pursuant to which Merger Sub I will merge with
and into SureWest, (the First Merger) and following consummation of the First
Merger, SureWest will merge with and into Merger Sub II, and Merger Sub II shall
be the surviving corporation (the Second Merger and, together with the First
Merger, the Mergers).
Pursuant to the terms of the Merger Agreement, SureWest shareholders may
elect to exchange each share of SureWest common stock for either $23.00 in cash
(without interest) or shares of Consolidated common stock having an equivalent
value based on average trading prices for the 20-day period ending two days
before the closing of the acquisition, subject to a collar so that there will be
a maximum exchange ratio of 1.40565 shares of Consolidated common stock for each
share of SureWest common stock and a minimum of 1.03896 shares of Consolidated
common stock for each share of SureWest common stock. Overall elections are
subject to proration so that 50% of the SureWest shares
(treating equity award shares as outstanding)
will be exchanged for
cash and 50% for stock. The results of applying the collar and proration
provisions are subject to adjustment to ensure the transaction will be treated
as a tax-free reorganization for federal income tax purposes. Shares of SureWest
with respect to which no election is timely made will be converted into the
right to receive the cash consideration or the Consolidated common stock, as
determined in accordance with the proration described in the Merger Agreement.
Consolidated will account for its acquisition of SureWest using the
purchase method of accounting. The pro forma adjustments reflect preliminary
estimates of the purchase price allocation, which are expected to change upon
finalization of appraisals and other valuation studies. The final allocation
will be based on the actual purchase price and the assets and liabilities that
exist as of the date of the SureWest acquisition. The final adjustments could be
materially different from the pro forma adjustments presented herein.
The unaudited pro forma condensed combined statement of income includes
certain accounting adjustments related to the acquisition that are expected to
have a continuing impact on the combined results, such as increased depreciation
and amortization on the acquired tangible and intangible assets, increased
interest expense on the debt expected to be incurred to complete the
acquisition, amortization of deferred financing fees incurred in connection with
the new borrowings and the tax impact of these pro forma adjustments.
The unaudited pro forma condensed combined statement of income does not
reflect certain adjustments that are expected to result from the acquisition
that may be significant, such as costs that may be incurred by Consolidated for
integration and restructuring efforts, as well as payments under certain Change
in Control Agreements with SureWest employees, because they are considered to be
of a non-recurring nature.
Upon completion of the Mergers, various triggering events will have
occurred which result in the payment of various Change in Control Agreements to
certain SureWest employees. The estimated payments under these agreements will
range from approximately $12,000 to $14,000. No adjustment has been included in
the pro forma financial statements for these payments.
Consolidated expects to realize synergies following the acquisition that
are not reflected in the pro forma adjustments. The transaction is expected to
generate annual operating synergies of approximately $25,000, which will be
phased in over the first two years after closing as integration projects are
completed. The transaction is also expected to generate annual capital
expenditure synergies of $5,000 to $10,000 during the first full fiscal year
following the close. Consolidated also expects to incur merger and integration
costs, excluding closing costs, of approximately $20,000 to $25,000 over the
first two fiscal years following the close. No assurance can be given with
respect to the ultimate level of such synergies or the timing of their
realization.
108
2. Estimated Purchase
Price
The following is
a preliminary estimate of the purchase price to be paid by Consolidated in the
acquisition of SureWest:
Number of shares of SureWest common stock
and equity awards
|
|
|
|
|
|
estimated to be outstanding at the effective time of the Merger
(a)
|
|
14,822
|
|
|
|
Number of shares convertible into Consolidated common stock
(b)
|
|
7,411
|
|
|
|
Exchange ratio
(c)
|
|
1.1948
|
|
|
|
Number of shares of Consolidated common stock to be issued
to
|
|
|
|
|
|
holders of SureWest
common stock
(d)
|
|
8,855
|
|
|
|
Multiplied by cost per share of Consolidated
common stock
(e)
|
$
|
19.25
|
|
|
|
Stock portion of the merger consideration
|
|
|
|
$
|
170,456
|
Cash portion of the merger consideration
(f)
|
|
|
|
|
170,456
|
Repayment of outstanding SureWest debt
|
|
|
|
|
204,375
|
Estimated purchase price
|
|
|
|
$
|
545,287
|
(a)
|
|
Based on the number of shares of SureWest stock and
equity awards outstanding as of February 3, 2012, the last trading day
prior to the announcement of the Mergers.
|
|
(b)
|
|
Represents 50% of the total consideration payable in
Consolidated common stock.
|
|
(c)
|
|
Exchange ratio is subject to adjustment in accordance
with the Merger Agreement. The exchange ratio is subject to a collar so
that there will be a maximum exchange ratio of 1.40565 shares of
Consolidated common stock for each share of SureWest common stock and a
minimum of 1.03896 shares of Consolidated common stock for each share of
SureWest common stock. As a result of the terms of the exchange ratio, the
final purchase price is subject to change and may result in additional or
fewer Consolidated common stock being exchanged for SureWest common
stock.
|
|
(d)
|
|
Represents the product of the number of shares of
SureWest common stock convertible into Consolidated common stock based on
the exchange ratio, which was estimated based on the closing price of
Consolidated common stock as of February 3, 2012.
|
|
(e)
|
|
Represents the closing price of Consolidated common
stock as of February 3, 2012, the last trading day prior to the
announcement of the Mergers.
|
|
(f)
|
|
Represents the product of 50% of the estimated number of
SureWest shares and equity awards outstanding at the announcement of the
Mergers and $23.00 per share.
|
3. Estimated purchase price
allocation
The estimated purchase price has been allocated to the estimated net
tangible and intangible assets acquired and liabilities assumed on a preliminary
basis as follows:
Estimated purchase
price
|
|
|
|
|
$
|
545,287
|
Current assets
|
$
|
42,568
|
|
|
|
|
Property, plant &
equipment
|
|
570,990
|
|
|
|
|
Customer lists
|
|
25,000
|
|
|
|
|
Tradenames, indefinite
life assets and goodwill
|
|
79,826
|
|
|
|
|
Other assets
|
|
2,968
|
|
|
|
|
Current
liabilities
|
|
(36,742
|
)
|
|
|
|
Pension & other postretirement benefit
obligations
|
|
(54,354
|
)
|
|
|
|
Deferred income
taxes
|
|
(78,185
|
)
|
|
|
|
Other liabilities
|
|
(6,784
|
)
|
|
|
|
Net assets
acquired
|
|
|
|
|
$
|
545,287
|
109
For purposes of
preparing the pro forma financial statements, the estimated purchase price
stated above has been allocated based on the preliminary estimates of the fair
value of the assets acquired and liabilities assumed. The final purchase price
allocation will be based on the estimated fair values at the completion of the
Mergers and could vary significantly from the pro forma amounts due to various
factors, including but not limited to, changes in the composition of SureWests
assets, liabilities, outstanding equity ownership shares, changes in the
exchange ratio and changes in interest rates prior to the completion of the
Mergers. Accordingly, the preliminary estimated fair values of the assets and
liabilities recorded are subject to change pending additional information that
may be developed by Consolidated and SureWest. Allocation of an increased
portion of the purchase price to property, plant and equipment or any
identifiable intangible asset with a finite life could reduce the amount of
goodwill in the pro forma financial statements and may result in increased
depreciation and/or amortization expense, which could be material.
4. Pro Forma Adjustments Statement of
Income
Following are pro forma adjustments included in the unaudited pro forma
condensed combined statement of income for the year ended December 31, 2011 and
gives effect to the Mergers as if they had occurred on January 1, 2011:
(a)
Accounting Policies and Presentation
In connection
with the Mergers, a preliminary review of the accounting policies and
presentation of the financial statements of SureWest has been performed to
conform to those of Consolidated. Based on this review, certain amounts included
in SureWests historical financial statements have been reclassified to conform
to the Consolidated accounting policies and presentation. The pro forma
adjustment reflects the reclassification of SureWest bad debt expense of $1,274
from operating revenues to operating expenses.
The final
results of the complete review of accounting policies and presentation may
result in additional differences. There can be no assurances that such
finalization will not result in material differences.
(b)
Depreciation and Amortization
The pro forma
adjustments to depreciation and amortization reflect the removal of the
historical basis of depreciation and amortization for the SureWest assets and
the increase in depreciation and amortization expense for property and equipment
and finite-lived intangible assets acquired in the SureWest acquisition, based
on the write-up of these assets to their fair values in accordance with
Statement of Financial Accounting Standards Board Accounting Standards
Codification Topic 805,
Business
Combinations
. The following table summarizes
the pro forma adjustments to depreciation and amortization:
|
Removing historical depreciation and
amortization
|
$
|
(63,965
|
)
|
|
Recording new depreciation and amortization
|
|
71,276
|
|
|
|
$
|
7,311
|
|
(c)
Interest Expense
The pro forma
adjustments to interest expense are based on the amounts borrowed and the
interest rates assumed to be in effect at the closing of the Mergers.
|
|
Estimated
|
|
|
|
|
|
|
|
|
Principal
|
|
Estimated
|
|
|
|
|
|
|
Outstanding
|
|
Interest
Rates
|
|
|
|
|
|
Removal of historical interest
expense:
|
|
|
|
|
|
|
|
|
|
SureWest interest
expense
|
|
|
|
|
|
$
|
(11,586
|
)
|
|
Recording of new interest expense:
|
|
|
|
|
|
|
|
|
|
Bridge
notes
|
$
|
350,000
|
|
7.50% to 9.0%
|
|
|
29,371
|
|
|
Amortization of debt issuance costs
|
|
|
|
|
|
|
6,100
|
|
|
Net adjustment to interest expense
|
|
|
|
|
|
$
|
23,885
|
|
110
The London
Interbank Offered Rate (LIBOR) used for purposes of computing interest expense
on the Bridge notes for the year ended December 31, 2011 was 1.50%, which
represents the greater of (i) the 3-month LIBOR rate in effect at the closing of
the
Mergers,
or (ii) the minimum LIBOR rate per the terms of the
bridge loan facility of 1.50%. Amounts outstanding under the bridge loan
facility bear interest at 600 basis points above LIBOR and the pro forma
calculation includes required 50 basis point increases at the beginning of each
subsequent quarter, assuming that the bridge loan facility was in effect during
the entire year ended December 31, 2011. An increase or decrease of 0.125% in
the interest rate on the debt would change pro forma interest expense for the
year ended December 31, 2011 by $437.
The Bridge
notes if not repaid in full or exchanged on or before the first anniversary of
the Mergers closing, shall automatically be converted into term loans maturing
on the eighth anniversary of the Mergers closing. After the first anniversary of
the Mergers closing, a market based fee will be due and payable on the aggregate
amount of the Bridge notes.
Before or shortly after the completion of the Mergers, Consolidated expects to
conduct
a private placement of Rule 144A notes. Consolidated must use commercially reasonable efforts to issue Rule 144A notes, provided that the interest rate does not exceed
the interest rate payable on Extended Term Loans or the Exchange Notes,
subject to increase in certain circumstances, and provided that in no event will the covenants with respect to the Rule 144A notes (taken as a whole) be more restrictive than the covenants contained in Consolidated’s Credit Agreement. The offering is expected to result in a decrease to pro forma interest expense of approximately $1,000 in the year ended December 31, 2011 and approximately $75,000 over the term of the agreements. The effects of the offering have not been reflected in the pro forma financial statements.
Amortization of
deferred debt issuance costs under the Bridge notes is based on a term of one
year.
(d)
Income Tax Expense
The blended
effective tax rate applied to the pro forma adjustments related to the Mergers
and related financing is 36% for the periods presented.
(e)
Earnings Per Share
The pro forma
adjustment reflects the change in outstanding shares to calculate basic and
dilutive earnings per share based on the Mergers:
|
Shares Used in Basic
Earnings Per Share
|
|
|
|
Cancellation of SureWest
shares
|
(13,876
|
)
|
|
Issuance of Consolidated shares
|
8,855
|
|
|
|
(5,021
|
)
|
|
|
|
Shares Used in Diluted
Earnings Per Share
|
|
|
|
Cancellation of SureWest
shares
|
(13,936
|
)
|
|
Issuance of Consolidated shares
|
8,855
|
|
|
|
(5,081
|
)
|
111
5. Pro Forma Adjustments Balance
Sheet
The following are the pro forma adjustments included in the unaudited pro
forma condensed combined balance sheet as of December 31, 2011 and gives effect
to the Mergers as if it had occurred on that date:
(a)
Accounting Policies and Presentation
In connection
with the Mergers, a preliminary review of the accounting policies and
presentation of the financial statements of SureWest has been performed to
conform to those of Consolidated. Based on this review, certain amounts included
in SureWests historical financial statements have been reclassified to conform
to the Consolidated accounting policies and presentation. The pro forma
adjustment reflects the reclassification of SureWest construction inventory of
$5,374 from property, plant and equipment to current assets.
The final
results of the complete review of accounting policies and presentation may
result in additional differences. There can be no assurances that such
finalization will not result in material differences.
(b) Cash
Pro forma
adjustments to cash are the result of cash used to fund the acquisition of
SureWest, estimated transaction costs, and costs associated with entering into
the new credit facilities. Following is a preliminary estimate of net cash used
for the Mergers:
|
Cash consideration for acquisition
|
$
|
(170,456
|
)
|
|
Estimated transaction costs Consolidated
|
|
(11,200
|
)
|
|
Estimated transaction costs
SureWest
|
|
(9,000
|
)
|
|
Deferred financing costs
|
|
(6,100
|
)
|
|
Incremental borrowings
|
|
145,625
|
|
|
Net cash used
|
$
|
(51,131
|
)
|
The estimated
transaction costs of $20,200 expected to be incurred in connection with the
Mergers have not been assessed for deductibility for income tax purposes and
accordingly are assumed to be nondeductible for pro forma purposes.
(c) Fair Value Estimates
The pro forma
adjustments reflect the preliminary purchase accounting fair value estimates for
the net assets to be acquired. This is an estimate based on preliminary purchase
price allocation which is subject to final allocation upon completion of the
valuation process.
|
Increase to assets held
for sale
|
$
|
1,074
|
|
|
Increase to property and equipment
|
|
53,574
|
|
|
Increase to customer
lists
|
|
23,583
|
|
|
|
$
|
78,231
|
|
|
|
|
Tradenames, indefinite
life assets and goodwill:
|
|
|
|
|
Increase to tradenames,
indefinite life assets and goodwill
|
$
|
79,826
|
|
|
Remove historical
SureWest goodwill
|
|
(45,814
|
)
|
|
|
$
|
34,012
|
|
112
(d)
Deferred Financing Costs
In connection
with the Mergers, Consolidated will borrow $350,000 under a bridge loan in order
to finance the acquisition. Consolidated expects to incur $6,100 of deferred
financing costs related to the new credit facilities:
|
Write-off of SureWest
deferred financing costs
|
$
|
(3,165
|
)
|
|
Recording of new deferred financing costs
associated with the new credit facilities
|
|
6,100
|
|
|
|
$
|
2,935
|
|
(e) Debt
The pro forma
adjustments reflect the payment and incurrence of debt as follows:
|
Non-current
portion:
|
|
|
|
|
Repayment of existing SureWest credit facility
|
$
|
(196,875
|
)
|
|
Borrowings under new
credit facilities
|
|
350,000
|
|
|
Adjustment to non-current portion of
long-term debt
|
$
|
153,125
|
|
|
|
|
Current portion:
|
|
|
|
|
Repayment of existing SureWest credit facility
|
$
|
(7,500
|
)
|
(f)
Income Taxes
The pro forma
adjustments reflect the income tax impact assuming a marginal combined state and
federal tax rate of approximately 36% of the pro forma adjustments resulting
from the Mergers. The pro forma adjustments to current deferred tax assets and
long-term deferred tax liabilities reflect the change in fair value of the net
assets to be acquired.
(g)
Stockholders Equity
The pro forma
stockholders equity reflects the following adjustments:
|
Equity issued to SureWest
shareholders
|
$
|
170,456
|
|
|
Elimination of historical SureWest
shareholders equity
|
|
(260,695
|
)
|
|
|
$
|
(90,239
|
)
|
113
DESCRIPTION OF CONSOLIDATED CAPITAL
STOCK
The following
summary of the capital stock of Consolidated is subject in all respects to
applicable Delaware law, the Consolidated certificate of incorporation and the
Consolidated bylaws. See Comparison of Rights of Common Shareholders of
SureWest and Common Stockholders of Consolidated and Where You Can Find More
Information.
The total
authorized shares of capital stock of Consolidated consist of (i) 100,000,000 shares of common stock, par value $0.01 per share,
and (ii) 10,000,000 shares of preferred stock, par value $0.01 per share. At the close of business on
April 23
,
2012,
29,951,282
shares of Consolidated
common stock were issued and outstanding and no shares of Consolidated preferred stock were issued and outstanding.
The rights of holders of Consolidated common stock are subject to, and
may be adversely affected by, the rights of holders of any Consolidated
preferred stock that may be issued in the future. The board of directors of
Consolidated is authorized to provide for the issuance from time to time of
Consolidated preferred stock in one or more series and, as to each series, to
fix the designations, powers, preferences, rights, qualifications, limitations
and restrictions thereof (including but not limited to provisions related to
dividends, conversion, voting, redemption and liquidation preference, which may
be superior to those of the Consolidated common stock).
114
COMPARISON OF RIGHTS OF COMMON
SHAREHOLDERS OF SUREWEST
AND COMMON STOCKHOLDERS OF CONSOLIDATED
SureWest is a
California corporation subject to the provisions of the California Corporations
Code, which is referred to in this joint proxy statement/prospectus as
California law. Consolidated is a Delaware corporation subject to the
provisions of the Delaware General Corporation Law, which is referred to in this
joint proxy statement/prospectus as Delaware law. If the Mergers are
completed, SureWest shareholders, whose rights are currently governed by the
SureWest articles of incorporation, the SureWest bylaws and California law,
will, if and to the extent that they receive Consolidated common stock as Merger
Consideration, become stockholders of Consolidated and their rights will be
governed by the Consolidated certificate of incorporation, the Consolidated
bylaws and Delaware law.
The following description summarizes material differences that may affect
the rights of Consolidated stockholders and SureWest shareholders but does not
purport to be a complete statement of all those differences, or a complete
description of the specific provisions referred to in this summary. The SureWest
articles of incorporation, the Consolidated certificate of incorporation and the
SureWest and Consolidated bylaws are subject to amendment in accordance with
their terms. Copies of the governing corporate instruments are available,
without charge, to any person, including any beneficial owner to whom this
document is delivered, by following the instructions listed under Where You Can
Find More Information on page
176
. In addition, the
characterization of some of the differences in the rights of SureWest
shareholders and Consolidated stockholders as material is not intended to
indicate that other differences do not exist or are not important. Shareholders
should read carefully the relevant provisions of Delaware law, California law,
the Consolidated certificate of incorporation, the Consolidated bylaws, the
SureWest articles of incorporation and the SureWest bylaws. SureWest and
Consolidated urge you to read carefully this entire joint proxy
statement/prospectus for a more complete understanding of the differences
between the rights of a SureWest shareholder and the rights of a Consolidated
stockholder.
Capitalization
Consolidated
Consolidateds authorized capital stock is described above under
Description of Consolidated Capital Stock.
SureWest
The total authorized shares of capital stock of SureWest consist of (i)
100,000,000 shares of common stock. At the close of business on
April 23,
2012,
14,330,035
shares of SureWest common stock were issued and outstanding.
Number, Election, Vacancy and Removal
of Directors
Consolidated
The Consolidated certificate of incorporation and bylaws provide that the
total number of Consolidated directors, which will be not less than three, will
be from time to time fixed by resolution adopted by the Consolidated board of
directors (subject to the terms of any preferred stock). Consolidated currently
has four directors. The board of directors of Consolidated is divided into 3
classes with approximately 1/3 of the board of directors elected each year for a
3-year term. Under Delaware law, directors are elected by a plurality of the
votes of the shares present at the meeting.
Consolidateds stockholders do not have cumulative voting rights in the
election of directors.
115
The Consolidated certificate of incorporation and bylaws provide that
vacancies on the Consolidated board of directors may be filled only by a
majority vote of the directors then in office (subject to the terms of any
preferred stock). The Consolidated certificate of incorporation and bylaws
provide that directors may be removed at any time, but only for cause, by vote
of 66-2/3% of the outstanding common stock (subject to the terms of any
preferred stock).
SureWest
The SureWest bylaws provide that the total number of SureWest directors
will not be less than five nor more than nine, as determined by the SureWest
board of directors from time to time and that, except in the case of a vacancy,
all directors are elected at each annual meeting of shareholders to serve until
the next annual meeting. SureWest currently has seven directors. California law
permits classification of the board of directors of corporations whose stock is
listed on a national stock exchange, if the corporation adopts an amendment to
its articles of incorporation or bylaws setting forth the classification
provisions. SureWest does not have a classified board.
Under
California law, those candidates for director who receive the highest number of
affirmative votes are elected. Most California corporations are required by
California law to give shareholders the option to cumulate such shareholders
votes for the election of directors (although those listed on a national stock
exchange can eliminate cumulative voting with shareholder approval). SureWest
currently permits cumulative voting for the election of directors, and the
SureWest bylaws provide that the candidates receiving the highest number of
affirmative votes, up to the number of directors to be elected, shall be
elected.
The SureWest bylaws provide that
vacancies on the SureWest board of directors may be filled by a majority vote of
the directors then in office, except that a vacancy created by the removal of a
director may only be filled by the affirmative vote of the holders a majority of
the shares entitled to vote.
Amendments to Charter Documents
Consolidated
Under Delaware law, a proposed
amendment to a corporations certificate of incorporation requires (i) approval
by its board of directors and (ii) adoption by an affirmative vote of a majority
of the outstanding stock entitled to vote on the amendment (subject to any class
voting rights required by the corporations certificate of incorporation, the
terms of any preferred stock, or Delaware law). The Consolidated certificate of
incorporation provides that it may be amended in any manner prescribed by
Delaware law, provided that the amendment of provisions dealing with the board
of directors, stockholder action by written consent, amendment of the bylaws,
director indemnification and liability and the approval of any merger,
consolidation or sale of all or substantially all of the assets would require
the affirmative vote of not less than 66-2/3% of the outstanding common stock.
SureWest
Under California law, every
amendment to a corporations articles of incorporation must be (i) approved by
the corporations board of directors and (ii) approved by the affirmative vote
of a majority of the outstanding shares entitled to vote.
Amendments to Bylaws
Consolidated
The Consolidated certificate of
incorporation and bylaws provide that the Consolidated bylaws may be amended,
altered or repealed, in whole or in part, by the vote of a majority of the whole
board of directors or by the affirmative vote of a majority of the outstanding
shares of Consolidated common stock, provided that the
116
amendment of provisions
dealing with annual or special meetings of stockholders, board vacancies and
removal of directors, and amending of the bylaws would require the affirmative
vote of not less than 66-2/3% of the outstanding common stock.
SureWest
SureWests bylaws provide that the
bylaws may be adopted, amended or repealed by the shareholders holding a
majority of the outstanding shares entitled to vote or by the entire board of
directors. However, under California law and SureWests bylaws, an amendment of
the bylaws (i) specifying or changing a fixed number of directors or the maximum
or minimum number of directors or (ii) changing from a fixed to a variable board
or vice versa, may be adopted only by the shareholders.
Action by Written Consent
Consolidated
Under Delaware law, unless otherwise
provided in the certificate of incorporation, any action required or permitted
to be taken at a meeting of stockholders may be taken without a meeting, without
prior notice and without a vote, upon the written consent of stockholders who
would have been entitled to cast the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. The Consolidated certificate of
incorporation does not modify or eliminate the right of Consolidateds
stockholders to take action by written consent as permitted by Delaware law.
SureWest
Under California law, unless
otherwise provided in a corporations articles of incorporation, any action
required to be taken or which may be taken at an annual or special meeting of
shareholders may be taken without a meeting if a consent in writing is signed by
the holders of outstanding stock having at least the minimum number of votes
required to authorize such action. If consent is sought for less than all
shareholders entitled to vote, notice as required under the California law shall
be given. SureWests bylaws provide that directors may not be elected by written
consent except by unanimous written consent of all shares entitled to vote for
the election of directors.
Notice of Stockholder/Shareholder
Actions
Consolidated
Delaware law and the Consolidated
bylaws provide that written notice of the time, place and purpose or purposes of
any annual or special meeting of stockholders must be given not less than 10
days and not more than 60 days before the date of the meeting to each
stockholder entitled to vote at the meeting. The Consolidated bylaws further
provide that the only matters, including election of directors, that may be
considered and acted upon at an annual meeting of stockholders are those matters
brought before the meeting:
-
through the notice of meeting;
-
by or at the direction of the Chairman of the
board of directors of Consolidated; or
-
by a stockholder entitled to vote at such meeting.
Generally,
the Consolidated bylaws require a stockholder who intends to bring matters,
including election of directors, before an annual meeting to provide advance
notice of such intended action not less than 90 days nor more than 120 days
prior to the first anniversary of the date of the proxy statement relating to
the prior years annual meeting of stockholders. The notice must contain, among
other things, a brief description of the business desired to
117
be brought before
the meeting and must identify any material interest of the stockholder in such
proposed business. The person presiding at the meeting is required by the bylaws
to refuse to permit any business proposed by a stockholder to be brought before
the meeting without compliance with these procedures.
SureWest
California law provides that written
notice of the place, date and hour of a meeting of shareholders must be given or
sent to each shareholder of record entitled to vote at the meeting at least 10
days prior to the day named for a meeting. The SureWest bylaws require that
notice of a special meeting of shareholders state the general nature of the
business to be transacted (and no other business may be transacted), and the
notice of an annual meeting state those matters which the board of directors
intends to present for action by the shareholders.
The SureWest bylaws do not require a
shareholder who intends to bring any matter before an annual meeting to provide
advance notice of such intended action.
Special Stockholder/Shareholder
Meetings
Consolidated
Under the Consolidated bylaws
(subject to the terms of any preferred stock), a special meeting of the
stockholders may be called only by (i) the Chairman of the board of directors or
the President of Consolidated, (ii) the Secretary of Consolidated upon the
direction of a majority of the directors then in office or (iii) the Secretary
of Consolidated upon the request of stockholders owning in the aggregate at
least 50% of the outstanding shares of Consolidated common stock.
SureWest
Under California law, special
meetings of the shareholders may be called by the board, the chairman of the
board, the president or the holders of shares entitled to cast not less than 10%
of the votes at the meeting or such additional persons as may be provided in the
articles or bylaws. SureWests bylaws do not specify any such other persons.
Stockholder/Shareholder Inspection
Rights
Consolidated
Under Delaware law, a record or
beneficial stockholder of a corporation has the right, for any proper purpose
and upon written demand under oath stating the purpose for such demand, to
inspect and make copies and extracts from the corporations stock ledger, a list
of its stockholders, and its other books and records. A proper purpose is any
purpose reasonably related to such persons interest as a stockholder.
SureWest
Under California law, a shareholder
or shareholders of a corporation holding at least 5% in the aggregate of the
outstanding voting shares of the corporation (or 1% in the case of companies,
like SureWest, that have filed a proxy statement with the SEC) has an absolute
right to inspect and copy the records of shareholders names and addresses and
shareholdings during usual business hours on five days prior written demand
upon the corporation. Under California law, a shareholder of a corporation has
the right, for any purpose relating to its interests, and upon written demand at
any reasonable time during normal business hours, to inspect and make copies and
extracts from the corporations accounting books and records and minutes of
shareholder, board and committee proceedings.
118
Limitation of Personal Liability and
Indemnification of Directors and Officers
Consolidated
Under
Delaware law, a corporation may indemnify any directors, officers, employees and
agents of the corporation against expenses and, except in the case of an action
by or in the right of the corporation, liabilities actually and reasonably
incurred by such person in connection with any action, suit or proceeding
involving such person by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, provided that (i) such
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal proceeding, such person had no reasonable cause to believe his
conduct was unlawful and (ii) in the case of an action by or in the right of the
corporation, no indemnification of expenses may be made in respect of any matter
as to which such person is adjudged liable to the corporation unless and only to
the extent such indemnification is approved by a court. Delaware law mandates
such indemnification of expenses to the extent that a present or former director
or officer of the corporation has been successful in defense of any proceeding
described above, and permits advancement of expenses to a director or officer if
the corporation receives an undertaking that the amount advanced will be repaid
if it is determined that such person is not entitled to indemnification.
Delaware law also provides that the permitted indemnifications described above
are not exclusive.
Delaware law permits a corporation
to include in its certificate of incorporation a provision eliminating or
limiting the personal liability of a director of a corporation to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the directors duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for acts relating to unlawful payment of a dividend or an unlawful stock
purchase or redemption or (iv) for any transaction from which the director
derived an improper personal benefit.
The Consolidated certificate of
incorporation provides that, to the fullest extent permitted by Delaware law and
except as otherwise provided in the Consolidated bylaws, none of Consolidateds
directors will be liable to Consolidated or its stockholders for monetary
damages for a breach of fiduciary duty. In addition, the Consolidated
certificate of incorporation permits indemnification of any person who was or is
made, or threatened to be made, a party to any action, suit or other proceeding,
whether criminal, civil, administrative or investigative, because of his or her
status as a director or officer of Consolidated, or service as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise at Consolidateds request to the fullest extent
authorized under Delaware law against all expenses, liabilities and losses
reasonably incurred by such person. The Consolidated bylaws provide that such
indemnification must be provided to directors and officers of Consolidated.
Further, the Consolidated bylaws provide that Consolidated may purchase and
maintain insurance on
Consolidateds own behalf
and on behalf of any other person who is or was a director, officer or agent of
Consolidated or was serving at Consolidateds request as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
SureWest
Under California law, a
corporations articles of incorporation may include a provision limiting a
directors personal liability to the corporation or its stockholders for
monetary damages for a directors breach of certain duties. California law does
not permit the elimination of monetary liability where such liability is based
on:
-
intentional misconduct or knowing and culpable
violation of law;
-
acts or omissions that a director believes to be
contrary to the best interests of the corporation or its stockholders, or that
involve the absence of good faith on the part of the
director;
-
receipt of an improper personal
benefit;
119
-
acts or omissions that show reckless disregard for
the directors duty to the corporation or its stockholders, where the director
in the ordinary course of performing a directors duties should be aware of a
risk of serious injury to the corporation or its
stockholders;
-
acts or omissions that constitute an unexcused
pattern of inattention that amounts to an abdication of the directors duty to
the corporation and its stockholders;
-
interested transactions between the corporation and a director in which
a director has material financial interest; or
-
liability
for improper distributions, loans or guarantees.
California law requires a corporation to indemnify a director or officer
who successfully defends himself in such a proceeding.
SureWests articles of incorporation
authorize SureWest to provide indemnification of directors, officers, employees
or other agents in excess of the limits required by California law, but subject
to the limitations with respect to actions for breach of duty to SureWest or its
stockholders.
SureWests bylaws provide that the
corporation must indemnify any director, officer, employee or other agent,
subject to the limitations noted above, as to those liabilities and on those
terms and conditions as appropriate.
Dividends
Consolidated
Under Delaware law, subject to
certain limitations, the board of directors of a corporation may declare and pay
dividends to the corporations stockholders either out of surplus (generally net
assets in excess of capital) or, if there is no surplus, out of its net profits
for the fiscal year in which the dividend is declared and/or the preceding
fiscal year.
The Consolidated certificate of
incorporation and bylaws provide that the board of directors of Consolidated may
declare dividends on Consolidateds outstanding shares out of assets or funds of
Consolidated available for such purpose under Delaware law.
SureWest
California law permits the payment
of dividends to shareholders if a corporations retained earnings equal at least
the amount of the proposed dividend. If the corporation does not have sufficient
retained earnings available for the proposed dividend, it may pay a dividend to
its shareholders if immediately after giving effect to the dividend, the value
of its assets equals or exceeds the sum of (a) its total liabilities plus (b)
the liquidation preference of any shares which have a preference upon
dissolution over the rights of shareholders receiving the
distribution.
The SureWest articles of
incorporation and bylaws do not limit its ability to declare and pay dividends.
Conversion; Preemptive Rights
Consolidated
Holders of Consolidated common stock
have (i) no rights to convert their shares into any other securities and (ii) no
preemptive rights to subscribe for any additional securities which may be issued
by Consolidated.
120
SureWest
Holders of SureWest common stock
have (i) no rights to convert their shares into any other securities and (ii) no
preemptive rights to subscribe for any additional securities which may be issued
by SureWest.
Rights Plan
Consolidated
Consolidated does not have a
stockholder rights plan.
SureWest
SureWest does not have a shareholder
rights plan.
Voting Rights; Required Vote for
Authorization of Certain Actions
Consolidated
Voting Rights
. Each holder of Consolidated common stock is entitled to one
vote for each share held of record.
Merger,
Consolidation or Sale of Assets General
.
Under Delaware law, the consummation of a merger or consolidation requires the
approval of the board of directors of the corporation which desires to merge or
consolidate and requires that the agreement and plan of merger be adopted by the
affirmative vote of a majority of the stock of the corporation entitled to vote
thereon at an annual or special meeting for the purpose of acting on the
agreement. However, no such approval and vote are required if such corporation
is the surviving corporation and:
-
such corporations certificate of incorporation is
not amended;
-
the stockholders of the surviving corporation
whose shares were outstanding immediately before the effective date of the
merger will hold the same number of shares, with identical designations,
preferences, limitations, and rights, immediately after the effective date of
the merger; and
-
either no shares of common stock of the surviving
corporation and no shares, securities or obligations convertible into such
stock are to be issued or delivered under the plan of merger, or the
authorized unissued shares or the treasury shares of common stock of the
surviving corporation to be issued or delivered under the plan of merger do
not exceed 20% of the shares of common stock of such corporation outstanding
immediately prior to the effective date of the merger.
Under
Delaware law, a sale of all or substantially all of a corporations assets
requires the approval of such corporations board of directors and the
affirmative vote of a majority of the outstanding stock of the corporation
entitled to vote thereon.
Business Combinations with
Interested Stockholder
. Consolidated is
subject to Section 203 of Delaware law (Section 203), which, subject to
certain exceptions, prohibits a Delaware corporation from engaging in any
business combination with an interested stockholder for a period of 3 years
following the time that such stockholder became an interested stockholder,
unless:
-
prior to the time that such stockholder became an
interested stockholder, the board of directors of the corporation approves
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
121
-
upon the closing of the transaction that resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (i) by persons
who are directors and also officers and (ii) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
-
at or subsequent to the time that such stockholder
became an interested stockholder, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
2/3 of the outstanding voting stock that is not owned by the interested
stockholder.
Subject to certain exceptions, an
interested stockholder is a person or group who or which owns 15% or more of
the corporations outstanding voting stock (including any rights to acquire
stock pursuant to an option, warrant, agreement, arrangement or understanding,
or upon the exercise of conversion or exchange rights, and stock with respect to
which the person has voting rights only), or is an affiliate or associate of the
corporation and was the owner of 15% or more of such voting stock at any time
within the previous 3 years. In general, Section 203 defines a business
combination to include:
-
any merger or consolidation involving the
corporation and the interested stockholder;
-
any sale, lease, exchange, mortgage, pledge,
transfer or other disposition to or with the interested stockholder of assets
of the corporation having an aggregate market value equal to 10% or more of
either the aggregate market value of all the assets of the corporation
determined on a consolidated basis or the aggregate market value of all the
outstanding stock of the corporation;
-
subject to certain exceptions, any transaction
that results in the issuance or transfer by the corporation of any stock of
the corporation to the interested stockholder;
-
any transaction involving the corporation that has
the effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder;
or
-
the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
A Delaware
corporation may opt out of Section 203 with an express provision in its
original certificate of incorporation or an express provision in its certificate
of incorporation or bylaws resulting from a stockholders amendment approved by
at least a majority of the outstanding voting shares. Consolidated has not
opted out of this provision.
SureWest
Voting Rights
. Each holder of SureWest common stock is entitled to one vote
for each share held of record.
Merger, Consolidation or Sale of
Assets General
. California law generally
requires a majority of the holders of the shares of each of the acquiring and
target corporations to approve reorganizations. California law contains an
exception to its voting requirements for reorganizations where shareholders or
the corporation itself, or both, immediately prior to the reorganization own,
immediately after the reorganization, equity securities constituting more than
five-sixths of the voting power of the surviving or acquiring corporation or its
parent entity. With certain exceptions, California law requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of shares outstanding.
Business Combinations with
Interested Shareholder
. California law does
not have an anti-takeover law similar to Section 203. However, California law
does provide that, except where the fairness of the terms and conditions of the
transaction has been approved by the California Commissioner of Corporations and
except in a short-form merger
122
(the merger of a parent corporation with a
subsidiary in which the parent owns at least 90% of the outstanding shares of
each class of the subsidiarys stock), if the surviving corporation or its
parent corporation owns, directly or indirectly, shares of the target
corporation representing more than 50% of the voting power of the target
corporation prior to the merger, the nonredeemable common stock of a target
corporation may be converted only into nonredeemable common stock of the
surviving corporation or its parent corporation, unless all of the shareholders
of the class consent.
Appraisal Rights and Dissenters Rights
Consolidated
Under Delaware law, stockholders
have the right to dissent from any plan of merger or consolidation to which the
corporation is a party, and to demand payment for the fair value of their shares
pursuant to, and in compliance with procedures set forth in, the appraisal
rights provisions of Delaware law. However, unless the certificate of
incorporation otherwise provides, Delaware law states that stockholders do not
have such appraisal rights in connection with a merger or consolidation with
respect to shares:
-
listed on a national securities exchange or held
of record by more than 2,000 holders; and
-
for which, pursuant to the plan of merger or
consolidation, stockholders will receive only (i) shares or depository
receipts of another corporation which at the effective date of the merger or
consolidation will be either listed on a national securities exchange or held
of record by more than 2,000 holders, (ii) shares of stock or depositary
receipts of the surviving corporation in the merger or consolidation, (iii)
cash in lieu of fractional shares or (iv) any combination of the foregoing.
In addition, Delaware law provides
that, unless the certificate of incorporation provides otherwise, stockholders
of a surviving corporation do not have appraisal rights in connection with a
plan of merger if the merger did not require for its approval the vote of the
surviving corporations stockholders. The Consolidated certificate of
incorporation does not contain any provisions with respect to appraisal rights.
SureWest
Under California law, if a merger is
consummated and a shareholder of a California corporation elects to exercise
dissenters rights by complying with the procedures set forth in the California
Corporations Code, that shareholder will be entitled to receive an amount equal
to the fair market value of such shareholders shares. Fair market value shall
be determined as of the business day before the public announcement of the
merger.
The shares must be purchased from a
dissenting shareholder if all applicable requirements are complied with, but
only if demands are made by shareholders for payment with respect to 5% or more
of the outstanding shares of the common stock.
In addition, a company will be
required to purchase dissenting shares only if the following conditions
exist:
-
The shareholder must have shares of common stock
outstanding as of the record date of the shareholders
meeting;
-
The shareholder must not vote the shares for the
merger proposal.
-
If the shareholder did not vote for the merger and
wishes to have purchased shares that were not voted for the merger proposal,
the shareholder must make a written demand to have the corporation purchase
those shares of common stock for cash at their fair market value. The demand
must meet the requirements of the California Corporations
Code and must be received by the corporation or its transfer
agent, no later than the date of the shareholder meeting at which the
shareholder may vote such shares.
See
Dissenters Rights of SureWest Shareholders.
123
Interested Directors
Consolidated
Delaware law and the Consolidated
bylaws provide that no contract or transaction between Consolidated and 1 or
more of its directors or officers, or between Consolidated and any other
corporation, partnership, association, or other organization in which 1 or more
of its directors or officers are directors or officers, or have a financial
interest, will be void or voidable solely for this reason, or solely because the
director or officer is present at or participates in the meeting of the board of
directors or committee of the board of directors which authorizes the contract
or transaction, or solely because his or their votes are counted for such
purpose if (i) the material facts as to his or their relationship or interest
and as to the contract or transaction are disclosed or are known to the board of
directors or the committee, and the board of directors or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
are less than a quorum; or (ii) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (iii) the contract or transaction is fair as to Consolidated as of the time
it is authorized, approved or ratified by the board of directors, committee or
stockholders.
SureWest
Under California law certain
contracts or transactions in which one or more of a corporations directors has
an interest are not void or voidable solely because of such interest provided
that certain conditions, such as obtaining the required approval and fulfilling
the requirements of good faith and full disclosure, are met. California law
requires, (1) either the shareholders or the board of directors must approve any
such contract or transaction after full disclosure of the material facts, and,
in the case of board approval, the contract or transaction must also be just
and reasonable, or (2) the contract or transaction must have been just and
reasonable or fair as to the corporation at the time it was approved. In the
latter case, California law explicitly places the burden of proof on the
interested director. Under California law, to shift the burden of proof on the
validity of the contract by shareholder approval, the interested director would
not be entitled to vote his or her shares at a shareholder meeting with respect
to any action regarding such contract or transaction. To shift the burden of
proof on the validity of the contract by board approval under California law,
the contract or transaction must be approved by a majority vote of a quorum of
the directors, without counting the vote of any interested directors (except
that interested directors may be counted for purposes of establishing a quorum).
124
DISSENTERS RIGHTS OF SUREWEST
SHAREHOLDERS
If the
Mergers are completed, you may be entitled to dissenters rights under Chapter
13 of the California Corporations Code (Chapter 13) as long as you comply with
the conditions established by Chapter 13 and the other requirements of Chapter
13 are satisfied. Under California law, no dissenters rights are available for
shares listed on any national securities exchange, including the NASDAQ Global
Select Market, such as SureWests common stock, unless demands for payment are
filed by at least five percent of the outstanding shares of SureWests common
stock.
If you have a beneficial interest in
shares of SureWest common stock that are held of record in the name of another
person, such as a broker, bank or other nominee, and you desire to perfect any
dissenters rights, you must act promptly to cause the holder of record timely
and properly to follow the steps summarized below.
Dissenters rights cannot be validly exercised by persons other than
shareholders of record regardless of the beneficial ownership of the
shares
.
The discussion below is not a
complete summary regarding dissenters rights of SureWest shareholders under
California law and is qualified in its entirety by reference to the text of the
relevant provisions of California law, which are attached to this proxy
statement as Annex IV. You should review this summary and Chapter 13 carefully
if you wish to exercise dissenters rights or if you want to preserve your right
to do so in the future, because failure to comply with the required procedures
within a certain time frame will result in the loss of your dissenters rights.
If the Mergers are completed,
SureWest shareholders who do not vote in favor of the approval of the Merger
Agreement, the Merger Certificate and the transactions contemplated thereby,
including the First Merger, may become entitled to be paid cash for the fair
market value of their stock in lieu of the Merger Consideration set forth in the
Merger Agreement.
The Merger Agreement provides that
shares of SureWest common stock held by a holder who is entitled to demand and
has properly demanded dissenters rights in accordance with Chapter 13 shall not
be converted into the right to receive the $23.00 per share Merger
Consideration. At the effective time of the Mergers, such holders will cease to
have any rights with respect to such dissenting shares, except the right to
receive payment of the fair market value of such shares determined in accordance
with Chapter 13.
Section 1301(a) of the California
Corporations Code requires SureWest to give notice that the Mergers was approved
to each of its shareholders who did not vote in favor of the approval of the
Merger Agreement, the Merger Certificate and the transactions contemplated
thereby, including the First Merger, and requires SureWest to provide a
statement of the fair market value (excluding any appreciation or depreciation
in consequence of the Mergers) of the shares on February 3, 2012, the day before
the first announcement of the terms of the Mergers. If you do not wish to pursue
your dissenters rights, you will be entitled to receive the Merger
Consideration set forth in the Merger Agreement in exchange for your shares of
SureWest common stock. All of SureWests shareholders who desire to pursue their
dissenters rights must follow the procedures to perfect such rights as
described below.
Should you wish to become a
dissenting shareholder:
1. you must continuously hold your
shares from the record date for shareholders entitled to consent to the Mergers;
2. you must not vote any of the
shares you wish to qualify as dissenting shares in favor of the approval of the
Merger Agreement, the Merger Certificate and the transactions contemplated
thereby, including the First Merger;
3. you must make a written demand of
SureWest not later than 30 days after the date SureWest provides you with notice
that the Mergers were approved (the Approval Notice).
Please note that the 30-day time period begins on the date the
Approval Notice was mailed, not on the date you receive it
. In your written demand to SureWest, include the number of
shares you are qualifying as dissenting shares and state the amount you believe
to be the fair market value of those shares as of the day before the
announcement of the Mergers. This statement of the fair market value of your
shares will constitute an offer to sell your dissenting shares to SureWest at
such price. You should send your written demand to Corporate Secretary at
SureWest
Communications, 8150 Industrial Avenue,
Building A,
125
Roseville, California 95678. Even if you did not vote in favor of
the approval of the Merger Agreement, the Merger Certificate and the
transactions contemplated thereby, including the First Merger, or if you gave a
proxy to someone directing a vote against approval of the Merger Agreement, the
Merger Certificate and the transactions contemplated thereby, including the
First Merger, you must still make the written demand to SureWest as described
above in order to qualify your shares as dissenting shares;
4. you must submit the certificates
representing your dissenting shares to Corporate Secretary at SureWest
Communications, 8150 Industrial Avenue, Building A, Roseville, California 95678.
You must submit your certificates within the same 30-day time limit as for the
written demand; and
5. demands
must be filed in accordance with the requirements of Chapter 13 with respect to
at least five percent of the outstanding shares of SureWests common stock.
If SureWest agrees that your shares
have been validly qualified as dissenting shares, and you and SureWest agree
upon the price of the shares, you will be entitled to the agreed upon price,
plus any interest that may accrue at the legal rate on judgments from the date
of such agreement.
If SureWest does not agree that your
shares were validly qualified as dissenting shares, or if you and SureWest fail
to agree upon the fair market value of your shares, you may file a complaint
with the California Superior Court within six months after the Approval Notice
is mailed to you, requesting that the court determine the fair market value of
the dissenting shares and/or whether your shares qualify as dissenting shares.
If demands are received with respect
to less than five percent of the outstanding shares of SureWests common stock,
or if you fail to perfect your dissenters rights or effectively waive, withdraw
or lose such rights, or if a court of competent jurisdiction determines that you
are not entitled to relief under Chapter 13, your shares of common stock will
thereupon be deemed to have been canceled and converted into the right to
receive the Merger Consideration.
You may submit a form of election
even if you do not vote for the approval of the Merger Agreement, the Merger
Certificates and the transactions contemplated thereby, including the First
Merger. If your shares of common stock are deemed to have been canceled and
converted in to the right to receive the Merger Consideration pursuant to the
preceding paragraph, such form of election will be considered together with all
other forms of election properly completed and submitted, subject to the
proration procedures contained in the Merger Agreement and described under The
MergersSureWest Shareholders Making Cash and Stock Elections.
YOU SHOULD BE AWARE THAT IF
YOU SEEK TO EXERCISE DISSENTERS RIGHTS, THE FAIR MARKET VALUE OF YOUR SHARES,
AS FINALLY DETERMINED UNDER CALIFORNIA LAW, COULD BE MORE THAN, THE SAME AS, OR
LESS THAN THE AMOUNT OF THE MERGER CONSIDERATION THAT YOU WOULD RECEIVE PURSUANT
TO THE MERGER AGREEMENT. IF THE FAIR MARKET VALUE AS FINALLY DETERMINED EXCEEDS
THE MERGER CONSIDERATION THAT WAS OFFERED BY SUREWEST
COMMUNICATIONS, THE COSTS AND EXPENSES OF THE APPRAISAL
PROCEEDING WILL BE ASSESSED AGAINST SUREWEST COMMUNICATIONS. OTHERWISE, THE
COSTS MAY BE APPORTIONED AT THE DISCRETION OF THE COURT.
IN VIEW OF THE COMPLEXITY OF
THE PROVISIONS OF CALIFORNIA LAW RELATING TO DISSENTERS RIGHTS, ALL SUREWEST
COMMUNICATIONS SHAREHOLDERS THAT WISH TO EXERCISE DISSENTERS RIGHTS OR THAT
WISH TO PRESERVE THEIR RIGHT TO DO SO SHOULD CAREFULLY REVIEW CHAPTER 13 OF THE
CALIFORNIA CORPORATIONS CODE, BECAUSE FAILURE TO COMPLY WITH THE PROCEDURES SET
FORTH THEREIN WILL RESULT IN THE LOSS OF SUCH RIGHTS. THOSE WISHING TO DISSENT
SHOULD CONSULT WITH THEIR OWN LEGAL COUNSEL IN CONNECTION WITH COMPLIANCE UNDER
CHAPTER 13.
126
THE SUREWEST SPECIAL MEETING
Date, Time and Place
The SureWest
special meeting will be held at
10:00 a.m.
, Pacific
time on
June 12,
2012, at SureWests offices at
8150 Industrial Avenue, Building A, Roseville, California 95678.
Purpose of the SureWest Special Meeting
At the
special meeting, SureWest shareholders will be asked to:
-
approve the Merger Agreement, the Merger
Certificate and the transactions contemplated thereby, including the First
Merger;
-
approve, by an advisory vote, the change in
control severance payments to SureWests named executive officers;
and
-
approve the adjournment or postponement of the
special meeting, if necessary or appropriate, for, among other reasons, the
solicitation of additional proxies in the event that there are not sufficient
votes at the time of the special meeting to approve the Merger Agreement.
SureWest
does not expect that any matter other than the proposals listed above will be
brought before the special meeting. If, however, other matters are properly
brought before the special meeting, or any adjournment or postponement of the
special meeting, the persons named as proxies will vote in accordance with their
judgment.
SureWest Board Recommendation
The board, by unanimous vote, has
determined that it is in the best interests of SureWest and its shareholders to
consummate the Mergers contemplated by the Merger Agreement, and unanimously
recommends that shareholders vote
FOR
the proposal to approve the
Merger Agreement, the Merger Certificate and the transactions contemplated
thereby, including the First Merger,
FOR
the proposal to approve, by an
advisory vote, the change in control severance payments to SureWests named
executive officers and
FOR
the proposal to adjourn or postpone the special meeting, if
necessary or appropriate, to, among other reasons, solicit additional proxies.
Who Can Vote at the SureWest Special
Meeting
Only holders of record of SureWest
common stock, as of the close of business on April 23, 2012, which is the record
date for the special meeting, are entitled to receive notice of and to vote at
the special meeting. If you own shares that are registered in the name of
someone else, such as a broker, you need to direct that person to vote those
shares or obtain an authorization from them and vote the shares yourself at the
meeting. On the record date, there were
14,330,035
shares
of SureWest common stock outstanding.
Vote Required; Quorum
The approval of the Merger
Agreement, the Merger Certificate and the transactions contemplated thereby,
including the First Merger, requires SureWest to obtain the SureWest shareholder
approval. The SureWest shareholder approval requires the affirmative vote of the
holders of a majority of the outstanding shares of SureWests common stock.
Because the required votes of SureWests shareholders are based upon the number
of outstanding shares of common stock and not based on the number of outstanding
shares represented in person or by proxy at the special meeting, failure to
submit a proxy or to vote in person will have the same effect as a vote AGAINST
approval of the Merger Agreement, the Merger Certificate and the transactions
contemplated thereby, including the First Merger. A vote to abstain will have
the same effect.
127
The affirmative vote of a majority
of the votes cast at the special meeting and entitled to vote thereon will be
required to approve, by an advisory vote, the change in control severance
payments. Because the vote is advisory in nature only, it will not be binding on
SureWest, and failure to receive the vote required for approval will not in
itself change SureWests obligations to make the change in control severance
payments. Abstentions or broker non-votes will have no effect on this proposal.
The affirmative vote of a majority
of the votes cast at the special meeting and entitled to vote thereon will be
required to approve the adjournment or postponement of the special meeting, if
necessary or appropriate, for, among other reasons, the solicitation of
additional proxies. Abstentions or broker non-votes will have no effect on this
proposal.
If your shares of common stock are
held in street name by your broker, you should instruct your broker how to
vote your shares using the instructions provided by your broker. Under
applicable regulations, brokers who hold shares in street name for customers
may not exercise their voting discretion with respect to non-routine matters
such as the approval of the Merger Agreement. As a result, if you do not
instruct your broker to vote your shares of common stock, your shares will not
be voted on and will have the same effect as a vote AGAINST the proposal to
approve the Merger Agreement, the Merger Certificate and the transactions
contemplated thereby, including the First Merger, and will have no effect on the
proposals to approve, by an advisory vote, of the change in control severance
payments and to adjourn or postpone the special meeting, if necessary or
appropriate, to, among other reasons, solicit additional proxies.
For purposes
of transacting business at the special meeting, a majority of the outstanding
shares of common stock entitled to vote being present in person or represented
by proxy, will constitute a quorum.
Shares Owned by SureWest Directors and
Executive Officers
At
the close of business on the record date, directors and executive officers of SureWest beneficially owned and were entitled to
vote, in the aggregate,
861,384
shares of SureWest common stock, which represented
approximately
6.01
% of the shares of SureWest common stock outstanding on that date. The directors and executive officers
of SureWest have informed SureWest that they intend to vote all of their shares of SureWest common stock
FOR
the Merger Agreement, the Merger Certificate and the transactions contemplated thereby, including the First Merger.
Voting by Proxy
This joint proxy
statement/prospectus is being sent to you on behalf of the SureWest board for
the purpose of requesting that you allow your shares of SureWest common stock to
be represented at the special meeting by the persons named in the enclosed proxy
card. All shares of SureWest common stock represented at the meeting by properly
executed proxy cards or by proxies submitted over the telephone or over the
Internet will be voted in accordance with the instructions indicated on those
proxies. If you sign and return a proxy card without giving voting instructions,
your shares will be voted as recommended by the SureWest board.
The SureWest board recommends a vote FOR approval of the
Merger Agreement, the Merger Certificate and the transactions contemplated
thereby, including the First Merger, FOR the proposal to approve, by an
advisory vote, the change in control severance payments and FOR the proposal
to adjourn or postpone the special meeting, if necessary or appropriate, to,
among other reasons, solicit additional proxies.
If you are a SureWest shareholder of
record after
carefully reading
and considering the information contained in this joint proxy
statement/prospectus you may vote by any of the following methods:
-
Internet.
Electronically through the Internet by accessing www.voteproxy.com. To
vote through the Internet, you should sign on to this website and follow the
procedures described at the website. Internet voting is available 24 hours a
day, and the procedures are designed to authenticate votes cast by using a
control number located on your proxy card. These procedures allow you to give
a proxy to vote your shares and
128
to confirm that your instructions have been
properly recorded. If you vote through the Internet, you should not return
your proxy card. If you vote through the Internet, your proxy will be voted as
you direct on the website.
-
Mail.
By
returning your proxy through the mail. If you complete and properly sign the
accompanying proxy card and return it to SureWest, it will be voted as you
direct on the proxy card. You should follow the instructions set forth on the
proxy card, being sure to complete it, to sign it and to mail it in the
enclosed postage-paid envelope.
-
Telephone.
By calling 1-800-PROXIES (1-800-776-9437). This toll free number is
also included on the proxy card. Telephone voting is available 24 hours a day,
and the procedures are designed to authenticate votes cast by using a control
number located on your proxy card. These procedures allow you to give a proxy
to vote your shares and to confirm that your instructions have been properly
recorded. If you vote by telephone, you should not return your proxy
card.
-
In Person.
In person at the meeting.
SureWest recommends that you vote in
advance even if you plan to attend the meeting so that SureWest will know as
soon as possible that enough votes will be present for SureWest to hold the
meeting. If you are a shareholder of record and attend the meeting, you may vote
at the meeting or deliver your completed proxy card in person. If you properly
return or submit your proxy but do not indicate how you wish to vote, SureWest
(or the KSOP trustee) will count your proxy as a vote
FOR
the approval of the
Merger Agreement, the Merger Certificate and the transactions contemplated
thereby, including the First Merger,
FOR
the approval, by advisory vote,
of the change in control severance payments and
FOR
the proposal to adjourn or
postpone the special meeting, if necessary or appropriate, to, among other
reasons, solicit additional proxies.
If your shares are held in street
name, please refer to the information forwarded to you by your bank, broker or
other holder of record to see what you must do in order to vote your shares,
including whether you may be able to vote electronically through your bank,
broker or other record holder. If so, instructions regarding electronic voting
will be provided by the bank, broker or other holder of record to you as part of
the package that includes this joint proxy statement/prospectus. If you are a
street name stockholder and you wish to vote in person at the meeting, you
will need to obtain a proxy from the institution that holds your shares and
present it to the inspector of elections with your ballot when you vote at the
annual meeting.
You may revoke your proxy at any
time before the vote is taken at the special meeting. To revoke your proxy, you
must either advise SureWests secretary in writing, deliver a proxy dated after
the date of the proxy you wish to revoke, or attend the special meeting and vote
your shares in person. Attendance at the special meeting will not by itself
constitute revocation of a proxy. If you have instructed your broker to vote
your shares, you must follow the directions provided by your broker to change
those instructions.
SureWest KSOP Participants
If you hold any shares in the
SureWest KSOP, your completed proxy card or telephonic or Internet Proxy vote
will serve as voting instructions to the plan Trustee. However, your voting
instructions must be received by the date prescribed by the plan Trustee in
order to count. In accordance with the terms of the plan, the Trustee will vote
all of the shares held in the plan in proportion to the actual Proxy votes
timely submitted by plan participants. Voting by KSOP participants will close at
11:59 p.m. Eastern time on
June
7
,
2012. The Trustee will then
vote all shares of common stock held in the KSOP by the established
deadline.
129
Solicitation of Proxies
The solicitation of proxies from
SureWest shareholders is made on behalf of the SureWest board. SureWest and
Consolidated will generally equally share the costs and expenses of printing,
filing, assembling and mailing this joint proxy statement/prospectus and all
fees paid to the SEC. In addition to soliciting proxies by mail, directors,
officers and employees of SureWest may solicit proxies personally and by
telephone, e-mail or otherwise. None of these persons will receive additional or
special compensation for soliciting proxies. SureWest will, upon request,
reimburse brokers, banks and other nominees for their expenses in sending proxy
materials to their customers who are beneficial owners of SureWest common stock
and obtaining their voting instructions.
SureWest has engaged the firm of
Okapi Partners to assist in the solicitation of proxies for the special meeting
and will pay Okapi Partners a fee of approximately $12,500, plus reimbursement
of out-of-pocket expenses. The address of Okapi Partners is 437 Madison Avenue
28
th
Floor, New York, New York 10022. If you need assistance in
completing your proxy card or have questions regarding the special meeting,
please contact Okapi Partners at (877) 796-5274 (toll-free) or (212) 297-0720
collect or at info@okapipartners.com.
130
SUREWEST PROPOSAL NO. 1: APPROVAL OF
THE MERGER AGREEMENT, THE MERGER CERTIFICATE AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE FIRST MERGER
For a detailed discussion of the
terms and conditions of the Mergers, see The Merger Agreement beginning on
page
89
. As discussed in The Mergers
SureWests Reasons for the Mergers and Recommendation of the SureWest Board of Directors
beginning on page
51
, the SureWest board determined
that the Mergers, the Merger Agreement and the transactions contemplated by the
Merger Agreement are advisable and fair to, and in the best interests of,
SureWest and its shareholders, and approved the Merger Agreement, the Merger
Certificate and the transactions contemplated thereby, including the First
Merger.
SureWest is asking its shareholders
to approve the Merger Agreement, the Merger Certificate and the transactions
contemplated thereby, including the First Merger. The approval of the proposed
Mergers is required for completion of the Mergers.
The SureWest
board of directors unanimously recommends a vote FOR the approval of the
Merger Agreement, the Merger Certificate and the transactions contemplated
thereby, including the First Merger (SureWest Proposal No. 1).
131
SUREWEST PROPOSAL NO. 2: APPROVAL, BY
AN ADVISORY VOTE, OF THE CHANGE IN CONTROL SEVERANCE PAYMENTS
For a
detailed discussion of the agreements and understandings of SureWest and its
named executed officers concerning compensation that is based on or otherwise
relates to the Mergers, and the aggregate total of all such compensation that
may be paid or become payable to or on behalf of such executive officers, see
The Mergers
Interests of SureWest
Directors and Executive Officers in the Mergers beginning on
page
176
.
SureWest is asking its shareholders
to approve, by an advisory vote, the change in control severance payments to its
named executive officers as described above.
The SureWest board of directors
unanimously recommends a vote FOR the approval, by an advisory vote, of the
change in control severance payments to SureWests named executive officers
(SureWest Proposal No. 2).
132
SUREWEST PROPOSAL NO. 3: APPROVAL OF
THE ADJOURNMENT OR POSTPONEMENT OF THE SUREWEST
SPECIAL MEETING, IF NECESSARY
OR APPROPRIATE
SureWest is
asking its shareholders to approve the adjournment or postponement of the
special meeting, if necessary or appropriate, for, among other reasons, the
solicitation of additional proxies in the event that there are not sufficient
votes at the time of the special meeting to approve the Merger Agreement, the
Merger Certificate and the transactions contemplated thereby, including the
First Merger.
The SureWest board of directors
unanimously recommends a vote FOR this proposal (SureWest Proposal No. 3)
to
adjourn or postpone the SureWest special meeting, if necessary or
appropriate.
133
THE CONSOLIDATED ANNUAL MEETING
Date, Time and Place
The annual
meeting of stockholders of Consolidated will be held on
June 12,
2012
at
9:00 a.m.,
Central time, at Consolidateds corporate headquarters, 121
South 17th Street, Mattoon, Illinois 61938.
Purpose of the Consolidated Annual
Meeting
The annual meeting will be held for
the purpose of considering and acting upon the following matters:
-
the approval of the issuance of Consolidated
common stock to SureWest shareholders in the First Merger contemplated by the
Merger Agreement (Consolidated Proposal No. 1);
-
the election of Richard A. Lumpkin as Class I
director, to serve for a term of three years, in accordance with
Consolidateds amended and restated certificate of incorporation and amended
and restated bylaws (Consolidated Proposal No. 2);
-
the ratification of the appointment of Ernst &
Young LLP as Consolidateds independent registered public accounting firm for
the fiscal year ending December 31, 2012 (Consolidated Proposal No.
3);
-
the proposal to adjourn or postpone the
Consolidated annual meeting, if necessary or appropriate, for, among other
reasons, the solicitation of additional proxies (Consolidated Proposal No. 4);
and
-
any other business properly coming before the
annual meeting and any adjournment or postponement thereof.
Record Date; Shares Entitled to Vote;
Required Vote; Quorum
The board of directors of
Consolidated has fixed the close of business on April 23, 2012 as the record
date for the determination of stockholders entitled to notice of and to vote at
the annual meeting.
Only stockholders of record at the
close of business on the record date, April 23, 2012, are entitled to receive
notice of the annual meeting and to vote the shares of common stock that they
held on that date at the meeting, or any adjournment or postponement of the
meeting.
Each outstanding share of
Consolidateds common stock entitles its holder to cast one vote on each matter
to be voted upon at the annual meeting. The vote required for the approval of
the issuance of Consolidated common stock to SureWest shareholders in the First
Merger contemplated by the Merger Agreement, the ratification of the appointment
of Consolidateds independent registered public accounting firm and the approval
of any other proposal not presently anticipated that may properly come before
the annual meeting or any adjournment or postponement of the meeting, is the
approval of a majority of the votes present, in person or by proxy, and entitled
to vote on the matter. Directors are elected by a plurality vote. Accordingly,
the director nominee who receives the greatest number of votes cast will be
elected.
A
quorum of stockholders is necessary to hold the annual meeting. The presence at the meeting, in person or by proxy, of the holders
of a majority of the shares of common stock outstanding on the record date will constitute a quorum. As of April 23, 2012, the
record date,
29,951,282
shares of Consolidateds common stock were outstanding. Proxies received but marked as withheld, abstentions or broker non-votes
will be included in the calculation of the number of shares considered present at the meeting for purposes of establishing a quorum.
In the event that a quorum is not present at the annual meeting, Consolidated expects that the annual meeting will be adjourned
or postponed to solicit additional proxies.
134
If a stockholder abstains from
voting on Consolidated Proposal No. 1, Consolidated Proposal No. 3 or
Consolidated Proposal No. 4, it will have the same effect as a vote AGAINST
that proposal. With respect to Consolidated Proposal No. 2, abstentions will
have no effect. Broker non-votes and shares as to which proxy authority has been
withheld with respect to any matter are not entitled to vote for purposes of
determining whether stockholder approval for that matter has been obtained and,
therefore, will have no effect on the outcome of the vote on any such matter. A
broker non-vote occurs on a proposal when shares held of record by a broker
are present or represented at the meeting but the broker is not permitted to
vote on that proposal without instruction from the beneficial owner of the
shares and no instruction has been given.
Shares Owned by Consolidated Directors
and Executive Officers
At the close of business on the record
date, directors and executive officers of Consolidated beneficially owned and were entitled to vote, in the aggregate,
2,519,149
shares of Consolidated common stock, which represented approximately
8.4
%
of the shares of Consolidated common stock outstanding on that date. The directors and executive officers of Consolidated have
informed Consolidated that they intend to vote all of their shares of Consolidated common stock:
-
FOR
the approval of the issuance of
Consolidated common stock to SureWest shareholders in the First Merger
contemplated by the Merger Agreement;
-
FOR
the election of Richard A.
Lumpkin as Class I director; and
-
FOR
the ratification of the
appointment of Ernst & Young LLP as Consolidateds independent registered
public accounting firm for the fiscal year ending December 31,
2012.
-
FOR
the proposal to adjourn or
postpone the annual meeting, if necessary or appropriate, to, among other
reasons, solicit additional proxies.
Voting of Proxies
This joint proxy statement/prospectus is
being sent to Consolidated stockholders on behalf of the board of directors of
Consolidated for the purpose of requesting that you allow your shares of
Consolidated common stock to be represented by the persons named in the enclosed
proxy card.
If you are a stockholder of record, you
may vote by any of the following methods:
-
Internet.
Electronically through the Internet by accessing Consolidateds
materials using the information on your proxy card. To vote through the
Internet, you should sign on to this website and follow the procedures
described at the website. Internet voting is available 24 hours a day, and the
procedures are designed to authenticate votes cast by using a personal
identification number located on your proxy card. These procedures allow you
to give a proxy to vote your shares and to confirm that your instructions have
been properly recorded.
If you vote through the
Internet, you should not return your proxy card. If you vote through the
Internet, your proxy will be voted as you direct on the
website.
-
Mail.
By
returning your proxy through the mail. If you complete and properly sign the
accompanying proxy card and return it to Consolidated, it will be voted as you
direct on the proxy card. You should follow the instructions set forth on the
proxy card, being sure to complete it, to sign it and to mail it in the
enclosed postage-paid envelope.
-
Telephone.
By calling 1-800-652-VOTE (1-800-652-8683). This toll free number is
also included on the proxy card. Telephone voting is available 24 hours a day,
and the procedures are designed to authenticate votes cast by using a personal
identification number located on your proxy card. These procedures allow you
to give a proxy to vote your shares and to confirm that your instructions have
been properly recorded. If you vote by telephone, you should not return your
proxy card.
-
In Person.
In person at the meeting.
135
Consolidated
recommends that you vote in advance even if you plan to attend the meeting so
that Consolidated will know as soon as possible that enough votes will be
present for Consolidated to hold the meeting. If you are a stockholder of record
and attend the meeting, you may vote at the meeting or deliver your completed
proxy card in person.
If your shares are held in street
name, please refer to the information forwarded to you by your bank, broker or
other holder of record to see what you must do in order to vote your shares,
including whether you may be able to vote electronically through your bank,
broker or other record holder. If so, instructions regarding electronic voting
will be provided by the bank, broker or other holder of record to you as part of
the package that includes this joint proxy statement/prospectus. If you are a
street name stockholder and you wish to vote in person at the meeting, you
will need to obtain a proxy from the institution that holds your shares and
present it to the inspector of elections with your ballot when you vote at the
annual meeting.
Stockholders should specify their
choice for each matter on the enclosed proxy. If no specific instructions are
given, proxies that are signed and returned will be voted:
-
FOR
the approval of the issuance of
Consolidated common stock to SureWest shareholders in the First Merger
contemplated by the Merger Agreement;
-
FOR
the election of Richard A.
Lumpkin as Class I director;
-
FOR
the ratification of the
appointment of Ernst & Young LLP as Consolidateds independent registered
public accounting firm for the fiscal year ending December 31, 2012;
and
-
FOR
the
proposal to adjourn or postpone the annual meeting, if necessary or
appropriate, to, among other reasons, solicit additional
proxies.
Other than the four proposals
described in this joint proxy statement/prospectus, Consolidated is not aware of
any other business to be acted upon at the annual meeting. If you grant a proxy,
the persons named as proxy holders on the enclosed proxy card will vote your
shares on any additional matters properly presented for a vote at the meeting as
recommended by the board or, if no recommendation is given, in their own
discretion.
Pursuant to the provisions of Rule
14a-4(c) under the Exchange Act, with respect to any other matter that properly
comes before the meeting, the proxy holders will vote as recommended by the
board of directors or, if no recommendation is given, in their own discretion.
Changing Your Vote
Even after you have submitted your
proxy, you may change your vote at any time before the proxy is voted by:
-
delivering to Consolidateds Secretary at the
address on the first page of this joint proxy statement/prospectus a written
notice of revocation of your proxy by mail, by telephone or through the
Internet;
-
delivering a duly executed proxy bearing a later
date; or
-
voting in person at the annual
meeting.
If your shares are held in street
name, you may vote in person at the annual meeting if you obtain a proxy as
described in the answer to the previous question.
136
Solicitation of Proxies
This joint proxy
statement/prospectus is also the document used by Consolidateds board to
solicit proxies to be used at the 2012 annual meeting. Proxies are solicited by
Consolidateds board to give all stockholders of record an opportunity to vote
on the matters to be presented at the annual meeting, even if the stockholders
cannot attend the meeting. The board has designated Steven J. Shirar and Matthew
K. Smith as proxies, who will vote the shares represented by proxies at the
annual meeting in the manner indicated by the proxies.
The Company has retained Morrow
& Co., LLC, 470 West Ave., Stamford, CT 06902 to aid in the solicitation of
proxies and to verify certain records related to the solicitation. The Company
will pay Morrow & Co., LLC a fee of $8,500 as compensation for its services
and will reimburse it for its reasonable out-of-pocket expenses. Such
solicitations may be made by mail, telephone, facsimile, e-mail, the Internet or
personal interviews.
137
STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF CONSOLIDATED
The
following table sets forth certain information that has been provided to us with
respect to the beneficial ownership of shares of our common stock for (i) each
stockholder who is known by us to own beneficially more than 5.0% of the
outstanding shares of our common stock, (ii) each of our directors, (iii) each
of our executive officers named in the Summary Compensation Table on page
166
,
and (iv) all of our directors and executive officers as a group. Unless
otherwise indicated, each stockholder shown on the table has sole voting and
investment power with respect to all shares shown as beneficially owned by that
stockholder. Unless otherwise indicated this information is current as of March
5, 2012, and the address of all individuals listed in the table is as follows:
Consolidated Communications Holdings, Inc., 121 South 17th Street, Mattoon,
Illinois 61938-3987.
|
|
Aggregate
Number of
|
|
|
|
|
|
|
Shares
Beneficially
|
|
Percentage
of
|
Name of Beneficial Owner
|
|
Owned
|
|
Shares Outstanding
|
Central Illinois
Telephone, LLC(1)
|
|
1,987,922
|
|
|
6.7
|
%
|
|
BlackRock, Inc.(2)
|
|
1,825,353
|
|
|
6.1
|
%
|
|
Richard A.
Lumpkin(3)
|
|
1,987,922
|
|
|
6.7
|
%
|
|
The Vanguard Group, Inc.(4)
|
|
1,722,359
|
|
|
5.8
|
%
|
|
Robert J.
Currey(5)
|
|
211,853
|
|
|
*
|
|
|
Steven J. Shirar
|
|
81,408
|
|
|
*
|
|
|
Steven L.
Childers
|
|
84,450
|
|
|
*
|
|
|
Christopher A. Young
|
|
46,750
|
|
|
*
|
|
|
C. Robert Udell,
Jr.
|
|
61,219
|
|
|
*
|
|
|
Maribeth S. Rahe
|
|
26,490
|
|
|
*
|
|
|
Roger H. Moore
|
|
19,057
|
|
|
*
|
|
|
All directors and
executive officers as a group (8 persons)
|
|
2,519,149
|
|
|
8.4
|
%
|
|
*
|
|
Less than 1.0%
ownership.
|
|
|
|
1.
|
|
The equity interests in Central
Illinois Telephone, LLC (Central Illinois Telephone) are owned by SKL
Investment Group, LLC, a Delaware limited liability company (SKL
Investment Group). Richard A. Lumpkin and members of his family own all
of the equity interests in SKL Investment Group. Mr. Lumpkin is the sole
manager of the SKL Investment Group fund that owns Central Illinois
Telephone and he has the sole power to direct the voting and disposition
of its investments. Mr. Lumpkin is also the sole manager of Central
Illinois Telephone and has the sole investment and voting power with
respect to the shares of common stock held by Central Illinois Telephone.
As a result of the above, Mr. Lumpkin may be deemed to have beneficial
ownership of the shares owned by Central Illinois Telephone. He disclaims
this beneficial ownership except to the extent of his pecuniary interest
in those securities. The address of Central Illinois Telephone and Mr.
Lumpkin is P.O. Box 1234, Mattoon, Illinois 61938.
|
|
2.
|
|
Beneficial and percentage
ownership information is based on information contained in a Schedule
13G/A filed with the SEC on February 13, 2012 by BlackRock, Inc. The
address of BlackRock, Inc. is 40 East 52nd Street, New York, New York
10022.
|
|
3.
|
|
Includes shares owned by Central
Illinois Telephone (see note (a) above) and 3,500 shares owned by Mr.
Lumpkins wife.
|
|
4.
|
|
Beneficial and percentage
ownership information is based on information contained in a Schedule 13G
filed with the SEC on February 8, 2012 by The Vanguard Group, Inc. The
address of The Vanguard Group, Inc. is Vanguard Blvd., Malvern,
Pennsylvania 19355.
|
|
5.
|
|
Includes 123,573 shares held by
the Robert J. Currey Revocable Trust, and 88,280 shares directly owned by
Mr. Currey.
|
138
CONSOLIDATED PROPOSAL NO. 1: APPROVAL
OF THE ISSUANCE OF CONSOLIDATED COMMON STOCK IN CONNECTION WITH THE FIRST MERGER
The issuance of Consolidated common stock
to SureWest shareholders pursuant to the Merger Agreement and the First Merger is subject to approval by Consolidateds stockholders
as required by applicable rules of The NASDAQ Stock Market. If the issuance of Consolidated common stock in connection with the
First Merger is approved by Consolidateds stockholders and the conditions to completing the Mergers as set forth in the
Merger Agreement are satisfied or waived, each issued and outstanding share of SureWest common stock will be converted into the
right to receive either $23.00 in cash or shares of Consolidated common stock having an equivalent value based on average trading
prices for the 20-day period ending two days before the closing date of the First Merger, subject to a collar so that there will
be a maximum exchange ratio of 1.40565 shares of Consolidated common stock for each share of SureWest common stock and a minimum
of 1.03896 shares of Consolidated common stock for each share of SureWest common stock. Overall elections are subject to proration
so that 50% of the SureWest shares will be exchanged for cash and 50% for stock (treating equity award shares as outstanding).
In order to preserve the tax-free nature of the transaction, the Merger Agreement also provides for a general consideration adjustment
in certain circumstances, as further described under The Mergers SureWest Shareholders Making Cash and Stock Elections
General Consideration Adjustment on page
81
. For a detailed
discussion of the terms and conditions of the Mergers, see The Mergers beginning on page
43
.
Under
the NASDAQ Listing Rules, a company listed on The NASDAQ Stock Market is required to obtain stockholder approval for
an acquisition of stock of another company if the present or potential issuance of common stock, other than a public
offering for cash, may equal or exceed 20% of the voting power or the total shares outstanding on a pre-transaction basis. If
the Mergers are completed, Consolidated will issue a maximum of
10,417,450
million
shares of Consolidated common stock in connection with the Mergers. On an as converted basis, the aggregate number of
shares of Consolidated common stock to be issued in the First Merger will exceed 20% of the shares of Consolidated common
stock outstanding before such issuance and for this reason Consolidated must obtain the approval of Consolidated stockholders
for the issuance of shares of Consolidated common stock to SureWest shareholders pursuant to the Merger Agreement and the
First Merger. Consolidated is asking its stockholders to approve the issuance of Consolidated common stock pursuant to the
Merger Agreement and the First Merger. The issuance of
Consolidated common stock to SureWest shareholders is necessary
to effect the First Merger, and the approval of the share issuance proposal is required for the completion of the First
Merger.
Board Recommendation and Stockholder
Vote Required
The board of directors
recommends a vote FOR the issuance of Consolidated common stock to SureWest
shareholders pursuant to the Merger Agreement and the First Merger (Consolidated
Proposal No. 1 on the accompanying proxy card).
The affirmative vote of a majority of the votes cast at the meeting at
which a quorum is present is required for the approval of the issuance of
Consolidated common stock to SureWest shareholders pursuant to the Merger
Agreement and the First Merger.
139
CONSOLIDATED PROPOSAL NO. 2: ELECTION
OF RICHARD A. LUMPKIN AS DIRECTOR
Our amended and
restated certificate of incorporation provides for the classification of our
board of directors into three classes of directors, designated Class I, Class II
and Class III, as nearly equal in size as is practicable, serving staggered
three-year terms. One class of directors is elected each year to hold office for
a three-year term or until successors of such directors are duly elected and
qualified. The corporate governance committee has recommended, and the board of
directors also recommends, that the stockholders elect Mr. Lumpkin, the nominee
designated below as the Class I director, at this years annual meeting to serve
for a term of three years expiring in 2015 or until his successor is duly
elected and qualified. The nominee for election to the position of Class I
director, and certain information with respect to his background and the
backgrounds of non-nominee directors, are set forth below.
It is the intention of the persons named in the accompanying proxy card,
unless otherwise instructed, to vote to elect the nominee named herein as the
Class I director. The nominee named herein presently serves on our board of
directors, and has consented to serve as a director if elected at this years
annual meeting. In the event that the nominee named herein is unable to serve as
a director, discretionary authority is reserved to the board to vote for a
substitute. The board has no reason to believe that the nominee named herein
will be unable to serve if elected.
On February 29, 2012, Jack W. Blumenstein, an independent director of the
Company, the Chairperson of the Companys Audit Committee and a member of the
Consolidateds Corporate Governance Committee and Compensation Committee, passed
away. Mr. Blumenstein had served as a director since July 2005. See The
MergersBoard of Directors of Consolidated after Completion of the Mergers for
further information.
Nominee standing for election to the
board
Name
|
|
|
Age
|
|
Current Position With
Consolidated
|
|
Richard A. Lumpkin
|
|
|
|
|
(Class
I Director - term expiring in 2015)
|
|
77
|
|
Chairman of the Board and
Director
|
|
Directors continuing
to serve on the board
|
|
Name
|
|
|
Age
|
|
Current Position With
Consolidated
|
|
Roger H. Moore
|
|
|
|
|
(Class
II Director term expiring in 2013)
|
|
70
|
|
Director
|
Robert J. Currey
|
|
|
|
|
(Class III Director term
expiring in 2014)
|
|
66
|
|
President, Chief Executive Officer and Director
|
Maribeth S. Rahe
|
|
|
|
|
(Class
III Director term expiring in 2014)
|
|
63
|
|
Director
|
Set forth below is information with respect to the nominee to the board
and each continuing director regarding their experience. After the caption
Board Contributions, we describe some of the specific experience,
qualifications, attributes or skills that led to the conclusion that the person
should serve as a director for the Company.
Business experience of nominee to the
board
Richard A. Lumpkin
is our
Chairman of the board and a director. Mr. Lumpkin has served in this position
and as a director with us and our predecessor since 2002. From 1997 to 2002, Mr.
Lumpkin served as Vice Chairman of McLeodUSA, which acquired our predecessor in
1997. From 1963 to 1997, Mr. Lumpkin served in various positions at our
predecessor, including Chairman, Chief Executive Officer, President and
Treasurer. Mr. Lumpkin is currently a director of Agracel, Inc., a real estate
investment company and is Treasurer and formerly a Trustee of The Lumpkin Family
Foundation. Mr. Lumpkin is also a former director, former President and former
Treasurer of the USTelecom Association, a former president of the Illinois
Telecommunications Association, a former director
140
of First Mid-Illinois
Bancshares, Inc. (First Mid-Illinois), a financial services holding company
and a former director of Ameren Corp., a public utility holding company. Mr.
Lumpkin has also served on the University Council Committee on Information
Technology for Yale University.
Mr. Lumpkin was employed by McLeodUSA during 2002. In January 2002, in
order to complete a recapitalization, McLeodUSA filed a pre-negotiated plan of
reorganization through a Chapter 11 bankruptcy petition in the United States
Bankruptcy Court for the District of Delaware. In April 2002, McLeodUSAs plan
of reorganization became effective and McLeodUSA emerged from Chapter 11
protection. Mr. Lumpkin resigned from McLeodUSA in April 2002.
Board Contributions
:
Mr. Lumpkin is a long-time
telecommunications industry veteran, has long experience in the executive
leadership of the Company and its predecessor and is a significant stockholder
in the Company. He is well known and respected by other industry participants
and enjoys access to, and a long-standing relationship with, the senior
executives, ownership, and board members of many public and private
telecommunications companies with whom the Company considers its relationships
to be important. By virtue of his significant ownership, Mr. Lumpkin represents
a strong voice for stockholders in the boards deliberations.
Business experience of continuing
directors
Roger H.
Moore
has served as a director since July
2005. Mr. Moore was President and Chief Executive Officer of Illuminet Holdings,
Inc., a provider of network, database and billing services to the communications
industry, from October 1998 to December 2001, a member of its board of directors
from July 1998 to December 2001, and its President and Chief Executive Officer
from January 1996 to August 1998. In December of 2001, Illuminet was acquired by
VeriSign, Inc. and Mr. Moore retired at that time. In September 1998 and October
1998, he served as President, Chief Executive Officer and a member of the board
of directors of VINA Technologies, Inc., a telecommunications equipment company.
From June 2007 to November 2007 Mr. Moore served as interim President and CEO of
Arbinet. From December 2007 to May 2009, Mr. Moore served as a consultant to
VeriSign Corporation. Mr. Moore also presently serves as a director of VeriSign,
Inc. and Western Digital Corporation.
Board Contributions
:
Mr. Moore is a seasoned telecommunications
executive with deep background in the industry and very strong technical
aptitude. He has a strong entrepreneurial bent and is a knowledgeable analyst of
the evolution of telecommunications and the impact of new technologies on our
business. He brings perspective from service on other boards. He also qualifies
as an audit committee financial expert under SEC guidelines.
Robert J. Currey
serves as our President, Chief Executive Officer and a director. Mr. Currey has
served as one of the Companys directors and as a director of our predecessors
since 2002 and as our President and Chief Executive Officer since 2002. From
2000 to 2002, Mr. Currey served as Vice Chairman of RCN Corporation, a
competitive telephone company providing telephony, cable and Internet services
in high-density markets nationwide. From 1998 to 2000, Mr. Currey served as
President and Chief Executive Officer of 21st Century Telecom Group. From 1997
to 1998, Mr. Currey served as Director and Group President of Telecommunications
Services of McLeodUSA, which acquired our predecessor in 1997. Mr. Currey joined
our predecessor in 1990 and served as President through its acquisition in 1997.
Mr. Currey is also a director of The Management Network Group, Inc. (a
professional services company), the USTelecom Association and the Illinois
Business RoundTable.
Mr. Currey was employed by RCN Corporation from 2000 to 2002. In May
2004, RCN filed a plan of reorganization through a Chapter 11 bankruptcy
petition on a voluntary basis.
Board Contributions
:
Mr. Currey is a long-time industry veteran
and has significant experience leading other companies in the telecommunications
and media sector. He is well known throughout the telecommunications industry
and is respected as an opinion leader especially among the mid-sized telecom
carriers. Because of his experience and his role as Chief Executive Officer, Mr.
Currey also has substantial institutional knowledge regarding the Company,
including its operations and strategies.
141
Maribeth S. Rahe
has served as a director since July 2005. Ms. Rahe has served as President and
Chief Executive Officer of Fort Washington Investment Advisors, Inc. since
November 2003. Ms. Rahe is currently a member of the board of directors of First
Financial Bancorp and First Financial Bank. From January 2001 to October 2002,
Ms. Rahe was President and a member of the board of directors of U.S. Trust
Company of New York, and from June 1997 to January 2001, was its Vice Chairman
and a member of the board of directors.
Board Contributions
:
Ms. Rahe has deep background as a senior
executive in the banking industry and is well attuned to developments in the
capital markets and their potential impact on the Company. She provides a strong
risk-management perspective and oversees the Boards succession planning
efforts. She also qualifies as an audit committee financial expert under SEC
guidelines.
Board recommendation and stockholder
vote required
The board of directors recommends a vote FOR the election of
the nominee named above (Consolidated Proposal No. 2 on the accompanying proxy
card).
The affirmative vote of a
plurality of the votes cast at the meeting at which a quorum is present is
required for the election of the nominee named above.
CORPORATE GOVERNANCE AND BOARD
COMMITTEES
Are a majority of the directors
independent?
Until the death
of Mr. Blumenstein, as described below, a majority of the directors were
independent. The corporate governance committee undertook its annual review of
director independence and reviewed its findings with the board of directors.
During this review, the board of directors considered relationships and
transactions between each director or any member of his or her immediate family
and Consolidated and its subsidiaries and affiliates, including those reported
under Certain Relationships and Related Transactions below. The board of
directors also examined relationships and transactions between directors or
their affiliates and members of our senior management. The purpose of this
review was to determine whether any such transactions or relationships
compromised a directors independence.
As a result of this review, our board of directors affirmatively
determined that Mr. Moore and Ms. Rahe are independent for purposes of both Rule
5605(a)(2) of NASDAQs Marketplace Rules and Rule 10A-3(b)(1) of the Exchange
Act. During Mr. Blumensteins service on the Consolidated board of directors,
the board of directors also determined that Mr. Blumenstein was independent for
purposes of both Rule 5605(a)(2) of NASDAQs Marketplace Rules and Rule
10A-3(b)(1) of the Exchange Act.
On March 1, 2012, Consolidated notified NASDAQ that Jack W. Blumenstein
passed away on February 29, 2012. As a result of Mr. Blumensteins death,
Consolidateds board of directors is no longer comprised of a majority of
independent directors and Consolidateds Audit Committee is no longer comprised
of at least three independent directors, as required for continued listing by
NASDAQ Listing Rules 5605(b)(1) and 5605(c)(2)(A), respectively. On March 5,
2012, Consolidated received a deficiency letter from NASDAQ acknowledging the
failure of Consolidated to continue to satisfy the aforementioned NASDAQ Listing
Rules. In accordance with NASDAQ Listing Rules 5605(b)(1)(A) and 5605(c)(4)(A)
and the NASDAQ deficiency letter, and given the date set for Consolidateds
annual meeting of stockholders, Consolidated has until August 28, 2012 to regain
compliance with NASDAQ Listing Rules.
Prior to the expiration of the applicable cure period, Consolidateds
board intends to replace Mr. Blumenstein with either (i) the individual to be
designated by SureWest or (ii) another new director, or both. The director or
directors so appointed would not only satisfy the independence requirements of
the NASDAQ Listing Rules, but would have no material connection to Consolidated
(that is, no material financial, personal, business, or other relationship that
a reasonable person could conclude could potentially influence boardroom
objectivity) prior to being appointed to Consolidateds board of directors.
Consolidateds board would increase the size of the board as necessary to
accommodate the addition or additions to the board.
142
How are directors
compensated?
The director compensation described below is based on a study conducted
by the outside consultant engaged by the compensation committee in 2008 to
complete a benchmark study. The outside consultant developed a peer group of 16
companies, which are similar in size and scope to the Company, and with whom we
compete for investors. For more information regarding the consultant and our
peer group, see Compensation Discussion and Analysis Executive Compensation
Objectives.
Directors receive the following compensation: (1) $25,000 annual cash
retainer; (2) $1,250 for board meetings attended in person and $750 for
committee meetings attended in person, with meeting fees halved for each board
or board committee meeting attended by means of telephone conference call; (3)
$15,000 additional annual cash retainer for the chairperson of the audit
committee; and (4) $10,000 additional annual cash retainer for the chairperson
of each of the compensation committee and the corporate governance committee. We
reimburse all non-employee directors for reasonable expenses incurred to attend
board or board committee meetings. In addition, a restricted share award of
2,205 shares was made to each of the independent directors in March 2011
pursuant to the Amended and Restated Consolidated Communications Holdings, Inc.
2005 Long-Term Incentive Plan. This number of shares was determined by dividing
$40,000 by the 20 day average closing price of the stock as of two trading days
before the award date. One quarter of such shares vested on December 5, 2011,
and one quarter of such shares will vest on each December 5th from 2012 through
2014. In March 2012, the Company modified its director compensation program, as
follows: (1) the annual restricted share awards will be determined by using a
value of $45,000, which is an increase from the previous $40,000 amount, as
described above, and (2) all of the restricted shares will vest on the December
5th following the date of the award instead of the current vesting schedule
described above.
Mr. Lumpkin and Mr. Currey, a director who also serves as Chief Executive
Officer, do not receive any additional compensation for their service on the
board. Mr. Curreys compensation is set forth in the Summary Compensation Table.
Mr. Lumpkin is not a named executive officer.
This table discloses all compensation provided to each non-employee
director of the Company in 2011.
|
|
Fees
Earned
|
|
Stock
|
|
|
|
|
|
or
Paid
|
|
Awards
|
|
Total
|
Name
|
|
in Cash ($)
|
|
($)(1)
|
|
($)
|
Jack W.
Blumenstein
|
|
$
|
56,125
|
|
$
|
43,175
|
|
$
|
98,675
|
Roger H. Moore
|
|
$
|
51,750
|
|
$
|
43,175
|
|
$
|
96,425
|
Maribeth S. Rahe
|
|
$
|
50,750
|
|
$
|
43,175
|
|
$
|
96,425
|
____________________
1.
|
|
Stock Awards
. The amounts in this column represent
the grant date fair value of the restricted share award made on March 8,
2011, computed in accordance with Financial Accounting Standards Board
Statement Accounting Standards Codification Topic 718. Also see Footnote
17 to the Consolidated Financial Statements contained in the Companys
Annual Report on Form 10-K for the year ended December 31, 2011 for an
explanation of the assumptions made by the Company in the valuation of
these awards. At December 31, 2011, Ms. Rahe had 24,124 restricted shares
outstanding, and each of Mr. Blumenstein and Mr. Moore had 16,691
restricted shares outstanding.
|
How often did the board meet during
2011?
The board met
eight times during calendar 2011. Each director attended at least 75% of the
board meetings and meetings of board committees on which they served. During
2011, the independent directors held four meetings at which only independent
directors were present in connection with regularly scheduled meetings of the
board or committees of the board.
143
What is the policy regarding director
attendance at annual meetings?
Absent special circumstances, each director is expected to attend the
annual meeting of stockholders. All of the Companys directors attended the 2011
annual meeting of stockholders.
What is the leadership structure of the
board?
The board currently separates the Chairmans role from the Chief
Executive Officers role. The merits of various structural features were
discussed at the time of the Companys initial public offering in 2005, and that
discussion has been refreshed from time to time by the corporate governance
committee in the context of its periodic review of succession planning.
Accordingly, the board may, at any time, change the structure in the event that
the board determines a different structure would be in the best interest of the
Company under then-existing circumstances. In the event that the Chairman and
Chief Executive Officer positions were to be held by the same person, the board
would appoint a lead independent director. The particular attributes that our
current Chairman, Richard A. Lumpkin, brings to the board a profile and
relationships in the industry developed over many years of industry experience,
long experience with the Company and its predecessor and a substantial equity
stake in the Company make his service as Chairman particularly useful. At the
same time, Mr. Currey, our President and Chief Executive Officer, is himself a
long-time industry veteran. The separation of their roles, on the one hand, and
their long-standing mutual respect and open working relationship, on the other,
provides the board with a climate of informed and open dialogue, debate, and
decisionmaking on topics important to the Company and its stockholders.
What committees has the board
established?
The board has standing audit, corporate governance and compensation
committees. The membership of the standing committees was as of December 31,
2011, and currently is, as follows:
|
|
|
|
Corporate
|
|
|
|
|
Audit
|
|
Governance
|
|
Compensation
|
Name
|
|
Committee
|
|
Committee
|
|
Committee
|
Roger H. Moore
|
|
*
|
|
*
|
|
Chairperson
|
Maribeth S. Rahe
|
|
Chairperson
|
|
Chairperson
|
|
*
|
____________________
Audit Committee.
The audit
committee consists of Mr. Moore, Ms. Rahe and, until his death on February 29,
2012, Mr. Blumenstein, who was chairperson of the audit committee. The board has
determined that all members of the audit committee are independent for purposes
of Rule 5605(a)(2) of NASDAQs Marketplace Rules and Rule 10A-3(b)(1) of the
Exchange Act and that Mr. Blumenstein was independent for purposes of Rule
5605(a)(2) of NASDAQs Marketplace Rules and Rule 10A-3(b)(1) of the Exchange
Act. Each of the audit committee members is financially literate as determined
by our board in its business judgment. The board has also determined that in
addition to being independent, each of Mr. Moore and Ms. Rahe is an audit
committee financial expert as such term is defined under the applicable SEC
rules.
The audit
committee met five times during 2011. The board has adopted an audit committee
charter, which may be found by accessing the investor relations section of our
website at
http://ir.consolidated.com
and
clicking on the Corporate Governance link.
The principal duties and responsibilities of the audit committee are to
assist the board in its oversight of:
-
the integrity of our financial statements and
reporting process;
-
our compliance with legal and regulatory matters;
144
-
the independent auditors qualifications and
independence;
-
general oversight of risk management of the
Company, including reviewing risks and exposures relating to financial
reporting, particularly disclosure and SEC reporting, disclosure controls,
internal control over financial reporting, accounting, internal and
independent auditors, financial policies, and tax, investment, credit and
liquidity matters; and the performance of our independent
auditors.
Our audit committee is also responsible for the following:
-
conducting an annual performance evaluation of the
audit committee;
-
compensating, retaining, and overseeing the work
of our independent auditors;
-
establishing procedures for (a) receipt and treatment of complaints on accounting
and other related matters and (b) submission of confidential employee concerns regarding questionable accounting or auditing
matters;
-
reviewing and overseeing all related party transactions required to be disclosed in our proxy statement pursuant to
our Related Person Transactions Policy, which we describe beginning on page
173
;
and
-
preparing reports to be included in our public
filings with the SEC.
The audit
committee has the power to investigate any matter brought to its attention within the scope of its duties. It also has the authority
to retain counsel and advisors to fulfill its responsibilities and duties. See the Report of the Audit Committee of the
Board of Directors on page
150
.
Corporate Governance Committee.
The corporate governance committee consists of Mr. Moore, Ms. Rahe, who
serves as the Chairperson, and, until his death on February 29, 2012, Mr.
Blumenstein. The board has determined that each of Ms. Rahe, Mr. Moore are
independent for purposes of Rule 5605(a)(2) of NASDAQs Marketplace Rules and
that Mr. Blumenstein was independent for purposes of Rule 5605(a)(2) of NASDAQs
Marketplace Rules.
The corporate governance committee met three times during 2011. The board
has adopted a corporate governance committee charter, a copy of which may be
found by accessing the investor relations section of our website at
http://ir.consolidated.com
and clicking on the Corporate Governance link.
The principal duties and responsibilities of the corporate governance
committee are as follows:
-
to identify individuals qualified to become
directors and to select, or recommend that the board select, director
nominees;
-
to develop and recommend to the board the content
of our corporate governance principles, a copy of which may be found by
accessing the investor relations section of our website at
http://ir.consolidated.com
and clicking on the Corporate Governance
link;
-
to review with management and, as the compensation
committee deems useful, consultants or legal counsel, the areas of material
risk to the corporation relating to (i) management continuity and succession
planning, (ii) board and board committee selection, composition, evaluation,
continuity and succession planning, (iii) directors and officers liability
insurance, and (iv) other corporate governance matters; and
-
to oversee the evaluation of our board and
management team.
In evaluating
candidates for directorships, our board, with the assistance of the corporate
governance committee, will take into account a variety of factors it considers
appropriate, which may include strength of character and leadership skills;
general business acumen and experience; broad knowledge of the
telecommunications industry; knowledge of strategy, finance, internal business
and relations between telecommunications companies and government; age; number
of other board seats; and willingness to commit the necessary time to ensure an
active
145
board whose members work well together and possess the collective
knowledge and expertise required by the board. We have not previously paid a fee
to any third party in consideration for assistance in identifying potential
nominees for the board. While the board has not adopted a specific policy
regarding diversity, it believes the diverse backgrounds and perspectives of its
current directors, as described above for each nominee and current director
under the heading Board Contributions, are well suited to the oversight of the
Companys management team, its business plans, and performance.
Compensation Committee.
The
compensation committee consists of Mr. Moore, who serves as its Chairperson, Ms.
Rahe and, until his death on February 29, 2012, Mr. Blumenstein. The board has
determined that each of Mr. Moore and Ms. Rahe is independent for purposes of
Rule 5605(a)(2) of NASDAQs Marketplace Rules and that Mr. Blumenstein was
independent for purposes of Rule 5605(a)(2) of NASDAQs Marketplace Rules.
The compensation committee met five times during 2011. The board has
adopted a compensation committee charter, a copy of which may also be found by
accessing the investor relations section of our website at
http://ir.consolidated.com
and clicking on the Corporate Governance link.
The principal duties and responsibilities of the compensation committee
are as follows:
-
to review and approve goals and objectives
relating to the compensation of our Chief Executive Officer and, based upon a
performance evaluation, to determine and approve the compensation of the Chief
Executive Officer and other senior officers;
-
to review compensation risk to determine whether
compensation policies and practices for employees are reasonably likely to
have a material adverse effect on the Company, including whether the design or
operation of the Companys compensation programs encourage employees to engage
in excessive risk-taking, is aligned to the interests of stockholders,
promotes effective leadership and leadership development and appropriately
awards pay for performance;
-
to approve the grant of long term incentive awards
Company-wide and recommend amendments to the Companys executive compensation
programs to the board for approval;
-
to review and recommend to the board of directors,
or approve, new executive compensation programs, based on its periodic review
of the operations of the Companys executive compensation programs to
determine whether they are properly coordinated and achieving their intended
purpose;
-
to establish and periodically review policies in
the area of senior management perquisites;
-
to make recommendations to our board on incentive
compensation and equity-based plans; and
-
to prepare reports on executive compensation
to be included in our public filings with the SEC.
Additional information on the compensation committees processes and
procedures for the consideration and determination of executive and director
compensation are addressed in the Compensation Discussion and Analysis
Processes and Procedures for the Consideration and Determination of Executive
and Director Compensation section of this proxy statement.
146
Role of Independent Compensation
Consultant
The compensation committee has directly engaged Towers Watson as its
outside consultant to assist it in reviewing the effectiveness and
competitiveness of the Companys executive compensation and outside director
programs and policies, for which the Company paid Towers Watson $35,100 in 2010,
and $3,499 in 2011. In particular, Towers Watson assisted the compensation
committee with the following in 2010, with a view toward compensation decisions
for 2011:
-
construction of the benchmark group companies to
be used in compensation analysis;
-
analysis of the Companys total direct
compensation, including base salary, annual bonus, and long-term incentives;
-
review and consulting on compensation design and
performance linkage;
-
evaluation of the compensation program for the
Companys non-executive senior management team, including total direct
compensation and Employment Security Agreements relative to broad market and
telecom industry trends, as described below; and
-
ad hoc issue analysis as requested by the
compensation committee.
Towers Watsons
work in 2011 consisted principally of performing analysis and providing
recommendations concerning the compensation programs for the Companys senior
management personnel, including:
-
evaluation and benchmarking certain of the
Companys senior management jobs relative to the peer group and to broad
marketplace trends;
-
review of the non-executive senior
management change-in-control agreements;
-
analysis of total direct compensation programs
including salary, bonus, and long term incentives; and
-
evaluation and recommendations concerning the
type, amount, and frequency of long term incentive compensation to be offered
to the non-executive senior management personnel going forward.
Towers Watson also provided pension actuarial services and individual
employee pension benefit calculations support to the Company during 2011 for
which the Company paid Towers Watson $129,011. The decision to engage Towers
Watson for these other services was made by management. This is a long-standing
relationship pre-dating the Companys initial public offering of stock whereby
Towers Watson performs ad hoc issue analysis as requested from time-to-time by
management, and neither the compensation committee nor the board approved such
other services.
Board oversight of risk
The Companys board of directors has responsibility for general oversight
of risk management of the Company and has delegated oversight of certain risks,
as appropriate, to the audit committee, compensation committee and the corporate
governance committee, as further described below.
As set forth in the audit committee charter, the audit committee reviews
with management and, to the extent the audit committee deems it appropriate,
with the independent auditors or counsel to the Company, compliance with laws
and regulations, major pending litigation, and risks and exposures relating to
financial reporting, particularly disclosure and SEC reporting, disclosure
controls, internal control over financial reporting, accounting, internal and
independent auditors, financial policies, and tax, investment, credit and
liquidity matters.
147
The compensation committee reviews executive compensation risk to
determine whether compensation policies and practices for its employees are
reasonably likely to have a material adverse effect on the Company, including
whether the design or operation of the Companys executive compensation program
encourages executives to engage in excessive risk-taking, is aligned to the
interests of stockholders, and appropriately awards pay for performance. In
doing so the compensation committee reviews the overall program design, as well
as the balance between short-term and long-term compensation, the metrics used
to measure performance and the award opportunities under the Companys incentive
compensation program, and the implementation of other administrative features
designed to mitigate risk such as vesting requirements.
The corporate governance committee reviews with management and, as the
corporate governance committee deems useful, consultants or legal counsel, the
areas of material risk to the Company relating to (i) management continuity and
succession planning, (ii) board and board committee continuity and succession,
(iii) directors and officers liability insurance, and (iv) other corporate
governance matters. These matters are reviewed in meetings in which, except for
executive session portions, management directors participate with all of the
Companys independent directors, and can be the subject of discussion at board
meetings as well.
Management has an active Enterprise Risk Management (ERM) steering
committee in place which includes the Chief Executive Officer, Chief Financial
Officer and other key executives and a representative from the Companys outside
counsel. The Chief Financial Officer, as Committee Chairman, is the primary
liaison between management and the board regarding the ERM implementation and
process. The steering committee has responsibility for the implementation and
oversight of the ongoing ERM process including identifying, prioritizing, and
assigning ownership of key risks. The management team has primary responsibility
for monitoring and managing these key risks which could affect the Companys
operating and financial performance. ERM is a standing agenda item on the
quarterly board meeting agenda. At least annually, upon reviewing and
establishing the financial and operating targets for the next fiscal year, the
management team reviews with the full board the key risks facing the Company
during the upcoming year and the plans the Company has put in place to mitigate
those risks.
Stockholder recommendations for
director nominations
As noted above,
the corporate governance committee considers and establishes procedures
regarding recommendations for nomination to the board, including nominations
submitted by stockholders. Recommendations of stockholders should be timely sent
to us, either in person or by certified mail, to the attention of the Secretary,
Consolidated Communications Holdings, Inc., 121 South 17th Street, Mattoon,
Illinois 61938-3987. Any recommendations submitted to the Secretary should be in
writing and should include whatever supporting material the stockholder
considers appropriate in support of that recommendation, but must include the
information that would be required to be disclosed under the SECs rules in a
proxy statement soliciting proxies for the election of such candidate and a
signed consent of the candidate to serve as our director if elected. The
corporate governance committee will evaluate all potential candidates in the
same manner, regardless of the source of the recommendation. Based on the
information provided to the corporate governance committee, it will make an
initial determination whether to conduct a full evaluation of a candidate. As
part of the full evaluation process, the corporate governance committee may,
among other things, conduct interviews, obtain additional background information
and conduct reference checks of the candidate. The corporate governance
committee may also ask the candidate to meet with management and other members
of the board.
Communications with
directors
Stockholders interested in communicating directly with the board or the
independent directors may do so by writing to the Secretary, Consolidated
Communications Holdings, Inc., 121 South 17th Street, Mattoon, Illinois
61938-3987. The Secretary will review all such correspondence and forward to the
board or the independent directors a summary of that correspondence and copies
of any correspondence that, in his opinion, deals with functions of the board or
that he otherwise determines requires their attention. Any director or any
independent director may at any time review a log of all correspondence received
by the Company that is addressed to members of the board or independent
directors and request copies of such correspondence. Any concerns relating to
accounting, internal controls or auditing matters will be brought to the
attention of the audit committee and handled in accordance with the procedures
established by the audit committee with respect to such matters.
148
Code of Business Conduct and
Ethics
The board has adopted a Code of Business Conduct and Ethics (the Code),
a copy of which may be found by accessing the investor relations section of our
website at
http://ir.consolidated.com
and
clicking on the Corporate Governance link. Under the Code, we insist on honest
and ethical conduct by all of our directors, officers, employees and other
representatives, including the following:
-
Our directors, officers and employees are required
to deal honestly and fairly with our customers, collaborators, competitors and
other third parties.
-
Our directors, officers and employees should not
be involved in any activity that creates or gives the appearance of a conflict
of interest between their personal interests and the interests of
Consolidated.
-
Our directors, officers and employees should not
disclose any of our confidential information or the confidential information
of our suppliers, customers or other business partners.
We are also committed to providing our stockholders and investors with
full, fair, accurate, timely and understandable disclosure in the documents that
we file with the SEC. Further, we will comply with all laws, rules and
regulations that are applicable to our activities and expect all of our
directors, officers and employers to obey the law.
Our board of directors and audit committee have established the standards
of business conduct contained in this Code and oversee compliance with this
Code. Training on this Code is included in the orientation of new employees and
has been provided to existing directors, officers and employees.
If it is determined that one of our directors, officers or employees has
violated the Code, we will take appropriate action including, but not limited
to, disciplinary action, up to and including termination of employment. If it is
determined that a non-employee (including any contractor, subcontractor or other
agent) has violated the Code, we will take appropriate corrective action, which
could include severing the contractor, subcontractor or agency relationship.
149
REPORT OF THE AUDIT COMMITTEE TO THE
BOARD OF DIRECTORS
The audit
committee is made up solely of independent directors, as defined in the
applicable NASDAQ and SEC rules, and it operates under a written charter, dated
February 28, 2011, which is available by accessing the investor relations
section of our website at
http://ir.consolidated.com
. The
charter of the audit committee specifies that the purpose of the audit committee
is to assist the board in fulfilling its oversight responsibility for:
-
the quality and integrity of the companys
financial statements;
-
the companys compliance with legal and regulatory
requirements;
-
the independent auditors qualifications and
independence; and
-
the performance of the companys independent
auditors.
In carrying out these responsibilities, the audit committee, among other
things, supervises the relationship between the Company and its independent
auditors including making decisions with respect to their appointment or
removal, reviewing the scope of their audit services, pre-approving audit
engagement fees and non-audit services and evaluating their independence. The
audit committee oversees and evaluates the adequacy and effectiveness of the
Companys systems of internal and disclosure controls and internal audit
function. The audit committee has the authority to investigate any matter
brought to its attention and may engage outside counsel for such purpose.
The Companys management is responsible, among other things, for
preparing the financial statements and for the overall financial reporting
process, including the Companys system of internal controls. The independent
auditors responsibilities include (i) auditing the financial statements and
expressing an opinion on the conformity of the audited financial statements with
U.S. generally accepted accounting principles and (ii) auditing the financial
statements and expressing an opinion on managements assessment of, and the
effective operation of, the Companys internal control over financial reporting.
The audit committee met five times during fiscal year 2011. The audit
committee schedules its meetings with a view to ensuring that it devotes
appropriate attention to all of its tasks. The audit committees meetings
include executive sessions with the Companys independent auditor and, at least
quarterly and at other times as necessary, sessions without the presence of the
Companys management.
As part of its oversight of the Companys financial statements, the audit
committee reviewed and discussed with management and Ernst & Young LLP, the
Companys independent auditor, the audited financial statements of the Company
for the fiscal year ended December 31, 2011. The audit committee discussed with
Ernst & Young LLP, such matters as are required to be discussed by Statement
on Auditing Standards No. 61, as amended
(AICPA, Professional Standards
, Vol. 1, AU
section 380
)
, as adopted by the Public Company Accounting Oversight Board in Rule
3200T, relating to the conduct of the audit. The audit committee also has
discussed with Ernst & Young LLP, the auditors independence from the
Company and its management, including the matters in the written disclosures and
the letter the audit committee received from the independent auditor as required
by applicable requirements of the Public Company Accounting Oversight Board
regarding the independent accountants communications with the audit committee
concerning independence, and discussed with the independent auditor the
independent auditors independence.
Based on its review and discussions referred to above, the audit
committee has recommended to the board of directors that the audited financial
statements be included in the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2011, for filing with Securities and Exchange
Commission. The audit committee has also selected Ernst & Young LLP as the
Companys independent auditors for 2012.
MEMBERS OF THE AUDIT
COMMITTEE
|
|
Maribeth S. Rahe,
Chairperson
|
Roger H.
Moore
|
150
PRINCIPAL INDEPENDENT ACCOUNTANT FEES
AND SERVICES
Audit Committees Pre-Approval Policies
and Procedures
In accordance
with the requirements of the Sarbanes-Oxley Act of 2002 and the Audit Committee
Charter, all audit and audit-related work performed by the independent public
registered accounting firm, Ernst & Young LLP, must be submitted to the
audit committee for specific approval in advance by the audit committee,
including the proposed fees for such work. The audit committee has not delegated
any of its responsibilities under the Sarbanes-Oxley Act of 2002 to management.
Principal Accounting Firm
Fees
Fees (including reimbursement for out-of-pocket expenses) paid to our
independent registered public accounting firm for services in 2011 and 2010 were
as follows:
|
|
|
|
|
Audit
|
|
|
|
|
All
|
|
|
|
|
|
Related
|
|
|
|
|
Other
|
|
|
Audit Fees
|
|
Fees
|
|
Tax Fees
|
|
Fees
|
|
|
(In
millions)
|
2011
|
|
$
|
0.8
|
|
|
|
$
|
0.1
|
|
|
2010
|
|
|
0.8
|
|
|
|
|
0.1
|
|
|
Audit Fees include fees billed for professional services rendered by
Ernst & Young LLP for the audit of our consolidated financial statements for
fiscal 2011 and 2010, including the audit of internal controls over financial
reporting under Sarbanes-Oxley Act of 2002.
There were no audit-related services rendered by Ernst & Young LLP
during fiscal 2011 and 2010.
Tax Fees include fees billed for professional services rendered by Ernst
& Young LLP related to tax consulting and tax compliance services.
For fiscal 2011, no Audit-Related Fees, Tax Fees or All Other
Fees disclosed above were approved in the reliance on the exceptions to the
pre-approval process set forth in 17 CFR 210.2-01(c)(7)(i)(C).
151
CONSOLIDATED PROPOSAL NO. 3:
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The audit
committee of the board of directors has appointed Ernst & Young LLP as our
independent auditors for the year ending December 31, 2012. Our stockholders are
being asked to ratify this appointment at the annual meeting. Ernst & Young
LLP has served as our auditors since December 31, 2002, when Homebase
Acquisition, LLC, one of our predecessors, acquired our Illinois operations from
McLeodUSA.
Board Recommendation and Stockholder
Vote Required
The board of directors recommends a vote FOR the ratification
of the appointment of Ernst & Young LLP as our independent auditors for the
year ending December 31, 2012 (Consolidated Proposal No. 3 on the proxy card).
The affirmative vote of the holders of a majority of the votes
represented at the annual meeting in person or by proxy will be required for
approval. Representatives of Ernst & Young LLP, expected to be present at
the 2012 annual meeting, will have the opportunity to make a statement at the
meeting if they desire to do so and are expected to be available to respond to
appropriate questions.
If the appointment is not ratified, the audit committee will reconsider
the appointment.
152
CONSOLIDATED PROPOSAL NO. 4: APPROVAL
OF THE ADJOURNMENT OR POSTPONEMENT OF THE
CONSOLIDATED ANNUAL MEETING, IF
NECESSARY OR APPROPRIATE
Consolidated is
asking its stockholders to approve the adjournment or postponement of the annual
meeting, if necessary or appropriate, for, among other reasons, the solicitation
of additional proxies in the event that there are not sufficient votes at the
time of the annual meeting to approve the issuance of Consolidated common stock
to SureWest shareholders in the First Merger contemplated by the Merger
Agreement.
The Consolidated board of directors
unanimously recommends a vote FOR this proposal (Consolidated Proposal No.
4)
to adjourn or postpone the Consolidated annual meeting, if necessary or
appropriate.
153
BUSINESS EXPERIENCE OF EXECUTIVE
OFFICERS
The following is
a description of the background of our continuing executive officers who are not
directors:
Steven L. Childers
, age 56, serves as our Senior Vice President & Chief Financial
Officer. Mr. Childers has served in this position since April 2004. From April
2003 to April 2004, Mr. Childers served as Vice President of Finance. From
January 2003 to April 2003, Mr. Childers served as the Director of Corporate
Development. From 1997 to 2002, Mr. Childers served in various capacities at
McLeodUSA, including as Vice President of Customer Service and, a Vice President
of Sales as a member of its Business Process Teams, leading an effort to
implement new revenue assurance processes and controls. Mr. Childers joined our
predecessor in 1986 and served in various capacities through its acquisition by
McLeodUSA in 1997, including as President of its former Market Response division
and in various finance and executive roles. Mr. Childers is a director of the
Illinois State Chamber of Commerce and recently completed a six-year term on the
Board of Directors of the Eastern Illinois University Foundation, including
serving as President for three years.
Steven J. Shirar
, age 53, serves as our Senior Vice President and Corporate Secretary.
Mr. Shirar has served as our Secretary since February 2006 and has served as
Senior Vice President since 2003. From 1997 to 2002, Mr. Shirar served in
various capacities at McLeodUSA, progressing from Chief Marketing Officer to
Chief Sales and Marketing Officer. From 1996 to 1997, Mr. Shirar served as
President of the predecessor the Companys then existing software development
subsidiary, Consolidated Communications Systems and Services, Inc.
C. Robert Udell, Jr
.
, age 46, serves as a
Senior Vice President and Chief Operating Officer. Mr. Udell has served as
Senior Vice President position since 2004 and has served as Chief Operating
Officer since May 2011. From 1999 to 2004, Mr. Udell served in various
capacities at the predecessor of our Texas operations, including Executive Vice
President and Chief Operating Officer. Prior to joining the predecessor of our
Texas operations in March 1999, Mr. Udell was employed by our predecessor from
1993 to 1999 in a variety of senior roles, including Senior Vice President,
Network Operations, and Engineering. Mr. Udell is a member of the USTelecom
Association Advisory Committee. He serves on the boards of the Katy Economic
Development Council, Greater Conroe Economic Development Council, and the
Montgomery County United Way and Board of trustees for The John Cooper School.
Christopher A. Young
, age 56, serves as our Chief Information Officer. Mr. Young has served
in this position since 2003. From 2000 to 2003, Mr. Young served as Chief
Information Officer of NewSouth Communications, Inc., a broadband communications
provider. From 1998 to 2000, Mr. Young served as Chief Information Officer for
21st Century Telecom Group.
Messrs.
Shirar
and
Childers
were employed by
McLeodUSA during 2002. In January 2002, in order to complete a recapitalization,
McLeodUSA filed a pre-negotiated plan of reorganization through a Chapter 11
bankruptcy petition in the United States Bankruptcy Court for the District of
Delaware. In April 2002, McLeodUSA’s plan of reorganization became effective and
McLeodUSA emerged from Chapter 11 protection. Mr. Shirar resigned from McLeodUSA
in June 2002.
154
EQUITY COMPENSATION PLAN INFORMATION
Immediately prior
to the closing of our initial public offering in July 2005, our stockholders
approved the 2005 Long-Term Incentive Plan, which was effective upon completion
of our initial public offering. At the 2009 annual meeting of stockholders, the
stockholders approved the Amended and Restated Consolidated Communications
Holdings, Inc. 2005 Long-Term Incentive Plan (the LTIP). At the 2010 annual
meeting of stockholders, stockholders approved an amendment to the LTIP
increasing the number of shares available under the LTIP.
The following table sets forth information regarding the LTIP, the
Companys only equity compensation plan, as of December 31, 2011:
|
|
|
|
|
|
Number of
Securities
|
|
|
|
|
|
|
Remaining
Available
|
|
|
|
|
|
|
for Future
Issuance
|
|
|
Number of
Securities to
|
|
|
|
Under
Equity
|
|
|
be Issued
Upon
|
|
Weighted-Average Exercise
|
|
Compensation
Plans
|
|
|
Exercise of
Outstanding
|
|
Price of
Outstanding
|
|
(Excluding
Securities
|
|
|
Options,
Warrants and
|
|
Options,
Warrants and
|
|
Reflected in
Column
|
|
|
Rights
|
|
Rights
|
|
(a))
|
Plan Category
|
|
(a)
|
|
(b)
|
|
(c)(1)
|
Equity compensation plans approved
|
|
|
|
|
|
|
by security holders
|
|
|
|
|
|
999,990
|
Equity
compensation plans not
|
|
|
|
|
|
|
approved by security
holders
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
999,990
(1)
|
____________________
(1)
|
|
999,990 shares remain
available for future issuance under the LTIP as described
above.
|
COMPENSATION COMMITTEE REPORT
The compensation
committee of the board of directors has furnished the following report to the
stockholders of the Company in accordance with rules adopted by the Securities
and Exchange Commission.
The compensation committee reviewed and discussed with management the
Companys Compensation Discussion and Analysis contained in this Proxy
Statement.
Based upon the review and discussions referred to above, the compensation
committee recommended to the board of directors that the Companys Compensation
Discussion and Analysis be included in this Proxy Statement.
The information in this report is not soliciting material, is not
deemed filed with the SEC and is not to be incorporated by reference in any of
our filings under the Securities Act of 1933, as amended, or the Exchange Act,
whether made before or after the date hereof and irrespective of any general
incorporation language in any such filings.
This report is submitted on behalf of the members of the compensation
committee:
Roger H. Moore,
Chairperson
|
Maribeth S.
Rahe
|
155
COMPENSATION DISCUSSION AND ANALYSIS
Executive Compensation
Objectives
Our compensation
committee has designed our executive compensation program to achieve the
following objectives:
-
provide incentives to our executives to maximize
stockholder return;
-
enable us to attract, retain and reward talented,
results-oriented managers capable of leading key areas of the Companys
business; and
-
reward the management team for achieving key
financial and operational objectives which will promote the long-term health
of the business.
Each key element of total compensation serves a specific purpose that
helps achieve the objectives of the executive compensation program.
The three key elements of the current executive compensation program are
annual base salary, cash bonuses, and long-term, equity-based incentives. The
Company also provides its executive officers with severance and
change-in-control benefits as well as a limited number of perquisites and other
personal benefits. Our discussion below, under the caption Elements of
Executive Compensation contains an additional explanation of each of these
elements. In evaluating the mix of these compensation components, as well as the
short-term and long-term value of the executive compensation plans, the
compensation committee considers both the performance and skills of each
executive, as well as the compensation paid to those in similar organizations
with similar responsibilities.
The following discussion explains how the compensation committee uses the
three key compensation elements to meet the objectives of its executive
compensation program.
Objective
#1
: Provide incentives to our executives to maximize stockholder return
. The compensation committee uses restricted shares
in an effort to unify the interests of the Companys executives and stockholders. The Company granted restricted shares to
our Chief Executive Officer, Mr. Currey, in March, 2011, as described under the caption Long-Term, Equity-Based Incentives
on page
162
. These shares vest over a two-year period beginning at the end of the
year in which the award was granted. Each of our other named executive officers had previously received a restricted share award
in 2010, with vesting over a four-year period. The compensation committee believes that granting restricted shares that vest incrementally
over time, but only so long as an executive remains employed by the Company, encourages an executive to increase the Companys
stock value over time so the executive can realize a greater value of those shares once they vest. We also granted performance
shares to all of our executives in March 2010, pursuant to which restricted shares were awarded in March 2011 based on the attainment
of certain performance goals for 2010, and we granted performance shares to all of our executive officers in March 2011, pursuant
to which restricted shares were awarded in March 2012 based on the attainment of certain performance goals for 2011. The time-based
vesting schedule attached to these restricted shares serves the same purpose.
Objective #2
: Enable
us to attract, retain and reward talented, results-oriented managers capable of
leading key areas of the Companys business.
In order to achieve this objective, the compensation committee believes
that we should pay our executives competitive compensation, although other
business needs may affect the ability to achieve that goal in particular
years.
In order to assist the compensation committee in setting compensation
levels, the compensation committee has obtained from time to time from Towers
Watson, its outside consultant, information regarding compensation paid by
certain of the Companys peer companies.
As background, in order to assist the compensation committee in setting
compensation levels for 2009, the compensation committee had first obtained from
Towers Watson in October 2008 a custom survey of compensation paid by the
following companies (our benchmark group) that, at that time, operated in the
integrated communications, wireless telecommunications, communications equipment
and broadcasting and cable television industries and that had annual revenues
ranging from $150 million to $1.3 billion.
156
Alaska Communications Systems
|
Centennial Communications
|
Syniverse Holdings, Inc.
|
Group,
Inc.
|
Corp.
|
|
|
|
|
Ntelos Holdings Corp.
|
D&E Communications, Inc.
|
Mediacom Communications
|
|
|
Corporation
|
|
|
|
Fairpoint Communications, Inc.
|
General Communication, Inc.
|
Shenandoah
|
|
|
Telecommunications
Company
|
|
|
|
Iowa Telecommunications
|
Mediacom Communications
|
Cincinnati Bell Inc.
|
Services,
Inc.
|
Corporation
|
|
|
|
|
Rural Cellular Corporation
|
SureWest Communications
|
PAETEC Holding Corp.
|
|
|
|
tw telecom inc. (f/k/a Time
Warner
|
|
|
Telecom,
Inc.)
|
|
|
The compensation
committee selected these companies because the Company competes with them for
executive talent, and because these companies also compete with the Company in
the capital markets for investors.
In November 2009 and again in November 2010, in order to assess any
changes in the compensation practices among the benchmark group, the
compensation committee directed Towers Watson to refresh its October 2008 study
of the benchmark group
companies
still in existence at the time of the refreshed study.
Based on its proprietary database and broad knowledge of
the telecom industry and overall market dynamics, Towers Watson completed a top
down projection of how the Companys executive compensation programs compared
with the benchmark group.
This information provided guidance for decisions regarding various
elements of the Companys executive compensation program for 2011, including:
-
levels of salary, annual bonus, long-term
incentives and total direct compensation;
-
percentage of total compensation that is cash and
percentage that is equity;
-
percentage of total compensation that is current
and percentage that is long-term;
-
types and features of equity-based compensation
awards;
-
amounts and types of perquisites and other
personal benefits; and
-
components of potential change-in-control
benefits.
The Committee made no changes in these elements for 2011.
In future years, the compensation committee will continue to assess the
benchmark group and update it as appropriate to reflect both the changing market
dynamics and the changes which have occurred within the benchmark group itself.
In general, the Companys compensation structure encourages executives to
remain with the Company by paying annual cash bonuses, which motivates
executives to remain employed through the year, and by granting restricted
shares and performance shares, which grants require a long-term commitment to
the Company since executives must generally remain employees for at least four
years (in the case of restricted shares) or five years (in the case of
performance shares) in order to realize the full value of the shares when they
vest.
157
Objective #3
: Reward
the management team for achieving key financial and operational objectives which
will promote the long-term health of the business.
Our cash incentive bonus plan ties the level of achievement of Company
annual financial and operational performance goals to the amount of annual
incentive compensation that we pay to each of our executives. In addition, the
Company makes annual LTIP awards in the form of performance shares which are
only earned when performance criteria are met. This provides a strong linkage
between the number of restricted shares ultimately awarded and the Companys
achievement of its performance goals. As a result, a significant portion of our
executives total compensation is dependent on the degree to which we achieve
these performance goals. This provides an incentive for our executives to
increase our performance with respect to these measures, and in turn increase
stockholder value.
Processes and Procedures for the
Consideration and Determination of Executive and Director
Compensation
The board of directors approves and establishes the annual operating and
performance goals for the Company, and the compensation committee then
determines the appropriate criteria for linking compensation of the named
executive officers and the non-employee directors to this performance, including
the establishment of:
-
base salary amounts for the Companys executive
officers;
-
annual incentive programs for the Companys
executive officers;
-
long-term equity incentive compensation and all
policies related to the issuance of restricted shares and performance shares
by the Company, including grants of restricted shares to directors;
-
annual performance goals and payouts for the
Company under the bonus plan and the Companys long-term incentive plan;
and
-
amounts of the annual retainers and other fees for
the Companys non-employee directors.
Role of Executive Officers, Management
and Independent Compensation Consultant
The Chairman of
the Board conducts an annual review of the Chief Executive Officers
performance, and reviews it with the Board of Directors. The Chief Executive
Officer prepares a performance review for each of the other executives for each
completed calendar year. Based on his assessment of each individuals
performance during the preceding calendar year, as well as a review of how each
executives compensation compares with the benchmark group companies, the Chief
Executive Officer recommends to the compensation committee, for each such
executive, base salary amounts, restricted share and performance share awards
and annual performance goals under the bonus plan and the long-term incentive
plan.
Please
see the caption Corporate Governance and Board Committees Role of Independent Compensation Consultant on page
147
for an explanation of the role of the compensations outside consultant,
Towers Watson.
Elements of Executive Compensation for
2011
The key elements of the compensation committees executive compensation
program for 2011 were:
-
an annual base salary;
-
cash bonuses directly linked to achievement of the
Companys annual financial and operational performance goals; and
-
(i) an award of time-vesting restricted shares for
our Chief Executive Officer, Mr. Currey; (ii) the continued vesting of
previously awarded time-vesting restricted shares for all named executive
officers; and (iii) a 2011 grant of performance-based restricted shares for
all of our executive officers
158
In addition, the Company provides severance and change-in-control
benefits, as well as a limited number of perquisites and other personal benefits
to all of its executive officers.
The Summary Compensation Table shows the compensation of each of the
named executive officers for 2009, 2010, and 2011.
In general, the compensation committee reviews executive compensation and
executive performance on an annual basis, in the first quarter, following the
completion of the previous performance year. For 2011 performance, the review
took place in February 2012.
Salary
The Company pays all of its executive officers a fixed, annual salary,
which the compensation committee believes provides financial stability for
executives and reflects their level of responsibility with the Company. The
compensation committee also believes that that salary increases should reward an
individuals contributions to the Company and may reflect business conditions.
The compensation committee reviews, and may revise at its discretion,
salaries for executive officers when it feels those changes are warranted. In
its annual review of the salaries of executive officers for 2011, the committee
considered the following principal factors:
-
performance of the executive during the previous
year, including that individuals contribution to the Companys attainment of
its pre-established performance goals;
-
achievement by the Company during the previous
year of its performance goals; and
-
salary levels of comparable positions at companies
in the Companys benchmark group.
For 2011,
despite the fact that the executive officers individual and collective performance was deemed satisfactory, and notwithstanding
the outside compensation consultants report indicating that the total compensation paid to the Companys executives
averaged 15% below the market 50th percentile among the benchmark companies as of December 2009, the compensation committee declined
to make any changes to executive base salaries for 2011. The principal reason for this was the Chief Executive Officers
recommendation that in view of challenging market conditions and the desire to contain costs during the recessionary period, no
increases were warranted. The executive management team concurred, and the compensation committee agreed with this recommendation.
In addition, the compensation committee determined that the grant of new performance-based restricted shares, as described on
page
163
, and the continued vesting of previously-granted time-based restricted
shares would provide a means to aid in retention of the Companys executive team and keep their interests aligned with the
Companys stockholders.
Cash Bonuses
The Company
maintains a cash incentive bonus plan that is designed to reward achievement of
annual Company performance goals. The compensation committee believes that
consistent attainment of these goals is critical to the Companys long-term
success. In 2011, each of the named executive officers was eligible to
participate in the bonus plan, which provided them with the opportunity to earn
a cash bonus payment. The payment was measured as a percentage of the named
executive officers salary and was based on the achievement of criteria
established by the compensation committee.
159
For the named executive officers, other than the Chief Executive Officer,
the compensation committee added for 2011 a video profitability goal and based
its performance targets on the following measures and in the following amounts:
-
40% on the Companys adjusted earnings before
interest, taxes, depreciation and amortization (adjusted EBITDA) for 2011
(target of $181.5 million);
-
20% on dividend payout ratio for 2011 (target of
59.9% or less);
-
15% on broadband subscriber net additions for 2011
(target of 10,400 net additions), which consisted of the number of the
Companys subscribers to its digital subscriber lines (DSL) and Internet
protocol television (IPTV) lines;
-
15% on video profitability target of 10% gross
margin; and
-
10% on a set of eight related other operating
goals which the compensation committee set for the Companys executive team
to meet as a group. These other operating goals contain a mix of qualitative
and quantitative goals which are established by the compensation committee to
guide the management team in achieving the companys operating, strategic and
public policy goals. The goals are the same for all the named executive
officers reporting to the Chief Executive Officer, and the achievement score
is determined by the compensation committee as a part its annual evaluation of
the Chief Executive Officers teams performance. For 2011 these other
operating goals included, among other items, specific goals related to the
Companys planned capital expenditures and network development, quality of
service metrics, advancement of the Companys interests in the regulatory and
public policy arena, management development and succession, fine-tuning of the
Companys capital structure, product-development initiatives and corporate
development/business development.
As described above under the caption Role of Executive Officers,
Management and Independent Compensation Consultant, the Chief Executive Officer
prepares a performance review for each of the other executives for each
completed calendar year. This includes his assessment of each other named
executive officers performance during the preceding calendar year with respect
to the level of attainment of the other operating goals.
For the Chief Executive Officer, the compensation committee used the same
measures and targets as described above for the other named executive officers,
except that the committee did not use the other operating goals measure, some
of which require subjective assessment. Accordingly, the compensation committee
weighted the measures for the Chief Executive Officer as follows:
-
40% on the Companys adjusted earnings before
interest, taxes, depreciation and amortization (adjusted EBITDA) for
2011;
-
20% on dividend payout ratio for 2011;
-
20% on broadband subscriber net additions for
2011; and
-
20% on video gross margin (target of 10%
improvement).
In February 2011, the compensation committee determined these measures
and established a formula to link the results with payout levels. The
compensation committee used these specific performance measures, target levels
and a simple weighting of the measures because it believed that they served to
most effectively promote the Companys primary short-term goals of increasing
earnings, sustaining its dividend, and adding broadband subscribers.
For 2011, the compensation committee
also established the bonus payouts for each executive, as a percentage of 2011
salary level, based on its assessment of appropriate balance and mix between
base salary and short-term bonus in determining the total cash to be paid to
each executive.
160
For 2011, as in prior years, the
bonus payout target for our Chief Executive Officer was 120% of salary, and in
the case of the other named executive officers, 50% of salary. The compensation
committee used these levels because, in 2008 and prior years, achieving the
targeted payouts at those levels resulted in an annual bonus payout such that
each officers total direct compensation would be at roughly the 50th percentile
of the total compensation paid to executives in comparable positions at
companies in the benchmark group. In the case of the Chief Executive Officer,
his higher target payout level reflects the difference in the level of his
responsibilities and accountability for overall Company performance.
The compensation committee also set
a maximum payment equal to 120% of the target amount if the goals were attained
above 105% of the target level and a threshold level such that attainment of 90%
of the target level would have resulted in a payment of 50% of the target amount
and attainment of below 90% of the target level would have resulted in no bonus
payment. Straight line interpolation is used to determine achievement between
threshold and target and between target and maximum.
As previously discussed, the
compensation committee had not made any changes to the target and maximum bonus
payout levels for several years, including 2011, due to its overarching goal of
prudently managing expenses during what was then a continuing period of
considerable economic uncertainty.
For 2011, the Company and the named
executive officers achieved the Company performance targets at the following
levels:
Performance Measure
|
|
Actual
|
|
Target
|
|
% of Target
|
Adjusted EBITDA
|
|
$
|
189.5 million
|
|
|
$
|
181.5 million
|
|
|
104.4
|
%
|
Dividend Payout Ratio
|
|
|
51.0
|
%
|
|
|
59.9
|
%
|
|
114.9
|
%
|
Broadband Subscriber Net
Adds
|
|
|
9,641
|
|
|
|
10,400
|
|
|
92.7
|
%
|
Video Profitability
|
|
|
7.5
|
%
|
|
|
10
|
%
|
|
75
|
%
|
Other Operating
Goals
|
|
|
87.5
|
%
|
|
|
100.0
|
%
|
|
87.5
|
%
|
In the compensation committees
review of 2011 performance, the compensation committee first determined the
amounts earned by the executives by computing the weighted average of the actual
achievement of the performance targets at the levels described above. For the
Chief Executive Officer, this weighted average was 98.3% of target, and for the
other named executive officers (NEOs), this weighted average was 98.6% of
target. This weighted averages consisted of the following components, reflecting
the weighting of the performance measures described above and the actual level
of achievement of those measures:
|
|
CEOs
|
|
Other NEOs
|
|
|
Component
|
|
Component
|
Performance
Measure
|
|
Percentage
|
|
Percentage
|
Adjusted EBITDA
|
|
41.8
|
%
|
|
41.8
|
%
|
Dividend Payout
Ratio
|
|
23.0
|
%
|
|
23.0
|
%
|
Broadband Subscriber Net Adds
|
|
18.5
|
%
|
|
13.9
|
%
|
Video Gross Margin
|
|
15.0
|
%
|
|
11.2
|
%
|
Other Operating Goals
|
|
N/A
|
|
8.7
|
%
|
Weighted
Average
|
|
|
98.3
|
%
|
|
98.6
|
%
|
161
At the outset of 2011, the
compensation committee determined the following payout table would be used to
convert the weighted average component percentages to a bonus payout:
Performance
|
|
Payout (as a % of Target)
|
< 90%
|
|
0%
|
90% - 94.9%
|
|
50%
|
95% - 97.9%
|
|
75%
|
98% - 101.9%
|
|
Weighted Achievement Score
|
102% - 104.9%
|
|
110%
|
> 105%
|
|
120%
|
The resulting bonuses, all of which
were paid in March 2012, represented the following percentages of each named
executive officers respective 2011 annual salary level:
|
|
2011 Bonus Payout as a Percentage of 2011
Salary
|
|
|
Actual
Percentage of
|
|
Target
Opportunity, as
|
Name
|
|
Salary Paid
|
|
a Percentage of Salary
|
Robert J. Currey
|
|
117.6
|
%
|
|
120.0
|
%
|
C. Robert Udell, Jr.
|
|
49.0
|
%
|
|
50.0
|
%
|
Steven J. Shirar
|
|
49.0
|
%
|
|
50.0
|
%
|
Steven L. Childers
|
|
49.0
|
%
|
|
50.0
|
%
|
Christopher A.
Young
|
|
39.2
|
%
|
|
40.0
|
%
|
The Non-Equity Incentive Plan
Compensation column of the Summary Compensation Table shows the cash bonus the
compensation committee awarded to each of the named executive officers for 2011
pursuant to this bonus plan.
The compensation committee believes
that the level of the cash bonus opportunities and the cash bonuses actually
paid for 2011 to the named executive officers helped serve the compensation
committees executive compensation program objectives to:
-
retain and reward its named executive officers by providing them with a
cash bonus opportunity at a level competitive with the Companys benchmark
group; and
-
reward the named executive officers for operational and financial
performance.
Long-Term, Equity-Based
Incentives
The Company maintains the
stockholder-approved LTIP that provides for grants of stock options, stock,
stock units and stock appreciation rights and for the adoption of one or more
cash incentive programs. Our non-employee directors and certain employees,
including each of the named executive officers, are eligible for grants under
the LTIP. The principal purposes of the LTIP are to:
-
provide these individuals with incentives to maximize stockholder return
and otherwise contribute to our success; and
-
enable us to attract, retain and reward the best available individuals for
positions of responsibility.
Our compensation committee
administers the LTIP and determines if, when, and in what amount awards should
be granted.
162
In February 2007 the compensation
committee adopted the Executive Long-Term Incentive Program (the program),
which provides a methodology for determining the equity compensation to be
granted each year under the LTIP. Under the program, each year the compensation
committee determines for each executive eligible to participate, including each
named executive officer, and by comparable job position, the economic value of
target annualized long-term incentive compensation at the 50th percentile of the
benchmark group. The Company pays 50% of this annualized target to the
executives in the form of performance shares. If in any year the compensation
committee decides to make restricted share grants, the awards will be based on
50% of this annualized target value.
Performance Shares
In March 2011, the compensation
committee established a target value of long-term incentive compensation and
made performance share awards equal to 50% of this target value. The
compensation committee also approved Company performance goals and minimum,
target and maximum payouts. The goals and pay out levels were the same as those
approved for the cash incentive bonus plan.
The 2011 performance share target
award levels were determined by taking half of the annual target LTIP grant
value for each of the named executive officers, and converting that value to a
number of shares based on the 20-day average closing price for our stock as of
two trading days before the award date (discounted 10% to reflect the challenge
associated with attaining the performance goals).
The performance share awards
entitled the executives to receive awards of restricted shares in 2012 depending
on the level of attainment of the performance goals. Attainment of the goals at
the target levels would result in the target number of performance shares
awarded as restricted shares, and attainment of the goals at above or below the
target levels would result in an increased or decreased number of restricted
shares awarded, using the same formulas as those with respect to annual cash
bonuses.
In March 2012, the compensation
committee approved awards of restricted shares based on 2011 performance, as
follows:
|
|
2011
Performance
|
|
March 2012
Restricted
|
Named Executive Officer
|
|
Share Target
|
|
Shares Earned/Awarded
|
Robert J. Currey
|
|
20,494
|
|
20,084
|
C. Robert Udell
|
|
6,704
|
|
6,570
|
Steven J. Shirar
|
|
6,704
|
|
6,570
|
Steven L. Childers
|
|
6,704
|
|
6,570
|
Christopher A.
Young
|
|
4,970
|
|
4,871
|
Under the terms of the performance
share awards, the number of restricted shares granted in March 2012 were to be
determined, for our Chief Executive Officer, as 98% of the 2011 performance
share target based on the achievement level of 98.3% of the target performance
goals, and for the other named executive officers, as 98% of the 2011
performance share target based on an achievement level of 98.6% of the target
performance goals, in each case as previously described in the Cash Bonus
section above. The restricted shares also vest at a rate equal to 25% per year
on each December 5th following the date of grant, except for our Chief Executive
Officer, which vest 100% on the first December 5th following the date of
grant.
Restricted Stock
All the named executive officers,
except Mr. Currey, received a time-based restricted stock award in 2010. The
awards to the named executive officers other than Mr. Currey vested at a rate
equal to 25% per year on December 5
th
following the date of the grant, with the last shares vesting
on December 5, 2013, and were made for an amount equal to 50% of the annual
target value of long-term incentive compensation, multiplied by three.
Accordingly, no time-based restricted stock awards were granted to these named
executive officers in 2011.
163
Because the 2009 grant to Mr. Currey
covered a two-year period (2009-2010), the compensation committee in 2011
approved an award to him of 37,262 shares of restricted stock. The award covered
a two-year period (2011-2012) and was made for an amount equal to 50% of the
annual target value multiplied by two. The 2011 grant to Mr. Currey vested at a
rate equal to 50% on each December 5
th
following the date of grant, with the
last shares vesting on December 5, 2012.
The compensation committee believes
that the long-term, equity-based incentives it awarded to its named executive
officers in 2011 helped meet its objectives to:
-
retain and reward its named executive officers by providing them with
long-term, equity-based compensation at a level competitive with the Companys
benchmark group; and
-
reward the named executive officers for achieving key financial and
operational objectives, which were attained, for our Chief Executive Officer,
at a 98.3% level in 2011, and for our other named executive officers, at a
98.6% level in 2011.
All Other
Compensation
As part of our executive
compensation program, we provide certain of our executives with the following
other benefits:
-
personal use of a Company automobile;
-
living expenses if the executives responsibilities require repeated and
extended stays away from home;
-
expenses paid for business related meals and travel for spouses;
-
tax reimbursement for Company automobile and business related travel;
and
-
Company matching contributions to its 401(k) plan.
The All Other Compensation column
of the Summary Compensation Table on page
166
shows the aggregate amounts of
such compensation paid for 2010 to each of the named executive officers.
The compensation committee reviewed
the amounts and types of perquisites and other benefits the Company provides to
its executive officers as part of its initial benchmark group survey in the
fourth quarter of 2006 and expects to revisit it periodically to determine if
adjustments are appropriate.
Separation Agreement with Mr.
Dively
Effective as of May 8, 2011, Joseph
Dively resigned as Senior Vice President of the Company in order to accept the
positions of Senior Executive Vice President of First Mid-Illinois Bancshares,
Inc. and President of its subsidiary, First Mid-Illinois Bank & Trust, N.A.
In connection with Mr. Divelys resignation, on May 3, 2011, the Company entered
into a Separation Agreement with Mr. Dively. The Separation Agreement provides:
(i) a lump sum payment of $170,769.00, which represents an amount equal to 40
weeks of Mr. Divelys then-current base salary; (ii) continued vesting in the
portion of Mr. Divelys outstanding restricted stock awards granted to him under
the Companys 2005 Long-Term Incentive Plan that were to vest on December 5,
2011 and that all other outstanding awards or portions thereof shall be
forfeited as of the separation date; and (iii) that for two years following the
separation date, Mr. Dively is prohibited from competing with the Company and
from soliciting any customer, representative, agent or employee of the Company
to terminate such persons relationship with the Company or to violate the terms
of any agreement between such customer, representative, agent or employee and
the Company.
164
Employment Security
Agreements
On February 20, 2007 the Company
adopted Employment Security Agreements (ESAs) with each of its named executive
officers, as well as certain other executives. The ESAs were further amended in
December 2009 as a result of the Companys outside compensation consultants
evaluation of the ESAs compared to general market and peer company best
practices. Please see the caption Potential Payments upon Termination or Change
in Control of the Company Employment Security Agreements below for an
explanation of the terms of the ESAs.
The Company believes that the
protections afforded by the agreements are a valuable incentive for attracting
and retaining top managers. It believes that the agreements are particularly
important because the Company does not have employment agreements or long-term
arrangements with its executives. The Company also believes that, in the event
of an extraordinary corporate transaction, the agreements could prove crucial to
the Companys ability to retain top management through the transaction process.
Deductibility of
Compensation
Section 162(m) of the Internal
Revenue Code limits the deductibility of executive compensation paid to the
chief executive officer and to each of the three other most highly compensated
officers of a public company (other than the chief financial officer) to $1
million per year. However, compensation that is considered qualified
performance-based compensation generally does not count toward the $1 million
deduction limit. Section 162(m) contains a transition rule that delays the
application of its deductibility limits to compensation paid by a company that
becomes public pursuant to an initial public offering. The Company relied upon
this transition rule with respect to its compensation arrangements until the
2009 annual meeting of stockholders. At the 2009 annual meeting of stockholders,
the Company obtained stockholder approval of the LTIP to assure future
deductibility of its performance-based compensation.
The Company annually reviews the
compensation paid to its Chief Executive Officer and each of the three other
most highly compensated officers other than the Chief Financial Officer to
determine the deductibility of compensation under Section 162(m). Base salary,
by its nature, does not qualify as performance-based under Section 162(m). The
Companys grant of performance-based restricted stock and annual cash bonus
payments under the LTIP to the Chief Executive Officer after the 2009 annual
meeting would qualify as performance-based compensation, and the annual cash
bonus payments under the LTIP to the other officers were in amounts that are not
expected to raise deductibility issues under Section 162(m). The values realized
on vesting of
time-based restricted stock awards to all named executive officers were
also in amounts not expected to raise deductibility issues under Section 162(m).
For 2011, the Company believes all
compensation paid to its executives is fully deductible by the Company without
regard to Code Section 162(m).
Changes for 2012
In connection with Mr. Udells
appointment to the additional position of Chief Operating Officer, the
compensation committee determined to increase his annual base salary from
$222,000 to $250,000; and to increase his annual cash bonus target from 50% of
his base salary to 60% of his base salary. These changes were effective at
January 1, 2012. The compensation committee also determined to make a change in
his annual Performance Share Grant target value from $110,500 to $150,000. This
change was made effective on March 5, 2012.
165
EXECUTIVE COMPENSATION
2011 Summary Compensation
Table
The following table lists
information regarding the compensation for the years ended December 31, 2011,
2010 and 2009, of our Chief Executive Officer, Chief Financial Officer and each
of the other executive officers named in this section, to whom we refer to,
collectively, as the named executive officers.
Name and
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
Stock
|
|
Incentive
Plan
|
|
All
Other
|
|
|
|
Position
|
|
|
Year
|
|
Salary($)
|
|
Awards($)(1)
|
|
Compensation($)
|
|
Compensation($)
|
|
Total($)
|
Robert J. Currey,
|
|
2011
|
|
$
|
370,000
|
|
$
|
1,034,988
|
|
$
|
435,120
|
|
$
|
15,756
|
|
|
$
|
1,855,864
|
President and
|
|
2010
|
|
$
|
370,000
|
|
$
|
401,217
|
|
$
|
333,000
|
|
$
|
16,353
|
(2)
|
|
$
|
1,120,570
|
Chief
Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
2009
|
|
$
|
370,000
|
|
$
|
988,712
|
|
$
|
448,884
|
|
$
|
17,673
|
|
|
$
|
1,825,269
|
|
C. Robert Udell,
|
|
2011
|
|
$
|
222,000
|
|
$
|
120,136
|
|
$
|
108,780
|
|
$
|
18,112
|
|
|
$
|
469,028
|
Jr.,
Senior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice
President
|
|
2010
|
|
$
|
222,000
|
|
$
|
489,227
|
|
$
|
83,250
|
|
$
|
11,140
|
(3)
|
|
$
|
805,617
|
|
|
2009
|
|
$
|
222,000
|
|
$
|
85,649
|
|
$
|
112,221
|
|
$
|
14,327
|
|
|
$
|
434,197
|
|
Steven J. Shirar,
|
|
2011
|
|
$
|
222,000
|
|
$
|
120,136
|
|
$
|
108,780
|
|
$
|
32,520
|
|
|
$
|
484,436
|
Senior Vice
|
|
2010
|
|
$
|
222,000
|
|
$
|
489,227
|
|
$
|
83,250
|
|
$
|
36,894
|
(4)
|
|
$
|
831,371
|
President
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secretary
|
|
2009
|
|
$
|
222,000
|
|
$
|
85,649
|
|
$
|
112,221
|
|
$
|
36,207
|
|
|
$
|
456,077
|
|
Steven L.
Childers,
|
|
2011
|
|
$
|
222,000
|
|
$
|
120,136
|
|
$
|
108,780
|
|
$
|
14,700
|
|
|
$
|
465,616
|
Senior Vice
|
|
2010
|
|
$
|
222,000
|
|
$
|
489,227
|
|
$
|
83,250
|
|
$
|
12,903
|
(5)
|
|
$
|
807,380
|
President
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Financial
|
|
2009
|
|
$
|
222,000
|
|
$
|
85,649
|
|
$
|
112,221
|
|
$
|
13,620
|
|
|
$
|
433,490
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher A.
|
|
2011
|
|
$
|
196,000
|
|
$
|
89,062
|
|
$
|
76,832
|
|
$
|
15,300
|
(6)
|
|
$
|
377,194
|
Young,
Chief
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph R.
Dively,
|
|
2011
|
|
$
|
111,262
|
|
$
|
120,136
|
|
$
|
0
|
|
$
|
188,600
|
|
|
$
|
419,999
|
Senior
Vice
|
|
2010
|
|
$
|
222,000
|
|
$
|
489,227
|
|
$
|
83,250
|
|
$
|
19,206
|
|
|
$
|
813,683
|
President(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
222,000
|
|
$
|
85,649
|
|
$
|
112,221
|
|
$
|
18,349
|
|
|
$
|
438,409
|
____________________
1.
|
|
Stock Awards.
The amounts in this column represent the
aggregate
grant date fair
value, computed in accordance with Financial Accounting Standards Board
Statement Accounting Standards Codification Topic 718, of the restricted
stock granted in 2011, 2010 and 2009 and the target number of performance
shares
granted
in 2011, 2010 and 2009. The grant date value of the
performance shares in 2011, assuming the performance conditions were met
at the maximum level was, for Mr. Currey, $440,707 ; was for Mr. Udell,
Mr. Childers, Mr. Shirar, and Mr. Dively $144,166; and was for Mr. Young
$106,875. See the discussion below under the caption Stock Awards. Also,
see Footnote 17 to the Consolidated Financial Statements contained in the
Companys Annual Report on Form 10-K for the years ended December 31,
2011; December 31, 2010; and December 31, 2009 for an explanation of the
assumptions made by the Company in the valuation of these
awards.
|
|
2.
|
|
All Other Compensation
Robert J. Currey
. This column includes
$14,700 of matching contributions made in 2011 under the Companys 401(k)
Plan on behalf of Mr. Currey. Mr. Currey is also provided with personal
use of a Company automobile (
$777
) and a tax gross-up reimbursement
in connection with payment for his personal use of a Company automobile
(
$279
).
|
|
3.
|
|
All Other Compensation C.
Robert Udell
. This column includes
$14,643
of matching contributions made in 2011 under the Companys
401(k) Plan on behalf of Mr. Udell. Mr. Udell is also provided with
personal use of a Company automobile (
$2,551
) and a tax gross-up
reimbursement in connection with payment for his personal use of a Company
automobile (
$917
).
|
166
4.
|
|
All Other Compensation
Steven J. Shirar
. This column includes
$14,700 of matching contributions made in 2011 under the Companys 401(k)
Plan on behalf of Mr. Shirar. The Company also provides Mr. Shirar with
living expenses while working at its Mattoon headquarters location
($6,000), with personal use of a Company automobile ($5,065.19) and a tax
gross-up reimbursement in connection with payment for his Mattoon living
expenses and his personal use of a Company automobile
(
$6,756
).
|
|
5.
|
|
All Other Compensation
Steven L. Childers
. This column
includes $14,700 of matching contributions made in 2011 under the
Companys 401(k) Plan.
|
|
6.
|
|
All Other Compensation
Christopher A. Young
. This
column includes $14,700.00 of matching contributions made in 2011 under
the Companys 401(k) Plan. Mr. Young is provided $600.00 for cell phone
allowance.
|
|
7.
|
|
All Other Compensation
Joseph R, Dively
. This column
represents $170,769 of severance, $11,671 of matching contributions made
in 2011 under the Companys 401(k) plan, $4222 for personal use of a
Company automobile, and a $1937 tax gross-up reimbursement in connection
with payment for his personal use of a Company automobile. Mr. Dively
served as Senior Vice President until May 8, 2011, when he resigned from
the position and entered into a Separation Agreement. For a description of
this agreement, see 2011 Summary Compensation Table Separation
Agreement with Mr. Dively.
|
Salary.
The Salary column of the Summary Compensation Table shows
the salaries paid in 2011, 2010 and 2009 to each of the named executive
officers, except for Mr. Young,
who
was not a named executive officer in 2010
or 2009. Annual salary increases are effective approximately as of March 1st of
each year, although no salaries were increased for 2011. The salary rates in
effect as of March 1, 2011 were:
Robert J. Currey
|
$
|
370,000
|
C. Robert Udell, Jr.
|
$
|
222,000
|
Steven J. Shirar
|
$
|
222,000
|
Steven L. Childers
|
$
|
222,000
|
Christopher A.
Young
|
$
|
196,000
|
Joseph A. Dively
|
$
|
222,000
|
Stock Awards.
In March 2011, the Company granted restricted stock to Mr.
Currey and performance shares to all named executive officers pursuant to the
LTIP. Please see the caption Long-Term, Equity-Based Incentives of the
Compensation Discussion and Analysis on page
162
for an explanation of these
stock awards.
Non-Equity Incentive
Compensation.
The Non-Equity Incentive Plan
Compensation column of the Summary Compensation Table shows the cash bonus the
Company awarded to each of the named executive officers for 2011, 2010 and 2009
pursuant to the Companys bonus plan. For more information, please refer to the
Compensation Discussion and Analysis section of this proxy statement on page
156.
The Company paid all of these amounts in March 2012, March 2011 and March
2010, respectively.
Separation Agreement with Mr.
Dively
. Effective as of May 8, 2011, Mr.
Dively resigned from the Company in order to accept the positions of Senior
Executive Vice President of First Mid-Illinois Bancshares, Inc. and President of
its subsidiary, First Mid-Illinois Bank & Trust, N.A. In connection with Mr.
Divelys resignation, on May 3, 2011, the Company entered into a Separation
Agreement with Mr. Dively. The Separation Agreement provides: (i) a lump sum
payment of
$170,769
, which represents an amount equal to 40 weeks of Mr.
Divelys then-current base salary; (ii) continued vesting in the portion of Mr.
Divelys outstanding restricted stock awards granted to him under the Companys
2005 Long-Term Incentive Plan that were to vest on December 5, 2011 and that all
other outstanding awards or portions thereof shall be forfeited as of the
separation date; and (iii) that for two years following the separation date, Mr.
Dively is prohibited from competing with the Company and from soliciting any
customer, representative, agent or employee of the Company to terminate such
persons relationship with the Company or to violate the terms of any agreement
between such customer, representative, agent or employee and the Company.
167
2011 Grants of Plan-Based
Awards
This table sets forth information
for each named executive officer with respect to (1) estimated possible payouts
under non-equity incentive plan awards and (2) equity incentive plan awards that
could have been earned for 2011.
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Grant Date
|
|
|
|
|
|
|
Estimated Possible
Payouts
|
|
Number of
|
|
Fair Value
|
|
|
|
|
Estimated Possible Payouts
Under
|
|
Under Equity Incentive
Plan
|
|
Shares of
|
|
of Stock and
|
|
|
Grant
|
|
Non-Equity
Incentive Plan Awards(1)
|
|
Awards(2)
|
|
Stock or
|
|
Option
|
Name
|
|
Date
|
|
Threshold($)
|
|
Target($)
|
|
Maximum($)
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Units(3)
|
|
Awards(4)
|
Robert J. Currey
|
|
|
|
$
|
222,000
|
|
$
|
444,000
|
|
$
|
532,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,247
|
|
20,494
|
|
24,593
|
|
|
|
|
|
|
|
3/8/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,262
|
|
$
|
1,034,988
|
C. Robert Udell, Jr.
|
|
|
|
$
|
55,500
|
|
$
|
111,000
|
|
$
|
133,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,352
|
|
6,704
|
|
8,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
120,136
|
Steven J. Shirar
|
|
|
|
$
|
55,500
|
|
$
|
111,000
|
|
$
|
133,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,352
|
|
6,704
|
|
8,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven L. Childers
|
|
|
|
$
|
55,500
|
|
$
|
111,000
|
|
$
|
133,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,352
|
|
6,704
|
|
8,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
120,136
|
Christopher A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Young
|
|
|
|
$
|
55,500
|
|
$
|
111,000
|
|
$
|
133,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,485
|
|
4,970
|
|
5,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
89,062
|
Joseph A. Dively
|
|
|
|
|
55,500
|
|
$
|
111,000
|
|
$
|
133,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,352
|
|
6,704
|
|
8,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
120,136
|
____________________
1.
|
|
Estimated Possible Payouts
Under Non-Equity Incentive Plan Awards.
Payouts under the bonus plan were based on performance in 2011,
which has now occurred. The performance targets were set in February 2011,
as described in the Compensation Discussion and Analysis section under the
caption Annual Incentive Compensation. The amounts actually paid under
the bonus plan for 2011 appear in the Non-Equity Incentive Plan
Compensation column of the Summary Compensation Table. Pursuant to the
bonus plan for 2011, the compensation committee established a performance
award formula which linked the payouts to the weighted average achievement
across the four goal areas it had established. Target payout was to be
made if the performance goals were attained at target level, and the
payout was to be capped at a maximum payment of 120% of the target level
if the goals were attained at or above the 105% level and payout was to be
zero if the performance goals were attained below the 90% level (payout at
the 90% level of attainment resulted in a payment of 50% of the target
payout level). The compensation committee had discretion to determine
payouts for achievement between threshold and target, and target and
maximum.
|
|
2.
|
|
Estimated Possible Payouts
Under Equity Incentive Plan Awards.
These columns show the threshold, target and maximum number of
shares of restricted stock that could have been awarded in 2012 pursuant
to performance shares previously granted in March 2011. These awards of
restricted stock were based on performance in 2011, which has now
occurred. Pursuant to the LTIP for 2011, the compensation committee
granted performance shares to executives, which reflected the target
number of shares of restricted stock to be granted in 2012 if target
performance goals set by the compensation committee for 2011 were met. The
target award was subject to adjustment based on the weighted average level
of attainment of the performance goals, subject to a maximum award of 120%
of the target number of shares if the goals were attained at a
|
168
|
|
105% level
and a minimum of zero shares if the goals were attained below an 90% level
(attainment of goals at the 90% level resulted in an award of 50% of the
target number of shares). The LTIP is described in the Compensation
Discussion and Analysis section under the caption Long-Term, Equity Based
Incentives.
|
|
3.
|
|
All Other Stock Awards: Number
of Shares of Stock or Units
.
This column shows the number of
time-based
restricted shares awarded to the named executive officers in 2011, which consisted of 37,262 shares for Mr. Currey. Not included in this column were grants of time-based restricted shares made on March 8, 2011 to named executives pursuant to 2010 performance share awards based on 2010 performance, which were reported in this table in the Company’s 2011 Proxy Statement. These grants consisted of 16,134 restricted shares based on 2010 performance for Mr. Currey and 5,278 for each of the other named executive officers, with the exception of Mr. Young who received 3,912 restricted shares.
|
|
4.
|
|
Grant Date Fair Value of Stock and Option
Awards
. This column shows the grant date fair value, computed in
accordance with Financial Accounting Standards Board Statement Accounting Standards Codification Topic 718, of
the restricted stock award made to Mr. Currey
and the target number of
performance shares for 2011
to the named executive officers.
Does not
include the adjustment in grant date fair value made upon the March 8, 2011 grant of time-based restricted shares pursuant
to 2010 performance share awards based on 2010 performance, which consisted of
a $100,818
reduction
for Mr. Currey and
a $32,824 reduction
for the other named executive
officers.
See Footnote 17 to the Consolidated Financial Statements contained in the Companys
Annual Report on Form 10-K for the year ended December 31, 2011 for an explanation of the assumptions made by the
Company in the valuation of these awards.
|
Outstanding Equity Awards at 2011
Fiscal Year-End
This table sets forth information for each
named executive officer with respect to each award of restricted shares that had
been made at any time, had not vested, and remained outstanding at December 31,
2011.
|
|
Stock Awards
|
Name
|
|
Number of Shares or
Units of Stock That
Have Not Vested
(#)(1)
|
|
Market Value of Shares
or Units
of Stock That
Have Not Vested ($)(2)
|
Robert J. Currey
|
|
18,631
|
|
$
|
354,921
|
C. Robert Udell, Jr.
|
|
19,817
|
|
$
|
377,514
|
Steven J. Shirar
|
|
19,817
|
|
$
|
377,514
|
Steven L. Childers
|
|
19,817
|
|
$
|
377,514
|
Christopher A.
Young
|
|
14,792
|
|
$
|
281,788
|
Joseph A. Dively
|
|
0
|
|
$
|
0
|
____________________
1.
|
|
Number Of Shares Or Units Of
Stock That Have Not Vested.
The Company
granted Mr. Currey, 37,262 restricted shares in March 2011, 50% of which
award vested on December 5, 2011. For each of the other named executive
officers, the unvested shares represent a mix of time-based restricted
shares from the grant made in March 2010; and unvested performance-based
shares from grants made in March 2009; March 2010; and March 2011.
Market Value Of Shares Or Units Of Stock
That Have Not Vested
. Represents the
number of shares of common stock covered by the restricted shares valued
using $19.05 (the closing market price of the Companys common stock as
reported in
The Wall Street Journal
for December 30, 2011, which was the
last trading day of fiscal year 2011).
|
169
2011 Option Exercises and Stock
Vested
This table sets forth information
concerning the number of restricted shares that vested during 2011 and the value
of those vested shares. The Company has not granted options.
|
|
Stock Awards
|
|
|
Number of
Shares
|
|
|
|
|
|
Acquired
On
|
|
Value
Realized
|
Name
|
|
Vesting (#)
|
|
On Vesting ($)(1)
|
Robert J. Currey
|
|
34,765
|
|
$
|
647,324
|
C. Robert Udell, Jr.
|
|
11,292
|
|
$
|
210,257
|
Steven J. Shirar
|
|
11,292
|
|
$
|
210,257
|
Steven L. Childers
|
|
11,292
|
|
$
|
210,257
|
Christopher A.
Young
|
|
8,454
|
|
$
|
157,413
|
Joseph A. Dively
|
|
11,292
|
|
$
|
210,257
|
____________________
1.
|
|
Value Realized on Vesting.
Represents the number of shares of
common stock covered by the restricted shares acquired on vesting of such
restricted shares on December 5, 2011, as shown in the Number of Shares
Acquired on Vesting column valued using the closing market price of the
common stock as reported in
The Wall
Street Journal
for the date of vesting
of the restricted shares ($18.62).
|
POTENTIAL PAYMENTS UPON TERMINATION
OR CHANGE IN CONTROL OF THE COMPANY
Pursuant to its Employment Security Agreements and the LTIP, the Company provides eligible employees, including the named executive officers (other than Mr. Dively), with certain benefits upon a change in control of the Company or upon certain types of termination of employment following a change in control of the Company. These benefits are in addition to those benefits to which employees would be entitled upon a termination of employment generally (i.e., vested retirement benefits accrued as of the date of termination, stock awards that are vested as of the date of termination, and the right to elect continued health benefits pursuant to COBRA). Those incremental benefits as they pertain to the named executive officers (other than Mr. Dively) are described below:
Employment Security Agreements
The Company has Employment Security
Agreements with the named executive officers (other than Mr. Dively) and certain
other executives, which provide benefits upon the occurrence of certain
terminations of employment following a change in control of the Company. The
Agreements with named executive officers (other than Mr. Dively) provide for
benefits upon the following types of employment termination:
-
an involuntary termination of the executives employment by the Company
without cause that occurs within 24 months after a change in control of the
Company; or
-
a voluntary termination of employment by the executive for good reason
that occurs within 24 months after a change in control of the Company.
The benefits provided upon such a
termination of employment include the following:
-
A lump sum cash payment, payable within 30 days of the termination of
employment, equal to two times (three times in the case of the Chief Executive
Officer) the sum of (i) the executives annual base salary rate, determined as
of the date of the change in control or, if higher, the date of employment
termination. and (ii) the annual target amounts payable to the executive under
all cash-based incentive plans of the Company for the year in which the change
in control occurs, or if higher, the date of employment termination.
170
-
A pro rata portion of the amounts that would have been paid to the
executive under the Companys cash-based incentive plans for the year in which
the termination of employment occurs (determined at the target levels), if
such amounts would not otherwise be paid to the executive.
-
Continuation of coverage under all welfare plans of the Company during the
two-year severance period (three years for the Chief Executive Officer), or if
earlier, until the executive is eligible for coverage under similar plans from
a new employer. Such coverage will be on the same basis and at same cost as in
effect prior to the change in control, or anytime after, if more favorable to
the executive. If such coverage is not available under the plan, the Company
shall provide substantially similar benefits. The COBRA period for benefit
continuation begins after the end of the initial continuation period described
above.
-
Reimbursement of out-of-pocket expenses, including attorneys fees,
incurred by the executive in connection with the successful enforcement of any
provision of the Agreement.
The
Agreements will reduce the benefits described above to the extent necessary to avoid the
payment of any excess parachute payments under
Section 280G of the Internal Revenue Code
and
the imposition of any excise tax pursuant to Section 4999 of the Internal Revenue Code.
The Agreements contain restrictive
covenants that prohibit the executive from (i) associating with a business that
is competitive with any line of business of the Company for which the executive
provided substantial services, in any geographic area in which such line of
business was active at the time of the executives termination, without the
Companys consent and (ii) soliciting the Companys customers, agents or
employees. These restrictive covenants remain in effect during the 12-month
period following termination of employment.
For purposes of the Agreements:
(a) change in control means (i) the
acquisition, by a person other than an affiliate of Richard A. Lumpkin, of a
majority of the voting power of the Companys outstanding securities; (ii)
during any period of two consecutive years or less, the incumbent directors
cease to constitute a majority of the board, unless any new directions election
or nomination was approved by at least 2/3 of the incumbent directors; (iii) a
reorganization, merger, consolidation or share exchange resulting in the
conversion or exchange of the Companys common stock into securities of another
company, or any dissolution or liquidation, or a sale of 50% or more of all the
Companys assets; or (iv) a merger, consolidation, reorganization or share
exchange, unless following such transaction at least a majority of the voting
power of the outstanding securities of the surviving entity is owned, in the
same proportion, by substantially the persons who owned the Companys
outstanding voting securities immediately prior to the transaction.
(b) cause means the executives (i)
conviction or admission of guilt with respect to any felony, fraud,
misappropriate or embezzlement, (ii) malfeasance or gross negligence in the
performance of his duties that is materially detrimental to the Company, or
(iii) breach of any Company code of conduct, if the consequence would be
termination of employment. In each case, the Company must give the executive
written notice of the existence of cause, and if the act is capable of being
cured, 30 days in which to cure.
(c) good reason means (i) a
reduction in the executives base salary and/or bonus opportunity without his
consent, (ii) a reduction in the scope or importance of the executives duties
and responsibilities without his consent, or (iii) a transfer of the executives
primary worksite of more than 30 miles (unless the new worksite is closer to the
executives residence). In each case, the executive must give written notice
within 90 days and the Company has 30 days in which to cure the action
constituting good reason.
Amended and Restated Consolidated
Communications Holdings, Inc. 2005 Long-Term Incentive Plan
The LTIP provides that if there is a
change in control of the Company, and there is no assumption of outstanding
awards by the successor entity, or conversion of outstanding awards into
comparable equity awards of the successor entity, then as of the effective date
of the change in control all stock options and stock appreciation rights will
vest and all restrictions on all outstanding stock awards and stock unit awards
will lapse, and if any restrictions relate
171
to satisfying performance goals, the
performance goals will be deemed satisfied at target levels (unless the target
level was exceeded for any performance goal before the effective date of the
change in control, in which case the restrictions will lapse based on actual
attainment of the performance goal). The LTIP also provides that if in
connection with the change in control the LTIP awards are assumed or converted
by the successor entity as described above, and within 24 months following the
effective date of the change in control the participants employment is
terminated without cause or the participant terminates employment for good
reason, or a participant who is a director is asked to resign for other than
cause, all stock options and stock appreciation rights will vest and all
restrictions on all outstanding stock awards and stock unit awards will lapse,
and if any restrictions relate to satisfying performance goals, the performance
goals will be deemed satisfied at target levels (unless the target level was
exceeded for any performance goal before the date of termination of employment
or service, in which case the restrictions will lapse based on actual attainment
of the performance goal).
The LTIP uses the same definitions
of change in control, cause and good reason as set forth in the Employment
Security Agreements.
The tables set forth below quantify
the additional benefits as described above that would be payable to each named
executive officer (other than Mr. Dively) under the arrangements described
above.
Termination of Employment Following a
Change in Control
The
additional amounts set forth in this table would be payable pursuant to the Employment Security Agreements, assuming a
change in control of the Company and that the named executive officer (other than Mr. Dively) became eligible for benefits
following a termination of employment on December 31, 2011. The Employment Security Agreements will reduce the benefits
described below to the extent necessary to avoid
the payment of any excess parachute
payments under
Section 280G of the Internal Revenue Code
and the imposition of any excise tax pursuant to Section 4999 of the Internal Revenue Code.
|
|
Robert
J.
|
|
C.
Robert
|
|
Steven
J.
|
|
Christopher
A.
|
|
Steven
L.
|
Name
|
|
Currey
|
|
Udell, Jr.
|
|
Shirar
|
|
Young
|
|
Childers
|
Base Salary(1)
|
|
$
|
1,110,000
|
|
$
|
444,000
|
|
$
|
444,000
|
|
$
|
392,000
|
|
$
|
444,000
|
Bonus(1)
|
|
$
|
1,332,000
|
|
$
|
222,000
|
|
$
|
222,000
|
|
$
|
156,800
|
|
$
|
222,000
|
Welfare Benefits for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
Period(2)
|
|
$
|
19,322
|
|
$
|
18,979
|
|
$
|
24,054
|
|
$
|
16,325
|
|
$
|
16,325
|
____________________
1.
|
|
Base Salary and Bonus.
These amounts represent, in the case of
Mr. Currey, three times base salary and target bonus, and in the case of
all other named executive officers (other than Mr. Dively), two times base
salary and target bonus.
|
|
2.
|
|
Welfare Benefits for Severance
Period.
Amounts in this row consist of
projected Company premiums for health (including medical, dental, vision),
life, AD&D and disability policies, reduced by the amount of projected
employee premiums during the severance period for each named executive
officer (other than Mr. Dively).
|
Benefits Upon Change in
Control
The additional amounts set forth in
this table would be realized by each named executive officer (other than Mr.
Dively) under the LTIP, assuming a change of control of the Company occurred on
December 31, 2011.
|
|
Robert
J.
|
|
C.
Robert
|
|
Steven
J.
|
|
Christopher
A.
|
|
Steven
L.
|
Name
|
|
Currey
|
|
Udell, Jr.
|
|
Shirar
|
|
Young
|
|
Childers
|
Value of Unvested
Restricted
Shares(1)
|
|
$
|
745,332
|
|
$
|
505,225
|
|
$
|
505,225
|
|
$
|
376,467
|
|
$
|
505,225
|
172
____________________
(1)
|
|
Amounts in this row represent the value of the restricted shares
that would vest upon the change in control on December 31, 2011 under the terms of the LTIP. The value of the restricted shares
is based on the closing market price of the Companys stock as reported in
The Wall Street Journal
for December
30, 2011 ($19.05), which was the last trading day of fiscal year 2011.
|
As a result of Mr. Divelys
resignation from the Company, effective as of May 8, 2011, and his Separation
Agreement with the Company, Mr. Dively would not have been entitled to any
benefits under a change in control. See 2011 Summary Compensation Table
Separation Agreement with Mr. Dively.
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
SKL Investment Group
Mr. Lumpkin, together with members
of his family, beneficially owns 100% of SKL Investment Group, LLC, a Delaware
limited liability company (SKL), which is an investment company serving the
Lumpkin family. Mr. Lumpkin and members of his family are the sole voting
members of SKL. SKL and its related entities paid $56,367 to the Company in 2011
for the use of office space, computers, telephones and for other office related
equipment. This amount is based upon actual usage incurred by SKL. For example,
in 2011, SKL paid $37,428 to rent approximately 2,191 square feet of office
space, which is equivalent to the Companys base rent per square foot plus a
prorated share of real-estate taxes, utilities, and maintenance. The charges for
use of equipment and other office related expenses were based on actual
third-party charges or SKLs estimated share of usage. The Company believes
these terms are reasonable and customary, and are comparable to those which
would have been obtained in an arms-length transaction.
LATEL Sale/Leaseback
The Company paid $917,018 during
2011 to lease office and warehouse space from LATEL, LLC, a limited liability
company of which Mr. Lumpkin and his immediate family have a beneficial
ownership of 70.7%. Agracel Inc. (Agracel) is a real estate investment
company of which Mr. Lumpkin, together with his family, beneficially owns 41.3%. In addition, Mr. Lumpkin is a director of Agracel. Agracel is the sole
managing member and 50% owner of LATEL, LLC. These payments represent 82% of the
total revenue of LATEL, LLC.
First Mid-Illinois Bancshares,
Inc
.
Pursuant to various agreements with
Consolidated Communications, Inc. (CCI), First Mid-Illinois Bancshares, Inc.
(First Mid-Illinois) provides the Company with general banking services,
including depository, disbursement and payroll accounts, on terms comparable to
those available to other large unaffiliated business accounts. Mr. Lumpkin and
members of his family own approximately 30.6% of the common stock and 30.4% of
the
Series B
Non-Cumulative Perpetual Convertible
Preferred Stock of First Mid-Illinois.
Certain individual members of the Lumpkin family and entities controlled
by and trusts created for the benefit of individuals who are members of the
Lumpkin family have also subscribed for but have not yet been issued $8,250,000
of First Mid-Illinoiss Series C Non-Cumulative Perpetual Convertible Preferred
Stock. The individuals, entities and trusts are The Lumpkin Family Foundation,
Elizabeth L. Celio, Benjamin I. Lumpkin, Mary Lee Sparks 1970 Trust, Christina
S. Duncan, Anne S. Whitten NIM-CRUT, Barbara S. Federico CRUT, Christina S.
Duncan CRUT, John W. Sparks CRUT, Margaret L. Keon 1970 Trust, Margaret K.
Partridge-Hicks, Katherine S. Keon, Susan K. DeWyngaert, Pamela R. Keon and
Joseph J. Keon III. In addition, Benjamin I. Lumpkin, the son of Richard A.
Lumpkin, is a director of First Mid-Illinois. During 2011, the Company paid
maintenance and activity related charges of $4,157 to First Mid-Illinois and
earned $7,631 of interest on its deposits. In addition, First Mid-Illinois
provides trustee and financial advisory services to the Companys hourly 401(k)
plan. During 2011, CCI paid $14,377 to First Mid-Illinois for this service,
which is a competitive market rate based on assets under management that the
Company believes is comparable to rates charged by independent third parties.
The fees charged and earnings received on deposits, through repurchase
agreements, are based on First Mid-Illinoiss standard schedule for large
customers.
173
ICTC provides First Mid-Illinois
with local dial tone, custom calling features, long distance and other
telecommunications services. In 2011, First Mid-Illinois paid ICTC approximately
$531,917 for these services. These services are based on standard prices for
strategic business customers.
The Companys payments to First
Mid-Illinois and its subsidiaries did not exceed 1% of the gross revenue of
First Mid-Illinois. Also, payments from First Mid-Illinois did not exceed 1% of
the Companys gross revenue.
Related Person Transactions
Policy
Our audit committee has adopted a
written Related Person Transactions Policy, which provides for procedures for
review and oversight of transactions involving the Company and related persons
(which consists of directors, director nominees, executive officers and
stockholders owning five percent or more of the Companys outstanding stock, any
of their immediate family members, and any firm, corporation or other entity in
which any of the foregoing persons is employed, is a general partner, principal
or in a similar position or has, together with the beneficial ownership
interests of all other related persons, a 10% or greater beneficial ownership
interest). The policy covers any related person transaction that would be
required to be disclosed in our proxy statement under applicable SEC rules
(generally, transactions in which the Company is a participant, the amount
involved exceeds $120,000 and in which a related person has a direct or
indirect material interest).
Certain transactions are not subject
to specific review under the policy by virtue of being exempt from the set of
related person transactions that must be disclosed pursuant to applicable SEC
rules (exempt transactions). In addition, the audit committee has approved in
the policy the provision of products or services by the Company and its
subsidiaries to related persons, if conducted in the ordinary course of
business and on terms that are no less favorable to the Company than those
available to customers who are not related to the Company.
The policy requires, prior to a
party entering into any related person transaction (other than an exempt
transaction), to provide, to the extent practicable, notice to the Company of
the proposed related person transaction. The audit committee or its chairperson
may approve only those related person transactions that are in, or are not
inconsistent with, the best interests of the Company and its stockholders, as
the audit committee or its chairperson, as applicable, determines in good faith.
In the event the Company becomes aware of a related person transaction that has
not been previously approved or previously ratified under the policy that is
pending or ongoing, it will be submitted to the audit committee or its
chairperson, as applicable, which shall evaluate all options, including but not
limited to ratification, amendment or termination of the related person
transaction, and (if appropriate) any disciplinary actions recommended. No
member of the audit committee may participate in the consideration, approval or
ratification of any related person transaction with respect to which such member
or any of his or her immediate family members is the related person or in
which he, she or they otherwise have an interest.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
During 2011, Roger H. Moore, Jack W.
Blumenstein and Maribeth S. Rahe served on the compensation committee. No member
of the compensation committee was, during 2011, an officer or employee of the
Company, was formerly an officer of the Company, or had any relationship
requiring disclosure by the Company as a related party transaction under Item
404 of Regulation S-K. During 2011, none of the Companys executive officers
served on the board of directors or the compensation committee of any other
entity, any officers of which served either on the Companys board of directors
or its compensation committee.
ANNUAL REPORT TO
STOCKHOLDERS
Our combined 2011 annual report to
stockholders and annual report on Form 10-K for the year ended December 31, 2011
accompanies this proxy statement.
174
GENERAL
Section 16(a) Beneficial Ownership
Reporting Compliance
Section 16(a) of the Exchange Act
requires our directors and executive officers, and any persons who beneficially
own more than 10% of our stock, to file with the SEC initial reports of
ownership and reports of changes in ownership of our stock. Such persons are
required by SEC regulations to furnish us with copies of all Section 16(a) forms
they file. As a matter of practice, our administrative staff assists our
executive officers and directors in preparing and filing such reports with the
SEC.
To our knowledge, based solely upon
a review of filings with the SEC and written representations that no other
reports were required, we believe that all of our directors and executive
officers complied during 2011 with the reporting requirements of Section 16(a)
of the Exchange Act, except that due to inadvertent administrative errors, each
of Robert J. Currey, Joseph R. Dively, Steven J. Shirar and C. Robert Udell, Jr.
and Christopher A. Young inadvertently filed one late Form 4.
LEGAL MATTERS
The legality of the securities
offered by this joint proxy statement/prospectus will be passed upon for
Consolidated by Schiff Hardin LLP.
EXPERTS
The consolidated financial
statements of Consolidated Communications Holdings, Inc. appearing in
Consolidated Communications Holdings, Inc.s Annual Report (Form 10-K) for the
year ended December 31, 2011, (including the schedule appearing therein), and
the effectiveness of Consolidated Communications Holdings, Inc.s internal
control over financial reporting as of December 31, 2011, have been audited by
Ernst & Young, LLP, independent registered public accounting firm, as set
forth in their reports thereon, included therein, and incorporated by reference
in the Proxy Statement of Consolidated Communications Holdings, Inc., which is
referred to and made a part of this Prospectus and Registration Statement. Such
consolidated financial statements and the assessment of the effectiveness of
internal control over financial reporting as of December 31, 2011 are
incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
The consolidated financial
statements of SureWest Communications appearing in SureWest Communications
Annual Report (Form 10-K) for the year ended December 31, 2011, and the
effectiveness of SureWest Communications internal control over financial
reporting as of December 31, 2011 have been audited by Ernst & Young LLP,
independent registered public accounting firm, as set forth in their reports
thereon, included therein, and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such reports given on the authority of such firm as experts in
accounting and auditing.
OTHER MATTERS
Consolidateds board does not know
of any other matters that are to be presented for action at the 2012 annual
meeting. Should any other matter come before the annual meeting, however, the
persons named in the enclosed proxy will have discretionary authority to vote
all proxies with respect to such matter in accordance with their
judgment.
175
FUTURE STOCKHOLDER PROPOSALS
Consolidated
The
proxy rules of the SEC permit our stockholders, after notice to the Company, to present proposals for stockholder action in our
proxy statement where such proposals are consistent with applicable law, pertain to matters appropriate for stockholder action
and are not properly omitted by our action in accordance with the proxy rules. In order for any stockholder proposal to be considered
for inclusion in our proxy statement to be issued in connection with our 2013 annual meeting of stockholders, that proposal must
be received at our principal executive offices, 121 South 17th Street, Mattoon, Illinois 61938-3987 (Attention: Secretary), no
later than
December 31, 2012
.
Our amended and restated bylaws
provide that certain additional requirements be met in order that business may
properly come before the stockholders at the annual meeting. Among other things,
stockholders intending to bring business before the annual meeting must provide
written notice of such intent to the Secretary of the Company. Such notice must
be given not less than 90 days nor more than 120 days prior to the first
anniversary of the date on which we mailed our proxy materials for the preceding
years annual meeting. In addition, the following information must be provided
regarding each proposal: as to each person whom the stockholder proposes to
nominate for election as a director, the name, age, business address and, if
known, residential address, principal occupation or employment, the class,
series and number of shares beneficially owned by such nominee and all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required by
Regulation 14A of the Exchange Act, including such persons written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected; a brief description of the business desired to be brought before the
meeting; the text of any resolution proposed to be adopted at the meeting; and
the reasons for conducting such business at the meeting; and a statement of any
material interest in such business of such stockholder and the beneficial owner,
if any, on whose behalf the proposal is made and, in the case of director
nominations, a description of all arrangements or understandings between the
stockholder and each nominee and any other persons (naming them) pursuant to
which the nominations are to be made by the stockholder.
In addition, the following
information must be provided regarding the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the proposal is made: the name and
address of such stockholder, as it appears on the Companys stock transfer
books, and of such beneficial owner; the class, series and number of shares of
the Company which are owned beneficially and of record by such stockholder and
such beneficial owner; a representation that the stockholder giving the notice
is a stockholder of record and intends to appear in person or by a qualified
representative at the annual meeting to bring the business proposed in the
notice before the meeting; a representation whether the stockholder or the
beneficial owner, if any, intends or is part of a group which intends to solicit
proxies from stockholders in support of such proposal or nomination; and any
other information relating to such stockholder that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
the Exchange Act and the rules and regulations promulgated
thereunder.
WHERE YOU CAN FIND MORE
INFORMATION
Consolidated and SureWest file
annual, quarterly and current reports, proxy statements and other information
with the SEC. You may read and copy any report, statement or other information
that Consolidated and SureWest file with the SEC at the SECs public reference
room at the following location: Public Reference Room, 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. These SEC filings are also available
to the public from commercial document retrieval services and at the website
maintained by the SEC at
www.sec.gov.
Reports, proxy statements and other
information concerning Consolidated may also be obtained at its website at
www.consolidated.com
and at the offices of The NASDAQ Stock Market LLC at One
Liberty Plaza, New York, New York 10006. Reports, proxy statements and other
information concerning SureWest may also be obtained at its website at
www.surewest.com and at the offices of The NASDAQ Stock Market LLC at One
Liberty Plaza, New York, New York 10006.
The SEC allows Consolidated and
SureWest to incorporate by reference information into this joint proxy
statement/prospectus, which means that the companies can disclose important
information to you by referring you to other documents filed separately with the
SEC. The information incorporated by reference is considered part
176
of this joint
proxy statement/prospectus, except for any information superseded by information
contained directly in this joint proxy statement/prospectus or in later filed
documents incorporated by reference into this joint proxy statement/prospectus.
This joint proxy
statement/prospectus incorporates by reference the documents set forth below
that Consolidated and SureWest have previously filed with the SEC.
Consolidated
|
|
|
Filings
|
|
Period
|
Annual Report on Form 10-K
|
|
Fiscal Year ended December 31, 2011
|
Current Reports on
Form 8-K
|
|
Filed on February 6, 2012, February
8, 2012, February 23, 2012 and March 7, 2012
|
Registration Statement on Form
8-A
|
|
Filed on July 19,
2005
|
|
|
|
SureWest Filings
|
|
Period
|
Annual Report on Form
10-K
|
|
Fiscal Year ended December 31,
2011
|
Current Reports on
Form 8-K
|
|
Filed on January 26, 2012, February
6, 2012, February 8,
2012, February 10,
2012, February 22, 2012,
March 1, 2012, March 5, 2012, March 29, 2012 and April 2, 2012
|
Consolidated and SureWest also
incorporate by reference additional documents that may be filed with the SEC
under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of
this joint proxy statement/prospectus and the date of the completion of the
Mergers. These include Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and proxy statements.
Consolidated has supplied all
information contained in or incorporated by reference into this joint proxy
statement/prospectus relating to Consolidated, and SureWest has supplied all
such information relating to SureWest.
You may have previously received
some of the documents incorporated by reference into this joint proxy
statement/prospectus, but you can obtain any of them through Consolidated or
SureWest, as applicable, or the SEC or the SECs website as described above.
Documents incorporated by reference are available from the appropriate company
without charge, excluding all exhibits, except that if the companies have
specifically incorporated by reference an exhibit in this joint proxy
statement/prospectus, the exhibit will also be provided without charge.
Shareholders may obtain documents incorporated by reference into this joint
proxy statement/prospectus by requesting them in writing or by telephone from
the appropriate company at the following addresses:
SureWest Communications
P.O. Box
969
Roseville, CA
95661
Attention: Investor Relations
Telephone:
(916) 786-1831
|
Consolidated Communications
Holdings, Inc.
121 South 17th Street
Mattoon, Illinois
61938
Attention: Investor Relations
Telephone: (217) 235-3311
|
You
should rely only on the information contained in or incorporated by reference into this joint proxy statement/prospectus. Consolidated
and SureWest have not authorized anyone to provide you with information that is different from what is contained in this joint
proxy statement/prospectus. This joint proxy statement/prospectus is dated
April 24
,
2012. You should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date
other than that date. Neither the mailing of this joint proxy statement/prospectus to stockholders of Consolidated or shareholders
of SureWest nor the issuance of Consolidated common stock in the First Merger creates any implication to the contrary.
177
Annex I
Merger Agreement
EXECUTION
VERSION
AGREEMENT AND PLAN OF MERGER
by and among
SUREWEST COMMUNICATIONS,
CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.,
WH ACQUISITION CORP.
and
WH ACQUISITION II CORP.
Dated as of February 5, 2012
TABLE OF CONTENTS
|
|
|
|
|
Page
|
1.
|
|
THE MERGERS
|
1
|
|
|
1.1
|
|
The
Mergers
|
1
|
|
|
1.2
|
|
Effective Time
|
2
|
|
|
1.3
|
|
Effects of the Mergers
|
2
|
|
|
1.4
|
|
Closing of the First Merger
|
2
|
|
|
1.5
|
|
Articles of Incorporation
|
2
|
|
|
1.6
|
|
Bylaws
|
2
|
|
|
1.7
|
|
Board of Directors; Officers
|
2
|
2.
|
|
EFFECT OF THE FIRST MERGER ON THE CAPITAL
STOCK OF THE
|
|
|
|
CONSTITUENT CORPORATIONS
|
3
|
|
|
2.1
|
|
Conversion of Company Capital Stock
|
3
|
|
|
2.2
|
|
Election Procedures
|
4
|
|
|
2.3
|
|
Proration
|
5
|
|
|
2.4
|
|
Effect on Capital Stock of Merger Sub
I
|
6
|
|
|
2.5
|
|
Dissenting Shares
|
6
|
|
|
2.6
|
|
Treatment of Options and Other Stock-Based
Awards
|
7
|
3.
|
|
EXCHANGE OF CERTIFICATES FOR MERGER CONSIDERATION
|
8
|
|
|
3.1
|
|
Delivery of the Merger
Consideration
|
8
|
|
|
3.2
|
|
Exchange Procedures
|
8
|
|
|
3.3
|
|
Dividends and Distributions
|
9
|
|
|
3.4
|
|
Transfer Books; No Further Ownership Rights in Shares
|
9
|
|
|
3.5
|
|
Termination of Fund; No Liability
|
9
|
|
|
3.6
|
|
Lost, Stolen or Destroyed Certificates
|
9
|
|
|
3.7
|
|
Withholding Taxes
|
9
|
|
|
3.8
|
|
Adjustments to Prevent Dilution
|
10
|
4.
|
|
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY
|
10
|
|
|
4.1
|
|
Corporate Organization
|
10
|
|
|
4.2
|
|
Capitalization
|
11
|
|
|
4.3
|
|
Authority; No Violation
|
12
|
|
|
4.4
|
|
Consents and Approvals
|
13
|
|
|
4.5
|
|
SEC Filings
|
13
|
|
|
4.6
|
|
Financial Statements
|
13
|
|
|
4.7
|
|
Brokers Fees
|
14
|
|
|
4.8
|
|
Absence of Certain Changes or Events
|
14
|
|
|
4.9
|
|
Legal Proceedings
|
14
|
|
|
4.10
|
|
Taxes
|
15
|
|
|
4.11
|
|
Employee Benefit Plans15
|
15
|
|
|
4.12
|
|
Compliance With Applicable Law
|
16
|
|
|
4.13
|
|
Certain Contracts
|
16
|
|
|
4.14
|
|
Undisclosed Liabilities
|
17
|
|
|
4.15
|
|
Anti-Takeover Provisions
|
17
|
|
|
4.16
|
|
Company Information
|
17
|
|
|
4.17
|
|
Title to Property
|
17
|
|
|
4.18
|
|
Insurance
|
18
|
|
|
4.19
|
|
Environmental Liability
|
18
|
|
|
4.20
|
|
Intellectual Property
|
18
|
|
|
4.21
|
|
Communications Regulatory Matters
|
19
|
-i-
|
|
|
|
|
Page
|
|
|
4.22
|
|
Labor
Matters
|
19
|
|
|
4.23
|
|
Transactions with Affiliates
|
19
|
|
|
4.24
|
|
Opinion of Financial
Advisor
|
19
|
|
|
4.25
|
|
Acknowledgement of the Company
|
20
|
|
|
4.26
|
|
No Other
Representations or Warranties
|
20
|
5.
|
|
REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER
|
|
|
|
SUBS
|
20
|
|
|
5.1
|
|
Corporate
Organization
|
20
|
|
|
5.2
|
|
Capitalization
|
21
|
|
|
5.3
|
|
Authority; No
Violation
|
22
|
|
|
5.4
|
|
Consents and Approvals
|
22
|
|
|
5.5
|
|
SEC Filings
|
23
|
|
|
5.6
|
|
Financial Statements
|
23
|
|
|
5.7
|
|
Brokers Fees
|
23
|
|
|
5.8
|
|
Absence of Certain
Changes or Events
|
24
|
|
|
5.9
|
|
Legal
Proceedings
|
24
|
|
|
5.10
|
|
Taxes
|
24
|
|
|
5.11
|
|
Employee Benefit Plans
|
25
|
|
|
5.12
|
|
Compliance With
Applicable Law
|
25
|
|
|
5.13
|
|
Certain Contracts
|
25
|
|
|
5.14
|
|
Undisclosed
Liabilities
|
25
|
|
|
5.15
|
|
Environmental Liability
|
26
|
|
|
5.16
|
|
Financing
|
26
|
|
|
5.17
|
|
Parent Information
|
27
|
|
|
5.18
|
|
No Business
Activities by Merger Subs
|
27
|
|
|
5.19
|
|
Ownership of Company Common Stock; No Other Agreements
|
27
|
|
|
5.20
|
|
Acknowledgement of
Parent
|
27
|
|
|
5.21
|
|
No
Other Representations or Warranties
|
27
|
6.
|
|
COVENANTS RELATING TO
CONDUCT OF BUSINESS
|
27
|
|
|
6.1
|
|
Conduct of Business of the Company Prior to the Effective
Time
|
27
|
|
|
6.2
|
|
Company
Forbearances
|
28
|
|
|
6.3
|
|
Parent Forbearances
|
29
|
7.
|
|
ADDITIONAL
AGREEMENTS
|
30
|
|
|
7.1
|
|
Proxy
Statement/Prospectus; Parent Registration Statement; Other
Filings
|
30
|
|
|
7.2
|
|
Access to
Information
|
30
|
|
|
7.3
|
|
Shareholder Meetings
|
31
|
|
|
7.4
|
|
Further
Actions
|
31
|
|
|
7.5
|
|
Employees; Employee Benefit Plans
|
32
|
|
|
7.6
|
|
Indemnification;
Directors and Officers Insurance
|
33
|
|
|
7.7
|
|
No
Solicitation
|
34
|
|
|
7.8
|
|
Standstill
|
37
|
|
|
7.9
|
|
Section 16 Matters
|
37
|
|
|
7.10
|
|
Financing
|
37
|
|
|
7.11
|
|
Financing Cooperation
|
38
|
|
|
7.12
|
|
Tax Treatment as
Reorganization
|
39
|
|
|
7.13
|
|
Board
of Directors of Parent After the Effective Time
|
39
|
-ii-
|
|
|
|
|
Page
|
8.
|
|
CONDITIONS
PRECEDENT
|
39
|
|
|
8.1
|
|
Conditions to Each Partys Obligation to Effect the First
Merger
|
39
|
|
|
8.2
|
|
Conditions to
Obligations of Parent and Merger Subs
|
40
|
|
|
8.3
|
|
Conditions to Obligations of the Company
|
40
|
9.
|
|
TERMINATION AND
AMENDMENT
|
41
|
|
|
9.1
|
|
Termination
|
41
|
|
|
9.2
|
|
Effect of
Termination
|
42
|
|
|
9.3
|
|
Amendment
|
43
|
|
|
9.4
|
|
Extension;
Waiver
|
43
|
10.
|
|
GENERAL PROVISIONS
|
43
|
|
|
10.1
|
|
Nonsurvival of
Representations, Warranties and Agreements
|
43
|
|
|
10.2
|
|
Expenses
|
43
|
|
|
10.3
|
|
Notices
|
43
|
|
|
10.4
|
|
Interpretation; Construction
|
44
|
|
|
10.5
|
|
Counterparts;
Facsimile
|
44
|
|
|
10.6
|
|
Entire Agreement
|
44
|
|
|
10.7
|
|
Specific
Performance
|
44
|
|
|
10.8
|
|
Governing Law; Venue
|
45
|
|
|
10.9
|
|
Severability
|
45
|
|
|
10.10
|
|
Publicity
|
45
|
|
|
10.11
|
|
Assignment; Third
Party Beneficiaries
|
45
|
|
|
10.12
|
|
Merger Subs
|
45
|
EXHIBIT
A
|
|
Form of Agreement of Merger, including form of Amended and
Restated
|
|
|
|
|
|
Articles of
Incorporation
|
|
-iii-
Index of Defined Terms
|
Page
|
Acceptable Confidentiality Agreement
|
53
|
Affiliate
|
14
|
Agreement
|
1
|
Agreement of Merger
|
2
|
Alternative Acquisition Agreement
|
51
|
Alternative Proposal
|
53
|
Bankruptcy and Equity Exceptions
|
18
|
Business Day
|
3
|
California Secretary
|
2
|
Capitalization Date
|
16
|
Cash Consideration
|
4
|
Cash Conversion Number
|
7
|
Cash Electing Company Share
|
4
|
Cash Election
|
4
|
Cash Election Number
|
7
|
CCI
|
38
|
Certificate
|
5
|
CGCL
|
2
|
Claim
|
48
|
Closing
|
3
|
Closing Date
|
3
|
Code
|
14
|
Company
|
1
|
Company Benefit Plans
|
22
|
Company Board
|
17
|
Company Common Stock
|
4
|
Company Contract
|
24
|
Company Designee
|
57
|
Company Disclosure Schedule
|
14
|
Company Equity Awards
|
11
|
Company Material Adverse Effect
|
15
|
Company Option
|
10
|
Company Recommendation
|
17
|
Company Recommendation Change
|
51
|
Company Required Vote
|
17
|
Company RSA
|
11
|
Company RSU
|
10
|
Company SEC Reports
|
19
|
Company Shareholder Meeting
|
44
|
Company Stock Plans
|
16
|
Confidentiality Agreement
|
44
|
Consent
|
18
|
Continuing Employees
|
46
|
D&O Insurance
|
49
|
Debt Commitment Letter
|
37
|
Debt Financing
|
38
|
Dissenting Shareholders
|
9
|
Dissenting Shares
|
9
|
-i-
|
Page
|
Effective Time
|
2
|
Election Deadline
|
6
|
Environmental Laws
|
26
|
Equity Award Consideration
|
11
|
Equity Award Equivalent Shares
|
7
|
ERISA
|
22
|
Exchange Act
|
19
|
Exchange Agent
|
5
|
Exchange Ratio
|
4
|
Excluded Shares
|
4
|
Expenses
|
48
|
FCC
|
18
|
Financing Agreements
|
55
|
First Merger
|
1
|
First-Step Surviving Company
|
2
|
Form of Election
|
6
|
GAAP
|
15
|
Governmental Entity
|
18
|
HSR Act
|
18
|
Indemnified Parties
|
47
|
Intellectual Property Rights
|
27
|
Licenses
|
27
|
Liens
|
17
|
Merger Consideration
|
5
|
Merger Sub I
|
1
|
Merger Sub II
|
1
|
Merger Subs
|
1
|
Mergers
|
1
|
Non-Electing Company Holder
|
11
|
Non-Electing Company Share
|
4
|
Option Consideration
|
10
|
Parent
|
1
|
Parent Board
|
31
|
Parent Capitalization Date
|
30
|
Parent Contract
|
36
|
Parent Disclosure Schedule
|
29
|
Parent Material Adverse Effect
|
30
|
Parent Plans
|
46
|
Parent Registration Statement
|
43
|
Parent SEC Reports
|
33
|
Parent Shareholder Meeting
|
45
|
Parent Stock
|
4
|
Parent Stock Consideration
|
4
|
Parent Stock Issuance
|
43
|
Parent Stock Plans
|
31
|
Parent Trading Price
|
5
|
Permits
|
15
|
Permitted Liens
|
25
|
Proxy Statement/Prospectus
|
43
|
Qualifying Transaction
|
60
|
Representatives
|
44
|
-ii-
RSA Consideration
|
11
|
RSU Consideration
|
10
|
SEC
|
14
|
Second Effective Time
|
2
|
Second Merger
|
1
|
Securities Act
|
19
|
Shortfall Number
|
8
|
State Regulators
|
18
|
Stock Electing Company Share
|
4
|
Stock Election
|
4
|
Subsidiary
|
15
|
Superior Proposal
|
53
|
Surviving Company
|
2
|
Tax Return
|
22
|
Taxes
|
22
|
Termination Date
|
59
|
Termination Fee
|
60
|
-iii-
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of February
5, 2012 (as amended, supplemented or otherwise modified from time to time, and
together with all exhibits and schedules hereto, this
Agreement
), is entered
into by and among Consolidated Communications Holdings, Inc., a Delaware
corporation (
Parent
), SureWest Communications, a California corporation (the
Company
), WH Acquisition Corp., a California corporation and a wholly owned
subsidiary of Parent (
Merger Sub
I
), and WH Acquisition II Corp., a
California corporation and a wholly owned subsidiary of Parent
(
Merger Sub II
and together with Merger Sub I, the
Merger Subs
).
WHEREAS
, the respective Boards of
Directors of each of the Company, Parent, and (upon their formation) Merger Subs
have approved the acquisition of the Company by Parent through the statutory
merger of Merger Sub I with and into the Company, pursuant to which the Company
would become a wholly owned subsidiary of Parent (the
First Merger
), and, as
part of the same overall transaction, the surviving entity of the First Merger
would merge with and into Merger Sub II (the
Second Merger
, and together with
the First Merger, the
Mergers
) upon the terms and
subject to the conditions of this Agreement;
WHEREAS
, it is intended that the
Mergers are integrated steps in the transaction contemplated by this Agreement
and will together qualify as a tax-free reorganization within the meaning of
section 368(a) of the Code;
WHEREAS
, the Board of Directors
of the Company has (a) determined that the Mergers and the other transactions
contemplated hereby are advisable and in the best interests of the Company and
its shareholders, (b) approved and adopted this Agreement and the transactions
contemplated hereby, including the Mergers, and (c) recommended that the
Companys shareholders adopt this Agreement;
WHEREAS,
the Board of Directors
of Parent has (a) determined that this Agreement and the transactions
contemplated by this Agreement, including the Mergers, are advisable for, fair
to and in the best interests of Parent and its stockholders, (b) approved and
adopted this Agreement and the transactions contemplated hereby, including the
Mergers, and (c) resolved, subject to the terms of this Agreement, to recommend
that Parents shareholders adopt this Agreement; and
WHEREAS
, Parent shall cause each
Merger Sub to be formed, and to execute a counterpart of this Agreement,
promptly after the date hereof as provided in Section 10.12;
WHEREAS
, the Company, Parent and
(upon their formation) Merger Subs desire to make certain representations,
warranties, covenants and agreements in connection with the Mergers and to
prescribe certain conditions to the Mergers;
NOW,
THEREFORE
, in consideration of the
premises, and of the representations, warranties, covenants and agreements
contained herein, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
1.
THE MERGERS
1.1
The Mergers
. Upon the terms
and subject to the conditions of this Agreement, in accordance the California
General Corporation Law (
CGCL
), at the Effective Time (as
hereinafter defined), Merger Sub I shall merge with and into the Company. The
Company shall be the surviving corporation (hereinafter sometimes called the
First-Step Surviving
Company
) of the First Merger, and shall
continue its corporate existence under the laws of the State of California. Upon
consummation of the First Merger, the separate corporate existence of Merger Sub
I shall terminate. At the Second Effective Time (as defined below), Parent shall
cause the First-Step Surviving Company to merge with and into Merger Sub II in
accordance with California Law, whereupon the separate corporate existence of
the First-Step Surviving Company shall cease, and Merger Sub II shall be the
surviving corporation. The surviving corporation after the Second Merger is
sometimes referred to hereinafter as the
Surviving Company
. The parties to
this Agreement agree to treat the First Merger and the Second Merger as
integrated steps in the single transaction contemplated by this Agreement and
for any and all federal and state income tax reporting purposes shall report the
transaction as a single reorganization within the meaning of Section
368(a)(1)(A) of the Code. The parties to this Agreement hereby adopt this
Agreement as a plan of reorganization within the meaning of Treasury
Regulations Section 1.368-2(g).
-1-
1.2
Effective Time
.
(a)
The
First Merger shall become effective as set forth in an agreement of merger
satisfying the applicable requirements of the CGCL and substantially in the form
attached hereto as
Exhibit A
(the
Agreement of
Merger
), together with such other
certificates satisfying the applicable requirements of the CGCL, which shall be
duly executed by the Company and Merger Sub I and filed with the Secretary of
State of the State of California (the
California Secretary
) on the
Closing Date (as hereinafter defined) or as soon thereafter as practicable. As
used herein, the term
Effective
Time
shall mean the date and time when
the First Merger becomes effective as provided by the Agreement of Merger and
otherwise in accordance with applicable law.
(b)
Promptly after the Effective Time, but in all cases within one (1)
Business Day thereafter, Parent shall cause the Second Merger to be consummated
by filing an agreement of merger, together with such other certificates
satisfying the applicable requirements of the CGCL, which shall be duly executed
by the First-Step Surviving Company and Merger Sub II with the California
Secretary, in accordance with the applicable provisions of the CGCL (the time of
the filing of such agreement of merger with respect to the Second Merger, or the
time of effectiveness thereof that is specified therein, if different, shall be
referred to herein as the
Second Effective
Time
).
1.3
Effects of the Mergers
. At and after
the Effective Time, the First Merger shall have the effects and consequences set
forth in this Agreement and in Section 1107 of the CGCL. At and after the Second
Effective Time, the Second Merger shall have the effects and consequences set
forth in the applicable agreement of merger and in Section 1107 of the CGCL.
1.4
Closing of the First Merger
. Upon the
terms and subject to the conditions of this Agreement, the closing of the First
Merger (the
Closing
) will take place (a) at the offices of Orrick, Herrington
& Sutcliffe LLP, 405 Howard Street, San Francisco, California, at 7:00 a.m.,
California time, on the date that is the second Business Day after the
satisfaction or waiver of the conditions set forth in Section 8 hereof, other
than conditions which by their terms are to be satisfied at the Closing, or (b)
such other location, date or time as the parties may mutually agree (the
Closing Date
). For purposes of this Agreement, a
Business Day
shall
mean any day that is not a Saturday, a Sunday or other day on which the office
of the California Secretary is closed.
1.5
Articles of Incorporation
. The Articles of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall at the Effective Time, be amended
and restated to read as set forth in
Exhibit
A
hereto and as so amended and restated shall
be the Articles of Incorporation of the First-Step Surviving Company, until
thereafter amended in accordance with applicable law and such Articles of
Incorporation. The articles of incorporation of Merger Sub II, as in effect
immediately prior to the Second Effective Time, shall be the articles of
incorporation of the Surviving Company at the Second Effective Time.
1.6
Bylaws
. At
the Effective Time, the Bylaws of the First-Step Surviving Company shall be
amended and restated in their entirety to be identical to the bylaws of Merger
Sub I, as in effect immediately prior to the Effective Time, until thereafter
amended in accordance with applicable law and such bylaws. The bylaws of Merger
Sub II, as in effect immediately prior to the Second Effective Time, shall be
the bylaws of the Surviving Company at the Second Effective Time.
1.7
Board of Directors; Officers
. The directors of Merger Sub I immediately prior to the
Effective Time shall be the directors of the First-Step Surviving Company, each
to hold office in accordance with the Articles of Incorporation and Bylaws of
the First-Step Surviving Company and applicable law, until the earlier of their
resignation or removal or until their respective successors are duly elected or
appointed (as the case may be) and qualified. The directors of Merger Sub II
immediately prior to the Second Effective Time shall be the directors of the
Surviving Company from and after the Second Effective Time. The officers of
Merger Sub I immediately prior to the Effective Time shall be the officers of
the First-Step Surviving Company, each to hold office in accordance with the
Articles of Incorporation and Bylaws of the First-Step Surviving Company and
applicable law, until the earlier of their resignation or removal or until their
respective successors are duly elected or appointed (as the case may be). The
officers of Merger Sub II immediately prior to the Second Effective Time shall
be the officers of the Surviving Company from and after the Second Effective
Time.
-2-
2.
EFFECT OF THE FIRST MERGER ON THE CAPITAL STOCK
OF THE
CONSTITUENT CORPORATIONS
2.1
Conversion of Company Capital
Stock
. At the Effective Time, by virtue of
the First Merger and without any action on the part of Parent, the Company or
the holder of any of the shares of Company Common Stock, Parent Stock (as
defined below) or any capital stock of either Merger Sub:
(a)
All shares of common stock, without par value, of the Company (the
Company Common Stock
) held in treasury or owned directly by the Company, any
Subsidiary of the Company, Merger Subs or Parent (other than shares in trust
accounts, managed accounts and the like or shares held in satisfaction of a debt
previously contracted) shall be cancelled and retired and shall not represent
capital stock of the Surviving Company and shall not be exchanged for the Merger
Consideration (as defined below). Shares of Company Common Stock that are
canceled and retired pursuant to this Section 2.1(a) are hereinafter referred to
as the
Excluded Shares
; and
(b)
Each
share of Company Common Stock (other than Excluded Shares and Dissenting Shares
(as defined below)) issued and outstanding immediately prior to the Effective
Time shall be converted into and become the right to receive the following
consideration:
(i)
Each
share of Company Common Stock with respect to which an election to receive cash
(a
Cash Election
) has been properly made and not revoked or lost pursuant to
Section 2.2(c) (each a
Cash Electing
Company Share
) shall (subject to Section
2.2(d)) be converted into the right to receive $23.00 in cash without interest
(such per share amount is hereinafter referred to as the
Cash Consideration
).
(ii)
Each
share of Company Common Stock with respect to which an election to receive stock
consideration (a
Stock
Election
) has been properly made and not
revoked or lost pursuant to Section 2.2(c) (each a
Stock Electing Company Share
) shall (subject to Section 2.2(d)) be converted into the right to
receive the number of validly issued, fully paid and nonassessable shares of
common stock, par value $0.01 per share, of Parent (the
Parent Stock
)
determined by
dividing
(A) $23.00
by
(B) the Parent Trading Price
(as defined in Section 2.1(b)(iv) below) (such quotient, the
Exchange Ratio
),
subject to adjustment in accordance with Section 2.1(d) (such per share amount,
together with any cash in lieu of fractional shares of Parent Stock to be paid
pursuant to Section 2.1(c), is hereinafter referred to as the
Parent Stock
Consideration
);
provided, however
, that (x)
if the number determined by dividing $23.00 by the Parent Trading Price (as
defined below) is less than or equal to 1.03896, the Exchange Ratio shall be
1.03896 and (y) if the number determined by dividing $23.00 by the Parent
Trading Price is greater than or equal to 1.40565, the Exchange Ratio shall be
1.40565.
(iii)
Each
share of Company Common Stock that is not (x) an Excluded Share or (y) a share
of Company Common Stock with respect to which a Cash Election or a Stock
Election has been properly made and not revoked or lost pursuant to Section
2.2(c) (each, a
Non-Electing Company
Share
) shall be converted into the right
to receive the Cash Consideration or the Parent Stock Consideration, as
determined pursuant to Section 2.3.
(iv)
As
used in this Agreement, the term
Parent
Trading Price
means the average closing
price of a share of Parent Stock, as reported on the NASDAQ Global Select
Market, for the twenty (20) consecutive trading days ending on the second
trading day preceding the Closing Date.
Effective as of the Effective Time,
each share of Company Common Stock issued and outstanding immediately prior to
the Effective Time (other than Excluded Shares) shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist, and
each
holder of certificates or evidence of shares in
book-entry form which immediately prior to the Effective Time evidenced shares
of Company Common Stock (each a
Certificate
) shall cease to have
any rights with respect thereto, except the right to receive the Merger
Consideration therefor upon surrender of such Certificate in accordance with
Section 3.4. For purposes of this Agreement, the term
Merger Consideration
with respect to a given share of Company Common Stock shall mean either the Cash
Consideration (with respect to a share of Company Common Stock representing the
right to receive the Cash Consideration) or the Parent Stock Consideration (with
respect to a share of Company Common Stock representing the right to receive the
Parent Stock Consideration).
-3-
(c)
No Fractional Shares
. No fractional shares of Parent Stock shall be issued in
respect of shares of Company Common Stock that are to be converted in the
Mergers into the right to receive shares of Parent Stock. Each holder of a
Certificate (other than holders of Certificates representing Excluded Shares)
shall be entitled to receive in lieu of any fractional share of Parent Stock to
which such holder would otherwise have been entitled pursuant to Sections 2.1(b)
and 2.3 an amount in cash (without interest), rounded to the nearest whole cent,
equal to the product obtained by
multiplying
(i) the fractional
share of Parent Stock to which such holder would otherwise be entitled (after
taking into account all shares of Company Common Stock held by such holder
immediately prior to the Effective Time, such holders unrevoked Cash Elections
and Stock Elections and the provisions of Section 2.3)
by
(ii) the Parent
Trading Price.
(d)
Adjustments
. If, on or after the date
of this Agreement and prior to the Effective Time, Parent splits, combines into
a smaller number of shares, or issues by reclassification any shares of Parent
Stock, then the Parent Stock Consideration and any dependent items shall be
appropriately adjusted to provide to the holders of Company Common Stock the
same economic effect as contemplated by this Agreement prior to such action, and
as so adjusted shall, from and after the date of such event, be the Parent Stock
Consideration or other dependent item, as applicable, subject to further
adjustment in accordance with this sentence.
2.2
Election Procedures
.
(a)
Promptly after the execution of this Agreement, Parent shall designate
and appoint a bank or trust company reasonably acceptable to the Company to act
as exchange agent hereunder (the
Exchange
Agent
) for the purpose of exchanging
Certificates.
(b)
Parent
shall prepare and file as an exhibit to the Parent Registration Statement (as
hereinafter defined) a form of election, and other appropriate and customary
transmittal materials, in such form and containing such provisions as Parent and
the Company shall mutually agree (collectively, the
Form of Election
). The
Form of Election shall permit each Person who, at or prior to the Election
Deadline (as defined below), is a record holder (or, in the case of nominee
record holders, the beneficial owner, through proper instructions and
documentation) of any share of Company Common Stock (other than Excluded Shares)
to specify (i) the number of such holders shares of Company Common Stock with
respect to which such holder makes a Cash Election and/or (ii) the number of
such holders shares of Company Common Stock with respect to which such holder
makes a Stock Election. The Form of Election
shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the completed Form of
Election and any Certificates to the Exchange Agent. The Company shall mail the
Form of Election to all Persons who are record holders of shares of Company
Common Stock as of the record date for the Company Shareholder Meeting and shall
use commercially reasonable efforts to make the Form of Election available to
all Persons who become holders of shares of Company Common Stock during the
period between the record date for the Company Shareholder Meeting and the
Election Deadline. As used in this Agreement,
Election Deadline
means 5:00
p.m., Eastern time, on the date that is two (2) Business Days immediately
preceding the Closing Date (or on such other date as the parties hereto mutually
agree).
(c)
Any such election shall have been properly made only if the Exchange
Agent shall have received at its designated office, by the Election Deadline, a
Form of Election properly completed and signed and accompanied by Certificates
representing the shares of Company Common Stock to which such Form of Election
relates (or by an appropriate guarantee of delivery of such Certificates as set
forth in such Form of Election from a firm that is an eligible guarantor
institution (as defined in Rule 17Ad-15 under the Exchange Act);
provided
,
that such Certificates are in fact delivered to the Exchange Agent by the time
set forth in such guarantee of delivery). Any share of Company Common Stock
(other than Excluded Shares) with respect to which a proper Cash Election or
Stock Election has not been made as aforesaid shall be deemed to be a
Non-Electing Company Share. After a Cash Election or a Stock Election is
properly made with respect to any share of Company Common Stock, no further
registration of transfers of such share shall be made on the stock transfer
books of the Company, unless and until such Cash Election or Stock Election is
properly revoked.
(d)
Parent
and the Company shall publicly announce the anticipated date of the Election
Deadline at least five (5) Business Days prior to the anticipated Closing Date.
If the Closing Date is delayed to a subsequent date, the Election Deadline shall
be similarly delayed to a subsequent date, and Parent and the Company shall
promptly announce any such delay and, when determined, the rescheduled Election
Deadline.
-4-
(e)
Any
Cash Election or Stock Election may be revoked with respect to all or any
portion of the shares of Company Common Stock subject thereto (but only in whole
share amounts) by the holder who submitted the applicable Form of Election by
such holder submitting to the Exchange Agent a written notice of such revocation
received by the Exchange Agent at or prior to the Election Deadline. In
addition, all Cash Elections and Stock Elections shall automatically be revoked
if this Agreement is terminated in accordance with Section 9. If a Cash Election
or Stock Election is revoked with respect to any shares of Company Common Stock,
the Certificates representing such shares shall be promptly returned to the
holder that submitted the same to the Exchange Agent, except to the extent (if
any) a subsequent Cash Election and/or Stock Election is properly made with
respect to any or all of the shares of Company Common Stock represented by such
Certificate.
(f)
The
good faith determination of the Exchange Agent (or the joint determination of
Parent and the Company, in the event that the Exchange Agent declines to make
any such determination) shall be conclusive and binding as to whether or not
Cash Elections and Stock Elections shall have been properly made or revoked
pursuant to this Section 2.2 and as to
when Cash
Elections, Stock Elections and revocations were received by the Exchange Agent.
The Exchange Agent shall have reasonable discretion to disregard immaterial
defects in the Forms of Election. The Exchange Agent (or Parent and the Company
jointly, in the event that the Exchange Agent declines to make the following
computations) shall also make all computations as to the proration contemplated
by Section 2.3, and absent manifest error such computations shall be conclusive
and binding on Parent, the Company and all holders of Company Common Stock. The
Exchange Agent may, with the written agreement of Parent after Parents
reasonable consultation with the Company, make any rules that are consistent
with this Section 2.2 for the implementation of the Cash Elections and Stock
Elections provided for in this Agreement and shall be necessary or desirable to
effect the Cash Elections and Stock Elections.
2.3
Proration
. Notwithstanding anything in
this Agreement to the contrary:
(a)
With
respect to all shares of Company Common Stock (other than the Excluded Shares)
issued and outstanding immediately prior to the Effective Time:
(i)
fifty
percent (50%) of the sum of (x) the shares of Company Common Stock and (y) that
number of shares equal to the aggregate Equity Award Consideration (as defined
below)
divided
by the Cash Consideration (the
Equity Award Equivalent Shares
)
(such number of shares, the
Cash
Conversion Number
), shall be converted
into the right to receive an amount per share equal to the Cash Consideration;
and
(ii)
the
remainder of the shares of Company Common Stock shall be converted into the
right to receive the Parent Stock Consideration per share.
(b)
If the
aggregate number of Cash Electing Company Shares plus the Equity Award
Equivalent Shares (such number of shares, the
Cash Election Number
) equals or
exceeds the Cash Conversion Number, then:
(i)
all
Stock Electing Company Shares and all Non-Electing Company Shares shall be
converted into the right to receive the Parent Stock Consideration per share;
and
(ii)
the
number of Cash Electing Company Shares of each shareholder of the Company that
shall be converted into the right to receive an amount per share equal to the
Cash Consideration shall be equal to the product obtained by
multiplying
(x) the
number of Cash Electing Company Shares of such shareholder
by
(y) a fraction, the
numerator of which is the Cash Conversion Number and the denominator of which is
the Cash Election Number, and the remaining number of such holders Cash
Electing Company Shares shall be converted into the right to receive the Parent
Stock Consideration per share.
(c)
If the
Cash Election Number is less than the Cash Conversion Number (such difference
between the Cash Election Number and the Cash Conversion Number, the
Shortfall Number
), then:
(i)
all
Cash Electing Company Shares shall be converted into the right to receive an
amount per share equal to the Cash Consideration; and
-5-
(ii)
the Stock Electing Company Shares and the Non-Electing Company
Shares shall be treated in the following manner:
(1)
if the
Shortfall Number is less than or equal to the aggregate number of Non-Electing
Company Shares, then (A) all Stock Electing Company Shares shall be converted
into the right to receive the Parent Stock Consideration per share and (B) the
number of Non-Electing Company Shares of each shareholder of the Company that
shall be converted into the right to receive an amount per share equal to the
Cash Consideration shall be equal to the product obtained by
multiplying
(1) the
number of Non-Electing Company Shares of such shareholder
by
(2) a fraction, the
numerator of which is the Shortfall Number and the denominator of which is the
aggregate number of Non-Electing Company Shares, and the remaining number of
such holders Non-Electing Company Shares shall be converted into the right to
receive the Parent Stock Consideration per share; or
(2)
if the
Shortfall Number exceeds the aggregate number of Non-Electing Company Shares,
then (A) all Non-Electing Company Shares shall be converted into the right to
receive an amount per share equal to the Cash Consideration and (B) the number
of Stock Electing Company Shares of each shareholder of the Company that shall
be converted into the right to receive an amount per share equal to the Cash
Consideration shall be equal to the product obtained by
multiplying
(1) the
number of Stock Electing Company Shares of such shareholder
by
(2) a fraction, the
numerator of which is the amount by which the Shortfall Number exceeds the
aggregate number of Non-Electing Company Shares and the denominator of which is
the aggregate number of Stock Electing Company Shares, and the remaining number
of such holders Stock Electing Company Shares shall be converted into the right
to receive the Parent Stock Consideration per share.
2.4
Consideration Adjustment
.
Notwithstanding the foregoing, the Cash Conversion Number shall be reduced to
the extent necessary so that the aggregate fair market value of the Parent Stock
(based on the closing price of Parent Stock as reported on the NASDAQ Global
Select Market on the trading day immediately preceding the Closing Date)
received by the holders of Company Common Stock in exchange for their Company
Common Stock in the First Merger shall be equal to forty-two percent (42%) of
the aggregate amount of cash plus the fair market value of the Parent Stock
(based on the closing price of Parent Stock as reported on the NASDAQ Global
Select Market on the trading day immediately preceding the Closing Date)
received by the holders of Company Common Stock in exchange for their Company
Common Stock in the First Merger. To assure that the holders of Company Common
Stock receive equivalent value of Parent Stock in consideration for the
reduction of the Cash Conversion Number, for each share by which the Cash
Conversion Number is reduced additional Parent Stock shall be paid as part of
the Parent Stock Consideration (in addition to the number of shares of Parent
Stock received through the Exchange Ratio with respect to such share) so that
the aggregate fair market value of the Parent Stock (based on the closing price
of Parent common stock as reported on the NASDAQ Global Select Market on the
trading day immediately preceding the Closing Date) received with respect to
such share is equal to the Cash Consideration.
2.5
Effect on Capital Stock
of Merger Sub I
. At and after the Effective Time, each share of common stock,
without par value, of Merger Sub I issued and outstanding immediately
prior to
the Effective Time shall be converted into and become one (1) fully paid share of common stock, without par value, of the
First-Step Surviving Company and constitute the only outstanding shares of capital stock of the First-Step Surviving
Company and shall not be effected by the First Merger.
2.6
Dissenting Shares
. Notwithstanding
anything in this Agreement to the contrary, in the event that the applicable
requirements of Section 1300(b) of the CGCL have been satisfied, shares of
Company Common Stock that are issued and outstanding immediately prior to the
Effective Time and that are held by a shareholder (the
Dissenting Shareholders
) who (a) did not vote such shareholders shares of Company Common Stock
in favor of the Mergers (or did not consent thereto in writing, if approval the
Mergers is obtained by written consent), (b) is entitled to demand and properly
demand that the Company purchase such shares at their fair market value in
accordance with Section 1301 of the CGCL, (c) has submitted such shares for
endorsement in accordance with Section 1302 of the CGCL and (d) has not
otherwise failed to perfect or effectively withdrawn or lost such right to
require the Company to so purchase such shares, shall not be converted into or
be exchangeable for the right to receive the Merger Consideration (the
Dissenting Shares
),
but instead such Dissenting Shareholder shall be entitled to
have the Dissenting Shares purchased by the Company for cash at the fair market
value thereof as agreed upon or determined in accordance with the provisions of
Chapter 13 of the CGCL (and at the Effective Time, such Dissenting Shares shall
no longer be outstanding and shall automatically be canceled and shall cease to
exist, and such Dissenting Shareholder shall cease to have any rights with
respect thereto, except the right to have the Dissenting Shares purchased by the
Company
-6-
in accordance with the provisions of Chapter 13 of the CGCL), unless and
until such Dissenting Shareholder shall have failed to perfect or shall have
effectively withdrawn or lost such right to require the Company to so purchase
the Dissenting Shares. If any Dissenting Shareholder shall have failed to
perfect or shall have effectively withdrawn or lost such right, such holders
shares of Company Common Stock shall thereupon be treated as if they had been
converted into and become exchangeable for the right to receive, as of the
Effective Time, the Merger Consideration for each such share of Company Common
Stock, in accordance with Section 2.1(b), without any interest thereon. The
Company shall give Parent (i) prompt notice of any written demands pursuant to
Chapter 13 of the CGCL, attempted withdrawals of such demands and any other
instruments served pursuant to Chapter 13 of the CGCL and received by the
Company relating to a shareholders demand that the Company purchase shares of
Company Common Stock, and (ii) the opportunity to direct all negotiations and
proceedings with respect to such demands. The Company shall not, except with the
prior written consent of Parent, voluntarily make any payment with respect to,
or settle, or offer or agree to settle, any such demand for purchase and
payment.
2.7
Treatment of Options and Other Stock-Based Awards
.
(a)
As of
the Effective Time, each option to purchase shares of Company Common Stock or
other right to purchase Company Common Stock under any Company Stock Plan (each
a
Company Option
), to the extent it is outstanding and unexercised
immediately prior thereto, shall become fully vested as of the Effective Time
and shall by virtue of the Mergers and without any action on the part of any
holder of any Company Option be automatically cancelled and the holder thereof
will receive, as soon as reasonably practicable following the Effective Time a
cash payment (without interest) with respect thereto equal to the product of (i) the excess, if any, of the Cash Consideration
over the exercise price per share of such Company Option and (ii) the number of
shares of Company Common Stock issuable upon exercise of such Company Option
(collectively, the
Option
Consideration
). As of the Effective
Time, all Company Options, whether or not vested or exercisable, shall no longer
be outstanding and shall automatically cease to exist, and each holder of a
Company Option shall cease to have any rights with respect thereto, except the
right to receive the Option Consideration;
provided
that, if the exercise price
of any such Company Option is equal or greater than the Cash Consideration, such
Company Option shall be cancelled without any payment being made in respect
thereof. The Option Consideration shall in all cases be paid in cash and shall
not be subject to the proration contemplated by Section 2.3.
(b)
As of the Effective Time, each restricted stock unit granted under any
Company Stock Plan (each a
Company
RSU
) which is outstanding immediately
prior thereto shall become fully vested as of the Effective Time. Each Company
RSU that is not subject to Section 409A of the Code shall by virtue of the
Mergers and without any action on the part of any holder of any Company RSU be
automatically cancelled, and the holder thereof will receive as soon as
reasonably practicable following the Effective Time, a cash payment (without
interest) with respect thereto equal to the product of (i) the aggregate number
of shares of Company Common Stock subject to such Company RSU and
(ii) the Cash
Consideration (collectively, the
RSU
Consideration
). Each Company RSU that is
subject to Section 409A of the Code shall vest as described in this Section
2.7(b) but will be settled in cash pursuant to the timing terms of the
applicable award agreement and, therefore, the holder thereof will receive the
RSU Consideration at the time prescribed by the applicable award agreement. As
of the Effective Time, all Company RSUs that are not subject to Section 409A of
the Code and which are outstanding immediately prior thereto, whether or not
vested, shall no longer be outstanding and shall automatically cease to exist,
and each holder of a Company RSU shall cease to have any rights with respect
thereto, except the right to receive the RSU Consideration. As of the Effective
Time, all Company RSUs that are subject to Section 409A of the Code and which
are outstanding immediately prior thereto shall be fully vested as set forth
above and shall remain outstanding to the extent provided in the applicable
award agreement until such time as the RSU Consideration is distributed to the
holder thereof. The RSU Consideration shall in all cases be paid in cash and
shall not be subject to the proration contemplated by Section 2.3.
(c)
As of
the Effective Time, each restricted stock award granted under any Company Stock
Plan (each a
Company
RSA
, and together with the Company
Options and the Company RSUs, the
Company
Equity Awards
)) which is outstanding and
unvested immediately prior thereto shall become fully vested as of the Effective
Time and shall by virtue of the Mergers and without any action on the part of
any holder of any Company RSA be automatically cancelled and the holder thereof
will receive as soon as reasonably practicable following the Effective Time a
cash payment (without interest) with respect thereto equal to the product of (i)
the aggregate number of shares of Company Common Stock represented by such
Company RSA and
(ii) the Cash Consideration (collectively, the
RSA Consideration
,
and, together with the Option Consideration and the RSU Consideration, the
Equity Award
Consideration
). As of the Effective
Time, all unvested Company RSAs shall no longer be outstanding and shall
-7-
automatically cease to exist, and each holder of a Company RSA shall cease to
have any rights with respect thereto, except the right to receive the RSA
Consideration. The RSA Consideration shall in all
cases be paid in cash and shall not be subject to the proration contemplated by
Section 2.3.
(d)
Amounts payable pursuant to this Section 2.7 shall be reduced by such
amounts as the Exchange Agent, the Surviving Company or Parent is required to
deduct and withhold pursuant to Section 3.7. At the direction of Parent, payment
of any cash amounts to be paid pursuant to this Section 2.7 may be made through
the Companys (or the Surviving Companys) payroll, in which case, Parent shall
wire transfer immediately available funds to an account in the United States
pursuant to wire transfer instructions furnished by the Company no later than
three (3) business days prior to the Closing Date, and the Company shall
promptly after Closing make the appropriate payments of the Equity Consideration
through its payroll system.
3.
EXCHANGE OF CERTIFICATES FOR MERGER CONSIDERATION
3.1
Delivery of the Merger Consideration
.
Prior to the Effective Time (and, with respect to Parent Stock, from time to
time after the Effective Time as applicable), Parent shall deposit with the
Exchange Agent, pursuant to an agreement providing for the matters set forth in
this Section 3.1 and such other matters as may be appropriate and the terms of
which shall be mutually acceptable to Parent and the Company, an amount in cash
and certificates representing shares of Parent Stock sufficient to effect the
conversion of each share of Company Common Stock (other than Excluded Shares)
into the Merger Consideration pursuant to this Agreement.
3.2
Exchange Procedures
.
(a)
Promptly after the Effective Time, but in any event not more than five
(5) Business Days after the Effective Time, Parent shall cause the Exchange
Agent to mail to each holder of record as of immediately prior to the Effective
Time of Non-Electing Company Shares (each such holder, a
Non-Electing Company Holder
), subject to Section 2.3, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to each
Certificate representing any Non-Electing Company Shares held by such
Non-Electing Company Holder shall pass, only upon delivery of the completed
letter of transmittal and such Certificate to the Exchange Agent and shall be in
such form and have such other provisions as Parent and the Company shall
mutually agree) and (ii) instructions for use in effecting the surrender of each
such Certificate in exchange for the total amount of Merger Consideration that
such Non-Electing Company Holder is entitled to receive in exchange for such
holders Non-Electing Company Shares in the Mergers pursuant to this Agreement.
From and after the Effective Time, until surrendered as contemplated by this
Section 3.2, each Certificate representing Non-Electing Company Shares held by a
Non-Electing Company Holder shall be deemed to represent only the right to
receive the total amount of Merger Consideration to which such Non-Electing
Company Holder is entitled in exchange for such Non-Electing Company Shares as
contemplated by Section 2.
(b)
Upon
surrender by a Non-Electing Company Holder to the Exchange Agent of all
Certificates representing such holders Non-Electing Company Shares, together
with a letter of transmittal duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, each Non-
Electing Company
Holder shall be entitled to receive in exchange therefor (and the Exchange Agent
shall mail to such Non-Electing Holder within ten (10) Business Days following
such surrender): (i) a certificate (or certificates in the aggregate)
representing the number of whole shares of Parent Stock, if any, into which such
holders shares of Company Common Stock represented by such holders properly
surrendered Certificates were converted in accordance with Section 2, and such
Certificates so surrendered shall be forthwith cancelled, and (ii) a check in an
amount of U.S. dollars (after giving effect to any required withholdings
pursuant to Section 3.7) equal to (A) the amount of cash (consisting of the Cash
Consideration and cash in lieu of a fractional share of Parent Stock to be paid
pursuant to Section 2.1(c)), if any, into which such holders shares of Company
Common Stock represented by such holders properly surrendered Certificates were
converted in accordance with Section 2, plus (B) any cash dividends and other
distributions that such holder has the right to receive pursuant to Section 3.3.
(c)
As of the Effective Time, each former shareholder of the Company who
properly made and did not revoke a Cash Election and/or a Stock Election shall
be entitled to receive in exchange for such shareholders Electing Company
Shares (and the Exchange Agent shall mail to such former shareholder within ten
(10) Business Days following the Effective Time, unless such former shareholder
is also a Non-Electing Company Holder, in which case
-8-
the Exchange Agent shall
include in its mailing to such former shareholder pursuant to Section 3.2(b)):
(i) a certificate (or certificates in the aggregate) representing the number of
whole shares of Parent Stock, if any, into which such holders shares of Company
Common Stock represented by such holders properly surrendered Certificates were
converted in accordance with Section 2, and such Certificates so surrendered
shall be forthwith cancelled, and (ii) a check in an amount of U.S. dollars
(after giving effect to any required withholdings pursuant to Section 3.7) equal
to (A) the amount of cash (consisting of the Cash Consideration and cash in lieu
of a fractional share of Parent Stock to be paid pursuant to Section 2.1(c)), if
any, into which such holders shares of Company Common Stock represented by such
holders properly surrendered Certificates were converted in accordance with
Section 2, plus (B) any cash dividends and other distributions that such holder
has the right to receive pursuant to Section 3.3.
3.3
Dividends and Distributions
. No
dividends or other distributions with respect to shares of Parent Stock shall be
paid to the holder of any unsurrendered Certificate until such Certificate is
surrendered as provided in this Section 3. Subject to the effect of applicable
Laws, following such surrender, there shall be paid, without interest, to the
record holder of the shares of Parent Stock issued in exchange for shares of
Company Common Stock represented immediately prior to the Effective Time by such
Certificate (i) when any payment or distribution of a certificate representing
any share(s) of Parent Stock is made to such holder pursuant to Section 3.2(b)
or (c), all dividends and other distributions payable in respect of such Parent
Stock with a record date after the Effective Time and a payment date on or prior
to the date of such surrender and not previously paid and (ii) on the
appropriate payment date, the dividends or other distributions payable with
respect to such Parent Stock with a record date after the Effective Time but
prior to surrender and with a payment date subsequent to such surrender. For
purposes of dividends and other distributions in respect of Parent Stock, all
shares of Parent Stock to be issued pursuant to the Mergers shall be entitled to
dividends pursuant to the immediately preceding sentence as if issued and
outstanding as of the Effective Time.
3.4
Transfer Books; No Further Ownership Rights in Shares
. After the Effective Time, the stock transfer books of the
Company shall be closed and there shall be no further registration of transfers
of shares of Company Common Stock on the records of the Company. After the
Effective Time, the holders of Certificates shall cease to have any rights with
respect to such shares, except the right to receive the Merger Consideration and
such dividends and other distributions on or in respect of Parent Stock as
provided herein or as otherwise provided by applicable Law. If, after the
Effective Time, Certificates are presented to the Surviving Company for any
reason, they shall be canceled and exchanged as provided in Section 2.
3.5
Termination of Fund; No Liability
. At
any time following twelve (12) months after the Effective Time, Parent shall be
entitled to require the Exchange Agent to deliver to Parent (i) certificates
representing shares of Parent Stock and (ii) cash held by the Exchange Agent for
payment of Cash Consideration and cash payments in lieu of fractional shares of
Parent Stock, in each case, not delivered to holders of Certificates.
Thereafter, holders of Certificates shall be entitled to look only to Parent,
which shall thereafter act as the Exchange Agent (subject to abandoned property,
escheat or other similar Laws), as general creditors of Parent with respect to
the delivery of the Merger Consideration (including payment of cash in lieu of
fractional shares of Parent Stock). None of Parent, the Surviving Company and
the Exchange Agent shall be liable to any Person for any Merger Consideration
delivered to a public official pursuant to any abandoned property, escheat or
similar Law.
3.6
Lost, Stolen or Destroyed Certificates
. In the event that any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit attesting to that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if requested by
Parent or the Surviving Company, the delivery by such Person of a bond (in such
amount as Parent or the Surviving Company may reasonably direct) as indemnity
against any claim that may be made against the Exchange Agent, Parent or the
Surviving Company on account of the alleged loss, theft or destruction of such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate a certificate representing shares of Parent Stock and/or
deliver a check for Cash Consideration, and pay the cash in lieu of any
fractional share of Parent Stock to which such holder is entitled, which
constitute the total amount of Merger Consideration deliverable in respect of
such Certificate as determined in accordance with Section 2.
3.7
Withholding Taxes
. Parent or the
Exchange Agent will be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement or the transactions contemplated
hereby to any holder of Company Common Stock such amounts as Parent, or any
affiliate (as defined under the Exchange Act (an
Affiliate
)) thereof, or the
Exchange Agent are required to deduct and withhold with respect to the making of
such payment under the Internal Revenue Code of 1986, as amended (the
Code
), or any applicable provision of U.S. federal, state, local or non-U.S.
tax law. To the extent that such amounts are properly withheld by Parent or the
Exchange Agent and paid
-9-
over to the appropriate taxing authority, such withheld
amounts will be treated for all purposes of this Agreement as having been paid
to the holder of the Company Common Stock in respect of whom such deduction and
withholding were made by Parent or the Exchange Agent.
3.8
Adjustments
to Prevent Dilution
. Without limiting the other provisions of the Agreement,
in the event that the Company changes the number of shares of Company Common Stock issued and outstanding prior to the
Effective Time as a result of a reclassification, stock split (including a reverse stock split), stock dividend or
distribution, recapitalization, merger, subdivision, issuer tender or exchange offer, or other similar transaction, the
Merger Consideration and the Equity Award Consideration shall be equitably adjusted to reflect such change.
4.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in (a) the Companys filings with
the Securities and Exchange Commission (the
SEC
) required by the Securities
Act (as defined below) or the Exchange Act (as defined below) (excluding any
disclosures set forth in any section of any such report entitled Risk Factors
or Forward-Looking Statements or any other disclosures included in such
filings to the extent that they are forward-looking in nature) or (b) in the
disclosure schedule of the Company delivered to Parent concurrently herewith
(the
Company Disclosure
Schedule
) (with specific reference to
the section of this Agreement to which the information stated in such Company
Disclosure Schedule relates;
provided
that (i) disclosure in any
section of such Company Disclosure Schedule shall be deemed to be disclosed with
respect to any other Section of this Agreement to the extent that it is
reasonably apparent from the face of such disclosure that such disclosure is
applicable or relevant to such other Section and (ii) the mere inclusion of an
item in such Company Disclosure Schedule as an exception to a representation or
warranty shall not be deemed an admission that such item represents a material
exception or material fact, event or circumstance or that such item has had or
would have a Company Material Adverse Effect (as hereinafter defined)), the
Company hereby represents and warrants to Parent and Merger Subs as follows:
4.1
Corporate Organization
.
(a)
Each of
the Company and each of its Subsidiaries is duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is organized (in
the case of the good standing, to the extent such jurisdiction recognizes such
concept), except, in the case of the Subsidiaries, where the failure to be so
organized, existing or in good standing, would not reasonably be expected to
result in a Company Material Adverse Effect. Each of the Company and each of its
Subsidiaries has the requisite power and authority and possesses all
governmental franchises, licenses, permits, authorizations, variances,
exemptions, orders and approvals (collectively,
Permits
) necessary to enable it
to own, lease or otherwise hold its properties and assets and to conduct its
businesses as presently conducted, except where the failure to have such power
or authority or possess Permits, individually or in the aggregate, would not
reasonably be expected to result in a Company Material Adverse Effect. Each of
the Company and each of its Subsidiaries is duly qualified or licensed to do
business in each jurisdiction where the nature of its business or the ownership
or leasing of its properties makes such qualification necessary, other than in
such jurisdictions where the failure to be so qualified or licensed, would not
reasonably be expected to result in a Company Material Adverse Effect. As used
in this Agreement, the term
Company
Material Adverse Effect
means (i) a
material adverse effect on the business, results of operations or financial
condition of the Company and its Subsidiaries taken as a whole or (ii) a
material adverse effect on the Companys ability to consummate the transactions
contemplated hereby on a timely basis;
provided, however,
that in determining
whether a Company Material Adverse Effect has occurred, there shall be excluded
any effect on the Company or its Subsidiaries relating to or arising in
connection with (A) any adverse change, effect, event or occurrence, state of
facts or developments to the extent the public announcement or the pendency of
this Agreement or the transactions contemplated hereby or any actions required
to be taken (or refrained from being taken) in compliance herewith or otherwise
with the consent of the other party hereto, including the impact thereof on the
relationships of the Company or any of its Subsidiaries with customers,
suppliers, distributors, consultants, employees or independent contractors or
other third parties with whom the Company or any of its Subsidiaries has any
relationship and including any litigation brought by any shareholder of the
Company in connection with the transactions contemplated hereby, (B) any failure
by the Company to meet any projections or forecasts for any period ending (or
for which revenues or earnings are released) on or after the date hereof, (C)
any change in federal, state, non-U.S. or local law, regulations, policies or
procedures, or interpretations thereof, generally accepted accounting principles
(
GAAP
) or regulatory accounting requirements applicable or potentially
applicable to the industries in which the Company or its Subsidiaries operate,
(D) changes generally affecting the industries in which the Company or its
Subsidiaries operate that are not specifically related to the Company and its
Subsidiaries and do not have a
-10-
materially disproportionate adverse effect on the
Company and its Subsidiaries, taken as a whole, (E) changes in economic
conditions (including changes in the prevailing interest rates) in the United
States, in any region thereof, or in any non-U.S. or global economy or (F) any
attack on, or by, outbreak or escalation of hostilities or acts of terrorism
involving, the United States, or any declaration of war by the United States
Congress or any hurricane or other natural disaster. As used herein,
Subsidiary
means, with respect to any Person, any corporation, partnership, joint
venture, limited liability company or any other entity that is consolidated with
such Person for financial reporting purposes.
(b)
The copies of the Articles of Incorporation and Bylaws of the Company,
and similar organizational documents of each its Subsidiaries, which have
previously been made available to Parent are true, complete and correct copies
of such documents as in effect as of the date of this Agreement. For purposes of
this Agreement, all documents and other information posted in the online data
room established by the Company prior to the date hereof shall be deemed to have
been made available to Parent and Merger Subs.
(c)
The
minute books of the Company and each of its Subsidiaries previously made
available to Parent contain true, complete and correct records in all material
respects of all meetings and other material corporate actions held or taken
since January 1, 2008 of their respective shareholders, members, partners or
other equity holders and Boards of Directors or other governing bodies
(including committees of their respective Boards of Directors or other governing
bodies) through the date hereof.
4.2
Capitalization
.
(a)
The
authorized capital stock of the Company consists of 100,000,000 shares of Common
Stock, without par value. As of the close of business on February 3, 2012 (the
Capitalization
Date
), there were 14,330,035 shares of Company Common Stock
outstanding. As of the close of business on the Capitalization Date, no shares
of Company Common Stock were reserved or to be made available for issuance,
except as set forth in Section 4.2(a) of the Company Disclosure Schedule. All of
the issued and outstanding shares of Company Common Stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. As of the date of this Agreement, except (i) as set forth in Section
4.2(a) of the Company Disclosure Schedule, (ii) pursuant to any cashless
exercise provisions of any Company Options or pursuant to the surrender of
shares to the Company or the withholding of shares by the Company to cover tax
withholding obligations under the Companys stock plans and arrangements set
forth in Section 4.2(a) of the Company Disclosure Schedule (collectively, and in
each case as the same may be amended to the date hereof, the
Company Stock Plans
),
and (iii) as set forth elsewhere in this Section 4.2(a), the Company does not
have and is not bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for the purchase,
sale, repurchase, redemption or issuance of any shares of Company Common Stock
or any other equity securities of the Company or any securities representing the
right to purchase or otherwise receive any shares of the Company capital stock
(including any rights plan or agreement). Section 4.2(a) of the Company
Disclosure Schedule sets forth a true, complete and correct list of the
aggregate number of shares of Company Common Stock issuable upon the exercise of
each stock option or subject to each restricted stock award or restricted stock
unit granted under the Company Stock Plans that was outstanding as of the
Capitalization Date and the exercise price for each such stock option. Since the
Capitalization Date, the Company has not (i) issued or repurchased any shares of
its capital stock or any securities convertible into or exercisable for any
shares of its capital stock, other than upon the exercise of employee stock
options granted prior to such date and disclosed in this Section 4.2(a) or
pursuant to the surrender of shares to the Company or the withholding of shares
by the Company to cover tax withholding obligations under the Company Stock
Plans, or (ii) issued or awarded any options, restricted shares or other
equity-based awards under the Company Stock Plans.
-11-
(b)
Section 4.2(b) of the Company Disclosure Schedule lists the name,
jurisdiction of organization, authorized and outstanding shares of capital stock
and record and beneficial owners of such capital stock for each Subsidiary of
the Company. Except as set forth in Section 4.2(b) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries own, directly or
indirectly, any equity or similar interest in, or any interest convertible into
or exchangeable for, any equity or similar interest in, any corporation,
partnership, joint venture or other similar business association or entity
(other than its wholly owned Subsidiaries), with respect to which securities the
Company or any of its Subsidiaries has invested (and currently owns) or is
required to invest $2,000,000 or more. Except as set forth in Section 4.2(b) of
the Company Disclosure Schedule, the Company owns, directly or indirectly, all
of the issued and outstanding shares of capital stock of or all other equity
interests in each of the Companys Subsidiaries free and clear of any liens,
charges, encumbrances, adverse rights or claims and security interests
whatsoever (
Liens
), and all of such shares are duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. Neither the Company nor
any of its Subsidiaries has or is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase, repurchase, sale, redemption or issuance of any shares of capital
stock or any other equity security of any Subsidiary of the Company or any
securities representing the right to purchase or otherwise receive any shares of
capital stock or any other equity security of any such Subsidiary.
4.3
Authority; No Violation
.
(a)
The
Company has full corporate power and corporate authority to execute and deliver
this Agreement and the Agreement of Merger and, subject to receipt of the
Company Required Vote (as hereinafter defined), to consummate the transactions
contemplated hereby and thereby. The Board of Directors of the Company (the
Company Board
) at a duly held meeting has (i) determined that this
Agreement, the Agreement of Merger and the transactions contemplated hereby and
thereby, including the Mergers, are in the best interests of the Company and its
shareholders, (ii) approved this Agreement, the Agreement of Merger and the
transactions contemplated hereby and thereby, including the Mergers, (iii)
approved the execution and delivery of this Agreement and the Agreement of
Merger, and (iv) subject to Section 7.7, recommended that the shareholders of
the Company approve this Agreement, the Agreement of Merger and the transactions
contemplated hereby and thereby, including the Mergers (the
Company Recommendation
), and directed that such matter be submitted for consideration by the
Companys shareholders at the Company Shareholder Meeting. None of the aforesaid
actions by the Company Board has been amended, rescinded or modified as of the
date of this Agreement. Except for the approval of this Agreement and the
Agreement of Merger by the affirmative vote of a majority of the outstanding
shares of Company Common Stock entitled to vote (the
Company Required Vote
), no other corporate proceedings on the part of the Company are
necessary to approve this Agreement, the Agreement of Merger or to consummate
the transactions contemplated hereby or thereby. This Agreement has been duly
and validly executed and delivered by the Company and (assuming due
authorization, execution and delivery by Parent and Merger Subs) constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforcement may be limited by general
principles of equity whether applied in a court of law or a court of equity and
by bankruptcy, insolvency and similar laws affecting creditors rights and
remedies generally
(the
Bankruptcy and Equity Exceptions
). The Agreement of Merger, once duly and validly executed and delivered
by the Company and (assuming due authorization, execution and delivery by Parent
and Merger Subs), will constitute a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement may be limited by the Bankruptcy and Equity Exceptions.
(b)
Neither the execution and delivery of this Agreement or the Agreement of
Merger by the Company nor the consummation by the Company of the transactions
contemplated hereby or thereby, including the Mergers will (i) violate any
provision of the Articles of Incorporation or Bylaws of the Company or any of
the similar governing documents of any of its Subsidiaries, or (ii) assuming
that the consents, approvals and filings referred to in Section 4.4 are duly
obtained or made, (A) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to the Company or any of
its Subsidiaries or any of their respective properties or assets, or (B)
violate, conflict with, result in a breach of any provision of, or require
redemption or repurchase or otherwise require the purchase or sale of any
securities under, constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, result in the termination
of or a right of termination or cancellation under, accelerate the performance
required by, or result in the creation of any Lien upon any of the respective
properties or assets of the Company or any of its Subsidiaries under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which the
Company or any of its Subsidiaries is a party, or by which they or any of their
respective properties or assets may be bound or affected, except (in the case of
clause (ii) above) for such violations, conflicts, breaches, defaults or other
events which, either individually or in the aggregate, would not reasonably be
expected to result in a Company Material Adverse Effect.
-12-
4.4
Consents and Approvals
. No consent,
approval, clearance, waiver, Permit or order (
Consent
) of or from, or filings
or registrations with, any federal, national, state, provincial or local
government or any court of competent jurisdiction, administrative agency or
commission or other governmental authority or instrumentality or self-regulatory
organization of competent jurisdiction (each a
Governmental
Entity
) or with any
third Person are necessary in connection with the execution and delivery by the
Company of this Agreement or the Agreement of Merger or the consummation by the
Company of the transactions contemplated hereby or thereby, including the
Mergers, except for (a) any notices required to be filed under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
HSR
Act
), (b) the Consents from, or registrations, declarations, notices or
filings made to or with the Federal Communications Commission (the
FCC
) or any Governmental Entity (including any state or local public
service or public utilities commission or other similar state or local
regulatory bodies (collectively, the
State
Regulators
) and local cable franchise
authorities) (other than with respect to securities, antitrust, competition,
trade regulation or similar laws), in each case as may be required in connection
with this Agreement, the Mergers or the other transactions contemplated by this
Agreement and are required in with respect to mergers, business combinations or
changes in control of telecommunications companies generally, (c) the filing
with the SEC of the Proxy Statement/Prospectus (as hereinafter defined) as well
as any other filings required to be made with the SEC pursuant to the Securities
Act or the Exchange Act, (d) the filing of the Agreement of Merger and related
certificates with the California Secretary pursuant to the CGCL and (e) other
consents or approvals of, or filings or registrations with, Governmental Entities or third parties, the failure of which to be
obtained or made would not be reasonably expected to result in, individually or
in the aggregate, a Company Material Adverse Effect.
4.5
SEC
Filings
. The Company has filed all forms,
reports, statements, certifications and other documents (including all exhibits,
amendments and supplements thereto) required to be filed by it with the SEC
since January 1, 2010 (collectively, the
Company SEC Reports
). None of the
Companys Subsidiaries is required to file periodic reports with the SEC
pursuant to the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC promulgated thereunder (the
Exchange Act
). Each of
the Company SEC Reports, as amended prior to the date of this Agreement,
complied as to form in all material respects with the applicable requirements of
the Securities Act of 1933, as amended, and the rules and regulations of the SEC
promulgated thereunder (the
Securities
Act
) and the Exchange Act, each as in
effect on the date so filed (or if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such subsequent filing). None of
the Company SEC Reports contained, when filed or, if amended or supplemented
prior to the date hereof, as of the date of such amendment or supplement, any
untrue statement of a material fact or omitted to state a material fact required
to be stated or incorporated by reference therein or necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. There are no outstanding or unresolved comments in comment
letters received from the SEC with respect to the Company SEC Reports. To the
Knowledge of the Company, as of the date hereof, none of the Company SEC Reports
is subject to ongoing SEC review. None of the Subsidiaries of the Company is
required to file or furnish reports with the SEC pursuant to the Exchange Act.
4.6
Financial Statements
.
(a)
Each of
the financial statements included (or incorporated by reference) in the Company
SEC Reports (including the related notes, where applicable), after giving effect
to any restatements made by the Company prior to the date of this Agreement,
fairly present in all material respects (subject, in the case of the unaudited
statements, to normal recurring adjustments, none of which would be reasonably
expected to result in, individually or in the aggregate, a Company Material
Adverse Effect) the results of the consolidated operations and changes in
shareholders equity and consolidated financial position of the Company and its
Subsidiaries for the respective fiscal periods or as of the respective dates
therein set forth. Each of such financial statements (including the related
notes, where applicable), after giving effect to any restatements made by the
Company prior to the date of this Agreement, complies in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto and each of such financial
statements (including the related notes, where applicable) has been prepared in
accordance with GAAP, as in effect on the date or for the period with respect to
which such principles are applied, in all material respects consistently applied
during the periods involved, except in each case as indicated in such statements
or in the notes thereto or, in the case of unaudited statements, as permitted by
Form 10-Q. The books and records of the Company and its Subsidiaries have been,
and are being, maintained in all material respects in accordance with GAAP and
any other applicable legal and accounting requirements and reflect only actual
transactions.
-13-
(b)
The records, systems, controls, data and information of the Company and
its Subsidiaries are recorded, stored, maintained and operated under means
(including any electronic, mechanical or photographic process, whether
computerized or not) that are under the exclusive ownership and direct control
of the Company or its Subsidiaries or accountants (including all means of access
thereto and therefrom), except for any non-exclusive ownership and non-direct
control that would not reasonably be expected to have a material adverse effect
on the system of internal accounting controls described below in this Section
4.6(b). The Company (i) has established and maintains disclosure controls and
procedures (as defined in Rule 13a-15(e) of the Exchange Act) to ensure that
material information relating to the Company, including its consolidated
Subsidiaries, is made known to the chief executive officer and the chief
financial officer of the Company by others within those entities and (ii) has
disclosed, based on its most recent evaluation prior to the date hereof, to the
Companys outside auditors and the audit committee of the Company Board (A) any
significant deficiencies and material weaknesses in the design or operation of
internal controls over financial reporting (as defined in Rule 13a-15(f) of the
Exchange Act) which are reasonably likely to adversely affect the Companys
ability to record, process, summarize and report financial information and (B)
any fraud, whether or not material, that involves management or other employees
who have a significant role in the Companys internal controls over financial
reporting. These disclosures were made in writing by management to the Companys
auditors and audit committee and a copy has previously been made available to
Parent.
4.7
Brokers Fees
. Except for the
Companys engagement of UBS Securities LLC, neither the Company nor any of its
Subsidiaries has employed any broker or finder or incurred any liability for any
brokers fees, commissions or finders fees in connection with any of the
transactions contemplated by this Agreement.
4.8
Absence of Certain Changes or Events
.
(a)
Except
as set forth in Section 4.8(a) of the Company Disclosure Schedule, since
September 30, 2011, no event has occurred which would reasonably be expected to
result in, individually or in the aggregate, a Company Material Adverse Effect.
(b)
Except
as set forth in Section 4.8(b) of the Company Disclosure Schedule or as
contemplated by this Agreement or permitted under Section 6.2, since September
30, 2011, the Company and its Subsidiaries have carried on their respective
businesses in all material respects in the ordinary course of business.
4.9
Legal Proceedings
.
(a)
As of
the date of this Agreement, except as set forth in Section 4.9(a)(1) of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is
a party to any, and there are no pending or, to the Knowledge of the Company (as
defined below), threatened, material legal, administrative, arbitral or other
proceedings, claims, actions or governmental or regulatory investigations of any
nature (i) against the Company or any of its Subsidiaries that would reasonably
be expected to result in, individually or in the aggregate, a Company Material
Adverse Effect or (ii) challenging the validity or propriety of the transactions
contemplated by this Agreement. Knowledge of the Company means the actual
knowledge of the directors and executive officers of the
Company listed in Section 4.9(a)(2) of the Company Disclosure Schedule, in each
case without such individual being obligated to conduct any special inquiry or
investigation into the affairs or records of the Company. The directors and
executive officers of the Company listed in Section 4.9(a)(2) of the Company
Disclosure Schedule shall not be deemed to have knowledge (actual, constructive
or otherwise) of any fact, event, condition or occurrence known or deemed to be
known by any other Person other than as expressly set forth in the foregoing
sentence.
(b)
As of the date of this Agreement, except as set forth in Section 4.9(b)
of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries or any of their businesses or properties are subject to or bound by
any injunction, order, judgment, decree or regulatory restriction of any
Governmental Entity specifically imposed upon the Company, any of its
Subsidiaries or the assets of the Company or any of its Subsidiaries which would
reasonably be expected to result in, individually or in the aggregate, a Company
Material Adverse Effect.
-14-
4.10
Taxes
.
(a)
Except
as set forth in Section 4.10(a) of the Company Disclosure Schedule: (i) each of
the Company and its Subsidiaries has (A) duly and timely filed (including
pursuant to applicable extensions granted without penalty) all material Tax
Returns (as hereinafter defined) required to be filed by it, and such Tax
Returns are true, correct and complete in all material respects, and (B) paid in
full all Taxes (as hereinafter defined) shown as due on such Tax Returns; (ii)
no material deficiencies for any Taxes have been proposed, asserted or assessed
in writing against the Company or any of its Subsidiaries which deficiencies
have not since been resolved; and (iii) there are no material Liens for Taxes
upon the assets of either the Company or its Subsidiaries except for statutory
liens for current Taxes not yet due or Liens for Taxes that are being contested
in good faith by appropriate proceedings and for which reserves adequate in
accordance with GAAP have been provided.
(b)
Since
January 1, 2010, neither the Company nor any of its Subsidiaries (i) is or has
ever been a member of an affiliated group (other than a group the common
parent of which is the Company) filing a consolidated federal income tax return,
or (ii) has any liability for Taxes of any Person (other than the Company and
its Subsidiaries) arising from the application of Treasury Regulation section
1.1502-6 or any analogous provision of state, local or non-U.S. law.
(c)
Since
January 1, 2010, except as set forth in Section 4.10(c) of the Company
Disclosure Schedule, no closing agreement pursuant to Section 7121 of the Code
(or any similar provision of state, local or non-U.S. law) has been entered into
by or with respect to the Company or any of its Subsidiaries.
(d)
None of
the Company or any of its Subsidiaries has been a distributing corporation or
a controlled corporation in any distribution occurring during the last two
years in which the parties to such distribution treated the distribution as one
to which Section 355 of the Code is applicable.
(e)
Neither the Company nor any of its Subsidiaries has granted any waiver of
any federal, state, local or non-U.S. statute of limitations with respect to, or
granted any extension of a period for the assessment of, any Tax, which waiver
or extension has not since expired.
(f)
As used
herein,
Taxes
shall mean all taxes, levies or other assessments imposed by
any United States federal, state, local or non-U.S. taxing authority, including
income, excise, property, sales, transfer, franchise, payroll, withholding,
social security or other similar taxes, including any interest or penalties
attributable thereto.
(g)
As used
herein,
Tax Return
shall mean any return, report, information return or other
document (including any related or supporting information) required to be filed
with any taxing authority with respect to Taxes, including all information
returns relating to Taxes of third parties, any claims for refunds of Taxes and
any amendments or supplements to any of the foregoing.
4.11
Employee Benefit Plans
.
(a)
Section
4.11(a) of the Company Disclosure Schedule sets forth a true and complete list
or description of each material employee compensation or benefit plan,
arrangement, policy, program or agreement and any material amendments or
modifications thereof (including whether or not subject to the Employee
Retirement Income Security Act of 1974, as amended (
ERISA
) that is
sponsored by, or maintained or contributed to as of the date of this Agreement
by the Company or any of its Subsidiaries (collectively, the
Company Benefit Plans
). Copies of such Company Benefit Plans (and, if applicable, related
trust or funding agreements or insurance policies) and all amendments thereto
and written interpretations thereof have been furnished to Parent together with
the most recent annual report (Form 5500 including, if applicable, Schedule B
thereto) and tax return (Form 990) prepared in connection with any such plan or
trust.
(b)
Except
as set forth in Section 4.11(b) of the Company Disclosure Schedule, neither the
Company nor any Person treated as a single employer with the Company under
Section 414(b), (c), (m) or (o) of the Code maintains or is required to
contribute to any Company Benefit Plan that (i) is a multiemployer plan as
defined in Sections 3(37) of ERISA, (ii) is subject to the funding requirements
of Section 412 of the Code or Title IV of ERISA, or (iii) provides for
post-retirement medical, life insurance or other welfare-type benefits (other
than as required by Part 6 of Subtitle B of Title I of ERISA or Section 4980B of
the Code or under a similar state law).
-15-
(c)
The
Company Benefit Plans and their related trusts intended to qualify under
Sections 401 and 501(a) of the Code are subject to a favorable determination or
opinion letter from the IRS and, to the Knowledge of the Company, nothing has
occurred that is reasonably likely to result in the revocation of such letter,
except where the failure to so comply would not reasonably be expected to result
in, individually or in the aggregate, a Company Material Adverse Effect.
(d)
The Company Benefit Plans have been maintained and administered in all
material respects in accordance with their terms and applicable laws except
where the failure to so comply would not reasonably be expected to result in,
individually or in the aggregate, a Company Material Adverse Effect, it being
understood that it shall not be a breach of this representation or any other
representation in this Agreement if as a result of the transactions contemplated
by this Agreement (or otherwise on or after the date of this Agreement) any
pension plan is required to be funded or terminated.
(e)
As of
the date of this Agreement, there are no suits, actions, disputes, claims (other
than routine claims for benefits), arbitrations, audits, examinations,
administrative or other proceedings pending or, to the Knowledge of the Company,
threatened with respect to any Company Benefit Plan or any related trust or
other funding medium thereunder or with respect to the Company as the sponsor or
fiduciary thereof, which would reasonably be expected to have a Company Material
Adverse Effect.
4.12
Compliance With Applicable Law
.
(a)
Except
as set forth in Section 4.12(a) of the Company Disclosure Schedule, the Company
and each of its Subsidiaries hold all licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under and pursuant to, and have complied with and are not in violation in any
material respect under, any applicable law, statute, order, rule or regulation
of any Governmental Entity relating to the Company or any of its Subsidiaries,
except where the failure to hold such license, franchise, permit or
authorization or such non-compliance or violation would not, individually or in
the aggregate, reasonably be expected to result in a Company Material Adverse
Effect, and neither the Company nor any of its Subsidiaries has received written
notice of any violations of any of the above which, individually or in the
aggregate, would reasonably be expected to result in a Company Material Adverse
Effect.
(b)
Since
the enactment of the Sarbanes-Oxley Act, the Company has been and is in
compliance in all material respects with (i) the applicable provisions of the
Sarbanes-Oxley Act and (ii) the applicable listing standards of the NASDAQ Stock
Market, including those related to corporate governance.
4.13
Certain Contracts
.
(a)
Except
as set forth in Section 4.13(a) of the Company Disclosure Schedule, as of the
date hereof, neither the Company nor any of its Subsidiaries is a party to or is
bound by any contract, arrangement, commitment or understanding (whether written
or oral) (i) which is a material contract (as defined in Item 601(b)(10) of
Regulation S-K of the SEC) to be performed after the date of this Agreement,
(ii) which restricts the rights of the Company or any of its Subsidiaries to
compete in any line of business in any geographic area or with any Person, or
which requires exclusive referrals of business or requires the Company or any of
its Subsidiaries to offer specified products or services to their customers on a
priority or exclusive basis, (iii) with or to a labor union or guild (including
any collective bargaining agreement), (iv) which relates to the incurrence of
indebtedness in the principal amount of $4,000,000 or more, (v) which grants any
Person a right of first refusal, right of first offer or similar right with respect to any material properties, assets or businesses
of the Company or its Subsidiaries, or (vi) which involves the purchase or sale
of assets with a purchase price of $750,000 or more in any single case or
$4,000,000 in all such cases. Each contract, arrangement, commitment or
understanding of the type described in this Section 4.13(a), whether or not
publicly disclosed in the Company SEC Reports filed prior to the date hereof or
set forth in Section 4.13(a) of the Company Disclosure Schedule, is referred to
herein as a
Company
Contract
, and neither the Company nor
any of its Subsidiaries has received written notice of any material violation of
a Company Contract by any of the other parties thereto. The Company has made
available all contracts which involved payments by the Company or any of its
Subsidiaries in fiscal year 2011 of more than $2,500,000 or which could
reasonably be expected to involve payments during fiscal year 2012 of more than
$2,500,000 other than any such contract that is terminable at will on sixty (60)
days or less notice without payment of a penalty in excess of $2,500,000, other
than any contract entered into on or after the date hereof that is permitted
under the provisions of Section 6.2.
-16-
(b)
Except as set forth in Section 4.13(b) of the Company Disclosure
Schedule, (i) each Company Contract is valid and binding on the Company and in
full force and effect (other than due to the ordinary expiration of the term
thereof), and, to the Knowledge of the Company, is valid and binding on the
other parties thereto, in each case, as enforceability may be limited by the
Bankruptcy and Equity Exceptions, (ii) the Company and each of its Subsidiaries
has in all material respects performed all obligations required to be performed
by it to date under each Company Contract, and (iii) no event or condition
exists which constitutes or, after notice or lapse of time or both, would
constitute a material default on the part of the Company or any of its
Subsidiaries under any such Company Contract, except, in each case, with respect
to the foregoing clauses (i) through (iii) as would not reasonably be expected
to result in, either individually or in the aggregate, a Company Material
Adverse Effect.
4.14
Undisclosed Liabilities
. Except for
(a) liabilities that are fully reflected or reserved against on the consolidated
balance sheet of the Company included in the Companys Quarterly Report on Form
10-Q for the quarter ended September 30, 2011, (b) liabilities incurred in the
ordinary course of business consistent with past practice, (c) liabilities
arising under the terms of (but not from any breach or default under) any
agreement, contract, commitment, license, permit, lease or other instrument or
obligation that is either (x) disclosed in the Company Disclosure Schedule or
(y) not required to be so disclosed by the terms of this Agreement (and
including any of the foregoing types of instruments or obligations that are
entered into or obtained after the date of this Agreement, as long such action
does not result in a breach of this Agreement), (d) liabilities incurred
pursuant to or in connection with this Agreement or the transactions
contemplated hereby or (e) liabilities that would not reasonably be expected to
result in, individually or in the aggregate, a Company Material Adverse Effect,
neither the Company nor any of its Subsidiaries has any liability of any nature
whatsoever (whether absolute, accrued or contingent or otherwise and whether due
or to become due) that would be required by GAAP to be reflected in the
consolidated balance sheet of the Company.
4.15
Anti-Takeover Provisions
. No state
takeover statute or similar statute or regulation applies or purports to apply
to the Company with respect to this Agreement, the Mergers or any of the
transactions contemplated by this Agreement.
4.16
Company Information
. The information
relating to the Company and its Subsidiaries to be provided by the Company for
inclusion in the Proxy Statement/Prospectus will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances in which they are made,
not misleading. The Proxy Statement/Prospectus (except for such portions thereof
as relate only to Parent, Merger Subs or any of their respective Subsidiaries)
will comply as to form in all material respects with the Exchange Act.
4.17
Title to Property
.
(a)
Real
Property
. Except as disclosed in Section
4.17(a) of the Company Disclosure Schedule, the Company and its Subsidiaries do
not own any real property. All real property and fixtures material to the
business, operations or financial condition of the Company and its Subsidiaries
are in substantially good condition and repair except as would not reasonably be
expected to result in, individually or in the aggregate, a Company Material
Adverse Effect.
(b)
Personal Property
. The Company and its
Subsidiaries have good, valid and marketable title to all tangible personal
property owned by them on the date hereof, free and clear of all Liens other
than Permitted Liens, except where the failure to have such title would not
reasonably be expected to result in, either individually or in the aggregate, a
Company Material Adverse Effect. With respect to personal property used in the
business of the Company and its Subsidiaries which is leased rather than owned,
neither the Company nor any Subsidiary thereof is in default under the terms of
any such lease the loss of which would reasonably be expected to result in,
either individually or in the aggregate, a Company Material Adverse Effect.
(c)
Leased Property
. All leases of real
property and all other leases material to the Company and its Subsidiaries under
which the Company or a Subsidiary, as lessee, leases real or personal property
are valid and binding in accordance with their respective terms, there is not
under such lease any material existing default by the Company or such Subsidiary
or, to the Knowledge of the Company, the lessors thereunder, or any event which
with notice or lapse of time would constitute such a default, and in the case of
real estate leases the Company or such Subsidiary quietly enjoys the premises
provided for in such lease except, in each case, as would not reasonably be
expected to result in, individually or in the aggregate, a Company Material
Adverse Effect.
-17-
As used
herein,
Permitted
Liens
means (i) Liens publicly disclosed
in the Company SEC Reports filed prior to the date hereof, (ii) Liens disclosed
in Section 4.17 of the Company Disclosure Schedule, (iii) Liens for current
Taxes not yet due and payable and other standard exceptions commonly found in
title policies in the jurisdiction where the property is located, (iv) such
encumbrances and imperfections of title, if any, as do not materially detract
from the value of the properties and do not materially interfere with the
present or proposed use of such properties or otherwise materially impair such
operations, (v) Liens imposed or promulgated by laws with respect to real
property and improvements, including zoning regulations, (vi) mechanics,
carriers, workmens, repairmens and similar Liens incurred in the ordinary
course of business or (vii) Liens that would not reasonably be expected to
result in, individually or in the aggregate, a Company Material Adverse Effect.
4.18
Insurance
. The Company and
its Subsidiaries are insured with reputable insurers against such risks and in
such amounts as the management of the Company reasonably has determined to be
prudent in accordance with industry practice (taking into account the cost and
availability of such insurance), except as would not reasonably be expected to
result in, individually or in the aggregate, a Company Material Adverse Effect.
The Company and its Subsidiaries are in compliance with their insurance
policies, including any State Self Insurance program, and are not in default
under any of the terms thereof, except for any such non-compliance or default
that would not reasonably be expected to result in a Company Material Adverse
Effect. Each such policy is outstanding and in full force and effect (other than
due to the ordinary expiration of the term thereof) and, except as set forth on
Section 4.18 of the Company Disclosure Schedule. All premiums and other payments
due under any such policy have been paid.
4.19
Environmental Liability
. Except as set
forth in Section 4.19 of the Company Disclosure Schedule, to the Knowledge of
the Company, neither the Company nor any of its Subsidiaries has received any
written notice of any legal, administrative, arbitral or other proceedings,
claims, actions, causes of action or, to the Knowledge of the Company, private
environmental investigations or remediation activities or governmental
investigations of any nature seeking to impose, or that reasonably would
reasonably be expected to result in the imposition, on the Company or any of its
Subsidiaries of any liability or obligation arising under common law standards
relating to protection of the environment or human health, or under any local,
state or federal environmental statute, regulation or ordinance, including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (collectively,
Environmental
Laws
), which liability
or obligation would reasonably be expected to result in a Company Material
Adverse Effect. To the Knowledge of the Company, during or prior to the period
of (a) its or any of its Subsidiaries ownership or operation of any of their
respective current properties, (b) its or any of its Subsidiaries participation
in the management of any property, or (c) its or any of its Subsidiaries
holding of a security interest or other interest in any property, there were no
releases or threatened releases of hazardous, toxic, radioactive or dangerous
materials or other materials regulated under Environmental Laws in, on, under or
affecting any such property which would reasonably be expected to result in a
Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries
is subject to any agreement, order, judgment, decree, letter or memorandum by or
with any Governmental Entity or third Person imposing any material liability or
obligation pursuant to or under any Environmental Law that would reasonably be
expected to result in a Company Material Adverse Effect. To the Knowledge of the
Company, the Company and its Subsidiaries are in compliance with all
Environmental Laws, including possessing all material permits required for its
currently conducted operations under applicable Environmental Laws, except, in
each case, for any such non-compliance that, individually or in the aggregate,
would not reasonably be expected to result in a Company Material Adverse Effect.
Notwithstanding any other provision of this Agreement to the contrary (including
Section 4.12), the representations and warranties of the Company in this Section
4.19 constitute the sole representations and warranties of the Company with
respect to any matter (including any liability) relating to Environmental Laws.
4.20
Intellectual Property
. The Company and
its Subsidiaries own, or are validly licensed or otherwise have the right to
use, all patents, patent applications, patent rights, trademarks, trademark
rights, trade names, trade name rights, service marks, service mark rights, copyrights, trade secrets, designs, domain names, lists, data, databases,
processes, methods, schematics, technology, know-how, documentation, and other
proprietary intellectual property rights and any such rights in computer
programs (collectively,
Intellectual
Property Rights
) as used in their
business as presently conducted, except where the failure to have the right to
use such Intellectual Property Rights, individually or in the aggregate, has not
had and would not reasonably be expected to have a Company Material Adverse
Effect. No actions, suits or other proceedings are pending or, to the Knowledge
of the Company, threatened that the Company or any of its Subsidiaries is
infringing, misappropriating or otherwise violating the rights of the Company or
any of its Subsidiaries with respect to any Intellectual Property Right owned by
the Company or any of its Subsidiaries, expect for such infringement,
misappropriation or violation that, individually or in the aggregate, would not
reasonably be expected
-18-
to have, individually or in the aggregate, a Company
Material Adverse Effect. Notwithstanding any other provision of this Agreement
to the contrary, the representations and warranties of the Company in this
Section 4.20 constitute the sole representations and warranties of the Company
with respect to any matter (including any liability) relating to intellectual
property matters.
4.21
Communications Regulatory Matters
.
(a)
The
Company and each of its Subsidiaries hold (i) all approvals, authorizations,
certificates and licenses issued by the FCC or the State Regulators that are
required for the Company and each of its Subsidiary to conduct its business as
presently conducted, which approvals, authorizations, certificates and licenses
are set forth in Section 4.21(a) of the Company Disclosure Schedule, and (ii)
all other material regulatory permits, approvals, licenses and other
authorizations, including franchises, ordinances and other agreements granting
access to public rights of way, issued or granted to the Company or any of its
Subsidiaries by a Governmental Entity that are required for the Company and each
of its Subsidiaries to conduct its business, as presently conducted (clause (i)
and (ii) collectively, the
Licenses
).
(b)
Each
License is valid and in full force and effect and has not been suspended,
revoked, canceled or adversely modified, except where the failure to be in full
force and effect, or the suspension, revocation, cancellation or modification of
which would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. No License is subject to (i) any
conditions or requirements that have not been imposed generally upon licenses in
the same service, unless such conditions or requirements would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect, or (ii) any pending regulatory proceeding or judicial review before a
Governmental Entity, unless such pending regulatory proceeding or judicial
review would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. To the Knowledge of the Company,
there has been no event, condition or circumstance that would preclude any
License from being renewed in the ordinary course (to the extent that such
License is renewable by its terms), except where the failure to be renewed would
not reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
(c)
The
licensee of each License is in compliance with each License and has fulfilled
and performed all of its obligations with respect thereto, including all
reports, notifications and applications required by the rules, regulations,
policies, instructions and orders of the FCC or the
State Regulators, and the payment of all regulatory fees and contributions,
except (i) for exemptions, waivers or similar concessions or allowances and (ii)
where such failure to be in compliance, fulfill or perform its obligations or
pay such fees or contributions would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
4.22
Labor Matters
. Neither the Company nor
any of its Subsidiaries is a party to or is bound by any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization, nor is the Company or any of its Subsidiaries the subject of
a proceeding asserting that it or any such Subsidiary has committed an unfair
labor practice (within the meaning of the National Labor Relations Act) or
seeking to compel the Company or any such Subsidiary to bargain with any labor
organization as to wages or conditions of employment, nor is there any strike or
other material labor dispute involving it or any of its Subsidiaries pending or,
to the Knowledge of the Company, threatened, nor, to the Knowledge of the
Company, is there any activity involving its or any of its Subsidiaries
employees seeking to certify a collective bargaining unit or engaging in other
organizational activity.
4.23
Transactions with Affiliates
. As of
the date of this Agreement, there are no transactions, agreements, arrangements
or understandings between the Company or any of the Subsidiaries of the Company,
on the one hand, and any Affiliate of the Company (other than the Subsidiaries
of the Company), on the other hand, of the type that would be required to be
disclosed under Item 404 of Regulation S-K under the Securities Act.
4.24
Opinion of Financial Advisor
. The
Company has received an opinion of UBS Securities LLC, financial advisor to the
Company, to the effect that, as of the date of such opinion, the consideration
to be received in the Mergers by the holders of the Company Common Stock is
fair, from a financial point of view, to the holders of the Company Common
Stock. A written copy of such opinion will be furnished, for informational
purposes, to Parent as promptly as practicable following the receipt thereof by
the Company. It is agreed and understood that such opinion may not be relied on
by Parent or Merger Subs.
-19-
4.25
Acknowledgement of the Company
. The
Company acknowledges and agrees that it has conducted its own independent review
and analysis of the business, assets, condition and operations of Parent and its
Subsidiaries. In entering into this Agreement, the Company has relied solely
upon its own investigation and analysis and the representations and warranties,
covenants and agreements of Parent and Merger Subs contained in this Agreement
and the Company (a) acknowledges that, other than as set forth in this
Agreement, none of Parent, either Merger Sub nor any of their respective
directors, officers, employees, Affiliates, agents or representatives makes or
has made any representation or warranty, either express or implied, as to the
accuracy or completeness of any of the information provided or made available to
the Company or its agents or representatives prior to the execution of this
Agreement, and (b) agrees, to the fullest extent permitted by law, that none of
Parent, Merger Sub nor any of their respective directors, officers, employees,
Affiliates, agents or representatives shall have any liability or responsibility
whatsoever to the Company on any basis (including in contract, tort or
otherwise) based upon any information provided or made available, or statements
made, to the Company prior to the execution of this Agreement.
4.26
No
Other Representations or Warranties
. Except
for the representations and warranties expressly contained in this Section 4,
neither the Company nor any other Person makes any other express or implied
representation or warranty with respect to the Company, the Companys
Subsidiaries or the transactions contemplated by this Agreement, and the Company
disclaims any other representations or warranties, whether made by the Company
or any of its affiliates, officers, directors, employees, agents or
representatives. Except for the representations and warranties expressly
contained in this Section 4, the Company hereby disclaims all liability and
responsibility for any representation, warranty, projection, forecast,
statement, or information made, communicated, or furnished (orally or in
writing) to Parent, Merger Subs or any of their Affiliates or representatives
(including any opinion, information, projection, or advice that may have been or
may be provided to Parent by any director, officer, employee, agent, consultant,
or representative of the Company or any of its Affiliates).
5.
REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUBS
Except as set forth in (a) Parents filings with the SEC required by the
Securities Act or the Exchange Act (excluding any disclosures set forth in any
section of any such report entitled Risk Factors or Forward-Looking
Statements or any other disclosures included in such filings to the extent that
they are forward-looking in nature) or (b) in the disclosure schedule of Parent
and Merger Subs delivered to the Company concurrently herewith (the
Parent Disclosure
Schedule
) (with specific reference to
the section of this Agreement to which the information stated in such Parent
Disclosure Schedule relates;
provided
that (i) disclosure in any
section of such Parent Disclosure Schedule shall be deemed to be disclosed with
respect to any other Section of this Agreement to the extent that it is
reasonably apparent from the face of such disclosure that such disclosure is
applicable or relevant to such other Section and (ii) the mere inclusion of an
item in such Parent Disclosure Schedule as an exception to a representation or
warranty shall not be deemed an admission that such item represents a material
exception or material fact, event or circumstance or that such item has had or
would have a Parent Material Adverse Effect (as hereinafter defined)), Parent
and Merger Subs hereby represent and warrant to the Company as follows:
5.1
Corporate Organization
.
(a) Parent
and each Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation. Parent and each
Merger Sub has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business currently conducted by it or the character or
location of the properties and assets owned or leased by it makes such licensing
or qualification necessary, except where the failure to be so licensed or
qualified would not reasonably be expected to result in a Parent Material
Adverse Effect. The copies of the charter documents of Parent and each Merger
Sub which have previously been made available to the Company are true, complete
and correct copies of such documents as in effect as of the date of this
Agreement. As used in this Agreement, a
Parent Material Adverse Effect
means (i) a material adverse effect on the business, results of operations or
financial condition of Parent and its Subsidiaries taken as a whole or (ii) a
material adverse effect on Parents or either Merger Subs ability to consummate
the transactions contemplated hereby on a timely basis;
provided, however,
that in
determining whether a Parent Material Adverse Effect has occurred, there shall
be excluded any effect on the Parent or its Subsidiaries relating to or arising
in connection with (A) any adverse change, effect, event or occurrence, state of
facts or developments to the extent the public announcement or the pendency of
this Agreement or the transactions contemplated hereby or any actions required
to be taken (or refrained from being taken) in compliance herewith or otherwise
with the consent of the other party hereto, including the impact thereof on
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the
relationships of Parent or any of its Subsidiaries with customers, suppliers,
distributors, consultants, employees or independent contractors or other third
parties with whom Parent or any of its Subsidiaries has any relationship and
including any litigation brought by any shareholder of the Company or Parent in
connection with the transactions contemplated hereby, (B) any failure by Parent
to meet any projections or forecasts for any period ending (or for which
revenues or earnings are released) on or after the date hereof, (C) any change
in federal, state, non-U.S. or local law, regulations, policies or procedures,
or interpretations thereof, GAAP or regulatory accounting requirements
applicable or potentially applicable to the industries in which Parent or its
Subsidiaries operate, (D) changes generally affecting the industries in which
Parent or its Subsidiaries operate that are not specifically related to Parent
and its Subsidiaries and do not have a materially disproportionate adverse
effect on the Parent and its Subsidiaries, taken as a whole, (E) changes in
economic conditions (including changes in the prevailing interest rates) in the
United States, in any region thereof, or in any non-U.S. or global economy or
(F) any attack on, or by, outbreak or escalation of hostilities or acts of
terrorism involving, the United States, or any declaration of war by the United
States Congress or any hurricane or other natural disaster.
(b)
The copies of the Articles of
Incorporation and Bylaws of Parent and each Merger Sub, and similar
organizational documents of each its Subsidiaries, which have previously been
made available to the Company are true, complete and correct copies of such
documents as in effect as of the date of this Agreement.
5.2
Capitalization
.
(a)
The
authorized capital stock of Parent consists of 100,000,000 shares of Common
Stock, par value $0.01 per share, and 10,000,000 shares of Preferred Stock, par
value $0.01 per share. As of the close of business on February 3, 2012 (the
Parent
Capitalization
Date
), there were 29,869,510 shares of Parents Common Stock
outstanding and no shares of Parents Preferred Stock outstanding. As of the
close of business on the Capitalization Date, no shares of Parent Stock were
reserved or to be made available for issuance, except as set forth in Section
5.2(a) of the Parent Disclosure Schedule. All of the issued and outstanding
shares of Parent Stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. As of the date of this Agreement,
except (i) as set forth in Section 5.2(a) of the Parent Disclosure Schedule,
(ii) pursuant to any cashless exercise provisions of any options or pursuant to
the surrender of shares to Parent or the withholding of shares by Parent to
cover tax withholding obligations under Parents stock plans and arrangements
set forth in Section 5.2(a) of the Parent Disclosure Schedule (collectively, and
in each case as the same may be amended to the date hereof, the
Parent Stock Plans
), and (iii) as set forth elsewhere in this Section 5.2(a),
Parent does not have and is not bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
purchase, sale, repurchase, redemption or issuance of any shares of Parent Stock
or any other equity securities of Parent or any
securities representing the right to purchase or otherwise receive any shares of
the Parent capital stock (including any rights plan or agreement). Since the
Parent Capitalization Date, Parent has not (i) issued or repurchased any shares
of its capital stock or any securities convertible into or exercisable for any
shares of its capital stock, other than upon the exercise of employee stock
options granted prior to such date and disclosed in this Section 5.2(a) or
pursuant to the surrender of shares to Parent or the withholding of shares by
Parent to cover tax withholding obligations under the Parent Stock Plans, or
(ii) issued or awarded any options, restricted shares or other equity-based
awards under the Parent Stock Plans.
(b)
The authorized capital stock of Merger Sub I consists of 100 shares of
common stock, par value $0.01 per share, all of which are issued and outstanding
and are owned, of record and beneficially, solely by Parent. The authorized
capital stock of Merger Sub II consists of 100 shares of common stock, par value
$0.01 per share, all of which are issued and outstanding and are owned, of
record and beneficially, solely by Parent.
(c)
Except
as set forth in Section 5.2(c) of the Parent Disclosure Schedule, neither Parent
nor any of its Subsidiaries own, directly or indirectly, any equity or similar
interest in, or any interest convertible into or exchangeable for, any equity or
similar interest in, any corporation, partnership, joint venture or other
similar business association or entity (other than its wholly owned
Subsidiaries), with respect to which securities Parent or any of its
Subsidiaries has invested (and currently owns) or is required to invest
$2,000,000 or more. Except as set forth in Section 5.2(c) of the Parent
Disclosure Schedule, Parent owns, directly or indirectly, all of the issued and
outstanding shares of capital stock of or all other equity interests in each of
Parents Subsidiaries free and clear of any Liens and all of such shares are
duly authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. Neither Parent nor any of its Subsidiaries has or is bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the
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purchase, repurchase, sale, redemption or
issuance of any shares of capital stock or any other equity security of any
Subsidiary of Parent or any securities representing the right to purchase or
otherwise receive any shares of capital stock or any other equity security of
any such Subsidiary.
5.3
Authority; No Violation
.
(a)
Parent
and each Merger Sub has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement, the Agreement of Merger and the
consummation of the transactions contemplated hereby and thereby, including the
Mergers, have been duly and validly approved by the Board of Directors of Parent
(
Parent Board
) and each Merger Sub and no other corporate proceedings on
the part of Parent or either Merger Sub are necessary to approve this Agreement,
the Agreement of Merger and the consummation of the transactions contemplated
hereby and thereby, including the Mergers, or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Parent and each Merger Sub and (assuming due authorization,
execution and delivery by the Company) constitutes a valid and binding
obligation of Parent and each Merger Sub, enforceable against Parent and each
Merger Sub in accordance with its terms, except as enforcement may be limited by
the Bankruptcy and Equity Exceptions. The Agreement of Merger, once duly and validly executed and delivered by Parent and each Merger
Sub (assuming due authorization, execution and delivery by the Company), will
constitute a valid and binding obligation of Parent and each Merger Sub,
enforceable against Parent and each Merger Sub in accordance with its terms,
except as enforcement may be limited by the Bankruptcy and Equity Exceptions.
(b)
Neither the execution and delivery of this Agreement or the Agreement of
Merger by Parent or either Merger Sub, nor the consummation by Parent or either
Merger Sub of the transactions contemplated hereby, including the Mergers will
(i) violate any provision of charter documents of Parent or either Merger Sub or
(ii) assuming that the consents, approvals and filings referred to in Section
5.4 are duly obtained or made, (A) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to Parent,
Merger Subs or any of their respective Subsidiaries or any of their respective
properties or assets, or (B) violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, or require redemption or
repurchase or otherwise require the purchase or sale of any securities,
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective properties or
assets of Parent, Merger Subs or any of their respective Subsidiaries under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which Parent, Merger Subs or any of their respective Subsidiaries is a party, or
by which they or any of their respective properties or assets may be bound or
affected, except (in the case of clause (ii) above) for such violations,
conflicts, breaches, defaults or other events which either individually or in
the aggregate would not reasonably be expected to result in a Parent Material
Adverse Effect.
5.4
Consents and Approvals
. Except as set
forth in Section 5.4 of the Parent Disclosure Schedule, no Consents of, or
filings or registrations with, any Governmental Entity or any third Person are
necessary in connection with (a) the execution and delivery by Parent or Merger
Subs of this Agreement or the Agreement of Merger or (b) the consummation by
Parent or Merger Subs of the transactions contemplated hereby and thereby,
including the Mergers, except for (i) any notices required to be filed under the
HSR Act, (ii) the Consents from, or registrations, declarations, notices or
filings made to or with the Federal FCC, or any Governmental Entity (including
State Regulators) and local cable franchise authorities) (other than with
respect to securities, antitrust, competition, trade regulation or similar
laws), in each case as may be required in connection with this Agreement, the
Mergers or the other transactions contemplated by this Agreement and are
required in with respect to mergers, business combinations or changes in control
of telecommunications companies generally, (iii) the filing with the SEC of the
Proxy Statement/Prospectus (as hereinafter defined) as well as any other filings
required to be made with the SEC pursuant to the Securities Act or the Exchange
Act, (iv) the filing of the Articles of Merger and related certificates with the
California Secretary pursuant to the CGCL, (v) Consents or approvals of, or
filings or registrations with, Governmental Entities or third parties, (vi) such
filings and approvals as may be required to be made under the state blue sky or
securities Laws or various states in connection with the issuance of shares of
Parent Stock pursuant to this Agreement and (vii) such filings as may be
required to cause the shares of Parent Stock to be issued pursuant this
Agreement to be approved for listing on the NASDAQ Global Select Market, the
failure of which to be obtained would not be reasonably expected to result in,
individually or in the aggregate, a Parent Material Adverse Effect.
-22-
5.5
SEC
Filings
. Parent has filed all forms, reports,
statements, certifications and other documents (including all exhibits,
amendments and supplements thereto) required to be filed by it with the SEC
since January 1, 2010 (collectively, the
Parent SEC Reports
). None of
Parents Subsidiaries is required to file periodic reports with the SEC pursuant
to the Exchange Act. Each of the Parent SEC Reports, as amended prior to the
date of this Agreement, complied as to form in all material respects with the
applicable requirements of the Securities Act and the Exchange Act, each as in
effect on the date so filed (or if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such subsequent filing). None of
the Parent SEC Reports contained, when filed or, if amended or supplemented
prior to the date hereof, as of the date of such amendment or supplement, any
untrue statement of a material fact or omitted to state a material fact required
to be stated or incorporated by reference therein or necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. There are no outstanding or unresolved comments in comment
letters received from the SEC with respect to the Parent SEC Reports. To the
Knowledge of Parent, as of the date hereof, none of the Parent SEC Reports is
subject to ongoing SEC review. None of the Subsidiaries of Parent is required to
file or furnish reports with the SEC pursuant to the Exchange Act.
5.6
Financial Statements
.
(a)
Each of
the financial statements included (or incorporated by reference) in the Parent
SEC Reports (including the related notes, where applicable), after giving effect
to any restatements made by Parent prior to the date of this Agreement, fairly
present in all material respects (subject, in the case of the unaudited
statements, to normal recurring adjustments, none of which would be reasonably
expected to result in, individually or in the aggregate, a Parent Material
Adverse Effect) the results of the consolidated operations and changes in
shareholders equity and consolidated financial position of Parent and its
Subsidiaries for the respective fiscal periods or as of the respective dates
therein set forth. Each of such financial statements (including the related
notes, where applicable), after giving effect to any restatements made by Parent
prior to the date of this Agreement, complies in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto and each of such financial statements (including
the related notes, where applicable) has been prepared in accordance with GAAP,
as in effect on the date or for the period with respect to which such principles
are applied, in all material respects consistently applied during the periods
involved, except in each case as indicated in such statements or in the notes
thereto or, in the case of unaudited statements, as permitted by Form 10-Q. The
books and records of Parent and its Subsidiaries have been, and are being,
maintained in all material respects in accordance with GAAP and any other
applicable legal and accounting requirements and reflect only actual
transactions.
(b)
The
records, systems, controls, data and information of Parent and its Subsidiaries
are recorded, stored, maintained and operated under means (including any
electronic, mechanical or photographic process, whether computerized or not)
that are under the exclusive ownership and direct control of Parent or its
Subsidiaries or accountants (including all means of access thereto and
therefrom), except for any non-exclusive ownership and non-direct control that
would not reasonably be expected to have a material adverse effect on the system
of internal accounting controls described below in this Section 5.6(b). Parent
(i) has established and maintains disclosure controls
and procedures (as defined in Rule 13a-15(e) of the Exchange Act) to ensure that
material information relating to Parent, including its consolidated
Subsidiaries, is made known to the chief executive officer and the chief
financial officer of Parent by others within those entities and (ii) has
disclosed, based on its most recent evaluation prior to the date hereof, to
Parents outside auditors and the audit committee of the Parent Board (A) any
significant deficiencies and material weaknesses in the design or operation of
internal controls over financial reporting (as defined in Rule 13a-15(f) of the
Exchange Act) which are reasonably likely to adversely affect Parents ability
to record, process, summarize and report financial information and (B) any
fraud, whether or not material, that involves management or other employees who
have a significant role in Parents internal controls over financial reporting.
These disclosures were made in writing by management to Parents auditors and
audit committee and a copy has previously been made available to the Company.
5.7
Brokers Fees
. Except as set forth in
Section 5.7 of the Parent Disclosure Schedule, neither Parent, Merger Subs nor
any of their respective Subsidiaries has employed any broker or finder or
incurred any liability for any brokers fees, commissions or finders fees in
connection with any of the transactions contemplated by this Agreement.
-23-
5.8
Absence of Certain Changes or Events
.
(a)
Except
as set forth in Section 5.8(a) of the Parent Disclosure Schedule, since
September 30, 2011, no event has occurred which would reasonably be expected to
result in, individually or in the aggregate, a Parent Material Adverse Effect.
(b)
Except
as set forth in Section 5.8(b) of the Parent Disclosure Schedule or as
contemplated by this Agreement or permitted under Section 6.3, since September
30, 2011, Parent and its Subsidiaries have carried on their respective
businesses in all material respects in the ordinary course of business.
5.9
Legal Proceedings
.
(a)
Neither
Parent, Merger Subs nor any of their respective Affiliates is a party to any,
and there are no pending or, to the knowledge of Parent, threatened, material
legal, administrative, arbitral or other material proceedings, claims, actions
or governmental or regulatory investigations of any nature challenging the
validity or propriety of the transactions contemplated by this Agreement. As
used herein, to the knowledge of Parent shall mean the actual knowledge of the
officers of Parent and Merger Subs listed in Section 5.9 of the Parent
Disclosure Schedule.
(b)
Except
as set forth in Section 5.9(b) of the Parent Disclosure Schedule, there is no
injunction, order, judgment, decree or regulatory restriction of any
Governmental Entity specifically imposed upon Parent, Merger Subs or any of
their respective Affiliates or the assets of Parent, Merger Subs or any of their
respective Affiliates which has resulted in or would reasonably be expected to
result in, individually or in the aggregate, a Parent Material Adverse Effect.
5.10
Taxes
.
(a)
Except as set forth in Section 5.10(a) of the Parent Disclosure Schedule:
(i) each of Parent and its Subsidiaries has (A) duly and timely filed (including
pursuant to applicable extensions granted without penalty) all material Tax
Returns (as hereinafter defined) required to be filed by it, and such Tax
Returns are true, correct and complete in all material respects, and (B) paid in
full all Taxes (as hereinafter defined) shown as due on such Tax Returns; (ii)
no material deficiencies for any Taxes have been proposed, asserted or assessed
in writing against Parent or any of its Subsidiaries which deficiencies have not
since been resolved; and (iii) there are no material Liens for Taxes upon the
assets of either Parent or its Subsidiaries except for statutory liens for
current Taxes not yet due or Liens for Taxes that are being contested in good
faith by appropriate proceedings and for which reserves adequate in accordance
with GAAP have been provided.
(b)
Since
January 1, 2010, neither Parent nor any of its Subsidiaries (i) is or has ever
been a member of an affiliated group (other than a group the common parent of
which is Parent) filing a consolidated federal income tax return, or (ii) has
any liability for Taxes of any Person (other than Parent and its Subsidiaries)
arising from the application of Treasury Regulation section 1.1502-6 or any
analogous provision of state, local or non-U.S. law.
(c)
Since
January 1, 2010, no closing agreement pursuant to Section 7121 of the Code (or
any similar provision of state, local or non-U.S. law) has been entered into by
or with respect to Parent or any of its Subsidiaries.
(d)
None of
Parent or any of its Subsidiaries has been a distributing corporation or a
controlled corporation in any distribution occurring during the last two years
in which the parties to such distribution treated the distribution as one to
which Section 355 of the Code is applicable.
(e)
Neither
Parent nor any of its Subsidiaries has granted any waiver of any federal, state,
local or non-U.S. statute of limitations with respect to, or granted any
extension of a period for the assessment of, any Tax, which waiver or extension
has not since expired.
(f)
To the
Knowledge of Parent, it has not taken or agreed to take any action, failed to
take any action, or knows of any fact, agreement, plan or other circumstance
that is reasonably likely to prevent the Mergers from constituting a
reorganization within the meaning of Section 368(a) of the Code.
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5.11
Employee Benefit Plans
. Except as set
forth in Section 5.11 of the Parent Disclosure Schedule, neither Parent nor any
Person treated as a single employer with Parent under Section 414(b), (c), (m)
or (o) of the Code maintains or is required to contribute to any Company Benefit
Plan that (i) is a multiemployer plan as defined in Sections 3(37) of ERISA,
(ii) is subject to the funding requirements of Section 412 of the Code or Title
IV of ERISA, or (iii) provides for post-retirement medical, life insurance or
other welfare-type benefits (other than as required by Part 6 of Subtitle B of
Title I of ERISA or Section 4980B of the Code or under a similar state law).
5.12
Compliance With Applicable Law
.
(a)
Except as set forth in Section 5.12(a) of the Parent Disclosure Schedule,
Parent and each of its Subsidiaries hold all licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under and pursuant to, and have complied with and are not in violation in any
material respect under, any applicable law, statute, order, rule or regulation
of any Governmental Entity relating to Parent or any of its Subsidiaries, except
where the failure to hold such license, franchise, permit or authorization or
such non-compliance or violation would not, individually or in the aggregate,
reasonably be expected to result in a Parent Material Adverse Effect, and
neither Parent nor any of its Subsidiaries has received written notice of any
violations of any of the above which, individually or in the aggregate, would
reasonably be expected to result in a Parent Material Adverse Effect.
(b)
Since
the enactment of the Sarbanes-Oxley Act, Parent has been and is in compliance in
all material respects with (i) the applicable provisions of the Sarbanes-Oxley
Act and (ii) the applicable listing standards of the NASDAQ Stock Market,
including those related to corporate governance.
5.13
Certain Contracts
. (i) Each Parent
Contract is valid and binding on Parent and in full force and effect (other than
due to the ordinary expiration of the term thereof), and, to the Knowledge of
Parent, is valid and binding on the other parties thereto, in each case, as
enforceability may be limited by the Bankruptcy and Equity Exceptions, (ii)
Parent and each of its Subsidiaries has in all material respects performed all
obligations required to be performed by it to date under each Parent Contract,
and (iii) no event or condition exists which constitutes or, after notice or
lapse of time or both, would constitute a material default on the part of Parent
or any of its Subsidiaries under any such Parent Contract, except, in each case,
with respect to the foregoing clauses (i) through (iii) as would not reasonably
be expected to result in, either individually or in the aggregate, a Parent
Material Adverse Effect. As used in this Agreement, a
Parent Contract
means
any contract, arrangement, commitment or understanding (whether written or oral)
by which Parent or any of its Subsidiaries is a party to or is bound by (i)
which is a material contract (as defined in Item 601(b)(10) of Regulation S-K of
the SEC) to be performed after the date of this Agreement, (ii) which restricts
the rights of Parent or any of its Subsidiaries to compete in any line of
business in any geographic area or with any Person, or which requires exclusive
referrals of business or requires Parent or any of its Subsidiaries to offer
specified products or services to their customers on a priority or exclusive
basis, (iii) with or to a labor union or guild (including any collective
bargaining agreement), (iv) which relates to the incurrence of indebtedness in
the principal amount of $4,000,000 or more, (v) which grants any Person a right
of first refusal, right of first offer or similar right with respect to any
material properties, assets or businesses of Parent or its Subsidiaries, or (vi)
which involves the purchase or sale of assets with a purchase price of $750,000
or more in any single case or $4,000,000 in all such cases.
5.14
Undisclosed Liabilities
. Except for
(a) liabilities that are fully reflected or reserved against on the consolidated
balance sheet of Parent included in Parents Quarterly Report on Form 10-Q for
the quarter ended September 30, 2011, (b) liabilities incurred in the ordinary
course of business consistent with past practice, (c) liabilities arising under
the terms of (but not from any breach or default under) any agreement, contract,
commitment, license, permit, lease or other instrument or obligation that is
either (x) disclosed in the Parent Disclosure Schedule or (y) not required to be
so disclosed by the terms of this Agreement (and including any of the foregoing types of instruments or obligations that are entered
into or obtained after the date of this Agreement, as long such action does not
result in a breach of this Agreement), (d) liabilities incurred pursuant to or
in connection with this Agreement or the transactions contemplated hereby or (e)
liabilities that would not reasonably be expected to result in, individually or
in the aggregate, a Parent Material Adverse Effect, neither Parent nor any of
its Subsidiaries has any liability of any nature whatsoever (whether absolute,
accrued or contingent or otherwise and whether due or to become due) that would
be required by GAAP to be reflected in the consolidated balance sheet of Parent.
-25-
5.15
Environmental Liability
. Except as set
forth in Section 5.15 of the Parent Disclosure Schedule, to the Knowledge of
Parent, neither Parent nor any of its Subsidiaries has received any written
notice of any legal, administrative, arbitral or other proceedings, claims,
actions, causes of action or, to the Knowledge of Parent, private environmental
investigations or remediation activities or governmental investigations of any
nature seeking to impose, or that reasonably would reasonably be expected to
result in the imposition, on Parent or any of its Subsidiaries of any liability
or obligation arising under Environmental Laws, which liability or obligation
would reasonably be expected to result in a Parent Material Adverse Effect. To
the Knowledge of Parent, during or prior to the period of (a) its or any of its
Subsidiaries ownership or operation of any of their respective current
properties, (b) its or any of its Subsidiaries participation in the management
of any property, or (c) its or any of its Subsidiaries holding of a security
interest or other interest in any property, there were no releases or threatened
releases of hazardous, toxic, radioactive or dangerous materials or other
materials regulated under Environmental Laws in, on, under or affecting any such
property which would reasonably be expected to result in a Parent Material
Adverse Effect. Neither Parent nor any of its Subsidiaries is subject to any
agreement, order, judgment, decree, letter or memorandum by or with any
Governmental Entity or third Person imposing any material liability or
obligation pursuant to or under any Environmental Law that would reasonably be
expected to result in a Parent Material Adverse Effect. To the Knowledge of
Parent, Parent and its Subsidiaries are in compliance with all Environmental
Laws, including possessing all material permits required for its currently
conducted operations under applicable Environmental Laws, except, in each case,
for any such non-compliance that, individually or in the aggregate, would not
reasonably be expected to result in a Parent Material Adverse Effect.
Notwithstanding any other provision of this Agreement to the contrary (including
Section 5.12), the representations and warranties of Parent in this Section 5.15
constitute the sole representations and warranties of Parent with respect to any
matter (including any liability) relating to Environmental Laws.
5.16
Financing
.
(a)
Parent
has delivered to the Company true, correct and complete copies of the executed
commitment letter from Morgan Stanley Senior Funding, Inc. including any related
fee letter in redacted form (the
Debt
Commitment Letter
), pursuant to which,
and subject to the terms and conditions thereof, the lender party or parties
thereto have committed to lend the amounts set forth therein on the terms set
forth therein to Consolidated Communications, Inc., a Subsidiary of Parent
(
CCI
) for the purpose of funding the transactions contemplated by this
Agreement (the
Debt
Financing
).
(b)
As of the date hereof, the Debt Commitment Letter is in full force and
effect and has not been withdrawn or terminated or otherwise amended,
supplemented or modified in any respect. The Debt Commitment Letter, in the form
so delivered, is a legal, valid and binding obligation of CCI and, to the
knowledge of Parent as of the date hereof, the other party or parties thereto.
There are no side letters or other agreements, contracts or arrangements (except
for customary fee letters and engagement letters, complete copies of which have
been provided to the Company, with only the fee amounts and certain other terms
(none of which would adversely affect the amount or availability of the Debt
Financing) redacted) relating to the Debt Financing between Parent, Merger Subs
and CCI, on the one hand, and the provider or providers of the Debt Financing,
on the other hand. As of the date hereof, no event has occurred which, with or
without notice, lapse of time or both, would constitute a default or breach on
the part of CCI under any term, or a failure of any condition, of the Debt
Commitment Letter. Assuming the accuracy of the representations and warranties
set forth in Section 4 and compliance by the Company with its covenants and
agreements hereunder, as of the date of this Agreement neither Parent nor Merger
Subs has reason to believe that CCI would be unable to satisfy on a timely basis
any term or condition of the Debt Commitment Letter required to be satisfied by
it. Parent, CCI and/or Merger Subs have fully paid any and all commitment fees
or other fees required by the Debt Commitment Letter to be paid on or before the
date of this Agreement. Assuming the accuracy of the representations and
warranties set forth in Section 4 and compliance by the Company of its covenants
and agreement hereunder and subject to the satisfaction of the conditions of the
Debt Financing, the aggregate proceeds from the Debt Financing, together with
the cash and cash equivalents available to the Company (not needed for other
purposes), are sufficient to fund all of the amounts required to be provided by
Parent for the consummation of the transactions contemplated hereby, and are
sufficient for the satisfaction of all of Parents and each Merger Subs
obligations under this Agreement, including the payment of the Merger
Consideration, the Equity Award Consideration and the payment of all associated
costs and expenses of the Mergers (including any repayment or refinancing of
indebtedness of Parent, Merger Subs or the Company required in connection
therewith). There are no conditions precedent or other contingencies related to
the funding or investing, as applicable, of the full amount of the Debt
Financing, other than as expressly set forth in or contemplated by the Debt
Commitment Letter.
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(c)
As of
the date hereof, Parent has no knowledge of any direct or indirect limitation or
other restriction on the ability of the lender parties to the Debt Commitment
Letter to provide financing for other potential purchasers of the Company.
5.17
Parent Information
. The information
relating to Parent and its Subsidiaries (including Merger Subs) to be provided
by Parent to be contained in the Proxy Statement/Prospectus, any filing pursuant
to Rule 14a-12 or Rule 14a-6 under the Exchange Act or in any other document
filed with any other Governmental Entity in connection herewith, will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances in which
they are made, not misleading.
5.18
No
Business Activities by Merger Subs
. All of
the outstanding capital stock of each Merger Sub is owned by Parent. Neither
Merger Sub is not a party to any contract and has not conducted any activities
other than in connection with the organization of such Merger Sub, the negotiation and execution of this Agreement and the
consummation of the transactions contemplated hereby. Neither Merger Sub has any
Subsidiaries.
5.19
Ownership of Company Common Stock; No Other Agreements
. Neither Parent, Merger Subs nor any of their respective
Subsidiaries or, to the knowledge of Parent, any of their respective Affiliates
or associates (as such term is defined under the Exchange Act) (a) beneficially
owns, directly or indirectly, or (b) is a party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of, in
case of either clause (a) or (b), any Company Common Stock, in each case, except
in accordance with this Agreement, including the Merger. Neither Parent, Merger
Subs nor any of their respective Subsidiaries or, to the knowledge of Parent,
any of their respective Affiliates or associates (as such term is defined under
the Exchange Act) has entered into any contract or agreement with any officer or
director of the Company in connection with the transactions contemplated by this
Agreement.
5.20
Acknowledgement of Parent
. Parent
acknowledges and agrees that it has conducted its own independent review and
analysis of the business, assets, condition and operations of the Company and
its Subsidiaries. In entering into this Agreement, Parent has relied solely upon
its own investigation and analysis and the representations and warranties,
covenants and agreements of the Company contained in this Agreement and Parent
(a) acknowledges that, other than as set forth in this Agreement, none of the
Company nor any of its respective directors, officers, employees, Affiliates,
agents or representatives makes or has made any representation or warranty,
either express or implied, as to the accuracy or completeness of any of the
information provided or made available to Parent or its agents or
representatives prior to the execution of this Agreement, and (b) agrees, to the
fullest extent permitted by law, that none of the Company nor any of its
respective directors, officers, employees, Affiliates, agents or representatives
shall have any liability or responsibility whatsoever to Parent on any basis
(including in contract, tort or otherwise) based upon any information provided
or made available, or statements made, to Parent prior to the execution of this
Agreement.
5.21
No
Other Representations or Warranties
. Except
for the representations and warranties expressly contained in this Section 5,
none of Parent, either Merger Sub nor any other Person makes any other express
or implied representation or warranty with respect to the Parent, Parents
Subsidiaries, either Merger Sub or the transactions contemplated by this
Agreement, and Parent disclaims any other representations or warranties, whether
made by Parent, either Merger Sub or any of their respective affiliates,
officers, directors, employees, agents or representatives. Except for the
representations and warranties expressly contained in this Section 5, each of
Parent and each Merger Sub hereby disclaims all liability and responsibility for
any representation, warranty, projection, forecast, statement, or information
made, communicated, or furnished (orally or in writing) to the Company or any of
its Affiliates or representatives (including any opinion, information,
projection, or advice that may have been or may be provided to the Company by
any director, officer, employee, agent, consultant, or representative of Parent
or any of its Affiliates).
6.
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1
Conduct of Business of the Company Prior to the Effective
Time
. Except as expressly contemplated or
permitted by this Agreement, or as required by applicable law, rule or
regulation, during the period from the date of this Agreement to the Effective
Time, the Company shall, and shall cause each of its Subsidiaries to, conduct
its business in the ordinary course.
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6.2
Company Forbearances
. Except as set
forth in Section 6.2 of the Company Disclosure Schedule, as expressly
contemplated or permitted by this Agreement, as required by applicable law, rule
or regulation, or by any Governmental Entity or as required by a Company Benefit
Plan or as required by any agreement in effect on the date hereof (true and
correct copies of which have been delivered to Parent prior to the date of this
Agreement), during the period from the date of this Agreement to the Effective
Time, the Company shall not, and shall not permit any of its Subsidiaries to,
without the prior written consent of Parent (which consent shall not be
unreasonably withheld or delayed);
provided,
however,
that consent of Parent shall be
deemed to have been given if Parent does not object within five (5) business
days from the date on which request for such consent is provided by the Company
to Parent pursuant to the requirements of Section 10.3:
(a)
(i)
adjust, split, combine or reclassify its capital stock, (ii) set any record or
payment dates for the payment of any dividends or distributions on its capital
stock or make, declare or pay any dividend or make any other distribution on any
shares of its capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock, except that (x) the Company
may declare and pay regular quarterly cash dividends of $0.10 per share and (y)
any wholly owned Subsidiary of the Company may declare and pay dividends to its
parent and other wholly owned Subsidiaries of the Company, (iii) directly or
indirectly redeem, purchase or otherwise acquire, any shares of its capital
stock or any securities or obligations convertible into or exchangeable for any
shares of its capital stock (except pursuant to the exercise of stock options or
vesting of Company RSUs or restricted Company Common Stock outstanding as of the
date hereof or permitted to be issued under this Section 6.2 or pursuant to the
surrender of shares to the Company or the withholding of shares by the Company
to cover tax withholding obligations under the Company Stock Plans), or (iv)
grant any stock appreciation rights or grant any Person any right to acquire any
shares of its capital stock except in the ordinary course of business in
accordance with past practice, or issue, or commit to issue, sell, grant,
dispose of, pledge or otherwise encumber, or authorize or propose the issuance,
sale grant, disposition, pledge or other encumbrance of, any additional shares
of capital stock (except pursuant to the exercise of stock options or vesting or
settlement of awards under the Company Stock Plans outstanding as of the date
hereof or permitted to be issued under this Section 6.2), any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any additional shares of capital stock, or any other securities in
respect of, in lieu of, or in substitution for, any shares of its capital stock
outstanding on the date of this Agreement;
(b)
sell,
transfer, mortgage, encumber or otherwise dispose of any of its material assets
or material properties to any Person (other than a direct wholly owned
Subsidiary), by merger, consolidation, asset sale or other business combination
(including formation of a joint venture) or cancel, release or assign any
indebtedness to any such Person or any claims held by any such Person, in each
case, except (i) in the ordinary course of business consistent with past
practice, including sales of repossessed assets, (ii) dispositions of obsolete
or worthless assets, (iii) sales of loans,
receivables and other assets in the ordinary course of business consistent with
past practice and (iv) sales of immaterial assets which involve the sale of
assets with a purchase price of $750,000 or less in any single case or
$3,000,000 in all such cases;
(c) make any investment or acquisition, by purchase or other acquisition of
stock or other equity interests, by merger, consolidation, asset purchase or
other business combination, or by contributions to capital; or make any material
purchases of any property or assets, in or from any other Person other than a
wholly owned Subsidiary of the Company, except (i) as expressly required by the
terms of any contracts or agreements in force at the date of this Agreement and
set out in Section 6.2(c) of the Company Disclosure Schedule, (ii) as otherwise
permitted by this Section 6.2, and (iii) other acquisitions in the ordinary
course of business consistent with past practice and, in any case, involving
consideration in an aggregate amount not in excess of $5,000,000;
(d) enter
into, renew, extend, amend or terminate any contract, lease or agreement that is
or would be a Company Contract;
(e) other
than general pay increases, including in connection with promotions, made in the
ordinary course of business consistent with past practice, for employees,
directors or independent contractors generally or as provided by any agreement
in effect on the date hereof (true and correct copies of which have been
delivered to Parent prior to the date of this Agreement), (i) increase, or
commit to increase, the compensation or severance payable (including by granting
or increasing the rate or terms of any salary, bonus, pension or other
compensation pursuant to the terms of any employee benefit plan, policy,
agreement or arrangement) to any of its employees, directors or independent
contractors, (ii) pay any severance other than in the ordinary course of
business consistent with past practice or (iii) except as may be required, or
advisable, to comply with applicable law or contract, amend, establish or enter
into
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any pension, retirement, profit-sharing, severance, retention or welfare
benefit plan or agreement or incentive or employment, agreement with or for the
benefit of any employee, director or independent contractor or accelerate the
vesting of any stock options or other stock-based compensation;
(f)
amend
its Articles of Incorporation, bylaws or similar governing documents or similar
organizational documents of any of Subsidiary of the Company;
(g)
enter
into any new material line of business outside of its existing business;
(h)
assign,
transfer, lease, cancel, fail to renew or fail to extend any material Permit
issued by the FCC or any State Regulator;
(i)
incur
any indebtedness for borrowed money, issue any debt securities or assume,
guarantee or endorse or otherwise become responsible for the obligations of
another Person, or make any loans, advances of capital contributions to, or
investments in, any other Person, except in the ordinary course of business
consistent with past practice;
(j)
make or change any material Tax election or settle or compromise any
material Tax liability of the Company or any of its Subsidiaries;
(k)
make
any material changes in its accounting methods or method of Tax accounting,
practices or policies, except as may be required under applicable law, rule,
regulation or GAAP;
(l)
effect
or permit, with respect to the Company and any Subsidiary of the Company, a
plant closing or mass layoff, as such terms are defined under the Worker
Adjustment and Retraining Act of 1988, as amended;
(m)
except
as permitted pursuant to Section 7.7, take any action that is intended or may
reasonably be expected to result in any of the conditions to the Mergers set
forth in Section 8.1 or 8.2 not being satisfied; or
(n)
agree
to, or make any commitment to, take any of the actions prohibited by this
Section 6.2.
6.3
Parent Forbearances
. Except as set
forth in Section 6.3 of the Parent Disclosure Schedule, as expressly
contemplated or permitted by this Agreement, as required by applicable law, rule
or regulation, or by any Governmental Entity, during the period from the date of
this Agreement to the Effective Time, Parent shall not, and shall not permit any
of its Subsidiaries to, without the prior written consent of the Company (which
consent shall not be unreasonably withheld or delayed);
provided, however,
that
consent of the Company shall be deemed to have been given if the Company does
not object within five (5) business days from the date on which request for such
consent is provided by Parent to the Company pursuant to the requirements of
Section 10.3:
(a)
engage
in any material repurchase of, or any recapitalization or other change,
restructuring or reorganization with respect to, Parent Stock, including payment
of any dividend or other distribution in respect to shares of Parent Stock
(other than Parents regular quarterly cash dividends);
(b)
(i)
alter through merger, liquidation, reorganization, restructuring or in any other
manner the corporate structure or organization of Parent or (ii) engage in any
action or enter into any transaction or series of transactions, or permit any
action to be taken or transaction or series of transactions to be entered into,
that, in the case of either clause (i) or clause (ii), could reasonably be
expected to delay the consummation of, or otherwise adversely affect, the
Mergers or any of the other Transactions, including (x) withdrawing or
modifying, in a manner adverse to the Company, the approval by the Parent Board
of this Agreement, the Mergers or the issuance of Parent Stock or (y) engaging
in any action or entering into any transaction or series of transactions, or
permitting any action to be taken or transaction or series of transactions to be
entered into, that could reasonably be expected to delay or otherwise adversely
affect the funding of the full amount of the Debt Financing or the ability of
Parent and Merger Subs to pay the aggregate amount of cash consideration for the
shares of Company Common Stock determined pursuant to Article III (including the
aggregate Cash Consideration and cash in lieu of fractional shares of Parent
Stock to be paid pursuant to Section 3.1(d));
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(c)
without limiting the generality of Section 6.2(b), acquire (whether
through merger, consolidation, stock or asset purchase or otherwise), or agree
to so acquire, any material amounts of assets of or any equity in any Person or
any business or division thereof, unless such acquisition or agreement would not
(i) impose any delay in the obtaining of, or materially increase the risk of not
obtaining, any authorizations, consents, orders, declarations or approvals of
any Governmental Entity necessary to consummate the Mergers or any of the other
Transactions or the expiration or termination of any waiting period under the
HSR Act or other Law, (ii) increase the risk of any Governmental Entity entering
an order prohibiting the consummation of the Mergers or any of the transactions
contemplated by this Agreement or (iii) increase the risk of not being able to
remove any such order on appeal or otherwise;
(d)
adopt
any amendments to the Certificate of Incorporation or Bylaws of Parent (or
similar organizational documents of any of Subsidiary of Parent) which would
alter any of the terms of Parent Stock; or
(e)
agree
to, or make any commitment to, take any of the actions prohibited by this
Section 6.3.
7.
ADDITIONAL AGREEMENTS
7.1
Proxy Statement/Prospectus; Parent Registration Statement; Other
Filings
. Parent and the Company shall
together, or pursuant to an allocation of responsibility to be agreed upon
between them:
(a)
prepare
and file with the SEC as soon as is reasonably practicable (i) joint proxy
materials of the Company and Parent (the
Proxy Statement/Prospectus
) under
the Exchange Act with respect to the Company Shareholder Meeting and the Parent
Shareholder Meeting, and (ii) a Registration Statement on Form S-4 or other
appropriate Form under the Securities Act (the
Parent Registration Statement
)
with respect to the issuance of shares of Parent Stock pursuant to the Mergers
(the
Parent Stock
Issuance
) in which the Proxy
Statement/Prospectus shall be included as a prospectus;
(b)
use
commercially reasonable efforts to have, as promptly as practicable, (i) the
Proxy Statement/Prospectus cleared by the SEC under the Exchange Act and (ii)
the Parent Registration Statement declared effective by the SEC under the
Securities Act;
(c)
take
all such action as shall be required under applicable state blue sky or
securities Laws in connection with the transactions contemplated by this
Agreement; and
(d)
cooperate with each other in determining whether any filings are required
to be made or consents are required to be obtained in any foreign jurisdiction
prior to the Effective Time in connection with the transactions contemplated by
this Agreement, and in making any such filings promptly and in seeking to obtain
timely any such consents.
7.2
Access to Information
.
(a) Upon
reasonable prior notice and subject to applicable law, the Company shall, and
shall cause each of its Subsidiaries to, afford to the directors, officers,
managers, members, partners, employees, investment bankers, advisors,
consultants, accountants, counsel, lenders, agents and representatives
(collectively
Representatives
) of Parent
access, during normal business hours during the period prior to the Effective
Time, to all its properties, books, contracts, commitments and records, and to
its officers, employees, accountants, counsel and other representatives, in each
case in a manner not unreasonably disruptive to the operation of the business of
the Company and its Subsidiaries, and, during such period, the Company shall,
and shall cause its Subsidiaries to, make available to Parent all information
concerning its business, properties and personnel as Parent may reasonably
request. At the request of Parent, the Company shall use its commercially
reasonable efforts to comply with its obligations under the preceding sentence
by providing electronic access to such documents and information on the online
data room established by the Company prior to the date hereof. Notwithstanding
any other provision of this Agreement, neither the Company nor any of its
Subsidiaries shall be required to provide access to or to disclose information
where such access or disclosure would (A) violate or prejudice the rights of its
customers or employees, (B) jeopardize the attorney-client privilege of the
institution in possession or control of such information, (C) contravene,
violate or breach any law, rule, regulation, order, judgment, decree, fiduciary
duty or binding agreement entered into prior to the date of this Agreement in
the ordinary course of business consistent with past practice or (D) be adverse
to the interests of the Company or any of its Subsidiaries in any pending or
threatened litigation between the parties hereto over the terms of this
Agreement.
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(b)
All
information and materials furnished pursuant to this Agreement shall be subject
to the provisions of the Confidentiality Agreement, dated January 19, 2012,
between Parent and the Company (the
Confidentiality Agreement
). The
Company makes no representation or warranty as to the accuracy of any
information provided pursuant to Section 7.2(a), and neither Parent nor Merger
Sub may rely on the accuracy of any such information, in each case other than as
expressly set forth in the Company's representations and warranties contained in
Section 4.
7.3
Shareholder Meetings
.
(a)
Company Shareholder Meeting
. Following
the clearance of the Proxy Statement/Prospectus by the SEC and subject to the
other provisions of this Agreement, the Company shall duly call, give notice of,
convene and hold a special meeting of its shareholders (the
Company Shareholder Meeting
) for the purpose of voting upon the approval of this Agreement, the
Agreement of Merger and the transactions contemplated hereby and thereby,
including the Mergers. Subject to Section 7.7, the Proxy Statement/Prospectus
shall include the Company Recommendation. Subject to Section 7.7, the Company
will use commercially reasonable efforts to solicit from its shareholders
proxies in favor of the approval of this Agreement, the Agreement of Merger and
the transactions contemplated hereby and thereby, including the Mergers.
Notwithstanding any other provision hereof, the Company may postpone or adjourn
the Company Shareholder Meeting: (a) with the consent of Parent; (b) for the
absence of a quorum; or (c) to allow reasonable additional time for the filing
and distribution of any supplemental or amended disclosure which the Company
Board has determined in good faith (after consultation with its outside legal
counsel) is necessary under applicable laws and for such supplemental or amended
disclosure to be disseminated to and reviewed by the Companys shareholders
prior to the Company Shareholder Meeting.
(b)
Parent Shareholder Meeting
. Following
the clearance of the Proxy Statement/Prospectus by the SEC and subject to the
other provisions of this Agreement, Parent shall duly call, give notice of,
convene and hold a special meeting of its shareholders (the
Parent Shareholder Meeting
) for the purpose of voting upon the approval the issuance of shares of
Parent Stock pursuant to the Mergers and this Agreement, as required under the
NASDAQ Listing Rules. The Parent Board shall recommend a vote in favor of the
issuance of the Parent Stock in connection with the Mergers and include in the
Proxy Statement/Prospectus such recommendation. Parent will use commercially
reasonable efforts to solicit from its shareholders proxies in favor of the
approval of the issuance of the Parent Stock in connection with the Mergers.
Notwithstanding any other provision hereof, Parent may postpone or adjourn the
Parent Shareholder Meeting: (a) with the consent of the Company; (b) for the
absence of a quorum; or (c) to allow reasonable additional time for the filing
and distribution of any supplemental or amended disclosure which the Parent
Board has determined in good faith (after consultation with its outside legal
counsel) is necessary under applicable laws and for such supplemental or amended
disclosure to be disseminated to and reviewed by Parents shareholders prior to
the Parent Shareholder Meeting.
7.4
Further Actions
.
(a)
Subject
to the terms and conditions of this Agreement, each of Parent, Merger Subs and
the Company shall, and shall cause their respective Subsidiaries to, use their
commercially reasonable efforts (i) to take, or cause to be taken, all actions
necessary, proper or advisable to comply promptly with all legal requirements
which may be imposed on such party or its Subsidiaries with respect to the
Mergers and, subject to the conditions set forth in Section 8 hereof, to
consummate the transactions contemplated by this Agreement; and (ii) to promptly
prepare, file and provide to third parties and Governmental Entities all
applications, statements, notices, petitions, registrations, requests,
declarations and filings which are necessary or advisable to consummate the
transactions contemplated by this Agreement (including the Mergers), to obtain
(and to cooperate with the other party to obtain) as promptly as practicable all
material permits, Consents, registrations, authorizations and exemptions of or
from all third parties and Governmental Entities which are necessary or
advisable to consummate the transactions contemplated by this Agreement
(including the Mergers), and to comply with the terms and conditions of all such
permits, Consents, registrations, authorizations and exemptions of all such
third parties and Governmental Entities. Parent and the Company shall, upon
request, furnish each other with all information concerning themselves, their
Subsidiaries, shareholders and Representatives and such other matters as may be
reasonably necessary or advisable in connection with any application, statement,
notice, petition, registration, request, declaration or filing made or provided
by or on behalf of Parent, the Company or any of their respective Subsidiaries
to any Governmental Entity in connection with the Mergers and the other
transactions contemplated by this Agreement.
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(b) In
furtherance and not in limitation of Section 7.4(a), each of Parent and the
Company shall make an appropriate filing of a Notification and Report Form
pursuant to the HSR Act with respect to the transactions contemplated hereby as
promptly as practicable and thereafter make any other required submissions with
respect to the transactions contemplated hereby under the HSR Act and to take
all other appropriate actions reasonably necessary, proper or advisable to cause
the expiration or termination of the applicable waiting periods under the HSR Act as soon as practicable. Notwithstanding any other provision of
this Agreement to the contrary, Parent agrees to take any and all steps
necessary to avoid or eliminate each and every impediment under any antitrust or
competition law that may be asserted by any Governmental Entity or any other
third Person so as to enable the parties hereto to consummate the Mergers as
soon as practicable, including committing to and/or effecting, by consent
decree, hold separate orders, or otherwise, the sale or disposition of such of
the shares of Company Common Stock, or its or the Companys or their
subsidiaries assets, as are required to be divested or entering into such other
arrangements as are required in order to avoid the entry of, or to effect the
dissolution of, any injunction, temporary restraining order or other order in
any suit or proceeding, which would otherwise have the effect of preventing or
materially delaying the consummation of the Mergers.
(c)
Nothing in this Section 7.4 shall be deemed to prevent the Company or the
Company Board from taking any action they are permitted or required to take
under, and in compliance with, Section 7.7 or are required to take under
applicable law.
7.5
Employees; Employee Benefit Plans
.
(a)
Parent
shall, or shall cause the Surviving Company and its Subsidiaries to, (i) give
those employees who are, as of the Effective Time, employed by the Company and
its Subsidiaries (the
Continuing
Employees
) full credit for purposes of
determining eligibility and vesting (but not for purposes of any benefit
accruals) under any employee benefit plans or arrangements maintained by Parent
(other than any defined benefit or equity-based plans), including, but not
limited to, vacation and paid time off accruals, the Surviving Company or any
Subsidiary of Parent or the Surviving Company (collectively, the
Parent Plans
) for such Continuing Employees service with the Company or
any of its Subsidiaries (or any predecessor entity) to the same extent
recognized by the Company and its Subsidiaries; (ii) waive all limitations as to
preexisting conditions, exclusions and waiting periods with respect to
participation and coverage requirements applicable to the Continuing Employees
under any Parent Plan that is a welfare benefit plan that such employees may be
eligible to participate in after the Effective Time to the same extent waived by
the Company and its Subsidiaries or otherwise not subject to a limitation by the
Company and its Subsidiaries; (iii) provide credit under any such welfare plan
for any co-payments, deductibles and out-of-pocket expenditures for the
remainder of the coverage period during which any transfer of coverage occurs;
and (iv) honor in accordance with their terms all employee benefit plans or
arrangements maintained by the Company immediately prior to the Effective Time.
(b)
From a
period of one (1) year from and after the Effective Time, and subject to the
immediately following sentence, Parent shall, or shall cause the Surviving
Company and its Subsidiaries to, provide to the Continuing Employees
compensation and benefit arrangements that are no less favorable in the
aggregate than the compensation and benefit arrangements that are provided to
similarly situated employees of Parent;
provided
,
however,
that in no event shall such
Continuing Employees compensation and benefit arrangements be less favorable in
the aggregate than such Continuing Employees current compensation and benefit
arrangements. As soon as practicable after the Effective Time, Parent shall, or
shall cause the Surviving Company and its Subsidiaries to, cause the Continuing
Employees to commence participation in such Parent Plans as are provided to
similarly situated employees of Parent. From and
after the Effective Time, Parent and the Surviving Company shall keep in full
force and effect, and comply with the terms and conditions of, any agreement in
effect as of the date of this Agreement between or among the Company or any of
its Subsidiaries and any of its or their employees.
(c)
The provisions of this Section 7.5 are for the sole benefit of the
parties to this Agreement and nothing herein, expressed or implied, is intended
or shall be construed to confer upon or give to any Person (including for the
avoidance of doubt any Continuing Employees, present or former employees or
directors, consultants or independent contractors of the Company or any of its
Subsidiaries, Parent or any of its Subsidiaries, or on or after the Effective
Time, the Surviving Company or any of its Subsidiaries), other than the parties
hereto and their respective permitted successors and assigns, any legal or
equitable or other rights or remedies (with respect to the matters provided for
in this Section 7.5) under or by reason of any provision of this Agreement.
Nothing contained in this Section 7.5 or elsewhere in the Agreement shall be
construed to prevent, from and after the Effective Time, the termination of
employment of any individual Continuing Employee or, subject to the provisions
of Sections 7.5(a) and 7.5(b), any change in the employee benefits available to
any Continuing Employee or the amendment or termination of any particular Plan
in accordance with its terms.
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7.6
Indemnification; Directors and Officers Insurance
.
(a)
From
and after the Effective Time, each of Parent and the Surviving Company shall
jointly and severally: (i) indemnify and hold harmless (A) each individual who
served as a director or officer of the Company or its Subsidiaries prior to the
Effective Time and (B) the individual identified on Section 7.6 of the Company
Disclosure Schedule (collectively, the
Indemnified Parties
) (in such
Persons capacity as such and not as shareholders of the Company or any of its
Subsidiaries) to the fullest extent authorized or permitted by California law,
as now or hereafter in effect, in connection with any Claim (as defined below)
and any judgments, fines (including excise taxes), penalties and amounts paid in
settlement (including all interest, assessments and other charges paid or
payable in connection with or in respect of such judgments, fines, penalties or
amounts paid in settlement) resulting therefrom; and (ii) promptly pay on behalf
of or, within thirty (30) days after any request for advancement, advance to
each of the Indemnified Parties, to the fullest extent authorized or permitted
by California law, as now or hereafter in effect, any Expenses (as defined
below) incurred in defending, serving as a witness with respect to or otherwise
participating in any Claim in advance of the final disposition of such Claim,
including payment on behalf of or advancement to the Indemnified Party of any
Expenses incurred by such Indemnified Party in connection with enforcing any
rights with respect to such indemnification and/or advancement, in each case
without the requirement of any bond or other security, but in the case of
advancement of Expenses upon receipt of an undertaking, to the extent required
by applicable law, from such Indemnified Party to repay such advanced Expenses
if it is determined by a court of competent jurisdiction in a final order that
such Indemnified Party was not entitled to indemnification hereunder with
respect to such Expenses. In the event any Claim is brought against any
Indemnified Party, Parent and the Surviving Company shall each use all
commercially reasonable efforts to assist in the vigorous defense of such
matter, provided that neither Parent nor the Surviving Company shall settle,
compromise or consent to the entry of any judgment in any Claim (and in which
indemnification could be sought by such Indemnified Party hereunder) without the
prior written consent of such Indemnified Party if and
to the extent the claimant seeks any non-monetary relief (including any
admission of liability or guilt) from such Indemnified Party. Notwithstanding the foregoing, an
Indemnified Party shall be entitled to control the defense of any action, suit,
investigation or proceeding with counsel of its own choosing reasonably
acceptable to Parent and Parent and the Surviving Company shall cooperate in the
defense thereof;
provided,
that Parent shall not be liable for the fees of more than one
counsel for all Indemnified Parties, other than local counsel, unless a conflict
of interest shall be caused thereby. The indemnification and advancement
obligations of Parent and the Surviving Company pursuant to this Section 7.6(a)
shall extend to acts or omissions occurring at or before the Effective Time and
any Claim relating thereto (including with respect to any acts or omissions
occurring in connection with the approval of this Agreement by the Company Board
and the Companys shareholders and the consummation of the transactions
contemplated hereby and any Claim relating thereto) and all rights to
indemnification and advancement conferred hereunder shall continue as to an
individual who has ceased to be a director or officer of the Company or its
Subsidiaries at or prior to the Effective Time and shall inure to the benefit of
such individuals heirs, executors and personal and legal representatives. In
connection with any determination as to whether the Indemnified Parties are
entitled to the benefits of this Section 7.6, the burden of proof shall be on
Parent and the Surviving Company to establish that an Indemnified Party is not
so entitled. As used in this Section 7.6(a), (A) the term
Claim
means any
threatened, asserted, pending or completed action, suit or proceeding, or any
inquiry or investigation, whether instituted by the Company, any Governmental
Entity or any other party, that any Indemnified Party in good faith believes
might lead to the institution of any such action, suit or proceeding, whether
civil, criminal, administrative, investigative or other, including any
arbitration or other alternative dispute resolution mechanism, arising out of or
pertaining to matters that relate to such Indemnified Partys duties or service
as a director or officer of the Company, any of its Subsidiaries, any employee
benefit plan maintained by any of the foregoing at or prior to the Effective
Time and any other Person at the request the Company or any of its Subsidiaries;
and (B) the term
Expenses
means attorneys fees
and all other costs, expenses and obligations (including experts fees, travel
expenses, court costs, retainers, transcript fees, duplicating, printing and
binding costs, as well as telecommunications, postage and courier charges) paid
or incurred in connection with investigating, defending, being a witness in or
participating in (including on appeal), or preparing to investigate, defend, be
a witness in or participate in, any Claim for which indemnification is
authorized pursuant to this Section 7.6(a), including any action relating to a
claim for indemnification or advancement brought by an Indemnified Party.
(b)
From the Effective Time and for a period of six (6) years thereafter,
Parent and the Surviving Company shall keep in full force and effect, and comply
with the terms and conditions of, any agreement in effect as of the date of this
Agreement between or among the Company or any of its Subsidiaries and any
Indemnified Party providing for the indemnification of and advancement of
expenses to such Indemnified Party.
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(c)
Without
limiting any of the obligations under paragraph (a) of this Section 7.6, Parent
agrees that all rights to indemnification and advancement of expenses and all
limitations of liability existing in favor of the Indemnified Parties as
provided in the Companys Articles of Incorporation or Bylaws or in the
corresponding constituent documents of any of the Companys Subsidiaries as in
effect as of the date of this Agreement with respect to matters occurring on or prior to the Effective Time shall survive the
Mergers and shall continue in full force and effect thereafter, without any
amendment thereto.
(d)
If Parent or the Surviving Company or any of its successors or assigns
shall (i) consolidate with or merge into any other Person and shall not be the
continuing or surviving Person of such consolidation or merger or (ii) transfer
all or substantially all of its properties and assets to any Person, then, in
each such case, proper provisions shall be made so that the successors and
assigns of Parent and the Surviving Company, as the case may be (including
Parents ultimate parent entity, if applicable), assume all of the obligations
of Parent and the Surviving Company set forth in this Section 7.6.
(e)
Prior
to the Effective Time, the Company shall or, if the Company is unable to, Parent
shall cause the Surviving Company as of the Effective Time to, obtain and fully
pay the premium for the non-cancellable extension of the directors and
officers liability coverage of the Companys existing directors and officers
insurance policies and the Companys existing fiduciary liability insurance
policies (collectively,
D&O
Insurance
), in each case for a claims
reporting or discovery period of at least six (6) years from and after the
Effective Time with respect to any claim related to any period or time at or
prior to the Effective Time from an insurance carrier with the same or better
credit rating as the Companys current insurance carrier with respect to D&O
Insurance with terms, conditions, retentions and limits of liability that are no
less favorable than the coverage provided under the Companys existing policies
with respect to any actual or alleged error, misstatement, misleading statement,
act, omission, neglect, breach of duty or any matter claimed against a director
or officer of the Company or any of its Subsidiaries by reason of him or her
serving in such capacity that existed or occurred at or prior to the Effective
Time (including in connection with this Agreement or the transactions or actions
contemplated hereby). If the Company or the Surviving Company for any reason
fail to obtain such tail insurance policies as of the Effective Time, the
Surviving Company shall continue to maintain in effect, for a period of at least
six years from and after the Effective Time, the D&O Insurance in place as
of the date hereof with the Companys current insurance carrier or with an
insurance carrier with the same or better credit rating as the Companys current
insurance carrier with respect to D&O Insurance with terms, conditions,
retentions and limits of liability that are no less favorable than the coverage
provided under the Companys existing policies as of the date hereof, or the
Surviving Company shall purchase from the Companys current insurance carrier or
from an insurance carrier with the same or better credit rating as the Companys
current insurance carrier with respect to D&O Insurance comparable D&O
Insurance for such six-year period with terms, conditions, retentions and limits
of liability that are no less favorable than as provided in the Companys
existing policies as of the date hereof.
(f)
The
provisions of this Section 7.6 shall survive the consummation of the Mergers and
(i) are intended to be for the benefit of, and shall be enforceable by, each
Indemnified Party and his or her heirs and representatives and (ii) are in
addition to, and not in substitution for, any other rights to indemnification or
contribution that any such Person may have by contract or otherwise. The
obligations of Parent or the Surviving Company under this Section 7.6 shall not
be terminated or modified in such a manner as to adversely affect the rights of
any Indemnified Party under this Section 7.6 without the consent of such
affected Indemnified Party. Parent shall cause the Surviving Company to perform
all of the obligations of the Surviving Company
under this Section 7.6. Parent and the Surviving Company, jointly and severally,
shall pay all expenses, including reasonable fees and expenses of counsel, that
an Indemnified Party may incur in enforcing the indemnity and other obligations
provided for in this Section 7.6.
7.7
No
Solicitation
.
(a)
During
the period beginning on the date of this Agreement and continuing until the
earlier of the Effective Time and the termination of this Agreement in
accordance with Section 9.1, the Company and its Subsidiaries and their
respective officers and directors shall, and the Company shall instruct and
cause its and its Subsidiaries other Representatives to, cease and cause to be
terminated any discussions or negotiations with any Person that would otherwise
be prohibited by this Section 7.7(a). Promptly following the execution of this
Agreement, the Company shall deliver a written notice to each such Person to the
effect that, subject to the provisions of this Section 7.7, the Company is
ending all discussions and negotiations with such Person with respect to any
Alternative Proposal, effective on and from date of this Agreement, and the
notice shall also request such Person to promptly return or destroy all
confidential information concerning the Company and/or its Subsidiaries. Subject
to the provisions of this Section 7.7, during the period commencing on the date
of this Agreement and continuing until the earlier to occur
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of the Effective
Time and the Termination Date, the Company and its Subsidiaries shall not, and
shall cause its and their respective Representatives not to, directly or
indirectly, (i) solicit (including by way of furnishing non-public information),
initiate or knowingly encourage or facilitate any inquiry with respect to, or
the making, submission or announcement of, any proposal or offer that
constitutes, or is reasonably expected to lead to, an Alternative Proposal, (ii)
furnish to any Person (other than Parent or Merger Subs or their respective
designees) any non-public information relating to the Company and/or its
Subsidiaries, or afford to any Person access to the business, properties,
assets, books, records or other non-public information, or to any personnel, of
the Company and/or its Subsidiaries (other than Parent or Merger Subs or their
respective designees), in any such case relating to an Alternative Proposal or
any inquiries or the making of any proposal that could lead to an Alternative
Proposal, (iii) engage in, continue or otherwise participate in any discussions
or negotiations regarding any Alternative Proposal with any Person, except to
notify such Person as to the existence and content of the provisions of this
Section 7.7, or (iv) grant any waiver, amendment or release under any standstill
or confidentiality agreement (except for any portion of any such standstill or
confidentiality agreement that restricts the ability of a Person to communicate
an Alternative Proposal to Company Board), or anti-takeover laws.
(b)
Notwithstanding anything to the contrary set forth in this Section 7.7 or
elsewhere in this Agreement, until the Agreement of Merger contained in this
Agreement shall have been approved by the Company Required Vote, the Company
may, directly or indirectly through one or more Affiliates or Representatives,
participate or engage in discussions or negotiations with, furnish any
non-public information relating to the Company and/or its Subsidiaries to,
and/or afford access to the business, properties, assets, books, records or
other non-public information, or to the personnel, of the Company and/or its
Subsidiaries to, a Person or group of Persons that makes a bona fide Alternative
Proposal (under circumstances in which the Company has complied with its
non-solicitation obligations under Section 7.7(a));
provided, however,
that the Company
shall promptly make available to Parent and Merger Subs any material non-public information concerning the Company and/or
its Subsidiaries that is provided to any Person given such access which was not
previously made available to Parent or Merger Subs or their respective
Representatives (which requirement may be satisfied by posting such information
in the online data room established by the Company prior to the date hereof);
and
provided
further
that, prior to initiating any such action, the Company Board shall have
determined in good faith (after consultation with its financial advisor and
outside legal counsel) that such Alternative Proposal either constitutes a
Superior Proposal or could reasonably be expected to result in a Superior
Proposal;
and provided further
that prior to furnishing such information or access to, or
entering into substantive discussions (except as to the existence of this
Section 7.7) or negotiations with, such Person(s), (A) the Company receives from
such Person(s) an executed Acceptable Confidentiality Agreement and (B) the
Company notifies Parent to the effect that it intends to furnish information or
access to, or intends to enter into substantive discussions or negotiations
with, such Person(s).
(c)
Except as provided by Section 7.7(d), at any time after the execution of
this Agreement, the Company Board shall not:
(i)
resolve to withdraw, modify or
qualify and/or withdraw, modify or qualify the Company Recommendation in a
manner adverse to Parent and Merger Subs (a
Company Recommendation Change
);
or
(ii)
cause or permit the Company or
any of its Subsidiaries to enter into any letter of intent, memorandum of
understanding, agreement in principle, acquisition agreement, merger agreement,
option agreement, joint venture agreement, partnership agreement or other
similar agreement (an
Alternative
Acquisition Agreement
) relating to an
Alternative Proposal (other than an Acceptable Confidentiality Agreement in
compliance with the terms of Section 7.7(b)) or authorize, approve or publicly
recommend an Alternative Proposal or any agreement, understanding or arrangement
relating to an Alternative Proposal (other than an Acceptable Confidentiality
Agreement in compliance with the terms of Section 7.7(b)).
(d)
Notwithstanding anything to
the contrary set forth in this Agreement, if the Company is then in receipt of a
bona fide written Alternative Proposal from any Person that is not withdrawn and
that the Company Board concludes in good faith (after consultation with its
financial advisor and outside legal counsel) constitutes a Superior Proposal,
the Company Board may (1) effect a Company Recommendation Change, and/or (2)
adopt, approve, endorse or recommend, or publicly propose to adopt, approve,
endorse or recommend, to the shareholders of the Company any Superior Proposal
and authorize the Company to terminate this Agreement in accordance with Section
9.1(c)(ii) to enter into an Alternative Acquisition Agreement with respect to
such Superior Proposal (
provided
,
however,
that in such
-35-
event under this
clause (2), the Company concurrently terminates this Agreement pursuant to
Section 9.1(c)(ii) and enters into a definitive Alternative Acquisition
Agreement with respect to such Superior Proposal), then the Company Board may
effect a Company Recommendation Change, if and only if:
(i)
the Company Board shall have
determined in good faith (after consultation with its financial advisor and
outside legal counsel) that failure to take such action would be inconsistent
with the directors exercise of their fiduciary obligations to the shareholders
of the Company under applicable laws; and
(ii)
in the case of clause (x)(2) above, the Company shall have validly
terminated this Agreement in accordance with Section 9.1(c)(ii), including the
payment of the Termination Fee in accordance with Section 9.2(a).
(e)
The Company shall keep Parent
reasonably informed regarding the matters contemplated by this Section 7.7
(including any Alternative Proposals). Without limiting the generality of
foregoing, (i) the Company shall promptly notify Parent if any proposals or
offers with respect to an Alternative Proposal are received by the Company or
any of its Representatives indicating, in connection with such notice, the
material terms and conditions of any proposals or offers (including, if
applicable, copies of any written requests, proposals or offers, including
proposed agreements) and thereafter shall keep Parent reasonably informed, on a
prompt basis, of the status and material terms of any such proposals or offers
(including any material amendments thereto), including any change in the
Companys intentions as previously notified, and (ii) the Company agrees that it
will promptly notify Parent if any non-public information is requested from, or
any discussions or negotiations are sought to be initiated or continued with,
the Company or any of its Representatives indicating, in connection with such
notice, the status of any such discussions or negotiations, including any change
in the Companys intentions as previously notified. The Company agrees that it
and its Subsidiaries will not enter into any confidentiality agreement with any
Person subsequent to the date hereof which prohibits the Company from providing
such information to Parent.
(f)
Nothing contained in this
Agreement shall prohibit the Company or the Company Board, directly or
indirectly through its Representatives, from (i) taking and disclosing to its
shareholders a position contemplated by Rules 14d-9 or 14e-2(a) or Item 1012(a)
of Regulation M-A promulgated under the Exchange Act, or from issuing a stop,
look and listen statement pending disclosure of its position thereunder, or
(ii) making any disclosure to its shareholders if the Company Board determines
in good faith (after consultation with its outside legal counsel) that the
failure to make such disclosure would be inconsistent with the directors
exercise of their fiduciary obligations to the Companys shareholders under
applicable law or would constitute a violation of applicable law. It is
understood and agreed that, for purposes of this Agreement (including Section
9), a factually accurate public statement by the Company that describes the
Companys receipt of an Alternative Proposal and the operation of this Agreement
with respect thereto, or any stop, look and listen communication by the
Company Board, shall not constitute a Company Recommendation Change or an
approval or recommendation with respect to any Alternative Proposal.
(g)
Other than with respect to the
Debt Commitment, neither Parent nor Merger Subs, nor any of their respective
Affiliates, shall make or enter into any formal or informal arrangements or
understandings (whether or not binding) with any Person, or have any discussions
or other communications with any other Person, in any such case with respect to
any Alternative Proposal involving the Company.
(h)
As used in this Agreement:
(i)
Acceptable Confidentiality Agreement
shall mean a customary confidentiality and standstill agreement that
contains confidentiality and standstill provisions that are not materially less
favorable in the aggregate to the Company than those contained in the Confidentiality Agreement (
provided, however,
that
such confidentiality agreement shall not be required to restrict a Person from
communicating an Alternative Proposal to the Company Board) or, to the extent
applicable, a confidentiality agreement entered into prior to the execution of
this Agreement.
(ii)
Alternative
Proposal
shall mean any proposal,
indication or offer, including any proposal, indication or offer from or to the
Companys shareholders, made by any Person or group (as defined under Rule 13(d)
of the Exchange Act) other than Parent or its Subsidiaries and/or Affiliates
relating to, whether in a single transaction or series of related transactions,
and whether directly or indirectly, any (i) transaction or series of
transactions (including any merger, reorganization, share exchange,
consolidation, business combination, joint venture, partnership,
recapitalization, dissolution, liquidation or similar direct or indirect
transaction involving the Company and/or any
-36-
Subsidiary or Subsidiaries of the
Company or the issuance or acquisition of shares of Company Common Stock or
other equity securities of the Company whose business or businesses constitute
twenty percent (20%) (in number or voting power) or more of the assets, revenues
or earnings of the Company and its Subsidiaries, taken as a whole, (ii)
acquisition, license or purchase of assets of the Company and/or its
Subsidiaries equal to twenty percent (20%) or more of the consolidated assets of
the Company and its Subsidiaries or to which twenty percent (20%) or more of the
Companys revenues or earnings on a consolidated basis are attributable or (iii)
acquisition of beneficial ownership (as defined under Rule 13(d) of the Exchange
Act) of equity interests representing a twenty percent (20%) or greater economic
or voting interest in the Company or tender offer (including a self-tender
offer) or exchange offer that, if consummated, would result in any Person or
group (as defined under Rule 13(d) of the Exchange Act) beneficially owning
equity interests representing a twenty percent (20%) (in number or voting power)
or greater economic or voting interest in the Company.
(iii)
Superior
Proposal
shall mean any bona fide
Alternative Proposal (except that references to twenty percent (20%) or more
in the definition thereof will be deemed to be references to fifty percent
(50%) or more) made by any Person that is on terms that the Company Board
determines in good faith (after consultation with its financial advisor and
outside legal counsel and after taking into account all legal, financial
(including the financing terms thereof), regulatory, timing and other aspects of
the proposal, as well as any modification to this Agreement that Parent and
Merger Subs propose to make in accordance with Section 7.7(d)(ii), are more
favorable to the Companys shareholders from a financial point of view than the
transactions contemplated by this Agreement.
7.8
Standstill
. Until the earlier of the
Effective Time or the termination of this Agreement, neither Parent nor any of
its Affiliates shall (a) purchase any shares of Company Common Stock or any
security of the Company that is convertible into Company Common Stock in the
open market or in privately negotiated transactions or (b) form, join or in any
way participate in a group (as defined in Section 13(d)(3) of the Exchange
Act) in connection with any of the foregoing or (c) commence a tender offer or
exchange offer.
7.9
Section 16 Matters
. Prior to the
Effective Time, the Company Board shall take all such steps as may be required
and permitted to cause the transactions contemplated by this Agreement,
including any dispositions of shares of Company Common Stock (including derivative securities with respect to such
Company Common Stock) by each individual who is or will be subject to the
reporting requirements of Section 16(a) of the Exchange Act with respect to the
Company, to be exempt under Rule 16b-3 promulgated under the Exchange Act.
7.10
Financing
.
(a)
Parent
and Merger Subs acknowledge and agree that the Company and its Affiliates and
its and their respective Representatives shall not, prior to the Effective Time,
incur any liability to any Person under any financing that Parent and Merger
Subs may raise in connection with the transactions contemplated by this
Agreement or any cooperation provided pursuant to this Section 7.10 and that
Parent and Merger Subs shall, on a joint and several basis, indemnify and hold
harmless the Company and its Affiliates and its and their respective
Representatives from and against any losses, damages, claims, costs or expenses
suffered or incurred by any of them in connection with the Debt Financing and
any information utilized in connection therewith.
(b)
Each of
Parent and Merger Subs shall take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary, proper or advisable to arrange and
obtain the proceeds of the Debt Financing on the terms and conditions described
in the Debt Commitment Letter, including: (i) entering into definitive
agreements with respect thereto on the terms and conditions contained in the
Debt Commitment Letter as promptly as practicable after the date hereof, (ii)
satisfying, or cause their Representatives to satisfy, on a timely basis all
conditions applicable to Parent, Merger Subs, CCI or their respective
Representatives that are within their respective control in such definitive
agreements and (iii) using commercially reasonable efforts to cause the lenders
and any other Persons providing the Debt Financing to fund the Debt Financing at
the Closing.
(c)
Parent
shall not agree to any amendments or modifications to, or grant any waivers of,
any condition or other provision under the Debt Commitment Letter without the
prior written consent of the Company if such amendments, modifications or
waivers would (i) reduce the aggregate amount of the Debt Financing or (ii)
impose new or additional conditions that would reasonably be expected to (A)
prevent or materially delay the ability of Parent to consummate the Mergers and
the other transactions contemplated by this Agreement or (B) adversely impact
the ability of Parent, Merger Sub or CCI to enforce its rights against the other
parties to the Debt Commitment Letter. Parent shall not
-37-
release or consent to
the termination of the obligations of the lenders under the Debt Commitment
Letter, except for assignments and replacements of an individual lender under
the terms of or in connection with the syndication of the Debt Financing or as
otherwise expressly contemplated by the Debt Commitment Letter.
(d)
In no
event shall Parent or Merger Subs or any of their Affiliates (which for purposes
of this Section 7.10(d) shall be deemed to include each direct or indirect
investor or potential investor in Parent or Merger Subs, or any of Parents,
either Merger Subs or such investors financing sources or potential financing
sources or other Representatives) (i) award any agent, broker, investment
banker, financial advisor or other firm or Person any financial advisory role on
an exclusive basis or any additional firm or Person on a non-exclusive basis in
connection with the Mergers or the other transactions contemplated hereby or
(ii) prohibit or seek to prohibit any bank or
investment bank or other potential provider of debt or equity financing from
providing or seeking to provide financing or financial advisory services to any
Person in connection with a transaction relating to the Company or its
subsidiaries or in connection with the Mergers or the other transactions
contemplated hereby.
(e)
In the event that any portion of the Debt Financing becomes unavailable
in the manner or from the sources contemplated in the Debt Commitment Letter,
(i) Parent shall promptly so notify the Company and (ii) Parent and Merger Subs
shall use their respective commercially reasonable efforts to arrange and
obtain, and to negotiate and enter into definitive agreements with respect to,
alternative financing from alternative financial institutions in an amount
sufficient to consummate the transactions contemplated by this Agreement upon
conditions not materially less favorable to Parent, Merger Subs and the Company
than those in the Debt Commitment Letter, as promptly as practicable following
the occurrence of such event (and in any event no later than the Closing Date).
The definitive agreements entered into pursuant to the first sentence of this
Section 7.10(e) or Section 7.10(b)(i) are referred to in this Agreement,
collectively, as the
Financing
Agreements
.
(f)
Each of
Parent and each Merger Sub acknowledges and agrees that neither the obtaining of
the Debt Financing or any alternative financing, nor the completion of any
issuance of securities contemplated by the Debt Financing or any alternative
financing, is a condition to the Closing, and reaffirms its obligation to
consummate the transactions contemplated by this Agreement irrespective and
independently of the availability of the Debt Financing or any alternative
financing, or the completion of any such issuance, subject the applicable
conditions set forth in Section 8.1 and Section 8.2, the breach of which
obligation will give rise, without limitation, to the remedies set forth in
Section 10.7.
(g)
Parent
shall (i) furnish the Company complete, correct and executed copies of the
Financing Agreements or any alternative financing agreement promptly upon their
execution, (ii) give the Company prompt notice of any material breach or
material threatened breach by any party of any of the Financing Commitments, any
alternative financing commitment, the Financing Agreements, or any alternative
financing agreement of which Parent or Merger Subs becomes aware or any
termination thereof, and (iii) otherwise keep the Company reasonably informed of
the status of its efforts to arrange the Debt Financing (or any alternative
financing).
7.11
Financing Cooperation
.
(a) Prior
to the Effective Time, the Company shall and shall cause its subsidiaries to, at
Parents sole expense, cooperate, and shall use its reasonable best efforts to
cause its respective officers, employees, representatives, auditors, and
advisors, including legal and accounting advisors, to cooperate, in connection
with the arrangement of the Debt Financing, as may be reasonably requested by
Parent (provided that such requested cooperation does not unreasonably interfere
with the ongoing operations of business of the Company and its subsidiaries),
including: (i) participation in meetings, drafting sessions, rating agency
presentations, due diligence sessions, and road show and other customary
marketing presentations; (ii) furnishing in writing any financing sources as
promptly as practicable with pertinent information regarding the Company and its
subsidiaries as is reasonably requested in connection with the Debt
Financing; (iii) assisting any financing sources in the preparation of (A) one
or more customary offering documents, information memoranda and/or documents to
be filed with the SEC in connection with the Debt Financing and (B) materials
for rating agency presentations; (iv) executing and delivering any pledge and
security documents and otherwise facilitating the pledging of collateral; (v)
taking all reasonably required corporate actions, subject to the consummation of
the Mergers, to permit the consummation of the Debt Financing; (vi) providing
authorization letters to any financing sources authorizing the distribution of
information to prospective lenders and containing customary representation to
the arranger of any financing that the information contained in any offering
document or information memorandum relating to the Company and its subsidiaries
does not contain any untrue statement of a material fact
-38-
or omit to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; (vii) cooperating
reasonably with the financing sources; due diligence of the Company and its
subsidiaries, to the extent customary and reasonable. Parent shall, promptly
upon termination of this Agreement, reimburse the Company for all reasonable
out-of-pocket expenses and costs incurred in connection with the Companys or
its Affiliates obligations under this Section 7.11.
(b)
In
addition, prior to the Effective Time, the Company shall: (i) use its reasonable
best efforts to cause Ernst & Young LLP, independent accountants of the
Company, to provide a letter or letters containing statements and information of
the type ordinarily included in accountants comfort letters to underwriters
with respect to financial statements and certain financial information used in
connection with the Debt Financing; (ii) use its reasonable best efforts to
provide customary representation letters and other authorizations or information
to Ernst & Young LLP, to enable them to provide the foregoing comfort
letters; (iii) use its reasonable best efforts to obtain the consent of Ernst
& Young LLP for the inclusion of its reports on the Company in any document
or documents to be used in connection with the Debt Financing; and (iv) cause
the appropriate representatives of the Company to execute and deliver any
definitive financing documents or other certificates or documents as may be
reasonably requested by Parent for delivery at the consummation of the Debt
Financing.
(c)
Notwithstanding anything in this Agreement to the contrary, neither the
Company nor any of its subsidiaries shall be required to pay any commitment or
other similar fee or enter into any definitive agreement or incur any other
liability of obligation in connection with the Debt Financing (or any
alternative financing) prior to the Effective Time.
7.12
Tax
Treatment as Reorganization
. Each of Parent,
the Company and the Surviving Company shall use its reasonable best efforts to
take such actions so as to cause the Mergers to qualify as a reorganization
within the meaning of Section 368(a) of the Code. Neither Parent nor the Company
shall take any action prior to the Closing, and Parent shall not take any action
or fail to take any action (and shall prevent the Surviving Company from taking
any action or failing to take any action) following the Closing, that would
cause the Mergers to fail to qualify as a reorganization within the meaning of
Section 368(a) of the Code. Parent and the Surviving Company shall report the
Mergers for income tax purposes as a single reorganization within the meaning
of Section 368(a) of the Code, including the filing of the statement required by
Treasury Regulations Section 1.368-3, unless otherwise required by a taxing
authority pursuant to a determination within the meaning of Section 1313(a) of
the Code.
7.13
Board of Directors of Parent After the Effective Time
. Prior to the Closing, Parent shall take all such action as
may be reasonably necessary to cause one individual selected by the Company
prior to the Closing Date from among the Board of Directors of the Company (the
Company Designee
) to be elected to Parents Board of Directors effective as
of the Effective Time. If at any time prior to or after the Effective Time, the
initial Company Designee is unwilling or unable to serve as a member of Parents
Board of Directors, then Company Board (including, after the Effective Time,
those individuals who served as members of the Company Board immediately prior
to the Effective Time) shall, by written notice to Parent, name a new designee
who shall thereupon be the Company Designee for all purposes of this Agreement.
8.
CONDITIONS PRECEDENT
8.1
Conditions to Each Partys Obligation to Effect the First
Merger
. The respective obligations of each
party to effect the First Merger shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions:
(a)
Company Shareholder Approval
. The plan
of merger contained in this Agreement shall have been approved by the Company
Required Vote.
(b)
HSR
Compliance
. The applicable waiting period
under the HSR Act shall have expired or been terminated.
(c)
FCC
and State Regulatory Approvals
. All Consents
or authorizations to be obtained from the FCC or any State Regulator set forth
in Section 8.1 of the Company Disclosure Schedule in connection with the
transactions contemplated by this Agreement shall have been obtained and shall
be in full force and effect.
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(d)
No
Injunctions or Restraints; Illegality
. No
order, injunction, statute, rule, regulation or decree shall have been issued,
enacted, entered, promulgated or enforced by a Governmental Entity that
prohibits or makes illegal the consummation of the Merger.
(e)
Parent Registration Statement
. The
Parent Registration Statement shall have been declared effective by the SEC
under the Securities Act and no stop order suspending the effectiveness of the
Parent Registration Statement shall be in effect and no proceeding for such
purpose shall be pending before or, to the Companys Knowledge or Parents
Knowledge, threatened by the SEC.
(f)
NASDAQ Approval
. The shares of Parent
Stock to be issued pursuant to this Agreement shall have been approved for
listing on the NASDAQ Global Select Market.
8.2
Conditions to Obligations of Parent and Merger Subs
. The obligations of Parent and Merger Subs to effect the
First Merger are also subject to the satisfaction or waiver at or prior to the
Effective Time of the following conditions:
(a)
Representations and Warranties
. The
representations and warranties of the Company set forth in this Agreement shall
be true and correct in all respects as of the date of this Agreement and (except
to the extent such representations and warranties speak as of an earlier date)
as of the Closing Date as though made on and as of the Closing Date;
provided
,
however
, that for purposes of determining the satisfaction of this condition, no
effect shall be given to any exception in such representations and warranties
relating to materiality or a Company Material Adverse Effect, and instead, for
purposes of this condition, such representations and warranties shall be deemed
to be true and correct in all respects unless the failure or failures of such
representations and warranties to be so true and correct, individually or in the
aggregate, results or would result in a Company Material Adverse Effect. Parent
shall have received a certificate signed on behalf of the Company by its Chief
Executive Officer and Chief Financial Officer to the foregoing effect.
(b)
Performance of Obligations
of the Company
. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by its Chief Executive
Officer and Chief Financial Officer to such effect.
8.3
Conditions to Obligations of the
Company
. The obligation of the Company to
effect the First Merger is also subject to the satisfaction or waiver at or
prior to the Effective Time of the following conditions:
(a)
Representations and
Warranties
. The representations and
warranties of Parent and Merger Subs set forth in this Agreement shall be true
and correct in all respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as of
the Closing Date as though made on and as of the Closing Date;
provided
,
however
, that for purposes
of determining the satisfaction of this condition, no effect shall be given to
any exception in such representations and warranties relating to materiality or
a Parent Material Adverse Effect;
provided
,
further
, that, for purposes of this
condition, such representations and warranties shall be deemed to be true and
correct in all respects unless the failure or failures of such representations
and warranties to be so true and correct, individually or in the aggregate,
results or would result in a Parent Material Adverse Effect. The Company shall
have received a certificate signed on behalf of Parent by its Chief Executive
Officer and Chief Financial Officer to the foregoing effect.
(b)
Performance of Obligations
of Parent and Merger Subs
. Each of Parent and
each Merger Sub shall have performed in all material respects all of its
respective obligations required to be performed by it under this Agreement at or
prior to the Closing Date, and the Company shall have received a certificate
signed on behalf of Parent by its Chief Executive Officer and Chief Financial
Officer to such effect.
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9.
TERMINATION AND AMENDMENT
9.1
Termination
. This Agreement may be terminated and the Mergers may be abandoned at
any time prior to the Effective Time by action taken or authorized by the Board
of Directors of the terminating party or parties, notwithstanding any requisite
approval of this Agreement by the shareholders of the Company, and whether
before or after the shareholders of the Company have approved this Agreement at
the Company Shareholder Meeting, as follows (the date of any such termination,
the
Termination Date
):
(a)
by mutual consent of Parent and the Company in a written instrument, if
the Board of Directors of each so determines;
(b)
by
either Parent or the Company:
(i)
if any
Governmental Entity of competent jurisdiction shall have issued a final
nonappealable order which has the effect of making consummation of the Mergers
illegal or otherwise preventing or prohibiting consummation of the Mergers;
(ii)
if the
Effective Time shall not have occurred on or before November 5, 2012;
provided
,
however
,
that the right to terminate this Agreement under this Section 9.1(b)(ii) shall
not be available to a party whose failure to fulfill any obligation under this
Agreement materially contributed to the failure of the Effective Time to occur
on or before such date; or
(iii)
if
the condition set forth in Section 8.1(a) is not satisfied at the Company
Shareholder Meeting;
(c)
by the
Company:
(i)
if it
is not in material breach of this Agreement, and if (A) any of the
representations and warranties of Parent and Merger Subs herein are or become
untrue or inaccurate such that the condition set forth in Section 8.3(a) would
not be satisfied, or (B) there has been a breach on the part of Parent or Merger
Subs of any of their respective covenants or agreements herein such that the
condition set forth in Section 8.3(b) would not be satisfied, and, in either
such case, such breach has not been, or cannot be, cured within thirty (30)
business days after notice to Parent and Merger Subs; or
(ii)
under
the circumstances and to the extent permitted, and subject to the terms and
conditions of, Section 7.7 and provided the Termination Fee referenced in
Section 9.2(a) shall have been paid by the Company to Parent.
(d)
by
Parent:
(i)
if it
is not in material breach of this Agreement, and if (A) any of the
representations and warranties of the Company herein are or become untrue or
incorrect such that the condition set forth in Section 8.2(a) would not be
satisfied, or (B) there has been a breach on the part of the Company of any of
its covenants or agreements herein such that the condition set forth in Section
8.2(b) would not be satisfied, and, in either such case, such breach has not
been, or cannot be, cured within thirty (30) business days after notice to the
Company; or
(ii)
if (A)
the Company Board shall have failed to include the Company Recommendation in the
Proxy Statement/Prospectus or shall have effected a Company Recommendation
Change, (B) the Company Board shall have approved or recommended, or proposed
publicly to approve or recommend, any Alternative Acquisition Agreement,
Alternative Proposal or any Superior Proposal other than this Agreement, and/or
permitted the Company to enter into an Alternative Acquisition Agreement related
to an Alternative Proposal or a Superior Proposal, (C) the Company shall have
failed to call the Company Shareholder Meeting in
accordance with Section 7.3 or shall have failed to deliver the Proxy
Statement/Prospectus in accordance with Section 7.1 in material breach of such
Sections and such failure shall not be due to any material breach by Parent or
Merger Subs of their obligations under Section 7.1, or (D) a tender offer or
exchange offer for outstanding shares of Common Stock shall have been commenced
(other than by Parent or Merger Subs or their respective Affiliates) and the
Company Board recommends that the shareholders of the Company tender their
shares in such tender or exchange offer or within ten Business Days after the
commencement of such tender or exchange offer, the Company Board fails to
recommend rejection (or subsequently modifies a recommendation of rejection) of
such offer.
-41-
9.2
Effect of Termination
.
(a)
Notwithstanding any provision of this Agreement to the contrary, if:
(i)
(A)
this Agreement is validly terminated pursuant to Section 9.1(b)(ii), Section
9.1(b)(iii) or Section 9.1(d)(i) (due to a breach of Section 7.7), (B) following
the execution and delivery of this Agreement and in the case of a termination
pursuant to Section 9.1(b)(ii) or Section 9.1(d)(i), prior to such termination,
and in the case of a termination pursuant to Section 9.1(b)(iii), prior to the
Company Meeting, any bona fide Alternative Proposal (substituting fifty percent
(50%) for the twenty percent (20%) thresholds set forth in the definition of
Alternative Proposal) (a
Qualifying
Transaction
) shall have been
communicated to the Company or a member of the Company Board (whether or not
publicly disclosed) and not withdrawn or otherwise abandoned (and, if publicly
disclosed, not publicly withdrawn or otherwise abandoned) and (C) within twelve
(12) months following the termination of this Agreement pursuant to Section
9.1(b)(ii), Section 9.1(b)(iii) or Section 9.1(d)(i), as applicable, a
Qualifying Transaction is consummated; or
(ii)
this
Agreement is terminated by the Company pursuant to Section 9.1(c)(ii) or by
Parent pursuant to Section 9.1(d)(ii);
then in any such event the Company
shall pay to Parent (or a Person designated in writing by Parent) by wire
transfer of same-day funds a fee equal to the Termination Fee.
Termination Fee
shall mean an amount equal to $14,675,000. Such payment
shall be made, in the case of a termination referenced in clause (i) above, upon
the consummation of any Qualifying Transaction, or in the case of a termination
referenced in clause (ii) above, concurrently with the termination of this
Agreement by the Company pursuant to Section 9.1(c)(ii) or within two (2)
business days after termination of this Agreement by Parent pursuant to Section
9.1(d)(ii). For the avoidance of doubt, in no event shall the Company be
required to pay the Termination Fee on more than one occasion.
(b)
Notwithstanding anything to the contrary in this Agreement, in the
circumstances in which the Termination Fee is or becomes payable pursuant
Section 9.2(a), Parents and each Merger Subs sole and exclusive remedy
(whether at law, in equity, in contract, in tort or otherwise) against the
Company or any of its Affiliates with respect to the facts and circumstances
giving rise to such payment obligation shall be payment of the Termination Fee
pursuant to Section 9.2(a), and upon payment in full of such amount, none of
Parent nor either Merger Sub or any of their respective Affiliates nor any other
Person shall have any rights or claims against the Company
or any of its Affiliates (whether at law, in equity, in contract, in tort or
otherwise) under or relating to this Agreement or the transactions contemplated
hereby. Notwithstanding anything to the
contrary in this Agreement, if the Company fails promptly to pay Parent any
amounts due under this Section 9.2, the Company shall pay the costs and expenses
(including reasonable legal fees and expenses) in connection with any action,
including the filing of any lawsuit or other legal action, taken to collect
payment, together with interest on the amount of any unpaid fee or obligation at
the publicly announced prime rate of Wells Fargo Bank, N.A. in effect from time
to time from the date such fee or obligation was required to be paid.
(c)
The parties acknowledge that the agreements contained in this Section 9.2
are an integral part of the transactions contemplated by this Agreement, and
that, without these agreements, the parties would not enter into this Agreement.
The parties acknowledge that the Termination Fee, in the circumstances in which
such fee becomes payable, constitute liquidated damages and are not a penalty.
(d)
There
shall be deducted from any payments made pursuant to this Section 9.2 such
amounts as may be required to be withheld therefrom under the Code or under any
provision of U.S. state or local tax law.
(e)
The
party seeking to terminate this Agreement pursuant to Section 9.1 (other than
Section 9.1(a)) shall give written notice of such termination, including a
description in reasonable detail of the reasons for such termination, to the
other party in accordance with Section 10.3, specifying the provision or
provisions hereof pursuant to which such termination is effected. Except as
otherwise provided in this Section 9, any valid termination of this Agreement
pursuant to Section 9.1 (other than Section 9.1(a)) shall be effective
immediately upon the delivery of notice of the terminating party to the other
party or parties hereto, as applicable. In the event of termination of this
Agreement by either Parent or the Company as provided in Section 9.1, this
Agreement shall forthwith become void and have no effect, and none of Parent,
either Merger Sub, the Company, any of their respective Subsidiaries or any of
the officers or directors of any of them shall have any liability of any nature
whatsoever hereunder, or in connection with the
-42-
transactions contemplated
hereby;
provided, however
, that (i) Sections 7.2(b), 9.2, 10.2 and 10.6 shall survive
any termination of this Agreement and (ii) notwithstanding anything to the
contrary contained in this Agreement, neither Parent, either Merger Sub nor the
Company shall be relieved or released from any liabilities or damages arising
out of its willful and material breach of this Agreement.
9.3
Amendment
. Subject to compliance with
applicable law, this Agreement may be amended by the parties hereto, by action
taken or authorized by their respective boards of directors, at any time before
the Effective Time;
provided
,
however
, that after receipt of the Company Required Vote, there may
not be any amendment of this Agreement which, by applicable law or in accordance
with the rules of any relevant stock exchange, requires further approval of the
Companys shareholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
9.4
Extension; Waiver
. At any time prior
to the Effective Time, the parties hereto may, to the extent legally allowed,
(a) extend the time for the performance of any of the
obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein;
provided
,
however
, that, after receipt of the
Company Required Vote, there may not be any extension or waiver of this
Agreement which decreases the Merger Consideration or which adversely affects
the rights of the Companys shareholders hereunder without the approval of such
shareholders. Any agreement on the part of a party hereto to any such extension
or waiver shall be valid only if set forth in a written instrument signed on
behalf of such party, but such extension or waiver or failure to insist on
strict compliance with an obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
10.
GENERAL PROVISIONS
10.1
Nonsurvival of Representations, Warranties and Agreements
. None of the representations, warranties, covenants and
agreements in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Effective Time, except for those covenants and
agreements contained herein and therein which by their terms apply in whole or
in part after the Effective Time.
10.2
Expenses
. Except as otherwise provided
in this Agreement, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, except that each of the Company and Parent shall bear
and pay one-half of the costs and expenses incurred in connection with (i) the
filing, printing and mailing of the Proxy Statement/Prospectus (including any
SEC filing fees) and (ii) the filing and fees paid in respect of any HSR or
other regulatory filings, including filings made with the FCC or State
Regulators.
10.3
Notices
. All notices and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally, telecopied (with confirmation) or delivered by an
overnight courier (with confirmation) to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
(a)
if to
Parent or either Merger Sub, to:
Consolidated Communications Holdings, Inc.
121 South 17
th
Street
Mattoon, Illinois 61938
Attention: Steven J. Shirar
Facsimile No: (217) 234-9934
with a copy to:
Schiff Hardin LLP
233 South Wacker Drive
Chicago, IL 60606
Attention: Alexander B. Young,
Esq.
Facsimile: (312) 258-5600
-43-
(b)
if to the Company, to:
SureWest Communications
8150
Industrial Avenue
Building
A
Roseville, California 95678
Attention:
General Counsel
Facsimile:
(916) 786-1800
with
a copy to:
Orrick, Herrington & Sutcliffe LLP
The
Orrick Building
405
Howard Street
San
Francisco, CA 94105
Attention: Richard Vernon Smith, Esq.
Facsimile:
(415) 773-5759
10.4
Interpretation; Construction
. The
words hereof, herein and hereunder and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and the schedules
hereto and not to any particular provision of this Agreement, and Section
references are to this Agreement unless otherwise specified. Whenever the words
include, includes or including are used in this Agreement, they shall be
deemed to be followed by the words without limitation. Unless the context
otherwise requires, or is not exclusive. The definitions contained in this
Agreement are applicable to the singular as well as the plural forms of such
terms and to the masculine as well as to the feminine and neuter genders of such
term. The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. No provision of this Agreement shall be
construed to require the Company, Merger Subs, Parent or any of their respective
officers, directors, Subsidiaries or Affiliates to take any action which would
violate or conflict with any applicable law (whether statutory or common), rule
or regulation. This Agreement shall be construed without regard to any
presumption or interpretation against the party drafting or causing any
instrument to be drafted. All schedules accompanying this Agreement and all
information specifically referenced in any such schedule form an integral part
of this Agreement, and references to this Agreement include reference to them.
10.5
Counterparts; Facsimile
. This
Agreement may be executed in counterparts, all of which shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart. Signatures
transmitted by facsimile shall be accepted as originals for all purposes of this
Agreement.
10.6
Entire Agreement
. This Agreement
(together with the agreements, documents, schedules and the instruments referred
to herein or delivered herewith) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, other than the
Confidentiality Agreement, which shall survive
the execution and delivery of this Agreement and any termination of this
Agreement.
10.7
Specific Performance
. The parties
acknowledge and agree that irreparable damage for which monetary damages, even
if available, would not be an adequate remedy, would occur in the event that the
parties hereto do not perform the provisions of this Agreement (including
failing to take such actions as are required of it hereunder to consummate this
Agreement) in accordance with its specified terms or otherwise breach such
provisions and that, accordingly, the parties shall be entitled to an
injunction, specific performance and other equitable relief to prevent breaches
of this Agreement and to enforce specifically the terms and provisions hereof,
in addition to any other remedy to which they are entitled at law or in equity.
Each of the parties agrees that it will not oppose the granting of an
injunction, specific performance and other equitable relief sought in accordance
with this
Section 10.7
on the basis that any other party has an adequate remedy at
law or that any award of specific performance is not an appropriate remedy for
any reason at law or in equity. Any party seeking an injunction or injunctions
in accordance with this Agreement to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement shall not be
required to provide any bond or other security in connection with any such order
or injunction.
-44-
10.8
Governing Law; Venue
. This Agreement
shall be governed and construed in accordance with the laws of the State of
California, without regard to any applicable conflicts of law provisions (except
to the extent that mandatory provisions of federal law). Each of the parties
hereto irrevocably submit to the exclusive jurisdiction and venue of the courts
of the State of California or of the United States of America, in each case
located in the County of San Francisco, California, for the purpose of any suit,
action or other proceeding arising out of this Agreement, or any of the
agreements or transactions contemplated hereby, which is brought by or against
any other party hereto and hereby irrevocably agree (a) that all claims in
respect of any such suit, action or proceeding may be heard and determined in
any such court and (b) not to commence any action suit or proceeding relating to
this Agreement other than in such court. Each party hereto irrevocably and
unconditionally waives and agrees not to assert in any such suit, action or
proceeding, in each case, to the fullest extent permitted by applicable law, (i)
any objection to the laying of venue of any such suit, action or proceeding
brought in any such court, (ii) any claim that such party is not personally
subject to the jurisdiction of any such court, and (iii) any claim that any such
suit, action or proceeding is brought in an inconvenient forum. Each party
hereto agrees that service of any process, summons, notice or document by U.S.
registered mail addressed to such party shall be effective service of process
for any action, suit or proceeding brought against such party in any such court.
Each party hereto agrees that a final judgment in any such suit, action or
proceeding brought in any such court shall be conclusive and binding upon such
party and may be enforced in any other courts to whose jurisdiction such party
is or may be subject, by suit upon such judgment.
10.9
Severability
. Any term or provision of
this Agreement which is determined by a court of competent jurisdiction to be
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction, and if any provision of
this Agreement is determined to be so broad as to be unenforceable, the provision shall be interpreted to be only so broad as
is enforceable, in all cases so long as neither the economic nor legal substance
of the transactions contemplated hereby is affected in any manner materially
adverse to any party or its shareholders. Upon any such determination, the
parties shall negotiate in good faith in an effort to agree upon a suitable and
equitable substitute provision to effect the original intent of the parties.
10.10
Publicity
. Parent, Merger Subs and the
Company shall consult with each other before issuing any press release with
respect to the Mergers or this Agreement and shall not issue any such press
release or make any such public statement without the prior consent of the other
party, which shall not be unreasonably withheld or delayed;
provided
,
however
, that a party may,
without the prior consent of the other party (but after prior consultation, to
the extent practicable in the circumstances) issue such press release or make
such public statement or SEC filing as may upon the advice of outside counsel be
required by law or the rules and regulations of any applicable stock exchange
(including the NASDAQ Stock Market). The parties have agreed upon the form of a
joint press release announcing the Mergers and the execution of this Agreement.
10.11
Assignment; Third Party Beneficiaries
.
Neither this Agreement nor any of the rights, interests or obligations of any
party hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
party. Subject to the preceding sentence, this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and permitted assigns. Except for (a) the provisions of Section 7.5
and Section 7.6, (b) the right of the Companys shareholders to receive the
Merger Consideration at the Effective Time, (c) the right of the holders of
Company Options, Company RSUs and Company RSAs to receive the Equity Award
Consideration at the Effective Time, and (d) the rights of the Companys
shareholders to pursue claims for damages and other relief, including equitable
relief, for Parents or either Merger Subs willful breach of this Agreement
(provided, that the rights granted pursuant to this clause (e) shall be
enforceable on behalf of the shareholders only by the Company in its sole and
absolute discretion), this Agreement (including the documents and instruments
referred to herein) is not intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.
10.12
Merger Subs
. On the date hereof, the
Company and Parent are executing and delivering this Agreement. Promptly after
the date hereof, Parent shall cause each Merger Sub to be incorporated under the
laws of the State of California and, promptly thereafter, Parent shall deliver
to the Company a counterpart of this Agreement duly executed by each Merger Sub
pursuant to Section 10.5. Notwithstanding anything in this Agreement to the
contrary, from and after the execution of this Agreement by each Merger Sub,
each Merger Sub shall be bound by this Agreement as a party hereto and,
effective upon its execution hereof, each Merger Sub shall be deemed to make all
of its representations and warranties set forth in Section 5.
[
Remainder of Page Left Blank Intentionally
]
-45-
IN WITNESS
WHEREOF, Parent, Merger Subs and the Company have caused this Agreement to be
executed by their respective officers hereunto duly authorized, in the case of
the Company and Parent, as of the date first above written, and, in the case of
each Merger Sub, as of the date set forth under such Merger Subs name below.
|
SUREWEST
COMMUNICATIONS
|
|
|
|
|
|
By:
|
|
/s/ Steven
Oldham
|
|
Name:
|
Steve Oldham
|
|
Title:
|
President and Chief Executive Officer
|
|
|
|
|
|
|
|
CONSOLIDATED
COMMUNICATIONS
|
|
HOLDINGS,
INC.
|
|
|
|
|
|
By:
|
|
/s/ Robert J.
Currey
|
|
Name:
|
Robert J. Currey
|
|
Title:
|
President and Chief Executive Officer
|
|
|
|
|
|
WH ACQUISITION
CORP.
|
|
|
|
|
|
By:
|
|
/s/ Robert J.
Currey
|
|
Name:
|
Robert J. Currey
|
|
Title:
|
President and Chief Executive Officer
|
|
Date:
|
February 7, 2012
|
|
|
|
|
|
WH ACQUISITION II
CORP.
|
|
|
|
|
|
By:
|
|
/s/ Robert J.
Currey
|
|
Name:
|
Robert J. Currey
|
|
Title:
|
President and Chief Executive Officer
|
|
Date:
|
February 7, 2012
|
Exhibit A
[
Form
of Agreement of Merger, including Form of Amended and Restated Articles
of
Incorporation
]
AGREEMENT OF MERGER
of
WH ACQUISITION CORP.
and
SUREWEST COMMUNICATIONS
This Agreement of Merger (the
Agreement
) is made and entered
into as of _________ __, 201_, pursuant to and in accordance with Section 1101 of
the General Corporation Law of California (the
California GCL
) by and among
SureWest Communications, a California corporation (the
Company
), and WH
Acquisition Corp, a California corporation (the
Merging
Corporation
and,
together with the Company, the
Constituent
Corporations
).
RECITALS
WHEREAS
, Consolidated
Communications Holdings, Inc., a Delaware corporation (
Parent
), the Company,
the Merging Corporation and WH Acquisition II Corp, a California corporation,
have entered into that certain Agreement and Plan of Merger dated as of February
5, 2012 (the
Merger
Agreement
), providing, among other
things, for the execution and filing of this Agreement and the merger (the
Merger
) of the Merging Corporation with and into the Company, with the Company
being the surviving corporation (the Company, following effectiveness of the
Merger, shall be the
Surviving
Corporation
);
WHEREAS
, the respective
boards of directors of the Constituent Corporations deem it advisable and in the
best interests of each such corporation and their respective shareholders that
the Merging Corporation be merged with and into the Company and, as a result,
have approved this Agreement and the Merger; and
WHEREAS
, the Merger
Agreement, this Agreement and the Merger have been approved by the shareholders
of the Company and the Merging Corporation.
NOW
THEREFORE
, in consideration of the
mutual agreements and covenants set forth herein, the parties hereto hereby
agree as follows:
ARTICLE I.
THE CONSTITUENT CORPORATIONS
Section 1.1
The Company
. The authorized capital
stock of the Company consists of One Hundred Million (100,000,000) shares of
common stock, no par value (
Company
Common
Stock
). As of the date
of this Agreement, ______________ shares of Company Common Stock are issued and
outstanding, all of which are validly issued, fully paid, and
nonassessable.
Section 1.2
Merging Corporation
. The authorized
capital stock of the Merging Corporation consists of ___________ shares of
common stock, no par value (
Merging
Corporation Common Stock
). As of the date of this Agreement, ___________ shares of Merging Corporation Common Stock are outstanding, all of which
are validly issued, fully paid and nonassessable and are held by Parent.
-48-
ARTICLE II.
THE MERGER
Section
2.1
The
Merger
. At the Effective Time (as defined in
Section 2.2
) and subject to and upon the terms and conditions of this Agreement and
the applicable provisions of the California General Corporation Law
(
California GCL
), the Merging Corporation shall be merged with and into the
Company, the separate corporate existence of the Merging Corporation shall cease
and the Company shall continue, as the Surviving Corporation.
Section 2.2
Effective Time: Closing
. This
Agreement shall be effective upon filing with the Secretary of State of the
State of California (the time of such filing, the
Effective Time
).
Section 2.3
Effect of the Merger
. The effect of
the Merger shall be as provided in this Agreement and the applicable provisions
of the California GCL. Without limiting the generality of the foregoing and
subject thereto, at the Effective Time, all the property, rights, privileges,
powers and franchises of the Company and the Merging Corporation shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and the Merging Corporation shall become the debts, liabilities and duties of
the Surviving Corporation.
Section 2.4
Articles of Incorporation
. At the
Effective Time, the Articles of Incorporation of the Surviving Corporation shall
be amended and restated in their entirety as set forth in
Exhibit A
attached hereto.
Section 2.5
Effect on Capital Stock
. Subject to
the terms and conditions of this Agreement, by virtue of the Merger and without
any action on the part of Parent, the Merging Corporation, the Company or the
holders of any of the following securities, the following shall occur:
(i)
Cancellation of Certain Shares
. Each
share of capital stock of the Company held in the Companys treasury or owned by
Parent, the Merging Corporation or the Company immediately prior to the
Effective Time, if any, shall be extinguished and canceled without payment of
any consideration with respect thereto.
(ii)
Conversion of Capital Stock
. Except as
provided in clause (i) above, each issued and outstanding share of Company
Common Stock, other than Dissenting Shares (as defined in Section 2.6), if any,
shall be converted automatically into the right to receive: (A) an amount to
$23.00, consisting of $11.50 of cash and $11.50 of shares of Common Stock of
Parent, subject to certain election and proration provisions, as set forth in
the Merger Agreement (the
Merger
Consideration
).
(iii)
The Merging Corporation Common Stock
.
Each share of common stock of the Merging Corporation issued and outstanding
shall be converted into and exchanged for one validly issued, fully paid, and
nonassessable share of common stock of the Surviving Corporation. From and after
the Effective Time, all certificates representing the common stock of the Merging Corporation shall be deemed for all purposes to
represent the number of shares of common stock of the Surviving Corporation into
which they were converted in accordance with the immediately preceding sentence.
Section
2.6
Dissenting
Shares
. If dissenters rights are available
under the California GCL to holders of shares of capital stock of the Company in
connection with the Merger, any issued and outstanding share of capital stock of
the Company that are held by a shareholder who (a) did not vote such
shareholders shares of capital stock of the Company in favor of the Merger (or
did not consent thereto in writing, if approval of the Merger is obtained by
written consent), (b) is entitled to demand and properly demands that the
Company purchase such shares at their fair market value in accordance with
Section 1301 of the California GCL, (c) has submitted such shares for
endorsement in accordance with Section 1302 of the California GCL and (d) has
not otherwise failed to perfect or effectively withdrawn or lost such right to
require the Company to so purchase such shares, shall not be converted into or
exchangeable for the right to receive the Merger Consideration (the
Dissenting Shares
), but instead the holders thereof shall be entitled to have
the Dissenting Shares purchased by the Company for cash at the fair market value
thereof as agreed upon or determined in accordance with the provisions of
Chapter 13 of the California GCL, unless and until the holder of such Dissenting
Shares shall have failed to perfect or shall have effectively withdrawn his
demand for such dissenters rights or otherwise loses his dissenters rights. If
a holder of Dissenting Shares shall have failed to perfect or shall
-49-
have
effectively withdrawn his demand for dissenters rights or shall otherwise lose
his dissenters rights, then, such Dissenting Shares shall thereupon be treated
as if they had been converted into and become exchangeable for the right to
receive, as of the Effective Time, the Merger Consideration.
ARTICLE III.
MISCELLANEOUS
Section 3.1
Further Action
. If at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement or to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of either the Company or the Merging Corporation, the officers
and directors of the Surviving Corporation are fully authorized to take, and
will take, all such lawful and necessary action.
Section 3.2
Multiple Counterparts
. This Agreement
may be executed in one or more counterparts, each of which shall be an original,
but all of which when taken together shall constitute one and the same
agreement.
Section 3.3
Choice of Law
. This Agreement shall be
construed in accordance with, and governed in all respects by, the internal laws
of the State of California without giving effect to principles of conflicts of
laws.
[Signature page follows]
-50-
IN WITNESS
WHEREOF, the parties have executed this Agreement this ___ day of
______________, 201_.
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WH ACQUISITION CORP.
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By:
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, President
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By:
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, Secretary
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SUREWEST COMMUNICATIONS
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By:
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, President
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, Secretary
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CERTIFICATE OF APPROVAL OF AGREEMENT
OF MERGER
_____________________
AND ________________ certify that:
1.
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They are the president
and the secretary of SureWest Communications.
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2.
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The Agreement of
Merger in the form attached was duly approved by the board of directors
and shareholders of the corporation which equaled or exceeded the vote
required.
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3.
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The shareholder
approval was by the holders of [__]% of the outstanding shares of the
corporation.
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4.
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There is only one
class of shares and the number of shares outstanding entitled to vote on
the merger is _______________.
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We further declare under penalty of
perjury under the laws of the State of California that the matters set fort in
this certificate are true and correct of our own knowledge.
Date:_______ ___, 201_
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Name:
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Its President
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Name:
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Its
Secretary
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CERTIFICATE OF APPROVAL OF AGREEMENT
OF MERGER
____________ and ________________
certify that:
1.
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They are the President
and the Secretary, respectively, of WH Acquisition Corp.
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2.
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The Agreement of
Merger in the form attached was duly approved by the board of directors
and shareholders of the corporation which equaled or exceeded the vote
required.
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3.
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The shareholder
approval was by the holder of [__]% of the outstanding shares of the
corporation.
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4.
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There is only one
class of shares and the number of shares outstanding entitled to vote on
the merger is __________.
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5.
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The Agreement of
Merger was approved by the holder of [__]% of the outstanding shares of
Consolidated Communications Holding, Inc.
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We further declare under penalty of
perjury under the laws of the State of California that the matters set fort in
this certificate are true and correct of our own knowledge.
Date:_______ ___, 201_
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Name:
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Its President
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Name:
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Its
Secretary
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EXHIBIT A
Amended and Restated Articles of
Incorporation of Surviving Corporation
AMENDED AND RESTATED
ARTICLES OF
INCORPORATION
OF
SUREWEST COMMUNICATIONS
The undersigned, _____________and _____________, hereby certify that:
1.
They are the duly elected and acting President and Secretary,
respectively, of SureWest Communications, a California corporation.
2.
The
Articles of Incorporation of this corporation shall be amended and restated to
read in full as follows:
ARTICLE I
The name of
this corporation is: SureWest Communications.
ARTICLE II
The purpose
of this corporation is to engage in any lawful act or activity for which a
corporation may be organized under the General Corporation Law of California
other than the banking business, the trust company business or the practice of a
profession permitted to be incorporated by the California Corporations Code.
ARTICLE III
This
corporation is authorized to issue only one class of shares of stock which shall
be designated common stock; and the total number of shares which this
corporation is authorized to issue is ____________ Shares.
ARTICLE IV
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(a)
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The liability
of directors of this corporation for monetary damages shall be eliminated
to the fullest extent permissible under California law.
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(b)
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This corporation is
authorized to provide indemnification of agents (as defined in Section 317
of the California Corporations Code) through bylaw provisions, agreements
with agents, vote of shareholders or disinterested directors, or otherwise, to the fullest extent
permissible under California law.
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(c)
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Any amendment, repeal
or modification of any provision of this Article V shall not adversely
affect any right or protection of an agent of this corporation existing at
the time of such amendment, repeal or modification.
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3. The
foregoing amendment has been approved by the Board of Directors of the
Corporation.
4. The
foregoing amendment was approved by the holders of the requisite number of
shares of the Corporation in accordance with Sections 902 and 903 of the
California General Corporation Law. The total number of outstanding shares
entitled to vote with respect to the foregoing amendment was 100 shares of
Common Stock. The number of shares voting in favor of the foregoing amendment
equaled or exceeded the vote required. The percentage vote required was a
majority of the outstanding shares of Common Stock.
The
undersigned declares under penalty of perjury under the laws of the State of
California that the matters set forth in this Amended and Restated Articles of
Incorporation are true and correct of my own knowledge.
Executed on ________ __, 201_.
Annex II
Fairness Opinion of UBS
Securities LLC
|
UBS Securities LLC
299 Park Avenue
New York NY
10171
www.ubs.com
|
February 5, 2012
The Board of
Directors
SureWest Communications
8150 Industrial Avenue
Roseville,
California 95678
Dear Members of the Board:
We understand that SureWest
Communications, a California corporation (
SureWest
or the
Company
), is considering a transaction whereby
Consolidated Communications Holdings, Inc., a Delaware corporation (
Consolidated
or
Parent
), will effect a merger involving the
Company. Pursuant to the terms of an Agreement and Plan of Merger, dated as of
February 5, 2012 (the
Agreement
), among Consolidated
,
the Company, WH Acquisition Corp., a California corporation and a wholly
owned subsidiary of Consolidated (
Merger Sub I
), and WH Acquisition II Corp., a
California corporation and a wholly owned subsidiary of Consolidated (
Merger Sub II,
and together with Merger Sub I, the
Merger Subs
), Merger Sub I will merge with and
into the Company, pursuant to which the Company would become a wholly owned
subsidiary of Consolidated (the First Merger), and, as part of the same
overall transaction, the surviving entity of the First Merger would merge with
and into Merger Sub II (together with the First Merger, the
Transaction
). Pursuant to the terms of the
Agreement: (i) each issued and outstanding share of the common stock, without
par value, of the Company (
Company Common Stock
), with respect to which an election to
receive cash (a
Cash
Election
) has been properly made
and not revoked or lost pursuant to the Agreement shall be converted into the
right to receive $23.00 in cash without interest (such per share amount is
hereinafter referred to as the
Cash Consideration
); (ii) each share of Company Common
Stock with respect to which an election to receive stock consideration (a
Stock Election
) has been properly made and not
revoked or lost pursuant to the Agreement shall be converted into the right to
receive the number of validly issued, fully paid and nonassessable shares of
common stock, par value $0.01 per share, of Parent (the
Parent Stock
) determined by dividing (a) $23.00 by
(B) the Parent Trading Price (as defined in the Agreement) (such quotient, the
Exchange Ratio
), subject to adjustment in accordance
with the Agreement (such per share amount, together with any cash in lieu of
fractional shares of Parent Stock to be paid pursuant to the Agreement, is
hereinafter referred to as the
Parent Stock Consideration
),
provided
,
however
, that (x) if the number determined by dividing
$23.00 by the Parent Trading Price (as defined below) is less than or equal to
1.03896, the Exchange Ratio shall be 1.03896 and (y) if the number determined by
dividing $23.00 by the Parent Trading Price is greater than or equal to 1.40565,
the Exchange Ratio shall be 1.40565; and (iii) each share of Company Common
Stock as to which a Cash Election or Stock Election has not been properly made
shall be converted into the right to receive the Cash Consideration or Parent
Stock Consideration as determined in the Agreement, all such conversions being
subject to the proration mechanisms, procedures and limitations contained in the
Agreement, as to which proration mechanisms, procedures and limitations we are
expressing no opinion. The Cash Consideration and Parent Stock Consideration are
referred to herein collectively as the
Merger Consideration.
The terms and conditions of the
Transaction are more fully set forth in the Agreement.
You have requested our opinion
as to the fairness, from a financial point of view, to the holders of Company
Common Stock of the Merger Consideration, taken in the aggregate, to be received
by such holders in the Transaction.
-1-
UBS Securities LLC (
UBS
) has acted as financial advisor to the
Company in connection with the Transaction and will receive a fee for its
services, a portion of which is payable in connection with this opinion and a
significant portion of which is contingent upon consummation of the Transaction.
In the past, UBS has provided investment banking services to the Company
unrelated to the proposed Transaction, for which UBS received compensation,
including having acted as agent for the Company in connection with a share
repurchase. In the ordinary course of business, UBS and its affiliates may hold
or trade, for their own accounts and the accounts of their customers, securities
of the Company
and Consolidated and, accordingly, may at any time
hold a long or short position in such securities. The issuance of this opinion
was approved by an authorized committee of UBS.
Our opinion does not address
the relative merits of the Transaction as compared to other business strategies
or transactions that might be available with respect to the Company or the
Company
’
s underlying business
decision to effect the Transaction. Our opinion does not constitute a
recommendation to any shareholder as to how such shareholder should vote or act
with respect to the Transaction. In addition, our opinion does not address, or
constitute a recommendation with respect to, any particular shareholder
election. At your direction, we have not been asked to, nor do we, offer any
opinion as to the terms, other than the Merger Consideration to the extent
expressly specified herein, of the Agreement or the form of the Transaction. In
addition, we express no opinion as to the fairness of the amount or nature of
any compensation to be received by any officers, directors or employees of any
parties to the Transaction, or any class of such persons, relative to the Merger
Consideration. We express no opinion as to what the value of Parent Stock will
be when issued pursuant to the Transaction or the prices at which Parent Stock
or Company Common Stock will trade at any time. In rendering this opinion, we
have assumed, with your consent, that (i) the parties to the Agreement will
comply with all material terms of the Agreement, and (ii) the Transaction will
be consummated in accordance with the terms of the Agreement without any adverse
waiver or amendment of any material term or condition thereof. We also have
assumed that all governmental, regulatory or other consents and approvals
necessary for the consummation of the Transaction will be obtained without any
material adverse effect on the Company, Consolidated or the Transaction.
In arriving at our opinion, we
have, among other things: (i) reviewed certain publicly available business and
financial information relating to the Company and Consolidated; (ii) reviewed
certain internal financial information and other data relating to the businesses
and financial prospects of the Company that were not publicly available,
including financial forecasts and estimates prepared by the management of the
Company that you have directed
us to utilize for purposes of our
analysis; (iii) reviewed certain internal financial information and other data
relating to the businesses and financial prospects of Consolidated that were not
publicly available, including financial forecasts and estimates prepared by the
management of the Company
that you have
directed
us to utilize for purposes of our analysis; (iv)
reviewed certain estimates of synergies prepared by the management of
Consolidated and discussed with the Company that were not publicly available
that you have directed us to utilize for purposes of our analysis; (v) conducted
discussions with members of the senior managements of the Company and
Consolidated
concerning the businesses
and financial prospects of the Company and Consolidated; (vi) reviewed publicly
available financial and stock market data with respect to certain other
companies we believe to be generally relevant; (vii) compared the financial
terms of the Transaction with the publicly available financial terms of certain
other transactions we believe to be generally relevant; (viii) reviewed current
and historical market prices of Company Common Stock and
Parent Stock; (ix) reviewed the Agreement; and (x) conducted such other
financial studies, analyses and investigations, and considered such other
information, as we deemed necessary or appropriate. At your request, we have
contacted third parties to solicit indications of interest in a possible
transaction with the Company and held discussions with certain of these parties
prior to the date hereof.
In connection with our review,
with your consent, we have assumed and relied upon, without independent
verification, the accuracy and completeness in all material respects of the
information provided to or reviewed by us for the purpose of this opinion. In
addition, with your consent, we have not made any independent evaluation or
appraisal of any of the assets or liabilities (contingent or otherwise) of the
Company or Consolidated, nor have we been furnished with any such evaluation or
appraisal. With respect to the financial forecasts, estimates and synergies
referred to above, we have assumed, at your direction, that they have been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the management of the Company as to the future financial
performance of the respective companies and such synergies. In addition, we have
assumed with your approval that the financial forecasts and estimates, including
synergies, referred to above will be achieved at the times and in the amounts
projected.
We also have assumed, with your consent, that the
Transaction will qualify for U.S. federal
-2-
income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended. Our opinion is necessarily based on economic, monetary,
market and other conditions as in effect on, and the information available to us
as of, the date hereof.
Based upon and subject to the
foregoing, it is our opinion that, as of the date hereof, the Merger
Consideration, taken in the aggregate, to be received by holders of Company
Common Stock in the Transaction is fair, from a financial point of view, to such
holders.
This opinion is provided for
the benefit of the Board of Directors (in its capacity as such) in connection
with, and for the purpose of, its evaluation of the Merger Consideration in the
Transaction.
Very
truly yours,
UBS
SECURITIES LLC
-3-
Annex III
Fairness Opinion of Wells
Fargo Securities, LLC
[Letterhead of Wells
Fargo Securities, LLC]
February 5, 2012
Confidential
Board of
Directors
Consolidated
Communications Holdings, Inc.
121 South 17th Street
Mattoon, Illinois
61938-3987
Ladies and Gentlemen:
You have asked Wells Fargo
Securities, LLC (Wells Fargo Securities) to advise you with respect to the
fairness, from a financial point of view, to Consolidated Communications
Holdings, Inc., a Delaware corporation (Consolidated), of the Merger
Consideration (as defined below) to be paid pursuant to an Agreement and Plan of
Merger (the Agreement) to be entered into among Consolidated, WH Acquisition
Corp., a California corporation and wholly-owned subsidiary of Consolidated
(Merger Sub I), WH Acquisition II Corp., a California corporation and
wholly-owned subsidiary of Consolidated (Merger Sub II) and SureWest
Communications, a California corporation (SureWest). Pursuant to the
Agreement, Merger Sub I will be merged with and into SureWest, the separate
corporate existence of Merger Sub I will cease and SureWest will continue as the
surviving corporation and a wholly owned subsidiary of Consolidated (the First
Merger) and promptly thereafter the surviving entity of the First Merger will
merge with and into Merger Sub II, the separate corporate existence of the
surviving entity of the First Merger will cease and Merger Sub II will continue
as the surviving corporation and a wholly owned subsidiary of Consolidated (the
Second Merger and together with the First Merger, the Mergers). The
Agreement contemplates that, at the effective time of the First Merger, each
outstanding share of common stock, without par value (the SureWest Common
Stock), of SureWest will be converted, at the election of the holder thereof,
into the right to receive the number of shares of common stock, par value $0.01
per share (the Consolidated Common Stock), of Consolidated (the Stock
Consideration) equal to the Exchange Ratio (as defined below) or $23.00 in cash
(the Cash Consideration, together with the Stock Consideration, the Merger
Consideration), subject to certain procedures and limitations contained in the
Agreement. The Agreement further contemplates that the Exchange Ratio will be
the quotient of $23.00 divided by the average closing price (the Parent Trading
Price) of a share of the Consolidated Common Stock as reported on the NASDAQ
Global Select Market for the 20 consecutive trading days ending on the second
trading day preceding the Closing Date (as defined in the Agreement) provided
that (x) if the number determined by dividing $23.00 by the Parent Trading Price
is less than or equal to 1.03896, the Exchange Ratio will be 1.03896 and (y) if
the number determined by dividing $23.00 by the Parent Trading Price is greater
than or equal to 1.40565, the Exchange Ratio will be 1.40565. The terms and
conditions of the Mergers are more fully set forth in the Agreement. Capitalized
terms used, but not defined, in this letter shall have the meaning ascribed to
them in the Agreement.
In arriving at our opinion, we
have, among other things:
-
Reviewed a draft dated February 5,
2012 of the Agreement, including the financial terms of the
Agreement;
-
Reviewed certain business, financial
and other information regarding SureWest that was publicly available or was
furnished to us by SureWest or Consolidated;
-1-
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Reviewed certain financial projections
for SureWest prepared by the management of SureWest as reviewed and approved
for our use by the management of Consolidated (the SureWest
Projections);
-
Discussed with the managements of
SureWest and Consolidated the operations and prospects of SureWest, including
the historical financial performance and trends in the results of operations
of SureWest;
-
Reviewed certain business, financial
and other information regarding Consolidated that was publicly available or
was furnished to us by Consolidated;
-
Reviewed certain financial projections
for Consolidated prepared by the management of Consolidated (the Consolidated
Projections);
-
Discussed with the management of
Consolidated the operations and prospects of Consolidated, including the
historical financial performance and trends in the results of operations of
Consolidated;
-
Reviewed certain projections of the
synergies expected to result from the Mergers prepared by the management of
Consolidated (the Synergies Projections) and certain projections of the
integration costs associated with implementing the expected synergies prepared
by the management of Consolidated (the Integration Costs);
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Reviewed certain information regarding
the net operating losses held by SureWest prepared by the management of
SureWest and certain estimates regarding the utilization of such net operating
losses by Consolidated for U.S. federal income tax purposes approved for our
use by the management of Consolidated (the NOL
Projections);
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Discussed with the management of
Consolidated the strategic rationale for the Mergers;
-
Compared certain business, financial
and other information regarding SureWest and Consolidated, respectively, that
was publicly available or was furnished to us by the respective managements of
SureWest and Consolidated with publicly available business, financial and
other information regarding certain publicly traded companies that we deemed
relevant;
-
Compared the proposed financial terms
of the Agreement with the financial terms of certain other business
combinations and transactions that we deemed relevant;
-
Prepared a discounted cash flow
analysis of SureWest based upon the SureWest Projections, the NOL Projections,
the Synergies Projections and the Integration Costs, as well as other
assumptions discussed with and confirmed as reasonable by the management of
Consolidated;
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Prepared a pro forma analysis
estimating the financial impact on the combined company resulting from the
Mergers based upon the SureWest Projections, the NOL Projections, the
Synergies Projections, the Integration Costs, the Consolidated Projections and
the pro forma capital structure of Consolidated projected by the management of
Consolidated, as well as other assumptions discussed with and confirmed as
reasonable by the management of Consolidated; and
-
Considered other information such as
financial studies, analyses and investigations, as well as financial, economic
and market criteria that we deemed relevant.
In connection with our review,
we have assumed and relied upon the accuracy and completeness of the financial
and other information provided, discussed with or otherwise made available to
us, including all accounting, tax and legal information, and we have not made
(and have not assumed any responsibility for) any independent verification of
such information. We have assumed, with your consent, that neither the
management of SureWest nor of Consolidated is aware of any facts or
circumstances that would make such information inaccurate or misleading
-2-
in any
way meaningful to our analysis. With respect to the financial forecasts and
estimates utilized in our analyses, including the SureWest Projections, the NOL
Projections, the Synergies Projections, the Integration Costs and the
Consolidated Projections, we have assumed, with your consent, that they have
been reasonably prepared and reflect the best current estimates, judgments and
assumptions of the management of Consolidated as to the future financial
performance of SureWest and Consolidated, the utilization of the net operating
losses of SureWest, the synergies expected to result from the Mergers and the
projected integration costs associated with implementing the expected synergies.
We assume no responsibility for, and express no view as to, such forecasts or
estimates or the judgments or assumptions upon which they are based. We also
have assumed that there have been no material changes in the condition
(financial or otherwise), results of operations, business or prospects of
SureWest or Consolidated since the date of the last financial statements
provided to us. In arriving at our opinion, we have not conducted any physical
inspection or appraisals of the assets or liabilities (contingent or otherwise)
of SureWest or Consolidated.
In rendering our opinion, we
have assumed, with your consent, that the final form of the Agreement, when
signed by the parties thereto, will not differ from the draft reviewed by us in
any respect material to our opinion, that the Mergers and financings
contemplated to be undertaken by Consolidated in connection with the Mergers or
otherwise will be consummated in accordance with the terms described in the
Agreement or as otherwise described to us by representatives of Consolidated and
in compliance with all applicable laws, without waiver of any material terms or
conditions, and that in the course of obtaining any necessary legal, regulatory
or third party consents or approvals for the Mergers or such contemplated
financings, no restrictions will be imposed or actions will be taken that will
have an adverse effect on Consolidated, SureWest or the expected benefits of the
Mergers in any way meaningful to our analysis. Our opinion is necessarily based
on economic, market, financial and other
conditions and the information made available to us as of the date
hereof. Although subsequent developments may affect this opinion, we do not have
any obligation to update, revise or reaffirm this opinion.
Our opinion only addresses the
fairness, from a financial point of view, to Consolidated of the Merger
Consideration to the extent expressly specified herein, and does not address any
other terms or aspects of the Mergers, including, without limitation, the form
or structure of the Mergers, any allocation of the Merger Consideration, any tax
or accounting matters relating to the Mergers or otherwise, any financing
arrangements or any aspect or implication of any other agreement or arrangement
entered into in connection with or contemplated by the Mergers or otherwise. In
addition, our opinion does not address the fairness of the amount or nature of,
or any other aspects relating to, any compensation to be received by any
officers, directors or employees of any parties to the Mergers, or class of such
persons, relative to the Merger Consideration. Our opinion does not address the
merits of the underlying decision by Consolidated to enter into the Agreement or
the relative merits of the Mergers or contemplated financings compared with
other business strategies or transactions available or that have been or might
be considered by the management or the Board of Directors of Consolidated.
The issuance of this opinion
was approved by an authorized committee of Wells Fargo Securities. Wells Fargo
Securities is the trade name for certain capital markets and investment banking
services of Wells Fargo & Company and its subsidiaries, including Wells
Fargo Securities, LLC. Wells Fargo Securities has been engaged to act as
financial advisor to the Board of Directors of Consolidated in connection with
the Mergers and will receive a fee for such services, a portion of which will be
payable upon delivery of this opinion and a significant portion of which will be
payable upon the consummation of the Mergers. Consolidated has also agreed to
reimburse certain of Wells Fargo Securities expenses and to indemnify us
against certain liabilities that may arise out of our engagement.
Wells Fargo Securities and our
affiliates provide a full range of financial advisory, securities and lending
services in the ordinary course of business, for which we and such affiliates
receive customary fees. In that regard, Wells Fargo Securities or our affiliates
in the past have provided, currently are providing, and in the future may
provide, financial services to Consolidated and its affiliates and SureWest and
its affiliates, respectively, for which Wells Fargo Securities and such
affiliates have received and expect to receive fees, including having acted as
or currently acting as a lender and administrative agent under the existing
senior secured credit facilities of Consolidated, as the sole lead arranger in
connection with the recent amendment and extension of such credit facilities,
and as a counterparty to certain derivative transactions with Consolidated. In
the ordinary course of business, Wells Fargo Securities and our affiliates may
actively trade or hold the securities or financial instruments of Consolidated
and SureWest for our and their own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities or financial instruments.
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It is understood that this
opinion is for the information and use of the Board of Directors of Consolidated
in connection with its evaluation of the Mergers and such opinion does not
constitute a recommendation as to how any holder of shares of the Consolidated
Common Stock should vote with respect to the issuance of shares of the
Consolidated Common Stock pursuant to the Mergers and the Agreement or any other
matter.
Based upon and subject to the
foregoing, our experience as investment bankers, our work described above and
other factors we deemed relevant, it is our opinion that, as of the date hereof,
the Merger Consideration to be paid pursuant to the Agreement is fair, from a
financial point of view, to Consolidated.
Very truly yours,
/s/ Wells Fargo Securities,
LLC
WELLS FARGO SECURITIES, LLC
-4-
Annex IV
California Statute Relating to
Shareholders Dissenters Rights
Chapter 13 of the California
Corporations Code
Dissenters Rights.
§1300. (a) If the
approval of the outstanding shares (Section 152) of a corporation is required
for a reorganization under subdivisions (a) and (b) or subdivision (e) or (f) of
Section 1201, each shareholder of the corporation entitled to vote on the
transaction and each shareholder of a subsidiary corporation in a short-form
merger may, by complying with this chapter, require the corporation in which the
shareholder holds shares to purchase for cash at their fair market value the
shares owned by the shareholder which are dissenting shares as defined in
subdivision (b). The fair market value shall be determined as of the day before
the first announcement of the terms of the proposed reorganization or short-form
merger, excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split, reverse stock split, or share
dividend which becomes effective thereafter.
(b) As used in this chapter, dissenting
shares means shares which come within all of the following
descriptions:
(1)
Which were not immediately prior to the reorganization or short-form
merger listed on any national securities exchange certified by the Commissioner
of Corporations under subdivision (o) of Section 25100, and the notice of
meeting of shareholders to act upon the reorganization summarizes this section
and Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any restriction
on transfer imposed by the corporation or by any law or regulation; and
provided, further, that this provision does not apply to any class of shares if
demands for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
(2)
Which were outstanding on the date for the
determination of shareholders entitled to vote on the reorganization and (A)
were not voted in favor of the reorganization or, (B) if described in paragraph
(1) (without regard to the provisos in that paragraph), were voted against the
reorganization, or were held of record on the effective date of a short-form
merger; provided, however, that subparagraph (A) rather than subparagraph (B) of
this paragraph applies in any case where the approval required by Section 1201
is sought by written consent rather than at a meeting.
(3)
Which the dissenting shareholder has demanded
that the corporation purchase at their fair market value, in accordance with
Section 1301.
(4)
Which the dissenting shareholder has submitted
for endorsement, in accordance with Section 1302.
(c) As used in this chapter, dissenting
shareholder means the recordholder of dissenting shares and includes a
transferee of record.
§1301. (a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, that corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of that approval, accompanied
by a copy of Sections 1300, 1302, 1303, and 1304 and this section, a statement
of the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholders right under those
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision (b)
of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
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(b)
Any shareholder who has a right to require the
corporation to purchase the shareholders shares for cash under Section 1300,
subject to compliance with paragraphs (3) and (4) of subdivision (b) thereof,
and who desires the corporation to purchase shares shall make written demand
upon the corporation for the purchase of those shares and payment to the
shareholder in cash of their fair market value. The demand is not effective for
any purpose unless it is received by the corporation or any transfer agent
thereof (1) in the case of shares described subdivision (b) of Section 1300
(without regard to the provisos in that paragraph), not later than the date of
the shareholders meeting to vote upon the reorganization, or (2) in any other
case within 30 days after the date on which the notice of the approval by the
outstanding shares pursuant to subdivision (a) or the notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder.
(c)
The demand shall state the number and class of
the shares held of record by the shareholder which the shareholder demands that
the corporation purchase and shall contain a statement of what that shareholder
claims to be the fair market value of those shares as of the day before the
announcement of the proposed reorganization or short-
form merger. The statement of fair market value constitutes an offer by
the shareholder to sell the shares at that price.
§1302. Within 30
days after the date on which notice of the approval by the outstanding shares or
the notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, the shareholder shall submit to the corporation at its principal
office or at the office of any transfer agent thereof, (a) if the shares are
certificated securities, the shareholders certificates representing any shares
which the shareholder demands that the corporation purchase, to be stamped or
endorsed with a statement that the shares are dissenting shares or to be
exchanged for certificates of appropriate denomination so stamped or endorsed or
(b) if the shares are uncertificated securities, written notice of the number of
shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
§1303. (a) If the corporation and the shareholder agree that the shares
are dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section
1306, payment of the fair market value of dissenting shares shall be made within
30 days after the amount thereof has been agreed or within 30 days after any
statutory or contractual conditions to the reorganization are satisfied,
whichever is later, and in the case of certificated securities, subject to
surrender of the certificates therefor, unless provided otherwise by agreement.
§1304. (a) If the corporation denies that the shares are dissenting
shares, or the corporation and the shareholder fail to agree upon the fair
market value of the shares, then the shareholder demanding purchase of such
shares as dissenting shares or any interested corporation, within six months
after the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed
to the shareholder, but not thereafter, may file a complaint in the superior
court of the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders
may join as plaintiffs or be joined as defendants in any such action and two or
more such actions may be consolidated.
(c) On the trial of the action, the court
shall determine the issues. If the status of the shares as dissenting shares is
in issue, the court shall first determine that issue. If the fair market value
of the dissenting shares is in issue, the court shall determine, or shall
appoint one or more impartial appraisers to determine, the fair market value of
the shares.
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§1305. (a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b)
If a majority of the appraisers appointed fail to
make and file a report within 10 days from the date of their appointment or
within such further time as may be allowed by the court or the report is not
confirmed by the court, the court shall determine the fair market value of the
dissenting shares.
(c)
Subject to the provisions of Section 1306,
judgment shall be rendered against the corporation for payment of an amount
equal to the fair market value of each dissenting share multiplied by the number
of dissenting shares which any dissenting shareholder who is a party, or who has
intervened, is entitled to require the corporation to purchase, with interest
thereon at the legal rate from the date on which judgment was entered.
(d)
Any such judgment shall be payable forthwith with
respect to uncertificated securities and, with respect to certificated
securities, only upon the endorsement and delivery to the corporation of the
certificates for the shares described in the judgment. Any party may appeal from
the judgment.
(e)
The costs of the action, including reasonable
compensation to the appraisers to be fixed by the court, shall be assessed or
apportioned as the court considers equitable, but, if the appraisal exceeds the
price offered by the corporation, the corporation shall pay the costs (including
in the discretion of the court attorneys fees, fees of expert witnesses and
interest at the legal rate on judgments from the date of compliance with
Sections 1300, 1301 and 1302 if the value awarded by the court for the shares is
more than 125 percent of the price offered by the corporation under subdivision
(a) of Section 1301).
§1306. To the extent that the provisions of Chapter 5 prevent the payment
to any holders of dissenting shares of their fair market value, they shall
become creditors of the corporation for the amount thereof together with
interest at the legal
rate on judgments until the
date of payment, but subordinate to all other creditors in any liquidation
proceeding, such debt to be payable when permissible under the provisions of
Chapter 5.
§1307. Cash
dividends declared and paid by the corporation upon the dissenting shares after
the date of approval of the reorganization by the outstanding shares (Section
152) and prior to payment for the shares by the corporation shall be credited
against the total amount to be paid by the corporation therefor.
§1308. Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
§1309. Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a)
The corporation abandons the reorganization. Upon abandonment
of the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys
fees.
(b)
The shares are transferred prior to their
submission for endorsement in accordance with Section 1302 or are surrendered
for conversion into shares of another class in accordance with the
articles.
(c)
The dissenting shareholder and the corporation do
not agree upon the status of the shares as dissenting shares or upon the
purchase price of the shares, and neither files a complaint or intervenes in a
pending action as provided in Section 1304, within six months after the date on
which notice of the approval by the outstanding shares or notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder.
-3-
(d)
The dissenting shareholder, with the consent of
the corporation, withdraws the shareholders demand for purchase of the
dissenting shares.
§1310. If litigation is instituted to test the sufficiency or regularity
of the votes of the shareholders in authorizing a reorganization, any
proceedings under Sections 1304 and 1305 shall be suspended until final
determination of such litigation.
§1311. This chapter, except Section 1312, does not apply to classes of
shares whose terms and provisions specifically set forth the amount to be paid
in respect to such shares in the event of a reorganization or merger.
§1312. (a) No shareholder of a corporation who has a right under this
chapter to demand payment of cash for the shares held by the shareholder shall
have any right at law or in equity to attack the validity of the reorganization
or short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted in
favor thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a
reorganization or short-form merger is directly or indirectly controlled by, or
under common control with, another party to the reorganization or short-form
merger, subdivision (a) shall not apply to any shareholder of such party who has
not demanded payment of cash for such shareholders shares pursuant to this
chapter; but if the shareholder institutes any action to attack the validity of
the reorganization or short-form merger or to have the reorganization or
short-form merger set aside or rescinded, the shareholder shall not thereafter
have any right to demand payment of cash for the shareholders shares pursuant
to this chapter. The court in any action attacking the validity of the
reorganization or short-form merger or to have the reorganization or short-form
merger set aside or rescinded shall not restrain or enjoin the consummation of
the transaction except upon 10 days prior notice to the corporation and upon a
determination by the court that clearly no other remedy will adequately protect
the complaining shareholder or the class of shareholders of which such
shareholder is a member.
(c) If one of the parties to a
reorganization or short-form merger is directly or indirectly controlled by, or
under common control with, another party to the reorganization or short-form
merger, in any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, (1) a party to a reorganization or short-form merger which controls
another party to the reorganization or short-form merger shall have the burden
of proving that the transaction is just and reasonable as to the shareholders of
the controlled party, and (2) a person who controls two or more parties to a
reorganization shall have the burden of proving that the transaction is just and
reasonable as to the shareholders of any party so controlled.
§1313. A conversion pursuant to Chapter 11.5 (commencing with Section
1150) shall be deemed to constitute a reorganization for purposes of applying
the provisions of this chapter, in accordance with and to the extent provided in
Section 1159.
-4-
Form of Proxy Card for
SureWest Communications
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PROXY
SUREWEST
COMMUNICATIONS
THIS PROXY
IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Kirk C. Doyle and
Steven C. Oldham as proxies, with power to act without the other and with power
of substitution, hereby authorizes them to represent and vote, as designated on
the other side all shares of stock of SureWest Communications standing in the
name of the undersigned with all powers which the undersigned would possess if
present at the Special Meeting of Shareholders of the Company to be held on
June
12
, 2012 or any adjournment thereof.
The shares
represented by this proxy will be voted as directed by the shareholder; if no
direction is given when the duly executed proxy is returned, such shares will be
voted FOR Proposals 1, 2 and 3 and in discretion of the proxyholder on any other
matter that may properly come before the meeting and adjournment or postponement
thereof.
(Continued and to be
signed on the reverse side)
SPECIAL MEETING OF
SHAREHOLDERS OF
SUREWEST
COMMUNICATIONS
To Be Held On:
June
12
, 2012 at
10:00 a.m.
, PDT
8150 Industrial Avenue, Building A, Roseville,
CA
PROXY VOTING INSTRUCTIONS
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INTERNET
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Access
www.voteproxy.com
and
follow the on-screen instructions. Have your proxy card available when you
access the web page.
TELEPHONE
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Call toll-free
1-800-PROXIES
(1-800-776-9437) in the United States or
1-718-921-8500
from foreign countries from any touch-tone
telephone and follow the instructions. Have your proxy card available when you
call.
Vote online/phone until
11:59 PM EST on June
11
, 2012.
MAIL
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Sign, date and mail your proxy card in the
envelope provided as soon as possible.
IN PERSON
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You may vote your shares in person by attending
the Special Meeting.
COMPANY NUMBER
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ACCOUNT NUMBER
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NOTICE OF INTERNET AVAILABILITY OF PROXY
MATERIAL
:
The Notice of
Meeting and proxy statement
are available at http://www.surw.com/proxy
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Please detach along perforated line and mail in the envelope
provided
IF
you are not voting via telephone or the
Internet.
ê
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS
SHOWN HERE
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The Board of Directors recommends a
vote FOR Items 1, 2 and 3.
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FOR
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AGAINST
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ABSTAIN
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1. To approve the
Merger Agreement, the Merger Certificate and the transactions contemplated
thereby, including the First Merger.
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2. To approve, by an
advisory vote, the change in control severance payments of the named
executive officers.
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3. To approve the
adjournment or postponement of the special meeting, if necessary or
appropriate, to solicit additional proxies.
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4. Such other
business as may properly come before the meeting or any and all
adjournments thereof.
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To change the address on your account, please check the
box at right and indicate your new address in the address space above.
Please note that changes to the registered name(s) on the account may not
be submitted via this method.
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Signature of Shareholder
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Date:
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Signature of Shareholder
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Date:
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Note:
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Please sign exactly
as your name or names appear on this Proxy. When shares are held jointly,
each holder should sign. When signing as executor, administrator,
attorney, trustee or guardian, please give full title as such. If the
signer is a corporation, please sign full corporate name by duly
authorized officer, giving full title as such. If signer is a partnership,
please sign in partnership name by authorized person.
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PROXY
SUREWEST
COMMUNICATIONS
THIS PROXY
IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Kirk C. Doyle and
Steven C. Oldham as proxies, with power to act without the other and with power
of substitution, hereby authorizes them to represent and vote, as designated on
the other side all shares of stock of SureWest Communications standing in the
name of the undersigned with all powers which the undersigned would possess if
present at the Special Meeting of Shareholders of the Company to be held on
June
12
, 2012 or any adjournment thereof.
The shares
represented by this proxy will be voted as directed by the shareholder; if no
direction is given when the duly executed proxy is returned, such shares will be
voted FOR Proposals 1, 2 and 3 and in discretion of the proxyholder on any other
matter that may properly come before the meeting and adjournment or postponement
thereof.
(Continued and to be
signed on the reverse side)
SPECIAL MEETING OF
SHAREHOLDERS OF
SUREWEST
COMMUNICATIONS
To Be Held On:
June
12
, 2012 at
10:00 a.m.
, PDT
8150 Industrial Avenue, Building A, Roseville,
CA
KSOP
PROXY VOTING INSTRUCTIONS
|
INTERNET
-
Access
www.voteproxy.com
and follow the on-screen instructions. Have your
proxy card available when you access the web page.
TELEPHONE
-
Call toll-free
1-800-PROXIES
(1-800-776-9437) in the United States or
1-718-921-8500
from foreign countries from any touch-tone
telephone and follow the instructions. Have your proxy card available when you
call.
Vote online/phone until
11:59 PM EST on June
7
, 2012.
MAIL
-
Sign, date and mail your proxy card in the envelope provided as soon as
possible.
This proxy covers all
shares for which the undersigned has the right to give voting instructions to
the KSOP plan Trustee and will be voted as directed. If voting instructions to
the KSOP plan Trustee are not received by the proxy tabulator by the deadline
above, your shares will be voted in the same proportion as the shares for which
the Trustee received timely voting instructions.
COMPANY NUMBER
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ACCOUNT NUMBER
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NOTICE OF INTERNET AVAILABILITY OF PROXY
MATERIAL
:
The Notice of
Meeting and proxy statement
are available at http://www.surw.com/proxy
|
ê
Please detach along perforated line and mail in the envelope
provided
IF
you are not voting via telephone or the
Internet.
ê
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS
SHOWN HERE
x
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The Board of Directors recommends a
vote FOR Items 1, 2 and 3.
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FOR
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AGAINST
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ABSTAIN
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1. To
approve the Merger Agreement, the Merger Certificate and the transactions
contemplated thereby, including the First Merger.
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2. To
approve, by an advisory vote, the change in control severance payments of
the named executive officers.
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3. To
approve the adjournment or postponement of the special meeting, if
necessary or appropriate, to solicit additional proxies.
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4. Such other
business as may properly come before the meeting or any and all
adjournments thereof.
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To change the address on your account, please check the
box at right and indicate your new address in the address space above.
Please note that changes to the registered name(s) on the account may not
be submitted via this method.
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Signature of Shareholder
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Date:
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Signature of Shareholder
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Date:
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Note:
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Please sign exactly
as your name or names appear on this Proxy. When shares are held jointly,
each holder should sign. When signing as executor, administrator,
attorney, trustee or guardian, please give full title as such. If the
signer is a corporation, please sign full corporate name by duly
authorized officer, giving full title as such. If signer is a partnership,
please sign in partnership name by authorized person.
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