<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 33-96804
LENFEST COMMUNICATIONS, INC.
----------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-2094942
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1105 North Market St., Suite 1300,
P. O. Box 8985,
Wilmington, Delaware 19899
--------------------------
(Address of Principal executive offices) (Zip Code)
(302) 427-8602
---------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No __
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of May 14, 1999: 158,896 shares of common stock,
$0.01 par value per share. All shares of the registrant's common stock are
privately held, and there is no market price or bid and asked price for said
common stock.
<PAGE>
LENFEST COMMUNICATIONS, INC.
Index
-----
<TABLE>
<CAPTION>
<S> <C>
Part I. Financial Information Page
----
Item 1. Financial Statements
Report on Review by Independent Certified Public Accountants 3
Condensed Consolidated Balance Sheets as of March 31, 1999
(unaudited) and as of December 31, 1998 4
Consolidated Statements of Operations and Comprehensive Income
(Loss) for the three months ended March 31, 1999 (unaudited)
and March 31, 1998 (unaudited) 6
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 (unaudited) and March 31, 1998
(unaudited) 7
Notes to Condensed Consolidated Financial Statements (unaudited) 9
Statement by Management Concerning Review of Interim Financial
Information by Independent Certified Public Accountants 16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 22
</TABLE>
2
<PAGE>
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Lenfest Communications, Inc. and Subsidiaries:
We have reviewed the accompanying condensed consolidated balance sheet of
Lenfest Communications, Inc. and subsidiaries as of March 31, 1999, and the
related consolidated statements of operations and comprehensive income (loss),
and the consolidated statements of cash flows for the three months ended March
31, 1999 and 1998, included in the accompanying Securities and Exchange
Commission Form 10-Q for the period ended March 31, 1999. These condensed
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the condensed consolidated financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1998, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the year then ended (not presented herein). In our report
dated March 5, 1999, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1998, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
/s/ Pressman Ciocca Smith LLP
Hatboro, Pennsylvania
May 5, 1999
3
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(Unaudited) (*)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 16,895 $ 9,802
Marketable securities 17,191 18,854
Accounts receivable, trade and other, less allowance for
doubtful accounts of $5,783 in 1999 and $3,603 in 1998 32,421 24,482
Inventories 1,178 1,071
Prepaid expenses 4,551 2,878
Property and equipment, net of accumulated depreciation
of $459,706 in 1999 and $436,273 in 1998 476,140 431,455
Investments, principally in affiliates, and related receivables 49,085 47,645
Goodwill, net of amortization of $33,222 in 1999 and
$32,364 in 1998 67,779 68,637
Deferred franchise costs, net of amortization of $238,088 in
1999 and $227,797 in 1998 455,130 465,420
Other intangible assets, net of amortization of $14,975 in 1999
and $14,611 in 1998 18,604 19,399
Deferred Federal tax asset, net 80,339 80,371
Other assets 4,567 5,113
---------- ----------
$1,223,880 $1,175,127
========== ==========
</TABLE>
(*) Condensed from audited financial statements.
See independent certified public accountants' review report and accompanying
notes.
4
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(Unaudited) (*)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Notes payable and obligations under capital leases $1,333,329 $1,296,553
Accounts payable and accrued expenses - unrelated parties 96,392 73,051
Accounts payable - affiliate 16,671 22,968
Customer service prepayments and deposits 16,124 6,041
Deferred gain on terminated interest swaps 6,370 6,518
Deferred state tax liability (net) 9,406 9,406
Investment in Garden State Cablevision, L.P. 73,369 73,414
----------- -----------
TOTAL LIABILITIES 1,551,661 1,487,951
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST in equity of consolidated subsidiary - -
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value, 158,896 shares authorized,
issued and outstanding 2 2
Additional paid-in capital 50,747 50,747
Accumulated deficit (372,473) (359,149)
Accumulated other comprehensive income (loss), net of
deferred taxes of $87 in 1999 and $55 in 1998 (6,057) (4,424)
---------- ----------
(327,781) (312,824)
---------- ----------
$1,223,880 $1,175,127
========== ==========
</TABLE>
(*) Condensed from audited financial statements.
See independent certified public accountants' review report and accompanying
notes.
5
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
REVENUES $131,546 $110,665
OPERATING EXPENSES
Service 12,849 10,779
Programming - from affiliate 19,253 17,335
Programming - other cable 12,278 7,584
Selling, general and administrative 30,543 22,719
Direct costs - non-cable 5,036 3,559
Depreciation 24,312 22,133
Amortization 11,991 14,523
-------- --------
116,262 98,632
-------- --------
OPERATING INCOME 15,284 12,033
OTHER INCOME (EXPENSE)
Interest expense (29,761) (31,499)
Equity in net income (losses) of unconsolidated
affiliates 2,270 (814)
Other income and expense (net) (1,117) 15,611
-------- --------
(28,608) (16,702)
-------- --------
LOSS BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS (13,324) (4,669)
INCOME TAX BENEFIT (NET) - 855
-------- --------
LOSS BEFORE EXTRAORDINARY LOSS (13,324) (3,814)
EXTRAORDINARY LOSS
Early extinguishment of debt, net of applicable
income taxes of $1,645 - (3,061)
-------- --------
NET LOSS (13,324) (6,875)
OTHER COMPREHENSIVE INCOME (LOSS), net of tax
Foreign currency translation adjustment 63 -
Unrealized gains on securities:
Unrealized holding gains (losses) arising during the period (1,705) 3,680
Less: reclassification adjustment for (gains) losses included
in net loss 9 (3,664)
-------- --------
(1,633) 16
-------- --------
COMPREHENSIVE LOSS $(14,957) $ (6,859)
======== ========
</TABLE>
See independent certified public accountants' review report and accompanying
notes.
6
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(13,324) $(6,875)
Extraordinary loss - 3,061
-------- -------
(13,324) (3,814)
Adjustments to reconcile net loss to net cash provided
by operating activities
Depreciation and amortization 36,303 36,656
Accretion of debt discount 525 438
Accretion of deferred gain on terminated interest swaps (148) (132)
Net (gains) losses on sales of marketable securities 9 (3,664)
Deferred income tax (benefit) - (1,855)
(Gain) loss on disposition of property and equipment 1,059 (33)
Gain on exchange of partnership interest - (11,489)
Loss on write-off of organization costs 148 -
Equity in net (income) losses of unconsolidated affiliates (2,270) 814
Changes in operating assets and liabilities, net of effects
from acquisitions
Accounts receivable 4,798 5,696
Inventories (107) (89)
Prepaid expenses (768) (318)
Other assets 252 (1,108)
Accounts payable and accrued expenses:
Unrelated parties 2,613 10,334
Affiliate (6,297) (4,651)
Customer service prepayments and deposits 1,182 (156)
-------- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 23,975 26,629
-------- -------
</TABLE>
See independent certified public accountants' review report and accompanying
notes.
7
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (continued)
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1999 1998
-------- ---------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment $(33,038) $ (18,023)
Purchases of marketable securities (209) (1,078)
Proceeds from sales of property and equipment 175 33
Proceeds from sales of marketable securities 200 7,878
Investments in unconsolidated affiliates (850) -
Distributions from unconsolidated affiliates - 475
(Increase) in other intangible assets - investing (196) (165)
Loans and advances to unconsolidated affiliates (330) (890)
Loans and advances from unconsolidated affiliates 2,338 570
-------- ---------
NET CASH (USED IN)
INVESTING ACTIVITIES (31,910) (11,200)
CASH FLOWS FROM FINANCING ACTIVITIES
Increases in debt 15,479 296,386
Early extinguishment of debt - (67,375)
Other debt reduction:
Notes (80) (240,000)
Obligations under capital leases (435) (331)
-------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 14,964 (11,320)
-------- ---------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 7,029 4,109
EFFECT OF EXCHANGE RATES ON CASH AND
CASH EQUIVALENTS 64 -
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 9,802 15,623
-------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 16,895 $ 19,732
======== =========
</TABLE>
See independent certified public accountants' review report and accompanying
notes.
8
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Condensed Financial Information and Results of Operations
In the opinion of the management of Lenfest Communications, Inc. and
subsidiaries (the "Company"), the accompanying condensed unaudited consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles and with the regulations of the Securities and Exchange
Commission and contain all adjustments (consisting of only normal recurring
adjustments) necessary to make the condensed consolidated financial statements
not misleading and to present fairly the consolidated financial condition as of
March 31, 1999, the consolidated results of operations and consolidated cash
flows for the three months ended March 31, 1999 and 1998.
Certain information and note disclosures normally included in the Company's
annual consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Form 10-K dated March 30, 1999. The results of operations for the periods ended
March 31, 1999 and 1998, are not necessarily indicative of operating results for
the full year.
Basis of Consolidation
The consolidated financial statements include the accounts of Lenfest
Communications, Inc. and those of all wholly-owned and majority owned
subsidiaries. Effective January 20, 1999, the Company acquired an additional 71%
of Videopole (See Note 4). As a result of this acquisition, the Company has
majority ownership and control of Videopole and, therefore, consolidates
Videopole's financial position, results of operations and cash flows as of the
beginning of 1999. In accordance with generally accepted principles the Company
accounted for its Videopole investment under the equity method prior to 1999.
NOTE 2 - ACCOUNTING CHANGE
In 1999, the Company changed its method of accounting for the costs of start-up
activities to conform to the requirements of Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities". SOP 98-5 requires costs of
start-up activities and organization costs to be expensed as incurred. The
effect of the change was not material to the Company's financial position or
results of operations.
NOTE 3 - SUPPLEMENTAL DISCLOSURES TO STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
----------------------
1999 1998
-------- ------
(Dollars in thousands)
Cash paid during the period for
Interest $13,096 $8,703
======= ======
Income taxes $ 205 $ -
======= ======
9
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 3 - SUPPLEMENTAL DISCLOSURES TO STATEMENTS OF CASH
FLOWS, (continued)
Noncash Investing and Financing Activities
In connection with the acquisition of Videopole (See Note 4), the Company
assumed debt of $21.4 million.
On February 12, 1998, the Company's wholly owned subsidiary, Lenfest Telephony,
Inc., exchanged its 50% general partnership interest in Hyperion
Telecommunications of Harrisburg ("HTH") for a warrant to acquire 731,624 shares
(the effective number of shares after a stock split) or approximately 2% of
Class A common stock of Hyperion Telecommunications, Inc. ("Hyperion"), the
other 50% general partner in HTH. The value of the warrant was estimated to be
$11.7 million, based on the initial public offering of the Class A common stock
of Hyperion in May 1998. The Company believes that this value approximated fair
market value of the warrant on February 12, 1998. A gain of $11.5 million, which
represents the excess of the market value of the partnership interest over its
book value, has been included in the accompanying consolidated statement of
operations and comprehensive income (loss). The warrant was exercised in May
1998.
NOTE 4 - NEW BUSINESS AND ACQUISITIONS
On January 20, 1999, the Company through its subsidiary, Lenfest International,
Inc. ("International") purchased 71% of the outstanding common stock of
Videopole, a French cable television holding and management company that
franchises, builds and operates cable television systems in medium to small
communities in France. International also has an 80% partnership interest in
L-TCI Associates, a partnership that owns the remaining 29% of common stock of
Videopole. As a result of the purchase, the Company's direct and indirect
interest in Videopole is 94.2%.
NOTE 5 - MARKETABLE SECURITIES
The aggregate cost basis and market values of marketable securities at March 31,
1999 and December 31, 1998 are as follows:
March 31, December 31,
1999 1998
---------- ------------
(Dollars in thousands)
Aggregate cost basis $23,223 $23,223
Unrealized (loss) (6,032) (4,369)
------- -------
Fair value $17,191 $18,854
======= =======
All of the Company's securities are considered to be available for sale. Net
realized gains (losses) from the sale of marketable securities, in the amount of
$(9,000) and $3.7 million are included in the accompanying consolidated
statements of operations for 1999 and 1998, respectively. The specific
identification method is used to determine the cost of each security at the time
of sale.
10
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 6 - INVESTMENTS, PRINCIPALLY IN AFFILIATES
The Company, through several subsidiaries, owns non-controlling interests in
several general partnerships and corporations. Under the equity method, the
initial investments are recorded at cost. Subsequently, the carrying amount of
the investments are adjusted to reflect the Company's share of net income or
loss of the affiliates as they occur. Losses in excess of amounts recorded as
investments on the Company's books have been offset against loans and advances
to these unconsolidated affiliates to the extent they exist.
The Company, through its subsidiary, Lenfest Jersey, Inc., owns a 10.005%
general partnership interest and a 39.995% limited partnership interest in
Garden State Cablevision L.P. ("Garden State"), a cable company serving
approximately 213,000 customers in southern New Jersey at March 31, 1999. The
Company accounts for its investment in Garden State under the equity method. The
Company is allocated a total of 50% of Garden State's losses. In addition, the
Company is required to make up its partner capital deficits upon termination or
liquidation of the Garden State partnership. Because of the requirement to make
up capital deficits, the accompanying financial statements reflect equity in
accumulated losses, net of related receivables, in excess of the investments in
Garden State in the amount of $73.4 million at March 31, 1999 and December 31,
1998, respectively.
Summarized statements of operations of Garden State, accounted for under the
equity method for the three months ended March 31, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(Dollars in thousands)
<S> <C> <C>
Results of Operations
Revenues $ 30,038 $ 27,730
Operating expenses (12,569) (11,391)
Management and consulting fees (1,803) (1,663)
Depreciation and amortization (7,054) (8,725)
-------- --------
OPERATING INCOME 8,612 5,951
Interest income 139 -
Interest expense (5,104) (5,605)
-------- --------
NET INCOME $ 3,647 $ 346
======== ========
</TABLE>
NOTE 7 - LONG-TERM DEBT
Notes payable and obligations under capital leases consisted of the following at
March 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ----------
(Dollars in thousands)
<S> <C> <C>
8-3/8% senior notes due November 1, 2005 $ 688,611 $ 688,284
10-1/2% senior subordinated notes due June 15, 2006 294,390 294,259
7-5/8% senior notes due February 15, 2008 148,409 148,377
8-1/4% senior subordinated notes due February 15, 2008 148,256 148,221
Bank credit facility 30,000 15,000
Bank debt of Videopole 3,176 -
Obligations under capital leases 2,143 2,412
Obligations under capital leases of Videopole 18,344 -
---------- ----------
$1,333,329 $1,296,553
========== ==========
</TABLE>
11
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 7 - LONG-TERM DEBT, (continued)
On March 9, 1999, the Company entered into an interest rate swap agreement with
a large commercial bank. The agreement has a notional principal amount of $150
million. The agreement effectively changes the Company's interest rate on $150
million of its fixed rate debt to a floating rate based on LIBOR. The interest
rate swap agreement terminates on February 15, 2008. The Company is exposed to
credit loss in the event of nonperformance by the other party to the interest
rate swap agreement. However, the Company does not anticipate nonperformance by
the counterparty.
NOTE 8 - CORPORATE INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes
in accordance with Financial Accounting Standards Board Statement (SFAS) No.
109, "Accounting for Income Taxes". SFAS 109 requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in the financial statement or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
differences between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. Differences between financial reporting
and tax bases arise most frequently from differences in timing of income and
expense recognition. Deferred income tax expense is measured by the change in
the net deferred income tax asset or liability during the period.
The net income tax benefit differs from amounts expected by applying the U.S.
Federal income tax rate of 35% to loss before income taxes primarily from
nondeductible amortization on goodwill and certain other intangibles and
provision for state income taxes.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Mr. Lenfest, for the behalf of the Company, and TCI have jointly and severally
guaranteed an aggregate of $67 million obligation of Australis Media Limited
("Australis") incurred in connection with the purchase of program licenses in
April 1995. The terms of the guarantees provide that the amount of the
guarantees will be reduced on a dollar-for-dollar basis with payments made by
Australis under the licenses. The Company has agreed to indemnify Mr. Lenfest
against loss from such guaranty to the fullest extent permitted under the
Company's debt obligations. Under the terms of its bank credit facility,
however, Mr. Lenfest's claims for indemnification are limited to the lesser of
the actual claim or $33.5 million. At March 31, 1999, the amount subject to
guarantee under the license agreements was approximately $20.7 million.
On January 20, 1995, an individual (the "Plaintiff") filed suit in the Federal
Court of Australia, New South Wales District Registry against the Company and
several other entities and individuals (the "Defendants") including Mr. Lenfest,
involved in the acquisition of a company of which the Plaintiff was the
controlling shareholder, the assets of which included the right to acquire
Satellite License B from the Australian government. The Plaintiff alleged that
the Defendants defrauded him by making certain representations to him in
connection with the acquisition of his company and claims total damages of A$718
million (approximately U.S. $452 million as of March 31, 1999). The Plaintiff
also alleged that Australis and Mr. Lenfest owed to him a fiduciary duty and
that both parties breached this duty. The Defendants have denied all claims made
against them by the Plaintiff and stated their belief that the Plaintiff's
allegations are without merit. They are defending this action vigorously. The
trial in this action began on February 2, 1998, and ended on September 30, 1998.
The Company expects a decision by mid-year 1999. Neither it nor its counsel can
predict the outcome of the trial.
The Company has also been named as a defendant in various legal proceedings
arising in the ordinary course of business. In the opinion of management, the
ultimate amount of liability with respect to the above actions will not
materially affect the financial position, the results of operations or the cash
flows of the Company.
12
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 10 - SEGMENT INFORMATION
The Company operates primarily in the cable television industry in the United
States. This segment develops and operates cable television systems and holds
investments in other cable television operating companies in the United States.
Other segments provide cable advertising, promotional, traffic and billing,
telemarketing, paging, internet, digital video services and cable television
operations in France. These segments do not meet the quantitative guidelines for
reportable segments.
The segments' accounting policies are the same as those described in the summary
of significant accounting policies. Management of the Company evaluates
performance based on operating income before depreciation and amortization.
Operating income before depreciation and amortization is commonly referred to in
the cable television industry as "operating cash flow". Operating cash flow is a
measure of a company's ability to generate cash to service its obligations,
including debt service obligations, and to finance capital and other
expenditures. Operating cash flow does not purport to represent net income or
net cash provided by operating activities, as those terms are defined under
generally accepted accounting principles, and should not be considered as an
alternative to such measurements as an indicator of the Company's performance.
Information by reportable segment for each of the three month periods ended
March 31, was as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(Dollars in thousands)
<S> <C> <C>
Revenues
Core cable television $115,687 $103,457
All others 18,178 9,255
Intersegment revenues (2,319) (2,047)
-------- --------
$131,546 $110,665
======== ========
Operating income (loss) before depreciation and amortization
Core cable television $ 51,843 $ 50,519
All others (256) (1,830)
-------- --------
$ 51,587 $ 48,689
======== ========
Depreciation and amortization
Core cable television $ 33,464 $ 35,675
All others 2,839 981
-------- --------
$ 36,303 $ 36,656
======== ========
Operating income (loss)
Core cable television $ 18,378 $ 14,844
All others (3,094) (2,811)
-------- --------
$ 15,284 $ 12,033
======== ========
Interest expense
Core cable television $ 29,482 $ 31,499
All others 279 -
-------- --------
$ 29,761 $ 31,499
======== ========
</TABLE>
13
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 10 - SEGMENT INFORMATION, (continued)
Information by reportable segment as of March 31, 1999 and December 31, 1998 and
for each of the three month periods ended March 31, was as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(Dollars in thousands)
<S> <C> <C>
Equity in net income (losses) of unconsolidated affiliates
Core cable television $ 2,346 $ 660
All others (76) (1,474)
---------- ----------
$ 2,270 $ (814)
========== ==========
Identifiable assets
Core cable television $1,095,737 $1,097,698
All others 131,847 82,226
Intersegment receivables (3,704) (4,797)
---------- ----------
$1,223,880 $1,175,127
========== ==========
Long-term debt
Core cable television $1,311,809 $1,296,553
All others 21,520 -
---------- ----------
$1,333,329 $1,296,553
========== ==========
Expenditures for long-lived assets
Core cable television $ 25,057 $ 17,655
All others 8,177 533
---------- ----------
$ 33,234 $ 18,188
========== ==========
Operating income (loss) $ 15,284 $ 12,033
Interest expense (29,761) (31,499)
Equity in net income (losses) of unconsolidated affiliates 2,270 (814)
Other income and expense (net) (1,117) 15,611
---------- ----------
LOSS BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS $ (13,324) $ (4,669)
========== ==========
</TABLE>
14
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 11 - REGULATORY MATTERS
The Federal Communications Commission ("FCC") has adopted regulations under The
Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act") governing rates charged to customers for basic and tier service and
for equipment and installation charges (the "Regulated Services"). The 1992
Cable Act placed the Company's basic service equipment and installation rates
under the jurisdiction of local franchising authorities and its tier service
rates under the jurisdiction of the FCC. The rate regulations do not apply to
services offered on an individual service basis, such as per-channel or
pay-per-view services. The rate regulations adopt a benchmark price cap system
for measuring the reasonableness of existing basic and tier service rates.
Alternatively, cable operators have the opportunity to make cost-of-service
showings which, in some cases, may justify rates above the applicable
benchmarks. The rules also require that charges for cable-related equipment
(e.g., converter boxes and remote control devices) and installation services be
unbundled from the provision of cable service and based upon actual costs plus a
reasonable profit. The regulations also provide that future rate increases may
not exceed an inflation-indexed amount, plus increases in certain costs beyond
the cable operator's control, such as taxes, franchise fees and increased
programming costs. Cost-based adjustments to these capped rates can also be made
in the event a cable operator adds or deletes channels. There is also a
streamlined cost-of-service methodology available to justify a rate increase on
basic and regulated nonbasic tiers for "significant" system rebuilds or
upgrades.
Effective March 31, 1999, fee regulation of rates for tier service expired. Rate
regulation continues for basic service rates, charges for cable-related
equipment (e.g. converter boxes and remote control devices) and installation
services.
The Company believes that it has complied in all material respects with the
provision of the 1992 Cable Act, including its rate setting provisions. However,
the Company's rates for regulated services are subject to review by the FCC, if
a complaint has been filed, or the appropriate franchise authority, if such
authority has been certified. If, as a result of the review process, a cable
system cannot substantiate its rates, it could be required to retroactively
reduce its rates to the appropriate benchmark and refund the excess portion of
rates received. Any refunds of the excess portion of tier service rates would be
retroactive to the date of complaint. Any refunds of the excess portion of all
other Regulated Service rates would be retroactive to one year prior to the
Refund Order issued by the applicable franchise authority. The amount of
refunds, if any, which could be payable by the Company in the event that systems
rates are successfully challenged by franchising authorities is not considered
to be material.
NOTE 12 - SUBSEQUENT EVENT
On May 4, 1999, H.F. (Gerry) Lenfest and his three children agreed to exchange
all of their 50% ownership in the shares of the Company's common stock for
shares of AT&T Corp. common stock. AT&T Corp. is the parent of LMC Lenfest,
Inc., which owns the remaining 50% of the Company's common stock. Closing is
expected to occur by the end of 1999.
15
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
STATEMENT BY MANAGEMENT CONCERNING REVIEW OF
INTERIM FINANCIAL INFORMATION BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The March 31, 1999 and 1998 condensed consolidated financial statements included
in this filing on Form 10-Q have been reviewed by Pressman Ciocca Smith LLP,
Independent Certified Public Accountants, in accordance with established
professional standards and procedures for such a review.
The review report of Pressman Ciocca Smith LLP is included in Part I, Item 1.
16
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Substantially all of the Company's revenues are earned from customer
fees for cable television programming services, the sale of advertising,
commissions for products sold through home shopping networks and ancillary
services (such as rental of converters and remote control devices and
installations). Federal law and regulations, including the regulation of certain
aspects of the cable television industry, have affected adversely the Company's
ability to increase or restructure its rates for certain services. These
regulations are intended to limit future rate increases.
The Company has generated increases in revenues and Adjusted EBITDA for
the three months ended March 31, 1999 primarily through internal customer
growth, increases in monthly revenue per customer, and growth in advertising and
home shopping revenues. As used herein, "Adjusted EBITDA" represents
consolidated net income from continuing operations plus the provision for income
taxes, interest expense, depreciation, amortization, any other non-cash items
reducing consolidated net income and cash actually distributed by an
unconsolidated affiliate, minus all non-cash items increasing consolidated net
income. EBITDA is presented because it is a widely accepted financial indicator
of a company's ability to incur and service debt. Adjusted EBITDA represents
EBITDA (earnings before interest expense, income taxes, depreciation and
amortization) adjusted to include cash distributions received from
unconsolidated and unrestricted affiliates. Adjusted EBITDA corresponds to the
definition of "EBITDA" contained in the Company's publicly held debt securities
and is presented for the convenience of the holders of the Company's public debt
securities. Adjusted EBITDA should not be considered as an alternative to net
income, as an indicator of the operating performance of the Company or as an
alternative to cash flows as a measure of liquidity. Neither EBITDA nor Adjusted
EBITDA is a measure under generally accepted accounting principles.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998
CONSOLIDATED RESULTS
Revenues for the Company increased 18.9% to $131.5 million for the
quarter ended March 31, 1999 as compared to the corresponding 1998 period. This
increase was primarily as a result of the Company's Core Cable Television
Operations and the Company's acquisition of Videopole in January 1999.
Service and Programming Expenses increased 25.9% to $49.4 million for
the quarter ended March 31, 1999 compared to the corresponding 1998 period.
These expenses are related to technical salaries, general operating, and network
programming costs. The service and programming expense increase was primarily
due to costs associated with the Core Cable Television Operations.
Selling, General, and Administrative Expense increased 34.4% to $30.5
million for the quarter ended March 31, 1999 compared to the corresponding 1998
period. These expenses are associated with office salaries, facility, and
marketing costs. This increase was primarily due to administrative expenses
associated with the Core Cable Television Operations.
Depreciation and Amortization Expense decreased 1.0% to $36.3 million
for the quarter ended March 31, 1999 compared to the corresponding 1998 period.
This decrease was primarily associated with the Core Cable Television
Operations.
Adjusted EBITDA increased 5.3% to $52.5 million for the three-month
period ended March 31, 1999 compared to the corresponding period in the prior
year. The increase was primarily due to the Core Cable Television Operations.
17
<PAGE>
The Adjusted EBITDA margin decreased to 39.9% in 1999 compared to 45.0% for
1998. This decrease was primarily caused by costs associated with the Core Cable
Television Operations and the Company's acquisition of Videopole.
Interest Expense decreased 5.5% to $29.8 million for the quarter ended
March 31, 1999 compared to the corresponding 1998 period. The decrease was
primarily due to refinancing of existing indebtedness with debt carrying a lower
interest rate.
Loss before income tax increased 185.4% to $13.3 million. The increase
was attributable to a one time gain of $11.5 million realized in 1998 on the
exchange of a partnership interest. Excluding the 1998 gain, the loss before
income tax decreased by 17.6%, or $2.8 million.
Core Cable Television Operations
Beginning with the quarter ended December 31, 1998, the Company has
included the consolidated financial results of Radius with the results of its
domestic cable television operations (collectively, the "Core Cable Television
Operations"). The financial results for the Company's Core Cable Television
Operations have been restated to include the results of Radius since its
inception in 1996.
Revenues increased 15.7% to $124.8 million for the quarter ended March
31, 1999 compared to the corresponding 1998 period. This increase was due
primarily to the revenue associated with the basic and CPS tiers and customer
equipment and installation, ("regulated services")and increased revenue from the
Company's advertising subsidiary, Radius. The regulated services revenue
increased 10.7% or $8.7 million compared to the corresponding 1998 period. This
increase was primarily attributable to internal customer growth of approximately
2.1%, and rate increases occurring predominately in the second and fourth
quarters of 1998. Non-regulated service revenue increased 4.8% or $0.7 million
for the quarter ended March 31, 1999 compared to the corresponding 1998 period.
This increase was primarily as a result of internal customer growth. Revenues
for Radius increased 72.8%, or $4.7 million, to $11.1 million, representing
27.7% of the increase in revenue for the Core Cable Television Operations for
the quarter ended March 31, 1999 compared to the corresponding 1998 period.
Service and Programming Expenses increased 24.3% to $46.0 million for
the quarter ended March 31, 1999 compared to the corresponding 1998 period.
These expenses are related to technical salaries, general operating costs, and
programming costs. The increase was primarily related to programming expense
related to costs associated with the basic and CPS tier services. Service and
programming expenses for Radius increased 87.4%, or $2.9 million, to $6.2
million, representing 32.1% of the increase in expenses of the Core Cable
Television Operations for the quarter ended March 31, 1999.
Selling, General and Administrative Expense increased 31.3% to $25.8
million for the quarter ended March 31, 1999 compared to the corresponding 1998
period. These expenses are associated with office salaries, facility, and
marketing costs. This increase was primarily due to the consolidation efforts of
the Company's call center operation. Selling, general and administrative
expenses for Radius increased 56.8%, or $1.4 million, to $3.8 million
representing 22.4% of the increase in the expenses of the Core Cable Television
Operations for the quarter ended March 31, 1999 compared to the corresponding
1998 period. This increase was primarily due to increased selling expenses.
Depreciation and Amortization Expense decreased 4.7%, or $1.7 million,
to $34.5 million for the quarter ended March 31, 1999 compared to the
corresponding 1998 period. The decrease was primarily a result of a decrease in
amortization expense related to the write off of loan costs. The depreciation
and amortization expenses for Radius increased 93.2%, or $0.5 million, to $1.0
million for the quarter ended March 31, 1999 compared to the corresponding 1998
period.
Adjusted EBITDA increased 2.9% to $53.8 million for the quarter ended
March 31, 1999 compared to the corresponding 1998 period. The increase was
primarily associated with increased regulated service revenue. The Adjusted
EBITDA margin decreased to 43.2% for the quarter ended March 31, 1999 compared
to 48.5% for the corresponding 1998 period. This decrease was primarily caused
by an increase in programming and selling, general and administrative expenses.
Excluding the consolidation of the Radius financial results, the Adjusted EBITDA
18
<PAGE>
margin for Core Cable Television Operations decreased to 45.6% for the quarter
ended March 31, 1999 compared to 49.9% for the corresponding 1998 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's businesses require cash for operations, debt service,
capital expenditures and acquisitions. To date, cash requirements have been
funded by cash flow from operations and borrowings.
Financing Activities. At March 31, 1999, the Company had aggregate
total indebtedness of approximately $1,333.3 million. The Company's senior
indebtedness of $890.6 million consisted of: (i) $837.0 million of 7-5/8% and
8-3/8% Senior Notes; (ii) obligations under its August 4, 1999 Bank Credit
Facility ("Bank Credit Facility") of $30.0 million; (iii) $3.2 million of bank
debt obligations of Videopole (see below), and (iv) obligations under capital
leases of approximately $20.4 million. At March 31, 1999, the Company had
approximately $442.7 million of 8-1/4% and 10-1/2% Senior Subordinated Notes
outstanding. The Senior Subordinated Notes are general unsecured obligations of
the Company subordinate in right of payment to all present and future senior
indebtedness of the Company.
Loans outstanding under the Bank Credit Facility bear interest at
floating rates. The Bank Credit Facility contains customary covenants, including
restrictive covenants, which impose certain limitations on the Company and its
wholly owned cable operating subsidiaries and Radius, including, among other
things, incurring additional indebtedness, the payment of dividends, the
repurchase of stock, the making of certain payments and purchases, the making of
acquisitions and investments, the creation of certain liens, disposing or
acquiring assets, sale-leaseback transactions, and transactions with affiliates.
The Bank Credit Facility also includes financial covenants requiring the Company
to maintain certain financial ratios at specified levels. The Bank Credit
Facility also contains customary default provisions, including nonpayment of
principal, interest, fees and other amounts when due, violation of covenants,
failure of representations and warranties to be true and correct in all material
respects when made, cross defaults and cross acceleration to other debt
obligations, bankruptcy events, unsatisfied judgments in excess of specified
amounts and change of control.
Operations. Cash flow generated from continuing operations, excluding
changes in operating assets and liabilities that result from timing issues and
considering only adjustments for non-cash charges, was approximately $22.3
million for the three-month period ended March 31, 1999 compared to
approximately $16.9 million for the three-month period ended March 31, 1998.
During the three-month period ended March 31, 1999 the Company was required to
make interest payments of approximately $13.1 million on outstanding debt
obligations, whereas in the same period in the prior year, the Company was
required under its then existing debt obligations to make interest payments of
$8.7 million.
Future minimum lease payments under all capital leases and
non-cancelable operating leases for each of the years 1999 through 2002 are $7.5
million, $6.3 million, $4.9 million and $3.3 million, respectively.
The Company has recorded a net deferred tax asset of $80.3 million, net
of a valuation allowance of $51.2 million, reflecting the estimated benefit of
approximately $435 million in loss carryforwards, which expire in varying
amounts between the years 2000 - 2018. Realization depends on generating
sufficient taxable income before expiration of the loss carryforwards. Although
realization is not assured, the Company believes that commencing in 2000, it
will begin to generate taxable income as a result of increasing revenues, the
elections of slower tax depreciation methods and anticipated declines in
amortization deductions. The amount of the net deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced. See Note 17 of the
Company's Consolidated Financial Statements included in the Company's Form 10-K
filed on March 30, 1999 for the minimum amounts of taxable income required each
year for the Company to fully utilize its net operating losses for such year
until such losses expire.
19
<PAGE>
In November 1994, H.F. Lenfest and TCI International, Inc. jointly and
severally guaranteed $67.0 million in program license obligations of the
distributor of movie programming for Australis. As of March 31, 1999, the
Company believes the amount subject to the guarantee under the license
agreements was approximately $20.7 million. The Company has agreed to indemnify
Mr. Lenfest against loss from such guaranty to the fullest extent permitted
under the Company's debt obligations. Under the terms of the Bank Credit
Facility, however, Mr. Lenfest's claims for indemnification are limited to the
lesser of the actual claim or $33.5 million. The Company does not believe that
Mr. Lenfest's guarantee will be called, and, as of the date hereof, there has
been no demand for payment under the guarantee of the program license
obligations.
Capital Expenditures. For the period ending March 31, 1999, the Company
made approximately $33.0 million of capital expenditures. During 1999, the
Company expects to make approximately $180 million of capital expenditures, of
which approximately $160 million is expected to be spent for the upgrading of
certain of its cable television systems, including wide deployment of fiber
optics, maintenance including plant extensions, installations, and other fixed
assets as well as other capital projects associated with implementing the
Company's clustering strategy. The amount of such capital expenditures for years
subsequent to 1999 will depend on numerous factors, many of which are beyond the
Company's control, including responding to competition and increasing capacity
to handle new product offerings in affected cable television systems. The
Company anticipates that capital expenditures for years subsequent to 1999 will
continue to be significant.
Resources. Management believes, based on its current business plans,
that the Company has sufficient funds available from operating cash flow and
from borrowing capacity under the Bank Credit Facility to fund its operations,
capital expenditure plans and debt service. To the extent the Company seeks
additional acquisitions, it may need to obtain additional financing. However,
the Company's ability to borrow funds under the Bank Credit Facility requires
that the Company be in compliance with certain financial ratios at specified
levels or obtain the consent of the lenders thereunder to a waiver or amendment
of the applicable financial ratios. As of March 31, 1999, Management believes
that the Company was in compliance with such financial ratios.
On January 20, 1999, the Company through its subsidiary, Lenfest
International, Inc. ("International") purchased 71% of the outstanding common
stock of Videopole, a French cable television holding and management company
that franchises, builds and operates cable television systems in medium to small
communities in France. International also has an 80% partnership interest in
L-TCI Associates, a partnership that owns the remaining 29% of common stock of
Videopole. As a result of the purchase, the Company's direct and indirect
interest in Videopole is 94.2%.
On May 4, 1999, the Company entered into an Agreement and Plan of
Merger ("Merger Agreement") with AT&T Corp. and its subsidiary, AT&T LCI Inc.
The Merger Agreement provides that the Company will merge with and into AT&T LCI
Inc. ("Surviving Corporation"). The Surviving Corporation will be a wholly-owned
subsidiary of AT&T Corp. and will succeed to all of the rights and obligations
of the Company. The completion of the merger is subject to the receipt of
necessary governmental approvals, the consent of the Company's lenders under its
Bank Credit Facility and the receipt by AT&T and the Company of opinions
concerning the tax treatment of the merger. The transaction is expected to close
before the end of 1999 and must close before March 31, 2000 (which date may be
extended to June 30, 2000 under certain conditions). If the merger is terminated
by the Company under specified conditions, the Company may require AT&T to
contribute all cable television systems it owns which are located within 35
miles of the Company's cable television systems, subject to certain conditions.
Year 2000 Readiness Disclosure
The Year 2000 issue exists because many computer systems and
applications currently use two-digit date fields to designate a year. As a
result, on or near the change of the century, date-sensitive systems may
recognize the Year 2000 as 1900, or not at all, which may cause systems to fail
or process financial and operational information incorrectly.
The Company has developed plans to address its Year 2000 issues. The
plans are designed to encompass all businesses of the Company including both
internal and external interfaces to vendors. The plans address three broad
areas: (1) internal information technology systems - including financial and
operational application systems, computer hardware and systems software and
communication systems; (2) non-information technology systems - such as building
systems, headend devices and other devices with embedded computer chips; and (3)
third party compliance - which addresses Year 2000 compliance efforts of key
vendors and suppliers. The project plans consist of the following phases:
20
<PAGE>
1) Organizational awareness - general awareness of the Year 2000
issues, which has been completed, and ongoing communication of Year
2000 project status.
2) Inventory of current applications - which has been completed.
3) Risk assessment of inventoried systems, with identification of
mission-critical systems.
4) Replacement/remediation of systems.
5) Year 2000 testing and conversion of systems.
6) Contingency planning.
Program management offices, staffed with business unit personnel have
been established to address Year 2000 issues. These offices report to an
Executive Steering Committee, which is responsible for the Company's Year 2000
program. This Committee was formed in the spring of 1998 to review and monitor
the Company's Year 2000 program. It is made up of members of Senior Management
responsible for various areas of the Company's business. The Committee meets
regularly to review corporate-wide Year 2000 issues and progress.
Internal information technology systems. As of October 1998 the
inventory for mission-critical systems had been substantially completed. The
risk assessment phase is in process in parallel with systems
replacement/remediation, with target completion dates ranging from March 1999
through June 1999. Testing and conversion plans have been, or are currently
being, developed and implemented. The Company expects that mission-critical
internal systems will be Year 2000 compliant by September 1999. The Company also
expects to complete testing of mission critical external interfaces by September
1999. Based on the current status of project plans, the Company believes that
Year 2000 events caused by the Company's internal financial and operational
systems would not have a material adverse impact on the Company's operations or
financial condition.
Non-information technology systems. The risk assessment phase is
currently in process. Based on the results of these phases,
replacement/remediation plans will be developed for mission-critical equipment
and facilities. These plans are expected to be implemented by September 1999.
Given the nature of this Company's business units, the Company believes that any
events caused by Year 2000 failures of non-information technology systems would
be short-term in nature and would not have a material adverse impact on the
Company's operations or financial condition.
Third party compliance. The Company has identified, and initiated
communications with, key third party suppliers and customers to determine
potential exposure to these third parties' failure to remediate their own Year
2000 issues. The Company expects to complete its third party reviews by July
1999 and will develop contingency plans to address potential third party Year
2000 failures. However, an extended outage by utilities (electric, water,
telephone, etc.), key third-party suppliers or financial institutions, could
have material adverse impacts on the Company's operations and financial
condition.
Contingency Plans
Company resources to date have been focused primarily on Year 2000
remediation. The Company maintains contingency plans for computer failures,
power outages, natural disasters, etc. Year 2000 contingency plans for
mission-critical systems, in the areas discussed above, will be developed and
integrated with the existing contingency plans where appropriate by September
1999.
Costs
The Company currently estimates spending approximately $2.0 million,
including internal costs, to complete its Year 2000 compliance program,
including approximately $1.2 million that has been expended through March 31,
1999. Year 2000 costs related to systems or equipment replacement are
capitalized in accordance with the Company's accounting policies. Year 2000
remediation costs are expensed as incurred.
21
<PAGE>
The Company's ability to achieve Year 2000 compliance, the level of
costs associated therewith and the resultant impact on operations and financial
condition could be adversely impacted by, among other things, the availability
and cost of applicable resources, vendors' ability to modify proprietary
software, and unanticipated problems identified in the ongoing compliance
program.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has recently
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for fiscal quarters of fiscal years beginning after June 15, 1999. The
Company has not yet adopted SFAS No. 133. The adoption of SFAS No. 133 is not
expected to have a significant impact on the Company's financial statement
disclosures.
The American Institute of Certified Public Accountants ("AICPA")
recently issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
defines which costs of computer software developed or obtained for internal use
are capital and which costs are expenses. SOP 98-1 is effective for fiscal years
beginning after December 15, 1998. Effective January 1, 1999, the Company
adopted SOP 98-1. The adoption of SOP 98-1 did not have a significant impact on
the Company's consolidated financial statements and related footnotes.
The AICPA recently issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires that entities
expense start-up costs and organization costs as they are incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. Effective January
1, 1999, the Company adopted SOP 98-5. The adoption of SOP 98-5 did not have a
significant impact on the Company's consolidated financial statements and the
related footnotes.
Inflation
The net impact of inflation on operations has not been material in the
last three years due to the relatively low rates of inflation during this
period. If the rate of inflation increases the Company may increase customer
rates to keep pace with the increase in inflation, although there may be timing
delays.
Part II. Other Information
Item 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits.
Exhibit
Number Title or Description
- ------ --------------------
The following Exhibits are furnished as part of this Report:
Exhibit
Number Title or Description
2.1 Stock Purchase Agreement, dated as of January 25, 1999, by and
between each of the stockholders of Raystay Co. and Lenfest
Raystay Holdings, Inc.
2.2 Agreement and Plan of Merger, dated as of May 4, 1999 among
AT&T Corp., AT&T LCI Inc., Lenfest Communications, Inc. and H.
F. Lenfest, H. Chase Lenfest, Diane Lenfest Myer and Brook J.
Lenfest.
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***3.1 Restated Certificate of Incorporation of the Company.
***3.2 Amended and Restated Bylaws of the Company.
*4.1 Form of $700,000,000 8 3/8% Senior Note due 2005.
**4.2 Indenture between the Company and The Bank of New York, dated
as of November 1, 1995.
***4.3 Indenture, dated as of June 15, 1996, between the Company and
The Bank of New York.
***4.4 Form of 10 1/2% Senior Subordinated Note, dated June 27, 1996,
in the principal sum of $296,700,000.
++4.5 Indenture, dated as of February 5, 1998, between the Company
and The Bank of New York relating to the $150,000,000 7 5/8%
Senior Notes due 2008.
++4.6 Form of $150,000,000 7 5/8% Senior Notes due 2008. (In
accordance with Item 601 of Regulation S-K similar notes
between the same parties, which reference CUSIP No. 526055 AF
5 and CUSIP No. U52547 AA 1 have not been filed because they
are identical in all material respects to the filed exhibit.)
++4.7 Indenture, dated as of February 5, 1998, between the Company
and The Bank of New York relating to the $150,000,000 8 1/4%
Senior Subordinated Notes due 2008.
++4.8 Form of $150,000,000 8 1/4% Senior Subordinated Notes due
2008. (In accordance with Item 601 of Regulation S-K similar
notes between the same parties which reference CUSIP No.
U52547 AB 9 and CUSIP No. 526055 AH 1 have not been filed
because they are identical in all material respects to the
filed exhibit.)
*!10.1 Programming Supply Agreement, effective as of September 30,
1986, between Satellite Services, Inc. and the Company.
*10.2 Supplemental Agreement, dated December 15, 1981, by and
between TCI Growth, Inc., H.F. Lenfest, Marguerite Lenfest and
the Company and Joinder Agreement executed by LMC Lenfest,
Inc.
*10.3 Amendment to Supplemental Agreement, dated May 4, 1984 between
the Company and TCI Growth, Inc.
*10.4 Agreement, dated July 1, 1990, between H.F. Lenfest,
Marguerite B. Lenfest, Diane A. Lenfest, H. Chase Lenfest,
Brook J. Lenfest and the Lenfest Foundation,
Tele-Communications, Inc. and Liberty Media Corporation.
*10.5 Agreement and Consent, dated as of November 1, 1990, by and
among TCI Development Corporation, TCI Holdings, Inc., TCI
Liberty, Inc., Liberty Cable, Inc., H.F. Lenfest, Marguerite
B. Lenfest, H. Chase Lenfest, Brook J. Lenfest, Diane A.
Lenfest and the Company.
*10.6 Letter Agreement, dated as of December 18, 1991, among Liberty
Media Corporation, the Company, Marguerite B. Lenfest, Diane
A. Lenfest, H. Chase Lenfest, Brook J. Lenfest and the Lenfest
Foundation.
*10.7 Irrevocable Proxies of H. Chase Lenfest, Diane A. Lenfest and
Brook J. Lenfest, each dated March 30, 1990.
23
<PAGE>
*10.8 Partnership Agreement of L-TCI Associates, dated April 1993,
between Lenfest International, Inc. and UA-France, Inc.
*10.9 Pledge Agreement, dated July 29, 1994, between Lenfest Raystay
Holdings, Inc. and Farmers Trust Company as Collateral Agent.
*!10.10 Agreement, dated September 30, 1986, between the Company and
Tele-Communications, Inc.
*10.11 Agreement for the Sale of Advertising on Cable Television
Stations, dated as of November 25, 1991 between Suburban Cable
TV Co. Inc. and Cable AdNet Partners.
+10.12 Agreement, dated as of February 29, 1996, in favor of the
Company by H.F. Lenfest.
+10.13 Sublease Agreement, dated March 21, 1996, between Suburban
Cable TV Co. Inc. and Surgical Laser Technologies, Inc.
****10.14 Letter, dated March 6, 1997, from H. F. Lenfest to the
Company.
+10.15 Agreements, dated as of June 5, 1997, between H. F. Lenfest
and Lenfest Jersey, Inc., Lenfest York, Inc., Lenfest Raystay,
Inc. and Lenfest MCN, Inc. (formerly, MicroNet, Inc.).
++10.16 Letter, dated March 26, 1998 (effective September 30, 1997),
from H. F. Lenfest to the Company.
+++10.17 Amended and Restated Loan Agreement, dated as August 4, 1998,
among Lenfest Communications, Inc., a certain Lead Arranger,
certain Arranging Agents, a certain Documentation Agent, a
certain Syndication Agent, the Lenders, and a certain
Administrative Agent.
10.18 Stock Pledge Agreement, dated May 12, 1999, between Lenfest
York, Inc. and First Union National Bank, N.A., as Agent.
27. Financial Data Schedule.
- ----------
* Incorporated by reference to the Company's Registration
Statement on Form S-1, No. 33-96804, declared effective by the
Securities and Exchange Commission on November 8, 1995.
** Incorporated by reference to the Company's Report on Form
10-Q, dated December 22, 1995, for the quarter ended September
30, 1995.
*** Incorporated by reference to the Company's Registration
Statement on Form S-4, No. 333-09631, dated August 6, 1996.
**** Incorporated by reference to the Company's Report on Form
10-K, dated March 22, 1997, for the year ended December 31,
1996.
+ Incorporated by reference to the Company's Report on Form
10-Q, dated August 14, 1997, for the quarter ended June 30,
1997.
++ Incorporated by reference to the Company's Report on Form
10-K, dated March 27, 1998, as subsequently amended, for the
year ended December 31, 1997.
+++ Incorporated by reference to the Company's Registration
Statement on Form S-4, as amended, No. 333-51589, dated May 1,
1998.
24
<PAGE>
! Confidential portions have been omitted pursuant to Rule 406
and filed separately with the Commission.
(a) Reports on Form 8-K.
None.
(b) Reports on Form 8-K.
Report filed as of May 10, 1999.
25
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
<S> <C>
LENFEST COMMUNICATIONS, INC.
DATE: May 14, 1999 By: /s/ Maryann V. Bryla
--------------------
Maryann V. Bryla
Senior Vice President - Chief Financial Officer and
Treasurer (Authorized Officer and Principal Financial Officer)
</TABLE>
26
<PAGE>
STOCK PURCHASE AGREEMENT
This Agreement is made as of January 25, 1999 ("Agreement") by and
between each of the shareholders whose signatures appear on the signature pages
attached hereto (each a "Shareholder" and collectively, the "Shareholders") and
Lenfest Raystay Holdings, Inc. ("Buyer").
BACKGROUND OF AGREEMENT
WHEREAS, Raystay Co. (the "Company"), which operates multiple cable
television systems ("Systems"), is authorized to issue ten thousand (10,000)
shares of Class A Common Stock, par value $2.50 per share (the "Class A Common
Stock"), and thirty-five thousand (35,000) shares of Class B Common Stock, par
value $2.50 per share (the "Class B Common Stock"); and
WHEREAS, each respective Shareholder desires to sell and deliver to
Buyer, and Buyer desires to purchase and receive from each respective
Shareholder, upon the terms and conditions herein set forth, the shares of the
Class A Common Stock and/or Class B Common Stock of the Company set forth
opposite their respective names on Exhibit A hereto (collectively, the "Stock").
The parties hereto are entering into this Agreement to set forth their entire
understanding with respect to such sales and purchases.
NOW, THEREFORE, the parties hereto in consideration of the mutual
covenants herein contained and intending to be legally bound hereby, agree as
follows:
1. Purchase and Sale. Upon the terms and subject to the conditions set
forth in this Agreement, and in reliance upon the representations and
warranties herein made by each of the parties to the other, at the
Closing (as hereinafter defined) each Shareholder will sell, assign,
transfer, convey and deliver to Buyer, and Buyer will purchase, accept
and acquire from each Shareholder, all of the right, title and interest
of such Shareholder in and to the shares of Stock owned by such
Shareholder set forth opposite his, her or its name on Exhibit A.
2. Purchase Price.
a. Purchase Price. Subject to the terms and conditions of this
Agreement, at the Closing, Buyer shall deliver to each
Shareholder by wire transfer of immediately available funds an
amount (in the aggregate, the "Purchase Price") equal to the
product of (i) One Hundred Thirty-Nine Million, Two Hundred
Thousand Dollars ($139,200,000) (the "Enterprise Value"), less
the Escrow Amount described in Section 2(b), less the
adjustments provided for in Section 3 hereof, and less the
amount of the BIPC (as defined below) fees and disbursements
provided for in Section 16(g) hereof, multiplied by (ii) the
percentage amount set forth opposite such Shareholder's name
on Exhibit A.
<PAGE>
b. Escrow. At the Closing, Buyer shall deposit with the escrow
agent, which shall be Buchanan Ingersoll, Professional
Corporation ("BIPC"), the sum of Two Million Dollars
($2,000,000) (the "Escrow Amount"). The Escrow Amount shall be
held in escrow, in an interest bearing account. The Escrow
Amount shall be divided into two portions. One portion (the
"Closing Adjustment Escrow Amount") shall consist of Five
Hundred Thousand Dollars ($500,000), which amount shall be
paid on the day the parties have agreed upon the Final
Statement in the following amounts and order of priority:
First, to Buyer in an amount equal to the amount of the net
adjustment set forth in the Final Statement to be made in
favor of Buyer, if any, which amount shall not exceed the
Closing Adjustment Escrow Amount, and Second, if any amount
remains, to the Shareholders, in the same proportion as the
Purchase Price paid to such Shareholder bears to the aggregate
Purchase Price paid to all Shareholders. The second portion
(the "Indemnity Reserve Escrow Amount") shall consist of One
Million Five Hundred Thousand Dollars ($1,500,000), which
amount shall be paid in the following amounts and order of
priority: First, to Buyer, from time to time in accordance
with and subject to the provisions concerning the obligations
of the Shareholders to indemnify Buyer contained in Section 12
hereof; Second, to the Shareholders, in the same proportion as
the Purchase Price paid to such Shareholder bears to the
aggregate Purchase Price paid to all Shareholders. on the day
which is fifteen (15) months following the Closing Date, in an
amount equal to the net amount of the remaining Indemnity
Reserve Escrow Amount, if any, less the amount as to which
there is pending a good faith claim by Buyer for indemnity
pursuant to Section 12 hereof; and Third, to Buyer or
Shareholders in accordance with the resolution of pending
claims for indemnity following the day which is fifteen (15)
months following the Closing Date. Disbursements of the Escrow
Amount shall be made in accordance with the terms of the
Escrow Agreement among the parties in the form attached hereto
as Exhibit 2(b). All interest and earnings on the Escrow
Amount shall be for the account of the Shareholders.
3. Purchase Price Adjustments.
a. Adjustment. The aggregate Purchase Price shall be increased or
decreased by the net amount of the adjustments set forth on
Schedule 3 hereto. The adjustments provided for hereinbelow
shall be made as of the close of business (5:00 p.m., local
time) on the day prior to the Closing Date (the "Adjustment
Time").
b. Estimated Statement. Not less than ten (10) days prior to the
Adjustment Time, Gardner, acting as the designated
representative of the Shareholders, shall deliver to Buyer an
estimate of the adjustments to be made at Closing pursuant to
Section 3(a) ("Estimated Statement"), which shall be prepared
in accordance with GAAP, with such additional adjustments as
the parties have previously agreed, consistently applied with
the manner in which the line items being adjusted were
determined by the Company for purposes of its Financial
Statements (as defined below) as of and for the year ended
October 31, 1998, as previously delivered to Buyer and
acknowledged by the parties ("Adjusted GAAP"). Not less than
three (3) days prior to the Adjustment Time, Buyer shall
provide Gardner with any written objections to the Estimated
Statement. After considering such objections, Buyer and
Gardner shall make such revisions to the Estimated Statement
as are mutually acceptable not less than one (1) day prior to
the Adjustment Time. Such revised Estimated Statement shall be
used for purposes of Closing irrespective of any disagreements
that may exist with respect thereto, and that any such
disagreements, if any, shall be resolved in connection with
the preparation of the Final Statements.
-2-
<PAGE>
c. Final Statement. Not later than ninety (90) days after the
Closing Date, Buyer shall deliver to Gardner, in his capacity
as the designated representative of the Shareholders, a final
statement of all adjustments to be made pursuant to Section
3(a) ("Final Statement"), which shall be prepared in
accordance with Adjusted GAAP. If Gardner disagrees with the
amounts set forth in the Final Statement, Gardner shall so
notify Buyer within thirty (30) days after the date upon which
Gardner shall have received the Final Statement, specifying in
detail the points of disagreement. Buyer and Gardner shall
negotiate in good faith to resolve any such points of
disagreement. If any such points of disagreement cannot be
resolved within thirty (30) days, Buyer and Gardner shall
jointly refer the points of disagreement to
PricewaterhouseCoopers to act as an independent arbitrator to
resolve all points of disagreement with respect to the
disputed Final Statement. All determinations made by the
arbitrator shall be final, conclusive and binding on the
parties. The fees and expenses of the arbitrator (if any)
incurred in connection with such final determination shall be
shared equally by Buyer and the Shareholders.
d. Payment. If the adjustments set forth on the Final Statement
result in a net balance due to the Shareholders, Buyer shall
pay such balance to the Shareholders in the manner provided in
Section 2(a) within two (2) business days from the date of
final agreement on the Final Statement; and if the adjustments
set forth in the Final Statement result in a net balance due
Buyer, Buyer shall be reimbursed from the Closing Adjustment
Escrow Amount. Any amount due to Buyer in excess of such
Closing Adjustment Escrow Amount shall be paid by the
Shareholders, first from the Indemnity Reserve Escrow Amount
and then, individually, in the same proportion as each
received his, her or its portion of the Purchase Price, within
two (2) business days from the date of final agreement on the
Final Statement.
e. Buyer's Due Diligence Investigation. Buyer will undertake an
on-site due diligence investigation of the books, records and
properties of the Company promptly following the date of this
Agreement and will complete such due diligence investigation
not later than fourteen (14) days following the date of this
Agreement. At the conclusion of such fourteen (14) day period,
Buyer may terminate this Agreement without any liability to
the Shareholders (and Shareholders shall have no liability to
Buyer) if and only if as a result of such due diligence
investigation and review Buyer learns of information which
materially and adversely deviates from the representations and
warranties of Gardner contained in Section 5 of this
Agreement.
-3-
<PAGE>
4. Closing. The closing on the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Saul, Ewing, Remick
& Saul, LLP, Penn National Insurance Tower, 2 North Second Street, 7th
Floor, Harrisburg, Pennsylvania 19102, at 10 a.m. on a business day not
later than fifteen (15) days following the satisfaction of all
conditions precedent specified herein to the consummation of the
transactions contemplated by this Agreement (the "Closing Date").
5. Representations and Warranties of George F. Gardner. George F. Gardner
("Gardner"), President of the Company, represents and warrants to Buyer
as follows:
a. Organization. The Company is a corporation duly and validly
organized, existing and in good standing under the laws of the
Commonwealth of Pennsylvania. The Company is duly qualified to
do business in and is in good standing under the laws of each
other jurisdiction where the nature of its business or the
ownership of its assets requires it to be so qualified except
where the failure to be so qualified would not have a material
adverse effect on the business, financial condition or results
of operations of the Company ("Material Adverse Effect"). The
Company has full corporate power and authority to own or hold
under lease its assets and operate its business at the places
where such assets are presently located and at the places and
in the manner in which such business is presently conducted.
b. Corporate Records. The copies of the Articles of Incorporation
and By-Laws of the Company attached hereto as Exhibit 5(b)(i)
and Exhibit 5(b)(ii) are true and complete copies of such
instruments and include all amendments, and modifications
through the date hereof. The minute book of the Company, as
previously made available to the Buyer and its
representatives, contains accurate records of all meetings of
and corporate actions or written consents by the respective
shareholders and Board of Directors of the Company.
-4-
<PAGE>
c. Capitalization. The total authorized capital stock of the
Company consists of ten thousand (10,000) shares of Class A
Common Stock and thirty-five thousand (35,000) shares of Class
B Common Stock. The rights and privileges enjoyed by the
holders of Class A Common Stock and Class B Common Stock are
identical in every respect, except that the holders of Class A
Common Stock are entitled to the voting power of the Company.
The total issued and outstanding Common Stock of the Company
consists of two thousand nine hundred sixty-four (2,964)
shares of Class A Common Stock and thirty-two thousand four
hundred forty (32,440) shares of Class B Common Stock, and
there are no treasury shares of any security. Except as set
forth on Schedule 5(c), all of the issued and outstanding
Stock (i) is duly and validly issued, fully-paid and
non-assessable and (ii) is free and clear of all liens,
claims, pledges, encumbrances and restrictions of any kind,
nature and description. There are no outstanding
subscriptions, script, warrants, commitments, conversion
rights, calls, options or agreements to issue or sell
additional securities of the Company, and no obligations
whatsoever requiring, or which might require, the Company to
issue any securities, except that Class A Common Stock is
convertible into Class B Common Stock in certain events. There
are no agreements, commitments, or understandings with respect
to the internal management, control or affairs of the Company
other than as set forth in its Articles of Incorporation and
By-Laws and except for the Shareholders Agreement dated as of
July 29, 1994 among the Company, Buyer and the Shareholders
(the "Shareholders' Agreement"). Other than as described on
Schedule 5(c) hereof, there exist no rights or interests
relating to the ownership or distribution of the equity of the
Company other than the issued and outstanding Class A Common
Stock and Class B Common Stock.
d. Financial Condition. The audited financial statements of the
Company for the year ended October 31, 1998, and the notes and
any schedules to any such financial statements (collectively,
the "Financial Statements"), all as previously delivered to
Buyer, have been prepared in accordance with generally
accepted accounting principles ("GAAP"), consistently applied,
and fairly present the financial position, results of
operations, assets and liabilities of the Company as of the
dates, and for the fiscal periods covered thereby. The
Financial Statements are true, accurate and complete in all
material respects, do not contain any untrue statement of a
material fact or omit to state a material fact required by
GAAP to be stated therein and fairly present the financial
condition and the results of operations and cash flows of the
Company as of the dates and for the periods covered thereby.
There are no material liabilities or material obligations of
any nature, whether accrued or not accrued, absolute,
contingent or otherwise, which are not disclosed as such on
the Financial Statements, or in the notes thereto. Since
October 31, 1998, the Company has not incurred any liabilities
or obligations, accrued, absolute, contingent or otherwise,
except in the normal course of the Company's business, or
which in the aggregate results in a material increase in the
liabilities or obligations of the Company. Since October 31,
1998, there has been no material adverse change in the assets
or liabilities, or in the business or condition, financial or
otherwise, or in the results of operations of the Company,
whether as a result of any legislative or regulatory change,
revocation of any license or rights to do business, fire,
explosion, accident, casualty, labor trouble, flood, drought,
riot, storm, condemnation or act of God, or other public force
or otherwise, except in the ordinary course of business; and
to the best knowledge, information and belief of Gardner,
after due inquiry, no fact or condition exists or is
contemplated or threatened which might cause such a change in
the future, other than any change arising out of matters
affecting the economy as a whole or matters (including,
without limitation, competition caused by or arising from
multichannel multipoint distribution services and/or direct
broadcast satellite and legislation, rulemaking or regulation)
affecting the cable television industry (national or regional)
generally.
-5-
<PAGE>
e. Title to and Usability of Assets. Schedule 5(e) contains a
copy of the fixed asset schedule of the Company as of October
31, 1998, which was used in the preparation of the Financial
Statements as of and for the year then ended, and the property
reflected thereon constitutes the personal property of the
Company ("Personal Property"). The Personal Property
constitutes all substantially all of the personal property
necessary to conduct lawfully and properly the business or
operations of the Systems as now conducted. Except as set
forth on said Schedule, the Company has good and marketable
title to such assets, subject to no mortgage, pledge, lien,
security interest, right of possession in favor of any third
party, claim or other encumbrance or restriction ("Lien"),
except for those that are not material in character or amount
and do not materially impair the use of any asset that is
material to the operation or financial condition of the
Company's business as it is now and has been operated. All
Personal Property is being accepted in "as is, where is"
condition and all such assets so reflected or existing are
used or held in compliance with all applicable laws, rules and
regulations. Since October 31, 1998 and other than as
previously disclosed in writing to Buyer, the Company has not
disposed of or acquired any assets or properties otherwise
than in the ordinary course of its business and for individual
amounts not in excess of $25,000.
f. Taxes. The Company has filed or caused to be filed, within the
times and within the manner prescribed by law, all federal,
state, local and foreign tax returns and tax reports which are
required to be filed by, or with respect to, the Company. Such
returns and reports reflect accurately all liability for taxes
of the Company for periods covered thereby. All federal,
state, local and foreign income, profits, franchise, sales,
use, occupancy, excise and other taxes and assessments
(including interest and penalties) ("Taxes") payable by, or
due from, the Company have been fully paid or adequately
disclosed and fully provided for in the books and financial
statements of the Company. No examination of any tax return of
the Company is currently in progress. There are no outstanding
agreements or waivers extending the statutory period of
limitation applicable to any tax return of the Company. True,
accurate and complete copies of all federal income tax returns
for the Company for its fiscal years ended October 31, 1995,
1996 and 1997 have been delivered to Buyer.
-6-
<PAGE>
g. Litigation. Except as set forth on Schedule 5(g) hereto, there
is no action, suit, claim, complaint, notice of violation,
proceeding at law or in equity, arbitration, administrative or
other proceeding or investigation ("Legal Proceeding") by or
before any Governmental Authority, or, to Gardner's best
knowledge, after due inquiry, threatened, against the Company
or any of its properties or rights in either case, which,
would reasonably be expected to have a Material Adverse
Effect. The Company is not subject to any judgment, order or
decree entered in any lawsuit or proceeding ("Judgment") which
affects (i) the Company or any part of the business,
properties or assets of the Company or (ii) any part of the
transaction contemplated hereby, or which seeks to impose
conditions upon the degree of Buyer's control over, or the
manner in which Buyer shall be permitted to manage its
investment in the Company subsequent to the consummation of
the transaction contemplated hereby.
h. Licenses. Schedule 5(h) hereto lists each FCC License (as
defined below) and receive only earth station authorization
required to permit the operation of the Systems in the manner
in which it is currently conducted, indicating in each case
the expiration date thereof. An "FCC License" is defined as an
authorization, or renewal thereof, issued by the FCC pursuant
to Parts, 78, 90, or 101 of its rules, authorizing the
operation of a facility in the Cable Television Relay Service,
Business Radio Service, or Fixed Microwave Service. Except as
set forth in Schedule 5(h), said FCC Licenses (i) are valid,
and in full force and effect and constitute all of the
Licenses, permits and authorizations required by the FCC for
the operation of the Systems as now operated, and (ii)
constitute all the material Systems licenses and
authorizations issued by the FCC to the Company for or in
connection with the operation of the Systems. Gardner, after
due inquiry, has no knowledge of any condition imposed by the
FCC as part of any FCC License that is material to the
operation of the Systems which is neither set forth on the
face thereof as issued by the FCC nor contained in the rules
and regulations of the FCC applicable generally to stations of
the type, nature, class or location of the Systems. No
proceedings are pending or, to Gardner's best knowledge, after
due inquiry, are threatened which may result in the
revocation, modification, non-renewal or suspension of any of
the FCC Licenses, the issuance of any cease and desist order
or the imposition of any administrative actions by the FCC
with respect to the Systems or its operation. To the best
knowledge of Gardner, after due inquiry, there are no matters
which could reasonably be expected to result in the suspension
or revocation of the FCC Licenses. There are not any
unsatisfied or otherwise outstanding citations issued by the
FCC with respect to the Systems or its operation. The actions
by the FCC in issuing the current licenses of the Systems are
final actions of the FCC.
-7-
<PAGE>
i. Franchises and Contracts. Schedule 5(i) contains a description
of all of the franchises ("Franchises") and contracts
("Contracts") to which the Company is a party or by which it
or its assets are bound or affected, except for: (i)
subscription agreements with individual residential
subscribers for the cable services provided by the Systems in
the ordinary course of business which may be canceled by the
Company without penalty on not more than 30 days notice; (ii)
miscellaneous service contracts terminable at will without
penalty; (iii) other Contracts not involving aggregate
liabilities when viewed on an annual basis under all such
Contracts exceeding $25,000; and (iv) other Contracts not
involving any material nonmonetary obligation. The Company has
delivered to Buyer true and complete copies of each of the
Franchises and written Contracts, including any amendments
thereto, other than Contracts described in clauses (i), (ii),
(iii) and (iv) above and motor vehicle leases. Except as
described on Schedule 5(i): (A) each of the Franchises and
Contracts is a valid obligation of the Company, in full force
and effect, and enforceable in accordance with its terms
against the parties thereto other than the Company, and the
Company has fulfilled when due, or has taken all action
necessary to enable it in all material respects to fulfill
when due, all of its obligations thereunder; (B) there has not
occurred any default (without regard to lapse of time, the
giving of notice, the election of any Person other than the
Company, or any combination thereof) by the Company nor, to
the best knowledge of Gardner, after due inquiry, has there
occurred any default (without regard to lapse of time, the
giving of notice, the election of the Company, or any
combination thereof) by any Person other than the Company
under any of the Franchises or Contracts; and (C) neither the
Company nor, to the best knowledge of Gardner, after due
inquiry, any other Person is in arrears in the performance or
satisfaction of its obligations under any of the Franchises or
Contracts, and no waiver or indulgence has been granted by any
of the parties thereto. Except as described on Schedule 5(i),
the Franchises and Contracts are sufficient to permit the
Company to operate the Company lawfully in the manner in which
it is currently operated. Except as set forth on Schedule 5(i)
attached hereto, the Company does not have (i) any agreements
or binding arrangements of any kind with any person
controlling, controlled by or under common control with the
Company ("Affiliate") or (ii) any management or consulting
agreement of any kind with any third party (including, without
limitation, Affiliates).
-8-
<PAGE>
j. FCC Matters.
i. The Company's Systems serve the communities listed on
Schedule 5(j)(i). Each of these communities has been
registered with the FCC and their respective
community unit identifiers are listed on said
schedule. All required notifications have been
submitted to the FCC with respect to the Systems'
utilization of frequencies in the 108-137 MHZ and
225-400 MHZ bands. Other than requests for network
nonduplication and syndex protection and as described
on Schedule 5(j)(i), no written requests have been
received by the Company during the three years
preceding the date of this Agreement from the FCC,
the United States Copyright Office or any other
Person challenging or questioning either the right of
the Company's operation of the Systems or the right
of Gardner's operation of the Company and of any
FCC-licenses or registered facility used in
conjunction with either the Company's operation of
the Systems or Gardner's operation of the Company.
Except as provided in Schedule 5(j)(i), the Company's
operation of the Systems, and of any FCC-licenses or
registered facility used in conjunction with the
operation of the Company, is in compliance in all
material respects with the FCC's rules and
regulations and the provisions of the Communications
Act of 1934, as amended. The Company has not violated
any laws or any duty or obligation with regard to
protecting the privacy rights of any past or present
subscribers of the Company.
ii. The Company has conducted all system and microwave
performance tests and all Cumulative Leakage Index
("CLI") related tests applicable to the Company. The
Company has (i) maintained appropriate log books and
other record keeping which accurately and completely
reflect in all material respects all results required
to be shown thereon; (ii) to the extent required by
the rules and regulations of the FCC, corrected any
radiation leakage of the Systems required to be
corrected in connection with the Company's monitoring
obligations under the rules and regulations of the
FCC; and (iii) otherwise complied in all material
respects with all applicable CLI rules and
regulations in connection with the operation of the
Company.
-9-
<PAGE>
iii. All of the broadcast television signals carried by
the Systems, other than a "superstation" as that term
is defined in Section 119 of the Copyright Act, are
carried either pursuant to the must-carry
requirements or pursuant to executed retransmission
consent agreements.
iv. All reports, applications and other documents
required to be filed by the Company with the FCC with
respect to the Systems have been filed with the FCC,
and all such reports, applications and documents are
true and correct in all material respects. The
Company has delivered or will deliver promptly after
the date hereof to Buyer complete and correct copies
of all reports and filings for the past three years
made or filed pursuant to the Communications Act or
FCC rules or regulations with respect to the Company.
The Company has delivered to Buyer complete and
correct copies of all FCC 393 Forms and FCC 1200
Series Forms provided to local franchising
authorities or the FCC with respect to the Systems
and copies of all material correspondence with any
Governmental Authority relating to rate regulation
generally or specific rates charged to customers with
respect to the Systems, including, without
limitation, copies of any complaints and responses
filed with the FCC with respect to any rates charged
to customers of the Systems. A request for renewal
has been timely filed under Section 626(a) of the
Communications Act with the proper Governmental
Authority with respect to each franchise of the
Company expiring within 36 months of the date of this
Agreement. Except as described on Schedule 5(j)(iv),
the Company has received no notice that any
complaints about the Company have been filed with the
FCC or any other Governmental Authority which exerts
jurisdiction over the Company. Attached to Schedule
5(j)(iv) are true, correct and complete copies of all
Forms 395-A as filed with the FCC and resulting
compliance certificates.
v. The Systems are being operated in compliance with the
Rules and Regulations of the Federal Aviation
Administration ("FAA") and the FCC. Schedule 5(j)(v),
lists all of the existing towers of the Systems.
Without limiting the generality of the foregoing, the
existing towers of the Systems are obstruction marked
and lighted in accordance with the Rules and
Regulations of the FAA and FCC or are exempt from
such requirements. All required authorizations,
including but not limited to, Hazard to Air
Navigation determinations, for such towers have been
issued by and pursuant to the Rules and Regulations
of the FAA and all registrations required by the FCC
have been made. Except as set forth on Schedule
5(j)(v), the Company does not lease space on such
towers to any third party.
-10-
<PAGE>
k. Copyright Matters.
i. The Company has deposited with the United States
Copyright Office all statements of account and other
documents and instruments, and paid all royalties,
supplemental royalties, fees and other sums to the
United States Copyright Office required under the
Copyright Act with respect to the business and
operations of the Company as are required to obtain,
hold and maintain the compulsory copyright license
for cable television systems prescribed in Section
111 of the Copyright Act. The Company is in
compliance in all material respects with the
Copyright Act and the rules and regulations of the
Copyright Office with respect to the operation of the
Company. The Company is entitled to hold and does
hold the compulsory copyright license described in
Section 111 of the Copyright Act, which compulsory
copyright license is in full force and effect and has
not been revoked, canceled, encumbered or adversely
affected in any manner. The Company has provided
Buyer with true and complete copies of its Copyright
filings for 1995, 1996, 1997 and the first period of
1998.
ii. Set forth on Schedule 5(k)(ii) is a list of all
program services carried by the Systems, with a
breakdown as to channel line-up, marketing tier, mode
of reception (i.e., satellite, microwave, or off-air
reception) and transmission frequencies utilized. The
carriage of the broadcast signals carried by the
Systems in each community in which such signals are
so carried has been duly registered with the FCC and
the United States Copyright Office, and the Company
has full legal right and authority, and all necessary
authorizations and documentation from the FCC and the
United States Copyright Office, to carry all program
services (including broadcast signals) now being
carried on the Systems and which are listed on
Schedule 5(k)(ii). No notices or demands have been
made to the Company challenging its right to carry
any program services listed on Schedule 5(k)(ii) or
demanding the Company to carry any program service
not so listed. The Company's business is being
conducted in accordance with the requirements and
provisions of all communications, copyright, and
other similarly applicable laws, rules, and
regulations relative to the Systems or the Company's
operation thereof. Schedule 5(k)(ii) sets forth the
channel capacities of each System.
-11-
<PAGE>
l. No Conflicts; Consents. Except as described on Schedule 5(l),
the execution, delivery, and performance by the Shareholders
of this Agreement does not and will not conflict with,
violate, result in a breach of, constitute a default under
(without regard to requirements of notice, lapse of time, or
elections of other Persons, or any combination thereof),
accelerate, or permit the acceleration of the performance
required by (a "Violation"), any Contract or result in the
creation or imposition of any Lien against or upon any of the
assets of the Company except for Violations which individually
and in the aggregate have not had and would not reasonably be
expected to have a Material Adverse Effect.
m. Real Property. Schedule 5(m) contains descriptions of all the
owned and leased real property (the "Real Property"), which
comprises all real property interests necessary to conduct the
business or operations of the Company as now conducted. The
Company has delivered to Buyer true and complete copies of all
deeds, leases, easements, rights-of-way or other instruments
pertaining to the Real Property (including any and all
amendments and other modifications of such instruments). The
Company has good and marketable fee simple title to all of the
fee estates (including the improvements thereon), listed in
Schedule 5(m), free and clear of all Liens, except for (i)
Liens for Taxes not yet due and payable; (ii) easements,
rights-of-way and restrictions of record, none of which
materially affects the use of value of such property and all
of which are described in Schedule 5(m); and (iii) any other
claims or encumbrances which are described in Schedule 5(m)
and annotated to indicate that such claims or encumbrances
will be removed prior to or at Closing. All Real Property
(including the improvements thereon) (A) is being accepted by
Buyer in "as is, where is" condition, (B) is available to the
Company for immediate use in the conduct of the business or
operations of the Company, and (C) complies in all material
respects with all applicable building or zoning codes and the
regulations of any Governmental Authority having jurisdiction;
provided, however, that notwithstanding the foregoing, nothing
contained in this Section 5(m) shall in any way limit or
otherwise diminish any other representation, warranty or
covenant contained in this Agreement, each of which is being
made without reference to or reliance upon the acceptance by
Buyer of the Real Property in "as is, where is" condition.
n. Bonds. Schedule 5(n) contains an accurate and complete list of
all bonds (franchise, construction, fidelity, or performance)
of the Company which relate in any way to the ownership or use
of the Assets or the operation of the Company.
o. Non-Infringement. The operation of the Company's business as
currently conducted does not infringe upon, or otherwise
violate, the rights of any person or entity in any copyright,
trade name, trademark right, service mark, service name,
patent, patent right, license or trade secret, and there is
not pending or, to the best knowledge of Gardner, after due
inquiry, threatened any action with respect to any such
infringement or breach.
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<PAGE>
p. Books and Records. All of the books, records, and accounts of
the Company are in all material respects true and complete,
are maintained in accordance with good business practice and
all applicable laws, rules, regulations and other legal
requirements, and accurately present and reflect in all
material respects all of the transactions therein described.
q. Accounts Receivable. Except as described in Schedule 5(q), the
Company is the true and lawful owner of the accounts
receivable and has good and clear title to each account, free
and clear of all Liens, with the absolute right to transfer
any interest therein. Each such account is (i) a valid
obligation of the account debtor enforceable in accordance
with its terms, except insofar as enforcement may be affected
by bankruptcy, reorganization or similar laws relating to
creditors, rights in general, and general principles of
equity, and (ii) in all material respects, a true and correct
statement of the account for merchandise actually sold and
delivered to, or for actual services performed for and
accepted by, such account debtor.
r. Compliance with Laws. Except as set forth on Schedule 5(r),
the Company is in compliance with all federal, state and local
laws, ordinances, regulations and orders applicable to it and
its business. The Company has all required federal, state and
local governmental licenses and permits necessary in the
conduct of its business, such licenses and permits are in full
force and effect, the Company has not violated any thereof and
no proceeding is pending or, to Gardner's knowledge,
threatened to revoke or limit any thereof.
s. Disclosure of Information. No representation, warranty or
covenant concerning the Company made to Buyer in this
Agreement, any schedule or exhibit to this Agreement contains,
or at Closing will contain, any untrue statement of a material
fact or omits, or at Closing will omit, to state a material
fact necessary to make the statements set forth in this
Agreement or the matters disclosed in such exhibit, document,
schedule or certificate, in light of the circumstances under
which such statements or disclosures were made, not
misleading. There is no fact known to Gardner which may
materially and adversely affect the business, prospects or
financial condition of the Company or its properties or
assets, which has not been set forth in the Agreement or in
the exhibits, certificates, schedules or statements in writing
furnished in connection with the transactions contemplated by
this Agreement except for the possible impact of pending or
future laws or regulations affecting the cable television
industry generally.
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t. Employees; Compensation; Unions.
i. Except as set forth on Schedule 5(t)(i), each
employee of the Company is an "at-will" employee of
the Company who may be terminated without cause at
any time without the incurrence of any liability.
Except as set forth on Schedule 5(t)(i), the Company
is not a party to any collective bargaining
agreements. Except as set forth on Schedule 5(t)(i),
the Company is not a party to any pending or
threatened labor disputes and no trade union, council
of trade unions, employee bargaining agent or
affiliated bargaining agent for any of the employees
(A) holds bargaining rights with respect to any of
the employees by way of certification, interim
certification, voluntary recognition, designation or
successor rights; or (B) has applied or indicated an
intention to apply to be certified as the bargaining
agent of any of the employees.
ii. Except as set forth in Schedule 5(t)(ii), the Company
and its Affiliates have no pension plans, profit
sharing plans, supplemental income plans, deferred
compensation plans, stock option or stock bonus plans
or the like or similar employee or executive benefit
plans, or any contracts under any thereof
(collectively, the "Plans"). Except as set forth in
Schedule 5(t)(ii), the Company and its Affiliates do
not maintain, sponsor or contribute to any "employee
benefit plan" within the meaning of ERISA, or other
plan, program, practice, agreement or arrangement,
whether written or oral, of employee compensation,
deferred compensation, severance pay, retiree benefit
or fringe benefit covering current or former
employees of the Company or their respective
dependents or survivors. The Company is and has been
in compliance with all material provisions, including
all reporting and disclosure requirements of ERISA
and of the Internal Revenue Code, as amended
("Code"), relating to the Plans, and has administered
each Plan heretofore maintained or sponsored in
accordance with its terms, and, to the extent
applicable, with ERISA and the Code. Attached hereto
on Schedule 5(t)(ii) is a summary of each Plan.
iii. Except as set forth on Schedule 5(t)(iii), neither
the Company nor any trade or business, whether or not
incorporated, which together with the Company would
be treated as a single employer under ERISA (i) has
incurred, or taken or failed to take any action which
could result in the incurrence of (A) "withdrawal
liability" under ERISA or (B) termination liability
to the Pension Benefit Guaranty Corporation under
ERISA, (ii) has contributed to any "multiemployer
plan", within the meaning of ERISA which (A) has
"unfunded vested benefits" allocable to any of them
under ERISA or (B) which is in "reorganization"
within the meaning of ERISA, (iii) has failed to make
all contributions required to date under any
collective bargaining agreement to any benefit plan
or program, or (iv) has maintained or sponsored at
any time prior to the date hereof any "employee
pension benefit plan" within the meaning of ERISA,
which is subject to Title IV or ERISA or Section 302
of ERISA. Having made due inquiry, Gardner knows of
no circumstances relating to an employee plan
intended to qualify under section 401(a) of the Code
that would likely result in the denial or revocation
of tax qualification. No other material liabilities
not mentioned in Section 5(t)(i), other than for
payment of benefits in the ordinary course, have been
incurred nor do any facts exist which are reasonably
likely to result in any material liability (whether
or not asserted as of the date hereof) of the Company
or its Affiliates arising by virtue of any event, act
or omission occurring prior to the Closing Date with
respect to any Plan. To Gardner's knowledge, after
due inquiry, no liens under Code Section 412(h) of
ERISA Section 6069(a), nor liabilities under ERISA
section 4069(a) or 4201(a), exist with respect to any
employee plan or any employee benefit plan (within
the meaning of section 3(3) of ERISA) of the Company
or any of the Company's Affiliates that is aggregated
with the Company under section 414(b), 414(c) or
414(m) of the Code that would have a material adverse
effect on the assets or the business of the Company,
nor do any facts which are reasonably likely to
result in the assertion of any such liens or
liabilities.
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<PAGE>
iv. Attached hereto as Schedule 5(t)(iv) is a list of the
names of all employees of the Company as of January
1, 1999, the position and duties performed by each,
the total compensation payable to each, schedule of
hours worked (if part time), and accrued sick,
personal vacation days and hire date for each, and
the list sets forth the Company's policies as to
payment of salaries and commissions, vacation time,
vacation pay, sick pay, disability or severance pay,
or other benefits and similar items. The Company has
in all material respects properly verified the
identity and authorization to work in the United
States and has completed and retained INS forms I-9
for all employees who are employed by the Company,
whether or not actively at work, where required by
the Immigration Reform and Control Act of 1986 and
related statutes. Within the two week period
following the execution of this Agreement the Company
will make available to Buyer true and complete copies
of such forms.
v. Except as set forth on Schedule 5(t)(v), no employee
has received an increase in his regular rate of
compensation or any bonus or other compensation or
benefit within the six (6) month period immediately
prior to the date hereof. No employee has been or
will be offered an increase in compensation or any
bonus or benefits, including, without limitation any
severance pay or benefit, prior to the Closing
without the prior written consent of Buyer.
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<PAGE>
vi. Except as set forth on Schedule 5(t)(vi), there is no
complaint or litigation pending or threatened before
any Governmental Authority or any court with respect
to any strike or unresolved labor dispute, the
outcome of which would adversely affect the operation
of the Company or the Systems.
u. Environmental Matters.
i. None of the properties of the Company contains,
including, without limitation, in, on or under the
soil and groundwater thereunder, any Hazardous
Materials (as defined below) in violation of
Environmental Laws (as defined below) or in amounts
that could give rise to liability under Environmental
Laws.
ii. The Company is in compliance with all Environmental
Laws, and, to the best of the Gardner's knowledge,
after due inquiry, there is no contamination of any
of such properties which could interfere with the
continued operation of any of such properties or
impair the financial condition of the Company.
iii. The Company has not received from any Governmental
Authority any complaint, notice of violation, alleged
violation, investigation or advisory action or notice
of potential liability regarding matters of
environmental protection or permit compliance under
applicable Environmental Laws with regard to any such
properties that have not been resolved to the
satisfaction of the issuing government authority, nor
is Gardner aware that any Governmental Authority is
contemplating delivering any such notice to the
Company.
iv. There has been no pending or threatened complaint,
notice of violation, alleged violation, investigation
or notice of potential liability under Environmental
Laws with regard to any of such properties and to
Gardner's best knowledge, after due inquiry, there is
no basis for any person asserting the same against
the Company.
v. Hazardous Materials have not been generated, treated
stored, disposed of, at, on or under any of such
property in violation of any Environmental Laws, nor
have any Hazardous Materials been transported or
disposed of from any of such properties to any other
location in violation of any Environmental Laws or in
a manner that could give rise to liability under
Environmental Laws.
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<PAGE>
vi. The Company is not a party to any governmental
administrative actions or judicial proceedings
pending under any Environmental Law with respect to
any of such properties nor are there any consent
decrees or other decrees, consent orders,
administrative orders or other orders, or other
administrative or judicial requirements outstanding
under any Environmental Law with respect to any of
such properties.
vii. Except as set forth on Schedule 5(u)(vii) hereof,
there are currently or previously no above ground or
below ground tanks on any of the Real Property. The
Company has provided Buyer with complete and correct
copies of all studies, reports, surveys and other
materials relating to the presence or alleged
presence of any Hazardous Materials at, on or
affecting the Real Property.
As used herein, "Environmental Laws" means any and
all applicable federal, state, local or municipal laws, rules,
orders, regulations, statutes, ordinances, codes, decrees or
requirements of any Governmental Authority regulating,
relating to or imposing liability or standards of conduct
concerning environmental protection matters, including,
without limitation, Hazardous Materials, as now or may at any
time heretofore or hereafter be in effect.
As used herein, "Hazardous Materials" means any
hazardous materials, hazardous wastes, hazardous constituents,
hazardous or toxic substances, petroleum products (including
crude oil or any fraction thereof) or friable asbestos
containing materials defined or regulated as such in or under
any Environmental Law.
v. Year 2000 Compliance. The Company has (i) initiated a
review and assessment of all areas within its
businesses and operations (including those affected
by suppliers and vendors that would reasonably be
expected to be adversely affected by the "Year 2000
Problem" (that is, the risk that computer
applications used by the Company (or suppliers or
vendors) may be unable to recognize and perform
properly date-sensitive functions involving certain
dates prior to and any date after December 31,
1999)), (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis,
and (iii) to date, implemented that plan in
accordance with that timetable. Based on the
foregoing, Gardner reasonably believes that all
computer applications (including those of its
suppliers and vendors) that are material to the
Company's business and operations are reasonably
expected by September 30, 1999 to be able to perform
properly date-sensitive functions for all dates
before and after January 1, 2000 (that is, be "Year
2000 Compliant"), except to the extent that a failure
to do so would not reasonably be expected to have a
Materially Adverse Effect. Exhibit 5(v) sets forth
the Company's plan and timetable for addressing the
Year 2000 Problem and the specific actions taken to
date.
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<PAGE>
w. Customers. At the Closing, the number of Customers (as defined
below) shall be at least 60,500, or 60,000 Customers if the
Closing occurs after April 30, 1999. As used herein, the term
"Customer" shall have the meaning ascribed to the term
"Subscriber" for the purposes of the line captioned "Total
Combined Subs" of the Company's Monthly Subscriber Reports
that the Company has delivered to Buyer for at least the last
two years. Notwithstanding the foregoing, the term "Customer"
shall not include any commercial, residential or other
subscriber who (i) has not paid for at least one (1) month's
service or (ii) is more than sixty (60) days delinquent from
the date of billing on any amount due to the Company in excess
of $10.00.
x. Equity Sharing Agreements. Except for the Shareholders
Agreement, the Company is not a party to any agreement or
arrangement relating to profit sharing or the creation of
beneficial interests in the equity of the Company,
y. Insurance. The Company is insured in scope and amounts
customary and reasonable for the CATV business. With respect
to the Systems and Real Property, the Company has not been
refused insurance or has its coverage been limited by an
insurance carrier to which it has applied for insurance during
the last three years, and, to Gardner's best knowledge, after
due inquiry, no facts exist which would reasonably cause the
Company to believe that its premiums on any insurance policy
will be extraordinarily increased or the renewal of any such
insurance policy denied. All of such policies are in full
force and effect and the Company is not in default of any
provision thereof. Schedule 5(y) hereto sets forth a complete
list of all of the Company's insurance policies, with policy
numbers, coverages and limits. The Company shall maintain all
of the insurance policies described on Schedule 5(y) in full
force and effect in the amounts specified through the Closing
Date.
6. Representations and Warranties of the Shareholders. Each Shareholder,
severally and not jointly, represents and warrants to Buyer as follows:
a. Authority. Shareholder has all requisite power and authority
to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated in
this Agreement. The execution, delivery and performance by
Shareholder of this Agreement and the consummation of this
transactions contemplated by this Agreement on the part of
Shareholder have been or prior to the Closing will be duly and
validly authorized and approved by all necessary action on the
part of Shareholder, and except as set forth in Schedule 6(a),
(i) does not require the consent, waiver, approval, permit,
license, authorization of, or any declaration or filing with,
any person, court or public authority; (ii) does not violate,
with or without the giving of notice or the passage of time,
any provision of law applicable to Shareholder; and (iii) does
not conflict with or result in the breach or termination of,
or constitute a default under, or result in the creation of
any lien, charge or encumbrance upon any of the Stock pursuant
to any by-law, mortgage, deed of trust, indenture or other
agreement of any kind or instrument or any order, judgment or
decree to which Shareholder is a party or by which any of
Shareholder's assets or properties are bound or affected.
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<PAGE>
b. Valid Obligation. This Agreement has been duly and validly
executed and delivered by Shareholder and constitutes a legal
and valid obligation of Shareholder enforceable in accordance
with its terms, except insofar as enforcement may be affected
by bankruptcy, reorganization or similar laws relating to
creditors' rights in general, and general principles of
equity.
c. Title. Except as set forth on Schedule 6(c), Shareholder owns
the shares of Stock set forth opposite his, her or its name on
Exhibit A free clear of all liens, claims, pledges,
encumbrances and restrictions of any kind, nature and
description, and Shareholder has good, valid, marketable and
indefeasible title to such Stock. Except as set forth on
Schedule 6(c) hereof, when purchased by Buyer from Shareholder
in accordance with the terms and conditions hereof, such
Shareholder's Stock (i) will be duly and validly issued, will
be fully-paid and non-assessable and (ii) will be free and
clear of all liens, claims, pledges, encumbrances and
restrictions of any kind, nature and description, and Buyer
will have good, valid, marketable and indefeasible title to
such Shareholder's Stock. There are no outstanding
subscriptions, script, warrants, commitments, conversion
rights, calls, options or agreements relating to such
Shareholder's Stock, and no obligations whatsoever requiring,
or which might require, the Company to issue any securities,
and no agreements, commitments, or understandings with respect
to the internal management, control or affairs of the Company
other than as set forth in its Articles of Incorporation and
By-Laws and except for the Shareholder Agreement.
d. Litigation. Shareholder is not subject to any Judgment entered
in any Legal Proceeding, and there is no Legal Proceeding by
or before any Governmental Authority, or, to Shareholder's
knowledge, threatened, against Shareholder, or any of
Shareholder's properties or rights, which affects (i) the
Shareholder's Stock, (ii) the Company or any part of the
business, properties or assets of the Company or (iii) any
part of the transaction contemplated hereby, or which seeks to
impose conditions upon the degree of Buyer's control over, or
the manner in which Buyer shall be permitted to manage its
investment in the Company subsequent to the consummation of
the transaction contemplated hereby.
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<PAGE>
e. Disclosure of Information. No representation, warranty or
covenant made by Shareholder to Buyer in this Agreement, any
schedule or exhibit to this Agreement contains any untrue
statement of a material fact or omits to state a material fact
necessary to make the statements set forth in this Agreement
or the matters disclosed in such exhibit, document, schedule
or certificate, in light of the circumstances under which such
statements or disclosures were made, not misleading.
f. Broker's Fees. Shareholders have not employed any broker in
connection with the transaction contemplated by this
Agreement. Waller Capital Corporation was retained by the
Company in connection with the transaction contemplated by
this Agreement.
7. Representations and Warranties of Buyer. Buyer represents and warrants
to the Company and to each Shareholder as follows:
a. Organization. Buyer is a corporation duly and validly
organized, existing and in good standing under the laws of the
State of Delaware.
b. Authority. The execution and carrying out of this Agreement
and the compliance with the provisions hereof by Buyer have
been duly and validly authorized by all necessary corporate
action of Buyer, and this Agreement is the valid and binding
agreement of Buyer, enforceable in accordance with its terms,
except insofar as enforcement may be affected by bankruptcy,
reorganization or similar laws relating to creditors, rights
in general, and general principles of equity. Buyer has all
requisite power and authority to execute, deliver and perform
its obligations under this Agreement and to consummate the
transactions contemplated in this Agreement. The execution,
delivery and performance by Buyer of this Agreement and the
consummation of this transactions contemplated by this
Agreement on the part of Buyer have been or prior to the
Closing will be duly and validly authorized and approved by
all necessary action on the part of Buyer, and except as set
forth in Schedule 7(b), (i) does not require the consent,
waiver, approval, permit, license, authorization of, or any
declaration or filing with, any person, court or public
authority; (ii) does not violate, with or without the giving
of notice or the passage of time, any provision of law
applicable to Buyer; and (iii) does not conflict with or
result in the breach or termination of, or constitute a
default under, or result in the creation of any lien, charge
or encumbrance upon any of the Stock pursuant to any by-law,
mortgage, deed of trust, indenture or other agreement of any
kind or instrument or any order, judgment or decree to which
Buyer is a party or by which any of Buyer's assets or
properties are bound or affected.
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<PAGE>
c. Litigation. There are no Legal Proceeding by or before any
Governmental Authority or, to the knowledge of Buyer,
threatened against Buyer which would give any third party the
right to enjoin or rescind the transactions contemplated by
this Agreement or otherwise prevent Buyer from complying with
the terms and provisions of this Agreement.
d. Broker's Fees. Buyer has not employed any broker in connection
with the transaction described herein.
e. Financing. Buyer has adequate funds available to consummate
the transactions contemplated by this Agreement, to refinance
the existing indebtedness of the Company and to satisfy the
reasonably anticipated working capital requirements of the
Company after the Closing.
8. Actions Prior to the Closing Date.
a. Access. Each Shareholder shall cause the Company to afford the
officers, employees, attorneys, agents, engineers, accountants
and other representatives of Buyer free and full access,
during normal business hours, to the properties and assets of
the Company. Each Shareholder shall and shall cause the
Company to cooperate with Buyer in obtaining any consents of
third parties that may be required with respect to the
consummation of the transactions contemplated hereby.
b. Conduct of the Business Prior to the Closing Date. Except as
contemplated in connection with this Agreement, until the
Closing Date, each Shareholder shall cause the Company to: (i)
operate only in the usual, regular and ordinary manner and, to
the extent consistent with such operation, use reasonable
efforts to (A) preserve its present business operations,
organization and goodwill intact, (B) preserve its present
relationships with persons having business dealings with the
Company and (C) maintain all of the assets and properties of
the Company in their current condition, normal wear and tear
excepted; and (ii) not sell or agree to sell any material
assets of the Company to any corporation or other entity.
c. Cooperation. The parties shall cooperate fully in obtaining
all approvals necessary to effectuate and consummate the
transactions contemplated hereby.
d. HSR Notification. Shareholders and Buyer shall each make an
appropriate filing of a Notification and Report Form pursuant
to the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act") no later than thirty (30) days
after the date of this Agreement. Each such filing shall
request early termination of the waiting period imposed by the
HSR Act. Buyer and each Shareholder shall use their respective
reasonable best efforts to respond as promptly as reasonably
practicable to any inquiries received from the Federal Trade
Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") for
additional information or documentation and to respond as
promptly as reasonably practicable to all inquiries and
requests received from any other Governmental Authority in
connection with antitrust matters; provided that nothing
contained herein shall be deemed to preclude either Buyer or
Shareholder from negotiating with any Governmental Authority
regarding the scope and content of any such requested
information or documentation. Buyer and each Shareholder shall
use their respective reasonable best efforts to overcome any
objections that may be raised by the FTC, the Antitrust
Division or any other Governmental Authority having
jurisdiction over antitrust matters. The filing fee under the
HSR Act shall be borne equally by Buyer and the Shareholders.
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<PAGE>
e. Further Actions. Each of Buyer and each Shareholder agrees to
(i) execute and deliver such instruments and take such other
actions as may reasonably be required to carry out the intent
of this Agreement, (ii) use diligent efforts to obtain the
consents of all third parties and governmental bodies
necessary for the consummation of the transactions
contemplated by this Agreement, and (iii) use diligent efforts
so that the conditions precedent to the obligations of the
parties hereto set forth herein are satisfied. Nothing in this
Agreement shall be construed as an attempt to assign any
license, contract or agreement which is by its terms either
nonassignable or nonassignable without the consent of the
other party or parties thereto unless such consent shall be
given. Each Shareholder shall, at the request of the Buyer,
cause the Company to cooperate in any reasonable arrangement,
at the expense of the Buyer, to provide the benefits of such
license, contract or agreement which cannot be assigned by
reason of the failure to obtain a consent.
f. Employees. Not less than fourteen (14) days prior to the
Closing Date, Buyer shall advise the Company, in writing, of
those employees of the Company who will not continue as
employees of the Company after the Closing Date
9. Conditions Precedent.
a. Conditions Precedent to the Obligations of Buyer. The
obligations of Buyer under this Agreement are subject, at its
option, to the satisfaction at or prior to the time of the
Closing of each of the following conditions:
i. Accuracy of Representations and Warranties. All of
the representations and warranties of Gardner and
each Shareholder to Buyer shall have been true and
correct in all material respects when made and
(except as a result of any action taken which shall
be specifically contemplated hereby) shall be true
and correct in all material respects on and as of the
Closing Date with the same force and effect as if
they had been made on and as of such date.
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ii. Performance of Agreements. Each Shareholder a party
to this Agreement shall have performed in all
material respects all of its obligations and complied
in all material respects with all of its covenants
contained in this Agreement, and each agreement,
document and certificate delivered pursuant hereto or
in connection herewith, and required to be performed
or complied with on or prior to the Closing Date.
iii. Consents. Each consent material to the ownership of
the Stock and the Company and the operation of the
Company's business after the Closing Date, including,
without limitation, transfer of all Licenses, shall
have been obtained in form and substance reasonably
satisfactory to Buyer, and all such consents shall no
longer be subject to administrative or judicial
review.
iv. HSR Act Compliance. All waiting periods under the HSR
Act applicable to the transactions contemplated
hereby shall have expired or been terminated.
v. Shareholder's Counsel Opinion. Buyer shall have
received an opinion of counsel to the Shareholders,
dated as of Closing, in form and substance customary
for transactions of this type and amount.
vi. Shareholder's FCC Counsel Opinion. Buyer shall have
received an opinion of the Company's FCC counsel,
dated as of Closing, in form and substance customary
for transactions of this type and amount.
vii. No Litigation. There shall be no Legal Proceeding,
and no Judgment shall have been entered and not
vacated by a final, unappealable order by any
Governmental Authority of competent jurisdiction in
any Legal Proceeding or arising therefrom, which (a)
enjoins, restrains, makes illegal, or prohibits
consummation of the transaction contemplated by this
Agreement, or (b) requires separation or divestiture
by Buyer or all or any portion of the Stock or assets
of the Company after the Closing, and there shall be
no Legal Proceeding pending or threatened that seeks,
or which if successful would have the effect of, any
of the foregoing.
viii. Waymaker Contracts/Affiliate Leases. Prior to the
Closing Date, the Company shall have terminated that
certain Management Agreement between the Company and
the Waymaker Corporation, and the Waymaker
Corporation shall have released the Company from all
obligations under such contract. The lease agreements
between the Company and certain affiliates of the
Shareholders shall have been either (a) amended in
form and substance reasonably satisfactory to Buyer,
but in any event on terms no more and no less
favorable to the lessor than fair market terms for
similar properties, or (b) either (A) terminated by
the mutual agreement of the parties if the parties
cannot agree upon amended terms or (B) accepted on
its current terms by Buyer. Without limiting the
foregoing, the lease, dated May 1, 1998, between the
Company and Gardner with respect to the Company's
head end and tower site in South Middleton Township,
Cumberland County, Pennsylvania, shall be amended to
give the Company ten (10) options to renew such lease
for additional periods of one (1) year each. Each
such renewal shall automatically become effective as
of May 1 of each year unless the Company gives
Gardner written notice of termination at least ninety
(90) days prior to the end of the then current term
of such lease. In addition, such amendment shall
provide for a percentage increase in rent at the
lesser of five percent (5%) or the amount of the
percentage increase in the Consumer Price Index for
the statistical area which includes the head end and
tower site over the prior year.
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<PAGE>
ix. Deliveries Complete. All documents required to have
been delivered at or prior to the Closing Date by
each Shareholder and/or the Company to Buyer, and all
actions required to have been taken at or prior to
the Closing Date by each Shareholder and/or the
Company, shall have been delivered or taken at or
prior to the Closing.
x. Inventory. The Company shall have on hand a supply of
equipment parts, spares and other inventory necessary
for the operation of the Systems in amounts
customarily maintained by the Company.
xi. LPTV Transfer. The Company shall have transferred the
low power television station license and associated
assets, including FCC licenses ("LPTV Assets"), more
fully described on Exhibit 9(a)(xi) hereto, to
Gardner, or his designee.
xii. LPTV Must Carry. Gardner shall have delivered to
Buyer a release of the Company and SCTV by Gardner,
his heirs, personal representatives and assigns
forever waiving any "must carry" obligations which
may now or in the future be asserted against the
Company or SCTV.
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<PAGE>
xiii. Employees. As of the Closing Date, the Company shall
have terminated all employees ("Terminated
Employees") of the Company other than those employees
Buyer has designated as employees who will continue
as employees of the Company after the Closing. Such
Terminated Employees shall be eligible for the
benefits specified by the Employee Incentive to Stay
Severance Policy attached hereto as Exhibit 16(q). In
addition, on the Closing Date, the Company shall pay
each continuing employee in cash an amount equal to
his accrued vacation and sick time, whereupon the
accrued vacation and sick time of each such employee
shall be canceled; provided, however, each continuing
employee will be permitted to take, on an unpaid
basis, the vacation and sick days to which they would
otherwise have been entitled, but scheduled in
accordance with the Company's policies and staffing
requirements. Any employee of the Company on the
Closing Date who continues as an employee of the
Company after the Closing Date shall be given credit
for his years of service with the Company.
xiv. No Adverse Change. Between the date of this Agreement
and the Closing Date, there shall have been (a) no
material adverse change in the business of the
Company or its financial condition, taken as a whole,
other than any change arising out of matters
affecting the economy as a whole or matters
(including, without limitation, competition caused by
or arising from multichannel multipoint distribution
services and/or direct broadcast satellite and
legislation, rulemaking or regulation) affecting the
cable television industry (national or regional)
generally, and (b) no material loss, damage,
impairment, confiscation or condemnation of any of
the assets of the Company that has not been repaired
or replaced.
b. Conditions Precedent to the Obligations of each Shareholder.
The obligations of each Shareholder under this Agreement are,
at its option, subject to the satisfaction, at or prior to the
time of Closing, of each of the following conditions:
i. Accuracy of Representations and Warranties. All
representations and warranties of Buyer shall be true
and correct in all material respects when made and
(except as a result of any action taken which shall
be specifically contemplated hereby) shall be true
and correct in all material respects on and as of the
Closing Date with the same force and effect as if
they had been made on and as of such date.
ii. Performance of Agreements. Buyer shall have performed
in all material respects all obligations and
agreements and complied in all material respects with
all covenants contained in this Agreement and each
agreement, document or certificate delivered pursuant
hereto or in connection herewith and required to be
performed or complied with on or prior to the Closing
Date.
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<PAGE>
iii. No Litigation. There shall be no Legal Proceeding,
and no Judgment shall have been entered and not
vacated by a final, unappealable order by any
Governmental Authority of competent jurisdiction in
any Legal Proceeding or arising therefrom, which
enjoins, restrains, makes illegal, or prohibits
consummation of the transaction contemplated by this
Agreement, and there shall be no Legal Proceeding
pending or threatened that seeks, or which if
successful would have the effect of, any of the
foregoing.
iv. Deliveries Complete. All documents required to have
been delivered by Buyer to each Shareholder and all
actions required to have been taken by Buyer, shall
have been delivered or taken at or prior to the
Closing.
v. HSR Act Compliance. All waiting periods under the HSR
Act applicable to the transactions contemplated
hereby shall have expired or been terminated.
vi. Consents. Each consent material to the transfer of
all Licenses, shall have been obtained in form and
substance reasonably satisfactory to Gardner.
10. Documents to be Delivered by each Shareholder and Gardner. At the
Closing, each Shareholder shall deliver or cause to be delivered to
Buyer the following:
a. The original stock certificate(s) evidencing the Stock to be
sold by the Shareholder hereunder, endorsed in blank, in form
sufficient to transfer ownership thereof to Buyer.
b. A certificate of each Shareholder, dated the Closing Date, to
the effect that except as set forth in such certificate: (i)
all the representations and warranties of Shareholder
contained in Section 6 of this Agreement were true and correct
in all material respects when made and are true and correct in
all material respects on and as of the Closing Date and (ii)
Shareholder has performed in all material respects all
obligations and covenants to Buyer.
c. The original of each consent, and each other document required
to be delivered pursuant to Section 9(a) hereof.
d. Such other documents and instruments as shall be reasonably
necessary to effect the intent of this Agreement and
consummate the transaction contemplated by this Agreement,
including, without limitation, a certificate of Gardner, dated
the Closing Date, to the effect that except as set forth in
such certificate all the representations and warranties of
Gardner contained in Section 5 of this Agreement were true and
correct in all material respects when made and are true and
correct in all material respects on and as of the Closing
Date.
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<PAGE>
11. Documents to be Delivered by Buyer. At the Closing, Buyer shall deliver
or cause to be delivered to each Shareholder:
a. Payment by wire transfer of the Purchase Price; and
b. A certificate of an authorized officer of Buyer, dated the
Closing Date, to the effect that except as set forth in such
certificate: (i) all the representations and warranties of
Buyer contained in this Agreement were true and correct in all
material respects when made and are true and correct in all
material respects on and as of the Closing Date and (ii) Buyer
has performed in all material respects all obligations and
covenants to each Shareholder.
12. Shareholder's Indemnity.
a. Notwithstanding the Closing, each Shareholder shall indemnify
and hold Buyer, its affiliates, officers, directors,
employees, agents, and representatives, and any person
claiming by or through any of them, as the case may be,
harmless from and against any loss, cost, claim or expense
("Loss") arising out of or resulting from (i) any
misrepresentation, breach of warranty, or nonfulfillment of
any agreement or covenant on the part of such Shareholder
under this Agreement or any document delivered to Buyer in
connection with the transactions contemplated hereby, and (ii)
any misrepresentation or breach of warranty of Gardner under
Section 5 of this Agreement; provided, however, that Buyer
shall not be entitled to indemnification for any Loss unless
and until the aggregate amount of all Losses exceeds $50,000,
at which point Buyer shall be entitled to indemnification for
all Losses.
b. If, by any reason of the claim of any third party relating to
any of the matters subject to such indemnification, a lien,
attachment, garnishment, or execution is place or made upon
any of the Stock under this Section, in addition to any
indemnity obligation of Shareholder under this Section,
Shareholder shall furnish a bond sufficient to obtain the
prompt release thereof within five days from receipt of notice
relating thereto.
c. The indemnification obligation of each Shareholder pursuant to
Section 12(a) shall be several and not joint and shall be in
the same proportion as the Purchase Price paid to such
Shareholder bears to the aggregate
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<PAGE>
Purchase Price paid to all Shareholders. This Section 12 sets
forth the sole remedy of the Buyer for any Loss. Buyer shall
seek recovery of any indemnifiable Loss solely from the
Indemnity Reserve Escrow Amount.
13. Buyer's Indemnity. Notwithstanding the Closing, and regardless of any
investigation made at any time by or on behalf of a Shareholder or any
information a Shareholder may have, Buyer shall indemnify and hold such
Shareholder, and any person claiming by or through him, her or it, as
the case may be, from and against any Losses arising out of or
resulting from any misrepresentation, breach of warranty, or
nonfulfillment of any agreement or covenant on the part of Buyer under
this Agreement or any document delivered by Buyer in connection with
the sale of the Stock. This Section 13 sets forth the sole remedy of
each Shareholder for any Loss.
14. Procedure for Indemnified Third Party Claim. Promptly after receipt
by a party entitled to indemnification under this Agreement (the
"Indemnitee") of written notice of the assertion or the commencement of
any Legal Proceeding with respect to any matter referred to in Sections
12 and 13, the Indemnitee shall give written notice thereof to the
party from whom indemnification is sought pursuant hereto (the
"Indemnitor") and thereafter shall keep the Indemnitor reasonably
informed with respect thereto. Failure of the Indemnitee to give the
Indemnitor notice as provided herein shall not relieve the Indemnitor
of its obligations hereunder unless the Indemnitee's failure to give
the Indemnitor timely notice materially limits or prejudices the
Indemnitor's ability to defend, in which case such failure of the
Indemnitee to give the Indemnitor notice shall relieve the Indemnitor
of its indemnification obligations. In case any Legal Proceeding shall
be brought against any Indemnitee, the Indemnitor shall be entitled to
direct the defense thereof with counsel mutually satisfactory to the
Indemnitor and the Indemnitee, at the Indemnitor's sole expense. Such
Legal Proceeding may not be settled by the Indemnitee without the
consent of the Indemnitor, which consent shall not be unreasonably
withheld. If the Indemnitor and the Indemnitee cannot agree of the
choice of a single counsel, both the Indemnitor and the Indemnitee
shall have separate counsel at the Indemnitor's sole expense. If the
Indemnitor shall assume the defense of any Legal Proceeding, it shall
not settle the Legal Proceeding unless the settlement shall include as
an unconditional term thereof the giving by the claimant or the
plaintiff of a release of the Indemnitee, satisfactory to the
Indemnitee, from all liability with respect to such Legal Proceeding.
15. Termination.
a. This Agreement may be terminated at any time prior to the
Closing Date:
i. by mutual written consent of Buyer and all
Shareholders;
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<PAGE>
ii. by the Shareholders, acting as a group, if Buyer
shall have breached any of its representations,
warranties, covenants or agreements contained in this
Agreement, or any such representation or warranty
shall have become untrue, in any such case such that
the conditions precedent to the obligation of
Shareholders to close specified in Section 9(b) will
not be satisfied and such breach has not been
promptly cured within thirty (30) days following
receipt by Buyer of written notice of such breach;
iii. by Buyer if any Shareholder shall have breached any
of such Shareholder's representations, warranties,
covenants or agreements contained in this Agreement,
or any such representation or warranty shall have
become untrue, in any such case such that the
conditions precedent to the obligation of Buyer to
close specified in Section 9(a) will not be satisfied
and such breach has not been promptly cured within
thirty (30) days following receipt by such
Shareholder of written notice of such breach; or
iv. by either Buyer or Shareholders, acting as a group,
if the Closing Date has not occurred on or prior to
June 30, 1999; provided, however, that the right to
terminate this Agreement under this Section 15 shall
not be available to any party whose breach of
representations, warranties, covenants or agreements
contained in this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur by
such date or the inability of such condition to be
satisfied.
b. If this Agreement is terminated pursuant to Section 16(a)
above or Section 16(t) below, this Agreement shall forthwith
become void and there shall be no liability or obligation on
the part of any party hereto, except (i) nothing herein shall
relieve any party from liability for any breach hereof and
each party shall be entitled to any remedies at law or in
equity for such breach, and (ii) this Section 16(b) and
Sections 12, 13 and 14 shall remain in full force and effect
and survive any termination of this Agreement and shall be
enforceable at law or in equity. Without limiting the remedies
available to the parties hereto, each of the Buyer and each
Shareholder acknowledges that damages at law will be
insufficient in the event that the other party violates the
terms of the Agreement, and that any party not in violation of
the terms of the Agreement may specifically enforce the terms
of the Agreement.
16. Miscellaneous.
a. Split Dollar Insurance Agreement. Buyer acknowledges that the
Company is a party to a Split Dollar Insurance Agreement,
dated December 24, 1992, between the Company and Farmers Trust
Company, Trustee, a
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<PAGE>
copy of which Agreement is attached as Exhibit 16(a). Pursuant
to the Split Dollar Insurance Agreement, the Company agrees to
pay the annual premium (which Buyer acknowledges that the
Company has been paying in quarterly installments). Buyer
covenants that it shall cause the Company to continue to meet
all obligations under the Split Dollar Insurance Agreement,
including but not limited to the payment of all premium
amounts for the policy on a quarterly basis before the
expiration of the grace period for the payment. In the event
that Company defaults on any of its obligations after notice
and an opportunity to cure by the person declaring such
default, Buyer agrees that the Trustee's obligations under the
Split Dollar Insurance Agreement, including but not limited to
the obligation to return the amount of premiums advanced by
the Company on behalf of Gardner, shall cease.
b. Gardner Employment Agreement. Buyer shall cause the Company to
honor the Company's obligations under the Executive Employment
Agreement, dated November 4, 1998, by and between Company and
Gardner. The Executive Employment Agreement is attached hereto
as Exhibit 16(b).
c. Reynolds and Sandifer Agreements. Buyer shall cause the
Company to honor the Executive Employment Agreements between
L. Michael Reynolds ("Reynolds") and the Company and between
Lee H. Sandifer ("Sandifer")and the Company, each dated
November 4, 1998. Additionally, Buyer shall cause the Company
to honor the Deferred Compensation Plans between the Company,
Waymaker Co. and Reynolds and between the Company, the
Waymaker Co. and Sandifer, each dated October 31, 1997, each
as amended. The Executive Employment Agreements and Deferred
Compensation Plans are attached hereto as Exhibit 16(c).
d. Further Assurances. From time to time after the Closing, each
Shareholder shall, if requested by Buyer, make, execute and
deliver to Buyer such additional assignments, bills of sale
and other instruments of transfer, as may be necessary or
proper to transfer to Buyer all of each Shareholder's right,
title, and interest in and to the Stock and the Company. Such
efforts and assistance shall be without cost to Buyer.
e. Waivers and Amendments. This Agreement may be amended,
modified or supplemented only by written instrument executed
by the parties hereto. The provisions of this Agreement may
only be waived by an instrument in writing executed by the
party granting the waiver. No failure or delay by any party in
exercising any right, power or privilege hereunder (and no
course of dealing between or among any of the parties) shall
operate as a waiver of any such right, power, or privilege.
The waiver by any party hereto of a breach of any provision of
this Agreement shall not
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<PAGE>
operate or be construed as a further or continuing waiver of
such breach or as a waiver of any other or subsequent breach.
No single or partial exercise of any such right, power, or
privilege shall preclude the further or full exercise thereof.
f. Survival of Representations, Warranties and Covenants. Each of
the representations, warranties and covenants of Gardner and
each Shareholder and Buyer contained herein or in any
certificate, document or exhibit delivered in connection
herewith shall survive for a period of fifteen (15) months
after the date hereof except that (i) the representation and
warranties with regard to taxes shall survive until the
statute of limitations relating to such matter shall have
expired; (ii) the representation and warranties with respect
to title to Real Property and Stock shall survive indefinitely
and (iii) the indemnity provisions of Sections 12, 13 and 14
shall survive the date hereof so long as any claim may be
asserted thereunder.
g. Expenses. Each of Buyer and each Shareholder, severally,
shall bear its own costs and expenses, including, without
limitation, any legal fees and expenses, in connection with
the completion of the transaction contemplated hereby. Each
Shareholder acknowledges and agrees that BIPC was retained by
the Company to assist the Company to maximize shareholder
value. In addition, the Shareholders acknowledge that the
transaction contemplated by this Agreement will result in a
benefit to all Shareholders and that, while BIPC does not
represent the Shareholders individually or as a group, the
services rendered by BIPC in connection with this Agreement
and the transactions contemplated hereby benefit all
Shareholders, but not Buyer. In consideration of such benefit,
each Shareholder agrees to reimburse the Company for the
amounts paid to BIPC by the Company in connection with this
Agreement and the transactions contemplated hereby for all
periods after November 30, 1998. Each Shareholder agrees that
his, her or its reimbursement obligation pursuant to the
preceding sentence shall be satisfied by reducing the amount
of the Purchase Price payable to such Shareholder at the
Closing by the prorata amount of such obligation, which shall
be determined based upon the relative amount of the Purchase
Price allocated to such Shareholder.
h. Notices. All notices, consents, requests, instructions and/or
communications which are intended to be (i) delivered pursuant
to this Agreement shall be validly given, made or served if in
writing and delivered personally or (ii) sent by overnight
courier, postage prepaid or (iii) telecopied (with
confirmation of receipt), addressed as follows:
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<PAGE>
If to Shareholders: To the address set forth below
his, her or its name on the
signature page hereof
If to Buyer: Lenfest Raystay Holdings, Inc.
c/o 200 Cresson Boulevard
Oaks, PA 19456
Attention: Samuel W. Morris, Jr.
Telecopier: (610) 650-3061
The designation of the person to be so notified or the address
of such person for the purposes of such notice may be changed
from time to time by a similar notice to be effective ten days
(10) after such change of address is supplied. Notices by mail
shall be deemed to have been given on the date on which the
party actually received or refused such written notice.
i. Parties in Interest. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and
assigns.
j. Assignment. The rights and obligations set forth in this
Agreement are not assignable without the written consent of
all parties hereto; provided, however, that Buyer may assign
its rights and obligations hereunder to any person
controlling, controlled by or under common control with Buyer.
k. Entire Agreement. This Agreement sets forth all of the
promises, covenants, agreements and understandings between the
parties hereto with respect to the subject matter hereof, and
supersede all prior and contemporaneous agreements and
understandings, inducements, covenants, conditions,
representations and warranties, express or implied, oral or
written, except as contained therein or expressly contemplated
thereby. This Agreement may be modified only by a writing
signed by the party against whom enforcement of any
modification is sought.
l. Controlling Law. The parties hereto agree that this Agreement
shall be governed by and construed and enforced in accordance
with the internal laws of the Commonwealth of Pennsylvania
without giving effect to any principles of conflict of laws.
m. Counterparts. This Agreement may be executed in one or more
counterparts with the same effect as if all of the signatures
on such counterparts appeared on one document. A telecopied
fascimile of a signature shall be deemed for all purposes to
constitute and shall be treated by the parties as an original
signature. All executed counterparts shall together constitute
one and the same agreement.
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<PAGE>
n. Date. The date set forth in Section 4.4 of the Shareholders
Agreement (which is currently June 15, 1999), shall be
automatically extended without further action of the parties
thereto by one day for each day that this Agreement is in
effect, until this Agreement terminates. The consummation of
the transactions contemplated by this Agreement shall not
constitute a violation of the Shareholders' Agreement.
o. Limitation. Notwithstanding anything to the contrary contained
in this Agreement, including, without limitation, the failure
to disclose any matter on any Schedule to the Agreement, Buyer
agrees that no representation or warranty made by Gardner or
any Shareholder in this Agreement shall be deemed to be
inaccurate or incorrect, and neither Gardner nor any
Shareholder shall be deemed to be in breach of this Agreement,
if Buyer or its representatives had written knowledge on the
date hereof of any such undisclosed matter or that any such
representation or warranty was inaccurate or incorrect.
p. Definition. As used herein, the phrase "to the best of the
Gardner's knowledge, after due inquiry" means the actual
knowledge of Gardner, the knowledge that Gardner reasonably
would have upon inquiry of Sandifer and Reynolds of the
Company, and the knowledge that Gardner reasonably should have
in his capacity as President of the Company.
q. Severance Plan. The Buyer shall cause the Company, and
Suburban Cable TV Co. Inc. ("SCTV"), to honor the Employee
Severance Policy (the "Policy") attached hereto as Exhibit
16(q). Buyer agrees that all employees entitled to benefits
under that policy shall be third party beneficiaries of this
Agreement and shall be entitled to seek to enforce that Policy
against the Company, SCTV and the Buyer. In addition, for a
period of two years after the Closing Date, the Buyer shall
cause the Company and SCTV to post notices of all job openings
at the principal offices of the Company in Carlisle,
Pennsylvania (and mail at regular intervals notice of such job
openings to former employees of the Company who are terminated
on or after the Closing Date other than for cause) and
employees of the Company or SCTV, who are entitled to benefits
pursuant to Section 1 of the Policy (including those employees
of the Company who are terminated pursuant to Section
9(a)(xiii)) and who apply for any such jobs, will, subject to
applicable law and the requirements of any applicable
collective bargaining agreements, be given preference over
other candidates with equal qualifications.
r. Publicity. No party shall issue or cause to be issued any
press release or public disclosure relating to the subject
matter of this Agreement without the prior written approval of
Gardner and Buyer, which shall not be unreasonably withheld,
conditioned, delayed or denied (and no such
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<PAGE>
press release shall contain any reference to the Purchase
Price or the Enterprise Value of the Company); provided,
however, that any party may make any public disclosure it
believes in good faith is required by law or regulation (in
which case the disclosing party shall advise the other
parties, and provide them with a copy of the proposed
disclosure prior to making the disclosure and the opportunity
to discuss such disclosure).
s. Shareholder Release. Each Shareholder hereby releases any and
all claims that he, she or it may have against the directors
and officers of the Company for any action or inaction of such
directors and officers in their capacities as such for all
periods on and prior to the Closing Date.
t. Alternate Transaction Structure.
i. If fewer than all Shareholders have executed and
delivered this Agreement by February 4, 1999, Buyer
shall provide irrevocable notice to Gardner, as the
designated representative of such Shareholders, not
later than the close of business on February 5, 1999,
either (A) that, subject to the provisions of Section
15(a), Buyer nevertheless will proceed to Closing
with the Shareholders who have executed and delivered
the Agreement by February 4, 1999, or (B) that the
Agreement is terminated as of the date of such
notice, whereupon the provisions of Section 15(b)
shall apply. If Buyer agrees to proceed to Closing,
each Shareholder who has executed and delivered this
Agreement covenants and agrees with Buyer that this
Agreement is a binding obligation of such Shareholder
and that such Shareholder will proceed to Closing and
perform each and every obligation of such Shareholder
contained herein. Each Shareholder further covenants
and agrees with Buyer that, upon Buyer's written
notice, which may be delivered at any time prior to
the Closing, such Shareholder shall (i) cause the
Board of Directors of the Company to do or cause to
be done each and every thing necessary to merge the
Company with a wholly-owned subsidiary of Buyer, such
that the Company is the surviving corporation in the
merger, whereupon this Agreement shall constitute a
Plan of Merger, provided that the merger shall (A) be
effected on the same terms and conditions specified
herein, mutatis mutandis, including, without
limitation, the acknowledgement by the Shareholders
of the sufficiency of the Purchase Price, (B) the tax
consequences of the merger to the Shareholders and
Buyer shall be not less favorable than the tax
consequences of a purchase of the Stock and (C) Buyer
shall agree not to liquidate the Company for at least
one (1) year following the merger, and (ii) to vote
his, her or its shares of Common Stock in favor of
such merger, and (iii) to waive all
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<PAGE>
dissenters rights available under the Pennsylvania
Business Corporation Law, as amended.
ii. In the event that the transaction contemplated by
this Agreement is effected by means of a merger
pursuant to this Section 16(t), Buyer shall, at the
written request of one or more of the persons who are
serving as the directors or officers of the Company
immediately prior to the Closing (which request is
received by Buyer prior to or at the Closing), Buyer
shall maintain in effect directors and officers
liability insurance covering such directors and/or
officers on terms requested by such directors and/or
officers, provided that such directors and/or
officers shall pay and be solely responsible for the
payment of all premiums and other payments and/or
deductibles relating to the maintenance of such
insurance.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
agreement as of the day and year first written above.
WITNESS:
_________________________________ __________________________(SEAL)
GEORGE F. GARDNER
500 Glendale Street
Carlisle, PA 17013
WITNESS:
_________________________________ __________________________(SEAL)
GEORGE F. GARDNER, AS CO-
TRUSTEE OF TRUST UNDER WILL
OF MARIAN B. GARDNER
c/o 500 Glendale Street
Carlisle, PA 17013
WITNESS:
_________________________________ __________________________(SEAL)
MARY ANNE ADAMS, AS CO-
TRUSTEE OF TRUST UNDER WILL
OF MARIAN B. GARDNER
c/o 901 Hillside Drive
Carlisle, PA 17013
WITNESS:
_________________________________ __________________________(SEAL)
DAVID A. GARDNER
1102 Apono Place
Hilo, HI 96720
(SIGNATURES CONTINUE ON THE FOLLOWING PAGE)
<PAGE>
WITNESS:
__________________________________ __________________________(SEAL)
MICHAEL C. GARDNER
12261 103rd Avenue, North
Largo, FL 33778
WITNESS:
__________________________________ __________________________(SEAL)
JON C. GARDNER
1083 Oakville Road
Newville, PA 17241
WITNESS:
__________________________________ __________________________(SEAL)
NANCY G. MARGOLIS
911 Twin Oaks Drive
Potomac, MD 20854
WITNESS:
__________________________________ __________________________(SEAL)
JENNIFER (GARDNER) DUNN
41 Avenue du Marechal Lyautey
75116 Paris, France
with a copy to: Gary Dunn
2611 Hollywood Court
Reading, PA 19606
WITNESS:
_________________________________ __________________________(SEAL)
MARY ANNE ADAMS, AS TRUSTEE
FOR PATRICK MOLLE
c/o 901 Hillside Drive
Carlisle, PA 17013
(SIGNATURES CONTINUE ON THE FOLLOWING PAGE)
<PAGE>
WITNESS:
__________________________________ __________________________(SEAL)
MARY ANNE ADAMS, AS TRUSTEE
FOR GREGORY MOLLE
c/o 901 Hillside Drive
Carlisle, PA 17013
ATTEST: LENFEST RAYSTAY HOLDINGS, INC.
__________________________________ By:_______________________(SEAL)
Samuel W. Morris, Jr., Harry F. Brooks,
Secretary Vice President
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as
of May 4, 1999, is by and among AT&T Corp, a New York corporation ("Parent"), a
wholly-owned subsidiary of Parent, AT&T LCI Inc., a Delaware corporation
("Sub"), Lenfest Communications, Inc., a Delaware corporation (the "Company")
and H.F. Lenfest, H. Chase Lenfest, Brook J. Lenfest and Diane Lenfest Myer
(collectively, the "Lenfest Stockholders").
RECITALS
--------
WHEREAS, the parties have agreed, subject to the terms and
conditions in this Agreement, to merge Company with and into Sub (the "Merger");
WHEREAS, concurrently with the execution of this Agreement,
Parent and all Lenfest Stockholders have executed a Consent and Indemnity
Agreement (the "Consent and Indemnity Agreement");
WHEREAS, for federal income tax purposes, the Merger is to
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, defined terms used in this Agreement are listed in
Section 11.7.
NOW, THEREFORE, in consideration of the foregoing premises and
the representations, warranties and agreements contained in this Agreement the
parties agree as follows:
<PAGE>
ARTICLE I
---------
THE MERGER
1.1. The Merger.
Upon the terms and subject to the conditions set forth in this
Agreement, on the Effective Date (as defined in Section 1.2), Company will be
merged with and into Sub in compliance with the provisions of the Delaware
General Corporation Law (the "DGCL") and the separate existence of Company will
thereupon cease and Sub shall be the surviving corporation (the "Surviving
Corporation") and shall continue its corporate existence as a Subsidiary of
Parent and shall continue to be governed by the DGCL. The name of the Surviving
Corporation in the Merger will be as determined by Parent.
1.2. Effective Date of the Merger.
The parties will file a properly executed Certificate of
Merger with the Secretary of State of the State of Delaware, which filing will
be made as soon as practicable after the satisfaction of the conditions
contemplated by this Agreement in accordance with Section 3.7. When used in this
Agreement, the term "Effective Date" will mean the date and time at which such
filing will have been accepted for filing by the Secretary of State of the State
of Delaware or such later time as may be specified in the Certificate of Merger
by mutual agreement of Parent, Sub and the Company.
1.3. State Law.
At the Effective Date, the Merger will have the effects set
forth in this Agreement and the effects set forth in Section 251 of the DGCL.
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ARTICLE II
----------
THE SURVIVING CORPORATION
2.1. Certificate of Incorporation.
The Certificate of Incorporation of Sub will be the
Certificate of Incorporation of the Surviving Corporation after the Effective
Date, and thereafter may be amended in accordance with its terms and as provided
by law and this Agreement.
2.2. By-Laws.
The By-laws of Sub as in effect on the Effective Date will be
the By-laws of the Surviving Corporation.
2.3. Board of Directors; Officers.
The directors of Sub immediately prior to the Effective Date
will be the directors of the Surviving Corporation and the officers of Sub
immediately prior to the Effective Date will be the officers of the Surviving
Corporation, in each case until their respective successors are duly elected and
qualified.
ARTICLE III
-----------
MERGER CONSIDERATION; CONVERSION OF SHARES
3.1. Merger Consideration.
The aggregate value of the consideration deliverable in the
Merger will be the sum of (a) the amount determined by decreasing $4,480,000,000
(the "Base Merger Consideration"), by the Debt Adjustment and the Bonus
Adjustment, if any (after such adjustments, the "Stock Merger Consideration"),
deliverable in shares of common stock, $1.00
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par value per share, of Parent ("Parent Stock"), plus (b) the additional
consideration described in Section 8.4 below deliverable in the Merger.
3.2. Conversion of Shares.
As of the Effective Date, by virtue of the Merger and without
any action on the part of any holder (a "Stockholder") of any common stock of
the Company ("Company Common Stock"):
(a) Cancellation of Shares. All shares of Company Common Stock
that are held by the Company or any Subsidiary of the Company, will be canceled.
(b) Conversion of Shares. Each share of Company Common Stock
issued and outstanding immediately prior to the Merger that is not subject to
cancellation pursuant to Section 3.2(a) will be converted into and will become
(i) that number of fully paid and nonassessable shares of Parent Stock equal to
the Conversion Number , plus (ii) in the case of each Lenfest Stockholder, such
Lenfest Stockholder's proportionate share of the Distributed Assets and
Distributed Subsidiaries described in Section 8.4, and in the case of each
Stockholder of the Company other than a Lenfest Stockholder, such other
Stockholder's proportionate share of the number of additional fully paid and
nonassessable shares of Parent Stock described in Section 8.4. For purposes of
this Agreement, the Conversion Number means the number determined by dividing
(x) the quotient resulting from dividing the Preliminary Merger Consideration or
Final Merger Consideration, as the case may be, by the Share Valuation by (y)
the number of shares of Company Common Stock outstanding at the Effective Date.
For purposes of this Section, the term "outstanding" includes any shares of
Company Common Stock issuable pursuant to any outstanding option, warrant,
convertible security or other right to
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acquire Company Common Stock issued or granted by the Company, whether or not
then exercisable or convertible, but excluding shares of Company Common Stock
subject to cancellation pursuant to Section 3.2(a). For purposes of this
Agreement, the "Share Valuation" shall be the average closing price of the
Parent Stock on the New York Stock Exchange for the 60 consecutive trading days
ending two business days prior to the Effective Date (the "Valuation Period").
If, during the Valuation Period, Parent should split or combine the Parent Stock
or pay a stock dividend or other stock distribution in Parent Stock or otherwise
effect any transaction that changes the Parent Stock into any other securities
or make any other dividend or distribution on the Parent Stock (other than
normal quarterly cash dividends as the same may be adjusted from time to time in
the ordinary course consistent with past practice) then the Share Valuation will
be appropriately adjusted to reflect such split, combination, transaction,
dividend or other distribution or change. For purposes of complying with
Internal Revenue Service Revenue Procedure 84-42, the total number of shares of
Parent Stock issuable pursuant to this Agreement shall not exceed two times the
amount of Parent Stock delivered at the Effective Time pursuant to Section
3.4(a).
3.3. Adjustments to Merger Consideration.
(a) Debt Adjustment. The Base Merger Consideration shall be
decreased by the product of (i) the amount, if any, of Specified Intercompany
Debt as of the Effective Date multiplied by (ii) two (the "Debt Adjustment").
For purposes of this Section, "Specified Intercompany Debt" as of any date shall
mean the aggregate dollar amount of any loans, contributions or other advances
made by the Company or any Company Subsidiary to any Distributed Subsidiary or
with respect to any Distributed Assets between the date hereof and the Effective
Date excluding (A) the contribution of intercompany debt to the Distributed
Subsidiaries as set forth in Section 8.4 and (B) the lesser of (1) one half any
such loans, contributions or other advances used to fund net operating costs or
(2) $2,000,000.
(b) Bonus Adjustment. The Base Merger Consideration shall be
decreased by the amount, if any, equal to the product of (i) 63% of the gross
amount of the payment made by Sub pursuant to Section 8.5(b) multiplied by (ii)
two (the "Bonus Adjustment").
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3.4. Adjustment Procedure.
Adjustments to the Base Merger Consideration will be
determined and made as follows:
(a) Adjustments at Closing. Not later than a date that the
Company reasonably believes is two business days prior to the Effective Date the
Company shall prepare and deliver to Parent a calculation of the Adjustments to
the Base Merger Consideration, accompanied by a certificate of the chief
financial officer of the Company to the effect that such calculations are in
accordance with this Agreement. Such calculation of the Adjustments to the Base
Merger Consideration delivered to Parent by the Company shall be the basis for
determining the amount of Parent Stock issuable on the Effective Date (the
"Preliminary Merger Consideration"), subject to further adjustment as provided
in this Section. On the Effective Date, Parent will deliver to each Stockholder
the number of whole shares of Parent Stock rounded up to the nearest whole share
determined by multiplying the number of shares of Company Common Stock owned by
such Stockholder (other than shares cancelled pursuant to Section 3.2(a)) by the
Conversion Number, based on the Preliminary Merger Consideration.
(b) Post-Closing Adjustments. As soon as practicable, but in
no event later than 90 days following the Effective Date, Parent shall deliver
to the Stockholders Representative a final calculation of the Adjustments to the
Base Merger Consideration (the "Final Adjustment Schedule"). Parent and Sub will
afford to Stockholders Representative and to his accountants, counsel and other
representatives reasonable access during normal business hours (and at such
other times as the parties mutually agree) throughout the 30 day period
following delivery of the Final Adjustment Schedule to the relevant Company
books and records for the purposes of verifying such final calculations. If the
Stockholders Representative does not provide notice of dispute within 30 days
after delivery of the Final Adjustment Schedule, the Adjustments to the Base
Merger Consideration based on the Final Adjustment Schedule shall be final,
conclusive and binding. If the Stockholders Representative provides notice of
disagreement, including reasonable details of his objections, Parent and the
Stockholders Representative shall in good faith attempt to agree on the
Adjustments. If Parent and the Stockholders Representative cannot agree on the
amount of the Adjustments within 30 days of delivery to Parent of the notice of
disagreement, the amounts in dispute shall be determined by Arthur Andersen (the
"Accountants"), whose determination shall be final, conclusive and binding upon
Parent, Sub and Stockholders, and the Merger Consideration, as adjusted by the
final calculation of the Adjustments determined as described in this Section
3.4(b), will be referred to as the "Final Merger Consideration." All reasonable
costs and fees of such Accountants shall be borne one-half by Parent and
one-half by the Lenfest Stockholders.
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(c) Within five business days after the determination of the
Final Merger Consideration pursuant to Section 3.4(b):
(i) if the Final Merger Consideration is greater than the
Preliminary Merger Consideration, Parent will deliver to each Stockholder
certificates representing the number of shares of Parent Stock equal to the
difference between (x) the number of shares of Parent Stock (rounded up to the
nearest whole share) that each such Stockholder had the right to receive on the
Effective Date based on the Share Valuation and the Final Merger Consideration
and (y) the number of whole shares of Parent Stock delivered at the Effective
Date pursuant to Section 3.4(a), (together with dividends or distributions, if
any, with respect to the additional shares to be delivered under this Section
3.4(c)(i) made after the Effective Date).
(ii) if the Final Merger Consideration is less than the
Preliminary Merger Consideration, each Stockholder will deliver to Parent
certificates representing the number of shares of Parent Stock equal to the
difference between (x) the number of whole shares of Parent Stock delivered to
each such Stockholder on the Effective Date pursuant to Section 3.4(a) and (y)
the number of shares of Parent Stock (rounded up to the nearest whole share)
that each such Stockholder had the right to receive on the Effective Date based
on the Share Valuation and the Final Merger Consideration (together with
dividends or distributions, if any, with respect to the shares to be delivered
under this Section 3.4(c)(ii) made after the Effective Date).
(d) The number of shares of Parent Stock to be delivered to
Stockholders other than the Lenfest Stockholders pursuant to Section 8.4(a) will
not be affected by the Adjustments.
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3.5. Transfer Taxes.
Any transfer taxes payable by the holders of Company Common
Stock in connection with the Merger and the conversion of Company Common Stock
into Parent Stock will be paid by the Parent. The Parent Stock shall be issued
to the registered holders of Company Common Stock as of the Effective Date.
3.6. No Fractional Shares.
If the amount of Parent Stock to which a Stockholder is
entitled to receive pursuant to Section 3.4(a) or 3.4(c) results in a number
that is not a whole number of shares of Parent Stock, the number of shares of
Parent Stock that such Stockholder shall be entitled to receive pursuant to this
Agreement shall be rounded up to the nearest whole share.
3.7. Closing.
The closing of the transactions contemplated by this Agreement
(the "Closing") will take place (i) at the offices of Sherman & Howard L.L.C. at
9:00 a.m. local time on the third business day following the date on which the
last of the conditions set forth in Article IX (excluding delivery of exhibits,
opinions and certificates and other items to be performed immediately prior to
the Closing) is fulfilled or waived, or (ii) at such other time and place as
Parent and the Company may agree in writing.
3.8. Cash Election and Stock Purchase Provisions.
(a) Each Lenfest Stockholder may, at his, her or its option,
elect to receive cash consideration at Closing in lieu of not more than 10% of
the number of shares of Parent Stock (valued at the Share Valuation) otherwise
deliverable to such Lenfest Stockholder pursuant to Section 3.4(a), provided
that such Lenfest Stockholder gives written notice to Parent of such
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election not later than 20 days prior to the Effective Date, which notice will
indicate the specific dollar amount (or percentage of such Lenfest Stockholder's
share of Preliminary Merger Consideration) as to which such election is being
exercised (the "Cash Consideration"). If any Lenfest Stockholder makes such
election, (i) the Conversion Number will not be affected by such election, (ii)
the number of shares of Parent Stock to be delivered at Closing to each Lenfest
Stockholder electing to receive Cash Consideration will be reduced by the
quotient of such electing Lenfest Stockholder's Cash Consideration divided by
the Share Valuation, and all references in this Agreement to the delivery of a
particular number of shares of Parent Stock will be modified accordingly (except
as specified in the following clause (iii)), and (iii) notwithstanding such Cash
Consideration election, the number of shares of Parent Stock to be delivered by
any party under Section 3.4(b) and (c) will be calculated as if only Parent
Stock (and no Cash Consideration) had been delivered to the Lenfest Stockholders
pursuant to Section 3.4(a).
(b) During the six-month period following Closing, each
Lenfest Stockholder will have the right to require Parent (or at Parent's
election, Parent's designee) to purchase for cash from such Lenfest Stockholder
shares of Parent Stock delivered to such Lenfest Stockholder at Closing,
provided that (i) the number of shares of Parent Stock as to which such right is
exercised, plus the total number of shares of Parent Stock in lieu of which Cash
Consideration was received by such Lenfest Stockholder pursuant to Section
3.8(a), does not exceed 10% of the number of shares of Parent Stock (valued at
the Share Valuation) that would have been deliverable to such Lenfest
Stockholder pursuant to Section 3.4(a) (without giving effect to any reduction
of such number of shares pursuant to Section 3.8(a)) and (ii) such purchase will
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not adversely affect the Merger's qualification as a reorganization within the
meaning of Section 368(a) of the Code. A Lenfest Stockholder may exercise the
right pursuant to the preceding sentence by giving written notice to Parent of
such exercise, which notice will indicate the specific dollar value (the "Dollar
Value") of such Parent Stock as to which such right is being exercised (the
"Exercise Notice"). The closing of the purchase of shares of Parent Stock as to
which an Exercise Notice is delivered to Parent will occur 20 days after
Parent's receipt of such Exercise Notice, or if such date is not a business day,
on the next succeeding business day (the "Purchase Closing Date"), and at such
closing, Parent will (or Parent will cause its designee to) deliver, by wire
transfer of immediately available funds to such account as may be designated in
writing by to such Lenfest Stockholder, an amount equal to the Dollar Value upon
receipt from the exercising Lenfest Stockholder of certificates (duly endorsed
in blank or accompanied by duly executed stock powers in blank) representing
that number of shares of Parent Stock (rounded to the nearest whole share) equal
to the quotient of the Dollar Value divided by the Purchased Share Valuation,
free and clear of all Liens. The "Purchased Share Valuation" will be the average
per share closing price of the Parent Stock on the New York Stock Exchange for
the 20 consecutive trading days ending two business days prior to the Purchase
Closing Date (the "Purchase Valuation Period"). If, during the Purchase
Valuation Period, Parent should split or combine the Parent Stock or pay a stock
dividend or other stock distribution in Parent Stock or otherwise effect any
transaction that changes the Parent Stock into any other securities or make any
other dividend or distribution on the Parent Stock (other than normal quarterly
cash dividends as the same may be adjusted from time to time in the ordinary
course consistent with past practice) then the Purchased Share Valuation will be
appropriately adjusted to reflect such split, combination, transaction, dividend
or other distribution or change.
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ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
4.1. Organization and Qualification.
Parent is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York and has the corporate
power to carry on its business as it is now being conducted or currently
proposed to be conducted. Parent is duly qualified as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned or held under lease or the nature of its activities make
such qualification necessary, except where the failure to be so qualified will
not, individually or in the aggregate, have a Parent Material Adverse Effect.
4.2. Status of Parent Stock.
All shares of Parent Stock issuable pursuant to this Agreement
will be duly authorized, validly issued and fully paid and nonassessable.
4.3. Authority Relative to this Agreement.
Parent has the corporate power to enter into this Agreement
and the Transaction Documents to which it is a party and to carry out its
obligations contemplated by this Agreement and the Transaction Documents to
which it is a party. The execution and delivery of this Agreement and the
Transaction Documents to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
requisite corporate action of Parent. This Agreement constitutes and, when
executed and delivered by Parent, each of the Transaction Documents to which it
is a party will be, a valid and binding obligation of Parent enforceable in
accordance with its terms. The execution, delivery and performance by Parent of
this Agreement and the Transaction Documents and the consummation by Parent of
the transactions contemplated hereby will not violate or conflict with (i) any
Governing Document or (ii) or result in a violation or breach of or constitute
(with or without due notice or lapse of time or both) a default under or give
any Person the right to terminate, cancel or accelerate any obligation or result
in the creation of any Lien or loss of a benefit under any indenture or other
loan document provision or any other contract, license, franchise, permit,
concession, lease, instrument or Legal Requirement applicable to Parent or any
of its Subsidiaries or their respective properties or assets, other than, in the
case of clause (ii) only, (A) any conflicts, breaches, violations, defaults,
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terminations, cancellations or accelerations, Liens or losses which,
individually or in the aggregate, will not have a Parent Material Adverse Effect
or prevent or materially impair the consummation of the transactions
contemplated hereby and thereby and (B) the Legal Requirements referred to in
the next sentence. Except in connection, or in compliance with, the provisions
of the DGCL and rules and regulations of the relevant Governmental Entities, and
provisions contained in Franchises regarding transfer of ownership or control of
Franchises and Federal Communications Commission ("FCC") licenses, no filing or
registration with, or authorization, consent or approval of, any Governmental
Entity or other Person is necessary for the consummation by Parent of the
transactions contemplated by this Agreement, other than filings, registrations,
authorizations, consents or approvals the failure of which to make or obtain
would not have a Parent Material Adverse Effect or prevent or materially impair
the consummation of the transactions contemplated hereby.
4.4. Reports and Financial Statements.
Parent has previously furnished or made available to the
Company true and complete copies of its (i) Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, as filed with the Securities and Exchange
Commission (the "Commission"), and (ii) all other reports filed by Parent with
the Commission pursuant the Exchange Act since January 1, 1999, as amended prior
to the date hereof (the documents described in clauses (i) and (ii) (together
with all subsequent filings referred to in the next two sentences) being
referred to in this Agreement collectively as the "Parent SEC Reports"). As of
their respective dates, the Parent SEC Reports complied as to form in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder applicable to such Parent SEC Reports,
except as the same may have been corrected, updated or superseded by means of a
subsequent filing with the Commission prior to the date hereof. As of their
respective dates or effective dates and except as the same may have been
corrected, updated or superseded by means of a subsequent filing with the
Commission prior to the date hereof, the Parent SEC Reports did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Since January 1, 1998,
Parent has filed with the Commission all reports required to be filed therewith
by it pursuant to the Exchange Act. The audited consolidated financial
statements and unaudited interim consolidated financial statements of Parent
included in the Parent SEC Reports have been prepared in accordance with GAAP
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and fairly present, in all material respects, the respective
consolidated financial position of Parent and its consolidated Subsidiaries as
at the dates indicated therein and the results of their operations and cash
flows for the periods then ended subject, in the case of the unaudited interim
consolidated financial statements, to the omission of notes and to normal
year-end audit adjustments and any other adjustments described therein.
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4.5. Absence of Certain Changes or Events.
Except as described in the Parent SEC Reports, since January
1, 1999, there has not been any transaction, commitment, dispute or other event
or condition (financial or otherwise) of any character (whether or not in the
ordinary course of business) which, individually or in the aggregate, has had,
or in the future is foreseeably likely to have, a Parent Material Adverse Effect
(other than as a result of changes in Legal Requirements of general
applicability or any changes resulting from general economic, financial or
market conditions).
4.6. Financial Advisor.
No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or its Affiliates, other than such fees payable by Parent or
its Affiliates.
4.7. Tax Matters.
As of the date hereof, to the knowledge of Parent, the
representations set forth in the numbered paragraphs of the form of Certificate
of Parent attached as Schedule 4.7 are true and correct in all material
respects, assuming for purposes of this representation and warranty that the
Merger referred to in such form had been consummated on the date hereof.
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ARTICLE V
---------
REPRESENTATIONS AND WARRANTIES REGARDING SUB
Parent and Sub jointly and severally represent and warrant to
the Company as follows:
5.1. Organization and Qualification.
Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Sub was formed by Parent
solely for the purpose of engaging in the transactions contemplated hereby and
has conducted no business other than in connection with this Agreement.
5.2. Capitalization.
The authorized capital stock of Sub consists of 1,000 shares
of common stock, par value $.01 per share, of which 100 shares are issued and
outstanding and held by Parent
5.3. Authority Relative to this Agreement.
Sub has the corporate power to enter into this Agreement and
to carry out its obligations hereunder. The execution and delivery of this
Agreement and the Transaction Documents to which it is a party and the
consummation of the transactions contemplated hereby have been duly authorized
by all requisite corporate action of Sub, and no other corporate proceedings on
the part of Sub are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement constitutes and, when executed and delivered
by Sub, each of the Transaction Documents to which it is a party will be, a
valid and binding obligation of Sub enforceable in accordance with its terms.
The execution, delivery and performance by Sub of this Agreement and the
Transaction Documents and the consummation by Sub of the transactions
contemplated hereby and thereby will not violate or conflict with (i) any
Governing Document or (ii) or result in a violation or breach of or constitute
(with or without due notice or lapse of time or both) a default under or give
any Person the right to terminate, cancel or accelerate any obligation or result
in the creation of any Lien or loss of a benefit under any indenture or other
loan document provision or any other contract, license, franchise, permit,
concession, lease, instrument or Legal Requirement applicable to Sub or any of
its Subsidiaries or their respective properties or assets, other than, in the
case of clause (ii) only, (A) any conflicts, breaches, violations, defaults,
terminations, cancellations or accelerations, Liens or losses which,
individually or in the aggregate, will not have a Parent Material Adverse Effect
or prevent or materially impair the consummation of the transactions
contemplated hereby and thereby and (B) the Legal Requirements referred to in
the next sentence. Except in connection, or in compliance with, the provisions
of the DGCL and rules and regulations of the relevant Governmental Entities, and
provisions contained in Franchises regarding transfer of ownership or control of
Franchises and FCC licenses, no filing or registration with, or authorization,
consent or approval of, any Governmental Entity or other Person is necessary for
the consummation by Sub of the transactions contemplated by this Agreement,
other than filings, registrations, authorizations, consents or approvals the
failure of which to make or obtain would not have a Parent Material Adverse
Effect or prevent or materially impair the consummation of the transactions
contemplated hereby.
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ARTICLE VI
----------
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
6.1. Organization and Qualification.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power to carry on its business as it is now being conducted or
currently proposed to be conducted. The Company is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified will not, individually or in the aggregate, have, a Company Material
Adverse Effect.
6.2. Capitalization.
The authorized capital stock of the Company consists of
158,896 shares of Company Common Stock, all of which are issued and outstanding.
All issued and outstanding shares of Company Common Stock have been duly
authorized, validly issued and are fully paid and nonassessable, are not subject
to and have not been issued in violation of any preemptive rights and have not
been issued in violation of any federal or state securities laws. Except as set
forth on Schedule 6.2, there are no options, warrants, calls or other rights,
agreements or commitments of any character, to which the Company or any of its
Subsidiaries is a party, relating to the issued or unissued capital stock or
other securities of the Company.
6.3. Subsidiaries.
The only Company Subsidiaries or entities in which the Company
directly or through one or more of its Company Subsidiaries holds a 5% or
greater equity interest (each an "Equity Affiliate") of the Company are those
set forth on Schedule 6.3, which Schedule reflects the percentage and nature of
the Company's ownership of each such Company Subsidiary or Equity Affiliate.
Each of the Company Subsidiaries is a corporation or partnership duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or formation and has the corporate or partnership power to carry
on its business as it is now being conducted or currently proposed to be
conducted. Each of the Company Subsidiaries is duly qualified as a foreign
corporation or partnership to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary except where the
failure to be so qualified will not have, individually or in the aggregate, a
Company Material Adverse Effect. All the outstanding shares of capital stock of
each of the Company Subsidiaries that is a corporation held by the Company or a
Company Subsidiary are validly issued, fully paid and nonassessable. Except as
set forth on Schedule 6.3, the shares of capital stock or partnership or other
ownership interests in each of the Company Subsidiaries or Equity Affiliates
that are owned by the Company or by a Company Subsidiary are owned free and
clear of any Liens, are not subject to and have not been issued in violation of
any preemptive rights and have not been issued in violation of any federal or
state securities laws. Except as set forth on Schedule 6.3, there are no
existing options, warrants, calls or other rights, agreements or commitments of
any character, to which the Company or any of its Subsidiaries is a party,
relating to the issued or unissued capital stock, other securities or
partnership or other ownership interests of any of the Company Subsidiaries or
Equity Affiliates of the Company, and there is no exercise of any of the
foregoing pending or of which the Company has received notice.
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6.4. Authority Relative to this Agreement.
The Company has the corporate power to enter into this
Agreement and the Transaction Documents to which it is a party and to carry out
its obligations hereunder. The execution and delivery of this Agreement and the
Transaction Documents to which the Company is a party and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all requisite corporate action of the Company, including approval by the
Company's Board of Directors and stockholders. This Agreement constitutes, and
when executed and delivered by the Company, each of the Transaction Documents to
which it is a party will be, a valid and binding obligation of the Company
enforceable in accordance with its terms. Except as set forth on Schedule 6.4,
the execution, delivery and performance by the Company of this Agreement and the
Transaction Documents and the consummation by the Company of the transactions
contemplated hereby and thereby will not violate or conflict with (i) any
Governing Document or (ii) or result in a violation or breach of or constitute
(with or without due notice or lapse of time or both) a default under or give
any Person the right to terminate, cancel or accelerate any obligation or result
in the creation of any Lien or loss of a benefit under any indenture or other
loan document provision or any other contract, license, franchise, permit,
concession, lease, instrument or Legal Requirement applicable to the Company or
any of its Company Subsidiaries or their respective properties or assets, other
than, in the case of clause (ii) only, (A) any conflicts, breaches, violations,
defaults, terminations, cancellations or accelerations, Liens or losses which,
either individually or in the aggregate, will not have a Company Material
Adverse Effect or prevent or materially impair the consummation of the
transactions contemplated hereby and thereby and (B) the Legal Requirements
referred to in the next sentence. Except as referred to in Schedule 6.4, and
except in connection, or in compliance with, the provisions of the DGCL and the
rules and regulations of the relevant Governmental Entities, and the provisions
of Franchises regarding transfer of ownership or control of Franchises and FCC
licenses (all of which licenses are listed in Schedule 6.4), no filing or
registration with, or authorization, consent or approval of, any Governmental
Entity or other Person is necessary for the consummation by the Company of the
Merger or the other transactions contemplated hereby, other than filings,
registrations, authorizations, consents or approvals the failure of which to
make or obtain would not have, individually or in the aggregate, a Company
Material Adverse Effect or prevent or materially impair the consummation of the
transactions contemplated hereby.
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6.5. Reports and Financial Statements.
The Company has previously furnished or made available to
Parent true and complete copies of its (i) Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, as filed with the Commission, and (ii) all
other reports or registration statements filed by the Company with the
Commission pursuant to the Exchange Act or the Securities Act since January 1,
1999, as amended prior to the date hereof (the documents described in clauses
(i) through (ii) (together with all subsequent filings referred to in the next
two sentences) being referred to in this Agreement collectively as the "Company
SEC Reports"). As of their respective dates or effective dates, the Company SEC
Reports complied as to form in all material respects with the requirements of
the Exchange Act or the Securities Act, as the case may be and the rules and
regulations of the Commission thereunder applicable to such Company SEC Reports,
except as the same may have been corrected, updated or superseded by means of a
subsequent filing with the Commission prior to the date hereof. As of their
respective dates or effective dates and except as the same may have been
corrected, updated or superseded by means of a subsequent filing with the
Commission prior to the date hereof, the Company SEC Reports did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Since January 1, 1998,
Company has filed with the Commission all reports required to be filed therewith
by it pursuant to the Exchange Act. The audited consolidated financial
statements and unaudited interim consolidated financial statements of the
Company included in the Company SEC Reports have been prepared in accordance
with GAAP applied on a consistent basis (except as may be indicated therein or
in the notes thereto) and fairly present, in all material respects, the
respective consolidated financial position of the Company and its consolidated
Subsidiaries as at the dates indicated therein and the results of their
operations and cash flows for the periods then ended subject, in the case of the
unaudited interim consolidated financial statements, to the omission of notes
and to normal year-end audit adjustments and any other adjustments described
therein.
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6.6. Absence of Certain Changes or Events.
Except as set forth on Schedule 6.6, since January 1, 1999,
there has not been (i) any transaction, commitment, dispute or other event or
condition (financial or otherwise) of any character (whether or not in the
ordinary course of business) which, individually or in the aggregate, has had,
or in the future is reasonably likely to have, a Company Material Adverse Effect
(other than as a result of changes in Legal Requirements of general
applicability or any changes resulting from general economic, financial or
market conditions), (ii) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with respect
to the capital stock of the Company, (iii) any entry into any commitment or
transaction material to the Company and its Company Subsidiaries taken as a
whole (including, without limitation, any borrowing or sale of assets), whether
or not in the ordinary course of business, or (iv) any event or circumstance
which, had it occurred after the date of this Agreement, would have constituted
a violation of Section 7.1 of this Agreement. The Company does not have any
indebtedness, liability or obligation, whether accrued or unaccrued, contingent
or otherwise that is not reflected or reserved against in the Audited Balance
Sheet, except for such indebtedness, liability or obligations arising in the
ordinary course of business consistent with past practice. Except as described
in Schedule 6.6, since January 1, 1999, neither the Company nor any Company
Subsidiaries has made any loans, contributions or advances to any Distributed
Subsidiary or with respect to any Distributed Assets.
6.7. Litigation.
Except as set forth on Schedule 6.7, there is no suit, action
or proceeding pending or, to the Knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against the Company or any of its Company Subsidiaries that involves
or is reasonably likely to involve an amount in excess of $5,000,000. Except as
set forth on Schedule 6.7, there is no suit, action or proceeding pending, or,
to the Knowledge of the Company, threatened that has had or is likely to have,
individually or in the aggregate, a Company Material Adverse Effect nor is there
any judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against the Company or any of its Company Subsidiaries
that has had or is likely to have, individually or in the aggregate, a Company
Material Adverse Effect.
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6.8. Employment Matters.
(a) The Company has provided (or within 30 days after the date
of this Agreement will provide) a complete and correct list of the names and
positions of all employees engaged principally in the Company's business as of
the date set forth on such list (but not earlier than March 31, 1999). To the
Knowledge of the Company, the Company has complied in all material respects with
all applicable Legal Requirements relating to the employment of labor,
including, the Worker Adjustment and Retaining Notification Act, 29 U.S.C. ss.
2101, et seq. ("WARN"), ERISA, continuation coverage requirements with respect
to group health plans and those relating to wages, hours, collective bargaining,
unemployment insurance, worker's compensation, equal employment opportunity, age
and disability discrimination, immigration control and the payment and
withholding of Taxes.
(b) Schedule 6.8 sets forth all "employee benefit plans," as
defined in Section 3(3) of ERISA, and all other material employee benefit
arrangements, programs or payroll practices, including, without limitation,
severance pay, sick leave, vacation pay, salary continuation for disability,
deferred compensation, bonus, stock purchase, stock appreciation rights,
hospitalization, medical insurance, life insurance, tuition reimbursement,
employee assistance and employee discounts, that the Company or any trade or
business (whether or not incorporated) which is treated as a single employer
with the Company under Section 414(b), (c), (m) or (o) of the Code ("Code
Affiliate") maintains or has an obligation to make contributions other than
Multiemployer Plans, as defined in ERISA or the Code (the "Company Benefit
Plans"). The Company has provided to Parent true and complete copies of each of
the Company Benefit Plans, the most recent summary plan description, the most
recent IRS determination letters, annual reports (Form 5500 Series) for the
preceding three years, and actuarial statements of valuation, together with each
current summary of material modifications, or other current participant
disclosure required under ERISA or other applicable Legal Requirements.
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(c) Neither the Company nor any Code Affiliate has incurred
any unsatisfied material withdrawal liability, as defined in Section 4201 of
ERISA, with respect to any multiemployer plan, nor has any of them incurred any
material liability due to the termination or reorganization of any multiemployer
plan. To the Knowledge of the Company, neither the Company nor any of its Code
Affiliates reasonably expects to incur any liability due to a withdrawal from or
termination or reorganization of a multiemployer plan.
(d) Each Company Benefit Plan that is intended to qualify
under Section 401 of the Code and the trust maintained pursuant thereto has been
determined to be exempt from federal income taxation under Section 501 of the
Code by the Internal Revenue Service, and to the Knowledge of the Company,
nothing has occurred with respect to any such plan since such determination
which could reasonably be expected to result in the loss of such exemption or
the imposition of any material liability, penalty or Tax under ERISA or the
Code. To the Knowledge of the Company, each Company Benefit Plan has at all
times been maintained, by its terms and in operation, in all material respects
in accordance with all applicable laws. No Company Benefit Plan is maintained in
connection with any trust described in Code Section 501(c)(9).
(e) All material contributions (including all employer
contributions and employee salary reduction contributions) required to have been
made under the Company Benefit Plans or by law (without regard to any waivers
granted under Section 412 of the Code) to any funds or trusts established
thereunder or in connection therewith have been made by the due date thereof
(including any valid extension), and no accumulated funding deficiency exists
with respect to any of the Company Benefit Plans subject to Section 412 of the
Code.
(f) No Company Benefit Plan which is subject to Title IV of
ERISA has: (i) as of the most recent valuation date for such Company Benefit
Plan, assets, the fair market value of which (including for these purposes any
accrued but unpaid contributions) does not exceed the present value of all
benefit liabilities as defined in ERISA Section 4001(a)(16) under such Company
Benefit Plan determined on a termination basis using the assumptions that would
be applied by the PBGC for a plan terminating as of the date of this Agreement
or the Effective Date, or (ii) been a plan with respect to which there has been
a "reportable event," as defined in Section 4043 of ERISA and the regulations
thereunder, which would require the giving of notice to the PBGC. No transaction
prohibited by Section 406 of ERISA or Section 4975 of the Code has occurred with
respect to any Company Benefit Plan. Except for premiums paid to the PBGC,
neither the Company nor any Code Affiliate has incurred or reasonably expects to
incur any liability under Section 4062 or 4063 of ERISA to the PBGC, or any
trustee appointed under Section 4042 of ERISA. Neither the Company nor any Code
Affiliate has incurred any liability under Title IV of ERISA arising in
connection with the termination of any plan covered or previously covered by
Title IV of ERISA.
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(g) To the Knowledge of the Company, there have been no
violations of ERISA or the Code with respect to the filing of applicable
material reports, documents and notices regarding the Company Benefit Plans with
the Secretary of Labor and the Secretary of the Treasury or the furnishing of
such reports, documents and notices to the participants or beneficiaries of the
Company Benefit Plans which would result in a Company Material Adverse Effect.
(h) There are no pending actions, written claims or lawsuits
which have been asserted or instituted against the Company Benefit Plans, the
assets of any of the trusts under such plans or the plan sponsor or the plan
administrator, or against any fiduciary of the Company Benefit Plans with
respect to the operation of such plans (other than routine benefit claims), nor
does the Company have Knowledge of facts which could reasonably form the basis
for any such actions, claims or lawsuits.
(i) Except as provided in Schedule 6.8 and as may be required
under Section 4980B of the Code, neither the Company nor any Code Affiliate
maintains any Company Benefit Plan that provides medical or welfare benefits to
current or future retired or terminated employees, their spouses or their
dependents.
(j) Except as set forth on Schedule 6.8, there are no union or
collective bargaining agreements applicable to any Person employed by the
Company and the Company has no duty to bargain with any labor organization with
respect to any such Person. Since January 1, 1999 there have not been any unfair
labor practice charges against the Company, any demand for recognition or any
other effort of or request or demand from, a labor organization for
representative status with respect to any Person employed by the Company. Except
as described on Schedule 6.8, the Company has no employment contracts, either
written or oral, with any employee of the Company and none of the employment
contracts or other agreements listed on Schedule 6.8 requires the Company or
will require Parent or its Affiliates to employ any Person after the Closing.
(k) Except as expressly provided herein or as set forth on
Schedule 6.8, the consummation of the transactions contemplated by the this
Agreement will not (i) entitle any employee to severance pay, unemployment
compensation or any similar payment, or (ii) accelerate the time of payment or
vesting, or increase in the amount, of any compensation due to any employee or
any director or former employee of the Company, or (iii) renew or extend the
term of any agreement regarding compensation for an employee which, in the case
of (i), (ii) or (iii) above, would create any liability to the Company, or
Parent, or its Affiliates after the Effective Date. No payment or benefit which
may be made by the Company or any of its Affiliates with respect to any employee
will be classified as an "excess parachute payment" within the meaning of
Section 280G(b)(1) of the Code.
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6.9. Compliance with Applicable Laws.
(a) Except as set forth on Schedule 6.9, the Company and its
Company Subsidiaries hold all permits, licenses, franchises, variances,
exemptions, concessions, leases, instruments, orders and approvals (the "Company
Permits") of all Governmental Entities required to be held by them, except for
such Company Permits the failure of which to hold, individually or in the
aggregate, does not have and, in the future is not likely to have, a Company
Material Adverse Effect. All of the Company Permits that are Franchises are
listed on Schedule 6.9-A. To the Knowledge of the Company, the Company and its
Company Subsidiaries are in compliance in all material respects with the terms
of the Company Permits. Except as set forth on Schedule 6.9, the businesses of
the Company and its Company Subsidiaries are not being conducted in violation of
any Legal Requirement, except for such violations which, individually or in the
aggregate, would not have, individually or in the aggregate, a Company Material
Adverse Effect. No investigation or review by any Governmental Entity with
respect to the Company or any of its Company Subsidiaries is pending, or, to the
Knowledge of the Company, threatened, nor has any Governmental Entity indicated
to the Company an intention to conduct the same.
(b) The Company and each of its Company Subsidiaries have made
all submissions (including, without limitation, registration statements)
required under the Communications Act of 1934, as amended, and the applicable
rules and regulations thereunder (collectively, the "Communications Act"), the
Securities Act and the Exchange Act.
(c) Without limiting the generality of the foregoing: (i) each
of the Company and its Company Subsidiaries is in compliance, in all material
respects, with the specifications set forth in Part 76, Subpart K of the rules
and regulations of the FCC, Section 111 of the U.S. Copyright Act of 1976 and
the applicable rules and regulations thereunder issued by the U.S. Copyright
Office and the Communications Act, including provisions of any thereof
pertaining to signal leakage, and all other applicable Legal Requirements
relating to the construction, maintenance, ownership and operation of each of
the Company and its Subsidiaries' assets (including its cable systems) and
business and (ii) each cable system of the Company and each of its Company
Subsidiaries (a "System") is in compliance in all material respects with the
provisions of the Communications Act as such Legal Requirements relate to the
operation of such System. Each of the Company and its Company Subsidiaries has
complied in all material respects with the must carry and retransmission consent
provisions of the Communications Act as they relate to their Systems.
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(d) Each of the Company and its Company Subsidiaries is using
reasonable good faith efforts to establish rates charged to subscribers that are
allowable under the Communications Act and any authoritative interpretation now
in effect. The Company has delivered to Parent complete and correct copies of
all FCC Forms relating to rate regulation filed by the Company and its Company
Subsidiaries with respect to their Systems, and of all correspondence with any
Governmental Entity relating to rate regulation generally or specific rates
charged to subscribers with respect to their Systems, including copies of any
complaints filed with the FCC with respect to any rates charged to subscribers
of their Systems, and any other documentation supporting an exemption from the
rate regulation provisions of the Communications Act claimed by each of the
Company and its Company Subsidiaries with respect to any of their Systems.
Neither the Company nor any of its Company Subsidiaries has received any written
or oral notice from any Governmental Entity with respect to an intention to
enforce customer service standards pursuant to the Communications Act and none
of the Company or any of its Company Subsidiaries has agreed with any
Governmental Entity to establish customer service standards that exceed the
customer service standards promulgated pursuant to the Communications Act.
Except as set forth on Schedule 6.9, none of the Company or any of its Company
Subsidiaries has made any election with respect to any cost of service
proceeding conducted in accordance with Part 76.922 of Title 47 of the Code of
Federal Regulations or any similar proceeding with respect to any of their
Systems (a "Cost of Service Election"). Except as set forth on Schedule 6.9,
none of the Company or any of its Company Subsidiaries has entered into or is
subject to any "social contract" or other proposed resolution with the FCC with
respect to rates charged for cable television services in their Systems and is
not currently negotiating or anticipating entering into or being subject to the
same.
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6.10. Tax Matters.
(a) Except as set forth on Schedule 6.10, the Company and each
of its Subsidiaries have timely filed (including extensions) all Tax returns
required to be filed by any of them, and the information contained in such Tax
returns is true, complete and accurate in all material respects. All Taxes
claimed by the Company and each of its Subsidiaries to be owed in respect of the
periods covered by such returns have been timely paid by the Company or its
Subsidiaries, or the Company has set up an adequate reserve for the payment of
such Taxes. For the purposes of this Agreement, the terms "Tax" and "Taxes" will
include all federal, state, local and foreign income, profits, estimated,
franchise, gross receipts, payroll, sales, employment, use, property,
withholding, excise and other taxes, duties and assessments of any nature
whatsoever together with all interest, penalties and additions imposed with
respect to such amounts.
(b) Neither the Company nor any Subsidiary of the Company is
delinquent in the payment of any Tax, assessment or governmental charge. Except
as set forth on Schedule 6.10, no deficiencies for any Taxes have been proposed,
asserted or assessed against the Company or any of its Subsidiaries that have
not been finally settled or paid in full, and no requests for waivers of the
time to assess any such Tax are pending.
(c) The amount of Taxes reflected as a liability on the
audited consolidated financial statements of the Company as of December 31, 1998
including all notes therein (the "Financial Statements") is a full and adequate
reflection of the amount of accrued and unpaid Taxes with respect to the Company
and its Subsidiaries for all taxable periods (or portions of taxable periods)
through and including December 31, 1998.
(d) With respect to the stock, securities and assets described
in Section 8.4, as of date hereof, there have been no "intercompany
transactions" giving rise to any "deferred intercompany transaction gain"
pursuant to the Treasury regulations issued under Section 1502 of the Code.
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(e) As of December 31, 1998, the net operating losses of the
Company and its Subsidiaries for federal income tax purposes were no less than
the amount reflected on the Financial Statements, and are not subject to
limitation for federal tax purposes by reason of Section 382 of the Code or
otherwise (other than any such limitation which may arise as a result of the
Merger).
(f) As of the date hereof, to the Knowledge of the Company,
the representations set forth in the numbered paragraphs of the form of
Certificate of the Company attached as Schedule 6.10(f) are true and correct in
all material respects, assuming for purposes of this representation and warranty
that the Merger referred to in such form had been consummated on the date
hereof.
(g) Since the date of the Financial Statements, the Company
and its Subsidiaries have not incurred or accrued any liability for any Taxes
(whether fixed or contingent) except for those Taxes incurred or accrued in the
ordinary course of business of the Company and its Subsidiaries.
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6.11. Environmental Laws.
Except as described on Schedule 6.11, the Company has not
generated, stored, used, treated, handled, discharged, released or disposed of
any flammable, explosive or radioactive materials, toxic substances or other
hazardous substances or wastes on, under or about any assets of the Company that
have had or could reasonably be expected to result in a Company Material Adverse
Effect. Except as set forth in Schedule 6.11, to the Knowledge of the Company no
release of hazardous substances or wastes outside of any real property owned,
leased or otherwise used by the Company has entered or threatened to enter any
such property that has had or could reasonably be expected to result in a
Company Material Adverse Effect and, there is not any claim pending or, to the
Knowledge of the Company, threatened based upon any environmental laws arising
from any condition of the land adjacent to or surrounding any such property.
Except as set forth in Schedule 6.11, no claim or investigation based on any
applicable environmental laws has been asserted or conducted in the past or is
currently pending or, to the Knowledge of the Company, threatened with respect
to any real property owned, leased or otherwise used by the Company. Except as
set forth in Schedule 6.11, (i) no aboveground or underground storage tanks
containing hazardous substances or hazardous waste are currently or have been
located at any of the real property owned, leased or otherwise used by the
Company during the term of the Company's ownership, lease or use or, to the
Company's Knowledge, prior to such ownership, lease or use, (ii) no real
property owned, leased or otherwise used by the Company has been used at any
time during the term of the Company's ownership, lease or use or, to the
Company's Knowledge, prior to such ownership, lease or use as a gasoline service
station or any other facility for storing, pumping, dispensing or producing
gasoline or other petroleum products or wastes and (iii) to the Knowledge of the
Company no building or other structure on any real property owned, leased or
otherwise used by the Company contains asbestos, asbestos-containing material or
material presumed to be asbestos containing material under any environmental law
except where such would not have, individually or in the aggregate, a Company
Material Adverse Effect. The Company has made available to Parent true and
complete copies of all (i) environmental audits, investigations, studies or
reports with respect to any real property owned, leased or otherwise used by the
Company that have been performed by or at the direction or on behalf of the
Company or that are in the Company's possession, (ii) notices or other materials
in the Company's possession from Governmental Entities having the power to
administer or enforce any applicable environmental laws relating to current or
past ownership, use or operation of or activities at any real property owned,
leased or otherwise used by the Company and (iii) materials in the Company's
possession relating to any claim, allegation or action by any Person (other than
any Governmental Entities) under any applicable environmental law. For the
purpose of this Section, "hazardous substances," "hazardous waste" and
"asbestos-containing material" will have the meanings set forth in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 and
any applicable State law.
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6.12. Intellectual Property.
To the Knowledge of the Company, the conduct of its business
does not infringe, in any material way, upon the patents, trademarks,
copyrights, trade names or other intellectual property rights, domestic or
foreign, of any Person. No Person has asserted any claim to the Company with
respect to any such infringement.
6.13. Material Contracts.
Except as set forth on Schedule 6.13 or as disclosed in the
Company SEC Filings, the Company or any of its Company Subsidiaries is not a
party to any of the following:
(i) any agreement concerning a partnership or joint
venture;
(ii) any agreement (or group of related agreements)
under which it has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money, or any capitalized lease obligation, in excess of $1,000,000
or under which it has imposed a security interest on any of its assets, tangible
or intangible;
(iii) any noncompetition agreement restricting
activities by the Company or any of its Subsidiaries;
(iv) any agreement with any Affiliates of the Company
(other than Parent and its Subsidiaries);
(v) any agreement under which the consequences of a
default or termination could have a Company Material Adverse Effect; or
(vi) any other agreement (or group of related
agreements) the performance of which involves consideration in excess of
$5,000,000.
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The Company has delivered (or within 10 days following the date hereof will
deliver) to Parent a correct and complete copy of each written agreement listed
in Schedule 6.13. The Company is not, and to the Knowledge of the Company no
other party is, in default under, and no event has occurred which with notice or
lapse of time would constitute a material breach or default, or permit
termination, modification, or acceleration, under the agreement.
6.14. Company Claims.
The Company has not sold, assigned or otherwise conveyed any
claims the Company may have against any Person, including any claim with respect
to warrants issued by At Home Corporation to Affiliates of Parent.
6.15. Year 2000 Readiness.
The Company has established a Year 2000 Remediation Program on
or before the Effective Date.
ARTICLE VII
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CONDUCT OF BUSINESS PENDING THE MERGER
7.1. Conduct of Business by the Company Pending the Merger.
Prior to the Effective Date, unless Parent otherwise agrees in
writing:
(i) the Company will, and will cause its Company
Subsidiaries to, carry on their respective businesses in the ordinary course,
and use their reasonable best efforts to preserve intact their present business
organizations and preserve their relationships with customers, suppliers and
others having business dealings with them;
(ii) the Company will not (A) sell or pledge or agree
to sell or pledge any capital stock owned by it in any of its Company
Subsidiaries, (B) amend or propose to amend its Certificate of Incorporation or
By-laws, (C) split, combine or reclassify its outstanding capital stock or issue
or authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of the Company, declare,
set aside or pay any dividend or other distribution payable in cash, stock or
property, (D) directly or indirectly redeem, purchase or otherwise acquire or
agree to redeem, purchase or otherwise acquire any shares of capital stock of
the Company, or (E) agree to do any of the foregoing;
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(iii) except as contemplated hereby, the Company will
not, and will cause its Company Subsidiaries not to, (A) issue, deliver or sell
or agree to issue, deliver or sell any additional shares of, or rights of any
kind to acquire any shares of, its capital stock of any class, or any option,
rights or warrants to acquire, or securities convertible into, shares of capital
stock or any stock appreciation rights or similar rights, (B) acquire, lease or
dispose of or agree to acquire, lease or dispose of any capital assets or any
other assets, other than any acquisition, lease or disposition that is,
individually or in the aggregate, immaterial in amount, whether or not in the
ordinary course of business and in the case of any such acquisition, that is
acquired by a Company Subsidiary; provided, notwithstanding anything to the
contrary in this Agreement, the Company may acquire all of the outstanding
equity securities of Raystay Co. not held by the Company or any of its
Affiliates; (C) create, assume or incur any additional indebtedness for borrowed
money or mortgage, pledge or subject to any Lien any of its assets, except
pursuant to credit facilities in effect as of the date hereof, or enter into any
other material transaction other than in each case in the ordinary course of
business consistent with past practice; (D) make any payments with respect to
any indebtedness of the Company or its Subsidiaries except for such payments
that are permitted to be made without penalty or are scheduled to come due prior
to the Effective Date; (E) except as permitted in Subsection (B), acquire or
agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof, except that the Company may acquire new Franchises, or interests
therein, in the ordinary course of business; or (F) agree to do any of the
foregoing;
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(iv) except as provided in Section 8.5, the Company
will not, and will cause the Company Subsidiaries not to, except as required to
comply with applicable law or existing contracts or plans, (A) adopt or
terminate or amend any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation rights, pension, retirement,
deferred compensation, employment or other Company Benefit Plan, agreement,
trust, fund or other arrangement for the benefit or welfare of any director,
officer or current or former employee, (B) increase or decrease in any manner
the compensation or fringe benefit of any director, officer or employee (except
for normal increases in the ordinary course of business consistent with past
practice), (C) grant any awards under any bonus, incentive, performance or other
compensation plan or arrangement or Company Benefit Plan (except for such awards
made in the ordinary course of business consistent with past practice unless
such award is otherwise prohibited under Section 7.1(iii)(A)), (D) take any
action to fund or in any other way secure the payment of compensation or
benefits under any employee plan, agreement, contract or arrangement or Company
Benefit Plan (except for such actions made in the ordinary course of business
consistent with past practice) or (E) agree to do any of the foregoing;
(v) the Company will not, and will cause its Company
Subsidiaries not to, make any affirmative election with respect to any cost of
service proceeding conducted in accordance with Part 76.922 of Title 47 of the
Code of Federal Regulations or any similar proceeding;
(vi) the Company will not, and will cause its
Subsidiaries not to, take, or agree in writing or otherwise to take, any actions
that would (A) make any representation or warranty of the Company contained in
this Agreement untrue or incorrect in any material respect or (B) result in any
of the conditions of this Agreement set forth in Section 9.3 not being satisfied
as of the Effective Date;
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(vii) the Company will consult with Parent concerning,
and permit Parent to participate in, any proceedings for or negotiations with
respect to (A) any Franchise that is subject to renewal between the date of this
Agreement and the Effective Date and (B) obtaining the consent of any
Governmental Entity with respect to the transfer of ownership or control of any
Franchise in connection with the transactions contemplated by this Agreement;
(viii) the Company will not, and will cause its
Company Subsidiaries not to, amend, alter or otherwise modify the provisions of,
or agree to undertake any obligation not required to be performed under, the
provisions of any Franchise of the Company that would materially increase the
obligations of the Company under such Franchise if included as an amendment
thereto;
(ix) neither the Company nor any Company Subsidiary
will (A) make any new loans, contributions or other advances to any Distributed
Subsidiary or relating to any Distributed Assets which, when aggregated with all
other such loans, contributions or other advances made after the date hereof,
would exceed $30,000,000, other than the contribution of intercompany
indebtedness which indebtedness arose prior to the date hereof as contemplated
by Section 8.4 or, (B) enter into any material contract that will not be subject
to termination by the Company or such Company Subsidiary within one year after
Closing without cost or (C) acquire any General Instruments Corp. stock,
Hyperion Telecommunications, Inc. stock, TCI Music, Inc. stock or any beneficial
interest, options, warrants or similar instruments with respect to such stock;
(x) the Company will (A) maintain its books, accounts
and records in the usual and regular manner, in accordance with past accounting
practices, consistently applied, and (B) not make or rescind any express or
deemed election relating to Taxes, settle or compromise any claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy
relating to Taxes, change any of its methods of reporting income or deductions
for federal income tax purposes or file (other than in a manner consistent with
past practice) any Tax return; and
(xi) the Company will design and implement all cable
system upgrade activities and capital expenditures in accordance with its
Capital Budget and consistent with the specifications approved by Parent,
subject to the Company's ability to finance the same under its applicable credit
facilities.
Nothing in this Section 7.1 will prevent the Company from engaging in any
transaction with Company Subsidiaries or prevent the Company Subsidiaries from
engaging in any transaction with other Company Subsidiaries.
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ARTICLE VIII
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ADDITIONAL AGREEMENTS
8.1. Access and Information.
The Company and its Company Subsidiaries will afford to Parent
and to Parent's accountants, counsel and other representatives reasonable access
during normal business hours (and at such other times as the parties may
mutually agree) throughout the period prior to the Effective Date to all of the
Company's and the Company Subsidiaries' properties, books, contracts,
commitments, records and personnel; provided, however, that in exercising such
right of access Parent and its accountants, counsel and other representatives
will use their reasonable efforts to not disrupt the business operations of the
Company and the Company Subsidiaries. During such period, the Company and its
Company Subsidiaries and Parent will furnish promptly to the other a copy of
each report, schedule and other document filed or received by it pursuant to the
requirements of federal or state securities laws to the extent it relates to the
Company, the Company Subsidiaries or the transactions contemplated hereby.
8.2. FYI.
The Lenfest Stockholders, at their option to be exercised by
written notice to such effect not later than 30 days prior to Closing, will have
the right to acquire the FYI business (which consists of production of a
photoclassified cable television channel with some infomercials with other
information on same screen, such as weather, time, stock quotes, etc.) for a
price of $3,000,000 in cash at Closing (or as an adjustment to their Stock
Merger Consideration if they elect). If the Lenfest Stockholders acquire FYI
pursuant to the preceding sentence, then Parent will enter into an affiliation
agreement with FYI on mutually satisfactory terms, including those set forth in
Exhibit D.
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8.3. CAMS Systems, Inc., Etc.
After Closing, Parent and the Distributed Subsidiaries will
operate in accordance with certain arrangements, as more fully described in the
attached Exhibit C.
8.4. Distribution of Boot and Additional Parent Stock.
(a) As of the Effective Date, by virtue of the Merger, the
Lenfest Stockholders shall receive, in the aggregate, the following as
additional consideration in exchange for their Company Common Stock: (i) the
assets described as "Distributed Assets" in Schedule 8.4, and (ii) the
Subsidiaries of the Company described as "Distributed Subsidiaries" in Schedule
8.4 including all assets and liabilities of such Distributed Subsidiaries;
provided, however, that in lieu of receiving one or more of such Distributed
Subsidiaries the Lenfest Stockholders may elect to receive a distribution of
limited liability company membership interests or partnership interests in one
or more limited liability companies or partnerships that are successors to such
Distributed Subsidiaries and hold all the assets and are responsible for all the
liabilities of such Distributed Subsidiaries ("Successor Entities"). Such
additional consideration shall be distributed to the Lenfest Stockholders or
their designees in proportion to the ownership of Company Common Stock by each
Lenfest Stockholder as determined immediately prior to the Merger. As of the
Effective Date, by virtue of the Merger, the Stockholders of the Company other
than the Lenfest Stockholders shall receive, in the aggregate, as additional
consideration in exchange for their Company Common Stock, in proportion to the
ownership of Company Common Stock by each such Stockholder as determined
immediately prior to the Merger, additional shares of Parent Stock having a fair
market value, based on the Share Valuation, equal to the Distributed Value. The
"Distributed Value" shall mean the net fair market value of the stock,
securities and other assets distributed to the Lenfest Stockholders under this
Section 8.4, which will be as agreed between Parent and the Stockholders
Representative prior to Closing. If Parent and the Stockholders Representative
cannot agree on the amount of the Distributed Value prior to Closing, Parent's
estimate of such amount will be used for purposes of determining the number of
shares of Parent Stock to be delivered to the Stockholders of the Company other
than the Lenfest Stockholders pursuant to this Section, and the parties will
request that the Accountants determine the Distributed Value, whose
determination shall be final, conclusive and binding upon Parent, Sub and
Stockholders and an appropriate adjustment shall be made to the number of shares
of Parent Stock delivered pursuant to this Section 8.4 to the Stockholders of
the Company other than the Lenfest Stockholders. Any reference to a Distributed
Subsidiary in this Agreement shall include a reference to the applicable
Successor Entity, if any.
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(b) Prior to the Effective Date, all intercompany indebtedness
owed by any of the Distributed Subsidiaries to the Company or any of its
Subsidiaries will be contributed to the capital of such Distributed
Subsidiaries. To the extent that such intercompany indebtedness existed as of
the date hereof, such intercompany indebtedness shall not be treated as
"Specified Intercompany Debt" and the contribution of such intercompany
indebtedness to the capital of the Distributed Subsidiaries shall not give rise
to any adjustment to the Merger Consideration under Section 3.3(a).
(c) All elections given to the Lenfest Stockholders under this
Section 8.4 shall be made by the Stockholders Representative on behalf of the
Lenfest Stockholders, and shall be effective if notice of such election is
provided to Parent not less than seven days prior to the Effective Date.
(d) All Distributed Assets and the Distributed Subsidiaries
(or, if applicable, the interests in Successor Entities) shall be distributed as
is, where is and subject to no title or other warranties (including express or
implied warranties of any sort, all of which are disclaimed) and will be
distributed subject to all obligations, indebtedness and liabilities owed by
each Distributed Subsidiary (or, in the case of Distributed Assets, by the
Company or any Subsidiaries) to parties other than the Company and its
Subsidiaries as of the Closing.
(e) It is agreed and acknowledged that the personal property
of H.F. Lenfest may be removed by him or his representatives before or after the
Closing from premises owned by the Company and its Subsidiaries. Neither the
Company, its Subsidiaries, Parent, Sub or their respective Affiliates will have
any responsibility for any damages or losses to such items.
(f) At the Closing, Parent will cause the appropriate
Subsidiaries of the Parent to enter into agreements with one or more Lenfest
Stockholders (or, if applicable, with one or more of the Distributed
Subsidiaries or Successor Entities) as described in Exhibit C.
(g) If the option granted in the Agreement dated September 25,
1996 among Comcast Spectacor, L.P., Philadelphia Sports Media Joint Venture and
the Company (the "Sports Option") cannot be distributed to Lenfest Stockholders,
then to the extent that the Media JV (as defined in the Sports Option) acquires
the Company's interest under the Sports Option, the Lenfest Stockholders will be
entitled to receive one half of the net proceeds (on an after-tax basis
calculated without regard to any net operating loss of the Company other than
any such net operating loss otherwise not useable at the point of exercise by
the Company) received by the Company from such acquisition; provided that no
exercise or other action under the Sports Option will cause any burden, economic
or otherwise (other than the payment of the exercise price), to Parent or its
Subsidiaries. If the Sports Option is exercised and the Media JV fails to
purchase the Company's interest in the Media JV, such interest will be
distributed to the Lenfest Stockholders to the extent permitted by the Sports
Option in such event.
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8.5. Employee Arrangements.
(a) Sub shall pay severance benefits to certain individuals
currently employed by the Company and/or Company Subsidiaries in accordance with
Schedule 8.5.
(b) Not later than 40 days following the Effective Date, Sub
shall make payments of bonuses pursuant to a plan to be adopted by Sub, the
Company, and Company Subsidiaries prior to Closing (the "Bonus Plan"), provided
that an employee otherwise eligible to receive a bonus under the Bonus Plan is
employed by Sub for a period of at least 30 days following the Effective Date,
and prior to expiration of such 30-day period, neither leaves employment
voluntarily nor is terminated for cause.
(c) The Company shall comply with the shareholder approval
requirements of Section 280G(b)(5)(B) of the Code with respect to all payments
to be made in connection with the transactions contemplated hereby that would
otherwise constitute "parachute payments" within the meaning of Section 280G of
the Code and shall comply with any other requirements necessary for such
payments not to constitute "parachute payments" within the meaning of Section
280G of the Code.
(d) Nothing in this Section 8.5 or elsewhere in this Agreement
or the Distribution Agreement shall be deemed to make any employee of the Sub,
the Company, or its Subsidiaries a third party beneficiary of this Agreement or
the Distribution Agreement.
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8.6. Year 2000 Readiness Covenants.
The Company shall maintain its Year 2000 Remediation Program,
which has previously been reviewed by Parent, pursuant to which all the
Company's material Computer and Other Systems will be evaluated, remedied and
tested on an expedited basis. The Company will allow Parent, Sub and their
representatives to continuously monitor the efforts of the Company toward
achieving Year 2000 Readiness, including making available to Parent and Sub and
their representatives copies of all internal or external reports, memoranda or
other materials regarding its Year 2000 Remediation Program and all inventory,
testing and other implementation activities and results. If Parent determines
that it is not satisfied with the Company's progress on becoming Year 2000
Ready, Parent may elect, by written notice to the Company to such effect, to
manage such activities on behalf of the Company, and the Company will cooperate
fully with Parent in such efforts. If Parent makes the election in the preceding
sentence, expenses for Parent personnel and consultants associated with such
Parent efforts will be borne by Parent. If this Agreement is terminated, Parent
will reimburse the Company for any equipment purchased at the direction of
Parent to make the Company and Company Subsidiaries Year 2000 Ready.
8.7. Indemnification.
Parent agrees that all rights to indemnification existing in
favor of the directors, officers or employees of the Company and Company
Subsidiaries as provided in the Company's and its Company Subsidiaries'
Certificates of Incorporation and By-Laws with respect to matters occurring
through the Effective Date will survive the Merger. Parent will cause the
Surviving Corporation to continue to provide indemnification to the employees,
officers and directors of the Company to the fullest extent permitted under
applicable law for a period of at least six years after the Effective Date.
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8.8. Actions by the Parties.
Subject to the terms and conditions set forth in this
Agreement, each of the parties will use its reasonable efforts to take, or to
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including using all reasonable efforts to obtain all necessary waivers, consents
and approvals, to effect all necessary registrations and filings (including, but
not limited to, filings with all applicable Governmental Entities), and to lift
any injunction or other legal bar to the transactions contemplated by this
Agreement (and, in such case, to proceed with the Closing as expeditiously as
possible). Each of the parties will take all actions as may be reasonably
directed by Parent for purposes of consummating the transactions contemplated by
this Agreement.
8.9. No Solicitation.
Simultaneously with the execution and delivery of this
Agreement the Stockholders of the Company have unanimously consented to the
Merger and accordingly, the directors and officers of the Company have no
fiduciary duties to the Stockholders with respect to any Acquisition Proposal
that may be received by the Company. Neither the Company and any of its
Subsidiaries or any of their respective officers, directors, representatives or
agents will take any action to (i) initiate the submission of any Acquisition
Proposal, (ii) enter into any agreement with respect to any Acquisition Proposal
or (iii) participate in negotiations with any Person in connection with any
Acquisition Proposal. The Company will promptly communicate to Parent any
solicitation or inquiry received by the Company and the terms of any proposal or
inquiry that it may receive in respect of any Acquisition Proposal, or of any
such representatives of information requested from it or of any such
negotiations or discussions being sought to be initiated with the Company.
"Acquisition Proposal" means any proposed (A) merger, consolidation or similar
transaction involving the Company, (B) sale, lease or other disposition directly
or indirectly by merger, consolidation, share exchange or otherwise of all or
any substantial part of the assets of the Company or its Subsidiaries, (C)
issuance, sale or other disposition of securities representing 10% or more of
the voting power of the Company Common Stock or (D) any transaction in which any
Person will acquire beneficial ownership (as such term is defined in Rule 13d-3
under the Exchange Act), or the right to acquire beneficial ownership or any
"group" (as such term is defined under the Exchange Act) will have been formed
which beneficially owns or has the right to acquire beneficial ownership of 10%
or more of the outstanding Company Common Stock.
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8.10. Affiliate Agreements.
Except as described on Schedule 8.10 or as provided in Exhibit
C, the Company will terminate any agreement between the Company or any of its
Company Subsidiaries, on the one hand, and (i) H.F. Lenfest, (ii) any relative
of H.F. Lenfest, (iii) any Affiliate of H.F. Lenfest, (iv) any Stockholder of
the Company other than Parent or Affiliates of Parent or (v) any Distributed
Subsidiary, on the other hand in each case without cost to the Company.
8.11. Contribution of Assets Upon Termination.
If this Agreement is terminated by the Company in accordance
with Section 10.1(b), and provided that the Company and the Lenfest Stockholders
have complied with their obligations pursuant to Section 8.8 and that the
conditions to the obligations of Parent and Sub in Section 9.3(a) have been
satisfied, then at the option of the Company to be exercised by written notice
to such effect within 60 days after such termination, Parent will contribute all
cable systems (and all associated liabilities, including debt per subscriber
added that is equivalent to the debt per subscriber of the cable systems of
Suburban and its cable operating Subsidiaries at the date of contribution) it
owns as of the date of such termination (or, if earlier, as of the earliest date
such termination is permitted) that are located within 35 miles of the cable
systems currently owned by Suburban or its cable operating Subsidiaries in the
HLLY and Philadelphia DMA's, provided such transaction can be accomplished in a
commercially acceptable manner that is substantially tax-free to Parent. The
value to be credited to Parent at the time of such contribution will be
calculated on a per subscriber basis that is at a 15% discount from the then
fair market value of Suburban's subscribers. The contribution of such cable
systems shall not change the governance rights of the Lenfest Stockholders or
"Lenfest Family" as existing as of the date hereof.
8.12. Use of 200 Cresson Boulevard.
After Closing, H.F. Lenfest and Maryann Bryla, and their
assistants shall have the right, without charge, to continue to use the spaces
they presently occupy at 200 Cresson Boulevard, Oaks, Pennsylvania, and
telephone and computer service for a period of up to three months after the
Effective Date.
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8.13. Use of 1332 Enterprise Drive.
After Closing, Sub and its Affiliates will have the right to
continue to occupy 1332 Enterprise Drive, West Chester, Pennsylvania during the
transition of the advertising sales business of the Company, and the Lenfest
Stockholders will cause StarNet (or the applicable Successor Entity) and its
employees to cooperate during such transition. Sub will promptly reimburse
StarNet (or the applicable Successor Entity) for the Sub's use of such
facilities and employees based on its allocable share of such expenses during
such transition, as reasonably determined by StarNet. The allocation as
determined by StarNet will be subject to audit by Sub.
8.14. Employee Cable Service.
For a period of three years following Closing, Sub will
provide basic and standard and one premium cable service, free of charge, to
individuals who from time to time are employees of the Distributed Subsidiaries
or Successor Entities and who reside within the service area of Suburban or
Parent's Subsidiaries in the Philadelphia and HLLY DMAs. Notwithstanding the
preceding sentence, at no time will the Company be required to provide such free
service to more than 500 employees of the Distributed Subsidiaries or Successor
Entities. A list of additions and deletions to the employee lists will be
provided to Sub on a quarterly basis. Any person receiving this free service
must be an employee of a Distributed Subsidiary or a Successor Entity.
8.15. Transitional Use of Lenfest Name.
For a period of 180 days after the Closing, Sub and the
Company Subsidiaries will be entitled to use the trademarks, trade names,
service marks, service names, logos and similar proprietary rights that
incorporate the name "Lenfest" on a royalty-free basis, provided that such
entities will exercise commercially reasonable efforts to remove all such names,
marks, logos and similar proprietary rights that incorporate the name "Lenfest"
from their assets as soon as reasonably practicable, and in any event within 180
days, following the Closing. Thereafter the Lenfest Stockholders will have the
exclusive right (as between them and Parent or its Subsidiaries) to use the name
"Lenfest" and all derivations thereof. Notwithstanding the foregoing, nothing in
this Section will require removal or discontinuation of the use of any such name
or mark that is affixed to converters or other items in or to be used in
customer homes or properties, or as are used in a similar fashion making such
removal or discontinuation impracticable.
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8.16. Tax Matters.
Neither the Company nor Parent nor Sub shall take any action
that would cause its respective representations set forth in Sections 6.10(f)
and 4.7 not to be true in all material respects from and after the date hereof
until the Effective Date.
8.17. Delivery of Certain Schedules.
Within seven days after signing of this Agreement, Company
may, at its option, change Schedule 6.9 with respect to Cost of Service Election
information, and Company will deliver to Parent copies of the following
Schedules: 6.4, 6.8, 6.9-A, 6.13 and 8.10 (if not initially attached to this
Agreement), along with copies of all documents referenced in such Schedules, and
such Schedules will be deemed attached to this Agreement.
8.18. Registration Rights.
At Closing Parent and the Lenfest Stockholders will execute
and deliver a Registration Rights Agreement in the form attached as Exhibit A
(the "Registration Rights Agreement") providing registration rights to the
Lenfest Stockholders.
ARTICLE IX
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CONDITIONS PRECEDENT
9.1. Conditions to Each Party's Obligations.
The respective obligations of each party to consummate the
transactions contemplated by this Agreement will be subject to the fulfillment
of the following condition: No preliminary or permanent injunction or other
order by any federal or state court in the United States which prevents the
consummation of the transactions contemplated by this Agreement has been issued
and remains in effect.
9.2. Conditions to Obligation of the Company.
The obligation of the Company to consummate the transactions
contemplated by this Agreement will be subject to the fulfillment of the
additional following conditions, unless waived by the Company:
(a) Parent and Sub have performed in all material respects
their agreements contained in this Agreement and in any Transaction Document
required to be performed on or prior to the Effective Date and the
representations and warranties of Parent and Sub contained in this Agreement and
in any Transaction Document are true without regard to any materiality
qualification in those representations and warranties (except where the failure
to be true, individually or in the aggregate, would not have a Parent Material
Adverse Effect) when made and on and as of the Effective Date as if made on and
as of such date and the Company shall have received a certificate of Parent
executed by the President or a Vice President of Parent, to that effect.
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(b) Parent shall deliver the following items, and Parent shall
take the following actions, at the Closing.
(i) Parent's Closing Certificate. Parent shall deliver
to the Company at Closing a certificate of Parent dated the Effective Date
certifying that the conditions to consummate the transactions contemplated by
this Agreement set forth in Section 9.2(a) have been satisfied.
(ii) Parent Stock Registration. Parent shall deliver
the Registration Rights Agreement in the Form of Exhibit A executed by Parent.
(iii) Distributed Subsidiary Agreements. Parent shall
cause to be delivered agreements in accordance with Exhibit C.
(c) The Company will have received an opinion of Saul, Ewing,
Remick & Saul, LLP, dated the Effective Date, that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code. In rendering
such opinion, Saul, Ewing, Remick & Saul, LLP may receive and rely upon
representations contained in certificates of the Company, Lenfest Stockholders,
Parent, Sub and others, in each case in form and substance reasonably acceptable
to Saul, Ewing, Remick & Saul, LLP.
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9.3. Conditions to Obligations of Parent and Sub.
The obligations of Parent and Sub to consummate the
transactions contemplated by this Agreement will be subject to the fulfillment
at Closing of the additional following conditions, unless waived by Parent:
(a) The Company and the Lenfest Stockholders have performed in
all material respects their agreements contained in this Agreement and in any
Transaction Document required to be performed on or prior to the Effective Date
and the representations and warranties of the Company and the Lenfest
Stockholders contained in this Agreement and in any Transaction Document are
true when made and on and as of the Effective Date as if made on and as of such
date, and Parent has received a certificate of the Company executed by the
President or a Vice President of the Company and of each Lenfest Stockholder to
that effect.
(b) The authorization, consent, order or approval of any
Governmental Entity necessary for the transfer (including a transfer of control)
of Franchises held by the Company or any Company Subsidiaries in connection with
the consummation of the transactions contemplated by this Agreement has been
obtained pursuant to such Franchises and any other applicable Legal Requirements
as follows:
(i) The aggregate number of the Company's and Company
Subsidiaries' cable subscribers located in areas that are served without a
franchise or that are served pursuant to Franchises that either do not require
consent for the transactions contemplated by this Agreement or as to which all
such required consents have been obtained is at least 90% of the total number of
cable subscribers of the Company and Company Subsidiaries (with subscribers for
this purpose to be calculated in a manner consistent with the standard reporting
methodology of the Company); and
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(ii) Any applicable waiting period (including
extensions thereof) has expired with respect to the FCC Form 394 filed in
connection with the requests for consent to the transfer of the Franchises held
by the Company and Company Subsidiaries for which consents have not then been
obtained.
(c) The FCC has consented, to the extent such consent is
legally required, to the transfer to Parent of control of all FCC licenses
possessed by the Company and Company Subsidiaries.
(d) Parent shall have received an opinion of Fleischman &
Walsh, special FCC counsel to the Company, dated as of the Effective Date, in
the form of Exhibit E to this Agreement ("Company FCC Counsel Opinion").
(e) No event or circumstance has occurred which has resulted
in, or could reasonably foreseeably result in, a Company Material Adverse
Effect.
(f) The Lenfest Stockholders will deliver to Parent
certificates representing all shares of Company Common Stock outstanding held by
Lenfest Stockholders, duly endorsed in blank or accompanied by duly executed
stock powers in blank.
(g) The Company shall deliver to Parent the following items,
and the Company shall take the following actions, at the Closing.
(i) Consents. The Company shall deliver to Parent at
Closing all consents obtained in satisfaction of the condition set forth under
Section 9.3(b) and (c), unless waived by Parent.
(ii) Company's Closing Certificate. The Company shall
deliver to Parent at Closing a certificate of the Company, and shall cause the
Lenfest Stockholders to deliver their certificate(s), dated the Effective Date
certifying that the conditions to Parent's obligation to consummate the
transactions contemplated by this Agreement set forth in Section 9.3(a) have
been satisfied.
(iii) Distributed Subsidiary Agreements. The Company
shall deliver agreements in accordance with Exhibit C.
(iv) Noncompetition Agreement. The Company shall
deliver to Parent the Noncompetition Agreement in the form of Exhibit F executed
by each of the Lenfest Stockholders.
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(h) Parent will have received an opinion of Wachtell, Lipton,
Rosen & Katz, dated the Effective Date, that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code. In rendering
such opinion, Wachtell, Lipton, Rosen & Katz may receive and rely upon
representations contained in certificates of the Company, Lenfest Stockholders,
Parent, Sub and others, in each case in form and substance reasonably acceptable
to Wachtell, Lipton, Rosen & Katz.
ARTICLE X
---------
TERMINATION, AMENDMENT AND WAIVER
10.1. Termination.
This Agreement may be terminated at any time prior to the
Effective Date:
(a) by mutual consent of the Company and Parent;
(b) by any Lenfest Stockholder, the Company or Parent if the
Closing does not occur on or before March 31, 2000, provided that the party
seeking to terminate this Agreement (and, in the case of termination by a
Lenfest Stockholder or the Company, the Company and the Lenfest Stockholders)
has or have not breached its obligations hereunder in any material respect; and
provided further that if the only conditions to Closing that have not as of such
date been satisfied or waived are Sections 9.1, 9.3(b) and/or 9.3(c), the
reference to March 31, 2000 in this Section 10.1(b) will be changed to June 30,
2000 (or if earlier than such June 30, 2000 date, to such time as such
conditions are no longer capable of satisfaction);
(c) by the Company, provided the Company and the Lenfest
Stockholders have not breached any of their obligations hereunder in any
material respect, if any of the conditions specified in Sections 9.1 or 9.2(a),
(b) or (c) have not been satisfied or waived by the Company (or, in the case of
Section 9.1, waived by the Company and Parent) at such time as such condition is
no longer capable of satisfaction; or
(d) by Parent, provided Parent has not breached any of its
obligations hereunder in any material respect, if any of the conditions
specified in Sections 9.1 or 9.3(a) through 9.3(h) have not been satisfied or
waived by Parent (or, in the case of Section 9.1, waived by the Company and
Parent) at such time as such condition is no longer capable of satisfaction.
Any termination by the Company in accordance with this Section 10.1 may be
effected as specified in Section 251(d) of the Delaware General Corporation Law.
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10.2. Effect of Termination.
In the event of termination of this Agreement by either the
Company or Parent, as provided above, this Agreement will forthwith become void
and (except for the intentional or willful breach of this Agreement by any
party) there will be no liability on the part of either the Company, Parent or
Sub, or Parent or their respective officers or directors or stockholders, except
as specifically provided herein.
10.3. Waiver.
At any time prior to the Effective Date, the parties, by or
pursuant to action taken by their respective Boards of Directors, may (i) extend
the time for the performance of any of the obligations or other acts of the
other parties, (ii) waive any inaccuracies in the representations and warranties
contained in this Agreement or in any documents delivered pursuant and (iii)
waive compliance with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
will be valid if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE XI
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GENERAL PROVISIONS; DEFINITIONS
11.1. Notices.
All notices or other communications under this Agreement will
be in writing and will be given (and will be deemed to have been duly given upon
receipt) by delivery in person, by cable, telegram, telex or other standard form
of telecommunications, or by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
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If to the Company:
Lenfest Communications, Inc.
c/o The Lenfest Group
200 Cresson Blvd.
Oaks, PA 19456-0989
Attention: H.F. Lenfest
Telephone No.: (610) 650-3010
Telecopy No.: (610) 650-3011
With a copy to:
Saul, Ewing, Remick & Saul, LLP
Centre Square West
1500 Market Street, 38th Floor
Philadelphia, PA 19102
Attention: Thomas K. Pasch, Esq.
Telephone No.: (215) 972-7188
Telecopy No.: (215) 972-1831
If to Parent or Sub:
AT&T Corp.
295 North Maple Avenue
Basking Ridge, NJ 07920
Attention: Marilyn Wasser, Esq.
Corporate Secretary
Telecopy No.: (908) 221-4402
and
AT&T Broadband & Internet Services
9197 South Peoria
Englewood, Colorado 80112
Attention: Mary Willis, Esq.,
Legal Department
Telecopy No.: (720) 875-5861
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With a copy to:
Sherman & Howard L.L.C.
633 Seventeenth Street, Suite 3000
Denver, Colorado 80202
Attention: Arlene S. Bobrow, Esq.
Telecopy No.: (303) 298-0940
If to the Lenfest Stockholders:
H.F. Lenfest
2445 Oaks Circle
Huntingdon Valley, PA 19006
Telephone No.: (215) 657-1097
Telecopy No.: (215) 657-0966
or to such other addresses as any party may have furnished to the other parties
in writing in accordance with this Section.
11.2. Fees and Expenses.
Whether or not the Closing occurs, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated by
this Agreement will be paid by the party incurring such costs and expenses,
provided, however, that if Closing occurs, the reasonable costs and expenses of
the Lenfest Stockholders up to $500,000 will be paid by the Company.
11.3. Publicity.
So long as this Agreement is in effect prior to the Effective
Date, the Company and Parent will consult with each other in issuing any press
release or otherwise making any public statement with respect to the
transactions contemplated by this Agreement. Neither the Company nor Parent will
issue any such press release or make any such public statement without the prior
written consent of the other parties, except as may be required by law or by
obligations pursuant to any listing agreement with any national securities
market. The commencement of litigation relating to this Agreement or the
transactions contemplated hereby or any proceedings in connection therewith will
not be deemed a violation of this Section 11.3.
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11.4. Specific Performance.
The parties agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties will be entitled to enforce specifically the
terms and provisions in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
11.5. Amendment.
This Agreement will be of no force or effect until executed
and delivered by all of the parties. This Agreement may be amended, modified or
cancelled, and the terms and conditions may be waived, only by a written
instrument signed by the parties.
11.6. Miscellaneous.
This Agreement (including the Transaction Documents and the
other documents and instruments referred to in this Agreement) (a) when executed
and delivered, constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter and (b) will be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Delaware (without giving effect to the provisions thereof relating to
conflicts of law). This Agreement may be executed in two or more counterparts
which together will constitute a single agreement. Any certificate delivered
pursuant to this Agreement by an officer, director or employee on behalf of a
legal entity will be made without personal liability on the part of the person
giving such certificate. Headings used in this Agreement are for convenience of
reference only and will not be deemed to affect the meaning or scope of the
provisions of this Agreement.
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<PAGE>
11.7. Definitions.
"Accountants" has the meaning set forth in Section 3.4(b) of
this Agreement.
"Acquisition Proposal" has the meaning set forth in Section
8.9 of this Agreement.
"Adjustments" means, collectively, the Debt Adjustment and the
Bonus Adjustment.
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlling," "controlled by" and "under common
control with") will mean possession, directly or indirectly, of the power to
direct or cause the direction of management or policies of a Person (whether
through the ownership of securities, or partnership or other ownership interest,
by contract or otherwise).
"Agreement" has the meaning set forth in the preamble of this
Agreement and Plan of Merger.
"Base Merger Consideration" has the meaning set forth in
Section 3.1 of this Agreement.
"Bonus Adjustment" has the meaning set forth in Section
3.3(c).
"Bonus Plan" has the meaning set forth in Section 8.5(b).
"Capital Budget" means the proposed capital budget of the
Company for year ending December 31, 1999 attached as Exhibit G or any
alternative capital budgets approved in writing by Parent and the Company for
1999 or any subsequent period.
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"Cash Consideration" has the meaning set forth in Section
3.8(a).
"Closing" has the meaning set forth in Section 3.7 of this
Agreement.
"Code" has the meaning set forth in the Recitals.
"Code Affiliate" has the meaning set forth in Section 6.8(b)
of this Agreement.
"Commission" has the meaning set forth in Section 4.4 of this
Agreement.
"Communications Act" has the meaning set forth in Section
6.9(d) of this Agreement.
"Company" has the meaning set forth in the preamble to this
Agreement.
"Company Benefit Plans" has the meaning set forth in Section
6.8(b) of this Agreement.
"Company Common Stock" has the meaning set forth in Section
3.2 of this Agreement.
"Company FCC Counsel Opinion" has the meaning set forth in
Section 9.3(d) of this Agreement.
"Company Material Adverse Effect" means a material adverse
effect on the business, properties, assets, condition (financial or otherwise),
liabilities or operations of the Company and its Subsidiaries, taken as a whole
or in the ability of the Company to perform its obligations under this
Agreement.
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"Company Permits" has the meaning set forth in Section 6.9(a)
of this Agreement.
"Company SEC Reports" has the meaning set forth in Section 6.5
of this Agreement.
"Company Subsidiary" means each Subsidiary of the Company
other than each of the Distributed Subsidiaries.
"Computer and Other Systems" means any level of hardware or
software, equipment and cable plant, or building and other facilities used by
the Company in connection with its business which are date dependent or which
process date data, including any firmware, application programs, user
interfaces, files and databases, and which might be adversely affected by the
advent or changeover to the Year 2000 or to the advent or changeover to any leap
year.
"Consent and Indemnity Agreement" has the meaning set forth in
the Recitals.
"Cost of Service Election" has the meaning set forth in
Section 6.9(d) of this Agreement.
"Debt Adjustment" has the meaning set forth in Section 3.3(b)
of this Agreement.
"DGCL" has the meaning set forth in Section 1.1.
"Distributed Assets" has the meaning set forth in Section 8.4.
"Distributed Subsidiary" means each Subsidiary of the Company
that is distributed or otherwise transferred to the Lenfest Stockholders
pursuant to Section 8.4 and the Distribution Agreement.
"Distributed Value" has the meaning set forth in Section
8.4(a) of this Agreement.
"Dollar Value" has the meaning set forth in Section 3.8.
"Effective Date" has the meaning set forth in Section 1.2.
"Equity Affiliate" has the meaning set forth in Section 6.3 of
this Agreement.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
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"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended and the rules and regulations thereunder.
"Exercise Notice" has the meaning set forth in Section 3.8.
"FCC" has the meaning set forth in Section 4.3 of this
Agreement.
"Final Adjustment Schedule" has the meaning set forth in
Section 3.4(b) of this Agreement.
"Final Merger Consideration" has the meaning set forth in
Section 3.4(b) of this Agreement.
"Financial Statements" has the meaning set forth in Section
6.10(c).
"Franchise" means authority to provide cable television
service pursuant to a governmental franchise or similar authorization.
"GAAP" means Generally Accepted Accounting Principles as in
effect on the date.
"Governing Document" means, with respect to any Person, such
Person's (x) certificate of incorporation, articles of incorporation or other
corporate organizational document, (y) by-laws and (z) partnership agreement
relating to the formation of such Person as in effect at the time of
determination to include any amendments thereto.
"Governmental Entity" means the United States of America, any
state, commonwealth, territory or possession of the United States of America and
any political subdivision or quasi-governmental authority of any of the same,
including any court, tribunal, department, commission, board, bureau, agency,
county, municipality, province, parish or other instrumentality of any of the
foregoing.
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"Knowledge" of a particular fact or other matter means the
current or prior knowledge of any of the following individuals: H.F. Lenfest,
Maryann V. Bryla, Sam Morris, Brook Lenfest, Chase Lenfest, Joseph Cece, Debra
A. Krzywicki or Robert M. Lawrence.
"Legal Requirement" means applicable common law and any
statute, ordinance, code or other law, rule, regulation, order, technical or
other written standard, requirement or procedure enacted, adopted, promulgated,
applied or followed by any Governmental Entity.
"Lenfest Stockholders" has the meaning set forth in the
preamble of this Agreement and Plan of Merger.
"Lien" means any lien, security interest, pledge, charge,
claim, option, right to acquire, restriction on transfer, voting restriction or
encumbrance of any nature.
"Merger" has the meaning set forth in the Recitals.
"Merger Consideration" has the meaning set forth in Section
3.1.
"Parent" has the meaning set forth in the preamble to this
Agreement.
"Parent Material Adverse Effect" means a material adverse
effect on the business, properties, assets, condition (financial or otherwise),
liabilities or operations of Parent and its Subsidiaries, taken as a whole, or a
material impairment or adverse effect on the ability of Parent to perform its
obligations under this Agreement.
"Parent SEC Reports" has the meaning set forth in Section 4.4
of this Agreement.
"Parent Stock" has the meaning set forth in Section 3.1 of
this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means any individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Entity or other entity of any nature.
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<PAGE>
"Preliminary Merger Consideration" has the meaning set forth
in Section 3.4(a) of this Agreement.
"Purchase Closing Date" has the meaning set forth in Section
3.8.
"Purchase Valuation Period" has the meaning set forth in
Section 3.8.
"Purchased Share Valuation" has the meaning set forth in
Section 3.8.
"Registration Rights Agreement" has the meaning set forth in
Section 8.18 of this Agreement.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
"Share Valuation" has the meaning set forth in Section 3.2(b).
"Specified Intercompany Debt" has the meaning set forth in
Section 3.3(b).
"Sports Option" has the meaning set forth in Section 8.4(h).
"Stock Merger Consideration" has the meaning set forth in
Section 3.1.
"Stockholder" has the meaning set forth in Section 3.2.
"Stockholders Representative" means H.F. Lenfest.
"Sub" has the meaning set forth in the preamble to this
Agreement.
"Subsidiary" means with respect to any Person, any corporation
or partnership more than 50% of whose outstanding voting securities or
partnership interests, as the case may be, are directly or indirectly owned by
such Person.
"Suburban" means Suburban Cable TV Co., Inc., a Pennsylvania
corporation.
"Successor Entities" has the meaning set forth in Section
8.4(a).
"Surviving Corporation" has the meaning set forth in Section
1.1.
"System" has the meaning set forth in Section 6.9(c) of this
Agreement.
"Tax" has the meaning set forth in Section 6.10(a).
54
<PAGE>
"Transaction Documents" means the Consent and Indemnity
Agreement and the instruments and documents described in Sections
9.2(b)(i)-(iii) and 9.3(g)(ii)-(iv) that are to be delivered by or on behalf of
Parent, Sub or the Company or Stockholders Representative in connection with
this Agreement or the transactions contemplated hereby.
"Valuation Period" has the meaning set forth in Section 3.2(b)
of this Agreement.
"WARN" has the meaning set forth in Section 6.8(a) of this
Agreement.
"Year 2000 Ready" or "Year 2000 Readiness" means that the
referenced component, system, software, equipment or other item is designed to
be used prior to, during and after the calendar year 2000 A.D., and that such
item will operate at all levels, including microcode, firmware, application
programs, user interfaces, files and databases, during each such time period
without error or interruption relating to, or the product of, date data which
represents or references different centuries or more than one century or leap
year.
"Year 2000 Remediation Program" means an enterprise-wide
program to make Year 2000 Ready all material components, systems, software,
equipment, facilities and other items related to the subject entity's business.
Such Year 2000 Remediation Program must be conducted by persons with experience
in issues related to Year 2000 Readiness and such persons must have organized an
enterprise-wide program management office which reports to executive level
management and the board of directors or other governing body of such entity.
11.8. Accounting Terms; Application of Defined Terms.
Terms used with initial capital letters or otherwise defined
in this Agreement will have the meanings specified, applicable to both singular
and plural forms, for all purposes of this Agreement. The word "include" and
derivatives of that word are used in this Agreement in an illustrative sense
rather than limiting sense.
All accounting terms not otherwise defined in this Agreement
will have the meanings ascribed to them under GAAP.
55
<PAGE>
IN WITNESS WHEREOF, Parent, Sub, the Company and Stockholders
Representative have caused this Agreement to be signed by their respective
officers thereunder duly authorized all as of the date first written above.
AT&T CORP.
By:
-----------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
AT&T LCI INC.
By:
-----------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
LENFEST COMMUNICATIONS, INC.
By:
-----------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
LENFEST STOCKHOLDERS
---------------------------------------------
H.F. Lenfest
---------------------------------------------
H. Chase Lenfest
---------------------------------------------
Brook J. Lenfest
---------------------------------------------
Diane Lenfest Myer
<PAGE>
STOCK PLEDGE AGREEMENT
("Lenfest Pledge Agreement")
LENFEST PLEDGE AGREEMENT made as of the 12th day of May, 1999, by and
between LENFEST YORK, INC., a Delaware corporation ("Pledgor"), and FIRST UNION
NATIONAL BANK, a national banking association as agent on behalf of the Senior
Secured Parties (as defined in the Credit Agreement referred to below). First
Union National Bank in its capacity as agent hereunder, with its successors and
assigns, is hereinafter referred to as "Agent."
BACKGROUND OF AGREEMENT
-----------------------
On the date hereof certain lenders and issuers of letters of credit and
FIRST UNION NATIONAL BANK as Agent have entered into a Credit Agreement (as
amended, extended, supplemented, restated or otherwise modified or refinanced,
including without limitation any amendment involving an increase in principal,
interest rate or other amount, the "Credit Agreement") with Susquehanna Media
Co. (the "Borrower"), pursuant to which such lenders and issuers agreed to
extend credit to the Borrower upon the terms and conditions specified in the
Credit Agreement under (1) a revolving credit facility with a swing loan
subfacility, and (2) two separate term loan facilities, and to issue, or
participate in the issuance of, certain letters of credit. In addition, the
Credit Agreement currently requires under certain conditions the Borrower to
enter into certain interest rate hedging agreements.
One of the prerequisites to the making of advances by the Lenders (as
defined in the Credit Agreement) under the Credit Agreement and the issuing of
letters of credit thereunder is that the Pledgor (which owns the capital stock
of certain Subsidiaries, direct or indirect, of the Borrower as specified on
Schedule 1) shall have entered into this Lenfest Pledge Agreement and shall have
granted to the Agent for the benefit of the Senior Secured Parties a security
interest in and to all of the shares of capital stock of the Subsidiaries of the
Borrower owned by Pledgor to secure the Borrower's obligations to the Senior
Secured Parties. This Lenfest Pledge Agreement is being executed and delivered
pursuant to Section 4.1.5 of the Credit Agreement.
Pledgor acknowledges that the loans made pursuant to the Credit
Agreement will benefit the Subsidiaries of the Borrower in which Pledgor has an
interest and thereby also benefit Pledgor. Pledgor also acknowledges that it was
and will be Solvent, before and after giving effect to the transactions
contemplated by the Credit Agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, and in consideration of the mutual covenants herein contained and other
good and valuable consideration receipt of which is hereby acknowledged, agree
as follows:
<PAGE>
SECTION 1. DEFINITIONS
Capitalized terms used but not otherwise defined herein shall have the
meanings assigned to such terms in, or by reference in, the Credit Agreement or
in the Uniform Commercial Code, as applicable. The following terms shall have
the following meanings:
"Collateral" shall mean (without duplication):
(i) all Investment Property evidencing ownership interests in, or
related to, the Borrower and/or any Subsidiary of the Borrower, including,
without limitation, the shares of capital stock and other securities owned by
the Pledgor in any of the entities listed on Schedule I hereto (as the same may
be modified from time to time pursuant to the terms hereof), and any other
shares of capital stock of and/or other securities of and/or ownership interests
in the Borrower and/or any Subsidiary of the Borrower obtained in the future by
the Pledgor, and, in each case, all certificates representing such shares and/or
securities and/or ownership interests and, in each case, all rights, options,
warrants, stock, other securities and ownership interests which may hereafter be
received, receivable or distributed in respect of, or exchanged for, any of the
foregoing (all of the foregoing being referred to herein as the "Pledged
Securities");
(ii) all other property which may be delivered to and held by the
Agent pursuant to the terms hereof of any character whatsoever into which any of
the Pledged Securities may be converted or which may be substituted for any of
the foregoing; and
(iii) all Proceeds of the Pledged Securities and of such other
property, including, without limitation, all dividends, cash, securities or
other property at any time and from time to time acquired, receivable or
otherwise distributed in respect of, or in exchange for, any of or all such
Pledged Securities or other property.
"FCC" shall mean the Federal Communications Commission or any
governmental body succeeding to the functions of such commission.
"FCC License" shall mean any radio, microwave, or other
communications license, permit, certificate of compliance, franchise, approval
or authorization granted or issued by the FCC for control, ownership,
acquisition, construction, operation, management or maintenance of domestic
cable television systems, radio broadcasting systems or businesses directly
related thereto.
"Franchise" shall mean a franchise, permit or license (including,
without limitation, an FCC License), designation or certificate granted by the
United States or any other country, territory or state or a city, town, county
or other municipality, PUC or any other regulatory authority pursuant to which a
Person has the right to own, control, acquire, construct, operate, manage or
maintain a domestic cable television system, radio broadcasting system or
business directly related thereto.
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"Lien" shall mean, as to any Person, any mortgage, lien, pledge,
adverse claim, charge, security interest or other encumbrance in or on, or any
interest or title of any vendor, lessor, lender or other secured party to or of
such Person under any conditional sale or other title retention agreement or
capital lease with respect to, any property or asset of such Person.
"Necessary Endorsement" shall mean undated stock powers endorsed
in blank (with signatures property guaranteed) or other proper instruments of
assignment duly executed and such other instruments or documents as the Agent
may reasonably request.
"Proceeds" shall have the meaning assigned to such term under the
Uniform Commercial Code and, in any event, shall include (i) any and all
proceeds of any guarantee, insurance or indemnity payable to the Pledgor from
time to time with respect to any of the Collateral; (ii) any and all payments
(in any form whatsoever) made or due and payable to the Pledgor from time to
time in connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental authority
(or any person acting under color of governmental authority); and (iii) any and
all other amounts from time to time paid or payable with respect to or in
connection with any of the Collateral.
"PUC" shall mean any state or local regulatory agency or body
that exercises jurisdiction over the ownership, construction, operation,
acquisition, management or maintenance of domestic cable television systems,
radio broadcasting systems or businesses directly related thereto.
"Uniform Commercial Code" shall mean the Uniform Commercial Code,
as amended, as is in effect in the Commonwealth of Pennsylvania or in any
applicable state as the case may be.
SECTION 2. CREATION OF SECURITY INTEREST
As security for the payment and performance in full of the Senior
Secured Obligations, the Pledgor hereby hypothecates, pledges, assigns, sets
over and delivers unto the Agent, and grants to the Agent, for the equal (in
priority) and ratable benefit of the Senior Secured Parties, a continuing first
priority security interest in all its right, title and interest in, to and under
the Collateral, TO HAVE AND TO HOLD the Collateral, together with all right,
title, interest, powers, privileges and preferences pertaining or incidental
thereto, unto the Agent, forever; subject, however, to the terms, covenants and
conditions hereinafter set forth.
SECTION 3. NON-RECOURSE GUARANTY
The Pledgor hereby irrevocably and unconditionally guaranties to the
Agent the full and timely payment and performance of the Senior Secured
Obligations, it being the Pledgor's intent that the guaranty set forth in this
Section 3 shall be a guaranty of payment and not a guaranty of collection. The
guaranty hereunder is a primary and original obligation of the Pledgor and is an
absolute, unconditional guaranty of payment and performance which is irrevocable
and, to the extent allowed by applicable law, shall remain in full force and
effect without respect to future changes in conditions. The Pledgor shall have
no right of subrogation, reimbursement or indemnity whatsoever and no right of
recourse to or with respect to any assets or property of the Borrower or to any
Collateral. The Pledgors liability under this Lenfest Pledge Agreement, and the
rights and remedies of Agent hereunder, shall be immediate and shall not be
contingent upon the exercise or enforcement by Agent of whatever remedies it may
have against the Borrower or others or the enforcement of any lien or the
realization upon any security that Agent may at any time possess.
Notwithstanding the foregoing paragraph, the recourse of Agent in
respect of the guaranty of the Pledgor set forth in this Section 3 is limited to
the Pledgor's interest in the Collateral. However, this paragraph shall not
limit Agent's rights against the Pledgor as a result of any breach by the
Pledgor of any representation, warranty or covenant of the Pledgor set forth in
this Lenfest Pledge Agreement.
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SECTION 4. DELIVERY OF COLLATERAL
4.1 At Time of Execution of Agreement. Contemporaneously with the
execution of this Lenfest Pledge Agreement or, in any event, prior to the
Closing Date, the Pledgor shall deliver or cause to be delivered to the Agent
(i) any and all certificates and other instruments evidencing the Pledged
Securities, (ii) any and all other certificates or other instruments or
documents representing any of the Collateral and (iii) all other property
comprising part of the Collateral, in each case along with the Necessary
Endorsements.
4.2 Subsequent Delivery of Collateral. If the Pledgor shall become
entitled to receive or shall receive any securities or other property
(including, without limitation, shares of Pledged Securities acquired after the
Closing Date (including, without limitation, stock in York Cable Television,
Inc.), or any options, warrants, rights or other similar property or
certificates representing a stock dividend, or any distribution in connection
with any recapitalization, reclassification or increase or reduction of capital,
or issued in connection with any reorganization of the Borrower or any
Subsidiary, but excluding dividends permitted to be retained under Section 6) in
respect of the Pledged Securities (whether as an addition to, in substitution
of, or in exchange for, such Pledged Securities or otherwise), the Pledgor
agrees:
(i) to accept the same as the agent of the Agent,
(ii) to hold the same in trust on behalf of and for the benefit
of the Agent, and
(iii) to deliver any and all certificates or instruments
evidencing the same to the Agent on or before the close of business on the
seventh (7th) Business Day following the receipt thereof by the Pledgor, in the
exact form received together with the Necessary Endorsements, to be held by the
Agent subject to the terms of this Lenfest Pledge Agreement, as additional
Collateral.
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<PAGE>
SECTION 5. REPRESENTATIONS AND WARRANTIES OF PLEDGOR
5.1 Representations and Warranties. Pledgor represents and warrants
as follows:
(i) Pledgor is a duly organized and validly existing corporation
in good standing under the laws of the State of Delaware. Pledgor has perpetual
corporate existence, and Pledgor has the corporate power and authority to own
its property and assets and to transact the business in which it is engaged and
presently proposes to engage. Pledgor has not failed to qualify to do business
in any state or jurisdiction where the failure to so qualify could have a
material adverse effect on (a) the ability of Pledgor to perform its obligations
hereunder, (b) the binding nature, validity or enforceability of this Lenfest
Pledge Agreement, or (c) the validity, perfection, priority or enforceability of
the Lien of the Agent for the benefit of the Senior Secured Parties in the
Collateral. The principal place of business of Pledgor is located at the address
set forth on the signature page hereto and the sole name under which Pledgor
conducts business is set forth in the first paragraph of this Lenfest Pledge
Agreement.
(ii) All the Pledged Securities are owned by Pledgor
beneficially and of record free and clear of any Lien, except for the Liens
created pursuant to this Lenfest Pledge Agreement. The execution and delivery by
Pledgor of this Lenfest Pledge Agreement and the delivery of the Collateral to
the Agent simultaneously therewith has created a valid and perfected security
interest in the Collateral in favor of the Agent, for the equal (in priority)
and ratable benefit of the Senior Secured Parties, to secure payment of the
Senior Secured Obligations.
(iii) Pledgor has the corporate power to execute, deliver and
carry out the terms and provisions of this Lenfest Pledge Agreement, and Pledgor
has taken all necessary corporate action (including, without limitation, any
consent of stockholders required by law or by its articles of incorporation or
bylaws or other organizational documents) to authorize the execution, delivery
and performance of this Lenfest Pledge Agreement. This Lenfest Pledge Agreement
constitutes the authorized, valid and legally binding obligation of Pledgor
enforceable in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether such enforcement is sought in a
court of law or at equity).
(iv) The execution and delivery of this Lenfest Pledge
Agreement, the consummation of the transactions contemplated hereby and
compliance with the terms and provisions hereof, will not (x) violate any
provision of law or any injunction or any applicable regulation, order, writ,
judgment or decree of any court or governmental department, commission, board,
bureau, agency or instrumentality applicable to Pledgor, or (y) conflict or be
inconsistent with, or result in any breach of, any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to impose) any Lien, other than the
Liens created hereby, upon any of the Collateral or assets of Pledgor pursuant
to the terms of, any agreement, indenture, franchise, license, permit, mortgage
or deed of trust to which Pledgor is a party or by which Pledgor is bound, or to
which
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<PAGE>
Pledgor is subject, or (z) violate any of the provisions of the articles of
incorporation, bylaws or other organizational documents of Pledgor.
(v) No consent, approval or authorization of any Person which
has not been obtained, or recording, filing, registration, notice or other
similar action with or to any Person, is required in order to insure the
legality, validity, binding effect or enforceability of this Lenfest Pledge
Agreement, except such filings and may be required as contemplated by Section
7.30 of the Credit Agreement.
(vi) The shares of stock and securities of the Subsidiaries of
the Borrower included in the Collateral are not, to the knowledge of Pledgor,
subject to any charter, bylaw, statutory, contractual or other restriction
governing their issuance, transfer, ownership or control which restriction would
limit the effectiveness or enforceability of the pledge and security interest
created under this Lenfest Pledge Agreement, except to the extent that
regulatory considerations reflected in Section 12 hereof may affect the
enforceability of certain rights and remedies of the Agent and the Senior
Secured Parties hereunder.
5.2 Survival of Representations and Warranties. All the foregoing
representations and warranties shall survive the execution and delivery of this
Lenfest Pledge Agreement and shall continue until this Lenfest Pledge Agreement
is terminated as provided herein and shall not be affected or waived by any
inspection or examination made by or on behalf of Agent or any Senior Secured
Party.
SECTION 6. VOTING; DIVIDENDS
6.1 Rights Prior To Default. Other than during the existence of an
Event of Default,
(i) Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Securities or any part thereof
for any purpose not inconsistent with the terms of the Loan Documents.
(ii) Subject to and limited by the restrictions on dividends and
other payments in respect of the Collateral set forth in the Loan Documents,
Pledgor shall be entitled to receive and retain any and all dividends and other
payments paid in respect of the Collateral, provided, however, that any and all
(a) dividends or other payments paid or payable other than
in cash in respect of, and instruments and other property received, receivable
or otherwise distributed in respect of, or in exchange for, any Collateral,
(b) dividends and other distributions paid or payable in
cash in respect of any Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital, capital
surplus or paid-in-surplus, and
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<PAGE>
(c) cash paid, payable or otherwise distributed in
redemption of or exchange for, any Collateral except in a transaction permitted
by the Credit Agreement, shall forthwith be delivered to the Agent to hold as
Collateral and shall, if received by Pledgor, be received in trust for the
benefit of the Agent, be segregated from the other property or funds of Pledgor,
and be forthwith delivered to the Agent as Collateral in the same form as so
received (with any Necessary Endorsement).
(iii) The Agent shall execute and deliver to the Pledgor all
such proxies and other instruments as the Pledgor may reasonably request for the
purpose of enabling the Pledgor to exercise the voting and other rights which it
is entitled to exercise pursuant to paragraph (i) above and to receive the
dividends or interest payments which it is authorized to receive and retain
pursuant to paragraph (ii) above.
6.2 Rights After a Default. Upon the occurrence and during the
continuation of an Event of Default and as more fully set forth in Section 11
below,
(i) Subject to Section 12 below, all rights of the Pledgor to
exercise the voting and other consensual rights which it would otherwise be
entitled to exercise pursuant to subsection 6.1 above and to receive the
dividends and payments which it would otherwise be authorized to receive and
retain pursuant to subsection 6.1 above shall cease, and all such rights shall
thereupon become vested in the Agent who shall have the sole right to exercise
such voting and other consensual rights and to receive and hold as Collateral
such dividends and payments.
(ii) All dividends and other payments which are received by the
Pledgor contrary to the provisions of paragraph (i) of this subsection 6.2 shall
be received in trust for the benefit of the Agent, shall be segregated from
other funds of the Pledgor and shall forthwith be paid over to the Agent as
Collateral in the same form as so received (with any Necessary Endorsement).
SECTION 7. COVENANTS OF PLEDGOR
Pledgor covenants that until this Lenfest Pledge Agreement is
terminated in accordance with the terms hereof:
(i) Pledgor shall not transfer, sell, encumber or otherwise
dispose of any of the Collateral, except in connection with a sale permitted
under the provisions of the Credit Agreement providing for dispositions to third
parties free of Liens or to the Borrower and/or one or more Subsidiaries of the
Borrower, and shall not create, assume or suffer to exist any Lien in or on any
of the Collateral, except the Liens created hereunder, provided that Pledgor may
transfer the Collateral to AT&T Corp. if prior to such transfer (1) such
transferee executes and delivers to Agent such documents as Agent may request so
that such transferee becomes bound by this Lenfest Pledge Agreement as if an
original signatory hereto and the transferred Collateral remains pledged to
Agent and (2) such transferee has executed and delivered to the Company a
confirmation that the Company shall be entitled to programming discounts that
are at least as favorable to the Company and its Subsidiaries as those offered
through Lenfest.
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(ii) To the extent permitted by applicable law, Pledgor hereby
waives any rights which it otherwise may have under Section 9-112 of the Uniform
Commercial Code as in effect in the Commonwealth of Pennsylvania.
(iii) Pledgor shall not change the location of its principal
office or its name referred to in Section 5.1 (i), or conduct business under any
other name, without having first (a) given to Agent at least thirty (30) days'
prior written notice of same and (b) executed, delivered and filed (and paid or
cause to be paid by the Borrower or any Subsidiary of the Borrower all filing
fees and taxes) all such documents as may be necessary or advisable in the
opinion of Agent to continue to perfect and protect the Liens created hereby.
(iv) Pledgor shall vote the stock and securities included in the
Collateral in a manner consistent with the covenants and agreements of Pledgor,
the Borrower and the Subsidiaries of the Borrower set forth in the Loan
Documents, including, without limitation, restricting the issuance of additional
shares of stock of the Borrower and its Subsidiaries (or rights or options
therefore) except such as is pledged to the Agent pursuant to the terms of the
Loan Documents.
SECTION 8. FURTHER ASSURANCES
The Pledgor agrees that at any time and from time to time, at the
expense of the Borrower and its Subsidiaries, the Pledgor will (and will require
the Borrower and its Subsidiaries to at the expense of the Borrower and its
Subsidiaries) promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable, or
that the Agent may request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable the Agent to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral including, without limitation, using its reasonable best efforts to
cooperate in obtaining any FCC, PUC, or other governmental approval of any
action or transaction contemplated hereby or thereby.
SECTION 9. AGENT APPOINTED ATTORNEY-IN-FACT; MAY PERFORM CERTAIN DUTIES
9.1 Appointment as Attorney-in-fact. Effective upon the occurrence
of an Event of Default, and so long as Agent reasonably believes such Event of
Default is continuing, the Pledgor hereby appoints the Agent as its true and
lawful agent, proxy, and attorney-in-fact for the purpose of carrying out this
Lenfest Pledge Agreement and taking any action and executing any instrument
which the Agent may deem necessary or advisable to accomplish the purposes
hereof including, without limitation, the execution on behalf of Pledgor of any
financing or continuation statement with respect to the security interest
created hereby and the endorsement of any drafts or orders which may be payable
to Pledgor in respect of, arising out of, or relating to any or all of the
Collateral. This power shall be valid until the termination of the security
interests created hereunder, any limitation under law as to the length or
validity of a proxy to the contrary notwithstanding. This appointment is
irrevocable and coupled with an interest and any proxies heretofore given by the
Pledgor to any other Person are revoked. The designation set forth herein shall
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be deemed to amend and supersede any inconsistent provision in the articles of
incorporation, bylaws or other documents to which Pledgor or any Subsidiary of
the Borrower in which Pledgor holds capital stock is subject or to which any is
a party.
9.2 Registration of Securities. Pledgor shall instruct each
Subsidiary of the Borrower in which Pledgor holds capital stock to, and such
Subsidiary of the Borrower shall, register the pledge of the shares included in
the Collateral in the name of the Agent on the books of such Subsidiary of the
Borrower. Upon the occurrence and during the continuance of an Event of Default,
Pledgor shall at the direction of Agent instruct each Subsidiary of the Borrower
in which Pledgor holds capital stock to, and such Subsidiary of the Borrower
shall, register the shares included in the Collateral in the name of the Agent
on the books of such Subsidiary of the Borrower.
9.3 Performance of Pledgor's Duties. In furtherance, and not by way
of limitation, of the foregoing subsections 9.1 and 9.2, if (at any time either
before or after the occurrence of an Event of Default) the Pledgor fails to
perform any agreement contained herein, the Agent may (but under no circumstance
is obligated to) perform such agreement and any expenses incurred shall be
payable by the Borrower and its Subsidiaries provided, however, that nothing
herein shall be deemed to relieve the Pledgor from fulfilling any of its
obligations hereunder.
9.4 Acts May Be Performed By Agents and Employees. Any act of the
Agent to be performed pursuant to this Section 9 or elsewhere in this Lenfest
Pledge Agreement may be performed by agents or employees of the Agent.
SECTION 10. STANDARD OF CARE
10.1 In General. No act or omission of any Senior Secured Party (or
agent or employee thereof shall give rise to any defense, counterclaim or offset
in favor of the Pledgor or any claim or action against any such Senior Secured
Party (or agent or employee thereof, in the absence of gross negligence or
willful misconduct of such Senior Secured Party as determined in a final,
nonappealable judgment of a court of competent jurisdiction. The Agent shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which the Agent accords to its own property, it
being understood that it has no duty to take any action with respect to calls,
conversions or exchanges or to preserve any rights of any parties and shall only
be liable for losses which are a result of it gross negligence or willful
misconduct as determined in a final, nonappealable judgment of a court of
competent jurisdiction.
10.2 Reliance on Advice of Counsel. In taking any action under this
Lenfest Pledge Agreement, the Agent shall be entitled to rely upon the advice of
counsel of Agent's choice and shall be fully protected in acting on such advice
whether or not the advice rendered is ultimately determined to have been
accurate.
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SECTION 11. DEFAULT
11.1 Certain Rights Upon Default. In addition to any other rights
accorded to the Agent and the Senior Secured Parties hereunder, upon the
occurrence and during the continuation of an Event of Default:
11.1.1 The Agent shall be entitled to receive any cash
dividends or payments on the Collateral and, subject to Section 12 below, to
exercise in the Agent's discretion all voting rights pertaining thereto as more
fully set forth in Section 6 above. Without limiting the generality of the
foregoing, subject to Section 12 below, the Agent shall have the right to
exercise all rights with respect to the Collateral as if it were the sole and
absolute owner thereof, including, without limitation, to vote and/or to
exchange, at its sole discretion, any or all of the Collateral in connection
with a merger, reorganization, consolidation, recapitalization or other
readjustment concerning or involving the Collateral or the Borrower, any
Subsidiary of the Borrower or the Pledgor.
11.1.2 Pledgor, the Borrower and each Subsidiary of the
Borrower shall take any action necessary or required or requested by the Agent
in order to allow it fully to enforce the security interest in the Collateral
hereunder and to realize thereon to the fullest extent possible, including, but
not limited to, the filing of any claims with any court, liquidator, trustee,
guardian, receiver or other like person or party.
11.1.3 The Agent shall have all of the rights of a secured
party under the Uniform Commercial Code of Pennsylvania, as amended, and any
other applicable law including the right to sell on such terms as it may deem
appropriate any or all of the Collateral at one or more public or private sales
upon at least ten (10) Business Days' written notice to Pledgor of the time and
place of any public sale and of the date on which the Collateral will first be
offered for sale in the case of any private sale. Agent shall have the right to
bid thereat or purchase any part or all the Collateral in its own or a nominee's
name (subject to applicable FCC or PUC requirements or restrictions). The Agent
shall have the right to apply the proceeds of the sale, after deduction for any
costs and expenses of sale (including any liabilities incurred in connection
therewith including reasonable attorneys' fees and allocated costs of attorneys
who are employees of the Agent), to the payment of the Senior Secured
Obligations in any manner or order which the Agent, in its sole discretion, may
elect (whether pursuant to the Credit Agreement or otherwise), to the payment of
any other amount required by law (including without limitation Section
9-504(l)(c) of the Uniform Commercial Code), and to pay any remaining proceeds
to Pledgor or its successors or assigns or to whomsoever may lawfully be
entitled to receive the same or as a court of competent jurisdiction may direct,
without further notice to or consent of Pledgor and without regard to any
equitable principles of marshalling or other like equitable doctrines. Pledgor
hereby acknowledges and agrees that the notice provided for above is reasonable
and expressly waives any rights it may have of equity of redemption, stay or
appraisal with respect to the Collateral.
11.1.4 For purposes hereof, a written agreement to purchase the
Collateral or any portion thereof shall be treated as a sale thereof; the Agent
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shall be free to carry out such sale pursuant to such agreement, and Pledgor
shall not be entitled to the return of the Collateral or any portion thereof,
notwithstanding the fact that after Agent shall have entered into such an
agreement, any and all Defaults shall have been remedied and the Senior Secured
Obligations paid in full.
11.1.5 The Agent shall have the right, with full power of
substitution either in the Agent's name or the name of the Pledgor, to ask for,
demand, sue, collect and receive any and all moneys due or to become due under
and by virtue of the Collateral and to settle, compromise, prosecute or defend
any action, claim or proceeding with respect thereto, provided, however, that
nothing herein shall be construed as requiring the Agent to take any action,
including, without limitation, requiring or obligating the Agent to make any
inquiry as to the nature or sufficiency of any payment received, or to present
or file any claim or notice, or to take any action with respect to the
Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby.
11.1.6 The Agent shall be entitled to the appointment of a
receiver or trustee for all or any part of the businesses of the Borrower or of
the Subsidiary of the Borrower in which Pledgor owns an interest or of the
Pledgor, which receiver shall have such powers as may be conferred by law or the
appointing authority.
11.2 Agent May Exercise Less Than All Rights. Pledgor hereby
acknowledges and agrees that the Agent is not required to exercise all remedies
and rights available to it equally with respect to all of the Collateral, and
the Agent may select less than all of the Collateral with respect to which the
remedies as determined by the Agent may be exercised.
11.3 Duties of Pledgor/Borrower and Subsidiary of the Borrower With
Respect to Transferee. In the event that, upon an occurrence of an Event of
Default, the Agent shall sell all or any of the Collateral to another party or
parties (herein called "Transferee") or shall purchase or retain all or any of
the Collateral, Pledgor shall instruct the Borrower and each Subsidiary of the
Borrower in which Pledgor holds an interest to, and the Borrower and each such
Subsidiary shall:
(i) Deliver to the Agent or Transferee, as the case may be, the
articles of incorporation, bylaws, minute books, stock certificate books,
corporate seals, deeds, leases, indentures, agreements, evidences of
indebtedness, books of account, financial records and all other documents and
records of the Subsidiary of the Borrower in which Pledgor has an interest;
(ii) Use its best efforts to obtain resignations of the persons
then serving as officers and directors of Subsidiaries of the Borrower in which
Pledgor has an interest, if so requested; and
(iii) Use its best efforts to obtain any approvals that are
required by any governmental or regulatory body in order to permit the sale of
the Collateral to the Transferee or the purchase or retention of the Collateral
by the Agent and allow the Transferee or the Agent to continue the business of
the issuer.
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SECTION 12. ACKNOWLEDGEMENT OF REGULATORY CONSIDERATIONS; UNIQUE NATURE
OF ASSETS.
12.1 FCC/PUC Approval. It is hereby acknowledged that transfer of
certain Collateral and the exercise of certain other remedies provided herein
may constitute a transfer of an FCC License or other Franchise or a sale or
transfer of control of a holder of an FCC License or other Franchise, requiring
approval of the FCC or PUC, pursuant to rules and regulations of the FCC or PUC.
Notwithstanding anything to the contrary contained in this Agreement, the Agent
will not knowingly take any action pursuant to this Agreement which would
constitute or result in an assignment of an FCC License or other Franchise or
any transfer of control of the holder of an FCC License or other Franchise if
such assignment of license or transfer of control would require under then
existing law (including the written rules and regulations promulgated by the FCC
or any PUC), the prior approval of the FCC or such PUC, without first obtaining
such approval. In connection with this provision, the Agent shall be entitled to
rely upon the advice of counsel of Agent's choice whether or not the advice
rendered is ultimately determined to have been accurate.
12.2 Pledgor/Borrower and Subsidiary of the Borrower Assistance in
Obtaining Approval. Without limiting the generality of Section 8 above, if
counsel to the Agent reasonably determines that the consent of the FCC or PUC is
required in connection with any of the actions hereunder or under any other Loan
Document, then the Pledgor (at the cost and expense of the Borrower and its
Subsidiaries) agrees to use its best efforts to secure such consent and to
cooperate fully with the Agent in any action to secure such consent. Further,
the Pledgor shall use its best efforts to require the Borrower and Subsidiaries
of the Borrower to do the same, Without limiting the generality of the
foregoing, Pledgor, the Borrower and the Borrower's Subsidiaries shall promptly
execute and file and/or cause the execution and filing of all applications,
certificates, instruments, and other documents and papers that the Agent deems
necessary or advisable to file in order to obtain any necessary governmental
consent, approval, or authorization, and if the Borrower, any Subsidiary of the
Borrower or Pledgor fails or refuses to execute (or fails or refuses to cause
another Person to execute) such documents, the Agent or the clerk of any court
of competent jurisdiction may execute and file the same on behalf of the
Borrower, any Subsidiary of the Borrower and Pledgor (or any of them) or such
other Person.
12.3 Unique Nature of Assets. It is agreed that the FCC Licenses and
other Franchises held by the Borrower and its Subsidiaries are unique assets
which (or the control of which) may have to be transferred in order for the
Agent adequately to realize the value of its security interest. A violation of
the covenants set forth in this Section would result in irreparable harm to the
Agent for which monetary damages are not readily ascertainable. Therefore, in
addition to any other remedy which may be available to the Agent at law or in
equity, Agent shall have the remedy of specific performance of the provisions of
this Section. To enforce the provisions of this Section, the Agent is authorized
to request the consent or approval of the FCC or PUC to a voluntary or an
involuntary transfer of control of any FCC License or other Franchise or sale or
transfer of control of a holder of an FCC License or other Franchise.
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12.4 Selection by Agent of Different Transferee. If, for any reason,
the FCC or PUC does not approve within a reasonable period of time (which period
shall be determined conclusively by the Agent), the initial application for
approval of the transfer of the Collateral, the Agent shall then have the right
to transfer the Collateral to such other Person as the Agent shall select
(subject to the prior approval of the FCC or PUC). With respect to such
subsequent selection, Pledgor agrees to cooperate fully in the manner set forth
above. Exercise by the Agent of the right to such cooperation shall not be
exhausted by the initial or any subsequent exercise thereof.
SECTION 13. SECURITIES LAW PROVISION
Pledgor recognizes that the Agent may be limited in its ability to
effect a sale to the public of all or part of the Collateral by reason of
certain prohibitions in the Securities Act of 1933, as amended, or other federal
or state securities laws (collectively, the "Securities Laws"), and may be
compelled to resort to one or more sales to a restricted group of purchasers who
may be required to agree to acquire the Collateral for their own account, for
investment and not with a view to the distribution or resale thereof. Pledgor
agrees that sales so made may be at prices and on terms less favorable than if
the Collateral were sold to the public, and that the Agent has no obligation to
delay the sale of any Collateral for the period of time necessary to register
the Collateral for sale to the public under the Securities Laws. Pledgor shall
(and require the Borrower and its Subsidiaries to) cooperate with the Agent in
its attempts to satisfy any requirements under the Securities Laws (including
without limitation registration thereunder if requested by Agent) applicable to
the sale of the Collateral by the Agent at the Borrower's and its Subsidiaries'
cost and expense.
SECTION 14. SECURITY INTEREST ABSOLUTE; WAIVERS BY PLEDGOR
14.1 Absolute Nature of Security Interest. All rights of the Agent
hereunder, the grant of the security interest in the Collateral and all
obligations of the Pledgor hereunder, shall be absolute and unconditional
irrespective of (i) any lack of validity or enforceability of any of the terms
of the Loan Documents or any other instrument or document relating hereto or
thereto, (ii) any change in the time, manner or place of payment of, increases
in, or in any other term of, all or any of the Senior Secured Obligations, or
any other amendment or waiver of any terms related thereto, (iii) any exchange,
release or nonperfection of any other collateral, or any release or amendment or
waiver of any guaranty, or (iv) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, the Pledgor or any other
Person in respect of the Senior Secured Obligations or in respect of this
Lenfest Pledge Agreement or any other Loan Document or any obligations hereunder
or thereunder.
14.2 No Duty To Marshal Assets. The Agent shall have no obligation
to marshal any assets in favor of the Pledgor or any other Person or against or
in payment of any or all of the Senior Secured Obligations.
14.3 Waiver of Right of Subrogation, Etc. The Pledgor acknowledges
that until all the Senior Secured Obligations shall have been indefeasibly paid
in
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full, the Pledgor shall have no right (or hereby waives any such right) of
subrogation, reimbursement, or indemnity whatsoever in respect of the Borrower
or any Subsidiary of the Borrower arising out of remedies exercised by the Agent
hereunder.
14.4 Other Waivers. The Pledgor hereby waives notice of acceptance
of this Lenfest Pledge Agreement. The Pledgor further waives presentment and
demand for payment of any of the Senior Secured Obligations, protest and notice
of dishonor or default with respect to any of the Senior Secured Obligations,
and all other notices to which the Pledgor might otherwise be entitled, except
as otherwise expressly provided in this Lenfest Pledge Agreement or any of the
other Loan Documents. The Pledgor (to the extent that it may lawfully do so)
covenants that it shall not at any time insist upon or plead, or in any manner
claim or take the benefit of, any stay, valuation, appraisal or redemption now
or at any time hereafter in force that, but for this waiver, might be applicable
to any sale made under any judgment, order or decree based on this Lenfest
Pledge Agreement or any other Loan Document; and the Pledgor (to the extent that
it may lawfully do so) hereby expressly waives and relinquishes all benefit of
any and all such laws and hereby covenants that it will not hinder, delay or
impede the execution of any power in this Lenfest Pledge Agreement or in any
other Loan Document delegated to the Agent, but that it will suffer and permit
the execution of every such power as though no such law or laws had been made or
enacted.
SECTION 15. NON-WAIVER AND NON-EXCLUSIVE REMEDIES
15.1 Non-Exclusive Remedies. No remedy or right herein conferred
upon, or reserved to the Agent is intended to be to the exclusion of any other
remedy or right, but each and every such remedy or right shall be cumulative and
shall be in addition to every other remedy or right given hereunder or under any
other Loan Document or under law.
15.2 Delay and Non-Waiver. No delay or omission by the Agent to
exercise any remedy or right hereunder shall impair any such remedy or right or
shall be construed to be a waiver of any Event of Default, or an acquiescence
therein, nor shall it affect any subsequent Event of Default of the same or of a
different nature.
SECTION 16. CONTINUING SECURITY INTEREST; HEIRS AND ASSIGNS
This Lenfest Pledge Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force and effect until
terminated pursuant to Section 17 below, (ii) be binding upon the Pledgor, its
successors and assigns and (iii) inure to the benefit of the Agent, the other
Senior Secured Parties and their respective successors, transferees and assigns
provided, however, that except as specifically set forth in clause (i) of
Section 7, the Pledgor shall not be permitted to transfer any of its obligations
hereunder.
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SECTION 17. TERMINATION OF AGREEMENT; RELEASE OF COLLATERAL
17.1 Termination of Agreement.
17.1.1 At such time as (a) the Senior Secured Parties have no
obligation to make further loans or other extensions of credit to the Borrower
under the Credit Agreement, and (b) all the Senior Secured Obligations have been
indefeasibly paid and/or performed in full, this Lenfest Pledge Agreement shall
terminate and the Collateral shall be released pursuant to subsection 17.2,
provided that if at the time of the payment in full of the Senior Secured
Obligations (i) such payment and performance is not subject to any filed or
threatened claim, contest, voidance or offset of any kind whatsoever, (ii) the
chief financial officer of the Borrower so certifies in writing to Agent and
(iii) the Borrower supplies to Agent such valuations, information, evidence,
certifications and opinions as Agent may request in connection therewith, this
Lenfest Pledge Agreement shall terminate upon satisfaction of the conditions in
clauses (a) and (b) above without giving effect to the requirement that the
payment in full be indefeasible.
17.1.2 At such time as Lenfest shall have acquired all (but not
less than all) of the equity of all Partially-Owned Subsidiaries (as hereafter
defined) in compliance with Subsection 7.7.2(c) of the Credit Agreement (which
subsection addresses dispositions to minority investors), this Lenfest Pledge
Agreement shall terminate and the Collateral shall be released pursuant to
Subsection 17.2 below. "Partially-Owned Subsidiaries" means all Subsidiaries of
the Borrower that the Pledgor has any interest in at the time of the acquisition
referred to in the preceding sentence. For purposes of this Subsection 17.1.2
only, the reference to Subsection 7.7.2(c) of the Credit Agreement shall mean
that Subsection as in effect on the Closing Date, or as amended in any manner
that is not more restrictive than that set forth in the Credit Agreement on the
Closing Date.
17.2 Duties of Agent With Respect To Release of Collateral.
When this Agreement terminates pursuant to subsection 17.1 above, the Agent
shall reassign and deliver to the Pledgor, or to such Person as the Pledgor
shall designate, against receipt, such of the Collateral (if any) as shall not
have been sold or otherwise applied by the Agent pursuant to the terms hereof
and shall still be held by it hereunder, together with appropriate instruments
of reassignment and release, all without any recourse to, or warranty whatsoever
by, the Agent, at the sole cost and expense of the Borrower.
17.3 Release of Certain Collateral. Effective upon the closing
of a sale of any Collateral as part of a disposition made by the Borrower or any
of its Subsidiaries in conformity with the provisions of the Credit Agreement
providing for dispositions to third parties free of Liens, and receipt by the
Agent of a certification to such effect from the chief financial officer of the
Borrower, then the security interest in the assets which are the subject of the
sale (the "Sold Collateral") shall terminate. The Agent shall thereupon reassign
and deliver to Pledgor, or to such Person as the Pledgor shall designate,
against receipt, the Sold Collateral, together with appropriate instruments of
reassignment and release, all without any recourse to, or warranty whatsoever
by, the Agent, at the sale cost and expense of the Borrower and its
Subsidiaries.
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SECTION 18. MISCELLANEOUS PROVISIONS
18.1 Notices. All notices, requests, demands, directions and other
communications (collectively "notices") given or made upon any party under the
provisions of this Lenfest Pledge Agreement shall be by telephone or in writing
(including facsimile communication) unless otherwise expressly provided under
this Lenfest Pledge Agreement and if in writing, shall be delivered or sent by
facsimile to the respective parties at the addresses and numbers set forth under
their respective names on the signature pages to this Lenfest Pledge Agreement
or in accordance with any subsequent unrevoked written direction from any party
to the others. All notices shall, except as otherwise expressly provided in this
Lenfest Pledge Agreement, be effective (a) in the case of facsimile, when
received, (b) in case of hand-delivered notice, when hand delivered, (c) in the
case of telephone, when telephoned, provided, however, that in order to be
effective, telephonic notices must be confirmed in writing no later than the
next day by letter, facsimile or telex, (d) if given by mail, four (4) days
after such communication is deposited in the mails with first class postage
prepaid, return receipt requested, and (e) if given by any other means
(including air courier), when delivered; provided, that notices to the Agent
shall not be effective until received. In the event of a discrepancy between any
telephonic or written notice, the written notice shall control.
18.2 Entire Agreement. This Lenfest Pledge Agreement sets forth all
of the promises, covenants, agreements, conditions and understandings among the
parties hereto with respect to the subject matter hereof, and supersedes all
prior agreements and understandings, inducements or conditions, express or
implied, oral or written, with respect thereto, except as contained or referred
to herein.
18.3 Amendments. The terms of this Lenfest Pledge Agreement may be
amended, terminated, modified, supplemented or waived only upon the written
consent of the Agent and the Pledgor. The rights of the Agent to so change,
modify, waive, discharge or terminate any provision hereof is subject to the
terms of Section 12.5 of the Credit Agreement, it being understood, however,
that the Pledgor is not a third party beneficiary of Section 12.5 of the Credit
Agreement.
18.4 Governing Law. This Lenfest Pledge Agreement and the rights and
obligations of the parties hereunder shall be construed and enforced in
accordance with and shall be governed by the laws of the Commonwealth of
Pennsylvania.
18.5 Arbitration; Consent to Jurisdiction, Service and Venue; Waiver
of Jury Trial.
18.5.1 Arbitration.
(i) Upon demand of any party hereto, whether made before or
after institution of any judicial proceeding, any claim or controversy arising
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out of, or relating to, the Loan Documents between any or all of the parties
hereto (a "Dispute") shall be resolved by binding arbitration conducted under
and governed by the Commercial Financial Disputes Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA") and the
Federal Arbitration Act. Disputes may include, without limitation, tort claims,
counterclaims, a dispute as to whether a matter is subject to arbitration,
claims brought as class actions, or claims arising from documents executed in
the future. A judgment upon the award may be entered in any court having
jurisdiction. Notwithstanding the foregoing, this arbitration provision does not
apply to disputes under or related to Interest Rate Protection Agreements.
(ii) All arbitration hearings shall be conducted in the City of
Philadelphia, Commonwealth of Pennsylvania unless otherwise agreed by all
parties to such arbitration. A hearing shall begin within 90 days of demand for
arbitration and all hearings shall conclude within 120 days of demand for
arbitration. These time limitations may not be extended unless a party shows
cause for extension and then for no more than a total of 60 days. The expedited
procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be
applicable to claims of less than $1,000,000.00. Arbitrators shall be licensed
attorneys selected from the Commercial Financial Dispute Arbitration Panel of
the AAA. The parties do not waive applicable Federal or state substantive law
except as provided herein.
(iii) Notwithstanding the preceding binding arbitration
provisions, the parties agree to preserve, without diminution, certain remedies
that any party may exercise before or after an arbitration proceeding is
brought. The parties shall have the right to proceed in any court of proper
jurisdiction or by self-help to exercise or prosecute the following remedies, as
applicable: (i) all rights to foreclose against any real or personal property or
other security by exercising a power of sale or under applicable law by judicial
foreclosure including a proceeding to confirm the sales; (ii) all rights of
self-help including peaceful occupation of real property and collection of
rents, set-off, and peaceful possession of personal property; and (iii)
obtaining provisional or ancillary remedies including injunctive relief,
sequestration, garnishment, attachment, appointment of receiver and filing of
involuntary bankruptcy proceedings. Any claim or controversy with regard to any
party's entitlement to such remedies is a Dispute.
(iv) The parties agree that they shall not have a remedy of
special, consequential, punitive or exemplary damages against other parties in
any Dispute and hereby waive any right or claim to special, consequential,
punitive or exemplary damages they have now or which may arise in the future in
connection with any Dispute whether the Dispute is resolved by arbitration or
judicially.
18.5.2 Consent to Jurisdiction, Service and Venue; Waiver of
Jury Trial
(i) With respect to any matters that may be heard before a
court of competent jurisdiction under paragraph (iii) of the preceding
subsection 18.5.1, the Pledgor hereby consents to the jurisdiction and venue of
the courts of the Commonwealth of Pennsylvania or of any federal court located
in such state, waives personal service of any and all process upon it and
consents that all such service of process be made by certified or registered
-17-
<PAGE>
mail directed to the Pledgor at the address provided for in Section 18.1 above
and service so made shall be deemed to be completed upon actual receipt. The
Pledgor hereby waives the right to contest the jurisdiction and venue of the
courts located in the County of Philadelphia, Commonwealth of Pennsylvania on
the ground of inconvenience or otherwise and, further, waives any right to bring
any action or proceeding against (a) the Agent in any court outside the County
of Philadelphia, Commonwealth of Pennsylvania, or (b) any other Senior Secured
Party other than in a state within the United States designated by such Senior
Secured Party. The provisions of this Section 18.5 shall not limit or otherwise
affect the right of the Agent or any Senior Secured Party to institute and
conduct an action in any other appropriate manner, jurisdiction or court.
(ii) NO PARTY TO THIS AGREEMENT, NOR ANY ASSIGNEE, SUCCESSOR,
HEIR OR PERSONAL REPRESENTATIVE OF THE FOREGOING SHALL SEEK A JURY TRIAL IN ANY
PROCEEDING BASED UPON OR ARISING OUT OF THIS AGREEMENT, OR ANY OTHER LOAN
DOCUMENT OR ANY GUARANTY RELATING TO SUCH INDEBTEDNESS OR THE RELATIONSHIP
BETWEEN OR AMONG SUCH PERSONS OR ANY OF THEM. NEITHER THE AGENT NOR ANY SENIOR
SECURED PARTY NOR ANY PLEDGOR NOR ANY OTHER PERSON WILL SEEK TO CONSOLIDATE ANY
SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT
BEEN WAIVED.
(iii) WITHOUT LIMITING THE GENERALITY OF PARAGRAPH (iv) OF THE
PRECEDING SUBSECTION 18.5.1 EXCEPT AS PROHIBITED BY LAW, EACH PARTY TO THIS
AGREEMENT WAIVES ANY RIGHTS IT MAY HAVE TO CLAIM OR RECOVER IN ANY ARBITRATION
OR OTHER LITIGATION, ANY SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES
OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. EACH PARTY TO THIS
AGREEMENT (i) CERTIFIES THAT NEITHER THE AGENT NOR ANY REPRESENTATIVE, OR
ATTORNEY OF THE AGENT NOR ANY SENIOR SECURED PARTY HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT THE AGENT OR SUCH SENIOR SECURED PARTY WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (ii) ACKNOWLEDGES THAT
IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION
18.5. THE PROVISIONS OF THIS SECTION 18.5 HAVE BEEN FULLY DISCLOSED TO THE
PARTIES AND THE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN
ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF
THIS SECTION 18.5 WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
18.6 Severability. If any of the provisions or terms of this Lenfest
Pledge Agreement shall for any reason be held to be invalid or unenforceable
such invalidity or unenforceability shall not affect any of the other terms
hereof, but this Lenfest Pledge Agreement shall be construed as if such invalid
or unenforceable term had never been contained herein. Any such invalidity or
unenforceability in a particular jurisdiction shall not be deemed to render a
provision invalid or unenforceable in any other jurisdiction.
-18-
<PAGE>
18.7 Counterparts. This Lenfest Pledge Agreement may be executed in
one or more counterparts, each of which shall constitute an original agreement,
but all of which together shall constitute one and the same instrument. A
photocopied or facsimile copy of any signature page to this Lenfest Pledge
Agreement shall be deemed to be the functional equivalent of a manually executed
original for all purposes.
18.8 Rights under Lenfest Agreement.
18.8.1 Pledgor consents to the terms and conditions of the
Credit Agreement and the Senior Subordinated Indenture and the incurring of
additional debt pursuant thereto. Pledgor acknowledges that the debt facilities
under the Credit Agreement and the Senior Subordinated Indenture constitute a
"Refinancing" and "Media Debt" and the lenders under such credit facilities
constitute "Creditors" for the purposes of, and as such capitalized terms are
used in, the Lenfest Agreement (as defined in the Credit Agreement).
18.8.2 Neither Pledgor nor any affiliate of Pledgor may
exercise the right of first refusal or the other rights set forth in Sections 13
and 14 of the Lenfest Agreement if immediately prior to such exercise, and
before giving effect thereto, a Default or Event of Default exists.
18.8.3 Pledgor acknowledges that (i) the exercise by it or any
of its affiliates of certain of the Pledgor's rights under the Lenfest
Agreement, including, without limitation, under Sections 13, 14, 27 and 28
thereof, may be a Default under the Loan Documents, (ii) the Agent and the
Senior Secured Parties are not waiving any rights or remedies they may have
against the Borrower, any of the Borrower's Subsidiaries, Pledgor or any
affiliate of Pledgor as a result of any exercise of such rights, and (iii) the
exercise of any such rights shall not impair the paramount rights of Agent and
the Senior Secured Parties pursuant to the Loan Documents, including the first
priority security interest of Agent in all of the stock of the Subsidiaries of
the Borrower that Pledgor or any affiliate of Pledgor now owns or may hereafter
acquire. Pledgor shall give to Agent and each Senior Secured Party (at the
address of such Senior Secured Party specified in the Credit Agreement or such
other address of which Pledgor is notified by a Senior Secured Party) at least
thirty (30) days prior written notice of its intention to exercise any of its
rights under Sections 13, 14, 27 or 28 of the Lenfest Agreement, which notice
shall specify the Section of the Lenfest Agreement pursuant to which Pledgor
intends to exercise its rights and the basis for such exercise.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lenfest
Pledge Agreement to be duly executed and delivered by their respective
authorized officers on the date first above written.
PLEDGOR: LENFEST YORK, INC.
By:_______________________________________
Name:
Title:
Notice Information
------------------
202 Shoemaker Road
Pottstown, PA 19464
Phone No.: (215) 327-0965
Fax No.: (215) 327-8378
Attention: H.F. Lenfest, President
AGENT: FIRST UNION NATIONAL BANK, in its
capacity as Agent
By:_______________________________________
Name: Elizabeth Elmore
Title: Senior Vice President
Notice Information
------------------
Communications/Media Group
PA 4829
1 South Penn Square
P.O. Box 7618
Philadelphia, PA 19101-7618
Phone No.: (215) 786-4321
Fax No.: (215) 786-7721
Attention: Elizabeth Elmore,
Senior Vice President
Signature Page to Lenfest Pledge Agreement
<PAGE>
JOINDER
The undersigned acknowledge the Lenfest Pledge Agreement to
which this Joinder is attached, and hereby jointly and severally agree to be
bound by the foregoing Lenfest Pledge Agreement and to perform the covenants
contained therein required to be performed by each.
SUSQUEHANNA MEDIA CO.
SUSQUEHANNA CABLE CO.
CABLE TV OF EAST PROVIDENCE, INC.
CASCO CABLE TELEVISION, INC.
CASCO CABLE TELEVISION OF BATH,
MAINE
SBC CABLE CO.
YORK CABLE TELEVISION, INC.
By: _____________________________
Name: Alan L. Brayman
Title: Treasurer
Notice Information
-------------------
140 East Market Street
York, PA 18401
Phone: (717) 848-5500
Fax No.: (717) 771-1440
Attention: Craig Bremer, Esquire
Joinder to Lenfest Pledge Agreement
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999, AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 16,895
<SECURITIES> 17,191
<RECEIVABLES> 38,204
<ALLOWANCES> 5,783
<INVENTORY> 1,178
<CURRENT-ASSETS> 0
<PP&E> 935,846
<DEPRECIATION> 459,706
<TOTAL-ASSETS> 1,223,880
<CURRENT-LIABILITIES> 0
<BONDS> 1,333,329
0
0
<COMMON> 2
<OTHER-SE> (327,783)
<TOTAL-LIABILITY-AND-EQUITY> 1,223,880
<SALES> 131,546
<TOTAL-REVENUES> 131,546
<CGS> 0
<TOTAL-COSTS> 116,262
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,682
<INTEREST-EXPENSE> 29,761
<INCOME-PRETAX> (13,324)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,324)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,324)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
